EXHIBIT 2.01
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
SILICON IMAGE, INC.,
SLICE ACQUISITION CORP.
SILICON COMMUNICATION LAB, INC.
AND
CERTAIN SHAREHOLDERS OF SILICON COMMUNICATION LAB, INC.
JUNE 15, 2001
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "AGREEMENT") is entered
into as of June 15, 2001 by and among Silicon Image, Inc., a Delaware
corporation ("PARENT"), Slice Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), Silicon Communication Lab,
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, the Company will merge with and into Merger Sub (the
"MERGER"), with Merger Sub to be the surviving corporation of the Merger, all
pursuant to the terms and conditions of this Agreement and the Certificate of
Merger substantially in the form attached hereto as EXHIBIT A (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) 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.
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 Certificate of Merger will be filed with the
Secretary of State of the State of California and 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 with the Secretary of
State of California unless otherwise specified in the Certificate of Merger
which will occur on the Closing Date (as defined in Section 5.1) 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, Company will be merged with and
into Merger Sub in a statutory merger pursuant to the Certificate of Merger and
in accordance with applicable provisions of California law and 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 constitute 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.
(i) 1,095,238 shares (consisting of 547,619
shares held by each of Xxxxxx Xxxx and Hualon Micro-electronics Corp.) (the
"CASH OUT STOCK") of Company Series B Preferred Stock (the "COMPANY SERIES B
STOCK") will, by virtue of the Merger, and without further action on the part of
the aforementioned shareholders, be automatically converted into the right to
receive, and shall be exchangeable for (subject to Section 1.10), at the
Effective Time, an amount in cash equal to $2,300,000.
(ii) Each share of outstanding common stock
of Company (the "COMPANY COMMON STOCK"), outstanding Series A Preferred Stock
(the "COMPANY SERIES A STOCK") and outstanding Company Series B Stock which is
not Cash Out Stock (the "CONVERTED SERIES B 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 and 1.10), at the Effective Time, that
number of fully paid and nonassessable shares of Parent common stock, $0.001 par
value per share ("PARENT COMMON STOCK") equal to the Company Exchange Number (as
defined in Section 1.2(c));
(iii) Each share of Company Common Stock,
Company Series A Stock and Company Series B 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.
"CLOSING PRICE" means the average of closing prices
of Parent Common Stock on the Nasdaq National Market for the five consecutive
trading days ending on the trading day two days prior to the Closing Date, as
reported in the Wall Street Journal.
"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 conversion of Company Preferred
Stock, exercise of any outstanding options, warrants and other rights thereto
which are vested as of the Effective Time.
"COMPANY EXCHANGE NUMBER" means the quotient of (i)
the Stock Merger Consideration divided by (ii) the total number of shares of
Company Capital Stock as of the Effective Time LESS the number of shares of
Company Common Stock issuable upon the conversion of 1,095,238 shares of Company
Series B Stock.
"LOI PRICE" means $5.064.
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"STOCK MERGER CONSIDERATION" means the number of
shares (rounded down to the nearest whole number) of Parent Common Stock equal
to (i) if the Closing Price is less than $3.545, 1,967,953, (ii) if the Closing
Price is greater than or equal to $3.545 and less than or equal to $4.051,
$6,976,000 divided by the Closing Price; (iii) if the Closing Price is greater
than $4.051 and less than $6.077, 1,721,959, (iv) if the Closing Price is
greater than or equal to $6.077 and less than or equal to $6.583, $10,464,000
divided by the Closing Price; and (v) if the Closing Price is greater than
$6.583, 1,589,500.
(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 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.
(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 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.
(h) MAXIMUM PARENT STOCK ISSUABLE. Under no
circumstances shall the sum of (i) the Stock Merger Consideration and (ii) the
maximum number of shares of Parent Common Stock issuable to holders of unvested
Company Options and Company Restricted Stock and all other shares of capital
stock of Company not included in the definition of Company
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Capital Stock exceed 3,160,000. If such sum exceeds 3,160,000, the Company
Exchange Number shall be reduced proportionately such that such sum equals
3,160,000.
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. Shares of Company 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 and cash, if applicable, 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. No Company Options shall become vested or exercisable 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 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.
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(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 following the Effective Time, Parent shall cause the
Parent Common Stock 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 Company will cease and Company will be merged with and
into Merger Sub and Merger Sub will be the surviving corporation in the Merger
(the "SURVIVING CORPORATION") pursuant to the terms of the Certificate of Merger
and the separate existence of Company will thereupon cease; (b) the Certificate
of Incorporation and Bylaws of the Surviving Corporation will be in
substantially the forms attached hereto as EXHIBIT B-1 and EXHIBIT B-2; (c) each
share of Company Common Stock and Company Preferred Stock (collectively "COMPANY
STOCK") outstanding immediately prior to the Effective Time will be converted
into the right to receive and will become exchangeable for, Parent Common Stock
or cash, as applicable, 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, constitute one share of common stock
of the Surviving Corporation (no shares of Company Stock shall be 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 constitute 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
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Parent Common Stock to be issued in the Merger will be issued pursuant to an
exemption from 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 substantially the form attached
hereto as EXHIBIT C (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) 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 substantially the form attached
hereto EXHIBIT D (the "ESCROW AGREEMENT"), among Parent, the Company
Shareholders, the shareholder representative and State Street Bank and Trust
Company (the "ESCROW AGENT"), Parent will withhold from the Company Shareholders
(in proportion to their respective ownership interests in Company Stock) ten
percent (10%) of the total shares of Parent Common Stock to be issued in the
Merger (including shares that may be issued upon exercise of Parent Options)
(collectively, the "ESCROW SHARES") and ten percent (10%) of the total cash to
be issued in the Merger (the "ESCROW CASH"). Promptly after the Closing Date,
Parent will deposit or cause to be deposited the Escrow Shares and Escrow Cash
in escrow with the Escrow Agent pursuant to the Escrow Agreement. The Escrow
Shares and Escrow Cash will be held in escrow as collateral for the
indemnification obligations of Company and the Significant Shareholders under
Section 8 below pending release from escrow pursuant to the Escrow Agreement.
1.11 PAYMENT OF DEBT TO HUALON MICRO-ELECTRONICS CORP. Company
has represented to Parent that Hualon Micro-electronics Corp. has advanced the
sum of $500,000 to Company to fund operating expenses. Immediately after the
Effective Time, upon delivery by Hualon Micro-electronics Corp. to Parent of a
promissory note or other documentation evidencing such indebtedness together
with a release of liability in form acceptable to Parent releasing Company and
Parent from liability for such indebtedness upon payment thereof to
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Hualon Micro-electronics Corp., all unpaid principal and interest accrued on
such indebtedness shall be paid by wire transfer to an account designated in
writing by Hualon Micro-electronics Corp.
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 and will be true as of the Closing
Date. 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
Certificate of Merger (the "COMPANY ANCILLARY AGREEMENT"). This Agreement and
the Company Ancillary Agreement 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 Agreement, except for
the filing of the Certificate of Merger with the California Secretary of State
and with the Delaware Secretary of State.
(c) This Agreement and the Company Ancillary
Agreement have been duly executed and delivered by Company. This Agreement and
the Company Ancillary Agreement 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
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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
10,332,000 shares of which:
6,666,000 shares are designated as Company Common
Stock, of which 643,791 shares are issued and
outstanding;
2,000,000 shares are designated as Company Series A
Stock, of which 2,000,000 shares are issued and
outstanding;
1,666,000 shares are designated as Company Series B,
of which 1,666,000 shares are issued and outstanding.
The number of issued and outstanding shares of Company Stock held by each
Company Shareholder is set forth in SCHEDULE 2.3(a), and no shares of Company
Stock are issued or outstanding that are not set forth in SCHEDULE 2.3(a).
Company holds no treasury shares. Each Company Shareholder has good and
marketable title to that number of shares of Company 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 Stock and
Company Options. All issued and outstanding shares of Company 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 Stock, a
majority of the Company Preferred Stock, and all of the Series B Company Stock.
