EXHIBIT 2.01
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
SILICON IMAGE, INC.,
DUKE ACQUISITION CORP.
CMD TECHNOLOGY INC.
AND
CERTAIN SHAREHOLDERS OF CMD TECHNOLOGY INC.
JUNE 1, 2001
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "AGREEMENT") is entered
into as of June 1, 2001 by and among Silicon Image, Inc., a Delaware corporation
("PARENT"), Duke Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("MERGER SUB"), CMD Technology Inc., a California
corporation ("COMPANY"), and the shareholders of Company listed on the signature
page hereto (collectively, the "SIGNIFICANT SHAREHOLDERS" and each individually,
a "SIGNIFICANT SHAREHOLDER"), each of whom immediately prior to the consummation
of the Merger (as defined below) will be a shareholder of Company.
RECITALS
A. The parties intend that, subject to the terms and conditions
hereinafter set forth, Merger Sub will merge with and into Company (the
"MERGER"), with Company to be the surviving corporation of the Merger, all
pursuant to the terms and conditions of this Agreement, the Agreement of
Merger substantially in the form attached hereto as EXHIBIT A-1 (the
"AGREEMENT OF MERGER") and the Certificate of Merger substantially in the
form attached hereto as EXHIBIT A-2 (the "CERTIFICATE OF MERGER") and the
applicable provisions of the laws of the States of California and Delaware.
The parties intend for the Merger to be treated as a non-taxable
reorganization within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "CODE"), and to be accounted for as a
purchase transaction for financial accounting purposes.
B. The Boards of Directors of Parent, Merger Sub and Company have
determined that the Merger is in the best interests of their respective
companies and shareholders, have approved the Merger and, accordingly, have
agreed to effect the Merger provided for herein upon the terms and conditions
of this Agreement.
C. Concurrently with the execution of this Agreement, and as a condition
and inducement for parties' willingness to enter into this Agreement, each
shareholder of Company is executing an investment representation letter in
the form attached hereto as EXHIBIT B (the "INVESTMENT REPRESENTATION
LETTER").
D. Upon the effectiveness of the Merger, (i) all of the outstanding
common stock of Company (the "COMPANY COMMON STOCK"), except Dissenting
Shares (as defined in Section 1.3), will be automatically converted into the
right to receive, and shall be exchangeable for, Parent common stock, $0.001
par value per share ("PARENT COMMON STOCK"), (ii) options, warrants and other
rights to purchase Company Capital Stock (as defined in Section 1.2(c)) that
are outstanding immediately prior to the effectiveness of the Merger will be
converted into options, warrants and other rights to purchase Parent Common
Stock, and (iii) Merger Sub will be merged with and into Company, in each
case, in the manner and on the basis provided in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. PLAN OF REORGANIZATION
1.1 THE MERGER. As soon as practicable after the Closing (as
defined in Section 6.1), the Agreement of Merger will be filed with the
Secretary of State of the State of California and the Certificate of Merger
will be filed with the Secretary of State of the State of Delaware. The
effective time of the Merger (the "EFFECTIVE TIME") shall be the time of
filing of the Certificate of Merger unless otherwise specified in the
Certificate of Merger which will occur on the Closing Date (as defined in
Section 6.1) at 10:00 a.m. or at such other date or time as Parent and
Company may mutually agree. Subject to the terms and conditions of this
Agreement, Merger Sub will be merged with and into Company in a statutory
merger pursuant to the Agreement of Merger and in accordance with applicable
provisions of California law and pursuant to the Certificate of Merger and in
accordance with applicable provisions of Delaware law.
1.2 CONVERSION AND EXCHANGE OF SHARES.
(a) CONVERSION OF MERGER SUB STOCK. At the Effective Time,
each share of Merger Sub common stock that is issued and outstanding
immediately prior to the Effective Time will be converted into one validly
issued, fully paid and nonassessable share of common stock of the Surviving
Corporation (as defined below in Section 1.5). Each certificate evidencing
ownership of shares of Merger Sub common stock will evidence ownership of
such shares of common stock of the Surviving Corporation.
(b) CONVERSION OF COMPANY STOCK. A share of Company Common
Stock that is issued and outstanding immediately prior to the Effective Time
will, by virtue of the Merger, and without further action on the part of any
holder thereof, be automatically converted into the right to receive, and
shall be exchangeable for (subject to Sections 1.2(d), 1.2(f), 1.3, 1.10 and
1.11), at the Effective Time, that number of fully paid and nonassessable
shares of Parent Common Stock equal to the Company Exchange Number (as
defined in Section 1.2(c)); PROVIDED, HOWEVER, that each share of Company
Common Stock that is held in the treasury of Company shall not be so
converted but shall be cancelled and retired and no consideration shall be
delivered in exchange therefor. The Parent Common Stock will be allotted and
issued to the shareholders of Company (collectively, the "COMPANY
SHAREHOLDERS"), in each case in exchange for all of the issued and
outstanding Company Capital Stock (as defined in Section 1.2(c)).
(c) DEFINITIONS. The term "COMPANY EXCHANGE NUMBER" means the
quotient of (i) the Merger Consideration divided by (ii) the total number of
outstanding shares of Company Capital Stock as of the Effective Time.(1) The
term "MERGER CONSIDERATION" means 7,755,689 shares of Parent Common Stock.
The term "COMPANY CAPITAL STOCK" means the outstanding shares of Company
Common Stock, including, without limitation or duplication, all shares of
such stock that are issuable upon the exercise of any outstanding options,
warrants and other rights thereto which are vested as of the Effective Time.
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(1) For example, assuming that as of the Effective Time, there are 8,809,575
outstanding shares of Company common stock and 1,802,728 shares of Company
common stock subject to outstanding vested options, resulting in 10,612,303
outstanding shares of Company Capital Stock, then the Company Exchange Number
would be 0.73082.
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(d) ADJUSTMENTS FOR CAPITAL CHANGES. If, between the date
hereof and the Effective Time (as to the Parent Common Stock to be issued at
the Effective Time), Parent (i) recapitalizes either through a split-up of
its outstanding shares into a greater number of shares, or through a
combination of its outstanding shares into a lesser number of shares, (ii)
reorganizes, reclassifies or otherwise changes its outstanding shares into
the same or a different number of shares of other classes (other than through
a split-up or combination of shares provided for in the previous clause), or
(iii) declares a dividend on its outstanding shares payable in shares or
securities convertible into shares, the calculation of the Company Exchange
Number will be proportionally and equitably adjusted.
(e) CONTINUATION OF VESTING AND CERTAIN REPURCHASE RIGHTS. If
any shares of Company capital stock that are outstanding immediately prior to
the Effective Time are unvested or are subject to a repurchase option, risk
of forfeiture or other similar condition (which will not expire solely as a
consequence of the Merger) providing that such shares may be forfeited or
repurchased by Company upon any termination of the shareholders' employment,
directorship or other relationship with Company (and/or any affiliate of
Company) under the terms of any restricted stock purchase agreement or other
agreement with Company (such shares being referred to herein as "COMPANY
RESTRICTED STOCK") then the Parent Common Stock issued upon the conversion of
such shares of Company Capital Stock in the Merger will continue to be
unvested and subject to the same repurchase options, risks of forfeiture or
other similar conditions following the Effective Time. The certificates
representing such Parent Common Stock may accordingly be marked with
appropriate legends noting such repurchase options, risks of forfeiture or
other similar conditions. Company and Parent agree that from and after the
Effective Time they waive any repurchase rights for vested shares and rights
of first refusal contained in the Company Stock Plans (as defined in Section
1.4(a)) and agreements related thereto with respect to shares of Silicon
Image Common Stock exchanged for Company Common Stock pursuant to the Merger
or subject to Parent Options (as defined in Section 1.4(a)).
(f) FRACTIONAL SHARES. No fractional shares of Parent Common
Stock will be issued in connection with the Merger, but in lieu thereof, the
holder of any shares of Company Common Stock who would otherwise be entitled
to receive a fraction of a share of Parent Common Stock will receive,
promptly after the Effective Time, an amount of cash equal to the last sale
price on the Nasdaq National Market of Parent Common Stock on the last
trading day prior to the Effective Time, multiplied by the fraction of a
share of Parent Common Stock to which such holder would otherwise be entitled
at the Effective Time.
(g) CALCULATION. Unless specified otherwise herein, each
calculation called for by this Agreement shall be carried out to five (5)
decimal places.
1.3 DISSENTING SHARES. Holders of Dissenting Shares (if any) will
be entitled to appraisal rights under Section 1300 ET. SEQ. of the California
General Corporation Law ("CALIFORNIA LAW") with respect to such Dissenting
Shares and such Dissenting Shares will not be converted into Parent Common
Stock in the Merger; PROVIDED, HOWEVER, that nothing in this Section 1.3 is
intended to remove, release, waive, alter or effect any of the conditions to
Parent's
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and Merger Sub's obligations to consummate the Merger set forth in Section
7.8, or any other provision of this Agreement relating to Dissenting Shares.
Shares of Company Common Stock that are outstanding immediately prior to the
Effective Time of the Merger and with respect to which dissenting
shareholders' rights of appraisal under California Law have either (a) not
been properly exercised and perfected or (b) with the consent of Company and
Parent, been withdrawn, will, when such dissenting shareholders' rights can
no longer be legally exercised under California Law, be converted into Parent
Common Stock as provided in Section 1.2(b). "DISSENTING SHARES" means any
shares of Company capital stock that (i) are outstanding immediately prior to
the Effective Time and (ii) with respect to which dissenters' rights to
obtain payment for such dissenting shares in accordance with Section 1300 ET.
SEQ. of California Law have been duly and properly exercised and perfected in
connection with the Merger.
1.4 COMPANY STOCK OPTIONS.
(a) At the Effective Time, each of the then outstanding
Company Options shall, by virtue of the Merger, and without any further
action on the part of any holder thereof, be assumed by Parent and converted
into an option to purchase that number of Parent Common Stock (a "PARENT
OPTION") obtained by multiplying the number of Company Common Stock issuable
under such Company Option by the Company Exchange Number. If the foregoing
calculation results in a Company Option being exercisable for a fraction of a
share of Parent Common Stock, then the number of shares of Parent Common
Stock subject to such option shall be rounded down to the nearest whole
number of shares. The exercise price of each Company Option shall be equal to
the exercise price of the Company Option from which such Parent Option was
converted divided by the Company Exchange Number, rounded up to the nearest
whole cent. Except as otherwise set forth in this Section 1.4, the term and
vesting schedule, status as an "incentive stock option" under Section 422 of
the Code, if applicable, and all the terms and conditions of each Parent
Option will, to the extent permitted by law and otherwise reasonably
practicable, be the same in all material respects as the corresponding
Company Option. An optionholder's continuous employment with Company shall be
credited as employment with Parent for purposes of determining the vesting of
the Parent Options. Other than Company Options that shall become vested and
exercisable pursuant to acceleration provisions specifically disclosed in
SCHEDULE 2.3(b), no Company Options shall become vested or exercisable solely
as a result of the Merger. Company will take or cause to be taken, all
actions that are necessary, proper, or advisable under the Stock Plans to
make effective the transactions contemplated by this Section 1.4. "COMPANY
OPTIONS" means any option or warrant granted and not exercised or expired, to
a current or former employee, director or independent contractor or
consultant of Company or any predecessor thereof or to any other party to
purchase Company Common Stock pursuant to any stock option, warrant, stock
bonus, stock award or stock purchase plan, program or arrangement of Company
or any predecessor thereof (collectively, the "STOCK PLANS") or any other
contract or agreement entered into by Company.
(b) Parent shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Parent Common Stock for
delivery pursuant to the terms set forth in this Section 1.4. As soon as
reasonably practicable and no later than ten (10) business days following the
Effective Time, Parent shall cause the Parent Common Stock
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issuable upon exercise of the assumed Company Options to be registered, or to
be issued pursuant to an effective registration statement on Form S-8 (or
successor form) promulgated by the U.S. Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended (the "1933 ACT") and
shall use reasonable efforts to maintain the effectiveness of such
registration statement or registration statements for so long as such Parent
Options remain outstanding and Parent Common Stock is registered under the
Securities Exchange Act of 1934, as amended (the "1934 ACT"). Notwithstanding
the foregoing, Parent shall not be obligated to register or maintain the
registration under the 1933 Act of the issuance of any Parent Common Stock
that is subject to a Parent Option held by a person who is ineligible to have
such person's securities registered on Form S-8 (or successor form).
1.5 EFFECTS OF THE MERGER. At the Effective Time: (a) the separate
existence of Merger Sub will cease and Merger Sub will be merged with and
into Company and Company will be the surviving corporation in the Merger (the
"SURVIVING CORPORATION") pursuant to the terms of the Agreement of Merger and
the separate existence of Merger Sub will thereupon cease; (b) the Articles
of Incorporation and Bylaws of the Surviving Corporation will be in
substantially the forms attached hereto as EXHIBIT C-1 and EXHIBIT C-2; (c)
each share of Company Common Stock outstanding immediately prior to the
Effective Time will be converted into the right to receive and will become
exchangeable for, Parent Common Stock as provided in Section 1.2(b); (d) each
share of common stock of Merger Sub that is issued and outstanding
immediately prior to the Effective Time will, by virtue of the Merger and
without further action on the part of the sole stockholder of Merger Sub, be
converted into and become one share of common stock of the Surviving
Corporation (and the shares of Surviving Corporation into which the shares of
Merger Sub common stock are so converted shall be the only shares of Company
Common Stock that are issued and outstanding immediately after the Effective
Time); (e) each share of Company's capital stock held by the Company
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof; (f) the directors and executive officers of
Merger Sub will become the directors and executive officers of the Surviving
Corporation; and (g) the Merger will, at and after the Effective Time, have
all of the effects provided by applicable law.
1.6 FURTHER ASSURANCES. Company and the Significant Shareholders
agree that if, at any time after the Effective Time, Parent considers or is
advised that any further deeds, assignments or assurances are reasonably
necessary or desirable to vest, perfect, confirm or continue in the Surviving
Corporation, Merger Sub or Parent, title to any property or rights of Company
as provided herein, Parent and any of its officers are hereby authorized by
Company and the Significant Shareholders to execute and deliver all such
proper deeds, assignments and assurances and do all other things necessary or
desirable to vest, perfect, confirm or continue title to such property or
rights in the Surviving Corporation, Merger Sub or Parent, and otherwise to
carry out the purposes of this Agreement, in the name of Company and the
Significant Shareholders or otherwise.
1.7 SECURITIES LAW ISSUES; REGISTRATION RIGHTS. Based in part on
the representations of Company Shareholders made in the Investment
Representation Letters, the Parent Common Stock to be issued in the Merger
will be issued pursuant to an exemption from
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registration under Section 4(2) of the 1933 Act and/or Regulation D
promulgated under the 1933 Act and exemptions from qualification under
applicable state securities laws. Parent and Company Shareholders will enter
into a registration rights agreement in the form attached hereto as EXHIBIT D
(the "REGISTRATION RIGHTS AGREEMENT") with respect to the Parent Common Stock
to be issued to Company Shareholders. Subject to compliance by Parent with
its obligations under the Registration Rights Agreement, holders of Parent
Common Stock to be issued in the Merger will be wholly responsible for
compliance with all federal and state securities laws regarding the sale,
transfer or other disposition of such shares. Parent will file any required
Nasdaq Stock Market notification forms for a change in the number of shares
outstanding and for listing of additional shares with respect to the Parent
Common Stock issued in the Merger and subject to the Parent Options.
1.8 TAX-FREE REORGANIZATION. The parties intend that the Merger
shall constitute a non-taxable reorganization within the meaning of Section
368(a)(1)(A) of the Code. However, Parent makes no representations or
warranties to Company or to any Company Shareholder or other holder of
Company securities regarding the tax treatment of the Merger, whether the
Merger will qualify as a tax-free plan of reorganization under the Code, or
any of the tax consequences to any Company Shareholder or such holder of this
Agreement, the Merger or any of the other transactions or agreements
contemplated hereby, and Company and the Company Shareholders acknowledge
that Company and the Company Shareholders are relying solely on their own tax
advisors in connection with this Agreement, the Merger and the other
transactions contemplated by this Agreement.
1.9 PURCHASE ACCOUNTING. The parties intend that the Merger be
treated as a purchase transaction for financial accounting purposes.
1.10 ESCROW AGREEMENT. Pursuant to an Escrow Agreement to be
entered into on or before the Closing Date in the form of EXHIBIT E (the
"ESCROW AGREEMENT"), among Parent, the Significant Shareholders, the
Representative (as defined in the Escrow Agreement) of the Significant
Shareholders and State Street Bank and Trust Company (the "ESCROW AGENT"),
Parent will withhold from the Significant Shareholders (in proportion to
their respective ownership interests in Company Common Stock) thirteen
percent (13%) of the total shares of Parent Common Stock to be issued in the
Merger (collectively, the "ESCROW SHARES"). Promptly after the Closing Date,
Parent will deposit or cause to be deposited the Escrow Shares in escrow with
the Escrow Agent pursuant to the Escrow Agreement. The Escrow Shares will be
held in escrow as collateral for the indemnification obligations of the
Significant Shareholders under Section 8 below and the Severance Escrow
Agreement pending release from escrow pursuant to the Escrow Agreement.
1.11 SEVERANCE ESCROW AGREEMENT. Pursuant to a Severance
Indemnification and Escrow Agreement to be entered into on or before the
Closing Date in the form of EXHIBIT F (the "SEVERANCE ESCROW AGREEMENT"),
among Parent, the Significant Shareholders, the Representative (as defined in
the Severance Escrow Agreement) of the Significant Shareholders and the
Escrow Agent, Parent will withhold from the Significant Shareholders (in
proportion to their respective ownership interests in Company Common Stock),
in addition to and not in
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substitution for the Escrow Shares, a total of 600,000 shares of Parent
Common Stock to be issued to them in the Merger (the "SEVERANCE ESCROW
SHARES"). Promptly after the Closing Date, Parent will deposit or cause to be
deposited the Severance Escrow Shares in escrow with the Escrow Agent
pursuant to the Severance Escrow Agreement. The Severance Escrow Shares will
be held in escrow as collateral for the indemnification obligations of the
Significant Shareholders under the Severance Escrow Agreement pending release
from escrow pursuant to the Severance Escrow Agreement.
2. REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Parent that, except as set forth
in the letter addressed to Parent from Company and dated as of the date of
this Agreement, including all schedules thereto (which shall specifically
reference the Sections of this Agreement to which the specific items of
disclosure therein constitute an exception) which has been delivered by
Company to Parent concurrently with the parties' execution of this Agreement
(the "COMPANY DISCLOSURE LETTER"), each of the representations, warranties
and statements contained in the following sections of this Section 2 is true
and correct as of the date of this Agreement. For all purposes of this
Agreement, the statements contained in the Company Disclosure Letter shall
also be deemed to be representations and warranties made and given by Company
under Section 2 of this Agreement.
2.1 ORGANIZATION AND GOOD STANDING. Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California and has continuously been in good standing under the laws of
the State of California at all times since its inception. Company has the
corporate power and authority to own, operate and lease its properties and to
carry on its business as now conducted and as proposed to be conducted and is
duly qualified to do business and is in good standing in each jurisdiction
where the character of its properties owned or leased or the nature of its
activities make such qualification necessary (each such jurisdiction being
listed on SCHEDULE 2.1). Company has delivered to Parent true and correct
copies of the currently effective Articles of Incorporation and Bylaws of
Company, each as amended to date. Company is not in violation of its Articles
of Incorporation or Bylaws.
2.2 POWER, AUTHORIZATION AND VALIDITY.
(a) Company has the right, power, legal capacity and authority
to enter into and perform its obligations under this Agreement and the
Agreement of Merger and Certificate of Merger (collectively, the "COMPANY
ANCILLARY AGREEMENTS"). This Agreement and the Company Ancillary Agreements
have been duly and validly approved by Company.
(b) No filing, authorization, consent or approval,
governmental or otherwise, or filing with any governmental authority or court
is necessary to enable Company to enter into, and to perform its obligations
under, this Agreement or the Company Ancillary Agreements, except for the
filing of the Agreement of Merger with the California Secretary of State and
the filing of the Certificate of Merger with the Delaware Secretary of State.
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(c) This Agreement and the Company Ancillary Agreements have
been duly executed and delivered by Company. This Agreement and the Company
Ancillary Agreements are valid and binding obligations of Company enforceable
against Company in accordance with their respective terms, subject only to
the effect, if any, of (i) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, (ii) rules of law governing
specific performance, injunctive relief and other equitable remedies, and
(iii) the enforceability of provisions requiring indemnification in
connection with the offering, issuance or sale of securities.
2.3 CAPITALIZATION.
(a) AUTHORIZED AND OUTSTANDING CAPITAL STOCK OF COMPANY. The
authorized capital stock of Company consists solely of 25,000,000 shares of
Company Common Stock. A total of 8,809,575 shares of Common Stock are issued
and outstanding as of the date of this Agreement. The number of issued and
outstanding shares of Company Common Stock held by each Company Shareholder
is set forth in SCHEDULE 2.3(a), and no shares of Company Common Stock are
issued or outstanding that are not set forth in SCHEDULE 2.3(a). Company
holds no treasury shares. To Company's knowledge, each Company Shareholder
has good and marketable title to that number of shares of Company Common
Stock as set forth beside such Company Shareholder's name on SCHEDULE 2.3(a),
free and clear of all encumbrances, liens, agreements, voting trusts, proxies
and other arrangements or restrictions of any kind whatsoever. No equity
securities of Company shall be issued and outstanding at the Effective Time
other than Company Common Stock and Company Options. All issued and
outstanding shares of Company Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable, are not subject to any
right of rescission, right of first refusal or preemptive right and have been
offered, issued, sold and delivered by Company in compliance with all
requirements of applicable laws and all requirements sets forth in applicable
agreements or instruments. There is no liability for dividends accrued and
unpaid by Company. The vote required to approve this Agreement, the Merger
and the transactions contemplated hereby is a majority of the Company Common
Stock. The term "KNOWLEDGE," when used with reference to: (i) a Significant
Shareholder, means the knowledge of such individual after reasonable inquiry;
(ii) Company, means the collective knowledge of its directors and Xxxxxxx
Xxxxxxx, Xxxx Xxxxxxx, Xxxxxx Xxxx, Xxxxx Xxx, Xxxxx Xxxxxxxxxx, Xxxxxxx
Xxxxxx and Xxxxxxx Xxxxxxxx, after reasonable inquiry by such persons; and
(iii) Parent, means the collective knowledge of its officers and directors,
after reasonable inquiry by such persons.
(b) OPTIONS/RIGHTS. Company has reserved an aggregate of
9,000,000 shares of Company Common Stock for issuance pursuant to the Stock
Plans (including shares subject to outstanding Company Options). A total of
5,002,270 shares of Company Common Stock are subject to outstanding Company
Options as of the date of this Agreement. SCHEDULE 2.3(b) sets forth for each
Company Option (i) the name of the holder of such Company Option, (ii) the
exercise price of such Company Option, (iii) the number of shares covered by
such Company Option, (iv) the vesting schedule for such Company Option, (v)
the extent such Company Option is vested as of the date of this Agreement,
and (vi) whether the exercisability of such Company Option will be
accelerated in any way by any of the transactions contemplated by
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this Agreement or upon any other event or condition and the extent of
acceleration, if any. No Company Options have been amended, modified,
supplemented, replaced or exchanged to provide for (or increase the scope of)
any acceleration of vesting or exercisability since January 1, 2000. In
addition, SCHEDULE 2.3(b) sets forth all holders of shares of Company
Restricted Stock and for each such person, the number of shares of Company
Restricted Stock held, the terms of Company's rights to repurchase such
Company Restricted Stock, the schedule on which such rights lapse and whether
such repurchase rights lapse in full or in part as a result of the Merger or
upon any other event. True and correct copies of each Stock Plan, the
standard agreement under each Stock Plan and each agreement for each Company
Option that does not conform to the standard agreement under each Stock Plan
have been delivered by Company to Parent or its legal counsel, Fenwick & West
LLP. All outstanding Company Options have been issued and granted in
compliance with all requirements of applicable laws and all requirements set
forth in applicable agreements or instruments. Except for Company Options,
there are no stock appreciation rights, options, warrants, calls, rights,
commitments, conversion privileges or preemptive or other rights or
agreements outstanding to purchase or otherwise acquire any shares of Company
capital stock or any securities or debt convertible into or exchangeable for
Company capital stock or obligating Company to grant, extend or enter into
any such option, warrant, call, commitment, conversion privileges or
preemptive or other right or agreement. There are no voting agreements,
registration rights, rights of first refusal, preemptive rights, co-sale
rights, notice rights, information rights, tag-along rights, redemption
rights or other restrictions applicable to any outstanding securities of
Company. Company is not under any obligation to register under the 1933 Act
any of its presently outstanding shares of stock or other securities or any
stock or other securities that may be subsequently issued.
2.4 SUBSIDIARIES. Company has no Subsidiaries or any equity
interest, direct or indirect, in, or loans to, any corporation, partnership,
joint venture, limited liability company or other business entity. Company is
not obligated to make, nor bound by any agreement or obligation to make, any
investment in or capital contribution in or on behalf of any other entity.
"SUBSIDIARY" of an entity means a corporation or other business entity in
which such entity owns, directly or indirectly, at least a fifty percent
(50%) interest or that is otherwise, directly or indirectly, controlled by
such entity. Company is not a general partner of any general partnership,
limited partnership or other entity.
2.5 NO VIOLATION OF ARTICLES OF INCORPORATION OR EXISTING
AGREEMENTS. Neither the execution and delivery of this Agreement or the
Company Ancillary Agreements, nor the consummation of any of the transactions
provided for herein, will (a) conflict with or violate any provision of the
Articles of Incorporation or Bylaws of Company, as currently in effect, (b)
conflict with, violate, constitute a default under, result in a termination,
acceleration or breach of, or provide any party with any right of termination
or acceleration or any other material rights or remedies under (in each case
with or without notice or lapse of time, or both) any instrument, contract,
agreement, permit, mortgage, license, letter of intent or commitment (whether
verbal or in writing) to which Company is a party or by which Company or any
of its assets or properties is bound or have any Material Adverse Effect (as
defined below) upon any rights of Company pursuant to the terms of any such
instruments, contracts, agreements, permits, mortgages, licenses, letters of
intent or commitments, or (c) conflict with or violate any judgment, writ,
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decree, order, statute, rule or regulation applicable to Company or its
assets or properties. Except as set forth on SCHEDULE 2.5, the Merger will
not require the consent of any third party. "MATERIAL ADVERSE CHANGE" or
"MATERIAL ADVERSE EFFECT," when used with reference to any entity or group of
related entities, means any event, change, violation, inaccuracy,
circumstance or effect (regardless of whether or not such events or changes
are inconsistent with the representations or warranties made by such party in
this Agreement) that is or is reasonably likely to be, individually or in the
aggregate, materially adverse to the condition (financial or otherwise),
prospects, capitalization, properties, employees, assets (including
intangible assets), business, operations or results of operations of such
entity and its subsidiaries, taken as a whole; PROVIDED, that in no event
shall a change in the price of the publicly traded stock of Parent
constitute, in and of itself, a Material Adverse Change or Material Adverse
Effect in Parent.
2.6 LITIGATION. There is no action, proceeding, suit, arbitration,
mediation, claim, or to Company knowledge investigation pending or, to
Company's knowledge, threatened against Company (or against any officer,
director, employee or agent of Company in their capacity as such or relating
to their employment, services or relationship with Company) before any court
or administrative agency other than actions, proceedings, suits,
arbitrations, mediations, claims or investigations that neither (a) are
pending or, to the Company's knowledge, threatened on the date of this
Agreement, nor (b), may reasonably be expected to have a Material Adverse
Effect on Company or any of the transactions completed hereby. There is no
judgment, decree, injunction, rule or order of any court, governmental
authority or arbitrator outstanding against Company. There is no basis for
any person, firm, corporation or entity to assert a claim against Company (or
Parent, Merger Sub or the Surviving Corporation as a successor in interest to
Company) based upon: (a) ownership or rights to ownership of any shares of
Company capital stock, (b) any rights as a securities holder of Company,
including, without limitation, any option or other right to acquire any
shares of Company capital stock, any preemptive rights or any rights to
notice or to vote, or (c) any rights under any agreement between Company and
any securities holder or former securities holder in such holder's capacity
as such.
2.7 COMPANY FINANCIAL STATEMENTS. Company has delivered to Parent
(a) its unaudited balance sheet as of December 31, 2000 and its unaudited
income statement and statement of cash flows for the year then ended, (b) its
audited balance sheets as of December 31, 1998 and 1999, and its audited
income statements and statements of cash flows for the years then ended, and
(c) its unaudited balance sheets as of March 31, 2001 and April 30, 2001 and
its unaudited income statements and statements of cash flows for the three
month period ended March 31, 2001 and the one month period ended April 30,
2001 (collectively, the "FINANCIAL STATEMENTS"), a copy of each of which is
included as SCHEDULE 2.7. The Financial Statements (a) are in accordance with
the books and records of Company and (b) fairly and accurately represent the
financial condition of Company at the respective dates specified therein and
the results of operations for the respective periods specified therein in
accordance with generally accepted accounting principles ("GAAP")
consistently applied and in accordance with the past practices of Company,
except that the financial statements for the three-month period ended March
31, 2001 and the one-month period ended April 30, 2001 do not contain notes
and are subject to normal recurring adjustments which are not material in
amount. Company has no debt
10
or liability of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, except for (i) those set forth
in the Financial Statements, (ii) those incurred in the ordinary course of
Company's business, consistent with past practice that are not individually
material in amount and do not result from any breach of contract, tort or
violation of law, provided that if such debt, liability or obligation was
incurred before April 30, 2001 (the "BALANCE SHEET DATE"), it is not required
under GAAP to be set forth in the Financial Statements, (iii) accruals of
expenses, accounts payable and purchase orders arising in the ordinary course
of Company's business since the Balance Sheet Date to the extent such
accruals are of the same nature and not materially greater in amount than
those accruals incurred according to Company's past practice during
comparable periods, and (iv) liabilities incurred pursuant to this Agreement
or in connection with the transactions contemplated hereby or with the prior
written consent of Parent, and except as disclosed anywhere in the Company
Disclosure Letter to the extent it is reasonably evident that such disclosure
qualifies this representation. There has been no change in Company's
accounting policies other than as specifically described in the notes to the
Financial Statements. Notwithstanding the foregoing, (i) after the Closing,
Company shall be entitled to deliver a SCHEDULE 2.7.1 containing audited
financial statements for December 31, 2000 (and the year then ended),
together with corresponding changes to Company's unaudited financial
statements for March 31, 2001 and April 30, 2001 (and the three and one month
periods then ended) and (ii) to the extent such updated financial statements
differ from the corresponding financial statements included in SCHEDULE 2.7
as of the date of this Agreement as to inventory reserves and accounts and
amounts necessarily affected by changes in inventory reserves (collectively,
the "INVENTORY RESERVE CHANGES"), then such updated financial statements,
with respect to the Inventory Reserve Changes only, will supersede and
replace the corresponding financial statements included in SCHEDULE 2.7 as of
the date of this Agreement and be deemed "Financial Statements" hereunder for
purposes of the foregoing representations and warranties in this Section 2.7
and the other provisions of this Agreement.
2.8 COMPANY FINANCIAL PROJECTIONS. Company has delivered to Parent
financial projections for each calendar quarter in the period from April 2001
to June 2002 (the "FINANCIAL PROJECTIONS"), a copy of each of which is
included as SCHEDULE 2.8. The Financial Projections have been prepared in
good faith by Company based upon assumptions that Company believes are
reasonable and represent Company's good faith projections as to Company's
future results of operations given reasonable equity and working capital.
Such Financial Projections, however, are subject to significant business,
economic and competitive factors and uncertainties, many of which are beyond
Company's control, and such factors and uncertainties may cause Company's
actual results to differ materially from the Financial Projections.
2.9 TAXES. Company has timely filed all returns, reports,
estimates, and information statements relating to taxes ("RETURNS") required
to be filed by Company. All such Returns are true, complete and correct.
Company has paid when due all taxes required to be paid in respect of all
periods for which Returns have been filed, has made all necessary estimated
tax payments, and has no liability for taxes in excess of the amount so paid
with respect to such Returns, except to the extent adequate reserves have
been established in the Financial Statements. No adjustment relating to any
Returns filed by Company has been proposed in
11
writing formally or informally by any tax authority to Company or any
representative thereof. No deficiencies for any tax have been threatened,
claimed, proposed or assessed against Company which have not been settled or
paid. No tax return of Company has ever been audited by the Internal Revenue
Service or any other taxing agency or authority, no such audit is in progress
and Company has not been notified of any request for such an audit or other
examination. Company has no current or deferred tax liabilities and will not
as a result of the transactions contemplated herein become liable for any tax
not adequately reserved against on the Financial Statements. Company has not
executed any currently effective waiver of any statute of limitations on or
extending the period for the assessment or collection of any tax. Company is
not obligated to make any "excess parachute payment," as defined in Section
280G(b)(1) of the Code, nor will any excess parachute payment be deemed to
have occurred as a result of or arising out of the Merger to the extent
Section 280G of the Code is applicable to Company. Company has complied with
all applicable laws, rules and regulations relating to the payment and
withholding of taxes (including, without limitation, withholding of taxes
pursuant to Sections 1441, 1442, 1445 and 1446 of the Code or similar
provisions under any foreign law), has, within the time and in the manner
prescribed by law, withheld from employee wages and paid over to the proper
governmental authorities all amounts required to be so withheld and paid over
under all applicable laws and has timely filed all withholding tax returns.
