prem14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant S Filed by a Party other than the Registrant
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
Vialta, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.001 per share
(2) Aggregate number of securities to which transaction applies:
As of March 31, 2005, 51,043,665 outstanding shares of Common Stock, which includes vested
options to acquire 2,146,167 shares of Common Stock at a per-share exercise price of less
than $0.36. Outstanding shares excludes 32,039,840 shares held by
Victory Acquisition Corp., which will be cancelled as of the
effective time of the merger. Outstanding options excludes options held by Fred S.L. Chan, which will be
cancelled as of the effective time of the merger and stapled options to purchase common
stock of ESS Technology, Inc. (ESS Technology) and shares of Vialtas Common Stock which
the company believes, based on the average strike price relative to the current price of ESS
Technology common stock, will not be exercised.
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act
Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was
determined):
The proposed maximum aggregate value of the transaction, for purposes only of calculating
the filing fee, is $18,418,643, which is the sum of (a) the product of (i) the 51,043,665
shares of Common Stock that are proposed to be converted into the right to receive the
merger consideration, multiplied by (ii) the merger consideration of $0.36 per share of
Common Stock, plus (b) the product of (i) 2,146,167, the
number of shares of Common Stock
underlying vested options to purchase such shares at a per-share exercise price of
less than $0.36, multiplied by (ii) the amount by which the per-share merger consideration
of $0.36 exceeds the $0.34 per share weighted average exercise price of such options. The
filing fee equals the proposed maximum aggregate value of the transaction multiplied by .0001177. Outstanding shares excludes 32,039,840 shares held by
Victory Acquisition Corp., which will be cancelled as of the
effective time of the merger. Outstanding options excludes options held by Fred S.L. Chan, which will be
cancelled as of the effective time of the merger and stapled options to purchase common
stock of ESS Technology and shares of Vialtas Common Stock which the company believes,
based on the average strike price relative to the current price of ESS Technology common
stock, will not be exercised.
(4) Proposed maximum aggregate value of transaction:
$18,418,643
(5) Total fee paid:
$2,168
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing. |
(6) Amount Previously Paid:
(7) Form, Schedule or Registration Statement No.:
(8) Filing Party:
(9) Date Filed:
VIALTA, INC.
48461 FREMONT BOULEVARD
FREMONT, CALIFORNIA 94538
Dear Vialta Stockholder:
You are cordially invited to attend a special meeting of the
stockholders of Vialta, Inc. to be held
on ,
2005 at a.m., local time, at
the Fremont Marriott, 46100 Landing Parkway, Fremont, CA
94538.
At the special meeting, you will be asked to consider and vote
upon a proposal to approve and adopt the merger agreement
between Vialta and Victory Acquisition Corp., a company
controlled by Vialtas chairman, Fred S.L. Chan, and the
merger contemplated thereby. You will also be asked to consider
and vote upon a proposal to adjourn the special meeting if
necessary to permit further solicitation of proxies in the event
there are not sufficient votes at the time of the special
meeting to approve the merger agreement.
Under the terms of the proposed merger, all stockholders of
Vialta, other than Victory Acquisition Corp. and Fred S.L. Chan,
his wife Annie M.H. Chan, trusts established for the benefit of
their children and a related entity, who are, directly or
indirectly, investors in Victory Acquisition Corp. (the
participating stockholders) as well as stockholders
who have perfected or not lost or waived the benefit of
appraisal or dissenters rights, would receive
$0.36 per share in cash, and Mr. Chan and the other
participating stockholders would acquire 100% ownership of
Vialta, Inc. Shares held by the company would be canceled
without any payment.
The all-cash price of $0.36 per share represents a 50%
premium to the average closing price of Vialta common stock for
the 30 days prior to the March 28, 2005 announcement
of the offer and a 60% premium to the closing price of Vialta
common stock on the day before the announcement of the merger.
Our Board of Directors, in accordance with the recommendation
of a special committee of the Board of Directors, unanimously,
with Mr. Chan abstaining, recommends that stockholders vote
FOR approval and adoption of the merger agreement and the merger
and FOR the proposal to adjourn the special meeting if necessary
to permit further solicitation of proxies in the event there are
not sufficient votes at the time of the special meeting to
approve the merger agreement. A Special Committee of
independent directors was appointed to evaluate the merger, and
after direct negotiations with Mr. Chan and careful
consideration, including a thorough review with its independent
advisors and the receipt of a fairness opinion from its
independent financial advisor, unanimously determined that the
merger is fair to and in the best interests of Vialtas
stockholders other than the participating stockholders.
Your vote is very important to us. Approval and adoption of
the merger agreement and the merger requires the affirmative
vote of a majority of the shares outstanding as
of ,
2005, the record date for the special meeting. Accordingly,
whether or not you plan to attend the special meeting in person,
please complete, sign, date and return the enclosed proxy in the
accompanying self-addressed postage pre-paid envelope (or, if
your shares are held in street name by a broker,
nominee, fiduciary or other custodian, follow the directions
given by the broker, nominee, fiduciary or other custodian
regarding how to instruct it to vote your shares) as soon as
possible.
The enclosed proxy statement provides you with detailed
information about the proposed merger, the merger agreement and
the special meeting. We urge you to read the entire document
carefully, including information incorporated by reference and
included in annexes.
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Very truly yours, |
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Didier Pietri |
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Chief Executive Officer |
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of this
transaction or passed upon the merits or fairness of this
transaction or the adequacy or accuracy of the disclosure in the
enclosed proxy statement. Any representation to the contrary is
a criminal offense.
The enclosed proxy statement is
dated ,
2005 and is first being mailed to stockholders on or
about ,
2005.
VIALTA, INC.
48461 FREMONT BOULEVARD
FREMONT, CALIFORNIA 94538
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE
HELD ,
2005
To the stockholders of Vialta, Inc.:
We will hold a special meeting of stockholders of Vialta, Inc.
on ,
2005 at a.m., local time, at
the Fremont Marriott, 46100 Landing Parkway, Fremont, CA 94538.
The purpose of the meeting is:
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1. to consider and vote upon a proposal to approve and
adopt the Agreement and Plan of Reorganization, dated as of
March 28, 2005, by and between Victory Acquisition Corp.
and Vialta, Inc. and the merger contemplated thereby; |
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2. to consider and vote upon a proposal to adjourn the
special meeting if necessary to permit further solicitation of
proxies in the event there are not sufficient votes at the time
of the special meeting to approve and adopt the Agreement and
Plan of Reorganization referred to in Item 1 and the merger
contemplated thereby; and |
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3. to transact such other business as may properly come
before the special meeting or any adjournments or postponements
of the special meeting. |
We have described the merger agreement and the related merger in
the accompanying proxy statement, which you should read in its
entirety before voting. A copy of the Agreement and Plan of
Reorganization is attached as Annex A to the proxy
statement. The record date to determine who is entitled to vote
at the special meeting
is ,
2005. Only holders of Vialta, Inc. common stock at the close of
business on the record date are entitled to notice of, and to
vote at, the special meeting.
Your vote is important. To make sure your shares are
represented at the special meeting, you should, as soon as
possible, complete, sign, date and return the enclosed proxy
card (or, if your shares are held in street name by
a broker, nominee, fiduciary or other custodian, follow the
directions given by the broker, nominee, fiduciary or other
custodian regarding how to instruct it to vote your shares). You
retain the right to revoke your proxy at any time before it is
actually voted by submitting to the Secretary of the company a
written notice of revocation, by delivering a duly executed
proxy bearing a later date or by attending the special meeting
and voting in person. Please note, however, that if your shares
are held of record by a broker, bank or other nominee and you
wish to vote at the special meeting, you must bring to the
meeting a proxy from the broker, bank or other nominee
authorizing you to vote the shares. If you have given voting
instructions to a broker, nominee, fiduciary or other custodian
that holds your shares in street name, you may
revoke those instructions by following the directions given by
the broker, nominee, fiduciary or other custodian.
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By Order of the Board of Directors, |
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Didier Pietri |
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Chief Executive Officer |
Fremont, California
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2005
Whether or not you plan to attend the special meeting in
person, please complete, sign, date and return the enclosed
proxy in the accompanying self-addressed postage pre-paid
envelope (or, if your shares are held in street name
by a broker, nominee, fiduciary or other custodian, follow the
directions given by the broker, nominee, fiduciary or other
custodian regarding how to instruct it to vote your shares) as
soon as possible.
TABLE OF CONTENTS
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47 |
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Effect of the Merger on the Capital
Stock of Vialta and Victory Acquisition Corp.
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Annexes
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A-1 |
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B-1 |
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C-1 |
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D-1 |
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E-1 |
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F-1 |
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G-1 |
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H-1 |
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I-1 |
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J-1 |
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ii
FORWARD-LOOKING STATEMENTS
Any statements in this proxy statement about future
expectations, plans and prospects, including statements
regarding consummation of the proposed merger and statements
contained herein under CERTAIN FINANCIAL MODELS RELATING
TO POTENTIAL BROADBAND PRODUCTS., constitute
forward-looking statements. In some cases, forward-looking
statements may be identified by their incorporation of
forward-looking terminology such as anticipate,
believe, continue, estimate,
expect, intend, may,
should or will and other comparable
expressions. Forward-looking statements are subject to risks and
uncertainties, which could cause actual results or outcomes to
differ materially from those currently anticipated. Actual
results may differ materially from those indicated by such
forward-looking statements as a result of various important
factors, including the matters discussed under Forward
Looking Statements in Vialtas most recent annual
report filed with the SEC, as well as factors relating to the
proposed merger contained herein. The forward-looking statements
included herein are made only as of the date of this proxy
statement, and Vialta undertakes no obligation to publicly
update such forward-looking statements to reflect subsequent
events or circumstances. Notwithstanding the foregoing, in the
event of any material change in any of the information
previously disclosed, Vialta will, where relevant and if
required by applicable law, update such information through a
supplement to this proxy statement to the extent necessary.
SUMMARY TERM SHEET
Vialta Inc. is delivering this statement to you in connection
with its request that you consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Reorganization,
dated as of March 28, 2005, by and between Victory
Acquisition Corp. and Vialta, Inc. and the merger contemplated
thereby which are referred to in this proxy statement as the
merger agreement and the merger. The merger agreement provides
for the merger of Victory Acquisition Corp. with and into
Vialta. Vialta would be the surviving corporation in the merger,
and, immediately following the merger, Fred S.L. Chan and
members of his family and affiliated entities would have direct
or indirect ownership of all of the outstanding capital stock of
Vialta. This summary term sheet briefly describes the most
material terms of the proposed merger and may not contain all of
the information that is important to you. Vialta urges you to
read carefully the entire proxy statement, including the
information incorporated by reference and the annexes. You may
obtain without charge copies of documents incorporated by
reference into this proxy statement by following the
instructions under WHERE YOU CAN FIND MORE
INFORMATION. In this proxy statement, the terms the
company and Vialta refer to Vialta, Inc.
and the term Victory refers to Victory Acquisition
Corp.
A copy of the merger agreement has been included to provide
you with information regarding its terms. It is not intended to
provide any other factual information about us. Such information
can be found elsewhere in this proxy statement and in the other
public filings Vialta makes with the Securities and Exchange
Commission, which are available without charge at
www.sec.gov.
The merger agreement contains representations and warranties
made by the parties to each other. The assertions embodied in
those representations and warranties are qualified by
information in confidential disclosure schedules that were
exchanged in connection with signing the merger agreement. While
we do not believe that they contain information securities laws
require us to publicly disclose other than information that has
already been so disclosed, the disclosure schedules do contain
information that modifies, qualifies and creates exceptions to
the representations and warranties set forth in the attached
merger agreement. Accordingly, you should not rely on the
representations and warranties as characterizations of the
actual state of facts, since they are modified in important part
by the underlying disclosure schedules. These disclosure
schedules contain information that has been included in
Vialtas general prior public disclosures, as well as
potential additional non-public information. Moreover,
information concerning the subject matter of the representations
and warranties may have changed since the date of the agreement,
which subsequent information may or may not be fully reflected
in the companies public disclosures.
Parties Involved in the Proposed Transaction
(page 50)
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Vialta, Inc. Vialta is a Delaware corporation
engaged in the business of designing and marketing a limited
number of consumer electronics products. Vialta was incorporated
in April 1999 as a wholly owned subsidiary of ESS Technology,
Inc. It became a public company in August 2001, when it was spun
off from ESS Technology, Inc. to operate as a stand-alone
entity. Since the spin off, Fred S.L. Chan and members of the
Chan family and related entities, have owned at least a 35%
voting interest in Vialta. |
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Participating Stockholders The participating
stockholders consist of Fred S.L. Chan, his wife Annie M.H.
Chan, trusts established for the benefit of their children, and
a related entity. |
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Victory Acquisition Corp. Victory Acquisition
Corp. is a recently formed Delaware corporation established by
the participating stockholders for the sole purpose of effecting
the merger. The participating stockholders have contributed to
Victory shares of Vialta common stock beneficially owned by them
pursuant to the terms of a stock contribution agreement among
Victory and the participating stockholders. The stock
contribution agreement is attached to this proxy statement as
Annex B. No cash merger consideration will be paid for
shares that are exchanged for equity securities of Victory or
for options held by the participating stockholders. In the
merger, all shares of Victory common stock will be converted
into Vialta common stock. As a result of the merger, the
participating stockholders will collectively acquire 100%
ownership of Vialta. |
The Special Meeting (page 47)
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Matters to be Considered (page 47) At
the special meeting, stockholders will, among other things,
consider and vote upon a proposal to approve the merger of
Victory with and into Vialta and to approve and adopt the merger
agreement. |
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Date, Time, Place (page 47) The special
meeting will be held
on ,
2005 at a.m., local time, at
the Fremont Marriott, 46100 Landing Parkway, Fremont, CA
94538. |
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Record Date (page 48) Vialta has
fixed ,
2005 as the record date for the special meeting. Only holders of
record of Vialta common stock as of the close of business on the
record date are entitled to notice of, and to vote at, the
special meeting and any adjournment or postponement thereof. |
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Required Vote and Voting Rights
(page 48) Stockholder approval of the
merger agreement and the merger requires the affirmative vote of
at least a majority of the shares outstanding as of the record
date for the special meeting. Only holders of record of Vialta
common stock as of the close of business on the record date,
which Vialta has fixed
at ,
2005, are entitled to notice of, and to vote at, the special
meeting and any adjournment or postponement thereof. The
required vote for approval of the merger by Victory stockholders
was the affirmative vote of at least a majority of the shares
outstanding. The approval of the stockholders of Victory has
already been obtained. |
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Voting Agreement (page 62) Victory has
entered into a voting agreement with Vialta covering the shares
of Vialta common stock it beneficially owns, representing
32,039,840 shares of common stock (or approximately 39% of
the shares outstanding) providing, among other things, for such
shares to be voted at the special meeting in favor of approval
of the merger agreement. The voting agreement is attached to
this proxy statement as Annex C. In addition, Vialtas
directors and executive officers other than Mr. Chan own
approximately 5% of Vialtas outstanding common stock, and
have indicated to Vialta their intention to vote in favor of
approval of the merger agreement and the merger. |
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How Shares are Voted (page 49) You may
vote by attending the special meeting and voting in person by
ballot or by completing the enclosed proxy card and then
signing, dating and returning it in the postage pre-paid
envelope provided. Submitting a proxy now will not limit your
right to vote at the special meeting if you decide to attend in
person. If your shares are held of record in street
name by a broker, nominee, fiduciary or other custodian
and you wish to vote in person at the special meeting, you must
obtain from the record holder a proxy issued in your name. |
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Revocation of Proxies (page 49) You may
revoke your proxy at any time before it is actually voted by
submitting to the Secretary of the company a written notice of
revocation, by delivering a duly executed proxy bearing a later
date or by attending the special meeting and voting in person.
Please note, however, that if your shares are held of record by
a broker, bank or other nominee and you wish to vote at the
special meeting, you must bring to the meeting a proxy from the
broker, bank or other nominee authorizing you to vote the
shares. Attendance at the special meeting will not, by itself,
revoke a proxy. If you have given voting instructions to a
broker, nominee, fiduciary or other custodian that holds your
shares in street name, you may revoke those
instructions by following the directions given by the broker,
nominee, fiduciary or other custodian. |
Structure of the Transaction (page 12)
The proposed transaction is a merger of Victory with and into
Vialta, which will be the surviving corporation in the merger.
Following the satisfaction or waiver of other conditions to the
merger, the following will occur in connection with the merger:
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all shares of Vialta common stock that are held (1) in the
treasury of Vialta, (2) by any wholly-owned subsidiary of
Vialta, (3) by Victory or (4) by any of the
participating stockholders will be canceled and retired without
any consideration payable therefor; |
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each other share of Vialta common stock issued and outstanding
immediately before the merger becomes effective (other than any
share as to which a dissenting stockholder has perfected or not
lost the benefit of appraisal or dissenters rights under
California or Delaware law) will be converted into the right to
receive $0.36 in cash without interest; |
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each share of Victory common stock will be converted into a
share of common stock of Vialta, as the surviving corporation in
the merger; and |
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each vested stock option held at the effective time of the
merger will be converted into the right to receive cash in
respect of such stock option in an amount equal to the product
of (1) the excess, if any, of the per-share merger
consideration of $0.36 over the per-share exercise price of such
stock option, multiplied by (2) the number of shares
subject to such stock option (which amount will be payable
without interest, net of any withholding tax and subject to the
option holders having executed a written consent on a form
provided by Vialta to the effect that the cash payment is in
full consideration for the cancellation of such stock option).
As a result of the transaction, unvested options held by Didier
Pietri will accelerate in accordance with his stay bonus
agreement and unvested options issued to directors will
accelerate in accordance with the terms of the
2000 Directors Stock Option Plan. |
The Merger
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Financing (page 36) It is expected that
Vialta will use its cash on hand to pay the merger
consideration. It is a condition to Victorys obligation to
complete the merger that Vialta have no less than
$14.5 million in cash and cash equivalents as of midnight
on the day prior to the closing of the merger. As of
March 31, 2005, the company had over $21 million in
cash and cash equivalents. As long as Vialta meets the minimum
cash consideration, Victory has agreed to fund any shortfall in
the merger consideration, up to a maximum of $4 million and
Fred S.L. Chan has agreed to lend up to $4 million to
Victory. See SPECIAL FACTORS Merger
Financing and TRANSACTION AGREEMENTS
Additional Contribution Agreement. |
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Certain Effects of the Merger (page 34)
Among other results of the merger, all currently outstanding
shares of Vialta will be cancelled and the stockholders of
Vialta (other than the participating stockholders) will no
longer have any interest in, and will no longer be stockholders
of, Vialta and will not participate in any future earnings or
growth of Vialta, and the participating stockholders will own,
directly or indirectly, all of the outstanding shares of Vialta.
Following the merger, Vialta common stock will no longer be
publicly traded, and Vialta will no longer file periodic reports
with the Securities and Exchange Commission (the
SEC). |
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The Participating Stockholders Plans for Vialta After
the Merger (page 36) Fred S.L. Chan plans
to continue to operate Vialta with a significantly reduced
staff, selling the companys current products and focusing
research and development efforts on broadband. |
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Certain Fraudulent Transfer Risks
(page 39) If, contrary to the belief of the
board of directors, Vialta is insolvent at the time of the
merger or becomes insolvent because of the merger, the funds
paid to stockholders upon completion of the merger may be deemed
to be a fraudulent conveyance under applicable law
and therefore may be subject to the claims of Vialtas
creditors. If such claims are asserted by Vialtas
creditors, there is a risk that persons who were stockholders at
the effective time of the merger would be ordered by a court to
return to Vialta all or a portion of the funds received upon the
completion of the merger. The board of directors of Vialta has
no reason to believe that Vialta and its subsidiaries, on a
consolidated basis, will be insolvent or otherwise left with
unreasonably small capital immediately after giving effect to
the merger. |
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Federal Income Tax Consequences
(page 40) The receipt of cash by a United
States holder in exchange for Vialta common stock will be a
taxable transaction for U.S. federal income tax purposes.
In general, United States holders of Vialta common stock who
receive cash in exchange for their shares pursuant to the merger
(including any cash received in connection with the exercise of
dissenters rights) should be deemed to have received cash
from Vialta pursuant to a redemption of the shares held by such
stockholder or pursuant to a sale of such shares. If the deemed
redemption of the shares held by a particular United States
holder qualifies as an exchange under
section 302(b) of the Internal Revenue Code of 1986, as
amended, which is referred to as the Code in this proxy
statement, or if shares are considered sold, the United States
holder will recognize gain or loss for U.S. federal income
tax purposes equal to the difference, if any, between the
holders adjusted tax basis in the shares and the amount of
cash received. If the United States holder holds Vialta common
stock as a capital asset, any gain or loss should generally be a
capital gain or loss. If the United States holder has held the
shares for more than one year, any gain or loss should generally
be a long-term gain or loss. The deductibility of capital losses
is subject to limitations. Tax matters are very complex, and
the tax consequences of the merger to you will depend on the
facts of your own situation. You should consult your tax advisor
for a full understanding of the tax consequences of the merger
to you, including the federal, state, local and foreign tax
consequences of the merger. |
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Appraisal and Dissenters Rights (pages 42 and
49) If you do not vote in favor of approval of
the merger agreement and the merger and you fulfill certain
other procedural requirements in a timely manner, whether under
California or Delaware law, as applicable, you will be entitled
to a judicial appraisal of the fair value of your shares. To
receive payment of the cash merger consideration after the
merger becomes effective, you will be required, among other
things, to waive dissenters and appraisal rights. |
Fairness of the Merger; Conflicts of Interest
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Vialtas Position as to the Fairness of the Merger;
Recommendation of the Board of Directors (pages 22 and
26) Because certain members of Vialtas
board of directors have actual or potential conflicts of
interest in evaluating the merger, the board of directors
appointed a special committee of independent directors,
consisting of George Cain and Michael Dubester, to evaluate the
merger and make recommendations to the board of directors with
respect to the merger agreement. Based on their evaluation, the
special committee determined that the merger agreement and the
merger are advisable, fair to, and in the best interests of the
company and its stockholders (other than the participating
stockholders) and recommended that the board of directors
approve and adopt the merger agreement and the merger. Acting on
the recommendation of the special committee, the board of
directors has approved and adopted the merger agreement and
approved the merger. The board of directors, based in part on
the unanimous recommendation of the special committee,
unanimous, with Mr. Chan abstaining, recommends that the
Vialta stockholders vote FOR the approval and adoption of
the merger agreement and approval of the merger. |
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Opinion of Financial Advisor to the Special Committee
(page 26) Salem Partners LLC, the
independent financial advisor to the special committee, has
delivered an opinion to the special committee and the board of
directors that, as of March 28, 2005 and based on and
subject to the assumptions, limitations and qualifications set
forth in the opinion, the cash consideration of $0.36 per
share to be paid in the merger to the stockholders of Vialta
other than the participating stockholders and Victory was fair,
from a financial point of view, to such stockholders. The full
text of Salem Partners LLCs written opinion is included in
this proxy statement as Annex F. You should read the
opinion carefully in its entirety. |
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Position of the Participating Stockholders and Victory
Acquisition Corp. as to the Fairness of the Merger to
Vialtas Stockholders (page 33) Fred
S.L. Chan, the other participating stockholders and Victory
believe that the merger is substantively and procedurally fair
to the other stockholders of Vialta. In arriving at their
position as to the fairness of the merger, Mr. Chan, the
other participating stockholders and Victory considered the
factors considered by the special committee of the board of
directors discussed in the section entitled SPECIAL
FACTORS Position of Vialta as to the Fairness of the
Merger to Vialtas Stockholders; Reasons for Recommending
the Approval of the Merger Agreement and the Merger, as
well as the other factors discussed in the section entitled
SPECIAL FACTORS Position of the Participating
Stockholders and Victory Acquisition Corp. as to the Fairness of
the Merger to Vialtas Stockholders. |
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Interests of Certain Persons in the Merger
(page 37) In considering the
recommendations of the board of directors, you should be aware
that certain of Vialtas executive officers and directors
have interests in the transaction that are different from, or
are in addition to, the interests of Vialtas stockholders
generally. The special committee and the board of directors were
aware of these potential or actual conflicts of interest and
considered them along with other matters when they determined to
recommend the merger. These interests, which are discussed in
detail in the section entitled SPECIAL FACTORS
Interests of Certain Persons in the Merger, include the
following: |
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Mr. Chan, who abstained from the vote of the board of
directors, is Vialtas Chairman and the participating
stockholders, who include Fred S.L. Chan, his wife Annie M.H.
Chan, trusts established for the benefit of their children, and
a related entity, have been the largest stockholders of Vialta
since the company was founded. Mr. Chan and the other
participating stockholders have contributed
32,039,840 shares of Vialta common stock (representing
approximately 39% of the outstanding common stock) to Victory
pursuant to the terms of the stock contribution agreement in
consideration for an equal number of shares of common stock of
Victory. Upon consummation of the merger, Mr. Chan and the
other participating stockholders will be the sole stockholders
of Vialta; |
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Mr. Chan is the President, Treasurer and Secretary of
Victory Acquisition Corp. Upon consummation of the merger, it is
anticipated that Mr. Chan will continue in the positions of
President, Treasurer and Secretary of Vialta, as the surviving
corporation in the merger; |
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unvested stock options held by Didier Pietri will accelerate in
accordance with the terms of his stay bonus agreement and
unvested stock options held by members of the board of directors
(other than Mr. Chan) will accelerate in accordance with
the terms of the 2000 Directors Stock Option Plan.
