<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-32540
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[LOGO] [LOGO]
MEDIA 100 INC DIGITAL
PROXY STATEMENT/PROSPECTUS ORIGIN, INC.
PROXY STATEMENT
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MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The boards of directors of Media 100 Inc. and Digital Origin, Inc. have
approved a merger combining Media 100 and Digital Origin.
In the merger, Digital Origin shareholders will receive .5347 of a share of
Media 100 common stock for each share of Digital Origin common stock that they
own. The exchange of Digital Origin common stock for Media 100 common stock
(other than cash paid for fractional shares) is expected to be tax-free to
Digital Origin shareholders for U.S. federal income tax purposes. Based on the
current number of shares of Digital Origin common stock outstanding, the shares
of Media 100 common stock to be issued to Digital Origin shareholders will
represent approximately 26% of the outstanding stock of Media 100 after the
merger. Media 100 shares to be issued in connection with the merger will be
listed, subject to official notice of issuance, on the Nasdaq National Market
under the trading symbol "MDEA."
The merger cannot be completed unless the shareholders of Digital Origin
approve it and the stockholders of Media 100 approve the issuance of Media 100
common stock in the merger. Digital Origin shareholders will vote on the merger
at the Digital Origin annual meeting of shareholders. The Media 100 stockholders
will vote on the issuance of Media 100 common stock in the merger at the Media
100 annual meeting of stockholders. YOUR VOTE IS VERY IMPORTANT.
This is the proxy statement for both the Digital Origin annual meeting of
shareholders and the Media 100 annual meeting of stockholders. This is also the
prospectus for the Media 100 common stock to be issued to Digital Origin
shareholders in the merger. This joint proxy statement/prospectus provides you
with detailed information about the proposed merger. Please give all of the
information contained in this joint proxy statement/prospectus your careful
attention. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE
SECTION ENTITLED "RISK FACTORS" ON PAGE 14 OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
The dates, times and places of the meetings are as follows:
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FOR MEDIA 100 STOCKHOLDERS: FOR DIGITAL ORIGIN SHAREHOLDERS:
May 5, 2000 May 5, 2000
10:00 a.m. 10:00 a.m.
290 Donald Lynch Boulevard 460 East Middlefield Road
Marlborough, Massachusetts 01752 Mountain View, CA 94043
</TABLE>
Whether or not you plan to attend a meeting, please take the time to vote by
completing and mailing the enclosed proxy card to us. Please complete, sign and
date the enclosed proxy card and return it to us as soon as possible in the
stamped envelope we have provided. If you decide to come to the meeting, you may
vote your shares in person whether or not you have mailed us a proxy card. You
may also revoke your proxy at any time before the meeting in writing. If you
sign, date and mail your proxy card without indicating how you want to vote,
your proxy will be counted as a vote in favor of the merger or in favor of the
issuance of Media 100 common stock, as applicable.
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[SIGNATURE] [SIGNATURE]
John A. Molinari Mark Housley
President and Chief Executive Officer Chairman and Chief Executive Officer
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE MEDIA 100 COMMON STOCK TO BE ISSUED IN THE MERGER OR
DETERMINED IF THIS JOINT PROXY STATEMENT/ PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated April 4, 2000, and is being
mailed to Media 100 stockholders and Digital Origin shareholders on or about
April 5, 2000.
<PAGE>
[LOGO]
MEDIA 100 INC.
290 DONALD LYNCH BOULEVARD
MARLBOROUGH, MASSACHUSETTS 01752
TELEPHONE: 508-460-1600
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 5, 2000
The annual meeting of stockholders of Media 100 Inc., a Delaware corporation
("Media 100"), will be held at the offices of Media 100, 290 Donald Lynch
Boulevard, Marlborough, Massachusetts 01752, on May 5, 2000 at 10:00 a.m., local
time, for the following purposes:
- To consider and act upon a proposal to approve the issuance of shares of
Media 100 common stock in the proposed merger;
- To elect five directors to the board of directors;
- To consider and act upon a proposal to amend the certificate of
incorporation to increase the number of authorized shares of Media 100
common stock by 75,000,000 shares to 100,000,000 shares;
- To consider and act upon a proposal to increase the number of shares of
Media 100 common stock available for issuance under the Key Employee
Incentive Plan (1992) by 2,000,000 shares to 4,200,000 shares;
- To ratify the appointment of Arthur Andersen LLP as Media 100's
independent auditors for the fiscal year ending November 30, 2000; and
- To transact any other business that may properly come before the meeting
and any adjournment or postponement of the meeting.
Only stockholders of record at the close of business on April 3, 2000 are
entitled to notice of, and to vote at, the annual meeting and at any and all
adjournments or postponements thereof. Accompanying this notice is a joint proxy
statement/prospectus discussing the proposed merger and the other matters to be
considered at the annual meeting.
It is important that your shares of Media 100 common stock be represented at
the annual meeting, regardless of the number of shares you hold. You are urged
to specify your voting preference by marking, dating and signing the enclosed
proxy card and returning it in the enclosed business reply envelope. No postage
is required if mailed in the United States. If you wish to vote in accordance
with the recommendation of the Media 100 board of directors, all you need to do
is date and sign the proxy card and return it in the enclosed envelope. If you
receive more than one form of proxy, it is an indication that your shares are
registered in more than one account. All proxy forms received by you should be
signed and returned promptly to ensure that all of your shares are voted.
<PAGE>
If your shares are not registered in your own name and you plan to attend
the annual meeting and vote your shares in person, you will need to ask the
broker, trust company, bank or other nominee that holds your shares to provide
you with evidence of your share ownership on April 3, 2000 and bring that
evidence to the meeting.
Please complete and return your proxy card whether or not you plan to attend
the annual meeting.
By order of the Board of Directors,
[SIGNATURE]
Steven D. Shea
SECRETARY
Marlborough, Massachusetts
April 4, 2000
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[LOGO]
DIGITAL ORIGIN, INC.
AT 460 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CA 94043
TELEPHONE: 650-404-6300
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 5, 2000
------------------------
The annual meeting of the shareholders of Digital Origin, Inc., a California
corporation ("Digital Origin"), will be held at the offices of Digital Origin,
460 East Middlefield Road, Mountain View, California 94043, on May 5, 2000 at
10:00 a.m., local time, for the following purpose:
- To approve the merger agreement pursuant to which Digital Origin will be
merged with a subsidiary of Media 100 Inc. with Digital Origin becoming a
wholly owned subsidiary of Media 100. In the merger, shareholders of
Digital Origin will receive .5347 of a share of Media 100 common stock for
each share of Digital Origin common stock;
- To elect seven directors to hold office until the next annual meeting if
the merger is not concluded and until their respective successors have
been elected and qualified or until their earlier resignation or removal.
The Board of Directors of Digital Origin has nominated the following
individuals for election: Michael D. Boich, John Cirigliano, Mark Housley,
John C. Kirby, Stephen Manousos, Henry V. Morgan and Carl Rosendahl, all
of whom are currently serving as directors;
- To authorize an additional 450,000 shares of common stock for issuance
under Digital Origin's Stock Option Plan if the merger is not concluded;
- To authorize an additional 50,000 shares of common stock for issuance
under Digital Origin's Employee Stock Purchase Plan if the merger is not
concluded;
- To ratify the appointment of Ernst & Young LLP as independent auditors for
the current fiscal year if the merger is not concluded; and
- To transact any other business that may properly come before the meeting
and any adjournment or postponement of the meeting.
Only shareholders who held their shares of Digital Origin common stock at
the close of business on March 17, 2000 will be entitled to notice of, and to
vote at, the annual meeting or any adjournments or postponements.
<PAGE>
Accompanying this notice is a joint proxy statement discussing the proposed
merger and the related merger agreement. We encourage you to read this document
carefully. Also enclosed is a proxy card so you can vote on the merger agreement
without attending the meeting. Please complete, sign and date the enclosed proxy
card and return it to us as soon as possible in the stamped envelope we have
provided. If you decide to come to the annual meeting, you may vote your shares
in person whether or not you have mailed us a proxy card. You may also revoke
your proxy at any time before the meeting in writing. PLEASE NOTE, HOWEVER, THAT
IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU
WISH TO VOTE AT THE MEETING, YOU MUST BRING TO THE MEETING A LETTER FROM THE
BROKER, BANK OR OTHER NOMINEE CONFIRMING YOUR BENEFICIAL OWNERSHIP OF THE
SHARES.
By Order of the Board of Directors,
[LOGO]
Henry V. Morgan, Secretary
Mountain View, California
April 4, 2000
<PAGE>
TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 3
The Companies............................................. 3
Shareholder Vote Required to Approve the Issuance of Media
100 Shares and the Merger............................... 3
The Merger................................................ 4
Our Recommendations to Shareholders....................... 4
Opinions of Financial Advisors............................ 4
Ownership of Media 100 Following the Merger............... 4
Conditions to the Merger.................................. 5
No Other Negotiations Involving Digital Origin............ 5
Termination of the Merger Agreement....................... 5
Termination Fees and Expenses............................. 5
Other Interests of Digital Origin Officers and Directors
in the Merger........................................... 6
Certain U.S. Federal Income Tax Consequences.............. 7
Accounting Treatment...................................... 7
Regulatory Approvals...................................... 7
Dissenters' Rights........................................ 7
Restrictions on the Ability to Sell Media 100 Common
Stock................................................... 7
Listing of Media 100 Common Stock......................... 7
Comparative Shareholder Rights............................ 7
Statements Regarding Forward-Looking Information.......... 8
Selected Historical and Pro Forma Financial Data.......... 9
Unaudited Comparative Per Share Information............... 12
Comparative Per Share Market Price Data................... 13
RISK FACTORS RELATING TO THE MERGER......................... 14
Shareholders of Digital Origin Will Receive a Fixed Number
of Shares of Media 100 Common Stock in the Merger, Even
Though the Market Value of Digital Origin Common Stock
or Media 100 Common Stock Could Change.................. 14
Although Media 100 and Digital Origin Expect That The
Merger Will Result in Benefits, Those Benefits May Not
be Realized............................................. 14
Media 100 Faces Risks Generally Associated with
Acquisitions Which Could Dilute Media 100 Stock or
Adversely Affect Media 100's Growth Strategy............ 14
Certain Digital Origin Officers and Directors Have
Conflicts of Interest That May Influence Them to Support
or Approve the Merger................................... 14
Failure to Complete the Merger Could Negatively Impact
Digital Origin and the Price of Its Common Stock........ 15
Failure to Qualify for Pooling-of-Interests Accounting
Treatment Will Negatively Impact Reported Operating
Results................................................. 15
Media 100 May be Unable to Keep Pace with the Rapid
Changes in its Industry................................. 15
The Merger May Result in a Loss of Customers, Suppliers
and Employees........................................... 16
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION............ 16
THE MERGER.................................................. 17
Background of the Merger.................................. 17
Reasons for the Merger.................................... 19
Recommendations of the Boards of Directors................ 20
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Opinion of Media 100's Financial Advisor.................. 20
Opinion of Digital Origin's Financial Advisor............. 26
Interests of Certain Persons in the Merger................ 30
Completion and Effectiveness of the Merger................ 31
Structure of the Merger and Conversion of Digital Origin
Common Stock............................................ 32
Exchange of Digital Origin Stock Certificates for Media
100 Stock Certificates.................................. 32
Certain U.S. Federal Income Tax Consequences of the
Merger.................................................. 32
Anticipated Accounting Treatment.......................... 33
Dissenters' Rights........................................ 34
Restrictions on Sales of Shares by Affiliates of Digital
Origin and Media 100.................................... 36
Nasdaq Stock Market Listing............................... 37
Delisting and Deregistration of Digital Origin Common
Stock................................................... 37
THE MERGER AGREEMENT........................................ 38
Representations and Warranties............................ 38
Conduct of Business Before Completion of the Merger....... 39
No Other Negotiations Involving Digital Origin............ 40
Boards of Directors' Covenants to Recommend............... 40
Treatment of Digital Origin Stock Options and Warrants.... 41
Conditions to Completion of the Merger.................... 42
Termination of the Merger Agreement....................... 44
Termination Fees; Expenses................................ 45
Extension, Waiver and Amendment of the Merger Agreement... 47
THE OEM DEVELOPMENT AND LICENSE AGREEMENT................... 47
COMPARATIVE PER SHARE MARKET PRICE DATA..................... 48
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS................................................ 50
COMPARISON OF RIGHTS OF HOLDERS OF MEDIA 100 COMMON STOCK
AND HOLDERS OF DIGITAL ORIGIN COMMON STOCK................ 56
Capitalization............................................ 56
Dividends and Repurchases of Shares....................... 56
Power to Call Special Meeting of Shareholders............. 57
Actions by Written Consent of Shareholders................ 57
Inspection of Shareholder List............................ 57
Charter Amendments........................................ 58
Bylaw Amendments.......................................... 58
Shareholder Voting on Business Combinations............... 58
Shareholder Derivative Suits.............................. 59
Dissenters' Right of Appraisal............................ 60
Size of the Board of Directors............................ 60
Removal of Directors...................................... 61
Filling Vacancies on the Board of Directors............... 61
Directors' Committees..................................... 61
Transactions Involving Officers or Directors.............. 62
Indemnification and Limitation of Liability............... 63
Dissolution............................................... 64
STOCK OWNERSHIP BY PRINCIPAL STOCKHOLDERS, MANAGEMENT AND
DIRECTORS OF MEDIA 100.................................... 64
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STOCK OWNERSHIP BY PRINCIPAL SHAREHOLDERS, MANAGEMENT AND
DIRECTORS OF DIGITAL ORIGIN............................... 66
THE MEDIA 100 ANNUAL MEETING................................ 68
General................................................... 68
Date, Time and Place...................................... 68
Matters to be Considered at the Meeting................... 68
Record Date; Votes Per Share.............................. 68
Quorum.................................................... 69
Votes Required and Method of Tabulation................... 69
How Shares Will Be Voted at the Annual Meeting............ 69
How to Revoke a Proxy..................................... 69
Solicitation of Proxies................................... 69
Adjournment of Meeting.................................... 70
MATTERS TO BE CONSIDERED AT THE MEDIA 100 ANNUAL MEETING.... 70
Issuance of Shares of Media 100 Common Stock in the
Merger.................................................. 70
Election of Directors..................................... 70
NOMINEES................................................ 70
BOARD OF DIRECTORS, MEETINGS, COMMITTEES AND
COMPENSATION........................................... 71
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION.......................................... 72
Amendment to the Media 100 Certificate of Incorporation... 72
Increase in the Number of Shares Authorized for Issuance
Under the Key Employee Incentive Plan (1992)............ 73
Ratification of Arthur Andersen LLP as Independent
Auditor................................................. 76
MEDIA 100 EXECUTIVE OFFICERS................................ 77
MEDIA 100 EXECUTIVE COMPENSATION............................ 78
Summary of Cash and Certain Other Compensation............ 78
Stock Options............................................. 79
Option Exercises and Holdings............................. 80
MEDIA 100 COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION.............................................. 80
MEDIA 100 PERFORMANCE GRAPH................................. 82
MEDIA 100 SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE................................................ 82
MEDIA 100 STOCKHOLDER PROPOSALS............................. 83
THE DIGITAL ORIGIN ANNUAL MEETING........................... 83
General................................................... 83
Date, Time and Place...................................... 83
Matters to be Considered at the Meeting................... 83
Record Date; Votes Per Share.............................. 84
Quorum.................................................... 84
Votes Required and Method of Tabulation................... 84
How Shares Will be Voted at the Annual Meeting............ 84
How to Revoke a Proxy..................................... 84
Solicitation of Proxies................................... 84
Other Business............................................ 85
Adjournment............................................... 85
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MATTERS TO BE CONSIDERED AT THE DIGITAL ORIGIN ANNUAL
MEETING................................................... 85
Approval of Merger........................................ 85
Election of Directors..................................... 85
DIRECTORS/NOMINEES...................................... 86
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES............. 88
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION.......................................... 88
COMPENSATION OF DIRECTORS............................... 88
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND
LIMITATION OF LIABILITY................................ 89
Authorization to Increase the Number of Shares Issuable
Under the 1995 Stock Option Plan........................ 89
DESCRIPTION OF THE 1995 STOCK OPTION PLAN............... 90
Authorization to Increase the Number of Shares Issuable
Under the 1999 Employee Stock Purchase Plan............. 93
DESCRIPTION OF THE 1999 EMPLOYEE STOCK PURCHASE
PLAN................................................. 93
Ratification of Appointment of Independent Auditors....... 96
DIGITAL ORIGIN SHAREHOLDER PROPOSALS........................ 97
EXPERTS..................................................... 97
LEGAL MATTERS............................................... 97
WHERE YOU CAN FIND MORE INFORMATION......................... 97
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APPENDIX A--AGREEMENT AND PLAN OF MERGER
APPENDIX B--OPINION OF U.S. BANCORP PIPER JAFFRAY INC.
APPENDIX C--OPINION OF FIRST SECURITY VAN KASPER
APPENDIX D--CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE MERGER
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Q: AS A HOLDER OF DIGITAL ORIGIN COMMON STOCK, WHAT WILL I
RECEIVE IN THE MERGER?
A: If the merger is completed, Digital Origin shareholders will
receive, in exchange for each share of Digital Origin common
stock they hold on the date of the merger, .5347 of a share
of Media 100 common stock. Digital Origin shareholders will
receive cash for any fractional shares of Media 100 common
stock that they would otherwise receive in the merger.
Q: WHAT DO I NEED TO DO NOW?
A: DIGITAL ORIGIN SHAREHOLDERS:
After you carefully read this document, please indicate on
the enclosed proxy card how you want to vote. Sign and mail
the proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the
Digital Origin annual meeting. If you return the proxy card
but do not include instructions on how to vote your shares
on a properly signed proxy card, your shares will be voted
"FOR" approval of the merger and the other matters to be
considered at the annual meeting.
MEDIA 100 STOCKHOLDERS:
After you carefully read this document, please indicate on
the enclosed proxy card how you want to vote. Sign and mail
the proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the
Media 100 annual meeting. If you return the proxy card but
do not include instructions on how to vote your shares on a
properly signed proxy card, your shares will be voted "FOR"
approval of the issuance of Media 100 common stock in the
merger and the other matters to be considered at the annual
meeting.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: DIGITAL ORIGIN SHAREHOLDERS:
If you want to change your vote, send the secretary of
Digital Origin a later-dated, signed proxy card before the
annual meeting or attend the annual meeting and vote in
person. You may also revoke your proxy by sending written
notice to the secretary of Digital Origin before the annual
meeting.
MEDIA 100 STOCKHOLDERS:
If you want to change your vote, send the secretary of Media
100 a later-dated, signed proxy card before the annual
meeting or attend the annual meeting and vote in person. You
may also revoke your proxy by sending written notice to the
secretary of Media 100 before the annual meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY
BROKER VOTE MY SHARES FOR ME?
A: DIGITAL ORIGIN SHAREHOLDERS:
Your broker will vote your shares on the merger only if you
provide instructions on how to vote in accordance with the
information and procedures provided to you by your broker.
Accordingly, if you do not instruct your broker to vote your
shares, your shares will not be voted and it will be
equivalent to voting against the merger.
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MEDIA 100 STOCKHOLDERS:
Your broker will vote your shares on the issuance of Media
100 common stock in the merger only if you provide
instructions on how to vote in accordance with the
information and procedures provided to you by your broker.
Accordingly, if you do not instruct your broker to vote your
shares, your shares will not be voted on the issuance of
Media 100 common stock in the merger.
Q: SHOULD I SEND IN MY DIGITAL ORIGIN STOCK CERTIFICATES NOW?
A. No. After the merger is completed, we will send you written
instructions for exchanging your Digital Origin common stock
certificates for Media 100 common stock certificates.
Q: AS A HOLDER OF DIGITAL ORIGIN COMMON STOCK, WILL I RECOGNIZE
A TAXABLE GAIN OR LOSS FOR U.S. FEDERAL INCOME TAX PURPOSES
AS A RESULT OF THE MERGER?
A: We expect that, in general, you will not recognize gain or
loss for U.S. federal income tax purposes as a result of the
merger, except that you may recognize gain or loss with
respect to cash you receive instead of fractional shares.
You are urged to consult with your tax advisor to determine
your particular tax consequences.
Q: AS A HOLDER OF DIGITAL ORIGIN COMMON STOCK, AM I ENTITLED TO
DISSENTERS' OR APPRAISAL RIGHTS?
A: Yes, if you satisfy the requirements under California law
providing for dissenters' rights of appraisal. See "The
Merger--Dissenters' Rights" on page 34.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: MEDIA 100 STOCKHOLDERS:
Office of Investor Relations at (508) 303-4704.
DIGITAL ORIGIN SHAREHOLDERS:
Investor Relations department at (650) 404-6300.
You may also obtain additional information about Media 100
and Digital Origin from documents filed with the Securities
and Exchange Commission by following the instructions in the
section entitled "Where you can find more information" on
page 97.
</TABLE>
2
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SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO
YOU. TO UNDERSTAND THE PROPOSED MERGER FULLY, YOU SHOULD CAREFULLY READ THE
ENTIRE DOCUMENT AND THE DOCUMENTS WE HAVE REFERRED YOU TO. SEE "WHERE YOU CAN
FIND MORE INFORMATION" (PAGE 97). THE MERGER AGREEMENT IS ATTACHED AS
APPENDIX A TO THIS DOCUMENT. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT. IT
IS THE LEGAL DOCUMENT THAT GOVERNS THE PROPOSED MERGER. WHERE APPLICABLE, WE
HAVE INCLUDED PAGE REFERENCES IN PARENTHESES TO DIRECT YOU TO A MORE DETAILED
DESCRIPTION OF THE TOPICS PRESENTED IN THIS SUMMARY. WE HAVE ADJUSTED ALL SHARE
AND PER SHARE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS FOR DIGITAL
ORIGIN'S ONE-FOR-TEN REVERSE STOCK SPLIT EFFECTED ON MARCH 9, 1998.
THE COMPANIES
MEDIA 100 INC.
290 Donald Lynch Boulevard
Marlborough, Massachusetts 01752
(508) 460-1600
Media 100 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. Media 100, through its
wholly-owned subsidiary, Terran Interactive, Inc., also develops, markets, sells
and supports software tools for streaming media for the Internet. Media 100
markets and delivers its products to end users through a worldwide channel of
specialized value-added resellers, distributors and direct to end users through
its telemarketing group and its web site.
DIGITAL ORIGIN, INC.
460 E. Middlefield Road
Mountain View, California
(650) 404-6000
Digital Origin designs, develops, assembles, markets and supports digital
video computer products for creative professionals and consumers who use digital
camcorders. Digital Origin's current product line consists of multimedia
authoring and nonlinear editing video software and related hardware that can
manipulate video and audio information in conjunction with desktop computers and
digital camcorders. Digital Origin's primary target markets are video editors,
video producers and creators of multimedia with an increasing emphasis on
consumers. Prior to 1999, substantially all of Digital Origin's products had
been designed for and sold to users of Macintosh computer products manufactured
by Apple Computer, Inc. During its 1999 fiscal year, Digital Origin focused on
the Microsoft Windows market. As a result, during the fiscal year 25% of unit
sales were made to Macintosh-only users, 29% were made to Windows-only users,
and 46% were made to cross-platform users. Digital Origin distributes its
products directly through its web site and through various distributors and
resellers. Prior to 1999, Digital Origin's business included a number of other
hardware product lines, including computer monitors, which Digital Origin
started disposing of in 1996 and has since discontinued.
SHAREHOLDER VOTE REQUIRED TO APPROVE THE ISSUANCE OF MEDIA 100 SHARES AND THE
MERGER (SEE PAGES 69 AND 84)
TO MEDIA 100 STOCKHOLDERS:
A majority of the votes properly cast is required to approve the issuance of
Media 100 common stock to Digital Origin shareholders in the merger. Media 100's
directors, executive officers and the
3
<PAGE>
affiliates of those directors and executive officers own 3.3% of Media 100's
shares outstanding and are entitled to vote at the Media 100 annual meeting.
TO DIGITAL ORIGIN SHAREHOLDERS:
The affirmative vote of a majority of the outstanding shares of Digital
Origin common stock is required to approve the merger. The failure to vote by a
Digital Origin shareholder will have the effect of a vote against the merger.
Digital Origin's directors, executive officers and the affiliates of those
directors and executive officers own 0.6% of the Digital Origin shares
outstanding and are entitled to vote at the Digital Origin annual meeting.
THE MERGER (SEE PAGE 17)
In the merger, a subsidiary of Media 100 will merge with and into Digital
Origin and Digital Origin will become a wholly-owned subsidiary of Media 100.
The shareholders of Digital Origin will be entitled to receive .5347 of a share
of Media 100 common stock for each share of Digital Origin common stock they
hold and cash for any fractional shares which they would otherwise receive in
the merger.
In addition, options or warrants to purchase shares of Digital Origin common
stock which are outstanding immediately before the effective time of the merger
will be assumed by Media 100 and will automatically be converted into an option
to purchase Media 100 common stock with appropriate adjustments in share amounts
and exercise prices to reflect the exchange ratio in the merger. The converted
options will otherwise be subject to the terms and conditions of the preexisting
stock option or warrant.
OUR RECOMMENDATIONS TO SHAREHOLDERS (SEE PAGES 70 AND 85)
TO MEDIA 100 STOCKHOLDERS:
The Media 100 board of directors believes that the merger is in your best
interest and unanimously recommends that you vote "FOR" the issuance of shares
of Media 100 common stock to Digital Origin shareholders in the merger.
TO DIGITAL ORIGIN SHAREHOLDERS:
The Digital Origin board of directors believes that the merger is in your
best interest and unanimously recommends that you vote "FOR" the merger.
OPINIONS OF FINANCIAL ADVISORS
(SEE PAGES 20 AND 26 AND APPENDICES B AND C)
In deciding to approve the merger, each of our boards of directors
considered an opinion from our respective financial advisors as to the fairness
of the exchange ratio from a financial point of view. The Media 100 board of
directors received an opinion from its financial advisor, U.S. Bancorp Piper
Jaffray Inc., and the Digital Origin board of directors received an opinion from
its financial advisor, First Security Van Kasper. These opinions are subject to
the considerations, qualifications and limitations set forth in the respective
opinions. These opinions are attached as Appendices B and C, respectively, to
this joint proxy statement/prospectus. We encourage you to read these opinions.
OWNERSHIP OF MEDIA 100 FOLLOWING THE MERGER (SEE PAGE 32)
The shares of Media 100 issued to Digital Origin shareholders in the merger
will constitute approximately 26% of the outstanding stock of Media 100 after
the merger.
4
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CONDITIONS TO THE MERGER (SEE PAGE 42)
The merger will not be completed unless certain conditions are met,
including the approval of the merger agreement by the Digital Origin
shareholders and the approval of the issuance of the shares of Media 100 common
stock in the merger by the Media 100 stockholders. Certain of the conditions may
be waived by the company entitled to assert the condition.
NO OTHER NEGOTIATIONS INVOLVING DIGITAL ORIGIN (SEE PAGE 40)
Digital Origin has agreed, subject to certain exceptions, not to initiate
discussions with any third party regarding a business combination and may engage
in discussions with a third party only under limited circumstances while the
merger is pending.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 44)
We may agree to terminate the merger agreement without completing the
merger, whether or not Digital Origin shareholders have approved the merger
agreement.
In addition, either company may terminate the merger agreement if specified
events do or do not occur. These include:
- if the merger is not completed by June 30, 2000;
- if a court permanently prohibits the merger;
- if Digital Origin's shareholders fail to approve the merger agreement at
the Digital Origin annual meeting; or
- if Media 100's stockholders fail to approve the issuance of Media 100
common stock in the merger at the Media 100 annual meeting.
Media 100 may also terminate the merger agreement in certain other
circumstances, including:
- if the Digital Origin board of directors fails to recommend approval of
the merger;
- if Digital Origin breaches its non-solicitation obligations under the
merger agreement;
- if Digital Origin breaches or fails to perform certain of its obligations
under the merger agreement; or
- if Digital Origin fails to call and hold its annual meeting by June 29,
2000.
Digital Origin may also terminate the merger agreement in certain other
circumstances, including:
- if, in response to an unsolicitated superior proposal, Digital Origin's
board of directors determines that it is necessary to do so in order to
comply with its fiduciary duties;
- if Media 100 fails to perform certain of its obligations under the merger
agreement; or
- if Media 100 fails to call and hold its annual meeting by June 29, 2000.
TERMINATION FEES AND EXPENSES (SEE PAGE 45)
Digital Origin has agreed to reimburse Media 100 for all fees and expenses
incurred by Media 100 (subject to certain limitations) prior to termination of
the merger agreement if the merger agreement is terminated in any of the
following circumstances:
- by Media 100 or Digital Origin because the merger was not approved by
Digital Origin's shareholders at the Digital Origin annual meeting and if
prior to such termination there was an alternative acquisition proposal
for Digital Origin;
5
<PAGE>
- by Media 100 because Digital Origin breaches its non-solicitation
obligations under the merger agreement;
- by Media 100 because the Digital Origin board of directors fails to
recommend approval of the merger;
- by Media 100 because Digital Origin breaches or fails to perform certain
of its obligations under the merger agreement;
- by Media 100 because Digital Origin fails to hold its annual meeting by
June 29, 2000; or
- by Digital Origin because, in response to an unsolicited superior
proposal, its board of directors determines that it is necessary to do so
in order to comply with its fiduciary duties.
Media 100 has agreed to reimburse Digital Origin for all fees and expenses
incurred by Digital Origin prior to termination of the merger agreement if the
merger agreement is terminated in any of the following circumstances:
- by Media 100 or Digital Origin because Media 100 stockholders fail to
approve the issuance of the Media 100 common stock in the merger at the
Media 100 annual meeting;
- by Digital Origin because Media 100 breaches or fails to perform certain
of its obligations under the merger agreement; or
- by Digital Origin because Media 100 fails to hold its annual meeting by
June 29, 2000.
Digital Origin has agreed to pay Media 100 a termination fee of
$1.62 million if an alternative acquisition proposal for Digital Origin was
publicly known prior to termination, Digital Origin accepts an alternative
acquisition proposal within six months of termination and the merger agreement
was terminated for one of the following reasons:
- the Digital Origin shareholders failed to approve the merger at the
Digital Origin annual meeting;
- Digital Origin breached or failed to perform certain of its obligations
under the merger agreement;
- Digital Origin breached its non-solicitation obligations under the merger
agreement;
- the Digital Origin board of directors failed to recommend approval of the
merger; or
- Digital Origin failed to hold its annual meeting by June 29, 2000.
Digital Origin has also agreed to pay Media 100 a termination fee of
$1.62 million if the merger agreement is terminated by Digital Origin because,
in response to an unsolicited superior proposal, its board of directors
determines that it is necessary to do so in order to comply with its fiduciary
duties.
OTHER INTERESTS OF DIGITAL ORIGIN OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE
30)
In considering the recommendation of Digital Origin's board of directors
that Digital Origin shareholders vote to approve the merger, you should note
that the directors and certain officers of Digital Origin have arrangements
including acceleration of stock options, employment agreements, severance
payments and continuing indemnification against certain liabilities that provide
them with interests in the merger that are different from, or in addition to,
yours. In addition, certain directors of Digital Origin are nominees for
election to the Media 100 board of directors at the Media 100 annual meeting. As
a result, these directors and officers could be more likely to vote to approve
the merger agreement than shareholders of Digital Origin generally.
6
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 32)
If you are a Digital Origin shareholder, we expect that the exchange of
Digital Origin common stock for Media 100 common stock will be tax-free to you
for U.S. federal income tax purposes, except with respect to cash you receive in
lieu of fractional shares of Media 100 common stock.
Tax matters are very complicated and the tax consequences of the merger to
you will depend on the facts of your own circumstances. You should consult your
tax advisors for a full understanding of all of the tax consequences of the
merger to you.
ACCOUNTING TREATMENT (SEE PAGE 33)
We intend that the merger will be accounted for as a pooling of interests.
This means that after the merger, Media 100 will treat the companies as if they
had always been combined for accounting and financial reporting purposes.
REGULATORY APPROVALS
Neither of us is aware of any material governmental or regulatory approval
required for completion of the merger, other than compliance with applicable
corporate law of Delaware and California.
DISSENTERS' RIGHTS (SEE PAGE 34)
California law permits holders of Digital Origin common stock to dissent
from the merger and to have the fair value of stock appraised and paid to them
in cash. To do this, the holders of these shares must file notices with Digital
Origin and follow certain other procedures. If you hold shares of Digital Origin
common stock and you dissent from the merger and follow the required
formalities, your shares will not become shares of Media 100 common stock.
Instead, your only right will be to receive the appraised value of your shares
in cash. If holders of more than ten percent of the outstanding Digital Origin
common stock properly exercise their dissenters' rights, we will be unable to
use the pooling of interests accounting method, and as a result the merger may
not be completed.
See "The Merger--Dissenters' Rights" on page 34. The full text of the
applicable provisions of the California Corporations Code is reprinted as
Appendix D.
RESTRICTIONS ON THE ABILITY TO SELL MEDIA 100 COMMON STOCK (SEE PAGE 36)
All shares of Media 100 common stock you receive in connection with the
merger will be freely transferable unless you are considered an "affiliate" of
Media 100 or Digital Origin under the Securities Act of 1933. In that case,
prior to the first anniversary of the merger, sales may be made only pursuant to
a registration statement or exemption under the Securities Act. In addition, it
is a condition of closing that we obtain signed agreements from each of our
affiliates to restrict the transfer of their shares in order to comply with the
requirements of pooling of interests accounting treatment.
LISTING OF MEDIA 100 COMMON STOCK (SEE PAGE 37)
The shares of Media 100 common stock issued in connection with the merger
will be listed on the Nasdaq National Market.
COMPARATIVE SHAREHOLDER RIGHTS (SEE PAGE 56)
The rights of stockholders of Media 100 are governed by Delaware law and the
Certificate of Incorporation and By-Laws of Media 100. The rights of the
shareholders of Digital Origin are governed by California law and the Articles
of Incorporation and Bylaws of Digital Origin. If the merger is
7
<PAGE>
completed, the rights of former Digital Origin shareholders who become Media 100
stockholders will be determined by Delaware law and Media 100's Certificate of
Incorporation and By-Laws, which differ in certain respects from California law
and Digital Origin's Articles of Incorporation and Bylaws.
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION (SEE PAGE 16)
This joint proxy statement/prospectus and the documents incorporated by
reference into this joint proxy statement/prospectus contain forward-looking
statements within the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 with respect to Media 100's and Digital Origin's
financial condition, results of operations and business and on the expected
impact of the merger on Media 100's financial performance. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties that could cause actual results to differ
materially from the results contemplated by the forward-looking statements. In
evaluating the merger, you should carefully consider the discussion of risks and
uncertainties in the section entitled "Risk Factors" starting on page 14.
8
<PAGE>
MEDIA 100 INC.
SELECTED HISTORICAL FINANCIAL DATA
In the table below, we provide you with selected historical financial data
for Media 100. Media 100 prepared this information using its consolidated
financial statements as of the dates indicated and for each of the five years in
the period ended November 30, 1999. Media 100 derived the data below for each of
the fiscal years presented from consolidated financial statements audited by
Arthur Andersen LLP, independent auditors. Historical results are not
necessarily indicative of future results. This selected historical financial
data should be read in conjunction with Media 100's historical audited financial
statements incorporated by reference in this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $51,479 $41,788 $46,660 $50,826 $30,278
Operating income (loss)(1)..................... (817) (9,673) (1,003) 4,453 1,649
Income (loss) from continuing operations....... 570 (8,051) 617 4,833 2,345
Net income (loss).............................. 570 (8,051) 617 (1,839) 4,771
Income (loss) from continuing operations per
share:
Basic........................................ 0.07 (0.97) 0.07 0.60 0.39
Diluted...................................... 0.06 (0.97) 0.07 0.57 0.35
Net income (loss) per share:
Basic........................................ 0.07 (0.97) 0.07 (0.23) 0.79
Diluted...................................... 0.06 (0.97) 0.07 (0.22) 0.71
Weighted average common shares outstanding:
Basic........................................ 8,347 8,273 8,148 7,993 6,058
Diluted...................................... 8,807 8,273 8,247 8,470 6,701
Cash dividends declared........................ -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities................................... $28,400 $32,434 $32,934 $30,716 $35,161
Working capital................................ 22,750 21,797 29,146 34,496 42,798
Total assets................................... 45,843 48,472 50,759 59,990 60,984
Long-term debt................................. -- -- -- -- --
Stockholders' equity........................... 31,249 30,473 37,843 50,065 46,909
</TABLE>
- ------------------------
(1) Operating income (loss) includes the effect of restructuring expenses of
$424 and $526 in 1999 and 1997, respectively, and a charge for acquired in
process research and development of $430 in 1999.
9
<PAGE>
DIGITAL ORIGIN, INC.
SELECTED HISTORICAL FINANCIAL DATA
In the table below, we provide you with selected historical financial data
for Digital Origin. Digital Origin prepared this information using its
consolidated financial statements for each of the five years in the period ended
September 30, 1999 and for the three-month periods ended December 31, 1999 and
1998. Digital Origin derived the data below for each of the fiscal years
presented from consolidated financial statements audited by Ernst & Young LLP,
independent auditors. Digital Origin derived the data for the three-month
periods presented from unaudited consolidated financial statements as of
December 31, 1999 and 1998. The unaudited consolidated financial statements, in
the opinion of management, include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation. The interim results
for the three months ended December 31, 1999 are not necessarily indicative of
results to be expected for the year ending September 30, 2000. All per share
data has been adjusted to reflect Digital Origin's one-for-ten reverse stock
split which was effected on March 9, 1998. This selected historical financial
data should be read in conjunction with Digital Origin's historical audited and
unaudited financial statements incorporated by reference in this joint proxy
statement/prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
----------------------------- -----------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
------------- ------------- -------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $4,161 $2,538 $13,353 $15,668 $31,150 $90,290 $ 308,133
Operating income (loss) (1)............... 192 (774) (1,200) (4,161) (26,239) (20,456) (104,182)
Net income (loss) applicable to common
shareholders (2)........................ 241 2,792 5,849 8,733 996 (975) (131,742)
Net income (loss) per share applicable to
common shareholders:
Basic................................... 0.04 0.50 1.06 1.58 0.18 (0.46) (87.54)
Diluted................................. 0.04 0.50 1.02 1.57 0.18 (0.46) (87.54)
Weighted average common shares
outstanding:
Basic................................... 5,603 5,524 5,535 5,522 5,389 2,125 1,505
Diluted................................. 6,391 5,563 5,747 5,557 5,522 2,125 1,505
Cash dividends declared................... -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF SEPTEMBER 30,
DECEMBER 31, ----------------------------------------------------
1999 1999 1998 1997 1996 1995
------------ -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $1,629 $3,627 $ 600 $22,866 $ 2,974 $ 4,760
Working capital (deficiency)................................ 988 980 (5,216) 7,909 8,476 (59,334)
Total assets................................................ 6,028 6,895 6,556 26,272 45,526 87,878
Long-term debt.............................................. -- -- -- -- 22,213 1,331
Shareholders' equity (deficit).............................. 1,379 1,081 (5,083) 8,158 3,960 (57,117)
</TABLE>
- ------------------------------
(1) Operating income (loss) includes charges of $8,100 and $57,900 in 1997 and
1995, respectively, related to the transition out of hardware-based product
lines.
(2) Net income (loss) applicable to common shareholders includes the effect of
cash dividends on preferred stock of $272 in 1997 and other income
(expense) as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
------------------------- ----------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
---------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Gains on dispositions of businesses,
licenses and other assets.............. $ -- $3,620 $6,945 $ 1,615 $ -- $23,849 $ --
Gains on dispositions of equity
securities............................. -- -- -- 10,537 30,779 -- --
Interest expense......................... -- (54) (55) (459) (2,777) (3,736) (3,023)
Ligitation settlement.................... -- -- -- -- -- -- (12,422)
Other income (expense)................... -- -- 159 201 (179) 183 (3,045)
---------- ------ ------ ------- ------- ------- --------
$ -- $3,566 $7,049 $11,894 $27,823 $20,296 $(18,490)
========== ====== ====== ======= ======= ======= ========
</TABLE>
10
<PAGE>
MEDIA 100 INC.
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
For pro forma purposes, Media 100's consolidated statements of operations
and consolidated balance sheets for each of the three years in the period ended
November 30, 1999 have been combined with Digital Origin's consolidated
statements of operations and consolidated balance sheets for each of the three
years in the period ended September 30, 1999. This selected unaudited pro forma
condensed combined financial data should be read in conjunction with the
separate historical financial statements and accompanying notes of Media 100 and
Digital Origin, which are incorporated by reference in this proxy
statement/prospectus. See "Where You Can Find More Information" on page 97. The
unaudited pro forma condensed combined financial data does not reflect any cost
savings anticipated as a result of the merger. You should not rely on the
selected unaudited pro forma condensed combined financial data as an indication
of the results of operations or financial position that would have been achieved
if the merger had taken place earlier or of the results of operations or
financial position of Media 100 after the completion of the merger.
We have included detailed unaudited pro forma condensed combined financial
information beginning on page 50. All per share data has been adjusted to
reflect Digital Origin's one-for-ten reverse stock split which was effected on
March 9, 1998.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $64,832 $57,351 $77,810
Operating loss.............................................. (2,017) (13,913) (27,242)
Net income applicable to common stockholders................ 6,419 603 1,613
Net income per share applicable to common stockholders:
Basic..................................................... 0.57 0.05 0.15
Diluted................................................... 0.54 0.05 0.14
Weighted average common shares outstanding:
Basic..................................................... 11,307 11,226 11,029
Diluted................................................... 11,880 11,244 11,200
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $32,027 $33,034 $55,800
Working capital............................................. 22,530 16,581 37,055
Total assets................................................ 52,738 55,028 77,031
Long-term debt.............................................. -- -- --
Stockholders' equity........................................ 31,130 25,390 46,001
</TABLE>
11
<PAGE>
UNAUDITED COMPARATIVE PER SHARE INFORMATION
We have summarized below the per share information for our respective
companies on a historical, pro forma combined and equivalent basis. The Pro
Forma Combined per share amounts and Digital Origin's historical per share
amounts have been adjusted to reflect Digital Origin's one-for-ten reverse stock
split which was effected on March 9, 1998. The Digital Origin Equivalent Pro
Forma amounts are calculated by multiplying the Pro Forma Combined per share
amounts by 0.5347, the exchange ratio.
<TABLE>
<CAPTION>
FISCAL YEAR(1)
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
MEDIA 100--HISTORICAL:
Net Income (loss) per common share--diluted................. $0.06 $(0.97) $0.07
Cash dividends declared per common share.................... -- -- --
Book value per common share................................. 3.68 3.68 4.62
DIGITAL ORIGIN--HISTORICAL:
Net Income per common share--diluted........................ 1.02 1.57 0.18
Cash dividends declared per common share.................... -- -- --
Book value per common share................................. 0.19 (0.92) 1.48
PRO FORMA COMBINED:
Net Income per common share--diluted........................ 0.54 0.05 0.14
Cash dividends declared per common share.................... -- -- --
Book value per common share................................. 2.71 2.26 4.13
DIGITAL ORIGIN EQUIVALENT PRO FORMA:
Net Income per common share--diluted........................ 0.29 0.03 0.07
Cash dividends declared per common share.................... -- -- --
Book value per common share................................. 1.45 1.21 2.21
</TABLE>
- ------------------------
(1)Media 100's fiscal year ends on November 30; Digital Origin's fiscal year
ends on September 30. The pro forma combined information reflects the
combination of Media 100's historical information as of and for fiscal years
ended November 30 and Digital Origin's historical information as of and for
fiscal years ended September 30.
12
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE DATA
Media 100 common stock is traded on the Nasdaq National Market under the
symbol "MDEA." Digital Origin common stock is traded on the Nasdaq SmallCap
Market under the symbol "DODV."
The following table sets forth the closing prices per share of Digital
Origin common stock as reported on the Nasdaq SmallCap Market, the closing
prices per share of Media 100 common stock as reported on the Nasdaq National
Market and the equivalent value of a Digital Origin share at the exchange ratio
on
- December 27, 1999, the last full trading day preceding public announcement
that Media 100 and Digital Origin had entered into the merger agreement,
and
- April 3, 2000, the last full trading day for which closing prices were
available at the time of the printing of this joint proxy
statement/prospectus.
The equivalent per share price is calculated by multiplying the closing
price of a share of Media 100 common stock on that date by 0.5347, the exchange
ratio. This equivalent per share price reflects the then current trading value
of the Media 100 common stock you would receive for each share of your Digital
Origin common stock if the merger was completed after the close of trading on
either of those dates.
<TABLE>
<CAPTION>
DIGITAL
ORIGIN MEDIA 100 EQUIVALENT
COMMON COMMON PER
STOCK STOCK SHARE PRICE
--------------- --------------- ---------------
<S> <C> <C> <C>
December 27, 1999.............................. $ 8.62 $ 27.00 $ 14.44
April 3, 2000.................................. $ 14.31 $ 27.00 $ 14.44
</TABLE>
Because the market price of Media 100 common stock may increase or decrease
before the completion of the merger, you are urged to obtain current market
quotations.
13
<PAGE>
RISK FACTORS RELATING TO THE MERGER
THE MERGER AND AN INVESTMENT IN MEDIA 100 COMMON STOCK INVOLVES NUMEROUS
RISKS. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS JOINT PROXY STATEMENT/PROSPECTUS, YOU SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS IN DECIDING WHETHER TO VOTE FOR THE MERGER.
SHAREHOLDERS OF DIGITAL ORIGIN WILL RECEIVE A FIXED NUMBER OF SHARES OF MEDIA
100 COMMON STOCK IN THE MERGER, EVEN THOUGH THE MARKET VALUE OF DIGITAL ORIGIN
COMMON STOCK OR MEDIA 100 COMMON STOCK COULD CHANGE
If you are a shareholder of Digital Origin, you will receive .5347 of a
share of Media 100 common stock for each share of Digital Origin common stock
you hold regardless of any increase or decrease in the price of the common stock
of either Media 100 or Digital Origin. Accordingly, the specific dollar value of
the Media 100 common stock to be received by you upon completion of the merger
will depend on the market value of the Media 100 common stock at the time of
completion of the merger. Furthermore, Digital Origin is not permitted to "walk
away" from the merger or resolicit the vote of its shareholders based solely on
changes in the market value of the Media 100 common stock before completion of
the merger. Stockholders of Media 100 and Digital Origin are urged to obtain
current market quotations for Media 100 common stock and Digital Origin common
stock.
ALTHOUGH MEDIA 100 AND DIGITAL ORIGIN EXPECT THAT THE MERGER WILL RESULT IN
BENEFITS, THOSE BENEFITS MAY NOT BE REALIZED
Our boards of directors determined that the merger is in the best interests
of our respective stockholders based in part on the potential complementary
effects of combining the assets, personnel and operational expertise of Media
100 and Digital Origin. However, the integration of businesses involves a number
of special risks. In particular, management's attention may be diverted from
other business concerns in order to integrate the operations and systems of the
two companies, which may prove difficult. In addition, there may be delays or
difficulties in effecting an integrated distribution network and challenges in
retaining the customers and suppliers of the combined businesses. Moreover,
challenges will be presented in assimilating and retaining personnel. These and
other difficulties associated with the merger may lead to potential adverse
short-term and long-term effects on operating results.
MEDIA 100 FACES RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS WHICH COULD DILUTE
MEDIA 100 STOCK OR ADVERSELY AFFECT MEDIA 100'S GROWTH STRATEGY
Media 100 may prior to and after the merger incur debt to finance future
acquisitions or may issue its securities in connection with future acquisitions
which may dilute the stock held by Media 100's stockholders. In addition, if
Media 100 is unable to successfully complete and integrate acquisitions in a
timely manner, Media 100's growth strategy could be adversely affected.
CERTAIN DIGITAL ORIGIN OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST THAT
MAY INFLUENCE THEM TO SUPPORT OR APPROVE THE MERGER
The directors and certain officers of Digital Origin have arrangements that
provide them with interests in the merger that are different from, or in
addition to, yours. Such interests include the acceleration of certain Digital
Origin stock options, employment agreements, directorship arrangements,
severance payments and continuing indemnification against certain liabilities.
As a result, these directors and officers could be more likely to vote to
approve the merger agreement and the transactions contemplated thereby than
Digital Origin shareholders generally. See "The Merger--Interests of Certain
Persons in the Merger" on page 30.
14
<PAGE>
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT DIGITAL ORIGIN AND THE
PRICE OF ITS COMMON STOCK
If the merger is not completed, Digital Origin may be subject to a number of
material risks, including the following:
- Digital Origin may be required to pay Media 100 a termination fee of
$1.62 million and reimburse Media 100 for expenses it incurs in connection
with the merger, which could have a material effect on its financial
position;
- the market prices of Digital Origin common stock may decline to the extent
that the current market prices of Digital Origin common stock reflect a
market assumption that the merger will be completed; and
- costs related to the merger, such as legal and accounting fees and
expenses and financial advisor expenses, must be paid even if the merger
is not completed.
Furthermore, if the merger agreement is terminated and Digital Origin's
board of directors determines to seek another merger or business combination,
there can be no assurance that it will be able to find a party willing to pay an
equivalent or more attractive price than that to be paid in this proposed
merger. In addition, while the merger agreement is in effect, subject to certain
limited exceptions, Digital Origin is prohibited from soliciting, cooperating
with, or furnishing non-public information regarding Digital Origin to, or
negotiating or entering into an agreement with, any party regarding any proposal
for extraordinary transactions, such as a merger, sale of assets or other
business combination.
In addition, Media 100 and Digital Origin have entered into a non-exclusive,
perpetual OEM development and license agreement. The Digital Origin technology
that is subject to the development and license agreement represents a
significant portion of Digital Origin's technology. Failure to complete the
merger will not affect Media 100's right to license the technology which is
subject to the development and license agreement. As a result, third parties may
be deterred from making an offer to acquire Digital Origin. See "The OEM
Development and License Agreement" on page 47.
FAILURE TO QUALIFY FOR POOLING-OF-INTERESTS ACCOUNTING TREATMENT WILL NEGATIVELY
IMPACT REPORTED OPERATING RESULTS
If, after completion of the merger, it is determined that the merger does
not qualify for pooling-of-interests accounting treatment, the purchase method
of accounting would apply. Under that method, the estimated fair value of Media
100 common stock issued in the merger would be recorded as the cost of acquiring
Digital Origin. That cost would be allocated first to the individual assets
acquired and liabilities assumed according to their respective fair values and
then to specifically identifiable intangible assets, with the excess of the
estimated fair value of Media 100 common stock over the fair value of net assets
acquired recorded as goodwill. The portion of purchase price allocated to
specific intangible assets and goodwill would then be amortized over a period of
years resulting in decreased earnings for those years.
MEDIA 100 MAY BE UNABLE TO KEEP PACE WITH THE RAPID CHANGES IN ITS INDUSTRY
The market for Media 100's products is characterized by rapid technological
change, frequent new product introductions and evolving industry standards.
Customer preferences in this market are difficult to predict and changes in
those preferences could render Media 100's current or future products
unmarketable. The introduction of products embodying new technologies by Media
100's competitors and the emergence of new industry standards could render
existing products as well as new products being introduced obsolete and
unmarketable.
15
<PAGE>
Media 100's success depends upon its ability to address the increasingly
sophisticated needs of customers, to enhance existing products and to develop
and introduce, on a timely basis, new competitive products that keep pace with
technological developments and emerging industry standards, including
developments and standards with respect to the Internet. Risks inherent in the
transition to new products include the difficulty in forecasting customer demand
accurately, the inability to expand production to meet demand for new products
or constrict production of products being replaced and delays in initial
shipments of new products. Further risks inherent in new product introductions
include the uncertainty of price-performance relative to products of
competitors, competitors' responses to the introductions and the desire of
customers to evaluate new products for longer periods of time. There can be no
assurance that Media 100 will be able to effectively manage the transitions to
new products or new technologies. If Media 100 cannot successfully identify,
manage, develop, manufacture or market product enhancements or new products, its
business will be materially and adversely affected.
THE MERGER MAY RESULT IN A LOSS OF CUSTOMERS, SUPPLIERS AND EMPLOYEES
Certain customers, including end users, resellers and original equipment
manufacturers, may seek alternative sources of product and/or service after the
announcement of the merger due to, among other reasons, a desire not to do
business with the combined company or perceived concerns that the combined
company may not continue to support and develop certain product lines.
Management of Digital Origin and Media 100 anticipate that the combined company
may experience some customer attrition by reason of announcement of the merger
or after the merger is completed. Difficulties in combining operations can also
result in the loss of key employees or suppliers and potential disputes or
litigation with customers, suppliers, resellers or others. There can be no
assurance that any steps taken by management to counter such potential increased
customer, supplier or employee attrition will be effective. Failure by
management to control attrition could have an adverse effect on the combined
company's business, financial condition and operating results.
