<PAGE>
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- --------------------------------------------------------------------------------
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 17, 1996
DIGITAL VIDEO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-28472 77-0333728
(Commission File Number) (I.R.S. Employer Identification No.)
2710 Walsh Avenue
Santa Clara, California 95051 95051
(Address of principal executive offices) (Zip Code)
(408) 748-2100
Registrant's telephone number, including area code
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<PAGE>
Item 2. Acquisition or Disposition of Assets
------------------------------------
On October 17, 1996, Digital Video Systems, Inc., a Delaware corporation
(the "Registrant") completed the acquisition (the "Acquisition") of ViComp
Technology, Inc., a Delaware corporation ("ViComp").
ViComp was founded in August 1995 and is engaged in the design and
development of integrated circuits (or "chips") to decode MPEG-I signals. The
Registrant anticipates that the MPEG-I chip under development by ViComp (the
"ViComp MPEG-I chip"), which the Registrant plans to incorporate into its Video
CD products and which the Registrant may market to other manufacturers of Video
CD products, will be available for production in commercial quantities by the
second half of calendar year 1997. However, there can be no assurance that the
design and development of the ViComp MPEG-I chip will be successfully completed
within the foregoing time schedule (which could be delayed due to unexpected
design problems, loss of key ViComp personnel or other factors), or at all.
Further, if the costs to commercially produce the ViComp MPEG-I chip in
commercial quantities is higher than currently anticipated, such product may be
noncompetitive based on the selling prices of other functionally equivalent
chips that may then be available. In addition, the Registrant intends to use
ViComp's integrated circuit design and development capabilities to create other
chips, such as an MPEG-II decoder chip for use in products currently under
consideration by the Registrant.
The Acquisition was effected pursuant to an Agreement and Plan of Merger
dated as of October 17, 1996 (the "Merger Agreement"), by and among the
Registrant, Digital Video Acquisition Co., a Delaware corporation and wholly
owned subsidiary of the Registrant ("Digital Sub"), ViComp and the shareholders
of ViComp (the "ViComp Shareholders"), with Registrant acquiring all of the
outstanding capital stock of ViComp in exchange for shares of the Registrant's
common stock ("Registrant Common Stock") in a transaction intended to qualify as
a reorganization within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Acquisition"). Pursuant to the terms of
the Merger Agreement, the Registrant issued to the ViComp Shareholders (i)
209,733 shares of Registrant Common Stock in exchange for 2,235,000 shares of
common stock of ViComp and (ii) 281,520 shares of Registrant Common Stock in
exchange for 3,000,000 shares of ViComp Series A Preferred Stock.
ViComp owns no material plant, personal property or real property. The
assets of ViComp acquired through the Acquisition consisted of approximately
$218,000 of computer hardware and software. The Registrant intends to continue
to use these ViComp assets in connection with the development of the ViComp
MPEG-I chip.
Dr. Edmund Y. Sun ("Dr. Sun"), the Registrant's Chairman of the Board and
Chief Executive Officer, was a co-founder of ViComp and owned 57.3% of the
outstanding capital stock of ViComp (for which he had paid a total of
$1,000,000) at the time of the Acquisition. Immediately prior to the
consummation of the Acquisition, Dr. Sun beneficially owned 7,540,898 shares of
the Registrant's Common Stock (approximately 44.3% of the Registrant's
outstanding Common Stock). Dr. Sun received 281,520 shares of Registrant Common
Stock in connection with the Acquisition and beneficially owned upon
consummation of the Acquisition 7,822,418 shares of Registrant's Common Stock
(approximately 44.4% of the Registrant's outstanding Common Stock).
2
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The other ViComp Shareholders acquiring Registrant Common Stock held no
shares of the Registrant's Common Stock immediately prior to the Acquisition and
were issued a total of 209,733 such shares in connection with the Acquisition
(with each such shareholder owning less than 1% of the Registrant's outstanding
Common Stock).
One-half of the 281,520 shares of Registrant Common Stock acquired by Dr.
Sun pursuant to the Acquisition are subject to an escrow (the "Sun Performance
Escrow") pursuant to an escrow agreement dated as of October 17, 1996 by and
between Dr. Sun and the Registrant. All 140,760 shares of Registrant Common
Stock subject to the Sun Performance Escrow will be forfeited and cancelled in
the event the ViComp MPEG-I chip does not meet all of the following performance
conditions (the "Performance Conditions"): (i) the ViComp MPEG-I chip is capable
of being manufactured in commercial quantities by no later than July 1, 1997;
(ii) the Registrant's cost to purchase fully manufactured ViComp MPEG-I chips in
commercial quantities from qualified third party manufacturers does not exceed
$10 per chip; and (iii) the cost per ViComp MPEG-I chip is at least $3 per chip
less than the Registrant's cost to purchase the lowest-price chips that are
functionally substantially equivalent to the ViComp MPEG-I chip from other
manufacturers at the time the ViComp MPEG-I chip is ready for commercial
manufacture. All shares subject to the Sun Performance Escrow will be
distributed to Dr. Sun immediately following a conclusive determination that the
Performance Conditions have been met.
The remaining 140,760 shares of Registrant Common Stock acquired by Dr. Sun
pursuant to the Acquisition are subject to an escrow (the "Sun IPO Escrow," and
together with the Sun Performance Escrow, the "Sun Escrows") pursuant to an
escrow agreement by and among Dr. Sun, the Registrant and American Stock
Transfer and Trust Company. The Sun IPO Escrow provides that: (i) 50% of the
shares of Registrant Common Stock subject to the Sun IPO Escrow will be released
to Dr. Sun in the event that 50% of the securities previously escrowed by
certain of the Registrant's securityholders in connection with the Registrant's
initial public offering (the "IPO Escrow") are released to such securityholders
pursuant to the terms of the IPO Escrow; and (ii) the remaining 50% of the
shares of Registrant Common Stock subject to the Sun IPO Escrow will be released
to Dr. Sun in the event that the remaining 50% of the securities escrowed
pursuant to the IPO Escrow are released to the securityholders pursuant to the
terms of the IPO Escrow.
If the conditions described in clauses (i) and (ii) above are not met in
accordance with the terms and conditions of the Sun IPO Escrow, all shares of
Registrant Common Stock subject to the respective conditions of the Sun IPO
Escrow will be forfeited and cancelled.
In addition to the shares of Registrant Common Stock subject to the Sun
Escrows, 10% of the 209,733 shares of Registrant Common Stock acquired by the
ViComp Shareholders other than Dr. Sun are subject to an escrow (the
"Shareholder Escrow") pursuant to an escrow agreement dated as of October 17,
1996 by and between such ViComp Shareholders, the Registrant and American Stock
Transfer & Trust Company (the "Shareholder Escrow Agreement"). Shares subject
to the Shareholder Escrow Agreement are subject to forfeiture and cancellation
in the event of a breach of certain representations or warranties made to the
Registrant by the ViComp Shareholders (other than Dr. Sun) in the Merger
Agreement.
The shares of Registrant Common Stock were issued to the ViComp
Shareholders in a private transaction in reliance upon Section 4(2) of the
Securities Act of 1933, as amended. All of the shares of Registrant Common Stock
acquired by the ViComp Shareholders (including Dr. Sun) in the Acquisition
3
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are subject to a Registration Rights Agreement, which provides the ViComp
Shareholders with certain demand and piggyback registration rights with respect
to those shares. In connection with the Acquisition,the three ViComp
Shareholders who were employed by ViComp before and continue to be employed by
ViComp after the Acquisition were granted options to purchase a total of 189,557
shares of the Registrant's Common Stock for a ten-year period at a price of
$8.375 per share under the Registrant's 1996 Stock Option plan, which plan is
subject to approval by the shareholders of the Registrant. These options will
vest over a five-year period commencing one year from the date of grant.
The amount of consideration paid by the Registrant to acquire ViComp was
based on the Registrant's evaluation of the value of the technology being
developed by ViComp and the design and development capabilities of ViComp's
personnel, and the Registrant was advised by an independent investment banking
firm that the Acquisition is fair from a financial point of view to the
Company's shareholders (other than Dr. Sun).
Item 7. Financial Statements and Exhibits
---------------------------------
(a) Financial statements of business acquired. It is impracticable to
-----------------------------------------
file audited financial statements for ViComp at this time. Audited financial
statements will be filed as an Amendment to this Form 8-K as soon as they are
available, but in any event not later than 75 days after the date of the
Acquisition.
(b) Pro forma financial information. It is impracticable to file pro
-------------------------------
forma financial information in connection with the Acquisition at this time. Pro
forma financial information will be filed as an Amendment to this Form 8-K as
soon as it is available, but in any event not later than 75 days after the date
of the Acquisition.
(c) Exhibits
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The exhibits listed below are filed as part of this Current Report.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
2.1 Agreement and Plan of Merger dated as of October 17, 1996 by and
among the Registrant, ViComp and the ViComp Shareholders.
4.1 Escrow Agreement dated as of October 17, 1996 by and between Dr.
Sun and the Registrant.
4.2 Escrow Agreement dated as of October 17, 1996 by and among the
Registrant, Dr. Sun and American Stock Transfer & Trust Company.
4.3 Escrow Agreement dated as of October 17, 1996 by and among the
Registrant, the shareholders named in the signature pages thereto
and American Stock Transfer & Trust Company.
4.4 Registration Rights Agreement dated as of October 17, 1996 by and
between the Registrant and the ViComp Shareholders.
</TABLE>
4
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DIGITAL VIDEO SYSTEMS, INC.
Date: October 31, 1996 By: /s/ Arvin S. Erickson
--------------------------
Arvin S. Erickson
Chief Financial Officer
5
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EXHIBIT INDEX
The exhibits listed below are filed as part of this Current Report.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
2.1 Agreement and Plan of Merger dated as of October 17,
1996 by and among the Registrant, ViComp and the
ViComp Shareholders.
4.1 Escrow Agreement dated as of October 17, 1996 by
and between Dr. Sun and the Registrant.
4.2 Escrow Agreement dated as of October 17, 1996 by and
among the Registrant, Dr. Sun and American Stock Transfer
& Trust Company.
4.3 Escrow Agreement dated as of October 17, 1996 by and
among the Registrant, the ViComp Shareholders named in
the signature pages thereto and American Stock Transfer &
Trust Company.
4.4 Registration Rights Agreement dated as of October 17, 1996
by and between the Registrant and the ViComp Shareholders.
</TABLE>
6
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EXHIBIT 2.1
AGREEMENT AND
PLAN OF MERGER
BY AND AMONG
DIGITAL VIDEO SYSTEMS, INC.,
DIGITAL VIDEO ACQUISITION CO.,
VICOMP TECHNOLOGY, INC.
AND
THE SHAREHOLDERS
LISTED IN EXHIBIT A HERETO
DATED AS OF OCTOBER 17, 1996
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS.................................................. 1
1.1 Defined Terms................................................ 1
ARTICLE II THE MERGER................................................... 3
2.1 The Merger................................................... 3
2.2 Effects of the Merger........................................ 3
2.3 Effective Date............................................... 3
2.4 Certificate of Incorporation and Bylaws...................... 4
2.5 Directors and Officers....................................... 4
2.6 Conversion of Shares......................................... 4
2.7 Conversion of Digital Sub Common Stock....................... 4
2.8 Exchange of Certificates..................................... 4
2.9 Digital to Make Shares Available............................. 5
2.10 Further Documents............................................ 5
2.11 Agreement and Plan of Merger................................. 5
2.12 Internal Revenue Code........................................ 5
2.13 Escrow of Shares............................................. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF VICOMP;
AND THE SHAREHOLDERS......................................... 6
3.1 Organization of ViComp....................................... 6
3.2 Subsidiaries................................................. 7
3.3 ViComp Capital Stock......................................... 7
3.4 No Liens on ViComp Capital Stock............................. 7
3.5 Authorization Relative to this Agreement..................... 7
3.6 Absence of Certain Changes or Events......................... 8
3.7 Permits...................................................... 9
3.8 No Conflict or Violation..................................... 9
3.9 Financial Statements......................................... 9
3.10 Liabilities.................................................. 10
3.11 Litigation................................................... 10
3.12 Labor Matters................................................ 10
3.13 Compliance with Law.......................................... 10
3.14 No Agreements to Sell the Assets............................. 10
3.15 Employee Benefit Plans....................................... 11
3.16 Tax Matters.................................................. 11
3.17 Insurance.................................................... 12
3.18 Compliance With Environmental Laws........................... 13
3.19 Contracts and Commitments.................................... 13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3.20 Transactions with Certain Persons............................ 14
3.21 Assets....................................................... 14
3.22 Board Approval and Recommendation............................ 14
3.23 Shareholder Investment Representations....................... 14
3.24 Purchases and Sales.......................................... 14
3.25 Status of Development of ViComp Chip......................... 15
3.26 Intellectual Property and Technology......................... 15
3.27 Obligation to Former Employer; No Breach or Conflict......... 16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF DIGITAL
AND DIGITAL SUB.............................................. 16
4.1 Organization of Digital and Digital Sub...................... 16
4.2 Digital and Digital Sub Capital Stock........................ 16
4.3 Authorization Relative to this Agreement..................... 17
4.4 Absence of Certain Changes or Events......................... 17
4.5 Permits...................................................... 17
4.6 No Conflict or Violation..................................... 18
4.7 SEC Filings; Digital Financial Statements.................... 18
4.8 Board Approval............................................... 18
4.9 Validity of Shares Issued to the Shareholders................ 18
4.10 Liabilities.................................................. 19
4.11 No Activities................................................ 19
ARTICLE V COVENANTS OF EACH PARTY...................................... 19
5.1 Access to Information........................................ 19
5.2 Notification of Certain Matters.............................. 20
5.3 Public Statements and Press Releases......................... 20
5.4 Confidential Information..................................... 20
5.5 Rule 144 Reporting........................................... 21
5.6 Registration Rights.......................................... 22
5.7 Termination of Stock Option Plan Prior to Effective
Date......................................................... 23
5.8 Invention, Non-Disclosure and Non-Competition
Agreements................................................... 24
5.9 Sun Escrow Agreement......................................... 24
5.10 Shareholder Escrow Agreement................................. 24
ARTICLE VI ADDITIONAL COVENANTS OF VICOMP AND
THE SHAREHOLDERS............................................. 24
6.1 Conduct of Business.......................................... 24
6.2 No Solicitation.............................................. 26
6.3 Delivery of ViComp Common Stock and ViComp Preferred
Stock........................................................ 26
</TABLE>
ii.
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII ADDITIONAL COVENANTS OF DIGITAL.............................. 26
7.1 Conduct of Business.......................................... 26
7.2 Federal Income Tax Treatment................................. 27
7.3 Digital Common Stock in Escrow............................... 27
ARTICLE VIII CONDITIONS TO THE OBLIGATIONS OF VICOMP
AND THE SHAREHOLDERS......................................... 27
8.1 Representations, Warranties and Covenants.................... 28
8.2 Permits...................................................... 28
8.3 Opinion of Counsel........................................... 28
8.4 Certificates................................................. 28
8.5 No Governmental Actions...................................... 28
8.6 No Material Adverse Change................................... 28
8.7 Corporate Resolutions........................................ 28
ARTICLE IX CONDITIONS TO THE OBLIGATIONS OF DIGITAL AND
DIGITAL SUB.................................................. 29
9.1 Representations, Warranties and Covenants.................... 29
9.2 Permits...................................................... 29
9.3 Opinion of Counsel........................................... 29
9.4 Certificates................................................. 29
9.5 No Governmental Actions...................................... 29
9.6 No Material Adverse Change................................... 29
9.7 Corporate Resolutions........................................ 30
9.8 Covenant Not to Compete; etc................................. 30
9.9 Delivery of Stock Certificates............................... 30
9.10 Escrow Agreements............................................ 30
ARTICLE X TERMINATION, AMENDMENTS, WAIVERS AND
POST-CLOSING COVENANTS....................................... 30
10.1 Termination.................................................. 30
10.2 Amendments................................................... 31
10.3 Waivers...................................................... 31
ARTICLE XI INDEMNIFICATION; SURVIVAL.................................... 31
11.1 Survival of Representations, Etc............................. 31
11.2 Indemnification by ViComp and the Shareholders............... 32
11.3 Indemnification by Digital................................... 32
11.4 Basket....................................................... 32
11.5 Indemnification Procedure.................................... 33
</TABLE>
iii.
<PAGE>
<TABLE>
<S> <C>
ARTICLE XII GENERAL PROVISIONS........................................... 33
12.1 ViComp Shareholder Representative............................ 33
12.2 Assignment................................................... 35
12.3 Notices...................................................... 35
12.4 Governing Law................................................ 36
12.5 Counterparts................................................. 36
12.6 Expenses..................................................... 36
12.7 Invalidity................................................... 36
12.8 Titles....................................................... 36
12.9 Cumulative Remedies.......................................... 36
12.10 Entire Agreement............................................. 36
12.11 Attorneys' Fees.............................................. 37
12.12 Waiver of Right to Trial by Jury............................. 37
12.13 ViComp and Shareholders Represented by Counsel............... 37
12.14 Each Party Represented by Counsel............................ 37
12.15 Arbitration.................................................. 37
</TABLE>
iv.
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C> <C>
A - ViComp Shares Tendered and Digital Shares Issued; Digital
Shareholder Options
B - Merger Agreement
C - Certificate of Merger
D - Certificate of Incorporation of Surviving Corporation
E - Bylaws of Surviving Corporation
F - Directors and Officers of Surviving Corporation
G - Form of Sun Escrow Agreement
H - Form of Shareholder Escrow Agreement
I - Form of Registration Rights Agreement
J - Form of Invention, Non-Disclosure and Non-Competition
Agreement
K - Form of Opinion of Counsel to Digital
L - Form of Opinion of Counsel to ViComp
</TABLE>
v.
<PAGE>
AGREEMENT AND
PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of October 17, 1996 is by and
among Digital Video Systems, Inc., a Delaware corporation ("Digital"), Digital
Video Acquisition Co., a Delaware corporation and wholly owned subsidiary of
Digital ("Digital Sub"), ViComp Technology Inc., a Delaware corporation
("ViComp"), and the Shareholders of ViComp listed in Exhibit A hereto (the
"Shareholders").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the respective Boards of Directors of Digital, Digital Sub and
ViComp have approved the acquisition of ViComp by Digital pursuant to this
Agreement;
WHEREAS, this Agreement provides for the merger of Digital Sub with and
into ViComp with ViComp as the surviving corporation in such merger in a
transaction intended to qualify as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code, all in accordance with the provisions of this
Agreement;
WHEREAS, the Shareholders own beneficially and of record all of the issued
and outstanding capital stock of ViComp; and
WHEREAS, Digital, Digital Sub, ViComp and each of the Shareholders believe
that it is in their best interests to adopt and consummate the Merger (as
hereinafter defined);
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Digital, Digital Sub, ViComp and the
Shareholders agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Defined Terms. As used herein, the terms below shall have the
-------------
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
"Affiliate" shall mean a Person that directly or indirectly through
---------
one or more intermediaries controls, is controlled by or is under common control
with the Person specified. For purposes of this definition, the term "control"
(including the terms "controlling" "controlled by" and "under common control
with") of a Person means the possession, direct or indirect, of the power to (i)
vote or control 50% or more of the voting securities or equity ownership
interest of such Person or (ii) direct or cause the direction of the management
and policies of such Person, whether by contract or otherwise.
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"Agreement" shall mean this Agreement and Plan of Merger, together
---------
with all schedules (including the Disclosure Schedule) and exhibits referenced
herein.
"Alternative Transaction" shall mean, with respect to any Person, any
-----------------------
merger, consolidation, sale of substantial assets, sale of shares of capital
stock or other equity securities, recapitalization, debt restructuring or
similar transaction involving such Person or any of its Subsidiaries or any
divisions, other than as contemplated by this Agreement.
"Closing" shall mean the consummation of the Merger and the
-------
transactions contemplated thereby by Digital, Digital Sub, ViComp and the
Shareholders which shall take place on or before the Effective Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
----
the rules and regulations thereunder.
"Digital Common Stock" shall mean the common stock, par value $.0001
--------------------
per share, of Digital.
"Disclosure Schedule" shall mean, collectively, the schedules attached
-------------------
hereto and delivered by the parties as of the date hereof which set forth the
exceptions to the representations and warranties contained in Article III hereof
(as to ViComp and each of the Shareholders) and Article IV hereof (as to
Digital) and certain other information called for by this Agreement. Unless
otherwise specified, each reference in this Agreement to any numbered schedule
is a reference to that numbered schedule which is included in the Disclosure
Schedule. Any information disclosed on a particular schedule on the Disclosure
Schedule or subparts thereof shall be deemed disclosed on any and all schedules.
"Effective Date" shall mean the date on which the Certificate of
--------------
Merger (as hereinafter defined) is filed with the Secretary of State of the
State of Delaware.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
"Person" shall mean any individual, partnership, joint venture,
------
corporation, limited liability company, trust, unincorporated association,
governmental authority or any department or agency thereof or any other entity
of any nature whatsoever.
"Representative" shall mean any officer, director, principal,
--------------
attorney, agent, employee or other representative.
"SEC" shall mean the Securities and Exchange Commission.
