<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 30, 1999
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SEACHANGE INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-21393 04-3197974
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(State or other jurisdiction of (Commission file number) (I.R.S. Employer
incorporation or organization) Identification No.)
124 Acton Street, Maynard, MA 01754
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (978) 897-0100
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No change since last report
---------------------------
(Former name or address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
------------------------------------
On December 30, 1999, SeaChange International, Inc., a Delaware corporation
(the "Company"), entered into a Stock Purchase Agreement (the "Agreement") with
Digital Video Arts, Ltd., a Delaware corporation ("DVA"), the shareholders of
DVA listed on the signature pages thereto (the "Sellers") and Corum Group, Ltd.
("Corum"). A copy of the Agreement is attached as Exhibit 2.1 to this Current
-----------
Report on Form 8-K.
Pursuant to the Agreement, the Company acquired all of the outstanding
capital stock of DVA (the "Acquisition") in exchange for 330,000 shares (the
"Shares") of Common Stock of the Company, $.01 par value per share (the
"Consideration"). The Company has given the Sellers and Corum certain
registration rights relating to the Shares pursuant to a Registration Rights
Agreement by and among the Company, the Sellers and Corum dated December 30,
1999, a copy of which is attached as Exhibit 2.2 to this Current Report on Form
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8-K. The terms of, and the Consideration paid in, this transaction were the
result of arm's-length negotiations between the representatives of the Sellers
and the Company. This transaction will be treated as a pooling of interests for
accounting purposes.
In the Agreement, the Sellers made various representations and warranties
and have agreed to indemnify the Company for any breaches thereof. Under the
terms of the Agreement, 31,291 shares of the Consideration are being held in
escrow until December 30, 2000 for any claims that the Company may have against
the Sellers for any breaches of the representations and warranties in the
Agreement. A copy of the Escrow Agreement is attached as Exhibit 2.3 to this
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Current Report on Form 8-K.
The members of management of DVA, as well as the other employees of DVA,
continue as employees.
The terms of the Acquisition are more fully described in the Agreement, the
Registration Rights Agreement and the Escrow Agreement, which are filed as
Exhibit 2.1, Exhibit 2.2 and Exhibit 2.3, respectively, to this report and are
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incorporated herein by this reference.
Item 5. Other Events.
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The Registrant effected a three-for-two stock split in the form of a
dividend on December 27, 1999, which stock split was paid in the form of a
dividend to stockholders of record of the Registrant on December 10, 1999.
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Item 7. Financial Statements and Exhibits.
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(c) Exhibits.
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2.1 Stock Purchase Agreement, dated December 30, 1999, by and
amongSeaChange International, Inc., Digital Video Arts,
Ltd., the shareholders of Digital Video Arts, Ltd. listed on
the signature pages thereto and Corum Group, Ltd .
2.2 Registration Rights Agreement, dated December 30, 1999, by
and among SeaChange International, Inc., Digital Video Arts,
Ltd., the shareholders of Digital Video Arts, Ltd. listed on
the signature pages thereto and Corum Group, Ltd.
2.3 Escrow Agreement, dated December 30, 1999, by and among
SeaChange International, Inc., Digital Video Arts, Ltd., the
shareholders of Digital Video Arts, Ltd. listed on the
signature pages thereto and State Street Bank and Trust
Company.
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<PAGE>
SIGNATURE
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 thereunto duly authorized.
SEACHANGE INTERNATIONAL, INC.
By: /s/ William L. Fiedler
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William L. Fiedler
Vice President, Finance and Administration,
Chief Financial Officer and Treasurer
Dated: January 13, 2000
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EXHIBIT INDEX
Exhibit No. Description
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2.1 Stock Purchase Agreement, dated December 30, 1999, by and
among SeaChange International, Inc., Digital Video Arts, Ltd.,
the shareholders of Digital Video Arts, Ltd. listed on the
signature pages thereto and Corum Group, Ltd.
2.2 Registration Rights Agreement, dated December 30, 1999, by and
among SeaChange International, Inc., Digital Video Arts, Ltd.,
the shareholders of Digital Video Arts, Ltd. listed on the
signature pages thereto and Corum Group, Ltd.
2.3 Escrow Agreement, dated December 30, 1999, by and among
SeaChange International, Inc., Digital Video Arts, Ltd., the
shareholders of Digital Video Arts, Ltd. listed on the
signature pages thereto, and State Street Bank and Trust
Company.
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<PAGE>
EXHIBITS AND SCHEDULES OMITTED IN ACCORDANCE
WITH ITEM 601(B)(2) OF REGULATION S-K
Exhibits
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Exhibit A-1 Form of Opinion of Company and Certain of the Sellers' Counsel
Exhibit A-2 Form of Opinion of Certain of the Sellers' Counsel
Exhibit B Form of Escrow Agreement
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Opinion of Buyer's Counsel
Exhibit E List of Options
Schedules
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1.4 Allocation of Consideration
2.1(a) Foreign Qualifications
2.2 Capitalization
2.3 Subsidiaries
2.4 Consents and Governmental Authorization
2.6 Non-Contravention
2.7 Financial Statements
2.8 No Undisclosed Material Liabilities
2.9 No Material Adverse Changes
2.10 Taxes
2.11 No Pending Litigation or Proceedings
2.12 Material Contracts
2.13 Contract Compliance
2.14 Compliance with Laws
2.15 Environmental Compliance
2.16 Title
2.17 Transactions With Related Parties
2.18 Compensation Arrangements; Bank Accounts
2.19 Labor Relations
2.20 Insurance Policies
2.21 Intellectual Property
2.22 Employee Benefit Plans
2.23 Finders' Fees
2.25 Accounts Receivable
2.26 Customers and Suppliers
2.1A Title
2.4A No Pending Litigation or Proceedings
3.7 Consents and Governmental Authorization
4.1(d) Required consents
4.1(h) Resignation of Officers and Directors
6.1(a) Interim Conduct of Business of Company
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The Company will furnish supplementally a copy of any omitted exhibit or
schedule to the Securities and Exchange Commission (the "Commission") upon the
Commission's request; provided, however that the Company may request
confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended, for any schedule or exhibit so furnished.
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<PAGE>
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
Dated as of December 30, 1999
Among
DIGITAL VIDEO ARTS, LTD.,
THE SHAREHOLDERS OF DIGITAL VIDEO ARTS, LTD.
LISTED ON THE SIGNATURE PAGES HERETO,
CORUM GROUP, LTD.
and
SEACHANGE INTERNATIONAL, INC.
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TABLE OF CONTENTS
<TABLE>
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Page
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STOCK PURCHASE AGREEMENT 1
ARTICLE I THE TRANSACTION 1
1.1. Sale and Purchase of Stock.......................................... 1
1.2. Consideration and Payment........................................... 1
1.3. Closing Time and Place.............................................. 1
1.4. Deliveries and Proceedings at the Closing........................... 2
1.5. Escrow Account...................................................... 2
1.6. Default by any Seller............................................... 2
1.7. Tax-Free Reorganization............................................. 3
1.8. Waiver.............................................................. 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLERS 3
2.1. Corporate Existence and Power....................................... 4
2.2. Capitalization...................................................... 4
2.3. Subsidiaries........................................................ 5
2.4. Consents and Governmental Authorization............................. 5
2.5. Authorization and Enforceability.................................... 6
2.6. Non-Contravention................................................... 6
2.7. Financial Statements................................................ 6
2.8. No Undisclosed Material Liabilities................................. 7
2.9. No Material Adverse Changes......................................... 7
2.10. Taxes............................................................... 9
2.11. No Pending Litigation or Proceedings................................ 11
2.12. Material Contracts.................................................. 11
2.13. Contract Compliance................................................. 12
2.14. Compliance with Laws................................................ 12
2.15. Environmental Compliance............................................ 13
2.16. Title............................................................... 15
2.17. Transactions with Related Parties................................... 15
2.18. Compensation Arrangements; Bank Accounts............................ 16
2.19. Labor Relations..................................................... 16
2.20. Insurance........................................................... 16
2.21. Intellectual Property............................................... 17
2.22. Employee Benefit Plans.............................................. 19
2.23. Finders' Fees....................................................... 21
2.24. Inventories......................................................... 21
2.25. Accounts Receivable................................................. 21
2.26. Customers and Suppliers............................................. 22
2.27. Disclosure of Material Information.................................. 22
</TABLE>
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<TABLE>
<S> <C>
ARTICLE II ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLERS AND CORUM 22
2.1A. Title to and Validity of Stock...................................... 22
2.2A. Authority........................................................... 23
2.3A. Experience; Investment Intent....................................... 23
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER 24
3.1. Organization and Good Standing...................................... 24
3.2. Buyer Stock......................................................... 24
3.3. Corporate Power and Authority....................................... 24
3.4. Due Authorization................................................... 25
3.5. Finders' Fees....................................................... 25
3.6. Investment Intent................................................... 25
3.7. Consents and Governmental Authorization............................. 25
3.8. Non-Contravention................................................... 25
3.9. SEC Compliance...................................................... 25
3.10. No Material Adverse Effect......................................... 26
ARTICLE IV CONDITIONS TO CLOSING 26
4.1. Conditions Precedent to Obligations of Buyer........................ 26
4.2. Conditions Precedent to Obligations of Sellers...................... 28
ARTICLE V TERMINATION OF AGREEMENT 29
5.1. Grounds for Termination............................................. 29
5.2. Effect of Termination............................................... 30
ARTICLE VI COVENANTS 30
6.1. Conduct of Business................................................. 30
6.2. No Solicitation, Confidentiality, Etc............................... 32
6.3. Maintain Provisions................................................. 32
6.4. Necessary Consents.................................................. 32
6.5. Non-Competition..................................................... 32
6.6. Non-Solicitation.................................................... 33
6.7. Pooling............................................................. 34
ARTICLE VII 34
7.1. Survival............................................................ 34
7.2. Indemnification..................................................... 34
7.3. Method of Asserting Claims.......................................... 35
7.4. Limitations; Exclusive Remedy; Maximum Indemnification.............. 37
ARTICLE VIII MISCELLANEOUS 37
8.1. Notices............................................................. 37
8.2. Successors and Assigns.............................................. 39
8.3. Arbitration......................................................... 39
8.4. Costs and Expenses.................................................. 39
</TABLE>
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<TABLE>
<S> <C>
8.5. Public Announcements................................................ 39
8.6. Headings............................................................ 39
8.7. Counterparts........................................................ 40
8.8. Amendment and Waiver................................................ 40
8.9. Entire Agreement.................................................... 40
8.10. Governing Law...................................................... 40
</TABLE>
EXHIBITS
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Exhibit A-1 Form of Opinion of Company and Certain of the Sellers' Counsel
Exhibit A-2 Form of Opinion of Certain of the Sellers' Counsel
Exhibit B Form of Escrow Agreement
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Opinion of Buyer's Counsel
Exhibit E List of Options
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT (the "Agreement") dated as of December 30, 1999 by
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and among SeaChange International, Inc., a Delaware corporation ("Buyer");
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Digital Video Arts, Ltd., a Delaware corporation (the "Company"); Corum Group,
-------
Ltd. ("Corum"); and the shareholders of the Company listed on the signature
pages hereto (collectively, "Sellers" and individually, a "Seller"), who
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collectively own all of the issued and outstanding shares capital stock of the
Company.
BACKGROUND
Sellers collectively own all of the issued and outstanding shares capital
stock of the Company (the "Company Stock"). Buyer desires to purchase, and
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Sellers desire to sell, the Company Stock on the terms and subject to the
conditions set forth in this Agreement.
TERMS
In consideration of the mutual representations, warranties and covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
THE TRANSACTION
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1.1. Sale and Purchase of Stock . At the Closing referred to in Section
---------------------------
1.3 below, each Seller will, severally but not jointly, sell to Buyer, and Buyer
will purchase from such Seller, all his or its shares of the Company Stock.
1.2. Consideration and Payment. In consideration of the sale and transfer
-------------------------
of the Company Stock pursuant to Section 1.1 above, the Buyer hereby agrees to
issue and deliver to the Sellers and Corum at the Closing an aggregate of
330,000 shares of common stock of the Buyer, $.01 par value per share (the
"Buyer Stock"; it being acknowledged and agreed by the parties hereto that the
-----------
term Buyer Stock includes both "Closing Shares" and "Escrow Shares" and "Corum
Shares" as those terms are defined below) (the "Consideration"), subject to the
-------------
delivery of the Escrow Shares as provided in Sections 1.4(b) and 1.5. For
purposes of this Agreement and the transactions contemplated hereby, the parties
agree that each share of Buyer Stock has a fair market value equal to, and shall
be valued at, $30.94553 per share (the "Fair Market Value"), which is the
-----------------
average closing price of the Buyer Stock for the ten (10) business days ending
on the day two (2) business days prior to the Closing.
1.3. Closing Time and Place. The closing under this Agreement (the
----------------------
"Closing") will take place on the date hereof, at the offices of Testa, Hurwitz
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& Thibeault, LLP, 125 High Street, Boston, MA, or at such other time, date or
place as Buyer and the Sellers shall mutually agree in
<PAGE>
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writing. The date on which the Closing occurs is sometimes referred to herein as
the "Closing Date."
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1.4. Deliveries and Proceedings at the Closing. At the Closing:
-----------------------------------------
(a) Deliveries by Sellers. Each Seller, severally but not jointly, will
---------------------
deliver to Buyer, (1) free and clear of all liens, security interests,
claims and encumbrances (other than restrictions on transfer imposed
by federal and state securities laws), certificates for his or its
Company Stock, together with duly executed share transfer forms
relating to such Company Stock, and (2) the documents and certificates
required to be delivered by each such Seller under Section 4.1.
(b) Deliveries by Buyer. Buyer will deliver to each Seller (1) free and
-------------------
clear of all liens, security interests, claims and encumbrances, that
number of shares of Buyer Stock as is set forth opposite the name of
such Seller on Schedule 1.4 (the "Closing Shares"), and (2) the
------------ --------------
documents and certificates required to be delivered by Buyer under
Section 4.2. Buyer will deliver to Corum free and clear of all liens,
security interests, claims and encumbrances, that number of shares of
Buyer Stock as is set forth opposite the name of Corum on Schedule 1.4
------------
(the "Corum Shares"). The Buyer Stock so delivered will be endorsed
with a restrictive legend in accordance with Section 2.3A (e) hereof.
Buyer shall also deliver to State Street Bank and Trust Company, N.A.
(the "Escrow Agent") 31,291 shares of Buyer Stock, representing ten
------------
percent (10%) of the Consideration other than the Corum Shares (the
"Escrow Shares").
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(c) Deliveries by the Company. The Company and Corum will deliver to
-------------------------
Buyer the documents and certificates required to be delivered by it
under Section 4.1.
(d) Other Deliveries. The closing certificates, opinions of counsel and
----------------
other documents required to be delivered at the Closing pursuant to
this Agreement will be exchanged.
1.5. Escrow Account. Sellers agree that, notwithstanding any investigation
--------------
of the business of the Company made by or on behalf of Buyer, at the Closing the
Escrow Shares shall be delivered by Buyer to the Escrow Agent for deposit in
accordance with the terms of the escrow agreement substantially in the form
attached hereto as Exhibit B (the "Escrow Agreement"). Such Escrow Shares shall
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be registered in the name of the Escrow Agent or its nominee for the benefit of
each Seller in the amounts set forth on Schedule 1.4. All shares deposited with
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the Escrow Agent shall be applied by the Escrow Agent in accordance with the
terms of the Escrow Agreement.
1.6. Default by any Seller. If any Seller fails to deliver to Buyer at
---------------------
the Closing any of the Company Stock to be sold by him or it hereunder, such
failure will not relieve any other Seller of any obligation hereunder, and Buyer
may (a) acquire the remaining shares of Company
<PAGE>
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Stock, or (b) refuse to make such acquisition and thereby terminate all of its
obligations hereunder, in either case without prejudice to its rights against
such defaulting Seller.
1.7. Tax-Free Reorganization. The parties hereto intend that the exchange
-----------------------
of Company Stock for Buyer Stock contemplated by this Agreement shall be
pursuant to a reorganization described in Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Buyer Stock issued in the
----
reorganization is intended to be issued solely in exchange for the Company
Stock, and no other transaction is intended to be an adjustment to the
consideration paid for the Company Stock. The amount of Buyer Stock to be
received by the Sellers was determined by arms-length bargaining. Buyer
represents as of the date hereof, and as of the Closing Date, that it presently
intends to continue the historic business of the Company or use a significant
portion of the business assets of the Company in a business. In addition, the
parties shall (i) comply with the information reporting requirement of Treasury
Regulation Section 1.368-3, and (ii) unless there has been a Final Determination
that the exchange of Company Stock for Buyer Stock does not constitute a
reorganization described in Section 368(a)(1)(B) of the Code, not take a
position on any tax returns inconsistent with this Section 1.7. Notwithstanding
the foregoing, each of the parties hereto has consulted its own tax advisors
with respect to the tax consequences of this transaction, and the Buyer shall
not have any obligation, of indemnification or otherwise, in connection with the
tax consequences of the transaction to any other party hereto. For purposes of
this Section 1.7, a "Final Determination" shall mean (i) with respect to federal
Taxes, a "determination" as defined in Section 1313(a) of the Code or execution
of an Internal Revenue Service Form 870 or 870AD and, with respect to Taxes
other than federal Taxes, any final determination in respect of any Tax or
adjusted Tax basis issue that, under applicable law, is not subject to further
review, appeal or modification through proceedings or otherwise, (ii) any final
disposition of a Tax or adjusted Tax basis issue by reason of the expiration of
the applicable statute of limitations, or (iii) the determination by Buyer that
such position is required by law or administrative pronouncement.
1.8 Waiver. The Company and each of the Sellers hereby agrees to waive
------
their rights pursuant to Article VI (Certificate of Stock and Transfers) of the
Company's By-Laws with respect to the transactions contemplated by this
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLERS
-------------------------------------------------------------
The Company and each Seller hereby jointly and severally represent and
warrant as of the date of this Agreement to Buyer that, except as contemplated
by this Agreement and except as set forth in the disclosure schedule attached
hereto (the "Disclosure Schedule"), the following are true and correct (For the
-------------------
purposes of this Article II, unless the context otherwise requires or as
otherwise provided, "Company" shall mean and include the Company and its
Subsidiaries (as hereinafter defined in Section 2.3), including, without
limitation DVAL, Inc., a Delaware corporation and a wholly-owned subsidiary of
the Company (the "Delaware Subsidiary"), and the Disclosure Schedule shall
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specifically indicate matters that relate to the Delaware Subsidiary):
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2.1. Corporate Existence and Power. (a) The Company (excluding
-----------------------------
Subsidiaries for purposes of this Section 2.1) is a corporation duly
incorporated and validly existing under the laws of the State of Delaware. The
Company has all corporate requisite power and authority to own or lease its
properties and assets as now owned or leased and is duly qualified to do
business as a foreign corporation in each of the states set forth on Schedule
--------
2.1(a) hereto and is in good standing in each jurisdiction where the character
- ------
of the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect on the Company. The Company has all governmental
licenses, permits, authorizations, consents and approvals required to carry on
its business as now conducted except for such governmental licenses, permits,
authorizations, consents and approvals of which the failure to have obtained
would not have a Material Adverse Effect on the Company. Wherever used in this
Agreement, "Material Adverse Effect," with respect to any person or entity,
-----------------------
means a material adverse effect or impact on the financial condition, business,
properties, assets, liabilities (including contingent liabilities), or results
of operations of such person or entity and its affiliated companies and
subsidiaries, taken as a whole; provided, however that the effects of any
-------- -------
events, circumstances or conditions resulting solely from changes, developments,
circumstances or conditions (political, economic, or regulatory) that adversely
affect generally the markets where the business of the Company or any of its
Subsidiaries is operated or affect generally industries engaged in the
consulting, software engineering and project management services (including
proposed legislation or regulation by any governmental or regulatory body or the
introduction of any technological changes in such industries) will not
constitute a Material Adverse Effect.
(b) The copies of the Company's certificate of incorporation and by-laws,
as amended to date, which have been delivered to Buyer, in each case certified
by the Company's Secretary, are true, correct and complete and are in full force
and effect.
