Exhibit 2.1
ESS TECHNOLOGY, INC.
AGREEMENT AND PLAN OF MERGER
JUNE 9, 2003
TABLE OF CONTENTS
PAGE
SECTION ONE...................................................................................................... 1
1. The Merger..................................................................................... 1
1.1 The Merger............................................................................ 1
1.2 Closing; Effective Time............................................................... 1
1.3 Effect of the Merger.................................................................. 1
1.4 Certificate of Incorporation; Bylaws.................................................. 2
1.5 Directors and Officers................................................................ 2
1.6 Effect on Capital Stock............................................................... 2
1.7 Surrender of Certificates............................................................. 4
1.8 No Further Ownership Rights in Target Capital Stock................................... 5
1.9 Taking of Necessary Action; Further Action............................................ 5
1.10 Withholding........................................................................... 5
1.11 Lost, Stolen or Destroyed Certificates................................................ 6
SECTION TWO...................................................................................................... 6
2. Representations and Warranties of Target....................................................... 6
2.1 Organization; Subsidiaries............................................................ 6
2.2 Certificate of Incorporation and Bylaws............................................... 7
2.3 Capital Structure..................................................................... 7
2.4 Authority............................................................................. 8
2.5 No Conflicts; Required Filings and Consents........................................... 8
2.6 Financial Statements.................................................................. 9
2.7 Absence of Undisclosed Liabilities.................................................... 9
2.8 Absence of Certain Changes............................................................ 9
2.9 Litigation........................................................................... 11
2.10 Restrictions on Business Activities.................................................. 11
2.11 Permits; Company Products; Regulation................................................ 11
2.12 Title to Property.................................................................... 12
2.13 Intellectual Property................................................................ 13
2.14 Environmental Matters................................................................ 16
2.15 Taxes................................................................................ 17
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TABLE OF CONTENTS
(continued)
PAGE
2.16 Employee Benefit Plans............................................................... 19
2.17 Certain Agreements Affected by the Merger............................................ 22
2.18 Employee Matters..................................................................... 22
2.19 Material Contracts................................................................... 22
2.20 Interested Party Transactions........................................................ 24
2.21 Insurance............................................................................ 24
2.22 Compliance With Laws................................................................. 25
2.23 Minute Books......................................................................... 25
2.24 Complete Copies of Materials......................................................... 25
2.25 Brokers' and Finders' Fees........................................................... 25
2.26 Vote Required........................................................................ 25
2.27 Board Approval....................................................................... 25
2.28 Inventory............................................................................ 25
2.29 Accounts Receivable.................................................................. 26
2.30 Customers and Suppliers.............................................................. 26
2.31 Third Party Consents................................................................. 27
2.32 No Commitments Regarding Future Products............................................. 27
2.33 Representations Complete............................................................. 27
SECTION THREE................................................................................................... 28
3. Representations and Warranties of Acquiror and Merger Sub..................................... 28
3.1 Organization, Standing and Power..................................................... 28
3.2 Authority............................................................................ 28
3.3 No Conflict; Required Filings and Consents........................................... 28
3.4 Litigation........................................................................... 29
3.5 Tax Matters.......................................................................... 29
SECTION FOUR.................................................................................................... 29
4. Additional Agreements......................................................................... 29
4.1 Further Assurances................................................................... 29
4.2 Expenses............................................................................. 29
4.3 Severance Payments................................................................... 30
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TABLE OF CONTENTS
(continued)
PAGE
SECTION FIVE.................................................................................................... 30
5. Conditions to the Merger...................................................................... 30
5.1 Conditions to Obligations of Each Party to Effect the Merger......................... 30
5.2 Additional Conditions to Obligations of Target....................................... 31
5.3 Additional Conditions to the Obligations of Acquiror and Merger Sub.................. 32
SECTION SIX..................................................................................................... 34
6. Escrow and Indemnification.................................................................... 34
6.1 Survival of Representations, Warranties and Covenants................................ 34
6.2 Escrow Fund.......................................................................... 34
6.3 Indemnification...................................................................... 34
6.4 Damages Threshold.................................................................... 35
6.5 Escrow Period........................................................................ 35
6.6 Method of Asserting Claims........................................................... 36
6.7 Representative of the Stockholders; Power of Attorney................................ 36
6.8 Adjustment to Escrow................................................................. 36
SECTION SEVEN................................................................................................... 36
7. General Provisions............................................................................ 36
7.1 Notices.............................................................................. 36
7.2 Interpretation....................................................................... 37
7.3 Counterparts......................................................................... 37
7.4 Entire Agreement; Nonassignability; Parties in Interest.............................. 37
7.5 Severability......................................................................... 38
7.6 Remedies Cumulative.................................................................. 38
7.7 Governing Law........................................................................ 38
7.8 Rules of Construction................................................................ 38
7.9 Amendments and Waivers............................................................... 38
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is made and entered
into as of June 9, 2003, by and among ESS Technology, Inc., a California
corporation ("Acquiror"), Pictos Acquisition Corporation, a Delaware corporation
wholly owned by Acquiror ("Merger Sub"), and Pictos Technologies, Inc., a
Delaware corporation ("Target").
RECITALS
A The Boards of Directors of Target, Acquiror and Merger Sub
believe it is in the best interests of their respective companies and the
stockholders of their respective companies that Target and Merger Sub combine
into a single company through the merger of Merger Sub with and into Target (the
"Merger") and, in furtherance thereof, have approved the Merger. Pursuant to the
Merger, among other things, the outstanding shares of capital stock of Target
shall be converted into the right to receive cash at the rates set forth herein.
B Target, Acquiror and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
AGREEMENT
The parties hereby agree as follows:
SECTION ONE
1 THE MERGER.
1.1 THE MERGER. At the Effective Time (as defined in
Section 1.2) and subject to and upon the terms and conditions of this Agreement,
the Certificate of Merger attached hereto as Exhibit A (the "Certificate of
Merger") and the applicable provisions of the Delaware General Corporation Law
("Delaware Law"), Merger Sub shall be merged with and into Target, the separate
corporate existence of Merger Sub shall cease and Target shall continue as the
surviving corporation of the Merger. Target as the surviving corporation after
the Merger is hereinafter sometimes referred to as the "Surviving Corporation."
1.2 CLOSING; EFFECTIVE TIME. The closing of the Merger
(the "Closing") shall take place upon the satisfaction or waiver of each of the
conditions set forth in Section 5 below or at such other time as the parties
agree (the "Closing Date"). In connection with the Closing, the parties shall
cause the Merger to be consummated by filing the Certificate of Merger, together
with the required officers' certificates, with the Secretary of State of the
State of Delaware, in accordance with the relevant provisions of Delaware Law
(the time of such filing being the ("Effective Time"). The Closing shall take
place at the offices of ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, or at such other location as the parties agree.
1.3 EFFECT OF THE MERGER. At the Effective Time, the
effect of the Merger shall be as provided in this Agreement, the Certificate of
Merger and the applicable provisions of
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Delaware Law. At the Effective Time, all the property, rights, privileges,
powers and franchises of Target and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Target and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by Delaware Law and such Certificate of
Incorporation.
(b) At the Effective time, the Bylaws of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws
of the Surviving Corporation until thereafter amended as provided by law, the
Certificate of Incorporation of the Surviving Corporation and such Bylaws.
1.5 DIRECTORS AND OFFICERS. At the Effective Time, the
directors of Merger Sub immediately prior to the Effective Time shall be the
directors of the Surviving Corporation, and the officers of Merger Sub
immediately prior to the Effective Time, shall be the officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
1.6 EFFECT ON CAPITAL STOCK. By virtue of the Merger and
without any action on the part of Merger Sub, Target or any of their respective
stockholders, the following shall occur at the Effective Time:
(a) CONVERSION OF TARGET CAPITAL STOCK. All of
the issued and outstanding shares of Common Stock, par value $.001 per share,
and Preferred Stock, par value $.001 per share, of Target (the "Target Common
Stock" and "Target Preferred Stock," respectively, and together the "Target
Capital Stock") and all of the In-The-Money Target Warrants (as defined below)
issued and outstanding immediately prior to the Effective Time (other than
shares to be cancelled pursuant to Section 1.6(b)) shall collectively be
converted into the right to receive aggregate cash consideration in an amount
equal to $27,000,000 (the "Maximum Aggregate Consideration"), as adjusted
pursuant to Section 1.6(e) below, with 10% of the Maximum Aggregate
Consideration to be held in escrow (the "Escrow Cash") and made available to
compensate Acquiror for certain damages as provided in Section 6 below (as so
adjusted, the "Merger Consideration"), to be allocated on a per share basis in
accordance with the provisions of the Target's Certificate of Incorporation in
effect immediately prior to the Closing, as follows: (i) $0.00 per share of
Target Common Stock; (ii) $0.582 per share of Series A Target Preferred Stock;
and (iii) $0.582 per share of Series A-1 Target Preferred Stock; provided,
however, shares, if any, held by persons who have not voted such shares for
approval of the Merger and with respect to which such persons shall become
entitled to exercise appraisal rights in accordance with Section 262 of Delaware
Law or other applicable law ("Dissenting Shares") shall not receive their
ratable share of such Merger Consideration unless and until such shares shall no
longer constitute Dissenting Shares. All shares of Target Capital Stock, when so
converted, shall no longer be outstanding and shall automatically be cancelled
and retired and
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shall cease to exist, and each holder of a certificate representing any such
shares of Target Capital Stock shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration therefor upon the
surrender of such certificate in accordance with Section 1.7, without interest.
(b) CANCELLATION OF TARGET CAPITAL STOCK OWNED
BY ACQUIROR OR TARGET. At the Effective Time, all shares of Target Capital Stock
that are owned by Target as treasury stock, each share of Target Capital Stock
owned by Acquiror or any direct or indirect wholly owned subsidiary of Acquiror
or of Target immediately prior to the Effective Time shall be cancelled and
extinguished without any conversion thereof.
(c) TARGET OPTIONS AND WARRANTS.
(i) TARGET OPTIONS. Effective
immediately prior to the Effective Time and contingent upon consummation of the
Merger, all outstanding options to purchase Target Common Stock (the "Target
Options") issued under the Target's 2002 Stock Plan (the "Target Stock Plan")
shall become exercisable in full in accordance with the terms of the Target
Stock Plan. At the Effective Time, all outstanding Target Options that have not
been exercised shall be cancelled by virtue of the Merger without any action on
the part of the holder thereof.
(ii) TARGET WARRANTS. Effective
immediately prior to the Effective Time and contingent upon consummation of the
Merger, all outstanding warrants to purchase Target Common Stock and any other
capital stock of Target (the "Target Warrants") shall terminate unexercised by
virtue of the Merger and without any action on the part of the holder thereof,
except, however, that the warrants to purchase 89,925 shares of Series A
Preferred Stock, 80,000 of which have an exercise price of $.15 per share (the
"In-The-Money Target Warrants") and 9,295 of which have an exercise price of
$1.00 per share, shall by their terms survive the Merger and be entitled to
receive the Merger Consideration pursuant to Section 1.6(a) that would have been
allocable to the holders of such warrants had such warrants been exercised in
full prior to the Effective Time, such Merger Consideration to be payable when
and if such warrants are exercised pursuant to their terms.
(d) CAPITAL STOCK OF MERGER SUB. At the
Effective Time, each share of Common Stock of Merger Sub ("Merger Sub Common
Stock") issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
(e) ADJUSTMENTS. The Maximum Aggregate
Consideration shall be reduced by (i) any amount by which Third Party Expenses
(defined in Section 4.2 below) exceed $150,000 in the aggregate, (ii) the amount
of the Target Bonus and Severance Payments set forth on the Bonus and Severance
Payment Statement, as provided in Section 4.3 below, (iii) $960,359 payable to
Conexant Systems, Inc. ("Conexant") in satisfaction of purchased inventory that
has a book value of $1,200,449 pursuant to Section 5.3(i) hereof, (iv) $542,879
payable to Conexant for prepayments for services and products under that certain
Wafer Supply and Probe Services
3
Agreement, as amended, (v) the amount of any finder's fees payable by Target as
a result of the Merger, and such other items as are identified on the closing
statement attached hereto as Schedule 1.6(e) (the "Net Merger Consideration").