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This joint proxy statement/prospectus and the documents incorporated by
reference into it contain forward-looking statements within the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 with respect
to our financial condition, results of operations and business, and on the
expected impact of the merger on Media 100's financial performance. Words such
as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties that could cause actual results to differ
materially from the results contemplated by the forward-looking statements.
In evaluating the merger, you should carefully consider the discussion of
risks and uncertainties in the section entitled "Risk Factors" on page 14 of
this joint proxy statement/prospectus and in documents incorporated by reference
herein.
16
<PAGE>
THE MERGER
BACKGROUND OF THE MERGER
On March 15, 1999, Mr. John Molinari, Media 100's Chief Executive Officer,
Mr. Steven Shea, Media 100's Vice President of Finance, Treasurer and Secretary,
and Mr. Anthony Dolph, Media 100's Vice President of Business Development met
with Mr. Mark Housley, Digital Origin's Chairman and Chief Executive Officer, to
discuss the possibility of a business combination between Media 100 and Digital
Origin. Mr. Housley indicated that Digital Origin was not interested in such a
transaction with Media 100 at that time.
On September 10, 1999, Mr. Molinari and Mr. Housley met to discuss the
possibility of a business combination.
On October 14, 1999, Mr. Molinari called Mr. Housley proposing that the two
of them, together with Mr. Shea, meet. Mr. Molinari indicated that he would like
to explore the possibility of a business combination at the meeting. A meeting
was scheduled for October 19, 1999.
On October 19, 1999, Mr. Housley met with Mr. Molinari and Mr. Shea. At the
meeting, they discussed the possibility of a business combination between Media
100 and Digital Origin.
At a meeting of Digital Origin's board of directors held on October 20,
1999, Mr. Housley briefed Digital Origin's board of directors on his meeting
with Mr. Molinari and Mr. Shea. Mr. Housley provided the directors with an
overview of Media 100's business and operations and a preliminary review of
possible benefits that could result from a business combination. Digital
Origin's board of directors authorized Digital Origin's management to pursue
further discussions regarding a business combination with Media 100, as well as
other alternatives.
On November 10, 1999, Mr. Molinari, Mr. Housley, Mr. Dolph, Mr. Shea and
Mrs. Mary Bobel, Digital Origin's Chief Financial Officer, along with Digital
Origin's legal counsel, Fenwick & West LLP, met to discuss further the
possibility of a business combination. At this meeting Digital Origin and Media
100 entered into a mutual confidentiality agreement.
On November 12, 1999, Digital Origin's board of directors held a special
telephonic meeting to review the status of discussions.
At a special meeting of Media 100's board of directors held on November 24,
1999, Mr. Molinari and Mr. Shea briefed Media 100's board of directors on their
meetings with Mr. Housley. Mr. Molinari and Mr. Shea provided the directors with
an overview of Digital Origin's business and operations and a preliminary review
of possible benefits that could result from a business combination. Media 100's
board of directors authorized Media 100's management to pursue further
discussions regarding a business combination with Digital Origin and to engage
legal and financial advisors to assist Media 100 with the potential business
combination.
On November 30, 1999, the parties mutually determined to suspend discussions
of a possible business combination in light of then current market conditions.
On December 6, 1999, Mr. Shea called Mr. Housley and proposed that the two
meet in order to resume discussions of a possible business combination.
On December 8, 1999, Mr. Shea and Mr. Housley met and discussed a potential
business combination whereby Media 100 would acquire Digital Origin through a
merger.
On December 9, 1999, senior management of Digital Origin and Media 100,
their respective counsel and Media 100's auditors began due diligence reviews of
the other company's business.
On December 10, 1999, a draft of the merger agreement was circulated to
senior management and the advisors of each company.
17
<PAGE>
At a special meeting of Media 100's board of directors held on December 13,
1999, Media 100's senior management updated its board of directors on the
possibility of a business combination with Digital Origin.
Over the following week, Mr. Housley, Mr. Molinari, Mr. Shea and their
respective counsel held telephone discussions to further review matters relating
to the proposed business combination, including additional information
requirements.
At a meeting of Digital Origin's board of directors held on December 15,
1999, Digital Origin's senior management updated its board of directors on the
possibility of a business combination with Media 100, and Digital Origin's board
of directors authorized Digital Origin's senior management to engage a financial
advisor.
Thereafter, Digital Origin retained First Security Van Kasper to provide
financial advisory services to Digital Origin regarding the proposed business
combination with Media 100. On December 16, 1999, Media 100 retained U.S.
Bancorp Piper Jaffray to provide financial advisory services to Media 100
regarding the proposed business combination with Digital Origin.
Over the next week, Media 100 and its advisors and Digital Origin and its
advisors continued due diligence reviews of one another's business.
At a meeting of Media 100's board of directors held on December 22, 1999,
Media 100's senior management made presentations regarding the proposed business
combination and the status of the negotiations and discussions about the merger
agreement and the other arrangements. At that meeting, U.S. Bancorp Piper
Jaffray and Media 100's legal counsel, Skadden, Arps, Slate, Meagher and Flom
LLP, made presentations to Media 100's board of directors regarding the proposed
business combination. U.S. Bancorp Piper Jaffray delivered to the board of
directors of Media 100 its oral opinion, subsequently confirmed in writing, that
as of that date and based upon and subject to the assumptions, factors and
limitations set forth in the opinion, the consideration proposed to be paid by
Media 100 in the proposed merger was fair, from a financial point of view to
Media 100 as of the date thereof. After further review and discussion, Media
100's board of directors instructed Media 100's senior management and advisors
to continue negotiation of the outstanding issues, including obtaining an OEM
development and license agreement with Digital Origin and, subject to
resolutions of those issues and completion of the due diligence review of
Digital Origin, unanimously approved the merger agreement.
At a special telephonic meeting of Digital Origin's board of directors, held
on December 23, 1999, the Digital Origin board of directors reviewed the status
of the discussions.
Over the next week, the parties completed their due diligence review and
negotiated the remaining outstanding issues, including the OEM development and
license agreement.
At a special telephonic meeting of Digital Origin's board of directors, held
on December 26, 1999, the Digital Origin board of directors reviewed the status
of the discussions.
At a special telephonic meeting of Digital Origin's board of directors held
on December 27, 1999, the Digital Origin board of directors considered the
merger. At the same meeting Van Kasper, made a presentation to Digital Origin's
board of directors regarding the proposed business combination. Van Kasper
delivered its opinion to Digital Origin's board of directors that the exchange
ratio was fair, from a financial point of view, to Digital Origin's
shareholders. After further review and discussion, Digital Origin's board of
directors unanimously approved the merger agreement.
On December 28, 1999, the merger agreement and the OEM development and
license agreement were executed by the parties thereto and Digital Origin and
Media 100 issued a joint press release.
18
<PAGE>
REASONS FOR THE MERGER
MEDIA 100'S REASONS FOR THE MERGER
The Media 100 board of directors believes that the merger will be beneficial
to Media 100 and its stockholders. In particular, the Media 100 board of
directors believes that the combined company will realize the following
benefits:
- The combination of Digital Origin's digital editing and effects software
applications with Media 100's streaming media production tools and
applications will position the combined company as the premier supplier of
streaming media production tools for the Internet by allowing it to be the
first company to offer fully integrated Internet video production and
streaming tools to all segments of the market;
- The combined company will be in a position to address the video creation
and streaming needs of a broad range of customers, from consumers and web
site designers to video professionals and high-end Internet broadcasters
and the combined company's products will address every aspect of streaming
media production from video capture, editing and effects to Internet
streaming and DVD authoring;
- The combined company will be in a position to target Internet desktops
with low-cost applications that allow personal computer users to capture,
edit and stream video on the Internet using a single, integrated and
easy-to-use application;
- The combined company may realize operating synergies as a result of the
merger due to increased cost and revenue efficiencies; and
- The combined company will benefit from the combined technological,
operational and management expertise of Media 100's and Digital Origin's
personnel.
DIGITAL ORIGIN'S REASONS FOR THE MERGER
The decision of Digital Origin's board of directors to authorize and
recommend approval of the merger resulted from careful consideration of a range
of strategic alternatives conducive to maximizing shareholder value, including
other possible business combinations and continued independent operations. The
merger was considered superior to these alternatives for several reasons:
- The implied value for each share of common stock resulting from the
exchange ratio was at a significant premium to the share market price upon
entering into the merger agreement;
- The potential growth in sales of Digital Origin software was estimated to
be significantly greater if the software could be sold in conjunction with
Media 100 streaming technology;
- Digital Origin's senior management team was highly supportive of the
merger even though such personnel had no commitments for continued
employment after the merger;
- There appeared to be no other suitable merger candidate capable of
presenting a superior value for shareholders;
- Pursuit of growth opportunities on an independent basis would likely
require raising additional equity;
- The combination of technologies and management teams appeared to present
an excellent opportunity to establish the merged company as the industry
leader in providing tools for the creation and editing of streaming media
on the Internet;
- The review of various diligence materials by legal and accounting
professionals and internal management reports did not generate significant
contrary considerations; and
19
<PAGE>
- Digital Origin's financial advisor, First Security Van Kasper, reached the
conclusion that the exchange ratio was fair to Digital Origin shareholders
from a financial point of view.
Negative factors were also considered. Many of these are summarized in "Risk
Factors" on page 14. In particular, Digital Origin's board of directors
considered:
- The risk that the implied value premium might be reduced prior to the
effective time as a result of fluctuations in the market price of Media
100 stock;
- The risk that the merger might not be concluded and the resulting
associated costs;
- The risk that the perceived synergies between the companies might not be
realized;
- The risk of management or staffing difficulties before and after the
merger;
- The risk that certain customers or suppliers may view the merger
negatively;
- The risk of defaulting under the merger agreement; and
- The risk of paying a termination fee or expense reimbursements under the
merger agreement.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
RECOMMENDATION OF THE MEDIA 100 BOARD OF DIRECTORS
AFTER CAREFUL CONSIDERATION, THE MEDIA 100 BOARD OF DIRECTORS UNANIMOUSLY
DETERMINED THE MERGER TO BE FAIR TO THE MEDIA 100 STOCKHOLDERS AND IN THEIR BEST
INTERESTS. THE MEDIA 100 BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE MEDIA 100 STOCKHOLDERS APPROVE THE
ISSUANCE OF MEDIA 100 COMMON STOCK IN THE MERGER.
RECOMMENDATION OF THE DIGITAL ORIGIN BOARD OF DIRECTORS
AFTER CAREFUL CONSIDERATION, THE DIGITAL ORIGIN BOARD OF DIRECTORS
UNANIMOUSLY DETERMINED THE MERGER TO BE FAIR TO THE DIGITAL ORIGIN SHAREHOLDERS
AND IN THEIR BEST INTERESTS AND DECLARED THE MERGER ADVISABLE. THE DIGITAL
ORIGIN BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT THE DIGITAL ORIGIN SHAREHOLDERS APPROVE THE MERGER
AGREEMENT.
In considering the recommendations of the Digital Origin board of directors
with respect to the merger agreement, you should be aware that certain directors
and officers of Digital Origin have certain interests in the merger that are
different from, or are in addition to the interests of the Digital Origin
shareholders generally. See "--Interests of Certain Persons in the Merger" on
page 30.
OPINION OF MEDIA 100'S FINANCIAL ADVISOR
Media 100 retained U.S. Bancorp Piper Jaffray to render to the board of
directors of Media 100 an opinion as to the fairness, from a financial point of
view, of the consideration to be paid to the Digital Origin shareholders in the
merger.
U.S. Bancorp Piper Jaffray delivered to the board of directors of Media 100
on December 22, 1999 its oral opinion (subsequently confirmed by its written
opinion), that as of that date and based upon and subject to the assumptions,
factors and limitations set forth in the opinion and described below, the
consideration proposed to be paid to Digital Origin shareholders in the proposed
merger was fair, from a financial point of view, to Media 100.
While U.S. Bancorp Piper Jaffray rendered its opinion and provided certain
analyses to the board of directors of Media 100, U.S. Bancorp Piper Jaffray was
not requested to and did not make any recommendation to the board of directors
as to the specific form or amount of the consideration to be paid by Media 100
in the proposed merger, which was determined through negotiations between
Digital
20
<PAGE>
Origin and Media 100. U.S. Bancorp Piper Jaffray's written opinion, which was
directed to the Media 100 board of directors, addresses only the fairness, from
a financial point of view, of the proposed consideration to be paid by Media 100
in the proposed merger, does not address Media 100's underlying business
decision to participate in the merger and does not constitute a recommendation
to any Media 100 stockholder as to how a stockholder should vote with respect to
the issuance of Media 100 common stock in the merger.
The full text of the written opinion of U.S. Bancorp Piper Jaffray, which
sets forth assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached hereto as Appendix B and
incorporated herein by reference. The summary contained herein is qualified in
its entirety by reference to the full text of the opinion. We urge the
stockholders of Media 100 to read the opinion in its entirety.
In arriving it its opinion, U.S. Bancorp Piper Jaffray's review included:
- a draft dated December 20, 1999 of the merger agreement;
- selected financial, operating and business information related to Media
100 and Digital Origin;
- publicly available market and securities data of Media 100, Digital Origin
and of selected public companies deemed comparable to Media 100 and
Digital Origin;
- to the extent publicly available, financial information relating to
selected transactions deemed comparable to the proposed merger; and
- internal financial information of Digital Origin and Media 100 prepared
for financial planning purposes and furnished by Digital Origin and Media
100 management.
In addition, U.S. Bancorp Piper Jaffray conducted discussions with members
of senior management of Media 100 and Digital Origin concerning the financial
condition, current operating results and business outlook of Media 100, Digital
Origin and the combined company following the merger.
In delivering its opinion to the board of directors of Media 100, U.S.
Bancorp Piper Jaffray presented to the board of directors information containing
various analyses and other information material to the opinion. Here is a
summary of the analyses and other information:
IMPLIED CONSIDERATION
Giving effect to an exchange ratio of .5347, the resulting implied value of
Media 100 stock consideration of $14.40 per share of Digital Origin common stock
(based on the closing trading price for Media 100 common stock on December 21,
1999 of $26.94) and information from Digital Origin on the outstanding Digital
Origin common shares and common share equivalents, U.S. Bancorp Piper Jaffray
calculated the aggregate implied value of the stock consideration payable in the
transaction for Digital Origin common stock to be approximately $95.4 million.
Based on information from Media 100 regarding Media 100 common stock and common
stock equivalents, U.S. Bancorp Piper Jaffray also calculated that shareholders
of Digital Origin would be issued an aggregate of approximately 26.8% of the
total Media 100 common stock and common stock equivalents outstanding after the
merger. Giving effect to outstanding debt and cash, U.S. Bancorp Piper Jaffray
calculated an implied company value (equity value plus debt less cash) for
Digital Origin of $91.8 million.
21
<PAGE>
DIGITAL ORIGIN MARKET ANALYSIS
U.S. Bancorp Piper Jaffray reviewed the stock trading history of Digital
Origin common stock. U.S. Bancorp Piper Jaffray presented the recent common
stock trading information contained in the following table:
<TABLE>
<S> <C>
Closing price on December 21, 1999.......................... $10.25
30 trading day closing average.............................. 9.68
60 trading day closing average.............................. 8.17
90 trading day closing average.............................. 7.07
180 trading day closing average............................. 5.31
52 week high trade.......................................... 15.00
52 week low trade........................................... 1.94
</TABLE>
U.S. Bancorp Piper Jaffray also presented selected price and volume
distribution data and illustrated the relative stock price performance of
Digital Origin against the comparable group described below and the NASDAQ Stock
Market.
DIGITAL ORIGIN COMPARABLE COMPANY ANALYSIS
U.S. Bancorp Piper Jaffray compared financial information and valuation
ratios relating to Digital Origin derived from the implied value payable in the
merger to corresponding data and ratios from five publicly traded companies
deemed comparable to Digital Origin. This group included Adobe Systems, Avid
Technology, Macromedia, Inc., MetaCreations Corporation and Pinnacle Systems.
This group was selected from companies with a market capitalization greater than
$35 million that operate in Digital Origin's industry and were companies
otherwise deemed comparable by U.S. Bancorp Piper Jaffray. For purposes of this
and other analysis performed by U.S. Bancorp Piper Jaffray, net income per share
for Digital Origin for the latest twelve months and 1999 excluded other income,
net, of Digital Origin.
This analysis produced multiples of selected valuation data as follows:
<TABLE>
<CAPTION>
COMPARABLE COMPANIES
DIGITAL -----------------------------------------
ORIGIN LOW MEAN MEDIAN HIGH
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Company value to latest twelve months
revenue............................. 6.9x 0.3x 6.8x 5.7x 18.5x
Company value to estimated calendar
1999 revenue........................ 6.4x 0.4x 6.4x 5.4x 17.1x
Company value to estimated calendar
2000 revenue........................ 4.4x 0.4x 4.8x 4.0x 12.2x
Share price to latest twelve months
net income per share................ NEG NEG 59.5x 45.0x 133.3x
Share price to estimated calendar 1999
net income per share................ NEG NEG 65.9x 50.9x 120.6x
Share price to estimated calendar 2000
net income per share................ 110.8x 26.9x 44.3x 32.1x 101.2x
</TABLE>
- ------------------------
MERGER AND ACQUISITION ANALYSES
U.S. Bancorp Piper Jaffray reviewed 41 merger and acquisition transactions
(the "Comparable Transactions") that it deemed comparable to the merger. It
selected these transactions by applying the following criteria:
- transactions in which the target company was a public or private company;
22
<PAGE>
- transactions in which the target company operated in the pre-packaged
software industry;
- transactions with an equity value of $50 million to $300 million;
- transactions in which 100% of the target company was acquired;
- transactions completed between January 1, 1997 and December 17, 1999;
- transactions with publicly available information on terms; and
- transactions which were not repurchases or hostile transactions.
The analysis is based on information obtained from Securities and Exchange
Commission filings, public company disclosures, press releases, industry and
popular press reports, databases and other sources.
U.S. Bancorp Piper Jaffray compared the resulting multiples of selected
valuation data to multiples for Digital Origin derived from the implied value
payable in the merger.
<TABLE>
<CAPTION>
COMPARABLE COMPANIES
DIGITAL -----------------------------------------
ORIGIN LOW MEAN MEDIAN HIGH
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Company value to latest twelve months
revenue................................. 6.9x 1.1x 3.9x 3.4x 9.0x
Share price to latest twelve months net
income per share........................ NEG NEG 37.8x 34.1x 74.0x
</TABLE>
U.S. Bancorp Piper Jaffray reviewed publicly available information for 35 of
the Comparable Transactions involving public companies to determine the implied
premiums payable in the mergers over recent trading prices. The table below
shows a comparison of those premiums to the premium that would be paid to
Digital Origin stockholders based on the implied value payable in the merger.
The premium calculations for Digital Origin stock are based upon an assumed
announcement date of December 22, 1999:
<TABLE>
<CAPTION>
IMPLIED PREMIUM (DISCOUNT)
----------------------------------------------------
COMPARABLE TRANSACTIONS
DIGITAL -----------------------------------------
ORIGIN LOW MEAN MEDIAN HIGH
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
One day before announcement............... 40.5% 2.3% 32.2% 25.6% 100.0%
One week before announcement.............. 80.0 (6.7) 45.2 40.4 192.7
One month before announcement............. 34.0 1.0 58.8 49.2 287.1
</TABLE>
PRO FORMA ANALYSES
U.S. Bancorp Piper Jaffray analyzed pro forma effects resulting from the
impact of the transaction on the projected earnings per share of the combined
company at and for the four fiscal quarters in fiscal 2000 and for the fiscal
year ending November 30, 2000 using management estimates for Digital Origin as
adjusted by Media 100 management and publicly available estimates for Media 100
prepared by U.S. Bancorp Piper Jaffray Equity Research. Without consideration of
synergies that management estimates the combined company may realize following
consummation of the transaction, U.S. Bancorp Piper Jaffray determined that the
transaction could be dilutive in the fiscal year ending 2000 to the projected
stand-alone earnings per share of Media 100.
Considering pre-tax synergies of up to $0.8 million that management
estimates the combined company may realize following consummation of the
transaction, U.S. Bancorp Piper Jaffray determined that the transaction could be
accretive for the full fiscal year ending 2000 to the projected stand-alone
earnings per share of Media 100.
23
<PAGE>
U.S. Bancorp Piper Jaffray analyzed the expected contributions of each of
Digital Origin and Media 100 to revenue, gross profit, operating income, pretax
income, and net income of the combined company for the four fiscal quarters in
2000, and the fiscal year ending November 30, 2000 based on the same forward
looking information, without synergies, described above. The analysis indicated
that during these periods Digital Origin would contribute to the combined entity
revenue ranging from 25.8% to 27.3%, gross profit ranging from 28.7% to 29.8%,
operating income ranging from 27.6% to 34.4%, pretax income ranging from 19.7%
to 26.6%, and net income ranging from 19.7% to 26.6%. Based on information
provided to U.S. Bancorp Piper Jaffray at the time of its opinion, U.S. Bancorp
Piper Jaffray noted that Digital Origin shareholders were expected to receive an
aggregate of approximately 26.8% of the shares of the combined company.
HISTORICAL EXCHANGE RATIO ANALYSIS
U.S. Bancorp Piper Jaffray analyzed the exchange ratio for this transaction
against the "implied" exchange ratio based on average historical stock prices
for Media 100 and Digital Origin. U.S. Bancorp Piper Jaffray examined the
exchange ratios implied by the thirty, ninety, and one hundred and eighty
trading day average stock prices for Media 100 and Digital Origin. This analysis
produced the following implied historical exchange ratios and premium (discount)
the merger exchange ratio represents:
<TABLE>
<CAPTION>
HISTORICAL EXCHANGE RATIO AND
IMPLIED
PREMIUMS (DISCOUNT)
DIGITAL ------------------------------
ORIGIN 30 DAY 90 DAY 180 DAY
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Implied Exchange Ratio................... 0.5347x 0.5291x 0.6124x 0.6235x
Implied Premium (Discount)............... 1.1% (12.7%) (14.3%)
</TABLE>
ANALYSIS OF MEDIA 100 COMMON STOCK
U.S. Bancorp Piper Jaffray reviewed general background information
concerning Media 100, including recent financial and operating results and
outlook, the price performance of Media 100 common stock over the previous
twelve months relative to the NASDAQ, and to a comparable company group, and the
stock price and volume over selected periods. U.S. Bancorp Piper Jaffray also
reviewed the stock trading history of Media 100 common stock at the dates or for
the periods indicated below.
<TABLE>
<S> <C>
Closing price on December 21, 1999.......................... $26.94
30 trading day closing average.............................. 18.29
60 trading day closing average.............................. 14.34
90 trading day closing average.............................. 11.55
180 trading day closing average............................. 8.51
52 week high trade.......................................... 32.19
52 week low trade........................................... 4.31
</TABLE>
In addition, U.S. Bancorp Piper Jaffray compared selected financial data and
ratios for Media 100 to the corresponding data and ratios for the same
comparable company group described above. The stock price used in the
calculations was Media 100's closing price of $26.94 on December 21, 1999.
24
<PAGE>
This analysis produced multiples of selected valuation data as follows:
<TABLE>
<CAPTION>
COMPARABLE COMPANIES
MEDIA -----------------------------------------
100 LOW MEAN MEDIAN HIGH
-------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Company value to latest twelve months
revenue............................... 4.0x 0.3x 6.8x 5.7x 18.5x
Company value to estimated calendar 1999
revenue............................... 3.9x 0.4x 6.4x 5.4x 17.1x
Company value to estimated calendar 2000
revenue............................... 3.4x 0.4x 4.8x 4.0x 12.2x
Share price to latest twelve months net
income per share...................... NEG NEG 59.5x 45.0x 133.3x
Share price to estimated calendar 1999
net income per share.................. NM NEG 65.9x 50.9x 120.6x
Share price to estimated calendar 2000
net income per share.................. 53.9x 26.9x 44.3x 32.1x 101.2x
</TABLE>
In reaching its conclusion as to the fairness of the merger consideration
and in its presentation to the board of directors, U.S. Bancorp Piper Jaffray
did not rely on any single analysis or factor described above, assign relative
weights to the analyses or factors considered by it, or make any conclusion as
to how the results of any given analysis, taken alone, supported its opinion.
The preparation of a fairness opinion is a complex process and not necessarily
susceptible to partial analysis or summary description. U.S. Bancorp Piper
Jaffray believes that its analyses must be considered as a whole and that
selection of portions of its analyses and of the factors considered by it,
without considering all of the factors and analyses, would create a misleading
view of the processes underlying the opinion.
The analyses of U.S. Bancorp Piper Jaffray are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by the analyses. Analyses relating to the value of
companies do not purport to be appraisals or valuations or necessarily reflect
the price at which companies may actually be sold. No company or transaction
used in any analysis for purposes of comparison is identical to Digital Origin,
Media 100, or the merger. Accordingly, an analysis of the results of the
comparisons is not mathematical; rather, it involves complex considerations and
judgments about differences in the companies to which Digital Origin and Media
100 were compared and other factors that could affect the public trading value
of the companies.
For purposes of its opinion, U.S. Bancorp Piper Jaffray relied upon and
assumed the accuracy, completeness and fairness of the financial statements and
other information provided to it by Digital Origin and Media 100 or otherwise
made available to it and did not assume responsibility for the independent
verification of that information. Information prepared for financial planning
purposes was not prepared with the expectation of public disclosure. U.S.
Bancorp Piper Jaffray relied upon the assurances of the management of Digital
Origin and Media 100 that the information provided to it by Digital Origin and
Media 100 was prepared on a reasonable basis, the financial planning data and
other business outlook information reflects the best currently available
estimates of management, and management was not aware of any information or
facts that would make the information provided to U.S. Bancorp Piper Jaffray
incomplete or misleading.
For purposes of its opinion, U.S. Bancorp Piper Jaffray assumed that the
merger will constitute a reorganization for federal income tax purposes and will
be treated as a pooling of interests for accounting purposes. Without limiting
the generality of the foregoing, for the purpose of its opinion, U.S. Bancorp
Piper Jaffray assumed that neither Media 100 nor Digital Origin is a party to
any pending transaction, including external financing, recapitalizations,
acquisitions or merger discussions, other than the merger or in the ordinary
course of business. In arriving at its opinion, with Media 100's
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consent, U.S. Bancorp Piper Jaffray's analysis did not consider the effect of
Media 100's acquisition of the assets of Wired, Inc. on Media 100 or the merger.
U.S. Bancorp Piper Jaffray also assumed that all necessary regulatory approvals
and consents required for the transaction will be obtained in a manner that will
not change the purchase price for Digital Origin.
In arriving at its opinion, U.S. Bancorp Piper Jaffray did not perform any
appraisals or valuations of any specific assets or liabilities of Digital Origin
or Media 100, and was not furnished with any such appraisals or valuations. In
addition, in arriving at its opinion, U.S. Bancorp Piper Jaffray did not
perform, with Media 100's consent, a discounted cash flow analysis of potential
future cash flows of Digital Origin. U.S. Bancorp Piper Jaffray was not
authorized to solicit, and did not solicit, any other party relative to a
possible business combination with Media 100. U.S. Bancorp Piper Jaffray
analyzed Digital Origin as a going concern and accordingly expressed no opinion
as to the liquidation value of any entity. In arriving at its opinion, U.S.
Bancorp Piper Jaffray undertook no independent analysis of any pending or
threatened litigation, possible unasserted claims or other contingent
liabilities, to which Media 100, Digital Origin or any of their respective
affiliates is a party or may be subject and, at Media 100's direction and with
its consent, U.S. Bancorp Piper Jaffray's opinion makes no assumption
concerning, and therefore does not consider, the possible assertions of claims,
outcomes or damages arising out of any such matters.
U.S. Bancorp Piper Jaffray expressed no opinion as to the price at which
shares of Digital Origin or Media 100 common stock have traded or at which the
shares of Digital Origin, Media 100 or the combined company may trade at any
future time. The opinion is based on information available to U.S. Bancorp Piper
Jaffray and the facts and circumstances as they existed and were subject to
evaluation on the date of the opinion. Events occurring after that date could
materially affect the assumptions used in preparing the opinion. U.S. Bancorp
Piper Jaffray has not undertaken to and is not obligated to affirm or revise its
opinion or otherwise comment on any events occurring after the date it was
given.
U.S. Bancorp Piper Jaffray, as a customary part of its investment banking
business, evaluates businesses and their securities in connection with mergers
and acquisitions, underwritings and secondary distributions of securities,
private placements and valuations for estate, corporate and other purposes. The
Media 100 board of directors selected U.S. Bancorp Piper Jaffray because of its
expertise, reputation and familiarity with the digital video systems industry.
U.S. Bancorp Piper Jaffray maintains a market in the common stock of Media 100.
In the ordinary course of its business, U.S. Bancorp Piper Jaffray and its
affiliates may actively trade securities of Media 100 or Digital Origin for
their own accounts or the accounts of their customers and, accordingly, may at
any time hold a long or short position in those securities. U.S. Bancorp Piper
Jaffray has provided investment banking services to Media 100 in the past for
which it received customary fees.
Under the terms of its engagement letter with Media 100, Media 100 paid U.S.
Bancorp Piper Jaffray $250,000 upon rendering its opinion. Whether or not the
transaction is consummated, Media 100 has agreed to pay the reasonable
out-of-pocket expenses of U.S. Bancorp Piper Jaffray and to indemnify U.S.
Bancorp Piper Jaffray against liabilities incurred. These liabilities include
liabilities under the federal securities laws in connection with the engagement
of U.S. Bancorp Piper Jaffray by the Media 100 board of directors.
OPINION OF DIGITAL ORIGIN'S FINANCIAL ADVISOR
On December 13, 1999, Digital Origin engaged First Security Van Kasper
("FSVK") to provide financial advisory services to Digital Origin regarding the
proposed business combination with Media 100. On December 27, 1999, FSVK
delivered a written opinion, dated December 27, 1999, to the board of directors
of Digital Origin opining as to the fairness of the exchange ratio to the
shareholders of Digital Origin from a financial point of view. FSVK's opinion is
limited to the fairness of the exchange
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ratio, from a financial point of view, to the shareholders of Digital Origin and
does not address Digital Origin's underlying business decision to proceed with
the merger.
THE FULL TEXT OF THE WRITTEN OPINION OF FSVK, WHICH SETS FORTH ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION
WITH THE OPINION, IS ATTACHED HERETO AS APPENDIX C AND INCORPORATED HEREIN BY
REFERENCE. THE SUMMARY CONTAINED HEREIN IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION. WE URGE THE SHAREHOLDERS OF DIGITAL
ORIGIN TO CAREFULLY READ THE OPINION IN ITS ENTIRETY.
In connection with its opinion, among other things, FSVK:
- Held discussions with certain members of the management of Digital Origin
concerning, among other things, the financial and other information
provided or reviewed by them, the past and current business operations,
financial condition and future prospects of Digital Origin;
- Reviewed the most recent draft of the merger agreement in the form
provided to them by Digital Origin, which was represented to them to be
the final version to be executed by the parties;
- Reviewed certain publicly available documents for Digital Origin and Media
100;
- Reviewed internal financial projections prepared by the respective
managements, including cost savings and other benefits that both
managements expect will result from the merger, press releases and certain
other information for Digital Origin and Media 100;
- Reviewed the historical stock prices for Digital Origin and Media 100 and
other companies which they determined to be comparable to Digital Origin
and Media 100;
- Reviewed the financial terms, to the extent publicly available, of other
recent business combinations which they deemed to be comparable, in whole
or in part, to the merger; and
- Conducted such other financial analysis as they determined, based upon
their judgment as investment bankers, to be appropriate for purposes of
the opinion.
In their review FSVK assumed, with the permission of Digital Origin, that
the documents to be prepared, used and signed by the parties to formally effect
the merger, including this proxy statement and any other disclosure material to
be delivered to the shareholders of Digital Origin and Media 100 to elicit any
necessary consents to the merger, would effect the merger on the terms set forth
in the proposed form of the merger agreement provided to them by Digital Origin,
without material alteration.
FSVK did not negotiate the terms of the merger, nor provide any legal advice
with respect to the merger. FSVK did not make or provide an independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of Digital Origin or Media 100 nor did they make a physical
inspection of any of the properties or assets of Digital Origin or Media 100.
In rendering their opinion, they relied, without independent verification,
on the accuracy and completeness of all of the financial and other information
that was publicly available or furnished or otherwise communicated to them by
Digital Origin or Media 100 and relied upon and assumed without independent
verification that there has been no material change in the assets, financial
condition and business prospects of Digital Origin or Media 100 since the dates
of the most recent financial statements made available to them. With respect to
financial projections provided to them, they have reviewed those projections,
discussed them with Digital Origin's and Media 100's managements and have made
certain adjustments where they determined it was appropriate to do so.
Independent of the
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foregoing, FSVK was advised by the managements of Digital Origin and Media 100,
and have relied upon and assumed without independent verification:
- That the projections were reasonably prepared, based upon assumptions
reflecting the best currently available estimates and good faith judgments
of the managements as to the future performance of Digital Origin and
Media 100 and the combined company following the consummation of the
merger;
- That such projections will be realized in the amounts and time periods
contemplated thereby; and
- That neither the management of Digital Origin, nor the management of Media
100, has any information or beliefs that would make the projections
incomplete or misleading.
The opinion was based upon an analysis of the foregoing factors in light of
FSVK's assessment of general economic, financial and market conditions as they
existed and as they could be evaluated by FSVK as of the date of the opinion and
on information made available to them. Although events occurring after the date
of the opinion could materially affect the assumptions relied upon in preparing
the opinion, FSVK has no obligation to update, revise or reaffirm the opinion.
The opinion is solely for the benefit and use of the Board of Directors of
Digital Origin in its consideration of the merger and is not a recommendation to
any shareholder as to how such shareholder should vote with respect to the
merger. Further, the opinion addresses only the financial fairness of the
consideration to be paid by Media 100 and does not address the relative merits
of the merger and any alternatives to the merger, Digital Origin's underlying
decision to proceed with or effect the merger or any other aspect of the merger.
SUMMARY OF METHODS UTILIZED
Set forth below is a brief summary of the analyses performed by FSVK in
connection with the delivery of its written opinion stating that the exchange
ratio, as structured on December 27, 1999, was fair to the shareholders of
Digital Origin from a financial point of view.
COMPARISONS TO SELECTED PUBLICLY TRADED COMPANIES
FSVK performed a valuation of Digital Origin using selected financial ratios
and multiples of five publicly traded companies, including Media 100, identified
by FSVK (consisting of Adobe Systems, Inc., Avid Technology, Inc., Media
100, Inc., MGI Software, Inc. and Pinnacle Systems, Inc.). FSVK utilized several
different multiples to derive an implied exchange ratio: the current total
capitalization as a multiple of latest-twelve-month actual revenues, calendar
year 1999 and 2000 estimated revenues and current share price to estimated
calendar 2000 earnings per share. The multiples calculated for the
publicly-traded selected companies were as follows: the average multiple of
current total capitalization to latest-twelve-month actual revenues was 5.9,
adjusted to exclude the highest and lowest multiples, the average multiple of
current total capitalization to calendar 1999 estimated revenues was 4.4; the
average multiple of current total capitalization to estimated calendar 2000
revenues was 3.7; and the average multiple of current share price to estimated
2000 earnings per share was 33.0, adjusted to exclude the highest and lowest
multiples. On the basis of these multiples, FSVK calculated approximate implied
exchange ratios. The implied exchange ratios derived from the
latest-twelve-month and calendar 1999 revenues multiples were 0.521 and 0.457,
respectively, while the implied exchange ratios calculated from calendar 2000
revenue and price to earnings multiples were 0.632 and 0.640, respectively.
No company used in the above analysis for comparison purposes is identical
to Digital Origin. Accordingly, an analysis of the results of the foregoing is
not purely mathematical; rather it involves complex considerations and judgments
as to the financial and operating characteristics of the
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companies and other factors that could affect the value of the companies to
which Digital Origin is being compared.
DISCOUNTED CASH FLOW ANALYSIS.
FSVK performed a discounted cash flow analysis of Digital Origin utilizing
the anticipated future free cash flow streams that Digital Origin would produce
over the period from January 1, 2000 through September 30, 2002 if Digital
Origin performed in accordance with forecasts provided by its management. FSVK
also estimated a terminal value for Digital Origin as of September 30, 2002 by
applying an average multiple of 13.5 times Digital Origin's projected EBITDA for
the fiscal year ending September 30, 2002. FSVK based the terminal value
multiple on actual data from comparable merger and acquisition transactions from
February 1997 through December 1999. The free cash flow streams and terminal
value were discounted to their present value as of December 27, 1999, using a
range of discount rates from 17.7% to 19.7%, reflecting different assumptions
regarding Digital Origin's weighted average cost of capital. On the basis of
these calculations, FSVK determined approximate implied exchange ratios ranging
from 0.344 to 0.359.
SELECTED MERGER AND ACQUISITION MERGER ANALYSIS
FSVK researched a variety of merger and acquisition transaction data
sources, including merger databases, public filings, analyst reports and trade
publications for the time period from September 1995 to the date of its
analysis. FSVK located 41 merger and acquisition transactions involving
companies with similar business models. Upon further examination, 27
transactions were eliminated because of insufficient data to draw conclusions
regarding valuation, differences in transaction size or incompatible underlying
deal structure. FSVK used the remaining 14 transactions to derive an implied
exchange ratio utilizing the multiple of the enterprise value of each
transaction to the revenue of each corresponding target for the twelve-month
period prior to the transaction. The average multiple of enterprise value to
latest-twelve-month revenues was 2.8. On the basis of this average multiple,
FSVK calculated an implied exchange ratio of 0.248.
The forecast and projections furnished to FSVK for Digital Origin and Media
100 were prepared by the managements of the companies. As a matter of policy,
the companies do not publicly disclose internal management forecasts,
projections or estimates of the type furnished in connection with FSVK's
analysis of the merger, and such forecasts, projections and estimates were not
prepared with a view towards public disclosure. These forecasts, projections and
estimates were based on numerous variables and assumptions which are inherently
uncertain and which may not be within the control of management, including,
without limitation, general economic, regulatory and competitive conditions.
Accordingly, actual results could vary materially from those set forth in such
forecasts, projections and estimates.
The summary set forth above describes the material analyses performed by
FSVK and does not purport to be a complete description of such analyses. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. In addition, the
evaluation of fairness of the exchange ratio, from a financial point of view, as
of the date of the written opinion was to some extent a subjective one based on
the experience and judgment of FSVK, and not merely the result of mathematical
analysis of the financial data. Therefore, notwithstanding the separate factors
summarized above, FSVK believes that its analyses must be considered as a whole
and that selecting portions of its analyses, without considering all factors and
analyses, would create an incomplete view of the process underlying the analyses
by which FSVK reached its opinion.
In performing its analyses, FSVK made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, in addition to the financial
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assumptions described above. The analyses performed by FSVK are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than those suggested by such analyses. Such analyses were
prepared solely as part of FSVK's analysis of the merger. The analyses do not
purport to be appraisals or to reflect the prices at which a company might be
sold or the prices at which any securities of Digital Origin or the post-merger
combined company may trade at any time in the future. Furthermore, FSVK may have
given certain analyses more or less weight than other analyses and may have
deemed various assumptions more or less probable than other assumptions, so that
the ranges of valuations resulting from any particular analysis described above
should not be taken to be FSVK's view of the actual value of Digital Origin,
Media 100 or the post-merger combined company.
METHOD OF SELECTION/QUALIFICATIONS OF FSVK.
The Board of Directors of the Company retained FSVK to act as its financial
advisor based upon FSVK's qualifications, experience and expertise. FSVK, as
part of its investment banking activities, regularly engages in the valuation of
businesses and securities in connection with mergers and acquisitions, private
placements and valuations for corporate and other purposes. FSVK, a wholly-
owned subsidiary of First Security Corporation, is a full service investment
banking and brokerage firm specializing in emerging growth and middle market
companies.
RELATIONSHIP/COMPENSATION
Pursuant to a letter agreement dated December 13, 1999, Digital Origin
engaged FSVK to act as its financial advisor in connection with the merger.
Under the letter agreement, Digital Origin has agreed to pay FSVK a fee of
$150,000 in connection with rendering its opinion. In addition, Digital Origin
has agreed to reimburse FSVK for its out of pocket expenses and has agreed to
indemnify FSVK against certain liabilities relating to or arising of the
services provided by FSVK.
Other than the letter agreement referred to above, FSVK has no affiliations
with the Digital Origin or Media 100. The Company did not instruct FSVK with
respect to the methodologies or conclusions reached in connection with the
opinion or impose any limitations on FSVK in respect thereof.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Digital Origin board of directors
with respect to the merger agreement and the transactions contemplated thereby,
you should be aware that certain members of the management of Digital Origin and
the Digital Origin board of directors have certain interests in the merger that
are in addition to, or different from, the interests of shareholders of Digital
Origin generally. The Digital Origin board of directors was aware of these
interests and considered them, among other matters, in approving the merger
agreement.
OPTIONS
In the merger, each option to purchase Digital Origin common stock will be
assumed by Media 100 and will automatically be converted into an option to
purchase Media 100 common stock with appropriate adjustments in share amounts
and the exercise prices to reflect the exchange ratio in the merger. Each
outstanding option to purchase shares of Digital Origin common stock issued
pursuant to the Digital Origin Directors' Stock Option Plan will accelerate. The
total number of outstanding options subject to acceleration is not expected to
exceed 1,000. See "The Merger Agreement--Treatment of Digital Origin Stock
Options and Warrants" on page 41.
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EMPLOYMENT AGREEMENTS
Digital Origin has a preexisting employment agreement dated December 20,
1996, with Mark Housley, the Chief Executive Officer and Chairman of the Board
of Digital Origin. This employment agreement provides that, if following an
acquisition of Digital Origin, Mr. Housley is not offered the position of
President and Chief Operating Officer of the surviving corporation, the board of
directors of the surviving corporation may ask Mr. Housley to assist the
surviving corporation during a one year transition period on up to a full time
basis for the first six months and on up to a 20% basis for the next six months.
If Mr. Housley complies with the surviving corporation's request to assist the
surviving corporation or if the surviving corporation does not request
Mr. Housley's assistance during the transition period, Mr. Housley will receive
his normal salary and benefits.
CERTAIN EMPLOYMENT AND DIRECTORSHIP MATTERS
The officers of Digital Origin immediately prior to the effective time of
the merger will be the initial officers of the Digital Origin after the merger.
All current Digital Origin board members will resign, and the directors of
Derringer Acquisition Corp. will be the initial directors of Digital Origin as
of the effective time of the merger.
In the merger agreement, Media 100 agreed to include in this joint proxy
statement/prospectus a proposal that Mark Housley and Carl Rosendahl, current
directors of Digital Origin, be elected to the Media 100 board of directors
effective as of the effective time of the merger. See "The Media 100 Annual
Meeting--Matters to be Considered at the Media 100 Annual Meeting" on page 70.
INDEMNIFICATION AND INSURANCE
Media 100 has agreed to maintain in effect all rights to certain
indemnification and exculpation for directors, officers and employees of Digital
Origin and its subsidiaries. These rights include indemnification and
exculpation from liabilities for acts or omissions occurring at or prior to the
effective time of the merger existing as of the date of the merger agreement and
are set forth in Digital Origin's Articles of Incorporation and Bylaws and each
contractual indemnification agreement of Digital Origin with its directors and
officers. After the merger, Media 100 will cause any successor to Digital Origin
by merger or sale of all or substantially all assets to assume these
indemnification obligations of Digital Origin and will guarantee the performance
of these obligations with respect to claims related to transactions contemplated
by the merger agreement.
For five years after the effective time of the merger, Media 100 will cause
Digital Origin (or any successor of Digital Origin by merger or sale of all or
substantially all assets) to maintain in effect the current policies of
directors' and officers' and fiduciary liability insurance maintained by Digital
Origin covering claims arising from facts or events occurring at or before the
effective time of the merger. Alternatively, Digital Origin may substitute other
policies for the current policies if the substituted policies are on terms with
respect to coverage and amounts no less favorable to the former officers and
directors of Digital Origin than those in effect on the date of the merger
agreement. Digital Origin (or its successor), however, will not be required to
pay more than 125% of the current amount paid by Digital Origin to maintain this
insurance and if a greater amount is required to maintain this insurance,
Digital Origin (or its successor) will only be required to maintain as much
coverage as can be obtained for aggregate premiums of 125% of the current amount
paid by Digital Origin for such coverage.
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion of the
merger are satisfied or waived, including approval and adoption of the merger
agreement by the shareholders of Digital Origin. The merger will become
effective upon the filing of the agreement of merger and officer's certificate
with the State of California.
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STRUCTURE OF THE MERGER AND CONVERSION OF DIGITAL ORIGIN COMMON STOCK
In accordance with the merger agreement and California law, Derringer
Acquisition Corp., a newly-formed and wholly-owned subsidiary of Media 100, will
be merged with and into Digital Origin. As a result of the merger, the separate
corporate existence of Derringer Acquisition Corp. will cease and Digital Origin
will survive as a wholly-owned subsidiary of Media 100. In the merger, each
outstanding share of Digital Origin common stock will be converted into the
right to receive .5347 of a fully paid and nonassessable share of Media 100
common stock. The number of shares of Media 100 common stock issuable in the
merger will be proportionately adjusted for any stock split or stock dividend
with respect to Digital Origin common stock or Media 100 common stock effected
between the date of the merger agreement and the completion of the merger. The
shares of Media 100 to be issued to Digital Origin shareholders as a result of
the merger will constitute approximately 26% of the outstanding stock of
Media 100 after the merger.
EXCHANGE OF DIGITAL ORIGIN STOCK CERTIFICATES FOR MEDIA 100 STOCK CERTIFICATES
When the merger is completed, the exchange agent will mail to Digital Origin
shareholders a letter of transmittal and instructions for use in surrendering
Digital Origin stock certificates in exchange for Media 100 stock certificates.
When you deliver your Digital Origin stock certificates to the exchange agent
along with a properly executed letter of transmittal and any other required
documents, your Digital Origin stock certificates will be canceled and you will
receive a Media 100 stock certificate representing the number of full shares of
Media 100 common stock to which you are entitled under the merger agreement. You
will receive a payment of cash in lieu of any fractional shares of Media 100
common stock which would have been otherwise issuable to you as a result of the
merger.
If you want us to issue you a Media 100 stock certificate or a check in lieu
of a fractional share in a name other than the name in which your surrendered
Digital Origin stock certificate is registered, you must present the exchange
agent with all documents required to show and effect the unrecorded transfer of
ownership and show that you paid any applicable stock transfer taxes.
YOU SHOULD NOT SUBMIT YOUR DIGITAL ORIGIN STOCK CERTIFICATES FOR EXCHANGE
UNLESS AND UNTIL YOU RECEIVE THE TRANSMITTAL INSTRUCTIONS AND A LETTER OF
TRANSMITTAL FROM THE EXCHANGE AGENT.
You are not entitled to receive any dividends or other distributions on
Media 100 common stock until the merger is completed and you have surrendered
your Digital Origin stock certificates in exchange for Media 100 stock
certificates.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a summary of certain U.S. federal income tax
consequences of the merger to holders of Digital Origin common stock who
exchange such common stock for Media 100 common stock pursuant to the merger.
The discussion which follows is based on the Internal Revenue Code, Treasury
regulations promulgated thereunder, administrative rulings and pronouncements
and judicial decisions as of the date hereof, all of which are subject to
change, possibly with retroactive effect. The discussion below applies to
Digital Origin shareholders which hold their Digital Origin common stock as
capital assets. Moreover, the discussion is for general information only and
does not address the effects of any state, local or foreign tax laws on the
merger. The tax treatment of a Digital Origin shareholder may vary depending
upon his or her particular situation, and special rules not discussed below may
be relevant to certain shareholders, such as:
- insurance companies,
- tax-exempt organizations,
- financial institutions and broker-dealers,
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- persons who do not hold Digital Origin common stock as capital assets,
- individuals who received Digital Origin common stock pursuant to the
exercise of employee stock options or otherwise as compensation,
- non-U.S. persons and
- persons who hold Digital Origin common stock as part of a "straddle,"
"hedge" or conversion transaction.
Consummation of the merger is conditioned upon the receipt by Media 100 of
an opinion from Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Media 100,
and by Digital Origin of an opinion from Fenwick & West LLP, counsel to Digital
Origin, dated as of the effective time of the merger, to the effect that the
merger will qualify as a "reorganization" within the meaning of Section 368(a)
of the Internal Revenue Code for U.S. federal income tax purposes. The opinions
of counsel referred to above are based on certain representations as to factual
matters made by Media 100, Digital Origin and Derringer Acquisition Corp., in
each case, in form and substance reasonably satisfactory to each of the counsel
referred to above. The representations referred to above, if incorrect in
certain material respects, could jeopardize the conclusions reached in the
opinions. Neither Media 100 nor Digital Origin is currently aware of any facts
or circumstances which would cause any of the representations made to counsel to
be untrue or incorrect in any material respect. Opinions of counsel are not
binding on the Internal Revenue Service or the courts. Neither Media 100 nor
Digital Origin has requested, nor will either request, an advance ruling from
the Internal Revenue Service as to the tax consequences of the Merger.
Accordingly, there can be no assurance that the Internal Revenue Service will
not challenge the conclusions reflected in such opinions, or that a court will
not sustain such a challenge.
TAX IMPLICATIONS TO DIGITAL ORIGIN SHAREHOLDERS:
Based on the opinions discussed above,
(i) you will not recognize any income, gain or loss as a result of the
receipt of Media 100 common stock in the merger, except to the extent of any
cash you receive in lieu of fractional shares of Media 100 common stock;
(ii) your tax basis for the Media 100 common stock you receive in the
merger, including any fractional share interest in Media 100 common stock
for which you receive cash, will equal your tax basis in the Digital Origin
common stock exchanged therefor;
(iii) your holding period for the Media 100 common stock you receive in
the merger will include the holding period of the Digital Origin common
stock surrendered in exchange therefor; and
(iv) if you receive cash in lieu of a fractional share interest in Media
100 common stock in the merger you will be treated as having received such
cash in exchange for such fractional share interest and generally will
recognize capital gain or loss on such deemed exchange in an amount equal to
the difference between the amount of cash received and the tax basis of the
Digital Origin common stock allocable to such fractional share.
BECAUSE OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, WE URGE YOU TO CONSULT
YOUR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF THE MERGER, INCLUDING
THE EFFECT OF U.S. FEDERAL, STATE AND LOCAL, AND FOREIGN AND OTHER TAX RULES,
AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS.
ANTICIPATED ACCOUNTING TREATMENT
We intend to account for the merger as a pooling of interests business
combination in accordance with generally accepted accounting principles. Under
this accounting method, the historical financial
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information of Media 100 and Digital Origin will be restated to reflect the
combined financial position and operations of both companies. We have agreed to
use commercially reasonable best efforts to cause the merger to qualify for
pooling of interests accounting treatment. It is a condition to completion of
the merger that Media 100 be advised by its independent accountants, Arthur
Andersen LLP, regarding Arthur Andersen's concurrence with Media 100's
management's conclusion that the merger will qualify for pooling of interests
accounting treatment and that Digital Origin be advised by its independent
auditors, Ernst & Young LLP, regarding Ernst & Young's concurrence with Digital
Origin's management's conclusion that Digital Origin meets the necessary
criteria as a "combining company" in a merger qualifying for pooling of
interests accounting treatment.
DISSENTERS' RIGHTS
THE REQUIRED PROCEDURE FOR ACQUIRING AND EXERCISING DISSENTERS' RIGHTS SET
FORTH IN CHAPTER 13 OF THE CALIFORNIA CORPORATIONS CODE MUST BE FOLLOWED EXACTLY
OR ANY DISSENTERS' RIGHTS MAY BE LOST. The rights of holders of Digital Origin
common stock to dissent from the merger and demand payment for their shares are
governed by Chapter 13 of the California Corporations Code, the full text of
which is reprinted as Appendix D. The summary of these rights set forth below is
not intended to be complete and is qualified in its entirety by reference to
Appendix D. If holders of more than ten percent of the outstanding Digital
Origin common stock properly exercise their dissenters' rights, we will be
unable to use the pooling of interests accounting method, and as a result the
merger might not be completed.
Under the California Corporations Code, a holder of Digital Origin common
stock will have dissenters' rights with respect to the merger if the shareholder
seeking to exercise such rights duly files a demand for payment and fully
complies with the other requirements of Chapter 13 of the California
Corporations Code. If a Digital Origin shareholder complies with these
requirements, it will have dissenters' rights to be paid in cash the fair market
value of its shares.
Under the California Corporations Code, "fair market value" is determined as
of December 27, 1999, the day before the first announcement of the terms of the
merger agreement, excluding any appreciation or depreciation as a consequence of
the merger. If the parties are unable to agree on a fair market value, the
dissenting shareholder may request that the superior court of the proper court
of the State of California determine the fair market value of the shares. The
court's decision would be subject to appellate review.
