<PAGE>
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
Date of Report (Date of earliest event reported): July 15, 1997
Discreet Logic Inc.
-------------------
(Exact name of Registrant as specified in its charter)
Quebec 0-26100 98-0150790
- ----------------------------- ------------ ------------------
(State or other jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
10 Duke Street
Montreal, Quebec, Canada H3C 2L7
- ------------------------------------------ -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (514) 393-1616
<PAGE>
Item 2. Acquisition or Disposition of Assets
On July 15, 1997, Discreet Logic Inc. ("Discreet") acquired all of the
outstanding shares of the capital stock of D-Vision Systems, Inc., an Illinois
corporation ("D-Vision"), pursuant to that certain Stock Purchase Agreement
dated as of July 10, 1997 (the "Stock Purchase Agreement"), by and among
Discreet, D-Vision, the former stockholders of D-Vision and certain other
individuals (the "Acquisition").
As a result of the Acquisition, Discreet acquired the D-Vision OnLINE and
PRO software products for non-linear video and digital media editing solutions,
including related know-how and goodwill.
The purchase price was paid in a combination of 555,000 newly issued
Discreet common shares and approximately $10.75 million in cash. Discreet will
be filing a resale registration statement with respect to the 555,000 Discreet
common shares issued in connection with the Acquisition. In addition,
approximately $4.0 million of the cash consideration is being held in escrow
until September 30, 1999, subject to (i) earlier release from escrow of up to
$1.9 million on September 30, 1998, and (ii) the resolution of indemnification
claims made by Discreet pursuant to the Stock Purchase Agreement.
The Acquisition will be accounted for as a purchase. A substantial portion
of the purchase price, net liabilities of D-Vision and transaction costs is
expected to be allocated to purchased in-process research and development for
which Discreet expects to incur a one-time charge against earnings in the range
of $20 million to $21 million, or $.71 to $.75 per share, in the quarter ending
September 30, 1997.
The terms of the transaction and the consideration received by the D-Vision
stockholders were the result of arms'-length negotiations between the
representatives of Discreet and D-Vision. The terms of the transaction are more
fully described in the Stock Purchase Agreement, Registration Rights Agreement
and Escrow Agreement, copies of which are filed as Exhibit 2.1, 2.2, and 2.3,
respectively, to this Report and are incorporated herein by reference.
The Acquisition of D-Vision is part of Discreet's new multi-platform
software initiative which includes the formation of two new product development
groups: Discreet Logic Systems Group and the Discreet Logic Software Group. The
new product organization is part of Discreet's strategy to develop a
comprehensive business model of selling software across Apple/R/ Macintosh/R/,
Microsoft/R/ Windows NT/TM/ and UNIX platforms, in addition to its existing
fully integrated real-time turnkey systems solutions.
Certain Factors that May Affect Future Results
Information provided by Discreet from time to time, including statements in
this Form 8-K which are not historical facts, constitute forward looking
statements that involve risks and uncertainties and are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995
and the releases of the Securities and Exchange Commission.
<PAGE>
Actual results of operations in connection with the Acquisition of D-Vision may
vary significantly based on a number of factors, including the integration of
the D-Vision software products into Discreet's product line, including the
recently acquired Denim software products, market acceptance of D-Vision's
products, successful penetration of new markets for institutional customers and
professional consumers, the impact of the Acquisition on the Company's current
business, the timely development and acceptance of new products, the impact of
competitive products and pricing, the timely development and release of products
by strategic suppliers, and other risks discussed from time to time in
Discreet's other filings with the Securities and Exchange Commission.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
It is impracticable to provide the financial information required by Item
7(a) of Form 8-K relating to the business acquired by the Company from D-Vision
at the time this report is filed. Such required financial information will be
filed as soon as practicable, but not later than September 29, 1997.
(b) Pro Forma Financial Information.
It is impracticable to provide the pro forma financial information required
by Item 7(b) of Form 8-K relating to the business acquired by the Company from
D-Vision at the time this report is filed. Such required pro forma financial
information will be filed as soon as practicable, but not later than September
29, 1997.
(c) Exhibits.
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Stock Purchase Agreement dated as of July 10, 1997
among Discreet, D-Vision, its former stockholders
and certain individuals
2.2 Registration Rights Agreement dated as of July 15,
1997 among Discreet, D-Vision and its former
stockholders
2.3 Escrow Agreement dated as of July 15, 1997 among
Discreet, D-Vision, its former stockholders and
certain individuals
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DISCREET LOGIC INC.
July 30, 1997
By: /s/ Francois Plamondon
----------------------
Francois Plamondon
Senior Vice President,
Chief Financial Officer, Treasurer and
Secretary
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Stock Purchase Agreement dated as of July 10, 1997
among Discreet, D-Vision, its former stockholders
and certain individuals
2.2 Registration Rights Agreement dated as of July 15,
1997 among Discreet, D-Vision and its former
stockholders
2.3 Escrow Agreement dated as of July 15, 1997 among
Discreet, D-Vision, its former stockholders and
certain individuals
</TABLE>
<PAGE>
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
among
D-VISION SYSTEMS, INC.,
THE SELLERS LISTED ON THE SIGNATURE PAGES HERETO
AND
DISCREET LOGIC INC.
Dated as of July 10, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I -- DEFINITIONS.......................................................1
1.01. Definitions.............................................................1
ARTICLE II -- PURCHASE AND SALE................................................5
2.01. Purchase Price; Allocation of Purchase Price............................5
2.02. Closing; Payment of Purchase Price......................................5
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS.......8
3.01. Corporate Existence and Power...........................................8
3.02. Corporate Authorization.................................................8
3.03. Governmental Authorization; Consents....................................8
3.04. Non-Contravention.......................................................9
3.05. Capitalization..........................................................9
3.06. Subsidiaries...........................................................10
3.07. Financial Statements...................................................10
3.08. Absence of Certain Changes.............................................10
3.09. Title to Property; Encumbrances; Condition.............................12
3.10. No Undisclosed Material Liabilities....................................12
3.11. Litigation.............................................................13
3.12. Contracts..............................................................13
3.13. Insurance Coverage.....................................................14
3.14. Compliance with Laws; No Defaults......................................14
3.15. Finders, Fees..........................................................15
3.16. Proprietary Rights.....................................................15
3.17. Inventories............................................................17
3.18. Receivables............................................................17
3.19. Taxes..................................................................17
3.20. Net Operating Losses...................................................19
3.21. Employees and Consultants..............................................19
3.22. Products...............................................................20
3.23. Environmental Compliance...............................................20
3.24. Customers, Suppliers and Distributors..................................22
3.25. Transactions with Affiliates...........................................23
3.26. Other Information......................................................23
3.27. Books and Records......................................................23
3.28. Representations........................................................23
ARTICLE IV -- ADDITIONAL REPRESENTATIONS......................................23
4.01. Title to and Validity of Shares........................................23
4.02. Authority..............................................................24
4.03. Power To Act as Trustee or Executor....................................24
ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF BUYER..........................24
5.01. Organization and Existence.............................................24
5.02. Corporate Authorization................................................24
5.03. Governmental Authorization.............................................24
5.04. Non-Contravention......................................................24
5.05. Finders' Fees..........................................................25
5.06. Purchase for Investment................................................25
</TABLE>
<PAGE>
-ii-
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
5.07. Financing..............................................................25
5.08. Shares of Buyer Stock..................................................25
5.09. Capitalization.........................................................25
5.10. Reports and Financial Statements.......................................25
5.11. Litigation.............................................................26
5.12. Material Transactions..................................................26
ARTICLE VI -- COVENANTS OF THE COMPANY AND SELLERS............................26
6.01. Conduct of the Company.................................................26
6.02. Access to Information..................................................27
6.03. Notices of Certain Events..............................................27
6.04. Noncompetition.........................................................28
6.05. Confidentiality........................................................29
6.06. Trademarks; Tradenames.................................................30
6.07. No Negotiations with Third Parties.....................................30
6.08. Continuing Disclosure..................................................30
ARTICLE VII -- COVENANTS OF BUYER.............................................30
7.01. Confidentiality........................................................30
7.02. Access.................................................................31
ARTICLE VIII -- COVENANTS OF ALL PARTIES......................................31
8.01. Best Efforts...........................................................31
8.02. Certain Filings........................................................31
ARTICLE IX -- EMPLOYEE BENEFITS...............................................32
9.01. Employee Benefits Definitions..........................................32
9.02. ERISA Representations..................................................32
9.03. No Third Party Beneficiaries...........................................34
ARTICLE X -- CONDITIONS TO CLOSING............................................34
10.01. Conditions to the Obligations of Each Party............................34
10.02. Conditions to Obligation of Buyer......................................35
10.03. Conditions to Obligation of Sellers....................................36
ARTICLE XI -- SURVIVAL; INDEMNIFICATION.......................................37
11.01. Survival...............................................................37
11.02. Indemnification........................................................37
11.03. Procedures; No Waiver..................................................38
ARTICLE XII -- TERMINATION....................................................38
12.01. Grounds for Termination................................................38
12.02. Notice of Termination; Effect of Termination...........................40
12.03. Fees...................................................................40
12.04. Procedure Upon Termination.............................................40
ARTICLE XIII -- MISCELLANEOUS.................................................40
13.01. Notices................................................................40
13.02. Amendments; No Waivers.................................................41
13.03. Expenses...............................................................42
13.04. Successors and Assigns.................................................42
13.05. Further Assurances.....................................................42
</TABLE>
<PAGE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
13.06. Governing Law..........................................................42
13.07. Counterparts; Effectiveness............................................42
13.08. Entire Agreement.......................................................42
13.09. Captions...............................................................42
13.10. Other Remedies; Specific Performance...................................43
</TABLE>
Schedules
Schedule No. Description
Schedule 2.01 -- Purchase Price; Allocation of Purchase Price
Schedule 3.01 -- Corporate Existence and Power
Schedule 3.03(a) -- Governmental Authorization; Consents
Schedule 3.03(b) -- Governmental Authorization; Consents
Schedule 3.05 -- Capitalization
Schedule 3.06 -- Subsidiaries
Schedule 3.07 -- Financial Statements
Schedule 3.08 -- Absence of Certain Changes
Schedule 3.09 -- Title to Property; Encumbrances; Condition
Schedule 3.10 -- No Undisclosed Material Liabilities
Schedule 3.11 -- Litigation
Schedule 3.12 -- Contracts
Schedule 3.12(b) -- Contracts
Schedule 3.13 -- Insurance Coverage
Schedule 3.14 -- Compliance with Laws; No Defaults
Schedule 3.16(a) -- Proprietary Rights
Schedule 3.16(b) -- Proprietary Rights
Schedule 3.16(c) -- Proprietary Rights
Schedule 3.16(d) -- Proprietary Rights
Schedule 3.18 -- Receivables
Schedule 3.19 -- Taxes
Schedule 3.20 -- Net Operating Losses
Schedule 3.21 -- Employees and Consultants
Schedule 3.22 -- Products
Schedule 3.23 -- Environmental Compliance
Schedule 3.24 -- Customers, Suppliers and Distributors
Schedule 3.25 -- Transaction with Affiliates
Schedule 10.02(e) -- List of Former Employees and Consultants
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT dated as of July 10, 1997 among D-Vision Systems, Inc., a
corporation organized under the laws of the State of Illinois (the "Company");
the stockholders of the Company listed on the signature pages hereto
(individually a "Seller" and collectively, the "Sellers"); and Discreet Logic
Inc., a corporation organized under the laws of the province of Quebec
("Buyer").
W I T N E S S E T H :
WHEREAS, the Board of Directors of Buyer and Company have each
determined that it is advisable and in the best interest of their respective
stockholders for Buyer to purchase from Sellers all of the outstanding shares of
capital stock of the Seller (the "Shares"); and
WHEREAS, each Seller desires to sell to Buyer all of the Shares owned
by such Seller;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. (a) The following terms, as used herein, have the
-----------
following meanings:
"Affiliate" means, with respect to any Person, any Person directly or
---------
indirectly controlling, controlled by, or under common control with such other
Person.
"Ancillary Agreements" means the Escrow Agreement and Registration
--------------------
Rights Agreement.
"Balance Sheet" means the unaudited balance sheet of the Company as
-------------
of May 31, 1997 found in Schedule 3.07.
-------------
"Balance Sheet Date" means May 31, 1997.
------------------
"Buyer Stock" means the shares of common stock, no par value per
-----------
share, of Buyer to be included in the Purchase Price.
"Buyer's Counsel" means the law firm of Testa, Hurwitz & Thibeault,
---------------
LLP, Boston, Massachusetts.
"Company Counsel" means the law firm of Gardner, Carton & Douglas,
---------------
Chicago, Illinois.
<PAGE>
-2-
"Closing Date" means the date of the Closing.
------------
"Company's Proprietary Rights" means all Proprietary Rights relating
----------------------------
to the development, production, maintenance, improvement, distribution or
marketing of any product or provision of any service developed, sold, leased,
licensed or offered for sale, lease or license by the Company.
"Confidential Information" means confidential information which is
------------------------
disclosed to another party or Affiliate thereof, including, but not limited to,
trade secrets, know-how, inventions, techniques, processes, algorithms, software
programs, blueprints, engineering drawings, schematics, designs, theories of
operation, contracts, customer lists, financial information, sales and marketing
plans and business information, or information regarding Proprietary Rights.
"Custody Agreement" means the custody agreements between Gardner,
-----------------
Carton & Douglas, as custodian, and certain of the Sellers dated as of June
1997.
"Employee Settlement Paying Agent" means ADP, for the purpose of
--------------------------------
making payments on behalf of the Company pursuant to certain settlement and
release agreements between the Company and certain of the current employees of
the Company.
"Escrow Agent" means the Escrow Agent that is a signatory to the
------------
Escrow Agreement.
"Escrow Agreement" means the Escrow Agreement between Buyer, Sellers
----------------
and Escrow Agent in the form set forth on Exhibit A.
---------
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976, as amended.
"Investment Representation Agreement" means the Investment
-----------------------------------
Representation Agreement between the Company and each of the Sellers receiving
Share Consideration in the form set forth on Exhibit B.
---------
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
----
charge, security interest or encumbrance of any kind in respect of such asset.
"Material Adverse Change" means a material adverse change in the
-----------------------
business, properties, Proprietary Rights, assets, condition (financial or
otherwise), results of operations or prospects of the Company.
"Material Adverse Effect" means any change, effect or circumstance
-----------------------
that, individually or when taken together with all of such changes, effects or
circumstances that have occurred prior to the date of determination of Material
Adverse Effect, is or could reasonably be materially adverse to the business,
properties, Proprietary Rights, assets, condition (financial or otherwise),
results of operations or prospects of the Company.
<PAGE>
-3-
"1934 Act" means the Securities Exchange Act of 1934, as amended, and
--------
the rules and regulations promulgated thereunder.
"Person" means an individual, corporation, partnership, association,
------
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Power of Attorney" means the letter of transmittal and power of
-----------------
attorney delivered by certain of the Sellers, appointing Paul Reilly, attorney-
in-fact for such designated Sellers.
"Preferred Stock" means the shares of Series A Convertible Preferred
---------------
Stock, no par value per share, and shares of Series B Convertible Preferred
Stock, no par value per share, of the Seller.
"Proprietary Rights" means all (A) patents, patent applications,
------------------
patent disclosures and all related continuation, continuation-in-part,
divisional, reissue, re-examination, utility, model, certificate of invention
and design patents, patent applications, registrations and applications for
registrations, (B) trademarks, service marks, trade dress, logos, tradenames,
service names and corporate names and registrations and applications for
registration thereof, (C) copyrights and registrations and applications for
registration thereof, (D) mask works and registrations and applications for
registration thereof, (E) computer software, data and documentation, (F) trade
secrets and confidential business information, whether patentable or
nonpatentable and whether or not reduced to practice, know-how, manufacturing
and product processes and techniques, research and development information,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information, (G) other proprietary rights relating to any of the foregoing
(including without limitation associated goodwill and remedies against
infringements thereof and rights of protection of an interest therein under the
laws of all jurisdictions) and (H) copies and tangible embodiments thereof.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement between Buyer and those Sellers who receive Share Consideration in the
form set forth on Exhibit C.
---------
"Share Subscription Agreement" means the Share Subscription Agreement
----------------------------
between Buyer and Paul Reilly contemplating the purchase by Paul Reilly of a
number of shares of Buyer Stock equal to $1,238,876 calculated on the same basis
as the Share Consideration (as defined) set forth in Section 2.01.
"Seller's Counsel" means the law firm of Gardner, Carton & Douglas,
----------------
Chicago, Illinois.
"Subsidiary" means any entity of which securities or other ownership
----------
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Company.
<PAGE>
-4-
(b) Each of the following terms is defined in the Section set forth opposite
such term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Accounts Receivable 3.07(b)
Acquisition Proposals 6.07
Benefit Arrangement 9.01
Buyer Closing Price 2.01
Buyer Common Stock 5.09
Buyer SEC Reports 5.10
Cash Consideration 2.01
CERCLA 3.23
Closing 2.02
Closing Date Cash Consideration 2.02
Common Stock 3.05
Company Securities 3.05
Competition 6.04
Contracts 3.12
EEOC 3.21
Employees 3.21
Employee Plan 9.01
Environment 3.23
Environmental Laws 3.23
Environmental Liabilities 3.23
Environmental Permits 3.23
ERISA 9.01
ERISA Affiliate 9.01
Escrow Amount 2.02
Financial Statements 3.07
Hazardous Substance 3.23
Indemnified Party 11.03
Indemnifying Party 11.03
Indemnitee 11.02
Indemnitees 11.02
Interim Financial Statements 3.07
Loss 11.02
Multiemployer Plan 9.01
Nondisclosure and Assignment Agreement 10.02(b)
Optionholders 2.02(c)
Order 12.01
Permit 3.14
Preferred Stock 3.05
Purchase Price 2.01
Real Property 3.08
</TABLE>
<PAGE>
-5-
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Release 3.23
Returns 3.19
Schedules Art. 3 Preamble
Settlement 3.24
Shares Preamble
Share Consideration 2.01
Taxes 3.19
Third Party Proprietary Rights 3.16
Transferred Employee 9.01
Year End Financial Statements 3.07
</TABLE>
ARTICLE II
PURCHASE AND SALE
2.01. Purchase Price; Allocation of Purchase Price. Upon the terms and
--------------------------------------------
subject to the conditions of this Agreement, each Seller, severally but not
jointly, shall sell to Buyer, and Buyer shall purchase from each such Seller,
that number of Shares as is set forth opposite such Seller's name on Schedule
--------
2.01. The aggregate purchase price shall be Fifteen Million Five Hundred Thirty
- ----
One Thousand Six Hundred Fifty Nine U.S. Dollars ($15,531,659) (the "Purchase
Price"). The Purchase Price shall be paid in a combination of (i) Share
Consideration (as hereinafter defined) and (ii) U.S. $7,520,535 in cash ("Cash
Consideration"). For purposes hereof, "Share Consideration" shall mean (a) if
and to the extent that the Buyer Closing Price (as hereinafter defined) is
greater than or equal to $16.00 per share and less than or equal to $18.00 per
share, 480,667 shares of Buyer Stock; (b) if and to the extent that the Buyer
Closing Price is greater than $18.00 per share, a number of shares of Buyer
Stock equal to $8,652,006 divided by the Buyer Closing Price; and (c) if and to
the extent that the Buyer Closing Price is less than $16.00 per share, a number
of shares of Buyer Stock equal to $7,690,672 divided by the Buyer Closing Price;
provided, that if the Buyer Closing Price is less than $13.00 per share Buyer
shall have the right to terminate this Agreement pursuant to the provisions of
Article 12. "Buyer Closing Price" shall mean the average closing price of the
Buyer Stock for the ten trading days ending on and including the second last
trading day immediately preceding the Closing Date, calculated on the basis of
the last reported sales prices of Buyer Stock on the Nasdaq National Market. The
Purchase Price shall be paid as provided in Section 2.02 hereof.
2.02. Closing; Payment of Purchase Price. The closing (the "Closing") of the
----------------------------------
purchase and sale of the Shares hereunder shall take place at the offices of
Testa, Hurwitz & Thibeault, LLP, 125 High Street, High Street Tower in Boston,
Massachusetts as soon as possible, but in no event later than 3 business days
after satisfaction of the conditions set forth in Article X, or at such other
time or place as Buyer and Sellers may agree. At the Closing,
(a) Buyer shall make wire transfers to an account or accounts designated by
Sellers in the respective amounts and to the Sellers as set forth on Schedule
--------
2.01, in the aggregate amount
- ----
<PAGE>
-6-
of $4,433,181 of the Cash Consideration (the "Closing Date Cash Consideration")
minus transaction expenses in excess of U.S. $100,000 and other expenses
- -----
incurred by the Company and Sellers and accrued on the books of the Company as
of Closing Date and not required to be paid at Closing by the Company pursuant
to paragraphs (e)(i), (e)(ii) and (e)(iii) of this Section 2.02.
(b) Buyer shall deliver the Share Consideration to each of the Sellers as
set forth on Schedule 2.01.
