<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended: MAY 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From To
Commission File Number: 0-14779
MEDIA 100 INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2532613
- -------------------------------------------- -----------------------
(State or other jurisdiction of organization (I.R.S. Employer
or incorporation) Identification Number)
290 DONALD LYNCH BOULEVARD
MARLBOROUGH, MASSACHUSETTS
----------------------------------------
(Address of principal executive offices)
01752-4748
----------------------------------------
(Zip code)
(508) 460-1600
----------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
COMMON STOCK, PAR VALUE $.01 PER SHARE 8,306,486 SHARES
- -------------------------------------- ------------------------------------
Class Outstanding at June 30, 1999
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 Consolidated Financial Statements:
Consolidated Balance Sheets as of
May 31, 1999 and November 30, 1998 3
Consolidated Statements of Operations for the three and
six months ended May 31, 1999 and May 31, 1998 4
Consolidated Statements of Cash Flows for the six
months ended May 31, 1999 and May 31, 1998 5
Notes to Consolidated Financial Statements 6 - 9
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 16
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 17
ITEM 4 Submission of Matters to a vote of Security Holders 17
ITEM 6 Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBIT INDEX 20
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
May 31, November 30,
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,760 $ 7,249
Marketable securities 21,165 25,185
Accounts receivable, net of allowance for doubtful
accounts of $374 in 1999 and $395 in 1998 5,825 5,372
Income tax refund receivable 280 280
Inventories 1,726 967
Prepaid expenses 865 743
-------- --------
Total current assets 36,621 39,796
Equipment, net 7,706 8,363
Other assets, net 283 313
-------- --------
Total assets $ 44,610 $ 48,472
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,031 $ 2,259
Accrued expenses 7,338 9,692
Deferred revenue 5,851 6,048
-------- --------
Total current liabilities 15,220 17,999
Contingencies (Note 8) -- --
Stockholders' equity:
Preferred stock -- --
Common stock 84 83
Capital in excess of par value 41,130 40,917
Accumulated deficit (11,110) (10,598)
Cumulative translation adjustment (222) (37)
Treasury stock, at cost (399) (163)
Unrealized holding gain (loss) on
available for sale securities (93) 271
-------- --------
Total stockholders' equity 29,390 30,473
-------- --------
Total liabilities and stockholders' equity $ 44,610 $ 48,472
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended May 31, Six Months Ended May 31,
(in thousands, except per share data) 1999 1998 1999 1998
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net sales:
Products $ 10,400 $ 7,940 $ 20,404 $ 16,871
Services 2,137 1,697 4,272 3,287
-------- -------- -------- -------
Total net sales 12,537 9,637 24,676 20,158
Cost of sales 4,863 4,026 9,627 8,345
-------- -------- -------- -------
Gross profit 7,674 5,611 15,049 11,813
-------- -------- -------- -------
Operating expenses:
Research and development 3,142 4,774 7,136 7,765
Selling and marketing 3,759 3,473 7,288 6,909
General and administrative 935 1,130 1,868 2,070
-------- -------- -------- -------
Total operating expenses 7,836 9,377 16,292 16,744
-------- -------- -------- -------
Operating loss (162) (3,766) (1,243) (4,931)
Interest income 339 416 731 841
-------- -------- -------- -------
Income (loss) before tax
provision 177 (3,350) (512) (4,090)
Tax provision -- -- -- 12
-------- -------- -------- -------
Net income (loss) $ 177 $ (3,350) $ (512) $ (4,102)
-------- -------- -------- -------
-------- -------- -------- -------
Net Income (loss) per share:
Basic $ .02 $ (.41) $ (.06) $ (.50)
-------- -------- -------- -------
-------- -------- -------- -------
Diluted $ .02 $ (.41) $ (.06) $ (.50)
-------- -------- -------- -------
-------- -------- -------- -------
Weighted average common shares outstanding:
Basic 8,300 8,258 8,296 8,245
-------- -------- -------- -------
-------- -------- -------- -------
Diluted 8,609 8,258 8,296 8,245
-------- -------- -------- -------
-------- -------- -------- -------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended May 31,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (512) $ (4,102)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities
Depreciation and amortization 1,753 1,333
Gain on sale of marketable securities (16) (11)
Changes in assets and liabilities
Accounts receivable (453) 1,842
Inventories (759) 35
Prepaid expenses (122) 88
Accounts payable (228) (294)
Accrued expenses (2,354) 2,376
Deferred revenue (197) 1,260
-------- --------
Net cash (used in) provided by operating activities $ (2,888) $ 2,527
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment, net (1,096) (1,923)
Other assets 30 --
Purchases of marketable securities (22,407) (60,319)
Proceeds from sales of marketable securities 26,079 58,430
-------- --------
Net cash provided by (used in) investing activities $ 2,606 $ (3,812)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock plans 214 268
Purchase of treasury stock (236) --
-------- --------
Net cash (used in) provided by financing activities $ (22) $ 268
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (185) (41)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS $ (489) $ (1,058)
CASH AND CASH EQUIVALENTS, beginning of period 7,249 4,042
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 6,760 $ 2,984
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 1 $ 62
-------- --------
-------- --------
OTHER TRANSACTIONS NOT PROVIDING (USING) CASH:
(Decrease) Increase in value of marketable securities $ (364) $ 126
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, EXCEPT FOR NOVEMBER 30, 1998 AMOUNTS)
1. Basis of Presentation
The accompanying interim consolidated financial statements include the
accounts of Media 100 Inc. ("the Company") and its wholly-owned subsidiaries.
The interim financial statements are unaudited. However, in the opinion of
management, the interim consolidated financial statements and disclosures
reflect all adjustments necessary for fair presentation. Interim results are
not necessarily indicative of results expected for a full year or for any
other interim period. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. These
consolidated condensed financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto included in
the Company's latest audited financial statements, which are included in the
Company's Annual Report on Form 10-K for the fiscal year ended November 30,
1998, filed with the Securities and Exchange Commission.
The Company's preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Media 100 Inc. develops, markets, sells and supports digital video systems that
enable a wide range of professional communicators in business, education, and
video post production to create complete, television-quality video productions
quickly, easily, and with great creative flexibility. The Company markets and
delivers its products to end users through a worldwide channel of specialized
value-added resellers that sell, assemble and install turnkey systems using high
performance personal computers, disk drives, and ancillary video equipment.
2. Principles of Consolidation
The consolidated financial statements include the Company and its subsidiaries.
All material intercompany transactions and balances have been eliminated in
consolidation.
3. Reclassifications
Certain amounts in the prior year's financial statements have been reclassified
to conform with the current year's presentation.
4. Cash Equivalents and Marketable Securities
Cash equivalents are carried at cost, which approximates market value, and have
original maturities of less than three months. Cash equivalents include money
market accounts.
The Company accounts for marketable securities in accordance with Statement
of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS
IN DEBT AND EQUITY SECURITIES (SFAS No. 115). Under this standard, the
Company is required to classify all investments in debt and equity securities
into one or more of the following three categories: held-to-maturity,
available-for-sale or trading. Available-for-sale securities are recorded at
fair market value with unrealized gains and losses excluded from earnings and
reported as a separate component of stockholders' equity. All of the
Company's marketable securities are classified as available-for-sale.
6
<PAGE>
4. Cash Equivalents and Marketable Securities (continued)
Marketable securities held as of May 31, 1999 and November 30, 1998 consist of
the following (in thousands):
<TABLE>
<CAPTION>
Maturity 1999 1998
<S> <C> <C>
Investments available for sale:
U.S. Treasury Notes less than 1 year $ 1,542 $ 1,535
U.S. Treasury Notes 1 - 5 years 4,568 5,760
----------- ---------
Total U.S. Treasury Notes 6,110 7,295
Municipal Bonds less than 1 year 1,199 3,837
Municipal Bonds 1 - 5 years 1,060 1,067
----------- ---------
Total Municipal Bonds 2,259 4,904
U.S. Agency Bonds less than 1 year 1,766 4,298
U.S. Agency Bonds 1 - 5 years 4,055 4,136
----------- ---------
Total U.S. Agency Bonds 5,821 8,434
Money Market Instruments less than 1 year 4,079 3,395
Corporate Obligations less than 1 year 1,113 516
Corporate Obligations 1 - 5 years 5,862 6,847
----------- ---------
Total Corporate Obligations 6,975 7,363
Total investments available for sale 25,244 31,391
Less: cash and cash equivalents (4,079) (6,206)
----------- ---------
Total marketable securities $ 21,165 $ 25,185
----------- ---------
----------- ---------
</TABLE>
Marketable securities, including cash and cash equivalents of $4,079 and
$6,206, had a cost of $25,337 and $31,120, and a market value, excluding cash
and cash equivalents, of $21,165 and $25,185 at May 31, 1999 and November 30,
1998, respectively.
5. Inventories
Inventories are stated at the lower of first-in, first-out (FIFO) cost or market
and consist of the following (in thousands):
<TABLE>
<CAPTION>
May 31, November 30,
1999 1998
---------- ---------
<S> <C> <C>
Raw materials $ 370 $ 230
Work-in-process 521 336
Finished goods 835 401
---------- ---------
$ 1,726 $ 967
---------- ---------
---------- ---------
</TABLE>
Work-in-process and finished goods inventories include material, labor and
manufacturing overhead. Management performs periodic reviews of inventory and
disposes of items not required by their manufacturing plan.
7
<PAGE>
6. Equipment, net
Equipment, net is stated at cost, less accumulated depreciation and
amortization, and consists of the following (in thousands):
<TABLE>
<CAPTION>
May 31, November 30,
1999 1998
---------- ---------
<S> <C> <C>
Machinery and equipment $ 7,880 $ 7,174
Purchased software 3,852 3,616
Furniture and fixtures 1,240 1,240
Vehicles - 12
Leasehold improvements 1,548 1,482
---------- ---------
$ 14,520 $ 13,524
Less accumulated depreciation and amortization 6,814 5,161
---------- ---------
$ 7,706 $ 8,363
---------- ---------
---------- ---------
</TABLE>
7. Net Income (Loss) Per Common Share
Effective December 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, EARNINGS PER SHARE (SFAS No. 128). In
accordance with SFAS No. 128, basic net income (loss) per share is computed
by using the weighted-average number of common shares outstanding. Diluted
income (loss) per share is computed by using the weighted-average number of
common shares outstanding and potential common shares from the assumed
exercise of stock options outstanding during the period, if any, using the
treasury stock method.
The following is a reconciliation of the shares used in the computation of
basic and diluted net income (loss) per share (in thousands):
<TABLE>
<CAPTION>
Three months ended May 31, Six months ended May 31,
1999 1998 1999 1998
-------------------------------------------------------
<S> <C> <C> <C> <C>
Basic net income (loss) - weighted average shares
of common stock outstanding 8,300 8,258 8,296 8,245
Effect of potential common shares - stock options
outstanding (unless antidilutive) 309 -- -- --
-------------------------------------------------------
Diluted net income (loss) - weighted average
shares and potential common shares outstanding 8,609 8,258 8,296 8,245
-------------------------------------------------------
Options not included in computation of diluted net
income (loss) per share due to their dilutive effect 244 1,006 293 539
-------------------------------------------------------
</TABLE>
8. Contingencies
(i) On June 7, 1995, a lawsuit was filed against the Company by Avid
Technology, Inc. ("Avid") in the United States District Court for the
District of Massachusetts. The complaint generally alleges patent
infringement by the Company arising from the manufacture, sale, and use of
the Company's Media 100 products. The complaint includes requests for
injunctive relief, treble damages, interest, costs and fees. In July 1995,
the Company filed an answer and counterclaim denying any infringement and
asserting that the Avid patent in question is invalid. The Company intends
to vigorously defend the lawsuit. In addition, Avid is seeking reissue of
the patent, including claims that it asserts are broader than in the
existing patent, and these reissue proceedings remain pending before the
U.S. Patent and Trademark Office. On January 16, 1998, the court dismissed
the lawsuit without prejudice to either party moving to restore it to the
docket upon completion of all matters pending before the U.S. Patent and
Trademark Office. There can be no assurance that the Company will prevail
in the lawsuit asserted by Avid or that the expense or other effects of the
lawsuit, whether or not the Company prevails, will not have a material
adverse effect on the Company's business, operating results and financial
condition.
8
<PAGE>
(ii) From time to time the Company is involved in other disputes and/or
litigation encountered in its normal course of business. The Company does
not believe that the ultimate impact of the resolution of such other
outstanding matters will have a material effect on the Company's business,
operating results or financial condition.
9. Capitalized Software Development Costs
The Company capitalizes certain computer software development costs.
Capitalization of costs commences upon establishing technological feasibility.
Capitalized costs, net of accumulated amortization, were approximately $59,000
and $89,000, respectively, as of May 31, 1999 and November 30, 1998, and are
included in other assets. These costs are amortized on a straight-line basis
over two years, which approximates the economic life of the product.
Amortization expense, included in cost of sales in the accompanying consolidated
statements of operations, was approximately $15,000 and $30,000 for the three
and six months ended May 31, 1999, respectively.
10. Income Taxes
The Company did not record a tax provision for the three and six months ended
May 31, 1999 due to the net loss incurred for the six months then ended.
11. Accrued Expenses
Accrued expenses at May 31, 1999 and November 30, 1998 consist of the following
(in thousands):
<TABLE>
<CAPTION>
May 31, November 30,
1999 1998
----------- ------------
<S> <C> <C>
Payroll and related taxes $ 1,687 $ 1,691
Accrued warranty 463 463
Accrued product development 176 2,220
Accrued selling and marketing 634 878
Accrued legal and other 4,378 4,440
----------- ------------
$ 7,338 $ 9,692
----------- ------------
----------- ------------
</TABLE>
12. Recent Accounting Pronouncements
Effective December 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS No. 130).
SFAS No. 130 establishes standards for the display of comprehensive income and
its components in a full set of financial statements. Comprehensive income
includes all changes in equity during a period except those resulting from the
issuance of shares of stock and distributions to shareholders. SFAS No. 130
requires that an enterprise display the components of comprehensive income for
each period presented.
The components of the Company's comprehensive income (loss) were as follows:
<TABLE>
<CAPTION>
Three months ended May 31, Six months ended May 31,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $ 177 $(3,350) $ (512) $(4,102)
Cummulative translation adjustment (109) (284) (185) (41)
Unrealized holding gain (loss) on
available for sale securities (112) 7 (364) 126
------- ------- ------- -------
Total comprehensive loss $ (44) $(3,073) $(1,061) $(4,017)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
13. Subsequent Events
On May 6, 1999, the Company entered into a definitive agreement to acquire
Terran Interactive, Inc. of Los Gatos, California, a leading supplier of
software tools for high-quality Internet and DVD video. The Company will
treat the acquisition as a purchase for accounting purposes. The transaction
was completed on June 28, 1999.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Except for the historical information contained herein, the matters discussed in
this Quarterly Report on Form 10-Q are forward-looking statements based on
current expectations, and involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from those
expressed in such forward-looking statements. The risks and uncertainties
associated with such statements have been described under the heading "Certain
Factors That May Affect Future Results" in this Form 10-Q and the Company's
Annual Report on Form 10-K for the fiscal year ended November 30, 1998.
Media 100 Inc. develops, markets, sells and supports digital video systems that
enable a wide range of professional communicators in business, education, and
video post production to create complete, television-quality video productions
quickly, easily, and with great creative flexibility. The Company markets and
delivers its products to end users through a worldwide channel of specialized
value-added resellers that sell, assemble and install turnkey systems using high
performance personal computers, disk drives, and ancillary video equipment.
Results of Operations
The following table shows certain consolidated statements of operations data as
a percentage of net sales.
<TABLE>
<CAPTION>
Three months ended May 31, Six months ended May 31,
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales:
Products 83.0 % 82.4 % 82.7 % 83.7 %
Services 17.0 17.6 17.3 16.3
----- ----- ----- -----
Total net sales 100.0 100.0 100.0 100.0
Cost of sales 38.8 41.8 39.0 41.4
----- ----- ----- -----
Gross profit 61.2 58.2 61.0 58.6
Operating expenses:
Research and development 25.1 49.6 28.9 38.5
Selling and marketing 30.0 36.0 29.5 34.3
General and administrative 7.4 11.7 7.6 10.3
----- ----- ----- -----
Total operating expenses 62.5 97.3 66.0 83.1
Operating loss (1.3) (39.1) (5.0) (24.5)
Interest income 2.7 4.3 2.9 4.2
----- ----- ----- -----
Income (loss) before tax provision 1.4 (34.8) (2.1) (20.3)
Tax provision -- -- -- --
----- ----- ----- -----
Net income (loss) 1.4 % (34.8) % (2.1) % (20.3) %
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Comparison of Second Fiscal Quarter of 1999 to Second Fiscal Quarter of 1998
Net sales for the second fiscal quarter ended May 31, 1999 were $12,537,000,
an increase of $2,900,000, or 30.0%, from the same period a year ago. Net
sales from products for the second fiscal quarter ended May 31, 1999 were
$10,400,000, an increase of $2,460,000 or 31.0%, from the same period a year
ago. The increase in net sales from products is due primarily to the shipment
of Finish, the Company's new high performance Windows NT-based product line,
along with first customer shipments of the new version 5.5 release of Media
100 for Macintosh. In conjunction with the version 5.5 release, the Company
introduced SDI Option, a new product which supports the serial digital
interface standard allowing customers to work with broadcast-standard
SDI-devices. The Finish product line currently comprises four models: Finish
V20, Finish V40, Finish V60 and Finish V80. The Media 100 product line
currently comprises five models: Media 100 le, Media 100 lx, Media xe, Media
xs and Media xr.
