EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
AVT CORPORATION,
RAVEN ACQUISITION CORP.,
INFINITE TECHNOLOGIES, INC.,
AND
THE STOCKHOLDERS OF INFINITE TECHNOLOGIES, INC.
Dated as of January 3, 2001
CONTENTS
ARTICLE I - THE MERGER; EFFECTIVE TIME; CLOSING..................................................... 1
1.1 The Merger........................................................................ 1
1.2 Effective Time.................................................................... 2
1.3 Closing........................................................................... 2
1.4 Tax Consequences.................................................................. 2
ARTICLE II - TERMS OF MERGER........................................................................ 2
2.1 Articles of Incorporation......................................................... 2
2.2 Bylaws............................................................................ 2
2.3 Directors......................................................................... 3
2.4 Officers.......................................................................... 3
ARTICLE III - CONVERSION OF SHARES IN MERGER; MERGER CONSIDERATION.................................. 3
3.1 Conversion of Shares in Merger.................................................... 3
3.2 Merger Consideration.............................................................. 4
3.3 Additional Consideration.......................................................... 6
3.4 No Fractional Shares.............................................................. 8
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE HOLDERS.......................... 8
4.1 Holder Matters.................................................................... 8
4.2 Company Organization, Good Standing, Power, Etc................................... 11
4.3 Capitalization.................................................................... 11
4.4 Subsidiaries and Affiliates....................................................... 12
4.5 No Approvals or Notices Required; No Conflicts With Instruments................... 12
4.6 Financial Statements; Obligations................................................. 12
4.7 Absence of Certain Changes or Events.............................................. 13
4.8 Taxes............................................................................. 15
4.9 Property.......................................................................... 18
4.10 Contracts......................................................................... 20
4.11 Customers and Suppliers........................................................... 21
4.12 Orders, Commitments and Returns................................................... 22
4.13 Claims and Legal Proceedings...................................................... 22
4.14 Labor Matters..................................................................... 22
4.15 Employee Benefit Plans............................................................ 23
4.16 Intellectual Property............................................................. 26
4.17 Accounts Receivable............................................................... 30
4.18 Inventory......................................................................... 31
4.19 Corporate Books and Records....................................................... 31
4.20 Licenses, Permits, Authorizations, Etc............................................ 31
4.21 Compliance With Laws; Environmental Matters....................................... 31
4.22 Insurance......................................................................... 33
4.23 Brokers and Finders............................................................... 33
4.24 Government Contracts.............................................................. 34
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4.25 Absence of Questionable Payments.................................................. 34
4.26 Personnel......................................................................... 34
4.27 Bank Accounts..................................................................... 34
4.28 Insider Interests................................................................. 35
4.29 ▇▇▇▇-▇▇▇▇▇ ▇▇▇▇▇▇................................................................. 35
4.30 Full Disclosure................................................................... 35
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF AVT AND ACQUISITION SUB............................... 36
5.1 Organization, Good Standing, Power, Etc........................................... 36
5.2 No Approvals or Notices Required; No Conflicts With Instruments................... 36
5.3 Capital Structure................................................................. 36
5.4 SEC Documents..................................................................... 37
5.5 No Material Adverse Change........................................................ 37
5.6 Claims and Legal Proceedings...................................................... 37
5.7 Brokers and Finders............................................................... 37
5.8 Full Disclosure................................................................... 37
ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS OF AVT AND ACQUISITION SUB......................... 38
6.1 Accuracy of Representations and Warranties........................................ 38
6.2 Performance of Agreements......................................................... 38
6.3 Opinions of Counsel for the Company and the Holders............................... 38
6.4 Approvals and Consents............................................................ 38
6.5 Officers' Certificate............................................................. 39
6.6 Material Adverse Change........................................................... 39
6.7 Proceedings and Documents; Secretary's Certificate................................ 39
6.8 Nonforeign Affidavit.............................................................. 39
6.9 Compliance With Laws; Release of Liens............................................ 39
6.10 Stockholder Approval.............................................................. 39
6.11 Legal Proceedings................................................................. 40
6.12 Escrow Agreement.................................................................. 40
6.13 Due Diligence..................................................................... 40
6.14 Termination of Consulting Contract................................................ 40
6.14 Employment Arrangements........................................................... 40
6.15 Confidentiality and Nondisclosure................................................. 40
6.16 Payout of Royalty Obligations; Renegotiation of Exclusive Contract................ 40
6.17 Retirement of Company Liability................................................... 41
6.18 Delivery of Certificates.......................................................... 41
ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE HOLDERS..................... 41
7.1 Accuracy of Representations and Warranties........................................ 41
7.2 Performance of Agreements......................................................... 41
7.3 Opinion of Counsel for AVT and Acquisition Sub.................................... 41
7.4 Approvals and Consents............................................................ 42
7.5 Legal Proceedings................................................................. 42
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7.6 Compliance With Laws.............................................................. 42
7.7 Material Adverse Change........................................................... 42
7.8 Escrow Agreement.................................................................. 42
7.9 Employment Agreement.............................................................. 42
ARTICLE VIII - COVENANTS............................................................................ 43
8.1 Conduct of Business by the Company Pending the Closing............................ 43
8.2 Access to Information; Confidentiality............................................ 44
8.3 No Alternative Transactions....................................................... 45
8.4 Notification of Certain Matters................................................... 45
8.5 Further Action.................................................................... 46
8.6 Publicity......................................................................... 46
8.7 Waiver of Dissenter's Rights...................................................... 46
8.8 Termination of 401(k) Plan........................................................ 46
8.9 Offers of Employment.............................................................. 47
8.10 Baltimore Office.................................................................. 47
ARTICLE IX - TERMINATION, AMENDMENT AND WAIVER...................................................... 47
9.1 Termination....................................................................... 47
9.2 Effect of Termination............................................................. 48
9.3 Amendment......................................................................... 48
9.4 Waiver............................................................................ 48
ARTICLE X - INDEMNIFICATION......................................................................... 48
10.1 Survival.......................................................................... 48
10.2 Indemnification by the Holders.................................................... 49
10.3 Indemnification by AVT............................................................ 50
10.4 Threshold and Limitations......................................................... 50
10.5 Procedure......................................................................... 51
10.6 Remedies; Specific Performance.................................................... 54
10.7 Access to Escrow Amount........................................................... 54
ARTICLE XI - GENERAL................................................................................ 54
11.1 Expenses.......................................................................... 54
11.2 Entire Understanding.............................................................. 54
11.3 Waivers........................................................................... 55
11.4 Counterparts...................................................................... 55
11.5 Headings.......................................................................... 55
11.6 Applicable Law; Venue............................................................. 55
11.7 Assignment........................................................................ 56
11.8 Successors and Assigns............................................................ 56
11.9 Notices........................................................................... 56
11.10 Severability...................................................................... 57
11.11 Tax Matters - Reorganization Treatment............................................ 58
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SCHEDULES
3.1 - 8.9, if applicable -- Included in Exhibit D
EXHIBITS
A -- Articles of Merger
B -- Escrow Agreement
C -- Employment Agreement
D -- Company Disclosure Memorandum
E -- Opinion of Counsel for the Company
F -- Real Property Tax Affidavit
G -- Form of Confidentiality and Invention Assignment Agreement
H -- Opinion of Counsel for AVT
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of January 3, 2001 among AVT Corporation, a Washington corporation
("AVT"), Raven Acquisition Corp., a Washington corporation and a wholly owned
subsidiary of AVT ("Acquisition Sub"), Infinite Technologies, Inc., a Maryland
corporation (the "Company"), and the stockholders of the Company (each a
"Holder" and collectively the "Holders") listed on the signature page hereto.
RECITALS
WHEREAS, the Holders own all the issued and outstanding shares of capital
stock of the Company, consisting of 50 shares of Class A Common Stock, without
par value (the "Class A Common") and 61 shares of Class B Common Stock, without
par value (the "Class B Common" and together with the Class A Common, the
"Company Shares");
WHEREAS, the Boards of Directors of Acquisition Sub and the Company each
have determined that it is in the best interests of their respective
shareholders for the Company to merge with and into Acquisition Sub upon the
terms and subject to the conditions of this Agreement (the "Merger");
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, AVT, Acquisition Sub, the Company and the Holders desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements set forth herein, the parties hereto agree as follows:
ARTICLE I - THE MERGER; EFFECTIVE TIME; CLOSING
1.1 The Merger
Upon the terms and subject to the conditions hereof, (a) at the Effective
Time (as hereinafter defined) the separate existence of the Company shall cease
and the Company shall be merged with and into Acquisition Sub (Acquisition Sub
as the surviving corporation after the Merger is sometimes referred to herein as
the "Surviving Corporation") and (b) from and after the Effective Time, the
Merger shall have all the effects of a merger under the laws of the State of
Washington, the State of Maryland and other applicable law.
1.2 Effective Time
On the Closing Date and subject to the terms and conditions hereof, the
parties hereto shall cause the appropriate certificates (the "Articles of
Merger") in the form attached as Exhibit A complying with the applicable
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provisions of the Washington Business Corporation Act ("WBCA") and the Maryland
General Corporation Law ("Maryland Law") to be properly executed and filed with
the Secretary of State of the State of Washington (the "Washington Secretary of
State") and the Maryland State Department of Assessments and Taxation (the
"Maryland Department of Taxation"). The Merger shall become effective on the
date and at the time (the "Effective Time") of filing of the Articles of Merger
or at such other time as may be specified in the Articles of Merger as filed. If
the Washington Secretary of State or the Maryland Department of Taxation
requires any changes in the Articles of Merger as a condition to filing or to
issuing its certificate to the effect that the Merger is effective, AVT,
Acquisition Sub and the Company will execute any necessary revisions
incorporating such changes.
1.3 Closing
The closing of the transactions contemplated by this Agreement (the
"Closing") will occur (a) at the offices of ▇▇▇▇▇▇▇ Coie LLP, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, at 10:00 a.m. on January 3, 2001, though the
parties may transmit documents necessary for the Closing via electronic
facsimile or courier, or (b) at such other place and/or time and/or on such
other date as the parties hereto may agree (such date being the "Closing Date").
1.4 Tax Consequences
It is intended by the parties hereto that the Merger shall constitute a
reorganization within the meaning of Section 368 of the Code. The parties hereto
adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations.
ARTICLE II - TERMS OF MERGER
2.1 Articles of Incorporation
The Articles of Incorporation of Acquisition Sub in effect immediately
prior to the Effective Time will be the Articles of Incorporation of the
Surviving Corporation, until duly amended in accordance with the terms thereof
and of the WBCA.
2.2 Bylaws
The Bylaws of Acquisition Sub in effect immediately prior to the Effective
Time will be the Bylaws of the Surviving Corporation, until duly amended in
accordance with the terms thereof, of the Articles of Incorporation of the
Surviving Corporation and of the WBCA.
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2.3 Directors
The directors of Acquisition Sub at the Effective Time will, from and after
the Effective Time, be the directors of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation.
2.4 Officers
The officers of Acquisition Sub at the Effective Time will, from and after
the Effective Time, be the officers of the Surviving Corporation until their
successors have been duly appointed or until their earlier death, resignation or
removal in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation.
ARTICLE III - CONVERSION OF SHARES IN MERGER; MERGER CONSIDERATION
3.1 Conversion of Shares in Merger
At the Effective Time, by virtue of the Merger and without any action by
the holders thereof, the shares of the constituent corporations will be
converted as follows:
(a) All shares of any class of capital stock of the Company held by
the Company as treasury shares shall be canceled.
(b) The Company Shares issued and outstanding immediately prior to
the Effective Time will be converted into the right to receive (i) in the case
of Class B Common, the Class B Share Consideration and the Class B Cash
Consideration, and (ii) in the case of Class A Common, the Class A Share
Consideration, the Class A Cash Consideration and the Additional Consideration,
(each as hereinafter defined), as set forth in Sections 3.2 and 3.3 hereof. The
Class B Share Consideration, the Class B Cash Consideration, the Class A Share
Consideration, the Class A Cash Consideration and the Additional Consideration
are collectively referred to as the "Merger Consideration."
(c) The Company Shares will cease to be outstanding, will be canceled
and retired and will cease to exist, and each holder of a certificate
representing any such Company Shares will thereafter cease to have any rights
with respect to such Company Shares, except the right to receive that portion of
the Merger Consideration attributable to such Company Shares.
(d) Each share of common stock, par value $0.01 per share, of
Acquisition Sub issued and outstanding immediately prior to the Effective Time
will evidence the same number of shares of common stock of the Surviving
Corporation.
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3.2 Merger Consideration
(a) Class B Common Merger Consideration. In exchange for all the
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outstanding shares of Class B Common, AVT shall pay a portion of the Merger
Consideration to the Holders as follows:
(i) Class B Share Consideration. On the Closing Date, AVT shall
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issue to the Holders the Class B Share Consideration. The "Class B Share
Consideration" shall be that the number of shares of AVT Common Stock (the
"Class B Closing Shares") equal to $4,774,372 (the "Class B Closing Shares
Value"), divided by the average of the closing prices of AVT Common Stock as
reported on the Nasdaq National Market for each of the twenty (20) trading days
ending three trading days prior to the Closing Date (the "Closing Average"). The
Class B Share Consideration will be distributed to the Holders according to the
percentage of Class B Common owned by each Holder as set forth on Schedule
3.2(a) (with respect to each Holder, such Holder's "Class B Percentage
Interest"). Notwithstanding anything to the contrary in this Section 3.2(a)(i),
if the Closing Average is less than $3.00 per share, either AVT or the Holders
may elect to reduce the Class B Closing Shares Value by an amount mutually
agreed to by AVT and the Holders, negotiating in good faith, and to increase the
Class B Cash Consideration (as defined below) payable on the Cash Installment
Date (as defined below) by the amount of such reduction; provided, however, that
in no event shall the Class B Cash Consideration and the Class A Cash
Consideration (as defined below) together constitute more than sixty percent
(60%) of the total consideration paid on the Closing Date.
(ii) Class B Cash Consideration. On the Closing Date, AVT shall pay
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to the Holders an aggregate amount equal to $6,030,086 (the "Class B Cash
Consideration"), $355,834 of which (the "Class B Cash Escrow Amount") will be
deposited with Mellon Investor Services LLC as Escrow Agent (the "Escrow Agent")
into an interest-bearing escrow and disbursed to the Holders or returned to AVT
in accordance with the terms of an escrow agreement substantially in the form of
Exhibit B hereto (the "Escrow Agreement") and the balance of which will be paid
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to the Holders by wire transfer of immediately available funds. The Class B Cash
Consideration will be distributed to each Holder according to such Holder's
Class B Percentage Interest. Wire transfers of funds will be to the Holders'
accounts as specified in notices given to AVT at least 24 hours before the
Closing Date.
(b) Class A Common Merger Consideration. In exchange for all the
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outstanding shares of Class A Common, AVT shall pay a portion of the Merger
Consideration to the Holder of the Class A Common (the "Class A Holder") as
follows:
(i) Class A Share Consideration. On the Closing Date, AVT shall
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issue to the Class A Holder that number of shares of AVT Common Stock (the
"Class A Closing Shares" and, together with the Class B Closing Shares, the
"Closing Shares") equal to $3,297,056 (the "Class A Closing Shares Value")
divided by the Closing Average (the "Class A Share Consideration").
Notwithstanding anything to the contrary in this Section
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3.2(b)(i), if the Closing Average is less than $3.00 per share, either AVT or
the Class A Holder may elect to reduce the Class A Closing Shares Value by an
amount mutually agreed to by AVT and the Class A Holder, negotiating in good
faith, and to increase the Class A Cash Consideration (as defined below) payable
on the Closing Date by the amount of such reduction; provided, however, that in
no event shall the Class A Cash Consideration and the Class B Cash Consideration
together constitute more the sixty percent (60%) of the total consideration paid
on the Closing Date.
(ii) Class A Cash Consideration. On the Closing Date, AVT shall pay
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to the Class A Holder an aggregate amount equal to $1,750,000 (the "Class A Cash
Consideration"), $106,667 of which (the "Class A Cash Escrow Amount" and,
together with the Class B Escrow Amount and the Escrow Shares (as defined
below), the "Escrow Amount") will be deposited with the Escrow Agent into an
interest-bearing escrow and disbursed to the Class A Holder or returned to AVT
in accordance with the terms of the Escrow Agreement and the balance of which
will be paid to the Class A Holder by wire transfer of immediately available
funds. Wire transfers of funds will be to the Class A Holder's account as
specified in a notice given to AVT at least 24 hours before the Closing Date.
(c) Additional Consideration. AVT shall pay to the Class A Holder the
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additional consideration, if any, payable to him pursuant to Section 3.3 hereof
(the "Additional Consideration").
