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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: November 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-14779
MEDIA 100 INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2532613
(State or other jurisdiction of (I.R.S. Employer Identification Number)
organization or incorporation)
290 DONALD LYNCH BOULEVARD
MARLBOROUGH, MASSACHUSETTS 01752-4748
(Address of principal executive offices, including zip code)
(508) 460-1600
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(NONE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Registration S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant, based upon the closing price of the Common Stock on January 31, 2000
as reported on the Nasdaq National Market System, was approximately
$143,278,740. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes. As of January 31, 2000, registrant had 8,599,823 Common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required in response to certain portions of Part III of
Form 10-K is hereby incorporated by reference to the specified portions of the
registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
in April 2000.
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PART I
This Report includes a number of forward-looking statements which reflect
the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed in "Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations - Certain Factors That
May Affect Future Results" and elsewhere in this Report, that could cause actual
results to differ materially from historical results of those currently
anticipated. In this Report, the words "anticipates," "believes," "expects,"
"intends," "future" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undo reliance on these forward-looking
statements, which speak only as of the date hereof.
ITEM 1. BUSINESS
COMPANY OVERVIEW
Media 100 Inc., a Delaware corporation, (the "Company") develops,
markets, sells, and supports digital video and web-based streaming media
software and systems, or tools, that enable new Internet broadcasters and
traditional broadcasters, corporate marketing professionals, and educators to
create and deliver high-quality video programs quickly, easily, and with great
creative flexibility. The Company markets and delivers its products to end users
through its web sites as well as through a worldwide channel of specialized
value-added resellers ("VARs") that sell, assemble, and install turnkey systems
using personal computers, disk drives, and ancillary video equipment. Since the
Company began first shipments of its products in 1993, it has shipped over
170,000 software applications and 25,000 systems to users in over 50 countries.
The customers of the Company's digital video and streaming media software
and systems include organizations that use video, including web-based streaming
media, to teach, train, promote, communicate, document, and entertain. Many
adopt the Company's tools for streaming media applications in which digital
video is processed into specialized data streams that can be delivered from a
web site. In addition, the Company is adding new customers who use its tools to
edit and compress video for authoring DVD's. The Company's customers include
major Internet-based networks and portals, traditional broadcasters and media
companies, regional cable television stations, web site design and advertising
agencies, film and video post-production facilities, independent production
companies, performing arts facilities, professional sports organizations,
university media departments, corporate training and marketing communications
departments, as well as government, hospital, religious, and charity
organizations.
The Company's software and systems typically cost less than
videotape-based systems and other computer-based products. Because of this lower
cost, and because of their personal computer-based open architecture; their ease
of use, and their support of Internet standards such as DV, RealNetworks'
RealSystem G2, Microsoft's Windows Media, Apple Computer's QuickTime 4, and the
variants of MPEG (Motion Pictures Experts Group), including MPEG1, MPEG2, MP3,
and MPEG4, make the Company's products attractive to web site designers, media
professionals, and educators. Many in the Internet and video industries consider
the picture and sound output quality of the Company's products to be superior to
other compression-based digital tools. This makes the Company's products
attractive to advanced users at web-based, cable-based, and over-the-air
television networks. The Company's strategy is to further simplify content
creation and delivery by introducing additional streaming media capabilities
that allow a large market of consumer, corporate, educational, and professional
content creators to create and send a video over the Internet. The Company's
Internet strategy includes introducing more products that are low cost, easy for
consumers to use, easy to upgrade, and deliver high picture and sound quality
regardless of media format or bit rate.
The Company's products consist of software and, in the case of its
advanced integrated systems, specialized hardware and embedded video processors
that give users higher picture and sound quality and greater real-time
capability. The high output quality in both Internet-based streaming media and
traditional video applications,
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combined with real-time performance, simplifies the process of creating and
delivering a video. In comparison, traditional video creation and delivery
methods, which rely on recording, storing, manipulating, and distributing a
video using video tape; neither support real-time editing nor allow content
creators to deliver video digitally over the Internet. Video tape-based systems
also require content creators to separately purchase, assemble, learn to
operate, and maintain numerous pieces of equipment, including multiple video
tape recorders, time base correctors, an edit controller, switcher, separate
effects devices, and a sound mixing console. This equipment is more expensive,
difficult, and often results in lower quality output than creating and
delivering video using personal computer-based tools from the Company. The
Company's software and systems allow users to both create and deliver a
high-quality video using disk storage and the Internet instead of video tape.
Viewers can watch an Internet video using free media player software that lets
them click on a web site and deliver video to their personal computer. The
Company believes the simplicity of Internet video will allow it to succeed in a
market of many new consumer, corporate, institutional, and professional media
users.
MARKET
The Company believes that digital techniques for video editing, effects
creation, and sound mixing, along with emerging Internet-specific techniques for
delivering video, are changing how audio-visual content is created and
distributed. Much as personal computer-based desktop publishing changed the
technology and economics of offset printing, and made it possible for
individuals to create and distribute their own publications easily and
affordably, the Company's personal computer-based software and systems permit
virtually any personal computer user to be a broadcaster. With the Company's
products, individuals can both create and deliver a video themselves, especially
through streaming, using the Internet as a broadcasting medium. The Company
believes that as digital video (DV) camcorders, personal computers, and Internet
access decrease in cost and increase in popularity, millions of businesses,
schools, new media companies, and individuals will adopt digital video and
streaming media technology.
The Company classifies the digital video and streaming media market into
three broad categories: consumers, the middle market; and media professionals.
The consumer segment is new and driven by the convergence of DV camcorders, home
PCs, and the Internet. The middle market consists of businesses and institutions
adding Internet video to their web sites. The media professionals segment
consists of new Internet-based broadcasters that are building streaming media
web sites, which they plan to expand into commerce-oriented entertainment and
communications powerhouses.
CONSUMERS
The Company uses the term, "consumers," to include individuals,
businesses, and institutions that need to edit video at low cost and without
complication. The Company believes this segment will grow rapidly in the future
as consumers increase their purchases of DV camcorders that connect directly and
easily to personal computers. The DV camcorder format allows consumers to
capture video at high quality, then transfer the video digitally using an
interface (cable and connector) standard, called IEEE 1394, that DV camcorders
and a growing number of personal computers share. The Company believes that as
more consumers adopt DV camcorders and personal computers, particularly for home
Internet access, and as more personal computers incorporate the IEEE 1394
interface, this segment will grow to represent a significant opportunity.
THE MIDDLE MARKET
The middle market segment comprises businesses, schools, the government,
self-employed independent producers, and small post-production facilities that
provide video editing services to businesses and broadcast facilities.
Businesses create video programs for internal purposes, like employee training,
and external purposes such as corporate and marketing communications. Schools
create video programs to support classroom instruction, create curricula, or
capture a guest speaker or football game. Post-production facilities and
independent producers create professional, broadcast-quality video programs for
large corporate clients and regional and national broadcasting facilities.
Middle market users are often computer and video literate, and invest in new
personal computer-based technology to advance productivity, increase quality,
and lower costs. Increasingly, these users are adopting video editing and
streaming to add audio-visual content to their web sites. For web site
developers at
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schools, streaming media provides a low cost means to support distance learning
and curriculum development using personal computers. Many of the Company
corporate customers are creating web sites with streaming media to support
marketing promotions and e-commerce.
MEDIA PROFESSIONALS
The media professionals segment comprises media companies, advertising
agencies, specialized firms that design corporate web sites, and independent
post-production facilities that service all of these groups as well as
traditional broadcasters. Media companies include corporations like Disney,
Viacom, and Time Warner that create original programming (content) for video,
film, and print, as well as a new generation of web-based networks creating
video content for deployment on a web site. Post-production companies are
facilities that own state-of-the-art content creation equipment and employ
full-time editors, graphic designers, and engineers, which they "rent out" to
corporate, broadcast, agency, and film clients at hourly rates based on the
sophistication of the selected people and equipment. Internet-based networks
comprise new web sites that permit Internet users to stream video.
The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards, and frequent new product
introductions. The Company's future success will depend in part upon its ability
to enhance its existing products and to introduce new products and features in a
timely manner to address customer requirements, respond to competitive
offerings, adapt to new emerging industry standards and take advantage of new
enabling technologies that could render the Company's existing products
obsolete. For a further discussion of the risks and uncertainties associated
with new product development and product introductions and transitions, see
"Certain Factors That May Affect Future Results" included in Part II, Item 7 of
this Annual Report on Form 10-K.
STRATEGY
Media 100's mission is to be the leading supplier of digital video and
streaming media tools to businesses, schools, institutions, and media
organizations, particularly ones that are adopting the Internet as a medium for
distributing audio-visual content. In 1999, the Company established a leading
position in the market for streaming media tools. The Company introduced
software and systems that allow web site designers, IT professionals, and new
web-based broadcasters to create digital audio and digital video content, then
stream this content over the Internet. The Company's products encompass support
for multiple major streaming formats, both audio and video; and the Company
intends to continue adding new support for emerging formats.
To help accelerate its entry into the streaming media market place, the
Company completed two acquisitions in calendar 1999 and announced a third. The
first acquisition was Terran Interactive, Inc., which the Company closed in June
1999.
On December 17, 1999, the Company announced it has entered into a
definitive agreement to acquire the assets of Wired, Inc. Wired, Inc. is a fast
growing supplier of MPEG streaming media production tools for the Internet and
DVD authoring. The Company completed the acquisition at the end of December
1999.
On December 28, 1999, the Company announced it had entered into a
definitive agreement to acquire Digital Origin, Inc. Digital Origin, Inc. is a
leading developer of digital video editing and effects software applications
designed to support the new low-cost, high-quality DV camcorders used for
acquiring video for Internet applications. The Company expects that the merger
will be completed as a pooling of interest for accounting purposes, and a
tax-free transaction. Under the agreement, the Company will issue 0.5347 shares
of its common stock for each share of Digital Origin, Inc. common stock. The
transaction is subject to the approval of the stockholders of Media 100 Inc. and
Digital Origin, Inc. and other customary closing conditions. The merger is
expected to be completed in the first half of calendar 2000. In addition, the
company entered into a non-exclusive, four year OEM development and license
agreement with Digital Origin by which Media 100 will use Digital Origin's
consumer level editing and effects software with the Company's Internet
streaming media software in exchange for royalty payments.
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To increase its range of customers, the Company has developed
relationships with popular content sites on the Internet while it also added
thousands of corporate, educational, and government Internet users to its
installed base. In 1999, the Company also announced new partnerships with major
Internet developers like Apple Computer, encoding.com (renamed Loudeye.com),
ExciteAtHome, and Microsoft that the Company believes will help further promote
and distribute its solutions, services, and technology.
An important element of the Company's strategy is that its software and
systems tools support all three of the major competing streaming media player
standards--these are Real Networks' RealSystem G2, Microsoft's Windows Media,
and Apple's QuickTime 4--each can be downloaded by Internet users quickly,
easily, and free of charge. The Company plans to continue to work directly with
RealNetworks, Microsoft, and Apple Computer to help develop and popularize each
of their respective media player standards, and to provide users with the
capability to convert between the formats, which are all incompatible. The
Company believes that this strategy gives it the advantage of being able to
offer to customers--web site designers adding video to their web sites--the
ability to create video programs that can be streamed--viewed--by the largest
possible Internet audience. The Company estimates over 100 million individuals
to date play audio and video content on the web using media players from
RealNetworks, Microsoft, and Apple Computer.
PRODUCTS
The Company's product lines consist of digital video streaming media
software and systems and a service line called Platinum. The first product line,
Media Cleaner, comprises mainly cross-platform software applications used by web
site designers for processing video into streams that web viewers can access
with any standard media player. The second product line, sold under the iFinish
and Media 100 names, comprises advanced, integrated, Windows NT-based and
advanced Macintosh-based workstations that permit web site designers, corporate
communicators, educators, and media professionals to digitally edit video,
create effects, mix sound, and process finished video programs into standard
media player-compatible or MPEG-compatible streams. The Company's Platinum
service line comprises service and support packages that give users access to
free, automatic software upgrades, 24-hour-per-day support, and other benefits
such as extended warranties and fast turn-around on hardware swaps.
INTERNET TOOLS
MEDIA CLEANER PRODUCT LINE - WINDOWS AND MACINTOSH
<TABLE>
<CAPTION>
Product Date of First Shipment by Product Features
Media 100
<S> <C> <C>
Media Cleaner November 1999 Advanced system with
Power Suite hardware-based streaming media
acceleration
Media Cleaner Pro June 1999 Flagship streaming media
software application
Media Cleaner EZ June 1999 Novice streaming media software
application--"Wizard" based
</TABLE>
MEDIA CLEANER PRODUCT LINE
The Media Cleaner product line gives web site designers software tools to
process audio and video originating from virtually anywhere into streams that
they can host on their web sites for Internet users to click on and download
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(stream) with the free media player software available from RealNetworks,
Microsoft, and Apple Computer. The Media Cleaner products support the Windows
and Macintosh platforms. In addition to supporting Internet video applications,
the Media Cleaner tools also give video editors and content creators the ability
to output video to CD-ROM and DVD. The software is easy to use and makes
creating Internet video streams in multiple, different, incompatible formats--at
multiple data rates--an easy, automated process, which saves time, money, and
reduces complexity for the content creator. Today, the Company believes the
picture and sound output quality of the streams that users can deliver using
Media Cleaner products is the best in the industry, per format and bit rate.
Media Cleaner is compatible with many third-party digital video systems, and
gives iFinish and Media 100 users, in particular, interoperability features that
simplify using the products together
DIGITAL VIDEO SYSTEMS
iFINISH PRODUCT LINE - WINDOWS NT PLATFORM
<TABLE>
<CAPTION>
Product Date of First Shipment by Product Features
Media 100
<S> <C> <C>
iFinish V80 December 1999 (1) High performance streaming
media production with built-in
DV, real-time editing, effects,
and sound mixing
iFinish V60 December 1999 (1) Complete streaming media
production system with built-in
DV, real-time audio processing,
static chroma and luma key
iFinish V40 December 1999 (1) Long-form editing system
iFinish V20 DV December 1999 (1) Assembly system
SDI Option June 1999 Add-on for serial digital I/O
equipment
MPEG Option February 2000 Add-on for real-time MPEG2
encoding
</TABLE>
- ----------------
(1) Version 3.0 release
iFINISH PRODUCT LINE
iFinish is the name of the Company's new product line of high performance
Windows NT streaming media production systems, which the Company began shipping
in December 1999. These systems give middle market users and media professionals
advanced content creation--video editing, effects, graphics, and sound
mixing--along with integrated features for creating streams, based on technology
in Media Cleaner. These systems are designed to allow content creators to
assemble video programs using source material from virtually anywhere, analog or
digital, then output their finished productions anywhere--to the web, to DVD, to
tape, to cable, or to air. This workflow flexibility means iFinish users can
invest themselves in creating valuable content once, then deliver
it--"repurpose" it--in many different forms as traditional or new media. The
iFinish products give content creators advanced performance, including real-time
editing, effects design and processing in real time, and real-time sound mixing
of numerous, CD-quality audio tracks. The systems are fully integrated, which
means users find them easy to set up, easy to learn, and highly reliable in the
field.
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MEDIA 100 PRODUCT LINE - MACINTOSH PLATFORM
<TABLE>
<CAPTION>
Product Date of First Shipment by Product Features
Media 100
<S> <C> <C>
Media 100 xr November 1999 (2) High performance streaming
media production with built-in
DV, real-time editing, effects,
and sound mixing
Media 100 xs November 1999 (2) Complete streaming media
production system with built-in
DV, real-time audio processing,
static chroma and luma key
Media 100 xe November 1999 (2) Real-time graphics system:
insert/assemble editing;
uncompressed alpha channel; EDL
support
Media 100 lx November 1999 (2) Editing with component video
connections
Media 100 le November 1999 (2) Entry-level real-time editing
SDI Option June 1999 Add-on for serial digital I/O
equipment
</TABLE>
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(2) Version 6.0 release.
MEDIA 100 PRODUCT LINE
The Company began first shipments of the version 6.0 release of the
Media 100 product line in November 1999, giving Macintosh users new effects
design capabilities, especially improved interoperability with Adobe's After
Effects, and for the first time new streaming media features, based on
technology in Media Cleaner. Version 6.0 also supports Apple Computer's latest
generation of computers called "G4," giving users faster host-based processing.
Like the iFinish systems, the Media 100 systems give a wide range of middle
market users and media processionals high-quality, real-time content creation
capability. The Company has shipped greater than 25,000 Media 100 systems
worldwide since the version 1.0 release in 1993; the Media 100 installed base is
active and purchases new releases of the Company's system software.
SERVICES
Platinum Support Services comprise technical support and service
packages offered to customers for an annual fee. Customers purchase Platinum
packages with options such as: toll-free telephone technical support (either
during business hours, five days a week, or 24 hours per day, seven days a
week); automatic free software updates; temporary replacement hardware; extended
warranty; and a quarterly newsletter. In addition, the Company has from time to
time offered hardware upgrades, replacement hardware, and new products to
Platinum subscribers at preferred prices. The Company has also introduced the
Platinum One-Stop service, in which subscribers can obtain telephone technical
support for compatible third-party products integrated with their digital video
system.
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The Company develops all its software and systems tools with an open
design to permit them to work directly, easily, reliably, and at high quality
with other software applications, different host computer systems, peripherals,
and video equipment. For its systems products, the Company's open system design
strategy also facilitates utilization of value-added resellers ("VAR") as a
sales channel. The VAR's regard as a business opportunity the configuration and
sales of turnkey solutions to meet end user requirements. Therefore, although it
sells hardware that integrates with personal computers, the Company does not
typically resell the commodity personal computers and peripherals itself that
are integral to digital video workstations. However, to ensure its systems are
configured properly with the highest quality and latest computers and
peripherals, the Company employs a formal continuous process of working with
computer, disk storage, and various other peripherals suppliers to test,
authorize, and promote specific configurations to the reseller channel. The
Company believes this process fosters integral relations between the Company and
its channel as well as a positive reputation for reliability among end users. In
addition, the Company sells its Platinum services, which enables the Company to
talk directly to the end users of its products all over the world, and provide a
direct means for capturing and quantifying end user satisfaction with its
products, channel partners, and services.
TECHNOLOGY AND PRODUCT FEATURES
The Company has designed its products as software applications or
integrated software and hardware systems that offer high performance on a
Windows or Macintosh personal computer. The basic performance of its tools
produces broadcast-quality picture and compact disc-quality sound, with an open
system design. The Company's control of the development, design and
manufacturing of the software and hardware of its products allows it to conform
one to the other, specifically and solely to support the user requirements of
the target market.
The Company's iFinish and Media 100 systems comprise two general
categories of software: a user interface application level of software; and
embedded system software, which controls real-time data movement in concert with
the host computer operating system, while also serving to control hardware
functions as an intermediary between the application and the hardware circuits.
This software design shields users from technical concerns while providing
efficient, reliable management over numerous, simultaneous low-level computing
tasks. In addition, the Company's user interface provides a means for accessing
other applications to bring graphics or specialized video and audio effects
processing into the hub editing environment. The Company believes its
application software is strategically valuable because it is at the center of
its users' workflow.
Each of the Company's systems use a digital video hardware engine
designed and manufactured by the Company specifically to support essential video
and audio processing functions. The hardware engine comprises one or two PCI
cards that fit into the backplane of either a Windows NT or Macintosh computer.
The hardware includes broadcast-quality video input and output decoder/encoder
subsystems, a proprietary, dynamically-variable compression subsystem, a 16-bit
eight-track compact disc-quality digital audio subsystem, and two high-speed
32-bit microprocessors responsible for transferring digital audio and video
data, at throughput rates of up to 30 megabytes per second, inside the host
computer's central processing unit ("CPU"). The Company's hardware engine is the
primary technical facilitator of real-time, nonlinear performance with output
that provides broadcast-quality video and compact disc-quality audio. The
Company's auxiliary HDRfx effects card, when used in conjunction with a core
digital video hardware engine, enables the processing of a second stream of
video of similar quality. The output video is 30 frames per second, 60 fields
per second (NTSC) or 25 frames per second, 50 fields per second (PAL) and
synchronized with up to eight tracks of audio.
SALES AND DISTRIBUTION
The Company markets and delivers its products to end users through a
worldwide channel of specialized value-added resellers ("VARs"), distributors,
and direct to end users through its telemarketing group and its website. VARs
and distributors account for the majority of the Company's sales and VARs
typically sell, assemble, and install turnkey systems using personal computers,
disk drives, and ancillary video equipment. For a further discussion of the
risks and uncertainties associated with the Company's dependence on an indirect
sales channel of independent VAR's, see "Certain Factors That May Affect Future
Results" included in Part II, Item 7 of this Annual Report on Form 10-K.
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Internationally, the Company has adopted the same sales channels. In the
United Kingdom, France, Germany and Italy, the Company has subsidiaries which
manage web site sales, VAR networks, and contract with distributors who may sell
directly to end users or through VAR networks of their own. Elsewhere, the
Company sells through distributors, which may sell directly to end users, or act
as VARs, or manage VAR networks in their respective territories. Sales of Media
100 products outside of the United States represented approximately 39%, 44% and
44% of the Company's net sales for fiscal years 1999, 1998, and 1997,
respectively. For additional information as to revenue by geographic location,
see Note 12 in the Notes to Consolidated Financial Statements. For a further
discussion of the risks and uncertainties associated with international
operations, see "Certain Factors That May Affect Future Results" included in
Part II, Item 7 of this Annual Report on Form 10-K.
COMPETITION
The digital video and streaming media software and systems market is
highly competitive. A large number of suppliers provide different types of
products, including video tape-based analog systems and disk-based digital
systems such as the Company's products to different segments of the market. In
the market, there is continuous pressure to reduce prices, incorporate new
features, and improve functionality.
The Company encounters competition primarily from Accom, Inc., Apple
Computer, Avid Technology, Inc., Discreet Logic, Inc., a division of Autodesk
("Discreet"), Matrox Electronic Systems Ltd., Pinnacle Systems, Inc.,
RealNetworks, and Sonic Foundry. Competition also comes from Matsushita Electric
Industrial Company Ltd. ("Matsushita") and Sony Corporation ("Sony"), which have
either introduced or announced plans to introduce disk-based digital video
systems. Because the digital video and streaming media market is constantly
changing, it is difficult to predict future sources of competition; however,
competitors are likely to continue to include larger vendors, such as Apple
Computer, Matsushita, and Sony. Many of these competitors have substantially
greater financial, technical and marketing resources than the Company. For a
further discussion of the risks and uncertainties associated with the
competitive landscape for the Company's products, see "Certain Factors That May
Affect Future Results" included in Part II, Item 7 of this Annual Report on Form
10-K.
RESEARCH AND DEVELOPMENT
The Company invests in research and development for new products and for
enhancements to its existing products. The Company employed, as of January 14,
2000, 80 full-time employees whose primary duties relate to product development
and research on potential new products and technologies. Outside firms and
consultants are selectively engaged to develop or assist with development of
products when favorable opportunities exist. In order to compete successfully,
the Company believes it must attract and retain qualified personnel and maintain
a program of improvement of existing products, as well as the research and
development of new products. For a further discussion of the risks and
uncertainties associated with new product development, see "Certain Factors That
May Affect Future Results" included in Part II, Item 7 of this Annual Report on
Form 10-K.
For the fiscal years ended November 30, 1999, 1998 and 1997, the
Company invested approximately $13,074,000, $16,414,000 and $8,508,000,
respectively, on the development of enhancements to its existing products and
for the research and development of new products and technologies.
MANUFACTURING
The Company's manufacturing operations consist primarily of manufacturing
and testing of printed circuit assemblies, final product assembly, quality
assurance and shipping, and are conducted at its facility located in Marlboro,
Massachusetts. The Company believes that its control of manufacturing
significantly contributes to hardware design improvements, allows for quicker
development of products for shipment to market, results in superior product
quality, and lowers the total cost of goods for products manufactured by the
Company. The Company periodically assesses its production efficiencies against
the benefits of out-sourcing certain hardware production and has, on occasion,
out-sourced certain products to third parties when it was determined to be more
cost effective than internally manufacturing the product.
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Components used in the assembly of the Company's hardware products are
generally available from several distributors and manufacturers. However, the
Company is dependent on single or limited source suppliers for several key
components used in its products that have no ready substitutes, including
various audio and video signal processing integrated circuits manufactured in
each case only by Crystal Semiconductor Corp., Raytheon Company, LSI Logic
Corp., Philips Semiconductors or Zoran Corp. The availability of many of these
components is dependent on the Company's ability to provide suppliers with
accurate forecasts of its future requirements, and certain components used by
the Company have been subject to industry-wide shortages. For a further
discussion of the risks and uncertainties associated with the Company's
dependence on single or limited source suppliers, see "Certain Factors That May
Affect Future Results" included in Part II, Item 7 of this Annual Report on Form
10-K.
PROPRIETARY RIGHTS
The Company's ability to compete successfully and achieve future revenue
growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing the rights of others. The Company
relies on a combination of patent, copyright, trademark and trade secret laws
and other intellectual property protection methods to protect its proprietary
technology. In addition, the Company generally enters into confidentiality
agreements with its employees and with third parties with which it shares its
proprietary information, and limits access to and distribution of such
information. The Company owns seven United States patents, beginning to expire
in 2012, and has nine pending patent applications in the United States, none of
which the Company believes are material. Although the Company pursues a policy
of obtaining patents for appropriate inventions, the Company believes that its
success depends primarily on the proprietary know-how, innovative skills,
technical competence and marketing abilities of its employees, rather than upon
the ownership of patents.
Certain technology used in the Company's products is licensed from third
parties on a royalty-bearing basis. Generally, such agreements grant to the
Company non-exclusive, worldwide rights to the subject technology and are either
renewable on a periodic basis or provide for fully paid-up non-cancellable
rights upon the receipt of certain aggregate payments. In certain cases the
licensor may terminate the license for convenience, although the Company
believes that the effect of any such termination would not be material.
For a further discussion of the risks and uncertainties associated with
proprietary rights in the Company's industry and certain pending litigation, see
Item 3 and "Certain Factors That May Affect Future Results" included in Part II,
Item 7 of this Annual Report on Form 10-K.
BACKLOG
Most customers (VARs) order products on an as-needed basis relying, in
the case of most products, on the Company's five-day delivery capability. As a
result, the Company believes that its backlog at any point in time is not
indicative of its future sales.
EMPLOYEES
As of January 14, 2000, the Company employed approximately 272 persons
worldwide. None of the employees is represented by a labor union. The Company
believes it has good relations with its employees.
Competition for employees with the skills required by the Company is
intense in the geographic areas in which the Company's operations are located.
The Company believes that its future success will depend on its continued
ability to attract and retain qualified employees, especially in research and
development.
OTHER
Media 100, Finish, P6000, Vincent, HDRfx, Terran Interactive, Media Cleaner and
Platinum are trademarks of Media 100 Inc. and may be registered in certain
jurisdictions. All other trademarks and registered trademarks are the property
of their respective holders, and are hereby acknowledged.
10
<PAGE>
ITEM 2. PROPERTIES
The Company's headquarters are located at 290 Donald Lynch Boulevard,
Marlboro, Massachusetts where it occupies approximately 56,500 square feet in a
leased facility and includes executive and manufacturing operations, along with
certain engineering, and sales and marketing operations. The lease for this
facility terminates on March 31, 2002. Prior to moving into its current facility
on May 2, 1997, the Company's operations occupied approximately 31,000 square
feet in a facility that it shared with Data Translation, Inc. located in
Marlboro, Massachusetts. Total rental expense including operating expenses
pursuant to the lease agreement with respect to the Company's current Marlboro
facility for fiscal years 1999, 1998, and 1997 was $879,000, $822,000, and
$542,000, respectively, and with respect to its former Marlboro facility the
amount was $527,000 in fiscal year 1997. Rental expense with respect to the
former Marlboro facility for fiscal 1997 reflected the Company's pro rata
portion of the rental charges and operating expenses associated with that
facility and the use by the Company of certain manufacturing equipment belonging
to Data Translation, Inc.
As part of the acquisition of Terran in June 1999, the Company occupies
additional office space located at 15951 Los Gatos Boulevard, Suite 6, Los
Gatos, California. The Company operates its Terran subsidiary out of this
location where a majority of the engineering and sales and marketing for the
Terran Interactive subsidiary is conducted. As part of the acquisition of Wired
in December 1999, the Company also occupies additional space located at 1040-155
Grant Road, Building 155, Mountain View, California. Currently, the Company
operates its Wired subsidiary out of this location where a majority of the
distibution, engineering and sales and marketing is conducted. The Company also
occupies sales and customer support facilities in or near Paris, France;
Bracknell, England; Munich, Germany; and Brescia, Italy.
ITEM 3. LEGAL PROCEEDINGS
On June 7, 1995, a lawsuit was filed against the Company by Avid
Technology, Inc. ("Avid") in the United States District Court for the District
of Massachusetts. The complaint generally alleges patent infringement by the
Company arising from the manufacture, sale, and use of the Company's Media 100
products. The complaint includes requests for injunctive relief, treble damages,
interest, costs and fees. In July 1995, the Company filed an answer and
counterclaim denying any infringement and asserting that the Avid patent in
question is invalid. The Company intends to vigorously defend the lawsuit. In
addition, Avid is seeking reissue of the patent, including claims that it
asserts are broader than in the existing patent, and these reissue proceedings
remain pending before the U.S. Patent and Trademark Office. On January 16, 1998,
the court dismissed the lawsuit without prejudice to either party moving to
restore it to the docket upon completion of all matters pending before the U.S.
Patent and Trademark Office. There can be no assurance that the Company will
prevail in the lawsuit asserted by Avid or that the expense or other effects of
the lawsuit, whether or not the Company prevails, will not have a material
adverse effect on the Company's business, operating results and financial
condition.
From time to time the Company is involved in other disputes and/or
litigation encountered in its normal course of business. The Company does not
believe that the ultimate impact of the resolution of such other outstanding
matters will have a material effect on the Company's business, operating results
or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders during the
fourth quarter of fiscal year 1999.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The common stock of the Company trades on the National Market tier of The
Nasdaq Stock Market under the symbol "MDEA." The following table sets forth, for
the periods indicated, the high and low sales prices per share of the Company's
common stock as reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
Fiscal year ended November 30, HIGH LOW
<S> <C> <C>
1998:
First Quarter............................................ $ 5 7/8 3 1/4
Second Quarter........................................... $ 5 5/16 3 6/32
Third Quarter............................................ $ 4 1/4 3 1/8
Fourth Quarter........................................... $ 4 13/16 2 1/2
1999:
First Quarter............................................ $ 6 5/16 4 3/16
Second Quarter........................................... $ 6 3/4 4 5/16
Third Quarter............................................ $ 7 1/16 4 11/16
Fourth Quarter........................................... $ 17 7/8 5 1/4
</TABLE>
The last reported sale price per share of the Company's common stock as
reported on the Nasdaq National Market on January 31, 2000 was $22.50. As of
January 31, 2000, there were 217 stockholders of record, and the Company
believes that as of such date there were approximately 2,700 beneficial owners
of the Company's common stock, based upon information provided by the Company's
transfer agent. The Company has never paid a cash dividend on its common stock,
and the Board of Directors does not anticipate paying cash dividends in the
foreseeable future.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with, and are
qualified in their entirety by, the Company's consolidated financial statements,
related notes and other financial information included herein.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
FISCAL YEARS ENDED NOVEMBER 30,
- ------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales:
Products $42,624 $ 34,597 $ 41,950 $ 48,739 $ 29,872
Services 8,855 7,191 4,710 2,087 406
-------- --------- --------- --------- ---------
Total net sales 51,479 41,788 46,660 50,826 30,278
Cost of sales 19,704 17,367 19,184 20,782 12,879
-------- --------- --------- --------- ---------
Gross profit 31,775 24,421 27,476 30,044 17,399
Operating expenses:
Research and development 13,074 16,414 8,508 6,227 4,806
Selling and marketing 14,208 13,870 15,115 14,330 8,920
General and administrative 4,225 3,810 4,330 5,034 2,024
Amortization of intangible assets 231 - - - -
Acquired in-process research and
development 430 - - - -
Restructuring expense 424 - 526 - -
-------- --------- --------- --------- ---------
Total operating expenses 32,592 34,094 28,479 25,591 15,750
-------- --------- --------- --------- ---------
Operating income (loss) (817) (9,673) (1,003) 4,453 1,649
Interest income 1,387 1,622 1,781 1,588 771
-------- --------- --------- --------- ---------
Income (loss) from continuing
operations before tax provision 570 (8,051) 778 6,041 2,420
Tax provision - - 161 1,208 75
-------- --------- --------- --------- ---------
Income (loss) from continuing
operations 570 (8,051) 617 4,833 2,345
-------- --------- --------- --------- ---------
Discontinued operations:
Income (loss) from discontinued
operations - - - (6,672) 2,426
-------- --------- --------- --------- ---------
Net income (loss) $ 570 $(8,051) $ 617 $ (1,839) $ 4,771
======== ========= ========= ========= =========
Basic earnings (loss) per share:
Continuing operations $ 0.07 $ (0.97) $ 0.07 $ 0.60 $ 0.39
Discontinued operations - - - (0.83) 0.40
-------- --------- --------- --------- ---------
Basic earnings (loss) per share $ 0.07 $ (0.97) $ 0.07 $ (0.23) $ 0.79
======== ========= ========= ========= =========
Diluted earnings (loss) per share:
Continuing operations $ 0.06 $ (0.97) $ 0.07 $ 0.57 $ 0.35
Discontinued operations - - - (0.79) 0.36
-------- --------- --------- --------- ---------
Diluted earnings (loss) per share $ 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
======== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA:
FISCAL YEARS ENDED NOVEMBER 30,
(IN THOUSANDS) 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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
Total stockholders' equity 31,249 30,473 37,843 50,065 46,909
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion includes forward-looking statements, including,
but not limited to, statements with respect to the Company's future financial
performance, operating results, plans and objectives, and actual results may
differ materially from those currently anticipated depending upon a variety of
factors, including those described below. See "Certain Factors That May Affect
Future Results" herein.
