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SECURITIES EXCHANGE AND 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): September 16, 1999
Terayon Communication Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
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000-24647 77-0328533
(Commission File No.) (I.R.S. Employer Identification No.)
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2952 Bunker Hill Lane
Santa Clara, CA 95054
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (408) 727-4400
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Item 2. Acquisition or Disposition of Assets.
On September 16, 1999 (the "Closing Date"), the registrant, Terayon
Communication Systems, Inc. ("Terayon"), acquired Imedia Corporation ("Imedia"),
pursuant to an Agreement and Plan of Merger and Reorganization (the "Agreement")
adopted by Terayon, Imedia and a wholly-owned merger subsidiary of Terayon
("Merger Sub") dated July 15, 1999 (the "Merger"). Under the Agreement, Merger
Sub was merged with and into Imedia, with Imedia as the surviving corporation.
As a result of the Merger, Imedia became a wholly-owned subsidiary of Terayon on
September 16, 1999 (the "Effective Time").
Imedia develops, markets and sells products to cable and satellite
operators that enable them to tailor their digital programming to local
demographics. Imedia's products also help cable and satellite operators maximize
bandwidth and manage video-on-demand channels.
Upon consummation of the Merger at the Effective Time, all outstanding
shares of Imedia common stock were automatically canceled. As consideration for
the Merger, the former shareholders of Imedia are entitled to receive shares of
Terayon common stock in varying amounts in a series of three stock payments as
described in detail in the Agreement attached hereto as Exhibit 2.1. Under the
Agreement, the last of these stock payments will occur on or before the 18-month
anniversary of the Closing Date. The aggregate number of shares of Terayon
common stock to be issued pursuant to the Agreement will depend, among other
things, on the performance of Terayon's common stock over the period during
which the stock payments are made, but in no event shall the aggregate number of
shares of Terayon common stock issued pursuant to these three stock payments
exceed three million (3,000,000) shares (adjusted for any splits, combinations,
stock dividends and the like). The Agreement also provides for the payment by
Terayon of certain Additional Consideration to the former shareholders of Imedia
in the form of cash or additional shares of Terayon common stock (at Terayon's
option) in the event that certain pricing conditions relative to the Merger are
satisfied.
The total value of the consideration that will be ultimately be paid to the
former shareholders of Imedia in connection with the Merger, as measured by
certain valuation formulae set forth in the Agreement and based upon an average
of the price of Terayon common stock as reported on the Nasdaq National Market,
is not to exceed ninety-nine million dollars ($99,000,000) nor is it to fall
below sixty-nine million dollars ($69,000,000).
The Merger is intended to qualify for "purchase" accounting treatment under
the requirements of Opinion 16 of the Accounting Principles Board of the
American Institute of Certified Public Accountants ("AICPA") and the related
published interpretations of the AICPA, the Financial Accounting Standards Board
and the rules and regulations of the Securities and Exchange Commission.
Item 7. Financial Statements and Exhibits.
a. The financial statements required by this Item will be filed by
amendment no later than 60 days after the date of this report.
b. The pro forma financial statements required by this Item will be filed
by amendment no later than 60 days after this report.
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c. The following exhibits are furnished in accordance with the provisions
of Item 601 of Regulation S-K:
Exhibit Number Exhibit
2.1 Agreement and Plan of Merger, dated as of July 15, 1999,
among Terayon Communication Systems, Inc., Cherry
Acquisition Corp. and Imedia Corporation.
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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.
Terayon Communication Systems, Inc.
Dated: October 1, 1999 By: /s/ Ray M. Fritz
-----------------
Ray M. Fritz
Chief Financial Officer
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EXHIBIT INDEX
Exhibit
Number Description
- ------- ------------
2.1 Agreement and Plan of Merger, dated as of July 15, 1999, among Terayon
Communication Systems, Inc., Cherry Acquisition Corp. and Imedia
Corporation.
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Exhibit 2.1
================================================================================
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
Terayon Communication Systems, Inc.,
a Delaware corporation;
Cherry Acquisition Corp.,
a California corporation;
and
Imedia Corporation,
a California corporation;
___________________________
Dated as of July 15, 1999
___________________________
===============================================================================
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Table Of Contents
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Section 1. Description of Transaction............................................................... 1
1.1 Merger of Merger Sub into the Company.................................................... 1
1.2 Effect of the Merger..................................................................... 1
1.3 Closing; Effective Time.................................................................. 1
1.4 Articles of Incorporation and Bylaws; Directors and Officers............................. 2
1.5 Conversion of Shares..................................................................... 2
1.6 Payment of Shares........................................................................ 5
1.7 Stock Options, Warrants, Other Convertible Instruments and the Terayon
Promissory Note.......................................................................... 6
1.8 Closing of the Company's Transfer Books.................................................. 9
1.9 Exchange of Certificates................................................................. 10
1.10 Dissenting Shares........................................................................ 11
1.11 Tax Consequences......................................................................... 11
1.12 Accounting Treatment..................................................................... 12
1.13 Further Action........................................................................... 12
Section 2. Representations and Warranties of the Company............................................ 12
2.1 Due Organization; No Subsidiaries; Etc................................................... 12
2.2 Articles of Incorporation and Bylaws; Records............................................ 13
2.3 Capitalization, Etc...................................................................... 13
2.4 Financial Statements..................................................................... 14
2.5 Absence of Changes....................................................................... 14
2.6 Title to Assets.......................................................................... 16
2.7 Bank Accounts; Receivables............................................................... 17
2.8 Equipment; Leasehold..................................................................... 17
2.9 Proprietary Assets....................................................................... 17
2.10 Contracts................................................................................ 19
2.11 Liabilities.............................................................................. 21
2.12 Compliance with Legal Requirements....................................................... 21
2.13 Governmental Authorizations.............................................................. 21
2.14 Tax Matters.............................................................................. 22
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i.
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TABLE OF CONTENTS
(CONTINUED)
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2.15 Employee and Labor Matters; Benefit Plans................................................ 23
2.16 Environmental Matters.................................................................... 26
2.17 Insurance................................................................................ 26
2.18 Related Party Transactions............................................................... 26
2.19 Legal Proceedings; Orders................................................................ 27
2.20 Authority; Binding Nature of Agreement................................................... 27
2.21 Non-Contravention; Consents.............................................................. 27
2.22 Full Disclosure.......................................................................... 28
Section 3. Representations and Warranties of Terayon and Merger Sub................................. 29
3.1 SEC Filings; Financial Statements........................................................ 29
3.2 Authority; Binding Nature of Agreement................................................... 29
3.3 Valid Issuance........................................................................... 29
Section 4. Certain Covenants of the Company......................................................... 30
4.1 Access................................................................................... 30
4.2 Operation of the Company's Business...................................................... 30
4.3 Notification; Updates to Disclosure Schedule............................................. 32
4.4 No Negotiation........................................................................... 33
4.5 Shareholder Solicitation................................................................. 33
Section 5. Additional Covenants of the Parties...................................................... 33
5.1 Filings and Consents..................................................................... 33
5.2 California Permit; Fairness Hearing...................................................... 33
5.3 Company Shareholders' Meeting; Voting Agreements......................................... 34
5.4 Public Announcements..................................................................... 34
5.5 Best Efforts............................................................................. 34
5.6 Employment and Noncompetition Agreements................................................. 34
5.7 Termination of Agreements................................................................ 34
5.8 Employee Retention Program............................................................... 34
5.9 FIRPTA Matters........................................................................... 34
5.10 Termination of Employee Plans............................................................ 35
5.11 Registration Rights...................................................................... 35
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ii.
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TABLE OF CONTENTS
(CONTINUED)
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5.12 Lock-up Restrictions..................................................................... 36
5.13 Notification............................................................................. 36
Section 6. Conditions Precedent to Obligations of Terayon and Merger Sub............................ 37
6.1 Accuracy of Representations.............................................................. 37
6.2 Performance of Covenants................................................................. 37
6.3 Shareholder Approval..................................................................... 37
6.4 Consents................................................................................. 38
6.5 Agreements and Documents................................................................. 38
6.6 FIRPTA Compliance........................................................................ 39
6.7 Permit; Compliance With (S)3(a)(10) of the Securities Act................................ 39
6.8 No Restraints............................................................................ 39
6.9 No Legal Proceedings..................................................................... 39
6.10 Employees................................................................................ 39
6.11 Termination of Employee Plans and Employment Agreements.................................. 39
6.12 Fairness Opinion......................................................................... 39
6.13 Shareholder Approval of Parachute Payments............................................... 39
6.14 Conversion of Preferred Stock............................................................ 40
Section 7. Conditions Precedent to Obligations of the Company....................................... 40
7.1 Accuracy of Representations.............................................................. 40
7.2 Performance of Covenants................................................................. 40
7.3 Documents................................................................................ 40
7.4 No Restraints............................................................................ 40
7.5 Fairness Opinion......................................................................... 40
7.6 No Material Adverse Change............................................................... 40
7.7 Permit; Compliance With (S)3(a)(10) of the Securities Act................................ 41
Section 8. Termination.............................................................................. 41
8.1 Termination Events....................................................................... 41
8.2 Termination Procedures................................................................... 41
8.3 Effect of Termination.................................................................... 41
Section 9. Indemnification, Etc..................................................................... 42
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iii.
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TABLE OF CONTENTS
(CONTINUED)
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9.1 Survival of Representations, Etc......................................................... 42
9.2 Indemnification.......................................................................... 42
9.3 Threshold; Adjustments to Damages........................................................ 43
9.4 Exclusive Remedy......................................................................... 43
9.5 Defense of Third-Party Claims............................................................ 43
9.6 Exercise of Remedies by Indemnitees Other Than Terayon................................... 44
Section 10. Miscellaneous Provisions................................................................. 44
10.1 Company Shareholders' Agent.............................................................. 44
10.2 Further Assurances....................................................................... 44
10.3 Fees and Expenses........................................................................ 44
10.4 Attorneys' Fees.......................................................................... 45
10.5 Notices.................................................................................. 45
10.6 Time of the Essence...................................................................... 45
10.7 Headings................................................................................. 46
10.8 Counterparts............................................................................. 46
10.9 Governing Law............................................................................ 46
10.10 Successors and Assigns................................................................... 46
10.11 Remedies Cumulative; Specific Performance................................................ 46
10.12 Waiver................................................................................... 46
10.13 Amendments............................................................................... 47
10.14 Severability............................................................................. 47
10.15 Parties in Interest...................................................................... 47
10.16 Entire Agreement......................................................................... 47
10.17 Construction............................................................................. 47
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iv.
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Exhibits
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Exhibit A - Certain definitions
Exhibit B - Form of Amended and Restated Articles of Incorporation of
Surviving Corporation
Exhibit C - Directors and officers of Surviving Corporation
Exhibit D - Bonuses to be paid and employees to be hired during Pre-
Closing Period
Exhibit E - Company Shareholders signing Voting Agreements
Exhibit F - Persons to sign Employment and Noncompetition Agreements
Exhibit G - Form of Employment Agreement
Exhibit H - Form of Noncompetition Agreement
Exhibit I - Employee retention program
Exhibit J - Escrow Agreement
Exhibit K - Form of legal opinion of Wilson Sonsini Goodrich & Rosati,
P.C.
Exhibit L - Shareholder Lock-up Agreement
Exhibit M - Certain employees
Exhibit N - Form of legal opinion of Cooley Godward LLP
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The Registrant shall furnish a copy of any of the exhibits referred to above to
the Commission upon request.
v.
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AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization ("Agreement") is made
and entered into as of July 15, 1999, by and among: Terayon Communication
Systems, Inc., a Delaware corporation ("Terayon"); Cherry Acquisition Corp., a
California corporation and a wholly owned subsidiary of Terayon ("Merger Sub");
and Imedia Corporation, a California corporation (the "Company"). Certain other
capitalized terms used in this Agreement are defined in Exhibit A.
Recitals
A. Terayon, Merger Sub and the Company intend to effect a merger of Merger
Sub into the Company in accordance with this Agreement and the California
General Corporation Law (the "Merger"). Upon consummation of the Merger, Merger
Sub will cease to exist, and the Company will become a wholly owned subsidiary
of Terayon.
B. For accounting purposes, it is intended that the Merger be treated as a
"purchase."
C. This Agreement has been approved by the respective boards of directors
of Terayon, Merger Sub and the Company.
Agreement
The parties to this Agreement agree as follows:
SECTION 1. Description of Transaction.
1.1 Merger of Merger Sub into the Company. Upon the terms and subject
to the conditions set forth in this Agreement, at the Effective Time (as defined
in Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
1.2 Effect of the Merger. The Merger shall have the effects set forth
in this Agreement and in the applicable provisions of the California General
Corporation Law.
1.3 Closing; Effective Time. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, One Maritime Plaza, 20th Floor, San Francisco, California
94111 at 10:00 a.m. on the first business day after which the last condition set
forth in Sections 6 and 7 shall have been fulfilled or waived, or at such other
time, date and place as Terayon and the Company shall agree. (The date on which
the Closing actually takes place is referred to in this Agreement as the
"Closing Date.") Contemporaneously with or as promptly as practicable after the
Closing, a properly executed agreement of merger conforming to the requirements
of Chapter 11 of the California General Corporation Law shall be filed with the
Secretary of State of the State of California. The Merger
<PAGE>
shall become effective at the time such agreement of merger is filed with and
accepted by the Secretary of State of the State of California (the "Effective
Time").
1.4 Articles of Incorporation and Bylaws; Directors and Officers.
Unless otherwise determined by Terayon and the Company prior to the Effective
Time:
(a) the Articles of Incorporation of the Surviving Corporation
shall be amended and restated as of the Effective Time to conform to Exhibit B;
(b) the Bylaws of the Surviving Corporation shall be amended and
restated as of the Effective Time to conform to the Bylaws of Merger Sub as in
effect immediately prior to the Effective Time; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals identified on
Exhibit C.
1.5 Conversion of Shares.
(a) Subject to Sections 1.9(c) and 1.10, at the Effective Time, by
virtue of the Merger and without any further action on the part of the Company,
any shareholder of the Company (the "Company Shareholders"), Terayon or Merger
Sub,:
(i) each share of the Company's common stock (without par
value) (the "Company Common Stock") outstanding immediately prior to the
Effective Time shall be converted into the right to receive:
(1) the "Initial Applicable Fraction" (as defined in
Section 1.5(b)(i)) of a share of the common stock ($0.001 par value per share)
of Terayon ("Terayon Common Stock") at the Effective Time;
(2) the "Second Applicable Fraction" (as defined in
Section 1.5(b)(ii)) of a share of Terayon Common Stock at the Second Closing;
(3) the "Final Applicable Fraction" (as defined in
Section 1.5(b)(iii)) of a share of Terayon Common Stock; and
(4) cash or shares of Terayon Common Stock in an amount
equal to the fraction of consideration having a numerator equal to the
Additional Consideration (as defined in Section 1.5(b)(xv)), if any, and a
denominator equal to the Adjusted Fully Diluted Company Share Amount (as defined
in Section 1.5(b)(iv)); and
(ii) each share of the common stock (without par value) of
Merger Sub outstanding immediately prior to the Effective Time shall be
converted into one share of common stock of the Surviving Corporation.
(b) For purposes of this Agreement:
2.