---
"SEC Reports" shall mean Digital's Registration Statement on Form SB-
-----------
2, which became effective with the SEC on May 9, 1996, and all forms, reports,
statements and documents required to be filed by Digital with the SEC under the
Exchange Act since March 31, 1996, including, but not limited to, (i) the
Digital Quarterly Reports on Form 10-QSB for
2
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the quarters ended March 31, 1996 and June 30, 1996, (ii) the current report of
Digital on Form 8-K filed on August 11, 1996; (iii) all other reports or
registrations filed by Digital with the SEC since March 31, 1996, and all
amendments thereto through the date of this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Subsidiaries" shall mean all corporations, partnerships, limited
------------
liability companies, joint ventures or other entities in which a Person has a
direct or indirect stock or other equity or ownership interest.
"Tax" shall mean any federal, state, local, foreign or other tax,
---
levy, impost, fee, assessment or other government charge, including without
limitation income, estimated income, business, occupation, franchise, property,
payroll, personal property, sales, transfer, use, employment, commercial rent,
occupancy, franchise or withholding taxes, and interest, penalties and additions
to tax in connection therewith.
"ViComp Common Stock" shall mean shares of common stock, par value
-------------------
$.001 per share, of ViComp.
"ViComp Preferred Stock" shall mean shares of Series A convertible
----------------------
preferred stock, par value $.001 per share.
ARTICLE II
THE MERGER
----------
2.1 The Merger. Digital has formed Digital Sub as a wholly owned
----------
subsidiary under the laws of the State of Delaware. Upon the terms and subject
to the conditions hereof, and in accordance with Delaware General Corporation
Law (the "GCL") Digital will cause Digital Sub to execute and deliver, and
Digital agrees to execute and deliver an Agreement of Merger substantially in
the form of Exhibit B hereto (the "Merger Agreement"), providing for the merger
of Digital Sub with and into ViComp (the "Merger"). ViComp shall be the
surviving corporation in the Merger (the "Surviving Corporation") and as a
result thereof shall become a wholly owned subsidiary of Digital.
2.2 Effects of the Merger. The Merger shall have the effects set forth
---------------------
in Section 259 of the GCL. As of the Effective Date, ViComp shall be a wholly
owned subsidiary of Digital.
2.3 Effective Date. As soon as practicable following fulfillment or
--------------
waiver of the conditions specified in Articles VIII and IX hereof, but in no
event later than two business days thereafter, unless the parties shall
otherwise agree, and provided that this Agreement has not been terminated
pursuant to Section 10.1 hereof, the parties hereto will cause an appropriate
Certificate of Merger (the "Certificate of Merger"), in the form attached as
Exhibit C to be filed with the Secretary of State of the State of Delaware, as
provided in Section 251 of the GCL.
3
<PAGE>
The Merger shall become effective on the date on which the Certificate of Merger
is so filed with the Secretary of State of the State of Delaware. Prior to the
filing of the Certificate of Merger, a closing shall take place at the offices
of Troy & Gould Professional Corporation, 1801 Century Park East, Suite 1600,
Los Angeles, California 90067, or such other place, and at such time as the
parties shall agree.
2.4 Certificate of Incorporation and Bylaws. From and after the
---------------------------------------
Effective Date, the Certificate of Incorporation of the Surviving Corporation
will be in the form attached hereto as Exhibit D. From and after the Effective
Date, the Bylaws of Digital Sub set forth in Exhibit E, as in effect immediately
prior to the Effective Date, shall be the Bylaws of the Surviving Corporation,
and shall thereafter be its Bylaws until changed or amended as provided therein
or under Delaware law.
2.5 Directors and Officers. From and after the Effective Date, the
----------------------
directors of the Surviving Corporation shall be the directors of Digital Sub
immediately prior to the Effective Date as set forth on Exhibit F, and the
officers of the Surviving Corporation shall be the officers of Digital Sub
immediately prior to the Effective Date as set forth on Exhibit F, in each case
until their successors shall have been elected and shall qualify or until
otherwise provided by law or the Certificate of Incorporation or Bylaws of the
Surviving Corporation.
2.6 Conversion of Shares. By virtue of the Merger and without any action
--------------------
on the part of the holder thereof, each share of ViComp Common Stock and ViComp
Preferred Stock that is issued and outstanding immediately prior to the
Effective Date shall be converted into and become .0938403 of one validly
issued, fully paid and nonassessable share of Digital Common Stock, subject to a
rounding adjustment to a whole share for elimination of fractional shares, and
no cash consideration shall be paid in any event.
2.7 Conversion of Digital Sub Common Stock. Each share of common stock,
--------------------------------------
par value $.0001 per share, of Digital Sub issued and outstanding immediately
prior to the Effective Date shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and thereafter
represent one validly issued, fully paid and nonassessable share of common
stock, par value $.001 per share, of the Surviving Corporation.
2.8 Exchange of Certificates. After the Effective Date, each holder of
------------------------
an outstanding certificate or certificates (the "ViComp Stock Certificates")
theretofore representing shares of ViComp Common Stock and/or ViComp Preferred
Stock, upon surrender thereof to such bank, trust company or other person as
shall be designated by Digital (the "Transfer Agent"), shall be entitled to
receive in exchange therefor a certificate or certificates representing the
number of whole shares of Digital Common Stock into which the shares of ViComp
Common Stock and ViComp Preferred Stock theretofore represented by such
surrendered certificate or certificates shall have been converted. Until so
surrendered, each outstanding certificate theretofore representing shares of
ViComp Common Stock and ViComp Preferred Stock shall be deemed for all purposes
in respect of Digital Common Stock, to represent the number of whole shares of
Digital Common Stock into which the shares of ViComp Common Stock and ViComp
Preferred Stock theretofore represented thereby shall have been converted.
4
<PAGE>
No dividend or distribution, if any, payable to holders of shares of Digital
Common Stock shall be paid to the holders of certificates theretofore
representing shares of ViComp Common Stock or ViComp Preferred Stock; provided,
--------
however, that upon surrender and exchange of such ViComp Stock Certificates,
- -------
there shall be paid to the record holders of the stock certificate or
certificates issued in exchange therefor, the amount, without interest thereon,
of dividends or other distributions, if any, which theretofore but subsequent to
the Effective Date have been declared and become payable with respect to the
number of whole shares of Digital Common Stock into which the shares of ViComp
Common Stock and ViComp Preferred Stock theretofore represented thereby shall
have been converted. The certificate or certificates representing the shares of
Digital Common Stock into which the shares of ViComp Common Stock and ViComp
Preferred Stock shall have been converted shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED AND ARE SUBJECT TO A REGISTRATION
RIGHTS AGREEMENT (A COPY OF WHICH IS ON FILE WITH SECRETARY OF THE
COMPANY). SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS
AGREEMENT AND UNLESS REGISTERED UNDER SAID ACT OR UNLESS AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE IN THE OPINION OF COUNSEL FOR THE ISSUER."
2.9 Digital to Make Shares Available. By the Effective Date, Digital
--------------------------------
shall make available, by transferring directly to the Transfer Agent, for the
benefit of the Shareholders, such number of shares of Digital Common Stock as
shall be required as a result of the conversion of ViComp Common Stock and
ViComp Preferred Stock in accordance with this Agreement.
2.10 Further Documents. From time to time, on and after the Effective
-----------------
Date, as and when requested by Digital, the appropriate officers and directors
of ViComp as of the Effective Date shall, for and on behalf and in the name of
ViComp or otherwise, execute and deliver all such deeds, bills of sale,
assignments and other instruments, and shall take or cause to be taken such
further or other actions as Digital may deem necessary or desirable in order to
confirm of record or otherwise to Digital title to and possession of all of the
properties, rights, privileges, powers, franchises and immunities of ViComp and
otherwise to carry out fully the provisions and purposes of this Agreement.
2.11 Agreement and Plan of Merger. This Agreement is intended by the
----------------------------
parties to constitute an "Agreement of Merger" for the purposes of Section 252
of the GCL, and has been duly adopted by each party as such.
2.12 Internal Revenue Code. The parties hereto intend that the
---------------------
transactions contemplated by this Agreement shall qualify as a reorganization
under Section 368(a)(1)(A) of the Code, and each party hereto will take all
necessary actions in order to accomplish such
5
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intent. This Agreement constitutes a "Plan of Reorganization" as required by
Treasury Regulation Section 1.368-3(a) and has been duly adopted by each party
hereto as such.
2.13 Escrow of Shares. One-half (140,760 shares) of the total 281,520
----------------
shares of Digital Common Stock issued to Dr. Edmund Sun in connection with the
Merger shall be placed in an escrow (the "Sun Escrow") pursuant to an escrow
agreement in substantially the form attached hereto as Exhibit G (the "Sun
Escrow Agreement"). In addition, 10% of the shares of Digital Common Stock
issued to each Shareholder, other than Dr. Edmund Sun, in connection with the
Merger shall be placed in an escrow (the "Shareholder Escrow") pursuant to an
Escrow Agreement substantially in the form attached hereto as Exhibit H
("Shareholder Escrow Agreement"). The shares of Digital Common Stock placed in
the Sun Escrow and the Shareholder Escrow, respectively, will be subject to
cancellation under the circumstances described therein, but Digital shall retain
all other rights and remedies in addition to or, at its sole option, in lieu of
cancellation of such shares, in the event of any breach of the terms and
conditions or representations and warranties hereunder by ViComp or any of the
Shareholders.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF VICOMP;
-----------------------------------------
AND THE SHAREHOLDERS
--------------------
Except as set forth on the Disclosure Schedules delivered by ViComp
hereunder, (i) ViComp and Dr. Edmund Sun hereby jointly and severally represent
and warrant, and (ii) each of the other Shareholders hereby severally represents
and warrants, to Digital as set forth below. Notwithstanding the foregoing, the
liability of each Shareholder (other than Dr. Edmund Sun) under this Article III
shall be limited to the shares of Digital Common Stock held in escrow for such
Shareholder pursuant to the Shareholder Escrow Agreement; provided, however,
-------- -------
that (i) each Shareholder's maximum liability for the representations and
warranties set forth in Sections 3.4, 3.8(b), (c) and 3.23 shall be several, but
shall be increased to an amount not to exceed the amount calculated by
multiplying the number of shares of Digital Common Stock received by such
Shareholder times $8.00 notwithstanding any provisions to the contrary herein or
in the Shareholder Escrow Agreement and (ii) each Shareholder's liability with
respect to the representation and warranty in Section 3.28 shall be unlimited
notwithstanding any provisions to the contrary herein or in the Shareholder
Escrow Agreement.
3.1 Organization of ViComp. ViComp is a corporation duly organized,
----------------------
validly existing and in good standing under the laws of the State of Delaware,
has full corporate power and authority to conduct its business as it is
presently being conducted and to own, lease and operate its properties and
assets, and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification, except for jurisdictions in which the
failure to be so qualified or to be in good standing would not have a material
adverse effect on the business, prospects or financial condition of ViComp.
Copies of the Certificate of Incorporation and Bylaws of ViComp, and all
amendments thereto, heretofore delivered to Digital are complete and correct and
in full force and effect as of the date hereof.
6
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3.2 Subsidiaries. ViComp has no Subsidiaries and shall not create or
------------
otherwise acquire any subsidiaries prior to the Closing.
3.3 ViComp Capital Stock. The authorized capital stock of ViComp consists
--------------------
of 16,000,000 shares of ViComp Common Stock, 2,235,000 shares of which were
issued and outstanding as of the date of this Agreement and 4,000,000 shares of
ViComp Preferred Stock, 3,000,000 shares of which were issued and outstanding as
of the date of this Agreement. No shares of any other class or series of capital
stock are authorized, issued or outstanding. 2,235,000 shares, or 100% of the
outstanding shares of ViComp Common Stock are held by the Shareholders and
3,000,000 shares or 100% of the shares of ViComp Preferred Stock are held by Dr.
Edmund Sun. All of the outstanding shares of the ViComp Common Stock and ViComp
Preferred Stock have been duly and validly authorized and issued, are fully paid
and nonassessable and were issued in compliance with the applicable securities
laws. Except as set forth in Schedule 3.3, there are no subscriptions, offers,
options, warrants, calls, commitments, preemptive rights or other rights of any
kind outstanding for the purchase of, nor any securities convertible into or
exchangeable for, any securities of ViComp, and prior to the Effective Date, all
such securities will be cancelled or exchanged or converted into ViComp Common
Stock. There are no restrictions upon the voting or transfer of any shares of
ViComp Common Stock or ViComp Preferred Stock pursuant to ViComp's Certificate
of Incorporation, Bylaws or other governing documents or any agreement or other
instrument to which ViComp is a party or by which ViComp is bound. There are no
stock appreciation rights outstanding of ViComp.
There are no restrictions upon the voting or transfer of any shares of
ViComp Common Stock or ViComp Preferred Stock pursuant to any agreement or other
instrument to which any Shareholder is a party or by which any of them is bound
which would affect their ability to consummate the transactions contemplated
hereby.
3.4 No Liens on ViComp Capital Stock. Each of the Shareholders is the
--------------------------------
owner of ViComp Common Stock or ViComp Preferred Stock, as the case may be, as
reflected on Exhibit A, free and clear of all liens or encumbrances on the
shares such Shareholder has contracted to exchange.
3.5 Authorization Relative to this Agreement. ViComp has the requisite
----------------------------------------
corporate power and authority to enter into this Agreement and 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 and validly authorized by the
Board of Directors of ViComp and each of the Shareholders. ViComp has taken all
action necessary, in accordance with Delaware law and its Certificate of
Incorporation and Bylaws, to obtain the approval of shareholders of 100% of the
ViComp Common Stock and 100% of the ViComp Preferred Stock for this Agreement
and the transactions contemplated hereby, and in that connection ViComp has
provided the Shareholders with full disclosure of all terms of this transaction.
No other corporate proceedings on the part of ViComp are necessary to authorize
this Agreement and the transactions contemplated hereby. This Agreement has
been duly executed and delivered by ViComp and each Shareholder and, assuming
this Agreement constitutes a valid and binding agreement of the other parties
hereto,
7
<PAGE>
constitutes a valid and binding obligation of each of them, enforceable against
each of them in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles.
3.6 Absence of Certain Changes or Events. Except as set forth on
------------------------------------
Schedule 3.6, since August 31, 1996, there has not been any change in the
financial condition, results of operations or business of ViComp which could be
expected to result in a material adverse effect on the business, prospects or
financial condition of ViComp, and ViComp has not:
(a) except for the transactions contemplated by this Agreement,
entered into any material commitment or transaction (including, but not limited
to, any borrowing, capital expenditure or sale of assets), or conducted its
business or operations, other than in the ordinary and usual course of business
and consistent with past practices;
(b) except as set forth on Schedule 3.6(b), amended or changed its
Certificate of Incorporation, Bylaws or other organizational documents;
(c) agreed to take, whether in writing or otherwise, any action
which, if taken prior to the date hereof, would have made any representation or
warranty in this Article III untrue or incorrect;
(d) declared, set aside, made or paid any dividend in respect of
ViComp capital stock or redeemed any ViComp capital stock;
(e) except as set forth on Schedule 3.6(e), increased the annual
level of compensation of any employee by an amount greater than 10% over his
compensation for the year ended December 31, 1995, or increased at all the
annual level of compensation of any person whose compensation from ViComp in the
fiscal year ended December 31, 1995 exceeded $75,000, or granted any unusual or
extraordinary bonuses, benefits or other forms of direct or indirect
compensation to any employee, officer, director or consultant;
(f) increased, terminated, amended or otherwise modified any plan for
the benefit of the employees;
(g) issued any equity securities or rights;
(h) borrowed any funds, under existing lines of credit or otherwise,
except as reasonably necessary for the ordinary operation of ViComp's business
in a manner, and in amounts, in keeping with historical practices;
(i) solicited or initiated the submission of proposals or offers from
any person for, participated in any discussion pertaining to, or furnished any
information to any person other than Digital relating to, any Alternative
Transaction; or
8
<PAGE>
(j) made any loans or advances to any Affiliate or officer or
director of ViComp, or Affiliate of any such officer or director.
3.7 Permits. ViComp has all material licenses and permits required to
-------
conduct its business as presently conducted, and all such licenses and permits
are valid and in full force and effect. Other than in connection with or in
compliance with the provisions of the Securities Act, the Exchange Act or the
securities or blue sky laws of the various states, and except as disclosed on
Schedule 3.7 hereto, no material notice to, declaration, filing or registration
with, license or permit from, any domestic or foreign governmental or regulatory
body or authority, or any other Person, is required to be made or obtained by
ViComp in connection with the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated hereby.
3.8 No Conflict or Violation. Subject in the case of subsections (b), (c)
------------------------
and (e) below to receipt of the permits contemplated by Section 3.7, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in (a) a violation of or a conflict
with any provision of the Certificate of Incorporation, Bylaws or other
organizational document of ViComp, (b) a breach of, or a default under, any
material term or provision of any material contract, encumbrance, license or
permit to which ViComp or any of the Shareholders is a party or is subject or by
which any assets of ViComp are bound, including, without limitation, any such
breach or default which would interfere in any way with their respective
abilities to consummate the transactions contemplated by this Agreement, (c) a
material violation by ViComp or any Shareholder of any statute, rule,
regulation, ordinance, code, order, judgment, writ, injunction, decree or award,
including any violation which would interfere with their respective abilities to
consummate the transactions contemplated by this Agreement, (d) the imposition
of any material encumbrance on the business or assets of ViComp, or (e) except
as set forth in Schedule 3.8(e), give rise to any right of termination,
cancellation or acceleration under any contract to which ViComp is a party or by
or to which it or any of its material assets or properties may be bound or
subject.
3.9 Financial Statements. ViComp has heretofore delivered to Digital
--------------------
draft audited financial statements for the period from inception through August
31, 1996 (the "ViComp Financial Statements"). The ViComp Financial Statements
(a) are in accordance with the books and records of ViComp (which are true and
complete in all material respects), and (b) fairly present the assets,
liabilities (including all reserves) and consolidated financial position of
ViComp as of the respective dates thereof and the consolidated results of
operations and changes in cash flows for the periods then ended, except that
unaudited interim financial statements are subject to normal and recurring year-
end adjustments that are not expected to be material in amount. At August 31,
1996, there were no liabilities of ViComp, which, in accordance with GAAP,
should have been shown or reflected therein or in the notes thereto, which are
not shown or reflected therein or the notes thereto for annual financial
statements. Since August 31, 1996, there have been no changes from ViComp's
financial condition as reflected in the ViComp Financial Statements for August
31, 1996 which could result in a material adverse effect upon the business,
prospects or financial condition of ViComp.
9
<PAGE>
3.10 Liabilities. ViComp has no material liabilities, obligations or
-----------
commitments of any nature (whether absolute, accrued, contingent or otherwise
and whether matured or unmatured), including, without limitation, tax
liabilities due, except (a) liabilities reflected in, reserved against or
disclosed in the footnotes of, the ViComp Financial Statements, (b) obligations
or commitments arising under agreements set forth in Schedule 3.10, and (c)
liabilities, obligations or commitments incurred since August 31, 1996 in the
ordinary course of ViComp's business and consistent with ViComp's past
practices. There are no material transactions that have not been properly
recorded in the accounting records underlying the ViComp Financial Statements.
3.11 Litigation. There are no claims, suits, arbitrations, government
----------
proceedings or investigations pending or threatened or which, based on facts
presently known to ViComp, that ViComp believes could occur (a) against, related
to or affecting ViComp, which actions, if determined adversely to ViComp, would
have a material adverse effect on the business, prospects or financial condition
of ViComp, or (b) seeking to delay, limit or enjoin the transactions
contemplated by this Agreement. Except as set forth in Schedule 3.11, ViComp is
not in default with respect to or subject to any judgment, order, writ,
injunction or decree of any court or governmental agency, and there are no
unsatisfied judgments against ViComp.
3.12 Labor Matters. Except as set forth on Schedule 3.12, ViComp is not
-------------
(a) a party to any employment agreement or to any labor agreement with respect
to its employees with any labor organization, union, group or association, and
there are no employee unions (nor any other similar labor or employee
organizations) under local statutes, custom or practice, or (b) aware of any
labor strike or labor disturbance pending or threatened against it, or any
employment grievance currently being asserted or likely to be asserted against
it in connection with consummation of the transactions contemplated by this
Agreement. ViComp is in compliance, in all material respects with all
applicable laws respecting employment practices (including, but not limited to,
laws relating to sexual harassment and discrimination), employee documentation,
terms and conditions of employment and wages and hours and is not and has not
engaged in any unfair labor practice.
3.13 Compliance with Law. ViComp has not, and the conduct of its business
-------------------
has not, violated in any material respect any, and is in compliance in all
material respects with all, laws, statutes, ordinances, regulations, rules and
orders of any foreign, federal, state or local government and any other
governmental department or agency, and any judgment, decision, decree or order
of any court or governmental agency, department or authority, including, without
limitation, environmental laws, relating to ViComp.
3.14 No Agreements to Sell the Assets. ViComp has not made any commitment
--------------------------------
or legal obligation, absolute or contingent, to any Person to sell, assign,
transfer or effect a sale of any of the assets of ViComp (other than inventory
or non-material assets in the ordinary course of business). ViComp does not
have any commitment or legal obligation to sell or effect a sale of any capital
stock of ViComp, to effect any merger, consolidation, liquidation, dissolution
or other reorganization of ViComp, or to enter into any agreement or cause the
entering into of an agreement with respect to any of the foregoing.
