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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
April 14, 1999
------------------------------
Date of Report
(Date of earliest event reported)
AVT CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 0-25186 91-1190085
- ----------------------------- --------------------- ---------------------
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
11410 N.E. 122nd Way
Kirkland, Washington 98034
- --------------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
(206) 820-6000
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(Registrant's telephone number, including area code)
Page 1 of 3
Exhibit Index on Page 4
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Item 2. Acquisition or Disposition of Assets
On April 14, 1999, AVT Corporation (the "Company") acquired MediaTel
Corporation, a Delaware corporation ("MediaTel"), pursuant to an Agreement and
Plan of Merger dated as of April 13, 1999 (the "Merger Agreement") among the
Company, MediaTel and Goldengate Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of the Company ("Acquisition Sub"). Pursuant to the
Merger Agreement, Acquisition Sub was merged into MediaTel, and MediaTel became
a wholly owned subsidiary of the Company. The shareholders of MediaTel received
an aggregate of approximately 1,603,700 shares of the Company's common stock
(10% of which was deposited into an escrow account). In addition, the Company
assumed all outstanding options to purchase MediaTel shares, which will be
exercisable for approximately 291,700 shares of the Company's common stock. The
shares deposited into the escrow account will be available to compensate the
Company for certain losses that it may incur as a result of breaches of
representations and warranties and other agreements by MediaTel. The escrow
will terminate in approximately one year, at which time any shares which have
not been claimed by the Company for losses will be distributed to the MediaTel
shareholders. The total transaction is valued at approximately $48 million.
Pursuant to the Merger Agreement, the Company also entered into a
Registration Rights Agreement with the shareholders of MediaTel pursuant to
which the Company will, within 30 days of the closing of the Merger, file a
resale Registration Statement on Form S-3 covering the shares of the Company's
common stock issued to the MediaTel shareholders at the closing of the merger.
MediaTel is a leading partner for corporations which are re-engineering
their workflow to incorporate electronic commerce. MediaTel is the premier U.S.
provider of out-sourced electronic document delivery services to businesses
which frequently send business-critical information to other businesses.
MediaTel provides its more than 2,000 corporate customers with the ability to
deliver high volume, business-critical information in a faster, more reliable
and more cost-effective manner than could otherwise be done internally or by
other means. MediaTel's sales for the years ended December 31, 1994, 1995,
1996, 1997 and 1998 were $6.9 million, $9.7 million, $14.6 million, $18.9
million and $21.9 million, respectively, and its operating income was $.5
million, $.5 million, $1.1 million, $2.6 million, and $3.9 million,
respectively. MediaTel's net income was $.2 million, $.2 million, $.7 million,
$1.6 million, and $2.5 million for the years ended December 31, 1994, 1995,
1996, 1997 and 1998, respectively.
There were no relationships prior to the merger between MediaTel or any of
its shareholders and the Company or any of its affiliates, any director or
officer of the Company or any associate of any such director or officer.
Page 2
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
It is impracticable to include any of the required financial statements
of MediaTel on the date this report is filed. Accordingly, such financial
statements will be filed as soon as practicable and not later than 60 days of
the date on which this Form 8-K must be filed in accordance with paragraph (4)
of Item 7(a) of Form 8-K.
(b) Pro Forma Financial Information
It is impracticable to include any of the required pro forma financial
information on the date this report is filed. Accordingly, the pro forma
financial information will be filed as soon as practicable and not later than 60
days of the date on which this Form 8-K must be filed in accordance with
paragraph (2) of Item 7(b) of Form 8-K.
(c) Exhibits
Exhibit Number Description
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10.1 Agreement and Plan of Merger among AVT
Corporation, MediaTel Corporation and Goldengate
Acquisition Corp., dated as of April 13, 1999
10.2 Registration Rights Agreement among AVT
Corporation and the shareholder of MediaTel
Corporation, dated as of April 14, 1999
10.3 Escrow Agreement and Indemnification Agreement
among AVT Corporation, Sanjeev Malaney, as
Securityholder Agent, and ChaseMellon Shareholder
Services, LLC, as escrow agent, dated as of April
14, 1999
SIGNATURE
Pursuant to the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AVT Corporation
By /s/ Roger Fukai
---------------------------
Dated: April 14, 1999 Roger Fukai, Chief Financial
Officer
Page 3
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INDEX TO EXHIBITS
Exhibit
- -------
Number Description
- ------ -----------
10.1 Agreement and Plan of Merger among AVT Corporation,
MediaTel Corporation and Goldengate Acquisition Corp.,
dated as of April 13, 1999
10.2 Registration Rights Agreement among AVT Corporation and
the shareholders of MediaTel Corporation, dated as of
April 14, 1999
10.3 Escrow Agreement and Indemnification Agreement among AVT
Corporation, Sanjeev Malaney, as Securityholder Agent,
and ChaseMellon Shareholder Services, LLC, as escrow
agent, dated as of April 14, 1999
Page 4
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EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
AVT CORPORATION
GOLDENGATE ACQUISITION CORP.
AND MEDIATEL CORPORATION
Dated as of April 13, 1999
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TABLE OF CONTENTS
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ARTICLE I THE MERGER......................................................................... 2
1.1 The Merger................................................................... 2
1.2 Effective Time............................................................... 2
1.3 Effect of the Merger......................................................... 2
1.4 Certificate of Incorporation; Bylaws......................................... 3
1.5 Directors and Officers....................................................... 3
1.6 Maximum Shares to Be Issued; Effect on Capital Stock......................... 3
1.7 Dissenting Shares............................................................ 6
1.8 Surrender of Certificates.................................................... 6
1.9 No Further Ownership Rights in Company Common Stock.......................... 8
1.10 Lost, Stolen or Destroyed Certificates....................................... 8
1.11 Taking of Necessary Action; Further Action................................... 8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SIGNIFICANT
STOCKHOLDERS................................................................ 9
2.1 Organization of the Company.................................................. 9
2.2 Company Capital Structure.................................................... 9
2.3 Subsidiaries................................................................. 10
2.4 Authority.................................................................... 10
2.5 No Conflict.................................................................. 11
2.6 Company Financial Statements................................................. 11
2.7 No Undisclosed Liabilities................................................... 12
2.8 No Changes................................................................... 12
2.9 Tax and Other Returns and Reports............................................ 14
2.10 Restrictions on Business Activities.......................................... 16
2.11 Title to Properties; Absence of Liens and Encumbrances....................... 17
2.12 Intellectual Property........................................................ 18
2.13 Agreements, Contracts and Commitments........................................ 21
2.14 Interested Party Transactions................................................ 23
2.15 Compliance with Laws......................................................... 24
2.16 Litigation................................................................... 24
2.17 Insurance.................................................................... 24
2.18 Corporate Books and Records.................................................. 25
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2.19 Environmental Matters....................................................... 25
2.20 Brokers' and Finders' Fees; Third Party Expenses............................ 26
2.21 Employee Matters and Benefit Plans.......................................... 26
2.22 Pooling of Interests........................................................ 31
2.23 Government Contracts........................................................ 31
2.24 Absence of Questionable Payments............................................ 31
2.25 Personnel................................................................... 31
2.26 Bank Accounts............................................................... 32
2.27 Year 2000................................................................... 32
2.28 Accounts Receivable......................................................... 32
2.29 Licenses, Permits, Authorizations, Etc...................................... 33
2.30 Consent Solicitation/Information Statement.................................. 33
2.31 Full Disclosure............................................................. 33
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB......................... 33
3.1 Organization, Standing and Power............................................ 34
3.2 Authority................................................................... 34
3.3 Capital Structure........................................................... 34
3.4 SEC Documents; Parent Financial Statements.................................. 35
3.5 No Material Adverse Change.................................................. 35
3.6 Litigation.................................................................. 35
3.7 S-3 Eligibility............................................................. 36
3.8 Pooling of Interests........................................................ 36
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.............................................. 36
4.1 Conduct of Business of the Company.......................................... 36
4.2 No Solicitation............................................................. 39
ARTICLE V ADDITIONAL AGREEMENTS............................................................. 40
5.1 Company Stockholder Approval................................................ 40
5.2 Access to Information....................................................... 40
5.3 Confidentiality............................................................. 40
5.4 Expenses.................................................................... 41
5.5 Public Disclosure........................................................... 41
5.6 Consents.................................................................... 41
5.7 FIRPTA Compliance........................................................... 41
5.8 Reasonable Efforts.......................................................... 41
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(continued)
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5.9 Notification of Certain Matters............................................. 42
5.10 Pooling Accounting.......................................................... 42
5.11 Affiliate and Voting Agreements............................................. 42
5.12 Additional Documents and Further Assurances................................. 43
5.13 Form S-8.................................................................... 43
5.14 Nasdaq National Market Listing.............................................. 43
5.15 Company's Auditors.......................................................... 43
5.16 Additional Representations Relating to Tax Matters.......................... 43
ARTICLE VI CONDITIONS TO THE MERGER......................................................... 44
6.1 Conditions to Obligations of Each Party to Effect the Merger................ 44
6.2 Additional Conditions to Obligations of the Significant Stockholders
and the Company............................................................. 45
6.3 Additional Conditions to the Obligations of Parent and Merger Sub........... 45
ARTICLE VII INDEMNIFICATION; ESCROW FUND.................................................... 47
7.1 Establishment of Escrow Fund................................................ 47
7.2 Indemnification............................................................. 47
7.3 Procedure; Claims........................................................... 48
7.4 Survival of Representation and Warranties................................... 48
7.5 Exclusive Remedy; Applicability............................................. 48
7.6 Securityholder Agent........................................................ 49
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.............................................. 50
8.1 Termination................................................................. 50
8.2 Effect of Termination....................................................... 51
8.3 Amendment................................................................... 51
8.4 Extension; Waiver........................................................... 51
ARTICLE IX GENERAL PROVISIONS............................................................... 52
9.1 Notices..................................................................... 52
9.2 Interpretation.............................................................. 53
9.3 Counterparts................................................................ 53
9.4 Entire Agreement; Assignment................................................ 53
9.5 Severability................................................................ 54
9.6 Other Remedies.............................................................. 54
9.7 Governing Law; Venue........................................................ 54
9.8 Rules of Construction....................................................... 54
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9.9 Specific Performance............................................................... 54
ARTICLE X DEFINITIONS...................................................................... 55
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
---------
into as of April 13, 1999 among AVT Corporation, a Washington corporation
("Parent"), Goldengate Acquisition Corp., a Delaware corporation and a wholly
- --------
owned subsidiary of Parent ("Merger Sub"), and Mediatel Corporation, a Delaware
----------
corporation (the "Company").
-------
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "Merger") and, in furtherance thereof,
------
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
common stock of the Company, par value $.001 per share (the "Company Common
--------------
Stock"), and all of the issued and outstanding Series A Preferred Stock of the
- -----
Company, par value $.001 per share (the "Company Preferred Stock," and,
------------------------
collectively with the Company Common Stock, the ("Company Capital Stock") shall
---------------------
be converted into the right to receive shares of voting Common Stock of Parent,
par value $.01 per share ("Parent Common Stock"), and all outstanding options or
-------------------
other rights to acquire or receive shares of Company Capital Stock shall be
assumed by Parent (after giving effect to appropriate adjustments to the
exercise price and number of shares issuable upon exercise thereof) and shall be
exercisable for shares of Parent Common Stock.
C. A portion of the shares of Parent Common Stock otherwise issuable by
Parent in connection with the Merger shall be placed in escrow by Parent, the
release of which amount shall be contingent upon certain events and conditions,
all as set forth in the Escrow and Indemnification Agreement attached hereto as
Exhibit A (the "Escrow and Indemnification Agreement").
------------------------------------
D. It is intended by the parties hereto that the Merger shall (i)
constitute a reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code") and (ii) qualify for accounting
----
treatment as a pooling of interests.
E. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
<PAGE>
ARTICLE I
THE MERGER
1.1 The Merger
At the Effective Time (as defined in Section 1.2) and subject to and upon
the terms and conditions of this Agreement and the applicable provisions of the
Delaware General Corporation Law ("Delaware Law"), Merger Sub shall be merged
------------
with and into the Company, the separate corporate existence of Merger Sub shall
cease, and the Company shall continue as the surviving corporation and as a
wholly owned subsidiary of Parent. The Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
---------
Corporation."
- -----------
1.2 Effective Time
Unless this Agreement is earlier terminated pursuant to Section 8.1, the
closing of the Merger (the "Closing") will take place as promptly as
-------
practicable, but no later than five (5) business days, following satisfaction or
waiver of the conditions set forth in Article VI, at the offices of Perkins
Coie, 250 Montgomery Street, Suite 1600, San Francisco, California, unless
another place or time is agreed to by Parent and the Company; provided, however,
that in no event will the Closing Date be later than April 16, 1999. The date
upon which the Closing actually occurs is herein referred to as the "Closing
-------
Date." On the Closing Date or as soon as possible thereafter, the parties
- ----
hereto shall cause the Merger to be consummated by filing an Agreement of Merger
(or like instrument) with the Secretary of State of the State of Delaware (the
"Certificate of Merger"), in accordance with the relevant provisions of
- ----------------------
applicable law (the time of acceptance by the Secretary of State of Delaware of
such filing being referred to herein as the "Effective Time"). If the Secretary
--------------
of State of Delaware requires any changes in the Certificate of Merger as a
condition to its filing or to issuing a certificate to the effect that the
Merger is effective, Parent, Merger Sub, the Company and the Significant
Stockholders will execute any necessary revisions incorporating such changes,
provided such changes are not inconsistent with and do not result in any
material change in the terms of this Agreement.
1.3 Effect of the Merger
At the Effective Time, the effect of the Merger shall be as provided in the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
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1.4 Certificate of Incorporation; Bylaws
(a) Unless otherwise determined by Parent prior to the Effective Time, at
the Effective Time, the Certificate of Incorporation of Merger Sub shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation; provided,
however, that Article I of the Certificate of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the corporation
is Goldengate Corporation".
(b) Unless otherwise determined by Parent, the Bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended.
1.5 Directors and Officers
The director(s) of Merger Sub immediately prior to the Effective Time shall
be the initial director(s) of the Surviving Corporation, each to hold office
until their successor(s) have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation. The
officers of Merger Sub immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, each to hold office until their
successors have been duly appointed or until their earlier death, resignation or
removal in accordance with the Bylaws of the Surviving Corporation.
1.6 Maximum Shares to Be Issued; Effect on Capital Stock
The maximum number of shares of Parent Common Stock to be issued (including
shares of Parent Common Stock to be reserved for issuance upon exercise of any
of the Company's options to be assumed by Parent) in exchange for the
acquisition by Parent of all outstanding Company Capital Stock and all unexpired
and unexercised options or other rights to acquire Company Capital Stock shall
be the Aggregate Share Number (as defined below). No adjustment shall be made
in the number of shares of Parent Common Stock issued in the Merger as a result
of any cash proceeds received by the Company from the date hereof to the
Effective Time pursuant to the exercise of options or other rights to acquire
Company Capital Stock. Subject to the terms and conditions of this Agreement,
as of the Effective Time, by virtue of the Merger and without any action on the
part of Merger Sub, the Company or any holder of shares of Company Capital Stock
(individually, a "Stockholder"), the following shall occur:
-----------
(a) Conversion of Company Common Stock and Company Preferred Stock. Each
--------------------------------------------------------------
share of Company Common and Preferred Stock (including all shares of Company
Common Stock issued upon conversion of Company Preferred Stock) issued and
outstanding immediately prior to the Effective Time, other than any shares of
Company Common and Preferred Stock to be canceled pursuant to Section 1.6(b) and
any Dissenting Shares (as
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defined and to the extent provided in Section 1.7(a)), will be canceled and
extinguished and be converted automatically into the right to receive that
number of shares of Parent Common Stock equal to the Exchange Ratio, upon
surrender of the certificate representing such share of Company Common or
Preferred Stock in the manner provided in Section 1.8.
(b) Cancellation of Company-Owned Stock. Each share of Company Capital
-----------------------------------
Stock, if any, owned by the Company or any direct or indirect wholly owned
subsidiary of the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(c) Stock Options. At the Effective Time, each outstanding option to
-------------
purchase Company Common Stock (each a "Company Option") then outstanding under
--------------
the Company's 1996 Stock Option Plan (the "Option Plan") or otherwise, whether
-----------
vested or unvested, shall be, in connection with the Merger, assumed by Parent.
Each Company Option so assumed by Parent under this Agreement shall continue to
have, and be subject to, the same terms and conditions set forth in the Option
Plan and/or as provided in the respective option agreements governing such
Company Option immediately prior to the Effective Time, except that (i) such
Company Option shall be exercisable for that number of whole shares of Parent
Common Stock equal to the product of the number of shares of Company Common
Stock that were issuable upon exercise of such Company Option immediately prior
to the Effective Time multiplied by the Exchange Ratio, rounded down (in the
case of Company Options granted under the Option Plan) to the nearest whole
number of shares of Parent Common Stock and (ii) the per share exercise price
for the shares of Parent Common Stock issuable upon exercise of such assumed
Company Option shall be equal to the quotient determined by dividing the
exercise price per share of Company Common Stock at which such Company Option
was exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded up to the nearest whole cent. In no event shall the terms of any
assumed Company Option that is an incentive stock option as defined in Section
422 of the Code give the holder thereof additional benefits that he or she did
not have under the original Company Option. Promptly following the Effective
Time, Parent will issue to each holder of an outstanding Company Option a
document evidencing the foregoing assumption of such Company Option by Parent.
(d) Capital Stock of Merger Sub. Each share of Common Stock of Merger Sub
---------------------------
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
-----------------------------
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Parent
Common Stock or Company Capital Stock), reorganization, recapitalization or
other like change with respect to Parent Common
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Stock or Company Capital Stock occurring after the date hereof and prior to the
Effective Time.
(f) Fractional Shares. No fraction of a share of Parent Common Stock will
-----------------
be issued, but in lieu thereof, each Stockholder who would otherwise be entitled
to a fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock to be received by such Stockholder)
shall be entitled to receive from Parent an amount of cash (rounded to the
nearest whole cent) without interest equal to the product of (i) such fraction,
multiplied by (ii) the Parent Common Stock Price.
(g) Definitions.
-----------
(i) Aggregate Common Number. The "Aggregate Common Number" shall
----------------------- -----------------------
mean the aggregate number of shares of Company Common Stock outstanding
immediately prior to the Effective Time (including all shares of Company Common
Stock issued upon conversion of all Company Preferred Stock).
(ii) Aggregate Preferred Number. The "Aggregate Preferred Number"
-------------------------- --------------------------
shall mean the aggregate number of shares of Company Preferred Stock outstanding
immediately prior to the Effective Time.
(iii) Aggregate Option Number. The "Aggregate Option Number" shall
----------------------- -----------------------
mean the aggregate number of shares of Company Common Stock issuable upon the
exercise of all outstanding Company options and other rights to acquire shares
of Company Common Stock immediately prior to the Effective Time, minus 30,208
shares (which is the number of shares subject to unvested options held by the
Company's outside directors and a consultant as of the Closing; which will be
terminated in connection with the Merger).
(iv) Aggregate Share Number. The "Aggregate Share Number" shall be
---------------------- ----------------------
1,895,355, which was determined by dividing $47,150,000, minus any Third-Party
Expenses incurred by the Company in excess of $850,000 as shown on the summary
provided to Parent pursuant to Section 5.4, by the Parent Common Stock Price.
The Aggregate Share Number shall be appropriately adjusted to reflect the effect
of any stock split, stock dividend, reorganization , recapitalization or the
like with respect to the Parent Common Stock occurring after the date hereof and
prior to the Effective Time (a "Recapitalization of the Parent Common Stock").
-------------------------------------------
(v) Escrow Amount. The "Escrow Amount" shall be ten percent (10%)
------------- -------------
of the shares of Parent Common Stock issuable in the Merger upon conversion of
the Company Common Stock and the Company Preferred Stock.
(vi) Exchange Ratio. The "Exchange Ratio" shall mean the quotient
-------------- --------------
obtained by dividing (x) the Aggregate Share Number by (y) the sum of (A) the
Aggregate
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Common Number, (B) the Aggregate Preferred Number, and (C) the Aggregate Option
Number.
(vii) Parent Common Stock Price. The "Parent Common Stock Price"
------------------------- -------------------------
shall equal $24.8766 which is the average closing price of a share of Parent
Common Stock over the twenty (20) consecutive trading days ending two trading
days prior to the Closing Date, as reported on the Nasdaq National Market.