OVERVIEW
Media 100 Inc., a Delaware corporation, (the "Company") engineers,
markets, sells, and supports digital video and web-based streaming media
software and systems--tools--that enable new Internet broadcasters and
traditional broadcasters, corporate marketing professionals, and educators to
create and deliver high-quality video programs quickly, easily, and with great
creative flexibility. The Company markets and delivers its products to end users
through its web sites as well as through a worldwide channel of specialized
value-added resellers ("VARs") that sell, assemble, and install turnkey systems
using personal computers, disk drives, and ancillary video equipment. Since the
Company began first shipments of its products in 1993, it has shipped over
170,000 software applications and 25,000 systems to users in over 50 countries.
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position, "Software Revenue Recognition" (SOP 97-2). SOP 97-2
provides revised and expanded guidance on software revenue recognition and
applies to all entities that earn revenue from licensing, selling and otherwise
marketing computer software. The Company adopted the provisions of SOP 97-2 as
of December 1, 1997. In 1999, SOP 97-2 was modified by SOP 98-9, "Modification
of SOP 97-2, Software Revenue Recognition, with respect to Certain
Transactions". Neither the adoption of 97-2, nor the adoption of 98-9, had a
material impact on the Company. Net sales are recognized following establishment
of persuasive evidence of an arrangement, provided that the license fee is fixed
and determinable, delivery of product has occurred via physical shipment or
electronically, a determination has been made by management that collection is
probable and the Company has no remaining obligations. The Company provides for
estimated returns at the time of shipment. The Company recognizes maintenance
revenue from the sale of post-contract support services ratably over the life of
the contract.
RESULTS OF OPERATIONS
The following table sets forth for the years indicated certain
consolidated statements of operations data as a percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NOVEMBER 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales:
Products 82.8% 82.8% 89.9%
Services 17.2 17.2 10.1
---------- ---------- ----------
Total net sales 100.0 100.0 100.0
Cost of sales 38.3 41.6 41.1
---------- ---------- ----------
Gross profit 61.7 58.4 58.9
---------- ---------- ----------
Operating expenses:
Research and development expenses 25.4 39.3 18.2
Selling and marketing expenses 27.6 33.2 32.4
General and administrative expenses 8.2 9.1 9.3
Amortization of intangible assets 0.5 - -
Acquired in-process research and development 0.8
Restructuring expense 0.8 - 1.1
---------- ---------- ----------
Total operating expenses 63.3 81.6 61.0
Operating loss (1.6) (23.2) (2.1)
Interest income 2.7 3.9 3.8
---------- ---------- ----------
Income (loss) from operations before tax
provision 1.1 (19.3) 1.7
Tax provision - - 0.4
---------- ---------- ----------
Net income (loss) 1.1% (19.3)% 1.3%
========== ========== ==========
</TABLE>
COMPARISON OF FISCAL 1999 TO FISCAL 1998
14
<PAGE>
Net sales. The Company's total net sales for fiscal 1999 increased 23.2%
to $51.5 million from $41.8 million for fiscal 1998. Net sales from products for
fiscal 1999 increased 23.2% to $42.6 million from $34.6 million for fiscal 1998.
The increase in net sales from products is due primarily to the shipment of
Finish, the Company's high performance Windows NT-based product line, along with
internet tools sales from the Company's wholly-owned subsidiary Terran
Interactive. Internet tools sales increased to $4.1 million in fiscal 1999 from
$0 in fiscal 1998. The Company completed the acquisition of Terran Interactive,
Inc., ("Terran") a leading developer of streaming media tools for preparing
high-quality video for broadcast on the Internet in June 1999. Net sales from
services for fiscal 1999 increased 23.1% to $8.9 million from $7.2 million for
fiscal 1998. The increase in net sales from services is due to new customers
purchasing and current customers renewing their support contracts.
Net sales from customers outside of the United States accounted for
approximately 39% and 44% of net sales in fiscal 1999 and fiscal 1998,
respectively. The Company is continuing to develop its indirect distribution
channels in the United States, Canada, Europe and Asia and currently anticipates
that customers outside the United States will continue to account for a
substantial portion of its net sales, and as a percentage of net sales, to
remain approximately the same. No customer accounted for more than 10% of the
Company's total net sales in fiscal 1999.
Gross profit. The Company's gross profit increased 30.1% to $31.8 million
in fiscal 1999 from $24.4 million in fiscal 1998. In the first quarter of fiscal
1999, the Company reclassified certain costs associated with its Platinum
support services. The Company now classifies these costs as part of cost of
goods sold. The change in presentation had the affect of increasing cost of
goods sold and reducing selling and marketing expenses by the same amount.
Certain amounts in the comparable period last year have been reclassified to
conform to the current year's presentation. Overall gross profit as a percentage
of net sales increased to 61.7% in fiscal 1999 from 58.4% in fiscal 1998. Gross
profit as a percentage of net sales of products increased to 56.7% in fiscal
1999 from 53.0% in fiscal 1998, while gross profit as a percentage of net sales
of services increased to 85.7% in fiscal 1999 from 84.2% in fiscal 1998. The
increase in gross profit in fiscal 1999 over fiscal 1998 is due primarily to
increased service revenue, which generate higher gross profit than products, and
standalone software sales as a result of the acquisition of Terran in June 1999.
Research and development. Research and development expenses decreased
20.3% to $13.1 million in fiscal 1999 from $16.4 million in fiscal 1998. The
majority of the decrease in research and development expenses represented lower
development costs due to the completion of Finish, the Company's
high-performance Windows NT-based product line, which began shipping in the
first quarter of fiscal 1999. The Company currently anticipates research and
development expenses will increase in absolute dollars in fiscal 2000 versus
fiscal 1999 due to the acquisitions of Terran and Wired, Inc. and the planned
development of their products.
Selling and marketing. Selling and marketing expenses increased 2.4% to
$14.2 million in fiscal 1999 from $13.9 million in fiscal 1998. Selling expenses
consist primarily of salaries and related benefits, commissions, travel,
occupancy and depreciation. Marketing expenses consist primarily of salaries and
related benefits, trade shows, seminars, advertising, sales literature and lead
generation activities. The increase in selling and marketing expenses resulted
primarily from the acquisition of Terran and the Company's promotion of the
streaming media tools acquired as part of the transaction. The Company currently
anticipates that its selling and marketing expenses will increase in absolute
dollars in fiscal 2000 versus fiscal 1999 as the Company increases its focus on
the Internet and the related support of the Company's promotion of its streaming
media tools.
General and administrative. General and administrative expenses increased
10.9% to $4.2 million in fiscal 1999 from $3.8 million in fiscal 1998. General
and administrative expenses include the cost of human resources, finance,
information technology, legal and other administrative functions of the Company.
The increase in general and administrative expenses resulted primarily from
increased personnel costs in support of higher net sales. The Company currently
anticipates that its general and administrative expenses will increase modestly
in fiscal 2000 compared to fiscal 1999 in support of higher anticipated net
sales.
Amortization of intangible assets. The Company recorded an expense for
the amortization of intangible assets of $231,000 in fiscal 1999 as a result of
the acquisition of Terran. In fiscal 2000 the Company will record additional
amortization expense for Terran and for the acquisition of Wired, Inc., an
acquisition that closed in early fiscal 2000. There was no similar expense
recorded in fiscal 1998.
15
<PAGE>
Acquired in-process research and development. In connection with the
acquisition, the Company allocated $430,000 of the purchase price to in-process
research and development projects. These allocations represented the estimated
fair value based on risk-adjusted cash flows related to the incomplete research
and development projects. At the date of acquisition, the development of these
projects had not yet reached technological feasibility and the research and
development in progress had no alternative future uses. Accordingly, these costs
were expensed as of the acquisition date. In fiscal 2000, the Company
anticipates it will incur additional acquired in-process research and
development expense related to the acquisition of Wired, Inc.
Restructuring expense. In the third quarter of fiscal 1999, the Company
implemented a restructuring plan to better align its organization with its
corporate strategy. The major component of the restructuring charge relates to
the elimination of approximately 12 employees across the following functions:
research and development (4), selling and marketing (7) and general and
administration (1). At November 30, 1999 approximately $232,000 of the accrued
restructuring charge remained, which is entirely comprised of severance-related
costs. The total cash impact of the restructuring amounted to approximately
$424,000. The total cash paid as of November 30, 1999 was $192,000 and the
remaining amount will be paid by the end of the first quarter in fiscal 2000.
Interest income. Interest income decreased 14.5% to $1.4 million in
fiscal 1999 from $1.6 million in fiscal 1998. The decrease in interest income is
due primarily to lower cash and cash equivalent balances in fiscal 1999 versus
1998. The Company currently anticipates interest income will decline in fiscal
2000 versus 1999 due to a reduction in cash early in fiscal year 2000 resulting
from the acquisition of Wired, Inc., which the Company completed in December
1999, and due to an additional cash payment due to the shareholders of Terran.
Tax provision. The Company did not provide for a tax provision in fiscal
1999 due to the utilization of net operating loss carryforwards and tax credits
available to the Company to offset against operating income.
Net income (loss). As a result of the above factors, the Company had net
income in fiscal 1999 in the amount of $570,000, or $0.06 per diluted share,
compared to a net loss of ($8,051,000), or ($0.97) per share, in fiscal 1998.
COMPARISON OF FISCAL 1998 TO FISCAL 1997
Net sales. The Company's net sales for fiscal 1998 decreased 10.4% to
$41.8 million from $46.7 million for fiscal 1997. The decline is due primarily
to decreased unit sales of Macintosh product and the Company not having a
product available for sale on the Windows NT platform until late in the year.
Net sales from the Company's products running on the Macintosh platform declined
in 1998 from 1997 due to lower unit sales as more customers opted to either wait
until the Company introduces products running on the Windows NT platform or
chose other products from the Company's competitors. Net sales from Platinum
Support Services, the Company's technical support and service products,
increased 52.7% to $7.2 million from $4.7 million for fiscal 1997 as new
customers purchased support contracts and existing customers renewed their
support contracts.
Net sales from customers outside of the United States accounted for
approximately 44% of net sales in both fiscal 1998 and fiscal 1997. The Company
is continuing to develop its indirect distribution channels in the United
States, Canada, Europe and Asia and currently anticipates that customers outside
the United States will continue to account for a substantial portion of its net
sales, and as a percentage of net sales, to remain approximately the same. No
customer accounted for more than 10% of the Company's total net sales in fiscal
1998.
Gross profit. The Company's gross profit decreased 11.1% to $24.4 million
in fiscal 1998 from $27.5 million in fiscal 1997. In the first quarter of fiscal
1999, the Company reclassified certain costs associated with its Platinum
support services. The Company now classifies these costs as part of cost of
goods sold. The change in presentation had the affect of increasing cost of
goods sold and reducing selling and marketing expenses by the same amount.
Certain amounts in fiscal 1998 and fiscal 1997 have been reclassified to conform
to the current year's presentation. Overall gross profit as a percentage of net
sales decreased to 58.4% in fiscal 1998 from 58.9% in fiscal 1997. Gross profit
as a percentage of net sales of products decreased to 53.0% in fiscal 1998 from
56.5% in fiscal 1997, while gross profit as a percentage of net sales of
services increased to 84.2% in fiscal 1998 from 79.9% in fiscal 1998. The
decrease in the gross profit as a percentage of net sales from products is due
to a decrease in the average selling price for the Company's products.
16
<PAGE>
Research and development. Research and development expenses increased
92.9% to $16.4 million in fiscal 1998 from $8.5 million in fiscal 1997. Early in
1998, the Company announced a major research and development expansion to
develop multiple new Windows NT products, while continuing to develop its
products that use Macintosh as a platform. Research and development expenses
consist primarily of the cost of personnel, outside consulting services,
depreciation on capital equipment, and occupancy.
Selling and marketing. Selling and marketing expenses decreased 8.2% to
$13.9 million in fiscal 1998 from $15.1 million in fiscal 1997. Selling expenses
consist primarily of salaries and related benefits, commissions, travel,
occupancy and depreciation. Marketing expenses consist primarily of salaries and
related benefits, trade shows, seminars, advertising, sales literature and lead
generation activities.
General and administrative. General and administrative expenses decreased
12.0% to $3.8 million in fiscal 1998 from $4.3 million in fiscal 1997. General
and administrative expenses include the cost of human resources, finance,
information technology, legal and other administrative functions of the Company.
The decrease in general and administrative expenses resulted primarily from
lower personnel costs due to attrition.
Interest income. Interest income decreased 8.9% to $1.6 million in fiscal
1998 from $1.8 million in fiscal 1997. The decrease in interest income is due to
slightly lower cash and cash equivalent balances in fiscal 1998 versus 1997 and
to a reduction in interest rates for the securities in held in the portfolio.
Tax provision. The Company did not provide for a tax provision in fiscal
1998 due to the significant net loss.
Net income (loss). As a result of the above factors, the Company incurred
a net loss for fiscal 1998 in the amount of ($8,051,000), or ($0.97) per share,
compared to net income of $617,000, or $0.07 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily from public
offerings of equity securities and cash flows from operations. As of November
30, 1999 the Company's principal sources of liquidity included cash and cash
equivalents and marketable securities totaling approximately $28,400,000.
During fiscal 1999, cash used in operating activities was approximately
$653,000 compared to cash provided by operating activities of approximately
$1,922,000 for the same period a year ago. Cash used in operations during fiscal
1999 resulted from increases in accounts receivable of $831,000, inventories of
$511,000, prepaid expenses of $93,000, other assets of $69,000, reductions in
accounts payable of $709,000, accrued expenses of $2,515,000 primarily related
to the payment of certain consulting fees, deferred revenue of $855,000. Net
cash provided by investing activities was approximately $2,947,000 in fiscal
1999 compared to approximately $957,000 for the same period a year ago. Cash
provided by investing activities during 1999 was derived from the proceeds of
sales of marketable securities, net of purchases of approximately $6,556,000.
This was offset by approximately $1,571,000 of capital expenditures for
equipment and purchased software for internal use, purchase of intangible assets
of $147,000 and the acquisition of Terran Interactive, Inc. of $1,890,000. Cash
provided by financing activities during 1999 was approximately $700,000 compared
to $278,000 for the same period a year ago. In 1999, cash provided by financing
activities resulted from the proceeds from the sale of treasury shares and stock
plans of $990,000 and was partially offset by the repurchases of the Company's
common stock of $290,000.
The Company believes its existing cash balance, including cash
equivalents and marketable securities, will be sufficient to meet the Company's
cash requirements for at least the next twelve months.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Except for the historical information contained herein, the matters discussed in
this Form 10-K are forward-looking statements, and are based on current
expectations, and involve known and unknown risks, uncertainties and other
17
<PAGE>
factors which may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from those expressed in
such forward-looking statements. The risks and uncertainties associated with
such statements include the following:
ACQUISITION RELATED RISKS. During fiscal year ended November 30, 1999, the
Company completed the Terran acquisition. In addition, the Company has completed
the acquisition of Wired, Inc. and has also signed a definitive agreement to
acquire Digital Origin, Inc. The transaction is subject to the approval of the
stockholders of Media 100 Inc. and Digital Origin, Inc. and other customary
closing conditions. The Company anticipates the merger will be completed in the
first half of calendar 2000. The Company's business and results of operations
could be materially adversely affected in the event the Company fails to
complete publicly announced acquisitions or to successfully integrate the
business and operations of these acquisitions. The Company may continue in the
future to acquire existing businesses, products, and technologies to enhance and
expand its line of products. Such acquisitions may be material in size and in
scope. There can be no assurance that the Company will be able to identify,
acquire, or profitably manage additional business or successfully integrate any
acquired businesses into the Company without substantial expenses, delays, or
other operational or financial problems. Acquisitions involve a number of
special risks and factors, including increasing competition for attractive
acquisition candidates in the Company's markets, the technological enhancement
and incorporation of acquired products into existing product lines and services,
the assimilation of the operations and personnel of the acquired companies,
failure to retain key acquired personnel, adverse short-term effects on reported
operating results, the amortization of acquired intangible assets, the
assumption of undisclosed liabilities of any acquired companies, the failure to
achieve anticipated benefits such as cost savings and synergies, as well as the
diversion of management's attention during the acquisition and integration
process. Some or all of these special risks and factors may have a material
adverse impact on the Company's business, operating results, and financial
condition.
SIGNIFICANT FLUCTUATIONS AND UNPREDICTABILITY OF OPERATING RESULTS. The
Company's quarterly operating results may vary significantly for a number of
reasons, including new product announcements and introductions by the Company or
its competitors, changes in pricing, and the volume and timing of orders
received during the quarter. The Company has also in the past experienced delays
in the development of new products and enhancements, and such delays may occur
in the future. These factors make the forecasting of revenue inherently
uncertain. Additionally, a significant portion of the Company's operating
expenses is relatively fixed, and operating expense levels are based primarily
on internal expectations of future revenue. As a consequence, quarterly
operating expense levels cannot be reduced rapidly in the event that quarterly
revenue levels fail to meet internal expectations. Therefore, if quarterly
revenue levels fail to meet internal expectations, the Company's operating
results would be adversely affected.
EMERGING MARKETS. The Company is targeting the emerging market of new
Internet-based broadcasters that are building streaming media web sites and
businesses and institutions that are adding Internet video to their web sites.
This market and the products utilized by these users are relatively new. The
Company's success in this emerging market will depend on the rate at which the
market develops and the Company's ability to penetrate that market. In addition,
in fiscal 2000, the Company plans to begin targeting consumers who are looking
to edit video at low cost and without complication. The Company believes this
market will grow rapidly in the future as consumers increase their purchases of
DV camcorders that connect directly to personal computers. Using a DV camcorder,
a home PC and the Internet, the Company believes consumers will be able to
capture, edit and stream video simply and easily. The Company's future growth
will depend, in part, on the rate at which consumers purchase DV camcorders and
adopt editing and streaming technology. There can be no assurance that the use
of digital video editing and streaming products, like the ones offered by the
Company, will expand among existing users of video production processes or the
market for new users. Any failure of the Company's products to achieve market
acceptance in these markets, as a result of competition, technological change or
other factors, could have a material adverse effect on the Company's business
and operating results.
RISKS ASSOCIATED WITH DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS. New product
announcements by the Company's competitors and by the Company itself could have
the effect of reducing customer demand for the Company's existing products. The
introduction of new or enhanced products by the Company also requires the
Company to manage the transitions from existing products. New product
introductions require the Company to devote time and resources to the training
of its sales channel in the features and target customers for such new
18
<PAGE>
products, which efforts could result in less selling efforts being made by the
sales channel during such training period. New product announcements or
introductions could contribute to significant quarterly fluctuations in
operating results as orders for new products commence and orders for existing
products decline.
RAPID TECHNOLOGICAL CHANGE. The market for the Company's products is
characterized by rapidly changing technology, evolving industry standards and
frequent new product introductions. The Company's future success will depend in
part upon its ability to enhance its existing products and to introduce new
products and features in a timely manner to address customer requirements,
respond to competitive offerings, adapt to new emerging industry standards and
take advantage of new enabling technologies that could render the Company's
existing products obsolete. The Company plan in fiscal 2000 is to continue its
investment in research and development, in connection with the Company's
development strategy. Any delay or failure of the Company in developing
additional new products or features for existing products or any failure of such
new products or features to achieve market acceptance, could have a material
adverse effect on the Company's business and operating results.
COMPETITION. The market for the Company's products is highly competitive and
characterized by pressure to reduce prices, incorporate new features and
accelerate the release of new products. A number of companies currently offer
products that compete directly or indirectly with the Company's products,
including Accom, Inc., Apple Computer Inc., Avid Technology, Inc., Discreet (a
division of Autodesk, Inc.), FAST Electronic GmbH, Matrox Electronic Systems
Ltd., Pinnacle Systems, Inc., Real Networks Inc., and Sonic Foundry, Inc. In
addition, the Company expects much larger vendors, such as Matsushita Electric
Industrial Company Ltd., Microsoft Corporation, and Sony Corporation, to develop
and introduce digital editing systems that may compete with the Company's
products. Many of these current and potential competitors have greater
financial, technical and marketing resources than the Company. As a result, such
competitors may be able to develop products comparable to or superior to the
Company's products, adapt more quickly than the Company to new technologies,
evolving industry standards or customer requirements, or lower their product
costs and thus be able to lower prices to levels at which the Company could not
operate profitably, the occurrence of any of which could have a material adverse
effect on the Company's business and operating results. In this regard, the
Company believes that it will continue to experience competitive pressure to
reduce prices, particularly for its high data rate systems. The Company has
historically realized higher gross profit on the sale of its high data rate
systems than its entry-level systems, and such continued competitive pricing
pressure could result in lower sales and gross margin, which in turn could
adversely affect the Company's operating results.
DEPENDENCE ON AND COMPETITION WITH APPLE COMPUTER, INC. As a competitor, Apple
Computer, Inc. ("Apple") could, in the future, inhibits the Company's ability to
develop its products that operate on the Macintosh platform. Additionally, new
products and enhancements to existing products from Apple such as Final Cut Pro
could cause customers to delay purchases of the Company's products or alter
their purchase decision altogether. Furthermore, as the sole supplier of
Macintosh computers, any disruption in the availability of these computers could
cause customers to defer or alter their purchase of the Company's products. The
Company relies on access to key information from Apple to continue development
of its products and any failure to continue supplying the Company's engineers
with this information could have a material adverse affect on the Company's
business and financial results.
DEPENDENCE ON MICROSOFT CORPORATION. Many of the Company's products operate in
the Windows environment and the Company's engineers depend upon access to
information in advance from Microsoft Corporation ("Microsoft"). Any failure to
continue supplying the Company's engineers with this information could have a
material adverse affect on the Company's business and financial results.
DEPENDENCE ON SINGLE OR LIMITED SOURCE SUPPLIERS. The Company is dependent on
single or limited source suppliers for several key components used in its
products. The availability of many of these components is dependent on the
Company's ability to provide suppliers with accurate forecasts of its future
requirements, and certain components used by the Company have been subject to
industry-wide shortages. The Company does not carry significant inventories of
these components and has no guaranteed supply arrangements with such suppliers.
There can be no assurance that the Company's inventories would be adequate to
meet the Company's production needs during any interruption of supply. The
Company's inability to develop alternative supply sources, if required,
19
<PAGE>
or a reduction or stoppage in supply, could delay product shipments until new
sources of supply become available, and any such delay could adversely affect
the Company's business and operating results in any given period.
DEPENDENCE ON PROPRIETY TECHNOLOGY. The Company's ability to compete
successfully and achieve future revenue growth will depend, in part, on its
ability to protect its proprietary technology and operate without infringing the
rights of others. The Company has in the past received, and may in the future
continue to receive, communications suggesting that its products may infringe
patents or other intellectual property rights of third parties. The Company's
policy is to investigate the factual basis of such communications and negotiate
licenses where appropriate. While it may be necessary or desirable in the future
to obtain licenses relating to one or more products, or relating to current or
future technologies, there can be no assurance that the Company will be able to
do so on commercially reasonable terms or at all. There can be no assurance that
these or other future communications can be settled on commercially reasonable
terms or that they will not result in protracted and costly litigation.
RISKS OF THIRD-PARTY CLAIMS OF INFRINGEMENT. There has been substantial industry
litigation regarding patent, trademark and other intellectual property rights
involving technology companies. In the future, litigation may be necessary to
enforce any patents issued to the Company or to enforce trade secrets,
trademarks and other intellectual property rights owned by the Company, to
defend the Company against claimed infringement of the rights of others and to
determine the scope and validity of the proprietary rights of others. For a
description of certain pending litigation instituted against the Company, see
Item 3, Legal Proceedings and Note 7(b) to the Consolidated Financial Statements
included herein. Any such litigation could be costly and a diversion of
management's attention, which could adversely affect the Company's business,
operating results and financial condition. Adverse determinations in any such
litigation could result in the loss of the Company's proprietary rights, subject
the Company to significant liabilities, require the Company to seek licenses
from third parties or prevent the Company from manufacturing or selling its
products, any of which could adversely affect the Company's business, operating
results and financial condition.
DEPENDENCE ON RESELLERS. The Company relies primarily on its worldwide network
of independent VARs to distribute and sell its content creation products to
end-users. The Company's resellers generally offer products of several different
companies, including in some cases products that are competitive with the
Company's products. In addition, many of these VARs are small organizations with
limited capital resources. There can be no assurance that the Company's
resellers will continue to purchase the Company's products or provide them with
adequate levels of support, or that the Company's efforts to expand its VAR
network will be successful, any significant failure of which could have a
material adverse effect on the Company's business and operating results.
RELIANCE ON INTERNATIONAL SALES. International sales and operations may be
subject to risks such as the imposition of government controls, export license
requirements, restrictions on the export of critical technology, less effective
enforcement of proprietary rights; currency exchange fluctuations, generally
longer collection periods, political instability, trade restrictions, changes in
tariffs, difficulties in staffing and managing international operations,
potential insolvency of international resellers and difficulty in collecting
accounts receivable. The Company's international sales are also subject to more
seasonal fluctuation than domestic sales. In this regard, the traditional summer
vacation period, which occurs during the Company's third fiscal quarter, may
result in a decrease in sales, particularly in Europe. There can be no assurance
that these factors will not have an adverse effect on the Company's future
international operations and consequently, on the Company's business and
operating results.
INTERNET-BASED SALES. In fiscal 1999, the Company implemented e-commerce systems
allowing customers to purchase the Company's products directly from its web
site. Although the portion of revenue derived from its e-commerce web site was
less than five percent in fiscal 1999, the Company anticipates revenue derived
from its e-commerce web site to ramp up in fiscal 2000. There can be no
assurances that the Company's customers will continue to purchase the Company's
products from its web site or that the web site will not experience technical
difficulties thereby causing customers to delay purchases. Any significant
technical difficulties could have a material adverse effect on the Company's
business and operating results.
DEPENDENCE ON KEY PERSONNEL. Competition for employees with the skills required
by the Company is intense in the geographic areas in which the Company's
operations are located. The Company believes that its future success
20
<PAGE>
will depend on its continued ability to attract and retain qualified employees,
especially in research and development.
EURO CONVERSION. On January 1, 1999, 11 of the 15 member countries of the
European Union established fixed conversion rates between their existing
sovereign currencies and the euro. As of January 1, 2002, the transition to the
euro will be complete. The Company has operations within the European Union and
has prepared for the euro conversion. The Company does not expect the costs
associated with the transition to be material. However, the overall effect of
the transition to the euro may have a material adverse affect on the Company's
business, financial condition and financial results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Financial Instruments, Other Financial Instruments and Derivative
Commodity Instruments. The Company is not a party to any derivative financial
instruments or other financial instruments for which the fair value disclosure
would be required under Statement of Financial Accounting Standards No. 107
DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS AND DERIVATIVE
COMMODITY INSTRUMENTS ( SFAS No. 107). All of the Company's investments are in
short-term, investment grade commercial paper, certificates of deposit and U.S.
Government and agency securities that are carried at fair value on the Company's
books. Accordingly, the Company believes that the market risk of such
investments is minimal.
Primary Market Risk Exposures. The Company's primary market risk exposures are
in the area of interest rate risk and foreign currency exchange rate risk. The
Company's investment portfolio of cash equivalents is subject to interest rate
fluctuations, but the Company believes this risk is immaterial due to the
short-term nature of these investments. The Company's business in Europe is
conducted in local currency. In Asia, business is conducted in US currency. The
Company has no foreign exchange contracts, option contracts or other foreign
hedging arrangements. However, the Company estimates that any market risk
associated with its foreign operations is not significant and is unlikely to
have a material adverse effect on the Company's business, results of operations,
or financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements, together with the auditors' report
thereon, appear on pages F-1 through F-21 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
21
<PAGE>
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The Company will furnish to the Securities and Exchange Commission not
later than 120 days after the close of its fiscal year ended November 30, 1999 a
definitive Proxy Statement (the "Proxy Statement") for the Annual Meeting of
Stockholders to be held in April 2000. The information required by this Item is
incorporated herein by reference to "Election of Directors," "Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
to "Election of Directors" and "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated herein by reference
to "Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
to "Certain Relationships and Related Transactions" in the Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
The following documents are filed as part of this report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(a) (1) Consolidated Financial Statements.
MEDIA 100 INC. AND SUBSIDIARIES
Report of Independent Public Accountants............................................ F-2
Consolidated Balance Sheets as of November 30, 1999 and 1998........................ F-3
Consolidated Statements of Operations for the Fiscal Years Ended
November 30, 1999, 1998 and 1997............................................... F-4
Consolidated Statement of Stockholders' Equity for the Fiscal Years Ended
November 30, 1999, 1998 and 1997............................................... F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended
November 30, 1999, 1998 and 1997............................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
(a) (2) Financial Statement Schedules.
Not applicable.
(a) (3) List of Exhibits.
3.1 Restated Certificate of Incorporation of Media 100 Inc. (filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1996 and incorporated by reference herein).
3.2 By-laws of Media 100 Inc., as amended through June 17, 1998 (filed as
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended May 31,1998 and incorporated by reference herein).
22
<PAGE>
4 Specimen Certificate representing the Company's Common Stock (filed as
Exhibit 4 to the Company's Registration Statement on Form S-1, File No.
2-94121 and incorporated by reference herein).
10.1* Key Employee Incentive Plan (1982), as amended through November 15,
1996 (filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended November 30, 1996 and incorporated by reference
herein).
10.2* 1986 Employee Stock Purchase Plan, as amended through April 14,
1999 (filed as Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended May 31, 1999 and incorporated by
reference herein).
10.3* Key Employee Incentive Plan (1992), as amended through April 14,
1999 (filed as Exhibit 10.3 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended May 31, 1999 and incorporated by
reference herein).
10.4* Media 100 Inc. 401(k) Savings Plan (filed as Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year ended November
30, 1997 and incorporated by reference herein).
10.5.1 Lease dated January 31, 1997 relating to 290 Donald Lynch
Boulevard, Marlboro, MA (filed as Exhibit 10.5.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended November 30, 1996 and
incorporated by reference herein).
10.5.2 License Agreement dated as of January 31, 1997 relating to 290
Donald Lynch Boulevard, Marlboro, MA (filed as Exhibit 10.5.2 to the
Company's Annual Report on Form 10-K for the fiscal year ended November
30, 1996 and incorporated by reference herein).
10.6.1 Distribution Agreement dated as of November 19, 1996 with Data
Translation II, Inc. (DTI) (filed as Exhibit 10.8.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended November 30, 1996
and incorporated by reference herein).
10.6.2 Intellectual Property Agreement dated as of December 2, 1996 with
DTI (filed as Exhibit 10.8.2 to the Company's Annual Report on Form 10-K
for the fiscal year ended November 30, 1996 and incorporated by reference
herein).
10.6.3 Corporate Services Agreement dated as of December 2, 1996 with DTI
(filed as Exhibit 10.8.3 to the Company's Annual Report on Form 10-K for
the fiscal year ended November 30, 1996 and incorporated by reference
herein).
10.6.4 Amendment to Corporate Services Agreement dated November 18, 1997
(filed as Exhibit 10.6.4 to the Company's Annual Report on Form 10-K for
the fiscal year ended November 30, 1997 and incorporated by reference
herein).
10.9 Offer Letter from the Company to B. Robert Feingold (filed as
Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31,1998 and incorporated by reference
herein).
10.10 Agreement and Plan of Merger and Reorganization, dated May 6, 1999
with Terran Interactive, Inc. (files as Exhibit 10.10 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 1999
and incorporated by reference herein).
10.11 Asset Purchase Agreement, dated December 17, 1999 with Wired, Inc.
(files as Exhibit 10.11 to the Company's Annual Report on Form 10-K for
the year ended November 30, 1999 and incorporated by reference herein).
10.12 Agreement and Plan of Merger By and Among Media 100 Inc. and
Digital Origin, Inc., dated December 28, 1999.
23
<PAGE>
10.13 OEM Development and License Agreement, dated December 28, 1999 with
Digital Origin, Inc.
21 Subsidiaries of Media 100 Inc. (filed as Exhibit 21 to the Company's
Annual Report on Form 10-K for the fiscal year ended November 30, 1997
and incorporated by reference herein).
23 Consent of Arthur Andersen LLP.
24 Power of Attorney (included in the signature page of this Annual
Report on Form 10-K).
27 Financial Data Schedule.
* Identifies a management contract or compensatory plan or
arrangement in which an executive officer or director of the
Company participates.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Media 100 Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on February 25, 2000.
Media 100 Inc.