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(i) The "Initial Applicable Fraction" shall be the
fraction: (A) having a numerator equal to the number of Initial Securities (as
defined in Section 1.5(b)(vii)); and (B) having a denominator equal to the
Adjusted Fully Diluted Company Share Amount.
(ii) The "Second Applicable Fraction" shall be the fraction:
(A) having a numerator equal to the number of Second Closing Securities (as
defined in Section 1.5(b)(ix)); and (B) having a denominator equal to the
Adjusted Fully Diluted Company Share Amount.
(iii) The "Final Applicable Fraction" shall be the fraction:
(A) having a numerator equal to the number of Final Securities (as defined in
Section 1.5(b)(xi)); and (B) having a denominator equal to the Adjusted Fully
Diluted Company Share Amount.
(iv) The "Adjusted Fully Diluted Company Share Amount" shall
be the sum of (A) the aggregate number of shares of Company Common Stock
outstanding immediately prior to the Effective Time (including any such shares
that are converted to Company Common Stock prior to the Effective Time and such
shares that are subject to a repurchase option or risk of forfeiture under any
restricted stock purchase agreement), and (B) the aggregate number of shares of
Company Common Stock purchasable under or otherwise subject to all Company
Options (as defined in Section 1.7(a)) vested as of the Effective Time (such
Company Options shall be referred to as the "Vested Company Options") and to all
Company Warrants (as defined in Section 1.7(b)).
(v) The "Designated Terayon Stock Price" shall be the
average of the closing sale prices of a share of Terayon Common Stock as
reported on the Nasdaq National Market for each of the twenty (20) consecutive
trading days immediately prior to the Closing Date.
(vi) The "Merger Shares" shall mean the aggregate number of
shares of Terayon Common Stock and the number of shares of Terayon Common Stock
issuable under Vested Company Options and Company Warrants equal to the sum of
the Initial Securities plus the Second Closing Securities plus the Final
Securities.
(vii) The "Initial Securities" shall mean the aggregate
number of Initial Shares (as defined in Section 1.5(b)(viii)) plus the number of
Initial Option Shares (as defined in Section 1.7(a)(i)(4)) reserved for issuance
under Vested Company Options plus the number of Initial Warrant Shares (as
defined in Section 1.7(b)(i)(4)) reserved for issuance under any Company
Warrants.
(viii) The "Initial Shares" shall mean one million (1,000,000)
shares of Terayon Common Stock (as adjusted to reflect any stock split, reverse
stock split, stock dividend, recapitalization or other similar transaction
effected by Terayon after the date hereof) less the sum of (1) the number of
Initial Option Shares reserved for issuance under any Vested Company Options and
(2) the number Initial Warrant Shares reserved for issuance under any Company
Warrants.
(ix) The "Second Closing Securities" shall mean the
aggregate of the Second Closing Shares (as defined in Section 1.5(b)(x)) plus
the number of Second Closing
3.
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Option Shares (as defined in Section 1.7(a)(i)(4)) reserved for issuance under
any Vested Company Options plus the number of Second Closing Warrant Shares (as
defined in Section 1.7(b)(i)(4)) reserved for issuance under any Company
Warrants.
(x) The "Second Closing Shares" shall mean the number of
shares of Terayon Common Stock (if any) equal to the difference between (1)
three hundred thousand (300,000) shares of Terayon Common Stock (as adjusted to
reflect any stock split, reverse stock split, stock dividend, recapitalization
or other similar transaction effected by Terayon after the date hereof) and (2)
the sum of the number of Second Closing Option Shares reserved for issuance
under any Vested Company Options and the number of Second Closing Warrant Shares
reserved for issuance under any Company Warrants. The Second Closing Shares
shall be issued by Terayon to the Company Shareholders on or before the date of
the first anniversary of the Closing (the consummation of the issuance of the
Second Closing Shares shall be the "Second Closing"); provided that in the event
that the Second Closing is also the Final Closing, Terayon shall only be
required to issue that number of Second Closing Shares and reserve that number
of Second Closing Option Shares and Second Closing Warrant Shares such that the
aggregate value of the Initial Securities and the Second Closing Securities,
based upon the Final Share Price (as defined in Section 1.5(b)(xiii)), does not
exceed the amount equal to: (1) ninety-nine million dollars ($99,000,000); plus
(2) the amount equal to the aggregate exercise price of all Vested Company
Options and Company Warrants as of the Effective Time; less (3) all accrued and
unpaid interest on the Terayon Promissory Note (as defined in Section 1.7(c)) as
of the Effective Time (which aggregate amount shall be referred to as the
"Maximum Purchase Price").
(xi) The "Final Securities" shall mean the aggregate number
of shares of Terayon Common Stock plus Final Option Shares (as defined in
Section 1.7(a)(i)(4)) reserved for issuance under any Vested Company Options
plus Final Warrant Shares (as defined in Section 1.7(b)(i)(4)) reserved for
issuance under Company Warrants, valued at the Final Share Price, equal to the
difference between (1) the Maximum Purchase Price and (2) the combined value of
the Initial Securities and the Second Closing Securities, each as valued at the
Final Share Price; provided that, in no event shall the number of Final
Securities exceed one million seven hundred thousand (1,700,000) shares of
Terayon Common Stock (as adjusted to reflect any stock split, reverse stock
split, stock dividend, recapitalization or other similar transaction effected by
Terayon after the date hereof).
(xii) The "Final Shares" shall mean the number of shares of
Terayon Common Stock (if any), equal to the Final Securities less the sum of (1)
the number of Final Option Shares reserved for issuance under any Vested Company
Options and (2) the number of Final Warrant Shares reserved for issuance under
any Company Warrants. The consummation of the issuance of the Final Shares shall
be the "Final Closing." The Final Closing shall occur on the earlier of (1) the
date on which Terayon has issued (or reserved for issuance with respect to
Vested Company Options and Company Warrants) Merger Shares equal in value to the
Maximum Purchase Price, based upon the Final Share Price or (2) the date of the
18-month anniversary of the Closing. Terayon shall provide written notice of the
occurrence of the Final Closing to the Company Shareholders' Agent (as defined
in Section 10.1) upon such occurrence of the Final Closing.
4.
<PAGE>
(xiii) The "Final Share Price" shall mean the average of
the closing sale prices of a share of Terayon Common Stock as reported on the
Nasdaq National Market for each of the fifteen (15) consecutive trading days
immediately prior to the date of the Final Closing.
(xiv) The "Escrowed Shares" shall mean the number of
shares of Terayon Common Stock equal to the sum of (1) the number of shares
equal to ten million dollars ($10,000,000) in value based on the Designated
Terayon Stock Price (the "Escrow Fund A Shares"), plus (2) one million
(1,000,000) shares (the "Escrow Fund B Shares") (as adjusted to reflect any
stock split, reverse stock split, stock dividend, recapitalization or other
similar transaction effected by Terayon after the date hereof), which aggregate
number of shares shall be placed in escrow (collectively, the "Escrow Fund") as
of the Closing Date pursuant to the Escrow Agreement (as defined in Section
6.5(a)).
(xv) The "Additional Consideration" shall mean:
(1) the amount equal to (x) the Minimum Purchase
Price (as defined in Section 1.5(b)(xvi)) less (y) the aggregate value of the
Merger Shares, based upon the Final Share Price, in the event that such
aggregate value of the Merger Shares is less than the Minimum Purchase Price;
and
(2) the amount equal to (x) the amount equal to
the aggregate exercise price of all Vested Company Options and Company Warrants
as of the Effective Time less (y) the sum of one million dollars ($1,000,000)
plus all accrued and unpaid interest on the Terayon Promissory Note as of the
Effective Time, in the event the aggregate value of the Merger Shares, based
upon the Final Share Price, is less than the Maximum Purchase Price and greater
than the Minimum Purchase Price.
The Additional Consideration shall be paid (or reserved for payment in the case
of Company Options and Company Warrants) in cash or shares of Terayon Common
Stock, or any combination thereof (the amount paid in cash versus stock shall be
at Terayon's sole option). Any shares of Terayon Common Stock used to pay any
portion of the Additional Consideration shall be valued at the Final Share
Price.
(xvi) The "Minimum Purchase Price" shall mean the sum of
sixty-nine million dollars ($69,000,000) plus the amount equal to the aggregate
exercise price of all Vested Company Options and Company Warrants as of the
Effective Time less all accrued and unpaid interest on the Terayon Promissory
Note as of the Effective Time.
1.6 Payment of Shares. The Terayon Common Stock issued in exchange for
the Company Common Stock shall be paid to the Company Shareholders as follows:
(a) The Initial Shares, less the Escrow Fund A Shares
attributable to the Initial Shares, shall be delivered to the Company
Shareholders at the Effective Time;
(b) The Second Closing Shares, if any, shall be delivered to
the Company Shareholders on or before the one year anniversary of the Closing;
5.
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(c) The Final Shares, if any, shall be delivered to the
Company Shareholders on or before the 18-month anniversary of the Closing upon
the terms described in Section 1.5(b)(xii); and
(d) The Additional Consideration, if any, shall be delivered
to the Company Shareholders within five (5) business days following the date of
the Final Closing.
Upon the consummation of the Closing, the Escrow Fund A Shares attributable to
the Initial Shares shall be deducted from each Company Shareholder's
proportionate share of the Initial Shares on a pro rata basis and delivered to
the Escrow Agent (as defined in the Escrow Agreement) at or immediately
following the Effective Time. The Escrow Fund A Shares will be paid out to the
extent and upon the terms set forth in the Escrow Agreement. Any Second Closing
Securities, Final Securities or shares issued as Additional Consideration (if
any) shall be delivered by Terayon pursuant to Sections 1.5(a) and 1.7 first out
of the Escrow Fund B Shares. The Company Shareholders shall not be obligated to
return any shares of Terayon Common Stock issued by Terayon in the event that
the value of the Merger Shares issued, based on the Final Share Price, exceeds
the Maximum Purchase Price.
1.7 Stock Options, Warrants, Other Convertible Instruments and the
Terayon Promissory Note.
(a) At the Effective Time, each stock option of the Company
that is then outstanding, whether vested or unvested (a "Company Option"), shall
be substituted by a Terayon option in accordance with the terms of Terayon's
1997 Equity Incentive Plan and Terayon's standard stock option agreements, upon
substantially similar terms as the terms set forth in the Company's stock option
agreement by which such Company Option is evidenced. All rights with respect to
Company Common Stock under outstanding Company Options shall thereupon be
converted into rights with respect to Terayon Common Stock and Additional
Consideration, if any.
(i) Accordingly, from and after the Effective Time:
(1) each Company Option substituted by Terayon may
be exercised for shares of Terayon Common Stock and Additional Consideration, if
any;
(2) the number of shares of Terayon Common Stock
subject to, and the amount of Additional Consideration payable pursuant to, each
such substituted Company Option shall be equal to the number of shares of
Terayon Common Stock, or that amount of Additional Consideration (if any), into
which the number of shares of Company Common Stock that were subject to such
Company Option immediately prior to the Effective Time would have been converted
in accordance with the calculations set forth in Section 1.5(a)(i), rounded down
to the nearest whole number of shares of Terayon Common Stock;
(3) notwithstanding anything else herein, except
for rounding adjustments set forth in this paragraph, the aggregate exercise
price of each substituted Company Option shall be the same as the option for
which it was substituted, and the exercise price payable upon exercise of a
fraction (the "Option Exercise Fraction") of a substituted Company Option shall
be determined by multiplying the aggregate exercise price of such substituted
6.
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Company Option by the Option Exercise Fraction, with the resulting exercise
price being rounded up to the nearest whole cent in the event of fractional
cents;
(4) the number of shares of Terayon Common Stock
issuable, and the amount of Additional Consideration payable, upon exercise of a
substituted Company Option shall be determined by multiplying the number of
shares of Company Common Stock subject to such Company Option as in effect
immediately prior to the Effective Time, by the Initial Applicable Fraction (the
"Initial Option Shares"), by the Second Applicable Fraction (the "Second Closing
Option Shares"), by the Final Applicable Fraction (the "Final Option Shares"),
and by an amount in cash or Terayon Common Stock equal to the fraction of
consideration having a numerator equal to the Additional Consideration, if any,
and a denominator equal to the Adjusted Fully Diluted Company Share Amount;
(5) all restrictions on the exercise of each such
substituted Company Option shall continue in full force and effect, and the
term, exercisability, vesting schedule and other provisions of such substituted
Company Option shall otherwise remain unchanged; provided, however, that each
such substituted Company Option shall, in accordance with its terms, be subject
to further adjustment as appropriate to reflect any stock split, reverse stock
split, stock dividend, recapitalization or other similar transaction effected by
Terayon after the Effective Time.
(ii) If a holder of Company Options exercises any such
options on or after the Effective Time but prior to the Second Closing, the
Initial Option Shares shall be issued to the holder as soon as practicable (less
the appropriate number of Escrow Fund A Shares), any Second Closing Option
Shares shall be issued to the holder at the Second Closing, any Final Option
Shares shall be issued to the holder at the Final Closing, and any Additional
Consideration shall be delivered at the time specified in Section 1.6(d). If a
holder of Company Options exercises any such options on or after the Second
Closing but prior to the Final Closing, the Initial Option Shares (less the
appropriate number of Escrow Fund A Shares) and Second Closing Option Shares
shall be issued to the holder at the Second Closing, or as soon as practicable
after such exercise, any Final Option Shares shall be issued to the holder at
the Final Closing, and any Additional Consideration shall be delivered at the
time specified in Section 1.6(d). If a holder of Company Options exercises any
such options on or after the Final Closing, the Initial Option Shares (less the
appropriate number of Escrow Fund A Shares), Second Closing Option Shares and
Final Option Shares shall be issued to the holder at the Final Closing or as
soon as practicable after such exercise, and any Additional Consideration shall
be delivered at the time specified in Section 1.6(d) or as soon as practicable
after such exercise. The Escrow Fund A Shares attributable to the Company
Options will be paid out to the extent and upon the terms set forth in the
Escrow Agreement.
(iii) The Company and Terayon shall take all action that
may be necessary (under the Company's 1995 Stock Option Plan and otherwise) to
effectuate the provisions of this Section 1.7(a).
(iv) Following the Closing, Terayon will send to each
holder of a substituted Company Option a written notice setting forth the number
of Initial Shares subject to such substituted Company Option and the formula and
other information required to determine
7.
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the number of additional shares of Terayon Common Stock that may be subject and
any Additional Consideration that may be paid pursuant to such substituted
Company Option, together with a copy of this Agreement.
(b) At the Effective Time, each warrant, convertible note or
other right to purchase Company Common Stock or securities convertible into
Company Common Stock other than a Company Option that is then outstanding (a
"Company Warrant"), shall be assumed by Terayon in accordance with its terms (as
in effect as of the date of this Agreement). All rights to convert into Company
Common Stock or the Company's preferred stock, without par value (the "Preferred
Stock"), under outstanding Company Warrants shall thereupon be converted into
rights to receive Terayon Common Stock and Additional Consideration, if any.