1.7 Dissenting Shares
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of Company Capital Stock held by a Stockholder who has demanded appraisal
rights for such shares in accordance with Delaware Law and who, as of the
Effective Time, has not withdrawn in writing such appraisal rights ("Dissenting
----------
Shares") shall not be converted into or represent a right to receive Parent
- ------
Common Stock pursuant to Section 1.6, but such Stockholder shall only be
entitled to such rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of subsection (a), if any holder of
shares of Company Capital Stock who demands appraisal of such shares under
Delaware Law shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the later of the Effective Time
and the occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive Parent Common Stock and
fractional shares as provided in Section 1.6, without interest thereon, upon
surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written demands
for appraisal of any shares of Company Capital Stock, withdrawals of such
demands, and any other instruments served pursuant to Delaware Law and received
by the Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under Delaware Law. The
Company shall not, except with the prior written consent of Parent, voluntarily
make any payment with respect to any demands for appraisal of capital stock of
the Company or offer to settle or settle any such demands.
1.8 Surrender of Certificates
(a) Exchange Agent. Prior to the Effective Time, Parent shall designate a
--------------
bank or trust company with assets of not less than $100 million to act as
exchange agent, or it may elect to act as its own exchange agent, in the Merger.
(Such bank or trust company, or the parent acting in such capacity, is referred
to herein as the "Exchange Agent".)
--------------
(b) Parent to Provide Common Stock. Promptly after the Effective Time,
------------------------------
Parent shall make available to the Exchange Agent for exchange in accordance
with this Article I, the aggregate number of shares of Parent Common Stock
(reduced by the Escrow Amount) issuable pursuant to Section 1.6 in exchange for
outstanding shares of Company Capital
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Stock. Parent shall simultaneously deposit the Escrow Amount pursuant to the
terms of the Escrow and Indemnification Agreement. The portion of the Escrow
Amount contributed on behalf of each holder of Company Capital Stock shall be in
proportion to the aggregate number of shares of Parent Common Stock which such
holder would otherwise be entitled to receive under Section 1.6 by virtue of
ownership of outstanding shares of Company Capital Stock.
(c) Exchange Procedures. Promptly after the Effective Time, the Surviving
-------------------
Corporation shall request the Exchange Agent to promptly mail to each holder of
record of a certificate or certificates (the "Certificates") which immediately
------------
prior to the Effective Time represented outstanding shares of Company Capital
Stock and which shares were converted into the right to receive shares of Parent
Common Stock pursuant to Section 1.6, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Parent
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Parent, 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 a certificate representing the
number of whole shares of Parent Common Stock (less the number of shares of
Parent Common Stock to be deposited on such holder's behalf pursuant to the
Escrow and Indemnification Agreement), plus cash in lieu of fractional shares in
accordance with Section 1.6, to which such holder is entitled pursuant to
Section 1.6, and the Certificate so surrendered shall forthwith be canceled.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
------------------------------------------------
other distributions with respect to Parent Common Stock declared or made after
the Effective Time and with a record date after the Effective Time will be paid
to the holder of any unsurrendered Certificate with respect to the shares of
Parent Common Stock represented thereby until the holder of record of such
Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole shares of Parent
Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent 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 Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent
-7-
<PAGE>
Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Parent 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 Section
------------
1.8, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to a holder of shares of Parent Common Stock or Company Capital
Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.9 No Further Ownership Rights in Company Common Stock
All shares of Parent Common Stock issued upon the surrender for exchange of
shares of Company Capital Stock in accordance with the terms hereof (including
any cash paid in respect thereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Capital Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Capital Stock after the close of
business on the day prior to the Closing Date.
1.10 Lost, Stolen or Destroyed Certificates
In the event any Certificates evidencing shares of Company Capital Stock
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 Parent Common Stock
and cash for fractional shares, if any, as may be required pursuant to Section
1.6; provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
1.11 Taking of Necessary Action; Further Action
If, at any time after the Effective Time, any such further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company and Merger
Sub, the officers and directors of the Company and Merger Sub are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
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<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SIGNIFICANT STOCKHOLDERS
The Company hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are specifically disclosed in the disclosure
letter (referencing the appropriate section number) supplied by the Company to
Parent (the "Company Schedules") and dated as of the date hereof, which Company
-----------------
Schedules shall constitute representations and warranties under this Article II,
as follows in this Article II. For purposes of this Article II, unless the
context clearly otherwise requires, all references to "the Company" shall
include a reference to the Subsidiary (as hereinafter defined).
2.1 Organization of the Company
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware. The Company is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have a material adverse effect on the business,
assets (including intangible assets), prospects, financial condition or results
of operations of the Company or otherwise would be materially burdensome to the
Company or business plans or proposed business plans of the Company (hereinafter
referred to as a, "Material Adverse Effect").
-----------------------
2.2 Company Capital Structure
(a) As of the date of this Agreement the authorized capital stock of the
Company consists of 17,000,000 shares of authorized Common Stock, of which
9,949,507 shares are issued and outstanding as of the date hereof, and 5,000,000
shares of authorized Series A Preferred Stock, of which 2,896,575 shares are
issued and outstanding as of the date hereof. The Company Capital Stock is held
of record and beneficially by the persons, with the addresses of record and in
the amounts set forth on Schedule 2.2(a). All outstanding shares of Company
Capital Stock (i) are duly authorized, validly issued, fully paid and non-
assessable; (ii) are not subject to preemptive rights created by statute, the
Certificate of Incorporation or Bylaws of the Company or any agreement to which
the Company is a party or by which it is bound; and (iii) were issued in
accordance with all applicable federal and state securities laws. There are no
voting trusts or other agreements or understandings to which the Company or, to
the Company's knowledge, any Stockholder is a party or by which the Company or
such Stockholder is bound.
(b) The Company has reserved 3,000,000 shares of Common Stock for issuance
to employees and consultants pursuant to the Option Plan, of which 2,309,813
shares are subject to outstanding, unexercised options as of the date hereof and
351,981 shares remain available for future grant as of the date hereof. Schedule
2.2(b) sets forth for each outstanding
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<PAGE>
Company Option the name of the holder of such option, the domicile address of
such holder, the number of shares of Common Stock subject to such option, the
exercise price of such option and the vesting schedule for such option,
including the extent vested to date and whether the exercisability of such
option will be accelerated and become exercisable by reason of the transactions
contemplated by this Agreement. Except for the Company Options described in
Schedule 2.2(b), there are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Company is a party or
by which it is bound obligating the Company to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. The holders
of Company Options have been or will be given, or shall have properly waived,
any required notice prior to the Merger, and all such rights will be terminated
at or prior to the Effective Time. As a result of the Merger, Parent will be the
record and sole beneficial owner of all capital stock of the Company and rights
to acquire or receive such capital stock.
2.3 Subsidiaries
Except for the Subsidiary, the Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture, limited liability company or other business entity. Schedule 2.3 lists
all outstanding securities of the Subsidiary, all of which are held by the
Company. The Subsidiary has never engaged in any trade or business.
2.4 Authority
The Company has the requisite corporate power and authority to own, operate
and lease its properties and assets and to carry on its business as now being
conducted. The Company has all requisite corporate power and authority to enter
into this Agreement and the other agreements to be entered into pursuant hereto
(the "Transaction Documents") and to perform its obligations hereunder and
---------------------
thereunder. This Agreement has been, and each of the Transaction Documents to
be delivered on the Closing will be, duly executed and delivered by the Company,
and this Agreement has been, and each of the Transaction Documents to which the
Company is a party will be on the Closing, duly authorized by all necessary
corporate action on the part of the Company. The Company's Board of Directors
has unanimously approved the Merger and this Agreement, and this Agreement and
the transactions contemplated hereby have been approved by all necessary action
by the Stockholders. This Agreement constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms.
-10-
<PAGE>
2.5 No Conflict
Except as set forth on Schedule 2.5, the execution and delivery of this
Agreement by the Company does not, and, as of the Effective Time, the
consummation of the transactions contemplated hereby will not
(i) Conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict") (x) any provision of the
--------
Certificate of Incorporation or Bylaws of the Company or (y) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or its properties or assets,
(ii) Require any consent, waiver, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other federal, state, county, local or foreign
governmental authority, instrumentality, agency or commission ("Governmental
------------
Entity") or any third party (so as not to trigger any Conflict), except for (x)
- ------
the filing of the Agreement of Merger with the Delaware Secretary of State, and
(y) such other consents, waivers, authorizations, filings, approvals and
registrations which are set forth on Schedule 2.5,
(iii) Result in the creation of any material lien or encumbrance on
the Company's assets or on the Company Capital Stock,
(iv) Invalidate or adversely affect any material permit, license,
authorization or status used in the conduct of the Company's business.
2.6 Company Financial Statements
Attached hereto as Schedule 2.6 are true and complete copies of (a) the
audited consolidated balance sheets as of December 31, 1997 and 1998 (the
"Balance Sheets") and the related audited consolidated statements of operations
- ---------------
and cash flows for the years then ended, and (b) an unaudited balance sheet (the
"Company February Balance Sheet") and statements of income, shareholders' equity
------------------------------
and cash flows of the Company as of and for each of the months ended January 31,
1999 and February 28, 1999. All the foregoing financial statements are herein
referred to as the "Company Financials". The Company Financials are correct in
------------------
all material respects and have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a basis consistent throughout
----
the periods indicated and consistent with each other, except that the unaudited
monthly financial statements do not include notes and are subject to normal
year-end adjustments. The Company Financials present fairly the financial
condition and operating results of the Company as of the dates and during the
periods indicated therein. The Company has no liability or obligations of any
nature (absolute, contingent, or otherwise) that is not fully
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<PAGE>
reflected or reserved against in the Company February Balance Sheet, except for
liabilities reserved against or obligations incurred since the date of the
Company February Balance Sheet in the ordinary course of business and consistent
with past practice and not in excess of $25,000 individually.
2.7 No Undisclosed Liabilities
Except as set forth in Schedule 2.7, the Company does not have any
liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, contingent, matured,
unmatured or other (whether or not required to be reflected in financial
statements in accordance with GAAP), which individually or in the aggregate, (i)
has not been reflected in the Company February Balance Sheet, or (ii) has not
arisen in the ordinary course of the Company's business since the date of the
Company February Balance Sheet, consistent with past practices and not in excess
of $25,000 individually.The Company has provided Parent with a list of
outstanding accounts payable as of March 31, 1999.
2.8 No Changes
Except as set forth in Schedule 2.8, since December 31, 1998, there has not
been, occurred or arisen any:
(a) transaction, agreement or commitment by the Company (other than this
Agreement) except in the ordinary course of business and consistent with past
practices;
(b) amendments or changes to the Certificate of Incorporation or Bylaws of
the Company;
(c) capital expenditure, borrowing, agreement to borrow or commitment by
the Company (whether absolute, contingent or otherwise), either individually or
in the aggregate, exceeding $50,000;
(d) adverse change in, destruction of, damage to or loss of any material
assets, working capital, business or customer of the Company (whether or not
covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(f) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or
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<PAGE>
other acquisition by the Company of any of its capital stock or any split,
combination, subdivision or reclassification of any share of its capital stock;
(i) increase in the salary or other compensation payable or to become
payable to any of the Company's officers, directors, employees or advisors, or
the declaration, payment or commitment or obligation of any kind for the payment
of a bonus or other additional salary or compensation to any such person except
as otherwise contemplated by this Agreement;
(j) sale, lease, license or other disposition of any of the assets or
properties of the Company, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(k) amendment or termination of any material contract, agreement or license
to which the Company is a party or by which it is bound;
(l) loan by the Company to any person or entity, incurring by the Company
of any indebtedness, guaranteeing by the Company of any indebtedness, issuance
or sale of any debt securities of the Company or guaranteeing of any debt
securities of others, except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practices;
(m) forgiveness or cancellation any indebtedness or waiver or release of
any right or claim of the Company, including any write-off or other compromise
of any account receivable of the Company exceeding $25,000;
(n) commencement or notice or threat of commencement of any lawsuit or
proceeding against or investigation of the Company, or its affairs;
(o) notice of any claim of ownership by a third party of the Company
Technology or the IP Rights or of infringement by the Company of any third
party's intellectual property or proprietary rights or disposition or lapse of
any rights to use any of the IP Rights or disclosure of the Technology or IP
Rights to a third party (other than to a representative of Parent pursuant to
appropriate confidentiality provisions);
(p) issuance or sale by the Company of any of its shares of capital stock,
or securities exchangeable, convertible or exercisable therefor, or of any other
of its securities;
(q) change in pricing or royalties set or charged by the Company to its
customers or licensees or in pricing or royalties set or charged by persons who
have entered into Third Party Licenses with the Company;
(r) any mortgage, pledge, lien, security interest, encumbrance, restriction
or charge to which any of the Company's property or assets (whether real,
personal or mixed, tangible or intangible) became subject, except for (i)
assessments for current taxes not yet due
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<PAGE>
and payable, (ii) landlord's liens for rental payments and other lease-related
performance incurred in the ordinary course of business and not yet due and
payable, and (iii) mechanics', materialmen's, carriers' and other similar liens
securing indebtedness that is in the aggregate less than $10,000, was incurred
in the ordinary course of business and is not yet due and payable;
(s) writedown of any inventory or write-off as uncollectible any notes or
accounts receivable, except for write-downs and write-offs that are in the
aggregate less than $25,000, and were incurred in the ordinary course of
business and consistent with past practice;
(t) paid, loaned or advanced any amount to, or sold, transferred or leased
any properties or assets (whether real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any
Stockholder or any of its officers or directors or any affiliate of any
Stockholder or any of its officers or directors, except for salary commission,
ordinary course incentive compensation payments, and expense reimbursement
payments to employees in the ordinary course of business;
(u) event or condition of any character that has or could be reasonably
expected to have a Material Adverse Effect on the Company; or
(v) negotiation or agreement by the Company, or any officer or employees
thereof to do any of the things described in this Section 2.8 (other than
negotiations with Parent and its representatives regarding the transactions
contemplated by this Agreement).
2.9 Tax and Other Returns and Reports
(a) Definition of Taxes; Returns. For the purposes of this Agreement, (i)
----------------------------
"Tax" or, collectively, "Taxes", means any and all federal, state, local and
--- -----
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity, and "Return" means any return, declaration,
------
report, claim or refund, information return, statement, or other similar
document relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.9:
----------------------
(i) All Returns required to be filed by or on behalf of the Company
have been or will be filed on a timely basis with the appropriate Governmental
Entities in all jurisdictions in which such Returns are required to be filed,
and all such Returns were true, correct and complete in all respects;
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<PAGE>
(ii) All Taxes of the Company (whether or not reflected on any
Return) have been fully and timely paid;
(iii) No waivers of statutes of limitation have been given or
requested with respect to the Company in connection with any Returns;
(iv) The Company has duly and timely withheld from employee salaries,
wages and other compensation and paid over to the appropriate Governmental
Entities all amounts required to be so withheld and paid over for all periods
under all applicable laws.
(v) All deficiencies asserted or assessments made as a result of any
examinations by the Internal Revenue Service (the "IRS") or any other
---
Governmental Entity of the federal, foreign, state and local Tax Returns of or
covering the Company have been fully paid, and there are no other unpaid
deficiencies asserted or assessments made by any Governmental Entity against the
Company, there are no audits or investigations by any Governmental Entity in
progress (of which the Company has received notice) or, to the knowledge of the
Company, pending.
(vi) No audit or other examination of any Return of the Company is
currently in progress, nor has the Company been notified of any request for such
an audit or other examination. No claim has been made by a Governmental Entity
in a jurisdiction where the Company does not file Tax Returns that the Company
is or may be subject to taxation by that jurisdiction.
(vii) Neither the Company nor any other person on behalf of the
Company: (A) has filed a consent pursuant to Section 341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code)
owned by the Company; (B) has executed or entered into a closing agreement
pursuant to Section 7121 of the Code or any predecessor provision thereof or any
similar provision of state, local or foreign law; or (C) has agreed to or is
required to make any adjustments pursuant to Section 481(a) of the Code (and has
filed a Form 3115) or any similar provision of state, local or foreign law by
reason of a change in accounting method initiated by the Company or has notice
that a Governmental Entity has proposed any such adjustment or change in
accounting method.
(viii) The Company has provided to Parent copies of all federal and
state income and all state sales and use Tax Returns for all periods since the
dates of the Company's and the Subsidiary's incorporation.
(ix) There are (and as of immediately following the Effective Date
there will be) no liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("Liens") on the assets of the Company relating to or
-----
attributable to Taxes.
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<PAGE>
(x) The Company has no knowledge of any basis for the assertion of
any claim relating or attributable to Taxes which, if adversely determined,
would result in any Lien on the assets of the Company.
(xi) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(xii) As of the Effective Time, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions of
this Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Section 280G or 162 of the Code.
(xiii) The Company is not a party to a tax sharing or allocation
agreement nor does the Company owe any amount under any such agreement. The
Company (i) has not been a member of an affiliated group filing a consolidated
income tax Return under Section 1501 of the Code (or any similar provision of
state, local or foreign law) other than the affiliated group of which the
Company is the common parent, and (ii) has no liability for Taxes of any person
under Treasury Regulations (S) 1.1502-6 (or any similar provision of state,
local or foreign law) as a transferee or successor by contract or otherwise.
(xiv) The unpaid taxes of the Company (A) did not, as of February 28,
1999, exceed the reserve for tax liability set forth on the face (rather than
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) of the Company February Balance Sheet; and (B) do not
exceed that reserve as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of the Company in filing
Returns.
(xv) The Company is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
2.10 Restrictions on Business Activities
There is no agreement (noncompete or otherwise), commitment, judgment,
injunction, order or decree to which the Company is a party or otherwise binding
upon the Company which has or reasonably could be expected to have the effect of
prohibiting or impairing any business practice of the Company, any acquisition
of property (tangible or intangible) by the Company or the conduct of business
by the Company. Without limiting the foregoing, the Company has not entered
into any agreement under which the Company is restricted from selling, licensing
or otherwise distributing any of its products to any class of customers, in any
geographic area, during any period of time or in any segment of the market.
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<PAGE>
2.11 Title to Properties; Absence of Liens and Encumbrances
(a) The Company owns no real property, nor has it ever owned any real
property, other than the leasehold interest described herein. Schedule 2.11(a)
sets forth a list of all real property currently leased, rented or used by the
Company (the "Real Property"), the name of the lessor or owner, the date of any
-------------
lease and each amendment thereto and, with respect to any current lease, the
aggregate annual rental and/or other fees payable under any such lease during
the remaining term of such lease. All such current leases are in full force and
effect, are valid and effective in accordance with their respective terms and
binding against the parties thereto and, to the Company's knowledge, against all
other persons with an interest in such Real Property, and there is not, under
any of such leases, any existing default or event of default (or event which
with notice or lapse of time, or both, would constitute a default). Except as
set forth on Schedule 2.11(a), no consent is required from any person under any
lease of the Real Property in connection with the consummation of the
transactions contemplated hereby, and the Company has not received notice that
any party to any such lease intends to cancel, terminate or refuse to renew the
same or to exercise or decline to exercise any option or other right thereunder.
The Company has not granted any lease, sublease, tenancy or license of, or
entered into any rental agreement or contract of sale with respect to, any
portion of the Real Property.
(b) The Company has provided to Parent a complete and accurate list of
each item of tangible personal property that it owns, leases, rents or uses (the
"Personal Property") having a value in excess of $500, provided that such list
- ------------------
need not describe the Technology or the IP Rights. The Company has delivered to
Parent true and complete copies of all leases, subleases, rental agreements,
contracts of sale, tenancies or licenses of any portion of the Personal
Property. The Real Property and the Personal Property include all tangible
properties and assets (whether real, personal or mixed) (other than, in the case
of the Personal Property, property rights with an individual value of less than
$500) reflected in the Company February Balance Sheet and all properties and
assets purchased by the Company since the date of the Company February Balance
Sheet through March 31, 1999 (except for such properties or assets sold since
the date of the Company February Balance Sheet in the ordinary course of
business and consistent with past practice). The Real Property and the Personal
Property include all property used in the Company's business as presently
conducted; provided, however, that for the Personal Property, this
representation is only made with respect to property having an individual value
in excess of $500. The Company has not disposed of any material Personal
Property since March 31, 1999.
(c) The Company's leasehold improvements and Personal Property are in good
operating condition and repair (at a level consistent with industry standards,
normal wear and tear excepted), are adequate for the uses to which they are
being put and, to the Company's knowledge, comply with applicable safety and
other laws and regulations.
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<PAGE>
(d) Except for (i) assessments for current Taxes not yet due and payable,
(ii) landlord's liens for rental payments and other lease-related performance in
respect of the Real Property incurred in the ordinary course of business and not
yet due and payable, and (iii) mechanics', materialmen's, carriers' and other
similar liens securing indebtedness that is in the aggregate less than $10,000,
was incurred in the ordinary course of business and is not yet due and payable,
the Personal Property is free and clear of all liens, and, other than leased
Personal Property that is so noted on the list supplied pursuant to paragraph
(b) of this Section 2.11, the Company owns such Personal Property.