By: /s/ John A. Molinari
--------------------------------
John A. Molinari
Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned officers and
directors of Media 100 Inc., a Delaware corporation (the "Company"), hereby
constitutes and appoints John A. Molinari and Steven D. Shea, and each of them,
with full power to act without the other, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities (until revoked in writing)
to sign the Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1999, and any and all amendments thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, thereby ratifying and confirming
all that said attorneys-in-fact and agents or either of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John A. Molinari Chief Executive Officer, President February 25, 2000
- ---------------------------------- and Director
John A. Molinari (Principal Executive Officer)
/s/ Steven D. Shea Vice President of Finance February 25, 2000
- ---------------------------------- and Treasurer
Steven D. Shea (Principal Financial Officer)
/s/ Maurice L. Castonguay Director February 25, 2000
- ----------------------------------
Maurice L. Castonguay
/s/ Roger W. Redmond Director February 25, 2000
- ----------------------------------
Roger W. Redmond
/s/ Bruce Sachs Director February 25, 2000
- ----------------------------------
Bruce Sachs
/s/ Paul J. Severino Director February 25, 2000
- ----------------------------------
Paul J. Severino
</TABLE>
25
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
MEDIA 100 INC. AND SUBSIDIARIES
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of November 30, 1999 and 1998.......................... F-3
Consolidated Statements of Operations for the Fiscal Years Ended
November 30, 1999, 1998 and 1997................................................. F-4
Consolidated Statement of Stockholders' Equity for the Fiscal Years Ended
November 30, 1999, 1998 and 1997................................................. F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended
November 30, 1999, 1998 and 1997................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Media 100 Inc.:
We have audited the accompanying consolidated balance sheets of Media 100 Inc.
(a Delaware corporation) and subsidiaries as of November 30, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended November 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Media 100 Inc. and subsidiaries
as of November 30, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended November 30, 1999, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 4, 2000
F-2
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
November 30, November 30,
1999 1998
-------------- --------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,231 $ 7,249
Marketable securities 18,169 25,185
Accounts receivable, net of allowance for doubtful
accounts of $402 in 1999 and $395 in 1998 6,381 5,372
Income tax refund receivable 149 280
Inventories 1,478 967
Prepaid expenses 936 743
-------------- --------------
Total current assets 37,344 39,796
Property and equipment, net 6,509 8,363
Intangible assets, net 1,560 -
Other assets, net 430 313
-------------- --------------
Total assets $ 45,843 $ 48,472
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,892 $ 2,259
Accrued expenses 7,509 9,692
Deferred revenue 5,193 6,048
-------------- --------------
Total current liabilities 14,594 17,999
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred stock, $.01 par value,
Authorized - 1,000,000 shares, none issued - -
Common stock, $.01 par value,
Authorized - 25,000,000 shares
Issued - 8,485,835 and 8,327,847 shares at
November 30, 1999 and 1998, respectively
Outstanding - 8,485,714 and 8,279,847 shares at
November 30, 1999 and 1998, respectively 85 83
Capital in excess of par value 41,452 40,917
Accumulated deficit (10,028) (10,598)
Treasury stock, at cost - 121 and 48,000 shares at
November 30, 1999 and 1998 - (163)
Accumulated other comprehensive income (loss) (260) 234
-------------- --------------
Total stockholders' equity 31,249 30,473
-------------- --------------
Total liabilities and stockholders' equity $ 45,843 $ 48,472
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NOVEMBER 30, 1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Net sales:
Products $ 42,624 $ 34,597 $41,950
Services 8,855 7,191 4,710
------------ ------------ -------------
Total net sales 51,479 41,788 46,660
Cost of sales 19,704 17,367 19,184
------------ ------------ -------------
Gross profit 31,775 24,421 27,476
------------ ------------ -------------
Operating expenses:
Research and development 13,074 16,414 8,508
Selling and marketing 14,208 13,870 15,115
General and administrative 4,225 3,810 4,330
Amortization of intangible assets 231 - -
Acquired in-process research and
development 430 - -
Restructuring expense 424 - 526
------------ ------------ -------------
Total operating expenses 32,592 34,094 28,479
------------ ------------ -------------
Operating loss (817) (9,673) (1,003)
Interest income 1,387 1,622 1,781
------------ ------------ -------------
Income (loss) from operations before
tax provision 570 (8,051) 778
Tax provision - - 161
------------ ------------ -------------
Net income (loss) $ 570 $ (8,051) $ 617
============ ============ =============
Basic earnings (loss) per share $ .07 $ (0.97) $ 0.07
============ ============ =============
Diluted earnings (loss) per share $ .06 $ (0.97) $ 0.07
============ ============ =============
Weighted average common shares
outstanding:
Basic 8,347 8,273 8,148
============ ============ =============
Diluted 8,807 8,273 8,247
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock Retained Accumulated
$.01 Par Value Capital in Earnings/ Other
Comprehensive -------------------- Excess of (Accumulated Treasury Comprehensive
Income (loss) Shares Amount Par Value Deficit) Stock Income (loss)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, November 30,
1996 - 8,087,884 $ 81 $ 40,035 $ 9,826 $ - $ 123
Issuance of common
stock under stock
plans - 104,470 1 442 - - -
Dividend of Data
Translation II, Inc.
stock to stockholders - - - - (12,990) - -
Comprehensive Income:
Net income 617 - - - 617 - -
Unrealized loss on
available for sale
securities (82) - - - - - (82)
Translation
adjustment (210) - - - - - (210)
-------
Comprehensive income 325 - - - - - -
------- ------------- ------ --------- --------- ------ -------
Balance, November 30,
1997 - 8,192,354 $ 82 $ 40,477 $ (2,547) $ - $ (169)
Issuance of common stock
under stock plans - 135,493 1 440 - - -
Purchase of treasury
stock - (48,000) - - - (163) -
Comprehensive loss:
Net loss (8,051) - - - (8,051) - -
Unrealized gain on
available for sale
securities 353 - - - - - 353
Translation
adjustment 50 - - - - - 50
-------
Comprehensive loss (7,648) - - - - - -
------- ------------- ------ --------- --------- ------ -------
Balance, November 30,
1998 - 8,279,847 $ 83 $ 40,917 $ (10,598) $ (163) $ 234
Issuance of common stock
under stock plans - 261,867 3 535 - 452 -
Purchase of treasury
stock - (56,000) (1) - - (289) -
Comprehensive income:
Net income 570 - - - 570 - -
Unrealized loss on
available for sale
securities (482) - - - - - (482)
Translation
adjustment (12) - - - - - (12)
-------
Comprehensive income 76 - - - - - -
------- ------------- ------ --------- --------- ------ -------
Balance, November 30,
1999 - 8,485,714 $ 85 $ 41,452 $ (10,028) $ - $ (260)
============= ====== ========= ========= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FISCAL YEARS ENDED NOVEMBER 30, 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 570 $(8,051) $ 617
Adjustments to reconcile net income (loss)
from operations to net cash provided
by (used in) operating activities:
Depreciation and amortization 3,590 2,925 1,614
Acquired in-process research and development 430 - -
Amortization of acquisition-related intangible assets 231 - -
(Gain) loss on sale of marketable securities (22) (81) 19
Changes in assets and liabilities,
excluding effects of acquisitions:
Accounts receivable (831) 2,317 3,976
Income tax refund receivable 131 (280) -
Inventories (511) (271) 777
Prepaid expenses (93) - (175)
Other assets (69) 280 (481)
Accounts payable (709) 306 (28)
Accrued expenses (2,515) 2,734 1,167
Deferred revenue (855) 2,043 1,852
-----------------------------------
Net cash (used in) provided by operating activities (653) 1,922 9,338
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Terran Interactive, Inc., net of cash
acquired (1,890) - -
Purchase of equipment (1,572) (3,184) (7,251)
Purchase of intangible assets (147) - -
Purchases of marketable securities (40,504) (76,675) (65,716)
Proceeds from sales of marketable securities 47,060 80,816 64,706
-----------------------------------
Net cash provided by (used in) investing activities 2,947 957 (8,261)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock pursuant to stock plans 990 441 442
Purchase of treasury stock (290) (163) -
-----------------------------------
Net cash provided by financing activities 700 278 442
EFFECT OF EXCHANGE RATE CHANGES ON CASH (12) 50 (210)
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,982 3,207 1,309
CASH AND CASH EQUIVALENTS, beginning of period 7,249 4,042 2,733
-----------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 10,231 $ 7,249 $ 4,042
===================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 13 $ 349 $ 92
===================================
OTHER TRANSACTIONS NOT PROVIDING (USING) CASH:
Dividend of Data Translation II, Inc. stock to stockholders $ - $ - $(12,990)
======== ======= =========
Change in value of marketable securities $ 482 $ 353 $ (82)
======== ======= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(SEE NOTE 3):
In connection with the acquisition of Terran Interactive, Inc., the
following transaction occurred:
Fair value of assets acquired $ 2,558 - -
Liabilities assumed 668 - -
-----------------------------------
Cash paid for acquisition and acquisition costs $ 1,890 - -
===================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS
Media 100 Inc., a Delaware corporation, (the "Company") develops,
markets, sells, and supports digital video and web-based streaming media
software and systems, or tools, that enable new Internet broadcasters and
traditional broadcasters, corporate marketing professionals, and educators to
create and deliver high-quality video programs quickly, easily, and with great
creative flexibility. The Company markets and delivers its products to end users
through its web sites as well as through a worldwide channel of specialized
value-added resellers ("VARs") that sell, assemble, and install turnkey systems
using personal computers, disk drives, and ancillary video equipment. Since the
Company began first shipments of its products in 1993, it has shipped over
170,000 software applications and 25,000 systems to users in over 50 countries.
In June 1999, the Company acquired Terran Interactive Inc. ("Terran") of
Los Gatos, CA, a leading supplier of software tools for high quality Internet
and DVD video. With this acquisition, the Company develops, markets, sells and
supports software tools for streaming media for the Internet. In addition to
delivering Terran's products to end users through the Company's worldwide
channel of VARs and distributors, the Company sells the products acquired from
the Terran acquisition direct to end users using the Company's telemarketing
groups and its website. In connection with the acquisition, the Company paid
$1,890,000 in cash for all outstanding shares of Terran's common stock. The
acquisition was accounted for under the purchase method of accounting and is
described further in Note 3.
Subsequent to year-end, the Company entered into definitive agreements to
acquire two additional companies (See Note 13).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries after elimination of
significant intercompany transactions and balances. These consolidated financial
statements reflect the use of the following significant accounting policies, as
described below and elsewhere in the notes to consolidated financial statements.
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany transactions and balances have
been eliminated in consolidation.
(b) Cash and Cash Equivalents and Marketable Securities
Cash equivalents are carried at cost, which approximates market value,
and have original maturities of less than three months. Cash equivalents include
money market accounts and repurchase agreements with overnight maturities.
The Company accounts for marketable securities in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Under this standard, the
Company is required to classify all investments in debt and equity securities
into one or more of the following three categories: held-to-maturity,
available-for-sale or trading. Available-for-sale securities are recorded at
fair market value with unrealized gains and losses excluded from earnings and
included as a component of stockholders' equity. All of the Company's marketable
securities are classified as available-for-sale.
F-7
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) Cash and Cash Equivalents and Marketable Securities (continued)
Marketable securities held as of November 30, 1999 and 1998 consist of the
following (in thousands):
<TABLE>
<CAPTION>
MATURITY 1999 1998
-------- ---- ----
<S> <C> <C> <C>
Investments available for sale:
U.S. Treasury Notes less than 1 year $ - $ 1,535
U.S. Treasury Notes 1 - 5 years 4,538 5,760
------------- -----------
Total U.S. Treasury Notes 4,538 7,295
Municipal Bonds less than 1 year 1,797 3,837
Municipal Bonds 1 - 5 years - 1,067
------------- -----------
Total Municipal Bonds 1,797 4,904
U.S. Agency Bonds less than 1 year - 4,298
U.S. Agency Bonds 1 - 5 years 3,008 4,136
------------- -----------
Total U.S. Agency Bonds 3,008 8,434
Money Market Instruments less than 1 year 3,689 3,395
Corporate Obligations less than 1 year 4,042 516
Corporate Obligations 1 - 5 years 4,784 6,847
------------- -----------
Total Corporate Obligations 8,826 7,363
Total Investments available for sale 21,858 31,391
Less: Cash equivalents (3,689) (6,206)
------------- -----------
Total marketable securities $ 18,169 $ 25,185
============= ===========
</TABLE>
Marketable securities had a cost of $18,380 and $24,914 at November 30,
1999 and 1998, respectively, and a market value of $18,169 and $25,185,
respectively. To adjust the carrying amount of the November 30, 1999 and 1998
marketable securities portfolio to market value, an unrealized gain (loss) has
been reflected as a separate component of stockholders' equity pursuant to the
provisions of SFAS No. 115.
(c) Inventories
Inventories at November 30, 1999 and 1998 are stated at the lower of
first-in, first-out (FIFO) cost or market and consist of the following (in
thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Raw materials $ 556 $ 230
Work-in-process 424 336
Finished goods 498 401
----------- -----------
$ 1,478 $ 967
=========== ===========
</TABLE>
Work-in-process and finished goods inventories include material, labor
and manufacturing overhead. Management performs periodic reviews of inventory
and disposes of items not required by their manufacturing plan.
(d) Depreciation and Amortization
The Company provides for depreciation and amortization, using the
straight-line method by charges to operating expenses in amounts that allocate
the cost of the equipment over the following estimated useful lives:
<TABLE>
<CAPTION>
DESCRIPTION USEFUL LIVES
--------------------------------------------------------
<S> <C>
Machinery and equipment 3 to 5 years
Purchased software 3 to 5 years
Furniture and fixtures 7 years
Vehicles 3 years
Leasehold Improvements Life of Lease
</TABLE>
F-8
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(e) Property and equipment, net
Property and equipment, net at November 30, 1999 and 1998 is stated at
cost, less accumulated depreciation and amortization, and consists of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------------- ----------------
<S> <C> <C>
Machinery and equipment $ 8,212 $ 7,174
Purchased software 4,162 3,616
Furniture and fixtures 1,252 1,240
Vehicles 11 12
Leasehold improvements 1,554 1,482
------------- ----------------
$ 15,191 $ 13,524
Less accumulated depreciation and
amortization (8,682) (5,161)
------------- ----------------
$ 6,509 $ 8,363
============= ================
</TABLE>
(f) Intangible Assets
Intangible assets consist of the following as of November 30, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
---------------- --------------------
<S> <C> <C>
Patents and Trademarks 169 $ -
Acquired Technology 1,560 -
Goodwill 101 -
---------------- --------------------
$ 1,830 $ -
Less accumulated amortization (270) -
---------------- --------------------
$ 1,560 $ -
================ ====================
</TABLE>
The Company is amortizing goodwill and acquired technology related to the
acquisition of Terran (See Note 3) using a straight-line method over 3 years,
their estimated useful lives. Patents and trademarks are being amortized over
periods ranging from 3 to 5 years, their estimated useful lives.
The Company follows the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, and
Accounting Principles Board (APB) Opinion No. 17, INTANGIBLES ASSETS. SFAS No.
121 and APB No. 17 require that long-lived and intangible assets be reviewed for
impairment. Any write-downs are to be treated as permanent reductions in the
carrying amount of the assets and are determined based on fair value of the
assets. The Company believes that the carrying values of its long-lived and
intangible assets are realizable as of November 30, 1999.
(g) Foreign Currency
The financial statements of the Company's subsidiaries are translated
from their functional currency into U.S. dollars using the current rate method
in accordance with SFAS No. 52, FOREIGN CURRENCY TRANSLATION. Accordingly,
assets and liabilities of the Company's foreign subsidiaries are translated at
the rates of exchange in effect at year-end. Revenues and expenses are
translated using exchange rates in effect during the year. Gains and losses from
foreign currency translation are credited or charged to "Cumulative translation
adjustment" included in stockholders' equity in accumulated other comprehensive
income (loss) in the accompanying consolidated balance sheets. The Company
realized net foreign currency transaction gains (losses) of ($77,000), $81,000
and ($215,000) in 1999, 1998 and 1997, respectively.
F-9
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(h) Revenue Recognition
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position, "Software Revenue Recognition" (SOP 97-2). SOP
97-2 provides revised and expanded guidance on software revenue recognition and
applies to all entities that earn revenue from licensing, selling and otherwise
marketing computer software. The Company adopted the provisions of SOP 97-2 as
of December 1, 1997. In 1999, SOP 97-2 was modified by SOP 98-9, "Modification
of SOP 97-2, Software Revenue Recognition, with respect to Certain
Transactions". Neither the adoption of 97-2, nor the adoption of 98-9, had a
material impact on the Company. Net sales are recognized following establishment
of persuasive evidence of an arrangement, provided that the license fee is fixed
and determinable, delivery of product has occurred via physical shipment or
electronically, a determination has been made by management that collection is
probable and the Company has no remaining obligations. The Company provides for
estimated returns at the time of shipment. The Company recognizes maintenance
revenue from the sale of post-contract support services ratably over the life of
the contract.
(i) Net Income (Loss) Per Common Share
Effective December 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, EARNINGS PER SHARE (SFAS No. 128). In accordance
with SFAS No. 128, basic net income (loss) per share is computed using the
weighted-average number of common shares outstanding. Diluted income (loss) per
share is computed using the weighted-average number of common shares outstanding
and potential common shares from the assumed exercise of options outstanding
during the period, if any, using the treasury stock method. Prior periods have
been restated to reflect the new standard.
The following is a reconciliation of the shares used in the computation of basic
and diluted earnings per share (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
FISCAL YEARS ENDED NOVEMBER 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic net income - weighted average shares of common
stock outstanding 8,347 8,273 8,148
Effect of potential common shares - stock options
outstanding (unless antidilutive) 460 - 99
-----------------------------------------
Diluted net income - weighted average shares and
potential common shares outstanding 8,807 8,273 8,247
=========================================
</TABLE>
The Company excludes potentially dilutive securities from its diluted net
income (loss) per share computation when either the exercise price of the
securities exceeds the fair value of the Company's common stock or when the
Company reported net losses and the effect of including such securities would be
antidilutive. During fiscal year 1999, options to purchase approximately 234,000
weighted average shares of common stock were excluded because the options'
exercise price was greater than the average market price of the common stock.
Options to purchase approximately 1,032,000 weighted average shares of common
stock were outstanding at November 30, 1998, but were not included in the
computation of diluted net income (loss) per share as a result of their
antidilutive effect due to the loss available to common stockholders. During
fiscal year 1997, options to purchase approximately 1,022,000 weighted average
shares of common stock were excluded because the options' exercise price was
greater than the average market price of the common stock.
(j) Capitalized Software Development Costs
The Company capitalizes certain computer software development costs.
Capitalization of costs commences upon establishing technological feasibility.
Capitalized costs, net of accumulated amortization, were approximately $29,000
and $89,000 as of November 30, 1999 and 1998, respectively, and are included in
other assets. These costs are amortized on a straight-line basis over two years,
which approximates the economic life of the product. Amortization expense,
included in cost of sales in the accompanying consolidated statements of
operations, was approximately $60,000, $60,000 and $80,000 in 1999, 1998 and
1997, respectively.
F-10
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(k) Restructuring Expense
In the third quarter of fiscal 1999, the Company implemented a
restructuring plan to better align its organization with its corporate strategy.
Substantially all of the restructuring charge of $424,000 relates to the
elimination of approximately 12 employees across the following functions:
research and development (4), selling and marketing (7) and general and
administration (1). At November 30, 1999, approximately $232,000 of the accrued
restructuring charge remained, which is entirely comprised of severance-related
costs. The total cash impact of the restructuring amounted to approximately
$424,000. The total cash paid as of November 30, 1999 was $192,000 and the
remaining amount will be paid by the end of the first quarter in fiscal 2000.
In the third quarter of fiscal 1997, the Company incurred restructuring
expenses of $526,000 for severance and related costs associated with a reduction
of the Company's workforce. All of these expenses have been paid as of the end
of the Company's first quarter of fiscal 1998.
(l) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(m) Concentration of Credit Risk and Significant Customers
SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, requires disclosure of any significant off-balance-sheet and credit risk
such as foreign exchange contract, options contracts or other foreign hedging
arrangements. The Company maintains its cash, cash equivalents and marketable
securities with established financial institutions. The Company does not believe
it has accounts receivable collection risk in excess of existing reserves. For
the years ended November 30, 1999, 1998 and 1997, no customer accounted for more
than 10% of the Company's total net sales.
(n) Single of Limited Source Suppliers
The Company currently is dependent on single or limited source suppliers
for several key components used in its products that have no ready substitutes,
including various audio and video signal processing integrated circuits. These
components are purchased through purchase orders from time to time. The Company
generally does not carry significant inventories of these single or limited
source components and has no guaranteed supply arrangements for them. Although
there are a limited number of manufactures of the key components, management
believes that the other suppliers could provide similar components on comparable
terms. An extended interruption in its source of supply, however, could cause a
delay in manufacturing and a possible loss of sales, which would affect
operating results adversely.
(o) Recent Accounting Pronouncements
In July 1997, the Financial Accounting Standards Board issued SFAS No.
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS
No. 131 establishes standards for public companies to report operating segment
information in annual financial statements and requires those enterprises to
report selected operating segment information in interim financial reports
issued to shareholders. SFAS No. 131 is effective for fiscal years beginning
after December 15, 1997. The Company has adopted SFAS No. 131 in its fiscal 1999
annual consolidated financial statements (See Note 12).
(p) Reclassifications
Certain amounts in the prior years' financial statements have been
reclassified to conform with the current year's presentation.
F-11
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(q) Financial Instruments
The estimated fair values of the Company's financial instruments, which
include cash equivalents, marketable securities, accounts receivable and
accounts payable, approximate their carrying value.
3. ACQUISITION OF TERRAN
On June 28, 1999, the Company acquired Terran of Los Gatos, CA, a leading
supplier of software tools for high quality Internet and DVD video. In
connection with the acquisition, the Company paid $1,850,000 in cash for all
outstanding shares of Terran's common stock. The acquisition was accounted for
under the purchase method of accounting. Accordingly, the results of Terran's
operations and the fair market value of the acquired assets and assumed
liabilities have been included in the financial statements of the Company as of
the acquisition date. In connection with the acquisition, the purchase price
could increase depending on Terran's net sales and operating income over the
next two years. Any contingent payments based on meeting the earn-out conditions
will be considered additional goodwill and amortized over the appropriate useful
life.
The aggregate purchase price consisted of the following (in thousands):
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
<S> <C>
Cash $ 1,850
Liabilities assumed 668
Acquisition costs 40
-------
Total purchase price: $ 2,558
-------
</TABLE>
The purchase price has been allocated to the acquired assets and assumed
liabilities as follows (in thousands):
<TABLE>
<S> <C>
Current assets $ 278
Equipment and other assets 189
Acquired technology 1,560
In-process research and development 430
Goodwill 101
-------
$ 2,558
-------
</TABLE>
Amounts allocated to tangible and intangible assets, including acquired
in-process research and development, were based on results of an independent
appraisal. The amount allocated to developed technology is being amortized on a
straight-line basis over an expected useful life of three years. In connection
with the acquisition, the Company allocated $430,000 of the purchase price to
in-process research and development projects. This allocation represented the
estimated fair value based on risk-adjusted cash flows related to the incomplete
research and development projects. At the date of acquisition, the development
of these projects had not yet reached technological feasibility and the research
and development in progress had no alternative future uses. Accordingly, these
costs were expensed as of the acquisition date.
The Company allocated values to the in-process research and development
based on an in depth assessment of the R&D projects. The value assigned to these
assets were limited to significant research projects for which technological
feasibility had not been established, including development, engineering and
testing activities associated with the introduction of the acquired
next-generation technologies.
The value assigned to purchased in-process technology was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the resulting net cash flows from the
projects and discounting the net cash flows to their present value. The revenue
projection used to value the in-process research and development was based on
estimates of relevant market sizes and growth factors, expected
F-12
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
trends in technology and the nature and expected timing of new product
introductions by the Company and its competitors.
The resulting net cash flows from such projects are based on management's
estimates of revenues, cost of sales, research and development costs, selling,
general and administrative costs, and income taxes from such projects. Aggregate
revenues for Terran were estimated to grow at a compounded annual growth rate of
approximately 60% through 2003, at which time revenue growth is expected to
gradually decline to a normalized long-term growth rate.
The nature of the efforts to develop the acquired in-process technologies
into commercially viable products and services principally related to the
completion of certain planning, designing, coding, prototyping, and testing
activities that were necessary to establish that the developmental Terran
technologies met their design specifications including functional, technical,
and economic performance requirements. Anticipated completion dates ranged from
6 to 12 months, at which times the Company expected to begin selling the
developed products. Development costs to complete the R&D were estimated at
approximately $1.2 million.
Terran's primary in-process R&D projects involved designing a technology
and application platform for a next-generation Media Cleaner product and the
development of new live broadcast software technologies. The estimated revenues
for the in-process projects were expected to peak within two years of
acquisition and then decline sharply as other new products and technologies are
expected to enter the market.
Operating expenses were estimated based on historical results and
discussions with management regarding anticipated profit margin improvements.
Due to purchasing power increases and general economies of scale, estimated
operating expense as a percentage of revenues were expected to decrease after
the acquisitions.
The rates utilized to discount the net cash flows to their present value
were based on estimated cost of capital calculations. Due to the nature of the
forecast and the risks associated with the projected growth and profitability of
the developmental projects, a discount rate of 35% was considered appropriate
for the in-process R&D, and discount rates of 25% were appropriate for the
existing products and technologies. These discount rates were commensurate with
the Terran's stage of development and the uncertainties in the economic
estimates described above.
With respect to the acquired in-process technology, the calculations of
value were adjusted to reflect the value creation efforts of Terran prior to the
close of the acquisition. In doing so, consideration was given to each major
project's stage of completion, the complexity of the work completed to date, the
difficulty of completing the remaining development, costs already incurred, and
the projected cost to complete the projects.
Management's estimate of net cash flow was discounted to present value.
The discount rate used in discounting the net cash flows from purchased
in-process technology is 35%. In the selection of the appropriate discount rate,
consideration was given to the Weighted Average Cost of Capital ("WACC"), which
was determined, in part, by using the Capital Asset Pricing Model. The discount
rate utilized for the in-process technology was higher than Media 100's WACC due
to the inherent uncertainties in the financial forecasts, including the
uncertainty surrounding the successful development of the purchased in-process
technology, the useful life of such technology, the profitability levels of such
technology and the uncertainty of technological advances that are unknown at
this time.
If these projects are not successfully developed the sales and
profitability of the combined company may be adversely affected in future
periods. Additionally, the value of other acquired intangible assets may become
impaired.
The following unaudited pro forma financial information presents the
combined results of operations of Media 100 and Terran as if the acquisition
occurred as of December 1, 1997. The pro forma data are presented for
illustrative purposes only and are not necessarily indicative of the combined
financial position or results of operations for future periods or the results
that actually would have occurred had Media 100 and Terran been a
F-13
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
combined company during the specified periods. The pro forma results include the
effects of the amortization of acquisition-related intangible assets and exclude
the charge for the purchased in-process technology.
<TABLE>
<CAPTION>
(IN THOUSANDS) 1999 1998
------------ ---------------
<S> <C> <C>
Net sales $ 53,061 $ 44,271
Net income (loss) $ 237 $ (8,529)
Net income (loss) per common share - basic $ 0.03 $ (1.03)
Net income (loss) per common share - diluted $ 0.03 $ (1.03)
Weighted average common share outstanding - basic 8,347 8,273
Weighted average common share outstanding - diluted 8,807 8,273
</TABLE>
4. STOCK OPTIONS
Prior to April 1992, options were granted under the Company's 1982 Key
Employee Inventive Plan (the "1982 Plan"). Subject to certain limitations
imposed by the 1982 Plan, options were granted at a price determined by the
Board. The Board resolved to issue options under the 1982 Plan at not less than
100% of fair market value. The options expire six years from the date of grant
and become exercisable at the rate of 20% per year beginning one year from the
date of grant. No further options may be granted under the 1982 Plan.
In 1992, the Company adopted the 1992 Key Employee Incentive Plan (the
"1992 Plan"). The number of shares of common stock reserved for issuance under
the 1992 Plan is 2,200,000. Options granted pursuant to the 1992 Plan may, at
the discretion of the Board, be incentive stock options as defined by the
Internal Revenue Code. Subject to the provisions of the 1992 Plan, options
granted are at a price as specified by the Board. The Board has, to date, issued
options under the 1992 Plan at not less than 100% of fair market value. The
options become exercisable at a rate of 25% per year beginning one year from the
date of grant unless otherwise specified by the Board. The Board will determine
when the options will expire, but in no event will the option period exceed ten
years. No options may be granted under the 1992 Plan on or after February 29,
2002.
Information concerning stock options for each of the three years ended
November 30, 1999 follows:
<TABLE>
<CAPTION>
Weighted Average
Number of Option Price
Options Price Ranges per Share
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding at November 30, 1996 1,215,830 $ 1.73 - 16.91 $ 10.20
Granted 474,225 4.19 - 10.00 8.48
Exercised (37,940) 1.73 - 4.72 3.72
Expired/canceled (504,189) 1.73 - 16.91 9.93
- --------------------------------------------------------------------------------------------------------------------
Outstanding at November 30, 1997 1,147,926 $ 1.73 - 16.91 $ 9.80
Granted 1,262,180 2.75 - 5.00 3.72
Exercised (42,420) 1.73 - 4.29 2.57
Expired/canceled (978,570) 1.73 - 16.91 8.54
- --------------------------------------------------------------------------------------------------------------------
Outstanding at November 30, 1998 1,389,116 $ 2.68 - 15.48 $ 5.34
Granted 654,715 5.13 - 16.25 6.26
Exercised (149,803) 3.22 - 4.29 3.83
Expired/canceled (167,180) 3.25 - 10.48 4.46
- --------------------------------------------------------------------------------------------------------------------
Outstanding at November 30, 1999 1,726,848 $ 2.68 - 16.25 $ 5.91
====================================================================================================================
Exercisable at November 30, 1999 534,065 $ 2.68 - 15.48 $ 6.73
====================================================================================================================
Exercisable at November 30, 1998 389,453 $ 2.68 - 15.48 $ 6.79
====================================================================================================================
Exercisable at November 30, 1997 315,204 $ 1.73 - 16.91 $ 5.31
====================================================================================================================
Available for grant at November 30, 1999 77,779
====================================================================================================================
</TABLE>
F-14
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average fair market value of the options as of the date of
grant for the periods ended November 30, 1999, 1998 and 1997, is $6.10, $2.83,
and $6.03, respectively.
The Company also issues shares of common stock to employees pursuant to
the terms of the 1986 Employee Stock Purchase Plan (the "Plan"). The Company has
reserved 1,000,000 shares of common stock for issuance under the Plan, as
amended. Effective July 1, 1995, employees who have worked for the Company for
at least one month are eligible to participate in the Plan. The Plan allows
participants to purchase common stock of the Company at 85% of the fair market
value as defined. Under the Plan, the Company issued 112,064, 93,073 and 67,311
shares in fiscal years 1999, 1998 and 1997, respectively. At November 30, 1999,
there were 294,194 shares available for issuance under the Plan.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION (SFAS No. 123), which requires the measurement of the fair market
value of stock options or warrants to be included in the statement of operations
or disclosed in the notes to the financial statements. As permitted by SFAS No.
123, the Company will continue to account for stock-based compensation for
employees under Accounting Principles Board Opinion No. 25 and has elected the
disclosure-only alternative under SFAS No. 123 for options granted using the
Black-Scholes option pricing model prescribed by SFAS No. 123. The weighted
average assumptions are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NOVEMBER 30, 1999 1998 1997
---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Risk-free interest rate........ 4.6% - 6.0% 4.2% - 5.8% 6.0% - 6.1%
Expected dividend yield........ - - -
Expected lives................. 6 years 6 years 6 years
Expected volatility............ 152.0% 73.3% 75.9%
</TABLE>
The table below presents pro forma net income (loss) and earnings per
share, had compensation cost for the Company's stock-based employee compensation
plans been determined using the provisions of SFAS No. 123 (in thousands, except
per share amounts).
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NOVEMBER 30, 1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
Income (loss) from operations:
As reported $ 570 $ (8,051) 617
Pro forma $ (953) $ (9,157) (153)
Income (loss) per share from operations:
Basic:
As reported $ 0.07 $ (0.97) $ 0.07
Pro forma $ (0.11) $ (1.11) $ (0.02)
Diluted:
As reported $ 0.06 $ (0.97) $ 0.07
Pro forma $ (0.11) $ (1.11) $ (0.02)
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
may not be representative of that to be expected in future years.
The following table summarizes information about options outstanding at November
30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------- -------------------------------------
Weighted Average Weighted Average Weighted Average
Range of Number Remaining Exercise Price Number Exercise Price
Exercise Price Outstanding Contractual Life per Share Outstanding per Share
- ---------------- -------------- --------------------- -------------------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
$2.68 - 3.57 321,518 4.4 $2.93 98,414 $2.90
3.94 412,470 4.1 3.94 222,552 3.94
4.25 - 5.56 319,799 6.5 4.95 36,175 4.25
5.63 - 6.31 387,175 5.4 5.73 12,000 5.84
9.25 - 16.25 285,886 2.6 13.84 164,924 13.40
-------------- ---------------
1,726,848 534,065
============== ===============
</TABLE>
F-15
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 1998, the Company offered employees the opportunity to
participate in an option-repricing program, pursuant to which each employee
could elect to replace his or her then outstanding, options with new options on
a one-for-one basis. The per share exercise price of the replacement options is
$3.94. The replacement options are exercisable as follows: replacement options
that were granted in exchange for exercisable old options become exercisable six
months following the new grant date; replacement options that were granted in
exchange for unexercisable old options become exercisable over four years from
the new grant date, 12.5% six months following the new grant date and 6.25%
quarterly thereafter; and all replacement options expire ten years after the new
grant date. An aggregate of 694,810 options were granted in exchange for options
cancelled in connection with this program. The option-repricing program resulted
in a new measurement date for all options replaced. Since the new exercise price
was equal to the fair market value of the Company's common stock on the new
measurement date, the Company did not record any compensation cost in connection
with this program.
