EXHIBIT 2
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EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of August 30,
2000, is entered into by and among Focus Enhancements, Inc., a Delaware
corporation ("Focus"), PC Video Conversion, Inc., a Delaware corporation and a
wholly owned subsidiary of Focus ("Merger Subsidiary"), and Videonics, Inc., a
California corporation ("Videonics").
Whereas, the Board of Directors of each of Focus, Merger Subsidiary and
Videonics has determined that it is in the best interests of its shareholders
that Focus and Videonics enter into a business combination under which a
subsidiary of Focus will merge with and into Videonics pursuant to the Merger
(as defined in Section 1.1 hereof);
Whereas, upon completion of the Merger, vacancies on the Board of Directors of
Focus shall be filled by persons appointed by the Board of Directors of Focus
such that the Board of Directors of Focus consists of seven persons, four of
whom shall be nominated by Focus and three of whom shall be nominated by
Videonics;
Whereas, upon completion of the Merger, Michael D'Addio, the Chief Executive
Officer of Videonics, shall be appointed as the President and Chief Executive
Officer of Focus;
Whereas, the Board of Directors of each of Focus, Merger Subsidiary and
Videonics has determined that the Merger and the other transactions contemplated
hereby are consistent with, and in furtherance of, its respective business
strategies and goals and has approved the Merger upon the terms and conditions
set forth herein; and
Whereas, for federal income tax purposes, it is intended that the Merger shall
constitute a tax-free reorganization.
Now, therefore, in consideration of the foregoing and the mutual covenants and
agreements herein contained, and intending to be legally bound hereby, the
Parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. At the Effective Time (as defined in Section 1.2 hereof)
and subject to and upon the terms and conditions of this Agreement, the Delaware
Corporation Law ("DCL") and the California Corporate Law ("CCL"), Merger
Subsidiary will be merged with and into Videonics (the "Merger"), whereby the
separate corporate existence of Merger Subsidiary shall cease and Videonics
shall continue as the surviving corporation which shall be a subsidiary of
Focus. Videonics as the surviving corporation after the Merger is herein
sometimes referred to as the "Surviving Corporation" and Merger Subsidiary as
the non-surviving corporation after the Merger is herein sometimes referred to
as the "Merged Corporation." Videonics, Focus and Merger Subsidiary are herein
referred to collectively as the "Parties" and each individually as a "Party."
Section 1.2 Effective Time. As promptly as practicable after the satisfaction or
waiver of the conditions set forth in Article VII hereof and the consummation of
the Closing referred to in Section 2.9 hereof, the Parties shall cause the
Merger to be consummated by filing a Certificate of Merger with the Secretary of
State of the State of Delaware with respect to the Merger, in such form as
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required by, and executed in accordance with, the relevant provisions of the DCL
and CCL (the time of such filing being the "Effective Time").
Section 1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the DCL and CCL.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
Videonics and Merger Subsidiary shall continue with, or vest in, as the case may
be, Videonics as the Surviving Corporation, and all debts, liabilities and
duties of Videonics and Merger Subsidiary shall continue to be, or become, as
the case may be, the debts, liabilities and duties of Videonics as the Surviving
Corporation. As of the Effective Time, the Surviving Corporation shall be a
direct subsidiary of Focus.
Section 1.4 Subsequent Actions. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to continue in, vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties, privileges, franchises or assets of either of its
constituent corporations acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger or otherwise to carry out this
Agreement, the officers and directors of the Surviving Corporation shall be
directed and authorized to execute and deliver, in the name and on behalf of
either of such constituent corporations, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of each
of such corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties, privileges, franchises or
assets in the Surviving Corporation or otherwise to carry out this Agreement.
Section 1.5 Certificate of Incorporation; Bylaws; Directors and Officers of
Surviving Corporation. Unless otherwise agreed by Videonics and Focus before the
Effective Time, at the Effective Time:
(a) the Certificate of Incorporation of Videonics as the Surviving
Corporation shall be the Articles of Incorporation of Videonics as in effect
immediately prior to the Effective Time, until thereafter amended as provided by
Law and such Certificate of Incorporation;
(b) the bylaws of Videonics as the Surviving Corporation shall be the
bylaws of Videonics immediately prior to the Effective Time, until thereafter
amended as provided by Law and the Certificate of Incorporation and the bylaws
of such Surviving Corporation; and
(c) the directors and officers of Videonics immediately prior to the
Effective Time shall continue to serve in their respective offices of the
Surviving Corporation from and after the Effective Time, in each case until
their successors are elected or appointed and qualified or until their
resignation or removal. If at the Effective Time a vacancy shall exist on the
Board of Directors or in any office of the Surviving Corporation, such vacancy
may thereafter be filled in the manner provided by Law and the bylaws of the
Surviving Corporation.
ARTICLE II
EFFECT ON STOCK OF THE SURVIVING CORPORATION AND THE MERGED
CORPORATION
Section 2.1 Conversion of Securities. The manner and basis of converting the
shares of common stock of the Surviving Corporation and of the Merged
Corporation at the Effective Time,
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by virtue of the Merger and without any action on the part of any of the Parties
or the holder of any of such securities, shall be as hereinafter set forth in
this Article II.
Section 2.2 Conversion of Shares.
(a) Subject to Section 2.7, each share of common stock, no par value,
of Videonics ("Videonics Common Stock") issued and outstanding immediately
before the Effective Time (excluding those canceled pursuant to Section 2.3) and
all rights in respect thereof, shall at the Effective Time, without any action
on the part of any holder thereof, be converted into and become 0.87 shares of
common stock, par value $0.01 per share, of Focus ("Focus Common Stock"),
provided that any Dissenting Shares (as defined in Section 2.13) shall dealt
with as provided in Section 2.13. Such ratio of Videonics Common Stock to Focus
Common Stock is herein referred to as the "Exchange Ratio."
(b) As of the Effective Time, all shares of Videonics Common Stock
converted pursuant to Section 2.2(a) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate (each, an "Old Certificate") representing any such shares of
Videonics Common Stock shall cease to have any rights with respect thereto,
except the right to receive shares of Focus Common Stock, in accordance with
Section 2.2(a), certain dividends or other distributions in accordance with
Section 2.7(d) and any cash in lieu of fractional shares of Focus Common Stock
to be issued or paid in consideration therefor upon surrender of such
certificate in accordance with Section 2.6, without interest.
Section 2.3 Cancellation of Treasury Shares and Shares Owned by Focus and Merger
Subsidiary. At the Effective Time, each share of Videonics Common Stock held in
the treasury of Videonics or owned by Merger Subsidiary or Focus immediately
prior to the Effective Time shall be canceled and retired and no shares of stock
or other securities of Focus or the Surviving Corporation shall be issuable, and
no payment or other consideration shall be made, with respect thereto.
Section 2.4 Conversion of Common Stock of the Merged Corporation into Common
Stock of the Surviving Corporation. At the Effective Time, each share of common
stock of Merger Subsidiary issued and outstanding immediately prior to the
Effective Time, and all rights in respect thereof, shall, without any action on
the part of Focus, forthwith cease to exist and be converted into one validly
issued, fully paid and nonassessable share of common stock, of the Surviving
Corporation (the "Surviving Corporation Common Stock"). Immediately after the
Effective Time and upon surrender by Focus of the certificates representing the
shares of the common stock of Merger Subsidiary, Videonics as the Surviving
Corporation shall deliver to Focus an appropriate certificate or certificates
representing the Surviving Corporation Common Stock created by conversion of the
common stock of Merger Subsidiary owned by Focus.
Section 2.5 Adjustments to Exchange Ratio. Without limiting any other provision
of this Agreement, the Exchange Ratio shall be correspondingly adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Focus
Common Stock or Videonics Common Stock), reorganization, recapitalization,
reclassification, conversion, consolidation, contribution or exchange of shares,
any shelf-registration or other like change with respect to Focus Common Stock
or Videonics Common Stock occurring after the date hereof and prior to the
Effective Time.
Section 2.6 Fractional Shares. No fraction of a share of Focus Common Stock will
be issued hereunder, but in lieu thereof each holder of Videonics Common Stock
who would otherwise be entitled to a fraction of a share of Focus Common Stock
(after aggregating all fractional shares of
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Focus Common Stock to be received by such holder) shall receive from Focus an
amount of cash (rounded to the nearest whole cent) equal to the product of such
fraction multiplied by the closing price for a share of Focus Common Stock on
the NASDAQ Composite Transaction Tape on the first trading day immediately
following the Effective Time.
Section 2.7 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Focus shall designate
a bank or trust company to act as Exchange Agent in the Merger.
(b) Focus to Provide Common Stock. On or prior to the Effective Time,
Focus shall make available to the Exchange Agent for exchange in accordance with
this Article II, the shares of Focus Common Stock issuable pursuant to Section
2.2 in exchange for outstanding Videonics Common Stock, together with an
estimated amount of cash to be paid pursuant to Section 2.6 in lieu of
fractional shares.
(c) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Videonics Common Stock whose
shares were converted into the right to receive shares of Focus Common Stock
pursuant to Section 2.2, 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 delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Focus may reasonably specify) and
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Focus Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor, and Focus shall cause to be distributed, a
certificate representing the number of whole shares of Focus Common Stock and
payment in lieu of fractional shares which such holder has the right to receive
pursuant to Section 2.6, and the Certificate so surrendered shall forthwith be
canceled. Until so surrendered, each outstanding Certificate that, prior to the
Effective Time, represented shares of Videonics Common Stock will be deemed from
and after the Effective Time, for all corporate purposes, other than the payment
of dividends, to evidence the ownership of the number of full shares of Focus
Common Stock into which such Videonics Common Stock shall have been so converted
and the right to receive an amount in cash in lieu of the issuance of any
fractional shares in accordance with Section 2.6. Any portion of the shares of
Focus Common Stock deposited with the Exchange Agent pursuant to Section 2.7(b)
which remains undistributed to the holders of the Certificates representing
Videonics Common Stock for twelve (12) months after the Effective Time shall be
delivered to Focus, upon demand, and any holders of Videonics Common Stock who
have not theretofore complied with this Article II shall thereafter look only to
Focus for Focus Common Stock, any cash in lieu of fractional shares of Focus
Common Stock and any dividends or distributions with respect to Focus Common
Stock to which such holders may be entitled.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Focus Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of
Videonics Common Stock represented thereby until the holder of record of such
Certificate shall surrender such Certificate. Subject to applicable escheat Law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Focus Common Stock
issued in exchange therefor, without interest, at
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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 Focus Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Focus
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the Person requesting such
exchange will have paid to Focus, or any agent designated by it, any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Focus Common Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Focus or any
agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Agreement, none of the Exchange Agent, Focus, Merger Subsidiary or the Surviving
Corporation shall be liable to a holder of Videonics Common Stock for any Focus
Common Stock or any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar Law.
(g) Withholding of Tax. Focus or the Exchange Agent will be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Videonics Common Stock such amounts as Focus (or any
affiliate thereof) or the Exchange Agent shall determine in good faith they are
required to deduct and withhold with respect to the making of such payment under
the Internal Revenue Code of 1986, as amended (the "Code"), or any provision of
federal, state, local or foreign tax Law. To the extent that amounts are so
withheld by Focus or the Exchange Agent, such withheld amounts will be treated
for all purposes of this Agreement as having been paid to the holder of the
Videonics Common Stock in respect of whom such deduction and withholding were
made by Focus.
Section 2.8 Further Ownership Rights in Videonics Common Stock. All shares of
Focus Common Stock issued upon the surrender for exchange of Videonics Common
Stock in accordance with the terms of this Article II (including any cash paid
in respect thereof) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such Videonics Common Stock under this Article II, and
there shall be no further registration of transfers on the records of the
Surviving Corporation of Videonics Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article II.
Section 2.9 Closing. Unless this Agreement shall have been terminated and the
transactions contemplated by this Agreement abandoned pursuant to the provisions
of Article VIII, and subject to the provisions of Article VII, the closing of
the Merger (the "Closing") will take place at 10:00 a.m. (Eastern time) on a
date (the "Closing Date") to be mutually agreed upon by the parties, which date
shall be not later than the third Business Day after all the conditions set
forth in Article VII shall have been satisfied (or waived in accordance with
Section 8.4, to the extent the same may be waived), unless another time and/or
date is agreed to in writing by the parties. The Closing shall take place at the
offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC, unless another
place is agreed to in writing by the parties.
Section 2.10 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, such shares of Focus
Common Stock and cash for fractional shares, if any, as may be required pursuant
to Section 2.6; provided, however, that Focus may, as a condition precedent to
the issuance thereof,
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require the owner of such lost, stolen or destroyed certificates to deliver a
bond in such sum as it may reasonably direct as indemnity against any claim that
may be made against Focus or the Exchange Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
Section 2.11 Tax Consequences. For federal income tax purposes, the parties
intend that the Merger be treated as a tax free reorganization under the Code
and the parties agree to take whatever steps are required to give effect to the
Merger on such a basis.
Section 2.12 Options to Purchase Videonics Common Stock. (a) At the Effective
Time, each option or warrant granted by Videonics to purchase shares of
Videonics Common Stock (collectively, the "Videonics Options", and each a
"Videonics Option) which is outstanding and unexercised immediately prior to the
Effective Time shall be assumed by Focus and converted into an option or warrant
to purchase shares of Focus Common Stock in such amount and at such exercise
price as provided below and otherwise having the same terms and conditions as
are in effect immediately prior to the Effective Time (except to the extent that
such terms, conditions and restrictions may be altered in accordance with their
terms as a result of the transactions contemplated hereby):
(i) the number of shares of Focus Common Stock to be subject
to the new option or warrant shall be equal to the product of
(x) the number of shares of Videonics Common Stock subject to
the Videonics Option and (y) the Exchange Ratio;
(ii) the exercise price per share of Focus Common Stock under
the new option or warrant shall be equal to (x) the exercise
price per share of the Videonics Common Stock under the
Videonics Option divided by (y) the Exchange Ratio; and
(iii) upon each exercise of a Videonics Option by a holder
thereof, the aggregate number of shares of Focus Common Stock
deliverable upon such exercise shall be rounded down, if
necessary, to the nearest whole share and the aggregate
exercise price shall be rounded up, if necessary, to the
nearest cent.
The adjustments provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Code) shall be effected in a
manner consistent with Section 424(a) of the Code.
(b) Focus shall reserve for issuance a sufficient number of shares of
Focus Common Stock for delivery upon exercise of Videonics Options assumed by
Focus under this Agreement. Focus shall file as soon as practicable after the
Effective Date a registration statement under the Securities Act covering the
shares of Focus Common Stock issuable upon the exercise of the Videonics Options
assumed by Focus pursuant to Section 2.12(a), and shall use its reasonable
efforts to cause such registration statement to become effective as soon
thereafter as practicable and to maintain such registration in effect until the
exercise or expiration of such assumed Videonics Options.
Section 2.13 Dissenting Shareholders. Notwithstanding anything in this Agreement
to the contrary, shares of Videonics Common Stock which are issued and
outstanding immediately prior to the Effective Time and which are held by a
shareholder who has the right (to the extent such right is available by Law) to
demand and receive payment of the fair value of the shares of Videonics Common
Stock owned by such shareholder (the "Dissenting Shares") pursuant to the CCL,
shall not be converted into or be exchangeable for the right to receive the
consideration provided in Section
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2.2 unless and until such shareholder shall fail to perfect his or her right to
an appraisal or shall have effectively withdrawn or lost such right under the
CCL, as the case may be. Such Dissenting Shares shall be cancelled at the
Effective Time and, thereafter, shall represent only the right to exercise
statutory dissent right under the CCL or receive the consideration provided for
in Section 2.2.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF VIDEONICS
Except as expressly disclosed in the Videonics Filed SEC Reports (as defined
below) (including all exhibits referred to therein) or as set forth in the
disclosure schedule delivered by Videonics to Focus as provided for herein (the
"Videonics Disclosure Schedule") (each section of which qualifies the
correspondingly numbered representation and warranty or covenant as specified
therein), Videonics hereby represents and warrants to Focus as follows:
Section 3.1 Organization and Qualification. Videonics is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization. Videonics has the requisite
corporate power and authority and any necessary Governmental Authority,
franchise, license, certificate or permit to own, operate or lease the
properties that it purports to own, operate or lease and to carry on its
business as it is now being conducted, and is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, operated or leased or the nature of its
activities makes such qualification necessary.
Section 3.2 Articles of Incorporation and Bylaws. Videonics has heretofore
furnished, or otherwise made available, to Focus a complete and correct copy of
the Articles of Incorporation and the bylaws, each as amended to the date
hereof, of Videonics. Such Articles of Incorporation and bylaws are in full
force and effect. Videonics is not in violation of any of the provisions of its
Articles of Incorporation.
Section 3.3 Capitalization.
