Changes in Material Adverse Change Provisions

Material adverse change provisions in merger agreements are changing, particularly in high tech industry acquisitions. More exceptions are being grafted onto such provisions because of the high volatility experienced in stock trading prices and in economic and market conditions, as well as industry and employee retention conditions, after announcement of the merger, which affect the merger partners. Below are some examples.

Acquisition by Zilog, Inc. of TPG Partners II, L.P. (Agreement dated July 20, 1997, as amended through December 10, 1997)

As used in this Agreement, "Material Adverse Change" or "Material Adverse Effect" means, when used in connection with the Company or Parent, as the case may be, any change or effect that is materially adverse to the business, financial condition or results of operations of such entity and its Subsidiaries taken as a whole; provided, however, that:

1. any adverse change, effect or effect that is demonstrated to be primarily caused by conditions affecting the United States economy generally or the economy of any nation or region in which such entity or any of its Subsidiaries conducts business that is material to the business of such entity and its Subsidiaries, taken as a whole, shall not be taken into account in determining whether there as been or would be "Material Adverse Change" or "Material Adverse Effect" on or with respect to such entity;
2. any adverse change, event or effect that is demonstrated to be primarily caused by conditions generally affecting the semiconductor industry shall not be taken into account in determining whether there has been or would be a "Material Adverse Change" or "Material Adverse Effect" on or with respect to such entity;
3. any adverse change, event or effect that is demonstrated to be primarily caused by the announcement or pendency of the Merger or the transactions contemplated hereby shall not be taken into account in determining whether there has been or would be a "Material Adverse Change" or "Material Adverse Effect" on or with respect to such entity.

Acquisition by Visioneer, Inc. of ScanSoft, Inc. (Agreement dated December 2, 1998)

Material Adverse Change or "Material Adverse Effect" means, when used in connection with the Company or ScanSoft, as the case may be, any change or effect that is materially adverse to the business, financial, condition, assets, properties, operations or results of operations of such entity which will prevent (or would reasonably be expected to prevent) the fundamental and basic operation of such business after giving effect to the Merger contemplated by this Agreement; provided, however, that any of the following shall not constitute a "Material Adverse Change" or "Material Adverse Effect" on or with respect to such entity;

1. any adverse change, event or effect that is demonstrated to be directly caused by conditions affecting the United States economy generally or the economy of any nation or region in which such entity or any of its Subsidiaries conducts business that is material to the business of such entity and its Subsidiaries, taken as a whole, which does not have a disproportionate effect on the Company or ScanSoft, as the case may be;
2. any adverse change, event or effect that is demonstrated to be directly caused by conditions generally affecting the personal imaging software industry, which does not have a disproportionate effect on the Company or ScanSoft, as the case may be.

Notwithstanding anything herein to the contrary, the parties expressly agree any of the following shall constitute a "Material Adverse Change" or "Material Adverse Effect" with respect to the Company (W) the Company's revenues are less than $2,316,000 in any complete fiscal quarter ending on a date after the date of this Agreement and prior to the Closing Date (including without limitation, the fourth quarter of fiscal 1998) and preceding the fiscal quarter in which the Closing and/or other liability to Surviving Corporation in excess of one and one-half times the amount of the coverage provided under the Company's current directors and officers liability insurance as determined by an independent arbiter to be mutually agreed upon by the Company and ScanSoft; (Y) the completion of any environmental assessment of the Company which concludes that it would be reasonably likely that the Surviving Corporation would incur expenses, damages, remediation costs and/or other liability in excess of $3,500,000, exclusive of any insurance coverage; or (Z) the Company Net Book Value is $4,500,000 or less.

Acquisition by Cadence Design Systems Inc. of Cooper & Chyan Technology, Inc. (Agreement dated October 28, 1996)

No Material Adverse Change. There shall have been no material adverse change in the business, condition, assets, liabilities, operations or financial performance of the Acquired Corporation since the date of this Agreement, except for:

1. any such material adverse change that is demonstrated to have resulted directly from changes that occurred after the date of this Agreement in general business conditions in the electronic design automation industry; and
2. any material adverse change in the Company's financial performance that is temporary in nature and is demonstrated to have resulted directly from the public announcement or the pendency of the Merger.

Acquisition by Informix Corporation of Red Brick Systems, Inc. (Agreement dated October 7, 1998)

For purposes of this Agreement, the term "Material Adverse Effect" when used in connection with an entity means any change, event, violation, inaccuracy, circumstance or effect that is materially adverse to the business, assets (including intangible assets), capitalization, financial condition or results of operations of such entity and its parent (if applicable) or subsidiaries taken as a whole; provided, however, that the following shall not be considered a "Material Adverse Affect":

1. changes, events, violations, inaccuracies, circumstances and effects that are caused by conditions affecting the United States economy as a whole or affecting the industry in which such entity competes as a whole, which conditions do not affect such entity in a disproportionate manner;
2. a shortfall in revenues of such entity as a result of delays in customer orders (including any effects on such entity's operating income which result directly from such revenue shortfall), which delays result from the announcement and pendency of the ; or
3. the loss of employees resulting from the announcement and pendency of the Merger.

