-----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, NMgMoAiFmHBi8/kV84E04Eohg5PZCZzEcYVqdhajmDuYtCPaydOq5U1pdWdrYXBg rNfj3z9IxoGqQ7kxaj75zQ== 0001012870-97-002110.txt : 19971104 0001012870-97-002110.hdr.sgml : 19971104 ACCESSION NUMBER: 0001012870-97-002110 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19971103 SROS: NONE GROUP MEMBERS: CREATIVE TECHNOLOGY LTD. GROUP MEMBERS: CSW ACQUISITION CORP SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CAMBRIDGE SOUNDWORKS INC CENTRAL INDEX KEY: 0000919234 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 042998824 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-45217 FILM NUMBER: 97706717 BUSINESS ADDRESS: STREET 1: 311 NEEDHAM ST CITY: NEWTON STATE: MA ZIP: 02164 BUSINESS PHONE: 6173325936 MAIL ADDRESS: STREET 1: 311 NEEDHAM ST CITY: NEWTON STATE: MA ZIP: 02164 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CAMBRIDGE SOUNDWORKS INC CENTRAL INDEX KEY: 0000919234 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 042998824 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: SEC FILE NUMBER: 005-45217 FILM NUMBER: 97706718 BUSINESS ADDRESS: STREET 1: 311 NEEDHAM ST CITY: NEWTON STATE: MA ZIP: 02164 BUSINESS PHONE: 6173325936 MAIL ADDRESS: STREET 1: 311 NEEDHAM ST CITY: NEWTON STATE: MA ZIP: 02164 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CSW ACQUISITION CORP CENTRAL INDEX KEY: 0001048787 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 1901 MCCARTHY BLVD. CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4084286600 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CSW ACQUISITION CORP CENTRAL INDEX KEY: 0001048787 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 1901 MCCARTHY BLVD. CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4084286600 SC 14D1 1 SCHEDULE 14D-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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) SCHEDULE 13D (AMENDMENT NO. 2) (PURSUANT TO SECTION 13(d) OF THE SECURITIES EXCHANGE ACT OF 1934) CAMBRIDGE SOUNDWORKS, INC. (NAME OF ISSUER) CSW ACQUISITION CORPORATION CREATIVE TECHNOLOGY LTD. (NAME OF PERSONS FILING STATEMENT) COMMON STOCK, NO PAR VALUE (TITLE OF CLASS OF SECURITIES) 132514100 (CUSIP NUMBER OF CLASS OF SECURITIES) ---------------- NG KEH LONG CREATIVE TECHNOLOGY LTD. & CSW ACQUISITION CORPORATION 31 INTERNATIONAL BUSINESS PARK CREATIVE RESOURCE SINGAPORE 609921 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSONS FILING STATEMENT) Copies to: JOHN D. DANFORTH STEVEN J. TONSFELDT CREATIVE LABS, INC. VENTURE LAW GROUP 1901 MCCARTHY BLVD. A PROFESSIONAL CORPORATION MILPITAS, CA 95035 2800 SAND HILL ROAD (408) 428-6600 MENLO PARK, CA 94025 (650) 854-4488
CALCULATION OF FILING FEE - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TRANSACTION VALUATION AMOUNT OF FILING FEE - ------------------------------------------------------------------------------- $37,051,942* $7,411**
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- * For purposes of fee calculation only. The total transaction value is based on 3,804,824 Shares outstanding as of October 23, 1997 less 912,294 Shares owned by Parent and Purchaser, plus 576,753 Shares reserved for future issuance pursuant to outstanding stock options, multiplied by the offer price of $10.68 per Share. ** The amount of the filing fee calculated in accordance with Regulation 240.0-11 of the Securities Exchange Act of 1934 equals 1/50 of 1% of the value of the shares to be purchased. [_]Check box if any part of the fee is offset as provided by Rule 0-11(a)(2). Amount Previously Paid: N/A Filing Parties: N/A Form or Registration No.: N/A Date Filed: N/A - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CUSIP NO. 132514100 14D-1 1. NAME OF REPORTING PERSONS SS. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS CREATIVE TECHNOLOGY LTD. - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [_] (b) [_] N/A - -------------------------------------------------------------------------------- 3. SEC USE ONLY - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS WC - -------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) OR 2(f) [_] N/A - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION SINGAPORE - -------------------------------------------------------------------------------- 7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,169,608 - -------------------------------------------------------------------------------- 8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [_] N/A - -------------------------------------------------------------------------------- 9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 28.8% - -------------------------------------------------------------------------------- 10. TYPE OF REPORTING PERSON CO 2 CUSIP NO. 132514100 14D-1 1. NAME OF REPORTING PERSONS SS. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS CSW ACQUISITION CORPORATION - -------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [_] (b) [_] N/A - -------------------------------------------------------------------------------- 3. SEC USE ONLY - -------------------------------------------------------------------------------- 4. SOURCE OF FUNDS AF - -------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(e) OR 2(f) [_] N/A - -------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION MASSACHUSETTS - -------------------------------------------------------------------------------- 7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,169,608 - -------------------------------------------------------------------------------- 8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES [_] N/A - -------------------------------------------------------------------------------- 9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 28.8 - -------------------------------------------------------------------------------- 10. TYPE OF REPORTING PERSON CO 3 INTRODUCTION This Tender Offer Statement on Schedule 14D-1 and Amendment No. 2 to Schedule 13D (this "Statement") relates to the offer by CSW Acquisition Corporation ("Purchaser"), a Massachusetts corporation and a wholly owned subsidiary of Creative Technology Ltd., a Singapore corporation ("Parent"), to purchase all outstanding shares of common stock, no par value (the "Shares"), of Cambridge SoundWorks, Inc., a Massachusetts corporation (the "Company"), at a price of $10.68 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated November 3, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer"), copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of October 30, 1997, by and among Parent, the Purchaser and the Company, which provides, among other things, that as promptly as practicable after the satisfaction or, if permissible, waiver of the conditions set forth therein, the Purchaser will be merged with and into the Company, with the Company continuing as the surviving corporation, and each issued and outstanding Share (other than any Shares held in the treasury of the Company or owned by the Purchaser, Parent or any subsidiary of Parent or the Company, and other than Shares held by stockholders who shall not have voted in favor of the Merger or consented thereto in writing and who shall have demanded properly in writing appraisal for such Shares in accordance with the Business Corporation Law of the Commonwealth of Massachusetts) will be converted into the right to receive in cash, without interest, an amount equal to the price paid per Share in the Offer. The information contained in this Statement concerning the Company, including, without limitation, information concerning the background of the transaction, the deliberations, approvals and recommendations of the Board of Directors of the Company in connection with the transaction, the opinion of the Company's financial advisor, and the Company's capital structure and historical financial information, was supplied by the Company. Parent and the Purchaser take no responsibility for the accuracy of such information. ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is Cambridge SoundWorks, Inc., a Massachusetts corporation (the "Company"), which has its principal executive offices at 311 Needham Street, Newton, Massachusetts 02164. (b) The class of equity securities being sought is all the outstanding shares of common stock, no par value (the "Shares"), of the Company. The information set forth in the Offer to Purchase under "INTRODUCTION" is incorporated herein by reference. (c) The information concerning the principal market in which the Shares are traded and certain high and low sales prices for the Shares in such principal market set forth in the Offer to Purchase under "THE OFFER--Price Range of the Shares" is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d) and (g) This Statement is filed by the Purchaser and Parent. The information concerning the name, state or other place of organization, principal business and address of the principal office of each of Purchaser and Parent, and the information concerning the name, business address, present principal occupation or employment and the name, principal business and address of any corporation or other organization in which such employment or occupation is conducted, material occupations, positions, offices or employments during the last five years and citizenship of each of the executive officers and directors of Purchaser and Parent are set forth in the Offer to Purchase under "INTRODUCTION," "THE OFFER--Certain Information Concerning the Purchaser and Parent" and in Schedule I and are incorporated herein by reference. (e)-(f) During the last five years, none of Purchaser, Parent, nor, to the best knowledge of Purchaser and Parent, any of the persons listed in Schedule I of the Offer to Purchase has been (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a 4 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 laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a) The information set forth in the Offer to Purchase under "SPECIAL FACTORS--Background of the Offer and the Merger," "SPECIAL FACTORS--The Merger Agreement," "SPECIAL FACTORS--Interests of Certain Persons in the Offer and the Merger," "THE OFFER--Certain Information Concerning the Purchaser and Parent" and "THE OFFER--Intercompany Arrangements Between Parent and the Company" is incorporated herein by reference. (b) The information set forth in the Offer to Purchase under "INTRODUCTION," "SPECIAL FACTORS--Background of the Offer and the Merger," "SPECIAL FACTORS-- Purpose and Structure of the Offer and the Merger; Reasons of Parent and the Purchaser for the Offer and the Merger," "SPECIAL FACTORS--Plans for the Company After the Offer and the Merger; Certain Effects of the Offer and the Merger," "SPECIAL FACTORS--The Merger Agreement," "THE OFFER--Certain Information Concerning the Company" and "THE OFFER --Certain Information Concerning the Purchaser and Parent" is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a)-(b) The information set forth in the Offer to Purchase under "THE OFFER--Financing of the Offer and the Merger" is incorporated herein by reference. (c) Not applicable. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a)-(e) The information set forth in the Offer to Purchase under "INTRODUCTION," "SPECIAL FACTORS--Background of the Offer and the Merger," "SPECIAL FACTORS--Purpose and Structure of the Offer and the Merger; Reasons of Parent and the Purchaser for the Offer and the Merger," "SPECIAL FACTORS-- Plans for the Company After the Offer and the Merger; Certain Effects of the Offer and the Merger" and "SPECIAL FACTORS--The Merger Agreement" is incorporated herein by reference. (f)-(g) The information set forth in the Offer to Purchase under "SPECIAL FACTORS--Plans for the Company After the Offer and the Merger; Certain Effects of the Offer and the Merger" and "THE OFFER--Effect of the Offer on the Market for the Shares; NASDAQ Quotation and Exchange Act Registration" is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) The information set forth in the Offer to Purchase under "THE OFFER-- Certain Information Concerning the Purchaser and Parent" is incorporated herein by reference. (b) Not applicable. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in the Offer to Purchase under "INTRODUCTION," "SPECIAL FACTORS --Background of the Offer and the Merger," "SPECIAL FACTORS-- Purpose and Structure of the Offer and the Merger; Reasons of Parent and the Purchaser for the Offer and the Merger," "SPECIAL FACTORS--Plans for the Company After the Offer and the Merger; Certain Effects of the Offer and the Merger," "SPECIAL FACTORS--The Merger Agreement" and "THE OFFER--Certain Information Concerning the Purchaser and Parent" and "THE OFFER--Intercompany Agreements between Parent and the Company" is incorporated herein by reference. 5 ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in the Offer to Purchase under "THE OFFER--Fees and Expenses" is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. Not applicable. ITEM 10. ADDITIONAL INFORMATION. (a) Not applicable. (b)-(c) The information set forth in the Offer to Purchase under "THE OFFER--Certain Legal Matters" is incorporated herein by reference. (d) The information set forth in the Offer to Purchase under "THE OFFER-- Effect of the Offer on the Market for the Shares; NASDAQ Quotation and Exchange Act Registration" is incorporated herein by reference. (e) Not applicable. (f) The information set forth in the Offer to Purchase and the related Letter of Transmittal, and the Agreement and Plan of Merger, dated as of October 30, 1997, by and among Parent, Purchaser and the Company, copies of which are attached hereto as Exhibits (a)(1), (a)(2) and (c)(1), respectively, is incorporated herein by reference. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Form of Offer to Purchase, dated November 3, 1997. (a)(2) Form of Letter of Transmittal. (a)(3) Form of Letter from Georgeson & Company Inc. to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(4) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Nominees to Clients. (a)(5) Form of Notice of Guaranteed Delivery. (a)(6) Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Summary Advertisement as published in The Wall Street Journal on November 3, 1997. (a)(8) Text of Press Release, dated October 6, 1997, issued by Cambridge SoundWorks, Inc. (incorporated herein by reference to Exhibit 1 to the Schedule 13D (Amendment No. 1) filed by Creative Technology Ltd. with the SEC on October 8, 1997). (a)(9) Text of Joint Press Release, dated October 31, 1997, issued by Cambridge SoundWorks, Inc. and Creative Technology Ltd. (a)(10) Text of Press Release, dated November 3, 1997, issued by Creative Technology Ltd. (b) Not applicable. (c)(1) Agreement and Plan of Merger, dated as of October 30, 1997, by and among Creative Technology Ltd., CSW Acquisition Corporation and Cambridge SoundWorks, Inc. (c)(2) Employment Agreement, dated February 18, 1997, between the Company and Thomas J. DeVesto, as amended and restated effective October 29, 1997. (c)(3) Common Stock and Warrant Purchase Agreement, dated as of February 20, 1997, by and between Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A)
6 (c)(4) Common Stock Purchase Warrant, dated as of February 28, 1997, having Creative Technology Ltd. as Registered Holder.(A) (c)(5) Investors' Rights Agreement, dated as of February 28, 1997, between Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A) (c)(6) Exclusive Distribution Agreement, dated as of February 28, 1997, between Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A) (c)(7) Voting Agreement, dated as of February 28, 1997, by and among Creative Technology Ltd., Cambridge SoundWorks, Inc., Henry E. Kloss and Thomas J. DeVesto (incorporated herein by reference to Exhibit 1 to the Schedule 13D filed by Creative Technology Ltd. with the SEC on March 19, 1997). (c)(8) Mutual Confidentiality and Non-Disclosure Agreement, dated October 18, 1996, between Creative Labs, Inc. and Cambridge SoundWorks, Inc. (d) Not applicable. (e) Not applicable. (f) Not applicable.
- -------- (A) Incorporated herein by reference to the Report on Form 10-Q for the fiscal quarter ended March 30, 1997, filed by Cambridge SoundWorks, Inc. with the SEC on May 14, 1997. 7 SIGNATURES After due inquiry and to the best of his knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct. CREATIVE TECHNOLOGY LTD. By: /s/ Ng Keh Long ___________________________________ Name: Ng Keh Long Title: Vice President, Corporate Treasurer and Acting Chief Financial Officer CSW ACQUISITION CORPORATION By:/s/ Ng Keh Long ___________________________________ Name: Ng Keh Long Title: Vice President and Treasurer Dated: November 3, 1997 8 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------- ----------- (a)(1) Form of Offer to Purchase, dated November 3, 1997. (a)(2) Form of Letter of Transmittal. (a)(3) Form of Letter from Georgeson & Company Inc. to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(4) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Nominees to Clients. (a)(5) Form of Notice of Guaranteed Delivery. (a)(6) Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Summary Advertisement as published in The Wall Street Journal on November 3, 1997. (a)(8) Text of Press Release, dated October 6, 1997, issued by Cambridge SoundWorks, Inc. (incorporated herein by reference to Exhibit 1 to the Schedule 13D (Amendment No. 1) filed by Creative Technology Ltd. with the SEC on October 8, 1997). (a)(9) Text of Joint Press Release, dated October 31, 1997, issued by Cambridge SoundWorks, Inc. and Creative Technology Ltd. (a)(10) Text of Press Release, dated November 3, 1997, issued by Creative Technology Ltd. (b) Not applicable. (c)(1) Agreement and Plan of Merger, dated as of October 30, 1997, by and among Creative Technology Ltd., CSW Acquisition Corporation and Cambridge SoundWorks, Inc. (c)(2) Employment Agreement, dated February 18, 1997, between the Company and Thomas J. DeVesto, as amended and restated effective October 29, 1997. (c)(3) Common Stock and Warrant Purchase Agreement, dated as of February 20, 1997, by and between Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A) (c)(4) Common Stock Purchase Warrant, dated as of February 28, 1997, having Creative Technology Ltd. as Registered Holder.(A) (c)(5) Investors' Rights Agreement, dated as of February 28, 1997, between Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A) (c)(6) Exclusive Distribution Agreement, dated as of February 28, 1997, between Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A) (c)(7) Voting Agreement, dated as of February 28, 1997, by and among Creative Technology Ltd., Cambridge SoundWorks, Inc., Henry E. Kloss and Thomas J. DeVesto (incorporated herein by reference to Exhibit 1 to the Schedule 13D filed by Creative Technology Ltd. with the SEC on March 19, 1997). (c)(8) Mutual Confidentiality and Non-Disclosure Agreement, dated October 18, 1996, between Creative Labs, Inc. and Cambridge SoundWorks, Inc. (d) Not applicable. (e) Not applicable. (f) Not applicable.
- -------- (A) Incorporated herein by reference to the Report on Form 10-Q for the fiscal quarter ended March 30, 1997, filed by Cambridge SoundWorks, Inc. with the SEC on May 14, 1997. 9 EX-99.(A)(1) 2 OFFER TO PURCHASE FOR CASH EXHIBIT 99(a)(1) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF CAMBRIDGE SOUNDWORKS, INC. AT $10.68 NET PER SHARE BY CSW ACQUISITION CORPORATION A WHOLLY OWNED SUBSIDIARY OF CREATIVE TECHNOLOGY LTD. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 2, 1997, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT NUMBER OF SHARES THAT, WHEN ADDED TO THE SHARES OWNED BY CREATIVE TECHNOLOGY LTD. ("PARENT") AS OF THE EXPIRATION OF THE OFFER, SHALL CONSTITUTE TWO-THIRDS OF THE SHARES OF COMMON STOCK, NO PAR VALUE (THE "SHARES"), OF CAMBRIDGE SOUNDWORKS, INC. (THE "COMPANY") THEN OUTSTANDING ON A FULLY DILUTED BASIS (AS DEFINED HEREIN) (THE "MINIMUM SHARE CONDITION"). THE OFFER IS ALSO SUBJECT TO THE OTHER TERMS AND CONDITIONS DESCRIBED IN THIS OFFER TO PURCHASE. SEE THE INTRODUCTION AND "THE OFFER -- CERTAIN CONDITIONS OF THE OFFER." --------------- THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS VOTE OF ALL DIRECTORS PRESENT AND VOTING (WITH THE DIRECTOR WHO IS A DESIGNEE OF PARENT NOT PRESENT OR PARTICIPATING IN ANY SUCH MEETING OR DISCUSSION), HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER (AS DEFINED HEREIN) IS FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY (OTHER THAN PARENT AND CSW ACQUISITION CORPORATION ("PURCHASER"), AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. SEE "SPECIAL FACTORS - -- RECOMMENDATIONS OF THE COMPANY BOARD; FAIRNESS OF THE OFFER AND THE MERGER." --------------- IMPORTANT Stockholders who desire to tender all or any portion of their Shares should either (i) complete and sign the Letter of Transmittal (or facsimile thereof) that accompanies this Offer to Purchase in accordance with the instructions in such Letter of Transmittal, have their signature thereon guaranteed if required by Instruction 1 to such Letter of Transmittal, and mail or deliver the Letter of Transmittal (or such facsimile) together with the certificates ("Share Certificates") representing the tendered Shares and any other required documents to State Street Bank and Trust Company (the "Depositary"), or tender their Shares pursuant to the procedures for book-entry transfer set forth under "THE OFFER -- Procedure for Accepting the Offer and Tendering Shares" or (ii) request their broker, dealer, bank, trust company or other nominee to effect the transaction for them. Stockholders having Shares registered in the name of a broker, dealer, bank, trust company or other nominee must contact such broker, dealer, bank, trust company or other nominee if they desire to tender such Shares. Stockholders who desire to tender their Shares and whose Share Certificate(s) are not immediately available, or who cannot comply in a timely manner with the procedures for book-entry transfer, or who cannot deliver all required documents to the Depositary prior to the expiration of the Offer, may tender such Shares by following the procedures for guaranteed delivery set forth under "THE OFFER -- Procedure for Accepting the Offer and Tendering Shares." Questions and requests for assistance may be directed to Georgeson & Company Inc. (the "Information Agent") at its address and telephone number set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal and other related materials may be obtained from the Information Agent. --------------- THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. --------------- The date of this Offer to Purchase is November 3, 1997. TABLE OF CONTENTS
PAGE INTRODUCTION.............................................................. 1 SPECIAL FACTORS........................................................... 3 1. Background of the Offer and the Merger............................ 3 Recommendations of the Company Board; Fairness of the Offer and 2. the Merger....................................................... 6 3. Opinion of Financial Advisor to the Company....................... 8 Position of Parent and the Purchaser Regarding the Fairness of the 4. Offer and the Merger............................................. 11 5. Purpose and Structure of the Offer and the Merger; Reasons of Parent and the Purchaser for the Offer and the Merger............ 12 6. Plans for the Company After the Offer and the Merger; Certain Effects of the Offer and the Merger.............................. 13 7. Rights of Stockholders in the Merger.............................. 13 8. The Merger Agreement.............................................. 14 9. Interests of Certain Persons in the Offer and the Merger.......... 20 10. Share Ownership by Parent and Purchaser........................... 21 11. Beneficial Ownership of Shares.................................... 22 THE OFFER................................................................. 23 1. Terms of the Offer................................................ 23 2. Procedure for Accepting the Offer and Tendering Shares............ 24 3. Withdrawal Rights................................................. 26 4. Acceptance for Payment and Payment for Shares..................... 27 5. Certain Federal Income Tax Consequences........................... 28 6. Price Range of the Shares......................................... 29 7. Certain Information Concerning the Company........................ 30 8. Certain Information Concerning the Purchaser and Parent........... 31 9. Financing of the Offer and the Merger............................. 32 10. Intercompany Arrangements Between Parent and the Company.......... 32 11. Dividends and Distributions....................................... 34 12. Effect of the Offer on the Market for the Shares; NASDAQ Quotation and Exchange Act Registration.................................... 34 13. Certain Conditions of the Offer................................... 35 14. Certain Legal Matters............................................. 36 15. Fees and Expenses................................................. 38 16. Miscellaneous..................................................... 39
SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER SCHEDULE II DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY SCHEDULE III AUDITED FINANCIAL STATEMENTS (AND RELATED NOTES) FOR THE COMPANY FOR THE FISCAL YEARS ENDED JUNE 29, 1997 AND JUNE 30, 1996 ANNEX A OPINION OF HAMBRECHT & QUIST LLC ANNEX B RIGHTS OF DISSENTING STOCKHOLDERS UNDER THE MBCL TO THE STOCKHOLDERS OF CAMBRIDGE SOUNDWORKS, INC.: INTRODUCTION CSW Acquisition Corporation (the "Purchaser"), a Massachusetts corporation and a wholly owned subsidiary of Creative Technology Ltd., a Singapore corporation ("Parent"), hereby offers to purchase all outstanding shares of common stock, no par value (the "Shares"), of Cambridge SoundWorks, Inc., a Massachusetts corporation (the "Company"), at a price of $10.68 per Share, net to the seller in cash, without interest (the "Offer Price"), upon the terms and subject to the conditions set forth in this Offer to Purchase and the related Letter of Transmittal (this Offer to Purchase and the related Letter of Transmittal, 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, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares by the Purchaser pursuant to the Offer. Parent or the Purchaser will pay all fees and expenses of State Street Bank and Trust Company, as Depositary (the "Depositary") and Georgeson & Company Inc., as Information Agent (the "Information Agent"), incurred in connection with the Offer. See "THE OFFER -- Fees and Expenses." THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD"), BY UNANIMOUS VOTE OF ALL DIRECTORS PRESENT AND VOTING (WITH THE DIRECTOR WHO IS THE DESIGNEE OF PARENT NOT PRESENT OR PARTICIPATING IN ANY SUCH MEETING OR DISCUSSION), HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER (AS DEFINED HEREIN) IS FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY (OTHER THAN PARENT AND PURCHASER), AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. SEE "SPECIAL FACTORS -- RECOMMENDATIONS OF THE COMPANY BOARD; FAIRNESS OF THE OFFER AND THE MERGER." HAMBRECHT & QUIST LLC ("HAMBRECHT & QUIST"), FINANCIAL ADVISOR TO THE COMPANY, HAS DELIVERED TO THE COMPANY BOARD ITS WRITTEN OPINION, DATED OCTOBER 30, 1997, THAT THE CONSIDERATION TO BE RECEIVED BY HOLDERS OF THE COMPANY'S COMMON STOCK (OTHER THAN PARENT AND ITS AFFILIATES) PURSUANT TO THE OFFER AND THE MERGER (AS DEFINED HEREIN) WAS FAIR TO SUCH STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW, AS OF THE DATE OF SUCH OPINION. SEE "SPECIAL FACTORS -- OPINION OF FINANCIAL ADVISOR TO THE COMPANY." THE FULL TEXT OF THE HAMBRECHT & QUIST OPINION IS ATTACHED HERETO AS ANNEX A. STOCKHOLDERS ARE URGED TO READ SUCH OPINION CAREFULLY AND IN ITS ENTIRETY FOR ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW OF HAMBRECHT & QUIST. The Company has filed with the Securities and Exchange Commission (the "SEC") a Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which is being mailed to stockholders herewith. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT NUMBER OF SHARES THAT, WHEN ADDED TO THE SHARES OWNED BY PARENT AS OF THE EXPIRATION OF THE OFFER, SHALL CONSTITUTE TWO-THIRDS OF THE SHARES THEN OUTSTANDING ON A FULLY DILUTED BASIS (AS DEFINED HEREIN) (THE "MINIMUM SHARE CONDITION"). THE MINIMUM SHARE CONDITION MAY NOT BE WAIVED WITHOUT THE CONSENT OF THE COMPANY. AS OF OCTOBER 31, 1997, PARENT BENEFICIALLY OWNS 1,169,608 SHARES (OF WHICH 257,314 ARE SUBJECT TO A COMMON STOCK PURCHASE WARRANT) , CONSTITUTING APPROXIMATELY 28.8% OF THE CURRENTLY OUTSTANDING SHARES. THE OFFER IS ALSO SUBJECT TO THE OTHER TERMS AND CONDITIONS DESCRIBED IN THIS OFFER TO PURCHASE. The Company has advised the Purchaser that as of October 23, 1997, (i) 3,804,824 Shares were issued and outstanding, (ii) no Shares were held in the treasury of the Company, (iii) 576,753 Shares were authorized and reserved for future issuance pursuant to outstanding stock options granted pursuant to the Company's stock option plan ("Company Options"), (iv) 257,314 Shares were authorized and reserved for future issuance pursuant to the Common Stock Purchase Warrant held by Parent (the "Parent Warrant"), and (v) 2,000,000 1 Preferred Shares, no par value ("Preferred Shares"), were authorized and reserved for future issuance. The Company has further advised the Purchaser that as of October 23, 1997, there were approximately 71 holders of record of the Shares. Parent currently beneficially owns 1,169,608 Shares (of which 257,314 are subject to the Parent Warrant) which were acquired on February 28, 1997 pursuant to a Common Stock and Warrant Purchase Agreement dated as of February 20, 1997 between Parent and the Company. The remaining issued and outstanding Shares are not held by Parent or the Purchaser (the "Non- Affiliated Shares"). See "SPECIAL FACTORS -- Background of the Offer and the Merger." For purposes of the Offer, "Fully Diluted Basis" means the number of Shares that would be outstanding assuming the exercise of all outstanding Company Options but not assuming exercise of the Parent Warrant. As of October 23, 1997, all of the executive officers and directors of the Company owned approximately 270,700 Shares and held Company Options to purchase approximately 517,000 Shares (whether or not vested). The Company has advised the Purchaser that, to the best of the Company's knowledge, and subject to applicable securities laws, all of the directors (other than the director who is the designee of Parent) and all of the executive officers of the Company presently intend to tender pursuant to the Offer all Shares owned by such persons. The exercisability of all Company Options will vest in connection with the consummation of the Offer. Accordingly, based on information available as of October 23, 1997, and assuming that each of the Company Options held by the executive officers and directors of the Company are exercised in full immediately prior to the consummation of the Offer and that Parent does not elect to exercise the Parent Warrant prior to the consummation of the Offer, the Minimum Share Condition will be satisfied if, in addition to the tendering of all of the Shares held by the executive officers and directors of the Company, approximately 1,221,000 Non-Affiliated Shares are validly tendered in the Offer and not withdrawn. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of October 30, 1997, by and among Parent, the Purchaser and the Company (the "Merger Agreement"). The Merger Agreement provides, among other things, that as soon as practicable after the purchase of Shares pursuant to the Offer and the satisfaction of the other conditions set forth in the Merger Agreement and in accordance with the relevant provisions of the Business Corporation Law of the Commonwealth of Massachusetts (the "MBCL"), the Purchaser will be merged with and into the Company (the "Merger"). Following consummation of the Merger, the Company will continue as the surviving corporation (the "Surviving Corporation"), and will become a wholly owned subsidiary of Parent. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by Parent, the Purchaser or any subsidiary of Parent or the Company, or Shares held by stockholders who will have properly demanded and perfected appraisal rights under the MBCL) will be canceled and converted automatically into the right to receive in cash, without interest, an amount equal to the price paid per Share in the Offer (the "Merger Price"). The Merger Agreement is more fully described under "SPECIAL FACTORS -- The Merger Agreement." Under the MBCL, if after consummation of the Offer, the Purchaser owns at least 90% of the Shares then outstanding, the Purchaser will be able to cause the Merger to occur without a vote of the Company's stockholders. In such event, Parent, the Purchaser and the Company have agreed to take all necessary and appropriate action to cause the Merger to become effective in accordance with the MBCL as promptly as practicable after consummation of the Offer, without a meeting of the stockholders of the Company. If, however, after consummation of the Offer, the Purchaser owns less than such number of Shares, a vote of the Company's stockholders will be required under the MBCL to approve the Merger, and a significantly longer period of time will be required to effect the Merger. See "SPECIAL FACTORS -- Purpose and Structure of the Offer and the Merger; Reasons of Parent and the Purchaser for the Offer and the Merger," "SPECIAL FACTORS -- The Merger Agreement" and "THE OFFER -- Certain Conditions of the Offer." No appraisal rights are available in connection with the Offer; however, stockholders will have appraisal rights in connection with the Merger regardless of whether the Merger is consummated with or without a vote of the Company's stockholders. See "SPECIAL FACTORS -- Rights of Stockholders in the Merger." THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION ABOUT THE OFFER AND THE MERGER. STOCKHOLDERS ARE URGED TO CAREFULLY READ THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL IN THEIR ENTIRETY BEFORE MAKING ANY DECISION WITH RESPECT TO THE OFFER. 2 SPECIAL FACTORS 1.BACKGROUND OF THE OFFER AND THE MERGER In September 1996, Mr. Robert Mainiero, Vice President of the Company, and Mr. Chris Kukshtel, Product Marketing Manager of Creative Labs, Inc., a wholly owned subsidiary of Parent operating in the United States ("Creative Labs") had an initial telephone discussion regarding the possibility of Parent distributing the Company's multimedia speaker products. In mid-September, the two gentlemen met to continue these discussions. On October 7, 1996 in Milpitas, California, representatives of the companies met at Creative Labs' headquarters. Company representatives demonstrated a number of the Company's speaker products. The parties also discussed distribution plans for various products. Present at this meeting were Mr. Thomas DeVesto, President and Chief Executive Officer of the Company, Mr. Maineiro and Mr. Fred Pinkerton, a Vice President of the Company, Mr. Craig McHugh, Vice President, General Manager of Creative Labs, Mr. Hock Leow, Vice President, Multimedia Products of Creative Labs, John Danforth, Vice President and General Counsel of Creative Labs, Greg Woock, Vice President of Sales for Creative Labs and Mr. Kukshtel. Following this meeting, via a series of telephone conferences and a face-to- face meeting at Comdex in Las Vegas, Nevada during the second week of November 1996, Mr. DeVesto and Mr. McHugh met and continued discussing the terms regarding a potential distributor relationship, including product launches, product pricing and distribution channels. During a conference call the first week of January 1997 among Mr. DeVesto, Mr. McHugh, Mr. Mainiero, and Ken Fong, Marketing Manager of Creative Labs, the parties decided that they wanted to pursue the distributor relationship. Near the end of this conversation, Mr. McHugh inquired as to the possibility of Parent making an equity investment in the Company. At the conclusion of this call, Mr. DeVesto stated that he would discuss the possibility of such equity investment with the Company Board. Further discussions regarding a potential equity investment, possible product launch plans, plans for branding existing and future products and specific potential parameters of an exclusive distribution arrangement for Parent with respect to the Company's current and future multimedia speaker products occurred among Messrs. DeVesto, Mainiero and Fong at the Consumer Electronics Show in Las Vegas during the second week of January 1997. During these meetings, Mr. Devesto stated that the Company Board had authorized him to continue discussions with Parent regarding a potential equity investment by the Parent. In the last week of January 1997, a meeting took place in the offices of Creative Labs in Milpitas, California to continue these discussions. Present at the meeting were Mr. DeVesto, Mr. Mainiero, Mr. Fong, Mr. Pinkerton, Mr. Sim Wong Hoo, Chairman and Chief Executive Officer of Parent, Mr. Ng Keh Long, Vice President, Corporate Treasurer and Acting Chief Financial Officer of Parent, and Mr. Danforth. The meeting consisted of a presentation by Company management regarding the Company's business and a demonstration of a prototype of PC Works(TM) -- a three-piece multimedia speaker consisting of two speakers and a subwoofer. After substantial negotiation, Mr. DeVesto stated that he would present a proposal to the Company Board in which Parent would, among other things, (i) purchase 19.5% of the Company's fully diluted equity, and (ii) receive a warrant to purchase an additional 5.5% of the Company's fully diluted equity. During the last week of January 1997, Venture Law Group, outside counsel to Parent, distributed draft investment and distribution agreements to Peabody & Arnold, outside counsel to the Company. During the first week of February 1997, Mr. Leow, Mr. Fong and Ms. Erika Rottenberg, Associate Counsel for Creative Labs, visited the Company's headquarters in Newton, Massachusetts. Mr. Leow, Mr. Fong and Ms. Rottenberg were introduced to the Company Board, toured the Company's facilities, met a number of the Company's employees, and discussed plans regarding product distribution and corporate governance issues 3 with Mr. DeVesto, Mr. Mainiero and Mr. Wayne Garrett, Vice President of Finance and Chief Financial Officer of the Company. The parties also discussed a number of due diligence items and plans regarding product and packaging issues. Ms. Rottenberg also met with Donald Burnham and William Kelly of Peabody & Arnold to discuss and negotiate drafts of the agreements necessary to consummate the acquisition and distribution relationship. Various due diligence meetings and telephone conferences among the parties occurred throughout early and mid February 1997. On February 20, 1997, the Company and Parent entered into definitive agreements providing for the purchase by Parent of 912,294 shares of Company common stock at a price of $5.25 per share and issuance to Parent of a warrant to acquire an additional 257,314 shares of Company common stock at an exercise price of $6.00 per share, subject to Parent meeting certain performance milestones. These transactions closed on February 28, 1997. As a part of the transaction, Parent was granted the right to designate one nominee for election to the Company Board. Following completion of the initial equity investment, Parent and the Company began implementing the distribution arrangement for multimedia speaker products. Early on in the parties' relationship, Parent began to realize that the pricing mechanics of the distribution agreement did not permit it to be competitive in the OEM and bulk speaker businesses, which businesses represent a majority of the speakers sold worldwide. Several meetings between the companies occurred between May and July 1997 regarding the working relationship and the Company's new products--PCWorks and two-piece speaker products. During these meetings, the subject of product pricing under the distribution arrangement continued to be discussed. During the third week of June 1997, the parties participated in the E3 Conference in Atlanta, Georgia, and held meetings with their respective customers. Mr. DeVesto and Mr. McHugh also met with each other during the conference to discuss a number of items, including the Parent's belief that the prices the Company was charging Parent for the Company's products were too high for Parent to meet the Company's and Parent's mutual distribution volume goals, and the Company's belief that it would need to increase the prices it was charging to Parent to meet the Company's profitability goals. Mr. DeVesto and Mr. McHugh discussed a number of possible solutions to the product pricing issue, including the possibility of Parent increasing its equity stake in the Company, modifying the distribution arrangement from an exclusive relationship to a non-exclusive relationship, or terminating the distribution agreement. Discussions regarding the Parent acquiring more equity in the Company continued throughout the summer months. During a telephone conversation between Mr. DeVesto and Mr. McHugh on August 8, 1997, Mr. DeVesto and Mr. McHugh agreed that they would present a proposal to their respective teams regarding Parent acquiring all of the remaining equity of the Company to determine whether there was any true interest in pursuing such a transaction. Mr. McHugh of Creative Labs was appointed to the Company Board at a meeting of the Company Board held on August 13, 1997. Mr. McHugh excused himself from the Company Board meeting when the Company Board discussed the Company's margins, channel profitability and prospective strategic business proposals and direction. In the second week of September, Hambrecht & Quist was informally retained by the Company to assist it in connection with the evaluation of the Company's various strategic alternatives. This arrangement was formalized in an engagement letter dated September 29, 1997. After receiving positive indications from both teams, a meeting was held at Creative Labs' headquarters in Milpitas, California on September 19, 1997 between teams representing the Company and Parent to continue discussions. Messrs. DeVesto and Garrett from the Company, and Mr. Ng, Mr. McHugh, Mr. Danforth, Mr. Fong and Ms. Rottenberg from Parent and Creative Labs participated in the meeting, as did Mr. David Golden, of Hambrecht & Quist, representing the Company. At this meeting, Mr. Ng indicated that Parent was prepared to purchase all of the remaining outstanding shares at a price of $8.40 per share, representing a premium of 4 approximately 60% over the then-current trading price for the Company's shares. The representatives of the Company informed Mr. Ng that they would not be in a position to support a price at this level, but did indicate that they would discuss the matter with the Company Board. During this meeting, Mr McHugh indicated his tentative intention to withdraw from the Company Board in order to avoid any potential conflict of interest in connection with the Company Board's consideration of a possible transaction involving Parent acquiring all remaining equity of the Company. During the fourth week of September, Mr. DeVesto contacted the representatives of Parent to convey that the Company Board had considered the Parent's proposal of $8.40 per share and rejected it. On September 23 and 24, meetings occurred in Lisbon, Portugal between Mr. Sim and Mr. DeVesto in which Mr. Sim indicated on a preliminary basis that Parent might consider raising the offered price to a price in the range of $10.00 per share. Discussions between the two parties continued, with representatives of the Company inquiring as to the possibility of whether Parent might be willing to raise its offer. The Company Board discussed the proposal at a meeting held on September 29, 1997. During the first week of October 1997, a telephone discussion occurred among Mr. McHugh, Mr. Danforth, Mr. Fong and Mr. Golden in which Mr. McHugh stated that the highest price that Parent would be willing to pay was $10.68 per share. Mr. Golden indicated that he would present and recommend this price to the Company Board at a meeting to be convened on October 3, 1997. Within a few days, Mr. Golden telephoned Mr. Danforth and informed him that the Company wished to proceed toward definitive agreements on the basis of the $10.68 per Share price. On October 6, 1997, the Company received an inquiry from The Nasdaq Stock Market regarding the fact that the trading volume in the Company's stock had been unusually high for the day. There was also an increase in the trading price in the Company's stock. In response to this, the Company issued a press release stating that the Company was in discussions with Parent regarding a possible acquisition transaction. Trading in the Company's stock was halted for a period of time on this day. At the direction of the two parties, counsel for each party began to make preparations for the transactions beginning in the first week of October. Various due diligence items were exchanged by the parties. Draft definitive documents were circulated to the parties by Venture Law Group on October 10, 1997. On October 15, 1997, Mr. Sim and Mr. Ng from Parent, Mr. McHugh and Ms. Rottenberg from Creative Labs, and Mr. Michael Graves of Price Waterhouse, independent accountants to Parent, met at the Company's headquarters with Mr. DeVesto, Mr. Garrett and Mr. Mainiero of the Company, Joseph Hinkley and Laurie Bazarian from Peabody & Arnold, Mr. Golden and Mr. Frank Pittilo of Hambrecht & Quist, and George Neble from Arthur Andersen, independent accountants to the Company. The representatives from Parent and Creative Labs took a tour of the Company's headquarters and were introduced to and met with a number of the Company's department heads in an effort to allow the Parent and Creative Labs to understand the Company's operating procedures and plans. Mr. Sim, Mr. Ng and Mr. McHugh, along with Mr. DeVesto, visited two of the Company's stores. Ms. Rottenberg, Mr. Hinkley and Ms. Bazarian discussed a number of due diligence items and, in a phone conference with Mr. Steven Tonsfeldt of Venture Law Group, worked towards negotiating the terms of the Merger Agreement. Mr. Graves, Mr. Garrett and Mr. Pittilo discussed a number of financial issues relating to the transaction. During the remainder of October, the parties continued to negotiate the transaction documents. On October 27 and 28, 1997, the Company Board held meetings to discuss the Offer and the Merger. At the October 27th meeting, Hambrecht & Quist made a presentation of certain financial analyses it had performed in connection with its review of the Offer and the Merger. On October 30, 1997 Hambrecht & Quist rendered its opinion to the Company Board that the consideration to be received by the holders of Company's common stock (other than Parent and the Purchaser) pursuant to the Offer and the Merger was fair to such holders from a financial point of view. Representatives of Peabody & Arnold also gave a presentation during these meetings regarding the various legal aspects of the transaction as well as a summary of the principal terms of the Merger 5 Agreement. At the conclusion of these meetings, the Company Board authorized the officers of the Company to proceed with the transaction on terms consistent with those presented and to execute the Merger Agreement. Mr. McHugh of Creative Labs did not attend or participate in any meeting of the Company Board at which the proposed transaction with Parent was discussed or considered, nor was his input sought by the Company Board in connection with the proposed transaction. At various times through the month of October, the Board of Directors of Parent discussed on an informal basis the proposed Offer and Merger and terms of the Merger Agreement. At the conclusion of these discussions, by execution of resolutions by circular dated October 30, 1997, the Parent's Board of Directors voted unanimously to approve the Merger Agreement and authorized the officers of Parent to proceed with the transaction on terms consistent with those discussed. The Merger Agreement was executed on October 30, 1997, and Parent and the Company issued a joint press release before the opening of the U.S. stock markets on October 31, 1997 announcing such execution. On November 3, 1997, the Purchaser commenced the Offer. 2. RECOMMENDATIONS OF THE COMPANY BOARD; FAIRNESS OF THE OFFER AND THE MERGER The Company Board. The Company Board (with the director who is the designee of Parent not present or participating in any meeting or discussion of the Company Board) has unanimously determined that each of the Offer and the Merger is fair to, and in the best interests of, the stockholders of the Company (other than Parent and Purchaser), and the Company Board (with the director who is the designee of Parent not present or participating in any meeting or discussion of the Company Board) unanimously recommends that the Company's stockholders accept the Offer and tender their Shares pursuant to the Offer. In reaching these determinations, the Company Board considered the following factors, each of which, in the view of the Company Board, supported such determinations: (i) the historical market prices and recent trading activity of the Shares, including the fact that the $10.68 per share cash consideration to be received by the stockholders of the Company (other than Parent and Purchaser) in the Offer and Merger represents a premium of approximately 50% over the reported closing price on October 3, 1997, the last full trading day preceding the public announcement of the fact that the Company and Parent were in discussions regarding a possible acquisition transaction, and a premium of approximately 74% and 102% over the average closing price for the one-month and three-month periods, respectively, preceding such date, and the fact that such price would be payable in cash, thus eliminating any uncertainties in valuing the consideration to be received by the Company's stockholders; (ii) the history of the negotiations between the Company Board and its representatives and Parent and its representatives, including the Company Board's belief that Parent and the Purchaser would not further increase the Offer Price and that $10.68 per Share was the highest price that could be obtained from Parent and the Purchaser; (iii) the opinion of Hambrecht & Quist that the consideration to be received by holders of the Company's common stock (other than Parent and the Purchaser) pursuant to the Offer and the Merger was fair to such stockholders from a financial point of view, and the report and analysis presented by Hambrecht & Quist in connection therewith; (iv) Parent's role as a significant wholesale purchaser of the Company's products, representing a significant portion of the Company's actual and projected revenues and the possibility that, if the Merger were not consummated, the Company and Parent might be unable to resolve a basis upon which to further pursue their exclusive distribution arrangements, thereby potentially impacting the Company's future growth and profits. In addition, if the Company could not find an alternative significant strategic partner, the Company might potentially be required to pursue alternative financing to fund the future growth of the Company which might impact the Company's business and prospects and dilute stockholders' interests in the Company; (v) the effect of the Minimum Share Condition that, without the consent of the Company Board, the Offer will not be consummated unless at least that number of Shares that, when added to the Shares owned by Parent, 6 will constitute two-thirds of the Shares then outstanding (on a fully diluted basis) are validly tendered pursuant to the Offer and not properly withdrawn; (vi) the availability of appraisal rights in the Merger for the stockholders of the Company (other than Parent and Purchaser) under the MBCL; (vii) the possibility that, because of a future decline in the Company's business, the trading price of the Shares or the stock market in general, the consideration that the stockholders of the Company (other than Parent and Purchaser) would obtain in a future transaction might be less advantageous than the consideration they would receive pursuant to the Offer and the Merger; (viii) the review of the possible alternatives to the Offer and Merger (including the possibility of continuing to operate the Company as an independent entity in light of the Company's relative size and the presence of significant competitors in both the retail and wholesale consumer electronics marketplace), the range of possible benefits and risks to the Company's stockholders of such alternatives and the timing and the likelihood of actually accomplishing any such alternatives; (ix) the likelihood that the proposed acquisition would be consummated, based in part on the financial condition of Parent; (x) the terms and conditions of the Merger Agreement; (xi) the fact that pursuant to the Merger Agreement the Company is not prohibited from responding to any unsolicited Superior Proposal (as such term is defined in the Merger Agreement) to acquire the Company, and that, after giving Parent notice of the receipt of a Superior Proposal and an opportunity to make an offer which the Company Board determines, in its good faith judgment, is as favorable as the Superior Proposal, the Company may elect to terminate the Merger Agreement and pay the termination fee provided for in the Merger Agreement; and (xii) the structure of the transaction, which is designed, among other things, to result in receipt by the stockholders at the earliest practicable time of the consideration to be paid in the Offer and the fact that the per Share consideration to be paid in the Offer and the Merger is the same. Additional Considerations of the Company Board. The members of the Company Board evaluated the various factors listed above in light of their knowledge of the business, financial condition and prospects of the Company and based upon the advice of financial and legal advisors. In light of the number and variety of factors that the Company Board considered in connection with its evaluation of the Offer and the Merger, the Company Board did not find it practicable to assign relative weights to the foregoing factors and, accordingly, the Company Board did not do so. In addition to the factors listed above, the Company Board considered the fact that while consummation of the Offer would result in the stockholders of the Company receiving a premium for their Shares over the trading prices of the Shares prior to the public announcement of the fact that Parent and the Company were in discussions regarding a possible acquisition transaction, consummation of the Offer and the Merger would eliminate any opportunity for stockholders of the Company (other than Parent and Purchaser) to participate in the potential future growth prospects of the Company. The Company Board determined, however, that (i) the loss of opportunity is reflected in the Offer Price, and (ii) there are continued business risks associated with independent operations which could impact the Company's long-term financial prospects. In addition, the Company Board determined that the Offer and the Merger are procedurally fair to the stockholders of the Company (other than Parent and Purchaser) because, among other things (i) the Company Board retained Hambrecht & Quist as its independent financial advisor to assist it in evaluating the Offer and the Merger, (ii) the Minimum Share Condition, which may not be waived without the consent of the Company, was made a condition to the Offer, (iii) there were deliberations pursuant to which the Company Board evaluated the Offer and the Merger and alternatives thereto, and (iv) the $10.68 per Share price and the other terms and 7 conditions of the Merger Agreement resulted from active arm's-length bargaining between representatives of the Company, on the one hand, and Parent, on the other. The Company Board recognized that the Merger is not structured to require the approval of two-thirds of the stockholders of the Company other than Parent or Purchaser, and that if the Offer is consummated Parent and the Purchaser will have sufficient voting power to approve the Merger without the affirmative vote of any other stockholder of the Company. Consummation of the Offer, however, is conditioned upon, among other things, the Minimum Share Condition, which may not be waived without consent of the Company. Pursuant to the Merger Agreement, the purchase by the Purchaser of all Shares validly tendered in the Offer and not withdrawn is a condition to the Merger. In making its determinations and recommendations, the Company Board was aware of the matters set forth under "SPECIAL FACTORS -- Interests of Certain Persons in the Offer and Merger." 