(i) Accordingly, from and after the Effective Time,
(1) each Company Warrant assumed by Terayon may be
exercised for shares of Terayon Common Stock and Additional Consideration, if
any;
(2) the number of shares of Terayon Common Stock
subject to, and the amount of Additional Consideration payable pursuant to, each
such assumed Company Warrant shall be equal to the number of shares of Terayon
Common Stock, or that amount of Additional Consideration (if any), into which
the number of shares of Company Common Stock that were subject to such Company
Warrant immediately prior to the Effective Time would have been converted in
accordance with the calculations set forth in Section 1.5(a)(i), rounded down to
the nearest whole number of shares of Terayon Common Stock;
(3) notwithstanding anything else herein, except
for rounding adjustments discussed in this paragraph, the aggregate exercise
price of each assumed Company Warrant shall be the same as it was immediately
prior to the Effective Time, and the exercise price payable upon exercise of a
fraction (the "Warrant Exercise Fraction") of an assumed Company Warrant shall
be determined by multiplying the aggregate exercise price of such assumed
Company Warrant by the Warrant Exercise Fraction, with the resulting exercise
price being rounded up to the nearest whole cent in the event of fractional
cents;
(4) the number of shares of Terayon Common Stock
issuable, and the amount of Additional Consideration payable, upon exercise of
an assumed Company Warrant shall be determined by multiplying the number of
shares of Company Common Stock subject to such Company Warrant as in effect
immediately prior to the Effective Time (assuming conversion of all rights to
acquire Preferred Stock into rights to acquire Company Common Stock), by the
Initial Applicable Fraction (the "Initial Warrant Shares"), by the Second
Applicable Fraction (the "Second Closing Warrant Shares"), by the Final
Applicable Fraction (the "Final Warrant Shares"); and by an amount in cash or
Terayon Common Stock equal to the fraction of consideration having a numerator
equal to the Additional Consideration, if any, and a denominator equal to the
Adjusted Fully Diluted Company Share Amount;
(5) all restrictions on the exercise of each such
assumed Company Warrant shall continue in full force and effect, and the term,
exercisability and other provisions of such assumed Company Warrant shall
otherwise remain unchanged; provided,
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however, that each such assumed Company Warrant shall, in accordance with its
terms, be subject to further adjustment as appropriate to reflect any stock
split, reverse stock split, stock dividend, recapitalization or other similar
transaction effected by Terayon after the Effective Time.
(ii) If a holder of Company Warrants exercises any such
warrants on or after the Effective Time but prior to the Second Closing, the
Initial Warrant Shares shall be issued to the holder as soon as practicable
(less the appropriate number of Escrow Fund A Shares), any Second Closing
Warrant Shares shall be issued to the holder at the Second Closing, any Final
Warrant Shares shall be issued to the holder at the Final Closing, and any
Additional Consideration shall be delivered at the time specified in Section
1.6(d). If a holder of Company Warrants exercises any such warrants on or after
the Second Closing but prior to the Final Closing, the Initial Warrant Shares
(less the appropriate number of Escrow Fund A Shares) and Second Closing Warrant
Shares shall be issued to the holder at the Second Closing, or as soon as
practicable after such exercise, any Final Warrant Shares shall be issued to the
holder at the Final Closing and any Additional Consideration shall be delivered
at the time specified in Section 1.6(d). If a holder of Company Warrants
exercises any such warrants on or after the Final Closing, the Initial Warrant
Shares (less the appropriate number of Escrow Fund A Shares), Second Closing
Warrant Shares and Final Warrant Shares shall be issued to the holder at the
Final Closing or as soon as practicable after such exercise, and any Additional
Consideration shall be delivered at the time specified in Section 1.6(d) or as
soon as practicable after such exercise. The Escrow Fund A Shares attributable
to the Company Warrants will be paid out to the extent and upon the terms set
forth in the Escrow Agreement.
(iii) The Company and Terayon shall take all action that
may be necessary to effectuate the provisions of this Section 1.7(b).
(iv) Following the Closing, Terayon will send to each
holder of an assumed Company Warrant a written notice setting forth the number
of Initial Shares subject to such assumed Company Warrant and the formula and
other information required to determine the number of additional shares of
Terayon Common Stock that may be subject, and any Additional Consideration that
may be paid pursuant to such assumed Company Warrant, together with a copy of
this Agreement.
(c) At the Effective Time, the Company's Promissory Note
dated June 14, 1999 in principal amount of one million dollars ($1,000,000) in
favor of Terayon (the "Terayon Promissory Note") shall be cancelled.
1.8 Closing of the Company's Transfer Books. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as shareholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such stock transfer
books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of the Company's capital
stock (a "Company Stock Certificate") is presented to the
9.
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Surviving Corporation or Terayon, such Company Stock Certificate shall be
canceled and shall be exchanged as provided in Section 1.9.
1.9 Exchange of Certificates.
(a) At the Closing, each of the Company Shareholders shall
surrender to Terayon all of its certificates representing shares of Company
Common Stock (properly endorsed for transfer), and Terayon shall deliver to its
transfer agent (with a copy to the Company Shareholders) irrevocable
instructions relating to the issuance of Terayon Common Stock in accordance with
this Section 1.9. At or as soon as practicable after the Effective Time, Terayon
shall (i) deliver to each Company Shareholder a certificate representing the
number of whole shares of Initial Shares that such Company Shareholder has the
right to receive pursuant to the provisions of Section 1.5 and (ii) deliver to
the Escrow Agent under the Escrow Agreement a certificate representing the
number of Escrow Fund A Shares and a certificate representing the number of
Escrow Fund B Shares. At or as soon as practicable after the Effective Time,
Terayon will send to the holders of Company Stock Certificates (i) a letter of
transmittal in customary form and containing such provisions as Terayon may
reasonably specify, and (ii) instructions for use in effecting the surrender of
Company Stock Certificates in exchange for certificates representing Terayon
Common Stock. Upon surrender of a Company Stock Certificate to Terayon for
exchange, together with a duly executed letter of transmittal, the holder of
such Company Stock Certificate shall be entitled to receive in exchange therefor
a certificate representing the number of whole shares of Terayon Common Stock
that such holder has the right to receive pursuant to the provisions of this
Section 1, and the Company Stock Certificate so surrendered shall be canceled.
Until surrendered as contemplated by this Section 1.9, each Company Stock
Certificate shall be deemed, from and after the Effective Time, to represent
only the right to receive upon such surrender a certificate representing shares
of Terayon Common Stock (and cash in lieu of any fractional share of Terayon
Common Stock) as contemplated by this Section 1. If any Company Stock
Certificate shall have been lost, stolen or destroyed, Terayon may, in its
discretion and as a condition precedent to the issuance of any certificate
representing Terayon Common Stock, require the owner of such lost, stolen or
destroyed Company Stock Certificate to provide an appropriate affidavit and/or
to deliver a bond (in such sum as Terayon may reasonably direct) as indemnity
against any claim that may be made against Terayon or the Surviving Corporation
with respect to such Company Stock Certificate.
(b) No dividends or other distributions declared or made with
respect to Terayon Common Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Company Stock Certificate with
respect to the shares of Terayon Common Stock represented thereby, and no cash
payment in lieu of any fractional share shall be paid to any such holder, until
such holder surrenders such Company Stock Certificate or provides an affidavit
and/or delivers a bond in accordance with this Section 1.9 (at which time such
holder shall be entitled to receive all such dividends and distributions and
such cash payment).
(c) No fractional shares of Terayon Common Stock shall be issued
in connection with the Merger, and no certificates for any such fractional
shares shall be issued. In lieu of such fractional shares, any holder of capital
stock of the Company who would otherwise be entitled to receive a fraction of a
share of Terayon Common Stock (after aggregating all fractional shares of
Terayon Common Stock issuable to such holder) shall, upon surrender of
10.
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such holder's Company Stock Certificate(s), be paid in cash the dollar amount
(rounded to the nearest whole cent), without interest, determined by multiplying
such fraction by the Designated Terayon Stock Price.
(d) Terayon and the Surviving Corporation shall be entitled to
deduct and withhold from any consideration payable or otherwise deliverable to
any holder or former holder of capital stock of the Company pursuant to this
Agreement such amounts as Terayon or the Surviving Corporation may be required
to deduct or withhold therefrom under the Code or under any provision of state,
local or foreign tax law. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise have been
paid.
(e) Neither Terayon nor the Surviving Corporation shall be liable
to any holder or former holder of capital stock of the Company for any shares of
Terayon Common Stock (or dividends or distributions with respect thereto), or
for any cash amounts, delivered to any public official pursuant to any
applicable abandoned property, escheat or similar law.
1.10 Dissenting Shares.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any shares of capital stock of the Company that, as of the Effective
Time, are or may become "dissenting shares" within the meaning of Section
1300(b) of the California Corporations Code shall not be converted into or
represent the right to receive Terayon Common Stock in accordance with Section
1.5 (or cash in lieu of fractional shares in accordance with Section 1.9(c)),
and the holder or holders of such shares shall be entitled only to such rights
as may be granted to such holder or holders in Chapter 13 of the California
General Corporation Law; provided, however, that if the status of any such
shares as "dissenting shares" shall not be perfected, or if any such shares
shall lose their status as "dissenting shares," then, as of the later of the
Effective Time or the time of the failure to perfect such status or the loss of
such status, such shares shall automatically be converted into and shall
represent only the right to receive (upon the surrender of the certificate or
certificates representing such shares) Terayon Common Stock in accordance with
Section 1.5 (and cash in lieu of fractional shares in accordance with Section
1.9(c)).
(b) The Company shall give Terayon (i) prompt notice of any
written demand received by the Company prior to the Effective Time to require
the Company to purchase shares of capital stock of the Company pursuant to
Chapter 13 of the California General Corporation Law and of any other demand,
notice or instrument delivered to the Company prior to the Effective Time
pursuant to the California General Corporation Law, and (ii) the opportunity to
participate in all negotiations and proceedings with respect to any such demand,
notice or instrument. The Company shall not make any payment or settlement offer
prior to the Effective Time with respect to any such demand unless Terayon shall
have consented in writing to such payment or settlement offer.
1.11 Tax Consequences. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this
11.
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Agreement hereby adopt this Agreement as a "plan of reorganization" within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury
Regulations.
1.12 Accounting Treatment. For accounting purposes, the Merger is
intended to be treated as a "purchase."
1.13 Further Action. If, at any time after the Effective Time, any
further action is determined by Terayon to be necessary or desirable to carry
out the purposes of this Agreement or to vest the Surviving Corporation or
Terayon with full right, title and possession of and to all rights and property
of Merger Sub and the Company, the officers and directors of the Surviving
Corporation and Terayon shall be fully authorized (in the name of Merger Sub, in
the name of the Company and otherwise) to take such action.
SECTION 2. Representations and Warranties of the Company.
The Company represents and warrants, to and for the benefit of the
Indemnitees, as follows:
2.1 Due Organization; No Subsidiaries; Etc.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and has all
necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own and use its assets
in the manner in which its assets are currently owned and used; and (iii) to
perform its obligations under all Material Contracts.
(b) The Company has not conducted any business under or otherwise
used, for any purpose or in any jurisdiction, any fictitious name, assumed name,
trade name or other name, other than the name "Imedia Corporation."
(c) The Company is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Schedule 2.1(c) of
the Disclosure Schedule, except where the failure to be so qualified,
authorized, registered or licensed has not had and will not have a Material
Adverse Effect on the Company. The Company is in good standing as a foreign
corporation in each of the jurisdictions identified in Schedule 2.1(c) of the
Disclosure Schedule.
(d) Schedule 2.1(d) of the Disclosure Schedule accurately sets
forth (i) the names of the members of the Company's board of directors, (ii) the
names of the members of each committee of the Company's board of directors, and
(iii) the names and titles of the Company's officers.
(e) The Company does not own any controlling interest in any
Entity and the Company does not own, beneficially or otherwise, any shares or
other securities of, or any direct or indirect equity interest in, any Entity.
The Company has not agreed and is not obligated to make any future investment in
or capital contribution to any Entity. The Company has not guaranteed and is not
responsible or liable for any obligation of any of the Entities in which it owns
or has owned any equity interest.
12.
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2.2 Articles of Incorporation and Bylaws; Records. The Company has
delivered to Terayon accurate and complete copies of: (1) the Company's articles
of incorporation and bylaws, including all amendments thereto; (2) the stock
records of the Company; and (3) the minutes and other records of the meetings
and other proceedings (including any actions taken by written consent or
otherwise without a meeting) of the shareholders of the Company, the board of
directors of the Company and all committees of the board of directors of the
Company. There have been no formal meetings or other proceedings of the
shareholders of the Company, the board of directors of the Company or any
committee of the board of directors of the Company that are not fully reflected
in such minutes or other records. There has not been any violation of any of the
provisions of the Company's articles of incorporation or bylaws, and the Company
has not taken any action that is inconsistent in any material respect with any
resolution adopted by the Company's shareholders, the Company's board of
directors or any committee of the Company's board of directors. The books of
account, stock records, minute books and other records of the Company are
accurate, up-to-date and complete in all material respects, and have been
maintained in accordance with prudent business practices.
2.3 Capitalization, Etc.
(a) The authorized capital stock of the Company consists of: (i)
10,000,000 shares of Common Stock, without par value, of which 2,589,812 shares
have been issued and are outstanding as of the date of this Agreement; and (ii)
2,997,674 shares of Preferred Stock, 597,674 of which have been designated
"Series A Preferred Stock," all of which are issued and outstanding as of the
date of this Agreement, 400,000 of which have been designated "Series B
Preferred Stock," all of which are issued and outstanding as of the date of this
Agreement, and 1,156,176 of which have been designated "Series C Preferred
Stock," of which 1,155,782 shares have been issued and are outstanding as of the
date of this Agreement. Except as set forth on Schedule 2.3(a) of the Disclosure
Schedule, each outstanding share of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock is convertible into one share of Company
Common Stock. All of the outstanding shares of Company Common Stock and
Preferred Stock have been duly authorized and validly issued, and are fully paid
and non-assessable. The Company holds no repurchase option to which any of such
shares is subject.
(b) The Company has reserved 3,046,648 shares of Company Common
Stock for issuance under its 1995 Stock Option Plan, of which options to
purchase 1,403,496 shares are outstanding as of the date of this Agreement.
Schedule 2.3(b) of the Disclosure Schedule accurately sets forth, with respect
to each Company Option and Company Warrant that is outstanding as of the date of
this Agreement: (i) the name of the holder of such Company Option or Company
Warrant; (ii) the total number of shares of Company Common Stock that are
subject to such Company Option or Company Warrant and the number of shares of
Company Common Stock with respect to which such Company Option is immediately
exercisable; (iii) the date on which such Company Option or Company Warrant was
granted and the term of such Company Option or Company Warrant; (iv) the vesting
schedule for such Company Option or Company Warrant, if any; (v) the exercise
price per share of Company Common Stock purchasable under such Company Option or
Company Warrant; and (vi) whether such Company Option has been designated an
"incentive stock option" as defined in Section 422 of the Code. Except as set
forth in Schedule 2.3(b) of the Disclosure Schedule, there is no: (i)
outstanding subscription, option,
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call, warrant or right (whether or not currently exercisable) to acquire any
shares of the capital stock or other securities of the Company; (ii) outstanding
security, instrument or obligation that is or may become convertible into or
exchangeable for any shares of the capital stock or other securities of the
Company; (iii) Contract under which the Company is or may become obligated to
sell or otherwise issue any shares of its capital stock or any other securities;
or (iv) condition or circumstance that may give rise to or provide a basis for
the assertion of a claim by any Person to the effect that such Person is
entitled to acquire or receive any shares of capital stock or other securities
of the Company.