Company is not a party to any tax-sharing or allocation agreement. Company
does not owe any amount under any tax-sharing or allocation agreement.
Company has not been a member of an affiliated group filing a consolidated
federal income tax return (other than a group the common parent of which was
Company) or has no liability for the taxes of any person (other than Company)
under Treasury Regulation Section 1.1502-6 (or any similar provision of
state, local or foreign law) as a transferee or successor, by contract or
otherwise. Since its inception, Company has not been a "United States real
property holding corporation," as defined in Section 897(c)(2) of the Code,
and in Section 1.897-2(b) of the Treasury Regulations issued thereunder (the
"REGULATIONS"). Company has withheld with respect to its employees all
federal and state income taxes, taxes pursuant to the Federal Insurance
Contribution Act ("FICA"), taxes pursuant to the Federal Unemployment Tax Act
("FUTA") and other taxes required to be withheld, except such taxes which are
not material to Company. For the purposes of this Section 2.9, the terms
"TAX" and "TAXES" include all income, gains, franchise, excise, property,
sales, use, employment, license, payroll, services, occupation, recording,
value added or transfer taxes, governmental charges, fees, levies,
assessments or other taxes (whether payable directly or by withholding), and,
with respect to such taxes, any estimated tax, interest and penalties or
additions to tax and interest on such penalties and additions to tax. Company
has not incurred a dual consolidated loss within the meaning of Section 1503
of the Code.
2.10 TITLE TO PROPERTIES; CONDITION OF EQUIPMENT AND PROPERTY.
Company has good and marketable title to all of its assets used in its
business or as shown on the balance sheet as of the Balance Sheet Date
included in the Financial Statements, free and clear of all liens, charges,
encumbrances or restrictions (other than Permitted Liens as defined below),
other than such assets, set forth on Schedule 2.10, as were sold in the
ordinary course of business, consistent with past practice, since the Balance
Sheet Date or which are subject to capitalized leases. Such assets are
sufficient for the continued operation of the business of Company consistent
with current practice. The term "PERMITTED LIEN" means any mechanics',
carriers', workers' and other
12
similar liens arising in the ordinary course of business. All leases of real
or personal property to which Company is a party are fully effective and
afford Company peaceful and undisturbed possession of the subject matter of
the lease. All of the buildings and fixtures on owned real property were
constructed in accordance with all applicable laws and Company has adequate
rights of ingress and egress into any real property used in the operation of
its business. The machinery and equipment (the "EQUIPMENT") owned or leased
by Company is (a) suitable for the uses to which they are currently employed,
(b) in generally good operating condition, (c) regularly and properly
maintained, (d) not obsolete or in need of renewal or replacement, except for
renewal or replacement in the ordinary course of business, consistent with
past practice, and (e) to the Company's knowledge, free from any material
defects.
2.11 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date,
Company has carried on its business in the ordinary course in accordance with
the procedures and practices in effect on the Balance Sheet Date, and since
the Balance Sheet Date there has not been with respect to Company:
(a) any Material Adverse Change with respect to Company;
(b) any contingent liability incurred as guarantor or surety
with respect to the obligations of others;
(c) any mortgage, encumbrance or lien placed on any of its
properties or granted with respect to any of its assets other than Permitted
Liens;
(d) any material obligation or liability incurred other than
in the ordinary course of business consistent with past practice, or any
borrowing of moneys in excess of $50,000 in the aggregate;
(e) any purchase, license, sale or other disposition, or any
agreement or other arrangement for the purchase, license, sale or other
disposition, of any of the properties or assets of Company other than sales
of inventory and purchases of raw materials in the ordinary course of
business, consistent with past practice;
(f) any material damage, destruction or loss, whether or not
covered by insurance, affecting the properties, assets or business of Company;
(g) any declaration, setting aside or payment of any dividend
on, or the making of any other distribution in respect of, the capital stock
of Company, any split, stock dividend, combination or recapitalization of the
capital stock of Company or any direct or indirect redemption, purchase or
other acquisition by Company of its capital stock;
(h) any material labor dispute or claim of material unfair
labor practices;
13
(i) any change with respect to the officers or management or
supervisory employees of Company named in SCHEDULE 2.11(i) (which shall
include all employees with severance agreements with Company) ("MANAGEMENT
EMPLOYEES");
(j) any material modification of the benefits payable or to
become payable to any directors or employees of the Company, or any increase
in the compensation payable or to become payable to any of Company's
directors or employees of the Company, or any bonus payment or arrangement
made to or with any of such directors or employees, except salary increases
(not in excess of ten percent (10%) for any individual) with respect to
persons who are not officers or directors of Company in the ordinary course
of business consistent with past practice in connection with promotions or
annual performance evaluations;
(k) any increase in or modification of any bonus, pension,
insurance or other employee benefit plan, payment or arrangement (including,
but not limited to, the granting of stock options, restricted stock awards or
stock appreciation rights) made to, for or with any of Company's employees or
directors of Company;
(l) any making of any loan, advance or capital contribution
to, or investment in, any person other than (i) travel loans or advances made
in the ordinary course of business consistent with past practice of Company
and (ii) other loans and advances in an aggregate amount which does not
exceed $50,000 outstanding at any time;
(m) any entry into, amendment of, relinquishment, termination
or nonrenewal by Company of any contract, lease transaction, commitment or
other right or obligation other than in the ordinary course of business,
consistent with past practice (including without limitation entering into
purchase orders), but in no event involving obligations (contingent or
otherwise) of, or payments to Company in excess of $50,000 individually or
$100,000 in the aggregate;
(n) any payment or discharge of a material lien or liability
thereof, which lien or liability was not either (i) shown on the balance
sheet as of the Balance Sheet Date included in the Financial Statements or
(ii) incurred in the ordinary course of business, consistent with past
practice after the Balance Sheet Date;
(o) any obligation or liability incurred by Company to any of
their officers, directors or shareholders, except liabilities for salary,
vacation and other employment benefits accrued in the ordinary course of
business;
(p) any amendment or change in the Articles of Incorporation
or Bylaws or other charter documents of Company;
(q) any deferral of the payment of any accounts payable
outside the ordinary course of business or in an amount which is material or
any discount, accommodation or other concession made outside the ordinary
course of business in order to accelerate or induce the collection of any
receivable;
14
(r) any acceleration or release of any vesting condition to
the right to exercise any option, warrant or other right to purchase or
otherwise acquire any shares of Company's capital stock, or any acceleration
or release of any right to repurchase shares of Company's capital stock upon
the shareholder's termination of employment or services with Company or
pursuant to any right of first refusal;
(s) any material change in the manner in which Company extends
discounts, credits or warranties to customers or otherwise deals with its
customers;
(t) any termination of the employment of a material number of
employees of Company;
(u) sale, issuance, grant or authorization of the issuance or
grant of: (A) any shares of its capital stock of any class or other security
(other than (1) options issued to employees in the ordinary course of
business consistent with past practice and identified in Schedule 2.3(b) (all
of which had been granted as of the date of this Agreement), or (2) pursuant
to exercise of outstanding stock options and warrants); (B) any option, call,
warrant, obligation, subscription, or other right to acquire any capital
stock or any other security, except for stock options described in Schedule
2.3(b) or (C) any instrument convertible into or exchangeable for any capital
stock or other security;
(v) any revaluation by Company of any of its assets;
(w) any agreement or arrangement made by Company to do any of
the foregoing or to take any action which, if taken prior to the date of this
Agreement, would have made any representation or warranty of Company set
forth in Section 2 of this Agreement untrue or incorrect as of the date when
made.
2.12 AGREEMENTS AND COMMITMENTS. Except as specifically identified
in SCHEDULE 2.12, Company is not a party or subject to any of the following
(whether oral or written):
(a) any contract, commitment, agreement, quotation or purchase
order providing for payments by or to Company in an aggregate amount of (i)
$75,000 or more in the ordinary course of business, consistent with past
practice, or (ii) $50,000 or more not in the ordinary course of business,
consistent with past practice;
(b) any agreement under which Company is licensor of
Intellectual Property (as defined in Section 2.13), or under which Company is
licensee of any Intellectual Property of any other Person (except for
standard "shrink wrap" licenses for off-the-shelf software products);
(c) any agreement by Company to encumber, transfer or sell
rights in or with respect to any Intellectual Property (as defined in Section
2.13 below);
15
(d) any agreement for the sale or lease of real or personal
property involving more than $25,000 per year;
(e) any dealer, distributor, sales representative, original
equipment manufacturer, value added remarketer, volume purchase agreement or
other agreement for the distribution or sale of Company's products (other
than individual purchase orders in the ordinary course of business consistent
with past practice);
(f) any franchise agreement;
(g) any stock redemption or purchase agreement;
(h) any joint venture contract or arrangement or any other
agreement that involves a sharing of profits with other persons or the
payment of royalties to any other person;
(i) any instrument evidencing indebtedness for borrowed money
or guarantees thereof;
(j) any contract containing covenants purporting to limit
Company's freedom to compete in any line of business in any geographic area;
(k) any agreement of indemnification or warranting other than
standard warranties in connection with the sale of products and/or services
in the ordinary course of business, consistent with past practice;
(l) any agreement, contract or commitment relating to capital
expenditures and which involves future payments in excess of $50,000;
(m) any agreement, contract or commitment relating to the
disposition or acquisition of any assets (other than Inventory, as defined in
Section 2.26) by Company or any Intellectual Property, which involves
payments individually in excess of $50,000 or in the aggregate in excess of
$100,000 in the ordinary course of business, consistent with past practice;
(n) any purchase order or contract for the purchase of raw
materials which involves payments individually in excess of $75,000 or in the
aggregate in excess of $125,000 in the ordinary course of business,
consistent with past practice;
(o) any agreement relating to the sale, issuance, grant,
exercise, award, purchase, repurchase or redemption of any shares of capital
stock or other securities of Company or any options, warrants or other rights
to purchase or otherwise acquire any such shares of capital stock, other
securities or options, warrants or other rights therefor, except for those
agreements conforming to the standard agreement under the Stock Plans;
(p) any contract providing for development of technology for
Company;
16
(q) any contract or agreement for the employment of any
officer, employee or consultant of Company or any other type of contract,
agreement or understanding with any officer, employee or consultant of
Company that is not immediately terminable by Company without cost or
liability;
(r) any contract for consulting or similar services with a
term of more than sixty (60) days and which is not terminable without penalty
with notice of sixty (60) days or less; or
(s) any contract granting most favored nation pricing and/or
terms to any customer, licensee, purchaser, reseller, promoter or remarketer
of any products or services;
(t) any contract with or commitment to any labor union; or
(u) any other oral or written agreement, obligation or
commitment that is material to Company, its financial condition, business or
prospects.
All agreements, contracts, obligations and commitments listed
in SCHEDULES 2.12, 2.13 and 2.16. (collectively "MATERIAL AGREEMENTS") are
valid and in full force and effect. Neither Company nor, to the knowledge of
Company, any other party is in breach of or default under any material term
of any Material Agreement, nor will Company nor, to Company's knowledge, any
other party be in breach of or default (with or without notice or lapse of
time, or both) under any such term after giving effect to the Merger or the
transactions contemplated hereby. No party to any such Material Agreement has
given notice that Company is in breach or default thereunder, and to the
knowledge of Company, no party to any such Material Agreement intends to
cancel, withdraw, modify or amend such Material Agreement. A true and
complete copy of each Material Agreement and all amendments and schedules
thereto has been delivered to Parent's counsel.
Company is not a party to any Material Agreement or any other
agreement, contract or instrument with any customer, supplier, landlord or
labor union or association that (i) contains any provision that is or could
reasonably be expected to become materially burdensome to Company, other than
provisions that are in the ordinary course of Company's businesses and are
consistent with industry practice; (ii) provides for the reduction of prices
charged by Company to any Significant Customer (as defined in Section 2.24)
for its products or services other than price reductions that are
proportionate to reductions in the related costs (including, without
limitation, any "most favored customer" provisions); (iii) provides for any
increases in the prices to be paid by Company to any Significant Supplier (as
defined in Section 2.25) for any products or services; or (iv) provides for
any warranty or similar obligations with respect to products or services
other than an obligation to repair or replace products in the event of
defective workmanship or materials provided by Company.
2.13 INTELLECTUAL PROPERTY
(a) Company owns, or has the valid right or license to use,
possess, sell, license, copy, distribute, market, advertise and/or dispose of
all Intellectual Property (as
17
defined below) necessary or required for the conduct of its businesses as
presently conducted and for the development, manufacture, license, sale or
use of any product or service currently under development (such Intellectual
Property being hereinafter collectively referred to as the "COMPANY IP
RIGHTS"), and such rights to use, possess, sell, license, copy, distribute,
market, advertise and/or dispose of are sufficient for such conduct of such
businesses. As used herein, the term "INTELLECTUAL PROPERTY" means,
collectively, all worldwide industrial and intellectual property rights,
including, without limitation, patents, patent applications, patent rights,
trademarks, trademark registrations and applications therefor, trade dress
rights, trade names, service marks, service xxxx registrations and
applications therefor, Internet domain names, Internet and World Wide Web
URLs or addresses, copyrights, copyright registrations and applications
therefor, mask work rights, mask work registrations and applications
therefor, franchises, licenses, inventions, trade secrets, know-how, customer
lists, supplier lists, proprietary processes and formulae, software source
code and object code, algorithms, net lists, architectures, structures,
screen displays, photographs, images, layouts, inventions, development tools,
designs, blueprints, specifications, technical drawings (or similar
information in electronic format) and all documentation and media
constituting, describing or relating to the foregoing, including, without
limitation, manuals, programmers' notes, memoranda and records.
(b) Neither the execution, delivery and performance of this
Agreement, any Company Ancillary Agreement nor consummation of the
transactions contemplated hereby or thereby will: (a) constitute a material
breach of or default under any instrument, contract, license or agreement
governing any Company IP Rights to which Company is a party; (b) cause the
forfeiture or termination of, or give rise to a right of forfeiture or
termination of, any Company IP Right; or (c) materially impair the right of
Company to use, possess, sell or license any Company IP Right or portion
thereof. There are no royalties, honoraria, fees or other payments payable by
the Company to any third person by reason of the ownership, use, possession,
license, sale, marketing, advertising or disposition of any Company IP Rights
by Company.
(c) Neither the manufacture, marketing, license, sale,
furnishing or intended use of any product or service currently licensed,
utilized, sold, provided or furnished by the Company, or currently under
development by the Company, violates any license or agreement between the
Company and any third party or infringes or misappropriates any Intellectual
Property right of any other party; and there is no pending or, to the
knowledge of Company, threatened, claim or litigation contesting the
validity, ownership or right of the Company to use, possess, sell, market,
advertise, license or dispose of any Company IP Right nor, to the knowledge
of Company, is there any basis for any such claim, nor has the Company
received any notice asserting that any Company IP Right or the proposed use,
sale, license or disposition thereof conflicts or will conflict with the
rights of any other party, nor, to the knowledge of Company, is there any
basis for any such assertion.
(d) To Company's knowledge, no employee, consultant or
independent contractor of Company: (i) is in material violation of any term
or covenant of any employment contract, patent disclosure agreement,
invention assignment agreement, non-disclosure agreement, noncompetition
agreement or any other contract or agreement with any
18
other party by virtue of such employee's, consultant's, or independent
contractor's being employed by, or performing services for, the Company or
using trade secrets or proprietary information of others; or (b) has
developed any technology, software or other copyrightable, patentable, or
otherwise proprietary work for the Company that is subject to any agreement
under which such employee, consultant or independent contractor has assigned
or otherwise granted to any third party any rights (including without
limitation Intellectual Property) in or to such technology, software or other
copyrightable, patentable or otherwise proprietary work or any Intellectual
Property related thereto. To Company's knowledge, the employment of any
employee of the Company or the use by the Company of the services of any
consultant or independent contractor does not subject Company to any
liability to any third party related to misappropriation of trade secrets,
violation of any noncompetition agreement, violation of any form of
non-disclosure agreement, or the infringement of intellectual property rights.
(e) Except for fees paid or payable pursuant to standard
"shrink-wrap" license agreements granting Company the right to use general
purpose office computer software, there are no and will be no royalties,
honoraria, fees or other payments (other than salaries payable to employees
and amounts payable to independent contractors not contingent on or related
to use of their work product) payable by the Company, before or after the
Closing Date, to any third person by reason of the ownership, use,
possession, license, copying, modifying, making derivative works of, sale,
marketing, advertising and/or disposition of any Company IP Rights by the
Company.
(f) Company has taken all reasonable steps to protect,
preserve and maintain the secrecy and confidentiality of the Company IP
Rights and all of the Company's ownership interests and proprietary rights
therein. All officers, employees and consultants of the Company having access
to proprietary information of the Company, its customers or business
partners, have executed and delivered to Company an agreement regarding the
protection of such proprietary information and the assignment of inventions
to the Company; and copies of the form of all such agreements have been
delivered to Parent's counsel. The Company has secured written assignments
from all consultants, contractors and employees who were involved in, or who
contributed to, the creation or development of any Company IP Rights, of the
rights to such contributions that may be owned by such persons or that the
Company does not already own by operation of law. No current or former
employee, officer, director, consultant or independent contractor of the
Company has any right, license, claim or interest whatsoever in or with
respect to any Company IP Rights.
(g) SCHEDULE 2.13(g) contains a true and complete list of (i)
all worldwide registrations of any patents, copyrights, mask works,
trademarks, service marks, Internet domain names or Internet or World Wide
Web URLs or addresses owned by the Company with any governmental or
quasi-governmental authority; (ii) all applications, registrations, filings
and other formal actions made or taken pursuant to federal, state and foreign
laws by the Company to secure, perfect or protect their interests in Company
IP Rights, including, without limitation, all patent applications, copyright
applications, and applications for registration of trademarks and service
marks, and (iii) all unregistered copyrights, trademarks and service marks
that are currently used in connection with the business of the Company. All
19
patents, and all registered trademarks, registered service marks, registered
Internet domain names, registered Internet or World Wide Web URLs or
addresses and registered copyrights held by the Company are valid,
enforceable and subsisting.
(h) SCHEDULE 2.13(h) contains a true and complete list of (i)
all licenses, sublicenses and other agreements to which the Company is a
party and pursuant to which any person or entity is authorized to use any
Company IP Rights, and (ii) all licenses, sublicenses and other agreements as
to which the Company is a party and pursuant to which the Company is
authorized to use any third party Intellectual Property which would be
infringed by, or are incorporated in, or form a part of, any product or
service sold, licensed, distributed, provided or marketed by the Company.
(i) To Company's knowledge, there is no unauthorized use,
disclosure, infringement or misappropriation of any Company IP Rights by any
third party, including any employee or former employee of the Company.
Company has not agreed to indemnify any person for any infringement of any
Intellectual Property of any third party by any product or service that has
been sold, licensed, leased, supplied, marketed, distributed, or provided by
the Company.
2.14 COMPLIANCE WITH LAWS. Company has complied in all material
respects and is in compliance in all material respects with all applicable
laws, ordinances, regulations and rules, and all orders, writs, injunctions,
awards, judgments and decrees, applicable to Company or to the assets,
properties and business Company. Company has received all permits and
approvals from, and has made all filings with, third parties, including
government agencies and authorities, that are material to the conduct of its
business as presently conducted, and there exists no current default under or
violation of any such permit or approval. SCHEDULE 2.14 includes a summary of
all violations of, or conflicts with, any applicable statute, law, rule,
regulation, ruling, order, judgment or decree, and all allegations of any
such violations, of which Company has received notice from each such
governmental entity since January 1, 1996.
2.15 CERTAIN TRANSACTIONS AND AGREEMENTS. No person who is an
officer, director or Significant Shareholder of Company, or a member of any
officer's, director's or Significant Shareholder's immediate family, (a) has
any direct or indirect ownership interest in or any employment or consulting
agreement with any firm or corporation that competes with Company or Parent
(except with respect to any interest in less than one percent (1%) of the
outstanding voting shares of any corporation whose stock is publicly traded),
(b) is directly or indirectly interested in any material contract or informal
arrangement with Company, except for compensation for services as an officer,
director or employee of Company as listed in SCHEDULE 2.16, (c) has any
interest in any property, real or personal, tangible or intangible, used in
the business of Company, except for the normal rights of a shareholder, or
(d) has had, either directly or indirectly, a material interest in: (i) any
person or entity which purchases from or sells, licenses or furnishes to
Company any goods, property, technology or intellectual or other property
rights or services; or (ii) any contract or agreement to which Company is a
party or by which it may be bound or affected.
20
2.16 EMPLOYEES.
(a) Company is not subject to any collective bargaining
agreements. Company has good labor relations, and Company does not have
knowledge of any facts indicating that the consummation of the transactions
provided for herein will have a material adverse effect on Company's labor
relations. Company does not have knowledge that any of the Management
Employees, or any significant number of other employees, intends to leave
Company's employ. To Company's knowledge, between January 1, 2001 and the
date of this Agreement, no Management Employee or significant number of other
employees of Company, has given notice that such employee intends to
terminate his or her employment with Company. There are no activities or
proceedings of any labor union to organize any employees of Company and there
are no strikes, material slowdowns, work stoppages or lockouts, or threats
thereof by or with respect to any employees of Company. Company is in
compliance in all material respects with all applicable laws regarding
employment practices, terms and conditions of employment, and wages and hours
(including without limitation, ERISA (as defined below), the Worker
Adjustment Retraining and Notification Act, as amended, or any similar state
or local law).
(b) Company is in compliance in all material respects with all
applicable laws, agreements and contracts relating to employment, employment
practices, immigration, wages, hours, and terms and conditions of employment,
including, but not limited to, employee compensation matters, and has made
commercially reasonable efforts to correctly classify employees as exempt
employees and non-exempt employees under the Fair Labor Standards Act. A list
of all employees, officers and consultants of Company and their current title
and/or job description and compensation is set forth on SCHEDULE 2.16(b).
Company does not have any employment contracts or consulting agreements
currently in effect that are not terminable at will (other than agreements
with the sole purpose of providing for the confidentiality of proprietary
information or assignment of inventions).
(c) Company has no pension plan, which constitutes, or has
since the enactment of ERISA constituted, a "multiemployer plan" as defined
in Section 3(37) of the Employment Retirement Income Security Act of 1974, as
amended ("ERISA"). No pension plan of Company is subject to Title IV of ERISA.
(d) (1) SCHEDULE 2.16(d) lists each employment, severance or
other similar contract, arrangement or policy, each "employee benefit plan"
as defined in Section 3(3) of ERISA and each plan or arrangement providing
for insurance coverage (including any self-insured arrangements), workers'
benefits, vacation benefits, severance benefits, disability benefits, death
benefits, hospitalization benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock purchase, phantom
stock, stock appreciation or other forms of incentive compensation or
post-retirement insurance or benefits for employees, consultants or directors
which is entered into, maintained or contributed to by Company or any ERISA
Affiliate and covers any employee or former employee of Company. Such
contracts, plans and arrangements as are described in this Section 2.16(d)
are collectively referred to herein as "EMPLOYEE PLANS". For purposes of this
Section 2.16, "ERISA AFFILIATE" shall mean any entity which is a member of:
(i) a "controlled group of corporations", as defined in Section
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414(b) of the Code; (ii) a group of entities under "common control", as
defined in Section 414(c) of the Code; or (iii) an "affiliated service
group", as defined in Section 414(m) of the Code, or treasury regulations
promulgated under Section 414(o) of the Code, any of which includes the
Company or any of is subsidiaries.
(2) Each Employee Plan has been maintained in compliance
in all material respects with its terms and with the requirements prescribed
by any and all statutes, orders, rules and regulations that are applicable to
such Employee Plan and each such Employee Plan that is an "employee pension
benefit plan" as defined in Section 3(2) of ERISA which is intended to
qualify under Section 401(a) of the Code has received a favorable opinion,
advisory, notification and/or determination letter, as applicable, that such
plan satisfied the requirements of the Tax Reform Act of 1986 and the GUST
amendments (a copy of which letter(s) have been delivered to Parent and its
counsel), or has a remaining period of more than six (6) months time to apply
for such letter. No Employee Plan will be subject to any surrender fees or
service fees upon termination other than the normal and reasonable
administrative fees associated with the termination of benefit plans. No
employee of the Company or any of its subsidiaries, and no person subject to
any health plan of the Company or any of its subsidiaries has made medical
claims through such health plan during the 12 months preceding the date
hereof for more than $50,000 in the aggregate for which the Company is
responsible (other than responsibility for insurance premiums).
(3) Company has delivered to Parent or its counsel a
complete and correct copy and description of each Employee Plan.
(4) Company has timely filed and delivered to Parent and
its counsel the most recent annual report (Form 5500) for each Employee Plan
that is an "employee benefit plan" as defined under ERISA.
(5) Company has not ever been a participant in any
"prohibited transaction," within the meaning of Section 406 of ERISA with
respect to any employee pension benefit plan (as defined in Section 3(2) of
ERISA) which Company sponsors as employer or in which Company participates as
an employer, which was not otherwise exempt pursuant to Section 408 of ERISA
(including any individual exemption granted under Section 408(a) of ERISA),
or which could result in an excise tax under the Code.
(6) All contributions due and owing from Company with
respect to any of Employee Plans have been made or have been accrued on
Company's financial statements, and no further contributions will be due or
will have accrued thereunder as of the Closing Date.
(7) To Company's knowledge, all individuals who, pursuant
to the terms of any Employee Plan, are entitled to participate in any such
Employee Plan, are currently participating in such Employee Plan or have been
offered an opportunity to do so and have declined.
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(8) Company will have no liability to any employee or to
any organization or any other entity as a result of the termination of any
employee leasing arrangement.
(e) There has been no amendment to, written interpretation or
announcement (whether or not written) by Company relating to, or change in
employee participation or coverage under, any Employee Plan that would
increase materially the expense of maintaining such Employee Plan above the
level of the expense incurred in respect thereof during the calendar year
2000.
(f) The group health plans (as defined in Section 4980B(g) of
the Code) that benefit employees of Company are in compliance, in all
material respects, with the continuation coverage requirements of Section
4980B of the Code and Sections 601 through 608 of ERISA, the Americans with
Disabilities Act of 1990, as amended and the Family Medical Leave Act of
1993, as amended, and the regulations thereunder, as such requirements affect
Company and its employees. As of the Closing Date, there will be no material
outstanding, uncorrected violations under the Consolidation Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), with respect to any of
Employee Plans, covered employees, or qualified beneficiaries that could
result in a Material Adverse Effect on Company, or in a Material Adverse
Effect on Parent after the Effective Time.
(g) Company is not a party to any: (a) agreement with any
executive officer or other key employee thereof (i) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence
of a transaction involving Company in the nature of the Merger or any of the
other transactions contemplated by this Agreement, (ii) providing any term of
employment or compensation guarantee, or (iii) providing severance benefits
or other benefits after the termination of employment of such employee
regardless of the reason for such termination of employment, except as
required by applicable law; or (b) agreement or plan, including any stock
option plan, phantom stock plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting
of benefits of which will be accelerated, by the occurrence of the Merger or
any of the other transactions contemplated by this Agreement, or the value of
any of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement.
(h) Each International Employee Plan has been established,
maintained and administered in material compliance with its terms and
conditions and with the requirements prescribed by any and all statutory or
regulatory laws that are applicable to such International Employee Plan. No
International Employee Plan has material unfunded liabilities that, as of the
Effective Time, will not be offset by insurance or that are not fully accrued
on the Company balance sheet. Except as required by law, no condition exists
that would prevent the Company or any of its subsidiary from terminating or
amending any International Employee Plan at any time for any reason in
accordance with the terms of each such International Employee Plan (other
than expenses typically incurred in a termination event). "INTERNATIONAL
EMPLOYEE PLAN" shall mean each Employee Plan that has been adopted or
maintained by the Company or
23
any of its subsidiary, whether informally or formally, for the benefit of
employees outside the United States.
2.17 BOOKS AND RECORDS. The books, records and accounts of Company
(a) are in all material respects true and complete, (b) have been maintained
in accordance with reasonable business practices on a basis consistent with
prior years, (c) are stated in reasonable detail and accurately and fairly
reflect the transactions and dispositions of the assets of Company, and (d)
accurately and fairly reflect the basis for the Financial Statements. Company
has devised and maintains a system of internal accounting controls sufficient
to provide reasonable assurances that (a) transactions have been executed in
accordance with management's general or specific authorization; (b)
transactions have been recorded as necessary (i) to permit preparation of
financial statements in conformity with GAAP applied on a consistent basis,
and (ii) to maintain accountability for assets; and (c) the amount recorded
for assets on the books and records of Company has been compared with the
existing assets at reasonable intervals and appropriate action has been taken
with respect to any differences.
2.18 INSURANCE. SCHEDULE 2.18 sets forth all material claims made
under insurance policies since January 1, 1999 and Company has maintained
since inception, and now maintains all legally required workers' compensation
insurance and errors and omissions, casualty, fire and general liability
insurance. There is no claim pending under any of such policies or bonds as
to which coverage has been questioned, denied or disputed by the underwriters
of such policies or bonds. All premiums due and payable under all such
policies and bonds have been timely paid and Company is otherwise in
compliance with the terms of such policies and bonds and all such policies
are in full force and effect. Company has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies. All policies of insurance held by Company since January 1, 1999 are
set forth in SCHEDULE 2.18, together with the name of the insurer under each
policy, the type of policy, the policy coverage amount and any applicable
deductible, and with respect to each policy currently in effect, the
applicable provisions, as of the date of this Agreement.
2.19 ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(a) Company and its predecessors and affiliates have complied
in all material respects and are in compliance in all material respects with
all Environmental, Health, and Safety Requirements. For purposes of this
Agreement, the term "ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" means
all statutes, regulations, ordinances and other provisions having the force
or effect of law, all judicial and administrative orders and determinations,
all contractual obligations and all law concerning public health and safety,
worker health and safety, and pollution or protection of the environment,
including without limitation all those relating to the presence, use,
production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials,
substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as amended and
as now or hereafter in effect.
24
(b) No Site is a treatment, storage or disposal facility, as
defined in and regulated under the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 ET. SEQ., is or ever was listed or is proposed for
listing on the National Priorities List pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section
9601 ET. SEQ., or any similar state list of sites requiring investigation or
cleanup. The term "SITE" means any of the real properties currently or
previously owned, leased, used or operated by Company, any predecessors of
Company or any entities previously owned by Company, including all soil,
subsoil, surface waters and groundwaters thereat.
(c) Company and its predecessors and affiliates have not
received any written or oral notice, report or other information regarding
any actual or alleged violation of Environmental, Health, and Safety
Requirements, or any liabilities or potential liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations, relating to any of them or
its facilities arising under Environmental, Health, and Safety Requirements.
(d) None of the following exists at any Site: (i) underground
storage tanks, (ii) asbestos-containing material in any form or condition,
(iii) materials or equipment containing polychlorinated biphenyls, or (iv)
landfills, surface impoundments, or disposal areas.
(e) Company and its predecessors and affiliates have not
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without limitation
any hazardous substance, or owned or operated any property or facility (and
no such property or facility is contaminated by any such substance) in a
manner that has given or would give rise to liabilities, including any
liability for response costs, corrective action costs, personal injury,
property damage, natural resources damages or attorney fees, pursuant to any
Environmental, Health, and Safety Requirements. To Company's knowledge,
neither this Agreement nor the consummation of the transactions that are the
subject of this Agreement will result in any obligations of Company for site
investigation or cleanup, or notification to or consent of government
agencies or third parties, pursuant to any of the so called "transaction
triggered" or "responsible property transfer" or Environmental, Health and
Safety Requirements.
(f) Company and its predecessors and affiliates have not
either expressly or by operation of law, assumed or undertaken any liability,
including without limitation any obligation for corrective or remedial
action, of any other person or entity relating to Environmental, Health, and
Safety Requirements.
(g) To the best knowledge of Company, no facts, events or
conditions relating to any Site will prevent, hinder or limit continued
compliance with Environmental, Health, and Safety Requirements, give rise to
any investigatory, remedial or corrective obligations pursuant to
Environmental, Health, and Safety Requirements, or give rise to any other
liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental, Health, and Safety Requirements,
including without limitation any relating to onsite or offsite releases or
25
threatened releases of hazardous materials, substances or wastes, personal
injury, property damage or natural resources damage.
2.20 PRODUCT AND SERVICE WARRANTIES. During the twelve months ended
December 31, 2000, Company did not experience any product or service warranty
claims materially greater than the same type of claims reflected in the
Financial Statements for the twelve months ended December 31, 1999. During
the three months ended March 31, 2001, Company did not experience any product
or service warranty claims materially greater than the same type of claims
reflected in the financial statements of Company for the three months ended
March 31, 2000. Company's sales documentation provides that Company's
obligations with respect to defects in materials or workmanship is limited to
an obligation to repair or replace the product in question. There is not
presently nor has there been since January 1, 1999 any failure or defect in
any product sold by Company that has required, or that may require, a general
recall or replacement campaign or similar action with respect to such product
or a reformulation or change of such product.