(e) Each lease, license, rental agreement, contract of sale or other
agreement to which the Personal Property is subject is valid, binding and
enforceable in accordance with its terms against the parties thereto, the
Company has performed all obligations imposed on it thereunder and neither the
Company nor, to the Company's knowledge, any other party thereto is in default
thereunder, nor is there any event that with the giving of notice or lapse of
time, or both, would constitute a default thereunder. No consent is required
from the owner or lessor under any lease of Personal Property in connection with
the consummation of the transactions contemplated hereby, and the Company has
not received notice that any party to any such lease, license, rental agreement,
contract of sale or other agreement intends to cancel, terminate or refuse to
renew the same or to exercise or decline to exercise any option or other right
thereunder. The Company has not granted any leases, subleases, tenancies or
licenses of any portion of the Personal Property.
(f) Neither the whole nor any portion of the leaseholds or any other assets
or property of the Company is subject to any currently outstanding governmental
decree or order to be sold or is being condemned, expropriated or otherwise
taken by any public authority with or without payment of compensation therefor
nor, to the Company's knowledge, has any such condemnation, expropriation or
taking been proposed.
2.12 Intellectual Property
(a) General. The Company owns or has licensed and has all rights required
-------
to conduct its business as now conducted and as proposed to be conducted in and
to the following: (i) all products, tools, computer programs, specifications,
source code, object code, graphics, devices, techniques, algorithms, methods,
processes, procedures, packaging, trade dress, formulas, drawings, designs,
improvements, discoveries, concepts, user interfaces, "look and feel," software,
development and other tools, content, inventions (whether or not patentable or
copyrightable and whether or not reduced to practice), designs, logos, themes,
know-how, concepts and other technology that are currently produced, used,
marketed, sold or under development by the Company (collectively, the
"Technology-Related Assets"); and (ii) all intellectual property and other
- --------------------------
proprietary rights in the Technology-Related Assets, including, without
limitation, all domain names, trade secrets, copyrights, and domestic and
foreign letters patent, and the registrations, applications, renewals,
extensions and continuations (in whole or in part) thereof, all goodwill
associated therewith, and all rights
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<PAGE>
and causes of action for infringement, misappropriation, misuse, dilution or
unfair trade practices associated therewith.
(b) Technology. Schedule 2.12(b) sets forth a list of all products and
----------
tools developed, produced, used, marketed or sold by the Company during the two
years prior to the date of this Agreement, together with all prior versions,
predecessors or precursors to such products or tools (collectively, the
"Products"). Except for the Third Party Technologies (as defined in Section
- ---------
2.12(c) hereof), the Company owns all right, title and interest in and to the
following (collectively, the "Technology"), free and clear of all encumbrances:
----------
(i) the Products, together with any and all codes, techniques, software tools,
formats, designs, user interfaces, content and "look and feel" related thereto;
(ii) any and all updates, enhancements, corrections, modifications, improvements
and new releases related to the items set forth in clause (i) above; (iii) any
and all technology and work in progress related to the items set forth in
clauses (i) and (ii) above; and (iv) all inventions, discoveries, processes,
designs, trade secrets, know-how and other confidential or proprietary
information related to the items set forth in clauses (i), (ii) and (iii) above.
The Technology, excluding the Third Party Technologies, is sometimes referred to
herein as the "Company Technology."
------------------
(c) Third Party Technology. Schedule 2.12(c) sets forth a list of all
----------------------
Technology used in the Company's business for which the Company does not own all
right, title and interest (collectively, the "Third Party Technologies"), and
------------------------
all license agreements or other contracts pursuant to which the Company has the
right to use (in the manner used by the Company, or intended or necessary for
use with the Company Technology) the Third Party Technologies (the "Third Party
-----------
Licenses"), indicating, with respect to each of the Third Party Technologies
- --------
listed therein, the owner thereof and the Third Party License applicable
thereto. The Company has the lawful right to use (free of any material
restriction) (i) all Third Party Technology that is incorporated in or used in
the development or production of the Company Technology, and (ii) all other
Third Party Technology necessary for the conduct of the Company's business as
now conducted and as proposed to be conducted. All Third Party Licenses are
valid, binding and in full force and effect, the Company and, to the Company's
knowledge, each other party thereto have performed in all material respects
their obligations thereunder, and neither the Company nor, to the Company's
knowledge, any other party thereto is in default thereunder, nor to the
Company's knowledge has there occurred any event or circumstance that with
notice or lapse of time or both would constitute a default or event of default
on the part of the Company or, to the Company's knowledge, any other party
thereto or give to any other party thereto the right to terminate or modify any
Third Party License. The Company has not received notice that any party to any
Third Party License intends to cancel, terminate or refuse to renew such Third
Party License or to exercise or decline to exercise any right thereunder.
(d) Trademarks. Schedule 2.12(d) sets forth a list of all trademarks,
----------
trade names, brand names, service marks, logos or other identifiers for the
Products or otherwise used by the Company in its business (the "Marks"). To the
-----
best of its knowledge, the Company has
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<PAGE>
full legal and beneficial ownership, free and clear of any encumbrances, of all
rights conferred by use of the Marks in connection with the Products or
otherwise in the Company's business and, as to those Marks that have been
registered in the United States Patent and Trademark Office, by federal
registration of the Marks.
(e) Intellectual Property Rights. Schedule 2.12(e) sets forth all patents,
----------------------------
patent applications, copyright registrations (and applications therefor) and
trademark registrations (and applications therefor) (collectively, the "IP
--
Registrations") associated with the Company Technology and the Marks. The
- -------------
Company owns all right, title and interest, free and clear of any encumbrances,
in and to the IP Registrations, together with any other rights in or to any
copyrights (registered or unregistered), rights in the Marks (registered or
unregistered), trade secret rights and other intellectual property rights
(including, without limitation, rights of enforcement) contained or embodied in
the Company Technology and the Marks (collectively, the "IP Rights").
---------
(f) Maintenance of Rights. Except as set forth on Schedule 2.12(f), the
---------------------
Company has not conducted its business, and has not used or enforced (or, to its
knowledge, failed to use or enforce) the IP Rights, in a manner that would
result in the abandonment, cancellation or unenforceability of any item of the
IP Rights or the IP Registrations, and the Company has not taken (or, to its
knowledge, failed to take) any action that would result in the forfeiture or
relinquishment of any IP Rights or IP Registrations, in each case where such
abandonment, cancellation, unenforceability, forfeiture or relinquishment would
have a Material Adverse Effect. Except as set forth on Schedule 2.12(f), the
Company has not granted to any third party any rights or permissions to use any
of the Technology or the IP Rights. To the best of the Company's knowledge,
except pursuant to reasonably prudent safeguards, (i) no third party has
received any confidential information relating to the Technology or the IP
Rights and (ii) the Company is not under any contractual or other obligation to
disclose to any third party any Company Technology.
(g) Third Party Infringement. Except as set forth on Schedule 2.12(g), (i)
------------------------
the Company has not received any notice or claim (whether written, oral or
otherwise) challenging the Company's ownership or rights in the Company
Technology or the IP Rights or claiming that any other person or entity has any
legal or beneficial ownership with respect thereto; (ii) all the IP Rights are
legally valid and enforceable without any material qualification, limitation or
restriction on their use, and the Company has not received any notice or claim
(whether written, oral or otherwise) challenging the validity or enforceability
of any of the IP Rights; and (iii) to the Company's knowledge, no other person
or entity is infringing or misappropriating any part of the IP Rights or
otherwise making any unauthorized use of the Company Technology.
(h) Infringement by the Company. Except as set forth on Schedule 2.12(h),
---------------------------
(i) the use of any of the Technology in the Company's business does not and will
not infringe, violate or interfere with or constitute an appropriation of any
right, title or interest (including, without
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<PAGE>
limitation, any patent, copyright or trade secret right) held by any other
person or entity, and there have been no claims made with respect thereto; (ii)
the use of any of the Marks and other IP Rights in the Company's business will
not infringe, violate or interfere with or constitute an appropriation of any
right, title or interest (including, without limitation, any patent, copyright,
trademark or trade secret right) held by any other person or entity, and there
have been no claims made with respect thereto; and (iii) the Company has not
received any notice or claim (whether written, oral or otherwise) regarding any
infringement misappropriation, misuse, abuse or other interference with any
third party intellectual property or proprietary rights (including, without
limitation, infringement of any patent, copyright, trademark or trade secret
right of any third party) by the Company, the Technology or the Marks or other
IP Rights or claiming that any other entity has any claim of infringement with
respect thereto.
(i) Confidentiality. Except as set forth on Schedule 2.12(i), (i) the
---------------
Company has not disclosed any source code regarding the Technology to any person
or entity other than an employee of the Company and under a written
nondisclosure agreement; (ii) the Company has at all times maintained and
diligently enforced commercially reasonable procedures to protect all
confidential information relating to the Technology, including requiring every
employee and consultant to execute a confidentiality and proprietary information
agreement; (iii) neither the Company nor any escrow agent is under any
contractual or other obligation to disclose the source code or any other
proprietary information included in or relating to the Technology; and (iv) the
Company has not deposited any source code relating to the Technology into any
source code escrows or similar arrangements. If, as set forth on Schedule
2.12(i), the Company has deposited any source code to the Technology into source
code escrows or similar arrangements, no event has occurred that has formed or
could reasonably form the basis for a release of such source code from such
escrows or arrangements.
(j) Warranty Against Defects. Except as set forth on Schedule 2.12(j), the
------------------------
Technology is free from known material defects and substantially conforms to the
applicable specifications, documentation and samples of such Technology.
(k) Domain Names. Schedule 2.12(k) sets forth a list of all Internet
------------
domain names used by the Company in its business (collectively, the "Domain
------
Names"). The Company has, and after the Closing the Surviving Corporation will
- -----
have, a valid registration and all material rights (free of any material
restriction) in and to the Domain Names, including, without limitation, all
rights necessary to continue to conduct the Company's business as it is
currently conducted.
2.13 Agreements, Contracts and Commitments
(a) Contracts. Schedule 2.13(a) contains a complete and accurate list of
---------
all contracts, oral or written, to which the Company is a party or by which the
Company is bound, including, without limitation, security agreements,
instruments relating to the borrowing of money, inventory purchase commitments
and broker or distributorship agreements other than (a) purchase orders received
by the Company from its customers or
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<PAGE>
issued by the Company to its suppliers and vendors in the ordinary course of
business involving less than $10,000 or (b) other contracts cancelable within 90
days without penalty and involving less than $10,000 (such agreements,
collectively, "Contracts"). True and complete copies of each Contract have been
delivered to Parent. Except as set forth on Schedule 2.13(a), the Company does
not have, is not a party to nor is it bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance pay or
post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or any consulting or
sales agreement, contract or commitment under which any firm or other
organization provides services to the Company,
(v) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value individually in
excess of $25,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business anywhere
in the world or to compete with any person,
(x) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $25,000,
(xi) any agreement, contract or commitment relating to the disposition
or acquisition of assets or any interest in any business enterprise outside the
ordinary course of the Company's business,
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<PAGE>
(xii) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit, including guaranties referred to in clause (viii)
hereof,
(xiii) any purchase order or contract for the purchase of raw
materials involving $25,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development agreement,
(xvi) any agreement pursuant to which the Company has granted or may
grant in the future, to any party, a source-code license or option or other
right to use or acquire source-code,
(xvii) any noncompetition or nonsolicitation agreement with any
employee or other third party, or
(xviii) any other agreement, contract or commitment that involves
$25,000 or more or is not cancelable without penalty within thirty (30) days.
(b) No Breach. Except for such alleged breaches, violations and defaults,
----------
and events that would constitute a breach, violation or default with the lapse
of time, giving of notice, or both, as are all noted in Schedule 2.13(b), the
Company has performed all material obligations imposed under each Contract and
has not breached, violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the terms or conditions of any
Contract. Each Contract is in full force and effect and, except as otherwise
disclosed in Schedule 2.13(b), is binding upon each party thereto in accordance
with its terms, is in full force and effect, is not subject to any default
thereunder of which the Company has knowledge by any party obligated to the
Company pursuant thereto.
2.14 Interested Party Transactions
Except as set forth on Schedule 2.14, no officer, director or stockholder
of the Company (nor any ancestor, sibling, descendant or spouse of any of such
persons, or any trust, partnership or corporation in which any of such persons
has or has had an interest) (an "Interested Party"), has or has had, directly or
----------------
indirectly, (i) an economic interest in any entity which furnished or sold, or
furnishes or sells, services or products that the Company furnishes or sells, or
proposes to furnish or sell, (ii) an economic interest in any entity that
purchases from or sells or furnishes to, the Company, any goods or services or
(iii) a beneficial interest in any contract or agreement set forth in Schedule
2.13(a) or Schedule 2.12(c); provided, that ownership of no more than one
percent (1%) of the outstanding voting stock of a publicly traded corporation
shall not be deemed an "economic interest in any entity" for purposes of this
Section 2.14. No Interested Party has any interest (other than as a shareholder
of the
-23-
<PAGE>
Company) in (a) any property, real or personal, tangible or intangible, used in
or directly pertaining to the Company's business, including, without limitation,
inventions, patents, trademarks, software or trade names, or (b) any agreement,
contract, arrangement or obligation relating to the Company, its present or
prospective business or its operations. None of the Stockholders is indebted to
the Company, and the Company is not indebted to any Stockholder, except for
indebtedness relating to compensation for employment, including salary and
benefits, incurred and payable by the Company in the normal course of business.
2.15 Compliance with Laws
The Company has complied in all material respects with, are not in material
violation of, and have not received any notices of violation with respect to,
any foreign, federal, state or local statute, law or regulation.
2.16 Litigation
Except as set forth in Schedule 2.16, there is no claim, action, suit,
arbitration, investigation or proceeding of any nature pending or, to the
Company's knowledge, threatened against the Company, its properties or any of
its officers or directors, in their respective capacities as such. To the
Company's knowledge, there is no valid basis for any claim, action, suit,
arbitration, investigation or proceeding of any nature before or by any person
which could reasonably be expected to have a Material Adverse Effect. Except as
set forth in Schedule 2.16, to the Company's knowledge, there is no
investigation pending or threatened against the Company , its properties or any
of its officers or directors by or before any Governmental Entity or
nongovernmental department, commission, board, bureau, agency or instrumentality
or other person. Schedule 2.16 sets forth, with respect to any pending or
threatened action, suit, proceeding or investigation, the forum, the parties
thereto, the subject matter thereof and the amount of damages claimed or other
remedy requested. No Governmental Entity has at any time challenged or
questioned the legal right of the Company to manufacture, offer or sell any of
its products in the present manner or style thereof. There are no outstanding
or unsatisfied judgments, orders, decrees or stipulations to which the Company
is a party.
2.17 Insurance
The Company maintains (a) insurance on all of its property (including
leased premises) that insures against loss or damage by fire or other casualty
(including extended coverage) and (b) insurance against liabilities, claims and
risks of a nature and in such amounts as are normal and customary in the
computer software industry. Schedule 2.17 sets forth as to all such policies of
insurance, or binders therefor, of the Company:
(i) the broker's name, address and telephone number and the insurer's
name;
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<PAGE>
(ii) the policy number, amount, expiration date and deductible or
retention amount; and
(iii) material exceptions to each such policy.
All such policies or binders set forth on Schedule 2.17 are in full force
and effect, and all premiums with respect thereto covering all periods up to and
including the date this representation is made have been paid, and the Company
is otherwise in compliance with the terms of such policies. Such policies or
binders are sufficient for compliance with all requirements of law currently
applicable to the Company and of all agreements to which the Company is a party,
will remain in full force and effect through the respective expiration dates set
forth on Schedule 2.17 without the payment of additional premiums and will not
in any way be affected by, or terminate or lapse by reason of, the transactions
contemplated hereby. There is no claim by the Company 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. The Company has no knowledge of
any threatened termination or cancellation of or material premium increase with
respect to any of such policies.
2.18 Corporate Books and Records
The Company has furnished to Parent or its representatives for their
examination true and complete copies of its (a) Certificate of Incorporation and
Bylaws, including all amendments thereto, (b) minute books, and (c) stock
transfer books.
2.19 Environmental Matters
(a) Hazardous Material. The Company has not operated any underground
------------------
storage tanks, and has no knowledge of the existence, at any time, of any
underground storage tank (or related piping or pumps), at any property that the
Company has at any time owned, operated, occupied or leased. The Company has
not released any amount of any substance that has been designated by any
Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, oil and petroleum
products, urea-formaldehyde and all substances listed as a "hazardous
substance," "hazardous waste," "hazardous material" or "toxic substance" or
words of similar import, under any law, including but not limited to, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended; the Resource Conservation and Recovery Act of 1976, as amended; the
Federal Water Pollution Control Act, as amended; the Clean Air Act, as amended,
and the regulations promulgated pursuant to said laws, (a "Hazardous Material").
------------------
No Hazardous Materials are present as a result of the actions or omissions of
the Company, or, to the Company's knowledge, as a result of any actions of any
third party or otherwise, in, on or under any property, including the land and
the improvements, ground water and surface water thereof, that the Company has
at any time owned, operated, occupied or leased.
-25-
<PAGE>
(b) Hazardous Materials Activities. The Company has not transported,
------------------------------
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Effective Time, nor has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "Hazardous Materials Activities") in
------------------------------
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental approvals,
-------
permits, licenses, clearances and consents (the "Environmental Permits")
---------------------
necessary for the conduct of the Company's Hazardous Material Activities and
other businesses of the Company as such activities and businesses are currently
being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company. The Company is not
aware of any fact or circumstance which could involve the Company in any
environmental litigation or impose upon the Company any environmental liability.
2.20 Brokers' and Finders' Fees; Third Party Expenses
Except as set forth on Schedule 2.20, the Company has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby. Schedule 2.20 sets forth the
principal terms and conditions of any agreement, written or oral, with respect
to such fees. Schedule 2.20 also sets forth the Company's current reasonable
estimate of all Third Party Expenses (as defined in Section 5.4) expected to be
incurred by the Company in connection with the negotiation and effectuation of
the terms and conditions of this Agreement and the transactions contemplated
hereby.
2.21 Employee Matters and Benefit Plans
(a) Definitions. With the exception of the definition of "Affiliate" set
-----------
forth in Section 2.21(a)(i) below (which definition shall apply only to this
Section 2.21), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity that must be
---------
aggregated with the Company under Section 414(b), (c), (m) or (o) of the Code
and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended;
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<PAGE>
(iii) "Company Employee Plan" shall refer to any retirement, pension,
---------------------
profit sharing, deferred compensation, savings, bonus, incentive, cafeteria,
flexible benefits, medical, dental, vision, hospitalization, life insurance,
dependent care assistance, tuition reimbursement, disability, sick pay, holiday,
vacation, severance, stock purchase, stock option, stock appreciation rights,
change of control, fringe benefit and other employee benefit plans, funds,
policies, programs, contracts, arrangements or practices (including, without
limitation, each "employee benefit plan," as defined in Section 3(3) of ERISA)
and each employment or consulting contract or agreement, whether formal or
informal, whether written or unwritten and whether legally binding or not, (A)
sponsored, maintained or contributed to by the Company or any Affiliate (B)
covering or benefiting any Employee (as defined below) or any dependent or
beneficiary of any such Employee or (C) with respect to which either the Company
or any Affiliate has, or could have, any actual or potential obligation or
liability;
(iv) "Employee" shall mean any current, former or retired employee,
--------
officer, agent, independent contractor or director of the Company or any
Affiliate;
(v) "Employee Agreement" shall refer to each management, employment,
------------------
personal service, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or similar agreement or contract between the Company or any
Affiliate and any Employee;
(vi) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
------------------
below) which is a "multiemployer plan", as defined in Section 3(37) or
4001(a)(3) of ERISA; and
(vii) "Pension Plan" shall refer to each Company Employee Plan which
------------
is an "employee pension benefit plan", within the meaning of Section 3(2) of
ERISA.
(b) Schedule. Schedule 2.21(b) contains an accurate and complete list of
--------
all Company Employee Plans and Employee Agreements, together with a schedule of
all liabilities, whether or not accrued, under each such Company Employee Plan
or Employee Agreement. The Company does not have any plan or commitment,
whether legally binding or not, to establish any new Company Employee Plan or
Employee Agreement, to modify or amend any Company Employee Plan or Employee
Agreement (except to the extent required by law or to conform any such Company
Employee Plan or Employee Agreement to the requirements of any applicable law,
in each case as previously disclosed to Parent in writing, or as required by
this Agreement), or to enter into any Company Employee Plan or Employee
Agreement, nor does it have any intention or commitment to do any of the
foregoing.