2.2. Capitalization. The authorized capital stock of the Company
--------------
(excluding the Subsidiaries) consists of 50,000,000 shares of common stock, $.01
par value per share (the "common stock"). The authorized capital stock of the
------------
Delaware Subsidiary consists of 1,000 shares of the Delaware Subsidiary's Common
Stock, $1.00 par value per share (the "Subsidiary Stock"). Schedule 2.2 sets
---------------- ------------
forth, as of the date hereof, all outstanding shares of each class of capital
stock of the Company (excluding the Subsidiaries) and the Delaware Subsidiary.
Except as set forth on Schedule 2.2, there are no outstanding convertible
------------
securities or any other options or rights to acquire capital stock or other
equity securities of the Company (excluding the Subsidiaries), of any Subsidiary
or of the Delaware Subsidiary. All outstanding shares in the capital of the
Company (excluding the Subsidiaries) have been duly authorized and validly
issued and are fully paid and are owned by Sellers as shown on Schedule 2.2.
------------
All outstanding shares in the capital of the Delaware Subsidiary have been duly
authorized and validly issued and are fully paid and are owned by the Company.
Except as set forth in this Section or otherwise set forth on Schedule 2.2,
------------
there are no outstanding (i) shares of capital stock, other securities or
phantom or other equity interests of the Company, (ii) securities of the Company
convertible into or exchangeable for shares of capital stock or other securities
of the Company or (iii) options or other rights to acquire from the Company any
capital stock, other securities or phantom or other equity interests of the
Company (the items in clauses (i), (ii) and (iii) being referred to
<PAGE>
-5-
collectively as the "Company Securities"). There are no outstanding obligations
------------------
of the Company or any Subsidiary, actual or contingent, to issue or deliver or
to repurchase, redeem or otherwise acquire any Company Securities. Except as set
forth on Schedule 2.2, neither the Company nor any of its officers, directors or
------------
shareholders has directly or indirectly through an agent promised or otherwise
offered to issue or grant Company Securities to any current or former officer or
employee of the Company.
2.3. Subsidiaries. For the purposes of this Agreement, a "subsidiary" of
------------ ----------
an entity shall mean a corporation, company or other entity (i) more than 50% of
whose outstanding shares or securities (representing the right to vote for the
election of directors or other managing authority) are, or (ii) which does not
have outstanding shares or securities (as may be the case in a partnership,
limited liability company, joint venture or unincorporated association), but
more than 50% of whose ownership interest representing the right to make
decisions for such other entity is, now owned or controlled, directly or
indirectly, by such entity. "Subsidiary" shall mean any subsidiary of the
----------
Company, including the Delaware Subsidiary.
(a) Each Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities make such qualification
necessary, except for those jurisdictions where failure to be so qualified would
not, individually or in the aggregate, have a Material Adverse Effect. All
Subsidiaries and their respective jurisdictions of incorporation are identified
on Schedule 2.3. The Delaware Subsidiary has no subsidiaries.
------------
(b) All of the outstanding capital stock of, or other ownership
interests in, each Subsidiary is owned by the Company, directly or indirectly,
free and clear of any lien, security interest, claim or encumbrance (other than
restrictions on transfer imposed by applicable federal and state securities
laws) and free of any other limitation or restriction (including any restriction
on the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests).
2.4. Consents and Governmental Authorization. The execution, delivery and
---------------------------------------
performance of this Agreement and the consummation of the transactions
contemplated hereby by the Company (excluding the Subsidiaries) require no
consent, approval or action by or in respect of, or filing with, any third party
or U.S. governmental body, agency, official or authority other than:
(a) compliance with any applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
--------------
promulgated thereunder;
(b) compliance with any applicable foreign or state securities ("blue
----
sky") laws; and
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<PAGE>
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(c) the obtaining of the consents indicated on Schedule 2.4.
------------
2.5. Authorization and Enforceability. This Agreement has been duly
--------------------------------
executed and delivered by the Company (excluding the Subsidiaries) and
constitutes the legal, valid and binding obligations of it, enforceable against
the Company (excluding the Subsidiaries) in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws relating to or affecting the rights and remedies of creditors generally,
provided that no representation or warranty is made as to the availability of
any equitable or other specific remedy upon any breach of this Agreement.
2.6. Non-Contravention. Except as disclosed on Schedule 2.6, the execution
----------------- ------------
and delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and the compliance with the terms,
conditions and provisions of this Agreement by the Company (excluding the
Subsidiaries) and such Seller covered by (S)2.2A, will not (a) contravene any
provision of the Company's (excluding the Subsidiaries) certificate of
incorporation or by-laws, as amended to date; (b) assuming compliance with
Section 2.4 of this Agreement conflict with or result in a breach of or
constitute a default (or an event which might, with the passage of time or the
giving of notice or both, constitute such a default) under any of the terms,
conditions or provisions of any indenture, mortgage, loan or credit agreement or
any other agreement or instrument to which the Company (excluding the
Subsidiaries) is a party or by which its or any of its assets may be bound or
affected, or any judgment or order of any domestic court or governmental
department, commission, board, agency or instrumentality, or any applicable law,
rule or regulation; (c) result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the Company's (excluding the
Subsidiaries) assets or give to others any interests or rights therein; (d)
result in the maturation or acceleration of any liability or obligation of the
Company (excluding the Subsidiaries) (or give others the right to cause such a
maturation or acceleration); or (e) assuming compliance with the matters
referred to in Section 2.4, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to the Company.
2.7. Financial Statements. The Company has delivered to Buyer the
--------------------
following financial statements (the "Financial Statements"):
--------------------
(i) The Company's financial statements individually prepared for the fiscal
year ended March 31, 1999 (the "Year End Financial Statements"); and
-----------------------------
(ii) The Company's financial statements individually prepared for the three
(3) month period ended June 30, 1999, and the six (6) month period ended
September 30, 1999 (the "Interim Financials").
------------------
Except as set forth in Schedule 2.7, the Financial Statements: (a) present
------------
fairly in all material respects the financial position of the Company as of the
dates thereof, and the results of its operations for the periods covered thereby
and (b) have been compiled by Independent Certified Public Accountants in
accordance with Statements on Standards for Accounting and
<PAGE>
-7-
Review Services established by the American Institute of Certified Public
Accountants. The Delaware Subsidiary's Financial Statements have been prepared
on the cash basis of accounting, (OCBOA) which is another comprehensive basis of
accounting other than GAAP. The Financial Statements include all material
accruals, but omit disclosure and the Statement of Cash Flows as required by
GAAP. The interim financial statements are subject to normal year end
adjustments. All references in this Agreement to the "Balance Sheet" shall mean
-------------
the balance sheet of the Company as of September 30, 1999 included in the
Financial Statements and all references to the "Balance Sheet Date" shall mean
------------------
September 30, 1999. As used in this Agreement, the term "to such Seller's
knowledge" or phrases of similar import shall mean the actual knowledge of such
Seller.
2.8. No Undisclosed Material Liabilities. The Company has no material
-----------------------------------
liability of any nature, whether accrued, absolute, or contingent, except for
liabilities that are (a) properly reflected on the Balance Sheet, (b) incurred
in the ordinary course of business since the Balance Sheet Date, (c) incurred in
connection with or as a result of the transactions contemplated by this
Agreement or (d) disclosed on Schedule 2.8 hereto.
------------
2.9 No Material Adverse Changes. Since the Balance Sheet Date, except as
---------------------------
indicated on Schedule 2.9 and except as otherwise contemplated by this
------------
Agreement, there has not been:
(a) Any material adverse change in the financial condition, assets,
liabilities, operations, or business of the Company, except changes in
the ordinary course of business which, individually or in the
aggregate, have not had or would not reasonably be expected to have, a
Material Adverse Effect on the Company;
(b) Any damage, destruction or loss, whether or not covered by insurance,
adversely affecting the properties or business of the Company, which,
individually or in the aggregate, has had, or would reasonably be
expected to have, a Material Adverse Effect on the Company;
(c) Any declaration, setting aside or payment of a dividend or other
distribution in respect of any of the capital stock of the Company, or
any redemption, purchase or other acquisition of any capital stock of
the Company or of any rights to purchase such capital stock or
securities convertible into or exchangeable for such capital stock;
(d) Any increase in the salaries or other compensation payable or to
become payable to, or any advance (excluding advances for business
expenses in the ordinary course) or loan to, any officer, director,
employee, agent or shareholder of the Company (except normal annual
merit increases made in the ordinary course to non-officer employees),
or any increase in, or any addition to, other benefits (including
without limitation any bonus, profit sharing, severance, pension or
other plan) to which any of its or their officers, directors,
employees or shareholders may be entitled, or any payments to any
pension, retirement, profit-sharing, bonus, severance or similar plan
except payments made pursuant to the
<PAGE>
-8-
compensation arrangements disclosed on Schedule 2.18 hereto or the
-------------
employee benefit plans disclosed on Schedule 2.22 hereto, or any
-------------
other payment of any kind to or on behalf of any such officer,
director, employee or shareholder other than payment of base
compensation and reimbursement for reasonable business expenses in
the ordinary course;
(e) Any making or authorization of a capital expenditure in excess of
$10,000 for any single project;
(f) Any sale, transfer or other disposition of any assets of the
Company, except sales of inventory in the ordinary course or other
sales in the ordinary course;
(g) Any payment, discharge or satisfaction of any liability or
obligation (whether accrued, absolute, contingent or otherwise) by
the Company, other than the payment, discharge or satisfaction, in
the ordinary course of business, of liabilities or obligations shown
or reflected on the Balance Sheet or incurred in the ordinary course
of business since the Balance Sheet Date;
(h) Any change by the Company in any method of accounting or accounting
practice, except for such changes as are required by reason of a
concurrent change in GAAP;
(i) Any creation, incurrence, assumption or guarantee by the Company of
any obligations or liabilities (whether absolute, accrued or
contingent), except in the ordinary course of business, or any
creation, incurrence, assumption or guarantee by the Company of any
indebtedness for money borrowed;
(j) any recapitalization or reorganization; or
(k) any amendment or other change (or any authorization to make such an
amendment or change) to the Company's certificate of incorporation
or by-laws.
2.10. Taxes.
-----
(a) Taxes Definitions. The following terms, as used herein, have the
-----------------
following meanings:
"Taxes" means all federal, state, local, foreign net income,
-----
alternative or add-on minimum tax, estimated, gross income, gross receipts,
sales, use, ad valorem, value added, transfer, franchise, capital profits,
lease, service, license, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, environmental or windfall profit taxes,
customs, duties and other taxes, governmental fees and other like assessments
and charges of any kind whatsoever, together with all interest, penalties,
additions to tax and additional amounts with respect thereto, and the term "Tax"
---
means any one of the foregoing Taxes.
<PAGE>
-9-
"Tax Returns" means all returns, declarations, reports, claims for
-----------
refund, information statements and other documents relating to Taxes, including
all schedules and attachments thereto, and including all amendments thereof, and
the term "Tax Return" means any one of the foregoing Tax Returns.
----------
"Tax Authority" means any governmental authority responsible for the
-------------
imposition of any Tax.
(b) Each of the Company (excluding the Subsidiaries for this Section
2.10) and its Subsidiaries has timely filed all Tax Returns required to be filed
and has timely paid all Taxes owed (whether or not shown as due on such
returns), including, without limitation, all Taxes which any of the Company and
its Subsidiaries is obligated to withhold for amounts paid or owing to
employees, creditors and third parties. All such Tax Returns were complete and
correct in all respects, and such Tax Returns correctly reflected the facts
regarding the income, business, assets, operations, activities, status and other
matters of each of the Company and its Subsidiaries and any other information
required to be shown thereon. None of the Tax Returns filed by any of the
Company and its Subsidiaries or Taxes payable by any of the Company and its
Subsidiaries have been the subject of an audit, action, suit, proceeding, claim,
examination, deficiency or assessment by any governmental authority, and no such
audit, action, suit, proceeding, claim, examination, deficiency or assessment is
currently pending or, to the knowledge of the Company, threatened. None of the
Company and its Subsidiaries is currently the beneficiary of any extension of
time within which to file any Tax Return, and none of the Company and its
Subsidiaries has waived any statute of limitation with respect to any Tax or
agreed to any extension of time with respect to a Tax assessment or deficiency.
All material elections with respect to Taxes affecting any of the Company and
its Subsidiaries, as of the date hereof, are set forth in the Financial
Statements or in Schedule 2.10. None of the Tax Returns filed by any of the
-------------
Company and its Subsidiaries contains a disclosure statement under former
Section 6661 of the Code or Section 6662 of the Code (or any similar provision
of state, local or foreign Tax law).
(c) None of the Company and its Subsidiaries is a party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of (i) any "excess parachute
payments" within the meaning of Section 280G of the Code (without regard to the
exceptions set forth in Sections 280G(b)(4) and 280G(b)(5) of the Code) or (ii)
any amount for which a deduction would be disallowed or deferred under Section
162 or Section 404 of the Code. None of the Company and its Subsidiaries has
agreed to make any adjustment under Section 481(a) of the Code (or any
corresponding provision of state, local or foreign Tax law) by reason of a
change in accounting method or otherwise, and will not be required to make such
an adjustment as a result of the transactions contemplated by this Agreement.
None of the Company and its Subsidiaries is, or has been, a U.S. real property
holding company (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(d) None of the assets of any of the Company and its Subsidiaries is
property which is required to be treated as being owned by any other Person
pursuant to the so-called "safe harbor lease" provisions of former Section
168(f)(8) of the Code. None of the assets of any
<PAGE>
-10-
of the Company and its Subsidiaries directly or indirectly secures any debt the
interest on which is tax exempt under Section 103(a) of the Code. None of the
assets of any of the Company and its Subsidiaries is "tax-exempt use property"
within the meaning of Section 168(h) of the Code. No claim has ever been made by
a Tax Authority in a jurisdiction where any of the Company and its Subsidiaries
does not file Tax Returns that any of the Company and its Subsidiaries is or may
be subject to Tax in that jurisdiction. None of the Company and its Subsidiaries
has participated in an international boycott as defined in Section 999 of the
Code. No portion of the Consideration is subject to the Tax withholding
provisions of Section 3406 of the Code, or of Subchapter A of Chapter 3 of the
Code or of any other provision of law. None of the Company and its Subsidiaries
is a party to any joint venture, partnership, or other arrangement or contract
which could be treated as a partnership for federal income tax purposes. None of
the Company and its Subsidiaries has, or has had, a permanent establishment in
any foreign country, as defined in any applicable Tax treaty or convention
between the United States and such foreign country. None of the shares of
outstanding capital stock of any of the Company and its Subsidiaries are subject
to a "substantial risk of forfeiture" within the meaning of Section 83 of the
Code. None of the Company and its Subsidiaries has filed a consent pursuant to
Section 341(f) of the Code, relating to collapsible corporations. Schedule 2.10
-------------
sets forth each of the Company's and its Subsidiaries' Tax basis in each of
their assets.
(e) None of the Company and its Subsidiaries is a party to any Tax
sharing agreement or similar arrangement. None of the Company and its
Subsidiaries has been a member of a group filing a consolidated federal income
Tax Return (other than a group the common parent of which was the Company), and
none of the Company and its Subsidiaries has any liability for the Taxes of any
Person (other than any of the Company and its Subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any corresponding provision of state, local or
foreign Tax law), as a transferee or successor, by contract, or otherwise. None
of the Company and its Subsidiaries has net operating losses or other tax
attributes presently subject to limitation under Sections 382, 383 or 384 of the
Code, or the federal consolidated return regulations (other than limitations
imposed as a result of the transactions contemplated pursuant to this
Agreement).
(f) There are no liens for Taxes upon any of the assets of any of
the Company and its Subsidiaries, other than for ad valorem Taxes that are not
yet due and payable. The unpaid Taxes of the Company and its Subsidiaries did
not, as of the Balance Sheet Date, exceed the reserve for actual Taxes (as
opposed to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) as shown on the Balance Sheet as of the
Balance Sheet Date, and will not exceed such reserve as adjusted for the passage
of time through the Closing Date in accordance with the past custom and practice
of the Company in filing their Tax Returns. None of the Company and any of its
Subsidiaries will incur any liability for Taxes from the Balance Sheet Date
through the Closing Date other than in the ordinary course of business and
consistent with past practice.
(g) Schedule 2.10 hereto contains a list of all jurisdictions
-------------
(whether foreign or domestic) to which any Tax is properly payable by any of the
Company and its Subsidiaries.
<PAGE>
-11-
(h) All taxes which the Company has been required to collect or
withhold have been duly withheld or collected and, to the extent required, have
been paid to the proper taxing authority.
(i) At no time has the Company been included in the federal
consolidated income tax return of any affiliated group of corporations.
(j) Neither the Company nor its Subsidiary has ever filed a consent
pursuant to Section 341(f) of the Code (or any corresponding provision of state,
local or foreign law) or agreed to have Section 341(f)(2) of the Code (or any
corresponding provision of state, local or foreign law) apply to the disposition
of any asset owned by it.
2.11. No Pending Litigation or Proceedings. Except as indicated on
------------------------------------
Schedule 2.11, there are no actions, suits or proceedings pending or, to such
- -------------
Seller's Knowledge, threatened at law or in equity, by or before any United
States court or governmental department, agency or instrumentality against the
Company or any of its assets or against the directors or officers of the Company
with respect to their role as an officer or director of the Company. There are
presently no outstanding judgments, decrees, injunction or orders of any court
or any governmental or administrative agency against or adversely affecting the
Company or any of its businesses.
2.12. Material Contracts. Except as set forth on Schedule 2.12, the
------------------ -------------
Company is not a party to or bound by any lease, contract or commitment, of the
following types:
(a) mortgages, indentures, security agreements or other agreements and
instruments relating to the borrowing of money, the extension of
credit or the granting of liens or encumbrances;
(b) employment and consulting agreements;
(c) non-compete and non-notification agreements;
(d) union or other collective bargaining agreements;
(e) licenses of patent, trademark and other intellectual property rights
with respect to which the Company is either licensee or licensor
(other than licenses generally available to the public);
(f) any agreement, order or commitment for the purchase of services, raw
materials, supplies or finished products from any one supplier for
an amount in excess of $10,000;
(g) any agreement, order or commitment for the sale of products or
services for more than $10,000 to any single purchaser;
<PAGE>
-12-
(h) contract or option relating to the sale by the Company of any
material asset, other than sales of inventory in the ordinary course
of business or other sales in the ordinary course;
(i) any agreement for capital expenditures in excess of $10,000 for any
single project;
(j) any sales agency, manufacturer's representative and distributorship
agreement or other distribution or commission agreement with third
parties;
(k) joint venture agreements;
(l) any lease agreement for personal property under which it is either
lessor or lessee where the aggregate payments during the term of the
lease would exceed $25,000; or
(m) lease agreements for real property.
2.13. Contract Compliance. All leases, contracts and other commitments
-------------------
referred to in subsection (a) through subsection (m) of Section 2.12 above are
in full force and effect; except as disclosed on Schedule 2.13, neither the
-------------
Company nor, to such Seller's Knowledge, any other party thereto is in default
under any of the terms thereof; and no event has occurred that with the passage
of time or the giving of notice or both would constitute a default by the
Company, or to the Knowledge of such Seller, any other party under any provision
thereof.