(c) All outstanding shares of Company Common Stock and Preferred
Stock, and all outstanding Company Options and Company Warrants, have been
issued and granted in compliance with (i) all applicable securities laws and
other applicable Legal Requirements, and (ii) all requirements set forth in
applicable Contracts.
(d) The Company has never repurchased, redeemed or otherwise
reacquired any shares of capital stock or other securities of the Company. All
securities so reacquired by the Company were reacquired in compliance with (i)
the applicable provisions of the California General Corporation Law and all
other applicable Legal Requirements, and (ii) all requirements set forth in
applicable restricted stock purchase agreements and other applicable Contracts.
2.4 Financial Statements.
(a) Except as set forth in Schedule 2.4 of the Disclosure
Schedules, the Company has delivered to Terayon the following financial
statements and notes (collectively, the "Company Financial Statements"):
(i) The audited balance sheets of the Company as of December
31, 1998, 1997 and 1996, and the related audited income statements, statements
of shareholders' equity and statements of cash flows of the Company for the
years then ended, together with the notes thereto and the unqualified report and
opinion of PricewaterhouseCoopers LLP relating thereto; and
(ii) The unaudited balance sheet of the Company as of May 31,
1999 (the "Unaudited Interim Balance Sheet"), and the related unaudited income
statement of the Company for the five months then ended.
(b) The Company Financial Statements are accurate and complete in
all material respects and present fairly the financial position of the Company
as of the respective dates thereof and the results of operations and (in the
case of the financial statements referred to in Section 2.4(a)(i)) cash flows of
the Company for the periods covered thereby. The Company Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered (except that the
financial statements referred to in Section 2.4(a)(ii) do not contain footnotes
and are subject to normal and recurring year-end audit adjustments, which will
not, individually or in the aggregate, be material in magnitude).
2.5 Absence of Changes. Except as set forth in Schedule 2.5 of the
Disclosure Schedule, since May 31, 1999:
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(a) there has not been any material adverse change in the
Company's business, condition, assets, liabilities, operations, financial
performance or prospects, and no event has occurred that will, or could
reasonably be expected to, have a Material Adverse Effect on the Company;
(b) there has not been any material loss, damage or destruction
to, or any material interruption in the use of, any of the Company's assets
(whether or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) the Company has not sold, issued or authorized the issuance of
(i) any capital stock or other security (except for Company Common Stock issued
upon the exercise of outstanding Company Options or Company Warrants), (ii) any
option or right to acquire any capital stock or any other security (except for
Company Options described in Schedule 2.3(b) of the Disclosure Schedule) or
(iii) any instrument convertible into or exchangeable for any capital stock or
other security;
(e) the Company has not amended or waived any of its rights under,
or permitted the acceleration of vesting under, (i) any provision of its 1995
Stock Option Plan, (ii) any provision of any agreement evidencing any
outstanding Company Option or Company Warrant, or (iii) any restricted stock
purchase agreement;
(f) there has been no amendment to the Company's articles of
incorporation or bylaws, and the Company has not effected or been a party to any
Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(g) the Company has not formed any subsidiary or acquired any
equity interest or other interest in any other Entity;
(h) the Company has not made any capital expenditure which, when
added to all other capital expenditures made on behalf of the Company since May
31, 1999 in that particular calendar month, exceeds $25,000 per calendar month;
(i) the Company has not (i) entered into or permitted any of the
assets owned or used by it to become bound by any Contract that is or would
constitute a Material Contract (as defined in Section 2.10(a)), or (ii) amended
or prematurely terminated, or waived any material right or remedy under, any
such Contract;
(j) the Company has not (i) acquired, leased or licensed any right
or other asset from any other Person, (ii) sold or otherwise disposed of, or
leased or licensed, any right or other asset to any other Person, or (iii)
waived or relinquished any right, except for immaterial rights or other
immaterial assets acquired, leased, licensed or disposed of in the ordinary
course of business and consistent with the Company's past practices;
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(k) the Company has not written off as uncollectible, or
established any extraordinary reserve with respect to, any account receivable or
other indebtedness;
(l) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of business
and consistent with the Company's past practices;
(m) the Company has not (i) lent money to any Person (other than
pursuant to routine travel advances made to employees in the ordinary course of
business), or (ii) incurred or guaranteed any indebtedness for borrowed money;
(n) the Company has not (i) established or adopted any Employee
Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar payment
to, or increased the amount of the wages, salary, commissions, fringe benefits
or other compensation or remuneration payable to, any of its directors, officers
or employees, or (iii) hired any new employee;
(o) the Company has not changed any of its methods of accounting
or accounting practices in any respect;
(p) the Company has not made any Tax election;
(q) the Company has not commenced or settled any Legal Proceeding;
(r) the Company has not entered into any material transaction or
taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(s) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(r)" above.
2.6 Title to Assets.
(a) The Company owns, and has good, valid and marketable title to,
all assets purported to be owned by it, including: (i) all assets reflected on
the Unaudited Interim Balance Sheet; (ii) all assets referred to in Schedules
2.7(b) and 2.9 of the Disclosure Schedule and all of the Company's rights under
the Contracts identified in Schedule 2.10 of the Disclosure Schedule; and (iii)
all other assets currently reflected in the Company's books and records as being
owned by the Company. Except as set forth in Schedule 2.6(a) of the Disclosure
Schedule, all of said assets are owned by the Company free and clear of any
liens or other Encumbrances, except for (x) any lien for current taxes not yet
due and payable, and (y) minor liens that have arisen in the ordinary course of
business and that do not (in any case or in the aggregate) materially detract
from the value of the assets subject thereto or materially impair the operations
of the Company.
(b) Schedule 2.6(b) of the Disclosure Schedule identifies all
assets that are material to the business of the Company and that are being
leased or licensed to the Company.
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2.7 Bank Accounts; Receivables.
(a) Schedule 2.7(a) of the Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of the
Company at any bank or other financial institution.
(b) Schedule 2.7(b) of the Disclosure Schedule provides an
accurate and complete breakdown and aging of all accounts receivable, notes
receivable and other receivables of the Company as of May 31, 1999. All existing
accounts receivable of the Company (including those accounts receivable
reflected on the Unaudited Interim Balance Sheet that have not yet been
collected and those accounts receivable that have arisen since May 31, 1999 and
have not yet been collected) (i) represent valid obligations of customers of the
Company, employees of the Company or Governmental Bodies, each arising from bona
fide transactions entered into in the ordinary course of business, (ii) are
valid and collectible, without any counterclaim or set off (net of an allowance
for doubtful accounts not to exceed $25,000 in the aggregate).
2.8 Equipment; Leasehold.
(a) All material items of equipment and other tangible assets
owned by or leased to the Company are adequate for the uses to which they are
being put, are in good condition and repair (ordinary wear and tear excepted)
and are adequate for the conduct of the Company's business in the manner in
which such business is currently being conducted.
(b) The Company does not own any real property or any interest in
real property, except for the leasehold created under the real property leases
identified in Schedule 2.10 of the Disclosure Schedule.
2.9 Proprietary Assets.
(a) Schedule 2.9(a)(i) of the Disclosure Schedule sets forth, with
respect to each Company Proprietary Asset registered with any Governmental Body
or for which an application has been filed with any Governmental Body, (i) a
brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Schedule
2.9(a)(ii) of the Disclosure Schedule identifies and provides a brief
description of all other material Company Proprietary Assets owned by the
Company. Schedule 2.9(a)(iii) of the Disclosure Schedule identifies and provides
a brief description of each Proprietary Asset licensed to the Company by any
Person (except for any Proprietary Asset that is licensed to the Company under
any third party software license generally available to the public at a cost of
less than $10,000), and identifies the license agreement under which such
Proprietary Asset is being licensed to the Company. Except as set forth in
Schedule 2.9(a)(iv) of the Disclosure Schedule, the Company has good, valid and
marketable title to all of the Company Proprietary Assets identified in
Schedules 2.9(a)(i) and 2.9(a)(ii) of the Disclosure Schedule, free and clear of
all liens and other Encumbrances, and to the Company's knowledge, has a valid
right to use all Proprietary Assets identified in Schedule 2.9(a)(iii) of the
Disclosure Schedule. Except as set forth in Schedule 2.9(a)(v) of the Disclosure
Schedule, the Company is not obligated to make any payment to any Person for the
use of any Company Proprietary Asset. Except as set forth in Schedule 2.9(a)(vi)
of the Disclosure Schedule, the Company has not
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developed jointly with any other Person any Company Proprietary Asset with
respect to which such other Person has any rights.
(b) The Company has taken all reasonable measures and precautions
to protect and maintain the confidentiality and secrecy of all Company
Proprietary Assets (except Company Proprietary Assets whose value would be
unimpaired by public disclosure) and otherwise to maintain and protect the value
of all Company Proprietary Assets. Except as set forth in Schedule 2.9(b) of the
Disclosure Schedule, the Company has not (other than pursuant to license
agreements identified in Schedule 2.10 of the Disclosure Schedule) disclosed or
delivered to any Person, or permitted the disclosure or delivery to any Person
of, (i) the source code, or any portion or aspect of the source code, of any
Company Proprietary Asset, or (ii) the object code, or any portion or aspect of
the object code, of any Company Proprietary Asset.
(c) To the Company's knowledge, none of the Company Proprietary
Assets infringes or conflicts with any Proprietary Asset owned or used by any
other Person. To the Company's knowledge, the Company is not infringing,
misappropriating or making any unlawful use of, and the Company has not at any
time infringed, misappropriated or made any unlawful use of, or received any
notice or other communication (in writing or otherwise) of any actual, alleged,
possible or potential infringement, misappropriation or unlawful use of, any
Proprietary Asset owned or used by any other Person. To the Company's best
knowledge, no other Person is infringing, misappropriating or making any
unlawful use of, and no Proprietary Asset owned or used by any other Person
infringes or conflicts with, any Company Proprietary Asset.
(d) Each Company Proprietary Asset conforms in all material
respects with any written specification, documentation, performance standard,
representation or statement made or provided with respect thereto by or on
behalf of the Company by an authorized representative or representatives of the
Company. There has not been any claim by any customer or other Person alleging
that any Company Proprietary Asset (including each version thereof that has ever
been licensed or otherwise made available by the Company to any Person) does not
conform in all material respects with any specification, documentation,
performance standard, representation or statement made or provided by or on
behalf of the Company, and, to the Company's knowledge, there is no basis for
any such claim. The Company is not aware of any obligations with respect to the
correction or repair of programming or other defects in the Company Proprietary
Assets, and the Company has established reserves on the Unaudited Interim
Balance Sheet that it believes would be adequate to cover all costs associated
with such obligations that may arise.
(e) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been and is being conducted. The Company has not
licensed any of the Company Proprietary Assets to any Person on an exclusive
basis, nor has the Company entered into any covenant not to compete or Contract
limiting its ability to exploit fully any of its Proprietary Assets or to
transact business in any market or geographical area or with any Person.
(f) Except as set forth in Schedule 2.9(f) of the Disclosure
Schedule, (i) all current and former employees of the Company have executed and
delivered to the Company an agreement (containing no exceptions to or exclusions
from the scope of its coverage other than
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as provided in the agreements) that is substantially identical to the form of
Proprietary Information and Inventions Agreement previously delivered to
Terayon, and (ii) all current and former consultants and independent contractors
to the Company have executed and delivered to the Company an agreement
(containing no exceptions to or exclusions from the scope of its coverage other
than as provided in the agreements) that is substantially identical to the form
of Consultant Proprietary Information and Inventions Agreement previously
delivered to Terayon.
2.10 Contracts.
(a) Schedule 2.10(a) of the Disclosure Schedule identifies:
(i) each Company Contract relating to the employment of, or
the performance of services by, any employee, consultant or independent
contractor;
(ii) each Company Contract relating to the acquisition,
transfer, use, development, sharing or license of any technology or any
Proprietary Asset;
(iii) each Company Contract imposing any restriction on the
Company's right or ability (A) to compete with any other Person, (B) to acquire
any product or other asset or any services from any other Person, to sell any
product or other asset to or perform any services for any other Person or to
transact business or deal in any other manner with any other Person, or (C)
develop or distribute any technology;
(iv) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
(v) each Company Contract relating to the acquisition,
issuance or transfer of any securities;
(vi) each Company Contract relating to the creation of any
Encumbrance with respect to any asset of the Company;
(vii) each Company Contract involving or incorporating any
guaranty, any pledge, any performance or completion bond, any indemnity or any
surety arrangement;
(viii) each Company Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits, losses, costs
or liabilities;
(ix) each Company Contract relating to the purchase or sale
of any product or other asset by or to, or the performance of any services by or
for, any Related Party (as defined in Section 2.18);
(x) each Company Contract constituting or relating to a
Government Contract or Government Bid;
(xi) any other Company Contract that was entered into
outside the ordinary course of business or was inconsistent with the Company's
past practices;
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(xii) any other Company Contract that has a term of more than
60 days and that may not be terminated by the Company (without penalty) within
60 days after the delivery of a termination notice by the Company; and
(xiii) any other Company Contract that contemplates or
involves (A) the payment or delivery of cash or other consideration in an amount
or having a value in excess of $25,000 in the aggregate, or (B) the performance
of services having a value in excess of $25,000 in the aggregate.
(Contracts in the respective categories described in clauses "(i)" through
"(xiii)" above are referred to in this Agreement as "Material Contracts.")
(b) The Company has delivered to Terayon accurate and complete
copies of all written Contracts identified in Schedule 2.10(a) of the Disclosure
Schedule, including all amendments thereto. Schedule 2.10(b) of the Disclosure
Schedule provides an accurate description of the terms of each Company Contract
that is not in written form. Each Contract identified in Schedules 2.10(a) and
(b) of the Disclosure Schedule is valid and in full force and effect, and, to
the Company's knowledge, is enforceable by the Company in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
(c) Except as set forth in Schedule 2.10(c) of the Disclosure
Schedule:
(i) the Company has not violated or breached, or committed
any default under, any Material Contract, and, to the Company's knowledge, no
other Person has violated or breached, or committed any default under, any
Material Contract;
(ii) no event has occurred, and no circumstance or condition
exists, that, to the Company's knowledge, will have a Material Adverse Effect
and (with or without notice or lapse of time) will, or could reasonably be
expected to, (A) result in a violation or breach of any of the provisions of any
Material Contract, (B) give any Person the right to declare a default or
exercise any remedy under any Material Contract, (C) give any Person the right
to accelerate the maturity or performance of any Material Contract, or (D) give
any Person the right to cancel, terminate or modify any Material Contract;
(iii) since December 31, 1995, the Company has not received
any notice or other communication regarding any actual or possible violation or
breach of, or default under, any Material Contract; and
(iv) the Company has not waived any of its material rights
under any Material Contract.
(d) Except as set forth in Schedule 2.10(d) of the Disclosure
Schedule, no Person is renegotiating, or has a right pursuant to the terms of
any Material Contract to renegotiate, any amount paid or payable to the Company
under any Material Contract or any other material term or provision of any
Material Contract.