(f) APPRAISAL RIGHTS. Any Dissenting Shares
shall not be converted into the right to receive the Merger Consideration but
shall instead be converted into the right to receive such consideration as may
be determined to be due with respect to such Dissenting Shares pursuant to
Delaware Law. Each holder of Dissenting Shares who, pursuant to the provisions
of Delaware Law, becomes entitled to payment of the fair value for shares of
Target Capital Stock shall receive payment therefor (but only after such value
shall have been agreed upon or finally determined pursuant to such provisions).
If, after the Effective Time, any Dissenting Shares shall lose their status as
Dissenting Shares, Acquiror shall issue and deliver, upon surrender by such
holder of certificate or certificates representing shares of Target Capital
Stock, the Merger Consideration to which such holder would otherwise be entitled
under this Section 1.6.
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. U.S. Bank, National
Association (or other institution selected by Acquiror and reasonably acceptable
to Shareholders' Representative) shall act as exchange agent (the "Exchange
Agent") in the Merger.
(b) ACQUIROR TO PROVIDE CASH. At the Closing,
Acquiror shall wire, in immediately available funds to the escrow account of
counsel for Target, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C. ("WSGR"), the Maximum
Aggregate Consideration, as adjusted pursuant to Section 1.6(e) plus (B)
$110,000 (the amount of certain allowable Third Party Expenses due as of the
Closing) minus (C) $2,000,000 (the amount of the good faith deposit already paid
by Acquiror and held by WSGR), all as set forth on Schedule 1.6(e). WSGR, as
closing escrow agent, shall distribute such funds in accordance with Schedule
1.6(e) and shall, within three business days of the Effective Time, (i) make
available to the Exchange Agent for exchange in accordance with this Section 1,
the Net Merger Consideration and (ii) deposit the Escrow Cash with the Escrow
Agent pursuant to Section 6.2. All interest earned on such funds shall be paid
to Target Stockholders by inclusion of such interest in Escrow Fund.
(c) EXCHANGE PROCEDURES. Within five business
days of the Effective Time, the Surviving Corporation shall cause to be mailed
to each holder of record of a certificate or certificates (the "Certificates")
which immediately prior to the Effective Time represented outstanding shares of
Target Capital Stock, whose shares were converted into the right to receive the
Merger Consideration pursuant to Section 1.6, (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon receipt of the Certificates by the Exchange
Agent, and shall be in such form and have such other provisions as Acquiror may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the Merger Consideration which may become
payable, if any. Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by Acquiror,
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of such Certificate shall
be entitled to receive in exchange therefor the Merger
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Consideration less the cash to be deposited in the Escrow Fund (as defined in
Section 6 below) on such holder's behalf pursuant to Section 6 below, and the
Certificate so surrendered shall forthwith be cancelled. Until so surrendered,
each Certificate will be deemed from and after the Effective Time, for all
corporate purposes, to evidence the right to receive the Merger Consideration.
(d) NO LIABILITY. Notwithstanding anything to
the contrary in this Section 1.7, none of the Exchange Agent, the Surviving
Corporation or any party hereto shall be liable to any person for any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(e) DISSENTING SHARES. The provisions of this
Section 1.7 shall also apply to Dissenting Shares that lose their status as
such, except that the obligations of Acquiror under this Section 1.7 shall
commence on the date of loss of such status and the holder of such shares shall
be entitled to receive in exchange for such shares the Merger Consideration to
which such holder is entitled pursuant to Section 1.6 hereof.
1.8 NO FURTHER OWNERSHIP RIGHTS IN TARGET CAPITAL STOCK.
All cash in the amount of the Merger Consideration shall be deemed to have been
paid in full satisfaction of all rights pertaining to such shares of Target
Capital Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of Target Capital Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be cancelled and exchanged as provided in this Section 1.
1.9 TAKING OF NECESSARY ACTION; FURTHER ACTION. If at any
time after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of Target and Merger Sub, the officers and
directors of Target and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action, so long as such action is not inconsistent with this
Agreement.
1.10 WITHHOLDING. Each of the Exchange Agent, Acquiror,
and the Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Target Capital Stock such amounts as are required to
be deducted or withheld therefrom under the Code or any provision of state,
local or foreign tax law or under any other applicable legal requirement. To the
extent such amounts are so deducted or withheld, such amounts shall be treated
for all purposes under this Agreement as having been paid to the person to whom
such amounts would otherwise have been paid.
1.11 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event
any Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall pay in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such Merger
Consideration as may be required pursuant to Section 1.6; provided, however,
that Acquiror may, in its discretion and as a condition precedent to such
payment,
5
require the owner of such lost, stolen or destroyed Certificates to deliver a
bond in such sum as Acquiror may reasonably direct as indemnity against any
claim that may be made against Acquiror, the Interim Surviving Corporation or
the Exchange Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
SECTION TWO
2 REPRESENTATIONS AND WARRANTIES OF TARGET.
In this Agreement, any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that, when taken individually or together with all other related
adverse changes and effects, will be materially adverse to the condition
(financial or otherwise), properties, assets, liabilities, business, operations,
or results of operations of such entity and its subsidiaries, taken as a whole,
or to prevent or materially delay consummation of the Merger or otherwise to
prevent such entity and its subsidiaries from performing their obligations under
this Agreement.
In this Agreement, any reference to a party's "knowledge"
means such party's actual knowledge after due and diligent inquiry of executive
officers and directors of such party reasonably believed to have knowledge of
the matter in question.
Except as disclosed in a document dated as of the date of this
Agreement and delivered by Target to Acquiror prior to the execution and
delivery of this Agreement and referring to the representations and warranties
in this Agreement (the "Target Disclosure Schedule"), Target represents and
warrants to Acquiror and Merger Sub as follows:
2.1 ORGANIZATION; SUBSIDIARIES. Each of Target and each
subsidiary of Target (each a "Subsidiary") is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization. Each of Target and each Subsidiary has the requisite corporate
power and authority and all necessary government approvals to own, lease and
operate its properties and to carry on its business as now being conducted and
as proposed to be conducted, except where the failure to have such power,
authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect on Target. Each of Target and each
Subsidiary is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect on Target. A true and complete
list of all the Subsidiaries, together with the jurisdiction of incorporation of
each Subsidiary, is set forth in Section 2.1 of the Target Disclosure Schedule.
Target is the owner of all outstanding shares of capital stock of each
Subsidiary and all such shares are duly authorized, validly issued, fully paid
and nonassessable. All of the outstanding shares of capital stock of each
Subsidiary are owned by Target free and clear of all liens, charges, claims,
encumbrances or rights of others. There are no outstanding subscriptions,
options, warrants, puts, calls, rights, exchangeable or convertible securities
or other commitments or agreements of any character relating to the issued or
unissued capital stock or other securities of any Subsidiary, or otherwise
obligating Target or any Subsidiary to issue,
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transfer, sell, purchase, redeem or otherwise acquire any such securities.
Except as set forth in Section 2.1 of the Target Disclosure Schedule, Target
does not directly or indirectly own any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for, any equity or
similar interest in, any corporation, partnership, limited liability company,
joint venture or other business association or entity.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS. Target has
delivered a true and correct copy of the Certificate of Incorporation and Bylaws
or other charter documents, as applicable, of Target and each Subsidiary, each
as amended to date, to Acquiror. Neither Target nor any Subsidiary is in
violation of any of the provisions of its Certificate of Incorporation or Bylaws
or equivalent organizational documents.
2.3 CAPITAL STRUCTURE. The authorized capital stock of
Target consists of 80,000,000 shares of Common Stock and 65,500,000 shares of
Preferred Stock (convertible into Common Stock on a 1-for-1 basis), of which
there were issued and outstanding as of the close of business on the date hereof
410,000 shares of Common Stock, 19,379,763 shares of Series A Preferred Stock
(the "Series A Preferred"), 21,421,950 shares of Series A-1 Preferred Stock (the
"Series A-1 Preferred"). There are no other outstanding shares of capital stock
or voting securities and no outstanding commitments to issue any shares of
capital stock or voting securities other than pursuant to the exercise of
options currently outstanding under the Target Stock Plan. All outstanding
shares of Target Capital Stock are duly authorized, validly issued, fully paid
and non-assessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof, and are
not subject to preemptive rights or rights of first refusal created by statute,
the Certificate of Incorporation or Bylaws of Target or any agreement to which
Target is a party or by which it is bound. All outstanding shares of Target
Common Stock, Series A Preferred and Series A-1 Preferred were issued in
compliance with all applicable federal and state securities laws. Target has
reserved (i) sufficient shares of Common Stock for issuance upon conversion of
the Series A Preferred and the Series A-1 Preferred, and (ii) 8,500,000 shares
of Common Stock for issuance to employees and consultants pursuant to the Target
Stock Plan, of which 560,000 shares have been issued pursuant to option
exercises or direct stock purchases, 7,842,225 shares are subject to
outstanding, unexercised options, and no shares are subject to outstanding stock
purchase rights. Except as set forth above, Target has not issued or granted
additional options under the Target Stock Plan. Section 2.3 of the Target
Disclosure Schedule sets forth the number of outstanding Target Options and all
other rights to acquire shares of Target Common Stock pursuant to the Target
Stock Plan and the applicable exercise prices. Except (i) for the rights created
pursuant to this Agreement, (ii) for Target's right to repurchase any unvested
shares under the Target Stock Plan and (iii) as set forth in this Section 2.3,
there are no options, warrants, calls, rights, commitments, agreements or
arrangements of any character to which Target or any Subsidiary is a party or by
which Target or any Subsidiary is bound relating to the issued or unissued
capital stock of Target or any Subsidiary or obligating Target or any Subsidiary
to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of capital stock of Target or any
Subsidiary or obligating Target or any Subsidiary to grant, extend, accelerate
the vesting of, change the price of, or otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. There are no outstanding
options, warrants or other rights to purchase or receive shares of Target
Capital Stock that will not expire by their terms at the Closing. There are no
contracts, commitments or agreements relating to
7
voting, purchase or sale of Target's capital stock (i) between Target and any of
its stockholders and (ii) to the best of Target's knowledge, between or among
any of Target's stockholders. The terms of the Target Stock Plan permit the
cancellation of the Target Stock Options as provided in this Agreement, without
the consent or approval of the holders of such securities, the Target
stockholders, or otherwise. True and complete copies of all agreements and
instruments relating to or issued under the Target Stock Plan have been made
available to Acquiror and such agreements and instruments have not been amended,
modified or supplemented, and there are no agreements to amend, modify or
supplement such agreements or instruments in any case from the form made
available to Acquiror.
2.4 AUTHORITY. Target has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Target, subject only to the
approval of the Merger by Target's stockholders as contemplated by Section
5.1(a). Target's Board of Directors has unanimously approved the Merger and this
Agreement. This Agreement has been duly executed and delivered by Target and
assuming due authorization, execution and delivery by Acquiror and Merger Sub,
constitutes the valid and binding obligation of Target enforceable against
Target in accordance with its terms.
2.5 NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement
by Target does not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (i) any provision of the Certificate of Incorporation or Bylaws of
Target or any of its Subsidiaries, as amended, or (ii) any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Target or any Subsidiary or any of their properties or
assets.
(b) No consent, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other governmental authority or instrumentality
("Governmental Entity") is required by Target or any Subsidiary in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the Certificate
of Merger, together with the required officers' certificates, as provided in
Section 1.2, and (iii) such other consents, authorizations, filings, approvals
and registrations which, if not obtained or made, would not have a Material
Adverse Effect on Target and would not prevent, or materially alter or delay any
of the transactions contemplated by this Agreement.
