EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
INTEGRATED SILICON SOLUTION, INC.,
PURPLE RAY, INC.
AND
XXXXX XX, AS AGENT AND ATTORNEY-IN-FACT
FOR THE SHAREHOLDERS OF
PURPLE RAY, INC.
JANUARY 23, 2002
TABLE OF CONTENTS
PAGE
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1. Certain Definitions.........................................................2
2. The Merger..................................................................3
2.1 Merger; Effective Time of the Merger.................................3
2.2 Closing..............................................................3
2.3 Effect of the Merger.................................................3
2.4 Tax-Free Reorganization..............................................4
2.5 Additional Shares....................................................4
3. Effect of Merger; Exchange of Certificates..................................6
3.1 Conversion of Purple Ray Capital Stock...............................6
3.2 Assumption of Options................................................6
3.3 Dissenters' Rights...................................................7
3.4 Fractional Shares....................................................7
3.5 Exchange of Certificates.............................................7
3.6 Taking of Necessary Action; Further Action...........................9
3.7 Escrow Agreement.....................................................9
3.8 Lost Certificates....................................................9
4. Securities Act Compliance...................................................9
4.1 Securities Act Exemption.............................................9
4.2 Securities Restrictions..............................................9
5. Representations and Warranties of Purple Ray...............................10
5.1 Organization, Qualification, and Corporate Power....................10
5.2 Authorization.......................................................10
5.3 Capitalization......................................................10
5.4 Noncontravention....................................................11
5.5 Fees................................................................11
5.6 Financial Statements................................................11
5.7 Subsidiaries........................................................12
5.8 Title to Assets.....................................................12
5.9 Events Subsequent to Most Recent Fiscal Year End....................12
5.10 Undisclosed Liabilities.............................................14
5.11 Legal Compliance....................................................15
5.12 Tax Matters.........................................................15
5.13 Properties..........................................................16
5.14 Intellectual Property...............................................17
5.15 Tangible Assets.....................................................18
5.16 Inventory...........................................................19
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5.17 Contracts...........................................................19
5.18 Notes and Accounts Receivable.......................................20
5.19 Power of Attorney...................................................20
5.20 Insurance...........................................................20
5.21 Litigation..........................................................21
5.22 Product Warranty and Liability......................................21
5.23 Employees...........................................................21
5.24 Employee Benefits...................................................21
5.25 Guaranties..........................................................23
5.26 Environment, Health, and Safety.....................................23
5.27 Certain Business Relationships With Purple Ray......................24
5.28 No Adverse Developments.............................................24
5.29 Full Disclosure.....................................................24
5.30 Purple Ray Shareholders.............................................25
6. Representations and Warranties of ISSI.....................................25
6.1 Organization, Qualification, and Corporate Power....................25
6.2 Authorization.......................................................25
6.3 Capitalization......................................................25
6.4 Noncontravention....................................................26
6.5 SEC Filings; Financial Statements...................................26
6.6 Absence of Changes..................................................27
6.7 Tax Matters.........................................................27
6.8 Brokers' Fees.......................................................27
7. Pre-Closing Covenants......................................................27
7.1 General.............................................................27
7.2 Notices and Consents................................................27
7.3 Operation of Business...............................................27
7.4 Access to Information...............................................30
7.5 Notice of Developments..............................................30
7.6 Solicitation of Written Consents....................................30
7.7 Exclusivity.........................................................31
7.8 Warrants............................................................31
8. Additional Covenants.......................................................31
8.1 General.............................................................31
8.2 Litigation Support..................................................31
8.3 Transition..........................................................31
8.4 Confidentiality.....................................................32
8.5 Purple Ray Employees................................................32
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(CONTINUED)
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8.6 Purple Ray Options..................................................32
8.7 S-8 Registration....................................................33
8.8 S-3 Registration....................................................33
8.9 Tax-Free Reorganization.............................................33
8.10 Purple Ray Director and Officer Indemnification.....................33
8.11 Securities Law Exemption; Information Statement.....................34
8.12 Tax Return Preparation..............................................34
9. Conditions to Obligations to Close.........................................34
9.1 Conditions to ISSI's Obligation to Close............................34
9.2 Conditions to Purple Ray's Obligation...............................36
10. Survival of Representations, Warranties and Covenants; Escrow..............37
10.1 Survival of Representations and Warranties..........................37
10.2 Escrow Arrangements.................................................37
11. Termination................................................................44
11.1 Termination of the Agreement........................................44
11.2 Effect of Termination...............................................45
11.3 Expenses and Termination Fees.......................................45
12. Miscellaneous..............................................................45
12.1 Press Releases and Public Announcements.............................45
12.2 No Third-Party Beneficiaries........................................46
12.3 Entire Agreement....................................................46
12.4 Succession and Assignment...........................................46
12.5 Counterparts........................................................46
12.6 Headings............................................................46
12.7 Notices.............................................................46
12.8 Governing Law.......................................................47
12.9 Forum Selection; Consent to Jurisdiction............................47
12.10 Amendments and Waivers..............................................47
12.11 Severability........................................................48
12.12 Construction........................................................48
12.13 Incorporation of Exhibits and Schedules.............................48
12.14 Attorneys' Fees.....................................................48
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TABLE OF CONTENTS
(CONTINUED)
EXHIBITS
Exhibit A Certificate of Merger
Exhibit B Escrow Agreement
Exhibit C Purple Ray Disclosure Schedule
Exhibit D ISSI Disclosure Schedule
Exhibit E Non Competition Agreement
Exhibit F-1 Restricted Stock Purchase Agreement
Exhibit F-2 Restricted Stock Purchase Agreement (milestone vesting)
Exhibit F-3 Restricted Stock Purchase Agreement (earnout vesting)
Exhibit G Voting Agreement
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "AGREEMENT") is entered into
as of January 23, 2002, by and among Integrated Silicon Solution, Inc., a
Delaware corporation ("ISSI") and Purple Ray, Inc., a California corporation
("PURPLE RAY"), and Xxxxx Xx, following his appointment under Section 10.2
hereof, as agent and attorney-in-fact for the shareholders of Purple Ray (the
"AGENT"). ISSI and Purple Ray are sometimes referred to herein individually as a
"PARTY" and collectively as the "PARTIES" (the Agent shall be deemed to be a
Party for purposes of Sections 10 and 12 hereof only).
RECITALS
A. Pursuant to this Agreement and the Certificate of Merger in the form
attached hereto as Exhibit A (the "CERTIFICATE OF MERGER"), Purple Ray will
merge with and into ISSI (the "MERGER") pursuant to the California Corporations
Code and the Delaware General Corporation Law and the capital stock of Purple
Ray shall be converted into the capital stock of ISSI as follows: (i) each share
of common stock, no par value, of Purple Ray (the "PURPLE RAY COMMON STOCK")
issued and outstanding immediately prior to the effective time of the Merger
will be converted into 0.03266 shares of the common stock, $0.0001 par value, of
ISSI (the "ISSI COMMON STOCK"), and (ii) each share of Series A Preferred Stock,
no par value, of Purple Ray (the "PURPLE RAY PREFERRED STOCK", and together with
Purple Ray Common Stock, the "PURPLE RAY CAPITAL STOCK") issued and outstanding
immediately prior to the effective time of the Merger will be converted into
0.04250 shares of ISSI Common Stock. In addition, additional shares of ISSI
Common Stock may be issued to the holders of Purple Ray capital stock upon the
satisfaction of certain conditions described herein, and all options to purchase
Purple Ray Common Stock issued and outstanding immediately prior to the
effective time of the Merger (the "PURPLE RAY OPTIONS") shall be assumed by ISSI
and converted into options to purchase ISSI Common Stock in accordance with the
terms of this Agreement.
B. The Parties desire to enter into this Agreement for the purpose of
setting forth certain representations, warranties and covenants made by each to
the other as an inducement to the execution and delivery of this Agreement, and
to serve as conditions precedent to the consummation of the merger of Purple Ray
with and into ISSI.
C. The respective Boards of Directors of ISSI and Purple Ray have approved
and adopted this Agreement, and the Agreement is intended to be a plan of
reorganization under the provisions of Section 368(a) of the Internal Revenue
Code of 1986, as amended.
NOW, THEREFORE, in consideration of these premises and of the mutual
agreements, representations, warranties and covenants herein contained, the
parties hereto do hereby agree as follows:
AGREEMENT
1. Certain Definitions. As used in this Agreement, the following terms
have the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and vice versa). Certain other terms are defined
in the text of this Agreement.
"AFFILIATE" of a Person means any other Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with such Person.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation, retirement plan, severance plan or similar plan or arrangement;
(b) Employee Pension Benefit Plan; (c) Employee Welfare Benefit Plan; and (d)
any other nonqualified plan providing welfare benefits, including but not
limited to medical, dental, life insurance and disability benefits.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(1).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"INTELLECTUAL PROPERTY" means any or all of the following (whether
under worldwide common law or statutory rights): (i) works of authorship,
copyrights, copyright registrations, copyright applications, "moral rights,"
computer programs, source code, executable code (whether embodied in software,
firmware, or otherwise), documentation, designs, records and data; (ii)
inventions (whether or not patentable), patents, patent applications,
improvements and associated technology; (iii) proprietary and confidential
information, trade secrets and know how (including any associated rights with
respect to the protection thereof); (iv) databases, data compilations, data
collections and technical data; (v) logos, trade names, trade dress, trademarks,
and service marks; (vi) domain names, web addresses and web sites; (vii)
methods, processes, mask works; and (viii) all divisions continuations,
renewals, reissuances and extensions of the foregoing (as applicable).
"KNOWLEDGE" shall mean with respect to Purple Ray, the actual
knowledge of either of Xxxx Xxxxx or Xxxxx Xx, after a due and diligent inquiry
of those employees and contract workers of Purple Ray whom such individuals
reasonably believe would have actual knowledge of the matters represented.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to a Person, a
material adverse effect on the business, condition (financial or otherwise),
properties, assets, operations or results of operations, other than as a result
of performance by such Person of its obligations under this Agreement, or a
material adverse effect on such Person's ability to perform its obligations
under this Agreement.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec. 3(37) and
Code Sec. 414(f).
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"PURPLE RAY SHAREHOLDERS" shall mean the holders of record of any
shares of any class of capital stock of Purple Ray immediately prior to the
Effective Time of the Merger (other than the holders of Dissenting Shares).
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease arrangements,
and (d) other liens arising in the Ordinary Course of Business and not incurred
in connection with the borrowing of money.
2. The Merger.
2.1 Merger; Effective Time of the Merger. Subject to the terms and
conditions of this Agreement and the Certificate of Merger, Purple Ray will be
merged with and into ISSI in accordance with the California Corporations Code
(the "CCC") and Delaware General Corporation Law (the "DGCL"). In accordance
with the provisions of this Agreement, the Certificate of Merger shall be filed
with the California Secretary of State in accordance with the CCC and with the
Delaware Secretary of State in accordance with the DCGL on the Closing Date (as
defined in Section 2.2) and the capital stock of Purple Ray shall be converted
into the capital stock of ISSI as follows: (i) each share of Purple Ray Common
Stock issued and outstanding immediately prior to the effective time of the
Merger will be converted into 0.03266 shares of the ISSI Common Stock, and (ii)
each share of Purple Ray Preferred Stock issued and outstanding immediately
prior to the effective time of the Merger will be converted into 0.04250 shares
of ISSI Common Stock, each in the manner contemplated by Section 3. The Merger
shall become effective at the time of the filing of the Certificate of Merger
with the California Secretary of State and the Delaware Secretary of State (the
date of such filing being hereinafter referred to as the "EFFECTIVE DATE OF THE
MERGER" and the time of such filing being hereinafter referred to as the
"EFFECTIVE TIME OF THE MERGER").
2.2 Closing. The closing of the Merger (the "CLOSING") will take place
upon satisfaction or waiver of all of the conditions set forth in Section 9 and
as soon as practicable after satisfaction or waiver of the latest to occur of
the conditions set forth in Sections 9.1(k) and 9.1(l) (the "CLOSING DATE"), at
the offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation, 000
Xxxx Xxxx Xxxx, Xxxx Xxxx, Xxxxxxxxxx 00000-0000.
2.3 Effect of the Merger. At the Effective Time of the Merger, (i) the
separate existence of Purple Ray shall cease and Purple Ray shall be merged with
and into ISSI (Purple Ray and ISSI are sometimes referred to herein as the
"CONSTITUENT CORPORATIONS" and ISSI after the Merger is sometimes referred to
herein as the "SURVIVING CORPORATION"), (ii) the Certificate of
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Incorporation of ISSI shall be the Certificate of Incorporation of the Surviving
Corporation, (iii) the Bylaws of ISSI shall be the Bylaws of the Surviving
Corporation, (iv) the directors and officers of ISSI shall be the directors and
officers of the Surviving Corporation and (v) the Merger shall, from and after
the Effective Time of the Merger, have all the effects provided by applicable
law.
2.4 Tax-Free Reorganization. The Merger is intended to qualify as a
tax free reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "CODE").
2.5 Additional Shares.
(a) After the Closing, subject to the specifications and
limitations in this Agreement, the Purple Ray Shareholders who held Purple Ray
Preferred Stock immediately prior to the Effective Time of the Merger (the
"PURPLE RAY PREFERRED SHAREHOLDERS") will be entitled to receive additional
shares of ISSI Common Stock as follows (collectively the "ADDITIONAL MERGER
CONSIDERATION"):
(i) an aggregate of 16,483 shares of ISSI Common Stock upon
the completion on or before August 15, 2002 by ISSI of ten (10) fully functional
engineering samples, which do not have to be fully qualified, of the PRSP4000
product, all of which are capable of performing at least 533 million searches
per second (the "SAMPLE CONDITION");
(ii) if the Sample Condition is not completed on or before
August 15, 2002, but is completed on or before November 15, 2002, an aggregate
of 8,242 shares of ISSI Common Stock;
(iii) an aggregate of 16,483 shares of ISSI Common Stock
upon the delivery on or before November 15, 2002 to ISSI of a letter confirmed
by an agent or employee of ISSI from a responsible manager of a customer or
prospective customer of ISSI stating that such customer has committed a design
intended for production with the PRSP4000 product (the "DESIGN WIN CONDITION");
(iv) if the Design Win Condition is not completed on or
before November 15, 2002, but is completed on or before February 15, 2003, an
aggregate of 8,242 shares of ISSI Common Stock;
(v) an aggregate of 16,483 shares of ISSI Common Stock upon
recognition on or before February 15, 2003 in accordance with ISSI's internal
accounting policies (which shall conform to United States generally accepted
accounting principles) of cumulative revenue on sales of the PRSP4000 product of
at least $10,000 by ISSI (the "SALES CONDITION," and, collectively with the
Sample Condition and the Design Win Condition, the "CONDITIONS"); and
(vi) if the Sales Condition is not completed on or before
February 15, 2003, but is completed on or before May 15, 2003, an aggregate of
8,242 shares of ISSI Common Stock.