10
<PAGE>
3.15 Employee Benefit Plans.
----------------------
(a) Schedule 3.15 lists (i) each "employee pension benefit plan," as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), (other than a ViComp Multiemployer Plan) maintained by
ViComp, or to which ViComp makes or has made contributions (the "ViComp Pension
Plans"); (ii) each "employee welfare benefit plan," as defined in Section 3(l)
of ERISA, (other than a ViComp Multiemployer Plan) maintained by ViComp, or to
which ViComp makes or has made contributions (the "ViComp Welfare Plans"); (iii)
each "multiemployer plan," as defined in Section 4001(a)(3) of ERISA, maintained
by ViComp, or to which ViComp makes or, at any time during the last six years,
has made contributions (the "ViComp Multiemployer Plans") and (iv) each
collective bargaining, bonus, profit sharing, compensation or other plans,
agreements, trusts, funds or arrangements (other than a ViComp Pension Plan,
ViComp Welfare Plan or ViComp Multiemployer Plan) maintained by ViComp for the
benefit of its directors, officers or employees, and each employment,
consulting, severance or indemnification arrangement or understanding between
ViComp, on the one hand, and any current or former directors, officers or other
employees (or affiliates thereof) of ViComp, on the other hand (collectively
"ViComp Benefit Arrangements"). ViComp has no plan or commitment, whether
legally binding or not, to create any additional ViComp Pension Plans, ViComp
Welfare Plans or ViComp Benefit Arrangements (collectively, "ViComp Employee
Plans") or modify or change any existing ViComp Employee Plan that would affect
any employee or former employee of ViComp, except as may be required to maintain
the qualified status of any ViComp Pension Plans which are intended to be
qualified under Section 401(a) of the Code.
(b) With respect to each of the ViComp Employee Plans, ViComp has
heretofore made available to Digital true, complete and correct copies of all
existing material documents related to such ViComp Employee Plans, including,
but not limited to, a copy of the plan or arrangement and related trust or other
funding vehicle, if any; the most recent summary plan description, if any, and
all written material employee communications related to such plan or arrangement
since December 31, 1995; and any other contracts related to the plan or
arrangement with respect to which ViComp may have material liability.
(c) Except as disclosed on Schedule 3.15, neither of ViComp nor any
ViComp Welfare Plan has any present or future obligation to make any payment to
or with respect to any present or former employee of ViComp pursuant to any
retiree medical benefit plan, or other retiree ViComp Welfare Plan.
3.16 Tax Matters.
-----------
(a) Filing of Tax Returns. Since December 31, 1995, ViComp has
---------------------
timely filed with the appropriate taxing authorities all returns (including,
without limitation, information returns, statements, declarations, reports and
other information) in respect of Taxes required to be filed through the date
hereof and will timely file any such returns and other information required to
be filed on or prior to the Effective Date. The returns and other information,
when
11
<PAGE>
filed, were complete and accurate in all material respects and nothing has
occurred which would require the filing of an amendment to such returns.
(b) Payment of Taxes. Since December 31, 1995, all Taxes, in respect
----------------
of periods beginning before the Effective Date, have been timely paid, or will
be timely paid, or an adequate reserve has been established therefor, as set
forth in the ViComp Financial Statements, and ViComp does not have any material
liability for Taxes in excess of the amounts so paid or reserves so established.
(c) Audits, Investigations or Claims. Since December 31, 1995, the
--------------------------------
federal income tax returns of ViComp have not been audited by the Internal
Revenue Service. No deficiencies for Taxes not adequately reserved for have
been claimed, proposed or assessed by any taxing or other governmental authority
against ViComp. There are no pending or threatened audits, investigations or
claims for or relating to any material additional liability in respect of Taxes
not adequately reserved for, and there are no matters under discussion between
ViComp and any governmental authorities with respect to Taxes that in the
reasonable judgment of ViComp is likely to result in such additional liability
for Taxes. ViComp has not been notified that any taxing authority intends to
audit a return for any period. Except as specified on Schedule 3.16, no
extension of a statute of limitations relating to Taxes is in effect with
respect to ViComp.
(d) Other Tax Representations. Except as set forth on Schedule 3.16:
-------------------------
(i) ViComp has not made any election under Section 341(f) of
the Code (or any comparable state income tax provision);
(ii) ViComp has not agreed to and is not required to make any
adjustment pursuant to Section 481(a) of the Code by reason of a change in
accounting method initiated by ViComp;
(iii) there are no elections in effect made by or with respect
to ViComp pursuant to Section 338 or Section 336(e) of the Code or the
regulations thereunder;
(iv) ViComp is not, nor has it been, a member of any
consolidated group for purposes of filing tax returns or paying Taxes at any
time; and
(v) there are no liens for delinquent Taxes upon the assets of
ViComp.
3.17 Insurance. Schedule 3.17 contains a complete and accurate list of all
---------
policies or binders of fire, liability, builder's risk, property, worker's
compensation, product liability, and other forms of insurance (showing as to
each policy or binder the carrier, policy number, coverage limits, expiration
dates, annual premiums and a general description of the type of coverage
provided) maintained by or on behalf of ViComp. ViComp maintains insurance
which provides, and during the periods of coverage provided, coverage to the
extent and in the manner
12
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customary for the industry in which ViComp is engaged. ViComp is not in default
under any of such policies or binders, and ViComp has not failed to give any
notice or to present any claim under any such policy or binder in a due and
timely fashion. All policies and binders are in full force and effect on the
date hereof and shall be kept in full force and effect through the Effective
Date.
3.18 Compliance With Environmental Laws. ViComp's operations have
----------------------------------
complied with all applicable environmental laws and regulations since ViComp's
inception. The ViComp MPEG-I chip (the "ViComp Chip") is being designed with
the intention that its manufacturing specifications will permit commercial
manufacture of the chip in the United States and other contemplated countries in
compliance with all applicable environmental laws and regulations, and ViComp
has no reason to believe that the ViComp Chip will fail to meet this
requirement.
3.19 Contracts and Commitments. Except as set forth on Schedule 3.19,
-------------------------
ViComp is not a party to any:
(a) Employment contracts or severance agreements, including, without
limitation, contracts (i) to employ, terminate or compensate its executive
officers or other personnel or other contracts with its present or former
officers, directors or shareholders or (ii) that will result in the payment by
ViComp, or the creation of any commitment or obligation (absolute or contingent)
to pay on its behalf, any severance, termination, "golden parachute," or other
similar payments to any of its present or former personnel following termination
of employment or otherwise as a result of the consummation of the transactions
contemplated by this Agreement or otherwise;
(b) Options or other contracts with respect to the purchase or sale
of any real property, whether it shall be the grantor or grantee thereunder
which will require payment of $5,000 or more;
(c) Contracts involving expenditures, actual or potential, of
$10,000 or more and not cancelable by ViComp (without liability) within 30
calendar days;
(d) Other contracts involving the payment of $10,000 or more;
(e) Promissory notes, loans, agreements, indentures, evidences of
indebtedness, letters of credit, guarantees, or other instruments relating to an
obligation to pay money, individually equal to or in excess of or in the
aggregate in excess of $10,000, whether it shall be the borrower, lender or
guarantor thereunder or whereby any assets are pledged;
(f) Contracts containing covenants limiting its freedom or the
freedom of any of its officers, directors, or shareholders to engage in any line
of business or compete with any Person; or
(g) Leases or subleases of real property.
13
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ViComp is not (and, to the knowledge of ViComp, no other party is) in
material breach or violation of, or default under, any material contract to
which it is a party.
3.20 Transactions with Certain Persons. Except as set forth on Schedule
---------------------------------
3.20, or as contemplated by this Agreement, no officer, director, employee or
shareholder of ViComp or any Affiliate of ViComp presently has a direct or
indirect interest in any transaction to which ViComp is a party in which the
amount involved exceeds $5,000, including, without limitation, any contract,
agreement or other arrangement (a) providing for the furnishing of services by,
(b) providing for the purchase or rental of material real or personal property
from, (c) providing for the loan or advance of money to or from, or (d)
otherwise requiring payments to (other than for services as officers, directors
or employees of ViComp) any Person in which any such Person has a direct or
indirect material interest as a shareholder, officer, director, trustee or
partner.
3.21 Assets. Except as set forth on Schedule 3.21, ViComp has good and
------
marketable title to, or valid and subsisting leasehold interests in, its
material assets necessary for the conduct of its business as presently
conducted, free of all material encumbrances.
3.22 Board Approval and Recommendation. By a unanimous vote the Board of
---------------------------------
Directors of ViComp (a) approved and adopted this Agreement, (b) determined that
the transactions contemplated by this Agreement are in the best interests of
ViComp and the Shareholders and (c) resolved to recommend that the Shareholders
approve this Agreement and the transactions contemplated hereby.
3.23 Shareholder Investment Representations. Each Shareholder who
--------------------------------------
receives Digital Common Stock in connection with the transactions contemplated
by this Agreement represents that (i) he is an accredited investor as defined in
Regulation D under the Securities Act, or (ii) by reason of his business and
financial experience, and the business and financial experience of those persons
unaffiliated with Digital retained by him, if any, to advise him with respect to
his investment in the shares of Digital Common Stock, such Shareholder, together
with his advisers, have such knowledge, sophistication and experience in
business and financial matters as to be capable of evaluating the merits and
risk of the prospective investment, and that he is acquiring the shares of
Digital Common Stock for his own account for investment and not with a view to
the distribution thereof except in compliance with the Securities Act or an
exemption available thereunder. Each Shareholder who receives Digital Common
Stock in connection with the transactions contemplated by this Agreement
understands and agrees that such shares of Digital Common Stock have not been
registered under the Securities Act, will be subject to the Registration Rights
Agreement in substantially the form attached hereto as Exhibit I (the
"Registration Rights Agreement") and may be resold only pursuant to this
Agreement if registered pursuant to the applicable provisions of the Securities
Act or if an exemption from registration is available.
3.24 Purchases and Sales. Except as set forth in Schedule 3.24, since
-------------------
August 31, 1996, ViComp has not placed any orders for materials, merchandise or
supplies in exceptional or unusual quantities based upon past operating
practices or has entered into contracts with
14
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customers under conditions relating to price, terms of payment, time of
performance or like matters materially different from the conditions regularly
and usually specified in contracts entered into by ViComp in the ordinary course
of business prior to such date.
3.25 Status of Development of ViComp Chip. There is no reason to believe
------------------------------------
that ViComp's development schedule (which calls for commencement of commercial
manufacturing of the ViComp Chip in July 1997) cannot be met in accordance with
the provisions thereof, except to the extent that the development of the ViComp
Chip is delayed or prevented, in whole or in part, by any force beyond ViComp's
control, including without limitation (i) acts of God, (ii) strikes, (iii) labor
disputes, (iv) laws, ordinances, rules or regulations, (v) unavailability of
necessary materials, facilities and equipment in the open market, or (vi) any
other similar occurrence which has a material adverse impact on the ability of
ViComp to perform its obligations under this Agreement.
3.26 Intellectual Property and Technology.
------------------------------------
(a) Except as described on Schedule 3.26(a), ViComp owns, or is
licensed to use, all of its Intellectual Property (as defined herein) and
Technology (as defined herein) used in the conduct of its business as now
conducted and no service marks or trade names or registration or applications
therefor, trademarks, trademark registrations or applications, copyrights,
copyright registrations or applications, patents, patent registrations or
applications or otherwise are necessary for the conduct of its business as
presently conducted by it.
(b) Except as disclosed in Schedule 3.26(b), ViComp is not obligated
pursuant to any contract to make any payments by way of royalties, fees or
otherwise with respect to any of its Intellectual Property or Technology and
ViComp has not received any written notice of any written claim that it has
infringed upon or is in conflict with any Intellectual Property or Technology of
any third party. Except as disclosed in Schedules 3.26(a) or 3.26(b), ViComp,
by virtue of the business conducted by it, is not in violation of any service
mark or trade name or registration or application therefor, trademark, trademark
registration or application, copyright, copyright registration or application,
patent, patent registration or application of any other person. Except as
disclosed in Schedules 3.26(a) or 3.26(b), the use by ViComp of its Technology
does not infringe any trade secret or patent of any third party.
(c) None of the rights of ViComp to its Intellectual Property or
Technology will be impaired in any way by the consummation of the Merger or by
any other transactions contemplated by this Agreement, and all of the rights of
ViComp to its Intellectual Property and Technology will be fully enforceable by
ViComp after the consummation of the transactions contemplated by this Agreement
to the same extent as such rights would have been enforceable by ViComp prior to
the consummation of the Merger or the other transactions contemplated hereby,
without the consent or agreement of any other party. For the purposes of this
Section 3.26 (c) "Intellectual Property" shall mean all of ViComp's right, title
and interest in and to (i) all patents, patent registrations, patent
applications, trademarks, trademark registrations, trademark applications, trade
names, copyrights, copyright applications, copyright registrations, franchises,
permits and licenses used by, or available for use by ViComp, and all rights to
sue
15
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for past infringement, if any and (ii) "Technology" shall mean all of ViComp's
processes, formulae, proprietary technology, inventions, trade secrets, know-
how, product descriptions and specifications used by, or available for use by
ViComp.
3.27 Obligation to Former Employer; No Breach or Conflict. No Shareholder
----------------------------------------------------
has, during such Shareholder's employment with ViComp, improperly used or
disclosed any confidential information or trade secrets, if any, of any former
or concurrent employer, and such Shareholder has not brought onto the premises
of ViComp any unpublished documents or any property belonging to any former or
concurrent employer unless consented to in writing by that former or concurrent
employer. No Shareholder's performance of all the terms of this Agreement and
as an employee to ViComp has breached any agreement to keep in confidence
information acquired by such Shareholder in confidence or in trust prior to such
Shareholder's employment by ViComp.
3.28 No Shareholder has any claim against ViComp based on (i) such
Shareholder's employment with or termination of employment by ViComp, (ii) such
Shareholder's investment in or status as a Shareholder of ViComp or (iii) any
other matter.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DIGITAL AND DIGITAL SUB
---------------------------------------------------------
Except as set forth in a Disclosure Schedule delivered by Digital
hereunder, and except for the transactions contemplated by this Agreement,
Digital hereby represents and warrants to ViComp and the Shareholders as
follows:
4.1 Organization of Digital and Digital Sub. Each of Digital and Digital
---------------------------------------
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, has full corporate power and authority to
conduct its business as it is presently being conducted and to own, lease and
operate its properties and assets, and is duly qualified to do business and is
in good standing in each jurisdiction in which the ownership of its property or
the conduct of its business requires such qualification, except for
jurisdictions in which the failure to be so qualified or to be in good standing
would not have a material adverse effect on the business, prospects or financial
condition of Digital, in the case of Digital, and Digital Sub, in the case of
Digital Sub. Copies of the Certificate of Incorporation and Bylaws of Digital
and Digital Sub, and all amendments thereto, heretofore delivered to ViComp are
complete and correct and in full force and effect as of the date hereof.
4.2 Digital and Digital Sub Capital Stock. The authorized capital stock
-------------------------------------
of Digital consists of 60,000,000 shares of common stock, par value $.0001 per
share ("Digital Common Stock"), 17,500,933 shares of which were issued and
outstanding as of the date of this Agreement, and 5,000,000 shares of preferred
stock, par value $.0001 per share ("Digital Preferred Stock"), none of which are
issued and outstanding. No shares of any other class or series of capital stock
of Digital are authorized, issued or outstanding. All of the outstanding shares
of Digital Common Stock have been duly and validly authorized and issued, are
fully paid
16
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and nonassessable. Except as set forth in the SEC Reports, there are no
subscriptions, options, warrants, calls, commitments, preemptive rights or other
rights of any kind outstanding for the purchase of, nor any securities
convertible into or exchangeable for, any securities of Digital. The authorized
capital stock of Digital Sub consists solely of 1,000 shares of common stock,
par value $.0001 per share, 100 shares of which were issued and outstanding as
of the date of this Agreement and are owned beneficially and of record by
Digital.
4.3 Authorization Relative to this Agreement. Each of Digital and
----------------------------------------
Digital Sub has the requisite 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 and
validly authorized by the Boards of Directors of each of Digital and Digital Sub
and by Digital, as the sole stockholder of Digital Sub, and no other corporate
proceedings on the part of Digital or Digital Sub are necessary to authorize
this Agreement and the transactions contemplated hereby. This Agreement has
been duly executed and delivered by each of Digital and Digital Sub and,
assuming this Agreement constitutes a valid and binding agreement of the other
parties hereto, constitutes a valid and binding obligation of Digital and
Digital Sub, enforceable against Digital and Digital Sub in accordance with its
terms, except to the extent that its enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally or by general equitable principles.
4.4 Absence of Certain Changes or Events. Since June 30, 1996, and
------------------------------------
except as set forth in the SEC Reports, there has not been any material adverse
change in the business, prospects or financial condition of Digital and neither
Digital nor Digital Sub has:
(a) amended or changed its Certificate of Incorporation, Bylaws or
other organizational documents;
(b) agreed to take, whether in writing or otherwise, any action
which, if taken prior to the date hereof, would have made any representation or
warranty in this Article IV untrue or incorrect; or
(c) declared, set aside, made or paid any dividend in respect of its
capital stock or redeemed any of its capital stock.
4.5 Permits. Digital has all material permits and licenses required to
-------
conduct its business as presently being conducted, and all such permits and
licenses are valid and in full force and effect. Other than in connection with
or in compliance with the provisions of the Securities Act, the Exchange Act or
the securities or blue sky laws of the various states and except as disclosed on
Schedule 4.5 hereto, no material notice to, declaration, filing or registration
with or permit or license from, any domestic governmental or regulatory body or
authority, or any other Person, is required to be made or obtained by Digital in
connection with the execution, delivery or performance of this Agreement and the
consummation of the transactions contemplated hereby.
17
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4.6 No Conflict or Violation. Subject in the case of subsections (b),
------------------------
(c) and (e) below to receipt of the licenses and permits contemplated by Section
4.5, neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will result in (a) a violation of or a
conflict with any provision of the Certificates of Incorporation or Bylaws of
Digital or Digital Sub, (b) a breach of, or a default under, any material term
or provision of any material contract, indebtedness, encumbrance, permit or
license to which Digital is a party or is subject or by which any assets of
Digital or Digital Sub are bound, including, without limitation, any such breach
or default which would interfere in any way with its ability to consummate the
transactions contemplated by this Agreement, (c) a material violation by Digital
or Digital Sub of any statute, rule, regulation, ordinance, code, order,
judgment, writ, injunction, decree or award, including any violation which would
interfere with its ability to consummate the transactions contemplated by this
Agreement, (d) the imposition of any material encumbrance, restriction or charge
on the business or assets of Digital or Digital Sub, or (e) give rise to any
right of termination, cancellation or acceleration under any material contract
or other agreement to which Digital or Digital Sub is a party or by or to which
it or any of its material assets or properties may be bound or subject.
4.7 SEC Filings; Digital Financial Statements.
-----------------------------------------
(a) Digital has timely filed all of the SEC Reports. The SEC Reports
(i) were each prepared in accordance with, and at the time of filing complied in
all material respects with, the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations thereunder, and
(ii) did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the SEC Reports has been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto and except
that the quarterly financial statements do not contain all of the footnote
disclosures required to be contained in audited financial statements prepared in
accordance with GAAP), and each presents fairly the consolidated financial
position of Digital at the respective dates thereof and the consolidated results
of operations and changes in cash flows for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount.
4.8 Board Approval. By a vote of the directors present at a meeting of
--------------
the Board of Directors (which meeting was duly called and held and at which a
quorum was present at all times), or by unanimous written consent, the Boards of
Directors of both Digital and Digital Sub approved and adopted this Agreement.
4.9 Validity of Shares Issued to the Shareholders. The shares of Digital
---------------------------------------------
Common Stock to be issued to the Shareholders hereunder will, when issued in
accordance with this Agreement, be duly and validly issued, fully paid and
nonassessable shares free and clear of any
18
<PAGE>
and all encumbrances, and will be issued in compliance with all applicable
federal and state securities laws.
4.10 Liabilities. Except as disclosed in the SEC Reports, Digital does
-----------
not have any material liabilities, obligations or commitments of any nature
(whether absolute, accrued, contingent or otherwise and whether matured or
unmatured), including, without limitation, Tax liabilities due, except (a)
liabilities reflected in, reserved against or disclosed in the footnotes of, its
audited consolidated financial statements for the fiscal year ended December 31,
1995 and its unaudited consolidated financial statements for the quarter ended
June 30, 1996 as filed with the SEC (the "Digital Financial Statements"), (b)
obligations or commitments arising under material contracts, and (c)
liabilities, obligations or commitments incurred since June 30, 1996 in the
ordinary course of Digital's business and consistent with Digital's past
practices. There are no material transactions that have not been properly
recorded in the accounting records underlying the Digital Financial Statements.
There have been no (a) "irregularities" (within the meaning of Statement on
Auditing Standards No. 53) involving management or those employees who have
significant roles in the internal control structure, or (b) irregularities
involving other employees that would have a material effect on the Digital
Financial Statements. There are no material liabilities or gain or loss
contingencies that are required to be accrued or disclosed by Statement of
Financial Accounting Standards No. 5 that have not been accrued or disclosed.
Digital has no plans or intentions that may materially affect the carrying value
or classification of assets and liabilities.
4.11 No Activities. Digital Sub was formed solely to participate in the
-------------
transactions contemplated hereby and has not conducted any operations or
incurred any liabilities or obligations other than in connection with its
formation and the transactions contemplated hereby.