3. OPINION OF FINANCIAL ADVISOR TO THE COMPANY The Company engaged Hambrecht & Quist to act as its financial advisor in connection with the Offer and the Merger (collectively, the "Proposed Transaction") and to render an opinion as to the fairness from a financial point of view to the stockholders of the Company (other than Parent and the Purchaser) of the consideration to be received in the Proposed Transaction. Hambrecht & Quist rendered its oral opinion, subsequently confirmed in writing, on October 30, 1997, to the Company's Board that, as of such date, the consideration to be received by the holders of common stock of the Company (other than Parent and the Purchaser) was fair to such holders from a financial point of view. A COPY OF HAMBRECHT & QUIST'S OPINION DATED OCTOBER 30, 1997, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, THE SCOPE AND LIMITATION OF THE REVIEW UNDERTAKEN AND THE PROCEDURES FOLLOWED BY HAMBRECHT & QUIST IS ATTACHED AS ANNEX A TO THIS OFFER TO PURCHASE. THE COMPANY'S STOCKHOLDERS ARE ADVISED TO READ THE OPINION IN ITS ENTIRETY. Stockholders should note that the opinion was written for the information of the Board of Directors in connection with their evaluation of the Proposed Transaction. No limitations were placed on Hambrecht & Quist by the Company's Board with respect to the investigation made or the procedures followed in preparing and rendering its opinion. In its review of the Proposed Transaction, and in arriving at its opinion, Hambrecht & Quist, among other things: (i) reviewed the publicly available consolidated financial statements of the Company for recent years and interim periods to date and certain other relevant financial and operating data of the Company made available to Hambrecht & Quist from published sources and from the internal records of the Company; (ii) reviewed certain internal financial and operating information, including projections, relating to the Company provided by the management of the Company; (iii) discussed with certain members of the management of the Company the business, financial condition and prospects of the Company; (iv) reviewed the publicly available financial statements of Parent for recent years and interim periods to date and certain other relevant financial and operating data of Parent made available to Hambrecht & Quist from published sources; (v) reviewed the recent reported prices and trading activity for the Company's common stock and compared such information and certain financial information of the Company with similar information for certain other companies engaged in businesses Hambrecht & Quist considered comparable to those of the Company; (vi) reviewed the financial terms, to the extent publicly available, of certain comparable merger and acquisition transactions; (vii) reviewed the Merger Agreement; and (viii) performed such other analyses and examinations and considered such other information, financial studies, analyses and investigations and financial, economic and market data Hambrecht & Quist deemed relevant. Hambrecht & Quist did not independently verify any of the information concerning the Company or Parent considered in connection with such parties' review of the Proposed Transaction and, for purposes of its opinion, Hambrecht & Quist assumed and relied upon the accuracy and completeness of all such information. In connection with its opinion, Hambrecht & Quist did not prepare or obtain any independent evaluation or 8 appraisal of any of the assets or liabilities of the Company or Parent, nor did they conduct a physical inspection of the properties and facilities of the Company or Parent. With respect to the financial forecasts and projections used in its analysis, Hambrecht & Quist assumed that they reflect the best currently available estimates and judgments of the expected future performance of the Company. Hambrecht & Quist also assumed that neither the Company nor Parent was a party to any pending transactions, including external financings, recapitalizations or material merger discussions, other than the Proposed Transaction and those in the ordinary course of conducting their respective businesses. Hambrecht & Quist's opinion is necessarily based upon market, economic, financial and other conditions as they exist and can be evaluated as of the date of this letter and any change in such conditions would require a reevaluation of their opinion. Hambrecht & Quist was not requested to, and did not, formally solicit indications of interest from any other parties in connection with a possible acquisition of, or business combination with, the Company. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. The summary of the Hambrecht & Quist analyses set forth below does not purport to be a complete description of the presentation by Hambrecht & Quist to the Company Board. In arriving at its opinion, Hambrecht & Quist did not attribute any particular weight to any analyses or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Hambrecht & Quist believes that its analyses and the summary set forth below must be considered as a whole and that selecting portions of its analyses, without considering all analyses, or of the following summary, without considering all factors and analyses, could create an incomplete view of the processes underlying the analyses set forth in the Hambrecht & Quist presentation to the Company Board and its opinion. In performing its analyses, Hambrecht & Quist made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company. The analyses performed by Hambrecht & Quist (and summarized below) are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. Additionally, analyses relating to the values of businesses do not purport to be appraisals or to reflect the prices at which businesses actually may be acquired. The following is a brief summary of certain financial analyses performed by Hambrecht & Quist in connection with providing its written opinion to the Company Board on October 30, 1997: Comparison of Recent Reported Prices and Trading Activity: Hambrecht & Quist compared the average price and trading activity for the Company's common stock for a variety of periods prior to October 3, 1997, the last trading day prior to the public announcement of discussions between the Company and Parent. The average price for the week prior to October 3, 1997 was $6.95 per share, the average price for the month prior to October 3, 1997 was $6.14 per share, the average price for the previous three months prior to October 3, 1997 was $5.29 per share and the average price for the six months prior to October 3, 1997 was $5.16 per share. Additionally, Hambrecht & Quist analyzed the volume traded at specific prices for the period from January 1, 1995 to October 3, 1997 and found that for 1995 and 1997, the maximum number of shares traded in the range of $5.20 per share to $5.50 per share. In 1996, the maximum number of shares traded in the range of $3.70 to $4.00 per share. This compared with a value of $10.68 per share pursuant to the Offer and Merger. Premium Analysis: Hambrecht & Quist compared the price per share of the Offer as of October 30, 1997 to the last sale price of the Company's common stock on both October 3 (the last trading day prior to the public announcement of discussions between the Company and Parent) and September 4, 1997 (the twentieth trading day preceding such announcement) to similar premiums for certain technology and consumer transactions announced since August 1, 1993. Hambrecht & Quist analyzed 10 such public company technology transactions and observed that the average one-day premium and average four-week premium paid in such transactions was 23% and 27%, respectively. Hambrecht & Quist also analyzed 10 such public company consumer transactions and observed that the average one-day premium and average four-week premium paid in such transactions was 25% and 39%, respectively. This compared with the Offer in which the one-day premium was 50% and the four-week premium was 114%. Based on the analysis of premiums paid in comparable transactions, the Company's 9 implied equity value ranged from approximately $6.35 per share to $8.92 per share. This compared with a value of $10.68 per share in the Offer. Analysis of Publicly Traded Comparable Companies: Hambrecht & Quist compared selected historical and projected financial information of the Company to publicly traded companies Hambrecht & Quist deemed to be comparable to the Company. Such data and ratios included enterprise value to historical revenue, market value to projected 1997 net income based on management estimates, market value to projected 1998 net income based on management estimates, market value to projected 1997 net income based on published estimates from various brokerage houses ("Wall Street estimates"), market value to projected 1998 net income based on Wall Street estimates, and market value to historical book value. Given the Company's recent history of operating and net losses, analysis of ratios of historic net income, EBIT and EBITDA was not meaningful. All multiples were based on closing stock prices on October 23, 1997. Companies viewed as comparable included certain branded consumer retail companies including Gap, Gucci, Gymboree, Starbucks, Tiffany and Williams-Sonoma; and selected stereo retailers, stereo manufacturers and peripherals manufacturers including Boston Acoustics, Inc., Circuit City Stores, Inc., Good Guys, Inc., Harman International Industries, Inc., Iomega Corp., Recoton Corp., and Zenith Electronics Corp. Hambrecht & Quist determined that the average multiple of the last-twelve-months ended June 30, 1997 revenues for the branded retail companies was 2.1. Hambrecht & Quist determined that the average multiples of calendar-year 1997 estimated net income and calendar-year 1998 estimated net income were 25.9 and 20.8 respectively. Hambrecht & Quist also determined that the average multiple of book value for these companies was 6.2. Based on the analysis of these publicly traded comparable consumer companies, the Company's implied equity value ranged from approximately $2.51 per share to $26.57 per share. Hambrecht & Quist determined that the average multiple of the last-twelve-months ended June 30, 1997 revenues for the stereo retailers, stereo manufacturers and peripherals manufacturers was 1.1. Hambrecht & Quist determined that the average multiples of calendar-year 1997 estimated net income and calendar-year 1998 estimated net income were 22.9 and 17.4 respectively. Hambrecht & Quist also determined that the average multiple of book value for these companies was 4.0. Based on the analysis of these publicly traded comparable stereo retailers, stereo manufacturers and peripherals manufacturers companies, the Company's implied equity value ranged from approximately $2.21 per share to $14.76 per share. Discounted Cash Flow Analysis: Hambrecht & Quist analyzed the theoretical valuation of the Company based on the unlevered discounted cash flow of the potential financial performance of the Company as calculated by Hambrecht & Quist. Unlevered free cash flow was derived by taking tax-affected earnings before interest and taxes ("EBIT"), adding non-cash charges for the relevant period, and subtracting other anticipated cash needs for the relevant periods. To estimate the total present value of the Company, before giving effect to its capital structure, Hambrecht & Quist discounted to present value (1) the projected stream of after-tax cash flows and (2) the terminal value (the hypothetical value of selling the enterprise in its entirety at some future date) of the Company's business using discount rates from 12% to 20%. The terminal value of the Company was based on multiples of 0.50, 0.75 and 1.00 times the projected revenues for the fiscal year ended June 30, 2002. At a 12% discount rate, the foregoing analysis yielded an implied equity value for the Company of $7.51 per share to $15.74 per share; at a 16% discount rate, $6.17 per share to $13.29 per share; and at a 20% discount rate, $5.02 to $11.17 per share. Analysis of Selected Merger and Acquisition Transactions: Hambrecht & Quist compared the Proposed Transaction with selected comparable merger and acquisition transactions. This analysis included 10 comparable consumer transactions and 10 comparable technology transactions. In examining these transactions, Hambrecht & Quist analyzed certain income statement and balance sheet parameters of the acquired company relative to the consideration offered. Multiples analyzed included consideration offered to historical revenue and to historical book value. Given the Company's recent history of operating and net losses, analysis of multiples of operating and net earnings were viewed as being not meaningful. Selected consumer transactions analyzed include Stairmaster Sports/Medical Products/John Rutledge Partners, Starsight Telecast, Inc./Gemstar International, Inc., Armor All/Clorox, Duracell International, Inc./The Gillette Company, International Jensen, Inc./Recoton Corporation, Marietta Corporation/BFMA Holding Corp., Neutrogena Corp./Johnson & Johnson, Mr. Coffee, 10 Inc./Singapore Brands USA, Inc., Gerber Products/Sandoz Ltd. and Goody Products/Newall Co. The consideration offered in the forgoing transactions was an average multiple of 2.0 times revenue and 4.3 times book value. Based on the analysis of these selected merger and acquisition transactions, the Company's implied equity value ranged from approximately $16.17 per share to $24.04 per share. Selected technology transactions analyzed include Sterling Electronics Corporation/Marshall Industries, Wyle Electronics/Raab Karcher AG, Microcom/Compaq Computer, Compression Labs/V-Tel. U.S. Robotics/3Com, Augat, Inc./Thomas & Betts Corp, Brooktree Corp./Rockwell International, NetWorth/Compaq Computer, Conner Peripherals, Inc./Seagate Technology, Inc., and Acuity Imaging, Inc./Robotic Vision Systems, Inc. The consideration offered in the foregoing transactions was an average multiple of 1.4 times revenue and 4.2 times book value. Based on the analysis of these selected merger and acquisition transactions, the Company's implied equity value ranged from approximately $15.73 per share to $17.04 per share. No company or transaction used in the above analyses is identical to the Company or Parent or the Proposed Transaction. Accordingly, an analysis of the results of the foregoing is not mathematical; rather it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values of the companies or company to which they are compared. The foregoing description of Hambrecht & Quist's opinion is qualified in its entirety by reference to the full text of such opinion which is attached as Annex A to this Offer to Purchase. Pursuant to an engagement letter dated September 29, 1997, the Company has agreed to pay Hambrecht & Quist a fee in connection with its services as financial advisor to the Board of Directors and the rendering of a fairness opinion. The fee with respect to the delivery of a fairness opinion is owed upon the delivery of such opinion, and the fee with respect to financial advisory services is owed upon the closing of the Merger and is not dependent upon the value of the transaction. The Company also has agreed to reimburse Hambrecht & Quist for its reasonable out-of-pocket expenses and to indemnify Hambrecht & Quist against certain liabilities, including liabilities under the federal securities laws or relating to or arising out of Hambrecht & Quist's engagement as financial advisor. 4. POSITION OF PARENT AND THE PURCHASER REGARDING THE FAIRNESS OF THE OFFER AND THE MERGER Parent and the Purchaser believe that the consideration to be received by the stockholders of the Company (other than Parent and Purchaser) pursuant to the Offer and the Merger is fair to such stockholders. Parent and the Purchaser base their belief on the following factors: (i) the Company retained and was advised by independent legal and financial advisors; (ii) the Company Board (with the director who is the designee of Parent not present or participating in any such meeting or discussion) determined that the Offer and the Merger are fair to and in the best interests of the stockholders of the Company (other than Parent and Purchaser), approved the Merger Agreement and the transactions contemplated thereby and recommended that the stockholders of the Company accept the Offer and the Merger; (iii) the $10.68 per Share price to be paid in the Offer and the Merger and the other terms and conditions of the Merger Agreement resulted from active arm's-length bargaining between representatives of the Company, on the one hand, and Parent, on the other; (iv) the consideration to be paid in the Offer and the Merger represents a premium of approximately 50% over the reported closing price for the Shares on October 3, 1997, the last trading day prior to the public announcement of the fact that the Company and Parent were in discussions regarding a possible acquisition transaction, and a premium of approximately 74% and 102% over the average closing price for the one-month and three-month periods, respectively, preceding such date; (v) the historical financial performance of the Company and its financial results; and (vi) the presence of the Minimum Share Condition, which may not be waived without the consent of the Company. Parent and the Purchaser have reviewed the factors considered by the Company Board in support of its decisions, as described in the Solicitation/Recommendation Statement on Schedule 14D-9 and above, and have no basis to question their consideration of or reliance on such factors. In reaching their conclusions, Parent and the Purchaser also considered generally the current and historical market prices for the Shares. 11 Neither Parent nor the Purchaser found it practicable to assign, nor did either of them assign, relative weights to the individual factors considered in reaching their conclusions as to fairness. 5. PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER; REASONS OF PARENT AND THE PURCHASER FOR THE OFFER AND THE MERGER Purpose and Structure. The purpose of the Offer is for Parent to indirectly acquire the entire equity interest in the Company. The purpose of the Merger is for Parent to acquire all of the equity interest in the Company not acquired pursuant to the Offer. Upon consummation of the Merger, the Company will become a wholly owned subsidiary of Parent. The acquisition of the entire equity interest in the Company has been structured as a cash tender offer followed by a cash merger in order to provide a prompt and orderly transfer of ownership of the equity interest in the Company held by stockholders of the Company (other than Parent and Purchaser) from such stockholders to Parent and to provide the stockholders of the Company (other than Parent and Purchaser) with cash for all of their Shares. Under the MBCL and the Company's Articles of Organization, the approval of the Company Board and, under certain circumstances, the affirmative vote of the holders of two-thirds of the outstanding Shares are required to approve and adopt the Merger Agreement and the transactions contemplated thereby, including the Merger. If the Offer is consummated, Parent and the Purchaser will have sufficient voting power to cause the approval and adoption of the Merger Agreement and the transactions contemplated thereby without the affirmative vote of any other stockholder of the Company. Consummation of the Offer, however, is conditioned upon satisfaction or waiver of the Minimum Share Condition, which may not be waived without the consent of the Company. Pursuant to the Merger Agreement, the purchase by the Purchaser of all Shares validly tendered in the Offer and not withdrawn is a condition to the Merger. In the Merger Agreement, the Company has agreed to take all action necessary to convene a special meeting of its stockholders as promptly as practicable after the consummation of the Offer for the purpose of considering and taking action on the Merger Agreement and the transactions contemplated thereby, if such action is required under the MBCL. Parent and the Purchaser have agreed that all Shares owned by them and their subsidiaries will be voted in favor of the Merger Agreement and the transactions contemplated thereby. Under the MBCL, if, following consummation of the Offer, the Purchaser owns at least 90% of the Shares then outstanding, the Purchaser will be able to cause the Merger to occur without a vote of the Company's stockholders. In such event, Parent, the Purchaser and the Company have agreed to take all necessary and appropriate action to cause the Merger to become effective as soon as reasonably practicable after consummation of the Offer without a meeting of the Company's stockholders. The Purchaser may (x) from time to time extend (and re-extend) the Offer, if at the scheduled expiration date of the Offer any of the conditions to the Offer will not have been satisfied or waived, until such time as such conditions will be satisfied or waived, (y) extend the Offer for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer, or (z) extend (and re-extend) the Offer for any reason on one or more occasions for an aggregate period of not more than 20 business days beyond the latest expiration date that would otherwise be permitted under clause (x) or (y) above if on such expiration date there will not have been tendered at least that number of Shares necessary to permit the Merger to be effected without a meeting of the Company's stockholders in accordance with the MBCL. If, following consummation of the Offer, the Purchaser owns less than 90% of the Shares then outstanding, a vote of the Company's stockholders will be required under the MBCL to approve the Merger, and a significantly longer period of time will be required to effect the Merger. See "THE OFFER -- Certain Conditions of the Offer." Parent's Reasons for the Offer and the Merger. Parent believes that one of its most important strategic objectives is to provide to its customers a complete audio solution in the multimedia area. The existing and planned multimedia speaker product offerings of the Company are viewed by Parent as being extremely complimentary to the audio products being offered by Parent. The strategic fit of the Company's speaker products with the audio products offered by Parent was the primary reason that Parent made the initial equity investment 12 and entered into the Exclusive Distribution Agreement with the Company in February 1997. Early on in the parties' relationship, however, Parent reached the conclusion that the pricing mechanics of the arrangement did not permit it to be competitive in the OEM and bulk speaker businesses, which represent a large portion of the world speaker market. While the Company believed it needed to raise its prices to Parent for the multimedia speaker products, Parent was of the view that prices being charged were already too high to permit it to meet the Company's and Parent's mutual distribution volume goals. Parent considered various alternatives to remedy this pricing issue, including increasing its equity investment on an incremental basis and restructuring or terminating the distribution arrangement. However, after substantial deliberation, Parent concluded that the only way to truly achieve its goal would be to acquire all of the remaining equity interest in the Company that it did not already own. In addition, Parent believes that the acquisition of the Company will strategically position Parent as the personal computer and consumer electronics markets converge into a single market. 6. PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER; CERTAIN EFFECTS OF THE OFFER AND THE MERGER Pursuant to the Merger Agreement, promptly upon completion of the Offer, Parent and the Purchaser intend to effect the Merger in accordance with the terms of the Merger Agreement. See "SPECIAL FACTORS -- The Merger Agreement." Parent's management has begun, and intends to continue, a review of the Company and its assets, corporate structure, capitalization, operations, properties, policies, management and personnel to determine what changes, if any, would be desirable in order best to organize and integrate the activities of the Company and Parent. Parent expressly reserves the right to make any changes that it deems necessary or appropriate in light of its review or in light of future developments or that would be desirable to permit Parent to manage the Company. Except as otherwise disclosed in this Offer to Purchase, Parent has no present plans or proposals that would result in an extraordinary corporate transaction involving the Company or any of its subsidiaries, such as a merger, reorganization, liquidation, relocation of operations, or sale or transfer of a material amount of assets. As a result of the Offer, the interest of Parent in the Company's net book value and net earnings will increase in proportion to the number of Shares acquired in the Offer. If the Merger is consummated, Parent's interest in such items and in the Company's equity generally will increase to 100% and Parent and its subsidiaries will be entitled to all benefits resulting from that interest, including all income generated by the Company's operations and any future increase in the Company's value. Similarly, Parent will also bear the risk of losses generated by the Company's operations and any decrease in the value of the Company after the Merger. Subsequent to the Merger, current stockholders of the Company (other than Parent and Purchaser) will cease to have any equity interest in the Company, will not have the opportunity to participate in the earnings and growth of the Company after the Merger and will not have any right to vote on corporate matters. Similarly, stockholders will not face the risk of losses generated by the Company's operations or decline in the value of the Company after the Merger. The Shares are currently traded on The Nasdaq Stock Market, Inc.'s National Market ("NASDAQ"). See "THE OFFER -- Price Range of the Shares." Following the consummation of the Merger, the Shares will no longer be quoted on NASDAQ and the registration of the Shares under the Exchange Act will be terminated. Accordingly, after the Merger there will be no publicly traded equity securities of the Company outstanding and the Company will no longer be required to file periodic reports with the SEC. See "THE OFFER -- Effect of the Offer on the Market for the Shares; NASDAQ Quotation and Exchange Act Registration." It is expected that if Shares are not accepted for payment by the Purchaser pursuant to the Offer and the Merger is not consummated, the Company's current management, under the general direction of the Company Board, will continue to manage the Company as an ongoing business. 7. RIGHTS OF STOCKHOLDERS IN THE MERGER No appraisal rights are available in connection with the Offer. If the Merger is consummated, however, stockholders of the Company who have not tendered their Shares will have certain rights under the MBCL to dissent and demand appraisal of, and to receive payment in cash of the fair value of, their Shares. Stockholders who perfect such rights by complying with the procedures set forth in Sections 85-98 of the MBCL will have 13 the fair value of their Shares judicially determined in accordance with the MBCL and will be entitled to receive a cash payment equal to such fair value from the Surviving Corporation. The fair value so determined could be the same as or more or less than the Merger Price. See Annex B attached hereto for a detailed description of appraisal rights under the MBCL, as well as the text of Sections 85-98. Parent does not intend to object, assuming the proper procedures are followed, to the exercise of appraisal rights by any stockholder and the demand for appraisal of, and payment in cash for the fair value of, the Shares. Parent intends, however, to cause the Surviving Corporation to argue in an appraisal proceeding that, for purposes of such proceeding, the fair value of each Share is less than the Merger Price. In this regard, stockholders should be aware that opinions of investment banking firms as to the fairness from a financial point of view (including Hambrecht & Quist's opinion described herein) are not necessarily opinions as to "fair value" under the MBCL. THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SECTIONS 85-98 INCLUDED HEREWITH IN ANNEX B. THE PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS ARE CONDITIONED ON STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE MBCL. 8.THE MERGER AGREEMENT The following is a summary of the material terms of the Merger Agreement, a copy of which appears as an Exhibit to the Tender Offer Statement on Schedule 14D-1 filed by the Purchaser and Parent with the SEC in connection with the Offer. Such summary is qualified in its entirety by reference to the Merger Agreement. The Offer. The Merger Agreement provides for the commencement of the Offer as promptly as reasonably practicable after the date thereof, but in no event later than five business days after the initial public announcement of Purchaser's intention to commence the Offer. The Merger Agreement further provides that the Purchaser will not, without the consent of the Company, accept for payment any Shares tendered pursuant to the Offer unless at least two-thirds of then issued and outstanding Shares (on a fully diluted basis) will have been validly tendered and not withdrawn prior to the expiration of the Offer, thereby satisfying the Minimum Share Condition. The obligation of the Purchaser to accept for payment and pay for Shares tendered pursuant to the Offer is subject to the satisfaction or waiver of the Minimum Share Condition and certain other conditions that are described in "THE OFFER -- Certain Conditions of the Offer." The Purchaser and Parent have agreed that no change in the Offer may be made which decreases the Offer Price, changes the form of consideration payable in the Offer or reduces the maximum number of Shares to be purchased in the Offer or which imposes conditions to the Offer in addition to those described in "THE OFFER -- Certain Conditions of the Offer." The Purchaser may (x) from time to time extend (and re-extend) the Offer, if at the scheduled expiration date of the Offer any of the conditions of the Offer have not been satisfied or waived, until such time as such conditions have been satisfied or waived (y) extend the Offer for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer or (z) extend (and re-extend) the Offer for any reason on one or more occasions for an aggregate period of not more than 20 business days beyond the latest expiration date that would otherwise be permitted under clause (x) or (y) above, if on such expiration date at least that number of Shares necessary to permit the Merger to be effected without a meeting of the Company's stockholders in accordance with the MBCL have not been tendered. The Merger. The Merger Agreement provides that as soon as practicable after the purchase of Shares pursuant to the Offer and the satisfaction of the other conditions set forth in the Merger Agreement and in accordance with the relevant provisions of the MBCL, the Purchaser will be merged with and into the Company. As a result of the Merger, the separate corporate existence of the Purchaser will cease and the Company will continue as the Surviving Corporation and will become a wholly owned subsidiary of Parent. At the Effective Time (as defined in the Merger Agreement), each Share issued and outstanding immediately prior to the Effective Time (other than Shares held in the treasury of the Company, Shares owned by Parent, the Purchaser or any 14 subsidiary of Parent or the Company or Shares held by stockholders who will have properly demanded and perfected appraisal rights under the MBCL) will be canceled and converted automatically into the right to receive the Merger Price. The Purchaser or the designated paying agent will be entitled to deduct and withhold from the consideration otherwise payable pursuant to the Merger Agreement to any holder of Shares such amounts that the Purchaser or the paying agent is required to deduct and withhold with respect to the making of such payment under the United States Internal Revenue Code of 1986, as amended (the "Code"), the rules and regulations promulgated thereunder or any provision of state, local or foreign tax law. Pursuant to the Merger Agreement, each share of common stock, par value $.01 per share, of the Purchaser issued and outstanding immediately prior to the Effective Time will be converted into one validly issued, fully paid and nonassessable share of common stock, par value $.01 per share, of the Surviving Corporation. Promptly upon the purchase by the Purchaser of Shares in the Offer, and from time to time thereafter, the Purchaser will be entitled to designate that number of directors, rounded up to the next whole number, on the Company's Board of Directors that equals the product of (i) the total number of directors on the Company's Board of Directors (giving effect to the election of any additional directors pursuant to the Merger Agreement) and (ii) the percentage that the number of Shares owned by the Purchaser, Parent and any direct or indirect wholly owned subsidiary of Parent (including Shares purchased in the Offer) bears to the total number of Shares outstanding at such time, and to effect the foregoing the Company will upon request by the Purchaser, at the Company's election, either increase the number of directors comprising the Company's Board of Directors or seek and accept resignations of incumbent directors. The first date on which designees of the Purchaser will constitute a majority of the Company's Board of Directors is referred to as the "Cut-Off Date." At such times, the Company will use its reasonable best efforts to cause individuals designated by the Purchaser to constitute the same percentage of each committee of the Board as such individuals represent on the Company's Board of Directors. Following the Cut-Off Date and prior to the Effective Time, the Board of Directors of the Company will have at least one director who is neither designated by the Purchaser, an employee of the Company nor otherwise affiliated with the Purchaser (one or more of such directors, the "Independent Directors") and any amendment of the Merger Agreement or the Articles of Organization or Bylaws of the Company, any termination or amendment of the Merger Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Parent or the Purchaser or any exercise or waiver of any of the Company's rights thereunder, will require the concurrence of a majority of the Independent Directors. The Merger Agreement provides that the directors of the Purchaser at the Effective Time will be the initial directors of the Surviving Corporation and that the officers of the Company at the Effective Time will be the initial officers of the Surviving Corporation. The Merger Agreement provides that, at the Effective Time, the Articles of Organization of the Purchaser will be the Articles of Organization of the Surviving Corporation; provided, however, that, at the Effective Time, Article I of the Articles of Organization of the Surviving Corporation will be amended to read as follows: "The name of the corporation is Cambridge SoundWorks, Inc." The Merger Agreement also provides that the bylaws of the Purchaser will be the bylaws of the Surviving Corporation. At the Effective Time, each holder of an option to purchase shares of Company common stock (a "Company Option") issued pursuant to the Company's 1993 Stock Option Plan (the "Stock Option Plan") will become entitled to receive from the Surviving Corporation, for each such Company Option, an amount in cash equal to the product of (i) the excess, if any, of the Merger Price over the applicable exercise price of each such Company Option and (ii) the number of Shares such holder could have purchased had such holder exercised such Company Option immediately prior to the Effective Time, and thereafter each such Company Option will be canceled. The Stock Option Plan will terminate as of the Effective Time and the Company will use reasonable efforts to ensure that following the Effective Time no holder of options or any participant in the Stock Option Plan has any right thereunder to acquire any equity securities of the Company or the Surviving Corporation. 15 Representations and Warranties. The Merger Agreement contains various customary representations and warranties of the parties thereto, including representations by the Company, Parent and the Purchaser as to corporate status and the enforceability of the Merger Agreement against each such party and by the Company as to its capitalization, compliance with law, the accuracy of financial statements and filings with the SEC and the absence of certain material adverse changes or events concerning the Company's business from June 29, 1997 to the date of the Merger Agreement. Covenants of Parent, the Purchaser and the Company. Pursuant to the Merger Agreement, the Company will, if required by applicable law in order to consummate the Merger, duly call, give notice of, convene and hold a special meeting of its stockholders as promptly as practicable following consummation of the Offer for the purpose of considering and taking action on the Merger Agreement and the transactions contemplated thereby (the "Stockholders' Meeting"). At the Stockholders' Meeting, Parent and the Purchaser will cause all Shares then owned by them to be voted in favor of the approval and adoption of the Merger Agreement and the transactions contemplated thereby. In the event that the Purchaser acquires such number of Shares that, when taken together with the Shares previously owned by Parent and Purchaser, constitute at least 90% of the outstanding Shares, the parties have agreed to take all necessary and appropriate action to cause the Merger to become effective, in accordance with Section 82 of the MBCL, as soon as reasonably practicable after such acquisition, without a meeting of the stockholders of the Company. The Merger Agreement provides that the Company will, if required by applicable law, as soon as practicable following consummation of the Offer, file a proxy statement with the SEC under the Exchange Act (the "Proxy Statement"), and will use its best efforts to have the Proxy Statement cleared by the SEC. Parent, the Purchaser and the Company will cooperate with each other in the preparation of the Proxy Statement, and the Company will notify Parent of the receipt of any comments of the SEC with respect to the Proxy Statement and of any requests by the SEC for any amendment or supplement thereto or for additional information and will provide promptly to Parent copies of all correspondence between the Company or any representative of the Company and the SEC. The Company will give Parent and its counsel the opportunity to review and comment upon the Proxy Statement prior to its being filed with the SEC and will give Parent and its counsel the opportunity to review and comment upon all amendments and supplements to the Proxy Statement and participate in the preparation of any written responses to requests for additional information and replies to comments prior to their being filed with, or sent to, the SEC. The Company and its counsel will be given the opportunity to review and comment on the Offer documents and any amendments thereto prior to the filing thereof with the SEC. Parent and the Purchaser will provide the Company and its counsel with a copy of any written comments or telephonic notification of any verbal comments Parent or the Purchaser may receive from the SEC or its staff with respect to the Offer documents promptly after the receipt thereof and will provide the Company and its counsel with a copy of any written responses and telephonic notification of any verbal responses of Parent, the Purchaser or their counsel. Each of the Company, Parent and the Purchaser agrees to use reasonable efforts, after consultation with the other parties, to respond promptly to all such comments of and requests by the SEC and to cause the Proxy Statement and all required amendments and supplements thereto to be mailed to the holders of Shares entitled to vote at the Stockholders' Meeting at the earliest practicable time. Pursuant to the Merger Agreement, the Company has agreed that neither it nor any of its employees or directors will initiate or solicit any inquiries in respect of, or the making of any proposal for, a Third Party Acquisition (as defined below), or engage in any negotiations concerning a Third Party Acquisition; provided, however, that if at any time prior to the acceptance for payment of Shares pursuant to the Offer, the Board of Directors of the Company determines in good faith, after consultation with outside counsel, that it is necessary to do so in order to comply with its fiduciary duties to the Company's stockholders under applicable law, the Company may, in response to an unsolicited Third Party Acquisition, (x) furnish only such information with respect to the Company as was delivered to Parent and (y) participate in the discussions and negotiations regarding such offer; and further provided, that the Company or its Board of Directors may comply with Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any proposed Third Party Acquisition. The Company has agreed to notify Parent promptly if any inquiries relating to or proposals for a Third Party 16 Acquisition are received by the Company or any negotiations in connection with a possible Third Party Acquisition are sought to be initiated or continued with the Company. Except as set forth below, the Board of Directors of the Company has agreed not withdraw its recommendation of the Offer or the Merger and other transactions contemplated hereby or approve or recommend any Third Party Acquisition. Notwithstanding the preceding sentence, if the Board of Directors of the Company determines that it is necessary to do so in order to comply with its fiduciary duties to the Company's stockholders under applicable law, the Board of Directors may withdraw or alter its recommendation of the Offer or the Merger, or approve or recommend or cause the Company to enter into an agreement with respect to a Superior Proposal (as defined below), but in each case only (i) after providing written notice to Parent advising it that the Board of Directors has received a Superior Proposal and (ii) if Parent does not, within five business days (or within two business days with respect to any amendment to any Superior Proposal) after Parent's receipt of notice, make an offer which the Board of Directors of the Company determines in its good faith judgment to be as favorable to the Company's stockholders as such Superior Proposal; provided, however, that the Company will not be entitled to enter into any agreement with respect to a Superior Proposal unless the Merger Agreement is concurrently terminated by its terms. For purposes of the Merger Agreement, "Third Party Acquisition" means the occurrence of any of the following events: (i) the acquisition of the Company by merger or otherwise by any person or entity (which includes a "person" as such term is defined in Section 13(d)(3) of the Exchange Act) other than Parent, the Purchaser or any affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of 30% or more of the total assets of the Company (other than the purchase of the Company's products in the ordinary course of business); (iii) the acquisition by a Third Party of 30% or more of the outstanding Shares; (iv) the adoption by the Company of a plan of partial or complete liquidation or the declaration or payment of an extraordinary dividend; (v) the repurchase by the Company of 30% or more of the outstanding Shares; or (vi) the acquisition by the Company by merger, purchase of stock or assets, joint venture or otherwise of a direct or indirect ownership interest or investment in any business whose annual revenues, net income or assets is equal to or greater than 30% of the annual revenues, net income or assets of the Company. For purposes of the Merger Agreement, a "Superior Proposal" means any bona fide proposal to acquire directly or indirectly for consideration consisting of cash and/or securities more than 50% of the Shares then outstanding or all or substantially all the assets of the Company and otherwise on terms which the Board of Directors of the Company by a majority vote determines in its good faith judgment (based on consultation with Hambrecht & Quist or another financial adviser of nationally recognized reputation) to be reasonably capable of being completed (taking into account all legal, financial, regulatory and other aspects of the proposal and the person or entity making the proposal, including the availability of financing therefor) and more favorable to the Company's stockholders than the Offer and the Merger. Pursuant to the Merger Agreement, the Company has covenanted and agreed that, between the date of the Merger Agreement and the Cut-Off Date, unless Parent otherwise agrees in writing: (i) the businesses of the Company and its subsidiaries will be conducted only in, and the Company will not take any action except in, the ordinary course of business and in a manner consistent with past practice; (ii) the Company will endeavor to preserve substantially intact the business organization of the Company, to keep available the services of the current officers and employees of the Company and to preserve the current relationships of the Company with customers, suppliers and other persons with which the Company has significant business relations; and (iii) the Company will not declare or pay dividends, split, combine or reclassify its stock, issue convertible securities or issue rights, warrants or options to purchase Shares other than shares issuable upon exercise of warrants or Company Options outstanding as of the date of the Merger Agreement; amend its Articles of Organization or Bylaws; acquire or agree to acquire any business or any corporation or other business organization or division thereof; authorize any single capital expenditure which is in excess of $50,000 or capital expenditures which are, in the aggregate, in excess of $150,000; increase the compensation payable to its officers or employees, except for increases in accordance with past practices, or grant any severance or termination pay to, or enter into any employment or severance agreement with any director, officer or other employee of the Company, or establish or amend any collective bargaining, compensation, stock option, or other arrangement for the benefit of any director, officer or employee; make any tax election or settle or compromise any material federal, state, local or 17 foreign income tax liability; pay or settle any suit, claim, liability or obligation, other than the payment, discharge or satisfaction, in the ordinary course of business and consistent with past practice, of liabilities reflected or reserved against in the Company's balance sheet dated as of June 29, 1997 as filed by the Company with the SEC in its Annual Report on Form 10-K for its fiscal year ended June 29, 1997 or subsequently incurred in the ordinary course of business and consistent with past practice; or take any action that would result in any of the representations and warranties of the Company set forth in this Agreement becoming untrue in any material respect or in any of the conditions to the Offer or any of the conditions to the Merger not being satisfied. The Company and Parent are each obligated under the Merger Agreement to give each other prompt notice of (i) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which would be likely to cause any representation or warranty contained in the Merger Agreement to be untrue or inaccurate and (ii) any failure of the Company, Parent or Purchaser, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it thereunder. The parties have agreed that all rights to indemnification by the Company existing as of the date of the Merger Agreement in favor of each present and former director and officer of the Company as provided in the Company's Articles of Organization or Bylaws or pursuant to any other agreements in effect as of such date will survive the Merger and will continue in full force and effect for a period of at least six years from the Effective Time. The Merger Agreement also provides that the Surviving Corporation will use commercially reasonable efforts to maintain in effect for six years from the Effective Time directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy on terms comparable to such existing insurance coverage (including coverage amounts); provided, however, that in no event will the Surviving Corporation be required to expend more than an amount per year equal to 125% of current annual premiums paid by the Company for such insurance. The Surviving Corporation's obligation to maintain such insurance will, however, terminate at such time following the first anniversary of the Merger Agreement as Parent, in its sole discretion, agrees in writing to assume in all respects the general indemnification obligations of the Company with respect to its directors and officers. Pursuant to the terms of the Merger Agreement and subject to the conditions thereof, each of the parties thereto will use its reasonable efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by the Merger Agreement, including, without limitation, using its reasonable efforts to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and parties to contracts with the Company and its subsidiaries as are necessary for the consummation of the transactions and to fulfill the conditions to the Offer and the Merger. Under the Merger Agreement, Parent and the Company agree to consult with one another before issuing any press release or otherwise making any public statements with respect to the Merger Agreement or the transactions contemplated thereby. Parent and the Company further agree not to issue any such press release or make any such public statement prior to such consultation, except as may be required by law or any listing agreement with a national securities exchange to which Parent or the Company is a party. Conditions to the Merger. Under the Merger Agreement, the respective obligations of each party to effect the Merger are subject to the satisfaction at or prior to the Effective Time of the following conditions (a) to the extent required by the MBCL and the Company's Articles of Organization and Bylaws, the Merger Agreement, the Merger and the transactions contemplated thereby will have been approved and adopted by the affirmative vote or consent of the stockholders of the Company, (b) no foreign, United States or state governmental authority or other agency or commission or foreign, United States or state court of competent jurisdiction will have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is then in effect and has the effect of making the acquisition of Shares by Parent or the Purchaser or any affiliate of either of them illegal or otherwise restricting, preventing or prohibiting consummation of the transactions contemplated by the Merger Agreement, 18 provided, however, that each of the parties will have used its reasonable efforts to prevent the entry of any such injunction or other order and to appeal as promptly as practicable any injunction or other order that may be entered, (c) the waiting period applicable to the consummation of the Merger under the Hart-Scott-Rodino Act ("HSR") will have expired or been terminated, and all other required governmental filings and consents will have been made or obtained, other than the filing of the Articles of Merger, (d) the Purchaser will have purchased all Shares validly tendered and not withdrawn pursuant to the Offer, (e) the representations and warranties of the Company, Parent and the Purchaser set forth in the Merger Agreement will be true and correct in all material respects as of the date of the Merger Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date of the Merger as though made on and as of the Closing Date, and (f) the Company, Parent and the Purchaser shall have performed in all material respects all obligations required to be performed by each of them under the Merger Agreement at or prior to the Closing Date of the Merger. Termination; Certain Payments; Fees and Expenses. The Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, notwithstanding any requisite approval of the Merger Agreement and the transactions contemplated thereby by the stockholders of the Company: (a) by mutual written consent duly authorized by the Boards of Directors of the Company, Parent and the Purchaser; (b) by either Parent or the Company if any court of competent jurisdiction or other governmental authority will have issued an order, decree, ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the acceptance for payment of, or payment for, Shares pursuant to the Offer or the Merger and such order, decree, ruling or other action will have become final and nonappealable; (c) by either Parent or the Company if (i) the Offer will have terminated or expired in accordance with its terms without the Purchaser having accepted for payment any Shares pursuant to the Offer; or (ii) the Purchaser will not have accepted for payment any Shares pursuant to the Offer within 120 days following the commencement of the Offer; provided, however, that the right to terminate the Merger Agreement will not be available to any party the failure of which (or the failure of the affiliates of which) to perform in any material respect any of its obligations under the Merger Agreement results in the failure of any condition set forth in Annex I of the Merger Agreement or if the failure of such condition results from facts or circumstances that constitute a material breach of a representation or warranty under the Merger Agreement by such party; (d) by Parent if (i) prior to the purchase of Shares pursuant to the Offer, (A) the Board of Directors of the Company or any committee thereof will have withdrawn or modified in a manner adverse to the Purchaser or Parent its approval or recommendation of the Offer, the Merger Agreement, the Merger or any other transaction contemplated by the Merger Agreement; (B) the Board of Directors of the Company or any committee thereof will have recommended to the stockholders of the Company acceptance of a Third Party Acquisition; (C) the Company will have entered into any definitive agreement with respect to a Third Party Acquisition; or (D) the Board of Directors of the Company or any committee thereof will have resolved to do any of the foregoing; or (ii) the Company will have breached in any material respect any of its representations, warranties, covenants or other agreements contained in the Merger Agreement which breach cannot be or has not been cured 20 days after the giving of written notice to the Company; or (e) by the Company if (i) the Board of Directors of the Company will have withdrawn or modified in a manner adverse to the Purchaser or Parent its approval or recommendation of the Offer, the Merger Agreement or the Merger in order to approve the execution by the Company of a definitive agreement providing for the transactions contemplated by a Superior Proposal, provided that the Company will have complied with the provisions of the Merger Agreement, including the notice provisions therein, and will have made simultaneous payment of the fee contemplated by the Merger Agreement, as described below; or (ii) Parent or the Purchaser will have breached in any material respect any of their respective representations, warranties, covenants or other agreements contained in the Merger Agreement which breach cannot be or has not been cured 20 days after the giving of written notice to Parent or the Purchaser, as applicable, except, in any case, for such breaches which are not reasonably likely to affect adversely Parent's or the Purchaser's ability to complete the Offer or the Merger. If the Merger Agreement is terminated, the Merger Agreement will become void and of no effect with no liability on the part of any party hereto, except for fraud and for willful breach of a material obligation contained herein and except that the certain agreements contained in the Merger will survive the termination hereof. In the event that: (i) the Merger Agreement is terminated (A) pursuant to Section 8.1(d)(i) or Section 8.1(e)(i) of the Merger Agreement, or (B) pursuant to Section 8.1(c) or 8.1(d)(ii) of the Merger Agreement, to 19 the extent that the termination or the failure to accept any Shares for payment, as the case may be, will relate to the intentional failure of the Company to perform in any material respect any material covenant or agreement of it contained in the Merger Agreement or the intentional material breach by the Company of any material representation or warranty of it contained in the Merger Agreement; or (ii) any person will have commenced, publicly proposed or communicated to the Company a proposal with respect to a Third Party Acquisition and (A) the Offer will have remained open for at least 20 business days, (B) the Minimum Share Condition will not have been satisfied, (C) the Merger Agreement will have been terminated and (D) the Company will have consummated a Third Party Acquisition with any person other than Parent or any of its affiliates before or within 12 months after the date of such termination, then, in any such event, the Company will pay Parent promptly (but in no event later than 1 business day after the first of such events will have occurred) a fee of $1,250,000, plus an amount, not to exceed $750,000, equal to Parent's actual and reasonably documented out-of-pocket fees and expenses incurred by Parent and the Purchaser in connection with the Offer, the Merger, the Merger Agreement and the consummation of the transactions contemplated thereby, which amounts will be payable in immediately available funds. In the event that (i) Parent or the Purchaser shall willfully or intentionally breach in any material respect any of their respective representations, warranties, covenants or other agreements contained in the Merger Agreement and as a result thereof the Company shall terminate the Merger Agreement pursuant to Section 8.1 (e)(ii) of such agreement or (ii) Parent shall elect to terminate the Merger Agreement and fail to proceed to consummate the Offer or the Merger after all applicable conditions shall have been satisfied, then, in either of such events, Parent shall pay to the Company promptly (but in no event later than one business day after the date of such termination) a fee of $1,250,000, plus an amount, not to exceed $400,000, equal to the Company's actual and reasonably documented out-of- pocket fees and expenses incurred by the Company in connection with the Offer, the Merger, the Merger Agreement and the consummation of the transactions thereby, which amounts shall be payable in immediately available funds. Such payment by Parent to the Company shall represent the sole and exclusive remedy at law or in equity to which the Company and its officers, directors, representatives and other affiliates shall be entitled in the event the Merger Agreement shall be terminated in the circumstances contemplated by clauses (i) and (ii) of this paragraph. In the event that either the Company or Parent fails to pay any amounts owing pursuant to the foregoing when due, interest will be paid on such unpaid amounts, commencing on the date such amounts became due, at a rate equal to the rate of interest publicly announced by Bank of America NT&SA from time to time in San Francisco, California, as such bank's "reference rate" plus 3%. Except as set forth above and in "THE OFFER -- Fees and Expenses," all costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby will be paid by the party incurring such fees and expenses, whether or not the transactions contemplated by the Merger Agreement are consummated. 