2.6 FINANCIAL STATEMENTS. Section 2.6 of the Target
Disclosure Schedule includes a true, correct and complete copy of Target's
unaudited financial statements for the fiscal year ended December 31, 2002 and
its unaudited financial statements (balance sheet, statement of operations and
statement of cash flows) on a consolidated basis as at, and for the three-month
period ended March 31, 2003 (collectively, the "Financial Statements"). The
8
Financial Statements have been prepared in accordance with generally accepted
accounting principles (except that the Financial Statements do not have notes
thereto) applied on a consistent basis throughout the periods indicated and with
each other. The Financial Statements accurately set out and describe the
financial condition and operating results of Target and its consolidated
Subsidiaries as of the dates, and for the periods, indicated therein, subject to
normal year-end audit adjustments. Target maintains a standard system of
accounting established and administered in accordance with generally accepted
accounting principles.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Target
nor any Subsidiary has material obligations or liabilities of any nature
(matured or unmatured, fixed or contingent) other than (i) those set forth or
adequately provided for in the Balance Sheet for the period ended March 31, 2003
(the "Target Balance Sheet"), (ii) those incurred in the ordinary course of
business and not required to be set forth in the Target Balance Sheet under
generally accepted accounting principles, (iii) those incurred in the ordinary
course of business since the date of the Target Balance Sheet and consistent
with past practice, and (iv) those incurred in connection with the execution of
this Agreement.
2.8 ABSENCE OF CERTAIN CHANGES. Except as set forth in
Section 2.7 of the Target Disclosure Schedule, since March 31, 2003 ( the
"Target Balance Sheet Date") there has not been, occurred or arisen any:
(a) transaction by Target or any Subsidiary
except in the ordinary course of business as conducted on that date and
consistent with past practices;
(b) amendments or changes to the Certificate of
Incorporation or Bylaws of Target;
(c) capital expenditure or commitment by Target
or any Subsidiary, in any individual amount exceeding $25,000, or in the
aggregate, exceeding $100,000;
(d) destruction of, damage to, or loss of any
assets (including, without limitation, intangible assets), business or customer
of Target or any Subsidiary (whether or not covered by insurance) which would
constitute a Material Adverse Effect;
(e) labor trouble or claim of wrongful discharge
or other unlawful labor practice or action;
(f) change in accounting methods or practices
(including any change in depreciation or amortization policies or rates, any
change in policies in making or reversing accruals) by Target or any revaluation
by Target of any of its or any of its Subsidiaries' assets;
(g) revaluation by the Company or any Subsidiary
of any of their respective assets;
(h) declaration, setting aside, or payment of a
dividend or other distribution in respect to the capital stock of Target, or any
direct or indirect redemption, purchase or other acquisition by Target of any of
its capital stock, except repurchases of Target
9
Common Stock from terminated Target employees at the original per share purchase
price of such shares;
(i) increase in the salary or other compensation
payable or to become payable by Target to any officers, directors, employees or
advisors of Target or any Subsidiary, except in the ordinary course of business
consistent with past practice, or the declaration, payment, or commitment or
obligation of any kind for the payment by Target of a bonus or other additional
salary or compensation to any such person except as otherwise contemplated by
this Agreement, or other than as set forth in Section 2.16 below, the
establishment of any bonus, insurance, deferred compensation, pension,
retirement, profit sharing, stock option (including without limitation, the
granting of stock options, stock appreciation rights, performance awards), stock
purchase or other employee benefit plan;
(j) sale, lease, license of other disposition of
any of the material assets or material properties (tangible or intangible) of
Target or any Subsidiary;
(k) termination or material amendment of any
material contract, agreement or license (including any distribution agreement)
to which Target or any Subsidiary is a party or by which it is bound;
(l) loan by Target or any Subsidiary to any
person or entity, or guaranty by Target or any Subsidiary of any loan, except
for (x) travel or similar advances made to employees in connection with their
employment duties in the ordinary course of business, consistent with past
practices and (y) trade receivables that have been outstanding for less than 90
days and all other trade receivables not in excess of $50,000 in the aggregate
and in the ordinary course of business, consistent with past practices;
(m) waiver or release of any right or claim of
Target or any Subsidiary, including any write-off or other compromise of any
account receivable of Target or any Subsidiary, in excess of $50,000 in the
aggregate;
(n) the commencement or notice or threat of
commencement of any lawsuit or proceeding against or, to the Target's or
Target's officers' or directors' knowledge, investigation of Target or any
Subsidiary or their respective affairs;
(o) notice of any claim of ownership by a third
party of Target's or any Subsidiary's Intellectual Property (as defined in
Section 2.13 below) or of infringement by Target or any Subsidiary of any third
party's Intellectual Property rights;
(p) issuance or sale by Target or any Subsidiary
of any of its shares of capital stock, or securities exchangeable, convertible
or exercisable therefor, or of any other of its securities other than option
grants pursuant to the Company's Stock Plans;
(q) change in pricing or royalties set or
charged by Target or any Subsidiary to its customers or licensees or in pricing
or royalties set or charged by persons who have licensed Intellectual Property
to Target or any Subsidiary;
10
(r) event or condition of any character that had
or will have a Material Adverse Effect on the Company; or
(s) agreement by Target, any Subsidiary or any
officer or employee of either on behalf of such entity to do any of the things
described in the preceding clauses (a) through (r) (other than negotiations with
Acquiror and its representatives regarding the transactions contemplated by this
Agreement).
2.9 LITIGATION. Except as set forth in the Target
Disclosure Schedule, there is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target or any
Subsidiary, threatened (whether orally or in writing) against Target or any
Subsidiary or any of their respective properties or any of their respective
officers or directors (in their capacities as such). There is no judgment,
decree or order against Target or any Subsidiary or, to the best knowledge of
Target and its Subsidiaries, any of their respective directors or officers (in
their capacities as such), will prevent, enjoin, or materially alter or delay
any of the transactions contemplated by this Agreement, or that will have a
Material Adverse Effect on Target.
2.10 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no
agreement, judgment, injunction, order or decree binding upon Target or any
Subsidiary which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any current or future business practice of
Target or any Subsidiary, any acquisition of property by Target or any
Subsidiary or the overall conduct of business by Target or any Subsidiary as
currently conducted or as proposed to be conducted by Target or by any
Subsidiary. Neither Target nor any Subsidiary has entered into any agreement
under which Target or any Subsidiary is restricted from selling, licensing or
otherwise distributing any of its products to any class of customers, in any
geographic area, during any period of time or in any segment of the market.
2.11 PERMITS; COMPANY PRODUCTS; REGULATION.
(a) Each of Target and each Subsidiary is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
necessary for Target or any Subsidiary, to own, lease and operate its properties
or to carry on its business as it is now being conducted (the "Target
Authorizations") and no suspension or cancellation of any Target Authorization
is pending or, to the best of Target's knowledge, threatened, except where the
failure to have, or the suspension or cancellation of, any Target Authorization
would not have a Material Adverse Effect on Target. Neither Target nor any
Subsidiary is in conflict with, or in default or violation of, (i) any laws
applicable to Target or any Subsidiary or by which any property or asset of
Target or any Subsidiary is bound or affected, (ii) any Target Authorization, or
(iii) any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Target or any
Subsidiary is a party or by which Target or any Subsidiary or any property or
asset of Target or any Subsidiary is bound or affected, except for any such
conflict, default or violation that would not, individually or in the aggregate,
have a Material Adverse Effect on Target or any Subsidiary.
11
(b) Except as would not have a Material Adverse
Effect on Target, since the inception of Target there have been no written
notices, citations or decisions by any governmental or regulatory body that any
product produced, manufactured, marketed or distributed at any time by Target or
any Subsidiary (the "Products") is defective or fails to meet any applicable
standards promulgated by any such governmental or regulatory body. To the best
knowledge of Target, Target and each Subsidiary has complied in all material
respects with the laws, regulations, policies, procedures and specifications
with respect to the design, manufacture, labeling, testing and inspection of the
Products. Except as disclosed in Section 2.11(b) of the Target Disclosure
Schedule, since the inception of the Target, there have been no recalls, field
notifications or seizures ordered or, to Target's knowledge, threatened by any
such governmental or regulatory body with respect to any of the Products.
(c) Target has obtained, in all countries where
either Target or a Subsidiary is marketing or has marketed its Products, all
applicable licenses, registrations, approvals, clearances and authorizations
required by local, state or federal agencies in such countries regulating the
safety, effectiveness and market clearance of the Products currently or
previously marketed by Target or any Subsidiary in such countries, except for
any such failures as would not, individually or in the aggregate, have a
Material Adverse Effect on Target. Target has identified and made available for
examination by Acquiror all material information relating to regulation of its
Products, including licenses, registrations, approvals, permits, device
listings, inspections, Target's recalls and product actions, audits and Target's
ongoing field tests. Target has identified in writing to Acquiror all
international locations where regulatory information and documents are kept.
2.12 TITLE TO PROPERTY.
(a) Neither Target nor any Subsidiary owns any
real property. Target and each Subsidiary has good and marketable title to all
of its respective properties, interests in properties and assets, real and
personal, reflected in the Target Balance Sheet or acquired after the Target
Balance Sheet Date (except properties, interests in properties and assets sold
or otherwise disposed of since the Target Balance Sheet Date in the ordinary
course of business), or with respect to leased properties and assets, valid
leasehold interests in, free and clear of all material mortgages, liens,
pledges, charges or encumbrances of any kind or character, except (i) the lien
of current taxes not yet due and payable, (ii) such imperfections of title,
liens and easements as do not and will not materially detract from or interfere
with the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties, and (iii) liens
securing debt which is reflected on the Target Balance Sheet. The plants,
property and equipment of Target and Subsidiaries that are used in the
operations of their businesses are in good operating condition and repair normal
wear and tear excepted. All properties used in the operations of Target and its
Subsidiaries are reflected in the Target Balance Sheet to the extent United
States generally accepted accounting principles require the same to be
reflected. Section 2.12(a) of the Target Disclosure Schedule sets forth a true,
correct and complete list of all real property owned or leased by Target and by
each Subsidiary, the name of the lessor, the date of the lease and each
amendment thereto and the aggregate annual rental and other fees payable under
such lease. Such leases are in good standing, are valid and effective in
accordance with their respective terms, and there is not under any such
12
leases any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default).
(b) Section 2.12(b) of the Target Disclosure
Schedule also sets forth a true, correct and complete list of all material
equipment (the "Equipment") owned or leased by Target and its Subsidiaries, and
such Equipment is, taken as a whole, (i) adequate for the conduct of Target's
business, consistent with its past practice, and (ii) in good operating
condition (except for ordinary wear and tear).
2.13 INTELLECTUAL PROPERTY.
(a) DEFINITIONS: As used in this Agreement, the
following terms shall have the following meanings:
"Intellectual Property" means all of the following:
(i) U.S., state and foreign trademarks, service marks, trade dress,
logos, trade names, brand names, corporate names, assumed names,
business names and general intangibles of like nature, together with
all goodwill, registrations and applications related to the foregoing
(collectively, the "Trademarks"), (ii) Internet domain names ("Domain
Names"), (iii) U.S. and foreign patents, industrial designs, invention
disclosures, and any and all divisions, continuations,
continuations-in-part, reissues, continuing patent applications,
reexaminations, and extensions thereof, any counterparts claiming
priority there from, utility models, patents of
importation/confirmation, certificates of invention, certificates, of
registration, together with any applications for any of the foregoing,
and like statutory rights related to the foregoing (collectively, the
"Patents"), (iv) U.S. and foreign copyrights, and all registrations and
applications to register the foregoing (collectively, the
"Copyrights"), (v) all categories of trade secrets as defined in the
Uniform Trade Secrets Act and under corresponding state and foreign
statutory and the common law of all of the foregoing, including, but
not limited to, business, technical and know-how information
(collectively, the "Trade Secrets", and (vi) all moral and other
intellectual property rights associated with the foregoing.
"Registered Intellectual Property" means Patents,
Trademark registrations and applications, Domain Names, Copyright
registrations and applications, and any other Intellectual Property
that is the subject of an application, certificate, filing or
registration (or other document issued by, filed with or recorded by
any government authority).
"Target Owned IP" means any Intellectual Property
that is owned by Target or its Subsidiaries.
"Target Licensed IP" means any Intellectual Property
that is licensed to Target or its Subsidiaries or that Target or its
Subsidiaries otherwise have rights in pursuant to any other agreement.
"Target Intellectual Property" means the Target Owned
IP and Target Licensed IP.