ARTICLE V
COVENANTS OF EACH PARTY
-----------------------
ViComp and the Shareholders and Digital each covenant with the other for
the period from the date hereof through the Effective Date as follows:
5.1 Access to Information. Each of ViComp and Digital shall, upon
---------------------
reasonable notice, afford one another and one another's Representatives,
reasonable access during normal business hours, throughout the period prior to
the earlier of the Effective Date or the Termination Date (as hereinafter
defined), to its personnel, facilities, contracts, commitments, books, computer
software application systems, files and records and to furnish such financial
and operating data and other information with respect to its business, assets
and properties, and shall use its best efforts to cause its Representatives to
furnish promptly to the other party and its Representatives such additional
financial and operating data and other information as to its business and
properties as the other or its duly authorized Representatives may from time to
time reasonably request.
19
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5.2 Notification of Certain Matters. From the date hereof through the
-------------------------------
Effective Date, ViComp and Digital shall each give prompt notice to the other of
(a) the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty contained in
this Agreement or in any exhibit or schedule hereto to be untrue or inaccurate
in any material respect and (b) any material failure of ViComp, or Digital, as
the case may be, or any of their respective Affiliates, shareholders or
Representatives, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it under this Agreement or any exhibit or
schedule hereto; provided, however, that such disclosure shall not be deemed to
cure any breach of a representation, warranty, covenant or agreement or to
satisfy any condition, but each party shall use all reasonable efforts to cure
such failure.
5.3 Public Statements and Press Releases. Except as provided for
------------------------------------
hereinbelow, Digital and ViComp shall not from and after the date hereof make,
issue or release any public announcement, press release, statement or
acknowledgment of the existence of, or reveal publicly the terms, conditions and
status of, the transactions provided for herein, without the prior written
consent of the other party as to the content and time of release of such
statement or announcement; provided, however, that in the case of announcements,
statements, acknowledgments or revelations which any party is required by law to
make, issue or release, the making, issuing or releasing of any such
announcement, statement, acknowledgment or revelation by the party so required
to do so by law shall not constitute a breach of this Agreement if such party
shall have given, to the extent reasonably possible, not less than one calendar
day prior notice to the other party, and shall have attempted, to the extent
reasonably possible, to clear such announcement, statement, acknowledgment or
revelation with the other party. Each party hereto agrees that it will not
unreasonably withhold any such consent or clearance.
5.4 Confidential Information.
------------------------
(a) Preservation of Confidentiality. In connection with the
-------------------------------
negotiation of this Agreement, the preparation for the consummation of the
transactions contemplated hereby, and the performance of obligations hereunder,
each of the parties hereto acknowledges that it will have access to confidential
information relating to the other parties. Each party shall treat such
information as confidential, preserve the confidentiality thereof and not
disclose such information, except to its respective Representatives and
Affiliates in connection with the transactions contemplated hereby. Each party
agrees to maintain in confidence, and not to disclose to any third party, any
ideas, methods, developments, inventions, improvements and business plans and
information which are the confidential information of the other party. If,
however, confidential information is disclosed, the disclosing party shall
immediately notify the other parties in writing and take all reasonable steps
required to prevent further disclosure.
(b) Property Right in Confidential Information. Until the Effective
------------------------------------------
Date or the Termination Date (as hereinafter defined), all confidential
information shall remain the property of the party who originally possessed such
information. In the event of the termination of this Agreement for any reason
whatsoever, ViComp shall return to Digital, and Digital shall
20
<PAGE>
return to ViComp, all documents, work papers and other material (including all
copies thereof) obtained from the other party in connection with the
transactions contemplated hereby and will use all reasonable efforts, including,
without limitation, instructing its employees and others who have had access to
such information, to keep confidential and not to use any such information,
unless such information is now, or is hereafter disclosed, through no act or
omission of such party, in any manner making it available to the general public.
If Digital or any of its Affiliates is required by legal process or by operation
of law to disclose any confidential information in anticipation of a possible
acquisition of ViComp by Digital or any such Affiliate, Digital shall provide
ViComp with written notice of such request at least 48 hours prior to making
such disclosure (or, if it is not practicable to give at least 48 hours' prior
notice, written notice shall be given as promptly as practicable) and, without
any need to obtain the consent of such other parties, shall be entitled to make
such disclosure. If any party is compelled by legal process to disclose any
confidential information, such party shall provide the other parties with prompt
written notice of such request and, without any need to obtain the consent of
such other parties, shall be entitled to make such disclosure.
(c) Termination of Agreement. Subject to the requirements of law,
------------------------
each party hereto and its Affiliates shall, and shall use all reasonable efforts
to cause their Representatives who obtain such information from the other party
to, hold in confidence all such non-public information until such time as such
information is otherwise publicly available, and, if this Agreement is
terminated and if so requested by another party, each party and its Affiliates
shall, and shall use all reasonable efforts to cause their Representatives who
obtain such information to, deliver to such other party all documents, work
papers and other material (including copies of extracts and summaries thereof)
obtained by or on behalf of any of them directly or indirectly as a result of
this Agreement or in connection herewith, whether so obtained before or after
the execution hereof.
(d) Digital Business. Digital develops, manufactures and markets
----------------
digital video compression and decompression hardware and software for
entertainment, business and educational uses (the "Digital Business"). ViComp
is in the business of developing, manufacturing and selling integrated circuits
for use in video CD players of a type manufactured and sold by Digital. The
parties hereto agree and acknowledge that Digital intends to continue developing
its encoding boards and video CD players and that receipt of any confidential
information from ViComp will not prevent Digital from continuing the Digital
Business or from developing, manufacturing or selling integrated circuits or
other components for use in video CD players or other products in the future.
5.5 Rule 144 Reporting. Digital agrees to use its best efforts to:
------------------
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after the Effective Date;
(b) File with the SEC in a timely manner all reports and other
documents required of Digital under the Securities Act and the Exchange Act; and
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(c) So long as any Shareholder owns any Digital Common Stock issued
to such Shareholder pursuant to this Agreement, inform such person upon request
as to its compliance with the reporting requirements of Rule 144 and of the
Securities Act and the Exchange Act, and provide a copy of the most recent
annual or quarterly report of Digital and such other reports and documents so
filed as may reasonably be requested in availing such Shareholder of any rule or
regulation of the SEC allowing a sale of any such securities without
registration.
5.6 Registration Rights. (a) If, at any time during the period ending 24
-------------------
calendar months from the Effective Date, the Company proposes to register shares
of Digital Common Stock under the Securities Act on Forms S-1, S-2, S-3 or SB-2
or any successor or similar forms (except for (i) registrations on such forms
solely for registration of Digital Common Stock in connection with any warrants,
option, employee benefit or dividend reinvestment plan or a merger or
consolidation, (ii) registrations of Digital Common Stock relating to the
exercise of warrants that were included in the units sold in Digital's initial
public offering and (iii) any underwritten public offering for which a
registration statement is filed with the SEC within 90 days of the Effective
Date) in connection with an underwritten public offering, the Shareholders shall
have the right, upon written request, to participate by registering and selling
all or a portion of the Digital Common Stock issued in connection with the
consummation of the Merger. The right of the Shareholders to participate in any
such offering shall be subject to the qualifications and limitations set forth
in the Registration Rights Agreement, including without limitation the right of
the lead underwriter in any such offering to reduce pro rata the number of
--- ----
shares of Digital Common Stock offered by the Shareholders, if in the opinion of
such underwriter the number of such shares proposed to be registered in such
offering would adversely affect its ability to effect such offering. All
expenses of any such offering shall be borne pro rata by all persons, including
--- ----
the Shareholders, registering securities in connection with such offering.
(b) If at any time commencing ten months from the date of the
Company's initial public offering on Form SB-2, the Company shall receive from
holders of at least 50% of the shares of Digital Common Stock held by
Shareholders other than Dr. Edmund Sun, a written request that the Company
effect any registration of Digital Common Stock, the Company will:
(i) promptly give written notice of the proposed registration
to all other Shareholders; and
(ii) file a registration statement (on Form S-3 or any successor
form or on Form S-1 if Form S-3 is not then available) with the SEC within 75
days after the initiating Shareholders request and use its best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as would permit or
facilitate the sale and distribution of such shares of Digital Common Stock as
are specified in such request, together with all Digital Common Stock of any
Shareholders joining in such request as are
22
<PAGE>
specified in a written request received by the Company within 30 days after
receipt of such written notice from the Company;
Provided, however, that the Company shall not be obligated to take any
action to effect any such registration:
A. In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
B. If, at such time as a request for registration pursuant
to Section 3.1 of the Registration Rights Agreement is pending, the Company has
already effected one such registration pursuant to Section 3.1 of the
Registration Rights Agreement, and such registration has been declared or
ordered effective; or
C. During the period starting with the date 60 days prior
to the filing of, and ending on a date three months following the effective date
of, a registration statement (other than with respect to a registration
statement relating to a Rule 145 transaction, an offering solely to employees or
any other registration which is not appropriate for the registration of Digital
Common Stock held by Shareholders).
5.7 Termination of Stock Option Plan Prior to Effective Date.
--------------------------------------------------------
(a) Prior to the Effective Date, all outstanding options to purchase
any common stock or other securities of ViComp (whether vested or unvested) and
any agreements under which ViComp would be obligated to grant options to
purchase any securities of ViComp will be cancelled. Concurrently with the
Closing, Digital will grant to each of the Shareholders listed on Exhibit A the
number of options to purchase shares of Digital Common Stock shown opposite
their respective names on Exhibit A (the "Shareholder Digital Options"). The
Shareholder Digital Options will have an exercise price equal to the closing
price of the Digital Common Stock on the Nasdaq National Market on the Effective
Date and will vest in accordance with the customary vesting schedule prescribed
for options granted to Digital employees under Digital's 1993 Stock Option Plan.
The options will be exercisable for a period of 10 years from the date of grant.
The Shareholder Digital Options will be granted as part of a new Digital
employee option plan (the "Digital 1996 Option Plan"), which will be adopted by
Digital's Board of Directors prior to the Closing and will be submitted to the
shareholders of Digital for approval within twelve months following such
adoption, and no Shareholder Digital Options will be exercisable until such
shareholder approval is obtained. The Digital 1996 Option Plan will have
vesting, forfeiture and payment provisions substantially identical to those
contained in Digital's 1993 Stock Option Plan. Digital will reserve under the
Digital 1996 Option Plan a total of 250,000 options for future grants to the
Shareholders or any new employees hired by Digital to work on the ViComp chip
project, with any such grants and the terms and conditions thereof, to be at the
sole and absolute discretion of Digital's Board of Directors or the committee
thereof responsible for administering the Digital 1996 Option Plan.
23
<PAGE>
(b) ViComp agrees that its employee benefit plans, programs and
arrangements (in addition to those for non-employee directors), and if required
by such plans, programs and arrangements, any agreements entered thereunder and
awards and options granted thereunder, shall be terminated, to the extent
necessary or appropriate, to reflect the transactions contemplated by this
Agreement.
5.8 Invention, Non-Disclosure and Non-Competition Agreements. At or
--------------------------------------------------------
prior to the Effective Date, each of James W. Kirkpatrick, Jr., Michael Mruzik
and Mihailo Stojancic shall have executed an invention, non-disclosure and non-
competition agreement (the "Invention, Non-Disclosure and Non-Compete
Agreements") in favor of Digital, in substantially the form attached hereto as
Exhibit J.
5.9 Sun Escrow Agreement. At the Effective Date, Dr. Edmund Sun shall
--------------------
have executed the Escrow Agreement and 140,760 of the shares of Digital Common
Stock issued to Dr. Sun in connection with the consummation of the Merger shall
be placed in the Sun Escrow.
5.10 Shareholder Escrow Agreement. At the Effective Date, each
----------------------------
Shareholder, other than Dr. Edmund Sun, shall have executed a Shareholder Escrow
Agreement and 10% of the shares of Digital Common Stock issued to such
Shareholder in connection with the consummation of the Merger shall be placed in
the Shareholder Escrow.
ARTICLE VI
ADDITIONAL COVENANTS OF VICOMP AND THE SHAREHOLDERS
---------------------------------------------------
6.1 Conduct of Business. From the date hereof through the Effective Date
-------------------
or the date, if any, on which this Agreement is earlier terminated pursuant to
Section 10.1 (the "Termination Date"), except as contemplated or as may be
required by this Agreement, or as set forth on Schedule 6.1, or as consented to
by Digital in writing, ViComp shall diligently carry on its business and in the
ordinary course only, and will use its best efforts to preserve its present
business organization intact and to keep available the services of its present
officers, agents or employees with (nothing herein implying an obligation of
ViComp to maintain or retain any specific officer, agent or employee), and
preserve its present relationships with customers and other Persons having
business dealings with it, and will not take any action inconsistent with this
Agreement or with the consummation of the transactions contemplated hereby.
Without limiting the generality of the foregoing, ViComp shall not, except as
specifically contemplated by this Agreement:
(a) change or amend its Certificate of Incorporation or Bylaws;
(b) enter into, extend, modify, terminate or renew any (i) material
contract, except in the ordinary course of business, or (ii) any contract
involving $10,000 or more;
(c) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any material assets, or any interests therein;
24
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(d) incur any obligations or liability for long-term interest
bearing indebtedness, or incur any other obligation or liability of $10,000 or
more except in the ordinary course of business, or any obligations or liability
of $10,000 or more;
(e) (i) take any action with respect to the grant of any bonus,
severance or termination pay (otherwise than pursuant to policies or agreements
of ViComp in effect on the date hereof that are described on the Disclosure
Schedule) or with respect to any increase of benefits payable under its
severance or termination pay policies or agreements in effect as of August 31,
1996 or increase in any manner the compensation or fringe benefits of any
employee or pay any benefit not required by any existing ViComp Employee Plan or
policy;
(ii) make any change in the key management structure of ViComp,
including, without limitation, the hiring of additional officers or the
termination without cause of existing officers;
(iii) adopt, enter into or amend any ViComp Employee Plan,
agreement (including, without limitation, any collective bargaining or
employment agreement), trust, fund or other arrangement for the benefit or
welfare of any employee;
(f) acquire by merger or consolidation with, or merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire any
material assets or business of any corporation, partnership, association or
other business organization or division thereof;
(g) declare, set aside, make or pay any dividend or other
distribution in respect of ViComp's capital stock;
(h) fail to expend funds for budgeted capital expenditures or
commitments;
(i) willingly allow or permit to be done, any act by which any of
ViComp's insurance policies may be suspended, impaired or canceled;
(j) fail to pay its accounts payable and any debts owed or
obligations due to it, or pay or discharge when due any liabilities, in the
ordinary course of business;
(k) enter into, renew, modify or revise any agreement or transaction
with any of its Affiliates;
(l) fail to maintain any assets in substantially their current state
of repair, excepting normal wear and tear or failure to replace consistent with
ViComp's past practice inoperable, worn-out or obsolete or destroyed assets;
(m) make any loans or advances to any partnership, firm, corporation,
officer, director or Affiliate, or, except for expenses incurred in the ordinary
course of business, any individual who is not an officer, director or Affiliate;
25
<PAGE>
(n) make any material income tax election or settlement or compromise
with tax authorities;
(o) fail to comply in any material respect with all laws applicable
to it;
(p) intentionally do any other act which would cause any
representation or warranty of ViComp in this Agreement to be or become untrue in
any material respect;
(q) issue any shares of ViComp Common Stock, any shares of ViComp
Preferred Stock or any other equity interest in ViComp, or any options,
warrants, rights or other securities convertible into, or exercisable or
exchangeable for, ViComp Common Stock, ViComp Preferred Stock or other equity
interest in ViComp; or
(r) enter into any agreement, arrangement or understanding or
otherwise become obligated, to do any action prohibited hereunder.
6.2 No Solicitation. Prior to the Effective Date (or the earlier
---------------
termination of this Agreement in accordance with its terms), neither ViComp nor
any of its Affiliates, nor any of their respective Representatives, shall
directly or indirectly, solicit or initiate any discussions, submissions of
proposals or offers or negotiations with, or, subject to any fiduciary
obligations under applicable law after taking into account the advice of counsel
with respect thereto, participate in any negotiations or discussions with, or
provide any information or data of any nature whatsoever to, or otherwise
cooperate in any other way with, or assist or participate in, facilitate or
encourage any effort or attempt by, any Person, other than Digital and its
Representatives and Affiliates, concerning any Alternative Transaction with
respect to ViComp. ViComp shall promptly notify Digital if any proposal, offer,
inquiry or other contact is received by, any information is requested from, or
any discussions or negotiations are sought to be initiated or continued with,
ViComp in respect of an Alternative Transaction, and shall, in any such notice
to Digital, indicate the identity of the offeror and the terms and conditions of
any proposals or offers or the nature of any inquiries or contacts, and
thereafter shall keep Digital informed, on a current basis, of the status and
terms of any such proposals or offers and the status of any such discussions or
negotiations. ViComp shall not release any third party from, or waive any
provision of, any confidentiality or standstill agreement to which ViComp is a
party.
6.3 Delivery of ViComp Common Stock and ViComp Preferred Stock. ViComp
----------------------------------------------------------
and the Shareholders shall deliver to Digital stock certificates representing
all issued and outstanding capital stock of ViComp at or prior to the Effective
Date.
ARTICLE VII
ADDITIONAL COVENANTS OF DIGITAL
-------------------------------
7.1 Conduct of Business. From the date hereof through the Effective Date
-------------------
or the Termination Date, except as contemplated or as may be required by this
Agreement, or as set
26
<PAGE>
forth on Schedule 7.1, or as consented to by ViComp, Digital shall diligently
carry on its business in the ordinary course, and will use its best efforts to
preserve its present business organization intact and to keep available the
services of its present officers, agents or employees (nothing herein implying
an obligation of Digital to maintain or retain any specific officer, agent or
employee), and preserve its present relationships with Persons having business
dealings with it, and will not take any action inconsistent with this Agreement
or with the consummation of the transactions contemplated hereby.
7.2 Federal Income Tax Treatment. It is intended that the Merger qualify
----------------------------
as a "reorganization" under Sections 368(a)(1)(A) and (a)(2)(E) of the Code.
Digital and Digital Sub shall (and, following the Effective Date, Digital shall
cause ViComp to) take no action with respect to the capital stock, assets or
liabilities of ViComp (including the filing of any tax return) that would cause
the Merger to fail to qualify as a "reorganization" as so defined. Without
limiting the generality of the foregoing, following the Effective Date, Digital
shall cause ViComp to either continue the historic business of ViComp or to use
a significant portion of ViComp's historic business assets in a business.
7.3 Digital Common Stock in Escrow. Unless and until (and then only to
------------------------------
the extent of) any of the shares of Digital Common Stock held in the Sun Escrow
and the Shareholder Escrow pursuant to Section 2.13 of this Agreement are used
to satisfy an indemnity obligation pursuant to the Sun Escrow Agreement or the
Shareholder Escrow Agreement, (i) Digital will include on its balance sheet as
issued and outstanding shares of Digital Common Stock, and will treat the
Shareholders as the owners of, all the shares of Digital Common Stock to be held
in the Sun Escrow and the Shareholder Escrow, and (ii) each Shareholder shall be
entitled to exercise the voting rights of the shares of Digital Common Stock
held in escrow and attributable to him. If Digital pays any dividend to its
shareholders while any shares of Digital Common Stock are still in the Sun
Escrow or the Shareholder Escrow, (i) such dividends paid with respect to shares
of Digital Common Stock held in escrow shall be distributed currently to the
Shareholder with respect to which the escrowed shares were issued, and (ii)
Digital shall file a Form 1099 with respect to such dividend for each
Shareholder to whom such dividend is paid. Digital will not, for tax purposes,
take the position that there is original issue discount or imputed interest with
respect to the subsequent release from the Sun Escrow or the Shareholder Escrow
to the persons entitled thereto of shares of Digital Common Stock initially held
in escrow.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF VICOMP
---------------------------------------
AND THE SHAREHOLDERS
--------------------
The obligations of ViComp and the Shareholders to consummate the
transactions provided for hereby are subject, in the sole discretion of ViComp,
to the satisfaction, at or prior to the Effective Date, of each of the following
conditions, any of which may be waived by ViComp:
27
<PAGE>
8.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Digital contained in this Agreement shall be true and correct at
and as of the date of this Agreement and at and as of the Effective Date as if
such representations and warranties were made at and as of the Effective Date,
and Digital and Digital Sub shall have performed all agreements and covenants
required hereby to be performed by it prior to or at the Closing.
8.2 Permits. All material permits and licenses, waivers and approvals
-------
from governmental authorities and other parties necessary to permit Digital and
Digital Sub to consummate the transactions contemplated hereby shall have been
obtained.
8.3 Opinion of Counsel. Digital and Digital Sub shall have delivered to
------------------
ViComp an opinion of Troy & Gould Professional Corporation, counsel to Digital
and Digital Sub, in substantially the form attached hereto as Exhibit L.
8.4 Certificates. Digital and Digital Sub will furnish ViComp with such
------------
certificates of its officers and others to evidence compliance with the
conditions set forth in this Article VIII as may be reasonably requested by
ViComp, including a certificate to the effect that all representations and
warranties of Digital and Digital Sub contained in this Agreement are true and
correct in all material respects at and as of the date of this Agreement and at
and as of the Effective Date as if such representations and warranties were made
at and as of the Effective Date, and Digital and Digital Sub shall have
performed in all material respects all agreements and covenants required hereby
to be performed by it prior to or at the Effective Date, which certificate may
include a statement of exceptions listing additional disclosure items not
included in the Disclosure Schedule, which statement shall be delivered to
ViComp at least three business days prior to the Effective Date. Except as
specifically provided in Article XI, such statement of exceptions shall not
modify the representations and warranties for purposes of this Agreement,
including for purposes of Section 8.1.
