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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
DIGITAL SYSTEMS INTERNATIONAL, INC.,
VISION MERGER CORPORATION
AND
VIEWSTAR CORPORATION
AS OF
OCTOBER 14, 1996
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CONTENTS
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EXHIBIT INDEX
Exhibit 1 Form of Restricted Stock Purchase Agreement
Exhibit 5.16 Company Tax Matters Certificate
Exhibit 6.16 Digital Tax Matters Certificate
Exhibit 7.3 Shareholders Agreement
Exhibit 8.2(e) Form of Opinion of Counsel for the Company
Exhibit 8.2(h) List of Company Officers Executing Employment
Agreements
Exhibit 8.3(e) Form of Opinion of Counsel for Digital
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October
14, 1996, among Digital Systems International, Inc., a Washington corporation
("Digital"), Vision Merger Corporation, a Washington corporation and a direct
wholly owned subsidiary of Digital ("Merger Sub"), and ViewStar Corporation, a
California corporation (the "Company").
RECITALS
WHEREAS, the Boards of Directors of Digital, Merger Sub and the Company
each have determined that it is in the best interests of their respective
shareholders for Merger Sub to merge with the Company upon the terms and subject
to the conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Code (as defined below);
WHEREAS, it is intended that the Merger shall be recorded for
accounting purposes as a pooling of interests; and
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, Digital, the Company and
Merger Sub hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
respective meanings set forth below:
"AAA Rules": As defined in Section 4.6.
"Acquisition Proposal": As defined in Section 7.2(a).
"Affiliate": As defined in Rule 12b-2 under the Exchange Act.
"Alternative Transaction": As defined in Section 11.1(c).
"Authorization": Any consent, approval or authorization of, expiration
or termination of any waiting period requirement (including pursuant to the
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▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended) by, or filing,
registration, qualification, declaration or designation with, any Governmental
Body.
"CCC": The California Corporations Code.
"Certificates": As defined in Section 4.3.
"Closing": The closing of the Merger.
"Closing Consideration": As defined in Section 4.2.
"Closing Date": The date on which the Closing occurs.
"Code": The Internal Revenue Code of 1986, as amended, and all
regulations promulgated thereunder, as in effect from time to time.
"Comdisco" and the "Comdisco Warrant": As defined in Section 4.1(e).
"Company": ViewStar Corporation, a California corporation.
"Company Affiliates": As defined in Section 7.10.
"Company Claim": As defined in Section 7.8(a).
"Company Common Stock": Common stock, par value $.001 per share, of the
Company.
"Company Consent Solicitation": As defined in Section 7.3(a).
"Company Disclosure Statement": The disclosure statement dated the date
of this Agreement delivered by the Company to Digital.
"Company Financial Statements": As defined in Section 5.10.
"Company Indemnitees": As defined in Section 7.8(a).
"Company Option Plans": As defined in Section 4.1(d).
"Company Preferred Stock": Series A Preferred Stock, par value $.01 per
share, of the Company.
"Company Tax Matters Certificate": As defined in Section 5.16.
"Confidentiality Agreement": The letter agreement between the Company
and Digital dated September 19, 1996.
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"Designee": As defined in Section 7.16.
"Digital": Digital Systems International, Inc., a Washington
corporation.
"Digital Acquisition Proposal": As defined in Section 7.18.
"Digital Claim Reserve Amount": As defined in Section 4.2.5(c).
"Digital Claims": As defined in Section 4.2.1(c).
"Digital Common Shares": Shares of common stock, par value $.01 per
share, of Digital.
"Digital Disclosure Statement": The disclosure statement dated the date
of this Agreement delivered by Digital to the Company.
"Digital Employee Stock Purchase Plan": As defined in Section 6.4.
"Digital Financial Statements": The financial statements included in
the Digital SEC Reports.
"Digital Losses": As defined in Section 4.2.1(a).
"Digital Option Plans": The stock option plans for employees, officers
and directors of Digital identified in the Digital SEC Reports, together with
the Digital Stock Incentive Plan.
"Digital SEC Reports": As defined in Section 6.10.
"Digital Shareholders Meeting": As defined in Section 7.3(b).
"Digital Stock Incentive Plan": As defined in Section 4.1(d).
"Digital Tax Matters Certificate": As defined in Section 6.16.
"DOL": The United States Department of Labor.
"Effective Time": As defined in Section 2.2.
"Employee Benefit Plan": As defined in Section 5.7(a).
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended, and all regulations promulgated thereunder, as in effect from time to
time.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
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"Exchange Agent": As defined in Section 4.3.
"Exchange Ratio": As defined in Section 4.1(a).
"Fees": As defined in Section 11.1(e).
"Governmental Body": Any federal, state, municipal, political
subdivision or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign.
"Holdback Shares": As defined in Section 4.2.
"Holdback Termination Date": The date six months following the Closing
Date or such shorter period as may be required to ensure that the Merger may be
accounted for as a "pooling of interests."
"Intellectual Property": All intellectual property rights, including,
but not limited to, patents, patent applications, trademarks, trademark
applications and registrations, service marks, service ▇▇▇▇ applications and
registrations, copyrights, licenses and customer lists, proprietary processes,
formulae, inventions, trade secrets, know-how, development tools and other
proprietary rights used by the Company and its Subsidiaries or Digital and its
Subsidiaries, as the case may be, pertaining to any product, software or service
manufactured, marketed, licensed or sold by the Company and its Subsidiaries or
Digital and its Subsidiaries, as the case may be, in the conduct of their
business or used, employed or exploited in the development, license, sale,
marketing, distribution or maintenance thereof, and all documentation and media
constituting, describing or relating to the above, including, but not limited
to, manuals, memoranda, know-how, notebooks, software, records and disclosures.
"Intellectual Property Licenses": All license agreements or other
agreements which in any way affect the rights of the Company or of Digital to
any of their respective Intellectual Property.
"IRS": The U.S. Internal Revenue Service.
"Issuance": As defined in Section 7.3(b).
"knowledge" (and any derivatives thereof): The actual knowledge of a
Person (or, in the case of a corporation, partnership or other entity, the
actual knowledge of its executive officers) after inquiry of the appropriate
employee charged with principal responsibility for the subject matter thereof,
and any further investigation that may be appropriate where the circumstances
would indicate the need for further investigation, but no information known by
any other employee, or any attorney, accountant or other
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representative, of such party shall be imputed to such party unless such
information would have been disclosed by such an investigation.
"Merger": The merger of Merger Sub with and into the Company as
contemplated by Section 2.1.
"Merger Documents": As defined in Section 2.2.
"Merger Sub": Vision Merger Corporation, a Washington corporation and a
direct wholly owned Subsidiary of Digital.
"Nasdaq/NM": The Nasdaq National Market.
"Open Digital Claim": As defined in Section 4.2.5(c).
"Operative Documents": This Agreement (including all Exhibits hereto,
the Company Disclosure Statement and the Digital Disclosure Statement), the
Shareholders Agreement and any other documents the execution of which is
necessary in order to consummate the Merger.
"Option": As defined in Section 4.1(d).
"Person": Any individual or corporation, company, partnership, trust,
incorporated or unincorporated association, joint venture or other entity of any
kind.
"Personal Property": As defined in Section 5.17(b).
"Proxy Statement/Prospectus": As defined in Section 7.4.
"RCW": The Revised Code of Washington.
"Real Property": As defined in Section 5.17(a).
"Replacement Option": As defined in Section 4.1(d).
"Representative Reimbursement": As defined in Section 4.2.7.
"Respective Representatives": As defined in Section 7.7.
"Response Period": As defined in Section 4.2.5(b).
"Restricted Stock": Shares of Company Common Stock issued as restricted
stock pursuant to the form of Restricted Stock Purchase Agreement attached
hereto as Exhibit 1.
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"S-1 Registration Statement": The registration statement on Form S-1,
Registration Number 333-09573, as amended, filed by the Company with the SEC
under the Securities Act to effect an initial public offering of the Company
Common Stock.
"S-3 Registration Statement": As defined in Section 7.5.
"S-4 Registration Statement": As defined in Section 7.4.
"SEC": The Securities and Exchange Commission.
"Securities Act": The Securities Act of 1933, as amended.
"Share Consideration": As defined in Section 4.1(b).
"Shareholder Representative": As defined in Section 4.2.4(a).
"Shareholders": The shareholders of the Company immediately prior to
the Effective Time.
"Shareholders Agreement": As defined in Section 7.3(a).
"Shares": Collectively, the shares of Company Common Stock and Company
Preferred Stock.
"Software Products": As defined in Section 5.9(b).
"Subsidiary": As to any Person, any other Person of which at least 50%
of the equity or voting interests are owned, directly or indirectly, by such
first Person.
"Superior Proposal": As defined in Section 7.2(a).
"Surviving Corporation": The surviving corporation in the Merger.
"Tax Returns": All tax returns, information returns and reports for
Taxes required to be filed with any Governmental Body.
"Taxes": All taxes, charges, fees, levies or other assessments,
including, but not limited to, income, excise, gross receipts, property, sales,
use, ad valorem, transfer, franchise, profits, license, withholding, payroll,
employment, severance, stamp, occupation, windfall profits, social security and
unemployment or other taxes imposed by the United States or any agency or
instrumentality thereof, any state, county, local or foreign government, or any
agency or instrumentality thereof, and any
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interest or fines, and any and all penalties or additions relating to such
taxes, charges, fees, levies or other assessments.
"Third Party": As defined in Section 11.1(c).
"Threshold": As defined in Section 4.2.1(b).
"Warrant": As defined in Section 4.1(e).
"WBCA": The Washington Business Corporation Act.
ARTICLE II
THE MERGER; EFFECTIVE TIME; CLOSING
2.1 THE MERGER
Upon the terms and subject to the conditions of this Agreement, at the
Effective Time, Merger Sub shall be merged with and into the Company in
accordance with the provisions of the WBCA and the CCC and with the effects
provided in RCW 23B.11.060 and CCC Section 1107. The separate corporate
existence of Merger Sub shall thereupon cease, and the Company shall be the
Surviving Corporation and shall be governed by the laws of the state of
California. Notwithstanding the foregoing, at any time prior to the Closing
Date, Digital may elect to have Merger Sub be the Surviving Corporation so long
as such action does not result in the inability to satisfy any of the conditions
set forth in Article VIII.
2.2 EFFECTIVE TIME
As soon as practicable following satisfaction or waiver of the
conditions set forth in Article VIII, the parties shall file with the
appropriate Governmental Bodies all documents (executed in accordance with the
relevant provisions of the WBCA and the CCC) required to be filed under the WBCA
and the CCC to consummate the Merger (the "Merger Documents"). The Merger shall
become effective on the date and at the time (the "Effective Time") that the
Merger Documents have been accepted for filing by the appropriate Governmental
Bodies (or such later date and time as may be specified in the Merger
Documents), which shall be the Closing Date or as soon as practicable
thereafter.
2.3 CLOSING
Subject to the fulfillment or waiver of the conditions set forth in
Article VIII, the Closing shall take place (a) at the offices of ▇▇▇▇▇▇▇ Coie,
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
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▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, at 10 a.m. within one business day of the date of receipt
of the last of the approvals required by Sections 8.1(a) and (b) or (b) at such
other place and/or time and/or on such other date as Digital and the Company may
agree or as may be necessary to permit the fulfillment or waiver of the
conditions set forth in Article VIII.
ARTICLE III
TERMS OF MERGER
3.1 ARTICLES OF INCORPORATION
The Articles of Incorporation of the Company in effect immediately
prior to the Effective Time shall be the Articles of Incorporation of the
Surviving Corporation, until duly amended in accordance with the terms thereof
and of the CCC.
3.2 BYLAWS
The Bylaws of the Company in effect at the Effective Time shall 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 CCC.
3.3 DIRECTORS
The directors of Merger Sub at the Effective Time shall, from and after
the Effective Time, be the directors of the Surviving Corporation until their
respective successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and Bylaws.
3.4 OFFICERS
The officers of Merger Sub at the Effective Time shall, from and after
the Effective Time, be the officers of the Surviving Corporation until their
respective successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and Bylaws.
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ARTICLE IV
MERGER CONSIDERATION; CONVERSION OR
CANCELLATION OF SHARES IN THE MERGER
4.1 SHARE CONSIDERATION; CONVERSION OR CANCELLATION OF SHARES IN THE MERGER
Subject to the provisions of this Article IV, at the Effective Time, by
virtue of the Merger and without any action by holders thereof, the shares of
the capital stock of the constituent corporations shall be converted as follows:
(a) Other than Shares as to which dissenters' rights of appraisal have
been exercised, each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into 0.693 Digital
Common Shares (the "Exchange Ratio") and each share of Company Preferred Stock
issued and outstanding immediately prior to the Effective Time shall be
converted into a number of Digital Common Shares equal to the product of the
Exchange Ratio times the number of shares of Company Common Stock into which
such Company Preferred Stock is convertible immediately prior to the Effective
Time. If, prior to the Effective Time, Digital should split or combine the
Digital Common Shares, or pay a stock dividend or other stock distribution in
Digital Common Shares, or otherwise change the Digital Common Shares into any
other securities, or make any other dividend or distribution on the Digital
Common Shares, then the Exchange Ratio will be appropriately adjusted to reflect
such split, combination, dividend or other distribution or change.
(b) All Shares converted into Digital Common Shares pursuant to this
Section 4.1 shall cease to be outstanding, shall be canceled and retired and
shall cease to exist, and each holder of a certificate representing any such
Shares shall thereafter cease to have any rights as Company Shareholders with
respect to such Shares, except the right to receive for each of the Shares, upon
the surrender of such certificate in accordance with Section 4.3, and subject to
Section 4.2, the amount of Digital Common Shares specified above (the "Share
Consideration") and cash in lieu of fractional Digital Common Shares as
contemplated by Section 4.4.
(c) Each share of common stock, par value $0.01 per share, of Merger
Sub issued and outstanding immediately prior to the Effective Time shall
evidence the same number of shares of common stock of the Surviving Corporation.
(d) At the Effective Time, each outstanding option to purchase Shares
(each, an "Option") issued pursuant to any of the Company's stock option plans
(the
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"Company Option Plans"), whether vested or unvested, shall convert into an
option (a "Replacement Option") to acquire, on the same terms and conditions,
including the vesting schedule, as were applicable under such replaced Option
prior to the Effective Time, the number of Digital Common Shares (rounded down
to the nearest whole number) equal to the product of the Exchange Ratio and the
number of Shares subject to such Option, at a price per share equal to the
aggregate exercise price for the Shares subject to such Option divided by the
number of full Digital Common Shares deemed to be purchasable pursuant to such
Replacement Option; provided, however, that in no event shall the terms of any
Replacement Option give the employee additional benefits that he or she did not
have under an original Option that is described in Section 421(a) of the Code.
Following the Effective Time, upon surrender of the outstanding Options, Digital
shall deliver to holders of Options appropriate option agreements representing
the Replacement Options.
Digital shall submit to its shareholders at the Digital Shareholders
Meeting a proposal to adopt a new stock option plan (the "Digital Stock
Incentive Plan") with a sufficient number of Shares reserved thereunder to
permit the issuance of the Replacement Options. Digital shall use all reasonable
efforts to file on or prior to the Closing Date, and maintain the effectiveness
of, a registration statement or registration statements on Form S-8 with respect
to Digital Common Shares subject to such Replacement Options (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such Replacement Options remain outstanding. In the event approval of the
Digital Stock Incentive Plan is not obtained at the Digital Shareholders
Meeting, each Option shall be assumed by Digital and deemed to constitute a
Replacement Option.
(e) On or before the Closing Date, each holder, other than Comdisco,
Inc. ("Comdisco") of an outstanding warrant to purchase Shares (each, a
"Warrant") shall have exercised such Warrant for Shares in accordance with its
terms. Warrants that have not been exercised as of the Effective Time shall
terminate in accordance with their respective terms; provided, however, that if,
prior to the Closing Date, Comdisco shall not have exercised its Warrant dated
May 31, 1996, to purchase 42,857 shares of Company Preferred Stock at a per
share price of $0.70 (the "Comdisco Warrant"), then Comdisco and Digital shall
enter into a written agreement providing that the Comdisco Warrant shall be
replaced by a warrant to acquire, on the same terms and conditions as were
applicable under the Comdisco Warrant, 8,486 Digital Common Shares at a per
share price of $3.53.
(f) Each share of Restricted Stock outstanding at the Effective Time
shall convert into 0.693 Digital Common Shares in accordance with Section 4.1(a)
and
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shall remain subject to the same terms and conditions, including the vesting
schedule, as were applicable to such Restricted Stock prior to the Effective
Time.
4.2 CLOSING CONSIDERATION; HOLDBACK
Each Shareholder (other than Shareholders exercising dissenters'
rights) will receive, upon surrender of such Shareholder's Certificates in
accordance with Section 4.3, a number (rounded down to the nearest whole number)
of Digital Common Shares equal to 90% of the Share Consideration to which such
Shareholder shall be entitled (the "Closing Consideration"). The remaining 10%
of the Share Consideration (together with any dividends or distributions accrued
or made thereon after the Effective Time and any other securities or property
which may be issued after the Effective Time in exchange for such shares in any
merger or recapitalization or similar transaction involving Digital, the
"Holdback Shares") will be held by Digital in order to effect any reduction in
the Share Consideration pursuant to the provisions of this Section 4.2. On the
Holdback Termination Date, except as otherwise specified in this Section 4.2,
Digital will issue certificates to each Shareholder for such Shareholder's
Holdback Shares that have not been retransferred to Digital in accordance with
the provisions of this Section 4.2.