The terms of the merger agreement were publicly announced on December 28,
1999. On December 27, 1999, the last trading day prior to the public
announcement, the high ask and low bid prices for a share of Digital Origin
common stock were $9.75 and $8.375, respectively.
Dissenters' rights cannot be validly exercised by persons other than
shareholders of record regardless of the beneficial ownership of the shares.
Persons who are beneficial owners of shares held of record by another person,
such as a broker, a bank or a nominee, should instruct the record holder to
follow the procedures outlined below if the beneficial owners wish to dissent
from the approval of the merger.
As described more fully below, in order to perfect their dissenters' rights,
shareholders of record must:
- make written demand for the purchase of their dissenting shares to Digital
Origin or its transfer agent which is received by Digital Origin or its
transfer agent within 30 days after Digital Origin sends notice of the
approval of the merger by the Digital Origin shareholders;
- not vote their dissenting shares in favor of the merger; and
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- submit within 30 days after Digital Origin sends notice of approval of the
merger by Digital Origin shareholders, the certificates representing their
dissenting shares to Digital Origin or its transfer agent, for notation
thereon that they represent dissenting shares.
Failure to follow any of these procedures may result in the loss of a
holder's dissenters' rights.
DEMAND FOR PURCHASE
A shareholder of Digital Origin who wishes to exercise his or her
dissenters' rights must provide written notice upon Digital Origin at its
principal offices at 460 E. Middlefield Road, Mountain View, California 94043,
Attn: Corporate Secretary, or upon Digital Origin's transfer agent, ChaseMellon
Shareholder Services, demanding that Digital Origin purchase the shares of
Digital Origin common stock held by the dissenting shareholder for cash at fair
market value.
The notice must state the number and class of shares held of record which
the shareholder demands that Digital Origin purchase and the amount which the
dissenting shareholder claims to be the "fair market value" of those shares on
December 27, 1999. The dissenting shareholder's statement of fair market value
will constitute an offer by the dissenting shareholder to sell his or her shares
at that price. A demand will not be effective unless it is received within
30 days after Digital Origin sends notice of shareholder approval of the merger
to the dissenting shareholder.
Dissenting shareholders may not withdraw their demand for payment without
the consent of the Digital Origin board of directors. The right of dissenting
shareholders to demand payment terminates:
- if Digital Origin abandons the merger (although dissenting shareholders
are entitled upon demand to reimbursement of expenses incurred in a good
faith assertion of their dissenters' rights);
- if the shares are transferred prior to submission for endorsement as
dissenting shares; or
- if Digital Origin and the dissenting shareholders do not agree upon the
status of the shares as dissenting shares or upon the purchase price of
the shares, and neither files a complaint or intervenes in a pending
action seeking enforcement of payment within six months after the date on
which notice of approval of the merger was mailed to the shareholders.
No shareholder who has a right to demand cash payment for his or her shares
will have any right to attack the validity of the merger or have the merger set
aside or rescinded, except in an action to test whether Digital Origin has
received approval from the number of shares required to approve the merger.
DO NOT VOTE FOR APPROVAL OF THE MERGER
Dissenting shareholders must not vote their dissenting shares in favor of
the merger. Not voting in favor of the merger will not of itself, absent
compliance with the provisions of Chapter 13 of the California Corporations Code
summarized herein, satisfy the requirement of the California Corporations Code
for exercise and perfection of dissenters' rights.
NOTICE OF APPROVAL
Digital Origin will mail to each shareholder who abstains or votes against
the merger a notice of approval of the merger within ten days after the date of
shareholder approval of the merger, stating the price determined by Digital
Origin to represent the fair market value of the dissenting shares. The
statement of price will constitute an offer to purchase any dissenting shares at
that price.
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SUBMISSION OF STOCK CERTIFICATES
Within 30 days after the mailing of the notice of approval of the merger,
dissenting shareholders must submit to Digital Origin or its transfer agent, at
the address set forth above, the certificates representing the dissenting shares
to be purchased, for stamping or endorsement with a statement that the shares
are dissenting shares or for exchange for certificates of appropriate
denomination so stamped or endorsed. The notice of approval of the merger will
specify the date by which the submission of certificates for endorsement must be
made, and a submission made after that date will not be effective for any
purpose.
PURCHASE OF DISSENTING SHARES
If a dissenting shareholder and Digital Origin agree that the shares are
dissenting shares and agree upon the price of the shares, Digital Origin will,
upon surrender of the certificates, make payment of the agreed upon amount (plus
interest thereon at the legal rate on judgments from the date of the agreement)
within 30 days after the agreement on price. Any agreement between dissenting
shareholders and Digital Origin fixing the fair market value of any dissenting
shares must be filed with the Secretary of Digital Origin.
If Digital Origin denies that the shares are dissenting shares, or Digital
Origin and a dissenting shareholder fail to agree upon the fair market value of
the shares, the dissenting shareholder may, within six months after the date on
which notice of approval of the merger was mailed to the shareholder, but not
thereafter, file a complaint (or intervene in a pending action, if any) in the
superior court of the proper county of the State of California, requesting that
the superior court determine whether the shares are dissenting shares or the
fair market value of the dissenting shares. The superior court may appoint one
or more appraisers to determine the fair market value per share of the
dissenting shares. The costs of the action, including reasonable compensation to
the appraisers to be fixed by the court, will be assessed or apportioned as the
superior court considers equitable, but if the fair market value is determined
to exceed the price offered to the dissenting shareholder by Digital Origin,
then Digital Origin will be required to pay these costs (including, in the
discretion of the superior court, attorneys' fees, fees of expert witnesses and,
subject to certain limitations, interest at the legal rate on judgments).
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF DIGITAL ORIGIN AND MEDIA 100
The shares of Media 100 common stock to be issued in connection with the
merger will be registered under the Securities Act of 1933 and will be freely
transferable under the Securities Act, except for shares of Media 100 common
stock issued to any person who is deemed to be an "affiliate" of either of
Digital Origin or Media 100 at the time of the Digital Origin special meeting.
Persons who may be deemed to be affiliates include individuals or entities that
control, are controlled by, or are under common control with either Digital
Origin or Media 100 and may include their senior officers and directors, as well
as their principal shareholders. Affiliates may not sell their shares of Media
100 common stock acquired in connection with the merger except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act; or
- any other applicable exemption under the Securities Act.
Media 100's registration statement on Form S-4, of which this joint proxy
statement/prospectus forms a part, does not cover the resale of shares of Media
100 common stock to be received by affiliates of Digital Origin in the merger.
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In the merger agreement, both Media 100 and Digital Origin have agreed to
use their commercially reasonable best efforts to obtain from the individuals
they believe to be affiliates contractual agreements that these persons will
restrict the transfer of shares of Media 100 common stock or Digital Origin
common stock they hold prior to and following the merger in order to comply with
the requirements of pooling of interests accounting treatment. It is a condition
to each party's obligation to close the merger that the other party obtain prior
to closing the affiliate agreements it is required to obtain.
NASDAQ STOCK MARKET LISTING
It is a condition to the merger that, upon consummation of the merger, the
shares of Media 100 common stock to be issued by Media 100 in connection with
the merger be authorized for listing on the Nasdaq National Market upon official
notice of issuance.
DELISTING AND DEREGISTRATION OF DIGITAL ORIGIN COMMON STOCK
If the merger is consummated, the Digital Origin common stock will be
delisted from the Nasdaq SmallCap Market and will be deregistered under the
Securities and Exchange Act of 1934.
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the merger
agreement. You should read carefully the merger agreement, which is included in
this joint proxy statement/prospectus as Appendix A.
Please note that the italicized terms ACQUISITION PROPOSAL, SUPERIOR
PROPOSAL, COMPANY MATERIAL ADVERSE EFFECT and PARENT MATERIAL ADVERSE EFFECT
used in this section are defined on pages 40, 41, 43 and 44, respectively.
REPRESENTATIONS AND WARRANTIES
Each of us has made representations and warranties to the other in the
merger agreement as to, among other things, the following topics:
- corporate organization and qualification to do business;
- our respective charters and bylaws;
- our respective capitalizations;
- due authorizations, execution, delivery and enforceability of the merger
agreement;
- compliance with laws;
- the effect of the merger on our legal obligations;
- Securities and Exchange Commission and regulatory filings;
- changes in our respective businesses since our respective fiscal year
ends;
- liabilities;
- litigation;
- employee benefit plans;
- labor relationships;
- title to the properties we own and use;
- taxes;
- environmental laws;
- intellectual property;
- the accuracy of information supplied by us in this joint proxy
statement/prospectus and the related registration statement filed by Media
100;
- year 2000 compliance;
- the qualification of the merger as a "pooling of interests" and a tax-free
reorganization;
- the absence of brokers or finders; and
- identification of our affiliates.
Digital Origin has also made additional representations and warranties to
Media 100 as to the following topics:
- Digital Origin's material contracts;
- permits required to conduct Digital Origin's business and compliance with
those permits;
- Digital Origin's insurance;
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- the lack of any agreement or order which may prohibit or impair any
business practice of Digital Origin;
- lack of certain relationships or related party transactions;
- the lack of change in control payments;
- the absence of existing discussions for acquisition of Digital Origin;
- the opinion of Digital Origin's financial advisor;
- proprietary information and inventions agreements between Digital Origin
and current and former employees and officers of Digital Origin;
- Digital Origin's business practices with respect to certain sensitive
payments; and
- full disclosure by Digital Origin of all material facts and lack of
material misstatements by Digital Origin in the merger agreement and
documents relating to the merger agreement.
Media 100 has also made an additional representation and warranty to Digital
Origin relating to the lack of prior activities conducted by Derringer
Acquisition Corp.
The representations and warranties in the merger agreement are complicated
and not easily summarized. You are urged to carefully read the articles of the
merger agreement entitled "Representations and Warranties of the Company" and
"Representations and Warranties of Parent and Merger Sub" on pages A-10 and
A-23, respectively.
CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
Digital Origin has agreed that until the earlier of the completion or
termination of the merger, or unless Media 100 consents in writing, Digital
Origin and its subsidiaries will conduct its businesses in the ordinary course
of business consistent with past practices and use commercially reasonable best
efforts to:
- preserve substantially intact their business organization;
- keep available the services of their current officers, employees and
consultants; and
- preserve their present relationships with customers, suppliers and other
persons with whom they have significant business relations.
Digital Origin also agreed that until the earlier of the completion or
termination of the merger, or unless Media 100 consents in writing, Digital
Origin and its subsidiaries will conduct their business in compliance with
certain specific restrictions relating to the following:
- the amending or otherwise changing of the charter or bylaws of Digital
Origin or any its subsidiaries;
- the issuance and redemption of securities;
- the acquisition of assets or other entities;
- the incurrence of indebtedness;
- the issuance of dividends or other distributions;
- the split, combination or reclassification of its capital stock;
- the disposition of Digital Origin's assets;
- capital expenditures;
- entrance into or modification of material contracts;
- employees and employee benefits;
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- accounting policies and procedures;
- settlement of litigation and claims; and
- tax elections and liabilities.
Media 100 agreed that until the earlier of the completion or termination of
the merger, or unless Digital Origin consents in writing, Media 100 and its
subsidiaries will conduct its businesses in the ordinary course of business and
use commercially reasonable best efforts to:
- preserve substantially intact their business organization;
- keep available the services of their current officers, employees and
consultants; and
- preserve their present relationships with customers, suppliers and other
persons with whom they have significant business relations.
The agreements related to the conduct of Digital Origin's and Media 100's
business in the merger agreement are complicated and not easily summarized. You
are urged to carefully read the articles of the merger agreement entitled
"Conduct of Business by the Company Pending the Merger" and "Conduct of Business
by Parent Pending the Merger" on pages A-32 and A-34, respectively.
NO OTHER NEGOTIATIONS INVOLVING DIGITAL ORIGIN
Until the earlier of the completion or termination of the merger, Digital
Origin has agreed not to directly or indirectly take any of the following
actions:
- solicit, initiate, facilitate or encourage any inquiries or proposals that
constitute, or could be expected to lead to, an ACQUISITION PROPOSAL; or
- engage in negotiations or discussions with any person making or proposing
to make an ACQUISITION PROPOSAL or disclose any non-public information
relating to Digital Origin.
However, at any time prior to the Digital Origin special meeting, Digital
Origin may, in response to an ACQUISITION PROPOSAL which it did not solicit and
did not result from a breach of the merger agreement, and after providing notice
to Media 100 in the manner specified in the merger agreement, engage in
negotiations or discussions or, subject to certain restrictions, provide
non-public information to the person making the ACQUISITION PROPOSAL if the
Digital Origin board of directors determines in good faith, after consultation
with outside counsel, that it must do so in order to comply with its fiduciary
duties to the shareholders of Digital Origin under applicable law.
An ACQUISITION PROPOSAL is any inquiry, proposal or offer relating to any of
the following:
- the acquisition of a business that constitutes 15% or more of the net
revenues, net income or assets of Digital Origin and its subsidiaries,
taken as a whole;
- the acquisition or purchase of 15% or more of any class of equity
securities of Digital Origin or any of its subsidiaries;
- any tender offer or exchange offer that, if consummated, would result in
any person beneficially owning 15% or more of any class of equity
securities of Digital Origin or any of its subsidiaries; or
- a merger or other business combination involving Digital Origin or any of
its subsidiaries other than the transactions contemplated by the merger
agreement.
BOARDS OF DIRECTORS' COVENANTS TO RECOMMEND
DIGITAL ORIGIN BOARD OF DIRECTORS' COVENANT TO RECOMMEND
The Digital Origin board of directors has agreed to recommend that its
shareholders approve the merger. In addition, the Digital Origin board of
directors has agreed not to approve or recommend, or
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propose publicly to approve or recommend, any ACQUISITION PROPOSAL or to cause
Digital Origin to enter into any agreement related to any ACQUISITION PROPOSAL.
However, in response to an unsolicited SUPERIOR PROPOSAL, and after providing
notice to Media 100 in the manner specified in the merger agreement, the Digital
Origin board of directors may withdraw or modify, or propose publicly to
withdraw or modify its approval or recommendation of the merger if, at any time
prior to the Digital Origin annual meeting, the Digital Origin board of
directors determines in good faith, after consultation with outside counsel,
that it is necessary to do so in order to comply with its fiduciary duties to
the Digital Origin shareholders under applicable law. In addition, the Digital
Origin board of directors may also withdraw or modify its recommendation that
the Digital Origin shareholders approve the merger in the absence of any
ACQUISITION PROPOSAL or SUPERIOR PROPOSAL if, at any time prior to the Digital
Origin annual meeting, the Digital Origin board of directors determines in good
faith, after consultation with outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to the Digital Origin shareholders
under applicable law.
A SUPERIOR PROPOSAL is a proposal made by a third party:
- to acquire more than 50% of the combined voting power, or substantially
all of the assets, of Digital Origin,
- on terms which the Digital Origin board of directors determines in good
faith (based on the advice of a financial advisor) to be more favorable to
the Digital Origin shareholders than the merger, and
- for which financing, to the extent required, is then committed.
MEDIA 100 BOARD OF DIRECTORS' COVENANT TO RECOMMEND
Media 100's board of directors has agreed to recommend that its stockholders
approve the issuance of Media 100 common stock in the merger.
TREATMENT OF DIGITAL ORIGIN STOCK OPTIONS AND WARRANTS
As of the effective time of the merger, each outstanding option or warrant
to purchase Digital Origin common stock (not listed below) will be assumed by
Media 100, including options granted outside any qualified stock option plans
and options granted under each of the following stock option plans:
- Radius Inc. 1986 Stock Option Plan, as amended;
- SuperMac Technology 1988 Stock Option Plan, as amended;
- Digital Origin 1995 Stock Option Plan;
- Digital Origin 1994 Directors' Stock Option Plan;
- Radius Inc. 1990 Employee Stock Purchase Plan, as amended;
- Digital Origin 1999 Employee Stock Purchase Plan; and
- Digital Origin Directors Stock Option Plan.
As of the effective time of the merger, each outstanding option or warrant
to purchase Digital Origin common stock will be converted, in accordance with
its terms, into an option or warrant to purchase the number of shares of Media
100 common stock equal to 0.5347 times the number of shares of Digital Origin
common stock which could have been obtained before the merger upon the exercise
of the option or warrant, rounded up to the nearest whole share. The exercise
price will be equal to the exercise price per share of Digital Origin common
stock subject to the option or warrant before conversion divided by 0.5347,
rounded to the nearest whole cent. All outstanding options issued pursuant to
the Digital Origin Directors' Stock Option Plan will accelerate.
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As of the effective time of the merger, other than exercise price, the terms
of each option or warrant and the Digital Origin option plans referred to above
under which the options were issued will continue to apply in accordance with
their terms, including any provisions providing for acceleration.
Media 100 will file a registration statement on Form S-8 for the shares of
Media 100 common stock issuable with respect to all Digital Origin options
issued under the Digital Origin stock option plans and will use its commercially
reasonable best efforts to list those shares of Media 100 common stock with the
Nasdaq National Market.
CONDITIONS TO COMPLETION OF THE MERGER
The respective obligations of Media 100 and Digital Origin to effect the
merger are subject to the satisfaction or waiver of the following conditions
before completion of the merger:
- Media 100's registration statement on Form S-4 must be effective, and no
stop order suspending its effectiveness shall have been made and no
proceedings for suspension of its effectiveness shall have been initiated
or threatened by the Securities and Exchange Commission;
- the merger agreement must be approved and adopted by a majority of the
outstanding shares of Digital Origin common stock;
- all applicable waiting periods under applicable antitrust laws and any
other legal requirement of any governmental entity must have expired or
been terminated and any requirements of other jurisdictions applicable to
the consummation of the merger must have been satisfied;
- there must not be any order or injunction issued by a court or any other
legal restraint or prohibition preventing the merger, any pending
proceeding by a governmental entity or administrative agency seeking to
restrain or prohibit the merger, or any action taken or law, rule,
regulation or order enacted or issued which has the effect of making the
merger illegal;
- Media 100 must receive the opinion of its counsel, Skadden, Arps, Slate,
Meagher & Flom LLP, dated as of the effective time of the merger,
substantially to the effect that the merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code, and Digital Origin must receive a similar opinion from its
counsel, Fenwick & West LLP;
- there must not be pending or threatened any action or proceeding by a
governmental entity or administrative agency or any judgment, decree or
order of any governmental entity, administrative agency or court seeking
to prohibit or limit Media 100 from exercising all material rights and
privileges pertaining to its ownership of Digital Origin or Media 100's
ownership or operation of a material portion of its business or assets or
seeking to compel Media 100 to dispose of or hold separate any portion of
its business or assets (including the surviving corporation and its
subsidiaries) as a result of the completion of the merger;
- the shares of Media 100 common stock to be issued in the merger must be
approved for listing on the Nasdaq National Market upon official notice of
issuance;
- Media 100 must be advised by its independent accountants, Arthur Andersen
LLP, regarding Arthur Andersen's concurrence with Media 100's management's
conclusion that the business combination to be effected by the merger will
qualify as a "pooling of interests" transaction under generally accepted
accounting principles;
- Digital Origin must be advised by its independent auditors, Ernst & Young
LLP, regarding Ernst & Young's concurrence with Digital Origin's
management's conclusion that Digital Origin meets the necessary criteria
as a "combining company" in a merger qualifying as a "pooling of
interests" transaction under generally accepted accounting principles; and
- the issuance of Media 100 common stock in the merger must be approved and
adopted by a majority of the votes cast, provided there is a quorum.
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The obligations of Media 100 and Derringer Acquisition Corp. to effect the
merger are subject to the satisfaction or waiver of the following conditions:
- Digital Origin's representations and warranties must be true and correct
as of December 28, 1999 and as of the date the merger is to be completed
as if they were made at and as of such time except:
- to the extent Digital Origin's representations speak as of an earlier
date;
- for changes contemplated by the merger agreement; and
- where the failure of Digital Origin's representations and warranties to
be true and correct, individually or in the aggregate, do not have, and
could not reasonably be expected to have, a COMPANY MATERIAL ADVERSE
EFFECT;
- Digital Origin must perform or comply in all material respects with all of
its agreements and covenants required by the merger agreement to be
performed or complied with by Digital Origin at or prior to the completion
of the merger;
- Digital Origin must obtain all consents, waivers, approvals,
authorizations and orders required to be obtained by it and make all
filings required to be made by it for the authorization, execution and
delivery of the merger agreement; and
- Digital Origin's affiliates must deliver not later than 30 days preceding
the effective time of the merger an executed affiliate agreement to Media
100, which is in full force and effect.
A COMPANY MATERIAL ADVERSE EFFECT is any change, effect or circumstance
that, individually or when taken together with all other changes, effects or
circumstances that have occurred or reasonably could be expected to occur prior
to the determination of an occurrence of a Company Material Adverse Effect is
materially adverse to the business, prospects, assets, condition or results of
operations of Digital Origin and its subsidiaries, taken as a whole, or could
materially delay or prevent the consummation of the merger. However, there will
be no COMPANY MATERIAL ADVERSE EFFECT to the extent that any change, effect or
circumstance results from the following:
- changes in economic or market conditions affecting the software industry
generally;
- changes in Digital Origin's stock price; and
- any loss of a supplier, customer or employee resulting from the merger or
its announcement.
Notwithstanding the above, a Company Material Adverse Effect will occur if
Digital Origin's revenue for the fiscal quarter ending March 31, 2000 is
$3,937,500 or lower.
The obligations of Digital Origin to effect the merger is subject to the
satisfaction or waiver of the following conditions:
- Media 100's representations and warranties must be true and correct as of
December 28, 1999 and as of the date the merger is to be completed as if
they were made at and as of such time except:
- to the extent Media 100's representations speak as of an earlier date;
- for changes contemplated by the merger agreement; and
- where the failure of Media 100's representations and warranties to be
true and correct, individually or in the aggregate, do not have, and
could not reasonably be expected to have, a PARENT MATERIAL ADVERSE
EFFECT;
- Media 100 must perform or comply in all material respects with all of its
agreements and covenants required by the merger agreement to be performed
or complied with by Media 100 at or prior to the completion of the merger;
and
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- Media 100's affiliates must deliver not later than 30 days preceding the
effective time of the merger an executed affiliate agreement to Digital
Origin, which is in full force and effect.
A PARENT MATERIAL ADVERSE EFFECT is any change, effect or circumstance that,
individually or when taken together with all other changes, effects or
circumstances that have occurred or reasonably could be expected to occur prior
to the determination of an occurrence of a PARENT MATERIAL ADVERSE EFFECT is
materially adverse to the business, prospects, assets, condition or results of
operations of Media 100 and its subsidiaries, taken as a whole, or could
materially delay or prevent the consummation of the merger. However, there will
be no PARENT MATERIAL ADVERSE EFFECT to the extent that any change, effect or
circumstance results from the following:
- changes in economic or market conditions affecting the computer
peripherals or computer software industries generally;
- changes in Media 100's stock price; and
- any loss of a supplier, customer or employee resulting from the merger or
its announcement.
Notwithstanding the above, a Parent Material Adverse Effect will occur if
Media 100's revenue for the fiscal quarter ending February 29, 2000 is
$10,050,000 or lower.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the effective
time of the merger, whether before or after the approval and adoption of the
merger agreement by the Digital Origin shareholders, in the following
situations:
- by mutual consent of the boards of directors of Media 100 and Digital
Origin;
- by Media 100 or Digital Origin
- if the merger is not completed by June 30, 2000; however, if the failure
to complete the merger by this date is due to a party's failure to
perform any of its obligations under the merger agreement, this
termination right will not be available to the nonperforming party;
- if there is a nonappealable final order of a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission permanently restraining, enjoining or otherwise prohibiting
the completion of the merger, unless the party relying on such order has
not complied with its obligations under the merger agreement;
- if the merger agreement fails to receive the requisite vote for approval
and adoption by the shareholders of Digital Origin at the Digital Origin
annual meeting; or
- if the issuance of shares of Media 100 common stock pursuant to the
merger fails to receive the requisite vote for approval and adoption by
the stockholders of Media 100 at the Media 100 annual meeting;
- by Media 100
- if Digital Origin breaches or fails to perform any of its
representations, warranties, covenants or other agreements contained in
the merger agreement (and Digital Origin fails to cure the breach within
ten business days) so that the applicable condition to completion of the
merger requiring that Digital Origin's representations and warranties be
accurate and its covenants and agreements be performed would not be met;
- if, in a manner prohibited by the merger agreement, Digital Origin's
board of directors fails to recommend approval and adoption of the merger
agreement by the shareholders of Digital Origin or withdraws or modifies,
or publicly announces an intention to withdraw or modify, its approval or
recommendation of the merger agreement or the merger in a manner adverse
to Media 100;
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- if, in a manner prohibited by the merger agreement, Digital Origin's
board of directors approves or recommends or proposes publicly to approve
or recommend any ACQUISITION PROPOSAL;
- if Digital Origin takes any other action prohibited by the merger
agreement with respect to any person or entity who has made or may make
an ACQUISITION PROPOSAL; or
- if Digital Origin fails to call and hold its annual meeting by June 29,
2000, unless Media 100's failure to perform its obligations under the
merger agreement is the reason for Digital Origin failing to call and
hold its annual meeting;
- by Digital Origin
- if Media 100 breaches or fails to perform any of its representations,
warranties, covenants or other agreements contained in the merger
agreement (and Media 100 fails to cure the breach within ten business
days) so that the applicable condition to completion of the merger
requiring that Media 100's representations and warranties be accurate and
its covenants and agreements be performed would not be met;
- if its board of directors in response to an unsolicited SUPERIOR PROPOSAL
(and subject to certain notice requirements) determines in good faith,
after consultation with outside counsel, that it must terminate the
merger agreement in order to comply with its fiduciary duties to the
Digital Origin shareholders under applicable law, provided that Digital
Origin pays Media 100 the appropriate termination fee (see "--Termination
Fees; Expenses") below; or
- if Media 100 fails to call and hold its annual meeting by June 29, 2000,
unless Digital Origin's failure to perform its obligations under the
merger agreement is the reason for Media 100 failing to call and hold its
annual meeting.
TERMINATION FEES; EXPENSES
Generally, Media 100 and Digital Origin will each pay for their own
expenses, provided that Media 100 will pay all fees and expenses, other than
Digital Origin's financial advisor's, accountant's and attorneys' fees and
expenses, incurred in connection with preparing the printing and filing of this
joint proxy statement/prospectus, the registration statement on Form S-4
(relating to the shares of Media 100 common stock to be issued in the merger),
including any amendments or supplements thereto, and antitrust regulatory
filings. However, under certain circumstances described below, one party will be
required to reimburse the other party for the other party's fees and expenses
actually incurred relating to the transactions contemplated by the merger
agreement.
Digital Origin shall reimburse Media 100 for all of Media 100's fees and
expenses actually incurred relating to the transactions contemplated by the
merger agreement prior to the termination of the merger agreement, upon
termination of the merger agreement
- by Media 100 or Digital Origin due to the Digital Origin shareholders
failing to approve and adopt the merger agreement at the Digital Origin
annual meeting if prior to such termination an ACQUISITION PROPOSAL had
been publicly announced or otherwise become publicly known or any person
shall have publicly announced an intention to make an ACQUISITION
PROPOSAL, provided that Media 100's fees and expenses that Digital Origin
will be required to reimburse in this situation is limited to $750,000;
- by Media 100 due to Digital Origin failing to satisfy the condition to
completion of the merger requiring that Digital Origin's representations
and warranties be accurate and its covenants and agreements be performed;
- by Media 100 due to Digital Origin violating its non-solicitation
obligations as discussed above in "--No Other Negotiations Involving
Digital Origin" on page 40;
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- by Media 100 due to the Digital Origin board of directors violating its
obligation to recommend that the Digital Origin shareholders approve and
adopt the merger agreement at the Digital Origin annual meeting as
discussed above in "--Boards of Directors' Covenants to Recommend" on page
40;
- by Media 100 due to Digital Origin failing to call and hold its annual
meeting by June 29, 2000, unless Media 100's failure to perform its
obligations under the merger agreement is the reason for Digital Origin
failing to call and hold its annual meeting; or
- by Digital Origin due to the Digital Origin board of directors' good faith
determination that Digital Origin had to terminate the merger agreement in
response to an unsolicited SUPERIOR PROPOSAL.
Media 100 shall reimburse Digital Origin for all of Digital Origin's fees
and expenses actually incurred relating to the transactions contemplated by the
merger agreement prior to the termination of the merger agreement, upon
termination of the merger agreement
- by Media 100 or Digital Origin due to the Media 100 stockholders failing
to approve the issuance of Media 100 common stock in the merger at the
Media 100 annual meeting;
- by Digital Origin due to Media 100 failing to satisfy the condition to
completion of the merger requiring that Media 100's representations and
warranties be accurate and its covenants and agreements be performed; or
- by Digital Origin due to Media 100 failing to call and hold its annual
meeting by June 29, 2000, unless Digital Origin's failure to perform its
obligations under the merger agreement is the reason for Media 100 failing
to call and hold its annual meeting.
Digital Origin will pay Media 100 a termination fee of $1.62 million on the
date of the first to occur of the following events:
- the entry by Digital Origin into an agreement with respect to, or the
consummation by Digital Origin of, any ACQUISITION PROPOSAL within six
months of termination of the merger agreement
- by Media 100 or Digital Origin because the Digital Origin shareholders
failed to approve and adopt the merger agreement at the Digital Origin
annual meeting;
- by Media 100 because Digital Origin failed to satisfy the condition to
completion of the merger requiring that Digital Origin's representations
and warranties be accurate and its covenants and agreements be performed;
- by Media 100 because Digital Origin violated its non-solicitation
obligations as discussed above in "--No Other Negotiations Involving
Digital Origin" on page 40;
- by Media 100 because the Digital Origin board of directors violated its
obligation to recommend that the Digital Origin shareholders approve and
adopt the merger agreement at the Digital Origin annual meeting as
discussed above in "--Boards of Directors' Covenants to Recommend" on
page 40; or
- by Media 100 because Digital Origin failed to call and hold its annual
meeting by June 29, 2000, unless Media 100's failure to perform its
obligations under the merger agreement is the reason for Digital Origin
failing to call and hold its annual meeting;
in each case if, prior to such termination, an ACQUISITION PROPOSAL had
been publicly announced or otherwise become publicly known or any person
had publicly announced an intention to make an ACQUISITION PROPOSAL; or
- termination of the merger agreement by Digital Origin due to the Digital
Origin board of directors' good faith determination that Digital Origin
had to terminate the merger agreement in response to an unsolicited
SUPERIOR PROPOSAL.
46
<PAGE>
In addition, if Digital Origin is required to pay Media 100 the termination
fee and the merger agreement was terminated by Media 100 or Digital Origin
because the Digital Origin shareholders failed to approve and adopt the merger
agreement at the Digital Origin annual meeting, Digital Origin must reimburse
Media 100 for all the fees and expenses it actually incurred relating to the
transactions contemplated by the merger agreement in excess of the capped
expense reimbursement amount relating to termination pursuant to this situation
as described above.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
Either party may extend the other party's time for the performance of any of
the obligations or other acts under the merger agreement, waive any inaccuracies
in the other party's representations and warranties and waive compliance by the
other party with any of the agreements or conditions contained in the merger
agreement. If any of either party's conditions or other obligations are waived,
we will consider the facts and circumstances at that time and make a
determination as to whether a re-solicitation of proxies is appropriate.
The parties may amend the merger agreement before the effective time of the
merger. However, after the Digital Origin shareholders approve and adopt the
merger agreement, no amendment may be made which by law requires further
approval by the Digital Origin shareholders without obtaining their approval.
THE OEM DEVELOPMENT AND LICENSE AGREEMENT
Media 100 and Digital Origin have entered into a non-exclusive, perpetual
OEM development and license agreement which permits Media 100 to use IntroDV-TM-
technology of Digital Origin in exchange for certain royalty payments. The
Digital Origin technology that is subject to this development and license
agreement represents a significant portion of Digital Origin's technology
currently being marketed by it in the consumer market. Digital Origin considers
these terms both favorable and comparable to other potential original equipment
manufacturer distribution transactions. The OEM development and license
agreement exists independently of the merger agreement. Accordingly, the failure
to complete the merger will not affect Media 100's rights to use the technology
licensed from Digital Origin under the OEM development and license agreement.
Furthermore, since Media 100 would continue to have rights to use this
technology even if the merger is not completed, the OEM development and license
agreement may deter a third party from making an offer to acquire Digital
Origin.
47
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE DATA
Media 100 common stock is listed and quoted on the Nasdaq National Market
and Digital Origin common stock is listed and quoted on the Nasdaq SmallCap
Market. The following table sets forth the high and low bid and ask prices per
share of each of the Media 100 common stock and the Digital Origin common stock,
with adjustment for the Digital Origin one-for-ten reverse stock split effected
on March 9, 1998, for the periods indicated as reported on the Nasdaq National
Market and the Nasdaq SmallCap Market based on published financial sources,
respectively:
<TABLE>
<CAPTION>
MEDIA 100 DIGITAL ORIGIN
COMMON STOCK COMMON STOCK
PRICES PRICES
------------------------------------- --------------------------------
HIGH LOW HIGH LOW
----------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C>
FISCAL 1997*
First Quarter....................... $ 11.63 $ 7.00 $ 18.13 $ 4.69
Second Quarter...................... 7.63 5.13 5.31 3.13
Third Quarter....................... 6.88 4.13 4.06 1.88
Fourth Quarter...................... 6.88 4.50 7.19 2.50
FISCAL 1998*
First Quarter....................... 5.88 3.25 7.19 2.81
Second Quarter...................... 5.31 3.19 4.37 2.25
Third Quarter....................... 4.25 3.13 5.87 2.37
Fourth Quarter...................... 4.81 2.50 2.94 0.94
FISCAL 1999*
First Quarter....................... 6.31 4.19 2.56 0.78
Second Quarter...................... 6.75 4.31 4.25 1.34
Third Quarter....................... 7.06 4.69 4.50 2.37
Fourth Quarter...................... 17.88 5.25 6.13 3.25
FISCAL 2000*
First Quarter....................... 46.25 12.25 14.38 5.38
Second Quarter...................... 52.75** 26.00** 26.25 9.25
</TABLE>
- ------------------------
* Respective fiscal quarters based on Media 100's fiscal year end of
November 30 and Digital Origin's fiscal year end of September 30.
** Through April 3, 2000.
48
<PAGE>
On December 27, 1999, the last full trading day prior to the first public
announcement of the execution of the merger agreement, the reported high ask and
low bid prices per share and closing price per share of Media 100 common stock
and Digital Origin common stock on the Nasdaq National Market and the Nasdaq
SmallCap Market were as follows:
<TABLE>
<CAPTION>
DECEMBER 27, 1999
------------------------------
HIGH LOW CLOSE
-------- -------- --------
<S> <C> <C> <C>
Media 100........................................ $31.375 $26.063 $27.000
Digital Origin................................... $ 9.875 $ 8.375 $ 8.625
</TABLE>
On April 3, 2000, the last full trading day prior to the date of this joint
proxy statement/ prospectus, the reported high bid and low ask prices per share
and closing price per share of Media 100 common stock and Digital Origin common
stock on the Nasdaq National Market and the Nasdaq SmallCap Market were as
follows:
<TABLE>
<CAPTION>
APRIL 3, 2000
------------------------------
HIGH LOW CLOSE
-------- -------- --------
<S> <C> <C> <C>
Media 100........................................ $35.063 $ 26.00 $ 27.00
Digital Origin................................... $18.625 $13.625 $14.313
</TABLE>
YOU ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR SHARES OF MEDIA 100
COMMON STOCK AND DIGITAL ORIGIN COMMON STOCK.
49
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
present, under the pooling of interests accounting method, the unaudited pro
forma condensed combined balance sheet of Media 100 and Digital Origin as of
November 30, 1999 and the unaudited pro forma condensed combined statements of
operations of Media 100 and Digital Origin for each of the three years in the
period ended November 30, 1999. The unaudited pro forma condensed combined
statements of operations do not reflect any cost savings and other synergies
anticipated by Media 100 management as a result of the merger or any
merger-related expenses. The unaudited pro forma condensed combined financial
statements are not necessarily indicative of the actual results of operations or
the financial position of the combined entities had the merger been consummated
at the beginning of the earliest period presented, nor are they necessarily
indicative of future results of operations or financial position. Share and per
share amounts set forth below have been adjusted to reflect the Digital Origin
one-for-ten reverse stock split effected on March 9, 1998.
Media 100's fiscal year ends on November 30. Digital Origin's fiscal year
ends on September 30. For purposes of combining Digital Origin's historical
financial statements with Media 100's historical financial statements in the
unaudited pro forma condensed combined financial statements in this joint proxy
statement/prospectus, the Digital Origin financial information as of
September 30, 1999 and for each of the three years in the period ended
September 30, 1999 has been combined with the Media 100 financial information as
of November 30, 1999 and for each of the three years in the period ended
November 30, 1999.
The unaudited pro forma condensed combined financial statements and the
notes to the unaudited pro forma condensed combined consolidated financial
statements of Media 100 and Digital Origin should be read in conjunction with
the historical audited and unaudited consolidated financial statements of Media
100 and Digital Origin incorporated by reference or appearing elsewhere in this
joint proxy statement/prospectus. See "Where You Can Find More Information" on
page 97.
50
<PAGE>
MEDIA 100 INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
NOVEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL DIGITAL
MEDIA 100 ORIGIN PRO FORMA PRO FORMA
NOVEMBER 30, 1999 SEPTEMBER 30, 1999 ADJUSTMENTS COMBINED
------------------ ------------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........... $ 10,231 $ 3,627 $ -- $ 13,858
Marketable securities available for
sale.............................. 18,169 -- -- 18,169
Accounts receivable................. 6,381 1,995 -- 8,376
Inventories......................... 1,478 211 -- 1,689
Prepaid expenses and other current
assets............................ 1,085 161 -- 1,246
-------- --------- ------- ---------
Total current assets.................. 37,344 5,994 -- 43,338
Property, plant and equipment, net.... 6,509 726 -- 7,235
Goodwill and other intangibles........ 1,560 -- -- 1,560
Other assets, net..................... 430 175 -- 605
-------- --------- ------- ---------
Total assets........................ $ 45,843 $ 6,895 $ -- $ 52,738
======== ========= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................... $ 1,892 $ 2,791 $ -- $ 4,683
Accrued expenses and other current
liabilities....................... 7,509 2,223 1,200 10,932
Deferred revenue.................... 5,193 -- -- 5,193
-------- --------- ------- ---------
Total current liabilities............. 14,594 5,014 1,200 20,808
Accrued income taxes.................. -- 800 -- 800
Stockholders' Equity:
Common stock........................ 41,537 169,417 -- 210,954
Accumulated deficit................. (10,028) (168,390) (1,200) (179,618)
Accumulated other comprehensive
income (loss)..................... $ (260) 54 -- (206)
-------- --------- ------- ---------
Total stockholders' equity............ 31,249 1,081 (1,200) 31,130
-------- --------- ------- ---------
Total liabilities and stockholders'
equity.............................. $ 45,843 $ 6,895 $ -- $ 52,738
======== ========= ======= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
51
<PAGE>
MEDIA 100 INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED NOVEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
MEDIA 100 DIGITAL ORIGIN
YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA
NOVEMBER 30, 1999 SEPTEMBER 30, 1999 ADJUSTMENTS COMBINED
----------------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales.............................. $51,479 $13,353 $ -- $64,832
Cost of sales.......................... 19,704 4,750 -- 24,454
------- ------- ------ -------
Gross Profit......................... 31,775 8,603 -- 40,378
------- ------- ------ -------
Operating expenses:
Research and development............. 13,074 2,649 -- 15,723
Selling and marketing................ 14,208 4,075 -- 18,283
General and administrative........... 4,225 3,079 -- 7,304
Amortization of intangible assets.... 231 -- -- 231
Acquired in-process research and
development........................ 430 -- -- 430
Restructuring expense................ 424 -- -- 424
------- ------- ------ -------
Total operating expenses............. 32,592 9,803 -- 42,395
------- ------- ------ -------
Operating loss....................... (817) (1,200) -- (2,017)
Interest and other income, net......... 1,387 7,049 -- 8,436
------- ------- ------ -------
Income before provision for income
taxes.............................. 570 5,849 -- 6,419
Provision for income taxes............. -- -- -- --
------- ------- ------ -------
Net income........................... $ 570 $ 5,849 $ -- $ 6,419
======= ======= ====== =======
Basic earnings per share............... $ 0.07 $ 1.06 $ -- $ 0.57
======= ======= ====== =======
Diluted earnings per share............. $ 0.06 $ 1.02 $ -- $ 0.54
======= ======= ====== =======
Weighted average common shares
outstanding
Basic................................ 8,347 5,535 (2,575) 11,307
Diluted.............................. 8,807 5,747 (2,674) 11,880
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
52
<PAGE>
MEDIA 100 INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED NOVEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
MEDIA 100 DIGITAL ORIGIN
YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA
NOVEMBER 30, 1998 SEPTEMBER 30, 1998 ADJUSTMENTS COMBINED
----------------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales.............................. $41,788 $15,668 $ (105) $57,351
Cost of sales.......................... 17,367 9,921 (26) 27,262
------- ------- ------ -------
Gross Profit......................... 24,421 5,747 (79) 30,089
------- ------- ------ -------
Operating expenses:
Research and development............. 16,414 2,801 -- 19,215
Selling and marketing................ 13,870 4,180 -- 18,050
General and administrative........... 3,810 2,927 -- 6,737
------- ------- ------ -------
Total operating expenses............. 34,094 9,908 -- 44,002
------- ------- ------ -------
Operating loss....................... (9,673) (4,161) (79) (13,913)
Interest and other income, net......... 1,622 11,894 -- 13,516
------- ------- ------ -------
Income (loss) before provision for
income taxes....................... (8,051) 7,733 (79) (397)
Benefit for income taxes............... -- (1,000) -- (1,000)
------- ------- ------ -------
Net income (loss).................... $(8,051) $ 8,733 $ (79) $ 603
======= ======= ====== =======
Basic earnings (loss) per share........ $ (0.97) $ 1.58 $ -- $ 0.05
======= ======= ====== =======
Diluted earnings (loss) per share...... $ (0.97) $ 1.57 $ -- $ 0.05
======= ======= ====== =======
Weighted average common shares
outstanding
Basic................................ 8,273 5,522 (2,569) 11,226
Diluted.............................. 8,273 5,557 (2,586) 11,244
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
53
<PAGE>
MEDIA 100 INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED NOVEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
MEDIA 100 DIGITAL ORIGIN
YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA
NOVEMBER 30, 1997 SEPTEMBER 30, 1997 ADJUSTMENTS COMBINED
----------------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales.............................. $46,660 $31,150 $ -- $ 77,810
Cost of sales.......................... 19,184 31,032 -- 50,216
------- ------- ------- --------
Gross Profit......................... 27,476 118 27,594
------- ------- ------- --------
Operating expenses:
Research and development............. 8,508 5,002 -- 13,510
Selling and marketing................ 15,115 8,976 24,091
General and administrative........... 4,330 12,379 -- 16,709
Restructuring expense................ 526 -- -- 526
------- ------- ------- --------
Total operating expenses............. 28,479 26,357 -- 54,836
------- ------- --------
Operating loss....................... (1,003) (26,239) -- (27,242)
Interest and other income, net......... 1,781 27,823 -- 29,604
------- ------- --------
Income before provision for income
taxes.............................. 778 1,584 -- 2,362
Provision for income taxes............. 161 316 -- 477
------- ------- ------- --------
Net income........................... 617 1,268 -- 1,885
Preferred stock dividend............... -- 272 -- 272
------- ------- ------- --------
Net income applicable to common
stockholders....................... $ 617 $ 996 $ -- $ 1,613
======= ======= ======= ========
Basic earnings per share............... $ 0.07 $ 0.18 $ -- $ 0.15
======= ======= ======= ========
Diluted earnings per share............. $ 0.07 $ 0.18 $ -- $ 0.14
======= ======= ======= ========
Weighted average common shares
outstanding
Basic................................ 8,148 5,389 (2,508) 11,029
Diluted.............................. 8,247 5,522 (2,569) 11,200
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
54
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BASIS OF PRESENTATION
The unaudited pro forma condensed balance sheet as of November 30, 1999
gives effect to the merger as if it occurred on November 30, 1999 and combines
the unaudited condensed balance sheets of Media 100 as of November 30, 1999 and
Digital Origin as of September 30, 1999. The unaudited pro forma condensed
combined statements of operations for all periods presented give effect to the
merger as if it occurred on December 1, 1996. Digital Origin has a fiscal year
that ends on September 30. For purposes of the unaudited pro forma condensed
statements of operations, Digital Origin's consolidated statements of income for
each of the three years in the period ended September 30, 1999 have been
combined with Media 100's consolidated statements of operations for each of the
three years in the period ended November 30, 1999.
Sales from Digital Origin to Media 100 of $105 in 1998 have been eliminated
from the 1998 pro forma condensed combined statement of operations.
2. MERGER COSTS AND RELATED EXPENSES
In connection with the merger, the companies estimate that they will incur
approximately $1.2 million for direct merger costs, consisting primarily of
legal, investment banking, accounting and printing fees. Direct merger costs
will be charged to operations in the period in which the merger is consummated.
This estimate is preliminary and is subject to change. The Company also expects
to incur costs for severance arrangements, integration costs and other
restructuring activities. All of such costs will be charged to operations in the
period in which such costs are incurred. The unaudited pro forma condensed
combined balance sheet gives effect to the direct merger costs as if they were
incurred on November 30, 1999; the unaudited pro forma condensed combined
statements of operations do not reflect such costs since they are non-recurring.
3. UNAUDITED PRO FORMA NET INCOME (LOSS) PER SHARE
The unaudited pro forma earnings per calculations are based on the combined
basic and diluted weighted average number of shares outstanding for Media 100
and Digital Origin based on the exchange ratio of 0.5347 of a share of Media 100
common stock for each share of Digital Origin common stock.
4. CONFORMING ADJUSTMENTS
No adjustments have been made to conform the accounting policies of the
combined companies. The nature and extent of such adjustments, if any, will be
based upon further study and analysis and are not expected to be significant.
5. OPERATING LOSS
Operating loss includes charges of $8,100 in 1997 related to Digital
Origin's transition out of hardware-based product lines.
6. INTEREST AND OTHER INCOME, NET
Interest and other income reported by Media 100 relates primarily to
interest income. Interest and other income reported by Digital Origin is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Gains on dispositions of businesses, licenses and other
assets.................................................... $ 6,945 $ 1,615 $ --
Gains on dispositions of equity securities.................. -- 10,537 30,779
Interest expense............................................ (55) (459) (2,777)
Other....................................................... 159 201 (179)
------- -------- --------
$ 7,049 $ 11,894 $ 27,823
======= ======== ========
</TABLE>
55
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF MEDIA 100 COMMON STOCK
AND HOLDERS OF DIGITAL ORIGIN COMMON STOCK
Media 100 is incorporated in the State of Delaware and Digital Origin is
incorporated in the State of California. Following the effective time of the
merger, Digital Origin will continue to be governed by the California
Corporations Code and Media 100 will continue to be governed by the Delaware
General Corporation Law. Shareholders of Digital Origin, however, will hold
Media 100 common stock rather than Digital Origin common stock. Therefore, the
rights of those shareholders will be governed by Delaware law, and the
provisions of the Media 100 Restated Certificate of Incorporation and the Media
100 By-Laws, rather than California law and the provisions of the Digital Origin
Articles of Incorporation and the Digital Origin Bylaws. The following is a
summary comparison of certain provisions of California law and Delaware law and
the respective charters and bylaws of Media 100 and Digital Origin. This summary
is not complete and you should therefore read the full text of the states'
corporate statutes and the charters and bylaws of Media 100 and Digital Origin.
For information as to how these documents may be obtained, see "Where You Can
Find More Information" on page 97.
CAPITALIZATION
COMMON STOCK
Digital Origin and Media 100 each have one class of common stock
outstanding. Holders of Digital Origin and Media 100 common stock are entitled
to one vote for each share they hold.
PREFERRED STOCK
Digital Origin and Media 100 each have authorized preferred stock. However,
there are no issued and outstanding shares of Digital Origin or Media 100
preferred stock.
DIVIDENDS AND REPURCHASES OF SHARES
DIGITAL ORIGIN. California law permits a corporation, unless otherwise
restricted by its articles of incorporation, to make distributions (including
dividends and repurchases or redemption of shares) to its shareholders if either
of the following factors are satisfied on a consolidated basis:
- the corporation's retained earnings immediately prior to the proposed
distribution equal or exceed the amount of the proposed distribution, or
- immediately after giving effect to the distribution (1) the corporation's
assets, not including goodwill, capitalized research and development
expenses and deferred charges, would be at least equal to 1 1/4 times its
liabilities, not including deferred taxes, deferred income and other
deferred credits, and (2) the corporation's current assets would be at
least equal to its current liabilities or 1 1/4 times its current
liabilities if the average pre-tax and pre-interest expense earnings for
the preceding two fiscal years were less than the average interest expense
for such years.
The Digital Origin Articles of Incorporation do not otherwise restrict the
ability of the Digital Origin board of directors to make distributions to its
shareholders. In addition, California law generally provides that a corporation
may redeem or repurchase its shares.
MEDIA 100. Delaware law retains the concepts of par value, capital and
surplus. Delaware law permits a corporation to declare and pay dividends out of
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year. However, if
the amount of capital of the corporation following the declaration and payment
of the dividend is less than the aggregate amount of the capital represented by
the issued and outstanding stock of all classes having a preference upon the
distribution of assets, the directors may not declare and pay out a dividend
from the corporation's net profits. In addition, Delaware law generally provides
56
<PAGE>
that a corporation may redeem or repurchase its shares only if the capital of
the corporation is not impaired and such redemption or repurchase would not
impair the capital of the corporation.
POWER TO CALL SPECIAL MEETING OF SHAREHOLDERS
DIGITAL ORIGIN. Under California law, a special meeting of shareholders may
be called by the board of directors, the Chairman of the Board, the president or
the holders of shares entitled to cast not less than 10 percent of the votes at
the meeting or such additional persons as may be provided in the articles of
incorporation or bylaws. The Digital Origin bylaws provide that the annual
meeting of shareholders may be called at any time by the Chairman of the Board,
if any, or the president or any vice president, or the secretary or by any two
or more directors.
MEDIA 100. Under Delaware law, a special meeting of stockholders may be
called by the board of directors or any other person as may be provided in the
certificate of incorporation or bylaws. The Media 100 Restated Certificate of
Incorporation and By-Laws do not grant stockholders the right to call a special
meeting of the stockholders. The Media 100 By-Laws provide that special meetings
of the stockholders may be called at any time by the Chief Executive Officer or
the board of directors.
ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS
DIGITAL ORIGIN. Under California law, unless otherwise provided in the
articles of incorporation, any action which may be taken at a meeting of the
shareholders may be taken without a meeting and without prior notice if a
consent in writing is signed by the holders of outstanding shares having at
least the minimum number of votes that would be necessary to take such action at
a meeting at which all shares entitled to vote thereon were present and voted.
MEDIA 100. Under Delaware law, unless otherwise provided in the certificate
of incorporation, any action which may be taken at a meeting may be taken
without a meeting and without prior notice if a consent in writing is signed by
the holders of outstanding shares having at least the minimum number of votes
that would be necessary to take such action at a meeting at which all shares
entitled to vote thereon were present and voted. The Media 100 Restated
Certificate of Incorporation, however, provides that at any time such
corporation has a class of stock registered pursuant to the provisions of the
Securities Exchange Act of 1934, for so long as such class is so registered, any
action by the stockholders of such class must be taken at an annual or special
meeting of stockholders and may not be taken by written consent. Media 100
common stock is currently registered pursuant to the provisions of the
Securities Exchange Act. Accordingly, Media 100 stockholders action must be
taken at either an annual or special meeting of stockholders and after the
merger, shareholders of Digital Origin, who then would be stockholders of Media
100, would no longer have the right to act by written consent.
INSPECTION OF SHAREHOLDER LIST
DIGITAL ORIGIN. California law allows any shareholder holding at least
5 percent of the outstanding voting shares of a corporation, or a shareholder
holding at least 1 percent of the outstanding voting shares that has filed a
Schedule 14A, to inspect the shareholder list upon at least five business days'
notice to the corporation.
MEDIA 100. Delaware law allows any shareholder to inspect the shareholder
list for a purpose reasonably related to that person's interest as a
shareholder. Delaware law also provides for inspection rights as to a list of
shareholders entitled to vote at a meeting within a ten day period preceding a
stockholders' meeting for any purpose germane to the meeting.
57
<PAGE>
CHARTER AMENDMENTS
DIGITAL ORIGIN. California law generally provides that the articles of
incorporation may be amended if approved by the board of directors and a
majority of the outstanding shares.
MEDIA 100. Under Delaware law, a corporation's certificate of incorporation
may be amended by approval of the board of directors and the affirmative vote of
the holders of a majority of the outstanding shares entitled to vote for the
amendment, unless a higher vote is required by the certificate of incorporation.