Accelerated options will be converted into the right to receive
cash in an amount equal to the product of (1) the excess,
if any, of the per- share merger consideration of $0.36 over the
per-share exercise price of such stock option, multiplied by
(2) the number of shares subject to such stock option. As a
result of the acceleration of stock options, Didier Pietri will
be entitled to receive $40,000, each of George Cain and Michael
Dubester will be entitled to receive $2,400 and Matthew Fong
will be entitled to receive $1,250 with respect to previously
unvested stock options; |
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the merger agreement provides that indemnification will continue
and directors and officers insurance arrangements made by Vialta
before closing will be maintained for a period of six years
following the effective time of the merger for Vialtas
directors and officers; and |
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each member of the special committee will receive
$2,000 per meeting attended in person and $1,000 per
meeting attended telephonically in consideration of such
members service on the special committee, with a cap of
$20,000 for the chairman and $18,000 for the other committee
member. In addition, the special committee chairman is entitled
to receive an annual fee of $25,000, payable quarterly at the
end of each fiscal quarter, with any remaining balance payable
at the effective time of the merger. The foregoing payments are
due without regard to whether the special committee recommended
approval of the merger agreement or whether the merger is
consummated. |
The Merger Agreement (page 52)
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No Limitation on Solicitation of Transactions or Termination
of Merger Agreement due to Fiduciary Obligations
(page 60) The merger agreement does not
contain restrictions on Vialtas ability to solicit or
initiate any inquiries, proposals or offers with respect to any
competing transaction or ultimately to consummate any such
competing transaction until stockholders of Vialta approve the
merger. The board of directors or special committee may
terminate the merger agreement or withdraw, modify or change its
approval or recommendation of the merger agreement if it
determines in good faith that failure to take such action would
be inconsistent with its fiduciary obligations to stockholders
of Vialta (other than participating stockholders). |
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Conditions to Completion of the Merger
(page 58) The obligations of Vialta and/or
Victory to complete the merger are subject to the satisfaction
or waiver of various conditions specified in the merger
agreement, including conditions relating to, among other things: |
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the absence of any order, decree, or ruling by any court or
governmental agency which would prohibit, render illegal or
enjoin the consummation of the merger; |
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approval of the merger agreement by a majority vote of Vialta
shares outstanding as of the record date; |
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the accuracy of the parties representations and warranties
under the merger agreement, except where a failure would not
have a material adverse effect; |
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performance by the parties in all material respects of their
obligations under the merger agreement; |
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the absence of a material adverse effect with respect to Vialta,
as determined in the reasonable judgment of the board of
directors of Victory; |
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receipt of a legal opinion from counsel to Vialta; and |
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confirmation that Vialta has no less than $14,500,000 in cash
and cash equivalents as of the closing. As of March 31,
2005, the company had over $21 million in cash and cash
equivalents. |
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Termination of the Merger Agreement
(page 59) The merger agreement may be
terminated at any time prior to the effective time of the merger
by the mutual written consent of Vialta and Victory, acting
under the direction of their respective boards of directors. In
addition, either Vialta or Victory may generally (but is not
required to) terminate the merger agreement at any time prior to
the effective time of the merger in the event of: |
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failure to consummate the merger by August 13, 2005; |
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a final and nonappealable court or other governmental action
prohibiting the merger; or |
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failure to obtain the requisite stockholder approval of the
merger agreement at the special meeting. |
In addition, Victory may terminate the merger agreement at any
time prior to the effective time of the merger under specified
circumstances relating to:
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the failure of a representation or warranty of Vialta to be true
and correct except where the failure would not have a material
adverse effect, subject to a 30-day cure period; |
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the failure of Vialta to perform or comply in all material
respects with all of its covenants, subject to a 30-day cure
period; |
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the special committees withdrawing, amending or modifying
its approval or recommendation of the merger agreement in a
manner adverse to Victory or failing to reconfirm within 10
business days after request by Victory its recommendation of the
merger agreement to Vialta stockholders; |
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Vialta failing to include in this proxy the recommendation of
the special committee or the board of directors in favor of the
merger agreement and the merger; |
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the special committee approving or publicly recommending an
acquisition proposal other than the merger or a liquidation or
dissolution; |
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Vialta entering into a letter of intent or similar agreement
accepting any acquisition proposal other than the merger; or |
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Vialta failing to recommend rejection of a tender or exchange
offer commenced by a party unaffiliated with Victory. |
In addition, Vialta may terminate the merger agreement at any
time prior to the effective time of the merger under
circumstances relating to:
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the failure of any representation or warranty of Victory to
otherwise be true and correct, subject to a 30-day cure period; |
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the failure of Victory to perform or comply in all material
respects with all of its covenants, subject to a 30-day cure
period; or |
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the determination by the board of directors or the special
committee in good faith after consulting with its counsel that
termination is necessary to comply with its fiduciary duties. |
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Expenses (page 60) In specified
circumstances, including where Vialta terminates other than due
to a breach by Victory or Victory terminates due to a breach by
Vialta or Vialtas failure to recommend or otherwise
support the proposed merger, if the merger agreement is
terminated prior to the effective time of the merger, Vialta
must reimburse up to $250,000 of Victorys expenses in
connection with the merger agreement and the transactions
contemplated by the merger agreement. |
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers, presented for your
convenience only, briefly address some commonly asked questions
about the merger. You should still carefully read the entire
proxy statement, including the information incorporated by
reference and the annexes.
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Why am I receiving these materials? |
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The board of directors is providing these proxy materials to
give you information for use in determining how to vote in
connection with the special meeting. |
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When and where is the special meeting? |
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The special meeting will be held
on ,
2005 at a.m., local time, at
the Fremont Marriott, 46100 Landing Parkway, Fremont, CA
94538. |
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What am I being asked to vote upon? |
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You are being asked to consider and vote upon a proposal to
approve and adopt the merger agreement and approve the merger,
pursuant to which Victory will merge with and into Vialta, with
Vialta as the surviving corporation in the merger. |
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Who can vote on the proposal to approve and adopt the merger
agreement and approve the merger? |
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All holders of Vialta common stock at the close of business
on ,
2005, the record date for the special meeting, may vote in
person or by proxy on the proposal to approve and adopt the
merger agreement and approve the merger at the special meeting. |
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What vote is required to approve and adopt the merger
agreement and approve the merger? |
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Stockholder approval of the merger agreement and the merger
requires the affirmative vote of at least a majority of the
shares outstanding as of the record date. An abstention or a
broker non-vote will have the same effect as a vote against the
merger and the merger agreement. |
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How will Mr. Chan and the other directors and officers
of the company vote? |
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Mr. Chan and the other participating stockholders
contributed their shares of Vialta common stock to Victory.
Victory has committed to vote its shares for the merger in
accordance with the terms of the voting agreement. See
TRANSACTION AGREEMENTS Voting Agreement
and the actual terms of the agreement attached hereto as
Annex C. Victory holds approximately 39% of Vialtas
shares of common stock. |
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In addition, Vialtas directors and executive officers
other than Mr. Chan own approximately 5% of Vialtas
outstanding common stock, and have indicated to Vialta their
intention to vote in favor of approval of the merger agreement
and the merger. |
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Who is soliciting my proxy? |
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Vialtas board of directors, including Mr. Chan, is
soliciting proxies to be voted at the special meeting. |
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What will happen in the merger? |
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Victory will be merged with and into Vialta, with Vialta
continuing as the surviving corporation in the merger. Victory
was formed by Vialtas Chairman and founder, Fred S.L.
Chan, solely for the purpose of acquiring all of the outstanding
shares of Vialta common stock not already owned or controlled by
him or the other participating stockholders, all of whom are
members of or entities for the benefit of members of his
immediate family. The participating stockholders have
contributed to Victory the shares of Vialta common stock that
they beneficially own and have agreed to contribute any shares
they acquire unless the merger is terminated. After the merger,
Vialta will become a privately-held company owned by the
participating stockholders. |
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What will I receive in the merger? |
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You will receive $0.36 in cash in exchange for each share of
common stock owned by you at the effective time of the merger,
unless either (1) you are a participating stockholder of
Victory or (2) you do not vote in favor of the merger
agreement and have perfected or have not otherwise lost or
waived your dissenters or appraisal rights under Delaware
or California law, as applicable. Prior to receipt of the merger
consideration, you will be required to return an executed letter
of transmittal in which you waive any right to dissenters
or appraisal rights. Stockholders who do not vote in favor of
approval of the merger agreement and who otherwise comply with
the procedures for perfecting dissenters or appraisal
rights under the applicable statutory provisions of California
or Delaware law, as applicable, summarized elsewhere in this
proxy statement may demand payment of the fair value
of their shares in cash in connection with the consummation of
the merger. See SPECIAL FACTORS Appraisal and
Dissenters Rights. |
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What are the reasons for the merger? |
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Vialtas purpose in undertaking the merger is to allow its
stockholders (other than the participating stockholders) to
realize value from their investment in Vialta now, in cash at a
price that represents a premium to the market price of Vialta
common stock before the public announcement of the merger
agreement, rather than assuming the risks associated with
Vialtas ongoing operations and development of its
broadband product. For the participating stockholders and
Victory, the purposes of the merger are to permit Vialta greater
operating flexibility as a privately held company; to reduce the
substantial expenses associated with being a public company,
including costs of compliance with new securities regulations |
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relating to accounting and internal control procedures, and
allow these resources to be used in operations; and to enable
the participating stockholders to focus research and development
on the broadband product and benefit from future growth, if any,
of Vialta after the merger. See SPECIAL
FACTORS Position of Vialta as to the Purpose and
Reasons for the Merger and Position of
the Participating Stockholders and Victory Acquisition Corp. as
to the Purpose and Reasons for the Merger. |
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What was the role of the special committee? |
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Because certain directors of Vialta have actual or potential
conflicts of interest in evaluating the merger, the board of
directors appointed a special committee of disinterested
independent directors to negotiate, review and evaluate the
proposed merger. |
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What is the recommendation of the special committee? |
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The special committee has unanimously recommended to
Vialtas board of directors that the merger and the merger
agreement be approved and adopted. In arriving at its
conclusion, the special committee considered, among other
factors, the opinion of Salem Partners LLC, its independent
financial advisor, that, as of the date of such opinion and
based upon and subject to the limitations, qualifications and
assumptions set forth in the opinion, the cash consideration of
$0.36 per share to be paid in the merger to the
stockholders of Vialta other than the participating stockholders
and Victory was fair, from a financial point of view, to such
stockholders. See SPECIAL FACTORS Position of
Vialta as to the Fairness of the Merger to Vialtas
Stockholders; Reasons for Recommending the Approval of the
Merger Agreement and the Merger. |
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What are the recommendations of the board of directors? |
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The board of directors, based in part on the unanimous
recommendation of the special committee, unanimously (with
Mr. Chan abstaining) recommends that the Vialta
stockholders vote FOR the approval of the merger agreement
and the merger. Both the special committee and the board of
directors of Vialta, after careful consideration of numerous
factors, have determined that the merger agreement and the
merger are fair to and in the best interests of the stockholders
of Vialta other than the participating stockholders. See
SPECIAL FACTORS Position of Vialta as to the
Fairness of the Merger to Vialtas Stockholders; Reasons
for Recommending the Approval of the Merger Agreement and the
Merger. |
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In view of his potential conflicts of interest with respect to
the merger, Mr. Chan recused himself from the confidential
portions of the board of directors deliberations with
respect to the merger and the merger agreement and abstained
from voting on the related resolutions, including the
recommendation that Vialta stockholders vote for the approval of
the merger agreement and the merger. Herbert Chang, who was the
only member not present at the meeting, subsequently indicated
his approval of the boards resolutions. |
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What are the consequences of the merger to present members of
management and the board of directors? |
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Like other stockholders, members of management and the board of
directors other than Mr. Chan will be entitled to receive
$0.36 per share in cash for each of their shares of Vialta
common stock and cash with respect to vested stock options at
the effective time of the merger in an amount equal to the
product of (1) the excess, if any, of the per-share merger
consideration of $0.36 over the per-share exercise price of such
stock option, multiplied by (2) the number of shares
subject to such stock option (which amount will be payable
without interest, net of any withholding tax and subject to the
option holders having executed a written consent on a form
provided by Vialta to the effect that the cash payment is in
full consideration for the cancellation of such stock option).
The merger agreement requires Vialta to use its reasonable
efforts to obtain the resignation of all officers and directors
of the company as of the effective time of the merger.
Mr. Chan, the sole officer and director of Victory
immediately prior to the effective time of the merger will be
the initial officer and director of Vialta, as the surviving
corporation. |
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In addition, as a result of the transaction, unvested options
held by Didier Pietri will accelerate in accordance with his
stay bonus agreement and unvested options issued to directors
will accelerate in accordance with the terms of the
2000 Directors Stock Option Plan. As a result of the
acceleration of stock options, Didier Pietri will be entitled to
receive $40,000, each of George Cain and Michael Dubester will |
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be entitled to receive $2,400 and Matthew Fong will be entitled
to receive $1,250 with respect to previously unvested stock
options. All unvested stock options will be terminated on
consummation of the merger. |
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For more information, see SPECIAL FACTORS
Interests of Certain Persons in the Merger. |
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Is the merger subject to the satisfaction of any
conditions? |
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Yes. Before completion of the transactions contemplated by the
merger agreement, a number of closing conditions must be
satisfied or waived. These conditions are described in this
proxy statement in the section entitled THE MERGER
AGREEMENT Conditions to the Completion of the
Merger. |
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Can the board of directors consider other proposals? |
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Yes. The merger agreement does not contain restrictions on
Vialtas ability to solicit or initiate any inquiries,
proposals or offers with respect to any competing transaction,
to respond to any inquiries, proposals or offers received, or
ultimately to consummate any such competing transaction until
stockholders of Vialta approve the merger. The board of
directors or special committee may terminate the merger
agreement or withdraw, modify or change its approval or
recommendation of the merger agreement at any time before
stockholder approval of the merger agreement and adoption of the
merger if it determines in good faith that failure to take such
action would be inconsistent with its fiduciary obligations to
stockholders of Vialta (other than participating stockholders). |
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When do you expect the merger to be completed? |
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We are working toward completing the merger as quickly as
possible after the special meeting. We hope to complete the
merger during the second calendar quarter of 2005, although
there is no assurance that we will be able to do so. |
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What are the U.S. federal income tax consequences of the
merger to holders of Vialta stock other than the participating
stockholders? |
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The receipt of cash by a United States holder in exchange for
Vialta common stock will be a taxable transaction for
U.S. federal income tax purposes. In general, United States
holders of Vialta common stock who receive cash in exchange for
their shares pursuant to the merger (including any cash received
in connection with the exercise of dissenters rights)
should be deemed to have received cash from Vialta pursuant to a
redemption of the shares held by such stockholder or pursuant to
a sale of such shares. If the deemed redemption of the shares
held by a particular United States holder qualifies as an
exchange under section 302(b) of the Code, or
if shares are considered sold, the United States holder will
recognize gain or loss for U.S. federal income tax purposes
equal to the difference, if any, between the holders
adjusted tax basis in the shares and the amount of cash
received. If the United States holder holds Vialta common stock
as a capital asset, any gain or loss should generally be a
capital gain or loss. If the United States holder has held the
shares for more than 1 year, any gain or loss should
generally be a long-term gain or loss. The deductibility of
capital losses is subject to limitations. Tax matters are very
complicated, and the tax consequences of the merger to you will
depend on the facts of your own situation. You are urged to
consult your own tax advisor with respect to your own individual
tax consequences as a result of the merger. |
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What do I do to vote my Vialta stock? |
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A: |
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After carefully reading and considering the information
contained in this proxy statement, whether or not you plan to
attend the special meeting in person, please complete, sign,
date and return the enclosed proxy in the accompanying
self-addressed postage pre-paid envelope (or, if your shares are
held in street name by a broker, nominee, fiduciary
or other custodian, follow the directions given by the broker,
nominee, fiduciary or other custodian regarding how to instruct
it to vote your shares) as soon as possible. For more
information on how to vote your shares, see the section entitled
THE SPECIAL MEETING How Shares are Voted;
Proxies; Revocation of Proxies. |
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What happens if I do not return a proxy card? |
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A: |
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If you neither vote at the meeting nor grant your proxy as
described in this proxy statement, your shares will not be
voted, which will have the effect of voting against the approval
of the merger agreement and the merger. |
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May I vote in person? |
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Yes. You may attend the special meeting and vote your shares in
person whether or not you sign and return your proxy card. If
your shares are held of record in street name by a
broker, nominee, fiduciary or other custodian and you wish to
vote in person at the special meeting, you must obtain from the
record holder a proxy issued in your name. |
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May I change my vote after I have mailed my signed proxy
card? |
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Yes. You may revoke your proxy at any time before it is actually
voted by submitting to the Secretary of the company a written
notice of revocation, by delivering a duly executed proxy
bearing a later date or by attending the special meeting and
voting in person. Please note, however, that if your shares are
held of record by a broker, bank or other nominee and you wish
to vote at the special meeting, you must bring to the meeting a
proxy from the broker, bank or other nominee authorizing you to
vote the shares. Attendance at the special meeting will not, by
itself, revoke a proxy. If you have given voting instructions to
a broker, nominee, fiduciary or other custodian that holds your
shares in street name, you may revoke those
instructions by following the directions given by the broker,
nominee, fiduciary or other custodian. |
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If my shares are held in street name by my
broker, will my broker vote my shares for me? |
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Your broker will not be able to vote your shares without
instructions from you. You should instruct your broker to vote
your shares, following the procedures provided by your broker.
Failure to instruct your broker to vote your shares will have
the same effect as voting against adoption of the merger
agreement. |
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What does it mean if I receive more than one set of
materials? |
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This means you own shares of Vialta stock that are registered
under different names. For example, you may own some shares
directly as a stockholder of record and other shares through a
broker; or you may own shares through more than one broker. In
these situations, you will receive multiple sets of proxy
materials. You must complete, sign, date and return all of the
proxy cards or follow the instructions for any alternative
voting procedure on each of the proxy cards that you receive in
order to vote all of the shares you own. Each proxy card you
receive comes with its own prepaid return envelope; if you vote
by mail, make sure you return each proxy card in the return
envelope that accompanies that proxy card. |
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If the merger is completed, how will I receive the cash for
my shares? |
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If the merger is completed, you will be contacted by Mellon
Investor Services, who will act as paying agent in connection
with the merger. The paying agent will provide instructions that
will explain how to surrender stock certificates. You will
receive cash for your shares from the paying agent after you
comply with these instructions which will include waiving any
dissenters or appraisal rights you may have. If your
shares are held for you in street name by a broker,
nominee, custodian or other fiduciary, you will receive
instructions from the broker, nominee, custodian or other
fiduciary as to how to effect the surrender of your shares and
receive cash for those shares. |
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Should I send in my stock certificates now? |
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No. If the merger is completed, you will receive written
instructions for exchanging your Vialta stock certificates for
cash. |
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Am I entitled to appraisal or dissenters rights with
respect to my shares? |
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If you do not vote in favor of approval of the merger agreement
and the merger, and you otherwise timely comply with all legal
requirements, you may seek a judicial appraisal of the fair
value of your shares by following the procedures governing
dissenters rights specified in Section 262 of the
Delaware General Corporation Law, referred to in this proxy
statement as the DGCL. A copy of Section 262 of the DGCL is
included as Annex G to this proxy statement. In addition,
you may be entitled to dissenters rights |
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specified in Chapter 13 of the California General
Corporation Law, referred to in this proxy statement as of the
CGLC. A copy of Chapter 13 of the CGCL is included as
Annex H to this proxy statement. |
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Who can help answer my questions? |
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If you would like additional copies, without charge, of this
proxy statement or if you have questions about the merger
agreement or the merger, including the procedures for voting
your shares, you should call the company at (510) 870-3088. |
SPECIAL FACTORS
Structure of the Transaction
The proposed transaction is a merger of Victory Acquisition
Corp. with and into Vialta, which will be the surviving
corporation in the merger.
The Merger. Following the satisfaction or waiver of all
conditions to the merger, the following will occur in connection
with the merger:
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all shares of Vialta common stock that are held (1) in the
treasury of Vialta, (2) by any wholly-owned subsidiary of
Vialta, (3) by Victory or (4) by any of Victorys
officers, directors, stockholders or affiliates will be canceled
and retired without any consideration payable therefor; |
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each other share of Vialta common stock issued and outstanding
immediately before the merger becomes effective (other than any
share as to which a stockholder has perfected or not lost the
benefit of dissenters or appraisal rights under California
or Delaware law) will be converted into the right to receive
$0.36 in cash without interest; |
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each share of Victory common stock will be converted into a
share of common stock of Vialta, as the surviving corporation in
the merger; and |
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each holder of a vested stock option at the effective time of
the merger issued under a Vialta stock option plan, will have
the right to receive cash in respect of such stock option in an
amount equal to the product of (1) the excess, if any, of
the per-share merger consideration of $0.36 over the per-share
exercise price of such stock option, multiplied by (2) the
number of shares subject to such stock option (which amount will
be payable without interest, net of any withholding tax and
subject to the option holders having executed a written
consent on a form provided by Vialta to the effect that the cash
payment is in full consideration for the cancellation of such
stock option). As a result of the transaction, unvested options
held by Didier Pietri will accelerate in accordance with his
stay bonus agreement and unvested options issued to directors
will accelerate in accordance with the terms of the
2000 Directors Stock Option Plan. |
See THE MERGER AGREEMENT. As a result of the merger:
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the stockholders of Vialta (other than the participating
stockholders) will no longer have any interest in, and will no
longer be stockholders of, Vialta and will not participate in
any future earnings or growth of Vialta; |
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the participating stockholders will own, directly or indirectly,
all of the outstanding shares of Vialta; |
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shares of Vialta common stock issued in exchange for Victory
common stock to participating stockholders will not be
registered on any exchange or listed on the OTC
Bulletin Board, and there will be no public market for such
shares; and |
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the registration of Vialta common stock under the Securities
Exchange Act of 1934, or Exchange Act, will be terminated, and
Vialta will cease filing reports with the SEC. |
Officers and Directors of Vialta. The sole officer and
director of Vialta after the completion of the merger will
initially be Mr. Chan.
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For additional details regarding the terms and structure of the
merger and interests of the participating stockholders in the
transaction, see SPECIAL FACTORS Interests of
Certain Persons in the Merger and THE MERGER
AGREEMENT.
Background of the Merger
Vialta was incorporated in April 1999 as a wholly owned
subsidiary of ESS Technology, Inc. (ESS Technology),
a company founded by Fred S.L. Chan. It became a public company
in August 2001, when it was spun off from ESS Technology to
operate as a stand-alone entity. Since the spin off, Fred S.L.
Chan and members of the Chan family and related entities, have
owned at least a 35% voting interest in Vialta.
Vialtas primary products are the Beamer personal
videophone line and the VistaFrame digital picture frame. The
Beamer videophone products add color video to phone calls,
enabling users to see the person they are calling, and work with
any home phone over any standard (analog) home phone line.
The current market for the analog videophone is relatively
small, due in part to functionality and quality limitations
associated with narrowband transmission, so sales have been
limited. Vialta is working to develop a broadband Beamer
product, which it expects to field-test with a few select
broadband service providers in the second half of 2005. However,
no assurances can be made that the company will successfully
develop a broadband product that will be accepted in the
marketplace. See CERTAIN FINANCIAL MODELS RELATING TO
POTENTIAL BROADBAND PRODUCTS.
Since its inception, Vialta financed its operations primarily
from funds raised in private offerings of convertible preferred
stock and common stock and through vendor credit. For the years
ended December 31, 2004, 2003, and 2002 Vialta had net
losses of $2.4 million, $4.0 million and
$42.6 million, respectively, and expects to incur losses in
2005. As of December 31, 2004, Vialta had an accumulated
deficit of $109.1 million and $21.5 million in cash
and cash equivalents, restricted cash and short-term investments
compared to $26.5 million as of December 31, 2003.
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Exploration of Strategic Alternatives |
On February 26, 2004, the board of directors of Vialta met
to discuss strategic alternatives for the company to maximize
stockholder value, in light of the increasing expenses of
remaining as a public company and additional regulatory
requirements including regulations relating to accounting
procedures and internal controls, the need to attract and retain
senior management, and the need for greater scale in dealing
with the companys third party retail partners, all of
which would require significantly more resources than were
currently available to the company. Representatives of the
investment banking firm Needham & Company, Inc.
(Needham) discussed various strategic alternatives
with the board of directors. These included maintaining the
status quo, selling the company to a third party, or initiating
a going private transaction. The board of directors discussed
the feasibility of initiating a going private transaction as a
way to cash out the stockholders, through a reverse stock split,
including the benefits and costs and agreed to continuing
discussions at a later meeting.
At the next meeting of the board of directors, on March 30,
2004, the board of directors (excluding Fred S.L. Chan, who was
not in attendance), after additional consideration, determined
that a sale of the company would be preferable to a reverse
stock split. As a result, the board of directors then discussed
the retention of an investment banking firm to assist in
systematically soliciting offers from potential purchasers of
the company. The board of directors discussed the qualifications
of Needham and its familiarity with the company dating back to
its involvement in the companys spin-off from ESS
Technology. Based on these discussions, the board of directors
resolved to retain Needham to review the companys
strategic alternatives, and authorized and directed management
to negotiate with Needham the specific terms of its engagement.
Subsequently, Needham was engaged pursuant to a letter agreement
dated as of March 19, 2004.
On April 27, 2004, the board of directors met to discuss,
among other matters, the status of Needhams engagement to
solicit third party buyers for the company. Outside counsel to
the company was asked to draft
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milestones to be included as a supplement to the engagement
letter, setting forth time schedules for completion of a
confidential offering memorandum, contacting a list of targeted
buyers, execution of confidentiality agreements and making
management presentations. The company also adopted stay bonus
plans for key employees to ensure that the company would retain
management during the process.
On July 9, 2004, after finalizing and executing their
agreement, Vialta publicly announced the engagement of Needham
to explore a range of strategic alternatives, including a
possible sale of the company.
On July 27, 2004, representatives of Needham presented to
the board of directors (excluding Fred S.L. Chan, who was not in
attendance) a report on the interest they had received relating
to the companys interest in exploring strategic
alternatives. They discussed the companies approached and the
responses received to date. The board of directors reviewed the
list of companies and suggested additional companies that they
would like Needham to approach. In addition, the board of
directors discussed a schedule for updates. The Needham
representatives agreed to provide an update at the end of the
following week. The board of directors also adopted additional
stay bonus agreements.
At the August 4, 2004 meeting of the board of directors,
the members were informed that Yin-Wu Chen (Yin-Wu),
president of the company, wished to pursue a possible management
buy-out (MBO) of the company. Mr. Pietri stated
that, following consultation with outside counsel to the company
and discussions with the other board members, he had asked
various questions of Yin-Wu concerning his interest in and past
activities concerning an MBO. Yin-Wu indicated that he had made
preliminary contact with a strategic group based in Taiwan and
that he intended to contact a local venture capitalist through a
marketing officer at ESS Technology, who independently contacted
Yin-Wu about the MBO possibility and potential partners. Yin-Wu
indicated that he was willing to abide by any procedures the
company would put in place to avoid any conflict of interest or
appearance of a conflict of interest. Mr. Chan confirmed
that he had no agreement or understanding with Yin-Wu and that
Mr. Chans sole interest was in looking for the best
offer for the company. Yin-Wu did not subsequently make any
offer to the company.