8.5 No Governmental Actions. No governmental action or proceeding shall
-----------------------
have been commenced or threatened seeking any injunction, restraining or other
order which seeks to prohibit, restrain, invalidate or set aside the
effectuation of the Merger and no order, statute, rule, regulation, executive
order, stay, decree, judgment or injunction shall have been enacted, entered,
issued, promulgated or enforced by any court or governmental authority which
prohibits or restricts the effectuation of the Merger.
8.6 No Material Adverse Change. Since June 30, 1996, there shall not
--------------------------
have occurred any change in the business, financial condition or prospects of
Digital, except for changes contemplated hereby or changes which have not,
individually or in the aggregate, had a material adverse effect on the business,
financial condition or prospects of Digital.
8.7 Corporate Resolutions. ViComp shall have received from Digital and
---------------------
Digital Sub certified resolutions adopted by the Boards of Directors of Digital
and Digital Sub approving this Agreement and the transactions contemplated
hereby.
28
<PAGE>
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF DIGITAL AND DIGITAL SUB
--------------------------------------------------------
The obligations of Digital and Digital Sub to consummate the transactions
provided for hereby are subject, in the sole discretion of Digital and Digital
Sub, to the satisfaction, at or prior to the Effective Date, of each of the
following conditions, any of which may be waived by Digital:
9.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of ViComp and the Shareholders contained in this Agreement shall be
true and correct at and as of the date of this Agreement, and at and as of the
Effective Date as if such representations and warranties were made at and as of
the Effective Date, and ViComp and the Shareholders shall have performed all
agreements and covenants required hereby to be performed by them prior to or at
the Effective Date.
9.2 Permits. All permits and licenses, waivers and approvals from
-------
governmental authorities and other parties, necessary to permit ViComp and the
Shareholders to consummate the transactions contemplated hereby shall have been
obtained.
9.3 Opinion of Counsel. ViComp shall have delivered to Digital an
------------------
opinion of Heller Ehrman White & McAulliffe, counsel to ViComp and the
Shareholders, in substantially the form attached hereto as Exhibit M.
9.4 Certificates. ViComp will furnish Digital with such certificates of
------------
its officers and others to evidence compliance with the conditions set forth in
this Article IX as may be reasonably requested by Digital, including a
certificate to the effect that all representations and warranties of ViComp and
the Shareholders contained in this Agreement are true and correct in all
material respects at and as of the date of this Agreement and at and as of the
Effective Date as if such representations and warranties were made at and as of
the Effective Date, and ViComp and the Shareholders shall have performed in all
material respects all agreements and covenants required hereby to be performed
by it prior to or at the Effective Date, which certificate may include a
statement of exceptions listing additional disclosure items, which statement
shall be delivered to Digital at least two business days prior to the Effective
Date. Except as specifically provided in Article XI, such statement of
exceptions shall not modify the representations and warranties for purposes of
this Agreement, including for purposes of Section 9.1.
9.5 No Governmental Actions. No governmental action or proceeding shall
-----------------------
have been commenced or threatened seeking any injunction, restraining or other
order which seeks to prohibit, restrain, invalidate or set aside the
effectuation of the Merger and no order, statute, rule, regulation, executive
order, stay, decree, judgment or injunction shall have been enacted, entered,
issued, promulgated or enforced by any court or governmental authority which
prohibits or restricts the effectuation of the Merger.
9.6 No Material Adverse Change. Since August 31, 1996, there shall not
--------------------------
have occurred any change in the business, prospects or financial condition of
ViComp, except for
29
<PAGE>
changes contemplated hereby or changes which could not be expected to have a
material adverse effect upon the business, prospects or financial condition of
ViComp.
9.7 Corporate Resolutions. Digital shall have received from ViComp
---------------------
certified resolutions adopted by the Board of Directors of ViComp approving this
Agreement and the transactions contemplated hereby.
9.8 Covenant Not to Compete; etc. The Invention, Non-Disclosure and Non-
-----------------------------
Compete Agreements shall have been duly executed and delivered and have not been
revoked, rescinded or modified.
9.9 Delivery of Stock Certificates. Stock certificates representing all
------------------------------
of the issued and outstanding capital stock of ViComp shall have been delivered
to Digital.
9.10 Escrow Agreements. The Sun Escrow Agreement and the Shareholder
-----------------
Escrow Agreement shall have been duly executed and delivered and have not been
revoked, rescinded or modified.
ARTICLE X
TERMINATION, AMENDMENTS, WAIVERS AND POST-CLOSING COVENANTS
-----------------------------------------------------------
10.1 Termination.
-----------
(a) Termination. Notwithstanding any prior approval by the
-----------
Shareholders, this Agreement and the Merger and other transactions contemplated
hereby may be terminated at any time prior to the Effective Date:
(i) By mutual written consent of the Boards of Directors of
ViComp and Digital;
(ii) By either ViComp or Digital, if the Closing shall not have
occurred on or before October 30, 1996; provided however, that this provision
shall not be available to ViComp if Digital has the right to terminate this
Agreement under clause (iv) of this Section 10.1, and this provision shall not
be available to Digital if ViComp has the right to terminate this Agreement
under clause (iii) of this Section 10.1;
(iii) By ViComp, if there is a breach of any representation or
warranty set forth in Article IV hereof or any covenant or agreement to be
complied with or performed by Digital pursuant to the terms of this Agreement or
an occurrence of any event which results or would result in the failure of a
condition set forth in Article VIII to be satisfied at or prior to the Effective
Date; or
(iv) By Digital, if there is a breach of any representation or
warranty set forth in Article III hereof or of any covenant or agreement to be
complied with or performed
30
<PAGE>
by ViComp or the Shareholders pursuant to the terms of this Agreement or the
occurrence of any event which results or would result in the failure of a
condition set forth in Article IX to be satisfied at or prior to the Effective
Date.
(b) Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 10.1, this Agreement shall forthwith become
void and no party hereto shall have any liability or further obligation to any
other party hereto under or by reason of this Agreement or the transactions
contemplated hereby, except for any breach of this Agreement occurring prior to
or as a result of termination of this Agreement, and except that:
(i) Each party shall redeliver all documents, work papers and
other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the party
furnishing the same; and
(ii) The provisions of Sections 5.4 and 12.6 shall continue in
full force and effect.
The foregoing provisions shall not limit or restrict the availability of
specific performance or other injunctive relief to the extent that specific
performance or such other relief would otherwise be available to a party
hereunder.
10.2 Amendments. This Agreement may not be amended except by action of
----------
each of the parties hereto set forth in an instrument in writing signed by or on
behalf of each of the parties hereto.
10.3 Waivers. At any time prior to the Effective Date, any party hereto
-------
may (i) extend the time for the performance of any of the obligations or other
acts of any other party hereto, (ii) waive any inaccuracies in the
representations and warranties of any other party contained herein or in any
document delivered pursuant hereto, or (iii) waive compliance with any of the
agreements of any other party or with any conditions to its own obligations.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party by a duly authorized officer. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
ARTICLE XI
INDEMNIFICATION; SURVIVAL
-------------------------
11.1 Survival of Representations, Etc. The representations, warranties,
--------------------------------
covenants and agreements of ViComp and each Shareholder contained herein and the
indemnification by ViComp and the Shareholders under Section 11.2 with respect
thereto, shall survive the Effective Date until the earlier of June 30, 1998 or
the date that Digital files its Form 10-K for the year ending March 31, 1998
with the Securities and Exchange Commission, except for Section 3.16
31
<PAGE>
(Tax Matters) which shall survive the Effective Date for five years. For
purposes of this Article XI, "representations" and "warranties" of ViComp and
each Shareholder shall mean collectively those representations and warranties of
ViComp and each Shareholder set forth in Article III, the Schedules referenced
therein and additional disclosure items, if any, included in or attached to the
certificate delivered pursuant to Section 9.4, and "representations" and
"warranties" of Digital shall mean collectively those representations and
warranties of Digital set forth in Article IV, the Schedules referenced therein
and additional disclosure items, if any, included in or attached to the
certificate delivered pursuant to Section 8.4.
11.2 Indemnification by ViComp and the Shareholders. Subject to, and in
----------------------------------------------
the manner described in, this Article XI, (i) ViComp and Dr. Edmund Sun, jointly
and severally and (ii) each other Shareholder severally, shall indemnify and
hold harmless Digital, Digital Sub and their Representatives and Affiliates (the
"Digital Indemnified Parties") to the fullest extent lawful, from and against
any and all losses, damages, diminution in value, claims, liabilities, actions
and expenses (including, without limitation, costs of investigating, preparing
or defending any such claim or action and reasonable legal fees and expenses),
net of any amounts actually received under any insurance policy as a result of
such loss, damage, diminution in value, claim, liability, action, or expense
(collectively "Losses") arising out of or in connection with the breach of any
representation, warranty (each as defined in Section 11.1), covenant or
agreement of ViComp or any Shareholder contained in this Agreement; provided,
--------
that the liability of each Shareholder (other than Dr. Edmund Sun) shall, except
in the case of fraud, be subject to the limitations set forth in the preamble to
Article III. The term "Losses" as used in this Section 11.2 is not limited to
matters asserted by third parties against an Digital Indemnified Party, but
includes Losses incurred or sustained by an Digital Indemnified Party in the
absence of third party claims.
11.3 Indemnification by Digital. Subject to, and in the manner described
--------------------------
in, this Article XI, for a period of two years from the Effective Date, Digital
shall indemnify and hold harmless ViComp and the Shareholders and their
respective Representatives and Affiliates (the "ViComp Indemnified Parties") to
the fullest extent lawful, from and against any and all losses, damages,
diminution in value, claims, liabilities, actions and expenses (including
without limitation, costs of investigating, preparing or defending any such
claim or action and reasonable legal fees and expenses) net of amounts actually
received under any insurance policy (collectively "Losses") arising out of or in
connection with the breach of any representation, warranty, covenant or
agreement of Digital, except for tax matters covered by Sections 7.2 and 7.3
for which Digital shall indemnify the ViComp Indemnified Parties for a period of
five years from the Effective Date. The term "Losses" as used in this Section
11.3 is not limited to matters asserted by third parties against an ViComp
Indemnified Party, but includes Losses incurred or sustained by an ViComp
Indemnified Party in the absence of third party claims.
11.4 Basket. Digital and Digital Sub shall be indemnified by ViComp and
------
the Shareholders, and ViComp and the Shareholders shall be indemnified by
Digital, in each case in the event that the aggregate of all Losses, determined
without regard to whether any particular loss was material or not, exceeds
$50,000 (the "Basket Amount").
32
<PAGE>
11.5 Indemnification Procedure.
-------------------------
(a) If a third party asserts a claim against any indemnified party
for which indemnification would be available under this Article XI (a "Claim"),
the indemnified party shall promptly give notice of such Claim, describing such
Claim with reasonable specificity, to the indemnifying party. If the amount of
the Claim exceeds, or the aggregate amount of Losses incurred prior to such date
have exceeded, the Basket Amount, the indemnifying party shall be entitled to
assume the defense of such Claim, including the employment of counsel reasonably
satisfactory to the indemnified party; provided, however, that if the
indemnified party reasonably determines in good faith that its interests with
respect to such Claim cannot appropriately be represented by the indemnifying
party, such indemnified party shall have the right to assume control of the
defense of such Claim and to have its expenses reimbursed promptly with respect
to such Claim to the extent entitled thereto. In addition, in the event that
such indemnifying party, within a reasonable time after notice that any such
Claim or the total Losses incurred exceeds the Basket Amount, fails to defend
any indemnified party, such indemnified party will (upon further notice to such
indemnifying party) have the right to undertake its defense of such Claim for
the account of such indemnifying party and to have its expenses reimbursed
promptly with respect to such Claim to the extent entitled thereto. Regardless
of which party is controlling the defense of any Claim, (i) both the
indemnifying party and the indemnified party shall act in good faith; (ii) no
settlement of such Claim may be agreed to without the written consent of the
indemnifying party, which consent shall not be unreasonably withheld; and (iii)
no part of any Claim shall be paid without such consent or unless a final
judgment from which no appeal may be taken is entered on such Claim against the
indemnified party, and then only to the extent the aggregate of all Losses
exceeds the Basket Amount. The controlling party shall deliver, or cause to be
delivered, to the other party copies of all correspondence, pleadings, motions,
briefs, appeals or other written statements relating to or submitted in
connection with the defense of any such Claim, and timely notices of any hearing
or other court proceeding relating to such Claim.
(b) In the absence of a third party Claim, if any party shall have a
claim that another is liable for Losses, the party seeking indemnification shall
provide notice within 90 days of the discovery of the Loss of the nature and
extent thereof (with a copy to the Escrow Agent if applicable), and the other
party shall within 90 days thereafter repay such Losses to the extent the Losses
exceed the Basket Amount (or, if applicable, instruct the Escrow Agent to make
payment or release shares) or shall inform the party seeking indemnification
that it is denying in good faith all or a portion of such Claim. If the party
seeking indemnification disputes the denial of such Claim, it may thereupon
proceed to enforce its rights under this Agreement.
ARTICLE XII
GENERAL PROVISIONS
------------------
12.1 ViComp Shareholder Representative.
---------------------------------
(a) From and after the date hereof, each Shareholder by executing
this Agreement irrevocably appoints James W. Kirkpatrick, Jr., (the "ViComp
Shareholder
33
<PAGE>
Representative"), his or her agent and attorney-in-fact, with full and exclusive
power and authority to act in such Shareholder's name, place and stead with
respect to all matters relating to this Agreement and the transactions
contemplated hereby, including, without limitation:
(i) To modify and amend, execute and acknowledge and deliver to
Digital and Digital Sub such modifications and amendments to the Agreement
as he shall approve, the approval of such amendments and modifications by
the ViComp Shareholder Representative and all of the terms and conditions
thereof to be conclusively evidenced by the execution and delivery of such
amendments and modifications by such ViComp Shareholder Representative.
(ii) To complete, modify, amend, execute, acknowledge and deliver
all instruments, documents, certificates and instructions as the ViComp
Shareholder Representative deems necessary in order to effect the
transactions contemplated by this Agreement.
(iii) To retain legal counsel in connection with all matters and
things set forth or necessary herein.
(iv) To ask, demand, sue for, levy, recover and receive all sums of
money, debts, dues and other demands whatsoever which may be due, owing and
payable to such Shareholder under the terms of this Agreement.
(v) To negotiate, defend and settle all claims asserted by, and to
resolve all disputes with, Digital or Digital Sub in connection with this
Agreement and the transactions contemplated hereby or to promise on behalf
of the Shareholders to make payment of any amounts due to Digital or
Digital Sub.
(vi) To receive all notices under this Agreement and any agreement
in connection with the transactions contemplated by this Agreement.
(vii) To make any other decision or election or take any other action
on behalf of such Shareholder relating to the subject matter of this
Agreement and the transactions contemplated hereby.
(b) This appointment is coupled with an interest and is irrevocable
until such time as all claims asserted by, and disputes with, Digital or Digital
Sub have been finally satisfied, waived or otherwise resolved, except that (i)
if James W. Kirkpatrick, Jr. shall be incapacitated, Lish Chen shall act as a
ViComp Shareholder Representative and (ii) a successor or successors may be
appointed by written instrument signed by at least two-thirds of the
Shareholders and delivered to Digital, provided such successor is an Shareholder
and is approved by Digital. Any and all action taken hereunder by the ViComp
Shareholder Representatives, acting jointly, shall be binding on each
Shareholder.
34
<PAGE>
(c) Each Shareholder agrees to hold the ViComp Shareholder
Representative, and Digital, free and harmless from any and all loss, cost,
claim, expense, damage or liability which he, she, or it may incur or sustain as
a result of any action taken by the ViComp Shareholder Representative in good
faith pursuant to the ViComp Shareholder Representative's appointment as agent
and attorney-in-fact.
12.2 Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by any party without the prior written
consent of the other parties. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, and no other Person shall have any right,
benefit or obligation under this Agreement as a third party beneficiary or
otherwise.
12.3 Notices. All notices, requests, demands and other communications
-------
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., Federal Express) and
----
upon receipt, if sent by certified or registered mail, return receipt requested.
In each case notice shall be sent:
If to ViComp or the Shareholders, addressed to:
ViComp Technology, Inc.
Paulsen Office Park Building
4020 Moorpark Avenue
Suite 116, 1st Floor
San Jose, California 95117
Fax:
Attn: James W. Kirkpatrick, Jr.
With a copy to:
Heller Ehrman White & McAulliffe
525 University Avenue
Palo Alto, California 94301-1900
Fax: (415) 324-0638
Attn: Matthew P. Quilter, Esq.
If to Digital or Digital Sub, addressed to:
Digital Video Systems, Inc.
2710 Walsh Avenue
Santa Clara, CA 95051
Fax: (408) 727-1888
Attn: Robert B. Pfannkuch
35
<PAGE>
With a copy to:
Troy & Gould Professional Corporation
1801 Century Park East, 16th Floor
Los Angeles, California 90067-2367
Fax: (310) 201-4746
Attn: Sanford J. Hillsberg, Esq.
or to such other place and with such other copies as each party hereto may
designate as to itself by written notice to the other parties hereto.
12.4 Governing Law. This Agreement shall be governed by, and construed,
-------------
interpreted and the rights of the parties determined in accordance with the laws
of the State of California without regard to choice of law principles thereof.
12.5 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 and the same instrument.
12.6 Expenses. Each party hereto shall pay its own legal, accounting,
--------
out-of-pocket and other expenses incident to this Agreement and to any action
taken by such party in preparation for carrying this Agreement and the
transactions contemplated hereby into effect.
12.7 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
12.8 Titles. The titles, captions or headings of the Articles and
------
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
12.9 Cumulative Remedies. All rights and remedies of either party hereto
-------------------
are cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
12.10 Entire Agreement. This Agreement, together with all exhibits and
----------------
schedules hereto and thereto (including the Disclosure Schedule), constitutes
the entire agreement among the parties pertaining to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties hereto.
36
<PAGE>
12.11 Attorneys' Fees. In the event of any legal action or proceeding to
---------------
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees, whether or not the proceeding results in
a final judgment.
12.12 Waiver of Right to Trial by Jury. Each party to this Agreement
--------------------------------
hereby waives its rights to a trial by jury.
12.13 ViComp and Shareholders Represented by Counsel. Each of ViComp and
----------------------------------------------
the Shareholders party hereto acknowledges that it was represented by counsel in
connection with the negotiation, execution and delivery of this Agreement and
consummation of the Merger and the transactions contemplated hereby and thereby,
and that such party, together with its counsel and other advisers, if any, made
its own independent evaluation of this Agreement, the Merger and the
transactions contemplated hereby and thereby without reliance on Digital, its
officers, directors, employees, agents or counsel.
12.14 Each Party Represented by Counsel. Each of the parties hereto
---------------------------------
acknowledges that it was represented by counsel, or has had the opportunity to
be represented by counsel, in connection with the negotiation, entering into and
consummation of the Merger and the other transactions contemplated by this
Agreement, and that such party, together with its counsel and other advisers, if
any, made its own independent evaluation of the Merger and the other
transactions contemplated by this Agreement without reliance on Digital, its
officers, directors, employees, agents or counsel.
12.15 Arbitration. In the event that the Shareholders and Digital are
-----------
unable to resolve any dispute with respect to any amount owed pursuant to
Article XI, such dispute shall be submitted to binding arbitration in accordance
with the rules of the American Arbitration Association, with such arbitration to
be held in San Jose, California. The results, determination, finding, judgment
or award rendered through such arbitration shall be final and binding on each of
the parties thereto and not subject to appeal or review.
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date and year first above written.
DIGITAL VIDEO SYSTEMS, INC.
By:_________________________
Name:
Title:
DIGITAL VIDEO ACQUISITION CO.
By:
---------------------------
Name:
Title:
VICOMP TECHNOLOGY, INC.
By:
---------------------------
Name:
Title:
SHAREHOLDERS:
------------------------------
Dr. Edmund Sun
------------------------------
James W. Kirkpatrick, Jr.
------------------------------
Lish Chen
38
<PAGE>
------------------------------
Michael Mruzik
------------------------------
Mihailo Stojancic
------------------------------
Tai Sato
------------------------------
Francis Hung
39
<PAGE>
EXHIBIT 4.1
ESCROW AGREEMENT
AGREEMENT, dated as of October 17, 1996, by and between Digital Video
Systems, Inc., a Delaware corporation (the "Company") and Dr. Edmund Sun ("Dr.
Sun"). Capitalized terms used herein and not otherwise defined shall have the
meanings given to such terms in the Agreement and Plan of Merger, dated as of
October 17, 1996 by and among the Company, Digital Video Acquisition Co.
("Digital Sub"), ViComp Technology, Inc. ("ViComp"), and the shareholders of
ViComp listed in Exhibit A thereto (the "Merger Agreement").