5. RETIREMENT PLAN
In November 1985, the Company adopted an employee savings plan (the
"Savings Plan") in compliance with Section 401(k) of the Internal Revenue Code.
Effective April 1, 1995, the Savings Plan provides for annual Company
contributions of up to 15% of the first 6% of total compensation per
participant. Effective January 1, 1998, these contributions vest in full after a
three-year period of service. Effective January 1, 1999, the Savings Plan was
amended to provide for annual contributions of up to 40% of the first 6% of
total compensation, with a maximum matching contribution of $3,000 annually. The
Company's contributions to the Savings Plan were $203,000, $86,000 and $98,000
in 1999, 1998 and 1997, respectively.
The Company does not provide postretirement benefits to any employees as
defined under Statement of Financial Accounting Standards No. 106, EMPLOYERS'
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS.
6. BANK FACILITIES
The Company renewed an irrevocable standby letter of credit agreement for
a sum not to exceed $196,808 effective April 1, 1999 and terminating March 31,
2000. This facility was entered into in connection with the lease of the
Company's office and manufacturing facility (Note 7(a)). This letter of credit
is automatically extended without amendment annually from the termination date,
unless written notice is provided electing not to renew for any such additional
period. Notwithstanding the above, this letter of credit expires on March 31,
2002.
7. COMMITMENTS AND CONTINGENCIES
(a) Commitments
The Company's principal executive, engineering, manufacturing and sales
operations occupy approximately 56,500 square feet in a leased facility located
at 290 Donald Lynch Boulevard, Marlboro, Massachusetts. The lease for this
facility terminates on March 31, 2002, but is renewable at the Company's option
through March 31, 2007. Prior to moving into its current facility on May 2,
1997, the Company's operations occupied approximately 31,000 square feet in a
facility which it shared with Data Translation, Inc. ("DTI") located in
Marlboro, Massachusetts. Total rent expense including operating expenses
pursuant to the lease agreement charged to operations with respect to the
Company's current Marlboro facility for fiscal years 1999, 1998 and 1997 was
$879,000, $822,000 and $542,000, and with respect to its former Marlboro
facility was $527,000 for the fiscal year 1997. Rent expense with respect to the
former Marlboro facility for fiscal 1997 reflected the Company's pro rata
portion of the rental charges and operating expenses associated with that
facility and the use by the Company of certain manufacturing equipment belonging
to DTI. Rent expense including operating expenses pursuant to the lease
agreement charged to operations for the consolidated Company for fiscal years
1999, 1998, and 1997 was $1,187,000, $999,000, and $1,249,000, respectively.
F-16
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease payments, excluding operating costs, under all
operating leases are as follows (in thousands):
FISCAL YEARS ENDING NOVEMBER 30,
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
2000 $959
2001 959
2002 579
2003 392
2004 350
- ----------------------------------------------------------------------------
Total minimum lease payments $3,239
============================================================================
</TABLE>
(b) Contingencies
On June 7, 1995, a lawsuit was filed against the Company by Avid
Technology, Inc. ("Avid") in the United States District Court for the District
of Massachusetts. The complaint generally alleges patent infringement by the
Company arising from the manufacture, sale, and use of the Company's Media 100
products. The complaint includes requests for injunctive relief, treble damages,
interest, costs and fees. In July 1995, the Company filed an answer and
counterclaim denying any infringement and asserting that the Avid patent in
question is invalid. The Company intends to vigorously defend the lawsuit. In
addition, Avid is seeking reissue of the patent, including claims that it
asserts are broader than in the existing patent, and these reissue proceedings
remain pending before the U.S. Patent and Trademark Office. On January 16, 1998,
the court dismissed the lawsuit without prejudice to either party moving to
restore it to the docket upon completion of all matters pending before the U.S.
Patent and Trademark Office. There can be no assurance that the Company will
prevail in the lawsuit asserted by Avid or that the expense or other effects of
the lawsuit, whether or not the Company prevails, will not have a material
adverse effect on the Company's business, operating results and financial
condition.
From time to time the Company is involved in other disputes and/or
litigation encountered in its normal course of business. The Company does not
believe that the ultimate impact of the resolution of such other outstanding
matters will have a material effect on the Company's business, operating results
or financial condition.
8. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES. The components of the net deferred tax asset recognized in the
accompanying consolidated balance sheets are as follows (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FISCAL YEARS ENDED NOVEMBER 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net operating loss carryforwards $ 4,933 $ 3,866 $ -
Other temporary differences, principally nondeductible accruals 1,662 3,112 1,587
Research and development credit carryforwards 1,666 1,119 685
Acquired technology (624) - -
- ----------------------------------------------------------------------------------------------------------------------------
Subtotal 7,637 8,097 2,272
- ----------------------------------------------------------------------------------------------------------------------------
Valuation allowance (7,637) (7,873) (1,768)
- ----------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ - $ 224 $ 504
====================================================================================================================================
</TABLE>
Due to the uncertainty surrounding the realization of the benefits of its
favorable tax attributes in future income tax returns, the Company has placed a
valuation allowance against its deferred tax assets, except for previously paid
taxes that the Company believes are refundable. These deferred tax assets are
included as a component of other assets, net on the accompanying consolidated
balance sheets.
The tax credit carryforwards expire at various dates through 2019. The
Tax Reform Act of 1986 contains provisions that may limit the tax credit
carryforwards available to be used in any given year in the event of significant
changes in ownership, as defined.
F-17
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The income (loss) from continuing operations before tax provision in the
accompanying consolidated statements of operations consisted of the following
(in thousands):
<TABLE>
<CAPTION>
- ------------------------------------ ----------------- ----------------- -----------------
FISCAL YEARS ENDED NOVEMBER 30, 1999 1998 1997
- ------------------------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
United States $ 503 $ (8,039) $ 792
Foreign 67 (12) (14)
----------------- ----------------- -----------------
$ 570 $ (8,051) $ 778
================= ================= =================
</TABLE>
The income tax provision shown in the accompanying consolidated
statements of operations consists of the following (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
FISCAL YEARS ENDED NOVEMBER 30, 1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $ (224) $ (280) $ 581
Deferred - 280 (504)
- --------------------------------------------------------------------------------------------------
- - 77
- --------------------------------------------------------------------------------------------------
State:
Current - - 24
Deferred - - -
- --------------------------------------------------------------------------------------------------
- - 24
- --------------------------------------------------------------------------------------------------
Foreign - Current - - 60
- --------------------------------------------------------------------------------------------------
$ - $ - $ 161
- --------------------------------------------------------------------------------------------------
</TABLE>
The effective income tax rate varies from the amount computed using the
statutory U.S. income tax rate as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
FISCAL YEARS ENDED NOVEMBER 30, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax provision (benefit) at statutory rate 34.0% (34.0)% 34.0%
Federal benefit from loss carryforward - - -
Utilization of research and development
credits - - (30.5)
State taxes 6.0 (6.0) 3.1
Change in valuation allowance (40.0) 40.0 -
Foreign taxes - - 7.7
Tax credits - - 1.8
Other permanent differences - - 4.5
- ------------------------------------------------------------------------------------------------------
-% -% 20.6%
======================================================================================================
</TABLE>
9. ACCRUED EXPENSES
Accrued expenses at November 30, 1999 and 1998 consist of the following
(in thousands):
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Payroll and payroll related taxes $ 2,576 $ 1,691
Accrued warranty 463 463
Accrued product development 40 2,220
Accrued selling and marketing 296 878
Accrued legal and other 4,134 4,440
- -------------------------------------------------------------------------------
$7,509 $9,692
===============================================================================
</TABLE>
F-18
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. VALUATION AND QUALIFYING ACCOUNTS
The following table sets forth activity in the Company's accounts
receivable reserve account (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Balance at Charges to Cost and Deductions Balance at
Beginning of Expense End of
Fiscal Year Fiscal Year
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Fiscal Year Ended $328 $187 $104 $411
November 30, 1997
================================================================================================
For the Fiscal Year Ended $411 $340 $356 $395
November 30, 1998
================================================================================================
For the Fiscal Year Ended $395 $154 $147 $402
November 30, 1999
</TABLE>
11. SELECTED QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Fiscal 1999 (in thousands, except per share amounts) February 28 May 31 August 31 November 30
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 12,139 $ 12,537 $ 13,116 $ 13,687
Gross profit $ 7,375 $ 7,674 $ 8,102 $ 8,624
Net income (loss) $ (689) $ 177 $ (172) $ 1,254
Net income (loss) per share - basic $ (0.08) $ .02 $ (0.02) $ 0.15
Net income (loss) per share - diluted $ (0.08) $ .02 $ (0.02) $ 0.14
Shares - net income (loss) per share - basic 8,294 8,300 8,342 8,454
Shares - net income (loss) per share - diluted 8,294 8,609 8,342 9,257
=============================================================================================================================
Fiscal 1998 (in thousands, except per share amounts) February 28 May 31 August 31 November 30
- -----------------------------------------------------------------------------------------------------------------------------
Net sales $ 10,521 $ 9,637 $ 10,124 $ 11,506
Gross profit $ 6,428 $ 5,878 $ 6,173 $ 7,076
Net income (loss) $ (752) $ (3,350) $ (2,419) $ (1,530)
Net income (loss) per share - basic $ (0.09) $ (0.41) $ (0.29) $ (0.18)
Net income (loss) per share - diluted $ (0.09) $ (0.41) $ (0.29) $ (0.18)
Shares - net income (loss) per share - basic 8,232 8,258 8,306 8,297
Shares - net income (loss) per share - diluted 8,232 8,258 8,306 8,297
=============================================================================================================================
</TABLE>
12. SEGMENT INFORMATION
In July 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION (SFAS No. 131). SFAS No. 131 establishes
standards for public companies to report operating segment information in annual
and interim financial statements filed with the SEC and shareholders effective
for fiscal years beginning after December 15, 1997. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief decision
maker, or decision making group, in deciding how to allocate resources and in
assessing performance. The Company's chief operating decision making group is
composed of the Chief Executive Officer and members of senior management. The
Company's reportable operating segments are internet tools, digital video
systems and services.
F-19
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. Revenues are attributed to
geographic areas based on where the customer is located. Segment information for
the years November 30, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Digital
Internet Video
1997 Tools Services Systems Corporate Total
- ---- ----------- -------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Net sales from external customers $ - $ 4,710 $ 41,950 $ - $ 46,660
=========== ============== =============== ============ ===============
Gross profit - 3,764 23,712 - 27,476
=========== ============== =============== ============ ===============
Depreciation - 42 1,572 - 1,614
=========== ============== =============== ============ ===============
Restructuring - - - 526 526
=========== ============== =============== ============ ===============
Interest income - - - 1,781 1,781
=========== ============== =============== ============ ===============
Income taxes $ - $ - $ - $ 161 $ 161
=========== ============== =============== ============ ===============
1998
----
Net sales from external customers $ - $ 7,191 $ 34,597 $ - $ 41,788
=========== ============== =============== ============ ===============
Gross profit - 6,057 18,364 - 24,421
=========== ============== =============== ============ ===============
Depreciation - 40 2,885 - 2,925
=========== ============== =============== ============ ===============
Interest income $ - $ - $ - $ 1,622 $ 1,622
=========== ============== =============== ============ ===============
1999
----
Net sales from external customers $ 4,058 $ 8,855 $ 38,566 $ - $ 51,479
=========== ============== =============== ============ ===============
Gross profit $ 2,793 $ 7,592 $ 21,390 $ - $ 31,775
=========== ============== =============== ============ ===============
Depreciation 20 71 3,499 - 3,590
=========== ============== =============== ============ ===============
Amortization of intangibles assets $ - $ - $ - $ 231 $ 231
=========== ============== =============== ============ ===============
Acquired in-process research
and development 430 430
=========== ============== =============== ============ ===============
Restructuring $ - $ - $ - $ 424 $ 424
=========== ============== =============== ============ ===============
Interest income $ - $ - $ - $ 1,387 $ 1,387
=========== ============== =============== ============ ===============
</TABLE>
Interest income, restructuring, and income taxes are considered corporate
level activities and are, therefore, not allocated to segments. Management
believes transfers between geographic areas are accounted for on an arms length
basis.
Net sales by geographic area for the years ended November 30, 1999, 1998
and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ----------------- ---------------
<S> <C> <C> <C>
United States 31,260 $ 23,353 $ 26,556
United Kingdom, Sweden, Denmark and Norway 5,169 4,168 3,710
Germany, Austria and Switzerland 2,825 2,168 1,812
France, Spain and Benelux 3,475 2,822 2,274
Japan 2,072 1,440 2,274
Other foreign countries 6,678 7,837 10,034
--------------- ----------------- ---------------
$ 51,479 $ 41,788 $ 46,660
=============== ================= ===============
</TABLE>
F-20
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-lived tangible assets by geographic area were as follows for the
years ended November 30, 1999, 1998 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
United States 6,151 $ 7,935
United Kingdom 146 186
Germany 97 80
Italy 26 54
France 89 108
--------------- ---------------
$ 6,509 $ 8,363
=============== ===============
</TABLE>
13. SUBSEQUENT EVENTS
On December 21, 1999, the Company completed its acquisition of Wired,
Inc. Wired, Inc. is a fast-growing supplier of Moving Pictures Experts Group
("MPEG") streaming media production tools for the Internet and digital video
disk ("DVD") authoring. In connection with the acquisition, the Company will pay
$3,000,000 in cash for all outstanding shares of Wired, Inc. common stock. The
first payment in the amount of $1,500,000 was paid upon completion of the
acquisition and the remaining $1,500,000 to be paid on the first anniversary of
the closing. In connection with the acquisition, the purchase price could
increase depending on Wired's net sales and operating income over the next two
years. Any contingent payments based on meeting the earn-out conditions will be
considered additional goodwill and amortized over the appropriate useful life.
The Company will treat the acquisition as a purchase for accounting purposes.
On December 28, 1999, the Company announced it has entered into a
definitive agreement to acquire Digital Origin, Inc. Digital Origin, Inc. is a
leading developer of digital video editing and effects software applications
designed to support the new low-cost, high-quality digital video ("DV")
camcorders used for acquiring video for Internet applications. The Company
expects that the merger will be completed as a pooling of interest for
accounting purposes, and a tax-free transaction. Under the agreement, the
Company will issue 0.5347 shares of its common stock for each share of Digital
Origin, Inc. common stock. The transaction is subject to the approval of the
stockholders of Media 100 Inc. and Digital Origin, Inc. and other customary
closing conditions. The merger is expected to be completed in the Company's
second fiscal quarter of 2000. In addition, the company entered into a
non-exclusive, four year OEM development and license agreement with Digital
Origin by which Media 100 will use Digital Origin's consumer level editing and
effects software with the Company's Internet streaming media software in
exchange for royalty payments.
F-21
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
3.1 Restated Certificate of Incorporation of Media 100 Inc. (filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1996 and incorporated by reference
herein).
3.2 By-laws of Media 100 Inc., as amended through June 17, 1998 (filed
as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended May 31,1998 and incorporated by reference
herein).
4 Specimen Certificate representing the Company's Common Stock
(filed as Exhibit 4 to the Company's Registration Statement on
Form S-1, File No. 2-94121 and incorporated by reference herein).
10.1* Key Employee Incentive Plan (1982), as amended through November
15, 1996 (filed as Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1996 and
incorporated by reference herein).
10.2* 1986 Employee Stock Purchase Plan, as amended through April 14,
1999 (filed as Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended May 31, 1999 and
incorporated by reference herein).
10.3* Key Employee Incentive Plan (1992), as amended through April 14,
1999 (filed as Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended May 31, 1999 and
incorporated by reference herein).
10.4* Media 100 Inc. 401(k) Savings Plan (filed as Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1997 and incorporated by reference herein).
10.5.1 Lease dated January 31, 1997 relating to 290 Donald Lynch
Boulevard, Marlboro, MA (filed as Exhibit 10.5.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended November 30,
1996 and incorporated by reference herein).
10.5.2 License Agreement dated as of January 31, 1997 relating to 290
Donald Lynch Boulevard, Marlboro, MA (filed as Exhibit 10.5.2 to
the Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1996 and incorporated by reference herein).
10.6.1 Distribution Agreement dated as of November 19, 1996 with Data
Translation II, Inc. (DTI) (filed as Exhibit 10.8.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1996 and incorporated by reference herein).
10.6.2 Intellectual Property Agreement dated as of December 2, 1996 with
DTI (filed as Exhibit 10.8.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1996 and
incorporated by reference herein).
10.6.3 Corporate Services Agreement dated as of December 2, 1996 with DTI
(filed as Exhibit 10.8.3 to the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 1996 and incorporated
by reference herein).
<PAGE>
10.6.4 Amendment to Corporate Services Agreement dated November 18, 1997
(filed as Exhibit 10.6.4 to the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 1997 and incorporated
by reference herein).
10.9 Offer Letter from the Company to B. Robert Feingold (filed as
Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 31,1998 and incorporated by
reference herein).
10.10 Agreement and Plan of Merger and Reorganization, dated May 6, 1999
with Terran Interactive, Inc. (files as Exhibit 10.10 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 31, 1999 and incorporated by reference herein).
10.11 Asset Purchase Agreement, dated December 17, 1999 with Wired, Inc.
(files as Exhibit 10.11 to the Company's Annual Report on Form
10-K for the year ended November 30, 1999 and incorporated by
reference herein).
10.12 Agreement and Plan of Merger By and Among Media 100 Inc. and
Digital Origin, Inc., dated December 28, 1999.
10.13 OEM Development and License Agreement, dated December 28,
1999 with Digital Origin, Inc.
21 Subsidiaries of Media 100 Inc. (filed as Exhibit 21 to the
Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1997 and incorporated by reference herein).
23 Consent of Arthur Andersen LLP.
24 Power of Attorney (included in the signature page of this Annual
Report on Form 10-K).
27 Financial Data Schedule.
* Identifies a management contract or compensatory plan or
arrangement in which an executive officer or director of
the Company participates.
<PAGE>
Exhibit 10.11
ASSET PURCHASE AGREEMENT
Asset Purchase Agreement ("Agreement") dated as of December __, 1999,
by and among Media 100 Inc., a Delaware corporation ("Parent"); Winchester
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Parent
("Purchaser"); Wired Incorporated, a California corporation (the "Corporation");
Wired, a California general partnership (the "Partnership"), and the general
partners of the Partnership listed on the signature page hereto (each a
"Partner" and, collectively, the "Partners"). Certain other capitalized terms
used in this Agreement are defined in Exhibit B.
As used in this Agreement, the term "Companies" includes both the
Corporation and the Partnership collectively and the term "Company" includes
both of the Corporation or Partnership individually.
RECITALS
The parties desire that Purchaser acquire substantially all of the
assets of the Companies (the "Acquisition") in accordance with this Agreement
and the General Corporation Law of the State of California (the "CGCL") and the
Delaware General Corporation Law (the "DGCL").
AGREEMENT
The parties to this Agreement agree as follows:
1. PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES; CLOSING.
1.1 SALE OF ASSETS.
(a) Subject to the terms and conditions of this
Agreement, at the Closing, the Companies shall sell, transfer, convey, assign
and deliver to Purchaser and Purchaser shall purchase, acquire and accept:
(i) from the Partnership the Partnership Assets; and
(ii) from the Corporation the Corporation Assets.
(b) It is the intention of the parties that this Agreement
shall not constitute an assignment or attempted assignment of any lease,
license, commitment or other contract or agreement if any such assignment or
attempted assignment would constitute a breach or violation thereof; it being
understood, however, that the preceding does not relieve any party from any
liability to Purchaser that a party would otherwise have hereunder by reason of
a breach of representations, warranties, covenants or conditions resulting from
the failure of the Companies to transfer such lease, license, commitment or
other contract or agreement to the Purchaser.
1
<PAGE>
1.2 PURCHASE PRICE.
(a) As consideration for the sale of the Purchased Assets
to Purchaser, at the Closing:
(i) Purchaser shall pay to Companies the amounts set
forth on Exhibit A, which terms and conditions are hereby incorporated herein by
reference.
(ii) assume the Assumed Liabilities.
(b) Following the Closing, Purchaser shall pay to the
Companies the amounts set forth on Exhibit A as post-closing payments on the
dates specified in such Exhibit and subject to the conditions set forth in such
Exhibit, which terms and conditions are hereby incorporated herein by reference
1.3 CLOSING; CLOSING DATE.
(a) The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Lucash, Gesmer &
Updegrove, LLP, 40 Broad Street, Boston, Massachusetts 02109 at 10:00 a.m. on
December 20, 1999, or at such other time and date during the period from
December 20, 1999 through December 31, 1999 as Purchaser and the Companies may
mutually agree (the "Scheduled Closing Time"). (The date on which the Closing
actually takes place is referred to in this Agreement as the "Closing Date").
(b) At the Closing:
(i) the Companies shall execute and deliver
to Purchaser such a bill of sale in the form of Exhibit A and such other bills
of sale, endorsements, assignments and other documents and records as may (in
the reasonable judgment of Purchaser or its counsel) be necessary or appropriate
to assign, convey, transfer and deliver to Purchaser good, valid and marketable
title to the Purchased Assets free of any Encumbrances;
(ii) the Companies will assign and Purchaser will
assume the contracts listed on Exhibit F ("List of Assumed Contracts"), subject
to Purchaser's review and acceptance of such contract, (each an "Assumed
Contract" and collectively the "Assumed Contracts"); Company shall assume the
Assumed Contracts and assume the Assumed Liabilities under the Assumed Contracts
by delivering to Purchaser an Assumption Agreement in substantially the form of
Exhibit H; and
(iii) The President and Secretary of Company and each
of the Partners shall execute and deliver to Purchaser a certificate (the
"Closing Certificate") setting forth their respective representations and
warranties that (a) each of the representations and warranties made by the
Companies in this Agreement was accurate in all respects as of the date of this
Agreement, (b) each of the representations and
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warranties made by the Companies in this Agreement is accurate in all respects
as of the Closing Date as if made on the Closing Date, (c) each of the covenants
and obligations that the Companies are required to have complied with or
performed pursuant to this Agreement at or prior to the Closing has been duly
complied with and performed in all respects, and (d) each of the conditions set
forth in Section 5 has been satisfied in all respects.
(c) On the later of (i) January 3, 2000 or (ii) the Closing,
and conditional on the Closing occurring, Purchaser shall pay the Purchase Price
(described in Exhibit A) to the Corporation and the Partnership due on such
date, and make such other payment of the Purchase Price as are required under
the terms and condition of such Exhibit.
1.4 TAXES. Purchaser shall bear and pay, and shall reimburse the
Companies for any local or state sales and use taxes incurred that may become
payable as a result of the sale of the Purchased Assets to Purchaser hereunder
that, under applicable law, is the responsibility of Purchaser. Purchaser and
the Companies each agree to use best efforts to minimize all such taxes. The
Companies will be responsible for all taxes associated with operation of Company
at any time and any income or similar taxes incurred by the Companies as a
result of the sale of the Purchased Assets and the payments by Purchaser
hereunder.
1.5 TAX ALLOCATION; FURTHER ASSURANCES; CHANGE OF NAME; MAIL.
(a) The consideration referred to in Section 1.2 is to be
allocated among the Purchased Assets as specified on Exhibit A. This allocation
shall be conclusive and binding upon Purchaser and the Companies for all
purposes, and neither Purchaser nor the Companies shall file any tax return or
other document with, or make any statement or declaration to, any state or
federal taxing authority that is inconsistent with such allocation.
Notwithstanding the foregoing, the Purchaser may not so allocate consideration
payable to the Partnership to assets acquired from the Corporation, nor allocate
consideration payable to the Corporation to assets acquired from the
Partnership.
(b) After the Closing, the Companies shall from time to time,
at the request of Purchaser and without further cost or expense to Purchaser,
execute and deliver such other instruments of conveyance and transfer and take
such other actions as Purchaser may reasonably request, in order to more
effectively consummate the transactions contemplated hereby and to vest in
Purchaser good and marketable title to the Purchased Assets hereunder.
(c) The Corporation will amend its Charter on the Closing Date
so as to change its name to "Wired Liquidating Corp." and the Partnership will
change its name to "Wired Liquidating Partnership" and each will file as
promptly as practicable after the Closing, in all jurisdictions in which it is
qualified to do business, any documents necessary to reflect such change in its
corporate name or to terminate its qualification therein. In connection with
enabling Purchaser, at or as soon as practicable after the
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Closing, to be named "Wired Incorporated", the Companies will, at or prior to
the Closing, execute and deliver to Purchaser all consents related to such
change of name as may be reasonably requested by Purchaser, and will otherwise
reasonably cooperate with Purchaser.
(d) Following the Closing, Purchaser may receive and open all
mail addressed to the Companies and deal with the contents thereof in its
discretion to the extent that such mail and the contents thereof relate to the
business, assets or properties of the Companies sold to Purchaser and any of the
obligations or liabilities assumed by Purchaser pursuant to this Agreement.
1.6 NO OTHER LIABILITIES. Purchaser shall not assume or be
responsible for or liable to any Person or Entity for any Liabilities of
Corporation, the Partnership or the Partners whatsoever, other than the Assumed
Liabilities in the event the Closing occurs.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Companies and each of the Partners represents and warrants, jointly
and severally, to and for the benefit of the Indemnitees, and except as set
forth on the Disclosure Schedule attached hereto, as follows:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) (i) The Corporation is a corporation duly organized,
validly existing and in good standing under the laws of the State of California
and has all necessary power and authority: (A) to conduct its business in the
manner in which its business is currently being conducted; (B) to own and use
its assets in the manner in which its assets are currently owned and used; and
(C) to perform its obligations under all Company Contracts.
(ii) The Company has not conducted any business under or
otherwise used, for any purpose or in any jurisdiction, any fictitious name,
assumed name, trade name or other name, other than the name "Wired
Incorporated".
(b) (i) The Partnership is a general partnership duly
organized, validly existing and in good standing under the laws of the State of
California and has all necessary power and authority: (A) to conduct its
business in the manner in which its business is currently being conducted; (B)
to own and use its assets in the manner in which its assets are currently owned
and used; and (C) to perform its obligations under all Partnership Contracts.
(ii) The Partnership has not conducted any business under
or otherwise used, for any purpose or in any jurisdiction, any fictitious name,
assumed name, trade name or other name, other than the name "Wired".
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(c) Neither Companies is nor has it been required to be
qualified, authorized, registered or licensed to do business as a foreign
corporation in any jurisdiction other than the jurisdictions identified in Part
2.1 of the Disclosure Schedule, except where the failure to be so qualified,
authorized, registered or licensed has not had and will not have a Material
Adverse Effect on the Companies. The Companies are in good standing as a foreign
corporation or entities in each of the jurisdictions identified in Part 2.1 of
the Disclosure Schedule.
(b) Neither the Company nor the Partnership owns any
controlling interest in any Entity and neither the Company nor the Partnership
has never owned, beneficially or otherwise, any shares or other securities of,
or any direct or indirect equity interest in, any Entity. Neither the
Partnership nor the Company has agreed and neither is obligated to make any
future investment in or capital contribution to any Entity.
2.2 CHARTER AND BYLAWS; RECORDS. (a) The Companies have delivered
to Purchaser accurate and complete copies of: (1) the Company's respective
Charter and bylaws, including all amendments thereto; (2) the stock and other
equity membership records of the Companies; and (3) the minutes and other
records of the meetings and other proceedings (including any actions taken by
written consent or otherwise without a meeting) of the shareholders of the
Companies, the board of directors of the Company and all committees of the board
of directors of the Company.
(b) There has not been any violation of any of the provisions
of the Corporation's Certificate of Incorporation or bylaws, or the
Partnership's partnership agreement and neither Company has not taken any action
that is inconsistent in any respect with any resolution adopted by the Company's
shareholders, the Company's board of directors, any committee of the Company's
board of directors or the Partners, except any such violation or action which
would not have a Material Adverse Effect on the Purchaser's ownership or
enjoyment of Purchased Assets.
(c) The books of account, stock records, minute books and
other records of the Companies are accurate, up-to-date and complete in all
respects, and have been maintained in accordance with prudent business
practices.
2.3 CAPITALIZATION, ETC.
(a) The Partnership is the only stockholder of the
Corporation, and no other Person otherwise holds a equity interest in the
Corporation.
(b) The Partners are the only partners of the Partnership, and
no other Person holds a partnership interest in the Partnership.
2.3 FINANCIAL STATEMENTS.
(a) The Corporation has delivered to Purchaser the following
financial statements and notes (collectively, the "Corporation Financial
Statements"):
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(i) The unaudited balance sheets of the Corporation as of
September 30, 1999 and September 30, 1998 and the related unaudited income
statements for the year then ended; and
(ii) the unaudited balance sheet of the Corporation (the
"Interim Balance Sheet") as of November 30, 1999 (the "Statement Date"), and the
related unaudited income statement of the Corporation for the period then ended.
(b) The Corporation Financial Statements are each (i) in
accordance with the books and records of the Corporation, (ii) accurate and
complete in all material respects and present fairly the financial position of
the Corporation as of the respective dates thereof and the results of operations
of the Corporation for the periods covered thereby and (iii) prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered. The Corporation Financial Statements are
(i) in accordance with the books and records of the Corporation and (ii)
accurate and complete in all material respects and present fairly the financial
position of the Corporation as of the respective dates thereof and the results
of operations of the Corporation for the periods covered thereby.
2.5 ABSENCE OF CHANGES. Since the Statement Date:
(a) there has not been any adverse change in the Companys'
business, condition, assets, liabilities, operations, financial performance or
prospects, and, to the best of the knowledge of the Companies, no event has
occurred that will, or could reasonably be expected to, have a Material Adverse
Effect on the Companies;
(b) there has not been any material loss, damage or
destruction to, or any material interruption in the use of, any of the Companys'
assets (whether or not covered by insurance);
(c) the Companies have not declared, accrued, set aside or
paid any dividend or made any other distribution in respect of any shares of
capital stock or partnership interest, and have not repurchased, redeemed or
otherwise reacquired any shares of capital stock, partnership interest or other
securities;
(d) there has been no amendment to the Companys' Charter or
bylaws or partnership agreement, and neither Company has effected or been a
party to any Acquisition Transaction, recapitalization, reclassification of
shares, stock split, reverse stock split or similar transaction;
(e) neither Company has made any capital expenditure which,
when added to all other capital expenditures made on behalf of the Companies
since the Statement Date, exceeds $25,000;
(f) neither Company has (i) entered into or permitted any of
the assets owned or used by it to become bound by any Contract that is or would
constitute a
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Material Contract (as defined in Section 2.10(a)), or (ii) amended or
prematurely terminated, or waived any material right or remedy under, any such
Contract;
(g) except in the ordinary course of business and consistent
with the past practices, neither Company has (i) acquired, leased or licensed
any right or other asset from any other Person, (ii) sold or otherwise disposed
of, or leased or licensed, any right or other asset to any other Person, or
(iii) waived or relinquished any right;
(h) neither Company has written off as uncollectible, or
established any extraordinary reserve with respect to, any account receivable or
other indebtedness which is material in amount;
(i) neither the Company has made any pledge of any of its
assets or otherwise permitted any of its assets to become subject to any
Encumbrance, except for pledges of immaterial assets made in the ordinary course
of business and consistent with the past practices;
(j) neither Company has (i) lent money to any Person (other
than pursuant to routine travel advances made to employees in the ordinary
course of business), or (ii) incurred or guaranteed any indebtedness for
borrowed money other than in the ordinary course of business, consistent with
past practice;
(k) neither Company has (i) established or adopted any
Employee Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar
payment to, or increased the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees, or (iii) hired any new employee;
(l) neither Company has changed any of its methods of
accounting or accounting practices in any respect;
(m) neither Company has made any Tax election;
(n) neither Company has commenced or settled any Legal
Proceeding;
(o) neither Company has entered into any material
transaction or taken any other material action outside the ordinary course of
business or inconsistent with its past practices; and
(p) neither Company has agreed or committed to take any of the
actions referred to in clauses (c) through (o) above.
2.6 TITLE TO ASSETS.
(a) Each Company owns, and has good, valid and marketable
title to, all of the Purchased Assets, free and clear of any lien or
encumbrance, except where any
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such defect or encumbrance would not have a Material Adverse Effect on the
Purchaser's ownership or enjoyment of the Purchased Assets.
(b) Part 2.6 of the Disclosure Schedule identifies all
assets that are material to the business of each Company and that are being
leased or licensed to the Company.
(c) Each Company has complete and unrestricted power and the
unqualified right to sell, assign, transfer and deliver to Purchaser, and upon
consummation of the transactions contemplated by this Agreement, Purchaser will
acquire, good, valid and marketable title to, the Purchased Assets, free and
clear of all mortgages, pledges, liens, security interests, conditional sales
agreements, encumbrances or charges of any kind. The Bill of Sale and the deeds,
endorsements, assignments and other instruments to be executed and delivered to
Purchaser by the Companies at the Closing will be valid and binding obligations
of the Companies and the Selling Partners, enforceable in accordance with their
terms, and will effectively vest in Purchaser good, valid and marketable title
to all the Purchased Assets.