4.2.1 PURCHASE PRICE REDUCTION
(a) From and after the Effective Time, and subject to the provisions of
this Section 4.2, the Share Consideration shall be reduced by a number of
Digital Common Shares equal in value to the amount of 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 or accounting fees or expenses, other than those
incurred by Digital in connection with asserting a Digital Claim under this
Section 4.2) incurred by Digital or any of its officers, directors or Affiliates
("Digital Losses") arising out of or in connection with:
(i) any inaccuracy in any representation or warranty made by
the Company or a Company Affiliate in this Agreement or in any other Operative
Document or in any certificate delivered pursuant hereto or thereto, or
(ii) any failure by the Company or a Company Affiliate to
perform or comply, in whole or in part, with any covenant or agreement in this
Agreement or in any other Operative Document.
(b) Notwithstanding the foregoing, the Share Consideration shall not be
reduced until the aggregate Digital Losses exceed $350,000 (the "Threshold");
provided, however, that once the aggregate Digital Losses exceed the Threshold,
the
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Share Consideration shall be reduced only by a number of Digital Common
Shares equal in value to the amount by which all Digital Losses exceed the
Threshold.
(c) Prior to submitting any claim that the Share Consideration should
be reduced (a "Digital Claim"), Digital shall use reasonable efforts to
determine the amount, if any, by which the Digital Losses would be offset by
Digital's recovery of insurance proceeds and reduction of tax liabilities and to
provide the Shareholders notice of and a description of such determination. Any
adjustment to the Share Consideration under this Article IV shall be reduced to
the extent any Digital Losses specified in a Digital Claim are reduced by such a
recovery or reduction.
(d) The Share Consideration shall not be reduced with respect to any
Digital Claims which are first asserted by Digital after the Holdback
Termination Date.
4.2.2 CERTIFICATES
Certificates representing the Holdback Shares shall be held by Digital,
subject to Digital's rights of retransfer under this Section 4.2, and will bear
a legend to that effect. The record or beneficial owners of Holdback Shares
shall execute and deliver such instruments as Digital may from time to time
reasonably request for the purpose of retransferring any Holdback Shares to
Digital or the Shareholder Representative.
4.2.3 RELEASE OF HOLDBACK SHARES
Digital shall hold the Holdback Shares in accordance with this
Agreement and shall transfer the Holdback Shares only as follows:
(a) Holdback Shares shall be (i) retransferred to Digital, when and to
the extent authorized under this Section 4.2, to effect any reduction in the
Share Consideration resulting from Digital Claims under this Section 4.2, and
(ii) transferred to the Shareholder Representative in connection with
Representative Reimbursements in accordance with Section 4.2.7. Any Holdback
Shares to be retransferred to Digital or transferred to the Shareholder
Representative pursuant to this Section 4.2 shall be rounded to the nearest
whole share and shall be valued on the basis of the last reported sale price of
Digital Common Shares on the Nasdaq/NM (i) in the case of transfers to Digital,
on the Closing Date and (ii) in the case of a transfer to the Shareholder
Representative in accordance with Section 4.2.7, on the last business day
preceding such transfer.
(b) On the Holdback Termination Date, the Holdback Shares (excluding
Holdback Shares retransferred to Digital or transferred to the Shareholder
Representative in accordance with paragraph (a) of this Section 4.2.3 or held in
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reserve pending resolution of an Open Digital Claim) shall be released to the
Shareholders pro rata in accordance with their percentage ownership of the
Company immediately prior to the Effective Time; provided, however, that no
Holdback Shares shall be released to any Shareholder who has not previously
surrendered all of such Shareholder's Certificates in accordance with Section
4.3.
(c) After the Holdback Termination Date, when a final determination is
made with respect to any Open Digital Claim, (i) the number of Holdback Shares
transferable to Digital as a result of such final determination shall be
transferred to Digital from the Digital Claim Reserve Amount for such Open
Digital Claim, (ii) Holdback Shares shall be transferred to the Shareholder
Representative in accordance with Section 4.2.7 for additional Representative
Reimbursements not in excess of the Holdback Shares remaining in the Digital
Claim Reserve Amount, and (iii) the Holdback Shares included in such Digital
Claim Reserve Amount remaining after the transfers in (i) and (ii) above shall
be released to the Shareholders pro rata in accordance with their percentage
ownership of the Company immediately prior to the Effective Time.
4.2.4 SHAREHOLDER REPRESENTATIVE
(a) In order to facilitate the administration of the Digital Claims
procedure set forth in Sections 4.2.5 and 4.2.6, promptly after the Closing
Date, the holders of a majority in interest of the Holdback Shares shall select
a Person (the "Shareholder Representative") to act for and on behalf of all
holders of the Holdback Shares with respect to all matters arising in connection
with this Section 4.2 including, without limitation, the power and authority, in
his or her sole discretion, to:
(i) take any action contemplated to be taken by the
Shareholder Representative under this Section 4.2;
(ii) negotiate, determine, defend and settle any dispute
which may arise under this Section 4.2; and
(iii) make, execute, acknowledge and deliver any releases,
assurances, receipts, requests, instructions, notices, agreements, certificates
and any other instruments, and to generally do any and all things and to take
any and all actions which may be requisite, proper or advisable in connection
with this Section 4.2.
(b) The holders of a majority in interest of the Holdback Shares may
replace the Shareholder Representative at any time with a substitute Shareholder
Representative who shall have all the powers and responsibilities of the
Shareholder Representative set forth in this Section 4.2.
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(c) Neither the Shareholder Representative, nor any substitute
Shareholder Representative, shall be liable to any Person for any action taken
or any omission to act, in good faith, in connection with the Shareholder
Representative's responsibilities as Shareholder Representative.
(d) Promptly following his or her selection, the Shareholder
Representative, or any substitute Shareholder Representative, shall provide
Digital with a written certification of his or her selection and of the address
for notices to such Shareholder Representative. Digital may thereafter deal
exclusively with the Shareholder Representative in connection with the Digital
Claims procedure in reliance on such certification. Whenever in connection with
the provisions of this Section 4.2 Digital shall receive any certificate or
other written correspondence from the Shareholder Representative, such
certificate or other written correspondence shall be full authorization to
Digital for any action taken or suffered in good faith by it under the
provisions of this Section 4.2 in reliance thereon.
4.2.5 DIGITAL CLAIMS PROCEDURE
The procedure for the retransfer to Digital of Holdback Shares to
reduce the Share Consideration under this Section 4.2 shall be as follows:
(a) Subject to the limitation that written notice of any Digital Claim
must be given to the holders of the Holdback Shares not later than the Holdback
Termination Date, from time to time as Digital determines that the Share
Consideration must be reduced in accordance with Section 4.2.3, Digital may give
written notice of the Digital Claim to the Shareholder Representative describing
in such notice the nature of the Digital Claim, the amount thereof if then
ascertainable and, if not then ascertainable, the estimated maximum amount
thereof, and the provisions in this Agreement on which the Digital Claim is
based.
(b) If Digital has not received written objection to a Digital Claim
from the Shareholder Representative within 30 days after notice of such Digital
Claim is delivered (the "Response Period"), the Digital Claim stated in such
notice shall be conclusively deemed to be approved by the holders of the
Holdback Shares, and Digital will be entitled to receive, and may take all
actions necessary to effect the retransfer to Digital of, a number of Holdback
Shares equal in value to the amount of such Digital Claim.
(c) If within the Response Period Digital shall have received from the
Shareholder Representative a written objection to the Digital Claim specifying
the nature of and grounds for such objection, then such Digital Claim shall be
deemed to be an "Open Digital Claim," and Digital shall reserve a number of
Holdback Shares
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equal in value to the amount of such Open Digital Claim (the "Digital Claim
Reserve Amount").
(d) The Holdback Shares reserved for any Open Digital Claim shall be
retransferred to Digital only in accordance with either (i) a mutual agreement
among Digital and the Shareholder Representative, which shall be memorialized in
writing, or (ii) a final and binding arbitration decision or court order
pertaining to the Open Digital Claim.
4.2.6 THIRD PARTY CLAIMS
(a) Digital shall notify the Shareholder Representative in writing
reasonably promptly after the assertion against Digital or any of its officers,
directors or Affiliates of any claim by a third party (a "Third Party Claim") in
respect of which Digital intends to base a Digital Claim. The failure or delay
so to notify the Shareholder Representative shall not be deemed to preclude the
Digital Claim except to the extent that the Shareholder Representative
demonstrates that his or her ability to defend or resolve such Third Party Claim
is adversely affected thereby.
(b) (i) Subject to the rights of or duties to any insurer or other
third party having potential liability therefor, the Shareholder Representative
shall have the right, upon written notice given to Digital within 30 days after
receipt of the notice from Digital of any Third Party Claim, to assume the
defense or handling of such Third Party Claim, at the sole expense of the
Shareholder Representative (which expense shall be eligible for a Representative
Reimbursement), in which case the provisions of paragraph (b)(ii) of this
Section 4.2.6 shall govern.
(ii) The Shareholder Representative shall select counsel
reasonably acceptable to Digital in connection with conducting the defense or
handling of such Third Party Claim, and the Shareholder Representative shall
defend or handle the same in consultation with Digital and shall keep Digital
timely apprised of the status of such Third Party Claim. The Shareholder
Representative shall not, without the prior written consent of Digital, agree to
a settlement of any Third Party Claim, unless (A) the settlement provides an
unconditional release and discharge of Digital (or its officers, directors or
Affiliates, as the case may be), and Digital (or its officers, directors or
Affiliates, as the case may be) is reasonably satisfied with such discharge and
release and (B) Digital shall not have reasonably objected to any such
settlement on the ground that the circumstances surrounding the settlement
would, or would be reasonably expected (so far as can be foreseen at the time)
to, result in an adverse impact on the business, properties, operations,
condition (financial or other) or prospects of Digital or the business conducted
by the Surviving Corporation. Digital shall cooperate with the Shareholder
Representative, and shall be entitled to
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participate in the defense or handling of such Third Party Claim with its own
counsel and at its own expense.
(c) (i) If the Shareholder Representative does not give written
notice to Digital within 30 days after receipt of the notice from Digital of any
Third Party Claim of the election by the Shareholder Representative to assume
the defense or handling of such Third Party Claim, the provisions of paragraph
(c)(ii) of this Section 4.2.6 shall govern.
(ii) Digital may 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 Digital shall keep the Shareholder Representative 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 Shareholder Representative, which
consent shall not be unreasonably withheld. If Digital defends or handles such
Third Party Claim, the Shareholder Representative shall cooperate with Digital
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.
(d) Digital may notify the Shareholder Representative of a Digital
Claim even though the amount thereof plus the amount of other Digital Claims
previously notified by Digital aggregate less than the Threshold.
4.2.7 SHAREHOLDER REPRESENTATIVE'S EXPENSES
The Shareholder Representative shall be entitled to submit to Digital
an affidavit certifying in reasonable detail as to costs or expenses, including
attorneys' fees, incurred by the Shareholder Representative in the satisfaction
of his or her responsibilities as Shareholder Representative. Digital shall
reimburse the Shareholder Representative for such costs and expenses, but only
to the extent of the value of the Holdback Shares (as established in accordance
with this Section 4.2), excluding Holdback Shares retransferred to Digital in
accordance with Section 4.2.3(a) or held in reserve pending resolution of any
Open Digital Claim (any such reimbursement, a "Representative Reimbursement"),
by transferring to the Shareholder Representative a number of Holdback Shares
with a value equal to the amount of such Representative Reimbursement.
4.2.8 VOTING; DISPOSITION
The Holdback Shares shall be held of record by the holders thereof, who
shall have the full right to vote the Holdback Shares on all matters coming
before the
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shareholders of Digital. The holders of the Holdback Shares shall not
sell or transfer to any third party any interest in the Holdback Shares prior to
any distribution of the Holdback Shares to such holders pursuant to Section
4.2.3(b) or (c).
4.2.9 MERGER OR RECAPITALIZATION
In the event of any merger, recapitalization or similar transaction
involving Digital prior to the time when all Holdback Shares have been
transferred or released in accordance with the terms of this Section 4.2, such
Holdback Shares shall be converted or exchanged in accordance with such
transaction in the same manner as other Digital Common Shares, and any
securities or property issued in conversion or exchange thereof shall then be
included within the definition of Holdback Shares and shall otherwise become
subject to this Agreement in lieu of such Digital Common Shares. If as a result
of any such transaction the shareholders of Digital immediately before the
transaction will not own in excess of 50% of the voting capital stock of Digital
immediately after the transaction, the Holdback Termination Date shall be deemed
to be the closing date of such transaction and the Holdback Shares shall be
retransferred to Digital or released to the holders of the Holdback Shares, as
the case may be, as provided herein.
4.2.10 TAXATION OF DIVIDENDS
For federal and state income tax purposes, any dividends or other
distributions with respect to the Holdback Shares shall be income of the holders
thereof.
4.3 SURRENDER OF CERTIFICATES
Digital shall supply, or shall cause to be supplied, to or for the
account of a bank or trust company designated by Digital (the "Exchange Agent"),
in trust for the benefit of the holders of Shares (other than Shares for which
dissenters' rights have been exercised), for exchange in accordance with this
Section 4.3, through the Exchange Agent, certificates evidencing the Digital
Common Shares issuable pursuant to Section 4.1 in exchange for outstanding
Shares. Prior to the Closing, Digital shall instruct, and shall use reasonable
efforts to cause, the Exchange Agent to deliver, within three business days of
the Closing Date, to each holder of record of a certificate or certificates
which immediately prior to the Effective Time represented outstanding Shares
(the "Certificates") (a) a form of letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange Agent)
and (b) instructions for use in effecting the surrender of the Certificates.
At or following the Closing, upon surrender of Certificates for cancellation to
the Exchange Agent, together with such letter of transmittal duly executed and
any other required
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documents, the holder of such Certificates shall receive for each of the Shares
represented by such Certificates the Closing Consideration and cash in lieu of
fractional Digital Common Shares as contemplated by Section 4.4, and the
Certificates so surrendered shall forthwith be canceled. Until surrendered, each
outstanding Certificate shall, upon and after the Effective Time, be deemed for
all purposes (other than to the extent provided in the following sentence) to
evidence only the right to receive, upon surrender of the Certificate, a
certificate or certificates representing the Closing Consideration and cash in
lieu of fractional Digital Common Shares. Unless and until such outstanding
Certificates are so surrendered, the holders thereof shall not be entitled to
receive any dividends or distributions of any kind payable to the holders of
record of Digital Common Shares. Upon the surrender of any such Certificate,
however, there shall be paid to the record holder of the certificate issued in
exchange therefor the aggregate amount of dividends and distributions, if any,
which theretofore became payable in respect of the Closing Consideration, and
such surrendered Certificate shall be duly canceled. No interest shall be
payable on or in respect of such deferred dividends or distributions until
surrender of such outstanding Certificates.
4.4 FRACTIONAL SHARES
No fractional Digital Common Shares shall be issued in the Merger. In
lieu of any such fractional securities, each holder of Shares who would
otherwise have been entitled to a fraction of a Digital Common Share upon
surrender of Certificates for exchange pursuant to this Article IV will be paid
an amount in cash (without interest) equal to the last reported sale price of
one Digital Common Share on the Nasdaq/NM on the last business day prior to the
Closing Date, multiplied by such fraction.
4.5 TRANSFER OF SHARES AFTER THE EFFECTIVE TIME
No transfers of Shares shall be made on the stock transfer books of the
Company after the close of business on the day prior to the date of the
Effective Time.
4.6 ARBITRATION
Any controversies or claims arising out of or relating to this
Agreement shall be fully and finally settled by arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association (the
"AAA Rules"), conducted by one arbitrator either (a) mutually agreed upon by
Digital and the Company if prior to the Effective Time or Digital and the
Shareholder Representative if after the Effective Time or (b) chosen in
accordance with the AAA Rules, except that the parties thereto shall have any
right to discovery as would be permitted by the Federal Rules of Civil Procedure
for a period of 90 days following the commencement of such arbitration,
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and the arbitrator thereof shall resolve any dispute which arises in connection
with such discovery. The prevailing party shall be entitled to costs, expenses
and reasonable attorneys' fees, and judgment upon the award rendered by the
arbitrator may be entered in any court of competent jurisdiction identified in
Section 11.11. Arbitration proceedings shall be conducted in either Seattle,
Washington or San Francisco, California.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company (which term for purposes of the provisions in this Article
V other than Sections 5.1, 5.2, 5.3 and 5.4 shall include all of the Company's
Subsidiaries) hereby represents and warrants to Digital and Merger Sub that,
except as set forth in the Company Disclosure Statement:
5.1 ORGANIZATION, ETC. OF THE COMPANY
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the state of California and has all requisite
corporate power and authority to own and operate its properties, to carry on its
business as now conducted , to enter into this Agreement and to carry out the
provisions of this Agreement and consummate the transactions contemplated
hereby. The Company is duly qualified and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary and where the
failure to be so qualified has, or would be reasonably expected (so far as can
be foreseen at the time) to have, a material adverse effect on the business,
properties, operations, condition (financial or other) or, to the Company's
knowledge, the prospects of the Company. The Company has obtained from the
appropriate Governmental Bodies all approvals and licenses necessary for the
conduct of its business and operations as currently conducted, which approvals
and licenses are valid and remain in full force and effect, except where the
failure to have obtained such licenses or approvals or the failure of such
licenses and approvals to be valid and in full force and effect does not have,
and would not be reasonably expected (so far as can be foreseen at the time) to
have, a material adverse effect on the business, properties, operations,
condition (financial or other) or, to the Company's knowledge, the prospects of
the Company.