(b) OPTIONS/RIGHTS. Company has reserved an aggregate
of 3,000,000 shares of Company Common Stock for issuance pursuant to the Stock
Plans (including shares subject to outstanding Company Options). A total of
2,354,625 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 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
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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 Agreement, 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, 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
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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, investigation pending or 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 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. As of the date of this Agreement, 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 its audited balance sheets as of December 31, 1998, 1999 and 2000, and
its audited income statement and statement of cash flows for the years then
ended (or in the case of 1998, for the period from inception to December 31,
1998), and its unaudited balance sheets as of March 31, 2001 and May 31, 2001
and its unaudited income statements for the three month period ended March 31,
2001 and the two month period ended May 31, 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 conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis, except that the
financial statements for the three-month period ended March 31, 2001 and the
two-month period ended May 31, 2001 do not contain notes and are subject to
normal recurring adjustments which are not material in amount. Company has no
debt, liability or obligation 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 or in the aggregate 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 May 31, 2001 (the "BALANCE SHEET
DATE"), it is not required under GAAP to be set forth in the Financial
Statements, and (iii) liabilities incurred pursuant to this Agreement or in
connection with the transactions contemplated hereby or with the prior written
consent of Parent. There has been no change in Company's accounting policies
other than as specifically described in the notes to the Financial Statements.
10
2.8 COMPANY FINANCIAL PROJECTIONS. Company has delivered to
Parent financial projections for each month in the period from May 2001 to
December 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.
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 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
11
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 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) 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 $10,000 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;
12
(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 labor dispute or claim of unfair labor practices;
(i) any change with respect to any employee of Company ("each an
EMPLOYEE");
(j) any material modification of the benefits payable or to become
payable to any director of the Company or Employee, or any increase in the
compensation payable or to become payable to any of director of the Company or
Employee, or any bonus payment or arrangement made to or with any of such
directors or Employee;
(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 Employee 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 $10,000
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 $10,000 individually or $50,000 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;
13
(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 any Employee;
(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) $50,000 or
more in the ordinary course of business, consistent with past practice, or (ii)
$10,000 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);
(d) any agreement for the sale or lease of real or personal property
involving more than $10,000 per year;
14
(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 $10,000 or in the aggregate in excess of $50,000 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 $10,000 or in the aggregate in
excess of $50,000 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;
(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;
15
(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 any
other party is in breach of or default under any material term of any Material
Agreement, nor will Company nor 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 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 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,
16
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 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
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 is there any basis for any such assertion.
(d) To the best knowledge of Company, no Employee,
consultant or independent contractor of Company: (i) is in 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 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. The employment of any Employee 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
17
noncompetition agreement, violation of any form of non-disclosure agreement, or
the infringement of intellectual property rights. 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 officers and directors, after reasonable inquiry by such
persons; and (iii) Parent, means the collective knowledge of its officers and
directors, after reasonable inquiry by such persons.
(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 current and former 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 current and former 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 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
18
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 the best knowledge of Company, 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 its inception on September 3, 1998.
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.
2.16 EMPLOYEES.
(a) Company is not subject to any collective
bargaining agreements. Company has good labor relations, and the consummation of
the transactions provided for herein will not have a material adverse effect on
Company's labor relations. To the best knowledge of Company, no Employee intends
to leave Company's employ. Between January 1, 2001, and the date of this
Agreement, no Employee, 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 and there are no strikes, material
slowdowns, work stoppages or
19
lockouts, or threats thereof by or with respect to any Employee. 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 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
20
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 or employee of 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) 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.
(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
21
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 Employee (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
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
22
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. There is no 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.
(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
23
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.
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) 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 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 and the two months ended May 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 and the two months ended May 31, 2000,
respectively. 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 five months ended May
31, 2001, was one of the twenty largest sources of revenues for Company, based
on amounts paid (a "SIGNIFICANT CUSTOMER") and to the best knowledge of Company,
there is no 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
24
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 five months ended May 31, 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 believes it
will 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 applied on a consistent basis, in each balance sheet
included in the Financial Statements, the inventory of Company (the "INVENTORY")
is of good and 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 the then current operations for the next six
(6) months ("EXCESS INVENTORY") are set forth on SCHEDULE 2.23. Company has
established a reserve for the full carrying value of all such Excess Inventory
in each balance sheet included in the Financial Statements. 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. 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. 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
25
Company on the Balance Sheet Date) and there are no 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 indicates
the amounts of allowances for doubtful accounts and warranty returns. 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.
2.25 RESTRICTIONS ON BUSINESS ACTIVITIES. As of the date of
this Agreement, 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
26
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 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 INFORMATION STATEMENT. Company has delivered to each
Company Shareholder the Information Statement (as defined in Section 7.14) 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.
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 and as of the Closing Date.
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 Registration
Rights Agreement, its Investment Representation Letter and
27
(if applicable) its Noncompetition Agreement (collectively, the "SIGNIFICANT
SHAREHOLDERS ANCILLARY AGREEMENTS") to which it is a party. 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 Certificate of
Merger with the California Secretary of State and 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 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 Stock of a Significant Shareholder.
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 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 Stock).
28
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
and will be true as of the Closing Date. 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
Certificate of Merger, the 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 Certificate 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 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 Certificate of Merger with the California Secretary of
State and 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.
29
(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. 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 any provision of the Certificate
of Incorporation or Bylaws of Parent, as currently in effect. 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 any provision of the Certificate
of Incorporation or Bylaws of Merger Sub, as currently in effect.
4.4 LITIGATION. There is no action, claim, proceeding or
investigation pending or 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 (or will furnish prior to
Closing) 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
30
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.
5. CLOSING MATTERS AND COVENANTS
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 6, 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, Certificate of Merger will be filed in the office
of the California Secretary of State and 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 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 Stock will represent the right to
receive cash or 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 Company 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 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 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
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(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 or, if applicable, cash. 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 and the Exchange Agent
(the "AFFIDAVIT") to the Exchange Agent or to such other agent or agents as may
be appointed by Parent (Parent or the Exchange Agent may require the delivery of
a suitable bond), together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, Parent or its
transfer agent will (a)(1) issue to each tendering holder of a Certificate or an
Affidavit (a "TENDERING COMPANY HOLDER"), certificates for the number of Parent
Common Stock to which such holder is entitled pursuant to Section 1.2, subject
to the provisions of Section 1.2(f) and 1.10, and (2) pay by check to each
Tendering Company Holder cash in the amounts payable in accordance with Section
1.2(f) or (b) cash in the amount payable in accordance with Section 1.2(b)(i).
(c) All cash or 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 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 Stock are to
be exchanged, and/or (ii) if applicable, cash.
(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.
(f) Any certificate of Parent Common Stock or cash that
remains undistributed to the shareholders for twelve months after the Effective
Time shall be delivered to Parent upon demand and any shareholder who has not
theretofore complied with this Section 5 shall thereafter look only to Parent as
general creditors for payment of their claim for Parent Common Stock and cash,
and any applicable dividend or distribution with respect to Parent Common Stock.
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(g) Neither Parent, Merger Sub or Company shall be liable to
any holder of Company Stock for Parent Common Stock (or dividends or
distributions with respect thereto) or cash delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
5.3 DISSENTING SHARES. If holders of Company 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 and if applicable, cash, 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 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 or any cash payment if
applicable, 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.
5.4 POST-CLOSING COMPANY EMPLOYEE MATTERS. Each 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 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. After the closing of the
Merger, Parent, after consultation with members of Company management, will
allocate a pool of 250,000 options to purchase Parent Common Stock to Employees
who have accepted employment with Parent.