(d) Adjustment for Liabilities. The Company has delivered to AVT a pro
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forma balance sheet for the Company as of the Closing Date (the "Closing Balance
Sheet") which is attached hereto as Schedule 3.2(d). The Closing Balance Sheet
has been prepared by Company from the books and records of the Company on a
basis consistent with prior accounting periods and fairly presents the financial
position, results of operations and changes in financial position of the Company
as of the dates and for the periods indicated. The parties hereby agree that the
Company Liability (as defined below) reflected on the Closing Balance Sheet is
$973,869. "Company Liability" shall mean any long-term liability, notes payable,
loans, lease obligations or other debt of the Company (including any
indebtedness of the Company to AVT) and fees and expenses incident to the
negotiation, preparation and execution of this Agreement and the other
Transaction Documents (including legal and accounting fees and expenses and
finder's or broker's fees). AVT shall have the right to have the Closing Balance
Sheet audited by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP or such other accounting firm as may be
selected by AVT (the "Audited Balance Sheet"). Changes to the Closing Balance
Sheet may be made in such audit to the extent necessary (a) to conform the
Closing Balance Sheet to generally accepted accounting principles, and (b) to
correct factual or computational errors in the Closing Balance Sheet. Such
audit, if any, must be completed no later than 90 days after the Closing Date.
If the dollar amount of the Company Liability presented in the Audited Balance
Sheet is greater than the dollar amount of the Company Liability reflected in
the Closing Balance Sheet, then the Merger Consideration shall be
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decreased dollar for dollar by the amount of excess Company Liability reflected
in the Audited Balance Sheet.
(e) Escrow Shares. At the Effective Time, the Holders will be deemed to
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have received and deposited with the Escrow Agent (i) five percent (5%) of the
Class B Share Consideration (the "Class B Escrow Shares") and (ii) five percent
(5%) of the Class A Share Consideration (the "Class A Escrow Shares" and,
together with the Class B Escrow Shares, the "Escrow Shares"), without any act
of either Holder. The Class B Escrow Shares shall be allocated between the
Holders according to each Holders' Class B Percentage Interest. As soon as
practicable after the Effective Time, the Escrow Shares, without any act of
either Holder, will be deposited with the Escrow Agent, such deposit to
constitute a portion of the Escrow Amount to be governed by the terms set forth
in the Escrow Agreement.
3.3 Additional Consideration
Additional consideration of up to an aggregate value of $6,848,487 will be
paid by AVT to the Class A Holder as follows:
(a) Annual Guaranteed Payments. Additional consideration of $978,355
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(the "Annual Guaranteed Payments") will be paid by AVT to the Class A Holder
within 30 days after the end of each of the years ending December 31, 2001, 2002
and 2003 (each a "Guaranteed Payment Date") except in the event of the Class A
Holder's death or total disability (as defined below), in which case the
requirements of Section 3.3(e) shall govern. The Annual Guaranteed Payments with
respect to each Guaranteed Payment Date (each, an "Annual Guaranteed Payment")
will be payable 50% in cash and 50% by issuing that number of whole shares of
AVT Common Stock (the "Guaranteed Payment Shares") equal to 50% of such Annual
Guaranteed Payment divided by the average closing price of AVT Common Stock (as
reported by Nasdaq) for a period of 20 trading days ending on the applicable
Guaranteed Payment Date or, if such Guaranteed Payment Date is not a trading
day, the last trading day prior to such Guaranteed Payment Date (the "Guaranteed
Payment Closing Average"). Notwithstanding anything to the contrary in this
Section 3.3(a), in no event shall the Class A Holder receive more than 100,000
Guaranteed Payment Shares on any Guaranteed Payment Date. In the event that the
value of 100,000 Guaranteed Payment Shares issued on a Guaranteed Payment Date
is not equal to the value of 50% of the Annual Guaranteed Payment on such
Guaranteed Payment Date, AVT shall make up the difference in value (the
"Difference in Value") on subsequent Guaranteed Payment Dates, if any, by
issuing up to the number of shares of AVT Common Stock equal to the Difference
in Value divided by the Guaranteed Payment Closing Average applicable to such
subsequent Guaranteed Payment Date, provided that in no event shall the Class A
Holder be entitled to receive more than 100,000 shares of AVT Common Stock under
this Section 3.3(a) on any Guaranteed Payment Date. AVT shall reduce the cash
portion of the applicable Annual Guaranteed Payment so that such payment shall
not, when taken together with the Class A Cash Consideration, the Class B Cash
Consideration and the cash paid or payable as of such
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Guaranteed Payment Date under this Section 3.3, constitute more the sixty
percent (60%) of the Merger Consideration.
(b) Annual Performance Earn-Out. Additional consideration of up to
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$1,304,474 (the "Annual Performance Earn-Out") will paid by AVT to the Class A
Holder based on the achievement of specific business objectives, either by the
Class A Holder, AVT or both ("Objectives") for the years ending December 31,
2001, 2002 and 2003 (each, a "Period"). With respect to the Period ending
December 31, 2001, the Objectives are to be negotiated in good faith within 60
days of the Closing Date. The Objectives for the Periods ending December 31,
2002 and 2003 shall be negotiated in good faith by AVT and the Class A Holder
within 60 days after the end of the preceding Period. The portion of the Annual
Performance Earn-Out, if any, earned with respect to each Period (each, a
"Performance Earn-Out Payment") will be payable within 30 days after the end of
the applicable Period. Each Performance Earn-Out Payment, if any, will be
payable 50% in cash and 50% by issuing that number of whole shares of AVT Common
Stock (the "Performance Earn-Out Shares" and, together with the Guaranteed Earn-
Out Shares, the "Earn-Out Shares") equal to 50% of the applicable Performance
Earn-Out Payment divided by the average closing price of AVT Common Stock (as
reported by Nasdaq) for a period of 20 trading days ending on the last trading
day of the applicable Period (the "Performance Earn-Out Closing Average").
Notwithstanding anything to the contrary in this Section 3.3(b), in no event
shall the Class A Holder receive more than 133,333 Performance Earnout Shares
for any Period. AVT shall reduce the cash portion of the applicable Annual
Guaranteed Payment so that such payment shall not, when taken together with the
Class A Cash Consideration, the Class B Cash Consideration and the cash paid or
payable as of the end of the applicable Period under this Section 3.3,
constitute more the sixty percent (60%) of the Merger Consideration.
(c) Dispute Resolution. If AVT and the Class Holder are unable to
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reach agreement with respect to the Objectives for any Period, the matter shall
be settled by binding arbitration in Seattle, Washington in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect (the "AAA Rules"), conducted by one arbitrator either mutually agreed
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upon by AVT and the Class A Holder or chosen in accordance with the AAA Rules.
The final decision of the arbitrator shall be furnished to AVT and the Class A
Holder in writing and shall constitute the conclusive determination of the issue
in question binding upon AVT and the Class A Holder and shall not be contested
by either of them. Such decision may be used in a court of law only for the
purpose of seeking enforcement of the arbitrators' decision. All fees and
expenses of the arbitrator shall be paid in accordance with the determination of
the arbitrator.
(d) Tax Treatment; Withholding. To the extent that any portion of the
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Additional Consideration may be treated as compensation for services under
Section 61(a) of the Code, AVT will be entitled to deduct and withhold from the
Additional Consideration such amounts as AVT may be required to deduct and
withhold with respect to the making of such payments under the Code, or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld, such amounts will be treated for all purposes of this
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Agreement as having been paid to the Class A Holder in respect of whom such
deduction and withholding were made by AVT.
(e) Insurance. In the event of the Class A Holder's death or total
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disability (as defined below) on or prior to a Guaranteed Payment Date, the
Class A Holder shall not be entitled to any payments under Section 3.3(a) unless
and until: (i) the Class A Holder has obtained a life insurance policy on the
Class A Holder's life (with AVT as the named beneficiary) in the amount of $3.5
million dollars, such policy to be for a term of no less than three years from
the date hereof, and (ii) AVT has obtained disability insurance (with AVT as the
named beneficiary) that is payable in the event of the Class A Holder's total
disability (as defined below), provided that AVT shall make a good faith effort
to obtain such insurance on terms reasonably acceptable to AVT. The term "total
disability" shall have the meaning assigned to such term in the Employment
Agreement.
3.4 No Fractional Shares
No certificates or scrip representing fractional shares of AVT Common Stock
shall be issued by virtue of the Merger. In lieu thereof, the parties agree that
fractional shares shall be rounded to the nearest whole share (with .5 being
rounded up to the nearest whole share).
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE HOLDERS
The Company and the Holders jointly and severally represent and warrant to
AVT, which representations and warranties will survive the Closing to the extent
provided herein, as follows in this Article IV, except as set forth on a
Schedule referencing the applicable section of this Article including in the
Company Disclosure Memorandum attached hereto as Exhibit D.
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4.1 Holder Matters
(a) Good Title. Each Holder represents with respect to himself only that
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he owns, beneficially and of record, the shares of common stock of the Company
listed opposite his name on Schedule 4.1(a). Such Company Shares are owned free
and clear of any lien, encumbrance, adverse claim, restriction on sale, transfer
or voting (other than restrictions imposed by applicable securities laws),
preemptive right, option or other right to purchase.
(b) Authority. Such Holder has all requisite power, right and authority to
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enter into this Agreement and the other agreements to be entered into pursuant
hereto (together with the Agreement, the "Transaction Documents"), to consummate
the transactions contemplated hereby and thereby, and to sell and transfer such
Company Shares without the consent or approval of any other person, corporation,
partnership, joint venture, association, organization, other entity or
government or regulatory authority ("Person"). Such Holder has taken, or will
take prior to the Closing, all actions necessary for the authorization,
execution, delivery and performance of this Agreement and the other Transaction
Documents.
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(c) Enforceability. This Agreement has been, and the other Transaction
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Documents to which such Holder is a party on the Closing will be, duly executed
and delivered by such Holder, and this Agreement is, and each of the other
Transaction Documents to which such Holder is a party on the Closing will be,
the legal, valid and binding obligation of such Holder, enforceable against such
Holder in accordance with its terms.
(d) No Approvals or Notices Required; No Conflicts. The execution,
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delivery and performance of this Agreement and the other Transaction Documents
by such Holder, and the consummation of the transactions contemplated hereby and
thereby, will not (i) constitute a violation (with or without the giving of
notice or lapse of time, or both) of any provision of any law or any judgment,
decree, order, regulation or rule of any court, agency or other governmental
authority applicable to such Holder, (ii) require any consent, approval or
authorization of, or declaration, filing or registration with, any Person other
than compliance with applicable securities laws, (iii) result in a default (with
or without the giving of notice or lapse of time, or both) under, acceleration
or termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel, any agreement, lease, note or other restriction,
encumbrance, obligation or liability to which the Company is a party or by which
it is bound or to which any assets of the Company are subject, or (iv) result in
the creation of any lien or encumbrance upon the assets of such Holder, or upon
any Company Shares or other securities of the Company.
(e) Securities Law Representations and Warranties. Such Holder has been
----------------------------------------------
advised that the Closing Shares to be issued to such Holder and, with respect to
the Class A Holder, the Earn-Out Shares (together, the "Shares") are not being
registered under the Securities Act of 1933, as amended (the "Act"), or
applicable state securities laws, but are being issued pursuant to exemptions
from such laws, and that AVT's reliance upon such exemptions is predicated in
part on such Holder's representations and warranties contained herein.
(i) Purchase Entirely for Own Account. The Shares will be acquired
----------------------------------
for investment for such Holder's own account, not as a nominee or agent, and not
with a view to distributing all or any part thereof; such Holder has no present
intention of selling, granting any participation in or otherwise distributing
any of the Shares in a manner contrary to the Act or any applicable state
securities law, and such Holder does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person with respect to any of the
Shares.
(ii) Access to Information. Such Holder believes he has been given
----------------------
access to full and complete information regarding AVT, including, in particular,
the current financial condition of AVT and the risks associated therewith, and
has utilized such access to his satisfaction for the purpose of obtaining
information about AVT; particularly, such Holder has been given reasonable
opportunity to ask questions of, and receive answers from, AVT concerning the
business, properties, prospects and financial condition of AVT and to obtain
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any additional information, to the extent reasonably available, necessary to
verify the accuracy of information provided to such Holder about AVT. No such
investigation, however, shall limit or qualify the representations and
warranties of AVT in this Agreement.
(iii) Sophistication. Such Holder, either alone or with the
---------------
assistance of his professional advisor, is a sophisticated investor, is able to
fend for himself in the transactions contemplated by this Agreement, and has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of an investment in AVT.
(iv) Suitability. The investment in the Shares is suitable for such
------------
Holder based upon his investment objectives and financial needs, and such Holder
has adequate net worth and means for providing for his current financial needs
and contingencies and has no need for liquidity of investment with respect to
the Shares. Such Holder's overall commitment to investments that are not readily
marketable is not disproportionate to his net worth, and an investment in the
Shares will not cause such overall commitment to become excessive.
(v) Restricted Securities. Such Holder realizes that the Shares
----------------------
have not been registered under the Act, are characterized under the Act as
"restricted securities" and, therefore, cannot be sold or transferred unless
they are subsequently registered under the Act or an exemption from such
registration is available. Holder further realizes that a person who wishes to
sell restricted securities under Rule 144 of the Act must have beneficially
owned the restricted securities for at least one year. If Holder is not a
control person at the time of the sale, or during the preceding three months,
and has owned such restricted securities for at least two years prior to their
sale then, with certain qualifications, Holder may be able to sell such
securities free of all Rule 144 limitations under Rule 144(k).
(vi) Residency. Such Holder is a bona fide resident of, or is
----------
domiciled in, the state identified in his address as set forth on Schedule
4.1(e)(vi).
(vii) Legends. Such Holder understands that the certificates
--------
evidencing the Shares will bear a legend substantially as follows:
The securities evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act") or applicable state securities laws, and no interest may
be sold, distributed, assigned, offered, pledged or otherwise
transferred unless (a) there is an effective registration
statement under the Act and applicable state securities laws
covering any such transaction involving said securities, (b) this
corporation receives an opinion of legal counsel for the holder
of these securities satisfactory to this corporation stating that
such transaction is exempt from registration, or (c) this
corporation otherwise satisfies itself that such transaction is
exempt from registration.
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(viii) Accreditation. Such Holder is familiar with the term
--------------
"accredited investor" and its use in connection with private placements of
securities under applicable securities laws. Except as set forth on Schedule
4.1(e)(viii), such Holder is an accredited investor as such term is defined in
Rule 501(a) under the Act and as defined pursuant to the provisions of
applicable state securities laws providing for an exemption from registration or
qualification of the issuance of the Shares.
4.2 Company Organization, Good Standing, Power, Etc.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the state of Maryland, and has all requisite
corporate power and authority to own, operate and lease its properties and
assets and to carry on its business as now conducted. The Company is duly
qualified and licensed as a foreign corporation to do business and is in good
standing in each jurisdiction in which the character of the Company's properties
occupied, owned or held under lease or the nature of the business conducted by
the Company makes such qualification or licensing necessary, except where the
failure to be so qualified or in good standing would not have a material adverse
effect on the Company's business, assets, operations, prospects or condition
(financial or other) (a "Company Material Adverse Effect"). The Company has
full corporate power and authority to enter into this Agreement and the other
Transaction Documents to be entered into pursuant hereto and to carry out the
transactions contemplated hereby and thereby. This Agreement has been, and each
of the other Transaction Documents to be delivered on the Closing will be, duly
executed and delivered by the Company, and this Agreement is, and each of such
other Transaction Documents to which the Company is a party will be on the
Closing, a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the rights of creditors generally and general equitable principles,
including, but not limited to, those relating to the availability of the remedy
of specific performance.
4.3 Capitalization
The Company's authorized capital stock consists of 5,000 shares of common
stock, without par value, of which (a) 2,000 shares are designated as Class A
Common, of which 50 shares are issued and outstanding and (b) 3000 shares are
designated as Class B Common, of which 61 shares are issued and outstanding.
The Holders are the record and beneficial owners of all of issued and
outstanding Company Shares in the amounts set forth on Schedule 4.1(a). All
outstanding Company Shares are duly authorized, validly issued, fully paid and
nonassessable and issued in compliance with all applicable federal, state, and
foreign securities laws. There are no outstanding options, warrants, rights or
agreements of any character that obligate the Company to issue any additional
shares of any of its capital stock or any securities convertible into any shares
of any such capital stock. There are no voting trusts or other agreements or
understandings to which the Company or the Holders are a party or by which the
Company or the Holders are bound.
-11-
4.4 Subsidiaries and Affiliates
The Company does not hold, directly or indirectly, any ownership, equity,
profits or voting interest in, or otherwise control, any corporation, limited
liability company, partnership, joint venture or other entity, and has no
agreement or commitment to purchase any such interest.