-------------
(c) Buyer shall deliver to the Escrow Agent $3,925,360 in cash (the "Escrow
Amount"), by certified or official bank check or by wire transfer, to be held by
the Escrow Agent in accordance with the Escrow Agreement. Of the Escrow Amount,
$3,087,354 shall be delivered on behalf of the Sellers, $441,228 shall be
delivered by certain holders of options and other rights to purchase capital
stock of the Company (the "Optionholders") and $396,778 shall be delivered on
behalf of Paul Reilly related to the payment set forth in Section 2.02(e)(iii)
(the "Bonus Holder"). The Escrow Amount shall serve as security for breaches of
representations, warranties and covenants and any indemnification claims by
Buyer under Article XI hereof. In accordance with the Escrow Agreement,
(A) so long as any portion of the Escrow Amount remains held pursuant to
the Escrow Agreement, the Escrow Agent shall pay to Buyer the portion of the
Escrow Amount equal to the amount of indemnification claims by Buyer under
Section 11.02(a) of Article XI, if any, which have been settled or finally
determined between Buyer, Sellers, Optionholders and Bonus Holder, as the case
may be;
(B) on September 30, 1998, the Escrow Agent shall pay to Sellers,
Optionholders and Bonus Holder an aggregate amount equal to $1,925,360 of the
Escrow Amount held pursuant to the Escrow Agreement minus (i) an amount equal to
-----
the indemnification claims of Buyer under Section 11.02(a) of Article XI, if
any, that have been settled or finally determined between Buyer, Sellers,
Optionholders and Bonus Holder, as the case may be, on or before August 31, 1998
and (ii) an amount equal to the amount of any unresolved indemnification claims
by Buyer set forth in Buyer's notice pursuant to Article XI given on or prior to
August 31, 1998. Such retained portion shall be retained only until the claim
for indemnification is settled or finally determined between Buyer, Sellers,
Optionholders and Bonus Holder, as the case may be;
(C) on September 30, 1999, the Escrow Agent shall pay to Sellers,
Optionholders and Bonus Holder the portion of the Escrow Amount, if any,
remaining held pursuant to the Escrow Agreement; provided that the Escrow Agent
--------
shall retain and not pay to Sellers, Optionholders and Bonus Holder the portion
of the Escrow Amount, if any, equal to the amount of any unresolved
indemnification claims by Buyer (it being understood that the portion to be
retained shall be the amount set forth in Buyer's notice pursuant to Article XI
and any other portion shall be released), and such retained portion shall be
retained only until the claim for indemnification is settled or finally
determined between Buyer, Sellers, Optionholders and Bonus Holder, as the case
may be.
<PAGE>
-7-
(d) Buyer shall pay by check or by wire transfer up to $100,000 U.S.
Dollars related to transaction expenses incurred by the Company and Sellers,
including reasonable attorneys fees, as set forth on a statement submitted by
the Company to Buyer identifying in reasonable detail the actual transaction
expenses incurred. The Buyer may, in its sole and absolute discretion, elect to
pay for transaction expenses exceeding $100,000 U.S. Dollars. Notwithstanding
the foregoing, Buyer shall not pay for any fees or commissions incurred by the
Company or any Seller for the services of any investment banker, broker, finder
or agent in connection with the transactions set forth in this Agreement,
including, but not limited to, any such fees or commissions of Piper Jaffray
Inc.
(e) Buyer shall fund and then cause the Company to pay by check or wire
transfer the following:
(i) $425,000 U.S. Dollars to Piper Jaffray Inc. as payment for
investment banking services rendered by Piper Jaffray Inc. to the Company in
connection with the consummation of the transactions contemplated by this
Agreement;
(ii) $2,137,113 U.S. Dollars to the Employee Settlement Paying Agent
in respect of certain settlement and release agreements between the Company and
certain of the employees of the Company, which shall be paid by the Employee
Settlement Paying Agent in accordance with such agreements subject to applicable
withholding; and
(iii) $1,068,222 U.S. Dollars to Paul Reilly in respect of certain
contractual obligations of the Company.
(f) Sellers shall deliver to Buyer certificates for the Shares duly
endorsed or accompanied by stock powers duly endorsed in blank, with any
required transfer stamps affixed thereto.
(g) The appropriate parties shall execute and deliver the Ancillary
Agreements.
(h) Buyer and Paul Reilly shall enter into the Share Subscription
Agreement.
(i) Without prejudice to Buyer's rights under Section 11.02(a), the Company
and Sellers shall deliver to Buyer revised Schedules (as defined below) to this
Agreement.
(j) The Company shall deliver to the Buyer the resignations of each of the
directors and officers of the Company and Employee Plan administrators and
trustees, as the Buyer may specify to the Company in writing.
(k) The parties shall execute and deliver any other instruments, documents
and certificates that are required to be delivered pursuant to this Agreement or
as may be reasonably requested by any party in order to consummate the
transactions contemplated by this Agreement.
<PAGE>
-8-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND SELLERS
The Company and each of the Sellers hereby jointly and severally represent
and warrant to Buyer as of the date hereof and as of the Closing Date that the
statements contained in this Article III are true and correct, except as set
forth in the disclosure schedules attached hereto (the "Schedules"). The
Schedules shall be initialed by the Company and Buyer and shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article III, and the disclosure in any paragraph of the Schedules shall
qualify only the corresponding paragraph in this Article III:
3.01. Corporate Existence and Power. The Company is a corporation duly
-----------------------------
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted. Set forth on Schedule 3.01 is an accurate and
-------------
complete list of each jurisdiction in which the Company is qualified or licensed
to do business. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction set forth on Schedule
--------
3.01, and there are no other jurisdictions where failure to be so qualified
- ----
would, individually or in the aggregate, have a Material Adverse Effect. The
Company has heretofore delivered to Buyer true and complete copies of the
corporate charter and bylaws of the Company as currently in effect, and no
action has been taken or authorized to amend any of such documents.
3.02. Corporate Authorization. The execution, delivery and performance by
-----------------------
the Company of this Agreement and the Ancillary Agreements and the consummation
by the Company of the transactions contemplated hereby are within the Company's
corporate powers and have been duly authorized by all necessary corporate action
of the Company and by all necessary action of its stockholders. This Agreement
and the Ancillary Agreements constitute valid and binding agreements of the
Company and the Sellers.
3.03. Governmental Authorization; Consents. (a) Except as set forth on
------------------------------------
Schedule 3.03(a), the execution, delivery and performance by the Company and
- ----------------
Sellers of this Agreement and the Ancillary Agreements requires no action by or
in respect of, or filing with, any governmental body, agency, official or
authority.
(b) Except as set forth in Schedule 3.03(b), no consent, approval,
----------------
waiver or other action by any Person (other than any governmental body, agency,
official or authority referred to in (a) above) under any Contract (as defined
in Section 3.12 herein) to which the Company or any of the Sellers is a party or
by which any of them is bound is required or necessary for the execution,
delivery and performance of this Agreement and the Ancillary Agreements by the
Company and/or the Sellers or the consummation of the transactions contemplated
hereby.
<PAGE>
-9-
3.04. Non-Contravention. The execution, delivery and performance by the
-----------------
Company of this Agreement and the Ancillary Agreements and the consummation of
the transactions contemplated hereby and thereby do not and will not, with or
without the giving of notice or the lapse of time or both: (i) contravene or
conflict with the corporate charter or bylaws of the Company, (ii) contravene or
conflict with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to the Company
or the Sellers; (iii) constitute a default under or give rise to any right of
termination, cancellation or acceleration of any right or obligation of the
Company or to a loss of any benefit to which the Company is entitled under any
provision of any agreement, contract, license or other instrument binding upon
the Company or any permit held by the Company, or (iv) result in the creation or
imposition of any Lien on any asset or properties of the Company under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, franchise, permit, agreement, lease, or other instrument or obligation
to which the Company is a party, or by which it or any asset or properties of
the Company may be bound.
3.05. Capitalization. The authorized capital stock of the Company consists
--------------
of 50,000,000 shares of common stock, no par value per share (the "Common
Stock") and 35,000,000 shares of preferred stock, no par value per share (the
"Preferred Stock"), of which 15,000,000 shares are designated as "Series A
Preferred Stock" and 20,000,000 shares are designated as "Series B Preferred
Stock." As of the date hereof, (i) 4,673,851 shares of Common Stock were validly
issued and outstanding and held of record as set forth on Schedule 2.01, (ii)
-------------
14,212,192 shares of Series A Preferred Stock were validly issued and
outstanding and held of record as set forth in Schedule 2.01, and (iii)
-------------
16,583,264 shares of Series B Preferred Stock were validly issued and
outstanding and held of record as set forth on Schedule 2.01. All outstanding
-------------
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and are owned by Sellers as shown on Schedule 2.01,
-------------
and have not been issued in violation of any preemptive, first refusal or other
subscription rights of any stockholder of the Company or any other person. All
outstanding shares of capital stock of the Company have been issued in
compliance with federal and state securities laws. Except as set forth on
Schedule 2.01 and except for warrants, options or other rights to purchase
- -------------
capital stock of the Company for which settlement and release agreements have
been obtained from the individuals set forth on Schedule 3.05, there are no
-------------
outstanding (i) shares of capital stock, other securities or phantom or other
equity interests of the Company, (ii) securities of the Company convertible into
or exchangeable for shares of capital stock or other securities of the Company,
or (iii) options, warrant, exchange rights, subscription rights or other
agreements, commitments or rights to acquire from the Company any capital stock,
other securities or phantom or other equity interests of the Company, or
agreements, commitments or obligations of the Company to issue or sell any
capital stock, other securities or phantom or other equity interests of the
Company or (iv) any agreement, commitment or obligation of the Company to grant,
or enter into any such option, warrant, call, right, commitment or agreement
(the items in clauses (i), (ii), (iii) and (iv) being referred to collectively
as the "Company Securities"). There are no outstanding obligations of the
Company, actual or contingent, to issue or deliver or to repurchase, redeem or
otherwise acquire any Company Securities.
<PAGE>
-10-
3.06. Subsidiaries. Except as set forth in Schedule 3.06, the Company does
------------ -------------
not have any Subsidiary or any ownership or equity interest in or control of
(direct or indirect) any other person, other than D-Vision Systems-Europe Ltd.,
which does not conduct operations material to the business of the Company and
did not at any time own, have any rights in or hold any Proprietary Rights. The
business of the Company has not been conducted through any stockholder, or
Affiliate of any stockholder.
3.07. Financial Statements. The Company has previously furnished Buyer with
--------------------
a true and complete copy of the following financial statements (collectively,
the "Financial Statements" which are attached hereto as Schedule 3.07):
-------------
(i) the unaudited balance sheets of the Company as of December 31,
1995 and December 31, 1996 and the related income statements of the Company for
the respective fiscal years then ended (the "Year End Financial Statements");
and
(ii) the unaudited balance sheet of the Company as of May 31, 1997
and the related statements of income of the Company for the interim period ended
May 31, 1997 (hereinafter referred to as either the "Interim Financial
Statement" or the "Balance Sheet," and collectively with the Year End Financial
Statements, the "Financial Statements" which are attached hereto as Schedule
--------
3.07).
- ----
The Financial Statements have been prepared from the books and records of the
Company, are true, accurate and complete and present in all material respects
the financial position of the Company for the periods therein set forth. All of
the revenues and expenses of the Company reflected in the Financial Statements
were derived or incurred in the ordinary course of business of the Company. The
account records underlying the Financial Statements accurately reflect, in
reasonable detail, the transactions of the Company and, since July 1, 1996, such
records have been maintained on a consistent basis. Since July 1, 1996, the
Company has made a good faith effort to maintain its books of account in
accordance with generally accepted accounting practices applied on a consistent
basis except with respect to fixed assets, including certain leases that may be
capitalizable, and compensation expenses related to options and rights to
purchase common stock.
The cash of the Company as of the Balance Sheet Date is $650,967.
3.08. Absence of Certain Changes. Since the Balance Sheet Date, except as
--------------------------
reflected in the Financial Statements or on Schedule 3.08, the Company has
-------------
conducted its business in the ordinary course consistent with past practices and
there has not been:
(a) any Material Adverse Change or any event, occurrence,
development or state of circumstances or facts which could reasonably be
expected to result in a Material Adverse Change;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any Company Securities or any repurchase,
redemption or other
<PAGE>
-11-
acquisition by the Company of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company;
(c) any amendment of any terms or provisions of any outstanding
security of the Company;
(d) any incurrence, assumption or guarantee by the Company of any
indebtedness for borrowed money;
(e) any creation or assumption by the Company of any Lien on any
asset;
(f) any making of any loan, advance or capital contribution to or
investment in any Person;
(g) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company which,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect;
(h) any transaction or commitment made, or any contract or agreement
entered into, by the Company relating to its assets or business (including the
acquisition, license or disposition of any assets) or any relinquishment by the
Company of any contract or other right, in either case, material to the Company,
other than transactions and commitments in the ordinary course of business
consistent with past practices and those contemplated by this Agreement;
(i) any change in any method of accounting or accounting practice by
the Company;
(j) any (i) grant of any severance or termination pay to any
director, officer or employee of the Company, (ii) entering into of any
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) with any director, officer or employee of the
Company, (iii) change in benefits payable under existing severance or
termination pay policies or employment agreements or (iv) change in
compensation, bonus or other benefits payable to directors, officers or
employees of the Company;
(k) any labor dispute, other than routine individual grievances, or
any activity or proceeding by a labor union or representation thereof to
organize any employees of the Company, or any lockouts, strikes, slowdowns, work
stoppages or threats thereof by or with respect to any employees of the Company;
(l) any agreement or commitment containing any covenant limiting or
purporting to limit the freedom of the Company to compete with any Person in any
geographic area or engage in any line of business;
<PAGE>
-12-
(m) any joint venture or similar arrangement which involves the
sharing of profits or future payments to other Persons; or
(n) any written or oral agreement, undertaking or commitment to do
any of the foregoing.
3.09. Title to Property; Encumbrances; Condition. (a) The Company has good
------------------------------------------
and marketable title to, or in the case of leased property have valid leasehold
interests in, all personal property and assets (whether real or personal,
tangible or intangible) reflected on the Balance Sheet or acquired after the
Balance Sheet Date, except as set forth in Schedule 3.09. None of such
-------------
properties or assets is subject to any Liens, except:
(i) Liens disclosed on the Balance Sheet;
(ii) Liens for taxes or other assessments or governmental charges or
levies on property not yet due or being contested in good faith (and for
which adequate accruals or reserves have been established on the Balance
Sheet); or
(iii) Liens which do not materially detract from the value of such
property or assets as now used, or materially interfere with any present or
intended use of such property or assets.
(b) There are no developments affecting any of such properties or
assets pending or, to the knowledge of the Company or Sellers threatened, which
might materially detract from the value of such property or assets, materially
interfere with any present or intended use of any such property or assets or
materially adversely affect the marketability of such property or assets.
(c) The equipment owned by the Company has no material defects, is
in good operating condition and repair (ordinary wear and tear excepted), and is
substantially adequate for the uses to which it is being put.
(d) The assets owned or leased by the Company, or which it otherwise
has the right to use, constitute all of the assets held for use or used in
connection with the business of the Company and are adequate to conduct such
business as currently conducted.
3.10. No Undisclosed Material Liabilities. The Company has no liabilities,
-----------------------------------
claims, indebtedness or obligations of the Company of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
including, without limitation, any foreign or domestic tax liabilities or
deferred tax liabilities in respect of or measured by the Company's income, and
there are no liabilities, claims, indebtedness or obligations related to or
arising out of any act, omission, transaction, sale of goods or services, or
existing condition, situation or set of circumstances which occurred or existed
on or before the date hereof, whether or not then known, due or payable, other
than:
(i) liabilities disclosed or provided for on the face of the Balance
Sheet;
<PAGE>
-13-
(ii) liabilities disclosed on Schedule 3.10 hereto; and
-------------
(iii) liabilities incurred in the ordinary course of business
consistent with past practice since the Balance Sheet Date, which in the
aggregate are not material to the Company.
3.11. Litigation. Except as set forth in Schedule 3.11, there is no
---------- -------------
action, suit, investigation or proceeding (or any basis therefor) pending
against, or, to the knowledge of the Company or any Seller, threatened against
or affecting, the Company or any of its properties or assets, or the
transactions contemplated hereby, before any court or arbitrator or any
governmental body, agency, official or authority. There is no litigation pending
or, to the knowledge of the Company, threatened against any officer or key
employee relating to the Company or its business. The foregoing sentences
include, without limiting their generality, actions pending or threatened (or
any basis therefor known to the Company) involving the prior employment or
engagement of any of the Company's officers or key employees or their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers or to any other Person.
3.12. Contracts. (a) Except for oral or written agreements, contracts,
---------
plans, leases, arrangements or commitments disclosed on Schedule 3.12 or
-------------
Schedule 3.16(a) or Schedule 3.16(c) (the "Contracts"), the Company is not a
- ---------------- ----------------
party to or subject to:
(i) any lease providing for annual rentals of $2,000 or more;
(ii) any contract for the purchase of materials, supplies, goods,
services, equipment or other assets providing for annual payments by the
Company or any Subsidiary of $2,000 or more;
(iii) any sales, distribution or other similar agreement providing for the
sale by the Company of materials, supplies, goods, services, equipment or
other assets providing for annual payments by the Company or any Subsidiary
of $2,000 or more;
(iv) any partnership, joint venture or other similar contract, arrangement
or agreement;
(v) any contract relating to indebtedness for borrowed money or the
deferred purchase price of property (whether incurred, assumed, guaranteed or
secured by any asset), except contracts relating to indebtedness incurred in
the ordinary course of business in an amount not exceeding $2,000;
(vi) any license agreement, franchise agreement or agreement in respect of
similar rights granted to or held by the Company;
(vii) any agency, distributor, dealer, original equipment manufacturer,
value-added reseller, sales representative or other similar agreement or
commitment;
<PAGE>
-14-
(viii) any joint marketing, teaming or development agreement;
(ix) any contract or other document that limits the freedom of the
Company to compete in any line of business or with any Person or in any area
or which would so limit the freedom of the Company after the Closing Date; or
(x) any other contract or commitment not made in the ordinary course
of business that is material to the Company.
(b) Except as set forth in Schedule 3.12(b), each Contract disclosed
----------------
in any Schedule to this Agreement is a valid and binding agreement of the
Company and is in full force and effect, and neither the Company nor, to the
knowledge of the Company and Sellers, any other party thereto is in default in
any material respect under the terms of any such agreement, contract, plan,
lease, arrangement or commitment.
3.13. Insurance Coverage. Set forth on Schedule 3.13 is a list of, and true
------------------ -------------
and complete copies of, all insurance policies and fidelity bonds covering the
assets, business, equipment, properties, operations, employees, officers and
directors of the Company. 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. All premiums payable
under all such policies and bonds have been paid, and the Company has and are
otherwise complied in all material respects in full compliance with the terms
and conditions of all such policies and bonds. Such policies of insurance and
bonds (or other policies and bonds providing substantially similar insurance
coverage) have been in effect since January 1, 1993 and remain in full force and
effect. Such policies of insurance and bonds are of the type and in amounts
customarily carried by Persons conducting businesses similar to those of the
Company and are adequate to insure against risks to which the Company is
normally exposed in the operation of its business. The Company and Sellers do
not know of any threatened termination of, or premium increase with respect to,
any of such policies or bonds.
3.14. Compliance with Laws; No Defaults. (a) Except as described in
---------------------------------
Schedule 3.14, the Company is not in violation of any applicable provisions of
- -------------
any laws, statutes, ordinances or regulations, including environmental,
discrimination in employment, employment practices, family leave or occupational
safety and health laws, statutes, ordinances or regulations, except for
violations that have not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(b) Schedule 3.14 correctly describes each license and permit (a
-------------
"Permit") material to the business of the Company, together with the name of the
governmental agency or entity issuing such license or permit. Such licenses and
permits are valid and in full force and effect, and none of such licenses or
permits will be terminated or impaired or become terminable as a result of the
transactions contemplated hereby.
(c) Except as disclosed in Schedule 3.14, The Company is not in
-------------
default under, and no condition exists that with notice or lapse of time or both
would constitute a default
<PAGE>
-15-
under, (i) any mortgage, loan agreement, indenture or evidence of indebtedness
for borrowed money to which the Company is a party or by which the Company or
any of its properties or assets is bound, or (ii) any judgment, order or
injunction of any court, arbitrator or governmental body, agency, official or
authority.
3.15. Finders, Fees. Except for Piper Jaffray Inc., there is no investment
-------------
banker, broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of Sellers or the Company who might be entitled to
any fee or commission from Buyer, the Company or any of their respective
Affiliates upon consummation of the transactions contemplated by this Agreement.
3.16. Proprietary Rights. (a) Schedule 3.16(a) contains a "certificate of
------------------ ----------------
originality" relating to the Company's software products that are currently
marketed by the Company and a complete list of all of the following: (i) patents
and patent applications; (ii) trademarks, tradenames and service marks and
registrations thereof and applications therefor; (iii) registered copyrights and
applications for copyright registration; (iv) computer software data and
documentation; (v) licenses relating to any of the foregoing; and (vi) a list of
all current and former employees and consultants of the Company who worked on
any item of the Company's Proprietary Rights. Schedule 3.16(a) also identifies
----------------
the owner of each item listed thereon and, in the case of registrations and
applications, the application or registration number and date.
(b) The Company owns, or is licensed or otherwise possesses legally
enforceable rights to use, all of the Company's Proprietary Rights. Upon
execution and delivery by the Company to Buyer of the instruments of conveyance
contemplated by this Agreement, each item of the Company's Proprietary Rights
will be owned or available for use by Buyer on identical terms and conditions
immediately following the Closing, except as otherwise indicated on
Schedule 3.16(b). The Company has taken reasonable measures to protect the
- ---------------
proprietary nature of the Company's Proprietary Rights owned by the Company and
to maintain in confidence the trade secrets and confidential information that it
owns or uses in its business. Except as set forth on Schedule 3.16(b), all
----------------
employees and consultants of the Company have executed a nondisclosure and
assignment of inventions agreement to protect the confidentiality of the Company
Proprietary Rights and to vest in the Company exclusive ownership of the Company
Proprietary Rights owned by the Company. Schedule 3.16(b) contains a list of
----------------
all employees, former employees and consultants, including but not limited to
engineers and technical support personnel, and any other person which has worked
on any item of the Company's Proprietary Rights (but not including Third Party
Proprietary Rights). No employee or consultant of the Company has used in any
unauthorized manner any trade secrets or other confidential information of any
other person in the course of their work for the Company and the Company has not
been sued, charged or, to the Company's knowledge, threatened with any such
claim. The Company has no written or oral agreements with employees or
consultants with respect to the ownership of inventions, trade secrets or other
works created by them as a result of which any such employee or consultant may
have nonexclusive rights to the portions of the Company's Proprietary Rights so
created by such individual. To the Company's knowledge, no other Person has any
rights to any item of the Company's Proprietary Rights owned by the Company. To
the Company's and Sellers' knowledge, no other Person is infringing, violating
or
<PAGE>
-16-
misappropriating any of the Company's Proprietary Rights, except as otherwise
indicated on Schedule 3.16(b).