2.7 BANK ACCOUNTS; RECEIVABLES.
(a) Part 2.7(a) of the Disclosure Schedule provides
accurate information with respect to each account maintained by or for the
benefit of the Companies at any bank or other financial institution.
(b) Part 2.7(b) of the Disclosure Schedule provides an
accurate and complete breakdown and aging of all accounts receivable, notes
receivable and other receivables of the Companies as of the Statement Date. All
existing accounts receivable of the Companies (including those accounts
receivable reflected on the respective Interim Balance Sheet that have not yet
been collected and those accounts receivable that have arisen since the
Statement Date and have not yet been collected) (i) represent valid obligations
of customers of the Companies arising from bona fide transactions entered into
in the ordinary course of business, (ii) are current and will be collected in
full when due, without any counterclaim or set off (net of an allowance for
doubtful accounts not to exceed $25,000 in the aggregate).
2.8 EQUIPMENT; LEASEHOLD.
(a) All material items of equipment and other tangible assets
owned by or leased to the Companies are adequate for the uses to which they are
being put, are in good condition and repair (ordinary wear and tear excepted)
and are adequate for the conduct of the Companys' business in the manner in
which such business is currently being conducted.
(b) Neither Company owns any real property or any interest
in real property, except for the leasehold interests identified in Part 2.10 of
the Disclosure Schedule.
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2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Disclosure Schedule sets forth, with
respect to each Company's Proprietary Asset registered with any Governmental
Body or for which an application has been filed with any Governmental Body, (i)
a brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Part
2.9(a)(ii) of the Disclosure Schedule identifies and provides a brief
description of all unregistered trademarks, service marks and copyrighted
materials owned by each Company. Part 2.9(a)(iii) of the Disclosure Schedule
identifies and provides a brief description of each Proprietary Asset licensed
to each Company by any Person (except for any Proprietary Asset that is licensed
to a Company under any third party software license generally available to the
public at a cost of less than $10,000), and identifies the license agreement
under which such Proprietary Asset is being licensed to the Company. Each
Company has good, valid and marketable title to all of the Proprietary Assets,
other than those identified in Part 2.9(a)(iii) of the Disclosure Schedule, free
and clear of all liens and other Encumbrances, and has a valid right to use all
Proprietary Assets identified in Part 2.9(a)(iii) of the Disclosure Schedule.
Neither Company is obligated to make any payment to any Person (other than the
other Company) for the use of any Company Proprietary Asset. Neither Company has
developed jointly with any other Person any Proprietary Asset with respect to
which such other Person has any rights, except for limited and non-exclusive
licenses given to customers in the ordinary course of business.
(b) Each Company has taken all measures and precautions
necessary to protect and maintain the confidentiality and secrecy of all
Proprietary Assets (except Proprietary Assets whose value would be unimpaired by
public disclosure) and otherwise to maintain and protect the value of all
Proprietary Assets. Neither Company has (other than pursuant to license
agreements or nondisclosure agreements identified in Part 2.10 of the Disclosure
Schedule) disclosed or delivered to any Person, or permitted the disclosure or
delivery to any Person of, (i) the source code, or any portion or aspect of the
source code, of any Proprietary Asset, or (ii) the object code, or any portion
or aspect of the object code, of any Proprietary Asset.
(c) To the best of the Partners' knowledge, the manufacture,
use, sale or other disposition of the Company's products will not infringe the
patents of any other Person. None of the Company Proprietary Assets is
infringing, or at any time has infringed, on any other Intellectual Property
rights of any other Person. Neither Company has at any time received any notice
or other written communication of any actual or alleged infringement of any
Intellectual Property Rights of any other Person by any of the Proprietary
Assets. The Company has not misappropriated any trade secrets of any other
Person. To the best of the Partners' knowledge, no other Person is infringing,
misappropriating or making any unlawful use of, and no Proprietary Asset owned
or used by any other Person infringes or conflicts with, any Proprietary Asset.
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(d) (i) Each Proprietary Asset conforms in all material
respects with any specification, documentation, performance standard,
representation or statement made or provided with respect thereto by or on
behalf of the Company; and (ii) there has not been any claim by any customer or
other Person alleging that any Proprietary Asset (including each version thereof
that has ever been licensed or otherwise made available by the Company to any
Person) does not conform in all material respects with any specification,
documentation, performance standard, representation or statement made or
provided by or on behalf of the Company, and, to the best of the knowledge of
the Company, there is no basis for any such claim.
(e) The Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Companies to conduct its business in the manner
in which such business has been and is being conducted. (i) The Companies have
not licensed any of the Proprietary Assets to any Person on an exclusive basis,
and (ii) the Companies have not entered into any covenant not to compete or
Contract limiting its ability to exploit fully any of its Proprietary Assets or
to transact business in any market or geographical area or with any Person.
(f) (i) All current and former employees of the Companies have
executed and delivered to the Companies an agreement (containing no exceptions
to or exclusions from the scope of its coverage) that is substantially identical
to the form of Confidential Information and Invention Assignment Agreement
previously delivered to Purchaser, and (ii) all current and former consultants
and independent contractors to the Companies have executed and delivered to the
Companies an agreement (containing no exceptions to or exclusions from the scope
of its coverage) that is substantially identical to the form of Consultant
Confidential Information and Invention Assignment Agreement previously delivered
to Purchaser.
2.10 CONTRACTS.
(a) Part 2.10 of the Disclosure Schedule identifies:
(i) each Company Contract relating to the
employment of, or the performance of services by, any employee, consultant or
independent contractor;
(ii) each Company Contract relating to the
acquisition, transfer, use, development, sharing or license of any technology or
any Proprietary Asset;
(iii) each Company Contract imposing any
restriction on either Company's right or ability (A) to compete with any other
Person, (B) to acquire any product or other asset or any services from any other
Person, to sell any product or other asset to or perform any services for any
other Person or to transact business or deal in any other manner with any other
Person, or (C) develop or distribute any technology;
(iv) each Company Contract creating or involving any
agency relationship, distribution arrangement or franchise relationship;
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(v) each Company Contract relating to the
acquisition, issuance or transfer of any securities;
(vi) each Company Contract relating to the creation
of any Encumbrance with respect to any asset of the Company;
(vii) each Company Contract involving or
incorporating any guaranty, any pledge, any performance or completion bond, any
indemnity or any surety
arrangement;
(viii) each Company Contract creating or relating to
any partnership or joint venture or any sharing of revenues, profits, losses,
costs or liabilities;
(ix) each Company Contract relating to the
purchase or sale of any product or other asset by or to, or the performance of
any services by or for, any Related Party (as defined in Section 2.18);
(x) each Company Contract constituting or
relating to a Government Contract or Government Bid;
(xi) any other Company Contract that was entered into
outside the ordinary course of business or was inconsistent with the Company's
past practices;
(xii) any other Company Contract that has a term
of more than 60 days and that may not be terminated by the Company (without
penalty) within 60 days after the delivery of a termination notice by the
Company; and
(xiii) any other Company Contract that
contemplates or involves (A) the payment or delivery of cash or other
consideration in an amount or having a value in excess of $25,000 in the
aggregate, or (B) the performance of services having a value in excess of
$25,000 in the aggregate.
(Contracts in the respective categories described in clauses "(i)" through
"(xiii)" above are referred to in this Agreement as "Material Contracts.")
(b) The Companies have delivered to Purchaser accurate and
complete copies of all written Materials Contracts, including all amendments
thereto. Part 2.10 of the Disclosure Schedule provides an accurate description
of the terms of each Material Contract that is not in written form. Each
Material Contract is valid and in full force and effect, and, to the best of the
knowledge of the Companies, is enforceable by the Companies in accordance with
its terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.10 of the Disclosure
Schedule:
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(i) neither Company has violated or breached, or committed
any default under, any Material Contract, and, to the best of the knowledge of
the Companies, no other Person has violated or breached, or committed any
default under, any Material Contract;
(ii) no event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time) will, or could
reasonably be expected to, (A) result in a violation or breach of any of the
provisions of any Material Contract, (B) give any Person the right to declare a
default or exercise any remedy under any Material Contract, (C) give any Person
the right to accelerate the maturity or performance of any Material Contract, or
(D) give any Person the right to cancel, terminate or modify any Material
Contract;
(iii) within the two years before the Closing, neither
Company has received any notice or other communication regarding any actual or
possible violation or breach of, or default under, any Material Contract; and
(iv) neither Company has waived any of its material rights
under any Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the
terms of any Material Contract to renegotiate, any amount paid or payable to
either Company under any Material Contract or any other material term or
provision of any Material Contract.
(e) The Contracts identified in Part 2.10 of the Disclosure
Schedule collectively constitute all of the Contracts necessary to enable the
Companies to conduct their business in the manner in which its business is
currently being conducted.
2.11 LIABILITIES. Neither Company has any accrued, contingent or
other liabilities of any nature, either matured or unmatured (whether or not
required to be reflected in financial statements in accordance with generally
accepted accounting principles, and whether due or to become due), except for:
(a) liabilities identified as such in the "liabilities" column of the respective
Interim Balance Sheet; (b) accounts payable, accrued salaries or other
liabilities that have been incurred by the Company since the Statement Date in
the ordinary course of business and consistent with the Company's past
practices; (c) liabilities under the Material Contracts identified in Part 2.10
of the Disclosure Schedule, to the extent the nature and magnitude of such
liabilities can be specifically ascertained by reference to the text of such
Material Contracts; and (d) the liabilities identified in Part 2.11 of the
Disclosure Schedule.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Each Company is, and has
at all times since inception been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a Material Adverse Effect on the Company. Since
inception, neither Company has
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received any notice or other communication from any Governmental Body regarding
any actual or possible violation of, or failure to comply with, any Legal
Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Disclosure
Schedule identifies each material Governmental Authorization held by each
Company, and the Companies have delivered to Purchaser accurate and complete
copies of all Governmental Authorizations identified in Part 2.13 of the
Disclosure Schedule. The Governmental Authorizations identified in Part 2.13 of
the Disclosure Schedule are valid and in full force and effect, and collectively
constitute all Governmental Authorizations necessary to enable the Companies to
conduct its business in the manner in which its business is currently being
conducted. The Companies are, and at all times since inception have been, in
substantial compliance with the terms and requirements of the respective
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule.
Since inception, neither Company has received any notice or other communication
from any Governmental Body regarding (a) any actual or possible violation of or
failure to comply with any term or requirement of any Governmental
Authorization, or (b) any actual or possible revocation, withdrawal, suspension,
cancellation, termination or modification of any Governmental Authorization.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of
either Company with any Governmental Body with respect to any taxable period
ending on or before the Closing Date (the "Company Returns") (i) have been or
will be filed on or before the applicable due date (including any extensions of
such due date), and (ii) have been, or will be when filed, accurately and
completely prepared in all material respects in compliance with all applicable
Legal Requirements. All amounts shown on the Company Returns to be due on or
before the Closing Date have been or will be paid on or before the Closing Date.
The Companies have delivered to Purchaser accurate and complete copies of all
Company Returns for fiscal years from 1994.
(b) The Company and Partnership Financial Statements fully
accrue all actual and contingent liabilities for Taxes with respect to all
periods through the dates thereof, except for any Taxes due for the tax period
ending September 30, 1999. The Companies will establish, in the ordinary course
of business and consistent with its past practices, reserves adequate for the
payment of all Taxes for the period from the Statement Date through the Closing
Date, and the Companies will disclose the dollar amount of such reserves to
Purchaser on or prior to the Closing Date.
(c) No Company Return relating to income Taxes has ever been
examined or audited by any Governmental Body. There have been no examinations or
audits of any Company Return. The Companies have delivered to Purchaser accurate
and complete copies of all audit reports and similar documents (to which the
Companies has access) relating to the Company Returns. No extension or waiver of
the limitation period
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applicable to any of the Company Returns has been granted (by the Companies or
any other Person), and no such extension or waiver has been requested from the
Companies.
(d) No claim or Proceeding is pending or has been threatened
against or with respect to the Companies in respect of any Tax. There are no
unsatisfied liabilities for Taxes (including liabilities for interest, additions
to tax and penalties thereon and related expenses) with respect to any notice of
deficiency or similar document received by the Companies with respect to any Tax
(other than liabilities for Taxes asserted under any such notice of deficiency
or similar document which are being contested in good faith by the Companies and
with respect to which adequate reserves for payment have been established).
There are no liens for Taxes upon any of the assets of the Companies except
liens for current Taxes yet due and payable. The Companies have not entered into
or become bound by any agreement or consent pursuant to Section 341(f) of the
Code. The Companies have not been, and the Companies will not be, required to
include any adjustment in taxable income for any tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions or events occurring, or
accounting methods employed, prior to the Closing.
(e) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Companies that, considered individually or
considered collectively with any other such Contracts, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the
Code. The Companies are not, and have never been, a party to or bound by any tax
indemnity agreement, tax sharing agreement, tax allocation agreement or similar
Contract.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Disclosure Schedule identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by the Companies for
the benefit of any employee of the Companies ("Employee"), except for Plans
which would not require the Companies to make payments or provide benefits
having a value in excess of $10,000 in the aggregate.
(b) The Companies do not maintain, sponsor or contribute to,
and, to the best of the knowledge of the Companies, have not at any time in the
past maintained, sponsored or contributed to, any employee pension or welfare
benefit plan (as defined in Section 3 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), whether or not excluded from coverage under
specific Titles or Subtitles of ERISA) for the benefit of Employees or former
Employees (a "Pension Plan").
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(c) Part 2.15(k) of the Disclosure Schedule contains a list of
all salaried employees of the Companies as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. The Companies are not a party to any collective bargaining
contract or other Contract with a labor union involving any of its Employees.
All of the Companys' employees are "at will" employees.
(d) Part 2.15(l) of the Disclosure Schedule identifies each
Employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date of
return to full service.
(e) The Companies are in compliance in all material respects
with all applicable Legal Requirements and Contracts relating to employment,
employment practices, wages, bonuses and terms and conditions of employment,
including employee compensation matters.
(f) The Companies have no reason to believe that the
consummation of the Acquisition or any of the other transactions contemplated by
this Agreement will have a Material Adverse Effect on the Company's labor
relations. To the Companys' knowledge, none of the Companys' employees intends
to terminate his or her employment with the Companies.
2.16 ENVIRONMENTAL MATTERS. The Companies are in compliance in all
respects with all applicable Environmental Laws.
2.17 INSURANCE. Part 2.17 of the Disclosure Schedule identifies all
insurance policies maintained by, at the expense of or for the benefit of the
Companies. No claims have ever been made thereunder Each of the insurance
policies identified in Part 2.17 of the Disclosure Schedule is in full force and
effect. Since inception, neither Company has received any notice or other
communication regarding any actual or possible (a) cancellation or invalidation
of any insurance policy, (b) refusal of any coverage or rejection of any claim
under any insurance policy, or (c) material adjustment in the amount of the
premiums payable with respect to any insurance policy
2.18 RELATED PARTY TRANSACTIONS.
(a) No Related Party has any direct or indirect interest in
any material asset used in the business of the Companies;
(b) no Related Party is indebted to the Companies;
(c) no Related Party has entered into, or has had any
direct or indirect financial interest in any Material Contract or other business
dealing involving the Companies;
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(d) no Related Party is competing with the Companies; and
(e) no Related Party has any claim or right against the
Companies (other than rights to receive compensation for services performed as
an employee).
(For purposes of the Section 2.18 each of the following shall be deemed to be a
"Related Party": (i) each of the Partners; (ii) each individual who is a
director or officer of the Corporation; (iii) each member of the immediate
family of each of the individuals referred to in clauses "(i)" and "(ii)" above;
and (iv) any trust or other Entity (other than the Partnership or the
Corporation) in which any one of the individuals referred to in clauses "(i)",
"(ii)" and "(iii)" above holds (or in which more than one of such individuals
collectively hold), beneficially or otherwise, a controlling voting, proprietary
or equity interest.
2.19 LEGAL PROCEEDINGS; ORDERS.
(a) There is no pending Legal Proceeding, and (to the best of
the knowledge of the Companies) no Person has threatened to commence any Legal
Proceeding: (i) that involves the Companies or any of the Purchased Assets; or
(ii) that challenges, or that may have the effect of preventing, delaying,
making illegal or otherwise interfering with, the Acquisition or any of the
other transactions contemplated by this Agreement. To the best of the knowledge
of the Companies, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that will, or that could reasonably be
expected to, give rise to or serve as a basis for the commencement of any such
Legal Proceeding.
(b) There is no order, writ, injunction, judgment or decree to
which the Companies, or any of the Purchased Assets, is subject. None of the
Partners is subject to any order, writ, injunction, judgment or decree that
relates to the Company's business or to any of the assets owned or used by the
Companies. To the best of the knowledge of the Company, no officer or other
employee of the Company is subject to any order, writ, injunction, judgment or
decree that prohibits such officer or other employee from engaging in or
continuing any conduct, activity or practice relating to the Company's business.
2.20 AUTHORITY; BINDING NATURE OF AGREEMENT. The Companies have the
absolute and unrestricted right, power and authority to enter into and to
perform its obligations under this Agreement; and the execution, delivery and
performance by the Companies of this Agreement have been duly authorized by all
necessary action on the part of the Companies and their board of directors or
partners. This Agreement constitutes the legal, valid and binding obligation of
the Companies, enforceable against them in accordance with its terms, subject to
(i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
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2.21 NON-CONTRAVENTION; CONSENTS. Neither (1) the execution,
delivery or performance of this Agreement or any other agreement to which
Companies are or will be a party that are required to be executed pursuant to
this Agreement ("Company Ancillary Agreement"), nor (2) the consummation of the
Acquisition or any of the other transactions contemplated by this Agreement,
will directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i)
any of the provisions of either Company's Charter or bylaws or partnership
agreement then in effect, or (ii) any resolution adopted by the Company's
shareholders, or partners or the Company's board of directors or any committee
of the Company's board of directors then in effect;
(b) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any Legal Requirement or any order, writ, injunction, judgment
or decree to which either Company, or any of the assets owned or used by the
Companies, is subject;
(c) contravene, conflict with or result in a violation of any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by either Company or that otherwise relates to either
Company's business or to any of the assets owned or used by either Company if
such action would have a Material Adverse Effect;
(d) contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of any Material Contract,
or give any Person the right to (i) declare a default or exercise any remedy
under any such Material Contract, (ii) accelerate the maturity or performance of
any such Material Contract, or (iii) cancel, terminate or modify any such
Material Contract if such action would have a Material Adverse Effect; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by either Company
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of the Companies).
The Companies are not and will not be required to make any filing with or give
any notice to, or to obtain any Consent from, any Person in connection with (x)
the execution, delivery or performance of this Agreement or any Company
Ancillary Agreement, or (y) the consummation of the Acquisition or any of the
other transactions contemplated by this Agreement.
2.22 FULL DISCLOSURE. This Agreement (including the Disclosure
Schedule) does not, and the Closing Certificate will not, (i) contain any
representation, warranty or
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information that is false or misleading with respect to any material fact, or
(ii) omit to state any material fact necessary in order to make the
representations, warranties and information contained and to be contained herein
and therein (in light of the circumstances under which such representations,
warranties and information were or will be made or provided) not false or
misleading.
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER.
Parent and Purchaser jointly and severally represent and
warrant to the Company and the Partners as follows:
3.1 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Purchaser
have the absolute and unrestricted right, power and authority to perform their
obligations under this Agreement; and the execution, delivery and performance by
Parent and Purchaser of this Agreement have been duly authorized by all
necessary action on the part of Parent and Purchaser and their respective boards
of directors. No vote of Parent's shareholders is needed to approve the
Acquisition. This Agreement constitutes the legal, valid and binding obligation
of Parent and Purchaser, enforceable against each of them in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
3.2 ORGANIZATION AND STANDING. Each of the Parent and Purchaser is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, has all requisite corporate power and authority
to own, operate and lease its properties and carry on its business as now
conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to so qualify
would have a material adverse effect on the business, properties, prospects,
condition (financial or otherwise) or results in operations of Parent or
Purchaser.
3.3 AUTHORITY, APPROVAL AND ENFORCEABILITY.
(a) The execution and delivery by each of Parent and
Purchaser, as the case may be, of this Agreement does not, and the performance
and consummation of the transactions contemplated by this Agreement will not,
result in or give rise to (with or without the giving of notice or the lapse of
time, or both) any conflict with, breach or violation of, or default,
termination, forfeiture or acceleration of obligations under, any terms or
provisions of its (i) Certificate of Incorporation or Bylaws then in effect, as
the case may be, (ii) to the best of Parent's knowledge, any statute, rule,
regulation or any judicial, governmental, regulatory or administrative decree,
order or judgment applicable to them, or (iii) any material agreement, lease or
other instrument to which its is a party or to which it or any of its assets may
be bound and which has been filed as an exhibit to any of the registration
statements or reports filed with the SEC by Parent.
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(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental entity is required by
or with respect to Parent or Purchaser in connection with the execution and
delivery of this Agreement or the consummation by Parent or Purchaser of the
transactions contemplated hereby or thereby.
(c) This Agreement is a legal, valid and binding obligation of
Parent and/or Purchaser, enforceable against them in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and subject to general equitable principles.
3.4 COMPLIANCE WITH OTHER INSTRUMENTS. Neither Parent nor
Purchaser is in violation of any term of its Certificate of Incorporation or
Bylaws, or in any material respect of any agreement which has been filed as an
exhibit to any registration statements or reports filed with the SEC by Parent,
and to the best of its knowledge, is not in violation of any order, statute,
rule or regulation applicable to it. To the best of Parent's knowledge, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not conflict with or result in any
violation of any material statute, law, rule, regulation, judgment, order,
decree or ordinance applicable to Parent or Purchaser or their respective
properties or assets. The execution and delivery of this Agreement and
consummation of the transactions contemplated hereby will not conflict with or
result in any breach or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit, under (i) any
provision of the Certificate of Incorporation or Bylaws of Parent or Purchaser
or (ii) any material agreement, contract, note, mortgage, indenture, lease,
instrument, permit, concession, franchise or license to which Parent or
Purchaser is a party or by which Parent or Purchaser or their respective
properties or assets may be bound or affected and which has been or will be
filed as an exhibit to any registration statement or report filed with the SEC
by Parent.
3.5 PARENT STOCK OPTION PLAN. Parent's Key Employee Incentive Plan
(1992), under which certain Employees who accept employment with Parent or
Purchaser may be issued stock options, has been duly authorized and adopted by
all necessary action on the part of Parent's board of directors and Partners and
the securities of Parent reserved for issuance thereunder have been duly
registered or qualified for issuance in accordance with all applicable federal
and state securities laws (or available exemptions therefrom) and will be issued
in compliance with all applicable federal and state securities laws (or
available exemption therefrom).
4. CERTAIN COVENANTS OF THE COMPANY AND PARENT
4.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Closing Date (the "Pre-Closing Period"), the Company
shall, and shall cause its Representatives to: (a) provide Purchaser and
Purchaser's Representatives with reasonable access to the Company's
Representatives, personnel and assets and to all
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existing books, records, Tax Returns, work papers and other documents and
information relating to the Company; and (b) provide Purchaser and Purchaser's
Representatives with copies of such existing books, records, Tax Returns, work
papers and other documents and information relating to the Company, and with
such additional financial, operating and other data and information regarding
the Company, as Purchaser may reasonably request.
4.2 OPERATION OF THE COMPANY'S BUSINESS. Unless permitted by
Purchaser, during the Pre-Closing Period:
(a) each Company shall conduct its business and operations
in the ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement;
(b) each Company shall use reasonable efforts to preserve
intact its current business organization, keep available the services of its
current officers and employees and maintain its relations and good will with all
suppliers, customers, landlords, creditors, employees and other Persons having
business relationships with the Company;
(c) each Company shall keep in full force all insurance
policies identified in Part 2.17 of the Disclosure Schedule or procure
substantial similar policies;
(d) each Company shall cause its officers to report regularly
(but in no event less frequently than weekly) to Purchaser concerning the status
of the Company's business;
(e) neither Company shall declare, accrue, set aside or pay
any dividend or make any other distribution in respect of any shares of capital
stock or partnership interest, and shall not repurchase, redeem or otherwise
reacquire any shares of capital stock, partnership interest or other securities;
(f) neither Company shall sell, issue or authorize the
issuance of (i) any capital stock, partnership interest or other security, (ii)
any option or right to acquire any capital stock, partnership interest or other
security, or (iii) any instrument convertible into or exchangeable for any
capital stock, partnership interest or other security;
(g) neither Company shall amend the Company's Certificate of
Incorporation or bylaws or partnership agreement, or become a party to any
Acquisition Transaction;
(h) neither Company shall form any subsidiary or acquire any
equity interest or other interest in any other Entity;
(i) neither Company shall make any capital expenditure, except
for capital expenditures that, when added to all other capital expenditures made
on behalf of
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the Companies during the Pre-Closing Period, do not on average exceed $20,000
per month;
(j) neither Company shall (i) enter into, or permit any of
the material assets owned or used by it to become bound by, any Encumbrance, or
(ii) amend or prematurely terminate, or waive any material right or remedy
under, any Material Contract;
(k) except in the ordinary course of its business, neither
Company shall: (1) (i) acquire, lease or license any right or other asset from
any other Person (except as otherwise required under this Agreement), (ii) sell
or otherwise dispose of, or lease or license, any right or other asset to any
other Person, or (iii) waive or relinquish any right, except for assets
acquired, leased, licensed or disposed of by the Company pursuant to Contracts
that are not Material Contracts or (2) enter into any transaction material to
the business or the Purchased Assets;
(l) neither Company shall (i) lend money to any Person (except
that the Companies may make routine travel advances to employees in the ordinary
course of business) or (ii) incur or guarantee any indebtedness for borrowed
money;
(m) neither Company shall (i) establish, adopt or amend any
Employee Benefit Plan, (ii) pay any bonus or make any profit-sharing payment,
cash incentive payment or similar payment to, or increase the amount of the
wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees, or (iii)
hire any new employee whose aggregate annual compensation is expected to exceed
$50,000;
(n) neither Company shall change any of its methods of
accounting or accounting practices in any material respect;
(o) neither Company shall make any Tax election;
(p) neither Company shall commence or settle any material
Legal Proceeding;
(q) neither Company shall agree or commit to take any of the
actions described in clauses "(e)" through "(p)" above.
4.3 NOTIFICATION. During the Pre-Closing Period, the Companies
shall promptly notify Purchaser in writing of:
(a) the discovery by the Companies of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or a breach of any
representation or warranty made by the Companies or the Partners in this
Agreement;
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(b) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or a breach of any representation or warranty made
by the Companies or the Partners in this Agreement if such representation or
warranty had been made as of the time of the occurrence, existence or discovery
of such event, condition, fact or circumstance;
(c) any breach of any covenant or obligation of the Companies
or the Partners;
(d) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 5 or
Section 6 impossible or unlikely; and
(e) any material change in the business, financial condition,
properties or prospects of the Companies or the Partners.
4.4 FILINGS AND CONSENTS. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (a) shall make all
filings (if any) and give all notices (if any) required to be made and given by
such party in connection with the Acquisition and the other transactions
contemplated by this Agreement, (b) shall use all commercially reasonable
efforts to obtain all Consents (if any) required to be obtained (pursuant to any
applicable Legal Requirement or Contract, or otherwise) by such party in
connection with the Acquisition and the other transactions contemplated by this
Agreement, (c) in the case of the Company, use commercially reasonable efforts
to otherwise satisfy the conditions specified in Section 6 of this Agreement,
and (d) in the case of the Parent and Purchaser, use commercially reasonable
efforts to otherwise satisfy the conditions specified in Section 5 of this
Agreement. Each party shall (upon request) promptly deliver to Purchaser the
other a copy of each such filing made, each such notice given and each such
Consent obtained during the Pre-Closing Period.
4.5 PROPRIETARY INFORMATION AGREEMENTS. At or prior to the
Closing, each of the Employees shall execute and deliver to the Company and
Purchaser a Proprietary Information Agreement in the Company's standard form.
4.6 PUBLIC ANNOUNCEMENTS. During the Pre-Closing period, (a)
neither party shall issue any press release or make any public statement
regarding this Acquisition or the Agreement, or any of the other transactions
contemplated by this Agreement without the prior written consent of the other.
4.7 GRANT OF OPTIONS. As soon as reasonably practicable after the
effective time of the Acquisition, anticipated to be no earlier than January 30,
2000, Parent shall, subject to approval of its board of directors, grant options
to purchase an aggregate of 100,000 shares of common stock of Parent under
Parent's Key Employee Incentive Plan (1992) to those employees of the Company
that accept employment with Parent or Purchaser.
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5. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND PURCHASER
The obligations of Parent and Purchaser to effect the Acquisition and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:
5.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Company in this Agreement and in each of the other
agreements and instruments delivered to Parent in connection with the
transactions contemplated by this Agreement shall have been accurate in all
material respects as of the date of this Agreement, and shall be accurate in all
material respects as of the Closing Date as if made on the Closing Date.
5.2 PERFORMANCE OF COVENANTS. All of the covenants and
obligations that the Company is required to comply with or to perform at or
prior to the Closing shall have been complied with and performed in all
respects.
5.3 SHAREHOLDER APPROVAL. The principal terms of the Acquisition
shall have been duly approved by the unanimous vote of the shares of Corporation
capital stock entitled to vote with respect thereto and all partners of the
Partnership.
5.4 CONSENTS. All Consents required to be obtained in connection
with the Acquisition and the other transactions contemplated by this Agreement
(including the Consents identified in Part 2.21 of the Disclosure Schedule)
shall have been obtained and shall be in full force and effect.
5.5 AGREEMENTS AND DOCUMENTS. Purchaser shall have received the
following agreements and documents, each of which shall be in full force and
effect:
(a) any bills of sale, endorsements and assignments in form
acceptable to Purchaser transferring title to the Purchased Assets to Purchaser;
(b) such other documents evidencing the transfer of the
Purchased Assets to Purchaser as are reasonably requested by Purchaser;
(c) evidence that any notices or filings required to have been
given to or made in connection with the transactions contemplated by this
Agreement have been given and made and that all Consents required to have been
obtained in connection with such transactions have been obtained; and
(d) such other documents as Purchaser may request in good
faith for the purpose of (i) evidencing the accuracy of any representation or
warranty made by Companies or the Partners, (ii) evidencing the compliance by
Companies or the Partners with, or the performance by Companies or the Partners
of, any covenant or obligation set forth in this Agreement, (iii) evidencing the
satisfaction of any condition set forth in this
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Section 7, or (iv) otherwise facilitating the consummation or performance of any
of the transactions contemplated by this Agreement.
(e) Proprietary Information Agreements in the form attached
hereto as Exhibit I-1, executed by the Employees;
(f) Noncompetition Agreement in the form attached hereto as
Exhibit I-2, executed by each of Michael Whittingham, Mark Bain and Thomas Burke
(collectively, the "Partners");
(g) a legal opinion of Baker & McKenzie dated as of the
Closing Date, in the form of Exhibit J; and
(h) a certificate executed by the Company stating that the
conditions set forth in this Section 5 have been duly satisfied in all material
respects (the "Closing Certificate")
5.6 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
Acquisition shall have been issued by any court of competent jurisdiction and
remain in effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Acquisition that makes consummation of the Acquisition
illegal. No action shall have been taken, and no statute, rule, regulation or
order shall have been enacted, promulgated or issued or deemed applicable to the
Acquisition by any governmental entity which would (i) make the consummation of
the Acquisition illegal; (ii) prohibit Purchaser's, Parent's or the Company's
ownership or operation of all or a material portion of the business or assets of
Purchaser, Parent or the Company, or compel Purchaser, Parent or the Company to
dispose of or hold separate all or a material portion of the business or assets
of the Company, Purchaser or Parent as a result of the Acquisition or (iii)
render Parent, Purchaser or the Company unable to consummate the Acquisition,
except for any waiting provisions.
5.7 NO LEGAL PROCEEDINGS. No Person shall have commenced or threatened
to commence any Legal Proceeding challenging or seeking the recovery of a
material amount of damages in connection with the Acquisition or seeking to
prohibit or limit the exercise by Purchaser or Parent of any material right
pertaining to its ownership of Purchased Assets.
5.8 DUE DILIGENCE. Purchaser and Parent shall have completed business,
technical, legal and financial due diligence on the Company and its products and
the results of such due diligence shall be acceptable to Parent and Purchaser.
5.9 INTELLECTUAL PROPERTY ASSIGNMENTS. All current and former
employees, consultants and independent contractors of the Company identified by
Purchaser prior to the Closing Date (including those involved in the creation or
development of intellectual property) to assign to Purchaser all rights to
intellectual property related to the
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Company's business if such intellectual property rights were not previously
assigned to the Company to Purchaser's satisfaction.
5.10 EMPLOYEES.
(a) Each of the Partners shall have agreed to become a
full-time employee of the Purchaser or Parent.
(b) The number of persons employed by the Company at the
Closing Date shall not exceed 10.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANIES
The obligations of the Companies to sell and transfer the Purchased
Assets and otherwise consummate the transactions contemplated by this Agreement
are subject to the satisfaction, at or prior to the Closing, of the following
conditions:
6.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and Purchaser in this Agreement shall have been
accurate in all material respects as of the date of this Agreement, and shall be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
6.2 PERFORMANCE OF COVENANTS. All of the covenants and
obligations that Parent and Purchaser are required to comply with or to perform
at or prior to the Closing shall have been complied with and performed in all
respects.