At a board meeting on October 26, 2004, representatives of
Needham presented a report summarizing the interest they had
received from potential acquirors since announcing the
companys interest in exploring strategic alternatives.
Needham indicated that it had contacted 47 potential acquirors,
including companies and private equity funds, of which 25
reviewed the executive summary, 3 provided an indication of
interest, 19 did not respond and 26 indicated no interest. Of
the three parties who submitted indications of interest, one
party declined to submit an offer. Needham engaged in
discussions with the other two parties regarding the price and
structure of their bids. Each party proposed a transaction
involving a significant stock component. The Needham
representatives discussed the two companies that had provided
preliminary indications of interest, including an overview of
their respective offers, consisting of a portion in cash and a
portion in securities, their relative financial positions and
management. One company (Company A) was
essentially a public venture capital company, involved in the
home security business, seeking to roll-up a number of private
companies. The other company (Company B) was a
broadband video equipment manufacturer in the VoIP area. Needham
also discussed recent acquisitions of technology companies and
the average enterprise values and transaction values paid.
Finally, they reviewed other strategic alternatives for the
board of directors to consider, including continuing to operate
the company as an ongoing business, liquidating the company and
taking the company private. The board of directors discussed the
relative advantages and costs of each alternative, including the
time and resources that would be necessary to effectuate them.
Needham agreed to approach the two companies for a second round
of bidding, making it clear to both that they need to offer a
higher price and a higher portion of cash to be considered
seriously, and setting a deadline for second offers. Needham
also agreed to provide a more detailed analysis of the other
strategic alternatives with a goal of presenting them before the
board of directors in late November.
At the November 15, 2004 meeting of the board of directors,
Mr. Pietri indicated that Company B would be visiting
Vialta later in the week. He also informed the board of
directors that Company A had not visited Vialta, but had
requested a conference call. The board of directors discussed
the two companies and expressed concerns that both had small
revenues and speculative stocks, and neither had complied with
Vialtas second bidding deadline.
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In anticipation of the December 3, 2004 board meeting,
Vialtas management worked with Needham to estimate a
preliminary liquidation value of Vialta as a strategic
alternative and in order to assist in their negotiations.
Although Vialtas management was not expert in determining
liquidation values, and Needham does not customarily determine
liquidation values or appraise individual corporate assets, the
board of directors believed that the preliminary estimate would
be useful in determining whether a liquidation would be a better
alternative for stockholders than the combinations of cash and
securities being discussed. In preparing its analysis,
Vialtas management, working with Needham, considered three
possible scenarios: an immediate liquidation, an extended
liquidation (over the course of a one year period), and a
liquidation where additional employees were retained to continue
research and development work in the broadband area but other
activities would be wound up (in which case the company would
continue for 18 months to two years while the viability of
the broadband strategy was assessed). The preliminary
liquidation value was based on Vialtas balance sheet and
other information available to management and Needham at that
time regarding the expected costs associated with conducting a
liquidation of Vialta. Vialtas management and Needham were
aware that several of the assumptions used in their preliminary
estimate may have caused them to underestimate the costs
associated with liquidation and that results obtained thereby
were not necessarily fully indicative of the total cost of a
liquidation or Vialtas actual liquidation value. However,
to establish a price to be used as they considered alternatives,
Vialtas management, working with Needham, preliminarily
estimated that the liquidation value of Vialta, excluding the
value of a $5 million receivable that was written off by
the company, could be as high as $0.30 per share of Vialta
common stock on a fully-diluted basis. Assuming the
$5 million receivable was collected and the company
incurred only $500,000 in costs during the liquidation period,
the liquidation value could be as high as $0.36 per share
of Vialta common stock.
On December 3, 2004, at a meeting of the board of directors
a representative of Needham provided the board of directors with
an update of its third party discussions. The representative
indicated that Company A was occupied with another
acquisition that it was actively pursuing, but stated that it
remained interested in Vialta. It was noted, however, that
representatives of Company A had not visited the company in
the several months of discussion and were not ready to meet in
the immediate future. The board of directors then discussed with
Mr. Scharninghausen, chief financial officer of the
company, the liquidation scenarios that had been circulated
prior to the meeting. Various questions were raised concerning,
among other things, the assumptions made in the liquidation
models and potential additional costs and liabilities. The board
of directors requested that Needham and management update the
liquidation analyses and report back with their findings.
In anticipation of the December 14, 2004 board meeting,
Vialtas management worked with Needham to revise its
preliminary liquidation value estimate of Vialta. In the revised
analysis, transaction expenses were increased to take into
account the estimated length of time and the relative complexity
of the liquidation. Additional costs were included, such as the
expense of additional directors and officers insurance, legal
costs, miscellaneous expenses and contingency cost reserves.
Otherwise, the liquidation analysis was based on the same
balance sheet information and used most of the same assumptions
as the earlier analysis. As a result, Vialtas management,
working with Needham, estimated that the preliminary liquidation
value of Vialta, excluding the value of the $5 million
receivable that was written off by the company, could be as high
as $0.27 per share of Vialta common stock on a
fully-diluted basis. Assuming the $5 million receivable is
collected, the liquidation value could be as high as
$0.33 per share of Vialta common stock.
The board of directors then met again on December 14, 2004.
A Needham representative provided an update of discussions held
with the two interested companies earlier that day in which
Needham made proposals to each company to raise the cash and
securities components of their respective offers. Company B
discussed, after several rounds of negotiations, on a
preliminary basis providing Vialta shareholders $0.18 per
share in cash plus Company B securities valued by Needham
at $0.24 per share while Company A had discussed
providing $0.17 per share in cash plus Company A
securities valued by Needham at $0.17 per share. The
Needham representative stated that they expected responses
shortly to their request for a further adjustment in the
purchase price. The board of directors then discussed the
updated liquidation analysis prepared by Needham for the
meeting. Members of the board of directors asked detailed
questions of management as to the assumptions involved in the
difference scenarios, including with respect to the
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timelines, the operation of the business and the current state
of the companys broadband prospects. After discussion, the
board of directors directed Needham to continue its discussions
and further update the board of directors as to the potential
strategic alternatives.
On January 8, 2005, Mr. Pietri,
Mr. Scharninghausen, representatives of Needham, and
outside counsel to the company met with the president and chief
executive officer of Company A, at the Los Angeles office
of the companys outside counsel, Kaye Scholer LLP. The
meeting lasted several hours.
The board of directors met again on January 11, 2005. At
the meeting, Mr. Pietri summarized the January 8 meeting
with Company A for the board members. In addition,
Mr. Pietri advised the board of directors that, in
preparation for the meeting he had conducted due diligence on
Company A over the Internet and discovered certain due
diligence issues related to a predecessor business.
Company A also had terminated its publicly announced
acquisition of the third party, which it previously advised
Needham was important to its business strategy and was also
pursuing other transactions which its management indicated were
more compelling than a transaction with Vialta.
The board of directors then discussed the Company A offer
and the fact that a substantial component of its proposal
consisted of Company A securities. The Needham
representatives indicated that while the cash portion of the
offer could possibly be improved somewhat from $0.17 per
share, the Company A securities were a key part of the
proposal. The board members present (which excluded Matthew
Fong, who arrived late to the meeting, and Herbert Chang)
unanimously informed Needham that they did not believe that it
was in the best interest of the company and its stockholders to
enter into a transaction in which the Vialta stockholders would
receive cash consideration of $0.17 per share plus stock in
Company A given the board of directors concerns
regarding the long term prospects of Company A and the due
diligence issues relating to the predecessor business of its
principals.
Messrs. Pietri and Scharninghausen then provided the board
of directors with a summary of their prior meeting with the
principals of Company B. The Needham representatives
reviewed the state of discussions between the parties, involving
a possible transaction partly in cash and partly in
Company B stock. Company B representatives, then
joined the Board meeting in person. They described the
background of Company B and their own backgrounds,
including the companys history and prior losses. They then
made a Power Point presentation concerning their prototype
videophone for the VoIP market, and the companys
relationship with various VoIP service providers. Various board
members asked questions about Company Bs cash burn
rate, its limited current cash resources and liquidity concerns
which could worsen if the company was successful in light of
added product and administrative costs.
After an adjournment at which time Company Bs
representatives left the meeting, the board of directors
discussed the Company B presentation. The board of
directors reviewed the fact that the transaction would result in
more than one-third of the Vialta stockholders cash being
invested in the Company B business plan, which cash
Company B appeared to need to not only scale up its
business but also to develop its prototype product and avoid
liquidity issues. Based on these discussions, the board of
directors instructed Needham to continue to discuss with
Company B whether an adjustment could be made to increase
the cash component of their offer. The Needham representatives
then reported that they had further discussions with
Company B about raising the cash component of its bid after
its representatives left the board meeting. Company B
stated that it was not interested in increasing the cash portion
of any offer to Vialta and, in fact, no longer wished to pursue
a transaction with Vialta. The board of directors then
instructed management and Needham to continue to work on a
possible plan to liquidate the company, either immediately or on
a staged basis.
The next meeting of the board of directors was held on
January 24, 2005. At the meeting, Mr. Chan reported
that he had recent discussions with the president and chief
executive officer of a privately-held manufacturer of non-video
phone related VoIP phone equipment (Company C).
Mr. Chan indicated that he had discussed a possible
combination of Vialta and Company C at the Consumer
Electronics Show in Las Vegas, after which Needham had
followed-up with further discussions. A representative of
Needham then provided a financial overview of Company C,
and two merger models (one consisting of an all stock
transaction and the other a cash or stock election in which
Vialta stockholders could choose cash at $0.30 per share or
stock) that were developed by Needham and Company C (with
Mr. Chans assistance) and
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represented Company Cs view of a possible transaction in
which Vialta would acquire Company C for Vialta common
stock and the sole shareholder of Company C would then hold
a substantial majority of the companys outstanding shares.
Various board members asked questions about
Company Cs business and ability to function as a
public company, the synergies (if any) between the two
companies, Company Cs motivation in any Vialta
transaction and Company Cs financial results.
The principal of Company C then made a presentation to the
board of directors, describing his personal business history,
including his prior relationship with Mr. Chan and with ESS
Technology, Company Cs products, customer base and
competitive position relative to other manufacturers of VoIP
equipment. He answered numerous questions concerning his company
and its financial statements, which had not been audited or
reviewed by an independent accounting firm.
The board of directors discussed the merits of proceeding with
further discussions with Company C, including concerns
about the continuing costs of the combined company being public,
the lack of management at Company C with public company
management experience and the fact that there was no assurance
that Company C would meet its projections, or be able to
scale up per its plans. The board members compared the expected
and quantifiable risks of liquidation with the relatively
unknown risks of turning over management control of the company
to another company which lacked the infrastructure and
experience necessary to run a public company. Members also
expressed concern that a Company C transaction would take
time and resources (including the need to perform an audit of
Company C), and there was no assurance that the common
stock of the surviving corporation (or a cash or stock election)
was a reasonable option to offer to Vialta shareholders. The
Needham representative recommended that discussions continue
with Company C and the board of directors authorized him to
discuss whether Company C would be willing to consider a
combination based on what the board of directors believed to be
a more equitable exchange ratio reflecting the risks involved.
Subsequently, after various calls from Needham and Mr. Chan
to follow-up as directed by the board of directors,
Company C advised Mr. Chan and Needham that it was not
interested in a revised exchange ratio or in pursuing any
business combination with Vialta.
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Mr. Chans Letter Regarding Going Private |
On February 7, 2005, the Vialta board of directors received
a letter from Fred S.L. Chan, the chairman of Vialtas
board of directors and the holder (with the other participating
stockholders) of approximately 39% of the companys stock,
stating the following:
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I am submitting this letter to the Board of Directors of
Vialta, Inc. to indicate my intent to discuss with the board a
possible offer to purchase the shares of the company not now
owned or controlled by me. This letter describes the broad
outline of my thoughts on the transaction for discussion
purposes. |
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The transaction would take the form of either a merger with a
new entity formed by me or a tender offer to the stockholders of
the company. The purchase price would be mutually determined and
paid to the stockholders in cash. |
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I believe the transaction would be in the best interests of the
company, its stockholders, employees and business partners and
would have substantial advantages over the companys
current alternatives, including either an immediate or staged
liquidation. |
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I would like to begin due diligence on the company with a view
toward coming to terms, if at all, on or before
February 16, 2005 and if so, attempting to negotiate a
definitive agreement by February 28, 2005 and a closing if
possible by the end of April. As part of my due diligence
process, I request reasonable access during normal business
hours and, as necessary, during evenings and weekends, to the
companys books, records, contracts, technology, executive
and other mutually agreed personnel of the company. Please let
me know if the company has a standard nondisclosure agreement
for us to sign in connection with this process; otherwise, I
will be happy to provide a form. |
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I look forward to discussing this transaction further with you
in the next few days. |
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Special Committee; Negotiations with Mr. Chan |
The next day, on February 8, 2005, Vialtas board of
directors discussed Mr. Chans offer, including the
fact that Mr. Chan would likely be able to conclude a
transaction quickly (based on his existing knowledge of the
company), which should limit the costs of a transaction, and his
willingness to pay cash to stockholders, excluding himself and
the other participating stockholders. Based on their
considerations, the board of directors determined that, in light
of Mr. Chans proposal and his status as a director,
it would be appropriate for the board of directors to appoint a
special committee comprised of directors who were not current or
former officers or employees of the company to act on behalf of
the board of directors in connection with the possible
negotiations with Mr. Chan. The board of directors
appointed George Cain and Michael Dubester as the members of the
special committee because neither has a relationship with
Mr. Chan other than as members of the board of directors of
Vialta. Subject to the limitations of Delaware law, the special
committee was authorized to exercise all of the power of the
Vialta board of directors with respect to the negotiation of the
proposal and any transaction resulting from the proposal,
including the power and authority to select and retain its own
legal and financial advisors.
On February 11, 2005, after having completed his entire due
diligence, Mr. Chan made an offer to purchase the shares of
Vialta that he did not already own or control in a transaction
that valued the company at $25 million in cash (which
equated to approximately $0.29 per share).
On February 23, 2005, Messrs. Cain and Dubester met in
person with Mr. Chan to discuss the terms of his offer and
to answer questions raised by Mr. Chan during the course of
his due diligence. Members of Vialtas management also
attended a portion of the meeting to assist the special
committee in answering Mr. Chans questions and to
provide an update on the status of the development of
Vialtas broadband product. The meeting lasted
approximately five hours. During the meeting, the special
committee, with the assistance of management, and Mr. Chan
spent considerable time reviewing (i) Vialtas
financial statements for the fiscal year ended December 31,
2004 and (ii) Vialtas inventory and the value
thereof. In order to resolve certain issues related to the
current inventory of Vialta, its outstanding letters of credit
and its cash reserves, the special committee and Mr. Chan
agreed to utilize a projected March 31, 2005 company
position as the foundation for their negotiations and agreed to
meet again on February 24, 2005 so that management would be
able to provide the requested data. With respect to the
$25 million offer price, the special committee advised
Mr. Chan that, in its view, a per share transaction price
would be more appropriate under the circumstances and discussed
an analysis developed by the special committee with respect
thereto. On the same day, the special committee also discussed
the need to retain its own legal advisors and had preliminary
discussions with legal counsel.
The next day, February 24, 2005, the special committee met
for approximately eight hours in person with Vialtas
management and Mr. Chan to discuss in detail the proposed
price at which Mr. Chan might purchase the company. One of
the issues discussed at length was the valuation of the
companys remaining inventory, both in terms of the method
by which the value was calculated and the appropriate date at
which the valuation should be made for purposes of determining
the purchase price. Management answered questions raised by
Mr. Chan with respect to the companys March 31,
2005 projections. At the conclusion of the discussion with
management, the special committee and Mr. Chan continued to
negotiate the purchase price of the proposed transaction. The
negotiations included discussion of issues relating to the
$5 million receivable that was written off by the company
and which party should bear the risk that the receivable would
not be collected. In connection with that discussion,
Mr. Chan proposed that either a mechanism be put in place
by which the purchase price would be adjusted in the event the
note was not collected when due on April 28, 2005 or that
he be permitted to terminate the proposed merger agreement if
the note was not collected by that date. The special committee
refused this request. The special committee and Mr. Chan
also devoted substantial time to discussing whether the purchase
price should be stated in terms of an aggregate transaction
value or a price per share. During the discussion, the parties
noted the difficulty of determining a per share price due to the
unknown impact of a number of stock options that had been issued
to employees of ESS Technology, Vialtas former parent
corporation, in connection with Vialtas spin-off from ESS
Technology (generally referred to as stapled
options). After lengthy negotiations, including another
detailed review of the status and potential
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loss in value of inventory and components as well as the
potential value of the broadband product in development, the
special committee and Mr. Chan agreed to an aggregate
transaction price of $30 million.
Later on February 24, 2005, the special committee met
telephonically to formalize the retention of its own legal
counsel. After discussion with counsel regarding its experience
and reputation in advising boards and committees in mergers and
acquisitions under Delaware law, the special committee retained
Potter Anderson & Corroon LLP as its legal counsel
(Potter Anderson). Thereafter, on February 25,
2005, the special committee discussed with Potter Anderson the
structure of the proposed transaction, including the purchase
price. After consultation with Potter Anderson, the special
committee informed Mr. Chan by e-mail that it would agree
only to a purchase price expressed as a fixed price per share,
not an aggregate transaction value. The special committee
proposed a purchase price of $0.36 per share in cash and
Mr. Chan agreed.
You should understand that as of February 25, 2005, the
special committee had not determined that a price of
$0.36 per share was fair to Vialtas stockholders
(other than the participating stockholders) from a financial
point of view. Rather, the special committee determined that
$0.36 per share could form the basis of an agreement with
Mr. Chan, subject to any competing acquisition proposals,
negotiation of a mutually agreeable definitive merger agreement,
and receipt from an independent financial advisor of a financial
analysis and fairness opinion. The special committees
fairness determination was not made until each of those factors
was resolved to its satisfaction.
From March 1 through March 2, 2005, the special
committee met, with its legal advisors in attendance, to discuss
the retention of a financial advisor. In that regard, the
special committee interviewed three investment banking firms to
assess their respective, experience, qualifications and
potential conflicts of interest. On March 2, 2005, the
special committee unanimously voted to retain Salem Partners LLC
(Salem Partners) to render financial advice to the
special committee in connection with the proposed transaction
based on Salem Partners reputation and their experience
and expertise relating to transactions similar to the
contemplated merger. In addition, the special committee
considered the fact that Salem Partners did not have any prior
relationship with Vialta, Mr. Chan or the other
participating stockholders. The special committees legal
counsel then reviewed with the committee members their fiduciary
duties under Delaware law, including with regard to the process
employed to reach its determination. At that meeting, the
special committee and its counsel considered the negotiation of
the proposed transaction, including (i) issues regarding
the allocation of certain risks between signing and closing,
(ii) conditions to closing, and (iii) the impact of
any deal protections. The special committee determined to meet
again after it received a draft merger agreement from
Mr. Chan and his counsel.
The special committee met again on March 11, 2005, with its
legal counsel and Vialtas outside legal counsel in
attendance, to review the initial draft of the merger agreement,
which had been forwarded to the committee on March 9. The
meeting participants discussed in detail the terms of the draft
merger agreement, including (i) the proposed purchase
price, (ii) the proposed break-up fee, (iii) the
proposed restrictions on the committees ability to provide
information to potential third party purchasers, (iv) the
proposed restrictions on the solicitation of third party offers,
(v) the treatment of warrants and options, (vi) the
termination provisions, and (vii) the conditions to
closing. In particular, the committee focused on the conditions
under which Vialta could terminate the merger agreement if a
superior offer materialized, and the termination fee payable in
that circumstance. After discussing these matters, the committee
requested that Potter Anderson, with input from Kaye Scholer,
draft a list of talking points to discuss with Mr. Chan and
his counsel, including the committees position that there
be no impediments to the company accepting a competing offer and
no termination fee if it did so (although the committee was
agreeable to the payment of a certain amount of expenses
incurred by Mr. Chan in the event of a termination under
certain circumstances). Thereafter, the committees
financial advisor, Salem Partners, joined the meeting and
provided the committee with an overview of the status of its
fairness opinion process. During its discussion, Salem Partners
identified the following two areas as creating the most
uncertainty in arriving at a valuation: (i) whether
Vialtas net operating loss carryforward was worth anything
to an acquirer in a change of control transaction particularly
in light of the value of Vialta and the limitations under
applicable tax laws with respect to the use of such net
operating loss carryforward, and (ii) valuation of
Vialtas business prospects in the area of broadband
technology, which prospects are highly speculative in light of
the absence of any existing sales, contracts or
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customers of any broadband products. The special committee and
the representatives of Salem Partners then discussed these
matters in more detail.
On March 14, 2005, based upon its prior discussions with
its legal counsel and financial advisor, the special committee
participated in a conference call with Mr. Chan and
Mr. Pietri to discuss key points of the draft merger
agreement in order to narrow the issues between them. The
parties made substantial progress in that call.
On March 17, 2005, the special committee met with its legal
counsel, its financial advisor, and Vialtas outside
counsel to discuss the status of Salem Partners due
diligence review of the company and the revised version of the
draft merger agreement it had received from Mr. Chan. Salem
Partners advised the special committee that the extensive market
search for potential acquirers previously conducted by Vialta
with the assistance of Needham supported the conclusion that
$0.36 per share was fair, from a financial point of view,
to Vialtas stockholders, other than the participating
stockholders. Salem Partners also discussed the analyses it had
performed in connection with its valuation of the company. The
special committee and its advisors then discussed the status of
the negotiations with Mr. Chan and his counsel, including
with regard to the deal protection provisions proposed by
Mr. Chan. The committees legal counsel then discussed
the committees fiduciary obligations in negotiating and
assessing the merits of the proposed transaction.
During the next week, counsel for the company and Mr. Chan
continued working on the draft merger agreement in an attempt to
narrow the outstanding issues. Work also commenced on certain
ancillary agreements. The special committee remained actively
involved in the negotiation process and in making sure the
transaction continued to move forward.
On March 24, 2005, the special committee, with its legal
counsel and Vialtas outside legal counsel in attendance,
met to discuss the status of the negotiations and outstanding
issues regarding the proposed transaction. The issues included,
among other things, (i) the assurances and mechanics of
payment of the purchase price, and (ii) conditions to
closing and Vialtas representations, warranties and
covenants including a request by Mr. Chan that Vialta agree
to liquidate all of its investment securities and that the
closing be conditioned on Vialta having at least
$18 million in cash and cash equivalents. The committee
concluded that it would not agree to Vialta having
$18 million in cash as a condition to closing, but it might
be agreeable to condition closing on having a lesser figure that
would provide the company with an adequate cushion in the event
unexpected costs arose or the transaction deadline was extended.
Later that same day, March 24, 2005, the special committee,
its legal counsel, Mr. Pietri, Vialtas outside legal
counsel, Mr. Chan and Mr. Chans legal counsel
met by telephone to negotiate with regard to the open issues.
The parties resolved nearly all outstanding issues, including
agreeing that Mr. Chans acquisition vehicle would
pledge its Vialta stock to assure payment of any shortfall
obligation at closing and that a condition to closing would be
that Vialta would have $15 million in cash and that
Mr. Chan would personally provide cash in the amount of any
shortfall necessary to fund the aggregate merger consideration
required at closing up to a maximum of $4 million.
On March 25, 2005, the special committee and its legal
counsel met with the committees financial advisor, Salem
Partners, for the purpose of having the financial advisor
present the special committee with its fairness analyses
regarding the consideration to be received by holders of Vialta
stock (other than the participating stockholders) in the
proposed merger. Prior to the meeting, Salem Partners had
distributed a preliminary valuation report. At the meeting,
Salem Partners orally presented its valuation analysis to the
special committee, discussed the financial terms of the offer
from Mr. Chan and responded to questions and comments from
the members of the special committee and its legal advisor. Upon
inquiry by the committee, Salem Partners confirmed that it had
reviewed and found satisfactory the work, including the market
check for potential acquirers, previously performed for Vialta
by Needham. During the discussion, Salem Partners explained the
various analyses it had performed, including the bases for the
numbers set forth in its written presentation.
Between March 25 and March 28, counsel to the parties
continued working on the draft merger agreement. A nearly final
draft was circulated to members of Vialtas board of
directors on the evening of
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Sunday, March 27. During the following day, prior to the Vialta
board meeting scheduled for that afternoon, counsel agreed on
final changes to the merger agreement and related documents.
These changes included a reduction from $15 million to
$14.5 million in the amount of cash and cash equivalents
Vialta was required to have at closing and agreement that, in
light of Vialtas previous quorum and voting issues and the
market check that had already occurred and would continue after
signing, there was no need to require Victory or the
participating stockholders to vote their Vialta shares
proportionately with other stockholders.
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Special Committee and Board Consideration of the
Merger |
On March 28, 2005, the special committee met, with its
legal and financial advisors in attendance, to determine the
advisability of the proposed transaction and whether to
recommend to Vialtas full board of directors that it
approve the proposed merger agreement. A representative of the
special committees legal counsel again reviewed with the
special committee the terms and conditions of the proposed
merger, and reviewed in detail with the committee the proposed
merger agreement, including the structure of the transaction,
the treatment of Vialtas options, Vialtas
representations and warranties, the acquisition vehicles
representations and warranties, Vialtas covenants, the
acquisition vehicles covenants, and the termination
provisions, and the terms of the related voting agreement.
Thereafter, Salem Partners presented an overview of the analyses
it performed in assessing the fairness of the $0.36 per
share merger consideration, from a financial point of view, to
the stockholders of Vialta, other than Mr. Chan and the
other participating stockholders. Prior to the meeting, Salem
Partners had distributed a report of its fairness analysis.
During its presentation, Salem Partners informed the committee
that it had not received material new information since its
presentation on March 25, and provided its oral opinion,
later confirmed in writing, that the proposed purchase price was
fair to the holders of Vialta stock, other than the
participating stockholders, from a financial point of view.