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(e) The Contracts identified in Schedules 2.10(a) and (b) of the
Disclosure Schedule collectively constitute all of the Contracts necessary to
enable the Company to conduct its business in the manner in which its business
is currently being conducted.
(f) Schedule 2.10(f) of the Disclosure Schedule identifies each
proposed Contract as to which any bid, offer, award, written proposal, term
sheet or similar document has been submitted or received by the Company and
which is currently being actively negotiated and considered by the Company.
(g) Schedule 2.10(g) of the Disclosure Schedule provides an
accurate description and breakdown of the Company's backlog at June 30, 1999
under Company Contracts.
2.11 Liabilities. The Company has no accrued, contingent or other
liabilities of any nature, either matured or unmatured (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles, and whether due or to become due), except for: (a)
liabilities identified as such in the "liabilities" column of the Unaudited
Interim Balance Sheet; (b) accounts payable or accrued salaries that have been
incurred by the Company since May 31, 1999 in the ordinary course of business
and consistent with the Company's past practices; (c) liabilities under the
Company Contracts identified in Schedule 2.10 of the Disclosure Schedule, to the
extent the nature and magnitude of such liabilities can be specifically
ascertained by reference to the text of such Company Contracts; and (d) the
liabilities identified in Schedule 2.11 of the Disclosure Schedule.
2.12 Compliance with Legal Requirements. To the Company's knowledge,
the Company is, and has at all times since December 31, 1995 been, in compliance
with all applicable Legal Requirements, except where the failure to comply with
such Legal Requirements has not had and will not have a Material Adverse Effect
on the Company. Except as set forth in Schedule 2.12 of the Disclosure Schedule,
since December 31, 1995, the Company has not received any notice or other
communication from any Governmental Body regarding any actual or possible
violation of, or failure to comply with, any Legal Requirement.
2.13 Governmental Authorizations. Schedule 2.13 of the Disclosure
Schedule identifies each material Governmental Authorization held by the
Company, and the Company has delivered to Terayon accurate and complete copies
of all Governmental Authorizations identified in Schedule 2.13 of the Disclosure
Schedule. The Governmental Authorizations identified in Schedule 2.13 of the
Disclosure Schedule are valid and in full force and effect, and collectively
constitute all Governmental Authorizations necessary to enable the Company to
conduct its business in the manner in which its business is currently being
conducted. To the Company's knowledge, the Company is, and at all times since
December 31, 1995 has been, in substantial compliance with the terms and
requirements of the respective Governmental Authorizations identified in
Schedule 2.13 of the Disclosure Schedule. Since December 31, 1995, the Company
has not received any notice or other communication from any Governmental Body
regarding (a) any actual or possible violation of or failure to comply with any
term or requirement of any Governmental Authorization, or (b) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any Governmental Authorization.
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2.14 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of the
Company with any Governmental Body with respect to any taxable period ending on
or before the Closing Date (the "Company Returns") (i) have been or will be
filed on or before the applicable due date (including any extensions of such due
date), and (ii) have been, or will be when filed, accurately and completely
prepared in all material respects in compliance with all applicable Legal
Requirements. All amounts shown on the Company Returns to be due on or before
the Closing Date have been or will be paid on or before the Closing Date. The
Company has delivered to Terayon accurate and complete copies of all Company
Returns filed since December 31, 1996 which have been requested by Terayon.
(b) The Company Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with generally accepted accounting principles. The Company
will establish, in the ordinary course of business and consistent with its past
practices, reserves adequate for the payment of all Taxes for the period from
May 31, 1999 through the Closing Date, and the Company will disclose the dollar
amount of such reserves to Terayon on or prior to the Closing Date.
(c) To the Company's knowledge, no Company Return relating to
income Taxes has ever been examined or audited by any Governmental Body. The
Company has delivered to Terayon accurate and complete copies of all audit
reports and similar documents (to which the Company has access) relating to the
Company Returns. No extension or waiver of the limitation period applicable to
any of the Company Returns has been granted (by the Company or any other
Person), and no such extension or waiver has been requested from the Company.
(d) No claim or Proceeding is pending or has been threatened
against or with respect to the Company in respect of any Tax. There are no
unsatisfied liabilities for Taxes (including liabilities for interest, additions
to tax and penalties thereon and related expenses) with respect to any notice of
deficiency or similar document received by the Company with respect to any Tax
(other than liabilities for Taxes asserted under any such notice of deficiency
or similar document which are being contested in good faith by the Company and
with respect to which adequate reserves for payment have been established).
There are no liens for Taxes upon any of the assets of the Company except liens
for current Taxes not yet due and payable. The Company has not entered into or
become bound by any agreement or consent pursuant to Section 341(f) of the Code.
The Company has not been, and the Company will not be, required to include any
adjustment in taxable income for any tax period (or portion thereof) pursuant to
Section 481 or 263A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions or events occurring, or accounting
methods employed, prior to the Closing.
(e) Except as set forth on Schedule 2.14(e) of the Disclosure
Schedule, there is no agreement, plan, arrangement or other Contract covering
any employee or independent contractor or former employee or independent
contractor of the Company that, considered individually or considered
collectively with any other such Contracts, will, or could reasonably be
expected to, give rise directly or indirectly to the payment of any amount that
would not be deductible pursuant to Section 280G or Section 162(m) of the Code.
The Company is not a party
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to or bound by any tax indemnity agreement, tax sharing agreement, tax
allocation agreement or similar Contract.
(f) At all times since the Company's inception through July 5,
1995 (the "S Corporation Period"), the Company was an S corporation within the
meaning of Section 1361(a)(1) of the Code and has used December 31 as its
taxable year. Neither the Company nor, to the Company's knowledge, any Company
Shareholder has taken any action that resulted in or will result in the
termination of the Company's status as an S corporation within the meaning of
Section 1361(a)(1) of the Code prior to July 5, 1995 or the imposition of a tax
on the Company under the provisions of Section 1374 of the Code during the S
Corporation Period. During the S Corporation Period, the Company did not conduct
any business in any state or political subdivision in which the disposition of
any of its assets, including goodwill in a transaction in which gain or income
would be realized, resulted in or will result in the imposition by that state or
political subdivision of a corporate level tax. During the S Corporation Period,
the Company did not conduct any business that was a historic business of, a
continuation of, or successor to any business that was previously conducted by
another corporation or any other Entity that was subject to a United States
corporate level tax on its gain or income including a tax imposed by reason of
the provisions of Section 1374 and 1375 of the Code, or any predecessor
provisions thereto. The Company has never acquired any asset, including
goodwill, the basis of which was determined in whole or in part by reference to
the basis of the asset in the hands of a C corporation within the meaning of
Section 1361(a)(2) of the Code or S corporation subject to the provisions of
Section 1374 of the Code or predecessor provisions thereto. At the end of the S
Corporation Period, the Company had no accumulated earnings and profits.
2.15 Employee and Labor Matters; Benefit Plans.
(a) Schedule 2.15(a) of the Disclosure Schedule identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, termination pay, hospitalization, medical, life or
other insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any employee of the Company ("Employee"), except for Plans which
would not require the Company to make payments or provide benefits having a
value in excess of $50,000 in the aggregate.
(b) Except as set forth in Schedule 2.15(a) of the Disclosure
Schedule, the Company does not maintain, sponsor or contribute to, and has not
at any time in the past maintained, sponsored or contributed to, any employee
pension benefit plan (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not excluded from
coverage under specific Titles or Merger Subtitles of ERISA) for the benefit of
Employees or former Employees (a "Pension Plan").
(c) The Company maintains, sponsors or contributes only to those
employee welfare benefit plans (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of Employees or former Employees which are described in Schedule
2.15(c) of the Disclosure Schedule (the
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"Welfare Plans"), none of which is a multiemployer plan (within the meaning of
Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to
Terayon:
(i) an accurate and complete copy of such Plan (including
all amendments thereto);
(ii) an accurate and complete copy of the annual report, if
required under ERISA, with respect to such Plan for the last two years;
(iii) an accurate and complete copy of the most recent
summary plan description, together with each Summary of Material Modifications,
if required under ERISA, with respect to such Plan, and all material employee
communications relating to such Plan distributed since December 31, 1996;
(iv) if such Plan is funded through a trust or any third-
party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies of the most recent financial statements thereof;
(v) accurate and complete copies of all Material Contracts
relating to such Plan, including service provider agreements, insurance
contracts, minimum premium contracts, stop-loss agreements, investment
management agreements, subscription and participation agreements and
recordkeeping agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under Section 401(a) of the
Code).
(e) The Company is not required to be, and has never been required
to be, treated as a single employer with any other Person under Section
4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of the Code. The Company
has never been a member of an "affiliated service group" within the meaning of
Section 414(m) of the Code. To the Company's best knowledge, the Company has
never made a complete or partial withdrawal from a multiemployer plan, as such
term is defined in Section 3(37) of ERISA, resulting in "withdrawal liability,"
as such term is defined in Section 4201 of ERISA (without regard to subsequent
reduction or waiver of such liability under either Section 4207 or 4208 of
ERISA).
(f) The Company does not have any plan or commitment to create any
additional Welfare Plan or any Pension Plan, or to modify or change any existing
Welfare Plan or Pension Plan (other than to comply with applicable law) in a
manner that would affect any Employee.
(g) Except as set forth in Schedule 2.15(g) of the Disclosure
Schedule, no Welfare Plan provides death, medical or health benefits (whether or
not insured) with respect to any current or former Employee after any such
Employee's termination of service (other than (i) benefit coverage mandated by
applicable law, including coverage provided pursuant to
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Section 4980B of the Code, (ii) deferred compensation benefits accrued as
liabilities on the Unaudited Interim Balance Sheet, (iii) benefits the full cost
of which are borne by current or former Employees (or the Employees'
beneficiaries), and (iv) life insurance, retiree health or other retiree
employee welfare benefit, except to the extent required by statute).
(h) Except as would not have a Material Adverse Effect, with
respect to each of the Welfare Plans constituting a group health plan within the
meaning of Section 4980B(g)(2) of the Code, the provisions of Section 4980B of
the Code ("COBRA") have been complied with.
(i) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
but not limited to ERISA and the Code.
(j) Each of the Plans intended to be qualified under Section
401(a) of the Code has received, or has time remaining under Internal Revenue
Service ("IRS") regulations and rules to apply for, a favorable determination,
opinion, notification or advisory letter, as applicable, from the IRS, and
neither the Company nor, to the Company's knowledge, any of the Company
Shareholders is aware of any reason why any such determination letter should be
revoked.
(k) Except as set forth in Schedule 2.15(k) of the Disclosure
Schedule, neither the execution, delivery or performance of this Agreement, nor
the consummation of the Merger or any of the other transactions contemplated by
this Agreement, will result in any payment (including any bonus, golden
parachute or severance payment) to any current or former Employee or director of
the Company (whether or not under any Plan), or materially increase the benefits
payable under any Plan, or result in any acceleration of the time of payment or
vesting of any such benefits.
(l) Schedule 2.15(l) of the Disclosure Schedule contains a list of
all salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. The Company is not a party to any collective bargaining
contract or other Contract with a labor union involving any of its Employees.
All of the Company's employees are "at will" employees.
(m) The Company is not aware of any Employee who is not fully
available to perform work because of disability or other leave.
(n) The Company is in compliance in all material respects with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, wages, bonuses and terms and conditions of employment, including
employee compensation matters.
(o) Except as set forth in Schedule 2.15(o) of the Disclosure
Schedule, the Company has good labor relations. To the Company's knowledge, the
consummation of the Merger or any of the other transactions contemplated by this
Agreement will not have a material adverse effect on the Company's labor
relations, and, to the Company's knowledge, none of the Company's employees
intends to terminate his or her employment with the Company.
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2.16 Environmental Matters. To the Company's knowledge, the Company is
in compliance in all material respects with all applicable Environmental Laws,
which compliance includes the possession by the Company of all permits and other
Governmental Authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof. The Company has not received
any notice or other communication (in writing or otherwise), whether from a
Governmental Body, citizens group, employee or otherwise, that alleges that the
Company is not in compliance with any Environmental Law, and, to the Company's
knowledge, there are no circumstances that may prevent or interfere with the
Company's compliance with any Environmental Law in the future. To the Company's
knowledge, no current or prior owner of any property leased or controlled by the
Company has received any notice or other communication (in writing or
otherwise), whether from a Government Body, citizens group, employee or
otherwise, that alleges that such current or prior owner or the Company is not
in compliance with any Environmental Law. (For purposes of this Section 2.16:
(i) "Environmental Law" means any federal, state, local or foreign Legal
Requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern; and (ii) "Materials of Environmental Concern" include
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and
petroleum products and any other substance that is now or hereafter regulated by
any Environmental Law or that is otherwise a danger to health, reproduction or
the environment.)
2.17 Insurance. Schedule 2.17 of the Disclosure Schedule identifies all
insurance policies maintained by, at the expense of or for the benefit of the
Company and identifies any material claims made thereunder, and the Company has
delivered to Terayon accurate and complete copies of the insurance policies
identified on Schedule 2.17 of the Disclosure Schedule. Each of the insurance
policies identified in Schedule 2.17 of the Disclosure Schedule is in full force
and effect. Except as identified on Schedule 2.17 of the Disclosure Schedule,
since December 31, 1997, the Company has not received any notice or other
communication regarding any actual or possible (a) cancellation or invalidation
of any insurance policy, (b) refusal of any coverage or rejection of any claim
under any insurance policy or (c) material adjustment in the amount of the
premiums payable with respect to any insurance policy.
2.18 Related Party Transactions. Except as set forth in Schedule 2.18
of the Disclosure Schedule: (a) no Related Party has, and no Related Party has
at any time since December 31, 1995 had, any direct or indirect interest in any
material asset used in or otherwise relating to the business of the Company; (b)
no Related Party is, or has at any time since December 31, 1995 been, indebted
to the Company; (c) since December 31, 1995, no Related Party has entered into,
or has had any direct or indirect financial interest in, any material Contract,
transaction or business dealing involving the Company; (d) no Related Party is
competing, or has at any time since December 31, 1995 competed, directly or
indirectly, with the Company; and (e) no Related Party has any claim or right
against the Company (other than rights under Company Options and rights to
receive compensation for services performed as an employee of the Company). (For
purposes of the Section 2.18 each of the following shall be deemed to be a
"Related Party": (i) each of the Company Shareholders that owns an aggregate
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of five percent (5%) or more of the capital stock of the Company; (ii) each
individual who is, or who has at any time since December 31, 1995 been, an
officer of the Company; (iii) each member of the immediate family of each of the
individuals referred to in clauses "(i)" and "(ii)" above; and (iv) any trust or
other Entity (other than the Company) in which any one of the individuals
referred to in clauses "(i)", "(ii)" and "(iii)" above holds (or in which more
than one of such individuals collectively hold), beneficially or otherwise, a
material voting, proprietary or equity interest.). For purposes of this Section
2.18, an investment by a Related Party in a competitor of the Company shall not
be deemed to be competitive with the Company under clause (d) above.