4.5 No Approvals or Notices Required; No Conflicts With Instruments
The execution, delivery and performance of this Agreement and the other
Transaction Documents entered into by the Company pursuant hereto and the
consummation of the transactions contemplated hereby and thereby will not (a)
constitute a material violation (with or without the giving of notice or lapse
of time, or both) of any provision of any law or any judgment, decree, order,
regulation or rule of any court, agency or other governmental authority
applicable to the Company (b) except as set forth on Schedule 4.10, require any
consent, approval or authorization of, or declaration, filing or registration
with, any Person, except for compliance with applicable securities laws (the
consent of all such Persons to be duly obtained by the Company at or prior to
the Closing), (c) result in a default (with or without the giving of notice or
lapse of time, or both) under, or acceleration or termination of, or the
creation in any party of the right to accelerate, terminate, modify or cancel,
any agreement, lease, note or other restriction, encumbrance, obligation or
liability to which the Company is a party or by which it is bound or to which
its assets are subject that would have a Company Material Adverse Effect, (d)
result in the creation of any material lien or encumbrance on the Company's
assets or on the Company Shares, (e) conflict with or result in a breach of or
constitute a default under any provision of the Company's Articles of
Incorporation or Bylaws, or (f) invalidate or adversely affect any material
permit, license, authorization or status used in the conduct of the Company's
business.
4.6 Financial Statements; Obligations
The Company has delivered to AVT (a) unaudited balance sheets and
statements of operations and stockholders' equity of the Company at and for the
fiscal years ended December 31, 1998 and December 31, 1999, (b) unaudited
balance sheets and unaudited statements of operations and stockholders' equity
of the Company at and for the following periods: March 31, 2000, June 30, 2000
and September 30, 2000 and (c) an unaudited balance sheet as of November 30,
2000 (the "November Balance Sheet"). All the foregoing financial statements
(including the notes thereto) are referred to as the "Company Financial
Statements." The Company Financial Statements have been prepared on a basis
consistent with prior accounting periods and fairly present the financial
position, results of operations and changes in financial position of the Company
as of the dates and for the periods indicated. The Company has no material
liabilities or obligations of any nature (absolute, accrued or contingent) that
are not fully reflected or reserved against in the November Balance Sheet except
(i) liabilities or obligations incurred since the date of the November Balance
Sheet in the ordinary course of business and consistent with past practice or
(ii) as
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specifically set forth on Schedule 4.6. The Company maintains standard systems
of accounting that are adequate for its business. Except as disclosed on
Schedule 4.6, the Company is not a guarantor, indemnitor, surety or other
obligor of any indebtedness of any other Person. Schedule 4.6 sets forth all
promissory notes, loans, lines of credits or similar obligations pursuant to
which the Company is an obligor, together with all the amounts owed by the
Company under such obligations, as of the date hereof. Schedule 4.6 sets forth
all indebtedness and other obligations of the Holders relating to the Company,
together with all the amounts owed by the Holders in respect thereof, as of the
date hereof.
4.7 Absence of Certain Changes or Events
Except as specifically contemplated by this Agreement, since the date of
the November Balance Sheet neither the Company nor any of its officers or
directors in their representative capacity on behalf of the Company have:
(a) received oral or written notice that there has been, will be or
may be a loss of, or contract cancellation by, any current customer, supplier or
licenser of the Company, which loss or cancellation would result in lost annual
revenues to the Company of at least $25,000, or formed the basis for any belief
that there may be such a loss or cancellation;
(b) taken any action or entered into or agreed to enter into any
transaction, agreement or commitment other than in the ordinary course of
business, including any commitments to pay any bonuses in connection with the
transactions contemplated by this Agreement;
(c) forgiven or canceled any indebtedness or waived any claims or
rights of material value (including, without limitation, any indebtedness owing
by any stockholder, officer, director or employee of the Company);
(d) granted, other than in the ordinary course of business and
consistent with past practice, any increase in the compensation of directors,
officers, employees, or consultants or any increase in the compensation payable
or to become payable to any director, officer, employee or consultant;
(d) suffered any material adverse change in its working capital,
assets, liabilities (whether absolute, accrued, contingent or otherwise),
earnings or reserves or in its business, business prospects, operations or
financial condition;
(e) borrowed or agreed to borrow any funds, assumed or become subject
to, whether directly or by way of guarantee or otherwise, any obligation or
liability (whether absolute, accrued, contingent or otherwise), or incurred any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
that exceed in the aggregate $10,000 (including obligations or liabilities
arising from one transaction or a series of similar transactions, and all
periodic installments or payments under any lease or other agreement providing
for
-13-
periodic installments or payments, as a single obligation or liability), except
liabilities and obligations incurred in the ordinary course of business and
consistent with past practice, or increased, or experienced any change in any
assumptions underlying or methods of calculating, any bad debt, contingency or
other reserves;
(f) paid, discharged or satisfied any claims, liabilities or
obligations (whether absolute, accrued, contingent or otherwise) other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of claims, liabilities and obligations reflected
or reserved against in the November Balance Sheet or incurred in the ordinary
course of business and consistent with past practice since the date of the
November Balance Sheet;
(g) permitted or allowed any of its property or assets (whether real,
personal or mixed, tangible or intangible) to be subjected to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge, except for
(i) conditional sales or similar security interests granted in connection with
the purchase of equipment or supplies in the ordinary course of business, (ii)
assessments for current taxes not yet due and payable, (iii) landlord's liens
for rental payments and other lease-related performance incurred in the ordinary
course of business and not yet due and payable, and (iv) mechanics',
materialmen's, carriers' and other similar liens securing indebtedness that is
in the aggregate less than $1,000, was incurred in the ordinary course of
business and is not yet due and payable;
(h) written down the value of any inventory or written off as
uncollectible any notes or accounts receivable, except for write-downs and
write-offs that are in the aggregate less than $10,000, and were incurred in the
ordinary course of business and consistent with past practice;
(i) sold, transferred or otherwise disposed of any of its properties
or assets (whether real, personal or mixed, tangible or intangible), except in
the ordinary course of business and consistent with past practice;
(j) disposed of or permitted to lapse any rights to the use of any
material trademark, trade name, patent or copyright, or disposed of or disclosed
to any Person other than representatives of AVT any material trade secret,
formula, process or know-how not theretofore a matter of public knowledge;
(k) made any single capital expenditure or commitment in excess of
$5,000 or made aggregate capital expenditures or commitments in excess of
$10,000 for additions to property, plant, equipment or intangible capital
assets, relating to either purchased or leased assets;
(l) made any change in any method of accounting or accounting
practice or internal control procedure;
-14-
(m) issued any capital stock, other securities or options, or
declared, paid or set aside for payment any dividend or other distribution in
respect of its capital stock or redeemed, purchased or otherwise acquired,
directly or indirectly, any Company Shares or other securities of the Company,
or otherwise permitted the withdrawal by the Holders of any cash or other assets
(whether real, personal or mixed, tangible or intangible), in compensation,
indebtedness or otherwise, other than payments of compensation in the ordinary
course of business and consistent with past practice;
(n) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets (whether real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any
stockholder or any of its officers, directors, or employees or any affiliate of
any stockholder or any of its officers, directors, or employees other than
ordinary compensation payments in accordance with past practice;
(o) received notice of, or otherwise obtained knowledge of: (i) any
claim, action, suit, arbitration, proceeding or investigation involving, pending
against or threatened against the Company or any employee of the Company before
or by any court or governmental or nongovernmental department, commission,
board, bureau, agency or instrumentality, or any other Person; (ii) any valid
basis for any claim, action, suit, arbitration, proceeding, investigation or the
application of any fine or penalty adverse to the Company or any officer or
director of the Company before or by any Person; or (iii) any outstanding or
unsatisfied judgments, orders, decrees or stipulations to which the Company or
any officer, director or employee of the Company is a party that relate directly
to the transactions contemplated herein or that would have any Company Material
Adverse Effect;
(p) entered into or agreed to any sale, assignment, transfer or
license of any patents, trademarks, copyrights, trade secrets or other
intangible assets of the Company to a third party or any amendment or change to
any existing license or other agreement relating to intellectual property;
(q) incurred, assumed or guaranteed any indebtedness for borrowed
money other than in the ordinary and usual course of business, consistent with
past practice, and in amounts and on terms consistent with past practice;
(s) received notice of, or otherwise obtained knowledge of, any other
event or facts that could result in a material adverse change in the business,
assets, operations, prospects or condition (financial or other) of the Company;
or
(t) agreed, whether in writing or otherwise, to take any action
described in this Section 4.7.
4.8 Taxes
(a) The Company has duly and timely filed, including valid extensions,
with the appropriate governmental agencies (domestic and foreign) all Tax
Returns (as defined in
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Section 4.8(m) hereof) for all Taxes (as defined in Section 4.8(l) hereof)
required to have been filed by it with respect to the Company and its business,
which Tax Returns are true, correct and complete. The Company has paid in full
or provided for all Taxes, whether or not reflected on any Tax Return, that are
due or claimed to be due by any governmental agency.
(b) The Company and the Holders represent and warrant that (i) no
unresolved claim for assessment or collection of Taxes has been asserted or, to
their knowledge, threatened against the Company, and no audit or investigation
by any governmental authority is under way with respect to Taxes, interest or
other governmental charges; (ii) to their knowledge, no circumstances exist or
have existed that would constitute grounds for assessment against the Company of
any Tax liability with respect to any period for which Tax Returns have been
filed; (iii) the Company has not filed or entered into, nor has the Company been
requested to file or enter into any election, consent or extension agreement or
any waiver that extends any applicable statute of limitations; (iv) any Taxes
incurred by the Company or accrued by it since the date of the November Balance
Sheet have arisen in the ordinary course of business and consistent with past
practice; (v) the Company has not filed any consent to the application of
Section 341(f)(2) of the Code, as amended to any assets held, acquired or to be
acquired by it; (vi) the Company has duly and timely withheld from employee
salaries, wages and other compensation and paid over to the appropriate
governmental authority all amounts required to be so withheld and paid over for
all periods under all applicable laws; and no amounts have been or would be
required to be withheld with respect to the lapse of restrictions on the Company
Shares; (vii) there are no Tax rulings, requests for rulings, or closing
agreements relating to the Company that could affect the liability for Taxes or
the amount of taxable income of the Company for any period (or portion of a
period) after the date hereof; (viii) any adjustment of Taxes of the Company
made by the Internal Revenue Service (the "IRS") in any examination that is
required to be reported to the appropriate state, local or foreign taxing
authorities has been reported, and any additional Taxes due with respect thereto
have been paid; and (ix) the Tax Returns of the Company do not contain a
disclosure under Section 6662 of the Code (or any predecessor provision or
comparable provision of state, local or foreign law); or (x) has agreed to or is
required to make any adjustments pursuant to Section 481(a) of the Code or any
similar provision of state, local or foreign law by reason of a change in
accounting method initiated by the Company or has notice that a governmental
authority has proposed any such adjustment or change in accounting method.
(c) There are no Tax liens on any property or assets of the Company other
than liens for current Taxes not yet payable.
(d) No claim has been made by an authority in any jurisdiction where the
Company does not file Tax Returns that the Company is or may be subject to
taxation by such jurisdiction.
(e) The Company has not made any payment or payments, is not obligated to
make any payment or payments, and is not a party to (or participating employer
in) any
-16-
agreement or Employee Benefit Plan (as defined in Section 4.15) that could
obligate it, the Surviving Corporation or AVT to make any payment or payments
that constitute or will constitute an "excess parachute payment" as defined in
Section 280G of the Code (or any similar provisions of state, local or foreign
law) or that will otherwise not be deductible under Section 162(m) or Section
404 of the Code.
(f) The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(2)(i) of the Code.
(g) The Company is not a party to any Tax allocation or sharing agreement.
(h) The Company (i) is not and has not been a member of an affiliated
group filing a consolidated income Tax Return and (ii) does not have any
liability for Taxes of any person under Treasury Regulations (S) 1.1502-6 (or
any similar provision of state, local or foreign law) as a transferor or
successor by contract or otherwise.
(i) There has been no ownership change, as defined in Section 382(g) of
the Code (or any comparable provision of state, local or foreign law), with
respect to the Company during or after any taxable period in which the Company
incurred a net operating loss. Schedule 4.8(i) sets forth the amount of any net
operating loss, net capital loss, net-unrealized built-in loss (as defined under
Section 382 of the Code), unused investment or other credit, unused foreign tax
or excess charitable contribution allocable to the Company.
(j) The Company has never claimed or had in effect a valid election under
Section 1362(a) of the Code to be treated as an S corporation within the meaning
of Section 1361(a) of the Code (and any corresponding provisions of all
applicable state and local income tax laws). Neither the Company nor the
Holders has taken action or failed to take action that could result in the
inaccuracy of the immediately preceding sentence.
(k) The Company does not have any unpaid liability for Taxes under
Sections 1363(d), 1374, or 1375 of the Code (or any successor or predecessor
provision) or any similar provision of state or local law for any period on or
prior to or including the Closing Date.
(l) "Taxes" shall mean (A) all foreign, federal, state, county or local
taxes, charges, fees, levies, imposts, duties and other assessments, including
any income, alternative minimum or add-on, estimated, gross income, gross
receipts, sales, use, transfer, transactions, intangibles, ad valorem, value-
added, franchise, registration, title, license, capital, paid-up capital,
profits, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, real property, recording, personal property, federal highway use,
commercial rent, environmental (including taxes under Section 59A of the Code)
or windfall profit tax, custom, duty or other tax, governmental fee or other
like assessment or charge of any kind whatsoever, together with any interest,
penalties or additions to tax; (B) any liability for payment of amounts
described in clause (A) whether as a result of transferee liability, of
-17-
being a member of an affiliated, consolidated, combined or unitary group for any
period, or otherwise through operation of law; and (C) any liability for the
payment of amounts described in clauses (A) or (B) as a result of any tax
sharing, tax indemnity or tax allocation agreement or any other express or
implied agreement to indemnify any other person; and "Tax" means any of the
foregoing Taxes.
(m) "Tax Returns" means any return, declaration, report, claim for refund,
information return, statement or other similar document, including any schedule
or attachment thereto, and including any amendment thereof required to be filed
with respect to Taxes.
4.9 Property
(a) Schedule 4.9(a) contains a complete and accurate list of all real
property that the Company leases, rents or uses (the "Real Property"). The
Company owns no real property other than the leasehold interests described on
Schedule 4.9. The Company has delivered to AVT true and complete copies of all
leases, subleases, rental agreements, contracts of sale, tenancies or licenses
relating to the Real Property.
(b) The Company's leasehold interest in each parcel of Real Property is
free and clear of all liens, mortgages, pledges, deeds of trust, security
interests, conditional sales agreements, charges, encumbrances and other adverse
claims or interests of any kind (each an "Encumbrance"). Each lease of any
portion of the Real Property is valid, binding and enforceable in accordance
with its terms against the parties thereto and, to the knowledge of the Company
and the Holders, against all other Persons with an interest in such Real
Property; the Company has performed all material obligations imposed on it
thereunder; and neither the Company nor, the knowledge of the Company and the
Holders, any other party thereto is in default thereunder nor is there any event
that with the giving of notice or lapse of time, or both, would constitute a
default thereunder. Except as set forth on Schedule 4.9(b), no consent is
required from any Person under any lease of the Real Property in connection with
the consummation of the transactions contemplated hereby, and the Company has
not received notice that any party to any such lease intends to cancel,
terminate or refuse to renew the same or to exercise or decline to exercise any
option or other right thereunder. The Company has not granted any lease,
sublease, tenancy or license of, or entered into any rental agreement or
contract of sale with respect to, any portion of the Real Property.
(c) Schedule 4.9(c) contains a complete and accurate list of each item of
personal property having a value in excess of $1,000 that is owned, leased,
rented or used by the Company (the "Personal Property"), provided that such list
need not describe the Technology or the IP Rights (as defined in Sections
4.16(b) and 4.16(e), respectively). The Company has delivered to AVT true and
complete copies of all leases, subleases, rental agreements, contracts of sale,
tenancies or licenses of any portion of the Personal Property. The Real
Property and the Personal Property include all properties and assets (whether
real, personal or mixed, tangible or intangible) (other than, in the case of the
Personal Property,
-18-
property rights with an individual value of less than $1,000 and intellectual
property listed or described in Section 4.16) reflected in the November Balance
Sheet and all properties and assets purchased by the Company since the date of
the November Balance Sheet (except for such properties or assets sold since the
date of the November Balance Sheet in the ordinary course of business and
consistent with past practice). The Real Property and the Personal Property
include all property used in the Company's business as presently conducted;
provided, however, that for the Personal Property, this representation is only
made with respect to property having an individual value in excess of $1,000.
(d) The plants, structures and Personal Property are in good operating
condition and repair (at a level consistent with industry standards, normal wear
and tear excepted), are adequate for the uses to which they are being put and
comply with material applicable safety and other laws and regulations.
(e) Except for (i) assessments for current Taxes not yet due and payable,
(ii) landlord's liens for rental payments and other lease-related performance in
respect of the Real Property incurred in the ordinary course of business and not
yet due and payable, and (iii) mechanics', materialmen's, carriers' and other
similar liens securing indebtedness that is in the aggregate less than $1,000,
was incurred in the ordinary course of business and is not yet due and payable,
the Personal Property is free and clear of all Encumbrances, and, other than
leased Personal Property as noted on Schedule 4.9(e), the Company owns such
Personal Property.