5.2 SUBSIDIARIES
(a) The name, jurisdiction of incorporation and jurisdictions of
foreign qualification of each of the Company's Subsidiaries are as set forth in
the Company
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Disclosure Statement. Except as set forth in the Company Disclosure Statement,
the Company does not own, directly or indirectly, any ownership, equity, profits
or voting interest in, or otherwise control, any corporation, partnership, joint
venture or other entity, and has no agreement or commitment to purchase any such
interest. The Company owns 100% of the issued and outstanding shares of capital
stock, or other ownership interests, of each of the Company's Subsidiaries, free
and clear of any lien, encumbrance, preemptive right, right of first offer or
refusal, or other prior claim, and all the issued and outstanding shares of
capital stock, or other ownership interests, of the Company's Subsidiaries are
duly authorized and validly issued, fully paid and nonassessable, and were
issued and acquired in compliance with all applicable federal, state and foreign
securities and other laws.
(b) Each Subsidiary of the Company (i) is a corporation or other legal
entity duly organized, validly existing and (if applicable) in good standing
under the laws of the jurisdiction of its organization and has the full power
and authority to own its properties and conduct its business and operations as
currently conducted, except where the failure to be duly organized, validly
existing and in good standing does not have, and would not be reasonably
expected (so far as can be foreseen at the time) to have, a material adverse
effect on the business, properties, operations, condition (financial or other)
or, to the Company's knowledge, the prospects of the Company and its
Subsidiaries taken as a whole, (ii) is duly qualified and in good standing in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified does not have, and would not be
reasonably expected (so far as can be foreseen at the time) to have, a material
adverse effect on the business, properties, operations, condition (financial or
other) or, to the Company's knowledge, the prospects of the Company and its
Subsidiaries taken as a whole, and (iii) has obtained from the appropriate
Governmental Bodies all approvals and licenses necessary for the conduct of its
business and operations as currently conducted, which approvals and licenses are
valid and remain in full force and effect, except where the failure to have
obtained such approvals and licenses or the failure of such approvals and
licenses to be valid and in full force and effect does not have, and would not
be reasonably expected (so far as can be foreseen at the time) to have, a
material adverse effect on the business, properties, operations, condition
(financial or other) or, to the Company's knowledge, the prospects of the
Company and its Subsidiaries taken as a whole.
5.3 AGREEMENT
This Agreement and the consummation of the transactions contemplated
hereby have been approved by the Company's Board of Directors and have been duly
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authorized by all other necessary corporate action on the part of the Company
(except for the approval of the Company's shareholders as contemplated by
Section 7.3(a)). This Agreement has been duly executed and delivered by a duly
authorized officer of the Company and constitutes a valid and binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general application that may affect the
enforcement of creditors' rights generally and by general equitable principles.
The Company has delivered to Digital true and correct copies of resolutions
adopted by the Company's Board of Directors approving this Agreement.
5.4 CAPITAL STOCK
(a) The authorized capital stock of the Company consists of 40,000,000
shares of Company Common Stock, of which 3,925,361 shares are outstanding as of
the date hereof, and 5,950,000 shares of Company Preferred Stock, of which
4,752,474 shares are outstanding as of the date hereof. The outstanding Shares
are held of record and beneficially by the Shareholders as set forth in the
Company Disclosure Statement; such Shareholder list specifically identifies all
Company Affiliates. All outstanding Shares are duly authorized, validly issued,
fully paid and nonassessable, and issued in compliance with all federal, state
and foreign securities laws, and no class of capital stock of the Company is
entitled to preemptive rights.
(b) There are outstanding on the date hereof no options, warrants or
other rights to acquire capital stock from the Company, except (i) Company
Preferred Stock convertible into 1,357,851 shares of Company Common Stock, (ii)
Options representing in the aggregate the right to purchase up to 860,708 shares
of Company Common Stock, and (iii) Warrants representing in the aggregate the
right to purchase up to 105,468 shares of Company Common Stock (assuming
conversion of any shares of Company Preferred Stock for which such Warrant is
exercisable). Set forth in the Company Disclosure Statement is a spreadsheet
accurately reflecting the number of Options, Warrants and shares of Restricted
Stock outstanding, the grant dates, vesting schedules and exercise prices
thereof (in each case, as applicable), and the identities of the holders thereof
and an indication of their relationships to the Company.
(c) Except as set forth in the Company Disclosure Statement, the
Company is not a party or subject to any agreement or understanding, and, to the
Company's knowledge, there is no agreement or understanding between any Persons,
that affects or relates to the voting or giving of written consents with respect
to any securities of the Company or the voting by any director of the Company.
Except as set forth in the Company Disclosure Statement, no Shareholder or any
Affiliate thereof is indebted to
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the Company, the Company is not indebted to any of its Shareholders or any
Affiliate thereof, and the Company is not under any contractual or other
obligation to register any of its presently outstanding securities or any of its
securities which may hereafter be issued.
5.5 LITIGATION
Except as disclosed in the Company Disclosure Statement, there are no
actions, suits, investigations or proceedings (adjudicatory, rulemaking or
otherwise) pending or, to the Company's knowledge, threatened against the
Company (or any Employee Benefit Plan), or any property of the Company
(including the Company's Intellectual Property), in any court or before any
arbitrator of any kind or before or by any Governmental Body, except actions,
suits, investigations or proceedings that, in the aggregate, do not have, and
would not be reasonably expected (so far as can be foreseen at the time) to
have, a material adverse effect on (a) the business, properties, operations,
condition (financial or other) or, to the Company's knowledge, the prospects of
the Company or (b) the ability of the Company to perform its obligations under
this Agreement.
5.6 COMPLIANCE WITH OTHER INSTRUMENTS, ETC.
(a) The Company is not in violation of any term of (i) its charter,
Bylaws or other organizational documents, (ii) any agreement or instrument
relating to indebtedness for borrowed money or any other agreement to which it
is a party or by which it is bound, (iii) any applicable law, ordinance, rule or
regulation of any Governmental Body, or (iv) any applicable order, judgment or
decree of any court, arbitrator or Governmental Body, the consequence of which
violation, whether individually or in the aggregate, would have, or would be
reasonably expected (so far as can be foreseen at the time) to have, a material
adverse effect on the (A) business, properties, operations, condition (financial
or other) or, to the Company's knowledge, the prospects of the Company or (B)
ability of the Company to perform its obligations under this Agreement.
(b) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby will not
(i) 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 or Governmental Body applicable to the Company,
(ii) require any Authorization or any consent or approval of any nongovernmental
Person, except compliance with applicable securities laws, the approval of the
shareholders of each of the Company and Digital and the filing of all documents
necessary to consummate the Merger with the Washington Secretary of State and
the California Secretary of State, (iii) result in
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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,
(iv) result in the creation of any lien or encumbrance upon the assets of the
Company or upon any outstanding Shares or other securities of the Company, (v)
conflict with any provision of the Company's charter or Bylaws, or (vi)
invalidate or adversely affect any permit, license, authorization or status used
in the conduct of the Company's business (provided that, in making the
representations in (ii), (iii) and (vi) of this paragraph (b), the Company may
assume that it will be the Surviving Corporation following the Merger).
5.7 EMPLOYEE BENEFIT PLANS
(a) The Company Disclosure Statement sets forth an accurate and
complete list and description of, and the annual amount expected to be paid for
the Company's current fiscal year pursuant to, each employee benefit plan,
policy, program, contract or arrangement covering or benefiting any officer,
employee, former employee, director or former director of the Company or any
dependents or beneficiaries of any such person, or with respect to which the
Company has (or could have) any material obligation or liability, including, but
not limited to, each "employee benefit plan," within the meaning of Section 3(3)
of ERISA, and each retirement, pension, deferred compensation, profit-sharing,
stock bonus, stock purchase, stock option, savings, bonus, severance, cafeteria,
medical, dental, life insurance, disability, medical expense reimbursement,
dependent care expense reimbursement or tuition reimbursement plan, policy or
program (such items are hereinafter referred to collectively as "Employee
Benefit Plans" and each individually as an "Employee Benefit Plan"). The Company
has no agreement, arrangement, commitment or obligation to create any employee
benefit plan, policy, program, contract or arrangement not identified in the
Company Disclosure Statement or to modify or amend any existing Employee Benefit
Plan.
(b) The Company has delivered to Digital true, correct and complete
copies of all Employee Benefit Plans (including all amendments thereto),
together with, to the extent applicable to a particular Employee Benefit Plan,
the following: (i) copies of the annual reports (Form 5500 series) filed with
respect to the Employee Benefit Plan for the last three years; (ii) copies of
the summary plan descriptions, summary annual reports, summaries of material
modifications and all material employee manuals or communications filed or
distributed with respect to the Employee Benefit Plan during the last three
years; (iii) copies of any insurance contracts or trust
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agreements through which the Employee Benefit Plan is funded; (iv) copies of all
contracts relating to the Employee Benefit Plan; and (v) a copy of the most
recent Internal Revenue Service determination letter issued with respect to the
Employee Benefit Plan.
(c) With respect to each Employee Benefit Plan: (i) the Company is, and
at all times has been, in compliance with, and such Employee Benefit Plan is,
and at all times has been, maintained, administered and operated in compliance
with, the terms of such Employee Benefit Plan and all applicable laws, rules and
regulations, including, but not limited to, ERISA and the Code and which is not
otherwise exempt from the prohibited transactions provisions of ERISA or the
Code; (ii) all Tax Returns and other information relating to such Employee
Benefit Plan required to be filed with any Governmental Body have been
accurately, timely and properly filed; (iii) 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, timely and
properly disclosed or provided; (iv) neither the Company nor any other 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 Section 404 of
ERISA with respect to such Employee Benefit Plan; and (v) no event has occurred
or is threatened or about to occur that would constitute a prohibited
transaction under Section 406 or 407 of ERISA or under Section 4975 of the Code
and which is not otherwise exempt from the prohibited transaction provisions of
ERISA or the Code. 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 Employee
Benefit Plan that constitutes a "group health plan" within the meaning of
Section 4980B(g)(2) of the Code or Section 607(1) of ERISA has been administered
and operated at all times in compliance with the requirements of Section
4980B(f) of the Code and Title I, Subtitle B, Part 6 of ERISA.
(d) All contributions and other payments required to have been made by
the Company (including any pretax or post-tax contributions or payments by
employees or their dependents) to any Employee Benefit Plan (or to any Person
pursuant to the terms thereof) have been so made, and the amount of any such
payment or contribution obligation that has accrued, but is not yet due, as of
the date hereof, has been properly reflected in the Company Financial
Statements.
(e) There are no actions, suits or claims (other than routine claims
for benefits) pending, and to the Company's knowledge there are no actions,
suits or claims threatened, with respect to any Employee Benefit Plan or against
the assets of
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any Employee Benefit Plan, nor, to the Company's knowledge, is there a
reasonable basis for any such action, suit or claim. None of the Employee
Benefit Plans is currently under investigation, audit or review, directly or
indirectly, by the IRS, the DOL or any other Governmental Body, and, to the
Company's knowledge, no such action is contemplated or under consideration by
the IRS, DOL or any other Governmental Body.
(f) The Company does not maintain or contribute to, and has never
maintained or contributed to (or been obligated to contribute to), any
multi-employer plan within the meaning of Section 3(37) or Section 4001(a)(3) of
ERISA, or any plan that is subject to Section 302 or Title IV of ERISA or
Section 412 of the Code.
(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,
organizations and/or entities that is treated as a single employer under Section
414(o) of the Code.
(h) No Employee Benefit Plan that is an "employee welfare benefit plan"
within the meaning of Section 3(l) of ERISA provides, or has any obligation to
provide, benefits with respect to current or former employees of the Company or
any other entity beyond their retirement or other termination of service,
including, without limitation, post-retirement (or post-termination) medical,
dental, life insurance, severance or any other similar benefit, whether provided
on an insured or self-insured basis, other than continuation coverage required
to be provided under Section 4980B of the Code or Title I, Subtitle B, Part 6 of
ERISA.
(i) The consummation of any transaction contemplated hereby will not
result in any (i) payment (whether of severance pay or otherwise) becoming due
from the Company to any officer, employee, former employee or director thereof
or to the trustee under any "rabbi trust" or similar arrangement or (ii) benefit
under any Employee Benefit Plan being established or becoming accelerated,
vested or payable.
5.8 TAXES
The Company has (a) duly and timely filed, including valid extensions,
with the appropriate Governmental Bodies all Tax Returns required to be filed by
it, all of which Tax Returns are true, correct and complete, and (b) paid in
full or provided for all Taxes that are due or claimed to be due by any
Governmental Body. Except as described in the Company Disclosure Statement, (i)
the reserves and provisions for Taxes reflected in the Company Financial
Statements are adequate for the payment of
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current Taxes not yet due and payable; (ii) no unresolved claim for assessment
or collection of Taxes has been asserted or threatened against the Company, and
no audit or investigation by any Governmental Body is under way with respect to
Taxes, interest or other charges; (iii) to its knowledge, no circumstances exist
or have existed which would constitute grounds for assessment against the
Company of any Tax liability with respect to any period for which Tax Returns
have been filed; (iv) the Company has not filed or entered into any election,
consent or extension agreement or any waiver that extends any applicable statute
of limitations; (v) any Taxes incurred by the Company or accrued by it since
September 30, 1996 have arisen in the ordinary course of business; and (vi) the
Company has not filed any consent to the application of Section 341(f)(2) of the
Code to any assets held, acquired or to be acquired by it. The Company has
furnished Digital with complete and correct copies of all Tax Returns filed by
the Company. There are no Tax liens on any property or assets of the Company
other than liens for Taxes not yet due and payable. 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 that jurisdiction. The Company
(1) has not made any payments, is not obligated to make any payments, and is not
a party to any agreement (including this Agreement) that could obligate it to
make any payments that will not be deductible under Section 280G of the Code;
(2) has not been a U.S. 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; (3) is not a party to any Tax allocation or
sharing agreement; (4) has not been a member of an affiliated group filing a
consolidated income Tax Return; and (5) does not have any liability for Taxes of
any Person under Treasury Regulations Section 1.1502-6 (or any similar provision
of state, local or foreign law) as a transferor or successor by contract or
otherwise.
5.9 INTELLECTUAL PROPERTY
Set forth in the Company Disclosure Statement is a true and complete
list of all of the Company's Intellectual Property and Intellectual Property
Licenses. Such list indicates the specific Intellectual Property affected by
each Intellectual Property License. To the Company's knowledge, neither the
Company's operations nor any of its Intellectual Property or Intellectual
Property Licenses infringe or provide any basis to believe that its operations
or any of its Intellectual Property or Intellectual Property Licenses would
infringe upon any validly issued or pending trademark, trade name, service ▇▇▇▇,
copyright or, to the knowledge of the Company, any validly issued or pending
patent or other right of any other Person, nor, to the knowledge of the Company,
is there any infringement by any other Person of any of the Company's
Intellectual Property or of any other intellectual property to which the
Company's Intellectual Property Licenses relate. The consummation of the
transactions
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contemplated hereby will not alter or impair the Company's rights to any of its
Intellectual Property or under any of its Intellectual Property Licenses. 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.
Except as set forth in the Company Disclosure Statement, the Company is
not aware of any adverse claim to its sole and exclusive ownership of or
licensee rights to:
(a) its Intellectual Property, its Intellectual Property Licenses and
the technology, know-how and processes now used by it, or used in connection
with any product now being manufactured and sold by it, in the manner that such
product is now being manufactured and sold, and
(b) all right, title and interest of whatever kind or nature throughout
the world in and to the fully or partially developed computer software products
listed in the Company Disclosure Statement, with all modifications, enhancements
and additions thereto, including, without limitation, all rights in and to all
versions thereof and all source code, object code, manuals and other
documentation and related materials thereof (collectively, the "Software
Products"). Without limiting the generality of the above, the Software Products
shall also include all of the Company's related programs, trade secrets,
algorithms and processes relating to the Software Products or such programs, the
Company's copyright in and to each of the Software Products and all works
derivative therefrom, all current, previous, enhanced and developmental versions
of the source and object code and any variations thereof, all user and
programmer documentation, all design specifications, all maintenance and
installation job control language, all systems documentation (including all flow
charts, systems procedures and program component descriptions), all procedures
for modification and preparation for the release of enhanced versions and all
test data available (excluding all proprietary information of third parties)
with respect to the Software Products.
Each of the Company's Intellectual Property Licenses is valid, binding
and enforceable in accordance with its terms against the parties thereto, the
Company has performed all obligations imposed upon it thereunder, and neither
the Company nor, to the Company's knowledge, any other party thereto is in
default thereunder, nor is there any event which with notice or lapse of time,
or both, would constitute a default by the Company or, to the Company's
knowledge, any other party thereunder. The Company has not received notice that
any party to any of the Company's Intellectual Property Licenses intends to
cancel, terminate or refuse to renew the same or to exercise or decline to
exercise any option or other right thereunder. No licenses, sublicenses,
covenants or agreements have been granted or entered into by the
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Company in respect of any of the Company's Intellectual Property except the
Intellectual Property Licenses listed in the Company Disclosure Statement and
except for licenses, sublicenses, covenants or agreements involving obligations
(contingent or otherwise) not in excess of $250,000 during the fiscal year
ending December 31, 1996, or, to the Company's knowledge, in any future year. No
director, officer, shareholder or employee of the Company owns, directly or
indirectly, in whole or in part, any of the Company's Intellectual Property. To
the Company's knowledge, none of the Company's officers, directors, employees,
consultants, distributors, agents, representatives or advisors 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 be
reasonably expected to have (as far as can be foreseen at the time), a material
adverse effect on the business, properties, operations, condition (financial or
other) assets, liabilities or, to the Company's knowledge, prospects of the
Company.