9.INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER In considering the recommendations of the Company Board with respect to the Offer and the Merger and the fairness of the consideration to be received in the Offer and the Merger, stockholders should be aware that certain officers and directors of the Company have interests in the Offer and the Merger which are described below and which may be in addition to their interests as stockholders of the Company. Stockholders also should be aware that Parent and the Purchaser have certain interests that present actual or potential conflicts of interest in connection with the Offer and the Merger. The Company Board was aware of these actual and potential conflicts of interest and considered them along with the other matters described under "SPECIAL FACTORS-- Recommendations of the Company Board; Fairness of the Offer and the Merger." Company Stock Option Plan. In 1995 the Company's 1993 Stock Option Plan was amended to provide that in the event of a transaction such as that contemplated by the Offer all outstanding stock options under such plan will become fully vested and exercisable with respect to 100% of the Shares covered thereby. If the 20 Purchaser purchases Shares in the Offer and the Minimum Share Condition is not waived, the vesting referred to above will be deemed to occur immediately prior to such purchase. The following table sets forth the number of Company Options (if fully vested) held by each director and officer of the Company and the net value in dollars to be received by reason of the consummation of the Offer:
NAME TITLE NET VALUE ---- ----- ---------- Thomas J. DeVesto President & CEO $1,281,650 Wayne P. Garrett Vice President-Finance 275,550 Thomas J. Hannaher Vice President-Marketing 246,475 Robert S. Mainiero Vice President-Business 290,550 Sandy Ruby Vice President-Retail 274,350 Thomas E. Brew, Jr. Director 37,440 Franklin S. Browning, Jr. Director 42,400 Leo Kahn Director 37,440 Peter B. Seamans Director 54,440
Indemnification and Insurance. Under the MBCL, corporations incorporated under the laws of the Commonwealth of Massachusetts are permitted to indemnify their current and former directors, officers, employees and agents under certain circumstances against certain liabilities and expenses incurred by them by reason of their serving in such capacities. The Company's Articles of Organization provide that each director and officer will be indemnified by the Company to the fullest extent permitted under the MBCL against liabilities and expenses incurred in connection with any threatened, pending or completed legal action or proceeding to which he or she may be made a party or threatened to be made a party by reason of being a director of the Company or a predecessor company, or serving any other enterprise as a director or officer at the request of the Company. The directors and officers of the Company have entered into indemnification agreements with the Company for the purpose of confirming such rights. The Company has also purchased directors' and officers' liability insurance for the benefit of these persons. The Merger Agreement provides that the indemnification rights of the directors and officers of the Company set forth in the Surviving Corporation's charter documents will not for a period of at least six years be modified in a manner that adversely affects such persons. Furthermore, Parent has confirmed in the Merger Agreement that it will cause the Surviving Corporation to honor the existing indemnification agreements with these persons. And finally, the Surviving Corporation will be obligated to maintain the directors' and officers' insurance at the current benefit level for a period of six years following the closing of the Merger unless, at a time following the first anniversary of the date of the Merger Agreement, Parent agrees to directly assume the indemnification obligations of the Surviving Corporation described above. In that event the Surviving Corporation will not be required to continue the insurance coverage. See "SPECIAL FACTORS--The Merger Agreement-- Covenants of Parent, the Purchaser and the Company." Change of Control and Severance Agreement. Mr. Wayne Garrett, Vice President of Finance and Chief Financial Officer of the Company, has entered into a letter agreement with the Company, dated as of August 4, 1997, which provides that in the event he is terminated without cause within twelve months after a change of control of the Company, he will be entitled to severance pay in the amount of one times his highest annual base salary during the three years prior to termination of employment. If Mr. Garrett is terminated without cause absent a change of control event, he will be entitled to three months' severance pay. Mr. Garrett's annual base salary for the fiscal year ending June 29, 1997 was approximately $144,000. A "change of control" would be deemed to have taken place if (i) the Company Board appoints a new Chief Executive Officer, or (ii) in connection with any tender or exchange offers or other change in share ownership, a merger or other business combination, or a sale of assets, the persons who were Directors of the Company before such transaction cease to constitute a majority of the Company Board after such transaction. Consummation of the Offer will be deemed a "change of control" for purposes of Mr. Garrett's letter agreement. A "termination of employment" includes a resignation by Mr. Garrett in response to any material diminution of his duties and responsibilities from those currently held by him as Chief Financial Officer of the Company. "Cause" is defined as willful misconduct, conviction of a felony or other crime involving moral turpitude, or fraud, embezzlement or other conduct involving material dishonesty. 21 10.SHARE OWNERSHIP BY PARENT AND PURCHASER As of November 3, 1997, Parent owns 912,294 Shares which were acquired pursuant to a Common Stock and Warrant Purchase Agreement with the Company and holds a currently exercisable warrant to acquire an additional 257,314 Shares. If Parent were to exercise its warrant, Parent would own approximately 28.8% of the Shares outstanding and approximately 26.7% of the Shares outstanding on a Fully Diluted Basis. See "SPECIAL FACTORS -- Background of the Offer and the Merger." The Purchaser owns no Shares as of the date hereof. Prior to the Effective Time, if necessary or desirable in connection with the Merger, Parent may transfer all of its Shares to Purchaser. 11.BENEFICIAL OWNERSHIP OF SHARES The following table sets forth certain information, as of October 23, 1997, regarding the ownership of Shares by each person known by the Company to be the beneficial owner of more than 5% of the outstanding Shares, as well as each director of the Company, the Chief Executive Officer of the Company, certain other officers of the Company, and all executive officers and directors of the Company as a group:
SHARES APPROXIMATE BENEFICIALLY PERCENT OWNED(1) OWNED(2) ------------ ----------- Thomas J. DeVesto(3)............................... 438,605 11.3% Wayne P. Garrett................................... 21,666 * Thomas J. Hannaher................................. 25,394 * Robert S. Mainiero................................. 15,000 * Sandy Ruby......................................... 21,666 * Thomas E. Brew, Jr................................. 8,000 * Franklin S. Browning, Jr........................... 8,000 * Leo Kahn........................................... 14,300 * Craig L. McHugh ................................... -- -- Peter B. Seamans................................... 8,000 * All executive officers and directors as a group (10 persons).......................................... 560,631 14.0 Creative Technology Ltd.(4)........................ 1,169,608 28.8 William R. Hambrecht (5)........................... 337,000 8.9 Henry E. Kloss..................................... 322,766 8.5
- -------- * Less than 1% (1) The Company has advised Parent and the Purchaser that it believes that, except for the voting arrangements set forth in the Voting Agreement dated as of February 28, 1997 among Parent, the Company, Mr. Kloss and Mr. DeVesto (see "THE OFFER--Intercompany Arrangements Between Parent and the Company--Voting Agreement"), all beneficial owners named in the table have sole voting and investment power with respect to the Shares they beneficially own. The Shares shown in the table to be beneficially owned include any Shares that the person has the right to acquire within 60 days of October 23, 1997, by the exercise of any Company Option of which the Company has knowledge. The Shares subject to such Company Options are as follows: Mr. DeVesto: 74,167 shares; Mr. Garrett: 21,666 shares; Mr. Hannaher: 25,394 shares; Mr. Mainiero: 15,000 shares; Mr. Ruby: 21,666 shares; Mr. Brew: 8,000 shares; Mr. Browning: 8,000 shares; Mr. Kahn: 8,000 shares; Mr. Seamans: 8,000 shares; and all executive officers and directors as a group: 189,893 shares. (2) Percent of the 3,804,824 Shares outstanding as of October 23, 1997, counting as outstanding for each named person all Shares issuable to such person on exercise of Company Options that are included in the first column. (3) Includes 11,530 shares of Common Stock held by Mr. DeVesto as custodian for minor children with respect to all of which shares Mr. DeVesto disclaims beneficial ownership. Also includes a currently exercisable option to acquire 100,000 shares from Henry E. Kloss. 22 (4) The percentage calculated includes the 257,314 Shares subject to the Parent Warrant. (5) According to a report filed with the Securities and Exchange Commission on Amendment No. 1 to Schedule 13D, dated August 15, 1997, William R. Hambrecht is the Chairman of Hambrecht & Quist Group ("H&Q Group", which is the sole parent of Hambrecht & Quist California), Hambrecht & Quist California ("H&Q California", which is a member of Hambrecht & Quist LLC) and, Hambrecht & Quist LLC ("H&Q LLC") and is a trustee of the Hambrecht 1980 Revocable Trust ("Trust"). Mr. Hambrecht shares voting and investment power with respect to the 145,000 shares (3.9%) held by H&Q LLC and 192,000 shares (5.0%) held by the Trust. Mr. Hambrecht disclaims beneficial ownership as to 337,000 shares. Each of H&Q Group and H&Q California disclaims beneficial ownership as to 145,000 shares. 23 THE OFFER 1.TERMS OF 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 accept for payment and pay for all Shares validly tendered on or prior to the Expiration Date and not theretofore withdrawn in accordance with the provisions set forth under "THE OFFER -- Withdrawal Rights." The term "Expiration Date" means 12:00 midnight, New York City time, on December 2, 1997, unless and until the Purchaser in its sole discretion, but subject to the terms and conditions of the Merger Agreement, will have extended the period of time during which the Offer is open, in which event the term "Expiration Date" will mean the latest time and date at which the Offer, as so extended by Purchaser, will expire. The Offer is conditioned upon, among other things, satisfaction (or waiver with approval of the Company Board) of the Minimum Share Condition and the other conditions to the Offer set forth under "THE OFFER -- Certain Conditions of the Offer." Subject to the applicable rules and regulations of the SEC, the Purchaser expressly reserves the right, in its sole discretion (but subject to the terms and conditions of the Merger Agreement), at any time and from time to time, upon the failure to be satisfied of any of the conditions to the Offer set forth under "THE OFFER -- Certain Conditions of the Offer," to (i) terminate or amend the Offer, (ii) extend the Offer and postpone acceptance for payment of any Shares, or (iii) waive any condition (except, without the consent of the Company Board, for the Minimum Share Condition), by giving oral or written notice of such termination, amendment, extension or waiver to the Depositary and by making a public announcement thereof. During any such extension, all Shares previously tendered and not properly withdrawn will remain subject to any such extension, and all Shares previously tendered and not properly withdrawn will remain subject to the Offer, subject to the right of a tendering stockholder to withdraw such stockholder's Shares. See "THE OFFER -- Withdrawal Rights." The Purchaser may (x) from time to time extend (and re- extend) the Offer, if, at the scheduled expiration date of the Offer, any of the conditions to the Offer will not have been satisfied or waived, until such time as such conditions will be satisfied or waived, (y) extend the Offer for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer, or (z) extend (and re- extend) the Offer for any reason on one or more occasions for an aggregate period of not more than 20 business days beyond the latest expiration date that would otherwise be permitted under clause (x) or (y) above if on such expiration date there will not have been tendered at least that number of Shares necessary to permit the Merger to be effected without a meeting of the Company's stockholders in accordance with the MBCL. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR TENDERED SHARES, WHETHER OR NOT THE PURCHASER EXERCISES ITS RIGHT TO EXTEND THE OFFER. Any termination, amendment, extension or waiver will be followed as promptly as practicable by public announcement. In the case of an extension, Rule 14e- 1(d) under the Exchange Act requires that the announcement be made no later than 9:00 a.m., Eastern time, on the next business day after the previously scheduled Expiration Date in accordance with the public announcement requirements of Rule 14d-4(c) under the Exchange Act. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) 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 announcements, the Purchaser will not have any obligations to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release to the Dow Jones News Service. As used herein, a "business day" means any day other than a Saturday, Sunday or federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern Time. If the Purchaser extends the Offer or if the Purchaser (whether before or after its acceptance for payment of the Shares) is delayed in its acceptance for payment of or payment for any Shares validly tendered and not 24 withdrawn in the Offer or the Purchaser is unable to accept for payment or pay for such Shares pursuant to the Offer for any reason, then, without prejudice to Purchaser's rights under the Offer, the Depositary may retain tendered Shares on behalf of Purchaser, and such Shares may not be withdrawn except to the extent tendering stockholders are entitled to withdrawal rights as described in "THE OFFER -- Withdrawal Rights." The ability of the Purchaser to delay the payment for the Shares that the Purchaser has accepted for payment, however, is limited by Rule 14e-1(c) under the Exchange Act, which requires that a bidder pay the consideration offered or return the securities deposited by or on behalf of holders of securities promptly after the termination or withdrawal of such bidder's offer. If the Purchaser or Parent makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer, the Purchaser will, or Parent will cause the Purchaser to, disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during which an offer must remain open following material changes in the terms of the Offer or information concerning the Offer, other than a change in price or a change in the percentage of securities sought, or a change in the dealer's advisory fee, will depend upon the facts and circumstances then existing, including the relative materiality of the changed terms or information. In the SEC's view, an offer should remain open for a minimum of five business days from the date a material change is first published, sent or given to securityholders, and, if material changes are made with respect to information that approaches the significance of price and share levels, a minimum of ten business days may be required to allow for adequate dissemination and investor response. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in a dealer's solicitation fee, a minimum period of ten business days from the date of such change is generally required under the applicable rules and regulations of the SEC to allow for adequate dissemination to stockholders and investor response. 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 Shares. This Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed by the Purchaser to stockholders of record 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 such 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.PROCEDURE FOR ACCEPTING THE OFFER AND TENDERING SHARES Valid Tender. For a stockholder to validly tender Shares pursuant to the Offer, either (i) a properly completed and duly executed Letter of Transmittal (or facsimile thereof), together with any required signature guarantees, or an Agent's Message (as defined below) in connection with a book-entry delivery of Shares, and any other required documents, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase, and Share Certificates for tendered Shares must be received by the Depositary at one of such addresses or such Share Certificates must be delivered pursuant to the procedures for book-entry transfer set forth below (and a Book-Entry Confirmation (as defined below) received by the Depositary), in each case on or prior to the Expiration Date or (ii) the tendering stockholder must comply with the guaranteed delivery procedures set forth below. Book-Entry Delivery. The Depositary will establish an account with respect to the Shares at The Depository Trust Company ("DTC") and the Philadelphia Depositary Trust Company ("PDTC") (DTC and PDTC, each, a "Book-Entry Transfer Facility" and, collectively, the "Book-Entry Transfer Facilities") 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 a Book-Entry Transfer Facility may make book-entry delivery of Shares by causing the book- entry transfer system to transfer such Shares into the Depositary's account at a Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for such transfer. Although delivery of Shares may be effected through book-entry transfer into the Depositary's account at a Book- Entry Transfer Facility, the Letter of Transmittal, properly completed and duly executed, with any required signature guarantees, or an Agent's Message (as defined below) in connection with a book-entry transfer, and any other required 25 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 on or prior to 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 A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH ITS BOOK-ENTRY PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. The term "Agent's Message" means a message, transmitted by a Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of the 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 that such participant has received the Letter of Transmittal and agrees to be bound by the terms of the Letter of Transmittal and that the Purchaser may enforce such agreement against such participant. THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND SOLE RISK OF THE TENDERING STOCKHOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED AT THE DEPOSITARY. IF DELIVERY IS BY MAIL, THEN INSURED OR REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. Signature Guarantees. No signature guarantee is required on the Letter of Transmittal if (i) the Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this Section, includes any participant in a Book-Entry Transfer Facility system whose name appears on a security position listing as the owner of the Shares) tendered therewith and such registered holder(s) has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on such Letter of Transmittal or (ii) such Shares are tendered for the account of a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing of the Securities Transfer Agents Medallion Program (an "Eligible Institution"). In all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal. If the Share Certificates 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 Share Certificates not validly tendered or not accepted for payment or not purchased are to be issued or returned to a person other than the registered holder of the Share Certificates, the tendered Share Certificates must be endorsed in blank or accompanied by appropriate stock powers, signed exactly as the name or names of the registered holder(s) appear on the Share Certificates with the signatures on such Share Certificates or stock powers guaranteed by an Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's Share Certificates are not immediately available or the procedures for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary on or prior to the Expiration Date, such Shares may nevertheless be tendered provided that all of the following guaranteed delivery procedures are duly complied with: (1) such tender is made by or through an Eligible Institution; (2) the Depositary receives (by hand, mail, telegram or facsimile transmission) on or prior to the Expiration Date, a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Purchaser; and (3) the Share Certificates representing all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to 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 Book-Entry Transfer, an Agent's Message) and any other documents required by the Letter of Transmittal, are received by the Depositary within three NASDAQ trading days after the date of execution of such Notice of Guaranteed Delivery. A "NASDAQ trading day" is any day on which NASDAQ is open for business. 26 The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile transmission or by mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. Notwithstanding any other 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 (i) Share Certificates for (or a timely Book- Entry Confirmation with respect to) such Shares, (ii) a Letter of Transmittal (or facsimile thereof) for such Shares, properly completed and duly executed, with any required signature guarantees, or, in the case of Book-Entry Transfer, an Agent's Message, and (iii) any other documents required by the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times depending upon when Share Certificates, Book-Entry Confirmations and such other documents are actually received by the Depositary. Under no circumstances will interest be paid by the Purchaser on the purchase price of the Shares to any tendering stockholders, regardless of any extension of the Offer or any delay in making such payment. Purchaser's acceptance for payment of Shares validly tendered pursuant to any 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. Determination of Validity; Rejection of Shares; Waiver of Defects; No Obligation to Give Notice of Defects. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by Purchaser, in its sole discretion, which determination will be final and binding. The Purchaser reserves the absolute right to reject any or 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 Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute right to waive any of the conditions of the Offer (other than the Minimum Share Condition, which can only be waived with the consent of the Company Board) or any defect or irregularity in any tender with respect to any particular Shares, or with respect to those Shares held by any particular stockholder, whether or not similar conditions, defects or irregularities are waived in the case of other Shares. No tender of Shares will be deemed to have been validly made until all defects or irregularities relating thereto have been cured or waived. None of Parent, Purchaser, any of its affiliates or assigns, 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. Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. Backup Withholding. In order to avoid backup withholding of Federal income tax on payments of cash pursuant to the Offer, a stockholder tendering Shares in the Offer must provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") on a Substitute Form W-9 and certify under penalties of perjury that such TIN is correct and that such stockholder is not subject to backup withholding. Certain stockholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. If a stockholder does not provide its correct TIN or fails to provide the certification described above, under Federal income tax laws, the Depositary will be required to withhold 31% of the amount of any payment made to such stockholder pursuant to the Offer. All stockholders tendering Shares pursuant to the Offer should complete and sign 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 provided in a manner satisfactory to the Purchaser and the Depositary). Noncorporate foreign stockholders should complete and sign a 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 11 to the Letter of Transmittal. 3.WITHDRAWAL RIGHTS Except as otherwise provided in this Section 3, tenders of Shares made pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to the procedures set forth below at any time 27 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 January 2, 1998. If the Purchaser extends the Offer, is delayed in its acceptance for payment of Shares or is unable to purchase Shares validly tendered pursuant to the Offer for any reason, then without prejudice to Purchaser's rights under the Offer, the Depositary may nevertheless, 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 described in this section. Any such delay will be accompanied by an extension of the Offer to the extent required by law. For a withdrawal to be effective, a written, telegraphic 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 and must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn if Share Certificates have been tendered and the name of the registered holder of the Shares to be withdrawn as set forth on such Share Certificates if different from the name of the person who tendered the Shares. If Share Certificates have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution, the signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been delivered pursuant to the procedures for book-entry transfer as set forth under "THE OFFER -- Procedure for Accepting the Offer and Tendering Shares," any notice of withdrawal must specify the name and number of the account at the appropriate financial institution that is a member of the system of a Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with such Book-Entry Transfer Facility's procedures for such withdrawal, in which case a notice of withdrawal will be effective if delivered to the Depositary by any method of delivery described in the first sentence of this paragraph. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. Withdrawn Shares may be retendered by again following one of the procedures described above under "THE OFFER -- Procedure for Accepting the Offer and Tendering Shares" at any time on or prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by Purchaser, in its sole discretion, which determination will be final and binding. None of Parent, Purchaser, any of their affiliates or assigns, 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 any such notification. 4.ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES 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 purchase, by accepting for payment, and will pay for, all Shares validly tendered on or prior to the Expiration Date and not properly withdrawn in accordance with the terms set forth under "THE OFFER - -- Withdrawal Rights" promptly after the later to occur of (i) the Expiration Date or (ii) the satisfaction or waiver (where permissible) of the terms and conditions set forth under "THE OFFER -- Certain Conditions of the Offer." Any determination concerning the satisfaction or waiver of such terms and conditions will be within the sole discretion of Purchaser, which determination will be final and binding on all holders of Shares. See "THE OFFER -- Terms of the Offer" and "THE OFFER -- Dividends and Distributions." Subject to applicable rules of the SEC and the terms and conditions of the Merger Agreement, the Purchaser expressly reserves the right, in its sole discretion, to delay acceptance for payment of or payment for Shares in order to comply in whole or in part with any applicable law. Any such delays will be effected in compliance with Purchaser's obligation under Rule 14e-1(c) under the Exchange Act to pay for or return tendered Shares promptly after the termination or withdrawal of the Offer. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) Share Certificates (or timely Book-Entry Confirmation of the book-entry transfer of such Shares into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedures set 28 forth under "THE OFFER -- Procedure for Accepting the Offer and Tendering Shares"), (ii) the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and (iii) any other documents required by the Letter of Transmittal. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered to the Purchaser and not properly withdrawn as, if and when the Purchaser gives oral or written notice to the Depositary of Purchaser's acceptance for payment of such Shares pursuant to the Offer. In all cases, 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 tendering stockholders for the purpose of receiving payment from the Purchaser and transmitting payment to such validly tendering stockholders. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY THE PURCHASER ON THE PURCHASE PRICE OF THE SHARES TENDERED PURSUANT TO THE OFFER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. Upon the deposit of funds with the Depositary for the purpose of making payments to tendering stockholders, Purchaser's obligation to make such payments will be satisfied and tendering stockholders must thereafter look solely to the Depositary for payment of amounts owed to them by reason of the acceptance for payment of Shares pursuant to the Offer. The Purchaser will pay any stock transfer taxes with respect to the transfer and sale to it or its order pursuant to the Offer, except as otherwise provided in Instruction 6 of the Letter of Transmittal, as well as any charges and expenses of the Depositary and the Information Agent. If the Purchaser is delayed in its acceptance for payment of, or payment for tendered Shares or is unable to accept for payment or pay for such Shares pursuant to the Offer for any reason, then, without prejudice to Purchaser's rights under the Offer (but subject to Purchaser's obligations under Rule 14e- 1(c) under the Exchange Act to pay for or return the tendered Shares promptly after the termination or withdrawal of the Offer), the Depositary may, nevertheless, retain tendered Shares on behalf of Purchaser, and such Shares may not be withdrawn except to the extent tendering stockholders are entitled to exercise, and duly exercise, withdrawal rights as described under "THE OFFER -- Withdrawal Rights." If any tendered Shares are not purchased pursuant to the Offer because of an invalid tender or for any reason, Share Certificates for any such Shares will be returned, without expense, to the tendering stockholder (or, in the case of Shares delivered by book-entry transfer of such Shares into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedures set forth under "THE OFFER -- Procedure for Accepting the Offer and Tendering Shares," such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), as promptly as practicable after the expiration, termination or withdrawal of the Offer. Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of Purchaser's subsidiaries or affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer or prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for purchase. 5.CERTAIN FEDERAL INCOME TAX CONSEQUENCES The summary of Federal income tax consequences set forth below is for general information only and is based on Purchaser's understanding of the law as currently in effect. The tax consequences to each stockholder will depend in part upon such stockholder's particular situation. Special tax consequences not described herein may be applicable to particular classes of taxpayers, such as financial institutions, broker-dealers, persons who are not citizens or residents of the United States and stockholders who acquired their Shares through the exercise of an employee stock option or otherwise as compensation. ALL STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS AND OF CHANGES IN SUCH TAX LAWS. 29 The receipt of cash for Shares pursuant to the Offer will be a taxable transaction for Federal income tax purposes under the Code, and may also be a taxable transaction under applicable state, local or foreign income and other tax laws. Generally, for Federal income tax purposes, a tendering stockholder will recognize gain or loss in an amount equal to the difference between the cash received by the stockholder pursuant to the Offer and the stockholder's adjusted tax basis in the Shares tendered by the stockholder and purchased pursuant to the Offer. For Federal income tax purposes, such gain or loss will be a capital gain or loss if the Shares are a capital asset in the hands of the stockholder, and a long-term capital gain or loss if the stockholder's holding period is more than one year. A stockholder (other than certain exempt stockholders including, among others, all corporations and certain foreign individuals and entities) that tenders Shares may be subject to 31% backup withholding unless the stockholder provides its TIN and certifies that such number is correct or properly certifies that it is awaiting a TIN, or unless an exemption applies. A stockholder who does not furnish its TIN may be subject to a penalty imposed by the IRS. See "THE OFFER -- Procedure for Accepting the Offer and Tendering Shares." If backup withholding applies to a stockholder, the Depositary is required to withhold 31% from payments to such stockholder. Backup withholding is not an additional tax. Rather, the amount of the backup withholding can be credited against the Federal income tax liability of the person subject to the backup withholding, provided that the required information is given to the IRS. If backup withholding results in an overpayment of tax, a refund can be obtained by the stockholder upon filing an appropriate income tax return. The receipt of cash by stockholders pursuant to the Merger should result in similar Federal income tax consequences to such stockholders similar to those described above. 6.PRICE RANGE OF THE SHARES The Company's common stock is traded over the counter on NASDAQ under the symbol HIFI. The following table sets forth for the periods indicated the high and low sale prices of the common stock as reported by NASDAQ.
CAMBRIDGE SOUNDWORKS, INC. ----------- HIGH LOW ----- ----- FISCAL 1996 Quarter ended September 30, 1995.............................. $7.75 $4.75 Quarter ended December 31, 1995............................... 6.00 4.25 Quarter ended March 31, 1996.................................. 6.375 3.625 Quarter ended June 30, 1996................................... 4.625 3.25 FISCAL 1997 Quarter ended September 30, 1996.............................. 4.75 3.25 Quarter ended December 31, 1996............................... 7.125 3.375 Quarter ended March 31, 1997.................................. 5.875 3.375 Quarter ending June 29, 1997.................................. 5.50 4.625 THREE MONTHS ENDED SEPTEMBER 28, 1997 Quarter ended September 28, 1997.............................. 7.125 4.203
On October 3, 1997, the last full day of trading prior to the public announcement of the fact that Parent and the Company were in discussions regarding a possible acquisition transaction, according to published sources, the reported closing price of the Shares on NASDAQ was $7.125 per Share. On October 30, 1997, the last full day of trading prior to the public announcement of the execution of the Merger Agreement according to published sources, the closing price of the Shares on NASDAQ was $9.25 per Share. On October 31, 1997, the last full day of trading prior to the commencement of the Offer, according to published sources, the closing price of shares on NASDAQ was $10.375 per share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. 30 The Company has never declared or paid cash dividends and the Company has advised the Purchaser that it does not intend to declare any dividend in the foreseeable future. The ability of the Company to pay dividends is subject to certain restrictions under certain indebtedness of the Company and under the Merger Agreement. 7.CERTAIN INFORMATION CONCERNING THE COMPANY General. The following description of the Company's business has been taken from the Company's Report on Form 10-K for the fiscal year ended June 29, 1997 (the "10-K"): Cambridge SoundWorks, Inc. designs and manufactures audio product for home stereo, home theater, car stereo and multimedia computer audio under the brand name Cambridge SoundWorks. The Company sells its Cambridge SoundWorks products and selected audio and video components manufactured by other companies directly to consumers through its catalog and at its Company- owned retail stores. The sale of these products from other companies enables the Company to offer all of the components necessary for complete stereo and home theater systems. The Company also sells its Cambridge SoundWorks speakers on a wholesale basis. Available Information. The Company is subject to the information and reporting requirements of the Exchange Act and, in accordance therewith, is required to file periodic reports, proxy statements and other information with the SEC relating to its business, financial condition and other matters. Certain information as of particular dates concerning the Company's directors and officers (including their remuneration and stock options granted to them), Shares held by them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company and certain other matters is required to be disclosed in proxy statements and annual reports distributed to the Company's stockholders and filed with the SEC. Such reports, proxy statements and other information are available for inspection and copying at the public reference facilities of the SEC located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC located in the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and in Seven World Trade Center, Suite 1300, New York, New York 10048. Copies also may be obtained, by mail, upon payment of the SEC's customary charges by writing to the SEC's principal office at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains an Internet site on the World Wide Web at that contains reports, proxy statements and other information. The information also should be available at The Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006. Directors and Officers. The name, address, principal occupation or employment, five-year employment history, and citizenship of each director and executive officer of the Company is set forth in Schedule II hereto. 31 Selected Financial Data. The selected financial information of the Company and its subsidiaries set forth below, and the information set forth in Schedule III hereto, was excerpted and derived from the Company's 10-K, which included audited financial statements for the fiscal year ended June 29, 1997, as filed by the Company with the SEC. More comprehensive financial information is included in the 10-K (including management's discussion and analysis of results of operations and financial position) and other documents filed with the SEC. The following summary financial information is qualified in its entirety by reference to such documents and all other reports and documents filed with the SEC and all of the financial statements and related notes contained therein. Such reports and certain other reports may be examined and copies may be obtained at the offices of the SEC in the manner set forth in above. A copy of the financial statements set forth in the 10-K is reproduced as Schedule III hereto. CAMBRIDGE SOUNDWORKS, INC. SELECTED FINANCIAL DATA ($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX YEAR MONTHS YEAR ENDED YEAR YEAR ENDED ENDED 7/2/95 ENDED ENDED INCOME STATEMENT DATA: 12/31/94 7/2/95 (UNAUDITED) 6/30/96 6/29/97 ---------------------- -------- ------- ---------- ------- ------- Net sales...................... $19,432 $15,015 $26,928 $43,585 $51,285 Cost of goods sold............. 10,133 8,697 15,043 25,872 30,965 ------- ------- ------- ------- ------- Gross profit................. 9,299 6,318 11,885 17,713 20,320 Sales and marketing expenses... 6,890 5,830 10,406 14,254 18,320 General and administrative expenses...................... 1,617 1,182 2,197 2,062 2,218 Engineering and development expenses...................... 669 404 761 679 587 ------- ------- ------- ------- ------- Total expenses............... 9,176 7,416 13,364 16,995 21,125 ------- ------- ------- ------- ------- Income (loss) from operations.................. 123 (1,098) (1,479) 718 (805) Interest income (expense), net. 182 10 150 (301) (220) ------- ------- ------- ------- ------- Income (loss) before provision (benefit) for taxes....................... 305 (1,088) (1,329) 417 (1,025) Provision (benefit) for income taxes......................... 98 (435) (558) 167 (410) ------- ------- ------- ------- ------- Net income (loss)............ $ 207 $ (653) $ (771) $ 250 (615) Net income (loss) per common and common equivalent share. $ .08 $ (.23) $ (.27) $ .09 $ (.19) Weighed average number of common and common equivalent shares outstanding............ 2,461 2,873 2,870 2,922 3,194 Dividends per commons share.... -- -- -- -- -- Balance Sheet Data: Working capital.............. $ 9,539 $ 8,363 $ 8,363 $ 7,912 $11,079 Total Assets................. 15,947 15,029 15,029 18,130 21,098 Total Stockholders' Equity... 11,703 11,108 11,108 11,361 15,384
Book value per Share was $4.05 and $3.93 as of 1997, June 29, 1997 and June 30, 1996, respectively. The ratio of earnings to fixed charges was (19.8)% and 11.2% as of June 29, 1997 and June 30, 1996, respectively. Results for Quarter Ended September 28, 1997. On October 31, 1997, the Company issued the following press release with respect to its financial results for the fiscal quarter ended September 28, 1997: Cambridge SoundWorks, Inc. reported today that net sales for the first quarter ended September 28, 1997 were $13,175,453, up 18% compared to $11,130,289 a year ago. The Company reported a net loss for the quarter of $241,177, or $.06 per share, compared to net income of $32,067, or $.01 per share, for the 32 same period last year. The loss was expected because consumer demand for home stereo and computer sound systems is historically the weakest of the year during the July through September period. Contributing to the 18% overall sales increase for the quarter was a significant 20% overall increase in retail sales with same store comparisons up 6.4% for the quarter. In addition, wholesale sales increased approximately 20% for the quarter. The level of catalog sales remained relatively flat for the quarter compared to the same period last year. Cambridge SoundWorks, Inc., manufactures 33 different models of home stereo, car stereo, home theater and computer speakers. It is the country's first and largest factory-direct stereo company, selling its stereo speaker products and sound systems in its 27 retail stores in Massachusetts, New Hampshire, Maine, Connecticut and California. Cambridge SoundWorks' speakers and sound systems are also offered direct to the consumer through its national catalog. CAMBRIDGE SOUNDWORKS, INC. SELECTED FINANCIAL INFORMATION (UNAUDITED)
SEPT. 28, SEPT. 29, 1997 1996 ----------- ----------- Net sales.......................................... $13,175,453 $11,130,289 Net income (loss).................................. $ (241,177) $ 32,067 Net income (loss) per share........................ $ (.06) $ .01 Weighted average number of common and common equivalent shares outstanding..................... 3,803,086 2,892,523