(f) Each lease, license, rental agreement, contract of sale or other
agreement to which the Personal Property is subject is valid, binding and
enforceable in accordance with its terms against the parties thereto, the
Company has performed all material obligations imposed on it thereunder and
neither the Company nor, the knowledge of the Company and the Holders, any other
party thereto is in default thereunder, nor is there any event that with the
giving of notice or lapse of time, or both, would constitute a default
thereunder. No consent is required from the owner or lessor under any lease of
Personal Property in connection with the consummation of the transactions
contemplated hereby, and the Company has not received notice that any party to
any such lease, license, rental agreement, contract of sale or other agreement
intends to cancel, terminate or refuse to renew the same or to exercise or
decline to exercise any option or other right thereunder. The Company has not
granted any leases, subleases, tenancies or licenses of any portion of the
Personal Property.
(g) Neither the whole nor any portion of the leaseholds or any other
assets or property of the Company is subject to any currently outstanding
governmental decree or order to be sold or is being condemned, expropriated or
otherwise taken by any public authority with or without payment of compensation
therefor nor, the knowledge of the Company and the Holders, has any such
condemnation, expropriation or taking been proposed.
-19-
4.10 Contracts
Schedule 4.10 contains a complete and accurate list of all material
contracts, oral or written, to which the Company is a party or by which the
Company is bound, including, without limitation, security agreements, license
agreements, credit agreements, instruments relating to the borrowing of money,
purchase contracts, sale contracts and broker or distributorship agreements;
provided, however, that Schedule 4.10 need not include purchase orders received
by the Company from its customers or issued by the Company to its suppliers and
vendors in the ordinary course of business involving less than $10,000. Except
as set forth on Schedule 4.10, all contracts set forth in such Schedule are
valid, binding and enforceable in accordance with their terms against each party
thereto and are in full force and effect; the Company has performed all material
obligations imposed on it thereunder; and neither the Company nor, to the
knowledge of the Company or the Holders, any other party thereto is in default
thereunder, nor is there any event that with the giving of notice or lapse of
time, or both, would constitute a default thereunder. True and complete copies
of each such contract or, in the case of oral contacts, written summaries
thereof, have been delivered to AVT. Except as set forth on Schedule 4.10, the
Company does not have, is not a party to nor is it bound by:
(a) any collective bargaining agreements,
(b) any agreements or arrangements that contain any severance pay or
post-employment liabilities or obligations,
(c) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(d) any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or any consulting or
sales agreement, contract or commitment under which any firm or other
organization provides services to the Company,
(e) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement,
(f) any fidelity or surety bond or completion bond,
(g) any lease of personal property having a value individually in
excess of $10,000,
(h) any agreement of indemnification or guaranty,
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(i) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business anywhere
in the world or to compete with any person,
(j) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $10,000,
(k) any agreement, contract or commitment relating to the disposition
or acquisition of assets or any interest in any business enterprise outside the
ordinary course of the Company's business,
(l) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit, including guaranties referred to in clause (h) hereof,
(m) any purchase order or contract for the purchase of raw materials
involving $10,000 or more,
(n) any construction contracts,
(o) any distribution, joint marketing or development agreement,
(p) any agreement pursuant to which the Company has granted or may
grant in the future, to any party, a source-code license or option or other
right to use or acquire source-code,
(q) any noncompetition or nonsolicitation agreement with any employee
or other third party, or
(r) any other agreement, contract or commitment that involves $25,000
or more or is not cancelable without penalty within thirty (30) days.
Except as set forth on Schedule 4.10, no consent is required from any
Person under any contract, agreement, arrangement or understanding set forth on
Schedule 4.10 in connection with the consummation of the transactions
contemplated by this Agreement, and the Company has not received notice, and is
not otherwise aware, that any party to any such contract, agreement, arrangement
or understanding intends to cancel, terminate or refuse to renew such contract,
agreement, arrangement or understanding or to exercise or decline to exercise
any option or right thereunder.
4.11 Customers and Suppliers
Schedule 4.11 sets forth (a) a list of the Company's customers which
accounted for, directly or indirectly, 2% or more of the Company's sales during
the fiscal year ended December 31, 1999 and the eleven months ended November 30,
2000, showing the
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approximate total sales by the Company to each such customer during such
periods, and (b) a current list of the Company's suppliers from whom the Company
purchased more than 5% of its goods and services during the fiscal year ended
December 31, 1999 and the eleven months ended November 30, 2000. The Company has
no basis to expect any material modification to its relationship with any
customer or supplier listed on Schedule 4.11.
4.12 Orders, Commitments and Returns
The Company's total backlog of orders (including all accepted and
unfulfilled sales orders) as of the date hereof was not materially less than the
amount set forth on Schedule 4.12, and the aggregate of all purchase orders
issued by the Company (which include all contracts or commitments for the
purchase by the Company of materials or other supplies) at such date was not
substantially more than the amount set forth on Schedule 4.12. All such sales
and purchase commitments were made in the ordinary course of business.
Schedule 4.12 sets forth the Company's warranties currently made with
respect to its business, products and services, and current policies with
respect to returns of products in the course of the Company's conduct of the
business. As of the date hereof, there are no outstanding claims against the
Company to return in excess of an aggregate of $10,000 of merchandise by reason
of alleged overshipments, defective merchandise, missed delivery dates,
incorrect quantities or otherwise, or of merchandise in the hands of customers
under an understanding that such merchandise would be returnable.
4.13 Claims and Legal Proceedings
There are no pending claims, actions, suits, arbitrations, proceedings or
investigations involving or, to the knowledge of the Company and the Holders,
threatened against, the Company before or by any court or governmental or
nongovernmental department, commission, board, bureau, agency or
instrumentality, or any other Person. To the knowledge of the Company and the
Holders, there is no valid basis for any claim, action, suit, arbitration,
proceeding or investigation materially adverse to the Company's business,
business prospects, assets, operations or condition (financial or other) before
or by any Person. There are no outstanding or unsatisfied judgments, orders,
decrees or stipulations to which the Company is a party that involve the
transactions contemplated hereby or that would have a Company Material Adverse
Effect.
4.14 Labor Matters
There are no labor disputes, employee grievances or disciplinary actions
pending or, to the knowledge of the Company and the Holders, threatened
involving the Company or any of its present or former employees. The Company
has complied with all material provisions of law relating to employment and
employment practices, terms and conditions of employment, wages and hours. The
Company is not engaged in any unfair labor practice and has no material
liability for any arrears of wages or Taxes or penalties for failure to comply
with any such provisions of law. There is no labor strike, dispute, slowdown or
stoppage
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pending or, to the knowledge of the Company and the Holders, threatened against
or affecting the Company, and the Company has not experienced any work stoppage
or other material labor difficulty. No collective bargaining agreement is
binding on the Company. The Holders and the Company have no knowledge of any
organizational efforts presently being made or threatened by or on behalf of any
labor union with respect to employees of the Company, and the Company has not
been requested by any group of employees or others to enter into any collective
bargaining agreement or other agreement with any labor union or other employee
organization. Each current and former employee who was employed by the Company
at any time during the four year preceding the Closing Date, officer of, and
consultant to, the Company has executed a nondisclosure agreement in the form
provided to AVT. To the knowledge of the Company and the Holders, no employee
(or person performing similar functions) of the Company is in violation of any
such agreement or any employment agreement, noncompetition agreement, patent
disclosure agreement, invention assignment agreement, proprietary information
agreement or other contract or agreement relating to the relationship of such
employee with the Company or any other party.
4.15 Employee Benefit Plans
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "COBRA" means the health care continuation provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (as set forth
in Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code).
(ii) "DOL" means the United States Department of Labor.
(iii) "Employee Benefit Plan" means any retirement, pension, profit
sharing, deferred compensation, stock bonus, savings, bonus, incentive,
cafeteria, medical, dental, vision, hospitalization, life insurance, accidental
death and dismemberment, medical expense reimbursement, dependent care
assistance, tuition reimbursement, disability, sick pay, holiday, vacation,
severance, change of control, stock purchase, stock option, restricted stock,
phantom stock, stock appreciation rights, fringe benefit or other employee
benefit plan, fund, policy, program, contract, arrangement or payroll practice
(including any "employee benefit plan," as defined in Section 3(3) of ERISA) or
any employment, consulting or personal services contract, whether written or
oral, qualified or nonqualified, funded or unfunded, or domestic or foreign, (A)
sponsored, maintained or contributed to by the Company or to which the Company
is a party, (B) covering or benefiting any current or former officer, employee,
agent, director or independent contractor of the Company (or any dependent or
beneficiary of any such individual), or (C) with respect to which the Company
has (or could have) any obligation or liability.
(iv) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
-23-
(v) "HIPAA" means the Health Insurance Portability and
Accountability Act of 1997, as amended.
(b) Schedule 4.15 contains a complete and accurate list of all Employee
Benefit Plans. The Company does not have any agreement, arrangement, commitment
or obligation, whether formal or informal, whether written or unwritten and
whether legally binding or not, to create, enter into or contribute to any
additional Employee Benefit Plan, or to modify or amend any existing Employee
Benefit Plan. There has been no amendment, interpretation or other announcement
(written or oral) by the Company or any other Person relating to, or change in
participation or coverage under, any Employee Benefit Plan that, either alone or
together with other such items or events, could materially increase the expense
of maintaining such Employee Benefit Plan (or the Employee Benefit Plans taken
as a whole) above the level of expense incurred with respect thereto for the
most recent fiscal year included in the Company Financial Statements. The terms
of each Employee Benefit Plan permit the Company to amend or terminate such
Employee Benefit Plan at any time and for any reason without penalty and without
material liability or expense. None of the rights of the Company under any
Employee Benefit Plan will be impaired in any way by this Agreement or the
consummation of the transactions contemplated by this Agreement.
(c) The Company has delivered to AVT true, correct and complete copies
(or, in the case of unwritten Employee Benefit Plans, descriptions) of all
Employee Benefit Plans (and all amendments thereto), along with, to the extent
applicable to the particular Employee Benefit Plan, copies of the following: (i)
the last three annual reports (Form 5500 series) filed with respect to such
Employee Benefit Plan; (ii) all summary plan descriptions, summaries of material
modifications and all employee manuals or communications filed or distributed
with respect to such Employee Benefit Plan during the last three years; (iii)
all contracts and agreements (and any amendments thereto) relating to such
Employee Benefit Plan, including, without limitation, trust agreements,
investment management agreements, annuity contracts, insurance contracts, bonds,
indemnification agreements and service provider agreements; (iv) the most recent
determination letter issued by the IRS with respect to such Employee Benefit
Plan; (v) all written communications relating to the amendment, creation or
termination of such Employee Benefit Plan, or an increase or decrease in
benefits, acceleration of payments or vesting or other events that could result
in liability to the Company since the date of the most recently completed and
filed annual report; (vi) all correspondence to or from any governmental entity
or agency relating to such Employee Benefit Plan; (vii) samples of all
administrative forms currently in use, including, without limitation, all COBRA
and HIPAA forms and notices; (viii) all coverage, nondiscrimination, top heavy
and Code Section 415 tests performed with respect to such Employee Benefit Plan
for the last three years; and (ix) the most recent registration statement,
annual report (Form 11-K) and prospectus prepared in connection with such
Employee Benefit Plan.
(d) With respect to each Employee Benefit Plan: (i) such Employee Benefit
Plan is, and at all times since inception has been, maintained, administered,
operated and funded in all respects in accordance with its terms and in
compliance with all applicable requirements
-24-
of all applicable laws, statutes, orders, rules and regulations, including,
without limitation, ERISA, COBRA, HIPAA and the Code; (ii) the Company and all
other Persons (including, without limitation, all fiduciaries) have, at all
times, properly performed all of their duties and obligations under or with
respect to such Employee Benefit Plan (whether such duties and obligations arise
by operation of law or by contract), including, without limitation, all
reporting, disclosure and notification obligations; (iii) all Returns and other
information relating to such Employee Benefit Plan required to be filed with any
governmental entity or agency have been accurately completed and timely and
properly filed; (iv) all notices, statements, reports and other disclosure
required to be given or made to participants in such Employee Benefit Plan or
their beneficiaries have been accurately completed and timely and properly
disclosed or provided; (v) neither the Company nor any fiduciary of such
Employee Benefit Plan has engaged in any transaction or acted or failed to act
in a manner that violates the fiduciary requirements of ERISA or any other
applicable law; (vi) no transaction or event has occurred or is threatened or
about to occur (including any of the transactions contemplated in or by this
Agreement) that constitutes or could constitute a prohibited transaction under
Section 406 or 407 of ERISA or under Section 4975 of the Code for which an
exemption is not available; and (vii) the Company has not incurred, and there
exists no condition or set of circumstances in connection with which the
Company, the Surviving Corporation or AVT could incur, directly or indirectly,
any material liability or expense (except for routine contributions and benefit
payments) under ERISA, the Code or any other applicable law, statute, order,
rule or regulation, or pursuant to any indemnification or similar agreement,
with respect to such Employee Benefit Plan.
(e) Each Employee Benefit Plan that is intended to be qualified under
Section 401(a) of the Code is, and at all times since inception has been, so
qualified and its related trust is, and at all times since inception has been,
exempt from taxation under Section 501(a) of the Code. Each such Employee
Benefit Plan either (i) is the subject of an unrevoked favorable determination
letter from the IRS with respect to such Employee Benefit Plan's qualified
status under the Code, as amended by the Tax Reform Act of 1986 and all
subsequent legislation, or (ii) has remaining a period of time under the Code or
applicable Treasury regulations or IRS pronouncements in which to apply to the
IRS for such a letter and to make any amendments necessary to obtain such a
letter from the IRS. No fact exists or is reasonably expected by the Company or
either of the Sellers to arise, that could adversely affect the qualification or
exemption of any such Employee Benefit Plan or its related trust. No such
Employee Benefit Plan is a "top-heavy plan," as defined in Section 416 of the
Code.
(f) All contributions, premiums and other payments due or required to be
paid to (or with respect to) each Employee Benefit Plan have been timely paid,
or, if not yet due, have been accrued as a liability on the November Balance
Sheet. All income taxes and wage taxes that are required by law to be withheld
from benefits derived under the Employee Benefit Plans have been properly
withheld and remitted to the proper depository.
-25-
(g) The Company is not, and has never been, a member of (i) a controlled
group of corporations, within the meaning of Section 414(b) of the Code, (ii) a
group of trades or businesses under common control, within the meaning of
Section 414(c) of the Code, (iii) an affiliated service group, within the
meaning of Section 414(m) of the Code, or (iv) any other group of Persons
treated as a single employer under Section 414(o) of the Code.
(h) The Company does not maintain or contribute to, and has never
maintained or contributed to (or been obligated to contribute to), (i) a
multiemployer plan as defined in Section 3(37) or Section 4001(a)(3) of ERISA or
414(f) of the Code, (ii) a multiple employer plan within the meaning of Section
4063 or 4064 of ERISA or Section 413(c) of the Code, (iii) an employee benefit
plan, fund, program, contract or arrangement that is subject to Section 412 of
the Code, Section 302 of ERISA or Title IV of ERISA, or (iv) a multiple employer
welfare arrangement as defined in Section 3(40) of ERISA.
(i) Neither the Company nor any Employee Benefit Plan provides or has any
obligation to provide (or contribute toward the cost of) post-employment or
post-termination benefits of any kind, including, without limitation, death and
medical benefits, with respect to any current or former officer, employee,
agent, director or independent contractor of the Company, other than (i)
continuation coverage mandated by Sections 601 through 608 of ERISA and Section
4980B(f) of the Code, (ii) retirement benefits under any Employee Benefit Plan
that is qualified under Section 401(a) of the Code, and (iii) deferred
compensation that is accrued as a current liability on the November Balance
Sheet.
(j) There are no actions, suits or claims (other than routine claims for
benefits) pending or, to the knowledge of the Company or either of the Holders,
threatened with respect to (or against the assets of) any Employee Benefit Plan,
nor, to the knowledge of the Company or either of the Holders, is there a basis
for any such action, suit or claim. No Employee Benefit Plan is currently under
investigation, audit or review, directly or indirectly, by the IRS, the DOL or
any other governmental entity or agency, and, to the knowledge of the Company
and each of the Holders, no such action is contemplated or under consideration
by the IRS, the DOL or any other governmental entity or agency.
(k) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated by this Agreement, will (i)
entitle any individual to severance pay, unemployment compensation or any other
payment from the Company, the Surviving Corporation, AVT or any Employee Benefit
Plan, (ii) otherwise increase the amount of compensation due to any individual,
(iii) result in any benefit or right becoming established or increased, or
accelerate the time of payment or vesting of any benefit, under any Employee
Benefit Plan, or (iv) require the Company, the Surviving Corporation or AVT to
transfer or set aside any assets to fund or otherwise provide for any benefits
for any individual.