(c) Documents. The Company has provided to Parent (i) correct and complete
---------
copies of all documents embodying or relating to each Company Employee Plan and
each Employee Agreement including all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three most recent annual
reports (Series 5500 and all schedules thereto), if any,
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<PAGE>
required under ERISA or the Code in connection with each Company Employee Plan
or related trust; (iv) if the Company Employee Plan is funded, the trust
agreement related thereto and the most recent annual and periodic accounting of
Company Employee Plan assets; (v) the most recent summary plan description
together with any summaries of material modifications and summary annual
reports, with respect to each Company Employee Plan; (vi) all IRS determination
letters and rulings relating to Company Employee Plans and copies of all
applications and correspondence to or from the IRS or the U.S. Department of
Labor ("DOL") with respect to any Company Employee Plan; (vii) all
---
communications material to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to the Company or any Affiliate; (viii)
all registration statements and prospectuses prepared in connection with each
Company Employee Plan; and (ix) copies of all contracts (and any amendments
thereto) relating to each Company Employee Plan, including, without limitation,
service provider agreements, insurance policies, investment management
agreements and recordkeeping agreements.
(d) Company Employee Plan Compliance. Except as set forth on Schedule
--------------------------------
2.21(d), (i) the Company has performed in all material respects all obligations
required to be performed by it under each Company Employee Plan, and each
Company Employee Plan is, and at all times since inception has been,
established, maintained, administered, operated and funded in all material
respects in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA and the Code; (ii) no "prohibited transaction", within the meaning of
Section 4975 of the Code or Section 406 or 407 of ERISA, has occurred with
respect to any Company Employee Plan; (iii) there are no actions, suits or
claims pending, or, to the knowledge of the Company, threatened or anticipated
(other than routine claims for benefits) against, or with respect to, any
Company Employee Plan or against the assets of any Company Employee Plan; and
(iv) each Company Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time and at any time in accordance with its
terms, without liability to the Company, Parent or any of their respective
Affiliates (other than ordinary administration expenses typically incurred in a
termination event); (v) neither the Company, any Affiliate or any fiduciary of
any Company Employee Plan has engaged in any transaction or acted or failed to
act in any manner that violated the fiduciary requirements of ERISA; (vi) there
are no inquiries or proceedings pending or, to the knowledge of the Company or
any Affiliate, threatened by the IRS or DOL with respect to any Company Employee
Plan; and (vii) neither the Company nor any Affiliate is subject to any penalty
or tax with respect to any Company Employee Plan under Section 502(c), 502(i) or
502(1) of ERISA or Chapter 43 of Subtitle D of the Code.
(e) Pension Plans. The Company and its Affiliates do not now, nor have
-------------
they ever, maintained, established, sponsored, participated in, or contributed
to, any Pension Plan
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<PAGE>
which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA
or Section 412 of the Code or which is a "multiple employer plan" (within the
----------------------
meaning of Section 4063 or 4064 of ERISA.
(f) Multiemployer Plans. At no time has the Company or any Affiliate
-------------------
maintained, established, sponsored, participated in, contributed to or been
requested to contribute to any Multiemployer Plan.
(g) Qualified Pension Plans. Each Pension Plan that is intended to be
-----------------------
qualified under Section 401(a) of the Code is, and at all times since its
inception has been, so qualified and its related trust is, and at all times
since its inception has been, exempt from taxation under Section 501(a) of the
Code, and each such Pension Plan is the subject of an unrevoked favorable
determination letter from the IRS to that effect. Nothing has occurred, and no
circumstances exist, or are reasonably expected by the Company or any Affiliate
to occur, that could cause (i) such Pension Plan to lose its tax-qualified
status, (ii) the IRS to revoke the most recent determination letter issued with
respect to such Pension Plan or (iii) the Company, any Affiliate or such Pension
Plan to lose its ability to rely on such determination letter.
(h) Health Care Continuation Coverage. Each "group health plan," as
---------------------------------
defined in Section 607(1) or 733(a)(1) of ERISA or Section 4980B(g)(2) of the
Code, that is (or was) sponsored, maintained, provided or contributed to by the
Company or any Affiliate (or any employees of any of the foregoing, or their
dependents) has been maintained, administered and operated at all times since
its inception in compliance with the requirements of Parts 6 and 7 of Subtitle B
of Title I of ERISA, Section 4980B(f) of the Code, and any other requirements
under any applicable law regarding the provision or continuation of health
insurance coverage or other "welfare benefit plans" (within the meaning of
Section 3(1) of ERISA).
(i) Company Employee Plan Payments. All contributions, premiums and other
------------------------------
payments due or required to be made to, or with respect to, each Company
Employee Plan under the terms of such Company Employee Plan or pursuant to ERISA
or the Code have been made on or before their due dates in accordance with the
terms of such Employee Plan, ERISA or the Code, and, if not yet due, will be
properly accrued and disclosed on the books of the Company or any Affiliate, as
applicable, prior to the Closing.
(j) No Post-Employment Obligations. Except as set forth in Schedule
---------------------------------
2.21(j), no Company Employee Plan provides or contributes to, or has any
liability to provide or contribute to, life insurance, medical benefits or other
benefits to any Employee, or his or her dependents, upon such Employee's
retirement or termination of employment for any reason, except as may be
required by Sections 601 through 608 of ERISA or Section 4980B(f) of the Code,
and the Company has never represented, promised or contracted (whether in oral
or written form) to any Employee (either individually or to Employees as a
group) that such Employee(s), or his, her or their dependents would be provided
with such life insurance,
-29-
<PAGE>
medical benefits or other benefits upon his, her or their retirement or
termination of employment, except to the extent required by Sections 601 through
608 of ERISA or Section 4980B(f) of the Code.
(k) Effect of Transaction.
---------------------
(i) Except as set forth on Schedule 2.21(k)(i), the execution of this
Agreement and the consummation of the transactions contemplated hereby will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Company Employee Plan, Employee Agreement, trust
or loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
Employee.
(ii) Except as set forth on Schedule 2.21(k)(ii), no payment or
benefit which will or may be made by the Company or Parent or any of their
respective affiliates with respect to any Employee will be characterized as an
"excess parachute payment", within the meaning of Section 280G(b)(1) of the Code
(or any similar state or local law).
(l) Employment Matters. The Company (i) is in compliance in all material
------------------
respects with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees; (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing; and (iv) is not liable for any payment to any trust or other fund
or to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice).
(m) Labor. No work stoppage or labor strike against the Company is pending
-----
or, to the best knowledge of the Company, threatened. Except as set forth in
Schedule 2.21(m), the Company is not involved in or, to the knowledge of the
Company, threatened with, any labor dispute, grievance, or litigation relating
to labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in liability to the Company. Neither the Company nor any of
its subsidiaries has engaged in any unfair labor practices within the meaning of
the National Labor Relations Act which would, individually or in the aggregate,
directly or indirectly result in a liability to the Company. Except as set
forth in Schedule 2.21(m), the Company is not presently, nor has it been in the
past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining agreement is
being negotiated by the Company.
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2.22 Pooling of Interests
To the Company's knowledge, based on consultation with its independent
accountants, neither the Company nor any of its directors, officers, members or
stockholders, has taken any action which would interfere with Parent's ability
to account for the Merger as a pooling of interests.
2.23 Government Contracts
The Company has never been suspended or debarred from bidding on contracts
or subcontracts for any agency of the U.S. government, nor has such suspension
or debarment been threatened or action for suspension or debarment been
commenced. The Company has not been nor is it now being audited or, to its
knowledge, investigated by the United States Government Accounting Office, the
United States Department of Justice, the United States Department of Defense or
any of its agencies, the Defense Contract Audit Agency or the inspector general
of any agency of the U.S. government (each, a "Government Contract Authority"),
-----------------------------
nor, to the Company's knowledge, has such audit or investigation been
threatened. There is no valid basis for the Company's suspension or debarment
from bidding on contracts or subcontracts for any agency of the U.S. government,
and there is no valid basis for a claim pursuant to an audit or investigation by
any Government Contract Authority. The Company has never had a contract or
subcontract terminated for default or been determined to be nonresponsible by
any agency of the U.S. government. To the Company's knowledge, it has no
outstanding agreements, contracts or commitments that require it to obtain or
maintain a government security clearance.
2.24 Absence of Questionable Payments
Neither the Company nor any director, officer, agent, employee or other
Person acting on its behalf has to its knowledge used any Company funds for
improper or unlawful contributions, payments, gifts or entertainment, or made
any improper or unlawful expenditures relating to political activity to
government officials or others. The Company has adequate financial controls to
prevent such improper or unlawful contributions, payments, gifts, entertainment
or expenditures. Neither the Company nor any current director, officer, agent,
employee or other Person acting on its behalf has accepted or received any
improper or unlawful contributions, payments, gifts or expenditures.
2.25 Personnel
The Company has given Parent Schedule 2.25 sets forth a true and complete
list of: (a) the names and current salaries of all directors and officers of
the Company and the family relationships, if any, among such persons and (b) the
wage rates for nonsalaried and nonexecutive salaried employees of the Company by
classification.
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2.26 Bank Accounts
Schedule 2.26 sets forth the names and locations of all banks, trust
companies, savings and loan associations and other financial institutions at
which the Company maintains safe deposit boxes or accounts of any nature and the
names of all persons authorized to make withdrawals therefrom, draw thereon or
have access thereto.
2.27 Year 2000
Each hardware, software and firmware product used by the Company in its
business (collectively, the "Software") is Millennium Compliant (as hereinafter
defined). As to each third party product distributed by the Company (a
"Distributed Product"), the Company has, except as set forth in Schedule 2.27,
requested and obtained written warranties and certification from the third party
owner that the Distributed Product is Millennium Compliant. As used in this
Agreement, "Millennium Compliant" means, with respect to an item, that the item
will accurately process date data (including, but not limited to, calculating,
comparing and sequencing) from, into and between the twentieth and twenty-first
centuries, including, without limitation, leap year calculations, without a
decrease in its functionality, is designed to be used prior to, during and after
the calendar year 2000 A.D., and will operate during each such time period
without error relating to date data, specifically including any error relating
to, or the product of, date data that represents or references different
centuries or more than one century. Without limiting the generality of the
foregoing, the item (a) will not abnormally end or provide invalid or incorrect
results as a result of date data, specifically including date data that
represents or references different centuries or more than one century; (b) has
been designed to ensure year 2000 compatibility, including, but not limited to,
date data century recognition, calculations that accommodate same century and
multicentury formulas and date values, and date data interface values that
reflect the century; and (c) include "Year 2000 Capabilities" meaning that the
----------------------
item (i) will manage and manipulate data involving dates, including single
century formulas and multicentury formulas, and will not cause an abnormally
ending scenario within the application or generate incorrect values or invalid
results involving such dates; (ii) provides that all date-related user interface
functionalities and data fields include the indication of century; and (iii)
provides that all date-related data interface functionalities include the
indication of century.
2.28 Accounts Receivable
All accounts receivable of the Company reflected in the Company February
Balance Sheet, or existing at the Closing, represent sales actually made in the
ordinary course of business. The Company's bad debt reserves and sales return
allowances as reflected in the Company February Balance Sheet are adequate in
view of the Company's historic rates of return and the Company's knowledge with
respect to current accounts receivable. Set forth on Schedule 2.28 is a full
and complete list of all accounts receivable of the Company existing as of March
31, 1999. In addition, a current complete list of all accounts receivable of
the Company will be delivered to the Company immediately prior to the Closing.
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2.29 Licenses, Permits, Authorizations, Etc.
The Company has received all currently required governmental approvals,
authorizations, consents, licenses, orders, registrations and permits of all
agencies, whether federal, state, local or foreign, the failure to obtain which
might, in the aggregate, have a Material Adverse Effect. The Company has not
received any notifications of any asserted present failure by it to have
obtained any such governmental approval, authorization, consent, license, order,
registration or permit, or past and unremedied failure to obtain such items.
2.30 Consent Solicitation/Information Statement
The Company acknowledges that the Parent Common Stock has not been and will
not prior to issuance be registered under the Securities Act of 1933, as amended
(the "Securities Act"), and will be issued in reliance on the private offering
--------------
exemption contained in Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated thereunder. No more than 35 Stockholders are not
"accredited investors" as such term is defined in Rule 501(a) under the
Securities Act. In connection with the transactions contemplated hereby, the
Company will prepare and distribute to the Stockholders information statement
(the "Consent Solicitation/Information Statement") for the purpose of soliciting
------------------------------------------
the requisite approval of the Merger. The Consent Solicitation/Information
Statement does not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
2.31 Full Disclosure
None of the representations or warranties made by the Company (as modified
by the Company Schedules) in this or any other agreement entered into pursuant
hereto, nor any statement made in any schedule or certificate furnished by the
Company pursuant to this Agreement, or furnished in or in connection with
documents mailed or delivered to the stockholders of the Company in connection
with soliciting their consent to this Agreement and the Merger, contains or will
contain at the Effective Time, any untrue statement of a material fact, or omits
or will omit at the Effective Time to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
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3.1 Organization, Standing and Power
Parent is a corporation duly organized and validly existing under the laws
of the State of Washington. Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each of
Parent and Merger Sub is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction in which the failure to be so
qualified would have a Material Adverse Effect on Parent and Merger Sub as a
whole.
3.2 Authority
Each of Parent and Merger Sub has the requisite corporate power and
authority to own, operate and lease its properties and assets and to carry on
its business as now being conducted. Parent and Merger Sub have all requisite
corporate power and authority to enter into this Agreement and the Transaction
Documents and to perform its obligations hereunder and thereunder. This
Agreement has been, and each of the Transaction Documents to be delivered on the
Closing by Parent or Merger Sub will be, duly executed and delivered by Parent
and Merger Sub, and this Agreement has been, and each of the Transaction
Documents to which Parent and Merger Sub is a party will be on the Closing, duly
authorized by all necessary corporate action on the part of Parent and Merger
Sub. This Agreement constitutes and each of the Transaction Documents will
constitute, the valid and binding obligation of Parent and Merger Sub,
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement and the Transaction Documents by Parent will not
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (i)
any provision of the Articles of Incorporation or Bylaws of the Parent or (ii)
any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Parent or its
properties or assets.
3.3 Capital Structure
(a) The authorized stock of Parent consists of 60,000,000 shares of Common
Stock, of which 12,623,255 shares were issued and outstanding as of December 31,
1998, and 2,000,000 shares of Preferred Stock, of which no shares are issued or
outstanding as of the date hereof. The authorized capital stock of Merger Sub
consists of 1,000 shares of Common Stock, all of which, as of the date hereof,
are issued and outstanding and are held by Parent. All such shares of Parent
and Merger Sub have been duly authorized, and all such issued and outstanding
shares are validly issued, fully paid and nonassessable.
(b) The shares of Parent Common Stock to be issued pursuant to the Merger,
when issued, will be duly authorized, validly issued, fully paid and
nonassessable, and issued in compliance with applicable federal and state
securities laws (assuming the accuracy of the representations and warranties
contained in Section 2.32).
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3.4 SEC Documents; Parent Financial Statements
True and complete copies of all reports or registration statements filed by
Parent with the Securities and Exchange Commission (the "SEC") since January 1,
---
1997, are available to the Company on the SEC's web site at www.sec.gov (all of
-----------
the foregoing being collectively referred to as the "SEC Documents"). As of
-------------
their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act or the Securities Exchange
Act of 1934, as amended (the "Exchange Act") as the case may be, and none of the
------------
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a document subsequently filed
with the SEC. The financial statements of Parent, including the notes thereto,
included in the SEC Documents (the "Parent Financial Statements") comply as to
---------------------------
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP consistently applied (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) and present fairly, in accordance with GAAP,
the consolidated financial position of Parent at the dates thereof and the
consolidated results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end adjustments
and any other adjustments described therein). There has been no change in
Parent accounting policies except as described in the notes to the Parent
Financial Statements; provided, however, the Parent may have restated or may
restate one or more of the Parent Financial Statements to reflect acquisitions
entered into subsequent to the respective dates thereof.
3.5 No Material Adverse Change
Since the date of the balance sheet included in Parent's most recently
filed report on Form 10-Q or Form 10-K, Parent has conducted its business in the
ordinary course and there has not occurred: (a) any material adverse change in
the financial condition, liabilities, assets or business of Parent; (b) any
amendment or change in the Articles of Incorporation or Bylaws of Parent; or (c)
any damage to, destruction or loss of any assets of the Parent (whether or not
covered by insurance) that materially and adversely affects the financial
condition or business of Parent.
3.6 Litigation
There is no action, suit, proceeding, claim, arbitration or investigation
pending, or as to which Parent has received any notice of assertion against
Parent, which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement.
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3.7 S-3 Eligibility
Parent is eligible to register securities on Form S-3 under the Securities
Act and rules promulgated thereunder.
3.8 Pooling of Interests
To Parent's knowledge, based on consultation with its independent
accountants, neither Parent nor any of its directors, officers or stockholders
has taken any action which would interfere with Parent's ability to account for
the Merger as a pooling of interests.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company
(a) Company Conduct. Except as set forth in Schedule 4.1, during the
---------------
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement and the Effective Time, the Company agrees (except
to the extent that Parent shall otherwise consent in writing) to carry on its
business in the usual, regular and ordinary course in materially the same manner
as heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due. The Company agrees, to the extent consistent with
the business of the Company, to use all reasonable efforts consistent with past
practice and policies to preserve intact the Company's present business
organization, keep available the services of the Company's present officers and
key employees and preserve the Company's relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with the Company, all with the goal of preserving unimpaired the
Company's goodwill and ongoing businesses at the Effective Time. The Company
shall promptly notify Parent of any event or occurrence or emergency not in the
ordinary course of its business, and any material event involving or adversely
affecting or likely to adversely affect the Company or its business, business
prospects, assets, operation or condition (financial or other). Except as
expressly contemplated by this Agreement, the Company shall not, without the
prior written consent of Parent:
(i) Enter into any commitment, activity or transaction not in the
ordinary course of business;
(ii) Transfer to any person or entity any rights to any Technology or
IP Rights (other than pursuant to ordinary course end-user licenses);
(iii) Enter into or amend any material agreements pursuant to which
any other party is granted manufacturing, marketing, distribution or similar
rights of any type or scope with respect to any products of the Company, except
in the ordinary course of business;
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(iv) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Company Schedules;
(v) Commence any litigation;
(vi) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, other than dividends presently required to be paid in April, 1999
on its Series A Preferred Stock as described in Schedule 4.1, or split, combine
or reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
capital stock of the Company, or repurchase, redeem or otherwise acquire,
directly or indirectly, any shares of its capital stock (or options, warrants or
other rights exercisable therefor);
(vii) Except for the issuance of shares of Company Capital Stock upon
exercise or conversion of presently outstanding Company Options and Series A
Preferred, issue, grant, deliver or sell or authorize or propose the issuance,
grant, delivery or sale of, or purchase or propose the purchase of, any shares
of its capital stock or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, other than from option grants for new hires and promotions expressly
contemplated by the Company's 1999 Operating Plan;
(viii) Cause or permit any amendments to its Certificate of
Incorporation or Bylaws;
(ix) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company;
(x) Sell, lease, license or otherwise dispose of any of its properties
or assets, except in the ordinary course of business and consistent with past
practice;
(xi) Incur any indebtedness or other liabilities or guarantee any such
indebtedness or other liabilities of others or issue or sell any debt securities
of the Company or guarantee any debt securities of others, except in the
ordinary course of business;
(xii) Grant any severance or termination pay to any director, officer
employee or consultant, except payments made pursuant to standard written
agreements outstanding on the date hereof (which agreements are disclosed on
Schedule 4.1(a)(xii));
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(xiii) Adopt or amend any employee benefit plan, program, policy or
arrangement, or enter into any employment contract, pay or agree to pay any
special bonus or special remuneration to any director, employee or consultant,
or increase the salaries or wage rates of its employees, except as expressly set
forth in the Company's 1999 Operating Plan;
(xiv) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business and consistent with past practice;
(xv) Take any action, including the acceleration of vesting of any
options, warrants, restricted stock or other rights to acquire shares of the
capital stock of the Company which would be reasonably likely to interfere with
Parent's ability to account for the Merger as a pooling of interests or any
other action that could jeopardize the tax-free reorganization hereunder;
(xvi) Pay, discharge or satisfy, in an amount in excess of $10,000,
in any one case, or $25,000, in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in the Company Financial
Statements or incurred in the ordinary course of business since February 28,
1999;
(xvii) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(xviii) Enter into any strategic alliance, joint development or joint
marketing arrangement or agreement;
(xix) Fail to pay or otherwise satisfy its monetary obligations as
they become due, except such as are being contested in good faith;
(xx) Waive or commit to waive any rights with a value in excess of
$25,000, in any one case, or $50,000, in the aggregate;
(xxi) Cancel, materially amend or renew any insurance policy other
than in the ordinary course of business;
(xxii) Alter, or enter into any commitment to alter, its interest in
any corporation, association, joint venture, partnership, limited liability
company or business entity in which the Company directly or indirectly holds any
interest on the date hereof; or
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(xxiii) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(i) through (xxii) above, Section 2.8 or any
other action that would prevent the Company from performing or cause the Company
not to perform its covenants hereunder.