The Media 100 Restated Certificate of Incorporation provides that only holders
of 75% or more of the outstanding shares of Media 100 capital stock entitled to
vote generally in the election of directors may amend or rescind the Media 100
Restated Certificate of Incorporation's provisions with respect to business
combinations involving Media 100 and certain related persons of Media 100, as
described below under the heading "Shareholder Voting on Business Combinations--
SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS."
BYLAW AMENDMENTS
DIGITAL ORIGIN. Under California law, except for bylaws relating to the
number of directors on the board, bylaws may be adopted, amended or repealed by
the board. Shareholders have the power to adopt, amend or repeal any bylaw. The
Digital Origin bylaws authorize the holders of a majority of the outstanding
shares of Digital Origin common stock to adopt, amend or repeal bylaws and the
board of directors to do the same, subject to the shareholders right to adopt,
amend or repeal the bylaws and except for bylaws relating to the number of
directors.
MEDIA 100. Under Delaware law, stockholders entitled to vote have the power
to adopt, amend or repeal bylaws. In addition, a corporation may, in its
certificate of incorporation, confer this power upon the board of directors. The
Media 100 Restated Certificate of Incorporation confers the power to adopt,
amend or repeal the By-Laws upon the board of directors. The Media 100 By-Laws
provide that a majority of the board of directors or a majority of the voting
power of Media 100 stock outstanding and entitled to vote may adopt, amend or
repeal bylaws.
SHAREHOLDER VOTING ON BUSINESS COMBINATIONS
STATUTORY MERGERS
DIGITAL ORIGIN. California law generally requires that the holders of a
majority of the outstanding voting shares of the acquiring and target
corporations approve statutory mergers. However, shareholder approval is not
required for certain business combination transactions where shareholders or the
corporation itself, or both, immediately prior to the reorganization will own
immediately after the reorganization equity securities constituting more than
five-sixths of the voting power of the surviving or acquiring corporation or its
parent entity.
MEDIA 100. Delaware law generally requires that the holders of a majority
of the outstanding stock entitled to vote of the acquiring and target
corporations approve a proposed statutory merger. However, Delaware law does not
require a stockholder vote of the surviving corporation in a merger if:
- the merger agreement does not amend the existing certificate of
incorporation;
- each share of the surviving corporation outstanding before the merger is
equal to an identical outstanding or treasury share after the merger; and
- the number of shares to be issued by the surviving corporation in the
merger does not exceed 20% of the shares outstanding immediately prior to
the merger.
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CLASS VOTING
DIGITAL ORIGIN. With certain exceptions, California law also requires that
mergers, reorganizations, certain sales of assets and similar transactions be
approved by a majority vote of each class of shares outstanding.
MEDIA 100. Delaware law generally does not require class voting, except in
certain transactions involving an amendment to the certificate of incorporation
which adversely affects a specific class of shares, increases or decreases the
number of authorized shares of a class of shares or increases or decreases the
par value of the shares of a class of shares.
SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
DIGITAL ORIGIN. In the last several years, a number of states, but not
California, have adopted special laws designed to make certain kinds of two-step
corporate takeovers, or other transactions involving a corporation and one or
more of its significant shareholders, more difficult. Under section 1203 of the
California Corporations Code, certain business combinations with certain
interested shareholders are subject to conditions, including a requirement that
a fairness opinion must be obtained and delivered to the corporation's
shareholders. California law requires that holders of non-redeemable common
stock receive non-redeemable common stock in a merger of the corporation with
the holder of more than 50%, but less than 90%, of the capital stock or its
affiliate unless all of the holders of the common stock consent to the
transaction.
MEDIA 100. Under section 203 of the Delaware General Corporation Law, a
Delaware corporation is prohibited from engaging in a business combination with
certain interested stockholders for three years following the date that person
or entity became an interested stockholder.
A Delaware corporation may elect not to be governed by section 203, and the
Media 100 Restated Certificate of Incorporation contains a provision electing
not to be governed by such section.
The Media 100 Restated Certificate of Incorporation contains a provision
that requires the affirmative vote of the holders of not less than 75% of the
outstanding shares of voting stock of Media 100 for the approval or
authorization of any business combination of Media 100 with any related person,
as described below. However, the 75% voting requirement shall not be applicable
if: (1) the board of directors approved a memorandum of understanding with the
other person with respect to the transaction prior to the time the person became
a related person, (2) the transaction is approved by the board of directors of
Media 100 and a majority of the approving directors are continuing directors, or
(3) the business combination involves solely the corporation and a majority
owned subsidiary of the corporation whose stock is not owned by the related
person.
Under the Media 100 Restated Certificate of Incorporation, a "related
person" is essentially a person, corporation, partnership or other entity which,
together with its affiliates and associates, is the beneficial owner of 5% or
more of the outstanding shares of Media 100 common stock and any affiliate or
associate of such related person.
SHAREHOLDER DERIVATIVE SUITS
DIGITAL ORIGIN. California law provides that a shareholder bringing a
derivative action on behalf of a corporation need not have been a shareholder at
the time of the transaction in question, provided that certain tests are met.
California law also provides that the corporation or the defendant in a
derivative suit may make a motion to the court for an order requiring the
plaintiff shareholder to furnish a security bond.
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MEDIA 100. Under Delaware law, a stockholder may only bring a derivative
action on behalf of the corporation if the stockholder was a stockholder of the
corporation at the time of the transaction in question or if his or her stock
was transferred to him or her by operation of law.
DISSENTERS' RIGHT OF APPRAISAL
Under California law and Delaware law, a shareholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to dissenters' rights of appraisal under which such
shareholder may receive cash in the amount of the fair market value of the
shares held by the shareholder in lieu of the consideration such shareholder
would otherwise receive in the transaction. The fair market value of the shares
is determined by either a court or an agreement between the corporation and the
shareholder. The limitations on the availability of dissenters' rights under
California law are different from those under Delaware law.
DIGITAL ORIGIN. Shareholders of a California corporation whose shares are
listed on a national securities exchange or on a list of over-the-counter margin
stocks issued by the Board of Governors of the Federal Reserve System generally
do not have dissenters' rights unless the holders of at least 5% of the class of
outstanding shares claim the right or unless the corporation or any law
restricts the transfer of such shares. This 5% restriction does not apply to
corporations like Digital Origin who do not have their shares listed on a
national securities exchange or on a list of over-the-counter margin stocks
issued by the Board of Governors of the Federal Reserve System. For more
specific information regarding the dissenters' right to appraisal available to
shareholders of Digital Origin with respect to the merger, see "The
Merger--Dissenters' Rights" on page 34.
MEDIA 100. Under Delaware law, fair market value is determined exclusive of
any element of value arising from the merger or consolidation, and appraisal
rights are not available in following situations:
- the sale, lease or exchange of all or substantially all of the assets of a
corporation;
- a merger or consolidation by a corporation whose shares are either listed
on a national securities exchange or are held of record by more than 2,000
holders if those stockholders receive only shares of the surviving
corporation or shares of any other corporation that are either listed on a
national securities exchange or held of record by more than 2,000 holders,
plus cash in lieu of fractional shares; or
- where no vote of the stockholders of the surviving corporation is required
to approve the merger under Delaware law.
SIZE OF THE BOARD OF DIRECTORS
DIGITAL ORIGIN. Under California law, although changes in the number of
directors must generally be approved by a majority of the outstanding shares,
the board of directors may fix the exact number of directors within a stated
range set forth in the articles of incorporation or bylaws, if that stated range
has been approved by the shareholders. The Digital Origin Bylaws provide that
the authorized number of directors may be varied from time to time by resolution
of the board of directors, provided that the authorized number may not be fewer
than 4 nor more than 7.
MEDIA 100. Delaware law permits the board of directors alone to change the
authorized number, or the range, of directors by amendment to the bylaws, unless
the directors are not authorized to amend the bylaws or the number of directors
is fixed in the certificate of incorporation, in which case a change in the
number of directors may be made only by amendment to the certificate of
incorporation. The Media 100 By-Laws provide that the size of Media 100's board
of directors may be determined
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from time to time by vote of a majority of the directors then in office. It is
currently intended that the size of the Media 100 board of directors will be set
at five as of the effective time of the merger.
REMOVAL OF DIRECTORS
DIGITAL ORIGIN. Under California law, any director or the entire board of
directors may be removed, with or without cause, by a majority of the
outstanding shares entitled to vote. However, without removing the entire board
of directors, no individual director may be removed if the number of votes cast
against such removal would be sufficient to elect the director under cumulative
voting.
MEDIA 100. Under Delaware law, any director or the entire board of
directors of a corporation that does not have a classified board of directors or
cumulative voting may be removed with or without cause with the approval of a
majority of the outstanding shares entitled to vote at an election of directors.
The Media 100 Restated Certificate of Incorporation does not provide for a
classified board of directors or cumulative voting.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
DIGITAL ORIGIN. Under California law, unless otherwise provided in the
articles of incorporation or bylaws, any vacancy, except for a vacancy created
by the removal of a director, may be filled by a majority of the remaining
directors, provided there is a quorum. If the number of directors in office is
less than a quorum, a vacancy, except for a vacancy created by the removal of a
director, may be filled by unanimous written consent of the directors then in
office, by the affirmative vote of a majority of the directors then in office at
a properly noticed board of directors meeting or by a sole remaining director.
The board of directors may fill a vacancy created by the removal of a director
only if the articles of incorporation or bylaws so provide. Digital Origin's
Bylaws provide that only the shareholders may fill a vacancy on Digital Origin's
board of directors caused by the removal of a director.
California law further provides that the shareholders may elect a director
to fill any vacancy not filled by the board of directors. If, after the filling
of a vacancy by the board of directors, less than a majority of the board is
comprised of directors elected to office by shareholders, any holder of five
percent or more of the total number of outstanding shares having the right to
vote for directors may call a special meeting of shareholders or the proper
superior court, upon proper application by holders of five percent or more of
the total number of outstanding shares having the right to vote for directors,
may order a special meeting of shareholders for the purpose of electing the
entire board of directors.
MEDIA 100. Under Delaware law, vacancies may be filled by a majority of the
directors then in office (even though less than a quorum) unless otherwise
provided in the certificate of incorporation or bylaws. The Media 100 Restated
Certificate of Incorporation and By-Laws provide for the filling of board of
directors vacancies by a majority of the directors in office even though less
than a quorum.
DIRECTORS' COMMITTEES
DIGITAL ORIGIN. The Digital Origin Bylaws contain provisions for the
delegation of all the authority by Digital Origin's board of directors to a
committee of members of the board of directors except the authority to authorize
the following actions:
- any action which also requires shareholders' approval or approval of the
outstanding shares under California law;
- the filling of vacancies on the board of directors or on any committee;
- the fixing of compensation of the directors for serving on the board of
directors or any committee;
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- the amendment or repeal of the Digital Origin Bylaws or the adoption of
new bylaws;
- the amendment or repeal of any resolution of the board of directors which
by its express terms is not so amendable or reparable;
- a distribution to the shareholders of Digital Origin, except at a rate or
in a periodic amount or within a price range set forth in the Articles of
Incorporation or determined by the board of directors; and
- the appointment of any other committees of the board of directors or the
members of those committees.
MEDIA 100. Under the Media 100 By-Laws, Media 100's board of directors may,
by vote of a majority of the whole board of directors, delegate all powers
normally held only by the board of directors, except those prohibited by law, or
the Media 100 Restated Certificate of Incorporation or By-Laws, in its entirety
to a committee comprised of one or more members of the Media 100 board of
directors. Under the Delaware General Corporation Law, these committees may
exercise any power normally held by the entire board of directors, but may not:
- approve, adopt or recommend to stockholders, any action or matter
expressly required by the Delaware General Corporation Law to be submitted
to stockholders for approval; or
- adopt, amend or repeal any provision of the Media 100 By-Laws.
TRANSACTIONS INVOLVING OFFICERS OR DIRECTORS
DIGITAL ORIGIN. Under California law, any loan or guaranty to or for the
benefit of a director or officer of the corporation or its parent requires
approval of the shareholders unless such loan or guaranty is provided under a
plan approved by shareholders owning a majority of the outstanding shares of the
corporation. In addition, under California law, shareholders of any corporation
with 100 or more shareholders of record may approve a bylaw authorizing the
board of directors alone to approve loans or guarantees to or on behalf of
officers whether or not such officers are directors if the board of directors
determines that any such loan or guaranty may reasonably be expected to benefit
the corporation. The Digital Origin Bylaws permit loans to officers upon
approval of Digital Origin's board of directors.
Furthermore, under California law, if shareholder approval is sought for a
transaction in which one or more of a corporation's directors has an interest,
the interested director is not entitled to vote his shares at a shareholder
meeting with respect to any action regarding such contract or transaction. If
board approval is sought, the contract or transaction must be approved by a
majority vote of a quorum of the directors, without counting the vote of any
interested directors. However, interested directors may be counted for purposes
of establishing a quorum.
MEDIA 100. Under Delaware law, any corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation, including any officer or employee who is also a director of
the corporation, whenever, in the judgment of the directors, such loan, guaranty
or assistance may reasonably be expected to benefit the corporation.
Furthermore, under Delaware law, contracts or transactions between a
corporation and either any of its directors or a second corporation of which a
director is also a director, are not void or voidable if either:
- the material facts as to the transaction and as to the director's interest
are fully disclosed, and either the disinterested directors or a majority
of the disinterested stockholders approve the transaction in good faith;
or
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- the person asserting the validity of the contract or transaction sustains
the burden of proving that the contract or transaction was just and
reasonable as to the corporation at the time it was authorized, approved
or ratified.
INDEMNIFICATION AND LIMITATION OF LIABILITY
California law and Delaware law have similar provisions relating to
indemnification by a corporation of its officers, directors, employees and other
agents. The laws of both states permit corporations to adopt a provision in
their charters eliminating the liability of a director to the corporation or
shareholders for monetary damages for breach of the director's fiduciary duty of
care. There are nonetheless certain differences between the laws of the two
states with respect to indemnification and limitation of liability.
DIGITAL ORIGIN. Under California law, these provisions may not eliminate or
limit a director's liability for:
- intentional misconduct or knowing and culpable violation of law;
- acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders, or that involve the
absence of good faith on the part of the director;
- receipt of an improper personal benefit;
- acts or omissions that show reckless disregard for the director's duty to
the corporation or its shareholders, where the director in the ordinary
course of performing a director's duties should be aware of a risk of
serious injury to the corporation or its shareholders;
- acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders;
- interested transactions between the corporation and a director in which a
director has a material financial interest; or
- liability for improper distributions, loans or guarantees.
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws
or other corporate action beyond that specifically authorized by statute. The
Digital Origin Articles of Incorporation includes a provision providing that
Digital Origin may indemnify its directors and officers to the maximum extent
permissible under California law. Digital Origin has entered into separate
indemnification agreements with each officer and director consistent with this
authority.
MEDIA 100. Under Delaware law, such provisions may not eliminate or limit
director monetary liability for:
- breaches of the director's duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or involving intentional misconduct or
a knowing violation of law;
- the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or
- transactions in which the director derived an improper personal benefit.
Such limitation of liability provisions also may not limit a director's
liability for violation of, or otherwise relieve the company or its directors
from the necessity of complying with federal or state securities laws, or affect
the availability of nonmonetary remedies such as injunctive relief or
rescission.
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Delaware law generally permits indemnification of directors and officers of
expenses, including attorneys' fees actually and reasonably incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a majority vote of a disinterested quorum of the directors, by
independent legal counsel or by a majority vote of a quorum of the stockholders
that the person seeking indemnification acted in good faith and in a manner
reasonably believed to be in best interests of the corporation. Without court
approval, however, no indemnification may be made in respect of any derivative
action in which such person is found liable for negligence or misconduct in the
performance of his or her duty to the corporation. Delaware law requires
indemnification of expenses to the extent the individual being indemnified has
successfully defended any action, claim, issue or matter therein, on the merits
or otherwise.
Under Delaware law, expenses incurred by an officer or director in defending
any action may be paid in advance if the director or officer undertakes to repay
these amounts if it is ultimately determined that he or she is not entitled to
indemnification. In addition, Delaware law authorizes a corporation's purchase
of indemnity insurance for the benefit of its officers, directors, employees and
agents whether or not the corporation would have the power to indemnify against
the liability covered by the policy. Delaware law also permits a Delaware
corporation to provide indemnification in excess of that provided by statute.
Limitations on indemnification may be imposed by a court based on principles of
public policy. The Media 100 Restated Certificate of Incorporation eliminates
the liability of directors to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director to the fullest extent
permissible under Delaware law.
DISSOLUTION
DIGITAL ORIGIN. Under California law, shareholders holding 50% or more of
the total voting power may authorize a corporation's dissolution, with or
without the approval of the corporation's board of directors, and this right may
not be modified by the articles of incorporation.
MEDIA 100. Under Delaware law, unless the board of directors approves the
proposal to dissolve the corporation, the dissolution must be unanimously
approved by all the stockholders entitled to vote thereon. Only if the
dissolution is initially approved by the board of directors may the dissolution
be approved by a simple majority of the outstanding shares of the corporation's
stock entitled to vote. In the event of such a board-initiated dissolution,
Delaware law allows a Delaware corporation to include in its certificate of
incorporation a super majority voting requirement in connection with
dissolutions. The Media 100 Restated Certificate of Incorporation contains no
such super majority voting requirement.
STOCK OWNERSHIP BY PRINCIPAL STOCKHOLDERS, MANAGEMENT AND
DIRECTORS OF MEDIA 100
The following table sets forth certain information regarding Media 100
common stock owned as of January 31, 2000 (except as noted below) by (i) each
person (or group of affiliated persons) believed by Media 100 to be the
beneficial owner of more than 5% of the outstanding Media 100 common stock,
(ii) each director of Media 100, (iii) the Chief Executive Officer and each of
the other current or former executive officers whose total salary and bonus for
fiscal year ended November 30, 1999 exceeded $100,000 and (iv) all current
executive officers and directors as a group. Except as otherwise indicated in
the footnotes to this table, Media 100 believes that each of the persons or
entities named
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in this table has sole voting and investment power with respect to all the
shares of common stock indicated.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
DIRECTORS AND NAMED EXECUTIVE OFFICERS BENEFICIALLY OWNED(1) OUTSTANDING SHARES(1)
- -------------------------------------- --------------------- ---------------------
<S> <C> <C>
Maurice L. Castonguay (2).............................. 31,000 *
Timothy C. de E. Collin (3)............................ 8,048 *
Anthony B. Dolph (4)................................... 32,000 *
B. Robert Feingold (5)................................. 36,875 *
Chester J. Gapinski (6)................................ 11,375 *
John A. Molinari (7)................................... 232,603 2.59
Roger W. Redmond (8)................................... 4,000 *
Bruce I. Sachs (9)..................................... 46,000 *
Anthony M. Scotto...................................... 0 *
Paul J. Severino (10).................................. 100,340 1.12
Steven D. Shea (11).................................... 37,228 *
All current and former executive officers and directors
as a group
(11 persons in all) (12)............................. 539,469 6.01
5% STOCKHOLDERS
Dimensional Fund Advisors Inc. (13).................... 502,000 5.59
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Alfred A. Molinari, Jr. (14)........................... 862,611 9.61
c/o Data Translations, Inc.
100 Locke Drive
Marlboro, Massachusetts 01752
</TABLE>
- ------------------------
* Represents less than 1%.
(1) The number and percent of the outstanding shares of common stock treat as
outstanding all shares issuable pursuant to options exercisable within sixty
days of January 31, 2000 held by a particular beneficial owner that are
included in the first column.
(2) Includes 6,000 shares subject to options exercisable within sixty days of
January 31, 2000.
(3) Includes 7,125 shares subject to options exercisable within sixty days of
January 31, 2000.
(4) Includes 32,000 shares subject to options exercisable within sixty days of
January 31, 2000.
(5) Includes 36,875 shares subject to options exercisable within sixty days of
January 31, 2000.
(6) Includes 11,375 shares subject to options exercisable within sixty days of
January 31, 2000.
(7) Includes 111,991 shares subject to options exercisable within sixty days of
January 31, 2000.
(8) Includes 4,000 shares subject to options exercisable within sixty days of
January 31, 2000.
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(9) Includes 6,000 shares subject to options exercisable within sixty days of
January 31, 2000.
(10) Includes 20,000 shares subject to options exercisable within sixty days of
January 31, 2000.
(11) Includes 22,725 shares subject to options exercisable within sixty days of
January 31, 2000. Includes 2,494 shares owned by Tricia Shea and 175 shares
subjected to options owned by Tricia Shea.
(12) Includes 214,091 shares subject to options exercisable within sixty days of
January 31, 2000.
(13) As reported in, and based solely upon, a Schedule 13G as filed on
February 4, 2000 with the Securities and Exchange Commission by Dimensional
Fund Advisors Inc. (the "Dimensional Schedule 13G"). According to the
Dimensional Schedule 13G, Dimensional Fund Advisors Inc. ("Dimensional"), a
registered investment advisor, is deemed to have beneficial ownership of
502,000 shares of Media 100 common stock. All of such shares are held by
four investment companies registered under the Investment Company Act of
1940, as amended, to which Dimensional furnishes investment advice and
certain investment vehicles for which Dimensional serves as investment
manager. Dimensional disclaims beneficial ownership of all such shares.
(14) Includes 122,124 shares subject to options exercisable within sixty days of
January 31, 2000.
STOCK OWNERSHIP BY PRINCIPAL SHAREHOLDERS, MANAGEMENT AND
DIRECTORS OF DIGITAL ORIGIN
The following table sets forth certain information known to us with respect
to beneficial ownership of Digital Origin's common stock as of February 29, 2000
(except as noted), for (i) each shareholder who we believe to be the beneficial
owner of more than 5% of our common stock; (ii) our chief executive and chief
financial officer, (iii) each of our directors, and (iv) all our current
directors and executive officers as a group. Shares of common stock beneficially
owned include securities that can be acquired by such person within 60 days of
February 29, 2000 upon the exercise of stock options or warrants or upon
conversion of convertible securities.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
- ------------------------ ----------------------- --------
<S> <C> <C>
Mary Bobel, Chief Financial Officer (2)..................... 26,400 *
Michael D. Boich, director (3).............................. 15,807 *
John Cirigliano, director (4)............................... 21,024 *
Ellenburg Group, shareholder (5)............................ 404,990 6.87%
Mark Housley, Chairman and Chief Executive Officer (6)...... 256,734 4.35%
Jack Kirby, director (7).................................... 9,739 *
Stephen Manousos, director (8).............................. 22,450 *
Henry Morgan, director (9).................................. 42,000 *
Carl Rosendahl, director (10)............................... 4,000 *
All current executive officers and directors as a group
(eight persons in all) (11)............................... 398,154 6.75%
</TABLE>
- ------------------------
* Less than one percent.
(1) Percentage ownership is based on 5,895,340 shares outstanding as of
February 29, 2000. Unless otherwise indicated below, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable.
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(2) Represents shares subject to options exercisable within 60 days of
February 29, 2000.
(3) Represents 15,180 shares held by Mr. Boich, and 627 shares subject to an
option exercisable within 60 days of February 29, 2000.
(4) Includes 15,574 shares owned by affiliates of Mr. Cirigliano, and 5,450
shares subject to an option exercisable within 60 days of February 29, 2000.
(5) Includes 5,000 shares of common stock issuable upon exercise of warrants at
an exercise price of $10.00 per share until October 13, 2000.
Messrs. Ellenburg, Karno, Epple and Edwards are the beneficial owners of
182,500, 182,500, 23,994 and 15,996 respectively of our common stock, each
filing a separate Schedule 13D on December 11, 1997 with the Securities and
Exchange Commission. All such persons may be deemed to constitute a "group"
within the meaning of Section 13(d)(3) of the Securities Exchange Act of
1934 because all of their acquisitions of these shares were made pursuant to
an option to purchase granted by Mitsubishi Electronics America, Inc.
Mr. Epple is also the beneficial owner of 4,000 shares of stock not
purchased pursuant to such option and these shares are not included in the
total amount of the Ellenburg Group. Mr. Ellenburg's address is 217 N.
Missouri Avenue, Clearwater, FL 33755; Mr. Karno's address is 16255 Ventura
Blvd. Suite 1200, Encino, CA 91436; Mr. Epple's address is 423 Cleveland
Street, Clearwater, FL 33757; and Mr. Edwards' address is 217 North Missouri
Avenue, Clearwater, FL 33755. Mr. Ellenburg shares voting and investment
power with Ms. Tomczak. Information with respect to these holders is based
on Schedules 13D filed December 11, 1997.
(6) Represents 3,734 shares held by Mr. Housley purchased through the Digital
Origin Employee Stock Purchase Plan and 253,000 shares subject to options
exercisable within 60 days of February 29, 2000.
(7) Represents shares subject to options exercisable within 60 days of
February 29, 2000.
(8) Includes a portion of a warrant issued to Post Digital Software, Inc. on
November 23, 1998, and 5,450 shares subject to an option exercisable within
60 days of February 29, 2000. Mr. Manousos is a principal in Post Digital
Software, Inc.
(9) Represents shares subject to options exercisable within 60 days of
February 29, 2000.
(10) Represents shares subject to options exercisable within 60 days of
February 29, 2000.
(11) Includes the shares described in footnotes 2-4 and 6-10 above.
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THE MEDIA 100 ANNUAL MEETING
GENERAL
We are furnishing this document to holders of Media 100 common stock in
connection with the solicitation of proxies by the Media 100 board of directors
for use at the annual meeting of Media 100 stockholders and any adjournment or
postponement of the meeting.
DATE, TIME AND PLACE
We will hold the Media 100 annual meeting on May 5, 2000 at Media 100's
principal executive offices, 290 Donald Lynch Boulevard, Marlborough,
Massachusetts 01752 at 10:00 a.m., local time, subject to any adjournments or
postponements.
MATTERS TO BE CONSIDERED AT THE MEETING
The proposals listed below will be submitted to the Media 100 stockholders
for their consideration and vote.
THE MERGER-RELATED PROPOSAL
At the Media 100 annual meeting, you will be asked to consider and vote upon
the following merger-related proposal:
- to approve the issuance of shares of Media 100 common stock to Digital
Origin shareholders in the merger.
We are submitting this proposal for the approval of Media 100 stockholders
pursuant to the requirements of the National Association of Securities Dealers
applicable to companies quoted on the Nasdaq National Market.
OTHER PROPOSALS
In addition, at the Media 100 annual meeting, the stockholders of Media 100
will consider and vote upon the following proposals:
- to elect the following persons as directors: Maurice L. Castonguay, Mark
Housley, John A. Molinari, Carl Rosendahl and Paul J. Severino;
- to amend the Media 100 Certificate of Incorporation to increase the number
of authorized shares of Media 100 common stock by 75,000,000 shares to
100,000,000 shares;
- to increase the number of shares of Media 100 common stock available for
issuance under the Key Employee Incentive Plan (1992) by 2,000,000 shares
to 4,200,000 shares;
- to ratify the appointment of Arthur Andersen LLP as Media 100's
independent auditors for the fiscal year ending November 30, 2000; and
- to transact any other business that may properly come before the meeting
and any adjournment or postponement of the meeting.
As of the date hereof, Media 100 has no knowledge of any business other than
that described in the notice for the annual meeting which will be presented for
consideration at the annual meeting.
RECORD DATE; VOTES PER SHARE
The Media 100 board of directors has fixed the close of business on
April 3, 2000 as the record date for the determination of Media 100 stockholders
entitled to notice of the annual meeting. On that date, the outstanding voting
shares of capital stock of Media 100 consisted of 8,760,463 shares of common
stock. Each share of Media 100 common stock outstanding on the record date is
entitled to one vote on each matter to be voted upon at the annual meeting.
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QUORUM
The presence, in person or by proxy, at the annual meeting of the holders of
a majority of the outstanding shares of Media 100 common stock is necessary to
constitute a quorum for the transaction of business at the annual meeting.
Abstentions and shares held by brokers that are represented at the annual
meeting without specific instructions by shareholders on how to vote those
shares will be counted as present for purposes of determining whether there is a
quorum at the annual meeting.
VOTES REQUIRED AND METHOD OF TABULATION
The affirmative vote of the holders of a majority of the shares of Media 100
common stock is required to amend the Media 100 Certificate of Incorporation. A
plurality of the votes properly cast is required to elect each director nominee
and a majority of the votes properly cast is required to approve all other
matters proposed to be acted on at the annual meeting.
HOW SHARES WILL BE VOTED AT THE ANNUAL MEETING
Shares of Media 100 common stock represented by a proxy properly executed
and received before the vote at the Media 100 annual meeting will be voted at
the meeting in the manner directed on the proxy card, unless the proxy is
revoked in advance of the vote.
Properly executed blank proxy cards will be voted in favor of the proposals
described in the notice for the 2000 annual meeting to Media 100 stockholders.
If any other business should properly come before such meeting, the persons
appointed by the enclosed form of proxy shall have discretionary authority to
vote all such proxies as they shall decide.
Abstentions and shares held by brokers that are represented at the annual
meeting without specific instructions by shareholders on how to vote those
shares will not be voted. Amendment of the Certificate of Incorporation will
require the affirmative vote of a majority of our outstanding shares.
Accordingly, if you do not instruct your broker to vote your shares, it will
have the effect of a vote against the proposal to amend the Certificate of
Incorporation. Should any person named as a director nominee be unable or
unwilling to serve as director, the persons named in the form of proxy for the
annual meeting intend to vote for such other person as the Media 100 board of
directors may recommend.
HOW TO REVOKE A PROXY
You may revoke your proxy at any time before it is voted by:
- so notifying the Secretary of Media 100 in writing at the address of Media
100's principal executive offices not less than one hour before the time
fixed for the beginning of the meeting;
- signing and dating a new and different proxy card; or
- voting your shares in person or by an appointed agent or representative at
the meeting.
You may not revoke your proxy by merely attending the Media 100 annual
meeting.
SOLICITATION OF PROXIES
Media 100 will bear the costs of soliciting proxies from the holders of
Media 100 common stock. Proxies will initially be solicited by Media 100 by
mail, but directors, officers and selected other employees of Media 100 may also
solicit proxies by personal interview, telephone, telegraph or e-mail.
Directors, executive officers and any other employees of Media 100 who solicit
proxies will not be specially compensated for those services, but may be
reimbursed for out-of-pocket expenses incurred in connection with the
solicitation. Brokerage houses, nominees, fiduciaries and other custodians will
be requested to forward soliciting materials to beneficial owners and will be
reimbursed for their reasonable out-of-pocket expenses incurred in sending proxy
materials to beneficial owners. Media 100
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<PAGE>
has retained CIC Express Service, Inc. to aid in the solicitation of proxies.
CIC Express Service, Inc. will receive customary fees and expense reimbursement
for its services. Media 100's transfer agent, Boston Equiserve, has agreed to
assist Media 100 in connection with the tabulation of proxies.
ADJOURNMENT OF MEETING
In the event that sufficient votes in favor of the election of the nominees
for director listed in this joint proxy statement/prospectus (the "Nominees") or
any other matter presented hereunder are not received by May 5, 2000, the
persons named as proxies may propose one or more adjournments of the meeting to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of the shares present in person or by proxy at
the session of the meeting to be adjourned. The persons named as proxies will
vote in favor of such adjournment those proxies which they are entitled to vote
in favor of the Nominees and all such other matters. They will vote against any
such adjournment those proxies withholding authority to vote on any Nominee and
voting against or abstaining with respect to all other such matters. Media 100
will pay the costs of any additional solicitation and of any adjourned meetings.
MATTERS TO BE CONSIDERED AT THE MEDIA 100 ANNUAL MEETING
ISSUANCE OF SHARES OF MEDIA 100 COMMON STOCK IN THE MERGER
On December 22, 1999, the Media 100 board of directors unanimously adopted a
resolution approving the issuance of shares of Media 100 common stock, in the
merger, subject to completion of the merger. These shares will not be issued
unless the merger is completed. This share issuance proposal is being submitted
for approval by the stockholders of Media 100 pursuant to the requirements of
the National Association of Securities Dealers applicable to companies with
securities quoted on the Nasdaq National Market. These requirements provide that
this share issuance must be approved by a majority of the total votes cast on
this proposal at the Media 100 annual meeting.
For a detailed description of the merger please see "The Merger" beginning
on page 17.
THE MEDIA 100 BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ISSUANCE OF
MEDIA 100 COMMON STOCK IN THE MERGER.
ELECTION OF DIRECTORS
NOMINEES. At the annual meeting it is intended that the nominees listed
below be elected to the Media 100 board of directors to hold office until the
next annual meeting and until their successors have been duly elected and
qualified. Information regarding these nominees is set forth below. These
nominees are currently directors of Media 100.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH MEDIA 100
- ---- -------- ---------------------------------------
<S> <C> <C>
John A. Molinari................................... 37 President and Chief Executive Officer
and Director
Maurice L. Castonguay.............................. 48 Director
Paul J. Severino................................... 53 Director
</TABLE>
In addition, it is intended that the nominees listed below also be elected
to the Media 100 board of directors to hold office until the next annual meeting
and until their successors have been duly elected and qualified, subject to the
closing of the merger and with effect immediately after the merger. Information
regarding these nominees is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH MEDIA 100
- ---- -------- ---------------------------------------
<S> <C> <C>
Mark Housley....................................... 43 Director nominee
Carl Rosendahl..................................... 42 Director nominee
</TABLE>
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<PAGE>
Mr. Molinari has been a director since June 1995. He was President of Media
100 from November 1996 until October 1998 and resumed the title of President in
June 1999 and has been Chief Executive Officer of Media 100 since
November 1996. He served as Vice President and General Manager of Media 100's
multimedia group from 1990 to November 1996.
Mr. Castonguay has been a director since February 1997. Since January 1999,
he has been Chief Financial Officer and Vice President of Finance and
Administration of Matrix One, Inc., a provider of internet business
collaboration software. From August 1997 to October 1998, Mr. Castonguay was
Chief Financial Officer, Treasurer and Vice President of Finance and
Administration of Stratus Computer, Inc., a provider of fault tolerant computer
systems. From March 1996 to August 1997, Mr. Castonguay served as Vice President
of Finance and Chief Financial Officer of Gradient Technologies, Inc., a
provider of distributed computing and security solutions for the enterprise and
intranet markets. From 1990 to 1996, Mr. Castonguay served as Chief Financial
Officer and Vice President of Finance of Xylogics, Inc., a supplier of remote
access communications products.
Mr. Severino has been a director since April 1985. He has been the Chairman
of NetCentric Corporation, a provider of Internet protocol telephony
applications, since August 1997 and served as Chief Executive Officer from
June 1998 until April 1999. From August 1997 to June 1998, Mr. Severino served
as NetCentric's Acting Chief Executive Officer. He is the founder and former
Chairman of Bay Networks, Inc., a supplier of internetworking communication
products, where he served as Chairman of the Board from October 1994 to
October 1996, and as President and Chief Executive Officer from 1985 to
October 1994. Mr. Severino is also a director of Massachusetts
Telecommunications Development Corporation.
Mr. Housley has been President and Chief Operating Officer of Digital Origin
since January 1997, CEO since August 1997 and Chairman since December 1997. From
March 1995 until October 1996, Mr. Housley was founder and Vice President of
Marketing of Spectrum Wireless, Inc., a manufacturer of wireless infrastructure
products. From May 1992 until March 1995, Mr. Housley held various executive
positions for Digital Origin and its predecessor SuperMac Technologies, Inc.,
including Vice President and General Manager of the SuperMac Technology, Inc.'s
Color Publishing Division. From October 1990 until May 1992, Mr. Housley was a
Vice President for Siemens AG in Santa Clara, California, a multinational
manufacturer of electronic equipment, and was responsible for directing product
marketing and planning.
Mr. Rosendahl joined the Digital Origin board of directors in 1999.
Mr. Rosendahl is Chairman of Pacific Data Images, Inc. "PDI", a privately held
Palo Alto company employing about 300 employees founded in 1980 by
Mr. Rosendahl.
BOARD OF DIRECTORS, MEETINGS, COMMITTEES AND COMPENSATION. During the
fiscal year ended November 30, 1999, Media 100's board of directors held eleven
meetings and acted by written consent on one additional occasion. Each of the
directors attended at least 75% of the aggregate of the meetings of the Board
and all committees of the Board on which he served which were held while he was
a director. There are two committees of the board of directors: an audit
committee and a compensation committee. There is no nominating committee.
The audit committee reviews with management and Media 100's independent
public accountants Media 100's financial statements, the accounting principles
applied in their preparation, the scope of the audit, any comments made by the
public accountants upon the financial condition of Media 100 and its accounting
controls and procedures, and such other matters as the committee deems
appropriate. The audit committee is comprised of two members,
Messrs. Castonguay and Redmond. During the fiscal year ended November 30, 1999,
the audit committee met on two occasions. Following the annual meeting, the
audit committee will be comprised of three members. The board of directors
intends to name Messrs. Severino and Rosendahl as members of the audit committee
to replace the vacancy created by Mr. Redmond's retirement as a director of
Media 100 and to fill the additional seat being created.
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<PAGE>
The compensation committee reviews salary policies and compensation of
officers and other members of management and approves compensation plans. The
compensation committee also administers Media 100's stock option and purchase
plans. The compensation committee is currently comprised of two members,
Messrs. Sachs and Severino. During the fiscal year ended November 30, 1999, the
compensation committee met on nine occasions. Following the annual meeting, the
board of directors intends to name Mr. Rosendahl as a member of the compensation
committee to replace the vacancy created by Mr. Sachs' retirement as director of
Media 100.
During the fiscal year ended November 30, 1999, Media 100 compensated each
director who is not also an employee of Media 100 $8,000 per year plus $1,000
per Board meeting attended and $500 per committee meeting attended for their
services as a director. In addition, each non-employee director has been granted
options to purchase Media 100 common stock under Media 100's Key Employee
Incentive Plan (1992) and, in the case of Mr. Severino, also under Media 100's
Key Employee Incentive Plan (1982).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The members of
the compensation committee during the fiscal year ended November 30, 1999 were
Messrs. Sachs and Severino. Following the annual meeting, the Board intends to
name Mr. Rosendahl to the compensation committee to replace the vacancy created
by Mr. Sachs' retirement as a director of Media 100.
THE MEDIA 100 BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES.
AMENDMENT TO THE MEDIA 100 CERTIFICATE OF INCORPORATION
On March 3, 2000, the Media 100 board of directors unanimously adopted a
resolution approving an increase in Media 100's authorized common stock by
75,000,000 shares to 100,000,000 shares.
The Media 100 board of directors believes that it is desirable to have
additional authorized shares of common stock available for possible future
financings and acquisition transactions, stock dividends or splits, employee
benefit plans and other general corporate purposes. Having authorized shares of
common stock available for issuance in the future will allow Media 100 to issue
those shares without the expense and delay of calling and holding a special
stockholder meeting.
The additional authorized but unissued shares of Media 100 common stock
could be issued at the discretion of the Media 100 board of directors in
connection with acquisitions, efforts to raise additional capital for Media 100
and other corporate purposes without any further action by the stockholders,
except as required by applicable law or the rules of any national securities
exchange or quotation system, such as the Nasdaq National Market, on which the
shares of Media 100 are at the time listed or quoted. The Media 100 board of
directors has no present plan or intention to issue any shares of Media 100
common stock authorized by this proposal, other than in connection with its
stock option plans.
The additional shares of common stock for which authorization is sought
would be identical to the shares of common stock currently authorized. Although
the Media 100 board of directors will authorize the issuance of additional
common stock based on its judgment as to the best interests of Media 100 and its
stockholders, issuance of common stock could have a dilutive effect on the
earnings per share, book value per share, and on the equity and voting power of
existing holders of Media 100 common stock.
As of April 3, 2000, the total amount of authorized shares of Media 100
common stock was 25,000,000 shares, and 8,760,463 shares of Media 100 common
stock were issued and outstanding.
THE MEDIA 100 BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED
AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF MEDIA 100 COMMON STOCK.
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<PAGE>
INCREASE IN THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE UNDER THE KEY EMPLOYEE
INCENTIVE PLAN (1992) (THE "1992 PLAN")
REQUIREMENTS. This proposal to increase the number of shares authorized for
issuance under the 1992 Plan is being submitted for approval of the stockholders
of Media 100 pursuant to the requirements of the National Association of
Securities Dealers applicable to companies with securities quoted on the Nasdaq
National Market. These requirements provide that this increase in the number of
shares authorized for issuance under the 1992 Plan must be approved by a
majority of the total votes cast on this proposal at the Media 100 annual
meeting.
THE 1992 PLAN. The 1992 Plan provides for the grant of incentive stock
options, non-incentive stock options and stock appreciation rights to key
employees, advisers, consultants and directors of Media 100 or any of its
participating subsidiaries.
In 1996, the Media 100 stockholders approved an increase in the number of
shares authorized for issuance under the 1992 Plan from 1,000,000 to 2,000,000.
In 1999, the Media 100 stockholders approved an increase in the number of shares
authorized for issuance under the 1992 Plan from 2,000,000 to 2,200,000. As of
January 31, 2000, 54,092 shares of Media 100 common stock remain available for
future grants under the 1992 Plan. Media 100's stock option program is the
principal incentive tool used to motivate key employees to create long-term
value for stockholders. Providing key employees with an opportunity to
participate in an increase in stock value encourages equity ownership by
management, which, in turn, more closely aligns management's interests with the
interests of all stockholders. The board of directors believes that the shares
currently available for grant under the 1992 Plan are not sufficient for the
stock option program. As a result, the board of directors has approved, and
submitted to the stockholders for approval, an increase of 2,000,000 in the
number of shares that may be purchased under the 1992 Plan for a total of
4,200,000 shares, subject to adjustment as described below. The board of
directors recommends a vote in favor of this increase.
The 1992 Plan is administered by the compensation committee. The
compensation committee is responsible for the day-to-day administration of the
1992 Plan, including the selection of participants in the 1992 Plan,
determination of the terms and provisions of awards granted under the 1992 Plan
(subject to certain limitations set forth in the 1992 Plan), interpretation of
the provisions of the 1992 Plan and resolution of disputes thereunder, which
determinations are conclusive.
The exercise price for all options granted under the 1992 Plan (other than
options granted to non-employee directors) is determined by the compensation
committee and, in the case of incentive options, may not be less than 100% (110%
in the case of incentive stock options granted to persons owning or treated as
owning more than 10% of the total combined voting power of all classes of Media
100 capital stock) of the fair market value of the common stock on the date of
grant. Unless otherwise specified by the compensation committee, each option
vests as to 20% of the shares on the first anniversary of the date of grant and
an additional 20% on each anniversary thereafter, which vesting schedule may be
accelerated in certain circumstances. No option may be exercised later than
10 years (five years in the case on incentive options granted to any 10%
beneficial owners) after the date of grant.
Stock appreciation rights ("SARs") may be granted in tandem or independent
of options. SARs entitle recipients to receive upon exercise, with respect to
each share of common stock to which the SAR relates, payment in cash or shares
of common stock (as determined by the board of directors) equal to the
difference between the fair market value of the common stock on the date the SAR
is exercised, as may be adjusted by the compensation committee, and the fair
market value on the date the SAR was granted. The compensation committee may
adjust the fair market value of the common stock on the date of exercise to
account for dividends on the common stock, and in such limited circumstances as
it may specify following a change in control of Media 100, by reference to a
specified value for the common stock during the period immediately preceding the
change in control, as the compensation committee determines.
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<PAGE>
The rights of a 1992 Plan participant in an award granted under the 1992
Plan are exercisable during his lifetime only by him and may not be sold,
pledged, assigned, or otherwise transferred other than by will or the laws of
descent and distribution. Nothing in the 1992 Plan is to be construed so as to
give a participant the right to be retained in the service of Media 100. In the
event of the death of a participant, all options held by the participant may be
exercised by the participant's executor or administrator for a period of one
year (or as extended by the compensation committee) following the participant's
death for all or any of the shares which the participant was entitled to
purchase immediately prior to his or her death.
In the event of the termination of a participant's (other than a
non-employee director's) employment or service with Media 100 for any reason
other than death, all awards held by the participant shall immediately terminate
unless the compensation committee determines that such awards as were
exercisable immediately prior to termination shall remain exercisable for a
period of time after termination. Employment shall not be considered terminated
in the case of any bona fide leave of absence approved by the board of directors
for purposes of the 1992 Plan so long as reemployment is guaranteed by statute
or contract or in the case of a transfer of employment between Media 100 and one
of its subsidiaries or between subsidiaries or between Media 100 and a
corporation issuing or assuming an option in a merger, reorganization,
acquisition or other transaction to which Section 424(a) of the Internal Revenue
Code applies.
The 1992 Plan currently provides for the grant of non-incentive options
covering 10,000 shares of Media 100 common stock to each non-employee director
of the Company serving on April 8, 1992 and for the grant of non-incentive
options covering 10,000 shares of common stock to each non-employee director
initially elected to the board of directors after April 8, 1992 on the date such
director is elected. All such options shall be exercisable with respect to 20%
of the shares on the first anniversary of the date of grant and an additional
20% on each subsequent anniversary and shall expire not later than 10 years from
the date of grant. All unexpired options granted to a non-employee director that
are exercisable on the date such director ceases to be a director for any reason
other than death (which shall terminate immediately) shall remain exercisable
for a period of six months following such termination, 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 Media 100 or him so as to justify termination of his options.
In the event there is a change in the outstanding stock of Media 100 due to
a stock dividend, stock split, combination of shares, recapitalization, merger
in which Media 100 is the surviving corporation or other capital change, the
aggregate number of shares available under the 1992 Plan and under the
outstanding options, the option price, and other relevant provisions, will be
appropriately adjusted. In the event of a consolidation or merger in which Media
100 is not the surviving corporation or which results in the acquisition of all
Media 100's outstanding stock by a single entity, or in the event of the sale of
substantially all of Media 100's assets, all outstanding awards shall terminate
(including the options to non-employee directors to the extent the compensation
committee determines it may do so in accordance with applicable requirements of
Rule 16b-3 of the Securities Exchange Act of 1934), provided that the board of
directors shall either make all such outstanding awards exercisable immediately
prior to consummation of such merger, consolidation or sale of assets or arrange
to have the surviving or acquiring entity grant replacement awards having
equivalent terms and provisions.
The compensation committee has the power to amend the 1992 Plan or amend any
outstanding award 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
lawful purpose as long as such amendment will not adversely affect the rights of
any participant (without their consent) under any awards previously granted. The
1992 Plan provides for additional indemnification by Media 100 of members of the
Board against liabilities arising in respect of actions taken by the Board in
administering the 1992 Plan.
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<PAGE>
FEDERAL TAX EFFECTS. THE FOLLOWING DISCUSSION OF U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE ISSUANCE AND EXERCISE OF STOCK OPTIONS GRANTED UNDER THE
1992 PLAN IS BASED UPON THE PROVISIONS OF THE INTERNAL REVENUE CODE AS IN EFFECT
ON THE DATE OF THIS PROXY STATEMENT, CURRENT REGULATIONS, AND EXISTING
ADMINISTRATIVE RULINGS OF THE IRS. IT IS NOT INTENDED TO BE A COMPLETE
DISCUSSION OF ALL OF THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE 1992 PLAN
OR OF THE REQUIREMENTS THAT MUST BE MET IN ORDER TO QUALIFY FOR THE DESCRIBED
TAX TREATMENT. IN ADDITION, THERE MAY BE FOREIGN, STATE OR LOCAL TAX
CONSEQUENCES THAT ARE NOT DISCUSSED HEREIN.
The grant of an option does not produce taxable income to the participant or
a deduction for Media 100. Upon the exercise of an option not qualifying as an
"incentive stock option" under the Internal Revenue Code, the participant will
recognize ordinary income (subject to withholding where the option was awarded
in connection with employment) equal to the excess of the fair market value of
the shares acquired upon exercise over the exercise price. Media 100 will be
entitled to a corresponding deduction. Media 100 will not be entitled to a
deduction with respect to any gain or loss recognized upon a subsequent
disposition of the shares. The exercise of an option that qualifies as an
incentive stock option does not produce ordinary taxable income to the
participant, nor is Media 100 entitled to a deduction upon exercise. However,
exercise of an incentive stock option results in additional alternative minimum
taxable income equal to the excess of the fair market value of the shares
acquired upon exercise over the exercise price, which may result in an
alternative minimum tax liability for the participant. If shares acquired upon
exercise of an incentive stock option are not disposed of within two years from
the date of grant of the incentive stock option or within one year after
exercise, any gain or loss recognized upon a subsequent sale or exchange of the
shares will be a long-term capital gain or loss. Media 100 will not be entitled
to a deduction in this case. However, a participant who disposes of such shares
within either the one-year or two-year periods (a "disqualifying disposition")
will recognize ordinary income in the year of the disqualifying disposition (and
Media 100 will be entitled to a deduction) equal in general to the excess of the
fair market value of the shares at the time of exercise over the exercise price.
Any gain or loss upon disposition of the shares will be taxed as short- or
long-term capital gain or loss (assuming the common stock is a capital asset to
the holder). For purposes of applying the foregoing rules, an incentive stock
option will be treated as a nonqualified option to the extent that it, together
with other incentive stock options granted to the participant after 1986 under
any plan of Media 100 or its subsidiaries, first becomes exercisable in any
calendar year for stock having a fair market value (determined as of the time of
grant of the option) in excess of $100,000. Also, an incentive stock option will
be treated as a nonqualified option if it is exercised more than three months
following termination of employment (with exceptions in the case of termination
by reason of death or disability).
As of January 31, 2000, approximately 276 key employees and directors were
eligible to participate in the 1992 Plan. As of January 31, 2000, 1,686,387
shares were subject to outstanding options granted under the 1992 Plan and no
shares were subject to SARs granted under the 1992 Plan. As of April 3, 2000,
the last reported sale price of the common stock on the Nasdaq National Market
was $27.00.
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<PAGE>
STOCK OPTIONS GRANTED UNDER THE 1992 PLAN SINCE ITS INCEPTION. Since its
inception, and through January 31, 2000, the following persons have received
stock options pursuant to the 1992 Plan:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION NUMBER OF OPTIONS(1)
- --------------------------- --------------------
<S> <C>
John A. Molinari, President and Chief Executive Officer and
Director (2).............................................. 481,404
Maurice L. Castonguay, Director............................. 10,000
Timothy C. de E. Collin, Vice President of Worldwide Sales
and Marketing............................................. 60,000
Anthony B. Dolph, Vice President of Business Development.... 100,000
B. Robert Feingold, Former President, Chief Operating
Officer, and Director..................................... 150,000
Chester J. Gapinski, Vice President of Engineering.......... 65,000
Roger W. Redmond, Director.................................. 10,000
Bruce I. Sachs, Director.................................... 10,000
Anthony M. Scotto, Former Vice President of Product
Development............................................... 115,000
Paul J. Severino, Director.................................. 20,000
Steven Shea, Vice President of Finance, Treasurer and
Secretary................................................. 73,000
All Current Executive Officers as a Group................... 1,044,404
All Current Directors who are not Executive Officers as a
Group..................................................... 50,000
All Employees who are not Executive Officers as a Group..... 3,281,970
</TABLE>
- ------------------------
(1) Such number represents the total number of options granted to the person or
group in question under the 1992 Plan, without taking into account those
options which have been exercised, terminated or expired. See the
compensation committee report on executive compensation. The dollar value of
options is equal to the difference between the exercise price of the options
granted and the fair market value of the Media 100 common stock at the date
of exercise. Accordingly, such dollar value is not readily ascertainable.
(2) Mr. Molinari has received five percent or greater of all options granted
under the 1992 Plan.
THE MEDIA 100 BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE INCREASE IN THE
NUMBER OF MEDIA 100 SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE UNDER THE
1992 PLAN.
RATIFICATION OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITOR
The Media 100 board of directors has selected Arthur Andersen LLP to
continue to serve as independent auditor of Media 100 for the fiscal year ending
November 30, 2000, subject to ratification by Media 100's stockholders.
Arthur Andersen LLP has served as Media 100's independent auditor since 1980
and has no direct financial interest or material indirect financial interest in
Media 100. Media 100 expects that representatives of Arthur Andersen LLP will be
present at the Media 100 annual meeting and will have the opportunity, at its
discretion, to make a statement and to respond to appropriate stockholder
questions.
Arthur Andersen LLP's audit services for the fiscal year ended November 30,
1999 included: auditing Media 100's annual financial statements; preparing Media
100's federal and state income tax return; consulting with Media 100's audit
committee; and engaging in routine consultations on financial accounting and
reporting matters.
The audit committee authorized all services performed by Arthur Andersen LLP
on behalf of Media 100. In addition, the audit committee reviews the scope of
services to be provided by Arthur Andersen LLP annually and considers the
effect, if any, that performance of any non-audit services might have on audit
independence.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT MEDIA 100'S STOCKHOLDERS
VOTE "FOR" RATIFICATION OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITOR.