Acquisition by Informix Corporation of Illustra Information Technologies, Inc. (Agreement dated December 20, 1995)

Material Adverse Change. There shall not have occurred any material adverse change in the business, assets (including intangible assets), financial condition or results of operations of the Company since September 30, 1995. For purposes of this condition, none of the following, individually or in the aggregate, shall be deemed to constitute such a material adverse change:

1. any failure of the Company to record revenue or deferred revenue at any particular level subsequent to September 30, 1995;
2. the lack of success of the Company in hiring new employees; or
3. the lack of success of the Company in retaining existing employees, other than those employees who in the aggregate are material to the Company's ability to commercialize its technology.

For purposes of this condition, a reduction in the trading price of Parent's Common Stock, whether occurring at any time or from time to time, as reported by Nasdaq or any other automated quotation system or exchange shall not constitute a material adverse change.

Acquisition by Applied Materials Inc. of Consilium Inc. (Agreement dated October 12, 1998)

No Material Adverse Change. There shall have been no material adverse change in the business, condition, assets, liabilities, operations or results of operations of the Acquired Corporation since the date of this Agreement, it being understood that none of the following shall be deemed, in and of itself, to constitute a material adverse change in the business, condition, assets, liabilities, operations or results of operations of the Acquired Corporation since the date of this Agreement:

1. a change in the market price or trading volume of the Company Common Stock;
2. a failure by the Company to meet any published securities analyst estimates of revenue or earnings for any period ending or for which earnings are released on or after the date of this Agreement and prior to the closing;
3. a failure to report earnings results in any quarter ending on or after the date of this Agreement consistent with the Company's historical earnings results for its Semiconductor and Electronics business unit in any quarter during fiscal 1997 or 1998;
4. a change that results from conditions affecting the U.S. economy or the world economy;
5. a change that results from conditions affecting the semiconductor industry or the semiconductor equipment industry so long as such conditions do not affect the Company in a disproportionate manner as compared with companies of a similar size;
6. a delay in customer orders arising primarily out of or resulting primarily from the announcement of the transactions contemplated by this Agreement; and
7. a change that results from the taking of any action required by this Agreement.

Acquisition by America Online Inc. of Netscape Communications Corporation (Agreement dated November 23, 1998)

"Material Adverse Effect" will mean, with respect to a specific Person (including, for purposes of this definition as used in Section 4.9 and Section 8.2(a)(ii), a Business Segment), any change, event or effect that individually or in the aggregate (taking into account all other such changes, events or effects) as had, or would be reasonably likely to have, a material adverse effect on the consolidated business, results of operations, or financial condition of such Person and its Subsidiaries, if any, taken as a whole, except to the extent that any such change, event or effect is attributable to or results from:

1. the direct effect of the public announcement or pendency of the transactions contemplated hereby on current or prospective customers or revenues of the Company,
2. changes in general economic conditions or changes affecting the industry generally in which such Person operates or
3. shareholder class action litigation arising from allegations of a breach of fiduciary duty relating to this Agreement; provided, however, that with respect to clause (1) of this sentence, the Company shall bear the burden of proof in any proceeding before a Court with regard to establishing that any change, event or effect is attributable to or results from the direct effect of the public announcement or pendency of the transactions contemplated hereby.

It is also to be noted that particularly in high tech acquisitions the use of the word "prospects" of the Company or similar language as to which a material adverse change might take place, is avoided, again due to the high volatility of the companies in this industry.

Secondly, since the extreme debt market volatility starting in September 1998, primarily resulting from the Long Term Credit Bank difficulties, acquisitions which require debt financing have been faced with material adverse change clauses by lenders which result in much weaker financing commitments. The result has been funding commitment "outs" in debt-financed acquisition agreements which parallel those which the banks are requiring. Set forth below are material adverse change provisions now used by one major bank.

Business Mac

Since the date of the Commitment Letter, no change, occurrence or development that could in our opinion, have a material adverse effect on the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of the Borrower or the Acquired Company, in each case together with its subsidiaries taken as a whole, shall have occurred or become known to us.

Market Mac

Since the date of the Commitment Letter, no material adverse change in or material disruption of conditions in the financial, banking or capital markets which we in our sole discretion, deem material in connection with the syndication of the Senior Credit Facilities shall have occurred and be continuing.

Market Flexibility Language

In the event that such syndication cannot be achieved in a manner satisfactory to [Bank] under the structure outlined in the Summary of Terms, you agree that [Bank] shall be entitled to change the pricing, structure or other terms of the Senior Credit Facilities if [Bank] determines that such changes are advisable to ensure a successful syndication or an optimal credit structure, provided that the total amount of the Senior Credit Facilities remains unchanged. A successful syndication would be one in which [Bank] is able to achieve its targeted hold level of [$ ] million for Senior Credit Facilities. The agreement in this paragraph shall survive closing of the Senior Credit Facilities.

Summary

Some major banks are informing their clients that these material adverse change conditions are "standard for underwritten transactions in the syndicated loan market today." As a result debt financed cash tender offers have been particularly adversely affected by these requirements.