(b) Parent Conduct. Parent shall promptly notify the Company of any event
--------------
or occurrence which is not in the ordinary course of business of Parent and
which is material and adverse to the business of Parent. Parent agrees to
disclose to the Company prior to the Effective Time any material change in its
capitalization as set forth in Section 3.3 hereto.
4.2 No Solicitation
Until the earlier of the Effective Time and the date of termination of this
Agreement pursuant to the provisions of Section 8.1 hereof, the Company will not
(nor will the Company permit any of the Company's officers, directors,
stockholders, agents, representatives or affiliates to) directly or indirectly,
take any of the following actions with any party other than Parent and its
designees: (a) solicit, initiate, entertain, or encourage any proposals or
offers from, or conduct discussions with or engage in negotiations with, any
person relating to any possible acquisition of the Company or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any material portion of its or their capital stock or
assets or any equity interest in the Company or any of its subsidiaries, (b)
provide information with respect to the Company to any person, other than
Parent, relating to, or otherwise cooperate with, facilitate or encourage any
effort or attempt by any such person with regard to, any possible acquisition of
the Company (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any material portion of its or their capital stock or
assets or any equity interest in the Company or any of its subsidiaries, (c)
enter into an agreement with any person, other than Parent, providing for the
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise), any material portion of its or their capital
stock or assets or any equity interest in the Company or any of its
subsidiaries, or (d) make or authorize any statement, recommendation or
solicitation in support of any possible acquisition of the Company or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any material portion of its or their capital stock or
assets or any equity interest in the Company or any of its subsidiaries by any
person, other than by Parent. The Company shall immediately cease and cause to
be terminated any such contacts or negotiations with third parties relating to
any such transaction or proposed transaction. In addition to the foregoing, if
the Company receives prior to the Effective Time or the termination of this
Agreement any offer or proposal relating to any of the above, the Company shall
immediately notify Parent thereof, including information as to the identity of
the offeror or the party making any such offer or proposal and the specific
terms of such offer or proposal, as the case may be, and such other information
related thereto as Parent may reasonably request. Except as contemplated by
this Agreement, disclosure by the Company of the terms hereof (other than the
prohibition of this section) shall be deemed to be a violation of this Section
4.2.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Company Stockholder Approval
As promptly as practicable after the execution of this Agreement and at
such time as is permitted by applicable law, the Company shall submit this
Agreement and the transactions contemplated hereby to its stockholders for
approval and adoption as provided by Delaware Law and its Certificate of
Incorporation and Bylaws. The Company shall use its best efforts to solicit and
obtain the consent of its stockholders sufficient to approve the Merger and this
Agreement and to enable the Closing to occur as promptly as practicable. The
materials submitted to the Company's stockholders shall be subject to review and
approval by Parent and include information regarding the Company, the terms of
the Merger and this Agreement and the unanimous recommendation of the Board of
Directors of the Company in favor of the Merger and this Agreement.
5.2 Access to Information
Each party shall afford the others and its accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (a) all of its properties, books,
contracts, commitments and records, and (b) all other information concerning the
business, properties and personnel (subject to restrictions imposed by
applicable law) of it as the others may reasonably request, subject, in the case
of Parent, to reasonable limits on access to its technical and other nonpublic
information. No information or knowledge obtained in any investigation pursuant
to this Section 5.2 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger.
5.3 Confidentiality
Subject to the requirements of any federal or state securities laws, or, as
to Parent, by the rules and regulations of the National Association of
Securities Dealers, Inc. (the "NASD"), each of the parties hereto hereby agrees
----
to keep the terms of this Agreement (except to the extent contemplated hereby)
and such information or knowledge obtained in any investigation pursuant to
Section 5.2, or pursuant to the negotiation and execution of this Agreement or
the effectuation of the transactions contemplated hereby, confidential;
provided, however, that the foregoing shall not apply to information or
knowledge which (a) a party can demonstrate was already lawfully in its
possession prior to the disclosure thereof by the other party, (b) is generally
known to the public and did not become so known through any violation of law,
(c) became known to the public through no fault of such party, (d) is later
lawfully acquired by such party without confidentiality restrictions from other
sources, (e) is required to be disclosed by order of court or government agency
with subpoena powers (provided that such party shall have provided the other
party with prior notice of such order and an opportunity to
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object or take other available action) or (f) which is disclosed in the course
of any litigation between any of the parties hereto.
5.4 Expenses
Whether or not the Merger is consummated, all fees and expenses incurred in
connection with the Merger including, without limitation, all legal, accounting,
financial advisory, consulting and all other fees and expenses of third parties
("Third Party Expenses") incurred by a party in connection with the negotiation
--------------------
and effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses. All such Third Party Expenses incurred
by the Company, including fees and expenses payable by the Company to SG Cowen
Securities Corporation, PriceWaterhouseCoopers LLP and Wilson, Sonsini, Goodrich
& Rosati shall be paid by the Company at or before Closing and the Company shall
provide a summary of such expenses to Parent at the time of Closing.
5.5 Public Disclosure
Unless otherwise required by law (including, without limitation, federal
and state securities laws) or, as to Parent, by the rules and regulations of the
NASD, prior to the Effective Time, no disclosure (whether or not in response to
an inquiry) of the subject matter of this Agreement shall be made by any party
hereto unless approved by Parent and the Company prior to release, provided that
such approval shall not be unreasonably withheld.
5.6 Consents
The Company shall use its best efforts to obtain the consents, waivers and
approvals under any of the Contracts as may be required in connection with the
Merger (all of such consents, waivers and approvals are set forth in Company
Schedules) so as to preserve all rights of and benefits to the Company
thereunder.
5.7 FIRPTA Compliance
On or prior to the Closing Date, the Company shall deliver to Parent a
properly executed statement in a form reasonably acceptable to Parent for
purposes of satisfying Parent's obligations under Treasury Regulation Section
1.1445-2(c)(3).
5.8 Reasonable Efforts
Subject to the terms and conditions provided in this Agreement, each of the
parties hereto shall use its reasonable efforts to ensure that its
representations and warranties remain true and correct in all material respects,
and to take promptly, or cause to be taken, all actions, and to do promptly, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
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contemplated hereby, to obtain all necessary waivers, consents and approvals, to
effect all necessary registrations and filings, and to remove any injunctions or
other impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or the Company or its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
Each party hereto will fully cooperate with the other parties, and their counsel
and accountants in connection with any steps required to be taken as part of its
obligations under this Agreement.
5.9 Notification of Certain Matters
The Company shall give prompt notice to Parent, and Parent shall give
prompt notice to the Company, of (i) the occurrence or non-occurrence of any
event, the occurrence or non-occurrence of which is likely to cause any
representation or warranty of the Company and Parent, respectively, contained in
this Agreement to be untrue or inaccurate at or prior to the Effective Time and
(ii) any failure of the Company or Parent, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder. The delivery of any notice pursuant to this Section 5.9 shall not
limit or otherwise affect any remedies available to the party receiving such
notice.
5.10 Pooling Accounting
Each party hereto shall use its reasonable efforts to cause the business
combination to be effected by the Merger to be accounted for as a pooling of
interests. Each party hereto shall not, and shall use its reasonable efforts to
cause its respective employees, directors, stockholders and affiliates not to,
take any action that would adversely affect the ability of Parent to account for
the business combination to be effected by the Merger as a pooling of interests
(regardless of whether such action would otherwise be permitted or not
prohibited hereunder).
5.11 Affiliate and Voting Agreements
Schedule 5.11 sets forth those persons who, in the Company's reasonable
judgment, are or may be "affiliates" of the Company within the meaning of Rule
145 (each such person a "Related Party") promulgated under the Securities Act
-------------
("Rule 145"). The Company shall provide Parent such information and documents
- ----------
as Parent shall reasonably request for purposes of reviewing such list. The
Company shall deliver or cause to be delivered to Parent, concurrently with the
execution of this Agreement from each of the Related Parties, an executed
Affiliate and Voting Agreement in the form attached hereto as Exhibit B. Parent
---------
shall be entitled to place appropriate legends on the certificates evidencing
any Parent
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Common Stock to be received by such Related Parties pursuant to the
terms of this Agreement, and to issue appropriate stop transfer instructions to
the transfer agent for Parent Common Stock, consistent with the terms of such
Affiliate and Voting Agreements.
5.12 Additional Documents and Further Assurances
Each party hereto, at the request of the other party hereto, shall execute
and deliver such other instruments and do and perform such other acts and things
as may be necessary or desirable for effecting completely the consummation of
this Agreement and the transactions contemplated hereby.
5.13 Form S-8
Parent shall file a registration statement on Form S-8 for the shares of
Parent Common Stock issuable with respect to assumed Company Options within
fifteen (15) days after the Effective Time.
5.14 Nasdaq National Market Listing
Parent shall authorize for listing on the Nasdaq National Market the
shares of Parent Common Stock issuable, and those required to be reserved for
issuance, in connection with the Merger, upon official notice of issuance.
5.15 Company's Auditors
The Company will use its commercially reasonable efforts to cause its
management and its independent auditors to facilitate on a timely basis (i) the
preparation of financial statements (including pro forma financial statements if
required) as required by Parent to comply with applicable SEC regulations, (ii)
the review of any Company audit or review work papers for up to the past three
years , including the examination of selected interim financial statements and
data, and (iii) the delivery of such representations from the Company's
independent accountants as may be reasonably requested by Parent or its
accountants in order for Parent's accountants to render the opinion called for
by Section 6.3(i) hereof.
5.16 Additional Representations Relating to Tax Matters
(a) Parent represents solely for tax purposes now, and as of the Closing
Date, as follows:
(i) it presently intends to continue the Company's historic business
or use a significant portion of the Company's business assets in business in a
manner that satisfies the continuity of business enterprise requirement set
forth in Treasury Regulation Section 1.368-1(d);
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(ii) it has no present plan or intention to cause the Company to
issue additional shares of stock after the Merger, or take any other action,
that would result in Parent losing "control" (within the meaning of Section
368(c)) of the Company; and
(iii) except for reorganizations described in Section 368(a)(1)(F) of
the Code, it has no present plan or intention to liquidate the Company, to merge
the Company into another corporation including Parent affiliates, to sell,
distribute or otherwise dispose of the capital stock of the Company except for
transfers of stock described in Section 368(a)(2)(C) or Treasury Regulation
Section 1.368-2(k)(2); or to cause the Company to sell or otherwise dispose of
any of its assets or of any of the assets acquired from Merger Sub except for
dispositions made in the ordinary course of business or transfers described in
Section 368(a)(2)(C) or Treasury Regulation Section 1.368-2(k(2).
(b) Prior to the Merger, Parent will be in "control" of Merger Sub within
the meaning of Section 368(c) of the Code.
(c) Except where, in the opinion of tax counsel to Parent, there is not
"substantial authority", as defined in Section 6662 of the Code, to support such
a position, the parties shall not take a position on any tax returns
inconsistent with the treatment of the Merger for tax purposes as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code by reason
of Section 368(a)(2)(E) of the Code and the exchange of Company Capital Stock by
the Stockholders for Parent Common Stock pursuant to Section 1.7 as an exchange
under Section 354(a) of the Code. Following the Merger, the parties will comply
with the record-keeping and information filing requirements of Treasury
Regulation Section 1.368-3.
(d) Nothing contained in this Agreement shall constitute a representation
or warranty by Parent or Merger Sub with respect to the tax consequences of the
Merger or this Agreement for the Company or its Stockholders.
ARTICLE VI CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger
The respective obligations of each party to this Agreement to effect the
Merger shall be subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary restraining
----------------------------------------
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect.
(b) Nasdaq Listing. The shares of Parent Common Stock issuable to
--------------
stockholders of the Company pursuant to this Agreement and such other shares
required to be reserved for
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issuance in connection with the Merger shall have been authorized for listing on
the Nasdaq National Market upon official notice of issuance.
(c) Registration Rights Agreement. The Registration Rights Agreement in
-----------------------------
substantially the form attached hereto as Exhibit C shall have been executed by
---------
Parent and a majority-in-interest of the stockholders of the Company.
6.2 Additional Conditions to Obligations of the Significant Stockholders and
the Company
The obligations of the Significant Stockholders and the Company to
consummate the Merger and the transactions contemplated by this Agreement shall
be subject to the satisfaction at or prior to the Closing of each of the
following conditions, any of which may be waived, in writing, exclusively by the
Company and the Significant Stockholders.
(a) Representations and Warranties. The representations and warranties of
------------------------------
Parent and Merger Sub contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Material Adverse
Effect on Parent; and the Company shall have received a certificate to such
effect signed on behalf of Parent by a duly authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have performed
------------------------
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by them on or prior to the
Effective Time, and the Company shall have received a certificate to such effect
signed by a duly authorized officer of Parent.
(c) Legal Opinion. The Company shall have received a legal opinion from
-------------
Perkins Coie LLP, counsel to Parent, in substantially the form attached hereto
as Exhibit D.
---------
(d) Material Adverse Change. There shall not have occurred any material
-----------------------
adverse change in the business, assets (including intangible assets), financial
condition, prospects or results of operations of Parent since the date of this
Agreement. For purposes of this condition, a decline in the trading price of
Parent's Common Stock, whether occurring at any time or from time to time, as
reported by Nasdaq or any other automated quotation system or exchange shall not
constitute a material adverse change.
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6.3 Additional Conditions to the Obligations of Parent and Merger Sub
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and warranties of
------------------------------
the Company contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date, except for changes contemplated
by this Agreement and except for those representations and warranties which
address matters only as of a particular date (which shall remain true and
correct as of such date), with the same force and effect as if made on and as of
the Closing Date, except, in all such cases, for such breaches, inaccuracies or
omissions of such representations and warranties which have neither had nor
reasonably would be expected to have a Material Adverse Effect on the Company or
Parent; and Parent and Merger Sub shall have received a certificate to such
effect signed on behalf of the Company by the chief executive officer and chief
financial officer of the Company;
(b) Agreements and Covenants. The Company shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Effective Time, and Parent and Merger Sub shall have received a certificate to
such effect signed by a duly authorized officer of the Company;
(c) Third Party Consents. The Company shall have obtained the consents,
--------------------
approvals and waivers set forth in Schedule 6.3(c), which consents must in all
respects be satisfactory to Parent in its sole and absolute discretion. All
transfers of permits or licenses and all approvals, applications or notices to
public agencies, federal, state, local or foreign, the granting or delivery of
which is necessary for consummation of the transactions contemplated hereby or
for the continued operation of the Company, will have been obtained or
delivered, as applicable, and all waiting periods specified by law will have
passed.
(d) Legal Opinion. Parent shall have received a legal opinion from Wilson
-------------
Sonsini Goodrich & Rosati, Professional Corporation, legal counsel to the
Company, in substantially the form attached hereto as Exhibit E.
---------
(e) Affiliate Agreements. Each of the parties identified by the Company
--------------------
as being an Affiliate of the Company shall have delivered to Parent an executed
Affiliate Agreement which shall be in full force and effect.
(f) Employment, Noncompetition and/or Consulting Agreements. Each of the
-------------------------------------------------------
persons listed on Schedule 6.3(f) shall have executed and delivered to Parent an
employment, noncompetition and/or consulting agreement in form and substance
reasonably acceptable to Parent, and each such agreement shall be in full force
and effect.
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(g) No Dissenters. Stockholders of more than 5% of the outstanding shares
-------------
of Company Capital Stock shall not have exercised, nor shall they have any
continued right to exercise, appraisal, dissenters' or similar rights under
applicable law with respect to their shares by virtue of the Merger.
(h) Opinion of Accountants. Parent shall have received a letter from
----------------------
Arthur Andersen LLP regarding such firm's concurrence with Parent management's
conclusions as to the appropriateness of pooling of interests accounting for the
Merger under Accounting Principles Board Opinion No. 16, if consummated in
accordance with this Agreement. In addition, the Company's accountants shall
have provided a letter, satisfactory in form and substance to Parent, regarding
the appropriateness of pooling of interests accounting for a transaction
involving the Company.
(i) Stockholder Approval. This Agreement and the Merger shall have been
--------------------
approved and adopted by the stockholders of the Company by the requisite vote
under applicable law and the Company's Certificate of Incorporation.
(j) Escrow and Indemnification Agreement. An executed Escrow and
------------------------------------
Indemnification Agreement which shall be in full force and effect shall have
been delivered to Parent.
(k) Material Adverse Effect. There shall not have occurred any Material
-----------------------
Adverse Effect in the business, assets (including intangible assets), prospects,
financial condition or results of operations of the Company since the date of
the Company February Balance Sheet, excluding for this purpose any effect
resulting from the announcement of the Merger.
ARTICLE VII
INDEMNIFICATION; ESCROW FUND
7.1 Establishment of Escrow Fund
At the Effective Time, the Company's Stockholders will be deemed to have
received and deposited with the Escrow Agent (as defined below) the Escrow
Amount (plus any additional shares as may be issued upon any stock split, stock
dividend or recapitalization effected by Parent after the Effective Time)
without any act of any stockholder. As soon as practicable after the Effective
Time, the Escrow Amount, without any act of any stockholder, will be deposited
with ChaseMellon Shareholder Services LLC (or other institution acceptable to
Parent and the Securityholder Agent) as Escrow Agent (the "Escrow Agent"), such
------------
deposit to constitute an escrow fund (the "Escrow Fund") to be governed by the
-----------
terms set forth in the Escrow and Indemnification Agreement.
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7.2 Indemnification
Subject to the provisions of Section 7.5, each of the Stockholders
severally agrees to indemnify Parent, the Surviving Corporation and their
successors and assigns, and the officers, directors, affiliates, employees,
controlling persons and agents of the foregoing (the "Indemnitees"), and to hold
-----------
each Indemnitee harmless against and in respect of all claims, losses,
liabilities, damages, deficiencies, Taxes, actions or causes of action, costs
and expenses, including reasonable attorneys' and accountants' fees and
expenses, and expenses of investigation and defense (hereinafter individually a
"Loss" and collectively "Losses") in excess of an aggregate twenty-five thousand
---- ------
dollars ($25,000) incurred by any Indemnitee directly or indirectly as a result
of (a) any inaccuracy or breach of a representation or warranty of the Company
contained in Article II herein, (b) the nonperformance by the Company (whether
partial or total) of any covenants or agreements made in this Agreement or any
agreement entered into pursuant hereto which was due to be performed at or
before Closing. Any claim for compensation for Losses hereunder shall be offset
or reduced by the amount of any insurance proceeds received by the Surviving
Corporation or Parent for such losses. Parent shall act in good faith and in a
commercially reasonable manner to mitigate any Losses it may suffer. Parent may
not make a claim for Loss arising out of a third party claim unless the third
party has made its claim in writing.
7.3 Procedure; Claims
Whenever a claim arises for indemnification under this Article VII, the
Indemnitee shall comply with the notice and other procedures specified in the
Escrow and Indemnification Agreement.
7.4 Survival of Representation and Warranties
The representations and warranties contained herein will survive the
Closing Date until the earlier of (i) April 14, 2000 or (ii) the date on which
Parent's independent accountants issues an audit reprot for Parent and its
consolidated subsidiaries for the year ended december 31, 1999 (the "Expiration
Date"). Upon their expiration, such representations and warranties will be
terminated and extinguished and thereupon shall be conclusively deemed to have
been true and correct when made. No claim for compensation of Losses shall be
made unless asserted by a written notice given to the Escrow Agent and the
Securityholder Agent on or prior to the Expiration Date.
7.5 Exclusive Remedy; Applicability
If the Merger is consummated as contemplated herein, this Article VII,
together with the Escrow and Indemnification Agreement, shall set forth the
exclusive remedy and recourse of the Indemnitees arising from any Losses in
connection with this Agreement and the consummation of the Merger. However,
nothing in this Article VII shall limit, in any manner (whether by time, amount,
procedure or otherwise), any remedy at law or in equity to which
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Parent or the Surviving Corporation may be entitled as a result of intentional
fraud by the Company or any Company Stockholder. Furthermore, nothing in this
Article VII shall limit the liability of the Company for any breach of a
representation, warranty or covenant if the Merger does not close.