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<PAGE>
MEDIA 100 EXECUTIVE OFFICERS
The executive officers of Media 100 as of January 31, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- -------------------- ------------------------------------------
<S> <C> <C>
John A. Molinari.......................... 37 President and Chief Executive Officer and
Director
Timothy C. de E. Collin................... 37 Vice President of Worldwide Sales and
Marketing
Anthony B. Dolph.......................... 41 Vice President of Business Development
Chester J. Gapinski....................... 46 Vice President of Engineering
Steven D. Shea............................ 33 Vice President of Finance, Treasurer and
Secretary
</TABLE>
Mr. Molinari was President from November 1996 until October 1998 and resumed
the title of President in June 1999 and has been Chief Executive Officer since
November 1996. From 1990 to November 1996, Mr. Molinari served as Vice President
and General Manager of the Company's multimedia group. See "The Media 100 Annual
Meeting--Election of Directors" on page 70.
Mr. Collin was appointed Vice President of Worldwide Sales and Marketing in
October 1999. Mr. Collin joined the company in October 1996 as the Managing
Director of Media 100's U.K. subsidiary. Mr. Collin was promoted to Director of
European Operations in December 1998. Prior to that, he worked for Digital
Origin, Inc. (formerly Radius, Inc.) in their U.K. subsidiary.
Mr. Dolph has been Vice President, Business Development since January 1998.
He served as Vice President of Marketing from October 1997 to January 1998, as
Vice President of Strategic Planning from November 1996 to October 1997, and as
director of marketing for Media 100's multimedia group from June 1994 to
November 1996. Prior to joining Media 100, he was employed by Progress Software
Corporation, a supplier of computer application technology for the client/server
market, where he was Director, Corporate Communications from 1992 to June 1994.
Mr. Gapinski was appointed Vice President of Engineering in July 1999.
Mr. Gapinski joined Media 100 in June 1997 as the Director of Engineering. Prior
to that, he was Business Unit General Manager at GenRad Inc., a leading supplier
of test and measurement systems. Prior to that, Mr. Gapinski held director-level
positions in engineering, program management and strategic business development.
Mr. Shea was appointed Vice President of Finance in October 1998, Corporate
Secretary in June 1998 and Treasurer in April 1998. Prior to that he was
Corporate Controller since December 1996. Mr. Shea joined the company in April
of 1995. Prior to that he held various positions in finance and accounting at
Bay Networks and Digital Equipment Corporation.
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<PAGE>
MEDIA 100 EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by Media 100 and its subsidiaries to or on behalf
of the Chief Executive Officer and each of the other executive officers whose
salary and bonus for the fiscal year ended November 30, 1999 exceeded $100,000
(the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(1)
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(2)
- --------------------------- -------- --------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
John A. Molinari (3)................. 1999 $200,000 $100,000 0 $ 288
President and Chief Executive 1998 200,000 30,000 202,250 288
Officer 1997 200,000 0 20,000 336
Timothy C. de E. Collin (4).......... 1999 194,423 27,488 38,000 21,316
Vice President of Worldwide
Sales and Marketing
Anthony B. Dolph (5)................. 1999 145,000 36,250 0 3,160
Vice President of Marketing 1998 135,000 20,250 50,000 1,012
1997 125,250 25,750 30,000 210
B. Robert Feingold (6)............... 1999 200,000 0 0 3,663
Former President, Chief Operating 1998 26,154 50,000 150,000 65
Officer and Director
Chester J. Gapinski (7).............. 1999 132,873 22,662 25,000 2,820
Vice President of Engineering
Anthony M. Scotto (8)................ 1999 175,386 6,526 0 1,811
Former Vice President of Product 1998 170,000 30,334 75,000 806
Development 1997 155,000 29,063 0 1,259
Steven D. Shea (9)................... 1999 125,000 62,500 20,000 2,834
Vice President of Finance,
Treasurer and Secretary
</TABLE>
- ------------------------
(1) Media 100 has not issued stock appreciation rights or granted restricted
stock awards. In addition, Media 100 does not maintain a "long-term
incentive plan," as that term is defined in applicable rules. See "The
Compensation Committee Report on Executive Compensation" on page 80.
(2) The amounts reported represent (i) the dollar value of premiums paid by
Media 100 on term life insurance for the benefit of the Named Executive
Officers and (ii) contributions to a defined contribution plan with respect
to Mr. Dolph in 1999 and 1998, Mr. Feingold in 1999, Mr. Shea in 1999,
Mr. Gapinski in 1999, and Mr. Scotto in 1999, 1998 and 1997. The amounts
reported for Mr. Collin represent payments for car allowance, pension and
insurance.
(3) Mr. Molinari was appointed Chief Executive Officer effective November 30,
1996. Mr. Molinari served as President from November 1996 until
October 1998 and resumed the title of President in June 1999. From 1990 to
November 1996, he was Vice President and General Manager of Media 100's
multimedia group.
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<PAGE>
(4) Mr. Collin commenced employment in October 1996 and was appointed an
executive officer effective October 1999 when he was promoted to Vice
President of Worldwide Sales and Marketing.
(5) Mr. Dolph was appointed an executive officer of Media 100 effective
November 30, 1996.
(6) Mr. Feingold commenced employment on October 12, 1998, as President, Chief
Operating Officer and Director. Mr. Feingold terminated his employment on
January 15, 2000 and received a severance payment of $200,000 at that time.
(7) Mr. Gapinski was appointed an executive officer of Media 100 effective
July 1999.
(8) Mr. Scotto commenced employment with Media 100 on June 24, 1996, and was
appointed an executive officer of Media 100 effective November 30, 1996.
Mr. Scotto terminated his employment in October 1999 and received a
severance payment of $66,938 at that time.
(9) Mr. Shea was appointed Vice President of Finance in October 1998, Corporate
Secretary in June 1998 and Treasurer in April 1998.
STOCK OPTIONS
The following table provides information concerning the grant of stock
options under the Key Employee Incentive Plan (1992) to the Named Executive
Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUME
---------------------------------------------------- ANNUAL RATES OF
% OF TOTAL STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED OPTION TERM (1)
UNDERLYING TO EMPLOYEES EXERCISE OR -----------------------
OPTIONS IN FISCAL BASE PRICE EXPIRATION 5% 10%
NAME GRANTED(#) YEAR ($/SHARE) DATE ($) ($)
- ---- ---------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Timothy C. de E. Collin........... 5,000 0.76 5.1250 1/08/09 16,115 40,840
5,000 0.76 6.1250 6/16/09 19,260 48,808
28,000 4.28 6.3130 9/15/09 111,166 281,716
Chester J. Gapinski............... 25,000 3.82 5.5630 7/14/09 87,464 221,649
Steven D. Shea.................... 10,000 1.53 5.1250 1/08/09 32,231 81,679
10,000 1.53 5.5630 7/14/09 34,985 88,660
</TABLE>
- ------------------------
(1) The amounts shown reflect options granted pursuant to the Stock Option
Repricing Program in 1998.
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<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the Named
Executive Officers, concerning the unexercised options held as of the end of the
fiscal year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY
ON OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(1)
EXERCISE VALUE --------------------------- ----------------------------
NAME (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Anthony B. Dolph.............. 0 0 29,750 20,250 314,160 213,840
Timothy C. de E. Collin....... 0 0 5,125 44,875 53,887 390,199
B. Robert Feingold............ 0 0 37,501 112,499 440,637 1,321,863
Chester J. Gapinski........... 0 0 9,313 40,687 99,487 392,838
John A. Molinari.............. 0 0 101,256 100,994 1,086,571 1,115,189
Anthony M. Scotto............. 35,125 193,335 0 0 0 0
Steven D. Shea................ 0 0 16,744 39,756 181,692 399,868
</TABLE>
- ------------------------
(1) Market value of underlying securities at November 30, 1999, minus the
exercise price of "in-the-money" options. These amounts take into account
options granted pursuant to the Stock Option Repricing Program in 1998.
MEDIA 100 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for reviewing the compensation of
the executive officers of Media 100. The committee also grants stock options
under Media 100's stock option plans and administers Media 100's employee stock
purchase plan.
COMPENSATION PHILOSOPHY. Media 100 operates in a highly competitive and
rapidly evolving high technology business. The committee seeks to establish
compensation policies that provide management with a performance incentive to
align the interests of senior management with stockholder interests. The program
includes three principal components: salary, annual bonus incentives, and stock
option awards. The committee considers the past performance and anticipated
future contribution of each executive officer in establishing the total amount
and mix of each element of compensation.
SALARY. The salaries of the executive officers (including the Chief
Executive Officer) are reviewed annually by the committee in light of survey
information developed by an independent compensation and benefits consultant.
The committee considers the median compensation levels for comparable positions
at other technology companies, but does not, as a matter of policy, fix
compensation of all executive officers as a percentage of such median levels.
Accordingly, compensation levels for an executive officer may be set by the
committee above or below such median levels, based on the committee's subjective
assessment of other factors, including the scope of an individual's
responsibilities, his or her prior level of experience and competition for
executives with the skills required by Media 100. Based on the above
considerations, the base salaries of the executive officers were increased
during fiscal 1999 between 0% and 17% over the levels in effect at the end of
fiscal 1998.
ANNUAL BONUS INCENTIVES. The committee annually reviews and approves an
executive incentive plan which provides executive officers (including the Chief
Executive Officer) with the opportunity to earn specified percentages of their
base salary based upon targeted financial goals and, in certain
80
<PAGE>
instances, on the achievement of individual objectives and a subjective
assessment of the executive's performance. For the last fiscal year, the
financial targets approved by the committee included goals for revenue and net
income, and the percentage of the target incentive tied to each financial goal
varied among the executive officers depending on the scope of an individual's
responsibilities and the significance of an individual's anticipated
contribution to the overall objectives of Media 100. The committee approved the
range of the target incentives for the executive officers at 25% to 50% of base
compensation, based on the above considerations. Incentive payments totaling
$255,426 under the fiscal 1999 plan were made with respect to the targeted
financial goals.
STOCK OPTION AWARDS. Stock option awards are designed to align the
interests of the executive officers with the long-term interests of the
stockholders. The committee awards stock options generally at fair market value
on the date of grant, and such awards are subject to vesting periods which are
intended to encourage the executive officers to remain with the Company. The
timing and amount of stock option awards given to the executive officers in
fiscal 1999 were based in each case on the committee's subjective judgment of
the particular circumstances of the individual.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. Mr. Molinari's salary, annual
incentive opportunity and stock option award for fiscal 1999 were determined by
the committee in accordance with the philosophy described above. Mr. Molinari's
base salary was fixed at $200,000. Mr. Molinari's annual bonus incentive
opportunity represented 50% of his base salary at target, and was based upon
Media 100's achievement of certain targeted revenue and net income goals. An
incentive payment of $100,000 was made to Mr. Molinari for fiscal 1999. In 1999,
Mr. Molinari was not awarded any stock option grants.
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
disallows public companies a tax deduction for compensation paid in excess of
$1,000,000 in any year to each of the company's chief executive officer or any
of the company's four other highest paid executive officers. Qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are satisfied. As was the case in fiscal 1999, the
committee anticipates that in fiscal 2000 all compensation to executive officers
will be fully deductible under Section 162(m). The committee therefore has not
yet found it necessary to enact a policy with respect to qualifying compensation
paid to executive officers for deductibility.
COMPENSATION COMMITTEE
Bruce I. Sachs
Paul J. Severino
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<PAGE>
MEDIA 100 PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on Media 100 common stock against the
cumulative total return of the CRSP Total Return Index for The Nasdaq Stock
Market (U.S. Companies) (the "Nasdaq Stock Market (U.S.) Index") and the CRSP
Index for Nasdaq Electronic Component Stocks (the "Nasdaq Electronic Component
Index") for the five fiscal year period ending November 30, 1999.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NASDAQ STOCK MARKET (U.S.) INDEX............................ $100.00 $142.53 $174.58 $217.48 $266.60 $447.56
NASDAQ ELECTRONIC COMPONENT INDEX........................... $100.00 $184.40 $286.70 $336.87 $417.66 $798.30
MEDIA 100 INC. (MDEA)....................................... $100.00 $125.00 $325.00 $189.58 $ 82.18 $ 76.55
</TABLE>
The above graph compares the performance of the Company with that of the
Nasdaq Stock Market (U.S.) Index, which is an index comprising all domestic
shares traded on the Nasdaq National Market and the Nasdaq SmallCap Market, and
the Nasdaq Electronic Component Index, which is an industry index. Both of these
indices are prepared by the Center of Research in Securities Prices at the
University of Chicago, and weigh investment on the basis of market
capitalization.
The comparison of total return of investment (change in year-end stock price
plus reinvested dividends) for each of the periods assumes that $100 was
invested at the close of the market on November 30, 1994 in each of the Nasdaq
Stock Market (U.S.) Index, the Nasdaq Electronic Component Index and Media 100.
MEDIA 100 SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who beneficially own more than 10% of the
Company's Common Stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc. Based solely on its review of the copies of such
reports received by it, and written representations from certain reporting
persons that no Forms 5 were required for those persons, the Company believes
that during the fiscal year ended November 30, 1999 all filing requirements
applicable to its officers, directors and such 10% beneficial owners were
complied with, except that Mr. Collin failed to file a Form 3 within the
required time period to reflect one transaction relating to the grant of stock
options to Mr. Collin in connection with his promotion to Vice President of
Worldwide Sales and Marketing.
MEDIA 100 STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 2001 annual meeting of
stockholders must be received at Media 100's principal executive offices located
at 290 Donald Lynch Boulevard, Marlborough, Massachusetts 01752 not later than
December 9, 2000, in order to be considered for inclusion in the proxy statement
and form of proxy relating to that meeting. Assuming Media 100 holds the 2001
annual meeting of stockholders within 30 days of the anniversary date of the
2000 annual meeting, stockholders must provide Media 100 with notice at least
60 days in advance of the 2001 annual meeting of other matters the stockholders
of Media 100 otherwise desire to introduce at the 2001 annual meeting of
stockholders.
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<PAGE>
THE DIGITAL ORIGIN ANNUAL MEETING
GENERAL
The accompanying proxy is solicited on behalf of the Digital Origin board of
directors for use at the Annual Meeting of Shareholders to be held at Digital
Origin's offices at 460 East Middlefield Road, Mountain View, California 94043
on May 5, 2000, at 10:00 a.m. pacific time. Only holders of record of our common
stock on the record date of March 17, 2000, will be entitled to vote at the
meeting. On the record date, there were 5,896,741 shares of common stock
outstanding and entitled to vote at the meeting. A majority, or 2,948,372 of
these shares represented in person or by proxy will constitute a quorum for the
transaction of business at the meeting. This joint proxy statement/ prospectus
was first mailed to shareholders on April 5, 2000.
Holders of our common stock are entitled to one vote for each share held as
of the record date. Any person signing a proxy in the form accompanying this
joint proxy statement/prospectus has the power to revoke it prior to the meeting
or at the meeting prior to the vote pursuant to the proxy. A proxy may be
revoked by (i) a writing delivered to Digital Origin stating that the proxy is
revoked, (ii) a subsequent proxy executed by the person executing the prior
proxy and presented at the meeting, or (iii) attendance at the meeting and
voting in person. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD
BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST
BRING TO THE MEETING A LETTER FROM THE BROKER, BANK OR OTHER NOMINEE CONFIRMING
YOUR BENEFICIAL OWNERSHIP OF THE SHARES.
DATE, TIME AND PLACE
The Annual Meeting of Shareholders to be held at Digital Origin's offices at
460 East Middlefield Road, Mountain View, California 94043 on May 5, 2000 at
10:00 a.m. Pacific Time.
MATTERS TO BE CONSIDERED AT THE MEETING
- To approve the merger agreement dated December 28, 1999 with Media 100,
resulting in Digital Origin becoming a wholly owned subsidiary of Media
100 Inc.
- To elect seven directors to hold office until the next annual meeting and
until their respective successors have been elected and qualified or until
their earlier resignation or removal. The Board of Directors intends to
nominate the following individuals for election: Michael D. Boich; John
Cirigliano, Mark Housley; John C. Kirby, Stephen Manousos, Henry V. Morgan
and Carl Rosendahl, all currently serving as directors.
- To authorize an additional 450,000 shares of common stock for issuance
under the 1995 Digital Origin Stock Option Plan if the merger is not
concluded.
- To authorize an additional 50,000 shares of common stock for issuance
under the 1990 Digital Origin Employee Stock Purchase Plan if the merger
is not concluded.
- To ratify the appointment of Ernst & Young LLP as independent auditors for
the current fiscal year.
- To transact such other business as may properly come before the meeting.
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<PAGE>
RECORD DATE; VOTES PER SHARE
Only holders of record of our common stock on the record date of March 17,
2000 will be entitled to vote at the meeting. Holders of our common stock are
entitled to one vote for each share held as of the record date.
QUORUM
On the record date, there were 5,896,741 shares of common stock outstanding
and entitled to vote at the meeting. A majority, or 2,948,372 of these shares
represented in person or by proxy will constitute a quorum for the transaction
of business at the meeting.
VOTES REQUIRED AND METHOD OF TABULATION
Approval of the merger will require the affirmative vote of a majority of
our outstanding shares (2,948,372 shares voting in favor).
HOW SHARES WILL BE VOTED AT THE ANNUAL MEETING
Shares of Digital Origin common stock represented by a proxy properly
executed and received before the vote at the annual meeting will be voted at the
meeting in the manner directed on the proxy card, unless the proxy is revoked
prior to the vote. Properly executed blank proxy cards will be voted in favor of
the proposals described in the notice for the annual meeting. If any other
business should come before such meeting, the persons appointed by the enclosed
form of proxy shall have discretionary authority to vote all such proxies as
they shall decide. Abstentions and broker non-votes will be disregarded except
in determining whether a quorum is present. Approval of the merger will require
the affirmative vote of a majority of our outstanding shares (2,948,372 shares
voting in favor). Accordingly, if you do not instruct your broker to vote your
shares, your shares will not be voted and it will be equivalent to voting
against the merger. Election of directors requires the affirmative vote of a
plurality of the shares of common stock represented in person or by proxy and
voting at the meeting. Approval of the remaining matters to be considered at the
meeting require the affirmative vote of a majority of the shares of common stock
represented in person or by proxy at the meeting. As of the record date, the
directors and executive officers of Digital Origin held 34,488 shares of common
stock or .6% of the outstanding shares. In the event that sufficient votes in
favor of the proposals are not received by the date of the meeting, the proxy
holder may propose one or more adjournments of the meeting to permit further
solicitations of proxies. Any such adjournment would require the affirmative
vote of the majority of the shares present in person or represented by proxy at
the meeting.
HOW TO REVOKE A PROXY
Any person signing a proxy in the form accompanying this joint proxy
statement/prospectus has the power to revoke it prior to the meeting or at the
meeting prior to the vote pursuant to the proxy. A proxy may be revoked by
(i) a writing delivered to Digital Origin stating that the proxy is revoked,
(ii) a subsequent proxy executed by the person executing the prior proxy and
presented at the meeting, or (iii) attendance at the meeting and voting in
person. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A
BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST
BRING TO THE MEETING A LETTER FROM THE BROKER, BANK OR OTHER NOMINEE CONFIRMING
YOUR BENEFICIAL OWNERSHIP OF THE SHARES.
SOLICITATION OF PROXIES
The expenses of soliciting proxies from Digital Origin shareholders will be
paid by Media 100. Following the original mailing of this joint proxy
statement/prospectus, the officers and directors of Digital Origin and its
agents may also solicit proxies by mail, telephone, facsimile or in person.
Digital Origin has retained Skinner & Co., a proxy solicitation firm, and will
pay Skinner & Co. a fee of approximately $3,500, plus expenses estimated at
$3,500. In addition, we will request brokers,
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<PAGE>
custodians, nominees and other record holders of our common stock to forward
copies of the proxy and other soliciting materials to persons for whom they hold
shares and to request authority for the exercise of proxies. In these cases,
Media 100 will reimburse the record holders for their reasonable expenses.
OTHER BUSINESS
The Board does not presently intend to present matters other than as
described herein for action by the shareholders at the meeting, and, so far as
is known to the Board, no matters are to be brought before the meeting except as
specified in the notice of the meeting. As to any business that may properly
come before the meeting, however, it is intended that proxies, in the form
accompanying this joint proxy statement/prospectus, will be voted in the respect
thereof in accordance with the judgment of the persons voting such proxies.
ADJOURNMENT
In the event that sufficient votes in favor of any other matter are not
received by the meeting date, the persons named as proxies may propose one or
more adjournments of the meeting to permit further solicitation of proxies. Any
such adjournment will require the affirmative vote of a majority of the shares
present in person or by proxy at the session of the meeting to be adjourned. The
persons named as proxies will vote in favor of such adjournment if necessary in
their discretion. The costs of any additional solicitation and of any adjourned
meetings will be borne in the same manner as the solicitation for the initial
meeting.
MATTERS TO BE CONSIDERED AT THE DIGITAL ORIGIN ANNUAL MEETING
APPROVAL OF MERGER
The board of directors of Digital Origin has unanimously approved the merger
of Digital Origin with Media 100 pursuant to the merger agreement, subject to
shareholder approval. The terms of the merger agreement and certain risk factors
associated with the merger are described above on pages 38 and 14, respectively.
The approval of a majority of the outstanding shares as of the record date is
required for the approval of the merger. Accordingly, if you do not vote your
shares or instruct your broker to vote your shares, your votes will not be
counted and it will be equivalent to voting against the merger. The Board's
decision to enter into and recommend approval of the Merger resulted from
careful consideration of a range of strategic alternatives conducive to
maximizing shareholder value, including other possible business combinations and
continued independent operations. The merger was considered superior to these
alternatives for several reasons described on page 19. Negative factors were
also considered. See "Digital Origin's Reasons for the Merger" on page 19.
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE MERGER.
ELECTION OF DIRECTORS
In case the merger is not concluded or until it is, it is necessary to elect
a board of seven directors to hold office until the next annual meeting of
shareholders or any earlier resignation or removal. Shares represented by a
proxy returned to Digital Origin will be voted for the election of the nominees
identified below unless the proxy is marked in such a manner as to withhold
authority to so vote. If any nominee for any reason is unable to serve or for
good cause will not serve, the proxies may be voted for such substitute nominee
as the proxy holder may determine. Digital Origin is not aware of any nominee
who will be unable to serve as a director. Directors are elected by the
affirmative vote of a plurality of the shares of common stock represented in
person or by proxy and voting at the meeting. All nominees currently serve on
the Board of Directors (the "Board").
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<PAGE>
DIRECTORS/NOMINEES
The names of the nominees, and certain information about them (including
their respective terms of service), are set forth below:
<TABLE>
<CAPTION>
DIRECTOR NAME OF NOMINEE AGE PRIDIRECTORCSINCEION
- ------------------------ -------- --------------------------------------------------
<S> <C> <C>
Michael D. Boich (2)......................... 45 CEO of Eazel, Inc. 1986
John Cirigliano.............................. 57 President of CLB Associates 1999
Mark Housley................................. 43 Chairman, President and Chief Executive
Officer of the Company 1997
John C. ("Jack") Kirby (1)................... 55 President of W.R. Carpenter North
America; Executive Vice President of
KH Consulting Group 1997
Stephen Manousos (2)......................... 49 Vice President Worldwide Sales and
Merchant Services of Catalog City, Inc. 1999
Henry V. ("Hank") Morgan (1)................. 60 Chief Financial Officer and Senior Vice
President of Redcreek
Communications, Inc. 1998
Carl Rosendahl............................... 42 Chairman, Pacific Data Images, Inc. 1999
</TABLE>
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
MR. BOICH has been a director since Digital Origin's inception in May 1986
and was the Chairman of the Board of Directors from April 1991 until
March 1994. Mr. Boich founded Eazel, Inc., an open source software and web based
solutions developer, in August 1999. Mr. Boich was President and Chief Executive
Officer of Rendition, Inc., a developer of graphics chips, from March 1994 until
its sale in 1998. Mr. Boich served as our President and Chief Executive Officer
from inception until April 1991 and again assumed these positions from
September 1992 through February 1993. From July 1985 to April 1986, Mr. Boich
worked as an independent data communications consultant. From March 1982 to
July 1985, Mr. Boich was employed by Apple, where he was part of the original
Macintosh development team and was responsible for applications software
acquisitions and promoting third-party software development for the Macintosh.
MR. CIRIGLIANO joined the Board of Directors in 1999. As president and
founder of the privately held consulting firm of CLB Associates, he has advised
or invested in dozens of emerging companies in a range of industries including
manufacturing, marketing, communications, software and hardware since 1986. Such
work has focused on operating or strategic initiatives and implementations
designed to significantly improve client company operations and enhance equity
values. In such capacity, Mr. Cirigliano advised Digital Origin from 1995 until
1998. Prior to his association with CLB Associates, Mr. Cirigliano was a
managing director with Merrill Lynch Capital Markets for ten years, where he
headed the team that developed a highly successful zero coupon convertible
product. Mr. Cirigliano also co-founded Copaquen Associates, a privately-held
computer software development and advisory firm, and Corporate Property
Investors, a large, privately held real estate investment trust now part of
Simon DeBartolo. From 1991 to 1997, he was a Director of Ajax Electric Corp., a
leading domestic distributor of electric motors and served as a Senior Advisor
to "The Red Herring" magazine as well as on the Advisory Board of Outward Bound
U.S.A. and The Endowment Trust. Mr. Cirigliano received his BA from Columbia
University and his JD from New York Law School.
MR. HOUSLEY has been President and Chief Operating Officer since
January 1997, CEO since August 1997 and Chairman since December 1997. From
March 1995 until October 1996, Mr. Housley was founder and Vice President of
marketing of Spectrum Wireless, Inc., a manufacturer of wireless
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<PAGE>
infrastructure products. From May 1992 until March 1995, Mr. Housley held
various positions of responsibility for Digital Origin and its predecessor
SuperMac Technologies, Inc., including Vice President and General Manager of the
Color Publishing Division. From October 1990 until May 1992, Mr. Housley was a
Vice President for Siemens AG in Santa Clara, a multinational manufacturer of
electronic equipment, directing product marketing and planning.
MR. KIRBY joined the Board of Directors in 1998 and has been a principal and
Executive Vice President of KH Consulting Group since 1986. Mr. Kirby is
responsible for this firm's reorganization and financial restructuring practice.
In this capacity, Mr. Kirby has represented various debtors, secured parties,
trade creditors and corporate buyers and frequently assumes a management role in
the client. Mr. Kirby also currently serves as President of W.R. Carpenter North
America, a diversified holding company with interests in the manufacturing and
distribution of heavy mechanized equipment. From early 1995, Mr. Kirby was
President and CEO of Cabrillo Crane & Rigging, Inc., a wholly owned subsidiary
of Wells Fargo Bank, until its sale in late 1997. From 1992 until 1994,
Mr. Kirby was Vice President and CFO of Everex Systems, Inc.
MR. MANOUSOS joined the Board of Directors in February 1999. He joined
Catalog City, Inc., a privately held catalog shopping portal on the Internet, as
Vice President of Sales and Merchant Services in August 1999. Mr. Manousos
co-founded and has served as Chief Executive Officer and Director of Post
Digital since May 1981. Post Digital is an electronic prepress and digital
printing company. From April 1991 until June 1996, Mr. Manousos co-founded and
served as Vice President of Sales and Marketing, and later Vice President of
Sales at Fractal Design Corporation, and was a member of its Board of Directors
until the company was acquired by MetaTools in May 1997. While at Fractal,
Mr. Manousos managed the sales and marketing teams and was responsible for the
company's product packaging. Prior to Fractal, Mr. Manousos spent 17 years in
newspaper editing and writing, including a stint as an editor on the national
desk of the Los Angeles Times.
MR. MORGAN joined the company in February 1997 as Chief Financial Officer
and Senior Vice President, Finance and Administration. He resigned from these
positions in September 1998 in order to assume his current duties at Redcreek
Communications, Inc., an Internet start up company. He remained Secretary to
Digital Origin and was appointed to the Board of Directors in October 1998.
During 1995 and 1996, Mr. Morgan was Executive Vice President and Chief
Financial Officer of Connect, Inc. of Mountain View, California, an
Internet-based interactive commerce applications software company. From 1989
through 1994, Mr. Morgan was Executive Vice President and Chief Financial
Officer of Logitech International, S.A., a computer mouse manufacturer.
MR. ROSENDAHL joined the Board of Directors in 1999 after the resignation of
Charles W. Berger. Mr. Rosendahl is Chairman of Pacific Data Images, Inc. "PDI",
a privately held Palo Alto company employing about 300 employees founded in 1980
by Mr. Rosendahl to combine interests in filmmaking and computer graphics. PDI
is an award winning producer of high-end animation and visual effects for the
feature film, commercial and entertainment industries. PDI has a co-production
pact with DreamWorks SKG to create original, computer animated feature films,
including the movie ANTZ for which Mr. Rosendahl was Executive Producer.
Mr. Rosendahl and DreamWorks recently announced DreamWorks' intent to acquire
Mr. Rosendahl's interest in PDI. The Academy of Motion Picture Arts and Sciences
recognized PDI and its founders in 1998 with a Technical Achievement Award for
the concept and architecture of PDI's proprietary animation system.
Mr. Rosendahl holds a BSEE from Stanford University (1979), has taught a
graduate level course entitled "Computer Animation and Visual Effects for Film
and Television" at USC Film School in 1993 and 1994 and is a member of ACM
SIGGRAPH and the governing board of directors of the Visual Effects Society.
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES.
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BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
Standing committees of the Board include an Audit Committee and a
Compensation Committee. The Board does not have a nominating committee or a
committee performing a similar function.
Messrs. Kirby and Morgan are currently the members of the Audit Committee.
The Audit Committee meets with Digital Origin's independent auditors concerning
the scope of their annual audit, the findings of the auditors with respect to
Digital Origin's accounting systems and controls, and other matters relating to
the preparation of Digital Origin's audited financial statements.
Messrs. Boich and Manousos are currently the members of the Compensation
Committee. The Compensation Committee considers all matters of executive
compensation and makes recommendations to the Board regarding the compensation
of Digital Origin's executive officers and the establishment of employee benefit
plans generally. The Compensation Committee also administers Digital Origin's
stock option plans and makes stock option awards to executive officers.
During the year ended September 30, 1999, the Board met six times, the Audit
Committee met once, and the Compensation Committee met twice. None of the
nominees for director attended fewer than 75% of the aggregate total number of
meetings of the Board of Directors (held during the period for which he was a
director) and the total number of meetings held by all committees of the Board
of Directors on which he served (held during the period that he served).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee has one former officer of Digital Origin as a
member. Mr. Boich was President and Chief Executive Officer of Digital Origin
from May 1986 until April 1991 and from September 1992 through February 1993.
COMPENSATION OF DIRECTORS
Board members are reimbursed for expenses incurred in attending board or
committee meetings. Except as described below, they are not otherwise
compensated for attending board or committee meetings.
The 1994 Directors Stock Option Plan (the "1994 Directors Plan") was adopted
by the Board on December 14, 1994 and approved by the shareholders on
February 15, 1995. A total of 19,000 shares of Digital Origin's Common Stock
have been reserved for issuance under the 1994 Directors Plan (consisting of
10,000 shares allocated to the 1994 Directors Plan at the time of its adoption
by the Board plus 9,000 shares that were authorized for issuance, but not issued
or subject to outstanding options, under the 1990 Directors' Stock Option Plan
(the "Prior Directors Plan") as of September 30, 1998). In addition, shares of
common stock issuable upon exercise of outstanding stock options granted under
the Prior Directors Plan that expire or become unexercisable for any reason
after September 30, 1998 will be available for issuance under the 1994 Directors
Plan. A total of 1,000 options are outstanding under the Prior Directors Plan.
Although options granted prior to termination of the Prior Directors Plan remain
outstanding in accordance with their terms, no further options may be granted
under the Prior Directors Plan.
The 1994 Directors Plan provides for the automatic grant of 1,000
nonqualified stock options ("NQSOs") to non-employee members of the Board upon
appointment to the Board and annual grants of 250 NQSOs on each anniversary of a
director's initial grant under either the Prior Directors Plan or the 1994
Directors Plan, provided the Director continues to serve on the Board at such
time. In addition, each director who received a grant to purchase 125 shares
under the Prior Directors Plan after August 30, 1994 and before February 15,
1995 was eligible to receive a one time grant under the 1994 Directors Plan to
purchase 125 shares of Digital Origin's Common Stock. Options granted under the
1994 Directors Plan vest on the anniversary date of the grant at the rate of 25%
per year.
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During fiscal 1999, Messrs. Boich and Kirby each received an option to
purchase 250 shares of common stock, from the 1994 Directors Plan. During fiscal
1999, Messrs. Cirigliano, Manousos and Rosendahl each received grants of 1000
shares from the 1994 Directors Plan. Moreover, each of these three also received
grants of 10,000 shares from Digital Origin's1995 Stock Option Plan. All
director stock options were granted with an exercise price equal to the market
price of Digital Origin's common stock on the date of grant. All options granted
have a term of ten years.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
The provisions of Section 317 of the California Corporations Code,
Article V of Digital Origin's Articles of Incorporation and Article VI of
Digital Origin's Bylaws provide for indemnification to the fullest extent
permitted by law for expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that any person is or was a director, officer or employee. In
addition, Article IV of Digital Origin's Articles of Incorporation provides that
the liability of Digital Origin's directors shall be eliminated to the fullest
extent permissible under the California Law. Digital Origin has entered into
Indemnity Agreements with each of Digital Origin's current directors to give
such directors additional contractual assurances regarding the scope of the
indemnification and liability limitations set forth in the Articles of
Incorporation and Bylaws. Digital Origin currently carries a director and
officer liability insurance policy with a per claim and annual aggregate
coverage limit of $7.5 million.
AUTHORIZATION TO INCREASE THE NUMBER OF SHARES ISSUABLE UNDER THE 1995 STOCK
OPTION PLAN
The Board of Directors has approved and recommends to the shareholders that
they approve an increase in the aggregate number of shares of common stock that
may be issued under this Option Plan by 450,000 shares if the merger is not
concluded. The Board of Directors believes that the Option Plan has played, and
will continue to play, a major role in enabling Digital Origin to attract and/or
retain certain officers, directors and other key employees. Options granted to
such individuals through the Option Plan provide personnel with long-term
incentives that are consistent with Digital Origin's compensation policy of
providing compensation that is closely related to Digital Origin's performance.
As of December 31, 1999, 101,582 shares had been issued on exercise of stock
options granted under the Option Plan, 814,633 shares were subject to
outstanding option grants and 5,769 options were available for future grant
under the Option Plan. To allow Digital Origin to continue to obtain the benefit
of incentives available under the Option Plan, the Board of Directors has
adopted and recommended for submission to the shareholders for their adoption a
proposal to increase the number of shares that may be issued upon the exercise
of options granted under the Option Plan. The Board of Directors considers the
Option Plan typical of comparable plans commonly utilized by technology
companies in the Silicon Valley area, and the Option Plan is described in
greater detail below. This authorization requires the affirmative vote of the
holders of a majority of the shares of common stock represented in person or by
proxy at the Meeting. Abstentions will be counted toward the number of shares
represented and voted at the Meeting. Broker non-votes will be disregarded.
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THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE AUTHORIZATION
TO INCREASE THE NUMBER OF SHARES ISSUABLE UNDER THE 1995 STOCK OPTION PLAN.
DESCRIPTION OF THE 1995 STOCK OPTION PLAN
HISTORY. The Stock Option Plan was adopted by Digital Origin's Board on
December 20, 1995; amended on December 18, 1996, December 8, 1997 and
December 16, 1998 by the Board; and in each case was ratified by Digital
Origin's shareholders at the following annual meeting.
PURPOSE. The purpose of the Option Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of Digital Origin by offering them an
opportunity to participate in Digital Origin's future performance.
PLAN ADMINISTRATION. The Option Plan is administered by the Compensation
Committee of the Board of Directors References herein to the "Board" mean the
Compensation Committee appointed by the Board unless clearly indicated to the
contrary.
Except as otherwise limited by the Option Plan, the Board determines the
optionees, the number of shares subject to each option, the exercise prices, the
exercise periods, the vesting schedules and the dates of grants. The Board has
delegated to Digital Origin's Chief Executive Officer the authority to grant
options to all eligible persons other than executive officers. Each option
granted pursuant to the Option Plan is evidenced by a Stock Option Grant (the
"Grant") issued by Digital Origin and a Stock Option Exercise Notice (the
"Exercise Notice") completed at the time of option exercise.
The Board has the authority to construe and interpret any provision of the
Option Plan, and such interpretations are binding on Digital Origin and the
employees. The Board does not receive any compensation for administering the
Option Plan.
ELIGIBILITY. All officers, directors, employees, independent contractors,
advisors and consultants of Digital Origin or any parent, subsidiary or
affiliate of Digital Origin are eligible to receive option grants under the
Option Plan (provided that, in the case of independent contractors, advisors and
consultants, such persons render bona fide services to Digital Origin). As of
December 31, 1999, there were approximately 60 persons eligible to receive
awards of stock options under the Option Plan and 51 persons held outstanding
grants.
TYPE OF OPTION. Both incentive stock options ("ISOs"), as defined in
Section 422 of the Internal Revenue Code (the "Code"), and non-qualified stock
options ("NQSOs") may be granted under the Option Plan. The Option Plan limits
the aggregate fair market value (determined as of the time the option is
granted) of the shares with respect to which ISOs are exercisable for the first
time by the optionee during any calendar year to not more than $100,000. There
is no similar limit on NQSOs granted under the Option Plan.
TERMS OF THE OPTIONS.
- VESTING. Options under the Option Plan generally become exercisable or
vest on a monthly basis over a fifty-month period.
- EXPIRATION DATE. Options granted under the Option Plan may be exercisable,
subject to vesting, for up to ten years after the option grant date,
except that an ISO granted to a person owning ten percent or more of the
total combined voting power of all classes of stock of Digital Origin or
of any parent or subsidiary of Digital Origin (a "Ten Percent
Shareholder") must be exercised within five years of the option grant
date.
- EXERCISE PRICE. Each Grant states the exercise price of the option. The
exercise price of an option granted under the Option Plan must be equal to
the fair market value per share of Digital
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Origin's Common Stock on the date of grant, except that NQSOs may be
granted with an exercise price equal to or greater than 85% of the fair
market value of Digital Origin's Common Stock on the date of grant. The
exercise price of an option granted to a Ten Percent Shareholder must be
at least equal to 110% of the fair market value per share on the date of
the grant. The Board determines such fair market value on the date of
grant based upon the closing price of Digital Origin's Common Stock on the
Nasdaq National Market on the date of grant.
- OPTION EXERCISE AND PAYMENT ALTERNATIVES. To exercise an option, the
optionee must deliver to Digital Origin an executed Exercise Notice and
full payment for the shares being purchased. Payment may be made: (i) in
cash; (ii) by surrender of fully paid shares of Digital Origin's Common
Stock; (iii) where permitted by applicable law and approved by the Board,
by tender of a full recourse promissory note having such terms as
determined by the Board; (iv) by waiver of compensation due or accrued to
an optionee for services rendered; (v) by cancellation of indebtedness of
Digital Origin to the optionee; (vi) through a "same day sale";
(vii) through a "margin commitment"; or (viii) through any combination of
the foregoing where approved by the Board.
- NONTRANSFERABILITY OF OPTIONS. Options granted under the Option Plan may
not be transferred by the optionee other than by will or by the laws of
descent and distribution. During the lifetime of an optionee, options may
be exercised only by the optionee or his or her legal representative.
- TERMINATION OF EMPLOYMENT. If an optionee's employment or other
association with Digital Origin is terminated for any reason other than
death or disability, any outstanding option, to the extent that it was
exercisable on the date of such termination, may be exercised by the
optionee within thirty days after such termination, but in no event later
than the expiration of the option. If an optionee's association with
Digital Origin is terminated because of the optionee's death or disability
within the meaning of Section 22(e)(3) of the Code, any outstanding
option, to the extent that it was exercisable on the date of such
termination, may be exercised by the optionee, (or optionee's legal
representative or authorized assignee) within twelve months after such
termination, but in no event later than the expiration of the option.
Neither the Option Plan nor any Grant impose any obligation on Digital
Origin to continue an optionee's employment or other association with
Digital Origin.
- MODIFICATION AND ADJUSTMENT OF OPTIONS. If the number of outstanding
shares of Common Stock of Digital Origin is changed by a stock dividend,
stock split, reverse stock split, combination, reclassification or similar
change in the capital structure of Digital Origin without consideration,
the number of shares of Common Stock available for option grants under the
Option Plan and the number of shares and the exercise price per share for
each outstanding option will be proportionately adjusted, subject to any
required action by the Board or shareholders of Digital Origin.
- CHANGE IN CONTROL. In the event of a transaction in which Digital Origin
is not the surviving corporation (or a merger in which Digital Origin is
the surviving corporation but after which the shareholders of Digital
Origin immediately prior to the merger cease to own their shares in
Digital Origin) and the successor corporation does not assume the options
or substitute equivalent options, the outstanding options under the Option
Plan will expire upon the consummation of such event at such times and on
such conditions as the Board determines.
- AMENDMENTS AND TERMINATION. The Board may amend or terminate the Option
Plan at any time and in any respect, including modifying the form of the
Grant or the Exercise Notice, except that no amendment of the Option Plan
may adversely affect any outstanding option or unexercised portion thereof
without the optionee's written consent. The Option Plan will continue in
effect until December 2005, subject to earlier termination by the Board of
Directors.
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FEDERAL INCOME TAX INFORMATION
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS OF THE FEDERAL INCOME TAX CONSEQUENCES TO DIGITAL ORIGIN
AND PARTICIPANTS UNDER THE OPTION PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES FOR ANY PARTICIPANT WILL DEPEND UPON
HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPANT HAS BEEN AND IS ENCOURAGED
TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF
PARTICIPATION IN THE OPTION PLAN.
- INCENTIVE STOCK OPTIONS. A participant will recognize no income upon grant
of an ISO and incur no tax on its exercise (unless the participant is
subject to the alternative minimum tax ("AMT"). If the participant holds
the stock acquired upon exercise of an ISO (the "ISO Shares") for more
than one year after the date the option was exercised and for more than
two years after the date the option was granted, the participant generally
will realize long-term capital gain or loss (rather than ordinary income
or loss) upon disposition of the ISO Shares. This gain or loss will be
equal to the difference between the amount realized upon such disposition
and the amount paid for the ISO Shares.
- DISQUALIFYING DISPOSITIONS. If the participant disposes of ISO Shares
prior to the expiration of either required holding period (a
"disqualifying disposition"), the gain realized upon such disposition, up
to the difference between the fair market value of the ISO Shares on the
date of exercise (or, if less, the amount realized on a sale of such
shares) and the option exercise price, will be treated as ordinary income.
Any additional gain will be long-term or short-term capital gain,
depending on the amount of time the ISO Shares were held by the
participant.
- ALTERNATIVE MINIMUM TAX. The difference between the fair market value of
the ISO Shares on the date of exercise and the exercise price is an
adjustment to income for purposes of the AMT. The AMT (imposed to the
extent it exceeds the taxpayer's regular tax) is 26% of an individual
taxpayer's alternative minimum taxable income (28% in the case of
alternative minimum taxable income in excess of $175,000). Alternative
minimum taxable income is determined by adjusting regular taxable income
for certain items, increasing the income by certain tax preference items
(including the difference between the fair market value of the ISO Shares
on the date of exercise and the exercise price) and reducing this amount
by the applicable exemption amount ($45,000 in case of a joint return,
subject to reduction under certain circumstances). If a disqualifying
disposition of the ISO Shares occurs in the same calendar year as exercise
of the ISO, there is no AMT adjustment with respect to those ISO Shares.
Also, upon a sale of ISO Shares that is not a disqualifying disposition,
alternative minimum taxable income is reduced in the year of sale by the
excess of the fair market value of the ISO Shares at exercise over the
amount paid for the ISO Shares.
- NONSTATUTORY STOCK OPTIONS. A participant will not recognize any taxable
income at the time a NQSO is granted. However, upon exercise of a NQSO,
the participant must include in income as compensation an amount equal to
the difference between the fair market value of the shares on the date of
exercise (or, in the case of exercise for stock subject to a substantial
risk of forfeiture, at the time such forfeiture restriction lapses) and
the participant's exercise price. In the case of stock subject to a
substantial risk of forfeiture, if the optionee makes an 83(b) election,
the included amount must be based on the difference between the fair
market value on the date of exercise and the option exercise price. The
included amount must be treated as ordinary income by the participant and
may be subject to withholding by Digital Origin (either by payment in cash
or withholding out of the participant's salary). Upon resale of the shares
by
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the participant, any subsequent appreciation or depreciation in the value
of shares will be treated as capital gain or loss.
- MAXIMUM TAX RATES. The maximum tax rate applicable to ordinary income is
39.6%. Long-term capital gain will be taxed at a maximum of 20%. For this
purpose, in order to receive long-term capital gain treatment, the stock
must be held for more than one year. Capital gains may be offset by
capital losses and up to $3,000 of capital losses may be offset annually
against ordinary income.
- TAX TREATMENT OF DIGITAL ORIGIN. Digital Origin generally will be entitled
to a deduction in connection with the exercise of a NQSO by a participant
to the extent that the participant recognizes ordinary income. Digital
Origin will be entitled to a deduction in connection with the disposition
of ISO Shares only to the extent that the participant recognizes ordinary
income on a disqualifying disposition of the ISO Shares.
- ERISA. The Option Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974.
AUTHORIZATION TO INCREASE THE NUMBER OF SHARES ISSUABLE UNDER THE 1999 EMPLOYEE
STOCK
PURCHASE PLAN
The Board of Directors has approved and recommends to the shareholders that
they approve the reservation for issuance of 50,000 additional shares of common
stock under this Plan if the merger is not concluded. The Board of Directors
believes that the Plan will continue to play, a major role in enabling Digital
Origin to attract and/or retain certain officers, directors and other key
employees. Shares purchased through the Plan will provide personnel with
long-term incentives that are consistent with Digital Origin's compensation
policy of providing compensation that is closely related to the performance of
Digital Origin. As of December 31, 1999, 30,832 shares had been issued under the
Plan and 122,568 shares were available for future issuance under the Plan. To
allow Digital Origin to continue to obtain the benefit of incentives available
under the Plan, the Board of Directors recommends that the shareholders approve
this increase in the number of shares issuable under the Plan. The Board of
Directors considers the Plan typical of comparable plans commonly utilized by
technology companies in the Silicon Valley area, and the Plan is described in
greater detail below.
This authorization requires the affirmative vote of the holders of a
majority of the shares of common stock represented in person or by proxy at the
Meeting. Abstentions will be counted toward the number of shares represented and
voted at the Meeting. Broker non-votes will be disregarded.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE AUTHORIZATION
TO INCREASE THE NUMBER OF SHARES ISSUABLE UNDER THE 1999 EMPLOYEE STOCK PURCHASE
PLAN.
DESCRIPTION OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN
HISTORY. The 1999 Purchase Plan was adopted by the board of directors as of
December 16, 1998 and 137,500 shares of common stock were reserved for issuance
under it, after approval by the shareholders at the 1999 annual meeting. The
1999 Purchase Plan has a term of ten years and superseded a prior plan at the
beginning of the first offering period under the 1999 Purchase Plan. 15,900
shares previously reserved for issuance under the prior plan and not issued upon
such termination were reserved for issuance under the 1999 Purchase Plan.
PURPOSE. The purpose of the 1999 Purchase Plan is to provide employees of
Digital Origin, or any parent or subsidiary thereof, with a convenient means to
acquire equity in Digital Origin at a reduced price through payroll deductions,
and to provide an incentive for continued employment. The 1999 Purchase Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986.
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ADMINISTRATION. The 1999 Purchase Plan may be administered by the board of
directors or by a committee appointed by the board of directors. References to
the "Committee" in this description of the 1999 Purchase Plan means either such
committee or the board of directors, unless clearly indicated otherwise.
The Committee has the authority to construe and interpret any provision of
the 1999 Purchase Plan and such interpretations are binding on Digital Origin
and its employees. Members of the board of directors do not receive any
compensation for administering the 1999 Purchase Plan.
ELIGIBILITY. All employees of Digital Origin, or any designated parent or
subsidiary thereof, are eligible to participate in the 1999 Purchase Plan except
the following:
- employees who are not employed by Digital Origin on the day before the
beginning of an offering period (as described below);
- employees who are customarily employed for less than 20 hours per week;
- employees who are customarily employed for less than 5 months in a
calendar year;
- employees who own or hold options to purchase or who, as a result of
participation in the 1999 Purchase Plan, would own stock or hold options
to purchase stock possessing 5% or more of the total combined voting power
or value of all classes of stock in Digital Origin pursuant to
Section 425(d) of the Code; and
- independent contractors unless federal tax withholding is required in
connection with payments to such contractors
TERMS OF THE 1999 PURCHASE PLAN
- OFFERING AND PURCHASE PERIODS Offering periods, except for the initial
offering period which will begin on a date determined by the Committee,
will be twelve months in duration beginning March 1 and September 1 of
each year and ending on February 28 or 29 and August 31 of each following
year. Each offering period will be comprised of two six month purchase
periods. Stock is purchased on the last day of each purchase period. The
Board may change the timing and duration of an offering or purchase
without shareholder approval.
- PAYROLL DEDUCTIONS. Employees will participate in the 1999 Purchase Plan
during each offering period through payroll deductions. An employee sets
the rate of such payroll deductions, which may not be less than 2% nor
more than 10% of the employee's base salary or wages, bonuses, overtime
and commissions, unreduced by the amount by which the employee's salary is
reduced pursuant to Sections 125 or 401(k) of the Internal Revenue Code of
1986. These payroll deductions are made during the entire purchase period
and on the last day of the purchase period are applied to purchase stock
at a reduced price. Once enrolled, a participating employee will
automatically participate in each succeeding offering period unless such
employee withdraws from the 1999 Purchase Plan. The employee may increase
or lower the rate of payroll deductions for the current offering period
and prior to any upcoming offering period, but not more than one decrease
and one increase may be made effective during any offering period.
- PURCHASE PRICE. The purchase price of shares that may be acquired in any
purchase period under the 1999 Purchase Plan is 85% of the lesser of
(i) the closing price of the shares on the Nasdaq SmallCap Market on the
day prior to the first day of the offering period or (ii) the closing
price of the shares on the last day of the purchase period.
- PURCHASE OF STOCK. The number of whole shares an employee may purchase in
any purchase period will be determined by dividing the total amount of
payroll deductions withheld from the employee's salary during the purchase
period by the price for each share determined as
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described above. The purchase will take place automatically on the last
day of the purchase period. No employee will be able to purchase more than
-- 200% of the number of shares determined by using 85% of the fair market
value of a share of Digital Origin's Common Stock on the first day of the
offering period as the denominator in the formula described above or
-- the maximum number of shares set by the Committee.
Any cash balance remaining in an employee's account following the purchase
will be refunded to the employee as soon as practicable; however, any cash
balance representing a fractional share may be applied to the purchase of
additional shares in the next period.
- WITHDRAWAL. An employee may withdraw from any offering period. No further
payroll deductions for the purchase of shares will be made for succeeding
offering periods unless the employee enrolls in a new offering period.
- TERMINATION OF EMPLOYMENT. Termination of an employee's employment for any
reason, including retirement or death, cancels his or her participation in
the 1999 Purchase Plan immediately. In such event, the payroll deductions
credited to the employee's account will be returned to such employee or,
in case of death, to the employee's legal representative.
- ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of certain
corporate transactions, such as a merger, the successor or surviving
corporation may assume the 1999 Purchase Plan with respect to any open
offering period or the Committee may determine in its sole discretion to
terminate the 1999 Purchase Plan or authorize a shortened purchase period.
In the event of changes in Digital Origin's capitalization, such as a
stock split, the number of shares that are reserved for issuance under the
1999 Purchase Plan will be appropriately adjusted.
FEDERAL INCOME TAX INFORMATION. The 1999 Purchase Plan is intended to
qualify as an "employee stock purchase plan" within the meaning of Section 423
of the Internal Revenue Code of 1986.
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT OF THE
FEDERAL INCOME TAX CONSEQUENCES TO DIGITAL ORIGIN AND EMPLOYEES OF PARTICIPATION
IN THE 1999 PURCHASE PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL,
STATE AND LOCAL TAX CONSEQUENCES FOR ANY PARTICIPATING EMPLOYEE WILL DEPEND UPON
HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPATING EMPLOYEE IS ENCOURAGED
TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF
PARTICIPATION IN THE 1999 PURCHASE PLAN.
- TAX TREATMENT OF THE PARTICIPATING EMPLOYEE. Participating employees will
not recognize income for federal income tax purposes either upon
enrollment in the 1999 Purchase Plan or upon the purchase of shares. All
tax consequences are deferred until the employee sells the shares,
disposes of shares by gift or dies.