2.21 CUSTOMERS; BACKLOG; RETURNS AND COMPLAINTS. Company has no
outstanding material disputes concerning its goods and/or services with any
customer who, in the year ended December 31, 2000 or the four months ended
April 30, 2001, was one of the twenty largest sources of revenues for
Company, based on amounts paid (a "SIGNIFICANT CUSTOMER") and Company has no
knowledge of any dissatisfaction on the part of any Significant Customer of
Company. Company has not received any information from any current
Significant Customer that the customer will not continue as a customer of
Company (or the Surviving Corporation) after the Closing or that any such
customer intends to terminate or materially modify existing contracts or
arrangements with Company (or the Surviving Corporation). Since January 1,
1999, Company has not had any of its products returned by a purchaser thereof
except for normal warranty returns consistent with past history and those
returns that would not result in a reversal of any revenue, additional
reserves or increases in expenses by Company.
2.22 SUPPLIERS. Company has no outstanding material disputes
concerning goods or services provided by any supplier who, in the year ended
December 31, 2000 or the four months ended April 30, 2001, was one of the
twenty (20) largest suppliers of goods and services to Company, based on
amounts paid ("SIGNIFICANT SUPPLIER"). Company has not received any
information from any Significant Supplier that the supplier will not continue
as a supplier of Company (or the Surviving Corporation) after the Closing or
that any such supplier intends to terminate, interrupt or materially modify
existing contracts or arrangements with Company (or the Surviving
Corporation). Company has access, on commercially reasonable terms, to all
goods and services reasonably necessary to it to carry on its business as
currently conducted and Company has no knowledge of any reason why it will
not continue to have such access on commercially reasonable terms.
2.23 INVENTORY. Except for items which have been written down to
realizable market value, or for which adequate reserves have been provided in
accordance with GAAP consistently applied and in accordance with the past
practices of Company, in each balance sheet included in the Financial
Statements, the inventory of Company (the "INVENTORY") is of good and
26
merchantable quality and is readily usable and salable in the ordinary course
of Company's business and fit for the purpose for which it was procured or
manufactured and none of such Inventory is slow-moving, obsolete, damaged, or
defective. The Inventory is and (as of the date of each balance sheet
included in the Financial Statements) was valued at cost (determined on a
first-in, first-out basis) or market, whichever is lower. All items included
in the Inventory are owned by Company, free and clear of all liens and
encumbrances (except Permitted Liens). All Inventory in excess of reasonable
estimated requirements for Company based on projected operations for the next
six (6) months as reflected in the Financial Projections is set forth on
SCHEDULE 2.23. Company has reserved all excess inventory in each balance
sheet included in the Financial Statements in accordance with GAAP
consistently applied and in accordance with the past practices of Company.
For all Inventory manufactured to (or acquired based on) customer
specifications effectively rendering the Inventory salable only to that
customer, Company has received a purchase order or other binding commitment
from a customer relating to such Inventory, the terms of which require the
customer to acquire such Inventory if it is manufactured and delivered in
accordance with such sales contracts, and Company has not received any
information that the customer has terminated or canceled such purchase order
or commitment or intends to do so.
2.24 ACCOUNTS RECEIVABLE. The receivables shown on the balance
sheet of Company on the Balance Sheet Date arose in the ordinary course of
business consistent with past practice, and have been collected or are
collectible in the book amounts thereof, less an amount not in excess of the
allowance for doubtful accounts provided for in the balance sheet of Company
on the Balance Sheet Date. Allowances for doubtful accounts and warranty
returns are adequate and have been prepared in accordance with GAAP
consistently applied and in accordance with the past practices of Company.
The receivables of Company arising after the Balance Sheet Date and prior to
the Closing Date arose in the ordinary course of business, consistent with
past practice, and have been collected or are collectible in the book amounts
thereof, less allowances for doubtful accounts and warranty returns
determined in accordance with GAAP consistently applied and in accordance
with the past practices of Company. The receivables of Company are not
subject to any material claim of offset, recoupment, setoff or counter-claim
(for which an adequate allowance or reserve has not been established and
shown on the balance sheet of Company on the Balance Sheet Date) and Company
has no knowledge of any specific facts or circumstances (whether asserted or
unasserted) that could give rise to any such claim. No material amount of
receivables are contingent upon the performance by Company of any obligation
or contract other than normal warranty repair and replacement. No person has
any lien on any receivables of Company (except Permitted Liens). Except as
reflected in allowances or reserves shown on the balance sheet of Company on
the Balance Sheet Date, no agreement for deduction or discount has been made
with respect to the receivables of Company. SCHEDULE 2.24 sets forth an aging
of accounts receivable of Company in the aggregate and by customer, and
indicates the amounts of allowances for doubtful accounts and warranty
returns and the amounts of accounts receivable which are subject to asserted
warranty claims. SCHEDULE 2.24 sets forth such amounts of accounts receivable
which are subject to asserted warranty claims by customers and reasonably
detailed information regarding asserted warranty claims made within the last
year, including the type and amounts of such claims.
27
2.25 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Company which has or could
reasonably be expected to have the effect of prohibiting or impairing any
business practice of Company, any acquisition of property by Company, the
conduct of business of Company as currently conducted or as currently
proposed to be conducted, or the conduct by Company of any business
activities permitted by applicable law.
2.26 CERTAIN PAYMENTS. Since inception, neither Company nor any
officer or director thereof, has offered, paid, promised to pay, or
authorized payment of, or given any money, gift or anything of value to (a)
any governmental official or employee, (b) political party or candidate
thereof, or (c) any person while knowing that all or a portion of such money
or thing of value will be given or offered to any governmental official or
employee or political party or candidate thereof; with the purpose of
influencing any act or decision of the recipient in his or her official
capacity or to induce the recipient to use his or her influence to affect an
act or decision of a government official or employee.
2.27 BANK ACCOUNTS. SCHEDULE 2.27 sets forth the names and
locations of all banks, trust companies, savings and loan associations, and
other financial institutions at which Company maintains accounts of any
nature and the names of all persons authorized to draw thereon or make
withdrawals therefrom.
2.28 OTHER ENTITIES' LIABILITIES. Company has no debts, liabilities
or obligations, contingent or otherwise, with respect to the operations,
transactions, debts, liabilities or obligations of any other entity.
2.29 DEBT. SCHEDULE 2.29 accurately lists all of Company's
indebtedness for money borrowed ("DEBT"), including, for each item of Debt,
the interest rate, maturity date and any assets securing such Debt. All Debt
may be prepaid at the Closing without penalty under the terms of agreements
governing the Debt. Company has not received any information that a lender or
creditor under any agreement governing Debt has declared any portion of the
Debt subject to such agreement due and payable, whether immediately or at
some other date, or intends to do so.
2.30 CORPORATE DOCUMENTS. Company has provided to Parent's counsel
complete and correct copies of all documents identified in the Company
Disclosure Letter and each of the following: (a) copies of its Articles of
Incorporation and Bylaws as currently in effect; (b) copies of its minute
book containing records of all proceedings, consents, actions and meetings of
Company's directors, committees of the board of directors and shareholders;
(c) copies of its stock ledger, journal and other records reflecting all
stock issuances and transfers and all stock option grants and agreements; and
(d) all permits, orders and consents issued by any regulatory agency with
respect to Company, or any securities of Company, and all applications for
such permits, orders and consents.
2.31 NO BROKERS. Neither Company nor any affiliate of Company is
obligated for the payment of any fees or expenses of any investment banker,
broker, finder or similar party in connection with the origin, negotiation or
execution of this Agreement or in connection with
28
the Merger or any other transaction contemplated by this Agreement, and
Parent will not incur any liability, either directly or indirectly, to any
such investment banker, broker, finder or similar party as a result of, this
Agreement, the Merger or any act or omission of Company, any of its
employees, officers, directors, shareholders, agents or affiliates.
2.32 DISCLOSURE. This Agreement, its exhibits and schedules, and
any of the certificates or documents to be delivered by Company and the
Significant Shareholders to Parent under this Agreement, taken together in
their entirety, do not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances under which such
statements were made, not misleading.
2.33 DIRECTORS AND OFFICERS. SCHEDULE 2.33 accurately identifies
all of the directors and officers of Company.
2.34 S CORPORATION. Effective as of its inception (the "INCEPTION
DATE"), Company made a valid election under Section 1362 of the Code and any
corresponding state or local tax provision to be an S corporation within the
meaning of Sections 1361 and 1362 of the Code effective for all taxable
periods beginning on or subsequent to the Inception Date. At no time on or
after the Inception Date, including up through and including the Effective
Time, has or will Company experience any of the following: (1) any corporate
level tax event under Section 1374 or any other provision of the Code; or (2)
any type or form of voluntary, involuntary or inadvertent termination of its
S corporation status other than the termination that will take place as a
result of the Merger. Company and the Company Shareholders since the
Inception Date, have at no time taken any action or tax return position
inconsistent with the treatment of Company as an S corporation from the
Inception Date through the date of this Agreement. Similarly, neither Company
nor any Company Shareholder has, at any time on or after the Inception Date
through the date of this Agreement, failed to take any action required in
order to maintain Company's S corporation status under the Code or any other
tax law. SCHEDULE 2.34 sets forth each state and locality where Company has
made a valid election under the applicable law of such jurisdiction to be an
S corporation effective for all taxable periods beginning on or subsequent to
the date of such election, and the date of such election. Company has
documentary evidence of its S corporation election from the Internal Revenue
Service (and other relevant taxing authorities), and Company has delivered
such documents along with the other tax records of Company to Parent as part
of the transactions contemplated by this Agreement.
2.35 INFORMATION STATEMENT. Company has delivered to each Company
Shareholder the Information Statement (as defined in Section 7.16) and
appointed a "purchaser representative" satisfying the requirements set forth
in Rule 501 promulgated under the 1933 Act ("RULE 501") for each Company
Shareholder who is not an "accredited investor" (as such term is defined in
Rule 501). The information furnished by Company in the Information Statement
regarding a description of its business and risk factors related to its
business does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
29
3. REPRESENTATIONS AND WARRANTIES OF THE SIGNIFICANT SHAREHOLDERS
The Significant Shareholders jointly and severally represent and
warrant to Parent that, each of the representations, warranties and
statements contained in the following sections of this Section 3 is true and
correct as of the date of this Agreement.
3.1 POWER, AUTHORIZATION AND VALIDITY.
(a) Each Significant Shareholder has the right, power, legal
capacity and authority to enter into and perform its respective obligations
under this Agreement and the Escrow Agreement, the Severance Escrow
Agreement, the Registration Rights Agreement, its Investment Representation
Letter and its Noncompetition Agreement (collectively, the "SIGNIFICANT
SHAREHOLDERS ANCILLARY AGREEMENTS"). This Agreement and the Significant
Shareholders Ancillary Agreements have been duly and validly approved by the
Significant Shareholders.
(b) No filing, authorization, consent or approval,
governmental or otherwise, or filing with any governmental authority or court
is necessary to enable the Significant Shareholders to enter into, and to
perform their respective obligations under, this Agreement or the Significant
Shareholders Ancillary Agreements, except for the filing of the Agreement of
Merger with the California Secretary of State and the filing of the
Certificate of Merger with the Delaware Secretary of State.
(c) This Agreement and the Significant Shareholders Ancillary
Agreements have been duly executed and delivered by the Significant
Shareholders. This Agreement and the Significant Shareholders Ancillary
Agreements are valid and binding obligations of the Significant Shareholders
enforceable against the Significant Shareholders in accordance with their
respective terms, subject only to the effect, if any, of (i) applicable
bankruptcy and other similar laws affecting the rights of creditors
generally, (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies, and (iii) the enforceability of
provisions requiring indemnification in connection with the offering,
issuance or sale of securities.
3.2 TITLE TO SHARES. Each Significant Shareholder has good and
marketable title to that number of shares of Company Common Stock as set
forth beside such Significant Shareholder's name on SCHEDULE 2.3(a), free and
clear of all encumbrances, liens, agreements, voting trusts, proxies and
other arrangements or restrictions of any kind whatsoever. Each Significant
Shareholder does not directly or indirectly own, either beneficially or of
record, any other shares of capital stock or securities of Company or rights
to acquire any shares of capital stock or securities of Company. There are no
registration rights, rights of first refusal, preemptive rights, co-sale
rights, notice rights, information rights, tag-along rights, redemption
rights or other similar rights applicable to any outstanding shares of
Company Common Stock of a Significant Shareholder.
30
3.3 NO VIOLATION. Neither the execution and delivery of this
Agreement or the Significant Shareholder Ancillary Agreements, nor the
consummation of any of the transactions provided for herein, will (a)
conflict with, violate, constitute a default under, result in a termination,
acceleration or breach of, or provide any party with any right of termination
or acceleration or any other material rights or remedies under (in each case
with or without notice or lapse of time, or both) any instrument, contract,
agreement, permit, mortgage, license, letter of intent or commitment (whether
verbal or in writing) to which a Significant Shareholder is a party or by
which any of its assets or properties (including without limitation its
shares of Company Common Stock) is bound or (b) conflict with or violate any
judgment, writ, decree, order, statute, rule or regulation applicable to a
Significant Shareholder or its assets or properties (including without
limitation its shares of Company Common Stock).
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to Company and the
Company Shareholders that, except as set forth in the letter addressed to
Company from Parent and dated as of the date of this Agreement, including all
schedules thereto (which shall specifically reference the Sections of this
Agreement to which the specific items of disclosure therein constitute an
exception) which has been delivered by Parent to Company concurrently with
the parties' execution of this Agreement (the "PARENT DISCLOSURE LETTER"),
each of the representations, warranties and statements contained in the
following sections of this Section 4 is true and correct as of the date of
this Agreement. For all purposes of this Agreement, the statements contained
in the Parent Disclosure Letter shall also be deemed to be representations
and warranties made and given by Parent and Merger Sub under Section 4 of
this Agreement.
4.1 ORGANIZATION. Parent is a corporation duly organized and
validly existing under the laws of Delaware and has the corporate power and
authority to own, operate and lease its properties and to carry on its
business as now conducted and as proposed to be conducted, and is qualified
to do business in each jurisdiction in which such qualification is required.
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Merger Sub has the
corporate power and authority to own, operate and lease its properties and to
carry on its business as now conducted and as proposed to be conducted.
4.2 POWER, AUTHORIZATION AND VALIDITY.
(a) Parent has the right, power, legal capacity and authority
to enter into and perform its obligations under this Agreement and the Escrow
Agreement, the Severance Escrow Agreement, and the Registration Rights
Agreement (collectively, the "PARENT ANCILLARY AGREEMENTS"). The execution,
delivery and performance of this Agreement and the Parent Ancillary
Agreements have been duly and validly approved and authorized by all
necessary corporate and shareholder action on the part of Parent. Merger Sub
has the right, power, legal capacity and authority to enter into and perform
its obligations under this Agreement and the Agreement of Merger (the "MERGER
SUB ANCILLARY AGREEMENT"). The execution, delivery and performance of this
Agreement and the Merger Sub Ancillary Agreement have been duly and
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validly approved and authorized by all necessary corporate and shareholder
action on the part of Merger Sub.
(b) No filing, authorization, consent or approval,
governmental or otherwise, is necessary to enable Parent and Merger Sub to
enter into, and to perform their respective obligations under, this
Agreement, the Parent Ancillary Agreements or the Merger Sub Ancillary
Agreement, except for: (i) the filing of the Agreement of Merger with the
California Secretary of State and the filing of the Certificate of Merger
with the Delaware Secretary of State; (ii) such post-closing filings as may
be required to comply with federal and state securities laws; and (iii) the
filing with the SEC and the effectiveness of any registration statement under
the 1933 Act that is required to be filed by Parent after the Effective Time
pursuant to the terms and conditions of this Agreement or the Registration
Rights Agreement.
(c) This Agreement and the Parent Ancillary Agreements are
valid and binding obligations of Parent enforceable in accordance with their
respective terms, subject only to the effect, if any, of (i) applicable
bankruptcy and other similar laws affecting the rights of creditors
generally, (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies, and (iii) the enforceability of
provisions requiring indemnification in connection with the offering,
issuance or sale of securities. This Agreement and the Merger Sub Ancillary
Agreement are valid and binding obligations of Merger Sub enforceable in
accordance with their respective terms, subject only to the effect, if any,
of (i) applicable bankruptcy and other similar laws affecting the rights of
creditors generally, (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies, and (iii) the enforceability
of provisions requiring indemnification in connection with the offering,
issuance or sale of securities.
4.3 NO VIOLATION OF CHARTER DOCUMENTS OR EXISTING AGREEMENTS.
Neither the execution and delivery of this Agreement nor any Parent Ancillary
Agreement, nor the consummation of the transactions contemplated herein or
therein, will conflict with or (with or without notice or lapse of time, or
both) result in a termination, breach, impairment or violation of (a) any
provision of the Certificate of Incorporation or Bylaws of Parent, as
currently in effect, (b) in any material respect, any material instrument,
contract, agreement, permit, mortgage, license, letter of intent or
commitment (whether verbal or in writing) to which Parent is a party or by
which Parent is bound, or (c) except as would not have a Material Adverse
Effect on Parent, any national, provincial, local or foreign judgment, writ,
decree, order, statute, rule or regulation applicable to Parent or its assets
or properties. Neither the execution and delivery of this Agreement nor any
Merger Sub Ancillary Agreement, nor the consummation of the transactions
contemplated herein or therein, will conflict with or (with or without notice
or lapse of time, or both) result in a termination, breach, impairment or
violation of (a) any provision of the Certificate of Incorporation or Bylaws
of Merger Sub, as currently in effect, or (b) except as would not have a
Material Adverse Effect on Merger Sub, any national, provincial, local or
foreign judgment, writ, decree, order, statute, rule or regulation applicable
to Merger Sub or its assets or properties.
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4.4 LITIGATION. There is no action, claim, proceeding or
investigation pending or, to Parent's knowledge, threatened against Parent or
any of its Subsidiaries before any court or administrative agency that, if
determined adversely to Parent or any of its Subsidiaries, may reasonably be
expected to have a Material Adverse Effect on Parent.
4.5 ABSENCE OF CERTAIN CHANGES. Since December 31, 2000, there has
not been any change in the financial condition, properties, assets,
liabilities, business or results of operations of Parent, which change by
itself or in conjunction with all other such changes, whether or not arising
in the ordinary course of business, consistent with past practice, has had or
can reasonably be expected to have a Material Adverse Effect on Parent.
4.6 DISCLOSURE. Parent has furnished to Company and to each
Significant Shareholder an investor disclosure package consisting of Parent's
annual report on Form 10-K, for the fiscal year ending December 31, 2000, all
Forms 10-Q and 8-K and amendments thereto filed by Parent with the SEC since
December 31, 2000 and up to the date of this Agreement and all proxy
materials distributed to Parent's shareholders since December 31, 2000 and up
to the date of this Agreement, in each case excluding any exhibits or
attachments thereto (the "PARENT DISCLOSURE PACKAGE"). The documents in the
Parent Disclosure Package (a) conformed, as of the dates of their respective
filing with the SEC, in all material respects, to the requirements of the
1933 Act and the 1934 Act, as amended, and (b) when taken together, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of Parent, including the notes thereto, included in the documents
in the Parent Disclosure Package (the "PARENT FINANCIAL STATEMENTS") fairly
and accurately represented in all material respects the consolidated
financial condition of Parent as of their respective dates and Parent's
consolidated results of operations for the respective periods specified
therein in conformity with GAAP (except as may be indicated in the notes
thereto or, in the case of unaudited statements included in Quarterly Reports
on Form 10-Q, as permitted by Form 10-Q of the SEC and subject, in the case
of unaudited statements, to normal, immaterial year-end audit adjustments).
4.7 PARENT COMMON STOCK. The Parent Common Stock to be allotted and
issued pursuant to the Merger will be duly authorized, and when the share
certificates in respect of such Parent Common Stock are issued in accordance
with the terms hereof, will be validly issued and fully paid.
4.8 CAPITALIZATION. The authorized capital stock of Parent consists
solely of 150,000,000 shares of common stock and 5,000,000 shares of
preferred stock. As of April 30, 2001, a total of 54,383,751 shares of Parent
Common Stock were issued and outstanding. As of the date of this Agreement,
no shares of Parent preferred stock are issued or outstanding. Parent has
reserved an aggregate of 8,391,714 shares, 1,000,000 shares and 1,554,341
shares of Parent Common Stock for issuance pursuant to its 1999 Equity
Incentive Plan, outstanding non-plan options and its 1999 Employee Stock
Purchase Plan, respectively. As of April 30, 2001, a total of 11,701,583
shares of Parent Common Stock were subject to outstanding stock options and a
total of 571,428 shares of Parent Common Stock were subject to outstanding
warrants.
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5. CLOSING MATTERS
5.1 THE CLOSING. The closing of the transactions provided for
herein (the "CLOSING") will take place at the offices of Fenwick & West LLP,
Two Palo Alto Square, Palo Xxxx, Xxxxxxxxxx 00000 on June 7, 2001 at 10:00
a.m., Pacific Time or, if all conditions to Closing have not been satisfied
or waived by such date, on the third business day after the date on which all
such conditions have been satisfied or waived, or at such other place, time
and date as Company and Parent may mutually select (the "CLOSING DATE"). As
soon as practicable after the Closing, Agreement of Merger will be filed in
the office of the California Secretary of State and the Certificate of Merger
will be filed in the office of the Delaware Secretary of State. Accordingly,
the Merger will become effective at the Effective Time.
5.2 CONVERSION OF SHARES AND EXCHANGE OF CERTIFICATES
(a) As of the Effective Time, all shares of Company Common
Stock that are outstanding immediately prior thereto will, by virtue of the
Merger and without further action, cease to exist, and all such shares will
be automatically converted into the right to receive from Parent, and shall
be exchangeable for, the number of Parent Common Stock and cash determined as
set forth in Section 1.2, subject to Sections 1.2(d), 1.2(f), 1.3 and 1.10.
(b) At and after the Effective Time, each certificate
representing outstanding shares of Company Common Stock will represent the
right to receive share certificates covering the number of Parent Common
Stock as determined pursuant to Section 1.2 hereof, subject to Sections
1.2(d), 1.2(f), 1.3 and 1.10, for which such shares of Common Stock have been
or will be exchanged, and such Parent Common Stock will be registered in the
name of the holder of such certificate. Parent shall make available to Mellon
Investor Services, L.L.C. (the "EXCHANGE AGENT") certificates representing
Parent Common Stock to be issued in exchange for outstanding shares of
Company Common Stock and cash in an amount sufficient to permit the payment
of cash in lieu of fractional shares pursuant to Section 1.2(f). As soon as
practicable after the Effective Time, the Surviving Corporation shall cause
to be mailed to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "CERTIFICATES") and which shares were converted
into the right to receive Parent Common Stock pursuant to Section 1.2, (a) a
letter of transmittal in customary form (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
form and contain an agreement to be bound by the indemnification provisions
hereof and have such other provisions as Parent may reasonably specify) and
(b) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock and cash
in lieu of fractional shares. Upon surrender of a Certificate for
cancellation or upon delivery of an affidavit of lost certificate and an
indemnity in form and substance satisfactory to Parent (the "AFFIDAVIT") to
the Exchange Agent or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, Parent or its transfer
agent will (a) issue to each tendering holder of a Certificate or an
Affidavit (a "TENDERING COMPANY HOLDER"), certificates for the number of
Parent Common Stock to
34
which such holder is entitled pursuant to Section 1.2, subject to the
provisions of Section 1.2(f) and 1.10, and (b) pay by check to each Tendering
Company Holder cash in the amounts payable in accordance with Section 1.2(f).
(c) All share certificates covering the number of Parent
Common Stock as determined pursuant to Section 1.2, subject to Sections
1.2(d), 1.2(f), 1.3 and 1.10 (and, if applicable, cash in lieu of fractional
shares) to be delivered upon the surrender of Certificates in accordance with
the terms hereof will be delivered to the registered holder of such
Certificate. After the Effective Time, there will be no further registration
of transfers of the shares of Company Capital Stock on the stock transfer
books of Company.
(d) Subject to Section 5.2(c), until Certificates representing
Company Common Stock, outstanding prior to the Merger are surrendered
pursuant to Section 5.2(b) above, such Certificates will be deemed, for all
purposes, to evidence only ownership of (i) the right to receive share
certificates covering the number of Parent Common Stock for which the shares
of Company Common Stock are to be exchanged, and (ii) if applicable, cash in
lieu of fractional shares.
(e) No dividends or distributions payable to holders of record
of Parent Common Stock after the Effective Time will be paid to the holder of
any unsurrendered Certificate unless and until the holder of such
unsurrendered Certificate surrenders such Certificate or an Affidavit to
Parent as provided above. Subject to the effect, if any, of applicable
escheat and other laws, following surrender of any Certificate or Affidavit,
there will be delivered to the person entitled thereto, without interest, the
amount of any dividends and distributions theretofore paid with respect to
Parent Common Stock so withheld as of any date subsequent to the Effective
Time and prior to such date of delivery.
5.3 DISSENTING SHARES. If holders of Company Common Stock are
entitled to appraisal rights pursuant to California Law in connection with
the Merger, any Dissenting Shares will not be converted into the right to
receive Parent Common Stock, but shall be converted into the right to receive
such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to California Law. Company shall give Parent
prompt notice (and in no event more than two (2) business days) of any demand
received by Company for appraisal of Company Common Stock, and Parent shall
have the right to control all negotiations and proceedings with respect to
such demand. Company agrees that, except with the prior written consent of
Parent, it will not voluntarily make any payment with respect to, or settle
or offer to settle, any such demand for appraisal. In the event that any
Company Shareholder fails to make an effective demand for payment or
otherwise loses his status as a holder of Dissenting Shares (a "DISSENTING
SHAREHOLDER"), Parent shall, as of the later of the Effective Time or ten
(10) business days from the occurrence of such event, issue and deliver, upon
surrender by such Dissenting Shareholder of its Certificate(s), the shares of
Parent Common Stock and any cash payment in lieu of fractional shares, in
each case without interest, thereon, to which such Dissenting Shareholder
would have been entitled to under Section 1.2, subject to Section 1.10.
35
5.4 POST-CLOSING COMPANY EMPLOYEE MATTERS. Each Company employee
who continues to be employed by Company following the Effective Time will be
entitled to participate in Parent's employee benefit plans in existence in
the country of employment commensurate with his position in accordance with
Parent's standard policies in effect from time to time and on terms no less
favorable than those offered by Parent to employees of Parent in accordance
with the eligibility criteria thereof. Any such employee of Company shall
receive full credit for years of service with Company prior to the Effective
Time for purposes of determining eligibility to participate, vesting and
level of benefit accruals under any applicable Parent employee benefit plan.
6. CONDITIONS TO OBLIGATIONS OF COMPANY AND THE SIGNIFICANT SHAREHOLDERS
The obligations of Company and the Significant Shareholders
hereunder are subject to the fulfillment or satisfaction, on and as of the
Closing, of each of the following conditions (any one or more of which may be
waived by Company and the Significant Shareholders, but only in writing
signed on behalf of Company and the Significant Shareholders by Company's
President or Chief Financial Officer):
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Parent and Merger Sub set forth in Section 4 (a) that are
qualified by materiality shall be true and accurate and (b) that are not
qualified as to materiality shall be true and correct in all material
respects, in each case on and as of the date of this Agreement (except for
any such representations and warranties that, by their terms, speak only as
of a specific date or dates, in which case such representations and warrants
that are qualified as to materiality shall be true and correct, and such
representations and warranties that are not qualified by materiality shall be
true and correct in all material respects, on and as of such specified date
or dates), and Company shall have received a certificate dated as of the date
of this Agreement to such effect executed on behalf of Parent and Merger Sub
by a duly authorized officer.
6.2 COMPLIANCE WITH LAW. There shall not be issued or enacted or
adopted, or threatened in writing by any governmental authority, any order,
decree, temporary, preliminary or permanent injunction, legislative
enactment, statute, regulation, action or proceeding, or any judgment or
ruling by any governmental authority that prohibits or renders illegal or
imposes limitations on the Merger or any other material transaction
contemplated by this Agreement or any Parent Ancillary Agreement or any
Merger Sub Ancillary Agreement. No litigation or proceeding shall be
threatened or pending for the purpose or with the probable effect of
enjoining or preventing the consummation of the Merger or any of the other
material transactions contemplated by this Agreement.
6.3 GOVERNMENT CONSENTS. There shall have been obtained at or prior
to the Closing Date such permits or authorizations, and there shall have been
taken such other actions, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions
herein proposed to be taken, including but not limited to satisfaction of all
requirements under applicable federal and state securities laws.
36
6.4 REGISTRATION RIGHTS AGREEMENT. Parent shall have executed and
delivered to the Company Shareholders the Registration Rights Agreement.
6.5 OPINION OF PARENT'S COUNSEL. Company shall have received from
Fenwick & West LLP, counsel to Parent, an opinion substantially in the form
attached hereto as EXHIBIT G.
6.6 COVENANTS. Parent shall have performed and complied in all
material respects with all of its covenants contained in Section 11 on or
before the Closing (to the extent that such covenants require performance by
Parent on or before the Closing), and Company shall have received a
certificate dated the Closing Date to such effect executed on behalf of
Parent by a duly authorized officer.
7. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub hereunder are subject to
the fulfillment or satisfaction on, and as of the Closing, of each of the
following conditions (any one or more of which may be waived by Parent and
Merger Sub, but only in writing signed on behalf of Parent and Merger Sub by
Parent's Chief Executive Officer or Chief Financial Officer):
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Company set forth in Section 2 and the Significant
Shareholders set forth in Section 3 (a) that are qualified as to materiality
shall be true and correct and (b) that are not qualified as to materiality
shall be true and correct in all material respects, in each case on and as of
the date of this Agreement (except for any such representations or warranties
that, by their terms, speak only as of a specific date or dates, in which
case such representations and warranties that are qualified as to materiality
shall be true and correct, and such representations and warranties that are
not qualified as to materiality shall be true and correct in all material
respects, on and as of such specified date or dates), and at the Closing
Parent shall have received a certificate dated as of the date of this
Agreement to such effect executed by Company's President or Chief Executive
Officer. The representations and warranties of each Company Shareholder set
forth in such Company Shareholder's Investment Representation Letter shall be
true and correct.
7.2 MATERIAL AGREEMENTS. The consummation of the Merger shall not
have any Material Adverse Effect on any Material Agreements.
7.3 COMPLIANCE WITH LAW; NO LEGAL RESTRAINTS; NO LITIGATION. There
will not be any issued, enacted or adopted, or threatened in writing by any
Governmental Authority any order, decree, temporary, preliminary or permanent
injunction, legislative enactment, statute, regulation, action or proceeding
by any governmental authority that prohibits or renders illegal or imposes
limitations on: (a) the Merger or any other material transaction contemplated
by this Agreement or any Company Ancillary Agreement; or (b) Parent's right
(or the right of any subsidiary of Parent) to own, retain, use or operate any
of its products, properties or assets (including equity, properties or assets
of Company) on or after consummation of the Merger or seeking a disposition
or divestiture of any such properties or assets.
37
7.4 GOVERNMENT CONSENTS. There shall have been obtained at or prior
to the Closing Date such permits or authorizations, and there shall have been
taken such other action, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions
herein proposed to be taken, including but not limited to satisfaction of all
requirements under applicable federal and state securities laws.
7.5 DOCUMENTS. Parent shall have received all written consents,
assignments, waivers, authorizations or other certificates necessary to
provide for the continuation in full force and effect of any and all material
contracts and leases of Company, and for Parent to consummate the
transactions contemplated hereby in form reasonably satisfactory to Parent,
including consents to the transactions contemplated hereby from each party
identified on SCHEDULE 2.5 (which shall include all Company agreements
regarding Debt and the license by Company of Intellectual Property and with
respect to all such Company agreements regarding the license by Company of
Intellectual Property, shall provide that Company shall be entitled to use
such Intellectual Property).
7.6 NO LITIGATION. No litigation or proceeding shall be threatened
or pending which will have the probable effect of enjoining or preventing the
consummation of any of the transactions provided for in this Agreement. No
litigation or proceeding shall be pending which could reasonably be expected
to have a Material Adverse Effect on Company or Parent.
7.7 OPINION OF COMPANY'S COUNSEL. Parent shall have received from
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP, counsel to Company, an opinion
substantially in the form attached hereto as EXHIBIT H.
7.8 REQUISITE APPROVALS; DISSENTING SHARES LIMITATION. The
principal terms of this Agreement and the Merger shall have been approved and
adopted by the vote or written consent of Company Shareholders holding not
less than ninety-seven percent (97%) of the total number of outstanding
shares of Company Common Stock and the number of dissenting shares of Company
shall not exceed three percent (3%) of the total number of outstanding shares
of Company Common Stock.
7.9 DUE DILIGENCE SATISFACTORY. Parent shall be satisfied with the
results of its due diligence inquiry into Company and the Significant
Shareholders and the agreements, assets, financial condition and other
affairs of Company and the Significant Shareholders.
7.10 EMPLOYMENT AND NONCOMPETITION MATTERS.
(a) Each of the employees of the Company listed on EXHIBIT I-1
shall have executed and delivered to Parent an employment offer letter in
substantially the form attached hereto as EXHIBIT I-2.
(b) Each of the individuals listed on EXHIBIT J-1 shall have
executed and delivered to Parent a noncompetition agreement in substantially
the form attached hereto as EXHIBIT J-2 (the "NONCOMPETITION AGREEMENT").
38
(c) Each of the individuals listed on EXHIBIT K-1 shall have
executed and delivered to Parent an amendment to his or her employment,
severance, option or similar agreement with Company containing the terms set
forth on EXHIBIT K-2.