13
(b) Target and each of its Subsidiaries own, or
are licensed or otherwise possess legally enforceable rights to use all Target
Intellectual Property that is used in the business of Target or any Subsidiary
as currently conducted, and to Target's knowledge Target and each of its
Subsidiaries own, or are licensed or otherwise possess legally enforceable
rights to use all Target Intellectual Property that is proposed to be used in
the business of Target or any Subsidiary as proposed to be conducted, except in
each case to the extent that the failure to have such rights have not had and
could not reasonably be expected to have a Material Adverse Effect on Target or
any Subsidiary. Without limiting the generality of the foregoing, except as set
forth in Section 2.13 of the Disclosure Schedule, to Target's knowledge, neither
Conexant nor Jazz Semiconductor nor any of their affiliates own or license any
Intellectual Property specific to CMOS sensor products currently used or
proposed to be used in the business of Target or any Subsidiary as currently
conducted or proposed to be conducted by Target or any Subsidiary in connection
with the process or technology of CMOS sensor products (excluding generally
available design tools which may be used for CMOS sensor products and other
purposes). (As used in this Section 2.13, "proposed to be used" or "proposed to
be conducted" means the use or conduct in connection with a product that Pictos
has in current development but has not yet sold or offered for sale.)
(c) Section 2.13 of the Target Disclosure
Schedule provides a comprehensive list of: (i) all Target Owned IP that is
Registered Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all
licenses, sublicenses and other agreements as to which Target or any Subsidiary
is a party and pursuant to which any third person is authorized to use any
Target Intellectual Property (excluding standard agreements entered into in the
ordinary course of the business of Target or a Subsidiary, such as standard
end-user licenses, standard non-disclosure agreements and standard product terms
and conditions of sale), (iii) all licenses, sublicenses and other agreements as
to which Target or any Subsidiary is a party and pursuant to which Target or any
Subsidiary is authorized to use any third party Intellectual Property which are
used in the manufacture or development of, are incorporated in, are, or form a
part of any Target product that is material to its business (including CMOS
sensor products used in its business), and (iv) all assignment agreements
pursuant to which Target or any Subsidiary acquired ownership of any
Intellectual Property in CMOS sensor process technology. Neither Target nor any
Subsidiary is in material violation of or default under any license, sublicense
or agreement described in Section 2.13 of the Target Disclosure Schedule.
Neither Target nor any Subsidiary has entered into any agreement to indemnify
any other person against any charge of infringement of any Intellectual
Property, other than indemnification provisions contained in agreements entered
into in the ordinary course of business (such as in-bound license agreements,
outbound license agreements, OEM and other product distribution agreements,
non-disclosure agreements, development agreements, foundry agreements, product
supply agreements, standard product terms and conditions of sale, and similar
agreements entered into in the ordinary course of business). Except as set forth
in Section 2.13 of the Target Disclosure Schedule, Target is the sole and
exclusive owner of, with all right, title and interest in and to (free and clear
of any liens), the Target Owned IP, and is not contractually obligated to pay
any compensation to any third party in respect thereof. Without limiting the
foregoing, except as set forth in Section 2.13 of the Target Disclosure
Schedule, Target is the sole and exclusive owner of, with all right, title and
interest in and to (free and clear of any liens), the Target Owned IP in CMOS
sensor process technology acquired under
14
assignment agreements described in clause (iv) of this Section 2.13(c) or
developed by or on behalf of Target or any Subsidiary, and is not contractually
obligated to pay any compensation to any third party in respect thereof. Target
is current in all maintenance fees, taxes and/or annuities for all Patents that
are Target Owned IP. Except as set forth in Section 2.13 of the Target
Disclosure Schedule, there have been no settlement agreements, consent decrees
or judgments relating to the Target Owned IP.
(d) There has been no nor is there any material
unauthorized use, disclosure, infringement or misappropriation (including by
employees and former employees of Target) of any Target Owned IP, or to the
knowledge of Target, of any Target Licensed IP exclusively licensed to Target or
any Subsidiary.
(e) Except as set forth in Section 2.13 of the
Target Disclosure Schedule, as a result of the execution and delivery of this
Agreement, the performance of its obligations under this Agreement, or the
consummation of the transactions contemplated hereby: (i) neither Target nor any
Subsidiary will be in breach of any license, sublicense or other agreement
relating to the Target Intellectual Property, the breach of which would have a
Material Adverse Effect on Target or any Subsidiary, and (ii) no third party is
or will be entitled to terminate or modify any such license, sublicense or other
agreement, the termination or modification of which would have a Material
Adverse Effect on Target or any Subsidiary.
(f) Except as set forth on Section 2.13 of the
Target Disclosure Schedule, (i) all Target Owned IP and Target Licensed IP
exclusively licensed to Target, that is in each case Registered Intellectual
Property (excluding Patents), and (ii) to the knowledge of Target, all Patents
within such Target Owned IP and Target Licensed IP exclusively licensed to
Target that is, in each case, Registered Intellectual Property, is valid and
existing and there is no assertion or claim (or basis therefor) challenging the
validity of the foregoing. Except as set forth in Section 2.13 of the Target
Disclosure Schedule, Target has not received written notice of a claim or been
sued in any suit, action or proceeding which challenges the validity of or
involves a claim of infringement of any Intellectual Property of any third party
or which involved any unfair competition or similar claim. Except as set forth
in Section 2.13 of the Target Disclosure Schedule, to Target's knowledge, the
conduct of the business of Target and each subsidiary as currently conducted or
proposed to be conducted does not and will not infringe or conflict with the
Intellectual Property of any third party in a manner that, individually or in
the aggregate, is reasonably likely to have a Material Adverse Effect on Target.
Except as set forth in Section 2.13 of the Target Disclosure Schedule, to
Target's knowledge, no third party is challenging or reasonably could challenge
the ownership by Target or any Subsidiary of the Target Owned IP. Neither Target
nor any Subsidiary has any pending action, suit or proceeding for infringement
of Intellectual Property or breach of any license or agreement involving Target
Owned IP against any third party. There are no pending, or to the best of
Target's knowledge, threatened interference, re-examinations, oppositions or
nullities involving any patents, patent rights or applications therefor of
Target or any Subsidiary, except such as may have been commenced by Target or
any Subsidiary and which are identified as such at Section 2.13 of the Target
Disclosure Schedule. There is no breach or violation of or threatened or actual
loss of rights under any license agreement to which Target is a party.
15
(g) Except as set forth at Section 2.13 of the
Target Disclosure Schedule, Target has secured valid written assignments from
all consultants and employees who contributed to the creation or development of
material Intellectual Property created for or on behalf of Target or its
Subsidiaries and such assignments cover all the rights to such contributions
that Target does not already own by operation of law.
(h) Target has taken all reasonable steps to
protect and preserve the confidentiality of all Target Intellectual Property
that is a Trade Secret. Each of Target and its respective Subsidiaries has a
policy requiring each employee, consultant and independent contractor to execute
proprietary information and confidentiality agreements substantially in Target's
standard forms.
2.14 ENVIRONMENTAL MATTERS.
(a) The following terms shall be defined as
follows:
(i) "Environmental and Safety Laws"
shall mean any federal, state or local laws, ordinances, codes, regulations,
rules, policies and orders, as each may be amended from time to time, that are
intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants; which regulate the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Materials or materials containing Hazardous Materials; or which are
intended to assure the protection, safety and good health of employees, workers
or other persons, including the public.
(ii) "Hazardous Materials" shall mean
any toxic or hazardous substance, material or waste or any pollutant or
contaminant, or infectious or radioactive substance or material, including
without limitation, those substances, materials and wastes defined in or
regulated under any Environmental and Safety Laws; petroleum and petroleum
products including crude oil and any fractions thereof; natural gas, synthetic
gas, and any mixtures thereof; radon; asbestos; and any other pollutant or
contaminant
(iii) "Property" shall mean all real
property leased or owned by Target or its Subsidiaries either currently or in
the past.
(iv) "Facilities" shall mean all
buildings and improvements on the Property of Target or its Subsidiaries.
(b) To the knowledge of the Target, Target
represents and warrants as follows: (i) no methylene chloride or asbestos is
contained in or has been used at or released from the Facilities; (ii) all
Hazardous Materials and wastes have been disposed of in accordance with all
Environmental and Safety Laws; (iii) Target and its Subsidiaries have received
no notice (verbal or written) of any noncompliance of the Facilities or of its
past or present operations with Environmental and Safety Laws; (iv) no notices,
administrative actions or suits are pending or threatened relating to Hazardous
Materials or a violation of any Environmental and Safety Laws; (v) neither
Target nor its Subsidiaries are a potentially responsible party under the
federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), or any
16
state analog statute, arising out of events occurring prior to the Closing Date;
(vi) there has not been in the past, and are not now, any contamination,
disposal, spilling, dumping, incineration, discharge, storage, treatment or
handling of Hazardous Materials on, under or migrating to or from the Facilities
or Property (including without limitation, soils and surface and ground waters);
(vii) there have not been in the past, and are not now, any underground tanks or
underground improvements at, on or under the Property including without
limitation, treatment or storage tanks, sumps, or water, gas or oil ▇▇▇▇▇;
(viii) there are no polychlorinated biphenyls ("PCBs") deposited, stored,
disposed of or located on the Property or Facilities or any equipment on the
Property containing PCBs at levels in excess of 50 parts per million; (ix) there
is no formaldehyde on the Property or in the Facilities, nor any insulating
material containing urea formaldehyde in the Facilities; (x) the Facilities and
Target's and its Subsidiaries uses and activities therein have at all times
complied with all Environmental and Safety Laws; (xi) Target and its
Subsidiaries have all the permits and licenses required to be issued and are in
full compliance with the terms and conditions of those permits; and (xii)
neither Target nor any of its Subsidiaries is liable for any off-site
contamination nor under any Environmental and Safety Laws.
2.15 TAXES.
(a) For purposes of this Section 2.15 and other
provisions of this Agreement relating to Taxes, the following definitions shall
apply:
(i) The term "Taxes" shall mean all
taxes, however denominated, including any interest, penalties or other additions
to tax that may become payable in respect thereof, (A) imposed by any federal,
territorial, state, local or foreign government or any agency or political
subdivision of any such government, which taxes shall include, without limiting
the generality of the foregoing, all income or profits taxes (including but not
limited to, federal, state and foreign income taxes), payroll and employee
withholding taxes, unemployment insurance contributions, social security taxes,
sales and use taxes, ad valorem taxes, excise taxes, franchise taxes, gross
receipts taxes, withholding taxes, business license taxes, occupation taxes,
real and personal property taxes, stamp taxes, environmental taxes, transfer
taxes, workers' compensation, Pension Benefit Guaranty Corporation premiums and
other governmental charges, and other obligations of the same or of a similar
nature to any of the foregoing, which are required to be paid, withheld or
collected, (B) any liability for the payment of amounts referred to in (A) as a
result of being a member of any affiliated, consolidated, combined or unitary
group, or (C) any liability for amounts referred to in (A) or (B) as a result of
any obligations to indemnify another person or as a result of being a successor
in interest or a transferee of any person.
(ii) The term "Returns" shall mean all
reports, estimates, declarations of estimated tax, information statements and
returns required to be filed in connection with any Taxes, including information
returns with respect to backup withholding and other payments to third parties.
(b) All material Returns required to be filed by
or on behalf of Target or any Subsidiary have been duly filed on a timely basis
and such Returns are true, complete and correct in all material respects. All
Taxes shown to be payable on such Returns or on subsequent
17
assessments with respect thereto, and all payments of estimated Taxes required
to be made by or on behalf of Target or any Subsidiary under Section 6655 of the
Code or comparable provisions of state, local or foreign law, have been paid in
full on a timely basis. Target and each Subsidiary have withheld or paid over
all Taxes required to have been withheld or paid over, and complied with all
information reporting and backup withholding in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other third party.
Target has received, from each employee who holds stock that is subject to a
substantial risk of forfeiture as of the date hereof, a copy of the election(s)
made under Section 83(b) of the Code with respect to all such shares, and to the
knowledge of Target such elections were validly made and filed with the Internal
Revenue Service in a timely fashion. There are no liens on any of the assets of
Target or any Subsidiary with respect to Taxes, other than liens for Taxes not
yet due and payable or for Taxes that Target or that Subsidiary is contesting in
good faith through appropriate proceedings. Neither Target nor any Subsidiary
has been at any time a member of an affiliated group of corporations filing
consolidated, combined or unitary income or franchise tax returns for a period
for which the statute of limitations for any Tax potentially applicable as a
result of such membership has not expired.