2.14. Compliance with Laws. Except as indicated on Schedule 2.14:
-------------------- -------------
(a) The Company has all licenses, permits, franchises, orders,
approvals, accreditations, written waivers and other authorizations (including,
without limitation, Environmental Permits (as herein defined)) from any United
States governmental, regulatory or administrative agency as are necessary in
order to enable it to own and conduct its business as currently conducted and to
occupy and use its real and personal properties without incurring any material
liability. No licenses, registration, filing, application, notice, transfer,
consent, approval, order, qualification, waiver or other action of any kind is
required by virtue of the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby to avoid the loss of any
rights pertaining to any such license, permit, franchise, order, approval,
accreditation, waiver or authorization. To such Seller's knowledge, the Company
is in compliance with the terms and conditions of all such licenses, permits,
franchises, orders, approvals, accreditations, waivers and authorizations; and
(b) To such Seller's knowledge, the Company has conducted and is
conducting its business in compliance with applicable federal, state or local
laws, statutes, ordinances, regulations, rules or orders or other requirements
of any United States governmental, regulatory or administrative agency or
authority or court or other tribunal relating to it (including, but not limited
to, any law, statute, ordinance, regulation, rule or order relating to
securities, properties, business, the Environment (as defined below), products,
advertising, sales,
<PAGE>
-13-
employment practices, discrimination, immigration, terms and conditions of
employment, wages and hours, safety, occupational health and safety, health or
welfare conditions relating to premises occupied (other than the Environmental
Laws as set forth in Section 2.15 hereto), employee benefits, plans and
programs, product safety and liability or civil rights) and there have not been
during the past five (5) years any complaints against the Company pending or, to
the knowledge of the Company, threatened before any federal, state or local
agency. The Company is not now charged with, is not, to such Seller's knowledge,
now under investigation with respect to, and has not, to such Seller's
knowledge, been threatened with any violation of any applicable United States
law, statute, ordinance, regulation, rule or order relating to any of the
foregoing in this clause (b) in connection with the business of the Company, and
the Company has filed all material reports required to be filed with any United
States governmental, regulatory or administrative agency or authority.
2.15. Environmental Compliance.
------------------------
(a) Environmental Definitions. The following terms, as used herein, have
-------------------------
the following meanings:
"CERCLA" means the Comprehensive Environmental Response,
------
Compensation and Liability Act of 1980, as amended, and the regulations
promulgated thereunder, and court decisions in respect thereof, all as shall be
in effect at the time.
"Environment" means any and all environmental media, including,
-----------
without limitation, ambient air, surface water, ground water, drinking water
supply, land surface or subsurface strata.
"Environmental Laws" means any and all applicable United States
------------------
federal and state, local statutes, laws, regulations, ordinances, rules, orders,
decrees, codes, plans, permits, licenses, agreements, or governmental
restrictions, relating to the Environment or to emissions, discharges or the
Release of any Hazardous Substance into the Environment, or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances or the assessment, clean-up or
other remediation thereof.
"Environmental Permits" means any and all governmental permits,
---------------------
licenses, grants, agreements, authorizations, registrations or other
governmental approvals or restrictions issued or required under any
Environmental Laws.
"Hazardous Substance" means and any and all toxic, caustic,
-------------------
radioactive, or otherwise hazardous substances, materials or wastes that are
regulated under Environmental Laws, including petroleum, its derivatives, by-
products and other hydrocarbons.
"Release" means any spilling, leaking, pumping, pouring, emitting,
-------
emptying, discharging, injecting, escaping, leaching, dumping, or disposing into
the Environment (including, without limitation, the abandonment or discarding of
barrels, containers or other closed receptacles containing any Hazardous
Substance).
<PAGE>
-14-
(b) Environmental Representations. Except as indicated on Schedule 2.15:
----------------------------- -------------
(i) No notice, notification, demand, request for information,
citation, summons or order has been received by the Company, and, to such
Seller's Knowledge, no complaint has been filed, and no penalty has been
assessed or no investigation or review is pending or, to such Seller's
Knowledge, overtly threatened by any United States governmental entity, with
respect to: (A) any alleged violation by the Company of any Environmental Law;
or (B) any alleged failure by the Company to have any Environmental Permit
required under any Environmental Law.
(ii) To such Seller's Knowledge, (A) there are not underground
storage tanks, active or abandoned, at property owned or leased by the Company;
and (B) no Hazardous Substance has been Released at, on, or under any property
owned or leased by the Company.
(iii) The Company has not transported or arranged for the
transportation (directly or indirectly) of any Hazardous Substance to any
location which is listed or proposed for listing under CERCLA, or on any similar
state list or which is the subject of Federal, state or local enforcement
actions for clean-up costs, remedial work, damages to natural resources or for
personal injury claims, including, but not limited to, claims under CERCLA.
(iv) No oral or written notification of a Release of a Hazardous
Substance has been filed by or on behalf of the Company and, to such Seller's
Knowledge, no property owned or leased by the Company is listed or proposed for
listing, on the National Priorities List promulgated pursuant to CERCLA or on
any similar state list of sites requiring investigation or clean-up.
(v) To such Seller's knowledge, there are no liens of record imposed
pursuant to any Environmental Law (other than any Permitted Lien) on any of the
Company's assets, and no, to such Seller's knowledge, governmental actions have
been taken or are in process that could subject any of such assets to such
liens.
(vi) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by or at the request of the
Company, or which are in the possession of the Company, in relation to any
property or facility owned or leased by the Company that have not been delivered
to Buyer prior to the date hereof.
2.16. Title. Except as indicated on Schedule 2.16, the Company has good
----- -------------
and marketable title to, or the valid right to use, all of its properties and
assets, including the properties and assets reflected in the Balance Sheet
(except those disposed of in the ordinary course of business since the Balance
Sheet Date), free and clear of any mortgage, pledge, lien, restriction,
encumbrance, claim, security interest, charge or any other encumbrance adversely
affecting title, except liens for current taxes not yet due and payable
(collectively, "Liens") other than Permitted Liens. As used in this Agreement,
the term "Permitted Liens" means (i) any Lien for taxes and assessments not yet
---------------
past due or otherwise being contested in good faith, (ii) any
<PAGE>
-15-
Lien arising out of deposits made to secure leases or other obligations of a
like nature arising in the ordinary course of Business, (iii) any Lien provided
for in any contract listed Schedule 2.16 and not related to any indebtedness for
-------------
borrowed money, (iv) any Lien affecting real property that does not secure a
monetary obligation, (v) any Lien which does not materially interfere with the
use by the Company or any Subsidiary of the property subject thereto or affected
thereby (including any easements, rights of way, restrictions, installations of
public utilities, title imperfections and restrictions, reservations in land
patents, zoning ordinances or other similar Liens), (vi) as to leaseholds,
interests of the lessors thereof and Liens affecting the interests of such
lessors, and (vii) any Lien set forth on Schedule 2.16 attached hereto.
-------------
2.17. Transactions with Related Parties. A "Related Party" means any
--------------------------------- -------------
Seller, any of the officers or directors of the Company, any affiliate or
relative of any Seller, the Company, or any of their respective officers or
directors, or any business or entity in which any Seller, the Company or any
affiliate, associate or relative of any such persons has any direct or material
indirect interest, it being understood that any interest of 1% or less in any
business entity shall not be considered a "direct or material indirect interest"
for purposes of this Section 2.17. Since the Balance Sheet Date and except as
disclosed on Schedule 2.17, no Related Party has or has had:
-------------
(a) borrowed money from, or loaned money to, the Company;
(b) any interest in any property or assets used by the Company in its
business; or
(c) engaged in any other transaction with the Company (other than
director or employment relationships).
2.18. Compensation Arrangements; Bank Accounts. Schedule 2.18 hereto sets
---------------------------------------- -------------
forth the following information:
(a) the names and current salaries and commissions, including any
bonuses, if applicable, of all present officers and employees of the
Company whose salary and commissions, including any bonuses, equal or
exceed $75,000 per annum, together with a statement of the
remuneration paid by the Company to each such person and to any
director of the Company, during calendar year 1999; and
(b) the names and locations of all banks, trust companies, savings and
loan associations and other financial institutions at which the
Company maintains safe deposit boxes or accounts of any nature, the
names of all persons authorized to draw thereon, make withdrawals
therefrom or have access thereto and the numbers of all such safe
deposit boxes or accounts.
2.19. Labor Relations. Schedule 2.19 sets forth a true and complete list
--------------- -------------
of (a) all directors of the Company, (b) all officers (with offices held) of the
Company, (c) all consultants and independent contractors retained by the Company
currently or during the last fiscal year who received during the last fiscal
year more than $10,000 in fees or payments and (d) all employees
<PAGE>
-16-
of the Company not set forth on Schedule 2.18, including each such employee's
-------------
weekly remuneration. Except as disclosed in Schedules 2.18 and 2.19, the Company
-------------- -----
is not a party to any written or oral severance, employment or consulting
agreement, or any service agreement which required fees or payments during the
prior or current fiscal year of more than $10,000. The Company is not a party
to, and none of its employees are subject to, any collective bargaining
agreement or other union contract. Except as set forth on Schedule 2.12, the
-------------
Company is not a party to, and none of its employees are subject to, any
agreement that would prevent the Company or its employees from operating the
Company's business as conducted or as proposed to be conducted. The Company
generally enjoys good relations with its employees. To the knowledge of such
Seller, there has been no past or current effort to organize any of its
employees.
2.20. Insurance. Attached hereto as Schedule 2.20 is a complete list of
--------- -------------
all policies of insurance of which the Company is the owner, insured or
beneficiary, or covering any of its property, indicating for each policy the
carrier, risks insured, the amounts of coverage, deductible, and premium rate.
With respect to each such insurance policy: (a) to such Seller's Knowledge, the
policy will remain in full force and effect on identical terms immediately
following the consummation of the transactions contemplated hereby; (b) neither
the Company nor to such Seller's Knowledge any other party to the policy, is in
breach or default (including with respect to the payment of premiums or the
giving of notices), and, to such Seller's Knowledge, no event has occurred
which, with notice or the lapse of time, would constitute such a breach or
default by the Company, or any other party to the policy, or permit termination,
modification, or acceleration under the policy; and (c) to such Seller's
Knowledge, no party to the policy has repudiated any provision thereof.
2.21. Intellectual Property.
---------------------
(a) Schedule 2.21 sets forth a true and complete list and a brief
-------------
description of each patent and patent application and each registration or
application for registration thereof and each trademark, service mark, domain
name and copyright registration or application for trademark, service mark,
domain name or copyright registration, which, together with all patent rights,
trademark rights, service mark rights, trade names, copyrights, and all
intellectual, industrial, software or proprietary rights and trade secrets,
technology and know-how of the Company, constitutes all of the intellectual
property owned by the Company ("Owned Intellectual Property"), and a true and
---------------------------
complete brief description, including a description of any license or sublicense
thereof, which constitutes all of the intellectual property licensed or
sublicensed by the Company from a third party and all intellectual property
(other than intellectual property generally made available to the public) that a
third party has authorized the Company to use ("Licensed Intellectual
---------------------
Property"). Except as otherwise described on Schedule 2.21, in each case where
- -------- -------------
a registration or patent or application for registration or patent listed on
Schedule 2.21 is held by assignment, the assignment has been duly recorded with
- -------------
the state or national Trademark Office from which the original registration
issued or before which the application for registration is pending. Except as
disclosed on Schedule 2.21, to the Company's knowledge, the rights of the
-------------
Company in or to such Owned Intellectual Property or Licensed Intellectual
Property do not infringe on the rights of any other individual, partnership,
firm, corporation, association, trusts or
<PAGE>
-17-
other entity ("Person") and the Company has not received any claim or written
------
notice from any Person to such effect.
(b) Except as disclosed on Schedule 2.21: (i) to Seller's Knowledge, the
-------------
Company is the sole and exclusive owner of all the Owned Intellectual Property,
free and clear of any security interest, pledge, mortgage, lien (including
without limitation, environmental and tax liens), charge, encumbrance, or
restriction of any kind (the "Encumbrance") and (ii) no claim, action, suit
-----------
inquiry, proceeding or investigation ("Action") has been made or asserted or is
------
pending or, to the Company's knowledge, threatened against the Company either
(A) based upon or challenging the validity and/or enforceability of any of the
Owned Intellectual Property, or seeking to deny or restrict the use by the
Company of any of the Owned Intellectual Property or (B) alleging that any
services provided, or products manufactured or sold by the Company are being
provided, manufactured or sold in violation of any patents or trademarks, or any
other rights of any Person. The Company owns or possesses adequate licenses or
other rights to use all Owned Intellectual Property necessary or desirable to
the conduct of its business as conducted and as proposed to be conducted.
Except as disclosed on Schedule 2.21, to the Company's Knowledge, no Person is
-------------
using any patents, copyrights, trademarks, service marks, domain names, trade
names, trade secrets or similar property that are confusingly similar to the
Owned Intellectual Property or that infringe upon the Owned Intellectual
Property or upon the rights of the Company therein. Except as disclosed on
Schedule 2.21, the Company has not granted any license or other right to any
- -------------
other Person with respect to the Owned Intellectual Property. The consummation
of the transactions contemplated by this Agreement will not result in the
termination or impairment of any of the Owned Intellectual Property.
Without limiting the generality of the foregoing paragraph: (i)
Company has duly registered with Network Solutions the domain name of its sites
on the World Wide Web (the "Company Domain Names") located at
--------------------
http://www.dval.com, and is the sole registrant of and possesses all rights
- -------------------
necessary to use the Company Domain Names; (ii) Company has the sole and
exclusive right to operate the Company Website and to use, market, develop,
sell, license, display, distribute, publish and transmit all information,
content, software and other materials available at the Company Website; (iii) to
the Company's knowledge, neither the Company Website, Company's operation
thereof, the Company Domain Names nor any of the information, content, software
or other materials available at any Company Website infringes upon, violates or
constitutes a misappropriation of any proprietary rights of any other person or
entity or of any applicable law or regulation; and (iv) to the Company's
knowledge, no other person has any interest in, or right or claim to, the
Company Website or any part thereof.
(c) The Company has, or has caused to be, delivered to the Buyer correct
and complete copies of all licenses and sublicenses for Licensed Intellectual
Property set forth on Schedule 2.21 and any and all ancillary documents
-------------
pertaining thereto (including, without limitation, all amendments, consents and
evidence of commencement dates and expiration dates). With respect to each of
such licenses and sublicenses:
(i) such license or sublicense, together with all ancillary documents
delivered pursuant to the first sentence of this Section 2.21(c), is legal,
valid, binding and
<PAGE>
-18-
enforceable with respect to the Company and, to the Company's Knowledge,
with respect to every other party thereto, and is in full force and effect
with respect to the Company and, to the Company's Knowledge, with respect
to every other party thereto, and represents the entire agreement between
the respective licensor and licensee with respect to the subject matter of
such license or sublicense (as used in this Agreement, the phrase "to the
Company's Knowledge" or similar phrases mean the actual knowledge of any of
the Sellers);
(ii) except as otherwise set forth on Schedule 2.21, such license or
-------------
sublicense will not cease to be legal, valid, binding and enforceable and
in full force and effect on terms identical to those currently in effect as
a result of the consummation of the transactions contemplated by this
Agreement, nor will the consummation of the transactions contemplated by
this Agreement constitute a breach or default under such license or
sublicense or otherwise give the licensor or sublicensor a right to
terminate such license or sublicense;
(iii) except as otherwise disclosed on Schedule 2.21, with respect to
-------------
each such license or sublicense: (A) the Company has not received any
notice of termination or cancellation under such license or sublicense and
no licensor or sublicensor has any right of termination or cancellation
under such license or sublicense except in connection with the default of
the Company thereunder, (B) the Company has not received any notice of a
breach or default under such license or sublicense, which breach or default
has not been cured, and (C) the Company has not granted to any other Person
any rights, adverse or otherwise, under such license or sublicense;
(iv) Except as otherwise disclosed on Schedule 2.21, neither the
-------------
Company, nor (to the Knowledge of the Company) any other party to such
license or sublicense, is in breach or default in any material respect, and
no event has occurred that, with notice or lapse of time would constitute
such a breach or default or permit termination, modification or
acceleration under such license or sublicense;
(v) except as set forth on Schedule 2.21, no Actions have been
-------------
made or asserted or are pending or threatened against the Company either
(A) based upon or challenging the validity and/or enforceability of any of
the Licensed Intellectual Property, or seeking to deny or restrict the use
by the Company of any of the Licensed Intellectual Property or (B) alleging
that any Licensed Intellectual Property is being licensed, sublicensed or
used in violation of any patents or trademarks, or any other rights of any
Person; and
(vi) to the Knowledge of the Company, no Person is using any U.S.
patents, or any copyrights, trademarks, domain names, service marks, trade
names, trade secrets or similar property that are confusingly similar to
the Licensed Intellectual Property or that infringe upon the Licensed
Intellectual Property or upon the rights of the Company therein.
<PAGE>
-19-
(d) The Company has not received any denial of any pending applications to
register trademarks, service marks or copyrights or any pending patent
applications.
(e) The intellectual property set forth on Schedule 2.21, together with all
--------------
patent rights, trademark rights, service mark rights, trade names, copyrights,
and all intellectual, industrial, software or proprietary rights and trade
secrets, technology and know-how of the Company, and the Licensed Intellectual
Property constitutes all the intellectual property used or held or intended to
be used by the Company or forming a part of, used, held or intended to be used
in, and, to the Knowledge of such Seller, all such intellectual property
necessary in the conduct of, the business of the Company and there are no other
items of intellectual property that are material to the Company or the Company's
business as presently conducted or as expected to be conducted on behalf of
Buyer.
2.22. Employee Benefit Plans.
----------------------
(a) The following terms, as used herein, having the following meanings:
"Benefit Arrangement" means each employment, severance or other similar
-------------------
contract, arrangement or policy (written or oral) and each plan or arrangement
(written or oral) providing for severance benefits, insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation rights or other forms of incentive compensation or post-
retirement insurance, compensation or benefits that (i) is not an Employee Plan,
(ii) is entered into, maintained or contributed to, as the case may be, by the
Company or any of its ERISA Affiliates and (iii) covers any employee or former
employee of the Company.
"Employee Plan" means each "employee benefit plan," as such term is defined
-------------
in Section 3(3) of ERISA, that (i) is subject to any provision of ERISA and (ii)
is maintained or contributed to by the Company or any of its ERISA Affiliates,
as the case may be.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"ERISA Affiliate" of any entity means any other entity that, together with
---------------
such entity, would be treated as a single employer under Section 414 of the
Code.
"Multiemployer Plan" means each Employee Plan that is a multiemployer plan,
------------------
as defined in Section 3(37) of ERISA.
(b) Schedule 2.22 lists each Employee Plan that covers any employee of the
-------------
Company, copies or descriptions of all of which have previously been made
available or furnished to Buyer. With respect to each Employee Plan, the
Company has provided the three (3) most recently filed Forms 5500 and an
accurate summary description of such plan.
<PAGE>
-20-
(c) Schedule 2.22 also includes a list of each Benefit Arrangement of the
-------------
Company, copies or descriptions of which have been made available or furnished
previously to Buyer.
(d) None of the Employee Plans or other arrangements listed on Schedule
--------
2.22 covers any non-United States employee or former employee of the Company
- ----
(other than with respect to former employees, a right to receive benefits
accrued as of the date of termination of employment).
(e) No "prohibited transaction", as defined in Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to any Employee Plan.
(f) Neither the Company nor any ERISA Affiliate maintains or has ever
maintained or contributed to a Multiemployer Plan, a "multiple employer plan" as
defined in Section 210 of ERISA, or an Employee Plan subject to Title IV of
ERISA.
(g) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. The Company has furnished to Buyer
copies of the most recent Internal Revenue Service determination letters with
respect to each such Employee Plan. Each Employee Plan has been maintained in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, which are applicable to such Employee Plan.
(h) Each Benefit Arrangement has been maintained in material compliance
with its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations which are applicable to such Benefit Arrangement.
(i) With respect to the employees and former employees of the Company,
there are no employee post-retirement medical or health plans in effect, except
as required by Section 4980B of the Code or, if applicable, state law. No tax
under Section 4980B or Section 4980D of the Code has been incurred in respect of
any Employee Plan that is a group health plan, as defined in Section 5000(b)(1)
of the Code.
(j) All contributions and payments accrued under each Employee Plan and
Benefit Arrangement, determined in accordance with prior funding and accrual
practices, as adjusted to include proportional accruals for the period ending on
the Closing Date, will be discharged and paid on or prior to the Closing Date
except to the extent reflected on the Closing Balance Sheet. There has been no
amendment to, written interpretation of or announcement (whether or not written)
by the Company or any of its ERISA Affiliates relating to, or change in employee
participation or coverage under, any Employee Plan or Benefit Arrangement that
would increase materially the expense of maintaining such Employee Plan or
Benefit Arrangement above the level of the expense incurred in respect thereof
for the fiscal year ended prior to the date hereof.