- If shares are held for more than one year after the date of purchase and
more than two years from the beginning of the applicable offering period,
or if the employee dies while owning the shares, the employee realizes
ordinary income on a sale (or a disposition by way of gift or upon death)
to the extent of the lesser of (i) 15% of the fair market value of the
shares at the beginning of the offering period or (ii) the actual gain
(the amount by which the market value of the shares on the date of sale,
gift or death exceeds the purchase price). All additional gain upon the
sale of shares is treated as long-term capital gain. If the shares are
sold and the sale price is less than the purchase price, there is no
ordinary income and the employee has a long-term capital loss for the
difference between the sale price and the purchase price.
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- If the shares are sold or are otherwise disposed of including by way of
gift (but not death, bequest or inheritance) within either the one-year or
the two-year holding periods described above (a "disqualifying
disposition"), the employee realizes ordinary income at the time of sale
or other disposition taxable to the extent that the fair market value of
the shares at the date of purchase is greater than the purchase price.
This excess will constitute ordinary income in the year of the sale or
other disposition even if no gain is realized on the sale or if a
gratuitous transfer is made. The difference, if any, between the proceeds
of sale and the fair market value of the shares at the date of purchase is
a capital gain or loss. Capital gains may be offset by capital losses and
up to $3,000 of capital losses may be used annually against ordinary
income.
- TAX TREATMENT OF DIGITAL ORIGIN. Digital Origin will be entitled to a
deduction in connection with the disposition of shares acquired under the
1999 Purchase Plan only to the extent that the employee recognizes
ordinary income on a disqualifying disposition. In order to enable Digital
Origin to learn of disqualifying dispositions and ascertain the amount of
the deductions to which it is entitled, participating employees are
required to notify Digital Origin in writing of the date and terms of any
disposition of shares purchased under the 1999 Purchase Plan.
ERISA. The 1999 Purchase Plan is not subject to any of the provision of the
Employee Retirement Income Security Act of 1974.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP as independent
auditors to perform the audit of Digital Origin's financial statements for the
2000 fiscal year and the shareholders are being asked to ratify such
appointment. Ernst & Young LLP has audited Digital Origin's financial statements
since inception. Representatives of Ernst & Young LLP will be present at the
meeting, will be given an opportunity to make a statement at the meeting if they
desire to do so and will be available to respond to questions. This ratification
requires the affirmative vote of the holders of a majority of the shares of
common stock represented in person or by proxy at the meeting.
THE BOARD RECOMMENDS A VOTE "FOR" THE RATIFICATION OF APPOINTMENT OF INDEPENDENT
AUDITORS
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DIGITAL ORIGIN STOCKHOLDER PROPOSALS
In the event that the merger is not concluded, proposals of shareholders
intended to be included in Digital Origin's proxy statement and form of proxy
relating to the company's 2001 Annual Meeting of Shareholders must be received
by September 12, 2000.
EXPERTS
The audited consolidated financial statements of Media 100 Inc. incorporated
by reference in this registration statement, to the extent and for the periods
indicated in their report, have been audited by Arthur Andersen LLP, independent
public accountants, and are incorporated by reference herein in reliance upon
the authority of said firm as experts in giving said report.
The consolidated financial statements of Digital Origin at September 30,
1999 and 1998, and for each of the three years in the period ended
September 30, 1999, incorporated by reference in this joint proxy
statement/prospectus, have been audited by Ernst & Young LLP, independent
auditors, as indicated in their report appearing therein, and are incorporated
by reference herein in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Media 100 common stock to be issued by Media 100
pursuant to the merger will be passed upon by Skadden, Arps, Slate, Meagher &
Flom LLP. Certain tax matters will be passed upon for Digital Origin by
Fenwick & West LLP and certain tax matters will be passed upon for Media 100 by
Skadden, Arps, Slate, Meagher & Flom LLP.
WHERE YOU CAN FIND MORE INFORMATION
Media 100 and Digital Origin file annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
filed by either company at the Securities and Exchange Commission's Public
Reference Rooms at:
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<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13(th) floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the operation of the Public Reference Room. The
companies' filings are also available to the public from commercial document
retrieval services and at the Internet web site maintained by the Securities and
Exchange Commission at http://www.sec.gov. The Media 100 common stock is quoted
on the Nasdaq National Market. Digital Origin common stock is quoted on the
Nasdaq SmallCap Market. Reports, proxy statements and other information relating
to Media 100 can be inspected at the offices of the Nasdaq National Market 1735
K Street, N.W., Washington, D.C. 20006 and reports, proxy statements and other
information relating to Digital Origin can be inspected at the offices of the
Nasdaq SmallCap Market at 9801 Washingtonian Boulevard, 5(th) Floor,
Gaithersburg, Maryland 20878. You may also visit Media 100 at
http://www.media100.com or Digital Origin at http:// www.digitalorigin.com.
Information contained on our respective web sites do not constitute a part of
this joint proxy statement/prospectus.
Media 100 filed a registration statement on Form S-4 under the Securities
Act to register with the Securities and Exchange Commission the Media 100 common
stock to be issued to Digital Origin shareholders in the merger. This joint
proxy statement/prospectus is a part of that registration statement and
constitutes the prospectus of Media 100 in addition to being a proxy statement
for
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Media 100 and Digital Origin for their respective annual meetings of
shareholders. As allowed by the Securities and Exchange Commission's rules, this
joint proxy statement/prospectus does not contain all of the information you can
find in the registration statement or the exhibits to the registration
statement. This joint proxy statement/prospectus summarizes some of the
documents that are exhibits to the registration statement, and you should refer
to the exhibits for a more complete description of the matters covered by those
documents.
The Securities and Exchange Commission allows Media 100 and Digital Origin
to "incorporate by reference" information into this joint proxy
statement/prospectus. This means that we may disclose important information to
you by referring you to another document filed separately with the Securities
and Exchange Commission. The information incorporated by reference is considered
to be part of this joint proxy statement/prospectus, except for any information
modified or superseded by information in (or incorporated by reference in) this
joint proxy statement/prospectus. This joint proxy statement/ prospectus
incorporates by reference the documents set forth below that have been
previously filed with the Securities and Exchange Commission. The documents
contain important information about our companies and their finances.
MEDIA 100 COMMISSION FILINGS (FILE NO. 0-14779)
The following documents, which have been filed by Media 100, are
incorporated by reference into this joint proxy statement/prospectus:
- Media 100's Annual Report on Form 10-K for the fiscal year ended
November 30, 1999 (filed on February 25, 2000); and
- The description of Media 100's common stock set forth in Media 100's
Registration Statement on Amendment No. 1 to Form S-1 dated November 13,
1995, including any amendment or reports filed for the purpose of updating
such description.
DIGITAL ORIGIN COMMISSION FILINGS (FILE NO. 0-18690)
The following documents, which have been filed by Digital Origin, are
incorporated by reference into this joint proxy statement/prospectus:
- Digital Origin's Annual Report on Form 10-K/A for the fiscal year ended
September 30, 1999 (filed on January 31, 2000); and
- Digital Origin's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 1999 (filed on February 14, 2000).
Media 100 and Digital Origin are also incorporating by reference additional
documents that either company may file with the Commission between the date of
this joint proxy statement/prospectus and the date of Media 100's and Digital
Origin's annual meetings to be held in connection with the merger. Statements
contained in documents incorporated by reference may be modified or superseded
by later statements in this joint proxy statement/prospectus or by statements in
subsequent documents incorporated by reference, in which case you should refer
to the later statement.
Media 100 and Digital Origin have each supplied all information contained or
incorporated by reference in this joint proxy statement/prospectus relating to
either of them.
Media 100 or Digital Origin will provide, without charge, a copy of any or
all of their documents incorporated by reference in this joint proxy
statement/prospectus (other than exhibits to such documents, unless the exhibits
are specifically incorporated by reference in such documents). You may obtain
documents incorporated by reference in this joint proxy statement/prospectus by
requesting them
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in writing or by telephone from the appropriate party at the following addresses
and telephone numbers:
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FOR MEDIA 100 DOCUMENTS: FOR DIGITAL ORIGIN DOCUMENTS:
Shandwick Digital Origin, Inc.
387 Park Avenue South 460 E. Middlefield Road
New York, New York 10016 Mountain View, California 94043
Attention: Evan Smith, CFA or Jennifer Hendrickson Attention: Joan Wilson
Telephone: (212) 591-9854/(212) 591-9820 Telephone: (650) 404-6300
</TABLE>
If you would like to request documents from either company, please do so by
April 21, 2000 to receive them before the respective shareholder meetings.
You should not assume that the information contained in this joint proxy
statement/prospectus is accurate as of any time after the date of this joint
proxy statement/prospectus, and neither the mailing of this joint proxy
statement/prospectus to Media 100 stockholders or Digital Origin shareholders
nor the issuance of Media 100 common stock in the merger should create any
implication to the contrary.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MEDIA 100 INC.,
DERRINGER ACQUISITION CORP.
AND
DIGITAL ORIGIN, INC.
DATED AS OF DECEMBER 28, 1999
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER.......................................................................... A-6
SECTION 1.1 The Merger.................................................. A-6
SECTION 1.2 Consummation of the Merger.................................. A-6
SECTION 1.3 Articles of Incorporation of the Surviving Corporation...... A-6
SECTION 1.4 By-Laws of the Surviving Corporation........................ A-6
SECTION 1.5 Directors and Officers of the Surviving Corporation......... A-6
SECTION 1.6 Closing..................................................... A-6
ARTICLE II
CONVERSION AND EXCHANGE OF SECURITIES............................................... A-7
SECTION 2.1 Conversion of Capital Stock................................. A-7
SECTION 2.2 Exchange of Certificates.................................... A-8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................................... A-10
SECTION 3.1 Organization and Qualification; Subsidiaries................ A-10
SECTION 3.2 Articles of Incorporation and By-Laws....................... A-11
SECTION 3.3 Capitalization.............................................. A-11
SECTION 3.4 Authority Relative to this Agreement........................ A-12
SECTION 3.5 No Conflict; Required Filings and Consents.................. A-12
SECTION 3.6 SEC Filings; Financial Statements........................... A-13
SECTION 3.7 Absence of Certain Changes or Events........................ A-13
SECTION 3.8 No Undisclosed Liabilities.................................. A-14
SECTION 3.9 Absence of Litigation....................................... A-14
SECTION 3.10 Agreements, Contracts and Commitments....................... A-14
SECTION 3.11 Compliance; Permits......................................... A-14
SECTION 3.12 Employee Benefit Plans, Options and Employment Agreements... A-15
SECTION 3.13 Labor Matters............................................... A-16
SECTION 3.14 Properties; Encumbrances.................................... A-16
SECTION 3.15 Taxes....................................................... A-16
SECTION 3.16 Environmental Matters....................................... A-18
SECTION 3.17 Intellectual Property....................................... A-19
SECTION 3.18 Insurance................................................... A-19
SECTION 3.19 Restrictions on Business Activities......................... A-20
SECTION 3.20 Registration Statement; Proxy Statement/Prospectus.......... A-20
SECTION 3.21 Interested Party Transactions............................... A-20
SECTION 3.22 Change in Control Payments.................................. A-20
SECTION 3.23 Year 2000 Compliance........................................ A-20
SECTION 3.24 Pooling; Tax Matters........................................ A-22
SECTION 3.25 No Existing Discussions..................................... A-22
SECTION 3.26 Opinion of Financial Advisor................................ A-22
SECTION 3.27 Brokers..................................................... A-22
SECTION 3.28 Affiliates.................................................. A-22
SECTION 3.29 Proprietary Information and Inventions Agreements........... A-22
SECTION 3.30 Absence of Certain Payments................................. A-22
SECTION 3.31 Full Disclosure............................................. A-22
</TABLE>
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............................. A-23
SECTION 4.1 Organization and Qualification.............................. A-23
SECTION 4.2 Certificate of Incorporation and By-Laws.................... A-23
SECTION 4.3 Capitalization.............................................. A-24
SECTION 4.4 Authority Relative to this Agreement........................ A-24
SECTION 4.5 No Conflict, Required Filings and Consents.................. A-25
SECTION 4.6 SEC Filings; Financial Statements........................... A-25
SECTION 4.7 Absence of Certain Changes or Events........................ A-26
SECTION 4.8 No Undisclosed Liabilities.................................. A-26
SECTION 4.9 Compliance.................................................. A-26
SECTION 4.10 Absence of Litigation....................................... A-26
SECTION 4.11 Employee Benefit Plans, Options and Employment Agreements... A-26
SECTION 4.12 Labor Matters............................................... A-28
SECTION 4.13 Properties; Encumbrances.................................... A-28
SECTION 4.14 Taxes....................................................... A-28
SECTION 4.15 Environmental Matters....................................... A-29
SECTION 4.16 Intellectual Property....................................... A-29
SECTION 4.17 Registration Statement; Proxy Statement/Prospectus.......... A-30
SECTION 4.18 Year 2000 Compliance........................................ A-31
SECTION 4.19 Brokers..................................................... A-32
SECTION 4.20 Ownership of Merger Sub; No Prior Activities................ A-32
SECTION 4.21 Pooling; Tax Matters........................................ A-32
ARTICLE V
CONDUCT OF BUSINESS................................................................. A-32
SECTION 5.1 Conduct of Business by the Company Pending the Merger....... A-32
SECTION 5.2 Conduct of Business by Parent Pending the Merger............ A-34
SECTION 5.3 Advice of Changes........................................... A-34
SECTION 5.4 Cooperation................................................. A-34
ARTICLE VI
ADDITIONAL AGREEMENTS............................................................... A-35
SECTION 6.1 Access to Information; Confidentiality...................... A-35
SECTION 6.2 No Solicitation............................................. A-35
SECTION 6.3 Proxy Statement/Prospectus; Registration Statement.......... A-37
SECTION 6.4 Shareholders' and Stockholders' Meetings.................... A-37
SECTION 6.5 Legal Conditions to Merger.................................. A-38
SECTION 6.6 Agreements with Respect to Affiliates....................... A-38
SECTION 6.7 Tax-Free Reorganization..................................... A-39
SECTION 6.8 Pooling Accounting.......................................... A-39
SECTION 6.9 Letters of Accountants...................................... A-39
SECTION 6.10 Public Announcements........................................ A-39
SECTION 6.11 Listing of Parent Shares.................................... A-39
SECTION 6.12 Options..................................................... A-39
SECTION 6.13 Consents.................................................... A-40
SECTION 6.14 Indemnification and Insurance............................... A-40
SECTION 6.15 Additional Agreements; Best Efforts......................... A-40
</TABLE>
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ARTICLE VII
CONDITIONS TO THE MERGER............................................................ A-41
SECTION 7.1 Conditions to Obligation of Each Party to Effect the
Merger...................................................... A-41
SECTION 7.2 Additional Conditions to Obligations of Parent and Merger
Sub......................................................... A-42
SECTION 7.3 Additional Conditions to Obligation of the Company.......... A-42
ARTICLE VIII
TERMINATION......................................................................... A-43
SECTION 8.1 Termination................................................. A-43
SECTION 8.2 Effect of Termination....................................... A-44
SECTION 8.3 Fees and Expenses........................................... A-44
ARTICLE IX
GENERAL PROVISIONS.................................................................. A-45
SECTION 9.1 Nonsurvival of Representations; Warranties and Agreements... A-45
SECTION 9.2 Notices..................................................... A-45
SECTION 9.3 Certain Definitions......................................... A-46
SECTION 9.4 Amendment................................................... A-46
SECTION 9.5 Extension; Waiver........................................... A-46
SECTION 9.6 Headings.................................................... A-47
SECTION 9.7 Severability................................................ A-47
SECTION 9.8 Entire Agreement, No Third Party Beneficiaries.............. A-47
SECTION 9.9 Assignment.................................................. A-47
SECTION 9.10 Interpretation.............................................. A-47
SECTION 9.11 Failure or Indulgence Not Waiver; Remedies Cumulative....... A-47
SECTION 9.12 Governing Law............................................... A-47
SECTION 9.13 Counterparts................................................ A-47
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 28, 1999 (this
"Agreement"), by and among Media 100 Inc., a Delaware corporation ("Parent"),
Derringer Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), and Digital Origin, Inc., a California
corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have each determined that it is advisable and in the best interests of
their respective stockholders or shareholders that Parent acquire the Company
pursuant to the terms and conditions of this Agreement, and, in furtherance of
such acquisition, such Boards of Directors have approved the merger of Merger
Sub with and into the Company (the "Merger") in accordance with the terms of
this Agreement and the applicable provisions of the California General
Corporation Law (the "CGCL") and the Delaware General Corporation Law (the
"DGCL");
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and that this Agreement shall be, and is hereby, adopted as a plan of
reorganization for purposes of Section 368(a) of the Code; and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties hereto agree as follows:
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ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with sections 1100 et seq. of the
CGCL, Merger Sub shall be merged with and into the Company at the Effective Time
of the Merger. Following the Merger, the separate corporate existence of Merger
Sub shall cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights,
properties, liabilities and obligations of Merger Sub in accordance with the
CGCL and DGCL.
SECTION 1.2 CONSUMMATION OF THE MERGER. Upon the terms and subject to the
conditions set forth in this Agreement and the Agreement of Merger between
Merger Sub and the Company together with the related officers' certificates
required by section 1103 of the CGCL, in the form attached to this Agreement as
Exhibit A (the "Merger Agreement"), the parties hereto shall file the Merger
Agreement with the Secretary of State of the State of California, whereupon
Merger Sub shall be merged with and into the Company pursuant to sections 1100
et seq. of the CGCL. The parties hereto shall make all other filings, recordings
or publications required by the CGCL and DGCL in connection with the Merger. The
Merger shall become effective at the time specified in the Merger Agreement (the
"Effective Time").
SECTION 1.3 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. At and
after the Effective Time, the Articles of Incorporation attached as Annex I to
the Merger Agreement, shall be the Articles of Incorporation of the Surviving
Corporation, until amended in accordance with the CGCL.
SECTION 1.4 BY-LAWS OF THE SURVIVING CORPORATION. At and after the
Effective Time, the By-laws of the Company, as in effect immediately prior to
the Effective Time, shall be the By-laws of the Surviving Corporation, until
amended in accordance with the CGCL.
SECTION 1.5 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.
(a) The directors of Merger Sub immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation and shall hold
office from the Effective Time until their respective successors are duly
elected or appointed and qualified in the manner provided in the Articles of
Incorporation or By-laws of the Surviving Corporation or as otherwise provided
by law. In furtherance thereof, the Company shall secure, at the Effective Time,
such resignations of its incumbent directors as are necessary to enable the
designees of Parent to be elected or appointed to the Board of Directors of the
Company.
(b) The officers of the Company immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation and shall hold office
from the Effective Time until their respective successors are duly elected or
appointed and qualified in the manner provided in the Articles of Incorporation
or By-laws of the Surviving Corporation or as otherwise provided by law.
SECTION 1.6 CLOSING. Subject to satisfaction of the conditions set forth
in this Agreement, the closing of the Merger (the "Closing") shall take place at
10:00 a.m., E.S.T., at the offices of Skadden, Arps, Slate, Meagher & Flom LLP,
One Beacon Street, Boston, Massachusetts on a date to be specified by Parent and
the Company which shall be no later than the second business day after
satisfaction or waiver of each of the conditions set forth in Article VII or on
such other date and at such other time and place as Parent and the Company shall
agree. The date on which the Closing shall occur is referred to herein as the
"Closing Date."
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ARTICLE II
CONVERSION AND EXCHANGE OF SECURITIES
SECTION 2.1 CONVERSION OF CAPITAL STOCK. At the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
the common stock, no par value, of the Company (the "Company Common Stock") or
capital stock of Merger Sub:
(a) COMPANY COMMON STOCK. Subject to this Article II, each share of Company
Common Stock issued and outstanding immediately prior to the Effective Time
shall be converted into the right to receive 0.5347, (the "Exchange Ratio") of a
share of common stock, par value $.01 per share, of Parent (the "Parent Common
Stock"), payable upon the surrender of the certificates which immediately prior
to the Effective Time represented outstanding shares of Company Common Stock
(the "Certificates") that are to be converted, pursuant to this Section 2.1(a),
into the right to receive shares of Parent Common Stock. All such shares of
Company Common Stock, when so converted, shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist and each
holder of a Certificate representing any such shares shall cease to have any
rights with respect thereto, except (i) dissenters' rights, if any, as described
in Section 2.1.(c), or (ii) the right to receive the shares of Parent Common
Stock pursuant to this Section 2.1(a), any dividends or other distributions
payable pursuant to Section 2.2(c) and any cash in lieu of fractional shares
payable pursuant to Section 2.2(d), all to be issued or paid in consideration
therefor upon the surrender of such Certificates in accordance with
Section 2.2(b), without interest (collectively, the "Merger Consideration").
Notwithstanding the foregoing, the Exchange Ratio shall be adjusted to reflect
fully the effect of any stock split, reverse split, reclassification, stock
dividend, reorganization, recapitalization or other like change with respect to
Parent Common Stock or Company Common Stock occurring after the date hereof and
prior to the Effective Time.
(b) COMPANY WARRANTS. The (i) warrant to purchase up to 60,000 shares of
Company Common Stock at $10.00 per share dated September 13, 1996 issued by the
Company to IBM Credit Corporation, (ii) warrant to purchase up to 5,000 shares
of Company Common Stock at $10.00 per share dated October 13, 1996 issued by the
Company to Mitsubishi Electronics America, Inc., and (iii) warrant to purchase
up to 50,000 shares of Company Common Stock at $1.50 per share dated
November 23, 1998 issued by the Company to Post Digital Software, Inc.
(collectively, the "Company Warrants"), in each case to the extent issued and
outstanding immediately prior to the Effective Time, shall be converted into the
right to purchase Parent Common Stock in accordance with their respective terms.
(c) APPRAISAL RIGHTS. Holders of all shares of the outstanding capital stock
of the Company for which dissenters' rights, if any, shall have been perfected
under section 1300 et seq. of the CGCL (the "Dissenting Shares") shall have
those rights, but only those rights, of holders of "dissenting shares" under
section 1300 et seq. of the CGCL. The Company shall give Parent prompt notice of
any demand, purported demand or other communication received by the Company with
respect to any Dissenting Shares or shares claimed to be Dissenting Shares and
Parent shall have the right to participate in all negotiations and proceedings
with respect to such shares.
(d) CAPITAL STOCK OF MERGER SUB. Each common share, par value $.01 per
share, of Merger Sub ("Merger Sub Common Shares") issued and outstanding
immediately prior to the Effective Time shall be converted into and become one
fully paid and nonassessable common share, par value $.01 per share, of the
Surviving Corporation.
(e) STOCK OPTIONS. Options to purchase shares of Company Common Stock
(i) granted under (x) the Company's 1994 Directors' Stock Option Plan, the
Company's 1990 Directors' Stock Option Plan, the Company's 1995 Stock Option
Plan, the 1988 SuperMac Option Plan or the Company's 1986 Stock Option Plan
(collectively, the "Company Stock Option Plans"), or (y) the Company's 1999
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Employee Stock Purchase Plan (the "Company ESPP") or (ii) granted to James
Given, Charles Berger, Mark Housley, Brady Bruce, Mary Bobel, Cary Capece, Tom
Fristoe, Henry Morgan and Michael Glass (the "Other Company Options") shall be
treated in the manner set forth in Section 6.12.
SECTION 2.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Closing Date, Parent shall designate a bank
or trust company to act as Exchange Agent hereunder (the "Exchange Agent"). As
soon as practicable after the Effective Time, Parent shall deposit with or for
the account of the Exchange Agent stock certificates representing the number of
shares of Parent Common Stock issuable pursuant to Section 2.1(a) in exchange
for outstanding shares of Company Common Stock, which shares of Parent Common
Stock shall be deemed to have been issued at the Effective Time.
(b) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time,
Parent will instruct the Exchange Agent to mail to each holder of record of a
Certificate or Certificates (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange Agent
and shall be in such form and have such other provisions as Parent may specify
that are not inconsistent with the terms of this Agreement) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, and such other customary documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor (i) certificates evidencing that number of whole shares of
Parent Common Stock which such holder has the right to receive in accordance
with Section 2.1(a) in respect of the shares of Company Common Stock formerly
evidenced by such Certificate, (ii) any dividends or other distributions to
which such holder is entitled pursuant to Section 2.2(c) and (iii) any cash in
lieu of any fractional shares of Parent Common Stock to which such holder is
entitled pursuant to Section 2.2(d), after giving effect to any tax
withholdings, and the Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of shares of Company Common Stock which is
not registered in the transfer records of the Company as of the Effective Time,
a certificate representing the proper number of shares of Parent Common Stock
may be issued to a transferee if the Certificate evidencing such Company Common
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer pursuant to this Section 2.2(b) and by
evidence that any applicable stock transfer taxes have been paid. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Company Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, to represent only (i) the right to
exercise dissenters rights, if any, as described in Section 2.1(c), or (ii) the
right to receive upon surrender the Merger Consideration.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED PARENT SHARES. No dividends or
other distributions with respect to shares of Parent Common Stock for which the
record date is after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock they
are entitled to receive until the holder of such Certificate surrenders such
Certificate. Following surrender of any such Certificate, there shall be paid to
the record holder of the certificates representing whole shares of Parent Common
Stock issued in exchange therefor, without interest, at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
Parent Common Stock. Promptly following the date which is six months after the
Effective Time, the Exchange Agent shall deliver to Parent all cash,
certificates and other documents in its possession relating to the transactions
described in this Agreement, and any holders of Company Common Stock who have
not theretofore complied with this Article II shall look thereafter only to
Parent for the shares of Parent Common Stock, any dividends or distributions
thereon, and any cash in lieu of fractional shares thereof to which they are
entitled pursuant to this Article II.
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(d) No Fractional Shares.
(i) No certificates or scrip representing fractional shares of Parent
Common Stock shall be issued upon the surrender for exchange of Certificates
pursuant to this Article II; no dividend, stock split or other change in the
capital structure of Parent shall relate to any fractional security; and
such fractional interests shall not entitle the owner thereof to vote or to
any rights of a security holder.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent will determine the excess of (A) the number of whole shares
of Parent Common Stock delivered to the Exchange Agent by Parent pursuant to
Section 2.2(a) over (B) the aggregate number of whole shares of Parent
Common Stock to be distributed to holders of Company Common Stock pursuant
to Section 2.2(b) (such excess being herein called the "Excess Shares").
Following the Effective Time, the Exchange Agent will, on behalf of former
shareholders of the Company, sell the Excess Shares at then-prevailing
prices on the Nasdaq National Market (the "NASDAQ").
(iii) The Exchange Agent will use reasonable efforts to complete the
sale of the Excess Shares as promptly following the Effective Time as, in
the Exchange Agent's sole judgment, is practicable consistent with obtaining
the best execution of such sales in light of prevailing market conditions.
Until the net proceeds of such sale or sales have been distributed to the
holders of Company Common Stock, the Exchange Agent will hold such proceeds
in trust (the "Common Shares Trust"). Parent shall be entitled to any
interest earned on such proceeds until such proceeds have been distributed
to the former holders of Company Common Stock. The Surviving Corporation
will pay all commissions, transfer taxes and other out-of-pocket transaction
costs, including the expenses and compensation of the Exchange Agent
incurred in connection with such sale of the Excess Shares. The Exchange
Agent will determine the portion of the Common Shares Trust to which each
former holder of Company Common Stock is entitled, if any, by multiplying
the amount of the aggregate net proceeds comprising the Common Shares Trust
by a fraction, the numerator of which is the amount of the fractional share
interest to which such former holder of Company Common Stock is entitled
(after taking into account all shares of Company Common Stock held at the
Effective Time by such holder) and the denominator of which is the aggregate
amount of fractional share interests to which all holders of Company Common
Stock are entitled. For purposes of this Section 2.2(d), shares of Company
Common Stock of any former holder represented by two or more Certificates
shall be aggregated and in no event shall any holder be paid an amount of
cash in respect of more than one share of Parent Common Stock.
(iv) As soon as practicable after the determination of the amount of
cash, if any, to be paid to the former holders of Company Common Stock with
respect to any fractional share interests, the Exchange Agent will hold such
cash amounts for the benefit of, and pay such cash amounts to, such former
holders of Company Common Stock subject to and in accordance with the terms
of Section 2.2(b).
(e) NO LIABILITY. Neither Parent, Merger Sub nor the Company shall be liable
to any holder of Company Common Stock or Parent Common Stock, as the case may
be, for such shares (or dividends or distributions with respect thereto)
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law following the passage of time specified therein.
(f) WITHHOLDING RIGHTS. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of Company Common Stock such amounts as Parent or
the Exchange Agent is required to deduct and withhold with respect to the making
of such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Parent or the Exchange Agent,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the
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shares of Parent Common Stock in respect of which such deduction and withholding
was made by Parent or the Exchange Agent.
(g) CLOSING OF SHARE TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and thereafter there shall be no
further registration of transfers on the stock transfer books of the Company or
the Surviving Corporation of the shares of Company Common Stock which were
outstanding immediately prior to such time. If, after such time, Certificates
are presented to the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Article II.
(h) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof the Merger Consideration as
provided in this Article II; PROVIDED, HOWEVER, that Parent may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificates to deliver an agreement of
indemnification in form satisfactory to Parent, or a bond in such sum as Parent
may direct as indemnity against any claim that may be made against Parent or the
Exchange Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub that the
statements contained in this Article III are true and correct, except as set
forth in the Company Disclosure Schedule, dated as of the date hereof, prepared
by the Company and delivered to Parent in connection herewith (the "Company
Disclosure Schedule"). The Company Disclosure Schedule is arranged in sections
corresponding to the numbered and lettered sections contained in this
Article III and shall qualify only the corresponding Section in this
Article III.
SECTION 3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. The Company and
each of its Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority necessary to own, lease and operate
the properties it purports to own, lease or operate and to carry on its business
as it is now being conducted or presently proposed to be conducted. The Company
and each of its Subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that could not
be expected to have a Company Material Adverse Effect. A true, complete and
correct list of all of the Company's Subsidiaries, together with the
jurisdiction of incorporation of each Subsidiary, the authorized capitalization
of each Subsidiary, and the percentage of each Subsidiary's outstanding capital
stock owned by the Company or another Subsidiary, is set forth in Section 3.1 of
the Company Disclosure Schedule. The Company does not directly or indirectly own
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity,
excluding securities in any publicly traded company held for investment by the
Company and comprising less than one percent of the outstanding stock of such
company. As used in this Agreement, the word "Subsidiary" means, with respect to
any party, any corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other Subsidiary of such party is
a general partner (excluding partnerships, the general partnership interests of
which are held by such party or any Subsidiary of such party that do not have a
majority of the voting interest in such partnership), (ii) such party or any
Subsidiary of such party owns in excess of a majority of the outstanding equity
or voting securities or (iii) at least a majority of the board of
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directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly appointed or
controlled by such party or by any one or more of its Subsidiaries. The term
"Company Material Adverse Effect" means any change, effect or circumstance that,
individually or when taken together with all other changes, effects or
circumstances that have occurred or reasonably could be expected to occur prior
to the date of determination of the occurrence of the Company Material Adverse
Effect, (i) is materially adverse to the business, prospects, assets (including
intangible assets), condition (financial or otherwise) or results of operations
of the Company and its Subsidiaries, taken as a whole or (ii) could materially
delay or prevent the consummation of the transactions contemplated hereby.
Changes in economic or market conditions affecting the software industry
generally, changes in the Company's stock price, failure to meet the Company's
revenue projections for the second quarter of fiscal year 2000 (except as set
forth below) or any loss of a supplier, customer or employee resulting from the
Merger or its announcement to the extent so resulting will be deemed not to
constitute a Company Material Adverse Effect; revenue of 25% or more below the
amount set forth in Section 3.1 of the Company Disclosure Schedule for the
second quarter of fiscal year 2000 will be deemed to constitute a Company
Material Adverse Effect.
SECTION 3.2 ARTICLES OF INCORPORATION AND BY-LAWS. hTe Company has
heretofore furnished to Parent a true, complete and correct copy of its Articles
of Incorporation, as amended to date (the "Company Charter"), and By-Laws, as
amended to date (the "Company By-Laws"), and the charter and by-laws (or
equivalent organizational documents), as amended to date, of each of its
Subsidiaries (the "Subsidiary Documents"). Such Company Charter, Company By-Laws
and Subsidiary Documents are in full force and effect. Neither the Company nor
any of its Subsidiaries is in violation of any of the provisions of the Company
Charter, Company By-Laws or Subsidiary Documents, as the case may be.
SECTION 3.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 100,000,000
shares of Company Common Stock, and 2,000,000 shares of preferred stock, no par
value per share (the "Company Preferred Stock"). As of December 13, 1999:
(i) 5,611,048 shares of Company Common Stock are issued and outstanding, 836,250
shares of Company Common Stock are reserved for issuance upon exercise of
options granted pursuant to the Company Stock Option Plans, 122,568 (as of
commencement of the current purchase period ending on February 29, 2000) shares
of Company Common Stock are reserved for issuance upon exercise of options
granted under the Company ESPP, 415,785 shares of Company Common Stock are
reserved for issuance upon exercise of the Other Company Options, 115,000 shares
of Company Common Stock are reserved for issuance upon exercise of the Company
Warrants, and no shares of Company Common Stock are issued and held in the
treasury of the Company; and (ii) no shares of Company Preferred Stock are
issued and outstanding. All outstanding shares of Company Common Stock are, and
all shares of Company Common Stock subject to issuance as specified above, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, will be, duly authorized, validly issued, fully paid
and nonassessable and not subject to or issued in violation of any purchase
option, call option, right of first refusal, preemptive right, subscription
right or any similar right under any provision of the CGCL, the Company Charter
or the Company By-Laws or any agreement to which the Company is a party or is
otherwise bound. No material change in such capitalization has occurred since
December 13, 1999. All of the outstanding shares of capital stock of each of the
Company's Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable, and all such shares are owned by the Company free and clear of
all security interests, liens, claims, pledges, agreements, limitations in
voting rights, charges or other encumbrances of any nature whatsoever
(collectively, "Liens"). There are no accrued and unpaid dividends with respect
to any outstanding shares of capital stock of the Company or any of its
Subsidiaries.
(b) Except as described in Section 3.3(a) of this Agreement, there are no
equity securities of any class of the Company or any of its Subsidiaries or any
security exchangeable into or exercisable for
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such equity securities, issued, reserved for issuance or outstanding. Except as
described in Section 3.3(a) of this Agreement, there are no options, warrants,
calls, rights, commitments or agreements of any character to which the Company
or any of its Subsidiaries is a party, or by which the Company or any of its
Subsidiaries is bound, obligating the Company or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of the Company or any of its Subsidiaries or obligating
the Company or any of its Subsidiaries to grant, extend or accelerate the
vesting of or enter into any such option, warrant, call, right, commitment or
agreement. There are no voting trusts, proxies or other similar agreements or
understandings with respect to the shares of capital stock of the Company or any
of its Subsidiaries. There are no obligations, contingent or otherwise, of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any shares of capital stock of the Company or any of its Subsidiaries or to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such Subsidiary or any other entity.
SECTION 3.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Subject only to the
approval of the Company's shareholders described below, the Company has all
necessary corporate power and authority to execute and deliver this Agreement
and each instrument required hereby to be executed and delivered by it (the
"Company Merger Documents") at the Closing and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of the Company Merger Documents and the
consummation of the transactions contemplated by the Company Merger Documents
have been duly and validly authorized by all necessary corporate action on the
part of the Company, subject only to the approval of this Agreement and the
Merger by the Company's shareholders (the "Company Voting Proposal") under the
CGCL and the Company Charter by the affirmative vote of the holders of a
majority of the voting power of the outstanding shares of Company Common Stock.
This Agreement has been duly and validly executed and delivered by the Company
and constitutes, and when executed and delivered by the Company each of the
other Company Merger Documents will constitute, assuming the due authorization,
execution and delivery by Parent and Merger Sub, as applicable, the legal, valid
and binding obligation of the Company, enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and by general equitable
principles (regardless of whether enforceability is considered in a proceeding
in equity or at law). The Board of Directors of the Company has determined that
it is advisable and in the best interests of the Company's shareholders for the
Company to enter into a business combination with Parent upon the terms and
subject to the conditions of this Agreement, and has recommended that the
Company's shareholders approve the Company Voting Proposal.
SECTION 3.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of the Company Merger Documents does not, and
the performance of the Company Merger Documents by the Company will not,
(i) conflict with or violate the Company Charter or Company By-Laws,
(ii) conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to the Company or any of its Subsidiaries or by which its or
any of their respective properties is bound or affected, or (iii) result in any
breach of or constitute a default (or an event that with notice or lapse of time
or both would become a default), or impair the Company's or any of its
Subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien on any of the properties or
assets of the Company or any of its Subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries or its or any of
their respective properties is bound or affected; other than such
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conflicts, breaches, defaults, impairments or other effects under (iii) of this
Section 3.5(a) that have not had and could not reasonably be expected to have a
Company Material Adverse Effect.
(b) The execution and delivery of this Agreement or any instrument required
hereby to be executed and delivered by the Company at the Closing does not, and
the performance of this Agreement by the Company or its Subsidiaries will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any court, administrative or regulatory agency or commission or
other governmental authority or instrumentality (whether domestic or foreign, a
"Governmental Entity"), except (i) the filing of the pre-merger notification
report under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (ii) the filing of a Registration Statement on
Form S-4 (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") in accordance with the Securities Act of 1933, as amended
(the "Securities Act"), and the filing of the Proxy Statement/Prospectus with
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (iii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws and the laws of any foreign country and (iv) the filing and
recordation of the Merger Agreement or other documents as required by the CGCL.
SECTION 3.6 SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has timely filed all forms, reports, schedules, statements
and other documents, including any exhibits thereto, required to be filed by the
Company with the SEC, since September 30, 1998 (collectively, the "Company SEC
Reports"). The Company SEC Reports (i) at the time filed, complied in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act, as the case may be, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated in such Company SEC
Reports or necessary in order to make the statements in such Company SEC
Reports, in light of the circumstances under which they were made, not
misleading. None of the Company's Subsidiaries are required to file any forms,
reports, schedules, statements or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes), contained in the Company SEC Reports, including any Company
SEC Reports filed after the date of this Agreement until the Closing, complied,
as of its respective date, in all material respects with all applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, was prepared in accordance with generally accepted accounting
principles ("GAAP") (except as may be indicated in the notes thereto) applied on
a consistent basis throughout the periods involved and fairly presented the
consolidated financial position of the Company and its Subsidiaries as at the
respective dates and the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount. The audited balance
sheet of the Company as of September 30, 1999 is referred to herein as the
"Company Balance Sheet."
SECTION 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
Company Balance Sheet, the Company has conducted its business in the ordinary
course consistent with past practice and, since such date, there has not
occurred: (i) any change, development, event or other circumstance, situation or
state of affairs that has had or could reasonably be expected to have a Company
Material Adverse Effect; (ii) any amendments to or changes in the Company
Charter or Company By-Laws; (iii) any damage to, destruction or loss of any
asset of the Company or any of its Subsidiaries (whether or not covered by
insurance) that could reasonably be expected to have a Company Material Adverse
Effect; (iv) any change by the Company in its accounting methods, principles or
practices; (v) any
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revaluation by the Company of any of its assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business consistent with past practice;
(vi) any sale of a material amount of assets (tangible or intangible) of the
Company; or (vii) any other action or event that would have required the consent
of Parent pursuant to Section 5.1 had such action or event occurred after the
date of this Agreement.
SECTION 3.8 NO UNDISCLOSED LIABILITIES. Except as disclosed in the Company
SEC Reports, neither the Company nor any of its Subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise), except liabilities (a) adequately
reflected in the Company Balance Sheet, (b) incurred in the ordinary course of
business consistent with past practice and not required under GAAP to be
reflected in the Company Balance Sheet, (c) incurred since the date of the
Company Balance Sheet in the ordinary course of business consistent with past
practice or (d) incurred in connection with this Agreement.
SECTION 3.9 ABSENCE OF LITIGATION. There are no claims, actions, suits,
proceedings or investigations (i) pending against the Company or any of its
Subsidiaries or any properties or assets of the Company or of any of its
Subsidiaries or (ii) to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries, or any properties or assets of the Company
or of any of its Subsidiaries, in each case, which claims, actions, suits,
proceedings or investigations could reasonably be expected to have a Company
Material Adverse Effect.
SECTION 3.10 AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) Section 3.10(a) of the Company Disclosure Schedule sets forth a list of
(i) all agreements, contracts or other instruments containing non-competition or
similar restrictive provisions with respect to the Company or any of its
Subsidiaries and (ii) all agreements, contracts or other instruments which, as
of the date hereof, the Company is required to file as "material contracts" with
the SEC pursuant to the requirements of the Exchange Act.
(b) (i) Neither the Company nor any of its Subsidiaries has breached
(without cure), is in default under, or has received written notice of any
breach of or default under, any agreements, contracts or other instruments
required to be disclosed in Section 3.10(a) of the Company Disclosure Schedule
(each, a "Material Contract"), (ii) to the Company's knowledge, no other party
to any Material Contract has breached or is in default of any of its obligations
thereunder, (iii) each Material Contract is in full force and effect and
(iv) each Material Contract is a legal, valid and binding obligation of the
Company or its Subsidiary and, to the knowledge of the Company or any of its
Subsidiaries, each of the other parties thereto, enforceable in accordance with
its terms, except that the enforcement thereof may be limited by
(A) bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and (B) general
principles of equity.
SECTION 3.11 COMPLIANCE; PERMITS.
(a) Neither the Company nor any of its Subsidiaries is in conflict with, or
in default or violation of (and has not received any notices of violation with
respect to), any (i) law, rule or regulation, or (ii) order, judgment or decree
applicable to the Company or any of its Subsidiaries or by which its or any of
their respective properties is bound or affected, and the Company is not aware
of any such conflict, default or violation thereunder (other than any conflicts,
defaults or violations under (i) of this Section 3.11(a) that have not had and
could not reasonably be expected to have a Company Material Adverse Effect).
(b) The Company and its Subsidiaries hold all permits, licenses, easements,
variances, exemptions, consents, certificates, authorizations, registrations,
orders and other approvals from any arbitrator, court, nation, government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial regulatory or administrative functions of, or
pertaining to, government that are material to the operation of the business of
the Company and its Subsidiaries taken as a whole
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as it is now being conducted (collectively, the "Company Permits"). The Company
Permits are in full force and effect, have not been violated and no suspension,
revocation or cancellation thereof has been threatened and there is no action,
proceeding or investigation pending or threatened regarding suspension,
revocation or cancellation of any Company Permit.
SECTION 3.12 EMPLOYEE BENEFIT PLANS, OPTIONS AND EMPLOYMENT AGREEMENTS.
(a) Section 3.12(a) of the Company Disclosure Schedule contains a true and
complete list of (i) each deferred compensation and each bonus or other
incentive compensation, stock purchase, stock option and other equity
compensation plan, program, agreement or arrangement; (ii) each severance or
termination pay, medical, surgical, hospitalization, life insurance and other
"welfare" plan, fund or program (within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"));
(iii) each profit-sharing, stock bonus or other "pension" plan, fund or program
(within the meaning of Section 3(2) of ERISA); (iv) each employment, termination
or severance agreement; and (v) each other employee benefit plan, fund, program,
agreement or arrangement, in each case, that is sponsored, maintained or
contributed to or required to be contributed to by the Company or by any trade
or business, whether or not incorporated (an "ERISA Affiliate"), that together
with the Company would be deemed a "single employer" within the meaning of
Section 4001(b) of ERISA, or to which the Company or an ERISA Affiliate is
party, whether written or oral, for the benefit of any employee or former
employee of the Company or any of its Subsidiaries (collectively, the "Company
Plans"). No Company Plan is subject to Section 302 or Title IV of ERISA or
Section 412 of the Code. Neither the Company, any of its Subsidiaries nor any
ERISA Affiliate has any commitment or formal plan, whether legally binding or
not, to create any additional employee benefit plan or modify or change any
existing Company Plan that would affect any employee or former employee of the
Company or any of its Subsidiaries.
(b) With respect to each Company Plan, the Company has heretofore delivered
or made available to Parent true and complete copies of each of the following
documents: (i) a copy of the Company Plan and any amendments thereto (or if the
Company Plan is not a written Company Plan, a description thereof); (ii) a copy
of the two most recent annual reports and actuarial reports, if required under
ERISA, and the most recent report prepared with respect thereto in accordance
with Statement of Financial Accounting Standards No. 87; (iii) a copy of the
most recent Summary Company Plan Description required under ERISA with respect
thereto; (iv) if the Company Plan is funded through a trust or any third party
funding vehicle, a copy of the trust or other funding agreement and the latest
financial statements thereof; and (v) the most recent determination letter
received from the IRS with respect to each Company Plan intended to qualify
under Section 401 of the Code.
(c) No liability under Title IV or Section 302 of ERISA has been incurred by
the Company or any ERISA Affiliate that has not been satisfied in full, and no
condition exists that presents a material risk to the Company or any ERISA
Affiliate of incurring any such liability, other than liability for premiums due
to the Pension Benefit Guaranty Corporation (which premiums have been paid when
due).
(d) All contributions required to be made with respect to any Company Plan
on or prior to the Effective Time have been timely made or are reflected on the
Company Balance Sheet.
(e) Neither the Company nor any of its Subsidiaries, any Company Plan, any
trust created thereunder, nor any trustee or administrator thereof has engaged
in a transaction in connection with which the Company or any of its
Subsidiaries, any Company Plan, any such trust, or any trustee or administrator
thereof, or any party dealing with any Company Plan or any such trust could be
subject to either a civil penalty assessed pursuant to Section 409 or 502(i) of
ERISA or a tax imposed pursuant to Section 4975 or 4976 of the Code.
(f) Each Company Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code. There are no
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pending, threatened or anticipated claims by or on behalf of any Company Plan,
by any employee or beneficiary covered under any such Company Plan, or otherwise
involving any such Company Plan (other than routine claims for benefits).
(g) Each Company Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified and the trusts maintained thereunder
are exempt from taxation under Section 501(a) of the Code. Each Company Plan
intended to satisfy the requirements of Section 501(c)(9) has satisfied such
requirements.
(h) No Company Plan provides medical, surgical, hospitalization, death or
similar benefits (whether or not insured) for employees or former employees of
the Company or any of its Subsidiaries for periods extending beyond their
retirement or other termination of service, other than (i) coverage mandated by
applicable law, (ii) death benefits under any "pension plan," or (iii) benefits
the full cost of which is borne by the current or former employee (or his
beneficiary). No condition exists that would prevent the Company or any of its
Subsidiaries from amending or terminating any Company Plan providing health or
medical benefits in respect of any active or former employee of the Company or
any of its Subsidiaries.
(i) No amounts payable under the Company Plans have failed, or as a result
of the transactions contemplated hereby will fail, to be deductible for federal
income tax purposes by virtue of Sections 162(m) or 280G of the Code.
(j) The consummation of the transactions contemplated by this Agreement will
not, either alone or in combination with another event, (i) entitle any current
or former employee or officer of the Company or any ERISA Affiliate to severance
pay, unemployment compensation or any other payment, except as expressly
provided in this Agreement, or (ii) accelerate the time of payment or vesting,
or increase the amount of compensation due any such employee or officer.
SECTION 3.13 LABOR MATTERS. (a) There are no controversies pending or, to
the knowledge of the Company or any of its Subsidiaries, threatened, between the
Company or any of its Subsidiaries and any of their respective employees,
consultants or independent contractors; (b) neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or its
Subsidiaries, nor does the Company or any of its Subsidiaries know of any
activities or proceedings of any labor union to organize any such employees; and
(c) neither the Company nor any of its Subsidiaries has any knowledge of any
labor disputes, strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of, or consultants or independent
contractors to, the Company or any of its Subsidiaries.
SECTION 3.14 PROPERTIES; ENCUMBRANCES. The Company and each of its
Subsidiaries have good, valid and marketable title to, or a valid leasehold
interest in, all the tangible properties and assets which it purports to own or
lease (real, personal and mixed), including, without limitation, all the
properties and assets reflected in the Company Balance Sheet (except for
personal property sold since the date of the Company Balance Sheet in the
ordinary course of business consistent with past practice). All properties and
assets reflected in the Company Balance Sheet are free and clear of all Liens,
except for Liens reflected on the Company Balance Sheet and Liens for current
taxes not yet due and other Liens that do not materially detract from the value
or impair the use of the property or assets subject thereto.
SECTION 3.15 TAXES.
(a) The Company and each of its Subsidiaries have timely filed with the
appropriate taxing authorities all Tax Returns required to be filed by them
(giving effect to valid extensions) and all such Tax Returns are true, correct
and complete in all material respects. Each group of corporations with which the
Company or any of its Subsidiaries has filed (or was required to file)
consolidated, combined, unitary or similar Tax Returns (an "Affiliated Group")
has timely filed all income and other material
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Tax Returns that it was required to file (giving effect to valid extensions)
with respect to any period in which the Company or any of its Subsidiaries was a
member of such Affiliated Group (each such Tax Return, an "Affiliated Return")
and all such Affiliated Returns are true, correct and complete in all material
respects. All material Taxes due and owing by the Company and its Subsidiaries
have been timely paid or adequately reserved for. There are no Tax Liens on any
assets of the Company or any Subsidiary thereof other than liens relating to
current Taxes not yet due and payable. Neither the Company, any of its
Subsidiaries nor any member of any Affiliated Group has granted any waiver of
any statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax. No power of attorney has been granted with respect to
any matter relating to Taxes of the Company or any of its Subsidiaries which is
currently in force.
(b) Neither the Company nor any of its Subsidiaries is, or has been, a
United States real property holding corporation (as defined in
Section 897(c)(2) of the Code) during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code.
(c) The Company and each of its Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to Taxes
required to be withheld or collected, including, without limitation, Taxes
required to be withheld pursuant to Sections 1441 and 1442 of the Code and Taxes
required to be withheld from employee wages. The Company has delivered to Parent
true, correct and complete copies of all (i) income and other material Tax
Returns filed by the Company and each of its Subsidiaries and (ii) Affiliated
Returns, in each case since the date of September 28, 1996. None of the Company,
any of its Subsidiaries or any member of any Affiliated Group has received any
notice of any audit examination, deficiency, refund litigation, proposed
adjustment or matter in controversy with respect to any Taxes or Tax Return of
the Company, any of its Subsidiaries or any Affiliated Group, and no audits or
other administrative proceedings or court proceedings with respect to any Taxes
or Tax Return of the Company, any of its Subsidiaries or any Affiliated Group
are in progress. No taxing authority has asserted that the Company, any of its
Subsidiaries or any Affiliated Group was required to file any Tax Return that
was not filed. Neither the Company nor any of its Subsidiaries is a "consenting
corporation" within the meaning of Section 341(f) of the Code or has agreed to
have Section 341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by
the Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries is a party to or bound by any Tax indemnity, sharing, allocation,
or similar contract or arrangement. Neither the Company nor any of its
Subsidiaries is or has ever been a member of a group of corporations with which
it has filed (or been required to file) consolidated, combined, unitary or
similar Tax Returns, other than a group of which only the Company and its
Subsidiaries are or were members. Neither the Company nor any of its
Subsidiaries has agreed to, or is required to, make any adjustment under
Section 481(a) of the Code by reason of a change in accounting method or
otherwise.
(d) The statute of limitations for the assessment of Taxes has expired for
all Tax Returns of the Company and its Subsidiaries and any Affiliated Group, or
those Tax Returns have been audited and closed by the appropriate taxing
authorities. The Company has delivered to Parent true, correct and complete
copies of each of (i) all audit reports, letter rulings, technical advice
memoranda and similar documents issued by a taxing authority relating to Taxes
of, or with respect to, the Company or any of its Subsidiaries and (ii) any
closing agreements entered into by the Company or any of its Subsidiaries with
any taxing authority.
(e) For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes, fees,
levies, duties, tariffs, imposts and governmental impositions or charges of any
kind in the nature of (or similar to) taxes, payable to any federal, state,
local or foreign taxing authority, including without limitation (i) income,
franchise, profits, gross receipts, AD VALOREM, net worth, value added, sales,
use, service, real or personal property, special assessments, capital stock,
license, payroll, withholding, employment, social security, workers'
compensation, unemployment compensation, utility, severance, production, excise,
stamp,
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occupation, premium, windfall profits, transfer and gains taxes and
(ii) interest, penalties, additional taxes and additions to tax imposed with
respect thereto; and "Tax Returns" shall mean returns, reports, declarations,
schedules, certificates, information statements and other similar documents with
respect to Taxes (including any supporting information) required to be filed
with the IRS or any other taxing authority, domestic or foreign, including,
without limitation, consolidated, combined or unitary tax returns, claims for
refund, amended returns, or declarations of estimated Tax.
SECTION 3.16 ENVIRONMENTAL MATTERS.
(a) The Company and its Subsidiaries are in full compliance with all
applicable Environmental Laws; neither the Company nor any of its Subsidiaries
has received any communication whether from a Governmental Entity, citizens
group, employee or otherwise, that alleges that the Company or any of its
Subsidiaries are not in such full compliance; and, to the Company's best
knowledge, there are no circumstances that may prevent, interfere with, such
full compliance in the future.