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(b) The aggregate number of shares of ISSI Common Stock that
constitutes the Additional Merger Consideration, if any, shall be delivered to
the Purple Ray Preferred Shareholders as soon as practicable (but no later than
thirty (30) days) after the delivery of the Final Compliance Notice (as defined
below); provided, however, that should there be at such time any dispute as to
whether a Condition was satisfied or not, then such shares of ISSI Common Stock
shall be delivered to the Purple Ray Preferred Shareholders as soon as
practicable (but no later than thirty (30) days) after the final resolution of
all such disputes pursuant to Section 2.5(c). The shares of ISSI Common Stock
that constitutes the Additional Merger Consideration shall be allocated to each
such Purple Ray Preferred Shareholder pro rata based on the number of shares of
Purple Ray Preferred Stock held by such Purple Ray Shareholders immediately
prior to the Effective Time of the Merger.
(c) The officer or general manger of ISSI (the "ISSI
REPRESENTATIVE") in charge of the division in which the Purple Ray assets are
used and the PRSP4000 product is being developed (the "DIVISION") shall, on or
before 10 days after each deadline for the satisfaction of a Condition described
in Section 2.5(a), deliver to the Agent, or a designee of the Agent who was a
Purple Ray employee immediately prior to the Effective Time of the Merger and
who is then employed by ISSI in such division (the "PURPLE RAY REPRESENTATIVE")
a written notice (the "COMPLIANCE NOTICE") indicating whether such Condition has
been satisfied, and if such Condition has not been satisfied, a brief
description of the criteria that have not been met. Notwithstanding the
foregoing, the final Compliance Notice (the "FINAL COMPLIANCE NOTICE") shall be
delivered on or before 10 days after the earlier of (i) May 15, 2003, or (ii)
the satisfaction of the Sales Condition. Unless otherwise determined by an
arbitration proceeding pursuant to Sections 2.5(d), the determination of the
ISSI Representative shall be the conclusive determination as to whether any
Condition was satisfied for purposes of this Section 2.
(d) If the Purple Ray Representative does not agree with the
conclusions made in any Compliance Notice, then each of the ISSI Representative
and the Purple Ray Representative shall attempt to resolve the issue in good
faith. If the ISSI Representative and the Purple Ray Representative have not,
within ten (10) business days after the date of the delivery of the Final
Compliance Notice, reached an agreement as to whether a Condition covered in any
Compliance Notice was satisfied on or before the applicable deadline described
in Section 2.5(a), then the Purple Ray Representative may demand in writing on
or before twenty (20) business days after the date of the delivery of the Final
Compliance Notice that the issue of whether such Condition has been satisfied be
settled by arbitration conducted by three (3) arbitrators. For any such
arbitration, ISSI and the Agent shall each select one (1) arbitrator, and the
two (2) arbitrators so selected shall select a third arbitrator. The arbitrators
shall, within ten (10) business days after the last day of any hearings on any
motion, issue a definitive ruling on such motion. The arbitrators shall also,
within twenty (20) business days from the last day of any hearings, issue a
definitive ruling on the imposition of any such sanctions or the issuance of any
such award in such arbitration. The arbitrators shall also establish procedures
designed to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrators, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrators shall rule upon motions to compel or limit discovery
and shall have the authority to impose sanctions, including attorneys fees and
costs, to the same extent as a court of competent law or equity, should the
arbitrators
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determine that discovery was sought without substantial justification or that
discovery was refused or objected to without substantial justification. The
decision of a majority of the three (3) arbitrators shall be binding and
conclusive upon the parties to this Agreement. Such decision shall be written
and shall be supported by written findings of fact and conclusions that shall
set forth the award, judgment, decree or order awarded by the arbitrators.
(e) Notwithstanding any provision of this Section 2.5, if the
satisfaction of any Condition is delayed as a direct result of a fire,
earthquake, general strike, significant power outage, government restriction,
act of God or act of war or insurrection, then the deadline for such Condition
shall be delayed for a period of time equal to the period of time from the date
of such event to the date in which the Division is first reasonably able to
resume pursuit of the Condition.
(f) ISSI agrees to use all commercially reasonable efforts
consistent with the goal of achieving the Conditions to provide commercially
reasonable resources and to permit commercially reasonable focus on achieving
the Conditions, and further agrees not to make operational or other decisions
with respect to the PRSP4000 product for the purpose of decreasing the
Additional Merger Consideration.
3. Effect of Merger; Exchange of Certificates.
3.1 Conversion of Purple Ray Capital Stock. As of the Effective Time
of the Merger, each share of Purple Ray Capital Stock that is issued and
outstanding immediately prior to the Effective Time of the Merger (other than
shares, if any, held by persons exercising dissenters' rights in accordance with
Chapter 13 of the CCL ("DISSENTING SHARES") as provided for in Section 3.3
below), shall, by virtue of the Merger and without any action on the part of
Purple Ray Shareholders, be converted into shares of ISSI Common Stock as
follows: (i) each share of Purple Ray Common Stock issued and outstanding
immediately prior to the Effective Time of the Merger will be converted into
0.03266 (the "COMMON STOCK CONVERSION RATIO") shares of the ISSI Common Stock,
and (ii) each share of Purple Ray Preferred Stock issued and outstanding
immediately prior to the Effective Time of the Merger will be converted into
0.04250 (the "PREFERRED STOCK CONVERSION RATIO") shares of ISSI Common Stock
(the consideration to be paid pursuant to (i) and (ii) above is hereinafter
referred to as the "MERGER CONSIDERATION"). The Common Stock Conversion Ratio
and the Preferred Stock Conversion Ratio will be adjusted as appropriate to give
effect to any reclassification, stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into ISSI
Common Stock), reorganization, recapitalization or other like change with
respect to ISSI Common Stock occurring after the date hereof and prior to the
Effective Time of the Merger.
3.2 Assumption of Options. At the Effective Time of the Merger, each
Purple Ray Option outstanding shall be assumed by ISSI and be converted into an
Option to purchase ISSI Common Stock. Each Purple Ray Option so assumed by ISSI
under this Agreement shall continue to have, and be subject to, the same terms
and conditions, including vesting, set forth in the Purple Ray, Inc. 2000 Stock
Plan (the "PLAN") and the option agreement applicable to such Purple Ray Option,
except that (i) such assumed Purple Ray Option will be exercisable for that
number of whole shares of ISSI Common Stock equal to the product of the number
of shares of Purple Ray Common
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Stock that were issuable upon exercise of such Purple Ray Option immediately
prior to the Effective Time of the Merger multiplied by 0.03266 (the "OPTION
CONVERSION RATIO"), rounded down to the nearest whole number of shares of ISSI
Common Stock, and (ii) the per share exercise price for the shares of ISSI
Common Stock issuable upon exercise of such assumed or replaced Purple Ray
Option shall be equal to the quotient obtained by dividing the exercise price
per share of Purple Ray Common Stock at which such assumed Purple Ray Option was
exercisable immediately prior to the Effective Time of the Merger by the Option
Conversion Ratio, rounded up to the nearest whole cent.
3.3 Dissenters' Rights. If holders of Purple Ray Capital Stock are
entitled to dissenters' rights at the Effective Time of the Merger under Section
1300 et seq. of the CCC, the shares as to which dissenters' rights are available
("DISSENTING SHARES") shall not be converted into the Merger Consideration on or
after the Effective Time of the Merger, but shall instead be converted into the
right to receive from the Surviving Corporation such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to the CCC.
Each holder of Dissenting Shares (a "DISSENTING SHAREHOLDER") who, pursuant to
the provisions of Section 1300 et seq. of the CCC, becomes entitled to payment
of the value of shares of Purple Ray Capital Stock held by such Dissenting
Shareholder shall receive payment therefor (but only after the value therefor
shall have been agreed upon or finally determined pursuant to such provisions).
In the event of the legal obligation, after the Effective Time of the Merger, to
deliver the Merger Consideration to any Dissenting Shareholder who shall have
failed to make an effective demand for appraisal or shall have lost his status
as a Dissenting Shareholder, ISSI shall issue and deliver, upon surrender by
such Dissenting Shareholder of his certificate or certificates representing
shares of Purple Ray Capital Stock, the Merger Consideration to which such
Dissenting Shareholder is then entitled under this Section 3.3 and Section 1300
et seq. of the CCC.
3.4 Fractional Shares. No fractional shares of ISSI Common Stock shall
be issued in the Merger. In lieu thereof, each holder of shares of Purple Ray
Capital Stock who would otherwise be entitled to receive a fraction of a share
of ISSI Common Stock shall receive from ISSI an amount of cash (rounded to the
nearest whole cent) equal to the product of the fraction of a share of ISSI
Common Stock to which such holder would otherwise be entitled, multiplied by the
average closing price per share for the ISSI Common Stock for the ten
consecutive trading days ending on and including the Effective Date of the
Merger. For the purpose of determining fractional shares with respect to each
Purple Ray Shareholder, all shares of ISSI Common Stock to be issued to such
Purple Ray Shareholder as a result of the conversion of Purple Ray Capital Stock
at the Effective Time of the Merger shall be aggregated.
3.5 Exchange of Certificates.
(a) Exchange Agent. Prior to the Closing Date, ISSI shall appoint
itself or Mellon Shareholder Services, L.L.C. to act as the exchange agent (the
"EXCHANGE AGENT") in the Merger.
(b) ISSI to Provide ISSI Common Stock. Promptly after the
Effective Date of the Merger, ISSI shall make available for exchange in
accordance with this Section 3.5, through such reasonable procedures as ISSI may
adopt that are not inconsistent with this Agreement, the shares of
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ISSI Common Stock issuable pursuant to Section 3.1 in exchange for outstanding
shares of Purple Ray Capital Stock.
(c) Exchange Procedures. As soon as practicable, but no later
than thirty (30) days after the Effective Date of the Merger, the Exchange Agent
shall mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Date of the Merger represented outstanding
shares of Purple Ray Capital Stock (the "CERTIFICATES") whose shares are being
converted into the Merger Consideration pursuant to Section 3.1 hereof (less any
shares held in escrow pursuant to Section 3.7 hereof), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and which shall be in such form and have such
other provisions as ISSI may reasonably specify, including appropriate
investment representations to be made by each such shareholder) (the "LETTER OF
TRANSMITTAL") and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration (less any shares held in
escrow pursuant to Section 3.7 hereof). Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by ISSI, together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor the
number of shares of ISSI Common Stock (less any shares held in escrow pursuant
to Section 3.7 hereof) to which the holder of Purple Ray Capital Stock is
entitled pursuant to Section 3.1 hereof. The Certificate so surrendered shall
forthwith be canceled. No interest will accrue or be paid to the holder of any
outstanding Purple Ray Capital Stock. From and after the Effective Date of the
Merger, until surrendered as contemplated by this Section 3.5(c), each
Certificate shall be deemed for all corporate purposes to evidence the number of
shares of ISSI Common Stock into which the shares of Purple Ray Capital Stock
represented by such Certificate have been converted. Notwithstanding the
foregoing procedures, ISSI shall use its reasonable efforts to provide the form
of Letter of Transmittal to Purple Ray as soon as practical after the date
hereof, and Purple Ray shall provide such Letter of Transmittal to each Purple
Ray Shareholder. The parties agree that the Exchange Agent shall not be
obligated to mail such Letter of Transmittal to any Purple Ray Shareholders to
whom Purple Ray provided the Letter of Transmittal prior to Closing. ISSI agrees
that to the extent a Purple Ray Shareholder provides a fully executed and
completed Letter of Transmittal together with the related Certificates held by
such shareholder to ISSI at least five (5) business days prior to the Closing,
then ISSI will use its reasonable best efforts to provide to such Purple Ray
Shareholder at the Closing, or as soon as practicable thereafter, a certificate
representing the shares of ISSI Common Stock to which such shareholder is
entitled pursuant to the terms hereof.
(d) No Further Ownership Rights in Capital Stock of Purple Ray.
The Merger Consideration delivered upon the surrender for exchange of shares of
Purple Ray Capital Stock in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such Purple
Ray Capital Stock. There shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of Purple Ray Capital Stock
which were outstanding immediately prior to the Effective Date of the Merger.
If, after the Effective Date of the Merger, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Section 3.5, provided that the presenting holder is listed on
Purple Ray's shareholder list as a holder of Purple Ray Common Stock.
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3.6 Taking of Necessary Action; Further Action. ISSI and Purple Ray
shall take all such actions as may be necessary or appropriate in order to
effect the Merger as promptly as possible. If, at any time after the Effective
Date of the Merger, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Purple Ray, the officers and directors of the Surviving
Corporation are fully authorized in the name of the Surviving Corporation or
otherwise to take, and shall take, all such action.
3.7 Escrow Agreement. The parties hereto agree that 16,483 shares of
the shares of ISSI Common Stock to be issued to the Purple Ray Preferred
Shareholders in the Merger and 3,539 shares of the shares of ISSI Common Stock
to be issued to the holders of Purple Ray Common Stock immediately prior to the
Effective Time of the Merger (the "PURPLE RAY COMMON SHAREHOLDERS") (all of such
share, collectively, the "ESCROW AMOUNT") shall be held in escrow pursuant to
the terms of an escrow agreement in substantially the form attached hereto as
Exhibit B (the "ESCROW AGREEMENT"). Notwithstanding anything to the contrary in
this Agreement, no Purple Ray Shareholder shall receive certificates for any
shares of ISSI Common Stock held in escrow unless and until permitted under the
terms of the Escrow Agreement.
3.8 Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
ISSI or the Exchange Agent, the posting by such person of a bond in such
reasonable amount as ISSI or the Exchange Agent may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of ISSI Common Stock, cash in lieu of fractional shares,
if any, and unpaid dividends and distributions, if any, on shares of ISSI Common
Stock deliverable in respect thereof pursuant to Section 3 of this Agreement.
4. Securities Act Compliance.
4.1 Securities Act Exemption. The issuance of the ISSI Common Stock in
the Merger shall not be registered under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), in reliance upon Section 4(2) and/or Rule 506 under
Regulation D of the Securities Act.
4.2 Securities Restrictions. The certificates representing the shares
of ISSI Common Stock issued pursuant to this Agreement shall bear a restrictive
legend (and stop transfer orders shall be placed against the transfer thereof
with ISSI's transfer agent), stating substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED
OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (II) IN COMPLIANCE WITH
RULE 144 OR (III) PURSUANT TO AN OPINION OF COUNSEL FOR ISSI THAT
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SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933."
5. Representations and Warranties of Purple Ray. Purple Ray represents
and warrants to ISSI that the statements contained in this Section 5 are correct
and complete as of the date of this Agreement, except as set forth in the
disclosure schedule delivered by Purple Ray to ISSI on the date hereof (and
initialed by ISSI), a copy of which is attached hereto as Exhibit C (referred to
herein as the "PURPLE RAY DISCLOSURE SCHEDULE"). The Purple Ray Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 5.