<PAGE>
-21-
(k) Except as disclosed on Schedule 2.22, no employee of the Company will
-------------
become entitled to any material bonus, retirement, severance or similar benefit
or enhanced benefit solely as a result of the transactions contemplated hereby.
(l) No provision of this Section 2.22 shall create any third party
beneficiary or other rights in any employee or former employee (including any
beneficiary or dependent thereof) of the Company in respect of continued
employment (or resumed employment) with the Company and no provision of this
Section 2.22 shall create any such rights in any such Persons in respect of any
benefits that may be provided, directly or indirectly, under any Employee Plan
or Benefit Arrangement or any plan or arrangement that may be established by
Buyer or any of its Affiliates. No provision of this Agreement shall constitute
a limitation on rights to amend, modify or terminate after the Closing Date any
Employee Plan or Benefit Arrangement.
2.23. Finders' Fees. Except as set forth on Schedule 2.23, there is no
------------- -------------
investment banker, broker, finder or other intermediary which has been retained
by or is authorized to act on behalf of the Sellers or the Company which might
be entitled to any fee or commission from Buyer or the Company upon consummation
of the transactions contemplated by this Agreement.
2.24 Inventories. The Company has no inventories.
-----------
2.25. Accounts Receivable. Except as disclosed on Schedule 2.25, all of
------------------- -------------
the accounts receivable of the Company shown in the Financial Statements have
been reflected in the Financial Statements in accordance with GAAP and are valid
and enforceable claims, subject to no set-off or counterclaim, they are not past
due in terms and are fully collectible in the ordinary course of business,
subject to the reserve for uncollectible accounts set forth in the Financial
Statements. The Company has no accounts receivable or loans or notes receivable
from any affiliates or from any of its officers, directors, consultants,
employees, agents, or shareholders, except for travel advances and expenses in
the ordinary course of business.
2.26. Customers and Suppliers. Except as reflected on Schedule 2.26, no
----------------------- -------------
supplier is a material sole source of supply to the Company providing products
to the Company which can not be replaced with a comparable product of another
supplier at a comparable price. Except as set forth on Schedule 2.26, no
-------------
customer provided sales to the Company in excess of ten percent (10%) of total
Company sales for the Company's fiscal year ended March 31, 1999 or for the six
months ended September 30, 1999. The Sellers have no knowledge that any of the
suppliers or customers of the Company for the Company's fiscal year ended March
31, 1999 and for the six months ended September 30, 1999 has given written
notice in the past twelve months of its intention to cancel its relationship
with the Company.
2.27. Disclosure of Material Information. This Agreement (including the
----------------------------------
Schedules, Exhibits and other attachments hereto) and any documents,
certificates, or instruments furnished in connection therewith, all taken as a
whole, do not contain, with respect to the Company, any untrue statement of a
material fact or, to the knowledge of the Sellers, omit to state a material fact
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
<PAGE>
-22-
ARTICLE IIA
ADDITIONAL REPRESENTATIONS
--------------------------
AND WARRANTIES OF SELLERS AND CORUM
-----------------------------------
Each Seller, severally but not jointly, represents and warrants to, and agrees
with, Buyer as follows and Corum, severally but not jointly, represents and
warrants to, and agrees with, Buyer solely with respect to Sections 2.1A
(Authority) and 2.3A (Experience; Investment Intent):
2.1A. Title to and Validity of Stock. Except as set forth in the Escrow
------------------------------
Agreement and as set forth on Schedule 2.1A, such Seller now has, and on the
-------------
Closing Date will have, good and marketable title to and unrestricted power to
vote and sell the Company Stock designated as owned by such Seller opposite such
Seller's name on Schedule 2.2, free and clear of any lien and, upon purchase and
------------
payment therefor and delivery to Buyer thereof in accordance with the terms of
this Agreement, Buyer will obtain good and marketable title to such Company
Stock free and clear of any lien.
2.2A. Authority. Such Seller or Corum, as applicable, has the legal
---------
power, right and authority to enter into and perform this Agreement and any
agreement referenced herein to which such Seller or Corum, as applicable, is a
party, and to perform each of his obligations hereunder. The execution, delivery
and performance of this Agreement by such Seller or Corum, as applicable, (a)
require no action by or in respect of, or filing with, or consent of, any
governmental body, agency or official or any other Person and (b) do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of any agreement, judgment, injunction, order, decree or any other
instrument binding upon such Seller or Corum, as applicable. This Agreement has
been duly executed and delivered by such Seller and constitutes a valid and
binding obligation of such Seller or Corum, as applicable, enforceable against
such Seller or Corum, as applicable, in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
relating to or affecting the rights and remedies of creditors, provided no
representation or warranty is made as to the availability of any equitable or
other specific remedy upon any breach of this Agreement. Each of the Sellers and
Corum hereby waives any pre-emptive rights which they may have in respect of the
Company Stock.
2.3A. Experience; Investment Intent.
-----------------------------
(a) The Sellers and Corum have carefully reviewed the representations
concerning Buyer contained in this Agreement, and have made detailed inquiry
concerning Buyer, its business and its personnel; the officers of Buyer have
made available to such Sellers and Corum any and all information requested and
have answered all inquiries made by such Seller and Corum. Each of the Sellers
and Corum has adequate net worth and means of providing for its current needs
and contingencies to sustain a complete loss of its investment in Buyer;
<PAGE>
-23-
(b) Each of the Sellers and Corum has such knowledge and experience in
financial and business matters that he or it is capable of evaluating the merits
and risks of the transactions to be consummated hereunder;
(c) The Buyer Stock being received by the Sellers and Corum is being
acquired for the Sellers' and Corum's own account for the purpose of investment
and not with a view to or for sale in connection with any distribution thereof;
(d) Each of the Sellers and Corum understands and agrees that (i) the Buyer
Stock has not been registered under the Securities Act, and (ii) the Buyer Stock
must be held indefinitely unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration; and
(e) The Buyer Stock will bear the following legend or substantially similar
thereto:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
APPLICABLE STATE OR FOREIGN SECURITIES LAWS. THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE,
AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE ACT AND ANY APPLICABLE STATE AND FOREIGN SECURITIES
LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
2.4A No Pending Litigation or Proceedings. Except as indicated on Schedule
------------------------------------ --------
2.4A, there are no actions, suits or proceedings pending or, to such Seller's
- ----
Knowledge, threatened at law or in equity, by or before any United States court
or governmental department, agency or instrumentality adversely affecting such
Seller's Company Stock or such Seller's rights thereto. There are presently no
outstanding judgments, decrees, injunctions or orders of any court or any
governmental or administrative agency against or adversely affecting such
Seller's Company Stock or any Seller's rights thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to each Seller and to Corum as follows:
3.1. Organization and Good Standing. Buyer is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware.
3.2. Buyer Stock. The shares of Buyer Stock to be issued to the Sellers
-----------
pursuant to the terms of this Agreement have been duly authorized, and, when
issued in accordance with this Agreement, shall be validly issued, fully paid
and non-assessable shares of Buyer Stock. The
<PAGE>
-24-
shares of Buyer Stock to be issued to the Sellers, the Escrow Agent and Corum
pursuant to the terms of this Agreement shall be issued free and clear of any
lien, security interest, claim or encumbrance (other than restrictions on
transfer imposed by federal and state securities laws and except for those
restrictions on transfer contemplated herein) and free of any other limitation
or restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests). Upon the
delivery of the Buyer's Stock to the Sellers, the Escrow Agent and Corum
pursuant to the terms of this Agreement, each Seller will obtain good and
marketable title to such Buyer Stock free and clear of any adverse claim (other
than those imposed by federal and state securities laws and except for those
restrictions on transfer contemplated herein).
3.3. Corporate Power and Authority. Buyer has full corporate power and
-----------------------------
authority to make, execute, deliver and perform this Agreement and each
Collateral Document (as that term is defined below) and the transactions
contemplated hereby.
3.4. Due Authorization. The execution, delivery and performance of this
-----------------
Agreement, and any agreement referenced herein to which Buyer is a party
(including without limitation, the Escrow Agreement, the Registration Rights
Agreement and the Option Grant Letters (collectively, the "Collateral
Documents")), by Buyer have been duly authorized by all necessary corporate
action on the part of Buyer, and each of this Agreement and the Collateral
Documents constitutes the legal, valid and binding obligation of Buyer,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting the rights and remedies of creditors generally, provided that no
representation or warranty is made as to the availability of any equitable or
other specific remedy upon any breach of this Agreement.
3.5. Finders' Fees. There is no investment banker, broker, finder or other
-------------
intermediary which has been retained by or is authorized to act on behalf of
Buyer which might be entitled to any fee or commission from Sellers or the
Company upon consummation of the transactions contemplated by this Agreement.
3.6. Investment Intent.
-----------------
(a) The Company Stock being purchased by Buyer is being acquired for
Buyer's own account for the purpose of investment and not with a view to or for
sale in connection with any distribution thereof; and
(b) Buyer understands and agrees that (i) the Company Stock has not been
registered under the Securities Act, by reason of its issuance in a transaction
exempt from registration requirements of the Securities Act pursuant to Section
4(2) thereof and (ii) the Company Stock and the Subsidiary Stock must be held
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration.
3.7. Consents and Governmental Authorization. Except as set forth on
---------------------------------------
Schedule 3.7, the execution, delivery and performance of this Agreement and the
- ------------
consummation of the
<PAGE>
-25-
transactions contemplated hereby by Buyer require no consent, approval or action
by or in respect of, or filing with, any third party or governmental body,
agency, official or authority.
3.8. Non-Contravention. The execution and delivery of this Agreement and
-----------------
the Collateral Documents does not, and the consummation of the transactions
contemplated by this Agreement and the Collateral Documents and the compliance
with the terms, conditions and provisions of this Agreement and the Collateral
Documents by Buyer, will not (a) contravene any provision of Buyer's charter or
bylaws, as amended or (b) assuming compliance with the matters referred to in
Section 3.6, contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to Buyer.
3.9. SEC Compliance. Buyer has timely filed all filings with the United
--------------
States Securities and Exchange Commission (the "SEC") under the Securities Act
---
or under Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (each, an
"SEC Filing") required to be filed by Buyer pursuant to such acts during the
----------
past twelve months and no SEC Filing at the time filed contained an untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements, in the light of the circumstances under which they
were made, not misleading at the time of the public disclosure.
3.10. No Material Adverse Effect. Since the date of Buyer's most recent
---------------------------
SEC Filing, there has not been, and Buyer is not aware of, any development that
would require an amendment to any SEC Filing or have a Material Adverse Effect
on Buyer. There is no pending or, to the best knowledge of Buyer, threatened
action, suit, proceeding or investigation before any court, governmental agency
or body, or arbitrator having jurisdiction over Buyer or any of its affiliates
that would have a Material Adverse Effect on Buyer.
ARTICLE IV
CONDITIONS TO CLOSING
---------------------
4.1. Conditions Precedent to Obligations of Buyer. The obligations of
--------------------------------------------
Buyer to proceed with the Closing under this Agreement are subject to the
fulfillment prior to or at the Closing of the following conditions (any one or
more of which may be waived in whole or in part in writing by Buyer at Buyer's
option):
(a) Representations and Warranties. The representations and warranties
------------------------------
of the Company and the Sellers contained in Articles II and Article
IIA shall be true and accurate on and as of the Closing Date (except
to the extent a representation or warranty speaks specifically as of
an earlier date) and the Company and Sellers shall have provided
Buyer with a certificate executed by the Company and the Sellers,
dated as of the Closing Date, to such effect.
(b) Covenants. The Company and the Sellers shall have performed and
---------
complied with all of its or his covenants contained herein on or
before the Closing Date (to the extent required to be performed on
or prior to the Closing Date), and Buyer
<PAGE>
-26-
shall receive a certificate to such effect signed by an officer of the
Company and the Sellers.
(c) Opinion of Company and Sellers' Counsel. Buyer shall have received
---------------------------------------
from Pepper Hamilton LLP, counsel for the Company and certain of the
Sellers an opinion dated the date of the Closing in form and substance
reasonably satisfactory to Buyer, to the effect set forth in Exhibit
-------
A-1. Buyer shall have received from Nagashima & Ohno, counsel for
---
certain of the Sellers an opinion dated the date of the Closing, in
form and substance reasonably satisfactory to Buyer, to the effect set
forth in Exhibit A-2.
-----------
(d) Required Consents. Except as set forth on Schedule 4.1(d), all
----------------- ---------------
consents and approvals of third parties to the transactions
contemplated hereby on the part of the Company and the Sellers which
are material to the Company (including, without limitation, those
disclosed on Schedule 2.4) shall have been obtained for the
------------
consummation of the transactions contemplated hereby.
(e) Litigation. No order of any court or administrative agency shall be
----------
in effect which restrains or prohibits the transactions contemplated
hereby or which would limit or adversely affect Buyer's ownership or
control of the Company or the business of the Company, and there shall
not have been threatened, nor shall there be pending, any action or
proceeding by or before any court or governmental agency or other
regulatory or administrative agency or commission, (i) challenging any
of the transactions contemplated by this Agreement or seeking monetary
relief by reason of the consummation of such transactions or (ii) by
any present or former owner of any capital stock or equity interest in
the Company (whether through a derivative action or otherwise) against
the Company or any officer, director or shareholder of the Company in
his capacity as such or (iii) which would be reasonably likely to have
a Material Adverse Effect on the Company.
(f) Governmental Approvals. All authorizations, consents, orders or
----------------------
approvals of, or declarations or filings with, or expiration of
waiting periods imposed by, any competent federal, state, local or
foreign governmental or regulatory authority necessary for the
consummation of the transactions contemplated by this Agreement shall
have been filed, occurred or been obtained.
(g) Certified Documents. The Company and the Delaware Subsidiary shall
-------------------
deliver to Buyer at Closing a copy of their respective certificates of
incorporation and by-laws, as amended, as certified by the Secretary
or an Assistant Secretary of the Company or the Delaware Subsidiary,
as appropriate.
(h) Resignation of Officers and Directors. Certain of the officers and
-------------------------------------
directors of the Company and the Delaware Subsidiary shall have
delivered resignations to Buyer and, effective as of immediately
following the Closing, the officers and directors
<PAGE>
-27-
of the Company and the Delaware Subsidiary will be as specified on
Schedule 4.1(h).
---------------
(i) Employment Arrangements. Buyer shall have entered into satisfactory
-----------------------
employment arrangements with George E. Breen and Stephen Kraiman.
(j) Escrow Agreement. The Company, Buyer, Escrow Agent and each Seller
----------------
shall have executed and delivered to the other parties thereto the
Escrow Agreement substantially in the form attached hereto as Exhibit
-------
B.
-
(k) Pooling Letter. Buyer will have received an unqualified written
--------------
opinion from PricewaterhouseCoopers LLP, Buyer's independent
accountants, to the effect that such firm concurs with Buyer's
management that no conditions exist that would preclude Buyer from
accounting for the acquisition of the Company as a "pooling of
interests" under GAAP or any applicable rules and regulations of the
SEC.
(l) FIRPTA Certificate. The Company shall have either (i) delivered to
------------------
Buyer a properly executed statement satisfying the requirements of
Treasury Regulation Sections 1.897-2(h) and 1.1445-2(c)(3) in a form
reasonably acceptable to Buyer or (ii) caused each of the Sellers to
have executed and delivered to Buyer certificates of non-foreign
status satisfying the requirements of Treasury Regulations Section
1.1445-2(b).
(m) Company Employee Release Letters. The Company shall have delivered to
--------------------------------
the Buyer agreements in a form reasonably acceptable to Buyer whereby
(i) Mr. Zhengwen Zhang releases the Company from any claim arising in
connection with that certain contingent equity promise contained in
that certain employment agreement, dated as of August 13, 1999, by and
between the Company and Mr. Zhang; and (ii) Mr. Douglas Howell
releases the Company from any claim arising in connection with that
certain contingent equity promise contained in that certain employment
agreement, dated as of September 17, 1999, by and between the Company
and Mr. Howell.
4.2. Conditions Precedent to Obligations of Sellers. The obligations of
----------------------------------------------
the Sellers to proceed with the Closing hereunder are subject to the fulfillment
prior to or at the Closing of the following conditions (any one or more of which
may be waived in whole or in part in writing by all of the Sellers at the
Sellers' option):
(a) Representations and Warranties. The representations and warranties of
------------------------------
Buyer contained in Article III shall be true and accurate on and as of
the Closing Date (except to the extent a representation or warranty
speaks specifically as of an earlier date) and Buyer shall have
provided the Sellers with a certificate executed by Buyer, dated as of
the Closing Date, to such effect.
<PAGE>
-28-
(b) Covenants. Buyer shall have performed and complied with all of its
---------
covenants contained herein on or before the Closing Date (to the
extent required to be performed on or prior to the Closing Date), and
the Sellers shall receive a certificate to such effect signed by an
officer of Buyer.
(c) Opinion of Counsel for Buyer. The Sellers and Corum shall have
----------------------------
received from Testa, Hurwitz & Thibeault, LLP, as counsel for Buyer,
an opinion dated the date of the Closing in form and substance
reasonably satisfactory to the Sellers, to the effect set forth in
Exhibit D.
---------
(d) Required Consents. All consents and approvals of third parties to the
-----------------
transactions contemplated hereby on the part of Buyer (including,
without limitation, those disclosed on Schedule 3.7) shall have been
------------
obtained for the consummation of the transactions contemplated hereby.
(e) Litigation. No order of any court or administrative agency shall be
----------
in effect which restrains or prohibits the transactions contemplated
hereby and there shall not have been threatened, nor shall there be
pending, any action or proceeding by or before any court or
governmental agency or other regulatory or administrative agency or
commission, (i) challenging any of the transactions contemplated by
this Agreement, (ii) seeking monetary relief by reason of the
consummation of such transactions, or (iii) which would reasonably be
likely to have a Material Adverse Effect on the Buyer.
(f) Governmental Approvals. All authorizations, consents, orders or
----------------------
approvals of, or declarations or filings with, or expiration of
waiting periods imposed by, any competent federal, state, local or
foreign governmental or regulatory authority necessary for the
consummation of the transactions contemplated by this Agreement shall
have been filed, occurred or been obtained.
(g) Registration Rights Agreement. The Buyer, each Seller and Corum shall
-----------------------------
have executed and delivered to the other parties thereto the
registration rights agreement substantially in the form of Exhibit C
---------
hereto (the "Registration Rights Agreement").
(h) Employment Arrangements. The Company shall have entered into
-----------------------
employment arrangements with George E. Breen and Stephen Kraiman.
(i) Option Grants. Effective as of the Closing, Buyer shall have granted
-------------
to the Company's employees who shall have accepted employment with the
Company or an affiliate of the Company options to purchase a number of
Buyer's shares of stock as set forth on Exhibit E, which shall be
---------
exercisable at the last reported sale price of Buyer Stock on the
Nasdaq National Market on December 29, 1999 and shall vest at the rate
of twenty percent (20%) on the first anniversary of the
<PAGE>
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Closing Date and an additional five percent (5%) at the end of each
quarter thereafter.
ARTICLE V
TERMINATION OF AGREEMENT
------------------------
5.1. Grounds for Termination. This Agreement may be terminated in
-----------------------
writing at any time prior to the Closing:
(i) by mutual written agreement of the Company, the Sellers, Corum and
Buyer;
(ii) by either (i) Sellers representing the holders of a majority of the
Company Stock or (ii) Buyer, if any of the closing conditions set
forth in Section 4.2 or 4.1, respectively, have not been met on or
before December 31, 1999; or
(iii) by either (i) Sellers representing the holders of a majority of the
Company Stock or (ii) Buyer, if there shall be any law or regulation
that makes the consummation of the transactions contemplated hereby
illegal or otherwise prohibited or if consummation of the
transactions contemplated hereby would violate any nonappealable
final order, decree or judgment of any court or governmental body
having competent jurisdiction.