7.11 INVESTMENT REPRESENTATION LETTERS; EXEMPTIONS AVAILABLE.
Parent shall have received an executed counterpart of the Investment
Representation Letter executed by each Company Shareholder other than
dissenting shareholders. The offer and sale of the Parent Common Stock to the
Company Shareholders pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act (pursuant to Rule 506 promulgated
under the 0000 Xxx) and the registration and/or qualification requirements of
all other applicable state securities laws.
7.12 DEBT. Company shall have delivered to Parent waivers or
consents in form reasonably satisfactory to Parent from holders of Debt
necessary to waive any and all prior defaults by Company under its agreements
governing Debt.
7.13 RESIGNATIONS OF DIRECTORS AND OFFICERS. The directors and
officers of Company in office immediately prior to the Effective Time of the
Merger will have resigned as directors of Company in writing effective as of
the Effective Time.
7.14 INFORMATION STATEMENT. Company shall have delivered to each
Company Shareholder no later than three (3) business days prior to the
Closing Date an information statement regarding the transactions contemplated
by this Agreement in a form acceptable to Parent (the "INFORMATION
STATEMENT") and appointed a "purchaser representative" satisfying the
requirements set forth in Rule 501 for each Company Shareholder who is not an
"accredited investor" (as such term is defined in Rule 501).
7.15 EMPLOYEE PLANS. Company shall have taken such actions as are
necessary to terminate all such Employee Plans that Parent has requested to
be terminated. Company shall have terminated any and all group severance,
separation, retention and salary continuation plans, programs or arrangements
that Parent has requested to be terminated.
7.17 OPINION OF FINANCIAL ADVISOR. Parent shall have been advised
by its financial advisor Xxxxxxx & Company, Inc., that in such advisor's
opinion, as of May 25, 2001, the Merger Consideration to be delivered to the
Company Shareholders is fair, from a financial point of view, to the
stockholders of Parent.
7.18 TRANSACTION EXPENSES CERTIFICATE. Company shall have delivered
to Parent a certificate signed by Company's President or Chief Executive
Officer setting forth all of the Transaction Expenses (as defined in Section
9.8) of Company as of the Closing, including the Transaction Expenses payable
to each provider of accounting, legal, investment banking or other
professional services.
7.19 COVENANTS. Company and the Significant Shareholders shall have
performed and complied in all material respects with all of their covenants
contained in Section 10 (to the extent that such covenants require
performance by Company or the Significant
39
Shareholders on or before the Closing) on or before the Closing and Parent
shall have received a certificate to such effect signed on behalf of Company
by its President or Chief Executive Officer.
8. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of Company and the Significant Shareholders (contained in this
Agreement or in any certificate or instrument delivered by or on behalf of
Company or any Significant Shareholder pursuant hereto or in connection
herewith) will remain operative and in full force and effect, regardless of
any investigation or disclosure made by or on behalf of the parties to this
Agreement, until the one year anniversary of the Closing Date.
Notwithstanding the foregoing, any Indemnified Person (as defined below) may
seek recovery of Special Damages or Shareholder Damages (as defined below) at
any time prior to the expiration of the applicable statute of limitations.
The date of expiration of an Indemnified Person's right to seek recovery of
Damages (as defined below) for a particular claim for indemnification
hereunder (a "CLAIM") shall be referred to as the "RELEASE DATE" for such
Claim. The representations and warranties of Parent and Merger Sub set forth
in this Agreement shall terminate as of the Closing (without prejudice to any
rights the Company Shareholders may have for any violations of applicable
law).
8.2 INDEMNIFICATION BY THE SIGNIFICANT SHAREHOLDERS. Subject to the
limitations set forth in this Section 8.2, the Significant Shareholders will
jointly and severally indemnify and hold harmless Parent, its Subsidiaries,
and its respective officers, directors, agents and employees, and each
person, if any, who controls or may control Parent within the meaning of the
1933 Act (hereinafter in this Section 8.2 referred to individually as an
"INDEMNIFIED PERSON" and collectively as "INDEMNIFIED PERSONS") from and
against any and all claims, demands, actions, causes of action, losses,
reductions in value of assets (to the extent such reductions result in a
charge or expense under GAAP), costs, damages, liabilities and expenses
including, without limitation, reasonable legal fees (collectively,
"DAMAGES"):
(a) proximately caused by or arising out of:
(1) any failure, inaccuracy, misrepresentation, breach or
default of or in, any of the representations, warranties and covenants of
Company (contained in this Agreement or in any certificate or instrument
delivered by or on behalf of Company pursuant hereto or in connection
herewith) and the Significant Shareholders (contained in this Agreement or
their Investment Representation Letters);
(2) any fraudulent conduct, fraudulent misrepresentation
or other willful misconduct on the part of the Company or any officer,
director or Management Employee of Company or any Significant Shareholder in
connection with the transactions contemplated by this Agreement; or
40
(3) any failure of Company's 401(k) plan or the
administration thereof at any time prior to the date hereof to comply with
any applicable laws, regulations or rules of any governmental authority;
or (b) which are Inventory Damages (as defined below).
; PROVIDED, HOWEVER, that Damages shall be calculated net of any insurance
proceeds actually available to Company or Parent and not subject to dispute
with or conditions of the insurer (other than customary conditions set forth
in the insurance contract regarding the making and processing of claims which
can be satisfied by Company or Parent without undue time, effort or expense).
8.3 LIMITATIONS. In seeking indemnification for Damages under this
Section 8, the Indemnified Persons shall make no claim for Damages unless and
until such Damages aggregate at least $150,000, exclusive of legal fees (the
"BASKET"), in which event such Indemnified Person may make claims for all
Damages (including the first $150,000 thereof); provided, however, that
notwithstanding anything herein to the contrary, the Basket shall NOT be
applicable to any claim by any Indemnified Person for indemnification for any
Special Damages or Shareholder Damages. The aggregate liability of each
Significant Shareholder pursuant to this Section 8 (other than for Special
Damages and Shareholder Damages) shall be limited to the value of such
shareholder's proportionate interest in the Escrow Shares deposited in escrow
pursuant to the Escrow Agreement. As used herein, "SPECIAL DAMAGES" means
Damages proximately caused by or arising out of (i) any fraudulent conduct,
fraudulent misrepresentation or other willful misconduct on the part of the
Company or any officer, director or Management Employee of Company or any
Significant Shareholder in connection with the transactions contemplated by
this Agreement, (ii) any failure, inaccuracy or misrepresentation in the
representations and warranties of the Company set forth in Sections 2.9
(Taxes) and 2.34 (S Corporation) hereof, or (iii) any failure of Company's
401(k) plan or the administration thereof at any time prior to the date
hereof to comply with any applicable laws, regulations or rules of any
governmental authority. As used herein, "SHAREHOLDER DAMAGES" means Damages
proximately caused by or arising out of any failure, inaccuracy,
misrepresentation, breach or default of or in, any of the representations,
warranties and covenants of the Significant Shareholders (contained in this
Agreement or their Investment Representation Letters). Notwithstanding
anything contained in this Section 8 to the contrary, the Indemnified Persons
shall not be entitled to any indemnification for Damages arising out of a
breach of the representation and warranty contained in Section 2.35
(Information Statement) unless such Damages are the result of a claim, action
or proceeding brought by a former Company Shareholder or governmental
authority.
As used herein, "INVENTORY DAMAGES" shall mean the dollar amount,
if any, equal to the Net April Inventory balance as of April 30, 2002. As
used herein, the initial "NET APRIL INVENTORY" is determined by subtracting
the mathematical average of the inventory reserves shown on the December 31,
2000 and April 30, 2001 balance sheets of Company included in the Financial
Statements from the gross inventory shown on the April 30, 2001 balance sheet
of Company included in the Financial Statements (the "GROSS APRIL
INVENTORY"). The amount of Net April Inventory shall be subject to adjustment
as follows during the period from May 1, 2001
41
through April 30, 2002: (i) as the Gross April Inventory has been or is sold,
the Net April Inventory shall be reduced by the lesser of the gross value of
the inventory sold (valued as of April 30, 2001) or the actual proceeds
received on sale; and (ii) the Net April Inventory shall be reduced by the
gross value (measured as of April 30, 2001) of any then-remaining Gross April
Inventory pertaining to any product line discontinued after the Closing and
before April 30, 2002. During the time from the Closing Date through April
30, 2002, Parent agrees to exercise commercially reasonable efforts to sell
the Gross April Inventory and thereby reduce the Net April Inventory balance.
8.4 SURVIVAL OF CLAIMS. Notwithstanding anything to the contrary,
if, prior to the applicable Release Date, an Indemnified Person makes a claim
for indemnification under this Agreement, then the Indemnified Person's
rights to indemnification under this Section 8 for such Claim shall survive
beyond such Release Date.
8.5 RECOVERY OF DAMAGES. Parent acknowledges and agrees (on behalf
of itself and the other Indemnified Persons) that, from and after the
Closing, except for Special Damages and Shareholder Damages, its sole remedy
against the Significant Shareholders for any of the matters set forth in
Section 8.2(a) is against the Escrow Shares as set forth in this Section 8
and the Escrow Agreement. With respect to Shareholder Damages, Parent shall
be entitled, at its sole discretion, to recover against the Escrow Shares
pursuant to the Escrow Agreement and/or pursue separate claims against the
Significant Shareholder(s) whose behavior gave rise to such Shareholder
Damages (which claims shall to the extent practicable be resolved according
the procedures set forth in Section 9.1); provided, that in the event the
amount of Shareholder Damages exceeds the value of the Escrow Shares then
available to satisfy such damages (calculated in the manner set forth in the
Escrow Agreement), Parent may only seek recovery of such excess from the
Significant Shareholder(s) whose behavior gave rise to such Shareholder
Damages. With respect to Special Damages, Parent shall (notwithstanding any
provision to the contrary herein) be entitled, at its sole discretion, to
recover against the Escrow Shares pursuant to the Escrow Agreement and/or
pursue separate claims against the Significant Shareholders (which claims
shall to the extent practicable be resolved according the procedures set
forth in Section 9.1).
9. MISCELLANEOUS
9.1 GOVERNING LAW; DISPUTE RESOLUTION. The internal laws of the
State of California (irrespective of its conflicts of law principles) will
govern the validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties
hereto. Any dispute hereunder ("DISPUTE") shall be settled by arbitration in
Santa Xxxxx County, California, and, except as herein specifically stated, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA RULES") then in effect. However, in all events, these
arbitration provisions shall govern over any conflicting rules which may now
or hereafter be contained in the AAA Rules. Any judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
over the subject matter thereof. The arbitrator shall have the authority to
grant any equitable and legal remedies that would be available in any
judicial proceeding instituted to resolve a Dispute.
42
(a) COMPENSATION OF ARBITRATOR. Any such arbitration will be
conducted before a single arbitrator who will be compensated for his or her
services at a rate to be determined by the parties or by the American
Arbitration Association, but based upon reasonable hourly or daily consulting
rates for the arbitrator in the event the parties are not able to agree upon
his or her rate of compensation.
(b) SELECTION OF ARBITRATOR. The American Arbitration
Association will have the authority to select an arbitrator from a list of
arbitrators who are lawyers familiar with California contract law; PROVIDED,
HOWEVER, that such lawyers cannot work for a firm then performing services
for either party, that each party will have the opportunity to make such
reasonable objection to any of the arbitrators listed as such party may wish
and that the American Arbitration Association will select the arbitrator from
the list of arbitrators as to whom neither party makes any such objection. In
the event that the foregoing procedure is not followed, each party will
choose one person from the list of arbitrators provided by the American
Arbitration Association (provided that such person does not have a conflict
of interest), and the two persons so selected will select from the list
provided by the American Arbitration Association the person who will act as
the arbitrator.
(c) PAYMENT OF COSTS. Parent and Company Shareholders will
bear the expense of deposits and advances required by the arbitrator in equal
proportions, but either party may advance such amounts, subject to recovery
as an addition or offset to any award. The arbitrator will award to the
prevailing party, as determined by the arbitrator, all costs, fees and
expenses related to the arbitration, including reasonable fees and expenses
of attorneys, accountants and other professionals incurred by the prevailing
party.
(d) BURDEN OF PROOF. For any Dispute submitted to arbitration,
the burden of proof will be as it would be if the claim were litigated in a
judicial proceeding.
(e) AWARD. Upon the conclusion of any arbitration proceedings
hereunder, the arbitrator will render findings of fact and conclusions of law
and a written opinion setting forth the basis and reasons for any decision
reached and will deliver such documents to each party to this Agreement along
with a signed copy of the award. The arbitrator may not award punitive
damages.
(f) TERMS OF ARBITRATION. The arbitrator chosen in accordance
with these provisions will not have the power to alter, amend or otherwise
affect the terms of these arbitration provisions or the provisions of this
Agreement.
(g) EXCLUSIVE REMEDY. Except as specifically otherwise
provided in this Agreement, arbitration will be the sole and exclusive remedy
of the parties for any Dispute arising out of this Agreement or any Company
Ancillary Agreement.
9.2 ASSIGNMENT; BINDING UPON SUCCESSORS AND ASSIGNS. No party
hereto may assign any of its rights or obligations hereunder without the
prior written consent of the other parties hereto. This Agreement will be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
43
9.3 SEVERABILITY. If any provision of this Agreement, or the
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Agreement and application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provision.
9.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which will be an original as regards any party whose name appears
thereon and all of which together will constitute one and the same
instrument. This Agreement will become binding when one or more counterparts
hereof, individually or taken together, bear the signatures of all parties
reflected hereon as signatories.
9.5 OTHER REMEDIES. Except as otherwise provided herein, and
subject to Section 8.1, any and all remedies herein expressly conferred upon
a party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby or by law on such party, and the exercise of any one remedy
will not preclude the exercise of any other.
9.6 AMENDMENT AND WAIVERS. Any term or provision of this Agreement
may be amended, and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively
or prospectively), only by writing signed by each party to be bound thereby.
The waiver by a party of any breach hereof or default in the performance
hereof will not be deemed to constitute a waiver of any other default or any
succeeding breach or default. This Agreement may be amended by the parties
hereto at any time before or after approval of Company Shareholders.
9.7 NO WAIVER. The failure of any party to enforce any of the
provisions hereof will not be construed to be a waiver of the right of such
party thereafter to enforce such provisions. The waiver by any party of the
right to enforce any of the provisions hereof on any occasion will not be
construed to be a waiver of the right of such party to enforce such provision
on any other occasion.
9.8 EXPENSES. Each party will bear its respective expenses and fees
of its own accountants, attorneys, investment bankers and other professionals
incurred with respect to this Agreement and the transactions contemplated
hereby (such expenses being referred to herein as "TRANSACTION EXPENSES"). If
the Merger is consummated, Parent will pay at the Closing the reasonable
Transaction Expenses incurred by Company that are solely related to the
Merger. If for any reason Parent pays any amounts in excess of $900,000,
Parent will be entitled to treat the amount of excess payment as Damages
recoverable as an uncontested claim under the Escrow Agreement, without
giving effect to the Basket.
9.9 NOTICES. Any notice or other communication required or
permitted to be given under this Agreement will be in writing, will be
delivered personally or by facsimile (evidenced by confirmation showing
successful transmission) or by mail or express delivery,
44
postage prepaid, and will be deemed given upon actual delivery or, if mailed
by registered or certified mail, on the third business day following deposit
in the mails, addressed as follows:
(a) If to Parent:
Silicon Image, Inc.
0000 Xxxx Xxxxxx Xxx.
Xxxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxxxx, Esq.
General Counsel
Phone: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Fenwick & West LLP
000 Xxxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
(b) If to Company:
CMD Technology, Inc.
0000 Xxxxxxxx Xxxx
Xxxxxx, XX 00000-0000
Phone: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxx Xxxxxx Xxxxx, 00xx Xxxxx
Xxxxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
(c) If to the Significant Shareholders:
At the addresses indicated under their names on the
signature page hereto
or to such other address as the party in question may have furnished to the
other parties by written notice given in accordance with this Section 9.9.
45
9.10 STAMP DUTY. Any stamp duty, transfer tax or similar tax
payable in connection with the transfer of Company Common Stock by any
Company Shareholder shall be payable by such Shareholder.
9.11 CONSTRUCTION OF AGREEMENT. The language hereof will not be
construed for or against either party. A reference to a section, schedule or
exhibit will mean a section in, schedule to, or an exhibit to, this
Agreement, unless otherwise explicitly set forth. The titles and headings in
this Agreement are for reference purposes only and will not in any manner
limit the construction of this Agreement. For the purposes of such
construction, this Agreement will be considered as a whole.
9.12 FURTHER ASSURANCES. Each party agrees to cooperate fully with
the other party and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by another party to evidence and reflect the transactions provided
for herein and to carry into effect the intent of this Agreement.
9.13 ABSENCE OF THIRD-PARTY BENEFICIARY RIGHTS. No provisions of
this Agreement are intended, nor will be interpreted, to provide or create
any third-party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, partner or employee of any party hereto or any
other person or entity, unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof will be personal solely between
the parties to this Agreement.
9.14 PUBLIC ANNOUNCEMENT. Upon or following execution of this
Agreement, Parent may issue a press release, previously reviewed by Company
and with Company's consent, announcing the Merger, it being understood,
however, that Company may make such private announcements to its employees
and such customers as may be approved in writing by Parent concerning the
subject matter of this Agreement that it deems are reasonably necessary or
advisable to carry into effect the transactions contemplated hereby.
Thereafter, Parent may issue such press releases, and make such other
disclosures regarding the Merger, as it reasonably and in good faith
determines are required under applicable securities laws or regulatory rules;
PROVIDED, HOWEVER, that Company and its counsel will have a reasonable
opportunity to review any such disclosure to be made before the Effective
Time prior to its issuance.
9.15 ENTIRE AGREEMENT. This Agreement, the Company Ancillary
Agreements, the Significant Shareholders Ancillary Agreements, the Parent
Ancillary Agreements, the Merger Sub Ancillary Agreement and the exhibits and
schedules hereto and thereto constitute the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof and
supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between the
parties with respect to the subject matter hereof. The express terms hereof
control and supersede any course of performance or usage of trade
inconsistent with any of the terms hereof.
9.16 EFFECT OF SCHEDULES. Notwithstanding anything to the contrary
contained in this Agreement or in any of the Schedules, any information
disclosed in one of such Schedules shall not be deemed to be disclosed in any
other Schedules.
46
9.17 MUTUAL DRAFTING. This Agreement is the joint product of
Parent, Company, the Significant Shareholders and each provision hereof has
been subject to the mutual consultation, negotiation and agreement of Parent,
Company and the Significant Shareholders and shall not be construed for or
against any party thereto.
9.18 NO JOINT VENTURE. Nothing contained in this Agreement will be
deemed or construed as creating a joint venture or partnership between the
parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party will
have the power to control the activities and operations of any other, and the
parties' status is, and at all times, will continue to be, that of
independent contractors with respect to each other. No party will have any
power or authority to bind or commit any other. No party will hold itself out
as having any authority or relationship in contravention of this Section 9.18.
9.19 CONFIDENTIALITY AGREEMENT. All parties to the Confidentiality
Agreement dated ___________ acknowledge and reaffirm their obligations
thereunder pending the Closing, subject to Section 9.14.
9.20 OWNERSHIP OF COMPANY INCOME TAX ATTRIBUTES. The parties hereto
agree and acknowledge that all income tax benefits and attributes which are,
or were, of a pass-through nature to the Company Shareholders (including, but
not limited to, tax refunds and operating losses) relating to tax years
ending on or prior to the Closing Date are the property of the Company
Shareholders.
10. PRE-CLOSING COVENANTS OF COMPANY AND THE SIGNIFICANT SHAREHOLDERS
10.1 During the period from the date of this Agreement until the
Closing, Company (and the Significant Shareholders where so specified)
covenant to and agree with Parent and Merger Sub as follows:
(a) ACCURACY OF REPRESENTATIONS. Company will exercise
reasonable efforts to ensure that the representations and warranties of
Company set forth in Section 2 (a) that are qualified as to materiality will
be true and correct and (b) that are not qualified as to materiality will be
true and correct in all material respects, in each case on and as of the
Closing Date with the same force and effect as if they had been made at the
Closing Date (except for any such representations or warranties that, by
their terms, speak only as of a specific date or dates). The Significant
Shareholders will exercise reasonable efforts to ensure that the
representations and warranties of the Significant Shareholders set forth in
Section 3 (a) that are qualified as to materiality will be true and correct
and (b) that are not qualified as to materiality will be true and correct in
all material respects, in each case on and as of the Closing Date with the
same force and effect as if they had been made at the Closing Date (except
for any such representations or warranties that, by their terms, speak only
as of a specific date or dates).
(b) MAINTENANCE OF BUSINESS. If Company becomes aware of a
material deterioration in the relationship with any Significant Customer,
Significant Supplier, officer or other Management Employee or significant
number of other employees, it will
47
promptly bring such information to the attention of Parent in writing and, if
requested by Parent, will exert reasonable efforts to restore and retain the
relationship. Company will promptly advise Parent in writing of any Material
Adverse Change.
10.2 NECESSARY CONSENTS. Company and the Significant
Shareholders will each use reasonable efforts to obtain such written consents
and take such other actions as may be necessary or appropriate to facilitate
and allow the consummation of the transactions provided for herein and to
facilitate and allow Parent and Merger Sub to carry on Company's business
after the Closing Date and to keep in effect and avoid the breach, violation
of, termination of, or adverse change to, any Material Agreement.
10.3 EXCLUSIVITY. Company agrees that, from the date of this
Agreement until this Agreement has been terminated pursuant to its terms, it
will not, directly or indirectly, through any officer, director or employee
of Company or through any agent or otherwise, (i) solicit, initiate, or
encourage submission of or receive any proposals or offers from any
corporation, partnership, persons or group relating to any acquisition,
purchase or option to purchase any of the business, assets or stock of
Company, or any merger, consolidation, recapitalization or other business
combination of any kind involving Company, or any other transaction that is
incompatible with the transaction described in this Agreement, or (ii)
furnish to any person or any entity any information with respect to the
foregoing except to professionals representing Company.
10.4 SATISFACTION OF CONDITIONS PRECEDENT. Company and the
Significant Shareholders will use reasonable efforts to satisfy or cause to
be satisfied all the conditions precedent which are set forth in Section 7,
and will use reasonable efforts to cause the transactions provided for in
this Agreement to be consummated and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties that may be
necessary or reasonably required on its part in order to effect the
transactions provided for herein.
11. PRE-CLOSING COVENANTS OF PARENT AND MERGER SUB
During the period from the date of this Agreement until the
Closing, Parent (and Merger Sub where so specified) covenant to and agree
with Company as follows:
11.1 ACCURACY OF REPRESENTATIONS. Parent and Merger Sub will
exercise reasonable efforts to ensure that the representations and warranties
of Parent and Merger Sub set forth in Section 4 (a) that are qualified as to
materiality will be true and correct and (b) that are not qualified as to
materiality will be true and correct in all material respects, in each case
on and as of the Closing Date with the same force and effect as if they had
been made at the Closing Date (except for any such representations or
warranties that, by their terms, speak only as of a specific date or dates).
11.2 NECESSARY CONSENTS. Parent shall use reasonable efforts to
obtain such written consents and take such other actions as may be necessary
or appropriate to facilitate and allow the consummation of the transactions
provided for herein.
48
11.3 SATISFACTION OF CONDITIONS PRECEDENT. Parent will use
reasonable efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 6, and Parent will use reasonable
efforts to cause the transactions provided for in this Agreement to be
consummated and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings
with, and give all notices to, third parties that may be necessary or
reasonably required on its part in order to effect the transactions provided
for herein.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing, whether before or after approval of the Merger by the
Company Shareholders:
(a) by the mutual written consent of Parent and Company;
(b) by either Parent or Company if all conditions to such
party's obligations to consummate the transactions contemplated hereby have
not been satisfied or waived, and the Closing has not occurred, on or before
June 7, 2001; provided, that if either Parent or Company is exercising
diligent efforts to cause the conditions to the obligations of the other
party to consummate the transactions contemplated hereby to be satisfied,
then the other party may not terminate this Agreement pursuant to this clause
(b) until after June 15, 2001;
(c) by Company or Parent, if a permanent injunction or other
order by any federal or state court which would make illegal or otherwise
restrain or prohibit the consummation of the Merger will have been issued and
will have become final and nonappealable.
Any termination of this Agreement under clauses (b) or (c) of
this Section 12.1 will be effective by the delivery of written notice of the
terminating party to the other party hereto.
12.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 12.1, this Agreement shall be of no further
force or effect; PROVIDED, HOWEVER, that (a) this Section 12.2 and Section 9
shall survive the termination of this Agreement and shall remain in full
force and effect, and (b) the termination of this Agreement shall not relieve
any party from any liability for any breach of this Agreement.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
SILICON IMAGE, INC. CMD TECHNOLOGY INC.
By: /s/ Xxx Xxxxx By: /s/ Xxxxx Xxxxx
---------------------------------- -------------------------------
Name: Xxx Xxxxx Name: Xxxxx Xxxxx
-------------------------------- -----------------------------
Title: Chief Financial Officer Title: Ceo & President
------------------------------- ----------------------------
DUKE ACQUISITION CORP.
By: /s/ Xxxxxx Xxxxxxxxx
----------------------------------
Name: Xxxxxx Xxxxxxxxx
--------------------------------
Title: President
-------------------------------
SIGNIFICANT SHAREHOLDERS
Xxxxx Xxxxx and Xxxx Xxxxx Family Trust, dated September 15, 1993
9 Kent
Xxxxxx, XX 00000
By: /s/ Xxxxx Xxxxx By: /s/ Xxxx Xxxxx
-------------------------------- -----------------------------
Xxxxx Xxxxx, Trustee Xxxx Xxxxx, Trustee
Wen Xxx Xxx Trust, dated January 11, 1994
3851 Salem
Xxxxxx, XX 00000
By: /s/ Wen Xxx Xxx
--------------------------------
Wen Xxx Xxx, Trustee
Xxxxxx X. Xxxx and Xxxxx X. Xxxx Family Trust, dated November 3, 1993
000 Xxxxxxxxx Xx.
Xxxxxxx, XX 00000
By: /s/ Xxxxxx X. Xxxx
--------------------------------
Xxxxxx X. Xxxx, Trustee
Chie-Xxxx Xxxx and Xxxxxxx Xxxx Family Trust, dated December 21, 1983
00 Xxxxxx Xxxxx
Xxxxxx, XX 00000
By: /s/ Chie-xxxx Xxxx
--------------------------------
Chie-Xxxx Xxxx, Trustee
[Signature Page to Agreement and Plan of Reorganization]
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of June 7, 2001 by and between Silicon Image, Inc., a Delaware
corporation ("PARENT"), and the individuals and entities listed on EXHIBIT A
attached hereto (the "HOLDERS").
RECITALS
A. This Agreement is entered into pursuant to that certain
Agreement and Plan of Reorganization dated as of June 1, 2001 (the "MERGER
AGREEMENT") by and among Parent, Duke Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of Parent ("MERGER SUB"), and CMD
Technology Inc., a California corporation ("COMPANY").
B. The Merger Agreement provides that, subject to the terms and
conditions of the Merger Agreement, Merger Sub will be merged with and into
Company in a statutory merger in which all outstanding Company Common Stock will
be converted into the right to receive, and will be exchangeable for, Parent
Common Stock (and cash in lieu of fractional shares).
C. As an inducement for Company to enter into the Merger Agreement,
Parent desires to grant the registration rights to the Holders as contained
herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. DEFINITIONS AND REFERENCES.
Unless otherwise defined herein, the capitalized terms in this
Agreement have the same meanings given to them in the Merger Agreement. For
purposes of this Agreement, in addition to the definitions set forth elsewhere
herein, the following terms shall have the following respective meanings:
"AFFILIATE" of a Holder shall mean a person who controls, is controlled
by or is under common control with such Holder, or the spouse or children (or a
trust exclusively for the benefit of a spouse and/or children) of such Holder.
"REGISTER," "REGISTERED" and "REGISTRATION" shall refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"1933 ACT"), and the declaration or ordering of effectiveness of such
registration statement or document by the United States Securities and Exchange
Commission (the "SEC").
"REGISTRABLE STOCK" shall mean (a) the Parent Common Stock issued to a
Holder pursuant to the Merger Agreement; and (b) any Parent Common Stock issued
as (or issuable upon the conversion or exercise of any warrant, right, option or
other convertible security which is issued as) a dividend or other distribution
with respect to, or in exchange for, or in replacement of, such Parent Common
Stock. For purposes of this Agreement, any Registrable Stock shall cease to be
Registrable Stock when (a) a Registration Statement covering such Registrable
Stock has been
declared effective and such Registrable Stock has been disposed of pursuant to
such effective Registration Statement, or (b) such Registrable Stock is sold by
a person in a transaction that is exempt from registration pursuant to Rule 144
promulgated under the 1933 Act ("RULE 144") (or any similar provision then in
force) or a transaction in which the Holders' rights under this Agreement are
not assigned. In addition, the Registrable Stock held by any Holder shall cease
to be Registrable Stock on such date on which all of the Registrable Stock held
by such Holder can be sold within a period of three months pursuant to Rule 144
(or any similar provision then in force).
2. "SHELF" REGISTRATION. Parent shall use all reasonable efforts to
file with the SEC a "shelf" registration statement on Form S-3 for the public
resale by the Shareholders of the Registrable Stock on a continuous or delayed
basis pursuant to Rule 415(a)(1) under the 1933 Act (the "REGISTRATION
STATEMENT") within fifteen (15) business days following the Closing Date or as
soon as reasonably practicable thereafter. The plan of distribution indicated in
the Registration Statement will include all such transactions as the Holders may
reasonably request in writing prior to the filing of the Registration Statement
and that can be included in the Registration Statement under the rules and
regulations of the SEC. Parent shall use all reasonable efforts to cause the
Registration Statement to be declared effective under the 1933 Act as promptly
as possible after the filing thereof, and shall use all reasonable efforts to
keep the Registration Statement continuously effective under the 1933 Act until
the later of (a) the date which is one (1) year after the Closing Date or (b)
the date when all Registrable Stock covered by such Registration Statement have
been sold or may be sold within a period of three months pursuant to Rule 144
(or any similar provision then in force).
3. OBLIGATIONS OF PARENT. Parent shall:
(a) prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep the Registration Statement effective and
to comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Stock covered by the Registration Statement for the period
required to effect the distribution of the Registrable Stock as set forth in
Section 2 hereof;
(b) use all reasonable efforts to register or qualify the
Registrable Stock covered by the Registration Statement under the securities or
blue sky laws of such jurisdiction within the United States and Puerto Rico as
shall be reasonably requested by the Holders for the distribution of the
Registrable Stock covered by the Registration Statement; PROVIDED, HOWEVER, that
Parent shall not be required in connection therewith or as a condition thereto
to qualify to do business in or to file a general consent to service of process
in any jurisdiction wherein it would not but for the requirements of this
paragraph (b) be obligated to do so; and PROVIDED, FURTHER, that Parent shall
not be required to qualify such Registrable Stock in any jurisdiction in which
the securities regulatory authority requires that the Holders subject any of
their Registrable Stock to the terms, provisions and restrictions of any escrow,
lockup or similar agreement(s) before such authority will consent to the sale of
Registrable Stock in such jurisdiction, unless the Holders agree to do so;
2
(c) furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of the Registrable Stock owned by
them that is covered by the Registration Statement; and
(d) promptly notify the Holders at any time when a
prospectus relating thereto is required to be delivered under the 1933 Act of
the happening of any event as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances under which they were made, and promptly prepare and furnish to
each Holder a reasonable number of copies of a supplement to or an amendment of
such prospectus, or a revised prospectus, as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances under which they were made;
PROVIDED, that in the event of a material development or transaction affecting
Parent that has not yet been publicly disclosed, if Parent shall determine in
good faith that it would be adversely affected by such disclosure, Parent may so
notify the Holders and shall deliver to the Holders a certificate signed by an
officer of Parent affirming that Parent would be adversely affected by such
disclosure (such notice being referred to herein as a "DEFERRAL NOTICE"), and
shall thereafter be entitled to defer preparing and furnishing such supplement
or amendment until such time as it would not be so adversely affected, but in
any event for a period of no more than ninety (90) days following delivery of
the Deferral Notice to each Holder, at which time it shall so notify the Holders
and shall prepare and furnish to the Holders any such supplement or amendment as
may then be required. Following receipt of a Deferral Notice, the Holders shall
not make any further sales of Registrable Stock pursuant to the Registration
Statement until the Holders receive such notice, and any such amendment or
supplement, from Parent. Following receipt of any supplement or amendment to any
prospectus, the Holders shall deliver such amended, supplemental or revised
prospectus in connection with any offers or sales of Registrable Stock, and
shall not deliver or use any prospectus not so supplemented, amended or revised.
If Parent issues a Deferral Notice, Parent will extend the period of
effectiveness of the Registration Statement for an amount of time equal to the
length of the deferral period. Notwithstanding any other provision of this
Agreement, Parent may not issue a Deferral Notice more than two (2) consecutive
times in any twelve (12) month period.
4. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of Parent to take any action pursuant to this Agreement that each
Holder shall furnish to Parent such information regarding itself, the
Registrable Stock held by it, and the intended method of disposition of such
securities as Parent shall reasonably request and as shall be required in
connection with the actions to be taken by Parent hereunder.