(c) The amount of Target's and any Subsidiary's
liabilities for unpaid Taxes for all periods through the Target Balance Sheet
Date do not, in the aggregate, exceed the amount of the current liability
accruals for Taxes reflected on the Target Balance Sheet , and the Target
Balance Sheet properly accrues in accordance with generally accepted accounting
principles ("GAAP") all liabilities for Taxes of Target and its Subsidiaries
payable after the Target Balance Sheet Date attributable to transactions and
events occurring prior to such date. No liability for Taxes of Target or any
Subsidiary has been incurred or material amount of taxable income has been
realized (or prior to and including the Effective Time will be incurred or
realized) since the Target Balance Sheet Date other than in the ordinary course
of business.
(d) Target has made available to Acquiror true
and complete copies of (i) relevant portions of income tax audit reports,
statements of deficiencies, closing or other agreements received by or on behalf
of Target or any Subsidiary relating to Taxes, and (ii) all federal, state and
foreign income or franchise tax returns and state sales and use tax Returns for
or including Target and its Subsidiaries for all periods since Target's and such
Subsidiaries' inception.
(e) No audit of the Returns of or including
Target and its Subsidiaries by a government or taxing authority is in process,
threatened or, to Target's knowledge, pending (either in writing or orally,
formally or informally). No deficiencies exist or have been asserted (either in
writing or orally, formally or informally) or are expected to be asserted with
respect to Taxes of Target or any of its Subsidiaries, and Target has not
received notice (either in writing or orally, formally or informally) nor does
it expect to receive notice that it or any Subsidiary has not filed a Return or
paid Taxes required to be filed or paid. Neither Target nor any Subsidiary is a
party to any action or proceeding for assessment or collection of Taxes, nor has
such event been asserted or threatened (either in writing or orally, formally or
informally) against Target, any Subsidiary or any of their respective assets. No
waiver or extension of any statute of limitations is in effect with respect to
Taxes or Returns of Target or any Subsidiary. Target and each Subsidiary have
disclosed on their federal and state income and franchise tax returns all
positions taken therein that to the knowledge of Target could give rise to a
substantial
18
understatement penalty within the meaning of Code Section 6662 or comparable
provisions of applicable state tax laws.
(f) Target and its Subsidiaries are not (nor
have they ever been) parties to any tax sharing agreement. Since inception,
neither Target nor any of its Subsidiaries has been a distributing corporation
or a controlled corporation in a transaction described in Section 355(a) of the
Code.
(g) Target is not, nor has it been, a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code. Target is not a "consenting corporation" under Section 341(f) of
the Code. Neither Target nor any Subsidiary has entered into any compensatory
agreements with respect to the performance of services which payment thereunder
would result in a nondeductible expense to Target or to such Subsidiary pursuant
to Section 280G or 162(m) of the Code or an excise tax to the recipient of such
payment pursuant to Section 4999 of the Code.
(h) Neither the Target nor any of its
Subsidiaries has participated in or has an obligation to disclose any Listed
Transactions as defined and described in Section 6011 of the Code and the
regulations thereunder.
2.16 EMPLOYEE BENEFIT PLANS.
(a) Schedule 2.16 lists, with respect to Target, each
Subsidiary of Target and any trade or business (whether or not incorporated)
which is treated as a single employer with Target (an "ERISA Affiliate") within
the meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), (ii) each loan to a non-officer
employee in excess of $10,000, loans to officers and directors and any stock
option, stock purchase, phantom stock, stock appreciation right, supplemental
retirement, severance, sabbatical, medical, dental, vision care, disability,
employee relocation, cafeteria benefit (Code Section 125) or dependent care
(Code Section 129), life insurance or accident insurance plans, programs or
arrangements, (iii) all contracts and agreements relating to employment that
provide for annual compensation in excess of $50,000 and all severance
agreements, with any of the directors, officers or employees of Target or its
Subsidiaries (other than, in each case, any such contract or agreement that is
terminable by the Company or its Subsidiary at will or without penalty or other
adverse consequence), (iv) all bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements, (v) other fringe or
employee benefit plans, programs or arrangements that apply to senior management
of Target or any Subsidiary and that do not generally apply to all employees,
and (vi) any current or former employment or executive compensation or severance
agreements, written or otherwise, as to which unsatisfied obligations of Target
or any Subsidiary of greater than $10,000 remain for the benefit of, or relating
to, any present or former employee, consultant or director of Target or any
Subsidiary (together, the "Target Employee Plans").
(b) Target has furnished or made available to
Acquiror a copy of each of the Target Employee Plans and related plan documents
(including trust documents, insurance
19
policies or contracts, employee booklets, summary plan descriptions and other
authorizing documents, and, to the extent still in its possession, any material
employee communications relating thereto) and has, with respect to each Target
Employee Plan which is subject to ERISA reporting requirements, provided copies
of the Form 5500 reports filed for the last three plan years. Any Target
Employee Plan intended to be qualified under Section 401(a) of the Code has
either obtained from the Internal Revenue Service an opinion letter or favorable
determination letter as to its initial qualified status under the Code,
including all amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation; may rely on an opinion letter issued to a prototype plan
sponsor with respect to a standardized plan adopted by Target in accordance with
the requirements for such reliance; or has applied to the Internal Revenue
Service for such a determination letter (or has time remaining to apply for such
a determination letter) prior to the expiration of the requisite period under
applicable Treasury Regulations or Internal Revenue Service pronouncements in
which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination with respect to all periods since
the date of adoption of such Target Employee Plan. Target has also furnished or
made available to Acquiror with the most recent Internal Revenue Service
determination letter issued with respect to each such Target Employee Plan, and
nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any
Target Employee Plan subject to Code Section 401(a).
(c) Except as set forth in Section 2.16(c) of
the Target Disclosure Schedule, (i) none of the Target Employee Plans promises
or provides retiree medical or other retiree welfare or life insurance benefits
to any person; (ii) there has been no "prohibited transaction," as such term is
defined in Section 406 of ERISA and Section 4975 of the Code, and not exempt
under Section 408 of ERISA or Section 4975 of the Code, with respect to any
Target Employee Plan, which could reasonably be expected to have, in the
aggregate, a Material Adverse Effect; (iii) each Target Employee Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as would not have, in the aggregate, a
Material Adverse Effect, and Target and each Subsidiary or ERISA Affiliate have
performed all material obligations required to be performed by them under, are
not in any material respect in default under or violation of, and have no
knowledge of any material default or violation by any other party to, any of the
Target Employee Plans; (iv) neither Target nor any Subsidiary or ERISA Affiliate
is subject to any liability or penalty under Sections 4976 through 4980D of the
Code or Title I of ERISA with respect to any of the Target Employee Plans; (v)
all material contributions required to be made by Target or any Subsidiary or
ERISA Affiliate to any Target Employee Plan have been made on or before their
due dates and a reasonable amount has been accrued for contributions to each
Target Employee Plan for the current plan years; (vi) no Target Employee Plan is
or has ever been subject to Title IV of ERISA or Section 412 of the Code; and
(viii) no compensation paid or payable to any employee of Target or any
Subsidiary has been, or will be, non-deductible by reason of application of
Section 280G of the Code. With respect to each Target Employee Plan subject to
ERISA as either an employee pension plan within the meaning of Section 3(2) of
ERISA or an employee welfare benefit plan within the meaning of Section 3(1) of
ERISA, Target has prepared in good faith and timely filed all requisite
governmental reports (which were true and correct as of the date filed) and has
properly and timely filed and distributed or posted all notices and reports to
employees required to be filed, distributed or posted with respect to each such
Target Employee Plan, except as would not have,
20
in the aggregate, a Material Adverse Effect. No suit, administrative proceeding,
action or other litigation (other than claims for benefits in the ordinary
course of plan activities) has been brought, or to the best knowledge of Target
is threatened, against or with respect to any such Target Employee Plan,
including any audit or inquiry by the IRS or United States Department of Labor.
Neither Target nor any Subsidiary or other ERISA Affiliate is a party to, or has
made any contribution to or otherwise incurred any obligation under, any
"multiemployer plan" as defined in Section 3(37) of ERISA.
(d) With respect to each Target Employee Plan,
Target and each of its United States Subsidiaries have complied with (i) the
applicable health care continuation and notice provisions of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the regulations
thereunder or any similar applicable state law, (ii) the applicable requirements
of the Health Insurance Portability Amendments Act ("HIPAA") and the regulations
thereunder and (iii) the applicable requirements of the Family Medical Leave Act
of 1993 and the regulations thereunder or any similar applicable state law,
except to the extent that such failure to comply would not, in the aggregate,
have a Material Adverse Effect.
(e) The consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
employee or other service provider of Target, any Subsidiary or any other ERISA
Affiliate to severance benefits or any other payment (including, without
limitation, unemployment compensation, golden parachute or bonus), except as
expressly provided in this Agreement, or (ii) accelerate the time of payment or
vesting of any such benefits, or increase the amount of compensation due any
such employee or service provider.
(f) There has been no amendment to, written
interpretation or announcement (whether or not written) by Target, any
Subsidiary or other ERISA Affiliate relating to, or change in participation or
coverage under, any Target Employee Plan which would materially increase the
expense of maintaining such Plan above the level of expense incurred with
respect to that Plan for the most recent fiscal year included in Target's
financial statements.
2.17 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Except as
set forth in Section 2.17 of the Target Disclosure Schedule, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any director or employee of Target or any of
its Subsidiaries, (ii) materially increase any benefits otherwise payable by
Target, or (iii) result in the acceleration of the time of payment or vesting of
any such benefits.
2.18 EMPLOYEE MATTERS. Target and each of its Subsidiaries
are in compliance in all material respects with all currently applicable
federal, state, local and foreign laws and regulations respecting employment,
discrimination in employment, terms and conditions of employment, wages, hours
and occupational safety and health and employment practices, and is not engaged
in any unfair labor practice. There are no pending claims against Target or any
of its Subsidiaries under any workers compensation plan or policy or for long
term disability. Neither Target nor any of its Subsidiaries has any material
obligations under COBRA or any similar state law with respect to any former
employees or qualifying beneficiaries thereunder.
21
There are no controversies pending or, to the knowledge of Target or any of its
Subsidiaries, threatened, between Target or any of its Subsidiaries and any of
their respective employees or former employees, which controversies have or will
have a Material Adverse Effect on Target. Neither Target nor any of its
Subsidiaries is a party to any collective bargaining agreement or other labor
unions contract nor does Target or any of its Subsidiaries know of any
activities or proceedings of any labor union or other group to organize any such
employees. Target and the Subsidiaries have not incurred any liability under,
and have complied in all respects with, the Worker Adjustment Retraining
Notification Act (the "WARN Act"), and no fact or event exists that could give
rise to liability under the WARN Act. Acquirer has been provided with a list of
all employees who are currently on a leave of absence (whether paid or unpaid),
the reasons therefor, the expected return date, and whether reemployment of such
employee is guaranteed by contract or statute, and a list of all employees who
have requested a leave of absence to commence at any time after the date of this
Agreement, the reason therefor, the expected length of such leave, and whether
reemployment of such employee is guaranteed by contract or statute.