5.2. Effect of Termination. If this Agreement is terminated as permitted by
---------------------
Section 5.1, such termination shall be without liability of either party (or any
shareholder, director, officer, employee, agent, consultant or representative of
such party) to the other party to this Agreement; provided that if such
--------
termination shall result from the willful failure of any party to fulfill a
condition to the performance of the obligations of another party or from a
willful breach by any party to this Agreement, such party shall be fully liable
for any and all Damages (as hereinafter defined) incurred or suffered by the
other parties as a result of such failure or breach. The provisions of Sections
5.2, 8.3 and 8.4 shall survive any termination hereof pursuant to Section 5.1.
ARTICLE VI
COVENANTS
---------
For the purposes of this Article VI, unless the context otherwise requires,
"Company" shall mean and include the Company and its Subsidiaries, including,
without limitation, the Delaware Subsidiary.
6.1. Conduct of Business. (a) Interim Conduct of Business of Company.
------------------- --------------------------------------
From the date hereof until the Closing, the Company shall operate its business
as a going concern consistent with prior practice and in the ordinary course of
business (except as may be authorized pursuant to this Agreement or as set forth
on Schedule 6.1(a) hereto). Without limiting the
---------------
<PAGE>
-30-
generality of the foregoing, from the date hereof until the Closing, except for
transactions contemplated by this Agreement, expressly approved in writing by
Buyer or as otherwise indicated on Schedule 6.1(a), the Company shall not:
---------------
(i) enter into or amend any employment, bonus, severance or
retirement contract or arrangement, or increase any salary
or other form of compensation payable or to become payable
to any executive or employee other than in the ordinary
course of business consistent with prior practice;
(ii) purchase, lease, or otherwise acquire any real estate or
any interest therein;
(iii) declare, set aside, or pay any dividend or make any other
distribution with respect to any equity security;
(iv) merge or consolidate with or agree to merge or consolidate
with, or purchase or agree to purchase all or
substantially all of the assets of, acquire securities of,
or otherwise acquire any Person;
(v) sell, lease, or otherwise dispose of or agree to sell,
lease or otherwise dispose of any of its assets,
properties, rights, or claims, whether tangible or
intangible, except in the ordinary course of business
consistent with prior practice;
(vi) authorize for issuance, issue, sell, or deliver any of its
own equity securities;
(vii) split, combine, or reclassify any class of equity security
or redeem or otherwise acquire, directly or indirectly,
any of its equity securities;
(viii) incur any liability, guaranty, or obligation (fixed or
contingent) other than in the ordinary course of business
consistent with prior practice;
(ix) place or permit to be placed any lien on any of its assets
or properties, other than statutory liens arising in the
ordinary course of business;
(x) make or authorize any amendments or changes to its charter
or by-laws;
<PAGE>
-31-
(xi) make any investment in excess of $10,000, whether singly
or in the aggregate, in property, plant, and equipment and
other items of capital expenditure;
(xii) accelerate receivables or delay or postpone payment of any
accounts payable or other liability, except in the
ordinary course of business consistent with prior
practice;
(xiii) abandon any part of its business; or.
(xiv) make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes,
enter into any closing agreement, settle any claim or
assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to
any claim or assessment in respect of Taxes.
(b) Interim Conduct of Business of Buyer. From the date hereof until the
------------------------------------
Closing, Buyer shall operate its business as a going concern consistent with
prior practice and in the ordinary course of business.
6.2. No Solicitation, Confidentiality, Etc. Sellers and the Company
-------------------------------------
agree that, prior to the termination of this Agreement pursuant to Article V
hereof, neither the Company nor any Seller will (i) solicit or negotiate with
respect to any inquiries or proposals relating to (x) the possible direct or
indirect acquisition of the Company Stock or any other equity security of the
Company or of all or a portion of the assets or business of the Company or (y)
any merger, consolidation, joint venture or business combination with the
Company; or (ii) discuss or disclose either this Agreement or other confidential
information pertaining to the Company with any person (except as may be required
by law or except as may be required in connection with the transactions
contemplated by this Agreement to affiliates, officers, directors, employees and
agents of the Company or any of the Sellers) without the prior written approval
of Buyer.
6.3. Maintain Provisions.
-------------------
(a) From and after the Closing Date, Buyer will maintain, fulfill and
honor, and Buyer will cause the Company to maintain, fulfill and honor, in all
respects the obligations of the Company pursuant to charter and bylaw provisions
providing for indemnification for and/or exculpation of former or current
directors, officers and employees of the Company, as such provisions are
existing and in force immediately prior to the Closing Date.
(b) The provisions of this Section 6.3 are intended to be for the benefit
of, and shall be enforceable by, each former or current director, officer and
employee of the Company and his or her heirs and representatives, and after the
Closing Date may not be amended, altered or repealed as to any party without the
express prior written consent of the Sellers.
<PAGE>
-32-
6.4. Necessary Consents. Buyer, the Company and Sellers shall use
------------------
reasonable best efforts (i) except as disclosed on Schedule 4.1(d), to obtain
---------------
such third party consents as may be necessary or appropriate for the
consummation of the transactions provided for herein and (ii) to accomplish the
satisfaction of the conditions precedent to Closing contained in Section 4.1 (in
the case of the Company and Sellers) and Section 4.2 (in the case of Buyer) on
or prior to the Closing Date.
6.5. Non-Competition. From and after the Closing, and for the next
---------------
succeeding two (2) years (the "Restricted Period"), none of the Sellers shall,
-----------------
directly or indirectly, or in whole or in part, (i) engage in any activity which
is directly competitive with the business of the Company or the Buyer as
conducted during the one (1) year period immediately preceding the Closing or
(ii) become interested in any Person engaged in such activity in any capacity
including, but not limited to, as a partner, shareholder, principal, agent,
representative, supplier, trustee, employee or consultant. During the
Restricted Period, no Seller shall, directly or indirectly, hire or solicit any
employee of the Buyer or the Company or encourage, in any way, any such employee
to leave such employment. The Sellers hereby acknowledge that any breach or
threatened breach of any of the covenants contained herein would cause
irreparable harm to the Buyer and that money damages would not, alone, provide
an adequate remedy to the Buyer. The Buyer shall have all of the rights and
remedies available under law, or in equity, to a party enforcing any such
covenants, each of such rights and remedies to be independent of the other and
severally enforceable including, but not limited to, the right to have such
covenants enforced by any court of competent jurisdiction including, but not
limited to, through temporary injunctive relief, temporary restraining order
and/or permanent injunctive relief, all without requirement for the posting or
provision of any bond or other security, which requirements being hereby
expressly waived by the Sellers, and the right to require any Seller who is a
violating party to account for, and pay over to the Buyer, all benefits derived
or received by such violating party as a result of any breach of such covenant.
No Seller who is a violating party shall raise as a defense to the granting of
any such relief that the Person requesting any such relief has an adequate
remedy at law. Each of the Sellers acknowledges and agrees that the covenants
set forth herein are reasonable in duration and scope and in all other respects.
If any court determines that any such covenants, or any part thereof, are
invalid or unenforceable the remaining covenants shall not thereby be affected
and they shall be given full effect, without regard to the invalid portions. If
any court determines that all, or any part of, the covenants contained herein
are unenforceable, because of the duration or scope of such provision, such
court is requested to reduce the duration or scope of such provision, as the
case may be, so that, in its reduced form, such provisions shall then be
enforceable. The Sellers intend to and do hereby confer jurisdiction to enforce
the covenants contained herein upon the courts of any jurisdiction within the
United States. If the courts of any one or more of such jurisdictions hold such
covenants unenforceable by reason of the breadth of their scope, or otherwise,
it is the intention of the parties that such determination not preclude, or in
any way affect, the right of the Company or the Buyer to the relief provided
above in the courts of any other jurisdiction within the United States as to
breaches of such covenant in such other respective jurisdictions, such covenants
as they relate to each jurisdiction being, for this purpose, severable and
independent covenants. Nothing contained herein shall preclude any party hereto
from owning less than 1% of the issued and outstanding capital stock
<PAGE>
-33-
of any corporation whose shares are listed for trading on the New York Stock
Exchange, American Stock Exchange or NASDAQ National Market.
6.6. Non-Solicitation.
----------------
(a) From and after the Closing, and for the next succeeding two (2) years,
each of the Sellers agree with the Buyer that it will not, either alone or
jointly with any Person or as manager, agent or consultant of any Person
directly or indirectly engage, employ, solicit or contact with a view to the
engagement or employment by any Person, any employee, officer or manager of the
Company or the Buyer or of any customer or current prospect of the Buyer and the
Company.
(b) While the restrictions in (a) above are considered by Buyer, the
Company and the Sellers to be reasonable in all the circumstances, it is agreed
that if any one or more of such restrictions, taken by itself or themselves
together, be adjudged to go beyond what is reasonable in all the circumstances
for the protection of Buyer and the Company's legitimate interest but would be
adjudged reasonable if any particular restriction was deleted, restricted or
limited in any particular manner, then the said restrictions shall apply with
such deletions, restrictions or limitations, as the case may be.
6.7. Pooling. (a) Buyer, Corum, the Company and each of the Sellers shall
-------
use all reasonable efforts and shall cooperate fully and shall take all actions
as are reasonably necessary to allow the acquisition of the Company by Buyer as
contemplated by this Agreement to be accounted for as a "pooling of interests"
in accordance with generally accepted accounting principles and applicable
accounting pronouncements of the SEC.
(b) Each Seller and any other person who may be considered an
"affiliate" of the Company, as such term is used in Rule 145 under the
Securities Act and applicable accounting pronouncements of the SEC (the "Company
-------
Affiliates") and Corum hereby agrees that he or it, as applicable, (i) has not
- ----------
made and will not sell, exchange, transfer, pledge, dispose or otherwise reduce
his or its risk relative to any shares of securities of the Company in the 30-
day period prior to the Closing, and (ii) will not sell, exchange, transfer,
pledge, dispose or otherwise reduce his or its risk relative to any of the
shares of Buyer Stock to be received by such person after the Closing until
Buyer shall have publicly released a report including the combined financial
results of Buyer and the Company for a period of at least 30 days of combined
operations of Buyer and the Company.
ARTICLE VII
INDEMNIFICATION
---------------
7.1. Survival. The representations and warranties of the parties hereto
--------
contained in this Agreement or in any certificate or other writing delivered
pursuant hereto or in connection herewith shall survive the Closing for a period
of one (1) year. Notwithstanding the preceding sentence, any representation or
warranty in respect of which indemnity may be sought under Section 7.2 shall
survive the time at which it would otherwise terminate pursuant to the preceding
sentence, if notice of the inaccuracy or breach thereof giving rise to such
right to
<PAGE>
-34-
indemnity shall have been given to the party against whom such indemnity may be
sought prior to such time; provided, however that such representation or
warranty shall survive until, but only for the purposes of, the resolution of
such claim. The covenants and agreements of the parties hereto contained in
this Agreement, any Collateral Document or in any certificate or other writing
delivered pursuant hereto shall survive the Closing irrespective of the passage
of time.
7.2. Indemnification.
---------------
7.2.1. The Sellers shall, jointly and severally with respect to matters
set forth in Section 7.2.1(a), and severally but not jointly with respect to the
matters set forth in Section 7.2.1(b), indemnify the Company, the Buyer, and
their respective employees, officers and directors (other than the Sellers) (the
"Buyer Company Persons") in respect of, and hold the Buyer Company Persons
---------------------
harmless against, any and all Damages (as hereinafter defined) (the "Buyer
-----
Company Damages"):
- ---------------
(a) resulting from, relating to or constituting any misrepresentation,
breach of any representation or warranty or failure to perform any covenant or
agreement of the Company or the Sellers (other than those representations and
warranties set forth in Article IIA and the covenants and agreements set forth
in Sections 6.5 and 6.6 of this Agreement) contained in this Agreement; or
(b) resulting from (i) any misrepresentation or breach of any
representation or warranty set forth in Article IIA, and any failure of any
Seller to have good, valid and marketable title to the issued and outstanding
Company Stock held by such Seller, free and clear of all liens, claims, pledges,
options, adverse claims or charges of any nature whatsoever or (ii) the failure
to perform any of the covenants or agreements set forth in Sections 6.5 and 6.6
of this Agreement;
For purposes of this Agreement, "Damages" shall mean and include any and
-------
all debts, obligations and other liabilities (whether absolute, accrued,
contingent, fixed or otherwise, or whether known or unknown, or due or to become
due or otherwise), monetary damages, fines, fees, penalties, interest
obligations, deficiencies, losses and expenses (including without limitation
amounts paid in settlement, interest, court costs, costs of investigators, fees
and expenses of attorneys, accountants, financial advisors and other experts,
and other expenses of litigation) incurred or suffered by an Indemnified Person
(as hereinafter defined) or any affiliates thereof.
7.2.2. Buyer shall indemnify the Sellers, and their employees, officers,
directors and shareholders (the "Seller Persons") and Corum, and its employees,
--------------
officers, directors and shareholders (the "Corum Persons") in respect of, and
-------------
hold the Seller Persons and Corum Persons harmless against, any and all Damages
(the "Seller Damages") resulting from, relating to, or constituting any
--------------
misrepresentation, breach of any representation or warranty, or failure to
perform any covenant or agreement of Buyer contained in this Agreement. For
purposes of this Agreement, (i) "Indemnified Persons" shall refer to both Buyer
-------------------
Company Persons, Seller Persons and Corum Persons; and (ii) "Indemnifying
------------
Parties" shall refer to both Buyer Company Persons and Seller Persons.
- -------
<PAGE>
-35-
7.3. Method of Asserting Claims.
--------------------------
(a) The Indemnified Person shall give prompt written notification to
the Indemnifying Party of the commencement of any action, suit or proceeding
relating to a third party claim for which the indemnification pursuant to this
Article VII may be sought (the "Third Party Claim"), provided, however, that the
-----------------
failure to provide such notice shall not release the Indemnifying Party from any
obligations under this Article VII except to the extent such Indemnifying Party
is materially prejudiced by such failure and shall not relieve such Indemnifying
Party from any other obligation or liability that it may have to any Indemnified
Person otherwise than under this Article VII. Within 20 calendar days after
delivery of such notification, the Indemnifying Party may, upon written notice
thereof to the Indemnified Person, assume control of the defense of such Third
Party Claim with counsel reasonably satisfactory to the Indemnified Person,
provided the Indemnifying Party acknowledges in writing to the Indemnified
Person that any damages, fines, costs or other liabilities that may be assessed
against the Indemnified Person in connection with such Third Party Claim
constitute Damages for which the Indemnified Person shall be entitled to
indemnification pursuant to this Article VII. If the Indemnifying Party does not
assume control of such defense, the Indemnified Person shall control such
defense. The party not controlling the defense of such Third Party Claim may
participate therein at its own expense; provided that if the Indemnifying Party
assumes control of such defense and the Indemnified Person reasonably concludes
that the Indemnifying Party and the Indemnified Person have conflicting
interests or different defenses available with respect to such Third Party
Claim, then the reasonable fees and expenses of counsel to the Indemnified
Person shall be considered "Damages" for purposes of this Agreement. In the
event that the Indemnifying Party exercises the right to undertake any such
defense against any such Third Party Claim as provided above, the Indemnified
Person shall cooperate with the Indemnifying Party in such defense and make
available to the Indemnifying Party, at the Indemnifying Party's expense, all
witnesses, pertinent records, materials and information in the Indemnified
Person's possession or under the Indemnified Person's control relating thereto
as is reasonably required by the Indemnifying Party. Similarly, in the event the
Indemnified Person is, directly or indirectly, conducting the defense against
any such Third Party Claim, the Indemnifying Party shall cooperate with the
Indemnified Person in such defense and make available to the Indemnified Person,
at the Indemnifying Party's expense, all such witnesses, records, materials and
information in the Indemnifying Party's possession or under the Indemnifying
Party's control relating thereto as is reasonably required by the Indemnified
Person. The party controlling such defense shall keep the other party advised of
the status of such Third Party Claim and the defense thereof and shall consider
in good faith recommendations made by the other party with respect thereto. The
Indemnified Person shall not agree to any settlement of such Third Party Claim
without the prior written consent of the Indemnifying Party, which shall not be
unreasonably withheld. In addition, the Sellers shall not agree to any
settlement of Third Party Claim without the prior written consent of the
Indemnified Person, which consent shall not be unreasonably withheld.
(b) If a third party asserts that an Indemnified Person is liable to
such third party for a monetary or other obligation which may constitute or
result in Damages for which such Indemnified Person may be entitled to
indemnification pursuant to this Article VII, and such
<PAGE>
-36-
Indemnified Person reasonably determines that it has a valid business reason to
fulfill such obligation, then (i) such Indemnified Person shall be entitled to
satisfy such obligation, without prior notice to or consent from the
Indemnifying Party, (ii) such Indemnified Person may make a claim for
indemnification pursuant to this Article VII (in accordance with the provisions
of the Escrow Agreement if the Indemnified Person is a Buyer Person), and (iii)
such Indemnified Person shall be reimbursed (in accordance with and subject to
the provisions of the Escrow Agreement if the Indemnified Person is a Buyer
Person) for any such Damages for which it is entitled to indemnification
pursuant to this Article VII.
7.4. Limitations; Exclusive Remedy; Maximum Indemnification.
------------------------------------------------------
(a) Notwithstanding anything to the contrary herein, except with respect
to claims based either on fraud or a breach of Section 2.10 (Taxes), (i) the
aggregate liability of the Sellers for Buyer Damages resulting from a
misrepresentation or breach of a representation or warranty under Section
7.2.1(a) of this Article VII shall not exceed the aggregate amount of the Escrow
Shares (or cash held by the Escrow Agent pursuant to the terms of the Escrow
Agreement in Escrow in replacement thereof) and the individual liability of each
Seller for Buyer Damages resulting from a misrepresentation or breach of a
representation or warranty under Section 7.2.1(a) of this Article VII shall not
exceed such Seller's pro rata amount of the Escrow Shares (or cash held by the
Escrow Agent pursuant to the terms of the Escrow Agreement in escrow in
replacement thereof), and (ii) no indemnification payment by the Sellers with
respect to any Buyer Damages otherwise payable pursuant to this Article VII
shall be payable until such time as all such Buyer Damages shall aggregate to
more than $50,000, at which time all such Buyer Damages payable under this
Article VII shall be payable. Notwithstanding anything to the contrary, except
with respect to claims based either on fraud or a breach of Section 2.10
(Taxes), the Buyer Company Persons shall seek recovery solely against, and said
recovery shall be limited to, the Escrow Shares (or cash held in escrow by the
Escrow Agent pursuant to the terms of the Escrow Agreement in replacement
thereof), including for the $50,000 "basket," with respect to, and this Article
and the Escrow Agreement shall be the exclusive remedy of Buyer Company Persons
for, claims resulting from or relating to any misrepresentation or breach of any
representation or warranty under Section 7.2.1(a) of this Article VII.
(b) Notwithstanding anything to the contrary herein, except with respect
to claims based on fraud, (i) the aggregate liability of the Buyer in connection
with the indemnification of the Seller Persons pursuant to this Article VII for
Damages resulting from a misrepresentation or breach of a representation or
warranty under Section 7.2.2 of this Article VII shall in no event exceed the
Fair Market Value of the Buyer Stock Shares as defined in Section 1.2, and (ii)
no indemnification payment by Buyer with respect to any Damages otherwise
payable pursuant to this Article VII shall be payable until such time as all
such Damages shall aggregate to more than $50,000, at which time all such
Damages payable under this Article VII shall be payable.
<PAGE>
-37-
ARTICLE VIII
MISCELLANEOUS
-------------
8.1. Notices. All notices, requests for other communications to be given
-------
by any party to the other parties hereunder shall be in writing and shall be
deemed to be properly given when personally delivered, telecopied or sent by
commercial courier service (such as Federal Express) or, if mailed, when sent by
prepaid first class U.S. mail, either certified or registered, to the addresses
set forth below or to such other addresses as the parties may otherwise
designate from time to time in writing:
(a) If to Buyer, to:
SeaChange International, Inc.
124 Acton Street
Maynard, MA 01754
Telecopier No. (978) 897-9590
Attention: William L. Fiedler
With a required copy to:
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, MA 02110
Telecopier No. (617) 248-7100
Attention: William B. Simmons, Jr., Esq.
(b) (i) if to the Company, to:
Digital Video Arts, Ltd.