5.1 Organization, Qualification, and Corporate Power. Purple Ray is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California. Purple Ray is duly authorized to conduct
business and is in good standing under the laws of each other jurisdiction where
the failure to obtain such qualification would be reasonably likely to result in
a Material Adverse Effect. There is no state, other than California, in which
Purple Ray owns any property or in which it has any employees, offices or
operations. Purple Ray has full corporate power and authority, and has all
necessary licenses and permits, to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. Section 5.1 of
the Purple Ray Disclosure Schedule lists the directors and officers of Purple
Ray. The operations now being conducted by Purple Ray are not now and have never
been conducted under any other name. Purple Ray has delivered to ISSI a true,
correct and complete copy of the Articles of Incorporation and Bylaws or other
charter documents, as applicable, of Purple Ray, each as amended to date.
5.2 Authorization. Purple Ray has full corporate power and authority
to execute and deliver this Agreement, the Certificate of Merger, and any other
agreements or documents executed by Purple Ray pursuant to this Agreement or the
Merger (the "PURPLE RAY RELATED AGREEMENTS"), and subject to receipt of the
requisite approval of its shareholders, to consummate the transactions
contemplated hereunder and to perform its obligations hereunder and no other
proceedings on the part of Purple Ray are necessary to authorize the execution,
delivery and performance of this Agreement. This Agreement and the transactions
contemplated hereby have been approved by the unanimous vote of Purple Ray's
Board of Directors. Each of this Agreement, the Certificate of Merger and the
Purple Ray Related Agreements, constitutes the valid and legally binding
obligation of Purple Ray, enforceable against Purple Ray in accordance with
their respective terms and conditions, subject to the effect of (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to rights of creditors generally and (ii) rules of
law and equity governing specific performance, injunctive relief and other
equitable remedies. Purple Ray need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by this
Agreement.
5.3 Capitalization.
(a) Capital Stock. As of the date of this Agreement, the entire
authorized capital stock of Purple Ray consists of 33,000,000 shares of Purple
Ray Capital Stock, consisting of 25,000,000 shares of Purple Ray Common Stock,
7,642,000 of which are issued and outstanding,
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and 8,000,000 shares of Purple Ray Preferred Stock, all of which are designated
Series A Preferred Stock, 6,570,000 shares of which are issued and outstanding.
All of the issued and outstanding shares of capital stock have been duly
authorized, are validly issued, fully paid, and non-assessable, are free of any
liens or encumbrances and are held of record by the respective shareholders as
set forth in Section 5.3(a) of the Purple Ray Disclosure Schedule. All of the
outstanding shares of capital stock have been offered, issued and sold by Purple
Ray in compliance with applicable Federal and state securities laws. These are
no declared or accrued but unpaid dividends with respect to any shares of Purple
Ray Capital Stock.
(b) No Other Rights or Agreements. Section 5.3(b) of the Purple
Ray Disclosure Schedule lists all of the holders, as of the date of this
Agreement, of options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights and other rights that could require Purple
Ray to issue, sell or otherwise cause to become outstanding any of its capital
stock (the "STOCK RIGHTS"), and the number of shares of Purple Ray Common Stock
subject to such Stock Rights. For each such holder, Section 5.3(b) of the Purple
Ray Disclosure Schedule lists for each such Stock Right the applicable exercise
price or conversion ratio, the date of grant or issuance, the vesting schedule,
if any, the number of shares of Purple Ray Common Stock or Purple Ray Preferred
Stock that are vested as of the date of this Agreement, and, if an option
granted under the Purple Ray, Inc. 2000 Stock Plan, whether such option is
intended to qualify as an incentive stock option as defined in Section 422 of
the Code. Except as set forth in Section 5.3(b) of the Purple Ray Disclosure
Schedule, there are no other outstanding or authorized Stock Rights. There are
no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to Purple Ray. There are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of the capital stock of Purple Ray.
5.4 Noncontravention. Except as set forth in Section 5.4 of the Purple
Ray Disclosure Schedule, neither the execution and the delivery of this
Agreement by Purple Ray nor the consummation by Purple Ray of the transactions
contemplated hereby, will (A) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which Purple Ray is subject
or any provision of its Articles of Incorporation or bylaws, or (B) (i) conflict
with, (ii) result in a breach of, (iii) constitute a default under, (iv) result
in the acceleration of, (v) create in any party the right to accelerate,
terminate, modify, or cancel, or (vi) require any notice under, any agreement,
contract, lease, license, instrument, franchise permit or other arrangement to
which Purple Ray is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Security Interest upon any
of its assets).
5.5 Fees. Purple Ray has no liability or obligation to pay any fees or
commissions to any broker, finder, agent or attorney with respect to the
transactions contemplated by this Agreement.
5.6 Financial Statements. Section 5.6 of the Purple Ray Disclosure
Schedule contains the unaudited balance sheets and statements of income and cash
flow as of and for the fiscal years ended December 31, 2000 and 2001 for Purple
Ray (collectively the "FINANCIAL STATEMENTS"). The Financial Statements
(including the notes thereto) are true and correct and have been prepared on a
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consistent basis throughout the periods covered thereby. The Financial
Statements present fairly the financial condition of Purple Ray as of such dates
and the results of operations of Purple Ray for such periods. The books of
account of Purple Ray reflect as of the dates shown thereon all items of income
and expenses, and all assets, liabilities and accruals of Purple Ray required to
be reflected therein in order to accurately represent the financial condition of
Purple Ray in all material respects.
5.7 Subsidiaries. Purple Ray has no subsidiaries and has not been a
subsidiary of another company.
5.8 Title to Assets. Except as set forth in Section 5.8 of the Purple
Ray Disclosure Schedule, Purple Ray has good and marketable title to, or a valid
leasehold interest in, the properties and assets (including, without limitation,
all Intellectual Property) used by it, located on its premises, or shown on the
balance sheet dated as of December 31, 2001 contained within the Financial
Statements (the "MOST RECENT BALANCE SHEET") or acquired after the date thereof,
free and clear of all Security Interests. No Person other than Purple Ray will
own at the time of the Closing any assets or properties currently utilized in or
necessary to the operations or business of Purple Ray or situated on any of the
premises of Purple Ray. There are no existing contracts, agreements, commitments
or arrangements with any Person to acquire any of the assets or properties of
Purple Ray (or any interest therein) except for this Agreement.
5.9 Events Subsequent to Most Recent Fiscal Year End. Since December
31, 2001(the "MOST RECENT FISCAL YEAR END"), there has not been any material
adverse change in the business, condition (financial or otherwise), properties,
assets, operations or results of operations of Purple Ray. Without limiting the
generality of the foregoing, since that date:
(a) Purple Ray has not sold, leased, transferred, or assigned any
assets or properties, tangible or intangible, outside the Ordinary Course of
Business;
(b) except for those agreements, contracts, leases and
commitments identified in Section 5.17 of the Purple Ray Disclosure Schedule,
Purple Ray has not entered into, assumed or become bound under or obligated by
any agreement, contract, lease or commitment (collectively a "PURPLE RAY
AGREEMENT") or extended or modified the terms of any Purple Ray Agreement which
(i) involves the payment of greater than $10,000 per annum or which extends for
more than one (1) year, (ii) involves any payment or obligation to any Affiliate
of Purple Ray (iii) involves the sale of any assets (other than cash), (iv)
involves any OEM relationship, or (v) involves any license of Purple Ray's
technology;
(c) no party (including Purple Ray) has accelerated, terminated,
made modifications to, or canceled any agreement, contract, lease, or license to
which Purple Ray is a party or by which it is bound and Purple Ray has not
modified, canceled or waived or settled any debts or claims held by it, outside
the Ordinary Course of Business, or waived or settled any rights or claims of a
material value, whether or not in the Ordinary Course of Business;
(d) none of the assets of Purple Ray, tangible or intangible, has
become subject to any Security Interest;
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(e) Purple Ray has not made any capital expenditures not
exceeding $10,000 in the aggregate of all such capital expenditures;
(f) Purple Ray has not made any capital investment in, or any
loan to, any other Person;
(g) Purple Ray has not created, incurred, assumed, prepaid or
guaranteed any indebtedness for borrowed money and capitalized lease
obligations, or extended or modified any existing indebtedness; provided,
however, Purple Ray may incur after the date of this Agreement indebtedness that
(i) (A) does not exceed an aggregate principal amount of $100,000, and (B) that
does not bear an interest rate that exceeds 10%, or (ii) is approved by the
written consent of ISSI, which consent shall not be unreasonably withheld;
(h) Purple Ray has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(i) there has been no change made or authorized in the Articles
of Incorporation or bylaws of Purple Ray; provided, that Purple Ray may prior to
the Closing amend its articles of incorporation solely for the purpose of
providing for the reallocation of proceeds in the event of a merger consistent
with the allocation described in Section 3.1;
(j) Purple Ray has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash or
in kind) or redeemed, purchased, or otherwise acquired any of its capital stock;
provided, however, that Purple Ray may redeem up to 2,773,431 shares of Purple
Ray Common Stock held by Xxxxx Xx or Xxxx Xxxxx as of the date of this Agreement
at a price per share not to exceed the price per share paid by such holders of
such shares of Purple Ray Common Stock;
(k) Purple Ray has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property in excess of $10,000
in the aggregate of all such damage, destruction and losses;
(l) Purple Ray has not suffered any repeated, recurring or
prolonged shortage, cessation or interruption of inventory shipments, supplies
or utility services;
(m) Purple Ray has not made any loan to, or entered into any
other transaction with, or paid any bonuses to, any of its Affiliates,
directors, officers, or employees or their Affiliates, thereof; provided,
however, that Purple Ray may redeem up to 2,773,431 shares of Purple Ray Common
Stock held by Xxxxx Xx or Xxxx Xxxxx as of the date of this Agreement at a price
per share not to exceed the price per share paid by such holders of such shares
of Purple Ray Common Stock, and may grant options to purchase up to 2,773,431
shares of Purple Ray Common Stock to persons eligible to receive such grants
under the Plan at an exercise price of at least $0.10 and, with respect to
options to purchase at least 2,398,780 of such shares of Purple Ray Common
Stock, having vesting provisions that are the same as the vesting provisions
included in the Restricted Stock Purchase Agreement attached hereto as Exhibit
F-2.
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(n) Purple Ray has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement;
(o) Purple Ray has not granted any increase in the base
compensation of any of its directors or officers, or, except in the Ordinary
Course of Business, any of its employees;
(p) Purple Ray has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, or employees (or
taken any such action with respect to any other Employee Benefit Plan);
(q) Purple Ray has not made any other change in employment terms
for any of its directors or officers, and Purple Ray has not made any other
change in employment terms for any other employees outside the Ordinary Course
of Business;
(r) Purple Ray has not suffered any adverse change or any threat
of any adverse change in its relations with, or any loss or threat of loss of,
any of its major customers, distributors or dealers;
(s) Purple Ray has not suffered any adverse change or any threat
of any adverse change in its relations with, or any loss or threat of loss of,
any of it major suppliers;
(t) Purple Ray has not received notice or had Knowledge of any
actual or threatened labor trouble or strike, or any other occurrence, event or
condition of a similar character;
(u) Purple Ray has not changed any of the accounting principles
followed by it or the method of applying such principles;
(v) Purple Ray has not made a change in any of its banking or
safe deposit arrangements;
(w) Purple Ray has not entered into any transaction other than in
the Ordinary Course of Business; and
(x) Purple Ray is not obligated to do any of the foregoing.
5.10 Undisclosed Liabilities. As of the date hereof, to Purple Ray's
Knowledge, Purple Ray has no liability (whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due, including any liability for
taxes), except for (i) liabilities set forth on the Most Recent Balance Sheet,
(ii) liabilities which are set forth in Section 5.10 of the Purple Ray
Disclosure Schedule, and (iii) and liabilities incurred in the Ordinary Course
of Business and that do not exceed $1,000 individually or $5,000 in the
aggregate.
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5.11 Legal Compliance. Purple Ray has complied in all material
respects with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof). No
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, notice or inquiry has been filed or commenced against, or received by,
any governmental body alleging any failure to so comply. Purple Ray has all
licenses, permits, approvals, registrations, qualifications, certificates and
other governmental authorizations that are necessary for the operations of
Purple Ray as they are presently conducted, except for such licenses, permits,
approvals, registrations, qualifications, certificates and other governmental
authorizations the absence of which, individually or in the aggregate, have not
resulted in, and are not reasonably likely to result in, a Material Adverse
Effect.
5.12 Tax Matters.
(a) For purposes of this Agreement, "TAXES" means all federal,
state, municipal, local or foreign income, gross receipts, windfall profits,
severance, property, production, sales, use, value added, license, excise,
franchise, employment, withholding, capital stock, levies, imposts, duties,
transfer and registration fees or similar taxes or charges imposed on the
income, payroll, properties or operations of Purple Ray, together with any
interest, additions or penalties, deficiencies or assessments with respect
thereto and any interest in respect of such additions or penalties.
(b) Purple Ray has filed all reports and returns with respect to
any Taxes ("TAX RETURNS") that it was required to file. All such Tax Returns
were correct and complete in all respects, except for any errors or omissions
that are not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on Purple Ray, and no such Tax Returns are currently the
subject of audit. All Taxes owed by Purple Ray (whether or not shown on any Tax
Return) were paid in full when due or are being contested in good faith and are
supported by adequate reserves on the Most Recent Balance Sheet. Purple Ray has
provided adequate reserves on its Financial Statements for the payment of any
taxes accrued but not yet due and payable. Purple Ray is not currently the
beneficiary of any extension of time within which to file any Tax Return, and
Purple Ray has not waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to any Tax assessment or
deficiency.
(c) There is no dispute or claim concerning any Tax liability of
Purple Ray either (A) claimed or raised by any authority in writing or (B) based
upon personal contact with any agent of such authority. There are no tax liens
of any kind upon any property or assets of Purple Ray, except for inchoate liens
for taxes not yet due and payable.
(d) Purple Ray has not filed a consent under Sec. 341(f) of the
Internal Revenue Code of 1986, as amended (the "CODE") concerning collapsible
corporations. Purple Ray has not made any payments, is not obligated to make any
payments, and is not a party to any agreement that under any circumstances could
obligate it to make any payments as a result of the consummation of the Merger
that will not be deductible under Code Sec. 280G. Purple Ray has not been a
United States real property holding corporation within the meaning of Code Sec.
897(c)(2)
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during the applicable period specified in Code Sec. 897(c)(1)(A)(ii). Purple Ray
is not a party to any tax allocation or sharing agreement. Purple Ray (A) has
not been a member of any affiliated group within the meaning of Code Sec. 1504
or any similar group defined under a similar provision of state, local, or
foreign law (an "AFFILIATED GROUP") filing a consolidated federal Income Tax
Return (other than a group the common parent of which was Purple Ray) and (B)
has no any liability for the taxes of any Person (other than any of Purple Ray)
under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise.