5. EXPENSES. All expenses incurred in connection with the
registration pursuant to this Agreement, excluding underwriters' or brokers'
discounts and commissions, but including without limitation all registration,
filing and qualification fees, word processing, duplicating, printers' and
accounting fees, listing fees, messenger and delivery expenses, all fees and
3
expenses of complying with state securities or blue sky laws, and the fees and
disbursements of counsel for Parent, shall be paid by Parent. Each Holder shall
bear and pay the underwriting commissions and discounts and brokerage fees
applicable to securities offered for his or her account in connection with any
registrations, filings and qualifications made pursuant to this Agreement.
6. TRANSFER OF REGISTRATION RIGHTS. The registration rights of a
Holder under this Agreement with respect to any Registrable Stock may be
transferred or assigned to (a) any transferee or assignee of such Registrable
Stock who, after such transfer or assignment, holds at least 5,000 shares of
Registrable Stock previously held by such Holder or (b) an Affiliate of such
Holder; PROVIDED, HOWEVER, that (i) such Holder shall give Parent written notice
prior to the time of such transfer stating the name and address of the
transferee and identifying the securities with respect to which the rights under
this Agreement are being transferred; (ii) such transferee shall agree in
writing, in form and substance reasonably satisfactory to Parent, to be bound as
a Holder by the provisions of this Agreement; and (iii) immediately following
such transfer the further disposition of such securities by such transferee
shall be restricted under the 1933 Act.
7. INDEMNIFICATION. In the event any Registrable Stock is included
in a Registration Statement under this Agreement:
(a) Parent shall indemnify and hold harmless each Holder,
such Holder's directors and officers, each person who participates in the
offering of such Registrable Stock, including underwriters (as defined in the
1933 Act), and each person, if any, who controls such Holder or participating
person within the meaning of the 1933 Act, against any losses, claims, damages
or liabilities, joint or several, to which they may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or proceedings in respect thereof) arise out of or are based on any untrue or
alleged untrue statement of any material fact contained in the Registration
Statement on the effective date thereof (including any prospectus filed under
Rule 424 under the 1933 Act or any amendments or supplements thereto) or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or arise out of any violation by Parent of any rule or
regulation promulgated under the 1933 Act in connection with such registration,
and shall reimburse each such Holder, director or officer of such Holder, and
such participating person or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage or liability; PROVIDED, HOWEVER, that the indemnity
agreement contained in this Section 7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage or liability if such settlement is
effected without the consent of Parent (which consent shall not be unreasonably
withheld); PROVIDED, FURTHER, that Parent shall not be liable to any Holder,
director or officer of such Holder, participating person or controlling person
in any such case for any such loss, claim, damage or liability to the extent
that it arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in connection with the
Registration Statement, preliminary prospectus, final prospectus or amendments
or supplements thereto, in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder, director or officer of such Holder, participating person or
controlling person or arises out of any violation by Holder of any rule or
regulation promulgated
4
under the 1933 Act in connection with such registration; and PROVIDED, FURTHER,
that Parent shall not be liable to any Holder, director or officer of such
Holder, participating person or controlling person in any such case for any such
loss, claim, damage or liability to the extent that it arises out of an offer or
sale by such Holder in violation of any of such Holder's obligations under
Section 3(d). Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of any such Holder, director or officer
of such Holder, participating person or controlling person, and shall survive
the transfer of such securities by such Holder, and any termination of this
Agreement.
(b) Each Holder severally and not jointly shall indemnify
and hold harmless Parent, each of its directors and officers, each person, if
any, who controls Parent within the meaning of the 1933 Act, and each agent and
any underwriter for Parent (within the meaning of the 0000 Xxx) against any
losses, claims, damages or liabilities, joint or several, to which Parent or any
such director, officer, controlling person, agent or underwriter may become
subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or proceedings in respect thereof) arise solely out of
or are based solely upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement (including any prospectus
filed under Rule 424 under the 1933 Act or any amendments or supplements
thereto) or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading (in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, preliminary or final
prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished by or on behalf of such Holder
expressly for use in connection with such registration) or arise out of any
violation by Holder of any rule or regulation promulgated under the 1933 Act in
connection with such registration; and each such Holder shall reimburse any
legal or other expenses reasonably incurred by Parent or any such director,
officer, controlling person, agent or underwriter in connection with
investigating or defending any such loss, claim, damage or liability; PROVIDED,
HOWEVER, that the indemnity agreement contained in this Section 7(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage or liability
if such settlement is effected without the consent of such Holder (which consent
shall not be unreasonably withheld); and PROVIDED, FURTHER, that the liability
of each Holder hereunder shall be limited to the net proceeds received by such
Holder from the sale of Registrable Stock covered by such Registration
Statement.
(c) Promptly after receipt by an indemnified party under
this Section of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in and assume the defense thereof with counsel selected by the
indemnifying party and reasonably satisfactory to the indemnified party;
PROVIDED, HOWEVER, that an indemnified party shall have the right to retain its
own counsel, with all fees and expenses thereof to be paid by such indemnified
party, and to be apprised of all progress in any proceeding the defense of which
has been assumed by the indemnifying party. The failure of any indemnified party
to notify an indemnifying party promptly of the commencement of any such action,
if and to the extent such failure materially adversely affects such indemnifying
party's ability to defend such
5
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7, but the omission so to notify the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 7. No indemnifying party
shall, in the defense of any such claim, except with the consent of the
indemnified party (not be unreasonably withheld), consent to the entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff therein, to such
indemnified party, of a release from all liability with respect to such claim.
(d) To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the indemnifying party and indemnified party in connection with the actions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault of such indemnifying
party and indemnified party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such indemnifying
party or indemnified party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages or
liabilities referred to above shall be deemed to include any legal or other fees
or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 0000 Xxx) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
8. SELLING RESTRICTIONS. Each Significant Shareholder hereby agrees
that such Significant Shareholder will not directly or indirectly, sell, offer,
contract or grant any option to sell or purchase, make any short sale (including
without limitation any "short vs. the box"), pledge, transfer, establish an open
"put equivalent position" within the meaning of Rule 16a-1(h) under the 1934 Act
(the taking of any of the foregoing actions shall be deemed a disposition for
purposes of this Section 8) or otherwise dispose of (or publicly announce its
intention to dispose of) in excess of one fifty-second (1/52) of the number of
shares of Registrable Stock initially issued to it pursuant to the Merger
Agreement (including escrow shares) (such number being subject to proportionate
adjustment for any stock dividend, stock split, reverse stock split, combination
of shares, or other similar event affecting Parent Common Stock) during any week
following the Closing. Each Significant Shareholder may assign to any other
Significant Shareholder its right to sell one fifty-second (1/52) of its shares
of Registrable Stock with respect to any such week; provided, that such
assignment shall not become effective until written notice thereof has been
delivered to Parent and its counsel. The foregoing limitation will not apply to
any transaction approved in advance in writing by Parent, which approval shall
not be
6
unreasonably withheld provided such transaction involves an institutional
investor primarily engaged in an investment strategy focused on long-term
appreciation rather than short-term trading. The provisions of this Section 8
shall expire on the first anniversary of the Closing Date. It is a condition to
any transfer of registration rights pursuant to Section 6 or any transfer or
disposition of Registrable Stock by a Significant Shareholder that the
transferee of registration rights or transferee of Registrable Stock, as the
case may be, agree in a writing satisfactory to Parent to be bound by the
provisions of this Section 8 as if it were a Significant Shareholder hereunder.
9. RULE 144 REPORTING. With a view to making available to Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Stock to the public without registration, Parent agrees
to use all reasonable efforts, at all times until the second anniversary of the
Closing, to:
(a) File with the SEC in a timely manner all reports
required of Parent under Section 13 of the 1934 Act; and
(b) So long as a Holder owns any Registrable Stock, furnish
to the Holder forthwith upon written request, a written statement by Parent as
to its compliance with the reporting requirements under Section 13 of the 1934
Act.
10. GENERAL PROVISIONS.
(a) NOTICES. Any notice or other communication required or
permitted to be given under this Agreement will be in writing, will be delivered
personally or by facsimile (evidenced by confirmation showing successful
transmission) or by mail or express delivery, postage prepaid, and will be
deemed given upon actual delivery or, if mailed by registered or certified mail,
on the fifth business day following deposit in the U.S. mails, addressed as
follows:
If to a Holder: If to Parent:
At the address set forth on EXHIBIT A Silicon Image, Inc.
0000 Xxxx Xxxxxx Xxx.
Xxxxxxxxx, XX 00000
Attn: General Counsel
Fax: (000) 000-0000
with a copy to:
Fenwick & West LLP
000 Xxxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Fax: (000) 000-0000
or to such other address as a party designates in a writing delivered to each of
the other parties hereto.
7
(b) ENTIRE AGREEMENT; INDEPENDENCE OF OBLIGATIONS. This
Agreement constitutes and contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof. In the
event of any conflict between this Agreement and the Merger Agreement, the terms
of this Agreement shall control.
(c) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California
without regard to conflicts of law principles.
(d) SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, then such
provision(s) shall be excluded from this Agreement and the balance of this
Agreement shall be interpreted as if such provision(s) were so excluded and
shall be enforceable in accordance with its terms.
(e) THIRD PARTIES. Nothing in this Agreement, express or
implied, is intended to confer upon any person, other than the parties hereto
and their successors and assigns, any rights or remedies under or by reason of
this Agreement.
(f) SUCCESSORS AND ASSIGNS. Subject to the provisions of
Section 6, the provisions of this Agreement shall inure to the benefit of, and
shall be binding upon, the successors and permitted assigns of the parties
hereto.
(g) CAPTIONS. The captions to sections of this Agreement
have been inserted for identification and reference purposes only and shall not
be used to construe or interpret this Agreement.
(h) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
(i) COSTS AND ATTORNEYS' FEES. In the event that any action,
suit or other proceeding is instituted concerning or arising out of this
Agreement or any transaction contemplated hereunder, each party shall bear its
own respective costs and fees associated with such action, suit or other
proceeding, including any and all appeals or petitions therefrom, except to the
extent otherwise specifically awarded by the arbitrator hearing the matter.
(j) ADJUSTMENTS FOR STOCK SPLITS, ETC. Wherever in this
Agreement there is a reference to a specific number of Parent Common Stock, upon
the occurrence of any subdivision, combination or share dividend of such class
of shares, the specific number of shares so referenced in this Agreement shall
automatically be proportionally adjusted to reflect the effect on the
outstanding shares of such class or series of shares by such subdivision,
combination or share dividend.
(k) ARBITRATION OF DISPUTES. Any disputes arising under this
Agreement shall be subject to the arbitration provisions set forth in Section
9.1 of the Merger Agreement.
8
(l) JOINDER. The parties hereto agree that upon the
execution and delivery by any Holder of a counterpart of this Agreement, such
Holder shall automatically become a party to this Agreement without further
action by Parent. The failure of any Holder who is entitled to receive shares of
Registrable Stock pursuant to the Merger Agreement to execute and deliver a
counterpart to this Agreement on or before the closing of the transactions
contemplated by the Merger Agreement shall not preclude such Holder's
Registrable Stock from being included in the Registration Statement.
[Remainder of Page Intentionally Left Blank]
9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PARENT:
SILICON IMAGE, INC.
By: /s/ Xxx Xxxxx
----------------------------------------
Name: Xxx Xxxxx
--------------------------------------
Title: Chief Financial Officer
-------------------------------------
HOLDERS:
Xxxxx Xxxxx and Xxxx Xxxxx Family Trust, dated September 15, 1993
By: /s/ Xxxxx Xxxxx By: /s/ Xxxx Xxxxx
------------------------------------ -----------------------------
Xxxxx Xxxxx, Trustee Xxxx Xxxxx, Trustee
Wen Xxx Xxx Trust, dated January 11, 1994
By: /s/ Wen Xxx Xxx
------------------------------------
Wen Xxx Xxx, Trustee
Xxxxxx X. Xxxx and Xxxxx X. Xxxx Family Trust, dated November 3, 1993
By: /s/ Xxxxxx X. Xxxx
------------------------------------
Xxxxxx X. Xxxx, Trustee
Chie-Xxxx Xxxx and Xxxxxxx Xxxx Family Trust, dated December 21, 1983
By: /s/ Chie-Xxxx Xxxx
------------------------------------
Chie-Xxxx Xxxx, Trustee
By: /s/ Xxxxxxx Xxx
------------------------------------
Xxxxxxx Xxx
By: /s/ Xxxxx Xxx Xxxxx
------------------------------------
Xxxxx Xxx Xxxxx
[Signature Page to Registration Rights Agreement]
By: /s/ Xxxxxx Xxxx
------------------------------------
Xxxxxx Xxxx
By: /s/ Xxxxxx Xxxx
------------------------------------
Xxxxxx Xxxx
By: /s/ Xxxxx X'Xxxx
------------------------------------
Xxxxx X'Xxxx
By: /s/ Xxxx Xxxxxxx
------------------------------------
Xxxx Xxxxxxx
By: /s/ Xxxx Xxxxxxx
------------------------------------
Xxxx Xxxxxxx
By: /s/ Xxxxx Xxxxxxxxxx
------------------------------------
Xxxxx Xxxxxxxxxx
By: /s/ Xxxx Xxxx
------------------------------------
Xxxx Xxxx
By: /s/ Xxxx Xxx
------------------------------------
Xxxx Xxx
By: /s/ Xxxxx Xxxxx
------------------------------------
Xxxxx Xxxxx
By: /s/ X.X. Xxxxxx
------------------------------------
X.X. Xxxxxx
By: /s/ Xxxxx Xxxxxx
------------------------------------
Xxxxx Xxxxxx
By: /s/ Xxxx Xxxx
------------------------------------
Xxxx Xxxx
By: /s/ Xx Xxxxx
------------------------------------
Xx Xxxxx
[Signature Page to Registration Rights Agreement]
By: /s/ Xxxx Xxxxxxxxx
------------------------------------
Xxxx Xxxxxxxxx
By: /s/ Xxx Xxxxx
------------------------------------
Xxx Xxxxx
By: /s/ Xxxx Xxxxxx
------------------------------------
Xxxx Xxxxxx
By: /s/ Xxx Xxxxx
------------------------------------
Xxx Xxxxx
By: /s/ Xxx Xxxxx
------------------------------------
Xxx Xxxxx
By: /s/ Xxx Xxxxxxxx
------------------------------------
Xxx Xxxxxxxx
By: /s/ Xxx Xxxx
------------------------------------
Xxx Xxxx
By: /s/ Xxxx Xxxxxxxxxx
------------------------------------
Xxxx Xxxxxxxxxx
By: /s/ Xxxxxxx Xxxx
------------------------------------
Xxxxxxx Xxxx
By: /s/ Hunardi Hudiono
------------------------------------
Hunardi Hudiono
By: /s/ Xxxx Xxxx
------------------------------------
Xxxx Xxxx
[Signature Page to Registration Rights Agreement]
EXHIBIT A
CMD TECHNOLOGY INC.
SHAREHOLDERS
-------------------------------------------------------------------------------------------- -------------------------
NAME AND ADDRESS NUMBER OF SHARES OF
REGISTRABLE STOCK
-------------------------------------------------------------------------------------------- -------------------------
WEN XXX XXX TRUST, DATED JANUARY 11, 1994 1,593,187
c/o Xxx Xxx
0000 Xxxxx
Xxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
CHIE-XXXX XXXX AND XXXXXXX XXXX FAMILY TRUST, DATED DECEMBER 21, 1993 1,593,187
c/o Xxxxx Xxxx
00 Xxxxxx Xxxxx
Xxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXXX XXXXX AND XXXX XXXXX FAMILY TRUST, DATED SEPTEMBER 15, 1993 1,593,187
c/o Xxxxx Xxxxx
9 Kent
Xxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXXXX X. XXXX AND XXXXX X. XXXX FAMILY TRUST, DATED NOVEMBER 3, 1993 1,593,187
c/o Xxx Xxxx
000 Xxxxxxxxx Xx.
Xxxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXXXXX XXX 21,924
00000 Xxx Xx Xxxxxxx
Xxxxxx Xxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXXX XXX XXXXX 6,211
00000 Xxxxxx Xxxxx
Xxxxxxx Xxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXX XXXX 5,481
0 Xxxxxxxxxx
Xxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXXXX XXXX 3,654
00000 Xxxxxxxx Xx.
Xxxx Xxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXXX X'XXXX 2,391
0000 Xxxxxxxxxxx Xx.
Xxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXX XXXXXXX 1,974
000 X Xxxxx Xx Xxxxxxxxx
Xxx Xxxxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXX XXXXXXX 1,771
0000 Xxxxxxxxxx Xxxx
Xxxxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXXX XXXXXXXXXX 1,710
00000 Xxxxxxx Xx.
Xxxx Xxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXX XXXX 1,461
00 Xxxxxxx Xxxx
Xxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXX XXX 1,461
0 Xxxxxxxxx
Xxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
-------------------------------------------------------------------------------------------- -------------------------
XXXXX XXXXX 878
00 Xxxxxx
Xxxxxx Xxxxx Xxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XX XXXXXX 854
00000 Xxxxxx Xxx
Xxxxxxxxxx Xxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXXX XXXXXX 834
00 Xxxxxx Xx.
Xxxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXX XXXX 621
000 Xx Xxxxxxx
Xxxxxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XX XXXXX 615
00000 Xxxxxxxxxx Xxxxxxx
Xxxxxx Xxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXX XXXXXXXXX 615
29342 Spotted Xxxx Xxx
Xxx Xxxx Xxxxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXX XXXXX 610
00000 Xxxxxxxx Xxx.
Xxxxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXX XXXXXX 439
0000 Xx Xxx Xxx
Xxxx Xxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXX XXXXX 439
00000 Xxxxxxxxx Xx.
Xxxxx Xxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXX XXXXX 365
3 Leesburg
Xxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXX XXXXXXXX 122
00 Xxxxxxx Xx.
Xxxxxxxx Xxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXX XXXX 3,654
0000 X Xxxxxxxx Xxx
Xxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXX XXXXXXXXXX 61
00000 Xxxxxxxxxxx Xx
Xxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXXXXX XXXX 3,654
3 Photinia
Xxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
HUNARDI HUDIONO 730
00000 Xxx Xxxxx
Xxxxxx Xxxxxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
XXXX XXXX 2,923
0000 0xx Xxx.
Xxxxxx Xxx Xxx, XX 00000
-------------------------------------------------------------------------------------------- -------------------------
TOTAL 6,438,200
-------------------------------------------------------------------------------------------- -------------------------
ESCROW AGREEMENT
This Escrow Agreement (this "AGREEMENT") is made and entered into as of
June 7, 2001 (the "EFFECTIVE DATE"), by and among Silicon Image, Inc., a
Delaware corporation ("PARENT"), the persons and entities listed on EXHIBIT A
hereto (collectively, the "SIGNIFICANT SHAREHOLDERS" and each individually, a
"SIGNIFICANT SHAREHOLDER") who immediately prior to the closing and consummation
of the Merger (as defined below) are all of the principal shareholders of CMD
Technology Inc., a California corporation ("COMPANY"), Xxxxx Xxxx, as the
representative and agent of the Significant Shareholders (the "REPRESENTATIVE")
and State Street Bank and Trust Company of California, N.A., as Escrow Agent
(the "ESCROW AGENT").
RECITALS
A. Parent, Company and Duke Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Parent ("MERGER SUB") have entered
into an Agreement and Plan of Reorganization (the "PLAN") dated as of June 1,
2001, pursuant to which Merger Sub shall be merged with and into Company in a
reverse triangular merger (the "MERGER"), with Company to be the surviving
corporation of the Merger (the "SURVIVING CORPORATION"). Capitalized terms used
in this Agreement and not otherwise defined herein shall have the meanings given
them in the Plan, a copy of which is attached hereto.
B. Section 1.10 of the Plan provides that the Escrow Shares are to
be deducted and withheld from the Merger Consideration and placed in an escrow
account (the "ESCROW ACCOUNT") to secure certain indemnification obligations of
Significant Shareholders to Parent and other Indemnified Persons under Section 8
of the Plan on the terms and conditions set forth in this Agreement. The number
of Escrow Shares initially required to be deposited in the Escrow Account by
each Significant Shareholder pursuant to this Agreement, the taxpayer
identification number of each Significant Shareholder, the percentage interest
of each Significant Shareholder in the Escrow Shares and the Closing Price Per
Share (as defined in Section 4(e) of this Agreement) are set forth on EXHIBIT A
attached hereto.
C. Each Significant Shareholder is entering into this Agreement as
a material inducement and consideration for Parent to enter into the Plan and to
consummate the Merger and as a condition precedent to consummation of the
Merger, and the parties desire to set forth in this Agreement the terms and
conditions pursuant to which the Escrow Shares shall be deposited, held in, and
disbursed from the Escrow Account.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. ESCROW AND INDEMNIFICATION
(a) ESCROW OF SHARES. Promptly after the Closing Date,
Parent or its transfer agent shall deposit the Escrow Shares to be deducted
and withheld from the shares of Parent Common Stock issued to the Significant
Shareholders in the Merger with the Escrow Agent in the manner contemplated
by Section 2(a) of this Agreement, accompanied by the required stock powers
and a written notice making reference to this Agreement and identifying the
shares so
deposited as the Escrow Shares. The Escrow Agent shall hold the Escrow Shares in
escrow as collateral for the indemnification obligations of the Significant
Shareholders under Section 8 of the Plan until the Escrow Agent is required to
release such Escrow Shares in accordance with the terms of this Agreement. As
used in this Agreement, the term "ESCROW SHARES" shall include all "ADDITIONAL
ESCROW SHARES" as that term is defined in Section 2(b) of this Agreement. The
Escrow Agent agrees to accept delivery of the Escrow Shares and to hold such
Escrow Shares (and stock powers) in escrow subject to the terms and conditions
of this Agreement.
(b) INDEMNIFICATION. Parent and the other Indemnified
Persons are indemnified pursuant to the terms of Section 8 of the Plan (which
terms are incorporated herein by reference) from and against any Claims (as
defined below), subject to the limitations set forth in Section 8 of the Plan
and in this Agreement. The Escrow Shares shall be security for these
indemnification obligations, subject to the terms and conditions of Section 8 of
the Plan and this Agreement. Parent and the other Indemnified Persons are also
entitled to be indemnified pursuant to the terms of a Severance Indemnification
and Escrow Agreement ("SEVERANCE ESCROW AGREEMENT") of even date herewith, and
the Escrow Shares shall also be security for such indemnification obligations,
subject to the terms and conditions of the Severance Escrow Agreement. Xxxxx
Xxxx shall act as the initial Representative of the Significant Shareholders for
purposes of this Agreement, and is duly authorized to be and act as such
Representative and may bind the Significant Shareholders as provided herein.
(c) NOTICE OF CLAIM. As used herein, the term "CLAIM" means
a claim for indemnification under Section 8 of the Plan or under the Severance
Escrow Agreement made by Parent or any other Indemnified Person. Parent is
authorized to make Claims on behalf of any other Indemnified Person. An
Indemnified Person shall give written notice of a Claim (a "NOTICE OF CLAIM") to
the Representative and the Escrow Agent as promptly as reasonably practicable
after either: (i) discovery, after the Closing, of any fact or circumstance that
gives rise to indemnification rights under Section 8 of the Plan; or (ii)
discovery, after the Closing, of verbal or written notice to Parent or to any
other Indemnified Person of any claim, demand, suit, action, arbitration,
investigation, inquiry or proceeding brought by a third party against such
Indemnified Person that is based upon or includes facts or assertions that
would, if true, give rise to indemnification rights under Section 8 of the Plan
(a "THIRD-PARTY CLAIM"). Any Indemnified Person may give a Notice of Claim at
any time prior to the close of the Escrow Period (as defined in Section 1(d) of
this Agreement) in order to seek recovery of Damages against the Escrow Shares
pursuant to this Agreement. No delay on the part of any Indemnified Person in
giving the Representative notice of a Claim shall relieve the Representative or
any Significant Shareholder from any of its obligations under Section 8 of the
Plan or this Agreement unless (and then only to the extent that) the
Representative and the Significant Shareholders are materially prejudiced
thereby.
(d) ESCROW PERIOD. As used herein, the term "ESCROW PERIOD"
means that time period beginning on the Closing Date and ending on the first
anniversary of the Closing Date. Parent shall deliver to Escrow Agent written
notice of the Closing Date, on which Escrow Agent may rely without inquiry.
-2-
(e) THIRD-PARTY CLAIMS.
(i) Parent shall defend any Third-Party Claim, and,
subject to the terms and conditions of this Agreement, the costs and expenses
incurred by Parent in connection with such defense (including but not limited to
reasonable attorneys' fees, other professionals' and experts' fees and court or
arbitration costs) shall be included in the Damages related to or resulting from
a Claim for which an Indemnified Person may seek indemnity pursuant to a Claim
made hereunder.
Subject to the terms and conditions of this
Agreement, the Representative will have the right, at the Representative's sole
option, and at Significant Shareholders' sole cost and expense, to assume and
control the defense of Parent and all other Indemnified Persons against a
Third-Party Claim with reputable legal counsel of the Representative's choice
that is reasonably satisfactory to Parent and the other affected Indemnified
Person(s) so long as: (A) the Representative notifies Parent and each affected
Indemnified Person in writing within ten (10) days after the Indemnified Person
has given notice to the Representative of the Third-Party Claim that the
Representative intends to undertake such defense; (B) the Representative
provides Parent and each Indemnified Person with reasonably acceptable evidence
that the Representative has and will have the financial resources to defend
against the Third-Party Claim and fulfill its defense and indemnification
obligations under the Plan and this Agreement; (C) the Third-Party Claim
involves only money damages and does not seek an injunction or other equitable
relief (unless all affected Indemnified Persons agree in writing that the
Representative may nevertheless control the defense of such action for an
injunction or other equitable relief); (D) settlement of, or an adverse judgment
with respect to, the Third-Party Claim is not, in the good faith judgment of the
Indemnified Persons, likely to establish a precedential custom or practice
materially adverse to the continuing business interests of Parent; (E) Damages
sought under such Third-Party Claim, together with Damages sought under any
other Claims then in dispute or pending, cannot reasonably be expected to exceed
the value of the Escrow Shares, valued at the Closing Price Per Share (as
defined in Section 4(e) of this Agreement) available at that time; (F) the
Representative conducts the defense of the Third-Party Claim actively and
diligently; and (G) the legal counsel chosen by the Representative does not have
any conflict of interest in representing the interests of Parent or any of the
affected Indemnified Person(s).
(ii) So long as the Representative is conducting the
defense of the Third-Party Claim in accordance with Section 1(e)(i) above: (A)
Parent and each Indemnified Person may retain separate co-counsel and
participate in the defense of the Third-Party Claim at its own cost and expense
(except as provided below) and shall have the right to receive copies of all
pleadings, notices and communications with respect to the Third-Party Claim to
the extent no privilege is thereby waived; (B) Parent and each Indemnified
Person may participate in settlement negotiations with respect to the
Third-Party Claim; and (C) the Representative will not consent to the entry of
any judgment or enter into any settlement with respect to the Third-Party Claim
unless (1) Parent and each of the affected Indemnified Persons consent thereto
in writing (which consent will not unreasonably be withheld) or (2) the
settlement, compromise or consent includes an unconditional release from all
liability with respect to the Third-Party Claim in favor of Parent and each
Indemnified Person.
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(iii) If the Representative does not elect to assume
control of or otherwise participate in the defense or settlement of any
Third-Party Claim, or if the Representative does so elect but any of the
conditions in Section 1(e)(i) above is not satisfied or becomes unsatisfied, or
if the Representative ceases at any time to actively and diligently defend the
Third-Party Claim, then: (A) Parent and the affected Indemnified Person(s) may
control the defense of and consent to the entry of any judgment or enter into
any settlement with respect to the Third-Party Claim, PROVIDED, HOWEVER, that
the Representative (1) shall have the right to receive copies of all pleadings,
notices and communications with respect to the Third-Party Claim so long as the
receipt of such documents by the Representative does not affect any privilege
relating to the Indemnified Person, and (2) may participate in settlement
negotiations with respect to the Third-Party Claim, and Parent and the
Indemnified Person(s) shall not enter into any settlement of such Third-Party
Claim without the prior written consent of the Representative (which consent
shall not be unreasonably withheld); and (B) the Representative will remain
responsible to indemnify Parent and all Indemnified Person(s) for all Damages
they may incur arising out of, resulting from or caused by the Third-Party Claim
to the fullest extent provided in Section 8 of the Plan.
(f) ESCROW DEDUCTIONS. Payments for finally determined
Claims shall be deducted ratably from the Escrow Shares of the Significant
Shareholders in proportion to their respective percentage interests in the
Escrow Shares set forth on EXHIBIT A.
(g) NO ELECTION OF REMEDIES. Parent and any other
Indemnified Person may institute Claims against the Escrow Shares and in
satisfaction thereof may retake Escrow Shares in accordance with this Agreement
without making any claims directly against Company or any Significant
Shareholder and without rescinding or attempting to rescind the transactions
consummated pursuant to the Plan. The assertion of any single Claim hereunder
will not bar Parent or any other Indemnified Person from asserting other Claims
hereunder. Parent and any other Indemnified Person need not exhaust any other
remedies that may be available to it, but rather may proceed directly in
accordance with the provisions of this Agreement.
2. DEPOSIT OF ESCROW SHARES; RELEASE FROM ESCROW.
(a) DELIVERY OF ESCROW SHARES. As soon as reasonably
practicable after the Closing Date: (i) the Escrow Shares allocable to each
Significant Shareholder as shown on EXHIBIT A (the "INITIAL ESCROW SHARES")
shall be delivered by Parent or Parent's transfer agent to the Escrow Agent in
the form of duly authorized stock certificates for such shares issued in the
respective names of the Significant Shareholders; and (ii) each of the
Significant Shareholders shall deliver to the Escrow Agent three (3) stock
powers in the form of EXHIBIT B attached hereto covering such Initial Escrow
Shares, each duly endorsed and bearing a medallion signature guarantee. Each
Significant Shareholder agrees to execute and deliver to the Escrow Agent such
additional stock powers relating to the Escrow Shares as may be necessary, in
the Escrow Agent's opinion, to carry out its responsibilities under this
Agreement. In the event Parent issues any Additional Escrow Shares (as defined
below), Parent shall instruct its transfer agent to deliver such Additional
Escrow Shares to the Escrow Agent, and each Significant Shareholder shall
deliver stock powers for such Significant Shareholder's Additional Escrow Shares
to the Escrow Agent, in the same manner as the Initial Escrow Shares and stock
powers therefor were
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delivered to the Escrow Agent hereunder. Unless and until stock certificates
representing Additional Shares are received by the Escrow Agent, the Escrow
Agent may assume that none have been issued.
(b) DIVIDENDS, VOTING AND RIGHTS OF OWNERSHIP. Except for
dividends paid in shares of Parent stock that are declared and paid with respect
to the Escrow Shares or shares of Parent Common Stock issued with respect to
Escrow Shares and resulting from a stock split or subdivision ("ADDITIONAL
ESCROW SHARES"), any cash dividends, dividends payable in securities or other
distributions of any kind made or paid in respect of the Escrow Shares shall be
distributed currently by Parent to each Significant Shareholder. The Significant
Shareholder shall have the right to vote the Escrow Shares deposited in the
Escrow Account for the account of such Significant Shareholder so long as such
Escrow Shares are held in escrow, and Parent shall take all reasonable steps
necessary to allow the exercise of such rights. So long as the Escrow Shares
remain in the Escrow Agent's possession pursuant to this Agreement and have not
been canceled as provided herein or repurchased by Parent, the Significant
Shareholder shall retain and shall be able to exercise voting rights with
respect to such Escrow Shares and all other incidents of ownership of said
Escrow Shares that are not inconsistent with the terms and conditions of this
Agreement. Parent and the Significant Shareholders will arrange for the payment
of dividends and the delivery of proxies and other notices among themselves, and
the Escrow Agent need not be involved.
(c) DISTRIBUTIONS TO SIGNIFICANT SHAREHOLDERS. On the date
upon which the Escrow Period expires (the "FINAL RELEASE DATE"), the Escrow
Agent shall release from escrow to each Significant Shareholder such Significant
Shareholder's Escrow Shares (as defined below) OTHER THAN any of such
Significant Shareholder's Escrow Shares that have previously been delivered to
an Indemnified Person or that are owed to an Indemnified Person and are to be
canceled and forfeited in accordance with Section 4 in satisfaction of Claims by
an Indemnified Person or that are otherwise subject to a pending Claim by an
Indemnified Person. As used in this Agreement, a "SIGNIFICANT SHAREHOLDER'S
ESCROW SHARES" refers to and means the Initial Escrow Shares allocable to such
Significant Shareholder and the Additional Escrow Shares allocable to such
Significant Shareholder, if any.