10
<PAGE>
Comparison of Second Fiscal Quarter of 1999 to Second Fiscal Quarter of 1998
(continued)
Net sales from services for the second fiscal quarter ended May 31, 1999 were
$2,137,000, an increase of $440,000, or 25.9%, from the same period a year ago.
The increase in net sales from services is due to new customers purchasing and
existing customers renewing their support contracts.
Gross profit for the second quarter ended May 31, 1999 was 61.2% compared to
58.2% in the comparable quarter a year ago. In the first quarter of fiscal
1999, the Company reclassified certain costs associated with its Platinum
support services. The Company now classifies these costs as part of cost of
goods sold. The change in presentation had the affect of increasing cost of
goods sold and reducing selling and marketing expenses by the same amount.
Certain amounts in the comparable period last year have been reclassified to
conform with the current year's presentation. The increase in gross profit as
a percentage of net sales is due to the increase in the Company's Platinum
Support Services, which generate higher gross profit than products, and
reductions in the cost of key component parts used in the manufacture of the
Company's hardware.
Operating expenses for the second fiscal quarter ended May 31, 1999 were
$7,836,000, a decrease of $1,541,000, or 16.4%, from the same period a year
ago. Research and development expenses for the second fiscal quarter ended
May 31, 1999 were $3,142,000, a decrease of $1,632,000, or 34.2%, from the
same period a year ago. The majority of the decrease in research and
development expenses represented lower development costs due to the
completion of Finish, the Company's new family of high performance digital
video systems for the Windows NT platform, which shipped earlier this year.
Research and development expenses decreased from the first quarter of 1999 by
$852,000 as the initial development of the new Windows NT products was
completed. The Company currently anticipates that research and development
expenses will increase in 1999 on a quarterly basis, in absolute dollars, due
to the acquisition of Terran Interactive, Inc. However, the Company currently
plans lower research and development expenses from year ago levels in
absolute dollars, since the initial development of the new Windows NT
products was completed and these products were introduced to the market.
Selling and marketing expenses for the second fiscal quarter ended May 31,
1999 were $3,759,000, an increase of $286,000, or 8.2%, from the same period
a year ago. As noted above, the Company has changed the manner of
presentation for costs associated with its Platinum support services. The
Company now classifies these costs as part of cost of goods sold. The change
in presentation had the affect of increasing cost of goods sold and reducing
selling and marketing expenses by the same amount. Certain amounts in the
comparable period last year have been reclassified to conform with the
current year's presentation. The Company plans to maintain its current level
of selling and marketing expenditures for the remainder of the fiscal year to
support the rollout and promotion of the new Windows NT products and to
promote new products acquired as a result of the Terran Interactive, Inc.
acquisition. General and administrative expenses for the second fiscal
quarter ended May 31, 1999 were $935,000, a decrease of $195,000, or 17.3%,
from the same period a year ago. The Company currently anticipates that its
general and administrative expenses will increase modestly, in absolute
dollars, in fiscal 1999 compared to fiscal 1998 in support of the new Windows
NT products and the additional administrative expenses associated with the
Terran Interactive, Inc. acquisition.
The operating loss for the second fiscal quarter ended May 31, 1999 was
$162,000, a decrease of $3,604,000, or 95.7%, from the same period a year ago.
The decrease in the operating loss for the second fiscal quarter ended May 31,
1999 was due to an increase in sales and gross profit, as well as a reduction in
operating expenses.
Interest income for the second fiscal quarter ended May 31, 1999 was
$339,000, a decrease of $77,000, or 18.5%, from the comparable quarter a year
ago. The decrease in interest income is due to lower cash and cash
equivalents and marketable securities in the second fiscal quarter of 1999,
compared to the second fiscal quarter of 1998.
The Company did not record a tax provision for the second fiscal quarter
ended May 31, 1999 due to the net loss incurred for the first six months of
the fiscal year.
The net income for the second fiscal quarter ended May 31, 1999 was $177,000, or
$0.02 per share, compared to a net loss of $3,350,000, or $.41 per share, for
the same period a year ago.
11
<PAGE>
Comparison of First Six Months of 1999 to First Six Months of 1998
Net sales for the six months ended May 31, 1999 were $24,676,000, an increase
of $4,518,000, or 22.4%, from the same period a year ago. Net sales from
products for the six months ended May 31, 1999 were $20,404,000, an increase
of 21.0% from the same period a year ago. The increase in net sales from
products is due primarily to the shipment of Finish, the Company's new high
performance Windows NT-based product line, along with shipments of several
new versions of the Media 100 product line for Macintosh and a new product,
named DV Option. The Finish product line currently comprises four models:
Finish V20, Finish V40, Finish V60 and Finish V80. The Media 100 product line
currently comprises five models: Media 100 le, Media 100 lx, Media xe, Media
xs and Media xr. In November 1998, the Company began shipping its new digital
DV product, named DV Option. DV Option is available for all Media 100 and
Finish systems, from Media 100 le to Media 100 xr and from Finish V20 to
Finish V80. Net sales from services for the six months ended May 31, 1999
were $4,272,000, an increase of $985,000, or 30.0%, from the same period a
year ago. The increase in net sales from services is due to new customers
purchasing and existing customers renewing their support contracts.
Gross profit for the six months ended May 31, 1999 was 61.0% compared to
58.6% in the comparable quarter a year ago. In the first quarter, the Company
reclassified certain costs associated with its Platinum support services. The
Company now classifies these costs as part of cost of goods sold. The change
in presentation had the affect of increasing cost of goods sold and reducing
selling and marketing expenses by the same amount. Certain amounts in the
comparable period last year have been reclassified to conform with the
current year's presentation. The increase in gross profit as a percentage of
net sales is due to the increase in the Company's Platinum support services,
which generate higher gross profit than products, and reductions in the cost
of key component parts used in the manufacture of the Company's hardware.
Operating expenses for the six months ended May 31, 1999 were $16,292,000, a
decrease of $452,000, or 2.7%, from the same period a year ago. Research and
development expenses for the six months ended May 31, 1999 were $7,136,000, a
decrease of $629,000, or 8.1%, from the same period a year ago. The majority
of the decrease in research and development expenses represented lower
development costs due to the completion of Finish, the Company's new family
of high performance digital video systems for the Windows NT platform, which
shipped earlier this year. The Company currently anticipates that research
and development expenses will increase in 1999 on a quarterly basis, in
absolute dollars, due to the acquisition of Terran Interactive, Inc. However,
the Company currently plans lower research and development expenses from year
ago levels in absolute dollars, since the initial development of the new
Windows NT products was completed and these products were introduced to the
market. Selling and marketing expenses for the six months ended May 31, 1999
were $7,288,000, an increase of $379,000, or 5.5%, from the same period a
year ago. As noted above, the Company has changed the manner of presentation
for costs associated with its Platinum support services. The Company now
classifies these costs as part of cost of goods sold. The change in
presentation had the affect of increasing cost of goods sold and reducing
selling and marketing expenses by the same amount. Certain amounts in the
comparable period last year have been reclassified to conform with the
current year's presentation. The Company plans to maintain its current level
of selling and marketing expenditures for the remainder of the fiscal year to
support the rollout and promotion of the new Windows NT products and to
promote new products acquired as a result of the Terran Interactive, Inc.
acquisition. General and administrative expenses for the six months ended May
31, 1999 were $1,868,000, a decrease of $202,000, or 9.8%, from the same
period a year ago. The Company currently anticipates that its general and
administrative expenses will increase modestly, in absolute dollars, in
fiscal 1999 compared to fiscal 1998 in support of the new Windows NT products
and additional administrative expenses associated with the Terran
Interactive, Inc. acquisition.
The operating loss for the six months ended May 31, 1999 was $1,243,000, a
decrease of $3,688,000, or 74.8%, from the same period a year ago. The decrease
in the operating loss for the six months ended May 31, 19999 was due to an
increase in sales and gross profit, and a reduction in operating expenses.
Interest income for the six months ended May 31, 1999 was $731,000, a
decrease of $110,000, or 13.1%, from the comparable quarter a year ago. The
decrease in interest income is due to lower cash and cash equivalents and
marketable securities in the first six months of 1999, compared to the first
six months of 1998.
The Company did not record a tax provision for the six months ended May 31,
1999 due to the net loss incurred in the first six months of the fiscal year.
12
<PAGE>
Comparison of First Six Months of 1999 to First Six Months of 1998 (continued)
The net loss for the six months ended May 31, 1999 was $512,000 or $0.06 per
share, compared to a net loss of $4,102,000, or $.50 per share, for the same
period a year ago.
Liquidity and Capital Resources
The Company has funded its operations to date primarily from public offerings of
equity securities and cash flows from operations. As of May 31, 1999, the
Company's principal sources of liquidity included cash and cash equivalents and
marketable securities totaling approximately $27,925,000.
For the six months ended May 31, 1999, cash used in operating activities was
approximately $2,888,000 compared to cash provided by operations of
approximately $2,527,000 for the same period a year ago. Cash used in
operations during the first six months of fiscal 1999 was due to increases in
accounts receivable of $453,000, inventory of $759,000, prepaid expenses of
$122,000 and decreases in accounts payable of $228,000, accrued expenses of
$2,354,000 and deferred revenue of $197,000. Net cash provided by investing
activities was approximately $2,606,000 during the first six months of fiscal
1999, compared to cash used in investing activities of approximately
$3,812,000 for the same period a year ago. Cash provided by investing
activities during the six month period ended May 31, 1999 was primarily from
net proceeds of marketable securities of approximately $3,672,000 offset by
purchases of equipment of approximately $1,096,000. Cash used in financing
activities during the first six months of fiscal 1999 was approximately
$22,000, compared to cash provided by financing activities of $268,000 for
the same period a year ago. Cash provided by financing activities of $214,000
in the first six months of fiscal 1999 came from proceeds from the Company's
stock plans. The Company used approximately $236,000 to repurchase Media 100
Inc. common stock during the six months ended May 31, 1999.
The Company believes its existing cash balance, cash equivalents and
marketable securities will be sufficient to meet the Company's cash
requirements for at least the next twelve months.
On May 6, 1999, the Company entered into a definitive agreement to acquire
Terran Interactive, Inc. of Los Gatos, California, a leading supplier of
software tools for high-quality Internet and DVD video. The Company will
treat the acquisition as a purchase for accounting purposes. The transaction
was completed on June 28, 1999.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Except for the historical information contained herein, the matters discussed in
this Form 10-Q are forward-looking statements, and are based on current
expectations, and involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from those expressed in
such forward-looking statements. The risks and uncertainties associated with
such statements include the following:
SIGNIFICANT FLUCTUATIONS AND UNPREDICTABILITY OF OPERATING RESULTS. The
Company's quarterly operating results may vary significantly for a number of
reasons, including new product announcements and introductions by the Company or
its competitors, changes in pricing, and the volume and timing of orders
received during the quarter. Historically a significant percentage of the
Company's net sales has resulted from orders booked and shipped during the third
month of its fiscal quarter, a substantial portion of which occur in the latter
half of that month. The Company has also in the past experienced delays in the
development of new products and enhancements, and such delays may occur in the
future. These factors make the forecasting of revenue inherently uncertain.
Additionally, a significant portion of the Company's operating expenses is
relatively fixed, and operating expense levels are based primarily on internal
expectations of future revenue. As a consequence, quarterly operating expense
levels cannot be reduced rapidly in the event that quarterly revenue levels fail
to meet internal expectations. Therefore, if quarterly revenue levels fail to
meet internal expectations, the Company's operating results would be adversely
affected.
CONCENTRATION OF SALES ON THE MACINTOSH PLATFORM. To date, a majority of the
Company's sales relate to a single family of products running on the Macintosh
platform. A decline in demand for these systems, or a failure of such systems to
maintain market acceptance, as a result of competition, technological change or
other factors, would have a material adverse effect on the Company's business
and operating results.
13
<PAGE>
Some of the Company's products operate only on Apple Macintosh computers. The
Company believes that the market of users of the Company's products
increasingly views Microsoft's Windows NT operating system as an alternative
platform for new digital video products. As a result of the foregoing, there
can be no assurance that resellers and customers will not delay purchases of
Apple-based products or purchase substitute products based on non-Macintosh
operating systems, the occurrence of any of which could have a material
adverse effect on the Company's business and operating results. The Company
currently anticipates significant growth in quarterly revenues of the Company
will not occur until new products based on the Windows NT platform have
gained market acceptance.
RAPID TECHNOLOGICAL CHANGE. The market for the Company's products is
characterized by rapidly changing technology, evolving industry standards and
frequent new product introductions. The Company's future success will depend
in part upon its ability to enhance its existing products and to introduce
new products and features in a timely manner to address customer
requirements, respond to competitive offerings, adapt to new emerging
industry standards and take advantage of new enabling technologies that could
render the Company's existing products obsolete. In this regard, the Company
is developing new products that will operate on the Windows NT platform. The
Company currently anticipates that some of these new products will become
commercially available during the second half of the Company's current fiscal
year. The Company also plans in fiscal 1999 to continue its investment in
research and development, primarily in connection with the development of new
Windows NT-based hardware and software products. Any delay or failure of the
Company in developing such additional new products or any delay or failure of
such new products to achieve market acceptance, as a result of competition,
blocking proprietary rights of third parties or other factors, could have a
material adverse effect on the Company's business and operating results.
RISKS ASSOCIATED WITH DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS. New product
announcements by the Company's competitors and by the Company itself could have
the effect of reducing customer demand for the Company's existing products. The
introduction of new or enhanced products by the Company also requires the
Company to manage the transitions from existing products. New product
introductions require the Company to devote time and resources to the training
of its sales channel in the features and target customers for such new products,
which efforts could result in less selling efforts being made by the sales
channel during such training period. New product announcements or introductions
could contribute to significant quarterly fluctuations in operating results as
orders for new products commence and orders for existing products decline.
DEPENDENCE ON PROPRIETY TECHNOLOGY. The Company's ability to compete
successfully and achieve future revenue growth will depend, in part, on its
ability to protect its proprietary technology and operate without infringing the
rights of others. The Company has in the past received, and may in the future
continue to receive, communications suggesting that its products may infringe
patents or other intellectual property rights of third parties. The Company's
policy is to investigate the factual basis of such communications and negotiate
licenses where appropriate. While it may be necessary or desirable in the future
to obtain licenses relating to one or more products, or relating to current or
future technologies, there can be no assurance that the Company will be able to
do so on commercially reasonable terms or at all. There can be no assurance that
these or other future communications can be settled on commercially reasonable
terms or that they will not result in protracted and costly litigation.
RISKS OF THIRD-PARTY CLAIMS OF INFRINGEMENT. There has been substantial industry
litigation regarding patent, trademark and other intellectual property rights
involving technology companies. In the future, litigation may be necessary to
enforce any patents issued to the Company or to enforce trade secrets,
trademarks and other intellectual property rights owned by the Company, to
defend the Company against claimed infringement of the rights of others and to
determine the scope and validity of the proprietary rights of others. For a
description of certain pending litigation instituted against the Company, see
Item III, Legal Proceedings and Note 6 to the Consolidated Financial Statements
in Form 10-K for the year ended November 30, 1998. Any such litigation could be
costly and a diversion of management's attention, which could adversely affect
the Company's business, operating results and financial condition. Adverse
determinations in any such litigation could result in the loss of the Company's
proprietary rights, subject the Company to significant liabilities, require the
Company to seek licenses from third parties or prevent the Company from
manufacturing or selling its products, any of which could adversely affect the
Company's business, operating results and financial condition.
14
<PAGE>
EMERGING MARKETS. The broadcast, post-production, business, and institution
digital video segments to which the Company is targeting its products are an
emerging market. Many of the current users in this market rely on analog video
tape processes. Digital editing alternatives are relatively new and currently
account for a small portion of this market of current users. The Company also
believes that this market includes a potential market of new users who currently
out-source their video production requirements. The Company's future growth will
depend, in part, on the rate at which existing users convert to digital editing
processes and the rate at which new users adopt digital video systems as a
communications resource. There can be no assurance that the use of digital video
products like the ones offered by the Company will expand among existing users
of alternative video production processes or the market for new users, and any
failure of the Company's products to achieve market acceptance in these markets,
as a result of competition, technological change or other factors, could have a
material adverse effect on the Company's business and operating results.
COMPETITION. The market for the Company's products is highly competitive and
characterized by pressure to reduce prices, incorporate new features and
accelerate the release of new products. A number of companies currently offer
products that compete directly or indirectly with the Company's products,
including Accom, Inc., Apple Computer Inc., Autodesk, Inc., Avid Technology,
Inc., FAST Electronic GmbH, Matrox Electronic Systems Ltd., Pinnacle Systems,
Inc., and Truevision, Inc. In addition, the Company expects much larger
vendors, such as Matsushita Electric Industrial Company Ltd., Microsoft
Corporation, and Sony Corporation, to develop and introduce digital editing
systems that may compete with the Company's products. Many of these current
and potential competitors have greater financial, technical and marketing
resources than the Company. As a result, such competitors may be able to
develop products comparable to or superior to the Company's products, adapt
more quickly than the Company to new technologies, evolving industry
standards or customer requirements, or lower their product costs and thus be
able to lower prices to levels at which the Company could not operate
profitably, the occurrence of any of which could have a material adverse
effect on the Company's business and operating results. In this regard, the
Company believes that it will continue to experience competitive pressure to
reduce prices, particularly for its high data rate systems. The Company has
historically realized higher gross profit on the sale of its high data rate
systems than its entry-level systems, and such continued competitive pricing
pressure could result in lower sales and gross margin, which in turn could
adversely affect the Company's operating results.