(b) There is no Environmental Claim pending or threatened against the
Company or any of its Subsidiaries or, to the Company's knowledge, against any
person or entity whose liability for any Environmental Claim the Company or any
of its Subsidiaries have or may have retained or assumed either contractually or
by operation of law.
(c) There are no past or present actions, activities, circumstances,
conditions, events or incidents, including the Release, emission, discharge or
disposal of any Hazardous Materials, that could form the basis of any
Environmental Claim against the Company or any of its Subsidiaries or, to the
Company's knowledge, against any person or entity whose liability for any
Environmental Claim the Company or any of its Subsidiaries have or may have
retained or assumed either contractually or by operation of law.
(d) The Company and its Subsidiaries have delivered or otherwise made
available for inspection to Parent true, complete and correct copies and results
of any audits, reports, studies, analyses, tests or monitoring possessed or
initiated by the Company or its Subsidiaries pertaining to Hazardous Materials
in, on, beneath or adjacent to any property currently or formerly owned,
operated or leased by the Company or its Subsidiaries or regarding the Company's
or its Subsidiaries' compliance with applicable Environmental Laws.
(e) "Environmental Claim" means any claim, action, cause of action,
investigation or notice by any person or entity alleging potential liability
arising out of, based on or resulting from (i) the presence, or release into the
environment, of any Hazardous Material at any location, whether or not owned by
the Company or any of its Subsidiaries or (ii) circumstances forming the basis
of any violation, or alleged violation, of any Environmental Law.
(f) "Environmental Laws" means all federal, state, local and foreign laws
and regulations relating to pollution or protection of human health or the
environment, including without limitation laws and regulations relating to
emissions, discharges, releases or threatened releases of Hazardous Materials or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials and all laws and
regulations with regard to record keeping, notification, disclosure and
reporting requirements respecting Hazardous Materials.
(g) "Hazardous Materials" means chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products, all substances defined as
Hazardous Substances, Hazardous Wastes, Oils, Pollutants or Contaminants in the
National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R.
Section 300.5, or defined as such by, or otherwise regulated under, any
Environmental Law.
(h) "Release" means any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, dispersal, leaching or migration into the
indoor or outdoor environment (including, without limitation, ambient air,
surface water, groundwater and surface or subsurface strata) or into or out of
any property, including the movement of Hazardous Materials through or in the
air, soil, surface water, groundwater or property.
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SECTION 3.17 INTELLECTUAL PROPERTY.
(a) The Company or its Subsidiaries owns, or is licensed or otherwise
possesses legally enforceable rights to use (free and clear of all liens and
encumbrances), all trademarks, service marks, trade names, copyrights, Internet
domain names, mask works, including any registrations or applications for
registration thereof, patents and patent applications, and trade secrets,
including technology, know-how, processes, schematics, computer software
programs or applications, and all other tangible or intangible proprietary
information or material, that is used in the business of the Company and its
Subsidiaries as currently conducted (the "Company Intellectual Property
Rights"). Set forth in Section 3.17(a) of the Company Disclosure Schedule is a
list of all Company-owned patents and patent applications, registered and
unregistered trademarks and service marks, and copyright and mask work
registrations.
(b) Either the Company or one of its Subsidiaries is the sole and exclusive
owner of all right, title and interest in and to (free and clear of any Liens),
or is the exclusive or non-exclusive licensee of, the Company Intellectual
Property Rights, and, in the case of Company Intellectual Property Rights owned
by the Company or any of its Subsidiaries, has sole and exclusive rights (and is
not contractually obligated to pay any compensation to any third party in
respect thereof) to the use thereof and the material covered thereby. No claims
have been asserted or, to the Company's knowledge, are threatened by any person
(i) to the effect that the manufacture, sale, licensing or use of any of the
products or services of the Company or any of its Subsidiaries as now
manufactured, sold or licensed or used or proposed for manufacture, use, sale or
licensing by the Company or any of its Subsidiaries infringes any intellectual
property rights of any third party, (ii) against the use by the Company or any
of its Subsidiaries of any trademarks, service marks, trade names, trade
secrets, copyrights, patents, technology or know-how used in the business of the
Company and its Subsidiaries as currently conducted or as presently proposed to
be conducted, or (iii) challenging the ownership or use by the Company or any of
its Subsidiaries or the validity of any of the Company Intellectual Property
Rights. All patents and trademark, service mark, copyright and mask work
registrations held by the Company and its Subsidiaries and used in the business
of the Company or its Subsidiaries as currently conducted or as presently
proposed to be conducted are valid, subsisting, in full force and effect, and
have not lapsed, expired or been cancelled or abandoned. To the knowledge of the
Company, there is no unauthorized use, infringement or misappropriation of any
of the Company Intellectual Property Rights by any third party, including any
employee or former employee of the Company or any of its Subsidiaries. No
Company Intellectual Property Right or product or service of the Company or any
of its Subsidiaries is subject to any outstanding decree, order, judgment or
stipulation restricting in any manner the use, sale or licensing thereof by the
Company or any of its Subsidiaries. No current or former partner, director,
officer or employee of the Company or any of its Subsidiaries will, after giving
effect to the transactions contemplated hereby, own or retain any rights in or
to any of the Company Intellectual Property. Neither the Company nor any of its
Subsidiaries has entered into any agreement under which the Company or its
Subsidiaries is restricted from using or licensing any Company Intellectual
Property Right in any manner anywhere in the world, or selling or otherwise
distributing any of its products or services.
(c) Neither the Company nor any Subsidiary is, or as a result of the
execution or delivery of this Agreement or the performance of its obligations
hereunder will be in violation of any license, sublicense, agreement or
instrument to which the Company or such Subsidiary is a party or otherwise
bound, nor will the consummation of the transactions contemplated hereby result
in any material loss or impairment of the Company or any Subsidiary's ownership
of or right to use any of the Company Intellectual Property, nor require the
consent of any Governmental Entity or third party with respect to any of the
Company Intellectual Property.
SECTION 3.18 INSURANCE. To the Company's best knowledge, after reasonable
inquiry, all fire and casualty, general liability, business interruption,
product liability, sprinkler and water damage insurance policies and other forms
of insurance maintained by the Company or any of its Subsidiaries
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are with reputable insurance carriers, provide adequate coverage for all normal
risks incident to the business of the Company and its Subsidiaries and their
respective properties and assets and are in character and amount and with such
deductibles and retained amounts as generally carried by persons engaged in
similar businesses and subject to the same or similar perils or hazards.
SECTION 3.19 RESTRICTIONS ON BUSINESS ACTIVITIES. Except for this
Agreement, there is no agreement, judgement, injunction, order or decree binding
upon the Company or any of its Subsidiaries which has or could be expected to
have the effect of prohibiting or impairing any business practice of the Company
or any of its Subsidiaries, acquisition of property by the Company or any of its
Subsidiaries or the conduct of business by the Company or any of its
Subsidiaries as currently conducted or as proposed to be conducted by the
Company.
SECTION 3.20 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information supplied by the Company for inclusion in the Registration Statement
shall not at the time the Registration Statement is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The information supplied by the Company for inclusion or
incorporation by reference in the proxy statement/prospectus (as amended or
supplemented, the "Proxy Statement/ Prospectus") to be sent to the shareholders
of the Company in connection with the meeting of the shareholders of the Company
to consider the Company Voting Proposal (the "Company Shareholders Meeting"),
and stockholders of Parent in connection with the meeting of the stockholders of
Parent to consider the issuance of the Parent Common Stock in the Merger (the
"Parent Stockholders Meeting"), shall not, on the date the Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is first
mailed to shareholders of the Company and stockholders of Parent or at the time
of the Company Shareholders Meeting and the time of the Parent Stockholders
Meeting contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state any material fact necessary in
order to make the statements made therein not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Shareholders Meeting and the Parent Stockholders Meeting which has become false
or misleading. If at any time prior to the later of the Company Shareholders
Meeting and the Parent Stockholders Meeting any event relating to the Company or
any of its respective affiliates, officers or directors should be discovered by
the Company which should be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement/Prospectus, the Company shall
promptly inform Parent. The Proxy Statement/Prospectus shall comply in all
material respects as to form and substance with the requirements of the
Securities Act, the Exchange Act and the rules and regulations thereunder.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by Parent or Merger Sub which is
contained in the Registration Statement or the Proxy Statement/Prospectus.
SECTION 3.21 INTERESTED PARTY TRANSACTIONS. Since the date of the
Company's proxy statement dated January 19, 1999, no event has occurred that
would be required to be reported as a Certain Relationship or Related
Transaction, pursuant to Item 404 of Regulation S-K promulgated by the SEC.
SECTION 3.22 CHANGE IN CONTROL PAYMENTS. Neither the Company nor any of
its Subsidiaries have any agreements, other than as previously disclosed in
Section 3.12 of the Company Disclosure Schedule, to which they are parties, or
to which they are subject, pursuant to which payments may be required upon, or
may become payable directly or indirectly as a result of, a change of control of
the Company.
SECTION 3.23 YEAR 2000 COMPLIANCE.
(a) All of (i) the internal systems used in the business or operations of
the Company and its Subsidiaries, including without limitation computer hardware
systems, software, applications, firmware,
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equipment containing embedded microchips and other embedded systems and
(ii) the software, hardware, firmware and other technology that constitute part
of the products and services manufactured, marketed, licensed or sold by the
Company or any of its Subsidiaries to third parties are Year 2000 Compliant.
(b) To the Company's knowledge, all third-party systems used in connection
with the business, products, services or operations of the Company or any of its
Subsidiaries, including without limitation any system belonging to any of the
Company's or its Subsidiaries' vendors, co-venturers, service providers or
customers are Year 2000 Compliant. The Company and its Subsidiaries have
received satisfactory written assurances and warranties from all of their
respective vendors, co-venturers, service providers and customers that are
material to the ongoing operation of the business of the Company and its
Subsidiaries that past and future products, software, equipment, components or
systems provided by such parties are (or in the case of future products, will
be) Year 2000 Compliant.
(c) The Company has conducted "year 2000" audits with respect to (i) each of
the internal systems used in the business, products, services and operations of
the Company and its Subsidiaries, including without limitation computer hardware
systems, software, applications, firmware, equipment containing embedded
microchips and other embedded systems and (ii) all of the software,
applications, hardware, firmware and other technology which constitute part of
the products and services manufactured, marketed, performed or sold by the
Company or any of its Subsidiaries or licensed by the Company or any of its
Subsidiaries to third parties. The Company has obtained "year 2000"
certifications with respect to all material third-party systems used in
connection with the business or operations of the Company and its Subsidiaries,
including without limitation systems belonging to the vendors, co-venturers,
service providers and customers of the Company of any or its Subsidiaries. The
Company has made available to Parent true, complete and correct copies of all
"year 2000" audits, certifications, reports and other similar documents that
have been prepared or performed by or on behalf of the Company or any third
party with respect to the systems, business, operations, products or services of
the Company or any of its Subsidiaries.
(d) Neither the Company nor any of its Subsidiaries has provided any
representation, warranty or guarantee for any product sold or licensed, or
service provided, by the Company or its Subsidiaries to the effect that such
product or service (i) complies with or accounts for the fact of the year change
from December 31, 1999 to January 1, 2000, (ii) will not be adversely affected
with respect to functionality, interoperability, connectivity, performance,
reliability or volume capacity (including without limitation the processing
storage, recall and reporting of data) by the passage of any date, including
without limitation the year change from December 31, 1999 to January 1, 2000 or
(iii) is otherwise Year 2000 Compliant.
(e) For purposes of this Agreement, "Year 2000 Compliant" means that the
applicable system, product, service or item:
(i) will accurately receive, record, store, provide, recognize, recall
and process all date and time data from, during, into and between the years
1999, 2000 and 2001, and all years pertinent thereafter;
(ii) will accurately perform all date-dependent calculations and
operations (including without limitation, mathematical operations, sorting,
comparing and reporting) from, during, into and between the years 1999, 2000
and 2001, and all pertinent years thereafter; and
(iii) will not malfunction, cease to function or provide invalid or
incorrect results as a result of (A) the change of years from 1999 to 2000
or from 2000 to 2001, (B) date data, including date data which represents or
references different centuries, different dates during 1999, 2000 and 2001,
or more than one century or (C) the occurrence of any particular date;
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in each case without human intervention, provided, in each case, that all
software, applications, hardware and other systems used in conjunction with such
system or item that are not owned or licensed by the Company or its Subsidiaries
correctly exchange date data with or provide data to such system or item.
SECTION 3.24 POOLING; TAX MATTERS. Neither the Company nor any of its
affiliates has taken or agreed to take any action or failed to take any action,
or has any reason to believe that any conditions exist, that would prevent
(a) Parent from accounting for the business combination to be effected by the
Merger as a pooling of interests or (b) the Merger from constituting a
reorganization within the meaning of Section 368(a) of the Code.
SECTION 3.25 NO EXISTING DISCUSSIONS. As of the date hereof, the Company
is not engaged, directly or indirectly, in any discussions or negotiations with
any other party with respect to an Acquisition Proposal (as defined in
Section 6.2(b)) or any other substantially similar proposal.
SECTION 3.26 OPINION OF FINANCIAL ADVISOR. The financial advisor of the
Company, First Security Van Kasper, has delivered to the Company an opinion
dated the date of this Agreement to the effect that as of the date of this
Agreement, the Merger Consideration is fair, from a financial point of view, to
the shareholders of the Company. The Company has provided a complete and correct
copy of such opinion to Parent.
SECTION 3.27 BROKERS. No broker, finder or investment banker (other than
First Security Van Kasper, whose brokerage, finder's or other fee will be paid
by the Company) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company or any of its
Subsidiaries. The Company has heretofore furnished to Parent a complete and
correct copy of all agreements between the Company and First Security Van Kasper
pursuant to which such firm would be entitled to any payment relating to the
transactions contemplated hereunder.
SECTION 3.28 AFFILIATES. Section 3.28 of the Company Disclosure Schedule
contains a true, complete and correct list of all persons who, as of the date
hereof, to the best knowledge of the Company, may be deemed to be affiliates of
the Company excluding all its Subsidiaries but including all directors and
executive officers of the Company.
SECTION 3.29 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each
current and former employee and officer of the Company has executed an Agreement
Regarding Confidential Information and Inventions, or an Employee Proprietary
Information Agreement or similar such agreement, in substantially the form
previously provided or made available to Parent. The Company is not aware that
any of the current or former employees of the Company is in violation thereof.
SECTION 3.30 ABSENCE OF CERTAIN PAYMENTS. Neither the Company, nor, to the
Company's knowledge, any of its affiliates or any of their respective officers,
directors, employees or agents or other people acting on behalf of any of them
have: (i) engaged in any activity prohibited by the United States Foreign
Corrupt Practices Act of 1977 or any other similar law, regulation, decree,
directive or order of any Governmental Entity and (ii) without limiting the
generality of the preceding clause (i), used any corporate or other funds for
unlawful contributions, payments, gifts or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others.
Neither the Company, nor, to the Company's knowledge, any of its affiliates or
any of their respective directors, officers, employees or agents of other
persons acting on behalf of any of them, has accepted or received any unlawful
contributions, payments, gifts or expenditures.
SECTION 3.31 FULL DISCLOSURE. To the Company's best knowledge, after
reasonable inquiry, no representation or warranty by the Company in this
Agreement and no statement contained in any schedule or certificate furnished or
to be furnished by the Company to Parent, or any of its representatives pursuant
to the provisions hereof taken as a whole, contains as of the date hereof any
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untrue statement of material fact or omits to state any material fact necessary
in order to make the statements herein or therein, in light of the circumstances
under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company that the
statements contained in this Article IV are true and correct, except as set
forth in the Parent Disclosure Schedule, dated as of the date hereof, prepared
by Parent and delivered to the Company in connection herewith (the "Parent
Disclosure Schedule"). The Parent Disclosure Schedule is arranged in sections
corresponding to the numbered and lettered sections contained in this
Article IV and shall qualify only the corresponding Section in this Article IV.
SECTION 4.1 ORGANIZATION AND QUALIFICATION. Parent and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its respective incorporation and
has the requisite corporate power and authority necessary to own, lease and
operate the properties it purports to own, lease or operate and to carry on its
business as it is now being conducted or presently proposed to be conducted.
Parent and each of its Subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that could not
reasonably be expected to have a Parent Material Adverse Effect. A true,
complete and correct list of all of Parent's Subsidiaries, together with the
jurisdiction of incorporation of each Subsidiary, the authorized capitalization
of each Subsidiary, and the percentage of each Subsidiary's outstanding capital
stock owned by Parent or another Subsidiary, is set forth in Section 4.1 of the
Parent Disclosure Schedule. Parent does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity, excluding
securities in any publicly traded company held for investment by Parent and
comprising less than one percent of the outstanding stock of such company. The
term "Parent Material Adverse Effect" means any change, effect or circumstance
that, individually or when taken together with all other such similar or related
changes, effects or circumstances that have occurred or could reasonably be
expected to occur prior to the date of determination of the occurrence of the
Parent Material Adverse Effect, (i) is materially adverse to the business,
prospects, assets (including intangible assets), condition (financial or
otherwise) or results of operations of Parent and its Subsidiaries taken as a
whole or (ii) could materially delay or prevent the consummation of the
transactions contemplated hereby. Changes in economic or market conditions
affecting the computer peripherals or computer software industries generally,
changes in Parent's stock price, failure to meet Parent's revenue projections
for the first quarter of fiscal year 2000 (except as set forth below) or any
loss of a supplier, customer or employee resulting from the Merger or its
announcement to the extent so resulting will be deemed not to constitute a
Parent Material Adverse Effect; revenue for the first quarter of fiscal year
2000 of 25% or more below the amount set forth in Section 4.1 of the Parent
Disclosure Schedule will be deemed to constitute a Parent Material Adverse
Effect.
SECTION 4.2 CERTIFICATE OF INCORPORATION AND BY-LAWS. Parent has
heretofore furnished to the Company a true, complete and correct copy of its
Certificate of Incorporation, as amended to date (the "Parent Charter"), and
By-Laws, as amended to date (the "Parent By-Laws"). Such Parent Charter and
Parent By-Laws are in full force and effect. Parent is not in violation of any
of the provisions of the Parent Charter or Parent By-Laws.
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SECTION 4.3 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of 25,000,000 shares of
Parent Common Stock, and 1,000,000 shares of preferred stock, par value $.01 per
share (the "Parent Preferred Stock"). As of November 30, 1999: (i) 8,485,714
shares of Parent Common Stock are issued and outstanding, 1,826,309 shares of
Parent Common Stock are reserved for issuance upon exercise of options granted
pursuant to Parent's 1982 Key Employee Incentive Plan, 1986 Employee Stock
Purchase Plan and 1992 Key Employee Incentive Plan; and no shares of Parent
Common Stock are issued and held in the treasury of Parent; and (ii) no shares
of Parent Preferred Stock are issued and outstanding. All outstanding shares of
Parent Common Stock are, and all shares of Parent Common Stock subject to
issuance as specified above, upon issuance on the terms and conditions specified
in the instruments pursuant to which they are issuable, will be, duly
authorized, validly issued, fully paid and nonassessable and not subject to or
issued in violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under any provision of
the DGCL, Parent Charter or Parent By-Laws or any agreement to which Parent is a
party or is otherwise bound. No material change in such capitalization has
occurred since November 30, 1999. All of the outstanding shares of capital stock
of each of Parent's Subsidiaries are duly authorized, validly issued, fully paid
and nonassessable, and all such shares are owned by Parent free and clear of all
Liens. There are no accrued and unpaid dividends with respect to any outstanding
shares of capital stock of Parent or any of its Subsidiaries.
(b) Except as described in Section 4.3(a) of this Agreement, there are no
equity securities of any class of Parent or any of its Subsidiaries or any
security exchangeable into or exercisable for such equity securities, issued,
reserved for issuance or outstanding. Except as described in Section 4.3(a) of
this Agreement, there are no options, warrants, calls, rights, commitments or
agreements of any character to which Parent or any of its Subsidiaries is a
party, or by which Parent or any of its Subsidiaries is bound, obligating Parent
or any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of Parent or any of its
Subsidiaries or obligating Parent or any of its Subsidiaries to grant, extend or
accelerate the vesting of or enter into any such option, warrant, call, right,
commitment or agreement. To Parent's knowledge, there are no voting trusts,
proxies or other similar agreements or understandings with respect to the shares
of capital stock of Parent or any of its Subsidiaries There are no obligations,
contingent or otherwise, of Parent or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of Parent or any of its
Subsidiaries or to provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any such Subsidiary or any other
entity.
(c) All of the shares of Parent Common Stock to be issued in the Merger will
be, when issued in accordance with this Agreement, duly authorized, validly
issued, fully paid and nonassessable.
(d) The authorized capital stock of Merger Sub consists of 100 Merger Sub
Common Shares, all of which are issued and outstanding and fully paid and
nonassessable.
SECTION 4.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Subject only to the
approval of Parent's stockholders described below, each of Parent and Merger Sub
has all necessary corporate power and authority to execute and deliver this
Agreement and each instrument required hereby to be executed and delivered by it
(the "Parent Merger Documents") at the Closing and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of the Parent Merger Documents and the
consummation of the transactions contemplated by the Parent Merger Documents
have been duly and validly authorized by all necessary corporate action on the
part of Parent and Merger Sub, subject only to the approval of the holders of
Parent Common Stock of the issuance of the Parent Common Stock in the Merger at
a meeting where a quorum is present by a majority of the votes properly cast
(the "Parent Voting Proposal"). This Agreement has been duly and validly
executed and delivered by Parent and Merger Sub and constitutes, and when
executed and delivered by Parent and Merger Sub, as applicable, each of the
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other Parent Merger Documents will constitute, assuming the due authorization,
execution and delivery by the Company, the legal and binding obligation of each
of Parent and Merger Sub, as applicable, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and by general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at law). The Board of
Directors of Parent has determined that it is advisable and in the best
interests of Parent's stockholders for Parent to issue the shares to the
Company's shareholders on the terms and subject to the conditions of this
Agreement, and has recommended that Parent's stockholders approve the Parent
Voting Proposal.
SECTION 4.5 NO CONFLICT, REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of the Parent Merger Documents by Parent and
Merger Sub do not, and the performance of this Agreement by Parent and Merger
Sub will not, (i) conflict with or violate the Parent Charter, the Parent
By-Laws, the Certificate of Incorporation of Merger Sub or the By-Laws of Merger
Sub, (ii) conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Parent or Merger Sub by which its or their respective
properties are bound or affected, or (iii) result in any breach of or constitute
a default (or an event that with notice or lapse of time or both would become a
default), or impair Parent's or any of its Subsidiaries' rights or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the properties or assets of Parent or any of its
Subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or any of its Subsidiaries is a party or by which Parent or any
of its Subsidiaries or its or any of their respective properties is bound or
affected; other than such conflicts, breaches, defaults, impairments or other
effects under (iii) of this Section 4.5(a) that have not had and could not
reasonably be expected to have a Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement or any instrument required
hereby to be executed and delivered by Parent and Merger Sub does not, and the
performance of this Agreement by Parent and Merger Sub will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity, except (i) the filing of the pre-merger
notification report under the HSR Act, (ii) the filing of the Registration
Statement with the SEC in accordance with the Securities Act, and the filing of
the Proxy Statement/Prospectus with the SEC under the Exchange Act, (iii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities laws
and the laws of any foreign country and (iv) the filing and recordation of the
Merger Agreement or other documents as required by the CGCL and the DGCL.
SECTION 4.6 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has timely filed all forms, reports, schedules, statements and
other documents required to be filed by Parent with the SEC since November 30,
1998 (collectively, the "Parent SEC Reports"). The Parent SEC Reports (i) at the
time filed, complied in all material respects with the applicable requirements
of the Securities Act and the Exchange Act, as the case may be, and (ii) did not
at the time they were filed (or if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated in such Parent SEC Reports or necessary in order to make the statements
in such Parent SEC Reports, in light of the circumstances under which they were
made, not misleading. None of Parent's Subsidiaries are required to file any
forms, reports, schedules, statements or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes), contained in the Parent SEC Reports, including any Parent
SEC Reports filed after the date of this
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Agreement until the Closing, complied, as of its respective date, in all
material respects with all applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved and fairly presented the consolidated financial position of Parent and
its Subsidiaries as at the respective dates and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in
amount.
SECTION 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
unaudited balance sheet of Parent as of November 30, 1999 (the "Parent Balance
Sheet"), a copy of which has been previously supplied to the Company by Parent,
and except as disclosed in the Parent SEC Reports, Parent has conducted its
business in the ordinary course consistent with past practice and, since such
date, there has not occurred: (i) any change, development, event or other
circumstance, situation or state of affairs that has had or could reasonably be
expected to have a Parent Material Adverse Effect; (ii) any amendments to or
changes in the Parent Charter or Parent By-Laws; (iii) any damage to,
destruction or loss of any asset of Parent or any of its Subsidiaries (whether
or not covered by insurance) that could reasonably be expected to have a Parent
Material Adverse Effect; (iv) any change by Parent in its accounting methods,
principles or practices; (v) any revaluation by Parent of any of its assets,
including, without limitation, writing down the value of inventory or writing
off notes or accounts receivable other than in the ordinary course of business
consistent with past practice; or (vi) any sale of a material amount of assets
(tangible or intangible) of Parent other than in the ordinary course of business
and consistent with past practice.
SECTION 4.8 NO UNDISCLOSED LIABILITIES. Except as disclosed in the Parent
SEC Reports or in the Parent Balance Sheet, to Parent's knowledge, neither
Parent nor any of its Subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise), except liabilities (a) adequately reflected in the
Parent Balance Sheet, (b) incurred in the ordinary course of business consistent
with past practice and not required under GAAP to be reflected in the Parent
Balance Sheet, (c) incurred since the date of the Parent Balance Sheet in the
ordinary course of business consistent with past practice or (d) incurred in
connection with this Agreement.
SECTION 4.9 COMPLIANCE. To Parent's knowledge, neither Parent nor any of
its Subsidiaries is in conflict with, or in default or violation of (and has not
received any notices of violation with respect to), any (i) law, rule or
regulation, or (ii) order, judgment or decree applicable to Parent or any of its
Subsidiaries or by which its or any of their respective properties is bound or
affected, and Parent is not aware of any such conflict, default or violation
thereunder (other than any conflicts, defaults or violations under (i) of this
Section 4.9 that have not had and could not reasonably be expected to have a
Parent Material Adverse Effect).
SECTION 4.10 ABSENCE OF LITIGATION. Except as disclosed in the Parent SEC
Reports, there are no claims, actions, suits, proceedings or investigations
(i) pending against Parent or any of its Subsidiaries or any properties or
assets of Parent or of any of its Subsidiaries or (ii) to the knowledge of
Parent, threatened against Parent or any of its Subsidiaries, or any properties
or assets of Parent or of any of its Subsidiaries, in each case, which claims,
actions, suits, proceedings or investigations could reasonably be expected to
have a Parent Material Adverse Effect.
SECTION 4.11 EMPLOYEE BENEFIT PLANS, OPTIONS AND EMPLOYMENT AGREEMENTS.
(a) Section 4.11(a) of the Parent Disclosure Schedule contains a true and
complete list of (i) each deferred compensation and each bonus or other
incentive compensation, stock purchase, stock option and other equity
compensation plan, program, agreement or arrangement; (ii) each severance or
termination pay, medical, surgical, hospitalization, life insurance and other
"welfare" plan, fund or program (within the meaning of Section 3(1) of ERISA);
(iii) each profit-sharing, stock bonus or other "pension" plan, fund or program
(within the meaning of Section 3(2) of ERISA); (iv) each
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employment, termination or severance agreement; and (v) each other employee
benefit plan, fund, program, agreement or arrangement, in each case, that is
sponsored, maintained or contributed to or required to be contributed to by
Parent or by any trade or business, whether or not incorporated (a "Parent ERISA
Affiliate"), that together with Parent would be deemed a "single employer"
within the meaning of Section 4001(b) of ERISA, or to which Parent or a Parent
ERISA Affiliate is party, whether written or oral, for the benefit of any
employee or former employee of Parent or any of its Subsidiaries (collectively,
the "Parent Plans"). No Parent Plan is subject to Section 302 or Title IV of
ERISA or Section 412 of the Code. Neither Parent, any of its Subsidiaries nor
any Parent ERISA Affiliate has any commitment or formal plan, whether legally
binding or not, to create any additional employee benefit plan or modify or
change any existing Parent Plan that would affect any employee or former
employee of Parent or any of its Subsidiaries.
(b) With respect to each Parent Plan, Parent has heretofore delivered or
made available to the Company true and complete copies of each of the following
documents: (i) a copy of the Parent Plan and any amendments thereto (or if the
Parent Plan is not a written Parent Plan, a description thereof); (ii) a copy of
the two most recent annual reports and actuarial reports, if required under
ERISA, and the most recent report prepared with respect thereto in accordance
with Statement of Financial Accounting Standards No. 87; (iii) a copy of the
most recent Summary Parent Plan Description required under ERISA with respect
thereto; (iv) if the Parent Plan is funded through a trust or any third party
funding vehicle, a copy of the trust or other funding agreement and the latest
financial statements thereof; and (v) the most recent determination letter
received from the IRS with respect to each Parent Plan intended to qualify under
Section 401 of the Code.
(c) No liability under Title IV or Section 302 of ERISA has been incurred by
Parent or any Parent ERISA Affiliate that has not been satisfied in full, and no
condition exists that presents a material risk to Parent or any Parent ERISA
Affiliate of Parent incurring any such liability, other than liability for
premiums due to the Pension Benefit Guaranty Corporation (which premiums have
been paid when due).
(d) All contributions required to be made with respect to any Parent Plan on
or prior to the Effective Time have been timely made or are reflected on the
Parent Balance Sheet.
(e) Neither Parent nor any of its Subsidiaries, any Parent Plan, any trust
created thereunder, nor any trustee or administrator thereof has engaged in a
transaction in connection with which Parent or any of its Subsidiaries, any
Parent Plan, any such trust, or any trustee or administrator thereof, or any
party dealing with any Parent Plan or any such trust could be subject to either
a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax
imposed pursuant to Section 4975 or 4976 of the Code.
(f) Each Parent Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code. There are no pending, threatened or anticipated
claims by or on behalf of any Parent Plan, by any employee or beneficiary
covered under any such Parent Plan, or otherwise involving any such Parent Plan
(other than routine claims for benefits).
(g) Each Parent Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified and the trusts maintained thereunder
are exempt from taxation under Section 501(a) of the Code. Each Parent Plan
intended to satisfy the requirements of Section 501(c)(9) has satisfied such
requirements.
(h) No Parent Plan provides medical, surgical, hospitalization, death or
similar benefits (whether or not insured) for employees or former employees of
Parent or any of its Subsidiaries for periods extending beyond their retirement
or other termination of service, other than (i) coverage mandated by applicable
law, (ii) death benefits under any "pension plan," or (iii) benefits the full
cost of which is
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borne by the current or former employee (or his beneficiary). No condition
exists that would prevent Parent or any of its Subsidiaries from amending or
terminating any Parent Plan providing health or medical benefits in respect of
any active or former employee of Parent or any of its Subsidiaries.
(i) No amounts payable under the Parent Plans have failed, or as a result of
the transactions contemplated hereby will fail, to be deductible for federal
income tax purposes by virtue of Sections 162(m) or 280G of the Code.
(j) The consummation of the transactions contemplated by this Agreement will
not, either alone or in combination with another event, (i) entitle any current
or former employee or officer of Parent or any Parent ERISA Affiliate to
severance pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement, or (ii) accelerate the time of payment or
vesting, or increase the amount of compensation due any such employee or
officer.
SECTION 4.12 LABOR MATTERS. (a) There are no controversies pending or, to
the knowledge of Parent or any of its Subsidiaries, threatened, between Parent
or any of its Subsidiaries and any of their respective employees, consultants or
independent contractors; (b) neither Parent nor any of its Subsidiaries is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by Parent or its Subsidiaries, nor does Parent or
any of its Subsidiaries know of any activities or proceedings of any labor union
to organize any such employees; and (c) neither Parent nor any of its
Subsidiaries has any knowledge of any labor disputes, strikes, slowdowns, work
stoppages, lockouts, or threats thereof, by or with respect to any employees of,
or consultants or independent contractors to, Parent or any of its Subsidiaries.
SECTION 4.13 PROPERTIES; ENCUMBRANCES. Parent and each of its Subsidiaries
have good, valid and marketable title to, or a valid leasehold interest in, all
the tangible properties and assets which it purports to own or lease (real,
personal and mixed), including, without limitation, all the properties and
assets reflected in the Parent Balance Sheet (except for personal property sold
since the date of the Parent Balance Sheet in the ordinary course of business
consistent with past practice). All properties and assets reflected in the
Parent Balance Sheet are free and clear of all Liens, except for Liens reflected
on the Parent Balance Sheet and Liens for current taxes not yet due and other
Liens that do not materially detract from the value or impair the use of the
property or assets subject thereto.
SECTION 4.14 TAXES.
(a) Parent and each of its Subsidiaries have timely filed with the
appropriate taxing authorities all Tax Returns required to be filed by them
(giving effect to valid extensions) and all such Tax Returns are true, correct
and complete in all material respects. Each group of corporations with which
Parent or any of its Subsidiaries has filed (or was required to file)
consolidated, combined, unitary or similar Tax Returns (an "Parent Affiliated
Group") has timely filed all income and other material Tax Returns that it was
required to file (giving effect to valid extensions) with respect to any period
in which Parent or any of its Subsidiaries was a member of such Parent
Affiliated Group (each such Tax Return, a "Parent Affiliated Return") and all
such Parent Affiliated Returns are true, correct and complete in all material
respects. All material Taxes due and owing by Parent and its Subsidiaries have
been timely paid or adequately reserved for. There are no Tax Liens on any
assets of Parent or any Subsidiary thereof other than liens relating to current
Taxes not yet due and payable. Neither Parent, any of its Subsidiaries nor any
member of any Affiliated Group has granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax. No power of attorney has been granted with respect to any matter
relating to Taxes of Parent or any of its Subsidiaries which is currently in
force.
(b) Neither Parent nor any of its Subsidiaries is, or has been, a United
States real property holding corporation (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code.
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(c) Parent and each of its Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to Taxes
required to be withheld or collected, including, without limitation, Taxes
required to be withheld pursuant to Sections 1441 and 1442 of the Code and Taxes
required to be withheld from employee wages. None of Parent, any of its
Subsidiaries or any member of any Parent Affiliated Group has received any
notice of any audit examination, deficiency, refund litigation, proposed
adjustment or matter in controversy with respect to any Taxes or Tax Return of
Parent, any of its Subsidiaries or any Parent Affiliated Group, and no audits or
other administrative proceedings or court proceedings with respect to any Taxes
or Tax Return of Parent, any of its Subsidiaries or any Parent Affiliated Group
are in progress. No taxing authority has asserted that Parent, any of its
Subsidiaries or any Parent Affiliated Group was required to file any Tax Return
that was not filed. Neither Parent nor any of its Subsidiaries is a "consenting
corporation" within the meaning of Section 341(f) of the Code or has agreed to
have Section 341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by
Parent or any of its Subsidiaries. Neither Parent nor any of its Subsidiaries is
a party to or bound by any Tax indemnity, sharing, allocation, or similar
contract or arrangement. Neither Parent nor any of its Subsidiaries is or has
ever been a member of a group of corporations with which it has filed (or been
required to file) consolidated, combined, unitary or similar Tax Returns, other
than a group of which only Parent and its Subsidiaries are or were members.
Neither Parent nor any of its Subsidiaries has agreed to, or is required to,
make any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise.
(d) The statute of limitations for the assessment of Taxes has expired for
all Tax Returns of Parent and its Subsidiaries and any Parent Affiliated Group,
or those Tax Returns have been audited and closed by the appropriate taxing
authorities.
SECTION 4.15 ENVIRONMENTAL MATTERS.
(a) Parent and its Subsidiaries are in full compliance with all applicable
Environmental Laws; neither Parent nor any of its Subsidiaries has received any
communication whether from a Governmental Entity, citizens group, employee or
otherwise, that alleges that Parent or any of its Subsidiaries are not in such
full compliance; and, to Parent's best knowledge, there are no circumstances
that may prevent, interfere with, such full compliance in the future.
(b) There is no Environmental Claim pending or threatened against Parent or
any of its Subsidiaries or, to Parent's knowledge, against any person or entity
whose liability for any Environmental Claim Parent or any of its Subsidiaries
have or may have retained or assumed either contractually or by operation of
law.
(c) There are no past or present actions, activities, circumstances,
conditions, events or incidents, including the Release, emission, discharge or
disposal of any Hazardous Materials, that could form the basis of any
Environmental Claim against Parent or any of its Subsidiaries or, to Parent's
knowledge, against any person or entity whose liability for any Environmental
Claim Parent or any of its Subsidiaries have or may have retained or assumed
either contractually or by operation of law.
(4) Parent and its Subsidiaries have delivered or otherwise made available
for inspection to Parent true, complete and correct copies and results of any
audits, reports, studies, analyses, tests or monitoring possessed or initiated
by Parent or its Subsidiaries pertaining to Hazardous Materials in, on, beneath
or adjacent to any property currently or formerly owned, operated or leased by
Parent or its Subsidiaries or regarding Parent's or its Subsidiaries' compliance
with applicable Environmental Laws.
SECTION 4.16 INTELLECTUAL PROPERTY.
(a) To Parent's knowledge, Parent or its Subsidiaries owns, or is licensed
or otherwise possesses legally enforceable rights to use (free and clear of all
liens and encumbrances), all trademarks, service marks, trade names, copyrights,
Internet domain names, mask works, including any registrations or
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applications for registration thereof, patents and patent applications, and
trade secrets, including technology, know-how, processes, schematics, computer
software programs or applications, and all other tangible or intangible
proprietary information or material, that is used in the business of Parent and
its Subsidiaries as currently conducted (the "Parent Intellectual Property
Rights").
(b) To Parent's knowledge, either Parent or one of its Subsidiaries is the
sole and exclusive owner of all right, title and interest in and to (free and
clear of any Liens), or is the exclusive or non-exclusive licensee of, the
Parent Intellectual Property Rights, and, in the case of Parent Intellectual
Property Rights owned by Parent or any of its Subsidiaries, has sole and
exclusive rights (and is not contractually obligated to pay any compensation to
any third party in respect thereof) to the use thereof and the material covered
thereby. No claims have been asserted or, to Parent's knowledge, are threatened
by any person (i) to the effect that the manufacture, sale, licensing or use of
any of the products or services of Parent or any of its Subsidiaries as now
manufactured, sold or licensed or used or proposed for manufacture, use, sale or
licensing by Parent or any of its Subsidiaries infringes any intellectual
property rights of any third party, (ii) against the use by Parent or any of its
Subsidiaries of any trademarks, service marks, trade names, trade secrets,
copyrights, patents, technology or know-how used in the business of Parent and
its Subsidiaries as currently conducted or as presently proposed to be
conducted, or (iii) challenging the ownership or use by Parent or any of its
Subsidiaries or the validity of any of the Parent Intellectual Property Rights.
To Parent's knowledge, all patents and trademark, service mark, copyright and
mask work registrations held by Parent and its Subsidiaries and used in the
business of Parent or its Subsidiaries as currently conducted or as presently
proposed to be conducted are valid, subsisting, in full force and effect, and
have not lapsed, expired or been canceled or abandoned. To Parent's knowledge,
there is no unauthorized use, infringement or misappropriation of any of the
Parent Intellectual Property Rights by any third party, including any employee
or former employee of Parent or any of its Subsidiaries. To Parent's knowledge,
no Parent Intellectual Property Right or product or service of Parent or any of
its Subsidiaries is subject to any outstanding decree, order, judgment or
stipulation restricting in any manner the use, sale or licensing thereof by
Parent or any of its Subsidiaries. To Parent's knowledge, no current or former
partner, director, officer or employee of Parent or any of its Subsidiaries
will, after giving effect to the transactions contemplated hereby, own or retain
any rights in or to any of the Parent Intellectual Property. To Parent's
knowledge, neither Parent nor any of its Subsidiaries has entered into any
agreement under which Parent or its Subsidiaries is restricted from using or
licensing any Parent Intellectual Property Right in any manner anywhere in the
world, or selling or otherwise distributing any of its products or services.
(c) To Parent's knowledge, neither Parent nor any Subsidiary is, or as a
result of the execution or delivery of this Agreement or the performance of its
obligations hereunder will be in violation of any license, sublicense, agreement
or instrument to which Parent or such Subsidiary is a party or otherwise bound,
nor will the consummation of the transactions contemplated hereby result in any
material loss or impairment of Parent or any Subsidiary's ownership of or right
to use any of the Parent Intellectual Property, nor require the consent of any
Governmental Entity or third party with respect to any of the Parent
Intellectual Property.
SECTION 4.17 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The
information supplied by Parent for inclusion in the Registration Statement shall
not at the time the Registration Statement is declared effective by the SEC
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The information supplied by Parent for inclusion or incorporation by
reference in the Proxy Statement/Prospectus to be sent to the stockholders of
Parent and the shareholders of the Company in connection with the Parent
Stockholders Meeting and the Company Shareholders Meeting, shall not, on the
date the Proxy Statement/Prospectus (or any amendment thereof or supplement
thereto) is first mailed to stockholders of Parent or shareholders of the
Company or at the time of the Parent Stockholders Meeting or the
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Company Shareholders Meeting, contain any statement which, at such time and in
light of the circumstances under which it shall be made, is false or misleading
with respect to any material fact, or shall omit to state any material fact
necessary in order to make the statements made therein not false or misleading;
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the Parent
Stockholders Meeting or the Company Shareholders Meeting which has become false
or misleading. If at any time prior to the Parent Stockholders Meeting or the
Company Shareholders Meeting any event relating to Parent or any of its
respective affiliates, officers or directors should be discovered by Parent
which should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement/ Prospectus, Parent shall promptly inform the
Company. The Registration Statement shall comply in all material respects as to
form and substance with the requirements of the Securities Act, the Exchange Act
and the rules and regulations thereunder. Notwithstanding the foregoing, Parent
makes no representation or warranty with respect to any information supplied by
the Company which is contained in any of the foregoing documents.
SECTION 4.18 YEAR 2000 COMPLIANCE.
(a) All of (i) the internal systems used in the business or operations of
Parent and its Subsidiaries, including without limitation computer hardware
systems, software, applications, firmware, equipment containing embedded
microchips and other embedded systems and (ii) the software, hardware, firmware
and other technology that constitute part of the products and services
manufactured, marketed, licensed or sold by Parent or any of its Subsidiaries to
third parties are Year 2000 Compliant.
(b) To Parent's knowledge, all third-party systems used in connection with
the business, products, services or operations of Parent or any of its
Subsidiaries, including without limitation any system belonging to any of
Parent's or its Subsidiaries' vendors, co-venturers, service providers or
customers are Year 2000 Compliant. Parent and its Subsidiaries have received
satisfactory written assurances and warranties from all of their respective
vendors, co-venturers, service providers and customers that are material to the
ongoing operation of the business of Parent and its Subsidiaries that past and
future products, software, equipment, components or systems provided by such
parties are (or in the case of future products, will be) Year 2000 Compliant.
(c) Parent has conducted "year 2000" audits with respect to (i) each of the
internal systems used in the business, products, services and operations of
Parent and its Subsidiaries, including without limitation computer hardware
systems, software, applications, firmware, equipment containing embedded
microchips and other embedded systems and (ii) all of the software,
applications, hardware, firmware and other technology which constitute part of
the products and services manufactured, marketed, performed or sold by Parent or
any of its Subsidiaries or licensed by Parent or any of its Subsidiaries to
third parties. Parent has obtained "year 2000" certifications with respect to
all material third-party systems used in connection with the business or
operations of Parent and its Subsidiaries, including without limitation systems
belonging to the vendors, co-venturers, service providers and customers of
Parent of any or its Subsidiaries. Parent has made available to the Company
true, complete and correct copies of all "year 2000" audits, certifications,
reports and other similar documents that have been prepared or performed by or
on behalf of Parent or any third party with respect to the systems, business,
operations, products or services of Parent or any of its Subsidiaries.
(d) Neither Parent nor any of its Subsidiaries has provided any
representation, warranty or guarantee for any product sold or licensed, or
service provided, by Parent or its Subsidiaries to the effect that such product
or service (i) complies with or accounts for the fact of the year change from
December 31, 1999 to January 1, 2000, (ii) will not be adversely affected with
respect to functionality, interoperability, connectivity, performance,
reliability or volume capacity (including without limitation the processing
storage, recall and reporting of data) by the passage of any date, including
without
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limitation the year change from December 31, 1999 to January 1, 2000 or
(iii) is otherwise Year 2000 Compliant.
SECTION 4.19 BROKERS. No broker, finder or investment banker (other than
U.S. Bancorp Piper Jaffray Inc. whose brokerage, finder's or other fee will be
paid by Parent) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent.
SECTION 4.20 OWNERSHIP OF MERGER SUB; NO PRIOR ACTIVITIES. As of the date
hereof and as of the Effective Time, except for obligations or liabilities
incurred in connection with its incorporation or organization and the
transactions contemplated by this Agreement and except for this Agreement and
any other agreements or arrangements contemplated by this Agreement, Merger Sub
has not and will not have incurred, directly or indirectly, any obligations or
liabilities or engaged in any business activities of any type or kind whatsoever
or entered into any agreements or arrangements with any person.
SECTION 4.21 POOLING; TAX MATTERS. Neither Parent nor any of its
affiliates has taken or agreed to take any action or failed to take any action,
or has any reason to believe that any conditions exist, that would prevent
(a) Parent from accounting for the business combination to be effected by the
Merger as a pooling of interests or (b) the Merger from constituting a
reorganization within the meaning of Section 368(a) of the Code.
SECTION 4.22 AFFILIATES. Section 4.22 of the Parent Disclosure Schedule
contains a true, complete and correct list of all persons who, as of the date
hereof, to the best knowledge of Parent, may be deemed to be affiliates of
Parent excluding all its Subsidiaries but including all directors and executive
officers of Parent.
ARTICLE V
CONDUCT OF BUSINESS
SECTION 5.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. The
Company covenants and agrees that, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, unless Parent shall otherwise agree in writing or in
accordance with Section 6.2(b), the Company shall conduct its business and shall
cause the businesses of its Subsidiaries to be conducted only in, and the
Company and its Subsidiaries shall not take any action except in, the ordinary
course of business and in a manner consistent with past practice and in
compliance in all material respects with all applicable laws and regulations;
and the Company shall use commercially reasonable best efforts to preserve
substantially intact the business organization of the Company and its
Subsidiaries, to keep available the services of the current officers, employees
and consultants of the Company and its Subsidiaries and to preserve the present
relationships of the Company and its Subsidiaries with customers, suppliers and
other persons with which the Company or any of its Subsidiaries has significant
business relations. By way of amplification and not limitation, except (x) as
set forth in Section 5.1 of the Company Disclosure Schedule, (y) as contemplated
by this Agreement or (z) in accordance with Section 6.2(b), the Company shall
not and shall not permit its Subsidiaries to, during the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, directly or indirectly do, or propose to do,
any of the following without the prior written consent of Parent:
(a) amend or otherwise change the Company Charter, Company By-Laws or any
Subsidiary Document;
(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance,
sale, pledge, disposition or encumbrance of, any shares of capital stock of any
class, or any options, warrants, convertible securities or other rights of any
kind to acquire any shares of capital stock, or any other ownership
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interest (including, without limitation, any phantom interest) in the Company or
any of its Subsidiaries, other than Company Common Stock pursuant to the
exercise of (x) options currently outstanding, under the Company Stock Option
Plans or the Company ESPP, in each case, in accordance with their current terms,
(y) the Other Company Options in accordance with their current terms or (z) the
warrants in accordance with their current terms;
(c) sell, pledge, dispose of or encumber any assets of the Company or any of
its Subsidiaries (except for sales of assets in the ordinary course of business
and in a manner consistent with past practice);
(d) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned Subsidiary of the Company
may declare and pay a dividend to its parent, (ii) split, combine or reclassify
any of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (iii) amend the terms or change the period of exercisability
of, purchase, repurchase, redeem or otherwise acquire, or permit any Subsidiary
to purchase, repurchase, redeem or otherwise acquire, any of its securities or
any securities of its Subsidiaries, or any option, warrant or right, directly or
indirectly, to acquire any such securities, or propose to do any of the
foregoing, other than Company Common Stock pursuant to the exercise of options
currently outstanding, under the Company Stock Option Plans or the Company ESPP,
in each case, in accordance with their current terms, (y) the Other Company
Options in accordance with their current terms or (z) the warrants in accordance
with their current terms;
(e) (i) acquire (by merger, consolidation or acquisition of stock or assets)
any corporation, partnership or other business organization or division thereof;
(ii) incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse or otherwise as an accommodation become responsible
for, the obligations of any person, or make any loans or advances or capital
contributions to or investments in any other person, except in the ordinary
course of business and consistent with past practice; (iii) enter into or amend
any material contract or agreement, or enter into, renew, amend or terminate any
lease relating to real property; or (iv) authorize any capital expenditures or
purchase of fixed assets which are, in the aggregate, in excess of $100,000 for
the Company and its Subsidiaries taken as a whole;
(f) except as disclosed in Section 5.1(f) of the Company Disclosure
Schedule, increase the compensation payable or to become payable to its
directors, officers or employees (except such increases payable to non-officer
employees made in the ordinary course of business consistent with past
practice), grant any severance or termination pay to, or enter into or amend any
employment or severance agreement with, any director, officer or other employee
of the Company or any of its Subsidiaries, establish, adopt, enter into or amend
any collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any current or former directors, officers or
employees, pay any bonuses to any officer of the Company, materially change any
actuarial assumption or other assumption used to calculate funding obligations
with respect to any pension or retirement plan, or change the manner in which
contributions to any such plan are made or the basis on which such contributions
are determined;
(g) take any action to change accounting policies or procedures (including,
without limitation, procedures with respect to revenue recognition, payments of
accounts payable and collection of accounts receivable), except as required by
GAAP;
(h) make any Tax election or settle or compromise any Tax liability or agree
to an extension of a statute of limitations or file any amended Tax Returns or
claims for refund;
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(i) except for the settlement of existing lawsuits disclosed in
Section 5.1(i) of the Company Disclosure Schedule solely in exchange for the
payment of not more than $50,000 per lawsuit (and $100,000 in the aggregate for
all such lawsuits) in cash, pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities reflected or
reserved against in the financial statements contained in the Company SEC
Reports filed prior to the date of this Agreement or incurred in the ordinary
course of business and consistent with past practice; or
(j) take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.1(a) through (i) above, or any action which would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect or prevent the Company from performing or cause
the Company not to perform its covenants hereunder, in each case, such that the
conditions set forth in Sections 7.2(a) or 7.2(b), as the case may be, would not
be satisfied.
SECTION 5.2 CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. Parent
covenants and agrees that, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, unless the Company shall otherwise agree in writing, Parent
shall conduct its business and shall cause the businesses of its Subsidiaries to
be conducted only in the ordinary course of business and in compliance in all
material respects with all applicable laws and regulations; and Parent shall use
commercially reasonable best efforts to preserve substantially intact the
business organization of Parent and its Subsidiaries, to keep available the
services of the current officers, employees and consultants of Parent and its
Subsidiaries and to preserve the present relationships of Parent and its
Subsidiaries with customers, suppliers and other persons with which Parent or
any of its Subsidiaries has significant business relations.
SECTION 5.3 ADVICE OF CHANGES. Parent and the Company shall promptly
advise the other party orally and in writing to the extent it has knowledge of
(i) any representation or warranty made by it (and, in the case of Parent, made
by Merger Sub) contained in this Agreement becoming untrue or inaccurate in any
material respect, (ii) the failure by it (and, in the case of Parent, by Merger
Sub) to comply in any material respect with or satisfy in any material respect
any covenant, condition or agreement to be complied with or satisfied by it
under this Agreement and (iii) any change or event having, or which could
reasonably be expected to have, a Company Material Adverse Effect or a Parent
Material Adverse Effect, as the case may be, on such party or the ability for
the conditions set forth in Article VII to be satisfied; provided, however, that
no such notification shall affect in any manner the representations, warranties,
covenants or agreements of the parties (or remedies with respect thereto) or any
matter set forth in the Company Disclosure Schedule, the Parent Disclosure
Schedule or the conditions to the obligations of the parties under this
Agreement.
SECTION 5.4 COOPERATION. Subject to compliance with applicable law, from
the date hereof until the Effective Time, (a) representatives of the Company
shall confer on a regular and frequent basis with one or more representatives of
Parent to discuss operational matters that are material and the general status
of ongoing operations and (b) each of Parent and the Company shall promptly
provide the other party or its counsel with copies of all filings made by such
party with any Governmental Entity in connection with this Agreement, the Merger
and the transactions contemplated hereby and thereby.