4.16 Intellectual Property
(a) General. The Company owns or is licensed and has all rights in and
--------
to the following as required to conduct its business as now conducted and as
proposed to be
-26-
conducted: (i) all products, tools, computer programs, specifications, source
code, object code, graphics, devices, techniques, algorithms, methods,
processes, procedures, packaging, trade dress, formulae, drawings, designs,
improvements, discoveries, concepts, user interfaces, software, "look and feel,"
development and other tools, content, inventions (whether or not patentable or
copyrightable and whether or not reduced to practice), designs, logos, themes,
know-how, concepts and other technology that are now, or during the two years
prior to the date of this Agreement have been, or currently are proposed to be,
developed, produced, used, marketed or sold by the Company (collectively, the
"Technology-Related Assets"); and (ii) all intellectual property and other
proprietary rights in the Technology-Related Assets, including, without
limitation, all trade names, trademarks, domain names, service marks, logos,
brand names and other identifiers, trade secrets, copyrights and domestic and
foreign letters patent, and the registrations, applications, renewals,
extensions and continuations (in whole or in part) thereof, all goodwill
associated therewith and all rights and causes of action for infringement,
misappropriation, misuse, dilution or unfair trade practices associated
therewith.
(b) Company Technology. Schedule 4.16(b) sets forth a list of all
-------------------
products and tools developed, produced, used, marketed or sold by the Company
during the two years prior to the date of this Agreement, together with all
prior versions, predecessors or precursors to such products or tools
(collectively, the "Products"). Except for the Third Party Technologies (as
defined in Section 4.16(c)), the Company owns all right, title and interest in
and to the following (collectively, the "Technology"), free and clear of all
Encumbrances: (i) the Products, together with any and all codes, techniques,
software tools, formats, designs, user interfaces, content and "look and feel"
related thereto; (ii) any and all updates, enhancements, corrections,
modifications, improvements and new releases related to the items set forth in
clause (i) above; (iii) any and all technology and work in progress related to
the items set forth in clauses (i) and (ii) above; and (iv) all inventions,
discoveries, processes, designs, trade secrets, know-how and other confidential
or proprietary information related to the items set forth in clauses (i), (ii),
and (iii) above. The Technology, excluding the Third Party Technologies (as
defined below), is sometimes referred to herein as the "Company Technology."
(c) Third Party Technology. Schedule 4.16(c) sets forth a list of all
-----------------------
Technology used in the Company's business for which the Company does not own all
right, title and interest (collectively, the "Third Party Technologies"), and
all license agreements or other contracts pursuant to which the Company has the
right to use (in the manner used by the Company, or intended or necessary for
use with the Company Technology) the Third Party Technologies (the "Third Party
Licenses"), indicating, with respect to each of the Third Party Technologies
listed therein, the owner thereof and the Third Party License applicable
thereto. The Company has the lawful right to use (free of any material
restriction not expressly set forth in the Third Party Licenses) (i) all Third
Party Technology that is incorporated in or used in the development or
production of the Company Technology and (ii) all other Third Party Technology
necessary for the conduct of the Company's business as now conducted and as
proposed to be conducted in any written materials furnished by the Company to
AVT. All
-27-
Third Party Licenses are valid, binding and in full force and effect, the
Company and, to the knowledge of the Company and the Holders, each other party
thereto have performed in all material respects their obligations thereunder,
and neither the Company nor, to the knowledge of the Company and the Holders,
any other party thereto is in default thereunder, nor to the knowledge of the
Company and the Holders has there occurred any event or circumstance that with
notice or lapse of time or both would constitute a default or event of default
on the part of the Company or, to the knowledge of the Company and the Holders,
any other party thereto or give to any other party thereto the right to
terminate or modify any Third Party License. The Company has not received notice
that any party to any Third Party License intends to cancel, terminate or refuse
to renew (if renewable) such Third Party License or to exercise or decline to
exercise any option or right thereunder.
(d) Trademarks. Schedule 4.16(d) sets forth a list of all trademarks,
-----------
trade names, brand names, service marks, logos or other identifiers for the
Products or otherwise used by the Company in its business (the "Marks"). The
Company has full legal and beneficial ownership, free and clear of any
Encumbrances, of all rights conferred by use of the Marks in connection with the
Products or otherwise in the Company's business and, as to those Marks that have
been registered in the United States Patent and Trademark Office, by federal
registration of the Marks.
(e) Intellectual Property Rights. Schedule 4.16(e) sets forth all patents,
-----------------------------
patent applications, copyright registrations (and applications therefor) and
trademark registrations (and applications therefor) (collectively, the "IP
Registrations") associated with the Company Technology and the Marks. The
Company owns all right, title and interest, free and clear of any Encumbrances,
in and to the IP Registrations, together with any other rights in or to any
copyrights (registered or unregistered), rights in the Marks (registered or
unregistered), trade secret rights and other intellectual property rights
(including, without limitation, rights of enforcement) contained or embodied in
the Company Technology and the Marks (collectively, the "IP Rights").
(f) Maintenance of Rights. The Company has not conducted its business,
----------------------
and has not used or enforced (or, to the knowledge of the Company or the
Holders, failed to use or enforce) the IP Rights, in a manner that would result
in the abandonment, cancellation or unenforceability of any item of the IP
Rights or the IP Registrations, and the Company has not taken (or, to the
knowledge of the Company and the Holders, failed to take) any action that would
result in the forfeiture or relinquishment of any IP Rights or IP Registrations,
in each case where such abandonment, cancellation, unenforceability, forfeiture
or relinquishment would have a Company Material Adverse Effect. Except as set
forth in Schedule 4.16(f), the Company has not granted to any third party any
rights or permissions to use any of the Technology or the IP Rights. To the best
of the Company's knowledge, except pursuant to reasonably prudent safeguards,
(i) no third party has received any confidential information relating to the
Technology or the IP Rights and (ii) the Company is not under any contractual or
other obligation to disclose to any third party any Company Technology.
-28-
(g) Third Party Claims. (i) The Company has not received any notice or
-------------------
claim (whether written, oral or otherwise) challenging the Company's ownership
or rights in the Company Technology or the IP Rights or claiming that any other
person or entity has any legal or beneficial ownership with respect thereto;
(ii) all the IP Rights are legally valid and enforceable without any material
qualification, limitation or restriction on their use, and the Company has not
received any notice or claim (whether written, oral or otherwise) challenging
the validity or enforceability of any of the IP Rights; and (iii) to the
knowledge of the Company and the Holders, no other person or entity is
infringing or misappropriating any part of the IP Rights or otherwise making any
unauthorized use of the Company Technology.
(h) Infringement by the Company. (i) The use of any of the Technology in
----------------------------
the Company's business does not and will not infringe, violate or interfere with
or constitute an appropriation of any right, title or interest (including,
without limitation, any patent, copyright or trade secret right) held by any
other person or entity, and there have been no claims made with respect thereto;
(ii) the use of any of the Marks and other IP Rights in the Company's business
will not infringe, violate or interfere with or constitute an appropriation of
any right, title or interest (including, without limitation, any patent,
copyright, trademark or trade secret right) held by any other person or entity,
and there have been no claims made with respect thereto; and (iii) the Company
has not received any notice or claim (whether written, oral or otherwise)
regarding any infringement, misappropriation, misuse, abuse or other
interference with any third party intellectual property or proprietary rights
(including, without limitation, infringement of any patent, copyright, trademark
or trade secret right of any third party) by the Company, the Technology or the
Marks or other IP Rights, or claiming that any other entity has any claim of
infringement with respect thereto.
(i) Confidentiality. (i) The Company has not disclosed any source code
----------------
regarding the Technology to any person or entity other than an employee of the
Company who is under a written nondisclosure agreement; (ii) the Company has at
all times maintained and diligently enforced commercially reasonable procedures
to protect all confidential information relating to the Technology; (iii)
neither the Company nor any escrow agent is under any contractual or other
obligation to disclose the source code or any other proprietary information
included in or relating to the Technology; and (iv) the Company has not
deposited any source code relating to the Technology into any source code
escrows or similar arrangements. If, as disclosed on Schedule 4.16(i) the
Company has deposited any source code to the Technology into source code escrows
or similar arrangements, no event has occurred that has or could reasonably form
the basis for a release of such source code from such escrows or arrangements.
(j) Warranty Against Defects. The Technology is free from known material
-------------------------
defects and substantially conforms to the applicable specifications,
documentation and samples of such Technology.
(k) Domain Names. Schedule 4.16(k) sets forth a list of all Internet
-------------
domain names used by the Company in its business (collectively, the "Domain
Names"). The
-29-
Company has, and after the Closing the Surviving Corporation will have, a valid
registration and all material rights (free of any material restriction) in and
to the Domain Names, including, without limitation, all rights necessary to
continue to conduct the Company's business as it is currently conducted.
(l) Year 2000. Each hardware, software and firmware product used by the
----------
Company in its business (collectively, the "Software") will accurately process
date data (including, but not limited to, calculating, comparing and sequencing)
from, into and between the twentieth and twenty-first centuries, including,
without limitation, leap year calculations, without a decrease in the
functionality of the Software. The Software is designed to be used prior to,
during and after the calendar year 2000 A.D. and will operate during each such
time period without error relating to date data, specifically including any
error relating to, or the product of, date data that represents or references
different centuries or more than one century. Without limiting the generality
of the foregoing, the Software (i) will not abnormally end or provide invalid or
incorrect results as a result of date data, specifically including date data
that represents or references different centuries or more than one century; (ii)
has been designed to ensure year 2000 compatibility, including, but not limited
to, date data century recognition, calculations that accommodate same century
and multi-century formulas and date values, and date data interface values that
reflect the century; and (iii) includes "Year 2000 Capabilities," meaning that
the Software (A) will manage and manipulate data involving dates, including
single century formulas and multicentury formulas, and will not cause an
abnormally ending scenario within the application or generate incorrect values
or invalid results involving such dates; (B) provides that all date-related user
interface functionalities and data fields include the indication of century; and
(C) provides that all date-related data interface functionalities include the
indication of century.
(m) Indemnification. The Company has not entered into any agreement or
----------------
offered to indemnify any Person against any charge of infringement by the
Technology or IP Rights, or any other intellectual property or right. The
Company has not entered into any agreement granting any Person the right to
bring any infringement action with respect to, or otherwise to enforce, any of
the Technology or IP Rights.
(n) Restrictions on Intellectual Property. None of the Company's
--------------------------------------
officers, employees, consultants, distributors, agents, representatives or
advisors has entered into any agreement relating to the Company's business
regarding know-how, trade secrets, assignment of rights in inventions, or
prohibition or restriction of competition or solicitation of customers, or any
other similar restrictive agreement or covenant, whether written or oral, with
any Person other than the Company.
4.17 Accounts Receivable
All accounts receivable of the Company reflected in the Company Balance
Sheet, or existing at the Closing, represent sales actually made in the ordinary
course of business. The Company's bad debt reserves and sales return allowances
as reflected in the November
-30-
Balance Sheet are adequate. Set forth on Schedule 4.17 is a full and complete
list of all accounts receivable of the Company existing as of November 30, 2000.
In addition, a current complete list of all accounts receivable of the Company
will be delivered to AVT immediately prior to the Closing. All accounts existing
and remaining unpaid at the time of Closing will be collectible by AVT or
Acquisition Sub, as the case may be, in the ordinary course of business
consistent with past practice.
4.18 Inventory
Subject to such reserves and write-downs as may be reflected in the
Company Financial Statements, all items of inventory reflected in the November
Balance Sheet or as currently owned by the Company are of a quality and quantity
usable and salable in the ordinary course of business. Such inventory consists
of materials and supplies used or sold in the Company's business.
4.19 Corporate Books and Records
The Company has furnished to AVT or its representatives for their
examination true and complete copies of its (a) Articles of Incorporation and
Bylaws, including all amendments thereto, (b) minute books, and (c) stock
transfer books. Such minutes reflect all meetings of the Company's
stockholders, Board of Directors and any committees thereof since the Company's
inception, and such minutes accurately reflect the events of and actions taken
at such meetings. Such stock transfer books accurately reflect all issuances
and transfers of shares of capital stock of the Company since its inception.
4.20 Licenses, Permits, Authorizations, Etc.
The Company has received all currently required governmental approvals,
authorizations, consents, licenses, orders, registrations and permits of all
agencies, whether federal, state, local or foreign, the failure to obtain which
might, in the aggregate, have a Company Material Adverse Effect. The Company
has not received any notifications of any asserted present failure by it to have
obtained any such governmental approval, authorization, consent, license, order,
registration or permit, or past and unremedied failure to obtain such items.
4.21 Compliance With Laws; Environmental Matters
(a) The Company is and has been in compliance with all federal, state,
local and foreign laws, rules, regulations, ordinances, decrees and orders
applicable to the operation of its business, to its employees, or to its
property, including, without limitation, all such laws, rules, ordinances,
decrees and orders relating to antitrust, consumer protection, currency
exchange, environmental protection, equal opportunity, health, occupational
safety, good laboratory practices, pension, securities and trading-with-the-
enemy matters. The Company has not received any notification of any asserted
present or past unremedied failure by the Company to comply with any of such
laws, rules, ordinances, decrees or orders.
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(b) To the knowledge of the Company and/or the Holders, the Company is not
in violation of, and has not violated, in connection with the ownership, use,
maintenance or operation of the Real Property or the Personal Property or the
conduct of its business, any applicable foreign, federal, state, county and
local statutes, laws, regulations, guidances, rules, ordinances, codes,
licenses, permits, judgments, writs, decrees, injunctions or orders of any
governmental entity relating to environmental (air, water, groundwater, soil,
natural resource, noise and odor) matters, including, by way of illustration and
not by way of limitation, the Clean Air Act, the Federal Water Pollution Control
Act, the Resource Conservation and Recovery Act and the regulations issued
thereunder, the Comprehensive Environmental, Response, Compensation, and
Liability Act, the Clean Water Act, the Hazardous Materials Transportation Act,
the Toxic Substances Control Act, the Hazardous Waste Control Act, the Model
Toxics Control Act and other comparable federal, state and local laws, and the
regulations issued thereunder (collectively, "Environmental Laws").
(c) To the knowledge of the Company and/or the Holders, the Company has
not transported, stored, treated, recycled, handled or disposed of, or allowed
or arranged for any third party to transport, store, treat, recycle, handle or
dispose of (i) any flammable substances, explosives, radioactive materials,
hazardous substances, hazardous wastes, toxic substances, pollutants,
contaminants or any wastes, materials or substances identified in or regulated
by any Environmental Laws; (ii) asbestos, polychlorinated biphenyls, urea
formaldehyde, nuclear fuel or material, chemical waste, carcinogens and radon,
all to the extent regulated by any Environmental Laws; and (iii) gasoline, oil
and other petroleum products (all of the foregoing collectively, "Regulated
Substances"), to or at any location in violation of any Environmental Laws.
(d) To the knowledge of the Company and/or the Holders, no part of the
Real Property, including, but not limited to, all surface and subsurface soil,
sediments, groundwater and surface water located on, in or under the Real
Property, was or is contaminated with any Regulated Substances or constituents
thereof, which contamination has given or may give rise to any obligation of the
Company under any applicable Environmental Laws, the common law or otherwise. To
the knowledge of the Company and/or the Holders, no real property adjacent to or
adjoining the Real Property has been or is being so contaminated. There are no
Regulated Substances (other than gasoline, oil or other petroleum products as
described on Disclosure Schedule 4.21(d)) present in or on the Real Property or
in any equipment located therein.
(e) The Company has reported, recorded or filed, and has provided to AVT,
true, accurate and complete copies of all reports with respect to any spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
migrating, leaching, dumping or disposing into the environment (including the
abandonment or discarding of drums, barrels, containers or other closed
receptacles) (any of the foregoing, a "Release"), required by applicable
Environmental Laws to be filed by the Company with any government authority.
The Company has maintained all environmental and operating documents and records
in the manner and for the time periods required by applicable Environmental
Laws.
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(f) The Company has not caused or permitted the Release of any Regulated
Substances or constituents thereof on, from or off-site of its Real Property, or
of any Release from any facility owned or operated by third parties but with
respect to which the Company is alleged to have liability, including, but not
limited to, liability for personal injury, cleanup or restoration, which Release
caused or could reasonably be Expected to cause a material loss to the Company.
(g) To the knowledge of the Company and/or the Holders, there are no
tanks which, when considered with all associated piping, are underground storage
tanks located either wholly or partially below the surface of the ground, and,
without regard to whether they are in contact with soil, within a building or
containment structure or otherwise are located in, on or under the Real
Property.
(h) The manner in which the Company has manufactured, packaged, shipped,
advertised, labeled and sold its products complies with all applicable laws and
regulations pertaining thereto, the failure to comply with which would have a
Company Material Adverse Effect.