2.19 MATERIAL CONTRACTS.
(a) Subsections (i) through (ix) of Section
2.19(a) of the Target Disclosure Schedule contain a list of all contracts and
agreements, whether written or oral, to which Target or any Subsidiary is a
party and that are material to the business, results of operations, or condition
(financial or otherwise), of Target and the Subsidiaries (such contracts,
agreements and arrangements as are required to be set forth in Section 2.19(a)
of the Target Disclosure Schedule being referred to herein collectively as the
"Material Contracts"). Material Contracts shall include, without limitation, the
following and shall be categorized in the Target Disclosure Schedule as follows:
(i) each contract and agreement (other
than routine purchase orders and pricing quotes in the ordinary course of
business covering a period of less than 1 year) for the purchase of inventory,
spare parts, other materials or personal property with any supplier or for the
furnishing of services to Target or any Subsidiary under the terms of which
Target or any Subsidiary: (A) paid or otherwise gave consideration of more than
$50,000 in the aggregate during the calendar year ended December 31, 2002, (B)
is likely to pay or otherwise give consideration of more than $50,000 in the
aggregate during the calendar year ended December 31, 2003, (C) is likely to pay
or otherwise give consideration of more than $50,000 in the aggregate over the
remaining term of such contract, or (D) cannot be cancelled by Target or such
Subsidiary without penalty or further payment of less than $25,000;
(ii) each customer contract and
agreement (other than routine purchase orders, pricing quotes with open
acceptance and other tender bids, in each case, entered into in the ordinary
course of business and covering a period of less than one year) to which Target
or any Subsidiary is a party which (A) involved consideration of more than
$50,000 in the aggregate during the calendar year ended December 31, 2002, (B)
is likely to involve consideration of more than $50,000 in the aggregate during
the calendar year ended December 31, 2003, (C) is likely to involve
consideration of more than $50,000 in the aggregate over the remaining term of
the contract, or (D) cannot be cancelled by Target or such Subsidiary without
penalty or further payment of less than $25,000;
22
(iii) (A) all distributor, manufacturer's
representative, broker, franchise, agency and dealer contracts and agreements to
which Target or any Subsidiary is a party (specifying on a matrix, in the case
of distributor agreements, the name of the distributor, product, territory,
termination date and exclusivity provisions) and (B) all sales promotion, market
research, marketing and advertising contracts and agreements to which Target or
any Subsidiary is a party which: (1) involved consideration of more than $50,000
in the aggregate during the calendar year ended December 31, 2002, (2) are
likely to involve consideration of more than $50,000 in the aggregate during the
calendar year ended December 31, 2003, or (3) are likely to involve
consideration of more than $50,000 in the aggregate over the remaining term of
the contract;
(iv) all management contracts with
independent contractors or consultants (or similar arrangements) to which Target
or any Subsidiary is a party;
(v) all contracts and agreements
(excluding routine checking account overdraft agreements involving ▇▇▇▇▇ cash
amounts) under which Target or any Subsidiary has created, incurred, assumed or
guaranteed (or may create, incur, assume or guarantee) indebtedness or under
which Target or any Subsidiary has imposed (or may impose) a security interest
or lien on any of their respective assets, whether tangible or intangible, to
secure indebtedness;
(vi) all contracts and agreements that
limit the ability of Target or any Subsidiary or, after the Effective Time,
Acquiror or any of its affiliates, to compete in any line of business or with
any person or in any geographic area or during any period of time, or to solicit
any customer or client;
(vii) all contracts and agreements
between or among Target or any Subsidiary, on the one hand, and any affiliate of
Target (other than a wholly owned subsidiary), on the other hand:
(viii) all contracts and agreements to
which Target or any Subsidiary is a party under which it has agreed to supply
products to a customer at specified prices other than purchase orders obtained
in ordinary course of business, whether directly or through a specific
distributor, manufacturer's representative or dealer; and
(ix) all other contracts or agreements
(A) which are material to Target and its Subsidiaries or the conduct of their
respective businesses, (B) the absence of which would have a Material Adverse
Effect on Target, or (C) which are believed by Target to be of unique value even
though not material to the business of Target.
(b) Except as would not, individually or in the
aggregate, have a Material Adverse Effect on Target, each Target license and
each Material Contract is a legal, valid and binding agreement, and none of the
Target licenses or Material Contracts is in default by its terms or has been
cancelled by the other party; Target and the Subsidiaries are not in receipt of
any claim of default under any such agreement; and none of Target or any of the
Subsidiaries anticipates any termination or change to, or receipt of a proposal
with respect to, any such agreement as a result of the Merger. Target has
furnished Acquiror with true and
23
complete copies of all such agreements together with all amendments, waivers or
other changes thereto.
2.20 INTERESTED PARTY TRANSACTIONS. Neither Target nor any
Subsidiary is indebted to any director, officer, employee or agent of Target or
any Subsidiary (except for amounts due as normal salaries and bonuses and in
reimbursement of ordinary expenses), and no such person is indebted to Target or
any Subsidiary. To Target's knowledge, none of Target or any Subsidiary's
officers or directors, or any members of their immediate families, are, directly
or indirectly, indebted to Target or any Subsidiary (other than in connection
with purchases of the Target or Subsidiary's stock). To Target's knowledge, none
of Target or any Subsidiary's officers or directors who will become employees,
officers or directors of Acquiror or any of its affiliates after the Closing
have any direct or indirect ownership interest in any firm or corporation with
which Target or any Subsidiary is affiliated or with which Target or any
Subsidiary has a business relationship, or any firm or corporation which
competes with Target or any Subsidiary except that officers, directors and/or
stockholders of Target or any Subsidiary may own stock in (but not exceeding two
percent of the outstanding capital stock of) any publicly traded companies that
may compete with Target or any Subsidiary. To Target's knowledge, none of Target
or any Subsidiary's officers or directors or any members of their immediate
families are, directly or indirectly, interested in any material contract with
Target or any Subsidiary. Neither Target nor any Subsidiary is a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
2.21 INSURANCE. Target and each of its Subsidiaries have
policies of insurance and bonds of the type and in amounts customarily carried
by persons conducting businesses and owning assets similar to those of Target
and its Subsidiaries. There is no material claim pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies and bonds have been paid and Target and its Subsidiaries
are otherwise in compliance with the terms of such policies and bonds. Target
has no knowledge of any threatened termination of, or material premium increase
with respect to, any of such policies.
2.22 COMPLIANCE WITH LAWS. Each of Target and its
Subsidiaries has complied with, are not in violation of, and have not received
any notices of violation with respect to, any federal, state, local or foreign
statute, law or regulation with respect to the conduct of its business, or the
ownership or operation of its business, except for such violations or failures
to comply as could not reasonably be expected to have a Material Adverse Effect
on Target.
2.23 MINUTE BOOKS. The minute books of Target and its
Subsidiaries provided to Acquiror contain a complete summary of all meetings of
directors and stockholders or actions by written consent since the time of
incorporation of Target and the respective Subsidiaries through the date of this
Agreement, and reflect all transactions referred to in such minutes accurately
in all material respects.
2.24 COMPLETE COPIES OF MATERIALS. Target has delivered or
made available true and copies of each document which has been requested by
Acquiror or its counsel in connection with their legal and accounting review of
Target and its Subsidiaries.
24
2.25 BROKERS' AND FINDERS' FEES. Except as set forth in
Section 2.25 of the Target Disclosure Schedule, Target has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or investment bankers' fees or any similar charges
in connection with this Agreement or any transaction contemplated hereby
("Finder's Fees")
2.26 VOTE REQUIRED. The affirmative vote of the holders of
a majority of the shares of Target Common Stock, the holders of a majority of
Series A Preferred and the holders of a majority of Series A-1 Preferred, each
outstanding on the record date set for the written consent to be circulated to
stockholders of the Company, are the only vote of the holders of any of Target's
capital stock necessary to approve this Agreement and the transactions
contemplated hereby.
2.27 BOARD APPROVAL. In a telephonic meeting of the Board
of Directors of Target, of which notice was duly given or waived and at which a
quorum was present, the Board members participating at such meeting unanimously
(i) approved this Agreement and the Merger, (ii) determined that the Merger is
in the best interests of the stockholders of Target and is on terms that are
fair to such stockholders and (iii) recommended that the stockholders of Target
approve this Agreement and the Merger.
2.28 INVENTORY. The inventories shown on the Financial
Statements or thereafter acquired by Target, consisted of items of a quantity
and quality usable or salable in the ordinary course of business. Since March
31, 2003, Target has continued to replenish inventories in a normal and
customary manner consistent with past practices. Target has not received written
or oral notice that it will experience in the foreseeable future any difficulty
in obtaining, in the desired quantity and quality and at a reasonable price and
upon reasonable terms and conditions, the raw materials, supplies or component
products required for the manufacture, assembly or production of its products.
The values at which inventories are carried reflect the inventory valuation
policy of Target, which is consistent with its past practice and in accordance
with generally accepted accounting principles applied on a consistent basis.
Since March 31, 2003, due provision was made on the books of Target in the
ordinary course of business consistent with past practices to provide for all
slow-moving, obsolete, or unusable inventories to their estimated useful scrap
values and such inventory reserves are adequate to provide for such slow-moving,
obsolete or unusable inventory and inventory shrinkage. As of March 31, 2003,
the inventory of Target in the distribution channel does not exceed an aggregate
of $50,000.
2.29 ACCOUNTS RECEIVABLE.
(a) Target has made available to Acquiror a list
of all accounts receivable of Target and each Subsidiary reflected on the
Financial Statements ("Accounts Receivable") along with a range of days elapsed
since invoice.
(b) All Accounts Receivable of Target and its
Subsidiaries arose in the ordinary course of business, are carried at values
determined in accordance with GAAP consistently applied. No person has any lien
on any of such Accounts Receivable and no request or agreement for deduction or
discount has been made with respect to any of such Accounts Receivable.
25
(c) All of the inventories of Target and each
Subsidiary reflected in the Financial Statements and Target's books and records
on the date hereof were purchased, acquired or produced in the ordinary and
regular course of business and in a manner consistent with Target's regular
inventory practices and are set forth on Target's books and records in
accordance with the practices and principles of Target consistent with the
method of treating said items in prior periods. None of the inventory of Target
or any Subsidiary reflected on the Financial Statements or on Target's books and
records as of the date hereof (in either case net of the reserve therefor) is
obsolete, defective or in excess of the needs of the business of Target
reasonably anticipated for the normal operation of the business consistent with
past practices and outstanding customer contracts. The presentation of inventory
on the Financial Statements conforms to GAAP and such inventory is stated at the
lower of cost or net realizable value.
2.30 CUSTOMERS AND SUPPLIERS. As of the date hereof, no
customer which individually accounted for more than 5% of Target's gross
revenues during the 12-month period preceding the date hereof, no supplier of
Target, nor Premier (or through its relationship with Premier, Olympus, Motorola
or Samsung) has cancelled or otherwise terminated, or made any written threat to
Target to cancel or otherwise terminate its relationship with Target, or has at
any time on or after March 31, 2003 decreased materially its services or
supplies to Target in the case of any such supplier, or its usage of the
services or products of Target in the case of such customer, and to Target's
knowledge, no such supplier or customer nor Premier (or through its relationship
with Premier, Olympus, Motorola or Samsung) intends to cancel or otherwise
terminate its relationship with Target or to decrease materially its services or
supplies to Target or its usage of the services or products of Target, as the
case may be. From and after the date hereof, no customer which individually
accounted for more than 5% of Target's gross revenues during the 12 month period
preceding the Closing Date, has cancelled or otherwise terminated, or made any
written threat to Target to cancel or otherwise terminate, for any reason,
including without limitation the consummation of the transactions contemplated
hereby, its relationship with Target, and to Target's knowledge, no such
customer intends to cancel or otherwise terminate its relationship with Target
or to decrease materially its usage of the services or products of Target.
Target has not knowingly breached, so as to provide a benefit to Target that was
not intended by the parties, any agreement with, or engaged in any fraudulent
conduct with respect to, any customer or supplier of Target. Target has a design
win from Premier relating to digital still camera chips and has no reason to
believe Premier will cease to be a customer of Target after the Closing.
2.31 THIRD PARTY CONSENTS. Except as set forth in Section
2.31 of the Target Disclosure Schedule, no consent or approval is needed from
any third party in order to effect the Merger, this Agreement or any of the
transaction contemplated hereby. All material third party consents and approvals
that were needed from any third party in connection with the transactions
contemplated under that certain Formation Agreement, dated May 7, 2002, by and
among Zing Network, Inc., Zing Acquisition Corporation, Pictos Technologies,
Inc., Conexant Systems, Inc. and ▇▇ ▇▇▇▇▇▇ Trust Company, N.A. have been
obtained.