715 Twining Road, Suite 107
Dresher, PA 19025
Telecopier No. (215) 576-7932
Attention: George E. Breen
(ii) if to Sellers, to their addresses on Schedule 1.4 hereto.
------------
With a required copy to:
Pepper Hamilton LLP
3000 Two Logan Square
18/th/ and Arch Streets
Philadelphia, PA 19103
Telecopier No. (215) 981-4750
<PAGE>
-38-
Attention: Michael H. Friedman, Esq.
(iii) If to Corum, to:
Corum Group, Ltd.
1500 Bellevue Place
10500 Northeast 8/th/ Street
Bellevue, WA 98004-4355
8.2. Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party to this Agreement may assign either this
Agreement or any of its rights, interests or obligations hereunder without the
prior written approval of the other parties hereto.
8.3. Arbitration. Any dispute, controversy or claim arising out of, in
-----------
connection with, or in relation to this Agreement or any breach thereof shall be
finally settled by arbitration, pursuant to the rules then obtaining of the
American Arbitration Association. The arbitration shall be held in Boston,
Massachusetts. Any award shall be final, binding and conclusive upon the
parties and a judgment upon the award rendered thereon may be entered in any
court having jurisdiction thereof. In any such arbitration action, the party
which is determined in the arbitration proceeding to be the breaching party
under the Agreement shall pay for and bear the cost of all parties' experts,
evidence and counsel; provided, however, that if both parties are determined in
the arbitration proceeding to be breaching parties, the arbitrator shall assign
the responsibility for the payment of such costs based upon the relative nature
and extent of the breach by each such party. Notwithstanding anything herein to
the contrary, the provisions of this Section 8.3 shall not apply with respect to
claims of infringement or violations of the non-competition provisions or non-
solicitation provisions of Sections 6.5 and 6.6, respectively, for which Buyer
may seek injunctive, legal or equitable relief for such infringement or
violation.
8.4. Costs and Expenses. The Buyer shall bear (a) its own expenses
------------------
(including without limitation, investment banking, financial advisory fees,
counsel fees and accounting fees) and (b) any fees and expenses of Corum owed by
the Company to Corum pursuant to the terms of that certain letter agreement,
dated December 17, 1998, in each case relating to the transactions contemplated
under this Agreement. All legal and accounting expenses of the Company and the
Sellers relating to the transactions contemplated under this Agreement shall be
borne by the Company. All other expenses of the Company and the Sellers
relating to the transactions contemplated under this Agreement shall be borne by
the Sellers. All expenses of Corum relating to the transactions contemplated
under this Agreement shall be borne by Corum.
8.5. Public Announcements. The parties agree to consult with each other
--------------------
before issuing any press release or making any public statement with respect to
this Agreement or the transactions contemplated hereby and, except as may be
required by applicable law or any listing agreement with any national securities
exchange, will not issue any such press release or make any such public
statement prior to such consultation.
<PAGE>
-39-
8.6. Headings. The headings preceding the text of the sections and
--------
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement, nor shall they affect its meaning,
construction or effect.
8.7. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
8.8. Amendment and Waiver. This Agreement may be amended, and Buyer, the
--------------------
Sellers and Corum may, (a) extend the time for the performance of any of the
obligations of any other party, (b) waive any inaccuracies in representations by
any other party, (c) waive compliance by any other party with any of the
agreements contained herein and performance of any obligations by such other
party, and (d) waive the fulfillment of any condition that is precedent to the
performance by such party of any of its obligations under this Agreement. To be
effective, any such amendment must be in writing and be signed by the Buyer,
Corum and each of the Sellers and any waiver must be in writing and signed by
the person waiving such right or obligation.
8.9. Entire Agreement. This Agreement, the Exhibits and Schedules hereto
----------------
and the Collateral Documents, each of which is hereby incorporated herein, set
forth all of the promises, covenants, agreements, understandings,
representations and warranties between the parties hereto with respect to the
subject matter hereof, and supersede all prior and contemporaneous promises,
covenants, agreements, understandings, representations and warranties among the
parties hereto or inducements or conditions, express or implied, oral or written
with respect to the subject matter hereof.
8.10. Governing Law. THIS AGREEMENT, INCLUDING THE VALIDITY HEREOF AND
-------------
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY IN SUCH STATE (WITHOUT GIVING EFFECT
TO THE CONFLICTS OF LAWS PROVISIONS THEREOF).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
BUYER:
SEACHANGE INTERNATIONAL, INC.
By: /s/ William C. Styslinger, III
--------------------------------
Name: William C. Styslinger, III
Title: President, Chief Executive Officer
and Chairman
COMPANY
DIGITAL VIDEO ARTS, LTD.
By: /s/ George Breen
--------------------------------
Name: George Breen
Title: President
SELLERS:
INNOTECH CORPORATION
By: /s/ Larry M. Yoshida
--------------------------------
Name: Larry M. Yoshida
Title: President and Chief Executive
Officer
INNO MICRO CORPORATION
By: /s/ Yasuo Ryumae
------------------
Name: Yasuo Ryumae
Title: President
/s/ George Breen
-----------------------------------
George E. Breen
/s/ Stephen Kraiman
----------------------------------
Stephen Kraiman
<PAGE>
SOLELY WITH RESPECT TO
ARTICLES I, III, V, VII and XIII AND
SECTIONS 2.2A, 2.3A, and 6.7
CORUM GROUP, LTD.
By: /s/ Allen Dermody
--------------------------------
Name: Allen Dermody
Title: General Counsel
<PAGE>
EXHIBIT 2.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered into as
---------
of December 30, 1999 by and among SeaChange International, Inc., a Delaware
corporation ("Buyer"), Corum Group, Ltd. ("Corum") and the shareholders
-----
(individually, a "Seller," and collectively, the "Sellers") of Digital Video
------ -------
Arts, Ltd., a Delaware corporation (the "Company"), as set forth on Schedule A
-------
hereto.
W I T N E S S E T H:
WHEREAS, Buyer, the Company, Corum and the Sellers are parties to a
certain Stock Purchase Agreement dated as of the date hereof (the "Purchase
--------
Agreement") pursuant to which Buyer has acquired all of the outstanding shares
- ---------
of capital stock of the Company in exchange for Buyer Common Shares at a closing
(the "Closing") on the date hereof (the "Closing Date"); and
------- ------------
WHEREAS, the execution of this Agreement by the parties hereto is a
condition precedent to the obligations of the parties to consummate the
transactions contemplated by the Purchase Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth below, the parties hereto, intending to be
legally bound, agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms have the meaning ascribed to them:
"Black-out Period" shall mean with respect to Buyer that period during
----------------
which Buyer precludes all its employees from trading stock (currently commencing
on the first day of each March, June, September and December of any year and
ending two business days after the public announcement (by filing with the
Commission or press release) by Buyer of its earnings for its fiscal year or
quarter, as the case may be, but in no event later than two days after the time
such financial information would be required to be filed by Buyer with the
Commission pursuant to federal securities laws).
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
------------
Friday that is not a day on which banking institutions in New York City are
closed.
"Buyer Common Shares" means the shares of Common Stock, par value $.01
-------------------
per share, of Buyer issued to the Sellers, Corum and the Escrow Agent (as that
term is defined in the Purchase Agreement) pursuant to the Purchase Agreement.
"Commission" means the U.S. Securities and Exchange Commission, or any
----------
other U.S. federal agency at the time administering the Securities Act.
"Effective Date" means the date the Registration Statement becomes
--------------
effective.
<PAGE>
-2-
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations of the Commission promulgated thereunder,
as may be in effect from time to time.
"Material Event" shall mean: (a) the possession by Buyer of material
--------------
information not ripe for public disclosure, which shall be evidenced by a
determination in good faith by the Board of Directors of Buyer that public
disclosure of such information at that time would be detrimental to the business
and affairs of Buyer and that the Registration Statement would be materially
misleading absent the public disclosure of such information; or (b) the
determination by the Board of Directors of Buyer that it intends to conduct a
primary or combined primary and secondary public offering provided that the
officers and directors of the Buyer shall be precluded from selling Common Stock
of the Company during the period which constitutes a Material Event under (a)
above.
"Prospectus" means the prospectus included in any Registration
----------
Statement, as amended or supplemented by any prospectus supplement (including,
without limitation, any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement), and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"Registrable Securities" means the Buyer Common Shares issued to and
----------------------
received by the Sellers and Corum and issued to the Escrow Agent (as that term
is defined in the Purchase Agreement) pursuant to the Purchase Agreement and any
securities that may be issued by Buyer or any successor to Buyer from time to
time with respect to, in exchange for, or in replacement of such Buyer Common
Shares, including, without limitation, securities issued as a stock dividend on
or pursuant to a stock split or similar recapitalization of such shares;
provided, however, that those shares as to which the following apply shall cease
- -------- -------
to be Registrable Securities if: (a) a Registration Statement with respect to
the sale of such Registrable Securities shall have become effective under the
Securities Act and such Registrable Securities shall have been disposed of under
such Registration Statement; (b) such Registrable Securities shall have become
transferable, and have been so transferred, in accordance with the resale
provisions of Rule 144 or any successor rule or provision, under the Securities
Act; (c) such Registrable Securities shall have been transferred in a
transaction in which the Seller's or Corum's rights and obligations under this
Agreement were not assignable in accordance with this Agreement; (d) such
Registrable Securities shall have ceased to be outstanding; or (e) the
Registrable Securities have previously been sold in accordance with the terms of
this Agreement.
"Registration Statement" means a registration statement of the Buyer on
----------------------
Form S-3 (or any successor form prescribed by the Commission) registering the
Registrable Securities under the Securities Act.
"Securities Act" means the U.S. Securities Act of 1933, as amended, and
--------------
the rules and regulations of the Commission promulgated thereunder, as may be in
effect from time to time.
<PAGE>
-3-
2. REGISTRATION.
Buyer shall use its reasonable efforts to proceed with and complete the
filing of a Registration Statement in respect of the Registrable Securities as
provided herein and in doing so shall carry out the following actions:
(i) prepare the Registration Statement and use its
reasonable efforts to carry out the necessary actions to file the
Registration Statement and register the Registrable Securities in
compliance therewith;
(ii) file the Registration Statement with the Commission
prior to three (3) months from the Closing Date, and use its reasonable
efforts to cause the Registration Statement to become effective as soon
as practicable following the end of the four (4) months from the
Closing Date, and to keep such Registration Statement continuously
effective until the earlier of (A) the first anniversary of the
Closing, or (B) the date on which no Registrable Securities for which
the registration has been initiated remain unsold (the "Distribution
------------
Period");
------
(iii) prepare and file as expeditiously a possible with the
Commission such amendments and supplements to the Registration
Statement, and the Prospectus, as may be necessary to keep the
Registration Statement effective during the Distribution Period;
(iv) furnish to each Seller and to Corum such number of
copies of the Registration Statement and the Prospectus (including each
preliminary prospectus) and any amendments or supplements thereto as
such Seller or Corum may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities;
(v) use its reasonable efforts to register or qualify the
Registrable Securities under the state securities or "blue sky" laws of
such jurisdictions as each Seller or Corum shall reasonably request and
to maintain such qualification throughout the Distribution Period,
except that Buyer shall not be required for the purpose of such
qualification to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or, except
as to matters relating to the offer and sale of the Registrable
Securities, consent to general service of process in any such
jurisdiction;
(vi) immediately notify each Seller and Corum (A) of the
Effective Date and the date when any post-effective amendment to the
Registration Statement becomes effective, (B) of any stop order or
notification from the Commission or any other jurisdiction as to the
suspension of the effectiveness of the Registration Statement, and (C)
of the happening of any event of which Buyer has knowledge that would
result in the Prospectus contained in the Registration Statement, as
then in effect, including an untrue statement of a material fact or
omitting to state a material fact required to be stated
<PAGE>
-4-
therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(vii) timely file with the Commission all documents required
to be filed by Buyer pursuant to subsections 13(a), 13(c), 15(d), and
Section 14 of the Exchange Act, and otherwise maintain its
qualification to file a Registration Statement;
(viii) During the period of time set forth in (i) above, to
use its best efforts to maintain its quotation on the Nasdaq National
Market or listing on a comparable national or regional exchange in
order to provide Sellers with a market for their Buyer Common Shares.
3. SHAREHOLDER OBLIGATIONS. In connection with the filing of the
Registration Statement, each Seller and Corum will furnish to Buyer as
expeditiously as possible, such documents or information with respect to itself
and the proposed sale or distribution of the Registrable Securities, as is
reasonably necessary in order to assure compliance with U.S. federal and
applicable state securities laws, and as a condition to any proposed sale or
distribution of the Registrable Securities deliver to Buyer in writing
representation and warranties, including but not limited to, representations and
warranties that, in connection with any proposed sale or distribution of
Registrable Securities, Seller or Corum, as applicable, has complied and will
comply with all requirements under the Securities Act, including applicable
prospectus delivery requirements, and that such shares of Registrable Securities
have been or will be sold or distributed in accordance with the method of sale
set forth in the Registration Statement. Each Seller and Corum shall comply,
throughout the Distribution Period, with all United States and state securities
laws in the offer and sale of the Registrable Securities.
4. DELAYS AND BLACKOUTS.
(a) The obligations of Buyer with respect to the Registration
Statement (as set out in Section 2 hereof) and the rights of the Sellers and
Corum to distribute the Registrable Securities pursuant to this Agreement and
any Registration Statement, may be suspended by Buyer on the occurrence of a
Material Event.
(b) In the event of a suspension pursuant to paragraph (a) of this
Section 4, Buyer shall use its best efforts to minimize the length of such
suspension, and in any event the aggregate number of days during the
Distribution Period during which the obligations of Buyer and/or rights of the
Sellers and Corum under Section 4(a) shall be so suspended shall not exceed 60
days in the aggregate.
(c) Buyer shall promptly give the Sellers and Corum notice of both
the beginning and end of any suspension under subsection 4(a). The notice shall
not provide any material nonpublic information concerning Buyer but shall only
state the existence of a suspension.
(d) Notwithstanding anything herein to the contrary, any Sellers who
are employees or officers of the Buyer shall be subject to the restrictions on
sale of Registrable Securities during
<PAGE>
-5-
the Blackout Period pursuant to Buyer's policy on insider trading and shall
otherwise be subject to such policy.
5. EXPENSES.
(a) Buyer will pay all Registration Expenses (as defined below) in
connection with the registration of Registrable Securities effected by Buyer
pursuant to Section 2 hereof. Sellers of Registrable Securities registered
pursuant to this Agreement shall pay all Selling Expenses (as defined below)
associated with such registration, with each Seller or Corum, as applicable,
bearing a pro rata portion of the Selling Expenses based upon the number of
Registrable Securities registered by each Seller or Corum, as applicable.
(b) The term "Registration Expenses" means all expenses incurred by
---------------------
Buyer in complying with Section 2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel to Buyer and independent public accountants for Buyer, fees and expenses
incurred in connection with complying with state securities or "blue sky" laws,
and fees of transfer agents and registrars; provided, however, that Registration
-------- -------
Expenses shall not include the fees and expenses of counsel for the Sellers or
Corum. The term "Selling Expenses" means all underwriting discounts and selling
----------------
commissions and stock transfer fees and taxes applicable to the sale of the
Registrable Securities.
6. SALE OF REGISTRABLE SECURITIES DURING THE DISTRIBUTION PERIOD.
The parties confirm their intention that the sale or distribution of
the Registrable Securities will be carried out in a orderly and cooperative
manner. To that end, the Sellers and Corum will periodically advise Buyer of the
nature and progress of their efforts to sell or distribute the Registrable
Securities including, without limitation, the provision to Buyer of a written
monthly report setting out any sales of Registrable Securities.
7. INDEMNIFICATION.
(a) Buyer will indemnify and hold harmless each of the Sellers, and
Corum, the officer, directors, partners, agents and employees of the Sellers and
Corum and each person, if any, who controls such Seller or Corum within the
meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several (collectively "Claims"), to which they may become
------
subject under the Securities Act, the Exchange Act or other federal or state law
(excepting Claims related to or arising from a breach by such Sellers or Corum
of its obligations under Sections 3 or 4), in so far as the Claims (or actions
in respect thereof) arise out of or are based on (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or alleged
omission to state in those
<PAGE>
-6-
documents a material fact required to be stated therein, or necessary to make
the statements therein, not misleading or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state in those documents a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading (collectively, a "Violation"), and reimburse each such
---------
Seller, officer, director, partner, agent, employee or controlling person and
Corum for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any Claims; provided, however, that the
-------- -------
indemnity agreement contained in this Section 7(a) shall not apply to amounts
paid in settlement of any such Claims, if such settlement is effected without
the consent of Buyer, which consent shall not be unreasonably withheld,
conditioned or delayed. This indemnity shall not apply to any Claims that arise
out of, or are based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
information provided by any such Seller or Corum in writing specifically for the
purposes of filing or maintaining the effectiveness of the Registration
Statement.
(b) Each Seller and Corum will, severally as to himself or itself, as
the case may be, indemnify and hold harmless Buyer, each of its officers,
directors, partners, agents or employees, each person, if any, who controls
Buyer within the meaning of the Securities Act, any underwriter and any other
Seller or any of its directors, officers, partners, agents or employees or any
person who controls such Seller, and Corum or any of its directors, officers,
partners, agents or employees or any person who controls Corum against any
Claims to which Buyer or any such director, officer, partner, agent, employee,
controlling person or underwriter, or other such Seller or Corum or director,
officer, partner, agent, employee or controlling person may become subject,
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such Claims arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Seller or Corum, as applicable, expressly for use in connection with such
registration; and each such Seller or Corum, as applicable, will reimburse any
reasonable legal or other expenses reasonably incurred by Buyer or any such
director, officer, partner, agent, employee, controlling person or underwriter,
other Seller, Corum, officer, director, partner, agent, employee or controlling
person in connection with investigating or defending any such Claims.
Notwithstanding anything contained in this Agreement to the contrary, the
indemnity agreement contained in this Section 7(b) shall not apply to amounts
paid in settlement of any such Claims if such settlement is effected without the
consent of the Seller or Corum, as applicable, which consent shall not be
unreasonably withheld, conditioned or delayed; provided further, that the
-------- -------
aggregate liability of each Seller or Corum in connection with any sale of
Registrable Securities pursuant to a Registration Statement in which a Violation
occurred shall be limited to such Seller"s net proceeds from the sale of
Registrable Securities pursuant to such Registration Statement.
(c) As soon as it becomes aware of the commencement of an action
respecting a Claim, the indemnified party shall promptly notify the indemnifying
party, although failure to notify shall not relieve the indemnifying party from
any liability to indemnify the indemnified party. Following receipt of that
notice, the indemnifying party may participate in and, to the extent it wishes
and upon giving notice to the indemnified party, assume and undertake the
defense of the action using counsel satisfactory to it. In that event, the
indemnifying party will not be liable to the indemnified party for any legal
expenses subsequently incurred by the
<PAGE>
-7-
indemnified party in connection with the defense of the action, other than
reasonable costs of investigation and of liaison with the indemnifying party"s
counsel. If the defendants in any action include both the indemnified party and
the indemnifying party, and if the indemnified party reasonably concludes that
there may be reasonable defenses available to it that are different from or
additional to those available to the indemnifying party or if the interests of
the indemnified party reasonably may be deemed to be conflicting with the
interests of the indemnifying party, the indemnified party shall have the right
to select separate counsel and to assume those legal defenses and otherwise to
participate in the defense of the action, with the expenses and fees of separate
counsel and other expenses related to that participation to be reimbursed by the
indemnifying party as incurred.
(d) If the indemnification provided for above is held by a court of
competent jurisdiction to be unavailable, then the indemnifying party, in lieu
of such indemnification, shall contribute to the amount paid or payable by the
indemnified party in such proportion as is appropriate to reflect the relative
fault of the indemnifying party on the one hand the indemnified party on the
other hand in connection with the statements or omissions that resulted in the
Claims, as well as other equitable considerations; provided, however, that, in
-------- -------
any such case (i) neither a Seller nor Corum shall be required to contribute any
amount in excess of such Seller"s net proceeds and/or value of such Buyer Common
Shares, on the date of such sale pursuant to the registration of such shares
effected by Buyer under this Agreement, and (ii) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person or entity who
is not guilty of such fraudulent misrepresentation. The relative fault of the
parties shall be determined by reference to, among other things, whether the
alleged untrue statement of a material fact or omission to state a material fact
relates to information supplied by the indemnifying party or the indemnified
party and the parties" relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) The provisions of this Section 7 shall survive the expiration or
termination of this Agreement and shall expire at the end of any applicable
limitation period.