4.22 Insurance
Schedule 4.22 sets forth a true and correct list of all insurance policies
maintained by the Company. The Company maintains (a) insurance on all of its
property (including leased premises) that insures against loss or damage by fire
or other casualty (including extended coverage) and (b) insurance against
liabilities, claims and risks of a nature and in such amounts as are normal and
customary in the Company's industry. All insurance policies of the Company are
in full force and effect, all premiums covering all periods up to and including
the Closing have been paid, and no notice of cancellation or termination has
been received with respect to any such policy or binder. Such policies or
binders are sufficient for compliance with all requirements of law currently
applicable to the Company and of all agreements to which the Company is a party,
will remain in full force and effect through the respective expiration dates of
such policies or binders without the payment of additional premiums, and will
not in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement. The Company has not been refused
any insurance with respect to its respective assets or operations, nor has its
coverage been limited, by any insurance carrier to which it has applied for any
such insurance or with which it has carried insurance.
4.23 Brokers and Finders
The Company represents and warrants that no director, officer, agent or
employee acting on its behalf or on behalf of the Holders has retained any
broker or finder in connection with the transactions contemplated hereby.
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4.24 Government Contracts
The Company has never been suspended or debarred from bidding on contracts
or subcontracts for any agency of the U.S. government or any foreign government,
nor has such suspension or debarment been threatened or action for suspension or
debarment been commenced. The Company has not been nor is it now being audited
or, to its knowledge, investigated by the United States Government Accounting
Office, the United States Department of Justice, the United States Department of
Defense or any of its agencies, the Defense Contract Audit Agency or the
inspector general or other authorities of any agency of the U.S. government or
any foreign government (each, a "Government Contract Authority"), nor, to the
knowledge of the Company and Holders, has such audit or investigation been
threatened. To the knowledge of the Company and the Holders, there is no valid
basis for the Company's suspension or debarment from bidding on contracts or
subcontracts for any agency of the U.S. government, and there is no valid basis
for a claim pursuant to an audit or investigation by any Government Contract
Authority. The Company has never had a contract or subcontract terminated for
default or been determined to be nonresponsible by any agency of the U.S.
government or any foreign government. The Company has no outstanding
agreements, contracts or commitments that require it to obtain or maintain a
government security clearance.
4.25 Absence of Questionable Payments
Neither the Company nor any director, officer, agent, employee or other
Person acting on its behalf has to the knowledge of the Company and the Holders
used any Company funds for improper or unlawful contributions, payments, gifts
or entertainment, or made any improper or unlawful expenditures relating to
political activity to government officials or others. The Company has adequate
financial controls to prevent such improper or unlawful contributions, payments,
gifts, entertainment or expenditures. Neither the Company nor any current
director, officer, agent, employee or other Person acting on its behalf has
accepted or received any improper or unlawful contributions, payments, gifts or
expenditures. The Company has at all times complied, and is in compliance in
all respects, with the applicable provisions of the U.S. Foreign Corrupt
Practices Act, as amended, and other applicable domestic and foreign laws and
regulations relating to corrupt practices and similar matters.
4.26 Personnel
Schedule 4.26 sets forth a true and complete list of: (a) the names and
current salaries of all directors and officers of the Company and the family
relationships, if any, among such persons and (b) the wage rates for nonsalaried
and nonexecutive salaried employees of the Company by classification.
4.27 Bank Accounts
Schedule 4.27 sets forth the names and locations of all banks, trust
companies, savings and loan associations and other financial institutions at
which the Company
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maintains safe deposit boxes or accounts of any nature and the names of all
Persons authorized to make withdrawals therefrom, draw thereon or have access
thereto.
4.28 Insider Interests
The Company represents and warrants that no officer, director or key
employee of the Company has any interest in (a) any property, real or personal,
tangible or intangible, used in or directly pertaining to the Company's
business, including, without limitation, inventions, patents, trademarks, trade
names or other intellectual property, or (b) any agreement, contract,
arrangement or obligation relating to the Company, its present or prospective
business or its operations, except for employment agreements or any agreement to
be entered into between any officer and AVT at the Closing. None of the
officers or directors is indebted to the Company, and the Company is not
indebted to any officer or director, except for indebtedness relating to
compensation for employment, including salary, benefits and reimbursements for
business expenses incurred and payable by the Company in the normal course of
business. None of the Company's officers and, to the Company's knowledge, none
of the Company's employees, consultants, distributors or agents has entered into
any agreement regarding know-how, trade secrets, assignment of rights in
inventions, or prohibition or restriction of competition or solicitation of
customers, or any other similar restrictive agreement or covenant, whether
written or oral, with any Person other than the Company that would materially
and adversely affect the ability of such officer, employee, consultant,
distributor or agent to perform its services and/or fulfill any obligations to
the Company. To the knowledge of the Company and/or the Holders, neither the
Company nor any of its officers, directors, employees, contractors or
consultants has any interest, either directly or indirectly, in any entity that
presently (i) provides any services, produces and/or sells any products or
product lines, or engages in any activity that is the same, similar to or
competitive with any activity or business in which the Company is now engaged or
proposes to engage or (ii) is a supplier, customer or creditor, or has an
existing contractual relationship with any of the Company's employees (or
persons performing similar functions).
4.29 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
The Company is its own ultimate parent entity as defined under the rules
and regulations promulgated under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended (the "HSR Act"). The Company is not a $10 million
person as defined thereunder. The Company is not "engaged in manufacturing" for
purposes of the HSR Act.
4.30 Full Disclosure
No information furnished by the Company or the Holders to AVT in
connection with this Agreement (including, but not limited to, the Company
Financial Statements and all information in the Schedules and Exhibits hereto)
contains any untrue statement of a material fact or omits any statement required
to make the statements made, in light of the circumstances in which they were
made, not misleading.
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ARTICLE V - REPRESENTATIONS AND
WARRANTIES OF AVT AND ACQUISITION SUB
AVT and Acquisition Sub represent and warrant to the Company and the
Holders, which representations and warranties will survive the Closing to the
extent provided herein, as follows:
5.1 Organization, Good Standing, Power, Etc.
Each of AVT and Acquisition Sub is a corporation duly organized and validly
existing under the laws of the state of Washington. Each of AVT and Acquisition
Sub has full corporate power and authority to enter into this Agreement and the
other Transaction Documents to be entered into pursuant hereto and to carry out
the transactions contemplated hereby and thereby. This Agreement has been, and
each of such other Transaction Documents on the Closing will be, duly executed
and delivered by AVT or Acquisition Sub, and this Agreement is, and each of the
other agreements to which AVT or Acquisition Sub is a party will be on the
Closing, a legal, valid and binding obligation of AVT or Acquisition Sub,
enforceable against AVT or Acquisition Sub in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting the rights of creditors generally, and general equitable
principles, including, but not limited to, those relating to the availability of
the remedy of specific performance.
5.2 No Approvals or Notices Required; No Conflicts With Instruments
The execution, delivery and performance of this Agreement and the other
Transaction Documents by AVT and Acquisition Sub, as applicable, pursuant
hereto and the consummation of the transactions contemplated hereby and thereby
will not (a) constitute a violation (with or without the giving of notice or
lapse of time, or both) of any provision of law or any judgment, decree, order,
regulation or rule of any court, agency or other governmental authority
applicable to AVT or Acquisition Sub, (b) require any consent, approval or
authorization of, or declaration, filing or registration with, any Person, or
(c) conflict with or result in a breach of or constitute a default under any
provision of AVT's or Acquisition Sub's Articles of Incorporation or bylaws,
which, in any of the foregoing cases, might materially and adversely affect the
ability of AVT to pay the Merger Consideration or the ability of AVT or
Acquisition Sub to meet their obligations hereunder.
5.3 Capital Structure
(a) The authorized stock of AVT consists of 60,000,000 shares of Common
Stock, of which 30,697,543 shares were issued and outstanding as of October 28,
2000, and 2,000,000 shares of Preferred Stock, of which no shares are issued or
outstanding as of the date hereof. The authorized capital stock of Acquisition
Sub consists of 1,000 shares of Common Stock, all of which, as of the date
hereof, are issued and outstanding and are held by AVT. All such shares of AVT
and Acquisition Sub have been duly authorized, and all such issued and
outstanding shares are validly issued, fully paid and nonassessable.
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(b) The shares of AVT Common Stock to be issued pursuant to the Merger,
when issued, will be duly authorized, validly issued, fully paid and
nonassessable.
5.4 SEC Documents
AVT has made available to the Holders true and complete copies of its
Annual Report on Form 10-K for the fiscal year ending December 31, 1999, its
Quarterly Reports on Form 10-Q for the fiscal quarters ending March 31, 2000,
June 30, 2000 and September 30, 2000, all Forms 8-K filed after the date of the
last of the Form 10-K or Forms 10-Q, and its Proxy Statement relating to its
2000 Annual Meeting of Shareholders (collectively, the "SEC Documents"). As of
their respective filing dates, each of the SEC Documents complied in all
material respects with the requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations of the Securities
and Exchange Commission promulgated thereunder.
5.5 No Material Adverse Change
Since the date of the balance sheet included in AVT's most recently filed
report on Form 10-Q, AVT has conducted its business in the ordinary course and
there has not occurred: (a) any material adverse change in the financial
condition, liabilities, assets or business of AVT; (b) any amendment or change
in the Articles of Incorporation or Bylaws of AVT; or (c) any damage to,
destruction or loss of any assets of AVT (whether or not covered by insurance)
that materially and adversely affects the financial condition or business of
AVT.
5.6 Claims and Legal Proceedings
There are no pending claims, actions, suits, arbitrations, proceedings or
investigations involving or, to AVT's knowledge, threatened against AVT before
or by any court or governmental or nongovernmental department, commission,
board, bureau, agency or instrumentality, or any other Person, that question the
validity of this Agreement or any action taken or to be taken by AVT pursuant to
this Agreement or in connection with the transactions contemplated hereby.
5.7 Brokers and Finders
AVT represents and warrants that no director, officer, agent or employee
acting on its behalf has retained any broker or finder in connection with the
transactions contemplated hereby.
5.8 Full Disclosure
No information furnished by AVT or Acquisition Sub to the Company or the
Holders in connection with this Agreement contains any untrue statement of a
material fact, or omits
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any statement required to make the statements made, in light of the
circumstances in which they were made, not misleading.
ARTICLE VI - CONDITIONS PRECEDENT TO
OBLIGATIONS OF AVT AND ACQUISITION SUB
AVT's and Acquisition Sub's obligations to perform and observe the
covenants, agreements and conditions hereof to be performed and observed by them
at or before the Closing shall be subject to the satisfaction of the following
conditions, which may be expressly waived in writing by AVT:
6.1 Accuracy of Representations and Warranties
Each of the representations and warranties of the Company and the Holders
contained in this Agreement and the other Transaction Documents to which each is
a party (including applicable Exhibits or Schedules) shall be true and correct
as of the date hereof and at and as of the Closing Date as though made on that
date; except to the extent such representations and warranties are made as of a
specified date, in which case such representations and warranties shall be true
and correct as of the specified date.
6.2 Performance of Agreements
The Company and the Holders shall have performed all obligations and
agreements and complied with all covenants and conditions contained in this
Agreement or any other Transaction Document to be performed and complied with by
them at or prior to the Closing.
6.3 Opinions of Counsel for the Company and the Holders
AVT will have received an opinion of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇, legal
counsel for the Company and the Holders, dated the Closing Date, substantially
in the form of Exhibit E hereto.
---------
6.4 Approvals and Consents
The Company shall have received and shall have delivered to AVT written
consents to the Merger from each of the parties (other than the Company) to
those agreements, leases, notes or other documents identified on Schedules 4.5,
4.9 and 4.10, which consents must in all respects be satisfactory to AVT in its
sole and absolute discretion. All transfers of permits or licenses and all
approvals, applications or notices to public agencies, federal, state, local or
foreign, the granting or delivery of which is necessary for consummation of the
transactions contemplated hereby or for the continued operation of the Company,
will have been obtained or delivered, as applicable, and all waiting periods
specified by law will have passed.
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6.5 Officers' Certificate
AVT shall have received a certificate of the President of the Company,
dated the Closing Date, in form and substance reasonably satisfactory to AVT,
certifying that the conditions set forth in Sections 6.1, 6.2, 6.4, and 6.6 have
been fulfilled.
6.6 Material Adverse Change
Since the date hereof and through the Closing, there shall not have
occurred (or be threatened) any material adverse change in the business,
operations, assets, liabilities, earnings, condition (financial or other), or
prospects of the Company, other than with respect to, or as a result of, the
pre-payments set forth on the Closing Balance Sheet.
6.7 Proceedings and Documents; Secretary's Certificate
All corporate and other proceedings in connection with the transactions
contemplated hereby and by the other Transaction Documents, and all documents
and instruments incident to such transactions, shall have been approved by AVT's
counsel. AVT shall have received a certificate of the Secretary of the Company,
in form and substance satisfactory to AVT, as to the authenticity and
effectiveness of the actions of the Board of Directors and stockholders of the
Company authorizing the Merger and the transactions contemplated by this
Agreement and the other Transaction Documents. Copies of the Company's Articles
of Incorporation, certified by the Maryland Department of Taxation, and Bylaws,
certified by the Secretary of the Company, shall be attached to such
certificate.
6.8 Nonforeign Affidavit
AVT shall have received from the Company, pursuant to Section 1445 of the
Code, a Foreign Investment in Real Property Tax Act Affidavit substantially in
the form of Exhibit F.
---------
6.9 Compliance With Laws; Release of Liens
The consummation of the transactions contemplated by this Agreement and the
other Transaction Documents shall be legally permitted by all laws and
regulations to which AVT or the Company is subject. In addition, Company shall
have obtained the release of any and all Encumbrances with respect to any of the
Company's assets except for such Encumbrances referred to in 4.9(e)(i)-(iii) and
any Encumbrances listed on Schedule 4.9.
6.10 Stockholder Approval
The principal terms of this Agreement shall have been approved by the
Company's stockholders as required by the Company's Articles of Incorporation
and applicable law.
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6.11 Legal Proceedings
No order of any court or administrative agency shall be in effect that
enjoins, restrains, conditions or prohibits consummation of this Agreement or
any other Transaction Documents, and no litigation, investigation or
administrative proceeding shall be pending or threatened that would enjoin,
restrain, condition or prevent consummation of this Agreement or any other
Transaction Document.
6.12 Escrow Agreement
The Holders and the Escrow Agent shall have executed and delivered the
Escrow Agreement.
6.13 Due Diligence
The results of AVT's due diligence investigation of the Company shall be
satisfactory in all respects to AVT in its sole and absolute discretion. The
Company shall have used its best efforts to deliver to AVT and its counsel ten
(10) business days prior to the Closing Date, an invalidity opinion from legal
counsel for the Company, in form and substance acceptable to AVT in its sole
discretion, with respect to the infringement or alleged infringement by the
Technology of any Geoworks Corporation patent.
6.14 Termination of Consulting Contract
The Company shall have entered into a agreement with J. ▇▇▇▇ ▇▇▇▇▇▇▇▇
terminating the Consulting Agreement between the Company and ▇▇. ▇▇▇▇▇▇▇▇, dated
December 31, 1996, and neither the Company, AVT nor Acquisition Sub shall have
any further obligations, including with respect to compensation, to ▇▇. ▇▇▇▇▇▇▇▇
under such Consulting Agreement.
6.14 Employment Arrangements
▇▇▇▇▇ ▇▇▇▇▇▇▇ shall have executed and delivered to AVT the Employment
Agreement.
6.15 Confidentiality and Nondisclosure
Each officer, employee and consultant of the Company shall have executed
and delivered a Confidentiality and Nondisclosure Agreement to AVT in
substantially the form attached hereto as Exhibit G.
---------
6.16 Payout of Royalty Obligations; Renegotiation of Exclusive Contract
The Company shall have concluded its royalty obligations and fully pay-up
its licenses under the agreements listed on Schedule 6.16. The Company shall
have successfully
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renegotiated the exclusive contract listed on Schedule 6.16 on terms reasonably
acceptable to AVT.
6.17 Retirement of Company Liability
The Company shall have fully paid or retired all Company Liability, unless
AVT agrees to assume in writing all or a portion of such Company Liability.
6.18 Delivery of Certificates
Each Holder shall have delivered to AVT certificates representing all of
the Company Shares; together with assignments separate from certificate endorsed
in blank, a fully completed and duly executed Letter of Transmittal and other
such documentation as AVT may reasonably prescribe to carry out the purposes of
this Agreement.
ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE COMPANY AND THE HOLDERS
The obligations of the Company and the Holders to perform and observe the
covenants, agreements and conditions hereof to be performed and observed by them
at or before the Closing shall be subject to the satisfaction of the following
conditions, which may be expressly waived in writing on behalf of the Company by
the President of the Company:
7.1 Accuracy of Representations and Warranties
Each of the representations and warranties of AVT and Acquisition Sub
contained in this Agreement and the other Transaction Documents to which AVT or
Acquisition Sub is a party shall be true and correct as of the date hereof and
at and as of the Closing Date as though made on that date, except to the extent
such representations and warranties are made as of a specified date, in which
case such representations and warranties shall be true and correct as of the
specified date.