No Person has asserted any claim of infringement or other interference
with third-party rights with respect to the Company's Intellectual Property.
Except as set forth in the Company Disclosure Statement, (i) the Company has not
disclosed any source code regarding the Software Products to any Person other
than an employee of the Company or to Digital or Merger Sub, except for any
disclosure that would not be reasonably expected (as far as can be foreseen at
the time) to have a material adverse effect on the business, properties,
operations, condition (financial or other) or, to the Company's knowledge,
prospects of the Company; (ii) the Company has at all times maintained
reasonable procedures to protect, and has enforced, all of its trade secrets;
(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 Company's Software Products (nor, to the
knowledge of the Company, is any other party to the Company's Intellectual
Property Licenses under any obligation to disclose any source code or other
proprietary information included in or relating to such Software Products) to
any Person, and no event has occurred, including the execution of this Agreement
or any related change in the Company's business activities, which would give
rise to such obligation; and (iv) the Company has not deposited any source code
regarding the Software Products into any source code escrows or similar
arrangements. If, as disclosed in the Company Disclosure Statement, the Company
has deposited any source code to its Software Products 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.
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The Software Products are free from known significant defects and
substantially conform to the specifications, documentation and sample
demonstration furnished to the Company's current or prospective customers or to
Digital.
5.10 FINANCIAL STATEMENTS
The Company has provided to Digital true and correct copies of its (a)
audited consolidated balance sheets as of December 31, 1993, 1994 and 1995, and
related audited statements of operations and cash flows for the fiscal years
then ended, and (b) unaudited consolidated balance sheets as of March 31, 1996
and June 30, 1996, and related unaudited statements of operations and cash flows
for the quarters then ended (collectively, the "Company Financial Statements").
Each of such balance sheets (including the related notes) presents fairly, in
all material respects, the consolidated financial position of the Company and
its Subsidiaries as of the respective dates thereof, and the other related
statements (including the related notes) included therein present fairly, in all
material respects, the results of operations and cash flows of the Company for
the respective periods or as of the respective dates set forth therein, all in
conformity with generally accepted accounting principles consistently applied
during the periods involved, except as otherwise noted therein and subject, in
the case of the unaudited interim financial statements, to normal year-end
adjustments (other than reclassifications having no effect on profit or loss)
which will not have a net negative effect on profit or loss of $150,000 or more
in the aggregate and any other adjustments described therein and except that
such interim financial statements do not contain the notes required by generally
accepted accounting principles. The Company has no liabilities or financial
obligations (absolute, contingent or otherwise) required to be disclosed in
financial statements or notes thereto, in accordance with generally accepted
accounting principles, which are not fully reflected or reserved against in the
June 30, 1996 balance sheet, except such liabilities or obligations that (i)
were incurred since the date of the balance sheet in the ordinary course of
business and consistent with past practice or (ii) are not in excess of $25,000
in the aggregate or $5,000 individually. The Company maintains standard systems
of accounting which are adequate for its business. The Company's practices with
respect to capitalizing software development costs, as reflected in the Company
Financial Statements, are reasonable, in accordance with industry standards, and
in conformity with generally accepted accounting principles, consistently
applied during the periods involved.
5.11 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except as specifically set forth in the Company Disclosure Statement
and except for transactions specifically contemplated in this Agreement, since
June 30,
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1996, neither the Company nor any of its officers or directors in their
representative capacities on behalf of the Company has:
(a) taken any action or entered into or agreed to enter into any
transaction, agreement or commitment other than in the ordinary course of
business or involving an insignificant obligation or expenditure;
(b) forgiven or canceled any indebtedness or waived any claims or
rights of material value (including, without limitation, any indebtedness owing
by any shareholder, officer, director, employee or Affiliate of the Company);
(c) 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 (including any such increase pursuant to any
employment agreement or bonus, pension, profit-sharing, lease payment or other
plan or commitment);
(d) suffered any material adverse change in its business, properties,
operations, condition (financial or other), assets, liabilities or, to the
Company's knowledge, its reasonably foreseeable prospects (other than as a
result of economic or political developments of general applicability);
(e) borrowed or agreed to borrow any funds, incurred or become subject
to, whether directly or by way of assumption or guarantee or otherwise, any
obligations or liabilities (absolute, accrued, contingent or otherwise), except
liabilities and obligations that (i) were incurred in the ordinary course of
business and consistent with past practice or (ii) are not in excess of $25,000
in the aggregate or $5,000 individually, 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 (absolute, accrued, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business and consistent with
past practice, or not in excess of $25,000 in the aggregate or $5,000
individually, of claims, liabilities and obligations reflected or reserved
against in the June 30, 1996 balance sheet or incurred in the ordinary course of
business and consistent with past practice since June 30, 1996, or prepaid any
obligation having a fixed maturity of more than 90 days from the date such
obligation was issued or incurred;
(g) permitted or allowed any of its property or assets (real, personal
or mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien,
security interest, encumbrance, restriction or charge, except (i) assessments
for current Taxes not yet due and payable, (ii) landlord's liens for rental
payments not yet due and
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payable, and (iii) mechanics', materialmen's, carriers' and other similar
statutory liens securing indebtedness that was incurred in the ordinary course
of business and is not yet due and payable;
(h) written down the value of any inventory (including write-downs by
reason of shrinkage, markdown or obsolescence) or written off as uncollectible
any notes or accounts receivable, except in the ordinary course of business and
consistent with past practice;
(i) sold, transferred or otherwise disposed of any of its properties or
assets (real, personal or mixed, tangible or intangible), except the sale of
inventory 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
trademark, trade name, patent or copyright, or disposed of or disclosed to any
Person without obtaining an appropriate confidentiality agreement from any such
Person any 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
$150,000 for additions to property, plant, equipment or intangible capital
assets or made aggregate capital expenditures in excess of $750,000 for
additions to property, plant, equipment or intangible capital assets;
(l) made any change in any method of accounting or accounting practice
or internal control procedure;
(m) issued any capital stock or other securities (other than grants of
options under the Company Option Plans or the issuance of Company Common Stock
upon the exercise of options granted under the Company Option Plans), 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 shares of capital stock or other securities of the
Company, or otherwise permitted the withdrawal by any of the holders of capital
stock of the Company of any cash or other assets (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 (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any of the
Company's shareholders, officers, directors or employees or any Affiliate
thereof, except for (i) compensation paid to officers and employees at rates not
exceeding the rates of compensation paid during
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the fiscal year last ended, (ii) compensation increased in the ordinary course
of business and consistent with past practice, (iii) funds advanced to the
Company's employees for travel expenses in the ordinary course of business and
consistent with past practice, and (iv) draws on commissions in the ordinary
course of business and consistent with past practice of up to $20,000 per
individual employee;
(o) entered into or agreed to enter into, or otherwise suffered to be
outstanding, any power of attorney of the Company or any obligations or
liabilities (absolute, accrued, contingent or otherwise) of the Company, as
guarantor, surety, cosigner, endorser, comaker, indemnitor or otherwise in
respect of the obligation of any other Person;
(p) received notice of, or otherwise obtained knowledge of (i) any
action, suit, arbitration, proceeding or investigation involving, pending
against or threatened against the Company or any employee of the Company in any
court or before any arbitrator of any kind or before or by any Governmental
Body; (ii) any valid basis for any action, suit, arbitration, proceeding,
investigation or the application of any fine or penalty adverse to the Company
or any employee of the Company; or (iii) any outstanding or unsatisfied
judgments, orders, decrees or stipulations to which the Company or any employee
of the Company is a party and where such items in clause (i), (ii) or (iii)
above relate directly to the transactions contemplated herein or which would be
reasonably expected (so far as can be foreseen at the time) to have a material
adverse effect on the business, properties, operations, condition (financial or
other) or, to the Company's knowledge, the prospects of the Company;
(q) 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 or any amendment or change to any existing license or other
agreement relating to intellectual property, other than in the ordinary course
of business;
(r) received notice that there has been a loss of, or contract
cancellation by, any material current or prospective customer, licensor or
distributor of the Company; or
(s) agreed, whether in writing or otherwise, to take any action
described in this Section 5.11.
5.12 CONTRACTS AND LEASES
The Company Disclosure Statement contains an accurate and complete
listing of all material contracts, leases, agreements or understandings, whether
written or oral, of the Company. For purposes of this representation, a
contract, lease,
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agreement or understanding is "material" if it involves (a) obligations
(contingent or otherwise) of, or payments to the Company in excess of, $250,000
during the fiscal year ending December 31, 1996, or to the Company's knowledge,
in any future year, or (b) the license of any patent, copyright, trade secret or
other proprietary right (i) to the Company which is necessary for the Company to
carry on its business or (ii) from the Company which materially limits the
ability of the Company to carry on its business. Each of such contracts, leases,
agreements and understandings is in full force and effect and is valid, binding
and enforceable in accordance with its terms against each party thereto, and (A)
none of the Company or, to the Company's knowledge, any other party thereto has
breached any of the above or is in default thereunder, (B) no event has occurred
which, with notice or lapse of time, or both, would constitute such a breach or
default, (C) no claim of material default thereunder has, to the Company's
knowledge, been asserted or threatened, and (D) none of the Company or, to the
Company's knowledge, any other party thereto is seeking the termination or
renegotiation thereof or substitute performance thereunder, except where such
breach or default, or attempted termination, renegotiation or substitute
performance, individually or in the aggregate, does not have, and would not be
reasonably expected (so far as can be foreseen at the time) to have, a material
adverse effect on the business, properties, operations, condition (financial or
other) or, to the Company's knowledge, the prospects of the Company. True and
complete copies of each such written contract (or written summaries of the terms
of any such oral contract) have been heretofore delivered to Digital. Except as
specifically set forth in the Company Disclosure Statement, the Company has no:
(a) outstanding sales or service contracts, bids, commitments or
proposals priced significantly lower than the Company's customary list price for
such products or services such that the contract, bid, commitment or proposal
might be expected by the Company to result in any loss upon completion or
performance thereof,
(b) contracts with its agents, consultants, advisors, distributors or
dealers that are not, except as provided by law to the contrary without regard
to the express terms of such contract, cancelable by the Company within 30 days'
notice without liability, penalty or premium exceeding $5,000;
(c) agreement or arrangement providing for the payment of any bonus or
commission based on sales or earnings, or any compensation agreement or
arrangement affecting or relating to former employees of the Company;
(d) employment agreement, whether express or implied, or any other
agreement for services that contains any severance or termination pay
liabilities or obligations;
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(e) noncompetition agreement or other restriction from carrying on its
business anywhere in the world;
(f) liability or obligation with respect to the return of inventory or
merchandise other than on account of a defective condition, incorrect quantities
or missed delivery dates; or
(g) disagreement with any of its suppliers, customers, distributors,
OEM resellers, licensors or licensees, except where such disagreement does not
have and would not be reasonably expected (so far as can be foreseen at the
time) to have a material adverse effect on the business, properties, operating
condition (financial or other) or, to the Company's knowledge, the prospects of
the Company.
5.13 INSIDER INTERESTS
Except as set forth in the Company Disclosure Statement, no officer,
director, Affiliate or other representative of the Company has any interest
(other than as a shareholder of the Company) (a) in any of the Company's Real
Property or Personal Property or (b) to the Company's knowledge, in any
agreement, contract, arrangement or obligation relating to the Company, its
present or prospective business or its operations. The Company and, to the
Company's knowledge, its officers and directors have no interest, either
directly or indirectly, in any Person that presently (i) provides any services,
produces and/or sells any products or product lines, or engages in any activity
which is competitive with the business in which the Company is now engaged or
proposes to engage (other than as a beneficial owner of shares in a publicly
held company aggregating less than 5% of the total outstanding equity interest
in such company, held for investment only); (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); or (iii) has any direct or
indirect interest in any asset or property, real or personal, tangible or
intangible, of the Company or any property, real or personal, tangible or
intangible, that is necessary or desirable for the present or anticipated future
conduct of the Company's business.
5.14 BROKERS AND FINDERS
Except for the fees and expenses payable to ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLC and
▇▇▇▇▇ and Company , the Company has not employed any investment banker, broker,
finder, consultant or intermediary, in connection with the transactions
contemplated by this Agreement, which would be entitled to any investment
banking, brokerage, finder's or similar fee or commission in connection with
this Agreement or the transactions contemplated hereby.
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5.15 S-4 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS
None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in the S-4 Registration Statement or the
Proxy Statement/Prospectus will (a) in the case of the S-4 Registration
Statement, at the time it becomes effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or (b) in the case of
the Proxy Statement/Prospectus, at the time of mailing the Proxy
Statement/Prospectus, at the time of the Digital Shareholders Meeting and at the
time consents of the Company's shareholders are obtained, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event with respect to the Company or its
officers and directors shall occur that is required to be described in the Proxy
Statement/Prospectus or the S-4 Registration Statement, the Company shall notify
Digital thereof by reference to this Section 5.15 and cooperate with Digital in
preparing and filing with the SEC and, as required by law, disseminating to the
shareholders of the Digital and Company an amendment or supplement which
accurately describes such event or events in compliance with all provisions of
applicable law.
5.16 TAX MATTERS
The representations set forth in the numbered paragraphs of the form of
Tax Matters Certificate of the Company attached hereto as Exhibit 5.16 (the
"Company Tax Matters Certificate") are true and correct in all respects, and
such representations are hereby incorporated herein by reference with the same
effect as if set forth herein in their entirety.
5.17 PROPERTY
(a) The Company owns no real property other than the leasehold
interests described in the Company Disclosure Statement, which contains a
complete and accurate list of all real property of the Company which is leased,
rented or used by the Company (the "Real Property").
(b) The Company has separately delivered to Digital a complete and
accurate report for the period beginning January 1, 1995 of the Company's fixed
asset and roll-forward schedule, which lists all leaseholds, improvements,
leased equipment and other furniture, equipment and personal property (the
"Personal Property"), showing aggregate additions, deletions and changes through
September 30, 1996. The
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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, property rights with an individual value of less
than $5,000) reflected in the June 30, 1996 balance sheet and all the properties
and assets purchased by the Company since June 30, 1996 (except for such
properties or assets sold since such date in the ordinary course of business and
consistent with past practice). The Real Property and the Personal Property
include all material property used in the business of the Company.
(c) The Company's leasehold interest in each parcel of the Real
Property is free and clear of all liens, mortgages, pledges, deeds of trust,
security interests, charges, encumbrances and other adverse claims or interests
of any kind. Each lease of any portion of the Real Property is valid, binding
and enforceable in accordance with its terms against the parties thereto and any
other Person with an interest in such Real Property, the Company has performed
in all material respects all obligations imposed upon it thereunder, and neither
the Company nor any other party thereto is in default thereunder nor is there
any event which with notice or lapse of time, or both, would constitute a
default thereunder. Except as set forth in the Company Disclosure Statement, no
consent is required from any Person under any lease or other agreement or
instrument relating to the Real Property in connection with the consummation of
the transactions contemplated by this Agreement, and the Company has not
received notice that any party to any such lease or other agreement or
instrument 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.
(d) The Company's offices, warehouse and other structures and its
Personal Property are of a quality consistent with industry standards, are in
good operating condition and repair, normal wear and tear excepted, are adequate
for the uses to which they are being put, and, to the Company's knowledge,
comply in all material respects with applicable safety and other laws and
regulations. To the Company's knowledge, 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 federal, state, county or local statutes, laws,
regulations, guidances, rules, ordinances, codes, licenses, permits, judgments,
writs, decrees, injunctions or orders of any Governmental Body relating to
environmental (air, water, groundwater, soil, noise and odor) matters, including
without 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
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Act, the Clean Water Act, the Hazardous Materials Transportation Act,
the Toxic Substances Control Act, the Hazardous Waste Control Act, comparable
California laws, and the regulations issued thereunder, and all other applicable
federal, state, county, local and foreign environmental requirements where such
violation would be reasonably expected (so far as can be foreseen at the time)
to have, a material adverse effect on the Company's business, properties,
operations, condition (financial or other) or, to the Company's knowledge,
prospects.
(e) Except as set forth in the Company Disclosure Statement, and except
for (i) assessments for current Taxes not yet due and payable, (ii) landlord's
liens for rental payments 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 statutory liens securing indebtedness
that was incurred in the ordinary course of business and is not yet due and
payable, the Personal Property is free and clear of all liens, and, other than
leased Personal Property which is so noted on the list supplied pursuant to
clause (b) of this Section 5.17, 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 in all material respects all obligations imposed on it
thereunder, and neither the Company nor, to the Company's knowledge, any other
party thereto is in default thereunder, nor is there any event which with notice
or lapse of time, or both, would constitute a default by the Company or, to the
Company's knowledge, any other party thereunder. Except as set forth in the
Company Disclosure Statement, no consent is required from any Person under any
lease or other agreement or instrument relating to the Personal Property in
connection with the consummation of the transactions contemplated by this
Agreement, and the Company has not received notice that any party to any such
lease or other agreement or instrument 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 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 has any such condemnation, expropriation or taking been proposed.
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5.18 CUSTOMERS AND SUPPLIERS
The Company Disclosure Statement sets forth (a) a complete and accurate
list of the customers of the Company accounting for 5% or more of the Company's
sales during the fiscal year last ended, showing the approximate total sales by
the Company to each such customer during the fiscal year last ended and the
nine-month period ended September 30, 1996, and (b) a complete and accurate list
of the suppliers of the Company from whom the Company has purchased 5% or more
of the goods or services purchased by the Company in the fiscal year last ended.
The Company has no reasonable basis to expect any material modification to its
relationship with any customer or supplier named in the Company Disclosure
Statement.