(d) RELEASE OF ESCROW SHARES. The Escrow Shares shall be
held by the Escrow Agent until such Escrow Shares are required to be released
pursuant to either: (i) Section 2(c) of this Agreement; or (ii) when required
under applicable provisions of Section 4 of this Agreement. The Escrow Agent
shall deliver to the Significant Shareholders or to Parent (who is authorized to
accept delivery of Escrow Shares on behalf of any Indemnified Person), as
applicable hereunder, the requisite number of Escrow Shares to be released on
such applicable date as is called for by this Agreement. Such delivery of Escrow
Shares shall be in the form of stock certificate(s) registered in the name of
such Significant Shareholders or Parent, as applicable, in accordance with this
Agreement. The Escrow Agent shall coordinate with Parent's transfer agent who
shall cause such stock certificates to be registered in the appropriate names as
determined by the Escrow Agent in accordance with this Agreement. Parent shall
give the Escrow Agent prompt written notice of the name and address of any new
transfer agent for Parent's Common Stock. Parent and the Representative
undertake to deliver a prompt written notice to the Escrow Agent identifying the
number of Escrow Shares to be released to each of the
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Significant Shareholders and/or Parent, as applicable, in accordance with this
Agreement. Unless the Escrow Agent is instructed otherwise by Parent and the
Representative, Escrow Shares released to the Significant Shareholders shall be
released to them in proportion to their respective percentage interests in the
Escrow Shares as set forth in EXHIBIT A hereto. The Escrow Agent shall use good
faith efforts (with Parent's assistance) to have such stock certificates in its
possession by delivery from Parent's transfer agent no later than two (2)
business days prior to the day on which the Escrow Agent is to deliver such
certificates to the Significant Shareholders. Cash shall be paid in lieu of any
fraction of an Escrow Share held by any Significant Shareholder (computed for
each Significant Shareholder by aggregating all Escrow Shares held by such
Significant Shareholder) in an amount equal to the applicable fraction of an
Escrow Share multiplied by the Closing Price Per Share (as defined in Section
4(e) of this Agreement), such price per share to be adjusted to reflect any
stock dividend, stock split, reverse stock split, combination of shares,
reclassification, recapitalization or other similar event affecting Parent
Common Stock (each a "CAPITAL CHANGE"), whether occurring at or after the
Closing Date. Parent shall distribute, or Parent shall provide to the Escrow
Agent and Escrow Agent shall distribute, cash in lieu of fractional Escrow
Shares; provided, neither Parent nor Escrow Agent shall be obligated to disburse
such cash amount to any Significant Shareholder until such Significant
Shareholder delivers an IRS Form W-9 (or Form W-8 in the case of a foreign
person) for tax reporting purposes, duly completed and executed by such
Significant Shareholder. Parent shall be deemed to have purchased the fractional
shares for which it has provided cash-in-lieu payments.
(e) NO ENCUMBRANCE. No Escrow Shares or any beneficial
interest therein may be pledged, encumbered, sold, assigned or transferred
(including any transfer by operation of law), by a Significant Shareholder or be
taken or reached by any legal or equitable process in satisfaction of any debt
or other liability of such Significant Shareholder, prior to the delivery to
such Significant Shareholder of such Escrow Shares by the Escrow Agent in
accordance with this Agreement. The Escrow Agent shall have no responsibility
for determining or enforcing compliance with this Section 2(e), except that the
Escrow Agent shall retain possession of the stock certificates evidencing the
Escrow Shares as required by this Agreement.
(f) POWER TO TRANSFER ESCROW SHARES. The Escrow Agent is
hereby granted the power to effect any transfer of Escrow Shares contemplated by
this Agreement. Parent shall cooperate with the Escrow Agent in causing Parent's
transfer agent to promptly issue stock certificates to effect such transfers.
(g) LEGEND. Stock certificates representing Escrow Shares
will (until they are released to the Significant Shareholders or Parent in
accordance with this Agreement) bear the following legend indicating that they
are subject to this Agreement:
"THE SECURITIES REPRESENTED HEREBY MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED ONLY IN ACCORDANCE WITH THE TERMS
OF AN ESCROW AGREEMENT AMONG THE ISSUER, THE HOLDER THEREOF, XXXXX XXXX
(AS REPRESENTATIVE OF THE HOLDER THEREOF), AND STATE STREET BANK AND
TRUST COMPANY
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OF CALIFORNIA, N.A. A COPY OF SUCH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE ISSUER."
(h) UPDATING. Parent and the Representative shall promptly
deliver to the Escrow Agent a revised EXHIBIT A to update the information
contained therein following the occurrence of any of the following events: (i) a
Capital Change, (ii) any issuance of Additional Escrow Shares; (iii) any change
in the Closing Price Per Share (as defined in Section 4(e) of this Agreement);
or (iv) any change in the information set forth in EXHIBIT A regarding the
Significant Shareholders. Unless and until the Escrow Agent receives such
revised EXHIBIT A, the Escrow Agent may assume without inquiry that the last
EXHIBIT A it received remains in effect and that such exhibit has not been, and
is not required to be, modified.
3. CONTENTS OF NOTICE OF CLAIM.
(a) Each Notice of Claim given pursuant to Section 1(c) of
this Agreement shall be in writing and shall contain the following information
to the extent it is reasonably available:
(i) Statement of the amount of the Damages that
Parent or any other affected Indemnified Person believes have been actually
incurred in connection with the Claim and statement of its good faith estimate
of the reasonably foreseeable maximum amount of the alleged Damages that will
ultimately be incurred in connection with such Claim, which amount of estimated
future Damages may, without limitation, include the amount of damages claimed by
a third party plaintiff in an action brought against Parent, the Surviving
Corporation or any other Indemnified Person based upon or including facts or
assertions which, if true, would give rise to Damages; and
(ii) A brief description in reasonable detail of the
facts, circumstances or events giving rise to the alleged Damages based on
Parent's or any other affected Indemnified Person's good faith belief thereof,
including, without limitation and if applicable, the identity and address of any
third-party claimant (to the extent reasonably available to an Indemnified
Person) and copies of any formal demand or complaint of any such third-party
claimant.
(b) The Escrow Agent shall not transfer any of the Escrow
Shares held in the Escrow Account to Parent pursuant to a Notice of Claim until
such Notice of Claim has been resolved in accordance with Section 4.
4. RESOLUTION OF CLAIMS AND TRANSFERS OF ESCROW SHARES. Any Notice
of Claim received by the Representative and the Escrow Agent pursuant to
Sections 1(c) and 3 of this Agreement shall be resolved as follows:
(a) UNCONTESTED CLAIMS. If, within thirty (30) calendar days
after a Notice of Claim containing a statement of claimed Damages has been
received by, or is deemed to have been delivered by Parent or any other
Indemnified Person to, the Representative and the Escrow Agent pursuant to
Section 7 of this Agreement, the Representative has not contested such Notice of
Claim in a written notice received by Escrow Agent as provided in Section 4(b)
of this Agreement (an "UNCONTESTED CLAIM") and the Escrow Agent has not received
written
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confirmation from Parent that the Representative has paid Parent in full the
amount demanded in such Notice of Claim, then the Escrow Agent shall: (i)
immediately release from escrow and transfer to Parent for cancellation and
forfeiture that number of Escrow Shares having a value (as determined in
accordance with Section 4(e) of this Agreement) equal to the amount of Damages
specified in such Notice of Claim, which transferred and forfeited Escrow Shares
shall be taken from and forfeited by the Significant Shareholders in the manner
set forth in Section 1(f) of this Agreement; and (ii) notify the Representative
in writing of such transfer and forfeiture of Escrow Shares as promptly as
reasonably practicable.
(b) CONTESTED CLAIMS. In the event that the Representative
delivers to Parent and the Escrow Agent a written notice contesting all, or a
portion of, a Notice of Claim (a "CONTESTED CLAIM") and such written notice has
been received by, or is deemed, under the provisions of Section 7 of this
Agreement, to have been delivered to, Parent and the Escrow Agent within the
thirty (30) day period described in Section 4(a) of this Agreement, then: (i)
such Contested Claim shall be resolved prior to the expiration of the Escrow
Period, to the extent such timing is reasonably practicable, by either (A) a
written settlement agreement executed by Parent and the Representative or (B) in
the absence of such a written settlement agreement, by binding arbitration in
accordance with the provisions of Section 4(c) of this Agreement. Any portion of
the Notice of Claim that is not contested by the Representative in accordance
with the foregoing provisions of this Section 4(b) shall be resolved as an
Uncontested Claim in accordance with Section 4(a) of this Agreement.
(c) ARBITRATION OF CONTESTED CLAIMS. The parties agree that
any Contested Claim shall be submitted to mandatory, final and binding
arbitration before the American Arbitration Association ("AAA") or its successor
and that any such arbitration shall be conducted in Santa Xxxxx County,
California. Either Parent or the Representative may commence the arbitration
process called for by this Agreement by filing a written demand for arbitration
with AAA and giving a copy of such demand to each of the other parties to this
Agreement; Parent (on behalf of itself and any other Indemnified Person) and
Representative shall be the parties to the arbitration. The arbitration shall be
conducted in accordance with the provisions of the commercial arbitration rules
of the American Arbitration Association ("AAA RULES") then in effect. However,
in all events, these arbitration provisions shall govern over any conflicting
rules which may now or hereafter be contained in the AAA Rules. The AAA will
have the authority to select an arbitrator from a list of arbitrators who are
lawyers familiar with California contract law; PROVIDED, HOWEVER, that such
lawyers cannot work for a firm then performing services for either party, that
each party will have the opportunity to make such reasonable objection to any of
the arbitrators listed as such party may wish and that the AAA will select the
arbitrator from the list of arbitrators as to whom neither party makes any such
objection. In the event that the foregoing procedure is not followed, each party
will choose one person from the list of arbitrators provided by the AAA
(provided that such person does not have a conflict of interest), and the two
persons so selected will select from the list provided by the AAA the person who
will act as the arbitrator. The parties covenant that they will participate in
the arbitration in good faith, and that they will share in its costs in
accordance with subparagraph (i) below. The provisions of this paragraph may be
enforced by any court of competent jurisdiction, and the party seeking
enforcement shall be entitled to an award of all costs, fees and expenses,
including attorneys' fees, to be paid by the party against whom enforcement is
ordered. Subject
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to the provisions of subparagraph (vii) below, judgment upon the award
rendered by the arbitrator may be entered in any court having competent
jurisdiction.
(i) PAYMENT OF COSTS. Parent on the one hand, and
the Representative on the other hand, shall bear the expense of deposits and
advances required by the arbitrator in equal proportions, but either party may
advance such amounts, subject to recovery as an addition or offset to any award.
The arbitrator shall award to the prevailing party, as determined by the
arbitrator, all reasonable costs, fees and expenses related to the arbitration,
including reasonable fees and expenses of attorneys, accountants and other
professionals incurred by the prevailing party. If such an award would result in
manifest injustice, however, the arbitrator may apportion such costs, fees and
expenses between the parties in such a manner as the arbitrator deems just and
equitable.
(ii) BURDEN OF PROOF. For any Contested Claim
submitted to arbitration, the burden of proof shall be as it would be if the
claim were litigated in a judicial proceeding governed by California law
exclusively.
(iii) AWARD. Upon the conclusion of any arbitration
proceedings hereunder, the arbitrator shall render findings of fact and
conclusions of law and a final written arbitration award setting forth the basis
and reasons for any decision reached (the "FINAL AWARD") and shall deliver such
documents to the Escrow Agent, the Representative and Parent, together with a
signed copy of the Final Award. Subject to the provisions of subparagraph (vii)
below, the Final Award shall constitute a conclusive determination of all issues
in question, binding upon the Significant Shareholders, the Representative and
Parent, and shall include an affirmative statement to such effect. To the extent
that the Final Award determines that Parent or any other Indemnified Person has
actually incurred Damages in connection with the Contested Claim through the
date of the Final Award ("INCURRED DAMAGES"), the Final Award shall set forth
and award to Parent or other Indemnified Person, as applicable, the amount of
such Incurred Damages. In addition, the Final Award shall set forth and award to
Parent or other Indemnified Person, as applicable, an additional amount of
Damages equal to the reasonably foreseeable amount of alleged Damages that the
arbitrator determines are reasonably likely to be incurred by Parent and/or any
other Indemnified Person as a result of the facts giving rise to the Contested
Claim ("ESTIMATED DAMAGES"), which amount of Estimated Damages may, without
limitation, include the amount of damages claimed by a third party plaintiff in
an action brought against Parent, the Surviving Corporation or any other
Indemnified Person based upon or including facts or assertions which, if true,
would give rise to Damages.
(iv) TIMING. The Representative, Parent and the
arbitrator shall conclude each arbitration pursuant to this Section 4 as
promptly as possible for the Contested Claim being arbitrated. The parties agree
that time is of the essence.
(v) TERMS OF ARBITRATION. The arbitrator chosen in
accordance with these provisions shall not have the power to alter, amend or
otherwise affect the terms of these arbitration provisions or the provisions of
this Agreement or the Plan.
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(vi) EXCLUSIVE REMEDY. Except as specifically
otherwise provided in this Agreement or the Plan, arbitration conducted in
accordance with this Agreement shall be the sole and exclusive remedy of the
parties for resolving any Contested Claim.
(vii) TREATMENT OF DAMAGES. Upon the arbitrator's
issuance of the Final Award in such arbitration, the arbitrator shall
immediately deliver a copy of such Final Award to the Representative, Parent and
the Escrow Agent as provided above. Upon issuance of such Final Award, Parent
will immediately be entitled to recover (A) the amount of any Incurred Damages
determined and awarded to Parent under such Final Award and (B) the amount of
Estimated Damages determined and awarded under such Final Award to the extent
that such Estimated Damages do not arise from a Third-Party Claim, all in
accordance with paragraph (viii) below, and such Incurred Damages and such
Estimated Damages will be deemed to be owed to Parent for purposes of this
Agreement. If the Final Award determines and awards any Estimated Damages to
Parent that arise from a Third-Party Claim then: (i) if the actual amount of
such Estimated Damages is determined by a settlement agreement or a final
judgment or arbitration award prior to the Resolution Date (as defined below)
for the Contested Claim with respect to which such Estimated Damages were
awarded under the Final Award, then for purposes of this Agreement, the amount
of such Estimated Damages owed to Parent shall be the amount so determined by
such settlement agreement, judgment or award; and (ii) if the actual amount of
such Estimated Damages is not so determined prior to such Resolution Date, then
for purposes of this Agreement, the amount of such Estimated Damages owed to
Parent shall be the amount of such Damages determined and awarded in the Final
Award. As used herein, the term "RESOLUTION DATE" for a Contested Claim means
the first anniversary of the Closing Date. Both Incurred Damages and Estimated
Damages owed to Parent are deemed to be Damages for purposes of this Agreement.
(viii) RELEASE OF ESCROW SHARES PURSUANT TO ARBITRATION
AWARD. Upon its receipt of a copy of the Final Award, the Escrow Agent shall
first permit the Representative, at the Representative's option, the opportunity
to pay to Parent the amount of Damages (if any) that are owed to Parent (as
determined under paragraph (vii) above) in full in cash on or before the earlier
of (i) ten (10) days after the Escrow Agent's receipt of a copy of such Final
Award or (ii) the Resolution Date for the Contested Claim with respect to which
such Damages are owed. Immediately following Parent's receipt of payment of
Damages from Representative, Parent shall notify the Escrow Agent of such
payment. If the Escrow Agent does not receive written confirmation from Parent
that such owed Damages have been paid in full in cash to Parent prior to the
earlier of (i) expiration of such ten (10) day period or (ii) such Resolution
Date, then the Escrow Agent will (i) immediately release from escrow and
transfer to Parent for cancellation that number of Escrow Shares having a value
(determined in accordance with Section 4(e) of this Agreement) equal to the
amount of Damages (if any) owed to Parent (as determined under paragraph (vii)
above), which transferred and forfeited Escrow Shares shall be taken from and
forfeited by each of the Significant Shareholders in the manner set forth in
Section 1(f) of this Agreement, and (ii) notify the Representative in writing of
such transfer and forfeiture of Escrow Shares as promptly as reasonably
practicable.
(d) SETTLED CLAIMS. If a Claim (including a Contested Claim)
is settled by a written settlement agreement executed by the Representative and
Parent (a "SETTLED CLAIM"),
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then the Representative and Parent shall promptly deliver such executed
settlement agreement to the Escrow Agent together with written instructions
executed by both Parent and the Representative to the Escrow Agent ("SETTLEMENT
INSTRUCTIONS") which shall, in accordance with and subject to the terms of the
written settlement agreement, instruct the Escrow Agent either: (i) to release a
stated number of Escrow Shares to Parent pursuant to such settlement agreement;
and/or (ii) that no action need be taken by the Escrow Agent with respect to
such Claim. Upon its receipt of such settlement agreement and Settlement
Instructions instructing the Escrow Agent to release Escrow Shares to Parent,
the Escrow Agent shall: (i) immediately release from escrow and transfer to
Parent for cancellation that number of Escrow Shares that Parent and the
Representative have agreed shall be transferred and forfeited by the Significant
Shareholders in such Settlement Instructions, which transferred and forfeited
Escrow Shares shall be taken from and forfeited by each of the Significant
Shareholders in the manner set forth in Section 1(f) of this Agreement; and (ii)
notify the Representative in writing of such transfer and forfeiture of Escrow
Shares as promptly as reasonably practicable.
(e) DETERMINATION OF NUMBER OF ESCROW SHARES FORFEITED. Any
amount of Damages owed to Parent or any Indemnified Person hereunder, determined
pursuant to the foregoing provisions of this Section 4 and not paid in cash by
the Representative in accordance with the above provisions of this Section 4,
shall be immediately payable to Parent out of the Escrow Shares then held by the
Escrow Agent, and the forfeited Escrow Shares shall be taken from and forfeited
by the Significant Shareholders in the manner set forth in Section 1(f) of this
Agreement. For purposes of this Agreement, Escrow Shares shall be deemed to have
a per share value equal to the average of the closing prices of Parent Common
Stock quoted on the Nasdaq National Market during the ten (10) trading days
ending on the Closing Date ("CLOSING PRICE PER SHARE") (such price per share to
be adjusted to reflect any Capital Change, whether occurring at or after the
Closing Date). Thus, the number of Escrow Shares to be released from escrow,
forfeited by the Significant Shareholders and transferred to Parent in
satisfaction of a Claim for Damages (whether an Uncontested Claim, a Contested
Claim or a Settled Claim) and not paid in cash as provided above shall be the
amount of such Damages divided by the Closing Price Per Share (such price per
share to be adjusted to reflect any Capital Change, whether occurring at or
after the Closing Date).
(f) MULTIPLE CLAIMS PERMITTED. The assertion of any single
Claim for indemnification hereunder shall not bar Parent from asserting any
other Claims hereunder.
5. LIMITATION OF ESCROW AGENT'S LIABILITY.
(a) LIMITATION OF LIABILITY. The Escrow Agent shall incur no
liability with respect to any action taken or suffered by it in reliance upon
any notice, direction, instruction, consent, statement or other document
believed by it to be genuine and duly authorized, nor for any other action or
inaction, except its own willful misconduct, fraud or gross negligence. The
Escrow Agent shall have no duty to inquire into or investigate the validity,
accuracy or content of any document delivered to it. The Escrow Agent shall not
be responsible for the validity or sufficiency of this Agreement. In all
questions arising under this Agreement, the Escrow Agent may rely on the advice
or opinion of counsel, and for anything done, omitted or suffered in good faith
by the Escrow Agent based on such advice, the Escrow Agent shall not be liable
to anyone.
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The Escrow Agent shall not be required to take any action hereunder involving
any expense unless the payment of such expense is made or provided for in a
manner satisfactory to it. The Escrow Agent shall have no duties or
responsibilities other than those expressly set forth in this Agreement and the
implied duty of good faith and fair dealing.
(b) RESOLUTION OF CONFLICTING DEMANDS. In the event
conflicting demands are made or conflicting notices are served upon the Escrow
Agent with respect to the Escrow Account, the Escrow Agent shall have the
absolute right, at the Escrow Agent's election, to do any or all of the
following: (i) resign so a successor can be appointed pursuant to Section 10 of
this Agreement; (ii) file a suit in interpleader and obtain an order from a
court of competent jurisdiction requiring the parties to interplead and litigate
in such court their several claims and rights among themselves; or (iii) give
written notice to the other parties that it has received conflicting
instructions from Parent and the Representative and is refraining from taking
action until it receives instructions consented to in writing by both Parent and
the Representative. In the event an interpleader suit as described in clause
(ii) above is brought, the Escrow Agent shall thereby be fully released and
discharged from all further obligations imposed upon it under this Agreement
with respect to the matters that are the subject of such interpleader suit, and
Parent shall pay the Escrow Agent all costs, expenses and reasonable attorneys'
fees expended or incurred by the Escrow Agent pursuant to the exercise of Escrow
Agent's rights under this Section 5(b) (such costs, fees and expenses shall be
treated as extraordinary fees and expenses for the purposes of Section 9 of this
Agreement). Parent shall be entitled to reimbursement from the Significant
Shareholders of any extraordinary fees and expenses of Escrow Agent in the event
Parent prevails in such dispute pursuant to Section 9 of this Agreement.
(c) INDEMNIFICATION. Each party to this Agreement other than
the Escrow Agent (each an "INDEMNIFYING PARTY" and together the "INDEMNIFYING
PARTIES"), hereby jointly and severally covenants and agrees to reimburse,
indemnify and hold harmless Escrow Agent, the Escrow Agent's officers,
directors, employees, counsel and agents (severally and collectively, "ESCROW
AGENT"), from and against any loss, damage, liability or loss suffered, incurred
by, or asserted against Escrow Agent (including amounts paid in settlement of
any action, suit, proceeding, or claim brought or threatened to be brought and
including reasonable expenses of legal counsel) arising out of, in connection
with or based upon, any act or omission by Escrow Agent (not involving gross
negligence, willful misconduct or fraud on Escrow Agent's part) relating in any
way to this Agreement or the Escrow Agent's services hereunder. The aggregate
liability of the Significant Shareholders to the Escrow Agent under this
indemnity shall be limited to the Escrow Shares then in escrow hereunder.
Anything in this Agreement to the contrary notwithstanding, in no event shall
the Escrow Agent be liable for special, indirect or consequential loss or damage
of any kind whatsoever (including but not limited to lost profits), even if the
Escrow Agent has been advised of the likelihood of such loss or damage and
regardless of the form of action. Any Indemnifying Party who reimburses or
indemnifies the Escrow Agent pursuant to this Section 5(c) shall have a right to
seek contribution from any and all other Indemnifying Parties according to their
relative fault.
(d) DEFENSE. Each Indemnifying Party may participate at its
own expense in the defense of any claim or action that may be asserted against
Escrow Agent, and if the Indemnifying Parties so elect, the Indemnifying Parties
may assume the defense of such claim or
-12-
action; PROVIDED, HOWEVER, that if there exists a conflict of interest that
would make it inappropriate, in the sole discretion of the Escrow Agent, for the
same counsel to represent both Escrow Agent and the Indemnifying Parties, Escrow
Agent's retention of separate counsel shall be reimbursable as hereinabove
provided. Escrow Agent's right to indemnification hereunder shall survive Escrow
Agent's resignation or removal as Escrow Agent and shall survive the termination
of this Agreement by lapse of time or otherwise.
(e) NOTICE TO INDEMNIFYING PARTIES. The Escrow Agent shall
notify each Indemnifying Party by letter, or by telephone or telecopy confirmed
by letter, of any receipt by Escrow Agent of a written assertion of a claim
against Escrow Agent, or any action commenced against Escrow Agent, for which
indemnification is required under Section 5(c) of this Agreement, within ten
(10) days after Escrow Agent's receipt of written notice of such claim. The
Indemnifying Parties will be relieved of their indemnification obligations under
this Section 5 if Escrow Agent fails to timely give such notice and such failure
adversely affects the Indemnifying Parties' ability to defend such claim.
However, Escrow Agent's failure to so notify each Indemnifying Party shall not
operate in any manner whatsoever to relieve an Indemnifying Party from any
liability that it may have otherwise than on account of this Section 5.
(f) USE OF AGENTS. The Escrow Agent may execute any of its
powers or responsibilities hereunder and exercise any rights hereunder either
directly or by or through its agents or attorneys and shall be entitled to
consult with its legal counsel, including in-house legal counsel, as to any
questions or matters arising hereunder and the reasonable, good faith written
opinion of such legal counsel shall be full and complete authorization and
protection to Escrow Agent in respect of any act or omission by Escrow Agent
undertaken in good faith and in accordance with the opinion of such legal
counsel. Nothing in this Agreement shall be deemed to impose upon Escrow Agent
any duty to qualify to do business or to act as a fiduciary or otherwise in any
jurisdiction other than the State of California.
6. SIGNIFICANT SHAREHOLDERS' REPRESENTATIVE. For purposes of this
Agreement, the Significant Shareholders hereby consent to the appointment of the
Representative (and any replacement hereunder), as representative of the
Significant Shareholders, and as the agent and attorney-in-fact for and on
behalf of each Significant Shareholder, and, subject to the express limitations
set forth below, the taking by the Representative of any and all actions and the
making of any decisions required or permitted to be taken by the Representative
under this Agreement, including, without limitation, the exercise of the power
to (i) authorize delivery to Parent of the Escrow Shares, or any portion
thereof, in satisfaction of Claims, (ii) 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, (iii) take all
actions necessary in connection with the waiver of any condition to the
obligations of the Significant Shareholders under this Agreement, (iv) waive any
right of the Significant Shareholders, (v) give and receive all notices required
to be given under this Agreement, (vi) resolve any Claims and (vii) take all
actions necessary in the sole judgment of the Representative for the
accomplishment of the foregoing and all of the other terms, conditions and
limitations of this Agreement. The Representative shall have unlimited authority
and power to act on behalf of each Significant Shareholder with respect to this
Agreement and the disposition, settlement or other handling of
-13-
all Claims, rights or obligations arising under this Agreement so long as all
Significant Shareholders are treated in the same manner. The Significant
Shareholders shall be bound by all actions taken by the Representative in
connection with this Agreement. Parent shall be entitled to rely on any action
or decision of the Representative, and no Significant Shareholder shall have any
cause of action against the Representative for any action taken, decision made
or instruction given by the Representative under this Agreement, except for
fraud, gross negligence or willful misconduct (including willful breach of this
Agreement) by the Representative. In performing the functions specified in this
Agreement, the Representative shall not be liable to the Significant
Shareholders in the absence of fraud, gross negligence or willful misconduct
(including willful breach of this Agreement). In the event that Representative
dies, becomes unable to perform the responsibilities hereunder or resigns as the
Representative hereunder, a substitute representative shall be appointed by the
holders of a majority of the Escrow Shares to act as the Representative of the
Significant Shareholders hereunder. The Representative may resign as the
Representative hereunder, effective upon a new representative being appointed in
writing by Significant Shareholders who beneficially own a majority of the
Escrow Shares. The Representative shall not be entitled to receive any
compensation from Parent or the Significant Shareholders in connection with this
Agreement. Any out-of-pocket costs and expenses reasonably incurred by the
Representative in connection with actions taken pursuant to the terms of this
Agreement shall be paid by the Significant Shareholders to the Representative in
proportion to their percentage interests in the Escrow Shares set forth on
EXHIBIT A. Parent agrees that, in acting as Representative hereunder and
performing his obligations as a Representative hereunder, the Representative
shall not be deemed to have violated any fiduciary or similar duties (if any)
that the Representative may owe to Parent by virtue of his position(s) with
Parent or its subsidiaries. Each of the Significant Shareholders agree to
indemnify and hold the Representative harmless from and against all loss,
liability, damages, cost or expense (including but not limited to reasonable
attorneys' and experts' fees and court costs) incurred by the Representative in
connection with the performance of the Representative's duties and obligations
under this Agreement (other than any loss, liability, damages, cost or expense
incurred through acts or omissions constituting gross negligence or willful
misconduct on the Representative's part). The provisions of this Section are
independent and severable, shall constitute an irrevocable power of attorney,
coupled with an interest and surviving death, granted by each Significant
Shareholder to the Representative and shall be binding upon the executors,
heirs, legal representatives and successors of each Significant Shareholder and
any references in this Agreement to a Significant Shareholder shall include the
successor to the Significant Shareholders' rights hereunder, whether pursuant to
testamentary disposition, the laws of descent and distribution or otherwise.
7. NOTICES. All notices, instructions and other communications
required or permitted to be given hereunder or necessary or convenient in
connection herewith must be in writing and shall be deemed delivered (i) when
personally served or when delivered by telex or facsimile as evidenced by
confirmation showing successful transmission (to the telex or facsimile number
of the person to whom the notice is given), (ii) when delivered by an overnight
courier service as shown by the records of such delivery service, or (iii) on
the earlier of actual receipt or the third business day following the date on
which the notice is deposited in the United States mail, first class certified
or registered mail, postage prepaid, addressed as follows:
If to the Escrow Agent: State Street Bank and Trust Company of California,
N.A.
-14-
000 Xxxx 0xx Xxxxxx, 00xx xxxxx
Xxx Xxxxxxx, XX 00000
Attn: Corporate Trust Administration (Silicon
Image/CMD 2001 Escrow)
Fax Number: (000) 000-0000
Phone Number: (000) 000-0000
If to Parent: Silicon Image, Inc.
0000 Xxxx Xxxxxx Xxx.
Xxxxxxxxx, XX 00000
Attention: General Counsel
Fax Number: (000) 000-0000
Phone Number (000) 000-0000
With a copy to: Fenwick & West LLP
Xxx Xxxx Xxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxx, Esq.
Fax Number: (000) 000-0000
Phone Number: (000) 000-0000
If to Representative: Xxxxx Xxxx
00 Xxxxxx Xxxxx
Xxxxxx, XX 00000
With a copy to: Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxx Xxxxxx Xxxxx, 00xx Xxxxx
Xxxxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxx, Esq.
Fax Number: (000) 000-0000
Phone Number: (000) 000-0000
or to such other address as Parent, the Representative or the Escrow Agent, as
the case may be, designates in a writing delivered to each of the other parties
hereto in accordance with this Section 7. Notwithstanding the foregoing, notices
and the like addressed to the Escrow Agent shall be effective only upon receipt.
The Escrow Agent may assume without inquiry (unless the Escrow Agent has written
notice to the contrary) that notices received by it which are also required to
be delivered to another party have, in fact, been delivered to such other party.
8. GENERAL.
(a) GOVERNING LAW; ASSIGNS. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of California
without regard to conflicts of law principles and shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors and
permitted assigns.
(b) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-15-
(c) ENTIRE AGREEMENT. As between Company and the Significant
Shareholders, except as otherwise provided in the Plan, this Agreement
constitutes the entire understanding and agreement of the parties with respect
to the subject matter of this Agreement and supersedes all prior agreements or
understandings, written or oral, between the parties with respect to the subject
matter hereof. As between the Escrow Agent and the other parties hereto, all
such parties agree that, as set forth in Section 11 of this Agreement, the
Escrow Agent's duties are defined only in this Agreement, any contrary
provisions of the Plan notwithstanding.
(d) WAIVERS. No waiver by any party hereto of any condition
or of any breach of any provision of this Agreement shall be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, shall be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
(e) TAX IDENTIFICATION NUMBERS. If applicable, each party
hereto, other than the Escrow Agent, shall provide the Escrow Agent with its Tax
Identification Number (TIN) as assigned by the Internal Revenue Service prior to
the execution of this Agreement.
(f) AGENTS. Unless expressly provided otherwise herein, any
actions to be taken by Parent hereunder may also be taken by Parent's attorneys
or agents.
9. COMPENSATION AND EXPENSES OF ESCROW AGENT. All fees and expenses
of the Escrow Agent incurred in the ordinary course of performing its
responsibilities hereunder shall be paid by Parent upon receipt of a written
invoice by Escrow Agent. Any extraordinary fees and expenses, including without
limitation any fees or expenses (including the fees or expenses of outside
counsel to the Escrow Agent) incurred by the Escrow Agent in connection with a
dispute over the distribution of Escrow Shares or the validity of a Notice of
Claim, shall be paid by Parent upon receipt of a written invoice by Escrow
Agent; PROVIDED, HOWEVER, that notwithstanding the foregoing, the Significant
Shareholders shall be liable for any extraordinary fees and expenses of the
Escrow Agent arising in connection with a dispute hereunder, in the event that
Parent prevails in such dispute, PROVIDED such liability shall not exceed the
value of the Escrow Shares then in escrow. The Escrow Agent shall have no duty
to solicit any payments which may be due it hereunder.
10. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by giving
notice of its resignation to the parties to this Agreement, specifying a date
not less than thirty (30) days following such notice date of when such
resignation shall take effect. Parent shall designate a successor Escrow Agent
prior to the expiration of such thirty (30) day period by giving written notice
to the escrow agent and the Representative. Parent may appoint a successor
Escrow Agent without the consent of the Representative or the Significant
Shareholders so long as such successor is a bank which, together with its
parent, has assets of at least $100 million, and may appoint any other successor
Escrow Agent with the consent of the Representative, which shall not be
unreasonably withheld. If no successor escrow agent is named by Parent, the
Escrow Agent may apply to a court of
-16-
competent jurisdiction for the appointment of a successor Escrow Agent. The
Escrow Agent shall promptly transfer the Escrow Shares to such designated
successor.
11. LIMITATION OF RESPONSIBILITY. The Escrow Agent's duties are
limited to those set forth in this Agreement, and Escrow Agent, acting as such
under this Agreement, is not charged with knowledge of or any duties or
responsibilities under any other document or agreement, including without
limitation the Plan. Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder either directly or
by or through its agents or attorneys. Nothing in this Escrow Agreement shall be
deemed to impose upon the Escrow Agent any duty to qualify to do business or to
act as a fiduciary or otherwise in any jurisdiction other than the State of
California. Escrow Agent shall not be responsible for and shall not be under a
duty to examine into or pass upon the validity, binding effect, execution or
sufficiency of this Escrow Agreement or of any agreement amendatory or
supplemental hereto. In no event shall the Escrow Agent have any duty or
obligation to determine or enforce compliance with the requirements of any
agreement or instrument other than this Agreement (including without limitation
the Plan).