After further discussion, upon motion duly made and seconded,
the special committee unanimously determined that the proposed
merger agreement and the transactions contemplated by the
proposed merger agreement, including the merger, were advisable,
fair to, and in the best interests of Vialta and its
stockholders (other than the participating stockholders) and
recommended that Vialtas full board of directors approve
and declare advisable the proposed merger agreement, the merger
and the other transactions contemplated by the proposed merger
agreement. A board meeting was then held at which Salem Partners
reviewed its analysis, counsel reviewed the merger agreement and
related documents and the special committee presented its
recommendation that the board of directors approve the proposed
merger agreement. After discussion, the board of directors
approved the merger agreement and related documents, with all
directors present voting in favor, other than Mr. Chan, who
abstained, which approval included a majority of directors not
employed by Vialta. Herbert Chang, who was the only member not
present at the meeting, subsequently indicated his approval of
the board of directors resolutions.
Following the meeting of the board of directors at which the
board of directors approved the merger agreement, the merger
agreement and related transaction documents were executed by the
parties.
On March 28, 2005, after the close of trading on the OTC
Bulletin Board, Vialta issued a press release announcing
that its board of directors had approved the merger agreement.
Position of Vialta as to the Purpose and Reasons for the
Merger
The purpose of the merger is for Victory to acquire all
outstanding shares of common stock of Vialta that it does not
currently own in exchange for cash, while maximizing the value
to be received by, the other stockholders of Vialta. In the
first quarter of 2004, the board of directors of Vialta met to
discuss strategic alternatives for the company to maximize
stockholder value, in light of the increasing expenses of
remaining as a public company and additional regulatory
requirements including regulations relating to accounting
procedures and internal controls, the need to attract and retain
senior management, and the need for greater scale in dealing
with the companys third party retail partners, all of
which would require significantly more resources than were
currently available to the company. The board of directors
subsequently engaged Needham to explore a range of strategic
alternatives, including a possible sale of the company. Of the
strategic
21
alternatives presented, the board of directors believes that the
proposed merger provides the best value to Vialta stockholders
(other than the participating stockholders). See SPECIAL
FACTORS Background of the Merger.
Position of Vialta as to the Fairness of the Merger to
Vialtas Stockholders; Reasons for Recommending the
Approval of the Merger Agreement and the Merger
Both the special committee and the board of directors of Vialta
have determined that the merger agreement and the merger are
substantively and procedurally fair to and in the best interests
of the stockholders of Vialta other than the participating
stockholders. In its determination the special committee
recommended that the board of directors
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approve and adopt the merger agreement; |
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approve the merger; and |
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recommend that the stockholders of Vialta vote for the approval
of the merger agreement and the merger. |
After considering the recommendation of the special committee,
the board of directors approved and adopted the merger
agreement, approved the merger and resolved to recommend to
Vialtas stockholders that they vote for the approval of
the merger agreement and the merger. In view of his conflicts of
interest with respect to the proposal by the participating
stockholders to acquire 100% ownership of Vialta, Mr. Chan
recused himself from the confidential portion of the board of
directors deliberations with respect to the merger and the
merger agreement and abstained from voting on the related
resolutions, including the recommendations to Vialta
stockholders described in this proxy statement.
In reaching their determinations and making their
recommendations, both the special committee and the board of
directors relied on Vialtas management to provide accurate
and complete financial information, projections and assumptions
(based on the best information available to management at that
time), as the starting point for their analyses.
In evaluation the fairness of the merger and making its
recommendation, the special committee considered factors
including:
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the fact that prior to the execution of the merger agreement, no
third party had come forward with a superior transaction
proposal despite an extensive search for strategic alternatives
conducted by Needham on behalf of Vialta; |
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the fact that the terms of the merger agreement were negotiated
by a two person special committee of the board of directors,
neither member of which was an interested party in the
transaction or otherwise affiliated with Mr. Chan or the
other participating stockholders; |
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the fact that the merger consideration of $0.36 per share
in cash to be received by Vialta stockholders (other than the
participating stockholders) represented, at the time of the
special committees determination, a 50% premium to the
average closing price of Vialta common stock for the
30 days prior to the March 28, 2005 announcement as
well as a premium to the amount of proceeds stockholders,
including participating stockholders (owning approximately 39%
of the shares outstanding and who would participate in a
liquidating distribution), reasonably could be expected to
receive in a liquidation of the company (based on analyses by
management, Needham and Salem Partners); |
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the fact that the merger consideration of $0.36 per share
exceeded managements best-case extended liquidation
scenario (including assets written off by the company),
developed with Needham, of $0.33 per share and
managements base-case immediate liquidation scenario,
developed with Needham, of $0.25 per share, which
liquidation analyses did not take into consideration the fact
that the company continues to experience operating losses and
negative cash flow; |
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the opinion delivered by Salem Partners on March 28, 2005
that, as of that date and based on and subject to the
assumptions, limitations and qualifications set forth in the
opinion, the cash considera- |
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tion of $0.36 per share to be paid in the merger to the
stockholders of Vialta other than the participating stockholders
and Victory was fair, from a financial point of view, to such
stockholders; |
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the special committees consideration of the various
analyses undertaken by Salem Partners, each of which is
described below under SPECIAL FACTORS Opinion
of Financial Advisor to the Special Committee; |
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the special committees belief that the principal advantage
of Vialta continuing as a public company would be to allow
public stockholders to continue to participate in any potential
growth in the value of Vialtas equity, but that, under all
of the relevant circumstances and in view of the historical
results of operations, financial condition, assets, liabilities,
business strategy and prospects of Vialta, the nature of the
industry in which Vialta competes, and trading characteristics
of companies with market capitalization similar in size to that
of Vialta, and in light of the proposed merger consideration of
$0.36 per share, the value to stockholders that would be
achieved by continuing as a public company was not likely to be
as great as the merger consideration of $0.36 per share; |
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the active and direct role of the members of the special
committee and their representatives in the negotiations with
respect to the merger, and the consideration of the transaction
by the special committee at numerous special committee meetings; |
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the belief by the members of the special committee that
$0.36 per share was the highest price that the
participating stockholders and Victory would agree to pay to
Vialtas stockholders; |
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the merger consideration of $0.36 per share in cash in
relation to the then-current market price of Vialta common stock
of $0.22 per share, the then-current value of Vialta in a
freely negotiated transaction and the future value of Vialta as
an independent entity; |
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the terms of the merger agreement that permit Vialta and the
special committee to explore an alternative acquisition proposal
and, that permit the special committee to modify or withdraw its
recommendation with respect to the merger agreement and the
merger and to approve or recommend a different acquisition
proposal; |
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Vialtas right to terminate the merger agreement prior to
approval of the merger at the stockholders meeting, if the
board of directors or the special committee determines in good
faith, after consultation with outside legal counsel, that
termination is necessary to comply with its fiduciary duties
under applicable law; |
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the fact that Didier Pietri, Chief Executive Officer of Vialta,
has expressed a desire to terminate his employment and that the
companys outside accounting firm, PricewaterhouseCoopers
LLP, has indicated that, while it has not resigned or declined
to stand for re-appointment, it may decide not to continue as
the companys outside auditors; |
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the terms and conditions of the voting agreement providing for
Victory to vote in favor of approving the merger
agreement; and |
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the availability to stockholders who vote against approval of
the merger agreement of appraisal or dissenters rights
under California or Delaware law, which provide stockholders who
dispute the fairness of the merger consideration with an
opportunity to have a court determine the fair value of their
shares. |
The special committee believes that each of these factors
supported its conclusion that the merger is substantively and
procedurally fair to, and in the best interests of,
Vialtas stockholders other than the participating
stockholders.
In addition, the special committee did not establish, and did
not consider, a pre-merger going concern value for the equity of
Vialta and does not believe there is a single method of
determining going concern value, although the special committee
believes the analyses of Salem Partners in their totality may be
reflective of going concern value.
23
The special committee also considered a variety of risks and
other potentially negative factors concerning the merger
agreement and the transactions contemplated by it, including the
merger. These factors included:
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the fact that Vialtas only recourse in the event of a
wrongful termination or material breach of the merger agreement
may be against Victory, a company with no assets other than
Vialta common stock and a commitment by Mr. Chan to
contribute additional cash on its behalf to Vialta in the event
of a shortfall, as set forth in the additional contribution
agreement attached hereto as Annex D; |
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the fact that, following the merger, Vialtas stockholders
will no longer participate in any future earnings of Vialta or
benefit from any increases in Vialtas value; |
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the fact that Vialtas stockholders will not benefit from
any potential upside in the companys broadband videophone
products, which potential upside is highly speculative at this
point and may, if continued to be pursued by Vialta, represent a
potential loss in value to the then holders of Vialta common
stock in the event of continued investments and losses (see
CERTAIN FINANCIAL MODELS RELATING TO POTENTIAL BROADBAND
PRODUCTS); |
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the fact that, in the event that Vialta becomes profitable,
Vialtas current stockholders will not benefit from the
companys use of its net operating loss carryforwards to
reduce its income tax payables, if any; |
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the fact that certain parties, including Mr. Chan and other
members of the board of directors, including members of the
special committee, may have interests that are different from
those of Vialtas stockholders, as described under
SPECIAL FACTORS Interests of Certain Persons
in the Merger; |
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the possibility that Vialta could be required to reimburse
Victory for up to $250,000 of its out-of-pocket expenses in the
event that the merger is not consummated because of another
transaction under certain circumstances; |
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the risk of a potential fraudulent conveyance challenge to the
merger described under SPECIAL FACTORS Certain
Fraudulent Transfer Risks; and |
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the fact that, for U.S. federal income tax purposes, the
cash merger consideration will be taxable to Vialtas
stockholders receiving the merger consideration. |
This discussion of the information and factors considered by the
special committee in reaching its conclusions and recommendation
includes all of the material factors considered by the special
committee but is not intended to be exhaustive. In view of the
wide variety of factors considered by the special committee in
evaluating the merger agreement and the transactions
contemplated by it, including the merger, and the complexity of
these matters, the special committee did not find it
practicable, and did not attempt, to quantify, rank or otherwise
assign relative weight to those factors. In addition, different
members of the special committee may have given different weight
to different factors.
The special committee believes that sufficient procedural
safeguards were and are present to ensure the fairness of the
merger and to permit the special committee to represent
effectively the interests of Vialtas stockholders other
than the participating stockholders. These procedural safeguards
include the following:
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the special committees active and intense negotiations,
with the assistance of its advisors, directly with Victory and
its representatives regarding the merger consideration and the
other terms of the merger and the merger agreement; |
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other than their receipt of board of directors and special
committee fees, their indemnification and liability insurance
rights under the merger agreement and their entitlement to
receive $2,400 each in respect of their accelerated Vialta stock
options in connection with the merger, members of the special
committee do not have an interest in the merger different from
that of Vialtas stockholders; |
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the special committee retained and received the advice and
assistance of Salem Partners as its financial advisor and Potter
Anderson as its legal advisor, and requested and received from
Salem Partners an opinion, delivered orally on March 28,
2005 and confirmed in writing, with respect to the fairness from |
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a financial point of view of the merger consideration to be
received by Vialta stockholders other than the participating
stockholders and Victory; |
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the recognition by the special committee that it had no
obligation to recommend the approval of the merger proposal or
any other transaction and had full power to consider any
strategic transaction, including but not limited to a
liquidation of the company; |
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the recognition by the special committee that the board of
directors could consider and recommend superior proposals and
otherwise terminate the merger if in good faith after consulting
with counsel it concludes it is required to do so in accordance
with its fiduciary duties; and |
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the availability of dissenters and appraisal rights under
California and Delaware law for Vialtas stockholders who
oppose the merger. |
The special committee initially favored a structure in which
Mr. Chan would vote his shares in the same proportion in
favor or against the merger agreement as other votes cast at the
special meeting, but subsequently determined that such structure
was unnecessary since the company had been fully shopped and
there were no restrictions on the board of directors soliciting
or recommending a competing transaction or terminating the
merger agreement if necessary to comply with its fiduciary
duties. In addition, withholding Mr. Chans vote could
have the inadvertent consequence of preventing the consummation
of a transaction believed to be in the best interests of
stockholders in the event of a low turn-out of stockholders at
the special meeting.
In reaching its determination that the merger agreement and the
merger are substantively and procedurally fair to and in the
best interests of Vialtas stockholders other than the
participating stockholders, the board of directors determined
that the analysis of special committee was reasonable and
adopted the analysis and conclusions of the special committee as
to the fairness to such Vialta stockholders of the merger
consideration of $0.36 per share. In determining the
reasonableness of the special committees analysis and
adopting the special committees analysis, the board of
directors considered and relied upon:
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the process the special committee conducted in considering the
merger; |
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the special committees having retained and received advice
from its independent legal counsel, Potter Anderson; |
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the special committees having retained and received advice
from its independent financial advisor, Salem Partners; |
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the special committees unanimous recommendation on
March 28, 2005 that the board of directors determine that
the merger agreement and the merger are fair to and in the best
interests of Vialtas stockholders other than the
participating stockholders and approve and adopt the merger
agreement and approve the transactions contemplated by the
merger agreement, including the merger; and |
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the availability of dissenters and appraisal rights under
California and Delaware law for Vialtas stockholders who
oppose the merger. |
The board of directors also believes that sufficient procedural
safeguards were present to ensure the fairness of the
transaction and to permit the special committee to represent
effectively the interests of Vialtas stockholders other
than the participating stockholders. The board of directors
reached this conclusion based on, among other things:
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the fact that the special committee consisted solely of
independent directors who are not affiliated with Mr. Chan
or the other participating stockholders; |
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the selection and retention by the special committee of its own
financial advisor and legal counsel; |
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the fact that negotiations that had taken place directly between
Mr. Chan and his representatives, on the one hand, and the
special committee and its representatives, on the other hand,
were structured and conducted so as to preserve the independence
of the special committee and promote the fairness of the
transaction; and |
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|
the fact that the merger agreement and the merger were
unanimously approved by the members of the board of directors
other than Mr. Chan. |
In light of the procedural protections described above, the
board of directors, including each of the non-employee
directors, did not consider it necessary either to require a
separate affirmative vote of a majority of Vialtas
stockholders other than the participating stockholders or to
retain an unaffiliated representative to act solely on behalf of
such Vialta stockholders for purposes of negotiating the terms
of the merger agreement or preparing a report concerning the
fairness of the merger agreement and the merger.
In view of the wide variety of factors considered by the board
of directors in evaluating the merger and the complexity of
these matters, the board of directors did not find it
practicable, and did not attempt, to quantify, rank or otherwise
assign relative weight to those factors. In addition, different
members of the board of directors may have given different
weight to different factors.
Based in part upon the recommendation of the special committee,
the board of directors, with Mr. Chan abstaining,
unanimously voted to approve and adopt the merger agreement and
resolved to recommend that you vote FOR the approval
and adoption of the merger agreement and the merger and
FOR the proposal to adjourn the special meeting if
necessary to permit further solicitation of proxies in the event
there are not sufficient votes at the time of the special
meeting to approve the merger agreement and the merger. Herbert
Chang, who was the only member not present at the meeting,
subsequently indicated his approval of the boards
resolutions.
If the merger is consummated, Didier Pietri and members of the
board of directors other than Mr. Chan will be entitled to
receive an aggregate of approximately $46,800 in net cash merger
consideration in respect of Vialta stock options, approximately
$4,800 of which would be received by members of the special
committee. Didier Pietri and Matthew Fong also own shares of
Vialta common stock, entitling them to receive an aggregate of
an additional $50,550 in merger consideration in cash. See
SPECIAL FACTORS Interests of Certain Persons
in the Merger.
Recommendation of the Board of Directors
The board of directors, based in part on the unanimous
recommendation of the special committee, unanimously, with
Mr. Chan abstaining, recommends that the Vialta
stockholders vote FOR the approval and adoption of the
merger agreement and the merger. The board of directors also
unanimously recommends, with Mr. Chan abstaining, that you
vote FOR the proposal to adjourn the special meeting if
necessary to permit further solicitation of proxies in the event
there are not sufficient votes at the time of the special
meeting to approve the merger agreement. The recommendations of
the board of directors were made after consideration of all the
material factors, both positive and negative, as described in
Position of Vialta as to the Fairness of the
Merger to Vialtas Stockholders; Reasons for Recommending
the Approval of the Merger Agreement and the Merger above.
Herbert Chang, who was the only member not present at the
meeting, subsequently indicated his approval of the boards
resolutions.
The board of directors of Vialta believes that the merger
agreement and the merger are fair to and in the best interests
of Vialtas stockholders other than the participating
stockholders for all of the reasons set forth above under
SPECIAL FACTORS Position of Vialta as to the
Fairness of the Merger to Vialtas Stockholders; Reasons
for Recommending the Approval of the Merger Agreement and the
Merger.
Opinion of the Financial Advisor to the Special Committee
Salem Partners was engaged to provide financial advisory
services, including providing a financial opinion letter (the
Salem Partners Opinion), in connection with the
merger. Salem Partners was selected by the special committee to
act as the special committees financial advisor based on
Salem Partners reputation and their experience and
expertise relating to transactions similar to the contemplated
merger. In addition, the special committee considered the fact
that Salem Partners did not have any prior relationship with
Vialta, Mr. Chan or the other participating stockholders.
26
On March 28, 2005 Salem Partners rendered its oral opinion
to Vialtas special committee that, as of such date and
based upon and subject to the various considerations set forth
in its opinion, the consideration to be received by the holders
of Vialta common stock (other than the participating
stockholders) pursuant to the merger agreement was fair from a
financial point of view to such holders. Salem Partners
confirmed its opinion in writing by delivery to the special
committee and the board of directors of a written opinion dated
March 28, 2005.
The full text of the written Salem Partners Opinion, dated
March 28, 2005, which sets forth, among other things, the
assumptions made, procedures followed, matters considered and
limitations on the scope of the review undertaken, is attached
as Annex F to this proxy statement. The Salem Partners
Opinion is directed to Vialtas special committee and board
of directors and addresses only the fairness of the
consideration from a financial point of view to holders of
Vialta common stock (other than the participating stockholders)
as of the date of such opinion and does not address any other
aspect of the merger. The Salem Partners Opinion is not a
recommendation to any Vialta stockholder as to how any
stockholder should vote with respect to the proposed transaction
or any other matter and should not be relied upon by
Vialtas stockholders as such. The summary of the Salem
Partners Opinion set forth in this proxy statement is qualified
in its entirety by reference to the full text of the Salem
Partners Opinion attached as Annex F hereto, which should
be read carefully and in its entirety.
In arriving at its opinion, Salem Partners, among other things,
examined:
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the proposed merger agreement dated as of March 28, 2005; |
|
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|
certain audited historical financial statements of Vialta for
the three fiscal years ended December 31, 2001,
December 31, 2002 and December 31, 2003; |
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|
the unaudited financial statements of Vialta for the fiscal year
ended December 31, 2004; |
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|
certain internal business, operating and financial information
and forecasts of Vialta prepared and provided by senior
management of Vialta; |
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|
|
the financial terms of the merger compared with publicly
available information regarding the financial terms of certain
other business combinations Salem Partners deemed relevant; |
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|
the financial position and operating results of Vialta compared
with those of certain other publicly traded companies Salem
Partners deemed relevant; |
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|
current and historical market prices and trading volumes of the
common stock of Vialta; |
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|
presentations by Needham to the board of directors of Vialta, as
well as certain other materials prepared by Needham regarding
various strategic alternatives, including the potential for sale
of Vialta; and |
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|
certain other publicly available information about Vialta. |
Salem Partners also held discussions with members of the senior
management of Vialta to discuss the foregoing, considered other
matters which it deemed relevant to its inquiry and took into
account such accepted financial and investment banking
procedures and considerations as it deemed relevant. Salem
Partners was not requested or authorized to approach, nor did it
hold any discussions with, any third parties to solicit offers
or indications of interest to acquire all or any part of Vialta,
nor did Salem Partners evaluate potential alternative
transactions.
In arriving at its opinion, Salem Partners assumed and relied
upon without independent verification the accuracy and
completeness of the information supplied or otherwise made
available by Vialta for the purposes of its opinion. With
respect to the financial forecasts, Salem Partners assumed that
they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future
financial performance of Vialta. Salem Partners was not
requested to, and did not, participate in the negotiation or
structuring of the merger nor was it asked to consider the
relative merits of the merger as compared to any alternative
business strategies that might exist for Vialta or the effect of
any other transaction in which Vialta
27
might engage. Salem Partners also assumed that the merger would
be consummated in accordance with the terms set forth in the
merger agreement. The Salem Partners Opinion was necessarily
based on financial, economic, market and other conditions as in
effect on, and the information made available to it as of, the
date of its opinion.
The following is a brief summary of the material analyses
performed by Salem Partners in connection with its oral opinion
and the Salem Partners Opinion. Certain of these summaries of
financial analyses include information presented in tabular
format. In order to fully understand the financial analyses used
by Salem Partners, the tables must be read together with the
text of each summary. The tables alone do not constitute a
complete description of the financial analyses.
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Implied Transactional Statistics |
Salem Partners calculated several values implied by the merger
consideration of $0.36 per share of Vialta common stock
(excluding shares owned by Mr. Chan and the other
participating stockholders) in cash, including Vialtas
implied fully-diluted equity value and enterprise value. The
following table summarizes the results of this analysis:
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Values Implied by | |
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Price per Vialta Share | |
|
Values Implied by | |
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as of March 24, 2005 | |
|
Merger Consideration | |
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of $0.23 | |
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of $0.36 per share | |
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| |
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| |
Vialta fully-diluted equity value
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|
$ |
20.1 million |
|
|
$ |
32.2 million |
|
Vialta fully-diluted enterprise value
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|
$ |
(3.3 million |
) |
|
$ |
8.8 million |
|
Salem Partners also calculated the premium of the merger
consideration of $0.36 per share of Vialta common stock
(excluding shares owned by Victory and the participating
stockholders) in cash over the closing trading price of Vialta
common stock on March 24, 2005 and over the closing trading
prices of Vialtas stock on various dates over the period
from March 24, 2004 to March 24, 2005. The following
table summarizes this analysis:
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|
Premium of Merger | |
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|
Consideration over | |
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Closing Trading Prices | |
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| |
March 24, 2005 price of $0.23 per share
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60.0% |
|
February 24, 2005 price of $0.24 per share
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50.0% |
|
December 23, 2004 price of $0.25 per share
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44.0% |
|
September 24, 2004 price of $0.25 per share
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44.0% |
|
March 24, 2004 price of $0.34 per share
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5.9% |
|
Salem Partners also calculated certain trading multiples implied
by (i) the closing trading price of Vialta common stock on
March 24, 2005 ($0.23) and (ii) by the merger
consideration ($0.36). For each of these values, Salem Partners
calculated the multiples of Vialtas implied enterprise
value to Vialtas revenue or estimated revenue for calendar
years 2004 and 2005 using estimates prepared by Vialtas
management. The following table summarizes the results of these
analyses:
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|
Fully-diluted Enterprise Value | |
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|
to Revenue Multiple Implied | |
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|
by Merger Consideration of | |
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|
$0.36 per share | |
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| |
2004 Revenue
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|
0.69x |
|
Estimated 2005 Revenue
|
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|
0.73x |
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|
|
Review of Previous Sale Discussions |
Salem Partners reviewed materials prepared for the board of
directors by Needham, as well as certain other materials
prepared by Needham in connection with Vialtas exploration
of strategic alternatives, including a potential sale of the
company. All of the potential acquirors who entered into
discussions with
28
Vialta withdrew their offers or Vialta discontinued discussions.
A complete summary of these discussions regarding a potential
sale of the company is included in SPECIAL
FACTORS Background of the Merger.
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Comparable Companies Analysis |
Salem Partners compared certain of Vialtas financial
information with that of other companies in various sectors,
including: (i) diversified consumer electronics, including
Samsung, Sony, Matsushita, NEC, Sharp, LG Philips, Sanyo,
Thomson and Pioneer, and (ii) specialty consumer
electronics, including Research in Motion, Logitech, Polycom,
PalmOne, Creative Technologies, Tivo, WorldGate Communications,
Viseon and Avistar. Salem Partners reviewed fully-diluted
enterprise values, calculated as equity value plus net debt, as
multiples of actual revenue for the latest twelve months and of
the companies projected revenue for calendar year 2005.
Salem Partners also reviewed current share price as multiples of
earnings-per-share for the latest twelve months and for the
projected calendar year 2005. Estimated financial data for the
selected companies were based on publicly available research
analyst estimates. Estimated data for Vialta were based on
internal estimates prepared by Vialtas management. All
multiples were based on closing stock prices on March 24,
2005. From the multiples calculated for the selected comparable
companies, Salem Partners derived and applied a range of
multiples of enterprise value to revenue of 0.50x to 2.25x,
indicating a range of implied prices per share of Vialta common
stock of $0.33 to $0.57. Stockholders should be aware that no
company used as a comparison in this analysis is identical to
Vialta. In addition, mathematical analysis is not in itself a
meaningful method of using comparable market trading data.
|
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Precedent Transactions Analysis |
Salem Partners reviewed several financial metrics from the
following 20 selected transactions of comparable size involving
publicly-traded targets under $100 million in the
technology sector since January 1, 2003.
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Acquiror |
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Target |
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Tut Sytems
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|
CoSine Communications |
Black Box
|
|
Nortan |
Selectica
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|
I Many |
Fair Isaac
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|
Braun Consulting |
Art Technology Group
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|
Primus Knowledge Solutions |
Zhone Technologies
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|
Sorrento Networks |
SAFLINK
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|
SSP Solutions |
Stellent
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|
Optika |
Cisco Systems
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|
Latitude Communications |
Quovadx
|
|
Rogue Wave Software |
Symantec
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|
On Technology |
Cubic
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|
ECC International |
GEAC Computer
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|
Comshare |
P-Com
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SPEEDCOM Wireless |
Vitesse Semiconductor
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|
Multilink Technology |
Audiovox
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|
Recoton |
Group 1 Software
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Sagent Technology |
Tumbleweed Communications
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|
ValiCert |
Symantec
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|
Nexland |
Electronics for Imaging
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|
PrintCafe Software |
29
Salem Partners compared the fully-diluted enterprise values in
the selected precedent transactions as multiples of the latest
twelve months revenue and share price as a multiple of the
latest twelve months earnings per share for the target company
in each transaction. From the multiples calculated from these
precedent transactions, Salem Partners derived and applied a
range of multiples of enterprise value to revenue of 0.75x to
1.25x, indicating a range of implied prices per share of Vialta
common stock of $0.37 to $0.44. Stockholders should be aware
that no transaction used as a comparison in this or any other
comparable transaction analysis is identical to this
transaction. In addition, mathematical analysis is not in itself
a meaningful method of using comparable transaction data.