DEPENDENCE ON SINGLE OR LIMITED SOURCE SUPPLIERS. The Company is dependent on
single or limited source suppliers for several key components used in its
products. The availability of many of these components is dependent on the
Company's ability to provide suppliers with accurate forecasts of its future
requirements, and certain components used by the Company have been subject to
industry-wide shortages. The Company does not carry significant inventories of
these components and has no guaranteed supply arrangements with such suppliers.
There can be no assurance that the Company's inventories would be adequate to
meet the Company's production needs during any interruption of supply. The
Company's inability to develop alternative supply sources, if required, or a
reduction or stoppage in supply, could delay product shipments until new sources
of supply become available, and any such delay could adversely affect the
Company's business and operating results in any given period.
DEPENDENCE ON RESELLERS. The Company relies primarily on its worldwide network
of independent VARs to distribute and sell its products to end users. The
Company's resellers generally offer products of several different companies,
including in some cases products which are competitive with the Company's
products. In addition, many of these VARs are small organizations with limited
capital resources. There can be no assurance that the Company's resellers will
continue to purchase the Company's products or provide them with adequate levels
of support, or that the Company's efforts to expand its VAR network will be
successful, any significant failure of which could have a material adverse
effect on the Company's business and operating results.
RELIANCE ON INTERNATIONAL SALES. International sales and operations may be
subject to risks such as the imposition of government controls, export
license requirements, restrictions on the export of critical technology, less
effective enforcement of proprietary rights; currency exchange fluctuations,
generally longer collection periods, political instability, trade
restrictions, changes in tariffs, difficulties in staffing and managing
international operations, potential insolvency of international resellers and
difficulty in collecting accounts receivable. The Company's international
sales are also subject to more seasonal fluctuation than domestic sales. In
this regard, the traditional summer vacation period, which occurs during the
Company's third fiscal quarter, may result in a decrease in sales,
particularly in Europe. There can be no assurance that these factors will not
have an adverse effect on the Company's future international operations and
consequently, on the Company's business and operating results.
YEAR 2000 READINESS DISCLOSURE. The year 2000 issue is the potential for system
and processing failure of date-related data and the result of
computer-controlled systems using two digits rather than four to define the
applicable year. For example, computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This
15
<PAGE>
could result in system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
To address these year 2000 issues with its major information technology
systems, the Company has initiated a program that is designed to deal with
the Company's internal management information technology systems. The
activities included in this program are intended to encompass all major
categories of information technology systems used by the Company, including
manufacturing, sales, order entry, accounting and financial reporting. The
Company has spent more than $2,500,000 over the past two years upgrading its
internal management information technology systems. The Company has
substantially completed an assessment of these information technology systems
and believes that its information technology systems are year 2000 compliant.
However, the Company utilizes third-party equipment and software that may not
be year 2000 compliant. Failure of third-party equipment or software to
operate properly with regard to the year 2000 and thereafter could require
the Company to incur unanticipated expenses to remedy any problems, which
could have a material adverse effect on the Company's business, results of
operations and financial condition. The Company may also be vulnerable to any
failures by its major suppliers, service providers and customers to remedy
their own internal information technology systems due to year 2000 issues
which could, among other things, have a material and adverse affect on the
Company's supplies and orders. The Company is unable to estimate the nature
or extent of any potential adverse impact resulting from the failure of third
parties, such as suppliers, service providers and customers, to achieve year
2000 compliance. Moreover, such third parties, even if year 2000 compliant,
could experience difficulties resulting from year 2000 issues that may affect
their suppliers, service providers and customers. As a result, although the
Company does not currently anticipate that it will experience any material
shipment delays from their major product suppliers or any material sales
delays to its customers due to year 2000 issues, these third parties may
experience year 2000 problems. Any such problems could have a material
adverse affect on the Company's business, results of operations and financial
condition.
Other than the activities described above, the Company does not have and does
not plan to develop a contingency plan to address year 2000 issues. Should any
unanticipated significant year 2000 issues arise, the Company's failure to
implement such a contingency plan could have a material adverse affect on its
business, results of operations and financial condition.
To assist customers in evaluating their year 2000 issues as they may relate to
the Company's products, the Company has assessed the capability of its current
products and products no longer produced, to handle the year 2000 issue. As a
result of this assessment, the Company believes that all current products
shipping are year 2000 compliant, however, their can be no assurance that the
failure to ensure year 2000 capability for the Company's products will not have
a material adverse affect on the Company.
Based on information currently available to the Company, it does not believe
that the year 2000 issues discussed above related to internal information
technology systems or products sold to customers will have a material adverse
impact on the Company's business, results of operations or financial condition;
however, it is uncertain to what extent the Company may be affected by such
matters. In addition, their can be no assurance that the failure to ensure year
2000 capability by the Company, its suppliers or other third parties will not
have a material adverse affect on the Company.
EURO CONVERSION. On January 1, 1999, 11 of the 15 member countries of the
European Union established fixed conversion rates between their existing
sovereign currencies and the euro. As of January 1, 2002, the transition to the
euro will be complete. The Company has operations within the European Union and
has prepared for the euro conversion. The Company does not expect the costs
associated with the transition to be material. The Company's functional currency
for accounting purposes is the U. S. Dollar. The overall effect of the
transition to the euro may have a material adverse affect on the Company's
business, financial condition and financial results.
DEPENDENCE ON KEY PERSONNEL. Competition for employees with the skills required
by the Company is intense in the geographic areas in which the Company's
operations are located. The Company believes that its future success will depend
on its continued ability to attract and retain qualified employees, especially
in research and development.
ACQUISITION RELATED RISKS In June 1999, the Company completed the Terran
Interactive, Inc. acquisition. The Company's business and results of
operations could be materially adversely affected in the event the Company
fails to successfully integrate the business and operations of Terran
Interactive, Inc. The Company may continue in the future to acquire existing
businesses, products, and technologies to enhance and expand its line of
products. Such acquisitions may be material in size and in scope. There can
be no assurance that the Company will be able to identify, acquire, or
profitably manage additional business o r successfully integrate any acquired
businesses into the Company without substantial expenses, delays, or other
operational or financial problems. Acquisitions involve a number of special
risks and factors, including increasing competition for attractive
acquisition candidates in the Company's markets, the technological
enhancement and incorporation of acquired products into existing product
lines and services, the assimilation of the operations and personnel of the
acquired companies, failure to retain key acquired personnel, adverse
short-term effects on reported operating results, the amortization of
acquired intangible assets, the assumption of undisclosed liabilities of any
acquired companies, the failure to achieve anticipated benefits such as cost
savings and synergies, as well as the diversion of management's attention
during the acquisition and integration process. Some or all of these special
risks and factors may have a material adverse impact on the Company's
business, operating results, and financial condition.
Derivative financial Instruments, Other Financial Instruments and Derivative
Commodity Instruments. The Company does not participate in derivative
financial instruments, other financial instruments for which the fair value
disclosure would be required under SFAS No.107, or derivative commodity
instruments. All of the Company's investments are in short-term, investment
grade commercial paper, certificates of deposit and U.S. Government and
agency securities that are carried at fair value on the Company's books.
Accordingly, the Company has no quantitative information concerning the
market risk of participating in such investments.
Primary Market Risk Exposures. The Company's primary market risk exposures
are in the area of interest rate risk and foreign currency exchange rate
risk. The Company's investment portfolio of cash equivalents is subject to
interest rate fluctuations, but the Company believes this risk is immaterial
due to the short-term nature of these investments. The Company's business
outside the United States is conducted in local currency transaction. The
Company has no foreign exchange contracts, option contracts or other foreign
hedging arrangements. However, the Company estimates that any market risk
associated with its foreign operations is not significant and is unlikely to
have a material adverse effect on the Company's business, results of
operations, or financial condition.
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 7, 1995, a lawsuit was filed against the Company by Avid Technology,
Inc. ("Avid") in the United States District Court for the District of
Massachusetts. The complaint generally alleges patent infringement by the
Company arising from the manufacture, sale, and use of the Company's Media 100
products. The complaint includes requests for injunctive relief, treble damages,
interest, costs and fees. In July 1995, the Company filed an answer and
counterclaim denying any infringement and asserting that the Avid patent in
question is invalid. The Company intends to vigorously defend the lawsuit. In
addition, Avid is seeking reissue of the patent, including claims that it
asserts are broader than in the existing patent, and these reissue proceedings
remain pending before the U.S. Patent and Trademark Office. On January 16, 1998,
the court dismissed the lawsuit without prejudice to either party moving to
restore it to the docket upon completion of all matters pending before the U.S.
Patent and Trademark Office. There can be no assurance that the Company will
prevail in the lawsuit asserted by Avid or that the expense or other effects of
the lawsuit, whether or not the Company prevails, will not have a material
adverse effect on the Company's business, operating results and financial
condition.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held an annual meeting of stockholders on April 14, 1999, at which
the stockholders approved the following proposals by the number of shares of
Common Stock voted below:
PROPOSAL
<TABLE>
<CAPTION>
(1) Election of Directors NUMBER OF SHARES
----------------
VOTED FOR AGAINST
--------- -------
<S> <C> <C>
John A. Molinari 5,538,185 811,544
Roger Redmond 5,542,508 807,221
Maurice L. Castonguay 5,542,100 807,629
Bruce I. Sachs 5,542,466 807,263
Paul J. Severino 5,541,800 807,929
B. Robert Feingold 5,540,619 809,110
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
(2) VOTED FOR VOTED AGAINST ABSTAINED BROKER NON-VOTE
--------- ------------- --------- ---------------
<S> <C> <C> <C> <C>
Increase by 200,000 the number of shares of the
Company's common stock, $.01 par value per
share available for issuance under the 1986
Employee Stock Purchase Plan for a total of
800,000 shares available under such plan: 5,893,649 359,448 12,022 84,610
</TABLE>
<TABLE>
<CAPTION>
(3)
<S> <C> <C> <C> <C>
Increase by 200,000 the number of shares of the
Company's common stock, $.01 par value per
share available for issuance under the Key
Employee Incentive Plan (1992) for a total of
2,200,000 shares available under such plan: 4,959,032 1,294,506 11,581 84,610
</TABLE>
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibits required as part of this Quarterly Report on Form 10-Q are listed in
the exhibit index on page 20.
b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this report
is filed.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Media 100 Inc.
Date: July 15, 1999 By:
-----------------------------
Steven D. Shea
Vice President of Finance and
Treasurer
(Principal Financial Officer)
19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.2 1986 Employee Stock Purchase Plan, as amended through
April 14, 1999
10.3 Key Employee Incentive Plan (1992), as amended through
April 14, 1999
10.10 Agreement and Plan of Merger and Reorganization, dated May 6, 1999
with Terran Interactive, Inc
27 Financial Data Schedule
</TABLE>
20
<PAGE>
EXHIBIT 10.2
MEDIA 100 INC.
1986 EMPLOYEE STOCK PURCHASE PLAN,
AS AMENDED THROUGH APRIL 14, 1999
SECTION 1. PURPOSE OF PLAN.
The Media 100 Inc. ("Media 100") 1986 Employee Stock Purchase Plan (the
"Plan") is intended to provide a method by which eligible employees of Media 100
(formerly Data Translation, Inc.) and its subsidiaries (collectively, the
"Company") may use voluntary, systematic payroll deductions to purchase shares
of Common Stock of Media 100 ("stock") and thereby acquire an interest in the
future of the Company. For purposes of the Plan, a subsidiary is any corporation
in which Media 100 owns, directly or indirectly, stock possessing 50% or more of
the total combined voting power of all classes of stock.
SECTION 2. OPTIONS TO PURCHASE STOCK.
Under the Plan, there is available an aggregate of not more than 800,000
shares of stock (subject to adjustment as provided in Section 16) for sale
pursuant to the exercise of options ("options") granted under the Plan to
employees of the Company ("employees"). The stock to be delivered upon exercise
of options under the Plan may be either shares of Media 100's authorized but
unissued stock, or shares of reacquired stock, as the Board of Directors of
Media 100 (the "Board of Directors") shall determine.
SECTION 3. ELIGIBLE EMPLOYEES.
Except as otherwise provided in Section 20, each employee who has completed
one month of continuous service in the employ of the Company shall be eligible
to participate in the Plan.
SECTION 4. METHOD OF PARTICIPATION.
Subject to the second paragraph of Section 8, the periods January 1 to June
30 and July 1 to December 31 of each year shall be option periods. Each person
who will be an eligible employee on the first day of any option period may elect
to participate in the Plan by executing and delivering, at least 15 days prior
to such day, a payroll deduction authorization in accordance with Section 5.
Such employee shall thereby become a participant ("participant") on the first
day of such option period and shall remain a participant until his participation
is terminated as provided in the Plan. Each participant shall execute, prior to
or contemporaneously with his election to participate in the Plan, the Company's
then standard form of Employee Agreement relating to confidentiality, inventions
and the like.
SECTION 5. PAYROLL DEDUCTIONS.
The payroll deduction authorization shall request withholding, at a rate of
not less than 2% nor more than 10%, from the participant's compensation, by
means of substantially equal payroll deductions over the option period. For
purposes of the Plan, "compensation" shall mean all compensation paid to the
participant by the Company including compensation paid as bonuses and
commissions, but excluding overrides, overseas allowances, and payments under
stock option plans and other employee benefit plans A participant may change the
withholding rate of his payroll deduction authorization by written notice
delivered to the Company at least 15 days prior to the first day of the option
period as to which the change is to be effective. All amounts withheld in
accordance with a participant's payroll deduction authorization shall be
credited to a withholding account for such participant.
A-1
<PAGE>
SECTION 6. GRANT OF OPTIONS.
Each person who is a participant on the first day of an option period shall
as of such day be granted an option for such period. Such option shall be for
the number of shares of stock to be determined by dividing (a) the balance in
the participant's withholding account on the last day of the option period by
(b) the purchase price per share of the stock determined under Section 7, and
eliminating any fractional share from the quotient. The Company shall reduce on
a substantially proportionate basis the number of shares of stock receivable by
each participant upon exercise of his option for an option period in the event
that the number of shares then available under the Plan is otherwise
insufficient.
SECTION 7. PURCHASE PRICE.
The purchase price of stock issued pursuant to the exercise of an option
shall be 85% of the fair market value of the stock at (a) the time of grant of
the option or (b) the time at which the option is deemed exercised, whichever is
less. Fair market value shall be determined in accordance with the applicable
provisions of the Internal Revenue Code of 1986, as amended or restated from
time to time (the "Code") or regulations issued thereunder, or in the absence of
any such provisions or regulations, shall be deemed to be the last sale price at
which the stock is traded on the day in question or the last prior date on which
a trade occurred as reported in the Wall Street Journal; or, if the Wall Street
Journal is not published or does not list the stock, then in such other
appropriate newspaper of general circulation as the Board of Directors may
prescribe; or, if the last price at which the stock traded is not generally
reported, then the mean between the reported bid and asked prices at the close
of the market on the day in question or the last prior date when such prices
were reported.
SECTION 8. EXERCISE OF OPTIONS.
If an employee is a participant in the Plan on the last business day of an
option period, he shall be deemed to have exercised the option granted to him
for that period. Upon such exercise, the Company shall apply the balance of the
participant's withholding account to the purchase of the number of whole shares
of stock determined under Section 6, and as soon as practicable thereafter shall
issue and deliver certificates for said shares to the participant and shall
return to him the balance, if any, of his withholding account in excess of the
total purchase price of the shares so issued. No fractional shares shall be
issued hereunder.
Notwithstanding anything herein to the contrary, the Company shall not be
obligated to deliver any shares unless and until, in the opinion of the
Company's counsel, all requirements of applicable federal and state laws and
regulations (including any requirements as to legends) have been complied with,
nor, if the outstanding stock is at the time listed on any securities exchange,
unless and until the shares to be delivered have been listed (or authorized to
be added to the list upon official notice of issuance) upon such exchange, nor
unless or until all other legal matters in connection with the issuance and
delivery of shares have been approved by the Company's counsel.
SECTION 9. INTEREST.
No interest will be payable on withholding accounts.
SECTION 10. CANCELLATION AND WITHDRAWAL.
A participant who holds an option under the Plan may at any time prior to
exercise thereof under Section 8 cancel all (but not less than all) of his
option by written notice delivered to the Company. Upon such cancellation, the
balance in his withholding account shall be returned to him.
A participant may terminate his payroll deduction authorization as of any
date by written notice delivered to the Company and shall thereby cease to be a
participant as of such date. Any participant who
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voluntarily terminates his payroll deduction authorization prior to the last
business day of an option period shall be deemed to have canceled his option.
SECTION 11. TERMINATION OF EMPLOYMENT.
Except as otherwise provided in Section 12, upon the termination of a
participant's employment with the Company for any reason whatsoever, he shall
cease to be a participant, and any option held by him under the Plan shall be
deemed cancelled, the balance of his withholding account shall be returned to
him, and he shall have no further rights under the Plan. For purposes of this
Section 11, a participant's employment will not be considered terminated in the
case of sick leave or other bona fide leave of absence approved for purposes of
this Plan by Media 100 or a subsidiary or in the case of a transfer to the
employment of a subsidiary or to the employment of Media 100.