(a) The authorized capital stock of Videonics consists of (i)
10,000,000 shares of preferred stock, no par value, none of which is outstanding
or reserved for issuance, and (ii) 30,000,000 shares of Videonics Common Stock,
no par value, of which, as of July 31, 2000, (A) 5,899,299 shares were validly
issued and outstanding as fully paid and non-assesable, (B) no shares were held
in the treasury of Videonics, (C) 858,239 shares were issuable upon the exercise
of options outstanding under the Videonics employee and director stock option
plans or agreements, and (D) 95,000 shares were issuable pursuant to outstanding
warrants. Since July 31, 2000, no shares of Videonics Common Stock have been
issued, except upon the exercise of options described in the immediately
preceding sentence. There are no outstanding Videonics Equity Rights except for
Videonics Equity Rights issued to Videonics employees in the ordinary course of
business. Section 3.3 of the Videonics Disclosure Schedule sets forth a complete
and accurate list of all outstanding Videonics Equity Rights as of July 31,
2000, including the terms and the holder thereof. There are no outstanding
obligations of Videonics to repurchase, redeem or otherwise acquire any shares
of capital stock of Videonics.
(b) Videonics does not have any subsidiaries.
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(c) There are no voting trusts, proxies or other agreements,
commitments or understandings of any character to which Videonics is a party or
by which Videonics is bound with respect to the voting of any shares of capital
stock of Videonics.
Section 3.4 Authority Relative to this Agreement.
(a) Videonics has the necessary corporate power and authority to enter
into this Agreement and, subject to obtaining the requisite approval of this
Agreement by Videonics' shareholders required by the CCL (the "Videonics
Shareholder Approval"), to perform its obligations hereunder. The execution and
delivery of this Agreement by Videonics, and the consummation by Videonics of
the transactions contemplated hereby, have been duly authorized by all necessary
corporate action on the part of Videonics, subject to obtaining the Videonics
Shareholder Approval. This Agreement has been duly executed and delivered by
Videonics and, assuming the due authorization, execution and delivery thereof by
each of Focus and Merger Subsidiary, constitutes a legal, valid and binding
obligation of Videonics, enforceable against it in accordance with its terms.
(b) The Board of Directors of Videonics has directed that this
Agreement be submitted to the shareholders of Videonics for their approval and
authorization. The affirmative vote of a majority (50% plus one vote) of the
votes cast, in person or by proxy, by holders of the outstanding Videonics
Common Stock at a special meeting of the shareholders of Videonics (the
"Videonics Shareholders' Meeting") is the only vote of the holders of any class
or series of capital stock of Videonics necessary to approve and authorize this
Agreement, the Merger and the other transactions contemplated hereby and
thereby.
Section 3.5 No Conflict; Required Filings and Consents.
(a) Except as described in subsection (b) below, the execution and
delivery of this Agreement by Videonics does not, and the performance of this
Agreement by Videonics will not, (i) violate or conflict with the Articles of
Incorporation or bylaws of Videonics, (ii) conflict with or violate any Law
applicable to Videonics or by which any of its property or assets (including
investments) is bound or affected, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination or
cancellation of, or result in the creation of an Encumbrance on any of the
properties or assets (including investments) of Videonics pursuant to, result in
the loss of any material benefit under, or result in any modification or
alteration of, or require the consent of any other party to, any contract,
instrument, permit, license or franchise to which Videonics is a party or by
which Videonics or any of its property or assets (including investments) is
bound or affected, except, in the case of clauses (ii) and (iii) above, for
conflicts, violations, breaches, defaults, results or consents which,
individually or in the aggregate, would not have a Material Adverse Effect on
Videonics.
(b) Except for applicable requirements, if any, of the Securities Act,
the Exchange Act, the Blue Sky Laws, the HSR Act or any Foreign Competition Laws
and the filing and recordation of appropriate merger or other documents under
the DCL and CCL, (i) Videonics is not required to submit any notice, report or
other filing with any Governmental Authority in connection with the execution,
delivery or performance of this Agreement and (ii) no waiver, consent, approval
or authorization of any Governmental Authority is required to be obtained by
Videonics in connection with its execution, delivery or performance of this
Agreement.
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Section 3.6 SEC Filings; Financial Statements.
(a) Videonics has filed all forms, reports and documents required to be
filed with the SEC since December 15, 1994 (collectively, the "Videonics SEC
Reports", with such Videonics SEC Reports filed with the SEC prior to the date
hereof being referred to as "Videonics Filed SEC Reports"). The Videonics SEC
Reports (i) were prepared in accordance and complied as of their respective
dates with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations promulgated under each of such
respective Acts, and (ii) did not at the time they were filed (or if amended by
a filing prior to the date hereof as of the date of such amendment) contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) The financial statements, including all related notes and
schedules, contained in the Videonics SEC Reports (or incorporated by reference
therein) (i) fairly present the consolidated financial position of Videonics as
at the respective dates thereof and the consolidated results of operations and
cash flows of Videonics for the periods indicated in accordance with GAAP
applied on a consistent basis throughout the periods involved (except for
changes in accounting principles disclosed in the notes thereto) and subject in
the case of interim financial statements to normal year-end adjustments and (ii)
in the case of financial statements included in Videonics SEC Reports, complied
in all material respects with applicable accounting requirements of the SEC.
Section 3.7 Absence of Certain Changes or Events. Except as disclosed in the
Videonics Filed SEC Reports and in Section 3.7 of the Videonics Disclosure
Schedule, since December 31, 1999, (i) Videonics has not incurred any liability
except in the ordinary course of its business consistent with its past practices
and which will not, either individually or in the aggregate, have a Material
Adverse Effect on Videonics, (ii) there has not been any change, or any event
involving a prospective change, in the business, financial condition or results
of operations of Videonics which has had, or is reasonably likely to have, a
Material Adverse Effect on Videonics, and (iii) Videonics has conducted its
business in the ordinary course consistent with its past practices.
Section 3.8 Litigation. There are no Actions pending or, to Videonics'
knowledge, threatened against Videonics, or any properties or rights of
Videonics, by or before any Governmental Authority, except for those that are
not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on Videonics or prevent, materially delay or intentionally delay
the ability of Videonics to consummate transactions contemplated hereby.
Videonics is not subject to any Actions or claims which, individually or in the
aggregate, has or might have a Material Adverse Effect on Videonics.
Section 3.9 Permits; No Violation of Law. The business of Videonics is not being
conducted in violation of any Law, or in violation of any Permits, except for
possible violations none of which, individually or in the aggregate, may have a
Material Adverse Effect on Videonics. No investigation or review by any
Governmental Authority (including any stock exchange or other self- regulatory
body) with respect to Videonics, in relation to any alleged violation of Law is
pending or, to Videonics' knowledge, threatened, nor has any Governmental
Authority (including any stock exchange or other self-regulatory body) indicated
an intention to conduct the same, except for such investigations which, if they
resulted in adverse findings, would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Videonics.
Videonics is not subject to any cease and desist or other order, judgment,
injunction or decree issued by, or a party to any written agreement, consent
agreement or memorandum of understanding with, or a party to any commitment
letter or similar undertaking to, or subject to any order or directive by, or
adopted any
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board resolutions at the request of, any Governmental Authority that materially
restricts the conduct of its business or which may reasonably be expected to
have a Material Adverse Effect on Videonics, nor has Videonics been advised that
any Governmental Authority is considering issuing or requesting any of the
foregoing.
Section 3.10 Joint Proxy Statement. None of the information supplied or to be
supplied by or on behalf of Videonics for inclusion or incorporation by
reference in the registration statement to be filed with the SEC by Focus in
connection with the issuance of shares of Focus Common Stock in the Merger (the
"Registration Statement") will, at the time the Registration Statement becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. None of the information supplied or
to be supplied by or on behalf of Videonics for inclusion or incorporation by
reference in the joint proxy statement, in definitive form, relating to the
meetings of Videonics and Focus shareholders to be held in connection with the
Merger, or in the related proxy and notice of meeting, or soliciting material
used in connection therewith (referred to herein collectively as the "Joint
Proxy Statement") will, at the dates mailed to shareholders and at the times of
the Videonics shareholders' meeting and the Focus shareholders' meeting, 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 Registration Statement and the Joint Proxy Statement (except for
information relating solely to Focus) will comply as to form in all material
respects with the provisions of the Securities Act and the Exchange Act and the
rules and regulations promulgated thereunder.
Section 3.11 Employee Matters; ERISA.
(a) Section 3.11(a) of the Videonics Disclosure Schedule contains a
true and complete list of each deferred compensation, incentive compensation,
stock purchase, stock option and other equity compensation plan; each "welfare"
plan, fund or program (within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")); each "pension"
plan, fund or program (within the meaning of Section 3(2) of ERISA); and each
other material 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 Videonics or any entity, any trade or business (whether or not
incorporated) which is a member of a controlled group or which is under common
control with Videonics within the meaning of Section 414 of the Code or which
could be deemed a "single employer" within the meaning of Section 4001(b) of
ERISA (a "Videonics ERISA Affiliate"), or to which Videonics or a Videonics
ERISA Affiliate is a party, whether written or oral, for the benefit of any
director, employee or former employee of Videonics or any Videonics ERISA
Affiliates, whether or not such plan has been terminated (the "Videonics
Plans"). There are no restrictions on the ability of Videonics or any Videonics
ERISA Affiliates to amend, modify or terminate any Videonics Plan and each
Videonics Plan is fully and readily assignable and transferable by its sponsor
to either the Focus or the Merger Subsidiary.
(b) Videonics has heretofore made available to Focus true and complete
copies of the Videonics Plans and any amendments thereto (or if the Videonics
Plan is not a written Videonics Plan, a description thereof), any related trust
or other funding vehicle, the three (3) most recent reports or summaries
required under ERISA or the Code, the most recent audited financial statements
and most recent determination letter received from the Internal Revenue Service
with respect to each Videonics Plan intended to qualify under Section 401 of the
Code.
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(c) No Videonics Plan is subject to Title IV of ERISA or Section 412 of
the Code, nor is any Videonics Plan a "multiemployer pension plan", as defined
in Section 3(37) of ERISA, or subject to Section 302 of ERISA. No Videonics Plan
is a "single-employer plan under multiple controlled groups" as described in
Section 4063 of ERISA.
(d) Except as would not be materially adverse to Videonics, each
Videonics Plan has been operated and administered in all respects in accordance
with its terms and applicable Law, including ERISA and the Code. There has been
no "prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Videonics Plan; there are no
claims pending (other than routine claims for benefits) or threatened against
any Videonics Plan or against the assets of any Videonics Plan, nor are there
any current or threatened Encumbrance on the assets of any Videonics Plan.
Videonics and all Videonics ERISA Affiliates have performed all obligations
required to be performed by them under, are not in default under or violation
of, and have no knowledge of any default or violation by any other party with
respect to, any of the Videonics Plans. All contributions required to be made to
any Videonics Plan under applicable Law or the terms of the respective Videonics
Plan have been made on or before their due dates and a reasonable amount has
been accrued for contributions to each Videonics Plan for the current plan
years; except as disclosed on Section 3.11(d) of the Videonics Disclosure
Schedule, the transaction contemplated herein will not directly or indirectly
result in an increase of benefits, acceleration of vesting or acceleration of
timing for payment of any benefit to any participant or beneficiary under any
Videonics Plan.
(e) Each Videonics Plan intended to be "qualified" within the meaning
of Section 401(a) of the Code and the trusts maintained thereunder that are
intended to be exempt from taxation under Section 501(a) of the Code have
received a favorable determination or other letter indicating that they are so
qualified, and no event has occurred since the date of said letter(s) that could
reasonably be expected to materially adversely affect the qualification of such
Videonics Plan.
(f) No Videonics Plan or written or oral agreement provides medical,
surgical, hospitalization, death or similar benefits (whether or not insured)
for directors, employees or former employees of Videonics or Videonics ERISA
Affiliates 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).
(g) No amounts payable under the Videonics Plans will fail to be
deductible for federal income Tax purposes by virtue of Section 280G of the
Code.
(h) Except as set forth in section 3.11 of the Videonics Disclosure
Schedule, the execution, delivery and performance of, and consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee or officer of Videonics or any Videonics ERISA Affiliate to
severance pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement, (ii) accelerate the time of payment or
vesting, or increase the amount of compensation due any such employee or
officer, or (iii) assuming Focus takes the action specified in Section 2.12,
accelerate the vesting of any stock option or of any shares of restricted stock.
Section 3.12 Employment and Labor Matters.
(a) Except as identified in Section 3.12(a) of the Videonics Disclosure
Schedule, as of the date hereof, there are no material employment, consulting,
severance pay, continuation pay,
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termination or indemnification agreement or other similar agreements of any
nature (whether in writing or not) between Videonics and any current or former
shareholder, officer, director, employee, or any consultant. Except as set forth
in Section 3.12(a) of the Videonics Disclosure Schedule, no individual will
accrue or receive additional benefits, service or accelerated rights to payments
under any Videonics Agreement or any of the agreements set forth in Section
3.12(a) of the Videonics Disclosure Schedule, including the right to receive any
parachute payment, as defined in Section 280G of the Code, or become entitled to
severance, termination allowance or similar payments as a result of the
transaction contemplated herein that could result in the payment of any such
benefits or payments. Videonics is not delinquent in payments to any of its
employees or consultants for any wages, salaries, commissions, bonuses or other
compensation for any services. None of Videonics' employment policies or
practices is currently being audited or investigated by any Governmental
Authority. There are no threatened or pending Actions alleging claims against
Videonics brought by or on behalf of any employee or other individual or any
Governmental Authority with respect to employment practices.
(b) Except as set forth in Section 3.12(b) of the Videonics Disclosure
Schedule, there are no controversies, pending or threatened, between Videonics
and any of its employees and employee relations are, in general, considered to
be good; Videonics is not a party to any collective bargaining agreement or
other labor union contract applicable to persons employed by Videonics, nor are
there any activities or proceedings of any labor union to organize any such
employees of Videonics; during the past five years there have been no strikes,
slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to
any employees of Videonics. Videonics does not have nor at the Closing will it
have any obligation under the Worker Adjustment and Retraining Notification Act
(the "WARN Act"). Videonics is in material compliance with all applicable state,
local, federal and foreign employment, wage and hour, labor and other employee
applicable laws.
Section 3.13 Environmental Matters. Except for such matters that, individually
or in the aggregate, are not reasonably likely to have a Material Adverse Effect
on Videonics: (i) Videonics has complied with all applicable Environmental Laws;
(ii) the properties currently owned or operated by it (including soils,
groundwater, surface water, buildings or other structures) are not contaminated
with any Hazardous Substances; (iii) the properties formerly owned or operated
by it were not contaminated with Hazardous Substances during the period of
ownership or operation by it; (iv) it is not subject to liability for any
Hazardous Substance disposal or contamination on any third party property; (v)
it has not been associated with any release or threat of release of any
Hazardous Substance; (vi) it has not received any notice, demand, letter, claim
or request for information alleging that it may be in violation of or liable
under any Environmental Law; (vii) it is not subject to any orders, decrees,
injunctions or other arrangements with any Governmental Authority or any
indemnity or other agreement with any third party relating to liability under
any Environmental Law or relating to Hazardous Substances; and (viii) it knows
of no circumstances or conditions involving it that could result in any claims,
liability, investigations, costs or restrictions on the ownership, use, or
transfer of any of its properties pursuant to any Environmental Law.
Section 3.14 Absence of Restrictions on Business Activities. Except as set forth
in Section 3.14 of Videonics Disclosure Schedule, there is no agreement or order
binding upon Videonics or any of its properties which has had or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of Videonics or the conduct of business by Videonics as
currently conducted. Except as set forth in Section 3.14 of Videonics Disclosure
Schedule, Videonics is not subject to any non-competition or similar restriction
on its business. Videonics has not at any time entered into, or agreed to enter
into, any interest rate swaps, caps, floors or option agreements or any other
interest rate risk management arrangement or foreign exchange contracts.
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Section 3.15 Title to Assets; Leases. Videonics owns no real property. Section
3.15 of Videonics Disclosure Statement sets forth a true and complete list of
all real property leased by Videonics, and the aggregate monthly rental or other
fee payable under such lease. Except as described in Section 3.15 of the
Videonics Disclosure Schedule, Videonics has good and marketable title to all of
its properties and assets, free and clear of all Encumbrances, charges and
encumbrances, except Encumbrances for Taxes not yet due and payable and such
Encumbrances or other imperfections of title, if any, as do not materially
detract from the value of or interfere with the present use of the property
affected thereby. All leases pursuant to which Videonics leases real or personal
property from others are valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing material default
or event of material default (or event which with notice or lapse of time, or
both, would constitute a material default and in respect of which Videonics has
not taken adequate steps to prevent such a default from occurring).
Section 3.16 Brokers. Except as disclosed in Schedule 3.16 of the Videonics
Disclosure Schedule, the arrangements which have been disclosed to Focus prior
to the date hereof, no broker, finder or investment banker is entitled to any
brokerage, finder's, investment banking or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Videonics.