5.5 CONDUCT OF BUSINESS OF COMPANY. Except as expressly
contemplated by this Agreement or as described on SCHEDULE 5.5, during the
period from the date hereof to the Effective Time, Company will use its best
efforts to conduct its operations in the ordinary course of business consistent
with past practice and, to the extent consistent therewith, with no less
diligence and effort than would be applied in the absence of this Agreement,
seek to preserve intact its current business organizations, keep available the
service of its current officers and Employees and preserve its relationships
with customers, suppliers and others having business dealings with it to the end
that goodwill and ongoing businesses shall be unimpaired at the Effective Time.
Without limiting the generality of the foregoing, except as otherwise expressly
provided in this Agreement or as described on SCHEDULE 5.5, during the period
from the date hereof to the Effective Time, Company will not, without the prior
written consent of Parent:
33
(a) amend its Articles of Incorporation or bylaws in any
material respect;
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any shares of any class or any other securities or equity equivalents
(including, without limitation, any options or appreciation rights) except for
the issuance and sale of shares pursuant to options or warrants previously
granted under the Stock Plans or otherwise;
(c) split, combine or reclassify any shares, declare, set
aside or pay any dividend or other distribution (whether in cash, shares or
property or any combination thereof) in respect of its shares, make any other
actual, constructive or deemed distribution in respect of its shares or
otherwise make any payments to the Stockholders in their capacity as such, or
redeem or otherwise acquire any of its securities;
(d) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of Company (other than the Merger);
(e) (i) incur or assume any long-term or short-term debt or
issue any debt securities (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person except in the ordinary course of business
consistent with past practice (iii) make any loans, advances or capital
contributions to or investments in any other person, (iv) pledge or otherwise
encumber shares of the capital stock of Company, or (v) mortgage or pledge any
of its assets, tangible or intangible, or create or suffer to exist any lien
thereupon (other than Permitted Liens) or (vi) accelerate the repayment date of
any debt;
(f) except as may be required by law, enter into, adopt or
amend or terminate any bonus, profit sharing, compensation, severance,
termination, option, appreciation right, performance unit, stock equivalent,
share purchase agreement, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreement, trust, plan, fund or
other arrangement for the benefit or welfare of any director, officer or
employee in any manner or increase or accelerate in any manner the compensation,
vesting schedule or fringe benefits of any director, officer or employee, grant
any Company Options or pay any benefit not required by any plan and arrangement
as in effect as of the date hereof (including, without limitation, the granting
of appreciation rights or performance units);
(g) terminate the employment of any manager, officer or
engineer;
(h) (i) acquire, sell, lease or dispose of any fixed assets in
any single transaction or series of related transactions having a fair market
value in excess of $50,000 in the aggregate, or (ii) acquire, sell, lease,
license, transfer or otherwise dispose of any Intellectual Property;
(i) except as may be required as a result of a change in law
or in generally accepted accounting principles, change any of the accounting
principles or practices used by it;
34
(j) (i) acquire (by merger, consolidation or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein, (ii) enter into any contract or
agreement other than in the ordinary course of business consistent with past
practice which would be material to Company, (iii) amend, modify or waive any
right under any Material Agreement or any other material contract of Company,
(iv) breach or otherwise violate the terms of any Material Agreement or any
other material contract of Company or (v) authorize any new capital expenditure
or expenditures which individually is in excess of $10,000 or in the aggregate
are in excess of $500,000; PROVIDED, that none of the foregoing shall limit any
capital expenditure required pursuant to existing contracts listed on Schedule
5.5(j);
(k) commence any litigation or binding dispute resolution
process (other than in respect on any breach of or claim arising under this
Agreement), or settle or compromise any pending or threatened suit, action or
claim which (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which could involve more than $25,000 or that would
otherwise be material to Company or relates to any Intellectual Property
matters;
(l) make or revoke any tax election or settle or compromise
any income tax liability or agree to any tax audit;
(m) fail to file any Returns when due (or, alternatively, fail
to file for available extensions) or fail to cause such Returns when filed to be
complete and accurate in all material respects;
(n) fail to pay any taxes or other material debts when due;
(o) take any action or fail to take any action that could
reasonably be expected to limit the utilization of any of the net operating
losses, built-in losses, tax credits or other similar items of Company under
Section 382, 383, 384 or 1502 of the Code and the Treasury Regulations
thereunder;
(p) allow any insurance policy relating to Company's assets,
properties or business to be amended or terminated without replacing such policy
with a policy providing at least equal coverage, insuring comparable risks and
issued by an insurance company financially comparable to the prior insurance
company;
(q) enter into any license, distribution, marketing, sales or
other agreement out of the ordinary course of business;
(r) engage in any willful action with the intent to directly
or indirectly adversely impact any of the transactions contemplated by this
Agreement; or
(s) take or agree in writing or otherwise to take any of the
actions described in SECTIONS 5.5(a) through 5.5(r) or any action which would
make any of the representations or warranties of Company contained in this
Agreement untrue or incorrect.
35
5.6 NO SOLICITATION OR NEGOTIATION. Between the date hereof
and the earlier of the termination of this Agreement and the Effective Time,
Company shall not (nor shall Company permit any of its officers, directors,
employees, agents and representatives or cause any Person on behalf of Company
to) directly or indirectly, take any of the following actions with any person
other than Parent and Merger Sub:
(a) solicit or initiate any proposals or offers from, or
conduct discussions with or engage in negotiations with, any Person relating to
any possible acquisition of Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its
capital stock or any other equity interest in Company or any material part of
its assets (each such proposal or offer hereinafter referred to as an
"ACQUISITION PROPOSAL");
(b) provide information with respect to it to any Person,
other than Parent and Merger Sub, relating to, or otherwise cooperate with,
facilitate or encourage any effort or attempt by any such Person with regard to,
any possible acquisition of Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any portion of its capital
stock or any other equity interest in Company or any material part of its
assets; or
(c) enter into any agreement with any Person providing for the
possible acquisition of Company (whether by way of merger, purchase of capital
stock, purchase of assets or otherwise), any portion of its capital stock or any
other equity interest in Company or any material part of its assets.
Company shall promptly, no later than 4 hours after receipt,
notify Parent in the event it receives any proposal or inquiry from a third
party concerning a proposed acquisition of Company, including the terms and
conditions thereof and the identity of the party submitting such proposal, and
shall advise Parent from time to time of the status and any material
developments concerning same.
5.7 ACCESS TO INFORMATION.
(a) Between the date hereof and the Effective Time, Company
will provide Parent and its authorized representatives with reasonable access
during normal business hours to the facilities of Company, its personnel and
representatives, and its books and records and personnel files of current
employees; PROVIDED, that Parent and Merger Sub agree that such access will give
due regard to minimizing interference with the operations, activities and
employees of Company.
(b) Between the date hereof and the Effective Time, Company
shall furnish to Parent and its authorized representatives such financial and
operating data and other information with respect to the business and properties
of Company as Parent may from time to time reasonably request.
(c) Each of the parties hereto will hold and will cause its
consultants and advisers to hold in confidence all documents and information
furnished to it in connection with
36
the transactions contemplated by this Agreement and the Ancillary Agreements
pursuant to the terms of that certain Confidentiality Agreement entered into
between Company and Parent, dated December 20, 2000 (the "CONFIDENTIALITY
AGREEMENT").
5.8 UPDATING SCHEDULES. Company shall deliver to Parent prior
to the Closing Date a written update or supplement to the Schedules reflecting
events occurring and contracts and agreements executed or to be executed during
the period from the date of this Agreement through the Closing Date; provided,
however, that such disclosure shall not be deemed to constitute an exception to
its representations and warranties under Section 2, affect the Parent's
obligation to close the Merger nor limit the rights and remedies of Parent or
Merger Sub under this Agreement for any breach by Company of its representations
and warranties.
5.9 NOTIFICATION OF CERTAIN MATTERS. Company shall give prompt
notice to Parent and Merger Sub, and Parent and Merger Sub shall give prompt
notice to Company, of (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which has caused or would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time, (ii) the
institution of any action, or any threat thereof and (iii) any material failure
of Company, Parent or Merger Sub, as the case may be, to comply with or satisfy
in any material respect any covenant, condition or agreement to be complied with
or satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery of any notice
pursuant to this Section 5.9 shall not cure such failure to satisfy any
covenant, condition or agreement or limit or otherwise affect the conditions to
the performance hereunder or remedies available hereunder for the party
receiving such notice.