(e) The unpaid Taxes of Purple Ray (A) did not, as of the Most
Recent Fiscal Year End, exceed by any amount the reserve for Tax liability
(other than any reserve for deferred taxes established to reflect timing
differences between book and tax income) set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) and (B) will not exceed
that reserve as adjusted for operations and transactions through the Closing
Date in accordance with the past custom and practice of Purple Ray in filing its
Tax Returns.
5.13 Properties.
(a) Purple Ray does not currently own and has never previously
owned any real property.
(b) Section 5.13 of the Purple Ray Disclosure Schedule lists and
describes briefly all real property leased or subleased to Purple Ray. Purple
Ray has delivered to ISSI correct and complete copies of the leases and
subleases listed in Section 5.13 of the Purple Ray Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed in Section 5.13
of the Purple Ray Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect in all respects against Purple Ray
and, to Purple Ray's Knowledge, the other parties thereto;
(ii) neither Purple Ray nor, to Purple Ray's Knowledge, any
other party thereto is in breach or default, and no event has occurred which,
with notice or lapse of time, would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(iii) neither Purple Ray nor, to Purple Ray's Knowledge, any
other party thereto has repudiated any provision thereof;
(iv) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease: and
(v) Purple Ray has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold or
subleasehold.
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5.14 Intellectual Property.
(a) To Purple Ray's Knowledge, Purple Ray owns or has the right
to use all Intellectual Property used in the operation of its business as
conducted and as proposed to be conducted. Each item of Intellectual Property
owned by Purple Ray immediately prior to the Effective Time will be available
for use by ISSI on identical terms and conditions immediately after the
Effective Time of the Merger. Assuming all consents to transfer listed in
Section 5.4 of the Purple Ray Disclosure Schedule are obtained (it being
understood that Purple Ray represents and warrants that it shall use its best
reasonable efforts to secure such consents), each item of Intellectual Property
otherwise used by Purple Ray immediately prior to the Effective Time of the
Merger will be available for use by ISSI on identical terms and conditions
immediately after the Effective Time of the Merger.
(b) To Purple Ray's Knowledge, Purple Ray has not interfered
with, infringed upon, misappropriated or violated any Intellectual Property
rights of third parties, and has not received since its inception any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that any of
Purple Ray must license or refrain from using any Intellectual Property rights
of any third party). To Purple Ray's Knowledge, no third party has interfered
with, infringed upon, misappropriated, or violated any Intellectual Property
rights of Purple Ray.
(c) Section 5.14(c) of the Purple Ray Disclosure Schedule
identifies each patent, copyright, trademark, mask work, right or domain name
registration that has been issued to Purple Ray or any Affiliate of Purple Ray
(including without limitation, trademarks, service marks, and domain names) and
identifies each pending patent application or application for patent, copyright,
trademark, mask work, right or domain name registration which Purple Ray or any
Affiliate of Purple Ray has made. Purple Ray has delivered to ISSI correct and
complete copies of all such patents, registrations and applications. Section
5.14(c) of the Purple Ray Disclosure Schedule identifies (i) each trade name or
unregistered trademark of Purple Ray or any Affiliate of Purple Ray and (ii)
each unregistered copyright owned by Purple Ray or any Affiliate of Purple Ray.
Section 5.14(c) of the Purple Ray Disclosure Schedule also identifies each
computer program ("Software") that Purple Ray owns and that is material to
Purple Ray's business. With respect to each item of Intellectual Property that
Purple Ray owns and is material to its business, to Purple Ray's Knowledge:
(i) Purple Ray possesses all right, title, and interest in
and to the item, free and clear of any Security Interest, license, lien,
encumbrance or other restriction;
(ii) the item is legal and valid and in full force and
effect and is not subject to any outstanding injunction, judgment, order,
decree, ruling, charge, or other similar decision;
(iii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or threatened in writing which
challenges the legality, validity, enforceability, use or ownership of the item;
and
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(iv) other than pursuant to the contracts listed in Section
5.17 of the Purple Ray Disclosure Schedule, Purple Ray has never agreed to
indemnify any Person for or against any interference, infringement,
misappropriation, violation, or other conflict with respect to the item.
(d) Section 5.14(d) of the Purple Ray Disclosure Schedule
identifies each item of Intellectual Property material to the operation of
Purple Ray's business that any third party owns and that Purple Ray uses
pursuant to license, sublicense, agreement, or permission. Purple Ray has
delivered to ISSI correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date), as well as all related
amendments. With respect to each item of Intellectual Property required to be
identified in Section 5.14(d) of the Purple Ray Disclosure Schedule:
(i) the license, sublicense (and to Purple Ray's Knowledge
the underlying license with respect thereto), agreement or permission covering
the item is legal, valid, binding, enforceable, and in full force and effect in
all respects against Purple Ray and, to Purple Ray's Knowledge, the other
parties thereto;
(ii) neither Purple Ray nor, to Purple Ray's Knowledge, any
other party thereto, is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default or permit
termination, modification or acceleration thereunder;
(iii) neither Purple Ray nor, to Purple Ray's Knowledge, any
other party thereto, has repudiated any provision thereof; and
(iv) Purple Ray has not granted any sublicense or similar
right with respect to the license, sublicense, agreement, or permission covering
the item.
(e) To Purple Ray's Knowledge, none of its employees is obligated
under any contract (including licenses, covenants or commitments of any nature
or other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would materially interfere with the use of his or
her best efforts to promote the interests of Purple Ray or that would conflict
with Purple Ray's business. Neither the execution nor the delivery of this
Agreement or the Ancillary Agreements, nor the carrying on of Purple Ray's
business by the employees of Purple Ray, nor the conduct of Purple Ray's
business as presently proposed, will, to Purple Ray's Knowledge, conflict with
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any of such
employees is now obligated. Purple Ray does not believe it is or will be
necessary to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by Purple Ray.
5.15 Tangible Assets. The buildings, machinery, equipment, and other
tangible assets that Purple Ray owns and leases have been maintained in
accordance with normal industry practice, and are in good operating condition
and repair (subject to normal wear and tear) and are usable in the Ordinary
Course of Business.
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5.16 Inventory. Purple Ray does not have and does not maintain
inventory, whether consisting of raw materials and supplies, manufactured and
processed parts, work in process, or finished goods.
5.17 Contracts. Section 5.17 of the Purple Ray Disclosure Schedule lists
the following contracts, agreements, commitments and other arrangements to which
Purple Ray is a party or by which Purple Ray or any of its assets is bound:
(a) any agreement (or group of related agreements) for the lease
of personal property to or from any Person that involves aggregate annual
payments of more than $10,000;
(b) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the performance
of which will extend over a period of more than one year or involve
consideration in excess of $10,000;
(c) any agreement for the purchase of supplies, components,
products or services from single source suppliers, custom manufacturers or
subcontractors that involves aggregate annual payments of more than $10,000;
(d) any agreement concerning a partnership or joint venture;
(e) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money or any capitalized lease obligation in or under which a Security Interest
has been imposed on any of its assets, tangible or intangible; provided,
however, Purple Ray may incur after the date of this Agreement indebtedness that
(i) (A) does not exceed an aggregate principal amount of $100,000, and (B) that
does not bear an interest rate that exceeds 10%, or (ii) is approved by the
written consent of ISSI, which consent shall not be unreasonably withheld;
(f) any agreement concerning noncompetition or restraint of
trade;
(g) any agreement with any Purple Ray shareholder or any of such
shareholder's Affiliates (other than Purple Ray) or with any Affiliate of Purple
Ray;
(h) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or arrangement for
the benefit of its current or former directors, officers or employees;
(i) any collective bargaining agreement;
(j) any agreement for the employment (other than employment
agreements that are terminable at will by Purple Ray) of any individual on a
full-time, part-time, consulting, or other basis;
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(k) any executory agreement under which it has advanced or loaned
any amount to any of its directors, officers, and employees;
(l) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect;
(m) any executory agreement with any original equipment
manufacturer entered into or performed by Purple Ray;
(n) any executory agreement pursuant to which Purple Ray is
obligated to provide maintenance, support or training for its products;
(o) any agreement pursuant to which any of Purple Ray's products
are manufactured which involves aggregate annual payments of more than $10,000;
and
(p) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000 or which is
expected to continue for more than one (1) year from the date hereof.
Purple Ray has delivered to ISSI a correct and complete copy of each written
agreement listed in Section 5.17 of the Purple Ray Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and conditions of
each oral agreement referred to in Section 5.17 of the Purple Ray Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable against Purple Ray, and in full force and effect in
all material respects; (B) neither Purple Ray nor, to Purple Ray's Knowledge,
any other party is in breach or default, and no event has occurred, which with
notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; (C) to Purple
Ray's Knowledge, no party has repudiated any provision of the agreement; (D)
there are no disputes, oral agreements or forbearance programs in effect with
respect to the agreement; and (E) Purple Ray does not have any reason to believe
that the service called for thereunder cannot be supplied in accordance with its
terms and without resulting in a material loss to any of Purple Ray.
5.18 Notes and Accounts Receivable. There are no notes or accounts
receivable of Purple Ray.
5.19 Power of Attorney. There are no outstanding powers of attorney
executed on behalf of Purple Ray.
5.20 Insurance. Purple Ray has delivered or made available to ISSI
copies of each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) with respect to which Purple Ray is a party, a named insured, or
otherwise the beneficiary of coverage. With respect to each such insurance
policy: (A) to Purple Ray's Knowledge, the policy is legal, valid, binding,
enforceable, and in full force and effect (and there has been no notice of
cancellation or nonrenewal of the policy received); (B) neither Purple Ray nor,
to Purple Ray's Knowledge, any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and
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no event has occurred which, with notice or the lapse of time, would constitute
such a breach or default, or permit termination, modification, or acceleration,
under the policy; (C) no party to the policy has repudiated any provision
thereof; and (D) there has been no failure to give any notice or present any
claim under the policy in due and timely fashion.
5.21 Litigation. Section 5.21 of the Purple Ray Disclosure Schedule
sets forth each instance in which Purple Ray (or any of its assets) (i) is
subject to any outstanding injunction, judgment, order, decree, ruling, or
charge or (ii) is or has been since its inception a party, or, to Purple Ray's
Knowledge, is threatened to be made a party, to any action, suit, proceeding,
hearing, arbitration, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. To Purple Ray's Knowledge, there are no
facts or circumstances which would form the basis of any claim against Purple
Ray.
5.22 Product Warranty and Liability. Since its inception, Purple Ray
has not licensed, manufactured, sold, leased or delivered any products to any
third parties.
5.23 Employees. No executive, key employee, or significant group of
employees has advised any executive officer of Purple Ray that he, she or they
plan to terminate employment with Purple Ray during the next 12 months. Purple
Ray is not a party to or bound by any collective bargaining agreement, nor has
it experienced any strike or grievance, claim of unfair labor practices, or
other collective bargaining dispute. To Purple Ray's Knowledge, there is no
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of Purple Ray.
5.24 Employee Benefits.
(a) Section 5.24(a) of the Purple Ray Disclosure Schedule lists
each Employee Benefit Plan that Purple Ray maintains or to which Purple Ray
contributes or is obligated to contribute.
(i) Each such Employee Benefit Plan (and each related trust,
or fund established by Purple Ray) complies in form and in operation in all
material respects with their terms, the applicable requirements of ERISA, the
Code, and other applicable laws.
(ii) All required reports and descriptions (including Form
5500 Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with respect to each
such Employee Benefit Plan. The requirements of Code Sec. 4980B have been met in
all respects with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan. No event has occurred and no condition exists
with respect to any Employee Benefit Plan that would subject Purple Ray to any
tax under Code Sections 4972, 4976 or 4979 or to a fine under ERISA Sections
502(i) or 502(l).
(iii) All contributions, premiums or other payments
(including all employer contributions and employee salary reduction
contributions) which are due have been paid to each Employee Benefit Plan and
all contributions, premiums or other payments for any period
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ending on or before the Closing Date which are not yet due shall been paid to
each such Employee Benefit Plan or shall be accrued in accordance with the
custom and practice of Purple Ray.
(iv) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan and which is intended to qualify under Code Sec. 401(a),
has received a favorable determination letter from the Internal Revenue Service
with respect to the qualification of the plan under Code Section 401(a) and the
exemption of any corresponding trust under Code Section 501, unless the Internal
Revenue Service is deemed to have approved the form of such Plan under
applicable IRS Revenue Procedures. A copy of such determination letters have
been provided to ISSI and nothing has occurred since the date of each such
determination letter that would cause such Employee Pension Benefit Plan to lose
its ability to rely on such letter. A copy of any determination letters
applicable to such restatement which have been received by Purple Ray has been
provided to ISSI.
(v) Neither Purple Ray nor any other Person or entity under
common control with Purple Ray within the meaning of Section 414(b), (c) or (m)
of the Code and the regulations thereunder has now or at any previous time,
maintained, established, sponsored, participated in, or contributed to, any
Employee Pension Benefit Plan that is subject to Part 3 of Subtitle B of Title I
of ERISA, Title IV of ERISA or Section 412 of the Code. No Employee Welfare
Benefit Plan or other Employee Benefit Plan providing welfare benefits is funded
with a trust or other funding vehicle, other than insurance policies or
contracts with a health maintenance organization or similar health care delivery
entity.
(vi) Purple Ray has delivered to ISSI correct and complete
copies of the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, if any, the
most recent Form 5500 Annual Report, and all related trust agreements, insurance
contracts, and other funding agreements which implement each maintained Employee
Benefit Plan. The terms of any such documentation or other communication do not
prohibit ISSI from amending or terminating any such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that Purple Ray,
and/or any controlled group of corporations within the meaning of Code Sec. 1563
(a "CONTROLLED GROUP OF CORPORATIONS") which includes Purple Ray, maintains or
ever has maintained or to which any of them contributes, ever contributed, or
ever has been required to contribute:
(i) There have been no prohibited transactions within the
meaning of ERISA Sec 406 and Code Sec. 4975 with respect to any such Employee
Benefit Plan. No fiduciary within the meaning of ERISA Sec. 3(21) (a
"FIDUCIARY"), has any liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or investment of
the assets of any such Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the administration or the investment
of the assets of any such Employee Benefit Plan (other than routine claims for
benefits) is pending or threatened.
(c) Except as disclosed in Section 5.24(c) of the Purple Ray
Disclosure Schedule, Purple Ray does not maintain or contribute to, has never
maintained or contributed to, and
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has never been required to contribute to, any Employee Welfare Benefit Plan or
any other Employee Benefit Plan providing medical, health, or life insurance or
other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Code Sec. 4980B or Part 6 of Subtitle B of Title I of ERISA).