8. CERTAIN INFORMATION CONCERNING THE PURCHASER AND PARENT Purchaser. The Purchaser is a Massachusetts corporation and has not carried on any activities other than in connection with the Offer and the Merger. The principal offices of the Purchaser are located at 1901 McCarthy Blvd., Milpitas, California 94025. The Purchaser is a wholly-owned subsidiary of Parent. Parent. Parent is a Singapore corporation. Its principal offices are located at 31 International Business Park, Creative Resource, Singapore 609921. Parent and its subsidiaries develop, manufacture, market and sell advanced multimedia solutions for the PC, entertainment, education, music and productivity tools market. The name, citizenship, business address, principal occupation or employment and five-year employment history and certain other information for each of the directors and executive officers of the Purchaser and Parent are set forth in Schedule I hereto. As of November 3, 1997, Parent beneficially owned 1,169,608 Shares (of which 257,314 Shares are subject to the Parent Warrant) which it acquired in connection with the Common Stock and Warrant Purchase Agreement with the Company, representing approximately 28.8% of the Shares outstanding. Prior to the Effective Time, if necessary or desirable in connection with the Merger, Parent may transfer all of its Shares to Purchaser. Except as described in this Offer to Purchase, (i) none of Purchaser, Parent nor, to the best knowledge of the Purchaser and Parent, any of the persons listed in Schedule I to this Offer to Purchase or any associate or majority-owned subsidiary of Purchaser, Parent or any of the persons so listed, beneficially owns or has any right to acquire, directly or indirectly, any Shares and (ii) none of Purchaser, Parent nor, to the best knowledge of the Purchaser and Parent, 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 the Shares during the past 60 days. Except as provided in the Merger Agreement or as otherwise described in this Offer to Purchase, none of Purchaser, Parent nor, to the best knowledge of the Purchaser and Parent, any of the persons listed in Schedule I 33 to this Offer to Purchase, 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 voting of such securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss, guarantees of profits, division of profits or loss or the giving or withholding of proxies. Except as set forth in this Offer to Purchase, neither the Purchaser nor Parent nor, to the best knowledge of the Purchaser and Parent, any of the persons listed on Schedule I hereto, has had any business relationship or transaction with the Company or any of its executive officers, directors or affiliates that is required to be reported under the rules and regulations of the SEC applicable to the Offer. Except as set forth in this Offer to Purchase, there have been no contacts, negotiations or transactions between any of Purchaser, Parent, or any of their subsidiaries or, to the best knowledge of the Purchaser and Parent, any of the persons listed in Schedule I to this Offer to Purchase, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets. 9. FINANCING OF THE OFFER AND THE MERGER The total amount of funds required by the Purchaser to consummate the Offer and the Merger and to pay related fees and expenses is estimated to be approximately $38 million. The Purchaser intends to obtain all funds needed for the Offer through a capital contribution, which will be made by Parent to the Purchaser at the time the shares tendered pursuant to the Offer are accepted for payment. Parent intends to use its available cash on hand to make this capital contribution. Neither the Offer nor the Merger is conditioned on obtaining financing. 10. INTERCOMPANY ARRANGEMENTS BETWEEN PARENT AND THE COMPANY Common Stock and Warrant Purchase Agreement. Parent and the Company entered into a Common Stock and Warrant Purchase Agreement dated as of February 20, 1997 (the "Common Stock and Warrant Purchase Agreement"), pursuant to which Parent purchased 912,294 shares of Common Stock of the Company, at a purchase price of $5.25 per share, and a warrant to purchase 257,314 shares of Common Stock of the Company at an exercise price of $6.00 per share. Common Stock Purchase Warrant. Pursuant to the Common Stock and Warrant Purchase Agreement, on February 28, 1997, Parent purchased a warrant to purchase 257,314 shares of Common Stock of the Company (the "Warrant") for a consideration of $1,000. The exercise price of the shares under the Warrant is $6.00 per share. The Warrant may be exercised at any time prior to February 28, 2001, provided that (i) the Company will have received a blanket purchase order from Parent within twenty days of the issuance of the Warrant for the purchase of at least $3,000,000 of the Company's products during the first twelve months after the issuance of the Warrant and (ii) concurrently with the issuance of such purchase order, Parent delivers funds in the amount of $1,000,000 to the Company to be applied against purchase orders issued by Parent for the Company's products. Parent has fulfilled the foregoing conditions and is entitled to exercise the Parent Warrant. Investors' Rights Agreement. Parent and the Company entered into an Investors' Rights Agreement dated as of February 28, 1997 (the "Investors' Rights Agreement"), pursuant to which the Company granted Parent (i) certain rights to register the shares of Common Stock (including shares issuable upon exercise of the Warrant) purchased by Parent under the Common Stock and Warrant Purchase Agreement with the Securities and Exchange Commission, (ii) so long as Parent holds at least 456,147 shares of Common Stock, a right of first refusal to purchase, on a pro rata basis, any new securities proposed to be issued by the Company, subject to certain exceptions, (iii) so long as Parent holds at least 250,000 shares of Common Stock, a right to receive annual, quarterly and monthly financial statements from the Company, and (iv) so long as Parent holds at least 456,147 shares of Common Stock, a right to designate one nominee for election to the Board of Directors or, if no director on the Board is a designee of Parent, a right to attend meetings of the Board of Directors as a nonvoting observer. Voting Agreement. Parent, the Company, Henry E. Kloss and Thomas J. DeVesto entered into a Voting Agreement dated as of February 28, 1997, pursuant to which (i) the Company agreed, at all elections of directors, 34 to nominate one person designated by Parent, and (ii) Henry Kloss and Thomas DeVesto agreed to vote all their shares for the election of such nominee. This Voting Agreement terminates upon the earlier of ten years from the date of the agreement or at such time that Parent holds less than 456,147 shares of Common Stock of the Company. Exclusive Distribution Agreement. Parent and the Company entered into an Exclusive Distribution Agreement dated as of February 28, 1997 (the "Distribution Agreement"), pursuant to which the Company granted Parent an exclusive right to distribute and sell the Company's multimedia products. Parent's right of exclusive distribution of the Company's multimedia products is subject to certain performance milestones described in the Distribution Agreement. Non-Disclosure Agreement. The Company and Creative Labs, a wholly owned subsidiary of Parent, entered into a Mutual Confidentiality and Non-Disclosure Agreement dated October 18, 1996, pursuant to which the Company and Creative Labs agreed to treat and maintain all proprietary and confidential information received from the other in confidence. As a term of the Merger Agreement, Parent and the Company have agreed that all of the information passed between them in connection with their respective review and evaluation of the Offer and the Merger would be deemed subject to this Agreement. DeVesto Employment Agreement. On February 18, 1997, Mr. DeVesto, President and Chief Executive Officer of the Company, entered into an Employment Agreement with the Company providing for the employment of Mr. DeVesto for a three-year period terminating on February 17, 2000. As compensation for such service for the first year under the agreement, Mr. DeVesto is to receive an annual base salary of not less than $385,000. This salary will be subject to adjustment as determined in the discretion of the Company Board. Under the agreement, Mr. DeVesto has also agreed to certain non-competition and non- solicitation provisions effective during the term of his employment with the Company and for a one-year period thereafter. Both the Company and Mr. DeVesto have agreed to give the other six months' prior notice in the event that one of them intends to terminate the employment of Mr. DeVesto. In the event that either the Company or Mr. DeVesto elects to terminate his employment with the Company at any time, Mr. DeVesto will be entitled to receive a lump sum payment equal to one-year's base salary in consideration for his agreements with respect to non-competition and non-solicitation. In connection with the negotiation of the Merger Agreement and the transactions contemplated thereby, Parent requested that Mr. DeVesto agree to certain clarifications to his Employment Agreement, principally relating to the effect of the Company failing to give a full six months' notice prior to terminating Mr. DeVesto's employment with the Company. Mr. DeVesto consented to these clarifications, and the Employment Agreement was amended and restated to incorporate these changes effective October 29, 1997. 11. DIVIDENDS AND DISTRIBUTIONS If, on or after October 30, 1997, the Company should declare or pay any dividend on the Shares or make any other distribution (including the issuance of additional shares of capital stock pursuant to a stock dividend or stock split, the issuance of other securities or the issuance of rights for the purchase of any securities) with respect to the Shares that is payable or distributable to stockholders of record on a date prior to the transfer to the name of the Purchaser or its nominee or transferee on the Company's stock transfer records of the Shares purchased pursuant to the Offer, then, without prejudice to Purchaser's rights under "THE OFFER -- Certain Conditions of the Offer," (i) the Offer Price per Share payable by the Purchaser pursuant to the Offer will be reduced (subject to the Merger Agreement) to the extent any such dividend or distribution is payable in cash, and (ii) any non-cash dividend, distribution or right will be received and held by the tendering stockholder 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 Purchaser, accompanied by appropriate documentation of transfer. Pending such remittance and subject to applicable law, the Purchaser will be entitled to all the rights and privileges as owner of any such non-cash dividend, distribution or right 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. 35 12. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; NASDAQ QUOTATION AND EXCHANGE ACT REGISTRATION The purchase of Shares by the Purchaser pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly, will reduce the number of holders of Shares and could thereby adversely affect the liquidity and market value of the remaining publicly held Shares. NASDAQ Listing. Depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the standards for continued inclusion in NASDAQ. According to NASDAQ's published guidelines, the Shares would not be eligible to be included for listing if, among other things, the number of publicly held Shares falls below 500,000, the number of holders of Shares falls below 400 or the aggregate market value of such publicly held Shares falls below $3,000,000. If these standards are not met, the Shares might continue to be listed on The Nasdaq SmallCap Market, Inc., but if the number of holders of the Shares falls below 300, or if the number of publicly held Shares falls below 100,000, or if the aggregate market value of such publicly held Shares falls below $200,000 or there are not at least two registered and active market makers (one of which may be a market maker entering a stabilizing bid), NASDAQ rules provide that the securities would no longer qualify for inclusion in NASDAQ and NASDAQ would cease to provide any quotations. Shares held directly or indirectly by an officer or director of the Company or by a beneficial owner of more than 10% of the Shares will ordinarily not be considered as being publicly held for purposes of these standards. In the event the Shares are no longer eligible for NASDAQ quotation, quotations might still be available from other sources. The extent of the public market for the Shares and the availability of such quotations would, however, depend upon the number of holders of such Shares remaining at such time, the interest in maintaining a market in such Shares on the part of securities firms, the possible termination of registration of such Shares under the Exchange Act as described below and other factors. On October 22, 1997, the Company received a letter from The Nasdaq Stock Market, Inc. ("Nasdaq"), dated October 22, 1997 (the "Nasdaq Letter"), concerning the private placement to Parent on February 28, 1997 of 912,294 shares of the Company's common stock and a Warrant to purchase 257,314 shares of the common stock of the Company. The Nasdaq Letter states that Nasdaq has determined that the private placement may have occurred in violation of Marketplace Rule 4460(i)(1)(b) of The Nasdaq Stock Market. Marketplace Rule 4460(i)(1)(b) generally requires an issuer with shares traded on The Nasdaq Stock Market to obtain shareholder approval when an issuance of its stock would result in a change of control of the issuer. Nasdaq has requested that the Company provide to Nasdaq, by no later than November 4, 1997, a summary and supporting documentation as to why shareholder approval was not obtained for the private placement to Parent. If the Company's submission is deemed not to warrant continued listing on The Nasdaq Stock Market, the Nasdaq Letter states that Nasdaq will immediately send the Company a formal notice of deficiency and commence the process of delisting the Company's common stock from The Nasdaq Stock Market. The Nasdaq Letter states that no delisting action will be taken until the Company has had adequate time to respond to Nasdaq's formal notice. The Company believes that the private placement to Parent did not result in a change of control of the Company and that no grounds exist for the delisting of the Company's shares from The Nasdaq Stock Market. However, in the event that the Offer is not consummated and the Company's common stock is delisted from The Nasdaq Stock Market, such delisting would likely have an adverse effect upon the trading value of the Company's Common Stock, the Company's ability to effect equity financings, and, accordingly, could have a material adverse effect upon the Company. 36 Purchaser has been advised by the Company that as of October 23, 1997, there were approximately 71 holders of record of the Shares. Margin Regulations. The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such Shares for the purpose of buying, carrying or trading in securities ("Purpose Loans"). Depending upon factors similar to those described above regarding the continued listing, public trading and market quotations of the Shares, it is possible that, following the purchase of the Shares pursuant to the Offer, the Shares would no longer constitute "margin securities" for the purposes of the margin regulations of the Federal Reserve Board and therefore could no longer be used as collateral for Purpose Loans made by brokers. Exchange Act Registration. The Shares are currently registered under the Exchange Act. Such registration may be terminated upon application by the Company to the SEC if the Shares are not listed on a national securities exchange and there are fewer than 300 record holders. The termination of the registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to holders of Shares 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), the requirement of furnishing a proxy statement in connection with stockholders' meetings and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions, no longer applicable to the Shares. In addition, "affiliates" of the Company and persons holding "restricted securities" of the Company may be deprived of the ability to dispose of such securities pursuant to Rule 144 under the Securities Act. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be "margin securities" or be eligible for NASDAQ reporting. The Purchaser currently intends to seek to cause the Company to terminate the registration of the Shares under the Exchange Act as soon after consummation of the Offer as the requirements for termination of registration are met. 13. CERTAIN CONDITIONS OF THE OFFER Any other provision of the Offer notwithstanding, the Purchaser will not be required to accept for payment or pay for any Shares tendered pursuant to the Offer, and may terminate or amend the Offer and may postpone the acceptance for payment of and payment for Shares tendered, if (i) the Minimum Share Condition shall not have been satisfied, (ii) any applicable waiting period under the HSR Act shall not have expired or been terminated prior to the expiration of the Offer, or (iii) at any time on or after the date of the Merger Agreement and before the acceptance of such Shares for payment or the payment therefor, any of the following conditions exist: (a) a preliminary or permanent injunction or other order by any federal, state or foreign court which prevents the acceptance for payment of, or payment for, some of or all the Shares shall have been issued and shall remain in effect; (b) there shall have been instituted or be pending any action or proceeding by any Governmental Entity (i) challenging the acquisition by the Purchaser of Shares or otherwise seeking to restrain, materially delay or prohibit the consummation of the Offer or the Merger or seeking damages that would make the Offer, the Merger or any other transaction contemplated hereby materially more costly to Parent or the Purchaser, (ii) seeking to prohibit or limit materially the ownership or operation by the Purchaser or Parent of all or a material portion of the business or assets of the Company, or to compel the Purchaser or Parent to dispose of or hold separate all or a material portion of the business or assets of the Company or the Purchaser or Parent, as a result of the Offer or the Merger, (iii) seeking to impose or confirm limitations on the ability of Parent or the Purchaser effectively to exercise full rights of ownership of the Shares, including, without limitation, the right to vote the Shares purchased by it on all matters properly presented to the Company's stockholders, including, without limitation, the approval and adoption of the Merger Agreement and the transactions contemplated hereby, or (iv) seeking to require divestiture by Parent, the Purchaser or any other affiliate of Parent of any Shares; 37 (c) there shall have been any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Offer, the Merger or any other transaction contemplated hereby, Parent, the Company or any affiliate of Parent or the Company by any Governmental Entity, except for the waiting period provisions of the HSR Act, which is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (i) through (iv) of paragraph (b) above; (d) any change or effect that, individually or in the aggregate, is or is reasonably likely to constitute a Material Adverse Effect shall have occurred following the date of the Merger Agreement; (e) the Company shall have breached or failed to perform in any material respect any of its obligations, covenants or agreements under the Merger Agreement; or (f) any representation or warranty of the Company in the Merger Agreement that is qualified as to materiality shall not be true and correct or any such representation or warranty that is not so qualified shall not be true and correct in any material respect, in each case when made and at and as of such time as if made at and as of such time. (g) there shall have occurred (i) any general suspension of, or limitation on prices for, trading in securities on the Nasdaq National Market; (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or Canada; (iii) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States or Canada; or (iv) in the case of any of the foregoing existing on the date hereof, a material acceleration or worsening thereof; (h) (i) it shall have been publicly disclosed or the Purchaser shall have otherwise learned that beneficial ownership (determined for the purposes of this paragraph as set forth in Rule 13d-3 promulgated under the Exchange Act) of a majority of then outstanding Shares have been acquired by any person other than Parent or any of its affiliates, or (ii)(A) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Parent or the Purchaser the approval or recommendation of the Offer, the Merger or the Merger Agreement, or approved or recommended any Third Party Acquisition or any other acquisition of Shares other than the Offer and the Merger, or (B) the Board of Directors of the Company or any committee thereof shall have resolved to do any of the foregoing; (i) the Merger Agreement shall have been terminated in accordance with its terms. The foregoing conditions are for the sole benefit of the Purchaser and Parent. The foregoing rights of the Purchaser will be available regardless of the circumstances giving rise to any such conditions (including any action or omission to act of the Purchaser) and, subject to Section 1.1(a) of the Merger Agreement, may be waived by the Purchaser or Parent in whole or in part at any time and from time to time in their sole discretion. Any determination by the Purchaser will be final and binding upon all parties including tendering stockholders. The failure by the Purchaser or Parent at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and other circumstances will not be deemed a waiver with respect to any other facts and circumstances; and each such right will be deemed an ongoing right which may be asserted at any time and from time to time. 14. CERTAIN LEGAL MATTERS General. Except as described in this section, based on its review of publicly available filings of the Company with the SEC and other publicly available information regarding the Company, the Purchaser is not aware of any license or regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by Purchaser's acquisition of Shares as contemplated herein or of any approval or other action by or with any domestic, foreign, or international government authority or administrative or regulatory agency that would be required for the acquisition or ownership of the Shares by Purchaser. Should any such approval or other action be required, the Purchaser currently contemplates that such approval or other action will be sought, except as described below under "State 38 Takeover Laws." While, except as otherwise expressly described in this section, the Purchaser does not presently intend to delay the acceptance for payment of or payment for Shares tendered pursuant to the Offer pending the outcome of any such matter, there can be no assurance that any such approval or other action, if needed, would be obtained without substantial conditions or that failure to obtain any such approval or other action might not result in consequences adverse to the Company's business or that certain parts of the Company's business might not have to be divested of if such approvals were not obtained or such other actions were not taken, any of which could cause the Purchaser to decline to accept for payment or pay for any Shares tendered. Purchaser's obligations to accept for payment or pay for the Shares tendered pursuant to the Offer is subject to the certain conditions set forth in this Offer, including the conditions set forth above in this paragraph and with respect to litigation and governmental action as contemplated herein. See "THE OFFER -- Certain Conditions of the Offer." Federal Regulatory Approval. Except as otherwise noted in this Section, no federal regulatory approval is required for the Purchaser to complete the Offer and consummate the Merger. State Takeover Laws. Chapter 110F of the Massachusetts General Laws ("Chapter 110F") prohibits a corporation with 200 or more stockholders from engaging in a "Business Combination" (as defined in Chapter 110F) with an "Interested Stockholder" (defined generally as a person who, together with affiliates and associates, owns 5% or more of such corporation's outstanding voting stock, or as an affiliate or associate of such corporation who, together with affiliates and associates, owned 5% or more of such corporation's outstanding voting stock, or as an affiliate or associate of such corporation who, together with affiliates and associates, owned 5% or more of such corporation's outstanding voting stock at any time within the immediately preceding three-year period) for three years following the date such person became an Interested Stockholder. The provisions are not applicable when (i) prior to the date the stockholder became an Interested Stockholder, the board of directors of the corporation approved either the Business Combination or the transaction that resulted in the stockholder becoming an Interested Stockholder, (ii) upon consummation of the transaction that resulted in the stockholder becoming an Interested Stockholder, such Interested Stockholder owned at least 90% of the outstanding voting stock of the corporation, not including shares owned by directors who are also officers and by certain employee stock plans or (iii) on or subsequent to the date the stockholder becomes an Interested Stockholder, the Business Combination is approved by the board of directors of the corporation and authorized at a meeting of stockholders, and not by written consent, by the affirmative vote of the holders of at least two-thirds of the outstanding voting stock entitled to vote thereon, excluding shares owned by the Interested Stockholder. These restrictions generally do not apply to Business Combinations with an Interested Stockholder that are proposed subsequent to the public announcement of, and prior to the consummation or abandonment of, certain mergers, sales of a majority of a corporation's assets or tender offers for 50% or more of the corporation's voting stock. Based on the foregoing, the Company has advised Parent that the restrictions of Chapter 110F will not apply to the Offer and Merger. Chapter 110F allows corporations to elect not to be subject to the preceding provisions of the Massachusetts law. The Company has not so elected. Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the rules that have been promulgated thereunder by the Federal Trade Commission (the "FTC"), certain transactions (including certain transactions involving the proposed acquisition of in excess of 15%, 25% and 50% of the equity interest of a target corporation) 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 "HSR Requirements"). Under the provisions of the HSR Act applicable to the Offer, the purchase of Shares under the Offer may not be consummated until the expiration of a fifteen calendar day waiting period following the required filing. The Purchaser (on behalf of Parent) anticipates that it will file a Notification and Report Form with respect to the Offer on November 4, 1997. The Company filed a Notification and Report Form with respect to the Offer on November 3, 1997. Accordingly, if the Purchaser's filing is in fact made on November 4, 1997, the waiting period with respect to the Offer will expire at 11:59 p.m., New York City time, on November 19, 1997, unless the Parent receives a request for additional information or documentary material, or the Antitrust Division and the FTC terminate the waiting period prior thereto. If, within such fifteen day period, either the Antitrust Division or the FTC requests additional information or material from the Parent concerning the Offer, the waiting period 39 will be extended and would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by the Parent with such request. Only one extension of the waiting period pursuant to a request for additional information is authorized by the HSR Act. Thereafter, such waiting period may be extended only by court order or with the consent of the Parent. In practice, complying with a request for additional information or material can take a significant amount of time. In addition, if the Antitrust Division or the FTC raises substantive issues in connection with a proposed transaction, the parties may engage in negotiations with the relevant governmental agency concerning possible means of addressing those issues and may agree to delay consummation of the transaction while such negotiations continue. Expiration or termination of applicable waiting periods under the HSR Act is a condition to the Purchaser's obligation to accept for payment and pay for Shares tendered pursuant to the Offer. The FTC and the Antitrust Division 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 purchase of Shares pursuant to the Offer by Purchaser, the FTC or the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or seeking the divestiture of Shares purchased by the Purchaser or the divestiture of substantial assets of Parent, the Company or their respective subsidiaries. Private parties and state attorneys general may also bring legal action under federal or state antitrust laws under certain circumstances. Based upon an examination of information available to Parent relating to the businesses in which Parent, the Company and their respective subsidiaries are engaged, Parent and the Purchaser believe that neither the Offer nor the Merger will violate the antitrust laws. Nevertheless, there can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such a challenge is made, what the result would be. See "THE OFFER -- Certain Conditions of the Offer." 15. FEES AND EXPENSES Except as set forth below, the Purchaser will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Shares pursuant to the Offer. Purchaser and Parent have retained Georgeson & Company Inc. to be the Information Agent and State Street Bank and Trust Company to be the Depositary in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telecopy, telegraph and personal interview and may request banks, brokers, dealers and other nominee stockholders to forward materials relating to the Offer to beneficial owners. As compensation for acting as Information Agent in connection with the Offer, Georgeson & Company Inc. will be paid a fee of $7,000 and will also be reimbursed for certain out-of-pocket expenses and may be indemnified against certain liabilities and expenses in connection with the Offer, including certain liabilities under the federal securities laws. The Purchaser will pay the Depositary a fee of $10,000 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 certain liabilities under federal securities laws. Brokers, dealers, commercial banks and trust companies will be reimbursed by the Purchaser for customary handling and mailing expenses incurred by them in forwarding material to their customers. The following is an estimate of expenses to be incurred in connection with the Offer and the Merger: Financial Advisor Fees and Expenses............................. $ 425,000 Legal Fees...................................................... $ 400,000 Accounting Fees................................................. 20,000 Printing and Mailing............................................ 250,000 Advertising..................................................... 60,000 Filing Fees..................................................... 10,000 Miscellaneous (including Depositary and Information Agent fees and expenses).................................................. 50,000 ---------- Total.......................................................... $1,215,000 ==========
40 16. 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 with the securities, blue sky or other laws of such jurisdiction. The Purchaser may, in its discretion, however, take such action as it may deem necessary to make the Offer in any jurisdiction and extend the Offer to holders of Shares in any 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 by one or more registered brokers or dealers licensed under the laws of such jurisdiction. No person has been authorized to give any information or to make any representation on behalf of the Purchaser not contained herein or in the Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. Neither the delivery of this Offer to Purchase nor any purchase pursuant to the Offer will, under any circumstances, create any implication that there has been no change in the affairs of the Purchaser or the Company since the date as of which information is furnished or the date of this Offer to Purchase. Parent and the Purchaser have filed with the SEC a Tender Offer Statement on Schedule 14D-1, together with exhibits, pursuant to Rule 14d-3 under the Exchange Act, and Parent, the Purchaser and the Company have filed with the SEC a Rule 13e-3 Transaction Statement on Schedule 13E-3, together with exhibits, pursuant to Rule 13e-3 under the Exchange Act, furnishing certain additional information with respect to the Offer. In addition, the Company has filed with the SEC a Solicitation/Recommendation Statement Schedule 14D-9, together with exhibits, pursuant to Rule 14d-9 under the Exchange Act, setting forth the recommendations of the Company Board with respect to the Offer and the reasons for such recommendations and furnishing certain additional related information. Such Schedules and any amendments thereto, including exhibits, may be inspected and copies may be obtained from the SEC in the manner set forth under "THE OFFER -- Certain Information Concerning the Company" (except that they will not be available at the regional offices of the SEC). CSW ACQUISITION CORPORATION November 3, 1997 41 SCHEDULE I DIRECTORS AND THE EXECUTIVE OFFICERS OF PURCHASER AND PARENT DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The following table sets forth the name, principal occupation or employment at the present time and during the last five years, and the name and business address of any corporation or other organization in which such employment is conducted or was conducted of each director and executive officer of Parent. The business address of each executive officer of Parent is 31 International Business Park, Creative Resource, Singapore 609921; unless otherwise set forth below. Each occupation set forth opposite a person's name, unless other indicated, refers to employment with Parent. Directors are indicated with an asterisk.
NAME, AGE, ADDRESS AND YEAR OTHER BUSINESS FIRST APPOINTED OR ELECTED PRESENT POSITION EXPERIENCE --------------------------- ---------------- -------------- *Sim Wong Hoo, 42 Chairman of the Board N/A First appointed: 1981 and Chief Executive First became director: 1981 Officer Ng Keh Long, 38 Vice President, Prior to joining Parent First appointed: 1993 Corporate Treasurer and in 1993, Mr. Ng was a Acting Chief Financial Senior Manager at Price Officer and Company Waterhouse where he was Secretary employed for over 10 years. *Tan Lip-Bu, 37 Director General Partner of First became director: 1990 Walden Group of venture capital funds since 1984. Mr. Tan is a director of several private and public companies in the United States, Taiwan, Singapore and Malaysia with which the Walden Group is associated. *Tang Chun Choy, 49 Director Managing Director of the First became director: 1990 Walden International Investment Group. Prior to joining Walden in 1989, Mr. Tang was the General Manager of Chemical Bank in Singapore. Mr. Tang holds directorships in various companies in which the Walden Group has made investments. *Lee Kheng Nam, 49 Director Responsible for First became director: 1991 strategic investments in new technologies and venture capital funds at the Singapore Technologies group since 1983. Mr. Lee holds directorships in several companies based in the U.S., China and Singapore in which the Singapore Technologies group has made investments.
I-1 DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER. The following table sets forth the name, principal occupation or employment at the present time and during the last five years, and the name and business address of any corporation or other organization in which such employment is conducted or was conducted of each director and executive officer of Purchaser. The business address of each executive officer of Purchaser is 1901 McCarthy Boulevard, Milpitas, California 95035, unless otherwise set forth below. Each occupation set forth opposite a person's name, unless other indicated, refers to employment with Purchaser. The Purchaser's Director is indicated with an asterisk.
NAME, AGE, ADDRESS AND FIRST YEAR APPOINTED OR ELECTED PRESENT POSITION OTHER BUSINESS EXPERIENCE ---------------------------- ---------------- ------------------------- John D. Danforth, 39 President Mr. Danforth has been Vice First appointed: 1997 President and General Counsel of Creative Labs, Inc. since 1995 and General Counsel since 1994. He was a partner with Morrison & Foerster from 1989 to 1994. *Ng Keh Long, 38 Vice President, Mr. Ng joined Parent in April Creative Technology Ltd. Treasurer and 1993 as Financial Controller 31 International Business Director and held various financial Park positions until May 1996 when Creative Resource he was appointed Vice Singapore 609921 President, Corporate Treasurer First appointed: 1997 and Acting Chief Financial First became director: 1997 Officer. Prior to joining Parent in 1993, Mr. Ng was a Senior Manager at Price Waterhouse where he was employed for over 10 years. Erika Rottenberg, 35 Vice President Ms. Rottenberg has been First appointed: 1997 and Secretary Associate Counsel of Creative Labs since September 1996. She was an associate with Cooley Godward from 1992 to 1996.
I-2 SCHEDULE II DIRECTORS AND THE EXECUTIVE OFFICERS OF THE COMPANY DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. The following table sets forth the name, principal occupation or employment at the present time and during the last five years, and the name and business address of any corporation or other organization in which such employment is conducted or was conducted of each director and executive officer of the Company. The business address of each executive officer of the Company is 311 Needham Street, Newton, Massachusetts 02164, unless set forth below. Each occupation set forth opposite a person's name, unless otherwise indicated, refers to employment with the Company. Directors are indicated with an asterisk.
NAME, AGE, ADDRESS AND YEAR FIRST APPOINTED OR ELECTED PRESENT POSITION OTHER BUSINESS EXPERIENCE --------------------------- ---------------- ------------------------- *Thomas J. DeVesto, 50, President and Chief From 1985 to 1988, Mr. First appointed: 1988 Executive Officer DeVesto was a consultant First became director: 1988 to ITT Corporation and represented ITT in connection with its relationship with Kloss Video Corporation. From 1978 to 1985, he was Vice President of Sales and Marketing of Kloss Video Corporation. From 1976 through 1978, Mr. DeVesto held various sales management positions in the international and domestic divisions of Advent. Wayne P. Garrett, 41 Vice President-Finance, From 1983 through 1995, First appointed: 1995 Chief Financial Officer, Mr. Garrett was employed Treasurer and Clerk by Argus Management Corp. as a management consultant. From 1978 to 1981, he was employed as an auditor by Price Waterhouse. Thomas J. Hannaher, 45 Vice President-Marketing From 1979 through 1993, First appointed: 1993 Mr. Hannaher owned and operated an advertising and marketing agency and provided consulting services to a number of companies, including the Company, Boston Acoustics, NAD, Tweeter and Apple Computer. Robert S. Mainiero, 41 Vice President-Business From 1993 through 1995, First Appointed: 1996 Development Mr. Mainiero was Vice President-Sales for a/d/s. From 1985 through 1993 he served as Zone Manager for Alpine Electronics of America and previously served as Assistant National Sales Manager of Kloss Video Corporation. Sandy Ruby, 56 Vice President-Retail From 1985 through 1995, First Appointed: 1995 Mr. Ruby was a systems consultant and Vice President of Practicorp International. From 1968 through 1984, Mr. Ruby was a founder and Chief Executive Officer of Tech HiFi, a 70-store consumer electronics retail chain.
II-1
NAME, AGE, ADDRESS AND YEAR OTHER BUSINESS FIRST APPOINTED OR ELECTED PRESENT POSITION EXPERIENCE --------------------------- ---------------- -------------- *Thomas E. Brew, Jr., 55 Director Mr. Brew has been the First became director: 1995 President, Chief Executive Officer and a director of Kurzweil Applied Intelligence, Inc. since November 1994. From 1979 through 1994 he was co-founder and Executive Vice President of Argus Management Corp. *Franklin S. Browning, Jr., 69 Director Mr. Browning co-founded First became director: 1996 the Boston advertising agency Humphrey Browning McDoughall in 1970. He was Chairman of HBM until 1983. *Leo Kahn, 80 Director Mr. Kahn has been a First became director: 1995 partner of United Properties since 1985, and a director of Big V Supermarkets and of Grossman's, Inc., since 1986. In 1948 Mr. Kahn was a founder, President and Chief Executive Officer of Purity Supreme, Inc., and co- founder of Staples, Inc. in 1986. *Craig L. McHugh, 40 Director Mr. McHugh has been Vice First became director: 1997 President, General Manager of Creative Labs, Inc. since January 1996. He joined Creative in October 1993 as General Manager of Worldwide OEM and later served as Vice President of Sales and Marketing. Prior to Creative. Mr. McHugh was Vice President of Sales and Marketing at Trace, Inc. and was also a member of their Board of Directors. *Peter B. Seamans, 73 Director Mr. Seamans has been a First became director: 1996 partner with the law firm of Peabody & Arnold since 1957. He previously served as a director of Kloss Video Corporation and Advent Corporation and currently serves on the board of the Peabody Essex Museum and the USS Constitution Museum.
II-2 SCHEDULE III CAMBRIDGE SOUNDWORKS, INC. BALANCE SHEET
JUNE 30, JUNE 29, 1996 1997 ----------- ----------- CURRENT ASSETS: Cash.................................................. $ 87,421 $ 58,043 Accounts receivable, net.............................. 2,431,670 719,855 Income tax refund receivable.......................... -- 404,434 Inventories........................................... 11,405,352 14,816,618 Prepaid expenses...................................... 187,247 181,150 Deferred tax asset.................................... 570,000 613,653 ----------- ----------- Total Current Assets................................. 14,681,690 16,793,753 PROPERTY AND EQUIPMENT, AT COST: Production equipment and tooling...................... 407,925 580,192 Office equipment and furniture........................ 1,148,610 1,367,080 Leasehold improvements................................ 2,544,495 3,938,224 Motor vehicles........................................ 180,290 250,252 ----------- ----------- 4,281,320 6,135,748 Less Accumulated depreciation and amortization........ 1,135,478 1,995,287 ----------- ----------- Net Property and Equipment........................... 3,145,842 4,140,461 OTHER ASSETS........................................... 302,880 163,900 ----------- ----------- Total Assets......................................... $18,130,412 $21,098,204 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Borrowings under line of credit....................... $ 3,395,557 $ 1,915,713 Accounts payable...................................... 2,123,773 2,148,399 Accrued expenses...................................... 979,689 914,978 Customer prepayments and other current liabilities.... 270,707 735,279 ----------- ----------- Total Current Liabilities............................ 6,769,726 5,714,369 Comments (Notes 5, 8 and 9) STOCKHOLDERS' EQUITY: Preferred stock, no par value- 2,000,000 shares authorized -- -- Common stock, no par value- 10,000,000 shares authorized 2,889,399 shares and 3,803,027 shares issued and outstanding at June 30, 1996 and June 29, 1997, respectively......................................... 10,346,710 14,984,557 Retained earnings..................................... 1,013,976 399,278 ----------- ----------- Total Stockholders' Equity........................... 11,360,686 15,383,835 Total Liabilities and Stockholders' Equity........... $18,130,412 $21,098,204
The accompanying notes are an integral part of these financial statements. III-1 CAMBRIDGE SOUNDWORKS, INC. STATEMENT OF OPERATIONS
YEAR ENDED SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, ENDED JULY 2, JULY 2, JUNE 30, JUNE 29, 1994 1995 1995 1996 1997 ------------ ------------- ----------- ----------- ----------- (UNAUDITED) Net Sales............... $19,431,892 $15,014,837 $26,927,699 $43,585,017 $51,285,380 Cost of Goods Sold...... 10,133,001 8,696,852 15,043,196 25,871,582 30,965,293 ----------- ----------- ----------- ----------- ----------- Gross profit.......... 9,298,891 6,317,985 11,884,503 17,713,435 20,320,087 Sales and Marketing Expense................ 6,890,254 5,829,589 10,406,100 14,253,742 18,320,541 General and Administrative Expenses............... 1,616,323 1,182,245 2,196,623 2,061,351 2,217,765 Engineering and Development Expenses... 669,179 403,773 760,590 679,637 586,901 ----------- ----------- ----------- ----------- ----------- Total expenses........ 9,175,756 7,415,607 13,363,313 16,994,730 21,125,207 ----------- ----------- ----------- ----------- ----------- Income (loss) from operations........... 123,135 (1,097,622) (1,478,810) 718,705 (805,120) Interest Income......... 187,241 23,078 164,735 -- -- Interest Expense........ (5,225) (13,325) (15,343) (300,870) (219,578) ----------- ----------- ----------- ----------- ----------- Income (loss) before provisions (benefit) for income taxes..... 305,151 (1,087,869) (1,329,418) 417,835 (1,024,698) Provision (Benefit) for Income Taxes........... 98,000 (435,000) (558,000) 167,000 $ (410,000) ----------- ----------- ----------- ----------- ----------- Net income (loss)..... $ 207,151 $ (652,869) $ (771,418) $ 250,835 $ (614,698) Net Income (Loss) per Common and Common Equivalent Share....... $ .08 $ (.23) $ (.27) $ .09 $ (.19) Weighted Average Number of Common and Common Equivalent Shares outstanding............ 2,461,169 2,872,617 2,869,626 2,922,323 3,193,692
The accompanying notes are an integral part of these financial statements. III-2 CAMBRIDGE SOUNDWORKS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
TOTAL COMMON STOCK STOCK- ---------------------- RETAINED HOLDERS' SHARES AMOUNT EARNINGS EQUITY ---------- ----------- ---------- ----------- Balance, December 31, 1993.... 1,456,580 334,750 1,208,859 1,543,609 Initial Public Offering of Common Stock, net of Issuance costs of $1,344,793. 1,410,000 9,935,207 -- 9,935,207 Exercise of stock options.... 5,000 16,800 -- 16,800 Net income................... -- -- 207,151 207,151 ---------- ----------- ---------- ----------- Balance, December 31, 1994.... 2,871,580 10,286,757 1,416,010 11,702,767 Exercise of stock options.... 17,244 57,940 -- 57,940 Net loss..................... -- -- (652,869) (652,869) ---------- ----------- ---------- ----------- Balance, July 2, 1995......... 2,888,824 10,344,697 763,141 11,107,838 Exercise of stock options.... 575 2,013 -- 2,013 Net income................... -- -- 250,835 250,835 ---------- ----------- ---------- ----------- Balance, June 30, 1996........ 2,889,399 $10,346,710 $1,013,976 $11,360,686 Issuance of common stock, net of Issuance costs of $156,649... 912,294 4,632,895 -- 4,632,895 Exercise of stock options.... 1,334 4,952 -- -- Net loss..................... -- -- (614,698) (614,698) ---------- ----------- ---------- ----------- Balance, June 29, 1997........ $3,803,027 $14,984,557 $ 399,278 $15,383,835
The accompanying notes are an integral part of these financial statements. III-3 CAMBRIDGE SOUNDWORKS, INC. STATEMENT OF CASH FLOW
SIX MONTHS YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, JULY 2, JULY 2, JUNE 30, JUNE 29, 1994 1995 1995 1996 1997 ------------ ---------- ---------- ---------- ---------- (UNAUDITED) Cash Flows from Operating Activities: Net Income (Loss)..... $ 207,151 $ (652,869) $ (771,418) $ 250,835 $ (614,698) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization.......... 276,915 286,482 499,888 744,009 1,096,147 Deferred (prepaid) income taxes.......... 233,000 (308,000) 100,000 (284,000) (43,653) Changes in current assets and liabilities: Accounts receivable, net................... (312,583) (427,164) (692,644) (1,628,623) 1,711,815 Income tax refund receivable............ (667,000) 286,072 (380,928) 380,928 (404,434) Inventories............ (5,761,353) (2,189,452) (7,165,942) (881,725) (3,411,266) Prepaid expenses....... (148,824) 164,622 207,569 (70,038) 6,097 Preopening costs....... (717,719) 560,114 (157,605) 157,605 -- Accounts payable....... 2,192,488 (6,161) 2,304,890 (1,205,555) 24,626 Accrued expenses....... 145,121 (131,269) 172,171 496,513 (64,711) Customer prepayments and other current liabilities........... 59,575 (185,085) (13,943) 161,589 464,572 ---------- ---------- ---------- ---------- ---------- Net cash used in operating activities. (4,493,229) (2,602,710) (5,897,962) (1,878,462) (1,235,505) Cash Flows From Investing Activities: Purchases of property and equipment......... (2,136,742) (850,943) (2,698,048) (1,224,649) (2,090,766) Increase in other assets................ (46,800) (15,830) (54,156) (223,923) 138,890 ---------- ---------- ---------- ---------- ---------- Net cash used in investing activities... (2,183,542) (866,733) (2,752,204) (1,448,572) (1,951,876) Cash flows from Financing Activities: Borrowings under line of credit, net........ -- -- -- 3,395,557 (1,479,844) Repayment of capital lease obligation...... (47,812) -- (42,345) -- -- Sale of common stock, net of issuance costs. 9,935,207 -- -- -- 4,632,895 Exercise of stock options............... 16,800 57,940 74,740 2,013 4,952 ---------- ---------- ---------- ---------- ---------- Net cash provided by financing activities. 9,904,195 57,940 32,395 3,397,570 3,158,003 Net (Decrease) Increase in Cash................ 3,227,424 (3,411,543) (8,617,771) 70,536 (29,378) Cash, Beginning of Period................. 201,004 3,428,428 8,634,656 16,885 87,421 Cash, End of Period..... $3,428,428 $ 16,885 $ 16,885 $ 87,421 $ 58,043 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Income taxes........... $ 561,563 $ 77,500 $ 157,500 $ 145,500 $ 66,100 Interest............... $ 5,225 $ 13,325 $ 14,490 $ 276,454 $ 233,257
The accompanying notes are an integral part of these financial statements. III-4 CAMBRIDGE SOUNDWORKS, INC. NOTES TO FINANCIAL STATEMENTS (Including data applicable to unaudited periods) NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES Cambridge SoundWorks, Inc. (the "Company") was organized in 1988. The Company designs and manufactures speakers for stereo, home theater and multimedia computers. The Company markets its products and sells other audio and video components through its mail-order catalog, Company-owned retail stores and other methods of distribution, including large retail chains throughout the United States. The accompanying financial statements reflect the application of certain accounting policies described in this note and elsewhere in the accompanying notes to financial statements. The preparation of these financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (a) Change in Fiscal Year On March 14, 1995, the Company's Board of Directors approved a change in the Company's fiscal year. The Company's fiscal year ends on the Sunday nearest the end of June. Included in the accompanying financial statements are unaudited statements of income and cash flows for the year ended July 2, 1995. These financial statements have been prepared on a basis consistent with those of audited periods. (b) Credit Card Policy The Company generally does not extend credit to catalog and Company-owned retail store customers, except through third-party credit cards, including its branded Cambridge SoundWorks credit card. Credit under these accounts is extended by third parties, and, accordingly, the Company bears no financial risk under these agreements except in the case of fraud. The Company's agreements with third-party credit companies provide for the electronic processing of credit approvals and the electronic submission of transactions. Upon the submission of these transactions to the credit card companies, payment is transmitted to the Company's bank account. Accordingly, the Company records these amounts as cash upon the electronic submission of the transaction to the appropriate processing agency. The Company pays fees to third-party credit card companies. These fees range from .75% to 3.75% of the amount financed. These fees were approximately $371,000, $198,000, $423,000, $597,000 and $963,000 for the years ended December 31, 1994, for the six-month period ended July 2, 1995, and for the years ended July 2, 1995, June 30, 1996 and June 29, 1997, respectively, and are included in selling and marketing expenses in the accompanying statements of operations. (c) Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
JUNE 30, JUNE 29, 1996 1997 ----------- ----------- Raw materials and work-in-process...................... $ 3,823,302 $ 3,010,897 Finished goods......................................... 7,582,050 11,805,721 ----------- ----------- $11,405,352 $14,816,618
Inventories consist of materials, labor and overhead. III-5 (d) Prepaid Expenses The Company offers its products and those of others directly to consumers through its mail-order catalog. Direct mail costs related to catalog mailings, including printing and postage, which constitute direct-response advertising, are classified as prepaid expenses and are expensed over the estimated useful life of each catalog, typically two to six months, commencing on the date of the mailing. (e) Preopening Costs Throughout fiscal 1995 and during the first half of fiscal 1996, the Company opened numerous retail stores. The Company incurred direct costs prior to the opening of these new stores and amortized the preopening costs over periods of up to nine months. (f) Depreciation and Amortization The Company provides for depreciation and amortization using the straight- line method by charges to operations in amounts estimated to allocate the cost of the assets over their estimated useful lives as follows:
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE - -------------------- --------------------- Production equipment and tooling.......................... 3-5 Years Office equipment and furniture............................ 5 Years Leasehold improvements.................................... Life of lease Motor vehicles............................................ 3 Years
(g) Customer Prepayments Advance payments received from customers are classified as customer prepayments and recognized as revenue when the products are shipped. (h) Revenue Recognition and Warranty Costs The Company recognizes revenue from product sales, net of estimated future sales returns, at the time of shipment. The Company has not provided for any warranty reserves, as warranty costs incurred by the Company have not been significant. (i) Net Income (Loss) per Common and Common Equivalent Share Net income (loss) per share data are computed using the weighted average number of shares of common stock outstanding during each period. Common equivalent shares from stock options have been included in the computation using the treasury stock method only when their effect would be dilutive. Fully diluted net income (loss) per share data have not been separately presented, as the difference from primary net income (loss) per share data is insignificant. On March 3, 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share. SFAS No. 128 establishes standards for computing and presenting earnings per share and applies to entities with publicly held common stock or potential common stock. This statement is effective for fiscal years ending after December 15, 1997 and early adoption is not permitted. When adopted, the statement will require restatement of prior years' earnings per share. The Company will adopt this statement for its fiscal year ended June 28, 1998. The Company believes that the adoption of SFAS No. 128 will not have a material effect on its financial statements. (j) Engineering and Development Expenses Engineering and development expenses are charged to operations as incurred. III-6 (k) Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk are principally accounts receivable. This credit risk with respect to accounts receivable relates primarily to the following customers to whom the Company has substantial sales.