7.6 Securityholder Agent
(a) In the event that the Merger is approved, effective upon such vote, and
without further act of any Stockholder, Sanjeev Malaney shall be appointed as
agent and attorney-in-fact (the "Securityholder Agent") for each stockholder of
--------------------
the Company (except such stockholders, if any, as shall have perfected their
appraisal or dissenters' rights under Delaware Law), for and on behalf of
stockholders of the Company, to give and receive notices and communications, to
authorize delivery to Parent of shares of Parent Common Stock from the Escrow
Fund in satisfaction of claims by Parent, to object to such deliveries, to agree
to, negotiate, enter into settlements and compromises of, and demand arbitration
and comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of
Securityholder Agent for the accomplishment of the foregoing. Such agency may
be changed by the stockholders of the Company from time to time upon not less
than thirty (30) days prior written notice to Parent and the Escrow Agent;
provided that the Securityholder Agent may not be removed unless holders of a
two-thirds interest of the Escrow Fund agree to such removal and to the identity
of the substituted agent. Any vacancy in the position of Securityholder Agent
may be filled by approval of the holders of a majority in interest of the Escrow
Fund. No bond shall be required of the Securityholder Agent, and the
Securityholder Agent shall not receive compensation for his or her services.
Notices or communications to or from the Securityholder Agent shall constitute
notice to or from each of the stockholders of the Company.
(b) The Securityholder Agent shall be entitled to rely on the advice of
counsel, public accountants or other independent experts experienced in the
matter at issue, and any error in judgment or other act or omission of the
Securityholder Agent pursuant to such advice shall in no event subject the
Securityholder Agent to liability to any stockholder of the Company on whose
behalf the Escrow Amount was contributed to the Escrow Fund. The Securityholder
Agent shall not be liable for any act done or omitted hereunder as
Securityholder Agent while acting in good faith and in the exercise of
reasonable judgment. The stockholders of the Company on whose behalf the Escrow
Amount was contributed to the Escrow Fund shall severally indemnify the
Securityholder Agent and hold the Securityholder Agent harmless against any
loss, liability or expense incurred without negligence or bad faith on the part
of the Securityholder Agent and arising out of or in connection with the
acceptance or administration of the Securityholder Agent's duties hereunder,
including the reasonable fees and expenses of any legal counsel retained by the
Securityholder Agent (collectively, "Costs").
-----
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<PAGE>
(c) Solely to the extent that Escrowed Stock would otherwise be released by
the Escrow Agent to the Record Holders in accordance with the terms of the
Escrow and Indemnification Agreement ("Remaining Shares"), the Securityholder
----------------
Agent shall be reimbursed for Costs upon submission of such invoices as the
Escrow Agent or Parent may reasonably request, by delivering to the Escrow Agent
a claim for Remaining Shares having a value equal to such Costs. The value of
any shares of Remaining Shares transferred to the Securityholder Agent under
this Section 7.6(c) shall be determined under Section 1(e) of the Escrow and
Indemnification Agreement.
(d) A decision, act, consent or instruction of the Securityholder Agent
shall constitute a decision of all the Stockholders for whom a portion of the
Escrow Amount otherwise issuable to them are deposited in the Escrow Fund and
shall be final, binding and conclusive upon each of such Stockholders, and the
Escrow Agent and Parent may rely upon any such decision, act, consent or
instruction of the Securityholder Agent as being the decision, act, consent or
instruction of each and every such Stockholder. The Escrow Agent and Parent are
hereby relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Securityholder
Agent.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination
Except as provided in Section 8.2 below, this Agreement may be terminated
and the Merger abandoned at any time prior to the Effective Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not occurred
before 5:00 p.m. (Pacific time) on April 16, 1999 (provided that the right to
terminate this Agreement under this clause 8.1(b) (i) shall not be available to
any party whose willful failure to fulfill any obligation hereunder has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before such date); (ii) there shall be a final nonappealable order of a federal
or state court in effect preventing consummation of the Merger; or (iii) there
shall be any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the Merger by any Governmental Entity that would make
consummation of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger, by any Governmental Entity, which would: (i) prohibit Parent's or the
Company's ownership or operation of all or any portion of the business of the
Company or (ii) compel Parent or the Company to dispose of or hold separate all
or a portion of the business or assets of the Company or Parent as a result of
the Merger;
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(d) by Parent if it is not in material breach of its obligations under this
Agreement and there has been a breach of any representation, warranty, covenant
or agreement contained in this Agreement on the part of the Company and (i) such
breach has not been cured within five (5) business days after written notice to
the Company (provided that, no cure period shall be required for a breach which
by its nature cannot be cured), and (ii) as a result of such breach the
conditions set forth in Section 6.3(a) or 6.3(b), as the case may be, would not
then be satisfied; or
(e) by the Company if it is not in material breach of its obligations under
this Agreement and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of Parent or
Merger Sub and (i) such breach has not been cured within five (5) business days
after written notice to Parent (provided that, no cure period shall be required
for a breach which by its nature cannot be cured), and (ii) as a result of such
breach the conditions set forth in Section 6.2(a) or 6.2(b), as the case may be,
would not then be satisfied.
Where action is taken to terminate this Agreement pursuant to this Section 8.1,
it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination
In the event of termination of this Agreement as provided in Section 8.1,
this Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Merger Sub, the Company or their respective
officers, directors, members or stockholders, provided that each party shall
remain liable for any breaches of this Agreement prior to its termination; and
provided further that, the provisions of Sections 5.3 and 5.4 and Article VIII
of this Agreement shall remain in full force and effect and survive any
termination of this Agreement.
8.3 Amendment
Except as is otherwise required by applicable law after the stockholders of
the Company approve this Agreement, this Agreement may be amended by the parties
hereto at any time by execution of an instrument in writing signed on behalf of
each of the parties hereto.
8.4 Extension; Waiver
At any time prior to the Effective Time, Parent and Merger Sub, on the one
hand, and the Company, on the other, may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or
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conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by commercial delivery service,
or mailed by registered or certified mail (return receipt requested) or sent via
facsimile (with acknowledgment of complete transmission) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
if to Parent, Merger Sub or the Surviving Corporation, to:
AVT Corporation
11410 NE 122nd Way
P.O. Box 97025
Kirkland, WA 98083-9725
Attention: Chief Executive Officer
Telephone No.: (425) 820-6000
Facsimile No.: (425) 820-4040
with a copy to:
Perkins Coie LLP
1201 3rd Avenue
Seattle, WA 98101-3099
Attention: Linda Schoemaker
Telephone No.: (206) 583-8908
Facsimile No.: (206) 583-8500
(b) if to the Company, to:
MediaTel Corporation
274 Brannan Street
San Franciso, CA 94107
Attention: Sanjeev Malaney
Telephone No.: (415) 882-4300
Facsimile No.: (415) 882-4471
with a copy to:
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Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Michael J. Danaher, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(c) if to the Securityholder Agent to:
Sanjeev Malaney, Client
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Michael J. Danaher, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
With a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Michael J. Danaher, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
9.2 Interpretation
The words "include," "includes" and "including" when used herein shall be
deemed in each case to be followed by the words "without limitation." The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
9.3 Counterparts
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to the other party, it being understood that all parties need not sign the same
counterpart.
9.4 Entire Agreement; Assignment
This Agreement, the Schedules and Exhibits hereto, and the documents and
instruments and other agreements among the parties hereto referenced herein:
(a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise except as
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otherwise specifically provided, except that Parent and Merger Sub may assign
their respective rights and delegate their respective obligations hereunder to
their respective affiliates.
9.5 Severability
In the event that any provision of this Agreement or the application
thereof, becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.
9.6 Other Remedies
Except as otherwise provided herein, any and all remedies herein expressly
conferred upon a party will be deemed cumulative with and not exclusive of any
other remedy conferred hereby, or by law or equity upon such party, and the
exercise by a party of any one remedy will not preclude the exercise of any
other remedy.
9.7 Governing Law; Venue
This Agreement shall be governed by and construed in accordance with the
laws of the State of Washington, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof. The parties
irrevocably consent to the jurisdiction and venue of the state and federal
courts located in San Francisco County, California in connection with any action
relating this Agreement.
9.8 Rules of Construction
The parties hereto agree that they have been represented by counsel during
the negotiation and execution of this Agreement and, therefore, waive the
application of any law, regulation, holding or rule of construction providing
that ambiguities in an agreement or other document will be construed against the
party drafting such agreement or document.
9.9 Specific Performance
The parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the
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terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
ARTICLE X
DEFINITIONS
The terms defined in this article shall, for all purposes of this
Agreement, have the meanings herein specified, unless the context expressly or
by necessary implication otherwise requires.
Affiliate shall mean any person or entity defined in Section 2.21(a)(i).
---------
Aggregate Common Number shall mean the number defined in Section 1.6(g)(i)
------------------------
of this Agreement.
Aggregate Option Number shall mean the number defined in Section
-----------------------
1.6(g)(iii) of this Agreement.
Aggregate Preferred Number shall mean the number defined in Section
---------------------------
1.6(g)(ii) of this Agreement.
Aggregate Share Number shall mean the number defined in Section 1.6(g)(iv)
----------------------
of this Agreement.
Agreement shall mean this Agreement and Plan of Reorganization.
---------
Certificate of Merger shall mean the Certificate of Merger, or like
---------------------
instrument, filed with the Secretary of State of Delaware, as set forth in
Section 1.2 of this Agreement.
Certificates shall mean the certificates defined in Section 1.8(c) of this
------------
Agreement.
Closing shall mean the closing of the Merger, defined in Section 1.2 of
-------
this Agreement.
Closing Date shall mean the date upon which the Closing effectively occurs,
------------
defined in Section 1.2 of this Agreement.
Code shall mean the Internal Revenue Code of 1986, as amended.
----
Company shall mean Goldengate Corporation, a Delaware corporation.
-------
Company Capital Stock shall mean all issued and outstanding shares of the
---------------------
Company, as set forth in Recital B hereto.
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Company Common Stock shall mean the Common Stock of the Company, as set
--------------------
forth in Recital B hereto.
Company Employee Plan shall mean the Company's employee plans, as defined
---------------------
in Section 2.21(a)(iii) of this Agreement.
Company February Balance Sheet shall mean the Company's balance sheet as of
------------------------------
February 28, 1999, as set forth in Section 2.6 of this Agreement.
Company Financials shall mean the Balance Sheet and the Company's related
-------------------
unaudited consolidated statements for the year then ended, as set forth in
Section 2.6 of this Agreement.
Company Option shall mean each outstanding option to purchase Company
---------------
Common Stock, as defined in Section 1.6(c)(i) of this Agreement.
Company Preferred Stock shall mean the Preferred Stock of the Company, as
-----------------------
set forth in Recital B hereto.
Company Schedules shall mean the disclosure letter supplied by the Company
-----------------
to Parent and Merger Sub, as set forth in Article II of this Agreement.
Company Technology shall have the meaning set forth in Section 2.12(b) of
------------------
this Agreement.
Conflict shall mean any conflict defined in Section 2.5 of this Agreement.
--------
Contract shall mean any agreement, contract or commitment, as defined in
--------
Section 2.13 of this Agreement.
Delaware Law shall mean the Delaware General Corporation Law.
------------
Dissenting Shares shall mean the shares of Company Capital Stock held by a
------------------
holder who has demanded and perfected appraisal or dissenters' rights, as
defined in Section 1.7 of this Agreement.
DOL shall mean the U.S. Department of Labor, as set forth in Section
---
2.21(c) of this Agreement.
Domain Names shall have the meaning set forth in Section 2.12(k) of this
------------
Agreement.
Effective Time shall mean the time of acceptance of the Certificate of
--------------
Merger by the Secretary of State of Delaware, as defined in Section 1.2 of this
Agreement.
-56-
<PAGE>
Employee shall mean any employee of the Company, as defined in Section
--------
2.21(a)(iv) of this Agreement.
Employee Agreement shall mean the agreements between the Company and an
------------------
Employee, as defined in Section 2.21(a)(v) of this Agreement.
End-User Licenses shall mean the object code end-user licenses defined in
-----------------
Section 2.12(b) of this Agreement.
Environmental Permits shall mean the permits defined in Section 2.19(c) of
---------------------
this Agreement.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended as set forth in Section 2.21(a)(ii) of this Agreement.
Escrow Agent shall have the meaning set forth in section 7.1 of this
------------
Agreement.
Escrow Amount shall mean the amount defined in Section 1.6(g)(v) of this
-------------
Agreement.
Escrow Fund shall have the meaning set forth in Section 7.1 of this
-----------
Agreement.
Exchange Act shall mean the Securities and Exchange Act of 1934, as
------------
amended, as set forth in Section 3.4 of this Agreement.
Exchange Agent shall mean the bank or trust company designated by Parent,
--------------
as set forth in Section 1.8(a) of this Agreement.
Exchange Ratio shall mean the ratio defined in Section 1.6(g)(vi) of this
--------------
Agreement
GAAP shall mean generally accepted accounting principles, as set forth in
----
Section 2.6 of this Agreement.
Governmental Entity shall mean any governmental authority, as defined in
-------------------
Section 2.5 of this Agreement.
Hazardous Materials Activities shall mean the activities defined in Section
------------------------------
2.19(b) of this Agreement.
IP Registrations shall have the meaning set forth in Section 2.12(e) of
----------------
this Agreement.
IP Rights shall have the meaning set forth in Section 2.12(e) of this
---------
Agreement.
IRS shall mean the Internal Revenue Service, as set forth in Section
---
2.9(b)(v) of this Agreement.
Liens shall mean the liens defined in Section 2.9(b)(ix) of this Agreement.
-----
-57-
<PAGE>
Loss or Losses shall mean the losses defined in Section 7.2(a) of this
--------------
Agreement.
Marks shall have the meaning set forth in Section 2.12(d) of this
-----
Agreement.
Material Adverse Effect shall mean the effect defined in Section 2.1 of
-----------------------
this Agreement.
Merger shall mean the merger of Merger Sub with and into the Company.
------
Merger Sub shall mean Goldengate Acquisition Corp., a Delaware corporation
----------
and wholly owned subsidiary of Parent.
Multiemployer Plan shall mean any Pension Plan which is a "multiemployer
------------------
plan," as defined in Section 2.21(a)(vi) of this Agreement.
Option Plan shall mean the Company's 1996 Stock Option Plan, as defined in
------------
Section 1.6(c) of this Agreement.
Parent shall mean Mariners Corporation, a Washington corporation.
------
Parent Common Stock shall mean shares of voting Common Stock of Parent, as
-------------------
set forth in Recital B.
Parent Common Stock Price shall mean the price of Parent Common Stock, as
-------------------------
determined under Section 1.6(g)(vii).
Parent Financial Statements shall mean the financial statements of Parent,
---------------------------
as defined in Section 3.4 of this Agreement.
Pension Plan shall mean each Company Employee Plan which is an "employee
------------
pension benefit plan," as defined in Section 2.21(a)(vii) of this Agreement.
Products shall have the meaning set forth in Section 2.12(b) of this
--------
Agreement.
Recapitalization of the Parent Common Stock shall have the meaning set
-------------------------------------------
forth in Section 1.6(g)(iv) of this Agreement.
Related Party shall have the meaning set forth in Section 5.11 of this
-------------
Agreement.
Returns shall mean the returns defined in Section 2.9(a) of this Agreement.
-------
Rule 145 shall mean Rule 145 promulgated under the Securities Act, as set
--------
forth in Section 5.11 of this Agreement.
SEC shall mean the Securities and Exchange Commission, as set forth in
---
Section 3.4 of this Agreement.
-58-
<PAGE>
SEC Documents shall mean all reports and registration statements filed with
-------------
the SEC, as defined in Section 3.4 of this Agreement.
Securities Act shall mean the Securities Act of 1933, as amended, as set
--------------
forth in Section 2.32 of this Agreement.
Stockholder shall have the meaning set forth in Section 1.6 of this
-----------
Agreement.
Subsidiary shall mean Goldengate International Holdings Company, Inc., a
----------
Delaware corporation and wholly owned subsidiary of the Company, as set forth in
Section 2.3 of this Agreement.
Surviving Corporation shall mean the Company as the surviving corporation
----------------------
after the Merger, as defined in Section 1.1 of this Agreement.
Tax or Taxes shall mean the taxes defined in Section 2.9(a) of this
------------
Agreement.
Technology shall have the meaning set forth in Section 2.12(b) of this
----------
Agreement.
Technology Related Assets shall have the meaning set forth in Section
-------------------------
2.12(a) of this Agreement.
Technology shall have the meaning set forth in Section 2.12(a) of this
----------
Agreement.
Third Party Expenses shall mean the expenses defined in Section 5.4 of this
--------------------
Agreement.
Third Party Licenses shall have the meaning set forth in Section 2.12(c) of
--------------------
this Agreement.
Third Party Technologies shall have the meaning set forth in Section
------------------------
2.12(c) of this Agreement.
Transaction Documents has the meaning set forth in Section 2.4 of this
---------------------
Agreement.
-59-
<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their duly authorized respective officers, all as of
the date first written above.
AVT CORPORATION
By: /s/ Richard J. LaPorte
Name: Richard J. LaPorte
Title: Chairman and CEO
MEDIATEL CORPORATION
By: /s/ Sanjeev Malaney
Name: Sanjeev Malaney
Title: Chairman and CEO
GOLDENGATE ACQUISITION CORP.
By: /s/ Roger Fukai
Name: Roger Fukai
Title: President
-60-
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
Exhibit A Escrow and Indemnification Agreement
Exhibit B Form of Affiliate and Voting Agreement
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Legal Opinion of Counsel to Parent
Exhibit E Form of Legal Opinion of Counsel to the Company
</TABLE>
<PAGE>
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of April 14, 1999 by and among AVT Corporation, a Washington corporation
("Parent"), and the stockholders of MediaTel Corporation, a Delaware corporation
(the "Company") listed on Exhibit A hereto (the "Stockholders").
---------
RECITALS
A. Pursuant to the provisions of that certain Agreement and Plan of Merger
dated as of April 13, 1999 (the "Merger Agreement") among Parent, Goldengate
Acquisition Corp., a Delaware corporation ("Merger Sub"), and the Company, the
parties thereto intend to effect the merger of Merger Sub with and into the
Company (the "Merger").
B. To induce the Stockholders to execute and deliver the Merger Agreement
and to consummate the transactions contemplated thereby, Parent desires to
provide to the Stockholders, on the terms and subject to the conditions set
forth herein, certain registration rights under the Securities Act of 1933, as
amended (the "Securities Act"), and applicable state securities laws with
respect to certain shares of Parent Common Stock to be issued in the Merger.
C. The execution and delivery of this Agreement is a condition precedent
to the obligations of the parties under the Merger Agreement.
D. Capitalized terms used herein and not otherwise defined shall have the
meaning set forth in the Merger Agreement.
AGREEMENT
In consideration of the terms hereof, the parties hereto agree as follows:
1. Certain Definitions
As used in this Agreement, the following terms have the following
respective meanings:
"Commission" means the United States Securities and Exchange Commission.
----------
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement on Form
S-3 (or such substitute or replacement form as the Commission shall have then
approved) with the Commission in compliance with the Securities Act, and the
declaration or ordering of the effectiveness of such registration statement.
<PAGE>
"Registrable Securities" mean the shares of Parent Common Stock to be
----------------------
issued to the Stockholders at the Closing of the Merger, excluding those shares
that constitute the Escrow Fund.
"Registration Expenses" mean all expenses, except as otherwise stated
---------------------
below, incurred by Parent in complying with Section 2, including, without
limitation, all registration, qualification and filing fees, printing expenses
and fees and expenses of counsel for Parent.
"Selling Expenses" mean all underwriting discounts, selling commissions and
----------------
stock transfer taxes applicable to the resale of the Registrable Securities by
the Stockholders.
"Selling Period" means the period commencing on the date on which the
--------------
registration statement is declared effective by the Commission and ending on the
earlier of (i) the date that is the one year anniversary of the Closing Date and
(ii) the date on which all of the Registrable Securities have been sold or
distributed by the Stockholders.
2. Obligations of Parent
2.1 Required Form S-3 Registration
Parent shall promptly prepare and file with the Commission no later than
thirty (30) days after the Closing Date, a registration statement on Form S-3
(the "Registration Statement") under the Securities Act with respect to the
resale of all the Registrable Securities (including, without limitation,
appropriate qualification under applicable state securities laws).
2.2 Effectiveness; Suspension Right
(a) Parent will use its best efforts to cause the Registration Statement to
become effective under the Securities Act (including without limitation the
filing of any amendments or other documents necessary for such effectiveness)
and to maintain the effectiveness of the Registration Statement and other
applicable registrations and qualifications until the end of the Selling Period,
and from time to time will amend or supplement the Registration Statement and
the prospectus contained therein as and to the extent necessary to comply with
the Securities Act, the Exchange Act and any applicable state securities laws,
subject to the following limitations and qualifications.