6.3 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
Acquisition shall have been issued by any court of competent jurisdiction and
remain in effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Acquisition that makes consummation of the Acquisition
illegal.
7. TERMINATION
7.1 TERMINATION EVENTS.
(a) This Agreement may be terminated prior to
the Closing:
(1) by Parent or Purchaser if:
(a) Parent or Purchaser reasonably
determines that the timely satisfaction of any condition set forth in Section 5
has become impossible (other than as a result of any failure on the part of
Parent or Purchaser to comply with or perform any covenant or obligation of
Parent or Purchaser set forth in this Agreement); or
(b) the Closing has not taken place on
or before December 31, 1999 (other than as a result of any failure on the part
of Parent or Purchaser
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to comply with or perform any covenant or obligation of Parent or Purchaser set
forth in this Agreement); or
(c) any of the Partners ceases to be
employed full-time by the Companies.
(2) by either of the Companies if:
(a) the Company reasonably determines
that the timely satisfaction of any condition set forth in Section 6 has become
impossible (other than as a result of any failure on the part of the Company to
comply with or perform any covenant or obligation set forth in this Agreement or
in any other agreement or instrument delivered to Parent or Purchaser), or
(b) the Closing has not taken place on
or before December 31, 1999 (other than as a result of the failure on the part
of the Company or any of the Partners or Shareholders to comply with or perform
any covenant or obligation set forth in this Agreement).
(b) This Agreement may be terminated by the mutual consent of
Parent, Purchaser and the Company and the Partners.
7.2 TERMINATION PROCEDURES. If Parent or Purchaser wishes to
terminate this Agreement pursuant to Section 7.1(a), Parent or Purchaser shall
deliver to the Company a written notice stating that Parent or Purchaser is
terminating this Agreement and setting forth a brief description of the basis on
which Parent or Purchaser is terminating this Agreement. If the Company wishes
to terminate this Agreement pursuant to Section 7.1(b), the Company shall
deliver to Parent and Purchaser a written notice stating that the Company is
terminating this Agreement and setting forth a brief description of the basis on
which the Company is terminating this Agreement.
7.3 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 7.1, all representations and warranties of the parties
hereto shall expire and all further obligations of the parties under this
Agreement shall terminate; provided, however, that: (a) none of the Parties
shall be relieved of any obligation or liability arising from any prior breach
by such party of any provision of this Agreement; (b) the parties shall, in all
events, remain bound by and continue to be subject to the provisions set forth
in Section 9.6; and (c) the parties shall, in all events, remain bound by and
continue to be subject to Section 4.7.
8. INDEMNIFICATION, ETC.
8.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) The representations and warranties made by the Company
(including the representations and warranties set forth in Section 2 and the
representation
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<PAGE>
and warranties set forth in the Closing Certificate) (as modified by the
Disclosure Schedule) shall survive the Closing for a period of two years from
the execution of this Agreement, except a representation or warranty which shall
prove to be untrue due to the fraud of either Company or any Partner, in which
case it shall survive until the expiration of the applicable statute of
limitations with respect to the subject matter thereof. All representations and
warranties made by Parent and Purchaser shall terminate and expire as of the
Closing Date, but any liability of Parent or Purchaser with respect to any
breach of such representations and warranties shall survive the Closing for a
period of two years from the execution of this Agreement.
(b) The representations, warranties, covenants and obligations
of the Company and the Partners, and the rights and remedies that may be
exercised by the Indemnitees, shall not be limited or otherwise affected by or
as a result of any investigation made by any of the Indemnitees or any of their
Representatives.
(c) For purposes of this Agreement, each statement or other
item of information set forth in the Disclosure Schedule shall be deemed to
limit the corresponding representation and warranty made by the Company in this
Agreement.
8.2 NOTICE OF BREACH AND OPPORTUNITY TO CURE. If Purchaser or
Parent reasonably determines that any representation, warranty, covenant or
obligation of the Company, the Partnership or the Partners has been or will be
breached, Purchaser and Parent shall (a) give the Agent specified in Section 9.1
written notice of breach; (b) request from the Company or the Partnership
remedial action to cure such breach; and (c) use commercially reasonable efforts
to assist the Company or the Partnership, at their sole expense, to cure any
such breach, provided that the failure to do so shall not limit Company's or the
Partners obligation under Section 8.3.
8.3 INDEMNIFICATION BY COMPANY AND PARTNERS.
(a) The Company and the Partners, jointly and severally, shall
hold harmless and indemnify each of the Indemnitees from and against, and shall
compensate and reimburse each of the Indemnitees for, any monetary Damages
actually incurred by any of the Indemnitees (regardless of whether or not such
Damages relate to any third-party claim) as the result of: (i) any inaccuracy in
or breach of any representation or warranty set forth in Section 2; or (ii) any
breach of any covenant or obligation of the Company or the Partners set forth
herein (including the covenants set forth in Section 4).
(b) The Company and the Partners acknowledge and agree that,
if the Purchaser incurs any Damages specified in Section 8.2(a), above, then
(without limiting any of the rights of the Purchaser as an Indemnitee) Parent
shall also be deemed, by virtue of its ownership of the stock of the Purchaser,
to have incurred such Damages.
8.4 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion
or commencement by any Person of any claim or Legal Proceeding (whether against
the Purchaser, against Parent or against any other Person) with respect to which
the Company
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<PAGE>
or the Partners may become obligated to hold harmless, indemnify, compensate or
reimburse any Indemnitee pursuant to this Section 8, Parent shall have the
right, at its election, to proceed with the defense of such claim or Legal
Proceeding on its own. If Parent so proceeds with the defense of any such claim
or Legal Proceeding:
(a) all reasonable expenses relating to the defense of such
claim or Legal Proceeding shall be borne and paid exclusively by the Parent;
(b) the Company and each Partner shall make available to
Parent any documents and materials in its or his possession or control that may
be necessary to the defense of such claim or Legal Proceeding; and
(c) Parent shall have the right to settle, adjust or
compromise such claim or Legal Proceeding with the consent of the Agent (as
defined in Section 9.1); provided, however, that such consent shall not be
unreasonably withheld.
Parent shall give the Agent prompt notice of the commencement
of any such Legal Proceeding against Parent or the Purchaser; provided, however,
that any failure on the part of Parent to so notify the Agent shall not limit
any of the obligations of the Partners under this Section 8 (except to the
extent such failure materially prejudices the defense of such Legal Proceeding).
8.5 OFFSET AGAINST UNPAID AMOUNTS. IWithout limiting such other
rights as Parent and Purchaser may have, if, prior to the time that any payment
of the purchase price is to be delivered, (a) Parent or Purchaser has notified
the Agent specified in Section 9.1 of a breach of any representation, warranty,
covenant or obligation of Company or the Partners contained in this Agreement,
and (b) neither the Company nor the Partners have cured the breach, Parent or
Purchaser in its sole discretion may, by further written notice to the Agent,
deduct from the amount of such payment otherwise deliverable an amount equal to
the Damages actually incurred as a result of such breach. If upon receipt of
such notice, the Agent disagrees with the Parent's or the Purchaser's notice of
breach, Parent and Purchaser shall pay the amount otherwise deliverable to the
Company or the Partnership irrevocably into an escrow account, to be released
upon receipt of joint instructions from all parties or of a judicial or arbitral
award.
8.6 TREATMENT AS ADJUSTMENT OF PURCHASE PRICE. Any final
indemnity payment made by a party hereunder shall be treated as an adjustment of
the purchase price.
8.7 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT OR
PURCHASER. No Indemnitee (other than Parent or Purchaser or any successor
thereto or assign thereof) shall be permitted to assert any indemnification
claim or exercise any other remedy under this Agreement unless Parent or
Purchaser (or any successor thereto or assign thereof) shall have consented to
the assertion of such indemnification claim or the exercise of such other
remedy.
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<PAGE>
8.8 LIMITATIONS. Notwithstanding any other provision in this
Agreement, the Parent, the Purchaser and all other Indemnitees hereby
acknowledge and agree that:
(a) the total aggregate liability of the Company, the
Partnership and the Partners under all provision of this Agreement other than
Section 8.9 shall not exceed the amount actually received by them from the
Parent or the Purchaser as consideration for the Purchased Assets; provided that
(1) the amount actually received shall not include the value of the stock
options granted to the Partners or to other employees or the shares acquired
upon exercise of such stock options; and (2) this limitation shall not affect
the offset rights of the Parent and the Purchaser under Section 8.5; and
(b) the consideration payable by the Parent and the Purchaser
for the Purchased Assets was determined solely on the basis of expected future
revenues and earnings from the business of the Company and the Partnership and
not on the value of any particular Asset or past financial results.
(c) any damage claim for breach of any representation,
warranty, covenant or obligation shall be time-barred, unless the Agent (or the
Companies or the Partners) have been notified of such breach within one year
from the date on which the Parent or the Purchaser acquired actual knowledge of
such breach.
8.9 INDEMNIFICATION FOR LIABILITIES NOT ASSUMED LIABILITIES.
Notwithstanding any other provision in this Agreement, the Companies and the
Partners, jointly and severally, shall defend, hold harmless and indemnify each
of the Indemnitees from and against, any Liability of either Company or the
Partners asserted against any Indemnitee, other than the Assumed Liabilities.
For the avoidance of doubt, the obligation of the Companies and the Partners
under this Agreement shall not be limited by the provisions of Section 8.1-8.8,
or otherwise limited in time or amount; provided only that any claim for
indemnification shall be time-barred, unless the Agent (or the Companies or the
Partners) have been notified of such claim within one year from the date on
which the Parent or the Purchaser acquired actual knowledge of such claim.
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<PAGE>
9. MISCELLANEOUS PROVISIONS
9.1 AGENT. By their approval of this Agreement at a Partners
Meeting or by written consent, the Partners will thereby irrevocably appoint
Thomas Burke as their agent for purposes of Section 8 (the "Agent"), and Mr.
Burke hereby accepts his appointment as the Agent for purposes of Section 8.
Parent shall be entitled to deal exclusively with the Agent on all matters
relating to Section 8, and shall be entitled to rely conclusively (without
further evidence of any kind whatsoever) on any document executed or purported
to be executed on behalf of any Partner by the Agent, and on any other action
taken or purported to be taken on behalf of any Partner by the Agent, as fully
binding upon such Partner. If the Agent shall die, become disabled or otherwise
be unable to fulfill his responsibilities as agent of the Partners, then the
Partners shall, within ten days after such death or disability, appoint a
successor agent and, promptly thereafter, shall notify Parent of the identity of
such successor. Any such successor shall become the "Agent" for purposes of
Section 8 and this Section 9.1. If for any reason there is no Agent at any time,
all references herein to the Agent shall be deemed to refer to the Partners.
9.2 FURTHER ASSURANCES. Each party hereto shall execute and cause
to be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
9.3 FEES AND EXPENSES. (a) Company and the Partners shall bear and
pay all fees, costs and expenses (including all legal fees and expenses payable
to Company's and Partner's counsel) that have been incurred or that are in the
future incurred by Company or the Partners in connection with:
(i) the negotiation, preparation and review of any letter of
intent or similar document relating to the purchase of the Purchased Assets;
(ii) the investigation and review conducted by Parent,
Purchaser and their representatives with respect to the business of Company (and
the furnishing of information to Parent, Purchaser and their representatives in
connection with such investigation and review);
(iii) the negotiation, preparation and review of this
Agreement (including the Schedules), all other transactional agreements and all
bills of sale, assignments, certificates, opinions and other instruments and
documents delivered or to be delivered in connection with the Purchased Assets;
(iv) the preparation and submission of any filing or notice
required to be made or given in connection with the Purchased Assets, and the
obtaining of any consent required to be obtained in connection with the
Purchased Assets; and
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<PAGE>
(v) the consummation and performance of this Agreement and the
other agreements required to be executed hereunder.
(b) Subject to the provisions of Section 8 (including the
indemnification and other obligations of Company and the Partners thereunder),
Purchaser shall bear and pay all fees, costs and expenses (including all legal
fees and expenses payable to Purchasers or Parent's counsel) that have been
incurred or that are in the future incurred by or on behalf of Purchaser and
Parent in connection with:
(i) the negotiation, preparation and review of any
letter of intent or similar document relating to the Purchased Assets;
(ii) the investigation and review conducted by Parent
and Purchaser and its representatives with respect to the business of Company;
(iii)the negotiation, preparation and review of this
Agreement, all other transactional agreements and all bills of sale,
assignments, certificates, opinions and other instruments and documents
delivered or to be delivered in connection with the Purchased Assets; and
(iv) the consummation and performance of this
Agreement and the other agreements required to be executed hereunder.
9.4 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
9.5 NOTICES. All notices, demands, requests or other
communications that may be or are required to be given, served or sent by any
party pursuant to this Agreement will be in writing (and shall be deemed to have
been duly given upon receipt), will reference this Agreement and shall be mailed
by first class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by courier, express delivery, hand delivery or facsimile
transmission, addressed to the address set forth below. Each party may designate
by notice in writing a new address to which any notice, demand, request or
communication may thereafter be so given, served or sent. Each notice that is
mailed, delivered or transmitted in the manner described above shall be deemed
sufficiently given, served, sent and received for all purposes at such time as
it is delivered to the addressee (with the return receipt, the delivery receipt
or the affidavit of messenger or courier being deemed conclusive evidence of
such delivery) or at such time as delivery is refused by the addressee upon
presentation
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<PAGE>
if to Parent: Media 100 Inc.
290 Donald Lynch Blvd.
Marlboro, MA 01752-4748
Attention: President
Facsimile: 508-303-4620
with a copy to: Lucash Gesmer Updegrove LLP
40 Broad Street
Boston, Massachusetts 02109
Attention: Peter M. Moldave
Facsimile: 617-350-6878
if to Purchaser Winchester Acquisition Corp
290 Donald Lynch Blvd.
Marlboro, MA 01752-4748
Attention: President
Facsimile: 508-303-4620
with a copy to: Lucash Gesmer Updegrove LLP
40 Broad Street
Boston, Massachusetts 02109
Attention: Peter M. Moldave
Facsimile: 617-350-6878
if to the Company: Wired, Inc.
1040-155 Grant Avenue,
Building 155
Mountain View, CA 94040
Attention: Thomas Burke
Facsimile: 831-420-0192
with a copy to: Baker & McKenzie
2 Embarcadero Center,
24th Floor
San Francisco, CA 94111
Attention: Klaus H.
Burmeister
Facsimile: 415-576-3099
9.6 CONFIDENTIALITY. Without limiting the generality of anything
contained in Section 4.9, on and at all times after the Closing Date, each
Partner shall keep confidential, and shall not use or disclose to any other
Person, any non-public document or other non-public information in such
Partner's possession that relates to the business of the Company, Purchaser or
Parent.
9.7 TIME OF THE ESSENCE. Time is of the essence of this
Agreement.
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<PAGE>
9.8 HEADINGS. The headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
9.9 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
9.10 GOVERNING LAW. Unless otherwise indicted to the contrary, this
Agreement shall be construed in accordance with, and governed in all respects
by, the internal laws of the Commonwealth of Massachusetts (without giving
effect to principles of conflicts of laws).
9.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon:
the Company and its successors and assigns (if any); the Partners and their
respective personal representatives, executors, administrators, estates, heirs,
successors and assigns (if any); Parent and its successors and assigns (if any);
and Purchaser and its successors and assigns (if any). This Agreement shall
inure to the benefit of: the Company; the Partnership; the Partners, Parent;
Purchaser; the other Indemnitees (subject to Section 8.8); and the respective
successors and assigns (if any) of the foregoing. Parent and Purchaser may
freely assign any or all of their rights under this Agreement (including its
indemnification rights under Section 8), in whole or in part, to any Person
controlling, controlled by or under common control with Parent, with written
notice to Agent within ten days of such assignment.
9.12 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the parties hereto shall be cumulative (and not alternative). The
parties to this Agreement agree that, in the event of any breach or threatened
breach by any party to this Agreement of any covenant, obligation or other
provision set forth in this Agreement for the benefit of any other party to this
Agreement, such other party shall be entitled (in addition to any other remedy
that may be available to it) to (a) a decree or order of specific performance or
mandamus to enforce the observance and performance of such covenant, obligation
or other provision, and (b) an injunction restraining such breach or threatened
breach.
9.13 WAIVER.
(a) No failure on the part of any Person to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of any Person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless
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<PAGE>
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
9.14 AMENDMENTS. This Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of all of the parties hereto.
9.15 SEVERABILITY. In the event that any provision of this
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
9.16 PARTIES IN INTEREST. Except for the provisions of Sections
1.5 and 8, none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).
9.17 ENTIRE AGREEMENT. This Agreement, the exhibits hereto and the
other agreements referred to herein set forth the entire understanding of the
parties hereto relating to the subject matter hereof and thereof and supersede
all prior agreements and understandings among or between any of the parties
relating to the subject matter hereof and thereof.
9.18 CONSTRUCTION
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
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<PAGE>
The parties hereto have caused this Agreement to be executed and
delivered as of the date first set above.
MEDIA 100 INC.,
a Delaware corporation
By:____________________________
Name, Title
Winchester Acquisition Corp.,
a Delaware corporation
By:____________________________
Name, Title
WIRED INCORPORATED,
a California corporation
By:____________________________
Thomas Burke, President
WIRED G.P,
a California general partnership
By:____________________________
________________, Principal
PARTNERS:
_______________________________
Michael Wittingham
_______________________________
Mark Bain
_______________________________
Thomas Burke
<PAGE>
EXHIBIT A -- PAYMENT FOR PURCHASED ASSETS
FIXED PAYMENTS
<TABLE>
<CAPTION>
- ---------------------------------- ---------------------------------------- -------------------------------------
PAYEE DATE AND CONDITION AMOUNT
- ---------------------------------- ---------------------------------------- -------------------------------------
<S> <C> <C>
Company At the later of Closing or $250,000
January 3, 2000
- ---------------------------------- ---------------------------------------- -------------------------------------
Partnership At the later of Closing or $1,250,000
January 3, 2000
- ---------------------------------- ---------------------------------------- -------------------------------------
Partnership First anniversary of Closing $1,500,000
- ---------------------------------- ---------------------------------------- -------------------------------------
</TABLE>
EARN-OUT PAYMENTS
FORMULA
In addition to the foregoing payments, the Purchaser shall make Earn-Out
Payments to the Partnership in accordance with the following formula for each
Relevant Period, equal to the Target Payment for the Relevant Period multiplied
by the sum of
(a) 60% multiplied by the ratio of Product Net Sales for the
Relevant Period divided by Target Net Sales plus
(b) 40% multiplied by the ratio of Product Operating Income
for the Relevant Period divided by Target Operating Income;
PROVIDED, that in order for any Earn-Out Payment to be made for a Relevant
Period, Product Net Sales must equal or exceed 60% of Target Net Sales and
Product Operating Income must equal or exceed 60% of Target Operating Income.
ALLOCATION
The amount of any earn-out payment shall be allocated among the Partners as
follows:
<TABLE>
<CAPTION>
- --------------------------------------- ----------------------------------------
RECIPIENT % OF ANY PAYMENT
- --------------------------------------- ----------------------------------------
<S> <C>
Mark Bain 35
- --------------------------------------- ----------------------------------------
Michael Wittingham 35
- --------------------------------------- ----------------------------------------
Thomas Burke 30
- --------------------------------------- ----------------------------------------
</TABLE>
DEFINITIONS.
<TABLE>
<CAPTION>
- ---------------------------- -------------------------- -------------------------- --------------------------
Relevant Period Target Payment Target Net Sales Target Operating Income
- ---------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
12 month period commencing $2,500,000 $7,700,000 $1,771,000
the first full month
- ---------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- ---------------------------- -------------------------- -------------------------- --------------------------
following the
Closing
- ---------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
12 month period commencing $2,800,000 $11,000,000 $2,530,000
one year following the
first full month
following the Closing
- ---------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
"Product" means products sold (or formerly sold prior to acquisition of the
Company) by the Company.
"Product Business Unit" means the business unit of the Parent responsible for
the development and sales of the Product, which will initially be the Purchaser
but which may changed by the Parent in accordance with its requirements.
"Product Net Sales" means gross sales to resellers, distributors, OEMs, or
customers of Product by the Company, minus discounts and returns.
"Product Gross Margin" means Product Net Sales minus direct material costs,
direct labor costs, and direct manufacturing overhead.
"Product Operating Income" means Product Gross Margin minus direct engineering
expenses, direct sales and marketing expenses, and 1% of COGS (as an overhead
expense allocation). The overhead expense allocation will cover services for
accounting, credit and collections, human resources and information technology.
PREPARATION OF FINANCIAL STATEMENTS
Within 90 days of the end of each Relevant Period, Parent shall provide the
Agent with a report setting forth the calculation of the Earn-Out Payment, with
the components comprising "Product Net Sales", "Product Gross Margin" and
"Product Operating Income" determined in accordance with generally accepted
accounting principles consistent with the Parent's financial statements, and
shall make the appropriate payment to the former shareholders of the Company for
such Relevant Period as so shown as being owed in such report. In the event that
the Agent disputes any information contained in such report or the calculation
of any Earn-Out Payment, an independent certified public accountant not
otherwise engaged by Parent or Purchaser will review the disputed report and
make a recommendation regarding changes, if any, to the report which
recommendation shall be binding on all parties.
ADJUSTMENTS AND PRO-FORMA FINANCIAL RESULTS
If before the expiration of the Earn-out Period, Parent or Purchaser:
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<PAGE>
1. sells substantially all of the business comprised of the
Purchased Assets to an unaffiliated third party; or
2. withdraws any revenue or income-producing Product from the
market (other than as a result of demonstrable lack of sales or
profitability, or technical or other defects in the Product); or
3. terminates any significant pre-Closing distributor or OEM of
the Company (other than for cause, including breach of the
applicable distribution agreement by the distributor or OEM); or
4. acquires any MPEG business which competes with the business of
the Companies as conducted on the date of this Agreement, unless
such acquisition is consented to by the Agent, such consent not to
be unreasonably withheld or
5. acquires any DVD authoring business which acquisition would
adversely affect the business relationship with Astarte or Sonic,
unless such acquisition is consented to by the Agent, such consent
not to be unreasonably withheld:
then:
(a) the Product Net Sales for the Relevant Period(s) shall be deemed to
be the highest of (1) the actual Product Net Sales; (2) the total
Target Net Sales, or (3) the sum of the Product Net Sales for the
undisturbed distribution channel plus the Target Net Sales specified
in the Business Plan for the disturbed channel multiplied with a
quotient, the numerator of which is the Product Net Sales for the
undisturbed distribution channel and the denominator of which is the
Target Net Sales for the undisturbed distribution channel; and
(b) the Product Net Operating Income for the Relevant Period(s) shall be
deemed to be the highest of (1) the actual Product Net Operating
Income; (2) the total Target Net Operating Income, or (3) the sum of
the Product Net Operating Income for the undisturbed distribution
channel plus the Target Operating Income specified in the Business
Plan for the disturbed channel multiplied with a quotient, the
numerator of which is the Product Net Operating Income for the
undisturbed distribution channel and the denominator of which is the
Target Net Operating Income for the undisturbed distribution channel.
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<PAGE>
EXHIBIT B -- CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit B):
ACQUISITION PROPOSAL. "Acquisition Proposal" means any proposal, plan,
agreement, understanding or arrangement contemplating (i) any merger,
consolidation, reorganization, recapitalization or similar transaction involving
the Companies or any of their affiliates, (ii) any transfer or issuance of any
capital stock or other securities of the Companies or any of their affiliates,
(iii) any transfer of any material asset of the Companies or any of their
affiliates, or (iv) any transaction that may be inconsistent with or that may
have a material adverse effect upon any of the transactions contemplated by this
Agreement.
AGREEMENT. "Agreement" shall mean the Asset Purchase Agreement to which
this Exhibit B is attached (including the Disclosure Schedule), as it may be
amended from time to time.
ASSUMED CONTRACTS. "Assumed Contracts" shall mean those contracts
listed on Exhibit F to the Agreement.
ASSUMED LIABILITIES. "Assumed Liabilities" shall mean the obligations
of Companies under the Assumed Contracts, but only to the extent such
obligations (i) arise after the Closing Date, (ii) do not arise from or relate
to any breach by the Companies of any provision of any of such contracts, (iii)
do not arise from or relate to any event, circumstance or condition occurring or
existing on or prior to the Closing Date that, with notice or lapse of time,
would constitute or result in a breach of any of such contracts, and (iv) are
ascertainable in nature solely by reference to the express terms of such
contracts; PROVIDED, HOWEVER, that notwithstanding the foregoing, and
notwithstanding anything to the contrary contained in the Agreement, the
"Specified Contractual Liabilities" shall not include, and Parent shall not be
required to assume or to perform or discharge:
(a) any Liability of the Partners or any other Person or Entity,
except for the Companies;
(b) any Liability of the Companies arising out of or relating to
the execution, delivery or performance of this Agreement and the other
agreements required to be executed hereunder;
(c) any Liability of Companies arising from or relating to any
action taken by Companies, or any failure on the part of Companies to
take any action, at any time prior to, on or after the Closing Date;
(d) any Liability of Companies for the payment of any tax, except
as provided in Section 1.4 of the Agreement;
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<PAGE>
(e) any Liability of either Company to the Partners, the other
Company or any other related party;
(f) any Liability of Companies to any employee, former employee,
or third party contractor under any agreement, oral or written,
including but not limited to any Employee Benefit Plan or for severance
pay, except as disclosed to the Parent or the Purchaser;
(g) any Liability under any Contract, if Companies shall not have
obtained, prior to the Closing Date, any consent required to be
obtained from any person with respect to the assignment or delegation
to Parent of any rights or obligations under such Contract;
(h) any Liability that is inconsistent with or constitutes an
inaccuracy in, or that arises or exists by virtue of any breach of, (i)
any representation or warranty made by the Partners or Companies in
this Agreement or any of the agreements required to be executed under
this Agreement, or (ii) any covenant or obligation of the Partners or
Companies contained in this Agreement or any of the agreements required
to be executed under this Agreement;
(i) any Liability that arises from or is related to the Excluded
Assets set forth in Exhibit E of the Agreement;
(j) any Liability that arises from or is related to the
transaction costs referred to in Section 9.3(a) of the Agreement; or
(k) any other Liability of Companies or of the Partners that is
not referred to specifically in "Assumed Liabilities."
CHARTER. "Charter" means the Articles of Organization of the Company.
CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to
which the Companies is a party; (b) by which the Companies or any of their
assets is or may become bound or under which the Companies have, or may become
subject to, any obligation; or (c) under which the Companies has or may acquire
any right or interest.
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Companies or otherwise used by the
Companies.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
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<PAGE>
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
CORPORATION ASSETS. "Corporation Assets" means those Purchased Assets
not owned by the Partnership.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, liability, claim, demand, settlement, judgment, award, fine, penalty,
Tax, fee (including reasonable attorneys' fees), charge, cost (including costs
of investigation) or expense of any nature.
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule
(dated as of the date of the Agreement) delivered to Parent on behalf of the
Companies.
EMPLOYEE BENEFIT Plan. "Employee Benefit Plan" shall have the meaning
specified in Section 3(3) of ERISA.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended,
ENVIRONMENTAL LAW. "Environmental Law" means any federal, state, local
or foreign Legal Requirement relating to pollution or protection of human health
or the environment (including ambient air, surface water, ground water, land
surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
41
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EXCLUDED ASSETS. "Excluded Assets" shall mean the assets identified on
Exhibit E (to the extent owned by Companies on the date of execution and
delivery of this Agreement).
GOVERNMENT BID. "Government Bid" shall mean any quotation, bid or
proposal submitted to any Governmental Body or any proposed prime contractor or
higher-tier subcontractor of any Governmental Body.
GOVERNMENT CONTRACT. "Government Contract" shall mean any prime
contract, subcontract, letter contract, purchase order or delivery order
executed or submitted to or on behalf of any Governmental Body or any prime
contractor or higher-tier subcontractor, or under which any Governmental Body or
any such prime contractor or subcontractor otherwise has or may acquire any
right or interest.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any: (a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal, foreign
or other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
INDEMNITEES. "Indemnitees" shall mean the following Persons: (a)
Parent; (b) Parent's current and future affiliates (including the Purchaser);
(c) the respective Representatives of the Persons referred to in clauses "(a)"
and "(b)" above; and (d) the respective successors and assigns of the Persons
referred to in clauses "(a)", "(b)" and "(c)" above; provided, however, that the
shareholders shall not be deemed to be "Indemnitees."
INTELLECTUAL PROPERTY. "Intellectual Property" shall mean any
intellectual, proprietary, and industrial property rights, including but not
limited to (i) all trademarks (whether registered or unregistered), trademark
applications, tradenames, fictitious business names, service marks, and
corporate name, (ii) all copyrights (whether registered or unregistered),
copyright applications, moral rights and design rights, (iii) all patentable
ideas, invention disclosures, patents, and patent applications, (iv) all source
code, inventions, discoveries, technology, know-how and trade secrets, (v) all
computer programs, content, and other computer software, (vi) all licenses
related to the foregoing or otherwise necessary to utilize or exploit the
Purchased Assets without future royalty or similar obligations, except as
provided herein, and (vii) all drawings, schematics, records,
42
<PAGE>
licenses, and confidential or proprietary information related to any of the
foregoing (collectively, "Intellectual Property").
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
LIABILITY. "Liability" shall mean any debt, obligation, duty or
liability of any nature (including any unknown, undisclosed, unmatured,
unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious,
derivative, joint, several or secondary liability), regardless of whether such
debt, obligation, duty or liability would be required to be disclosed on a
balance sheet prepared in accordance with generally accepted accounting
principles and regardless of whether such debt, obligation, duty or liability is
immediately due and payable.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on the Companies if such violation or other
matter would have a material adverse effect on the Companys' business,
condition, assets, liabilities, operations, financial performance or prospects,
or on the ownership of enjoyment by the Purchaser of the Purchased Assets.
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental
Concern" include chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products and any other substance that is now or
hereafter regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment.
PARTNERSHIP ASSETS. "Partnership Assets" means those Purchased Assets
not owned by the Corporation.
PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent,
patent application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise,
43
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system, computer software, computer program, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset; or (b) right to use or exploit
any of the foregoing.
PURCHASED ASSETS. "Purchased Assets" shall have the meaning set forth
in Exhibit E to this Agreement.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
44
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EXHIBIT C -- PURCHASED ASSETS
"Purchased Assets" shall mean and include all of the properties,
rights, interest and other tangible and intangible assets of Companies (wherever
located and whether or not required to be reflected on a balance sheet prepared
in accordance with generally accepted accounting principles), and those
properties, rights, interest and other tangible and intangible assets of the
Selling Partners (wherever located and whether or not required to be reflected
on a balance sheet prepared in accordance with generally accepted accounting
principles) which are used in the conduct of the business of the Companies
(including without limitation those assets listed on Exhibit D), except for
those assets listed on Exhibit E (the "Excluded Assets") and shall include,
without limitation, the following:
(a) tangible personal property (such as computers, equipment,
inventories, manufactured and purchased parts, goods in progress and
finished goods);
(b) all fixed assets, leaseholds, and improvements;
(c) all intangible assets (rights (but not duties or obligations) under
contracts, customer lists, supplier lists, trade secrets, software,
procedures and any other items required by Parent to continue Company's
operations);
(d) all right, title and interest in and to the Wired software
application and all property and rights to develop, sell and market the
Wired software application;
(e) all Intellectual Property of the Companies (and Partners to the
extent there is any relation of such property to the business or
properties of Company);
(f) all cash, cash equivalents, bank accounts and other receivables;
(g) all investments or securities held by Company;
(h) all books, records, files and data of Company, including
accounting, financial, customer and engineering records and reports;
(i) all claims and causes of action of Company against other Persons
(regardless of whether or not such claims and causes of action have
been asserted by Company), and all rights of indemnity, warranty
rights, rights of contribution, rights to refunds, rights of
reimbursement and other rights of recovery possessed by Company
(regardless of whether such rights are currently exercisable);
(j) all advertising and promotional materials of Company;
(k) all goodwill of Company; and
(l) all prepaid assets, including software licenses and maintenance
fees.
45
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EXHIBIT D -- LIST OF SELLING PARTNER ASSETS
46
<PAGE>
EXHIBIT E -- LIST OF EXCLUDED ASSETS
47
<PAGE>
EXHIBIT F -- LIST OF ASSUMED CONTRACTS
48
<PAGE>
EXHIBIT G -- FORM OF BILL OF SALE
BILL OF SALE
BILL OF SALE dated as of December , 1999, by [Wired Incorporated, a
California corporation][Wired GP, a California general Partnership] ("Seller"),
to Winchester Acquisition Corp. (the "Company").