PERCENTAGE OF ACCOUNTS RECEIVABLE CUSTOMERS ------------- A B C --- --- --- Year Ended June 30, 1996......................................... 85% -- -- Year Ended June 29, 1997......................................... 3% 13% 36%
To reduce the credit risk, the Company routinely assesses the financial strength of this and other customers and, as a consequence, believes that its accounts receivable credit risk exposure is limited. The Company maintains an allowance for potential credit losses but historically has not experienced any significant credit losses related to an individual customer or groups of customers in any particular industry or geographic area. The estimated fair value of the Company's financial instruments, which include cash, accounts receivable and borrowings under the line of credit, approximates their carrying value. NOTE 2. SIGNIFICANT CUSTOMERS During the six-month period and years ended July 2, 1995 and June 30, 1996, one customer accounted for approximately 23%, 13% and 22% of net sales, respectively. This customer accounted for substantially all of the Company's accounts receivable at June 30, 1996. During the years ended December 31, 1994 and June 29, 1997, there were no customers that accounted for greater than 10% of net sales. NOTE 3. LINE OF CREDIT In April 1995, the Company entered into a $5 million demand discretionary line of credit (line of credit) with The First National Bank of Boston. As of June 29, 1997, subsequent amendments to the agreement increased the maximum borrowings under the line of credit to $8 million based upon certain percentages of eligible accounts receivable and inventory, as defined. The line of credit is secured by all assets of the Company. Borrowings under the line of credit accrue interest at the bank's prime rate (8.5% at June 29, 1997) plus .25%. Based on the line of credit lending formula, as defined, the Company had available for borrowing, approximately $3.7 million at June 29, 1997. NOTE 4. INCOME TAXES The Company follows Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under SFAS No. 109, the Company recognizes a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences to the extent they are realizable. III-7 The provision (benefit) for income taxes consists of the following:
SIX-MONTH YEAR PERIOD YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED DEC. 31, JULY 2, JULY 2, JUNE 30, JUNE 29, IN THOUSANDS 1994 1995 1995 1996 1997 - ------------ -------- --------- ----------- -------- -------- (UNAUDITED) Current: Federal....................... $(104) $(107) $(508) $345 $(281) State......................... (31) (20) (150) 106 (85) ----- ----- ----- ---- ----- (135) (127) (658) 451 (366) ----- ----- ----- ---- ----- Deferred: Federal....................... 196 (266) 61 (216) (33) State......................... 37 (42) 39 (68) (11) ----- ----- ----- ---- ----- 233 (308) 100 (284) (44) ----- ----- ----- ---- ----- Total provision (benefit)...... $ 98 $(435) $(558) $167 $(410) ----- ----- ----- ---- -----
Pursuant to the provisions of SFAS No. 109, as of June 30, 1996 and June 29, 1997, the Company recorded deferred tax assets of approximately $570,000 and $614,000, respectively. These deferred tax assets primarily result from timing differences in the recognition of revenues and expenses for tax and financial reporting purposes. The sources of these differences and the approximate amount of each are as follows:
JUNE 30, JUNE 29, 1996 1997 -------- -------- Inventory reserve....................................... $244,000 $216,000 Net operating loss carryforward and other credit carryforwards.......................................... 66,000 45,000 Other reserves.......................................... 97,000 103,000 Depreciation............................................ 175,000 350,000 Valuation allowance..................................... (12,000) (100,000) -------- -------- $570,000 $614,000
At June 29, 1997, the Company had available net operating loss carryforwards of approximately $96,000. These net operating loss carryforwards may be used to reduce future taxable income, if any. These carryforwards expire through 2012 and are subject to review and possible adjustment by the appropriate taxing authorities. Due to the uncertainty of the realization of certain of these potential tax benefits, the Company has recorded a valuation allowance against a portion of its deferred tax assets. A reconciliation of the federal statutory rate to the Company's effective tax rate is as follows:
SIX- MONTH PERIOD YEAR ENDED YEAR YEAR YEAR ENDED JULY ENDED ENDED ENDED DEC. 31, 2, JULY 2, JUNE 30, JUNE 29, IN THOUSANDS 1994 1995 1995 1996 1997 - ------------ -------- ------ ----------- -------- -------- (UNAUDITED) Statutory tax rate.............. 34.0% (34.0)% (34.0)% 34.0% (34.0)% State taxes, net of federal benefit........................ 6.3 (6.3) (6.3) 6.3 (6.3) Research and development credits........................ (8.2) -- (1.7) -- -- Other........................... -- 0.3 -- (0.3) 0.3 ---- ----- ----- ---- ----- Effective tax rate.............. 32.1% (40.0)% (42.0)% 40.0% (40.0)% ==== ===== ===== ==== =====
III-8 NOTE 5. COMMITMENTS The Company conducts its operations in leased facilities and leases certain equipment under operating lease agreements. These operating leases expire through December 2011. Future minimum lease payments under these operating leases are approximately as follows:
FISCAL YEAR AMOUNT ----------- ----------- 1998............................................................. $ 3,083,000 1999............................................................. 3,063,000 2000............................................................. 2,554,000 2001............................................................. 2,435,000 2002............................................................. 2,466,000 Thereafter....................................................... 8,919,000 ----------- $22,520,000
The Company is also obligated to pay for certain operating and other expenses in accordance with the terms of its various leases. Total rent expense under these leases for the years ended December 31, 1994, the six-month period ended July 2, 1995 and the years ended July 2, 1995, June 30, 1996 and June 29, 1997 was approximately $320,000, $576,000, $799,000, $1,929,000 and $2,886,000 respectively. NOTE 6. STOCKHOLDERS' EQUITY (a) Issuance of Common Stock The Company entered into a Common Stock and Warrant Purchase Agreement dated as of February 20, 1997 (the "Purchase Agreement"), with Creative Technology Ltd., a Singapore corporation. Pursuant of the terms of the Purchase Agreement, the Company sold and issued to Creative Technology Ltd. (i) 912,294 shares of common stock of the Company at a purchase price of $5.25 per share, and (ii) a warrant to purchase 257,314 shares of common stock of the Company at an exercise price of $6.00 per share at a purchase price of $1,000 in the aggregate. (b) Preferred Stock The Company has authorized 2,000,000 shares of no par preferred stock. The Board of Directors has full authority to issue this stock and to fix the voting powers, preferences, rights, qualifications, limitations or restrictions thereof, including dividend rights, conversion rights, redemption privileges and liquidation preferences, and the number of shares constituting any series or designation of such series. With regard to dividends, redemption privileges and liquidation preferences, any particular series of preferred stock may rank junior to, on parity with, or senior to any other series of preferred stock or the common stock. (c) Stock Option Plans The Company's 1993 Stock Option Plan as amended (the 1993 Plan) is administered by the Board of Directors and authorizes the Company to issue options to purchase up to 620,000 shares that have been reserved by the Company. Under the terms of the 1993 Plan, the Company may grant employees either incentive stock options or nonqualified stock options to purchase shares of the Company's common stock, at a price not less than the fair market value at the date of grant, which vest over periods determined by the Board of Directors. In addition, the Company may grant nonqualified options to nonemployees. Under a separate plan, on February 1, 1993, the Board of Directors and stockholders granted a former officer an option to purchase 22,244 shares of common stock at an exercise price of $3.36 per share, the fair market value of the common stock at the date of grant as determined by the Board of Directors, pursuant to an Incentive Stock Option Plan and Agreement. As of July 2, 1995, the former officer had exercised all options under this plan. III-9 The following table summarizes stock option activity under the stock option plans for the years ended December 31, 1994 the six-month period ended July 2, 1995 and the years ended June 30, 1996 and June 29, 1997:
NUMBER OF WEIGHTED AVERAGE SHARES OPTION PRICE -------- ---------------- Outstanding, December 31, 1993....................... 22,244 $3.36 Granted............................................. 101,120 8.01 Terminated.......................................... (21,440) 8.00 Exercised........................................... (5,000) 3.36 -------- ----- Outstanding, December 31, 1994....................... 96,924 7.19 Granted............................................. 169,200 4.12 Terminated.......................................... (18,320) 6.14 Exercised........................................... (17,244) 3.36 -------- ----- Outstanding, July 2, 1995............................ 230,560 5.42 Granted............................................. 356,780 4.86 Terminated.......................................... (142,190) 5.40 Exercised........................................... (575) 3.50 -------- ----- Outstanding June 29, 1996............................ 444,575 5.01 Granted............................................. 187,820 4.01 Terminated.......................................... (50,795) 5.82 Exercised........................................... (1,334) 3.71 -------- ----- Outstanding June 29, 1997............................ 580,266 $3.92 -------- ----- Exercisable, June 29, 1997........................... 230,235 $4.81 -------- -----
The range of actual exercise prices for options outstanding and options exercisable as of June 29, 1997 was $3.50 to $8.02. In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 requires the measurement of the fair value of stock options or warrants to be included in the statement of operations or disclosed in the notes to financial statements. The Company has determined that it will continue to account for stock-based compensation for its employees under the Accounting Principles Board Option No. 25 and elect the disclosure-only alternative under SFAS No. 123 for stock- based compensation awarded in 1996 and 1997 using the Black-Scholes option pricing model prescribed by SFAS No. 123. The underlying assumptions used are as follows:
YEARS ENDED ----------------- JUNE 30, JUNE 29, 1996 1997 -------- -------- Risk-free interest rate...................................... 6.13% 6.51% Expected dividend yield...................................... -- -- Expected lives............................................... 7 7 Expected volatility.......................................... 60.1% 60.1% Weighted average remaining contractual life of options outstanding (years)......................................... 8.5 8.6
III-10 The weighted average grant date fair value of options granted during the years ended June 29, 1997 and June 30, 1996 under these plans is $3.15 and $2.68, respectively. Had compensation cost for the Company's stock option plans been determined consistent with SFAS No. 123, pro forma net loss and net loss per share would have been:
JUNE 30, JUNE 29, 1996 1997 -------- ---------- Net income (loss): As reported............................................. $250,835 $ (614,698) Pro forma............................................... (21,011) (1,137,701) Net income (loss) per share: As reported............................................. .09 (.19) Pro forma............................................... (.01) (.36)
Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. Simultaneous with the Common Stock and Warrant Purchase Agreement, the Company entered into an exclusive distribution agreement with Creative Technology Ltd. which has a life of three years. The Warrant has been valued at approximately $385,000 using the fair value method approach as prescribed in SFAS 123. The Warrant value will be amortized over the life of the relevant distribution agreement. NOTE 7. ACCRUED EXPENSES Accrued expenses consist of the following:
JUNE 30, JUNE 29, 1996 1997 -------- -------- Marketing Expenses............................................ $192,294 $400,296 Other......................................................... 787,395 514,682 -------- -------- $979,689 $914,978 -------- --------
NOTE 8. RELATED PARTIES In February 1994, the Company entered into a License Agreement with Henry Kloss, a stockholder of the Company, whereby the Company and Mr. Kloss agreed under certain conditions to the use of Mr. Kloss's name on the Company's products. The License Agreement between the Company and Mr. Kloss provided that the Company has the perpetual right to use his name on products that Mr. Kloss designed or had a substantial role in designing, subject to termination, as to any product whose appearance or performance specifications are materially changed by the Company without Mr. Kloss's consent. Upon termination of Mr. Kloss's employment as described above, the Company could not thereafter use his name generically or in connection with a product unless the Company had previously done so, unless Mr. Kloss consents to such use. Under this agreement, the Company was not required to make any payments to Mr. Kloss for the right to use his name. In April 1996, the Company entered into a Consulting Agreement with Henry Kloss, with respect to the selection and design by the Company for current and future products, expiring in September 1999. Pursuant to the Consulting Agreement, the Employment Agreement between the Company and Mr. Kloss was effectively terminated, with no additional payments due. The Consulting Agreement called for annual payments to Mr. Kloss of $330,000, plus certain fringe benefits, such as described therein through September 1996 with annual payments thereafter of $110,000, plus certain fringe benefits, as described therein from September 1996 through September 1999. Effective September 30, 1996, Henry Kloss terminated the Consulting Agreement dated April 24, 1996 which he had entered into with the Company to provide general and specific advice, counsel and assistance to the Company with respect to the selection and design by the Company of its current and future products. At the same time, Mr. Kloss notified the Company of his intention not to stand for reelection as a Director. Mr. Kloss III-11 continues on an informal basis to act as a consultant to the Company for which he is paid $10,565 per month but for which there is no formal written agreement. This arrangement can be terminated by either party at will. Mr. Kloss, former Chairman of the Board of Directors of the Company and former Director of Product Development, provided consulting services to the Company during the year ended June 29, 1997 for which he has received $179,000 from the Company. NOTE 9. EMPLOYMENT AGREEMENTS On February 14, 1997, the Company entered into a three year agreement with Thomas J. DeVesto (the "Employment Agreement") employing him in the capacity as President and Chief Executive Officer. Pursuant to the Employment Agreement, which provides for an initial salary of no less than $385,000 with such adjustments thereto after the first year which the Board of Directors may approve, Mr. DeVesto is also entitled to certain fringe benefits, including the right to participate in all bonus and benefit programs that the Company makes available to its employees and an annual $8,000 car allowance. The Employment Agreement may be terminated by any party on six month's prior notice for any reason in which event Mr. DeVesto is entitled to a payment equal to his then annual salary in consideration for an agreement not to compete for one year following the termination of employment. NOTE 10. BENEFIT PLAN During fiscal 1996, the Company adopted the Cambridge SoundWorks 401(k) Plan (the "Plan"), a voluntary savings plan for all eligible employees, as defined. The Plan is a qualified benefit plan in accordance with Section 401(k) of the Internal Revenue Code. Under the terms of the Plan, participants may contribute a certain percentage of their annual compensation, up to a defined maximum. The Company may, but is not obligated to, make a matching contribution up to a certain percentage of each participant's contribution. For the year ended June 30, 1996 and June 29, 1997, the Company did not make a matching contribution to the Plan. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Cambridge SoundWorks, Inc.: We have audited the accompanying balance sheets of Cambridge SoundWorks, Inc. (a Massachusetts corporation) as of June 30, 1996 and June 29, 1997, and the related statements of operations, stockholders' equity and cash flows for the years ended December 31, 1994, the six-month period ended July 2, 1995 and the years ended June 30, 1996 and June 29, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cambridge SoundWorks, Inc. as of June 30, 1996 and June 29, 1997, and the results of its operations and its cash flows for the year ended December 31, 1994, for the six-month period ended July 2, 1995 and for the years ended June 30, 1996 and June 29, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts July 28, 1997 III-12 ANNEX A HAMBRECHT & QUIST LLC ONE BUSH STREET SAN FRANCISCO, CA 94104 (415)576-3300 October 30, 1997 Confidential The Board of Directors Cambridge SoundWorks, Inc. 333 Needham Street Newton, Massachusetts 02164 Gentlemen: You have requested our opinion as to the fairness from a financial point of view to the holders of the outstanding shares of common stock, no par value per share (the "Common Stock"), Cambridge SoundWorks Inc. (the "Company") of the consideration to be received by such holders in connection with a proposed transaction as set forth below. We understand that the Company, Creative Technology Ltd., ("Creative") and CSW Acquisition Corporation (the "Purchaser") propose to enter into an Agreement and Plan of Merger (the "Agreement") dated as of October 30, 1997. The terms of the Agreement provide, among other things, that (i) the Purchaser will promptly commence a tender offer (the "Offer") to purchase for cash all of the outstanding shares of Common Stock at a purchase price of $10.68 per share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Agreement and certain ancillary documents to be filed with the Securities and Exchange Commission; and (ii) the Purchaser will subsequently be merged (the "Merger") with and into the Company in a transaction which will provide all remaining holders of shares of Common Stock (other than the Company, Creative, the Purchaser or their respective subsidiaries, and holders who have perfected their appraisal rights under Massachusetts law) with $10.68 per share in cash. The Offer and the Merger constitute the "Proposed Transaction." Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment banking services, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, strategic transactions, corporate restructurings, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. We have acted as a financial advisor to the Board of Directors of the Company in connection with the Proposed Transaction, and we will receive a fee for our services, which include the rendering of this opinion. In the past, we have provided investment banking and other financial advisory services to the Company and have received fees for rendering these services. In particular, Hambrecht & Quist acted as lead managing underwriter in the Company's initial public offering in 1994. In the ordinary course of business, Hambrecht & Quist acts as a market maker and broker in the publicly traded securities of the Company and receives customary compensation in connection therewith, and also provides research coverage for the Company. In the ordinary course of business, Hambrecht & Quist actively trades in the equity and derivative securities of the Company for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities. In addition, Hambrecht & Quist and its affiliates currently own approximately 337,000 shares of Company Common Stock. SAN FRANCISCO . NEW YORK . BOSTON MEMBERS NEW YORK STOCK EXCHANGE^. AMERICAN STOCK EXCHANGE^. PACIFIC STOCK EXCHANGE The Board of Directors Cambridge SoundWorks, Inc. Page 2 In connection with our review of the Proposed Transaction, and in arriving at our opinion, we have, among other things: (i) reviewed the publicly available consolidated financial statements of Creative for recent years and interim periods to date and certain other relevant financial and operating data of Creative made available to us from published sources; (ii) reviewed the financial statements of the Company for recent years and interim periods to date and certain other relevant financial and operating data of the Company made available to us from published sources and from the internal records of the Company; (iii) reviewed certain internal financial and operating information relating to the Company, including certain financial projections, prepared by the management of the Company; (iv) discussed the business, financial condition and prospects of the Company with certain of its officers; (v) reviewed the recent reported prices and trading activity for the common stock of the Company and compared such information and certain financial information for the Company with similar information for certain other companies engaged in businesses we consider comparable; (vi) reviewed the financial terms, to the extent publicly available, of certain comparable merger and acquisition transactions; (vii) reviewed the Agreement; and (viii) performed such other analyses and examinations and considered such other information, financial studies, analyses and investigations and financial, economic and market data as we deemed relevant. In rendering our opinion, we have assumed and relied upon the accuracy and completeness of all of the information concerning the Company or Creative considered in connection with our review of the Proposed Transaction, and we have not assumed any responsibility for independent verification of such information. We have not undertaken any independent valuation or appraisal of any of the assets or liabilities of the Company or Creative; nor have we conducted a physical inspection of the properties and facilities of either company. With respect to the financial forecasts and projections used in our analysis, we have assumed that they reflect the best currently available estimates and judgments of the expected future financial performance of the Company. For purposes of this Opinion, we have assumed that neither the Company nor Creative is a party to any pending transactions, including external financings, recapitalizations or material merger discussions, other than the Proposed Transaction and those activities undertaken in the ordinary course of conducting their respective businesses. Our opinion is necessarily based upon market, economic, financial and other conditions as they exist and can be evaluated as of the date of this letter and any change in such conditions would require a reevaluation of this opinion. We were not requested to, and did not, formally solicit indications of interest from any other parties in connection with a possible acquisition of, or business combination with, the Company. It is understood that this letter is addressed to and for the information of the Board of Directors in connection with their evaluation of the Proposed Transaction and may not be used for any other purpose without our prior written consent; provided, however, that this letter may be reproduced in full in any filing with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. This letter does not constitute a recommendation to any stockholder of the Company as to whether such stockholder should accept the Offer. The Board of Directors Cambridge SoundWorks, Inc. Page 3 Based upon and subject to the foregoing and after considering such other matters as we deem relevant, we are of the opinion that as of the date hereof the consideration to be received by the holders of Company Common Stock in the Proposed Transaction is fair to such holders from a financial point of view. We express no opinion, however, as to the adequacy or financial fairness of any consideration received in the Proposed Transaction by Creative or any of its affiliates. Very truly yours, HAMBRECHT & QUIST LLC /s/ David Golden By _______________________________________ David Golden Managing Director ANNEX B RIGHTS OF DISSENTING STOCKHOLDERS UNDER THE MBCL IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF THE MBCL, ANY STOCKHOLDER WHO IS CONSIDERING EXERCISING DISSENTERS' RIGHTS SHOULD CONSULT HIS OR HER LEGAL ADVISOR. STATUTORY APPRAISAL PROCEDURES. The following is a brief summary of the statutory procedures to be followed by a holder of Shares at the Effective Time who does not wish to accept the per Share cash consideration pursuant to the Merger (a "Remaining Stockholder") in order to dissent from the Merger and perfect appraisal rights under Massachusetts law. THIS SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTIONS 85-98 OF THE MBCL, THE TEXT OF WHICH IS SET FORTH IN THIS ANNEX B HERETO. ANY REMAINING STOCKHOLDER CONSIDERING DEMANDING APPRAISAL IS ADVISED TO CONSULT LEGAL COUNSEL. APPRAISAL RIGHTS WILL NOT BE AVAILABLE UNLESS AND UNTIL THE MERGER (OR A SIMILAR BUSINESS COMBINATION) IS CONSUMMATED. If the Merger is effected as a "short-form" merger after expiration of the Offer or is effected as a "long-form" merger following approval by the required vote of stockholders of the Company, the Remaining Stockholders and stockholders who did not vote for the Merger, respectively, may, by complying with Sections 85 through 98 of the MBCL, be entitled to appraisal and dissenters' rights as described therein ("Dissenters' Rights"). The stockholders of record of Shares who are eligible to, and do, exercise their Dissenters' Rights with respect to the Merger are referred to herein as "Dissenting Stockholders," and the shares of stock with respect to which they exercise Dissenters' Rights are referred to herein as "Dissenting Shares." If a stockholder of the Company has a beneficial interest in Shares that are held of record in the name of another person, and such stockholder desires to perfect whatever Dissenters' Rights such beneficial stockholder may have, such beneficial stockholder must act promptly to cause the stockholder of record timely and properly to follow the steps summarized below. Pursuant to the MBCL, a stockholder of the Company may dissent from the proposed corporate action to approve the Merger Agreement and receive the right to an appraisal of such stockholder's shares. A copy of Sections 85 through 98 of the MBCL are set forth below. If the Merger is consummated, the Dissenting Stockholders will be entitled, if they strictly comply with the provisions of the MBCL, to have the fair value of their shares judicially determined and paid to them. THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE MBCL RELATING TO DISSENTERS' RIGHTS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTIONS 85 THROUGH 98 OF THE MBCL SET FORTH BELOW. This discussion and Sections 85 through 98 of the MBCL should be reviewed carefully by any stockholder who wishes to exercise statutory Dissenters' Rights or wishes to preserve the right to do so, since failure to comply with the required procedures will result in the loss of such rights. A stockholder of the Company who tenders its Shares and does not properly withdraw such Shares, or votes for the adoption and approval of the Merger Agreement will be deemed to have waived such stockholder's right to exercise Dissenters' Rights with respect to all Shares held by such stockholder. Any stockholder who is considering dissenting should consult his or her legal advisor. To exercise Dissenters' Rights, if the Merger is not being effected as a "short-form" merger but, rather, is being consummated following approval thereof at a meeting of the Company's stockholders (a "long-form" merger), a stockholder must file with the Company, before the special meeting of the stockholders of the Company for the purpose of voting for the Merger (the "Special Meeting"), a written objection to the Merger stating that the stockholder will exercise the stockholder's right to dissent if the Merger is effective and giving the address of the stockholder to which the Surviving Corporation shall mail notice in the event that the Merger is effective, and the stockholder must not vote in favor of the Merger Agreement. If the Merger is being effected as a "short-form" merger without a vote or meeting of the Company's Stockholders, a stockholder must B-1 make a written demand for appraisal of such stockholder's shares within 20 days after the mailing of the notice that the Merger is effective. The failure to consent to the Merger or the return of a proxy by a stockholder with instructions to vote such stockholder's Shares covered thereby against the Merger Agreement and the Merger (or abstaining from voting) is not sufficient to satisfy the requirement of delivering written objection to the Company. A vote in favor of the Merger Agreement will waive such stockholder's Dissenters' Rights. However, a stockholder's failure to vote on the Merger Agreement will not in itself be a waiver of such stockholder's Dissenters' Rights. A stockholder who dissents and demands Dissenters' Rights must do so as to all Shares held by such stockholder. A stockholder may not assert Dissenters' Rights with respect to less than all of such stockholder's Shares. Within 10 days after the Effective Date of the Merger, the Surviving Corporation must give written notice that the Merger has become effective to each Remaining Stockholder and each stockholder who gave notice before the Special Meeting of such stockholder's objection to the Merger and who did not vote in favor of the Merger Agreement. The giving of such notice shall not be deemed to create any rights in such shareholder receiving such notice to demand payment for such shares. If the Remaining Stockholder did not vote in favor of the Merger Agreement, such stockholder may, within 20 days after the mailing of the notice that the Merger is effective, make written demand (the "Demand Notice") on the Surviving Corporation for the payment of the fair value of such stockholder's Dissenting Shares. Any stockholder failing to make demand for payment within the 20-day period shall be bound by the Merger. Pursuant to the MBCL, the fair value of the Dissenting Shares is the value thereof as of the day immediately preceding the Special Meeting, exclusive of any element of value arising from the expectation or accomplishment of the Merger. Such determination shall be binding on all such stockholders even if the fair value so determined is less than the Merger price. Within 30 days after the expiration of the Dissenting Stockholders' 20 day notice period, the Surviving Corporation receiving demand for payment by the Dissenting Stockholder must deliver to the Dissenting Stockholder payment of the fair value of the shares. If, within 60 days of the Effective Date of the Merger, the Dissenting Stockholder and the Surviving Corporation do not agree as to the fair value of the Dissenting Shares, then within 120 days after the Effective Date of the Merger, the Dissenting Stockholder may file a petition with any court of competent jurisdiction in Essex County, Massachusetts (the "Court") requesting a determination of the value of such stockholder's Dissenting Shares. The Surviving Corporation must, within 10 days after the service of the filing of a petition described above, file with the office of the clerk of the Court in which the petition was filed a verified list of the names and addresses of all Dissenting Stockholders. A notice of the time and place of the hearing on the petition will then be sent to all of the individuals on that list. At the hearing on the petition, the Court will determine the stockholders who have complied with the MBCL and have become entitled to Dissenters' Rights and will appoint one or more qualified appraisers to determine the value of the Dissenting Shares, who shall file a report with the Court. After a hearing on the appraisal(s), the Court shall determine the fair value of the Dissenting Shares and shall direct payment of that value by the Surviving Corporation, together with interest thereon, beginning 91 days after the Effective Date of the Merger, subject to receipt of duly endorsed certificates for the Dissenting Shares. All court costs, including appraisers' fees, shall be allocated by the Court in a manner it determines to be fair and equitable. THERE CAN BE NO ASSURANCE THAT SUCH FAIR VALUE WILL BE EQUAL TO OR GREATER THAN THE MERGER PRICE. IF THE FAIR VALUE OF SUCH SHARES IS DETERMINED TO BE LESS THAN SUCH MERGER PRICE, HOLDERS OF DISSENTING SHARES WILL NOT BE ENTITLED TO RECEIVE THE MERGER PRICE OF $10.68 PER SHARE. B-2 Upon consummation of the Merger, each Dissenting Stockholder will cease to have any rights of a stockholder except the right to be paid the fair value of the Dissenting Shares and the right to receive other distributions, if any, payable to stockholders of record prior to the Effective Date of the Merger and any other rights under applicable Massachusetts law. Under Massachusetts statutory law, procedures relating to dissenters' rights are stated to be the exclusive remedy available to a stockholder objecting to the Merger, except upon grounds that the Merger will be or is illegal or fraudulent as to such stockholder. However, in Coggins v. New England Patriots Football Club, Inc. 397 Mass. 525 (1986), the Massachusetts Supreme Judicial Court held that dissenting stockholders are not limited to the statutory remedy of judicial appraisal in certain circumstances. APPRAISAL RIGHTS CANNOT BE EXERCISED AT THIS TIME. THE INFORMATION SET FORTH ABOVE IS FOR INFORMATIONAL PURPOSES ONLY WITH RESPECT TO ALTERNATIVES AVAILABLE TO STOCKHOLDERS IF THE MERGER (OR ANY SIMILAR BUSINESS COMBINATION) IS CONSUMMATED. STOCKHOLDERS WHO SELL SHARES IN THE OFFER WILL NOT BE ENTITLED TO EXERCISE APPRAISAL RIGHTS WITH RESPECT THERETO BUT, RATHER, WILL RECEIVE THE PRICE PAID IN THE OFFER THEREFOR. B-3 BUSINESS CORPORATION LAW OF THE COMMONWEALTH OF MASSACHUSETTS SECTION 85. DISSENTING STOCKHOLDER; RIGHT TO DEMAND PAYMENT FOR STOCK; EXCEPTION A stockholder in any corporation organized under the laws of Massachusetts which shall have duly voted to consolidate or merge with another corporation or corporations under the provisions of sections seventy-eight or seventy-nine who objects to such consolidation or merger may demand payment for his stock from the resulting or surviving corporation and an appraisal in accordance with the provisions of sections eighty-six to ninety-eight, inclusive, and such stockholder and the resulting or surviving corporation shall have the rights and duties and follow the procedure set forth in those sections. This section shall not apply to the holders of any shares of stock of a constituent corporation surviving a merger if, as permitted by subsection (c) of section seventy-eight, the merger did not require for its approval a vote of the stockholders of the surviving corporation. SECTION 86. SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES If a corporation proposes to take a corporate action as to which any section of this chapter provides that a stockholder who objects to such action shall have the right to demand payment for his shares and an appraisal thereof, sections eighty-seven to ninety-eight, inclusive, shall apply except as otherwise specifically provided in any section of this chapter. Except as provided in sections eighty-two and eighty-three, no stockholder shall have such right unless (1) he files with the corporation before the taking of the vote of the stockholders on such corporate action, written objection to the proposed action stating that he intends to demand payment for his shares if the action is taken and (2) his shares are not voted in favor of the proposed action. SECTION 87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF MEETING; FORM The notice of the meeting of stockholders at which the approval of such proposed action is to be considered shall contain a statement of the rights of objecting stockholders. The giving of such notice shall not be deemed to create any rights in any stockholder receiving the same to demand payment for his stock, and the directors may authorize the inclusion in any such notice of a statement of opinion by the management as to the existence or non-existence of the right of the stockholders to demand payment for their stock on account of the proposed corporate action. The notice may be in such form as the directors or officers calling the meeting deem advisable, but the following form of notice shall be sufficient to comply with this section: "If the action proposed is approved by the stockholders at the meting and effected by the corporation, any stockholder (1) who files with the corporation before the taking of the vote on the approval of such action, written objection to the proposed action stating that he intends to demand payment for his shares if the action is taken and (2) whose shares are not voted in favor of such action has or may have the right to demand in writing from the corporation (or, in the case of a consolidation or merger, the name of the resulting or surviving corporation shall be inserted), within twenty days after the date of mailing to him of notice in writing that the corporate action has become effective, payment for his shares and an appraisal of the value thereof. Such corporation and any such stockholder shall in such cases have the rights and duties and shall follow the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of the General Laws of Massachusetts." SECTION 88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO The corporation taking such action, or in the case of a merger or consolidation the surviving or resulting corporation, shall, within ten days after the date on which such corporate action became effective, notify each stockholder who filed a written objection meeting the requirements of section eighty-six and whose shares were B-4 not voted in favor of the approval of such action, that the action approved at the meeting of the corporation of which he is a stockholder has become effective. The giving of such notice shall not be deemed to create any rights in any stockholder receiving the same to demand payment for this stock. The notice shall be sent by registered or certified mail, addressed to the stockholder at his last known address as it appears in the records of the corporation. SECTION 89. DEMAND FOR PAYMENT; TIME FOR PAYMENT If within twenty days after the date of mailing of a notice under subsection (e) of section eighty-two, subsection (f) of section eighty-three, or section eighty-eight, any stockholder to whom the corporation was required to give such notice shall demand in writing from the corporation taking such action, or in the case of a consolidation or merger from the resulting or surviving corporation, payment for his stock, the corporation upon which such demand is made shall pay to him the fair value of this stock within thirty days after the expiration of the period during which such demand may be made. SECTION 90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE If during the period of thirty days provided for in section eighty-nine the corporation upon which such demand is made and any such objecting stockholder fail to agree as to the value of such stock, such corporation or any such stockholder may within four months after the expiration of such thirty-day period demand a determination of the value of the stock of all such objecting stockholders by a bill in equity filed in the superior court in the county where the corporation in which such objecting stockholder held stock had or has its principal office in the commonwealth. SECTION 91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE If the bill is filed by the corporation, it shall name as parties respondent all stockholders who have demanded payment for their shares and with whom the corporation has not reached agreement as to the value thereof. If the bill is filed by a stockholder, he shall bring the bill in his own behalf and in behalf of all other stockholders who have demanded payment for their shares and with whom the corporation has not reached agreement as to the value thereof, and service of the bill shall be made upon the corporation by subpoena with a copy of the bill annexed. The corporation shall file with its answer a duly verified list of all such other stockholders, and such stockholders shall thereupon be deemed to have been added as parties to the bill. The corporation shall give notice in such form and returnable on such date as the court shall order to each stockholder party to the bill by registered or certified mail, addressed to the last known address of such stockholder as shown in the records of the corporation, and the court may order such additional notice by publication or otherwise as it deems advisable. Each stockholder who makes demand as provided in section eighty- nine shall be deemed to have consented to the provisions of this section relating to notice, and the giving of notice by the corporation to any such stockholder in compliance with the order of the court shall be a sufficient service of process on him. Failure to give notice to any stockholder making demand shall not invalidate the proceedings as to other stockholders to whom notice was properly given, and the court may at any time before the entry of a final decree make supplementary orders of notice. SECTION 92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE After hearing the court shall enter a decree determining the fair value of the stock of those stockholders who have become entitled to the valuation of and payment for their shares, and shall order the corporation to make payment of such value, together with interest, if any, as hereinafter provided, to the stockholders entitled thereto upon the transfer by them to the corporation of the certificates presenting such stock if certificated or, if uncertificated, upon receipt of an instruction transferring such stock to the corporation. For this purpose, the value of the shares shall be determined as of the day preceding the date of the vote approving the proposed corporate action and shall be exclusive of any element of value arising from the expectation or accomplishment of the proposed corporate action. B-5 SECTION 93. REFERENCE TO SPECIAL MASTER The court in its discretion may refer the bill or any question arising thereunder to a special master to hear the parties, make findings and report the same to the court, all in accordance with the usual practice in suits in equity in the superior court. SECTION 94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL On motion the court may order stockholder parties to the bill to submit their certificates of stock to the corporation for the notation thereon of the pendency of the bill and may order the corporation to note such pendency in its records with respect to any uncertificated shares held by such stockholder parties, and may on motion dismiss the bill as to any stockholder who fails to comply with such order. SECTION 95. COSTS; INTEREST The costs of the bill, including the reasonable compensation and expenses of any master appointed by the court, but exclusive of fees of counsel or of experts retained by any party, shall be determined by the court and taxed upon the parties to the bill, or any of them, in such manner as appears to be equitable, except that all costs of giving notice to stockholders as provided in this chapter shall be paid by the corporation. Interest shall be paid upon any award from the date of the vote approving the proposed corporate action, and the court may on application of any interested party determine the amount of interest to be paid in the case of any stockholder. SECTION 96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT Any stockholder who has demanded payment for his stock as provided in this chapter shall not thereafter be entitled to notice of any meeting of stockholders or to vote such stock for any purpose and shall not be entitled to the payment of dividends or other distribution on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the date of the vote approving the proposed corporate action) unless: (1) a bill shall not be filed within the time provided in section ninety; (2) A bill, if filed, shall be dismissed as to such stockholder; or (3) Such stockholder shall with the written approval of the corporation, or in the case of a consolidation or merger, the resulting or surviving corporation, deliver to it a written withdrawal of this objections to and an acceptance of such corporate action. Notwithstanding the provisions of clauses (1) to (3), inclusive, said stockholder shall have only the rights of a stockholder who did not so demand payment for his stock as provided in this chapter. SECTION 97. STATUS OF SHARES PAID FOR The shares of the corporation paid for by the corporation pursuant to the provisions of this chapter shall have the status of treasury stock, or in the case of a consolidation or merger the shares or the securities of the resulting or surviving corporation into which the shares of such objecting stockholder would have been converted had he not objected to such consolidation or merger shall have the status of treasury stock or securities. SECTION 98. EXCLUSIVE REMEDY; EXCEPTION The enforcement by a stockholder of his right to receive payment for his shares in the manner provided in this chapter shall be an exclusive remedy except that this chapter shall not exclude the right of such stockholder to bring or maintain an appropriate proceeding to obtain relief on the ground that such corporate action will be or is illegal or fraudulent as to him. B-6 EX-99.(A)(2) 3 FORM OF LETTER OF TRANSMITTAL EXHIBIT 99(a)(2) LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK OF CAMBRIDGE SOUNDWORKS, INC. PURSUANT TO THE OFFER TO PURCHASE DATED NOVEMBER 3, 1997 BY CSW ACQUISITION CORPORATION A WHOLLY OWNED SUBSIDIARY OF CREATIVE TECHNOLOGY LTD. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 2, 1997, UNLESS THE OFFER IS EXTENDED. The Depositary: STATE STREET BANK AND TRUST COMPANY By Mail: By Overnight Courier: By Hand: STATE STREET BANK STATE STREET BANK STARS AND TRUST COMPANY AND TRUST COMPANY Securities Transfer Corporate Reorganization Corporate Reorganization and Reporting Services, Inc. P.O. Box 9061 70 Campanelli Drive c/o Boston Equiserve LP Boston, Massachusetts 02205-8686 Braintree, Massachusetts 02184 55 Broadway, Third Floor New York, New York 10006
By Facsimile: (For Eligible Institutions Only) (781) 794-6333 Confirm Facsimile by Telephone: (781) 794-6388 --------------- DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER OTHER THAN AS LISTED ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 PROVIDED BELOW. 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 of Cambridge SoundWorks, Inc. either if certificates ("Share Certificates") representing shares of common stock, no par value (the "Shares"), are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if delivery of Shares is to be made by book-entry transfer to an account maintained by The First National Bank of Boston (the "Depositary") at The Depository Trust Company ("DTC") or Philadelphia Depository Trust Company ("PDTC") (DTC and PDTC, each, a "Book-Entry Transfer Facility" and collectively, the "Book-Entry Transfer Facilities") pursuant to the procedures set forth under "THE OFFER-- Procedures for Accepting the Offer and Tendering Shares" in the Offer to Purchase dated November 3, 1997 (the "Offer to Purchase"). DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. Stockholders whose Share Certificates are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary on or prior to the expiration date of the Offer or who are unable to complete the procedure for book-entry transfer prior to the expiration date of the Offer may nevertheless tender their Shares pursuant to the guaranteed delivery procedures set forth under "THE OFFER--Procedures for Accepting the Offer and Tendering Shares" in the Offer to Purchase. See Instruction 2 below. [_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY AT A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: _____________________________________________ Check Box of Applicable Book-Entry Transfer Facility and provide Account Number and Transaction Code Number: [_] The Depository Trust Company Account Number: _____________________________ [_] Philadelphia Depository Trust Company Transaction Code Number: ____________________
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY (PLEASE INCLUDE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY) AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s): ___________________________________________ Window Ticket Number (if any): _____________________________________________ Date of Execution of Notice of Guaranteed Delivery: ________________________ Name of Institution which Guaranteed Delivery: _____________________________ If Delivered by Book-Entry Transfer to the Book-Entry Transfer Facility: Check Box of Applicable Book-Entry Transfer Facility and provide Account Number and Transaction Code Number: [_] The Depository Trust Company Account Number: _____________________________ [_] Philadelphia Depository Trust Company Transaction Code Number: ____________________
2 DESCRIPTION OF SHARES BEING TENDERED (SEE INSTRUCTIONS 3 AND 4) - -------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OR REGISTERED HOLDER(S) SHARE CERTIFICATE(S) TENDERED (PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY) - ----------------------------------------------------------------------------------------------------------- CERTIFICATE NUMBER(S)* TOTAL NUMBER OF NUMBER OF APPEARING ON SHARE SHARES REPRESENTED BY SHARES CERTIFICATE(S) CERTIFICATES TENDERED TENDERED** - ----------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ TOTAL SHARES: - -----------------------------------------------------------------------------------------------------------
* Certificate numbers are not required if tender is made by book-entry transfer. ** If you desire to tender fewer than all Shares represented by any certificate listed above, please indicate in this column the number of Shares you wish to tender. Otherwise, all Shares represented by such certificate will be deemed to have been tendered. See Instruction 4. NOTE: SIGNATURE(S) MUST BE PROVIDED BELOW. PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY. 3 LADIES AND GENTLEMEN: The undersigned hereby tenders to CSW Acquisition Corporation ("Purchaser"), a Massachusetts corporation and a wholly owned subsidiary of Creative Technology Ltd., a Singapore corporation ("Parent"), the above-described shares of common stock, no par value (the "Shares"), of Cambridge SoundWorks, Inc., a Massachusetts corporation (the "Company"), pursuant to Purchaser's offer to purchase all outstanding Shares at $10.68 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated November 3, 1997 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with the Offer to Purchase and any amendments or supplements thereto or hereto, collectively constitute the "Offer"). Subject to, and effective upon, acceptance for payment of the Shares tendered herewith, in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, Purchaser all right, title and interest in and to all the Shares that are being tendered hereby and all dividends, distributions (including, without limitation, distributions of additional Shares) and rights declared, paid or distributed in respect of such Shares on or after October 30, 1997 (collectively, "Distributions") and irrevocably appoints State Street Bank and Trust Company (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 (i) deliver certificates representing Shares ("Share Certificates") and all Distributions, or transfer ownership of such Shares and all Distributions on the account books maintained by a Book- Entry Transfer Facility, together, in either case, with all accompanying evidences of transfer and authenticity, to or upon the order of Purchaser, (ii) present such Shares and all Distributions for transfer on the books of the Company and (iii) 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 Ng Keh Long, Sim Wong Hoo, John D. Danforth and Erika Rottenberg as attorneys and proxies of the undersigned, each with full power of substitution, to vote in such manner as such attorney and proxy or his or her substitute shall, in his sole discretion, deems proper and otherwise act (by written consent or otherwise) with respect to all the Shares tendered hereby which have been accepted for payment by Purchaser prior to the time of such vote or other action and all Shares and other securities issued in Distributions in respect of such Shares, 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 or postponed meeting) or consent in lieu of any such meeting or otherwise. This proxy and power of attorney is coupled with an interest in the Shares tendered hereby, is irrevocable and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by Purchaser in accordance with the terms of the Offer. Such acceptance for payment shall revoke all other proxies and powers of attorney granted by the undersigned at any time 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 shall be given or written consent executed (and if given or executed, shall not be effective) by the undersigned with respect thereto. The undersigned understands that, in order for Shares to be deemed validly tendered, immediately upon Purchaser's acceptance of such Shares for payment, Purchaser must be able to exercise full voting and other rights with respect to such Shares, including, without limitation, voting at any meeting of the Company's stockholders then scheduled. 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 Purchaser, Purchaser will acquire good, marketable and unencumbered title thereto and to all Distributions, 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 all additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby and all Distributions. In addition, the undersigned shall remit and transfer promptly to the Depositary for the account of Purchaser all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, and pending such remittance and transfer or appropriate assurance thereof, Purchaser shall be entitled to all rights and privileges as owner of each such Distribution and may withhold the entire purchase price of the Shares tendered hereby, or deduct from such purchase price, the amount or value of such Distribution as determined by Purchaser in its sole discretion. 4 No authority herein conferred or agreed to be conferred shall be affected by, and all such authority shall survive, the death or incapacity of the undersigned. All obligations of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable. See "THE OFFER--Withdrawal Rights" in the Offer to Purchase. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in the Offer to Purchase under "THE OFFER--Procedure for Accepting the Offer and Tendering Shares" and in the instructions hereto will constitute the undersigned's acceptance of the terms and conditions of the Offer. Purchaser's acceptance of such Shares for payment will constitute a binding agreement between the undersigned and Purchaser upon the terms and subject to the conditions of the Offer. Without limiting the foregoing, if the price to be paid in the Offer is amended in accordance with the Offer, the price to be paid to the undersigned will be the amended price notwithstanding the fact that a different price is stated in this Letter of Transmittal. The undersigned recognizes that under certain circumstances set forth in the Offer to Purchase, Purchaser may not be required to accept for payment any of the Shares tendered hereby. Unless otherwise indicated herein in the box entitled "Special Payment Instructions," please issue the check for the purchase price of all Shares purchased, and return all Share Certificates not purchased or not tendered in the name(s) of the registered holder(s) appearing above under "Description of Shares Tendered." Similarly, unless otherwise indicated in the box entitled "Special Delivery Instructions," please mail the check for the purchase price of all Shares purchased and all Share Certificates not tendered or not purchased (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing above under "Description of Shares Tendered." In the event that the boxes entitled "Special Payment Instructions" and "Special Delivery Instructions" are both completed, please issue the check for the purchase price of all Shares purchased and return all Share Certificates not purchased or not tendered in the name(s) of, and mail such check and Share Certificates to, the person(s) so indicated. Unless otherwise indicated herein in the box entitled "Special Payment Instructions," please credit any Shares tendered hereby and delivered by book-entry transfer, but which are not purchased, by crediting the account at the Book-Entry Transfer Facility designated above. The undersigned recognizes that Purchaser has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name of the registered holder(s) thereof if Purchaser does not purchase any of the Shares tendered hereby. The undersigned understands that Purchaser reserves the right to transfer or assign, in whole at any time, or in part from time to time, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve 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. [_]CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN HAVE BEEN LOST OR DESTROYED AND SEE INSTRUCTION 9. Number of Shares represented by the lost or destroyed certificates: ________ 5 SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if Share Certificates not tendered or not purchased and/or the check for the purchase price of the Shares purchased are to be issued in the name of and sent to someone other than the undersigned, or if Shares tendered by book-entry transfer which are not purchased are to be returned by credit to an account maintained at the Book-Entry Transfer Facility other than the account indicated above. Issue: [_] Check [_] Certificate(s) To: ___________________________________ NAME (PLEASE PRINT) ___________________________________ ADDRESS ___________________________________ ZIP CODE ___________________________________ TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) Credit unpurchased Shares delivered by book-entry transfer to the Book- Entry Transfer Facility account at: [_] The Depository Trust Company [_] Philadelphia Depository Trust Company ----------------------------------- ACCOUNT NUMBER SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 4, 5, 6 AND 7) To be completed ONLY if Share Certificates not tendered or not purchased and/or the check for the purchase price of the Shares purchased are to be sent to someone other than the undersigned, or to the undersigned at an address other than that shown above. Mail: [_] Check [_] Certificate(s) To: ___________________________________ NAME (PLEASE PRINT) ___________________________________ ADDRESS ___________________________________ ZIP CODE ___________________________________ TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER 6 SIGN HERE (AND COMPLETE SUBSTITUTE FORM W-9 BELOW) X ___________________________________________________________________________ X ___________________________________________________________________________ SIGNATURE(S) OF HOLDER(S) Dated:__________________________, 1997 (Must be signed by registered holder(s) exactly 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 Share Certificates and documents transmitted herewith. If a signature is by an officer on behalf of a corporation or by an executor, administrator, trustee, guardian, attorney- in-fact, agent or other person acting in a fiduciary or representative capacity, please provide the following information. See Instructions 1 and 5.) ----------------------------------------------------------------------------- NAME (PLEASE PRINT) ----------------------------------------------------------------------------- CAPACITY (FULL TITLE) ----------------------------------------------------------------------------- ADDRESS ----------------------------------------------------------------------------- ZIP CODE ------------------------------------- ------------------------------------- (AREA CODE) TELEPHONE NO. TAX IDENTIFICATION OR SOCIAL SECURITY NO. (COMPLETE SUBSTITUTE FORM W-9 BELOW) SIGNATURE GUARANTEE (IF REQUIRED--SEE INSTRUCTIONS 1 AND 5) ----------------------------------------------------------------------------- AUTHORIZED SIGNATURE ----------------------------------------------------------------------------- NAME (PLEASE PRINT) ------------------------------------- ------------------------------------- FULL TITLE NAME OF FIRM ----------------------------------------------------------------------------- ADDRESS ----------------------------------------------------------------------------- ZIP CODE -------------------------------------- (AREA CODE) TELEPHONE NO. DATED: _______________________________ 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER To complete the Letter of Transmittal, you must do the following: .Fill in the box entitled "Description of Shares Being Tendered." .Sign and date the Letter of Transmittal in the box entitled "Sign Here." .Fill in and sign in the box entitled "Substitute Form W-9." In completing the Letter of Transmittal, you may (but are not required to) also do the following: . If you want the payment for any Shares purchased issued in the name of another person, complete the box entitled "Special Payment Instructions." . If you want any certificate for Shares not tendered or Shares not purchased issued in the name of another person, complete the box entitled "Special Payment Instructions." . If you want any payment for Shares or certificate for Shares not tendered or purchased delivered to an address other than that appearing under your signature, complete the box entitled "Special Delivery Instructions." If you complete the box entitled "Special Payment Instructions" or "Special Delivery Instructions," you must have your signature guaranteed by an Eligible Institution (as defined in Instruction 1 below) unless the Letter of Transmittal is signed by an Eligible Institution. 1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal must be guaranteed by a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing of the Securities Transfer Agents Medallion Program (an "Eligible Institution"), unless (i) this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this document, shall include any participant in a Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) of the Shares tendered hereby and such holder(s) has not completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" herein or (ii) such Shares are tendered for the account of an Eligible Institution. If a Share Certificate is registered in the name of a person other than the person signing this Letter of Transmittal, or if payment is to be made, or a Share Certificate not accepted for payment and not tendered is to be returned to a person other than the registered holder(s), then such Share Certificate must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear on such Share Certificate, with the signatures on such Share Certificate or stock powers guaranteed as described above. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES. This Letter of Transmittal is to be used either if Share Certificates are to be forwarded herewith or, unless an Agent's Message (as defined below) is used, if Shares are to be delivered by book-entry transfer pursuant to the procedure set forth under "THE OFFER--Procedure for Accepting the Offer and Tendering Shares" in the Offer to Purchase. Share Certificates representing all physically tendered Shares, or confirmation of a book-entry transfer, if such procedure is available, into the Depositary's account at one of the Book-Entry Transfer Facilities ("Book-Entry Confirmation") of all Shares delivered by book-entry transfer together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), or an Agent's Message in the case of book- entry transfer, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth herein prior to the expiration date of the Offer. 