SECTION 12. DEATH OR RETIREMENT OF PARTICIPANT.
In the event a participant holds any option hereunder at the time his
employment with the Company is terminated (1) by his retirement with the consent
of the Company, and such retirement is within three months of the time such
option becomes exercisable, or (2) by his death whenever occurring, then such
participant (or in the event of death, his legal representative) may, by a
writing delivered to the Company on or before the date such option is
exercisable, elect either (a) to cancel any such option and receive in cash the
balance in his withholding account, or (b) to have the balance in his
withholding account applied as of the last day of the option period to the
exercise of his option pursuant to Section 8. In the event such participant (or
his legal representative) does not file a written election as provided above,
any outstanding option shall be treated as if an election had been filed
pursuant to subparagraph (a) above.
SECTION 13. PARTICIPANT'S RIGHTS NOT TRANSFERABLE, ETC.
All participants granted options under the Plan shall have the same rights
and privileges. Each participant's rights and privileges under any option
granted under the Plan shall be exercisable during his lifetime only by him, and
shall not be sold, pledged, assigned, or otherwise transferred in any manner
whatsoever except by will or the laws of descent and distribution. In the event
any participant violates the terms of this Section, any options held by him may
be terminated by the Company and upon return to the participant of the balance
of his withholding account, all his rights under the Plan shall terminate.
SECTION 14. EMPLOYMENT RIGHTS.
Neither the adoption of the Plan nor any of the provisions of the Plan shall
confer upon any participant any right to continued employment with Media 100 or
a subsidiary or affect in any way the right of the Company to terminate the
employment of a participant at any time.
SECTION 15. RIGHTS AS A SHAREHOLDER.
A participant shall have the rights of a shareholder only as to stock
actually acquired by him under the Plan.
SECTION 16. CHANGE IN CAPITALIZATION.
In the event of a stock dividend, stock split or combination of shares,
recapitalization, merger in which Media 100 is the surviving corporation or
other change in Media 100's capital stock, the number and kind of shares of
stock or securities of Media 100 to be subject to the Plan and to options then
outstanding or to be granted hereunder, the maximum number of shares or
securities which may be delivered under the Plan, the option price and other
relevant provisions shall be appropriately adjusted by the Board of Directors,
whose determination shall be binding on all persons. In the event of a
consolidation or merger in which Media 100 is not the surviving corporation or
in the event of the sale or transfer of substantially
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all Media 100's assets (other than by the grant of a mortgage or security
interest), all outstanding options shall thereupon terminate, provided that
prior to the effective date of any such merger, consolidation or sale of assets,
the Board of Directors shall either (a) return the balance in all withholding
accounts and cancel all outstanding options, or (b) accelerate the exercise date
provided for in Section 8, or (c) if there is a surviving or acquiring
corporation, arrange to have that corporation or an affiliate of that
corporation grant to the participants replacement options having equivalent
terms and conditions as determined by the Board of Directors.
SECTION 17. ADMINISTRATION OF PLAN.
The Plan will be administered by the Board of Directors. The Board of
Directors will have authority, not inconsistent with the express provisions of
the Plan, to take all action necessary or appropriate hereunder, to interpret
its provisions, and to decide all questions and resolve all disputes which may
arise in connection therewith. Such determinations of the Board of Directors
shall be conclusive and shall bind all parties.
The Board may, in its discretion, delegate its powers with respect to the
Plan to an Employee Benefit Plan Committee or any other committee (the
"Committee"), in which event all references to the Board of Directors hereunder,
including without limitation the references in Section 18, shall be deemed to
refer to the Committee. A majority of the members of any such Committee shall
constitute a quorum, and all determinations of the Committee shall be made by a
majority of its members. Any determination of the Committee under the Plan may
be made without notice or meeting of the Committee by a writing signed by a
majority of the Committee members.
SECTION 18. AMENDMENT AND TERMINATION OF PLAN.
The Board of Directors may at any time or times amend the Plan or amend any
outstanding option or options for the purpose of satisfying the requirements of
any changes in applicable laws or regulations or for any other purpose which may
at the time be permitted by law, provided that (except to the extent explicitly
required or permitted herein) no such amendment will, without the approval of
the shareholders of Media 100, (a) increase the maximum number of shares
available under the Plan, (b) reduce the option price of outstanding options or
reduce the price at which options may be granted, or (c) amend the provisions of
this Section 18 of the Plan, and no such amendment will adversely affect the
rights of any participant (without his consent) under any option theretofore
granted.
The Plan may be terminated at any time by the Board of Directors, but no
such termination shall adversely affect the rights and privileges of holders of
the outstanding options.
SECTION 19. APPROVAL OF SHAREHOLDERS.
The Plan shall be subject to the approval of the shareholders of the
Company, which approval shall be secured within twelve months after the date the
Plan is adopted by the Board of Directors. Notwithstanding any other provisions
of the Plan, no option shall be exercised prior to the date of such approval.
For purposes of the foregoing, any increase in the number of shares described in
Section 2, other than pursuant to adjustment as provided in Section 16, shall be
treated as an adoption of the Plan with respect to the additional shares.
SECTION 20. LIMITATIONS ON ELIGIBILITY.
Notwithstanding any other provision of the Plan,
(a) An employee shall not be eligible to receive an option pursuant to the
Plan if, immediately after the grant of such option to him, he would (in
accordance with the provisions of Sections 423 and 425(d) of the Code)
own or be deemed to own stock possessing 5% or more of the total
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combined voting power or value of all classes of stock of the employer
corporation or of its parent or subsidiary corporation, as defined in
Section 425 of the Code.
(b) No employee shall be granted an option under the Plan which would permit
his rights to purchase shares of stock under all employee stock purchase
plans of the Company and any parent and subsidiary corporations to accrue
at a rate which exceeds $25,000 in fair market value of such stock
(determined at the time the option is granted) for each calendar year
during which any such option granted to such employee is outstanding at
any time, as provided in Sections 423 and 425 of the Code. Without
limiting the foregoing, the maximum number of shares for which an
employee may be granted an option under the Plan for any six-month option
period shall be the number of whole shares obtained by dividing $12,500
by the fair market value of one share of Common Stock on the date of
grant.
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EXHIBIT 10.3
MEDIA 100 INC.
1992 KEY EMPLOYEE INCENTIVE PLAN,
AS AMENDED THROUGH APRIL 14, 1999
1. PLAN; PURPOSE; GENERAL. The purpose of this Key Employee Incentive Plan
(1992) (the "Plan") is to advance the interests of Media 100 Inc. (formerly Data
Translation, Inc.) (the "Company") by enhancing the ability of the Company and
its subsidiaries to attract and retain selected advisers, consultants, key
employees and directors, by creating for such persons incentives and rewards for
their contributions to the success of the Company, and by encouraging such
persons to become owners of shares of the Company's Common Stock, par value
$0.01 per share (the "common stock" or "stock"). Options granted pursuant to the
Plan may be incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") (such options being referred to
herein as "incentive options") or non-incentive options. The proceeds received
from the sale of stock pursuant to the Plan shall be used for general corporate
purposes. Except as otherwise expressly provided with respect to an option
grant, no option granted pursuant to the Plan shall be an incentive option.
2. EFFECTIVE DATE OF PLAN. This Plan will become effective upon approval
by at least a majority of the votes cast at the next duly called Annual Meeting
of Stockholders of the Company at which a quorum representing a majority of the
voting power of all outstanding voting stock of the Company is, either in person
or by proxy, present and voting thereon or at any adjournment thereof. Grants of
awards under the Plan may be made prior to that date (but after Board adoption
of the Plan), subject to approval of the Plan by such shareholders.(1)
3. ADMINISTRATION OF THE PLAN. The Plan will be administered by the Board
of Directors (the "Board") of the Company. The Board will have authority, to
take all action necessary or appropriate thereunder, to interpret its
provisions, and to decide all questions and resolve all disputes which may arise
in connection therewith. Such determinations of the Board shall be conclusive
and shall bind all parties.
The Board may, in its discretion, delegate some or all of its powers with
respect to the Plan to the Executive Compensation and Stock Option Committee or
any other committee (the "Committee"), in which event all references to the
Board hereunder, except the references in Section 11 hereof, shall be deemed to
refer to the Committee. The Committee, if one is appointed, shall consist of not
fewer than two members, and each member of the Committee shall be, at the time
of his appointment and at any time he exercises discretion in administering the
Plan, a "non-employee director" as that term is defined in Rule 16b-3 adopted
pursuant to the Securities Exchange Act of 1934, as amended. A majority of the
members of any such Committee shall constitute a quorum, and all determinations
of the Committee shall be made by a majority of its members. Any determination
of the Committee under the Plan may be made without notice or meeting of the
Committee by a writing signed by a majority of the Committee members.
4. ELIGIBILITY. The "Participants" in the Plan will be such key employees,
including part-time employees, advisers, consultants and directors whether or
not they are employees, of the Company or of any of its present or future
subsidiaries (as defined in Section 10) as may be selected from time to time by
the Board in its discretion.
No incentive option shall be granted to a Participant who is not an
"employee" as defined in the provisions of the Code or regulations thereunder
applicable to incentive options. No incentive option shall be granted to a
Participant who at the time of grant owns, directly or indirectly through
application or the attribution rules of Section 424(d) of the Code, stock
possessing more than 10% of the total combined
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(1) The Plan was approved by the requisite vote of stockholders at the Annual
Meeting of Stockholders of the Company held on April 8, 1992.
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voting power of all classes of stock of the Company or of its subsidiaries (a
"Ten-Percent Shareholder") unless (i) the option price at the time it is granted
is at least 110% of the fair market value of the stock subject to the option,
and (ii) the period of the option does not exceed five years from the date of
grant.
5. GRANT OF AWARDS. Subject to the express provisions of the Plan, the
Board shall have the sole authority and discretion (a) to determine which
Participants will be granted awards; (b) to grant awards consisting of options
or stock appreciation rights ("SARs"), or both to Participants; (c) to determine
whether the options granted to any Participants shall be incentive options or
non-incentive options; (d) to determine the time or times when awards will be
granted and the number of shares of common stock to be subject to each award;
(e) to determine the option price of the shares subject to each option in
accordance with Section 6(a) hereof and the value of the shares subject to each
SAR on the exercise date of such SAR in accordance with Section 6(d) hereof, and
the method of payment of such price; (f) to determine the time or times when
each award becomes exercisable and the duration of the exercise period; (g) to
impose additional conditions or restrictions on any award, such conditions or
restrictions, if any, to be set forth in the award form or other instrument
evidencing the award; (h) to prescribe the form or forms of any instruments
evidencing any awards granted under the Plan and of any other instruments
required under the Plan and to make changes in such forms from time to time; (i)
to determine the price, vesting schedule and other attributes of awards granted
to Participants working abroad; and (j) to adopt, amend and rescind rules and
regulations for the administration of the Plan and the awards and for its own
acts and proceedings. Subject to Section 12 hereof, the Board shall also have
the authority, in its sole discretion, both generally and in particular
instances, to waive compliance by a Participant with any obligation to be
performed by him under an award, to waive any condition or provision of an
award, and to amend or cancel any award (and if an award is cancelled, to grant
a new award on such terms as the Board shall specify) except that the Board may
not take any action with respect to an outstanding award that would adversely
affect the rights of the Participant under such award without such Participant's
consent. Nothing in the preceding sentence shall be construed as limiting the
power of the Board to make adjustments required by Section 8(c) hereof.
No award shall be granted on or after February 20, 2002 but awards
previously granted may extend beyond that date.
6. TERMS AND CONDITIONS OF AWARDS.
a. EXERCISE PRICE OF OPTIONS. The purchase price per share for shares
issuable upon exercise of options shall be determined by the Board
but in the case of incentive options shall not be less than 100%
(110% in the case of an incentive option granted to a Ten-Percent
Shareholder) of the fair market value of the stock on the date of
grant; nor shall the option price be less, in the case of an original
issue of authorized stock, than par value per share. For this
purpose, "fair market value" will be determined as set forth in
Section 10 hereof.
b. PERIOD OF OPTIONS. An option shall be exercisable during such period
or periods as the Board may specify. The latest date on which an
option may be exercised (the "Final Exercise Date") shall be the date
which is ten years (five years, in the case of an incentive option
granted to a Ten-Percent Shareholder) from the date the option was
granted or such earlier date as may be specified by the Board at the
time the option is granted.
c. EXERCISE OF OPTIONS.
(i) Unless the Board at the time of grant or at any other time
otherwise specifies in the case of a particular option or
options, each option shall first become exercisable with respect
to one-fifth of the shares covered by it upon the completion of
one year from the date of the grant of the option (the "Initial
Exercise Date"), and with respect to an additional one-fifth
each succeeding year until the option becomes exercisable with
respect to all of the shares covered by it.
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(ii) In the case of options intended to be incentive options, any
award forms or other instruments evidencing such options shall
contain such provisions relating to exercise and other matters
as are required of incentive options under the applicable
provisions of the Code and Treasury Regulations, as from time
to time in effect.
(iii) A person electing to exercise part or all of his options shall
give written notice to the Company, as specified by the Board,
of his election and of the number of shares he has elected to
purchase, such notice to be accompanied by the instrument
evidencing such option and any other documents required by the
Board, and shall at the time of such exercise tender the
purchase price of the shares he has elected to purchase. If the
notice of election to exercise is given by the executor or
administrator of a deceased Participant, or by the person or
persons to whom the option has been transferred by the
Participant's will or the applicable laws of descent and
distribution, the Company will be under no obligation to
deliver shares pursuant to such exercise unless and until the
Company is satisfied that the person or persons giving such
notice is or are entitled to exercise the option.
(iv) In the case of an option that is not an incentive option, the
Board shall have the right to require that the Participant
exercising the option remit to the Company an amount sufficient
to satisfy any federal, state, or local withholding tax
requirements (or make other arrangements satisfactory to the
Company with regard to such taxes) prior to the delivery of any
common stock pursuant to the exercise of the option. If
permitted by the Board, either at the time of the grant of the
option or the time of exercise, the Participant may elect, at
such time and in such manner as the Board may prescribe, to
satisfy such withholding obligation by (i) delivering to the
Company common stock owned by such individual having a fair
market value equal to such withholding obligation, or (ii)
requesting that the Company withhold from the shares of common
stock to be delivered upon exercise of the option a number of
shares of common stock having a fair market value equal to such
withholding obligation.
In the case of an incentive option, if at the time the option is
exercised the Board determines that under applicable law and
regulations the Company could be liable for the withholding of any
federal, state or local tax with respect to a disposition of the
common stock received upon exercise, the Board may require as a
condition of exercise that the Participant exercising the option
agree (i) to inform the Company promptly of any disposition (within
the meaning of Section 424(c) of the Code and the regulations
thereunder) of common stock received upon exercise, and (ii) to give
such security as the Board deems adequate to meet the potential
liability of the Company for the withholding of tax, and to augment
such security from time to time in any amount reasonably deemed
necessary by the Board to preserve the adequacy of such security.
d. STOCK APPRECIATION RIGHTS. The Board in its discretion may grant SARs
either in tandem with or independent of options awarded under the
Plan. Except as hereinafter provided, each SAR will entitle the
Participant to receive upon exercise, with respect to each share of
common stock to which the SAR relates, the excess of (i) the share's
value on the date of exercise, over (ii) the share's fair market
value on the date it was granted. For purposes of clause (i), "value"
shall mean fair market value; provided, that the Board may adjust
such value to take into account dividends on the stock and may also
grant SARs that provide, in such limited circumstances following a
change in control of the Company (as determined by the Board) as the
Board may specify, that "value" for purposes of clause (i) is to be
determined by reference to a specified value (which may include an
average of values) for the common stock during a period immediately
preceding the change in control, all as determined by the Board. The
amount payable to a Participant upon exercise of an SAR
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shall be paid either in cash or in shares of common stock, as the
Board determines. Each SAR shall be exercisable during such period or
periods and on such terms as the Board may specify. No SAR shall be
exercisable after the date which is ten years from the date of grant.
e. PAYMENT FOR AND DELIVERY OF SHARES. Shares which are subject to
options shall be issued only upon receipt by the Company of full
payment of the purchase price for the shares as to which the award is
exercised. The purchase price shall be payable by the option holder
to the Company either (i) in cash or by check, bank draft or money
order payable to the order of the Company; or (ii) if so permitted by
the Board (which in the case of an incentive option, shall specify
such method of payment at the time of grant), (A) through the
delivery of shares of common stock (duly owned by the option holder
and for which the option holder has good title free and clear of any
liens and encumbrances and which, in the case of common stock
acquired from the Company, shall have been held for at least six
months) having a fair market value on the last business day preceding
the date of exercise equal to the purchase price or (B) by delivery
of a promissory note of the option holder to the Company, such note
to be payable on such terms as are specified by the Board or (C) by
delivery of an unconditional and irrevocable undertaking by a broker
to deliver promptly to the Company sufficient funds to pay the
exercise price; or (iii) by a combination of the permissible forms of
payment as provided in (i) and (ii) above; provided, that if the
common stock delivered upon exercise of the option is an original
issue of authorized common stock, at least so much of the exercise
price as represents the par value of such common stock shall be paid
other than with a personal check or promissory note of the person
exercising the option.