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 Closing with the same force and effect
as if they had been made at the Closing Date (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 the Closing Date 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
37
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.
6.4 REGISTRATION RIGHTS AGREEMENT. Parent shall have executed
and delivered to Company Shareholders the Registration Rights Agreement.
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 Closing 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, 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 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 COVENANTS. Company shall have performed and complied in
all material respects with all of its covenants contained in Section 5 (to the
extent that such covenant required performance by the Company on or before the
Closing) and Parent shall have received a certificate to such effect executed by
Company's President or Chief Executive Officer.
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
38
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. 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.
7.4 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. Parent shall have been furnished
with evidence reasonably satisfactory to it of the consent or approval of those
third parties whose consent or approval may be required as a result of the
Merger pursuant to the terms of any agreement or license that is identified in
Schedule 2.5 to Company Disclosure Letter.
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 as well as Parent and its subsidiaries 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 the Merger or any of the material transactions
contemplated by 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 Pacific Law Group LLP, counsel to Company, an opinion substantially
in the form attached hereto as EXHIBIT E.
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 each holder of Company Series B Stock
and Company Shareholders holding not less than ninety-five percent (95%) of the
total number of outstanding shares of Company Stock and the number of dissenting
shares of Company shall not exceed five percent (5%) of the total number of
outstanding shares of Company Stock.
39
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 following employees of Company shall
have executed and delivered to Parent an employment offer letter in
substantially the form attached hereto as EXHIBIT F: Don (Jen-Dong) Yuh, Charlie
(Chieh-Yuan) Xxxx, Xxxxx (Xxxxxx) Xxx, Xx-Xxx Xx, Shou-Po Xxxx, Xxxx-Xx Xxx,
Chi-xxx Xxx, Xxxxx-Xxxxx Chiang, and Xxxxx-Xx (Xxxx) Xxxxx.
(b) Each of the following individuals shall have
executed and delivered to Parent a noncompetition agreement in substantially the
form attached hereto as EXHIBIT G (the "NONCOMPETITION AGREEMENT"): Don
(Jen-Dong) Yuh, Charlie (Chieh-Yuan) Chao, and Xxxxx (Xxxxxx) Xxx.
(c) Each current and former employee or contractor of
Company shall have executed and delivered an invention assignment and
confidentiality agreement or proprietary rights agreement in form acceptable to
Parent.
7.11 INVESTMENT REPRESENTATION LETTERS; EXEMPTIONS AVAILABLE.
Parent shall have received an executed counterpart of an Investment
Representation Letter substantially in the form attached hereto as EXHIBIT H
("INVESTMENT REPRESENTATION LETTER") executed by each Company Shareholder other
than dissenting shareholders. The offer and sale of the Parent Common Stock to
Company Shareholders pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act and the registration and/or
qualification requirements of all other applicable state securities laws.
7.12 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.
7.13 SERIES B SHARES OUTSTANDING. No share of Series B
Preferred Stock shall have converted into Common Stock prior to 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.
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7.16 NO MATERIAL ADVERSE EFFECT. There shall have occurred no
Material Adverse Effect on Company.
7.17 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.
7.18 AMENDMENT TO ARTICLES. Company shall have amended its
Articles of Incorporation or taken such other steps necessary to ensure that
each share of Company Stock that is not Cash Out Stock shall receive the same
consideration in the Merger (as provided in Section 1.2(b)).
7.19 TAX-FREE REORGANIZATION. Parent shall be satisfied in its
sole discretion that the Merger will be treated as a non-taxable reorganization
within the meaning of Section 368(a) of the Code.
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 at any time prior to the expiration of the
statute of limitations for such claim. 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 Company Shareholders may have for any
violations of applicable law).
8.2 INDEMNIFICATION BY THE COMPANY SHAREHOLDERS. Subject to
the limitations set forth in this Section 8.2, the Company 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 that
result in a charge or expense under GAAP), costs, damages, liabilities and
expenses including, without limitation, reasonable legal fees (collectively,
"DAMAGES") directly or indirectly caused by or arising out of:
(a) any failure, inaccuracy, misrepresentation,
breach or default of or in, any of the representations, warranties and covenants
of Company (contained in this
41
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); and
(b) any fraudulent conduct, fraudulent
misrepresentation or other willful misconduct on the part of Company or any
officer, director, employee or agent of Company or any Significant Shareholder
in connection with the transactions contemplated by this Agreement.
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 $50,000, inclusive of legal fees (the
"BASKET"), in which event such Indemnified Person may make claims for all
Damages (including the first $50,000 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. The aggregate liability of each Company Shareholder pursuant to
this Section 8 (other than for Special Damages) shall be limited to the value of
such shareholder's proportionate interest in the Escrow Shares and Escrow Cash
deposited in escrow pursuant to the Escrow Agreement. As used herein, "SPECIAL
DAMAGES" means Damages proximately caused by or arising out of any fraudulent
conduct, fraudulent misrepresentation or other willful misconduct on the part of
Company or any officer, director or Management Employee of Company or any
Significant Shareholder in connection with the transactions contemplated by this
Agreement.
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 agrees (on behalf of itself
and the other Indemnified Persons) that, from and after the Closing, except for
Special Damages, its sole remedy against the Company Shareholders for any of the
matters set forth in Section 8.2(a) is against the Escrow Shares and Escrow Cash
as set forth in this Section 8 and the Escrow Agreement. 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 or Escrow
Cash pursuant to the Escrow Agreement and/or pursue separate claims against the
Company 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
42
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.
(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.
43
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.
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. 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. 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 $75,000,
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
44
(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 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:
Silicon Communication Lab, Inc.
000 X. Xxxxxxxx Xxxx.
Xxxxxxxx, XX 00000
Attention: Dr. Don Yuh, President
Phone: ( )
Fax: ( )
with a copy to:
Pacific Law Group LLP
0 Xxxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Attention: X.X. Xxxxx, 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 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, Company Ancillary
Agreement, 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 December 20, 2000 acknowledge and reaffirm their
obligations thereunder pending the Closing, subject to Section 9.14.
9.20 TERMINATION. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time whether before
or after approval and adoption of this Agreement by the Company Shareholders:
(a) by mutual written consent of Parent and Company;
(b) by Parent or Company if (i) any court of competent jurisdiction in
the United States or other United States governmental entity shall have issued a
final order, decree or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree, ruling or
other action is or shall have become nonappealable or (ii) the Merger has not
been consummated by July 31, 2001 (the "OUTSIDE DATE"); PROVIDED, that no party
may terminate this Agreement pursuant to this clause (ii) if such party's
failure to fulfill any of its obligations under this Agreement shall have been
the reason that the Effective Time shall not have occurred on or before said
date;
(c) by Company if (i) there shall have been a breach of any
representation or warranty on the part of Parent or Merger Sub set forth in this
Agreement or if any representation or warranty of Parent shall have become
untrue, in either case such that the conditions set forth in Section 6 would be
incapable of being satisfied by the Outside Date (or as otherwise extended
pursuant to Section 9.20), (ii) there shall have been a material breach by
Parent or Merger Sub of any of their respective covenants or agreements
hereunder, and Parent or Merger Sub, as the case may be, has not cured such
breach within twenty business days after notice by Company thereof or if within
twenty business days of the Outside Date, by the Outside Date; PROVIDED, that
Company has not breached any of its obligations hereunder to the extent it would
entitle Parent to terminate this Agreement pursuant to Section 9.20(d), or (iii)
there shall have been a Material Adverse Effect on Parent; or
(d) by Parent if (i) there shall have been a breach of any
representation or warranty on the part of Company set forth in this Agreement or
if any representation or warranty of Company
47
shall have become untrue in either case such that the conditions set forth in
Section 7 would be incapable of being satisfied by the Outside Date (or as
otherwise extended pursuant to Section 9.20), (ii) there shall have been a
material breach by Company of its covenants or agreements hereunder, and Company
has not cured such breach within twenty business days after notice by Parent
thereof or if within twenty business days of the Outside Date, the Outside Date;
PROVIDED that neither Parent nor Merger Sub has breached any of their respective
obligations hereunder to the extent it would entitle Company to terminate the
this Agreement pursuant to Section 9.20(c), or (iii) there shall have been a
Material Adverse Effect on Company.