Section 3.17 Tax Matters. Except as set forth in Section 3.17 of the Videonics
Disclosure Schedule:
(a) All federal, state, local and foreign Tax Returns required to have
been filed by Videonics have been filed with the appropriate governmental
authorities by the due date thereof, including extensions, and correctly and
completely reflect all material Tax liabilities of Videonics required to be
shown thereon;
(b) All Taxes payable by or with respect to Videonics, have been fully
paid or adequately reflected as a liability on Videonics' financial statements
included in the Videonics SEC Reports;
(c) With respect to any period for which Tax Returns have not yet been
filed, or for which Taxes are not yet due or owing, Videonics has made due and
sufficient accruals for such Taxes in its books and records and financial
statements;
(d) Neither Videonics nor any of its affiliates has taken, agreed to
take or omitted to take any action that would prevent or impede the Merger from
qualifying as a tax-free reorganization under Section 368 of the Code;
(e) No deficiencies for any Taxes have been proposed, asserted or
assessed against Videonics that are not adequately reserved for under GAAP,
except for deficiencies that individually or in the aggregate would not have a
Material Adverse Effect on Videonics. All assessments for Taxes due and owing by
or with respect to Videonics with respect to completed and settled examinations
or concluded litigation have been paid. Videonics has not incurred a Tax
liability since December 31, 1999, other than those incurred in the ordinary
course of business.
(f) Videonics is not aware of any material Encumbrances for Taxes upon
any assets of Videonics apart from Encumbrances for Taxes not yet due and
payable; and
(g) Videonics has not requested, or been granted any waiver of any
federal, state, local or foreign statute of limitations with respect to, or any
extension of a period for the assessment of,
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any Tax. No extension or waiver of time within which to file any Tax Return of,
or applicable to, Videonics has been granted or requested which has not since
expired.
(h) Videonics is not and has never been (nor does Videonics have any
liability for unpaid Taxes because it once was) a member of an affiliated,
consolidated, combined or unitary group, and Videonics is not a party to any Tax
allocation or sharing agreement or liable for the Taxes of any other party, as
transferee or successor, by contract, or otherwise.
(i) Videonics is not presently and has not been a "foreign investment
company" as such term is defined in Section 1246(b) of the Code.
(j) Videonics is not presently and has not been a "passive foreign
investment company" as such term is defined in Section 1297(a) of the Code.
(k) Videonics is not presently and has not been at any time during the
last five years a "controlled foreign corporation" as such term is defined in
Section 957(a) of the Code.
(l) Videonics has not made any payments, is not obligated to make any
payments, and is not a party to any agreement that under any circumstances could
obligate it to make any payments that will not be deductible under Section 280G
of the Code.
(m) No unsatisfied deficiency, delinquency or default for any Tax has
been ordered, proposed or assessed against or with respect to Videonics, nor has
Videonics received notice of any such deficiency, delinquency or default which,
in any such case, may have a Material Adverse Effect.
(n) Videonics has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(o) Videonics has complied with all applicable Laws relating to the
payment and withholding of Taxes (including, without limitation, withholding of
Taxes pursuant to Sections 1441, 1442 and 3406 of the Code or similar provisions
under any foreign Laws) and has, within the time and in the manner required by
Law, withheld from employee wages and paid over to the proper Governmental
Authorities all amounts required to be so withheld and paid over under all
applicable Laws.
(p) No property of Videonics is "tax-exempt use property" as such term
is defined in Section 168 of the Code.
(q) Videonics has not made an election under Section 341(f) of the
Code.
Section 3.18 Intellectual Property.
(a) Section 3.18(a) of Videonics Disclosure Schedule sets forth, for
the Intellectual Property owned by Videonics, a complete and accurate list of
all United States and foreign (a) patents; (b) trademarks, registrations
(including material Internet domain registrations) and applications and material
unregistered trademarks; and (c) copyright registrations and applications,
indicating for each, the applicable jurisdiction, registration number (or
application number), and date issued (or date filed).
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(b) All trademarks, patents and copyrights are currently in compliance
with all Laws (including the timely post-registration filing of affidavits of
use and incontestability and renewal applications with respect to trademarks,
and the payment of filing, examination and maintenance fees and proof of working
or use with respect to patents), are valid and enforceable, and are not subject
to any maintenance fees or actions falling due within ninety (90) days after the
Effective Time. No issued trademark has been or is now involved in any
cancellation and, to the knowledge of Videonics, no such action is threatened
with respect to any of the trademarks that would have Material Adverse Effect.
No patent has been or is now involved in any interference, reissue,
re-examination or opposing proceeding. To the knowledge of Videonics, there are
no potentially conflicting trademarks or potentially interfering patents of any
third party.
(c) Section 3.18(c) of Videonics Disclosure Schedule sets forth a
complete and accurate list of all material license agreements granting to
Videonics any material right to use or practice any rights under any
Intellectual Property other than Intellectual Property which is used for
infrastructural purposes and is commercially available on reasonable terms
(collectively, the "Videonics License Agreements"), indicating for each the
title and the parties thereto.
(d) Except as set forth in Schedule 3.18(d) of the Videonics Disclosure
Schedule or as would not be materially adverse to Videonics:
(i) Videonics owns free and clear of all
Encumbrances, all owned Intellectual Property used in
Videonics' business, and has a valid and enforceable right to
use all of the Intellectual Property licensed to Videonics and
used in Videonics' business;
(ii) Videonics has taken reasonable steps to protect
the Intellectual Property which Videonics owns;
(iii) The conduct of Videonics' business as currently
conducted or contemplated does not infringe upon any
Intellectual Property rights owned or controlled by any third
party;
(iv) There is no litigation pending or, to the
knowledge of Videonics, threatened or any written claim from
any Person (a) alleging that Videonics' activities or the
conduct of its business infringes upon, violates, or
constitutes the unauthorized use of the Intellectual Property
rights of any third party or (b) challenging the ownership,
use, validity or enforceability of any Intellectual Property
of Videonics;
(v) To the knowledge of Videonics, no third party is
misappropriating, infringing, diluting, or violating any
Intellectual Property owned by Videonics and no such Actions
have been brought against any third party by Videonics;
(vi) The execution, delivery and performance by
Videonics of this Agreement and the consummation of the
transactions contemplated hereby will not result in the loss
or impairment of or give rise to any right of any third party
to terminate any of Videonics' right to own any of the
Intellectual Property owned by Videonics or to use any
Intellectual Property licensed to Videonics pursuant to the
Videonics License Agreements, nor require the consent of any
Governmental Authority or third party in respect of any such
Intellectual Property; and
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(vii) The Software owned or purported to be owned by
Videonics was either (i) developed by employees of Videonics
within the scope of their employment, (ii) developed by
independent contractors who have assigned their rights to
Videonics pursuant to written agreements or (iii) otherwise
acquired by Videonics from a third party.
(e) Except as would not have a Material Adverse Effect on Videonics,
all trademarks of Videonics have been in continuous use by Videonics. To the
knowledge of Videonics (i) there has been no prior use of such trademarks by any
third party which would confer upon said third party superior rights in such
trademarks, (ii) Videonics have adequately policed all trademarks against third
party infringement and (iii) the registered trademarks have been continuously
used in the form appearing in, and in connection with the goods and services
listed in, their respective registration certificates.
(f) Except as would not be materially adverse to Videonics, Videonics
has taken all reasonable steps in accordance with normal industry practice to
protect Videonics' rights in confidential information and trade secrets of
Videonics. Without limiting the foregoing and except as would not be materially
adverse to Videonics, Videonics has and enforces a policy of requiring each
employee, consultant and contractor to execute proprietary information,
confidentiality and assignment agreements substantially consistent with
Videonics' standard forms thereof. Except under confidentiality obligations, to
the knowledge of Videonics, there has been no material disclosure by Videonics
of material confidential information or trade secrets.
Section 3.19 Insurance. Section 3.19 of Videonics Disclosure Schedule sets forth
a true and complete list of all material insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of Videonics. There is no claims by Videonics pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
payable under all such policies and bonds have been paid and Videonics is
otherwise in full compliance with the terms of such policies and bonds (or other
policies and bonds providing substantially similar insurance coverage), and
Videonics shall maintain in full force and effect all such insurance during the
period from the date hereof through the Closing Date. Such policies of insurance
and bonds are of the type and in amounts customarily carried by Persons
conducting businesses similar to those of Videonics and reasonable in light of
the assets of Videonics. To the knowledge of Videonics as of the date hereof,
there is not any threatened termination of or material premium increase with
respect to any of such policies or bonds.
Section 3.20 Ownership of Securities. As of the date hereof, neither Videonics
nor, to Videonics' knowledge, any of its affiliates or associates (as such terms
are defined under the Exchange Act), (i) beneficially owns, directly or
indirectly, or (ii) is party to any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of, in each case, shares
of capital stock of Focus, which in the aggregate represent 10% or more of the
outstanding shares of Focus Common Stock.
Section 3.21 Certain Contracts. All contracts described in Item 601(b)(10) of
Regulation S-K to which Videonics is a party or may be bound ("Videonics
Contracts") have been filed as exhibits to, or incorporated by reference in,
Videonics' Annual Report on Form 10-K for the year ended December 31, 1999. All
Videonics Contracts are valid and in full force and effect on the date hereof.
Each such Videonics Contract is in full force and effect, is a valid and binding
obligation of Videonics and, to the knowledge of Videonics, of each other party
thereto and is enforceable against Videonics in accordance with its terms, and,
to the knowledge of Videonics, enforceable against each
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other party thereto, in each case except to the extent the enforcement thereof
may be limited by (A) bankruptcy, insolvency, reorganization, moratorium or
other similar Law now or hereafter in effect relating to creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at Law), and there has
not occurred any material default by any party thereto which remains unremedied
as of the date hereof. No condition exists or event has occurred which (whether
with or without notice or lapse of time or both, or the happening or occurrence
of any other event) would constitute a default by Videonics or, to the knowledge
of Videonics, any other party thereto under, or result in a right in termination
of, any Videonics Contract.
Section 3.22 Certain Business Practices. As of the date hereof, neither
Videonics nor any director, officer, employee or agent of Videonics has (i) used
any funds for unlawful contributions, gifts, entertainment or other unlawful
payments relating to political activity, (ii) made any unlawful payment to any
foreign or domestic government official or employee or to any foreign or
domestic political party or campaign or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, (iii) consummated any transaction,
made any payment, entered into any agreement or arrangement or taken any other
action in violation of Section 1128B(b) of the Social Security Act, as amended,
or (iv) made any other unlawful payment.
Section 3.23 Interested Party Transactions. Except as disclosed in Videonics SEC
Reports, Videonics is not indebted to any director, officer, employee or agent
of Videonics (except for amounts due as normal salaries and bonuses and in
reimbursement of ordinary expenses), and no such Person is indebted to
Videonics, and there have been no other transactions of the type required to be
disclosed pursuant to Items 402 and 404 of Regulation S-K under the Securities
Act and the Exchange Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FOCUS
Except as expressly disclosed in the Focus Filed SEC Reports (as defined below)
(including all exhibits referred to therein) or as set forth in the disclosure
schedule delivered by Focus to Videonics as provided for herein (the "Focus
Disclosure Schedule") (each section of which qualifies the correspondingly
numbered representation and warranty or covenant as specified therein), Focus
hereby represents and warrants to Videonics as follows:
Section 4.1 Organization and Qualification; Subsidiaries. Focus and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization.
Focus and each of its Subsidiaries has the requisite corporate power and
authority and any necessary Governmental Authority, franchise, license,
certificate or permit to own, operate or lease the properties that it purports
to own, operate or lease and to carry on its business as it is now being
conducted, and is duly qualified as a foreign corporation to do business, and is
in good standing, in each jurisdiction where the character of its properties
owned, operated or leased or the nature of its activities makes such
qualification necessary.
Section 4.2 Certificate of Incorporation and Bylaws. Focus has heretofore
furnished, or otherwise made available, to Videonics a complete and correct copy
of the Certificate of Incorporation and the bylaws, each as amended to the date
hereof, of Focus and each of its Subsidiaries. Such Certificate of Incorporation
and bylaws are in full force and effect. Neither Focus nor any of its
Subsidiaries is in violation of any of the provisions of its respective
Certificate of Incorporation.
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Section 4.3 Capitalization.
(a) The authorized capital stock of Focus consists of (i) 3,000,000
shares of preferred stock, par value $0.01 per share, none of which are
outstanding or reserved for issuance, and (ii) 30,000,000 shares of Focus Common
Stock, of which, as of July 31, 2000, (A) 25,857,871shares were validly issued
and outstanding as fully paid and non-assessable, (B) 450,000 shares were held
in the treasury of Focus, (C) 2,977,451 shares were issuable upon the exercise
of options outstanding under the Focus employee stock option plans, and (D)
632,429 shares were reserved for issuance in connection with outstanding
warrants. In addition to the foregoing, 2,500,000, 390,000 and 3,000,000 shares
of Focus Common Stock have been reserved for issuance by the Board of Directors
of Focus, in connection with, respectively, a shelf offering to be filed on Form
S-1, warrants granted but not yet issued and employee stock options to be issued
by Focus, which reservations shall become effective upon ratification by the
shareholders of Focus. Since July 31, 2000, no shares of Focus Common Stock have
been issued, except upon the exercise of options described in the immediately
preceding sentence. There are no outstanding Focus Equity Rights except for
Focus Equity Rights issued to Focus employees in the ordinary course of
business. Section 4.3 of the Focus Disclosure Schedule sets forth a complete and
accurate list of all outstanding Focus Equity Rights as of July 31, 2000,
including the terms and the holder thereof. There are no outstanding obligations
of Focus or any of the Focus' Subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of Focus.
(b) All of the outstanding capital stock of each of Focus' Subsidiaries
is duly authorized and validly issued as fully paid and nonassessable. All of
the issued and outstanding capital stock of each of Focus' Subsidiaries is owned
by Focus free and clear of any Encumbrances. There are no subscriptions,
options, warrants, calls, commitments, agreements, conversion rights or other
rights of any character (contingent or otherwise) to purchase or otherwise
acquire any shares of the capital stock of any Focus Subsidiary, whether or not
presently issued or outstanding and there are no outstanding obligations of
Focus or any of Focus' Subsidiaries to repurchase, redeem or otherwise acquire
any shares of capital stock of any of Focus' Subsidiaries.
(c) There are no voting trusts, proxies or other agreements,
commitments or understandings of any character to which Focus or any of its
Subsidiaries is a party or by which Focus or any of its Subsidiaries is bound
with respect to the voting of any shares of capital stock of Focus or any of its
Subsidiaries.
Section 4.4 Authority Relative to this Agreement.
(a) Focus has the necessary corporate power and authority to enter into
this Agreement and, subject to obtaining the requisite approval of this
Agreement and the related increase in the authorized capital of Focus by Focus'
shareholders required by the DCL (the "Focus Shareholder Approval"), to perform
its obligations hereunder. The execution and delivery of this Agreement by
Focus, and the consummation by Focus of the transactions contemplated hereby,
have been duly authorized by all necessary corporate action on the part of
Focus, subject to obtaining the Focus Shareholder Approval. This Agreement has
been duly executed and delivered by Focus and, assuming the due authorization,
execution and delivery thereof by Videonics, constitutes a legal, valid and
binding obligation of Focus, enforceable against it in accordance with its
terms.
(b) The Board of Directors of Focus has directed that this Agreement
and the proposed increase in the authorized capital of Focus required to
complete the Merger be submitted to the shareholders of Focus for their approval
and authorization. An affirmative vote of the majority (50% plus one) of the
votes cast, in person or by proxy, by holders of the outstanding Focus Common
Stock at a special meeting of the shareholders of Focus (the "Focus
Shareholders' Meeting") is the
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only vote of the holders of any class or series of capital stock of Focus
necessary to approve and authorize this Agreement, the Merger and the other
transactions contemplated hereby and thereby.
Section 4.5 No Conflict; Required Filings and Consents.
(a) Except as described in subsection (b) below, the execution and
delivery of this Agreement by Focus does not, and the performance of this
Agreement by Focus will not, (i) violate or conflict with the Certificate of
Incorporation or bylaws of Focus, (ii) conflict with or violate any Law
applicable to Focus or any of its Subsidiaries or by which any of their
respective property or assets (including investments) is bound or affected,
(iii) violate or conflict with the Certificate of Incorporation or bylaws of any
of Focus' Subsidiaries, (iv) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination or cancellation of, or result
in the creation of an Encumbrance on any of the properties or assets (including
investments) of Focus or any of its Subsidiaries pursuant to, result in the loss
of any material benefit under, or result in any modification or alteration of,
or require the consent of any other party to, any contract, instrument, permit,
license or franchise to which Focus or any of its Subsidiaries is a party or by
which Focus, any of such Subsidiaries or any of their respective property or
assets (including investments) is bound or affected, except, in the case of
clauses (ii) and (iv) above, for conflicts, violations, breaches, defaults,
results or consents which, individually or in the aggregate, would not have a
Material Adverse Effect on Focus.