W I T N E S S E T H :
WHEREAS, Seller and Company are parties to the Asset Purchase Agreement
(this "Agreement") dated as of December , 1999 providing for, among other
things, the transfer and sale to Company of all assets of Seller (the
"Transferred Assets"), all as more fully described in the Agreement, for
consideration in the amount and upon the terms and subject to the conditions
provided in the Agreement; and
NOW, THEREFORE, in consideration of the premises and of other valuable
consideration to Seller tendered by Company, at or before the execution and
delivery hereof, the receipt and sufficiency of which by Seller is hereby
acknowledged, Seller by this Bill of Sale does convey, grant, bargain, sell,
transfer, set over, assign, alien, remise, release, deliver and confirm unto
Company, its successors and assigns forever, all of Seller's right, title and
interest in the Transferred Assets. The assets so conveyed, granted, bargained,
sold, transferred, set over, assigned, alienated, remised, released, delivered
and confirmed hereby, are, without limiting the generality of the foregoing,
more particularly described as follows
(a) all rights and interests of Seller in, to and under all
contracts, commitments, agreements, options and other arrangements of
every kind and description including, without limitation, all supply
contracts, purchase contracts, service contracts, employment contracts
and retirement plans;
(b) if and to the extent that the same have not been
transferred effectively by separate instruments of assignment, all
rights and interests of Seller in and to all motor vehicles or other
separately titled personal property;
(c) if and to the extent that the same have not been
transferred effectively by separate instruments of assignment, all
rights and interests of Seller in, to and under all domestic or foreign
patents, patent applications, trademarks, trademark registrations and
applications therefor, all domestic or foreign trade names, labels and
other trade rights;
(d) all books, records and other data relating to
Seller's assets, business and operations;
(e) all intangible assets of Seller presently used in its
business,
49
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including customer lists, trade secrets and similar information
generally described as "know-how" with respect to the patents and
patent applications aforesaid;
(f) all research, engineering, marketing and other data
relating to any assets, businesses or operations of Seller and each
subsidiary of Seller;
(g) all rights, claims, and causes of action of Seller arising
after the date hereof against any officer, former officer, employee,
former employee or other person arising out of the disclosure or use,
or threatened disclosure or threatened use, of any proprietary
information relating to the assets being sold to Seller or its
business, including, without limitation, any invention, process,
method, formula treatment, discovery or improvement or application
thereof, or other know-how, or compilation of information, list of
customers or suppliers, document or record with respect thereto or
contained therein; and
(h) all other property in which Seller has any interest
whatsoever, real, personal or mixed, whether tangible or intangible, of
every kind and description and wherever situated, including without
limitation, contingent and unknown interests, claims, rights and
properties, whether or not specifically mentioned or described herein
and whatever may be the nature or location of said assets, properties
or business.
Capitalized terms not otherwise defined herein have the meanings
assigned such terms in the Agreement.
TO HAVE AND TO HOLD all of the foregoing business, contracts, rights,
privileges, properties, and assets unto Company, its successors and assigns to
its and their own use forever.
1. POWER OF ATTORNEY WITH RESPECT TO TRANSFERRED ASSETS. Seller hereby
constitutes and appoints Company, its successors and assigns, Seller's true and
lawful attorney and attorneys, with full power of substitution, in Seller's name
and stead, but on behalf and for the benefit of Company, its successors and
assigns, to demand and receive any and all of the Transferred Assets, and to
give receipts and releases for and in respect of the same, and any part thereof,
and from time to time to institute and prosecute in Seller's name, or otherwise,
for the benefit of Company, its successors and assigns, any and all proceedings
at law, in equity or otherwise, which Company, its successors or assigns, may
deem proper for the collection or reduction to possession of any of the
Transferred Assets or for the collection and enforcement of any claim or right
of any kind hereby sold, conveyed, transferred and assigned, or intended so to
be, and to do all acts and things in relating to the Transferred Assets which
Company, its successors or assigns shall deem desirable, Seller hereby declaring
that the foregoing powers are coupled with an interest and are and shall be
irrevocable by Seller or by its dissolution or in any manner or for any reason
whatsoever.
50
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2. EFFECT OF POSSIBLE BREACH. Notwithstanding any of the provisions of
the foregoing, this instrument shall not constitute an assignment to Company of
any claim (including but not limited to claims for refunds of taxes), contract,
license, lease, commitment, sales order or purchase order if an attempted
assignment of the same without the consent of the other party thereto would
constitute a breach thereof or in any way impair the rights of Seller
thereunder; provided this provisions shall not relieve Seller of any obligations
under the Agreement or under Section 3 below.
3. FURTHER ASSURANCES. Seller hereby covenants that, from time to time
after the delivery of this instrument, at Company's request and without further
consideration, Seller will do, execute, acknowledge, and deliver, or will cause
to be done, executed, acknowledged and delivered, all and every such further
acts, deeds, conveyances, transfers, assignments, powers of attorney and
assurances as reasonably may be required more effectively to convey, transfer to
and vest in Company, and to put Company in possession of, any of the Transferred
Assets.
4. NO THIRD PARTY RIGHTS. SUCCESSORS. Nothing in this instrument,
express or implied, is intended or shall be construed to confer upon, or give
to, any person, firm or corporation other than Company and its successors and
assigns, any remedy or claim under or by reason of this instrument or any terms,
covenants or condition hereof, and all the terms, covenants and conditions,
promises and agreements in this instrument contained shall be for the sole and
exclusive benefit of Company and its successors and assigns.
IN WITNESS WHEREOF, Seller and Company have duly executed this
instrument as of the day and year first above written.
[WIRED INCORPORATED][WIRED GP]
By
---------------------------------
Name:
Title:
WINCHESTER ACQUISITION CORP.
By
---------------------------------
Name:
Title:
51
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EXHIBIT H -- FORM OF INSTRUMENT OF ASSUMPTION OF LIABILITIES
INSTRUMENT OF ASSUMPTION OF LIABILITIES
Instrument of Assumption of Liabilities made as of ____________, by
Winchester Acquisition Corp., a Delaware corporation ("Purchaser"), in favor of
[Wired Incorporated, a California corporation][Wired GP, a California general
Partnership] (the "Company")
Purchaser and Company are parties to an Asset Purchase Agreement (this
"Agreement") dated as of December , 1999 providing for, among other things, the
transfer and sale to Purchaser of all assets of Company, all as more fully
described in the Agreement, for consideration in the amount and upon the terms
and subject to the conditions provided in the Agreement.
Pursuant to the Agreement, and in partial consideration of the sale,
pursuant to the Agreement, by the Company to Purchaser of all of the Company's
properties, assets, rights, goodwill and business as a going concern, Purchaser,
pursuant to Section 1 of the Agreement, hereby assumes the following Assumed
Liabilities (as such term is defined in the Agreement):
[List of liabilities]
The assumption by Purchaser of the foregoing liabilities and
obligations of the Company shall not be construed to defeat, impair or limit in
any way any rights or remedies of Purchaser to contest or dispute the validity
or amount thereof, provided that Purchaser will indemnify and hold harmless the
Company from any liability which Purchaser causes to be contested or disputed.
Except as specifically set forth in this Instrument of Assumption of
Liabilities, Purchaser shall not assume nor agree to pay, perform or discharge,
and Company shall solely retain and be responsible for paying and discharging,
all liabilities or obligations of Company, whether disclosed, undisclosed,
direct, indirect, absolute, contingent, secured, unsecured, accrued or
otherwise, including without limitation any obligation of the Company to pay to
the shareholders of the Company any dividend or other distribution in respect of
each share of common stock of the Company.
For the consideration aforesaid, Purchaser, for itself and its
successors and assigns, has covenanted, and by this Instrument of Assumption of
Liabilities does covenant, with the Company, its successors and assigns, that
Purchaser and its successors and assigns, will do, execute and deliver, or will
cause to be done, executed and delivered, all such further acts and instruments
which the Company may reasonably request in order to more fully effectuate the
assumption of liabilities provided for in this Instrument.
52
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IN WITNESS WHEREOF, this Instrument of Assumption of Liabilities has
been duly executed and delivered by the duly authorized officers of Purchaser.
WINCHESTER ACQUISITION CORP.
By
---------------------------------
Name:
Title:
53
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EXHIBIT I-1 -- FORM OF PROPRIETARY RIGHTS AGREEMENT
54
<PAGE>
EXHIBIT I-2 -- FORM OF NON-COMPETITION AGREEMENT
55
<PAGE>
EXHIBIT J -- FORM OF OPINION LETTER
56
<PAGE>
Exhibit 10.12
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MEDIA 100 INC.,
DERRINGER ACQUISITION CORP.
and
DIGITAL ORIGIN, INC.
Dated as of December 28, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I THE MERGER............................................2
SECTION 1.1 THE MERGER...............................................................2
SECTION 1.2 CONSUMMATION OF THE MERGER...............................................2
SECTION 1.3 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION...................2
SECTION 1.4 BY-LAWS OF THE SURVIVING CORPORATION.....................................2
SECTION 1.5 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION......................2
SECTION 1.6 CLOSING..................................................................3
ARTICLE II CONVERSION AND EXCHANGE OF SECURITIES.....................................3
SECTION 2.1 CONVERSION OF CAPITAL STOCK..............................................3
SECTION 2.2 EXCHANGE OF CERTIFICATES.................................................4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY 8
SECTION 3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.............................8
SECTION 3.2 ARTICLES OF INCORPORATION AND BY-LAWS....................................9
SECTION 3.3 CAPITALIZATION...........................................................9
SECTION 3.4 AUTHORITY RELATIVE TO THIS AGREEMENT....................................10
SECTION 3.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS..............................11
SECTION 3.6 SEC FILINGS; FINANCIAL STATEMENTS.......................................12
SECTION 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS....................................12
SECTION 3.8 NO UNDISCLOSED LIABILITIES..............................................13
SECTION 3.9 ABSENCE OF LITIGATION...................................................13
SECTION 3.10 AGREEMENTS, CONTRACTS AND COMMITMENTS...................................13
SECTION 3.11 COMPLIANCE; PERMITS.....................................................14
SECTION 3.12 EMPLOYEE BENEFIT PLANS, OPTIONS
AND EMPLOYMENT AGREEMENTS...............................................14
SECTION 3.13 LABOR MATTERS...........................................................16
SECTION 3.14 PROPERTIES; ENCUMBRANCES................................................17
SECTION 3.15 TAXES...................................................................17
SECTION 3.16 ENVIRONMENTAL MATTERS...................................................19
SECTION 3.17 INTELLECTUAL PROPERTY...................................................20
SECTION 3.18 INSURANCE...............................................................21
SECTION 3.19 RESTRICTIONS ON BUSINESS ACTIVITIES.....................................21
SECTION 3.20 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS......................22
SECTION 3.21 INTERESTED PARTY TRANSACTIONS...........................................22
SECTION 3.22 CHANGE IN CONTROL PAYMENTS..............................................23
SECTION 3.23 YEAR 2000 COMPLIANCE....................................................23
</TABLE>
i
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<TABLE>
<S> <C> <C>
SECTION 3.24 POOLING; TAX MATTERS....................................................24
SECTION 3.25 NO EXISTING DISCUSSIONS.................................................24
SECTION 3.26 OPINION OF FINANCIAL ADVISOR............................................25
SECTION 3.27 BROKERS.................................................................25
SECTION 3.28 AFFILIATES..............................................................25
SECTION 3.29 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS.......................25
SECTION 3.30 ABSENCE OF CERTAIN PAYMENTS.............................................25
SECTION 3.31 FULL DISCLOSURE.........................................................25
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB 26
SECTION 4.1 ORGANIZATION AND QUALIFICATION..........................................26
SECTION 4.2 CERTIFICATE OF INCORPORATION AND BY-LAWS................................27
SECTION 4.3 CAPITALIZATION..........................................................27
SECTION 4.4 AUTHORITY RELATIVE TO THIS AGREEMENT....................................28
SECTION 4.5 NO CONFLICT, REQUIRED FILINGS AND CONSENTS..............................29
SECTION 4.6 SEC FILINGS; FINANCIAL STATEMENTS.......................................29
SECTION 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS....................................30
SECTION 4.8 NO UNDISCLOSED LIABILITIES..............................................30
SECTION 4.9 COMPLIANCE..............................................................31
SECTION 4.10 ABSENCE OF LITIGATION...................................................31
SECTION 4.11 EMPLOYEE BENEFIT PLANS, OPTIONS
AND EMPLOYMENT AGREEMENTS...............................................31
SECTION 4.12 LABOR MATTERS...........................................................33
SECTION 4.13 PROPERTIES; ENCUMBRANCES................................................33
SECTION 4.14 TAXES...................................................................34
SECTION 4.15 ENVIRONMENTAL MATTERS...................................................35
SECTION 4.16 INTELLECTUAL PROPERTY...................................................35
SECTION 4.17 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS......................37
SECTION 4.18 YEAR 2000 COMPLIANCE....................................................37
SECTION 4.19 BROKERS.................................................................38
SECTION 4.20 OWNERSHIP OF MERGER SUB; NO PRIOR ACTIVITIES............................38
SECTION 4.21 POOLING; TAX MATTERS....................................................39
SECTION 4.22 AFFILIATES..............................................................39
ARTICLE V CONDUCT OF BUSINESS.........................................39
SECTION 5.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER...................39
SECTION 5.2 CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER........................41
SECTION 5.3 ADVICE OF CHANGES.......................................................42
SECTION 5.4 COOPERATION.............................................................42
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE VI ADDITIONAL AGREEMENTS.........................................42
SECTION 6.1 ACCESS TO INFORMATION; CONFIDENTIALITY..................................42
SECTION 6.2 NO SOLICITATION.........................................................43
SECTION 6.3 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT......................46
SECTION 6.4 SHAREHOLDERS' AND STOCKHOLDERS' MEETINGS................................46
SECTION 6.5 LEGAL CONDITIONS TO MERGER..............................................47
SECTION 6.6 AGREEMENTS WITH RESPECT TO AFFILIATES...................................48
SECTION 6.7 TAX-FREE REORGANIZATION.................................................48
SECTION 6.8 POOLING ACCOUNTING......................................................48
SECTION 6.9 LETTERS OF ACCOUNTANTS..................................................49
SECTION 6.10 PUBLIC ANNOUNCEMENTS....................................................49
SECTION 6.11 LISTING OF PARENT SHARES................................................49
SECTION 6.12 OPTIONS.................................................................49
SECTION 6.13 CONSENTS................................................................50
SECTION 6.14 INDEMNIFICATION AND INSURANCE...........................................50
SECTION 6.15 ADDITIONAL AGREEMENTS; BEST EFFORTS.....................................51
ARTICLE VII CONDITIONS TO THE MERGER......................................51
SECTION 7.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER.............51
SECTION 7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT
AND MERGER SUB..........................................................53
SECTION 7.3 ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY......................54
ARTICLE VIII TERMINATION...........................................54
SECTION 8.1 TERMINATION.............................................................54
SECTION 8.2 EFFECT OF TERMINATION...................................................56
SECTION 8.3 FEES AND EXPENSES.......................................................56
ARTICLE IX GENERAL PROVISIONS..........................................57
SECTION 9.1 NONSURVIVAL OF REPRESENTATIONS; WARRANTIES
AND AGREEMENTS..........................................................57
SECTION 9.2 NOTICES.................................................................57
SECTION 9.3 CERTAIN DEFINITIONS.....................................................58
SECTION 9.4 AMENDMENT...............................................................59
SECTION 9.5 EXTENSION; WAIVER.......................................................59
SECTION 9.6 HEADINGS................................................................60
SECTION 9.7 SEVERABILITY............................................................60
SECTION 9.8 ENTIRE AGREEMENT, NO THIRD PARTY BENEFICIARIES..........................60
SECTION 9.9 ASSIGNMENT..............................................................60
SECTION 9.10 INTERPRETATION..........................................................60
SECTION 9.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE...................60
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 9.12 GOVERNING LAW...........................................................61
SECTION 9.13 COUNTERPARTS............................................................61
</TABLE>
iv
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LIST OF EXHIBITS
Exhibit A Merger Agreement
Exhibit B Form of Company Affiliate Agreement
Exhibit C Form of Parent Affiliate Agreement
v
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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
Corpora tion, 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.
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(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."
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.
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(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
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.
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(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
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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.
(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 Cer-
tificates 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 Ex-
change 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
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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 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.
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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 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
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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. The 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 equiva-
lent organizational documents), as amended to date, of each of its Subsidiaries
(the "Subsidiary Documents"). Such Company Charter, Company By-Laws and Subsid-
iary 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
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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 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
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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 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,
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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, state
ments 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 revaluation by
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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
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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, ease
ments, 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 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
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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 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).
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(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
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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 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
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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, 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
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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.
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ss. 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.
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
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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 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
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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 State ment/Prospectus, the Company shall
promptly inform Parent. The Proxy State ment/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.
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(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, 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 connec-
tion 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.
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(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;
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
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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
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
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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
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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
Certifi cate 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.
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 outstand-
ing 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
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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
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
ByLaws, the Certificate of Incorporation of Merger Sub or the By-
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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.
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(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 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,
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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, pro gram, 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 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
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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 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.
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(j) The consummation of the transactions contemplated by this Agree-
ment 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 inde pendent 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 Subsid
iaries 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
appro priate 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 exten sions) 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
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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.
(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
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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.
(d) 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 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
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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
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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 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
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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 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
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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 contem-
plated 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 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;
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(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
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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;
(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
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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.
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
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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 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,
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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
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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.
(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
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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.
(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
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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.
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(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.
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
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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 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.
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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 regula-
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tions to consummate and make effective the transactions contemplated by this
Agreement.
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
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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;
(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:
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(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 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;
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(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
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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 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.
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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
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
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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
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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
(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,
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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 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.
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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
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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.
MEDIA 100 INC.
By: ________________________________
Name: Steven D. Shea
Title: Vice President of Finance
DERRINGER ACQUISITION CORP.
By: ________________________________
Name: Steven D. Shea
Title: President and Secretary
DIGITAL ORIGIN, INC.
By: ________________________________
Name: Mark Housley
Title: Chairman and Chief Executive
Officer
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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
</TABLE>
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<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
<S> <C>
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)
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)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
<S> <C>
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)
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)
</TABLE>
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<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
<S> <C>
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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OEM DEVELOPMENT AND LICENSE AGREEMENT
WHEREAS, Media 100 develops and markets certain software and other
computer-related products and services and desires to include Supplier's
software product as a component of Media 100's product or services.
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties agree to the following terms and conditions, which set forth the rights,
duties, and obligations of the parties.
1. DEFINITIONS. The following terms, when used with initial capital letters in
this Agreement, shall have the following definitions, unless the context in
which the term is used expressly provides otherwise.
"ACCEPTANCE CRITERIA" means a set of criteria (set forth in the Specifications)
that will be used to judge whether a Deliverable meets the Specifications.
"AFFILIATE" means with respect to any entity, any other entity controlling,
controlled by or under common control of such entity.
"APPLICATIONS PROGRAMMING INTERFACE" means the specifications of a Supplier
Product which define the external programming interface between that Supplier
Product and other Object Code. The Applications Programming Interface includes
the elements of such programming interface that are directly exposed and
recommended as mandatory to implement extension to that Supplier Product.
"APPLICATIONS PROGRAMMING INTERFACE ITEMS" means the following set of items
implementing the Applications Programming Interface: (a) System Documentation
describing the Applications Programming Interface; (b) fully functional and
tested Supplier Product (Object Code and System Documentation) designed for use
on, and implementing the Applications Programming Interface; and (c) a fully
functional and tested validation test suite and System Documentation describing
the associated test procedures.
"CONFIDENTIAL INFORMATION" means any information disclosed by one party to the
other pursuant to this Agreement which is in written, graphic, machine readable
or other tangible form and is marked "Confidential", "Proprietary", "Source
Code", or in some other manner to indicate its confidential nature. Confidential
Information may also include oral or visual information disclosed by one party
to the other pursuant to this Agreement, provided that such information is
designated as confidential at the time of disclosure and is reduced to writing
by the disclosing party within a reasonable time (not to exceed thirty (30)
calendar days) after its oral or visual disclosure, and such writing is marked
in a manner to indicate its confidential nature and delivered to the receiving
party.
"BUNDLED PRODUCT" means the combination of a Restricted Streaming Product and a
Supplier Product being distributed to third parties in accordance with this
Agreement.
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"CONTRACTOR" of a company means a person or group of persons (whether
incorporated or not) providing services to that company as independent
contractors.
"DELIVERABLES" means the Supplier Product or any portion thereof to be delivered
by the Supplier identified in Exhibits A and B.
"DERIVATIVE WORKS" means a revision, modification, translation, abridgment,
condensation or expansion of the Supplier Product or Documentation or any form
in which the Supplier Product or Documentation may be recast, transferred, or
adapted, which, if prepared without the consent of Supplier, would be a
copyright infringement.
"DISTRIBUTOR" means any third party which acquires possession of the Supplier
Product from Media 100 and is not a Reseller or End User and distributes it to a
Reseller.
"DOCUMENTATION" means End User Documentation and System Documentation. "END USER
DOCUMENTATION" means those software user manuals, reference manuals and
installation guides, or portions thereof, which are distributed in conjunction
with the Supplier Product including but not limited to those set forth in
Exhibit C. "End User Documentation" excludes System Documentation. "SYSTEM
DOCUMENTATION" means all user manuals and other written materials, including
style guides, that relate to particular Source Code or Object Code, including
without limitation materials useful for understanding, designing, developing,
building, implementing, maintaining and operating Source Code or Object Code
(for example, logic manuals, flow charts and principles of operation) and
machine-readable text or graphic files subject to display or printout.
"END USER" means an entity that acquires the Supplier Product for Internal Use
and is not an affiliate of Media 100's enterprise. "End User" does not include
an entity that distributes, resells, sells, licenses, rents or leases the
Supplier Product to other parties in the regular course of business.
"ERROR" means any mistake, problem or defect that causes either an incorrect
functioning of code or an incorrect or incomplete statement or graphic in
Documentation, if such mistake, problem or defect (a) renders the code
inoperable, (b) causes the code to fail to meet the Specifications or Acceptance
Criteria, (c) causes the Documentation to be inaccurate or inadequate in any
material respect, (d) causes incorrect results, or (e) causes incorrect
functions to occur.
"EVENT OF BANKRUPTCY" with respect to a company means (a) the commencement by
the company of a voluntary case under the United States Bankruptcy Code or under
any similar law, (b) the commencement against the company of an involuntary case
under the United States Bankruptcy Code or under any similar law if the case is
not vacated within ninety calendar days, (c) the entry of a final order by a
court of competent jurisdiction finding the company to be bankrupt or insolvent,
ordering or approving its liquidation, reorganization or any modification or
alteration of the rights of its general creditors or assuming custody of or
appointing a receiver or other custodian for all or a substantial part of its
property and such order shall not be vacated or stayed upon appeal or otherwise
stayed within ninety calendar days or (d) the company making an assignment for
the
2
<PAGE>
benefit of, or entering into a composition with, its creditors, or appointing or
consenting to the appointment of a receiver or other custodian for all or a
substantial part of its property.
"INTERNAL USE" means use for purposes that do not directly produce revenue for
the user.
"MAJOR AND MINOR UPDATES" means updates, if any, to the Supplier Product. Major
Updates involve additions of substantial functionality while Minor Updates do
not. Major Updates are customarily designated by a change in the number to the
left of the decimal point of the number appearing after the product name while
Minor Updates are customarily designated by a change in such number to the right
of the decimal point. Major Updates exclude software releases which are
reasonably designated by Supplier as new products. Where used herein "Updates"
shall mean Major Updates or Minor Updates interchangeably.
"MARKS" means Supplier's trademarks, service marks, logos, designations and
insignias.
"MILESTONE SCHEDULE" means the schedule for delivery of Deliverables and payment
therefor attached to this Agreement as Exhibit B.
"MILESTONE" means the milestones set forth in the Milestone Schedule.
"MEDIA 100 RELATED PERSONS" means Media 100 and Media 100's subsidiaries, and
their respective directors, officers, employees, agents and Contractors.
"MEDIA 100" means Media 100 Inc.
"MONTH(S)" and "MONTHLY" refers to a calendar month.
"OBJECT CODE" means any computer programming code that loads and executes
without further processing by a software compiler or linker or that results when
Source Code is processed by a software compiler.
"RESELLER" means any third party which is not a Distributor but acquires the
Supplier Product from Media 100 or an authorized Distributor and resells,
licenses, rents, or leases to End Users.
"RESTRICTED STREAMING PRODUCTS" means the Media Cleaner Product of Terran
Interactive, Inc. (a subsidiary of Media 100), and any product which is
reasonably a derivative or extension of such product; provided each such product
shall be considered a "Restricted Streaming Product" only if it can ONLY produce
streaming media output; for the purposes of this provision, products designed to
or capable of output to physical media (such as video tape or DVD disk) or in
"mini-DV" format shall not be considered to produce only streaming media output
and thus not be "Restricted Streaming Products"; however, the ability to store a
streaming media output on physical media shall not disqualify a product
otherwise compliant from being a "Restricted Streaming Product".
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"SALE," "SELL" and other similar terms, when used in connection with the
marketing and distribution of the Supplier Product shall mean the granting of a
license or sublicense and shall not be deemed for any purpose to mean a transfer
of title or other rights of ownership to the Supplier Product, other than the
rights to copy and use as specifically set out in this Agreement.
"SOURCE CODE" means the human-readable form of programming code and related
System Documentation, including all comments and any procedural language. Source
Code does not include End User Documentation.
"SPECIFICATIONS" mean specifications for the Supplier Product API necessary to
ensure effective integration with the Restricted Streaming Products and as set
forth in Exhibit B
"SUBSIDIARY" of an entity means a corporation, company or other entity (a) more
than fifty percent (50%) of whose outstanding shares or securities (representing
the right to vote for the election of directors or other managing authority)
are; or (b) which does not have outstanding shares or securities, as may be the
case in a partnership, joint venture or unincorporated association, but more
than fifty percent (50%) of whose ownership interest (representing the right to
make decisions for such corporation, company or other entity) is; in each of (a)
and (b) now or hereafter, owned or controlled, directly or indirectly, by the
entity in question, as the case may be, but such corporation, company or other
entity shall be deemed to be a Subsidiary only so long as such ownership or
control exists.
"SUPPLIER PRODUCT" means the Supplier's product identified in Exhibit A that
Media 100 is authorized to sublicense, market and sell under this Agreement,
including each of the Deliverables, if any.
"SUPPLIER RELATED PARTY" means Supplier and Supplier's subsidiaries, Affiliates,
directors, officers, employees, agents and Contractors.
"SUPPLIER" means the company identified as such on the signature page to this
Agreement.
"SUPPORT SPECIFICATIONS" means the items set forth in Exhibit C.
"TERM" means the term of this Agreement, as it may be extended or earlier
terminated in accordance with Section 10.
2. DELIVERY OF DELIVERABLES; ACCEPTANCE.
(a) DELIVERABLES. To the extent the Supplier Product or any part thereof is an
existing product, then Supplier will deliver to Media 100 such existing
materials in connection with the execution of this Agreement, and each Update
thereto immediately upon such materials being released by Supplier, and Media
100 will make any payment specified in respect thereto as indicated in Exhibit
A. These deliverables will be in object code form only. Despite the foregoing
and except as provided by separate agreement, Major
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<PAGE>
Updates will not be supplied by Supplier after May 31, 2003 and no Updates
will be delivered after Supplier terminates its general distribution of the
Supplier Product.
To the extent the Supplier Product consists of Deliverables to be created under
this Agreement, Supplier will deliver to Media 100 the Deliverables in
accordance with due dates for each set forth on the Milestone Schedule. Upon
acceptance of each Deliverable pursuant to the provisions of this Section 2,
Media 100 will make the payment specified on the Exhibit B - Milestone Schedule.
These deliverables will be in object code form only.
Supplier agrees that it will provide the Applications Programming Interface for
the Supplier Product by delivery to Media 100 of the Applications Programming
Interface Items together with such Supplier Product, and thereafter promptly
following any changes made thereafter to such items.
(b) CREATION OF MILESTONE SCHEDULE. As of the date of execution of this
Agreement, Exhibit B - Milestone Schedule and Exhibit C -- specifications of
API, are not completed. The parties will use all reasonable efforts to complete
Exhibits B and C and attach them hereto as promptly as possible. In general, the
parties expect that an alpha release of the API will be available in February
2000 and that the commercial release version of such product will be available
no later than the anniversary of this Agreement.
(c) ENGINEERING SUPPORT FOR DEVELOPMENT. Supplier will make available sufficient
internal engineering support from its organization to ensure that the Supplier
Product is commercially viable from a technical point of view, it being
understood that the foregoing does not obligate Supplier to hire personnel not
then employed at the Supplier, and is only a statement of allocation of
resources, not a representation or promise that the Supplier Product will in
fact be commercially viable. Appropriate Media100 engineering personnel will
reasonably cooperate with Supplier's personnel.
(d) REVIEW. Media 100 may conduct periodic reviews, including reviews at
Supplier's premises to take place at a mutually convenient time, of the Supplier
Product. At Media 100's reasonable request, Supplier will provide Media 100 with
written reports regarding its work on the Supplier Product and with copies of
any work in progress and related materials.
(e) CHANGES TO THE SPECIFICATIONS.
(i) Additional Specifications for the API may be agreed upon by the
parties until Media 100's final acceptance of the Supplier Product.
Media 100 acknowledges that significant changes to the Specifications
may result in a change in the delivery time table.
(ii) If any such modification of the Specifications by Media 100 does
require Supplier's expenditure of significantly more time and effort,
additional fees must be agreed upon in writing by the parties prior to
implementation of modifications.
(f) ACCEPTANCE OF SUPPLIER PRODUCT.
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(i) Delivery will occur when Supplier delivers a testable Deliverable
to Media 100 accompanied by a written statement listing the items
delivered and stating that they are ready for Media 100's acceptance
testing. Delivery of software will be via electronic transmission only,
unless Media 100 gives Supplier written notice that such a Deliverable
is to be delivered via another medium. Media 100, with the assistance
of Supplier if requested by Media 100, will examine and test each
Deliverable upon delivery to determine whether the Deliverable conforms
to the Acceptance Criteria for the Deliverable. Within thirty (30)
calendar days or such other number of days specified in the applicable
Acceptance Criteria after such delivery, Media 100 will provide
Supplier with written acceptance of such Deliverable or a specific and
objective statement of Errors to be corrected prior to the next
Milestone.
(ii) Supplier will correct the Errors in any Deliverable set forth in
the statement of Errors and redeliver the Deliverable to Media 100
within thirty (30) calendar days or such other number of days specified
in the applicable Acceptance Criteria after receipt of the statement of
Errors, and Media 100 will within fourteen (14) calendar days after
such redelivery provide Supplier with written acceptance or another
statement of Errors. The procedure set forth in this clause (ii) will
be repeated until Media 100 accepts the Deliverable.
(iii) If Media 100 fails to give a statement of Errors within the
specified time, Media 100 will be deemed to have accepted the
Deliverables as of the expiration of such specified time; provided that
such acceptance shall not affect the Supplier's obligation hereunder to
correct any Errors after such acceptance.
(g) APPLICATIONS PROGRAMMING INTERFACE; SUPPLYING SOURCE CODE. Supplier agrees
that the Applications Programming Interface Items to be delivered to Media 100
are intended to be used for, among other things, extension of the user interface
functionality of Supplier Products by Media 100 without the use of Source Code
of the Supplier Products, and Supplier has and will in creating such
Applications Programming Interface's do so taking into account the need to
facilitate such use. It is the Supplier's intention that the creation of such
Applications Programming Interface will give Media 100 the same capability to
extend user interface functionality as the Supplier has.
In the event the Applications Programming Interface, as so supplied, fails to
permit a reasonably skilled programmer the ability to do so, or if the parties
otherwise agree it is appropriate for Supplier to provide Media 100 access to
modules of Source Code to perform development work, the Supplier shall
immediately give Media 100 access to those modules of Source Code necessary for
Media 100 to perform such work, but only to the extent and for the time
reasonably required for Media 100 to perform such work. Any modifications to
Source Code made by Media 100 (but not the project developed by Media 100 using
Source Code) shall belong to Supplier, and Media 100 shall convey any ownership
rights it has in the modifications to the Source Code to Supplier.
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3. GRANT OF LICENSES.
(a) LICENSE GRANT. Subject to the terms and conditions of this Agreement,
Supplier grants to Media 100 a non-exclusive, worldwide, perpetual license to
the Supplier Product: (i) to use, reproduce and distribute the Supplier Product
and System Documentation internally within Media 100; (ii) to create or have
created Derivative Works based upon or compatible with the Supplier Applications
Programming Interface (whether Supplier Applications Programming
Interface-compliant or not) with or without the use of code supplied by Supplier
and to reproduce and distribute internally the Derivative Works in Source Code
form or in Object Code form; (iii) to the extent Source Code is supplied
pursuant to Section 2(g) or 3(c), to create or have created Derivative Works by
modifying the Source Code of the Supplier Product and to reproduce and
distribute internally the Derivative Works in Source Code form or in Object Code
form; (iv) to create or have created Derivative Works by modifying the End User
Documentation of the Supplier Product and to reproduce and distribute internally
such Derivative Works in any form; (v) to distribute externally to End Users,
either directly or through distributors, but only in bundled form with
Restricted Streaming Products, copies in Object Code form only of the Supplier
Product or Derivative Works and copies in any form of the End User Documentation
or any Derivative Works of the End User Documentation, such distribution shall
be in accordance with Media 100's standard software distribution license
agreement for a particular channel of distribution; and (vi) to exercise all
rights to the Supplier Product with regard to pictorial, graphic or audio/visual
works, including icons, screens, music and characters, that are created as a
result of execution of any code or any Derivative Work thereof in accordance
with the granted license
(b) PROPRIETARY NATURE OF PRODUCTS AND OWNERSHIP. No title to or ownership of
software licensed under this Agreement or proprietary technology in hardware
acquired under this Agreement is transferred to Media 100. Notwithstanding any
provision of this Agreement to the contrary, Supplier, or the licensor through
which Supplier obtained the rights to distribute the Supplier Product, owns and
retains all title and ownership of all intellectual property rights in the
Supplier Product, including all software, firmware, software master diskettes,
copies of software, master diskettes, documentation and related materials that
are acquired, produced or shipped by Supplier under this Agreement, and all
modifications to and derivative works of software acquired under this Agreement
that are made by Supplier or any third party (other than on behalf of Media
100). Supplier does not transfer any portion of such title and ownership, or any
of the associated goodwill, to Media 100. Supplier shall own all Derivative
Works of the Supplier Product produced or created by or on behalf of Media 100
provided that Supplier shall have no rights independently to market or
sublicense any Derivative Works created by Media 100 without Media 100's prior
written approval. Media 100 shall have rights to use such Derivative Works
subject to the terms and conditions of this Agreement.