2.19 Legal Proceedings; Orders.
(a) Except as set forth in Schedule 2.19(a) of the Disclosure
Schedule, there is no pending Legal Proceeding, and, to the Company's knowledge,
no Person has threatened to commence any Legal Proceeding: (i) that involves the
Company or any of the assets owned or used by the Company or any Person whose
liability the Company has or may have retained or assumed, either contractually
or by operation of law; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, the Merger
or any of the other transactions contemplated by this Agreement. To the
Company's knowledge, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
(b) Except as set forth in Schedule 2.19(a) of the Disclosure
Schedule, no Legal Proceeding has ever been commenced by or has ever been
pending against the Company.
(c) There is no order, writ, injunction, judgment or decree to
which the Company, or any of the assets owned or used by the Company, is
subject. To the Company's knowledge, no officer or other employee of the Company
is subject to any order, writ, injunction, judgment or decree that prohibits
such officer or other employee from engaging in or continuing any conduct,
activity or practice relating to the Company's business.
2.20 Authority; Binding Nature of Agreement. The Company has the
absolute and unrestricted right, power and authority to enter into and to
perform its obligations under this Agreement; and the execution, delivery and
performance by the Company of this Agreement have been duly authorized by all
necessary action on the part of the Company and its board of directors. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to (i)
laws of general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
2.21 Non-Contravention; Consents. Except as set forth in Schedule 2.21
of the Disclosure Schedule, neither (1) the execution, delivery or performance
of this Agreement or any of the other agreements identified as an exhibit to
this Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
27.
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(a) contravene, conflict with or result in a violation of (i) any
of the provisions of the Company's articles of incorporation or bylaws, or (ii)
any resolution adopted by the Company's shareholders, the Company's board of
directors or any committee of the Company's board of directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any Legal Requirement or any order, writ, injunction, judgment
or decree to which the Company, or any of the assets owned or used by the
Company, is subject;
(c) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the Company's business
or to any of the assets owned or used by the Company;
(d) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of any Material Contract, or
give any Person the right to (i) declare a default or exercise any remedy under
any such Material Contract, (ii) accelerate the maturity or performance of any
such Material Contract, or (iii) cancel, terminate or modify any such Material
Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of the Company).
Except as set forth in Schedule 2.21 of the Disclosure Schedule and as provided
elsewhere herein, the Company is not and will not be required to make any filing
with or give any notice to, or to obtain any Consent from, any Person in
connection with (x) the execution, delivery or performance of this Agreement or
any of the other agreements referred to in this Agreement, or (y) the
consummation of the Merger or any of the other transactions contemplated by this
Agreement.
2.22 Full Disclosure.
(a) This Agreement (including the Disclosure Schedule) does not,
and the Closing Certificate will not, (i) contain any representation, warranty
or information that is false or misleading with respect to any material fact, or
(ii) omit to state any material fact necessary in order to make the
representations, warranties and information contained and to be contained herein
and therein (in the light of the circumstances under which such representations,
warranties and information were or will be made or provided) not false or
misleading.
(b) The information supplied by the Company for inclusion in the
Information Statement (as defined in Section 5.2) will not, as of the date of
the Information Statement or as of the date of the Company Shareholders' Meeting
(as defined in Section 5.3), (i) contain any statement that is inaccurate or
misleading with respect to any material fact, or (ii) omit to state
28.
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any material fact necessary in order to make such information (in the light of
the circumstances under which it is provided) not false or misleading.
SECTION 3. Representations and Warranties of Terayon and Merger Sub.
Terayon and Merger Sub jointly and severally represent and warrant to the
Company as follows:
3.1 SEC Filings; Financial Statements.
(a) Terayon has delivered to the Company accurate and complete
copies (excluding copies of exhibits) of each report, registration statement (on
a form other than Form S-8) and definitive proxy statement filed by Terayon with
the SEC between August 17, 1998 and the date of this Agreement (the "Terayon SEC
Documents"). As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing): (i) each of the Terayon SEC Documents complied in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act (as the case may be); and (ii) none of the Terayon SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The consolidated financial statements contained in the Terayon
SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered, except as may be indicated in
the notes to such financial statements and (in the case of unaudited statements)
as permitted by Form 10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to year-end audit
adjustments; and (iii) fairly present the consolidated financial position of
Terayon and its subsidiaries as of the respective dates thereof and the
consolidated results of operations of Terayon and its subsidiaries for the
periods covered thereby.
3.2 Authority; Binding Nature of Agreement. Terayon and Merger Sub
have the absolute and unrestricted right, power and authority to execute this
Agreement and to perform their obligations under this Agreement; and the
execution, delivery and performance by Terayon and Merger Sub of this Agreement
(including the contemplated issuance of Terayon Common Stock in the Merger in
accordance with this Agreement) have been duly authorized by all necessary
action on the part of Terayon and Merger Sub and their respective boards of
directors. No vote of Terayon's stockholders is needed to approve the Merger.
This Agreement constitutes the legal, valid and binding obligation of Terayon
and Merger Sub, enforceable against them in accordance with its terms, subject
to (i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
3.3 Valid Issuance. Subject to Section 1.5(c), the Terayon Common
Stock to be issued in the Merger will, when issued in accordance with the
provisions of this Agreement, be
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duly authorized, validly issued, fully paid and nonassessable and the issuance
of such stock will not conflict with any outstanding agreements or rights.
SECTION 4. Certain Covenants of the Company.
4.1 Access. During the period from the date of this Agreement through
the Effective Time (the "Pre-Closing Period"), the Company shall, and shall
cause its Representatives to: (a) provide Terayon and Terayon's Representatives
with reasonable access to the Company's Representatives, personnel and assets
and to all existing books, records, Tax Returns, work papers and other documents
and information relating to the Company; and (b) provide Terayon and Terayon's
Representatives with copies of such existing books, records, Tax Returns, work
papers and other documents and information relating to the Company, and with
such additional financial, operating and other data and information regarding
the Company, as Terayon may reasonably request.
4.2 Operation of the Company's Business'. During the Pre-Closing
Period:
(a) the Company shall conduct its business and operations in the
ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement;
(b) the Company shall use reasonable efforts to preserve intact
its current business organization, keep available the services of its current
officers and employees and maintain its relations and good will with all
suppliers, customers, landlords, creditors, employees and other Persons having
business relationships with the Company;
(c) the Company shall keep in full force all insurance policies
identified in Schedule 2.17 of the Disclosure Schedule;
(d) the Company shall cause its officers to report regularly (but
in no event less frequently than weekly) to Terayon concerning the status of the
Company's business;
(e) the Company shall not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock, and shall not repurchase, redeem or otherwise reacquire any shares of
capital stock or other securities (except that the Company may repurchase
Company Common Stock from former employees pursuant to the terms of existing
restricted stock purchase agreements);
(f) except as provided in Schedule 4.2(f) of the Disclosure
Schedule, the Company shall not sell, issue or authorize the issuance of (i) any
capital stock or other security, (ii) any option or right to acquire any capital
stock or other security, or (iii) any instrument convertible into or
exchangeable for any capital stock or other security (except that the Company
shall be permitted (x) to grant stock options to employees in accordance with
its past practices, (y) to issue Company Common Stock to employees upon the
exercise of outstanding Company Options, and (z) to issue shares of Company
Common Stock upon the conversion of shares of Preferred Stock);
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(g) except as provided in Schedule 4.2(g) of the Disclosure
Schedule, the Company shall not amend or waive any of its rights under, or
permit the acceleration of vesting under, (i) any provision of its 1995 Stock
Option Plan, (ii) any provision of any agreement evidencing any outstanding
Company Option or Company Warrant, or (iii) any provision of any restricted
stock purchase agreement;
(h) except as provided in Schedule 4.2(h) of the Disclosure
Schedule, the Company shall not amend or permit the adoption of any amendment to
the Company's articles of incorporation or bylaws, or effect or permit the
Company to become a party to any Acquisition Transaction, recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction (except that the Company may issue shares of Company Common Stock
upon the conversion of shares of Preferred Stock);
(i) the Company shall not form any subsidiary or acquire any
equity interest or other interest in any other Entity;
(j) the Company shall not make any capital expenditure, except for
capital expenditures that, when added to all other capital expenditures made on
behalf of the Company during the Pre-Closing Period, do not exceed $25,000 per
month;
(k) except as provided in Schedule 4.2(k) of the Disclosure
Schedule, the Company shall not (i) enter into, or permit any of the assets
owned or used by it to become bound by, any Contract that is or would constitute
a Material Contract, or (ii) amend or prematurely terminate, or waive any
material right or remedy under, any such Contract;
(l) the Company shall not (i) acquire, lease or license any right
or other asset from any other Person, (ii) sell or otherwise dispose of, or
lease or license, any right or other asset to any other Person, or (iii) waive
or relinquish any right, except for assets acquired, leased, licensed or
disposed of by the Company pursuant to Contracts that are not Material
Contracts;
(m) the Company shall not (i) lend money to any Person (except
that the Company may make routine travel advances to employees in the ordinary
course of business), or (ii) incur or guarantee any indebtedness for borrowed
money (except that the Company may make routine borrowings in the ordinary
course of business under its line of credit with Wells Fargo Bank);
(n) except as set forth in Exhibit D, the Company shall not (i)
establish, adopt or amend any Employee Benefit Plan (except that the Company
will adopt the employee retention program referred to in Section 5.8), (ii) pay
any bonus or make any profit-sharing payment, cash incentive payment or similar
payment to, or increase the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees, or (iii) hire any new employee;
(o) the Company shall not change any of its methods of accounting
or accounting practices in any material respect;
(p) the Company shall not make any Tax election;
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(q) the Company shall not commence or settle any material Legal
Proceeding;
(r) the Company shall not agree or commit to take any of the
actions described in clauses "(e)" through "(q)" above.
Notwithstanding the foregoing, the Company may take any action described in
clauses "(e)" through "(r)" above if Terayon gives its prior written consent to
the taking of such action by the Company, which consent will not be unreasonably
withheld (it being understood that Terayon's withholding of consent to any
action will not be deemed unreasonable if it is reasonably likely that the
taking of such action would not be in the best interests of Terayon or would not
be in the best interests of the Company) or if such action is taken at the
written request of Terayon.
4.3 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, the Company shall promptly
notify Terayon in writing of:
(i) the discovery by the Company of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes a material inaccuracy in or breach of
any representation or warranty made by the Company in this Agreement;
(ii) the discovery by the Company of any event, condition,
fact or circumstance that occurs, arises or exists after the date of this
Agreement and that would cause or constitute a material inaccuracy in or breach
of any representation or warranty made by the Company in this Agreement if (A)
such representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (B)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of the
Company; and
(iv) the discovery by the Company of any event, condition,
fact or circumstance that would make the timely satisfaction of any of the
conditions set forth in Section 6 or Section 7 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required
to be disclosed pursuant to Section 4.3(a) requires any change in the Disclosure
Schedule, or if any such event, condition, fact or circumstance would require
such a change assuming the Disclosure Schedule were dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then the Company shall promptly deliver to Terayon an update to
the Disclosure Schedule specifying such change. No such update shall be deemed
to supplement or amend the Disclosure Schedule for the purpose of (i)
determining the accuracy of any of the representations and warranties made by
the Company in this Agreement, or (ii) determining whether any of the conditions
set forth in Section 6 has been satisfied.
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4.4 No Negotiation. During the Pre-Closing Period, the Company shall
not directly or indirectly:
(a) solicit or encourage the initiation of any inquiry, proposal
or offer from any Person (other than Terayon) relating to a possible Acquisition
Transaction;
(b) participate in any discussions or negotiations or enter into
any agreement with, or provide any non-public information to, any Person (other
than Terayon) relating to or in connection with a possible Acquisition
Transaction; or
(c) consider, entertain or accept any proposal or offer from any
Person (other than Terayon) relating to a possible Acquisition Transaction.
The Company shall promptly notify Terayon in writing of any material inquiry,
proposal or offer relating to a possible Acquisition Transaction that is
received by the Company or any of its Representatives during the Pre-Closing
Period.
4.5 Shareholder Solicitation. During the Pre-Closing Period, the
Company shall solicit a "Qualifying Consent" as defined in Section 4.a of its
Amended and Restated Articles of Incorporation.
SECTION 5. ADDITIONAL COVENANTS oF THE PARTIES.
5.1 Filings and Consents. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (a) shall make all
filings (if any) and give all notices (if any) required to be made and given by
such party in connection with the Merger and the other transactions contemplated
by this Agreement, and (b) shall use all commercially reasonable efforts to
obtain all Consents (if any) required to be obtained (pursuant to any applicable
Legal Requirement or Contract, or otherwise) by such party in connection with
the Merger and the other transactions contemplated by this Agreement. The
Company shall (upon request) promptly deliver to Terayon a copy of each such
filing made, each such notice given and each such Consent obtained by the
Company during the Pre-Closing Period.
5.2 California Permit; Fairness Hearing. Promptly after the execution
of this Agreement, the Company and Terayon shall prepare and cause to be filed
with the California Commissioner of Corporations (the "California Commissioner")
a permit application under Section 25121 of the California Corporations Code,
and a related information statement or other disclosure document (the
"Information Statement"), and shall request a hearing on the fairness of the
terms and conditions of the Merger pursuant to Section 25142 of the California
Corporations Code. The parties to this Agreement shall use all commercially
reasonable efforts to cause the California Commissioner to approve the fairness
of the terms and conditions of the Merger at such a hearing; provided, however,
that the parties shall not be required to modify any of the terms of the Merger
in order to cause the California Commissioner to approve the fairness of such
terms and conditions. The Company shall provide and include in the Information
Statement such information relating to the Company as may be required pursuant
to the rules of the California Commissioner. The Information Statement shall
include the recommendation of the board of directors of the Company in favor of
the Merger.
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5.3 Company Shareholders' Meeting; Voting Agreements'. The Company
shall, in accordance with its articles of incorporation and bylaws and the
applicable requirements of the California General Corporation Law, call and hold
a special meeting of its shareholders or mail to shareholders an action by
written consent as promptly as practicable for the purpose of permitting them to
consider and to vote upon and approve the Merger and this Agreement (the
"Company Shareholders' Meeting"). As soon as permissible under the rules of the
California Commissioner, the Company shall cause a copy of the Information
Statement to be delivered to each shareholder of the Company who is entitled to
vote at the Company Shareholders' Meeting. The Company and each Company
Shareholder identified on Exhibit E shall execute those certain Voting
Agreements simultaneously with the execution of this Agreement.
5.4 Public Announcements. During the Pre-Closing Period, other than as
necessary to obtain any Consent required to consummate the transactions
contemplated hereunder, (a) the Company shall not (and the Company shall not
permit any of its Representatives to) issue any press release or make any public
statement regarding this Agreement or the Merger, or regarding any of the other
transactions contemplated by this Agreement, without Terayon's prior written
consent, and (b) Terayon will use reasonable efforts to consult with the Company
prior to issuing any press release or making any public statement regarding the
Merger and will give the Company at least one business day notice prior to such
release or statement.
5.5 Best Efforts. During the Pre-Closing Period, (a) the Company shall
use its best efforts to cause the conditions set forth in Section 6 to be
satisfied on a timely basis, and (b) Terayon and Merger Sub shall use their best
efforts to cause the conditions set forth in Section 7 to be satisfied on a
timely basis.