In addition, Salem Partners reviewed several financial metrics
from the following 6 going-private transactions of comparable
size since January 1, 2003.
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Acquiror |
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Target |
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Golden Gate Capital
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Blue Martini |
HIG Capital Management
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T-Netix |
Snowbird Holdings
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Cysive |
Dirk, Inc.
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Troy Group |
PartsBase, Inc. (Hammond)
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PartsBase, Inc. |
DF Merger Co.
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|
Deltek Systems |
Salem Partners compared the fully-diluted enterprise values in
the selected precedent transactions as multiples of the latest
twelve months revenue and share price as a multiple of the
latest twelve months earnings per share for the target company
in each transaction. From the multiples calculated in these
transactions, Salem Partners derived and applied a range of
multiples of enterprise value to revenue of 0.50x to 1.00x,
indicating a range of implied prices per share of Vialta common
stock of $0.33 to $0.40.
Salem Partners also calculated the implied premiums paid in the
following transactions: (i) 63 transactions since
January 1, 2002 in which the transaction value was of
comparable size, (ii) 20 transactions since
January 1, 2003 in the technology sector in which the
transaction value was of comparable size, and
(iii) 6 going-private transactions since
January 1, 2003 in which the transaction value was of
comparable size. All premiums calculated for the selected
transactions were based on the target companys stock price
one day prior to announcement of the relevant transaction and on
information available at the time of announcement of the
relevant transaction. Salem Partners derived the following
information from data observed for the selected precedent
transactions.
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|
Average Premium | |
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Median Premium | |
|
|
Over Target Share | |
|
Over Target Share | |
|
|
Price One Day Prior | |
|
Price One Day Prior | |
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| |
|
| |
63 Transactions since January 1, 2002, consisting of:
|
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|
58.8 |
% |
|
|
38.7 |
% |
|
4 Transactions in 2005
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|
11.2 |
% |
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|
9.7 |
% |
|
16 Transactions in 2004
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|
29.3 |
% |
|
|
28.6 |
% |
|
26 Transactions in 2003
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|
55.9 |
% |
|
|
37.7 |
% |
|
17 Transactions in 2002
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|
|
102.3 |
% |
|
|
106.9 |
% |
20 Technology Transactions since January 1, 2003
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|
61.2 |
% |
|
|
29.5 |
% |
6 Going-Private Transactions since January 1, 2003
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|
36.6 |
% |
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|
29.9 |
% |
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|
Historical Stock Price Performance |
Salem Partners analyzed the prices at which Vialta common stock
traded from March 24, 2004 to March 24, 2005. Salem
Partners noted that the high closing price of Vialta common
stock during this period was $0.39 on June 9, 2004, and the
low closing price of Vialta common stock during this period was
$0.16 on
30
December 6, 2004. Salem Partners also noted the closing
prices of Vialta common stock for various dates as summarized in
the table below:
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|
Closing Price | |
|
|
| |
March 24, 2005
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|
$ |
0.23 |
|
30 days prior (February 24, 2005)
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|
$ |
0.24 |
|
90 days prior (December 23, 2005)
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|
$ |
0.25 |
|
180 days prior (September 24, 2004)
|
|
$ |
0.25 |
|
360 days prior (March 24, 2004)
|
|
$ |
0.34 |
|
In addition, Salem Partners analyzed the historical performance
of Vialta common stock from March 24, 2004 to
March 24, 2005 and compared that performance to the stock
price performance of the S&P 500 index, the NASDAQ composite
and the aggregate stock price performance of comparable
companies in various sectors, including: (i) diversified
consumer electronics, including Samsung, Sony, Matsushita, NEC,
Sharp, LG Philips, Sanyo, Thomson and Pioneer, and
(ii) specialty consumer electronics, including Research in
Motion, Logitech, Polycom, PalmOne, Creative Technologies, Tivo,
WorldGate Communications, Viseon and Avistar, as summarized in
the table below:
|
|
|
|
|
|
|
Stock Price Performance | |
|
|
From March 24, 2004 to | |
|
|
March 24, 2005 | |
|
|
| |
Specialty Consumer Electronics
|
|
|
37.5 |
% |
S&P 500 Index
|
|
|
7.3 |
% |
NASDAQ Composite
|
|
|
4.3 |
% |
Diversified Consumer Electronics
|
|
|
(0.7 |
%) |
Vialta
|
|
|
(33.8 |
%) |
|
|
|
Discounted Cash Flow Analysis |
Using a discounted cash flow analysis, Salem Partners calculated
an implied equity value per share of Vialta based on
Vialtas financial plans provided to Salem Partners by
management. Salem Partners based its discounted cash flow
analysis on various operating assumptions provided by
management, including assumptions relating to, among other
items, revenue, operating costs, taxes, working capital, capital
expenditures and depreciation. Salem Partners analysis
used a discount rate of 25.0% based on a weighted average cost
of capital analysis of selected specialty consumer electronics
companies, and assumed no future operations of Vialta after
2009. Vialtas financial plans do not assume that the
company will generate positive cash flow by 2009. Based on this
analysis, the implied equity value of Vialta is
$13.6 million or approximately $0.15 per share.
Salem Partners calculated an implied cash value per share of
Vialta based on Vialtas liquidation analysis provided to
Salem Partners by Vialtas management, which assumed the
company would begin the process of liquidation on March 31,
2005 and would cease operations on December 31, 2005. Salem
Partners based its implied cash value per share calculation on
various liquidation assumptions provided by management,
including assumptions relating to, among other items, operating
expenses, transaction costs and other expenses and projected
assets less projected liabilities. Based on these assumptions,
the cash available for distribution on December 31, 2005 is
projected to be $28.7 million, or approximately
$0.32 per share.
The preparation of a financial opinion is a complex process and
is not necessarily susceptible to a partial analysis or summary
description. In arriving at its opinion, Salem Partners
considered the results of all of its analyses as a whole and did
not attribute any particular weight to any particular analysis
or factor considered by it. Furthermore, Salem Partners believes
that selecting any portion of Salem Partners analyses,
without considering all of its analyses, would create an
incomplete view of the process underlying Salem Partners
analysis and opinion. In addition, Salem Partners may have
deemed various assumptions more or less probable
31
than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should
not be taken to be Salem Partners view of the actual value
of Vialta.
In performing its analysis, Salem Partners made numerous
assumptions with respect to industry performance, general
business and economic conditions and other matters, many of
which are beyond the control of Vialta. Any estimates contained
in the analyses performed by Salem Partners are not necessarily
indicative of actual values, which may be significantly more or
less favorable than those suggested by such analyses. Such
analyses were prepared solely as a part of Salem Partners
analysis of the fairness from a financial point of view of the
consideration to be received by the holders of Vialta common
stock (other than the participating stockholders) pursuant to
the merger agreement and were provided to the Vialta special
committee in connection with the delivery of the Salem Partners
Opinion to the special committee. The analyses do not purport to
be appraisals of value or to reflect the prices at which Vialta
might actually be sold.
In addition, as described above, the Salem Partners Opinion was
one of the many factors taken into consideration by the special
committee in making its determination to recommend the merger to
the board of directors and by the board of directors in
approving the merger agreement. Consequently, the Salem
Partners analyses as described above should not be viewed
as determinative of the opinion of the special committee or
board of directors with respect to the value of Vialta or of
whether the special committee or board of directors would have
been willing to agree to different consideration.
Salem Partners, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
placements and valuations for corporate, estate and other
purposes. Salem Partners may continue to provide investment
banking services to the surviving corporation in the future. In
the ordinary course of its trading, brokerage, investment
management and financing activities, Salem Partners and its
affiliates may, at any time, have a long or short position in,
and buy and sell the securities of Vialta for its account or the
account of its customers.
Pursuant to an engagement letter dated as of March 3, 2005,
Salem Partners provided financial advisory services and a
financial fairness opinion in connection with the merger. In
connection with the special committees engagement of Salem
Partners as its financial advisor, Vialta agreed to pay Salem
Partners a fee of $150,000, none of which is contingent on
completion of the merger. Vialta also agreed to reimburse Salem
Partners for its reasonable out-of-pocket expenses incurred with
its engagement as the special committees financial
advisor, which expenses are not to exceed $5,000 without the
special committees approval. In addition, on behalf of
Vialta, the special committee also agreed that Vialta will
indemnify Salem Partners against certain liabilities and
expenses, including liabilities under the federal securities
laws, related to or arising out of Salem Partners
engagement and any related transactions.
Position of the Participating Stockholders and Victory
Acquisition Corp. as to the Purpose and Reasons for the
Merger
Fred S.L. Chan and the other participating stockholders intend
to effect the merger to acquire all of the outstanding shares of
common stock of Vialta not already owned by Victory. The merger
will allow the participating stockholders to take Vialta private
to continue developing of broadband products, which they believe
must be undertaken by Vialta, if at all, as a private company.
Fred S.L. Chan and the other participating stockholders have
decided to pursue the merger at this time and believe that it is
best for Vialta to operate as a privately-held company for
several reasons.
First, operating as a public company entails substantial
expense, which have been significantly increased by requirements
arising from the Sarbanes-Oxley Act of 2002, enacted
July 30, 2002. By eliminating Vialtas cost
attributable solely to its status as a public company, including
certain legal costs, certain insurance costs, the costs of
certain accounting and auditing activities and internal
controls, the cost of annual meetings, the cost of preparing,
printing and mailing corporate reports and proxy statements, the
expense of a transfer agent and the cost of investor relations
activities, the participating stockholders expect to reduce
Vialtas expenses by approximately $1,800,000 in the first
full fiscal year following the merger. Fred S.L. Chan and the
other
32
participating stockholders believe that in light of
Vialtas history of ongoing losses, the historically small
public float and low trading volume for the shares of Vialta
common stock, the benefits to Vialta of having publicly-traded
securities do not outweigh the expenses and other requirements
imposed on Vialta as a public company.
Regardless of the cost savings, Mr. Chan does not believe
the company can continue to operate indefinitely as a public
company. Didier Pietri, its chief executive officer, has
expressed a desire to leave and other members of management have
also indicated an interest in pursuing other opportunities.
While it has not resigned or declined to stand for
re-appointment, the companys outside auditors have
indicated that they might decide not to continue as such after
the 2005 fiscal year. Mr. Chan believes that it would be
easier to locate management to continue the companys
current development efforts if the company were privately held
rather than publicly traded.
Furthermore, Mr. Chan believes that the broadband
videophone in development has value that was not reflected in
the initial interest from third parties and would not be
realized in a liquidation. Mr. Chan believes that as a
private company, Vialta could streamline management, release the
companys auditors, reduce operating costs and focus
research and development of broadband, free of the market
pressures imposed on a publicly traded company with regard to
operating results. Mr. Chan and the participating
stockholders are willing to forego the current return that they
might receive in an immediate liquidation of Vialta in exchange
for the long-term development risks to attempt development and
bringing to market the broadband products, about the success of
which there is substantial uncertainty. See CERTAIN FINANCIAL
MODELS RELATING TO POTENTIAL BROADBAND PRODUCTS. At the same
time, the merger would also offer stockholders (other than the
participating stockholders) a higher price for their Vialta
common stock than was offered by any other third party or could
be realized in a liquidation (including distribution in such
liquidation to the participating stockholders owning
approximately 39% of Vialtas common stock), based on
analyses prepared with the assistance of management.
In addition to the foregoing factors, Mr. Chan and the
other participating stockholders considered the following
positive factors:
|
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|
|
as the sole stockholders of Vialta immediately after the merger,
the participating stockholders will benefit from future growth,
if any, of Vialta after it ceases to be publicly traded; and |
|
|
|
information concerning Vialta and its operations, financial
results and directors and officers will no longer be available
to competitors and potential competitors. |
Mr. Chan and the other participating stockholders also
considered the following negative factors:
|
|
|
|
|
as a result of the merger and related transactions, the
participating stockholders investment in Vialta will
become an illiquid investment in the stock of a private company; |
|
|
|
payment of the merger consideration will significantly reduce
the companys cash resources; and |
|
|
|
following the merger, the participating stockholders will bear
the sole burden for any future losses or decrease in enterprise
value. |
Mr. Chan and the other participating stockholders
ultimately concluded that the potential detriments of the merger
to them were outweighed by the potential benefits of the merger
to them.
Position of the Participating Stockholders and Victory
Acquisition Corp. as to the Fairness of the Merger to
Vialtas Stockholders
Victory, Fred S.L. Chan and the other participating stockholders
believe that the terms and conditions of the merger are
substantively and procedurally fair to the stockholders other
than the participating stockholders. This determination is based
on consideration of the factors considered by the special
committee of the board of directors and the board of directors,
as discussed above in the section entitled SPECIAL
FACTORS Position of Vialta as to the Fairness of the
Merger to Vialtas Stockholders; Reasons for Recommending
the Approval of the Merger Agreement and the Merger.
33
Alternatives to the Merger
Before Mr. Chan made his proposal, the board of directors
considered various alternatives for the company, including a
liquidation of Vialta by a sale of its assets and a distribution
of the net after-tax proceeds to stockholders. The board decided
against such alternative, in favor of a sale of the company,
because of the length of time, transaction costs, loss in value
generally suffered by assets when sold in a liquidation, tax
effects, regulatory risks and uncertainty involved. The board of
directors also considered continuing to operate Vialta as a
public company and effecting a reverse split (which would
provide cash to only smaller holders of Vialta stock).
Ultimately, the board of directors engaged Needham to explore a
range of strategic alternatives, including a possible sale of
the company. See SPECIAL FACTORS Background of
the Merger for a complete description of alternatives
considered. Prior to the execution of the merger agreement, no
third party had come forward with what the special committee and
the board of directors considered to be an acceptable
transaction proposal despite an extensive search for strategic
alternatives conducted by Needham on behalf of Vialta.
As a member of the board of directors, Mr. Chan was
included in the discussions of these alternatives and their
advantages and disadvantages. When he made his proposal,
Mr. Chan chose the merger structure because it was the most
efficient means to acquire the entire equity interest in Vialta
and provide cash to the Vialta stockholders other than the
participating stockholders. Mr. Chan briefly considered a
tender offer transaction, but rejected that alternative because
it would not be as efficient and viable a method for the
participating stockholders to acquire all of the outstanding
common stock of Vialta.
Certain Effects of the Merger
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|
|
Conversion of Outstanding Vialta Common Stock and Stock
Options |
If the merger agreement and the merger are approved by Vialta
stockholders and the other conditions to the closing of the
merger are either satisfied or waived, Victory will be merged
with and into Vialta, which will be the surviving corporation in
the merger. After the merger, the participating stockholders
will beneficially own all of the outstanding capital stock of
Vialta.
All shares of common stock of Vialta outstanding immediately
prior to the effective time of the merger and held by Victory or
the participating stockholders will be cancelled without
consideration. All other shares of common stock of Vialta
outstanding at such time (other than the shares held by Victory
or the participating stockholders and shares as to which a
dissenting stockholder has perfected or not lost the benefit of
appraisal or dissenters rights under Delaware or
California law) will be converted into the right to receive
$0.36 per share in cash. When the merger is completed, each
share of Victory common stock will be converted into a share of
Vialta, as the surviving corporation in the merger.
As a result of the completion of the merger, each holder of a
vested stock option issued under a Vialta stock option plan,
other than stock options held by Mr. Chan, will have the
right to receive cash in respect of such stock option in an
amount equal to the product of (1) the excess, if any, of
the per-share merger consideration of $0.36 over the per-share
exercise price of such stock option, multiplied by (2) the
number of shares subject to such stock option. As a result of
the transaction, unvested options held by Didier Pietri will
accelerate in accordance with his stay bonus agreement and
unvested options issued to directors will accelerate in
accordance with the terms of the 2000 Directors Stock
Option Plan. Cash payments in respect of stock options will be
made without interest and net of any withholding taxes. All
unvested options will terminate.
Before receiving cash with respect to stock or vested options,
stockholders and option holders will be required to execute and
deliver a duly executed copy of the letter of transmittal (and
such other documents as may be reasonably required by the paying
agent) before receiving the merger consideration. The letter of
transmittal will require stockholders to waive any claim to
dissenters or appraisal rights.
|
|
|
Effect on Ownership Structure of Vialta |
At the effective time of the merger, the current Vialta
stockholders, other than the participating stockholders, will
cease to have ownership interests in Vialta or rights as Vialta
stockholders. Therefore,
34
current stockholders of Vialta, other than the participating
stockholders, would not participate in any earnings or growth of
Vialta following the merger and would not benefit from any
increase in the value of Vialta following the merger.
|
|
|
Effect on Listing, Registration and Status of Vialta
Common Stock |
Vialta common stock is currently registered under the Exchange
Act and is quoted on the OTC Bulletin Board under the
symbol VLTA. As a result of the merger, all
currently outstanding shares of Vialta common stock will be
cancelled and the holders (other than the participating
stockholders and Victory) will receive in exchange for these
shares the right to obtain either cash merger consideration or
the right to obtain such consideration as they may obtain
through exercise of their appraisal or dissenters rights.
When the merger becomes effective, the outstanding shares of
Victory common stock held by the participating shareholders will
be converted into shares of Vialta common stock as the surviving
corporation. There will be no public market for these shares;
Vialtas common stock will cease to be quoted on the OTC
Bulletin Board, and Vialta will apply for termination of
its registration of common stock under the Exchange Act. As a
result, Vialta will no longer comply with the provisions of the
Exchange Act applicable to public companies, including the proxy
solicitation provisions and the requirements of filing periodic
and other reports which presently provide publicly available
information to its stockholders.
|
|
|
Effect on Organization and Management of Vialta |
At the effective time of the merger, Fred S.L. Chan, the sole
officer and director of Victory, will become the sole officer
and director of the surviving corporation in the merger. It is
expected that the directors and executive officers of Vialta
will resign immediately prior to the effective time of the
merger. Without limiting the generality of the foregoing,
Mr. Pietri is expected to resign as Chief Executive Officer
and Mr. Scharninghausen is expected to resign as Chief
Financial Officer of the company. At the effective time of the
merger, the certificate of incorporation of the surviving
corporation will be amended and restated in its entirety to read
as set forth in Exhibit D to the merger agreement.
It is expected that, upon consummation of the merger, the
operations of Vialta will be conducted substantially as they
currently are being conducted; however, Vialta will not be
subject to the obligations and constraints, and the related
direct and indirect costs and personnel requirements, associated
with being a public company. Mr. Chan has advised Vialta
that he does not have any present plans or proposals that relate
to, or would result in, an extraordinary corporate transaction
following completion of the merger involving Vialtas
corporate structure or business, such as a merger,
reorganization, liquidation, relocation of any operations or
sale or transfer of a material amount of assets. It is expected,
however, that following the merger, Mr. Chan will
streamline management, continuously evaluate and review
Vialtas business and operations, and may develop new plans
and proposals that he considers appropriate to maximize the
value of Vialta. Victory Acquisition Corp., Mr. Chan and
the other participating stockholders reserve the right to make
any changes deemed appropriate in light of their evaluation and
review or in light of future developments.
|
|
|
Beneficial and Detrimental Effects |
A benefit of the merger to the participating stockholders is
that Vialta will be taken private and operated as a private
company. As a privately-held company, information concerning
Vialta and its operations, financial results and directors and
officers will no longer be available to competitors. Future
earnings and growth will be solely for the benefit of the
participating stockholders and not for the benefit of
Vialtas other current stockholders. The anticipated cost
savings of approximately $750,000 of annual expenses in the
first full fiscal year following Vialtas becoming a
private company plus an anticipated $1,050,000 in new costs
related to compliance with recent regulations relating to
accounting procedures and internal controls will benefit the
stockholders at that time and not the current public
stockholders. Following the merger, Vialta management and
certain other employees will be able to eliminate the time
devoted to matters that relate exclusively to Vialta being a
public company and will be able to focus on the business and
operations of the company. Detrimental effects of the merger to
the participating stockholders include the lack of liquidity for
Vialta
35
common stock following the merger, the risk that Vialta will
decrease in value following the merger, and the payment by
Vialta and Victory Acquisition Corp. of an aggregate of
approximately $ million in transaction costs and estimated
fees and expenses related to the merger. See SPECIAL
FACTORS Position of Vialta as to the Fairness of the
Merger to Vialtas Stockholders; Reasons for Recommending
the Approval of the Merger Agreement and the Merger,
SPECIAL FACTORS Position of Victory
Acquisition Corp., Fred S.L. Chan and the other Participating
Stockholders as to the Purpose and Reasons for the Merger
and SPECIAL FACTORS Estimated Fees and
Expenses of the Merger.
A benefit of the merger to Vialtas stockholders, other
than the participating stockholders, is the right to receive the
all-cash merger consideration of $0.36 per share for their
shares of Vialta common stock. The merger will enable the public
stockholders to dispose of their shares at a price the special
committee has determined to be a fair price, in spite of the
fact that Vialta common stock has generally experienced low
trading volumes and limited liquidity. The cash merger
consideration for the shares represents a 50% premium over the
average closing price of the common stock for the 30 days
prior to the March 28, 2005 announcement of
Mr. Chans proposal. The public stockholders will
additionally be able to sell their shares without paying the
usual transaction costs associated with open market sales and
will no longer have to bear the risk of any future losses or
decrease in Vialtas enterprise value. The detriments of
the merger to such stockholders are that they will cease to
participate in Vialtas future earnings and growth, if any,
and that the receipt of the payment for their shares in the
merger will be a taxable for federal income tax purposes. See
SPECIAL FACTORS Federal Income Tax
Consequences.
|
|
|
Effect on Participating Stockholders Interest in Net
Book Value and Net Earnings |
After consummation of the merger, the participating stockholders
will own all of the outstanding common stock of the surviving
corporation and will benefit from any future earnings or growth
of Vialta. After consummation of the merger, the participating
stockholders interest in the net book value and net
earnings of Vialta will be 100% based on their holdings of
Vialta outstanding capital stock. Vialtas stockholders,
other than the participating stockholders, will no longer hold
any direct or indirect equity interest in Vialta and therefore
will no longer own any interest in its net book value or net
earnings.
The Participating Stockholders Plans for Vialta
It is expected that, upon consummation of the merger, the
operations of Vialta will be conducted substantially as they
currently are being conducted; however, Vialta will not be
subject to the obligations and constraints, and the related
direct and indirect costs and personnel requirements, associated
with being a public company. Mr. Chan has advised Vialta
that he does not have any present plans or proposals that relate
to, or would result in, an extraordinary corporate transaction
following completion of the merger involving Vialtas
corporate structure or business, such as a merger,
reorganization, liquidation, relocation of any operations or
sale or transfer of a material amount of assets. It is expected,
however, that following the merger, Mr. Chan will
streamline management, continuously evaluate and review
Vialtas business and operations, and may develop new plans
and proposals that he considers appropriate to maximize the
value of Vialta. Mr. Chan and the other participating
stockholders reserve the right to make any changes deemed
appropriate in light of their evaluation and review or in light
of future developments.
Merger Financing
Based on the number of shares of Vialta common stock outstanding
on March 31, 2005 (other than shares held by the
participating stockholders) and vested options with an exercise
price less than $0.36 per share, Vialta believes that
$18,418,643 will be required to pay the merger consideration
(assuming no appraisal or dissenters rights are
exercised). It is expected that Vialta will use its cash on hand
to pay the merger consideration. It is a condition to
Victorys obligation to complete the merger that Vialta
have no less than $14.5 million in cash and cash
equivalents as of midnight on the day prior to the closing of
the merger. The participating stockholders are not required to
complete the merger if the minimum cash requirement is not met
by Vialta. However, if Vialta does not have adequate cash at the
effective time of the merger to fund the merger consideration,
Victory has agreed to fund the shortfall, up to a maximum of
$4 million. Because
36
Victory does not have any assets other than the shares of Vialta
common stock contributed pursuant to the contribution agreement,
Fred S.L. Chan has committed to fund the shortfall in accordance
with the terms of the additional contribution agreement. See
TRANSACTION AGREEMENTS Additional Contribution
Agreement. As of March 31, 2005, the company had over
$21 million in cash and cash equivalents. On April 28,
2005, the Company collected a note receivable of
$5.0 million that was previously full reserved due to
uncertainties regarding its collection.
Interests of Certain Persons in the Merger
In considering the recommendations of the board of directors,
you should be aware that certain of Vialtas executive
officers and directors have interests in the transaction that
are different from, or are in addition to, the interests of
Vialtas stockholders generally. The special committee and
the board of directors were aware of these potential or actual
conflicts of interest and considered them along with other
matters when they determined to recommend the merger. See
SPECIAL FACTORS Background of the Merger.
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|
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Victory Acquisition Corp. and the Participating
Stockholders; Equity Ownership in the Surviving Corporation
Following the Merger |
Mr. Chan is Vialtas Chairman and is the President,
Treasurer and Secretary of Victory Acquisition Corp. Upon
consummation of the merger, it is anticipated that Mr. Chan
will continue in the position of President, Treasurer and
Secretary of Vialta, the surviving corporation in the merger.
Mr. Chan and the other participating stockholders have
delivered 32,039,840 shares of Vialta common stock to
Victory in exchange for an equal number of shares of common
stock of Victory. See TRANSACTION AGREEMENTS
Stock Contribution Agreement. Upon consummation of the
merger, stock options held by Mr. Chan and any other
participating stockholder will be cancelled and Victory and the
participating stockholders will not receive any merger
consideration for their Vialta shares.
As of March 28, 2005, just prior to contributing their
shares to Victory in exchange for an equal number of shares of
Victory, the participating stockholders held of record Vialta
common stock as follows:
|
|
|
|
|
|
|
Number of Shares | |
|
|
| |
Fred S.L. Chan
|
|
|
5,044,744 |
|
Annie M.H. Chan
|
|
|
5,748,960 |
|
Annie M. H. Chan TR UA 07-25-95, The Annie M. H. Chan Living
Trust
|
|
|
8,042,932 |
|
Mee Sim Lee & Sung Kook Kim & Myong Shin Kim
TR UA DTD 12-21-87, The David Y. W. Chan Trust
|
|
|
974,410 |
|
Mee Sim Lee & Sung Kook Kim & Myong Shin Kim
TR UA DTD 12-21-87, The Edward Y. C. Chan Trust
|
|
|
974,408 |
|
Mee Sim Lee & Sung Kook Kim & Myong Shin Kim
TR UA DTD 3-16-92, The Michael Y. J. Chan Trust
|
|
|
334,939 |
|
Shiu Leung Chan & Annie M. H. Chan Gift
Trust Dated 11/20/92
|
|
|
2,119,447 |
|
Evershine XVI, L.P.
|
|
|
8,800,000 |
|
|
|
|
|
TOTALS:
|
|
|
32,039,840 |
|
|
|
|
|
The record ownership set forth in the preceding table does not
reflect beneficial ownership of the participating stockholders.