8. RESTRICTIONS ON TRANSFERS OF COMMON SHARES.
The Sellers and Corum agree and understand that the issuance of the
Registrable Securities has not been, and, except as contemplated in this
Agreement, the sale or other disposition thereof by the Sellers and Corum will
not be, registered under the Securities Act or the securities laws of any state
and that such shares may be sold or disposed of only in one or more transactions
registered under the Securities Act and, where applicable, such state laws or as
to which an exemption from the registration requirements of the Securities Act
and, where applicable, such state laws is available. The Sellers and Corum
acknowledge that, except as expressly set forth in this Agreement, the Sellers
and Corum have no right to require Buyer to cause the registration of any
Registrable Securities. The Sellers and Corum understand and agree that each
certificate representing any Registrable Securities (each, a "Certificate")
-----------
shall be subject to stop transfer instructions and shall bear the following
legend:
<PAGE>
-8-
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE
STATE OR FOREIGN SECURITIES LAWS. THESE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE ACT AND ANY
APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR THE
AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS."
Buyer hereby agrees that it will, upon the request of the Sellers and
Corum, eliminate any stop transfer instructions and any restrictive legend on
any certificates representing the Registrable Securities if (i) in the opinion
of counsel, which counsel and opinion (in form, scope and substance) shall be
reasonably satisfactory to Buyer, the Sellers and Corum are entitled to sell or
dispose of the Registrable Securities represented by such Certificate without
registration or (ii) such shares are being disposed of by the Sellers and Corum
under a Registration Statement pursuant to Section 2 herein and in compliance
with the Securities Act and applicable state and federal securities laws. Before
the Registration Statement is declared effective, Buyer will use reasonable
efforts to arrange for its transfer agent to automatically remove the legend and
transfer any shares disposed of by the Sellers and Corum under a Registration
Statement pursuant to Section 2 herein if a Seller and Corum and its broker
provide transfer representation documents reasonably acceptable to its transfer
agent.
9. BINDING ON SUCCESSORS. This Agreement is binding upon and shall
inure to the benefit of the respective successors, assigns, transferees or
donees of the parties, whether so expressed or not.
10. NO ASSIGNMENT. Neither a Seller nor Corum may assign this
Agreement or any of the rights or obligations hereunder without the express
written consent of the Buyer; provided, however, that a Seller nor Corum may
assign this Agreement or any of the rights or obligations hereunder without the
express written consent of Buyer in connection with the assignment or transfer
by such Seller or Corum, as applicable, to a partner, stockholder, member,
affiliate or family member of the Seller or Corum, as applicable, or to any
trust or limited or general partnership for the benefit of any such family
member of the Seller or Corum, as applicable, provided each such transferee or
assignee agrees in a written instrument delivered to the Buyer to be bound by
the provisions of this Agreement as a Seller or Corum. Each of the Sellers and
Corum may assign registration rights in connection with one or more sales or
transfers, each to a single purchaser, donee or transferee, of at least 20% of
the number of Buyer Common Shares originally held by such Seller or Corum, as
applicable, provided that the purchaser agrees to be bound by this Agreement.
<PAGE>
-9-
11. NOTICE. All notices, requests, consents or other communications
required pursuant to this Agreement shall be in writing and shall be delivered
personally, mailed by certified or registered mail (return receipt requested),
or sent by facsimile addressed as follows:
if to Buyer:
SeaChange International, Inc.
124 Acton Street, 2nd Floor
Maynard, MA 01754
Attention: Vice President, Administration and Finance
Facsimile: (508) 897-9590
with a copy to:
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, MA 02110
Attention: William B. Simmons, Jr., Esq.
Facsimile: (617) 248-7100
if to any Seller or to Corum, at the address set forth on
Schedule A hereto.
----------
with a copy to:
Pepper Hamilton LLP
3000 Two Logan Square
18/th/ and Arch Streets
Philadelphia, PA 19103
Attention: Michael H. Friedman, Esq.
Facsimile: (215) 981-4750
or, to such other address as may be given pursuant to this Section 11.
12. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware (irrespective of its choice of
law principles).
13. AMENDMENT. This Agreement may not be amended without the written
consent of Buyer and the holders of a majority of the Registrable Securities
then outstanding. The failure of a party to enforce any right set forth in this
Agreement, or granted at law or in equity, shall in no way be construed to be a
waiver of such right, or affect the validity of this Agreement or any part
thereof, or the right thereafter to enforce each and every provision of this
Agreement.
14. UNENFORCEABLE PROVISION. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable, such provision shall be severed
from this Agreement and
<PAGE>
-10-
shall not in any manner affect or render illegal, invalid or unenforceable any
other provision of this Agreement.
15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
SEACHANGE INTERNATIONAL, INC.
By /s/ William L. Fiedler
__________________________
Name: William L. Fiedler
Title: Chief Financial Officer, Treasurer and
Vice President, Finance and Administration
INNOTECH CORPORATION
By /s/ Larry M. Yoshida
_______________________
Name: Larry M. Yoshida
Title: Chairman and Chief Executive Officer
INNO MICRO CORPORATION
By /s/ Yasuo Ryumae
______________________
Name: Yasuo Ryumae
Title: President
/s/ George Breen
__________________________
George E. Breen
/s/ Stephen Kraiman
__________________________
Stephen Kraiman
CORUM GROUP, LTD.
By /s/ Allen Dermody
______________________
Name: Allen Dermody
Title: General Counsel
A-1
<PAGE>
-12-
SCHEDULE A
----------
Address of Sellers (including telephone and facsimile
-----------------------------------------------------
Name of Sellers and Corum numbers)
------------------------- --------
Innotech Corporation 2-13-13 Shinyokohama, Kouhoku-Ku
Yokohama-Shi
Kanagawa 222
Japan
Phone:
Facsimile:
Inno Micro Corporation 2-13-13 Shinyokohama, Kouhoku-Ku
Yokohama-Shi
Kanagawa 222
Japan
Phone:
Facsimile:
George E. Breen 715 Twining Road, Suite 107
Dresher, PA 19025
Phone:
Facsimile: (215) 576-7932
Stephen Kraiman 715 Twining Road, Suite 107
Dresher, PA 19025
Phone:
Facsimile: (215) 576-7932
Corum Group, Ltd. 1500 Bellevue Place
10500 Northeast 8/th/ Street
Bellevue, WA 98004-4355
Phone: (425) 455-8281
Facsimile: (425) 451-8951
<PAGE>
EXHIBIT 2.3
ESCROW AGREEMENT
----------------
This Escrow Agreement is entered into as of December 30, 1999, by and
among SeaChange International, Inc., a Delaware corporation (the "Buyer"),
Digital Video Arts, Ltd., a Delaware corporation (the "Company"), the
shareholders listed on the signature pages hereto ("Sellers" and individually a
"Seller"), and State Street Bank and Trust Company (the "Escrow Agent").
WHEREAS, pursuant to a Stock Purchase Agreement dated as of the date
hereof by and among the Buyer, Corum Group, Ltd., the Company and the Sellers
(the "Stock Purchase Agreement"), Buyer is acquiring all of the issued and
outstanding shares of the capital stock of the Company from the Sellers in
exchange for shares of the Common Stock, par value $.01 per share, of Buyer (the
"Buyer Stock");
WHEREAS, Buyer, the Company, and certain of their respective
affiliates (the "Buyer Persons") are to be indemnified against breaches of the
Sellers' representations, warranties and agreements made in the Stock Purchase
Agreement (the "Escrow"), subject, however, to the limitations set forth in the
Stock Purchase Agreement; and
WHEREAS, as provided for in the Stock Purchase Agreement, to provide
for the payment of such indemnification, the Sellers have agreed to permit
shares representing ten percent (10%) of the shares of the Buyer Stock (other
than the Corum Shares) issuable to them pursuant to Sections 1.2 (Consideration
and Payment) and 1.4 (Deliveries and Proceedings at the Closing) of the Stock
Purchase Agreement to be held in escrow as hereinafter provided to satisfy the
Escrow (together with any capital stock or equity interests issued by the Buyer
after the date hereof in the form of a stock dividend or recapitalization
affecting the shares of the Buyer Stock otherwise held in Escrow, the "Escrow
Shares" which together with the cash proceeds from the sale of any Escrow Shares
pursuant to Section 7 (Additional Property Subject to Escrow) hereof and held in
the escrow account established hereby, including any investment earnings
received from the investment thereof and held pursuant to Section 7 (Additional
Property Subject to Escrow) hereof, are collectively referred to as the "Escrow
Property").
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises of the parties herein contained, and other good and valuable
consideration, receipt of which is hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
1. Defined Terms. Capitalized terms used in this Agreement and not
-------------
otherwise defined herein shall have the meanings ascribed to them in the Stock
Purchase Agreement.
2. Appointment and Agreement of Escrow Agent. The Buyer, the Company
-----------------------------------------
and the Sellers hereby appoint the Escrow Agent to serve as, and the Escrow
Agent hereby agrees to act as, escrow agent upon the terms and conditions of
this Agreement.
<PAGE>
3. Indemnification. The parties agree that this Agreement shall secure
---------------
the right of indemnification of the Buyer and the Company from and against
damages as specified in Article VII (Indemnification) of the Stock Purchase
Agreement ("Buyer Damages") by the Sellers upon the terms and subject to the
limitations set forth in Article VII (Indemnification) of the Stock Purchase
Agreement.
4. Establishment of Escrow; Escrow Fund. Promptly following the Closing,
------------------------------------
Buyer shall deliver to the Escrow Agent one (1) stock certificate which shall be
registered on Buyer's corporate books in the name of the Escrow Agent (or its
nominee), for the account of the Sellers in the amounts set forth on Annex A
-------
attached hereto, which shall represent the Escrow Shares and be held in an
account designated as "Digital Escrow Account." The Digital Escrow Account is
sometimes hereinafter referred to as the Escrow Fund. All Escrow Shares shall be
held by the Escrow Agent for the benefit of the Sellers and shall not be
disposed of by the Escrow Agent except as otherwise provided herein. The name
and address of each Seller and the number of Escrow Shares held for the benefit
of each such Seller as of the date hereof is set forth on Annex A attached
-------
hereto. For purposes of this Agreement, a Seller's "Pro Rata Portion" shall
refer to the ratio of (i) the Escrow Property held for the account of a
particular Seller to (ii) the Escrow Property held for the account of all
Sellers. All payments to the Buyer Persons from the Escrow Fund in respect of
Buyer Damages with respect to which it has been determined that such Indemnified
Parties are entitled to indemnification pursuant to this Agreement and the Stock
Purchase Agreement, if any, shall be made with respect to each Seller first,
from the Escrow Share Equivalents and the investment proceeds thereon that are
attributable to such Seller that are then held by the Escrow Agent and, second,
in the form of Buyer Stock deposited with the Escrow Agent hereunder (which
shall be valued at the Fair Market Value provided in Section 1.2 (Consideration
and Payment) of the Stock Purchase Agreement, which Fair Market Value shall be
certified in writing to the Escrow Agent by the Buyer and the Sellers). After
each Seller's account hereunder has been established, all debits thereto
required hereunder shall be made in accordance with each such Seller's Pro Rata
Portion of each indemnification payment made from the Escrow Fund in accordance
with the terms of this Agreement, provided, however, that to the extent that the
indemnification payment relates to the liability of a particular Seller for a
breach of any of the representations and warranties contained in Article II
(Representations and Warranties of the Company and the Sellers) or IIA
(Additional Representations and Warranties of Sellers) of the Stock Purchase
Agreement in each case as specified in the related Claim Notice, then such
debits shall be made against such Sellers' account and the Pro Rata Portions of
each Seller shall be adjusted accordingly. The respective interests of the
Sellers in the Escrow Fund shall not be transferable or assignable, other than
(i) by operation of law or (ii) in connection with the assignment or transfer to
a partner, stockholder, member, affiliate or family member of the Seller, or to
any trust or limited or general partnership for the benefit of any such family
member of the Seller, provided each such transferee agrees in a written
instrument delivered to the Escrow Agent and the Buyer to be bound by the
provisions of this Agreement as a Seller. Notice of any assignment or transfer
shall be given to the Escrow Agent and the Buyer, and no assignment or transfer
shall be valid until such notice is given.
<PAGE>
5. Voting Rights. In the event of a meeting or written action of
-------------
stockholders of Buyer during the term of this Escrow Agreement, the Escrow Agent
shall send to the Sellers copies of any notices, proxies and proxy material
received by it in connection with such meeting. Buyer hereby undertakes to
independently furnish copies of all such notices, proxies and proxy materials
directly to each Seller and to cooperate with the Sellers and the Escrow Agent
to facilitate the exercise by Sellers of voting rights in the Escrow Shares.
Upon request of the Sellers, the Escrow Agent shall execute and deliver a proxy
authorizing them to vote the whole number of their Escrow Shares.
6. Dividends and Distributions. All dividends and other distributions
---------------------------
or rights paid on or granted with respect to the Escrow Shares shall be added to
the related Seller's Pro Rata Portion of the Escrow Fund in accordance with
Section 4 (Establishment of Escrow; Escrow Fund) and shall be held hereunder
upon the same terms as the Escrow Shares. Any cash in the Escrow Fund resulting
from dividends or distributions with respect to the Escrow Shares shall be
invested by the Escrow Agent in the State Street Insured Money Market Account,
and any interest or earnings thereon shall be allocated for tax purposes to the
Sellers in accordance with their respective interests in the related Escrow
Shares.
7. Additional Property Subject to Escrow.
-------------------------------------
(a) At any time beginning on the date that the post-closing results
of at least thirty (30) days combined operations of Buyer and the Company have
been published (the "Permitted Sale Date"), and subject to any restrictions,
-------------------
if any, on resale arising under federal or state securities laws, a Seller may
effect a sale of any or all of such Seller's Pro Rata Portion of the Escrow
Shares by written direction given to the Escrow Agent provided that: (A) such
Seller shall certify to the Escrow Agent that the Permitted Sale Date has
passed, (B) the written directions given to the Escrow Agent by such Seller
shall be subject to Section 7(d) below, and (C) the net proceeds of such sale of
Escrow Shares shall be paid to the Escrow Agent and deposited into the Escrow
Fund and become part of the Escrow Property. All related transaction charges and
out-of-pocket expenses (or reasonably estimated allocable portions thereof)
directly associated with a sale of Escrow Shares shall be paid from the proceeds
of the sale. The Sellers may direct the sales of Escrow Shares pursuant to this
Section 7(a) at any time or times after the Permitted Sale Date.
(b) Net proceeds of the sale of any Escrow Shares deposited into the
Escrow Account pursuant to Section 7(a) hereof shall be retained in the Escrow
Fund and invested by the Escrow Agent in the State Street Insured Money Market
Account. Such proceeds and any interest or earnings thereon shall be allocated
(including for tax purposes) to the portion of the Escrow Fund attributable to
the individual Seller directing such sale.
(c) Any sale direction given by a Seller pursuant to Section 7(a)
above shall: (A) specify the number of Escrow Shares to be sold, (B) if
applicable, identify the brokerage firm such Seller requests the Escrow Agent to
use, and (C) set forth all necessary instructions (including stop loss or
minimum price per share instructions) as necessary to satisfy the required net
proceeds per share requirements set forth in clause (C) of Section 7(a) above,
together with
<PAGE>
any other instruction as the Escrow Agent reasonably may require in order to
carry out the sale. The Escrow Agent shall be entitled to rely conclusively, in
good faith, upon such direction and shall be under no obligation to evaluate or
exercise any judgment with respect to any such instruction received from such
Seller.
(d) The Escrow Agent shall have no responsibility in connection with
a sale other than to make delivery of the Escrow Shares in accordance with the
instructions received from such Seller and to deposit into the Escrow Account
the net sale proceeds received from the sale. The Escrow Agent shall have no
liability for any actions or omissions of any brokerage firm, if any, included
in such instructions, and shall have no liability for the price or execution
achieved (other than resulting from its own gross negligence or willful
misconduct). Without limiting the foregoing, the Sellers acknowledge that (A)
the Escrow Shares may need to be sent to a transfer agent to be reissued in
saleable form, (B) the Escrow Shares may contain or be subject to transfer
restrictions that may limit their marketability and impose restrictions upon the
number or types of purchasers to whom they can be offered or sold, (C) the
Escrow Agent shall have no liability for any failure or delay (or any price
change during any such delay) on the part of a Seller or any transfer agent, or
caused by any necessary registration or delivery procedures, or compliance with
any applicable transfer restrictions, in connection with the transfer of such
Escrow Shares, and (D) the Escrow Agent shall have no liability if the actual
net proceeds received per share are less than the Fair Market Value provided in
Section 1.2 (Consideration and Payment) of the Stock Purchase Agreement.
(e) In any agreement entered into by the Escrow Agent with any
brokerage firm (which may be affiliated with the Escrow Agent, as selected by
the Escrow Agent without liability on its part, taking into consideration the
brokerage firm requested by a Seller as provided above), pursuant to Sections
7(c) and (d), if applicable, the Escrow Agent shall be entitled to enter into
such agreement on terms providing that the brokerage firm shall use its "best
efforts" to effect a sale. The Escrow Agent shall be indemnified by the Sellers
hereunder for any costs, expenses and risks associated therewith or arising
thereunder (other than resulting from its own gross negligence or willful
misconduct).
(f) In addition to any applicable fees set forth on the fee schedule
attached hereto as Attachment B, the net sale proceeds of any sale of Escrow
Shares received by the Escrow Agent shall be subject to a $500.00 (per sale
order) fee payable to the Escrow Agent from such sale proceeds for the proration
of the net sales price, individual 1099-B reporting and related administration
(the "Sales Administration Fee").
(g) For purposes of this Agreement, an "Escrow Share Equivalent"
shall refer to the net sale proceeds from the sale of a share of Buyer Stock
previously held in the Escrow Fund and sold pursuant to this Section 7. The
parties agree that the calculation of Escrow Share Equivalent amounts shall be
made with respect to each Seller on a first in first out basis.
8. Cash Proceeds. With respect to any net sale proceeds of any sale of
-------------
Escrow Shares held in the Escrow Account from time to time:
<PAGE>
(i) Tax Reporting. For tax reporting purposes, all income or gain
-------------
from the sale of Escrow Shares in any tax year shall be
reported as allocable to the Sellers directing such sales
according to their relative ownership of Escrow Share
Equivalents;
(ii) Certification of Taxpayer Identification Number. The Sellers
-----------------------------------------------
shall provide a certified tax identification number by signing
and returning a Form W-9 (or Form W-8, in case of non-U.S.
persons) to the Escrow Agent prior to the earlier of 30 days
after the date of this Agreement or the date on which any sale
proceeds held as part of the Escrow Property is credited to the
Escrow Account. The Sellers understand that, in the event their
tax identification numbers are not certified to the Escrow
Agent, the Internal Revenue Code, as amended from time to time,
may require the withholding of a portion of any gain or other
income related to the sale of Escrow Shares.
(iii) Tax Indemnification. The Sellers agree, jointly and severally,
-------------------
(1) to assume any and all obligations imposed now or hereafter
by any applicable tax law with respect to any payment or
distribution of the Escrow Property or performance of other
activities under this Agreement, withholding and other taxes,
assessments or other governmental reporting that may be
required under any laws or regulations that may be applicable
in connection with its acting as Escrow Agent under the
Agreement, (2) to instruct the Escrow Agent in writing with
respect to the Escrow Agent's responsibility for withholding
and other taxes, assessments or other governmental charges, and
to instruct the Escrow Agent with respect to any certifications
and governmental reporting that may be required under any laws
or regulations that may be applicable in connection with its
acting as Escrow Agent under this Agreement and (3) to
indemnify and hold the Escrow Agent harmless from any liability
or obligation on account of taxes, assessments, additions for
late payment, interest, penalties, expenses and other
governmental charges that may be assessed or asserted against
the Escrow Agent in connection with or relating to any payment
made or other activities performed under the terms of this
Agreement, including without limitation any liability for the
withholding or deduction of (or the failure to withhold or
deduct) the same, and any liability for failure to obtain
proper certifications or to report properly to governmental
authorities in connection with this Agreement, including costs
and expenses (including reasonable legal fees and expenses),
interest and penalties. The foregoing indemnification and
agreement to hold harmless shall survive the termination of
this Agreement.