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 of the Offer or who cannot complete the procedure for delivery by book-entry transfer on a timely basis may tender their Shares pursuant to the guaranteed delivery procedure 8 described under "THE OFFER--Procedure for Accepting the Offer and Tendering Shares" in 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 made available by Purchaser, must be received by the Depositary prior to the expiration date of the Offer; and (iii) the Share Certificates representing all physically delivered Shares in proper form for transfer by delivery, or Book-Entry Confirmation of all Shares delivered by book-entry transfer, in each case together with 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), and any other documents required by this Letter of Transmittal, must be received by the Depositary within three NASDAQ trading days after the date of execution of such Notice of Guaranteed Delivery, all as described under "THE OFFER-- Procedure for Accepting the Offer and Tendering Shares" in the Offer to Purchase. A "NASDAQ trading day" is any day on which The Nasdaq Stock Market, Inc.'s National Market ("NASDAQ") is open for business. The term "Agent's Message" means a message, transmitted by a Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of the Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participants in the Book-Entry Transfer Facility tendering the Shares that such participant has received this Letter of Transmittal and agrees to be bound by the terms of this Letter of Transmittal and that Purchaser may enforce such agreement against such participant. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH A BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE DEEMED MADE 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, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. 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. By execution of this Letter of Transmittal (or facsimile hereof), all tendering stockholders 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, the number of Shares represented by such Share Certificates and the number of Shares tendered should be listed on a separate schedule and attached hereto. 4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If fewer than all the Shares represented by any Share Certificate delivered to the Depositary herewith are to be tendered hereby, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered." In such cases, a new certificate representing the remainder of the Shares that were represented by the Share Certificates delivered to the Depositary herewith will be sent to each person signing this Letter of Transmittal, unless otherwise provided in the box entitled "Special Delivery Instructions" herein as soon as practicable after the expiration or termination of the Offer. 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 with the name(s) as written on the face of the Share Certificates evidencing such Shares without alteration, enlargement or any other change whatsoever. If any Share tendered hereby is owned of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in the names of different holders, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of such Shares. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of Share Certificates or separate stock powers are required, unless payment is to be made to, or Share Certificates not tendered or not purchased are to be issued in the name of, a person other than the registered holder(s), in which case, the Share 9 Certificate(s) representing 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 on such Share Certificate(s). Signatures on such Share Certificate(s) 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) representing 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 Share Certificate(s) and stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to Purchaser of such person's authority to so act must be submitted. 6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction 6, Purchaser will pay all stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price of any Shares purchased is to be made to, or Share Certificate(s) representing Shares not tendered or not purchased are to be issued in the name of, a person other than the registered holder(s), the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such other person will be deducted from the purchase price of such Shares purchased, unless evidence satisfactory to Purchaser of the payment of such taxes, or exemption therefrom, is submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE SHARE CERTIFICATES REPRESENTING THE SHARES TENDERED HEREBY. 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) representing 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 to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal but at an address other than that shown in the box entitled "Description of Shares Tendered" herein, the appropriate boxes in this Letter of Transmittal must be completed. Stockholders delivering Shares tendered hereby by book-entry transfer may request that Shares not purchased be credited to an account maintained at a Book-Entry Transfer Facility as such stockholder may designate in the box entitled "Special Payment Instructions" herein. If no such instructions are given, all such Shares not purchased will be returned by crediting the same account at the Book-Entry Transfer Facility as the account from which such Shares were delivered. 8. WAIVER OF CONDITIONS. The conditions of the Offer may be waived, in whole or in part, by Purchaser, in its sole discretion (other than the Minimum Share Condition (as defined in the Offer to Purchase), which may not be waived without the consent of the Company at any time and from time to time, in the case of any Shares tendered. See "THE OFFER--Certain Conditions of the Offer" in the Offer to Purchase. 9. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Share Certificate(s) have been lost, destroyed or stolen, the stockholder should promptly notify the Depositary by checking the box immediately preceding the special payment/special delivery instructions, indicating the number of Shares lost and delivering the Letter of Transmittal. The stockholder will then be contacted and provided with instructions as to the procedures for replacing the Share Certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen certificates have been followed. 10. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance may be directed to the Information Agent at their address or telephone number set forth below. Additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. 10 11. SUBSTITUTE FORM W-9. Each tendering stockholder is required to provide the Depositary with a correct Taxpayer Identification Number ("TIN") on the Substitute Form W-9 which is provided under "Important Tax Information" below, and to certify, under penalties of perjury, that such number is correct and that such stockholder is not subject to backup withholding of Federal income tax. If a tendering stockholder has been notified by the Internal Revenue Service that such stockholder is subject to backup withholding, such stockholder must cross out item (2) of the Certification box of the Substitute Form W-9, unless such stockholder has since been notified by the Internal Revenue Service that such stockholder is no longer subject to backup withholding. Failure to provide the information on the Substitute Form W-9 may subject the tendering stockholder to 31% Federal income tax withholding on the payment of the purchase price of all Shares purchased from such stockholder. If the tendering stockholder has not been issued a TIN and has applied for one or intends to apply for one in the near future, such stockholder should write "Applied For" in the space provided for the TIN in Part I of the Substitute Form W-9, and sign and date the Substitute Form W-9 and the Certificate of Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% on all payments of the purchase price to such stockholder until a TIN is provided to the Depositary. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF), TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE, AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION OF THE OFFER, AND EITHER SHARE CERTIFICATES FOR TENDERED SHARES MUST BE RECEIVED BY THE DEPOSITARY OR SHARES MUST BE DELIVERED PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH CASE PRIOR TO THE EXPIRATION DATE OF THE OFFER, OR THE TENDERING STOCKHOLDER MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY. 11 IMPORTANT TAX INFORMATION Under the Federal income tax law, a stockholder whose tendered Shares are accepted for payment is required by law to provide the Depositary (as payer) with such stockholder's correct TIN on Substitute Form W-9 below. If such stockholder is an individual, the TIN is such stockholder's social security number. If the Depositary is not provided with the correct TIN, the stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service and payments that are made to such stockholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding of 31%. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such individual must submit a Form W-8, signed under penalties of perjury, attesting to such individual's exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. A stockholder should consult his or her tax advisor as to such stockholder's qualification for an exemption from backup withholding and the procedure for obtaining such exemption. If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the stockholder. Backup withholding is not an additional tax. Rather, the tax liability of persons 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 from the Internal Revenue Service. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments that are made to a stockholder with respect to Shares purchased pursuant to the Offer, the stockholder is required to notify the Depositary of such stockholder's correct TIN by completing the form below certifying that (a) the TIN provided on Substitute Form W-9 is correct (or that such stockholder is awaiting a TIN) and (b) that (i) such stockholder has not been notified by the Internal Revenue Service that such stockholder is subject to backup withholding as a result of a failure to report all interest or dividends or (ii) the Internal Revenue Service has notified such stockholder that such stockholder is no longer subject to backup withholding. WHAT NUMBER TO GIVE THE DEPOSITARY The stockholder is required to give the Depositary the social security number or employer identification number of the record holder of the Shares tendered hereby. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. If the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future, the stockholder should write "Applied For" in the space provided for the TIN in Part I, and sign and date the Substitute Form W-9 and the Certificate of Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% of all payments of the purchase price to such stockholder until a TIN is provided to the Depositary. 12 PAYER'S NAME: STATE STREET BANK AND TRUST COMPANY PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND ---------------------- CERTIFY BY SIGNING AND SOCIAL SECURITY NUMBER DATING BELOW. OR EMPLOYER IDENTIFICATION NUMBER ---------------------- (If awaiting TIN write "Applied for") ------------------------------------------------------ SUBSTITUTE FORM W-9 DEPARTMENT OF PART 2--Check the box if you are not subject to THE TREASURY backup withholding under the provision of Section INTERNAL 3406(a)(1)(C) of the Internal Revenue Code because REVENUE (1) you have not been notified that you are subject SERVICE to backup withholding as a result of failure to report all interest or dividends or (2) the Internal Revenue Service has notified you that you are no PAYER'S REQUEST longer subject to backup withholding. FOR TAXPAYER IDENTIFICATION NUMBER (TIN) AND CERTIFICATION [_] -------------------------------------------------------- CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT, AND COMPLETE. Signature: _______________________ Dated: ___________ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. ADDITIONALLY, FAILURE TO PROVIDE SUCH INFORMATION MAY RESULT IN A PENALTY IMPOSED BY THE INTERNAL REVENUE SERVICE. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" INSTEAD OF A TIN IN THE SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all payments of the purchase price made to me will be withheld until I provide a number. Signature: ________________________________________________ Dated: _________ 13 Questions and requests for assistance or additional copies of the Offer to Purchase, Letter of Transmittal and other tender offer materials may be directed to the Information Agent as set forth below: THE INFORMATION AGENT FOR THE OFFER IS: [LOGO OF GEORGESON & COMPANY APPEARS HERE] Wall Street Plaza New York, New York 10005 Banks and Brokers Call Collect: (212) 440-9800 All Others Call Toll Free: (800) 223-2064 ---------------- 14 The related Letter of Transmittal and Share Certificates for your Shares should be sent or delivered by you, your broker, dealer, commercial bank or trust company to the Depositary at its addresses set forth below. Facsimile copies of the Letters of Transmittal will be accepted. The Depositary: STATE STREET BANK AND TRUST COMPANY By Mail: By Overnight Courier: By Hand: STATE STREET BANK STATE STREET BANK STARS AND TRUST COMPANY AND TRUST COMPANY Securities Transfer Corporate Reorganization Corporate Reorganization and Reporting Services, Inc. P.O. Box 9061 70 Campanelli Drive c/o Boston Equiserve LP Boston, Massachusetts 02205-8686 Braintree, Massachusetts 02184 55 Broadway, Third Floor New York, New York 10006
By Facsimile: (For Eligible Institutions Only) (781) 794-6333 Confirm Facsimile by Telephone: (781) 794-6388 --------------- Stockholders should contact the Information Agent or their broker, dealer, commercial bank or trust company for assistance concerning the Offer. Requests for additional copies of the Offer to Purchase and Letters of Transmittal may also be directed to the Information Agent. The Information Agent: [LOGO OF GEORGESON & COMPANY APPEARS HERE] Wall Street Plaza New York, New York 10005 Banks and Brokers Call Collect: (212) 440-9800 All Others Call Toll Free: (800) 223-2064 EX-99.(A)(3) 4 FORM OF LETTER FROM GEORGESON & COMPANY EXHIBIT 99(a)(3) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF CAMBRIDGE SOUNDWORKS, INC. AT $10.68 NET PER SHARE BY CSW ACQUISITION CORPORATION A WHOLLY OWNED SUBSIDIARY OF CREATIVE TECHNOLOGY LTD. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 2, 1997, UNLESS THE OFFER IS EXTENDED. November 3, 1997 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been engaged by CSW Acquisition Corporation ("Purchaser"), a Massachusetts corporation and a wholly owned subsidiary of Creative Technology Ltd., a Singapore corporation ("Parent"), to act as Information Agent in connection with Purchaser's offer to purchase, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated November 3, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer"), all of the outstanding shares of common stock, no par value (the "Shares"), of Cambridge SoundWorks, Inc. (the "Company") at $10.68 per Share, net to the seller in cash. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT NUMBER OF SHARES THAT, WHEN ADDED TO THE SHARES OWNED BY PARENT AS OF THE EXPIRATION OF THE OFFER, SHALL CONSTITUTE TWO-THIRDS OF THE SHARES THEN OUTSTANDING ON A FULLY DILUTED BASIS (THE "MINIMUM SHARE CONDITION"). THE MINIMUM SHARE CONDITION MAY NOT BE WAIVED WITHOUT THE CONSENT OF THE COMPANY. For your information and for forwarding to your clients for whom you hold Shares registered in your name or in the name of your nominee, or who hold Shares registered in their own names, we are enclosing the following documents: 1. Offer to Purchase dated November 3, 1997; 2. Letter of Transmittal to be used by holders of Shares in accepting the Offer and tendering Shares; 3. Notice of Guaranteed Delivery to be used to accept the Offer if (i) certificates representing such Shares ("Share Certificates") are not immediately available, (ii) time will not permit all required documents to reach State Street Bank and Trust Company (the "Depositary"), on or prior to the expiration date of the Offer or (iii) the procedure for book-entry transfer, as set forth in the Offer to Purchase, cannot be completed on a timely basis; 4. Letter to stockholders from Thomas J. DeVesto, President and Chief Executive Officer of the Company, together with the Solicitation/Recommendation Statement on Schedule 14D-9 filed by the Company with the Securities and Exchange Commission; 5. Letter to Clients which may be sent to your clients for whose accounts you hold Shares in your name or the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 7. Return envelope addressed to the Depositary. Upon the terms and subject to the conditions of the Offer, Purchaser will purchase, by accepting for payment, and will pay for, all Shares validly tendered on or prior to the expiration date promptly after the later to occur of (i) the expiration date of the Offer and (ii) the satisfaction or waiver (where permissible) of the conditions set forth under "THE OFFER--Certain Conditions of the Offer" in the Offer to Purchase. For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, tendered Shares if, as and when Purchaser gives oral or written notice to the Depositary of Purchaser's acceptance of such Shares for payment. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the Share Certificates or timely confirmation of a book-entry transfer of such Shares, if such procedure is available, into the Depositary's account at a Book-Entry Transfer Facility (as defined in the Offer to Purchase) pursuant to the procedures set forth under "THE OFFER--Procedure for Accepting the Offer and Tendering Shares" in the Offer to Purchase, (ii) the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, or an Agent's Message (as defined under "THE OFFER--Procedure for Accepting the Offer and Tendering Shares" in the Offer to Purchase) and (iii) any other documents required by the Letter of Transmittal. Purchaser will not pay any fees or commissions to any broker or dealer or any other person (other than the Depositary and the Information Agent, as described under "THE OFFER--Fees and Expenses" in the Offer to Purchase) in connection with the solicitation of tenders of Shares pursuant to the Offer. Purchaser will, however, reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. Purchaser will pay or cause to be paid any stock transfer taxes payable incident to the transfer to it of validly tendered Shares, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Backup tax withholding at a 31% rate may be required, however, unless the required tax identification information is provided. See "Important Tax Information" contained in the Letter of Transmittal. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 2, 1997, UNLESS THE OFFER IS EXTENDED. In order to take advantage of the Offer, a duly executed and properly completed Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other required documents, should be sent to the Depositary, and Share Certificates representing the tendered Shares should be delivered or such Shares should be tendered by book-entry transfer, all in accordance with the Instructions set forth in the Letter of Transmittal and the Offer to Purchase. If holders of Shares wish to tender their Shares, but it is impracticable for them to forward their Share Certificates or other required documents prior to the desired date of tender, a tender may be effected by following the guaranteed delivery procedure specified under "THE OFFER--Procedures for Accepting the Offer and Tendering Shares" in the Offer to Purchase. Any inquiries you may have with respect to the Offer should be addressed to Georgeson & Company Inc. (the "Information Agent") at the address and telephone number set forth on the back cover page of the Offer to Purchase. 2 Additional copies of the enclosed material may be obtained from the Information Agent by calling (212) 440-9800 (call collect), or from brokers, dealers, commercial banks or trust companies. Very truly yours, Georgeson & Company Inc. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS AN AGENT OF PARENT, PURCHASER, THE DEPOSITARY, OR THE INFORMATION AGENT, OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. 3 EX-99.(A)(4) 5 FORM OF LETTER TO CLIENTS EXHIBIT 99 (a)(4) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF CAMBRIDGE SOUNDWORKS, INC. AT $10.68 NET PER SHARE BY CSW ACQUISITION CORPORATION A WHOLLY OWNED SUBSIDIARY OF CREATIVE TECHNOLOGY LTD. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 2, 1997, UNLESS THE OFFER IS EXTENDED. November 3, 1997 To Our Clients: Enclosed for your consideration is an Offer to Purchase, dated November 3, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer") in connection with the offer by CSW Acquisition Corporation ("Purchaser"), a Massachusetts corporation and a wholly owned subsidiary of Creative Technology Ltd., a Singapore corporation ("Parent"), to purchase, upon the terms and subject to the conditions of the Offer, all of the outstanding shares of common stock, no par value (the "Shares"), of Cambridge SoundWorks, Inc. (the "Company") at $10.68 per Share, net to the seller in cash. If you wish to tender Shares but (i) certificates representing such Shares ("Share Certificates") are not immediately available, (ii) time will not permit such Share Certificates and all other documents required by the Letter of Transmittal to reach State Street Bank and Trust Company (the "Depositary") on or prior to the expiration date of the Offer or (iii) the procedure for book-entry transfer, as set forth in the Offer to Purchase, cannot be completed on a timely basis, you may nevertheless tender such Shares pursuant to the guaranteed delivery procedure described under "THE OFFER--Procedure for Accepting the Offer and Tendering Shares" in the Offer to Purchase. See Instruction 2 of the Letter of Transmittal. Delivery of documents to a Book- Entry Transfer Facility (as defined in the Offer to Purchase) in accordance with the Book-Entry Transfer Facility's procedures does not constitute delivery to the Depositary. THE ENCLOSED MATERIAL IS BEING SENT TO YOU AS THE BENEFICIAL OWNER OF SHARES HELD BY US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME. 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 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 us to tender on your behalf any or all of the Shares held by us for your account, pursuant to the terms and conditions set forth in the Offer. Your attention is directed to the following: 1. The tender offer price is $10.68 per Share, net to the seller in cash without interest. 2. The Offer is being made for all of the outstanding Shares. 3. The Board of Directors of the Company (with the director who is a designee of Parent not present or participating in any meeting or discussion), has unanimously determined that each of the Offer and the Merger (as defined in the Offer to Purchase) is fair to, and in the best interests of, the stockholders of the Company (other than Parent and Purchaser), and recommends that stockholders accept the Offer and tender their Shares pursuant to the Offer. 4. The Offer and withdrawal rights expire at 12:00 Midnight, New York City time, on December 2, 1997, unless the Offer is extended. 5. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer at least that number of shares that, when added to the shares owned by Parent as of the expiration of the Offer, shall constitute two-thirds of the Shares then outstanding on a fully diluted basis (the "Minimum Share Condition"). The Minimum Share Condition may not be waived without the consent of the Company. 6. Tendering stockholders will not be obligated to pay brokerage fees or commissions, solicitation fees or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares by Purchaser pursuant to the Offer. The Offer is made solely by the Offer to Purchase and the related Letter of Transmittal 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 securities, blue sky or other laws of such jurisdiction. Purchaser may, however, in its discretion, take such action as it may deem necessary to make the Offer in any jurisdiction and extend the Offer to holders of Shares in 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 shall be deemed to be made on behalf of Purchaser by one or more registered brokers or dealers licensed under the laws of such jurisdiction. If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing and returning to us the instruction form contained in this letter. An envelope in which to return your instructions to us is enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified on the instruction form contained in this letter. PLEASE FORWARD YOUR INSTRUCTIONS TO US AS SOON AS POSSIBLE TO ALLOW US AMPLE TIME TO TENDER SHARES ON YOUR BEHALF PRIOR TO EXPIRATION OF THE OFFER. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF CAMBRIDGE SOUNDWORKS, INC. The undersigned acknowledges receipt of your letter and the enclosed Offer to Purchase, dated November 3, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer"), in connection with the offer by CSW Acquisition Corporation ("Purchaser"), a Massachusetts corporation and a wholly owned subsidiary of Creative Technology Ltd., a Singapore corporation ("Parent"), to purchase, upon the terms and subject to the conditions of the Offer, all of the outstanding shares of common stock, no par value (the "Shares"), of Cambridge SoundWorks, Inc. (the "Company"), at $10.68 per Share, net to the undersigned in cash. This will instruct you to tender to Purchaser on my behalf the number of Shares indicated below (or if no number is indicated in either appropriate space below, all Shares) held by you (or your nominee) for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Account Number: ____________________________________________________________ NUMBER OF SHARES TO BE TENDERED (check ONE box): [_] All Shares [_] ____________ Shares (UNLESS OTHERWISE INDICATED, IT WILL BE ASSUMED THAT ALL SHARES HELD BY US FOR YOUR ACCOUNT ARE TO BE TENDERED) SIGN HERE X __________________________________________________________________________ X __________________________________________________________________________ SIGNATURE(S) _____________________________________________________________________________ NAME(S) (PLEASE PRINT) _____________________________________________________________________________ ADDRESS(ES) _____________________________________________________________________________ ZIP CODE ______________________________________ _____________________________________ (AREA CODE) TELEPHONE NO. TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S) DATED: ____________________________ 3 EX-99.(A)(5) 6 NOTICE OF GUARANTEED DELIVERY EXHIBIT 99(a)(5) NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK OF CAMBRIDGE SOUNDWORKS, INC. TO CSW ACQUISITION CORPORATION A WHOLLY OWNED SUBSIDIARY OF CREATIVE TECHNOLOGY LTD. (NOT TO BE USED FOR SIGNATURE GUARANTEES) This Notice of Guaranteed Delivery (or one substantially in the form hereof) must be used to accept the Offer (as defined herein) if (i) certificates ("Share Certificates") representing shares of common stock, no par value (the "Shares"), of Cambridge SoundWorks, Inc., a Massachusetts corporation, are not immediately available, (ii) time will not permit all required documents to reach State Street Bank and Trust Company (the "Depositary"), on or prior to the expiration date of the Offer or (iii) the procedure for book-entry transfer, as set forth in the Offer to Purchase, cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand or mail or transmitted by telegram or facsimile to the Depositary. See "THE OFFER-- Procedure for Accepting the Offer and Tendering Shares" in the Offer to Purchase. The Depositary: STATE STREET BANK AND TRUST COMPANY By Mail: By Overnight Courier: By Hand: STATE STREET BANK STATE STREET BANK STARS AND TRUST COMPANY AND TRUST COMPANY Securities Transfer Corporate Reorganization Corporate Reorganization and Reporting Services, Inc. P.O. Box 9061 70 Campanelli Drive c/o Boston Equiserve LP Boston, Massachusetts 02205-8686 Braintree, Massachusetts 02184 55 Broadway, Third Floor New York, New York 10006
By Facsimile: (For Eligible Institutions Only) (781) 794-6333 Confirm Facsimile by Telephone: (781) 794-6388 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER OTHER THAN AS LISTED ABOVE DOES 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 INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX IN THE LETTER OF TRANSMITTAL. Ladies and Gentlemen: The undersigned hereby tenders to CSW Acquisition Corporation, a Massachusetts corporation and a wholly owned subsidiary of Creative Technology Ltd., a Singapore corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated November 3, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which together constitute the "Offer"), receipt of each of which is hereby acknowledged, the number of Shares indicated below pursuant to the guaranteed delivery procedures set forth under "THE OFFER--Procedure for Accepting the Offer and Tendering Shares" in the Offer to Purchase: _____________________________________ _____________________________________ NAME(S) OF RECORD HOLDER(S) NUMBER OF SHARES _____________________________________ _____________________________________ CERTIFICATE NOS. (IF AVAILABLE) _____________________________________ ADDRESS(ES) Check box (and indicate account number) if Shares will be tendered by book-entry transfer effected by: _____________________________________ ZIP CODE [_] The Depository Trust Company _____________________________________ [_] Philadelphia Depository Trust (AREA CODE) TELEPHONE NO. Company _____________________________________ ACCOUNT NUMBER X ___________________________________ DATED: __________________, 1997 X ___________________________________ DATED: __________________, 1997 (SIGNATURE(S) OF RECORD HOLDER(S) GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing of the Securities Transfer Agents Medallion Program (an "Eligible Institution"), hereby guarantees delivery to the Depositary, at one of its addresses set forth above, of Share Certificates tendered hereby in proper form for transfer, or confirmation of the book-entry transfer of Shares into the Depositary's account at The Depository Trust Company or Philadelphia Depository Trust Company, in either case together with delivery of a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantee, or an Agent's Message (as defined in the Offer to Purchase), and any other documents required by the Letter of Transmittal, within three NASDAQ trading days after the date of execution of this Notice of Guaranteed Delivery. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and Share Certificates to the Depositary within the time period indicated herein. Failure to do so may result in financial loss to such Eligible Institution. _____________________________________ _____________________________________ NAME OF FIRM AUTHORIZED SIGNATURE _____________________________________ _____________________________________ ADDRESS NAME (PLEASE PRINT) _____________________________________ _____________________________________ ZIP CODE TITLE _____________________________________ _____________________________________ (AREA CODE) TELEPHONE NO. DATE NOTE: DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL 2 EX-99.(A)(6) 7 FORM OF W-9 GUIDELINES EXHIBIT 99(a)(6) 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: i.e. 000- 00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer.
- --------------------------------------------- GIVE THE FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY NUMBER OF-- - --------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner (joint account) of the account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint The actual owner account) of the account or, if joint funds, either person(1) 4. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if account) the minor is the only contributor, the minor(1) 6. Account in the name of The ward, minor, guardian or committee or incompetent for a designated ward, person(3) minor, or incompetent person 7. a. The usual revocable The grantor- savings trust account trustee(1) (grantor is also trustee) b. So-called trust The actual account that is not a owner(1) legal or valid trust under State Law 8. Sole proprietorship The owner(4) account - ---------------------------------------------
- --------------------------------------------- GIVE THE EMPLOYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF-- - --------------------------------------------- 9. A valid trust, estate The legal entity 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.)(5) 10. Corporate account The corporation 11. Religious, charitable, The organization or educational organization account 12. Partnership account The partnership held in the name of the business 13. Association, club, or The organization other tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the The public Department of 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) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service (the "IRS") and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments including the following: . A corporation. . A financial institution. . An organization exempt from tax under section 501(a), or an individual retirement plan. . The United States or any agency or instrumentality thereof. . A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. . A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. . An international organization or any agency, or instrumentality thereof. . A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. . A real estate investment trust. . A common trust fund operated by a bank under section 584(a). . An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). . An entity registered at all times under the Investment Company Act of 1940. . A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one non-resident partner. . Payments of patronage dividends where the amount received is not paid in money. . Payments made by certain foreign organizations. . Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. . Payments of tax-exempt interest (including the exempt-interest dividends under section 852). . Payments described in section 6049(b)(5) to non-resident aliens. . Payments on tax-free covenant bonds under section 1451. . Payments made by certain foreign organizations. . Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends, and patronage dividends that are not subject to information reporting are also not subject to backup with- holding. For details, see the regulations under sections 6041, 6041A(a), 6045, 6050A. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 1984, payers must generally withhold 20% 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. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an under-payment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.(A)(7) 8 SUMMARY ADVERTISEMENT EXHIBIT 99(a)(7) 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 November 3, 1997, and the related Letter of Transmittal, 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 securities, blue sky or other laws of such jurisdiction. Purchaser (as defined below) may, in its discretion, however, take such action as it may deem necessary to make the Offer in any jurisdiction and extend the Offer to holders of Shares in 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 shall be deemed to be made on behalf of Purchaser by one or more registered brokers or dealers licensed under the laws of such jurisdiction. NOTICE OF OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF CAMBRIDGE SOUNDWORKS, INC. AT $10.68 NET PER SHARE BY CSW ACQUISITION CORPORATION A WHOLLY-OWNED SUBSIDIARY OF CREATIVE TECHNOLOGY LTD. CSW Acquisition Corporation, a Massachusetts corporation ("Purchaser") and a wholly-owned subsidiary of Creative Technology Ltd., a Singapore corporation ("Parent"), is offering to purchase all outstanding shares of common stock, no par value (the "Shares"), of Cambridge SoundWorks, Inc., a Massachusetts corporation (the "Company"), at a price of $10.68 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 November 3, 1997 (the "Offer to Purchase") and the related Letter of Transmittal (collectively, the "Offer"). The purpose of the Offer is to enable Parent to acquire all of the equity interest in the Company that it does not currently own. As of November 3, 1997, Parent beneficially owns 1,169,608 Shares representing approximately 28.8% of the outstanding Shares. Following consummation of the Offer, Purchaser intends to effect the Merger described below. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 2, 1997, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT NUMBER OF SHARES THAT, WHEN ADDED TO THE SHARES OWNED BY PARENT AS OF THE EXPIRATION OF THE OFFER, SHALL CONSTITUTE TWO-THIRDS OF THE SHARES THEN OUTSTANDING ON A FULLY-DILUTED BASIS (THE "MINIMUM SHARE CONDITION") AND (II) THE EARLY TERMINATION OR EXPIRATION OF ALL APPLICABLE WAITING PERIODS UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of October 30, 1997 (the "Merger Agreement"), by and among Parent, Purchaser and the Company. The Merger Agreement provides that, among other things, as soon as practicable after the purchase of Shares pursuant to the Offer and the satisfaction of the other conditions set forth in the Merger Agreement, and in accordance with the relevant provisions of the Business Corporation Law of the Commonwealth of Massachusetts (the "MBCL"), Purchaser will be merged with and into the Company (the "Merger"). Following consummation of the Merger, the Company will continue as the surviving corporation (the "Surviving Corporation") and will become a wholly- owned subsidiary of Parent. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares owned by Purchaser, Parent or any subsidiary of Parent or the Company, and other than Shares held by stockholders who shall have properly demanded and perfected appraisal rights in accordance with the MBCL) will be cancelled and converted automatically into the right to receive the price per Share paid pursuant to the Offer, in cash, without interest. THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS VOTE OF ALL DIRECTORS PRESENT AND VOTING (WITH THE DIRECTOR WHO IS A DESIGNEE OF PARENT NOT PRESENT OR PARTICIPATING IN ANY SUCH MEETING OR DISCUSSION), HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY (OTHER THAN PARENT AND PURCHASER), AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered to Purchaser and not properly withdrawn as, if and when Purchaser gives oral or written notice to State Street Bank and Trust Company (the "Depositary") of Purchaser's acceptance for payment of such Shares. In all cases, 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 therefore with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payments from Purchaser and transmitting payment to such validly tendering stockholders. Under no circumstances will interest be paid by Purchaser on the purchase price of the Shares tendered pursuant to the Offer, regardless of any extension of the Offer or any delay in making such payment. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates representing such Shares or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at a Book-Entry Transfer Facility (as defined in the Offer to Purchase) pursuant to the procedures set forth in the Offer to Purchase, (ii) the Letter of Transmittal (or a 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 the Offer to Purchase), and (iii) any other documents required pursuant to the Letter of Transmittal. Subject to the applicable rules and regulations of the Securities and Exchange Commission, Purchaser expressly reserves the right, in its sole discretion (but subject to the terms and conditions of the Merger Agreement), at any time and from time to time, upon the existence of any of the conditions of the Offer set forth in the Offer to Purchase, to (i) terminate or amend the Offer, (ii) extend the Offer and postpone acceptance for payment of any Shares, or (iii) waive any condition (except, without the consent of the Company, for the Minimum Share Condition), by giving oral or written notice of such termination, amendment, extension or waiver to the Depositary and by making a public announcement thereof. In the case of an extension, such public announcement will be made no later than 9:00 a.m., Eastern time, on the next business day after the previously scheduled expiration of the Offer. During any such extension, all Shares previously tendered and not properly withdrawn will remain subject to the Offer, subject to the right of a tendering stockholder to withdraw such stockholder's Shares. Purchaser may (x) from time to time extend (and re-extend) the Offer, if at the scheduled expiration date of the Offer any of the conditions of the Offer have not been satisfied or waived, until such time as such conditions have been satisfied or waived, (y) extend the Offer for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer, or (z) extend (and re-extend) the Offer for any reason on one or more occasions for an aggregate period of not more than 20 business 2 days beyond the latest expiration date that would otherwise be permitted under clause (x) or (y) above if on such expiration date at least that number of Shares necessary to permit the Merger to be effected without a meeting of the Company's stockholders in accordance with the MBCL have not been tendered. Tenders of Shares made pursuant to the Offer are irrevocable except that such Shares may be withdrawn at any time prior to 12:00 Midnight, New York City time, on December 2, 1997 (or the latest time and date at which the Offer, if extended by Purchaser, shall expire) and, unless theretofore accepted for payment by Purchaser pursuant to the Offer, may also be withdrawn at any time after January 2, 1997. For the withdrawal to be effective, a written, telegraphic 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 and must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn if Share certificates have been tendered, and the name of the registered holder of such Shares to be withdrawn as set forth on such Share certificates if different from the name of the person who tendered such Shares. If certificates representing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution (as defined in the Offer to Purchase), the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry transfer (as set forth in the Offer to Purchase), any notice of withdrawal must specify the name and number of the account at a Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with such Book-Entry Transfer Facility's procedures for such withdrawal. All questions as to the form and validity (including the time of receipt) of any notice of withdrawal will be determined by Purchaser, in its sole discretion, which determination will be final and binding. The information required to be disclosed by Rule 14d-6(e)(1)(vii) 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 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 related Letter of Transmittal will be mailed to record holders of Shares whose names appear on the Company's stockholder list 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 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 RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Questions and requests for assistance or for additional copies of the Offer to Purchase and the related Letter of Transmittal and other tender offer materials may be directed to the Information Agent as set forth below, and copies will be furnished promptly at Purchaser's expense. No fees or commissions will be paid to brokers, dealers or other persons (other than the Information Agent and Depositary, as set forth in the Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer. Additional copies of the Offer to Purchase, the Letter of Transmittal and all other tender offer materials may be obtained from the Information Agent or from brokers, dealers, commercial banks and trust companies, and will be furnished promptly at Purchaser's expense. The Information Agent for the Offer is: [LOGO OF GEORGESON & COMPANY APPEARS HERE] Wall Street Plaza New York, New York 10005 Banks and Brokers Call Collect:(212)440-9800 All Others Call Toll Free:(800)223-2064 November 3, 1997 3 EX-99.(A)(9) 9 TEXT OF JOINT PRESS RELEASE DATED 10/31/97 EXHIBIT 99 (a)(9) CREATIVE TO ACQUIRE CAMBRIDGE SOUNDWORKS TO PROVIDE THE COMPLETE PC AUDIO EXPERIENCE SINGAPORE, Oct. 31 -- Creative Technology Ltd. (Nasdaq: CREAF), the world's ------------------------ leading provider of multimedia technology for the personal computer, today announced that it has entered into a definitive agreement to acquire Cambridge --------- SoundWorks, Inc. (Nasdaq: HIFI) of Newton, MA. - ---------------- Cambridge SoundWorks is the renowned speaker manufacturer and retailer famous for its high-performance home theater, home stereo and car stereo speaker systems as well as its critically acclaimed multimedia speakers. The multimedia speakers --MicroWorks(TM), SoundWorks(R) and newly developed PCWorks(TM) -- use premium-quality, amplified subwoofer/satellite speaker technology derived from the company's many years of experience in the home audio business. These speakers deliver a wide-range of truly convincing, phenomenally clear sound -- including crisp highs, a rich mid-range and remarkable bass -- all with an incredibly small footprint and at extremely affordable prices. Creative plans to commence the tender offer on Monday, November 3, 1997 at a tender price of US$10.68 per each share of Cambridge SoundWorks. Creative estimates that the acquisition will cost approximately US$38 million, in the aggregate. The tender offer is scheduled to expire at midnight EST, Tuesday, December 2, 1997, unless extended. Creative intends to acquire the Cambridge SoundWorks shares through a wholly-owned subsidiary of Creative. If the tender offer is consummated, Creative will be obliged to acquire any remaining outstanding Cambridge SoundWorks shares for cash at the same price as the tender price. Thereafter, the Creative subsidiary will be merged with and into Cambridge SoundWorks. Creative currently owns approximately 25 percent of Cambridge SoundWorks' shares. The tender offer is subject to several conditions, including the tender of a minimum number of shares which, when added to Creative's existing stake, will represent two-thirds of the outstanding Cambridge SoundWorks shares calculated on a fully-diluted basis, and other customary conditions. The transaction is subject to regulatory approval and other conditions. "The acquisition of Cambridge SoundWorks furthers Creative's goal of providing its customers with the highest quality PC audio experience for an unbelievable value," said Sim Wong Hoo, chairman and chief executive officer of Creative Technology Ltd. "It is our strategy to offer a comprehensive line of leading- edge technology that turns an ordinary PC into 'The Coolest PC.' By combining the Cambridge SoundWorks speakers with our Sound Blaster(R) AWE64 family of audio cards; our newly released, second generation PC-DVD(TM) Encore(TM) solution; and our Graphics Blaster(TM) Exxtreme(TM) line, Creative becomes the only company that offers the complete, highest performance, home theater-quality audio solutions in the PC industry." "Creative's leadership position in the industry and its tremendous distribution program, combined with Cambridge SoundWorks' technology, puts us in a position to advance our goals and to become the leading provider of multimedia speakers for the PC in the world," said Thomas J. DeVesto, president and chief executive officer of Cambridge SoundWorks. "This relationship will also allow us to have access to Creative's cutting edge research and development resources which will enable us to explore new technologies and break into new territories in our drive to provide the most realistic sound to our customers." As with Creative's products, Cambridge SoundWorks' products are among the most highly-regarded in the consumer electronics and computer industries. In the November 4, 1997 issue of PC Magazine, columnist John Dvorak states: "If you're looking for a set of fantastic-sounding speakers for your PC, I recommend the incredible $100 PCWorks from Cambridge SoundWorks. It's an amazing deal, and I was stunned by the quality." He goes on to say: "Heck, just order these speakers. They're fabulous." Cambridge SoundWorks manufactures 33 different models of home stereo, car stereo, home theater and computer speakers. Its speakers and sound systems are also sold through the company's retail stores and through its national catalog. Creative Technology Ltd., is the world's leading provider of advanced multimedia solutions for personal computers, including sound, graphics, communications and video conferencing products. The company's Sound Blaster technology has been accepted as the worldwide standard sound platform for PCs, and the company's global distribution network is among the most extensive in the multimedia industry. Creative is focused on enhancing the overall user experience by providing powerful, enabling, high-value technology for the mass market. NOTE: Sound Blaster and Blaster are registered trademarks, PC-DVD, Encore, Graphics Blaster and Exxtreme are trademarks of Creative Technology Ltd. in the United States and/or other countries. Cambridge SoundWorks and SoundWorks are registered trademarks, and MicroWorks and PCWorks are trademarks of Cambridge SoundWorks, Inc. in the United States and/or other countries. All other products mentioned herein are trademarks of their respective owners and are hereby recognized as such. EX-99.(A)(10) 10 TEXT OF PRESS RELEASE, DATED 11/03/97 EXHIBIT 99(a)(10) CONTACT: RICK MYLLENBACK CREATIVE LABS, INC. (408) 434-5700 INTERNET: RICKM@SOUNDBLASTER.COM CREATIVE TECHNOLOGY LTD. BEGINS PREVIOUSLY ANNOUNCED TENDER OFFER OF $10.68 PER SHARE FOR ALL REMAINING SHARES OF CAMBRIDGE SOUNDWORKS, INC. Singapore, November 3, 1997--Creative Technology Ltd.'s wholly owned subsidiary, CSW Acquisition Corporation, has today begun its $10.68 per share cash tender offer for all of the shares of Cambridge SoundWorks, Inc., excluding those shares already owned by Creative Technology Ltd. On October 31, 1997, Creative Technology Ltd. announced that it entered into a definitive merger agreement with Cambridge SoundWorks, Inc. Under this agreement, following the completion of the tender offer, Creative Technology Ltd. will acquire all remaining Cambridge SoundWorks, Inc. shares in a second- step merger at the same cash price of $10.68 per share. Creative Technology Ltd. currently owns approximately 25 percent of the shares of Cambridge SoundWorks, Inc. The terms and conditions of the tender offer are included in offering documents being filed today with the Securities and Exchange Commission, and will be sent to stockholders of Cambridge SoundWorks, Inc. The tender offer is conditioned upon, among other things, there being validly tendered, and not withdrawn prior to the expiration of the offer, at least that number of shares of Cambridge SoundWorks, Inc. that, when added to the shares owned by Creative Technology Ltd., constitutes two-thirds of the shares of Cambridge SoundWorks, Inc. then outstanding on a fully diluted basis. The tender offer will expire at midnight on December 2, 1997, unless extended. Creative Technology Ltd. develops, manufactures and markets a wide array of advanced multimedia solutions for the PC, entertainment, education, music and productivity tools markets. Creative Technology Ltd.'s products are marketed through both the original equipment manufacturers and retail channels under a variety of trademarks, including the "Blaster" family name. Sound Blaster has become the multimedia industry's de facto audio standard. Sound Blaster is an audio platform consisting of a sound card or chipset, software drivers and bundled software applications that enable PCs to produce high quality audio. Creative Technology Ltd.'s corporate headquarters and primary manufacturing are based in Singapore, with sales, distribution and research and development being carried out through an extensive, global network of subsidiaries located in North America, Europe, Asia and Africa. Cambridge SoundWorks, Inc. designs and manufactures audio products for home stereo, home theater, car stereo and multimedia computers under the brand name Cambridge SoundWorks. Cambridge SoundWorks, Inc. sells its Cambridge SoundWorks products and selected audio and video components manufactured by other companies directly to consumers through its catalog and its Company- owned retail stores. EX-99.(C)(1) 11 AGREEMENT AND PLAN OF MERGER EXHIBIT (C)(1) AGREEMENT AND PLAN OF MERGER dated as of October 30, 1997 by and among CREATIVE TECHNOLOGY LTD. CSW ACQUISITION CORPORATION AND CAMBRIDGE SOUNDWORKS, INC. TABLE OF CONTENTS
PAGE ---- ARTICLE I THE OFFER....................................................... 1 1.1 The Offer......................................................... 1 1.2 Company Action.................................................... 3 1.3 Directors......................................................... 4 ARTICLE II THE MERGER..................................................... 5 2.1 Merger............................................................ 5 2.2 Conversion of Shares.............................................. 6 2.3 Exchange of Certificates.......................................... 6 2.4 Dissenting Shares................................................. 7 2.5 Articles of Organization and Bylaws of the Surviving Corporation.. 8 2.6 Directors and Officers of the Surviving Corporation............... 8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER..... 8 3.1 Corporate Organization............................................ 9 3.2 Authority......................................................... 9 3.3 Consents And Approvals; No Violation.............................. 9 3.4 Brokers and Finders............................................... 10 3.5 Financing......................................................... 10 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 10 4.1 Corporate Organization............................................ 10 4.2 Capitalization.................................................... 11 4.3 Subsidiaries...................................................... 11 4.4 Authority......................................................... 11 4.5 Consents and Approvals; No Violation.............................. 12 4.6 Proxy or Information Statement.................................... 12 4.7 Conduct of Business............................................... 13 4.8 SEC Documents..................................................... 14 4.9 Litigation........................................................ 14 4.10 Labor Agreements and Actions..................................... 15 4.11 Certain Agreements and Employee Benefit Plans.................... 15 4.12 Taxes............................................................ 17 4.13 Absence of Certain Changes or Events............................. 18 4.14 Title to Properties: Absence of Liens and Encumbrances: Condition of Equipment........................................... 18 4.15 Intellectual Property............................................ 19 4.16 Material Contracts............................................... 20 4.17 Proprietary Information and Inventions Agreements................ 20 4.18 No Conflict of Interest.......................................... 20
4.19 Takeover Statutes Inapplicable................................... 21 4.20 Brokers and Finders.............................................. 21 SECTION V COVENANTS OF THE COMPANY AND PARENT............................. 21 5.1 Conduct of Business of the Company................................ 21 5.2 Stockholder Meeting; Proxy Material............................... 23 5.3 Third Party Acquisitions.......................................... 24 ARTICLE VI ADDITIONAL AGREEMENTS.......................................... 26 6.1 Access to Information............................................. 26 6.2 Legal Conditions to Offer and Merger.............................. 26 6.3 Confidentiality Agreement......................................... 27 6.4 Public Announcements.............................................. 27 6.5 Indemnification and Directors' and Officers' Insurance............ 27 6.6 Company Stock Option Plans........................................ 28 6.7 Certain Employee Benefits Matters................................. 28 6.8 Notice of Certain Events.......................................... 29 6.9 Obligations of Purchaser.......................................... 29 6.10 Voting of Shares................................................. 29 6.11 Expenses......................................................... 29 6.12 Takeover Statutes................................................ 29 ARTICLE VII CONDITIONS.................................................... 30 7.1 Conditions of Each Party's Obligation to Effect the Merger........ 30 7.2 Conditions to Obligations of Parent and the Purchaser............. 30 7.3 Conditions to Obligations of the Company.......................... 31 ARTICLE VIII TERMINATION.................................................. 31 8.1 Termination....................................................... 31 8.2 Effect of Termination............................................. 32 8.3 Certain Payments.................................................. 33 ARTICLE IX GENERAL PROVISIONS............................................. 34 9.1 Nonsurvival of Representations, Warranties and Agreements......... 34 9.2 Amendments and Waivers............................................ 34 9.3 Severability...................................................... 34 9.4 Interpretation.................................................... 34 9.5 Assignment........................................................ 35 9.6 Counterparts...................................................... 35 9.7 Titles and Subtitles.............................................. 35 9.8 Notices........................................................... 35 9.9 Entire Agreement.................................................. 36 9.10 No Third Party Beneficiaries..................................... 36 9.11 Governing Law and Venue; Waiver of Jury Trial.................... 36