The participating stockholders have acted as a group in
contributing their Vialta shares to Victory in connection with
the proposed merger and may therefore be deemed as a group to
have beneficial ownership of the entire 32,039,840 shares
of Vialta stock held by Victory.
|
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|
Merger Consideration to be Received by Certain Directors
and Officers of Vialta Other than Mr. Chan |
Pursuant to the terms of the 2000 Directors Stock Option
Plan, the vesting of all options granted pursuant to the plan
will accelerate and the options will become exercisable in full
as of the date 10 days prior to the
37
consummation of the merger. In accordance with the terms of the
merger agreement, these options will then be cancelled and
converted into the right to receive an amount in cash equal to
(1) the excess, if any, of (x) the per share merger
consideration of $0.36 over (y) the applicable exercise
price per share of Vialta common stock subject to such Vialta
stock option, multiplied by (2) the number of shares of
Vialta common stock subject to such Vialta stock option (and for
which such Vialta stock option shall not theretofor have been
exercised). See THE MERGER AGREEMENT Treatment
of Stock Options. Only non-executive directors were
entitled to receive option grants under the plan.
In the summer of 2004, in connection with the announcement that
the company was exploring strategic alternatives, Vialta entered
into stay bonus agreements with certain key employees, including
Didier Pietri and William Scharninghausen. In accordance with
the agreement entered into with Mr. Pietri, all stock
options granted to him will accelerate and become fully vested
and immediately exercisable upon the effective date of the
merger. As referenced in the preceding paragraph, in accordance
with the terms of the merger agreement, these options will then
be cancelled and converted into the right to receive an amount
in cash equal to (1) the excess, if any, of (x) the
per share merger consideration of $0.36 over (y) the
applicable exercise price per share of Vialta common stock
subject to such Vialta stock option, multiplied by (2) the
number of shares of Vialta common stock subject to such Vialta
stock option (and for which such Vialta stock option shall not
theretofor have been exercised). In addition,
Messrs. Pietri and Scharninghausen were entitled to bonus
payments if they remained employed by the company through
certain dates, regardless of whether a transaction was
subsequently consummated. The dates specified in both agreements
have passed and the stay bonuses are currently due and payable.
Neither Mr. Pietri nor Mr. Scharninghausen will be
entitled to any additional bonus payments in connection with the
merger.
The following table reflects the total amount of cash that
Didier Pietri and the non-employee directors of Vialta (as
defined in Item 402(a)(3) of Regulation S-K), other
than Mr. Chan, will receive as merger consideration as of
March 31, 2005:
|
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|
|
|
|
|
|
|
|
|
|
|
Number of Shares | |
|
Total Merger | |
Name |
|
Position |
|
Beneficially Owned | |
|
Consideration | |
|
|
|
|
| |
|
| |
Didier Pietri(1)
|
|
Chief Executive Officer |
|
|
4,059,436 |
|
|
$ |
61,397 |
|
George Cain(2)
|
|
Director |
|
|
60,000 |
|
|
$ |
2,400 |
|
Michael Dubester(3)
|
|
Director |
|
|
60,000 |
|
|
$ |
2,400 |
|
Matthew Fong(4)
|
|
Director |
|
|
120,974 |
|
|
$ |
31,151 |
|
Herbert Chang(5)
|
|
Director |
|
|
56,000 |
|
|
$ |
0 |
|
|
|
(1) |
Includes options to acquire 4,000,000 shares of common
stock, of which all 916,667 unvested options will accelerate in
connection with the merger. Based on the merger consideration of
$0.36 per share, options to purchase 2,000,000 of
these shares are in the money. |
|
(2) |
Represents options to acquire 60,000 shares of common
stock, of which all 45,000 unvested options will accelerate in
connection with the merger. Based on the merger consideration of
$0.36 per share, options to purchase 20,000 of these
shares are in the money. |
|
(3) |
Represents options to acquire 60,000 shares of common
stock, of which all 45,000 unvested options will accelerate in
connection with the merger. Based on the merger consideration of
$0.36 per share, options to purchase 20,000 of these
shares are in the money. |
|
(4) |
Includes options to acquire 40,000 shares of common stock,
of which all 35,000 unvested options will accelerate in
connection with the merger. Based on the merger consideration of
$0.36 per share, options to purchase 40,000 of these
shares are in the money. |
|
(5) |
Includes options to acquire 56,000 shares of common stock,
of which all 9,000 unvested options will accelerate in
connection with the merger. Based on the merger consideration of
$0.36 per share, options to purchase none of these shares
are in the money. |
38
|
|
|
Indemnification and Insurance |
Pursuant to the merger agreement, Vialta, as the surviving
corporation in the merger, has agreed to indemnify, and advance
reasonable expenses to, the current and former directors and
officers of Vialta and its subsidiaries, referred to as the
indemnified parties, against all costs or expenses, judgments,
fines, losses, claims, damages, penalties or liabilities
incurred in connection with any acts or omissions occurring at
or prior to the time of the merger. All rights to
indemnification and exculpation from liability existing in favor
of any indemnified parties as provided under any contract,
applicable laws and/or the charters and bylaws of Vialta and its
subsidiaries as of the effective time of the merger are to
survive the merger with respect to events occurring up to the
time of the merger.
Vialta will purchase and the surviving corporation will maintain
(and not cancel or allow to lapse) directors and
officers liability insurance for not less than six years
following the merger covering all persons who are directors and
officers of Vialta and its subsidiaries covered by Vialtas
current directors and officers liability insurance
policies as of the effective time of the merger. It is expected
that such liability insurance will be obtained by Vialta in
advance of the effective time, at an anticipated cost of
approximately $400,000.
|
|
|
Compensation of the Special Committee |
In consideration of the expected time and other commitments that
would be required of special committee members generally and the
chairman of the special committee in particular, the board of
directors determined that the chairman of the special committee
would receive an annual fee of $25,000, payable quarterly at the
end of each fiscal quarter, which will accelerate on
consummation of the merger or an alternative acquisition
proposal (including a liquidation or dissolution). In addition,
each member of the special committee, including the chairman,
will receive $2,000 per meeting attended in person or
$1,000 per meeting attended via telephone as compensation
for their service on the special committee, up to a maximum of
$20,000 for the chairman and $18,000 for the other member, in
each case without regard to whether the special committee were
to recommend approval of the merger agreement or whether the
merger was consummated. Accordingly, Mr. Cain, chairman of
the special committee, will receive $45,000, and
Mr. Dubester, the other member of the special committee,
will receive $18,000 as compensation for their services on the
special committee. The members of the special committee are also
entitled to receive reimbursement for the expenses incurred in
connection with their service on the special committee.
Certain Fraudulent Transfer Risks
If Vialta is deemed to be insolvent at the effective time of the
merger or becomes insolvent as a result of the merger, the
transfer of funds representing the $0.36 per share price
payable to stockholders upon completion of the merger may be
deemed to be a fraudulent conveyance under
applicable law and therefore may be subject to claims of
creditors of Vialta. If such a claim is asserted by the
creditors of Vialta following the merger, there is a risk that
persons who were stockholders at the effective time of the
merger will be ordered by a court to return to Vialta all or a
portion of the $0.36 per share in cash they received upon
the completion of the merger.
Based upon the projected capitalization of Vialta at the time of
the merger and projected results of operations and cash flow
following the merger, and managements discussions with the
board of directors relating to such matters, the board of
directors of Vialta does not believe that Vialta and its
subsidiaries, on a consolidated basis, will be insolvent or
otherwise left with unreasonably small capital immediately after
giving effect to the merger.
Plans for Vialta if the Merger is Not Completed
It is expected that, if the merger is not completed, the current
management of Vialta, other than Didier Pietri (who has
indicated his desire to resign from Vialta to pursue other
business opportunities) and possibly William Scharninghausen,
under the direction of such members of the board of directors
who decide to remain in office, will manage Vialta as an ongoing
business while continuing to explore strategic alternatives to
maximize stockholder value. It is likely under such
circumstances that the company will engage a new
39
independent accounting firm. The company may determine to
effectuate a reverse stock split which would require stockholder
approval under applicable law, or to liquidate the company. If
the merger agreement is not approved by stockholders, or if the
merger is not consummated for any other reason, there can be no
assurance that any other transaction acceptable to Vialta will
be offered or that Vialtas business and operations will
not be adversely affected. In addition, if the merger is not
completed, depending upon the circumstances, Vialta may be
required to reimburse certain expenses of Victory. See
SPECIAL FACTORS Estimated Fees and Expenses of
the Merger.
Estimated Fees and Expenses of the Merger
The fees and expenses that Vialta and Victory expect to incur in
connection with the consummation of the merger and the related
transactions are set forth in the tables below:
|
|
|
|
|
|
Fees and Expenses of Vialta |
|
Estimated Amount | |
|
|
| |
Financial advisory fees and expenses
|
|
$ |
|
|
Legal and accounting fees and expenses
|
|
|
|
|
Special committee fees and expenses
|
|
|
|
|
Printing and mailing fees and expenses
|
|
|
|
|
SEC filing fees
|
|
|
|
|
Miscellaneous
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Fees and Expenses of Victory Acquisition Corp. |
|
Estimated Amount | |
|
|
| |
Legal and accounting fees and expenses
|
|
$ |
|
|
Miscellaneous
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
|
|
|
|
|
|
Regulatory Approvals and Requirements
In connection with the merger, Vialta will be required to make
certain filings with, and comply with certain laws of, various
federal and state governmental agencies, including filing a
certificate of merger with the Secretary of State of the State
of Delaware in accordance with Delaware law after the approval
and adoption of the merger agreement and the merger by
Vialtas stockholders.
It is currently expected that no regulatory approvals will be
required in order to complete the merger.
Federal Income Tax Consequences
The following discussion summarizes the material
U.S. federal income tax consequences of the merger that are
generally applicable to United States holders (as defined below)
of Vialta common stock other than Victory and the participating
stockholders. This discussion is based on currently existing
provisions of the Code, existing and proposed Treasury
Regulations promulgated under the Code, and current
administrative rulings and court decisions, all of which are
subject to change, possibly with retroactive effect. This
discussion does not address state, local or foreign tax
consequences that may be applicable to the parties specified in
the first sentence of this paragraph, and such parties should
consult their own tax advisors with respect to such consequences.
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United States Holders Other than the Participating
Stockholders |
For purposes of this discussion, a United States
holder means a holder that is (1) a citizen or
resident of the United States for federal income tax purposes;
(2) a corporation (or other entity treated as an
association taxable as a corporation for U.S. federal
income tax purposes) created or organized in or under the laws
of the United States or any state; (3) an estate, the
income of which is subject to U.S. federal income
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taxation regardless of its source; or (4) a trust if
(a) a U.S. court is able to exercise primary
supervision over the administration of the trust and one or more
U.S. persons have authority to control all substantial
decisions of the trust, or (b) the trust has a valid
election in effect under applicable Treasury Regulations to be
treated as a U.S. person.
The following discussion applies only to United States holders
of Vialta common stock who hold such shares as capital assets
and did not acquire shares of Vialta common stock pursuant to
the exercise of employee stock options or other compensation
arrangements (and does not, except as specifically set forth
below, apply to the exchange or cancellation of employee stock
options, including the receipt of cash therefor).
Non-U.S. holders are advised to consult their own tax
advisors regarding the tax consequences of the proposed merger.
This discussion does not address tax issues relevant to certain
classes of United States holders who may be subject to special
treatment under the Code, such as banks, other financial
institutions, insurance companies, tax-exempt investors,
regulated investment companies, real estate investment trusts,
persons subject to the alternative minimum tax, persons who hold
their Vialta common stock as part of a position in a
straddle or as part of a hedging or
conversion transaction, persons who are deemed to
sell their Vialta common stock under the constructive sale
provisions of the Code, traders in securities that elect to use
a mark-to-market method of accounting for their securities
holdings, persons that have a functional currency other than the
U.S. dollar, expatriates, S corporations, entities
classified as partnerships for U.S. federal income tax
purposes or stockholders who hold Vialta common stock as
dealers. This discussion also does not address tax issues
relevant to United States holders who are not considered to have
disposed of all shares of Vialta because of the application of
the attribution rules of Section 318 of the Code. All such
United States holders should consult their own tax advisors
concerning the U.S. federal income tax consequences of the
merger to their particular situations. Furthermore, if a
partnership holds Vialta common stock, the tax treatment of a
partner will generally depend on the status of the partner and
the tax treatment of the partnership. A partner of a partnership
holding Vialta common stock should consult its tax advisors. The
federal income tax treatment of a stockholder who exercises
statutory dissenters or appraisal rights is not discussed
in this section. Any stockholder considering exercising
statutory dissenters or appraisal rights should consult
with his or her own tax advisor.
Tax matters are very complex and the tax consequences of the
merger to you will depend on the facts of your particular
situation. You should consult your tax advisor for a full
understanding of the tax consequences of the merger to you,
including the federal, state, local and foreign tax consequences
of the merger.
For federal income tax purposes, the cash received by a United
States holder as a result of the merger (including any cash
received in connection with the exercise of dissenters or
appraisal rights) should be deemed to be received from Vialta
pursuant to a redemption of the shares held by such United
States holder. If the deemed redemption of the shares held by a
particular United States holder qualifies as an
exchange under section 302(b) of the Code (as
described below), the United States holder will recognize gain
or loss for U.S. federal income tax purposes equal to the
difference, if any, between the holders adjusted tax basis
in the shares and the amount of cash received. If the United
States holder holds Vialta common stock as a capital asset, any
gain or loss should generally be a capital gain or loss. If the
United States holder has held the shares for more than
1 year, any gain or loss should generally be a long-term
gain or loss. The deductibility of capital losses is subject to
limitations.
If the deemed redemption of the shares held by a particular
United States holder does not qualify as an exchange
under section 302(b) of the Code (as described below), then
the cash received by the holder will be treated as a dividend,
provided that Vialta has sufficient accumulated or current
earnings and profits. Any such dividend income received by a
United States holder will be treated as ordinary income for
federal income tax purposes, and the entire amount of the cash
received (and not merely the excess of the cash received over
the holders adjusted tax basis in the shares) will be
subject to tax. To the extent this portion of the redemption
proceeds constitutes qualified dividend income under
Section 1(h)(11) of the Code, it will be taxable to the
stockholder at special 5% and 15% tax rates applicable to such
income. If the redemption proceeds do not constitute
qualified dividend income then such dividend income
will be taxable to the stockholder as regular ordinary income
(at federal tax rates as high as 35%). In order to constitute
qualified
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dividend income eligible for the reduced tax rates, a
number of requirements must be met, including that the
stockholders holding period for his or her shares must be
at least 60 days as of the date on which the merger closes.
Stockholders are urged to consult their tax advisors regarding
the applicability of the reduced tax rates to the portion of the
redemption proceeds that is treated as a dividend.
A United States holders disposition of shares pursuant to
the merger will qualify as an exchange under
section 302(b) of the Code if the disposition qualifies as
a complete redemption of the United States
holders shares. A United States holders disposition
of shares pursuant to the merger will result in a complete
redemption if either: (i) the holder does not own,
directly or constructively, any shares of Vialta stock after the
merger; or (ii) the holder does not own directly any shares
of Vialta stock after the merger and, with respect to any
constructively owned shares, the holder is eligible to (and does
in fact) waive (pursuant to section 302(c)(2) of the Code)
the attribution of such shares to the holder. For the purpose of
determining whether a redemption qualifies as an
exchange under section 302(b) of the Code, a
United States holder must take into account not only the shares
that the holder actually owns but also any shares that the
holder is deemed to own constructively under the attribution
rules of section 318 of the Code. For example, under these
attribution rules, an individual is deemed to own constructively
any shares held by his or her spouse, parents, children and
grandchildren, and is deemed to own constructively shares held
by certain entities (such as corporations, partnerships,
estates, and trusts) in which he or she has an equity interest.
Furthermore, an individual is deemed to own any shares that he
or she has the right to acquire by the exercise of an option,
regardless of when the option may be exercised.
If Victory contributes funds to cover a shortfall, a portion of
the consideration received may be considered proceeds from the
sale of shares as opposed to a redemption. In such an instance,
the United States holder will recognize gain or loss for
U.S. federal income tax purposes equal to the difference,
if any, between the holders adjusted tax basis in the
shares considered sold and the cash considered to have been
received with respect to such sale. If the United States holder
holds Vialta common stock as a capital asset, any gain or loss
should generally be a capital gain or loss. If the United States
holder has held the shares for more than 1 year, any gain
or loss should generally be a long-term gain or loss. The
deductibility of capital losses is subject to limitations.
United States holders of Vialta common stock may be subject to
backup withholding on cash payments received in exchange for
shares in the merger or received upon the exercise of
dissenters rights. Backup withholding generally will apply
only if the stockholder fails to furnish a correct social
security number or other taxpayer identification number, or
otherwise fails to comply with applicable backup withholding
rules and requirements. Corporations generally are exempt from
backup withholding. Stockholders should complete and sign the
substitute Form W-9 that will be part of the letter of
transmittal to be returned to the paying agent to provide the
information and certification necessary to avoid backup
withholding.
Anticipated Accounting Treatment of the Merger
The merger will be accounted for under the purchase method of
accounting, under which the total consideration paid in the
merger will be allocated among Vialtas consolidated assets
and liabilities based on the fair values of the assets acquired
and liabilities assumed.
Appraisal and Dissenters Rights
Assuming the consummation of the merger, stockholders who do not
vote their shares of Vialta common stock in favor of the merger
may, under certain conditions, become entitled to be paid the
fair value of their shares of common stock in lieu of receiving
the merger consideration of $0.36 per share. Stock option
holders will not be entitled to any such rights in connection
with the merger by virtue of holding such stock options.
The merger agreement provides that shares of Vialta common stock
outstanding immediately prior to the effective time of the
merger that have not been voted in favor of the merger will not
be converted into the right to receive $0.36 per share
pursuant to the merger agreement if the holder of such shares
validly exercises and perfects or does not lose or waive the
benefit of statutory appraisal rights with respect to such
shares. Holders of such shares may waive dissenters rights
and receive $0.36 per share merger consideration.
Notwithstanding
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the foregoing, such shares will be automatically converted into
the right to receive $0.36 per share pursuant to the merger
agreement on the same basis as all other shares of Vialta common
stock are converted in the merger when and if the stockholder
withdraws his or her demand for appraisal and waives his or her
dissenters rights or otherwise become legally ineligible
to exercise appraisal or dissenters rights.
Because Vialta is a Delaware corporation, the availability of
dissenting stockholders appraisal rights is determined by
Delaware law, which is summarized below. However, because Vialta
transacts a substantial amount of its business in California,
stockholders also may have rights as dissenting stockholders
under California law as a result of the merger. Because of the
potential applicability of California law, summaries for both
Delaware and California law regarding dissenting stockholders or
stockholder rights are provided below.
Under both Delaware and California law, stockholders who vote
in favor of the merger will have waived their rights as a
dissenting stockholder or stockholder. You are urged to consult
your legal advisor if you are considering exercising appraisal
rights or dissenters rights.
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Appraisal rights under Delaware law |
Under Section 262 of the Delaware General Corporation Law
(DGCL), stockholders who do not vote in favor of or
consent to the approval and adoption of the merger agreement
will be entitled to elect to have the fair value of their shares
judicially determined as of the date on which the proposed
merger is completed.
Stockholders must follow the required procedures set forth in
Section 262 of the DGCL exactly or any appraisal rights may
be lost.
The following discussion is not a complete statement of the law
pertaining to appraisal rights under the DGCL and is qualified
in its entirety by the full text of Section 262, which is
provided as Appendix E to this proxy statement. All
references in Section 262 and in this summary to a
stockholder are to the record holder of the shares
of Vialta common stock as to which appraisal rights are
asserted. Stockholders who have a beneficial interest in shares
of Vialta common stock held of record in the name of another
person, such as a broker or nominee, must act promptly to cause
the record holder to follow properly the steps summarized below
in a timely manner to perfect their appraisal rights.
Under Section 262, where a proposed merger is to be
submitted for approval at a meeting of stockholders, as in the
case of the special meeting, the company must notify each of its
stockholders entitled to appraisal rights that such appraisal
rights are available and include in such notice a copy of
Section 262, not less than 20 days prior to the
meeting. This proxy statement is that notice, and the applicable
statutory provisions of the DGCL are attached to this proxy
statement as Appendix E. Please note that the 20-day time
period begins on the date the notice was mailed, not on the date
it is received. Stockholders who wish to exercise appraisal
rights or wish to preserve the right to do so, should review
carefully Section 262 and are urged to consider seeking
advice of legal counsel, since failure to comply fully with the
procedures of that Section will result in the loss of appraisal
rights.
General requirements. Stockholders who wish to exercise
the right to dissent from the merger and demand appraisal under
Section 262 of the DGCL, must be satisfy each of the
following conditions:
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Written demand for appraisal. Stockholders must deliver
to Vialta at 48461 Fremont Boulevard, Fremont, California 94538
a written demand for appraisal of their shares before the vote
on the merger at the special meeting (scheduled to be held
on ,
2005), which demand will be sufficient if it includes the
stockholders name, mailing address, number of shares of
Vialta common stock covered by the demand and notice that he or
she intends to demand the appraisal. |
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Refrain from voting for the merger. Stockholders must not
vote in favor of the merger agreement. Because a proxy that does
not contain voting instructions will, unless revoked, be voted
in favor of the merger agreement, stockholders who vote by proxy
and wish to exercise appraisal rights must mark their proxy to
include their vote against the merger agreement or abstention
from voting on the merger agreement. You are not required to
vote against the merger to preserve dissenters rights. |
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Continuous ownership of Vialta shares. Stockholders must
continuously hold their shares from the date of making their
demand through the effective time of the merger. Stockholders
who hold shares of common stock on the date the written demand
for appraisal is made but thereafter sell, transfer or otherwise
dispose of their shares prior to the effective time of the
merger, will lose any right to appraisal in respect of such
shares. |
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Notice. Within 10 days after the effective time of
the merger, Vialta must notify each stockholder who is entitled
to appraisal rights of the date that the merger became effective. |
Neither voting in person or by proxy against, abstaining from
voting on nor failing to vote on the proposal to approve and
adopt the merger agreement will constitute a written demand for
appraisal within the meaning of Section 262. The written
demand for appraisal must be in addition to and separate from
any such proxy or vote.
Only a holder of record of shares of Vialta common stock is
entitled to assert appraisal rights for the shares of common
stock registered in that holders name. A demand for
appraisal should be executed by or on behalf of the stockholder
of record, fully and correctly, as that stockholders name
appears on such stock certificates, should specify the
stockholders name and mailing address, the number of
shares of common stock owned and that the stockholder intends
thereby to demand appraisal of the stockholders common
stock.
If shares are owned of record in a fiduciary capacity, such as
by a trustee, guardian or custodian, execution of the demand
must be made by or on behalf of the record owner. If shares are
owned of record by more than one person as in a joint tenancy or
tenancy in common, the demand must be executed by or on behalf
of all owners. An authorized agent, including an agent for one
or more joint owners, may execute a demand for appraisal on
behalf of a stockholder of record; however, the agent must
identify the record owner or owners and expressly disclose the
fact that, in executing the demand, the agent is acting as agent
for the record owner or owners.
A record holder such as a broker who holds shares as nominee for
several beneficial owners may exercise appraisal rights with
respect to the shares held for one or more beneficial owners
while not exercising those rights with respect to the shares
held for one or more other beneficial owners; in such case, the
written demand should set forth the number of shares as to which
appraisal is sought. Where no number of shares is expressly
mentioned, the demand will be presumed to cover all shares held
in the name of the record owner. Stockholders who hold shares in
brokerage accounts or other nominee forms and wish to exercise
appraisal rights, are urged to consult with their broker to
determine the appropriate procedures for the making of a demand
for appraisal by such a nominee.
Stockholders should address the written demand to Vialta, Inc.,
48461 Fremont Boulevard, Fremont, California 94538, Attention:
Director of Finance.
Within 120 days after the effective time of the merger, but
not thereafter, either Vialta or any stockholder who has
complied with the requirements of Section 262 may file a
petition in the Delaware Chancery Court demanding a
determination of the fair value of all shares held by
stockholders who have asserted appraisal rights. Vialta is under
no obligation to and has no present intent to file a petition
for appraisal, and stockholders should not assume that the
company will file such a petition or will initiate any
negotiations with respect to the fair value of the shares.
Within 120 days after the effective time of the merger, any
stockholder who has complied with the provisions of
Section 262 to that point in time will be entitled to
receive from Vialta, as the company surviving the merger, upon
written request, a statement setting forth the aggregate number
of shares of common stock not voted in favor of the merger
agreement and with respect to which demands for appraisal have
been received by Vialta and the aggregate number of holders of
such shares. Vialta must mail this statement to the stockholder
within 10 days after receipt of the request or within
10 days after expiration of the period for delivery of
demands for appraisal under Section 262, whichever is later.
A stockholder timely filing a petition for appraisal with the
Delaware Court of Chancery must deliver a copy to Vialta, who
will then be obligated within 20 days to file in the
Delaware Court of Chancery a duly
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verified list containing the names and addresses of all
stockholders who have demanded appraisal of their shares. After
notice to the stockholders, the Delaware Court of Chancery is
empowered to conduct a hearing on the petition to determine
which stockholders are entitled to appraisal rights. The
Delaware Court of Chancery may require stockholders who have
demanded an appraisal for their shares and who hold stock
represented by certificates to submit their certificates to the
Register in Chancery for notation thereon of the pendency of the
appraisal proceedings, and if any stockholder fails to comply
with the requirement, the Delaware Court of Chancery may dismiss
the proceedings as to that stockholder.