(b) Except for applicable requirements, if any, of the Securities Act
Exchange Act Blue Sky Laws, the pre-Merger notification requirements of the HSR
Act or Foreign Competition Laws and the filing and recordation of appropriate
merger or other documents under the DCL, (i) neither Focus nor any of its
Subsidiaries is required to submit any notice, report or other filing with any
Governmental Authority in connection with the execution, delivery or performance
of this Agreement and (ii) no waiver, consent, approval or authorization of any
Governmental Authority is required to be obtained by Focus or any of its
Subsidiaries in connection with its execution, delivery or performance of this
Agreement.
Section 4.6 SEC Filings; Financial Statements.
(a) Focus has filed all forms, reports and documents required to be
filed with the SEC since May 25, 1993, (collectively, the "Focus SEC Reports",
with such Focus SEC Reports filed with the SEC prior to the date hereof being
referred to as "Focus Filed SEC Reports"). The Focus SEC Reports (i) were
prepared in accordance and complied as of their respective dates with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations promulgated under each of such respective acts, and
(ii) did not at the time they were filed (or if amended by a filing prior to the
date hereof as of the date of such amendment) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) The financial statements, including all related notes and
schedules, contained in the Focus SEC Reports (or incorporated by reference
therein) (i) fairly present the consolidated financial position of Focus and its
Subsidiaries as at the respective dates thereof and the consolidated results of
operations and cash flows of Focus and its Subsidiaries for the periods
indicated in accordance with GAAP applied on a consistent basis throughout the
periods involved (except for changes in accounting principles disclosed in the
notes thereto) and subject in the case of interim financial statements to normal
year-end adjustments and (ii) in the case of financial statements included in
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Focus SEC Reports, complied in all material respects with applicable accounting
requirements of the SEC.
Section 4.7 Absence of Certain Changes or Events. Except as disclosed in the
Focus Filed SEC Reports and in Section 4.7 of the Focus Disclosure Schedule,
since December 31, 1999, (i) Focus and its Subsidiaries have not incurred any
liability except in the ordinary course of their businesses consistent with
their past practices and which will not, either individually or in the
aggregate, have a Material Adverse Effect on Focus or any of its Subsidiaries,
(ii) there has not been any change, or any event involving a prospective change,
in the business, financial condition or results of operations of Focus or any of
its Subsidiaries which has had, or is reasonably likely to have, a Material
Adverse Effect on Focus or any of its Subsidiaries, and (iii) Focus and its
Subsidiaries have conducted their respective businesses in the ordinary course
consistent with their past practices.
Section 4.8 Litigation. Except for the matter of CRA Systems, Inc. v. Focus
Enhancements, Inc. and other matters previously disclosed in the Focus SEC
Reports, there are no Actions pending or, to Focus' knowledge, threatened
against Focus or any of its Subsidiaries, or any properties or rights of Focus
or any of its Subsidiaries, by or before any Governmental Authority, except for
those that are not, individually or in the aggregate, reasonably likely to have
a Material Adverse Effect on Focus or any of its Subsidiaries or prevent,
materially delay or intentionally delay the ability of Focus to consummate
transactions contemplated hereby. Neither Focus nor any of its Subsidiaries is
subject to any claim or order which, individually or in the aggregate, has or
might have a Material Adverse Effect on Focus or its Subsidiaries.
Section 4.9 Permits; No Violation of Law. The businesses of Focus and its
Subsidiaries are not being conducted in violation of any Law, or in violation of
any Permits, except for possible violations none of which, individually or in
the aggregate, may have a Material Adverse Effect on Focus or any of its
Subsidiaries. No investigation or review by any Governmental Authority
(including any stock exchange or other self- regulatory body) with respect to
Focus or its Subsidiaries in relation to any alleged violation of Law is pending
or, to Focus' knowledge, threatened, nor has any Governmental Authority
(including any stock exchange or other self-regulatory body) indicated an
intention to conduct the same, except for such investigations which, if they
resulted in adverse findings, would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Focus. Neither
Focus nor any of its Subsidiaries is subject to any cease and desist or other
order, judgment, injunction or decree issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a party
to any commitment letter or similar undertaking to, or is subject to any order
or directive by, or has adopted any board resolutions at the request of, any
Governmental Authority that materially restricts the conduct of its business or
which may reasonably be expected to have a Material Adverse Effect on Focus, nor
has Focus or any of its Subsidiaries been advised that any Governmental
Authority is considering issuing or requesting any of the foregoing.
Section 4.10 Proxy Statement. None of the information supplied or to be supplied
by or on behalf of Focus for inclusion or incorporation by reference in the
Registration Statement will, at the time the Registration Statement becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. None of the information supplied or
to be supplied by or on behalf of Focus for inclusion or incorporation by
reference in the Proxy Statement, in definitive form, relating to the meetings
of Videonics and Focus shareholders to be held in connection with the Merger, or
in the Joint Proxy Statement will, at the dates mailed to shareholders and at
the times of the Videonics
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shareholders' meeting and the Focus shareholders' meeting, 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
Registration Statement and the Joint Proxy Statement (except for information
relating solely to Videonics) will comply as to form in all material respects
with the provisions of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder.
Section 4.11 Employee Matters; ERISA.
(a) Section 4.11(a) of the Focus Disclosure Schedule contains a true
and complete list of each deferred compensation, incentive compensation, stock
purchase, stock option and other equity compensation plan; each "welfare" plan,
fund or program (within the meaning of Section 3(1) of ERISA; each "pension"
plan, fund or program (within the meaning of Section 3(2) of ERISA); and each
other material 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 Focus or any entity, or any of its Subsidiaries, any trade or
business (whether or not incorporated) which is a member of a controlled group
or which is under common control with Focus within the meaning of Section 414 of
the Code or which could be deemed a "single employer" within the meaning of
Section 4001(b) of ERISA (a "Focus ERISA Affiliate"), or to which Focus or a
Focus ERISA Affiliate is a party, whether written or oral, for the benefit of
any director, employee or former employee of Focus or Focus ERISA Affiliate,
whether or not such plan has been terminated (the "Focus Plans"). There are no
restrictions on the ability of Focus, its Subsidiaries or any Focus ERISA
Affiliates to amend, modify or terminate any Focus Plan.
(b) With respect to each Focus Plan, Focus has heretofore made
available to Focus true and complete copies of the Focus Plan and any amendments
thereto (or if the Focus Plan is not a written Focus Plan, a description
thereof), any related trust or other funding vehicle, the three (3) most recent
reports or summaries required under ERISA or the Code, the most recent audited
financial statements and most recent determination letter received from the
Internal Revenue Service with respect to each Focus Plan intended to qualify
under Section 401 of the Code.
(c) No Focus Plan is subject to Title IV of ERISA or Section 412 of the
Code, nor is any Focus Plan a "multiemployer pension plan", as defined in
Section 3(37) of ERISA, or subject to Section 302 of ERISA. No Focus Plan is a
"single-employer plan under multiple controlled groups" as described in Section
4063 of ERISA.
(d) Except as would not be materially adverse to Focus, each Focus Plan
has been operated and administered in all respects in accordance with its terms
and applicable Law, including ERISA and the Code. There has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA and Section 4975
of the Code, with respect to any Focus Plan; there are no claims pending (other
than routine claims for benefits) or threatened against any Focus Plan or
against the assets of any Focus Plan, nor are there any current or threatened
Encumbrances on the assets of any Focus Plan. Focus and the Focus ERISA
Affiliates have performed all obligations required to be performed by them
under, are not in default under or violation of, and have no knowledge of any
default or violation by any other party with respect to, any of the Focus Plans.
All contributions required to be made to any Focus Plan under applicable Law or
the terms of the respective Focus Plan have been made on or before their due
dates and a reasonable amount has been accrued for contributions to each Focus
Plan for the current plan years; except as disclosed on Section 4.11(d) of the
Focus Disclosure Schedule, the transaction contemplated herein will not directly
or indirectly result in an increase of benefits, acceleration of vesting or
acceleration of timing for payment of any benefit to any participant or
beneficiary under any Focus Plan.
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(e) Each Focus Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code and the trusts maintained thereunder that are
intended to be exempt from taxation under Section 501(a) of the Code have
received a favorable determination or other letter indicating that they are so
qualified, and no event has occurred since the date of said letter(s) that could
reasonable be expected to materially adversely affect the qualification of such
Focus Plan.
(f) No Focus Plan or written or oral agreement provides medical,
surgical, hospitalization, death or similar benefits (whether or not insured)
for directors, employees or former employees of Focus or any of its Subsidiaries
or Focus ERISA Affiliates 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).
(g) No amounts payable under the Focus Plans will fail to be deductible
for federal income Tax purposes by virtue of Section 280G of the Code.
(h) The execution, delivery and performance of, and consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee or officer of Focus or any Focus ERISA Affiliate to severance
pay, unemployment compensation or any other payment, except as expressly
provided in this Agreement, (ii) accelerate the time of payment or vesting, or
increase the amount of compensation due any such employee or officer, or (iii)
accelerate the vesting of any stock option or of any shares of restricted stock.
Section 4.12 Employment and Labor Matters.
(a) Except as set forth in Section 4.12(a) of the Focus Disclosure
Schedule, as of the date hereof, there are no material employment, consulting,
severance pay, continuation pay, termination or indemnification agreement or
other similar agreements of any nature (whether in writing or not) between Focus
or any Subsidiary and any current or former shareholder, officer, director,
employee, or any consultant. Except as set forth in Section 4.12(a) of the Focus
Disclosure Schedule, no individual will accrue or receive additional benefits,
service or accelerated rights to payments under any Focus Agreement or any of
the agreements set forth in Section 4.12(a) of the Focus Disclosure Schedule,
including the right to receive any parachute payment, as defined in Section 280G
of the Code, or become entitled to severance, termination allowance or similar
payments as a result of the transaction contemplated herein that could result in
the payment of any such benefits or payments. Neither Focus nor any Subsidiary
is delinquent in payments to any of its employees or consultants for any wages,
salaries, commissions, bonuses or other compensation for any services. None of
Focus' or any Subsidiary's employment policies or practices is currently being
audited or investigated by any Governmental Authority. There are no threatened
or pending Actions alleging claims against Focus or any Subsidiary brought by or
on behalf of any employee or other individual or any Governmental Authority with
respect to employment practices.
(b) Except as set forth in Section 4.12(b) of the Focus Disclosure
Schedule, there are no controversies pending or threatened, between Focus or any
of its Subsidiaries and any of their respective employees and employee relations
are, in general, considered to be good; neither Focus nor any of its
Subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by Focus or its Subsidiaries nor
are there any activities or proceedings of any labor union to organize any such
employees of Focus or any of its Subsidiaries; during the past five years there
have been no strikes, slowdowns, work stoppages, lockouts, or threats thereof,
by or with respect to any employees of Focus or any of its Subsidiaries. Focus
does not have nor at the Closing will the company have any obligation under the
Worker Adjustment and
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Retraining Notification Act (the "WARN Act"). Focus and each of its Subsidiaries
is in material compliance with all applicable state, local, federal and foreign
employment, wage and hour, labor and other applicable laws.
Section 4.13 Environmental Matters. Except for such matters that, individually
or in the aggregate, are not reasonably likely to have a Material Adverse Effect
on Focus or any of its Subsidiaries: (i) each of Focus and its Subsidiaries has
complied with all applicable Environmental Laws; (ii) the properties currently
owned or operated by it or any of its Subsidiaries (including soils,
groundwater, surface water, buildings or other structures) are not contaminated
with any Hazardous Substances; (iii) the properties formerly owned or operated
by it or any of its Subsidiaries were not contaminated with Hazardous Substances
during the period of ownership or operation by it or any of its Subsidiaries;
(iv) neither it nor any of its Subsidiaries is subject to liability for any
Hazardous Substance disposal or contamination on any third party property; (v)
neither it nor any Subsidiary has been associated with any release or threat of
release of any Hazardous Substance; (vi) neither it nor any Subsidiary has
received any notice, demand, letter, claim or request for information alleging
that it or any of its Subsidiaries may be in violation of or liable under any
Environmental Law; (vii) neither it nor any of its Subsidiaries is subject to
any orders, decrees, injunctions or other arrangements with any Governmental
Authority or is subject to any indemnity or other agreement with any third party
relating to liability under any Environmental Law or relating to Hazardous
Substances; and (viii) there are not circumstances or conditions involving it or
any of its Subsidiaries that could to result in any claim, liability,
investigations, costs or restrictions on the ownership, use, or transfer of any
of its properties pursuant to any Environmental Law.
Section 4.14 Absence of Restrictions on Business Activities. Except as set forth
in Section 4.14 of Focus Disclosure Schedule, there is no agreement or order
binding upon Focus or any of its Subsidiaries or any of their properties which
has had or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of Focus or any of its Subsidiaries
or the conduct of business by Focus or any of its Subsidiaries as currently
conducted. Neither Focus nor any of its Subsidiaries is subject to any
non-competition or similar restriction on their respective businesses. Neither
Focus nor any of its Subsidiaries has at any time entered into, or agreed to
enter into, any interest rate swaps, caps, floors or option agreements or any
other interest rate risk management arrangement or foreign exchange contracts.
Section 4.15 Title to Assets; Leases. Except as described in Section 4.15 of
Focus Disclosure Schedule, Focus owns no real property. Section 4.15 of Focus
Disclosure Statement sets forth a true and complete list of all real property
leased by Focus or any of its Subsidiaries, and the aggregate monthly rental or
other fee payable under such lease. Except as described in Section 4.15 of the
Focus Disclosure Schedule, Focus and each of its Subsidiaries has good and
marketable title to all of their properties and assets, free and clear of all
Encumbrances, charges and encumbrances, except Encumbrances for Taxes (as
defined below) not yet due and payable and such Encumbrances or other
imperfections of title, if any, as do not materially detract from the value of
or interfere with the present use of the property affected thereby. All leases
pursuant to which Focus or any of its Subsidiaries lease real or personal
property from others are valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing material default
or event of material default (or event which with notice or lapse of time, or
both, would constitute a material default and in respect of which Focus or such
Subsidiary has not taken adequate steps to prevent such a default from
occurring).
Section 4.16 Brokers. Except as disclosed in Schedule 4.16 of the Focus
Disclosure Schedule, the arrangements which have been disclosed to Videonics
prior to the date hereof, no broker, finder or investment banker is entitled to
any brokerage, finder's, investment banking or other fee or
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commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Focus or any of its
Subsidiaries.
Section 4.17 Tax Matters. Except as set forth in Section 4.17 of the Focus
Disclosure Schedule:
(a) All federal, state, local and foreign Tax Returns required to have
been filed by Focus or its Subsidiaries have been filed with the appropriate
governmental authorities by the due date thereof including extensions; and
correctly and completely reflect all material Tax liabilities of Focus and its
Subsidiaries required to be shown thereon;
(b) All Taxes payable by or with respect to Focus or any of its
Subsidiaries, have been fully paid or adequately reflected as a liability on
Focus' financial statements included in the Focus SEC Reports;
(c) With respect to any period for which Tax Returns have not yet been
filed, or for which Taxes are not yet due or owing, Focus and its Subsidiaries
have made due and sufficient accruals for such Taxes in their respective books
and records and financial statements;
(d) Neither Focus nor any of its affiliates has taken, agreed to take
or omitted to take any action that would prevent or impede the Merger from
qualifying as a tax-free reorganization under Section 368 of the Code;
(e) No deficiencies for any Taxes have been proposed, asserted or
assessed against Focus or any of its Subsidiaries that are not adequately
reserved for under GAAP, except for deficiencies that individually or in the
aggregate would not have a Material Adverse Effect on Focus. All assessments for
Taxes due and owing by or with respect to Focus and each of its Subsidiaries
with respect to completed and settled examinations or concluded litigation have
been paid. Neither Focus or any of its Subsidiaries has incurred a Tax liability
since December 31, 1999 other than those incurred in the ordinary course of
business.
(f) Focus is not aware of any material Encumbrances for Taxes upon any
assets of Focus or any of its Subsidiaries apart from for Encumbrances not yet
due and payable; and
(g) Neither Focus nor any of its Subsidiaries has requested, or been
granted any waiver of any federal, state, local or foreign statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax. No extension or waiver of time within which to file any Tax Return of,
or applicable to, Focus or any of its Subsidiaries has been granted or requested
which has not since expired.
(h) Other than with respect to its Subsidiaries, Focus is not and has
never been (nor does Focus have any liability for unpaid Taxes because it once
was) a member of an affiliated, consolidated, combined or unitary group, and
neither Focus nor any of its Subsidiaries is a party to any Tax allocation or
sharing agreement or is liable for the Taxes of any other party, as transferee
or successor, by contract, or otherwise.
(i) Focus is not presently and has not been a "foreign investment
company" as such term is defined in Section 1246(b) of the Code.
(j) Focus is not presently and has not been a "passive foreign
investment company" as such term is defined in Section 1297(a) of the Code.
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(k) Focus is not presently and has not been at any time during the last
five years a "controlled foreign corporation" as such term is defined in Section
957(a) of the Code.
(l) Focus and its Subsidiaries have not made any payments, are not
obligated to make any payments, and are not a party to any agreements that under
any circumstances could obligate any of them to make any payments that will not
be deductible under Section 280G of the Code.