----------------
(c) Schedule 3.16(c) sets forth a complete list of (i) all licenses,
----------------
sublicenses and other agreements as to which the Company is a party and pursuant
to which the Company is authorized to use (1) any third party patents,
trademarks or copyrights (including software) (the "Third Party Proprietary
Rights") which are incorporated in, are, or form a part of, any Company product
or service or (2) any trade secret of a third party in or as to any Company
product, including the identity of all parties thereto. Neither the Company nor
any Seller has any reason to believe that the Third Party Proprietary Rights are
not owned by or have not been assigned or licensed to the licensor of such
right. Each of the license or other agreements listed on Schedule 3.16(c) is
----------------
legal, valid, binding, enforceable and in full force and effect with respect to
the Company and, to the Company's knowledge, with respect to every other party
thereto. Except as set forth in Schedule 3.16(c), all such licenses and other
----------------
agreements will continue to be legal, valid, binding, enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect immediately prior to the Closing, and the consummation of
the transactions contemplated herein will not conflict with, result in a
violation or breach of or constitute a default under (or would result in a
violation, breach or default with the giving of notice or the passage of time or
both) any such license or other agreement. Except as set forth in
Schedule 3.16(c), neither the Company, nor, to the Company's and Sellers'
- ----------------
knowledge, any other party is in breach or default under any such license or
other agreement, and no event has occurred which, with notice and/or lapse of
time, would constitute such a breach or default or permit termination,
modification or acceleration thereunder;
(d) Except as set forth in Schedule 3.16(d), no claims with respect
----------------
to the Company's Proprietary Rights, any trade secret material of the Company,
or any Third Party Proprietary Rights (to the extent arising out of any use,
reproduction or distribution of such Third Party Proprietary Rights by or
through the Company), have been asserted or are, to the Company's or Sellers'
knowledge, threatened by any Person. The Company does not know of any valid
grounds for any bona fide claims (i) to the effect that the manufacture, sale,
licensing or use of any product as now used, sold or licensed or proposed for
use, sale or license by the Company infringes or violates, or constitutes a
misappropriation of, any Proprietary Rights of any other person or entity, (ii)
challenging the ownership, validity or effectiveness of any of the Company's
Proprietary Rights owned by the Company or (iii) challenging the Company's
license or legally enforceable right to use, or the validity or effectiveness
of, the Third Party Proprietary Rights.
(e) No Company Proprietary Right, trade secret material of the
Company, or, to the Company's knowledge, Third Party Proprietary Right is
subject to any outstanding judgment, order, decree, stipulation or injunction
restricting in any manner the licensing thereof by the Company. The Company has
not agreed, except in the ordinary course of business consistent with past
practices in conjunction with product sales, distribution, licensing and
marketing of the Company's product (pursuant to the Company's standard
agreements or consistent with the Company's past practice) to indemnify any
Person for or against any
<PAGE>
-17-
interference, infringement, misappropriation or other conflict with the
Company's Proprietary Rights.
3.17. Inventories. The inventories set forth in the Balance Sheet were
-----------
properly stated therein at the lesser of cost or fair market value determined in
accordance with generally accepted accounting principles consistently applied by
the Company. Since the Balance Sheet Date, the inventories of the Company have
been maintained in the ordinary course of business. All such inventory is owned
free and clear of all Liens except as disclosed in the Financial Statements or
Schedule 3.09. All of the inventory recorded on the Balance Sheet (net of
- -------------
related reserves) consists of, and all such inventory on the Closing Date will
consist of, items of a quality usable or saleable within 90 days in the ordinary
course of business consistent with past practices and are and will be in
quantities sufficient for the normal operation of the business of the Company in
accordance with past practice.
3.18. Receivables. A true and complete list (including aging) of all
-----------
accounts, notes and other receivables of the business of the Company (the
"Accounts Receivable") is set forth on Schedule 3.18. Each of the Accounts
-------------
Receivable represents a bona fide purchase of goods, or performance of services,
arising in the ordinary course of business of the Company. All Accounts
Receivable (other than receivables collected since the Balance Sheet Date)
reflected on the Balance Sheet are, and all Accounts Receivable of the Company
at the Closing Date will be, valid, genuine and fully collectible within 180
days from the Balance Sheet Date the aggregate amount thereof, subject to normal
and customary trade discounts, less any reserves for doubtful accounts recorded
on the Balance Sheet. All Account Receivables of the Company at the Balance
Sheet Date have been included in the Balance Sheet.
3.19. Taxes. (a) The term "Taxes" as used herein means all federal, state,
-----
local, foreign and other net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs duties, unemployment insurance,
environmental, worker's compensation, Pension Benefit Guaranty Corporation
premiums and all other taxes, fees, assessments or other charges of any kind
similar to Taxes, together with any interest and any penalties, additions to tax
or additional amounts with respect thereto, and the term "Tax" means any one of
the foregoing taxes. The term "Returns" as used herein means all returns,
declarations, reports, statements and other documents required to be filed in
respect of Taxes, including information returns or reports with respect to
backup withholding and other payments to third parties, and "Return" means any
one of the foregoing returns. All citations to the Code, or the Treasury
Regulations promulgated thereunder, shall include any amendments or any
substitute or successor provisions thereto. The representations and warranties
contained in this Section 3.19 shall pertain to the period from the Company's
inception up to and including the date hereof.
(b) The Company has filed all Returns required to be filed by or on
its behalf on a timely basis and such Returns are true, complete and correct.
None of the Returns filed or required to be filed by the Company contains or
will contain a disclosure statement under former
<PAGE>
- 18 -
Section 6661 or Section 6662 of the Code or any similar provision of any state,
local or foreign law.
(c) All Taxes shown to be payable by the Company on the Returns or on
subsequent assessments with respect thereto have been paid in full on a timely
basis, and no other Taxes are payable by the Company with respect to items or
periods covered by such Returns (whether or not shown on or reportable on such
Returns) or with respect to any period ending on or prior to the Closing Date.
The Company has withheld and paid over all Taxes required to have been withheld
and paid over by it, and complied in all respects with all information reporting
and backup withholding requirements, including maintenance of required records
with respect thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor or other third party. There are no Liens on
any of the assets of the Company with respect to Taxes, other than Liens for
Taxes not yet due and payable or for Taxes that the Company is contesting in
good faith through appropriate proceedings and for which appropriate reserves
have been established, which reserves are fully reflected in the Financial
Statements.
(d) The amount of the Company's liability for unpaid Taxes for all
periods does not, in the aggregate, exceed the amount of the net current
liability accruals for Taxes set forth on the Balance Sheet.
(e) No issues have been raised (and are currently pending) by any
taxing authority in connection with any of the Returns of the Company. No
waivers of statutes of limitation with respect to any of the Returns have been
given by or requested from the Company. All deficiencies asserted or
assessments made as a result of any examinations have been fully paid, or are
fully reflected as a liability in the Financial Statements, or are being
contested and an appropriate reserve therefor has been established and is fully
reflected in the Financial Statements. All elections with respect to Taxes
affecting the Company, as of the date hereof, are set forth in the Returns,
other than any such elections which are not required to be included in the
Returns, copies of which have been made available to Buyer. Except with respect
to the arrangements related to Paul Reilly described in Sections 2.02(e)(ii) and
(iii) which have been approved by the stockholders of the Company, is not a
party to any agreement, contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in the payment of (i) any "excess
parachute payments" within the meaning of Section 280G of the Code (without
regard to the exceptions in Sections 280G(b)(4) and 280G(b)(5) of the Code) or
(ii) any other amount for which a deduction would be disallowed under Section
162(m) or Section 404 of the Code. The Company has not agreed to make any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method or otherwise, and the Company will not be required to make any such
adjustment as a result of the transactions contemplated by this Agreement. The
Company is not a party to any safe harbor lease within the meaning of Section
168(f)(8) of the Code, as in effect prior to amendment by the Tax Equity and
Fiscal Responsibility Act of 1982. The Company is not and has not ever been, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code. None of the Sellers nor any other holder of the capital
stock of the Company is a "foreign person" as that term is defined in Section
1445 of the Code. The Company is not (and has not ever been) a party
<PAGE>
-19-
to a tax-sharing agreement and has not assumed the liability of any other person
for Taxes under contract. The Company has not ever been a member of a group of
corporations filing a consolidated, unitary or combined Return. The Company has
not taken any action that would have the effect of deferring any material
liability for Taxes for the Company from any taxable period ending at or before
the date hereof to any taxable period thereafter. The Company has not
participated in or cooperated with any international boycott within the meaning
of Section 999 of the Code. No claim has ever been made by a tax authority in a
jurisdiction where the Company does not file Returns that it is or may be
subject to Tax in that jurisdiction. The transactions set forth in this
Agreement are not subject to the Tax withholding provisions of Section 3406 of
the Code, or of Subchapter A of Chapter 3 of the Code or of any other provision
of law. The Company is not a party to any joint venture, partnership, or other
arrangement or contract which could be treated as a partnership for federal
income tax purposes. The Company has not had a permanent establishment in any
foreign country, as defined in any applicable Tax treaty or convention between
the United States and such foreign country. The Company has never filed a
consent pursuant to Section 341(f) of the Code (or any corresponding provision
of state, local or foreign law), relating to collapsible corporations, or agreed
to have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign law) apply to the disposition of any asset owned by it. The
Company shall have fully complied with all federal, state, local and foreign Tax
withholding obligations arising in connection with the cancellation or exercise
of the Company options, rights and warrants, and Buyer shall have no liability
therefor. Any adjustment of Taxes made by the Internal Revenue Service in any
examination which is required to be reported to state, local, foreign or other
taxing authorities has been so reported, and any additional Taxes due with
respect thereto have been paid. No power of attorney has been granted by the
Company, and is currently in force, with respect to any matter relating to
Taxes.
3.20. Net Operating Losses. The Company's aggregate net operating losses
--------------------
for federal income tax purposes, determined for all taxable periods ending on or
prior to December 31, 1996 and for the taxable period January 1, 1997 through
the Closing Date are not less than $7 million in the aggregate. Except for
changes in ownership related to the Company's preferred stock financings, as of
the date hereof, the ability of the Company to use its net operating losses, tax
credits and other carryovers (for federal, state and local tax purposes) will
not have been affected by Sections 382, 383 or 384 of the Code, by the
limitations imposed under Treasury Regulations promulgated under Section 1502 of
the Code, or by any other provision of law.
3.21. Employees and Consultants. (a) A true and complete list of (a) the
-------------------------
names, titles, annual salaries and other compensation or severance arrangements
or benefits (including, but not limited to, any vacation, holiday or sick pay)
of all employees of the Company (the "Employees") and all consultants of the
Company has been provided to the Buyer, each of whom regularly perform services
for the Company at the Company's principal business office, (b) the wage rates
for non-salaried employees of the Company (by classification) and other
compensation arrangements or benefits. Any oral or written agreements,
commitments or understandings or terms of employment are summarized on
Schedule 3.21. None of such employees and no other key employee of the Company
- -------------
has indicated to the Company that he or she intends to resign or retire as a
result of the transactions contemplated by this Agreement or otherwise.
<PAGE>
-20-
(b) The Company is in compliance in all material respects with all
U.S. federal, state, and local laws, as applicable, respecting employment and
employment practices, employee benefit plans, terms and conditions of
employment, wages and hours, and is not engaged in any unfair labor or unlawful
employment practice. There is no unlawful employment practice or discrimination
charge involving the Companies pending before the Equal Employment Opportunity
Commission ("EEOC"), EEOC recognized state "referral agency" or any other
governmental authority. None of the Employees of the Companies are represented
by any labor union. There are no grievance or arbitration proceedings relating
to the Employees of the Company pending and no written claim therefor exists
with respect to the Company.
3.22. Products. Each of the products produced or sold by the Company is,
--------
and at all times has been, in compliance in all material respects with all
applicable federal, state, local and foreign laws and regulations. Except for
the types of bugs normally found in commercially available software and except
as set forth on Schedule 3.22, there is no known design defect with respect to
-------------
any of such products and, where required by applicable law, each of such
products contains adequate warnings, presented in a reasonably prominent manner,
in accordance with applicable laws with respect to its contents and use. Except
as set forth on Schedule 3.22, the Company has no products placed with its
-------------
customers under an understanding permitting their return to the Company other
than pursuant to a breach of warranty.
3.23. Environmental Compliance.
------------------------
(a) Environmental Definitions. The following terms, as used herein,
-------------------------
have the following meanings:
"CERCLA" means the Comprehensive Environmental Response,
------
Compensation and Liability Act of 1980, as amended.
"Environment" means any and all environmental media, including
-----------
without limitation ambient air, surface water, ground water, drinking water
supply, land surface or subsurface strata, and also means any indoor location.
"Environmental Laws" means any and all federal, state, local and
------------------
foreign statutes, laws (including common or case law), regulations, ordinances,
rules, judgments, judicial decisions, orders, decrees, codes, plans,
injunctions, Environmental Permits, or governmental restrictions relating to the
protection of human health or safety or the Environment or to emissions,
discharges or Releases of any Hazardous Substance into the Environment, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of any Hazardous Substance or the
containment, removal or remediation thereof.
"Environmental Liabilities" means any and all liabilities arising in
-------------------------
connection with or in any way relating to the Company's business, whether vested
or unvested, contingent or fixed, actual or potential, known or unknown, which
(i) arise under or relate to matters governed
<PAGE>
-21-
by Environmental Laws or arise in connection with or relate to any matter
disclosed or required to be disclosed in Schedule 3.23 and (ii) arise from or
-------------
relate in any way to actions occurring or conditions existing before the date
hereof.
"Environmental Permits" means any and all governmental permits,
---------------------
licenses, concessions, grants, franchises, agreements, authorizations,
registrations or other governmental approvals issued or required under any
Environmental Laws.
"Hazardous Substance" means any and all pollutants and contaminants,
-------------------
and any and all toxic, caustic, radioactive or otherwise hazardous materials,
substances or wastes that are regulated under any Environmental Laws, and
includes, without limitation, petroleum and its derivatives and by-products, and
any other hydrocarbons.
"Release" means any spilling, leaking, pumping, pouring, emitting,
-------
emptying, discharging, injecting, escaping, leaching, dumping, or disposing into
the Environment (including, without limitation, the abandonment or discarding of
barrels, containers, and other closed receptacles containing any Hazardous
Substance).
(b) Environmental Representations and Warranties. Except as
--------------------------------------------
disclosed in Schedule 3.23:
-------------
(i) The Company has complied in all material respects with all
Environmental Laws.
(ii) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending, or to the
Company's knowledge, threatened by any governmental or other entity with respect
to any (A) alleged violation by the Company of any Environmental Law, or any
liability thereunder, (B) alleged failure by the Company to have any
Environmental Permit, or (C) the use, generation, treatment, storage, recycling,
transportation or disposal of any Hazardous Substance.
(iii) The Company has not handled any Hazardous Substance, other
than as a generator, on any property now or previously owned or leased by the
Company; no urea formaldehyde or polychlorinated biphenyls are or have been
present at any property now or previously owned or leased by the Company; no
asbestos or asbestos-containing materials are or have been present at any
property now or previously owned or leased by the Company; there are and have
been no underground storage tanks or related piping for Hazardous Substances,
active or abandoned, at any property now or previously owned or leased by the
Company; no Hazardous Substance has been Released at, on or under any property
now or previously owned or leased by the Company and no Hazardous Substance has
been Released or is present, in a reportable or threshold planning quantity,
where such a quantity has been established by any Environmental Law, at, on or
under any property now or previously owned or leased by the Company.
<PAGE>
-22-
(iv) The Company has not transported or arranged for the
transportation (directly or indirectly) of any Hazardous Substance to any
location which is (A) listed or proposed for listing on the National Priorities
List promulgated pursuant to CERCLA or on any similar state list of sites
requiring investigation or clean-up or (B) the subject of federal, state or
local enforcement actions or other investigations which may lead to claims
against the Parent for any Environmental Liabilities including, without
limitation, clean-up costs, remedial work, damages to natural resources or for
personal injury claims, and claims under CERCLA.
(v) No oral or written notification of a Release of a
Hazardous Substance has been filed by or on behalf of the Company and no
property now or previously owned or leased by the Company is listed or, to the
Company's knowledge, proposed for listing, on the National Priorities List
promulgated pursuant to CERCLA or on any similar state list of sites requiring
investigation or clean-up.
(vi) No notice, lien or other restriction relating to the
presence of Hazardous Substances or otherwise arising under and Environmental
Law has been placed on any property or facility now or previously owned or
leased by the Company, and no governmental actions have been taken or are in
process that could subject any such property or facility to such a notice, lien
or other restriction. The Company would not be required to place any such
notice, lien or other restriction relating to the presence of Hazardous
Substances or otherwise arising under any Environmental Law at any property used
in connection with the operation of its business or in any deed to such
property.
(vii) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by or for the Company, or
which are in the Company's possession, in relation to any property or facility
now or previously owned or leased by the Company, which have not been delivered
to Buyer.
(viii) The Company has applied for and received all Environmental
Permits required in connection with its business. Schedule 3.23 sets forth a
-------------
list of all such Environmental Permits, each of which is in full force and
effect. No suspension or cancellation is threatened and there is no basis for
believing that any such Environmental Permit will not be renewable upon
expiration. Except as set forth on Schedule 3.23, each such Environmental
-------------
Permit will continue to be in full force and effect immediately following the
date hereof in accordance with the terms thereof as in effect immediately prior
to the date hereof, and the consummation of the transactions contemplated herein
will not conflict with, result in a violation or breach of or constitute a
default under (or would result in a violation, breach or default with the giving
of notice or the passage of time or both) any such Environmental Permit
3.24. Customers, Suppliers and Distributors. Except as set forth on
-------------------------------------
Schedule 3.24, the Company has not received notice from or is not otherwise
- -------------
aware that any customer, or group of customers, that are under common ownership
or control, and that accounted for a material percentage of the aggregate
products and services furnished by the Company during the past 24 months has
stopped or intends to stop purchasing the Company's products or services, nor
has the Company lost any supplier, or group of suppliers that are under common
ownership or control,
<PAGE>
-23-
that accounted for a material percentage of the aggregate supplies purchased by
the Company during the past 24 months. Schedule 3.24 set forth a list of any and
-------------
all oral or written settlements, compromises, modifications, amendments,
terminations or releases involving a customer, supplier, distributor or other
commercial relationship of the Company (the "Settlement"). The Company has
satisfied in full any and all payment or other obligations related to such
Settlements.
3.25. Transactions with Affiliates. Except as set forth on Schedule 3.25,
---------------------------- -------------
there are no loans, leases, royalty agreements or other continuing transactions
between the Company and any Seller, any Affiliate of any Seller, or any member
of any Seller's family. To the knowledge of the Company and Sellers, none of the
officers or directors of the Company or Sellers (a) has any material direct or
indirect interest in any entity which does business with the Company; (b) has
any direct or indirect interest in any property, asset or right which is used by
the Company in the conduct of its business; or (c) has any contractual
relationship with the Company other than such relationships which occur from
being an officer, director or stockholder of the Company.
3.26. Other Information. None of the documents or information delivered
-----------------
to Buyer in connection with the transactions contemplated by this Agreement,
excluding pro forma financial statements, projections and forecasts, contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained therein not misleading.
3.27. Books and Records. All accounts, books, ledgers and official and
-----------------
other records of the Company of whatsoever kind have been fully, properly and
accurately kept and completed in all material respects, and there are no
material inaccuracies or discrepancies of any kind contained or reflected
therein, and collectively they fairly present the financial position of the
Company's business.
3.28. Representations. The representations and warranties of the Company
---------------
and Sellers contained in this Agreement, disregarding all qualifications and
exceptions contained therein relating to materiality or Material Adverse Effect,
are true and correct with only such exceptions as would not in the aggregate
reasonably be expected to have a Material Adverse Effect.
ARTICLE IV
ADDITIONAL REPRESENTATIONS
AND WARRANTIES OF SELLERS
Each Seller, severally but not jointly, represents and warrants to, and
agrees with, Buyer as follows:
4.01. Title to and Validity of Shares. Each Seller now has good and
-------------------------------
marketable title to and unrestricted power to vote and sell the Shares
designated as owned by such Seller opposite such Seller's name on Schedule 2.01,
-------------
free and clear of any Lien and, upon purchase and payment therefor and delivery
to Buyer thereof in accordance with the terms of this Agreement, Buyer will
obtain good and marketable title to such Shares free and clear of any Lien. All
Shares
<PAGE>
-24-
owned by such Seller have been duly authorized and validly issued and are fully
paid and non-assessable. All Shares to be sold by such Seller are registered in
the name of such Seller.