5.6 Employment and Noncompetition Agreements. The Company shall use
commercially reasonable efforts to cause each of the individuals identified on
Exhibit F to execute and deliver to the Company and Terayon, at the Closing, an
Employment Agreement in the form of Exhibit G and a Noncompetition Agreement in
the form of Exhibit H.
5.7 Termination of Agreements. Prior to the Closing, the Company shall
enter into an agreement with the required majority of the holders of the
Preferred Stock, reasonably satisfactory in form and content to Terayon (and
conditioned and effective upon the Closing), terminating all of the rights of
the holders of the Company Common Stock and Preferred Stock under the Amended
and Restated Investor Rights Agreement dated as of July 25, 1996 between the
Company and certain Company Shareholders.
5.8 Employee Retention Program. At or prior to the Closing, the
Company shall adopt an employee retention program, reasonably satisfactory in
form and content to Terayon, covering the employees and incorporating the
features identified in Exhibit I.
5.9 FIRPTA Matters. At the Closing, (a) the Company shall deliver to
Terayon a statement (in such form as may be reasonably requested by counsel to
Terayon) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the
United States Treasure Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Section 1.897 -2(h)(2)
of the United States Treasury Regulations.
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5.10 Termination of Employee Plans. Following the Effective Time,
Terayon shall arrange for each employee of the Company or any Company subsidiary
to participate in any counterpart Terayon Plan (which shall mean all plans,
programs and arrangements that are maintained by Terayon or its subsidiaries at
the Effective Time) in accordance with eligibility criteria thereof, provided
that (i) such participants shall receive full credit for years of service with
the Company or any Company subsidiary (and service otherwise credited by the
Company or any Company subsidiary) prior to the Effective Time for all purposes
for which such service was recognized under Company Plans including, but not
limited to, eligibility to participate, vesting, and, to the extent not
duplicative of benefits received under such Company Plan, the amount of
benefits, (ii) such participants and their dependents (to the extent that the
terms and conditions of each such Terayon Plan provide for coverage and/or
benefits of eligible employees' dependents) shall participate in Terayon's Plans
on terms no less favorable than those offered by Terayon to employees of
Terayon, and (iii) Terayon, to the extent permitted by the relevant insurance
carrier, shall cause any and all pre-existing condition limitations, eligibility
waiting periods and evidence of insurability requirements under any group plans
to be waived with respect to such participants and their eligible dependents and
shall provide each such participant with credit for any co-payments and
deductibles paid prior to the Effective Time for purposes of satisfying any
applicable deductible, out-of-pocket, or similar requirements under all Terayon
Plans in which such participants are eligible to participate after the Effective
Time. Notwithstanding any of the foregoing to the contrary, none of the
provisions contained herein shall operate to duplicate any benefit provided to
any employee of the Company or the funding of any such benefit. At the Closing,
the Company shall terminate its 1995 Stock Option Plan and its Imedia
Corporation Profit Sharing/401(k) Plan, and shall ensure that no employee or
former employee of the Company has any rights under those Plans and that any
liabilities of the Company under those Plans (including any such liabilities
relating to services performed prior to the Closing) are fully extinguished at
no cost to the Company.
5.11 Registration Rights.
(a) Subject to Section 5.11(b), on or before the 60-day
anniversary of the Closing, subject to approval by Terayon's existing holders of
registration rights, Terayon shall file a registration statement pursuant to
Form S-3 under the Securities Act with respect to the Merger Shares and any
shares of Terayon Common Stock delivered as Additional Consideration (together,
the "Registrable Shares"); provided that in the event Terayon is not eligible to
use Form S-3 at such time, it would register the Registrable Shares on Form S-1
or any other appropriate form that is available to Terayon for the registration
of such shares (the Form S-3 or Form S-1 registration statement hereinafter
referred to as the "Registration Statement"). Terayon shall keep the
Registration Statement continuously effective and updated as necessary in
compliance with the provisions of the Securities Act, the Exchange Act and the
rules and regulations of the SEC promulgated thereunder applicable to it with
respect to the disposition of Registrable Shares covered by the Registration
Statement so as to permit the resale of the Registrable Shares pursuant to the
Registration Statement and shall take such other action necessary to permit the
registration of the resale of the Registrable Shares until the earlier to occur
of (a) the resale of all of the Registrable Shares so registered and (b) the
date when all of the Registrable Shares can be resold within a given three-month
period without compliance with the registration requirements of the Securities
Act pursuant to Rule 144 or another applicable exemption.
35.
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(b) Notwithstanding Section 5.11(a) above, Terayon shall not be required
to file any Registration Statement with respect to any Registrable Shares that
(i) have already been registered pursuant to a registration statement then in
effect, or (ii) that are eligible for resale within a given three-month period
without compliance with the registration requirements of the Securities Act
pursuant to Rule 144 or another applicable exemption.
5.12 Lock-up Restrictions. The Registrable Shares shall be subject to
the following restrictions upon resale:
(a) Except as set forth in Section 5.12(d), the Initial Securities
shall be subject to lock-up restrictions for a one-year period from the Closing
Date, which restrictions will lapse as to 25% of the shares on the 91st day
after the Closing Date, 25% of the shares on the 181st day after the Closing
Date of such shares, 25% of the shares on the 270th day after the Closing Date
and the remainder of the shares on the 365th day after the Closing Date
(collectively, the "Scheduled Release Dates"); provided, however, that if the
Final Closing occurs at any time prior to the one year anniversary of the
Closing Date, then all of the Initial Securities shall be released from the
lock-up restrictions on the earlier of (i) the 91st day following the date of
the Final Closing or (ii) the one-year anniversary of the Closing Date; and
provided further that any Initial Securities that would be released from the
original lock-up restrictions according to the Scheduled Release Dates shall be
released in such amounts and on such dates to the extent such Scheduled Release
Dates occur prior to the release of all remaining Initial Securities pursuant to
the second clause of this Section 5.12(a).
(b) Except as set forth in Section 5.12(d), the Second Closing
Securities shall be subject to lock-up restrictions for a 90-day period from the
date of the Second Closing.
(c) Except as set forth in Section 5.12(d), the Final Securities
and any shares of Terayon Common Stock issued as Additional Consideration shall
be subject to lock-up restrictions for a 90-day period from the date of the
Final Closing.
(d) The Registrable Shares issued to each of Ed Krause, Paul Shen
and Adam Tom (collectively, the "Founders") in exchange for the options to
purchase 200,000 shares of Common Stock of the Company that will be granted to
each Founder at or prior to the Closing shall be subject to lock-up restrictions
for a twenty-four (24) month period from the Closing Date upon the terms set
forth in the form of Exhibit L (except with respect to the term of the lock-up
period); provided that if a Founder is involuntarily terminated by the Company
or Terayon during the seventy (70) day period following the Closing, the Founder
may sell such number of Registrable Shares to the extent necessary to satisfy
any tax resulting from the exercise of the options referenced in this Section
5.12(d).
All certificates representing shares of Terayon Common Stock issued to
Company Shareholders shall bear restrictive legends referencing the Securities
Act, and the rules promulgated thereunder, and the lock-up periods set forth in
Sections 5.12(a) through (d) above.
5.13 Notification.
(a) During the Pre-Closing Period, Terayon shall promptly notify
the Company in writing of:
36.
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(i) the discovery by Terayon of any event, condition, fact
or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by Terayon in this Agreement;
(ii) the discovery by Terayon of any event, condition, fact
or circumstance that occurs, arises or exists after the date of this Agreement
and that would cause or constitute an inaccuracy in or breach of any
representation or warranty made by Terayon in this Agreement if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (B)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of Terayon;
and
(iv) the discovery by Terayon of any event, condition, fact
or circumstance that would make the timely satisfaction of any of the conditions
set forth in Section 6 or Section 7 impossible or unlikely.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF TERAYON AND MERGER SUB.
The obligations of Terayon and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:
6.1 Accuracy of Representations. Each of the representations and
warranties made by the Company in this Agreement and in each of the other
agreements and instruments delivered to Terayon in connection with the
transactions contemplated by this Agreement shall have been accurate in all
material respects as of the date of this Agreement, and shall be accurate in all
material respects as of the Closing Date as if made on the Closing Date except
for items specifically permitted by this Agreement or consented to in writing by
Terayon (without giving effect to any update to the Disclosure Schedule;
provided, however that any inaccuracy of a representation or warranty as of the
Closing Date shall not be deemed an inaccuracy for purposes of this Section 6.1
to the extent such inaccuracy has resulted from the announcement of the Merger
or from Terayon's activities related to the Company's operations between the
date hereof and the Closing Date.
6.2 Performance of Covenants. All of the covenants and obligations that
the Company is are required to comply with or to perform at or prior to the
Closing shall have been complied with and performed in all respects; provided
however that any noncompliance or nonperformance that results from Terayon's
activities related to the Company's operations between the date hereof and the
Closing Date shall not constitute noncompliance or nonperformance by the Company
for the purposes of this Section 6.2.
6.3 Shareholder Approval. The principal terms of the Merger shall have
been duly approved by the affirmative vote of at least (a) 90% of the shares of
Company Common Stock entitled to vote with respect thereto, and (b) 90% of the
shares of Preferred Stock entitled to vote with respect thereto.
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6.4 Consents. All Consents required to be obtained in connection with
the Merger and the other transactions contemplated by this Agreement (including
the Consents identified in Schedule 2.21 of the Disclosure Schedule) shall have
been obtained and shall be in full force and effect, other than those Consents
that, if not obtained and in full force and effect, would not result in a
Material Adverse Effect or would not prevent the consummation of the
transactions contemplated hereunder.
6.5 Agreements and Documents. Terayon and the Company shall have
received the following agreements and documents, each of which shall be in full
force and effect:
(a) The Escrow Agreement in the form of Exhibit J, executed by the
Escrow Agent, the Company Shareholders' Agent and the Company;
(b) Employment Agreements in the form of Exhibit G, executed by
the individuals identified on Exhibit F;
(c) Noncompetition Agreements in the form of Exhibit H, executed
by the individuals identified on Exhibit F;
(d) the agreement referred to in Section 5.7, executed by certain
Company Shareholders;
(e) confidential invention and assignment agreements, reasonably
satisfactory in form and content to Terayon, executed by all of the Company's
(i) employees (ii) former employees, (iii) consultants and independent
contractors, and (iv) former consultants and former independent contractors who
have not already signed such agreements (including the individuals identified in
Schedule 2.9(f)(i) of the Disclosure Schedule); provided that no such agreements
will be required of the Persons identified in clauses (ii), (iii) and (iv) whose
jobs or services provided did not materially relate to the Company's Proprietary
Assets.
(f) estoppel certificates, dated as of a date not more than five
days prior to the Closing Date and satisfactory in form and content to Terayon,
executed by each of 188 Embarcadero Associates, LP and Martin CL Associates, LP
(together, the "Landlords"); provided that no estoppel certificate is required
if the Company has terminated its lease agreement with a Landlord;
(g) a legal opinion of Wilson Sonsini Goodrich & Rosati, P.C.,
dated as of the Closing Date, in the form of Exhibit K;
(h) a certificate executed by the Company's Chief Executive
Officer and Director of Finance certifying that (1) each of the representations
and warranties set forth in Section 2 is accurate in all respects as of the
Closing Date as if made on the Closing Date and (2) that the conditions set
forth in Sections 6.1, 6.2, 6.3 and 6.4 have been duly satisfied (the "Closing
Certificate"); provided, however that any inaccuracy of a representation or
warranty as of the Closing Date shall not be deemed an inaccuracy for purposes
of this Section 6.5(h) to the extent such inaccuracy has resulted from the
conversion discussed in Section 6.14, an action contemplated in Schedules
4.2(f), 4.2(g) and 4.2(h) of the Disclosure Schedule or Terayon's activities
related to the Company's operations between the date hereof and the Closing
Date; and
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(i) written resignations of all directors of the Company,
effective as of the Effective Time; and
(j) Shareholder lock-up agreements executed by the holders of at
least ninety-two percent (92%) of the Company's equity securities in the form of
Exhibit L.
6.6 FIRPTA Compliance. The Company shall have filed with the Internal
Revenue Service the notification referred to in Section 5.9(b).
6.7 Permit; Compliance With (S)3(a)(10) of the Securities Act. The
California Commissioner shall have issued a permit under Section 25121 of the
California Corporations Code (following a hearing upon the fairness of the terms
and conditions of the Merger, conducted pursuant to Section 25142 of the
California Corporations Code) for the issuance of the Terayon Common Stock to be
issued in the Merger, and all applicable requirements of Section 3(a)(10) of the
Securities Act shall have been satisfied.
6.8 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
6.9 No Legal Proceedings. Except with respect to matters referenced in
Section 9.2(a)(iv) of this Agreement, no Person shall have commenced or
threatened to commence any Legal Proceeding challenging or seeking the recovery
of a material amount of damages in connection with the Merger or seeking to
prohibit or limit the exercise by Terayon of any material right pertaining to
its ownership of stock of the Surviving Corporation.
6.10 Employees. None of the individuals identified on Exhibit F, and no
more than two of the individuals identified on Exhibit M, shall have ceased to
be employed by, or expressed an intention to terminate their employment with,
the Company.
6.11 Termination of Employee Plans and Employment Agreements. The
Company shall have provided Terayon with evidence, reasonably satisfactory to
Terayon, as to the termination of the benefit plans (a) referred to in Section
5.10 and (b) the termination of each of the "Employment Agreements" defined in
Schedule 2.5(e) of the Disclosure Schedule.
6.12 Fairness Opinion. Terayon shall have received from its financial
advisor a written opinion that the consideration paid by Terayon pursuant to
this Agreement is fair to Terayon and its stockholders from a financial point of
view; provided that Terayon shall use commercially reasonable efforts to
expedite the fairness opinion and in no way shall obstruct the delivery of the
fairness opinion.
6.13 Shareholder Approval of Parachute Payments. The Company shall have
obtained the required shareholder approvals for any "parachute payments" (as
defined in Section 280G of the Code) related to the transactions contemplated by
or related to this Agreement, such that all of any such payments will be
deductible by the Company or its successor.
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6.14 Conversion of Preferred Stock. The Company shall have obtained a
Qualifying Consent (as defined in Section 4.5) with respect to the conversion of
all outstanding shares of Preferred Stock, and all such outstanding Preferred
Stock shall have been converted to Company Common Stock.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
7.1 Accuracy of Representations. Each of the representations and
warranties made by Terayon and Merger Sub in this Agreement shall have been
accurate in all material respects as of the date of this Agreement (without
giving effect to any materiality or similar qualifications contained in such
representations and warranties), and shall be accurate in all material respects
as of the Closing Date as if made on the Closing Date (without giving effect to
any materiality or similar qualifications contained in such representations and
warranties).
7.2 Performance of Covenants. All of the covenants and obligations that
Terayon and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all respects.
7.3 Documents. The Company shall have received (a) a legal opinion of
Cooley Godward llp, dated as of the Closing Date, in the form of Exhibit N (b) a
certificate executed by Terayon's Chief Executive Officer and Chief Financial
Officer certifying that each of the representations and warranties in Section 3
is accurate in all respects as of the Closing Date as if made on the Closing
Date and that the conditions set forth in Sections 7.1, 7.2, 7.4 and 7.5 have
been duly satisfied and (c) the Escrow Agreement in the form of Exhibit J,
executed by the Escrow Agent, Terayon and Merger Sub.