(m) No unsatisfied deficiency, delinquency or default for any Tax has
been ordered, proposed or assessed against or with respect to Focus or any
Subsidiary, nor has Focus or any Subsidiary received notice of any such
deficiency, delinquency or default which, in any such case, may have a Material
Adverse Effect.
(n) Focus has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(o) Focus and each of its Subsidiaries have complied with all
applicable Laws relating to the payment and withholding of Taxes (including,
without limitation, withholding of Taxes pursuant to Sections 1441, 1442 and
3406 of the Code or similar provisions under any foreign Laws) and have, within
the time and in the manner required by Law, withheld from employee wages and
paid over to the proper Governmental Authorities all amounts required to be so
withheld and paid over under all applicable Laws.
(p) No property of Focus or any of its Subsidiaries is "tax-exempt use
property" as such term is defined in Section 168 of the Code.
(q) Neither Focus nor any of its Subsidiaries has made an election
under Section 341(f) of the Code.
Section 4.18 Intellectual Property.
(a) Section 4.18(a) of Focus Disclosure Schedule sets forth, for the
Intellectual Property owned by Focus and its Subsidiaries, a complete and
accurate list of all United States and foreign (a) patents; (b) trademarks,
registrations (including material Internet domain registrations) and
applications and material unregistered trademarks; and (c) copyright
registrations and applications, indicating for each, the applicable
jurisdiction, registration number (or application number), and date issued (or
date filed).
(b) All trademarks, patents and copyrights are currently in compliance
with all Laws (including the timely post-registration filing of affidavits of
use and incontestability and renewal applications with respect to trademarks,
and the payment of filing, examination and maintenance fees and proof of working
or use with respect to patents), are valid and enforceable, and are not subject
to any maintenance fees or actions falling due within ninety (90) days after the
Effective Time. No trademark has been or is now involved in any cancellation
and, to the knowledge of Focus and its Subsidiaries, no such action is
threatened with respect to any of the trademarks. No patent has been or is now
involved in any interference, reissue, re-examination or opposing proceeding. To
the knowledge of Focus and its Subsidiaries, there are no potentially
conflicting trademarks or potentially interfering patents of any third party.
(c) Section 4.18(c) of Focus Disclosure Schedule sets forth a complete
and accurate list of all material license agreements granting to Focus or any of
its Subsidiaries any material right to
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use or practice any rights under any Intellectual Property other than
Intellectual Property which is used for infrastructural purposes and is
commercially available on reasonable terms (collectively, the "Focus License
Agreements"), indicating for each the title and the parties thereto.
(d) Except as would not be materially adverse to Focus and each of its
Subsidiaries:
(i) Focus or a Subsidiary of Focus owns free and
clear of all Encumbrances, all owned Intellectual Property
used in Focus' business, and has a valid and enforceable right
to use all of the Intellectual Property licensed to Focus and
used in Focus' business;
(ii) Focus and each of its Subsidiaries have taken
reasonable steps to protect the Intellectual Property which
Focus or such Subsidiary owns;
(iii) The conduct of Focus' and its Subsidiaries'
businesses as currently conducted or contemplated does not
infringe upon any Intellectual Property rights owned or
controlled by any third party;
(iv) There is no Litigation pending or, to the
knowledge of Focus, threatened or any written claim from any
Person (a) alleging that Focus' activities or the conduct of
its businesses or that of any of its Subsidiaries infringes
upon, violates, or constitutes the unauthorized use of the
Intellectual Property rights of any third party or (b)
challenging the ownership, use, validity or enforceability of
any Intellectual Property of Focus or any of its Subsidiaries;
(v) To the knowledge of Focus and its Subsidiaries,
no third party is misappropriating, infringing, diluting, or
violating any Intellectual Property owned by Focus or any of
its Subsidiaries and no such Actions have been brought against
any third party by Focus or any of its Subsidiaries;
(vi) The execution, delivery and performance by Focus
of this Agreement and the consummation of the transactions
contemplated hereby will not result in the loss or impairment
of or give rise to any right of any third party to terminate
any of Focus' or any of its Subsidiaries' right to own any of
the Intellectual Property owned by Focus or any of its
Subsidiaries or to use any Intellectual Property licensed to
Focus or any of its Subsidiaries pursuant to the Focus License
Agreements, nor require the consent of any Governmental
Authority or third party in respect of any such Intellectual
Property; and
(vii) The Software owned or purported to be owned by
Focus or any of its Subsidiaries was either (i) developed by
employees of Focus or a Subsidiary of Focus within the scope
of their employment, (ii) developed by independent contractors
who have assigned their rights to Focus or a Subsidiary of
Focus pursuant to written agreements or (iii) otherwise
acquired by Focus or a Subsidiary of Focus from a third party.
(e) All trademarks of Focus and its Subsidiaries have been in
continuous use by Focus or its Subsidiaries. To the knowledge of Focus (i) there
has been no prior use of such trademarks by any third party which would confer
upon said third party superior rights in such trademarks, (ii) Focus and its
Subsidiaries have adequately policed all trademarks against third party
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infringement and (iii) the registered trademarks have been continuously used in
the form appearing in, and in connection with the goods and services listed in,
their respective registration certificates.
(f) Except as would not be materially adverse to Focus, Focus and/or
its Subsidiaries have taken all reasonable steps in accordance with normal
industry practice to protect Focus' and its Subsidiaries' rights in confidential
information and trade secrets of Focus and/or its Subsidiaries. Without limiting
the foregoing and except as would not be materially adverse to Focus, Focus and
its Subsidiaries have and enforce a policy of requiring each employee,
consultant and contractor to execute proprietary information, confidentiality
and assignment agreements substantially consistent with Focus' standard forms
thereof. Except under confidentiality obligations, to the knowledge of Focus,
there has been no material disclosure by Focus or any Subsidiary of Focus of
material confidential information or trade secrets.
Section 4.19 Insurance. Section 4.19 of Focus Disclosure Schedule sets forth a
true and complete list of all material insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of Focus and its Subsidiaries. There is no claim by Focus
or any of its Subsidiaries pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums payable under all such policies and bonds
have been paid and Focus and its Subsidiaries are otherwise in full compliance
with the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage), and Focus shall, and shall cause its
Subsidiaries to, maintain in full force and effect all such insurance during the
period from the date hereof through the Closing Date. Such policies of insurance
and bonds are of the type and in amounts customarily carried by Persons
conducting businesses similar to those of Focus and its Subsidiaries and
reasonable in light of the assets of Focus and its Subsidiaries. Except for any
increase in the premium for the directors' and officers' insurance policy of
Focus and any bond posted in connection with a judgment adverse to Focus in the
matter of CRA Systems, Inc v. Focus Enhancements, Inc,. to the knowledge of
Focus as of the date hereof, there is not any threatened termination of or
material premium increase with respect to any of such policies or bonds.
Section 4.20 Ownership of Securities. As of the date hereof, neither Focus nor,
to Focus' knowledge, any of its affiliates or associates (as such terms are
defined under the Exchange Act), (i) beneficially owns, directly or indirectly,
or (ii) is party to any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of, in each case, shares of capital
stock of Videonics, which in the aggregate represent 10% or more of the
outstanding shares of Videonics Common Stock.
Section 4.21 Certain Contracts. All contracts described in Item 601(b)(10) of
Regulation S-K to which Focus or its Subsidiaries is a party or may be bound
("Focus Contracts") have been filed as exhibits to, or incorporated by reference
in, Focus' Annual Report on Form 10-KSB for the year ended December 31, 1999.
All Focus Contracts are valid and in full force and effect on the date hereof.
Each such Focus Contract is in full force and effect, is a valid and binding
obligation of Focus or such Subsidiary and, to the knowledge of Focus, of each
other party thereto and is enforceable against Focus or such Subsidiary in
accordance with its terms, and, to the knowledge of Focus, enforceable against
each other party thereto, in each case except to the extent the enforcement
thereof may be limited by (A) bankruptcy, insolvency, reorganization, moratorium
or other similar Law now or hereafter in effect relating to creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at Law), and there has
not occurred any material default by any party thereto which remains unremedied
as of the date hereof. No condition exists or event has occurred which (whether
with or without notice or lapse of time or both, or the happening or occurrence
of any other event) would constitute a default
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by Focus or any of its Subsidiaries or, to the knowledge of Focus, any other
party thereto under, or result in a right in termination of, any Focus Contract.
Section 4.22 Certain Business Practices. As of the date hereof, neither Focus
nor any of its Subsidiaries nor any director, officer, employee or agent of
Focus or any of its Subsidiaries has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful payments relating to
political activity, (ii) made any unlawful payment to any foreign or domestic
government official or employee or to any foreign or domestic political party or
campaign or violated any provision of the Foreign Corrupt Practices Act of 1977,
as amended, (iii) consummated any transaction, made any payment, entered into
any agreement or arrangement or taken any other action in violation of Section
1128B(b) of the Social Security Act, as amended, or (iv) made any other unlawful
payment.
Section 4.23 Interested Party Transactions. Except as disclosed in Focus SEC
Reports, neither Focus nor any of its Subsidiaries is indebted to any director,
officer, employee or agent of Focus or any of its Subsidiaries (except for
amounts due as normal salaries and bonuses and in reimbursement of ordinary
expenses), and no such Person is indebted to Focus or any of its Subsidiaries,
and there have been no other transactions of the type required to be disclosed
pursuant to Items 402 and 404 of Regulation S-K under the Securities Act and the
Exchange Act.
Section 4.24 Merger Subsidiary. Focus and Merger Subsidiary represent and
warrant to Videonics as follows:
(a) Organization and Corporate Power. Merger Subsidiary is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. Merger Subsidiary is a direct, wholly-owned
subsidiary of Focus.
(b) Corporate Authorization. Merger Subsidiary has all requisite
corporate power and authority to enter into this Agreement and, subject to
obtaining the requisite approval of this Agreement by Merger Subsidiary's
shareholder as required by DCL (the "Merger Subsidiary Shareholder Approval"),
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by Merger Subsidiary, and the consummation by Merger
Subsidiary of the transactions contemplated hereby, have been duly authorized by
all necessary corporate action on the part of Merger Subsidiary, subject to
obtaining the Merger Subsidiary Shareholder Approval. This Agreement has been
duly executed and delivered by Merger Subsidiary and constitutes a valid and
binding agreement of Merger Subsidiary, enforceable against it in accordance
with its terms.
(c) Non Contravention. The execution, delivery and performance by
Merger Subsidiary of this Agreement and the consummation by Merger Subsidiary of
the transactions contemplated hereby do not and will not contravene or conflict
with the certificate of incorporation or by-laws of Merger Subsidiary.
(d) No Business Activities. Merger Subsidiary has not conducted any
activities other than in connection with the organization of Merger Subsidiary,
the negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby. Merger Subsidiary has no Subsidiaries.
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ARTICLE V CONDUCT OF BUSINESSES
PENDING THE MERGER
Section 5.1 Conduct of Business in the Ordinary Course. Each of
Videonics and Focus covenants and agrees that, except as otherwise provided for
herein, between the date hereof and the Effective Time, unless the Chairman of
the Board of Directors of the other shall otherwise consent in writing, the
business of such Party and its Subsidiaries shall be conducted only in, and such
entities shall not take any action except in, the ordinary course of business
and in a manner consistent with past practice; and each of Videonics and Focus
and its Subsidiaries will use their commercially reasonable efforts to preserve
substantially intact their business organizations, to keep available the
services of those of their present officers, employees and consultants who are
integral to the operation of their businesses as presently conducted, to
maintain in effect all Material Agreements and to preserve their present
relationships with significant customers and suppliers and with other persons
with whom they have significant business relations. By way of amplification and
not limitation, except as expressly contemplated by this Agreement, each of
Videonics and Focus agrees on behalf of itself and, in the case of Focus, its
Subsidiaries, that they will not, between the date hereof and the Effective
Time, directly or indirectly, do any of the following without the prior written
consent of the other, as set forth in the first sentence of this Section 5.1:
(a) (i) except for (A) the issuance of shares of Videonics Common Stock
and Focus Common Stock in order to satisfy obligations under the Videonics Plans
and Focus Plans in effect on the date hereof and Focus Equity Rights or
Videonics Equity Rights issued thereunder and under existing dividend
reinvestment plans, which issuances shall be consistent with its existing policy
and past practice; (B) grants of stock options with respect to Videonics Common
Stock or Focus Common Stock to employees in the ordinary course of business and
in amounts and in a manner consistent with past practice; and (C), in the case
of Focus, (1) the issuance of up to 2,500,000 shares of Focus Common Stock
pursuant to a shelf registration on Form S-1, (2) the posting of Focus Common
Stock held in treasury as collateral for the a judgment adverse to Focus in the
matter of CRA Systems, Inc. v. Focus Enhancements, Inc. or (3) payment of some
or all of Union Atlantic LC's fee for providing investment banking services to
Focus in connection with this transaction by the issuance to Union Atlantic of
shares of Focus Common Stock in accordance with the agreement attached as
Schedule A hereto, issue, sell, pledge, dispose of, encumber, authorize, or
propose the issuance, sale, pledge, disposition, encumbrance or authorization 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
of, or any other ownership interest in, such Party or any of its Subsidiaries;
(ii) amend or propose to amend the Certificate or Articles of Incorporation, as
the case may be, or bylaws of such Party (other than the increase in the
authorized capital of Focus contemplated herein) or any of its Subsidiaries or
adopt, amend or propose to amend any shareholder rights plan or related rights
agreement; (iii) split, combine or reclassify any outstanding shares of
Videonics Common Stock or Focus Common Stock, or declare, set aside or pay any
dividend or distribution payable in cash, stock, property or otherwise with
respect to shares of Videonics Common Stock or Focus Common Stock, except for
cash dividends to shareholders of Videonics and Focus declared in accordance
with existing dividend policy payable to shareholders of record on the record
dates consistently used in prior periods; (iv) redeem, purchase or otherwise
acquire or offer to redeem, purchase or otherwise acquire any shares of its
capital stock, or (v) authorize or propose or enter into any contract,
agreement, commitment or arrangement with respect to any of the matters
prohibited by this Section 5.1(a).
(b) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or make any investment in another entity (other than an entity which is
a wholly owned Subsidiary of such Party as of the date
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hereof and other than incorporation of a wholly owned Subsidiary); (ii) except
in the ordinary course of business and in a manner consistent with past practice
and except for the sub-lease by Focus of its Wilmington facility, sell, pledge,
dispose of, or encumber or authorize or propose the sale, pledge, disposition or
encumbrance of any assets of such Party or any of its Subsidiaries, except for
transactions which do not exceed $100,000 in the aggregate in any 12-month
period, no Party shall make any dispositions in excess of an aggregate of
$100,000; or (iii) authorize, enter into or amend any contract, agreement,
commitment or arrangement with respect to any of the matters prohibited by this
Section 5.1(b);
(c) sell, transfer, lease, license, sublicense, mortgage, pledge,
dispose of, encumber, grant or otherwise dispose of any Intellectual Property
rights, or amend or modify in any material way any existing agreements with
respect to any Intellectual Property rights;
(d) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee (other than guarantees by Focus of bank debt of
its Subsidiaries entered into in the ordinary course of business) or endorse or
otherwise as an accommodation become responsible for, the obligations of any
Person, or make any loans, advances or enter into any financial commitments,
except in the ordinary course of business consistent with past practice and as
otherwise permitted under any loan or credit agreement to which it is a party;
authorize any capital expenditures which are, in the aggregate, in excess of
$100,000 for it and, in the case of Focus, its Subsidiaries taken as a whole; or
enter into or amend in any material respect any contract, agreement, commitment
or arrangement with respect to any of the matters set forth in this Section
5.1(d);
(e) hire or terminate any employee or consultant, except in the
ordinary course of business consistent with past practice; increase the
compensation (including, without limitation, bonus) payable or to become payable
to its officers or employees, except for retention agreements entered into in
anticipation of the Merger and except for previously disclosed officers salary
increases, increases in salary or wages of employees who are not officers of it
or, in the case of Focus, its Subsidiaries in the ordinary course of business
consistent with past practices, or grant any severance or termination pay or
stock options to, or enter into any employment or severance agreement with any
director, officer or other employee of it or, in the case of Focus, any of its
Subsidiaries, or 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;
(f) change, any accounting policies or procedures (including procedures
with respect to reserves, revenue recognition, payments of accounts payable and
collection of accounts receivable) unless required by statutory accounting
principles or GAAP;
(g) create, incur, suffer to exist or assume any Encumbrance on any
material assets of it or, in the case of Focus, its Subsidiaries;
(h) other than in the ordinary course of business consistent with past
practice, (A) enter into any Material Agreement, (B) modify, amend or transfer
in any material respect or terminate any Material Agreement to which it or, in
the case of Focus, any of its Subsidiaries is a party or waive, release or
assign any material rights or claims thereto or thereunder or (C) enter into or
extend any lease with respect to real property with any third party;
(i) make any Tax election or settle or compromise any federal, state,
local or foreign income tax liability or agree to an extension of a statute of
limitations;
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(j) settle any material litigation or waive, assign or release any
material rights or claims except, in the case of litigation, any litigation
which settlement would not (A) impose either material restrictions on the
conduct of the business of it or, in the case of Focus, any of its Subsidiaries
or (B) for any individual litigation item settled, exceed $100,000 in cost or
value to it or, in the case of Focus, any of its Subsidiaries. Neither
Videonics, Focus or any Focus Subsidiaries shall pay, discharge or satisfy any
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), except in the ordinary course of business consistent
with past practice in an amount or value not exceeding $50,000 in any instance
or series of related instances or $100,000 in the aggregate or in accordance
with their terms as in effect as of the date hereof;
(k) engage in any transaction, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any related party,
other than those existing as of the date hereof which are listed in the
Disclosure Schedule of such party;
(l) maintain in full force and effect all insurance, as the case may
be, currently in effect; and
(m) take any action which it believes when taken could reasonably be
expected to adversely affect or delay in any material respect the ability of any
of the Parties to obtain any approval of any Governmental Authority required to
consummate the transactions contemplated hereby;
(n) other than pursuant to this Agreement, take any action to cause the
shares of their respective Common Stock to cease to be quoted on any of the
stock exchanges on which such shares are now quoted;
(o) take any action which it believes when taken would cause its
representations and warranties contained herein to become inaccurate in any
material respect.