4.02. Authority. Such Seller has the legal power, right and authority to
---------
enter into and perform this Agreement and the Ancillary Agreements, and to
perform each of his obligations hereunder and thereunder. The execution,
delivery and performance of this Agreement and the Ancillary Agreements by such
Seller (a) require no action by or in respect of, or filing with, or consent of,
any governmental body, agency or official or any other Person and (b) do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of any agreement, judgment, injunction, order, decree or any other
instrument binding upon such Seller. This Agreement and the Ancillary Agreements
have been duly executed and delivered by such Seller and each such agreement
constitutes a valid and binding obligation of such Seller, enforceable in
accordance with its terms.
4.03. Power To Act as Trustee or Executor. If such Seller is serving as
-----------------------------------
trustee or executor with respect to its Shares, such Seller is duly authorized
and empowered by the instruments creating such trust or trusts or by the will of
which such Seller is acting as executor and under applicable law to enter into
this Agreement and the Ancillary Agreements with respect to the Shares held by
such Seller and to consummate the transactions contemplated herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company and Sellers that:
5.01. Organization and Existence. Buyer is a corporation duly
--------------------------
incorporated, validly existing and in good standing under the laws of the
province of Quebec and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
5.02. Corporate Authorization. The execution, delivery and performance by
-----------------------
Buyer of this Agreement and the Ancillary Agreements and the consummation by
Buyer of the transactions contemplated hereby are within the corporate powers of
Buyer and have been duly authorized by all necessary corporate action on the
part of Buyer. This Agreement, the Ancillary Agreements and constitute valid
and binding agreements of Buyer.
5.03. Governmental Authorization. Except as set forth in Schedule 5.03,
-------------------------- -------------
the execution, delivery and performance by Buyer of this Agreement and the
Ancillary Agreements require no action by or in respect of, or filing with, any
governmental body, agency, official or authority.
5.04. Non-Contravention. The execution, delivery and performance by
-----------------
Buyer of this Agreement and the Ancillary Agreements do not and will not, with
or without the giving of
<PAGE>
-25-
notice or the lapse of time or both: (i) contravene or conflict with the
corporate charter or bylaws of Buyer, or (ii) contravene or conflict with any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to the Buyer.
5.05. Finders' Fees. There is no investment banker, broker, finder, agent
-------------
or other intermediary which has been retained by or is authorized to act on
behalf of Buyer who might be entitled to any fee or commission from the Company
or any or any Affiliate thereof upon consummation of the transactions
contemplated by this Agreement.
5.06. Purchase for Investment. Buyer is purchasing the Shares for
-----------------------
investment for its own account and not with a view to, or for sale in connection
with, any distribution thereof.
5.07. Financing. Buyer has sufficient funds available to pay the Cash
---------
Consideration.
5.08. Shares of Buyer Stock. The shares of Buyer Stock which constitute
---------------------
the Share Consideration to be issued pursuant to this Agreement shall be duly
authorized, validly issued, fully paid and nonassessable.
5.09. Capitalization.
--------------
(a) As of June 25, 1997, the authorized capital stock of Buyer
consists of an unlimited number of common shares, no par value per share ("Buyer
Common Stock"), of which approximately 28,117,415 shares are issued and
outstanding; and an unlimited number of preferred shares, no par value per
share, none of which are issued and outstanding. As of the date of this
Agreement, options to acquire approximately 2,338,113 shares of Buyer Common
Stock (the "Buyer Stock Options") are outstanding under all stock option plans
of Buyer.
(b) Except as disclosed in this Section 5.09 or in the Buyer SEC
Reports (as hereinafter defined) and except as contemplated by this Agreement,
as of the date hereof (i) there is no outstanding right, subscription, warrant,
call, unsatisfied preemptive right, option or other agreement or arrangement of
any kind to purchase or otherwise to receive from Buyer any of the outstanding
authorized but unissued or treasury shares of the capital stock or any other
security of Buyer; (ii) there is no outstanding security of any kind convertible
into or exchangeable for such capital stock, and there is no voting trust or
other agreement or understanding to which Buyer is a party or is bound with
respect to the voting of the capital stock of Buyer.
(c) Except for the qualifying shares required by certain foreign
jurisdictions, all of the issued and outstanding capital stock of each of the
Subsidiaries of Buyer has been validly issued, is fully paid and nonassessable
and is owned of record and beneficially, directly or indirectly, by Buyer or one
of its Subsidiaries, free of any Lien, preemptive rights or other restriction
with respect thereto.
5.10. Reports and Financial Statements. Buyer has timely filed all
--------------------------------
reports required to be filed with the SEC pursuant to the Exchange Act or the
Securities Act (collectively, the "Buyer SEC Reports") and has previously made
available to the Sellers and the Company true
<PAGE>
-26-
and complete copies of all such Buyer SEC Reports. Such Buyer SEC Reports, as of
their respective dates, complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may be,
and, taken together, the Buyer SEC Reports contain no 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. The financial statements of Buyer included
in the Buyer SEC Reports have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
indicated (except as otherwise noted therein or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present (subject
to, in the case of unaudited statements, to normal, recurring year end
adjustments and any other adjustments described therein) the consolidated
financial position of Buyer and its consolidated Subsidiaries as of the date
thereof and the consolidated results of operations and cash flows of Buyer and
its consolidated Subsidiaries for the periods then ended. Since January 1, 1996,
there has been no change in any of the significant accounting (including tax
accounting) policies, practices or procedures of the Buyer of any of its
consolidated Subsidiaries except for the change in Buyer's fiscal year end
disclosed in Buyer's Current Report on Form 8-K dated January 9, 1997.
5.11. Litigation. Except as set forth in Buyer's Quarterly Report on Form
----------
10-Q for the fiscal quarter ended March 31, 1997, there are no suits, claims,
actions, proceedings, including, without limitation, arbitration proceedings or
alternative dispute resolution proceedings, or investigations pending or, to the
knowledge of Buyer, threatened against Buyer or any of its Subsidiaries before
any governmental entity that, either individually or in the aggregate, would be
reasonably likely to have a material adverse effect on the financial condition
or results of operations of the Buyer.
5.12. Material Transactions. Buyer is not currently a party to any
---------------------
agreement, or in negotiations with respect to entering any agreement, which, if
consummated, would result in a transaction that would be required to be
disclosed pursuant to Item 2 of Form 8-K pursuant to the Securities Exchange Act
of 1934, as amended, except for the Form 8-K filed by Buyer on June 27, 1997.
ARTICLE VI
COVENANTS OF THE COMPANY AND SELLERS
The Company and each Seller agree that:
6.01. Conduct of the Company. From the date hereof until the Closing
----------------------
Date, the Company and its Subsidiary shall conduct their businesses in the
ordinary course consistent with past practices and shall use their best efforts
to preserve intact their business organizations and relationships with third
parties and to keep available the services of their present officers and
employees. Without limiting the generality of the foregoing, from the date
hereof until the Closing Date, the Company will not:
<PAGE>
-27-
(a) adopt or propose any change in its corporate charter or bylaws;
(b) merge or consolidate with any other Person or acquire a material
amount of assets of any other Person;
(c) sell, lease, license or otherwise dispose of any material assets or
property except (i) pursuant to existing contracts or commitments and (ii) in
the ordinary course consistent with past practices;
(d) effect any direct or indirect redemption, purchase or other
acquisition of any Company Securities, or declare, set aside or pay any
dividend or make any other distribution of assets of any kind whatsoever with
respect to any Company Securities;
(e) issue any Company Securities;
(f) make any modification, amendment, waiver, termination, extension or
any change to any existing written or oral agreement, license or arrangement
with an agency, distributor, dealer, original equipment manufacturer, value-
added reseller, sales representative or any other Person without the prior
written consent of Buyer; or
(g) agree or commit to do any of the foregoing.
The Company and Sellers will not (i) take or agree or commit to take any action
that would make any representation and warranty of the Company or Sellers under
this Agreement on the date of its execution and delivery inaccurate in any
respect at, or as of any time prior to, the Closing Date or (ii) omit or agree
or commit to omit to take any action necessary to prevent any such
representation or warranty from being inaccurate in any respect at any such
time.
6.02. Access to Information. From the date hereof until the Closing Date,
---------------------
the Company (a) will give, Buyer, its counsel, financial advisors, financing
sources, auditors and other authorized representatives full access during normal
business hours to the offices, properties, books and records of the Company, (b)
will furnish, and will cause the Company to furnish Buyer, its counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and other information relating to the Company as such Persons
may reasonably request, and (c) will instruct the employees, counsel and
financial advisors of the Company to cooperate with Buyer in its investigation
of the Company; provided that no investigation pursuant to this Section shall
--------
affect any representation or warranty given by the Company or Sellers hereunder.
6.03. Notices of Certain Events. The Company will promptly notify Buyer
-------------------------
of:
(i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
<PAGE>
-28-
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings commenced
or, to its knowledge threatened against, relating to or involving or
otherwise affecting the Company disclosed pursuant to Section 3.11 or that
relate to the consummation of the transactions contemplated by this
Agreement.
6.04. Noncompetition. (a) Each Seller agrees that for a period of three
--------------
(3) full years from the Closing Date, neither he nor any of his Affiliates
shall:
(i) except for Geocapital III, L.P., Platinum Venture Partners I,
L.P., and the Presidents Forum/D-Vision L.L.C., engage, either directly or
indirectly, as a principal or for its own account, solely or jointly with
others, or through any form of ownership in another Person, or otherwise, in
any business that competes with the Company as it exists on the Closing Date,
anywhere in the world ("Competition"); provided, however, that (1) the
ownership of up to two percent (2%) of the outstanding securities of a
publicly traded corporation or of any other entity, where it or he is not
directly or indirectly an employee, officer, director or principal of such
corporation or entity or (2) any passive investment in a venture capital fund
or other investment fund over which it or he exercises no control or
decision-making authority, shall not be deemed to be engaging in the business
of such Person; or
(ii) (1) approach, solicit or accept business from, or otherwise do
business or communicate in any way with any customer, supplier, licensee,
sales representative, manufacturer, vendor, consultant or other business
relation of Buyer or its Affiliates thereof with respect to any activity
which constitutes Competition or (2) induce or attempt to induce any
customer, supplier, licensee, sales representative, manufacturer, vendor,
consultant or other business relation of Buyer or its Affiliates to cease
doing business with Buyer or its Affiliates; or
(iii) solicit, induce or attempt to induce any person (other than
David Pincus and Mark Basler) who is then in the employ of or an independent
contractor to Buyer or its Affiliates to leave the employ of, or terminate
his, her or its contract relationship with Buyer or its Affiliates, or in any
way interfere with the relationship between Buyer or its Affiliates and any
employee thereof, or employ or attempt to employ directly or through another
entity any such person or any person in an activity which constitutes
Competition, or approach any such employee for any of the foregoing purposes;
or
(iv) engage in any practice the purpose of which is to evade the
provisions of this Section 6.04.
(b) If any provision contained in this Section shall for any reason by
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
Section, but this Section shall be construed as if such invalid,
<PAGE>
-29-
illegal or unenforceable provision had never been contained herein. It is the
intention of the parties that if any of the restrictions or covenants contained
herein is held to cover a geographic area or to be for a length of time which is
not permitted by applicable law, or in any way construed to be too broad or to
any extent invalid, such provision shall not be construed to be null, void and
of no effect, but to the extent such provision would be valid or enforceable
under applicable law, a court of competent jurisdiction shall construe and
interpret or reform this Section to provide for a covenant having the maximum
enforceable geographic area, time period and other provisions (not greater than
those contained herein) as shall be valid and enforceable under such applicable
law. Sellers acknowledge that Buyer would be irreparably harmed by any breach of
this Section and that there would be no adequate remedy at law or in damages to
compensate Buyer for any such breach. Sellers agree that Buyer shall be entitled
to injunctive relief requiring specific performance by Sellers of this Section,
and Sellers consent to the entry thereof.
6.05. Confidentiality. The Company and each Seller, and their respective
---------------
Affiliates, will hold, and will use their best efforts to cause their respective
officers, directors, employees, accountants, counsel, consultants, advisors and
agents to hold, in confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of law, all Confidential
Information, concerning the Buyer furnished to the Company or to any Seller, or
their respective Affiliates, in connection with the transactions contemplated by
this Agreement, and (after the Closing Date) all Confidential Information,
concerning the Company and its Affiliates, except to the extent that such
Confidential Information can be shown by the receiving party to have been (i)
previously known on a nonconfidential basis, (ii) in the public domain through
no fault of the receiving party, or (iii) later lawfully acquired by the
receiving party from sources other than the Company or Buyer; provided that the
--------
receiving party may disclose such information to its officers, directors,
employees, accountants, counsel, consultants, advisors and agents in connection
with the transactions contemplated by this Agreement so long as such persons are
informed by the receiving party of the confidential nature of such information
and are directed by the receiving party to treat such information
confidentially. The obligation of the Company and each Seller, and their
respective Affiliates, to hold any such information in confidence shall be
satisfied if they exercise the same care with respect to such information as
they would take to preserve the confidentiality of their own similar
information, but in no event less than a reasonable degree of care. Neither the
Company nor any Seller, nor any of their respective Affiliates, shall use the
Confidential Information concerning Buyer furnished to the Company, any Seller,
or their respective Affiliates in connection with the transactions contemplated
by this Agreement, and (after the Closing Date) all Confidential Information
concerning the Company and its Affiliates. The Company and Sellers shall
immediately give notice to Buyer of any unauthorized disclosure or use of such
Confidential Information. If this Agreement is terminated, the Company and each
Seller, and their respective Affiliates will, and will use their best efforts to
cause their respective officers, directors, employees, accountants, counsel,
consultants, advisors and agents to, destroy or deliver to Buyer, upon request,
all documents and other materials, and all copies thereof, obtained by the
Company, any Seller, or their respective Affiliates or on their behalf from
Buyer in connection with this Agreement that are subject to such confidence.
<PAGE>
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6.06. Trademarks; Tradenames. As soon as practicable after the Closing
----------------------
Date, no Seller shall use (i) the corporate name of the Company or any similar
name which could cause a likelihood of confusion with the current name of the
Company or (ii) any of the trademarks, tradenames, service marks and service
names of the Company.
6.07. No Negotiations with Third Parties. From the date hereof until the
----------------------------------
Closing, the Company and each Seller agrees not to, directly or indirectly,
through any agent, representative, stockholder or otherwise: (i) solicit or
entertain offers from, negotiate with or in any manner encourage, discuss,
accept or consider, any proposal of any third party relating to an investment in
the Company or the acquisition of the Company, its capital stock, its assets (or
rights thereto) or its business, in whole or in part, whether its through direct
purchase, merger, consolidation or other business combination, purchase of stock
or licensing transaction (all such transactions being referred to herein as
"Acquisition Proposals"); (ii) disclose to any third party any non-published
---------------------
information concerning the Company, its business, or financial condition in
connection with an acquisition or investment in the Company, or (iii) withdraw
its intention to engage in a transaction with Buyer. If the Company or any of
its employees, stockholders, agents, or representatives receive any unsolicited
inquiry (however preliminary), offer or proposal, the Company shall promptly
notify Buyer and promptly provide or cause its employees, stockholders, agents
or representatives to promptly provide a copy of any written letter or other
material constituting or accompanying such inquiry, offer or proposal to Buyer.
6.08. Continuing Disclosure. The Company and each Seller shall have the
---------------------
continuing obligation promptly to advise Buyer with respect to any matter
hereafter arising or discovered that, if existing or known at the date of this
Agreement, would have been required to be set forth or described in a schedule
to this Agreement, or that constitutes a breach or prospective breach of this
Agreement by the Company or Seller. The delivery of any such notice shall not
affect Buyer's remedies hereunder.
ARTICLE VII
COVENANTS OF BUYER
Buyer agrees that:
7.01. Confidentiality. Prior to the Closing Date and after any
---------------
termination of this Agreement, Buyer and its Affiliates will hold, and will use
their best efforts to cause their respective officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law, all Confidential Information concerning the Company
furnished to Buyer or its Affiliates in connection with the transactions
contemplated by this Agreement, except to the extent that such Confidential
Information can be shown to have been (i) previously known on a nonconfidential
basis by Buyer, (ii) in the public domain through no fault of Buyer or (iii)
later lawfully acquired by Buyer from sources other than the Company; provided
--------
that
<PAGE>
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Buyer may disclose such information to its officers, directors, employees,
accountants, counsel, consultants, advisors and agents in connection with the
transactions contemplated by this Agreement so long as such persons are informed
by Buyer of the confidential nature of such information and are directed by
Buyer to treat such information confidentially. The obligation of Buyer and its
Affiliates to hold any such information in confidence shall be satisfied if they
exercise the same care with respect to such information as they would take to
preserve the confidentiality of their own similar information, but in no event
less than a reasonable degree of care. Neither Buyer nor any of its Affiliates
shall use the Confidential Information concerning the Company or its Affiliates
prior to the Closing Date. The Buyer shall immediately give notice to Seller of
any unauthorized disclosure or use of such Confidential Information. If this
Agreement is terminated, Buyer and its Affiliates will, and will use their best
efforts to cause their respective officers, directors, employees, accountants,
counsel, consultants, advisors and agents to, destroy or deliver to the Company,
upon request, all documents and other materials, and all copies thereof,
obtained by Buyer or its Affiliates or on their behalf from the Company in
connection with this Agreement that are subject to such confidence.
7.02. Access. The Buyer, on and after the Closing Date, will afford
------
promptly to Sellers and their agents reasonable access during normal business
hours to their properties, books, records, employees and auditors to the extent
necessary to permit Sellers to determine any matter relating to their rights and
obligations hereunder or to any period ending on or before the Closing Date.
Sellers will hold, and will use their best efforts to cause their
representatives, officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all Confidential Information concerning the Company provided to it pursuant to
this Section 7.02.
ARTICLE VIII
COVENANTS OF ALL PARTIES
The parties hereto agree that:
8.01. Best Efforts. Subject to the terms and conditions of this
------------
Agreement, each party will use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary or desirable
under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. The Company, Sellers and Buyer each agree, and
the Company and Sellers, prior to the Closing, and Buyer, after the Closing,
agree to cause the Company, to execute and deliver such other documents,
certificates, agreements and other writings and to take such other actions as
may be necessary or desirable in order to consummate or implement expeditiously
the transactions contemplated by this Agreement.
8.02. Certain Filings. The Company, Sellers and Buyer shall cooperate
---------------
with each other (a) in determining whether any action by or in respect of, or
filing with, any governmental body, agency, official or authority is required,
or any actions, consents, approvals or waivers are
<PAGE>
-32-
required to be obtained from parties to any material contracts, in connection
with the consummation of the transactions contemplated by this Agreement, and
(b) in taking such actions or making any such filings, furnishing information
required in connection therewith and seeking timely to obtain any such actions,
consents, approvals or waivers.
ARTICLE IX
EMPLOYEE BENEFITS
9.01. Employee Benefits Definitions. The following terms, as used
-----------------------------
herein, having the following meanings:
"Benefit Arrangement" means each employment, severance or other similar
-------------------
contract, arrangement or policy (written or oral) and each plan or arrangement
(written or oral) providing for severance benefits, insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, bonuses, stock options,
stock appreciation rights or other forms of incentive compensation or post-
retirement insurance, compensation or benefits which (i) is not an Employee
Plan, (ii) is entered into, maintained or contributed to, as the case may be, by
the Company or any of its ERISA Affiliates and (iii) covers any employee or
former employee of the Company.
"Employee Plans" means each "employee benefit plan", as such term is
--------------
defined in Section 3(3) of ERISA, that (i) is subject to any provision of ERISA
and (ii) is maintained or contributed to by the Company or any of its ERISA
Affiliates, as the case may be.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
-----
amended.
"ERISA Affiliate" of any entity means any other entity that, together
---------------
with such entity, would be treated as a single employer under Section 414 of the
Code.
"Multiemployer Plan" means each Employee Plan that is a multiemployer
------------------
plan, as defined in Section 3(37) of ERISA.
"Transferred Employee" means the current employees of Seller who accept
--------------------
and commence employment with Buyer as of the Closing.
9.02. ERISA Representations. The Company and each Seller, jointly and
---------------------
severally, hereby represent and warrant to Buyer that:
(a) Schedule 9.02 lists each Employee Plan that covers any employee of
-------------
the Company, copies or descriptions of all of which have previously been made
available or furnished to Buyer. With respect to each Employee Plan, the
Company has provided the most recently filed Form 5500 and an accurate summary
description of such plan. The Company has
<PAGE>
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provided Buyer with complete age, salary, service and related data as of the
most recent practicable date for employees of the Company.
(b) Schedule 9.02 also includes a list of each Benefit Arrangement of the
-------------
Company, copies or descriptions of which have been made available or furnished
previously to Buyer.
(c) None of the Employee Plans or other arrangements listed on Schedule
--------
9.02 covers any non-United States employee or former employee of the Company.
- ----
(d) No "prohibited transaction", as defined in Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to any Employee Plan.
(e) No Employee Plan is a Multiemployer Plan and no Employee Plan is an
"employee pension benefit plan" as defined in Section 3(2) of ERISA. The
Company and its Affiliates have not incurred any liability under Title IV of
ERISA arising in connection with the termination of any plan covered or
previously covered by Title IV of ERISA.
(f) Each Employee Plan and each Benefit Arrangement has been maintained
in substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to such
Benefit Arrangement.
(g) With respect to the employees and former employees of the Company,
there are no employee post-retirement medical or health plans in effect, except
as required by Section 4980B of the Code.