(d) There is no liability in connection with any Employee Benefit
Plan that is not fully disclosed or provided for on the Most Recent Balance
Sheet for which disclosure would be required under generally accepted accounting
principles.
(e) No Employee Benefit Plan of Purple Ray has any liability to
any plan participant, beneficiary or other person by reason of the payment of
benefits or the failure to pay benefits with respect to benefits under or in
connection with any such Employee Benefit Plan, other than claims in the normal
administration of such plans.
5.25 Guaranties. Purple Ray is not a guarantor or otherwise
responsible for any liability or obligation (including indebtedness) of any
other Person.
5.26 Environment, Health, and Safety.
(a) For purposes of this Agreement, the following terms have the
following meanings:
"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means any and all
federal, state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, plans, injunctions, judgments, decrees, requirements or
rulings now or hereafter in effect, imposed by any governmental authority
regulating, relating to, or imposing liability or standards of conduct relating
to pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
public health and safety, or employee health and safety, concerning any
Hazardous Materials or Extremely Hazardous Substances, as such terms as defined
herein, or otherwise regulated, under any Environmental, Health and Safety Laws.
The term "ENVIRONMENTAL, HEALTH AND SAFETY LAWS" shall include, without
limitation, the Clean Water Act (also known as the Federal Water Pollution
Control Act), 33 U.S.C. Section 1251 et seq., the Toxic Substances Control Act,
15 U.S.C. Section 2601 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et
seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section
136 et seq., the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq., the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq., the Superfund Amendment and Reauthorization Act of 1986,
Public Law 99-4, 99, 100 Stat. 1613, the Emergency Planning and Community Right
to Know Act, 42 U.S.C. Section 11001 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., and the Occupational Safety and
Health Act, 29 U.S.C. Section 651 et seq., all as amended, together with any
amendments thereto, regulations promulgated thereunder and all substitutions
thereof.
"HAZARDOUS MATERIAL" means any material or substance that,
whether by its nature or use, is now defined as a pollutant, dangerous
substance, toxic substance, hazardous waste, hazardous material, hazardous
substance or contaminant under any Environmental, Health and
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Safety Laws, or which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and which is now
regulated under any Environmental, Health and Safety Laws.
(b) Compliance with Laws. To Purple Ray's Knowledge, Purple Ray
has obtained, and is and has been in compliance in with all applicable permits,
licenses, registrations, approvals and other authorizations that are required
for the operation of Purple Ray's business under all applicable Environmental,
Health and Safety Laws. To Purple Ray's Knowledge, Purple Ray has complied with
and is in compliance with all applicable Environmental, Health and Safety Laws.
(c) Hazardous Materials. Purple Ray has not transported to
disposed of, released, discharged, or emitted any Hazardous Materials into the
air, soil, groundwater or otherwise at any properties owned, leased or occupied
at any time by Purple Ray, or at any other property, or exposed any employee or
other individual to any Hazardous Materials or any workplace or environmental
condition in such a manner as would result in any liability or clean-up
obligation of any kind or nature to Purple Ray. To Purple Ray's Knowledge, no
Hazardous Materials are present in, on, or under any properties owned, leased or
used at any time by Purple Ray, and no reasonable likelihood exists that any
Hazardous Materials will come to be present in, on, or under any properties
owned, leased, or used at any time by Purple Ray, so as to give rise to any
liability or clean-up obligation under Environmental, Health and Safety Laws.
5.27 Certain Business Relationships With Purple Ray. Other than
security holdings in publicly traded company that do not exceed 5% of the
outstanding securities of such companies, neither Xxxx Xxxxx nor Xxxxx Xx, nor,
to Purple Ray's Knowledge, any of the directors or officers of Purple Ray, nor
any member of their immediate families, nor any Affiliate of any of the
foregoing, owns, directly or indirectly, or has an ownership interest in (a) any
business (corporate or otherwise) which is a party to, or in any property which
is the subject of, any business arrangement or relationship of any kind with
Purple Ray, or (b) any business (corporate or otherwise) which conducts the same
business as, or a business similar to, that conducted by Purple Ray.
5.28 No Adverse Developments. There is no development (other than
general economic factors affecting the worldwide economy or the technology
industry in general) or, to Purple Ray's Knowledge, threatened development
affecting Purple Ray (or affecting customers, suppliers, employees, and other
Persons which have relationships with Purple Ray) that (i) is having or is
reasonably likely to have a Material Adverse Effect on Purple Ray, or (ii) would
prevent the Surviving Corporation from conducting the business of Purple Ray
following the Closing in the manner in which it was conducted by Purple Ray
prior to the Closing.
5.29 Full Disclosure. No representation or warranty in this Section 5
or in any document delivered by Purple Ray pursuant to the transactions
contemplated by this Agreement, and no statement, list, certificate or
instrument furnished to ISSI pursuant hereto or in connection with this
Agreement, contains any untrue statement of a material fact, or omits to state
any fact necessary to make any statement herein or therein not materially
misleading. Purple Ray has delivered or made available to ISSI true, correct and
complete copies of all documents, including all
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amendments, supplements and modifications thereof or waivers currently in effect
thereunder, described in the Purple Ray Disclosure Schedule.
5.30 Purple Ray Shareholders. To the knowledge of Purple Ray, each of
the Purple Ray Shareholders is an "accredited investor" as that term is defined
in Rule 501 of Regulation D promulgated under the Securities Act.
6. Representations and Warranties of ISSI. ISSI represents and warrants
to Purple Ray that the statements contained in this Section 6 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 6), except as
set forth in the disclosure schedule delivered by ISSI to Purple Ray on the date
hereof (and initialed by ISSI and Purple Ray), a copy of which is attached
hereto as Exhibit D (referred to herein as the "ISSI DISCLOSURE SCHEDULE"). The
ISSI Disclosure Schedule will be arranged in paragraphs corresponding to the
numbered paragraphs contained in this Section 6.
6.1 Organization, Qualification, and Corporate Power. ISSI is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware. ISSI is duly authorized to conduct business and
is in good standing under the laws of each other jurisdiction where such
qualification is required. ISSI has full corporate power and authority, and has
all necessary licenses and permits, to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it.
6.2 Authorization. ISSI has full power and authority to execute and
deliver this Agreement, the Certificate of Merger and each other agreement or
document executed by ISSI pursuant to this Agreement or the Certificate of
Merger (the "ISSI RELATED AGREEMENTS"), and to consummate the transactions
contemplated hereunder and thereunder and to perform its obligations hereunder
and thereunder, and no other proceedings on the part of ISSI are necessary to
authorize the execution, delivery and performance of this Agreement, the
Certificate of Merger or the ISSI Related Agreements. This Agreement, the
Certificate of Merger and the ISSI Related Agreements, and the transactions
contemplated hereby and thereby, have been approved by the unanimous vote of
ISSI's Board of Directors. This Agreement, the Certificate of Merger and the
ISSI Related Agreements constitute the valid and legally binding obligations of
ISSI, enforceable against ISSI in accordance with their respective terms and
conditions, subject to the effect of (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to rights of creditors generally and (ii) rules of law and equity
governing specific performance, injunctive relief and other equitable remedies.
ISSI need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement.
6.3 Capitalization.
(a) As of December 12, 2001, the authorized capital stock of ISSI
consisted of (i) 5,000,000 shares of Preferred Stock, $0.0001 par value, none of
which are issued or outstanding and (ii) 70,000,000 shares of Common Stock,
$0.0001 par value of which 26,623,793 shares were
-25-
issued and outstanding. All of the outstanding shares of ISSI's capital stock
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in this Section 6.3 or as described in the
ISSI SEC Reports (as defined herein), there are no options, warrants or other
rights, agreements, arrangements or commitments of any character obligating ISSI
to issue or sell any shares of capital stock of, or other equity interests in,
ISSI.
(b) The shares of ISSI Common Stock to be issued pursuant to
Section 3.1 of this Agreement are duly authorized and reserved for issuance, and
upon issuance thereof will be validly issued, fully paid and nonassessable.
6.4 Noncontravention. Neither the execution and the delivery of this
Agreement nor the consummation of the transactions contemplated hereby, will (A)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which ISSI is subject or any provision of its
charter or bylaws, or (B) (i) conflict with, (ii) result in a breach of, (iii)
constitute a default under, (iv) result in the acceleration of, (v) create in
any party the right to accelerate, terminate, modify, or cancel, or (vi) require
any notice under, any material agreement, contract, lease, license, instrument,
or other arrangement to which ISSI is a party or by which its is bound or to
which any of its material assets is subject.
6.5 SEC Filings; Financial Statements.
(a) ISSI has filed all forms, reports and documents required to
be filed with the SEC since September 30, 2000, and has heretofore made
available to Purple Ray, in the form filed with the SEC, (i) its Annual Report
on Form 10-K for the fiscal years ended September 30, 2000 and September 30,
2001, (ii) its Quarterly Reports on Form 10-Q for the periods ended December 31,
2000, March 31, 2001 and June 30, 2001, (iii) the proxy statement relating to
ISSI's annual meeting of stockholders held on February 6, 2001, and (iv) all
other reports filed by ISSI with the SEC since September 30, 2000 (collectively,
the "ISSI SEC Reports"). The ISSI SEC Reports (i) were filed on a timely basis,
(ii) were prepared in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and (iii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the ISSI SEC Reports were
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto or, in the case of the unaudited
statements, except as permitted by Form 10-Q of the Exchange Act) and each
fairly presents the consolidated financial position of ISSI and its subsidiaries
at the respective dates thereof and the consolidated results of operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal adjustments which were not or
are not expected to be material in amount.
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6.6 Absence of Changes. Since September 30, 2001, ISSI has conducted
its business in the ordinary course and there has not occurred: (i) any Material
Adverse Effect to ISSI; (ii) any acquisition, sale or transfer of any material
asset of ISSI other than in the ordinary course of business and ISSI has not
entered into an agreement with respect to the foregoing; or (iii) any material
change in accounting methods or practices by ISSI.
6.7 Tax Matters. As of the date hereof, neither ISSI nor any of its
Affiliates has taken or agreed to take any action, nor does ISSI have knowledge
of any fact or circumstance that would the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
6.8 Brokers' Fees. ISSI does not have any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
7. Pre-Closing Covenants. With respect to the period between the
execution of this Agreement and the earlier of the termination of this Agreement
and the Effective Time of the Merger:
7.1 General. Each of the Parties will use all of their reasonable
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in Section 9 below).
7.2 Notices and Consents. Purple Ray will give any notices to third
parties and will use all of its reasonable efforts to obtain any third party
consents that are required in connection with the matters identified in Section
5.4 of the Purple Ray Disclosure Schedule. Each of the Parties will give any
notices to, make any filings with, and use all of its reasonable efforts to
obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters identified in Section 5.4
of the Purple Ray Disclosure Schedule.
7.3 Operation of Business. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time of the Merger, Purple Ray agrees to use all of its
reasonable efforts to cause Purple Ray, except to the extent that ISSI shall
otherwise consent in writing, to carry on their business in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted, to
pay their Taxes and payroll when due, to the extent consistent with such
business, use all of their reasonable efforts consistent with past practice and
policies to preserve intact their present business organizations, keep available
the services of their present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with them, all with the goal of preserving
unimpaired their goodwill and ongoing businesses at the Effective Time of the
Merger. Purple Ray shall promptly notify ISSI of any event, occurrence or
emergency not in the ordinary course of business of Purple Ray, and any material
event involving Purple Ray. Without limiting the generality of the foregoing and
except as expressly required by this Agreement, Purple Ray shall not, without
the prior written consent of ISSI:
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(a) enter into any commitment or transaction of the type
described in Section 5.17 hereof;
(b) (i) sell, license or transfer to any person or entity any
rights to any Intellectual Property or enter into any agreement with respect to
any Intellectual Property with any person or entity or with respect to any
intellectual property of any person or entity, (ii) buy or license any
intellectual property or enter into any agreement with respect to the
intellectual property of any person or entity, (iii) enter into any agreement
with respect to the development of any intellectual property with a third party,
(iv) or change pricing or royalties charged by Purple Ray to its customers or
licensees, or the pricing or royalties set or charged by persons who have
licensed intellectual property to Purple Ray;
(c) enter into or amend any contract pursuant to which any other
party is granted marketing, distribution, development or similar rights of any
type or scope with respect to any products or technology of Purple Ray;
(d) amend or otherwise modify (or agree to do so), or violate the
terms of, any of the contracts and agreements set forth or described in the
Purple Ray Disclosure Schedule;
(e) commence or settle any litigation;
(f) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Purple Ray
Common Stock, or split, combine or reclassify any Purple Ray Common Stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of Purple Ray Common Stock, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of Purple Ray
Common Stock (or options, warrants or other rights exercisable therefor) except
in accordance with the agreements evidencing Purple Ray Options;
(g) issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of capital stock of Purple Ray or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating Purple Ray to issue or purchase any such
shares or other convertible securities (other than the issuance of shares of
Purple Ray Capital Stock upon the exercise of Purple Ray Options or warrants
outstanding on the date of this Agreement in accordance with their present
terms, or upon conversion of Purple Ray Preferred Stock outstanding on the date
of this Agreement);
(h) cause or permit any amendments to its articles of
incorporation, bylaws or other organizational documents of the Purple Ray,
except that Purple Ray may amend its articles of incorporation solely for the
purpose of providing for the reallocation of proceeds in the event of a merger
consistent with the allocation described in Section 3.1;
(i) acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner, any
business or any
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corporation, partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the Purple Ray's business;
(j) sell, lease, license or otherwise dispose of any properties
or assets (other than cash);
(k) incur any indebtedness in excess of $10,000 or guarantee any
indebtedness in excess of $10,000 or issue or sell any debt securities or
guarantee any debt securities of others; provided, however, Purple Ray may incur
after the date of this Agreement indebtedness that (i) (A) does not exceed an
aggregate principal amount of $100,000, and (B) that does not bear an interest
rate that exceeds 10%, or (ii) is approved by the written consent of ISSI, which
consent shall not be unreasonably withheld;
(l) grant any loans to others or purchase debt securities of
others or amend the terms of any outstanding loan agreement;
(m) grant any severance or termination pay (i) to any director or
officer, or (ii) to any other employee or contract worker except payments made
pursuant to standard written agreements outstanding on the date hereof and
disclosed in the Purple Ray Disclosure Schedule;
(n) except as required to comply with applicable law, adopt or
amend any employee benefit plan, or enter into any employment contract, pay or
agree to pay any special bonus or special remuneration to any director, employee
or contract worker, or increase the salaries or wage rates of its employees or
contract workers except payments made pursuant to standard written agreements in
place on the date hereof and disclosed in the Purple Ray Disclosure Schedule;
(o) revalue any of their assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(p) pay, discharge or satisfy, in an amount in excess of $5,000
in any one case, or $10,000 in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business in
accordance with their terms of liabilities (i) reflected or reserved against in
the Most Recent Balance Sheet or described in Section 5.10 of the Purple Ray
Disclosure Schedule, (ii) incurred in the Ordinary Course of Business after the
date of this Agreement, or (iii) fees and expenses directly related to the
consummation of the Merger to the persons described in Section 5.5 of the Purple
Ray Disclosure Schedule;
(q) make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
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(r) enter into any strategic alliance or joint marketing
arrangement or agreement;
(s) take any action to accelerate the vesting schedule of any of
the outstanding Purple Ray Options or Purple Ray Common Stock;
(t) hire or terminate any employees or contract workers, or
encourage any employees or contract workers to resign from Purple Ray; or
(u) take, or agree in writing or otherwise to take, any of the
actions described in this Section 7.3, or any other action that would (i)
prevent Purple Ray from performing or cause Purple Ray not to perform its
covenants hereunder or (ii) cause or result in any or their respective
representations and warranties contained herein being untrue or incorrect.