Section 5.2 No Solicitation.
(a) From the date hereof until the earlier of the Effective Time or the
termination of this Agreement in accordance with its terms, neither Party shall,
nor shall it permit any of its affiliates to, nor shall it authorize or permit
or any of its or their respective officers, directors, employees,
representatives or agents (collectively, the "Representatives") directly or
indirectly, to (i) solicit, facilitate, initiate or encourage, or take any
action to solicit, facilitate, initiate or encourage, any inquiries or the
making of any proposal or offer that constitutes an Acquisition Proposal or (ii)
participate or engage in discussions or negotiations with, or provide any
information to, any Person concerning an Acquisition Proposal or which might
reasonably be expected to result in an Acquisition Proposal. Each party shall
immediately cease and cause to be terminated and shall cause all of its
Representatives to terminate all existing discussions or negotiations with any
Persons conducted heretofore with respect to, or that could reasonably be
expected to lead to, an Acquisition Proposal. Each party shall promptly notify
all of its Representatives of its obligations under this Section.
(b) Notwithstanding the foregoing, any Party (the "Solicited Party")
may participate in discussions or negotiations with, or furnish information to a
third party pursuant to a confidentiality agreement with terms no less favorable
to the Solicited Party than those in effect between the Solicited Party and the
other Parties hereto if and only if (i) such Solicited Party has submitted an
unsolicited bona fide written Acquisition Proposal to the Solicited Party's
Board of Directors and (ii) neither the Solicited Party nor any of its
Representatives, shall have violated Section 5.2(a) and the
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Board of Directors of the Solicited Party (A) believes in good faith based on
such matters as it deems relevant, including the advice of the Solicited Party's
financial advisor, that such Acquisition Proposal constitutes a Superior
Proposal, (B) receives a written opinion of outside counsel to the effect that,
and based on such advice such Board determines by a majority vote in its good
faith judgment that, taking such action is required to satisfy the fiduciary
duties of such Board under applicable Law and (C) provides prior written notice
to the other Parties of its decision to so participate or furnish.
(c) Except as set forth in the following sentence, neither the Board of
Directors of a Party to this Agreement nor any committee thereof shall (i)
approve or recommend, or propose to approve or recommend, any Acquisition
Proposal other than the Merger, (ii) withdraw or modify or propose to withdraw
or modify in a manner adverse to the other party its approval or recommendation
of the Merger, this Agreement or the transactions contemplated hereby, (iii)
upon a request by either of the other Parties to reaffirm its approval or
recommendation of this Agreement or the Merger, fail to do so within two (2)
Business Days after such request is made, (iv) enter, or cause such Party or any
Subsidiary of such Party to enter, into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement related to any
Acquisition Proposal, or (v) resolve or announce its intention to do any of the
foregoing. The immediately preceding sentence notwithstanding, in the event that
prior to approval of the Merger by its shareholders, the Board of Directors of a
Party receives a Superior Proposal, the Board of Directors of such party may (i)
approve or recommend, or propose to approve or recommend, such Superior
Proposal, (ii) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to the other Party its recommendation of the Merger, this Agreement or
the transactions contemplated hereby, (iii) fail to reaffirm its recommendation
of this Agreement or the Merger after a request by the other Party to do so, or
(iv) resolve or announce its intention to do any of the actions set forth in the
preceding clauses (i) through (iii), if (1) such Board of Directors receives a
written opinion of outside counsel to the effect that, and based on such advice
of outside counsel such Board determines by a majority vote of directors in
their good faith judgment that, taking such action is required to satisfy the
fiduciary duties of such directors and (2) such Party furnishes the other
Parties two (2) Business Days' prior written notice of the taking of such action
(which notice shall include a description of the material terms and conditions
of the Superior Proposal and identify the person making the same).
(d) In addition to the other obligations of the Parties set forth in
this Section 5.2, each Party shall immediately advise the other Party orally and
in writing of any request for information with respect to any Acquisition
Proposal, or any inquiry with respect to or which could result in an Acquisition
Proposal, the material terms and conditions of such request, Acquisition
Proposal or inquiry, and the identity of the person making the same. Each Party
shall inform the other Party on a prompt and current basis of the status and
content of any discussions regarding any Acquisition Proposal with a third Party
and as promptly as practicable of any change in the price, structure or form of
the consideration or material terms of and conditions regarding any Acquisition
Proposal or of any other developments or circumstances which could reasonably be
expected to culminate in the taking of any of the actions referred to in Section
5.2(c). Nothing contained in this Section 5.2(d) shall prevent any Party hereto
from complying with Rule 14d-9 and Rule 14e-2 promulgated under the Exchange
Act.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Joint Proxy Statement and Registration Statement.
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(a) Focus and Videonics shall (i) as promptly as practicable following
the date hereof prepare and file with the SEC joint preliminary proxy or
information statement relating to the Merger and this Agreement, (ii) obtain and
furnish the information required to be included by the SEC in the Joint Proxy
Statement and, after consultation with each other, respond promptly to any
comments made by the SEC with respect to the Joint Proxy Statement, (iii) cause
the Joint Proxy Statement and the prospectus to be included in the Registration
Statement, including any amendment or supplement thereto, to be mailed to their
respective shareholders at the earliest practicable date after the Registration
Statement is declared effective by the SEC, and (iv) use all reasonable efforts
to obtain the necessary approval of the Merger and this Agreement by their
respective shareholders and, in the case of Focus, use all reasonable efforts to
obtain the necessary approval of the increase in the authorized capital of Focus
required to complete the Merger. Neither Videonics nor Focus shall file with or
supplementally provide to the SEC or mail to its shareholders the Joint Proxy
Statement or any amendment or supplement thereto without the prior consent of
the other. Videonics and Focus shall fully participate in the preparation of the
Joint Proxy Statement and any amendment or supplement thereto and shall consult
with each other and their advisors concerning any comments from the SEC with
respect thereto.
(b) Focus shall prepare and file with the SEC a Registration Statement
on Form S-4 and the parties hereto shall use all reasonable efforts to have the
Registration Statement declared effective by the SEC as promptly as practicable.
Focus shall obtain and furnish the information required to be included in the
Registration Statement and, after consultation with Videonics, respond promptly
to any comments made by the SEC with respect to the Registration Statement.
(c) The Joint Proxy Statement shall include the recommendation of the
Board of Directors of Videonics in favor of approval and adoption of this
Agreement and the Merger, except to the extent that Videonics shall have
withdrawn or modified its recommendation of this Agreement or the Merger as
permitted by Section 5.2.
(d) The Joint Proxy Statement shall include the recommendation of the
Board of Directors of Focus in favor of approval and adoption of this Agreement,
the Merger and the approval of the increase in the authorized capital of Focus
required to complete the Merger, except to the extent that Focus shall have
withdrawn or modified its approval of the Agreement or the Merger as permitted
by Section 5.2.
(e) Focus and Videonics shall, as promptly as practicable, make all
necessary filings with respect to the Merger under the Securities Act and the
Exchange Act and the rules and Regulations thereunder and under applicable Blue
Sky or similar securities laws, rules and Regulations, and shall use all
reasonable efforts to obtain required approvals and clearances with respect
thereto.
(f) The Parties will cooperate in the preparation of the Joint Proxy
Statement and the Registration Statement and in having the Registration
Statement declared effective as soon as practicable.
Section 6.2 Videonics Shareholders' Meeting. Videonics shall promptly after the
date hereof take all action necessary in accordance with CCL and its Articles of
Incorporation and bylaws to duly call, give notice of and (unless Focus requests
otherwise) hold the Videonics Shareholders Meeting as soon as practicable
following the date upon which the Registration Statement becomes effective and
shall consult with Focus in connection therewith. Once the Videonics
Shareholders Meeting has been called and noticed, Videonics shall not postpone
or adjourn (other than for the absence of a quorum and then only to a future
date specified by Focus) the Videonics Shareholders
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Meeting without the consent of Focus. The Board of Directors of Videonics shall
declare that this Agreement is advisable and, subject to Section 5.2(c),
recommend that this Agreement and the transactions contemplated hereby be
approved and authorized by the shareholders of Videonics and include in the
Joint Proxy Statement a copy of such recommendations; provided, however, that
the Board of Directors of Videonics shall submit this Agreement to the
shareholders of Videonics whether or not the Board of Directors of Videonics at
any time subsequent to making such recommendation takes any action permitted by
Section 5.2(c). Videonics shall solicit from shareholders of Videonics proxies
in favor of the Merger and shall take all other action necessary or advisable to
secure the vote or consent of shareholders required by the CCL to authorize the
Merger; provided, however, that this provision shall not prohibit the Board of
Directors from taking any action permitted by Section 5.2(c).
Section 6.3 Focus Shareholders' Meeting. Focus shall promptly after the date
hereof take all action necessary in accordance with DCL and its Certificate of
Incorporation and bylaws to duly call, give notice of and (unless Videonics
requests otherwise) hold the Focus Shareholders Meeting as soon as practicable
following the date upon which the Registration Statement becomes effective and
shall consult with Videonics in connection therewith. Once the Focus
Shareholders Meeting has been called and noticed, Focus shall not postpone or
adjourn (other than for the absence of a quorum and then only to a future date
specified by Videonics) the Focus Shareholders Meeting without the consent of
Videonics. The Board of Directors of Focus shall declare that the Merger is
advisable and, subject to Section 5.2(c), recommend that this Agreement and the
transactions contemplated hereby be approved and authorized by the shareholders
of Focus and that the authorized capital of Focus be increased to permit
consummation of the Merger and shall include in the Joint Proxy Statement a copy
of such recommendations; provided however, that the Board of Directors of Focus
shall submit this Agreement to the Focus shareholders and hold a shareholders'
vote to approve an increase in the authorized capital of Focus whether or not
the Board of Directors of Focus at any time subsequent to making such
recommendation takes any action permitted by Section 5.2(c). Focus shall solicit
from shareholders of Focus proxies in favor of the Merger and the increase in
the authorized capital of Focus and shall take all other action necessary or
advisable to secure the vote or consent of shareholders required by DCL to
authorize the Merger and the increase in the authorized capital of Focus;
provided, however, that this provision shall not prohibit the Board of Directors
from taking any action permitted by Section 5.2(c).
Section 6.4 Consummation of Merger; Additional Agreements.
(a) Upon the terms and subject to the conditions hereof and as soon as
practicable after the conditions set forth in Article VII hereof have been
fulfilled or waived, each of the Parties required to do so shall execute in the
manner required by the DCL and CCL and deliver to and file with the Secretary of
State of the State of Delaware and Secretary of State of the State of California
such instruments and agreements as may be required by the DCL and CCL and the
Parties shall take all such other and further actions as may be required by Law
to make the Merger effective.
(b) Each of the Parties will comply in all material respects with all
applicable laws and with all applicable rules and regulations of any
Governmental Authority in connection with its execution, delivery and
performance of this Agreement and the transactions contemplated hereby. Each of
the Parties agrees to use all commercially reasonable efforts to obtain in a
timely manner all necessary waivers, consents and approvals and to effect all
necessary registrations and filings, and to use all commercially reasonable
efforts to take, or cause to be taken, all other actions and to do, or cause to
be done, all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement and to effect all necessary filings under the Securities Act, the
Exchange Act and the HSR Act.
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(c) Each of Focus and Videonics shall, in connection with the efforts
referenced in Section 6.4(a) and (b), (i) cooperate in all respects with each
other in connection with any filing or submission and in connection with any
investigation or other inquiry, including any proceeding initiated by a private
party; (ii) promptly inform the other party of any material communication
received by such party from, or given by such party to any Governmental
Authority and of any material communication received or given in connection with
any proceeding by a private party, in each case regarding any of the
transactions contemplated hereby and (iii) consult with each other in advance of
any meeting or conference with any such Governmental Authority or, in connection
with any proceeding by a private party, with any other person, and to the extent
permitted by the applicable Governmental Authority or other person, give the
other Parties the opportunity to attend and participate in such meetings and
conferences.
(d) In furtherance and not in limitation of the covenants of the
Parties contained in Sections 6.4(a), (b) and (c), if any Action, including any
Action by a private party, is instituted (or threatened to be instituted)
challenging any transaction contemplated by this Agreement as violative of any
applicable Law, or if any Law is enacted, entered or promulgated or enforced by
a Governmental Authority which would make the Merger or the other transactions
contemplated hereby illegal or otherwise prohibit or materially impair or delay
consummation of the transactions contemplated hereby or thereby, each of Focus
and Videonics shall cooperate in all respects with each other and use all
commercially reasonable efforts to contest and resist any such Action, to have
vacated, lifted, reversed or overturned any Law, whether temporary, preliminary
or permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by this Agreement and to have such
Law repealed, rescinded or made inapplicable. Notwithstanding the foregoing or
any other provision of this Agreement, nothing in this Section 6.4 shall limit a
Party's right to terminate this Agreement pursuant to Section 8.1 so long as
such Party has up to then complied in all respects with its obligations under
this Section 6.4.
(e) If any objections are asserted with respect to the transactions
contemplated hereby under any applicable Law or if any suit is instituted by any
Governmental Authority or any private party challenging any of the transactions
contemplated hereby as violative of any applicable Law, each of Focus and
Videonics shall use its commercially reasonable efforts to resolve any such
objections or challenge as such Governmental Authority or private party may have
to such transactions under such Law so as to permit consummation of the
transactions contemplated by this Agreement.
Section 6.5 Notification of Certain Matters. Each of Videonics and Focus shall
give prompt notice to the other of the following:
(a) the occurrence or nonoccurrence of any event whose occurrence or
nonoccurrence would be likely to cause either (i) any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the Effective Time, or (ii) directly or
indirectly, any Material Adverse Effect on such Party;
(b) any material failure of such Party, or any officer, director,
employee or Agent of any thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder, and
(c) any facts relating to such Party which would make it necessary or
advisable to amend the Joint Proxy Statement or the Registration Statement in
order to make the statements therein not misleading or to comply with applicable
Law; provided, however, that the delivery of any
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notice pursuant to this Section 6.5 shall not limit or otherwise affect the
remedies available hereunder to the Party receiving such notice.
Section 6.6 Access to Information; Confidentiality.
(a) From the date hereof to the Effective Time, each of Videonics and
Focus shall, and, in the case of Focus, shall cause its Subsidiaries, and its
and their officers, directors, employees, auditors, counsel and agents to afford
the officers, employees, auditors, counsel and agents of the other Party
complete access at all reasonable times to such Party's and its Subsidiaries'
officers, employees, auditors, counsel agents, properties, offices and other
facilities and to all of their respective books and records (except as may be
required by Law), and shall furnish the other with all financial, operating and
other data and information as such other Party may reasonably request, including
in connection with confirmatory due diligence.
(b) Each of Videonics and Focus agrees that all information so received
from the other Party shall be deemed received pursuant to the Nondisclosure
Agreement and such Party shall, and shall cause its Subsidiaries and each of its
and their respective Representatives, to comply with the provisions of the
Nondisclosure Agreement with respect to such information and the provisions of
the Nondisclosure Agreement are hereby incorporated herein by reference with the
same effect as if fully set forth herein, provided that such information may be
used for any purpose contemplated hereby.
Section 6.7 Public Announcements. Focus and Videonics shall consult with and
obtain the approval of the other party before issuing any press release or other
public announcement with respect to the Merger or this Agreement and shall not
issue any such press release prior to such consultation and approval, except as
may be required by applicable Law or any listing agreement related to the
trading of the shares of either party on any national securities exchange or
national automated quotation system, in which case the party proposing to issue
such press release or make such public announcement shall use reasonable efforts
to consult in good faith with the other party before issuing any such press
release or making any such public announcement. Notwithstanding the foregoing,
in the event either party's Board of Directors withdraws its recommendation of
this Agreement in compliance herewith, such will no longer be required to
consult with or obtain the agreement of the other party in connection with any
press release or public announcement.