-ii- INDEX OF DEFINED TERMS ---------------------- DEFINED TERM REFERENCE - ------------ --------- Agreement Preamble CERCLA (S) 4.7(c) Certificates (S) 2.3(a) Closing Date (S) 2.1(b) Code (S) 4.11(a) Common Stock Recitals Company Preamble Company Advisors (S) 5.3(a) Company Disclosure Schedule Article IV Company Financial Statements (S) 4.8 Company IP Rights (S) 4.15(a) Confidentiality Agreement (S) 6.3 Constituent Corporation (S) 2.1(a) Cut-off Date (S) 1.3(a) Dissenting Shares (S) 2.4(a) Dissenting Stockholder (S) 2.4(a) Effective Time (S) 2.1(b) Environmental Laws (S) 4.7(c) ERISA (S) 4.11(b) Exchange Act (S) 1.1(a) Exchange Agent (S) 2.3(a) Financial Advisor (S) 1.2(a) Fully Diluted Shares (S) 4.2 Governmental Entity (S) 3.3 Hazardous Materials (S) 4.7(c) HSR Act (S) 3.3 Independent Directors (S) 1.3(c) Information Statement (S) 4.6 IRS (S) 4.11(b) ISO (S) 4.11(c) Material Adverse Effect (S) 4.1 Material Contracts (S) 4.16 Material Plans (S) 4.11(b) MBCL Recitals Merger Recitals Merger Agreement Annex I Merger Price (S) 2.2(a) Minimum Share Condition (S) 1.1(a) -iii- DEFINED TERM REFERENCE - ------------ --------- Notice of Superior Proposal (S) 5.3(b) Offer Recitals Offer Documents (S) 1.1(b) Parent Preamble Parent Disclosure Schedule Article III Permits (S) 4.7(b) Preferred Stock (S) 4.2 Proxy Statement (S) 4.6 Purchaser Preamble Schedule 13E-3 (S) 1.1(b) Schedule 14D-1 (S) 1.1(b) Schedule 14D-9 (S) 1.2(b) SEC (S) 1.1(a) SEC Documents (S) 4.8 Securities Act (S) 4.8 Shares Recitals Stock Option Plan (S) 4.2 Stock Options (S) 4.2 Stockholders' Meeting (S) 5.2(a) Superior Proposal (S) 5.3(b) Surviving Corporation (S) 2.1(a) Takeover Statutes Inapplicable (S) 4.19 Taxes (S) 4.12(a) Tendered Shares (S) 1.1(a) Third Party (S) 5.3(b) Third Party Acquisition (S) 5.3(b) Warrants (S) 4.2 -iv- AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October --------- 30, 1997, is entered into by and among Creative Technology Ltd., a Singapore corporation ("Parent"), CSW Acquisition Corporation, a Massachusetts corporation ------ and a wholly owned subsidiary of Parent (the "Purchaser"), and Cambridge --------- SoundWorks, Inc., a Massachusetts corporation (the "Company"). ------- RECITALS -------- A. Parent presently owns an aggregate of 912,294 shares of common stock, no par value ("Common Stock") of the Company and holds a warrant to purchase an ------------ additional 257,314 shares of Common Stock. B. The respective Boards of Directors of the Company, Parent and the Purchaser have approved the acquisition of the Company by the Purchaser and, in furtherance of such acquisition, Parent proposes to cause the Purchaser to make a cash tender offer (the "Offer") for all of the outstanding shares of Common ----- Stock (the "Shares") on the terms specified herein. ------ C. The Board of Directors of the Company has approved the Offer and recommended that it be accepted by the stockholders of the Company. D. The Boards of Directors of the Company and the Purchaser deem it advisable and in the best interests of the stockholders of such corporations to effect the merger (the "Merger") of the Purchaser with and into the Company ------ following the consummation of the Offer, all pursuant to this Agreement and in accordance with the Business Corporation Law of the Commonwealth of Massachusetts (the "MBCL"). ---- The parties hereby agree as follows: ARTICLE I THE OFFER 1.1 THE OFFER. ---------- (a) Subject to the provisions of this Agreement and provided that none of the conditions identified in subparagraphs (a) - (i) in Annex I hereto shall ------- have occurred and be continuing, Parent shall cause the Purchaser to, as promptly as reasonably practicable after the date hereof, but in no event later than five (5) business days following the initial public announcement of the Purchaser's intention to commence the Offer, commence (within the meaning of Rule 14d-2(a) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) the Offer for all of the outstanding Shares at a price of - ------------- $10.68 per Share, net to the seller in cash. The obligation of the Purchaser to accept for payment and to pay for any Shares tendered shall be subject only (i) to such number of Shares, when added to the number of Shares already owned by Parent, the Purchaser or any direct or indirect wholly owned subsidiary of Parent, as shall constitute two-thirds of the Company's Fully Diluted Shares (as defined in Section 4.2) being validly tendered prior to the expiration or termination of the Offer and not withdrawn (the "Minimum Share Condition") and ----------------------- (ii) to the other conditions to the Offer set forth in Annex I. The Purchaser ------- may at anytime transfer or assign to one or more corporations directly or indirectly wholly owned by Parent the right to purchase all or any portion of the Shares tendered pursuant to the Offer (the "Tendered Shares"), but no such --------------- assignment shall relieve the Purchaser of its obligations hereunder. The Purchaser expressly reserves the right to waive any of the conditions to the Offer set forth in Annex I and to modify the terms and conditions of the Offer; ------- provided, however, that, without the prior written consent of the Company, the - -------- ------- Purchaser shall not amend or modify the terms of the Offer to (i) reduce the cash price to be paid pursuant to the Offer, (ii) reduce the number of Shares as to which the Offer is made, (iii) change the form of consideration to be paid in the Offer, (iv) modify or waive the Minimum Share Condition, or (v) impose conditions to its obligation to accept for payment or pay for the Tendered Shares other than those set forth in Annex I. Subject to the terms and ------- conditions thereof, the Offer shall expire at midnight, New York City time, on the date that shall be 20 business days after the date the Offer on which shall be commenced. The Offer may not be extended without the Company's prior written consent; provided, however, that the Purchaser may (x) from time to time extend -------- ------- (and re-extend) the Offer, if at the scheduled expiration date of the Offer any of the conditions to the Offer shall not have been satisfied or waived, until such time as such conditions shall be satisfied or waived; (y) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or the staff thereof --- applicable to the Offer; or (z) extend (and re-extend) the Offer for any reason on one or more occasions for an aggregate period of not more than 20 business days beyond the latest expiration date that would otherwise be permitted under clause (x) or (y) above if on such expiration date there shall not have been tendered at least that number of Shares necessary to permit the Merger to be effected without a meeting of the Company's stockholders in accordance with the MBCL. (b) As soon as reasonably practicable on the date of commencement of the Offer, the Purchaser shall file with the SEC (i) a Tender Offer Statement on Schedule 14D-1 (together with all amendments and supplements thereto, the "Schedule 14D-1") with respect to the Offer and (ii) a Rule 13e-3 Transaction - --------------- Statement on Schedule 13E-3 (together with all amendments and supplements thereto, the "Schedule 13E-3") with respect to the Offer and the other -------------- transactions contemplated hereby. The Schedule 14D-1 and the Schedule 13E-3 shall contain or shall incorporate by reference an offer to purchase and a related letter of transmittal and summary advertisement (such Schedule 14D-1, Schedule 13E-3 and Offer to Purchase and the documents included therein or incorporated therein by reference pursuant to which the Offer shall be made, together with any supplements or amendments thereto, the "Offer Documents"). --------------- The Company shall execute and join in the filing of the Schedule 13E-3. Parent and the Purchaser agree that the Offer Documents shall comply as to form in all material respects with the Exchange Act and the rules and regulations promulgated thereunder and, on the date filed with the SEC and on the date first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is -2- made by Parent or the Purchaser with respect to information supplied by the Company or any of its representatives which is included in the Offer Documents. Each of Parent, the Purchaser and the Company agrees to correct promptly any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading, and each of Parent and the Purchaser further agrees to take all steps necessary to amend or supplement the Offer Documents and to cause the Offer Documents as so amended or supplemented to be filed with the SEC and to be disseminated to the Company's stockholders, in each case as and to the extent required by applicable federal securities laws. The Company and its counsel shall be given a reasonable opportunity to review the Offer Documents and all amendments and supplements thereto prior to their filing with the SEC or dissemination to stockholders of the Company. Parent and the Purchaser agree to provide the Company and its counsel any comments Parent, the Purchaser or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments. (c) Subject to the terms and conditions of the Offer, the Purchaser shall pay for Shares which have been validly tendered and not withdrawn pursuant to the Offer as promptly as practicable following expiration of the Offer. 1.2 COMPANY ACTION. --------------- (a) The Company hereby approves of and consents to the Offer and represents that at a meeting duly called and held the Board of Directors of the Company has (i) by unanimous vote of all directors present and voting (with all directors who are designees of Parent abstaining), approved and adopted this Agreement and the transactions contemplated hereby and determined that the Offer and the Merger are in the best interests of the Company and its stockholders (other than Parent and the Purchaser) and on terms that are fair to such stockholders, and (ii) recommended that the Company's stockholders (other than Parent and the Purchaser) accept the Offer and tender all of their Shares in connection therewith and, if required under the MBCL, approve this Agreement and the transactions contemplated hereby. The Company represents that its Board of Directors has received the written opinion of Hambrecht & Quist LLC (its "Financial Advisor") that the consideration to be received by the holders of - ------------------ Shares (other than Parent and the Purchaser and Dissenting Stockholders (as defined in Section 2.4)) pursuant to each of the Offer and the Merger is fair to such holders from a financial point of view, and that a complete and correct signed copy of such opinion has been delivered on or prior to the date hereof by the Company to Parent. The Company hereby consents to the inclusion in the Offer Documents the recommendation of the Company's Board of Directors described in the immediately preceding sentence. The Company has been authorized by its Financial Advisor to permit, subject to the prior review by its Financial Advisor, the inclusion of the fairness opinion (or a reference thereto) in the Offer Documents, the Schedule 14D-9 (as defined in Section 1.2(b)) and the Proxy Statement (as defined in Section 4.6). (b) As soon as reasonably practicable on the date of commencement of the Offer, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer (together with all amendments and supplements thereto, the "Schedule 14D-9") containing the -------------- recommendation of the Company's Board of -3- Directors described above in Section 1.2(a) and shall mail the Schedule 14D-9 to the stockholders of the Company. The Company agrees that the Schedule 14D-9 shall comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder and, on the date filed with the SEC and on the date first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by the Company with respect to information supplied by Parent or the Purchaser or any of their respective representatives which is included in the Schedule 14D-9. Each of the Company, Parent and the Purchaser agrees to correct promptly any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading, and the Company further agrees to take all steps necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and disseminated to the Company's stockholders, in each case as and to the extent required by applicable federal securities laws. Parent and its counsel shall be given a reasonable opportunity to review the Schedule 14D-9 and all amendments and supplements thereto prior to their filing with the SEC or dissemination to stockholders of the Company. The Company agrees to provide Parent and its counsel with any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments. (c) In connection with the Offer, the Company shall, or shall cause its transfer agent to, furnish the Purchaser promptly with mailing labels containing the names and addresses of the record holders of Common Stock as of a recent date and of those persons becoming record holders subsequent to such date, together with copies of all lists of stockholders, security position listings and computer files and all other information in the Company's possession or control regarding the beneficial owners of Common Stock, and shall furnish to the Purchaser such information and assistance (including updated lists of stockholders, security position listings and computer files) as the Purchaser may reasonably request in communicating the Offer to the Company's stockholders. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Offer or the Merger, Parent and the Purchaser and their agents shall hold in confidence the information contained in any such labels, listings and files, will use such information only in connection with the Offer and the other transactions contemplated hereby and, if this Agreement shall be terminated, will deliver, and will use their reasonable efforts to cause their agents to deliver, to the Company all copies of such information then in their possession or control. 1.3 DIRECTORS. ---------- (a) Promptly upon the purchase by the Purchaser of Shares in the Offer, and from time to time thereafter, the Purchaser shall be entitled to designate that number of directors, rounded up to the next whole number, on the Company's Board of Directors that equals the product of (i) the total number of directors on the Company's Board of Directors (giving effect to the election of any additional directors pursuant to this Section 1.3) and (ii) the -4- percentage that the number of Shares owned by the Purchaser, Parent and any direct or indirect wholly owned subsidiary of Parent (including Shares purchased in the Offer) bears to the total number of Shares outstanding at such time, and to effect the foregoing the Company shall upon request by the Purchaser, at the Company's election, either increase the number of directors comprising the Company's Board of Directors or seek and accept resignations of incumbent directors. The first date on which designees of the Purchaser shall constitute a majority of the Company's Board of Directors is referred to in this Agreement as the "Cut-Off Date." At such times, the Company will use its reasonable best ------------ efforts to cause individuals designated by the Purchaser to constitute the same percentage as such individuals represent on the Company's Board of Directors of each committee of the Board. (b) The Company shall promptly take all actions required pursuant to Section 14(f) and Rule 14f-1 of the Exchange Act in order to fulfill its obligations under this Section 1.3 and shall include in the Schedule 14D-9 such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f-1 to fulfill such obligations. The Purchaser will supply to the Company and be solely responsible for any information with respect to itself and its nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1. (c) Following the Cut-Off Date and prior to the Effective Time (as defined below), the Board of Directors of the Company shall have at least one director who is neither designated by the Purchaser, an employee of the Company nor otherwise affiliated with the Purchaser (one or more of such directors, the "Independent Directors") and any amendment of this Agreement or the Articles or --------------------- Organization or Bylaws of the Company, any termination or amendment of this Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Parent or the Purchaser or any exercise or waiver of any of the Company's rights hereunder, will require the concurrence of a majority of the Independent Directors. ARTICLE II THE MERGER 2.1 MERGER. ------- (a) At the Effective Time (as defined in Section 2.1(b) below) and subject to the terms and conditions hereof and the provisions of the MBCL, the Purchaser will be merged with and into the Company in accordance with the MBCL, the separate existence of the Purchaser shall thereupon cease and the Company shall continue as the surviving corporation (the "Surviving Corporation"). The --------------------- Purchaser and the Company are sometimes hereinafter referred to collectively as the "Constituent Corporations." ------------------------ (b) Subject to the terms and conditions hereof, the Merger shall be consummated as promptly as practicable after the expiration of the Offer and the Stockholders' Meeting (as defined in Section 5.2), if any, by duly filing appropriate articles of merger, in such form as is required by, and executed in accordance with, the relevant provisions of the MBCL -5- The Merger shall be effective at such time as the articles of merger are duly filed with the Secretary of State of the Commonwealth of Massachusetts in accordance with the MBCL or at such later time as is specified in the articles of merger (the "Effective Time"). Prior to such filing, a closing shall take -------------- place at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park, California, or at such other place as the parties shall agree, for the purpose of confirming the satisfaction or waiver of the conditions contained in Article VII hereof. The date on which such closing shall occur is referred to herein as the "Closing Date." ------------ (c) The separate corporate existence of the Company, as the Surviving Corporation, with all its purposes, objects, rights, privileges, powers, certificates and franchises, shall continue unimpaired by the Merger. The Surviving Corporation shall succeed to all the properties and assets of the Constituent Corporations and to all debts, choses in action and other interests due or belonging to the Constituent Corporations and shall be subject to and responsible for all the debts, liabilities and duties of the Constituent Corporations with the effect set forth in Section 80 of the MBCL. 2.2 CONVERSION OF SHARES. At the Effective Time and by virtue of the -------------------- Merger and without any action on the part of the holders of the capital stock of the Constituent Corporations: (a) Each Share issued and outstanding immediately prior to the Effective Time (other than (i) Shares to be canceled pursuant to Section 2.2(b) below and (ii) Dissenting Shares (as defined in Section 2.4)) shall be converted into the right to receive in cash an amount per Share equal to the highest price paid per Share pursuant to the Offer (the "Merger Price"); ------------ (b) Each Share held in the treasury of the Company and each Share owned by Parent, the Purchaser or the Company, or by any direct or indirect wholly owned subsidiary of any of them, shall be canceled and retired without payment of any consideration therefor; and (c) Each share of common stock, par value $.01 per share, of the Purchaser issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of common stock, par value $.01 per share, of the Surviving Corporation. 2.3 EXCHANGE OF CERTIFICATES. ------------------------ (a) From and after the Effective Time, a bank or trust company to be designated by Parent with the concurrence of the Company shall act as exchange agent (the "Exchange Agent") in effecting the exchange of the Merger Price for -------------- certificates which prior to the Effective Time represented Shares and which as of the Effective Time represent the right to receive the Merger Price (the "Certificates"). Promptly after the Effective Time, the Exchange Agent shall - ------------- mail to each record holder of Certificates a form of letter of transmittal and instructions for use in surrendering such Certificates and receiving the Merger Price therefor in a form approved by Parent and the Company. At or prior to the Effective Time, the Purchaser -6- shall deposit in trust with the Exchange Agent immediately available funds in an amount sufficient to pay the Merger Price for all such Shares to the Company's stockholders as contemplated by this Section 2.3. Upon the surrender of each Certificate and the issuance and delivery by the Exchange Agent of the Merger Price for the Shares represented thereby in exchange therefor, the Certificate shall forthwith be canceled. Until so surrendered and exchanged, each Certificate shall represent solely the right to receive the Merger Price for the Shares represented thereby, without any interest thereon. Upon the surrender and exchange of such an outstanding Certificate, the holder thereof shall receive the Merger Price multiplied by the number of Shares represented by such Certificate, without any interest thereon. If any cash is to be paid to a name other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition to such payment or exchange that the person requesting such payment or exchange shall pay to the Exchange Agent any transfer or other taxes required by reason of the payment of such cash to a name other than that of the registered holder of the Certificate surrendered, or such person shall establish to the satisfaction of the Exchange Agent that such tax has been paid or is not applicable. Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto shall be liable to a holder of Certificates for any part of the Merger Price payments made to a public official pursuant to applicable abandoned property, escheat or similar laws. (b) Promptly following the sixth month after the Effective Time, the Exchange Agent shall return to the Surviving Corporation all cash relating to the transactions described in this Agreement, and the Exchange Agent's duties shall terminate. Thereafter, each holder of a Certificate may surrender such Certificate to the Surviving Corporation and (subject to applicable abandoned property, escheat and similar laws) receive in exchange therefor the Merger Price for such Shares, without any interest thereon, but shall have no greater rights against the Surviving Corporation than may be accorded to general creditors of the Surviving Corporation under applicable law. At and after the Effective Time, holders of Certificates shall cease to have any rights as stockholders of the Company except for the right to surrender such Certificates in exchange for the Merger Price for such Shares or to perfect their right of appraisal with respect to their Shares pursuant to the applicable provisions of the MBCL and Section 2.4 below, and there shall be no transfers on the stock transfer books of the Company or the Surviving Corporation of any Shares that were outstanding immediately prior to the Merger. 2.4 DISSENTING SHARES. ------------------ (a) Notwithstanding the provisions of Section 2.2 or any other provision of this Agreement to the contrary, Shares that are issued and outstanding immediately prior to the Effective Time and are held by stockholders who shall have properly demanded appraisal of such Shares in accordance with the MBCL ("Dissenting Shares") shall not be converted into the right to receive the ----------------- Merger Price at the Effective Time, unless and until the holder of such Dissenting Shares shall have failed to perfect or shall have effectively withdrawn or lost such right to appraisal and payment under the MBCL. If a holder of Dissenting Shares (a "Dissenting Stockholder") shall have so failed to ---------------------- perfect or shall have effectively withdrawn or lost such right to appraisal and payment, then, as of the Effective Time or the occurrence of such -7- event, whichever last occurs, such Dissenting Shares shall be converted into and represent solely the right to receive the Merger Price, without any interest thereon, as provided in Section 2.2. (b) The Company shall give Parent (i) prompt notice of any written demands for appraisal, withdrawals of demands for appraisal and any other instruments served pursuant to Section 89 of the MBCL received by the Company, and (ii) the opportunity to direct all negotiations and proceedings with respect to such demands for appraisal. The Company shall not, except with the prior written consent of Parent, make any payment with respect to any demands for appraisal or settle or offer to settle any such demands. 2.5 ARTICLES OF ORGANIZATION AND BYLAWS OF THE SURVIVING CORPORATION. ----------------------------------------------------------------- (a) Subject to the terms of Section 6.5(a), at the Effective Time the Articles of Organization of the Purchaser, as in effect immediately prior to the Effective Time, shall be the Articles of Organization of the Surviving Corporation until thereafter amended as provided by law and such Articles of Organization; provided, however, that Article I of the Articles of Organization -------- -------- of the Surviving Corporation shall be amended to read as follows: "The name of the corporation is Cambridge SoundWorks, Inc." (b) Subject to the terms of Section 6.5(a), the Bylaws of the Purchaser, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended as provided by law, the Articles of Organization of the Surviving Corporation or such Bylaws. (c) Following the Effective Time, the purpose of the Surviving Corporation shall be to carry on the business of the Company as conducted prior to the Effective Time. The Surviving Corporation shall only be authorized to issue 1,000 shares of common stock, par value $.01 per share. 2.6 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. --------------------------------------------------- At the Effective Time, the directors of the Purchaser immediately prior to the Effective Time shall become the directors of the Surviving Corporation, each of such directors to hold office, subject to the applicable provisions of the Articles Organization and Bylaws of the Surviving Corporation, until the next annual stockholders' meeting of the Surviving Corporation and until their successors shall be duly elected or appointed and qualified. At the Effective Time, the officers of the Purchaser immediately prior to the Effective Time shall become the officers of the Surviving Corporation until their respective successors are duly elected or appointed and qualified. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER Parent and the Purchaser hereby jointly and severally represent and warrant to the Company that, except as and to the extent set forth in a Disclosure Schedule (the "Parent Disclosure Schedule") delivered to the Company on or prior -------------------------- to the date hereof setting forth -8- additional exceptions specified therein to the representations and warranties contained in this Article III, which Disclosure Schedule shall identify exceptions by specific Section references: 3.1 CORPORATE ORGANIZATION. ----------------------- (a) Parent is a corporation duly organized, validly existing and in good standing under the laws of Singapore. (b) The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts. The Purchaser has not engaged in any business since it was incorporated other than in connection with the transactions contemplated by this Agreement. Parent owns all of the outstanding capital stock of the Purchaser. 3.2 AUTHORITY. Each of Parent and the Purchaser has the full corporate --------- power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly approved by the respective Boards of Directors of Parent and the Purchaser and no other corporate proceedings on the part of Parent or the Purchaser are necessary to consummate the transactions so contemplated (other than, with respect to the Merger, the filing and recordation of the appropriate merger documents as required by the MBCL). This Agreement has been duly executed and delivered by each of Parent and the Purchaser and, assuming the due authorization, execution and delivery thereof by the Company, constitutes a valid and binding obligation of each of Parent and the Purchaser, enforceable against such parties in accordance with its terms. 3.3 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution ------------------------------------ and delivery of this Agreement by Parent and the Purchaser nor the consummation by Parent and the Purchaser of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of their respective charter documents, or (ii) assuming compliance with the matters referred to in clause (iii) below, constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or give rise to a right of termination, cancellation or acceleration of any obligation contained in or to the loss of a benefit under, or result in the creation of any lien or other encumbrance upon any of the properties or assets of Parent or the Purchaser under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease agreement or other agreement, instrument, obligation, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or the Purchaser, or to which either of them or any of their respective properties or assets may be subject, except for such violations, conflicts, breaches, defaults, terminations, accelerations or creations of liens or other encumbrances, which, individually or in the aggregate, will not have a material adverse effect on Parent and its subsidiaries taken as a whole or prevent or materially delay consummation of the Offer or the Merger, or (iii) require any consent, approval, authorization or permit of, or filing with or notification to, any court, administrative agency, commission or other governmental or regulatory authority or instrumentality, domestic or foreign (a "Governmental ------------ Entity"), except -9- (A) pursuant to the Exchange Act, (B) filing articles of merger pursuant to the MBCL, (C) filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the termination or expiration of ------- the waiting periods thereunder, (D) filings necessary to comply with state securities or "blue sky" laws, or (E) consents, approvals, authorizations, permits, filings or notifications which if not obtained or made will not, individually or in the aggregate, have a material adverse effect on Parent and its subsidiaries taken as a whole or prevent or materially delay consummation of the Offer or the Merger. 3.4 BROKERS AND FINDERS. Neither Parent nor the Purchaser has ------------------- employed any broker or finder or incurred any liability for any fee or commission to any broker, finder or intermediary in connection with the transactions contemplated hereby. 3.5 FINANCING. The Purchaser has or will have, prior to the --------- expiration of the Offer and the Effective Time of the Merger, sufficient cash or cash-equivalent funds available to purchase all of the Shares outstanding in the Offer and the Merger, to provide adequate working capital for the Company following the Effective Time and to pay all related fees and expenses incurred in connection with the Offer and the Merger. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Parent and the Purchaser that, except as and to the extent set forth in a Disclosure Schedule (the "Company Disclosure Schedule") delivered to Parent on or prior to the date - ----------------------------- hereof setting forth additional exceptions specified therein to the representations and warranties contained in this Article IV, which Disclosure Schedule shall identify exceptions by specific Section references: 4.1 CORPORATE ORGANIZATION. The Company is a corporation duly ---------------------- organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has all requisite corporate power and authority and all necessary governmental approvals to own or lease and operate its properties and assets and to carry on its business as it is now being conducted, and is duly qualified or licensed as a foreign corporation to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties owned or leased by it makes such qualification or licensing necessary, except where the failure to be so organized, existing, in good standing, qualified or licensed would not have a Material Adverse Effect. As used herein, the term "Material -------- Adverse Effect" means any change or effect that, individually or in the - -------------- aggregate, is or is reasonably likely to be materially adverse to the business, operations, properties, prospects, condition (financial or otherwise), assets or liabilities (including, without limitation, contingent liabilities) of the Company. 4.2 CAPITALIZATION . The authorized capital stock of the Company -------------- consists of 10,000,000 shares of Common Stock and 2,000,000 shares of preferred stock, no par value ("Preferred Stock"). As of the close of business on October --------------- 23, 1997, (i) 3,804,824 shares of -10- Common Stock were issued and outstanding, (ii) no shares of Preferred Stock were issued and outstanding, (iii) 576,753 shares of Common Stock were reserved for issuance upon the exercise of outstanding options to acquire shares of Common Stock ("Stock Options"), (iv) 257,314 shares of Common Stock were reserved for ------------- issuance upon the exercise of outstanding warrants to acquire shares of Common Stock ("Warrants"), and (v) no shares of Common Stock were held by the Company -------- in its treasury. The number of issued and outstanding shares of Common Stock at any time taken together with the number of shares of Common Stock reserved for issuance upon the exercise of outstanding Stock Options, but excluding the number of shares of Common Stock reserved for issuance upon the exercise of outstanding Warrants, at such time is referred to herein as the "Fully Diluted ------------- Shares." All Stock Options were issued by the Company pursuant to the terms of - ------ its 1993 Stock Option Plan (as amended, the "Stock Option Plan"). All of the ----------------- issued and outstanding shares of Common Stock are validly issued, fully paid and nonassessable and are not subject to preemptive rights created by statute, the Articles of Organization or Bylaws of the Company or any agreement to which the Company is a party or by which the Company or its assets is bound. Except as disclosed in this Section 4.2, there are no shares of capital stock of the Company issued or outstanding, and except for the Stock Options and the Warrants, there are no outstanding subscriptions, options, warrants, rights, convertible securities or other agreements or commitments of any character (including, without limitation, rights which will or could become exercisable as a result of this Agreement or any transaction contemplated hereby) relating to the issued or unissued capital stock or other securities of the Company obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of the Company or obligating the Company to grant, extend or enter into any subscription, option, warrant, right, convertible security or other similar agreement or commitment. There are no voting trusts or other agreements or understandings to which the Company is a party with respect to the voting of the capital stock of the Company. 4.3 SUBSIDIARIES. The Company does not own, directly or ------------ indirectly, any equity or similar interest in, or any interest convertible into or exchangeable for, any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity. 4.4 AUTHORITY. The Company has the full corporate power and --------- authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly approved by the Board of Directors of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated (other than, with respect to the Merger, the approval and adoption of this Agreement by the stockholders of the Company if and to the extent required by applicable law, and the filing and recordation of the appropriate merger documents as required by the MBCL). This Agreement has been duly executed and delivered by, and, assuming the due authorization, execution and delivery thereof by Parent and the Purchaser, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. -11- 4.5 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution ------------------------------------ and delivery of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby will (i) conflict with or result in any breach or violation of any provision of the Articles of Organization or Bylaws of the Company, or (ii) constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or give rise to a right of termination, cancellation or acceleration of any obligation contained in or to the loss of a benefit under, or result in the creation of any lien or other encumbrance upon any of the properties or assets of the Company under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or to which it or any of its properties or assets may be subject, except for such violations, conflicts, breaches, terminations, accelerations or creations of liens or other encumbrances, which will not have a Material Adverse Effect, or (iii) require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity, except (A) pursuant to the Exchange Act, (B) filing articles of merger pursuant to the MBCL, (C) filings under the HSR Act and the termination or expiration of the waiting periods thereunder, (D) filings necessary to comply with state securities or "blue sky" laws, or (E) consents, approvals, authorizations, permits, filings or notifications which if not obtained or made will not have a Material Adverse Effect or prevent or materially delay consummation of the Offer or the Merger. 4.6 PROXY OR INFORMATION STATEMENT. If the MBCL shall require a ------------------------------ Stockholders' Meeting (as defined in Section 5.2 below) to be convened in connection with the Merger, the proxy statement to be provided to stockholders of the Company in connection with the Stockholders' Meeting (together with the amendments and supplements thereto, the "Proxy Statement") and all amendments --------------- thereof and supplements thereto shall, and if the MBCL shall not require a Stockholders' Meeting to be convened in connection with the Merger, the information statement to be provided to stockholders of the Company in connection with the Merger, if any (together with the amendments and supplements thereto, the "Information Statement") shall, comply as to form in all material --------------------- respects with the applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder, and shall not, at the time of (i) first mailing thereof or (ii) in the case of the Proxy Statement, the Stockholders' Meeting to be held in connection with the Merger, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that (x) no representation is made by the Company with respect to information supplied by Parent or any affiliates or representatives of Parent or the Purchaser for inclusion in the Proxy Statement or Information Statement, as the case may be, and (y) no representation is made with respect to a Proxy Statement or Information Statement, as the case may be, prepared by the Company and provided to the Company's stockholders at any time following the Cut-Off Date. 4.7 CONDUCT OF BUSINESS. ------------------- (a) The business of the Company, as presently conducted, is not being conducted in default or violation of any term, condition or provision of (i) its respective charter -12- or bylaws, or (ii) any note, bond, mortgage, indenture, deed of trust, lease, agreement, or other instrument or obligation of any kind to which the Company is a party or by which the Company or any of its properties or assets may be bound, or (iii) any federal, state, local or foreign statue, law, ordinance, rule, regulation, judgment, decree, order, concession, grant, franchise, permit or license or other governmental authorization or approval applicable to the Company, excluding from the foregoing clauses (ii) and (iii) defaults or violations that could not reasonably be expected to have a Material Adverse Effect. (b) The Company has all licenses, permits, orders or approvals of, and have made all required registrations with, all Governmental Entities that are material to the conduct of the business of the Company (collectively, "Permits"). To the Company's knowledge, (i) all Permits are in full force and ------- effect; (ii) no material violations are or have been recorded in respect of any Permit; and (iii) no proceeding is pending or threatened to revoke or limit any Permit. (c) The Company has not received any written communication from a Governmental Entity that alleges that the Company is not in compliance with any Environmental Law (as defined below). The Company has no knowledge of any environmental materials or information, including on-site or off-site disposal or releases of Hazardous Materials (as defined below), that could reasonably be expected to have a Material Adverse Effect. As used in this Agreement, the term "Environmental Laws" means any applicable treaties, laws, regulations, ------------------ enforceable requirements, orders, decrees or judgments issued, promulgated or entered into by any Governmental Entity, which relate to (A) pollution or protection of the environment or (B) the generation, storage, use, handling, disposal or transportation of or exposure to Hazardous Materials, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Resource Conservation -- --- ------ and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq., the Federal Water -- --- Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq., the Clean -- --- Air Act of 1970, as amended, 42 U.S.C. Section 7401 et seq., the Toxic -- --- Substances Control Act of 1976, 15 U.S.C. Section 2601 et seq., the Hazardous -- --- Materials Transportation Act, 49 U.S.C. Section 1801 et seq., and any similar -- --- or implementing state or local law, and all amendments or regulations promulgated thereunder; and the term "Hazardous Materials" means all explosive ------------------- or regulated radioactive materials or substances, biological hazards, genotoxic or mutagenic hazards, hazardous or toxic substances, medical wastes or other wastes or chemicals, petroleum or petroleum distillates, asbestos or asbestos- containing materials, and all other materials or chemicals regulated pursuant to any Environmental Law, including materials listed in 49 C.F.R. Section 172.101 and materials defined as hazardous pursuant to Section 101(14) of CERCLA. 4.8 SEC DOCUMENTS. The Company has filed all required reports, ------------- schedules, forms, statements and other documents with the SEC since July 2, 1995 (the "SEC Documents"). As of their respective dates, the SEC Documents complied ------------- in all material respects with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and the -------------- rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and, at the time of filing, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be -13- stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents (the "Company ------- Financial Statements") comply as to form in all material respects with - -------------------- applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the financial position of the Company as of the dates thereof and its statements of operations, stockholders' equity and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal and recurring year-end audit adjustments which were and are not expected to be material). Except as and to the extent set forth on the balance sheet of the Company as at June 29, 1997, including the notes thereto, the Company has no liability or obligation of any nature (whether accrued, absolute, contingent or otherwise) which would be required to be reflected on a balance sheet, or in the notes thereto, prepared in accordance with generally accepted accounting principles, except for liabilities and obligations incurred in the ordinary course of business consistent with past practice since June 29, 1997 which could not reasonably be expected to have a Material Adverse Effect. The Company has heretofore delivered to Parent complete and correct copies of all of the SEC Documents and all amendments and modifications thereto, as well as, to the extent any shall exist, all amendments and modifications that have not been filed by the Company with the SEC to all agreements, documents and other instruments that previously had been filed by the Company with the SEC and are currently in effect. 4.9 LITIGATION. There is no suit, action or proceeding pending or, ---------- to the knowledge of the Company, threatened against the Company that, individually or in the aggregate, could reasonably be expected to (i) have a Material Adverse Effect, (ii) materially impair the ability of the Company to perform its obligations under this Agreement, or (iii) prevent the consummation of any of the transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity outstanding against the Company having, or that could reasonably be expected to have, any such effect. 4.10 LABOR AGREEMENTS AND ACTIONS. ---------------------------- (a) The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the knowledge of the Company threatened, which could have a Material Adverse Effect, nor is the Company aware of any labor organization activity involving its employees. (b) The employment of each officer and employee of the Company is terminable at the will of the Company, and the Company has not entered into any oral or written agreements with any of its officers or employees that provide for severance or termination pay or acceleration of vesting on stock options or restricted stock. -14- (c) The Company has complied in all material respects with all applicable state and federal equal employment opportunity laws and with other laws related to employment. (d) The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate such officer's or employee's employment with the Company, nor does the Company have any present intention to terminate the employment of any officer or key employee. Each officer and key employee of the Company is currently devoting 100% of his or her business time attending to the affairs of the Company. 4.11 CERTAIN AGREEMENTS AND EMPLOYEE BENEFIT PLANS. ---------------------------------------------- (a) The Company is not a party to any written (i) employment, severance, collective bargaining or consulting agreement not terminable on 60 days' or less notice, (ii) agreement with any executive officer or other key employee of the Company (A) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company of the nature of any of the transactions contemplated by this Agreement, (B) providing any term of employment or compensation guarantee extending for a period longer than one year, or (C) providing severance benefits or other benefits after the termination of employment of such executive officer or key employee regardless of the reason for such termination of employment, (iii) agreement, plan or arrangement under which any person may receive payments subject to the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or (iv) agreement or plan, including, without ---- limitation, any stock option plan, stock appreciation right plan, restricted stock plan or stock purchase plan, the benefits of which would be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. (b) Schedule 4.11(b) contains a true and complete summary or list of, or otherwise describes (i) all employee benefit plans (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock purchase, restricted stock, ----- incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other benefit plans, programs or arrangements, and all employment, termination, severance or other contracts or agreements to which the Company is a party, with respect to which the Company has any obligations which are material in amount and which are maintained, contributed to or sponsored by the Company for the benefit of any current or former employee, officer or director of the Company and (ii) each employee benefit plan for which the Company could incur liability under Section 4069 of ERISA, in the event such plan were terminated, or under Section 4212(c) of ERISA, or in respect of which the Company remains secondarily liable under Section 4204 of ERISA (collectively, the "Material Plans"). Each Material Plan -------------- is in writing and the Company has previously provided to Parent a true and complete copy of each Material Plan and a true and complete copy of each material document prepared in connection with each such Material Plan including, without limitation: (i) a copy of each trust or other funding arrangement, (ii) the most current summary plan -15- description and summary of material modifications, (iii) the most recently filed Internal Revenue Service ("IRS") Form 5500, (iv) the most recently received IRS --- determination letter for each such Material Plan, and (v) the most recently prepared actuarial report and financial statement in connection with each such Material Plan. The Company has no express or implied commitment (i) to create, incur liability with respect to or cause to exist any other employee benefit plan, program or arrangement, (ii) to enter into any contract or agreement to provide compensation or benefits to any individual, or (iii) to modify, change or terminate any Material Plan, other than with respect to a modification, change or termination required by ERISA or the Code. To the extent applicable, the Material Plans comply with the requirements of ERISA and the Code, and any Material Plan intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified and has been so qualified during the period from its adoption to date. No Material Plan is covered by Title IV of ERISA or Section 412 of the Code. Neither the Company nor any officer or director of the Company has incurred any liability or penalty under Sections 4975 through 4980 of the Code or Title I of ERISA. To the knowledge of the Company, each Material Plan has been maintained and administered in all material respects in compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations, including but not limited to ERISA and the Code, which are applicable to such Material Plans. There are no pending or anticipated claims against or otherwise involving any of the Material Plans and no suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of Material Plan activities) has been brought, or to the knowledge of the Company is threatened, against or with respect to any such Material Plan. All material contributions, reserves or premium payments required to be made or accrued as of the date hereof to the Material Plans have been made or accrued. (c) Schedule 4.11(c) contains a true and correct list of each person who holds any Stock Option as of the date hereof, together with (i) the number of shares of Common Stock subject to such Stock Option, (ii) the date of grant of such Stock Option, (iii) the extent to which such Stock Option is currently vested or scheduled to vest by December 15, 1997, (iv) the exercise price of such Stock Option, (v) whether such Stock Option is intended to qualify as an incentive stock option within the meaning of Section 422(b) of the Code (an "ISO"), and (vi) the expiration date of such Stock Option. Schedule 4.11(c) --- also sets forth the aggregate number of ISO's and nonqualified Stock Options outstanding as of the date hereof. 4.12 TAXES. ----- (a) The Company (i) has filed when due (taking into account extensions) with the appropriate federal, state, local, foreign and other governmental agencies, all tax returns, estimates and reports required to be filed by it, (ii) either paid when due and payable or established adequate reserves or otherwise accrued all requisite federal, state, local or foreign taxes, levies, imposts, duties, licenses and registration fees and charges of any nature whatsoever, and unemployment and social security taxes and income tax withholding, including interest and penalties thereon ("Taxes") and there are ----- and will be no tax deficiencies claimed in writing and received by the Company in respect of any period preceding the Effective Time that, in the aggregate, would result in any tax liability in excess of the amount of the reserves or accruals, and (iii) have established or will establish in accordance with its normal accounting practices and -16- procedures accruals and reserves that, in the aggregate, are adequate for the payment of all Taxes not yet due and payable and attributable to any period preceding the Effective Time. (b) No taxes, interest, penalties, assessments or deficiencies have been threatened or claimed in a writing and received by the Company by any taxing authority in respect of any tax returns filed by the Company (or any predecessor corporations). Neither the Company nor any predecessor corporation has executed or filed with the IRS or any other taxing authority any agreement or other document extending, or having the effect of extending, the period of assessment or collection of any Taxes. The Company is not currently being audited by any taxing authority nor has it received notice of a proposed audit pertaining to Taxes. There are no tax liens on any assets of the Company or any affiliate, except for Taxes not yet due and payable. The accruals and reserves for taxes reflected in the balance sheet of the Company as at June 29, 1997 are in all material respects adequate to cover all Taxes accruable through the date thereof (including interest and penalties, if any, thereon and Taxes being contested) in accordance with generally accepted accounting principles. (c) The Company neither is a party to, is bound by, nor has any obligation under any tax sharing or similar agreement. (d) The Company is not required to include in income (i) any amount in respect of any adjustment under Section 481 of the Code, (ii) any deferred intercompany transaction, or (iii) any installment sale gain, where the inclusion in income would result in a tax liability materially in excess of the reserves therefor. The Company has not given a consent under Section 341(f) of the Code. The Company is not, nor has it been at any time, a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code. (e) The Company is not a party to any agreement, contract or arrangement that may result, separately or in the aggregate, in the payment of any "excess parachute payment" within the meaning of Section 280G of the Code by reason of the consummation of the Offer or the Merger, determined without regard to Section 280G(b)(4) of the Code. No acceleration of the vesting schedule for any property that is substantially unvested within the meaning of the regulations under Section 83 of the Code will occur in connection with the transactions contemplated by this Agreement. The Company is not nor has it been subject to any accumulated earnings tax or personal holding company tax. The Company does not own stock in (i) a passive foreign investment company within the meaning of Section 1296 of the Code or (ii) a controlled foreign corporation within the meaning of Section 957 of the Code. The Company is not obligated under any agreement with respect to industrial development bonds or other obligations with respect to which the excludibility from gross income of the holder for federal income tax purposes could be affected by the transactions contemplated hereunder. The Company has no unrecaptured overall foreign loss within the meaning of Section 904(f) of the Code and has not participated in or cooperated with an international boycott within the meaning of Section 999 of the Code. The Company does not own any property of a character the transfer of which would give rise to (x) a revaluation of such property for purposes of any ad valorem or similar tax, or (y) any documentary, stamp or other transfer tax. The Company has no "excess -17- loss account" for purposes of the Treasury Regulations promulgated under Section 1502 of the Code. 4.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 29, 1997, except as ------------------------------------ contemplated by this Agreement or disclosed in any SEC Document filed since such date and prior to the date of this Agreement, the Company has conducted its business only in the ordinary course consistent with past practice, and there has not been (i) any damage, destruction or loss, whether covered by insurance or not, having or which, insofar as reasonably can be foreseen, in the future would have a Material Adverse Effect, (ii) any declaration, setting aside or payment of any dividend (whether in cash, stock or property) with respect to Common Stock, or any redemption, purchase or other acquisition of any of its securities, (iii) any change in the business, operations, properties, prospects, condition (financial or otherwise), assets or liabilities (including, without limitation, contingent liabilities) of the Company having a Material Adverse Effect, (iv) any labor dispute, other than routine matters, none of which is material to the Company, (v) any entry into any material commitment or transaction (including, without limitation, any borrowing or capital expenditure) other than in the ordinary course of business consistent with past practice, (vi) any material change by the Company in its accounting methods, principles or practices, (vii) any revaluation by the Company of any asset (including, without limitation, any writing down of the value of inventory or writing off of notes or accounts receivable), or (viii) any increase in or establishment of any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option (including, without limitation, the granting of stock options, stock appreciation rights, performance awards, or restricted stock awards), stock purchase or other employee benefit plan, or any other increase in the compensation payable or to become payable to any officers or key employees of the Company. 4.14 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF -------------------------------------------------------------------- EQUIPMENT. - ---------- (a) The Company does not own any real property. (b) All of the existing real property leases to which the Company is a party have been previously delivered to Buyer. Schedule 4.14(b) sets forth a complete and accurate list of all real property leased by the Company. (c) The Company owns or has valid leasehold interests in all of its tangible properties and assets (real, personal and mixed) used in its business, free and clear of any liens (other than liens for Taxes that are not yet delinquent), charges, pledges, security interests or other encumbrances, except as reflected in the Company Financial Statements and except for such imperfections of title and encumbrances, if any, that are not substantial in character, amount or extent, and that do not and are not reasonably likely to materially detract from the value, or interfere with the use of the property subject thereto or affected thereby. The Company has delivered to Buyer correct and complete copies of each lease identified in Schedule 4.14(b) and such leases are valid and enforceable by the Company in accordance with their terms. The Company has received no notice that, and, to the Company's knowledge, no -18- circumstance exists which, with the passage of time or the giving of notice or both, could constitute a default under any such leases. (d) Each item of machinery and equipment owned or leased by the Company is (i) adequate for the conduct of the business of the Company consistent with its past practice, (ii) suitable for the uses to which it is currently employed, (iii) in good operating condition, ordinary wear and tear excepted, and (iv) regularly and properly maintained. 4.15 INTELLECTUAL PROPERTY. --------------------- (a) The Company either owns, or has a valid license with respect to, all patents, copyrights, trademarks, trade secrets and other intellectual property used in, by, or necessary to, the operation or conduct of its business as presently conducted (such intellectual property and the rights thereto are collectively referred to herein as the "Company IP Rights"). ----------------- (b) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not constitute a material breach of any instrument or agreement governing any patent, copyright, trademark, trade secret or other intellectual property rights licensed by, or to, the Company, will not cause the forfeiture or termination or give rise to a right of forfeiture or termination of any Company IP Rights or materially impair the right of the Company, the Surviving Corporation or Parent in or to use, sell, enforce license or otherwise exploit any Company IP Rights or portion thereof. (c) Neither the operation of the Company's business, the Company IP Rights nor the manufacture, marketing, license, sale or intended use of any product, service or technology currently licensed, manufactured, created, distributed, authored, used, sold or under development by the Company (i) violates in any material respect any license or agreement between the Company and any third party or (ii) infringes any patents, copyright trademark, trade secret or other intellectual property right of any other party. There is no pending or, to the knowledge of the Company, threatened claim or litigation contesting the validity, ownership or right to use, sell, enforce, license or dispose of any Company IP Rights, nor has the Company received any written notice asserting that any Company IP Rights or the proposed use, sale, license or disposition thereof conflicts or will conflict with the rights of any other party. 4.16 MATERIAL CONTRACTS. Except as disclosed in the SEC Documents, ------------------ there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates, or any affiliate thereof. Except as reflected in the SEC Documents, there are no agreements, understandings, instruments, contracts or proposed transactions to which the Company is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of $25,000, other than purchase orders in individual amounts of less than $100,000 received in the ordinary course of business, (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company, or (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products to any other person or affect the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its products (the "Material -------- Contracts"). To the knowledge of the Company: (i) each Material Contract is in - --------- full force and effect except as the same may have -19- expired in accordance with its terms; (ii) the Company has not received any written assertion of default under any Material Contract; and (iii) the Company does not reasonably expect nor has it received any notice related to any termination or material change to, or proposal with respect to, any of the Material Contracts as a result of the transactions contemplated by this Agreement. The Company is not a party to, nor has it any obligation under, any contract or agreement, written or oral, which contains any covenants, currently or prospectively limiting the freedom of the Company to engage in any line of business anywhere in the world or to compete with any entity anywhere in the world. 4.17 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each current and ------------------------------------------------- former employee, consultant and officer of the Company has executed an agreement with the Company regarding confidentiality and proprietary information substantially in the form or forms attached to Schedule 4.17. The Company is not aware that any of its employees or consultants is in violation thereof, and the Company will use its best efforts to prevent any such violation. All consultants to or vendors of the Company with access to confidential information of the Company are parties to a written agreement substantially in the form or forms attached to Schedule 4.17 under which, among other things, each such consultant or vendor is obligated to maintain the confidentiality of confidential information of the Company. The Company is not aware that any of its consultants or vendors are in violation thereof, and the Company will use its best efforts to prevent any such violation. 4.18 NO CONFLICT OF INTEREST. Except as expressly disclosed in the ----------------------- SEC Documents, the Company is not indebted, directly or indirectly, to any of its officers or directors or to their respective spouses or children, in any amount whatsoever other than in connection with expenses or advances of expenses incurred in the ordinary course of business or relocation expenses of employees. To the Company's knowledge, none of the Company's officers or directors, or any members of their immediate families, directly or indirectly, are indebted to the Company or have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company except that officers, directors and/or stockholders of the Company may own stock in (but not exceeding two percent of the outstanding capital stock of) any publicly traded company that may compete with the Company. To the Company's knowledge, none of the Company's officers or directors or any member of their immediate families is, directly or indirectly, interested in any material contract with the Company. The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. 4.19 TAKEOVER STATUTES INAPPLICABLE. No "fair price," "moratorium," ------------------------------ "control share acquisition" or other similar anti-takeover statute or regulation (each a "Takeover Statute") is applicable to the Company, the Shares, the Offer, ---------------- the Merger or any of the other transactions contemplated by this Agreement. The Company has heretofore delivered to Parent a complete and correct copy of the resolutions of the Board of Directors of the Company approving the Offer, the Merger and this Agreement, and such approval is sufficient to render inapplicable to the Offer, the Merger, this Agreement and the transactions contemplated by this Agreement the provisions of Chapters 110C and 110F of the Massachusetts Corporation-Related Laws to the -20- extent, if any, that such statutes are applicable to such transactions and this Agreement. On or prior to the date hereof, the Company has taken all corporate action necessary to cause the restrictions set forth in Chapters 110D and 110E of the Massachusetts Corporation-Related Laws to be inapplicable to the Offer and the Merger and other similar transactions involving the Company and its stockholders. 4.20 BROKERS AND FINDERS. Except for Hambrecht & Quist LLC and the ------------------- fees payable by the Company to such firm described in an engagement letter dated September 29, 1997, a complete and correct copy of which has been provided to Parent on or prior to the date hereof, the Company has not employed any broker or finder or incurred any liability for any fee or commission to any broker, finder or intermediary in connection with the transactions contemplated hereby. SECTION V COVENANTS OF THE COMPANY AND PARENT 5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by ---------------------------------- this Agreement, during the period commencing on the date of this Agreement and continuing until the Cut-Off Date or until the termination of this Agreement in accordance with its terms, the Company shall conduct its operations in the ordinary and usual course consistent with past practice, and the Company will endeavor to preserve intact its business organization, to keep available the services of its officers and employees and to maintain satisfactory relations with suppliers, contractors, distributors, licensors, licensees, customers and others having business relationships with it. Without limiting the generality of the foregoing and except as provided in this Agreement, prior to the Cut-Off Date, the Company shall not directly or indirectly do, or propose to do, any of the following, without the prior written consent of Parent: (a) Declare or pay any dividends on or make any other distribution in respect of any of the capital stock of the Company; (b) Split, combine or reclassify any of the capital stock of the Company or issue or authorize any other securities in respect of, in lieu of or in substitution for, shares of the capital stock of the Company or repurchase, redeem or otherwise acquire any shares of the capital stock of the Company; (c) Issue, deliver, encumber, sell or purchase any shares of the capital stock of the Company or any securities convertible into, or rights, warrants, options or other rights of any kind to acquire, any such shares of capital stock, other convertible securities or any other ownership interest (including, without limitation, any phantom interest) (other than the issuance of Common Stock upon the exercise of outstanding Stock Options and Warrants); (d) Amend or otherwise change its Articles of Organization or Bylaws (or other comparable organizational document); -21- (e) Acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof; (f) Sell, lease, license or otherwise dispose of any of its assets (including the Company IP Rights), other than in the ordinary course of business consistent with its past practices; (g) Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities of the Company or guarantee any debt securities of others, other than in the ordinary course of business consistent with past practice; (h) Enter into any contract or agreement other than in the ordinary course of business consistent with past practice; (i) Authorize any single capital expenditure which is in excess of $50,000 or capital expenditures which are, in the aggregate, in excess of $150,000; (j) Increase the compensation payable or to become payable to its officers or employees, except for increases in accordance with past practices in salaries or wages of employees of the Company who are not officers of the Company, or grant any severance or termination pay to, or enter into any employment or severance agreement with any director, officer or other employee of the Company, or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer or employee; (k) Take any action, other than reasonable and usual actions in the ordinary course of business and consistent with past practice, with respect to accounting policies or procedures (including, without limitation, procedures with respect to cash management, the payment of accounts payable and the collection of accounts receivable); (l) Make any tax election or settle or compromise any material federal, state, local or foreign income tax liability, or execute or file with the IRS or any other taxing authority any agreement or other document extending, or having the effect of extending, the period of assessment or collection of any taxes; (m) Amend or modify the warranty policy of the Company; (n) Pay, discharge, satisfy, settle or compromise any suit, claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business and consistent with past practice, of liabilities reflected or reserved against in the Company's balance sheet dated as of June 29, 1997 as filed by the Company with the SEC in its Annual Report on Form 10-K for its fiscal year ended June 29, 1997 or subsequently incurred in the ordinary course of business and consistent with past practice; or -22- (o) Take any action that would result in any of the representations and warranties of the Company set forth in this Agreement becoming untrue in any material respect or in any of the conditions to the Offer or any of the conditions to the Merger set forth in Article VII not being satisfied. 