The Company shall not be obligated to deliver any shares unless
and until, in the opinion of the Company's counsel, all applicable
federal and state laws and regulations have been complied with, nor,
if the outstanding common stock is at the time listed on any
securities exchange, unless and until the shares to be delivered have
been listed (or authorized to be added to the list upon official
notice of issuance) upon such exchange, nor unless and until all
other legal matters in connection with the issuance and delivery of
shares have been approved by the Company's counsel. Without limiting
the generality of the foregoing, the Company may require from the
person exercising an option such investment representation or such
agreement, if any, as counsel for the Company may consider necessary
in order to comply with the Securities Act of 1933, as amended, and
may require that such person agree that any sale of the shares will
be made only on a national securities exchange or in such other
manner as is permitted by the Board and that he will notify the
Company before he makes any disposition of the shares whether by
sale, gift or otherwise.
A Participant shall have the rights of a shareholder only as to
shares actually acquired by him under the Plan.
f. NONTRANSFERABILITY OF AWARDS. No award may be sold, assigned or
otherwise transferred or disposed of in any manner whatsoever other
than by will or by the laws of descent and distribution, and during
the Participant's lifetime the award may be exercised only by him.
g. FORFEITURE OF AWARDS UPON TERMINATION OF EMPLOYMENT. If a
Participant's (other than a non-employee director's) employment or
service with the Company and its subsidiaries terminates for any
reason other than death, the portion of any award held by the
Participant that was not exercisable immediately prior to such
termination of employment or service shall immediately expire and
except as the Board may otherwise determine, in its sole discretion,
the remaining portion, if any, of the award shall continue to be
exercisable for a period of ninety (90) days immediately following
the date of termination of the Participant's employment or other
service with the Company and its subsidiaries. Notwithstanding the
foregoing, if the Participant was terminated for cause all awards
held by the Participant
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immediately prior to such termination, whether or not then
exercisable, shall immediately expire.(2) For purposes of this
Section 6(g), employment shall not be considered terminated (i) in
the case of sick leave or other bona fide leave of absence approved
for purposes of the Plan by the Board, so long as the Participant's
right to reemployment is guaranteed either by statute or by contract,
(ii) in the case of a transfer of employment between the Company and
a subsidiary or between subsidiaries, or to the employment of a
corporation (or a parent or subsidiary corporation of such
corporation) issuing or assuming an option in a transaction to which
Section 424(a) of the Code applies, or (iii) in the case of a
transfer of employment between the Company and its wholly-owned
subsidiary Data Translation, Inc. (formerly Data Translation II,
Inc.) ("DTI") and subsequent distribution of the stock of such
subsidiary to the Company's stockholders (the "Distribution");
PROVIDED, that this clause (iii) shall apply only in the case of
Participants whose transfer of employment to DTI occurs in connection
with the Distribution; AND FURTHER PROVIDED, that in the case of any
such Participant, post-Distribution service for DTI shall be treated
for purposes of this paragraph as service for the Company and any
post-Distribution termination of employment with DTI shall be treated
for purposes of this paragraph as a termination of employment with
the Company and its subsidiaries. The Company may require that any
Participant described in clause (iii) above provide, prior to any
post-Distribution exercise of an award hereunder by such Participant
and as a condition thereto, evidence satisfactory to the Company as
to the period of such Participant's employment with DTI.
h. DEATH. If a Participant dies at a time when he is entitled to
exercise an option, then at any time or times within one year after
his death (or such further period as the Board may allow) such option
may be exercised, as to all or any of the shares which the
Participant was entitled to purchase immediately prior to his death,
by his executor or administrator or the person or persons to whom the
option is transferred by will or the applicable laws of descent and
distribution, and except as so exercised such option will expire at
the end of such period. In no event, however, may any option be
exercised after the Final Exercise Date.
i. CONFIDENTIALITY AGREEMENT. Each Employee, including employees of DTI
who received options while employees of the Company, shall execute,
prior to or contemporaneously with the grant of any option to such
Participant hereunder, the Company's then standard form of agreement
relating to confidentiality, inventions and the like.
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(2) The preceding two sentences were adopted by amendment dated January 19,
1998 and are effective as to awards granted, regranted or amended on or
after such date, except as the Board may otherwise determine; provided, that
any incentive option granted prior to such date that is amended on or after
such date shall not be subject to such amendment without the consent of the
Participant holding the option if application of such amendment would cause
the option (as amended) to fail to qualify as an incentive stock option.
With respect to all awards which are not subject to the foregoing amendment,
the following provision shall apply:
If a Participant's (other than a non-employee director's)
employment or service with the Company and its subsidiaries
terminates for any reason other than death, all awards held by the
Participant shall terminate unless the Board determines, in its
sole discretion, that such awards as were exercisable immediately
prior to termination shall continue to be exercisable for a period
of time after termination (but in no event beyond the Final
Exercise Date). If the Board determines that a post-termination
exercise period for exercisable awards is appropriate, such awards
shall terminate and be forfeited after completion of such period
to the extent not previously exercised, expired or terminated.
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7. REPLACEMENT AWARDS. The Company may grant awards under the Plan on
terms differing from those provided in Section 6, where such awards are granted
in substitution for awards held by employees of another corporation who
concurrently become employees of the Company or a subsidiary as the result of a
merger or consolidation of that corporation with the Company or a subsidiary, or
the acquisition by the Company or a subsidiary of property or stock of that
corporation. The Board may direct that the substitute awards be granted on such
terms and conditions as the Board considers appropriate in the circumstances.
Such awards will be in addition to those which may be granted under the Plan and
will not be counted as granted under the Plan.
8. SHARES SUBJECT TO PLAN.
a. NUMBER OF SHARES AND STOCK TO BE DELIVERED. Shares delivered pursuant
to this Plan shall in the discretion of the Board be authorized but
unissued shares of common stock or previously issued stock acquired
by the Company. Subject to adjustment as described below and
exclusive of the shares that are subject to the options provided for
in Section 13, the aggregate number of shares which may be delivered
under this Plan shall not exceed 2,200,000 shares of common stock of
the Company.
b. LIMITATIONS ON GRANTS TO INDIVIDUALS. Subject to adjustment as
described below and exclusive of the shares that are subject to the
options provided for in Section 13, the aggregate number of shares
for which options may be granted under this Plan to any individual in
any calendar year shall not exceed 250,000 shares of common stock of
the Company.
c. CHANGES IN STOCK. In the event of a stock dividend, stock split or
combination of shares, recapitalization, merger in which the Company
is the surviving corporation or other change in the Company's capital
stock, the number and kind of shares of stock or securities of the
Company to be subject to the Plan and to options then outstanding or
to be granted thereunder, the maximum number of shares or securities
which may be delivered under the Plan, the option price and other
relevant provisions shall be appropriately adjusted by the Board,
whose determination shall be binding on all persons. In the event of
a consolidation or merger in which the Company is not the surviving
corporation or which results in the acquisition of substantially all
the Company's outstanding stock by a single person or entity, or in
the event of the sale or transfer of substantially all the Company's
assets, all outstanding awards shall thereupon terminate, provided
that at least twenty days prior to the effective date of any such
merger, consolidation or sale of assets, all outstanding awards shall
become exercisable immediately prior to consummation of such merger,
consolidation or sale of assets, unless the Board shall have arranged
for the surviving or acquiring corporation or an affiliate of that
corporation to assume the awards or to grant to the Participants
replacement awards having equivalent terms and conditions as
determined by the Board including, in the case of incentive options,
terms and conditions that satisfy the requirements of Section 424(a)
of the Code.
The Board may also adjust the number of shares subject to
outstanding awards granted under Sections 5 or 6 hereof, the exercise
price of outstanding options and the terms of outstanding options to
take into consideration material changes in accounting practices or
principles, consolidations or mergers (except those described in the
immediately preceding paragraph), acquisitions or dispositions of
stock or property or any other event if it is determined by the Board
that such adjustment is appropriate to avoid distortion in the
operation of the Plan, including without limitation, the special
option adjustments made in connection with the Distribution and
described in Section 14 herein.
9. EMPLOYMENT RIGHTS. Neither the adoption of the Plan nor the grant of
awards shall confer upon any Participant any right to continued employment with
the Company or a subsidiary or affect in any way the right of the Company to
terminate the employment of a Participant at any time. Except as specifically
B-6
<PAGE>
provided by the Board, in its sole discretion, in any particular case, the loss
of existing or potential profit in awards granted under this Plan shall not
constitute an element of damages in the event of termination of the relationship
of a Participant even if the termination is in violation of an obligation of the
Company to the Participant by contract or otherwise.
10. DEFINITIONS.
a. For purposes of the Plan a subsidiary is any corporation (i) in which
the Company owns, directly or indirectly, stock possessing 50% or
more of the total combined voting power of all classes of stock, or
(ii) over which the Company has effective operating control;
provided, however, that no corporation shall be deemed a subsidiary
for the purpose of any provisions applicable to incentive options,
and no incentive options shall be granted to employees of such
corporation, unless in each case, such corporation shall constitute a
subsidiary as defined in clause (i) above. For special rules relating
to DTI, SEE Section 14, below.
b. The fair market value of the common stock shall be determined in
accordance with the applicable provisions of the Code or regulations
issued thereunder, or in the absence of any such provisions or
regulations, shall be deemed to be the last sale price at which such
common stock is traded on the date in question as reported in the
Wall Street Journal; or, if the Wall Street Journal is not published
at the date in question or does not list the common stock, then in
such other appropriate newspaper of general circulation as the Board
may prescribe; or, if there is no sale of the common stock on the
date in question or the last price at which the common stock traded
is not listed, then the mean between the bid and asked price at the
close of the market on such day.
11. INDEMNIFICATION OF BOARD. In addition to and without affecting such
other rights of indemnification as they may have as members of the Board or
otherwise, each member of the Board shall be indemnified by the Company to the
extent legally possible against reasonable expenses, including attorneys' fees,
actually and reasonably incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which he may be
a party by reason of any action taken or failure to act under or in connection
with the Plan, or any option granted thereunder, and against all judgments,
fines and amounts paid by him in settlement thereof; provided that such payment
of amounts so indemnified is first approved by a majority of the members of the
Board who are not parties to such action, suit or proceeding, or by independent
legal counsel selected by the Company, in either case on the basis of a
determination that such member acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company; and
except that no indemnification shall be made in relation to matters as to which
it shall be adjudged in such action, suit or proceeding that such Board member
is liable for negligence or misconduct in his duties; and provided, further that
the Board member shall in writing offer the Company the opportunity, at its own
expense, to handle and defend the same.
12. AMENDMENTS. The Board may at any time discontinue granting awards
under the Plan. The Board may at any time or times amend the Plan or amend any
outstanding award or awards for the purpose of satisfying the requirements of
Section 422 of the Code or of any changes in applicable laws or regulations, to
comply with any applicable laws and requirements of foreign jurisdictions or for
any other purpose that may at the time be permitted by law, provided that no
such amendment will adversely affect the rights of any Participant (without his
consent) under any award theretofore granted.
13. NON-EMPLOYEE DIRECTORS. Notwithstanding anything to the contrary
contained elsewhere herein:
a. ELIGIBLE DIRECTORS AND GRANT. Each director of the Company who is not
a full-time employee of the Company or any of its subsidiaries and is
a director on April 8, 1992 shall be automatically granted on such
date non-incentive stock options covering 10,000 shares of common
stock and each non-employee director who is initially elected after
April 8, 1992
B-7
<PAGE>
and prior to February 20, 2002 shall be granted on the date of such
election non-incentive stock options covering 10,000 shares of common
stock (notwithstanding the two-for-one split of the common stock
effected on July 31, 1995), all such options to be exercisable with
respect to one-fifth of the covered shares one year from the date of
grant and with respect to an additional one-fifth each succeeding
year.
b. TERMS OF OPTIONS. The Final Exercise Date of options granted pursuant
to Section 13(a) hereof shall be 10 years from the date of grant. If
a director's service with the Company terminates for any reason other
than death, in lieu of the provisions of Section 6(g) hereof, all
options held by the director that are exercisable on the date of
termination shall continue to be exercisable for a period of six
months, but shall terminate immediately if the director was removed
for cause or resigned under circumstances which in the opinion of the
Board of Directors casts such discredit on the Company or him as to
justify termination of his options. After completion of said
six-month period, such options shall terminate to the extent not
previously exercised, expired or terminated. All options held by a
director that are not exercisable on the date such director's service
with the Company terminates shall immediately terminate. The purchase
price for shares of common stock issuable upon the exercise of
options granted pursuant to Section 13(a) hereof shall be the fair
market value of the common stock at the close of business on the date
the option is granted, determined in accordance with Section 10(b)
hereof; provided, however, that in no event shall the exercise price
be less than par value per share.
14. SPECIAL OPTION ADJUSTMENTS. Notwithstanding any other provision of the
Plan, each option outstanding under the Plan immediately prior to the
Distribution (an "affected option") shall be adjusted in accordance with Section
8.7 of the Distribution Agreement between the Company and DTI dated as of
November 19, 1996 (the "Distribution Agreement"). Except as otherwise provided
herein, the adjusted option shall have substantially the same terms as prior to
the Distribution. To the extent any such adjustment shall be treated as an
option grant for purposes of Section 8.7 of such Agreement, it shall be made in
accordance with the terms of said Section 8.7 and without regard to the
option-grant rules and limitations set forth in this Plan.]
B-8
<PAGE>
Exhibit 10.10
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
Agreement and Plan of Merger and Reorganization ("Agreement") is made
and entered into as of May 6, 1999, by and among Media 100, Inc., a Delaware
corporation ("Parent"); Media 100 Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("Merger Sub"); Terran Interactive, Inc., a
California corporation (the "Company"); the principal shareholders of the
Company listed on the signature page hereto (each a "Shareholder" and,
collectively, the "Shareholders"); and Dana LoPiccolo-Giles, as agent for the
shareholders of the Company (the "Agent"). Certain other capitalized terms used
in this Agreement are defined in Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger (the
"Merger") of the Company into Merger Sub in accordance with this Agreement and
the General Corporation Law of the State of California (the "CGCL") and the
Delaware General Corporation Law (the "DGCL"). Upon consummation of the Merger,
the Company will cease to exist, and the Merger Sub will remain a wholly-owned
subsidiary of Parent.
B. This Agreement has been approved by the respective boards of
directors of Parent, Merger Sub and the Company.
C. The Shareholders beneficially own a total of shares of the Common
Stock of the Company ("Company Common Stock") constituting seventy-two percent
(72%) of all of the outstanding Common Stock of the Company.
AGREEMENT
The parties to this Agreement agree as follows:
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), Company shall be merged with and into Merger Sub (the
"Merger"), the separate existence of Company shall cease and Merger Sub shall
be, and is herein sometimes referred to as, the "Surviving Corporation."
1.2 EFFECT OF THE MERGER. Upon the Effective Time, the separate
existence of Company shall cease and Merger Sub, as the Surviving Corporation
(i) shall continue to possess all of its assets, rights, powers and property as
constituted immediately prior to the Effective Time, (ii) shall be subject to
all actions previously taken by its and
<PAGE>
Company's Board of Directors, (iii) shall succeed, without other transfer, to
all of the assets, rights, powers and property of Company in the manner more
fully set forth in Section 259 of the DGCL, (iv) shall continue to be subject to
all of the debts, liabilities and obligations of Merger Sub as constituted
immediately prior to the Effective Date of the Merger, and (v) shall succeed,
without other transfer, to all of the debts, liabilities and obligations of
Company in the same manner as if Merger Sub had itself incurred them, all as
more fully provided under the applicable provisions of the DGCL and the CGCL.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Lucash, Gesmer & Updegrove, LLP, 40 Broad Street, Boston, Massachusetts 02109
at 10:00 a.m. on _________, 1999, or at such other time and date during the
period from May ___, 1999 through July ___, 1999 as Parent and the Company may
mutually agree (the "Scheduled Closing Time"). (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 certificate of merger conforming to the requirements of
Section 251 of the DGCL shall be filed with the Secretary of State of the State
of Delaware and a properly executed certificate of merger conforming to the
requirements of Section 1108 of the CGCL shall be filed with the Secretary of
State of the State of California. The Merger shall become effective at the time
such certificate of merger is filed with and accepted by the Secretary of State
of the State of Delaware and the Secretary of State of the State of California
(the "Effective Time").
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Unless otherwise determined by Parent and the Company prior to the Effective
Time:
(a) the Certificate of Incorporation of Merger Sub as in
effect immediately prior to the Effective Time shall continue in full force and
effect as the Certificate of Incorporation of the Surviving Corporation until
duly amended in accordance with the provisions thereof and applicable law;
(b) the Bylaws of Merger Sub as in effect immediately prior to
the Effective Time shall continue in full force and effect as the Bylaws of the
Surviving Corporation until duly amended in accordance with the provisions
thereof and applicable law; and
(c) the directors and officers of Merger Sub immediately prior
to the Effective Time shall be the directors and officers of the Surviving
Corporation until their successors shall have been duly elected and qualified or
until as otherwise provided by law, the Certificate of Incorporation of the
Surviving Corporation or the Bylaws of the Surviving Corporation.
1.5 CONSIDERATION. Subject to Section 1.8(c), at the Effective Time, by
virtue of the Merger and without any further action on the part of Parent,
Merger Sub, the Company or any shareholder of the Company:
<PAGE>
(i) each share of Company Common Stock outstanding
immediately prior to the Effective Time shall cease to be outstanding and shall
be converted into the right to receive an amount in cash equal to $1,850,000
divided by the number of shares of Company Common Stock outstanding at the
Effective Time.