5.19 ORDERS, COMMITMENTS AND RETURNS
The Company Disclosure Statement contains an accurate summary of the
Company's total backlog of orders (including all accepted and unfulfilled sales
orders) and the aggregate of all outstanding purchase orders issued by the
Company (which include all contracts or commitments for the purchase by the
Company of materials or other supplies). All such sale and purchase commitments
were made in the ordinary course of business. Except as set forth in the Company
Disclosure Statement, there are no outstanding claims in excess of $100,000 in
the aggregate or $25,000 individually against the Company to return products by
reason of alleged failure to conform to customer expectations, defective
products, missed delivery dates or otherwise, or of products in the possession
of customers under an understanding that such products would be returnable.
5.20 LABOR AND EMPLOYMENT MATTERS
There are no material labor disputes, employee grievances or
disciplinary actions pending or, to the Company's knowledge, threatened against
or involving the Company or any of its present or former employees, and the
Company has not experienced any work stoppage or other labor difficulty since
its incorporation. The Company has complied with all provisions of law relating
to employment and employment practices, terms and conditions of employment,
wages and hours, the failure to comply with which would be reasonably expected
(so far as can be foreseen at the time) to have a material adverse effect upon
the business properties, operations, condition (financial or other) or, to the
Company's knowledge, the prospects of the Company. The Company is not engaged in
any unfair labor practice and has no liability for any arrears of wages or Taxes
or penalties for failure to comply with any such provisions of law. No
collective bargaining agreement is binding on the Company, and the Company has
no knowledge of any organizational efforts presently being made or threatened by
or on behalf of any labor union or other employee
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organization with respect to employees of the Company. Each employee, officer
and consultant of the Company has executed a nondisclosure agreement in the form
provided to Digital. To the Company's knowledge, 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, and the Company will use its best
efforts to prevent any such violation. The Company Disclosure Statement sets
forth a true and complete list of (a) the names and current compensation amounts
of all directors and officers of the Company; (b) the wage rates for nonsalaried
and nonofficer salaried employees of the Company by classification, and all
labor union contracts (if any); (c) all group insurance programs in effect for
employees of the Company; and (d) the names and current compensation packages of
all independent contractors and consultants of the Company. The Company is not
in default with respect to any of its obligations referred to above and has no
obligation or liability for severance or back pay owed through or by virtue of
the Closing. Except as disclosed in the Company Disclosure Statement, all
employees of the Company are employed on an "at will" basis.
5.21 ACCOUNTS RECEIVABLE
All accounts receivable of the Company reflected in the June 30, 1996
balance sheet, or existing at the Effective Time, represent sales actually made
in the ordinary course of business and were recorded in the Company's books
consistently with generally accepted principles governing revenue recognition,
consistently applied during the periods involved. The bad debt reserves and
sales return allowances reflected in the June 30, 1996 balance sheet are in
conformity with generally accepted accounting principles consistently applied
during the periods involved. Set forth in the Company Disclosure Statement is a
full and complete list and aging study of all consolidated accounts receivable
of the Company existing as of June 30, 1996.
5.22 CORPORATE BOOKS AND RECORDS
The Company has furnished to Digital or its representatives for their
examination true and complete copies of (a) the charter and Bylaws of the
Company as currently in effect, including all amendments thereto, (b) the minute
books of the Company, and (c) the stock transfer books of the Company. Such
minutes reflect all meetings of the Company's shareholders, Board of Directors
and any committees thereof since the Company's inception, and accurately reflect
in all material respects the events of and actions taken at such meetings. Such
stock transfer books accurately
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reflect all issuances and transfers of shares of capital stock of the Company
since its inception.
5.23 LICENSES, PERMITS, AUTHORIZATIONS, ETC.
Except as identified in the Company Disclosure Statement, the Company
has received all currently required Authorizations, licenses, orders,
registrations and permits of all Governmental Bodies, the failure to obtain
which would be reasonably expected (so far as can be foreseen at the time) to
have a material adverse effect on its business properties, operations, condition
(financial or other) or, to the Company's knowledge, prospects. The Company has
not received any notifications of any asserted present failure by it to have
obtained any such Authorization, license, order, registration or permit, or past
and unremedied failure to obtain such items.
5.24 INSURANCE
The Company maintains (a) insurance on all of its property (including
leased premises) that insures against loss or damage by fire or other casualty
(including extended coverage) and (b) insurance against liabilities, claims and
risks of a nature and in such amounts as are normal and customary in the
Company's industry for companies of similar size and financial condition. All
insurance policies of the Company are in full force and effect, all premiums
with respect thereto covering all periods up to and including the date this
representation is made have been paid, and no notice of cancellation or
termination has been received with respect to any such policy. Such policies 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 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 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.
5.25 ABSENCE OF QUESTIONABLE PAYMENTS
Neither the Company nor any director, officer, agent, employee or other
Person acting on behalf of the Company has 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 domestic or
foreign governmental 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
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or other Person acting on behalf of the Company 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
Foreign Corrupt Practices Act and all foreign laws and regulations relating to
prevention of corrupt practices and similar matters.
5.26 BANK ACCOUNTS
The Company Disclosure Statement sets forth the names and locations of
all banks, trust companies, savings and loan associations and other financial
institutions at which the Company maintains safe deposit boxes or accounts of
any nature and the names of all Persons authorized to draw thereon, make
withdrawals therefrom or have access thereto.
5.27 POOLING MATTERS
The Company has not taken any action, or become aware of any action
taken by any shareholder of the Company, involving any recapitalization or
repurchase or redemption of any securities of the Company, or any grant or
acceleration of any options to acquire securities of the Company, or any
purchase or sale of securities of Digital, and to the Company's knowledge there
have occurred no other events with respect to or involving the Company or its
shareholders that, taken individually or together, would, to the Company's
knowledge, affect the ability of Digital to account for the transactions
contemplated by this Agreement as a "pooling of interests" transaction in
accordance with generally accepted accounting principles, and the Company is not
aware of any facts, excluding actions by Digital, that otherwise could prevent
such accounting treatment.
5.28 FULL DISCLOSURE
The Company Financial Statements, the S-1 Registration Statement and
all information in the Company Disclosure Statement and the Exhibits hereto do
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements so made or information so
delivered not misleading and, to the Company's knowledge, no other information
furnished by the Company to Digital or its representatives in connection with
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements so made or
information so delivered not misleading,
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF DIGITAL
AND MERGER SUB
Each of Digital and Merger Sub hereby represents and warrants to the
Company that, except as set forth in the Digital Disclosure Statement:
6.1 ORGANIZATION, ETC. OF DIGITAL
Digital is a corporation duly organized, validly existing and in good
standing under the laws of the state of Washington and has all requisite
corporate power and authority to own and operate its properties, to carry on its
business as now conducted, to enter into this Agreement and to carry out the
provisions of this Agreement and consummate the transactions contemplated
hereby. Digital is duly qualified and in good standing in each jurisdiction in
which the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary and where the failure to be
so qualified has, or would be reasonably expected (so far as can be foreseen at
the time) to have, a material adverse effect on the business, properties,
operations, condition (financial or other) or, to Digital's knowledge, the
prospects of Digital and its Subsidiaries taken as a whole. Digital has obtained
from the appropriate Governmental Bodies all approvals and licenses necessary
for the conduct of its business and operations as currently conducted, which
approvals and licenses are valid and remain in full force and effect, except
where the failure to have obtained such approvals or licenses or the failure of
such approvals and licenses to be valid and in full force and effect does not
have, and would not be reasonably expected (so far as can be foreseen at the
time) to have, a material adverse effect on the business, properties,
operations, condition (financial or other) or, to Digital's knowledge, the
prospects of Digital and its Subsidiaries taken as a whole.
6.2 OPERATIONS OF SUBSIDIARIES
Each Subsidiary of Digital (a) is a corporation or other legal entity
duly organized, validly existing and (if applicable) in good standing under the
laws of the jurisdiction of its organization and has the full power and
authority to own its properties and conduct its business and operations as
currently conducted, except where the failure to be duly organized, validly
existing and in good standing does not have, and would not be reasonably
expected (so far as can be foreseen at the time) to have, a material adverse
effect on the business, properties, operations, condition (financial or other)
or, to Digital's knowledge, the prospects of Digital and its Subsidiaries taken
as a whole, (b) is duly qualified and in good standing in each jurisdiction in
which the property owned, leased or operated by it or the nature of the
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business conducted by it makes such qualification necessary, except where the
failure to be so qualified does not have, and would not be reasonably expected
(so far as can be foreseen at the time) to have, a material adverse effect on
the business, properties, operations, condition (financial or other) or, to
Digital's knowledge, the prospects of Digital and its Subsidiaries taken as a
whole, and (c) has obtained from the appropriate Governmental Bodies all
approvals and licenses necessary for the conduct of its business and operations
as currently conducted, which approvals and licenses are valid and remain in
full force and effect, except where the failure to have obtained such approvals
and licenses or the failure of such approvals and licenses to be valid and in
full force and effect does not have, and would not be reasonably expected (so
far as can be foreseen at the time) to have, a material adverse effect on the
business, properties, operations, condition (financial or other) or, to
Digital's knowledge, the prospects of Digital and its Subsidiaries taken as a
whole.
6.3 AGREEMENT
This Agreement and the consummation of the transactions contemplated
hereby have been approved by the respective Boards of Directors of Digital and
Merger Sub and by Digital as the sole shareholder of Merger Sub, and have been
duly authorized by all other necessary corporate action on the part of each of
them (except for the approval of Digital's shareholders contemplated by Section
7.3(b)). This Agreement has been duly executed and delivered by a duly
authorized officer of each of Digital and Merger Sub and constitutes a valid and
binding agreement of Digital and Merger Sub, enforceable against Digital and
Merger Sub in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general application that may affect the enforcement of creditors' rights
generally and by general equitable principles. Digital has delivered to the
Company true and correct copies of resolutions adopted by the Board of Directors
of each of Digital and Merger Sub approving this Agreement.
6.4 CAPITAL STOCK
The authorized capital stock of Digital consists of (a) 25,000,000
Digital Common Shares and (b) 5,000,000 shares of preferred stock, $.01 par
value per share. All the outstanding Digital Common Shares are duly authorized,
validly issued, fully paid and nonassessable, and no class of capital stock of
Digital is entitled to preemptive or cumulative voting rights. As of the close
of business on September 30, 1996, 9,522,688 Digital Common Shares and no shares
of preferred stock were issued and outstanding, and since that date there have
been no further issuances of Digital Common Shares, except in connection with
the exercise of options issued pursuant to the Digital Option Plans, and except
for issuances of Digital Common Shares pursuant
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to Digital's Employee Stock Purchase Plan (the "Digital Employee Stock Purchase
Plan"). Except as disclosed in the Digital SEC Reports, all outstanding shares
of capital stock of the Subsidiaries of Digital are owned by Digital or a direct
or indirect wholly owned Subsidiary of Digital, free and clear of all liens,
charges, encumbrances, claims and options of any nature. There are outstanding
on the date hereof no options, warrants or other rights to acquire capital stock
from Digital or any of its Subsidiaries, nor are there any securities
outstanding which are directly or indirectly convertible into or exchangeable
for shares of capital stock of Digital or any of its Subsidiaries, except
options to purchase Digital Common Shares granted pursuant to the Digital Option
Plans and rights existing under the Digital Employee Stock Purchase Plan. As of
the close of business on September 30, 1996, there were 2,925,000 Digital Common
Shares reserved for issuance upon the exercise of stock options, of which
970,298 Digital Common Shares had been issued and 1,445,799 Digital Common
Shares were subject to outstanding options as of such date, and there were
52,942 Digital Common Shares reserved for issuance under the Digital Employee
Stock Purchase Plan. Digital has not declared, and no Person has any accrued
right to receive, any distribution with respect to shares of capital stock of
Digital.
6.5 AUTHORIZATION FOR DIGITAL COMMON SHARES
Prior to the Effective Time, Digital will have taken all necessary
action to permit it to issue the number of Digital Common Shares required to be
issued pursuant to Article IV. The Digital Common Shares issued pursuant to
Article IV will, when issued, be duly authorized, validly issued, fully paid and
nonassessable, and no shareholder of Digital will have any preemptive right of
subscription or purchase in respect thereof. The Digital Common Shares will,
when issued, be registered under the Securities Act and the Exchange Act and
registered or exempt from registration under any applicable state securities
laws.
6.6 LITIGATION
Except as disclosed in the Digital SEC Reports filed prior to the date
hereof or the Digital Disclosure Statement, there are no actions, suits,
investigations or proceedings (adjudicatory, rulemaking or otherwise) pending
or, to the knowledge of Digital, threatened against Digital or any of its
Subsidiaries, or any property of Digital or any such Subsidiary (including any
Intellectual Property), in any court or before any arbitrator of any kind or
before or by any Governmental Body, except actions, suits, investigations or
proceedings that, in the aggregate, do not have, and would not be reasonably
expected (so far as can be foreseen at the time) to have, a material adverse
effect on the (a) business, properties, operations, condition (financial or
other)
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or, to Digital's knowledge, the prospects of Digital and its Subsidiaries
taken as a whole or (b) ability of Digital to perform its obligations under this
Agreement.
6.7 COMPLIANCE WITH OTHER INSTRUMENTS, ETC.
(a) Neither Digital nor any Subsidiary of Digital is in violation of
any term of (i) its charter, Bylaws or other organizational documents, (ii) any
agreement or instrument relate to indebtedness for borrowed money or any other
agreement to which it is a party or by which it is bound, (iii) any applicable
law, ordinance, rule or regulation of any Governmental Body, or (iv) any
applicable order, judgment or decree of any court, arbitrator or Governmental
Body, the consequences of which violation, whether individually or in the
aggregate, would have, or would be reasonably expected (so far as can be
foreseen at the time) to have, a material adverse effect on the (A) business,
properties, operations, condition (financial or other) or, to Digital's
knowledge, the prospects of Digital and its Subsidiaries taken as a whole or (B)
ability of Digital to perform its obligations under this Agreement.
(b) The execution, delivery and performance of this Agreement by
Digital and Merger Sub and the consummation of the transactions contemplated
hereby will not (i) 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 or Governmental Body applicable to
Digital or Merger Sub, (ii) require any Authorization or any consent or approval
of any nongovernmental Person, except compliance with applicable securities
laws, the approval of the shareholders of each of the Company and Digital and
the filing of all documents necessary to consummate the Merger with the
Washington Secretary of State and the California Secretary of State (all such
Authorizations and other consents or approvals to be duly obtained at or prior
to the Closing), (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 Digital or Merger Sub is a party or by which it is bound or
to which any assets of the Company are subject, (iv) result in the creation of
any lien or encumbrance upon the assets of Digital or Merger Sub or upon any
outstanding securities of Digital or Merger Sub, (v) conflict with any provision
of the charter or Bylaws of Digital or Merger Sub, or (vi) invalidate or
adversely affect any permit, license, authorization or status used in the
conduct of Digital's business.
6.8 TAXES
Digital and its Subsidiaries have filed all Tax Returns required to be
filed by them, and have paid all Taxes shown to be due thereon, other than Taxes
appropriate
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reserves for which have been made in the Digital Financial Statements (and, to
the extent material, such reserves have been accurately described to the
Company). There are no assessments or adjustments for Taxes that have been
asserted in writing against Digital or its Subsidiaries for any period for which
Digital has not made appropriate reserves in the Digital Financial Statements.
6.9 INTELLECTUAL PROPERTY
Digital and its Subsidiaries own, or have the defensible right to use,
all Intellectual Property used in Digital's business, except where the failure
to own or have the right to use such Intellectual Property, in the aggregate,
would not be reasonably expected (so far as can be foreseen at the time) to have
a material adverse effect on the business, properties, operations, condition
(financial or other) or, to Digital's knowledge, the prospects of Digital and
its Subsidiaries taken as a whole. To Digital's knowledge, neither Digital's
operations nor any of its Intellectual Property or Intellectual Property
Licenses infringe or provide any basis to believe that its operations or any of
its Intellectual Property or Intellectual Property Licenses would infringe upon
any validly issued or pending trademark, trade name, service ▇▇▇▇, copyright or,
to Digital's knowledge, any validly issued or pending patent or other right of
any other Person, nor, to Digital's knowledge, is there any infringement by any
other Person of any of Digital's Intellectual Property or of any other
intellectual property to which Digital's Intellectual Property Licenses relate.
6.10 REPORTS AND FINANCIAL STATEMENTS
Digital has timely filed all reports (including, without limitation,
proxy statements) required to be filed with the SEC since January 1, 1993
(collectively, the "Digital SEC Reports"), and has previously furnished or made
available to the Company true and complete copies of all Digital SEC Reports.
None of the Digital SEC Reports, as of their respective dates (as amended
through the date hereof), contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the balance sheets (including the related notes)
included in the Digital SEC Reports presents fairly, in all material respects,
the consolidated financial position of Digital and its Subsidiaries as of the
respective date thereof, and the other related financial statements (including
the related notes) included therein present fairly, in all material respects,
the results of operations and the cash flows of Digital and its Subsidiaries for
the respective periods or as of the respective dates set forth therein, all in
conformity with generally accepted accounting principles consistently applied
during the periods involved, except as otherwise noted therein and subject, in
the case of the unaudited
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interim financial statements, to normal year-end adjustments and any other
adjustments described therein. Digital has no liabilities or financial
obligations (absolute, contingent or otherwise) required to be disclosed in its
financial statements or the notes thereto in accordance with generally accepted
accounting principles which are not fully reflected or reserved against in the
unaudited balance sheet contained in its report on Form 10-Q for the quarter
ended June 30, 1996, except such liabilities or obligations that would not be
reasonably expected (so far as can be foreseen at the time) to have a material
adverse effect on the business, properties, operations, condition (financial or
other) or, to Digital's knowledge, the prospects of Digital and its Subsidiaries
taken as a whole. All of the Digital SEC Reports, as of their respective dates
(as amended through the date hereof), complied in all material respects with the
requirements of the Exchange Act and the applicable rules and regulations
thereunder.