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) The Company shall (and shall cause its Subsidiaries and its and their
respective officers, directors, employees, auditors and agents to) afford to
Parent and to Parent's officers, employees, financial advisors, legal counsel,
accountants, consultants and other representatives access during normal business
hours throughout the period prior to the Effective Time to all of its books and
records and its properties, plants and personnel and, during such period, the
Company shall furnish promptly to Parent a copy of each report, schedule and
other document filed or received by it pursuant to the requirements of federal
securities laws, provided that no investigation pursuant to this Section 6.1(a)
shall affect any representations or warranties made herein or the conditions to
the obligations of the respective parties to consummate the Merger.
(b) Parent shall (and shall cause its Subsidiaries and its and their
respective officers, directors, employees, auditors and agents to) afford to the
Company and to the Company's officers, employees, financial advisors, legal
counsel, accountants, consultants and other representatives access during normal
business hours throughout the period prior to the Effective Time to all of its
books and records and its properties, plants and personnel and, during such
period, Parent shall furnish promptly to the Company a copy of each report,
schedule and other document filed or received by it pursuant to the requirements
of federal securities laws, provided that no investigation pursuant to this
Section 6.1(b) shall affect any representations or warranties made herein or the
conditions to the obligations of the respective parties to consummate the
Merger.
(c) Unless otherwise required by law, each party agrees that it (and its
Subsidiaries and its and their respective representatives) shall hold in
confidence all non-public information acquired in accordance with the terms of
the Mutual Agreement of Confidentiality dated November 11, 1999 between Parent
and the Company (the "Confidentiality Agreement"); provided, however, that the
termination date of the Confidentiality Agreement is hereby extended to
June 30, 2000.
SECTION 6.2 NO SOLICITATION.
(a) From and after the date of this Agreement until the earlier of the
termination of this Agreement in accordance with its terms or the Effective
Time, the Company and its Subsidiaries and affiliates shall not, directly or
indirectly, through any officer, director, employee, advisor, financial advisor,
representative or agent (and it shall cause such officers, directors, employees,
advisors, financial advisors, representatives and agents not to, directly or
indirectly), (i) solicit, initiate, facilitate or encourage any inquiries or
proposals that constitute, or could be expected to lead to, an Acquisition
Proposal or (ii) engage in negotiations or discussions concerning, or provide
any non-public information with respect to the Company and its Subsidiaries to
any person making or proposing to make, any Acquisition Proposal; PROVIDED,
HOWEVER, that if, at any time prior to the date of the Company Shareholders
Meeting, the Board of Directors of the Company determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to the Company's shareholders under applicable
law, the Company may, in response to an unsolicited Acquisition Proposal, and
subject to the Company's compliance with Section 6.2(c), (x) furnish information
with respect to the Company and its Subsidiaries to any person making such
Acquisition Proposal pursuant to a confidentiality agreement containing terms no
less favorable to the Company than the Confidentiality Agreement and
(y) participate in discussions or negotiations regarding such Acquisition
Proposal.
(b) From and after the date of this Agreement until the earlier of the
termination of this Agreement in accordance with its terms or the Effective
Time, neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to Parent, the approval or recommendation by such Board of
Directors or
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such committee of the Company Voting Proposal, (ii) approve or recommend, or
propose publicly to approve or recommend, any Acquisition Proposal, or
(iii) cause the Company to enter into any letter of intent, agreement in
principle, acquisition agreement or similar agreement related to any Acquisition
Proposal; PROVIDED, HOWEVER, that if, at any time prior to the date of the
Company Shareholders Meeting, the Board of Directors of the Company determines
in good faith, after consultation with outside counsel, that it is necessary to
do so in order to comply with its fiduciary duties to the Company's shareholders
under applicable law, the Board of Directors of the Company may, in response to
an unsolicited Superior Proposal, and subject to the Company's compliance with
Section 6.2(c), (x) take any action prohibited by clause (i) of this sentence or
(y) if prior to taking any action prohibited by clauses (ii) or (iii) of this
sentence the Company terminates this Agreement pursuant to Section 8.1(g) and
pays to Parent all amounts due Parent in connection with such termination
pursuant to Sections 8.3(b) and (c) in accordance therewith, take any action
prohibited by clauses (ii) or (iii) of this sentence. For purposes of this
Agreement, "Acquisition Proposal" means any inquiry, proposal or offer from any
person relating to any direct or indirect acquisition or purchase of a business
that constitutes 15% or more of the net revenues, net income or the assets of
the Company and its Subsidiaries, taken as a whole, or 15% or more of any class
of equity securities of the Company or any of its Subsidiaries, any tender offer
or exchange offer that if consummated would result in any person beneficially
owning 15% or more of any class of equity securities of the Company or any of
its Subsidiaries, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its Subsidiaries, other than the transactions contemplated by
this Agreement. For purposes of this Agreement, a "Superior Proposal" means any
proposal made by a third party to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction,
for consideration consisting of cash or securities, more than 50% of the
combined voting power of the shares of Company Common Stock then outstanding or
all or substantially all the assets of the Company and otherwise on terms which
the Board of Directors of the Company determines in its good faith judgment
(based on the advice of a financial advisor of nationally recognized reputation,
including First Security Van Kasper) to be more favorable to the Company's
shareholders than the Merger and for which financing, to the extent required, is
then committed.
(c) The Company, its Subsidiaries and affiliates (and their respective
officers, directors, employees, advisors, financial advisors, representatives
and agents) shall immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any person (other than Parent or
its representatives) conducted heretofore with respect to any Acquisition
Proposal. The Company shall notify Parent immediately after receipt by the
Company (or its counsel, advisors or agents) of any Acquisition Proposal or any
request for nonpublic information in connection with an Acquisition Proposal or
for access to the properties, books or records of the Company or any of its
Subsidiaries by any person or entity that informs the Company that it is
considering making, or has made, an Acquisition Proposal. Such notice to Parent
shall be made orally and in writing and shall indicate in detail the identity of
the offeror and the terms and conditions of such proposal, inquiry or contact.
The Company shall keep Parent informed of all developments and the status of any
Acquisition Proposal, any negotiations or discussions with respect to any
Acquisition Proposal or any request for nonpublic information in connection with
any Acquisition Proposal or for access to the properties, books or records of
the Company or any of its Subsidiaries by any person or entity that is
considering making, or has made, an Acquisition Proposal. The Company shall give
Parent five business days advance notice of its intention to exercise its rights
under the proviso to (i) Section 6.2(a) specifying the material terms and
conditions of the Acquisition Proposal with respect to which it intends to
exercise such rights and identifying the person making such Acquisition
Proposal, or (ii) Section 6.2(b) specifying the material terms and conditions of
the Superior Proposal with respect to which it intends to exercise such rights
and identifying the person making such Superior Proposal. The Company shall
provide Parent with (i) copies of all documents received from any person or
entity that is considering making or has made an Acquisition Proposal and
(ii) copies of all documents to be delivered or sent to any person or entity
that is considering making or has made an Acquisition Proposal.
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(d) Nothing contained in this Section 6.2 shall prohibit the Company from
taking and disclosing to its shareholders a position with respect to a tender or
exchange offer by a third party contemplated by Rule 14d-9 or 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to the
Company's shareholders if, in the good faith judgment of the Board of Directors
of the Company, after consultation with outside counsel, failure so to disclose
would be inconsistent with its obligations under applicable law; PROVIDED,
HOWEVER, that, except as expressly provided in Sections 6.2(b) and 6.4, neither
the Company nor its Board of Directors nor any committee thereof shall withdraw
or modify, in a manner adverse to Parent, or propose publicly to withdraw or
modify, in a manner adverse to Parent, its position with respect to the Company
Voting Proposal or approve or recommend, or propose publicly to approve or
recommend, an Acquisition Proposal.
SECTION 6.3 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT.
(a) As promptly as practicable after execution of this Agreement, Parent and
the Company shall in consultation with each other prepare, and shall file with
the SEC, preliminary joint proxy materials which shall constitute the Proxy
Statement/Prospectus. As promptly as practicable after comments are received
from the SEC thereon and after the furnishing by the Company and Parent of all
information required to be contained therein, (i) Parent and the Company shall
file with the SEC the Proxy Statement/Prospectus and (ii) Parent shall file with
the SEC the Registration Statement. The Company and Parent shall use all
reasonable efforts to cause the Registration Statement to become effective as
soon thereafter as practicable.
(b) The Company shall use all reasonable efforts to mail the Proxy
Statement/Prospectus to the shareholders of the Company and Parent shall use all
reasonable efforts to mail the Proxy Statement/ Prospectus to the stockholders
of Parent as soon as practicable after the Registration Statement is declared
effective by the SEC.
(c) The Company shall furnish Parent with all information concerning the
Company and the holders of its capital stock and shall take such other action as
Parent may request pursuant to this Agreement in connection with the
Registration Statement and the issuance of the shares of Parent Common Stock.
(d) The Company and Parent shall make any necessary filing with respect to
the Merger under the Securities Act and the Exchange Act and the rules and
regulations thereunder.
SECTION 6.4 SHAREHOLDERS' AND STOCKHOLDERS' MEETINGS. (a) The Company
shall, subject to and in accordance with applicable law and the Company Charter
and Company By-Laws, promptly and duly call, give notice of, convene and hold
the Company Shareholders Meeting to be held as promptly as practicable following
the date upon which the Registration Statement becomes effective for the purpose
of voting on the Company Voting Proposal. The Company will, through its Board of
Directors, recommend to its shareholders the approval of the Company Voting
Proposal and the other transactions contemplated, which recommendation shall be
included in the Proxy Statement/Prospectus, and will use its best efforts to
solicit from its shareholders proxies in favor of the Company Voting Proposal;
PROVIDED, HOWEVER, that the Board of Directors of the Company may withdraw or
modify, in a manner adverse to Parent, such recommendation (i) if a Superior
Proposal has been made and remains in effect, then if the Board of Directors of
the Company is permitted to do so under Section 6.2(b) or (ii) if no Acquisition
Proposal or Superior Proposal has been made, then if, at any time prior to the
date of the Company Shareholders Meeting, the Board of Directors of the Company
determines in good faith, after consultation with outside counsel, that it is
necessary to do so in order to comply with its fiduciary duties to the Company's
stockholders under applicable law.
(b) At or prior to the Closing, the Company shall deliver to Parent a
certificate of its Corporate Secretary setting forth the voting results from the
Company Shareholders Meeting.
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(c) Parent shall, subject to and in accordance with applicable law and the
Parent Charter and Parent By-Laws, promptly and duly call, give notice of,
convene and hold the Parent Stockholders Meeting to be held as promptly as
practicable following the date upon which the Registration Statement becomes
effective for the purpose of voting on the Parent Voting Proposal. Parent will,
through its Board of Directors, recommend to its stockholders the approval of
the Parent Voting Proposal and will use its best efforts to solicit from its
stockholders proxies in favor of the Parent Voting Proposal. In addition to a
proposal that four of its five existing directors be reelected to it's Board of
Directors, Parent will include in the Proxy Statement/Prospectus, a proposal
that Mark Housley and Carl Rosendahl be elected to it's Board of Directors,
effective as of the Effective Time. Management of Parent shall recommend to the
Board of Directors of Parent that Parent include in the Proxy
Statement/Prospectus a proposal to increase the number of shares reserved for
issuance under the Parent's Stock Option Plan by an amount to be determined by
the management of Parent to be prudent under the circumstances.
(d) At or prior to the Closing, Parent shall deliver to the Company a
certificate of its Corporate Secretary setting forth the voting results from the
Parent Stockholders Meeting.
SECTION 6.5 LEGAL CONDITIONS TO MERGER. Each of Parent and, subject to
Section 6.2, the Company will use its commercially reasonable best efforts to
comply promptly with all legal requirements which may be imposed with respect to
the Merger (which actions shall include, without limitation, furnishing all
information required under the HSR Act and in connection with approvals of or
filings with any other Governmental Entity) and will promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon any of them or any of their Subsidiaries in connection with the
Merger. Each of Parent and the Company will, and will cause its Subsidiaries to,
take all actions necessary to obtain (and will cooperate with each other in
obtaining) any consent, authorization, order or approval of, or any exemption
by, any Governmental Entity required to be obtained or made by Parent, the
Company or any of their Subsidiaries in connection with the Merger or taking of
any action contemplated thereby or by this Agreement.
SECTION 6.6 AGREEMENTS WITH RESPECT TO AFFILIATES. (a) The Company will
use its commercially reasonable best efforts to cause each person who is
identified in Section 3.28 of the Company Disclosure Schedule and any other
person who may be or become an "affiliate" of the Company as of the time of the
Company Shareholders Meeting for purposes of (i) Rule 145 under the Securities
Act ("Rule 145") or (ii) qualifying the merger for pooling of interests
accounting treatment under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations to deliver to Parent, as soon as
practicable but not later than thirty days preceding the Effective Time, a
written agreement (a "Company Affiliate Agreement") in connection with
restrictions on affiliates under Rule 145 and pooling of interests accounting
treatment, substantially in the form of EXHIBIT B hereto. The Company shall
provide prompt notice to Parent of any such other person who may be or become an
"affiliate" of the Company as of the time of the Company Shareholders Meeting
who is not identified in Section 3.28 of the Company Disclosure Schedule.
(b) Parent will use its commercially reasonable best efforts to cause each
person who is identified in Section 4.22 of the Parent Disclosure Schedule and
any other person who may be or become an "affiliate" of Parent as of the time of
the Parent Stockholders Meeting for purposes of qualifying the merger for
pooling of interests accounting treatment under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations to deliver to the
Company, as soon as practicable but not later than thirty days preceding the
Effective Time, a written agreement (a "Parent Affiliate Agreement") in
connection with restrictions on affiliates under pooling of interests accounting
treatment, substantially in the form of EXHIBIT C hereto. Parent shall provide
prompt notice to the Company of any such other person who may be or become an
"affiliate" of Parent as of the time of the Parent Stockholders Meeting who is
not identified in Section 4.22 of the Parent Disclosure Schedule.
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SECTION 6.7 TAX-FREE REORGANIZATION. Parent and the Company intend that
the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code. Parent and the Company shall each use its
commercially reasonable best efforts to cause the Merger to so qualify. Neither
Parent nor the Company shall knowingly take any action, or knowingly fail to
take any action, that could jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
SECTION 6.8 POOLING ACCOUNTING. Parent and the Company shall each use its
commercially reasonable best efforts to cause the business combination to be
effected by the Merger to be accounted for as a pooling of interests for
accounting purposes. Neither Parent nor the Company shall knowingly take any
action, or knowingly fail to take any action, that could jeopardize the
treatment of the Merger as a pooling of interests for accounting purposes. Each
of Parent and the Company agrees to take such commercially reasonable action as
may be required to negate the impact of any past actions which to its knowledge
could jeopardize the treatment of the Merger as a pooling of interests for
accounting purposes.
SECTION 6.9 LETTERS OF ACCOUNTANTS. (a) Parent shall use its commercially
reasonable best efforts to cause to be delivered to the Company (i) a copy of a
letter of Arthur Andersen LLP, Parent's independent auditors, dated a date
within two business days before the date on which the Registration Statement
shall become effective, in form and substance satisfactory to Parent and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement, which letter shall be brought down to the Effective Time
and (ii) the letter of Arthur Andersen LLP referred to in Section 7.1(h).
(b) The Company shall use its commercially reasonable best efforts to cause
to be delivered to Parent (i) a copy of a letter of Ernst & Young LLP, the
Company's independent auditors, dated a date within two business days before the
date on which the Registration Statement shall become effective, in form and
substance satisfactory to Parent and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement, which letter
shall be brought down to the Effective Time and (ii) the letter of Ernst & Young
LLP referred to in Section 7.1(h).
SECTION 6.10 PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing any press release or making any public statement
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement without the prior written consent of
the other party, which shall not be unreasonably withheld or delayed; PROVIDED,
HOWEVER, that a party may, without the prior consent of the other party, issue
such press release or make such public statement as may upon the advice of
counsel be required by law or the rules and regulations of the NASDAQ if it has
used all reasonable efforts to consult with the other party prior thereto.
SECTION 6.11 LISTING OF PARENT SHARES. Parent shall use its commercially
reasonable best efforts to have authorized for listing on the NASDAQ, upon
official notice of issuance, the shares of Parent Common Stock to be issued in
the Merger.
SECTION 6.12 OPTIONS. As of the Effective Time, each option to acquire
shares of Company Common Stock (each, a "Company Option") other than options
issued pursuant to the Radius, Inc. Directors' Stock Option Plan (all of which
accelerate and will be exercised or will expire pursuant to their existing terms
as of the Effective Time) shall become and represent an option to purchase
(i) the number of shares of Parent Common Stock (a "Parent Option") determined
by multiplying (x) the number of shares of Company Common Stock which would have
been purchasable pursuant to such Company Option by (y) the Exchange Ratio (with
the result rounded up to the nearest whole share) (ii) at an exercise price per
share of Parent Common Stock equal to the exercise price per share of Company
Common Stock subject to the Company Option divided by the Exchange Ratio (with
the
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result rounded to the nearest whole cent); provided, however, that in the case
of any Company Option to which Section 421 of the Code applies by reason of its
qualification as an incentive stock option under Section 422 of the Code, the
conversion formula shall be adjusted if necessary to comply with Section 424(a)
of the Code. After the Effective Time, (i) each Parent Option shall be
exercisable upon the same terms and conditions as were applicable to the related
Company Option immediately prior to the Effective Time and (ii) Parent shall
promptly file a Registration Statement on Form S-8 with respect to the shares of
Parent Common Stock issuable with respect thereto and shall use its commercially
reasonable best efforts to list such shares with the NASDAQ. Prior to the
Effective Time, the Company shall take all necessary and appropriate action to
effectuate the provisions of this Section 6.12.
SECTION 6.13 CONSENTS. The Company shall use its commercially reasonable
best efforts to obtain all necessary consents, waivers and approvals under any
of the Company's material agreements, contracts, licenses or leases in
connection with the Merger, including without limitation each of the consents
listed in Section 3.5 of the Company Disclosure Schedule.
SECTION 6.14 INDEMNIFICATION AND INSURANCE. (a) All rights to
indemnification, advancement of litigation expenses and limitation of personal
liability existing in favor of the directors, officers and employees of the
Company and its Subsidiaries under the provisions existing on the date hereof in
the Company Charter or Company By-Laws or in the indemnification agreements
previously provided by the Company to Parent (collectively "Existing
Indemnification Obligations") shall, with respect to any matter existing or
occurring at or prior to the Effective Time (including the transactions
contemplated by this Agreement), survive the Effective Time. Parent shall cause
the Existing Indemnification Obligations to be assumed (by operation of law or
otherwise) by any successor to the Surviving Corporation by merger or sale of
all or substantially all assets and shall guarantee the performance of the
Existing Indemnification Obligation by the Surviving Corporation (or any such
successor) with respect to claims thereunder related to the transactions
contemplated by this Agreement.
(b) For a period of five years after the Effective Time, Parent shall cause
the Surviving Corporation (or any successor of the Surviving Corporation by
merger or sale of all or substantially all assets) to maintain in effect the
current policies of directors' and officers' and fiduciary liability insurance
maintained by the Company (provided that the Surviving Corporation may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous to former
officers and directors of the Company) only with respect to claims arising from
facts or events which occurred at or before the Effective Time; PROVIDED,
HOWEVER, that in no event shall the Surviving Corporation (or any such
successor) be required to expend pursuant to this Section 6.14(b) more than an
aggregate amount equal to 125% the current aggregate annual premiums paid by the
Company for such insurance (the "Maximum Amount") (which premiums the Company
represents and warrants to be $117,000 in the aggregate). If the amount of the
aggregate annual premiums necessary to maintain or procure such insurance
coverage exceeds the Maximum Amount, the Surviving Corporation (or any such
successor) during such five-year period shall maintain or procure as much
coverage as possible for aggregate annual premiums not to exceed the Maximum
Amount and shall promptly send a letter to the persons listed in
Section 6.14(b) of the Company Disclosure Schedule notifying them of such
occurrence.
SECTION 6.15 ADDITIONAL AGREEMENTS; BEST EFFORTS. Subject to the terms and
conditions of this Agreement, each of the parties agrees to use its commercially
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement.
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<PAGE>
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) EFFECTIVENESS OF THE REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective by the SEC under the Securities
Act. No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose and no
similar proceeding in respect of the Proxy Statement/Prospectus shall have been
initiated or threatened by the SEC;
(b) SHAREHOLDER APPROVAL. The Company Voting Proposal shall have been
approved and adopted by the requisite vote of the shareholders of the Company;
(c) HSR ACT AND OTHER APPROVALS. The waiting period applicable to the
consummation of the Merger under the HSR Act and under any other legal
requirement (including without limitation any authorization, consent, order or
approval, or dedication, filing or expiration of any waiting period) of any
Governmental Entity shall have expired or been terminated, as the case may be,
and any requirements of other jurisdictions applicable to the consummation of
the Merger shall have been satisfied;
(d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by any administrative agency or commission or other Governmental Entity seeking
any of the foregoing be pending; and there shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger which makes the consummation of the Merger illegal;
(e) TAX OPINIONS. (i) Parent shall have received an opinion of its
counsel, Skadden, Arps, Slate, Meagher & Flom LLP, in form and substance
reasonably satisfactory to Parent, dated as of the Effective Time, substantially
to the effect that for U.S. federal income tax purposes the Merger will qualify
as a reorganization within the meaning of Section 368(a) of the Code, (ii) the
Company shall have received an opinion of its counsel, Fenwick & West LLP, in
form and substance reasonably satisfactory to the Company, dated as of the
Effective Time, substantially to the effect that for U.S. federal income tax
purposes the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code, and (iii) the issuance of the opinions described in
clauses (i) and (ii) of this paragraph shall be conditioned upon the receipt by
counsel for Parent and the Company of representation letters from each of
Parent, Merger Sub and Company, in each case, in form and substance reasonably
satisfactory to both of such counsel;
(f) GOVERNMENTAL ACTIONS. There shall not be pending or threatened any
action or proceeding (or any investigation or other inquiry that might result in
such an action or proceeding) by any Governmental Entity or administrative
agency before any Governmental Entity, administrative agency or court of
competent jurisdiction, nor shall there be in effect any judgment, decree or
order of any Governmental Entity, administrative agency or court of competent
jurisdiction, in either case, seeking to prohibit or limit Parent from
exercising all material rights and privileges pertaining to its ownership of the
Surviving Corporation or the ownership or operation by Parent of all or a
material portion of the business or assets of Parent, or seeking to compel
Parent to dispose of or hold separate all or any portion of the business or
assets of Parent (including the Surviving Corporation and its subsidiaries), as
a result of the Merger or the transactions contemplated by this Agreement;
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<PAGE>
(g) NASDAQ LISTING. The shares of Parent Common Stock issuable in the
Merger shall have been authorized for listing on the NASDAQ upon official notice
of issuance;
(h) OPINION OF ACCOUNTANTS. Parent shall have received (and delivered to
the Company copies of) a letter from Arthur Andersen LLP, dated a date within
two business days of the Proxy Statement/ Prospectus and within two business
days of the Closing Date, stating that the business combination to be effected
by the Merger will qualify as a pooling of interests transaction under generally
accepted accounting principles. The Company shall have received (and delivered
to Parent copies of) a letter from Ernst & Young LLP, dated a date within two
business days of the Proxy Statement/Prospectus and within two business days of
the Closing Date, stating that neither the Company nor any of its Subsidiaries
has taken or agreed to take any action that (without giving effect to this
Agreement, the transactions contemplated hereby, or any action taken or agreed
to be taken by Parent or any of its Subsidiaries) would prevent Parent from
accounting for the business combination to be effected by the Merger as a
pooling of interests transaction under generally accepted accounting principles;
and
(i) STOCKHOLDER APPROVAL. The Parent Voting Proposal shall have been
approved and adopted by the requisite vote of the stockholders of Parent.
SECTION 7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER
SUB. The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company contained in this Agreement shall be true and correct,
in each case as of the date of this Agreement and (except to the extent such
representations speak as of an earlier date) as of the Closing Date as though
made on and as of the Closing Date, except (x) for changes contemplated by this
Agreement and (y) where the failures to be true and correct (without regard to
any materiality, Company Material Adverse Effect or knowledge qualifications
contained therein), individually or in the aggregate, have not had, and could
not reasonably be expected to have, a Company Material Adverse Effect; and
Parent and Merger Sub shall have received a certificate signed on behalf of the
Company by the chief executive officer and chief financial officer of the
Company to such effect;
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date; and Parent and Merger Sub shall have received a certificate signed by the
chief executive officer and the chief financial officer of the Company to such
effect;
(c) CONSENTS OBTAINED. All consents, waivers, approvals, authorizations
and orders required to be obtained, and all filings required to be made, by the
Company for the authorization, execution and delivery of this Agreement and the
consummation by it of the transactions contemplated hereby shall have been
obtained and made by the Company; and
(d) AFFILIATE AGREEMENTS. Parent shall have received from each person
within the time frame specified in Section 6.6(a) who is identified in
Section 3.28 of the Company Disclosure Schedule or in any notice delivered by
the Company to Parent pursuant to Section 6.6(a) as an "affiliate" of the
Company, an Affiliate Agreement, and each such Affiliate Agreement shall be in
full force and effect.
SECTION 7.3 ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct, in each case as of the date of this Agreement and (except to the
extent such representations speak as of an earlier date) as of the Closing Date
as though made on and as of the Closing Date, except (x) for changes
contemplated by this Agreement, and, (y) where the failures to be true and
correct (without regard to any materiality, Parent Material Adverse Effect or
knowledge qualifications contained therein), individually or in the
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<PAGE>
aggregate, have not had, and could not reasonably be expected to have, a Parent
Material Adverse Effect; and the Company shall have received a certificate
signed on behalf of the Company by the chief executive officer and chief
financial officer of Parent to such effect;
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have performed
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by them at or prior to the
Closing Date; and the Company shall have received a certificate signed by the
chief executive officer and the chief financial officer of Parent to such
effect; and
(c) AFFILIATE AGREEMENTS. The Company shall have received from each person
within the time frame specified in Section 6.6(b) who is identified in
Section 4.22 of the Parent Disclosure Schedule or in any notice delivered by
Parent to the Company pursuant to Section 6.6(b) as an "affiliate" of the
Company, an Affiliate Agreement, and each such Affiliate Agreement shall be in
full force and effect.
ARTICLE VIII
TERMINATION
SECTION 8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
shareholders of the Company:
(a) by mutual written consent duly authorized by the Boards of Directors of
Parent and the Company;
(b) by either Parent or the Company if the Merger shall not have been
consummated by June 30, 2000 (the "Outside Date") (provided that the right to
terminate this Agreement under this Section 8.1(b) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before such
date);
(c) by either Parent or the Company if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued a nonappealable final order, decree or ruling or taken any other action
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger (provided that the party seeking to terminate pursuant to this
Section 8.1(c) shall have complied with its obligations under Section 6.5 and
used its reasonable best efforts to have any such order, decree, ruling or other
action vacated or lifted);
(d) by either Parent or the Company, if at the Company Shareholders Meeting
(including any adjournment or postponement), the requisite vote of the
shareholders of the Company in favor of the Company Voting Proposal shall not
have been obtained;
(e) by Parent, if the Company shall have breached or failed to perform any
of its representations, warranties, covenants or other agreements contained in
this Agreement, which breach or failure to perform would cause the conditions
set forth in Sections 7.2(a) or 7.2(b) to not be satisfied and which breach
shall not have been cured within 10 business days following receipt by the
Company of written notice of such breach from Parent;
(f) by the Company, if Parent shall have breached or failed to perform any
of its representations, warranties, covenants or other agreements contained in
this Agreement, which breach or failure to perform would cause the conditions
set forth in Sections 7.3(a) or 7.3(b), to not be satisfied and which breach
shall not have been cured within 10 business days following receipt by Parent of
written notice of such breach from the Company;
(g) by the Company at any time prior to the date of the Company Shareholders
Meeting if, in response to an unsolicited Superior Proposal, and, subject to the
Company's compliance with
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<PAGE>
Section 6.2(c), the Board of Directors of the Company determines in good faith,
after consultation with outside counsel, that it is necessary to terminate this
Agreement in order to comply with its fiduciary duties to the Company's
shareholders under applicable law; provided that any termination by the Company
pursuant to this Section 8.1(g) shall not be effective unless and until the
Company shall have paid to Parent all amounts due Parent in connection with such
termination pursuant to Sections 8.3(b) and (c) in accordance therewith;
(h) by Parent in the event of a breach of Section 6.2 or Section 6.4(a) or
(b);
(i) by Parent or the Company if, at the Parent Stockholders Meeting
(including any adjournment or postponement thereof), the Parent Voting Proposal
shall not have been approved;
(j) by Parent, if for any reason other than Parent's failure to perform its
obligations under this Agreement the Company fails to call and hold the Company
Shareholders Meeting by the date which is one business day prior to the Outside
Date; or
(k) by the Company, if for any reason other than the Company's failure to
perform its obligations under this Agreement Parent fails to call and hold the
Parent Stockholders Meeting by the date which is one business day prior to the
Outside Date.
SECTION 8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 8.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto or any of its
affiliates, directors, officers, stockholders or shareholders except (i) that
the provisions of Sections 3.27, 4.19, 8.3, this Section 8.2 and Article IX
shall survive termination and (ii) nothing herein shall relieve any party from
liability for any breach hereof prior to such termination.
SECTION 8.3 FEES AND EXPENSES. (a) Except as set forth in this
Section 8.3, all fees and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses, whether or not the Merger is consummated; PROVIDED, HOWEVER, that
Parent shall bear all fees and expenses, other than the Company's financial
advisor's, accountant's and attorneys' fees and expenses, incurred in connection
with preparing the printing and filing of the Proxy Statement/Prospectus
(including any preliminary materials related thereto), the Registration
Statement (including financial statements and exhibits) and any amendments or
supplements thereto and filings under the HSR Act.
(b) The Company shall reimburse Parent for all fees and expenses of Parent
(or in the case of clause (i) of this Section 8.3(b), up to $750,000 of fees and
expenses of Parent) actually incurred relating to the transactions contemplated
by this Agreement prior to termination (including without limitation fees and
expenses of Parent's counsel, accountants and financial advisors), upon the
termination of this Agreement (i) by Parent or the Company pursuant to
Section 8.1(d) (if prior to such termination an Acquisition Proposal shall have
been publicly announced or otherwise become publicly known or any person shall
have publicly announced an intention (whether or not conditional) to make an
Acquisition Proposal), or (ii) by Parent pursuant to Sections 8.1(e), 8.1(h) or
8.1(j) or (iii) by the Company pursuant to Section 8.1(g).
(c) The Company shall pay Parent a termination fee of $1,620,000 (and in the
case of termination of this Agreement pursuant to Section 8.1(d), the Company
shall also reimburse Parent for all fees and expenses of Parent actually
incurred relating to the transactions contemplated by this Agreement prior to
termination in excess of the amount previously reimbursed pursuant to 8.3(b)) on
the date of the first to occur of the following events:
(i) the entry by the Company into an agreement with respect to, or the
consummation of, any Acquisition Proposal within six months of the
termination of this Agreement pursuant to Sections 8.1(d), 8.1(e), 8.1(h) or
8.1(j) if prior to such termination an Acquisition Proposal shall have been
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<PAGE>
publicly announced or otherwise become publicly known or any person shall
have publicly announced an intention (whether or not conditional) to make an
Acquisition Proposal; or
(ii) the termination of this Agreement by the Company pursuant to
Section 8.1(g).
(d) Parent shall reimburse the Company for all fees and expenses of the
Company actually incurred relating to the transactions contemplated by this
Agreement prior to termination (including without limitation fees and expenses
of the Company's counsel, accountants and financial advisors), upon the
termination of this Agreement (i) by Parent or the Company pursuant to
Section 8.1(i), or (ii) by the Company pursuant to Sections 8.1(f) or 8.1(k).
(e) Parent and the Company each acknowledge that the agreements contained in
this Section 8.3 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the other party would not enter
into this Agreement; accordingly, if Parent or the Company fails promptly to pay
the amount due pursuant to this Section 8.3, and, in order to obtain such
payment, the other party commences a suit which results in a judgment against
Parent or the Company, as the case may be, for the fee set forth in this
Section 8.3, Parent or the Company, as the case may be, shall pay to the other
party its costs and expenses (including attorneys' fees and expenses) in
connection with such suit, together with interest on the amount of the fee at
the prime rate of Citibank, N.A. in effect on the date such payment was required
to be made.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 NONSURVIVAL OF REPRESENTATIONS; WARRANTIES AND
AGREEMENTS. None of the representations, warranties or agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the agreements contained in Articles I
and II, Sections 6.12, 6.14 and 6.15, this Article IX and the Affiliate
Agreements.
SECTION 9.2 NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
(a) If to Parent or Merger Sub:
290 Donald Lynch Boulevard
Marlborough, Massachusetts 01752-4748
Attention: Steven Shea
Telecopier No.: (508) 303-4620
Telephone No.: (508) 303-4800
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, MA 02108
Attn: David Brewster, Esq.
Telecopier No.: (617) 573-4822
Telephone No.: (617) 573-4825
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<PAGE>
(b) If to the Company:
460 E. Middlefield Road
Mountain View, California 94043
Attention: Mark Housley
Telecopier No.: (650) 404-6205
Telephone No.: (650) 404-6301
With a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Gordon Davidson, Esq.
Telecopier No.: (650) 494-1417
Telephone No.: (650) 858-7237
SECTION 9.3 CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
(a) "affiliate" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person; including, without limitation, any partnership
or joint venture in which the first mentioned person (either alone, or through
or together with any other subsidiary) has, directly or indirectly, an interest
of 5% or more;
(b) "beneficial owner" with respect to any shares of Company Common Stock
means a person who shall be deemed to be the beneficial owner of such shares
(i) which such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 of the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding, or (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom such
person or any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares;
(c) "business day" means any day other than a Saturday or Sunday or any day
on which banks in The Commonwealth of Massachusetts are required or authorized
to be closed;
(d) "control" including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management or policies of a
person, whether through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise; and
(e) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act).
SECTION 9.4 AMENDMENT. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; PROVIDED, HOWEVER, that, after approval of the
Company Voting Proposal by the shareholders of the Company, no amendment may be
made which by law requires further approval by such shareholders without such
further approval. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
SECTION 9.5 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of any other party hereto,
(b) waive any inaccuracies in the representations and warranties of any other
party hereto
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contained herein or in any document delivered pursuant hereto or (c) waive
compliance with any of the agreements or conditions of any other party hereto
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
SECTION 9.6 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.7 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
SECTION 9.8 ENTIRE AGREEMENT, NO THIRD PARTY BENEFICIARIES. This Agreement
(including the documents and instruments referred to herein, including the
Confidentiality Agreement) (a) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof and (b) is
not intended to confer upon any person other than the parties hereto any rights
or remedies hereunder, other than the persons intended to benefit from the
provisions of Section 6.14, who shall have the right to enforce such provisions
directly.
SECTION 9.9 ASSIGNMENT. This Agreement shall not be assigned by operation
of law or otherwise, except that Parent and Merger Sub may assign all or any of
their rights hereunder to any wholly owned subsidiary thereof; PROVIDED,
HOWEVER, that no such assignment pursuant to this Section 9.9 shall relieve
Parent of its obligations hereunder.
SECTION 9.10 INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation."
SECTION 9.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 9.12 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of California,
without regard to the conflict of law provisions thereof, including that the
Merger shall be effected in accordance with the applicable provisions of the
CGCL. Each of the parties hereto agrees that any action or proceeding brought to
enforce the rights or obligations of any party hereto under this Agreement will
be commenced and maintained in any court of competent jurisdiction located in
the State of California. Each of the parties hereto further agrees that process
may be served upon it by certified mail, return receipt requested, addressed as
more generally provided in Section 9.2, and consents to the exercise of
jurisdiction of a court of the State of California over it and its properties
with respect to any action, suit or proceeding arising out of or in connection
with this Agreement or the transactions contemplated hereby or the enforcement
of any rights under this Agreement.
SECTION 9.13 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
<TABLE>
<S> <C> <C>
MEDIA 100 INC.
By: /s/ STEVEN D. SHEA
-----------------------------------------
Steven D. Shea
VICE PRESIDENT OF FINANCE
DERRINGER ACQUISITION CORP.
By: /s/ STEVEN D. SHEA
-----------------------------------------
Steven D. Shea
PRESIDENT AND SECRETARY
DIGITAL ORIGIN, INC.
By: /s/ MARK HOUSLEY
-----------------------------------------
Mark Housley
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
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<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
- ----- -------------------
<S> <C>
Acquisition Proposal........................................ Section 6.2(b)
Affiliate................................................... Section 9.3(a)
Affiliated Group............................................ Section 3.15(a)
Affiliated Return........................................... Section 3.15(a)
Agreement................................................... Preamble
Beneficial Owner............................................ Section 9.3(b)
Business Day................................................ Section 9.3(c)
Certificates................................................ Section 2.1(a)
CGCL........................................................ Preamble
Closing..................................................... Section 1.6
Closing Date................................................ Section 1.6
Code........................................................ Preamble
Common Shares Trust......................................... Section 2.2(d)(ii)
Company..................................................... Preamble
Company Affiliate Agreement................................. Section 6.6(a)
Company Balance Sheet....................................... Section 3.6(b)
Company By-Laws............................................. Section 3.2
Company Charter............................................. Section 3.2
Company Common Stock........................................ Section 2.1
Company Disclosure Schedule................................. Article III
Company ESPP................................................ Section 2.1(e)
Company Intellectual Property Rights........................ Section 3.17(a)
Company Material Adverse Effect............................. Section 3.1
Company Merger Documents.................................... Section 3.4
Company Option.............................................. Section 6.12
Company Permits............................................. Section 3.11(b)
Company Plans............................................... Section 3.12(a)
Company Preferred Stock..................................... Section 3.3(a)
Company SEC Reports......................................... Section 3.6(a)
Company Shareholders Meeting................................ Section 3.20
Company Stock Option Plans.................................. Section 2.1(e)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
- ----- -------------------
<S> <C>
Company Voting Proposal..................................... Section 3.4
Company Warrants............................................ Section 2.1(b)
Confidentiality Agreement................................... Section 6.1(c)
Control..................................................... Section 9.3(d)
DGCL........................................................ Preamble
Dissenting Shares........................................... Section 2.1(c)
Effective Time.............................................. Section 1.2
Environmental Claim......................................... Section 3.16(e)
Environmental Laws.......................................... Section 3.16(f)
ERISA....................................................... Section 3.12(a)
ERISA Affiliate............................................. Section 3.12(a)
Excess Shares............................................... Section 2.2(a)(ii)
Exchange Act................................................ Section 3.5(b)
Exchange Agent.............................................. Section 2.2(a)
Exchange Ratio.............................................. Section 2.1(a)
Existing Indemnification Obligations........................ Section 6.14(a)
GAAP........................................................ Section 3.6(b)
Governmental Entity......................................... Section 3.5(b)
Hazardous Materials......................................... Section 3.16(g)
HSR Act..................................................... Section 3.5(b)
Liens....................................................... Section 3.3(a)
Material Contract........................................... Section 3.10(b)
Maximum Amount.............................................. Section 6.14(b)
Merger...................................................... Preamble
Merger Agreement............................................ Section 1.2
Merger Consideration........................................ Section 2.1(a)
Merger Sub.................................................. Preamble
Merger Sub Common Shares.................................... Section 2.1(d)
NASDAQ...................................................... Section 2.2.(d)(ii)
Other Company Options....................................... Section 2.1(e)
Outside Date................................................ Section 8.1(b)
Parent...................................................... Preamble
Parent Affiliate Agreement.................................. Section 6.6(b)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
- ----- -------------------
<S> <C>
Parent Affiliated Group..................................... Section 4.14(a)
Parent Affiliated Return.................................... Section 4.14(a)
Parent Balance Sheet........................................ Section 4.7
Parent By-Laws.............................................. Section 4.2
Parent Charter.............................................. Section 4.2
Parent Common Stock......................................... Section 2.1(a)
Parent Disclosure Schedule.................................. Article IV
Parent ERISA Affiliate...................................... Section 4.11(a)
Parent Intellectual Property Rights......................... Section 4.16(a)
Parent Material Adverse Effect.............................. Section 4.1
Parent Merger Documents..................................... Section 4.4
Parent Option............................................... Section 6.12
Parent Plans................................................ Section 4.11(a)
Parent Preferred Stock...................................... Section 4.3(a)
Parent SEC Reports.......................................... Section 4.6(a)
Parent Stockholders' Meeting................................ Section 3.20
Parent Voting Proposal...................................... Section 4.4
Person...................................................... Section 9.3(e)
Proxy Statement/Prospectus.................................. Section 3.20
Registration Statement...................................... Section 3.5(b)
Release..................................................... Section 3.16(h)
Rule 145.................................................... Section 6.6(a)
SEC......................................................... Section 3.5(b)
Securities Act.............................................. Section 3.5(b)
Subsidiary.................................................. Section 3.1
Subsidiary Documents........................................ Section 3.2
Superior Proposal........................................... Section 6.2(b)
Surviving Corporation....................................... Section 1.1
Tax Returns................................................. Section 3.15(e)
Tax/Taxes................................................... Section 3.15(e)
Year 2000 Compliant......................................... Section 3.23(e)
</TABLE>
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APPENDIX B
FAIRNESS OPINION OF U.S. BANCORP PIPER JAFFRAY INC.
December 22, 1999
PERSONAL AND CONFIDENTIAL
Board of Directors
Media 100 Inc.
290 Donald Lynch Boulevard
Marlborough, Massachusetts 01752-4748
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Media 100 Inc. ("Parent") of the consideration to be paid by Parent
pursuant to an Agreement and Plan of Merger (the "Agreement") to be entered into
among Parent, Seller Acquisition Corporation, a wholly owned subsidiary of
Parent ("Merger Sub"), and Digital Origin, Inc. (the "Company"). The Agreement
provides for the merger (the "Merger") of Merger Sub with and into the Company
pursuant to which (i) each share of common stock of the Company will be
converted into the right to receive .5347 shares of common stock of Parent, and
(ii) each option to purchase shares of common stock of the Company will be
converted into an option to purchase shares of common stock of Parent on the
terms set forth in the Agreement. The Merger and the transactions contemplated
therein are collectively referred to as the "Transaction." The terms and
conditions of the Transaction are more fully set forth in the Agreement.
U.S. Bancorp Piper Jaffray Inc. ("U.S. Bancorp Piper Jaffray"), as a
customary part of its investment banking business, is engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
underwriting and secondary distributions of securities, private placements and
valuations for estate, corporate and other purposes. We have acted as financial
advisor to Parent in connection with the Agreement and will receive a fee for
providing this opinion. This opinion fee is not contingent upon the consummation
of the Transaction. Parent has also agreed to indemnify us against certain
liabilities in connection with our services. U.S. Bancorp Piper Jaffray makes a
market in the common stock of Parent, has written research reports on Parent
during the last 12 months, and acted as co-manager for the subsequent public
offerings of common stock of Parent in December 1994 and November 1995. In the
ordinary course of our business, we and our affiliates may actively trade
securities of Parent and the Company for our own account or the account of our
customers and, accordingly, we may at any time hold a long or short position in
such securities.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. We
have reviewed the draft dated December 20, 1999 of the Agreement. We also have
reviewed financial and other information that was publicly available or
furnished to us by Parent and the Company, including information provided during
discussions with the management of each company. In addition, we have compared
certain financial data of Parent and the Company with various other companies
whose securities are traded in public markets, reviewed prices and premiums paid
in certain other business combinations and conducted other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion.
We have relied upon and assumed the accuracy and completeness of the
financial statements and other information provided by Parent and the Company or
otherwise made available to us and have not assumed responsibility independently
to verify such information. We have further relied upon the
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assurances of Parent's and the Company's management that the information
provided has been prepared on a reasonable basis in accordance with industry
practice, and, with respect to financial planning data, reflects the best
currently available estimates and judgment of Parent's and the Company's
management and that they are not aware of any information or facts that would
make the information provided to us incomplete or misleading. We have assumed
that Transaction will qualify as a reorganization under the United States
Internal Revenue Code and will be accounted for as a pooling of interests.
Without limiting the generality of the foregoing, for the purpose of this
opinion, we have assumed that neither Parent nor the Company are party to any
pending transaction, including external financing, recapitalizations,
acquisitions or merger discussions, other than the Transaction or in the
ordinary course of business. In arriving at our opinion, we have assumed that
all the necessary regulatory approvals and consents required for the transaction
will be obtained in a manner that will not change the purchase price for the
Company. Parent has recently entered into an agreement to acquire the assets of
Wired Inc. (the "Wired Acquisition"). In arriving at our opinion, with Parent's
consent, our analysis has not considered the effect of the Wired Acquisition on
Parent or the Transaction.
In arriving at our opinion, we have not performed, with Parent's consent, a
discounted cash flow analysis of potential future cash flows of the Company. In
addition, in arriving at our opinion, we have not performed any appraisals or
valuations of any specific assets or liabilities of the Company, and have not
been furnished with any such appraisals or valuations. We express no opinion
regarding the liquidation value of any entity. Without limiting the generality
of the foregoing, we have undertaken no independent analysis of any pending or
threatened litigation, possible unasserted claims or other contingent
liabilities, to which Parent, the Company or any of their respective affiliates
is a party or may be subject and, at Parent's direction and with its consent,
our opinion makes no assumption concerning, and therefore does not consider, the
possible assertions of claims, outcomes or damages arising out of any such
matters.
This opinion is necessarily based upon the information available to us and
facts and circumstances as they exist and are subject to evaluation on the date
hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the price at which shares of common stock of Parent or the Company
have traded or may trade at any future time. We have not undertaken to reaffirm
or revise this opinion or otherwise comment upon any events occurring after the
date hereof and do not have any obligation to update, revise or reaffirm this
opinion.
This opinion is directed to the Board of Directors of Parent and is not
intended to be and does not constitute a recommendation to any stockholder of
Parent. We were not requested to opine as to, and this opinion does not address,
the basic business decision to proceed with or effect the Transaction. Except
with respect to the use of this opinion in connection with the prospectus/proxy
statement relating to the Merger, this opinion shall not be published or
otherwise used, nor shall any public references to us be made, without our prior
written approval.
Based upon and subject to the foregoing and based upon such other factors as
we consider relevant, it is our opinion that the consideration to be paid by
Parent in the Transaction pursuant to the Agreement is fair, from a financial
point of view, to Parent as of the date hereof.
Sincerely,
/s/ U.S. Bancorp Piper Jaffray Inc.
U.S. BANCORP PIPER JAFFRAY INC.
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APPENDIX C
FAIRNESS OPINION OF FIRST SECURITY VAN KASPER
December 27, 1999
Board of Directors
Digital Origin, Inc.
460 East Middlefield Road
Mountain View, CA 94043
Gentlemen:
You have requested that we render our opinion as to the fairness, from a
financial point of view, to the shareholders of Digital Origin Inc., a
California corporation ("Digital Origin"), of the exchange ratio in a proposed
acquisition (the "Merger") of Digital Origin by Media 100, Inc., a Delaware
corporation ("Media 100"), pursuant to the proposed form of Agreement and Plan
of Merger provided to us, to be executed on December 28, 1999 (the "Agreement").
All capitalized terms not defined herein shall have the meanings set forth in
the Agreement.
Pursuant to the Agreement, Derringer Acquisition Corporation, a newly formed
Delaware corporation which is a wholly-owned subsidiary of Media 100
("Subsidiary"), is to be merged with and into Digital Origin, the separate
corporate existence of Subsidiary will cease, and Digital Origin will continue
as the surviving corporation. At the Effective Time, each issued and outstanding
share of Digital Origin Common Stock will be converted into the right to receive
the number of shares of Media 100 Common Stock determined by dividing
(A) 3,000,000 shares of Media 100 Common Stock by (B) the number of Digital
Origin Shares of Common Stock, excluding treasury shares, issued and outstanding
immediately prior to the Effective Time. In addition, at the Effective Time, all
outstanding Digital Origin Options shall be converted into options to acquire
Media 100 Common Stock based upon the foregoing exchange ratio.
In connection with our opinion, among other things, we have: (i) held
discussions with certain members of the management of Digital Origin concerning
among other things, the financial and other information provided or reviewed by
us, the past and current business operations, financial condition and future
prospects of their respective companies; (ii) reviewed the most recent draft of
the Agreement in the form provided to us by Digital Origin, which has been
represented to us as the final version to be executed by the parties;
(iii) reviewed certain publicly available documents for Digital Origin and Media
100; (iv) reviewed internal financial projections prepared by their respective
managements, including cost savings and other benefits that both managements
expect result from the Merger, press releases and certain other information for
Digital Origin and Media 100; (v) reviewed publicly available data and
information for companies which we believe, based on operating, market and
trading valuations, to be similar to Digital Origin and Media 100;
(vi) reviewed the historical stock prices for Digital Origin and Media 100 and
other companies which we have determined to be comparable to Digital Origin and
Media 100; (vii) reviewed the financial terms, to the extent publicly available,
of other recent business combinations which we have deemed to be comparable, in
whole or in part, to the Merger; and (viii) conducted such other financial
analysis as we have determined, based upon our judgment as investment bankers,
to be appropriate for purposes of this opinion.
In our review we have assumed, with your permission, that the documents to
be prepared, used and signed by the parties to formally effect the Merger,
including any proxy or other disclosure material to be delivered to the
shareholders of Digital Origin and Media 100 to elicit any necessary consents to
the Merger, will effect the Merger on the terms set forth, in the proposed form
of the Agreement provided to us by Digital Origin, without material alteration.
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We have not negotiated the Merger, nor provided any legal or other advice
with respect to the Merger. We have not made nor have we been provided an
independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of Digital Origin or Media 100 nor have we made a
physical inspection of any of the properties or assets of Digital Origin or
Media 100.
In rendering this opinion, we have relied, without independent verification,
on the accuracy and completeness of all of the financial and other information
that was publicly available or furnished or otherwise communicated to us by
Digital Origin or Media 100 and relied upon and assumed without independent
verification that there has been no material change in the assets, financial
condition and business prospects of the Company or Media 100 since the dates of
the most recent financial statements made available to us. With respect to
financial projections provided to us, we have reviewed those projections, have
discussed them with Digital Origin's and Media 100's managements and have made
certain adjustments where we have determined it was appropriate to do so.
Independent of the foregoing, we have been advised by the managements of Digital
Origin and Media 100, and have relied upon and assumed without independent
verification, that the projections were reasonably prepared, based upon
assumptions reflecting the best currently available estimates and good faith
judgments of the managements as to the future performance of Digital Origin,
Media 100 and the combined company following the consummation of the Merger,
that such forecasts will be realized in the amounts and time periods
contemplated thereby and that neither the management of Digital Origin, nor the
management of Media 100, has any information or beliefs that would make the
projections incomplete or misleading.
Our opinion is based upon analysis of the foregoing factors in light of our
assessment of general economic, financial and market conditions as they exist
and as they can be evaluated by us as of the date hereof and on information made
available to us as of the date hereof. Although events occurring after the date
hereof could materially affect the assumptions relied upon in preparing this
opinion, we do not have any obligation to update, revise or reaffirm this
opinion.
This opinion is solely for the benefit and use of the Board of Directors of
Digital Origin in its consideration of the Merger and is not a recommendation to
any shareholder as to how such shareholder should vote with respect to the
Merger. Further, this opinion addresses only the financial fairness of the
consideration to be paid by Media 100 and does not address the relative merits
of the Merger and any alternatives to the Merger, Digital Origin's underlying
decision to proceed with or effect the Merger or any other aspect of the Merger.
This opinion may not be used or referred to, or quoted or disclosed to any
person in any manner, without our prior written consent in each instance. In
furnishing this opinion, we do not admit that we are experts within the meaning
of the term "experts" as used in the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, nor do we admit that this opinion
constitutes a report or valuation within the meaning of Section 11 of the
Securities Act.
First Security Van Kasper, Inc., as part of its investment banking business,
is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions. We have received a fee from Digital
Origin for rendering this opinion and the Company has agreed to indemnify us for
certain liabilities that may arise in rendering this opinion.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the exchange ratio is fair to the shareholders of Digital
Origin from a financial point of view.
Very truly yours,
/s/ First Security Van Kasper
------------------------------------------
FIRST SECURITY VAN KASPER
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APPENDIX D
DISSENTERS' RIGHTS UNDER
THE CALIFORNIA CORPORATIONS CODE
Set forth below is an excerpt from the California Corporations Code
regarding dissenter's rights
CALIFORNIA GENERAL CORPORATION LAW
CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
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(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of
Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
1303. AGREED PRICE--TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
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(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305. APPRAISERS' REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than
125 percent of the price offered by the corporation under subdivision (a) of
Section 1301).
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1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
1307. DIVIDENDS ON DISSENTING SHARES.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL OF DEMAND
FOR PAYMENT.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS; LITIGATION
OF SHAREHOLDERS' APPROVAL.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
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1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND MERGER OR
REORGANIZATION; RESTRAINING ORDER OR INJUNCTION; CONDITIONS.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-
form merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short- form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
D-5