(h) All contributions and payments accrued under each Employee Plan and
Benefit Arrangement, determined in accordance with prior funding and accrual
practices, as adjusted to include proportional accruals for the period ending on
the Closing Date, will be discharged and paid on or prior to the Closing Date
except to the extent (i) reflected on the Closing Balance Sheet or (ii) retained
by Seller. Except as disclosed in writing to Buyer prior to the date hereof,
there has been no amendment to, written interpretation of or announcement
(whether or not written) by Seller or any of its ERISA Affiliates relating to,
or change in employee participation or coverage under, any Employee Plan or
Benefit Arrangement that would increase materially the expense of maintaining
such Employee Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year ended prior to the date hereof.
(i) There is no contract, agreement, plan or arrangement 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 the terms of Section 280G of the Code.
(j) No tax under Section 4980B of the Code has been incurred in respect
of any Employee Plan that is a group health plan, as defined in Section
5000(b)(1) of the Code.
<PAGE>
-34-
(k) Except as set forth on Schedule 9.02, no employee of the Company will
-------------
become entitled to any bonus, retirement, severance or similar benefit or
enhanced benefit solely as a result of the transactions contemplated hereby.
(l) The Company does not have, nor is it reasonably expected to have, any
liability under Title IV of ERISA.
9.03. No Third Party Beneficiaries. No provision of this Article IX
----------------------------
shall create any third party beneficiary or other rights in any employee or
former employee (including any beneficiary or dependent thereof) of the Company
in respect of continued employment (or resumed employment) with the Company and
no provision of this Article IX shall create any such rights in any such Persons
in respect of any benefits that may be provided, directly or indirectly, under
any Employee Plan or Benefit Arrangement or any plan or arrangement that may be
established by Buyer or any of its Affiliates. No provision of this Agreement
shall constitute a limitation on rights to amend, modify or terminate after the
Closing Date any Employee Plan or Benefit Arrangement.
ARTICLE X
CONDITIONS TO CLOSING
10.01. Conditions to the Obligations of Each Party. The obligations of
-------------------------------------------
Buyer, the Company and Sellers to consummate the Closing are subject to the
satisfaction of the following conditions:
(a) No proceeding challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially delay
the Closing shall have been instituted by any Person before any court,
arbitrator or governmental body, agency or official and be pending.
(b) Each other party shall have executed and delivered each of the
Ancillary Agreements to be entered into by it at Closing, in each case
substantially in the form attached as an exhibit to this Agreement.
(c) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Closing.
(d) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
(e) All actions by or in respect of or filings with any governmental
body, agency, official or authority required to permit the consummation of the
Closing shall have been obtained.
<PAGE>
-35-
10.02. Conditions to Obligation of Buyer. The obligation of Buyer to
---------------------------------
consummate the Closing is subject to the satisfaction of the following further
conditions:
(a)(i) the Company and each Seller shall have performed in all material
respects all of his or its obligations hereunder required to be performed on or
prior to the Closing Date, (ii) the representations and warranties of the
Company and each Seller contained in this Agreement at the time of its execution
and delivery and in any certificate or other writing delivered by the Company or
a Seller pursuant hereto, disregarding all qualifications and exceptions
contained therein relating to materiality or Material Adverse Effect, shall be
true at and as of the Closing Date, as if made at and as of such date with only
such exceptions as would not in the aggregate reasonably be expected to have a
Material Adverse Effect and (iii) Buyer shall have received a certificate signed
by the President and Chief Financial Officer of the Company and by each Seller
to the foregoing effect.
(b) No court, arbitrator or governmental body, agency or official shall
have issued any order, and there shall not be any statute, rule or regulation,
restraining the effective operation by Buyer of the business of the Company
after the Closing Date, and no proceeding challenging this Agreement or the
transactions contemplated hereby or seeking to prohibit, alter, prevent or
materially delay the Closing shall have been instituted by any Person before any
court, arbitrator or governmental body, agency or official and be pending.
(c) Buyer shall have received an opinion of counsel to the Company and
Sellers dated the Closing Date, in such form and substance as Buyer may
reasonably request.
(d) Buyer shall have received certificates of originality with regard to
the Company's Proprietary Rights in form and substance reasonably satisfactory
to Buyer.
(e) Buyer shall have received executed copies of the nondisclosure and
assignment agreement in form and substance reasonably satisfactory to Buyer (the
"Nondisclosure and Assignment Agreements") from each of the Company's present
and former employees and consultants of the Company listed on Schedule 10.02(e).
-----------------
(f) Buyer shall have received an executed copy of an Investment
Representation Agreement from each of the Sellers receiving Share Consideration,
and as of the Closing, there shall be no more than 35 stockholders of the
Company who are not "accredited investors" as that term is defined in Regulation
D promulgated under the Securities Act.
(g) Without prejudice to Buyer's rights under Section 11.02(a), Seller
shall have delivered to Buyer revised Schedules to this Agreement containing
information updated to the Closing Date.
(h) The Company and Sellers shall have received all consents,
authorizations or approvals from the governmental agencies referred to in
Sections 3.03(a) and 3.03(b), in each case in form and substance reasonably
satisfactory to Buyer, and no such consent, authorization or approval shall have
been revoked.
<PAGE>
-36-
(i) The Sellers shall deliver to the Buyer stock certificates,
evidencing the Shares, in each case endorsed in blank or with executed blank
stock powers and all necessary stock transfer tax stamps attached.
(j) The Company shall deliver to the Buyer the resignations of each of
the directors and officers of the Company and Employee Plan administrators and
trustees, as the Buyer may specify to the Company in writing.
(k) The Company shall deliver to the Buyer a copy of the certificate or
articles of incorporation of the Company and its Subsidiary certified by the
Secretary of State or comparable public official of its jurisdiction of
incorporation as of a date as near as practicable to the Closing Date.
(l) The Company shall deliver to the Buyer a copy of the by-laws of the
Company and its Subsidiary as in effect on the Closing Date.
(m) The Company shall deliver to the Buyer the original minute and stock
books of the Company and its Subsidiary.
(n) The Company shall deliver to the Buyer all files, documents, books
and records of the business being sold pursuant to this Agreement and the
transactions contemplated hereby.
(o) Paul Reilly shall deliver to the Buyer the Share Subscription
Agreement.
(p) Buyer shall have received all other closing documents specified in
Section 2.02 of this Agreement and all other closing documents that it may
reasonably request, all in form and substance reasonably satisfactory to Buyer.
10.03. Conditions to Obligation of Sellers. The obligation of Sellers to
-----------------------------------
consummate the Closing is subject to the satisfaction of the following further
conditions:
(a)(i) Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the Closing
Date, (ii) the representations and warranties of Buyer contained in this
Agreement at the time of its execution and delivery and in any certificate or
other writing delivered by Buyer pursuant hereto shall be true in all material
respects at and as of the Closing Date, as if made at and as of such date and
(iii) Sellers shall have received a certificate signed by the President and
Chief Financial Officer of Buyer to the foregoing effect.
(b) Sellers shall have received an opinion of Buyer's Counsel, in form
and substance as Sellers shall reasonably request.
<PAGE>
-37-
(c) Buyer shall have received all consents, authorizations or approvals
from governmental agencies referred to in Section 5.03, in each case in form and
substance reasonably satisfactory to Seller, and no such consent, authorization
or approval shall have been revoked.
(d) Sellers shall have received all items specified in Section 2.02 of
this Agreement and all other closing documents that they may reasonably request,
all in form and substance reasonably satisfactory to them.
ARTICLE XI
SURVIVAL; INDEMNIFICATION
11.01. Survival. The covenants, agreements, representations and warranties
--------
of the parties hereto contained in this Agreement or in any certificate or other
writing delivered pursuant hereto or in connection herewith shall survive the
Closing until October 1, 1999 or (i) in the case of Sections 6.04, for the
period set forth therein, (ii) in the case of Sections 3.09, 3.16, 6.05 and
7.01, indefinitely; and (iii) in the case of the covenants, agreements,
representations and warranties contained in Section 3.19, 3.20, 3.23, or Article
IX, until expiration of the applicable statutory period of limitations (giving
effect to any waiver, mitigation or extension thereof), if later, whereupon they
shall terminate; provided that any such termination shall not terminate or limit
--------
in any manner whatsoever any liabilities Sellers have or may have for knowing
and intentional misrepresentations, breaches, nonfulfillments and/or violations;
and provided, further, that Buyer's sole recourse to satisfy claims for breaches
-------- -------
of representations or warranties, nonfulfillments and/or violations and
indemnification under this Article XI shall be to the Escrow Amount, except for
any such individual claims based on knowing and intentional misrepresentations,
breaches, nonfulfillments and/or violations as described in Section 11.02(a).
Notwithstanding the preceding sentence (other than the provisos), any covenant,
agreement, representation or warranty in respect of which indemnity may be
sought under Section 11.02 shall survive the time at which it would otherwise
terminate pursuant to the preceding sentence, if notice of the inaccuracy or
breach thereof giving rise to such right to indemnity shall have been given to
the party against whom such indemnity may be sought prior to such time.
11.02. Indemnification. (a) Each Seller, jointly and severally, hereby
---------------
indemnifies Buyer, its Affiliates, directors, officers, employees, agents or
advisors or any of their Affiliates (each an "Indemnitee," and collectively, the
"Indemnitees") against and agrees to hold each of them harmless from any and all
damage, loss, liability and expense (including, without limitation, reasonable
expenses of investigation and reasonable attorneys' fees and expenses in
connection with any investigation, action, suit or proceeding) (collectively,
"Loss") incurred or suffered by the Indemnitees arising out of any
----
misrepresentation or breach of a representation or warranty, covenant or
agreement made or to be performed by Seller pursuant to this Agreement or in the
Schedules, provided, however, that any claim of Loss shall be determined and
-------- -------
available to the Indemnitees irrespective of the knowledge and information
received by Buyer from the Company or Sellers or through any due diligence
review, audit or other investigation or inquiry undertaken or performed by or on
behalf of Buyer, provided that Sellers shall not be liable under
--------
<PAGE>
-38-
Section 11.02(a) unless the aggregate amount of Loss with respect to all matters
referred to in this Section 11.02(a) exceeds $25,000 and then to the full extent
of the aggregate amount of the Loss. Upon consummation of the transactions
contemplated in this Agreement and except for claims based on knowing and
intentional misrepresentations, breaches, nonfulfillments and/or violations (for
which claims Buyer's recourse against any Seller shall be several and not
joint), Buyer's sole recourse to satisfy claims for indemnification pursuant to
Section 11.02(a) shall be to the Escrow Amount.
(b) Buyer hereby indemnifies Sellers and its Affiliates against and
agrees to hold each of them harmless from any and all Loss incurred or suffered
by Sellers or any of its Affiliates arising out of any misrepresentation or
breach of warranty, covenant or agreement made or to be performed by the Buyer
pursuant to this Agreement; provided that (i) Buyer shall not be liable under
--------
this Section 11.02(b) unless the aggregate amount of Loss with respect to all
matters referred to in this Section 11.02(b) exceeds $25,000 and then to the
full extent of the aggregate amount of the Loss and (ii) Buyer's maximum
liability under this Section 11.02(b) shall not exceed $500,000.
11.03. Procedures; No Waiver. (a) The party seeking indemnification under
---------------------
Section 11.02 (the "Indemnified Party") agrees to give prompt notice to the
party against whom indemnity is sought (the "Indemnifying Party") of the
assertion of any claim, or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought under such Section. The Indemnifying
Party may, and at the request of the Indemnified Party shall, participate in and
control the defense of any such third party suit, action or proceeding at its
own expense. The Indemnifying Party shall not be liable under Section 11.02 for
any settlement effected without its consent of any claim, litigation or
proceeding in respect of which indemnity may be sought hereunder.
(b) No waiver of a closing condition by either Buyer, the Company or
Sellers shall limit its rights under Section 11.02.
ARTICLE XII
TERMINATION
12.01. Grounds for Termination. This Agreement may be terminated
-----------------------
at any time prior to the Closing:
(a) by mutual written consent duly authorized by Buyer, the Company
and a majority-in-interest of Sellers;
(b) by either the Company, Sellers representing at least 75% of the
outstanding capital stock of the Company, or Buyer, if the Agreement shall not
have been consummated by August 31, 1997; provided, however, that the right to
-----------------
terminate this Agreement under this Section 12.01(b) shall not be available to
any party whose action or failure to act has been a
<PAGE>
-39-
principal cause of or resulted in the failure of the Closing to occur on or
before such date and such action or failure to act constitutes a breach of this
Agreement;
(c) by either the Company or Buyer, if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action (an "Order"), in any
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the transaction contemplated hereunder, which order, decree or
ruling is final and nonappealable;
(d) by Buyer or, subject to Section 12.03, the Company, if the Company
shall have accepted an Acquisition Proposal;
(e) by Buyer, if the board of directors of the Company shall have
withheld, withdrawn or modified in a manner adverse to Buyer its approval of
this Agreement and the consummation of the transaction contemplated hereunder;
(f) by Buyer, if there shall have occurred any Material Adverse Change in
the financial condition, results of operations, business, properties, assets or
operations of the Company since the date of this Agreement;
(g) by Buyer, if the Buyer Closing Price is less than $13.00 per share;
(h) by the Company or Sellers representing at least 75% of the outstanding
capital stock of the Company, if there shall have occurred any Material Adverse
Change in the financial condition, results of operation, business, properties,
assets or operations of the Buyer since the date of this Agreement; provided,
--------
however, that for the purposes this Section 12.01(h), the following shall not be
- -------
considered a Material Adverse Change: any adverse effect that results primarily
(i) from the execution and delivery of this Agreement or (ii) from changes in
Buyer's industry or in the financial markets, generally;
(i) by Buyer, upon breach of any representation, warranty, covenant or
agreement on the part of the Company or Sellers set forth in this Agreement, or
if any representation or warranty of the Company or Sellers shall have become
untrue, in either case such that the conditions set forth in Section 10.02(a)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
inaccuracy in representations and warranties of the Company or Sellers, or
breach by the Company or Sellers is curable by the Company or Sellers through
the exercise of its commercially reasonable efforts within five (5) days of the
time such representation or warranty shall have become untrue or such breach,
then Buyer may not terminate this Agreement under Section 12.01(i) during such
five-day period provided the Company and/or Sellers continue to exercise such
commercially reasonable efforts;
(j) by the Company or Sellers representing at least 75% of the outstanding
capital stock of the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Buyer set forth in this Agreement, or if
any representation or warranty of Buyer shall
<PAGE>
-40-
have become untrue, in either case such that the conditions set forth in Section
10.03(a) would not be satisfied as of the time of such breach or as of the time
such representation or warranty shall have become untrue, provided, that if such
inaccuracy in Buyer's representations and warranties or breach by Buyer is
curable by Buyer through the exercise of its commercially reasonable efforts
within five (5) days of the time such representation or warranty shall have
become untrue or such breach, then the Company may not terminate this Agreement
under this Section 12.01(j) during such five-day period provided Buyer continues
to exercise such commercially reasonable efforts.
12.02. Notice of Termination; Effect of Termination. Any termination of
--------------------------------------------
this Agreement under Section 12.01 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 12.01,
this Agreement shall be of no further force or effect, except (i) as set forth
in Section 6.05, Section 7.01, Article XI, Section 12.02, Section 12.03, 12.04
and Article XIII (Miscellaneous), each of which shall survive the termination of
this Agreement, and (ii) nothing herein shall relieve any party from liability
for any willful breach of this Agreement. No termination of this Agreement shall
affect the obligations of the parties contained in the Reciprocal Nondisclosure
Agreement dated April 1997, Nondisclosure and Assignment Agreements,
Confidentiality Agreements, Custody Agreement and Power of Attorney, all of
which obligations shall survive termination of this Agreement in accordance with
their terms.
12.03. Fees. The Company shall immediately pay Buyer a fee (by wire
----
transfer or cashiers check) of $5,000,000, which includes fees and expenses of
Buyer's counsel, accountants and financial advisors, in the event (i) the
Company shall have accepted an Acquisition Proposal or (ii) if the board of
directors of the Company shall have withheld, withdrawn or modified in a manner
adverse to Buyer its approval of this Agreement and the consummation of the
transaction contemplated hereunder. Payment of the fees described in this
Section 12.03 above shall not be in lieu of (i) damages incurred in the event of
breach of this Agreement; or (ii) any other remedies that Buyer may pursue
including, without limitation, pursuant to Section 13.10 hereof (Specific
Performance).
12.04. Procedure Upon Termination. In the event of the termination of
--------------------------
this Agreement, Buyer or the Company so terminating may direct its or their
officers not to consummate the transaction contemplated by this Agreement,
notwithstanding favorable action by the stockholders of the Company.
ARTICLE XIII
MISCELLANEOUS
13.01. Notices. All notices, requests and other communications to either
-------
party hereunder shall be in writing (including telecopy or similar writing) and
shall be given,
if to Buyer, to:
<PAGE>
-41-
Discreet Logic Inc.
10 Duke Street
Montreal, Quebec H3C 2L7
Attn.: Chief Financial Officer
Telecopy: (514) 393-0110
with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attn.: Mark J. Macenka, Esq.
Telecopy: (617) 248-7100
if to the Company, to:
D-Vision Systems, Inc.
8755 West Higgins Road
2nd Floor
Chicago, Illinois 60631
Telecopy: (773) 714-1405
with a copy to:
Gardner, Carton & Douglas
Suite 3400- Quaker Tower
321 North Clark Street
Chicago, Illinois 60610-4795
Attention: Glenn W. Reed, Esq.
Telecopy: (312) 644-3381
if to a Seller:
at his address shown in
Schedule 2.01
-------------
13.02. Amendments; No Waivers. (a) Any provision of this Agreement may
----------------------
be amended or waived if, and only if, such amendment or waiver is in writing and
signed by Buyer, the Company and Sellers. Any amendment, waiver or action of
Sellers hereunder may be taken by a majority-in-interest of Sellers.
<PAGE>
-42-
(b) No failure or delay by either party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
13.03. Expenses. All costs and expenses incurred in connection with this
--------
Agreement shall be paid by the party incurring such cost or expense; provided,
however, that if the Closing shall occur all such costs and expenses incurred by
the Company and Sellers shall be paid as set forth in Section 2.02.
13.04. Successors and Assigns. The provisions of this Agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided that no party may assign, delegate or otherwise
--------
transfer any of his or its rights or obligations under this Agreement without
the consent of the other parties hereto, except that Buyer may transfer or
assign, in whole or from time to time in part, to one or more of its Affiliates,
the right to purchase all or a portion of the Shares, but no such transfer or
assignment will relieve Buyer of its obligations hereunder.
13.05. Further Assurances. From time to time after the date hereof, at
------------------
the request of Buyer and without further consideration, Sellers will execute and
deliver to Buyer such other documents, and take such other action, as Buyer may
reasonably request in order to consummate more effectively the transactions
contemplated hereby and to vest in Buyer good, valid and marketable title to the
Shares.
13.06. Governing Law. This Agreement and the Ancillary Agreements shall
-------------
be construed in accordance with and governed by the laws of the Commonwealth of
Massachusetts, without regard to the conflicts of law rules of such state.
13.07. Counterparts; Effectiveness. This Agreement may be signed in any
---------------------------
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received a
counterpart hereof signed by the other parties hereto.
13.08. Entire Agreement. This Agreement, the Ancillary Agreements, the
----------------
Custody Agreement and the Power of Attorney constitute the entire agreement
between the parties with respect to the subject matter hereof and supersede all
prior agreements, understandings and negotiations, both written and oral,
between the parties with respect to the subject matter hereof. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by either party hereto. Neither
this Agreement nor any provision hereof is intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
13.09. Captions. The captions herein are included for convenience of
--------
reference only and shall be ignored in the construction or interpretation
hereof.
<PAGE>
-43-
13.10. Other Remedies; Specific Performance. Any and all remedies herein
------------------------------------
expressly conferred upon a party will be deemed cumulative 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. 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 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-44-
IN WITNESS WHEREOF, the parties hereto have duly executed this Stock
Purchase Agreement as of the day and year first above written.
DISCREET LOGIC INC.
By /s/ Francois Plamondon
----------------------------
Title: Senior V.P. & C.F.O.
D-VISION SYSTEMS, INC.
By /s/ Paul Reilly
----------------------------
Title:
<PAGE>
-45-
SELLERS
-------
Michael J. Radi, Trustee for Michael J. Radi
Revocable Living Trust under dated 2/12/91
By: /s/ Michael J. Radi
------------------------
Its: Trustee
------------------------
/s/ Richard J. Radi
----------------------------
Richard J. Radi
/s/ Dale Weaver
----------------------------
Dale Weaver
*
----------------------------
Kevin H. Erwin
*
----------------------------
Paul G. Radja
/s/ Paul Reilly
----------------------------
Paul Reilly
/s/ Bruce A. Rady
----------------------------
Bruce A. Rady
<PAGE>
-46-
Geocapital III, L.P.
By: *
------------------------
Its:
------------------------
Platinum Venture Partners I, L.P.
By: *
------------------------
Its:
------------------------
*
----------------------------
Harvey L. Poppel
*
----------------------------
Robert F. Steel
Presidents Forum/D-Vision L.L.C.
By: *
------------------------
Its:
------------------------
*
----------------------------
Kenneth A. Steel
Sunbeam Ventures Ltd.
By: *
------------------------
Its:
------------------------
*
----------------------------
Michael Brown
<PAGE>
-47-
*
----------------------------
Bradley Shaw
*
----------------------------
Todd Belfer
*
----------------------------
Bernard Ludwig
*By: /s/ Paul Reilly
----------------------------
Paul Reilly
Attorney-in-Fact
<PAGE>
-48-
The following individual hereby executes this Stock Purchase Agreement for
purposes of Article III, Sections 6.04, 6.05, 6.06 and Article XI hereto.
/s/ David Pincus
----------------------------
David Pincus
The following individual hereby executes this Stock Purchase Agreement for
purposes of Article III, Sections 6.04(a)(iii), 6.04(a)(iv), 6.04(b), 6.05, 6.06
and Article XI hereto.