9.21. EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 9.20, this Agreement shall
forthwith become void and have no effect without any liability on the part of
any party hereto or its affiliates, directors, officers or stockholders other
than the provisions of Section 9.8. Nothing contained in this Section 9.21 shall
relieve any party from the liability for any breach of this Agreement prior to
such termination for fraud or intentional misrepresentation or for any
intentional breach of such party's representations, warranties, covenants or
obligations contained herein.
48
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
SILICON IMAGE, INC. SILICON COMMUNICATION LAB, INC.
By: /s/ XXXXX X. XXX By: /s/ DON (JEN-DONG) YUH
--------------------------------------- -----------------------------------------
Name: XXXXX X. XXX Name: DON (JEN-DONG) YUH
--------------------------------------- -----------------------------------------
Title: CHIEF EXECUTIVE OFFICER Title: PRESIDENT
--------------------------------------- -----------------------------------------
SLICE ACQUISITION CORP.
By: /s/ XXXXXX XXXXXXXXX
---------------------------------------
Name: XXXXXX XXXXXXXXX
---------------------------------------
Title: PRESIDENT
---------------------------------------
SIGNIFICANT SHAREHOLDERS
DON (JEN-DONG) YUH CHARLIE (CHIEH-YUAN) CHAO
Address: 000 XXXXXXX XXXXX Address: 00000 XXXXXXX XXXX
---------------------------------- ----------------------------------
XXXXXXXX, XX 00000 XXXXXXX, XX 00000
-------------------------------------------- --------------------------------------------
By: /s/ DON (JEN-DONG) YUH By: /s/ CHARLIE (CHIEH-YUAN) CHAO
--------------------------------------- ---------------------------------------
XXXXX (XXXXXX) XXX XXXXXX XXXX
Address: 0000 XXXXXXXX XXXXXX Address: 10F-3, 351 SEC. 2,
---------------------------------- ----------------------------------
XXXXXXXXXX, XX 00000 XXXXX XXXX, ROAD, OHUNGHO CITY
-------------------------------------------- --------------------------------------------
TAIPEI, TAIWAN
--------------------------------------------
By: /s/ XXXXX (YUMING) CAO
---------------------------------------
By: /s/ XXXXXX XXXX
---------------------------------------
TOPRO TECHNOLOGY HUALON MICRO-ELECTRONICS CORP.
Address: 0X, #00 XXXXXXXXXX XXXX 1 Address: 10F-3, 351 SEC. 2,
---------------------------------- ----------------------------------
SCIENCE PARK, HSINCHU XXXXX XXXX, ROAD, OHUNGHO CITY
-------------------------------------------- --------------------------------------------
TAIWAN TAIPEI, TAIWAN
-------------------------------------------- -----------------------------------
By: /s/ MING-XXXX XXX By: /s/ XXXXXX XXXX
------------------------------------- ---------------------------------------
Name: MING-XXXX XXX Name: XXXXXX XXXX
------------------------------------- ---------------------------------------
Title: PRESIDENT Title: CHAIRMAN
------------------------------------- ---------------------------------------
[Signature Page to Agreement and Plan of Reorganization]
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of July 6, 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 15, 2001 (the "MERGER AGREEMENT") by
and among Parent, Slice Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("MERGER SUB"), Silicon Communication Lab,
Inc., a California corporation ("COMPANY"), and certain shareholders of Company
(the "SIGNIFICANT SHAREHOLDERS").
B. The Merger Agreement provides that, subject to the terms and
conditions of the Merger Agreement, Company will be merged with and into Merger
Sub in a statutory merger in which all outstanding Company Stock other than Cash
Out Stock (as defined in the Merger Agreement) 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 to the Holders the registration rights 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") as soon as practicable following the Closing Date. 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 has 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 expenses of
complying with state securities or blue sky laws, and the fees and disbursements
of
3
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 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; 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
4
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); 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 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.
5
(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. 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.
9. 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
6
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.
(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
7
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.
(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]
8
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/ XXXXXX X. XXXXX
---------------------------------------
Name: XXXXXX X. XXXXX
-------------------------------------
Title: CHIEF FINANCIAL OFFICER
------------------------------------
HOLDERS:
TOPRO TECHNOLOGY HUALON MICRO-ELECTRONICS CORP.
By: /s/ MING-XXXX XXX By: /s/ XXXXXX XXXX
--------------------------------------- ---------------------------------------
Name: MING-XXXX XXX Name: XXXXXX X.X. XXXX
------------------------------------- -------------------------------------
Title: PRESIDENT Title: CHAIRMAN
------------------------------------ ------------------------------------
XXXXXX XXXX DON (JEN-DONG) YUH
By: /s/ XXXXXX XXXX By: /s/ DON (JEN-DONG) YUH
--------------------------------------- ---------------------------------------
CHARLIE (CHIEH-YUAN) XXXX XXXXX (XXXXXX) XXX
By: /s/ CHARLIE (CHIEH-YUAN) CHAO By: /s/ XXXXX (XXXXXX) XXX
--------------------------------------- ---------------------------------------
SHENG-RU XXXX XXXX-PO SHIH
By: /s/ SHENG-RU TSAI By: /s/ SHOU-PO SHIH
--------------------------------------- ---------------------------------------
LIBIN HE CHI-XXX XXX
By: /s/ LIBIN HE By: /s/ CHI-XXX XXX
--------------------------------------- ---------------------------------------
YU-XXX XX
By: /s/ YU-XXX XX
---------------------------------------
EXHIBIT A
SILICON COMMUNICATION LAB, INC.
SHAREHOLDERS
NUMBER OF SHARES OF
SHAREHOLDER SHAREHOLDER ADDRESS REGISTRABLE STOCK
HUALON MICRO-ELECTRONICS CORP. 00-0X, Xx. 000, Xxx.0, 521,787
Xxxxx Xxxx Road
Chungho City, Taipei County
Taiwan, R.O.C.
TOPRO TECHNOLOGY 0X, Xx. 00, Xxxxxxxxxx Xxxx 1 405,940
Science-Based Industrial Park
Hsinchu, Taiwan, R.O.C.
XXXXXX XXXX 10-3F, No. 351, Sec. 2, 115,847
Xxxxx Xxxx Xxxx
Xxxxxxx Xxxx, Xxxxxx Xxxxxx
Xxxxxx, X.X.X.
DON (JEN-DONG) YUH 000 Xxxxxxx Xxxxx 00,000
Xxxxxxxx, XX 00000
CHARLIE (CHIEH-YUAN) CHAO 00000 Xxxxxxx Xxxx 00,000
Xxxxxxx, XX 00000
XXXXX (XXXXXX) XXX 0000 Xxxxxxxxx Xxxxxx 00,000
Xxxxxxxxxx, XX 00000
SHENG-RU TSAI 000 Xxxxxxx Xxxx 0,000
Xxx Xxxx, XX 00000
YU-XXX XX 0000 Xxxxxxxxx Xxxx 0,000
Xxxxxxxxx, XX 00000
SHOU-PO SHIH 0000 Xxxxxxxxxx Xxxxx 0,000
Xxx Xxxx, XX 00000
LIBIN HE 0000 Xxxxxxxxxx Xxxxxx 0,000
Xxxxxxxxx, XX 00000
CHI-XXX XXX 00000 Xxxxxxxx Xxxxxxx 1,623
Xxxxxxxxx, XX 00000
TOTAL 1,304,910
EXHIBIT D
ESCROW AGREEMENT
This Escrow Agreement (this "AGREEMENT") is made and entered into as of
July 6, 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 "COMPANY SHAREHOLDERS" and each individually, a
"COMPANY SHAREHOLDER") who immediately prior to the closing and consummation of
the Merger (as defined below) are all of the shareholders of Silicon
Communication Lab, Inc., a California corporation ("COMPANY"), Don (Jen-Dong)
Yuh, as the shareholder agent of the Company Shareholders (the "SHAREHOLDER
AGENT") and State Street Bank and Trust Company of California, N.A., as Escrow
Agent (the "ESCROW AGENT").