(ii) each share of the common stock, par value $.01 per
share, of Merger Sub outstanding immediately prior to the Effective Time shall
remain outstanding and unchanged.
1.6 EARN-OUT. After the Effective Time, Parent will make the Earn-Out
Payments to the former shareholders of the Company in accordance with the terms
and conditions set forth on Exhibit B, which terms and conditions are hereby
incorporated herein by reference.
1.7 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 Surviving Corporation
or Parent, such Company Stock Certificate shall be canceled and shall be
exchanged as provided in Section 1.10.
1.8 CANCELLATION OF CERTIFICATES.
(a) At or as soon as practicable after the Effective Time, the
holders of Company Stock Certificates shall surrender their Company Stock
Certificates in exchange for the cash consideration set forth in Sections 1.5
and 1.6. Upon surrender of a Company Stock Certificate to Parent, together with
a duly executed letter of transmittal and such other documents as may be
reasonably required by Parent, the holder of such Company Stock Certificate
shall be entitled to receive in exchange therefor the cash consideration that
such holder has the right to receive pursuant to the provisions of Sections 1.5
and 1.6, and the Company Stock Certificate so surrendered shall be canceled.
Until surrendered as contemplated by this Section 1.8, each Company Stock
Certificate shall be deemed, from and after the Effective Time, to represent
only the right to receive upon such surrender the cash consideration as
contemplated by Sections 1.5 and 1.6. If any Company Stock Certificate shall
have been lost, stolen or destroyed, Parent may, in its discretion and as a
condition precedent to the payment of any cash consideration, require the owner
of such lost, stolen or destroyed Company Stock Certificate to provide an
appropriate affidavit and to deliver a bond (in such sum as Parent may
reasonably direct) as indemnity against any claim that may be made against
Parent or the Surviving Corporation with respect to such Company Stock
Certificate.
<PAGE>
(b) Parent and the Surviving Corporation shall be entitled to
deduct and withhold from the consideration payable or otherwise deliverable to
any holder or former holder of capital stock of the Company pursuant to this
Agreement such amounts as Parent 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, and delivered to the applicable state, local or foreign tax
authorities, 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.
(c) Neither Parent nor the Surviving Corporation shall be
liable to any holder or former holder of capital stock of the Company for any
cash amounts delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
1.9 FURTHER ACTION. If, at any time after the Effective Time, any
further action is determined by Parent to be necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving Corporation or Parent
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 Parent shall be fully authorized (in the name of Merger Sub, in
the name of the Company and otherwise) to take such action.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants, to and for the benefit of the
Indemnitees, and except as set forth on the Disclosure Schedule attached hereto,
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 Company 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 "Terran Interactive,
Inc.".
(c) The Company is qualified to do business as a foreign
corporation in any jurisdiction in which it is required to be qualified to do
intrastate business as the Company's business is currently conducted, except
where the failure to be so qualified has not had and will not have a Material
Adverse Effect on the Company.
(d) Part 2.1 of the Disclosure Schedule accurately sets forth
(i) the
<PAGE>
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 has never owned, 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.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to Parent 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 Certificate 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
100,000 shares of Common Stock, of which 10,040 shares have been issued and are
outstanding as of the date of this Agreement. All of the outstanding shares of
Company Common Stock have been duly authorized and validly issued, and are fully
paid and non-assessable. No shares of the Company's equity securities are
subject to any repurchase option which is held by the Company.
(b) The Company does not have a stock option plan or equity
incentive plan. There is no: (i) outstanding subscription, option, 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) to the
best of the knowledge of the Company, any 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
<PAGE>
entitled to acquire or receive any shares of capital stock or other securities
of the Company.
(c) All outstanding shares of Company Common Stock 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 CGCL and all other applicable Legal
Requirements, and (ii) all requirements set forth in applicable Contracts.
2.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent the following
financial statements and notes (collectively, the "Company Financial
Statements"):
(i) The audited balance sheet of the Company as of
December 31, 1998 and the related audited income statements, statements of
shareholders' equity and statements of cash flows of the Company for the year
then ended, together with the notes thereto and the unqualified report and
opinion of Stonefield Josephson Accountancy relating thereto;
(ii) The unaudited balance sheet of the Company as of
December 31, 1997 and the related unaudited statement of profit and loss of the
Company for the year then ended; and
(iii) the unaudited balance sheet of the Company (the
"Interim Balance Sheet") as of March 31, 1999 (the "Statement Date"), and the
related unaudited income statement of the Company for the period then ended.
(b) The audited Company Financial Statements (i) are in
accordance with the books and records of the Company, (ii) 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
cash flows of the Company for the periods covered thereby and (iii) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered. The unaudited Company
Financial Statements. The unaudited Company Financial Statements (i) are in
accordance with the books and records of the Company and (ii) 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
cash flows of the Company for the periods covered thereby.
2.5 ABSENCE OF CHANGES. Since the Statement Date:
<PAGE>
(a) there has not been any material adverse change in the
Company's business, condition, assets, liabilities, operations, financial
performance or prospects, and, to the best of the knowledge of the Company, 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, (ii) any option or right to
acquire any capital stock or any other security, or (iii) any instrument
convertible into or exchangeable for any capital stock or other security;
(e) 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;
(f) the Company has not formed any subsidiary or acquired any
equity interest or other interest in any other Entity;
(g) the Company has not made any capital expenditure which,
when added to all other capital expenditures made on behalf of the Company since
the Statement Date, exceeds $25,000;
(h) 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;
(i) 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;
(j) the Company has not written off as uncollectible, or
established any extraordinary reserve with respect to, any account receivable or
other indebtedness which is material in amount;
<PAGE>
(k) 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;
(l) 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 other than in the ordinary course of business, consistent with
past practice;
(m) 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;
(n) the Company has not changed any of its methods of
accounting or accounting practices in any respect;
(o) the Company has not made any Tax election;
(p) the Company has not commenced or settled any Legal
Proceeding;
(q) 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
(r) the Company has not agreed or committed to take any of the
actions referred to in clauses (c) through (q) above.
2.6 TITLE TO ASSETS.
(a) The Company owns, and has good, valid and marketable title
to, all material assets purported to be owned by it, including: (i) all material
assets reflected on the Interim Balance Sheet; (ii) all material assets referred
to in the Disclosure Schedule including all of the Company's rights under the
Contracts identified in Part 2.10 of the Disclosure Schedule; and (iii) all
other material assets reflected in the Company's books and records as being
owned by the Company. All of said material 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) Part 2.6 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
<PAGE>
Company.
2.7 BANK ACCOUNTS; RECEIVABLES.
(a) Part 2.7(a) of the Disclosure Schedule provides accurate
information (as of the dates and times set forth therein) with respect to each
account maintained by or for the benefit of the Company at any bank or other
financial institution.
(b) Part 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 the Statement Date. All
existing accounts receivable of the Company (including those accounts receivable
reflected on the Interim Balance Sheet that have not yet been collected and
those accounts receivable that have arisen since the Statement Date and have not
yet been collected) (i) represent valid obligations of customers of the Company
arising from bona fide transactions entered into in the ordinary course of
business, (ii) are current and to the Company's knowledge will be collected in
full when due, 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 interests identified in Part 2.10 of
the Disclosure Schedule.
2.9 PROPRIETARY ASSETS.
(a) Part 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. Part
2.9(a)(ii) of the Disclosure Schedule identifies and provides a brief
description of all unregistered trademarks, service marks and copyrighted
materials owned by the Company. Part 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. The Company
has good, valid and marketable title to all of the Company Proprietary Assets,
other than those identified in Part 2.9(a)(iii) of the Disclosure Schedule, free
and clear of all liens and other Encumbrances, and has a valid right to use all
Proprietary Assets identified in Part 2.9(a)(iii) of the
<PAGE>
Disclosure Schedule. The Company is not obligated to make any payment to any
Person for the use of any Company Proprietary Asset. The Company has not
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 commercially reasonable measures
and precautions necessary 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. The Company has not
(other than pursuant to license agreements or nondisclosure agreements
identified in Part 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) None of the Company Proprietary Assets is infringing, or
at any time has infringed, on any copyright (whether registered or unregistered)
of any other Person. To the best of the Company's knowledge, none of the Company
Proprietary Assets is infringing, or at any time has infringed, any United
States patent rights of any other Person. The Company has not at any time
received any notice or other written communication of any actual or alleged
infringement of any United States patent rights of any other Person by any of
the Company Proprietary Assets. The Company has not misappropriated any trade
secrets of any other Person. To the best of the knowledge of the Company, 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) (i) Each Company Proprietary Asset conforms in all
material respects with any specification, documentation, performance standard,
representation or statement made or provided with respect thereto by or on
behalf of the Company; and (ii) 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 best of the knowledge of
the Company, there is no basis for any such claim. The Company has established
adequate reserves on the audited balance sheet of the Company as of December 31,
1998 to cover all costs associated with any obligations that the Company may
have with respect to the correction or repair of programming errors or other
defects in the Company Proprietary Assets.
(e) The Company Proprietary Assets constitute all the
Proprietary
<PAGE>
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been and is being conducted. (i) The Company has not
licensed any of the Company Proprietary Assets to any Person on an exclusive
basis, and (ii) the Company has not 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) (i) All current and former employees of the Company have
executed and delivered to the Company an agreement that is substantially
identical to the form of Confidential Information and Invention Assignment
Agreement previously delivered to Parent, and (ii) all current and former
consultants and independent contractors to the Company have executed and
delivered to the Company an agreement that is substantially identical to the
form of Consultant Confidential Information and Invention Assignment Agreement
previously delivered to Parent.
2.10 CONTRACTS.
(a) Part 2.10 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;
<PAGE>
(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;
(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 Parent accurate and complete
copies of all written Contracts identified in Part 2.10 of the Disclosure
Schedule, including all amendments thereto. Part 2.10 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 Part 2.10 of the Disclosure
Schedule is valid and in full force and effect, and, to the best of the
knowledge of the Company, 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 Part 2.10 of the Disclosure
Schedule:
(i) the Company has not violated or breached, or
committed any material default under, any Company Contract, and, to the best of
the knowledge of the Company, no other Person has violated or breached, or
committed any material default under, any Company Contract;
(ii) to the best of the knowledge of the Company, no
event has occurred, and no circumstance or condition exists, that (with or
without notice or lapse of time) will, or could reasonably be expected to, (A)
result in a material violation or breach of any of the provisions of any Company
Contract, (B) give any Person the right to declare a default or exercise any
remedy under any Company Contract, (C) give any Person the right to accelerate
the maturity or performance of any Company Contract, or (D) give any Person the
right to cancel, terminate or modify any Company Contract;
<PAGE>
(iii) since inception, the Company has not received any
notice or other communication regarding any actual or possible material
violation or breach of, or default under, any Company Contract; and
(iv) the Company has not waived any of its material
rights under any Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the
terms of any Company 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.
(e) The Contracts identified in Part 2.10 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) Part 2.10 of the Disclosure Schedule identifies and
provides a brief description of 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 since January 1, 1999.
(g) Part 2.10 of the Disclosure Schedule provides an accurate
description and breakdown of the Company's backlog under Company Contracts.
2.11 LIABILITIES. The Company has no accrued, contingent or other
material 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 Interim
Balance Sheet; (b) accounts payable, accrued salaries or other liabilities that
have been incurred by the Company since the Statement Date in the ordinary
course of business and consistent with the Company's past practices; (c)
liabilities under the Company Contracts identified in Part 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 Part 2.11 of the Disclosure
Schedule.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
times since inception 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. Since
inception, 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. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by the Company, and the
Company has delivered to Parent accurate and complete copies of all Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. The
Governmental
<PAGE>
Authorizations identified in Part 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. The Company is, and
at all times since inception has been, in substantial compliance with the terms
and requirements of the respective Governmental Authorizations identified in
Part 2.13 of the Disclosure Schedule. Since inception, 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 which would have a Material Adverse Effect.
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 Parent accurate and complete copies of all Company
Returns filed since inception.
(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 the Statement Date through the Closing Date, and the Company will
disclose the dollar amount of such reserves to Parent on or prior to the Closing
Date.
(c) No Company Return relating to income Taxes has ever been
examined or audited by any Governmental Body. There have been no examinations or
audits of any Company Return. The Company has delivered to Parent 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
<PAGE>
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 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) 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 of the
Code. The Company is not, and has never been, a party to or bound by any tax
indemnity agreement, tax sharing agreement, tax allocation agreement or similar
Contract.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Disclosure Schedule identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
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 $10,000 in the aggregate.
(b) The Company does not maintain, sponsor or contribute to,
and, to the best of the knowledge of the Company, 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 Part 2.15(c) of the Disclosure Schedule (the "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
Parent:
<PAGE>
(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;
(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 the most recent financial statements thereof;
(v) accurate and complete copies of all 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, to the best of the
knowledge of the Company, 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 best of the knowledge of the Company, 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).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.
(f) 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 Section
4980B of the Code, (ii) deferred compensation benefits accrued as liabilities on
the Interim Balance Sheet, and (iii) benefits the full cost of which are borne
by current or former Employees (or the Employees' beneficiaries)).
<PAGE>
(g) 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 in all
material respects.
(h) 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.
(i) Each of the Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination from the Internal
Revenue Service, and the Company is not aware of any reason why any such
determination letter should be revoked.
(j) 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.
(k) Part 2.15(k) 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.
(l) Part 2.15(l) of the Disclosure Schedule identifies each
Employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date of
return to full service.
(m) 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.
(n) The Company has no reason to believe that the consummation
of the Merger or any of the other transactions contemplated by this Agreement
will have a material adverse effect on the Company's labor relations. To the
Company's knowledge, none of the Company's employees intends to terminate his or
her employment with the Company.
2.16 ENVIRONMENTAL MATTERS. The Company is in compliance in all
material respects with all applicable Environmental Laws, which compliance
includes the
<PAGE>
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 written
communication, 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 best of the knowledge of the Company, there are
no circumstances that may prevent or interfere with the Company's compliance
with any Environmental Law in the future. To the best of the knowledge of the
Company, no current or prior owner of any property leased or controlled by the
Company has received any notice or other written communication, 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. All Governmental Authorizations currently held by the Company
pursuant to Environmental Laws are identified in Part 2.16 of the Disclosure
Schedule. (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. Part 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 Parent accurate and complete summaries of the insurance policies
identified on Part 2.17 of the Disclosure Schedule. Each of the insurance
policies identified in Part 2.17 of the Disclosure Schedule is in full force and
effect. Since inception, 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. (a) No Related Party has, and no
Related Party has at any time since inception 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 inception been,
indebted to the Company; (c) since inception, 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 inception competed, directly or indirectly,
with the Company; and (e) no Related Party has any claim or right against the
Company (other than rights to receive compensation for services performed as an
<PAGE>
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 Shareholders;
(ii) each individual who is, or who has at any time since inception 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
controlling voting, proprietary or equity interest.
2.19 LEGAL PROCEEDINGS; ORDERS.
(a) There is no pending Legal Proceeding, and (to the best of
the knowledge of the Company) no Person has threatened to commence any Legal
Proceeding: (i) that involves the Company or any of the material 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 best of the knowledge of the Company, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that could reasonably be expected to, give rise to or
serve as a basis for the commencement of any such Legal Proceeding.
(b) 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 material assets owned or used by the Company,
is subject. None of the shareholders of the Company is subject to any order,
writ, injunction, judgment or decree that relates to the Company's business or
to any of the assets owned or used by the Company. To the best of the knowledge
of the Company, 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. Neither (1) the execution, delivery
or performance of this Agreement or any other agreement to which Company is or
will be a
<PAGE>
party that are required to be executed pursuant to this Agreement ("Company
Ancillary 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):
(a) contravene, conflict with or result in a violation of (i)
any of the provisions of the Company's Articles of Incorporation or bylaws then
in effect, 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 then in effect;
(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 material 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 material assets owned or used by the Company
if such action would have a Material Adverse Effect;
(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 if such action would have a Material Adverse Effect; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any material 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).
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 Company Ancillary
Agreement, or (y) the consummation of the Merger or any of the other
transactions contemplated by this Agreement except for the filing of the merger
certificate with the Delaware Secretary of State and California Secretary of
State pursuant to Section 1.3 hereof and appropriate documents with the relevant
authorities of other states in which Company is qualified to do business.
2.22 FULL DISCLOSURE. This Agreement (including the Disclosure
Schedule)
<PAGE>
does not, and the Closing Certificate will not to the best of the Company's
knowledge, (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.
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.
Parent and Merger Sub jointly and severally represent and
warrant to the Company and the Shareholders as follows:
3.1 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the absolute and unrestricted right, power and authority to perform their
obligations under this Agreement; and the execution, delivery and performance by
Parent and Merger Sub of this Agreement have been duly authorized by all
necessary action on the part of Parent and Merger Sub and their respective
boards of directors. No vote of Parent's shareholders is needed to approve the
Merger. This Agreement constitutes the legal, valid and binding obligation of
Parent and Merger Sub, enforceable against each of 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.
3.2 ORGANIZATION AND STANDING. Each of the Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has all requisite corporate power and authority to
own, operate and lease its properties and carry on its business as now
conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to so qualify
would have a material adverse effect on the business, properties, prospects,
condition (financial or otherwise) or results in operations of Parent or Merger
Sub.