Notwithstanding the foregoing, Purple Ray may redeem up to 2,773,431 shares of
Purple Ray Common Stock held by Xxxxx Xx or Xxxx Xxxxx as of the date of this
Agreement at a price per share not to exceed the price per share paid by such
holders of such shares of Purple Ray Common Stock, and may grant options to
purchase up to 2,773,431 shares of Purple Ray Common Stock to persons eligible
to receive such grants under the Plan at an exercise price of at least $0.10
and, with respect to options to purchase at least 2,398,780 of such shares of
Purple Ray Common Stock, having vesting provisions that are the same as the
vesting provisions included in the Restricted Stock Purchase Agreement attached
hereto as Exhibit F-2.
7.4 Access to Information. Purple Ray will permit ISSI and its
representatives to have access at all reasonable times, and in a manner so as
not to interfere with the normal business operations of Purple Ray, to the
business and operations of Purple Ray. ISSI agrees to maintain the
confidentiality of such information in accordance with the provisions of Section
8.4 of this Agreement. Neither such access, inspection and furnishing of
information to ISSI and its representatives, nor any investigation by ISSI and
its representatives, shall in any way diminish or otherwise affect ISSI's right
to rely on any representation or warranty made by Purple Ray hereunder.
7.5 Notice of Developments. Each Party will give prompt written notice
to the others of any material adverse development causing a breach of any of its
own representations and warranties in Section 5 or Section 6 above. No
disclosure by any Party pursuant to this Section 7.5, however, shall be deemed
to amend or supplement the Purple Ray Disclosure Schedule or the ISSI Disclosure
Schedule or to prevent or cure any misrepresentation, breach of warranty, or
breach of covenant.
7.6 Solicitation of Written Consents. Purple Ray will solicit the
written consent to the Merger from each of the shareholders of Purple Ray as
soon as practicable following the execution of this Agreement, and shall use its
reasonable best efforts to obtain such consent. The Board of Directors of Purple
Ray will recommend unanimously the approval of the Merger by the Purple Ray
Shareholders.
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7.7 Exclusivity. Purple Ray will not, either directly or indirectly
through any of its Affiliates, (i) take any action to solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities (other than
pursuant to the Plan, Purple Ray Options or the warrants disclosed in the Purple
Ray Disclosure Schedule or as a result of the conversion of the Purple Ray
Preferred Stock outstanding on the date of this Agreement), or a substantial
portion of the assets, of Purple Ray or its subsidiaries (including any
acquisition structured as a merger, consolidation, or share exchange) (a
"TAKEOVER PROPOSAL") or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any Takeover Proposal. Purple Ray will promptly notify ISSI after receipt of any
Takeover Proposal or any notice that any Person is considering a Takeover
Proposal or any request for nonpublic information relating to Purple Ray or for
access to the properties, books or records of Purple Ray. In addition, Purple
Ray shall deliver to ISSI promptly after its receipt a copy of any
correspondence (whether in writing or in any electronic transmission), relating
to any Takeover Proposal or request for nonpublic information.
7.8 Warrants. Prior to the Effective Time of the Merger, Purple Ray
shall terminate or cause the exercise of all outstanding warrants to purchase
Purple Ray Capital Stock.
8. Additional Covenants.
8.1 General. In case at any time after the Effective Time of the
Merger any further action is necessary to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor under
Section 10 below).
8.2 Litigation Support. Following the Effective Time of the Merger, in
the event and for so long as any Party actively is contesting or defending
against any action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand in connection with (i) any transaction contemplated under this
Agreement or (ii) any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act,
or transaction (A) on or prior to the Effective Time of the Merger involving
Purple Ray or (B) arising out of ISSI's operation of the business of the
Surviving Corporation following the Effective Time of the Merger in the manner
in which it is presently conducted and planned to be conducted, each of the
other Parties will cooperate with the party, its counsel in the contest or
defense, make available their personnel, and provide such testimony and access
to their books and records as shall be reasonably necessary in connection with
the contest or defense, all at the sole cost and expense of the contesting or
defending Party (unless the contesting or defending Party is entitled to
indemnification therefor under Section 10 below).
8.3 Transition. None of the officers or directors of Purple Ray will
take any action that is designed or intended to have the effect of discouraging
any lessor, licensor, customer, supplier, or other business associate of Purple
Ray from maintaining the same business relationships
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with the Surviving Corporation after the Effective Time of the Merger as it
maintained with Purple Ray prior to the Effective Time of the Merger.
8.4 Confidentiality. Each of the parties hereto hereby agrees to keep
such information or knowledge obtained in any due diligence or other
investigation pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential, except to
the extent that such information is or becomes publicly known or available or is
independently acquired or developed. In this regard, Purple Ray acknowledges
that ISSI's Common Stock is publicly traded and that any information obtained
during the course of its due diligence could be considered to be material
non-public information within the meaning of federal and state securities laws.
Accordingly, Purple Ray agrees not to, and agrees to advise its shareholders,
employees and agents not to, engage in any transactions in ISSI's Common Stock
in violation of applicable xxxxxxx xxxxxxx laws.
8.5 Purple Ray Employees. All employees of Purple Ray immediately
prior to the Effective Time of the Merger shall become employees of ISSI or the
Surviving Corporation following the Effective Time of the Merger and will be
subject to ISSI's standard employment terms and practices and will be eligible
to participate in all standard ISSI benefit plans based upon seniority
determined by their respective dates of hire by Purple Ray.
8.6 Purple Ray Options.
(a) On or before the Closing Date, Purple Ray and each holder of
a Purple Ray Option that is then an employee of Purple Ray shall enter into a
written agreement pursuant to which the shares of Purple Ray Common Stock that
may be purchased upon exercise of such Purple Ray Option that are then unvested
shall thereafter vest pursuant to vesting provisions that are the same as the
vesting provisions included in the Restricted Stock Purchase Agreement attached
hereto as Exhibit F-2 (an "OPTION MODIFICATION AGREEMENT").
(b) At the Effective Time of the Merger, each Purple Ray Option
outstanding shall be assumed by ISSI and be converted into an option to purchase
ISSI Common Stock in accordance with Section 3.2 of this Agreement. Consistent
with the terms of the Plan and the documents governing the outstanding options
under the Plan, the Merger will not terminate any of the outstanding Purple Ray
Options under the Plan or accelerate the exercisability or vesting of such
options or the shares of ISSI Common Stock which will be subject to those
options upon ISSI's assumption of the Purple Ray Options in the Merger. ISSI
shall take all corporate action necessary for the assumption of the Plan,
including the reservation for issuance of a sufficient number of shares of ISSI
Common Stock for delivery under the Plan assumed in accordance with this Section
8.6. It is the intention of the parties that the options so assumed by ISSI
qualify, to the maximum extent permissible, following the Effective Time of the
Merger as incentive stock options as defined in Section 422 of the Code to the
extent such options qualified as incentive stock options prior to the Effective
Time of the Merger. As soon as practicable after the Effective Time of the
Merger, ISSI will issue to each person who, immediately prior to the Effective
Time of the Merger, was a holder of an outstanding Purple Ray Non-Employee
Option under the Plan a document evidencing the foregoing assumption of such
option by ISSI.
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8.7 S-8 Registration. Not later than thirty (30) days after the
Closing Date, ISSI agrees to file, if available for use by ISSI, with the U.S.
Securities and Exchange Commission, a registration statement on Form S-8
registering a number of shares of ISSI Common Stock equal to the number of
shares of ISSI Common Stock issuable upon the exercise of all Purple Ray Options
assumed by ISSI pursuant to Section 8.6 hereof. ISSI shall use its reasonable
efforts to maintain the effectiveness of such registration statement (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such options remain outstanding.
8.8 S-3 Registration. Not later than thirty (30) days after the
Closing Date, ISSI agrees to file, if available for use by ISSI, with the U.S.
Securities and Exchange Commission, a registration statement on Form S-3
registering for resale by the Purple Ray Shareholders the ISSI Common Stock
issuable pursuant to Section 3.1 of this Agreement. ISSI shall use all of its
reasonable efforts to cause such registration statement to be declared effective
as soon as practicable after filing, and to maintain the effectiveness of such
registration statement (and maintain the current status of the prospectus or
prospectuses contained therein) until the earlier of (i) the date upon which all
of such of ISSI Common Stock have been sold by the Purple Ray Shareholders, or
(ii) the first date upon which all such shares of ISSI Common Stock then held by
all such Purple Ray Shareholders may be sold by such Purple Ray Shareholders
under Rule 144 promulgated under the Securities Act without any limitation on
the amount of such shares that may be sold. ISSI hereby represents and warrants
that it is currently eligible to use Form S-3 to register the sale of shares of
ISSI Common Stock held by shareholders of ISSI.
8.9 Tax-Free Reorganization. ISSI and Purple Ray shall each use its
reasonable efforts to cause the Merger to be treated as a reorganization within
the meaning of Section 368(a) of the Code.
8.10 Purple Ray Director and Officer Indemnification.
(a) From and after the Effective Time of the Merger, ISSI shall,
to the fullest extent permitted by law, for a period of six years from the
Effective Time of the Merger, honor all of Purple Ray's obligations under its
Articles of Incorporation or the CCC to indemnify and hold harmless each present
and former director and officer of Purple Ray (the "INDEMNIFIED PARTIES"),
against any costs or expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages, liabilities or amounts paid in settlement
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time of the Merger, whether asserted or claimed prior to, at or after
the Effective Time of the Merger, to the extent that such obligations under its
Articles of Incorporation or the CCC to indemnify and hold harmless exist on the
date of this Agreement.
(b) The provisions of this Section 8.10 are (i) intended to be
for the benefit of, and will be enforceable by, each of the Indemnified Parties
and (ii) in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such person may have by contract or
otherwise.
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8.11 Securities Law Exemption; Information Statement. Purple Ray shall
as soon as practicable after the date of this Agreement conduct a reasonable
inquiry of each of the Purple Ray Shareholders for the purpose of determining
whether such Purple Ray Shareholder is an accredited investor within the meaning
of Regulation D under the Act, and shall report the results of such inquiry to
ISSI. If ISSI is unable to form a reasonable belief that all of the Purple Ray
Shareholders are accredited investors, then ISSI and Purple Ray shall prepare an
information statement (the "INFORMATION STATEMENT") to be distributed to the
Purple Ray Shareholders, which shall constitute a disclosure document for the
offer and issuance of the shares of ISSI Common Stock to be received by the
holders of the Purple Ray Capital Stock. Each of ISSI and Purple Ray shall use
all their reasonable efforts to cause the Information Statement to comply with
applicable federal and state securities laws, including Regulation D promulgated
under the Securities Act. The Information Statement shall include information
regarding Purple Ray and ISSI, the terms of this Agreement and the Merger and
the unanimous recommendation of the Board of Directors of Purple Ray in favor of
this Agreement and the Merger. Each of ISSI and Purple Ray agrees to provide
promptly to the other such information concerning its business and financial
statements and affairs as, in the reasonable judgment of the providing party or
its counsel, may be required or appropriate for including in the Information
Statement, or in any amendment or supplements thereto, and to cause its counsel
to cooperate with the other's counsel and auditors in preparation of the
Information Statement. ISSI will promptly advise Purple Ray, and Purple Ray will
promptly advise ISSI, in writing if at any time prior to the Effective Time of
the Merger such party shall obtain knowledge of any facts that might make it
necessary or appropriate to amend or supplement the Information Statement in
order to make statements contained or incorporated by reference therein not
misleading or to comply with applicable law.
8.12 Tax Return Preparation. To the extent not completed by Purple Ray
on or before the Closing, ISSI shall file the federal income tax returns for
Purple Ray for the year ended December 31, 2001 and for the stub period ending
on the Effective Date of the Merger. The cumulative expenses incurred by Purple
Ray or ISSI for the preparation of the federal income tax returns for Purple Ray
for the year ended December 31, 2001 and for the stub period ending on the
Effective Date of the Merger that exceed $5,000 shall constitute a claim against
the escrow under Section 10.2.
9. Conditions to Obligations to Close.
9.1 Conditions to ISSI's Obligation to Close. The obligations of ISSI
to consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(a) the representations and warranties set forth in Section 5
above shall be true and correct in all respects at and as of the Closing Date,
except (i) to the extent such representations and warranties are specifically
made as of a particular date, in which case such representations and warranties
shall be true and correct as of such date, and (ii) to the extent that such
failure of any such representation or warranty to be true and correct in all
respects, either individually or together with all such failures, does not or
could not reasonably be expected to have a Material Adverse Effect on Purple Ray
or the Surviving Corporation;
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(b) Purple Ray shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing to the extent
required to be performed or complied with at or prior to the Closing (after
giving effect to any action taken by Purple Ray to cure any failure to perform
or noncompliance between the date of this Agreement and the Closing);
(c) the President and the Secretary of Purple Ray shall have
delivered to ISSI a certificate to the effect that each of the conditions
specified above in 9.1(a) to 9.1(b) (inclusive) is satisfied in all respects;
(d) no action, suit, or proceeding shall be pending before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement, (B)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect materially and adversely the right of ISSI to
control Purple Ray following the Effective Time of the Merger, or (D) affect
materially and adversely the right of Purple Ray to own its assets (including
without limitation its intellectual property assets) and to operate its
businesses (and no such injunction, judgment, order, decree, ruling or charge
shall be in effect) and no law, statute, ordinance, rule, regulation or order
shall have been enacted, enforced or entered which has caused any of the effects
under clause (A), (B), (C), or (D) of this Section 9.1(c) to occur.