12. FORCE MAJEURE. Neither Parent nor the Representative nor the
Significant Shareholders nor Escrow Agent shall be responsible for any delays or
failures in performance resulting from acts beyond its control. Such acts shall
include but not be limited to acts of God, strikes, lockouts, riots, acts of
war, epidemics, governmental regulations superimposed after the fact, fire,
communication line failures, computer viruses, power failures, earthquakes or
other disasters.
13. REPRODUCTION OF DOCUMENTS. This Agreement and all documents
relating thereto, including, without limitation, (a) consents, waivers and
modifications which may hereafter be executed, and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties hereto agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction shall likewise be admissible in evidence.
14. AMENDMENT. This Agreement may be amended by the written
agreement of Parent, the Escrow Agent and the Representative, provided that, if
the Escrow Agent does not agree to an amendment agreed upon by Parent and the
Representative, the Escrow Agent shall resign and Parent shall appoint a
successor Escrow Agent in accordance with Section 10 above. No amendment of the
Plan shall increase Escrow Agent's responsibilities or liability hereunder
without Escrow Agent's written agreement.
[Remainder of Page Intentionally Left Blank]
-17-
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
PARENT: REPRESENTATIVE:
SILICON IMAGE, INC.
By: /s/ Xxx Xxxxx By: /s/ Chie-Xxxx Xxxx
------------------------------------- --------------------------
Name: Xxx Xxxxx Name: Chie-Xxxx Xxxx
----------------------------------- -------------------------
Title: Chief Financial Officer
----------------------------------
ESCROW AGENT:
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
By: /s/ Xxxxx Xxxxxx
-------------------------------------
Authorized Signatory
SIGNIFICANT SHAREHOLDERS:
Xxxxx Xxxxx and Xxxx Xxxxx Family Trust, dated September 15, 1993
By: /s/ Xxxxx Xxxxx By: /s/ Xxxx Xxxxx
------------------------------------- --------------------------
Xxxxx Xxxxx, Trustee Xxxx Xxxxx, Trustee
Wen Xxx Xxx Trust, dated January 11, 1994
By: /s/ Wen Xxx Xxx
-------------------------------------
Wen Xxx Xxx, Trustee
Xxxxxx X. Xxxx and Xxxxx X. Xxxx Family Trust, dated November 3, 1993
By: /s/ Xxxxxx X. Xxxx
-------------------------------------
Xxxxxx X. Xxxx, Trustee
Chie-Xxxx Xxxx and Xxxxxxx Xxxx Family Trust, dated December 21, 1983
By: /S/ Chie-Xxxx Xxxx
-------------------------------------
Chie-Xxxx Xxxx, Trustee
[Signature Page to Escrow Agreement]
EXHIBIT A
TO ESCROW AGREEMENT
SIGNIFICANT
INITIAL SHAREHOLDER'S
SIGNIFICANT SHAREHOLDER ESCROW SHARES PERCENTAGE INTEREST
----------------------- ------------- -------------------
Xxxxx-Xxxxxx ("Simon") Xxxxx and Xxxx Xxxxx, as
Co-Trustees of the Xxxxx Xxxxx and Xxxx Xxxxx Family 209,241 25%
Trust, dated September 15, 1993
9 Kent
Xxxxxx, XX 00000
Taxpayer ID#: ###-##-####
----------------
Wen Xxx Xxx, as Trustee of the Wen Xxx Xxx Trust, dated
January 11, 1994 209,241 25%
0000 Xxxxx
Xxxxxx, XX 00000
Taxpayer ID#: ###-##-####
----------------
Xxxxxx X. Xxxx and Xxxxx X. Xxxx, as Trustees of the
Xxxxxx X. Xxxx and Xxxxx X. Xxxx Family Trust, dated 209,241 25%
November 3, 1993
000 Xxxxxxxxx Xx.
Xxxxxxx, XX 00000
Taxpayer ID#: ###-##-####
----------------
Chie-Xxxx Xxxx and Xxxxxxx Xxxx, as Trustees of the
Chie-Xxxx Xxxx and Xxxxxxx Xxxx Family Trust, dated 209,241 25%
December 21, 1983
00 Xxxxxx Xxxxx
Xxxxxx, XX 00000
Taxpayer ID#: ###-##-####
----------------
Closing Price Per Share = $5.032
EXHIBIT B
TO ESCROW AGREEMENT
STOCK POWER AND ASSIGNMENT
SEPARATE FROM CERTIFICATE
In connection with the Agreement and Plan of Reorganization (the
"PLAN") dated as of June 1, 2001, by and among Silicon Image, a Delaware
corporation ("PARENT"), Duke Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("MERGER SUB"), CMD Technology Inc., a
California corporation ("COMPANY"), and the principal shareholders of Company,
and the merger of Merger Sub with and into Company pursuant to the Plan (the
"MERGER"), the undersigned is receiving shares of Parent Common Stock in
exchange for the shares of Company Common Stock held by the undersigned prior to
the Merger.
FOR VALUE RECEIVED, and pursuant to the Plan and that certain Escrow
Agreement dated as of June 7, 2001 executed in connection therewith (the "ESCROW
AGREEMENT"), the undersigned hereby assigns and transfers unto State Street Bank
and Trust Company of California, N.A., as Escrow Agent (the "ESCROW AGENT")
pursuant to the Plan and the Escrow Agreement, __________ shares (the "SHARES")
of the Common Stock of Parent, as presently constituted.
The undersigned hereby irrevocably appoints the Escrow Agent, as
attorney-in-fact, with full power of substitution and re-substitution, to hold
such Shares in escrow and to transfer such shares on the books of Parent solely
in accordance with the terms and conditions of the Escrow Agreement.
Dated: ________________, _____
SHAREHOLDER
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
SEVERANCE INDEMNIFICATION AND ESCROW AGREEMENT
This Severance Indemnification and Escrow Agreement (this "AGREEMENT") is
made and entered into as of June 7, 2001 (the "EFFECTIVE DATE"), by and among
Silicon Image, Inc., a Delaware corporation ("PARENT"), the persons and entities
listed on EXHIBIT A hereto (collectively, the "SIGNIFICANT SHAREHOLDERS" and
each individually, a "SIGNIFICANT SHAREHOLDER") who immediately prior to the
closing and consummation of the Merger (as defined below) are all of the
principal shareholders of CMD Technology Inc., a California corporation
("COMPANY"), Xxxxx Xxxx, as the representative and agent of the Significant
Shareholders (the "REPRESENTATIVE") and State Street Bank and Trust Company of
California, N.A., as Escrow Agent (the "ESCROW AGENT").
RECITALS
A. Parent, Company and Duke Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("MERGER SUB") have entered into an Agreement
and Plan of Reorganization (the "PLAN") dated as of June 1, 2001, pursuant to
which Merger Sub shall be merged with and into Company in a reverse triangular
merger (the "MERGER"), with Company to be the surviving corporation of the
Merger (the "SURVIVING CORPORATION"). Capitalized terms used in this Agreement
and not otherwise defined herein shall have the meanings given them in the Plan,
a copy of which is attached hereto.
B. Each of the individuals set forth on EXHIBIT B previously entered into a
severance agreement with Company (a "COMPANY AGREEMENT"). Parent and the
Significant Shareholders desire that each person with a Company Agreement (a
"COVERED PERSON") amend their Company Agreements as set forth herein and desire
to bear certain responsibility for claims for any severance payments, benefits
and costs, including accelerated vesting ("SEVERANCE") by the Covered Persons as
set forth herein.
C. Section 1.11 of the Plan provides that the Severance Escrow Shares are
to be deducted and withheld from the Merger Consideration and placed in an
escrow account (the "ESCROW ACCOUNT") to secure certain indemnification
obligations of Significant Shareholders to Parent and other Indemnified Persons
under this Agreement on the terms and conditions set forth herein. The number of
Severance Escrow Shares initially required to be deposited in the Escrow Account
by each Significant Shareholder pursuant to this Agreement, the taxpayer
identification number of each Significant Shareholder, the percentage interest
of each Significant Shareholder in the Severance Escrow Shares and the Closing
Price Per Share (as defined below) are set forth on EXHIBIT A attached hereto.
D. Each Significant Shareholder is entering into this Agreement as a
material inducement and consideration for Parent to enter into the Plan and to
consummate the Merger and as a condition precedent to consummation of the
Merger, and the parties desire to set forth in this Agreement the terms and
conditions pursuant to which the Severance Escrow Shares shall be deposited,
held in, and disbursed from the Escrow Account.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. RESPONSIBILITY FOR COSTS, INDEMNIFICATION AND ESCROW
(a) AMENDMENT OF COMPANY AGREEMENTS. It was a condition to the
obligations of Parent and Merger Sub under the Plan (which Parent and Merger
Sub were entitled to waive) that each Covered Person amend his Company
Agreement (as amended, an "AMENDED AGREEMENT") to provide the following: (1)
items (i) (lessened title or authority) and (ii) (duties inconsistent with
status) are deleted from the definition of resignation for good reason; (2)
item (iii) (reduced salary) under the definition of resignation for good
reason only covers base salary (and not bonuses or benefits) and will not
apply to a reduction in salary implemented by Parent after the Closing Date
for a majority of the employees of the same Parent employee level as the
Covered Person; (3) item (v) (failure to assume) under the definition of good
reason does not apply to the Merger (including the failure of Parent to
expressly assume the Company Agreement) and only applies to the Amended
Agreement; and (4) the time period during which a termination of employment
may trigger the right to receive Severance under the Amended Agreement shall
be one (1) year following the Closing Date, irrespective of whether there is
a change in control of Parent during such time period (collectively, the
"REQUIRED AMENDMENTS"). As used herein the term "OPERATIVE AGREEMENT" shall
mean a Company Agreement, if such agreement has not been amended as
contemplated by this Section 1(a), or an Amended Agreement, if such Company
Agreement has been amended as contemplated by this Section 1(a).
(b) RESPONSIBILITY FOR INDUCEMENT COSTS AND TERMINATION COSTS. In
the event that Company or Parent was or is required to make any payments,
provide any benefits or otherwise compensate a Covered Person for entering
into an Amended Agreement, then Parent, on the one hand, and the Significant
Shareholders, on the other hand, shall each be responsible for fifty percent
(50%) of such payments, benefits or compensation and all claims, demands,
actions, causes of action, losses, costs, damages, liabilities and expenses
including, without limitation, reasonable legal fees related thereto
(collectively, "INDUCEMENT COSTS") (which shall include without limitation
all costs and expenses incurred in connection with a good faith dispute
regarding such requirement). The amount and character of any such payments,
benefits or compensation included in Inducement Costs to be offered to a
Covered Person shall be determined by Parent in its sole discretion. For
purposes of calculating Inducement Costs, any stock options granted to a
Covered Person shall be valued at three dollars ($3.00) per share subject to
an option.
In the event that Company or Parent was or is required to make
any payments, provide any benefits or otherwise compensate a Covered Person
in connection with a termination of such Covered Person on or prior to the
Closing Date for failure to enter into an Amended Agreement, Parent, on the
one hand, and the Significant Shareholders, on the other hand, shall each be
responsible for fifty percent (50%) of such payments, benefits or
compensation and all claims, demands, actions, causes of action, losses,
costs, damages, liabilities and expenses including, without limitation,
reasonable legal fees related thereto (collectively, "TERMINATION COSTS")
(which shall include without limitation all costs and expenses incurred in
connection with a good faith dispute regarding such requirement).
-2-
(c) RESPONSIBILITY FOR SEVERANCE COSTS. In the event that Company
or Parent was or is required to provide Severance to a Covered Person due to
a termination which occurs during the time period during which a termination
may trigger the right to receive Severance under the Operative Agreement,
then Parent, on the one hand, and the Significant Shareholders, on the other
hand, shall each be responsible for fifty percent (50%) of such Severance and
all claims, demands, actions, causes of action, losses, costs, damages,
liabilities and expenses including, without limitation, reasonable legal fees
related thereto (collectively, "SEVERANCE COSTS") (which shall include
without limitation all costs and expenses incurred in connection with a good
faith dispute regarding such requirement); PROVIDED, HOWEVER, that any
Severance Costs attributable to the failure of EXHIBIT B to name each and
every Covered Person shall be the sole responsibility of the Significant
Shareholders and not Parent. For purposes of calculating Severance Costs, the
value of accelerated vesting of options shall be calculating using the
Closing Price Per Share and net of any exercise proceeds payable by a Covered
Person.
(d) INDEMNIFICATION. The Significant Shareholders will, as set
forth herein, indemnify and hold harmless Parent, its Subsidiaries, and its
respective officers, directors, agents and employees, and each person, if
any, who controls or may control Parent within the meaning of the 1933 Act
(hereinafter referred to individually as an "INDEMNIFIED PERSON" and
collectively as "INDEMNIFIED PERSONS") from and against any and all damages,
including, without limitation, reasonable legal fees ("DAMAGES") for:
(1) Inducement Costs and Termination Costs for which the
Significant Shareholders are responsible pursuant to subsection (b) above; and
(2) Severance Costs for which the Significant Shareholders are
responsible pursuant to subsection (c) above.
(e) RECOVERY OF DAMAGES. Parent acknowledges and agrees (on behalf
of itself and the other Indemnified Persons) that an Indemnified Person
seeking recovery of Damages hereunder shall proceed first against the
Severance Escrow Shares according to the procedures set forth herein. In the
event that the Severance Escrow Shares then available (and not owed to an
Indemnified Person to be canceled and forfeited in accordance with Section 4
hereof in satisfaction of Claims by an Indemnified Person or otherwise
subject to a pending Claim by an Indemnified Person) are insufficient to
permit recovery by an Indemnified Person of the full amount of Damages owed,
then, notwithstanding any provision in the Plan or Escrow Agreement to the
contrary, such Indemnified Person may (but is not obligated to) bring a claim
for the difference against the Escrow Shares according to the procedures set
forth herein, without giving effect to the Basket. In the event that
Severance Escrow Shares or Escrow Shares have been released to the
Significant Shareholders and Damages arise on or prior to the second
anniversary of the Closing Date for which the Significant Shareholders are
responsible pursuant to this Agreement, then (1) the Significant Shareholders
shall be jointly and severally responsible for such Damages for up to the
value of the released Severance Escrow Shares and Escrow Shares (valued at
the Closing Price Per Share (as defined in Section 4(e)), provided the
responsibility of any single Significant Shareholder shall not exceed the
value of the Severance Escrow Shares and Escrow Shares released to it (valued
at the Closing Price Per Share (as defined in Section 4(e)) and (2) subject
to the limitations set forth in the preceding clause (1), an
-3-
Indemnified Person may pursue separate claims against the Significant
Shareholders (which claims shall to the extent practicable be resolved
according the procedures set forth in Section 9.1 of the Plan) for such
Damages not recovered against the Severance Escrow Shares and Escrow Shares.
(f) ESCROW OF SHARES. The Severance Escrow Shares shall be security
for the indemnification obligations of the Significant Shareholders
hereunder, subject to the terms and conditions of this Agreement. Xxxxx Xxxx
shall act as the initial Representative of the Significant Shareholders for
purposes of this Agreement, and is duly authorized to be and act as such
Representative and may bind the Significant Shareholders as provided herein.
Promptly after the Closing Date, Parent or its transfer agent shall deposit
the Severance Escrow Shares to be deducted and withheld from the shares of
Parent Common Stock issued to the Significant Shareholders in the Merger with
the Escrow Agent in the manner contemplated by Section 2(a) of this
Agreement, accompanied by the required stock powers and a written notice
making reference to this Agreement and identifying the shares so deposited as
the Severance Escrow Shares. The Escrow Agent shall hold the Severance Escrow
Shares in escrow as collateral for the indemnification obligations of the
Significant Shareholders hereunder until the Escrow Agent is required to
release such Severance Escrow Shares in accordance with the terms of this
Agreement. As used in this Agreement, the term "SEVERANCE ESCROW SHARES"
shall include all "ADDITIONAL SEVERANCE ESCROW SHARES" as that term is
defined in Section 2(b) of this Agreement. The Escrow Agent agrees to accept
delivery of the Severance Escrow Shares and to hold such Severance Escrow
Shares (and stock powers) in escrow subject to the terms and conditions of
this Agreement.
(g) NOTICE OF CLAIM. As used herein, the term "CLAIM" means a claim
for indemnification hereunder made by Parent or any other Indemnified Person.
Parent is authorized to make Claims on behalf of any other Indemnified
Person. An Indemnified Person shall give written notice of a Claim (a "NOTICE
OF CLAIM") to the Representative and the Escrow Agent as promptly as
reasonably practicable after either: (i) discovery, after the Closing, of any
fact or circumstance that gives rise to indemnification rights hereunder; or
(ii) discovery, after the Closing, of verbal or written notice to Parent or
to any other Indemnified Person of any claim, demand, suit, action,
arbitration, investigation, inquiry or proceeding brought by a third party
against such Indemnified Person that is based upon or includes facts or
assertions that would, if true, give rise to indemnification rights hereunder
(a "THIRD-PARTY CLAIM"). Any Indemnified Person may give a Notice of Claim at
any time prior to the close of the Escrow Period (as defined in Section 1(h)
of this Agreement) in order to seek recovery of Damages against the Severance
Escrow Shares pursuant to this Agreement. No delay on the part of any
Indemnified Person in giving the Representative notice of a Claim shall
relieve the Representative or any Significant Shareholder from any of its
obligations hereunder unless (and then only to the extent that) the
Representative and the Significant Shareholders are materially prejudiced
thereby.
(h) ESCROW PERIOD. As used herein, the term "ESCROW PERIOD" means
that time period beginning on the Closing Date and ending on the later to
occur of (i) the first anniversary of the Closing Date or (ii) the last date
on or prior to which a Covered Person may be terminated and then entitled to
Severance under the terms of an Operative Agreement. Parent
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shall deliver to Escrow Agent written notice of such dates, on which Escrow
Agent may rely without inquiry.
(i) THIRD-PARTY CLAIMS.
(i) Parent shall defend any Third-Party Claim, and, subject to
the terms and conditions of this Agreement, the costs and expenses incurred
by Parent in connection with such defense (including but not limited to
reasonable attorneys' fees, other professionals' and experts' fees and court
or arbitration costs) shall be included in the Damages related to or
resulting from a Claim for which an Indemnified Person may seek indemnity
pursuant to a Claim made hereunder.
(ii) Representative (A) may retain separate co-counsel and
participate in the defense of the Third-Party Claim at its own cost and
expense, (B) shall have the right to receive copies of all pleadings, notices
and communications with respect to the Third-Party Claim so long as the
receipt of such documents by the Representative does not affect any privilege
relating to the Indemnified Person, and (C) may participate in settlement
negotiations with respect to the Third-Party Claim. Parent and the
Indemnified Person(s) shall not enter into any settlement of such Third-Party
Claim without the prior written consent of the Representative (which consent
shall not be unreasonably withheld).
(j) ESCROW DEDUCTIONS. Payments for finally determined Claims shall
be deducted ratably from the Severance Escrow Shares of the Significant
Shareholders in proportion to their respective percentage interests in the
Severance Escrow Shares set forth on EXHIBIT A.
(k) NO ELECTION OF REMEDIES. Parent and any other Indemnified
Person may institute Claims against the Severance Escrow Shares and in
satisfaction thereof may retake Severance Escrow Shares in accordance with
this Agreement without making any claims directly against any Significant
Shareholder and without rescinding or attempting to rescind the transactions
consummated pursuant to the Plan. The assertion of any single Claim hereunder
will not bar Parent or any other Indemnified Person from asserting other
Claims hereunder. Parent and any other Indemnified Person need not exhaust
any other remedies that may be available to it, but rather may proceed
directly in accordance with the provisions of this Agreement.
2. DEPOSIT OF SEVERANCE ESCROW SHARES; RELEASE FROM ESCROW.
(a) DELIVERY OF SEVERANCE ESCROW SHARES. As soon as reasonably
practicable after the Closing Date: (i) the Severance Escrow Shares allocable
to each Significant Shareholder as shown on EXHIBIT A (the "INITIAL SEVERANCE
ESCROW SHARES") shall be delivered by Parent or Parent's transfer agent to
the Escrow Agent in the form of duly authorized stock certificates for such
shares issued in the respective names of the Significant Shareholders; and
(ii) each of the Significant Shareholders shall deliver to the Escrow Agent
three (3) stock powers in the form of EXHIBIT C attached hereto covering such
Initial Severance Escrow Shares, each duly endorsed and bearing a medallion
signature guarantee. Each Significant Shareholder agrees to execute and
deliver to the Escrow Agent such additional stock powers relating to the
Severance Escrow Shares as may be necessary, in the Escrow Agent's opinion,
to carry out its
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responsibilities under this Agreement. In the event Parent issues any
Additional Severance Escrow Shares (as defined below), Parent shall instruct
its transfer agent to deliver such Additional Severance Escrow Shares to the
Escrow Agent, and each Significant Shareholder shall deliver stock powers for
such Significant Shareholder's Additional Severance Escrow Shares to the
Escrow Agent, in the same manner as the Initial Severance Escrow Shares and
stock powers therefor were delivered to the Escrow Agent hereunder. Unless
and until stock certificates representing Additional Shares are received by
the Escrow Agent, the Escrow Agent may assume that none have been issued.
(b) DIVIDENDS, VOTING AND RIGHTS OF OWNERSHIP. Except for dividends
paid in shares of Parent stock that are declared and paid with respect to the
Severance Escrow Shares or shares of Parent Common Stock issued with respect
to Severance Escrow Shares and resulting from a stock split or subdivision
("ADDITIONAL SEVERANCE ESCROW SHARES"), any cash dividends, dividends payable
in securities or other distributions of any kind made or paid in respect of
the Severance Escrow Shares shall be distributed currently by Parent to each
Significant Shareholder. So long as the Severance Escrow Shares remain in the
Escrow Agent's possession pursuant to this Agreement and have not been
canceled as provided herein or repurchased by Parent, the Significant
Shareholder shall retain and shall be able to exercise voting rights with
respect to such Severance Escrow Shares and all other incidents of ownership
of said Severance Escrow Shares that are not inconsistent with the terms and
conditions of this Agreement, and Parent shall take all reasonable steps
necessary to allow the exercise of such rights. Parent and the Significant
Shareholders will arrange for the payment of dividends and the delivery of
proxies and other notices among themselves, and the Escrow Agent need not be
involved.
(c) DISTRIBUTIONS TO SIGNIFICANT SHAREHOLDERS.
(1) As used in this Agreement, a "SIGNIFICANT SHAREHOLDER'S
SEVERANCE ESCROW SHARES" refers to and means the Initial Severance Escrow
Shares allocable to such Significant Shareholder and the Additional Severance
Escrow Shares allocable to such Significant Shareholder, if any.
(2) On each successive three month anniversary of the Closing
Date (a "QUARTERLY RELEASE DATE"), Parent shall calculate in good faith the
maximum amount of Damages for which the Significant Shareholders may become
responsible pursuant to the terms hereof ("MAXIMUM DAMAGES") and deliver a
copy of such calculation to the Representative and the Escrow Agent. To the
extent that the value of the Severance Escrow Shares (valued using the
Closing Price Per Share (as defined in Section 4(e) of this Agreement) then
in escrow (and not owed to an Indemnified Person to be canceled and forfeited
in accordance with Section 4 hereof in satisfaction of Claims by an
Indemnified Person or otherwise subject to a pending Claim by an Indemnified
Person) exceeds the Maximum Damages, then the excess Severance Escrow Shares
shall be released from escrow by the Escrow Agent to the Significant
Shareholders in proportion to their respective percentage interests set forth
on EXHIBIT A.
(3) On the date upon which the Escrow Period expires (the
"FINAL RELEASE DATE"), the Escrow Agent shall release from escrow to each
Significant Shareholder such Significant Shareholder's Severance Escrow
Shares OTHER THAN any of such Significant
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Shareholder's Severance Escrow Shares that have previously been delivered to
an Indemnified Person or that are owed to an Indemnified Person and are to be
canceled and forfeited in accordance with Section 4 in satisfaction of Claims
by an Indemnified Person or that are otherwise subject to a pending Claim by
an Indemnified Person or that have previously been released to such
Significant Shareholder.
(d) RELEASE OF SEVERANCE ESCROW SHARES. The Severance Escrow Shares
shall be held by the Escrow Agent until such Severance Escrow Shares are
required to be released pursuant to either: (i) Section 2(c) of this
Agreement; or (ii) when required under applicable provisions of Section 4 of
this Agreement. The Escrow Agent shall deliver to the Significant
Shareholders or to Parent (who is authorized to accept delivery of Severance
Escrow Shares on behalf of any Indemnified Person), as applicable hereunder,
the requisite number of Severance Escrow Shares to be released on such
applicable date as is called for by this Agreement. Such delivery of
Severance Escrow Shares shall be in the form of stock certificate(s)
registered in the name of such Significant Shareholders or Parent, as
applicable, in accordance with this Agreement. The Escrow Agent shall
coordinate with Parent's transfer agent who shall cause such stock
certificates to be registered in the appropriate names as determined by the
Escrow Agent in accordance with this Agreement. Parent shall give the Escrow
Agent prompt written notice of the name and address of any new transfer agent
for Parent's Common Stock. Parent and the Representative undertake to deliver
a prompt written notice to the Escrow Agent identifying the number of
Severance Escrow Shares to be released to each of the Significant
Shareholders and/or Parent, as applicable, in accordance with this Agreement.
Unless the Escrow Agent is instructed otherwise by Parent and the
Representative, Severance Escrow Shares released to the Significant
Shareholders shall be released to them in proportion to their respective
percentage interests in the Severance Escrow Shares as set forth in EXHIBIT A
hereto. The Escrow Agent shall use good faith efforts (with Parent's
assistance) to have such stock certificates in its possession by delivery
from Parent's transfer agent no later than two (2) business days prior to the
day on which the Escrow Agent is to deliver such certificates to the
Significant Shareholders. Cash shall be paid in lieu of any fraction of an
Severance Escrow Share held by any Significant Shareholder (computed for each
Significant Shareholder by aggregating all Severance Escrow Shares held by
such Significant Shareholder) in an amount equal to the applicable fraction
of an Severance Escrow Share multiplied by the Closing Price Per Share (as
defined in Section 4(e) of this Agreement), such price per share to be
adjusted to reflect any stock dividend, stock split, reverse stock split,
combination of shares, reclassification, recapitalization or other similar
event affecting Parent Common Stock (each a "CAPITAL CHANGE"), whether
occurring at or after the Closing Date. Parent shall distribute, or Parent
shall provide to the Escrow Agent and Escrow Agent shall distribute, cash in
lieu of fractional Severance Escrow Shares; provided, neither Parent nor
Escrow Agent shall be obligated to disburse such cash amount to any
Significant Shareholder until such Significant Shareholder delivers an IRS
Form W-9 (or Form W-8 in the case of a foreign person) for tax reporting
purposes, duly completed and executed by such Significant Shareholder. Parent
shall be deemed to have purchased the fractional shares for which it has
provided cash-in-lieu payments.
(e) NO ENCUMBRANCE. No Severance Escrow Shares or any beneficial
interest therein may be pledged, encumbered, sold, assigned or transferred
(including any transfer by operation of law), by a Significant Shareholder or
be taken or reached by any legal or equitable
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process in satisfaction of any debt or other liability of such Significant
Shareholder, prior to the delivery to such Significant Shareholder of such
Severance Escrow Shares by the Escrow Agent in accordance with this
Agreement. The Escrow Agent shall have no responsibility for determining or
enforcing compliance with this Section 2(e), except that the Escrow Agent
shall retain possession of the stock certificates evidencing the Severance
Escrow Shares as required by this Agreement.
(f) POWER TO TRANSFER SEVERANCE ESCROW SHARES. The Escrow Agent is
hereby granted the power to effect any transfer of Severance Escrow Shares
contemplated by this Agreement. Parent shall cooperate with the Escrow Agent
in causing Parent's transfer agent to promptly issue stock certificates to
effect such transfers.
(g) LEGEND. Stock certificates representing Severance Escrow Shares
will (until they are released to the Significant Shareholders or Parent in
accordance with this Agreement) bear the following legend indicating that
they are subject to this Agreement:
"THE SECURITIES REPRESENTED HEREBY MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED ONLY IN ACCORDANCE WITH THE TERMS OF
AN SEVERANCE INDEMNIFICATION AND ESCROW AGREEMENT AMONG THE ISSUER, THE
HOLDER THEREOF, XXXXX XXXX (AS REPRESENTATIVE OF THE HOLDER THEREOF), AND
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A. A COPY OF SUCH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE ISSUER."
(h) UPDATING. Parent and the Representative shall promptly deliver
to the Escrow Agent a revised EXHIBIT A to update the information contained
therein following the occurrence of any of the following events: (i) a
Capital Change, (ii) any issuance of Additional Severance Escrow Shares;
(iii) any change in the Closing Price Per Share (as defined in Section 4(e)
of this Agreement); or (iv) any change in the information set forth in
EXHIBIT A regarding the Significant Shareholders. Unless and until the Escrow
Agent receives such revised EXHIBIT A, the Escrow Agent may assume without
inquiry that the last EXHIBIT A it received remains in effect and that such
exhibit has not been, and is not required to be, modified.
3. CONTENTS OF NOTICE OF CLAIM.
(a) Each Notice of Claim given pursuant to Section 1(g) of this
Agreement shall be in writing and shall contain the following information to
the extent it is reasonably available:
(i) Statement of the amount of the Damages that Parent or any
other affected Indemnified Person believes have been actually incurred in
connection with the Claim and statement of its good faith estimate of the
reasonably foreseeable maximum amount of the alleged Damages that will
ultimately be incurred in connection with such Claim, which amount of
estimated future Damages may, without limitation, include the amount of
damages claimed by a third party plaintiff in an action brought against
Parent, the Surviving Corporation or any other
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Indemnified Person based upon or including facts or assertions which, if
true, would give rise to Damages; and
(ii) A brief description in reasonable detail of the facts,
circumstances or events giving rise to the alleged Damages based on Parent's
or any other affected Indemnified Person's good faith belief thereof,
including, without limitation and if applicable, the identity and address of
any third-party claimant (to the extent reasonably available to an
Indemnified Person) and copies of any formal demand or complaint of any such
third-party claimant.
(b) The Escrow Agent shall not transfer any of the Severance Escrow
Shares held in the Escrow Account to Parent pursuant to a Notice of Claim
until such Notice of Claim has been resolved in accordance with Section 4.
4. RESOLUTION OF CLAIMS AND TRANSFERS OF SEVERANCE ESCROW SHARES. Any
Notice of Claim received by the Representative and the Escrow Agent pursuant
to Sections 1(g) and 3 of this Agreement shall be resolved as follows:
(a) UNCONTESTED CLAIMS. If, within thirty (30) calendar days after
a Notice of Claim containing a statement of claimed Damages has been received
by, or is deemed to have been delivered by Parent or any other Indemnified
Person to, the Representative and the Escrow Agent pursuant to Section 7 of
this Agreement, the Representative has not contested such Notice of Claim in
a written notice received by Escrow Agent as provided in Section 4(b) of this
Agreement (an "UNCONTESTED CLAIM") and the Escrow Agent has not received
written confirmation from Parent that the Representative has paid Parent in
full the amount demanded in such Notice of Claim, then the Escrow Agent
shall: (i) immediately release from escrow and transfer to Parent for
cancellation and forfeiture that number of Severance Escrow Shares having a
value (as determined in accordance with Section 4(e) of this Agreement) equal
to the amount of Damages specified in such Notice of Claim, which transferred
and forfeited Severance Escrow Shares shall be taken from and forfeited by
the Significant Shareholders in the manner set forth in Section 1(j) of this
Agreement; and (ii) notify the Representative in writing of such transfer and
forfeiture of Severance Escrow Shares as promptly as reasonably practicable.
(b) CONTESTED CLAIMS. In the event that the Representative delivers
to Parent and the Escrow Agent a written notice contesting all, or a portion
of, a Notice of Claim (a "CONTESTED CLAIM") and such written notice has been
received by, or is deemed, under the provisions of Section 7 of this
Agreement, to have been delivered to, Parent and the Escrow Agent within the
thirty (30) day period described in Section 4(a) of this Agreement, then: (i)
such Contested Claim shall be resolved prior to the expiration of the Escrow
Period, to the extent such timing is reasonably practicable, by either (A) a
written settlement agreement executed by Parent and the Representative or (B)
in the absence of such a written settlement agreement, by binding arbitration
in accordance with the provisions of Section 4(c) of this Agreement. Any
portion of the Notice of Claim that is not contested by the Representative in
accordance with the foregoing provisions of this Section 4(b) shall be
resolved as an Uncontested Claim in accordance with Section 4(a) of this
Agreement.
(c) ARBITRATION OF CONTESTED CLAIMS. The parties agree that any
Contested Claim shall be submitted to mandatory, final and binding
arbitration before the American
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Arbitration Association ("AAA") or its successor and that any such
arbitration shall be conducted in Santa Xxxxx County, California. Either
Parent or the Representative may commence the arbitration process called for
by this Agreement by filing a written demand for arbitration with AAA and
giving a copy of such demand to each of the other parties to this Agreement;
Parent (on behalf of itself and any other Indemnified Person) and
Representative shall be the parties to the arbitration. The arbitration shall
be conducted in accordance with the provisions of the commercial arbitration
rules of the American Arbitration Association ("AAA RULES") then in effect.