3.3 AUTHORITY, APPROVAL AND ENFORCEABILITY.
(a) The execution and delivery by each of Parent and Merger
Sub, as the case may be, of this Agreement does not, and the performance and
consummation of the transactions contemplated by this Agreement will not, result
in or give rise to (with or without the giving of notice or the lapse of time,
or both) any conflict with, breach or violation of, or default, termination,
forfeiture or acceleration of obligations under, any terms or provisions of its
(i) Certificate of Incorporation or Bylaws then in effect, as the case may be,
(ii) to the best of Parent's knowledge, any statute, rule, regulation or any
judicial, governmental, regulatory or administrative decree, order or judgment
applicable to them, or (iii) any material agreement, lease or other instrument
to which its is a party or to which it or any of its assets may be bound and
which has been or will be filed as an exhibit to any of the registration
statements or reports filed with the SEC by Parent.
<PAGE>
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental entity is required by
or with respect to Parent or Merger Sub in connection with the execution and
delivery of this Agreement or the consummation by Parent or Merger Sub of the
transactions contemplated hereby or thereby, except for the filing of the merger
certificate with the Delaware Secretary of State and the California Secretary of
State pursuant to Section 1.3 hereof and appropriate documents with the relevant
authorities of other states in which Parent and Merger Sub are qualified to do
business.
(c) This Agreement is a legal, valid and binding obligation of
Parent and/or Merger Sub, enforceable against them in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and subject to general equitable principles.
3.4 COMPLIANCE WITH OTHER INSTRUMENTS. Neither Parent nor Merger Sub is
in violation of any term of its Certificate of Incorporation or Bylaws, or in
any material respect of any agreement which has been or will be filed as an
exhibit to any registration statements or reports filed with the SEC by Parent,
and to the best of its knowledge, is not in violation of any order, statute,
rule or regulation applicable to it. To the best of Parent's knowledge, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not conflict with or result in any
violation of any material statute, law, rule, regulation, judgment, order,
decree or ordinance applicable to Parent or Merger Sub or their respective
properties or assets. The execution and delivery of this Agreement and
consummation of the transactions contemplated hereby will not conflict with or
result in any breach or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit, under (i) any
provision of the Certificate of Incorporation or Bylaws of Parent or Merger Sub
or (ii) any material agreement, contract, note, mortgage, indenture, lease,
instrument, permit, concession, franchise or license to which Parent or Merger
Sub is a party or by which Parent or Merger Sub or their respective properties
or assets may be bound or affected and which has been or will be filed as an
exhibit to any registration statement or report filed with the SEC by Parent.
3.5 PARENT STOCK OPTION PLAN. Parent's Key Employee Incentive Plan
(1992), under which certain Employees who accept employment with Parent or
Surviving Corporation may be issued stock options, has been duly authorized and
adopted by all necessary action on the part of Parent's board of directors and
stockholders and the securities of Parent reserved for issuance thereunder have
been duly registered or qualified for issuance in accordance with all applicable
federal and state securities laws (or available exemptions therefrom) and will
be issued in compliance with all applicable federal and state securities laws
(or available exemption therefrom).
4. CERTAIN COVENANTS OF THE COMPANY AND PARENT
<PAGE>
4.1 ACCESS AND INVESTIGATION. 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 Parent and Parent'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 Parent and Parent'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 Parent may reasonably request.
4.2 OPERATION OF THE COMPANY'S BUSINESS. Unless permitted by Parent,
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 Part 2.17 of the Disclosure Schedule or procure
substantial similar policies;
(d) the Company shall cause its officers to report regularly
(but in no event less frequently than weekly) to Parent 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;
(f) 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;
(g) the Company shall not amend the Company's Certificate of
Incorporation or bylaws, or become a party to any Acquisition Transaction;
(h) the Company shall not form any subsidiary or acquire any
equity interest or other interest in any other Entity;
<PAGE>
(i) 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 on average exceed
$20,000 per month;
(j) the Company shall not (i) enter into, or permit any of the
material assets owned or used by it to become bound by, any Encumbrance, or (ii)
amend or prematurely terminate, or waive any material right or remedy under, any
Material Contract;
(k) the Company shall not: (1) except in the ordinary course
of business consistent with past practice (i) acquire, lease or license any
right or other asset from any other Person (except as otherwise required under
this Agreement), (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 or (2) enter into
any transaction material to the business or assets of the Company;
(l) 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;
(m) the Company shall not (i) establish, adopt or amend any
Employee Benefit Plan, (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 (except
under the acquisition bonus program described in Part 2.15(j) of the Disclosure
Schedule), or (iii) hire any new employee whose aggregate annual compensation is
expected to exceed $50,000 (other than Ben Wagonner, a resident of Oregon, who
has been extended an offer of employment by the Company as of the date hereof);
(n) the Company shall not change any of its methods of
accounting or accounting practices in any material respect;
(o) the Company shall not make any Tax election;
(p) the Company shall not commence or settle any material
Legal Proceeding;
(q) the Company shall not agree or commit to take any of the
actions described in clauses "(e)" through "(p)" above.
4.3 NOTIFICATION. During the Pre-Closing Period, the Company shall
promptly notify Parent in writing of:
<PAGE>
(a) the discovery by the Company of any material 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 a
material breach of any representation or warranty made by the Company in this
Agreement;
(b) any material event, condition or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute a material inaccuracy in or a material breach of any representation
or warranty made by the Company in this Agreement if such representation or
warranty had been made as of the time of the occurrence or existence of such
event, condition or circumstance;
(c) any breach of any covenant or obligation of the Company;
(d) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 5 or
Section 6 impossible or unlikely; and
(e) any material change in the business, financial condition,
properties or prospects of the Company.
4.4 NO NEGOTIATION. During the Pre-Closing Period, neither the Company,
nor any of the Shareholders shall, directly or indirectly:
(a) solicit or encourage the initiation of any inquiry,
proposal or offer from any Person (other than Parent) 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 Parent) 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 Parent) relating to a possible Acquisition Transaction.
(d) The Company shall promptly notify Parent 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 Shareholders,
officers, directors, employees or agents during the Pre-Closing Period.
4.5 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, (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, (c) in the
case of the Company, use commercially reasonable efforts to otherwise satisfy
<PAGE>
the conditions specified in Section 6 of this Agreement, and (d) in the case of
the Parent and Merger Sub, use commercially reasonable efforts to otherwise
satisfy the conditions specified in Section 5 of this Agreement. Each party
shall (upon request) promptly deliver to Parent the other a copy of each such
filing made, each such notice given and each such Consent obtained during the
Pre-Closing Period.
4.6 PROPRIETARY INFORMATION AGREEMENTS. At or prior to the Closing,
each of the Employees shall execute and deliver to the Company and Parent a
Proprietary Information Agreement in the Company's standard form.
4.7 PUBLIC ANNOUNCEMENTS. During the Pre-Closing period, (a) neither
Parent nor Company shall issue any press release or make any public statement
regarding this Merger or the Agreement, or any of the other transactions
contemplated by this Agreement without the prior written consent of the other.
4.8 INDEMNIFICATION. From and after the effective time of the Merger,
Parent agrees to indemnify and hold harmless each current and former director
and officer of the Company against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of matters existing or occurring at or prior to the effective time, asserted
or claimed after the effective time, to the fullest extent that the Company
would have been permitted under its articles of incorporation or bylaws as in
effect on the date hereof to indemnify such person (and in connection therewith
Parent shall advance expenses as incurred to the fullest extent provided for
under Parent's certificate of incorporation and bylaws as from time to time in
effect, provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification); provided, however, that this
provision shall not apply to any matter that relates to a breach of
representation or warranty herein by the Company. The Company represents that
there is no current basis for any indemnity claim under this Section 4.8, except
as set out in Part 4.8 of the Disclosure Schedule.
4.9 GRANT OF OPTIONS. As soon as reasonably practicable after the
effective time of the Merger, Parent shall, subject to approval of its board of
directors, grant options to purchase an aggregate of 250,000 shares of Parent's
common stock under Parent's Key Employee Incentive Plan (1992) to those
employees of the Company that accept employment with Parent or Surviving
Corporation.
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent 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:
<PAGE>
5.1 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 Parent 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.
5.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
the Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all respects.
5.3 SHAREHOLDER APPROVAL. The principal terms of the Merger shall have
been duly approved by the affirmative vote of at least 95% of the shares of
Company Common Stock entitled to vote with respect thereto.
5.4 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 Part 2.21 of the Disclosure Schedule) shall have been
obtained and shall be in full force and effect.
5.5 AGREEMENTS AND DOCUMENTS. Parent shall have received the following
agreements and documents, each of which shall be in full force and effect:
(a) General Release Agreements in the form attached hereto as
Exhibit C, executed by each of the Shareholders and each employee of the
Company;
(b) Proprietary Information Agreements in the form attached
hereto as Exhibit D-1, executed by the Employees;
(c) Noncompetition Agreement in the form attached hereto as
Exhibit D-2, executed by each of Dana LoPiccolo-Giles, Darren Giles and John
Geyer (collectively, the "Key Employees");
(d) a legal opinion of Fenwick & West LLP dated as of the
Closing Date, in the form of Exhibit E;
(e) Voting Agreements in the form attached hereto as Exhibit
F, executed by each of the Key Employees.
(g) a certificate executed by the Company stating that the
conditions set forth in this Section 5 have been duly satisfied in all material
respects (the "Closing Certificate"); and
(h) written resignations of all directors of the Company,
effective as of the Effective Time.
<PAGE>
5.6 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. No
action shall have been taken, and no statute, rule, regulation or order shall
have been enacted, promulgated or issued or deemed applicable to the Merger by
any governmental entity which would (i) make the consummation of the Merger
illegal; (ii) prohibit Parent's or the Company's ownership or operation of all
or a material portion of the business or assets of Parent or the Company, or
compel Parent or the Company to dispose of or hold separate all or a material
portion of the business or assets of the Company or Parent as a result of the
Merger or (iii) render Parent, Merger Sub or the Company unable to consummate
the Merger, except for any waiting provisions.
5.7 NO LEGAL PROCEEDINGS. 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 Parent of any material right pertaining to its
ownership of stock of the Surviving Corporation.
5.8 DUE DILIGENCE. Parent shall have completed business, technical,
legal and financial due diligence on the Company and its products and the
results of such due diligence shall be acceptable to Parent.
5.9 INTELLECTUAL PROPERTY ASSIGNMENTS. All current and former
employees, consultants and independent contractors of the Company identified by
Parent prior to the Effective Time (including those involved in the creation or
development of intellectual property) to assign to the Company all rights to
intellectual property related to the Company's business if such intellectual
property rights were not previously assigned to the Company to Parent's
satisfaction.
5.10 EMPLOYEES.
(a) Each Key Employee shall have agreed to become a full-time
employee of the Company or Parent.
(b) The number of persons employed by the Company at the
Effective Time shall not exceed 29.
6. 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:
6.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties
<PAGE>
made by Parent and Merger Sub in 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.
6.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent 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.
6.3 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. TERMINATION
7.1 TERMINATION EVENTS.
(A) This Agreement may be terminated prior to the Closing:
(1) by Parent if:
(A) Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 5 has become impossible
(other than as a result of any failure on the part of Parent or Merger Sub to
comply with or perform any covenant or obligation of Parent or Merger Sub set
forth in this Agreement);
(B) the Closing has not taken place on or before July
1, 1999 (other than as a result of any failure on the part of Parent to comply
with or perform any covenant or obligation of Parent set forth in this
Agreement); or
(C) any of the Key Employees ceases to be employed
full-time by the Company.
(2) by the Company if:
(A) the Company 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 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 Parent), or
(B) the Closing has not taken place on or before July
1, 1999 (other than as a result of the failure on the part of the Company or any
of the Shareholders to comply with or perform any covenant or obligation set
forth in this Agreement).
<PAGE>
(b) This Agreement may be terminated prior to the Closing by
the mutual consent of Parent and the Company. This Agreement may be terminated
after the Closing by the mutual consent of Parent and Agent.
7.2 TERMINATION PROCEDURES. If Parent wishes to terminate this
Agreement pursuant to Section 7.1(a), Parent shall deliver to the Company a
written notice stating that Parent is terminating this Agreement and setting
forth a brief description of the basis on which Parent is terminating this
Agreement. If the Company wishes to terminate this Agreement pursuant to Section
7.1(b), the Company shall deliver to Parent 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.
7.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 7.1, all representations and warranties of the parties hereto shall
expire and all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) neither the Company nor Parent shall be
relieved of any obligation or liability arising from any prior 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 9.6; and (c) the parties shall, in all events, remain bound by and
continue to be subject to Section 4.7. All fees and expenses incurred in
connection with the Merger, this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated.
8. INDEMNIFICATION, ETC.
8.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) The representations and warranties made by the Company
(including the representations and warranties set forth in Section 2) (as
modified by the Disclosure Schedule) shall survive the Closing and shall expire
on the third anniversary of the Closing Date; provided, however, that if, at any
time prior to the third anniversary of the Closing Date, as applicable, any
Indemnitee (acting in good faith) delivers to the Agent a written notice
alleging the existence of an inaccuracy in or a breach of any of the
representations and warranties made by the Company (and setting forth in
reasonable detail the basis for such Indemnitee's belief that such an inaccuracy
or breach may exist) and asserting a claim for recovery under Section 8.2 based
on such alleged inaccuracy or breach, then the claim asserted in such notice
shall survive until such time as such claim is fully and finally resolved. All
representations and warranties made by Parent and Merger Sub shall terminate and
expire as of the Effective Time, and any liability of Parent 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 Shareholders, 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
<PAGE>
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 shall be deemed to be a
representation and warranty made by the Company in this Agreement.
8.2 INDEMNIFICATION BY SHAREHOLDERS.
(a) From and after the Effective Time, the Shareholders,
jointly and severally, shall hold harmless and indemnify each of the Indemnitees
from and against, and shall compensate and reimburse each of the Indemnitees
for, any Damages which 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, or are directly or indirectly connected
with: (i) any inaccuracy in or breach of any representation or warranty set
forth in Section 2; or (ii) any breach of any covenant or obligation of the
Company set forth herein (including the covenants set forth in Section 4).
(b) The Shareholders acknowledge and agree 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) Parent 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.
8.3 NO CONTRIBUTION. Each Shareholder waives, and acknowledges and
agrees that he shall not have and shall not exercise or assert (or attempt to
exercise or assert), any right of contribution, right of indemnity or other
right or remedy against the Surviving Corporation in connection with any
indemnification obligation or any other liability to which he may become subject
under or in connection with this Agreement or the Closing Certificate.
8.4 LIMITATIONS ON INDEMNIFICATION. Notwithstanding the foregoing: (i)
no Shareholder shall be obligated to provide indemnification under this Section
8 unless and until the aggregate Damages for which one or more Indemnitees seeks
indemnification hereunder exceeds an aggregate of one hundred thousand dollars
($100,000) (the "Basket"), in which event the Shareholders shall be liable to
indemnify the Indemnitees for all Damages, including any Damages within the
Basket; and (ii) except as set forth in the following sentence, in no event
shall the Shareholders as a group be obligated to provide indemnification under
this Section 8 in excess of the aggregate cash consideration received by all
Shareholders from Parent pursuant to Sections 1.5 and 1.6 hereof.
Notwithstanding anything to the contrary in this Agreement, shall be no limit on
the amount of indemnifiable Losses that may be recovered from any Shareholder in
the
<PAGE>
event that the breach of the representation, warranty or covenant that gave rise
to such Damages resulted from or arose out of (i) fraud on the part of such
Shareholder or (ii) a knowing violation of Section 2.3, 2.9(c), 2.14 or 2.16.
8.5 INTEREST. Any Shareholder who is required to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section 8
with respect to any Damages shall also be liable to such Indemnitee for interest
on the amount of such Damages (for the period commencing as of the date on which
such Shareholder first received notice of a claim for recovery by such
Indemnitee and ending on the date on which the liability of such Shareholder to
such Indemnitee is fully satisfied by such Shareholder) at a floating rate equal
to the rate of interest publicly announced by Bank of America, N.T. & S.A. from
time to time as its prime, base or reference rate.
8.6 DEFENSE OF THIRD PARTY CLAIMS.
(a) In the event of the assertion or commencement by any
Person of any claim or Legal Proceeding (whether against the Surviving
Corporation, against Parent or against any other Person) with respect to which
any of the Shareholders are obligated to hold harmless, indemnify, compensate or
reimburse any Indemnitee pursuant to this Section 8 (a "Third Party Claim"),
Agent will have the right, at the sole cost and expense of the Stockholders, to
defend the Indemnitee against the Third Party Claim with counsel of Agent's
choice that is reasonably satisfactory to the Indemnitee so long as (i) Agent
notifies the Indemnitee in writing within ten (10) days after the Indemnitee has
given notice of the Third Party Claim that Agent intends to undertake such
defense, (ii) Agent provides the Indemnitee with evidence reasonably acceptable
to the Indemnitee that Agent will have the financial resources to defend against
the Third Party Claim and fulfill the Stockholders' indemnification obligations
hereunder, (iii) Agent conducts the defense of the Third Party Claim actively
and diligently; and (iv) the counsel chosen by Agent does not have any conflict
of interest in representing the interests of the Indemnitee.