W I T N E S S E T H
-------------------
WHEREAS, the Company wishes to acquire all of the outstanding capital stock
of ViComp by merging Digital Sub with and into ViComp, with ViComp as the
surviving corporation, in a transaction intended to qualify as a reorganization
within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986,
as amended (the "Merger");
WHEREAS, Dr. Sun owns beneficially and of record 3,000,000 shares of ViComp
Series A preferred stock ("ViComp Preferred Stock");
WHEREAS, ViComp is currently developing an MPEG-I standard integrated
circuit for use in video CD players of the type made by the Company (the "ViComp
Chip");
WHEREAS, the acquisition of ViComp by the Company is based in substantial
part on the representation by ViComp that the ViComp Chip will be ready for
commercial manufacture no later than July 1, 1997; and
WHEREAS, the value of the ViComp Chip to the Company will be dependent in
substantial part upon the Company's ability to purchase this chip in commercial
quantities at a price significantly below the cost for the Company to purchase
other chips that are functionally substantially equivalent to the ViComp Chip
from other manufacturers.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Company and Dr. Sun agree as
follows:
1. Appointment of Escrow Agent; Delivery of Escrow Securities. The
----------------------------------------------------------
Company and Dr. Sun hereby agree that the Company will serve as the escrow agent
for purposes of this Agreement (the Company in this capacity and any successor
escrow agent being hereinafter referred to as the "Escrow Agent"). Dr. Sun
agrees that he will deliver to the Escrow Agent at the Closing to hold in
accordance with the provisions hereof, certificates representing 140,760 of the
shares of the Company's common stock issued to Dr. Sun pursuant to the Merger
(the "Escrow Securities"), together with a stock power executed in blank.
<PAGE>
2. Effectiveness of Agreement. This Agreement shall become effective
--------------------------
upon the Closing Date and shall continue in effect until the distribution by the
Escrow Agent of all of the Escrow Securities in accordance with the terms hereof
(the "Termination Date"). The period of time from the Closing Date until the
Termination Date is referred to herein as the "Escrow Period."
3. Escrow Property. During the Escrow Period, the Escrow Agent shall
---------------
receive all of the money, securities, rights or property distributed in respect
of the Escrow Securities then held in escrow, including any such property
distributed pursuant to any stock split, merger, recapitalization, dissolution,
or total or partial liquidation of the Company, such property to be held and
distributed as herein provided and hereinafter referred to collectively as the
"Escrow Property." Dividends distributed with respect to the Escrow Property
shall be promptly paid to Dr. Sun.
4. Escrow Conditions.
-----------------
The Escrow Securities shall be forfeited and cancelled in the event that
the ViComp Chip does not meet each and every one of the following performance
conditions (the "Performance Standards"):
(a) The ViComp Chip is capable of being manufactured in commercial
quantities by no later than July 1, 1997;
(b) The Company's cost to purchase fully manufactured ViComp Chips in
commercial quantities from qualified third party manufacturers will not exceed
$10.00 per chip; and
(c) The Chip Cost will be at least $3.00 per chip less than the cost
for the Company to purchase the lowest-priced chips that are functionally
substantially equivalent to the ViComp Chip available from other manufacturers
at the time the ViComp Chip is ready for commercial manufacture.
All Escrow Securities, together with stock powers executed in blank, and
the related Escrow Property shall be delivered to Dr. Sun by the Escrow Agent
immediately following the conclusive determination of the satisfaction of the
Performance Standards.
5. Notice to Escrow Agent. Upon the occurrence of satisfaction of any of
----------------------
the events or conditions specified in paragraph 4, the Company shall promptly
give appropriate notice to the Escrow Agent, and present such documentation as
is reasonably required by the Escrow Agent to evidence the satisfaction of such
conditions. Escrow Securities and Escrow Property to be cancelled and forfeited
pursuant to this Agreement shall be delivered to the Company, together with
stock powers executed in blank, to be placed in the Company's treasury for
cancellation thereof as a contribution to capital. After such date, Dr. Sun
shall have no further rights as a stockholder of the Company with respect to any
of the cancelled Escrow Securities.
2
<PAGE>
6. Duties of Escrow Agent. It is understood and agreed by the parties to
----------------------
this Agreement as follows:
(a) The Escrow Agent is not and shall not be deemed to be a trustee
for any party for any purpose and is merely acting as a depository and in a
ministerial capacity hereunder with the limited duties herein prescribed.
(b) The Escrow Agent does not have and shall not be deemed to have
any responsibility in respect of any instruction, certificate or notice
delivered to it or of the Escrow Securities or any related Escrow Property other
than faithfully to carry out the obligations undertaken in this Agreement and to
follow the directions in such instruction or notice provided in accordance with
the terms hereof.
(c) The Escrow Agent is not and shall not be deemed to be liable for
any action taken or omitted by it in good faith and may rely upon, and act in
accordance with the advice of its counsel without liability on its part for any
action taken or omitted in accordance with such advice. In any event, its
liability hereunder shall be limited to liability for gross negligence, willful
misconduct or bad faith on its part.
(d) The Escrow Agent may conclusively rely upon and act in accordance
with any certificate, instruction, notice, letter, telegram, cablegram on other
written instrument believed by it to be genuine and to have been signed by the
proper party or parties.
(e) The Company agrees (i) to pay the Escrow Agent's reasonable fees
and to reimburse it for its reasonable expenses, including attorney's fees,
incurred in connection with duties hereunder and (ii) to save harmless,
indemnify and defend the Escrow Agent for, from against any loss, damage,
liability, judgment, cost and expense whatsoever, including counsel fees,
suffered or incurred by it by reason of, or on account of, any misrepresentation
made to it or its status or activities as Escrow Agent under this Agreement
except for any loss, damage, liability, judgment, cost or expense resulting from
gross negligence, willful misconduct or bad faith on the part of the Escrow
Agent. The obligation of the Escrow Agent to deliver the Escrow Securities to
either Dr. Sun or the Company shall be subject to the prior satisfaction upon
demand from the Escrow Agent, of the Company's obligations to so save harmless,
indemnify and defend the Escrow Agent or otherwise pay its fees and expenses
hereunder.
(f) The Escrow Agent shall not be required to defend any legal
proceeding which may be instituted against it in respect of the subject matter
on this Agreement unless requested to do so by Dr. Sun or the Company and
indemnified to the Escrow Agent's satisfaction against the cost and expense of
such defense by the party requesting such defense. If any such legal proceeding
is instituted against it, the Escrow Agent agrees promptly to give notice of
such proceeding to Dr. Sun and the Company. The Escrow Agent shall not be
required to institute legal proceedings of any kind.
3
<PAGE>
(g) The Escrow Agent shall not, by act, delay, omission or otherwise,
be deemed to have waived any right or remedy it may have either under this
Agreement or generally, unless such waiver be in writing, and no waiver shall be
valid unless it is in writing, signed by the Escrow Agent, and only to the
extent expressly therein set forth. A waiver by the Escrow Agent under the term
of this Agreement shall not be construed as a bar to, or waiver of, the same or
any other such right or remedy which it would otherwise have on any other
occasion.
(h) The Escrow Agent may resign as such hereunder by giving 30 days
written notice thereof to Dr. Sun and the Company. Within 20 days after receipt
of such notice, the Company shall furnish to the Escrow Agent written
instructions for the release of the Escrow Securities and any related Escrow
Property (if such shares, options and property, if any, have not yet been
released pursuant to paragraph 4 hereof) to a substitute Escrow Agent which
(whether designated by written instructions from the Company or in the absence
thereof by instructions from a court of competent jurisdiction to the Escrow
Agent) shall be a bank or trust company organized and doing business under the
laws of the United States or any state thereof. Such substitute Escrow Agent
shall thereafter hold any Escrow Securities and any related Escrow Property
received by it pursuant to the terms of this Agreement and otherwise act
hereunder as if it were the Escrow Agent originally named herein. The Escrow
Agent's duties and responsibilities hereunder shall terminate upon the release
of all shares then held in escrow according to such written instruction or upon
such delivery as herein provided. The Agreement shall not otherwise be
assignable by the Escrow Agent without the prior written consent of the Company.
7. No Pledge of Escrow Securities; Further Assurances.
--------------------------------------------------
(a) Dr. Sun agrees that during the term of this Agreement, he will
not sell, transfer, hypothecate, negotiate, pledge, assign, encumber or
otherwise dispose of any or all of the Escrow Securities, unless and until (A)
the Company shall have given the notice as provided in paragraph 5 as to such
Escrow Securities; or (B) such disposition is (i) proposed in connection with an
agreement by which the Company is to be acquired or merged into another entity,
and (ii) approved by a vote of the holders of at least 80% of the votes cast, in
person or by proxy, by holders of the Company's common stock eligible to vote on
such matter. The restriction shall not be applicable to transfer upon death or
by operation of law; to family members of Dr. Sun or to any trust for the
benefit of Dr. Sun, provided that such transferee agrees to be bound by the
provisions of this Agreement, or to the Company, provided that the
consideration, if any, paid by the Company for Escrow Securities transferred to
the Company does not exceed the consideration, if any, paid by Dr. Sun for such
securities.
(b) Dr. Sun will take any action necessary or appropriate, including
the execution of any further documents or agreements, in order to effectuate the
transfer of the Escrow Securities to the Company if required pursuant to the
provisions of this Agreement.
4
<PAGE>
8. Legends. Each of the certificates representing the Escrow Securities
-------
shall bear legends to the following effect, as well as any other legends
required by applicable law:
(i) "The sale, transfer, hypothecation, negotiation, pledge, assignment,
encumbrance or other disposition of the shares evidenced by this
certificate are restricted by and are subject to all of the terms,
conditions and provisions of a certain Escrow Agreement entered into
among Digital Video Systems, Inc., and Dr. Edmund Sun, dated as of
October 17, 1996, a copy of which may be obtained from the Secretary
of Digital Video Systems, Inc. No transfer, sale or other disposition
of these shares may be made unless specific conditions of such
agreement have been satisfied."
(ii) "The shares evidence by this certificate have not been registered
under the Securities Act of 1933, as amended. No transfer, sale or
other disposition of these shares may be made unless a registration
statement with respect to these shares has become effective under said
act, or the Company has been furnished with an opinion of counsel
satisfactory in form and substance to the Company that such
registration is not required."
Upon execution of this Agreement, the Company shall direct the transfer
agent for the Company to place stop transfer orders with respect to the Escrow
Securities and to maintain such orders in effect until the transfer agent shall
have received written notice from the Company as provided in paragraph 6 as to
such Escrow Securities.
9. Notices. Each notice, instruction or other certificate required or
-------
permitted by the terms hereof shall be in writing and shall be communicated by
personal delivery, fax or registered or certified mail, return receipt
requested, to the parties hereto at the addresses set forth below, or at such
other address as any of them may designate by notice to each of the others:
(i) If to Dr. Sun, to:
Digital Video Systems, Inc.
2710 Walsh Avenue
Santa Clara, California 95051
Attn: Dr. Edmund Sun
(ii) If the Company or the Escrow Agent, to:
Digital Video Systems, Inc.
2710 Walsh Avenue
Santa Clara, California 95051
Attn: Robert B. Pfannkuch
5
<PAGE>
with a copy to:
Troy & Gould Professional Corporation
1801 Century Park East, Suite 1600
Los Angeles, California 90067
Attn: Sanford J. Hillsberg, Esq.
All notices, instructions or certificates given hereunder to the Escrow Agent
shall be effective upon receipt by the Escrow Agent. All notices given
hereunder by the Escrow Agent shall be effective and deemed received upon
personal delivery or transmission by fax or, if mailed, five (5) calendar days
after mailing by the Escrow Agent.
10. Amendments. This Agreement may not be modified, altered or amended in
----------
any material respect or cancelled or terminated except with the prior written
consent of all the parties hereto.
11. Termination. In the event that this Agreement shall terminate and be
-----------
of no further force and effect, the Escrow Agent, upon written notice from the
Company in accordance with paragraph 9 hereof of such termination, will return
the Escrow Securities and any Escrow Property in respect to Dr. Sun.
12. Titles. The headings of paragraphs herein are inserted for
------
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
13. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of California and shall be binding upon and
inure to the benefit of all parties hereto and their respective successors in
interest and assigns.
14. Counterparts. This Agreement may be executed in several counterparts,
------------
which taken together shall constitute a single instrument.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers on the day and year first above
written.
DIGITAL VIDEO SYSTEMS, INC.,
for itself and as Escrow Agent
By:
-------------------------------
Name:
Title:
-----------------------------------
Dr. Edmund Sun
7
<PAGE>
EXHIBIT 4.2
ESCROW AGREEMENT
AGREEMENT, dated as of October 17, 1996, by and among American Stock
Transfer & Trust Company, a New York corporation (hereinafter referred to as the
"Escrow Agent"), Digital Video Systems, Inc., a Delaware corporation (the
"Company") and Dr. Edmund Sun (the "Stockholder").
WHEREAS, the Company contemplates a public offering ("Public Offering") of
Units ("Units"), each Unit consisting of a maximum of 100 IPO units ("IPO
Units"), with each IPO Unit consisting of one share of its Common Stock, par
value $.0001 per share (the "Common Stock"), one redeemable Class A Warrant (the
"Class A Warrant") and one redeemable Class B Warrant ("Class B Warrant")
through D.H. Blair Investment Banking Corp. as underwriter ("Blair") pursuant to
the registration statement on Form SB-2, as amended (the "Registration
Statement"), filed with the Securities and Exchange Commission (the "SEC").
WHEREAS, in connection with the Public Offering, the Stockholder has agreed
to deposit in escrow 140,760 shares of Common Stock into an escrow.
In consideration of the mutual covenants and promises herein contained, the
parties hereto agree as follows:
1. The terms and conditions of that certain escrow agreement dated as of
April 23, 1996, by and among American Stock Transfer and Trust Company, the
Company, the stockholders of the Company listed on Exhibit A thereto and the
holders of options listed on Exhibit B thereto (the "IPO Escrow Agreement") are
hereby incorporated herein by reference in their entirety. Notwithstanding the
foregoing, for purposes of this Agreement (i) "Effective Date" shall mean the
date hereof, (ii) "Escrow Securities" shall mean 140,760 shares of the Company's
common stock delivered to the Escrow Agent on the date hereof by Dr. Edmund Sun,
and (iii) this Agreement may be modified with the written consent of the parties
hereto and no other consents shall be required.
2. (a) The Escrow Securities are subject to release to the Stockholder
only in the event the conditions set forth herein are met. The Escrow Agent,
upon notice to such effect from the Company as provided in paragraph 5 thereof,
shall deliver the Escrow Securities, together with stock powers executed in
blank, and the Escrow Property deposited in escrow with respect to such Escrow
Securities, to the Stockholder, if, and only if, one of the following conditions
is met:
(i) 70,380 of the Escrow Securities (and the related Escrow
Property) will be released in the event that 50% of the securities escrowed
pursuant to the IPO Escrow Agreement are released to the securityholders parties
thereto pursuant to the terms of the IPO Escrow Agreement; and
(ii) the remaining 70,380 of the Escrow Securities (and the
related Escrow Property) will be released in the event that the remaining 50% of
the securities
<PAGE>
escrowed pursuant to the IPO Escrow Agreement are released to the
securityholders parties thereto pursuant to the terms of the IPO Escrow
Agreement.
3. Each notice, instruction or other certificate required or permitted by
the terms hereof shall be in writing and shall be communicated by personal
delivery, fax or registered or certified mail, return receipt requested, to the
parties hereto at the addresses set forth below, or at such other address as any
of them may designate by notice to each of the others:
(i) If the Company, to:
Digital Video Systems, Inc.
2710 Walsh Avenue
Santa Clara, California 95051
Attn: Dr. Edmund Sun
(ii) If to the Stockholder to his addresses as set forth under his
name on the signature pages hereto.
(iii) If to the Escrow Agent, to:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attn: Donna Ansbro
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers on the day and year first above
written.
DIGITAL VIDEO SYSTEMS, INC.
By:________________________
Name:
Title:
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By:________________________
Name:
Title:
___________________________
Dr. Edmund Sun
2
<PAGE>
EXHIBIT 4.3
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") dated October 17, 1996 is entered
into by and among Digital Video Systems, Inc., a Delaware corporation
("Digital"), the Shareholders listed in Schedule A hereto (the "Shareholders")
and American Stock Transfer & Trust Company, as escrow agent hereunder (the
"Escrow Agent").
RECITALS:
--------
Pursuant to that certain Agreement and Plan of Reorganization dated October
17, 1996 (the "Reorganization Agreement") among Digital, Digital Video
Acquisition Co., ViComp Technology, Inc. ("ViComp") and the Shareholders, ViComp
has become a wholly owned subsidiary of Digital and the Shareholders have become
shareholders of Digital.
Section 2.13 of the Reorganization Agreement provides that an escrow fund
shall be established to secure the Shareholders' obligations to indemnify
Digital against certain Losses (the "Indemnification Fund").
Accordingly, Digital, the Shareholders and the Escrow Agent have agreed to
enter into this Agreement relating to the Indemnification Fund.
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and adequacy of which the parties to this Agreement acknowledge, the
parties agree as follows:
1. The terms used in this Agreement shall have the meanings ascribed to
them in the Reorganization Agreement.
2. Pursuant to the terms and conditions of the Reorganization Agreement,
10% of the Digital Common Stock issued to each Shareholder (the "Escrow Shares")
shall be delivered to the Escrow Agent. Liabilities and indemnification
obligations arising under Section 2.13 and Article XI of the Reorganization
Agreement for any Loss are payable to Digital from the Indemnification Fund
containing all such Escrow Shares. The Indemnification Fund shall be held by
the Escrow Agent upon the terms and conditions contained herein and shall be
released by the Escrow Agent in accordance with this Agreement. The Escrow
Agent agrees that it does not and shall not have any right of set-off or other
rights or claims with respect to the Indemnification Fund.
3. (a) The Escrow Agent, upon receipt of a certificate from Digital in
substantially the form of Exhibit I attached
<PAGE>
hereto (a "Certificate of Instruction"), shall, not later than the business day
next following its receipt of such Certificate of Instruction, give written
notice to the Shareholders of its receipt, together with a copy of such
Certificate of Instruction.
(b) If the Escrow Agent (i) does not, within thirty (30) days after
it has given such notice to the Shareholders, receive from the Shareholders a
certificate in substantially the form of Exhibit II attached hereto (an
"Objection Certificate") in respect of the Certificate of Instruction to which
such notice relates or (ii) has received such an Objection Certificate within
such thirty (30) days and has thereafter received a copy of an award of a
mediator or arbitrator pursuant to Section 3(c) of this Agreement to the effect
that the Owed Amount (as defined in the Certificate of Instruction) referred to
in such Certificate of Instruction (or a specified portion thereof) is a Loss
against which Digital may apply the Indemnification Fund, then the Escrow Agent
shall, on the business day next following the expiration of such thirty (30)
days or the receipt by the Escrow Agent of a copy of such award, as applicable,
release to Digital from the Indemnification Fund that number of Escrow Shares
(pro rata on behalf of each Shareholder so liable in respect of that Loss) as in
- ---- ----
the aggregate equals the applicable Owed Amount and is hereby authorized and
empowered to execute stock powers on behalf of the Shareholders with respect to
the Escrow Shares in connection with such release. For purposes of such
indemnification only, the Escrow Shares shall be valued at $8.00 for each such
Escrow Share.
(c) Upon receipt of an Objection Certificate, the Escrow Agent shall,
not later than the business day next following receipt thereof, give written
notice to Digital of its receipt together with a copy of the Objection
Certificate. In the event that the Shareholders and Digital are unable to
resolve any dispute with respect to an Owed Amount, such dispute shall be
referred to arbitration as provided in paragraph 11 hereof.
(d) Upon receipt by the Escrow Agent of a copy of an award of an
arbitrator to the effect that the Owed Amount (or a specified portion thereof)
referred to in a Certificate of Instruction in respect of which the Escrow Agent
had received an Objection Certificate is not a Loss against which the
Indemnification Fund may be applied, such Certificate of Instruction (or such
specified portion of the Owed Amount set forth therein) shall be canceled.
(e) If the Escrow Agent receives any dividends or other distributions
with respect to the Escrow Shares, it shall promptly pay over such amounts to
the Shareholders entitled thereto.
4. (a) On the earlier of (i) June 30, 1998 or (ii) the date of filing
with the SEC of Digital's annual report on Form 10K for the year ended March 31,
1998, the Escrow Agent shall
-2-
<PAGE>
release to the Shareholders (on a pro rata basis unless any Loss has occurred in
--- ----
respect of any one or more Shareholder's Escrow Shares in which event the
release shall be adjusted to recognize such Loss) all of the Escrow Shares in
the Indemnification Fund that have not been applied against Losses. Upon
release by the Escrow Agent to the Shareholders pursuant to this Section 4 of
the balance remaining in the Indemnification Fund and upon notice to Digital's
transfer agent removing any stop transfer orders in effect in respect of the
Escrow Shares, this Agreement shall automatically terminate.
5. No Pledge of Escrow Shares; Further Assurances.
----------------------------------------------
(a) Each Shareholder agrees that during the term of this Agreement,
it will not sell, transfer, hypothecate, negotiate, pledge, assign, encumber or
otherwise dispose of any or all of the Escrow Securities, unless and until such
disposition is (i) proposed in connection with an agreement by which Digital is
to be acquired or merged into another entity, and (ii) approved by a vote of the
holders of at least 80% of the votes cast, in person or by proxy, by holders of
Digital's common stock eligible to vote on such matter. The restriction shall
not be applicable to transfer upon death or by operation of law; to family
members of such Shareholder or to any trust for the benefit of such Shareholder,
provided that such transferee agrees to be bound by the provisions of this
Agreement, or to Digital, provided that the consideration, if any, paid by
Digital for Escrow Shares transferred to Digital does not exceed the
consideration, if any, paid by such Shareholder for such securities.