RECITALS
A. Parent, Company, Slice Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("MERGER SUB"), and certain of the Company
Shareholders have entered into an Agreement and Plan of Reorganization (the
"PLAN") dated as of June 15, 2001, pursuant to which Company shall be merged
with and into Merger Sub in a forward triangular merger (the "MERGER"), with
Merger Sub 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 and Escrow
Cash 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 Company 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 and amount of Escrow Cash initially
required to be deposited in the Escrow Account by each Company Shareholder
pursuant to this Agreement, the taxpayer identification number of each Company
Shareholder, the percentage interest of each Company Shareholder in the Escrow
Shares and Escrow Cash and the Closing Price are set forth on EXHIBIT A attached
hereto.
C. Each Company Shareholder is entering into this Agreement as a
material inducement and consideration for Parent to enter into the Plan and
consummate the Merger and as a condition precedent to consummation of the
Merger. The parties desire to set forth in this Agreement the terms and
conditions pursuant to which the Escrow Shares and Escrow Cash shall be
deposited, held in, and disbursed from the Escrow Account.
NOW, THEREFORE, each of the parties hereto hereby agrees 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 Comany
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. Promptly after the Closing Date,
Parent shall also deposit the Escrow Cash with the Escrow Agent in the manner
contemplated by Section 2(b) of this Agreement. The Escrow Agent shall hold the
Escrow Shares and Escrow Cash in escrow as collateral for the indemnification
obligations of the Company Shareholders under Section 8 of the Plan until the
Escrow Agent is required to release such Escrow Shares and Escrow Cash in
accordance with the terms of this Agreement. The Escrow Agent agrees to accept
delivery of the Escrow Shares and Escrow Cash and to hold such Escrow Shares
(and stock powers) and Escrow Cash in escrow subject to the terms and conditions
of this Agreement. As used in this Agreement, the term "ESCROW SHARES" shall
include the "INITIAL ESCROW SHARES" and all "ADDITIONAL ESCROW SHARES", as those
terms are defined in Sections 2(a) and 2(c) 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 and Escrow Cash shall be security for these
indemnification obligations, subject to the terms and conditions of Section 8 of
the Plan and this Agreement. As set forth in the Plan, Don (Jen-Dong) Yuh shall
act as the initial Shareholder Agent of the Company Shareholders for purposes of
this Agreement, and is duly authorized to be and act as such Shareholder Agent
and may bind the Company 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 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 Shareholder Agent 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 and Escrow Cash pursuant to this Agreement. No delay
on the part of any Indemnified Person in giving the Shareholder Agent notice of
a Claim shall relieve the Shareholder Agent or any Company Shareholder from any
of its obligations under Section 8 of the Plan or this Agreement unless (and
then only to the extent that) the Shareholder Agent and the Company 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.
-3-
(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 Shareholder Agent will have the right, at the Shareholder Agent's sole
option, and at Company 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 Shareholder Agent's choice
that is reasonably satisfactory to Parent and the other affected Indemnified
Person(s) so long as: (A) the Shareholder Agent notifies Parent and each
affected Indemnified Person in writing within ten (10) days after the
Indemnified Person has given notice to the Shareholder Agent of the Third-Party
Claim that the Shareholder Agent intends to undertake such defense; (B) the
Shareholder Agent provides Parent and each Indemnified Person with reasonably
acceptable evidence that the Shareholder Agent 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 Shareholder Agent 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)) and Escrow Cash available at
that time; (F) the Shareholder Agent conducts the defense of the Third-Party
Claim actively and diligently; and (G) the legal counsel chosen by the
Shareholder Agent 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 Shareholder Agent 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 Shareholder Agent 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.
-4-
(iii) If the Shareholder Agent does not elect to
assume control of or otherwise participate in the defense or settlement of any
Third-Party Claim, or if the Shareholder Agent does so elect but any of the
conditions in Section 1(e)(i) above is not satisfied or becomes unsatisfied, or
if the Shareholder Agent 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 Shareholder Agent (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 Shareholder Agent 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 Shareholder Agent
(which consent shall not be unreasonably withheld); and (B) the Shareholder
Agent 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 satisfied ratably from the Escrow Shares and Escrow Cash in proportion
to the relative values of the aggregate amount of Escrow Shares (valued at the
Closing Price) and Escrow Cash issued in the Merger, with (i) deductions from
the Escrow Shares of the Company Shareholders being made ratably in proportion
to their respective percentage interests in the Escrow Shares set forth on
EXHIBIT A and (ii) deductions from the Escrow Cash of the Company Shareholders
being made ratably in proportion to their respective percentage interests in the
Escrow Cash set forth on EXHIBIT A.
(g) NO ELECTION OF REMEDIES. Parent and any other Indemnified
Person may institute Claims against the Escrow Shares and Escrow Cash and in
satisfaction thereof may retake Escrow Shares or Escrow Cash, as the case may
be, in accordance with this Agreement without making any claims directly against
Company or any Company 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 AND ESCROW CASH; RELEASE FROM ESCROW.
(a) DELIVERY OF ESCROW SHARES. As soon as reasonably
practicable after the Closing Date: (i) the Escrow Shares allocable to each
Company 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 Company Shareholders; and (ii) each of the Company 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 Company 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
-5-
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 Company Shareholder shall deliver stock powers for
such Company Shareholder's Additional Escrow Shares to the Escrow Agent, in the
same manner as the Initial 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) DELIVERY OF ESCROW CASH. As soon as reasonably practicable
after the Closing Date, the Escrow Cash allocable to the Company Shareholders as
shown on EXHIBIT A shall be delivered by Parent to the Escrow Agent and the
Escrow Agent shall deposit the Escrow Cash in an account at the Escrow Agent (or
an affiliate or custodian acting on its behalf). The Escrow Agent shall invest
Escrow Cash in accordance with Section 2(d) below. The Escrow Cash shall be
maintained in the Escrow Agent's account until the release of the Escrow Cash in
accordance with the other provisions of this Agreement.
(c) 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 Company Shareholder. The Company
Shareholder shall have the right to vote the Escrow Shares deposited in the
Escrow Account for the account of such Company 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 Company
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 Company 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.
(d) INVESTMENT OF ESCROW CASH The Escrow Agent shall invest
Escrow Cash in the SSgA U.S. Treasury Money Market Fund or, with the prior
written consent of Parent, in another money market mutual fund registered under
the Investment Company Act of 1940, the principal of which is invested solely in
obligations issued or guaranteed by the United States Government. All interest
or any other income earned with respect to such investment shall be retained by
the Escrow Agent as part of Escrow Cash until distributed in accordance with the
other provisions of this Agreement. For tax reporting purposes, all such income
shall be allocated to the Company Shareholders in accordance with their
respective percentage interests in the Escrow Cash set forth on EXHIBIT A.
(e) DISTRIBUTIONS TO COMPANY SHAREHOLDERS. On the date upon
which the Escrow Period expires (the "FINAL RELEASE DATE"), the Escrow Agent
shall release from escrow to each Company Shareholder such Company Shareholder's
Escrow Property (as defined below)
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OTHER THAN any of such Company Shareholder's Escrow Property that has previously
been delivered to an Indemnified Person or that are owed to an Indemnified
Person and are to be canceled and/or 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 "COMPANY
SHAREHOLDER'S ESCROW PROPERTY" refers to and means the Initial Escrow Shares
allocable to such Company Shareholder and the Additional Escrow Shares allocable
to such Company Shareholder, if any, and the Escrow Cash allocable to such
Company Shareholder, if any.