After determining the stockholders entitled to an appraisal, the
Delaware Court of Chancery will appraise the fair value of their
shares, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a
fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. The costs of the action may be
determined by the Delaware Chancery Court and taxed upon the
parties as the Delaware Chancery Court deems equitable. Upon
application of a stockholder asserting appraisal rights, the
Delaware Chancery Court may also order that all or a portion of
the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable
attorneys fees and the fees and expenses of experts, be
charged pro rata against the value of all of the shares entitled
to appraisal.
Stockholders who are considering seeking appraisal should be
aware that the fair value of their shares as determined under
Section 262 could be more than, the same as or less than
the $0.36 per share they would receive pursuant to the
merger agreement if they did not seek appraisal of your shares.
Stockholders should also be aware that investment banking
opinions are not opinions as to fair value under
Section 262. Moreover, Vialta does not anticipate offering
more than the merger consideration to any stockholder exercising
appraisal rights and reserves the right to assert, in any
appraisal proceeding, that, for purposes of Section 262,
the fair value of a share of its common stock is less than the
merger consideration. In determining fair value and, if
applicable, a fair rate of interest, the Delaware Chancery Court
is permitted to take into account all relevant factors,
including market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts that
could be ascertained as of the date of the merger that throw any
light on future prospects of the merged corporation.
All shares of Vialta common stock will be cancelled on
consummation of the merger, including shares held by dissenting
stockholders. Any stockholder who has duly demanded an appraisal
in compliance with Section 262 will not, from and after the
effective time of the merger, be entitled to vote such
stockholders shares of common stock subject to such demand
for any purpose or to receive payment of dividends or other
distributions on those shares (except dividends or other
distributions payable to holders of record of shares as of a
record date prior to the effective time of the merger), or
receive payment of any consideration provided for in the merger
agreement.
Stockholders may withdraw their demand for appraisal and accept
the $0.36 per share merger consideration by delivering to
Vialta a written withdrawal of demand for appraisal and an
acceptance of the merger consideration, except that:
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any attempt to withdraw such demand made more than 60 days
after the effective time of the merger will require
Vialtas written approval, and |
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no appraisal proceeding in the Delaware Chancery Court will be
dismissed as to any stockholder without the approval of the
Delaware Chancery Court, and that approval may be conditioned
upon such terms as the Delaware Chancery Court deems just. |
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Dissenters rights under California law |
A stockholders dissent of the merger may also be governed
by specific legal provisions contained in Chapter 13 of the
California General Corporation Law (CGCL). The
following summary of the provisions of Chapter 13 of the
CGCL is not intended to be a complete statement of such
provisions and is qualified in its entirety by reference to the
full text of Chapter 13 of the CGCL, a copy of which is
attached as Appendix F to this proxy statement and is
incorporated herein by reference.
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Stockholders must follow the required procedures set forth in
Chapter 13 of the CGCL exactly or any dissenters
rights may be lost.
Under Chapter 13 of the CGCL, if the merger is consummated,
and a stockholder properly exercises dissenters rights,
his or her shares of common stock will not be converted into the
right to receive merger consideration of $0.36 per share,
but instead, will be converted into the right to receive in cash
the fair value of those shares determined as of March 28,
2005, the day before the announcement of the terms of the merger
and excluding any appreciation or depreciation in consequence of
the merger.
General requirements. Stockholders who wish to exercise
the right to dissent from the merger under Chapter 13 of
the CGCL must satisfy each of the following conditions:
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Refrain from voting for the merger. Stockholders must not
vote in favor of the merger agreement and the merger. Because a
proxy that does not contain voting instructions will, unless
revoked, be voted in favor of the merger agreement, stockholders
who vote by proxy and wish to exercise appraisal rights must
vote against the merger agreement and the merger or abstain from
voting on the merger agreement and the merger. You are not
required to vote against the merger to preserve dissenters
rights. |
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Notice and declaration of fair value. If the merger
agreement and the merger are approved by a sufficient number of
votes, in person or by proxy, Vialta will, within 10 days
after such approval, mail to any stockholder who may have a
right to require the company to purchase such stockholders
shares of Vialta common stock for fair value under
Chapter 13 of the CGCL, or the Dissenting
Stockholders, a notice that the required stockholder
approval of the merger agreement was obtained, accompanied by a
copy of Chapter 13 of the CGCL. The notice of approval will
set forth the price that Vialta has determined represents the
fair value of any dissenting shares (which shall constitute an
offer to purchase such dissenting shares at such stated price)
and will set forth a brief description of the procedures to be
followed by the Dissenting Stockholders who wish to exercise
their dissenters rights. |
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Written demand of appraisal. Within 30 days after
the date on which the notice of approval was mailed, Dissenting
Stockholders are required to make a written demand to Vialta to
purchase dissenting shares for a cash payment of their fair
value. Written demand is required by law to contain a statement
concerning the number of shares of Vialta common stock held by
the Dissenting Stockholder and the amount that he or she claims
to be the fair value of these shares as of March 28, 2005.
The statement of fair value in the Dissenting Stockholders
written demand will constitute such stockholders offer to
sell these shares at the price identified in the demand. Such
demand must be addressed to Vialta, Inc., 48461 Fremont
Boulevard, Fremont, California 94538, Attention: Secretary. If
the price contained in the notice of approval is acceptable to
the stockholder, he or she may demand that price. This would
constitute an acceptance of Vialtas offer to purchase the
stock at the price stated in the notice of approval.
Stockholders may not withdraw their dissent or demand for
payment unless Vialta consents to such withdrawal. |
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Surrender of stock certificate(s). Within 30 days
after the notice of approval was mailed, Dissenting Stockholders
also must submit the certificates representing their dissenting
shares (or if their dissenting shares are uncertificated, a
written notice of the number of shares, which the shareholder
demands that Vialta purchase) to Vialta, Inc., 48461 Fremont
Boulevard, Fremont, California 94538, Attention: Secretary. The
certificates representing dissenting shares will be stamped or
endorsed with a statement that the shares are dissenting shares
of common stock. |
If Vialta and a stockholder agree upon the price to be paid for
dissenting shares, upon surrender of the certificates
representing the dissenting shares, that price (together with
interest thereon at the legal rate on judgments from the date of
the agreement between Vialta and such stockholder) is required
by law to be paid to you within 30 days after such
agreement or within 30 days after any statutory or
contractual conditions to the merger are satisfied, whichever is
later, subject to surrender of stock certificates representing
the dissenting shares.
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If Vialta and a stockholder disagree as to the price for
dissenting shares or disagree as to whether these shares are
entitled to be classified as dissenting shares, a Dissenting
Stockholder may, within six months after the notice of approval
is mailed, file a complaint in the California Superior Court of
the proper county requesting the court to make such
determination or, alternatively, he or she may intervene in any
pending action brought by another Dissenting Stockholder. Costs
of such an action (including compensation of appraisers) are
required to be assessed as the court considers equitable but
must be assessed against Vialta if the appraised value
determined by the court exceeds the price offered.
The court action to determine the fair value of dissenting
shares will be suspended if litigation is instituted to test the
sufficiency or regularity of the votes of the stockholders in
approving the merger (assuming such an action may be maintained
under California law). Furthermore, no Dissenting Stockholder
who has demanded payment of cash for his or her shares under
Chapter 13 of the CGCL shall have any right to attack the
validity of the merger, or to have the merger set aside or
rescinded, except in an action to test whether the votes
required to authorize or approve the merger have been legally
and validly obtained in favor of the merger (assuming such an
action may be maintained under California law). If a stockholder
institutes any action to attack the validity of the merger, or
to have the merger set aside or rescinded (assuming such an
action may be maintained under California law), the stockholder
shall not thereafter have any right to demand payment of cash
for his or her shares pursuant to Chapter 13 of the CGCL.
In any action to attack the validity of the merger, or to have
the merger set aside or rescinded (assuming such an action may
be maintained under California law), if it is determined that
Victory controls Vialta or that the parties to the merger are
under common control, the participating stockholders may have
the burden of proving that the transaction is just and
reasonable as to the shareholders of Vialta.
Dissenting shares may lose their status and a Dissenting
Stockholders right to demand payment will terminate, among
other reasons, if:
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the merger is abandoned; |
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a stockholder transfers his or her shares of common stock before
submitting them for endorsement; |
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Vialta and the Dissenting Stockholder do not agree on the status
of the shares as dissenting shares or on the price of such
shares and the Dissenting Stockholder fails to file suit against
Vialta or intervene in a pending action within six months
following the date on which the notice of approval was mailed; |
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a stockholder withdraws his or her demand for the purchase of
the dissenting shares of common stock with Vialtas
consent; or |
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a stockholder fails to comply with the procedures for written
demand of appraisal and surrender of stock certificates set
forth in Chapter 13 of the CGCL. |
Stockholders who fail to comply strictly with these
procedures will lose their dissenters rights.
Consequently, stockholders who wish to exercise dissenters
rights are strongly urged to consult a legal advisor.
THE SPECIAL MEETING
Date, Time and Place
The special meeting will be held
on ,
2005 at a.m., local time, at
the Fremont Marriott, 46100 Landing Parkway, Fremont, CA 94538.
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Matters to be Considered
At the special meeting, stockholders will be asked to:
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consider and vote upon a proposal to approve and adopt the
merger agreement and approve the merger; |
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consider and vote upon a proposal to adjourn the special meeting
if necessary to permit further solicitation of proxies in the
event there are not sufficient votes at the time of the special
meeting to approve the merger agreement and the merger; and |
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transact such other business as may properly come before the
special meeting or any adjournments or postponements of the
special meeting. |
Record Date; Voting Rights
Vialta has
fixed ,
2005 as the record date for the special meeting. Only holders of
record of Vialta common stock as of the close of business on the
record date are entitled to notice of, and to vote at, the
special meeting and any adjournment or postponement thereof. As
of the close of business on the record date, there
were shares
of Vialta common stock issued and outstanding held by
approximately holders
of record.
Quorum
The presence in person or by proxy of a majority of the votes
entitled to be cast by the common stock will constitute a quorum
at the special meeting.
Any shares of Vialta common stock held in treasury by Vialta or
by any of its subsidiaries are not considered to be outstanding
on the record date or otherwise entitled to vote at the special
meeting for purposes of determining a quorum.
Shares represented by proxies reflecting abstentions and
properly executed broker non-votes will be counted as present
and entitled to vote for purposes of determining a quorum. A
broker non-vote arises when a bank, broker or other nominee
holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have
discretionary voting power with respect to that proposal and has
not received voting instructions from the beneficial owner.
Required Vote
Stockholder approval of the merger and approval and adoption of
the merger agreement requires the affirmative vote of at least a
majority of the shares outstanding as of the record date for the
special meeting. It is not required that a majority of
stockholders other than the participating stockholders vote for
the approval and adoption of the merger agreement and the merger.
Subject to the terms of a voting agreement, Victory committed to
vote in favor of the merger agreement shares beneficially owned
by it representing approximately 39% of the votes entitled to be
cast. See SPECIAL FACTORS Voting
Agreement for a description of the voting agreement.
Vialtas directors and executive officers other than
Mr. Chan own approximately 5% of Vialtas outstanding
common stock, and have indicated to Vialta their intention to
vote in favor of approval of the merger agreement and the merger.
The vote required in order for stockholders to approve the
proposal to adjourn the special meeting if necessary to permit
further solicitation of proxies in the event there are not
sufficient votes at the time of the special meeting to approve
the merger agreement is the affirmative vote of a majority of
the shares of stock present or represented at the meeting and
entitled to vote, even if less than a quorum.
In the case of the proposal to approve and adopt the merger
agreement, a failure to vote, an abstention or a broker non-vote
will have the same effect as a vote AGAINST the proposal.
In the case of the proposal to adjourn the special meeting if
necessary to permit further solicitation of proxies in the event
there are not sufficient votes at the time of the special
meeting to approve the merger agreement, a failure to vote or a
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broker non-vote will have no effect on the outcome of the voting
but an abstention will have the same effect as a
vote AGAINST adjournment.
If the special meeting is adjourned or postponed for any reason,
at any subsequent reconvening of the special meeting, all
proxies will be voted in the same manner as they would have been
voted at the original convening of the meeting (except for any
proxies that have been revoked or withdrawn).
Stockholder approval of the merger by a majority of the
outstanding shares of Victory Acquisition Corp. was required and
has already been obtained.
How Shares are Voted; Proxies; Revocation of Proxies
You may vote by attending the special meeting and voting in
person by ballot, by completing the enclosed proxy card and then
signing, dating and returning it in the postage pre-paid
envelope provided. Submitting a proxy now will not limit your
right to vote at the special meeting if you decide to attend in
person. If your shares are held of record in street
name by a broker, nominee, fiduciary or other custodian
and you wish to vote in person at the special meeting, you must
obtain from the record holder a proxy issued in your name.
Shares represented by a properly executed proxy will be voted at
the special meeting and, when instructions have been given by
the stockholder, will be voted in accordance with those
instructions. If you submit a proxy without giving voting
instructions, the persons named as proxies on the proxy card
will vote your shares FOR the approval and adoption of the
merger agreement and the merger and FOR the proposal to adjourn
the special meeting if necessary to permit further solicitation
of proxies in the event there are not sufficient votes at the
time of the special meeting to approve the merger agreement and
the merger.
As of the date of this proxy statement, Vialta does not expect a
vote to be taken on any matters at the special meeting other
than the proposal to approve and adopt the merger agreement and
the merger and the proposal to adjourn the special meeting if
necessary to permit further solicitation of proxies in the event
there are not sufficient votes at the time of the special
meeting to approve the merger agreement and the merger. A
properly executed proxy gives the persons named as proxies on
the proxy card authority to vote in their discretion with
respect to any other matters that properly come before the
special meeting.
You may revoke your proxy at any time before it is actually
voted by submitting to the Secretary of the company a written
notice of revocation, by delivering a duly executed proxy
bearing a later date or by attending the special meeting and
voting in person. Please note, however, that if your shares are
held of record by a broker, bank or other nominee and you wish
to vote at the special meeting, you must bring to the meeting a
proxy from the broker, bank or other nominee authorizing you to
vote the shares. Attendance at the special meeting will not, by
itself, revoke a proxy. If you have given voting instructions to
a broker, nominee, fiduciary or other custodian that holds your
shares in street name, you may revoke those
instructions by following the directions given by the broker,
nominee, fiduciary or other custodian.
Solicitation Of Proxies
This proxy statement is being furnished in connection with the
solicitation of proxies by Vialtas board of directors.
Vialta will bear the costs of soliciting proxies. These costs
include the preparation, assembly and mailing of the proxy
statement, the notice of the special meeting of stockholders and
the enclosed proxy, as well as the cost of forwarding these
materials to the beneficial owners of Vialta common stock.
Vialtas directors, officers and regular employees may,
without compensation other than their regular compensation,
solicit proxies by mail, e-mail or telephone, in person or via
the Internet. Vialta will also reimburse brokerage firms,
custodians, nominees, fiduciaries and others for expenses
incurred in forwarding proxy material to the beneficial owners
of Vialta common stock.
Appraisal or Dissenters Rights
Stockholders who do not vote in favor of approval of the merger
agreement and who otherwise comply with the procedures for
perfecting dissenters or appraisal rights under the
applicable statutory provisions of Delaware or California law,
as applicable, summarized elsewhere in this proxy statement may
demand
49
payment of the fair value of their shares in cash in
connection with the consummation of the merger. See
SPECIAL FACTORS Appraisal and Dissenters
Rights.
Adjournment
If the special meeting is adjourned to a different place, date
or time, Vialta need not give notice of the new place, date or
time if the meeting is not adjourned for more than 30 days
and if the new place, date or time is announced at the meeting,
unless a new record date is or must be set for the adjourned
meeting.
Attending the Special Meeting
In order to attend the special meeting in person, you must be a
stockholder of record on the record date, hold a valid proxy
from a record holder or be an invited guest of Vialta. You will
be asked to provide proper identification at the registration
desk on the day of the meeting or any adjournment of the meeting.
PARTIES INVOLVED IN THE PROPOSED TRANSACTION
Information about Vialta
Vialta is a Delaware corporation engaged in the business of
designing and marketing consumer electronics products. The
address and telephone number of the principal executive offices
of Vialta are 48461 Fremont Boulevard, Fremont, California
94538, Telephone: (510) 870-3088.
Additional information about Vialta is contained in its Annual
Report on Form 10-K for the fiscal year ended
December 31, 2004, which is attached hereto as Annex I
and its Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2005, which is attached hereto as
Annex J.
Information as of March 31, 2005 respecting Vialtas
executive officers (other than Mr. Chan, about whom
information is provided below under
Information about Victory and the
Participating Stockholders) and directors is set forth
below. All of the executive officers and directors identified
below are citizens of the United States. During the last five
years, none of the executive officers and directors identified
below has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or was party to any
judicial or administrative proceeding (except for matters that
were dismissed without sanction or settlement) that resulted in
a judgment, decree or final order enjoining the person from
future violations of, or prohibiting activities subject to,
federal or state securities laws, or a finding of any violation
of federal or state securities laws. The address for each of the
executive officers and directors is the principal address for
Vialta.
Didier Pietri, 42, has been a member of Vialtas
board of directors since September 2001. Mr. Pietri joined
Vialta in April 2001 as its President and in August 2001 also
became its Chief Executive Officer. In July 2004 he resigned his
position as President. Prior to joining Vialta, Mr. Pietri
served as President and Chief Executive Officer of TVA/Motion
International, a global entertainment production and
distribution company from August 1999 to March 2001. From June
1995 to July 1999, Mr. Pietri was Senior Vice President of
the ABC Television Network Group, as well as President of ABC
Pictures, a division of The Walt Disney Company.
Yin-Wu Chen, 46, has been President of Vialta since July
2004. He joined Vialta in 2001 as Vice President of Engineering.
Prior to Vialta, he was cofounder, president, and chief
executive officer of PROTON Communications, a Taiwan-based
company, developing videophones, network computers, CCD cameras,
CCTV monitors, and digital recorders. He also served as
executive vice president of the parent company, PROTON
Electronic Industrial, a brand-name manufacturer of consumer
electronics, and was responsible for the overall operations of
the 650-person company with production and sales channels in
Taiwan and overseas. Earlier in his career, Mr. Chen was
with AT&T Bell Laboratories in New Jersey and worked on
various networking projects.
William M. Scharninghausen, 47, has been Chief Financial
Officer of Vialta since October 2002. Prior to joining Vialta,
he was the Chief Financial Officer of Diva Systems, Inc., a
video on demand technology
50
company, from January 1999 to September 2002. He also served as
the Senior Vice President of Finance and Administration of Diva
Systems, Inc. from June 1997 to September 2002. As part of
Gemstar-TV Guide International, Inc.s proposed purchase of
Divas assets, Diva filed a Chapter 11 bankruptcy
petition and pre-negotiated plan of reorganization on
May 29, 2002 in the Northern District of California.
George M. Cain, 61, has been a member of Vialtas
board of directors since February 2003. Mr. Cain is the
founder and President of C3 Media & Marketing Group,
LLC, a media marketing consulting company. He has held that
position since 1995. Mr. Cain is also the founder and CEO
of Greenwich Consulting Partners, LLC (formerly Strategic
Media & Marketing Group, LLC), a marketing and sales
company which has assisted a German enterprise software company
with the introduction of its products in North America. He has
held that position since 2001.
Herbert Chang, 42, has been a member of Vialtas
board of directors since November 1999. Mr. Chang is the
President of InveStar Capital, Inc., a venture capital firm. He
has held that position since August 1996. In addition,
Mr. Chang is the managing member of Forefront Associates,
LLC, which is the general partner of Forefront Venture Partners,
L.P., a position he has held since February 1998. Mr. Chang
currently serves as a director of Marvell Technology Group Ltd.
and Oplink Communications, Inc.
Michael S. Dubester, 58, has been a member of
Vialtas board of directors since February 2003.
Mr. Dubester is the Senior Vice President of Business
Development of Vulcan Sports Media, Inc., a U.S. sports
media company whose principal business is The Sporting News. He
has held that position since 2000. Prior to that,
Mr. Dubester served as the President of Times Mirror
Interzines, the online network of Internet sites affiliated with
Times Mirror Magazine titles, the previous owner of The Sporting
News, from 1998 until 2000. He was the founder and President of
The Sporting News Online, from 1996 until 1998.
Matthew K. Fong, 51, has been a member of Vialtas
board of directors since April 1999. Mr. Fong was employed
by Vialta from September 2001 through January 31, 2003, as
an Advisor to the Chairman of the Board. In addition, since
February 1999, Mr. Fong has been an attorney with the law
firm of Sheppard, Mullin, Richter & Hampton, LLP and
the Chief Executive Officer of Strategic Advisory Group, a
financial and high technology consulting group that he founded.
In January 2005, Mr. Fong joined Zero Stage Capital, a
venture capital firm that invests in emerging growth companies
in selected technology sectors, as special general partner.
Prior to that, Mr. Fong served as California State
Treasurer from January 1995 to January 1999.
Information about Victory and the Participating
Stockholders
The information concerning Victory and the participating
stockholders has been furnished by Victory. Vialta does not
assume responsibility for the accuracy or completeness of the
information concerning Victory or the participating stockholders.
Victory Acquisition Corp. was formed by Vialtas Chairman,
Fred S.L. Chan, solely for the purpose of acquiring all of the
outstanding shares of Vialta common stock not already owned or
controlled by the participating stockholders. Mr. Chan is
the sole executive officer of Victory, as its President,
Treasurer and Secretary, and is its sole director. The address
and telephone number of the principal executive officers of
Victory are 19770 Stevens Creek Blvd., Cupertino, CA 95014,
Telephone: (408) 863-7332.
Information as of March 31, 2005 respecting Mr. Chan
and Annie M.H. Chan is set forth below. Both Fred S. L. Chan and
Annie M. H. Chan are citizens of the United States. During the
last five years, none of the participating stockholders and none
of the directors and executive officers of any participating
stockholder has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or was
party to any judicial or administrative proceeding (except for
matters that were dismissed without sanction or settlement) that
resulted in a judgment, decree or final order enjoining the
person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of
any violation of federal or state securities laws. The address
for each of the participating stockholders is the principal
address for Victory.
Fred S. L. Chan, 58, has served as Vialtas Chairman
of the Board of Directors since Vialtas inception in 1999.
He also served as Vialtas President from its inception
through April 2001 and as Chief Executive
51
Officer from its inception through August 2001. Prior to joining
Vialta, Mr. Chan founded and held various executive
positions at ESS Technology, Inc., a designer, developer and
marketer of highly integrated digital system processor chips,
since 1986, as well as being Chairman of the Board, in which
capacity he still serves.
Annie M. H. Chan is a controlling person by virtue of her
beneficial ownership of 70.5% of the outstanding shares of
Victory (including shares held in her name, in the name of the
Annie M. H. Chan Trust and in the name of Evershine, of which
she is one of two managing members of the general partner).
Since March 1996, Ms. Chans principal occupation has
been President of the Everlasting Private Foundation, a
charitable organization located at the principal address of
Victory.
The participating stockholders consist of Fred S.L. Chan, his
wife Annie M. H. Chan, trusts established for the benefit of
their children and a related entity, all of whom have
contributed their shares to Victory. The participating
stockholders are:
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Fred S. L. Chan, |
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Annie M.H. Chan, |
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Annie M. H. Chan TR UA 07-25-95, The Annie M. H. Chan Living
Trust, |
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Mee Sim Lee & Sung Kook Kim & Myong Shin Kim
TR UA DTD 12/21/87, The David Y. W. Chan Trust, |
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Mee Sim Lee & Sung Kook Kim & Myong Shin Kim
TR UA DTD 12/21/87, The Edward Y. C. Chan Trust, |
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Mee Sim Lee & Sung Kook Kim & Myong Shin Kim
TR UA DTD 3/16/92, The Michael Y. J. Chan Trust, |
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Shiu Leung Chan & Annie M. H. Chan Gift
Trust Dated 11/20/92, and |
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Evershine XVI, L.P., a California limited partnership that
operates as an investment fund principally engaged in the
business of making venture capital and other investments. |
Annie M. H. Chan is Mr. Chans wife and the trusts
listed were created by Fred and Annie Chan, husband and wife, or
by Annie Chan for the benefit of their children. Each of the
trusts does not engage in business and is organized under the
laws of the state of California. Evershine XVI, L.P., a
California limited partnership that operates as an investment
fund principally engaged in the business of making venture
capital and other investments. The general partner of Evershine
XVI, L.P. is Everbright II, LLC, an entity controlled by
Fred and Annie Chan.
THE MERGER AGREEMENT
The following summary of the material terms of the merger
agreement is qualified in its entirety by reference to the
merger agreement, a copy of which is attached as Annex A to
this proxy statement.
Structure of the Merger
At the effective time of the merger, Victory will merge with and
into Vialta and the separate corporate existence of Victory will
end. Vialta will be the surviving corporation in the merger and
will continue to be a Delaware corporation after the merger.
The certificate of incorporation of Vialta, Inc. will be amended
in the merger to read as set forth in Exhibit B to the
merger agreement. The bylaws of Victory, as in effect
immediately prior to the effective time of the merger, will be
the bylaws of Vialta, as the surviving corporation. Fred Chan,
the sole officer and director of Victory, will, from and after
the effective time of the merger, be the initial director and
officer of Vialta, as the surviving corporation, until his
successor is duly elected and qualified or until his earlier
resignation or removal.
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When the Merger Becomes Effective
Vialta and Victory will file a certificate of merger with the
Secretary of State of the State of Delaware one business day
after the satisfaction or waiver of the closing conditions to
the merger (other than the conditions that can only be satisfied
at the closing) or at such other time as Victory and Vialta may
agree. The merger will become effective upon the filing of the
certificate of merger with the Secretary of State of the State
of Delaware or at such other time as may be agreed by Vialta and
Victory and specified in the certificate of merger.
Effect of the Merger on the Capital Stock of Vialta and
Victory Acquisition Corp.
At the effective time of the merger:
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all shares of Vialta common stock that are held (1) in the
treasury of Vialta, (2) by any wholly-owned subsidiary of
Vialta, (3) by Victory or (4) by any of the
participating stockholders will be canceled and retired and will
cease to exist without any consideration payable therefor; |
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each other share of Vialta common stock issued and outstanding
immediately before the merger becomes effective (other than any
share as to which a dissenting stockholder has perfected or not
lost the benefit of dissenters or appraisal rights under
California or Delaware law, as applicable) will be converted
into the right to receive $0.36 in cash without
interest; and |
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each share of Victory common stock will be converted into one
share of common stock of Vialta, as the surviving corporation in
the merger. |
Payment for Vialta Common Stock in the Merger
Victory Acquisition Corp. has designated Mellon Investor
Services to act as paying agent in connection with the merger.