(b) During the Selling Period the Stockholders will be permitted to offer
and sell the Registrable Shares registered under the Registration Statement in
the manner described therein, provided that the Registration Statement remains
effective and has not been suspended (and provided further that each Stockholder
complies with any other restrictions on sales of the Registrable Shares that may
be applicable to such Stockholder, such as restrictions on sales by Stockholders
who are affiliates of the Company imposed by certain affiliate agreements being
executed in connection with the Merger, and restrictions on trading
2
<PAGE>
in Parent's securities applicable to Stockholders who are employees of Parent
or its subsidiaries pursuant to Parent's insider trading policy).
(c) Notwithstanding any other provision of this Agreement, Parent shall
have the right at any time to require that all Stockholders suspend further open
market offers and sales of Registrable Shares whenever, and for so long as, in
the reasonable judgment of Parent after consultation with counsel, there is in
existence material undisclosed information or events with respect to Parent (the
"Suspension Right"). In the event Parent exercises the Suspension Right, such
suspension will continue for the period of time reasonably necessary for
disclosure to occur at a time that is not detrimental to Parent and its
shareholders or until such time as the information or event is no longer
material, each as determined in good faith by Parent after consultation with
counsel, provided that the right of the holders of Registrable Shares to effect
open market offers and sales of Registrable Shares pursuant to the Registration
Statement will not be suspended under this Section 2.2(c) for a minimum of
thirty trading days (prorated for partial quarters) during each calendar quarter
(or portion thereof) and for a minimum of half the trading days in the Selling
Period; provided, further, that any such suspension shall apply only for so long
as "affiliates" (as defined in Rule 501 under the Securities Act) of the Parent
are restricted from selling shares of Parent Common Stock. Parent will promptly
give the Stockholders notice of any such suspension and will use all reasonable
efforts to minimize the length of the suspension.
2.3 Expenses of Registration
All Registration Expenses incurred in connection with any registration
pursuant to this Section 2 shall be borne by Parent. All Selling Expenses
relating to Registrable Securities registered on behalf of the Stockholders
shall be borne by the Stockholders, on the basis of the proportion of the number
of Registrable Securities registered and sold by each Stockholder bears to the
total number of Registrable Securities registered and sold. Fees and expenses
of legal counsel, if any, to any Stockholders shall be borne by the Stockholders
who retain such counsel.
3 Procedures for Sale of Shares Under Registration Statement
3.1 Notice and Approval
If any Stockholder shall propose to sell (which may include an intent to
sell over a specific period of time) Registrable Shares pursuant to the
Registration Statement, it shall notify Parent of its intent to do so (including
the proposed manner and timing of all sales) at least two full trading days
prior to such sale, and the provision of such notice to Parent shall
conclusively be deemed to reestablish and reconfirm an agreement by such
Stockholder to comply with the registration provisions set forth in this
Agreement. Unless otherwise specified in such notice, such notice shall be
deemed to constitute a representation that any information previously supplied
by such Stockholder expressly for inclusion in the Registration Statement (as
the same may have been superseded by subsequent such
3
<PAGE>
information) is accurate as of the date of such notice. At any time within such
two trading-day period, Parent may refuse to permit the Stockholder to resell
any Registrable Shares pursuant to the Registration Statement; provided,
however, that in order to exercise this right, Parent must deliver a certificate
in writing to the Stockholder to the effect that a delay in such sale is
necessary because a sale pursuant to the Registration Statement in its then-
current form without the addition of material, non-public information about
Parent, could constitute a violation of the federal securities laws.
Notwithstanding the foregoing, Parent will ensure that in any event the
Stockholders shall have at least ten trading days (prorated for partial
quarters) available to sell Registrable Shares during each calendar quarter (or
portion thereof) during the Selling Period.
3.2 Delivery of Prospectus
For any offer or sale of any of the Registrable Shares by a Stockholder in
a transaction that is not exempt under the Securities Act, the Stockholder, in
addition to complying with any other federal securities laws, shall deliver a
copy of the final prospectus (or amendment of or supplement to such prospectus)
of Parent covering the Registrable Shares in the form furnished to the
Stockholder by Parent to the purchaser of any of the Registrable Shares on or
before the settlement date for the purchase of such Registrable Shares.
3.3 Copies of Prospectuses
Subject to the provisions of this Section 3, when a Stockholder is entitled
to sell and gives notice of its intent to sell Registrable Shares pursuant to
the Registration Statement, Parent shall, within two trading days following the
request, furnish to such Stockholder a reasonable number of copies of a
supplement to or in amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Shares, such
prospectus shall not as of the date of delivery to the Stockholder include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statement therein not misleading or
incomplete in the light of the circumstances then existing.
4. Obligations of the Stockholders
4.1 Information
Each Stockholder shall furnish to Parent such additional information
regarding itself, the Registrable Securities (and other securities of Parent, if
any) it holds and the distribution proposed by it as Parent may reasonably
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in Section 2, including the information
requested by the Selling Stockholder Questionnaire attached hereto as Exhibit B,
---------
which Questionnaire each Stockholder shall complete and execute as a condition
to the inclusion of such Stockholder's shares in the registration statement.
4
<PAGE>
4.2 Representations and Warranties of the Stockholders
Each Stockholder represents with respect to himself, herself or itself
that:
(a) Good Title. (i) Such Stockholder owns, beneficially and of record, the
----------
shares of the Company Capital Stock listed opposite such Stockholder's name on
Exhibit A hereto, (ii) such shares of the Company Capital Stock are free and
- ---------
clear of any lien, encumbrance, adverse claim, mortgage, pledge, deed of trust,
security interest, charge, restriction on sale or transfer (other than
restrictions imposed by applicable securities laws), preemptive right, option or
other adverse claim or interest of any kind, (iii) such Stockholder has all
necessary power, right and authority to enter into this Agreement and each of
the agreements, certificates, instruments and documents executed or delivered
pursuant to the terms of the Merger Agreement by such Stockholder and to
consummate the transactions contemplated hereby and thereby, and (iv) this
Agreement has been duly authorized, executed and delivered by Stockholder and is
a legal, valid and binding obligation of Stockholder, enforceable in accordance
with its terms.
(b) Commission Documents. Such Stockholder acknowledges that he, she or it
--------------------
has received and had the opportunity to review to such Stockholder's
satisfaction the materials disseminated by the Company in connection with the
consent solicitation to approve the Merger and the transactions contemplated
thereby, including Parent's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
(c) Sophistication; Professional Advice. Such Stockholder, either alone or
-----------------------------------
with the assistance of his, her or its professional advisors, is a sophisticated
investor, is able to fend for himself, herself or itself in the transactions
contemplated by the Merger Agreement relating to the Parent Common Stock and has
such knowledge and experience in financial and business matters that he, she or
it is capable of evaluating the merits and risks of the prospective investment
in the Parent Common Stock. To the extent he, she or it deems necessary, such
Stockholder has obtained professional advice with respect thereto.
(d) Accredited Investor; Residence. The signature page hereof indicates
------------------------------
whether such Stockholder is an "accredited investor" as defined in Rule 501(a)
of Regulation D under the Securities Act. For purposes of the application of
state securities laws, such Stockholder is a resident of the state as set forth
on the signature page hereto.
(e) Investment for Own Account. The Parent Common Stock is being acquired
--------------------------
by such Stockholder for investment for its respective account, not as a nominee
or agent, and not with a view to the distribution of any part thereof.
Stockholder has no present intention of selling, granting any participation in
or otherwise distributing any of the Parent Common Stock in a manner contrary to
the Securities Act or to any applicable state securities laws, nor does
Stockholder have any contract, undertaking, agreement or arrangement with any
Person to sell, transfer or grant a participation to such Person or to any third
party with respect to any of the Parent Common Stock.
5
<PAGE>
(f) Restricted Securities. Such Stockholder acknowledges that the Parent
---------------------
Common Stock has not been and will not prior to issuance be registered under the
Securities Act and that the Parent Common Stock is characterized under the
Securities Act as "restricted securities" and, therefore, cannot be sold or
transferred until such sale or transfer is registered under the Securities Act
as provided in this Agreement or an exemption from such registration is
available. Accordingly, it is understood that the certificates evidencing the
Parent Common Stock may bear the following or a comparable legend:
The securities evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or
applicable state securities laws, and no interest therein may be sold,
distributed, assigned, offered, pledged or otherwise transferred
unless (a) there is an effective registration statement under the Act
and applicable state securities laws covering any such transaction
involving such securities, (b) this corporation receives an opinion of
legal counsel for the holder of the securities reasonably satisfactory
to this corporation stating that such transaction is exempt from
registration, or (c) this corporation otherwise satisfies itself that
such transaction is exempt from registration.
(g) Exemption Reliance. Such Stockholder has been advised that the Parent
------------------
Common Stock is being issued under this Agreement pursuant to exemptions from
applicable federal and state securities laws, and that Parent's reliance on such
exemptions is predicated in part on such Stockholder's representations contained
herein.
5. Indemnification and Contribution
5.1 Indemnification by Parent
To the extent permitted by law, Parent will indemnify and hold harmless
each Stockholder, any underwriter (as defined in the Securities Act) for such
Stockholder, its officers, directors, shareholders or partners and each person,
if any, who controls such Stockholder or underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (A) any untrue statement or alleged
untrue statement of a material fact contained or incorporated by reference in
the Registration Statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (B) the
omission or alleged omission to state or incorporate by reference therein a
material fact required to be stated or incorporated by reference therein, or
necessary to make the statements included or incorporated by reference therein
not misleading, or (C) any violation or alleged violation by Parent of the
Securities Act, the Exchange Act, any
6
<PAGE>
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law; and Parent will pay to each
such Stockholder (and its officers, directors, shareholders or partners),
underwriter or controlling person, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 5.1 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of Parent (which consent may not be
unreasonably withheld); nor shall Parent be liable in any such case for any such
loss, claim, damage, liability, or action to the extent that it arises out of or
is based upon (i) a Violation which occurs in reliance upon and in conformity
with written information furnished by any such Stockholder expressly for use in
the Registration Statement, or (ii) a Violation that would not have occurred if
such Stockholder had delivered to the purchaser the version of the Prospectus
most recently provided by Parent to the Stockholder as of a date prior to such
sale.
5.2 Indemnification by the Stockholders
To the extent permitted by law, each selling Stockholder, severally and not
jointly, will indemnify and hold harmless Parent, each of its directors, each of
its officers who has signed the Registration Statement, each person, if any, who
controls Parent within the meaning of the Securities Act, any underwriter, any
other Stockholder selling securities pursuant to the Registration Statement and
any controlling person of any such underwriter or other Stockholder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Securities Act, the Exchange Act
or other federal or state law, insofar as, and only to the extent that, such
losses, claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation (which includes without limitation the
failure of the Stockholder to comply with the prospectus delivery requirements
under the Securities Act, and the failure of the Stockholder to deliver the most
current prospectus provided by Parent prior to the date of such sale), in each
case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Stockholder expressly for use in the Registration Statement or such Violation is
caused by the Stockholder's failure to deliver to the purchaser of the
Stockholder's Registrable Shares a prospectus (or amendment or supplement
thereto) that had been made available to the Stockholder by Parent prior to the
date of the sale; and each such Stockholder will pay any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
Section 5.2 in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this Section 5.2 shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Stockholder, which consent shall not be unreasonably
withheld. The aggregate indemnification and contribution liability of each
Stockholder under this Section 5.2 shall not
7
<PAGE>
exceed the net proceeds received by such Stockholder in connection with sale of
shares pursuant to the Registration Statement.
5.3 Notice of Claims
Each person entitled to indemnification under this Section 5.3 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought and
shall permit the Indemnifying Party to assume the defense of any such claim and
any litigation resulting therefrom, provided that counsel for the Indemnifying
Party who conducts the defense of such claim or any litigation resulting
therefrom shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 5.3 unless the
Indemnifying Party is materially prejudiced thereby. No Indemnifying Party, in
the defense of any such claim or litigation, shall (except with the consent of
each Indemnified Party) consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
5.4 Contribution
To the extent that the indemnification provided for in this Section 5.4 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue of alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
8
<PAGE>
6. Notices
All notices and other communications hereunder shall be in writing and
delivered as set forth in Section 9.1 of the Merger Agreement, in the case of
Parent, to the address set forth therein and in the case of any Stockholder, to
the address set forth herein.
7. Amendments
This Agreement may not be amended except by an instrument signed by Parent
and the Stockholders holding a majority of the Registrable Securities.
8. Severability
In the event that any provision of this Agreement or the application
thereof, becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.
9. Transferability of Registration Rights
The rights under this Agreement are not transferable by holders of
Registrable Securities except (a) a transfer by will or intestacy, (b) estate
planning transfers consisting of gifts to the spouse or issue of the transferee
and transfers to trusts for the benefit of the spouse or issue of the
transferee, (c) a transfer to the constituent partners of a Stockholder that is
a partnership as part of a pro rata distribution of the shares of Parent Common
Stock held by such partnership so long as all such transferees appoint a single
representative as their attorney-in-fact for the purpose of receiving any
notices and exercising their rights under this Agreement, (d) a transfer by
Atrium Investors, LLC or Telecom Investors LLC to their respective members, or
(e) with the written consent of Parent.
10. Parties in Interest
This Agreement will be binding on and inure solely to the benefit of each
party hereto and its permitted assigns, and nothing in this Agreement, express
or implied, is intended to or will confer on any other Person any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
11. Specific Performance
The parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms
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or were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof (including the
indemnification provisions hereof) in any competent court having jurisdiction
over the parties, in addition to any other remedy to which they might be
entitled at law or in equity.
12. Governing Law; Jurisdiction and Venue
This Agreement shall be governed by and construed in accordance with the
laws of the State of Washington, regardless of laws that might otherwise govern
under applicable principles of conflicts of law thereof. The parties hereto
irrevocably consent to the jurisdiction and venue of the state and federal
courts located in King County, Washington in connection with any action relating
to this Agreement.
13. Headings
The descriptive headings contained in this Agreement are included for
convenience of reference only and will not affect in any way the meaning or
interpretation of this Agreement.
14. Counterparts; Electronic Signatures
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and shall become effective one or
more counterparts have been signed by each of the parties and delivered to the
other party, it being understood that all parties need not sign the same
counterpart. To expedite the process of entering into this Agreement, the
parties acknowledge that Transmitted Copies of this Agreement will be equivalent
to original documents until such time as original documents are completely
executed and delivered. "Transmitted Copies" will mean copies that are
reproduced or transmitted via photocopy, facsimile or other process of complete
and accurate reproduction and transmission.
15. Business Day
Should the day on which any act required to be performed under this
Agreement fall on a Saturday, Sunday or legal holiday, the day required for such
performance shall be the next day that is not a Saturday, Sunday or legal
holiday.
IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement as of the date and year first above written.
AVT CORPORATION
By: /s/ Richard LaPorte
Name: Richard LaPorte
Its: Chairman and CEO
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Signature Page to Registration Rights Agreement
STOCKHOLDER
By:
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Name:
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Address:
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EXHIBIT 10.3
ESCROW AND INDEMNIFICATION AGREEMENT
This ESCROW AND INDEMNIFICATION AGREEMENT (this "Agreement") is made and
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entered into as of April 14, 1999, among AVT Corporation, a Washington
corporation ("Parent"), Sanjeev Manaley (the "Securityholder Agent"), as agent
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for the stockholders of MediaTel Corporation, a Delaware corporation (the
"Company"), and ChaseMellon Shareholder Services, LLC, as escrow agent (the
"Escrow Agent").
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RECITALS
A. Pursuant to an Agreement and Plan of Merger, dated as of April 13, 1999
(the "Merger Agreement") among Parent, Goldengate Acquisition Corp., a Delaware
----------------
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), the Company,
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and certain significant stockholders of the Company, the parties thereto intend
to effect the merger of Merger Sub with and into the Company (the "Merger").
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B. Under the terms of the Merger Agreement, a portion of the shares of
Parent Common Stock, par value $.01 per share, to be issued to the holders of
the Company's capital stock in the Merger are to be deposited in an escrow
account with the Escrow Agent. The shares of Parent Common Stock so deposited
will remain subject to any indemnification claims Parent may have under Section
1(b) of this Agreement and Article VII of the Merger Agreement, until released
by the Escrow Agent pursuant to the terms hereof.
C. Pursuant to Article VII of the Merger Agreement, a copy of which is
attached hereto as Exhibit A, the Securityholder Agent has been duly appointed
by the Stockholders.
D. The execution and delivery of this Agreement by the parties hereto is a
condition precedent to the obligations of the parties to the Merger Agreement.
E. Capitalized terms used herein and not otherwise defined shall have the
meaning set forth in the Merger Agreement. In the event of any conflict between
the terms of this Agreement (other than those terms herein that affect the
rights, indemnifications, duties or obligations of the Escrow Agent which shall
be governed exclusively by the terms of this Agreement), the terms of the Merger
Agreement shall prevail.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, the parties hereto agree as follows:
1. Delivery of Shares; Indemnification
(a) At the Effective Time, certificates representing ten percent (10%) of
the shares of Parent Common Stock issuable to each Stockholder under Section
1.6(a) of the Merger
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Agreement (the "Escrow Shares") shall be deposited in escrow with the Escrow
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Agent, to be held and administered in accordance with the terms and conditions
of this Agreement. The number of Escrow Shares deposited in escrow by each
stockholder will be calculated by aggregating all shares of Parent Common Stock
to be issued to such Stockholder under Section 1.6(a) of the Merger Agreement
and multiplying that number by ten percent (10%). Fractional shares of Parent
Common Stock will not be deposited in escrow. Instead, the number of shares to
be deposited by each Stockholder in escrow will be rounded down to the nearest
whole number of shares.
(b) Subject to Section 7.5 of the Merger Agreement, Parent shall be
entitled pursuant to Section 7.2 of the Merger Agreement to recover from the
Escrow Shares the full dollar amount of any Losses that may be incurred by any
Indemnitee directly or indirectly as a result of (a) any inaccuracy or breach of
a representation or warranty of the Company or a Significant Stockholder
contained in Article II of the Merger Agreement, or (b) the nonperformance by
the Company or a Significant Stockholder (whether partial or total) of any
covenants or agreements made in the Merger Agreement or any agreement entered
into pursuant thereto which was due to be performed at or before Closing.
(c) The indemnification period with respect to the Escrow Shares shall
begin as of the Effective Time and shall continue until the earlier of (i) April
14, 2000 or (ii) the date on which Parent's independent accountants issue an
audit report for Parent and its consolidated subsidiaries for the year ended
December 31, 1999 (the "Escrow Period"). During the Escrow Period, Parent may
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make claims from the Escrow Shares on behalf of any Indemnitee for any Loss in
accordance with Section 1(b) hereof and Article VII of the Merger Agreement
(each, a "Claim"). Notwithstanding the foregoing, if any Claim Notice is filed
-----
during the Escrow Period, any representation or warranty relating to such claim
shall survive until the time when it is resolved in accordance with this
Agreement; and provided further that this Agreement shall not be deemed to
reduce the survival period provided in the Merger Agreement of any
representation and warranty.
(d) At the termination of the Escrow Period, Parent and the Securityholder
Agent shall jointly notify the Escrow Agent that the Escrow Period has
terminated and supply the Escrow Agent with a Schedule (as defined in Section
2(b) hereof), updated as of the last day of the Escrow Period, setting forth the
aggregate number of Escrow Shares to be released from Escrow (the "Released
--------
Shares") and the aggregate number of Escrow Shares subject to a claim for
- ------
reimbursement brought on behalf of any Indemnitee pending determination of
whether such claim is an indemnifiable Claim pursuant to Section 7.2 of the
Merger Agreement. The Released Shares shall be returned by the Escrow Agent to
the Record Holders (as defined in Section 2(b) hereof) pro rata in the same
proportions and to the addresses indicated on such updated Schedule within 10
days of the Escrow Agent's receipt of the Schedule. Upon the final
determination of any pending indemnification Claims, the Escrow Shares being
held pending such determination shall be distributed by the Escrow
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Agent upon receipt and in accordance with the terms of the relevant notice or
memorandum stipulated in Section 4 hereof.
(e) For purposes of this Agreement and Article VII of the Merger Agreement,
the satisfaction of any Losses owed under Section 1(b) of this Agreement and
Article VII of the Merger Agreement shall be made by delivery by the Escrow
Agent to Parent of that number of Escrow Shares calculated by dividing the
dollar amount of any Losses by the Parent Common Stock Price, which is $24.8766.
(f) The Escrow Agent will hold the Escrow Shares in accordance with the
terms and conditions of this Agreement. All obligations of the Escrow Agent
hereunder shall terminate upon final delivery of all Escrow Shares to the
appropriate party or parties in accordance with the instructions from the
Securityholder Agent and Parent, who shall act in accordance with this
Agreement. This Agreement shall terminate upon final delivery of all Escrow
Shares in accordance with the preceding sentence.