6.11 ABSENCE OF CERTAIN CHANGES OR EVENTS
During the period since December 31,1995, and except as disclosed in
the Digital SEC Reports, (a) the business of Digital has been conducted only in
the ordinary course, consistent with past practice, (b) Digital has not entered
into any material transaction other than in the ordinary course of business and
consistent with past practice, and (c) there has not been any material adverse
change in the business, properties, operations, condition (financial or other),
assets, liabilities or, to Digital's knowledge, the reasonably foreseeable
prospects of Digital and its Subsidiaries taken as a whole (other than as a
result of economic or political developments of general applicability).
6.12 CONTRACTS AND LEASES
The Digital SEC Reports contain an accurate and complete list of all
material contracts, leases, agreements or understandings, whether written or
oral, required to be described therein or filed as exhibits thereto pursuant to
the Exchange Act and the applicable rules and regulations thereunder. Each of
such contracts, leases, agreements and understandings is in full force and
effect and is valid, binding and enforceable in accordance with its terms
against each party thereto, and (a) none of Digital or its Subsidiaries or, to
Digital's knowledge, any other party thereto has breached any of the above or is
in default thereunder, (b) no event has occurred which, with notice or lapse of
time, or both, would constitute such a breach or default, (c) no claim of
material default thereunder has, to Digital's knowledge, been asserted or
threatened, and (d) none of Digital or its Subsidiaries or, to Digital's
knowledge, any other party thereto is seeking the termination or renegotiation
thereof or substitute performance thereunder, except where such breach or
default, or attempted
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termination, renegotiation or substitute performance, individually or in the
aggregate, would not be reasonably expected (so far as can be foreseen at the
time) to have a material adverse effect on the business, properties, operations,
condition (financial or other) or, to Digital's knowledge, the prospects of
Digital and its Subsidiaries taken as a whole.
6.13 OWNERSHIP OF MERGER SUB; NO PRIOR ACTIVITIES; ASSETS OF MERGER SUB
(a) Merger Sub was formed by Digital solely for the purpose of engaging
in the transactions contemplated hereby.
(b) As of the date hereof and at the Effective Time, the capital stock
of Merger Sub is and will be owned 100% by Digital directly. There are not as of
the date hereof and there will not be at the Effective Time any outstanding or
authorized options, warrants, calls, rights, commitments or any other agreements
of any character which Merger Sub is a party to, or may be bound by, requiring
it to issue, transfer, sell, purchase, redeem or acquire any shares of capital
stock or any securities or rights convertible into, exchangeable for, or
evidencing the right to subscribe for or acquire, any shares of capital stock of
Merger Sub.
(c) As of the date hereof and at the Effective Time, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated thereby and hereby, Merger Sub
has not and will not have incurred, directly or indirectly through any
Subsidiary or Affiliate, any obligations or liabilities or engaged in any
business or activities of any type or kind whatsoever or entered into any
agreements or arrangements with any Person.
(d) Digital will take all action necessary to ensure that Merger Sub at
no time prior to the Effective Time owns any asset other than an amount of cash
necessary to incorporate Merger Sub and to pay the expenses of the Merger
attributable to Merger Sub if the Merger is consummated.
6.14 BROKERS AND FINDERS
Except for the fees and expenses payable to ▇▇▇▇ ▇▇▇▇▇▇▇▇, Inc.,
Digital has not employed any investment banker, broker, finder, consultant or
intermediary in connection with the transactions contemplated by this Agreement
which would be entitled to any investment banking, brokerage, finder's or
similar fee or commission in connection with this Agreement or the transactions
contemplated hereby.
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6.15 S-4 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS
None of the information supplied or to be supplied by Digital or Merger
Sub for inclusion or incorporation by reference in the S-4 Registration
Statement or the Proxy Statement/Prospectus will (a) in the case of the S-4
Registration Statement, at the time it becomes effective, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading or (b) in the case
of the Proxy Statement/Prospectus, at the time of mailing the Proxy
Statement/Prospectus, at the time of the Digital Shareholders Meeting and at the
time consents of the Company's shareholders are obtained, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event with respect to Digital, its officers and
directors or any of its Subsidiaries shall occur that is required to be
described in an amendment of, or a supplement to, the Proxy Statement/Prospectus
or the S-4 Registration Statement, Digital shall notify the Company thereof by
reference to this Section 6.15 and, in the case of the Proxy
Statement/Prospectus or the S-4 Registration Statement, such event shall be so
described, and an amendment or supplement shall be promptly filed with the SEC
and, as required by law, disseminated to the shareholders of Digital and the
Company, and such amendment or supplement shall comply with all provisions of
applicable law. The S-4 Registration Statement will comply (with respect to
Digital and Merger Sub) as to form in all material respects with the provisions
of the Securities Act. The Proxy Statement/Prospectus will comply (with respect
to Digital and Merger Sub) in all material respects with the requirements of the
Exchange Act and the applicable rules and regulations thereunder.
6.16 TAX MATTERS
The representations set forth in the numbered paragraphs of the form of
Tax Matters Certificate of Digital attached hereto as Exhibit 6.16 (the "Digital
Tax Matters Certificate") are true and correct in all respects, and such
representations are hereby incorporated herein by reference with the same effect
as if set forth herein in their entirety.
6.17 CUSTOMERS AND SUPPLIERS
The Digital Disclosure Statement sets forth (a) a complete and accurate
list of the customers of Digital accounting for 5% or more of Digital's sales
during the fiscal year last ended, showing the approximate total sales by
Digital to each such customer during the fiscal year last ended and the
nine-month period ended September 30,
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1996, and (b) a complete and accurate list of the suppliers of Digital from whom
Digital has purchased 5% or more of the goods or services purchased by Digital
in the fiscal year last ended. Digital has no reasonable basis to expect any
material modification to its relationship with any customer or supplier named in
the Digital Disclosure Statement.
6.18 ORDERS, COMMITMENTS AND RETURNS
Digital Disclosure Statement contains an accurate summary of Digital's
total backlog of orders (including all accepted and unfulfilled sales orders)
and the aggregate of all outstanding purchase orders issued by Digital (which
include all contracts or commitments for the purchase by Digital of materials or
other supplies). All such sale and purchase commitments were made in the
ordinary course of business. Except as set forth in Digital Disclosure
Statement, there are no outstanding material claims against Digital to return
products by reason of alleged failure to conform to customer expectations,
defective products, missed delivery dates or otherwise, or of products in the
possession of customers under an understanding that such products would be
returnable.
6.19 POOLING MATTERS
Digital has not taken any action, or become aware of any action taken
by any shareholder of Digital, involving any recapitalization or repurchase or
redemption of any securities of Digital, or any grant or acceleration of any
options to acquire securities of Digital, or any purchase or sale of securities
of the Company, and to Digital's knowledge there have occurred no other events
with respect to or involving Digital or its shareholders that, taken
individually or together, would, to Digital's knowledge, affect the ability of
Digital to account for the transactions contemplated by this Agreement as a
"pooling of interests" transaction in accordance with generally accepted
accounting principles, and Digital is not aware of any facts, excluding actions
by the Company, that otherwise could prevent such accounting treatment.
6.20 FULL DISCLOSURE
The Digital Financial Statements, the S-3 Registration Statement and
all information in the Digital Disclosure Statement and the Exhibits hereto do
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements so made or information so
delivered not misleading and, to Digital's knowledge, no other information
furnished by Digital to the Company or its representatives in connection with
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements so made or
information so delivered not misleading,
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ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS
7.1 CONDUCT OF BUSINESS OF THE COMPANY
Except as contemplated by this Agreement or as set forth in the Company
Disclosure Statement, during the period from the date of this Agreement to the
Effective Time, (a) the Company will conduct its operations according to its
ordinary course of business and consistent with past practice, (b) the Company
will not enter into any material transaction other than in the ordinary course
of business and consistent with past practice, and (c) to the extent consistent
with the foregoing, with no less diligence and effort than would be applied in
the absence of this Agreement, the Company will seek to preserve intact its
current business organizations, keep available the services of its current
officers and employees and preserve its relationships with customers, suppliers
and others having business dealings with it with the objective that their
goodwill and ongoing businesses shall be unimpaired at the Effective Time.
Without limiting the generality of the foregoing, and except as otherwise
permitted in this Agreement, prior to the Effective Time, the Company will not
without the prior written consent of Digital:
(a) except for Shares issued upon exercise of Options and Warrants
outstanding as of the date hereof, issue, deliver, sell, dispose of, pledge or
otherwise encumber, or authorize or propose the issuance, delivery, sale,
disposition or pledge or other encumbrance of (i) any additional shares of its
capital stock of any class (including the Shares), or any securities or rights
convertible into, exchangeable for or evidencing the right to subscribe for any
shares of its capital stock, or any rights, warrants, options, calls,
commitments or any other agreements of any character to purchase or acquire any
shares of its capital stock or any securities or rights convertible into,
exchangeable for or evidencing the right to subscribe for any shares of its
capital stock, or (ii) any other securities in respect of, in lieu of or in
substitution for Shares outstanding on the date hereof;
(b) except for shares of Restricted Stock that the Company is required
to repurchase in accordance with the terms of the applicable Restricted Stock
Agreement, redeem, purchase or otherwise acquire, or propose to redeem, purchase
or otherwise acquire, any of its outstanding securities (including the Shares);
(c) split, combine, subdivide or reclassify any shares of its capital
stock or declare, set aside for payment or pay any dividend, or make any other
actual, constructive or deemed distribution in respect of any shares of its
capital stock or
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otherwise make any payments to the Company's shareholders in their capacity as
such;
(d) (i) grant any material increases in the compensation of any of its
directors, officers or key employees, except in the ordinary course of business
and consistent with past practice, (ii) pay or agree to pay any pension,
retirement allowance or other material employee benefit not required or
contemplated by any Employee Benefit Plan as in effect on the date hereof to any
such director, officer or key employee, whether past or present, (iii) enter
into any new, or materially amend any existing, employment agreement with any
such director, officer or key employee, (iv) enter into any new, or materially
amend any existing, severance agreement with any such director, officer or key
employee, or (v) except as may be required to comply with applicable law, amend
any existing, or become obligated under any new, Employee Benefit Plan;
(e) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company (other than the Merger);
(f) make any acquisition, by means of merger, consolidation or
otherwise, of (i) any direct or indirect ownership interest in or assets
comprising any business enterprise or operation or (ii) except in the ordinary
course of business and consistent with past practice, any other assets in excess
of $50,000;
(g) adopt any amendments to its Articles of Incorporation or Bylaws;
(h) incur any indebtedness for borrowed money or guarantee any such
indebtedness or, except in the ordinary course of business and consistent with
past practice, make any loans, advances or capital contributions to, or
investments in, any other Person;
(i) engage in the conduct of any business the nature of which is
materially different than the business the Company is currently engaged in;
(j) enter into any agreement providing for acceleration of payment or
performance or other consequence as a result of a change of control of the
Company or its Subsidiaries;
(k) enter into any contract, arrangement or understanding requiring the
purchase of equipment, materials, supplies or services over a period greater
than 12 months and for the expenditure of greater than $75,000 per year which is
not
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cancelable without penalty on 30 days' or less notice, except in the
ordinary course of business for the distribution of products or the production
of inventory; or
(l) authorize or announce an intention to do any of the foregoing, or
enter into any contract, agreement, commitment or arrangement to do any of the
foregoing.
7.2 NO SOLICITATIONS
(a) The Company shall not, directly or indirectly, through any officer,
director, employee, representative or agent of the Company or any of its
Subsidiaries, solicit or encourage the initiation of any inquiries or proposals
regarding any merger, sale of substantial assets, sale of shares of capital
stock (including, without limitation, by way of a tender offer) or similar
transactions involving the Company or any of its Subsidiaries (any of the
foregoing inquiries or proposals being referred to herein as an "Acquisition
Proposal"); provided, however, that nothing contained in this Agreement shall
prevent the Board of Directors of the Company from referring any third party to
this Section 7.2 or from making a copy of this Section 7.2 available to any
third party. Nothing contained in this Section 7.2 shall prevent the Board of
Directors of the Company from considering, negotiating, approving and
recommending to the shareholders of the Company (after consulting with its
financial advisors, and determining after consulting with counsel that the Board
of Directors is required to do so in order to discharge properly its fiduciary
duties) an unsolicited bona fide Acquisition Proposal which the Board of
Directors determines in good faith would result in a transaction more favorable
to the Company's shareholders from a financial point of view than the
transaction contemplated by this Agreement (any such Acquisition Proposal being
referred to herein as a "Superior Proposal").
(b) The Company shall immediately notify Digital after receipt of any
Acquisition Proposal or any request for nonpublic information relating to the
Company or any of its Subsidiaries in connection with an Acquisition Proposal or
for access to the properties, books or records of the Company or any of its
Subsidiaries by any Person that informs the Board of Directors of the Company or
such Subsidiary that it is considering making, or has made, an Acquisition
Proposal. Such notice to Digital shall be made orally and in writing and shall
indicate in reasonable detail the identity of the offeror and the terms and
conditions of such proposal, inquiry or contact.
(c) If the Board of Directors of the Company receives a request for
material nonpublic information by a party who makes a bona fide Acquisition
Proposal and the Board of Directors of the Company determines that such proposal
is a Superior Proposal then, and only in such case, the Company may, subject to
the execution of a confidentiality and standstill agreement substantially
similar to that then in effect
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between the Company and Digital, provide such party with access to information
regarding the Company.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any parties (other than Digital and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from any confidentiality or
standstill agreement to which the Company is a party.
(e) The Company shall ensure that the officers, directors and employees
of the Company and its Subsidiaries, and any investment banker or other advisor
or representative retained by the Company, are aware of the restrictions
described in this Section 7.2.
7.3 CONSENT SOLICITATION AND MEETING OF SHAREHOLDERS
(a) The Company will take all action necessary in accordance with
applicable law and its Articles of Incorporation and Bylaws to prepare and
circulate to its Shareholders as promptly as practicable forms of written
consent and related materials (the "Company Consent Solicitation") soliciting
such Shareholders' approval of the Merger. Subject to the fiduciary duties of
the Company's Board of Directors under applicable law as advised by counsel, the
Board of Directors of the Company shall recommend and declare advisable such
approval, and the Company shall take all lawful action to solicit, and use all
reasonable efforts to obtain, such approval. Pursuant to the terms of the
shareholders agreement attached hereto as Exhibit 7.3 (the "Shareholders
Agreement"), the Company Affiliates each have agreed to vote all Shares owned by
them or over which they have voting control, or to execute or cause to be
executed consents, to grant their approval of the Merger and this Agreement.
(b) Digital will take all action necessary in accordance with
applicable law, Rule 4460 of the Rules of the Nasdaq/NM, and Digital's Articles
of Incorporation and Bylaws to convene a meeting of its shareholders (the
"Digital Shareholders Meeting") as promptly as practicable to consider and vote
upon the approval of the issuance of Digital Common Shares in the Merger (the
"Issuance") and the approval of the Digital Stock Incentive Plan. Subject to the
fiduciary duties of Digital's Board of Directors under applicable law as advised
by counsel, the Board of Directors of Digital shall recommend and declare
advisable such approvals and Digital shall take all lawful action to solicit,
and use all reasonable efforts to obtain, such approval. Pursuant to the terms
of the Shareholders Agreement, the directors of Digital executing such agreement
each have agreed to vote all Digital Common Shares owned by them or to which
they have the right to vote in favor of approval of the Issuance.
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(c) Digital, as the sole shareholder of Merger Sub, will act by written
consent to approve the Merger and the adoption of this Agreement by Merger Sub,
which consent Digital and Merger Sub represent and warrant will constitute the
requisite approval of the Merger and this Agreement by Merger Sub.
7.4 REGISTRATION STATEMENT/PROXY MATERIALS
Digital and the Company will, as promptly as practicable, prepare and
file with the SEC preliminary proxy materials (requesting confidential treatment
thereof) that will constitute a proxy statement in connection with the vote of
Digital's shareholders with respect to the Issuance and the Digital Stock
Incentive Plan, and the Company Consent Solicitation in connection with the vote
of the Company's shareholders with respect to the Merger, together with any
amendments thereof or supplements thereto (in each case, in the form or forms
mailed to Digital's and the Company's shareholders, the "Proxy
Statement/Prospectus"). Digital will also prepare and file with the SEC a
registration statement on Form S-4 (the "S-4 Registration Statement"),
containing the Proxy Statement/Prospectus, in connection with the registration
under the Securities Act of the Digital Common Shares issuable upon conversion
of the Shares and the other transactions contemplated hereby. The S-4
Registration Statement will contain pro forma financial statements accounting
for the Merger as a pooling of interests (unless Digital shall have irrevocably
and unconditionally waived in writing the condition set forth in Section
8.2(f)). Digital and the Company will use all reasonable efforts to have the S-4
Registration Statement declared effective as promptly as practicable, and also
will take any other action required to be taken under federal or state
securities laws, and will use all reasonable efforts to cause the Proxy
Statement/Prospectus to be mailed to shareholders of Digital and the Company at
the earliest practicable date. If at any time prior to the Effective Time any
event relating to or affecting the Company or Digital shall occur as a result of
which it is necessary, in the opinion of counsel for the Company or of counsel
for Digital, to supplement or amend the S-4 Registration Statement in order to
make such document not misleading in light of the circumstances existing at the
time approval of the shareholders of the Company or of Digital is sought, the
Company and Digital will forthwith prepare and file with the SEC an amendment or
supplement to the S-4 Registration Statement so that such document, as so
supplemented or amended, will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances existing at such time, not
misleading.