7.2 Performance of Agreements
AVT and Acquisition Sub shall have performed all obligations and
agreements and complied with all covenants and conditions contained in this
Agreement or any other Transaction Document to be performed and complied with by
them at or prior to the Closing.
7.3 Opinion of Counsel for AVT and Acquisition Sub
The Holders will have received an opinion of ▇▇▇▇▇▇▇ Coie LLP, legal
counsel for AVT and Acquisition Sub, dated the Closing Date, substantially in
the form of Exhibit H hereto.
---------
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7.4 Approvals and Consents
AVT and Acquisition Sub will have received all written consents to the
purchase of the Company Shares and all approvals, applications or notices to
public agencies, federal, state, local or foreign, the granting or delivery of
which is necessary for consummation of the transactions contemplated hereby.
All approvals, applications or notices to public agencies, federal, state, local
or foreign, the granting or delivery of which is necessary for the consummation
of the transactions contemplated hereby or the continued operation of AVT or
Acquisition Sub, will have been obtained or delivered, as applicable, and all
waiting periods specified by law will have passed.
7.5 Legal Proceedings
No order of any court or administrative agency shall be in effect that
enjoins, restrains, conditions or prohibits consummation of this Agreement or
any other Transaction Documents, and no litigation, investigation or
administrative proceeding shall be pending or threatened that would enjoin,
restrain, condition or prevent consummation of this Agreement or any other
Transaction Document.
7.6 Compliance With Laws
The consummation of the transactions contemplated by this Agreement and the
other Transaction Documents shall be legally permitted by all laws and
regulations to which AVT or the Company is subject.
7.7 Material Adverse Change
Since the date hereof and through the Closing, there shall not have
occurred (or be threatened) any material adverse change in the business,
operations, assets, liabilities, earnings, condition (financial or other), or
prospects of AVT.
7.8 Escrow Agreement
The Company and the Escrow Agent shall have executed and delivered the
Escrow Agreement.
7.9 Employment Agreement
AVT shall have executed and delivered to ▇▇▇▇▇ ▇▇▇▇▇▇▇ the Employment
Agreement.
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ARTICLE VIII - COVENANTS
8.1 Conduct of Business by the Company Pending the Closing
Unless AVT shall otherwise agree in writing, the business of the Company
shall be conducted only in, and the Company shall not take any action except in,
and the directors and officers of the Company and the stockholders shall cause
the Company to be conducted in, the ordinary course of business and in a manner
consistent with past practice and in accordance with applicable law; and the
Company shall use its reasonable best efforts to preserve substantially intact
the business organization of the Company, to keep available the services of the
current directors, officers, employees and consultants of the Company and to
preserve the current relationships of the Company with customers, suppliers and
other persons with which the Company has significant business relations. By way
of amplification and not limitation, except as otherwise contemplated by this
Agreement, the Company shall not, between the date of this Agreement and the
time of Closing, directly or indirectly do, or propose to do, any of the
following without giving AVT prior written notice of and receiving AVT's prior
written consent:
(a) amend or otherwise change its Articles of Incorporation or
Bylaws;
(b) issue, sell, pledge, dispose of, grant, encumber or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares of
capital stock of any class of the Company, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such capital
stock, or any other ownership interest (including, without limitation, any
phantom interest), of the Company or (ii) any assets of the Company;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock property or otherwise, with respect to any
of its capital stock;
(d) reclassify, combine, split, subdivide, redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) or form any corporation,
partnership, other business organization or division thereof, or acquire
directly or indirectly any material amount of assets; (ii) incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible for,
the obligations of any Person, or make any loans or advances, except in the
ordinary course of business and consistent with past practice which loans shall
be on terms and conditions satisfactory to AVT; (iii) enter into any contract or
agreement other than in the ordinary course of business, consistent with past
practice; (iv) authorize any single capital expenditure that is in excess of
$5,000 or capital expenditures that are, in the aggregate, in excess of $25,000;
or (v) enter into or amend any contract, agreement, commitment or arrangement
with respect to any matter set forth in this subsection (e);
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(f) enter into any employment, consulting or agency agreement, or
increase the compensation payable or to become payable to its officers,
employees or consultants, except for increases in accordance with existing
agreements or past practices for employees of the Company who are not officers
of the Company, or grant any severance or termination pay to, or enter into any
employment or severance agreement with, any director, officer employee of the
Company, or establish, adopt, enter into or amend any collective bargaining,
bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the benefit of
any director, officer or employee;
(g) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect to
accounting policies or procedures (including, without limitation, procedures
with respect to the payment of accounts payable and collection of accounts
receivable);
(h) make any Tax election inconsistent with past practices or settle
or compromise any federal, state, local or foreign income Tax liability;
(i) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction, in the ordinary course of business and
consistent with past practice, of liabilities reflected or reserved against in
the November Balance Sheet or subsequently incurred in the ordinary course of
business and consistent with past practice;
(j) enter into any equipment lease; or
(k) take or agree to take any action specified in Section 4.7, or
enter into any other material transaction other than those specified above; or
(l) agree to do any of the foregoing.
8.2 Access to Information; Confidentiality
From the date hereof to the time of Closing, the Company and the Holders
shall, and shall cause their representatives to, afford AVT and its
representatives reasonable access at all reasonable times to the officers,
employees, agents, properties, offices, plants and other facilities, books and
records of the Company and shall furnish AVT with all financial, operating and
other data and information as AVT may reasonably request and as such access is
necessary to the consummation of the transactions contemplated hereby. From the
date hereof until the time of Closing, the Company shall provide AVT with
monthly and other financial statements of the Company as they become available
internally at the Company, all of which financial statements shall be prepared
in conformity with GAAP and shall fairly present the financial position and
results of operations of the Company as of the dates and for the periods
specified. All information obtained by either party pursuant to this Section
8.2
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shall be subject to the provisions of and kept confidential in accordance with
the Reciprocal Nondisclosure Agreement, dated August 7, 2000, between AVT, the
Company and the Holders.
8.3 No Alternative Transactions
The Company and the Holders shall not, directly or indirectly, through any
officer, director, agent, investment banker, attorney or otherwise, solicit,
initiate or encourage the submission of any proposal, offer, inquiry or contact
from any Person relating to any acquisition or purchase of all or (other than in
the ordinary course of business) any portion of the assets of, or any equity
interest in, the Company or any business combination with the Company, or
participate in any negotiations or discussions regarding, or furnish to any
other Person any information with respect to, or otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other Person, to do or seek any of the foregoing. The Company
and the Sellers immediately shall cease and cause to be terminated with no
obligation, financial or otherwise, on the part of the Company or the Holders,
all existing discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing.
The Company and the Holders shall notify AVT promptly if any such proposal
or offer, or any inquiry or contact with any Person with respect thereto, is
made and shall, in any such notice to AVT, indicate in reasonable detail the
identity of the Person making such proposal, offer, inquiry or contact and the
terms and conditions of such proposal, offer, inquiry or contact. The Company
agrees not to release any third party from, or waive any provision of, any
confidentiality or standstill agreement to which the Company is a party.
8.4 Notification of Certain Matters
The Company and/or the Holders shall give prompt written notice to AVT, and
AVT shall give prompt written notice to the Company and/or the Holders, of (a)
the occurrence or nonoccurrence of any event which would be likely to (i) cause
any representation or warranty of the Company and/or the Holders on the one
hand, or AVT and/or Acquisition Sub on the other hand, contained in this
Agreement to be materially untrue or inaccurate or (ii) result in the material
failure to satisfy a closing condition in Article VI or VII; (b) any material
failure of the Company and/or the Holders on the one hand, or AVT and/or
Acquisition Sub, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by them; and (c) any written communication from
any Person alleging that the consent of such Person may be required in
connection with the transactions contemplated by this Agreement; provided,
however, that the delivery of any notice pursuant to this Section 8.4 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
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8.5 Further Action
Upon the terms and subject to the conditions hereof, each of the parties
shall (a) make promptly its respective filings, and thereafter make any other
required submissions, under applicable laws with respect to the transactions
contemplated hereby and shall cooperate with the other parties with respect to
such filings and submissions and (b) use its best efforts to take, or cause to
be taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby, including,
without limitation, using its best efforts to obtain all waivers, licenses,
permits, consents, approvals, authorizations, qualifications and orders of
governmental authorities and parties to contracts as are necessary for the
consummation of the transactions contemplated hereby and to fulfill the
conditions to the Merger. In case at any time after the Closing Date any
further action is necessary or desirable to carry out the purposes of this
Agreement, each party to this Agreement shall use its best efforts to take all
such action. None of AVT, Acquisition Sub, the Company or the Holders will
undertake any course of action inconsistent with this Agreement or that would
make any representations, warranties or agreements made by such party in this
Agreement untrue or any conditions precedent to this Agreement unable to be
satisfied at or prior to the Closing.
8.6 Publicity
None of the parties shall disclose, make or issue, or cause to be
disclosed, made or issued, any statement or announcement concerning this
Agreement or the transactions contemplated hereby to any third parties (other
than its officers, directors, employees, authorized representatives, legal
advisors and financial advisors who need to know such information in connection
with carrying out or facilitating the transactions contemplated hereby) without
the prior written consent of the other parties, except as required by law or any
listing or other agreement with any public securities trading exchange or market
to which AVT is a party and after providing written notice to the other parties
of such required disclosure.
8.7 Waiver of Dissenter's Rights
The Holders hereby irrevocably and unconditionally waive, and agree to
cause to be waived and to prevent the exercise of, any rights of appraisal, any
dissenters' rights and any similar rights relating to the Merger that the Holder
may have by virtue of the ownership of any outstanding Company Shares.
8.8 Termination of 401(k) Plan
The Company agrees to terminate its 401(k) plan prior to the Effective
Time, unless AVT or Acquisition Sub, in its sole and absolute discretion, agrees
to sponsor and maintain such plan by providing the Company with written notice
of such election at least three (3) days before the Effective Time. Unless AVT
or Acquisition Sub provides such notice to the
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Company, AVT shall receive, prior to the Effective Time, from the Company
evidence that the Company's 401(k) plan has been terminated pursuant to
resolutions of the Company's Board of Directors (the form and substance of such
resolutions shall be subject to advance review and approval by AVT), effective
not later than the day immediately preceding the day on which the Effective Time
occurs.
8.9 Offers of Employment
AVT agrees to offer employment to the employees of the Company listed on
Schedule 8.9(a) on terms and conditions no less favorable than the terms and
conditions under which such employees were employed by Company thirty (30)
business days prior to the Closing Date. Schedule 8.9(b) contains a complete
---------------
and correct payroll roster of Company listing all employees of Company and their
rates of pay as of the date hereof. AVT agrees to offer the Company employees
listed on Schedule 8.9(c) the cash bonuses listed opposite each such employee's
name on Schedule 8.9(c) and, on the condition that said employees agree to
continued employment with AVT, the Stock Options listed opposite each such
employee's name on Schedule 8.9(c).
8.10 Baltimore Office
AVT agrees to maintain an office in the Baltimore, Maryland metropolitan
area for three years from the Closing Date.
ARTICLE IX - TERMINATION, AMENDMENT AND WAIVER
9.1 Termination
This Agreement may be terminated at any time prior to the Closing
(notwithstanding any approval of this Agreement by the Holders):
(a) by mutual written consent of the Company and AVT;
(b) by the Company, if AVT shall have materially breached any of its
representations, warranties or agreements and such breach has not been cured
within five (5) business days after written notice to AVT (provided that, no
cure period shall be required for a breach which by its nature cannot be cured);
(c) by AVT, if the Company and/or the Holders shall have materially
breached any of its or their representations, warranties or agreements and such
breach has not been cured within five (5) business days after written notice to
the Company (provided that, no cure period shall be required for a breach which
by its nature cannot be cured);
(d) by either the Company or AVT if the Closing has not occurred by
January 10, 2001, provided, however, that the right to terminate this Agreement
under this subsection (d) shall not be available to any party whose failure to
fulfill any obligation under
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this Agreement has been the cause of, or resulted in, the failure of the Closing
to occur on or before such date;
(e) by either the Company or AVT, if there shall be any law or
regulation that makes consummation of the Merger illegal or if any judgment,
injunction, order or decree enjoining AVT, Acquisition Sub or the Company from
consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable; provided, however, that the party
seeking to terminate this Agreement pursuant to this subsection (e) shall have
used all reasonable efforts to remove such judgment, injunction, order or
decree; or
9.2 Effect of Termination
In the event of the termination of this Agreement pursuant to Section 9.1,
there shall be no further obligation on the part of any party, except that the
confidentiality obligations under Section 8.2 shall survive any such termination
and nothing shall relieve any party from liability for any breach.
9.3 Amendment
AVT, the Company and the Holders may amend, modify or supplement this
Agreement at any time, but only in writing duly executed on behalf of each of
the parties to be bound thereby.
9.4 Waiver
At any time prior to the Closing, any party may (a) extend the time for
the performance of any obligation or other act of any other party, (b) waive any
inaccuracy in the representations and warranties contained in any Transaction
Document, or (c) waive compliance with any agreement or condition in any
Transaction Document. Any such extension or waiver shall be valid only if set
forth in an instrument in writing signed by the party or parties to be bound.
The failure of any party at any time or times to require performance of any
provisions shall in no manner affect its right at a later time to enforce the
same. No waiver by any party of any condition or of any breach of any terms,
covenants, representations, warranties or agreements contained in this Agreement
shall be deemed to be a further or continuing waiver of any such condition or
breach in other instances or a waiver of any other condition or any breach of
any other terms, covenants
ARTICLE X - INDEMNIFICATION
10.1 Survival
All representations and warranties contained in this Agreement or in the
other Transaction Documents or in any certificate delivered pursuant hereto or
thereto shall survive the Closing until 45 days after the date on which AVT's
independent accountants issue an
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audit report for AVT and its consolidated subsidiaries for the year ended
December 31, 2001 (the "Survival Period"), and shall not be deemed waived or
otherwise affected by any investigation made or any knowledge acquired with
respect thereto, or by any notice delivered pursuant to Section 8.4; provided,
however, (a) that any claim based on fraud shall survive the Closing
indefinitely, (b) that any claim based on Section 4.1.1 (Good Title), 4.1.2
(Authority), 4.2 (Company Organization, Good Standing, Power, Etc.) and 4.3
(Capitalization) shall survive the Closing indefinitely, (c) that any claim
based Sections 4.8 (Taxes), 4.15 (Employee Benefit Plans) and 4.21(b) - (h)
(Environmental Matters) will survive for 30 days after the expiration of the
applicable statute of limitations (including any extensions and waivers
thereof), and (d) that any claim based on Section 4.16 (Intellectual Property)
shall survive for a period of five years after the Closing. The covenants and
agreements contained in this Agreement or in the other Transaction Documents
shall survive the Closing and shall continue until all obligations with respect
thereto shall have been performed or satisfied or shall have been terminated in
accordance with their terms.
10.2 Indemnification by the Holders
Subject to the limitations set forth in Section 10.4, from and after the
Closing Date, the Holders jointly and severally shall indemnify and hold AVT,
Acquisition Sub, their respective officers, directors and affiliates (as
"affiliate" is defined in Rule 12b-2 of the Exchange Act) (the "AVT Indemnified
Parties") harmless from and against, and shall reimburse the AVT Indemnified
Parties for, any and all losses, damages, debts, liabilities, obligations,
judgments, orders, awards, writs, injunctions, decrees, fines, penalties, taxes,
costs or expenses (including but not limited to any legal and accounting fees
and expenses) ("Losses") arising out of or in connection with:
(a) any inaccuracy in or other breach of any representation or
warranty made by the Company or the Holders in this Agreement or in any other
Transaction Document;
(b) any failure by the Company or either Holder to perform or comply,
in whole or in part, with any covenant or agreement in this Agreement or any
other Transaction Document to which it is a party;
(c) any claim, demand, cause of action, suit, proceeding, hearing or
investigation by any person or entity relating to the Company's operation of the
business on or before the Closing Date;
(d) any claim, demand, cause of action, suit, proceeding, hearing or
investigation by any person or entity relating to or arising from the
infringement or alleged infringement by the Technology of any Geoworks
Corporation patent;
(e) all liability for Taxes of the Company assessed during or
attributable to any taxable period ending on or prior to the Effective Time, and
the portion of any taxable
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period that includes, but does not end on, the Effective Time to the extent such
Taxes exceed the Tax liability reflected on the face of the Closing Balance
Sheet; or
(f) the amount of any Company Liability existing as of the Closing
Date and not reflected on the Closing Balance Sheet.