(e) Purple Ray shall provide ISSI certificates from the Secretary
of State of California and Franchise Tax Board of California as to Purple Ray's
good standing and payment of all applicable taxes;
(f) each of Xxxx Xxxxx and Xxxxx Xx shall have executed and
delivered a Non Competition Agreement in the form attached hereto as Exhibit E,
and each such agreement shall be in full force and effect (assuming the due
execution and delivery thereof by ISSI);
(g) Xxxxx Xx shall have executed and delivered a Restricted Stock
Purchase Agreement in the form attached hereto as Exhibit F-1 with respect to
14,697 shares of ISSI Common Stock, and a Restricted Stock Purchase Agreement in
the form attached hereto as Exhibit F-2 with respect to 9,285 shares of ISSI
Common Stock, and a Restricted Stock Purchase Agreement in the form attached
hereto as Exhibit F-3 with respect to 2,640 shares of ISSI Common Stock, and
each such agreement shall be in full force and effect (assuming the due
execution and delivery thereof by ISSI);
(h) Xxxx Xxxxx shall have executed and delivered a Restricted
Stock Purchase Agreement in the form attached hereto as Exhibit F-1 with respect
to 29,394 shares of ISSI Common Stock, a Restricted Stock Purchase Agreement in
the form attached hereto as Exhibit F-2 with respect to 34,847 shares of ISSI
Common Stock, and a Restricted Stock Purchase Agreement in the form attached
hereto as Exhibit F-3 with respect to 5,812 shares of ISSI Common Stock, and
each such agreement shall be in full force and effect (assuming the due
execution and delivery thereof by ISSI);
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(i) each of the holders of Purple Ray Common Stock other than
Xxxxx Xx or Xxxx Xxxxx immediately prior to Closing shall execute a Restricted
Stock Purchase Agreement in the form attached hereto as Exhibit F-3 with respect
to 15% of the shares of ISSI Common Stock issuable to such holder upon
conversion of their Purple Ray Common Stock;
(j) each of Xxxx Xxxxx and Xxxxx Xx shall have executed and
delivered a Voting Agreement in the form attached hereto as Exhibit G, and each
such agreement shall be in full force and effect (assuming the due execution and
delivery thereof by ISSI);
(k) this Agreement and the Merger shall have been approved by the
vote of the holders of at least 90% of the outstanding Purple Ray Common Stock
and 90% of the outstanding Purple Ray Preferred Stock;
(l) all outstanding warrants to purchase any shares of capital
stock of Purple Ray shall have been exercised or terminated;
(m) the Investor Rights Agreement dated November 29, 2000 shall
be terminated;
(n) Purple Ray shall have complied with its covenants under
Section 8.11 and ISSI shall have formed a reasonable belief that all of the
Purple Ray Shareholders are accredited investors within the meaning of
Regulation D promulgated under the Securities Act, or the Purple Ray
Shareholders shall have received an Information Statement containing the
information that is required pursuant to Rule 502(b) of Regulation D;
(o) seven of the eight employees of Purple Ray as of the date of
this Agreement shall have entered into a Option Modification Agreement and shall
have accepted employment with ISSI; and
(p) Purple Ray and ISSI shall have entered into an Escrow
Agreement substantially in the form attached hereto as Exhibit B and such
agreement shall be in full force and effect (assuming the due execution and
delivery thereof by ISSI and the other parties thereto).
ISSI may waive any condition (in whole or in part) specified in this
Section 9.1 if it executes a writing so stating at or prior to the Closing.
9.2 Conditions to Purple Ray's Obligation. The obligation of Purple
Ray to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(a) the representations and warranties set forth in Section 6
above shall be true and correct in all material respects at and as of the
Closing Date, except (i) to the extent such representations and warranties are
specifically made as of a particular date, in which case such representations
and warranties shall be true and correct as of such date, and (ii) to the extent
that such failure of any such representation or warranty to be true and correct
in all respects, either
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individually or together with all such failures, does not or could not
reasonably be expected to have a Material Adverse Effect on ISSI;
(b) ISSI shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing to the extent
required to be performed or complied with at or prior to the Closing (after
giving effect to any action taken by ISSI to cure any failure to perform or
noncompliance between the date of this Agreement and the Closing);
(c) the Chief Financial Officer or other duly authorized officer
of ISSI shall have delivered to Purple Ray a certificate to the effect that each
of the conditions specified above in Section 9.2(a) to 9.2(b) inclusive) is
satisfied in all respects;
(d) no action, suit, or proceeding shall be pending before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement or (B)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect;
(e) ISSI shall have executed and delivered an Escrow Agreement
substantially in the form attached hereto as Exhibit B and such agreement shall
be in full force and effect (assuming the due execution and delivery thereof by
Purple Ray and the other parties thereto); and
(f) This Agreement shall have been approved and adopted by at
least the minimum vote of the Purple Ray Shareholders required by the CCC and
the Articles of Incorporation of Purple Ray existing as of the date hereof.
Purple Ray may waive any condition (in whole or in part)
specified in this Section 9.2 if it executes a writing so stating at or prior to
the Closing.
10. Survival of Representations, Warranties and Covenants; Escrow.
10.1 Survival of Representations and Warranties. All covenants of
Purple Ray to be performed prior to the Effective Time of the Merger, and all
representations and warranties of Purple Ray in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Merger for a
period of twelve (12) months from the Effective Time of the Merger. Following
the Effective Time of the Merger, the remedies of ISSI for breach of any of the
foregoing shall be as set forth in Section 10.2. All covenants of ISSI to be
performed prior to the Effective Time of the Merger, and all representations and
warranties of ISSI in this Agreement or in any instrument delivered pursuant to
this Agreement shall survive the Merger for a period of twelve (12) months from
the Effective Time of the Merger.
10.2 Escrow Arrangements.
(a) Escrow Fund. As soon as practicable after the Effective Time
of the Merger, shares of ISSI Common Stock which comprise the Escrow Amount,
without any act of any
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Purple Ray Shareholder, will be deposited with an escrow agent mutually agreed
to by ISSI and Purple Ray as Escrow Agent (the "ESCROW AGENT"), such deposit to
constitute an escrow fund (the "ESCROW FUND") to be governed by the terms set
forth herein and at a cost and expense to be borne by ISSI. The shares of ISSI
Common Stock included in the Escrow Fund shall not have any repurchase rights in
favor of any Person or any restrictions on transferability. Each of the Purple
Ray Preferred Shareholders shall contribute to the Escrow Fund their pro rata
share, based on their percentage ownership of the Purple Ray Preferred Stock
outstanding at the Effective Time of the Merger, of the 16,483 shares of ISSI
Common Stock that are contributed to the Escrow Fund by the Purple Ray Preferred
Shareholders. Each of the Purple Ray Common Shareholders shall contribute to the
Escrow Fund their pro rata share, based on their percentage ownership of the
Purple Ray Common Stock outstanding at the Effective Time of the Merger, of the
3,539 shares of ISSI Common Stock that are contributed to the Escrow Fund by the
Purple Ray Common Shareholders. The Escrow Agent shall not be responsible for
confirming that the shares contributed to the Escrow Fund comprise the Escrow
Amount or that the portion contributed on behalf of each holder of Purple Ray
Capital Stock is in the proper proportion.
(b) Indemnification. The shareholders of Purple Ray shall (pro
rata in accordance with their interest in the Escrow Fund) indemnify and hold
harmless ISSI and each of its Affiliates from and against, and the Escrow Fund
shall be available to compensate ISSI and each of its Affiliates for, any and
all actions, suits, proceedings, hearings, investigations, charges, complaints,
claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, reasonable amounts paid in settlement,
liabilities, obligations, taxes, liens, losses, expenses, and fees, including
court costs and reasonable attorneys' fees and expenses in connection with any
action, suit or proceeding to the extent of the amount of such actions, suits,
proceedings, hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues, penalties,
fines, costs, reasonable amounts paid in settlement, liabilities, obligations,
taxes, liens, losses, expenses or fees (collectively "LOSSES") that ISSI or any
of its Affiliates has incurred by reason of the breach by Purple Ray of any
representation, warranty, covenant or agreement of Purple Ray contained herein
(including the Purple Ray Disclosure Schedule), or by reason of any
misrepresentation by Purple Ray made herein (including the Purple Ray Disclosure
Schedule). After the Closing, resort to the Escrow Fund shall be the exclusive
contractual remedy of ISSI and its Affiliates against Purple Ray or any of its
directors, officers, representatives, agents or shareholders for any such
breaches and misrepresentations; provided, however, that nothing herein shall
limit any remedy for Losses incurred as a result of fraud. Notwithstanding the
foregoing, and except for a claim arising under Sections 8.12 and 11.3(a), ISSI
may not receive any amounts from the Escrow Fund unless and until Officer's
Certificates (as defined in Section 10.2(e) below) identifying Losses, the
aggregate amount of which exceed $50,000, have been delivered to the Escrow
Agent as provided in Section 10.2(e) (and any dispute as to such Losses has been
resolved in ISSI's favor). In such case ISSI may thereafter recover from the
Escrow Fund the total of its Losses, including the first $50,000.
(c) Escrow Period; Distribution upon Termination of Escrow
Periods. Subject to the following requirements, the Escrow Fund shall remain in
existence during the period following the Closing for twelve (12) months (the
"ESCROW PERIOD"). At the expiration of the Escrow Period a portion of the Escrow
Fund shall be released from Escrow to the appropriate
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persons who, prior to the Merger, were shareholders of Purple Ray, in an amount
equal to the initial Escrow Fund less an amount equal to the sum of (i) all
amounts theretofore distributed out of the Escrow Fund to ISSI and its
Affiliates pursuant to this Section 10, (ii) an amount equal to such portion of
the Escrow Fund which, in the reasonable judgment of ISSI, based on the dollar
amount of any unsatisfied claims specified in any Officer's Certificate (as
defined below) theretofore delivered to the Escrow Agent prior to the end of the
Escrow Period and the Fair Market Value of the ISSI Common Stock under Section
10.2(e)(iv) hereof, subject to the objection of the Agent (as defined below) and
the subsequent arbitration of the matter in the manner provided in Section
10.2(g) hereof, is necessary to satisfy such unsatisfied claims, which amount
shall remain in the Escrow Fund (and the Escrow Fund shall remain in existence)
until such claims have been resolved, and (iii) to pay expenses as provided in
the Escrow Agreement. As soon as all such claims have been resolved (such
resolution to be evidenced by the written agreement of ISSI and Agent (as
defined below) or the written decision of the arbitrators as described in
Section 10.2(g)), the Escrow Agent shall deliver to the appropriate persons who,
prior to the Merger, were shareholders of Purple Ray the remaining portion of
the Escrow Fund not required to satisfy such claims. Deliveries of Escrow
Amounts to the shareholders of Purple Ray pursuant to this Section 10.2(c) and
Section 10.2(e)(ii) shall be made in proportion to their respective original
contributions to the Escrow Fund, as calculated by the Agent (as defined below).
(d) Protection of Escrow Fund. The Escrow Agent shall hold and
safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a
trust fund in accordance with the terms of this Agreement and not as the
property of ISSI and shall hold and dispose of the Escrow Fund only in
accordance with the terms hereof.
(e) Distributions; Voting; Claims Upon Escrow Fund.
(i) Any shares of ISSI Common Stock or other equity
securities issued or distributed by ISSI (including shares issued upon a stock
split) ("NEW SHARES") in respect of ISSI Common Stock in the Escrow Fund which
have not been released from the Escrow Fund, shall be added to the Escrow Fund
and become a part thereof. Any cash dividends paid on ISSI Common Stock in the
Escrow Fund, shall be paid to the persons who, prior to the Merger, were
shareholders of Purple Ray in accordance with their respective contributions to
the Escrow Fund. New Shares and cash dividends issued in respect of shares of
ISSI Common Stock which have been released from the Escrow Fund shall not be
added to the Escrow Fund, but shall be distributed to the record holders
thereof.
(ii) Each person who, prior to the Merger was a shareholder
of Purple Ray shall have voting rights with respect to the shares of ISSI Common
Stock contributed to the Escrow Fund on behalf of such shareholder (and on any
voting securities added to the Escrow Fund in respect of such shares of ISSI
Common Stock) so long as such shares of ISSI Common Stock or other voting
securities are held in the Escrow Fund.
(iii) Upon receipt by the Escrow Agent at any time on or
before the last day of the Escrow Period of a certificate signed by any officer
of ISSI (an "OFFICER'S CERTIFICATE"): (A) stating that ISSI has incurred and
paid or properly accrued Losses, or reasonably
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anticipates that it may have to pay or accrue Losses, and the dollar amount of
such Losses, (B) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was incurred and paid
or properly accrued, or the basis for such anticipated liability, and the nature
of the misrepresentation, breach of warranty or claim to which such item is
related, and (C) indicating the number of shares of ISSI Common Stock to be
disbursed to ISSI out of the Escrow Fund (assuming for this purpose no objection
is received under Section 10.2(f) hereof), the Escrow Agent shall, subject to
the provisions of Section 10.2(f) hereof, deliver to ISSI out of the Escrow
Fund, as promptly as practicable, such amounts held in the Escrow Fund equal to
such Losses. In the event that the number of shares to be disbursed to ISSI out
of the escrow fund changes due to a change in the Fair Market Value during the
period of time provided herein for the objection of the Agent and the subsequent
arbitration of the matter, ISSI shall provide a further instruction to the
Escrow Agent as to the number of shares to be disbursed based on the updated
Fair Market Value (determined in accordance with Section 10.2(e)(iv) below).
(iv) For the purposes of determining the number of shares of
ISSI Common Stock to be disbursed to ISSI out of the Escrow Fund, the shares of
ISSI Common Stock shall be valued at the Fair Market Value of such shares. For
purposes hereof, the "FAIR MARKET VALUE" of the ISSI Common Stock shall be
determined by using the average closing price of the ISSI Common Stock as
reported in the Wall Street Journal, for the ten (10) consecutive trading days
ending five (5) days prior to the date that the shares of ISSI Common Stock are
disbursed to ISSI out of the Escrow Fund; provided, however, that for purposes
of any unresolved claims as of the end of the Escrow Period pursuant to Section
10.2(c) hereof or any period thereafter, the "Fair Market Value" of the ISSI
Common Stock shall be determined by using the average closing price of the ISSI
Common Stock as reported in the Wall Street Journal for the ten (10) consecutive
trading days ending five (5) days prior to the last day of the Escrow Period.
(f) Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Agent (as defined in Section 10.2(h)), and for a
period of thirty (30) days after such delivery the Escrow Agent shall make no
delivery to ISSI of any Escrow Amount specified in such Officer's Certificate
unless the Escrow Agent shall have received written authorization from the Agent
to make such delivery. After the expiration of such thirty (30) day period, the
Escrow Agent shall make delivery of an amount from the Escrow Fund in accordance
with such Officer's Certificate and Section 10.2(e) hereof, provided that no
such payment or delivery may be made if the Agent shall object in a written
statement to the claim made in the Officer's Certificate, and such statement
shall have been delivered to the Escrow Agent prior to the expiration of such
thirty (30) day period.
(g) Resolution of Conflicts; Arbitration.