/s/ Mark Basler
----------------------------
Mark Basler
The following individuals hereby execute this Stock Purchase Agreement for
purposes of Sections 3.16, 3.22, 6.04, 6.05, 6.06 and Article XI hereto.
/s/ Bob Falk
----------------------------
Bob Falk
/s/ Jim Kuch
----------------------------
Jim Kuch
The following individuals hereby execute this Stock Purchase Agreement for
purposes of Sections 3.16, 3.22, 6.04(a)(ii)(2), 6.04(a)(iii), 6.04(a)(iv),
6.04(b), 6.05, 6.06 and Article XI hereto.
/s/ Dean Smith
----------------------------
Dean Smith
/s/ Dipu Bose
----------------------------
Dipu Bose
/s/ Stan Berkovich
----------------------------
Stan Berkovich
<PAGE>
-49-
/s/ Ramsey Marzouk
----------------------------
Ramsey Marzouk
/s/ Frank Black
----------------------------
Frank Black
Except for 6.04(A)(ii)(2),
which the Buyer is releasing
Frank Black from.
<PAGE>
EXHIBIT 2.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
---------
into as of July 15, 1997 by and among Discreet Logic Inc., a corporation
organized under the laws of the province of Quebec ("Buyer"), and the former
-----
shareholders (individually, a "Seller," and collectively, the "Sellers") of
------ -------
D-Vision Systems, Inc., an Illinois corporation (the "Company").
-------
W I T N E S S E T H:
WHEREAS, Buyer, the Company and the Sellers are parties to a certain Stock
Purchase Agreement dated as of July 15, 1997 (the "Purchase Agreement") pursuant
------------------
to which Buyer will acquire all outstanding shares of stock of the Company in
exchange for cash and Buyer Common Shares; and
WHEREAS, the execution of this Agreement by the parties hereto is a
condition precedent to the obligations of the parties to consummate the
transactions contemplated by the Purchase Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth below, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the meaning ascribed to them:
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
------------
that is not a day on which banking institutions in Montreal or New York City are
closed.
"Buyer Common Shares" means the shares of common stock, no par value per
-------------------
share, of Buyer issued to Sellers pursuant to the Purchase Agreement.
"Commission" means the U.S. Securities and Exchange Commission, or any
----------
other U.S. federal agency at the time administering the Securities Act.
"Effective Date" means the date a Registration Statement becomes effective.
--------------
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended,
------------
or any other similar U.S. federal statute, and the rules and regulations of the
Commission thereunder, as may be in effect from time to time.
"Prospectus" means the prospectus included in any Registration Statement,
----------
as amended or supplemented by any prospectus supplement (including, without
limitation, any prospectus supplement with respect to the terms of the offering
of any portion of the Registrable Securities covered by such Registration
Statement), and all other amendments and supplements to the
<PAGE>
-2-
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"Registrable Securities" means the Buyer Common Shares issued to and
----------------------
received by the Sellers in respect of shares of the Company's common stock and
the Company's preferred stock at the Closing (as defined in the Purchase
Agreement) pursuant to the Purchase Agreement and held continuously from the
Closing Date by such Sellers and any securities that may be issued by Buyer or
any successor to Buyer from time to time with respect to, in exchange for, or in
replacement of such Buyer Common Shares, including, without limitation,
securities issued as a stock dividend on or pursuant to a stock split or similar
recapitalization of such shares; provided, however, that those shares as to
-------- -------
which the following apply shall cease to be Registrable Securities if: (a) a
Registration Statement with respect to the sale of such Registrable Securities
shall have become effective under the Securities Act and such Registrable
Securities shall have been disposed of under such Registration Statement; (b)
such Registrable Securities shall have become transferable, and have been so
transferred, in accordance with the resale provisions of Rule 144 or any
successor rule or provision, under the Securities Act; (c) such Registrable
Securities shall have been transferred in a transaction in which the Seller's
rights and obligations under this Agreement were not assignable in accordance
with this Agreement; (d) such Registrable Securities shall have ceased to be
outstanding; or (e) the Registrable Securities have previously been sold in
accordance with the terms of this Agreement.
"Securities Act" means the U.S. Securities Act of 1933, as amended, or any
--------------
similar U.S. federal statue, and the rules and regulations of the Commission
thereunder, as may be in effect from time to time.
"Shelf Registration" means a registration effected pursuant to a shelf
------------------
registration statement of Buyer, on an appropriate form under Rule 415 under the
Securities Act, or any similar rule that may be adopted by the Commission, all
amendments and supplements to such registration statement, including post-
effective amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference therein. A
registration statement relating to a Shelf Registration shall be referred to
herein as the "Registration Statement." The Registration Statement shall be
----------------------
effected on [Form S-3] or any successor form prescribed by the Commission.
2. SHELF REGISTRATION.
(a) Subject to the limitations set forth in Sections 4, 5 and 7 hereof,
Sellers constituting at least 25% of the total Registrable Securities then
outstanding (the "Initiating Holders") shall have the right to request that
------------------
Buyer use its reasonable efforts to promptly effect qualification and
registration of the Registrable Securities under the Securities Act on a
Form S-3 Registration Statement (the "Registration"). Such request shall specify
------------
the name and address (including telephone and facsimile numbers) of each Seller
requesting registration and the number of shares for which each such Seller is
requesting registration (the "Registration Notice") and shall be sent by the
-------------------
Initiating Holders to Buyer and to each Seller who is not an Initiating
<PAGE>
-3-
Holder (the "Non-Initiating Holders"). Following receipt of the Registration
----------------------
Notice, Buyer shall use reasonable efforts to register the number of shares of
Registrable Securities specified in the Registration Notice and in all notices
received by Buyer from the Non-Initiating Holders within 15 Business Days after
delivery of such notice by the Initiating Holders to Buyer.
(b) Buyer shall use its reasonable efforts to proceed with and complete
the filing of a Registration Statement in respect of the Registrable Securities
as expeditiously as possible and in doing so shall carry out the following
actions:
(i) prepare the Registration Statement and use its reasonable
efforts to obtain the approval of its Board of Directors to carry out the
necessary actions to file the Registration Statement and register the
Registrable Securities in compliance therewith;
(ii) file the Registration Statement with the Commission and use its
reasonable efforts to cause the Registration Statement to become effective
as soon as practicable following the receipt of a request by the Initiating
Holders, and to keep such Registration Statement continuously effective
until the earlier of (A) midnight on the ninetieth (90th) day following the
Effective Date of the Registration, or at such later time as may be
established pursuant to Sections 4(b), 5(b) or 7(b) or (B) the date on
which no Registrable Securities for which the Registration has been
initiated remain unsold ("each a Distribution Period");
-------------------
(iii) prepare and file as expeditiously a possible with the
Commission such amendments and supplements to the Registration Statement,
and the Prospectus, as may be necessary to keep the Registration Statement
effective during a Distribution Period;
(iv) furnish to each Seller such number of copies of the
Registration Statement and the Prospectus (including each preliminary
prospectus) and any amendments or supplements thereto as such Seller may
reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities;
(v) use its reasonable efforts to register or qualify the
Registrable Securities under the state securities or "blue sky" laws of
such jurisdictions as each Seller shall reasonably request and to maintain
such qualification throughout the Distribution Period, except that Buyer
shall not be required for the purpose of such qualification to qualify
generally to transact business as a foreign corporation in any jurisdiction
where it is not so qualified or, except as to matters relating to the offer
and sale of the Registrable Securities, consent to general service of
process in any such jurisdiction;
(vi) use its reasonable efforts to list the Registrable Securities
on the Nasdaq National Market or with any U.S. securities exchange on which
the common shares of Buyer are then listed;
(vii) immediately notify each Seller (A) of the Effective Date and
the date when any post-effective amendment to the Registration Statement
becomes effective, (B) of
<PAGE>
-4-
any stop order or notification from the Commission or any other
jurisdiction as to the suspension of the effectiveness of the Registration
Statement, and (C) of the happening of any event of which Buyer has
knowledge that would result in the Prospectus contained in the Registration
Statement, as then in effect, including an untrue statement of a material
fact or omitting to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(viii) timely file with the Commission all documents required to be
filed by Buyer pursuant to subsections 13(a), 13(c), 15(d), and Section 14
of the Exchange Act, and otherwise maintain its qualification to file a
Registration Statement; and
(ix) if the Registrable Securities are to be sold by way of an
underwritten offering (on either a "firm commitment" or "best efforts"
basis), take all reasonable actions as are necessary or advisable to
expedite and facilitate the disposition of the Registrable Securities in
the manner contemplated by the Registration Statement, to the same extent
as if the Registrable Securities then being offered were for the account of
Buyer, including, without limitation, (A) entering into such customary
agreements (including underwriting agreements in customary form) as the
underwriters may reasonably request, and (B) using its best efforts to
furnish: (1) an opinion of counsel representing Buyer for the purposes of
such registration, dated the date the Registrable Securities are delivered
to the underwriters for sale and addressed to the underwriters and the
Sellers, (x) stating that the Registration Statement has become effective
under the Securities Act, and that to the best knowledge of such counsel,
no stop order suspending its effectiveness has been issued and no
proceeding for that purpose has been instituted or is pending or
contemplated under the Securities Act, (y) stating that the Registration
Statement and each amendment or supplement thereto, comply as to form in
all material respects with the requirements of the Securities Act (except
that such counsel need not express any opinion as to financial statements
contained therein) and (z) to such other effects as reasonably may be
requested by counsel for the underwriters or by the Sellers or their
counsel, (2) letters dated the date of execution of the underwriting
agreement and the date of delivery of the Registrable Securities (if so
requested by the underwriters or the Sellers) and addressed to the
underwriters and the Sellers, from the chartered accountants retained by
Buyer stating that they are independent public accountants within the
meaning of the Securities Act that, in the opinion of those accountants,
the financial statements of Buyer included in the Registration Statement,
and any amendment or supplement thereto, comply as to form in all material
respects with the applicable accounting requirements of the Securities Act,
and covering such other financial matters (including information as to the
period ending no more than five (5) business days prior to the date of the
letter) with respect to the registration as the underwriters reasonably may
request, and (3) for inspection by the Sellers, any underwriter
participating in any distribution pursuant to the Registration Statement,
and any attorney, accountant or other agent retained by any underwriter,
all pertinent financial and other records, pertinent corporate documents
and properties of Buyer, and causing Buyer' officers, directors and
employees to supply all information reasonably requested by any
underwriter, attorney, and accountant or agent in connection with the
Registration Statement, on the condition
<PAGE>
-5-
that each of the foregoing have entered into confidentiality agreements
with Buyer in respect of the information contained in such records or
documents.
(c) Buyer shall not be required to effect more than one (1) registration
pursuant to the provisions of this Section 2. Buyer and the Sellers shall use
their reasonable best efforts to coordinate sales of Registrable Securities
pursuant to a Registration Statement in a manner to ensure stability in the
trading price of the Buyer Common Shares. In addition, Buyer may affect
qualification and registration of the Registrable Securities pursuant to this
Section 2 pursuant to an existing shelf registration statement or pursuant to an
underwritten offering in accordance with the provisions of Section 5 hereof.
3. SHAREHOLDER OBLIGATIONS. In connection with the filing of the
Registration Statement, each Seller will furnish to Buyer as expeditiously as
possible, such documents or information with respect to itself and the proposed
sale or distribution of the Registrable Securities, as is reasonably necessary
in order to assure compliance of U.S. federal and applicable state securities
laws, and as a condition to any proposed sale or distribution of the Registrable
Securities deliver to Buyer in writing representation and warranties, including
but not limited to, representations and warranties that, in connection with any
proposed sale or distribution of Registrable Securities, Seller has complied
with all requirements under the Securities Act, including applicable prospectus
delivery requirements, and that such shares of Registrable Securities have been
sold or distributed in accordance with the method of sale set forth in the
Registration Statement. Each Seller shall comply, throughout the Distribution
Period, with all United States and state securities laws in the offer and sale
of the Registrable Securities.
4. DELAYS IN REGISTRATION.
(a) The obligations of Buyer with respect to the Registration Statement
(as set out in Section 2 hereof) and the rights of the Sellers to distribute the
Registrable Securities pursuant to this Agreement and any Registration
Statement, may be suspended by Buyer on the occurrence of any of the following
events:
(i) Buyer has made an initial determination to conduct a primary,
secondary or combined primary and secondary public offering pursuant to
which Sellers shall have the right to include therein Registrable
Securities in accordance with Section 4(e) hereof;
(ii) Buyer is about to make a normal course disclosure containing
information of a material nature;
(iii) Buyer is engaged in any activity at any time that, in the good
faith determination of its management or Board of Directors, would have a
material effect on Buyer and would be adversely affected by the continued
compliance with this Agreement or the continued distribution of the
Registrable Securities by the Sellers (each a "Material Activity").
<PAGE>
-6-
(b) In the event of a suspension pursuant to paragraph (a) of this Section
4, Buyer shall use its best efforts to minimize the length of such suspension:
(i) under paragraph 4(a)(i), from the date of such determination
until the earlier of (a) the decision by Buyer not to pursue the public
offering or (b) for a period of one hundred and eighty (180) days, more or
less, from the effective date of the registration statement relating to
such public offering, provided that during such suspension Buyer will
proceed with reasonable efforts to file the appropriate documentation in
respect of, and otherwise complete, such public offering as expeditiously
as practicable;
(ii) under paragraph 4(a)(ii), for a period of five (5) Business
Days, more or less; and
(iii) under paragraph 4(a)(iii), in the case of each Material
Activity, for a period of ninety (90) days, more or less, and in any event
to end not later than the termination of the Material Activity giving rise
to the suspension.
(c) Buyer shall promptly give the Sellers' notice of both the beginning
and end of any suspension under subsection 4(a).
(d) The Distribution Period shall be extended by the length of any
suspensions under paragraph 4(b)(i) and (iii).
(e) If Buyer at any time proposes to conduct a public offering pursuant to
Section 4(a)(i) hereof (except with respect to registration statements on Forms
S-4, S-8 or another form not available for registering the Registrable
Securities for sale to the public), each such time it will give written notice
to all Sellers of outstanding Registrable Securities of its intention to do so.
Upon the written request of any such Seller, received by Buyer within 15
Business Days after the giving of any such notice by Buyer, to register any of
its Registrable Securities, Buyer will use reasonable efforts to cause the
Registrable Securities as to which registration shall have been so requested to
be included in the securities to be covered by the registration statement
proposed to be filed by Buyer. If Buyer is advised in writing in good faith by
any managing underwriter of the Common Shares being offered in such public
offering that the number of Common Shares proposed to be offered is greater than
the amount which can be offered without adversely affecting the offering, Buyer
may, at its sole discretion, reduce the number of Registrable Securities
included in the offering. Notwithstanding the foregoing provisions, the Company
may withdraw any registration statement referred to in this Section 4(e) without
thereby incurring any liability to the holders of Registrable Securities.
5. PUBLIC OFFERINGS.
(a) If, in connection with any proposed distribution by the Sellers under
Section 2 hereof, Buyer in its sole discretion shall determine that it is in the
best interests of Buyer to effect distribution by means of an underwritten
offering, Buyer shall promptly notify the Sellers of such
<PAGE>
-7-
determination. In such event, the right of any Seller to participate in such
distribution shall be subject to the following conditions:
(i) the Seller shall enter into, and perform its obligations under,
an underwriting agreement in customary form with the managing underwriter
selected for the underwriting by Buyer;
(ii) during the course of such public offering, the Seller shall
cooperate with Buyer and take such actions as are customarily required by
underwriters in such circumstances;
(iii) during the period that any registration statement in respect of
such public offering is effective, the Seller shall make no other
distribution of Registrable Securities; and
(iv) if requested in writing by the underwriters for the public
offering of securities of Buyer, each holder of Registrable Securities
shall agree not to sell publicly any or any other Common Shares of Buyer
(other than Registrable Securities or other Common Shares of Buyer being
registered in such offering), without the consent of such underwriters, for
a period of not more than 180 days following the effective date of the
registration statement relating to such offering.
(b) If Buyer is advised in writing in good faith by any managing
underwriter of the Common Shares being offered in such public offering that the
number of Common Shares proposed to be offered is greater than the amount which
can be offered without adversely affecting the offering, Buyer may, at its sole
discretion, reduce the number of Registrable Securities included in the
offering. If Buyer is advised to decline to include all or part of the
Registrable Securities in such public offering, the Distribution Period shall be
extended by the aggregate of the suspension initiated pursuant to Section
4(b)(i) hereof in respect of such public offering and the period that the
registration statement in respect of such public offering is effective.
6. EXPENSES.
(a) Buyer will pay all Registration Expenses in connection with the
registration of Registrable Securities effected by Buyer pursuant to Section 2
hereof (including, without limitation a public offering made pursuant to the
provisions of Section 5 hereof). Holders of Registrable Securities registered
pursuant to this Agreement shall pay all Selling Expenses associated with such
registration, with each Seller bearing a pro rata portion of the Selling
Expenses based upon the number of Registrable Securities registered by each
Seller.
(b) The term "Registration Expenses" means all expenses incurred by Buyer
---------------------
in complying with Section 2 hereof (including, without limitation a public
offering made pursuant to the provisions of Section 5 hereof), including,
without limitation, all registration and filing fees, printing expenses, fees in
connection with the listing of the Registrable Securities with any
<PAGE>
-8-
securities exchange, fees and disbursements of counsel to Buyer and independent
public accountants for Buyer, reasonable fees and expenses (including counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars; provided, however, that
-------- -------
Registration Expenses shall not include the fees and expenses of counsel for the
Sellers. The term "Selling Expenses" means all underwriting discounts and
----------------
selling commissions and stock transfer fees and taxes applicable to the sale of
the Registrable Securities. Neither of the foregoing definitions shall include
any charges or amounts for routine internal costs incurred by either party
carrying out the transfers contemplated in this Agreement.
7. SALE OF REGISTRABLE SECURITIES DURING THE DISTRIBUTION PERIOD.
(a) The parties confirm their intention that the sale or distribution of
the Registrable Securities will be carried out in a orderly and cooperative
manner. To that end, the Sellers will periodically advise Buyer of the nature
and progress of their efforts to sell or distribute the Registrable Securities
including, without limitation, the provision to Buyer of a written monthly
report setting out the above matters, as well as disclosing the identify of any
actual or prospective purchasers of Registrable Securities (if known), the
number of Registrable Securities sold or distributed or subject to negotiation
and the consideration paid or due. In addition, as a condition to any proposed
sale or distribution of Registrable Securities, Seller shall deliver to Buyer in
writing representations and warranties, including but not limited to,
representations and warranties that, in connection with any proposed sale or
distribution of Registrable Securities, Seller has complied with all
requirements under the Securities Act, including applicable prospectus delivery
requirements, and that such Registrable Securities have been sold or distributed
in accordance with the method of sale set forth in the Registration Statement.
(b) In the interest of selling the Registrable Securities in an orderly
fashion, each Seller will observe the following constraints regarding any
disposition of the Registrable Securities during the Distribution Period (any of
which dispositions are referred to collectively, hereinafter as "sales," or "a
sale"):
(i) Each Seller agrees to give written notice to the Buyer and Testa,
Hurwitz & Thibeault, LLP at least three (3) Business Days prior to any
intended sale or distribution of Registrable Securities under the
Registration Statement referred to in Section 2 hereof, which notice shall
specify the date on which such Seller intends to begin such sale or
distribution. As soon as practicable after the date such notice is
received by Buyer, and in any event within three (3) Business Days after
such date, Buyer shall comply with either paragraph (A) or (B) below.
(A) Except in the event that paragraph (B) below applies, Buyer
shall (i) if deemed necessary by Buyer, prepare and file with the
Commission a post-effective amendment to the Registration Statement or
a supplement to the related Prospectus or a supplement or amendment to
any document incorporated therein by reference or file any other
required document so that such Registration
<PAGE>
-9-
Statement will not contain an 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 not misleading, and so that,
as thereafter delivered to purchasers of the Registrable Securities
being sold thereunder, such Prospectus will not contain an 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;
(ii) provide the Sellers who gave such notice copies of any documents
filed pursuant to Section 7(b)(i)(A)(i); and (iii) inform each such
holder that Buyer has complied with its obligations under Section
7(b)(i)(A)(i) (or that, if Buyer has filed a post-effective amendment
to the Registration Statement which has not yet been declared
effective, Buyer will notify each such Seller to that effect, will use
its reasonable efforts to secure the effectiveness of such post-
effective amendment and will immediately notify each such Seller
pursuant to Section 7(b)(i)(A)(i) hereof when the amendment has become
effective).
(B) In the event of (i) any request by the Commission or any
other federal or state governmental authority during the period of
effectiveness of the Registration Statement for amendments or
supplements to the Registration Statement or related Prospectus or for
additional information; (ii) the issuance by the Commission or any
other federal or state governmental authority of any stop order
suspending the effectiveness of the Registration Statement or the
written threat or initiation of any proceedings for that purpose;
(iii) the receipt by Buyer of any notification with respect to the
suspension of the qualification or exemption from qualification of any
of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; (iv) any
event or circumstance which necessitates the making of any changes in
the Registration Statement or Prospectus, or any document incorporated
or deemed to be incorporated therein by reference, so that, in the
case of the Registration Statement, it will not contain any untrue
statement of a material fact or any omission to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it
will not contain any untrue statement of a material fact or any
omission to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; (v) that, in
accordance with Section 4(a)(i) hereof, Buyer has made an initial
determination to conduct a public offering; (vi) that, in accordance
with Section 4(a)(ii) hereof, Buyer is in possession of material
information that it deems advisable not to disclose in a Registration
Statement or (vii) that, in the good faith judgment of Buyer's Board
of Directors, in accordance with the provision of Section 4(a)(iii)
hereof, it is advisable to suspend use of the Prospectus for a period
of time; then, subject to and in accordance with Section 4 hereof,
Buyer shall deliver written notice to the Sellers to the effect of the
foregoing and, upon receipt of such notice, each such Seller's
Distribution Period will not commence until such Seller receives
copies of the supplemented or
<PAGE>
-10-
amended Prospectus provided for in Section 7(b)(i)(A)(i) hereof, or
until it is advised in writing by Buyer, pursuant to Section 4(c)
hereof, that the Prospectus may be used, and has received copies of
any additional or supplemental filings that are incorporated or deemed
incorporated by reference in such Prospectus.