6. Legends. Each of the certificates representing the Escrow Shares
-------
shall bear legends to the following effect, as well as any other legends
required by applicable law:
(i) "The sale, transfer, hypothecation, negotiation, pledge, assignment,
encumbrance or other disposition of the shares evidenced by this
certificate are restricted by and are subject to all of the terms,
conditions and provisions of a certain Escrow Agreement entered into
among Digital Video Systems, Inc. and the Shareholders named therein,
dated as of October 17, 1996, a copy of which may be obtained from the
Secretary of Digital Video Systems, Inc. No transfer, sale or other
disposition of these shares may be made unless specific conditions of
such agreement have been satisfied."
(ii) "The shares evidence by this certificate have not been registered
under the Securities Act of 1933, as amended. No transfer, sale or
other disposition of these shares may be made unless a registration
statement with respect to these shares has become effective under said
act, or the Company has been furnished with an opinion of counsel
satisfactory in
-3-
<PAGE>
form and substance to the Company that such registration is not
required."
Upon execution of this Agreement, the Escrow Agent shall direct the transfer
agent for Digital to place stop transfer orders with respect to the Escrow
Shares and to maintain such orders in effect until the occurrence of any of the
events in Section 4 hereof.
7. The duties and obligations of the Escrow Agent shall be determined
solely by the provisions of this Agreement, and the Escrow Agent shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement. In furtherance and not in limitation
of the foregoing:
(i) the Escrow Agent shall be fully protected in relying in good
faith upon any written certification, notice, direction, request, waiver,
consent, receipt or other document that the Escrow Agent believes to be
genuine and duly authorized, executed and delivered;
(ii) the Escrow Agent shall not be liable for any error of judgment,
or for any act done or omitted by it, or for any mistake in fact or law, or
for anything that it may do or refrain from doing in connection therewith;
provided, however, that notwithstanding any other provision of this
Agreement, the Escrow Agent shall be liable for its willful misconduct or
gross negligence;
(iii) the Escrow Agent may seek the advice of legal counsel in the
event of any dispute or question as to the construction of any of the
provisions of this Agreement or its duties hereunder, and it shall incur no
liability and shall be fully protected in respect of any action taken,
omitted or suffered by it in good faith in accordance with the opinion of
such counsel;
(iv) in the event that the Escrow Agent shall in any instance in
good faith be uncertain as to its duties or rights hereunder, it shall be
entitled to refrain from taking any action in that instance and its sole
obligation, subject to those of its duties hereunder as to which there is
no such uncertainty, shall be to keep safely all property held in escrow
until it shall be directed otherwise in writing by each of the Shareholders
and Digital or by a final order or judgment of a court of competent
jurisdiction; and
(v) the Escrow Agent shall not be required to institute legal
proceedings of any kind and shall not be required to initiate or defend any
legal proceedings which may be instituted against it in respect of the
subject matter of these instructions.
-4-
<PAGE>
8. The Shareholders and Digital hereby agree to jointly and severally
indemnify the Escrow Agent for, and to hold it harmless against any loss,
liability or expense arising out of or in connection with this Agreement and
carrying out its duties hereunder, including the costs and expenses of defending
itself against any claim of liability, except in those cases where the Escrow
Agent has been guilty of gross negligence or willful misconduct. Anything in
this Agreement to the contrary notwithstanding, in no event shall the Escrow
Agent be liable for special, indirect or consequential loss or damage of any
kind whatsoever (including, but not limited to, lost profits), even if the
Escrow Agent has been advised of the likelihood of such loss or damage and
regardless of the form of action.
9. Following the deposit of the Escrow Shares into escrow, the
Indemnification Fund shall constitute an absolute limit on the obligation of the
Shareholders to indemnify and hold Digital harmless under this Reorganization
Agreement, except to the extent claims for indemnification are made with respect
to Sections 3.4, 3.8(b), (c), 3.23 and 3.28, which are not so limited. The
Shareholders shall not be liable for indemnification under this Agreement except
in the event the aggregate amount of all Losses exceeds $50,000.
10. The Escrow Agent is entitled to its reasonable fees and costs as set
forth in Schedule B. Such fees and costs shall be divided equally between
Digital (as to 50%) and the Shareholders (pro rata as to 50%).
--- ----
11. Digital and the Shareholders agree that if any dispute arises pursuant
to this Escrow Agreement or any Certificate of Instruction or Certificate of
Objection, then in such event the dispute shall be submitted to binding
arbitration in accordance with the rules of the American Arbitration
Association, with such arbitration to be held in San Jose, California. The
results, determination, finding, judgment or award rendered through such
arbitration, shall be final and binding on each of the parties thereto and not
subject to appeal or review.
12. Digital and the Shareholders severally agree to provide the Escrow
Agent with all instruments and documents within their respective powers to
provide which may be necessary for the Escrow Agent to perform its duties and
responsibilities hereunder.
13. Any notices or other communication required or permitted under this
Agreement shall be in writing and shall be delivered personally, telegraphed,
telexed sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, four (4) days after the date of deposit in the United States mails,
as follows:
-5-
<PAGE>
(a) If to Digital to:
Digital Video Systems, Inc.
2710 Walsh Avenue
Santa Clara, CA 95051
Fax: (408) 727-1770
with a copy to:
Troy & Gould Professional Corporation
1801 Century Park East, 16th Floor
Los Angeles, CA 90067-2367
Fax: (310) 201-4746
Attn: Sanford J. Hillsberg, Esq.
(b) If to any Shareholder, to their respective addresses set forth
opposite each Shareholder's name on the signature pages hereto;
with a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, CA 94301-1900
Fax: (415) 324-0638
Attn: Matthew P. Quilter, Esq.
(c) If to Escrow Agent to:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York
Attn: Donna Ansbro
Any party may, by notice given in accordance with this Section to the other
parties, designate another address or person for receipt of notices hereunder.
14. The Escrow Agent may at any time resign hereunder by giving written
notice of its resignation to the parties hereto at their addresses set forth in
this Agreement, at least ten (10) business days prior to the date specified for
such resignation to take effect. Upon the effective date of such resignation,
all property then held by the Escrow Agent hereunder shall be delivered by it to
such person as may be designated in writing by each of the other parties hereto,
whereupon all the Escrow Agent's obligations hereunder shall, except as
hereinafter provided, cease and terminate. If no such person shall have been so
designated by such date, all obligations of the Escrow Agent hereunder shall
nevertheless, except as hereinafter provided, cease and terminate. The Escrow
Agent's sole responsibility thereafter shall be to keep safely all property then
held by it and to deliver the same to a person designated by each of the other
parties hereto or in accordance with the directions of a final order or judgment
or a court of competent jurisdiction.
-6-
<PAGE>
15. This Agreement shall be governed by and construed in accordance with
the substantive laws of the State of California.
16. The obligations of the parties hereto (including the Escrow Agent) are
unique in that time is of the essence, and any delay in performance hereunder by
any party will result in irreparable harm to the other parties hereto.
Accordingly, any party may seek specific performance and/or injunctive relief
before any court of competent jurisdiction in order to enforce this Agreement or
to prevent violations of the provisions hereof, and no party shall object to
specific performance or injunctive relief as an appropriate remedy. The Escrow
Agent acknowledges that its obligations, as well as the obligations of the
Shareholders and Digital hereunder, are subject to the equitable remedy of
specific performance and/or injunctive relief.
17. This Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by a written instrument
executed by all of the parties, or in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any such right, power or privilege, or any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power, or privilege.
No waivers of or exceptions to any term, condition or provision of this
Agreement, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such term, condition or provision.
18. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns and legal
representatives. Neither this Agreement nor any of the rights, interests, or
obligations hereunder shall be assigned by any of the parties hereto without the
prior written consent of the other parties.
19. In the event that attorneys' fees or other costs are incurred to
secure performance of any of the obligations herein provided for, or to
establish damages for the breach thereof, or to obtain any other appropriate
relief, whether by way of prosecution or defense, in arbitration or litigation
(but not in mediation), the prevailing party as determined by the relevant court
or arbitrator shall be entitled to recover reasonable attorneys' fees and costs
(as determined by the relevant court or arbitrator) incurred therein.
20. This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Counterpart signature pages may be executed and delivered pursuant to facsimile
transmission.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
day and year first above written.
DIGITAL VIDEO SYSTEMS, INC.
By: _______________________________
Its: ______________________________
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: _______________________________
Its: ______________________________
SHAREHOLDERS:
By: _______________________________
___________________________________
Print Name
___________________________________
Address
By: _______________________________
___________________________________
Print Name
___________________________________
___________________________________
Address
By: _______________________________
___________________________________
Print Name
___________________________________
___________________________________
Address
By: _______________________________
-8-
<PAGE>
___________________________________
Print Name
___________________________________
___________________________________
Address
By: _______________________________
___________________________________
Print Name
___________________________________
___________________________________
Address
By: _______________________________
___________________________________
Print Name
___________________________________
___________________________________
Address
-9-
<PAGE>
EXHIBIT I
CERTIFICATE OF INSTRUCTION
TO
____________________________,
as Escrow Agent
The undersigned, DIGITAL VIDEO SYSTEMS, INC., a Delaware corporation
("Digital"), pursuant to Section 3 of the Escrow Agreement dated as of
______________ (the "Escrow Agreement"), by and among Digital and certain
shareholders indicated therein (the "Shareholders") and you as the Escrow Agent
(terms defined in the Escrow Agreement have the same meanings when used herein),
hereby:
(a) certifies that (i) $______________ (the "Owed Amount") has been
incurred by Digital as Losses against which Digital may apply the
Indemnification Fund pursuant to the Escrow Agreement and (ii) Digital has
given the Shareholders written notice of such Losses and its intent to
apply the Indemnification Fund against such Losses, which written notice
sets forth in reasonable detail the facts giving rise to the liability for
such payment; and
(b) instructs you to release to Digital from the Indemnification Fund
the number of Escrow Shares equal in value to the Owed Amount, as provided
in Section 3 of the Escrow Agreement.
DIGITAL VIDEO SYSTEMS, INC.
By: _______________________________
Its: ______________________________
Dated: ______________________
<PAGE>
EXHIBIT II
OBJECTION CERTIFICATE
TO
____________________________,
as Escrow Agent
The undersigned, ____________________________ (either individually or
collectively the "Shareholders"), pursuant to Section 3 of the Escrow Agreement
dated as of _______________, 1996 (the "Escrow Agreement"), by and among DIGITAL
VIDEO SYSTEMS, INC. ("Digital"), the Shareholders and you as the Escrow Agent,
hereby:
(a) certifies that (i) the Owed Amount (or a portion thereof if such
portion is specified in a schedule attached hereto detailing such lesser
amount) referred to in the certificate to you of Digital dated
______________, is not a Loss against which Digital may apply the
Indemnification Fund in accordance with the Escrow Agreement and (ii) the
undersigned has delivered to Digital a written statement dated
______________, setting forth in reasonable detail the facts supporting the
statement contained in clause (i) above; and
(b) object to your making payment to Digital of such contested amount
as provided in such certificate of Digital and detailed herein.
Dated: ______________________
By: _______________________________
<PAGE>
SCHEDULE A
James W. Kirkpatrick, Jr.
Lish Chen
Michael Mruzik
Mihailo Stojancic
Tai Sato
Francis Hung
<PAGE>
SCHEDULE B
FEES
The Escrow Agent shall be entitled to a fee of $500.00 payable on the
effective date of the Agreement for its services rendered under the Agreement.
In the event the Agreement is terminated prior to the termination date provided
therein, no refund or rebate of such payment shall be due.
<PAGE>
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of October 17, 1996, by and
between Digital Video Systems, Inc., a Delaware corporation (the "Company"), and
the individuals named on the signature pages hereto (the "Shareholders").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, pursuant to the Agreement and Plan of Merger dated as of
October , 1996, by and among the Company, Digital Video Acquisition Co.
("Acquisition Co."), ViComp Technology, Inc., a Delaware corporation ("ViComp")
and the Shareholders (the "Merger Agreement"), Acquisition Co. will be merged
with and into ViComp with ViComp as the surviving corporation in such merger in
a transaction intended to qualify as a reorganization within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Merger"); and
WHEREAS, the Merger Agreement provides that the Shareholders will have
certain incidental registration rights and it is a condition to the consummation
of the Merger that each of the Shareholders and the Company enter into this
Registration Rights Agreement;
NOW, THEREFORE, in order to implement the foregoing and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Defined Terms. Capitalized terms used herein but not otherwise
-------------
defined shall have the meaning given to such terms in the Merger Agreement.
"Closing" shall mean the consummation of the Merger and the
-------
transactions contemplated thereby by the Company, Acquisition Co., ViComp and
the Shareholders.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations promulgated thereunder as the same may be
amended from time to time.
"Fair Market Value" shall mean the closing sales price for the
-----------------
Company's common stock or other traded securities of the Company, or the closing
bid if no sales were reported, as quoted on the Nasdaq National Market or Nasdaq
Small Cap Market, or on the principal established stock exchange as the
Company's stock shall become listed for the date the value is to be determined
(or if there are no sales for such date, then for the last preceding business
day on which there were sales), as reported in the Wall Street Journal or
similar publication.
<PAGE>
"Person" shall mean any individual, partnership, joint venture,
------
corporation, limited liability company, trust, joint stock company, business
trust, unincorporated association, joint venture, governmental authority or any
department or agency thereof or other entity of any nature whatsoever.
"SEC" shall mean the Securities and Exchange Commission.
---
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
and all rules and regulations promulgated thereunder as the same may be amended
from time to time.
"Shareholder Common Stock" shall mean the 491,253 shares of the
------------------------
Company's common stock issued to the Shareholders pursuant to the Merger
Agreement.
ARTICLE II
TRANSFERS OF SHARES
-------------------
2.1 Investment Intention; No Resales. Each Shareholder hereby
--------------------------------
represents and warrants that he is acquiring the Shareholder Common Stock for
investment solely for his own account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof. The Shareholder
agrees and acknowledges that he will not, directly or indirectly, offer,
transfer, sell, assign, pledge, hypothecate or otherwise dispose of any shares
of the Shareholder Common Stock, or solicit any offers to purchase or otherwise
acquire or take a pledge of any shares of the Shareholder Common Stock, unless
such offer, transfer, sale, assignment pledge, hypothecation or other
disposition complies with the provisions of this Agreement and (i) such
transfer, sale, assignment, pledge or hypothecation or other disposition is
pursuant to an effective registration statement under the Securities Act and has
been registered under all applicable state securities or "blue sky" laws or (ii)
the Shareholder shall have furnished the Company with a written opinion in form
and substance reasonably satisfactory to the Company of counsel reasonably
satisfactory to the Company to the effect that no such registration is required
because of the availability of an exemption from registration under the
Securities Act and all applicable state securities or "blue sky" laws.
2.2 Restrictive Legend. Each certificate representing shares of
------------------
Shareholder Common Stock which is issued to the Shareholder on or after the date
hereof shall bear the following legend on the face thereof:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND ARE SUBJECT TO A
REGISTRATION RIGHTS AGREEMENT (A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY). SUCH SHARES MAY NOT BE SOLD, TRANSFERRED,
OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
SUCH REGISTRATION
2
<PAGE>
RIGHTS AGREEMENT AND UNLESS REGISTERED UNDER SAID ACT, OR UNLESS AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE IN THE OPINION OF
COUNSEL FOR THE COMPANY.
2.3 Shareholder Common Stock Unregistered. Each Shareholder acknowledges
-------------------------------------
and represents that he has been advised by the Company that:
(a) the offer and sale of the Shareholder Common Stock have not been
registered under the Securities Act;
(b) the Shareholder Common Stock must be held and the Shareholder
must continue to bear the economic risk of the investment in the Shareholder
Common Stock until (i) the Shareholder Common Stock is registered pursuant to an
effective registration statement under the Securities Act and all applicable
state securities laws or (ii) an exemption from such registration is available;
(c) when and if shares of the Shareholder Common Stock may be
disposed of without registration under the Securities Act in reliance on Rule
144, such disposition can be made only in limited amounts in accordance with the
terms and conditions of such Rule;
(d) if the Rule 144 exemption is not available, public offer or sale
of Shareholder Common Stock without registration will require compliance with
some other exemption under the Securities Act;
(e) a restrictive legend in the form set forth Section 2.2 above
shall be placed on the certificates representing the Shareholder Common Stock;
and
(f) a notation shall be made in the appropriate records of the
Company indicating that the Shareholder Common Stock is subject to restrictions
on transfer, and appropriate stop-transfer instructions will be issued to the
Company's transfer agent with respect to the Shareholder Common Stock.
2.4 Rule 144 Reporting. The Company agrees to use its best efforts to:
------------------
(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after the Effective Date;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) So long as any Shareholder owns any Shareholder Common Stock
issued to such Shareholder pursuant to the Merger Agreement, inform such person
upon request as to its compliance with the reporting requirements of Rule 144
and of the Securities Act and the
3
<PAGE>
Exchange Act, and provide a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed as may reasonably
be requested in availing such Shareholder of any rule or regulation of the SEC
allowing a sale of any such securities without registration.
Anything to the contrary contained in this Section 2.4 notwithstanding, the
Company may deregister any of its securities under the Exchange Act if it is
then permitted to do so pursuant to the Exchange Act. Nothing in this Section
shall be deemed to limit in any manner the restriction on sales of Shareholder
Common Stock contained in this Agreement.
ARTICLE III
REGISTRATION RIGHTS
-------------------
3.1 Demand Registration. If at any time commencing ten months from the
-------------------
date of the Company's initial public offering on Form SB-2, the Company shall
receive from holders of at least 50% of the shares of Shareholder Common Stock
held by Shareholders other than Dr. Edmund Sun, a written request that the
Company effect any registration of Shareholder Common Stock, the Company will:
(a) promptly give written notice of the proposed registration to all
other Shareholders; and
(b) file a registration statement (on Form S-3 or any successor form
or on Form S-1 if Form S-3 is not then available) with the SEC within 75 days
after the initiating Shareholders request and use its best efforts to effect
such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as would permit or
facilitate the sale and distribution of such shares of Shareholder Common Stock
as are specified in such request, together with all Shareholder Common Stock of
any Shareholders joining in such request as are specified in a written request
received by the Company within 30 days after receipt of such written notice from
the Company;
Provided, however that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 3.1:
(i) In any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
4
<PAGE>
(ii) If, at such time as a request for registration pursuant to
this Section 3.1 is pending, the Company has already effected one such
registration pursuant to this Section 3.1, and such registration has been
declared or ordered effective; or
(iii) During the period starting with the date 60 days prior to
the filing of, and ending on a date three months following the effective date
of, a registration statement (other than with respect to a registration
statement relating to a Rule 145 transaction, an offering solely to employees or
any other registration which is not appropriate for the registration of
Shareholder Common Stock).
3.2 Right to Include Securities. If at any time during the period ending
---------------------------
24 calendar months from the Effective Date the Company proposes to register any
shares of its common stock under the Securities Act on Forms S-1, S-2, S-3 or
SB-2 or any successor or similar forms (except for (i) registrations on such
forms solely for registration of Shareholder Common Stock in connection with any
warrants, option, employee benefit or dividend reinvestment plan or a merger or
consolidation, (ii) registrations of Shareholder Common Stock relating to the
exercise of warrants that were included in the units sold in the Company's
initial public offering and (iii) any underwritten public offering for which a
registration statement is filed with the SEC within 90 days of the Effective
Date), whether or not for sale for its own account, it will each such time as
soon as practicable give written notice of its intention to do so to the
Shareholders. Upon the written request (which request shall specify the total
number of shares of Shareholder Common Stock intended to be disposed of by the
Shareholders) of any Shareholder made within 15 days after the receipt of any
such notice (10 days if the Company gives telephonic notice with written
confirmation to follow promptly thereafter, stating that (i) such registration
will be on Form S-3 and (ii) such shorter period of time is required because of
a planned filing date), the Company will use all reasonable efforts to effect
the registration under the Securities Act of all Shareholder Common Stock held
by the Shareholders which the Company has been so requested to register for sale
in the manner initially proposed by the Company. If the Company thereafter
determines for any reason in its sole discretion not to register or to delay
registration of the common stock, the Company may, at its election, give written
notice of such determination to the Shareholder and (i) in the case of a
determination not to register, shall be relieved of the obligation to register
any Shareholder Common Stock in connection with such registration and (ii) in
the case of a determination to delay registering, shall be permitted to delay
registering any Shareholder Common Stock of the Shareholder for the same period
as the delay in registration of such other securities.
3.3 Priority in Incidental Registration. In a registration pursuant to
-----------------------------------
this Article III, if the managing underwriter of any such underwritten offering
shall inform the Company by letter of its belief that the number of shares of
Shareholder Common Stock to be included in such registration would adversely
affect its ability to effect such offering, then the Company will be required to
include in such registration only that number of shares of Shareholder Common
Stock which it is so advised should be included in such offering. Shares of
Shareholder Common Stock proposed by the Company to be registered for issuance
by the Company shall have the first priority and all other shares of Shareholder
Common Stock to be registered, including any and
5
<PAGE>
all shares of Shareholder Common Stock owned by the Shareholders shall be given
second priority without preference among the relevant holders. If less than all
of the shares of Shareholder Common Stock are to be registered, such shares of
Shareholder Common Stock shall be included in the registration pro rata based on
--- ----
the total number of shares sought to be registered other than for issuance by
the Company.