2. Administration
(a) The Escrow Agent shall accept, hold and safeguard the Escrow Shares
during the term of the Escrow Period and shall administer, hold and dispose of
such shares only in accordance with the terms of this Agreement and as
instructed in writing by Parent and the Securityholder Agent, as applicable, in
accordance with this Agreement and Article VII of the Merger Agreement.
(b) At the Effective Time, the Securityholder Agent shall supply Parent and
the Escrow Agent with a schedule (the "Schedule") of the Stockholders of record
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as of the Effective Time (the "Record Holders"), reflecting each such Record
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Holder's pro rata interest in the Escrow Shares, and reflecting also the mailing
address of each Record Holder. Parent shall keep such information current based
on information supplied in writing by the Securityholder Agent or by any Record
Holder in accordance with the notice provisions of this Agreement. Parent shall
advise the Escrow Agent in writing of changes to the Schedule, and Parent shall
make the Schedule, as it may be updated from time to time, available for
inspection by any Record Holder upon his or her reasonable request. The Escrow
Agent shall be fully protected, and shall incur no liability, in relying on the
latest version of the Schedule provided to it in accordance herewith.
(c) Notwithstanding the escrow of the Escrow Shares, dividends or other
distributions declared and paid on such shares shall continue to be paid by
Parent to the Stockholders and all voting rights with respect to such shares
shall inure to the benefit of and be enjoyed by the Record Holders; provided,
however, that in the event that any Escrow Shares are delivered to Parent in
satisfaction of any Losses pursuant to Article VII, the Record Holders shall
forfeit to Parent any dividends or other distributions associated with such
Escrow Shares. Any securities received by the Escrow Agent in respect of any
Escrow Shares held in escrow as a result of any stock split or combination of
shares of Parent
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Common Stock, payment of a stock dividend or other stock distribution in or on
shares of Parent Common Stock, or change of shares of Parent Common Stock into
any other securities pursuant to or as part of a merger, consolidation,
acquisition of property or stock, separation, reorganization, or liquidation of
Parent, or otherwise, shall be held by the Escrow Agent as, and shall be
included within the definition of, Escrow Shares, as the case may be. Any voting
notices, proxies, ballots, etc. with respect to the Escrow Shares received by
the Escrow Agent shall be forwarded to the Record Holders and the Escrow Shares
shall be voted by the Record Holders thereof.
3. Issuance of New Stock Certificates
When Escrow Shares are to be delivered hereunder (other than if delivered
in full to Parent), the Escrow Agent shall deliver the certificate(s) then
evidencing the appropriate number of Escrow Shares to Parent, who shall cause
replacement certificates to be promptly redeposited in escrow hereunder or
delivered to the Record Holders, as the case may be, in accordance with the
terms of this Agreement and the Merger Agreement.
4. Indemnification and Reimbursement Procedures; Claims Against the Escrow
4.1 Indemnification Claim Notice
Parent shall give written notice (the "Claim Notice") of any claim for
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indemnification under Section 1(b) hereof or Article VII of the Merger Agreement
to the Securityholder Agent and the Escrow Agent on or before the last day of
the Escrow Period. Notwithstanding the foregoing, if such claim relates to the
assertion against any Indemnitee of any Claim by a third party (a "Third Party
-----------
Claim"), such notice shall be given within 30 days after the assertion of such
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Third Party Claim; provided, however, that the failure or delay to so notify the
Securityholder Agent shall not relieve the Stockholders of any obligation or
liability that the Stockholders may have to the Indemnitees except to the extent
that the Securityholder Agent demonstrates that its ability to defend or resolve
such Claim is adversely affected thereby. Any such Claim Notice shall describe
the facts and circumstances on which the asserted Claim for indemnification is
based and shall specify the basis for the determination of the amount which the
Indemnitees intend to recover. Unless the Claim described in the Claim Notice
is contested by the Securityholder Agent by written notice to Parent and the
Escrow Agent of the amount of the Claim that is contested, given within 30 days
of the receipt by the Securityholder Agent of the Claim Notice, Parent on behalf
of the Indemnitees may recover such undisputed amount of the Claim described in
the Claim Notice from the Stockholders by giving written notice of such Claim to
the Escrow Agent and certifying that the Securityholder Agent has not contested
such Claim in the appropriate time period. In such event, the Escrow Agent
shall be entitled to rely on any such Claim Notice and distribute the Escrow
Shares held in escrow to Parent with a value (determined as provided in Section
1(e) above) equal to the undisputed amount of the Claim described in the Claim
Notice.
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4.2 Dispute Notice
If, within 30 days of the receipt by the Securityholder Agent of the Claim
Notice, the Securityholder Agent contests in writing to Parent and the Escrow
Agent that such Losses constitute an indemnifiable Claim pursuant to Section
1(b) hereof or Article VII of the Merger Agreement (the "Dispute Notice"), then
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Parent and the Securityholder Agent, acting in good faith, shall attempt to
reach agreement with respect to such Claim. If Parent and the Securityholder
Agent should so agree, a memorandum setting forth such agreement shall be
prepared and signed by Parent and the Securityholder Agent. Such notice shall
be furnished to the Escrow Agent and shall set forth the appropriate number of
Escrow Shares, if any, to be delivered to each party. The Escrow Agent shall be
entitled to rely on any such memorandum and distribute the Escrow Shares held in
escrow in accordance with the terms thereof.
If the Securityholder Agent disputes a Claim described in a notice from
Parent given pursuant to Section 4.1 hereof, or the amount that the Indemnitees
are claiming on account of such Claim (the "Contested Amount"), and the
Securityholder Agent and Parent are unable to resolve any such dispute within 45
days after delivery of the Dispute Notice, then the matter shall be settled by
binding arbitration in Seattle, Washington. All claims shall be settled by
three arbitrators in accordance with the Commercial Arbitration Rules then in
effect of the American Arbitration Association (the "AAA Rules"). The
Securityholder Agent and Parent shall each designate one arbitrator within 15
days after the termination of such 45-day period. The Securityholder Agent and
Parent shall cause such designated arbitrators mutually to agree upon and
designate a third arbitrator; provided, however, that (i) failing such agreement
within 70 days of delivery of the Dispute Notice, the third arbitrator shall be
appointed in accordance with the AAA Rules and (ii) if either the Securityholder
Agent or Parent fails to timely designate an arbitrator, the dispute shall be
resolved by the one arbitrator timely designated. All of the fees and expenses
of the three arbitrators initially shall be paid by Parent; provided, however,
that if Parent is the prevailing party in the arbitration, such fees and
expenses shall be treated as a "Loss" for purposes of Section 1(b) hereof and
Article VII of the Merger Agreement, and Parent shall be entitled to recover the
amount of such fees and expenses from the Escrow Shares in accordance with the
provisions of this Agreement. For purposes of this Agreement, the prevailing
party shall be that party in whose favor final judgment is rendered or who
substantially prevails, if both parties are awarded judgment. The
Securityholder Agent and Parent shall cause the arbitrators to decide the matter
to be arbitrated pursuant hereto within 30 days after the appointment of the
last arbitrator. The arbitrators' decision shall relate solely to whether the
Indemnitees are entitled to receive the Contested Amount (or a portion thereof)
pursuant to the applicable terms of the Merger Agreement and this Agreement.
The final decision of the majority of the arbitrators shall be furnished to the
Securityholder Agent, Parent and the Escrow Agent in writing and shall
constitute the conclusive determination of the issue in question binding upon
the Securityholder Agent, Parent and the Escrow Agent. Such decision may be
used in a court of law only for the purpose of seeking enforcement of the
arbitrators' decision.
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4.3 Third-Party Claims
(a) The Securityholder Agent shall have the right, upon written notice
given to Parent and the Escrow Agent within 30 days after receipt of the Claim
Notice relating to a Third Party Claim, to undertake the defense or handling of
such Third Party Claim. The Securityholder Agent shall select counsel
reasonably acceptable to Parent in connection with conducting the defense or
handling of such Third Party Claim, and the Securityholder Agent shall defend or
handle the same in consultation with Parent and shall keep Parent timely
apprised of the status of such Third Party Claim. The Securityholder Agent
shall not, without the prior written consent of Parent, agree to a settlement of
any Third Party Claim, unless (i) the settlement provides an unconditional
release and discharge of the Indemnitees and the Indemnitees are reasonably
satisfied with such discharge and release and (ii) Parent has not reasonably
objected to any such settlement on the ground that the circumstances surrounding
the settlement could result in an adverse impact on the business, operations,
assets, liabilities (absolute, accrued, contingent or otherwise), condition
(financial or otherwise) or prospects of Parent. Parent shall be entitled to
participate in the defense or handling of such Third Party Claim with its own
counsel and at its own expense.
Notwithstanding the foregoing paragraph, Parent shall have the right to
retain control of the defense of any Third Party Claim which involves potential
Losses in excess of the value of the Escrow Fund remaining in the Escrow
Account, or which could reasonably be expected to materially affect Parent's on-
going operations. In such event, the Securityholder Agent shall have the right
to be present at the negotiation, defense and settlement of such action or
claim.
(b) If the Securityholder Agent, within 30 days after receipt of a Claim
Notice relating to a Third Party Claim (or, if earlier, by the tenth day
preceding the day on which an answer or other pleading must be served in order
to prevent judgment by default in favor of the person asserting such claim),
does not elect to defend against such claim, Parent may, at the Stockholder's
expense (through the submission of such expenses as Losses to be indemnified
from the Escrow Fund), select counsel in connection with conducting the defense
or handling of such Third Party Claim and defend or handle such Third Party
Claim in such manner as it may deem appropriate, provided, however, that Parent
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shall keep the Securityholder Agent timely apprised of the status of such Third
Party Claim and shall not settle such Third Party Claim without the prior
written consent of the Securityholder Agent, which consent shall not be
unreasonably withheld. If the Parent defends or handles such Third Party Claim,
the Securityholder Agent shall cooperate with the Parent and shall be entitled
to participate in the defense or handling of such Third Party Claim with its own
counsel and at its own expense.
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4.4 Fractional Shares
To the extent it is necessary to satisfy a Claim or a Third Party Claim by
delivering to Parent a fractional Escrow Share, the Escrow Agent shall round
such fractional Escrow Share to the nearest whole share, with one half of such
Escrow Share being rounded downward.
5. Provisions Regarding the Escrow Agent
5.1 Liability of the Escrow Agent
The duties of the Escrow Agent hereunder are purely ministerial in nature.
In performing any duties under this Agreement, the Escrow Agent shall not be
liable to any party for any losses, claims, damages, liabilities or expenses,
except for gross negligence or willful misconduct on the part of the Escrow
Agent. The Escrow Agent shall be fully protected in relying on and shall not
incur any liability for any action taken, suffered or omitted in reliance on any
instrument, including any written statement or affidavit provided for in this
Agreement that the Escrow Agent shall in good faith believe to be genuine, nor
will the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority,
provided that the Escrow Agent believed that the forgeries, fraud, or
impersonations of others were genuine and acted without gross negligence or
willful misconduct. In addition, the Escrow Agent may consult with legal
counsel in connection with the Escrow Agent's duties under this Agreement and
shall be fully protected in any act taken, suffered, or omitted by it in
accordance with the advice of counsel; provided that the Escrow Agent exercised
reasonable care in the selection of such counsel. The Escrow Agent is not
responsible for determining and verifying the authority of any person acting or
purporting to act on behalf of any party to this Agreement. The Escrow Agent
shall have the right to perform any of its duties hereunder through agents,
custodians or nominees.
5.2 Fees and Expenses
It is understood that the fees, expenses and usual charges agreed on for
services of the Escrow Agent shall be considered compensation for ordinary
services as contemplated by this Agreement. In the event that the conditions of
this Agreement are not promptly fulfilled, or if the parties request a
substantial modification of its terms, or if any controversy arises, or if the
Escrow Agent is made a party to, or intervenes in, any litigation pertaining to
this escrow or its subject matter, the Escrow Agent shall be reasonably
compensated for such extraordinary services and shall be reimbursed for all
costs, attorneys' fees, including allocated costs of in-house counsel, and
expenses occasioned by such default, delay, controversy, litigation or other
event, and the Escrow Agent shall have the right to retain all documents and/or
other things of value at any time held by the Escrow Agent in this escrow until
such compensation, fees, costs, and expenses are paid. All fees, costs and
expenses of the Escrow Agent shall be borne by Parent.
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5.3 Controversies
If any controversy arises between the parties to this Agreement, or with
any other party, concerning the subject matter of this Agreement, its terms or
conditions, the Escrow Agent will not be required to determine the controversy
or to take any action regarding it. The Escrow Agent may hold all documents and
funds and may wait for settlement of any such controversy by agreement by the
parties as provided by Section 4. In such event, the Escrow Agent will not be
liable, as a result thereof, to any person or entity for any losses, damages or
otherwise. The Escrow Agent is authorized to deposit with the arbitrator all
documents and funds held in escrow, except all costs, expenses, charges, and
reasonable attorneys' fees incurred by the Escrow Agent or Escrow Shares equal
to such value. Upon initiating such action, the Escrow Agent shall be fully
released and discharged of and from all obligations and liability imposed by the
terms of this Agreement.
In addition, in the event of any dispute between the parties to this Escrow
Agreement, or between any of them and any other person, resulting in adverse
claims or demands being made upon any of the Escrow Shares, or in the event that
the Escrow Agent, in good faith, is in doubt as to what action it should take
hereunder, the Escrow Agent may, at its option, file a suit as interpleader in a
court of appropriate jurisdiction, or refuse to comply with any claims or
demands on it, or refuse to take any other action hereunder, so long as such
dispute shall continue or such doubt shall exist. The Escrow Agent shall be
entitled to continue to refrain from acting until (i) the rights of all parties
have been fully and finally adjudicated by a court of appropriate jurisdiction
or (ii) all differences and doubt shall have been resolved by agreement among
all of the interested persons, and the Escrow Agent shall have been notified
thereof in writing signed by all such persons. The rights of the Escrow Agent
under this Section are cumulative of all other rights which it may have by law
or otherwise.
5.4 Indemnification of the Escrow Agent
Parent shall indemnify the Escrow Agent for, and hold it harmless against,
any loss, liability, claim, cost, settlement, judgment, damage, fines, penalty,
demand or expense, including attorney's fees, arising out of or in connection
with its execution of this Agreement or its performance of its duties under this
Agreement, including the costs and expenses of defending itself against any such
loss, liability, claim or expense in connection herewith, unless such loss,
liability, claim, cost, settlement, judgment, damage, fines, penalty, demand or
expense shall have been determined by a court of competent jurisdiction to be a
result of the Escrow Agent's gross negligence or intentional misconduct.
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Escrow Agent be liable for special, punitive, indirect, incidental or
consequential loss or damage of any kind whatsoever (including but not limited
to lost profits), even if the Escrow Agent has been advised of the likelihood of
such damages and regardless of the form of action. Any liability of the Escrow
Agent will be limited to the amount of fees paid by Parent. The obligations of
Parent under this section and Section 5.2 hereof shall survive termination of
this Agreement and the resignation or substitution of the Escrow Agent.
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5.5 Resignation of the Escrow Agent
The Escrow Agent may resign at any time upon giving at least 30 days'
written notice to the parties; provided, however that no such resignation shall
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become effective until the appointment of a successor escrow agent, which shall
be accomplished as follows: Parent and the Securityholder Agent shall use their
best efforts to mutually agree on a successor escrow agent within 30 days after
receiving such notice. If Parent and the Securityholder Agent fail to agree on
a successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent authorized to do business in the State of
Washington, which successor escrow agent shall be reasonably acceptable to
Parent and the Securityholder Agent. The successor escrow agent shall execute
and deliver an instrument accepting such appointment and it shall, without
further acts, be vested with all the estates, properties, rights, powers and
duties of the predecessor escrow agent as if originally named as escrow agent.
Upon the effective appointment of a successor escrow agent, the Escrow Agent
shall be discharged from any further duties and liability under this Agreement.
If a successor escrow agent is not appointed within the above time frames by
either Parent, the Securityholder Agent or the Escrow Agent, then the Escrow
Agent shall, upon delivery of all records to Parent, be discharged from any
further duties and liability under this Agreement.
6. Representations and Warranties
Each of the parties hereto represents and warrants with respect to itself
only as follows: (i) that it has full power and authority to execute, deliver
and perform its obligations under this Agreement; (ii) that all action on the
part of such party necessary for the due authorization, execution, delivery and
performance of this Agreement, the consummation of the transactions contemplated
hereby, and the performance of each party's obligations hereunder has been
taken; (iii) that this Agreement has been duly authorized, executed and
delivered by such party; and (iv) that this Agreement is a legal, valid and
binding obligation of such party, enforceable against such party in accordance
with its terms.
7. Amendments
This Agreement may not be amended except by an instrument signed by Parent,
the Escrow Agent and the Securityholder Agent. No such amendment shall be
effective to alter or enlarge the Escrow Agent's duties, rights, discretion and
obligations hereunder without its prior consent.
8. Notices
Any notice or request required or permitted to be given hereunder must be
in writing given by personal delivery, overnight courier, certified or
registered mail or facsimile, addressed as respectively set forth below or to
such other address as any party has previously designated by such a notice. The
effective date of any notice or request is (a) three days from the date it is
sent so long as it is in fact received within five days if sent by certified or
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registered mail, (b) the date of delivery if personally delivered or delivered
by overnight courier, or (c) when sent by facsimile with receipt confirmed.
Notices to the parties hereto shall be sent as follows:
To Parent:
AVT Corporation
11410 N.E. 122nd Way
Kirkland, Washington 98034
Attn: Roger A. Fukai, Executive Vice President
with a copy to:
Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
Fax: (206) 583-8500
Attention: Linda Schoemaker
To the Securityholder Agent:
Wilson Sonsini Goodrich & Rosati, P.C.
for Sanjeev Malaney, Client
650 Page Mill Road
Palo Alto, California 94304
Attention: Michael J. Danaher, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Michael J. Danaher, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
To the Escrow Agent:
ChaseMellon Shareholder Services LLC
Corporate Trust Division
P.O. Box 21927
Seattle, WA 98111
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Fax: (206) 292-3196
Attention: Joseph Campbell, Assistant Vice President
For Courier Deliveries:
Corporate Trust Division
14th Floor
999 Third Avenue
Seattle, WA 98104
9. Severability
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.
10. Entire Agreement
This Agreement, the Merger Agreement and each of the agreements,
certificates, instruments and documents to be executed or delivered pursuant to
the terms of the Merger Agreement constitute the entire agreement among the
parties with respect to the subject matter hereof and thereof and supersede all
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof and thereof.
11. Parties in Interest
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
12. Governing Law
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Washington applicable to contracts executed in and to be
performed in that State; provided, however, that all provisions regarding the
rights, duties and obligations of the Escrow Agent shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such State.
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<PAGE>
13. Headings
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
14. Assignment
This Agreement shall not be assigned by operation of law or otherwise,
without the prior written consent of the other parties; provided, however, that
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Parent may assign all or any of its rights and obligations hereunder to any of
its affiliates.
15. Specific Performance
Each of the parties acknowledges and agrees that the other parties hereto
would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the parties hereto agrees the other parties
hereto will be entitled to an injunction to prevent breaches of the provisions
of this Agreement and to enforce specifically this Agreement and the terms and
provisions of this Agreement (including the indemnification provisions hereof)
in any competent court having jurisdiction over the parties, in addition to any
other remedy to which they might be entitled at law or in equity.
16. Further Assurances
Each party will, at the reasonable request of any other party hereto, from
time to time execute and deliver such other assignments, transfers, conveyances,
and other instruments and documents and do and perform such other acts and
things as may be reasonably necessary or desirable for effecting complete
consummation of this Agreement and the transactions contemplated hereby.
17. Counterparts; Electronic Signatures
This Agreement may be executed and delivered in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which when
executed and delivered will be deemed to be an original but all of which taken
together will constitute one and the same agreement. To expedite the process of
entering into this Agreement, the parties acknowledge that Transmitted Copies of
this Agreement will be equivalent to original documents until such time as
original documents are completely executed and delivered. "Transmitted Copies"
------------------
will mean copies that are reproduced or transmitted via photocopy, facsimile, or
other process of complete and accurate reproduction and transmission.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
AVT CORPORATION
By: /s/ Richard J. LaPorte
----------------------
Its: Chairman and CEO
SECURITYHOLDER AGENT
/s/ Sanjeev Malaney
--------------------------------------
Sanjeev Malaney
CHASEMELLON SHAREHOLDER
SERVICES LLC
By: /s/ Joseph Campbell
-------------------
Its: Assistant Vice President
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