(C) In the event any of the events or circumstances listed in
the foregoing paragraph (B) occur or exist after a Distribution Period
has commenced, subject to Section 4 hereof, Buyer shall have the same
right to suspend such Distribution Period by delivery of written
notice as Buyer would have had if the Distribution Period had not yet
commenced, and any such suspension of a Distribution Period shall be
deemed included within the meaning of the term "suspension" for all
----------
purposes under this Agreement.
(ii) Each Seller who following the consummation of the transactions
contemplated by the Purchase Agreement will be an employee of Buyer will
sell Registrable Securities only in accordance with the terms of Buyer's
policy on insider trading.
(iii) The Sellers will advise any broker or dealer acting on its
behalf in respect of the sale of the Registrable Securities, and any
prospective purchasers of the Registrable Securities, of the constraints
set out in this Section 7.
8. INDEMNIFICATION.
(a) Buyer, will indemnify and hold harmless each Seller, the officer,
directors, partners, agents and employees of each Seller and each person, if
any, who controls such Seller within the meaning of the Securities Act, against
all losses, claims, damages or liabilities, joint or several (collectively
"Claims"), to which they may become subject under the Securities Act, the
------
Exchange Act or other federal or state law (excepting Claims related to or
arising from a breach by such Seller of its obligations under Sections 4(a),
5(a)(iii), or 7(b)), in so far as the Claims (or actions in respect thereof)
arise out of or are based on (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state in
those documents a material fact required to be stated therein, or necessary to
make the statements therein, not misleading or (ii) any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or the
omission or alleged omission to state in those documents a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (collectively, a "Violation"), and
---------
reimburse each such Seller, officer, director, partner, agent, employee or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any Claims; provided, however,
-------- -------
that the indemnity agreement contained in this Section 8(a) shall not apply to
amounts paid in settlement of any such Claims, if such settlement is effected
without the consent of Buyer, which consent shall not be unreasonably withheld
or delayed. This indemnity shall not apply to any Claims that arise out of, or
are based upon an untrue statement or alleged untrue statement or omission or
alleged
<PAGE>
-11-
omission made in reliance upon and in conformity with information provided by
any such Seller in writing specifically for the purposes of filing or
maintaining the effectiveness of the Registration Statement.
(b) Each Seller will indemnify and hold harmless Buyer, each of its
officers, directors, partners, agents or employees, each person, if any, who
controls Buyer within the meaning of the Securities Act, any underwriter and any
other Seller or any of its directors, officers, partners, agents or employees or
any person who controls such Seller, against any Claims to which Buyer or any
such director, officer, partner, agent, employee, controlling person or
underwriter, or other such Seller or director, officer, partner, agent, employee
or controlling person may become subject, under the Securities Act, the Exchange
Act or other federal or state law, insofar as such Claims arise out of or are
based upon any Violation, 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 Seller expressly for use in connection with such
registration; and each such Seller will reimburse any reasonable legal or other
expenses reasonably incurred by Buyer or any such director, officer, partner,
agent, employee, controlling person or underwriter, other Seller, officer,
director, partner, agent, employee or controlling person in connection with
investigating or defending any such Claims. Notwithstanding anything contained
in this Agreement to the contrary, the indemnity agreement contained in this
Section 8(b) shall not apply to amounts paid in settlement of any such Claims if
such settlement is effected without the consent of the Seller, which consent
shall not be unreasonably withheld, conditioned or delayed; provided further,
-------- -------
that the aggregate liability of each Seller in connection with any sale of
Registrable Securities pursuant to a Registration Statement in which a Violation
occurred shall be limited to the net proceeds from such sale.
(c) As soon as it becomes aware of the commencement of an action
respecting a Claim, the indemnified party shall promptly notify the indemnifying
party, although failure to notify shall not relieve the indemnifying party from
any liability to indemnify the indemnified party. Following receipt of that
notice, the indemnifying party may participate in and, to the extent it wishes
and upon giving notice to the indemnified party, assume and undertake the
defense of the action using counsel satisfactory to it. In that event, the
indemnifying party will not be liable to the indemnified party for any legal
expenses subsequently incurred by the indemnified party in connection with the
defense of the action, other than reasonable costs of investigation and of
liaison with the indemnifying party's counsel. If the defendants in any action
include both the indemnified party and the indemnifying party, and if the
indemnified party reasonably concludes that there may be reasonable defenses
available to it that are different from or additional to those available to the
indemnifying party or if the interests of the indemnified party reasonably may
be deemed to be conflicting with the interests of the Indemnifying party, the
indemnified party shall have the right to select separate counsel and to assume
those legal defenses and otherwise to participate in the defense of the action,
with the expenses and fees of separate counsel and other expenses related to
that participation to be reimbursed by the indemnifying party as incurred.
(d) If the indemnification provided for above is held by a court of
competent jurisdiction to be unavailable, then the indemnifying party, in lieu
of such indemnification, shall
<PAGE>
-12-
contribute to the amount paid or payable by the indemnified party in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand the indemnified party on the other hand in connection with
the statements or omissions that resulted in the Claims, as well as other
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the alleged untrue statement of a
material fact or omission to state a material fact relates to information
supplied by the indemnifying party or the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) The provisions of this Section 8 shall survive the expiration or
termination of this Agreement and shall expire at the end of any applicable
limitation period.
9. EXPIRATION OF REGISTRATION RIGHTS.
The obligations of Buyer under Section 2 of this Agreement to register the
Registrable Securities shall expire and terminate upon the earlier of (i) the
last day of the Distribution Period; (ii) at such time when the Sellers have
sold the last of the Registrable Securities; or (iii) at such time as the
Sellers shall be entitled or eligible to sell all such securities in the United
States or to a U.S. Person without restriction and without a need for the filing
of a registration statement under the Securities Act. The determination as to
whether the Sellers are entitled or eligible to sell all Registrable Securities
without the need for registration under the Securities Act shall be based on a
written opinion of counsel that registration of the Registrable Securities is
not required under the Securities Act sufficient to permit the transfer agent to
transfer such securities upon a sale by the Seller.
10. RESTRICTIONS ON TRANSFERS OF COMMON SHARES.
(a) The Sellers agree and understand that the issuance of the Registrable
Securities has not been, and, except as contemplated in this Agreement, the sale
or other disposition thereof by the Sellers will not be, registered under the
Securities Act or the securities laws of any state and that such shares may be
sold or disposed of only in one or more transactions registered under the
Securities Act and, where applicable, such state laws or as to which an
exemption from the registration requirements of the Securities Act and, where
applicable, such state laws is available. The Sellers acknowledge that, except
as expressly set forth in this Agreement, the Sellers have no right to require
Buyer to cause the registration of any Registrable Securities. The Sellers
understand and agree that each certificate representing any Registrable
Securities (each, a "Certificate") shall be subject to stop transfer
-----------
instructions and shall bear the following legend:
"THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN
<PAGE>
-13-
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
STATE LAWS."
Buyer hereby agrees that it will, upon the request of the Sellers,
eliminate any stop transfer instructions and any restrictive legend on any
certificates representing the Registrable Securities if (i) in the opinion of
counsel, including in-house counsel with demonstrated expertise in matters
relating to federal securities laws, which counsel and opinion (in form, scope
and substance) shall be reasonably satisfactory to Buyer, the Sellers are
entitled to sell or dispose of the Registrable Securities represented by such
Certificate without registration or (ii) such shares are being disposed of by
the Sellers under a Registration Statement pursuant to Section 2 herein and in
compliance with the Securities Act and applicable state and securities laws.
(b) Each Seller covenants and agrees that, for a period beginning on the
date of the Purchase Agreement and ending on the date which is forty-eight hours
following the public announcement by Buyer of its 1996 fiscal year-end results,
the Seller shall not sell, offer to sell or otherwise dispose of any Buyer
Common Shares issued to and received by the Sellers pursuant to the Purchase
Agreement to any Person.
For the purposes of the foregoing, "Person" means any individual,
------
partnership, limited partnership, joint venture, syndicate, sole proprietorship,
company or corporation with or without share capital, unincorporated
association, trust, trustee, executor, administrator or other legal personal
representative, regulatory body or agency, government or governmental agency,
authority or entity however designated or constituted.
11. BINDING ON SUCCESSORS. This Agreement is binding upon and shall enure
to the benefit of the respective successors and assigns of the parties, whether
so expressed or not.
12. NO ASSIGNMENT. No Seller may assign this Agreement or any of the
rights or obligations hereunder without the express written consent of the
Buyer; provided, however, that this Agreement and the rights and obligations of
the Sellers may be assigned with the prior written consent of Buyer, which shall
not be unreasonably withheld, (i) if the Seller is an individual, to an
immediate family member, (ii) if the Seller is a limited partnership, to its
limited partners, (iii) if the Seller is a corporation, to its stockholders, and
(iv) if the Seller is a limited liability company, to its members, and on
condition that such transferee pursuant to clauses (i), (ii), (iii) or (iv)
agrees in writing to be bound by the terms of this Agreement.
13. NOTICE. All notices, requests, consents or other communications
required pursuant to this Agreement shall be in writing and shall be delivered
personally, mailed by certified or registered mail (return receipt requested),
or sent by facsimile addressed as follows:
<PAGE>
-14-
if to Buyer:
Discreet Logic Inc.
10 rue Duke Street
Montreal, Quebec
Canada H3C 2L7
Fax: (514) 393-0110
Attention: Chief Financial Officer
with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attention: Mark J. Macenka, Esq.
Facsimile: (617) 248-7100
if to any Seller, at the address set forth on Schedule A hereto.
----------
or, to such other address as may be given pursuant to this Section 13.
14. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts (irrespective of
its choice of law principles).
15. AMENDMENT. This Agreement may not be amended without the written
consent of Buyer and a majority of the Registrable Securities then outstanding.
The failure of a party to enforce any right set forth in this Agreement, or
granted at law or in equity, shall in no way be construed to be a waiver of such
right, or affect the validity of this Agreement or any part thereof, or the
right thereafter to enforce each and every provision of this Agreement.
16. UNENFORCEABLE PROVISION. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable, such provision shall be severed from
this Agreement and shall not in any manner affect or render illegal, invalid or
unenforceable any other provision of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-15-
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
DISCREET LOGIC INC.
By /s/ Francois Plamondon
----------------------------
Title: Senior V.P. & C.F.O.
D-VISIONS SYSTEMS, INC.
By /s/ Paul Reilly
----------------------------
Title:
<PAGE>
-16-
SELLERS
-------
Michael J. Radi, Trustee for Michael J. Radi
Revocable Living Trust under dated 2/12/91
By: /s/ Michael J. Radi
------------------------
Its: Trustee
-----------------------
/s/ Richard J. Radi
----------------------------
Richard J. Radi
/s/ Dale Weaver
----------------------------
Dale Weaver
*
----------------------------
Paul G. Radja
/s/ Paul Reilly
----------------------------
Paul Reilly
/s/ Bruce A. Rady
----------------------------
Bruce A. Rady
<PAGE>
-17-
Geocapital III, L.P.
By: *
--------------------------
Its:
-------------------------
Platinum Venture Partners I, L.P.
By: *
--------------------------
Its:
-------------------------
*
-----------------------------
Harvey L. Poppel
*
-----------------------------
Robert F. Steel
Presidents Forum/D-Vision L.L.C.
By: *
--------------------------
Its:
-------------------------
*
-----------------------------
Kenneth A. Steel
Sunbeam Ventures Ltd.
By: *
--------------------------
Its:
-------------------------
*
-----------------------------
Michael Brown
<PAGE>
-18-
*
-----------------------------
Bradley Shaw
*
-----------------------------
Todd Belfer
*
-----------------------------
Bernard Ludwig
/s/ Paul Reilly
- ----------------------------
Paul Reilly
Attorney-in-Fact
<PAGE>
EXHIBIT 2.3
ESCROW AGREEMENT
This Escrow Agreement (this "Agreement") is entered into as of July 15,
---------
1997, by and among Discreet Logic Inc., a corporation organized under the laws
of the province of Quebec ("Buyer"), State Street Bank and Trust Company, a
-------
Massachusetts Trust Company, as escrow agent ("Escrow Agent") and each of the
------------
parties listed on the signature pages attached hereto (individually, a "Holder"
or collectively, the "Holders").
RECITALS
WHEREAS, Buyer, Holders and D-Vision Systems, Inc., an Illinois
corporation, have entered into a Stock Purchase Agreement dated as of July 15,
1997 (the "Purchase Agreement"). Capitalized terms used in this Agreement and
------------------
not otherwise defined in this Agreement shall have the meanings ascribed to them
in the Purchase Agreement;
WHEREAS, Section 2.02 of the Purchase Agreement provides that at the
Closing $3,925,360 (the "Escrow Amount") shall be deposited by Buyer in
-------------
escrow (such deposit, together with any interest accrued thereon,
constituting the "Escrow Fund") and shall be held as collateral for the
-----------
indemnification obligations of the Holders under Article 11 of the Purchase
Agreement;
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the closing of the transactions contemplated by the Purchase
Agreement; and
WHEREAS, the parties to this Agreement desire to establish the terms and
conditions pursuant to which the Escrow Amount will be deposited into, held in,
and disbursed from, the Escrow Fund.
NOW, THEREFORE, the parties to this Agreement agree as follows:
1. Escrow; Indemnification and Investment of Funds.
(a) Escrow Fund. The Escrow Agent agrees to accept delivery of such Escrow
Amount and to hold such Escrow Amount delivered to it in escrow subject to the
terms and conditions of this Agreement and Article 11 of the Purchase Agreement
(which Article 11 is attached to this Agreement as Appendix A) (collectively,
----------
the "Escrow Provisions") until the Escrow Agent is required to release such
-----------------
Escrow Amount pursuant to the terms of this Agreement.
(b) Indemnification. The Escrow Agent is hereby notified that the Holders
have agreed pursuant to Article 11 of the Purchase Agreement to indemnify and
hold harmless Buyer and the other Indemnitees from and against specified Losses
as set forth in the Purchase Agreement. The Holders agree that the Escrow
Amount will be held to satisfy this indemnity obligation in the manner provided
in the Escrow Provisions. Promptly after the receipt by Buyer of notice or
discovery of any Loss giving rise to indemnification rights under the Purchase
<PAGE>
-2-
Agreement, Buyer will give the Holder Representatives (as defined in Section 10
hereof) and the Escrow Agent written notice of such Loss (a "Claim") in
-----
accordance with Section 3 hereof. Buyer shall notify the Holder Representatives
of the progress of any such Claim and shall permit the Holder Representatives to
participate in such defense in accordance with Section 11 of the Purchase
Agreement, and Buyer shall not compromise or settle any such Claim without the
written consent of the Holder Representatives, which consent will not be
unreasonably withheld.
(c) Investment of Funds. The Escrow Agent shall continually invest and
reinvest the Escrow Amount and any income or interest therefrom in Qualified
Investments (as defined below) in accordance with written instructions received
from the Buyer from time to time, or if no such instructions are received by
Escrow Agent, the Escrow Agent shall invest such funds in the Seven Seas Money
Market Fund. The Term "Qualified Investments" means:
---------------------
(i) Marketable obligations of the United States having a maturity of
not more than three months from the date of acquisition;
(ii) Marketable obligations directly and fully guaranteed by the
United States having a maturity of not more than three months from the date
of acquisition;
(iii) Money market funds (including those of the Escrow Agent) rated in
the highest category by Moody's Investors Services and Standard & Poor's
Rating Service; and
(iv) Interest-bearing bank accounts, certificates of deposit, and
other interest-bearing obligations issued by any bank organized under the
laws of the United States or any state thereof (which may include the
Escrow Agent) with capital, surplus and undivided profits aggregating at
least $50,000,000, in each case having a maturity of not more than three
months from the date of acquisition.
2. Release From Escrow.
(a) Delivery of Escrow Amount. On July 15, 1997, the Closing Date, Buyer
will deliver the Escrow Amount to the Escrow Agent for deposit into the Escrow
Fund.
(b) Release to Holders.
(i) so long as any portion of the Escrow Amount remains held pursuant
to this Agreement, the Escrow Agent shall pay to Buyer the portion of the
Escrow Amount equal to the amount of indemnification claims by Buyer under
Section 11.02(a) of Article XI of the Purchase Agreement, if any, written
----------------
notice of which shall be provided to the Escrow Agent in accordance with
Section 1 and 3 of this Agreement, which have been settled or finally
determined between Buyer and Holders in accordance with Section 4 below;
(ii) on September 30, 1998, the Escrow Agent shall pay to Holders an
amount equal to $1,925,360 of the Escrow Amount held pursuant to the Escrow
Agreement
<PAGE>
-3-
minus (i) an amount equal to the indemnification claims of Buyer under
-----
Section 11.02(a) of Article XI of the Purchase Agreement, if any, written
----------------
notice of which shall be provided to the Escrow Agent in accordance with
Section 1 and 3 of this Agreement, that have been settled or finally
determined between Buyer and Holders on or before August 31, 1998 and (ii)
an amount equal to the amount of any unresolved indemnification claims by
Buyer set forth in Buyer's notice pursuant to Article XI of the Purchase
Agreement and Section 3 below given on or prior to August 31, 1998. Such
retained portion shall be retained only until the claim for indemnification
is settled or finally determined between Buyer and Holders;
(iii) on September 30, 1999, the Escrow Agent shall pay to Holders
the portion of the Escrow Amount, if any, remaining held pursuant to the
Escrow Agreement; provided that the Escrow Agent shall retain and not pay
--------
to Holders the portion of the Escrow Amount, if any, equal to the amount of
any unresolved indemnification claims by Buyer (it being understood that
the portion to be retained shall be the amount set forth in Buyer's notice
pursuant to Article XI of the Purchase Agreement, which shall be
provided to the Escrow Agent in accordance with Section 1 and 3 of this
Agreement, and Section 3 below and any other portion shall be
released), and such retained portion shall be retained only until the claim
for indemnification is settled or finally determined between Buyer and
Holders.
(c) Release of Escrow Amount. The Escrow Amount will be held by the Escrow
Agent in accordance with the terms of this Agreement until required to be
released pursuant to Section 2(b). For purposes of this Agreement, "Release
Date" shall mean September 30, 1998 and September 30, 1999, as applicable.
Within three (3) business days after the Release Date, the Escrow Agent will
deliver to each Holder the requisite Escrow Amount to be released on such date
as such amount is identified by Buyer and the Holder Representatives to the
Escrow Agent at least 3 business days prior to the applicable Release
Date. Escrow Amount shall be released to the respective Holders in proportion
to their respective interests as set forth in Exhibit A hereto. Buyer will take
---------
such action as may be necessary to cause such amounts to be payable in the names
of the appropriate Holders.
(d) No Encumbrance. No Escrow Amount or any beneficial interest therein
may be pledged, sold, assigned or transferred, including by operation of law, by
a Holder or be taken or reached by any legal or equitable process in
satisfaction of any debt or other liability of a Holder, prior to the delivery
to such Holder of the Escrow Amount by the Escrow Agent.
3. Notice of Claim.
(a) Each notice of a Claim by Buyer (the "Notice of Claim") shall be
---------------
delivered in writing to the Holder Representatives and the Escrow Agent, and
shall contain the following information to the extent it is reasonably available
to Buyer:
(i) Buyer's good faith estimate of the reasonably foreseeable maximum
amount of the alleged Loss;
<PAGE>
-4-
(ii) a brief description in reasonable detail of the facts,
circumstances or events giving rise to the alleged Loss based on Buyer's
good faith belief thereof; and
(iii) the specific bases upon which indemnification may be sought
consistent with the provisions of the Purchase Agreement.
(b) The Escrow Agent will not release any of the Escrow Amount held in the
Escrow Fund to Buyer pursuant to a Notice of Claim until such Notice of Claim
has been resolved or is uncontested in accordance with Section 4 below.
4. Resolution of Notice of Claim and Release of Escrow Amount. Any Notice
of Claim received by the Holder Representatives and the Escrow Agent pursuant to
Section 3 above will be resolved as follows:
(a) Uncontested Claims. In the event that neither Holder Representatives
contests a Notice of Claim (or contests only a portion of the claim) in writing
to the Escrow Agent and Buyer within twenty (20) days after such Notice of Claim
is deemed delivered pursuant to Section 11 below, the Escrow Agent will promptly
release to Buyer in accordance with its written instructions set forth in the
Notice of Claim that portion of the Escrow Amount equal to the amount specified
in the Notice of Claim (that is not contested) and notify the Holder
Representatives of such transfer.