Section 6.8 Employee Benefit Plans. The Videonics Plans and the Focus Plans in
effect at the date hereof shall remain in effect immediately after the Effective
Time with respect to classes of employees covered by such plans immediately
prior to the Effective Time, provided that, as soon as practicable after the
Effective Time, the Board of Directors of Focus will examine the Videonics Plans
and the Focus Plans and will select plans for Focus and Videonics that have
substantially similar terms to the best of each type of plan currently available
to employees of either of Focus or Videonics.
Section 6.9 Succession.
(a) At the Effective Time, (i) Michael L. D'Addio shall hold the
positions of President and Chief Executive Officer of Focus and (ii) Thomas L.
Massie shall remain as Chairman of the Board of Focus for the remainder of his
current term. If Mr. D'Addio is unable or unwilling to hold such offices as set
forth above, his successor shall be selected by the Board of Directors of Focus.
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(b) As soon as practicable after the date hereof, Focus shall enter
into an employment agreement effective as of the Effective Time (the "Employment
Agreement") with Messr. D'Addio containing arrangements concerning management
succession satisfactory to each Party.
Section 6.10 Stock Exchange Listing. Each of the Parties shall use its best
efforts to obtain, prior to the Effective Time, the approval for listing on the
NASDAQ, effective upon official notice of issuance, of the shares of Focus
Common Stock into which the Videonics Common Stock will be converted pursuant to
Article II hereof and which will be issuable upon exercise of options pursuant
to Section 2.12 hereof.
Section 6.11 Post-Merger Focus Board of Directors.
(a) At the Effective Time, one or more of the incumbent directors shall
resign from the Board of Directors of Focus so that there shall be sufficient
vacancies for the Board of Directors to appoint three directors, one being
appointed for each of one, two and three years, and all of whom shall be
nominated by Videonics as provided below. After the Effective Time, the Board of
Directors of Focus shall be comprised of seven directors as provided below. To
the extent possible, the Videonics nominees shall be selected from persons who
are directors of Videonics prior to the Effective Time.
(b) The persons to serve initially on the Board of Directors of Focus
at the Effective Time who are Videonics Directors (as defined below) shall be
selected solely by and at the absolute discretion of the Board of Directors of
Videonics prior to the Effective Time; and the persons to serve on the Board of
Directors of Focus at the Effective Time who are Focus Directors (as defined
below) shall be selected solely by and at the absolute discretion of the Board
of Directors of Focus prior to the Effective Time. In the event that, prior to
the Effective Time, any person so selected to serve on the Board of Directors of
Focus after the Effective Time is unable or unwilling to serve in such position,
the Board of Directors which selected such person shall designate another of its
members to serve in such person's stead in accordance with the provisions of the
immediately preceding sentence.
(c) If, at any time prior to September 1, 2002, the number of Videonics
Directors is less than three then, subject to the fiduciary duties of the
directors, the Board of Directors shall appoint to fill any existing vacancy or
vacancies, as appropriate, such person or persons as may be requested by the
remaining Videonics Directors (if the number of Videonics Directors is, or would
otherwise become, less than three) or by the remaining Focus Directors (if the
number of Focus Directors is, or would otherwise become, less than four) to
ensure that there shall be four Focus Directors. The provisions of the preceding
two sentences shall not apply in respect of any vacancy which occurs after
September 1, 2002. The term "Videonics Director" means (i) any person serving as
a director of Videonics on the date hereof who becomes a director of Focus at
the Effective Time and (ii) any person who subsequently becomes a director of
Focus and who is designated by the Videonics Directors pursuant to this
paragraph; and the term "Focus Director" means (i) any person serving as a
director of Focus on the date hereof who continues as a director of Focus after
the Effective Time and (ii) any person who becomes a director of Focus and who
is designated by the Focus Directors pursuant to this paragraph. From the
Effective Time through September 1, 2002, the Board of Directors shall consist
of a number of Directors as described above and such number of Directors shall
not be amended.
(d) Each of Videonics and Focus shall take such action as shall
reasonably be deemed by either thereof to be advisable to give effect to the
provisions set forth in this section, including but not limited to incorporating
such provisions in the bylaws of Focus in effect at the Effective Time.
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Section 6.12 Blue Sky. Videonics and Focus will use their best efforts to obtain
prior to the Effective Time all necessary blue sky permits and approvals
required to permit the distribution of the shares of Focus Common Stock to be
issued in accordance with the provisions of this Agreement.
Section 6.13 Tax-Free Reorganization. Each of the Parties will use its best
efforts to cause the Merger to qualify as a tax-free reorganization under the
Code.
ARTICLE VII
CONDITIONS TO MERGER
Section 7.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each Party to effect the Merger shall be subject to
the following conditions:
(a) Shareholder Approval. The Videonics Shareholder Approval, Focus
Shareholder Approval and Merger Subsidiary Shareholder Approval shall have been
obtained;
(b) Amendment of Articles of Focus. The Certificate of Incorporation of
Focus shall have been amended to increase the authorized capital of Focus to
permit the issuance of Focus Common Stock in accordance with the requirements of
Section 2.2;
(c) Legality. No Law shall have been enacted, entered, promulgated or
enforced by any Governmental Authority which is in effect and has the effect of
(i) making the Merger illegal or otherwise prohibiting the consummation of the
Merger or (ii) creating a Material Adverse Effect on Videonics or Focus, with or
without including its ownership of Videonics and its Subsidiaries after the
Effective Time;
(d) HSR Act. Any waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated;
(e) Regulatory Matters. All authorizations, consents, orders, permits
or approvals of, or declarations or filings with, and all expirations of waiting
periods imposed by, any Governmental Authority (all of the foregoing,
"Consents") which are necessary for the consummation of the transactions
contemplated hereby, other than Consents which, if not obtained, would not have
a Material Adverse Effect on Focus, with or without including its ownership of
Videonics and its Subsidiaries after the Merger, or Videonics, shall have been
filed, have occurred or have been obtained (all such Consents being referred to
as the "Requisite Regulatory Approvals") and all such Requisite Regulatory
Approvals shall be in full force and effect, provided, however, that a Requisite
Regulatory Approval shall not be deemed to have been obtained if in connection
with the grant thereof there shall have been an imposition by any Governmental
Authority of any condition, requirement, restriction or change of regulation, or
any other action directly or indirectly related to such grant taken by such
Governmental Authority, which would reasonably be expected to have a Material
Adverse Effect on either of (A) Videonics or (B) Focus (either with or without
including its ownership of Videonics and its Subsidiaries after the Merger);
(f) Registration Statement Effective. The Registration Statement shall
have been declared effective and no stop order suspending the effectiveness of
the Registration Statement shall then be in effect, and no proceedings for that
purpose shall then be threatened by the SEC or shall have been initiated by the
SEC and not concluded or withdrawn;
(g) Blue Sky. All state securities or blue sky permits or approvals
required to carry out the transactions contemplated hereby shall have been
received;
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(h) Stock Exchange Listing. The shares of Focus Common Stock into which
the Videonics Common Stock will be converted pursuant to Article II hereof and
the shares of Focus Common Stock issuable upon the exercise of options pursuant
to Section 2.12 hereof shall have been duly approved for listing on the NASDAQ,
subject to official notice of issuance;
(i) Consents Under Agreements. Each of Videonics and Focus shall have
obtained the consent or approval of any person whose consent or approval shall
be required under any agreement or instrument in order to permit the
consummation of the transactions contemplated hereby or material agreement,
except those which the failure to obtain would not, individually or in the
aggregate, have a Material Adverse Effect on Videonics or Focus, including its
ownership of Videonics and its Subsidiaries after the Merger;
(j) No Material Adverse Effect. From and including the date hereof,
there shall not have occurred any event and no circumstance shall exist which,
alone or together with any one or more other events or circumstances has had, is
having or would reasonably be expected to have a Material Adverse Effect on
Videonics, Focus or any Focus Subsidiary;
(k) Satisfactory Completion of Due Diligence. Within seven (7) days of
the date hereof, both parties shall have satisfactorily completed their due
diligence review of the other party and shall be satisfied with the results
thereof; and
(l) Tax Opinion. The parties shall have received an opinion of either
Manatt, Phelps & Phillips, counsel to Videonics, or Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, PC, counsel to Focus, dated as of the Closing Date, in form
and substance reasonably satisfactory to the paties, substantially to the effect
that, on the basis of the facts, representations and assumptions set forth in
such opinion, the Merger constitutes a tax-free reorganization under the Code
and therefore: (A) no gain or loss will be recognized for federal income tax
purposes by Focus, Videonics or Merger Subsidiary as a result of the formation
of Merger Subsidiary and the Merger; (B) no gain or loss will be recognized for
federal income tax purposes by the shareholders of Videonics upon their exchange
of Videonics Common Stock solely for Focus Common Stock pursuant to the Merger
(except with respect to cash received in lieu of a fractional share interest in
Focus Common Stock); and (C) no gain or loss will be recognized for federal
income tax purposes by the shareholders of Focus as a result of the Merger,
including the Certificate of Amendment. In rendering such opinion, legal counsel
may require and rely upon representations and covenants including
representations and covenants contained in officer's certificates of Videonics
and Focus.
Section 7.2 Additional Conditions to Obligations of Videonics. The obligations
of Videonics to effect the Merger are also subject to the fulfillment of the
following conditions:
(a) Representations and Warranties. The representations and warranties
of Focus contained in this Agreement shall be true and correct on the date
hereof and (except to the extent such representations and warranties speak as of
a date earlier than the date hereof) shall also be true and correct on and as of
the Closing Date, except for changes contemplated by this Agreement, with the
same force and effect as if made on and as of the Closing Date, provided,
however, that for purposes of this Section 7.2(a) only, such representations and
warranties shall be deemed to be true and correct unless the failure or failures
of such representations and warranties to be so true and correct (without regard
to materiality qualifiers contained therein), individually or in the aggregate,
results or would reasonably be expected to result in a Material Adverse Effect
on Focus, either with or without including its ownership of Videonics and its
Subsidiaries after the Merger;
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(b) Agreements and Covenants. Focus and Merger Subsidiary shall have
performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by them on or before the Effective
Time, provided, however, that for purposes of this Section 7.2(b) only, such
agreements and covenants shall be deemed to have been complied with unless the
failure or failures of such agreements and covenants to have been complied with
(without regard to materiality qualifiers contained therein), individually or in
the aggregate, results or would reasonably be expected to result in a Material
Adverse Effect on Focus, either with or without including its ownership of
Videonics and its Subsidiaries after the Merger;
(c) Certificates. Videonics shall have received a certificate of an
executive officer of Focus to the effect set forth in paragraphs (a) and (b)
above;
(d) Disclosure Schedule. (i) Focus shall have delivered the Focus
Disclosure Schedule within Seven (7) days of the date hereof and (ii) all
matters disclosed in the Focus Disclosure Schedule that could have a Material
Adverse Effect on Focus shall be matters that were disclosed to Videonics on or
before the execution and delivery by Videonics of this Agreement; and
(e) Stock Option Plan. Focus shall have amended its 2000 Stock Option
Plan to increase by 1,000,000 the number of shares of Focus Common Stock
reserved for issuance thereunder and shall have submitted such amended plan to
its shareholders for approval.
Section 7.3 Additional Conditions to Obligations of Focus. The obligations of
Focus to effect the Merger are also subject to the fulfillment of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of Videonics contained in this Agreement shall be true and correct on the date
hereof and (except to the extent such representations and warranties speak as of
a date earlier than the date hereof) shall also be true and correct on and as of
the Closing Date, except for changes contemplated by this Agreement, with the
same force and effect as if made on and as of the Closing Date, provided,
however, that for purposes of this Section 7.3(a) only, such representations and
warranties shall be deemed to be true and correct unless the failure or failures
of such representations and warranties to be so true and correct (without regard
to materiality qualifiers contained therein), individually or in the aggregate,
results or would reasonably be expected to result in a Material Adverse Effect
on Videonics or Focus (only after including its ownership of Videonics and its
Subsidiaries after the Merger);
(b) Agreements and Covenants. Videonics shall have performed or
complied with all agreements and covenants required by this Agreement to be
performed or complied with by them on or before the Effective Time, provided,
however, that for purposes of this Section 8.3(b) only, such agreements and
covenants shall be deemed to have been complied with unless the failure or
failures of such agreements and covenants to have been complied with (without
regard to materiality qualifiers contained therein), individually or in the
aggregate, results or would reasonably be expected to result in a Material
Adverse Effect on Videonics;
(c) Certificates. Focus shall have received a certificate of an
executive officer of Videonics to the effect set forth in paragraphs (a) and (b)
above; and
(d) Disclosure Schedule. (i) Videonics shall have delivered the
Videonics Disclosure Schedule within seven (7) days of the date hereof and (ii)
all matters disclosed in the Videonics Disclosure Schedule that could have a
Material Adverse Effect on Videonics shall be matters that were disclosed to
Focus on or before the execution and delivery by Focus of this Agreement.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated at any time before the
Effective Time, in each case as authorized by the respective Boards of Directors
of Videonics or Focus:
(a) By mutual written consent of each of Videonics and Focus;
(b) By either Videonics or Focus if the Merger shall not have been
consummated on or before December 31, 2000 (the "Initial Termination Date" and
as such may be extended pursuant to this paragraph, the "Termination Date"),
provided, however, that if on the Termination Date any of the conditions to the
Closing set forth in Sections 7.1(b), (c)(i), (d), (e), (f), (g), (h) or (i)
shall not have been fulfilled, but all other conditions to the Closing shall be
fulfilled or shall be capable of being fulfilled, then the Termination Date
shall be extended to March 30, 2001, (the "Extended Termination Date"); and
provided further that if on the Extended Termination Date any of the conditions
to the Closing set forth in Sections 7.1(b), (c)(i), (d), (e), (f), (g), (h) or
(i) shall not have been fulfilled, but all other conditions to the Closing shall
be fulfilled or shall be capable of being fulfilled, then the Termination Date
shall be further extended to June 30, 2001 (the "Final Termination Date"),
unless within five days prior to the Extended Termination Date any Party
reasonably determines that it is substantially unlikely that any of the
conditions to the Closing set forth in Sections 7.1(b), (c)(i), (d), (e), (f),
(g), (h) or (i) will be fulfilled by the Final Termination Date and delivers to
the other Parties a notice to such effect. 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 any condition to be satisfied;
(c) By Videonics or Focus if after the date hereof a court of competent
jurisdiction or Governmental Authority shall have issued an order, decree or
ruling or taken any other action (which order, decree or ruling the Parties
shall use their commercially reasonable efforts to lift), in each case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other action
shall have become final and nonappealable;
(d) (i) by Videonics, (A) if Focus shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach or
failure to perform (1) is incapable of being cured by Focus prior to the
Termination Date and (2) renders any condition under Section 7.1 or 7.2
incapable of being satisfied prior to the Termination Date, or (B) if a
condition under Sections 7.1 or 7.2 to Videonics' obligations hereunder cannot
be satisfied prior to the Termination Date; (ii) by Focus, (A) if Videonics
shall have breached or failed to perform in any material respect any of its
representations, warranties, covenants or other agreements contained in this
Agreement, which breach or failure to perform (1) is incapable of being cured by
Videonics prior to the Termination Date and (2) renders any condition under
Sections 7.1 or 7.3 incapable of being satisfied prior to the Termination Date,
or (B) if a condition under Sections 7.1 or 7.3 to Focus' obligations hereunder
cannot be satisfied prior to the Termination Date;
(e) By either of Focus or Videonics if the Board of Directors of the
other Party or any committee of the Board of Directors of the other Party (i)
shall fail to include in the Joint Proxy Statement its recommendation without
modification or qualification that shareholders approve this Agreement and the
Merger, (ii) shall withdraw or modify in any adverse manner its approval or
recommendation of this Agreement or the Merger, (iii) shall fail to reaffirm
such approval or
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recommendation upon such Party's request, (iv) shall approve or recommend any
Acquisition Proposal or (v) shall resolve to take any of the actions specified
in this Section 8.1(e); or
(f) By Focus or Videonics if any of the required approvals of the
shareholders of Videonics or Focus shall fail to have been obtained at duly held
shareholders' meetings of such companies, including any adjournments thereof.
Section 8.2 Effect of Termination.
(a) In the event of termination of this Agreement as provided in
Section 8.1 hereof, and subject to the provisions of Section 9.1 hereof, this
Agreement shall forthwith become void and there shall be no liability on the
part of any of the Parties, except (i) as set forth in this Section 8.2 and in
Sections 3.10, 3.16, 4.10, 4.16 and 9.3 hereof, and (ii) nothing herein shall
relieve any Party from liability for any willful breach hereof.