7.4 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.5 Fairness Opinion. Terayon shall have received from its financial
advisor a written opinion that the consideration paid by Terayon pursuant to
this Agreement is fair to Terayon and its stockholders from a financial point of
view.
7.6 No Material Adverse Change. There shall have been no material
adverse change in the financial condition, results of operations or assets of
Terayon; provided that a decrease in the price of Terayon's Common Stock shall
not constitute a material adverse change for purposes of this Section 7.6; and
provided further that any material adverse change resulting from the
announcement of the Merger shall not constitute a material adverse change for
purposes of this Section 7.6.
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7.7 Permit; Compliance With (S)3(a)(10) of the Securities Act. The
California Commissioner shall have issued a permit under Section 25121 of the
California Corporations Code (following a hearing upon the fairness of the terms
and conditions of the Merger, conducted pursuant to Section 25142 of the
California Corporations Code) for the issuance of the Terayon Common Stock to be
issued in the Merger, and all applicable requirements of Section 3(a)(10) of the
Securities Act shall have been satisfied.
SECTION 8. TERMINATION.
8.1 Termination Events. This Agreement may be terminated prior to the
Closing:
(a) by Terayon if Terayon reasonably determines that the timely
satisfaction of any condition set forth in Section 6 has become impossible
(other than as a result of any failure on the part of Terayon or Merger Sub to
comply with or perform any covenant or obligation of Terayon or Merger Sub set
forth in this Agreement);
(b) by the Company if the Company reasonably determines that the
timely satisfaction of any condition set forth in Section 7 has become
impossible (other than as a result of any failure on the part of the Company to
comply with or perform any covenant or obligation set forth in this Agreement or
in any other agreement or instrument delivered to Terayon);
(c) by Terayon if the Closing has not taken place on or before
September 15, 1999 (other than as a result of any failure on the part of Terayon
to comply with or perform any covenant or obligation of Terayon set forth in
this Agreement);
(d) by the Company if the Closing has not taken place on or before
September 15, 1999 (other than as a result of the failure on the part of the
Company to comply with or perform any covenant or obligation set forth in this
Agreement or in any other agreement or instrument delivered to Terayon); or
(e) by the mutual consent of Terayon and the Company.
8.2 Termination Procedures. If Terayon wishes to terminate this
Agreement pursuant to Section 8.1(a), Section 8.1(c) or Section 8.1(e), Terayon
shall deliver to the Company a written notice stating that Terayon is
terminating this Agreement and setting forth a brief description of the basis on
which Terayon is terminating this Agreement. If the Company wishes to terminate
this Agreement pursuant to Section 8.1(b), Section 8.1(d) or Section 8.1(e), the
Company shall deliver to Terayon a written notice stating that the Company is
terminating this Agreement and setting forth a brief description of the basis on
which the Company is terminating this Agreement.
8.3 Effect of Termination. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) neither the Company nor Terayon shall be
relieved of any obligation or liability arising from any prior material breach
by such party of any provision of this Agreement; (b) the parties shall, in all
events, remain bound by and continue to be subject to the provisions set forth
in Section 10; and (c) the Company shall, in all events, remain bound by and
continue to be subject to Section 5.4.
41.
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SECTION 9. INDEMNIFICATION, ETC.
9.1 Survival of Representations, Etc.
(a) The representations and warranties made by the Company
(including the representations and warranties set forth in Section 2 and the
representations and warranties set forth in the Closing Certificate) shall
survive the Closing and shall expire on the first anniversary of the Closing
Date; provided, however, that if, at any time prior to the first anniversary of
the Closing Date, any Indemnitee (acting in good faith) delivers to the Company
Shareholders' Agent a Claim Notice (as defined in the Escrow Agreement) pursuant
to the terms of the Escrow Agreement, then the claim asserted in such Claim
Notice shall survive the first anniversary of the Closing until such time as
such claim is fully and finally resolved. All representations and warranties
made by Terayon and Merger Sub shall terminate and expire as of the Effective
Time, and any liability of Terayon or Merger Sub with respect to such
representations and warranties shall thereupon cease.
(b) The representations, warranties, covenants and obligations of
the Company, and the rights and remedies that may be exercised by the
Indemnitees, shall not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or knowledge of, any of
the Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other item
of information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule shall be deemed to be a representation and warranty made by
the Company in this Agreement.
9.2 Indemnification.
(a) From and after the Effective Time (but subject to Section
9.1(a)), the Indemnitees may seek indemnification to the fullest extent
permitted by law solely from the Escrow Fund for any Damages that are directly
or indirectly suffered or incurred by any of the Indemnitees or to which any of
the Indemnitees may otherwise become subject (regardless of whether or not such
Damages relate to any third-party claim) and which arise from or as a result of:
(i) any inaccuracy in or breach of any representation or warranty set forth in
Section 2 or in the Closing Certificate; (ii) any inaccuracy in or breach of any
representation or warranty set forth in Section 2 as if such representation and
warranty had been made on and as of the Closing Date; (iii) any breach of any
covenant or obligation of the Company (including the covenants set forth in
Sections 4 and 5); (iv) any claim brought by any Person who was a prospective
purchaser of the Company's Series D Preferred Stock and is not a securityholder
of the Company as of the date hereof; or (v) any claim brought by Transamerica
Business Credit Corporation ("Transamerica") as a result of the Company's
termination of its negotiations regarding Transamerica's provision of a credit
facility to the Company; provided, however that any inaccuracy of a
representation or warranty or any breach of a covenant or obligation as of the
Closing Date shall not be deemed an inaccuracy or a breach for purposes of
clauses (ii) or (iii) above to the extent such inaccuracy or breach has resulted
from Terayon's activities related to the Company's operations between the date
hereof and the Closing Date.
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(b) The Company acknowledges and agrees that, if the Surviving
Corporation suffers, incurs or otherwise becomes subject to any Damages as a
result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation, then (without limiting any of
the rights of the Surviving Corporation as an Indemnitee) Terayon shall also be
deemed, by virtue of its ownership of the stock of the Surviving Corporation, to
have incurred Damages as a result of and in connection with such inaccuracy or
breach; provided that the Company may only be liable to Terayon or the Surviving
Corporation for such Damages.
9.3 Threshold; Adjustments to Damages. The Indemnitees shall not be
entitled to seek any indemnification payment pursuant to Section 9.2(a) for any
inaccuracy in or breach of any of the representations and warranties set forth
in Section 2 until such time as the total amount of all Damages (including the
Damages arising from such inaccuracy or breach and all other Damages arising
from any other inaccuracies in or breaches of any representations or warranties)
that have been directly or indirectly suffered or incurred by any one or more of
the Indemnitees, or to which any one or more of the Indemnitees has or have
otherwise become subject, exceeds $100,000 in the aggregate (the "Damages
Threshold"); provided, however that such Damages Threshold shall not apply to
any Damages arising from claims made pursuant to Sections 9.2(a)(iv) above and
Terayon shall be entitled to recover the entire amount of any Damages related to
any claim made therein, and any amount recovered under Section 9.2(a)(iv) shall
not be included for purposes of determining whether the Damages Threshold has
been reached; and provided further that any amounts refunded to the Company or
Terayon after the Closing by Transamerica in connection with the credit facility
negotiations referred to in Section 9.2(a)(v) above shall be applied as a credit
toward the Damages Threshold such that the total amount of Damages applied
toward the Damages Threshold shall be reduced by the amount of any such refund.
In addition, in the event that (i) the total amount of all Damages claimed
exceeds the Damages Threshold and (ii) the Company or Terayon receives a refund
from Transamerica in connection with the negotiations referred to in the
preceding sentence, then the total amount of all Damages claimed shall be
reduced by the amount of any such refund.
9.4 Exclusive Remedy. From and after the Closing, recourse of Terayon
to the Escrow Fund pursuant to the Escrow Agreement shall be the sole and
exclusive remedy of Terayon and the other Indemnitees for monetary damages for
any inaccuracy in or breach of any representation, warranty, covenant or other
obligation contained in this Agreement.
9.5 Defense of Third-Party Claims. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Surviving Corporation, against Terayon or against any other Person) with respect
to which any of the Indemnitees shall have the right to seek indemnification
pursuant to this Section 9, Terayon shall have the right, at its election, to
proceed with the defense of such claim or Legal Proceeding on its own, except
with respect to claims made pursuant to Section 9.2(a)(iv), for which the
Company Shareholders shall have the right to proceed with the defense. If
Terayon so proceeds with the defense of any such claim or Legal Proceeding:
(a) all reasonable expenses relating to the defense of such claim
or Legal Proceeding shall be borne and paid exclusively out of the Escrow Fund;
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(b) Terayon shall have the right to settle, adjust or compromise
such claim or Legal Proceeding with the consent of the Company Shareholders'
Agent; provided, however, that such consent shall not be unreasonably withheld.
Terayon shall give the Company Shareholders' Agent prompt notice of the
commencement of any such Legal Proceeding against Terayon or the Surviving
Corporation; provided, however, that any failure on the part of Terayon to so
notify the Company Shareholders' Agent shall not limit any of the rights of the
Indemnitees under this Section 9 (except to the extent such failure materially
prejudices the defense of such Legal Proceeding).
9.6 Exercise of Remedies by Indemnitees Other Than Terayon. No
Indemnitee (other than Terayon or any successor thereto or assign thereof) shall
be permitted to assert any indemnification claim or exercise any other remedy
under this Agreement unless Terayon (or any successor thereto or assign thereof)
shall have consented to the assertion of such indemnification claim or the
exercise of such other remedy.
SECTION 10. Miscellaneous Provisions.
10.1 Company Shareholders' Agent. Gill Cogan is hereby designated as
the Company Shareholders' Agent for purposes of Section 9 (the "Company
Shareholders' Agent") and shall have the power and duties set forth in the
Escrow Agreement. If the Company Shareholders' Agent shall die, become disabled
or otherwise be unable to fulfill his responsibilities as agent of the Company
Shareholders, then the Company Shareholders holding a majority in interest of
the capital stock of the Company shall, within ten days after such death or
disability, appoint a successor agent and, promptly thereafter, shall notify
Terayon of the identity of such successor. Any such successor shall become the
"Company Shareholders' Agent" for purposes of Section 9 and this Section 10.1.
If for any reason there is no Company Shareholders' Agent at any time, all
references herein to the Company Shareholders' Agent shall be deemed to refer to
the Company Shareholders.
10.2 Further Assurances. Each party hereto shall execute and cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
10.3 Fees and Expenses. Each party to this Agreement shall bear and pay
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Terayon and its Representatives with
respect to the Company's business (and the furnishing of information to Terayon
and its Representatives in connection with such investigation and review), (b)
the negotiation, preparation and review of this Agreement (including the
Disclosure Schedule) and all agreements, certificates, opinions and other
instruments and documents delivered or to be delivered in connection with the
transactions contemplated by this Agreement, (c) the preparation and submission
of any filing or notice required to be made or given in connection with any of
the transactions contemplated by
44.
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this Agreement, and the obtaining of any Consent required to be obtained in
connection with any of such transactions, and (d) the consummation of the
Merger.
10.4 Attorneys' Fees. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
10.5 Notices. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to Terayon:
Terayon Communication Systems, Inc.
2952 Bunker Hill Lane
Santa Clara, CA 95954
Fax: (408) 727-6205
Attention: Chief Executive Officer
with a copy to:
Cooley Godward llp
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Fax: (415) 951-3699
Attention: Karyn R. Smith
if to the Company:
Imedia Corporation
188 The Embarcadero, Suite 600
San Francisco, CA 94105
Fax: (415) 975-8008
Attention: Chief Executive Officer
with a copy to:
Wilson Sonsini Goodrich & Rosati P.C.
650 Page Mill Road
Palo Alto, CA 94304
Fax: (650) 845-5000
Attention: Elizabeth R. Flint
10.6 Time of the Essence. Time is of the essence of this Agreement.
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10.7 Headings. The headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
10.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
10.9 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California (without giving effect to principles of conflicts of laws).
10.10 Successors and Assigns. This Agreement shall be binding upon:
the Company and its successors and assigns (if any); Terayon and its successors
and assigns (if any); and Merger Sub and its successors and assigns (if any).
This Agreement shall inure to the benefit of: the Company; the Company
Shareholders (to the extent set forth in Sections 1.5, 1.6, 1.9, 1.10, 3, 5.11,
5.13, 10.1 and 10.9, and to the extent they apply to Terayon, Sections 5.1, 5.2
and 5.5); the holders of substituted Company Options and assumed Company
Warrants (to the extent set forth in Sections 1.5(b), 1.7, 1.9, 1.10, 3, 5.11,
5.13, 10.1 and 10.9 and to the extent they apply to Terayon, Sections 5.1, 5.2
and 5.5); Terayon; Merger Sub; the other Indemnitees (subject to Section 9.5);
and the respective successors and assigns (if any) of the foregoing. None of the
rights hereunder may be assigned by the Company without prior written consent of
Terayon. Terayon may freely assign any or all of its rights under this Agreement
(including its indemnification rights under Section 9), in whole or in part, to
any other Person without obtaining the consent or approval of any other party
hereto or of any other Person.
10.11 Remedies Cumulative; Specific Performance. The rights and
remedies of the parties hereto shall be cumulative (and not alternative). The
parties to this Agreement agree that, in the event of any breach or threatened
breach by any party to this Agreement of any covenant, obligation or other
provision set forth in this Agreement for the benefit of any other party to this
Agreement, such other party shall be entitled (in addition to any other remedy
that may be available to it) to (a) a decree or order of specific performance or
mandamus to enforce the observance and performance of such covenant, obligation
or other provision, and (b) an injunction restraining such breach or threatened
breach.
10.12 Waiver.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly
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executed and delivered on behalf of such Person; and any such waiver shall not
be applicable or have any effect except in the specific instance in which it is
given.
10.13 Amendments. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
10.14 Severability. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.15 Parties in Interest. Except for the provisions of Section 9 and
as set forth in Section 10.10, none of the provisions of this Agreement is
intended to provide any rights or remedies to any Person other than the parties
hereto and their respective successors and assigns (if any).
10.16 Entire Agreement. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof; provided, however, that the Mutual Non-
Disclosure Agreement executed on behalf of Terayon and the Company on June 11,
1999 shall not be superseded by this Agreement and shall remain in effect in
accordance with its terms until the earlier of (a) the Effective Time, or (b)
the date on which such Mutual Non-Disclosure Agreement is terminated in
accordance with its terms.
10.17 Construction.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
[The Remainder of this Page Intentionally Left Blank]
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The parties hereto have caused this Agreement and Plan of Merger and
Reorganization to be executed and delivered as of the date first above written.
Terayon Communication Systems, Inc.,
a Delaware corporation
By: /s/ Zaki Rakib
-----------------------------------------
Name: Zaki Rakib
---------------------------------------
Title: Chief Executive Officer
--------------------------------------
Cherry Acquisition Corp.,
a California corporation
By: /s/ Zaki Rakib
-----------------------------------------
Name: Zaki Rakib
---------------------------------------
Title: Chief Executive Officer
--------------------------------------
Imedia Corporation,
a California corporation
By: /s/ Peter van der Gracht
-----------------------------------------
Name: Peter van der Gracht
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
SIGNATURE PAGE