(i) In case the Agent shall so object in writing to any
claim or claims made in any Officer's Certificate, the Agent and ISSI shall
attempt in good faith to agree upon the rights of the respective parties with
respect to each of such claims. If the Agent and ISSI should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on
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any such memorandum and distribute amounts from the Escrow Fund in accordance
with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either ISSI or the Agent may demand arbitration of the matter
unless the amount of the damage or loss is at issue in pending litigation with a
third party, in which event arbitration shall not be commenced until such amount
is ascertained or both parties agree to arbitration; and in either such event
the matter shall be settled by arbitration conducted by three (3) arbitrators.
ISSI and the Agent shall each select one (1) arbitrator, and the two (2)
arbitrators so selected shall select a third arbitrator. The arbitrators shall,
within ten (10) business days after the last day of any hearings on any motion,
issue a definitive ruling on such motion. The arbitrators shall also, within
twenty (20) business days from the last day of any hearings regarding the
imposition of sanctions or the issuance of any awards, issue a definitive ruling
on the imposition of any such sanctions or the issuance of any such award in
such arbitration. The arbitrators shall also establish procedures designed to
reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrators, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrators shall rule upon motions to compel or limit discovery
and shall have the authority to impose sanctions, including attorneys fees and
costs, to the same extent as a court of competent law or equity, should the
arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three (3) arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 10.2(f) hereof, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrators. In the event that
the Escrow Agent has not received evidence of resolution under either Section
10.2(g)(i) or this Section 10.2(g)(ii), Escrow Agent shall continue to hold the
Escrow Funds in accordance herewith.
(iii) Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction. Any such arbitration shall be
held in Santa Xxxxx County, California under the rules then in effect of the
American Arbitration Association. The non-prevailing party (as determined by the
arbitrators) in any arbitration pursuant to this Section 10.2(g) shall pay the
reasonable fees and expenses of each party to such arbitration, as well as the
fees of each arbitrator and the administrative fee of the American Arbitration
Association; provided, however, that if the non-prevailing party is the
shareholders of Purple Ray, such expenses may only be recovered from the
proceeds from the sale of Escrow Stock from the Escrow Fund.
(h) Agent of the Shareholders; Power of Attorney.
(i) In the event that the Merger is approved by the
shareholders of Purple Ray, effective upon such vote, and without further act of
any shareholder, Xxxxx Xx is appointed as agent and attorney-in-fact (together,
the "AGENT") for each shareholder of Purple Ray on whose behalf shares were
deposited into escrow, for and on behalf of shareholders of Purple Ray,
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to give and receive notices and communications, to authorize delivery to ISSI of
shares from the Escrow Fund in satisfaction of claims by ISSI, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Agent for the accomplishment of the foregoing.
Such agency may be changed by the shareholders of Purple Ray from time to time
upon not less than thirty (30) days' prior written notice to ISSI and Escrow
Agent signed by former Purple Ray Shareholders representing a majority in
interest of the Escrow Amount in the Escrow Fund; provided that the Agent may
not be removed unless former Purple Ray Shareholders representing a two-thirds
interest of the Escrow Amount in the Escrow Fund agree to such removal and to
the identity of the substituted agent. No bond shall be required of the Agent,
and the Agent shall not receive compensation for his or her services. Notices or
communications to or from the Agent shall constitute notice to or from each of
the shareholders of Purple Ray.
(ii) The Agent shall not be liable for any act done or
omitted hereunder as Agent while acting in good faith and in the exercise of
reasonable judgment. The shareholders of Purple Ray on whose behalf the Escrow
Amount was contributed to the Escrow Fund shall severally indemnify the Agent
and hold the Agent harmless against any loss, liability or expense incurred
without negligence or bad faith on the part of the Agent and arising out of or
in connection with the acceptance or administration of the Agent's duties
hereunder, including the reasonable fees and expenses of any legal counsel
retained by the Agent.
(i) Actions of the Agent. A decision, act, consent or instruction
of the Agent shall constitute a decision of all the shareholders for whom a
portion of the Escrow Amount otherwise issuable to them are deposited in the
Escrow Fund and shall be final, binding and conclusive upon each of such
shareholders, and the Escrow Agent and ISSI may rely upon any such decision,
act, consent or instruction of the Agent as being the decision, act, consent or
instruction of each every such shareholder of Purple Ray. The Escrow Agent and
ISSI are hereby relieved from any liability to any person for any acts done by
them in accordance with such decision, act, consent or instruction of the Agent.
After all claims for Losses by ISSI set forth in Officer's Certificates
delivered to the Escrow Agent and the Agent have been satisfied, or reserved
against, the Agent, in the manner provided in the Escrow Agreement, may recover
from the Escrow Fund at the end of the Escrow Period payments not yet paid for
any expenses incurred in connection with the Agent's representation hereby.
(j) Third-Party Claims. In the event ISSI becomes aware of a
third-party claim which ISSI believes may result in a demand against the Escrow
Fund, ISSI shall notify the Agent as soon as practicable of such claim, and the
Agent and the shareholders of Purple Ray shall be entitled, at their expense, to
participate in any defense of such claim. ISSI shall have the right in its sole
discretion to settle any such claim; provided, however, that except with the
consent of the Agent, no settlement of any such claim with third-party claimants
shall alone be determinative of the amount of any claim against the Escrow Fund.
In the event that the Agent has consented to any such settlement, the Agent
shall have no power or authority to object under any provision of this Section
10 to the amount of any claim by ISSI against the Escrow Fund with respect to
such settlement to the extent that such amount is consistent with the terms of
such settlement.
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(k) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth in this Agreement, the
Escrow Agreement and as set forth in any additional written escrow instructions
which the Escrow Agent may receive after the date of this Agreement which are
signed by an officer of ISSI and the Agent, and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of the
parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration
of any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) The Escrow Agent may resign as Escrow Agent at any time
with or without cause by giving at least thirty (30) days' prior written notice
to each of ISSI and the Agent, such resignation to be effective thirty (30) days
following the date such notice is given. In addition, ISSI and Agent may jointly
remove the Escrow Agent as escrow agent at any time with or without cause, by an
instrument (which may be executed in counterparts) given to the Escrow Agent,
which instrument shall designate the effective date of such removal. In the
event of any such resignation or removal, a successor escrow agent which shall
be a bank or trust company organized under the laws of the United States of
America or any state thereof having a combined capital and surplus of not less
than $100,000,000, shall be appointed by ISSI with the approval of Agent, which
approval shall not be unreasonably withheld. Any such successor escrow agent
shall deliver to ISSI and the Agent a written instrument accepting such
appointment, and thereupon it shall succeed to all the rights and duties of the
Escrow Agent hereunder and shall be entitled to receive the Escrow Fund.
Thereafter, the predecessor Escrow Agent shall be discharged for any further
duties and liabilities under this Agreement.
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(vi) The parties hereto, and their respective shareholders,
successors and assigns hereby agree that, to the extent that the matters
addressed in the Escrow Agreement, including with respect to the liability of
the Escrow Agent and indemnification of the Escrow Agent are not otherwise
addressed herein, such Escrow Agreement shall be deemed to be incorporated by
reference herein.
11. Termination.
11.1 Termination of the Agreement. Certain of the Parties may
terminate this Agreement as provided below:
(a) ISSI and Purple Ray may terminate this Agreement as to all
Parties by mutual written consent at any time prior to the Closing;
(b) ISSI may terminate this Agreement by giving written notice to
Purple Ray at any time prior to the Closing (i) in the event either of Purple
Ray has breached any representation, warranty, or covenant contained in this
Agreement such that any of the conditions set forth in Sections 9.1(a) or 9.1(b)
would not be satisfied, provided that ISSI has notified Purple Ray in writing of
the basis for claiming such breach and such breach has not been cured within ten
(10) days after such written notice is delivered by ISSI to Purple Ray;
provided, however, that no cure period shall apply if such breach is not capable
of cure, (ii) if the Closing shall not have occurred on or before March 11, 2002
by reason of the failure of any condition precedent under Section 9.1 hereof,
other than Section 9.1(k), unless the failure results primarily from ISSI itself
breaching any representation, warranty, or covenants contained in this
Agreement, or (iii) if the Closing shall not have occurred on or before March
11, 2002 by reason of the failure of the condition precedent under Section
9.1(k);
(c) ISSI may terminate this Agreement immediately if (i) the
Board of Directors of Purple Ray shall have withdrawn or modified its
recommendation of this Agreement or the Merger or have recommended, endorsed,
accepted or agreed to a Takeover Proposal or shall have resolved to do any of
the foregoing, or (ii) Purple Ray or any of its Affiliates have breached or
otherwise failed to comply with any provision of Section 7.7; and
(d) Purple Ray may terminate this Agreement by giving written
notice to ISSI at any time prior to the Closing (i) in the event ISSI has
breached any representation, warranty, or covenant contained in this Agreement
such that any of the conditions set forth in Sections 9.2(a) and 9.2(b) of the
Agreement would not be satisfied, provided that Purple Ray has notified ISSI in
writing of the basis for claiming such breach and such breach has not been cured
within ten (10) days after such written notice is delivered by Purple Ray to
ISSI; provided, however, that no cure period shall apply if such breach is not
capable of cure, (ii) if the Closing shall not have occurred on or before March
11, 2002, by reason of the failure of any condition precedent under Section 9.2
hereof, other than Section 9.2(f) unless the failure results primarily from
Purple Ray breaching any representation, warranty, or covenants contained in
this Agreement, or (iii) if the Closing shall not have occurred on or before
March 11, 2002 by reason of the failure of the condition precedent under Section
9.2(f).
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11.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 11.1 above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party;
provided, however, that each Party hereto shall remain liable for any breach of
any representation, warranty, covenant or other provision of this Agreement that
occurs prior to the Agreement's termination; and provided further, however, that
the provisions of Sections 8.4, 11.3 and 12.1 above shall survive termination.
11.3 Expenses and Termination Fees.
(a) Subject to Section 11.3(b), whether or not the Merger is
consummated, each of ISSI and Purple Ray will bear its or their own costs and
expenses (including legal and accounting fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby;
provided, however that if the Merger is consummated, ISSI shall bear up to
$60,000 of the expenses incurred by Purple Ray (including amounts paid by Purple
Ray prior to the Effective Time of the Merger) in connection with the Merger.
Any expenses incurred by Purple Ray in connection with the Merger in excess of
such $60,000 shall give rise to a claim by ISSI against the Escrow Fund.
(b) In the event
(i) ISSI shall terminate this Agreement pursuant to Section
11.1(c)(i),
(ii) ISSI shall terminate this Agreement pursuant to Section
11.1(b)(iii) or 11.1(c)(ii), and, in any event, an Acquisition (as defined in
this Section 11.3(b)) of Purple Ray is consummated prior to one year after the
date of such termination, or
(iii) Purple Ray shall terminate this Agreement pursuant to
Section 11.1(d)(iii) and, in any event, an Acquisition (as defined in this
Section 11.3(b)) of Purple Ray is consummated prior to one year after the date
of such termination,
then Purple Ray shall promptly (but in no event later than five (5) business
days after such termination) pay to ISSI the amount of $400,000 in cash. For
purposes of this Section 11.3, an "Acquisition" shall mean (i) any merger,
consolidation, share exchange or other business combination involving Purple Ray
or any subsidiary of Purple Ray, (ii) any acquisition of 20% or more of the
outstanding shares of capital stock or voting securities of Purple Ray or any
subsidiary of Purple Ray, or (iii) any sale of a significant portion of the
assets of Purple Ray or any subsidiary of Purple Ray.
12. Miscellaneous.
12.1 Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of ISSI
and Purple Ray; provided, however, that ISSI may make any public disclosure it
believes in good faith is required by applicable law or any listing
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or trading agreement concerning its publicly-traded securities (in which case
ISSI will use its reasonable best efforts to advise the other Parties prior to
making the disclosure).
12.2 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties, the security holders
of Purple Ray and their respective successors and permitted assigns.
12.3 Entire Agreement. This Agreement (including the exhibits and
schedules hereto) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
12.4 Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Parties; provided, however, that ISSI may (i) assign any
or all of its rights and interests hereunder to one or more of its Affiliates
and (ii) designate one or more of its Affiliates to perform its obligations
hereunder, provided that no such assignment or designation shall relieve ISSI of
its obligations hereunder.
12.5 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original but all of which together will
constitute one and the same instrument.
12.6 Headings. The Section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.7 Notices. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given upon receipt or, if earlier, (a) five
(5) days after deposit with the U.S. Postal Service or other applicable postal
service, if delivered by first class mail, postage prepaid, (b) upon delivery,
if delivered by hand, (c) one business day after the business day of deposit
with Federal Express or similar overnight courier, freight prepaid or (d) one
business day after the business day of facsimile transmission, if delivered by
facsimile transmission with copy by first class mail, postage prepaid, and shall
be addressed to the intended recipient as set forth below:
If to ISSI:
Integrated Silicon Solution, Inc.
0000 Xxxxxx Xxxx
Xxxxx Xxxxx, XX 00000
Attention: Xxxxx X. X. Xxx, Chief Executive Officer
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Copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: J. Xxxxxx Xxxxxxxxxx, Esq.
If to Purple Ray:
Purple Ray, Inc
0000 Xxxxxxx Xxxxxx
Xxxxx Xxxxx, XX 00000
Attention: Xxxxx Xx
Copy to:
General Counsel Associates LLP
0000 Xxxxxxxx Xx.
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxxx Xxxxx, Esq.
If to the Agent:
Xxxxx Xx
00000 Xxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties ten (10) days' advance written notice to the other parties pursuant to
the provisions above.
12.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California.
12.9 Forum Selection; Consent to Jurisdiction. Subject to Section
10.2(g), all disputes arising out of or in connection with this Agreement shall
be solely and exclusively resolved by a court of competent jurisdiction in the
State of California. The Parties hereby consent to the jurisdiction of the
Superior Court of the State of California and the United States District Courts
of California and waive any objections or rights as to forum nonconvenience,
lack of personal jurisdiction or similar grounds with respect to any dispute
relating to this Agreement.
12.10 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by ISSI
and Purple Ray. No
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waiver by any Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior to subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent occurrence.
12.11 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
12.12 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
12.13 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
12.14 Attorneys' Fees. If any legal proceeding or other action
relating to this Agreement is brought or otherwise initiated, the prevailing
party shall be entitled to recover reasonable attorneys fees, costs and
disbursements (in addition to any other relief to which the prevailing party may
be entitled).
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
as of the date first above written.
PURPLE RAY, INC.
Purple Ray: By: /s/ XXXXX XX
-----------------------------------
Xxxxx Xx, President
ISSI: INTEGRATED SILICON SOLUTION, INC.
By: /S/ XXXXX X.X. XXX
-----------------------------------
Xxxxx X. X. Xxx,
Chief Executive Officer
For Purposes of Sections 10 and 12 Only
Agent: /s/ XXXXX XX
---------------------------------------
Xxxxx Xx
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