(b) So long as Agent is conducting the defense of the Third
Party Claim in accordance with Section 8.5(a) above, (i) the Indemnitee may
retain separate co-counsel and participate in the defense of the Third Party
Claim at its own cost and expense (except as provided below) and shall have the
right to receive copies of all pleadings, notices and communications with
respect to the Third Party Claim to the extent no privilege is thereby waived,
(ii) the Indemnitee may participate in settlement negotiations with respect to
the Third Party Claim, and (iii) Agent will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
unless (A) each affected Indemnitee consents thereto in writing (which consent
will not unreasonably be withheld) or (B) the settlement, compromise or consent
includes an unconditional release from all liability with respect to the claim
in favor of each affected Indemnitee.
(c) If Agent does not elect to assume control of or otherwise
participate in the defense or settlement of any Third Party Claim, or if Agent
does so elect
<PAGE>
but any of the conditions in Section 8.5(a) above is or becomes unsatisfied,
then, (i) the Indemnitee may defend against and consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim,
PROVIDED, HOWEVER, that Agent (A) shall have the right to receive copies of all
pleadings, notices and communications with respect to the Third Party Claim so
long as the receipt of such documents by the Agent does not affect any
attorney-client privilege relating to the Indemnitee, and (B) may participate in
settlement negotiations with respect to the Third Party Claim and the Indemnitee
shall not enter into any settlement without the prior written consent of Agent
(which consent shall not be unreasonably withheld), and (ii) Agent will (on
behalf of the Stockholders) reimburse the Indemnitee promptly and periodically
for all costs and expenses incurred in defending against the Third Party Claim
(including without limitation reasonable attorneys' and experts' fees and
expenses and court and arbitration costs).
No delay on the part of an Indemnitee in giving a Stockholder
notice of a Third Party Claim shall relieve such Stockholder from any obligation
hereunder unless (and then solely to the extent) that the Stockholder is
prejudiced thereby.
8.7 OFFSET AGAINST UNPAID AMOUNTS. If, prior to the time that any
Earn-Out Payment under Section 1.6 hereof is to be delivered, the Company has
breached any of its representations, warranties, covenants or agreements
contained in this Agreement, Parent shall first deduct from the amount of such
payment otherwise deliverable an amount equal to the aggregate amount of Damages
which are directly or indirectly suffered or incurred by any of the Indemnitees
as a result of such breach prior to seeking indemnification from any of the
Shareholders pursuant to this Section 8. Notwithstanding the foregoing, if, in
the reasonable, good faith judgment of Parent the amount of any Earn-Out Payment
under Section 1.6 that will become due and payable to the shareholders of the
Company according to the terms set forth in Exhibit B will be insufficient to
reimburse Parent for the amount of Damages, then Parent need not wait till the
scheduled time of such payment before seeking indemnification from any of the
Shareholders pursuant to this Section 8.
8.8 TREATMENT AS ADJUSTMENT OF PURCHASE PRICE. Any indemnity payment
received by a party hereunder shall be treated as an adjustment of the purchase
price.
8.9 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT. No
Indemnitee (other than Parent or any successor thereto or assign thereof) shall
be permitted to assert any indemnification claim or exercise any other remedy
under this Agreement unless Parent (or any successor thereto or assign thereof)
shall have consented to the assertion of such indemnification claim or the
exercise of such other remedy.
9. MISCELLANEOUS PROVISIONS
9.1 AGENT. By their approval of this Agreement at a Shareholders
Meeting or by written consent (or, with respect to holders of options or
warrants, by acknowledging their obligations as Shareholders under this
Agreement), the Shareholders will thereby
<PAGE>
irrevocably appoint Dana LoPiccolo-Giles as their agent for purposes of Section
8 (the "Agent"), and Dana LoPiccolo-Giles hereby accepts his appointment as the
Agent for purposes of Section 8. Parent shall be entitled to deal exclusively
with the Agent on all matters relating to Section 8, and shall be entitled to
rely conclusively (without further evidence of any kind whatsoever) on any
document executed or purported to be executed on behalf of any Shareholder by
the Agent, and on any other action taken or purported to be taken on behalf of
any Shareholder by the Agent, as fully binding upon such Shareholder. If the
Agent shall die, become disabled or otherwise be unable to fulfill his
responsibilities as agent of the Shareholders, then the Shareholders shall,
within ten days after such death or disability, appoint a successor agent and,
promptly thereafter, shall notify Parent of the identity of such successor. Any
such successor shall become the "Agent" for purposes of Section 8 and this
Section 9.1. If for any reason there is no Agent at any time, all references
herein to the Agent shall be deemed to refer to the Shareholders.
9.2 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.
9.3 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 Parent and its Representatives with
respect to the Company's business (and the furnishing of information to Parent
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 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; PROVIDED, HOWEVER, that, to the extent the
total amount of all such fees, costs and expenses incurred by or for the benefit
of the Company (including all such fees, costs and expenses incurred prior to
the date of this Agreement and including the amount of all special bonuses and
other amounts that may become payable to any officers of the Company or other
Persons in connection with the consummation of the transactions contemplated by
this Agreement) exceeds $25,000 in the aggregate, such fees, costs and expenses
shall be borne and paid by the shareholders of the Company and not by the
Company.
9.4 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,
<PAGE>
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).
9.5 NOTICES. All notices, demands, requests or other communications
that may be or are required to be given, served or sent by any party pursuant to
this Agreement will be in writing (and shall be deemed to have been duly given
upon receipt), will reference this Agreement and shall be mailed by first class,
registered or certified mail, return receipt requested, postage prepaid, or
transmitted by courier, express delivery, hand delivery or facsimile
transmission, addressed to the address set forth below. Each party may designate
by notice in writing a new address to which any notice, demand, request or
communication may thereafter be so given, served or sent. Each notice that is
mailed, delivered or transmitted in the manner described above shall be deemed
sufficiently given, served, sent and received for all purposes at such time as
it is delivered to the addressee (with the return receipt, the delivery receipt
or the affidavit of messenger or courier being deemed conclusive evidence of
such delivery) or at such time as delivery is refused by the addressee upon
presentation
if to Parent: Media 100, Inc.
290 Donald Lynch Blvd.
Marlboro, MA 01752-4748
Attention: President
Facsimile: __________
with a copy to: Lucash Gesmer Updegrove LLP
40 Broad Street
Boston, Massachusetts 02109
Attention: Peter M. Moldave
Facsimile: 617-350-6878
if to the Company: Terran Interactive, Inc.
15951 Los Gatos Blvd., Suite 1
Los Gatos, CA 95032
Attention: President
Facsimile: (408) 356-9373
with a copy to: Fenwick & West LLP
2 Palo Alto Square
Palo Alto, CA 94306
Attention: Ralph M. Pais, Esq.
e-mail: [email protected]
Facsimile: 650-494-1417
9.6 CONFIDENTIALITY. Without limiting the generality of anything
contained in Section 4.9, on and at all times after the Closing Date, each
Shareholder shall keep
<PAGE>
confidential, and shall not use or disclose to any other Person, any non-public
document or other non-public information in such Shareholder's possession that
relates to the business of the Company or Parent.
9.7 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
9.8 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.
9.9 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.
9.10 GOVERNING LAW. Unless otherwise indicted to the contrary, this
Agreement shall be construed in accordance with, and governed in all respects
by, the internal laws of the State of Delaware (without giving effect to
principles of conflicts of laws) and the merger provisions of the CGCL.
9.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); the Shareholders and their
respective personal representatives, executors, administrators, estates, heirs,
successors and assigns (if any); Parent 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's shareholders (to the extent
set forth in Section 1.5); Parent; Merger Sub; the other Indemnitees (subject to
Section 8.8); and the respective successors and assigns (if any) of the
foregoing. Parent may freely assign any or all of its rights under this
Agreement (including its indemnification rights under Section 8), in whole or in
part, to any other Person with written notice to Agent within ten days of such
assignment.
9.12 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies
of the parties hereto shall be cumulative (and not alternative) except as
expressly provided otherwise herein. 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.
9.13 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
<PAGE>
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 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.
9.14 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.
9.15 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.
9.16 PARTIES IN INTEREST. Except for the provisions of Sections 1.5 and
8, 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).
9.17 ENTIRE AGREEMENT. This Agreement, the exhibits hereto 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.
9.18 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
<PAGE>
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 parties hereto have caused this Agreement to be executed and
delivered as of the date first set above.
Media 100, Inc.,
a Delaware corporation
By:
Title:
[MEDIA 100 ACQUISITION CORP.],
a Delaware corporation
By:
Title:
Terran Interactive, Inc.,
a California corporation
By:
Title:
AGENT:
Name: Dana LoPiccolo-Giles
SHAREHOLDERS:
<PAGE>
Name: Dana LoPiccolo-Giles
Name: Darren Giles
Name: John Geyer
<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license, disposition or acquisition of all or a
substantially all of the Company's business or assets;
(e) the disposition of equity securities of the Company
representing a majority of the voting power of the Company; or
(f) any merger, consolidation, business combination,
reorganization or similar transaction involving the Company where the holders of
equity securities of the Company immediately prior to the consummation of such
transaction, do not hold equity securities representing a majority of the voting
power of the surviving entity immediately after the consummation of such
transaction.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including the Disclosure
Schedule), as it may be amended from time to time.
CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to
which the Company is a party; (b) by which the Company or any of its assets is
or may become bound or under which the Company has, or may become subject to,
any obligation; or (c) under which the Company has or may acquire any right or
interest.
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value,
<PAGE>
lost opportunity, liability, claim, demand, settlement, judgment, award, fine,
penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature but excluding in any
event all incidental, indirect, special or consequential damages even if advised
of the possibility thereof.
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule
(dated as of the date of the Agreement) delivered to Parent on behalf of the
Company.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
GOVERNMENT BID. "Government Bid" shall mean any quotation, bid or
proposal submitted to any Governmental Body or any proposed prime contractor or
higher-tier subcontractor of any Governmental Body.
GOVERNMENT CONTRACT. "Government Contract" shall mean any prime
contract, subcontract, letter contract, purchase order or delivery order
executed or submitted to or on behalf of any Governmental Body or any prime
contractor or higher-tier subcontractor, or under which any Governmental Body or
any such prime contractor or subcontractor otherwise has or may acquire any
right or interest.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any: (a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal, foreign
or other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit,
<PAGE>
body or Entity and any court or other tribunal).
INDEMNITEES. "Indemnitees" shall mean the following Persons: (a)
Parent; (b) Parent's current and future affiliates (including the Surviving
Corporation); (c) the respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and (d) the respective successors and assigns of
the Persons referred to in clauses "(a)", "(b)" and "(c)" above; provided,
however, that the Shareholders shall not be deemed to be "Indemnitees."
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any United States
federal, state, local or municipal law, statute, ordinance, code, rule or
regulation.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on the Company if such violation or other
matter would have a material adverse effect on the Company's business,
condition, assets, liabilities, operations, financial performance or prospects.
PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent,
patent application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; or (b) right to use or exploit any of the
foregoing.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll
<PAGE>
tax), levy, assessment, tariff, duty (including any customs duty), deficiency or
fee, and any related charge or amount (including any fine, penalty or interest),
imposed, assessed or collected by or under the authority of any Governmental
Body.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
<PAGE>
EXHIBIT B
DEFINITION OF EARN-OUT PAYMENTS
The Earn-Out Payments to the shareholders of the Company shall be made in
accordance with the following formula for each Relevant Period, equal to the
Target Payment for the Relevant Period multiplied by the sum of
(a) 60% multiplied by the ratio of Product Net Sales for the
Relevant Period divided by Target Net Sales plus
(b) 40% multiplied by the ratio of Product Operating Income
for the Relevant Period divided by Target Operating Income;
PROVIDED, that in order for any Earn-Out Payment to be made for a Relevant
Period, Product Net Sales must equal or exceed 60% of Target Net Sales and
Product Operating Income must equal or exceed 60% of Target Operating Income.
DEFINITIONS.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Relevant Period Target Payment Target Net Sales Target Operating
Income
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
12 month period commencing $1,750,000 $7,500,000 $1,200,000
the first full month
following the Closing
- ---------------------------------------------------------------------------------------------------
12 month period commencing $1,750,000 $15,000,000 $5,100,000
one year following the
first full month following
the Closing
- ---------------------------------------------------------------------------------------------------
</TABLE>
"Product" means products sold (or formerly sold prior to acquisition of the
Company) by the Company.
"Product Business Unit" means the business unit of the Parent responsible for
the development and sales of the Product, which will initially be the Surviving
Corporation but which may changed by the Parent in accordance with its
requirements.
"Product Net Sales" means gross sales to resellers, distributors, OEMs, or
customers of Product by the Company, minus discounts and returns.
<PAGE>
"Product Gross Margin" means Product Net Sales minus direct material costs,
direct labor costs, and direct manufacturing overhead.
"Product Operating Income" means Product Gross Margin minus direct engineering
expenses, direct sales and marketing expenses, and 5% of Product Gross Margin
(as an overhead expense allocation). The overhead expense allocation will cover
services for accounting, credit and collections, human resources and information
technology.
RESTRICTIONS
From the Closing until the completion of the Earn Out Period, Parent
and Surviving Corporation, severally and for themselves, covenant and agree as
follows:
(a) Surviving Corporation will either be (i) operated as a stand-alone
subsidiary of Parent or (ii) merged with and into Parent or an affiliate of
Parent and continue operations as a separate business unit of Parent or such
affiliate (the business in either case (i) or (ii) shall be referred to herein
as the "Surviving Business").
(b) Separate financial books and records will continue to be maintained
for the Surviving Business. Parent shall provide each Key Employee with
reasonable access to such books and records in order to verify the amount of
Earn-Out Payments payable hereunder both during and after the period of such Key
Employee's employment with the Surviving Business.
(c) To the extent that operating cash flow from Product Net Sales is
inadequate to fund the operations of the Surviving Business, Parent shall
provide up to $500,000 in cash advances necessary to fund such Surviving
Business on a timely basis.
(d) The principal place of business of the Surviving Business shall not
be moved from 15951 Los Gatos Blvd., Suite 1, Los Gatos, California, without
prior discussion and consultation with the Key Employees regarding the relative
advantages and disadvantages of such a relocation.
(e) Parent will provide reasonable assistance to the Surviving
Business, including without limitation in the areas of product development,
marketing, distribution and fulfillment.
(f) Parent shall allow the Key Employees to have reasonable autonomy in
the management of the Surviving Business and will not undertake any action which
would have a material impact on the Surviving Business without prior discussion
and consultation with the Key Employees regarding the relative advantages and
disadvantages of such action.
(g) Employees of the Surviving Business shall not have their salaries
or benefits materially reduced or have their positions or responsibilities
materially changed
<PAGE>
without prior discussion and consultation with the Key Employees regarding the
relative advantages and disadvantages of such a reduction or change.
(h) Parent shall not terminate the employment of any Key Employee
without Cause during the Earn-Out Period, provided that Surviving Business is
meeting or exceeding the Target Net Sales and Target Operating Income figures,
as defined in EXHIBIT B. For purposes of this exhibit, "Cause" for a Key
Employee's termination will exist at any time after the happening of one or more
of the following events: (i) any willful act or acts of dishonesty undertaken by
Key Employee and intended to result in substantial gain or personal enrichment
of Key Employee at the expense of Parent or the Surviving Business; or (ii) any
willful act of gross misconduct which is materially and demonstrably injurious
to Parent or the Surviving Business. No act, or failure to act, by a Key
Employee shall be considered "willful" if done, or omitted to be done, by him in
good faith and in the reasonable belief that his act or omission was in the best
interest of the Surviving Business and/or required by applicable law.
PREPARATION OF FINANCIAL STATEMENTS
Within 90 days of the end of each Relevant Period, Parent shall provide the
Agent with a report setting forth the calculation of the Earn-Out Payment, with
the components comprising "Product Net Sales", "Product Gross Margin" and
"Product Operating Income" determined in accordance with generally accepted
accounting principles consistent with the Parent's financial statements, and
shall make the appropriate payment to the former shareholders of the Company for
such Relevant Period as so shown as being owed in such report. In the event that
the Agent disputes any information contained in such report or the calculation
of any Earn-Out Payment, an independent third party will review the disputed
report and make a recommendation regarding changes, if any, to the report which
recommendation shall be binding on all parties.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet on Form 10-Q for the period ended May 31, 1999 and
the consolidated statement of operations as filed on Form 10-Q for the three
and six months ended May 31, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> NOV-30-1999 NOV-30-1999
<PERIOD-START> MAR-01-1999 DEC-01-1998
<PERIOD-END> MAY-31-1999 MAY-31-1999
<CASH> 6,760 6,760
<SECURITIES> 21,165 21,165
<RECEIVABLES> 6,199 6,199
<ALLOWANCES> 374 374
<INVENTORY> 1,726 1,726
<CURRENT-ASSETS> 36,621 36,621
<PP&E> 14,520 14,520
<DEPRECIATION> 6,814 6,814
<TOTAL-ASSETS> 44,610 44,610
<CURRENT-LIABILITIES> 15,220 15,220
<BONDS> 0 0
0 0
0 0
<COMMON> 84 84
<OTHER-SE> 29,306 29,306
<TOTAL-LIABILITY-AND-EQUITY> 29,390 29,390
<SALES> 12,537 24,676
<TOTAL-REVENUES> 12,537 24,676
<CGS> 4,863 9,627
<TOTAL-COSTS> 4,863 9,627
<OTHER-EXPENSES> 7,836 16,292
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 177 (512)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 177 (512)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 177 (512)
<EPS-BASIC> .02 (.06)
<EPS-DILUTED> .02 (.06)
</TABLE>