(b) Contested Claims. In the event that either the Holder Representative
gives written notice contesting all, or a portion of, a Notice of Claim to Buyer
and the Escrow Agent (a "Contested Claim") within the twenty (20) day period
---------------
provided above, the Escrow Agent shall not release any Escrow Amount to the
Buyer and the Holder Representatives and an officer of Buyer shall attempt to
resolve the matter, but if such matter is not resolved in writing within sixty
(60) days after the Notice of Claim is deemed delivered pursuant to Section 11,
then the matter will be settled by binding arbitration. Any portion of the
Notice of Claim which is not contested shall be disbursed by Escrow Agent in
accordance with Section 4(a). The final decision of the arbitrator shall be
furnished to the Escrow Agent, the Holder Representatives, the Holders and Buyer
in writing and will constitute a conclusive determination of the issue in
question, binding upon the Holders, the Holder Representatives and Buyer and
shall not be contested or appealed by any of them. After receipt of notice that
the Notice of Claim is contested by the Holder Representatives, the Escrow Agent
will continue to hold in the Escrow Fund in accordance with the terms of this
Agreement that portion of the Escrow Amount equal to the contested amount to
cover such Claim (notwithstanding the expiration of the Release Date) until the
earlier of receipt by it of (i) execution of a written settlement agreement by
Buyer and each of the Holder Representatives setting forth a resolution of the
Notice of Claim and directing the Escrow Agent to release a specified amount to
the Buyer, or (ii) a copy of the final award of the arbitrator. The Escrow Agent
shall have no responsibilities with respect to the arbitration of Contested
Claims.
(c) Arbitration. Any Contested Claim shall be settled by (i) agreement of
each of the Holder Representatives and Buyer or (ii) arbitration in Boston,
Massachusetts, except as
<PAGE>
-5-
herein specifically stated, in accordance with the commercial arbitration rules
of the American Arbitration Association ("AAA Rules") then in effect. However,
---------
in all events, these arbitration provisions shall govern over any conflicting
rules which may now or hereafter be contained in the AAA Rules. Any judgment
upon the award rendered by the arbitrator may be entered in any court having
jurisdiction over the subject matter thereof. The arbitrator shall have the
authority to grant any equitable and legal remedies that would be available in
any judicial proceeding instituted to resolve a Contested Claim.
(i) Compensation of Arbitrator. Any such arbitration shall be
conducted before a single arbitrator who shall be compensated for his or
her services at a rate to be determined by the parties or by the American
Arbitration Association, but based upon reasonable hourly or daily
consulting rates for the arbitrator in the event the parties are not able
to agree upon his or her rate of compensation.
(ii) Selection of Arbitrator. The AAA Rules for the selection of
the arbitrator shall be followed by Buyer and the Holder Representatives.
(iii) Payment of Costs. The initial compensation to be paid to the
arbitrator in any such arbitration, attorneys' fees and costs, and all
costs of arbitration, including the costs of transcripts and other normal
and regular expenses of the arbitration proceedings shall be paid by the
non-prevailing party in such arbitration; provided, however, if neither
-------- -------
party has clearly prevailed, the arbitrator shall have the power to
apportion such fees and costs between Buyer and the Holders.
(iv) Discovery. The parties shall be entitled to conduct discovery
proceedings in accordance with the provisions of the Federal Rules of Civil
Procedure, subject to any limitation imposed on all parties by the
arbitrator.
(v) Burden of Proof. For any Claim submitted to arbitration, the
burden of proof shall be as it would be if the claim were litigated in a
judicial proceeding.
(vi) Judgment. Upon the conclusion of any arbitration proceedings
hereunder, the arbitrator shall render findings of fact and conclusions of
law and a written opinion setting forth the basis and reasons for any
decision reached by him and shall deliver such documents to each party to
this Agreement along with a signed copy of the award.
(vii) Terms of Arbitration. The arbitrator chosen in accordance
with these provisions shall not have the power to alter, amend or otherwise
affect the terms of these arbitration provisions or the provisions of this
Agreement or the Purchase Agreement.
(viii) Exclusive Remedy. Except as specifically provided in this
Agreement or the Purchase Agreement, arbitration shall be the sole and
exclusive remedy of the Buyer and Holders for any Contested Claim arising
out of such agreements.
<PAGE>
-6-
(d) Determination of Amount of Claims. Any amount owed to Buyer hereunder
determined pursuant to Section 4(a) or (b) above, will be immediately payable to
Buyer in accordance with Section 11 of the Purchase Agreement and will be paid
promptly.
(e) No Exhaustion of Remedies. Buyer need not exhaust any other remedies
that may be available to it but may proceed directly in accordance with the
provisions of this Agreement. Buyer may make Claims against the Escrow Amount
and in satisfaction thereof may recover all or a portion of the Escrow Amount,
in accordance with and subject to the terms of this Agreement, without making
any other Claims directly against the Holders and without rescinding or
attempting to rescind the transactions consummated pursuant to the Purchase
Agreement. The assertion of any single Claim for indemnification hereunder will
not bar Buyer from asserting other claims hereunder. Notwithstanding the
foregoing, if Buyer elects to make a Claim against the Escrow Fund for any
breach or default by the Company and/or the Holders under the Purchase Agreement
arising out of an action against a third party, then the Holder Representatives,
on behalf of the Holders, shall be subrogated to the rights of Buyer with
respect to such a Claim, and Buyer shall assign all of its rights in connection
with such Claim necessary for the Holder Representatives to assert such claim
against such third party.
(f) Payment of Costs. The Escrow Agent is authorized and directed to
disburse pro rata any payments due the Holders under this Agreement out of the
Escrow Fund in accordance with Section 2(b) and their interest as set forth on
Exhibit A hereof, after (i) payment of any attorneys' and accountants' and other
- ---------
fees and expenses incurred on behalf of the Holders as contemplated by this
Agreement under Section 6 and (ii) withholding such amounts to pay costs and
expenses relating to potential disputes arising with respect to indemnification
or other obligations of other Holders under the Escrow Provisions, such amounts
to be set forth in writing of the Seller Representative and Buyer.
(g) As to compliance with any of the foregoing restrictions and
limitations, the Escrow Agent shall have no responsibility to independently
calculate or otherwise determine such matters but may rely conclusively on the
other parties hereto in their related requests and instructions.
5. Limitation of the Escrow Agent's Liability.
(a) The parties acknowledge and agree that the Escrow Agent shall not be
responsible for any of the agreements referred to herein or in the Purchase
Agreement but shall only be obligated for the performance of such duties as are
specifically set forth herein. The Escrow Agent (and its directors, officers
and employees) will incur no liability with respect to any action taken or
suffered by it in reliance upon any notice, direction, instruction, consent,
statement or other document believed by it to be genuine and to have been signed
by the proper person (and shall have no responsibility to determine the
authenticity or accuracy thereof), nor for any other action or inaction, except
its own willful misconduct, bad faith or gross negligence. In no event shall
the Escrow Agent be liable for indirect consequential damages. The Escrow Agent
will not be responsible for the validity or sufficiency of the Escrow
Provisions, including the amount of Escrow Amount. In all questions arising
under the Escrow Provisions, the Escrow Agent may
<PAGE>
-7-
rely on the advice of counsel (which may be in-house counsel), and for anything
done, omitted or suffered in good faith by the Escrow Agent based on such
advice, the Escrow Agent will not be liable to anyone. The Escrow Agent will not
be required to take any action under the Escrow Provisions involving any expense
unless the payment of such expense is made or provided for in a manner
satisfactory to it. In no event shall the Escrow Agent have any liability under
this Agreement for investment losses incurred on any investment or reinvestment
of the Escrow Fund made in accordance with the terms of this Agreement.
(b) In the event conflicting demands are made or notices are served upon
the Escrow Agent with respect to the Escrow Fund or should a third party make a
claim on such Escrow Fund, the Escrow Agent will have the absolute right, at the
Escrow Agent's election, to do any of the following: (i) resign so a successor
can be appointed pursuant to Section 7, (ii) file a suit in interpleader and
obtain an order from a court of competent jurisdiction requiring the parties to
interplead and litigate in such court their several claims and rights among
themselves; or (iii) retain all or any of the Escrow Fund in its possession,
without liability to anyone, until such dispute shall have been settled as
contemplated in Section 4. In no event shall the Escrow Agent be obligated to
take any legal or other action hereunder which might in its judgment involve any
expense or liability of the Escrow Agent unless it shall have been furnished
with acceptable indemnification. In the event an interpleader suit is brought,
the Escrow Agent will thereby be fully released and discharged from all further
obligations imposed upon it under the Escrow Provisions, and the non-prevailing
party in such dispute will pay the Escrow Agent all costs, expenses and
reasonable attorneys' fees expended or incurred by the Escrow Agent pursuant to
the exercise of the Escrow Agent's rights under this Section 5 (such costs, fees
and expenses will be treated as extraordinary fees and expenses for the purposes
of Section 6). The resignation of the Escrow Agent under this section shall not
affect the right of the Escrow Agent to be paid any amount due to the Escrow
Agent hereunder.
6. Expenses and Tax Reporting.
(a) Escrow Agent. All fees and expenses including attorney's fees of the
Escrow Agent incurred in entering into this Agreement and in the ordinary course
of performing its responsibilities (in accordance with the attached fee schedule
which may be subject to change annually) hereunder will be paid by Buyer upon
receipt of a written invoice by the Escrow Agent. Any extraordinary fees and
expenses including attorney's fees, including without limitation any fees or
expenses incurred by the Escrow Agent in connection with a dispute over the
distribution of Escrow Amount or the validity of a Claim or Claims by Buyer will
be paid by the non-prevailing party in such dispute, provided, however, if
------------------
neither party has clearly prevailed, the arbitrator may apportion such fees and
expenses between Buyer and the Holders, subject to the provisions of Section
4(f). The Holders' liability for the extraordinary fees and expenses of the
Escrow Agent may be paid by Buyer and recovered as a Claim hereunder out of the
Escrow Fund. If Buyer has paid the Holders' portion of such fees and expenses
as permitted under this Section 6(a) then the Escrow Agent will, upon demand by
Buyer, transfer to Buyer a portion of the Escrow Amount equal to such portion of
fees and expenses.
<PAGE>
-8-
In the event the balance in the Escrow Fund is not sufficient to pay the
extraordinary fees and expenses of the Escrow Agent, as described in the prior
paragraph, or in the event the Escrow Agent incurs any liability by reason of
its acceptance or administration of this Escrow Agreement, Buyer and the
Holders, jointly and severally as between Buyer and the Holders collectively,
and severally and not jointly as among the Holders individually, agree to
indemnify the Escrow Agent, its officers, directors and employees, against any
such liability or for its extraordinary fees and expenses or costs and expenses,
including, without limitation, counsel fees and expenses, as the case may be.
Notwithstanding the foregoing, no indemnity need be paid in the event of the
Escrow Agent's gross negligence, bad faith or willful misconduct.
Buyer and the Holders, jointly and severally as between Buyer and the
Holders collectively, and severally and not jointly as among the Holders
individually, agree to assume any and all obligations imposed now or hereafter
by any applicable tax law with respect to the holding and payment of Escrow
Amount under this Agreement, and to indemnify and hold the Escrow Agent harmless
from and against any taxes, additions of late payment, interest, penalties and
other expenses, that may be assessed against the Escrow Agent on any such
payment or other activities under this Agreement. Buyer and the Holders
undertake to instruct the Escrow Agent in writing with respect to the Escrow
Agent's responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting in connection
with its acting as Escrow Agent under this Agreement. Buyer and the Holders,
jointly and severally as between Buyer and Holders collectively, and severally
and not jointly as among the Holders individually, agree to indemnify and hold
the Escrow Agent harmless from any liability on account of taxes, assessments or
other governmental charges, including without limitation the withholding or
deduction or the failure to withhold or deduct same, and any liability for
failure to obtain proper certifications or to properly report to governmental
authorities, to which the Escrow Agent may be or become subject in connection
with or which arises out of this Agreement, including costs and expenses
(including reasonable legal fees), interest and penalties.
(b) Holder Representatives. The Holder Representatives will not be
entitled to receive any compensation from Buyer or the Holders in connection
with this Agreement. Any fees and expenses incurred by the Holder
Representatives in connection with actions taken pursuant to the terms of the
Escrow Provisions will be paid by the Holders to the Holder Representatives,
and, to the extent any Escrow Amount remains available for distribution on the
Release Date, such fees and expenses shall be paid out from such Escrow Amount
prior to distribution to the Holders, but only upon the written direction of the
Buyer and Holder Representatives to be given to Escrow Agent at least three (3)
business days prior to a Release Date, but in any event after all distributions
to Buyer and only upon the written instruction of the Holder Representatives.
(c) Tax Reporting. The parties hereto agree that, for tax reporting
purposes, all interest or other income earned from the investment of the Escrow
------
Fund shall be allocable to the Holders.
- ----
<PAGE>
-9-
(d) Certification of Tax Identification Number. The Holders hereto agree
to provide the Escrow Agent with a certified tax identification number by
signing and returning a Form W-9 (or Form W-8, in the case of non-U.S. persons)
to the Escrow Agent prior to the date on which any income earned on the
investment of the Escrow Funds is credited to such Escrow Fund. The Holders
understand that, in the event their tax identification numbers are not certified
to the Escrow Agent, the Internal Revenue Code, as amended from time to time,
may require withholding of a portion of any interest or other income earned on
the investment of the Escrow Fund.
-----------
7. Successor Escrow Agent. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity as such, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by giving
written notice of resignation to the Holder Seller Representatives and Buyer,
specifying not less than thirty (30) days prior written notice of such a date
when such resignation will take effect. Buyer will designate a successor Escrow
Agent prior to the expiration of such thirty (30) day period by giving written
notice to the Escrow Agent and the Holder Representatives. Buyer may appoint a
successor Escrow Agent without the consent of the Holders or the Holder
Representatives so long as such successor is a bank or trust company with assets
of at least One Hundred Million Dollars ($100,000,000), and may appoint any
other successor Escrow Agent with the consent of the Holder Representatives,
which consent will not be unreasonably withheld. The Escrow Agent will promptly
transfer the Escrow Amount to such designated successor. In the event no
successor Escrow Agent is appointed as described in this Section 7, the Escrow
Agent may apply to a court of competent jurisdiction for the appointment of a
successor Escrow Agent.
8. Limitation of Responsibility; Notices. The Escrow Agent's duties are
limited to those set forth in the Escrow Provisions, and no implied duties or
obligations shall be implied; and the Escrow Agent may rely upon the written
notices delivered to the Escrow Agent hereunder and under the Escrow Provisions.
9. Incorporation by Reference of Section 11. With respect to the Buyer
and Holders only, The parties agree that the terms of Section 11 of the Purchase
Agreement shall be deemed to be incorporated by reference in this Agreement as
if such Section had been set forth in its entirety herein provided except that
the provisions of this Agreement shall control the responsibilities and
obligations of the Escrow Agent and the Escrow Agent shall not have any
responsibility for any matters addressed in the Purchase Agreement.
10. Holders' Representatives. By virtue of their approval of the Purchase
Agreement, the Holders will be deemed to have irrevocably constituted and
appointed, effective as of the Closing, Paul Reilly and Bruce Rady (together
with their permitted successors, the "Holder Representatives"), as their true
----------------------
and lawful agent and attorney-in-fact to enter into any agreement in connection
with the transactions contemplated by this Agreement or the Purchase Agreement,
including, without limitation, the exercise of all or any of the powers,
authority and discretion conferred on him under any such agreement, to waive any
terms and conditions of any such agreement (other than the payment of the Escrow
Amount), to give and receive notices and communications, to authorize delivery
to Buyer of the Escrow Amount or other property from
<PAGE>
-10-
the Escrow Fund in satisfaction of claims by Buyer, 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 the Holder Representatives for the accomplishment
of the foregoing. Such agency may be changed by the Holders of a majority in
interest of the Escrow Fund from time to time upon not less than ten (10) days,
prior written notice to Buyer and Escrow Agent. No bond shall be required of the
Holder Representatives, and the Holder Representatives shall receive no
compensation for his services. Notices or communications to or from the Holder
Representatives shall constitute notice to or from each of the Holders. This
power of attorney is coupled with an interest and is irrevocable. The Holders
will be bound by all actions jointly taken by the Holder Representatives in
connection with this Agreement and Buyer and Escrow Agent shall be entitled to
rely on any joint action or decision of the Holder Representatives. In
performing his functions hereunder, the Holder Representatives will not be
liable to the Holders in the absence of gross negligence or willful misconduct.
11. Notices. Any notice provided for or permitted under the Escrow
Provisions will be treated as having been received (a) when delivered
personally, (b) when sent by confirmed telecopy, (c) one (1) day following when
sent by commercial overnight courier with written verification of receipt, or
(d) three (3) business days following when mailed postage prepaid by certified
or registered mail, return receipt requested, to the party to be notified, at
the address set forth below, or at such other place of which the other party has
been notified in accordance with the provisions of this Section 11.
Escrow Agent: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attention: Corporate Trust Department,
Fifth Floor
Attention: Discreet Logic Escrow
Facsimile: (617) 664-5365
Holder Representatives:
Attention:
Facsimile:
With copy to: Gardner, Carton & Douglas
Suite 3400 - Quaker Tower
321 North Clark Street
Chicago, Illinois 60610-4795
Attention: Glenn W. Reed, Esq.
Facsimile: (312) 644-3381
<PAGE>
-11-
Buyer: Discreet Logic Inc.
10 rue Duke Street
Montreal, Quebec
Canada H3C 2L7
Fax: (514) 393-0110
Attention: Chief Financial Officer
Facsimile: (514) 393-0110
With copy to: Testa Hurwitz, & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
Attention: Mark J. Macenka, Esq.
Facsimile: (617) 248-7100
Such notice will be treated as having been received upon actual receipt.
12. General.
(a) Governing Law. It is the intention of the parties hereto that the
internal laws of the Commonwealth of Massachusetts (irrespective of its choice
of law principles) shall govern the validity of this Agreement, the construction
of its terms, and the interpretation and enforcement of the rights and duties of
the parties to this Agreement.
(b) Binding Upon Successors and Assigns. Subject to, and unless otherwise
provided in, this Agreement, each and all of the covenants, terms, provisions,
and agreements contained in this Agreement shall be binding upon, and inure to
the benefit of, the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties to this Agreement.
(c) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears on such counterpart and all of which together shall constitute
one and the same instrument. This Agreement shall become binding when one or
more counterparts of this Agreement, individually or taken together, shall bear
the signatures of all of the parties reflected in this Agreement as signatories.
(d) Entire Agreement. Except as set forth in the Purchase Agreement, this
Agreement, the documents referenced in this Agreement and the exhibits to such
documents, constitute the entire understanding and agreement of the parties to
this Agreement with respect to the subject matter of this Agreement and of such
documents and exhibits and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect to this Agreement, provided that with respect
to the Escrow Agent, this Agreement (without reference to any other agreements)
sets
<PAGE>
-12-
forth the entire understanding of the parties. Notwithstanding anything to the
contrary in the previous sentence, in the event that any term(s) or provision(s)
of this Agreement conflict(s) with a term or provision of the Purchase
Agreement, the term(s) and condition(s) of the Purchase Agreement will control
(except with respect to the responsibilities of the Escrow Agent). The express
terms of this Agreement control and supersede any course of performance or usage
of the trade inconsistent with any of the terms of this Agreement.
(e) Waivers. No waiver by any party to this Agreement of any condition or
of any breach of any provision of this Agreement will be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, will be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained in this Agreement.
(f) Amendment. This Agreement may be amended with the written consent of
Buyer, the Escrow Agent and the Holder Representatives; provided, that Exhibit A
-------- ---------
hereto may be amended with the consent of the Buyer, the Escrow Agent, and the
Holder(s) for which amendment to Exhibit A is being sought. In addition, if the
---------
Escrow Agent does not agree to an amendment agreed upon by Buyer and the Holder
Representatives or Buyer and the Holder(s), as the case may be (except an
amendment which may adversely affect the rights or interests of the Escrow
Agent), Buyer will appoint a successor Escrow Agent in accordance with Section
7.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-13-
IN WITNESS WHEREOF, the parties have duly executed this Escrow Agreement as
of the day and year first above written.
DISCREET LOGIC INC.:
By: /s/ Francois Plamondon
-----------------------------
Name: Plamondon F.
Title: Senior V.P. & C.F.O.
State Street Bank and Trust Company, as
ESCROW AGENT:
/s/ Patrick E. Thebado
---------------------------------
By: Patrick E. Thebado
Its: Assistant Vice President
-----------------------------
HOLDERS:
Michael J. Radi, Trustee for Michael J. Radi
Revocable Living Trust under dated 2/12/91
By: /s/ Michael J. Radi
------------------------------
Its: Trustee
-----------------------------
/s/ Richard J. Radi
---------------------------------
Richard J. Radi
/s/ Dale Weaver
---------------------------------
Dale Weaver
<PAGE>
-14-
*
---------------------------------
Kevin H. Erwin
*
---------------------------------
Paul G. Radja
/s/ Paul Reilly
---------------------------------
Paul Reilly
/s/ Bruce A. Rady
---------------------------------
Bruce A. Rady
Geocapital III, L.P.
By: *
------------------------------
Its:
-----------------------------
Platinum Venture Partners I, L.P.
By: *
------------------------------
Its:
-----------------------------
*
---------------------------------
Harvey L. Poppel
*
---------------------------------
Robert F. Steel
Presidents Forum/D-Vision L.L.C.
By: *
------------------------------
Its:
-----------------------------
<PAGE>
-15-
*
---------------------------------
Kenneth A. Steel
Sunbeam Ventures Ltd.
By: *
------------------------------
Its:
-----------------------------
*
---------------------------------
Michael Brown
*
---------------------------------
Bradley Shaw
*
---------------------------------
Todd Belfer
*
---------------------------------
Bernard Ludwig
* /s/ Paul Reilly
- ----------------------
Paul Reilly
Attorney-in-Fact
/s/ David Pincus
--------------------------------
David Pincus
/s/ Mark Basler
--------------------------------
Mark Basler
/s/ Bob Falk
--------------------------------
Bob Falk
/s/ Jim Kuch
--------------------------------
Jim Kuch