(f) RELEASE OF ESCROW SHARES AND ESCROW CASH. The Escrow
Shares and Escrow Cash shall be held by the Escrow Agent until such Escrow
Shares and Escrow Cash are required to be released pursuant to either: (i)
Section 2(e) of this Agreement; or (ii) when required under applicable
provisions of Section 4 of this Agreement. The Escrow Agent shall deliver to the
Company Shareholders or to Parent (who is authorized to accept delivery of
Escrow Shares or Escrow Cash on behalf of any Indemnified Person), as applicable
hereunder, the requisite number of Escrow Shares or amount of Escrow Cash 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 Company Shareholders or Parent, as applicable, in
accordance with this Agreement. Such delivery of Escrow Cash shall be in the
form of a check in the name of such Company 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 Shareholder Agent undertake to deliver a prompt
written notice to the Escrow Agent identifying the number of Escrow Shares or
amount of Escrow Cash to be released to each of the Company Shareholders and/or
Parent, as applicable, in accordance with this Agreement. Unless the Escrow
Agent is instructed otherwise by Parent and the Shareholder Agent, Escrow Shares
or Escrow Cash released to the Company Shareholders shall be released to each of
them in proportion to their respective percentage interests in the Escrow Shares
or Escrow Cash 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 Company Shareholders. Cash shall be paid in lieu of any
fraction of an Escrow Share held by any Company Shareholder (computed for each
Company Shareholder by aggregating all Escrow Shares held by such Company
Shareholder) in an amount equal to the applicable fraction of an Escrow Share
multiplied by the Closing Price, 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 Company Shareholder until such Company Shareholder
delivers applicable Tax Reporting Documentation (as defined in Section 8(e) of
this Agreement) duly completed and executed by such Company Shareholder.
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Parent shall be deemed to have purchased the fractional shares for which it has
provided cash-in-lieu payments.
(g) NO ENCUMBRANCE. No Escrow Shares or Escrow Cash or any
beneficial interest therein may be pledged, encumbered, sold, assigned or
transferred (including any transfer by operation of law), by a Company
Shareholder or be taken or reached by any legal or equitable process in
satisfaction of any debt or other liability of such Company Shareholder, prior
to the delivery to such Company Shareholder of such Escrow Shares or Escrow Cash
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(g), except that the Escrow Agent shall retain possession of the stock
certificates evidencing the Escrow Shares and the Escrow Cash as required by
this Agreement.
(h) POWER TO TRANSFER ESCROW SHARES. The Escrow Agent is
hereby granted the power to effect any transfer of Escrow Shares or Escrow Cash
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.
(i) LEGEND. Stock certificates representing Escrow Shares will
(until they are released to the Company 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, DON
(JEN-DONG) YUH (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."
(j) UPDATING. Parent and the Shareholder Agent 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; or (iv) any change in the information set forth in EXHIBIT
A regarding the Company 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
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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 or Escrow Cash 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 Shareholder Agent 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 Shareholder Agent and the Escrow Agent pursuant to
Section 7 of this Agreement, the Shareholder Agent 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 Shareholder Agent 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/or forfeiture that number of Escrow Shares and amount of Escrow
Cash 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/or forfeited Escrow Shares and Escrow Cash shall be taken
from and forfeited by the Company Shareholders in the manner set forth in
Section 1(f) of this Agreement; and (ii) notify the Shareholder Agent in writing
of such transfer and forfeiture of Escrow Shares and Escrow Cash as promptly as
reasonably practicable.
(b) CONTESTED CLAIMS. In the event that the Shareholder Agent
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 Shareholder Agent 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 Shareholder Agent in accordance
with
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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 Shareholder Agent 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
Shareholder Agent 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
Shareholder Agent 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.
(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 Shareholder Agent and Parent, together with a
signed copy of the Final Award. Subject to the provisions of
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subparagraph (vii) below, the Final Award shall constitute a conclusive
determination of all issues in question, binding upon the Company Shareholders,
the Shareholder Agent 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 Shareholder Agent, 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 Shareholder Agent, 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
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Incurred Damages and Estimated Damages owed to Parent are deemed to be Damages
for purposes of this Agreement.
(viii) RELEASE OF ESCROW SHARES AND ESCROW CASH
PURSUANT TO ARBITRATION AWARD. Upon its receipt of a copy of the Final Award,
the Escrow Agent shall first permit the Shareholder Agent, at the Shareholder
Agent'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 Shareholder Agent, 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 and/or
forfeiture that number of Escrow Shares and amount of Escrow Cash 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 and Escrow Cash shall be
taken from and forfeited by each of the Company Shareholders in the manner set
forth in Section 1(f) of this Agreement, and (ii) notify the Shareholder Agent
in writing of such transfer and forfeiture of Escrow Shares and Escrow Cash 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 Shareholder Agent
and Parent (a "SETTLED CLAIM"), then the Shareholder Agent and Parent shall
promptly deliver such executed settlement agreement to the Escrow Agent together
with written instructions executed by both Parent and the Shareholder Agent 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 and stated amount
of Escrow Cash 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 and of Escrow Cash to Parent, the Escrow
Agent shall: (i) immediately release from escrow and transfer to Parent for
cancellation and/or that number of Escrow Shares and Escrow Cash that Parent and
the Shareholder Agent have agreed shall be transferred and forfeited by the
Company Shareholders in such Settlement Instructions, which transferred and
forfeited Escrow Shares and Escrow Cash shall be taken from and forfeited by
each of the Company Shareholders in the manner set forth in Section 1(f) of this
Agreement; and (ii) notify the Shareholder Agent in writing of such transfer and
forfeiture of Escrow Shares and Escrow Cash 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 Shareholder Agent in accordance with the above provisions of this Section 4,
shall be immediately payable to Parent out of the Escrow Shares and Escrow Cash
then held by the Escrow Agent, and the forfeited
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Escrow Shares and Escrow Cash shall be taken from and forfeited by the Company
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 Closing Price (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 Company
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 or paid in Escrow Cash as provided in Section
1(f) of this Agreement shall be the amount of such Damages divided by the
Closing Price (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 Shareholder Agent and is refraining from taking
action until it receives instructions consented to in writing by both Parent and
the Shareholder Agent. 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 Company
Shareholders of any extraordinary fees and expenses of
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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 Company Shareholders to the Escrow Agent under this indemnity
shall be limited to the value of the Escrow Shares and Escrow Cash 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
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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. SHAREHOLDER AGENT. For purposes of this Agreement, the Company
Shareholders hereby consent to the appointment of the Shareholder Agent (and any
replacement hereunder), as representative of the Company Shareholders, and as
the agent and attorney-in-fact for and on behalf of each Company Shareholder,
and, subject to the express limitations set forth below, the taking by the
Shareholder Agent of any and all actions and the making of any decisions
required or permitted to be taken by the Shareholder Agent under this Agreement,
including, without limitation, the exercise of the power to (i) authorize
delivery to Parent of the Escrow Shares and Escrow Cash, 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 Company Shareholders under this Agreement, (iv) waive any right of the
Company 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 Shareholder Agent for the accomplishment
of the foregoing and all of the other terms, conditions and limitations of this
Agreement. The Shareholder Agent shall have unlimited authority and power to act
on behalf of each Company 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 Company Shareholders are treated in
the same manner. The Company Shareholders shall be bound by all actions taken by
the Shareholder Agent in connection with this Agreement. Parent shall be
entitled to rely on any action or decision of the Shareholder Agent, and no
Company Shareholder shall have any cause of action against the Shareholder Agent
for any action taken, decision made or instruction given by the Shareholder
Agent under this Agreement, except for fraud, gross negligence or willful
misconduct (including willful breach of this Agreement) by the Shareholder
Agent. In performing the functions specified in this Agreement, the Shareholder
Agent shall not be liable to the Company Shareholders in the absence of fraud,
gross negligence or willful misconduct (including willful breach of this
Agreement). In the event that Shareholder Agent dies, becomes unable to perform
the responsibilities hereunder or resigns as the Shareholder Agent hereunder, a
substitute representative shall be appointed by the holders of a majority of the
value of the Escrow Shares and Escrow Cash to act as the Shareholder Agent of
the Company Shareholders hereunder. The Shareholder Agent may resign as the
Shareholder Agent hereunder, effective upon a new representative being appointed
in writing by Company Shareholders who beneficially own a majority of the value
of the Escrow Shares (valued at the Closing Price) and Escrow Cash. The
Shareholder Agent shall not be entitled to receive any compensation from Parent
or the Company Shareholders in connection with this Agreement. Any out-of-pocket
costs and expenses reasonably incurred by the Shareholder Agent in connection
with actions taken pursuant to the terms of this Agreement shall be paid by the
Company Shareholders to the Shareholder Agent in proportion to their percentage
interests in the value of the Escrow Shares (valued at the Closing Price) and
Escrow Cash. Parent agrees that, in acting as Shareholder
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Agent hereunder and performing his obligations as a Shareholder Agent hereunder,
the Shareholder Agent shall not be deemed to have violated any fiduciary or
similar duties (if any) that the Shareholder Agent may owe to Parent by virtue
of his position(s) with Parent or its subsidiaries. Each of the Company
Shareholders agree to indemnify and hold the Shareholder Agent 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
Shareholder Agent in connection with the performance of the Shareholder Agent'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 Shareholder Agent'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 Company Shareholder to the Shareholder Agent and shall be
binding upon the executors, heirs, legal representatives and successors of each
Company Shareholder and any references in this Agreement to a Company
Shareholder shall include the successor to the Company 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/SCL 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