5.2 STOCKHOLDER MEETING; PROXY MATERIAL. ----------------------------------- (a) If this Agreement is required by the MBCL to be approved by the Company's stockholders, then the Company shall cause a meeting of its stockholders (the "Stockholders' Meeting") to be duly called and held as soon as --------------------- reasonably practicable for the purpose of voting on the approval and adoption of this Agreement and the transactions contemplated hereby. The Board of Directors of the Company shall, subject to the terms of Section 5.3(b), recommend approval and adoption of this Agreement and the Merger by the Company's stockholders. In connection with such meeting, the Company (i) shall promptly prepare and file with the SEC, use all reasonable efforts to have cleared by the SEC and thereafter mail to its stockholders as promptly as practicable the Proxy Statement and all other proxy materials for such meeting, (ii) shall notify Parent of the receipt of any comments of the SEC with respect to the Proxy Statement and of any requests by the SEC for any amendment or supplement thereto or for additional information and shall provide to Parent promptly copies of all correspondence between the Company or any representative of the Company and the SEC, (iii) shall give Parent and its counsel the opportunity to review the Proxy Statement prior to its being filed with the SEC and shall give Parent and its counsel the opportunity to review all amendments and supplements to the Proxy Statement and all responses to requests for additional information and replies to comments prior to their being filed with, or sent to, the SEC, (iv) shall, subject to the fiduciary duties of its Board of Directors as advised by counsel, use all reasonable efforts to obtain the necessary approvals by its stockholders of this Agreement and the transactions contemplated hereby and (v) shall otherwise comply with all legal requirements applicable to such meeting. (b) Notwithstanding the foregoing, in the event that Purchaser shall acquire at least 90% of the then outstanding Shares, the parties hereto agree, at the request of Purchaser, subject to the provisions of Article VII, to take all necessary and appropriate action to cause the Merger to become effective, in accordance with Section 82 of the MBCL, as soon as reasonably practicable after such acquisition, without a meeting of the stockholders of the Company. 5.3 THIRD PARTY ACQUISITIONS. ------------------------ (a) The Company agrees that neither it nor any of its employees or directors shall, and it shall direct and use its best efforts to cause its agents and representatives (including its Financial Advisor or any other investment banker and any attorney or accountant retained by it (collectively, "Company Advisors")), not to, directly or indirectly, initiate, solicit, - ----------------- encourage or otherwise facilitate any inquiries in respect of, or the making of any proposal for, a Third Party Acquisition (as defined in Section 5.3(b) below). The Company further agrees that neither it nor any of its employees or directors shall, and it shall direct and use its best efforts to -23- cause all Company Advisors not to, directly or indirectly, engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any Third Party (as defined in Section 5.3(b) below) relating to the proposal of a Third Party Acquisition, or otherwise facilitate any effort or attempt to make or implement a Third Party Acquisition; provided, -------- however, that if at any time prior to the acceptance for payment of Shares - ------- pursuant to the Offer, the Board of Directors of the Company determines in good faith, after consultation with outside counsel, that it is necessary to do so in order to comply with its fiduciary duties to the Company's stockholders under applicable law, the Company may, in response to an inquiry, proposal or offer for a Third Party Acquisition which was not solicited subsequent to the date hereof, (x) furnish only such information with respect to the Company to any such person pursuant to a customary confidentiality agreement as was delivered to Parent prior to the execution of this Agreement and (y) participate in the discussions and negotiations regarding such inquiry, proposal or offer; and further provided, that nothing contained in this Agreement shall prevent the - ------- -------- Company or its Board of Directors from complying with Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any proposed Third Party Acquisition. The Company shall immediately cease and cause to be terminated any existing activities, discussions or negotiations with any Third Parties conducted heretofore with respect to any of the foregoing. The Company shall take the necessary steps to promptly inform all Company Advisors of the obligations undertaken in this Section 5.3 (a). The Company agrees to notify Parent promptly if (i) any inquiries relating to or proposals for a Third Party Acquisition are received by the Company or any of the Company Advisors, (ii) any confidential or other non-public information about the Company is requested from the Company or any of the Company Advisors, or (iii) any negotiations or discussions in connection with a possible Third Party Acquisition are sought to be initiated or continued with the Company or any of the Company Advisors indicating, in connection with such notice, the principal terms and conditions of any proposals or offers, including the identity of the offering party, and thereafter shall keep Parent informed in writing, on a reasonably current basis, on the status and terms of any such proposals or offers and the status of any such negotiations or discussions. The Company also agrees promptly to request each person or entity that has heretofore executed a confidentiality agreement in connection with its consideration of acquiring the Company, if any, to return all confidential information heretofore furnished to such person or entity by or on behalf of the Company. (b) Except as permitted by this Section 5.3(b), the Board of Directors of the Company shall not withdraw its recommendation of the Offer or the Merger and other transactions contemplated hereby or approve or recommend, or cause the Company to enter into any agreement with respect to, any Third Party Acquisition. Notwithstanding the preceding sentence, if the Board of Directors of the Company determines in its good faith judgment, after consultation with outside counsel, that it is necessary to do so in order to comply with its fiduciary duties to the Company's stockholders under applicable law, the Board of Directors may withdraw or alter its recommendation of the Offer or the Merger and the other transactions contemplated hereby, or approve or recommend or cause the Company to enter into an agreement with respect to a Superior Proposal (as defined below), but in each case only (i) after providing written notice to Parent (a "Notice of Superior Proposal") advising Parent that the Board of --------------------------- Directors has received a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the person or entity making such Superior Proposal and (ii) if -24- Parent does not, within five (5) business days (or within two (2) business days with respect to any amendment to any Superior Proposal which was noticed at least five (5) days prior to such amendment) after Parent's receipt of the Notice of Superior Proposal, make an offer which the Board of Directors of the Company determines in its good faith judgment (based on the advise of its Financial Advisor or another financial adviser of nationally recognized reputation) to be as favorable to the Company's stockholders as such Superior Proposal; provided, however, that the Company shall not be entitled to enter -------- ------- into any agreement with respect to a Superior Proposal unless this Agreement is concurrently terminated by its terms pursuant to Section 8.1(e)(i). For purposes of this Agreement, "Third Party Acquisition" means the occurrence of any of the ----------------------- following events: (i) the acquisition of the Company by merger or otherwise by any person or entity (which includes a "person" as such term is defined in Section 13(d)(3) of the Exchange Act) other than Parent, the Purchaser or any affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of ----------- 30% or more of the total assets of the Company (other than the purchase of the Company's products in the ordinary course of business); (iii) the acquisition by a Third Party of 30% or more of the outstanding Shares; (iv) the adoption by the Company of a plan of partial or complete liquidation or the declaration or payment of an extraordinary dividend; (v) the repurchase by the Company of 30% or more of the outstanding Shares; or (vi) the acquisition by the Company by merger, purchase of stock or assets, joint venture or otherwise of a direct or indirect ownership interest or investment in any business whose annual revenues, net income or assets is equal to or greater than 30% of the annual revenues, net income or assets of the Company. For purposes of this Agreement, a "Superior -------- Proposal" means any bona fide proposal to acquire directly or indirectly for - -------- consideration consisting of cash and/or securities more than 50% of the Shares then outstanding or all or substantially all the assets of the Company and otherwise on terms which the Board of Directors of the Company by a majority vote determines in its good faith judgment (based on consultation with its Financial Advisor or another financial adviser of nationally recognized reputation) to be reasonably capable of being completed (taking into account all legal, financial, regulatory and other aspects of the proposal and the person or entity making the proposal, including the availability of financing therefor) and more favorable to the Company's stockholders than the Offer and the Merger. ARTICLE VI ADDITIONAL AGREEMENTS 6.1 ACCESS TO INFORMATION. Between the date of this Agreement and the --------------------- Cut-Off Date, the Company will afford to Parent and its authorized representatives for the transactions contemplated hereby reasonable access at all reasonable times to the officers, employees, agents, properties, offices and all other facilities, books and records of the Company as Parent may reasonably request. Additionally, the Company will permit Parent and its authorized representatives for the transactions contemplated hereby to make such inspections of the Company and its operations at all reasonable times as it may reasonably require and will cause its officers, employees and agents to furnish Parent with such financial and operating data and other information with respect to the business and properties of the Company as Parent may from time to time reasonably request. No investigation pursuant to this Section 6.1 shall affect any representation or warranty in this Agreement of any party hereto or any condition to the -25- obligations of the parties hereto. All activities contemplated by this Section 6.1 shall be deemed to be within the scope of the Confidentiality Agreement (as defined in Section 6.3 below). 6.2 LEGAL CONDITIONS TO OFFER AND MERGER. ------------------------------------- (a) The Company will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on the Company with respect to the Offer and the Merger (including furnishing all information required under the HSR Act) and will take all reasonable actions necessary to cooperate promptly with and furnish information to the Purchaser or Parent in connection with any such requirements imposed upon the Purchaser or Parent in connection with the Offer and the Merger. The Company will take all reasonable actions necessary to obtain (and will take all reasonable actions necessary to cooperate promptly with the Purchaser and Parent in obtaining) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity, or other third party, required to be obtained or made by the Company (or by the Purchaser or Parent) in connection with the Offer or the Merger or the taking of any action contemplated thereby or by this Agreement. In addition to the foregoing, prior to the Effective Time, the parties shall take, or cause to be taken, all such actions as may be necessary or appropriate in order to effectuate, as expeditiously as practicable, the Offer and the Merger and the other transactions contemplated by this Agreement, including any necessary consents and waivers. (b) The Purchaser and Parent will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on them with respect to the Offer and the Merger (including furnishing all information required under the HSR Act) and will take all reasonable actions necessary to cooperate promptly with and furnish information to the Company in connection with any such requirements imposed upon the Company in connection with the Offer and the Merger. The Purchaser and Parent will take all reasonable actions necessary to obtain (and will take all reasonable actions necessary to cooperate promptly with the Company in obtaining) any consent, authorization, order or approval of, or exemption by, any Governmental Entity, or other third party, required to be obtained or made by the Purchaser or Parent (or by the Company) in connection with the Offer or the Merger or the taking of any action contemplated thereby or by this Agreement. 6.3 CONFIDENTIALITY AGREEMENT. The Company and Parent acknowledge that the ------------------------- Mutual Confidentiality and Non-Disclosure dated October 18, 1996 Agreement between the Company and a wholly owned subsidiary of Parent (the "Confidentiality Agreement") shall remain in full force and effect at all times ------------------------- prior to the Effective Time and after any termination of this Agreement, and such parties agree to comply with the terms of such Agreement. 6.4 PUBLIC ANNOUNCEMENTS. The Purchaser, Parent and the Company will -------------------- consult with each other before issuing any press release or otherwise making any public statements with respect to the Offer, the Merger or any transaction contemplated hereby and shall not issue any such press release or make any such public statement except as they may mutually agree unless required so to do by law or by obligations pursuant to any listing agreement with any national securities exchange or the National Association of Securities Dealers, Inc. The -26- Company and Parent have agreed as to the form of joint press release announcing execution of this Agreement. 6.5 INDEMNIFICATION AND DIRECTORS' AND OFFICERS' INSURANCE. ------------------------------------------------------- (a) The Articles of Organization and the Bylaws of the Surviving Corporation shall contain the respective provisions that are set forth, as of the date of this Agreement, in Article 6B of the Articles of Organization of the Company, which provisions shall not be amended, repealed or otherwise modified for a period of six years from the Effective Time in any manner that would affect adversely the rights thereunder of individuals who at or at any time prior to the Effective Time were entitled to indemnification thereunder unless such modification shall be required by law. (b) The Surviving Corporation shall honor and fulfill in all respects the obligations of the Company pursuant to indemnification agreements with the Company's directors and officers existing at or before the Effective Time. (c) The Surviving Corporation shall use commercially reasonable efforts to maintain in effect for six years from the Effective Time (except as otherwise contemplated by subsection (d) below) directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy on terms comparable to such existing insurance coverage (including coverage amounts); provided, however, that in no event shall the Surviving Corporation be required - -------- ------- to expend pursuant to this Section 6.5 more than an amount per year equal to 125% of current annual premiums paid by the Company for such insurance (which premiums the Company represents and warrants to be $36,000 in the aggregate) and provided, further that if the annual premiums exceed such amount, the -------- ------- Surviving Corporation shall be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount. (d) The parties acknowledge that the Surviving Corporation's obligation to use reasonably commercial efforts to maintain insurance shall terminate at such time following the first anniversary of this Agreement as Parent, in its sole discretion, shall agree in writing to assume in all respects the obligations of the Surviving Corporation with respect to those indemnification rights contemplated by subsections (a) and (b) above. If Parent shall elect to assume such obligations, it shall provide prompt written notice thereof to each of the persons who shall be directors or executive officers of the Company as of the Effective Time. (e) This Section 6.5 shall survive the consummation of the Offer and the Merger, is intended to benefit the Company, the Surviving Corporation and each indemnified party, shall be binding on all successors and assigns of the Surviving Corporation, and shall be enforceable by the indemnified parties. 6.6 COMPANY STOCK OPTION PLAN. -------------------------- (a) At the Effective Time, each outstanding Stock Option heretofore granted under the Stock Option Plan, outstanding immediately prior to the consummation of the -27- Offer and fully vested shall be exchanged, in whole and not in part and in a manner consistent with the terms of the Stock Option Plan, for a cash payment from the Company in an amount (subject to any applicable withholding tax) equal to the product of (i) the excess of the Merger Price over the per share exercise price of the Stock Option, multiplied by (ii) the number of Shares covered by the Stock Option immediately prior to the Effective Time. (b) The Stock Option Plan shall terminate as of the Effective Time and the Company shall use reasonable efforts to ensure that following the Effective Time no holder of options or any participant in the Stock Option Plan shall have any right thereunder to acquire any equity securities of the Company or the Surviving Corporation. 6.7 CERTAIN EMPLOYEE BENEFITS MATTERS. Employees of the Company at the --------------------------------- Effective Time will be provided with employee benefit plans by the Surviving Corporation or Parent which are consistent with those employee benefits being provided to such employees immediately prior to the Effective Time or, in the discretion of Parent, are in the aggregate no less favorable to such employees than those provided from time to time by Parent and its subsidiaries to similarly situated employees. If any employee of the Company becomes a participant in any employee benefit plan, program, policy or arrangement of Parent or one of its subsidiaries, such employee shall be given credit for all service prior to the Effective Time with the Company to the extent permissible under such plan, program, policy or arrangement. 6.8 NOTICE OF CERTAIN EVENTS. The Company shall notify Parent, and --------------------------- Parent shall promptly notify the Company, of: (i) receipt of any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the transactions contemplated by this Agreement; (ii) receipt of any notice or other communication from any Governmental Entity in connection with the transactions contemplated by this Agreement; (iii) receipt of notice that any actions, suits, claims, investigations or proceedings have been commenced or, to the knowledge of the Company, threatened against, or involving the Company or Parent, as applicable, which, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 4.9 or which relate to the consummation of the transactions contemplated by this Agreement; (iv) the occurrence or non-occurrence of any event the occurrence or non-occurrence of which would be likely to cause any representation or warranty of it (and, in the case of Parent, of the Purchaser) contained in this Agreement to be untrue or inaccurate; and (v) any failure of the Company, Parent or the Purchaser, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery -------- ------- of any notice pursuant to this Section 6.8 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. -28- 6.9 OBLIGATIONS OF PURCHASER. Parent will take all action necessary --------------- to cause the Purchaser to perform its obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement. 6.10 VOTING OF SHARES. Parent agrees to cause Purchaser (i) to vote all ---------------- Shares beneficially owned by it in favor of adoption of this Agreement and the Merger at the Stockholders' Meeting, if any such meeting shall be required by the MBCL, and (ii) if no Stockholders' Meeting shall be required by the MBCL, file the articles of merger providing for the Merger of Purchaser with and into the Company as soon as reasonably practicable under applicable regulatory requirements and law. 6.11 EXPENSES. Except as otherwise provided in Section 8.3, whether or not -------- the Merger shall be consummated, all costs and expenses incurred in connection with this Agreement and the Merger and the other transactions contemplated hereby shall be paid by the party incurring such cost or expense. 6.12 TAKEOVER STATUTES. If any Takeover Statute is or may become ----------------- applicable to the Offer, the Merger or the other transactions contemplated by this Agreement, each of Parent and the Company and their respective Boards of Directors shall grant such approvals and take such lawful actions as are necessary to ensure that such transactions may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise act to eliminate or minimize the effects of such statute and any regulations promulgated thereunder on such transactions. ARTICLE VII CONDITIONS 7.1 CONDITIONS OF EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. ---------------------------------------------------------- The respective obligation of each party to effect the Merger is subject to the satisfaction prior to the Closing Date of the following conditions: (a) STOCKHOLDER APPROVAL. If required by the MBCL, this Agreement and -------------------- the Merger shall have been approved and adopted by the affirmative vote or consent of the stockholders of the Company to the extent required by the MBCL and the Articles of Organization of the Company. (b) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order, ---------------------------- preliminary or permanent injunction or other order issued by any Governmental Entity of competent jurisdiction nor any statute, rule, regulation or executive order promulgated or enacted by any Governmental Entity, nor other legal restriction, restraint or prohibition, preventing the consummation of the Merger shall be in effect; provided, however, that each of the parties shall have used -------- ------- reasonable efforts to prevent the entry of any such injunction or other order and to appeal as promptly as practicable any injunction or other order that may be entered. -29- (c) REGULATORY CONSENTS. The waiting period applicable to the -------------------- consummation of the Merger under the HSR Act shall have expired or been terminated, and, other than filing the articles of merger, all filings with any Governmental Entity required to be made prior to the Effective Time by the Company or Parent or any of their respective subsidiaries, with, and all government consents required to be obtained prior to the Effective Time by the Company or Parent or any of their respective subsidiaries in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by the Company, Parent and the Purchaser shall have been made or obtained (as the case may be), except where the failure to so make or obtain will not result in a Material Adverse Effect. (d) THE OFFER. Shares shall have been purchased pursuant to the --------- Offer. 7.2 CONDITIONS TO OBLIGATIONS OF PARENT AND THE PURCHASER. The ------------------------------------------------------ obligations of Parent and the Purchaser to effect the Merger are also subject to the satisfaction or waiver by Parent prior to the Effective Time of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. The representations and ------------------------------ warranties of the Company set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date. (b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have ----------------------------------------- performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date. 7.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of ---------------------------------------- the Company to effect the Merger is also subject to the satisfaction or waiver by the Company prior to the Effective Time of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. The representations and ------------------------------ warranties of Parent and the Purchaser set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date. (b) PERFORMANCE OF OBLIGATIONS OF PARENT AND THE PURCHASER. Each of ------------------------------------------------------ Parent and the Purchaser shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date. -30- ARTICLE VIII TERMINATION 8.1 TERMINATION. This Agreement may be terminated and the Merger ----------- may be abandoned at any time prior to the Effective Time, notwithstanding any requisite approval of this Agreement and the transactions contemplated hereby by the stockholders of the Company: (a) by mutual written consent duly authorized by the Boards of Directors of the Company, Parent and the Purchaser; (b) by either Parent or the Company if any court of competent jurisdiction or other governmental authority shall have issued an order, decree, ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the acceptance for payment of, or payment for, Shares pursuant to the Offer or the Merger and such order, decree, ruling or other action shall have become final and nonappealable; (c) by either Parent or the Company if (i) the Offer shall have terminated or expired in accordance with its terms without the Purchaser having accepted for payment any Shares pursuant to the Offer; or (ii) the Purchaser shall not have accepted for payment any Shares pursuant to the Offer within 120 days following the commencement of the Offer; provided, however, that the right -------- -------- to terminate this Agreement pursuant to this Section 8.1(c) shall not be available to any party the failure of which (or the failure of the affiliates of which) to perform in any material respect any of its obligations under this Agreement results in the failure of any condition set forth in Annex I or if the ------ failure of such condition results from facts or circumstances that constitute a material breach of a representation or warranty under this Agreement by such party; (d) by Parent if (i) prior to the purchase of Shares pursuant to the Offer, (A) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to the Purchaser or Parent its approval or recommendation of the Offer, this Agreement, the Merger or any other transaction contemplated by this Agreement; (B) the Board of Directors of the Company or any committee thereof shall have recommended to the stockholders of the Company acceptance of a Third Party Acquisition; (C) the Company shall have entered into any definitive agreement with respect to a Third Party Acquisition; or (D) the Board of Directors of the Company or any committee thereof shall have resolved to do any of the foregoing; or (ii) the Company shall have breached in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement which breach cannot be or has not been cured 20 days after the giving of written notice to the Company; or (e) by the Company if (i) the Board of Directors of the Company shall have withdrawn or modified in a manner adverse to the Purchaser or Parent its approval or recommendation of the Offer, this Agreement or the Merger in order to approve the execution by the Company of a definitive agreement providing for the transactions contemplated by a Superior Proposal, provided that the Company -------- shall have complied with the provisions of Section 5.3, -31- including the notice provisions therein, and shall have made simultaneous payment of the fee contemplated by Section 8.3 below; or (ii) Parent or the Purchaser shall have breached in any material respect any of their respective representations, warranties, covenants or other agreements contained in this Agreement which breach cannot be or has not been cured 20 days after the giving of written notice to Parent or the Purchaser, as applicable, except, in any case, for such breaches which are not reasonably likely to affect adversely Parent's or the Purchaser's ability to complete the Offer or the Merger. 8.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to --------------------- Section 8.1, this Agreement shall become void and of no effect with no liability on the part of any party hereto, except for fraud and for willful breach of a material obligation contained herein and except that the agreements contained in Sections 6.3, 6.11 and 8.3 shall survive the termination hereof. 8.3 CERTAIN PAYMENTS. ---------------- (a) In the event that: (i) this Agreement is terminated (A) pursuant to Section 8.1(d)(i) or Section 8.1(e)(i), or (B) pursuant to Section 8.1(c) or 8.1(d)(ii) to the extent that the termination or the failure to accept any Shares for payment, as the case may be, shall relate to the intentional failure of the Company to perform in any material respect any material covenant or agreement of it contained in this Agreement or the intentional material breach by the Company of any material representation or warranty of it contained in this Agreement; or (ii) any person shall have commenced, publicly proposed or communicated to the Company a proposal with respect to a Third Party Acquisition and (A) the Offer shall have remained open for at least 20 business days, (B) the Minimum Share Condition shall not have been satisfied, (C) this Agreement shall have been terminated pursuant to Section 8.1 and (D) the Company shall have consummated a Third Party Acquisition with any person other than Parent or any of its affiliates before or within 12 months after the date of such termination, then, in any such event, the Company shall pay Parent promptly (but in no event later than one business day after the first of such events shall have occurred) a fee of $1,250,000, plus an amount, not to exceed ---- $750,000, equal to Parent's actual and reasonably documented out-of-pocket fees and expenses incurred by Parent and the Purchaser in connection with the Offer, the Merger, this Agreement and the consummation of the transactions contemplated hereby, which amounts shall be payable in immediately available funds. (b) In the event that (i) Parent or the Purchaser shall willfully or intentionally breach in any material respect any of their respective representations, warranties, covenants or other agreements contained in this Agreement and as a result thereof the Company shall terminate this Agreement pursuant to Section 8.1 (e)(ii) or (ii) Parent shall elect to terminate this Agreement and fail to proceed to consummate the Offer or the Merger after all applicable conditions shall have been satisfied, then, in either of such events, Parent shall pay to the Company promptly (but in no event later than one business day after the date of such termination) a fee of $1,250,000, plus an ---- amount, not to exceed $400,000, equal to the Company's actual and reasonably documented out-of-pocket fees and expenses incurred by the Company in connection with the Offer, the Merger, this Agreement and the consummation of the transactions contemplated hereby, which amounts shall be payable in immediately available funds. -32- Such payment by Parent to the Company shall represent the sole and exclusive remedy at law or in equity to which the Company and its officers, directors, representatives and other affiliates shall be entitled in the event this Agreement shall be terminated in the circumstances contemplated by clauses (i) and (ii) of this subsection. (c) In the event that the Company or Parent shall fail to pay any amounts owing pursuant to the foregoing when due, interest shall be paid on such unpaid amounts, commencing on the date such amounts became due, at a rate equal to the rate of interest publicly announced by Bank of America NT&SA from time to time in San Francisco, California, as such bank's "reference rate" plus 3%. ARTICLE IX GENERAL PROVISIONS 9.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All --------------------------------------------------------- representations, warranties and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall not survive the Merger or termination of this Agreement, as the case may be, except for the agreements contained in Sections 6.5, 6.6 and 6.7 of this Agreement, each of which shall survive the Merger, and the agreements contained in Sections 6.3, 6.11 and 8.3, each of which shall survive termination of this Agreement. 9.2 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or ---------------------- waived only with the written consent of the parties. Any amendment or waiver effected in accordance with this Section 9.2 shall be binding upon the parties and their respective successors and assigns. 9.3 SEVERABILITY. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of any of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is illegal, invalid or unenforceable, (a) a suitable and equitable provisions shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provisions to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, the application thereof, in any other jurisdiction. 9.4 INTERPRETATION. The table of contents and Article, Section and -------------- subsection headings herein are for convenience of reference only, do not constitute a part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. Where a reference in this Agreement is made to a Section, Schedule, Annex or Exhibit, such reference shall be to a Section of, or Schedule, Annex or Exhibit to, this Agreement, unless otherwise -33- indicated. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument or statute defined or referred to herein or if any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statues and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns and, in the case of an individual, to his or her heirs and estate, as applicable. 9.5 ASSIGNMENT. Except as set forth in Section 1.1(a), this Agreement ---------- shall not be assignable by operation of law or otherwise and any attempted assignment of this Agreement in violation of this sentence shall be void. 9.6 COUNTERPARTS. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 9.7 TITLES AND SUBTITLES. The titles and subtitles used in this -------------------- Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 9.8 NOTICES. Any notice required or permitted by this Agreement ------- shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail as certified or registered mail with postage prepaid, if such notice is addressed to the party to be notified at such party's address or facsimile number as set forth below, or as subsequently modified by written notice in accordance with this Section 9.8: (a) If to Parent or the Purchaser: Creative Technology Ltd. 31 International Business Park Creative Resource Singapore 609921 Attn: Ng Keh Long Vice President, Treasurer and Acting Chief Financial Officer Telecopy: 011-65-5690-0441 with a copy to: -34- Creative Labs, Inc. 1901 McCarthy Blvd. Milpitas, CA 95035 Attn: John D. Danforth Vice President and General Counsel Telecopy: 408-428-6699 and a copy to: Venture Law Group 2800 Sand Hill Road Menlo Park, CA 94025 Attn: Steven J. Tonsfeldt Telecopy: 650-854-1121 (b) If to the Company: Cambridge SoundWorks, Inc. 311 Needham Street Newtown, MA 02164 Attn: Thomas J. DeVesto President and Chief Executive Officer Telecopy: 617-332-9229 with a copy to: Peabody & Arnold 50 Rowes Wharf Boston, MA 02110 Attn: Joseph D.S. Hinkley Telecopy: 617-951-2125 9.9 ENTIRE AGREEMENT. This Agreement (and the Schedules, Annexes ---------------- and Exhibits), together with the Confidentiality Agreement the product of all of the parties hereto, and constitutes the entire agreement between such parties pertaining to the subject matter hereof, and merges all prior negotiations and drafts of the parties with regard to the transactions contemplated herein. Any and all other written or oral agreements existing between the parties hereto regarding such transactions are expressly canceled. 9.10 NO THIRD PARTY BENEFICIARIES. Except as provided in Section 6.5(d), ---------------------------- this Agreement is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. -35- 9.11 GOVERNING LAW; WAIVER OF JURY TRIAL ----------------------------------- (a) EXCEPT TO THE EXTENT THAT THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS SHALL BE MANDITORILY APPLICABLE TO THE MERGER AND THE RIGHTS OF THE STOCKHOLDERS OF THE COMPANY, 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 CALIFORNIA WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. (b) The parties agree that irreparable damage would occur and that the parties would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. (c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER (II) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER (III) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11. -36- The parties have caused this Agreement to be signed by their respective duly authorized officers, all as of the date first written above. CREATIVE TECHNOLOGY LTD. By: /s/ Sim Wong Hoo ------------------------------------- Name: Sim Wong Hoo -------------------------------------- Title: Chairman and Chief Executive Officer ------------------------------------- By: /s/ Ng Keh Long ------------------------------------- Name: Ng Keh Long -------------------------------------- Title: Vice President, Corporate Treasurer ------------------------------------- and Acting Chief Financial Officer ------------------------------------- CSW ACQUISITION CORPORATION By: /s/ Ng Keh Long ------------------------------------- Name: Ng Keh Long -------------------------------------- Title: Vice President and Treasurer ------------------------------------- By: /s/ Erika Rottenberg ------------------------------------- Name: Erika Rottenberg -------------------------------------- Title: Vice President and Secretary ------------------------------------- CAMBRIDGE SOUNDWORKS, INC. By: /s/ Thomas J. DeVesto ------------------------------------- Name: Thomas J. DeVesto -------------------------------------- Title: President and Chief Executive ------------------------------------- Officer ------------------------------------- By: /s/ Wayne P. Garrett ------------------------------------- Name: Wayne P. Garrett -------------------------------------- Title: Vice President, Finance, and ------------------------------------- Chief Financial Officer ------------------------------------- -37- ANNEX I CONDITIONS OF THE OFFER DEFINED TERMS. Capitalized terms used in this Annex I and not otherwise defined shall have the meanings attributed thereto in the Agreement and Plan of Merger, dated as of October 30, 1997 (the "Merger Agreement"), by and among ---------------- Parent, the Purchaser and the Company. CONDITIONS OF THE OFFER. Subject to the terms of the Offer and this Agreement, the Purchaser shall not be required to accept for payment or pay for any Shares tendered pursuant to the Offer, and may terminate or amend the Offer and may postpone the acceptance for payment of and payment for Shares tendered, if (i) the Minimum Share Condition shall not have been satisfied, (ii) any applicable waiting period under the HSR Act shall not have expired or been terminated prior to the expiration of the Offer, or (iii) at any time on or after the date of the Merger Agreement and before the acceptance of such Shares for payment or the payment therefor, any of the following conditions exists: (a) a preliminary or permanent injunction or other order by any federal, state or foreign court which prevents the acceptance for payment of, or payment for, some of or all the Shares shall have been issued and shall remain in effect; (b) there shall have been instituted or be pending any action or proceeding by any Governmental Entity (i) challenging the acquisition by the Purchaser of Shares or otherwise seeking to restrain, materially delay or prohibit the consummation of the Offer or the Merger or seeking damages that would make the Offer, the Merger or any other transaction contemplated hereby materially more costly to Parent or the Purchaser, (ii) seeking to prohibit or limit materially the ownership or operation by the Purchaser or Parent of all or a material portion of the business or assets of the Company, or to compel the Purchaser or Parent to dispose of or hold separate all or a material portion of the business or assets of the Company or the Purchaser or Parent, as a result of the Offer or the Merger, (iii) seeking to impose or confirm limitations on the ability of Parent or the Purchaser effectively to exercise full rights of ownership of the Shares, including, without limitation, the right to vote the Shares purchased by it on all matters properly presented to the Company's stockholders, including, without limitation, the approval and adoption of the Merger Agreement and the transactions contemplated hereby, or (iv) seeking to require divestiture by Parent, the Purchaser or any other affiliate of Parent of any Shares; (c) there shall have been any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Offer, the Merger or any other transaction contemplated hereby, Parent, the Company or any affiliate of Parent or the Company by any Governmental Entity, except for the waiting period provisions of the HSR Act, which is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (i) through (iv) of paragraph (b) above; (d) any change or effect that, individually or in the aggregate, is or is reasonably likely to constitute a Material Adverse Effect shall have occurred following the date of the Merger Agreement; (e) the Company shall have breached or failed to perform in any material respect any of its obligations, covenants or agreements under the Merger Agreement; or (f) any representation or warranty of the Company in the Merger Agreement that is qualified as to materiality shall not be true and correct or any such representation or warranty that is not so qualified shall not be true and correct in any material respect, in each case when made and at and as of such time as if made at and as of such time. (g) there shall have occurred (i) any general suspension of, or limitation on prices for, trading in securities on the Nasdaq National Market; (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or Canada; (iii) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States or Canada; or (iv) in the case of any of the foregoing existing on the date hereof, a material acceleration or worsening thereof; (h) (i) it shall have been publicly disclosed or the Purchaser shall have otherwise learned that beneficial ownership (determined for the purposes of this paragraph as set forth in Rule 13d-3 promulgated under the Exchange Act) of a majority of the then outstanding Shares have been acquired by any person other than Parent or any of its affiliates, or (ii)(A) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Parent or the Purchaser the approval or recommendation of the Offer, the Merger or the Merger Agreement, or approved or recommended any Third Party Acquisition or any other acquisition of Shares other than the Offer and the Merger, or (B) the Board of Directors of the Company or any committee thereof shall have resolved to do any of the foregoing; (i) the Merger Agreement shall have been terminated in accordance with its terms. The foregoing conditions are for the sole benefit of the Purchaser and Parent. The foregoing rights of the Purchaser shall be available regardless of the circumstances giving rise to any such conditions (including any action or omission to act of the Purchaser) and, subject to Section 1.1(a) of the Merger Agreement, may be waived by Purchaser or Parent in whole or in part at any time and from time to time in their sole discretion. Any determination by the Purchaser will be final and binding upon all parties including tendering stockholders. The failure by the Purchaser or Parent at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances; and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. EX-99.(C)(2) 12 EMPLOYMENT AGREEMENT OF THOMAS J. DEVESTO EXHIBIT (C)(2) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 18th day of February, 1997, is entered into by Cambridge Soundworks, Inc., a Massachusetts corporation with its principal place of business at 311 Needham Street, Newton, Massachusetts 02164 (the "Company"), and Thomas J. DeVesto, 835 Old Post Road, Cotuit, Massachusetts 02635 (the "Employee"). The Company desires to employ the Employee, and the Employee desires to be employed by the Company. In consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties agree as follows: 1. Term of Employment. The Company hereby agrees to employ the Employee, and the Employee hereby accepts employment with the Company, upon the terms set forth in this Agreement, for the period commencing as of February 18, 1997 (the "Commencement Date") and ending on February 17, 2000 (such period, as it may be extended, the "Employment Period"), unless sooner terminated in accordance with the provisions of Section 4. 2. Title; Capacity. The Employee shall serve as President and Chief Executive Officer or in such other position as the Company or its Board of Directors (the "Board") may determine from time to time. The Employee shall be based at the Company's headquarters in Newton, Massachusetts, or such place or places in the continental United States as the Board shall determine. The Employee shall be subject to the supervision of, and shall have such authority as is delegated to him by, the Board or such officer of the Company as may be designated by the Board. The Employee hereby accepts such employment and agrees to undertake the duties and responsibilities inherent in such position and such other duties and responsibilities as the Board or its designee shall from time to time reasonably assign to him. The Employee agrees to devote his entire business time, attention and energies to the business and interests of the Company during the Employment Period. The Employee agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein which may be adopted from time to time by the Company. The Employee acknowledges receipt of copies of all such rules and policies committed to writing as of the date of this Agreement. 3. Compensation and Benefits. 3.1 Salary. The Company shall pay the Employee, in monthly installments, an annual base salary not less than $385,000 for the one-year period commencing on the Commencement Date. Such salary shall be subject to increase thereafter as determined by the Board. In addition, the Company shall pay the Employee an $8000 annual car allowance. 3.2 Fringe Benefits. The Employee shall be entitled to participate in all bonus and benefit programs that the Company establishes and makes available to its employees, if any, to the extent that the Employee's position, tenure, salary, age, health and other qualifications make him eligible to participate. The Employee shall be entitled to three weeks paid vacation per year, to be taken at such times as may be approved by the Board or its designee. 3.3 Reimbursement of Expenses. The Company shall reimburse the Employee for all reasonable travel, entertainment and other expenses incurred or paid by the Employee in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, upon presentation by the Employee of documentation, expense statements, vouchers and/or such other supporting information as the Company may request, provided, however, that the amount available for such travel, entertainment and other expenses may be fixed in advance by the Board. C-1 4. Employment Termination. The employment of the Employee by the Company pursuant to this Agreement shall terminate upon the occurrence of any of the following: 4.1 Expiration of the Employment Period in accordance with Section 1. 4.2 Thirty days after the death or disability of the Employee. As used in this Agreement, the term "disability" shall mean the inability of the Employee, due to a physical or mental disability, for a period of 90 days, whether or not consecutive, during any 360-day period to perform the services contemplated under this Agreement. A determination of disability shall be made by a physician satisfactory to both the Employee and the Company, provided that if the Employee and the Company do not agree on a physician, the Employee and the Company shall each select a physician and these two together shall select a third physician, whose determination as to disability shall be binding on all parties; 4.3 At the election of either party, upon not less than six months' prior written notice of termination; provided, however, that if the remaining Employment Period under this Agreement at the time of such notice shall be less than six months, then the required notice of termination period shall be such remaining Employment Period. 5. Effect of Termination. 5.1 Termination for Death or Disability. If the Employee's employment is terminated by death or because of disability pursuant to Section 4.2, the Company shall pay to the estate of the Employee or to the Employee, as the case may be, the compensation which would otherwise be payable to the Employee up to the end of the month in which the termination of his employment because of death or disability occurs. 5.2 Termination at Election of Either Party. In the event the Employee's employment is terminated at the election of either party pursuant to Section 4.3, the Company shall pay to the Employee the compensation payable to him pursuant to Section 6(d) in consideration of his covenants in Section 6 provided, however, that in the event of a failure by the Employee to give six months' prior notice of termination, the Employee shall not be entitled to receive any compensation in excess of the amount set forth in Section 6 (d); provided further, however, that in the event of a failure by the Company to give the prior notice of termination required by Section 4.3, in addition to the one year's base salary payment required by Section 6(d), the Employee shall be entitled to receive a lump sum payment equal to the base salary the Employee would otherwise have earned between the date of termination and the earlier of the (i) end of the Employment Period or (ii) end of the required six months' notice period. 5.3 Survival. The provisions of Section 6 shall survive the termination of this Agreement. 6. Non-Compete. (a) During the Employment Period and for a period of one year after the termination or expiration thereof, the Employee will not directly or indirectly: (i) as an individual proprietor, partner, stockholder, officer, employee, director, joint venturer, investor, lender, or in any other capacity whatsoever (other than as the holder of not more than one percent (1%) of the total outstanding stock of a publicly held company), engage in the business of developing, producing, marketing or selling products of the kind or type developed or being developed, produced, marketed or sold by the Company while the Employee was employed by the Company; or (ii) recruit, solicit or induce, or attempt to induce, any employee or employees of the Company to terminate their employment with, or otherwise cease their relationship with, the Company; or (iii) solicit, divert or take away, or attempt to divert or to take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, of the Company which were contacted, solicited or served by the Employee while employed by the Company. C-2 (b) If any restriction set forth in this Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. (c) The restrictions contained in this Section 6 are necessary for the protection of the business and goodwill of the Company and are considered by the Employee to be reasonable for such purpose. The Employee agrees that any breach of this Section 6 will cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Company shall have the right to seek specific performance and injunctive relief. (d) In consideration for his agreements in this Section 6, the Company shall pay to the Employee in a lump sum immediately upon the termination or expiration of the Employment Period a total amount equal to one year's base salary as in effect as of the date of such termination or expiration. 7. Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown above, or at such other address or addresses as either party shall designate to the other in accordance with this Section 7. 8. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa. 9. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 10. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 11. Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the Commonwealth of Massachusetts. 12. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business, provided, however, that the obligations of the Employee are personal and shall not be assigned by him. 13. Miscellaneous. 13.1 No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. 13.2 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 13.3 In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. C-3 13.4 Capitalized terms used herein but not otherwise defined shall have the meanings given them in the Agreement and Plan of Merger to be entered into among the Company, Creative Technology Ltd. and CSW Acquisition Corporation (the "Merger Agreement"). 13.5 The parties acknowledge that the handwritten changes to this Agreement set forth herein shall only become effective upon the Effective Time of the Merger. 13.6 The parties further acknowledge that the payments to be made to the Employee pursuant to Sections 5.2 and 6(d) shall represent the Employee's sole and exclusive remedy with respect to any termination of the Employee's employment hereunder. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. CAMBRIDGE SOUNDWORKS, INC. By: /s/ Wayne P. Garrett ---------------------------------- Title: Vice President and Chief Financial Officer EMPLOYEE By: /s/ Thomas J. Devesto ---------------------------------- Thomas J. Devesto The parties acknowledge that the foregoing clarifications of this Agreement are agreed to as of October 29, 1997. By: /s/ Thomas J. DeVesto ---------------------------------- Thomas J. DeVesto October 29, 1997 CAMBRIDGE SOUNDWORKS, INC. By: /s/ Wayne P. Garrett ---------------------------------- Wayne P. Garrett October 29, 1997 CREATIVE TECHNOLOGY LTD. By: /s/ Ng Keh Long ---------------------------------- Ng Keh Long October 29, 1997 4 EX-99.(C)(8) 13 MUTUAL CONFIDENTIALITY & NON-DISCLOSURE AGREEMENT EXHIBIT (C)(8) MUTUAL CONFIDENTIALITY AND -------------------------- NON-DISCLOSURE AGREEMENT ------------------------ This Agreement is made and entered into on the 18th day of October, 1996. BETWEEN:- (1) Creative Labs, Inc. having its principal offices at 1901 McCarthy Boulevard, Milpitas, CA 95035 ("Creative"). (2) Cambridge SoundWorks, a Massachusetts corporation having its principal offices at 311 Needham St., Newton, MA 02164 ("CSW"). WHEREAS: 1. Creative and CSW are engaged in discussions with respect to a possible business or financial arrangement or venture between them relating to multimedia technology, and speakers, and amplifiers. 2. In connection therewith disclosure of certain information which is proprietary/confidential to the parties may become necessary or desirable. 3. Each party is willing to disclose such Proprietary/Confidential Information to the other parties upon the terms and conditions herein set forth and each party is willing to maintain the confidentiality of such information disclosed to it by the other parties in accordance with the terms and conditions hereof. NOW THEREFORE, in consideration of the disclosure of such Proprietary/Confidential Information and the mutual covenants and promises herein contained, it is agreed as follows:- 1. INTERPRETATION -------------- For the purposes of this Agreement "Proprietary /Confidential Information" shall mean any and all proprietary, secret information, technical data or know-how related to any aspect of either party's business or technology including, without limitation, data, know-how, formulae, designs, photographs, drawings specification, software programs and samples and any other material bearing or incorporating any such information which is disclosed by one party to the other, which information, data or know-how is marked or stipulated as being "Proprietary," "Confidential," "Strictly Private" or otherwise, using words of similar significance. Such disclosure may be made either directly or indirectly, in writing, orally or by drawings, plans or inspection of products, materials parts or equipment. 2. UNDERTAKINGS OF THE PARTIES --------------------------- Each party hereby undertakes to treat and maintain all Proprietary/Confidential Information received from any of the other parties in confidence. With respect thereto, each party hereby undertakes and agrees as follows:- i) For a period of 5 years from the date of this Agreement, the receiving party shall not publish, disseminate nor disclose any Proprietary/Confidential Information received from any of the other parties to any third party except to those of its own employees having a valid need to know the information in the course of employment and such disclosure shall be on terms not less restrictive than those herein contained. ii) The receiving party shall use the same degree of care to avoid disclosure or use of the Proprietary/Confidential Information as it uses in respect of its own information of like importance but in no case less than a reasonable degree of care. iii) The receiving party shall in accordance with the request of the other parties, either return all copies, recording and tangible manifestations of Proprietary/Confidential Information or destroy the same following a determination by any of the parties not to enter into any arrangement or venture with each other of the kind contemplated herein or upon the termination of any related memorandum of understanding or agreement entered into between the parties or upon the written request of the disclosing party. 3. EXCEPTIONS ---------- The aforesaid restrictions on the parties shall not apply to any Proprietary/Confidential Information which:- i) can be proved by documentary evidence to be such Proprietary/Confidential Information that was already in the possession of the receiving party and at its free disposal before the disclosure hereunder to it; ii) is received by the receiving party from third parties without accompanying secrecy or confidentiality obligations and not in violation of any duty of confidence under this agreement; iii) is independently developed by the receiving party; iv) is or becomes generally available to the public in printed publications in general circulation through no act or default on the part of the receiving party or its agents or employees; v) is furnished to a third party by a party hereto who owns such Proprietary/Confidential Information without similar restriction on the third party's rights; vi) is approved for release by written authorisation of the other party; or vii) is disclosed pursuant to any requirement or request by operation of law provided that the receiving party shall prior to disclosure notify the disclosing party of any such requirement or request. 4. OWNERSHIP --------- All Proprietary/Confidential Information disclosed pursuant to this Agreement, shall be and remain the property of the disclosing party. Nothing in this Agreement shall be construed as granting or conferring any rights by license or otherwise, expressly, impliedly or otherwise for any of the Proprietary/Confidential Information disclosed by the disclosing party hereunder. All Proprietary/Confidential Information, existing in written form or recorded in any other tangible medium, shall be returned to the disclosing party upon its request, together with any reproductions or copies thereof. Further, upon the disclosing party's requests, notes, memoranda and reports which incorporates the Proprietary/Confidential Information shall, without exception, be destroyed. 5. ORAL DISCLOSURE --------------- In the event the disclosing party of such Proprietary/Confidential Information orally discloses the information to the receiving party, the disclosing party agrees to promptly notify the receiving party of the confidentiality of such oral disclosure and reduce to writing such Proprietary/Confidential Information and submit the same to the receiving party within 15 days of such oral disclosure, failing which the receiving party shall not be bound by the confidentiality obligations as herein provided as regards the said Proprietary/Confidential Information disclosed orally. 6. AUTHORISATION ------------- Each party agrees that necessary authorisations, permits or licenses including export licenses as may be required will be obtained prior to the exportation/disclosure of any Proprietary/Confidential Information relating to the technology of the other party. The disclosing party shall notify the receiving party of the need to obtain any required authorisations, permits and licenses and/or the need to comply with any relevant laws or regulations relating to the disclosure. The disclosing party shall obtain the required authorisations, permits and licenses. 7. SURVIVAL -------- The aforesaid obligations of the receiving party shall survive the termination of this Agreement. 8. LIMITED WARRANTY ---------------- Each party hereto warrants that it has the right to disclose the Proprietary/Confidential Information which it discloses to the other parties and that the Proprietary/Confidential Information disclosed is, to the best of its knowledge, correct. Nothing contained in this agreement shall be construed to obligate any party to disclose any information to the other parties. 9. REMEDY FOR BREACH ----------------- It is understood and agreed between the parties that any breach of the obligations of confidentially contained in this Agreement may cause the disclosing party irreparable loss. Accordingly, and in addition to any other remedies a party may have at law or equity, the disclosing party shall be entitled to obtain injunctive relief against the receiving party to prevent any further or continuing breach of the receiving party's obligations or additional damage to the disclosing party in the event such loss is in fact incurred by the disclosing party as a result of the breach or is imminent. 10. SEVERABILITY ------------ If, for any reason, a court of competent jurisdiction finds any provision of this Agreement, or any portion hereof, to be unenforceable, such decision shall not affect the validity of the remaining portion, which remaining portion shall continue in full force and effect as if this Agreement had been executed with the invalid portion thereof eliminated therefrom. In the event that a portion of this Agreement shall be declared to be invalid, then the parties agree, that they shall, in good faith, negotiate with one another to replace such invalid provision with a valid provision as similar as possible to that which had been held to be invalid. 11. TERMINATION ----------- This Agreement shall govern all matters referred to herein until terminated by either party upon thirty days written notice to the other or in accordance with this Agreement. Upon termination, all information and derivatives shall be returned to the respective parties. Notwithstanding the termination, each party shall continue to fulfil its obligations hereunder for a period of five (5) years thereafter. 12. MISCELLANEOUS ------------- Any notice or communication to be given under this Agreement shall be given if delivered in writing to the intended recipient at the address and marked for the attention of the person set out in this Agreement or as may be notified from time to time by the party concerned. This Agreement shall be fully binding upon, inure to the benefit of and be enforceable by the parties hereto, their legal representatives and other respective successors and assigns. Each party shall not make any assignment of this Agreement or any interest therein without the prior written consent of the other party. The failure of any party to insist upon or enforce strict performance of any of the provisions of this Agreement or to exercise any rights or remedies under this Agreement shall not be construed as a waiver or relinquishment to any extent of such party's rights to assert or rely upon any such provisions, rights or remedies in that or any other instance; rather the same shall remain in full force and effect. The terms of this Agreement are confidential and shall not be disclosed to third parties without the written consent of all parties, except to the extent required by a court or regulatory agency of competent jurisdiction. 13. GOVERNING LAW ------------- This Agreement shall be governed by, construed and enforced in accordance with California Law. IN WITNESS WHEREOF, the parties have hereunto set their hands the day and year first written above. CREATIVE LABS, INC. CAMBRIDGE SOUNDWORKS Signature: /s/ Dan Banerje Signature: /s/ Robert S. Mainiero ______________________ _______________________ Name: Dan Banerje Name: /s/ Robert S. Mainiero ___________________________ ____________________________ Designation: Director, OEM Sales Designation: ____________________ October 27, 1996 -----END PRIVACY-ENHANCED MESSAGE-----