(b) If this Agreement (i) is terminated by Videonics pursuant to
Section 8.1(e) hereof, (ii) could have been (but was not) terminated by
Videonics pursuant to Section 8.1(e) hereof and is subsequently terminated by
Focus or Videonics pursuant to Section 8.1(f) because of the failure to obtain
the Focus Shareholder Approval, (iii) (A) could not have been terminated by
Videonics pursuant to Section 8.1(e) hereof but is subsequently terminated by
Focus or Videonics pursuant to Section 8.1(f) because of the failure to obtain
the Focus Shareholder Approval, (B) prior to the Focus Shareholders' Meeting
there shall have been an Acquisition Proposal, an announcement of any intention
with respect to an Acquisition Proposal, or any agreement with respect to an
Acquisition Proposal involving Focus or any of Focus' Subsidiaries, and (C)
within 12 months after the termination of this Agreement, Focus enters into a
definitive agreement with any third party with respect to any Acquisition
Proposal, or (iv) is terminated by Videonics as a result of Focus' material
breach of Sections 6.1 or 6.3 hereof which, in the case of a breach thereof that
can be cured by Focus, is not cured within 30 days after notice thereof to
Focus, Focus shall pay to Videonics a termination fee of three hundred thousand
dollars ($300,000).
(c) If this Agreement (i) is terminated by Focus pursuant to Section
8.1(e) hereof, (ii) could have been (but was not) terminated by Focus pursuant
to Section 8.1(e) hereof and is subsequently terminated by Videonics or Focus
pursuant to Section 8.1(f) because of the failure to obtain the Videonics
Shareholder Approval, (iii) (A) could not have been terminated by Focus pursuant
to Section 8.1(e) hereof but is subsequently terminated by Videonics or Focus
pursuant to Section 8.1(f) because of the failure to obtain the Videonics
Shareholder Approval, (B) prior to the Videonics Shareholders' Meeting there
shall have been an Acquisition Proposal, an announcement of any intention with
respect to an Acquisition Proposal, or any agreement with respect to any
Acquisition Proposal involving Videonics, and (C) within 12 months after the
termination of this Agreement, Videonics enters into a definitive agreement with
any third party with respect to any Acquisition Proposal, or (iv) is terminated
by Focus as a result of Videonics' material breach of Section 6.1 or 6.2 hereof
which, in the case of a breach that can be cured by Videonics, is not cured
within 30 days after notice thereof to Videonics, Videonics shall pay to Focus a
termination fee of three hundred thousand dollars ($300,000).
(d) Each termination fee payable under Sections 8.2(b) and (c) above
shall be payable in cash, payable no later than one business day following the
delivery of notice of termination to the other Party, or, if such fee shall be
payable pursuant to clause (iii) of either of Section 8.2(b) or (c), such fee
shall be payable no later than one business day following the day such Party
enters into the definitive agreement referenced in such clause (iii).
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(e) Videonics and Focus agree that the agreements contained in Sections
8.2(b) and (c) above are an integral part of the transactions contemplated by
this Agreement and constitute liquidated damages and not a penalty. In the event
of any dispute as to whether any fee due under such Sections 8.2(b) and (c) is
due and payable, the prevailing party shall be entitled to receive from the
other Party the costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other legal
action, relating to such dispute. Interest shall be paid on the amount of any
unpaid fee at the publicly announced prime rate of Citibank, N.A. from the date
such fee was required to be paid.
Section 8.3 Amendment. This Agreement may be amended by the Parties pursuant to
a writing adopted by action taken by all of the Parties at any time before the
Effective Time; provided, however, that, after approval of this Agreement by the
shareholders of Focus and Videonics, no amendment may be made which would (a)
alter or change the amount or kinds of consideration to be received by the
holders of Videonics Common Stock upon consummation of the Merger, (b) alter or
change any term of the Articles of Incorporation of Videonics or the Certificate
of Incorporation of Focus (except for the implementation at the Effective Time
of the Certificate Amendment) or (c) alter or change any of the terms and
conditions of this Agreement if such alteration or change would adversely affect
the holders of any class or series of securities of Videonics or Focus. This
Agreement may not be amended except by an instrument in writing signed by the
Parties.
Section 8.4 Waiver. At any time before the Effective Time, any Party may (a)
extend the time for the performance of any of the obligations or other acts of
the other Parties, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a Party to any such extension or waiver shall be valid
only as against such Party and only if set forth in an instrument in writing
signed by such Party.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Non-Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall terminate at
the Effective Time or upon the termination of this Agreement pursuant to Section
8.1 hereof, as the case may be, except that (a) the agreements set forth in
Article I and Sections 2.2, 2.4, 2.6, 2.7, 2.8, 2.11, 2.12 and 6.11 hereof shall
survive the Effective Time indefinitely, (b) the agreements and representations
set forth in Sections 3.10, 3.16, 4.10, 4.16, 6.6, 8.2 and 9.3 hereof shall
survive termination indefinitely and (c) nothing contained herein shall limit
any covenant or Agreement of the Parties which by its terms contemplates
performance after the Effective Time.
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
as of the date of receipt and shall be delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), sent
by overnight courier or sent by telecopy, to the Parties at the following
addresses or telecopy numbers (or at such other address or telecopy number for a
Party as shall be specified by like notice):
(a) if to Videonics:
Videonics Corporation, 1370 Dell Avenue, Campbell, California 95008
Attention: Michael D'Addio, Chairman and CEO,
Phone: (408) 866-8300, Fax: (408) 866-4859
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with a copy to (which shall not constitute notice):
Manatt, Phelps & Phillips, 1001 Page Mill Road, Bldg. 2, Suite 100,
Palo Alto, California 94304-1006
Attention: Jerold F. Petruzzelli, Esq., Phone: (650) 812-1335,
Fax: (650) 213-0260
(b) if to Focus:
Focus Enhancements, Inc., 600 Research Drive, Wilmington,
Massachusetts 01887, Attention: Vice President and General Counsel,
Phone: (978) 988-5888 Fax: (978) 661-0160
with a copy to(which shall not constitute notice):
Mintz, Levin, Cohen, Ferris & Pompeo, One Financial Center, Boston,
Massachusetts 02109, Attention: Neil Aronson, Esq.
Phone: (617) 542-6000 Fax: (617) 542-2241
Section 9.3 Expenses. Except as otherwise provided in this Agreement, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Party incurring such costs and
expenses, except that those expenses incurred in connection with the printing of
the Joint Proxy Statement and the Registration Statement, as well as the filing
fees related thereto and any filing fee required in connection with the filing
of Pre-merger Notifications under the HSR Act, shall be shared equally by
Videonics and Focus.
Section 9.4 Certain Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
(a) "Acquisition Proposal" shall mean any inquiry, proposal or offer
from any Person (other than Focus, Merger Subsidiary, Videonics or any of their
affiliates) relating to any merger, consolidation, recapitalization, liquidation
or other direct or indirect business combination, involving any of the Parties
or any of their respective Subsidiaries or the issuance or acquisition of shares
of capital stock or other equity securities of any of the Parties or any of
their respective Subsidiaries representing 19.9% or more of the outstanding
capital stock of such Party or Subsidiary, as the case may be, or any tender or
exchange offer that if consummated would result in any Person, together with all
affiliates thereof, (other than Focus, Merger Subsidiary, Videonics or any of
their affiliates) beneficially owning shares of capital stock or other equity
securities of any of the Parties or any of their respective Subsidiaries
representing 19.9% or more of the outstanding capital stock of such Party or
Subsidiary, as the case may be, or the sale, lease exchange, license (whether
exclusive or not), or other disposition of any significant portion of the
Intellectual Property rights, or any significant portion of the business or
other assets of any Party or any of its Subsidiaries, or any other transaction,
the consummation of which could reasonably be expected to impede, interfere
with, prevent or materially delay the consummation of the transactions
contemplated hereby or which would reasonably be expected to diminish
significantly the benefits to any of the Parties of the transactions
contemplated hereby.
(b) "Actions" means any claim, action, suit, charge, complaint,
arbitration, proceeding or announced investigation by or before any Governmental
Authority.
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(c) "affiliate" of a person 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.
(d) "Blue Sky Laws" means the state securities laws.
(e) "Commercially reasonable efforts" shall mean those efforts
necessary or advisable to advance the interests of the Parties in achieving the
purposes and specific requirements and satisfying the conditions of this
Agreement, provided that such efforts will not require or include either expense
or conduct not ordinarily incurred or engaged in by Parties seeking to implement
agreements of this type unless part of a separate mutual understanding of the
Parties not contained in this Agreement whether reached before or after the
Agreement is executed.
(f) "Control" (including the terms "controlled by" and "under common
control with") means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a person, whether
through the ownership of stock, as trustee or executor, by contract or credit
arrangement or otherwise.
(g) "Encumbrance" means any security interest granted in assets located
in the United States or similar security right granted outside of the United
States, pledge, mortgage, lien (including, without limitation, environmental and
tax liens), encumbrance, adverse claim, preferential arrangement or restriction
of any kind, including, without limitation, any restriction on the use, voting,
transfer, receipt of income or other exercise of any attributes of ownership.
(h) "Environmental Law" means any Law relating to: (A) the protection,
investigation or restoration of the environment, health, safety, or natural
resources, (B) the handling, use, presence, disposal, release, discharge or
threatened release or discharge of any Hazardous Substance or (C) noise, odor,
wetlands, pollution, contamination or any injury or threat of injury to persons
or property in connection with any Hazardous Substance.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Focus Equity Rights" shall mean subscriptions, options, warrants,
calls, commitments, agreements, conversion rights or other rights of any
character (contingent or otherwise) to purchase or otherwise acquire any shares
of the capital stock of Focus from Focus or any of Focus' Subsidiaries at any
time, or upon the happening of any stated event.
(k) "GAAP" means generally accepted accounting principles applied in a
manner consistent with past practice.
(l) "Governmental Authority" means any federal, state, local or foreign
government, any court, administrative, regulatory or other governmental agency,
commission or authority or any non-governmental U.S. or foreign self- regulatory
agency, commission or authority or any arbitral tribunal.
(m) "Hazardous Substance" means any substance that is: listed,
classified or regulated pursuant to any Environmental Law, including any
petroleum product or by-product, asbestos- containing material, lead-containing
paint or plumbing, polychlorinated biphenyls, radioactive materials or radon.
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(n) "HSR Act" means the pre-Merger notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(o) "Intellectual Property" of any Party, means all designs, patents,
patent applications and other rights, trademarks, trademark registrations and
applications, service marks, service mark registrations and applications,
copyrights, copyright registrations and applications, trade or brand names,
trade secrets, proprietary manufacturing information, know how, inventions,
inventors notes and drawings owned or used by such Party.
(p) "Knowledge" of any Party shall mean the actual knowledge of the
executive officers of such Party.
(q) "Law" means any federal, state, local or foreign statute, act, law,
ordinance, regulation, rule, code, order, decree, judgment, policy, other
requirement or rule of law.
(r) "Material Adverse Effect" means any change in or effect on the
business of the referenced corporation or any of its Subsidiaries that is or
will be materially adverse to the business, operations (including the income
statement), properties (including intangible properties), condition (financial
or otherwise), assets, liabilities or regulatory status of such referenced
corporation and its Subsidiaries taken as a whole, but shall not include the
effects of changes that are generally applicable in (A) the United States
economy or (B) the United States securities markets if, in any of (A) or (B),
the effect on Videonics or Focus, determined without including its ownership of
Videonics after the Merger, (as the case may be) and its respective
Subsidiaries, taken as a whole, is not materially disproportionate relative to
the effect on the other and its Subsidiaries, taken as a whole. All references
to Material Adverse Effect on Focus or its Subsidiaries contained in Article
III, IV, VI or VII of this Agreement shall be deemed to refer solely to Focus
and its Subsidiaries without including its ownership of Videonics and its
Subsidiaries after the Merger.
(s) "Permits" permits, franchises, licenses, authorizations,
certificates, variances, exemptions, orders, registrations or consents that are
granted by any Governmental Authority (including any stock exchange or other
self-regulatory body).
(t) "Person" means an individual, corporation, partnership,
association, trust, estate, limited liability company, labor union,
unincorporated organization, entity or group (as defined in the Exchange Act).
(u) "SEC" means the United States Securities and Exchange Commission.
(v) "Software" means any and all (i) computer programs, including any
and all software implementations of algorithms, models and methodologies,
whether in source code or object code, (ii) databases and compilations,
including any and all data and collections of data, whether machine readable or
otherwise, (iii) descriptions, flow-charts and other work product used to
design, plan, organize and develop any of the foregoing, and (iv) all
documentation, including user manuals and training materials, relating to any of
the foregoing.
(w) "Subsidiary" or "Focus Subsidiary" means any corporation or other
legal entity of which Focus (either alone or through or together with any other
Subsidiary or Subsidiaries), owns, directly or indirectly, more than 50% of the
stock or other equity interests the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of such
corporation or other legal entity.
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(x) "Securities Act" means the Securities Act of 1933, as amended.
(y) "Superior Proposal" means any bona fide Acquisition Proposal to
effect a merger, consolidation or sale of all or substantially all of the assets
or capital stock of any of Focus or Videonics which is on terms which the Board
of Directors of such Party determine by a majority vote of its directors in
their good faith judgment (based on the written opinion, with only customary
qualifications, of a financial advisor of nationally recognized reputation that
the consideration provided in such Acquisition Proposal likely exceeds the value
of the consideration provided for in the Merger), after taking into account all
relevant factors, including any conditions to such Acquisition Proposal, the
timing of the closing thereof, the risk of nonconsummation, the ability of the
person making the Acquisition Proposal to finance the transaction contemplated
thereby and any required governmental or other consents, filings and approvals,
to be more favorable to the shareholders of such Party than the Merger (or any
revised proposal made by the other Party).
(z) "Tax" or "Taxes" shall mean taxes and governmental impositions of
any kind in the nature of (or similar to) taxes, payable to any federal, state,
local or foreign taxing authority, including but not limited to those on or
measured by or referred to as income, franchise, profits, gross receipts,
capital ad valorem, custom duties, alternative or add-on minimum taxes,
estimated, environmental, disability, registration, value added, sales, use,
service, real or personal property, capital stock, license, payroll,
withholding, employment, social security, workers' compensation, unemployment
compensation, utility, severance, production, excise, stamp, occupation,
premiums, windfall profits, transfer and gains taxes, and interest, penalties
and additions to tax imposed with respect thereto; and "Tax Returns" shall mean
returns, reports and information statements, including any schedule or
attachment thereto, with respect to Taxes required to be filed with the Internal
Revenue Service or any other governmental or taxing authority or agency,
domestic or foreign, including consolidated, combined and unitary tax returns.
(aa) "Videonics Equity Rights" shall mean subscriptions, options,
warrants, calls, commitments, agreements, conversion rights or other rights of
any character (contingent or otherwise) to purchase or otherwise acquire any
shares of the capital stock of Videonics from Videonics or any of Videonics'
Subsidiaries at any time, or upon the happening of any stated event.
Section 9.5 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 9.6 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of Law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties 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 maximum extent possible.
Section 9.7 Entire Agreement; No Third-Party Beneficiaries. This Agreement
constitutes the entire agreement and, except as expressly set forth herein,
supersedes any and all other prior agreements and undertakings, both written and
oral, among the Parties, or any of them, with respect to the subject matter
hereof and, except for Section 6.11 (Post-Merger Focus Board of Directors), is
not intended to confer upon any person other than Videonics, Focus, and Merger
Subsidiary and, after the Effective Time, their respective shareholders, any
rights or remedies hereunder.
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Section 9.8 Assignment. This Agreement shall not be assigned by operation of Law
or otherwise.
Section 9.9 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the Laws of the State of Delaware applicable to contracts
executed in and to be performed entirely within that State, without regard to
the conflicts of laws provisions thereof; provided that the Merger shall be
governed by the Laws of the State of Delaware applicable to contracts executed
in and to be performed entirely within that State, without regard to the
conflicts of laws provisions thereof.
Section 9.10 Counterparts. This Agreement may be executed in two or more
counterparts, and by the different Parties in separate counterparts, each of
which when executed shall be deemed to be an original, but all of which shall
constitute one and the same Agreement.
Section 9.11 Interpretation.
(a) Whenever the words "include", "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation."
(b) Words denoting any gender shall include all genders. Where a word
or phrase is defined herein, each of its other grammatical forms shall have a
corresponding meaning. The plural shall include the singular, and vice versa.
(c) A reference to any party to this Agreement or any other agreement
or document shall include such party's successors and permitted assigns.
(d) A reference to any legislation or to any provision of any
legislation shall include any modification or re-enactment thereof, any
legislative provision substituted therefor and all regulations and statutory
instruments issued thereunder or pursuant thereto.
(e) All references to "$" and dollars shall be deemed to refer to
United States currency unless otherwise specifically provided.
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In Witness Whereof, Videonics, Focus and Merger Subsidiary have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
VIDEONICS CORPORATION FOCUS ENHANCEMENTS, INC.
By: /s/ Michael L. D'Addio By: /s/ Thomas Massie
---------------------- -----------------
Name: Michael L. D'Addio Name: Thomas L. Massie
Title: Chairman and Chief Executive Officer Title: Chairman of the Board
PC VIDEO CONVERSION, INC.
By: /s/ Christopher Ricci
----------------------
Name: Christopher P. Ricci
Title: Secretary
49