2.32 NO COMMITMENTS REGARDING FUTURE PRODUCTS. Target has
made no sales to customers that are contingent upon providing future
enhancements of existing products, to add features not presently available on
existing products or to otherwise enhance the performance of its existing
products (other than beta or similar arrangements pursuant to which
26
Target's customers from time to time test or evaluate products). The products
Target has delivered to customers substantially comply with published
specifications for such products and Target has not received material complaints
from customers about its products that remain unresolved. Section 2.32 of the
Target Disclosure Schedule accurately sets forth a complete list of products in
development.
2.33 REPRESENTATIONS COMPLETE. None of (i) the written
communications from Target personnel to Acquiror personnel concerning the
transactions contemplated hereby, (ii) the due diligence materials furnished or
made available by or on behalf of Target to Acquiror and (iii) the
representations or warranties made by Target herein or in any Schedule hereto,
including the Target Disclosure Schedule, or certificate furnished by Target
pursuant to this Agreement, when read together, contains or will contain at the
Effective Time any untrue statement of a material fact, or omits or will omit at
the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
SECTION THREE
3. REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB.
Except as disclosed in a document dated as of the date of this
Agreement and delivered by Acquiror to Target prior to the execution and
delivery of this Agreement and referring to the representations and warranties
in this Agreement (the "Acquiror Disclosure Schedule"), Acquiror and Merger Sub
hereby jointly and severally represent and warrant to Target as follows:
3.1 ORGANIZATION, STANDING AND POWER. Each of Acquiror
and Merger Sub is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of Acquiror
and Merger Sub has the requisite power to own its properties and to carry on its
business as now being conducted and as proposed to be conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified and in good standing would have a Material
Adverse Effect on Acquiror. Acquiror has delivered or made available a true and
correct copy of the Certificate of Incorporation and Bylaws of Acquiror and
Merger Sub, each as amended to date, to Target or its counsel. Neither Acquiror
nor any of its subsidiaries is in violation of any material provisions of its
Certificate of Incorporation or Bylaws or equivalent organizational documents.
3.2 AUTHORITY. Acquiror and Merger Sub have all requisite
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of Acquiror and Merger Sub (other
than, with respect to the Merger, the filing and recordation of appropriate
merger documents as required by Delaware law). This Agreement has been duly
executed and delivered by Acquiror and Merger Sub and constitutes the valid and
binding obligations of Acquiror and Merger Sub.
27
3.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a benefit under (i)
any provision of the Articles or Certificate of Incorporation or Bylaws of
Acquiror or Merger Sub, as amended, or (ii) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Acquiror or Merger Sub or their properties or assets.
(b) No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity, is
required by or with respect to Acquiror or Merger Sub in connection with the
execution and delivery of this Agreement by Acquiror and Merger Sub or the
consummation by Acquiror and Merger Sub of the transactions contemplated hereby,
except for (i) the filing of appropriate merger documents as required by
Delaware Law, (ii) the filing of a Form 8-K with the SEC and National
Association of Securities Dealers ("NASD") within 10 days after the Closing
Date, and (iii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Acquiror and would not prevent, alter or delay any the transactions
contemplated by this Agreement.
3.4 LITIGATION. There is no private or governmental
action, suit, proceeding, claim, arbitration or investigation pending before any
agency, court or tribunal, foreign or domestic, against Acquiror or Merger Sub
which seeks to prevent, enjoin, or materially alter or delay any of the
transactions contemplated by this Agreement.
3.5 TAX MATTERS. Acquiror has reviewed with its own tax
advisors the U.S. federal, state, local and foreign tax consequences of the
transactions contemplated by the Agreement. With respect to such tax matters,
Acquiror relies solely on such advisors and not on any statements or
representations of Target or any of Target's agents, written or oral. Acquiror
understands that it (and not Target) shall be responsible for its own tax
liability that may arise as a result of this investment or the transactions
contemplated by the Agreement.
SECTION FOUR
4. ADDITIONAL AGREEMENTS.
4.1 FURTHER ASSURANCES. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to Closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby.
4.2 EXPENSES. All fees and expenses incurred in
connection with the Merger including, without limitation, all legal, accounting,
financial advisory, consulting and all other fees and expenses of third parties
("Third Party Expenses") incurred by a party in connection with the negotiation
and effectuation of the terms and conditions of this Agreement and the
28
transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses; provided, however, Acquiror agrees to
cause Target to pay on the Closing Date up to an aggregate of $150,000 in
reasonable and documented fees and expenses (including Third Party Expenses but
not including finders' fees payable by Target as a result of the Merger)
incurred by the Target in connection with the Merger and listed on the Statement
of Expenses (as defined below); and provided, further, that to the extent the
fees and expenses (including Third Party Expenses) listed on the Statement of
Expenses exceed $150,000 in the aggregate, the Merger Consideration shall be
reduced dollar-for-dollar as provided in Section 1.6 hereof. As used herein,
"Statement of Expenses" shall mean a written statement of all fees and expenses
(including Third Party Expenses but not including finders' fees payable by
Target as a result of the Merger) incurred by the Target in connection with the
Merger, including an estimate of any such expenses yet to be incurred or
invoiced, in form reasonably satisfactory to Acquiror and accompanied by a
certificate signed by the Chief Financial Officer of the Target stating that the
statement is true and correct as of the Effective Time, which shall be delivered
to Acquiror's Chief Financial Officer at the Closing, and which shall include
copies of any invoices or other supporting documents referred to therein. Any
fees and expenses (including Third Party Expenses) incurred by the Target in
connection with the Merger and not reflected in full on the Statement of
Expenses (collectively the "Undisclosed Excess Expense Amount") shall be paid to
the Acquiror from the Escrow Fund (as defined in Section 6.2 hereof).
4.3 SEVERANCE PAYMENTS. The Merger Consideration shall be
reduced dollar-for-dollar as provided in Section 1.6 hereof for the aggregate
amount of the payments set forth as Target Bonus and Severance Payments on the
Bonus and Severance Payment Statement. As used herein, (a) "Bonus and Severance
Payment Statement" shall mean a written statement (accompanied by a certificate
signed by the Chief Financial Officer of the Target stating that the statement
is true and correct as of the Effective Time) of all payments due or which will
become due to any current or former employee or other service provider of
Target, any Subsidiary or any other ERISA Affiliate as a result of the
consummation of the transactions contemplated by this Agreement (the "Target
Bonus and Severance Payments"). The amount of any payments that become due to
any current or former employee or other service provider of Target, any
Subsidiary or any other ERISA Affiliate after the Closing pursuant to (i) an
agreement by Target to make such payment in the event of termination of
employment or service within some period prior to or following the Closing, or
as a result of the Closing or (ii) the severance policies or practices of the
Target prior to Closing provided such payments do not exceed an amount equal to
the regular salary for a period of three weeks on a per employee basis (the
"Post-Closing Severance Payments") shall be paid to Acquiror out of the Escrow
Fund at the time such severance payments become payable to such employee or
service provider.
29
SECTION FIVE
5. CONDITIONS TO THE MERGER.
5.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each party to this Agreement to consummate
and effect this Agreement and the transactions contemplated hereby shall be
subject to the satisfaction on or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, by agreement of
all the parties hereto:
(a) STOCKHOLDER APPROVAL. This Agreement and the
Merger shall have been duly approved and adopted by the holders of the shares of
the Target Capital Stock outstanding as of the record date, as required under
applicable law and the Certificate of Incorporation and bylaws of Target.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which makes the consummation of the Merger
illegal. In the event an injunction or other order shall have been issued, each
party agrees to use its reasonable diligent efforts to have such injunction or
other order lifted.
(c) GOVERNMENTAL APPROVAL. Acquiror, Target and
Merger Sub and their respective subsidiaries shall have timely obtained from
each Governmental Entity all approvals, waivers and consents, if any, necessary
for consummation of or in connection with the Merger and the several
transactions contemplated hereby.
(d) ESCROW AGREEMENT. Acquiror, Target, Escrow
Agent and the Stockholders' Representative (as defined in Section 6 below) shall
have entered into an Escrow Agreement substantially in the form attached hereto
as Exhibit B (the "Escrow Agreement").
(e) CERTIFICATE OF MERGER. The Certificate of
Merger shall have been filed in accordance with Delaware law.
(f) CERTIFICATE OF MERGER. Acquiror shall have
wired funds to WSGR pursuant to Section 1.7(b).
5.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TARGET. The
obligations of Target to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Target:
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of Acquiror and Merger Sub in this Agreement that
is expressly qualified by a
30
reference to materiality shall be true in all respects as so qualified, and each
of the representations and warranties of Acquiror and Merger Sub in this
Agreement that is not so qualified shall be true and correct in all material
respects, on and as of the Effective Time as though such representation or
warranty had been made on and as of such time (except that those representations
and warranties which address matters only as of a particular date shall remain
true and correct as of such date).
(b) CERTIFICATES OF ACQUIROR.
(i) COMPLIANCE CERTIFICATE OF ACQUIROR.
Target shall have been provided with a certificate executed on behalf of
Acquiror by its President or its Chief Financial Officer to the effect that, as
of the Effective Time, each of the conditions set forth in Section 5.2(a) above
has been satisfied with respect to Acquiror.
(ii) CERTIFICATE OF SECRETARY OF
ACQUIROR. Target shall have been provided with a certificate executed by the
Secretary or Assistant Secretary of Acquiror certifying:
(A) Resolutions duly adopted by
the Board of Directors of Acquiror authorizing the execution of this Agreement
and the execution, performance and delivery of all agreements, documents and
transactions contemplated hereby; and
(B) the incumbency of the
officers of Acquiror executing this Agreement and all agreements and documents
contemplated hereby.
(c) CERTIFICATES OF MERGER SUB.
(i) COMPLIANCE CERTIFICATE OF MERGER
SUB. Target shall have been provided with a certificate executed on behalf of
Merger Sub by its President or its Chief Financial Officer to the effect that,
as of the Effective Time, each of the conditions set forth in Section 5.2(a)
above has been satisfied with respect to Merger Sub.
(ii) CERTIFICATE OF SECRETARY OF MERGER
SUB. Target shall have been provided with a certificate executed by the
Secretary or Assistant Secretary of Merger Sub certifying:
(A) Resolutions duly adopted by
the Board of Directors and the sole stockholder of Merger Sub authorizing the
execution of this Agreement and the execution, performance and delivery of all
agreements, documents and transactions contemplated hereby; and
(B) the incumbency of the
officers of Merger Sub executing this Agreement and all agreements and documents
contemplated hereby.
5.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ACQUIROR
AND MERGER SUB. The obligations of Acquiror and Merger Sub to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction at or prior to the
31
Effective Time of each of the following conditions, any of which may be waived,
in writing, by Acquiror:
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of Target in this Agreement that is expressly
qualified by a reference to materiality shall be true in all respects as so
qualified, and each of the representations and warranties of Target in this
Agreement that is not so qualified shall be true and correct in all material
respects, on and as of the Effective Time as though such representation or
warranty had been made on and as of such time (except that those representations
and warranties which address matters only as of a particular date shall remain
true and correct as of such date).
(b) CERTIFICATES OF TARGET.
(i) COMPLIANCE CERTIFICATE OF TARGET.
Acquiror and Merger Sub shall have been provided with a certificate executed on
behalf of Target by its President or its Chief Financial Officer to the effect
that, as of the Effective Time, each of the conditions set forth in Section
5.3(a) above has been satisfied.
(ii) CERTIFICATE OF SECRETARY OF TARGET.
Acquiror and Merger Sub shall have been provided with a certificate executed by
the Secretary of Target certifying:
(A) Resolutions duly adopted by
the Board of Directors and the stockholders of Target authorizing the execution
of this Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby;
(B) The Certificate of
Incorporation and Bylaws of Target, as in effect immediately prior to the
Effective Time, including all amendments thereto; and
(C) the incumbency of the
officers of Target executing this Agreement and all agreements and documents
contemplated hereby.
(c) THIRD PARTY CONSENTS. Acquiror shall have
been furnished with evidence satisfactory to it that Target has obtained those
consents, waivers, approvals or authorizations of those Governmental Entities
and third parties whose consent or approval are identified as required in
connection with the Merger in Schedule 2.5 and Schedule 2.31 of the Target
Disclosure Schedule.