-16-
If to Shareholder Agent: Don (Jen-Dong) Yuh
000 Xxxxxxx Xxxxx
Xxxxxxxx, XX 00000
With a copy to: Pacific Law Group LLP
0 Xxxxx Xxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Attention: X.X. Xxxxx, Esq.
Fax Number: (000) 000-0000
Phone Number: (000) 000-0000
or to such other address as Parent, the Shareholder Agent 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 Parent and the Company
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 REPORTING DOCUMENTATION. If applicable, the parties
hereto other than the Escrow Agent agree to provide the Escrow Agent with
certified tax identification numbers for each of them by furnishing appropriate
forms W-9 (or Forms W-8, in the case of non-U.S.
-17-
persons) and other forms and documents that the Escrow Agent may reasonably
request (collectively, "TAX REPORTING DOCUMENTATION") to the Escrow Agent within
30 days after the date hereof. The parties hereto understand that, if such Tax
Reporting Documentation is not so certified to the Escrow Agent, the Escrow
Agent may be required by the Internal Revenue Code, as it may be amended from
time to time, to withhold a portion of any interest or other income earned on
the investment of monies or other property held by the Escrow Agent pursuant to
this Agreement. The Escrow Agent need not make any distribution of all or any
portion of the Escrow Cash to any person until such person has furnished to the
Escrow Agent such Tax Reporting Documentation as the Escrow Agent may reasonably
require.
(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 Escrow Cash 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 Company
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 and Escrow Cash 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 Shareholder Agent. Parent may appoint a successor
Escrow Agent without the consent of the Shareholder Agent or the Company
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 Shareholder Agent, 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 Escrow
Shares and Escrow Cash 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
-18-
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 Shareholder Agent nor the
Company 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 Shareholder Agent, provided that, if the
Escrow Agent does not agree to an amendment agreed upon by Parent and the
Shareholder Agent, 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/ XXXXXX X. XXXXX By: /s/ DON (JEN-DONG) YUH
------------------------------------------------ ---------------------------------------------------
Name: XXXXXX X. XXXXX Name: DON (JEN-DONG) YUH
---------------------------------------------- -------------------------------------------------
Title: CHIEF FINANCIAL OFFICER
---------------------------------------------
ESCROW AGENT:
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
By: /s/ XXXXX X. XXXXXX
------------------------------------------------
Name: XXXXX X. XXXXXX
----------------------------------------------
Title: VICE PRESIDENT
---------------------------------------------
SHAREHOLDERS:
TOPRO TECHNOLOGY HUALON MICRO-ELECTRONICS CORP.
By: /s/ MING-XXXX XXX By: /s/ XXXXXX XXXX
--------------------------------------- ---------------------------------------
Name: MING-XXXX XXX Name: XXXXXX XXXX
------------------------------------- -------------------------------------
Title: PRESIDENT Title: CHAIRMAN
------------------------------------ ------------------------------------
XXXXXX XXXX DON (JEN-DONG) YUH
By: /s/ XXXXXX XXXX By: /s/ DON (JEN-DONG) YUH
--------------------------------------- ---------------------------------------
CHARLIE (CHIEH-YUAN) XXXX XXXXX (XXXXXX) XXX
By: /s/ CHARLIE (CHIEH-YUAN) CHAO By: /s/ XXXXX (XXXXXX) XXX
--------------------------------------- ---------------------------------------
SHENG-RU XXXX XXXX-PO SHIH
By: /s/ SHENG-RU TSAI By: /s/ SHOU-PO SHIH
--------------------------------------- ---------------------------------------
-20-
LIBIN HE CHI-XXX XXX
By: /s/ LIBIN HE By: /s/ CHI-XXX XXX
--------------------------------------- ---------------------------------------
YU-XXX XX
By: /s/ YU-XXX XX
---------------------------------------
-21-
EXHIBIT A
TO ESCROW AGREEMENT
COMPANY COMPANY
INITIAL SHAREHOLDER'S SHAREHOLDER'S
ESCROW PERCENTAGE INITIAL PERCENTAGE
COMPANY SHAREHOLDER SHARES INTEREST ESCROW CASH INTEREST
------------------- -------- ----------- ------------ -------------
HUALON MICRO-ELECTRONICS CORP. 52,178 39.99% $115,000 50%
TOPRO TECHNOLOGY 40,594 31.11% $115,000 50%
XXXXXX XXXX 11,584 8.88% N/A N/A
DON (JEN-DONG) YUH 8,118 6.22% N/A N/A
CHARLIE (CHIEH-YUAN) CHAO 7,991 6.12% N/A N/A
XXXXX (XXXXXX) XXX 7,991 6.12% N/A N/A
SHENG-RU TSAI 761 0.58% N/A N/A
YU-XXX XX 532 0.41% N/A N/A
SHOU-PO SHIH 304 0.23% N/A N/A
LIBIN HE 270 0.21% N/A N/A
CHI-XXX XXX 162 0.12% N/A N/A
Closing Price Per Share = $4.30
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 15, 2001, by and among Silicon Image, a Delaware
corporation ("PARENT"), Slice Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("MERGER SUB"), Silicon Communication Lab,
Inc., a California corporation ("COMPANY"), and the principal shareholders of
Company, and the merger of Company with and into Merger Sub 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 July 6, 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 15, 2001 among Silicon Image, Inc., Slice Acquisition Corp., Silicon
Communication Lab, Inc. and certain shareholders of Silicon Communication Lab,
Inc. have been omitted from this filing: Exhibit A (Certificate of Merger);
Exhibit B-1 (Certificate of Incorporation of Surviving Corporation); Exhibit B-2
(Bylaws of Surviving Corporation); Exhibit E (Opinion of Pacific Law Group LLP);
Exhibit F (Form of Employment Offer Letter); Exhibit G (Form of Noncompetition
Agreement) and Exhibit H (Form of Investment Representation Letter). Silicon
Image, Inc. hereby agrees to furnish supplementally to the Commission any
omitted exhibit upon request.