(c) ACCESS TO SOURCE CODE. Supplier agrees to execute a standard software escrow
agreement (the "Escrow Agreement") supplied by an escrow agent selected by Media
100 and reasonably acceptable to Supplier (the "Escrow Agent"), and in
connection therewith Supplier agrees that from time to time upon request of
Media 100, Supplier shall deposit
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in escrow with the Escrow Agent the latest versions of all intellectual
property, as defined in section 101 of Title 11 of the United States Code, with
respect to those portions of the software and other technology incorporated in
the Supplier Product and reasonably relevant to the implementation of this
Agreement (the "Technology") including without limitation all Source Code,
designs, patents and Documentation ("Supplier Product Materials"), to be made
available to Media 100 upon the conditions set forth in this Section. Media 100
will pay the Escrow Agent's charges.
Regardless of whether "Source Code Escrowed" is indicated on Exhibit A and
regardless of whether this license is identified in Exhibit A as including the
right to Source Code, in the event that a trustee in bankruptcy is appointed for
Supplier, then unless and until such trustee has rejected this Agreement, the
trustee shall, at the written request of Media 100, (i) continue to perform all
of the obligations of Supplier under this Agreement, or (ii) promptly deliver to
Media 100 the Technology, including all Supplier Product Materials held by the
trustee, including any embodiment of such intellectual property to the extent
protected by applicable nonbankruptcy law, and in either case not interfere with
the rights of Media 100 to use such intellectual property (including such
embodiment) as provided in this Agreement or any agreement supplementary hereto,
including any right to obtain such intellectual property or such embodiment from
any Escrow Agent under an Escrow Agreement.
Regardless of whether "Source Code Escrowed" is indicated on Exhibit A and
regardless of whether this license is identified in Exhibit A as including the
right to Source Code, if the trustee rejects this Agreement, and Media 100
elects under section 365(n)(1)(B) of Title 11 of the United States Code to
retain its rights under this Agreement, the trustee shall promptly deliver to
Media 100 all intellectual property, as defined in section 101 of Title 11 of
the United States Code, with respect to the Technology, including all Supplier
Product Materials held by the trustee, including any embodiment of such
intellectual property to the extent protected by applicable nonbankruptcy law,
and not interfere with the rights of Media 100 to use such intellectual property
(including such embodiment) under this Agreement or any agreement supplementary
hereto, including any right to obtain such intellectual property or such
embodiment from any Escrow Agent under any Escrow Agreement.
4. SUPPORT, MARKETING AND DISTRIBUTION.
(a) MAINTENANCE AND SUPPORT. Supplier shall provide Media 100 with maintenance
and support according to the terms and conditions specified in Exhibit D.
(b) NONEXCLUSIVITY; NO MARKETING OBLIGATION. Media 100 understands that Supplier
reserves the right to directly license and sell the Supplier Product and to
appoint other OEM's, distributors and resellers without restriction as to number
or location. Supplier understands that Media 100 has no obligation to
incorporate, bundle or market the Supplier Product with or into any Media 100
products, or otherwise, unless Media 100 believes in its sole discretion that
such action is desirable from the Media 100's perspective.
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(c) USE OF AUTHORIZED OEM TITLE. During the term of this Agreement, Media 100
may refer to itself and Supplier may refer to Media 100, in connection with
exercising its rights under this Agreement, as a Supplier "Authorized OEM".
(d) PUBLIC ANNOUNCEMENTS AND PROMOTIONAL MATERIALS. Supplier and Media 100 shall
cooperate with each other so that each party may issue a press release other
than as a customer reference concerning this Agreement, provided that each party
must approve such press release prior to its release.
(e) SOFTWARE. When marketing products incorporating the Supplier Product, Media
100 agrees to exercise commercially reasonable efforts (and no less effort than
expended with respect to its own products) to ensure that each End User
receiving the products or services through Media 100 or Media 100's lines of
distribution understands and agrees to be bound by a Media 100 standard Software
License Agreement consistent with the line of distribution.
(f) USE OF SUPPLIER MARKS AND TRADE NAMES. Media 100 is authorized to use the
Supplier Marks applicable to the Supplier Product in connection with its
marketing of products or services incorporating the Supplier Product. Media 100
agrees not to alter, erase or overprint any notice provided by Supplier without
the prior written consent of Supplier or affix any Supplier Marks. Media 100
recognizes Supplier's ownership and title to the Trade Names and Marks. Media
100 will abide by Supplier's generally applicable and reasonable usage
guidelines established by Supplier from time to time.
5. FEES AND PAYMENT.
(a) ROYALTY AND LICENSE FEES. As license fees for the rights herein granted,
Media 100 shall pay to Supplier royalties on Media 100 sales and related
licensing or sublicensing of Bundled Product at the rates and on the terms
specified in Exhibit A hereto.
Media 100 is free to determine its own resale prices for the Bundled Product it
is authorized to license and sell hereunder. Although Supplier may publish
suggested list prices, these are suggestions only and not binding in any way.
Royalties shall accrue for a particular transaction in the Media 100 fiscal
quarter in which Media 100 recognizes for its financial statement purposes the
revenue for the shipment by Media 100 of the relevant quantity of the Bundled
Product (to a distributor or end-user). Media 100 shall pay Supplier such
license fees accrued during each such fiscal quarter, within forty-five (45)
days following the end of such fiscal quarter, and shall be accompanied by a
report in reasonable detail showing the calculation of such fees. All payments
shall be made in United States dollars. For sales for which Supplier would
otherwise be entitled to a royalty on a non-dollar based amount, Media 100 will
make payment to Supplier in U.S. Dollars based upon the exchange rate used in
connection with preparing its internal financial statements with respect to such
transaction. In no event shall Media 100 be responsible to protect the value of
sums against currency fluctuation, effects of inflation, or other economic or
monetary adjustment. The
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applicable fees for the products and services provided under this Agreement do
not include any sales, use or similar taxes ("Taxes") payable on the part of the
acquisition of the Supplier Product from Supplier. Such Taxes, if applicable and
imposed on Supplier, shall be presented in a billing statement by Supplier to
Media 100, and shall be payable by the Media 100 as specified herein; provided
that Media 100 shall not be liable for any taxes based upon Supplier's net
income or real or personal property owned by Supplier. Any payment to Supplier
shall be net of any required withholding due to taxes under applicable law.
Media 100 is responsible for Taxes resulting from its sales of Bundled Products
to its customers.
(b) INTERNATIONAL SALES RESTRICTIONS. If any payment to Media 100 with respect
to sales in any country is blocked or subject to restrictions by governmental
authorities, royalties with respect to such sales may either be held in the
blocking or restricting country (if permitted by local regulations) or may be
removed from such country and paid to Supplier, subject to whatever
restrictions, limitations and/or taxes may be imposed by the government of such
country on receipts from the underlying sale. If the government of a country
requires a reduction in the royalty rate set forth in this Agreement as a
condition of approving the payment of royalties to Supplier, Supplier agrees to
reduce such rate for that country so as to provide for the maximum royalty
payment allowed by such government. When deemed reasonably necessary by Media
100, Supplier shall enter into separate agreements with affiliates of Media 100
for the purpose of facilitating the payment of royalties.
(c) RECORDS EXAMINATIONS. Media 100 agrees to allow Supplier to examine its
records to determine compliance or noncompliance with this Agreement. Any
examination will be conducted only by an authorized representative of Supplier,
and will occur during regular business hours at Media 100's offices and will not
interfere unreasonably with Media 100's business activities. Examinations will
be made no more frequently than annually, and Supplier will give Media 100
fifteen (15) business days or more prior written notice of the date of the
examination and the name of Supplier's authorized representative who will be
conducting the examination. The audit will be conducted at Supplier's expense,
unless the audit reveals an underpayment for the reviewed period of more than
five percent, in which case the reasonable audit cost will be borne by Media
100. . All information obtained by Supplier's authorized representative
conducting the audit will be maintained confidential by the representative. The
examiner will give Media 100 and Supplier an examination report containing only
the information necessary to indicate compliance or non-compliance with this
Agreement. Underpayments will be promptly paid. All late payments will bear
interest at the rate of one percent per month until paid.
6. WARRANTIES.
(a) GENERAL. Supplier represents and warrants (i) that the Supplier Product
being delivered to Media 100 is identical to that generally marketed by
Supplier, except to the extent specifically agreed to between the parties; and
(ii) it has and will have full and sufficient authority to assign or grant the
rights and/or licenses granted in the Supplier Product pursuant to this
Agreement.
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(b) NO VIRUS. Supplier has taken reasonable steps to test the Supplier Product
for programming devices (e.g., viruses, key locks (including, without
limitation, that control the number of users), backdoors, etc.) that would (i)
disrupt the use of the Supplier Product or any system, device or software to
which the Supplier Product is interfaced or other computer equipment with which
such equipment communicates; (ii) destroy or damage data or make data
inaccessible or delayed, except for file and purge routines necessary to the
routine functioning of the Supplier Product; or (iii) permit Supplier personnel,
agents or subcontractors access to any portion of the Supplier Product other
than as necessary to carry out the terms of this Agreement. Supplier agrees to
use programming practices and security procedures to avoid insertion of such
devices and to scan for viruses before sending any media containing programming
code to Customer.
(c) NO EXPORT RESTRICTION. Supplier further represents and warrants that to its
knowledge, except as disclosed to Media 100 the Supplier Product does not
contain cryptographic code or any other code that would subject it any United
States export license restrictions.
THE WARRANTIES DESCRIBED IN THIS SECTION 6 ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT.
7. INDEMNIFICATION.
(a) INDEMNIFICATION. Supplier will indemnify, defend and hold Media 100, its
affiliates and, subsidiaries, and its and their respective directors, officers,
employees and agents (collectively, "Media 100 Persons") harmless from any and
all damages, liabilities, costs and expenses incurred by any Media 100 Person as
a result of any claim, judgment or adjudication against Media 100 Person that
alleges that the Supplier Product, Trade Names or the Marks infringe any
trademark, copyright, patent or trade secret rights of any third party. Media
100 shall promptly notify Supplier in writing of any claim for which it seeks
indemnification, provided the failure or delay in doing so shall not relieve
Supplier from any obligation to indemnify any Media 100 Person except to the
extent such delay or failure materially prejudices the defense of any such
claim. Supplier will have control of the defense of any action and all
negotiations for settlement and compromise, but shall not make any settlement
binding on any Media 100 Person without Media 100's consent except if such
settlement provides a complete and absolute release of such person. Media 100
shall provide Supplier with reasonable assistance and information necessary to
perform the above, with Supplier to be responsible for any out-of-pocket
expenses of any Media 100 Person in providing such assistance. If any Media 100
Person desires to have separate legal representation in any such action, such
Media 100 Person shall be responsible for the costs and fees of its separate
counsel.
(b) LIMITATION ON INDEMNIFICATION. Supplier shall have no liability for
infringement to the extent based on (i) modification of the Products by Media
100 or to Media 100's specifications, or (ii) the combination or use of the
Supplier Product with any other computer program, equipment, product, device,
item or process to the extent (A) such
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program, equipment, product, device or process is not furnished by Supplier and
(B) such infringement would have been avoided by the use of the Supplier Product
alone and in its unmodified form. Moreover, Supplier shall have no liability for
infringement, unless it knew or should have known of the infringement on the
date of this Agreement or any significant amendment thereto and had not
previously disclosed the possibility of such infringement to Media100 in writing
specifying either the specific technology, algorithm, standard or similar item
which is anticipated to be the source of infringement, or the party from which
infringement is reasonably expected.
8. CONFIDENTIAL INFORMATION.
(a) RESTRICTION ON USE. Each party and its Related Persons shall treat as
confidential all Confidential Information of the other party, shall not use such
Confidential Information except as contemplated under this Agreement, and each
party and its Related Persons shall not disclose such Confidential Information
to any third party except as may be reasonably required in connection with the
manufacture, use, sale or distribution of products pursuant to this Agreement,
and subject to confidentiality obligations at least as protective as those set
forth in this Agreement. Without limiting the foregoing, each of the parties
shall use at least the same degree of care which it uses to prevent the
disclosure of confidential information of like importance to the disclosing
party to prevent the disclosure of Confidential Information disclosed to it by
the other party under this Agreement.
(b) EXCEPTIONS. Notwithstanding the above, neither party shall have liability to
the other with regard to any Confidential Information of the other which
(i) was in the public domain at the time it was disclosed or enters the
public domain without violation of this Agreement by the receiver;
(ii) was known to the receiver, without restriction, at the time of the
disclosure as shown by the files of the receiver in existence at the
time of disclosure;
(iii)is disclosed with the prior written approval of the discloser;
(iv) was independently developed by the receiver without any use of the
Confidential Information and by employees or other agents of (or
Contractors hired by) the receiver who have not been exposed to the
Confidential Information;
(v) becomes known to the receiver, without restriction, from a third party
without breach of this Agreement by the receiver and otherwise not in
violation of the discloser's rights;
(vi) is disclosed to third parties by the discloser, intentionally without
restrictions similar to those contained in this Agreement;
(vii)to the extent disclosed in accordance with the order or requirement
of a court, administrative agency, or other governmental body,
provided, however, that the receiver shall provide prompt notice
thereof to enable the discloser to seek a protective order or
otherwise prevent such disclosure; or
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(viii)is inherently disclosed in the use, lease, sale or other
distribution of, or publicly available supporting documentation for,
any present or future product or service by or for the receiving party
or any of its Subsidiaries as otherwise permitted in this Agreement.
(c) TERMINATION OF OBLIGATIONS.
The parties' obligations under this Section with respect to nontechnical sales,
marketing and financial Confidential Information terminate three (3) years from
the end of the Term, if not terminated earlier pursuant to Section 8(b). The
parties' obligations with respect to all technical Confidential Information
shall be terminated only pursuant to Section 8(b).
9. LIMITATION OF REMEDIES.
(a) LIMITATIONS. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT,
NEITHER SUPPLIER NOR MEDIA 100 WILL BE LIABLE TO THE OTHER PARTY FOR ANY
INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS)
SUSTAINED OR INCURRED IN CONNECTION WITH THIS AGREEMENT AND THE SUPPLIER PRODUCT
THAT IS SUBJECT TO THIS AGREEMENT REGARDLESS OF THE FORM OF ACTION AND WHETHER
OR NOT SUCH DAMAGES ARE FORESEEABLE. Supplier's liability to Media 100 under
this Agreement shall not exceed the greater of amounts paid by Media 100 to
Supplier under this Agreement. Media 100's liability to Supplier under this
Agreement shall not exceed the amounts payable by Media 100 to Supplier under
Section 5.
(b) EXCEPTIONS. The limitation set forth in subsection (a) above do not apply to
any payment under Section 7; to breach of Section 8; to claims by either party
for personal injury or damage to real property or tangible personal property
caused by other's negligence; or in the case of fraud.
10. TERM; TERMINATION.
(a) TERM. This Agreement shall commence on the date it is executed by an
authorized Supplier signatory and continue until terminated in accordance with
its terms.
(b) TERMINATION FOR CAUSE. Either party may terminate this Agreement for the
substantial breach by the other party of a material term. The terminating party
will first give the other party written notice of the breach and a reasonable
period of at least sixty (60) days in which to cure the alleged breach. If a
cure is not achieved during the cure period, then the non-breaching party may
terminate this Agreement upon written notice.
(c) INSOLVENCY, ASSIGNMENT, OR BANKRUPTCY. Either party may terminate this
Agreement upon written notice to the other party if the other party (i) is not
paying its debts as such debts generally become due, (ii) becomes insolvent,
(iii) files or has filed against it a petition (or other document) under any
Bankruptcy Law or similar law that is unresolved within sixty (60) days of the
filing of such petition (or document), (iv) proposes any dissolution,
liquidation, composition, financial reorganization or
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recapitalization with creditors, (v) makes a general assignment or trust
mortgage for the benefit of creditors, or (vi) if a receiver, trustee, custodian
or similar agent is appointed or takes possession of any of its property or
business.
(d) TERMINATION BY MEDIA 100 FOR CONVENIENCE. Media 100 may terminate this
Agreement for its convenience at any time, for any reason or for no reason, by
giving Supplier written notice of termination prior to the beginning of the next
Media 100 fiscal quarter. Termination will become effective upon receipt of such
notice by Supplier.
(e) EFFECT OF TERMINATION ON OBLIGATIONS. Termination of this Agreement will not
affect any pre-termination obligations of either party under this Agreement, and
any termination is without prejudice to the enforcement of any undischarged
obligations existing at the time of termination. Within thirty (30) calendar
days after termination of this Agreement, Media 100 shall either deliver to
Supplier or destroy all copies of the Supplier Product and Documentation and any
other materials provided by Supplier to Media 100 hereunder in its possession or
under its control, and shall furnish to Supplier an affidavit signed by an
officer of Media 100 certifying that, to the best of its knowledge, such
delivery or destruction has been fully effected. Notwithstanding the foregoing,
(i) all licenses to the Bundled Product granted prior to termination to End
Users by or on behalf of Media 100 and in connection with products incorporating
the Supplier Product shall survive any termination of the Agreement, and in
particular, it is agreed that upon the termination of the Agreement for any
reason, such termination shall not abridge or diminish in any way the rights of
existing End Users to the licensed use and enjoyment of any product utilizing or
incorporating the Supplier Product or any Derivative Work already distributed in
accordance with the Agreement prior to its termination; and (ii) for a period of
up to one year after the date of the termination of this Agreement Media 100 may
continue, subject to payment of amounts which may be due as of the date of such
termination and at any time thereafter, to sell the Bundled Product and grant
End User licenses to in connection therewith, under the provisions of this
Agreement solely to (A) work off existing inventory, (B) fulfill contract
commitments existing at the date of termination, or (C) satisfy binding
quotations in effect at the date of termination, and may thereafter retain such
rights as are necessary to support users at the release level existing at the
time of termination.
Upon termination, Media 100's sole monetary obligation arising out of
termination will be to pay Supplier the fees set forth in Exhibit A of this
Agreement.
11. GENERAL PROVISIONS.
(a) FORCE MAJEURE. If either party is prevented from performing any portion of
this Agreement (except the payment of money) by causes beyond its control,
including labor disputes, civil commotion, war, governmental regulations or
controls, casualty, inability to obtain materials or services or acts of God,
such defaulting party will be excused from performance for the period of the
delay and for a reasonable time thereafter.
(b) CHOICE OF LAW; JURISDICTION. The validity, construction and performance of
this Agreement will be governed by and construed in accordance with the laws of
the State of
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California applicable to contracts executed in and performed entirely within
such State, without reference to any choice of law principles of such State.
With respect to any suit, action or other proceeding arising out of this
Agreement, or any other transaction contemplated thereby, the parties hereto
expressly waive any right they may have to a jury trial and agree that any
proceeding hereunder shall be tried by a judge without a jury. Each party
acknowledges that injunctive relief is an appropriate remedy for a breach of
Sections 3, 8 or 11. The parties agree to non-exclusive personal jurisdiction
and venue of the United States District Court for Massachusetts (and any
Massachusetts State Court) and the United States District Court for the Northern
District of California (and any California State Court in Santa Clara County)
for that purpose.
(c) SURVIVAL OF TERMS. The provisions of this Agreement that by their nature
extend beyond the termination of this Agreement will survive and remain in
effect until all obligations are satisfied. Confidentiality provisions of
Section 8 shall remain in effect until the Confidential Information is no longer
Confidential.
(d) ENTIRE AGREEMENT. This Agreement, including the following Exhibits,
constitutes the entire Agreement between the parties pertaining to the subject
matter and supersedes all prior agreements and understandings between the
parties, written or oral, with respect to such subject matter. No
representations or statements of any kind made by any representative of either
party which are not stated in this Agreement or other substantially
contemporaneous written agreements between the parties shall be binding on such
party. No course of dealing or course of performance shall be relevant to
explain or supplement any term expressed in this contract. In the event of any
conflict between this Agreement and any purchase order or acknowledgment, this
Agreement shall take precedence over any written or typed instructions in a
written or electronic purchase order or acknowledgment. References to Sections
without decimals (such as "Section 2") shall include all sections numbered with
decimals in such Section (i.e. Section 2.1, 2.2, etc.). The pre-printed
provisions of any written or electronic purchase order or acknowledgment shall
be void and of no effect. This Agreement shall be valid when signed by
authorized officers of both parties. The parties agree that this Agreement,
together with any appendices, addenda or exhibits attached hereto, may be
amended from time to time in writing by mutual agreement of the parties. No
party shall be bound by any change, alteration, amendment, modification or
attempted waiver of any of the provisions of this Agreement unless in writing
and signed by an authorized officer of the party against whom it is sought to be
enforced.
(e) ASSIGNMENT.
(i) The rights and liabilities of the parties hereto will bind and inure to
the benefit of their respective successors, executors and administrators,
as the case may be; provided that neither party may assign or delegate its
obligations under this Agreement either in whole or in part, expressly or
by operation of law, without the prior written consent of the other, except
that each party may assign this Agreement (A) to any Subsidiary or company
of which it is a Subsidiary so long as it remains responsible for such
Subsidiary's performance or (B) to a person or entity into which it has
merged or which has otherwise succeeded to all or substantially all of its
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business and assets to which this Agreement pertains, by purchase of stock,
assets, merger, reorganization or otherwise, and which has assumed in
writing or by operation of law its obligations under this Agreement. Any
attempted assignment in violation of the provisions of this Section will be
void.
(ii)All rights and licenses granted to a party under this Agreement shall
apply to that party's Subsidiaries so long as such Subsidiaries agree to
comply fully with the obligations imposed on that party by this Agreement
and so long as such Subsidiary continues to be a Subsidiary of a party.
Each party shall remain fully liable for the actions and omissions of its
Subsidiaries relative to rights granted under this Section 11(f).
(f) NOTICE. All notices, demands, requests or other communications that may be
or are required to be given, served or sent by any party pursuant to this
Agreement will be in writing (and shall be deemed to have been duly given upon
receipt), will reference this Agreement and shall be mailed by first class,
registered or certified mail, return receipt requested, postage prepaid, or
transmitted by express courier or hand delivery or facsimile transmission,
addressed to the address below the party's name on the signature page of this
Agreement. Each party may designate by notice in writing a new address to which
any notice, demand, request or communication may thereafter be so given, served
or sent. Each notice that is mailed, delivered or transmitted in the manner
described above shall be deemed sufficiently given, served, sent and received
for all purposes at such time as it is delivered to the addressee (with the
return receipt, the delivery receipt or the affidavit of messenger or courier
being deemed conclusive evidence of such delivery) or at such time as delivery
is refused by the addressee upon presentation.
(g) SEVERABILITY. If any term, provision, covenant or condition of this
Agreement is held invalid or unenforceable for any reason, the remainder of the
provisions will continue in full force and effect as if this Agreement had been
executed with the invalid portion eliminated. The parties further agree to
substitute for the invalid provision a valid provision that most closely
approximates the intent and economic effect of the invalid provision.
(h) INDEPENDENT CONTRACTORS. Each party acknowledges that the parties to this
Agreement are independent contractors and that it will not, except in accordance
with this Agreement, represent itself as an agent or legal representative of the
other.
(i) EXPORT CONTROL. Each party agrees that it will comply with the provisions of
United States laws restricting export of any software, technical data or other
information or materials, including without limitation the United States Export
Administration Act and regulations thereunder, and will not export any software,
technical data or other information or materials to any country in violation
thereof. This clause shall survive termination or cancellation of this
Agreement.
(j) HEADINGS. The headings provided in this Agreement are for convenience only
and will not be used in interpreting or construing this Agreement.
16
<PAGE>
(j) NONSOLICITATION. During the term of this Agreement and for one year
thereafter, (i) neither party shall solicit the employees or contractors of the
other for employment or consulting and shall promptly advise the other if
approached by same for such purposes; and (ii) Media100 agrees not to distribute
the Bundled Products through any distributor of Supplier's as of the date of
this Agreement without Supplier's prior written approval, which approval will
not be unreasonably withheld..
(k) ATTORNEYS' FEES. In the event of any dispute in connection with this
Agreement, the prevailing party shall be entitled to recover its reasonable
attorneys' and experts' charges, in addition to such other relief as the court
may award.
Executed as of the date first above written.
SUPPLIER: Media 100:
DIGITAL ORIGIN, INC. MEDIA 100 INC.
By By
---------------------- ---------------------------
Name: Name:
Title: Title:
Address: 460 East Middlefield Road Address: 290 Donald Lynch Boulevard
Mountain View CA 94043 Marlboro, MA 01752-4748
17
<PAGE>
EXHIBIT A
SUPPLIER PRODUCT, ROYALTIES
1. SUPPLIER PRODUCT: The Agreement to which this is appended applies to the
following Supplier Product:
a. IntroDV 1.0 For Windows, Software Only Version. The Digital
Origin Software content of retail SKU 0752 (see company website for complete
description). Specifically excludes all other bundled products from DO or third
parties, specifically excluded hardware, cables, and other miscellaneous
contained in that SKU.
2. ROYALTY/LICENSE FEES:
a. DEVELOPMENT PAYMENTS
Payment of $500,000 upon the earlier to occur of February 1,
2000 and Acceptance of all Deliverables of the Supplier Product (in accordance
with Exhibit B).
b. ONGOING ROYALTIES
1. Payment of $250,000 advance pre-paid royalty upon
execution of this Agreement, considered to be the minimum royalty payment for
the quarter ending February 29, 2000.
2. Royalty of 5% of Net Sales of Bundled Product each
quarter. Net Sales means gross receipts from the license or sale of the Bundled
Products less applicable sales and use taxes, shipping, insurance and reasonable
returns.
3. Cumulative minimum payment of $250,000 per quarter
for the first 14 quarters of the Agreement, such last payment being for the
quarter ended May 31, 2003. "Cumulative" means that if in a particular quarter,
(a) the cumulative payments under this Agreement under clause (1) and (2) in
previous quarters, plus the amount to be paid based on the foregoing 5% royalty,
is less than (b) $250,000 multiplied by the total number of elapsed quarters,
then the payment due in such quarter is such difference, up to $250,000.) The
$500,000 payment made pursuant to clause (a) shall not be considered in making
the calculation of "cumulative", but shall be treated as an advance against
royalties for the payments for the quarters ended August 31, 2003, and November
30, 2003 payments under clause (b), such that only to the extent the 5% royalty
set for in clause (b) above exceeds such amount would Media 100 be obligated to
make payments under clause (b) above for such quarters.
(Note: because of the $250,000 payment on execution, no further minimum royalty
payment is due for the quarter ended February 29, 2000; payment with respect to
such
18
<PAGE>
quarter shall only be made if the amount payable under the 5% royalty exceeds
that amount.).
c. TREATMENT OF TERMINATION
1. In the event of termination of the Agreement prior to
February 28, 2001 by Media 100 for cause or convenience pursuant to Section 10,
the $500,000 payment made pursuant to clause (a) above shall be promptly
refunded by Supplier to Media 100. However, payments made under clause (b) above
shall not be refundable.
2. In the event of termination of the Agreement by Media
100 pursuant to Section 10 prior to the end of a quarter which quarter is after
the quarter ended February 28, 2001, Media 100 shall pay to Supplier in
accordance with the Agreement the payment for such quarter in accordance with
the provisions of (b) above. If Media 100 terminates the Agreement in or prior
to the quarter ended February 28, 2001, or if, pursuant to Section 10(e) above,
Media 100 shall provide residual post-termination copies of materials in a
quarter following any quarter in which the Agreement is terminated, it shall pay
to Supplier solely the 5% royalty specified in clause (b)(2) above with respect
to such sales, without any obligation of a minimum royalty. For avoidance of
doubt, in no case will Media 100 have liability for any minimum royalties
following termination of the Agreement other than as specifically stated in the
first sentence of this clause (c)(2).
19
<PAGE>
EXHIBIT B
MILESTONES SCHEDULE
[to be completed after execution, in accordance with Section 2(b)]
DESCRIPTION OF MILESTONE DUE DATE
20
<PAGE>
EXHIBIT C
PRODUCT SPECIFICATIONS
[to be completed after execution, in accordance with Section 2(b)]
21
<PAGE>
EXHIBIT D
MAINTENANCE AND SUPPORT
Supplier shall not be responsible for first-level support (i.e., direct support
of customer questions) of products incorporating the Supplier Product. However,
during the term of this Agreement, and for a period of one (1) year thereafter
but not longer than Supplier provides general support for the Supplier Product
or if Supplier terminates the Agreement pursuant to Section 10(b), Supplier
shall provide to Media 100 second level support services, consistent with the
support obligations described below with respect to the Supplier Product
including, without limitation, identification of defective Source Code and
Object Code and providing corrections, Workarounds and/or patches to correct
defects or errors in such Code. During the term of this Agreement and for one
year thereafter, Media 100 shall provide first-level customer support of
products incorporating the Supplier Product on the same basis as the Restricted
Streaming Products or other comparable products that do not incorporate the
Supplier Product.
TECHNICAL SUPPORT. While obligated to provide second level support as provided
above, in addition to the second level support services described above, (i)
Supplier shall appoint a technical contact to whom Media 100 may address all
technical questions relating to Supplier technologies; (ii) the parties shall
determine a mutually acceptable procedure by which Media 100 shall direct its
technical questions to the appropriate Supplier technical contact; and (iii)
Supplier shall promptly answer all technical questions asked by Media 100
relative to the Supplier Product.
TRAINING OF MEDIA 100. Supplier shall provide training of up to two members of
Media 100's technical and marketing staff on the following topics: IntroDV.
Training of Media 100 personnel will be provided by Supplier at Mountain View CA
or other mutually agreeable location. The training duration is estimated at 2
days. Media 100 is responsible for Media 100 personnel's out of pocket expenses
including travel, room and board. Supplier is responsible for the facilities,
training materials and equipment. There are no tuition charges. The course will
be scheduled at a mutually agreed upon time.
UPGRADES, UPDATES, ERROR CORRECTIONS AND ENHANCEMENTS. Supplier will include
Media 100 in its alpha programs for any Updates to the technology underlying the
Supplier Product (the "Technology") released during the term of this Agreement,
and will provide Media 100 with the production version of such upgrades, subject
to Section 2(a) of the Agreement. Beta testing will be managed by Media 100,
with support from Supplier. Media 100 may, but is not required to, incorporate
any such Updates in a product.
To enable Media 100 to provide standard support, while Supplier provides second
level support as provided above, Supplier shall provide to Media 100, at no
cost, all pertinent System Documentation for the Supplier Product and any new
releases thereof which is reasonably necessary for the purpose of providing
standard software support for the Supplier Product. Supplier shall also provide
to Media 100, at no cost and on an as needed basis, timely qualified technical
support by phone during Supplier's Business
22
<PAGE>
Hours to answer questions from a designated Media 100 representative consistent
with the following support obligations. Errors may be reported, on a 24 hours
per day, 365 day per year basis, by electronic mail, voice mail, fax or
telephonic recording capability.
While Supplier is obligated to provide second level support as provided above,
Supplier will use reasonable commercial efforts to resolve each significant
Error by providing either a reasonable work around, an object code patch, or a
specific action plan for how Supplier will address the problem and an estimate
of how long it will take to rectify the defect. Notwithstanding the foregoing,
Supplier has no obligation to perform services in connection with (i) Errors
resolution from hardware or software not supplied by Supplier or (ii) which
occur in the Supplier Product release which is not the then-current release.
<PAGE>
MEDIA 100 INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report set forth on page F-2 of this Form 10-K, into the Company's previously
filed Registration Statements on Form S-8, File Nos. 33-00346, 33-06609,
33-50692, 33-59937, 333-24139 and 333-52139.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 25, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET ON FORM 10-K FOR THE PERIOD ENDED
NOVEMBER 30, 1999 AND THE CONSOLIDATED STATEMENT OF OPERATIONS AS
FILED ON FORM 10-K FOR THE PERIOD ENDED NOVEMBER 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> NOV-30-1999
<CASH> 10,231
<SECURITIES> 18,169
<RECEIVABLES> 6,783
<ALLOWANCES> 402
<INVENTORY> 1,478
<CURRENT-ASSETS> 37,344
<PP&E> 15,191
<DEPRECIATION> 8,682
<TOTAL-ASSETS> 45,843
<CURRENT-LIABILITIES> 14,594
<BONDS> 0
0
0
<COMMON> 85
<OTHER-SE> 31,164
<TOTAL-LIABILITY-AND-EQUITY> 45,843
<SALES> 51,479
<TOTAL-REVENUES> 51,479
<CGS> 19,704
<TOTAL-COSTS> 19,704
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