(d) INJUNCTIONS OR RESTRAINTS ON MERGER AND
CONDUCT OF BUSINESS. No proceeding brought by any administrative agency or
commission of other governmental authority or instrumentality, domestic or
foreign, seeking to prevent the consummation of the Merger shall be pending. In
addition, no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal or
regulatory restraint provision limiting or restricting Acquiror's conduct or
operation of the business of Target and its Subsidiaries, following the Merger
shall be in effect, nor shall any proceeding brought by an administrative agency
or commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
32
(e) LEGAL OPINION. Acquiror shall have received
a legal opinion from Target's legal counsel, in substantially the form of
Exhibit C.
(f) RESIGNATION OF DIRECTORS AND OFFICERS.
Acquiror shall have received letters of resignation from each of the directors
and officers of Target in office immediately prior to the Effective Time, which
resignations in each case shall be effective as of the Effective Time.
(g) TERMINATION OF TARGET'S 401(K) PLAN. If
Target maintains or sponsors a plan subject to Section 401(k) of the Code,
Target's Board of Directors shall have adopted a resolution terminating such
plan contingent on the Closing and effective as of at least one calendar day
prior to the Effective Time.
(h) CERTAIN CONEXANT AGREEMENTS. Target and
Conexant shall have executed and delivered each of those agreements and
amendments to agreements in the forms attached hereto as Exhibit 5.3(i)(1),
Exhibit 5.3(i)(2), Exhibit 5.3(i)(3), Exhibit 5.3(i)(4), Exhibit 5.3(i)(5) and
Exhibit 5.3(i)(6).
(i) APPRAISAL RIGHTS. Stockholders of not more
than 5% of the total outstanding Target Capital Stock (on an as converted basis)
shall have demanded or be entitled to demand appraisal rights pursuant to
Delaware Law.
(j) FIRPTA. Target shall, prior to the Closing
Date, provide Acquiror with a properly executed FIRPTA Notification Letter and a
form of notice to the Internal Revenue Service in accordance with the
requirements of Treasury Regulation Section 1.897-2(h)(2) along with written
authorization for Acquiror to deliver such notice form to the Internal Revenue
Service on behalf of Target upon the Closing of the Merger.
SECTION SIX
6. ESCROW AND INDEMNIFICATION.
6.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS. All representations, warranties and covenants in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
consummation of the Merger and continue until twelve (12) months (the "Escrow
Termination Date"); provided that if any claims for indemnification have been
asserted with respect to any such representations and warranties prior to the
Escrow Termination Date, the representations, warranties and covenants on which
any such claims are based shall continue in effect until final resolution of any
claims.
6.2 ESCROW FUND. Within three business days after the
Effective Time, the Escrow Cash shall be deposited with U.S. Bank, National
Association (or other institution selected by Acquiror and reasonably acceptable
to Shareholders' Representative) as escrow agent (the "Escrow Agent"), such
deposit to constitute the escrow fund (the "Escrow Fund") and to be governed by
the terms set forth herein and in the Escrow Agreement attached hereto as
Exhibit B (the "Escrow Agreement"). In the event that any Damages (as defined
below) arise, the Escrow Fund shall be available to compensate the Indemnified
Persons (defined below)
33
pursuant to the indemnification obligations of the stockholders of the Target
pursuant to Section 6.3 and in accordance with the Escrow Agreement.
6.3 INDEMNIFICATION.
(a) INDEMNIFIED DAMAGES. Subject to the
limitations set forth in this Section 6, from and after the Effective Time, the
former stockholders of Target shall protect, defend, indemnify and hold harmless
Acquiror, and the Surviving Corporation, and their respective affiliates,
officers, directors, employees, representatives and agents (Acquiror and
Surviving Corporation, and each of the foregoing persons or entities is
hereinafter referred to individually as an "Indemnified Person" and collectively
as "Indemnified Persons") from and against any and all losses, costs, damages,
liabilities, fees (including without limitation attorneys' fees) and expenses
(collectively, the "Damages"), that any of the Indemnified Persons incurs by
reason of or in connection with (i) any claim, demand, action or cause of action
arising out of a misrepresentation, breach of, or default in connection with,
any of the representations, warranties, covenants or agreements of Target
contained in this Agreement, including any exhibits or schedules attached
hereto, and the Certificate of Merger, (ii) any claims, demands or suits brought
by former Target stockholders with respect to the transactions contemplated
hereby, (iii) any Undisclosed Excess Expense Amount as set forth in Section 4.2,
(iv) any Post-Closing Severance Payments and Target Bonus and Severance Payments
which become due after the Closing as set forth in Section 4.3, and (v) the
matters disclosed in Section 2.9 of the Disclosure Schedule, in each case, which
becomes known to Acquiror during the Escrow Period. Damages in each case shall
be net of the amount of any insurance proceeds and indemnity and contribution
actually recovered by Acquiror or the Interim Surviving Corporation.
(b) EXCLUSIVE CONTRACTUAL REMEDY AND
LIMITATIONS. Acquiror, the former stockholders of Target and Target each
acknowledge that Damages, if any, would relate to unresolved contingencies
existing at the Effective Time, which if resolved at the Effective Time would
have led to a reduction in the total consideration Acquiror would have agreed to
pay in connection with the Merger. Resort to the Escrow Fund shall be the
exclusive contractual remedy of Acquiror and Surviving Corporation for any
Damages. The maximum liability of any former holder of the Target Capital Stock
for any breach of a representation, warranty or covenant of the Target shall be
limited to the Escrow Cash in which such holder has an interest that is held
pursuant to the Escrow Agreement; provided, however, that nothing herein shall
limit the liability of any officer, director or stockholder of the Target for
such person's or entity's fraud or intentional misrepresentation.
6.4 DAMAGES THRESHOLD. Notwithstanding the foregoing,
Acquiror may not receive any amount of the Escrow Cash from the Escrow Fund
unless and until a certificate signed by an officer of Acquiror (an "Officer's
Certificate") identifying Damages in the aggregate amount in excess of $100,000
has been delivered to the Escrow Agent and such amount is determined pursuant to
this Section 6 to be payable, in which case Acquiror shall receive Escrow Cash
equal in value to the full amount of such Damages without deduction. In
determining the amount of any Damages attributable to a breach, any materiality
standard contained in a representation, warranty or covenant of Acquiror shall
be disregarded.
34
6.5 ESCROW PERIOD. Subject to the following requirements,
the Escrow Fund shall remain in existence until the Escrow Termination Date (the
"Escrow Period"). Upon the expiration of the Escrow Period, the Escrow Fund
shall terminate with respect to all Escrow Cash; provided, however, that the
amount of Escrow Cash, which, in the reasonable judgment of Acquiror, subject to
the objection of the Stockholders' Representative (as defined in Section 6.8
below) and the subsequent arbitration of the claim in the manner provided in the
Escrow Agreement, are necessary to satisfy any unsatisfied claims specified in
any Officer's Certificate delivered to the Escrow Agent prior to the expiration
of such Escrow Period with respect to facts and circumstances existing on or
prior to the Escrow Termination Date shall remain in the Escrow Fund (and the
Escrow Fund shall remain in existence) until such claims have been resolved. As
soon as all such claims have been resolved, the Escrow Agent shall deliver to
the stockholders of Target all Escrow Cash and other property remaining in the
Escrow Fund and not required to satisfy such claims. Deliveries of Escrow Cash
to the stockholders of Target pursuant to this Section 6.5 and the Escrow
Agreement shall be made in proportion to their respective original contributions
to the Escrow Fund.
6.6 METHOD OF ASSERTING CLAIMS. All claims for
indemnification by Target, the Surviving Corporation, or any other Indemnified
Person pursuant to this Section 6 shall be made in accordance with the
provisions of the Escrow Agreement.
6.7 REPRESENTATIVE OF THE STOCKHOLDERS; POWER OF
ATTORNEY. ▇▇▇▇▇▇ ▇▇▇▇▇▇ shall be appointed as agent and attorney-in-fact (the
"Stockholders' Representative") for each stockholder of Target (except such
stockholders, if any, as shall have perfected their appraisal rights under
Delaware Law), for and on behalf of stockholders of Target, to give and receive
notices and communications on behalf of Target stockholders, to enter into and
perform the Escrow Agreement, to authorize delivery to Acquiror of Escrow Cash
or other property from the Escrow Fund in satisfaction of claims by Acquiror or
any other Indemnified Person, to object to such deliveries, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of
Stockholders' Representative for the accomplishment of the foregoing.
6.8 ADJUSTMENT TO ESCROW. In the event that Acquiror pays
out any amounts to holders of Dissenting Shares with respect to such shares, the
Escrow Cash shall be automatically reduced by the amount of Escrow Cash
allocable to such Dissenting Shares. Upon certification by the Acquiror to the
Escrow Agent of such event, the Escrow Cash allocable to such Dissenting Shares
shall be promptly returned to Acquiror.
SECTION SEVEN
7. GENERAL PROVISIONS.
7.1 NOTICES. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient upon receipt, when
delivered personally or by courier, overnight delivery service or confirmed
facsimile, or 48 hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid,
35
if such notice is addressed to the party to be notified at such party's address
or facsimile number as set forth below, or as subsequently modified by written
notice,
(a) if to Acquiror or Merger Sub, to:
ESS Technology, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No. (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Target, to:
Pictos Technologies, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to the Shareholders
Representative:
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇/▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
7.2 INTERPRETATION. When a reference is made in this
Agreement to Exhibits or Schedules, such reference shall be to an Exhibit or
Schedule to this Agreement unless otherwise indicated. The words "include,"
"includes" and "including" when used herein shall be
36
deemed in each case to be followed by the words "without limitation." The phrase
"made available" in this Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information is to
be made available. The phrases "the date of this Agreement," "the date hereof,"
and terms of similar import, unless the context otherwise requires, shall be
deemed to refer to the effective date of this Agreement. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
7.3 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
7.4 ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN
INTEREST. This Agreement and the documents and instruments and other agreements
specifically referred to herein or delivered pursuant hereto, including the
Exhibits, the Schedules, including the Target Disclosure Schedule and the
Acquiror Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, except for the Confidentiality Agreement,
which shall continue in full force and effect, and shall survive any termination
of this Agreement or the Closing, in accordance with its terms; (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as set forth in Sections 1.6(a)-(c), 1.7. 1.8, 1.11; and (c) shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided.
7.5 SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, the parties agree
to renegotiate such provision in good faith, in order to maintain the economic
position enjoyed by each party as close as possible to that under the provision
rendered unenforceable. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
7.6 REMEDIES CUMULATIVE. Except as otherwise provided
herein, 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 or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy.
7.7 GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California, without giving effect to principles of conflicts of
law. Each of the parties to this Agreement consents to the exclusive
jurisdiction and venue of the courts of the state and federal courts of San
Mateo County, California.
7.8 RULES OF CONSTRUCTION. The parties hereto agree that
they have been represented by counsel during the negotiation, preparation and
execution of this Agreement and,
37
therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
7.9 AMENDMENTS AND WAIVERS. Any term of this Agreement
may be amended or waived only with the written consent of the parties or their
respective successors and assigns. Any amendment or waiver effected in
accordance with this Section 7.9 shall be binding upon the parties and their
respective successors and assigns. At any time prior to the Effective Time any
party may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties, (ii)
waive any inaccuracies in the representations and warranties made to such party
contained herein or in any document delivered pursuant hereto, and (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
[Signature Page Follows]
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Target, Acquiror and Merger Sub have executed this Agreement as of the
date first written above.
TARGET:
PICTOS TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: President and Chief Executive Officer
Address: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
ACQUIROR:
ESS TECHNOLOGY, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Executive Officer
Address: ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
MERGER SUB:
PICTOS ACQUISITION CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Executive Officer
Address: ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
EXCLUDED EXHIBITS
The following schedule and exhibits to the Agreement and Plan of Merger dated
June 9, 2003, by and among ESS Technology, Inc., Pictos Acquisition Corporation,
and Pictos Technologies, Inc., have been omitted from this filing: Target
Disclosure Schedule, Exhibit A (Certificate of Merger); Exhibit B (Form of
Escrow Agreement); and Exhibit C (Form of Legal Opinion from Target's Counsel).
ESS hereby agrees to furnish supplementally to the Commission any omitted
exhibit upon request.
39