9. Administration of Escrow Fund. The Escrow Agent shall administer the
-----------------------------
Escrow Fund as follows:
<PAGE>
(a) If a Buyer Person has incurred or suffered Buyer Damages for
which it is entitled to indemnification under Article VII (Indemnification) of
the Stock Purchase Agreement, the Buyer Person shall, prior to 5:00 p.m. Boston
time on December 30, 2000 in connection with claims made pursuant to the Escrow
(the "Termination Date") deliver written notice of such claim (a "Claim Notice")
to the Escrow Agent and those Sellers obligated to indemnify the Buyer Person
from and against such Buyer Damages pursuant to Article VII (Indemnification) of
the Stock Purchase Agreement. Each Claim Notice shall state the amount of
claimed Buyer Damages (the "Claimed Amount") and the basis for such claim.
(b) Within 20 days after delivery of a Claim Notice, the Sellers so
notified shall deliver to the Buyer Person, with a copy to the Escrow Agent, a
written response (the "Response Notice") in which such Sellers shall: (i) agree
that all of the Claimed Amount may be released from the Escrow Fund to the Buyer
Person, (ii) agree that part, but not all, of the Claimed Amount (the "Agreed
Amount") may be released from the Escrow Fund to the Buyer Person or (iii)
contest that any of the Claimed Amount may be released from the Escrow Fund to
the Buyer Person. Any of the Sellers may contest the release from escrow of all
or a portion of the Claimed Amount only based upon a good faith belief that all
or such portion of the Claimed Amount does not constitute Buyer Damages for
which the Buyer Person is entitled to indemnification under Article VII
(Indemnification) of the Stock Purchase Agreement. If no Response Notice is
delivered by such Sellers and received by the Escrow Agent within such 20-day
period, such Sellers shall be deemed to have agreed that all of the Claimed
Amount may be released to the Buyer Person from the Escrow Fund.
(c) If the Sellers in the Response Notice unanimously agree (or are
deemed to have agreed) that all of the Claimed Amount may be released from the
Escrow Fund to the Buyer Person, the Escrow Agent shall promptly be given
written instructions from the Buyer and the Sellers to disburse to the Buyer
Person from the Escrow Fund an amount equal to the Claimed Amount (or such
lesser amount as is then held in the Escrow Fund) and the Escrow Agent shall
follow such written instructions and shall retain the balance, if any, in the
Escrow Fund.
(d) If the Sellers in the Response Notice agree that part, but not
all, of the Claimed Amount may be released from the Escrow Fund to the Buyer
Person, the Escrow Agent shall promptly be given written instructions from the
Buyer and the Sellers to disburse to the Buyer Person from the Escrow Fund an
amount equal to the Agreed Amount set forth in such Response Notice (or such
lesser amount as is then held in the Escrow Fund) and the Escrow Agent shall
follow such written instructions and shall retain the balance, if any, in the
Escrow Fund.
(e) If the Escrow Agent receives instructions pursuant to this
Section 9 to release all or a portion of the Claimed Amount, such distribution
(the "Distributable Amount") shall with respect to each Seller, be made:
(i) first from any cash attributable to the Seller that is then held
in the Escrow Account, provided, however, that the actual amount
of such Distributable Amount shall be equal to the amount of such
cash then held in the Escrow
<PAGE>
Fund received from the proceeds of the sale of that number of
Escrow Shares having a Fair Market Value (as defined in Section
1.2 (Consideration and Payment) of the Stock Purchase Agreement)
and the investment earnings then held in the Escrow Account from
the investment of such cash proceeds, with such cash amount
deemed equal to such Distributable Amount (notwithstanding that
the actual amount of such cash proceeds may be more than, or less
than, the Distributable Amount); and
(ii) thereafter be made from that number of Escrow Shares having a
Fair Market Value (as defined in Section 1.2 (Consideration and
Payment) of the Stock Purchase Agreement) equal to such
Distributable Amount not otherwise satisfied pursuant to
subsection (i) above.
To the extent required to satisfy the release of the Claimed Amount or Agreed
Amount, as applicable, the Escrow Agent shall deliver, as soon as practicable,
to Buyer's transfer agent (the "Transfer Agent") the Escrow Shares in exchange
for a new stock certificate representing a number of shares of Buyer Stock
(which will remain Escrow Shares) equal to the number of Escrow Shares
previously held by the Escrow Agent, less the number of Escrow Shares having a
Fair Market Value (as defined in Section 1.2 (Consideration and Payment) of the
Stock Purchase Agreement) equal to the Claimed Amount or the Agreed Amount, as
the case may be, and not otherwise satisfied by a cash payment in the manner
contemplated in this Section 9. Subject to the limitation set forth in Section 4
(Establishment of Escrow; Escrow Fund) hereto, upon any distribution of Escrow
Property to Buyer in satisfaction of a Claim Notice by the Escrow Agent, the
amount of Escrow Property held for the account of each Seller will be reduced by
its Pro Rata Portion of the Escrow Property distributed to satisfy the Claim
Notice. Any fractional interests will be carried forward until the distribution
of Escrow Property to the Sellers, at which time fractional interests will be
rounded in the discretion of Buyer.
(f) If any of the Sellers in the Response Notice contest the release
of all or part of the Claimed Amount (the "Contested Amount"), the matter shall
be settled by binding arbitration in Boston, Massachusetts. All claims shall be
settled by three arbitrators in accordance with the Commercial Arbitration Rules
then in effect of the American Arbitration Association (the "AAA Rules"). Such
Sellers and the Buyer Person shall each designate one arbitrator within 15 days
of the delivery of the Sellers' Response Notice contesting the Claimed Amount.
The Sellers and the Buyer Person shall cause such designated arbitrators
mutually to agree upon and to designate a third arbitrator; provided, however,
that (i) failing such agreement within 45 days of delivery of the Sellers'
Response Notice, the third arbitrator shall be appointed in accordance with the
AAA Rules and (ii) if either the Sellers or the Buyer Person fail to timely
designate an arbitrator, the dispute shall be resolved by the one arbitrator
timely designated. Such Sellers and the Buyer Person shall pay the fees and
expenses of their respectively designated arbitrators and shall bear equally the
fees and expenses of the third arbitrator. The Sellers and the Buyer Person
shall cause the arbitrators to decide the matter to be arbitrated pursuant
hereto within 60 days after the appointment of the last arbitrator. The
arbitrators' decision shall relate solely to whether the Buyer Person is
entitled to receive the Contested
<PAGE>
Amount (or a portion thereof) pursuant to the applicable terms of the Stock
Purchase Agreement and this Agreement. The final decision of the majority of the
arbitrators shall be furnished to the Sellers, the Buyer Person and the Escrow
Agent in writing and shall constitute a conclusive determination of the issue in
question, binding upon such Sellers, the Buyer Person and the Escrow Agent and
shall not be contested by any of them. Such decision may be used in a court of
law only for the purpose of seeking enforcement of the arbitrators' award. After
delivery of a Response Notice that the Claimed Amount is contested by such
Sellers, the Escrow Agent shall continue to hold in the Escrow Fund an amount
sufficient to cover the Contested Amount (up to the amount then available in the
Escrow Fund), notwithstanding the occurrence of the Termination Date, until (i)
delivery of a copy of a settlement agreement executed by the Buyer Person and
such Sellers setting forth instructions to the Escrow Agent as to the
disbursements, if any, that shall be made with respect to the Contested Amount
or (ii) delivery of a copy of the final award of the majority of the arbitrators
setting forth instructions to the Escrow Agent as to the disbursements, if any,
that shall be made with respect to the Contested Amount. The Escrow Agent shall
thereupon disburse amounts from the Escrow Fund (to the extent such amounts are
then held in the Escrow Fund) to the Buyer Person in accordance with such
agreement or instructions.
10. Release of Escrow Fund.
----------------------
Promptly after the Termination Date, the Escrow Agent shall, upon
receipt of written instructions signed jointly by the Buyer and the Sellers,
deliver the stock certificate representing the Escrow Shares to the Transfer
Agent in exchange for:
(A) stock certificates for and in the name of each Seller representing
each Seller's Pro Rata Portion of the Escrow Shares then held in escrow to
the extent such Pro Rata Portion is attributable to Escrow Shares and not
Escrow Share Equivalents or investment proceeds thereon;
(B) if applicable, a new stock certificate in the name of the Escrow Agent
representing the aggregate number of Escrow Shares as to which Claim
Notices are outstanding and not resolved.
Upon receipt of such stock certificates from the Transfer Agent, the Escrow
Agent will promptly deliver (i) such stock certificates for and in the name of
the Sellers and (ii) a check payable to a Seller representing that cash balance
held by the Escrow Agent attributable to such Seller including Escrow Share
Equivalents and any other Escrow Property at such address as each Seller shall
direct. Buyer shall take its best efforts to cause the Transfer Agent to deliver
such certificates to the Sellers in the manner provided for herein.
Notwithstanding the foregoing, if a Buyer Person has previously given a
Claim Notice relating to the Escrow which has not then been resolved in
accordance with Section 9 (Administration of Escrow Fund), the Escrow Agent
shall direct the Transfer Agent to reduce pro rata the number of shares and the
amount of the cash payment otherwise payable to the Sellers pursuant to this
Section 10 such that the Escrow Agent retains in escrow after the Termination
<PAGE>
Date an amount sufficient to cover the Claimed Amount which has not then been
resolved. Once all remaining indemnification claims under Article VII
(Indemnification) of the Stock Purchase Agreement have been resolved, the Escrow
Agent shall distribute, if any, the remaining Escrow Shares, Escrow Share
Equivalents, Escrow Property and cash held by the Escrow Agent in the manner
such distribution would otherwise have been made pursuant to this Section 10 had
such Claimed Amount that remained unresolved at the Termination date been
resolved prior to the Termination Date.
11. Termination. Unless sooner terminated by mutual written agreement of
-----------
the Buyer and the Escrow Agent, this Agreement shall terminate upon the later of
the Termination Date or the distribution of all of the Escrow Shares in
accordance with the terms of this Agreement.
12. Fees and Expenses. Except as otherwise set forth in Section 7(a) and
-----------------
(f) hereof, Buyer agrees to pay the Escrow Agent's reasonable expenses incurred
in connection with its acceptance of this Agreement and performance of the
services required hereunder.
13. Duties and Responsibilities of Escrow Agent.
-------------------------------------------
(a) The Buyer and the Sellers acknowledge and agree that the Escrow
Agent (i) shall not be responsible for any of the agreements referred to herein
but shall be obligated only for the performance of such duties as are
specifically set forth in this Agreement; (ii) shall not be obligated to take
any legal or other action hereunder which might in its judgment involve any
expense or liability unless it shall have been furnished with acceptable
indemnification; (iii) may rely on and shall be protected in acting or
refraining from acting upon any written notice, instruction, instrument,
statement, request or document furnished to it hereunder and believed by it to
be genuine and to have been signed or presented by the proper person, and shall
have no responsibility for determining the accuracy thereof, and (iv) may
consult counsel satisfactory to it, including in-house counsel, and the opinion
of such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in accordance with the opinion of such counsel.
(b) Neither the Escrow Agent nor any of its directors, officers or
employees shall be liable to anyone for any action taken or omitted to be taken
by it or any of its directors, officers or employees hereunder except in the
case of gross negligence or willful misconduct. The Buyer and the Sellers,
jointly and severally, covenant and agree to indemnify the Escrow Agent and hold
it harmless without limitation from and against any loss, liability or expense
of any nature incurred by the Escrow Agent arising out of or in connection with
this Agreement or with the administration of its duties hereunder, including but
not limited to legal fees and other costs and expenses of defending or preparing
to defend against any claim or liability in the premises, unless such loss,
liability or expense shall be caused by the Escrow Agent's willful misconduct or
gross negligence. In no event shall the Escrow Agent be liable for indirect,
special or consequential damages.
(c) Buyer and the Sellers, jointly and severally, agree to indemnify
and hold the Escrow Agent harmless from and against any taxes, additions for
late payment, interest,
<PAGE>
penalties and other expenses, that may be assessed against the Escrow Agent on
any payment of amounts under this Agreement. Buyer and the Sellers undertake to
instruct the Escrow Agent in writing with respect to the Escrow Agent's
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting in connection
with its acting as Escrow Agent under this Agreement. Buyer and the Sellers,
jointly and severally, agree to indemnify and hold the Escrow Agent harmless
from any liability on account of taxes, assessments or other governmental
charges, including without limitation, the withholding or deduction or the
failure to withhold or deduct same, and any liability for failure to obtain
proper certifications or to properly report to governmental authorities, to
which the Escrow Agent may be or become subject in connection with or which
arises out of this Agreement, including costs and expenses (including reasonable
attorneys' fees), interest and penalties. The provisions of paragraph (b) and
(c) shall survive the termination of this Agreement.
14. Resignation of Escrow Agent. The Escrow Agent may at any time resign
---------------------------
as Escrow Agent hereunder by giving sixty (60) days' prior written notice of
resignation to the Buyer and the Sellers and thereafter shall deliver the Escrow
Shares to such substitute Escrow Agent as Buyer and Sellers shall jointly direct
in writing. If such direction to deliver a substitute Escrow Agent is not
received by the Escrow Agent within sixty (60) days after mailing such notice of
registration, the Escrow Agent may apply to a court of competent jurisdiction
for appointment of a successor escrow agent.
15. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors, assigns, heirs and personal representatives
of the parties hereto. No party may assign its rights or delegate its duties
hereunder without the prior written consent of the other parties hereto.
16. Force Majeure. Neither the Buyer nor the Sellers nor Escrow Agent
-------------
shall be responsible for delays or failures in performance resulting from acts
beyond its control. Such acts shall include but not be limited to acts of God,
strikes, lockouts, riots, acts of war, epidemics, governmental regulations
superimposed after the fact, fire, communication line failures, computer
viruses, power failures, earthquakes or other natural disasters.
17. Notices. Any notice to a party hereto pursuant to this Agreement
-------
shall be in writing and shall be delivered by hand, telecopied or mailed by
first class certified or registered mail, return receipt requested, postage
prepaid;
(a) If to Buyer, to:
SeaChange International, Inc.
124 Acton Street
Maynard, MA 01754
Telecopier No.: (978) 897-9590
Attention: William L. Fiedler
<PAGE>
With a required copy to:
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, MA 02110
Telecopier No.: (617) 248-7100
Attention: William B. Simmons, Jr., Esq.
(b) if to the Company, to:
Digital Video Arts, Ltd.
715 Twining Road, Suite 107
Dresher, PA 19025
Telecopier No.: (215) 576-7932
Attention: George E. Breen
With a required copy to:
Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, Pennsylvania 19103-2799
Telecopier No: (215) 981-4750
Attention: Michael H. Friedman, Esq.
(c) if to the Sellers, to their addresses set forth on Annex A hereto.
-------
(d) If to the Escrow Agent, to:
State Street Bank and Trust Company
Global Investor Services Group
Corporate Trust Division
P.O. Box 778
Boston, MA 02102-0778
Attention: Digital Escrow Account
Telecopier No.: (617) 662-1466
Telephone No.: (617) 662-1802
Courier Address:
2 Avenue de Lafayette-6/th/ Floor
Boston, MA 02110
<PAGE>
or to such other address or individuals as may be designated by notice given by
any party to the others.
Notices provided in accordance with this Section 15 shall be deemed
delivered upon personal delivery or, if mailed, 3 business days following the
deposit thereof in the mail, provided that any notice required to be delivered
to the Escrow Agent hereunder shall be deemed received by it only upon actual
receipt.
18. Entire Agreement. This Agreement, including Annex A hereto, together
---------------- -------
with the Stock Purchase Agreement and its Exhibits and Schedules embodies the
entire agreement and understanding among the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
19. Amendments and Waivers. Except as otherwise expressly set forth in
----------------------
this Agreement, any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
all of the parties hereto. 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.
20. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
21. Headings. The headings of the sections, subsections, and paragraphs
--------
of this Agreement have been added for convenience only and shall not be deemed
to be a part of this Agreement.
22. Severability. The individuality or unenforceability of any provision
------------
of this Agreement shall not affect the validity or enforceability of any other
provision.
23. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, exclusive of reference to
rules and principles of conflicts of law.
24. Reproduction of Documents. This Agreement and all documents relating
-------------------------
thereto, including, without limitation, (a) consents, waivers and modifications
which may hereafter be executed, and (b) certificates and other information
previously or hereafter furnished, may be reproduced by any photographic,
photostatic, microfilm, optical disk, micro-card, miniature photographic or
other similar process. The parties agree that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
<PAGE>
25. Consent to Jurisdiction and Service. Each of the Interested Parties
-----------------------------------
hereby absolutely and irrevocably consents and submits to the jurisdiction of
the courts in the Commonwealth of Massachusetts and of any Federal court located
in said Commonwealth in connection with any actions or proceedings brought
against any of the Interested Parties (or each of them) by the Escrow Agent
arising out of or relating to this Escrow Agreement. In any such action or
proceeding, the Interested Parties each hereby absolutely and irrevocably (i)
waives any objection to jurisdiction or venue, (ii) waives personal service of
any summons, complaint, declaration or other process, and (iii) agrees that the
service thereof may be made by certified or registered first-class mail directed
to such party, as the case may be, at their respective address in accordance
with Section 17 (Notices) hereof.
26. Dispute Resolution. It is understood and agreed that should any claim
------------------
be made upon the Escrow Agent or the Escrow Fund by a third party, the Escrow
Agent upon receipt of notice of such dispute or claim is authorized and shall be
entitled (at its sole option and election) to retain in its possession without
liability to anyone, all or any of said Escrow Fund until such dispute shall
have been settled either by the mutual written agreement of the parties involved
or by a final order, decree or judgment of a court in the United States of
America, the time for perfection of an appeal of such order, decree or judgment
having expired. The Escrow Agent may, but shall be under no duty whatsoever to,
institute or defend any legal proceedings which relate to the Escrow Fund.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
ESCROW AGENT:
STATE STREET BANK AND TRUST COMPANY
By: /s/ Chi C. Ma
---------------------------
Name: Chi C. Ma
Title: Vice President
BUYER:
SEACHANGE INTERNATIONAL, INC.
By: /s/ William C. Styslinger, III
--------------------------------
Name: William C. Styslinger, III
Title: President, Chief Executive
Officer and Chairman
COMPANY
DIGITAL VIDEO ARTS, LTD.
By: /s/ George Breen
-----------------------------
Name: George Breen
Title: President
SELLERS:
INNOTECH CORPORATION
By: /s/ Larry M. Yoshida
-----------------------------
Name: Larry M. Yoshida
Title: President and Chief Executive
Officer
<PAGE>
INNO MICRO CORPORATION
By: /s/ Yasuo Ryumae
------------------------------
Name: Yasuo Ryumae
Title: President and Chief Executive
Officer
/s/ George E. Breen
--------------------------------
George E. Breen
/s/ Stephen Kraiman
---------------------------------
Stephen Kraiman
<PAGE>
ANNEX A
-------
<TABLE>
<CAPTION>
Escrow
Shareholder Shares Mailing Address
- ----------- ------ ---------------
<S> <C> <C>
George E. Breen 15,020 715 Twining Road, Suite 107
Dresher, PA 19025
Stephen Kraiman 10,013 715 Twining Road, Suite 107
Dresher, PA 19025
Inno Micro Corporation 1,251 2-13-13 Shinyokohama, Kouhoku-Ku
Yokohama-Shi
Kanagawa 222
Japan
InnoTech Corporation 5,007 2-13-13 Shinyokohama, Kouhoku-Ku
Yokohama-Shi
Kanagawa 222
Japan
Totals: 31,291
</TABLE>