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7.5 S-3 REGISTRATION STATEMENT
If necessary to ensure that the Merger will qualify for
pooling-of-interests accounting treatment, Digital will (a) as promptly as
practicable, prepare and file with the SEC a registration statement on Form S-3
(the "S-3 Registration Statement"), containing a prospectus in connection with
the registration and sale of a number of Digital Common Shares that it estimates
to be sufficient to ensure that all requirements for pooling-of-interests
accounting treatment will be satisfied and (b) prior to the Closing, sell the
actual number of such Digital Common Shares that it determines, in consultation
with KPMG Peat Marwick LLP, will be sufficient to ensure that such requirements
are satisfied. Digital will use all reasonable efforts to have the S-3
Registration Statement declared effective as promptly as practicable. If at any
time prior to the Effective Time any event relating to or affecting Digital
shall occur as a result of which it is necessary, in the opinion of counsel for
Digital, to supplement or amend the S-3 Registration Statement in order to make
such document not misleading in light of the circumstances existing at the time
approval of the shareholders of the Company or of Digital is sought, Digital
will forthwith prepare and file with the SEC an amendment or supplement of the
S-3 Registration Statement so that such document, as so supplemented or amended,
will not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances existing at such time, not misleading.
7.6 REASONABLE EFFORTS
The Company and Digital shall, and shall use all reasonable efforts to
cause their respective Subsidiaries to: (a) promptly make all filings and seek
to obtain all Authorizations required under all applicable laws with respect to
the Merger and the other transactions contemplated hereby and will cooperate
with each other with respect thereto; (b) use all reasonable efforts to promptly
take, or cause to be taken, all other actions and do, or cause to be done, all
other things necessary, proper or appropriate to satisfy the conditions set
forth in Article VIII and to consummate and make effective the transactions
contemplated by this Agreement on the terms and subject to the conditions set
forth herein as soon as practicable (including seeking to remove promptly any
injunction or other legal barrier that may prevent such consummation); (c) not
take any action which might reasonably be expected to impair the ability of the
parties to consummate the Merger at the earliest possible time (regardless of
whether such action would otherwise be permitted or not prohibited hereunder);
and (d) not take any action (regardless of whether such action would otherwise
be permitted or not prohibited hereunder) that prevents Digital from accounting
for the Merger as a pooling of interests. After the time, if any, that the S-4
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Registration Statement shall have been declared effective, Digital shall
promptly notify the Company if at any time it has reason to believe that KPMG
Peat Marwick LLP will not be able to deliver the opinion referred to in Section
8.2(f) at the Closing, and each of Digital and the Company shall promptly advise
the other of any fact or circumstance of which it becomes aware (and which has
not theretofore been disclosed to the other) which it believes would adversely
impact the ability to satisfy such condition set forth in Section 8.2(f). During
the period of 60 days prior to the Closing, Digital will not repurchase or
otherwise acquire in the public market, or announce any intention or proposal to
repurchase or otherwise acquire in the public market, any shares of its capital
stock.
7.7 ACCESS TO INFORMATION
Subject to currently existing contractual and legal restrictions
applicable to the Company (which the Company represents and warrants are not
material) or to Digital (which Digital represents and warrants are not
material), and upon reasonable notice, each of the Company and Digital shall
(and shall cause each of its Subsidiaries to) afford to officers, employees,
counsel, accountants and other authorized representatives of the other party
(the "Respective Representatives") access, during normal business hours
throughout the period prior to the Effective Time or until this Agreement is
terminated, to its properties, books and records (including, without limitation,
the work papers of independent accountants) and, during such period, shall (and
shall cause each of its Subsidiaries to) furnish promptly to such Respective
Representatives all information concerning its business, properties and
personnel as may reasonably be requested, provided that no investigation
pursuant to this Section 7.7 shall affect or be deemed to modify any of the
respective representations or warranties made by Digital or the Company. The use
and protection of all information provided by one party to the other pursuant to
this Section 7.7 shall be governed by the Confidentiality Agreement.
7.8 INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) From and after the Effective Time, Digital shall, and shall cause
the Surviving Corporation to, indemnify, defend and hold harmless the present
and former officers, directors and employees of the Company, whether any such
person is or was an officer, director, employee or agent of the Company, or is
or was serving at the request of the Company as an officer, director or employee
or agent of another Person (collectively, the "Company Indemnitees"), against
all losses, expenses, claims, damages or liabilities arising out of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement) to the fullest
extent permitted or required under applicable law (and shall
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also advance expenses as incurred to the fullest extent permitted under
applicable law, provided that the person to whom expenses are advanced provides
an undertaking to repay such advances if it is ultimately determined in a final
and binding decision by a court or arbitrator that such person is not entitled
to indemnification). Digital and Merger Sub agree that all rights to
indemnification, including provisions relating to advances of expenses incurred
in defense of any action, suit or proceeding, whether civil, criminal,
administrative or investigative (each, a "Company Claim"), existing in favor of
the Company Indemnitees as provided in the Company's Articles of Incorporation
or Bylaws, as in effect as of the date hereof, with respect to matters occurring
through the Effective Time, shall survive the Merger and shall continue in full
force and effect for a period of not less than six years from the Effective
Time; provided, however, that all rights to indemnification in respect of any
Company Claim asserted, made or commenced within such period shall continue
until the final disposition of such Company Claim.
(b) In the event that any action, suit, proceeding or investigation
relating hereto or to the transactions contemplated by this Agreement is
commenced, whether before or after the Closing, the parties hereto agree to
cooperate and use their respective reasonable efforts to vigorously defend
against the above and respond thereto.
(c) If a Company Indemnitee is successful with respect to any action,
suit or proceeding initiated by such Company Indemnitee to enforce the
provisions of this Section 7.8, then Digital shall pay all reasonable,
out-of-pocket expenses (including, without limitation, reasonable attorneys
fees) incurred by such Company Indemnitee in connection with such action, suit
or proceeding.
(d) This Section 7.8 is intended to benefit the Company Indemnitees and
shall be binding on all successors and assigns of Digital, Merger Sub, the
Company and the Surviving Corporation.
7.9 QUOTATION OF DIGITAL COMMON SHARES
Digital will use all reasonable efforts to cause the Digital Common
Shares to be issued pursuant to this Agreement, and upon exercise of the
Replacement Options, to be quoted for trading on the Nasdaq/NM.
7.10 AFFILIATES OF DIGITAL AND THE COMPANY
Set forth in the Company Disclosure Statement are the names of all
Persons who may be deemed to be "affiliates" of the Company for purposes of Rule
145 under the Securities Act (the "Company Affiliates"). Each such Company
Affiliate has
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executed the Shareholders Agreement, which provides that such Company Affiliate
will not sell, pledge, transfer or otherwise dispose of any Digital Common
Shares issued to such Company Affiliate pursuant to the Merger, except pursuant
to an effective registration statement or in compliance with Rule 145 or an
exemption from the registration requirements of the Securities Act. Each of
Digital and the Company shall use all reasonable efforts to cause their
respective Affiliates not to take any action that would impair Digital's ability
to account for the Merger as a pooling of interests. In accordance with the
foregoing, each Company Affiliate and each Affiliate of Digital has also agreed
in such written agreement that such Person will not, after the thirtieth day
prior to the Effective Time, sell or in any other way reduce such Person's risk
relative to any Digital Common Shares received in the Merger or otherwise held
by such Person (within the meaning of the SEC's Codification of Financial
Reporting Policies Section 201.01, reprinted in 7 Fed. Sec. L. Rep. (CCH)
Paragraph 72,951) until such time as results covering at least 30 days of
combined operations of Digital and the Company (which financial results Digital
agrees to publish in accordance with past practice) have been published by
Digital, in the form of a quarterly earnings report, an effective registration
statement filed with the SEC, a report to the SEC on Form 10-K, 10-Q or 8-K, or
any other public filing or press release or other announcement which includes
the combined sales and net income of Digital and the Company, except for
certain transactions permitted by the Shareholders Agreement.
7.11 CERTAIN COVENANTS OF DIGITAL
Except as otherwise permitted in this Agreement, prior to the Effective
Time, Digital will not, without the prior written consent of the Company:
(a) except for Digital Common Shares issued under the Digital Employee
Stock Purchase Plan or upon exercise of options granted under the Digital Option
Plans, and except for option grants under the Digital Option Plans, issue,
deliver, sell, dispose of, pledge or otherwise encumber, or authorize or propose
the issuance, delivery, sale, disposition or pledge or other encumbrance of (i)
any additional shares of its capital stock of any class, or any securities or
rights convertible into, exchangeable for, or evidencing the right to subscribe
for any shares of its capital stock, or any rights, warrants, options, calls,
commitments or any other agreements of any character to purchase or acquire any
shares of its capital stock or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for any shares of its
capital stock or (ii) any other securities in respect of, in lieu of, or in
substitution for, Digital Common Shares outstanding on the date hereof;
(b) redeem, purchase or otherwise acquire, or propose to redeem,
purchase or otherwise acquire, any of its outstanding securities;
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(c) split, combine, subdivide or reclassify any shares of its capital
stock or declare, set aside for payment or pay any dividend, or make any other
actual, constructive or deemed distribution in respect of any shares of its
capital stock or otherwise make any payments to Digital's shareholders in their
capacity as such;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger or consolidation, restructuring, recapitalization or other reorganization
of Digital (other than the Merger);
(e) make any acquisition, by means of merger, consolidation or
otherwise, of (i) any direct or indirect ownership interest in or assets
comprising any business enterprise or operation or (ii) except in the ordinary
course of business and consistent with past practice, any other assets;
provided, however, that this covenant shall not restrict any acquisition of
assets the value of which is less than 10% of Digital's total assets;
(f) adopt any amendments to its Articles of Incorporation, or take any
other action requiring a vote of the holders of Digital Common Shares, which
would adversely affect the terms and provisions of the Digital Common Shares or
the rights of the holders of such shares, including, without limitation, the
authorization or issuance of any shares of capital stock with rights superior to
the Digital Common Shares; or
(g) authorize or announce an intention to do any of the foregoing, or
enter into any contract, agreement, commitment or arrangement to do any of the
foregoing.
7.12 TAX MATTERS
Neither the Company nor Digital shall take any action that would cause
its representations set forth in Sections 5.16 and 6.16 not to be true in all
material respects from and after the date hereof until the Effective Time. Each
party agrees to report the Merger on all tax returns and other filings as a
tax-free reorganization under Section 368(a) of the Code except where, in the
opinion of tax counsel to such party, there is not "substantial authority," as
defined in Section 6662 of the Code, to support such a position.
7.13 S-1 REGISTRATION STATEMENT
The Company shall withdraw the S-1 Registration Statement prior to the
Closing Date.
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7.14 WARRANTS
The Company shall provide the holders of outstanding Warrants with
timely notice of the approval of the Merger in accordance with the terms of the
Warrants.
7.15 TERMINATION OF AGREEMENTS
All outstanding agreements under which the Company is required to
register Shares shall be terminated, or amended in a manner acceptable to
Digital, in each case in accordance with their respective terms and effective as
of the Effective Time.
7.16 BOARD REPRESENTATION
At or prior to the Closing, Digital's Board of Directors shall appoint
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ to serve as a director of Digital effective as of the
Effective Time. In addition, prior to the Effective Time, the Company and
Digital shall identify one additional director (the "Designee") to serve as a
director of Digital effective as of the Effective Time or as soon as practicable
thereafter. Digital shall take all requisite action to amend its Bylaws, if
necessary, to increase the size of its Board of Directors in order to effect the
appointments contemplated by this Section 7.16. In connection with the first
annual meeting of Digital shareholders following the Effective Time, Digital
will nominate ▇▇. ▇▇▇▇▇▇▇▇▇▇▇▇ and the Designee to serve as directors of Digital
for terms to be determined by Digital.
7.17 NOTICE TO COMPANY SHAREHOLDERS
Promptly upon receipt of the approval required by Section 8.1(a)
through the Company Consent Solicitation or otherwise, the Company will deliver
to its shareholders the notices required by Chapter 13 of the CCC (after
consultation with Digital and Digital's reasonable agreement to any Share
valuation required to be included in such notice), thereby commencing the 30-day
period for receipt of notice from any dissenting shareholder. The Company will
continue to use its reasonable best efforts to solicit consents from
shareholders and otherwise to identify any dissenting shareholders prior to
completion of such 30-day period.
7.18 DIGITAL NOTICE OF CERTAIN EVENTS
Digital shall immediately notify the Company after receipt of any
inquiries or proposals regarding any merger, sale of substantial assets, sale of
shares of capital stock other than pursuant to the S-3 Registration Statement
(including, without limitation, by way of a tender offer) or similar transaction
involving Digital or any of its Subsidiaries (a "Digital Acquisition Proposal")
or any request for nonpublic
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information relating to Digital or any of its Subsidiaries in connection with a
Digital Acquisition Proposal or for access to the properties, books or records
of Digital or any of its Subsidiaries by any Person that informs the Board of
Directors of Digital or such Subsidiary that it is considering making, or has
made, a Digital Acquisition Proposal. Such notice to the Company shall be made
orally and in writing and shall indicate in reasonable detail the identity of
the offeror and the terms and conditions of such proposal, inquiry or contact.
ARTICLE VIII
CONDITIONS
8.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS
The respective obligations of each party to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to the
Effective Time of each of the following conditions, any or all of which may be
waived in whole or in part by the party being benefited thereby, to the extent
permitted by applicable law:
(a) COMPANY SHAREHOLDER APPROVAL
This Agreement and the transactions contemplated hereby shall have been
duly approved or ratified by the requisite holders of Shares in accordance with
applicable provisions of the CCC and the Articles of Incorporation and Bylaws of
the Company.
(b) DIGITAL SHAREHOLDER APPROVAL
The Issuance shall have been duly approved by the requisite holders of
Digital Common Shares in accordance with applicable provisions of the WBCA, the
Articles of Incorporation and Bylaws of Digital and Rule 4460 of the Rules of
the Nasdaq/NM.
(c) AUTHORIZATIONS
All Authorizations required in connection with the execution and
delivery of this Agreement and the performance of the obligations hereunder
shall have been made or obtained.
(d) NO INJUNCTION, ILLEGALITY
There shall not be in effect any judgment, writ, order, injunction or
decree of any court or Governmental Body of competent jurisdiction restraining,
enjoining or
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otherwise preventing consummation of the transactions contemplated
by this Agreement or permitting such consummation only subject to any condition
or restriction unacceptable to either of Digital or the Company, each in its
reasonable judgment, and there shall not be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger that makes the consummation of the Merger illegal.
(e) REGISTRATION STATEMENT
The S-4 Registration Statement shall have been declared effective by
the SEC under the Securities Act and shall be effective at the Effective Time.
No stop order suspending effectiveness shall have been issued by the SEC, no
action, suit, proceeding or investigation by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and all
necessary approvals under state securities laws or the Securities Act or
Exchange Act relating to the issuance or trading of the Digital Common Shares
shall have been received.
(f) TAX OPINION
Digital and the Company shall have received an opinion of ▇▇▇▇▇▇▇ Coie
to the effect that (i) the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code;
(ii) each of Digital, Merger Sub and the Company will be a party to the
reorganization within the meaning of Section 368(b) of the Code; (iii) no gain
or loss will be recognized by the Company, Digital or Merger Sub as a result of
the Merger; (iv) no gain or loss will be recognized by a shareholder of the
Company as a result of the Merger with respect to the Shares converted solely
into Digital Common Shares; and (v) no gain or loss will be recognized by
Digital or holders of Options that qualify as "incentive stock options" under
the Code upon the exchange of such Options for Replacement Options. In rendering
such opinion, ▇▇▇▇▇▇▇ Coie shall receive and rely upon representations contained
in certificates of the Company, Digital, Merger Sub and certain significant
shareholders of the Company, including, without limitation, the Digital Tax
Matters Certificate and the Company Tax Matters Certificate.
8.2 CONDITIONS TO OBLIGATIONS OF DIGITAL AND MERGER SUB
The respective obligations of Digital and Merger Sub to consummate the
transactions contemplated by this Agreement are subject to the fulfillment at or
prior to the Effective Time of each of the following conditions, any or all of
which may be waived in whole or in part by Digital and Merger Sub, as the case
may be, to the extent permitted by applicable law:
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(a) REPRESENTATIONS AND WARRANTIES TRUE
The representations and warranties of the Company contained in Article
V or otherwise required hereby to be made after the date hereof in a writing
expressly referred to herein by or on behalf of the Company or any Company
Affiliate pursuant to this Agreement that (i) are qualified as to materiality
shall be true and correct and (ii) are not so qualified shall be true and
correct in all material respects on and as of the date made. The Company shall
have delivered a revised Company Disclosure Statement dated one day prior to the
Closing Date, reflecting any changes that would be required in order to make the
representations and warranties of the Company contained in Article V or
otherwise required hereby to be true and correct, on and as of the Effective
Time, with the same force and effect as if made on and as of the Effective Time,
except (A) for changes contemplated by this Agreement and (B) that the accuracy
of representations and warranties which address matters only as of a particular
date will be determined as of such date.
(b) PERFORMANCE
The Company shall have performed or complied in all material respects
with all agreements and conditions contained herein required to be performed or
complied with by it prior to or at the time of Closing.