3.4 Custody Agreement and Power of Attorney. Upon delivering a request
---------------------------------------
under this Article III, each of the Shareholders seeking registration of its
shares of Shareholder Common Stock will, if requested by the Company, execute
and deliver a custody agreement and power of attorney in form and substance
reasonably satisfactory to the Company with respect to such Selling
Securityholder's (defined below) shares of Shareholder Common Stock to be
registered pursuant to this Article III (a "Custody Agreement and Power of
Attorney"). The Custody Agreement and Power of Attorney will provide, among
other things that such Selling Securityholder will deliver to and deposit in
custody with the custodian and attorney-in-fact named therein a certificate or
certificates representing such Shareholder Common Stock (duly endorsed in blank
by the registered owner or owners thereof or accompanied by duly executed stock
powers in blank) and irrevocably appoint said custodian and attorney-in-fact as
such Selling Securityholder's agent and attorney-in-fact with full power and
authority to act under the Custody Agreement and Power of Attorney on such
Selling Securityholder's behalf with respect to the matters specified therein.
Such Selling Securityholder shall also execute such other agreements as the
Company may reasonably request to further evidence the provisions of this
Article III.
3.5 Registration Procedures. In connection with the Company's obligations
-----------------------
pursuant to this Article III, the Company will use all reasonable efforts to
effect such registration and the Company will promptly:
(a) prepare and file with the SEC as soon as practicable after
request for registration hereunder the requisite registration statement to
effect such registration and use all reasonable efforts to cause such
registration statement to become effective and to remain continuously effective
until the earlier to occur of (x) 180 days following the date on which such
registration statement is declared effective or (y) the termination of the
offering being made thereunder;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
shares of Shareholder Common Stock covered by such registration statement until
such Shareholder Common Stock has been sold or such lesser period of time as the
Company, any seller of such Shareholder Common Stock or any underwriter is
required under the Securities Act to deliver a prospectus in accordance with the
intended methods of disposition by the sellers of such Shareholder Common Stock
set forth in such registration statement or supplement to such prospectus;
6
<PAGE>
(c) furnish to each and any stockholder which owns shares of
Shareholder Common Stock covered by such registration statement (the "Selling
Securityholders") and the managing underwriter, if any, at least one executed
original of the registration statement and such number of conformed copies of
such registration statement and of each such amendment and supplement thereto
(in each case including all exhibits) such number of copies of the prospectus
contained in such registration statement (including each preliminary prospectus
and any summary prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the Securities Act as
may reasonably be requested by such Selling Securityholder.
(d) use all reasonable efforts (i) to register or qualify all shares
of Shareholder Common Stock covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions where an exemption is not
available as the Selling Securityholders shall reasonably request, (ii) to keep
such registration or qualification in effect for so long as such registration
statement remains in effect and (iii) to take any other action which may be
reasonably necessary or advisable to enable the Selling Securityholders to
consummate the disposition in such jurisdictions of such Shareholder Common
Stock, provided that the Company will not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified, subject itself
to taxation in any such jurisdiction or take any action which would subject it
to general service of process in any such jurisdiction;
(e) notify the Selling Securityholders and the managing underwriter,
if any, promptly, and confirm such advice in writing (i) when a prospectus or
any prospectus supplement or post-effective amendment has been filed, and, with
respect to a registration statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC for amendments or
supplements to a registration statement or related prospectus or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of a registration statement or the initiation of any proceedings
for that purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any of the registered
securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (v) of the happening of any event or information
becoming known which requires the making of any changes in a registration
statement or related prospectus so that such documents will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and (vi) of the Company's reasonable determination that a post-effective
amendment to a registration statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a registration statement, or the lifting
of any suspension of the qualification of any of the registered securities for
sale in any jurisdiction, at the earliest possible moment;
(g) upon the occurrence of any event contemplated by clause (e)(v)
above, prepare a supplement or post-effective amendment to the applicable
registration statement or
7
<PAGE>
related prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the securities being sold thereunder, such prospectus will not contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading;
(h) use its best efforts to furnish to the Selling Securityholders a
signed counterpart, addressed to the Selling Securityholders and the
underwriters, if any, of (A) an opinion of counsel for the Company, and (B) a
"comfort" letter, signed by the independent public accountants who have
certified the Company's financial statements included or incorporated by
reference in such registration statement, covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) and, in the case of the accountant's letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountant's letters delivered to
underwriters in underwritten public offerings of securities (and dated the dates
such opinions and comfort letters are customarily dated) and, in the case of the
accountant's letter, such other financial matters, and in the case of the legal
opinion, such other legal matters, as the Selling Securityholders or the
underwriters may reasonably request;
(i) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to the Selling
Securityholders an earnings statement satisfying the provisions of Section 11(a)
of the Securities Act and Rule 158 promulgated thereunder, no later than 90 days
after the end of any 12-month period beginning after the effective date of a
registration statement pursuant to which shares of Shareholder Common Stock are
sold, which statement shall cover such 12-month period;
(j) cooperate with Selling Securityholders and the managing
underwriters if any, to facilitate the timely preparation and delivery of
certificates representing shares of Shareholder Common Stock to be sold; and
enable such shares of Shareholder Common Stock to be in such denominations and
registered in such names as the Selling Securityholders or the managing
underwriters, if any, may request at least two business days prior to any sale
of shares of Shareholder Common Stock to the underwriters;
(k) use its best efforts to cause the shares of Shareholder Common
Stock covered by the applicable registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the Selling Securityholder(s) or the underwriters, if any, to
consummate the disposition of such shares of Shareholder Common Stock;
(l) cause all shares of Shareholder Common Stock covered by the
registration statement to be listed on each securities exchange, if any, or
Nasdaq, on which securities of such class, series and form issued by the
Company, if any, are then listed or traded if requested by the managing
underwriters, if any, or the holders of a majority of the shares or units of
Shareholder Common Stock covered by the registration statement and entitled
hereunder to be so listed;
8
<PAGE>
(m) cooperate and assist in any filings required to be made with the
National Association of Securities Dealers, Inc. (the "NASD") and in the
performance of any due diligence investigation by any underwriter (including any
qualified independent underwriter that is required to be retained in accordance
with the rules and regulations of the NASD); and
(n) as soon as practicable prior to the filing of any document which
is to be incorporated by reference into the registration statement or the
prospectus (after initial filing of the registration statement) provide copies
of such document to the Selling Securityholders and to the managing
underwriters, if any, and make the Company's representatives available for
discussion of such document and consider in good faith making such changes in
such document prior to the filing thereof as the Selling Securityholders or such
underwriters may reasonably request.
The Company may require each Selling Securityholder to furnish to the
Company such information regarding such Selling Securityholder and the
distribution of such securities as the Company may from time to time reasonably
request in writing in order to comply with the Securities Act.
Each of the Shareholders agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section
3.5(e)(ii), (iii), (iv), (v) or (vi) hereof, it will forthwith discontinue
disposition pursuant to such registration statement of any shares of Shareholder
Common Stock covered by such registration statement or prospectus until its
receipt of the copies of the supplemented or amended prospectus relating to such
registration statement or prospectus or until it is advised in writing by the
Company that the use of the applicable prospectus may be resumed (and the period
of such discontinuance shall be excluded from the calculation of the period
specified in clause (x) of Section 3.5(a)) and, if so directed by the Company,
will deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in their possession, of the prospectus covering such
securities in effect at the time of receipt of such notice. Each of the
Shareholders agrees to furnish the Company a signed counterpart, addressed to
the Company and the underwriters, if any, of an opinion of counsel covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) as are customarily covered in opinions of
selling stockholder's counsel delivered to the underwriters in underwritten
public offerings of securities (and dated the dates such opinions are
customarily dated) and such other legal matters as the Company or the
underwriters may reasonably request.
3.6 Incidental Underwritten Offerings. If the Company at any time
---------------------------------
proposes to register any shares of its common stock under the Securities Act as
contemplated by Section 3.2 and such shares are to be distributed by or through
one or more underwriters, the Company and the Securityholders who hold shares of
Shareholder Common Stock to be distributed by such underwriters in accordance
with Section 3.2 hereof shall be parties to the underwriting agreement between
the Company and such underwriters and may, at their option, require that any or
all of the representations and warranties by, and the other agreements on the
part of, the Company to and for the benefit of such underwriters shall also be
made to and for the benefit of them and that
9
<PAGE>
any or all of the conditions precedent to the obligations of such underwriters
under such underwriting agreement be conditions precedent to their obligations.
The Company may, at its option, require that any or all of the representations
and warranties by, and the other agreements on the part of the Selling
Securityholders to and for the benefit of such underwriters shall also be made
to and for the benefit of the Company.
3.7 Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Selling Securityholders,
the underwriters and their respective counsel and accountants the opportunity
(but such Persons shall not have the obligation) to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the SEC, and, to the extent practicable, each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records (to the extent customarily given to the underwriters of the Company's
securities) and such opportunities to discuss the business of the Company with
its officers and the independent public accountants who have certified its
financial statements as shall be necessary, in the opinion of the Selling
Securityholders, and the underwriters' respective outside counsel to conduct a
reasonable investigation within the meaning of the Securities Act.
3.8 Limitations, Conditions and Qualifications to Obligations under
---------------------------------------------------------------
Registration Covenants. The obligations of the Company to use its reasonable
- ----------------------
efforts to cause shares of Shareholder Common Stock to be registered under the
Securities Act are subject to each of the following limitations, conditions and
qualifications:
(a) The Company shall be entitled to postpone for a reasonable period
of time the filing or effectiveness of, or suspend the rights of Selling
Securityholders to make sales pursuant to, any registration statement otherwise
required to be prepared, filed and made and kept effective by it hereunder (but
the duration of such postponement or suspension may not exceed the earlier to
occur of (w) 15 days after the cessation of the circumstances described in
clauses (i) and (ii) below or (x) 120 days after the date of the determination
of the Board of Directors referred to below, and the duration of such
postponement or suspension shall be excluded from the calculation of the period
specified in clause (x) of Section 3.5(a)) if the Board of Directors of the
Company determines in good faith that (i) there is a material undisclosed
development in the business or affairs of the Company (including any pending or
proposed financing, recapitalization, acquisition or disposition), the
disclosure of which at such time could be adverse to the Company's interests or
(ii) the Company has filed a registration statement with the SEC. such
registration statement has not yet been declared effective, the Company is using
its reasonable best efforts to have such registration statement declared
effective, and the underwriters with respect to such registration advise that
such registration would be adversely affected. If the Company shall so delay
the filing of a registration statement, it shall, as promptly as possible,
notify the Selling Securityholders of such determination, and the Selling
Securityholders shall have the right (y) in the case of a postponement of the
filing or effectiveness of a registration statement to withdraw the request for
registration by giving written notice to the Company within 10 days after
receipt of the Company's notice or (z) in the case of a suspension of the right
to
10
<PAGE>
make sales, to receive an extension of the registration period equal to the
number of days of the suspension.
(b) The Company's obligations shall be subject to the obligations of
the Selling Securityholders, which each of the Shareholders hereby acknowledges,
to furnish all information and materials and to take any and all actions as may
be required under applicable federal and state securities laws and regulations
to permit the Company to comply with all applicable requirements of the SEC and
to obtain any acceleration of the effective date of such registration statement.
(c) The Company shall not be obligated to cause any special audit to
be undertaken in connection with any registration pursuant hereto unless such
audit is requested by the underwriters with respect to such registration.
3.9 Expenses. The Company will pay all reasonable out-of-pocket costs and
--------
expenses incurred in connection with each registration of Shareholder Common
Stock pursuant to this Agreement, including, without limitation, any and all
filing fees payable to the SEC, fees with respect to filings required to be made
with stock exchanges, Nasdaq and the NASD, fees and expenses of compliance with
state securities or blue sky laws, printing expenses, fees and disbursements of
counsel and accountants of the Company, including costs associated with comfort
letters, and fees and expenses of other Persons retained by the Company, but
excluding underwriters' expenses (including discounts, commissions and fees of
underwriters and expenses included therein of selling brokers, dealer managers
or similar securities industry professionals relating to the distribution of the
securities being registered) and legal expenses of any Person other than the
Company) but including fees and expenses of any qualified independent
underwriter required to participate in such registration pursuant to applicable
law or the requirements of the NASD, The Company shall pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), and the expense of securities
law liability insurance and rating agency fees, if any.
3.10 Indemnification.
---------------
(a) Indemnification by the Company. In connection with any
------------------------------
registration pursuant hereto in which shares of Shareholder Common Stock are to
be disposed of, the Company shall indemnify and hold harmless, to the full
extent permitted by law, each of the Shareholders and, when applicable, its
officers, directors, agents and employees and each Person who controls any of
the Shareholders (within the meaning of the Securities Act or the Exchange Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of a material fact contained in any
registration statement, prospectus or preliminary prospectus or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, including, without
limitation, any loss, claim, damage, liability or expense resulting from the
failure to keep a prospectus current, except insofar as the same (i) are caused
by or contained in any information furnished in writing to the Company by any
member of the Shareholder Group
11
<PAGE>
expressly for use therein or (ii) are caused by any of the Shareholders' failure
to deliver a copy of the current prospectus after the Company has furnished any
such Shareholders with a sufficient number of copies of such prospectus or (iii)
arise in respect of any offers to sell or sales made during any period when any
of the Shareholders is required to discontinue sales under Section 3.5(e). The
Company shall also indemnify underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution,
their officers and directors and each person who controls such Persons (within
the meaning of the Securities Act and the Exchange Act) to the same extent as
provided above with respect to the indemnification of the Shareholders and shall
enter into an indemnification agreement with such Persons containing such terms,
if requested.
(b) Indemnification by the Shareholders. In connection with each
-----------------------------------
registration statement effected pursuant hereto in which shares of Shareholder
Common Stock are to be disposed of, each of the Shareholders shall, severally
and jointly, indemnify and hold harmless, to the full extent permitted by law,
the Company, each other Selling Securityholder and their respective directors
officers agents and employees and each Person who controls the Company and each
other Selling Securityholder (within the meaning of the Securities Act and the
Exchange Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue statement of a material fact or any omission of a
material fact required to be stated in such registration statement or prospectus
or preliminary prospectus or necessary to make the statements therein not
misleading, to the extent but only to the extent, that such untrue statement or
omission is contained in any information furnished in writing by such
Shareholders to the Company expressly for inclusion in such registration
statement or prospectus. In no event shall the liability of the Shareholders
hereunder be greater in amount than the dollar amount of the proceeds received
by the Shareholders upon the sale of the securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
--------------------------------------
indemnification hereunder shall give prompt notice to the indemnifying party of
any claim with respect to which it shall seek indemnification and shall permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; provided, however, that any
-------- -------
Person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Person unless (i)
the indemnifying party shall have agreed to pay such fees or expenses, or (ii)
the indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such Person or (iii) in the opinion of
outside counsel to such Person there may be one or more legal defenses available
to such Person which are different from or in addition to those available to the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such Person), If such defense is not assumed by the indemnifying party, the
indemnifying party shall not be subject to any liability for any settlement made
without its consent (but such consent shall not be unreasonably withheld). No
indemnified party shall be
12
<PAGE>
required to consent to entry of any judgment or enter into any settlement that
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a written release in form and substance
reasonably satisfactory to such indemnified party from all liability in respect
of such claim or litigation. An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim shall not be obligated to pay the
fees and expenses of more than one firm of counsel (and, if necessary, local
counsel) for all parties indemnified by such indemnifying party with respect to
such claim, unless in the written opinion of outside counsel to an indemnified
party a conflict of interest as to the subject matter exists between such
indemnified party and another indemnified party with respect to such claim, in
which event the indemnifying party shall be obligated to pay the fees and
expenses of additional counsel for such indemnified party.
(d) Contribution. If for any reason the indemnification provided for
------------
herein is unavailable to an indemnified party or is insufficient to hold it
harmless as contemplated hereby, then the indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a result of such loss,
claims damage or liability in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations,
provided that in no event shall the liability of the Shareholders for such
contribution and indemnification exceed, in the aggregate, the dollar amount of
the proceeds received by the Shareholders upon the sale of securities giving
rise to such indemnification and contribution obligation.
3.11 Participation in Underwritten Registrations. None of the Shareholders
-------------------------------------------
or their Permitted Transferees may participate in any underwritten registration
hereunder unless each of the Shareholders or their Permitted Transferees which
is a Selling Securityholder (a) agrees to sell such its shares of Shareholder
Common Stock on the basis provided in and in compliance with any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and to comply with Rules 10b-6 and 10b-7 under the Exchange Act,
and (b) completes and executes all questionnaires, appropriate and limited
powers-of-attorney, escrow agreements, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements; provided that all such documents shall be consistent with the
--------
provisions hereof.
ARTICLE IV
MISCELLANEOUS
-------------
4.1 Recapitalizations, Exchanges, Etc. Affecting Shareholder Common Stock.
---------------------------------------------------------------------
The provisions of this Agreement shall apply, to the full extent set forth
herein with respect to Shareholder Common Stock, to any and all shares of
capital stock of the Company or any successor or assign of the Company (whether
by merger, consolidation, sale of assets or otherwise) which may be issued in
respect of, in exchange for, or in substitution of the Shareholder Common Stock,
by reason of any stock dividend, stock split, stock issuance, reverse
13
<PAGE>
stock split, combination recapitalization, reclassification, merger,
consolidation or otherwise. Upon the occurrence of any of such events, amounts
hereunder shall be appropriately adjusted by the Board of Directors of the
Company.
4.2 Binding Effect. The provisions of this Agreement shall be binding
--------------
upon and accrue to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns. In the case of a transferee
permitted under this Agreement, such transferee shall be deemed the Shareholder
hereunder; provided, however, that no transferee shall derive any rights under
--------
this Agreement unless and until such transferee has executed and delivered to
the Company a valid undertaking and becomes bound by the terms of this
Agreement.
4.3 Amendment; Waiver. This Agreement may be amended only by a written
-----------------
instrument signed by the parties hereto. No waiver by either party hereto of
any of the provisions hereof shall be effective unless set forth in a writing
executed by the party so waiving.
4.4 Notices. All notices, requests, demands and other communications
-------
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., Federal Express) and
----
upon receipt, if sent by certified or registered mail, return receipt requested.
In each case notice shall be sent to:
(a) if to the Company, addressed to:
Digital Video Systems, Inc.
2710 Walsh Avenue
Santa Clara, CA 95051
Attn: Robert B. Pfannkuch
with a copy to:
Troy & Gould
1801 Century Park East
Suite 1600
Los Angeles, CA 90067
Attn: Sanford J. Hillsberg, Esq.
(b) If to a Shareholder, to him at his address set forth on the
signature pages hereto.
14
<PAGE>
4.5 Governing Law. This Agreement shall be governed by and construed,
-------------
interpreted and the rights of the parties determined in accordance with the laws
of the State of California without regard to choice of law principles hereof.
4.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
4.7 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
4.8 Cumulative Remedies. All rights and remedies of the party hereto are
-------------------
cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
4.9 Waiver of Right to Trial by Jury. Each party to this Agreement hereby
--------------------------------
waives its rights to a trial by jury.
4.10 Injunctive Relief. The Shareholder and his Permitted Transferees each
-----------------
acknowledges and agrees that a violation of any of the terms of this Agreement
will cause the Company irreparable injury for which adequate remedy at law is
not available. Accordingly, it is agreed that the Company shall be entitled to
an injunction restraining order or other equitable relief to prevent breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction in the United States or
any state thereof, in addition to any other remedy to which it may be entitled
at law or equity.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
DIGITAL VIDEO SYSTEMS, INC.
By:
----------------------------------
Name:
Title:
SHAREHOLDERS:
--------------------------------------
Name: Dr. Edmund Sun
Address:
--------------------------------------
Name: James W. Kirkpatrick, Jr.
Address:
--------------------------------------
Name: Lish Chen
Address:
--------------------------------------
Name: Michael Mruzik
Address:
--------------------------------------
Name: Mihailo Stojancic
Address:
--------------------------------------
Name: Tai Sato
Address:
--------------------------------------
Name: Francis Hung
Address:
16
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................. 1
1.1 Defined Terms................................................ 1
ARTICLE II TRANSFERS OF SHARES.......................................... 2
2.1 Investment Intention; No Resales............................. 2
2.2 Restrictive Legend........................................... 2
2.3 Shareholder Common Stock Unregistered........................ 3
2.4 Rule 144 Reporting........................................... 3
ARTICLE III REGISTRATION RIGHTS.......................................... 4
3.1 Right to Include Securities.................................. 4
3.2 Priority in Incidental Registration.......................... 5
3.3 Custody Agreement and Power of Attorney...................... 5
3.4 Registration Procedures...................................... 5
3.5 Incidental Underwritten Offerings............................ 9
3.6 Preparation; Reasonable Investigation........................ 9
3.7 Limitations, Conditions and Qualifications to Obligations
under Registration Covenants................................. 9
3.8 Expenses..................................................... 10
3.9 Indemnification.............................................. 10
3.10 Participation in Underwritten Registrations.................. 12
ARTICLE IV MISCELLANEOUS................................................ 13
4.1 Recapitalizations, Exchanges, Etc. Affecting Shareholder
Common Stock................................................. 13
4.2 Binding Effect............................................... 13
4.3 Amendment; Waiver............................................ 13
4.4 Notices...................................................... 13
4.5 Governing Law................................................ 14
4.6 Counterparts................................................. 14
4.7 Invalidity................................................... 14
4.8 Cumulative Remedies.......................................... 14
4.9 Waiver of Right to Trial by Jury............................. 14
4.10 Injunctive Relief............................................ 14
</TABLE>
i.