However, in all events, these arbitration provisions shall govern over any
conflicting rules which may now or hereafter be contained in the AAA Rules.
The AAA will have the authority to select an arbitrator from a list of
arbitrators who are lawyers familiar with California contract law; PROVIDED,
HOWEVER, that such lawyers cannot work for a firm then performing services
for either party, that each party will have the opportunity to make such
reasonable objection to any of the arbitrators listed as such party may wish
and that the AAA will select the arbitrator from the list of arbitrators as
to whom neither party makes any such objection. In the event that the
foregoing procedure is not followed, each party will choose one person from
the list of arbitrators provided by the AAA (provided that such person does
not have a conflict of interest), and the two persons so selected will select
from the list provided by the AAA the person who will act as the arbitrator.
The parties covenant that they will participate in the arbitration in good
faith, and that they will share in its costs in accordance with subparagraph
(i) below. The provisions of this paragraph may be enforced by any court of
competent jurisdiction, and the party seeking enforcement shall be entitled
to an award of all costs, fees and expenses, including attorneys' fees, to be
paid by the party against whom enforcement is ordered. Subject to the
provisions of subparagraph (vii) below, judgment upon the award rendered by
the arbitrator may be entered in any court having competent jurisdiction.
(i) PAYMENT OF COSTS. Parent on the one hand, and the
Representative on the other hand, shall bear the expense of deposits and
advances required by the arbitrator in equal proportions, but either party
may advance such amounts, subject to recovery as an addition or offset to any
award. The arbitrator shall award to the prevailing party, as determined by
the arbitrator, all reasonable costs, fees and expenses related to the
arbitration, including reasonable fees and expenses of attorneys, accountants
and other professionals incurred by the prevailing party. If such an award
would result in manifest injustice, however, the arbitrator may apportion
such costs, fees and expenses between the parties in such a manner as the
arbitrator deems just and equitable.
(ii) BURDEN OF PROOF. For any Contested Claim submitted to
arbitration, the burden of proof shall be as it would be if the claim were
litigated in a judicial proceeding governed by California law exclusively.
(iii) AWARD. Upon the conclusion of any arbitration
proceedings hereunder, the arbitrator shall render findings of fact and
conclusions of law and a final written arbitration award setting forth the
basis and reasons for any decision reached (the "FINAL AWARD") and shall
deliver such documents to the Escrow Agent, the Representative and Parent,
together with a signed copy of the Final Award. Subject to the provisions of
subparagraph (vii) below, the Final Award shall constitute a conclusive
determination of all issues in question, binding upon the Significant
Shareholders, the Representative and Parent, and shall include an
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affirmative statement to such effect. To the extent that the Final Award
determines that Parent or any other Indemnified Person has actually incurred
Damages in connection with the Contested Claim through the date of the Final
Award ("INCURRED DAMAGES"), the Final Award shall set forth and award to
Parent or other Indemnified Person, as applicable, the amount of such
Incurred Damages. In addition, the Final Award shall set forth and award to
Parent or other Indemnified Person, as applicable, an additional amount of
Damages equal to the reasonably foreseeable amount of alleged Damages that
the arbitrator determines are reasonably likely to be incurred by Parent
and/or any other Indemnified Person as a result of the facts giving rise to
the Contested Claim ("ESTIMATED DAMAGES"), which amount of Estimated Damages
may, without limitation, include the amount of damages claimed by a third
party plaintiff in an action brought against Parent, the Surviving
Corporation or any other Indemnified Person based upon or including facts or
assertions which, if true, would give rise to Damages.
(iv) TIMING. The Representative, Parent and the arbitrator
shall conclude each arbitration pursuant to this Section 4 as promptly as
possible for the Contested Claim being arbitrated. The parties agree that
time is of the essence.
(v) TERMS OF ARBITRATION. The arbitrator chosen in accordance
with these provisions shall not have the power to alter, amend or otherwise
affect the terms of these arbitration provisions or the provisions of this
Agreement or the Plan.
(vi) EXCLUSIVE REMEDY. Except as specifically otherwise
provided in this Agreement or the Plan, arbitration conducted in accordance
with this Agreement shall be the sole and exclusive remedy of the parties for
resolving any Contested Claim.
(vii) TREATMENT OF DAMAGES. Upon the arbitrator's issuance of
the Final Award in such arbitration, the arbitrator shall immediately deliver
a copy of such Final Award to the Representative, Parent and the Escrow Agent
as provided above. Upon issuance of such Final Award, Parent will immediately
be entitled to recover (A) the amount of any Incurred Damages determined and
awarded to Parent under such Final Award and (B) the amount of Estimated
Damages determined and awarded under such Final Award to the extent that such
Estimated Damages do not arise from a Third-Party Claim, all in accordance
with paragraph (viii) below, and such Incurred Damages and such Estimated
Damages will be deemed to be owed to Parent for purposes of this Agreement.
If the Final Award determines and awards any Estimated Damages to Parent that
arise from a Third-Party Claim then: (i) if the actual amount of such
Estimated Damages is determined by a settlement agreement or a final judgment
or arbitration award prior to the Resolution Date (as defined below) for the
Contested Claim with respect to which such Estimated Damages were awarded
under the Final Award, then for purposes of this Agreement, the amount of
such Estimated Damages owed to Parent shall be the amount so determined by
such settlement agreement, judgment or award; and (ii) if the actual amount
of such Estimated Damages is not so determined prior to such Resolution Date,
then for purposes of this Agreement, the amount of such Estimated Damages
owed to Parent shall be the amount of such Damages determined and awarded in
the Final Award. As used herein, the term "RESOLUTION DATE" for a Contested
Claim means the first anniversary of the Closing Date. Both Incurred Damages
and Estimated Damages owed to Parent are deemed to be Damages for purposes of
this Agreement.
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(viii) RELEASE OF SEVERANCE ESCROW SHARES PURSUANT TO
ARBITRATION AWARD. Upon its receipt of a copy of the Final Award, the Escrow
Agent shall first permit the Representative, at the Representative's option,
the opportunity to pay to Parent the amount of Damages (if any) that are owed
to Parent (as determined under paragraph (vii) above) in full in cash on or
before the earlier of (i) ten (10) days after the Escrow Agent's receipt of a
copy of such Final Award or (ii) the Resolution Date for the Contested Claim
with respect to which such Damages are owed. Immediately following Parent's
receipt of payment of Damages from Representative, Parent shall notify the
Escrow Agent of such payment. If the Escrow Agent does not receive written
confirmation from Parent that such owed Damages have been paid in full in
cash to Parent prior to the earlier of (i) expiration of such ten (10) day
period or (ii) such Resolution Date, then the Escrow Agent will (i)
immediately release from escrow and transfer to Parent for cancellation that
number of Severance Escrow Shares having a value (determined in accordance
with Section 4(e) of this Agreement) equal to the amount of Damages (if any)
owed to Parent (as determined under paragraph (vii) above), which transferred
and forfeited Severance Escrow Shares shall be taken from and forfeited by
each of the Significant Shareholders in the manner set forth in Section 1(j)
of this Agreement, and (ii) notify the Representative in writing of such
transfer and forfeiture of Severance Escrow Shares as promptly as reasonably
practicable.
(d) SETTLED CLAIMS. If a Claim (including a Contested Claim) is
settled by a written settlement agreement executed by the Representative and
Parent (a "SETTLED CLAIM"), then the Representative and Parent shall promptly
deliver such executed settlement agreement to the Escrow Agent together with
written instructions executed by both Parent and the Representative to the
Escrow Agent ("SETTLEMENT INSTRUCTIONS") which shall, in accordance with and
subject to the terms of the written settlement agreement, instruct the Escrow
Agent either: (i) to release a stated number of Severance Escrow Shares to
Parent pursuant to such settlement agreement; and/or (ii) that no action need
be taken by the Escrow Agent with respect to such Claim. Upon its receipt of
such settlement agreement and Settlement Instructions instructing the Escrow
Agent to release Severance Escrow Shares to Parent, the Escrow Agent shall:
(i) immediately release from escrow and transfer to Parent for cancellation
that number of Severance Escrow Shares that Parent and the Representative
have agreed shall be transferred and forfeited by the Significant
Shareholders in such Settlement Instructions, which transferred and forfeited
Severance Escrow Shares shall be taken from and forfeited by each of the
Significant Shareholders in the manner set forth in Section 1(j) of this
Agreement; and (ii) notify the Representative in writing of such transfer and
forfeiture of Severance Escrow Shares as promptly as reasonably practicable.
(e) DETERMINATION OF NUMBER OF SEVERANCE ESCROW SHARES FORFEITED.
Any amount of Damages owed to Parent or any Indemnified Person hereunder,
determined pursuant to the foregoing provisions of this Section 4 and not
paid in cash by the Representative in accordance with the above provisions of
this Section 4, shall be immediately payable to Parent out of the Severance
Escrow Shares then held by the Escrow Agent, and the forfeited Severance
Escrow Shares shall be taken from and forfeited by the Significant
Shareholders in the manner set forth in Section 1(j) of this Agreement. For
purposes of this Agreement, Severance Escrow Shares shall be deemed to have a
per share value equal to the average of the closing prices of Parent Common
Stock quoted on the Nasdaq National Market during the ten (10) trading days
ending on the Closing Date ("CLOSING PRICE PER SHARE") (such price per share
to be adjusted to
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reflect any Capital Change, whether occurring at or after the Closing Date).
Thus, the number of Severance Escrow Shares to be released from escrow,
forfeited by the Significant Shareholders and transferred to Parent in
satisfaction of a Claim for Damages (whether an Uncontested Claim, a
Contested Claim or a Settled Claim) and not paid in cash as provided above
shall be the amount of such Damages divided by the Closing Price Per Share
(such price per share to be adjusted to reflect any Capital Change, whether
occurring at or after the Closing Date).
(f) MULTIPLE CLAIMS PERMITTED. The assertion of any single Claim
for indemnification hereunder shall not bar Parent from asserting any other
Claims hereunder.
5. LIMITATION OF ESCROW AGENT'S LIABILITY.
(a) LIMITATION OF LIABILITY. The Escrow Agent shall incur no
liability with respect to any action taken or suffered by it in reliance upon
any notice, direction, instruction, consent, statement or other document
believed by it to be genuine and duly authorized, nor for any other action or
inaction, except its own willful misconduct, fraud or gross negligence. The
Escrow Agent shall have no duty to inquire into or investigate the validity,
accuracy or content of any document delivered to it. The Escrow Agent shall
not be responsible for the validity or sufficiency of this Agreement. In all
questions arising under this Agreement, the Escrow Agent may rely on the
advice or opinion of counsel, and for anything done, omitted or suffered in
good faith by the Escrow Agent based on such advice, the Escrow Agent shall
not be liable to anyone. The Escrow Agent shall not be required to take any
action hereunder involving any expense unless the payment of such expense is
made or provided for in a manner satisfactory to it. The Escrow Agent shall
have no duties or responsibilities other than those expressly set forth in
this Agreement and the implied duty of good faith and fair dealing.
(b) RESOLUTION OF CONFLICTING DEMANDS. In the event conflicting
demands are made or conflicting notices are served upon the Escrow Agent with
respect to the Escrow Account, the Escrow Agent shall have the absolute
right, at the Escrow Agent's election, to do any or all of the following: (i)
resign so a successor can be appointed pursuant to Section 10 of this
Agreement; (ii) file a suit in interpleader and obtain an order from a court
of competent jurisdiction requiring the parties to interplead and litigate in
such court their several claims and rights among themselves; or (iii) give
written notice to the other parties that it has received conflicting
instructions from Parent and the Representative and is refraining from taking
action until it receives instructions consented to in writing by both Parent
and the Representative. In the event an interpleader suit as described in
clause (ii) above is brought, the Escrow Agent shall thereby be fully
released and discharged from all further obligations imposed upon it under
this Agreement with respect to the matters that are the subject of such
interpleader suit, and Parent shall pay the Escrow Agent all costs, expenses
and reasonable attorneys' fees expended or incurred by the Escrow Agent
pursuant to the exercise of Escrow Agent's rights under this Section 5(b)
(such costs, fees and expenses shall be treated as extraordinary fees and
expenses for the purposes of Section 9 of this Agreement). Parent shall be
entitled to reimbursement from the Significant Shareholders of any
extraordinary fees and expenses of Escrow Agent in the event Parent prevails
in such dispute pursuant to Section 9 of this Agreement.
-13-
(c) INDEMNIFICATION. Each party to this Agreement other than the
Escrow Agent (each an "INDEMNIFYING PARTY" and together the "INDEMNIFYING
PARTIES"), hereby jointly and severally covenants and agrees to reimburse,
indemnify and hold harmless Escrow Agent, the Escrow Agent's officers,
directors, employees, counsel and agents (severally and collectively, "ESCROW
AGENT"), from and against any loss, damage, liability or loss suffered,
incurred by, or asserted against Escrow Agent (including amounts paid in
settlement of any action, suit, proceeding, or claim brought or threatened to
be brought and including reasonable expenses of legal counsel) arising out
of, in connection with or based upon, any act or omission by Escrow Agent
(not involving gross negligence, willful misconduct or fraud on Escrow
Agent's part) relating in any way to this Agreement or the Escrow Agent's
services hereunder. The aggregate liability of the Significant Shareholders
to the Escrow Agent under this indemnity shall be limited to the Severance
Escrow Shares then in escrow hereunder. Anything in this Agreement to the
contrary notwithstanding, in no event shall the Escrow Agent be liable for
special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Escrow Agent has
been advised of the likelihood of such loss or damage and regardless of the
form of action. Any Indemnifying Party who reimburses or indemnifies the
Escrow Agent pursuant to this Section 5(c) shall have a right to seek
contribution from any and all other Indemnifying Parties according to their
relative fault.
(d) DEFENSE. Each Indemnifying Party may participate at its own
expense in the defense of any claim or action that may be asserted against
Escrow Agent, and if the Indemnifying Parties so elect, the Indemnifying
Parties may assume the defense of such claim or action; PROVIDED, HOWEVER,
that if there exists a conflict of interest that would make it inappropriate,
in the sole discretion of the Escrow Agent, for the same counsel to represent
both Escrow Agent and the Indemnifying Parties, Escrow Agent's retention of
separate counsel shall be reimbursable as hereinabove provided. Escrow
Agent's right to indemnification hereunder shall survive Escrow Agent's
resignation or removal as Escrow Agent and shall survive the termination of
this Agreement by lapse of time or otherwise.
(e) NOTICE TO INDEMNIFYING PARTIES. The Escrow Agent shall notify
each Indemnifying Party by letter, or by telephone or telecopy confirmed by
letter, of any receipt by Escrow Agent of a written assertion of a claim
against Escrow Agent, or any action commenced against Escrow Agent, for which
indemnification is required under Section 5(c) of this Agreement, within ten
(10) days after Escrow Agent's receipt of written notice of such claim. The
Indemnifying Parties will be relieved of their indemnification obligations
under this Section 5 if Escrow Agent fails to timely give such notice and
such failure adversely affects the Indemnifying Parties' ability to defend
such claim. However, Escrow Agent's failure to so notify each Indemnifying
Party shall not operate in any manner whatsoever to relieve an Indemnifying
Party from any liability that it may have otherwise than on account of this
Section 5.
(f) USE OF AGENTS. The Escrow Agent may execute any of its powers
or responsibilities hereunder and exercise any rights hereunder either
directly or by or through its agents or attorneys and shall be entitled to
consult with its legal counsel, including in-house legal counsel, as to any
questions or matters arising hereunder and the reasonable, good faith written
opinion of such legal counsel shall be full and complete authorization and
protection to Escrow
-14-
Agent in respect of any act or omission by Escrow Agent undertaken in good
faith and in accordance with the opinion of such legal counsel. Nothing in
this Agreement shall be deemed to impose upon Escrow Agent any duty to
qualify to do business or to act as a fiduciary or otherwise in any
jurisdiction other than the State of California.
6. SIGNIFICANT SHAREHOLDERS' REPRESENTATIVE. For purposes of this
Agreement, the Significant Shareholders hereby consent to the appointment of
the Representative (and any replacement hereunder), as representative of the
Significant Shareholders, and as the agent and attorney-in-fact for and on
behalf of each Significant Shareholder, and, subject to the express
limitations set forth below, the taking by the Representative of any and all
actions and the making of any decisions required or permitted to be taken by
the Representative under this Agreement, including, without limitation, the
exercise of the power to (i) authorize delivery to Parent of the Severance
Escrow Shares, or any portion thereof, in satisfaction of Claims, (ii) 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, (iii) take all actions necessary in connection with
the waiver of any condition to the obligations of the Significant
Shareholders under this Agreement, (iv) waive any right of the Significant
Shareholders, (v) give and receive all notices required to be given under
this Agreement, (vi) resolve any Claims and (vii) take all actions necessary
in the sole judgment of the Representative for the accomplishment of the
foregoing and all of the other terms, conditions and limitations of this
Agreement. The Representative shall have unlimited authority and power to act
on behalf of each Significant Shareholder with respect to this Agreement and
the disposition, settlement or other handling of all Claims, rights or
obligations arising under this Agreement so long as all Significant
Shareholders are treated in the same manner. The Significant Shareholders
shall be bound by all actions taken by the Representative in connection with
this Agreement. Parent shall be entitled to rely on any action or decision of
the Representative, and no Significant Shareholder shall have any cause of
action against the Representative for any action taken, decision made or
instruction given by the Representative under this Agreement, except for
fraud, gross negligence or willful misconduct (including willful breach of
this Agreement) by the Representative. In performing the functions specified
in this Agreement, the Representative shall not be liable to the Significant
Shareholders in the absence of fraud, gross negligence or willful misconduct
(including willful breach of this Agreement). In the event that
Representative dies, becomes unable to perform the responsibilities hereunder
or resigns as the Representative hereunder, a substitute representative shall
be appointed by the holders of a majority of the Severance Escrow Shares to
act as the Representative of the Significant Shareholders hereunder. The
Representative may resign as the Representative hereunder, effective upon a
new representative being appointed in writing by Significant Shareholders who
beneficially own a majority of the Severance Escrow Shares. The
Representative shall not be entitled to receive any compensation from Parent
or the Significant Shareholders in connection with this Agreement. Any
out-of-pocket costs and expenses reasonably incurred by the Representative in
connection with actions taken pursuant to the terms of this Agreement shall
be paid by the Significant Shareholders to the Representative in proportion
to their percentage interests in the Severance Escrow Shares set forth on
EXHIBIT A. Parent agrees that, in acting as Representative hereunder and
performing his obligations as a Representative hereunder, the Representative
shall not be deemed to have violated any fiduciary or similar duties (if any)
that the Representative may owe to Parent by virtue of his position(s) with
Parent or its subsidiaries. Each of the Significant Shareholders
-15-
agree to indemnify and hold the Representative harmless from and against all
loss, liability, damages, cost or expense (including but not limited to
reasonable attorneys' and experts' fees and court costs) incurred by the
Representative in connection with the performance of the Representative's
duties and obligations under this Agreement (other than any loss, liability,
damages, cost or expense incurred through acts or omissions constituting
gross negligence or willful misconduct on the Representative's part). The
provisions of this Section are independent and severable, shall constitute an
irrevocable power of attorney, coupled with an interest and surviving death,
granted by each Significant Shareholder to the Representative and shall be
binding upon the executors, heirs, legal representatives and successors of
each Significant Shareholder and any references in this Agreement to a
Significant Shareholder shall include the successor to the Significant
Shareholders' rights hereunder, whether pursuant to testamentary disposition,
the laws of descent and distribution or otherwise.
7. NOTICES. All notices, instructions and other communications required
or permitted to be given hereunder or necessary or convenient in connection
herewith must be in writing and shall be deemed delivered (i) when personally
served or when delivered by telex or facsimile as evidenced by confirmation
showing successful transmission (to the telex or facsimile number of the
person to whom the notice is given), (ii) when delivered by an overnight
courier service as shown by the records of such delivery service, or (iii) on
the earlier of actual receipt or the third business day following the date on
which the notice is deposited in the United States mail, first class
certified or registered mail, postage prepaid, addressed as follows:
If to the Escrow Agent: State Street Bank and Trust Company of California, N.A.
000 Xxxx 0xx Xxxxxx, 00xx xxxxx
Xxx Xxxxxxx, XX 00000
Attn: Corporate Trust Administration (Silicon Image/CMD
2001 Severance Indemnification Escrow)
Fax Number: (000) 000-0000
Phone Number: (000) 000-0000
If to Parent: Silicon Image, Inc.
0000 Xxxx Xxxxxx Xxx.
Xxxxxxxxx, XX 00000
Attention: General Counsel
Fax Number: (000) 000-0000
Phone Number (000) 000-0000
With a copy to: Fenwick & West LLP
Xxx Xxxx Xxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxx, Esq.
Fax Number: (000) 000-0000
Phone Number: (000) 000-0000
If to Representative: Xxxxx Xxxx
00 Xxxxxx Xxxxx
Xxxxxx, XX 00000
With a copy to: Paul, Hastings,
Xxxxxxxx & Xxxxxx LLP
000 Xxxx Xxxxxx Xxxxx, 00xx Xxxxx
-00-
Xxxxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxx, Esq.
Fax Number: (000) 000-0000
Phone Number: (000) 000-0000
or to such other address as Parent, the Representative or the Escrow Agent, as
the case may be, designates in a writing delivered to each of the other parties
hereto in accordance with this Section 7. Notwithstanding the foregoing, notices
and the like addressed to the Escrow Agent shall be effective only upon receipt.
The Escrow Agent may assume without inquiry (unless the Escrow Agent has written
notice to the contrary) that notices received by it which are also required to
be delivered to another party have, in fact, been delivered to such other party.
8. GENERAL.
(a) GOVERNING LAW; ASSIGNS. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California
without regard to conflicts of law principles and shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors
and permitted assigns.
(b) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(c) ENTIRE AGREEMENT. As between Company and the Significant
Shareholders, except as otherwise provided in the Plan, this Agreement
constitutes the entire understanding and agreement of the parties with
respect to the subject matter of this Agreement and supersedes all prior
agreements or understandings, written or oral, between the parties with
respect to the subject matter hereof. As between the Escrow Agent and the
other parties hereto, all such parties agree that, as set forth in Section 11
of this Agreement, the Escrow Agent's duties are defined only in this
Agreement, any contrary provisions of the Plan notwithstanding.
(d) WAIVERS. No waiver by any party hereto of any condition or of
any breach of any provision of this Agreement shall be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, shall be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
(e) TAX IDENTIFICATION NUMBERS. If applicable, each party hereto,
other than the Escrow Agent, by delivering, as appropriate IRS Form W-9 or
W-8, shall provide the Escrow Agent with its Tax Identification Number (TIN)
as assigned by the Internal Revenue Service prior to the execution of this
Agreement.
(f) AGENTS. Unless expressly provided otherwise herein, any actions
to be taken by Parent hereunder may also be taken by Parent's attorneys or
agents.
9. COMPENSATION AND EXPENSES OF ESCROW AGENT. All fees and expenses of
the Escrow Agent incurred in the ordinary course of performing its
responsibilities hereunder shall
-17-
be paid by Parent upon receipt of a written invoice by Escrow Agent. Any
extraordinary fees and expenses, including without limitation any fees or
expenses (including the fees or expenses of outside counsel to the Escrow
Agent) incurred by the Escrow Agent in connection with a dispute over the
distribution of Severance Escrow Shares or the validity of a Notice of Claim,
shall be paid by Parent upon receipt of a written invoice by Escrow Agent;
PROVIDED, HOWEVER, that notwithstanding the foregoing, the Significant
Shareholders shall be liable for any extraordinary fees and expenses of the
Escrow Agent arising in connection with a dispute hereunder, in the event
that Parent prevails in such dispute, PROVIDED such liability shall not
exceed the value of the Severance Escrow Shares then in escrow. The Escrow
Agent shall have no duty to solicit any payments which may be due it
hereunder.
10. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, the Escrow
Agent may resign and be discharged from its duties or obligations hereunder
by giving notice of its resignation to the parties to this Agreement,
specifying a date not less than thirty (30) days following such notice date
of when such resignation shall take effect. Parent shall designate a
successor Escrow Agent prior to the expiration of such thirty (30) day period
by giving written notice to the escrow agent and the Representative. Parent
may appoint a successor Escrow Agent without the consent of the
Representative or the Significant Shareholders so long as such successor is a
bank which, together with its parent, has assets of at least $100 million,
and may appoint any other successor Escrow Agent with the consent of the
Representative, which shall not be unreasonably withheld. If no successor
escrow agent is named by Parent, the Escrow Agent may apply to a court of
competent jurisdiction for the appointment of a successor Escrow Agent. The
Escrow Agent shall promptly transfer the Severance Escrow Shares to such
designated successor.
11. LIMITATION OF RESPONSIBILITY. The Escrow Agent's duties are limited
to those set forth in this Agreement, and Escrow Agent, acting as such under
this Agreement, is not charged with knowledge of or any duties or
responsibilities under any other document or agreement, including without
limitation the Plan. Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder either directly
or by or through its agents or attorneys. Nothing in this Escrow Agreement
shall be deemed to impose upon the Escrow Agent any duty to qualify to do
business or to act as a fiduciary or otherwise in any jurisdiction other than
the State of California. Escrow Agent shall not be responsible for and shall
not be under a duty to examine into or pass upon the validity, binding
effect, execution or sufficiency of this Escrow Agreement or of any agreement
amendatory or supplemental hereto. In no event shall the Escrow Agent have
any duty or obligation to determine or enforce compliance with the
requirements of any agreement or instrument other than this Agreement
(including without limitation the Plan).
1. FORCE MAJEURE. Neither Parent nor the Representative nor the
Significant Shareholders nor Escrow Agent shall be responsible for any delays
or failures in performance resulting from acts beyond its control. Such acts
shall include but not be limited to acts of God, strikes, lockouts, riots,
acts of war, epidemics, governmental regulations superimposed after the fact,
fire, communication line failures, computer viruses, power failures,
earthquakes or other disasters.
-18-
13. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating
thereto, including, without limitation, (a) consents, waivers and
modifications which may hereafter be executed, and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties hereto agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction shall likewise be admissible in evidence.
24. AMENDMENT. This Agreement may be amended by the written agreement of
Parent, the Escrow Agent and the Representative, provided that, if the Escrow
Agent does not agree to an amendment agreed upon by Parent and the
Representative, the Escrow Agent shall resign and Parent shall appoint a
successor Escrow Agent in accordance with Section 10 above. No amendment of
the Plan shall increase Escrow Agent's responsibilities or liability
hereunder without Escrow Agent's written agreement.
[Remainder of Page Intentionally Left Blank]
-19-
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
PARENT: REPRESENTATIVE:
SILICON IMAGE, INC.
By: /s/ Xxx Xxxxx By: /s/ Chie-Xxxx Xxxx
--------------------------------- ----------------------------
Name: Xxx Xxxxx Name: Chie-Xxxx Xxxx
------------------------------- ---------------------------
Title: Chief Financial Officer
------------------------------
ESCROW AGENT:
STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A.
By: /s/ Xxxxx Xxxxxx
---------------------------------
Authorized Signatory
SIGNIFICANT SHAREHOLDERS:
Xxxxx Xxxxx and Xxxx Xxxxx Family Trust, dated September 15, 1993
By: /s/ Xxxxx Xxxxx By: /s/ Xxxx Xxxxx
------------------------------- ---------------------------
Xxxxx Xxxxx, Trustee Xxxx Xxxxx, Trustee
Wen Xxx Xxx Trust, dated January 11, 1994
By: /s/ Wen Xxx Xxx
---------------------------------
Wen Xxx Xxx, Trustee
Xxxxxx X. Xxxx and Xxxxx X. Xxxx Family Trust, dated November 3, 1993
By: /s/ Xxxxxx X. Xxxx
---------------------------------
Xxxxxx X. Xxxx, Trustee
Chie-Xxxx Xxxx and Xxxxxxx Xxxx Family Trust, dated December 21, 1983
By: /s/ Chie-Xxxx Xxxx
---------------------------------
Chie-Xxxx Xxxx, Trustee
[Signature Page to Severance Escrow Agreement]
EXHIBIT A
TO ESCROW AGREEMENT
INITIAL SIGNIFICANT SHAREHOLDER'S
SIGNIFICANT SHAREHOLDER SEVERANCE ESCROW SHARES PERCENTAGE INTEREST
----------------------- ----------------------- ------------------------
Xxxxx-Xxxxxx ("Xxxxx") Xxxxx and Xxxx Xxxxx, as
Co-Trustees of the Xxxxx Xxxxx and Xxxx Xxxxx Family 150,000 25%
Trust, dated September 15, 1993
9 Kent
Xxxxxx, XX 00000
Taxpayer ID#: ###-##-####
----------------
Wen Xxx Xxx, as Trustee of the Wen Xxx Xxx Trust, dated
January 11, 1994 150,000 25%
0000 Xxxxx
Xxxxxx, XX 00000
Taxpayer ID#: ###-##-####
----------------
Xxxxxx X. Xxxx and Xxxxx X. Xxxx, as Trustees of the
Xxxxxx X. Xxxx and Xxxxx X. Xxxx Family Trust, dated 150,000 25%
November 3, 1993
000 Xxxxxxxxx Xx.
Xxxxxxx, XX 00000
Taxpayer ID#: ###-##-####
----------------
Chie-Xxxx Xxxx and Xxxxxxx Xxxx, as Trustees of the
Chie-Xxxx Xxxx and Xxxxxxx Xxxx Family Trust, dated 150,000 25%
December 21, 1983
00 Xxxxxx Xxxxx
Xxxxxx, XX 00000
Taxpayer ID#: ###-##-####
----------------
Closing Price Per Share = $5.032
EXHIBIT B
TO ESCROW AGREEMENT
INDIVIDUALS WITH COMPANY AGREEMENTS
Xxxxxxx, Xxxx X.
Xxxxxxxx, Xxxxxxx X.
Xxxxxxx, Xxxxxxx
Xxxxxxx, Xxxxx X.
Xxxxxx, Xxxxx X.
Xxx, Xxxxx
Xxxxx, Xxxxxx X.
Xxxxxx, Xxxxx
Xxxxx, Xxxxx-Mo
Keats, Xxxxxx
Xxxxx, Xxxx X.
O'Dell, Xxxx X.
Xxx, Xxxxxxx X.
Xxxx, Xxxxxx X.
Xxxxxxxxx, Xxxxx
Xxxxxxxxxx, Xxxxx
Xxxxxx, Xxxx X.
Xxxxxx, Xxxxxxx X.
EXHIBIT C
TO ESCROW AGREEMENT
STOCK POWER AND ASSIGNMENT
SEPARATE FROM CERTIFICATE
In connection with the Agreement and Plan of Reorganization (the
"PLAN") dated as of June 1, 2001, by and among Silicon Image, a Delaware
corporation ("PARENT"), Duke Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("MERGER SUB"), CMD Technology Inc., a
California corporation ("COMPANY"), and the principal shareholders of Company,
and the merger of Merger Sub with and into Company pursuant to the Plan (the
"MERGER"), the undersigned is receiving shares of Parent Common Stock in
exchange for the shares of Company Common Stock held by the undersigned prior to
the Merger.
FOR VALUE RECEIVED, and pursuant to the Plan and that certain Severance
Indemnification and Escrow Agreement dated as of June 7, 2001 executed in
connection therewith (the "ESCROW AGREEMENT"), the undersigned hereby assigns
and transfers unto State Street Bank and Trust Company of California, N.A., as
Escrow Agent (the "ESCROW AGENT") pursuant to the Plan and the Escrow Agreement,
__________ shares (the "SHARES") of the Common Stock of Parent, as presently
constituted.
The undersigned hereby irrevocably appoints the Escrow Agent, as
attorney-in-fact, with full power of substitution and re-substitution, to hold
such Shares in escrow and to transfer such shares on the books of Parent solely
in accordance with the terms and conditions of the Escrow Agreement.
Dated: ________________, _____
SHAREHOLDER
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
EXCLUDED EXHIBITS
The following exhibits to the Agreement and Plan of Reorganization dated
June 1, 2001 among Silicon Image, Inc., Duke Acquisition Corp., CMD Technology
Inc. and certain shareholders of CMD Technology Inc. have been omitted from this
filing: Exhibit A-1 (Agreement of Merger); Exhibit A-2 (Certificate of Merger);
Exhibit B (Investment Representation Letter); Exhibit C-1 (Articles of
Incorporation of Surviving Corporation); Exhibit C-2 (Bylaws of Surviving
Corporation); Exhibit G (Opinion of Fenwick & West LLP); Exhibit H (Opinion of
Paul, Hastings, Xxxxxxxx & Xxxxxx LLP); Exhibit I-1 (Employees to Sign
Employment Offer Letter); Exhibit I-2 (Form of Employment Offer Letter); Exhibit
J-1 (Individuals to Sign Noncompetition Agreement); Exhibit J-2 (Form of
Noncompetition Agreement); Exhibit K-1 (Employees to Sign Severance Amendments);
and Exhibit K-2 (Form of Severance Amendment). Silicon Image, Inc. hereby agrees
to furnish supplementally to the Commission any omitted exhibit upon request.