(c) CONSENTS OBTAINED
All material consents, waivers, approvals, authorizations or orders
required to be obtained, and all filings required to be made, by the Company for
the authorization, execution and delivery of this Agreement and the consummation
by it of the transactions contemplated hereby shall have been obtained and made
by the Company, except where the failure to receive such consents, etc. would
not have a material adverse effect on the Company or Digital.
(d) OFFICERS' CERTIFICATE
The Company shall have delivered to Digital a certificate, dated the
date of the Closing, signed by the President or any Vice President of the
Company, certifying as to the fulfillment of the conditions specified in
Sections 8.2(a) through (c).
(e) OPINION OF COUNSEL FOR THE COMPANY
Digital shall have received from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, or
other counsel for the Company satisfactory to Digital, an opinion, dated the
Closing Date, substantially in the form attached hereto as Exhibit 8.2(e).
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(f) POOLING OPINION
Digital shall have received an opinion of KPMG Peat Marwick LLP, in
form and substance reasonably satisfactory to Digital, that the Merger will
qualify for pooling-of-interests accounting treatment if consummated in
accordance with this Agreement.
(g) FIRPTA CERTIFICATE
Digital shall have received a certificate from the Company pursuant to
Section 1445 of the Code (and a certificate or certificates under any analogous
provisions under state or local law) to the effect than an interest in the
Company is not a "United States real property interest" within the meaning of
Section 897 of the Code (and any analogous provisions under state or local law).
(h) EMPLOYMENT AGREEMENTS
Employment agreements with the Company's officers listed in Exhibit
8.2(h) hereto, as entered into or amended and restated with the concurrence of
Digital, shall be in effect at the Effective Time.
8.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to the
Effective Time of each of the following conditions, any or all of which may be
waived in whole or in part by the Company to the extent permitted by applicable
law:
(a) REPRESENTATIONS AND WARRANTIES TRUE
The representations and warranties of Digital and Merger Sub contained
in Article VI or otherwise required hereby to be made after the date hereof in a
writing expressly referred to herein by or on behalf of Digital and Merger Sub
pursuant to this Agreement that (i) are qualified as to materiality shall be
true and correct and (ii) are not so qualified shall be true in all material
respects on and as of the date made. Digital shall have delivered a revised
Digital Disclosure Statement dated one day prior to the Closing Date, reflecting
any changes that would be required in order to make the representations and
warranties of Digital contained in Article VI or otherwise required hereby to be
true and correct, on and as of the Effective Time, with the same force and
effect as if made at and as of the Effective Time, except (A) for changes
contemplated by this Agreement and (B) that the accuracy of representations and
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warranties which address matters only as of a particular date will be determined
as of such date.
(b) PERFORMANCE
Digital shall have performed or complied in all material respects with
all agreements and conditions contained herein required to be performed or
complied with by it prior to or at the Closing.
(c) CONSENTS OBTAINED
All material consents, waivers, approvals, authorizations or orders
required to be obtained, and all filings required to be made, by Digital or
Merger Sub for the authorization, execution and delivery of this Agreement and
the consummation by it of the transactions contemplated hereby shall have been
obtained and made by Digital and Merger Sub, except where the failure to receive
such consents, etc. would not have a material adverse effect on the Company or
Digital.
(d) OFFICERS' CERTIFICATE
Digital shall have delivered to the Company a certificate, dated the
date of the Closing, signed by the President or any Vice President of Digital,
certifying as to the fulfillment of the conditions specified in Sections 8.3(a)
through (c).
(e) OPINION OF COUNSEL FOR DIGITAL
The Company shall have received from ▇▇▇▇▇▇▇ Coie, or other counsel for
Digital satisfactory to the Company, an opinion, dated the Closing Date,
substantially in the form attached hereto as Exhibit 8.3(e).
(f) POOLING OPINION
The Company shall have received a copy of the opinion referred to in
Section 8.2(f).
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ARTICLE IX
TERMINATION
9.1 TERMINATION
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time, before or after the approval by the
shareholders of the Company or Digital:
(a) by mutual written consent duly authorized by the Boards of
Directors of Digital and the Company; or
(b) by either Digital or the Company if the Merger shall not have been
consummated by February 15, 1997 (provided that the right to terminate this
Agreement under this Section 9.1(b) shall not be available to any party whose
breach of any representation, warranty, covenant or agreement set forth in this
Agreement has been the cause of or resulted in the failure of the Merger to
occur on or before such date); or
(c) by either Digital or the Company if a court of competent
jurisdiction or Governmental Body shall have issued a nonappealable final order,
decree or ruling or taken any other action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger, except
if the party relying on such order, decree or ruling or other action has not
complied with its obligations under Section 7.6; or
(d) by Digital or the Company if, at either the Digital Shareholders
Meeting (including any adjournment or postponement thereof), or pursuant to the
Company Consent Solicitation, the requisite vote of the shareholders of Digital
or the Company shall not have been obtained; or
(e) by Digital if (i) the Board of Directors of the Company shall fail
to recommend or withdraw, modify or change its recommendation of this Agreement
or the Merger in a manner adverse to Digital or shall have resolved to do any of
the foregoing; (ii) the Board of Directors of the Company shall have recommended
to the shareholders of the Company an Alternative Transaction; or (iii) a tender
offer or exchange offer for 25% or more of the outstanding shares of Company
voting stock is commenced (other than by Digital or an Affiliate of Digital) and
the Board of Directors of the Company recommends that the shareholders of the
Company tender their shares in such tender offer or exchange offer; or
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(f) by Digital, upon a breach of any representation, warranty, covenant
or agreement on the part of the Company set forth in this Agreement such that
the conditions set forth in Section 8.2(a) or 8.2(b) would not be satisfied; or
(g) by the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Digital set forth in this Agreement such
that the conditions set forth in Section 8.3(a) or 8.3(b) would not be
satisfied; or
(h) by Digital if any condition set forth in Section 8.1 or Section 8.2
cannot reasonably be expected to be satisfied by the date set forth in Section
9.1(b); or by the Company if any conditions set forth in Section 8.1 or Section
8.3 cannot reasonably be expected to be satisfied by the date set forth in
Section 9.1(b); or
(i) by the Company if the Board of Directors of Digital shall fail to
recommend or withdraw, modify or change its recommendation of the Issuance in a
manner adverse to the Company or shall have resolved to do any of the foregoing;
or
(j) by the Company or Digital if the Board of Directors of the Company
shall have resolved to accept a Superior Proposal.
9.2 EFFECT OF TERMINATION
In the event of the termination of this Agreement pursuant to Section
9.1, this Agreement shall forthwith become void and there shall be no liability
on the part of any party hereto or any of its Affiliates, directors, officers or
shareholders except (a) as set forth in Sections 11.1 and 11.2 and (b) nothing
herein shall relieve any party from liability for any willful breach hereof.
ARTICLE X - SURVIVAL AND REMEDIES
10.1 SURVIVAL
All representations and warranties contained in this Agreement, the
Operative Documents or any certificate delivered pursuant hereto or thereto
shall survive the Effective Time for a period of six months, 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
11.3. The covenants and agreements contained in this Agreement or in the other
Operative Documents shall survive the Effective Time 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. The Confidentiality
Agreement shall survive termination of this Agreement as provided therein.
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10.2 EXCLUSIVE REMEDY
After the Effective Time, the reduction in the Share Consideration
described in Section 4.2 will be the sole and exclusive remedy of Digital and
Merger Sub for a breach of any representation, warranty or covenant contained
herein, except with respect to any claim based on fraud in the inducement or a
similar theory and except for the remedy of specific performance provided for in
Section 11.7 with respect to the obligations of the holders of the Holdback
Shares and the Shareholder Representative pursuant to Section 4.2 to be
performed after the Effective Time and the obligations set forth in the
Confidentiality Agreement, to the extent incorporated herein, to be performed
after the Effective Time.
ARTICLE XI
MISCELLANEOUS AND GENERAL
11.1 FEES AND EXPENSES
(a) Except as set forth in this Section 11.1 or as otherwise provided
herein, all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; provided, however, that
Digital shall pay 70% and the Company shall pay 30% of all fees and expenses,
other than attorneys' fees, incurred in relation to the printing and filing of
the Proxy Statement/Prospectus (including any preliminary materials relating
thereto) and the S-4 Registration Statement (including financial statements and
exhibits) and any amendments or supplements thereto.
(b) The Company shall pay Digital a fee of $4,000,000, plus actual,
documented and reasonable out-of-pocket expenses of Digital relating to the
transactions contemplated by this Agreement (including, but not limited to, fees
and expenses of Digital's counsel, accountants and financial advisers, but
excluding any discretionary fees paid to such financial advisors), upon the
earliest to occur of the following events:
(i) the termination of this Agreement by Digital or the
Company pursuant to Section 9.1(d) as a result of the failure to
receive the requisite vote for approval and adoption by the
shareholders of the Company;
(ii) the termination of this Agreement by Digital pursuant
to Section 9.1(e);
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(iii) the termination of this Agreement by Digital pursuant
to Section 9.1(f) after a breach by the Company of this Agreement; or
(iv) the termination of this Agreement by the Company or
Digital pursuant to Section 9.1(j);
provided, however, that in the event an Alternative Transaction is consummated
by the Company within six months of such event, the Company shall pay Digital an
additional fee of $2,000,000, plus actual, documented and reasonable
out-of-pocket expenses (including, but not limited to, fees and expenses of
Digital's counsel) incurred by Digital in connection with the collection of such
additional fee.
(c) As used herein, "Alternative Transaction" means any of (i) a
transaction pursuant to which any Person (or group of Persons) other than
Digital, the Company or their Affiliates (a "Third Party") acquires more than
25% of the outstanding shares of the Company or Digital, as applicable, whether
from such party or pursuant to a tender offer or exchange offer or otherwise,
(ii) a merger or other business combination involving the Company or Digital
pursuant to which any Third Party acquires more than 25% of the outstanding
equity securities of the Company or Digital, as applicable, or the entity
surviving such merger or business combination, or (iii) any other transaction
pursuant to which any Third Party acquires control of assets (including for this
purpose the outstanding equity securities of Subsidiaries of the Company or
Digital, as applicable, and the entity surviving any merger or business
combination, including any of them) of the Company or Digital, as applicable, or
any of their respective Subsidiaries having a fair market value (as determined
by the Board of Directors of the Company in good faith) equal to more than 25%
of the fair market value of all the assets of the Company or Digital, as
applicable, and their respective Subsidiaries, taken as a whole, immediately
prior to such transaction.
(d) Digital shall pay the Company a fee of $4,000,000, plus actual,
documented and reasonable out-of-pocket expenses of the Company relating to the
transactions contemplated by this Agreement (including, but not limited to, fees
and expenses of the Company's counsel, accountants and financial advisers, but
excluding any discretionary fees paid to such financial advisors), upon the
earliest to occur of the following events:
(i) termination of this Agreement by Digital or the Company
pursuant to Section 9.1(d) as a result of the failure to receive the
requisite vote for approval and adoption by the shareholders of Digital
at the Digital Shareholders Meeting;
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(ii) termination of this Agreement by the Company pursuant
to Section 9.1(g) after a breach by Digital of this Agreement; or
(iii) the termination of this Agreement by the Company
pursuant to Section 9.1(i);
provided, however, that in the event an Alternative Transaction is consummated
by Digital within six months of such event, Digital shall pay the Company an
additional fee of $2,000,000, plus actual, documented and reasonable
out-of-pocket expenses (including, but not limited to, fees and expenses of the
Company's counsel) incurred by the Company in connection with the collection of
such additional fee.
(e) The fees payable pursuant to Sections 11.1(b) and 11.1(d)
(collectively, the "Fees") shall be paid (i) in the case of Fees payable upon
termination of this Agreement, within one business day after the first to occur
of the events described in Section 11.1(b) or 11.1(d) and (ii) in the case of
Fees payable as a result of an Alternative Transaction, within one business day
after consummation of the Alternative Transaction; provided, however, that in no
event shall Digital or the Company, as the case may be, be required to pay such
Fees to the other, if, immediately prior to the termination of this Agreement,
the party to receive the fee was in material breach of its obligations under
this Agreement.
11.2 DISCLOSURE STATEMENTS
Any disclosure made with reference to one or more Sections of the
Company Disclosure Statement or the Digital Disclosure Statement shall be deemed
disclosed with respect to each other section therein as to which such disclosure
is relevant provided that such relevance is reasonably apparent.
11.3 NOTICES, ETC.
All notices, requests, demands or other communications required by or
otherwise with respect to this Agreement shall be in writing and shall be deemed
to have been duly given to any party when delivered personally (by courier
service or otherwise), when delivered by facsimile (subject to confirmation of
receipt), or seven days after being mailed by first-class mail, postage prepaid
and return receipt requested, in each case to the applicable addresses set forth
below:
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If to the Company:
ViewStar Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
Professional Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Digital:
Digital Systems International, Inc.
▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ Coie
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as such party shall have designated by notice so given
to each other party.
11.4 AMENDMENTS, WAIVERS, ETC.
This Agreement may not be amended, changed, supplemented, waived or
otherwise modified except by an instrument in writing signed by the party (or,
in the case of Section 7.8, the Company Indemnitees) against whom enforcement is
sought.
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11.5 NO ASSIGNMENT
This Agreement shall be binding upon and shall inure to the benefit of
and be enforceable by the parties and their respective successors and assigns;
provided, however, that except as otherwise expressly set forth in this
Agreement, neither the rights nor the obligations of any party may be assigned
or delegated without the prior written consent of the other parties.
11.6 ENTIRE AGREEMENT
Except as otherwise provided herein, this Agreement (together with the
Confidentiality Agreement, to the extent set forth in Section 7.7) embodies the
entire agreement and understanding among the parties relating to the subject
matter hereof and supersedes all prior agreements and understandings relating to
such subject matter. There are no representations, warranties or covenants by
the parties hereto relating to such matter other than those expressly set forth
in this Agreement (including the Company Disclosure Statement and the Digital
Disclosure Statement) and any writings expressly required hereby.
11.7 SPECIFIC PERFORMANCE
The parties acknowledge that money damages are not an adequate remedy
for violations of this Agreement and that any party may, in its sole discretion,
apply to a court of competent jurisdiction for specific performance or
injunctive or such other relief as such court may deem just and proper to
enforce this Agreement or to prevent any violation hereof and, to the extent
permitted by applicable law, each party waives any objection to the imposition
of such relief.
11.8 REMEDIES CUMULATIVE
Except as set forth in Section 10.2, all rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof at law or
in equity shall be cumulative and not alternative, and the exercise or beginning
of the exercise of any thereof by any party shall not preclude the simultaneous
or later exercise of any other such right, power or remedy by such party.
11.9 NO WAIVER
The failure of any party hereto to exercise any right, power or remedy
provided under this Agreement or otherwise available in respect hereof at law or
in equity, or to insist upon compliance by any other party hereto with its
obligations hereunder, and any custom or practice of the parties at variance
with the terms hereof, shall not
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constitute a waiver by such party of its right to exercise any such or other
right, power or remedy or to demand such compliance.
11.10 NO THIRD PARTY BENEFICIARIES
This Agreement is not intended to be for the benefit of and shall not
be enforceable by any Person who is not a party hereto, except for the
indemnification provisions contained in Section 7.8, which provisions may be
enforced by any Company Indemnitee referred to therein and the provisions of
Article IV relating to the reduction in the Share Consideration, which
provisions may be enforced by any officer, director or Affiliate of Digital who
has incurred Digital Losses.
11.11 JURISDICTION
Each party hereby irrevocably submits to the exclusive jurisdiction of
the United States District Court for the Western District of Washington or any
court of the state of Washington located in the city of Seattle or the United
States District Court for the Northern District of California or any court of
the state of California located in the city of San Francisco in any action, suit
or proceeding arising in connection with this Agreement, and agrees that any
such action, suit or proceeding shall be brought only in such court (and waives
any objection based on forum non conveniens or any other objection to venue
therein); provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this Section 11.11 and shall not be deemed to be a
general submission to the jurisdiction of said courts or in the state of
Washington other than for such purpose. Digital and the Company hereby waive any
right to a trial by jury in connection with any such action, suit or proceeding.
11.12 PUBLIC ANNOUNCEMENTS
Digital and the Company will agree upon the timing and content of the
initial press release to be issued describing the transactions contemplated by
this Agreement, and will not make any public announcement thereof prior to
reaching such agreement unless required to do so by applicable law or
regulation. To the extent reasonably requested by either party, each party will
thereafter consult with and provide reasonable cooperation to the other in
connection with the issuance of further press releases or other public documents
describing the transactions contemplated by this Agreement.
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11.13 GOVERNING LAW
This Agreement and all disputes hereunder shall be governed by and
construed and enforced in accordance with the internal laws of the state of
Washington, without regard to principles of conflict of laws.
11.14 NAME, CAPTIONS, ETC.
The name assigned to this Agreement and the section captions used
herein are for convenience of reference only and shall not affect the
interpretation or construction hereof. Unless otherwise specified (a) the terms
"hereof" and "herein" and similar terms refer to this Agreement as a whole and
(b) references herein to Articles or Sections refer to articles or sections of
this Agreement.
11.15 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one instrument. Each counterpart may consist of a number of copies,
each signed by less than all, but together signed by all, the parties hereto.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties set forth below.
DIGITAL SYSTEMS INTERNATIONAL, INC. VIEWSTAR CORPORATION
By: By:
------------------------------------ ------------------------------
Name: Name:
--------------------------- --------------------
Title: President and Chief Title: President and Chief
Executive Officer Executive Officer
VISION MERGER CORPORATION
By:
----------------------------------
Name:
---------------------------
Title: President
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