10.3 Indemnification by AVT
Subject to the limitations set forth in Section 10.4, from and after the
Closing Date, AVT shall indemnify and hold the Holders (the "Holder Indemnified
Parties" and together with the Buyer Indemnified Parties, the "Indemnified
Parties") harmless from and against, and shall reimburse the Holder Indemnified
Parties for, any and all Losses arising out of or in connection with:
(a) any inaccuracy in or other breach of any representation or
warranty made by AVT or Acquisition Sub in this Agreement or in any other
Transaction Document; or
(b) any failure by AVT or Acquisition Sub to perform or comply, in
whole or in part, with any covenant or agreement in this Agreement or any other
Transaction Document to which it is a party
(c) any claim, demand, cause of action, suit, proceeding, hearing or
investigation by any person or entity relating to operation of the Company's
business after the Closing Date.
10.4 Threshold and Limitations
(a) The Indemnified Parties shall be not be entitled to receive any
indemnification payment with respect to any claims for indemnification under
Sections 10.2(a), 10.2(b), 10.2(c) and 10.3(a) and 10.3(b) (the "Indemnified
Claims") until the aggregate Losses in respect of Indemnified Claims for which
such Indemnified Parties would be otherwise entitled to receive indemnification
exceed $25,000 (the "Threshold"); provided, however, that once such aggregate
Losses exceed the Threshold, such Indemnified Parties shall be entitled to
indemnification for the aggregate amount of all Losses without regard to the
Threshold.
(b) Except for Losses based on fraud, or arising in connection with
Sections 4.1.1 (Good Title), 4.1.2 (Authority), 4.2 (Company Organization, Good
Standing, Power, Etc.) 4.3 (Capitalization), 4.8 (Taxes) (which Sections are
discussed below), the aggregate liability of the Holders in respect of
Indemnified Claims shall be limited to $10,000,000. Liability based on Sections
4.1.1 (Good Title), 4.1.2 (Authority), 4.2 (Company Organization, Good Standing,
Power, Etc), 4.3 (Capitalization) and 4.8 (Taxes) shall be without limit.
Liability based on Section 10.2(d) shall be limited to $24,500,000.
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(c) An indemnifying party shall not be obligated to defend and hold
harmless an indemnified party, or otherwise be liable to such party, with
respect to any claims made by the indemnified party after the expiration of the
Survival Period or other applicable time limitation described in Section 10.1,
except that indemnity may be sought after the expiration of the Survival Period
or other applicable time limitation if a Claim Notice (as defined in the Escrow
Agreement) shall have been delivered to the Holders prior to the expiration of
such time period.
10.5 Procedure
(a) Stockholder Representative. By approving the Merger at a special
---------------------------
meeting of Holders or by written consent of the Holders, each Holder of the
Company shall have irrevocably authorized and appointed ▇▇▇▇▇ ▇▇▇▇▇▇▇ (the
"Stockholder Representative"), with full power of substitution and
--------------------------
resubstitution, as his representative and true and lawful attorney-in-fact and
agent to act in his name, place and ▇▇▇▇▇ as contemplated by this Article X and
to execute in the name and on behalf of such stockholder the Escrow Agreement
and any other agreement, certificate, instrument or document to be delivered by
the stockholders in connection with the Escrow Agreement.
(b) Claim Notice. In the event that the Indemnified Parties sustain or
-------------
incur any Losses in respect of which indemnification may be sought pursuant to
Article X of the Agreement, such Indemnified Party (the "Claiming Party") will
assert a claim for indemnification by giving written notice (the "Claim Notice")
to the Stockholder Representative or AVT, as the case may be (the "Defending
Party"), and in the case of a claim for indemnification by an AVT Indemnified
Party, to the Escrow Agent, which will describe in reasonable detail the facts
and circumstances on which the asserted claim for indemnification is based;
provided, however, that the failure or delay to so notify the Defending Party
shall not relieve the Defending Party of any obligation or liability that the
Defending Party may have to the Claiming Party except to the extent that the
Defending Party demonstrates that the Defending Party's ability to defend or
resolve such claim is adversely affected thereby. The Claim Notice will also
specify how the Claiming Party intends to recover such funds pursuant to the
Agreement. Unless the claim described in the Claim Notice is contested by the
Defending Party by written notice to the Claiming Party of the amount of the
claim that is contested, given within thirty (30) days of the receipt by the
Defending Party of the Claim Notice, the Claiming Party may recover such
undisputed amount of the claim described in the Claim Notice from the Defending
Party. If the undisputed claim is against the Holders, such claim may be paid
out of the Escrow Amount by giving written notice of such claim to the Escrow
Agent in accordance with the terms of the Escrow Agreement The Escrow Agent
shall be entitled to rely on any such notice and distribute the undisputed claim
amount from the Escrow Amount in accordance with the terms of the Escrow
Agreement.
(c) If, within thirty (30) days of the receipt by the Defending Party of
the Claim Notice, the Defending Party contests in writing to the Claiming Party
and the Escrow Agent
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(if such claim is against the Holders) that such Losses constitute an
indemnifiable claim pursuant to Article X of the Agreement (the "Dispute
Notice"), then the Claiming Party and the Defending Party, acting in good faith,
shall attempt to reach agreement with respect to such claim. If the Claiming
Party and the Defending Party should so agree, a memorandum setting forth such
agreement shall be prepared and signed by the Claiming Party and the Defending
Party and shall be furnished to the Escrow Agent if the claim is to be made
against the Escrow Amount. The Escrow Agent shall be entitled to rely on any
such memorandum and distribute the requested amount from the Escrow Amount in
accordance with the terms thereof and of the Escrow Agreement.
(d) The Defending Party shall not object to any Claim Notice unless (i)
he believes in good faith that the Claiming Party is not entitled to be
indemnified with respect to the Losses specified therein, or (ii) he lacks
sufficient information to assess the validity or amount of the claim. If the
Defending Party objects to a Claim Notice on the basis that he lacks sufficient
information, the Defending Party shall promptly request from the Claiming Party
any additional information reasonably necessary to assess such claim and the
Claiming Party shall, to the extent the Claiming Party reasonably can, provide
additional information reasonably requested. Upon receipt of such additional
information, the Defending Party shall review it as soon as reasonably
practicable and notify the Claiming Party of any withdrawal or modification of
the objection.
(e) Dispute Resolution. If the Defending Party and the Claiming Party
-------------------
are unable to resolve any such dispute within 45 days after delivery of the
Dispute Notice, the matter shall be settled by binding arbitration in Seattle,
Washington. All claims shall be settled by three arbitrators in accordance with
the Commercial Arbitration Rules then in effect of the American Arbitration
Association (the "AAA Rules"). The Defending Party and the Claiming Party shall
each designate one arbitrator within 15 days after the termination of such 45-
day period. The Defending Party and the Claiming Party shall cause such
designated arbitrators mutually to agree upon and designate a third arbitrator;
provided, however, that (i) failing such agreement within seventy (70) days of
delivery of the Dispute Notice, the third arbitrator shall be appointed in
accordance with the AAA Rules and (ii) if either the Defending Party or the
Claiming Party fails to timely designate an arbitrator, the dispute shall be
resolved by the one arbitrator timely designated. Except as provided in the
Escrow Agreement, all of the fees and expenses of the three arbitrators shall be
paid in accordance with the determination of the arbitrators based on the
outcome of the dispute. The Defending Party and the Claiming Party shall cause
the arbitrators to decide the matter to be arbitrated within 30 days after the
appointment of the last arbitrator. The arbitrators' decision shall relate
solely to whether the Claiming Party is entitled to receive the contested amount
(or a portion thereof) pursuant to the applicable terms of this Agreement and
the Escrow Agreement if applicable. The final decision of the majority of the
arbitrators shall be furnished to the Defending Party, the Claiming Party and
the Escrow Agent, if such claim is against the Holders, in writing and shall
constitute the conclusive determination of the issue in question binding upon
the Defending Party, the Holders, the Claiming Party and the
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Escrow Agent, and shall not be contested by any of them. Such decision may be
used in a court of law only for the purpose of seeking enforcement of the
arbitrators' decision.
(f) Third Party Claims. With respect to claims for indemnification
-------------------
resulting from or in connection with any legal proceeding commenced by a third
party, the Claiming Party shall give the Claim Notice to the Defending Party
(and to the Escrow Agent if such claim is against the Holders) no later than
twenty (20) days prior to the time any initial answer or response to the
asserted claim is legally required under any applicable court or procedural
rule; provided, however, that the failure or delay to so notify the Defending
Party, or the Escrow Agent, if applicable, shall not relieve the Defending Party
of any obligation or liability that it may have to such Claiming Party except to
the extent that the Defending Party demonstrates that the Defending Party's
ability to defend or resolve such third party claim is adversely affected
thereby.
(g) Subject to the rights of any insurer or other third party having
potential liability therefor, the Defending Party shall have the right, upon
written notice by the Defending Party given to such Claiming Party and the
Escrow Agent (if the claim is against the Holders) within 30 days after receipt
of the Claim Notice relating to a third party claim, to assume the defense or
handling of such third party claim, at the Defending Party's sole expense. The
Defending Party shall select counsel reasonably acceptable to the Claiming Party
in connection with conducting the defense or handling of such third party claim,
and the Defending Party shall defend or handle the same in consultation with the
Claiming Party and shall keep the Claiming Party timely apprised of the status
of such third party claim. The Defending Party shall not, without the prior
written consent of the Claiming Party, agree to a settlement of any third party
claim, unless (i) the settlement provides an unconditional release and discharge
of the Claiming Party and the Claiming Party is reasonably satisfied with such
discharge and release and (ii) the Claiming Party shall not have reasonably
objected to any such settlement on the ground that the circumstances surrounding
the settlement could result in an adverse impact on the business, operations,
assets, liabilities (absolute, accrued, contingent or otherwise), condition
(financial or otherwise) or prospects of AVT. The Claiming Party shall
cooperate with the Defending Party and shall be entitled to participate in the
defense or handling of such third party claim with its own counsel and at its
own expense.
(h) If, within 30 days after receipt of a Claim Notice relating to a
third party claim, the Defending Party does not give written notice to the
Claiming Party and the Escrow Agent (if the claim is against the Holders) of the
Defending Party's election to assume the defense or handling of such third party
claim, the Claiming Party may, at the Defending Party's expense (which shall be
paid from time to time by the Defending Party as such expenses are incurred by
the Claiming Party), select counsel in connection with conducting the defense or
handling of such third party claim and defend or handle such third party claim
in such manner as it may deem appropriate, provided, however, that the Claiming
Party shall keep the Defending Party timely apprised of the status of such third
party claim and shall not settle such third party claim without the prior
written consent of the Defending Party, which consent shall not be unreasonably
withheld. If the Claiming Party defends or handles such
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third party claim, the Defending Party shall cooperate with the Claiming Party
and shall be entitled to participate in the defense or handling of such third
party claim with its own counsel and at its own expense.
10.6 Remedies; Specific Performance
Except as otherwise provided, the indemnification provisions of this
Article X, together with the Escrow Agreement, shall be the sole and exclusive
remedy of any party to this Agreement for a breach of any representation,
warranty or covenant contained herein. Notwithstanding the preceding sentence,
each of the parties acknowledges and agrees that the other parties hereto would
be damaged irreparably in the event any of the provisions of this Agreement are
not performed in accordance with their specific terms or otherwise are breached.
Accordingly, each of the parties hereto agrees that the other parties hereto
shall be entitled to an injunction to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof (including the indemnification provisions hereof) in any
competent court having jurisdiction over the parties, in addition to any other
remedy to which they may be entitled at law or in equity.
10.7 Access to Escrow Amount
The satisfaction of any Losses owed to AVT or Acquisition Sub under this
Article X shall be made by delivery by the Escrow Agent to AVT or Acquisition
Sub, as the case may be, in accordance with the terms of the Escrow Agreement,
of all or a portion of the Escrow Amount. Any liability of the Holders for
indemnification under this Article X shall (subject to the limitations set forth
in Section 10.4) be satisfied, first, from the Escrow Amount and, second, to the
extent the Escrow Amount is insufficient to satisfy any such liability, from
other assets of the Holders, including by offset of amounts otherwise owed by
AVT to the Holders under Section 3.3 hereof.
ARTICLE XI - GENERAL
11.1 Expenses
Whether or not the transactions contemplated by this Agreement are
consummated, each Party shall pay its own fees and expenses incident to the
negotiation, preparation and carrying out of this Agreement and the other
Transaction Documents (including legal and accounting fees and expenses).
Should any action be brought hereunder, the attorneys' fees and expenses of the
prevailing party shall be paid by the other party to such action. The Sellers
shall pay any transfer or similar taxes that may be payable in connection with
the transactions contemplated by this Agreement.
11.2 Entire Understanding
This Agreement and the Reciprocal Nondisclosure Agreement between AVT, the
Company and the Holders, dated August 7, 2000, and the other Transaction
Documents
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constitute the entire agreement among the parties with respect to this subject
matter and supersede all prior agreements and undertakings, both written and
oral, among the parties with respect to this subject matter, including, but not
limited to, the Term Sheet dated November 3, 2000, between AVT, the Company and
the Holders.
11.3 Waivers
Any terms, covenants, representations, warranties or agreements of any
party hereto may be waived at any time by an instrument in writing executed by
the party for whose benefit such terms, covenants, representations, warranties
or agreements exist. The failure of any party at any time or times to require
performance of any provisions hereof will in no manner affect its right at a
later time to enforce the same. No waiver by any party of any condition or of
any breach of any terms, covenants, representations, warranties or agreements
contained in this Agreement will be effective unless in writing, and no waiver
in any one or more instances will be deemed to be a further or continuing waiver
of any such condition or breach in other instances or a waiver of any other
condition or any breach of any other terms, covenants, representations,
warranties or agreements.
11.4 Counterparts
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement. To expedite the process of entering into this
Agreement, the parties acknowledge that Transmitted Copies of this Agreement
will be equivalent to original documents until such time as original documents
are completely executed and delivered. "Transmitted Copies" will mean copies
that are reproduced or transmitted via photocopy, facsimile or other process of
complete and accurate reproduction and transmission.
11.5 Headings
The headings used herein are for convenience only and will not in any way
affect the construction of, or be taken into consideration in interpreting this
Agreement.
11.6 Applicable Law; Venue
This Agreement, including all matters of construction, validity and
performance, will be governed by and construed and enforced in accordance with
the laws of the state of Washington, as applied to contracts executed and to be
fully performed in such state by citizens thereof. The parties irrevocably
consent to the jurisdiction and venue of the state and federal courts located in
King County, Washington in connection with any actions relating to this
Agreement.
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11.7 Assignment
This Agreement shall not be assigned by operation of law or otherwise,
except that AVT may assign all or any of its rights and obligations to any of
its affiliates. In the event of any such permitted assignment, AVT shall
guarantee the performance of such obligations by such assignee.
11.8 Successors and Assigns
All the terms and provisions of this Agreement will be binding upon and
inure to the benefit of and be enforceable by the respective successors and
permitted assigns of the parties hereto.
11.9 Notices
Any notice or request required or permitted to be given hereunder must be
in writing given by personal delivery, overnight courier, certified or
registered mail or facsimile, addressed as respectively set forth below or to
such other address as any party has previously designated by such a notice. The
effective date of any notice or request sent by certified or registered mail is
three days from the date it is sent by the addressor so long as it is, in fact,
received within five days, or when sent by facsimile or personally delivered.
Notices to AVT, the Company and Sellers shall be sent as follows:
AVT:
AVT Corporation
11410 ▇.▇. ▇▇▇▇▇ ▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇ Coie LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇
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HOLDERS:
▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
-------------------------
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
-------------------------
▇▇▇▇ ▇▇▇▇▇▇
15 White Willow Court
-------------------------
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
-------------------------
With a copy to:
▇▇▇▇▇▇▇, Baetjer and ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
THE COMPANY:
Infinite Technologies, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
-----------------------
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇, Baetjer and ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
11.10 Severability
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of this
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Agreement shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms.
11.11 Tax Matters - Reorganization Treatment
Unless otherwise required by law, the parties hereto shall treat the
Merger as a reorganization under Section 368(a) of the Code and the underlying
Treasury Regulations for all Tax reporting purposes; provided, however, neither
AVT nor Acquisition Sub makes any representation or warranty with respect to,
and expressly disclaims any responsibility for, any Tax consequences to the
Company or the Holders arising out of the structure or terms of this Agreement.
[Remainder of this page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement as of the date and year first above written.
AVT CORPORATION
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------
Its President & CEO
--------------------------
RAVEN ACQUISITION SUB
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------
Its President
--------------------------
INFINITE TECHNOLOGIES, INC.
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
Its President
--------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
▇▇▇▇ ▇▇▇▇▇▇
By /s/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------------
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Exhibit A
Articles of Merger
Exhibit B
Escrow Agreement
Exhibit C
Employment Agreement
Exhibit D
Company Disclosure Memorandum
Exhibit E
Opinion of Counsel for the Company
Exhibit F
Real Property Tax Affidavit
Exhibit G
Form of Confidentiality and Invention Assignment Agreement
Exhibit H
Opinion of Counsel for AVT