At the effective time of the merger, Vialta will deliver to the
paying agent, for the benefit of the Vialta stockholders
entitled to receive the merger consideration, the amount of the
aggregate merger consideration that Vialta stockholders are
entitled to receive under the merger agreement; provided that
Victory will pay any shortfall, up to a maximum of
$4 million. The stock transfer books of Vialta will be
closed, and there will be no further registration of transfers
of the shares of Vialta common stock that were outstanding
immediately prior to the effective time of the merger.
As soon as reasonably practicable after the effective time of
the merger, the paying agent will mail to each record holder of
Vialta common stock whose stock certificates were converted into
the right to receive merger consideration or who has not
announced an intention to exercise dissenters or appraisal
rights, a letter of transmittal and instructions for use in
effecting the surrender of stock certificates in exchange for
the applicable merger consideration of $0.36 per share,
without interest, less any withholding taxes required by law.
Stockholders will be required to execute and deliver a duly
executed copy of the letter of transmittal (and such other
documents as may be reasonably required by the paying agent)
before receiving the merger consideration. The letter of
transmittal will require stockholders to waive any claim to
dissenters or appraisal rights.
If payment is to be made to a person other than the person in
whose name the Vialta common stock certificate surrendered is
registered, it will be a condition of payment that the
certificate so surrendered be properly endorsed or otherwise in
proper form for transfer and that the person requesting such
payment pay any transfer or other taxes required by reason of
the payment to a person other than the registered holder of the
certificate surrendered or that such person establish to the
satisfaction of the surviving corporation that such tax has been
paid or is not applicable.
Any portion of the payment fund held by the paying agent that
remains unclaimed by the stockholders of Vialta 180 days
after the effective time of the merger may be repaid to Vialta,
as the surviving corporation, and any stockholders of Vialta who
have not properly surrendered their stock certificates will
thereafter look only to Vialta, as the surviving corporation,
for payment of their claim for the amount due to them (without
interest) under the merger agreement for their shares of Vialta
common stock.
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Any shares of Vialta common stock that are issued and
outstanding as of the effective time of the merger and are held
by a holder who has not voted in favor of the merger or
consented thereto in writing and who has properly exercised his
or her appraisal or dissenters rights under the DGCL or
the CGCL will not be converted into the right to receive the
merger consideration, but will instead become the right to
receive such consideration as may be determined to be due with
respect to such dissenting shares pursuant to and subject to the
requirements of the DGCL, as applicable. If, after the effective
time of the merger, any such holder has failed to perfect or has
effectively withdrawn or lost his or her dissenters
rights, each share of such holders Vialta common stock
will thereupon be deemed to have been converted into and to have
become, as of the effective time of the merger, the right to
receive, without interest or dividends, the applicable merger
consideration.
If, prior to the effective time of the merger, the outstanding
shares of Vialta common stock are changed into a different
number of shares or shares of a different class as a result of a
stock split, reverse stock split, stock dividend, subdivision,
reclassification, split, combination, exchange, recapitalization
or other similar transaction, the merger consideration will be
appropriately adjusted in order to take into account such change.
Treatment of Stock Options
Vested Vialta stock options outstanding immediately prior to the
effective time of the merger will be cancelled and converted
into the right to receive an amount in cash equal to
(1) the excess, if any, of (x) the per share merger
consideration of $0.36 over (y) the applicable exercise
price per share of Vialta common stock subject to such Vialta
stock option, multiplied by (2) the number of shares of
Vialta common stock subject to such Vialta stock option (and for
which such Vialta stock option shall not theretofore have been
exercised). As a result of the transaction, unvested options
held by Didier Pietri will accelerate in accordance with his
stay bonus agreement and unvested options issued to directors
will accelerate in accordance with the terms of the
2000 Directors Stock Option Plan. In paying any such cash
amount in respect of a Vialta stock option, the surviving
corporation will be entitled to deduct and withhold such amounts
as are required to be deducted and withheld under applicable tax
law. All other unvested options will be cancelled and terminated.
As part of the spin-off from ESS Technology, Vialta adopted the
2001 nonstatutory stock option plan and granted options to
purchase Vialta stock to all ESS Technology employees,
consultants and outside directors with outstanding ESS
Technology options. Each Vialta option granted under the plan is
exercisable at the same time (and to the same extent) as an
exercise of the corresponding ESS Technology option to which it
is stapled. The options are exercisable for the
exercise price of the corresponding ESS Technology option, which
is paid to ESS Technology. As a result, the corresponding Vialta
option has an exercise price of $0. The Vialta options vest, are
exercisable, expire and otherwise essentially mirror the
provisions of the corresponding ESS Technology option held by
the ESS Technology employee. Since the spin-off, ESS Technology
has not notified Vialta of the expiration of any ESS Technology
options pursuant to which the Vialta options are stapled. As a
result, Vialta does not know how many options are outstanding
under the 2001 nonstatutory stock option plan. However, Vialta
believes that a significant number of options have expired. In
addition, based on the average strike price of ESS Technology
options at the time of the spin-off relative to the current
price of ESS Technology common stock, to the best of its
knowledge, Vialta does not believe that any ESS Technology
options to which Vialta options are stapled will be exercised.
The closing price for ESS Technology stock on March 31,
2005 was $5.27. As of December 31, 2001, the year stapled
options were granted, the average exercise price for outstanding
ESS Technology stock options was $8.34 according to the 10-K
filed by ESS Technology for the fiscal year ended
December 31, 2001.
Representations and Warranties
The merger agreement contains representations and warranties of
each of Vialta and Victory as to, among other things:
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due organization, valid existence and good standing of itself
and its subsidiaries; |
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power and authority to enter into the merger agreement, and,
subject to stockholder approval, to consummate the transactions
contemplated thereby; |
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capitalization; |
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the absence of conflicts with law, organizational documents,
contracts and orders; |
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the absence of any required governmental filings, authorizations
or approvals other than those specified in the merger agreement; |
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the absence of any fees owed to brokers or finders in connection
with the merger except as specified in the merger
agreement; and |
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no violation of existing agreements. |
The merger agreement also contains representations and
warranties of Vialta as to, among other things:
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binding obligation; |
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subsidiaries; |
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litigation; |
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tax matters; |
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properties and leases; |
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contracts and commitments; |
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intellectual property; |
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compliance with applicable laws; |
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employee benefit plans and other agreements with employees; |
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insurance; |
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SEC filings and financial statements; and |
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balance sheet items. |
The merger agreement also contains representations and
warranties of Victory as to, among other things:
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entry into the contribution agreement, additional contribution
agreement and voting agreement; |
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information in SEC filings; |
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vote required; and |
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limited operations. |
None of the representations and warranties in the merger
agreement will survive the effective time of the merger or the
termination of the merger agreement.
Except as expressly contemplated by the provisions of the merger
agreement relating to termination of the merger agreement and
expense reimbursement, none of Vialta, its subsidiaries, or any
of their respective affiliates, directors or officers will have
any liability or obligation whatsoever to Victory or any of its
respective affiliates or any participating stockholder for any
breach or inaccuracy of any representation or warranty made in
the merger agreement, other than for an intentional breach or
misrepresentation.
Material Adverse Effect
It is a condition to Victorys obligation to consummate the
merger that all representations and warranties of Vialta are
true and correct except where the failure, alone or with
aggregate would not have a material adverse effect. Material
adverse effect means, subject to certain limited exceptions, any
change, event, circumstance or effect that is reasonably likely
to be materially adverse to the business, assets (including
intangible assets), financial condition, operations or results
of operations of such entity, taken as a whole with its
subsidiaries.
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Conduct of Business Prior to the Effective Time of the
Merger
The merger agreement provides that, during the period from the
date of the merger agreement until the earlier of the
termination of the merger agreement pursuant to its terms or the
effective time of the merger, Vialta and each of its
subsidiaries must, except to the extent permitted by the merger
agreement or to the extent that Victory otherwise consents in
writing, use reasonable efforts to carry on and preserve its
business and its relationships with customers, suppliers,
employees and others in substantially the same manner as it had
prior to the date of the merger agreement and will not
accelerate or delay the payment or collection of accounts. In
addition, during this period, Vialta must not do or agree in
writing to do or permit any of its subsidiaries to do or agree
in writing to do any of the following without the prior written
consent of Victory, except as otherwise permitted by the merger
agreement:
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incur any indebtedness for borrowed money except in the ordinary
course of business consistent with past practices; |
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enter into any transaction not in the ordinary course of
business; |
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encumber or permit to be encumbered any of its assets except in
the ordinary course of its business consistent with past
practice and to an extent which is not material; |
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dispose of any of its assets except in the ordinary course of
business consistent with past practice; |
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enter into any material lease or contract for the purchase or
sale of any property, real or personal; |
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fail to maintain its equipment and other assets in good working
condition and repair, subject only to ordinary wear and tear; |
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pay any bonus, increased salary or special remuneration to any
officer, employee or consultant (except for normal salary
increases consistent with past practices not to exceed
10% per year and except pursuant to existing arrangements
previously disclosed) or enter into any new employment or
consulting agreement with any such person; |
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change accounting methods, except as required by GAAP or by a
governmental authority, or materially revalue any of its assets; |
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declare, set aside or pay any cash dividend or distribution in
respect of capital stock, or redeem or otherwise acquire any of
its capital stock; |
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amend or terminate any contract, agreement or license to which
it is a party except those amended or terminated in the ordinary
course of business, consistent with past practice, and which are
not material in amount or effect; |
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lend any amount to any person or entity, other than
(i) advances for travel and expenses which are incurred in
the ordinary course of business consistent with past practice,
not material in amount and documented by receipts for the
claimed amounts or (ii) any loans pursuant to the Vialta
401(k) Plan; |
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guarantee or act as a surety for any obligation except for the
endorsement of checks and other negotiable instruments in the
ordinary course of business, consistent with past practice,
which are not material in amount; |
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waive or release any material right or claim except in the
ordinary course of business, consistent with past practice; |
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issue or sell any shares of its capital stock of any class
(except upon the exercise of an option or warrant currently
outstanding), or any other of its securities, or issue or create
any warrants, obligations, subscriptions, options, convertible
securities, or other commitments to issue shares of capital
stock, or accelerate the vesting of any outstanding option or
other security; |
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split or combine the outstanding shares of its capital stock of
any class or enter into any recapitalization affecting the
number of outstanding shares of its capital stock of any class
or affecting any other of its securities; |
56
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merge, consolidate or reorganize with, or acquire any entity; |
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amend its Certificate of Incorporation or Bylaws; |
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license any of its technology or intellectual property except on
a non-exclusive basis and in the ordinary course of business
consistent with past practice; |
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change any tax election, agree to any audit assessment by any
tax authority, settle any tax dispute or liability, or file any
federal or state income or franchise tax return outside of the
ordinary course of business; |
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change any insurance coverage or permit any coverage in force to
lapse, or issue any certificates of insurance; |
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take any action with the intention directly or indirectly to
adversely impact the merger; |
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commence any action at law or in equity or any arbitrations,
other than to enforce Vialtas rights and remedies under
the merger agreement, unless authorized by the board of
directors of Vialta; or |
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agree to do, or permit any subsidiary to do or agree to do, any
of the foregoing. |
Proxy Statement; Special Meeting
The parties to the merger agreement agreed to cooperate with
each other in preparing this proxy statement and filing it with
the SEC together with a Transaction Statement on
Schedule 13E-3 that contains additional information
regarding the merger agreement and the merger.
Changes to Recommendations of the Special Committee and the
Board of Directors
The board of directors or the special committee, as the case may
be, may, at any time prior to stockholder approval of the merger
agreement, withdraw, amend or modify a recommendation that
Vialta stockholders vote to approve and adopt the merger
agreement. In addition, the board of directors or the special
committee, as the case may be, at any time prior to stockholder
approval and adoption of the merger agreement, may terminate the
agreement if the board of directors or the special committee
determines in good faith, after consultation with legal counsel,
that the termination is necessary to comply with its fiduciary
duties under applicable laws.
Indemnification and Directors and Officers
Insurance
From and after the effective time of the merger, Vialta, as the
surviving corporation in the merger, must indemnify, and advance
reasonable expenses including attorneys fees to, the
current and former directors and officers of Vialta and its
subsidiaries, referred to as the indemnified parties, against
all costs or expenses (including attorneys fees),
judgments, fines, losses, claims, damages, penalties or
liabilities incurred in connection with any acts or omissions
occurring at or prior to the effective time of the merger. All
rights to indemnification and exculpation from liability
existing in favor of any indemnified parties as provided under
any contract, applicable laws and/or the charters and bylaws of
Vialta and its subsidiaries as of the effective time of the
merger are to survive the merger with respect to events
occurring up to and including the time of the merger.
For a period of six years following the effective time of the
merger, the surviving corporation must cause to be maintained in
effect directors and officers liability insurance
covering all persons who are directors and officers of Vialta
and its subsidiaries covered by Vialtas directors
and officers liability insurance policies as of the
effective time of the merger. Vialta will purchase a six year
insurance policy for such officers and directors at a cost of
approximately $400,000 prior to the effective time of the merger.
57
Additional Agreements
The merger agreement provides that, during the period from the
signing of the merger agreement to the effective time of the
merger, Vialta will, among other things:
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promptly advise Victory in writing of any change which is
expected to have a material adverse effect on Vialta; |
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promptly deliver, when available, a monthly unaudited balance
sheet and statement of operations commencing with the month
ending March 31, 2005; |
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use reasonable efforts to conduct its business in the same
manner as prior to the date of the merger agreement; |
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notify Victory of any material litigation; |
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provide reasonable access to its files, books, records and
offices; and |
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use reasonable efforts to obtain the resignation of its officers
and directors effective immediately prior to the effect time of
the merger. |
The merger agreement provides that, during the period from the
signing of the merger agreement to the effective time of the
merger, Victory will, among other things:
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provide prompt notice to Vialta of any event occurring that
would render a representation or warranty of Victory untrue or
inaccurate in any material respect. |
The merger agreement provides that, during the period from the
signing of the merger agreement to the effective time of the
merger, each of Victory and Vialta will:
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cooperate and promptly prepare and file a proxy statement and
joint Schedule 13E-3 with the Securities and Exchange
Commission with respect to the merger; |
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use their reasonable efforts to obtain all authorizations,
approvals and consents of any governmental body which may be
reasonably required or requested in connection with the
completion of the merger and the related transactions; and |
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use its reasonable efforts to satisfy the conditions precedent
to the merger and to cause the merger to be consummated. |
Limitation of Liability for Breaches of Covenants by
Vialta
Except as expressly contemplated by the provisions of the merger
agreement relating to termination of the merger agreement and
expense reimbursement, after any termination of the merger
agreement, none of Vialta, its subsidiaries, or any of their
respective affiliates, directors or officers will have any
liability or obligation whatsoever to Victory or any of its
respective affiliates or any participating stockholder for any
breach of or failure to perform any covenant of Vialta, other
than with respect to a willful breach of the merger agreement.
Conditions to Completion of the Merger
The obligations of Vialta and Victory to complete the merger are
subject to the following conditions, unless waived by the
parties:
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the absence of any order, decree, or ruling by any court or
governmental agency, or threat thereof, or any other fact or
circumstance, which would prohibit, render illegal or enjoin the
consummation of the merger; and |
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approval of the merger agreement by a majority vote of Vialta
shares outstanding as of the record date. |
58
The obligation of Vialta to effect the merger is subject to the
satisfaction of the following additional conditions, unless
waived in writing by Vialta:
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the representations and warranties of Victory contained in the
merger agreement being true and correct as of the date of the
Agreement and on and as of the closing date of the merger except
where the failure of a representation or warranty to be true and
correct would not have a material adverse effect on Vialta, as
evidenced by receipt of a certificate to such effect executed by
Victorys President and Chief Financial Officer; and |
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Victorys performance in all material respects of all of
its obligations under the merger agreement that are required to
be performed by Victory at or prior to the closing date of the
merger, as evidenced by receipt of a certificate to such effect
executed by Victorys President and Chief Financial Officer. |
The obligation of Victory to effect the merger is subject to the
satisfaction of the following additional conditions, unless
waived by Victory in writing:
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the representations and warranties of Vialta contained in the
merger agreement being true and correct as of the date of the
Agreement and on and as of the closing date of the merger except
where the failure of a representation or warranty to be true and
correct would not have a company material adverse effect on
Victory, as evidenced by receipt of a certificate to such effect
executed by Vialtas President and Chief Financial Officer; |
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Vialtas performance in all material respects of all of its
obligations under the merger agreement that are required to be
performed by Vialta at or prior to the closing date of the
merger, as evidenced by receipt of a certificate to such effect
executed by Vialtas President and Chief Financial Officer; |
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the determination, in the reasonable judgment of the board of
directors of Victory that there has not been a material adverse
effect with respect to Vialta; |
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receipt of a legal opinion from counsel to Vialta; and |
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confirmation that Vialta has no less than $14,500,000 in cash
and cash equivalents as of midnight on the day before the
closing. |
The parties do not have any present intention to waive any of
the conditions to the merger and do not anticipate any
circumstances under which any of the conditions would be waived.
Termination of the Merger Agreement
The merger agreement may be terminated at any time and for any
reason prior to the effective time of the merger by the mutual
written consent duly authorized by the board of directors of
Vialta and Victory.
Either Vialta or Victory may terminate the merger agreement at
any time prior to the effective time of the merger if:
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the merger is not consummated by August 13, 2005, except
that the right to terminate the merger agreement for this reason
will not be available to any party whose action or failure to
act has been a principal cause of or resulted in the failure of
the merger to occur on or before August 13, 2005; |
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a governmental entity shall have issued an order, decree or
ruling or taken any other action, in any case having the effect
of permanently restraining, enjoining or otherwise prohibiting
the merger, which order, decree, ruling or other action is final
and nonappealable; or |
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stockholder approval of the merger agreement is not obtained at
the special meeting (including any adjournment or postponement
thereof), except that the right to terminate the merger
agreement for this reason will not be available to Vialta where
the failure to obtain stockholder approval shall have been
caused by Vialtas failure to fulfill its obligations with
respect to preparing and filing a proxy statement and joint
Schedule 13E-3 with the SEC or calling and holding a
meeting of its stockholders and such failure constitutes a
material breach by Vialta of this Agreement. |
59
In addition, Victory may terminate the merger agreement at any
time prior to the effective time of the merger if:
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the special committee withdraws or amends or modifies in a
manner adverse to Victory its recommendation in favor of the
adoption and approval of the merger agreement or the approval of
the merger; |
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Vialta fails to include in the proxy statement the
recommendation of the special committee or the board of
directors in favor of the adoption and approval of the merger
agreement and the approval of the merger; |
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the special committee fails to reaffirm its recommendation in
favor of the adoption and approval of the merger agreement and
the approval of the merger within 10 business days after
Victorys requests in writing that such recommendation be
reaffirmed at any time following the public announcement of a
competing acquisition proposal; |
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the special committee approves or publicly recommends any
competing acquisition proposal other than a liquidation or
dissolution; |
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Vialta enters into any letter of intent or similar document or
any agreement, contract or commitment accepting any competing
acquisition proposal; |
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a tender or exchange offer is commenced by a person unaffiliated
with Victory, and Vialta has not sent to its securityholders a
statement disclosing that Vialta recommends rejection of such
tender or exchange offer within 10 business days after such
tender or exchange offer is first published, sent or
given; or |
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Vialta breaches any representation, warranty, covenant or
agreement, or if any representation or warranty of Vialta
becomes untrue as a result of which, in either case, the
conditions to completion of the merger would not be satisfied,
and such breach is not curable through commercially reasonable
efforts or, if curable, is not cured within 30 days of
written notice from Victory. |
In addition, Vialta may terminate the merger agreement at any
time prior to the effective time of the merger if:
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Victory breaches any representation, warranty, covenant or
agreement, or if any representation or warranty of Victory
becomes untrue as a result of which, in either case, the
conditions to completion of the merger would not be satisfied,
and such breach is not curable through commercially reasonable
efforts or, if curable, is not cured within 30 days of
written notice from Vialta; or |
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prior to approval of the merger at the stockholders
meeting, the board of directors or the special committee
determines in good faith, after consultation with outside legal
counsel, that termination is necessary to comply with its
fiduciary duties under applicable law. |
No Limitation on Solicitation of Transactions or Termination
of Merger Agreement due to Fiduciary Obligations
The merger agreement does not contain restrictions on
Vialtas ability to solicit or initiate any inquiries,
proposals or offers with respect to any competing transaction or
ultimately to consummate any such competing transaction until
stockholders of Vialta approve the merger. The board of
directors or special committee may terminate the merger
agreement or withdraw, modify or change its approval or
recommendation of the merger agreement if it determines in good
faith that failure to take such action would be inconsistent
with its fiduciary obligations to stockholders of Vialta (other
than participating stockholders).
Expenses
Except as described below, if the merger is not consummated,
Vialta and Victory will each pay its own expenses incurred in
connection with the merger. If the merger is consummated,
Vialta, as the surviving corporation, will pay all of the
expenses incurred by or on behalf of either Vialta or Victory.
60
Vialta must pay the out-of-pocket expenses actually and
reasonably incurred by Victory and its affiliates in connection
with the merger agreement and the transactions contemplated
thereby in an aggregate amount not to exceed $250,000 if:
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Vialta terminates the merger agreement prior to approval of the
merger at the stockholders meeting because the board of
directors or the special committee determines in good faith,
after consultation with outside legal counsel, that termination
of the agreement is necessary for the board of directors or the
special committee to comply with its fiduciary duties under
applicable law; |
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Victory terminates the merger agreement because (1) the
special committee withdraws or amends or modifies its
recommendation in a manner adverse to Victory; (2) Vialta
fails to include in the proxy statement the recommendation of
the special committee or the board of directors in favor of the
adoption and approval of the merger agreement and the approval
of the merger; (3) the special committee fails to reaffirm
its recommendation within 10 business days after written request
by Victory following the public announcement of a competing
acquisition proposal; (4) the special committee approves or
publicly recommends any competing acquisition proposal other
than a liquidation or dissolution; (5) Vialta enters into
any letter of intent or similar document or any agreement,
contract or commitment accepting any competing acquisition
proposal; or (6) a tender or exchange offer is commenced by
a person unaffiliated with Victory, and Vialta has not sent to
its securityholders a statement disclosing that Vialta
recommends rejection of such tender or exchange offer within 10
business days after such tender or exchange offer is first
published, sent or given; or |
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Victory terminates the merger agreement because a breach by
Vialta causes the conditions to completion of the merger to not
be satisfied and cured, if curable, within 30 days of
written notice from Victory and Vialta consummates an
Acquisition Proposal within six months following
such termination. An Acquisition Proposal includes:
(1) any acquisition or purchase of more than 50% of Vialta
common stock, including by means of a tender offer or exchange
offer, or any merger, consolidation, business combination or
similar transaction pursuant to which the stockholders of Vialta
immediately preceding such transaction hold less than 50% of the
equity interests in the surviving or resulting entity of such
transaction or its parent party; (2) any sale, lease,
exchange, transfer, license, acquisition, or disposition of all
or substantially all of the aggregate fair market value of
assets of Vialta; or (3) any liquidation or dissolution of
Vialta. |
Modification or Amendment of the Merger Agreement
Subject to applicable law, Victory and Vialta may amend the
merger agreement at any time prior to approval of the merger by
Vialtas stockholders. After stockholder approval, no
amendment will be made without stockholder approval if required
by applicable law.
TRANSACTION AGREEMENTS
Stock Contribution Agreement
The following summary of the material terms of the stock
contribution agreement is qualified in its entirety by reference
to the stock contribution agreement, a copy of which is set
forth in Annex B to this proxy statement.
Victory Acquisition Corp. and the parties listed on the Schedule
of Investors attached thereto.
The stock contribution agreement provides for each participating
stockholder to contribute and deliver to Victory shares of
Vialta common stock beneficially owned by such participating
stockholder in consideration for the issuance by Victory of
shares of its common stock. The contribution of shares took
place effective as of
61
March 28, 2005. Pursuant to the stock contribution
agreement, the participating stockholders contributed an
aggregate of 32,039,840 shares of Vialta common stock to
Victory.
Voting Agreement
The following summary of the material terms of the voting
agreement is qualified in its entirety by reference to the
voting agreement, a copy of which is set forth in Annex C
to this proxy statement.
Victory Acquisition Corp. and Vialta, Inc.
The voting agreement requires that Victory, with respect to
shares of Vialta common stock it beneficially owns as of the
record date, referred to as subject shares, (1) appear at
any duly called annual, special or other stockholder meeting,
and any adjournment or postponement thereof, or to otherwise
cause the subject shares to be counted as present for purposes
of establishing a quorum; (2) to vote or act by written
consent with respect to the subject shares in favor of the
merger and the adoption of the merger agreement and the approval
of the other transactions contemplated thereby, and any actions
required in furtherance thereof (including, without limitation,
any proposal to adjourn any such meeting if necessary to permit
further solicitation of proxies in the event there are not
sufficient votes at the time of such meeting to approve the
merger agreement); and (3) to vote or act by written
consent with respect to the subject shares against any action or
agreement that would result in a breach of any covenant,
representation or warranty or any other obligation of Vialta
under the voting agreement or the merger agreement. Any vote by
Victory that is not in accordance with voting requirements
prescribed above will be considered null and void. Victory may
not enter into any agreement or understanding with any person or
entity prior to the termination of the voting agreement to vote
or give instructions in a manner inconsistent with voting
prescribed above.
Victory agrees not to:
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directly or indirectly, sell, transfer, pledge, encumber, assign
or otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to the sale,
transfer, pledge, encumbrance, assignment or other disposition
of, the subject shares or any interest contained therein (other
than pursuant to the pledge agreement), except for transfers to
an affiliate of Victory that executes a counterpart of the
voting agreement and agrees to hold the subject shares subject
to all of the terms and provisions of the voting agreement; |
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grant any proxies or powers of attorney or enter into any other
voting agreement or other arrangement with respect to the
subject shares; |
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enter into, or deposit the subject shares into, a voting trust;
nor |
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commit or agree to take any of the foregoing actions. |
This voting agreement will automatically terminate and become
null and void and have no further effect, upon the earliest to
occur of: the written agreement of the parties, the effective
time of the merger, and the date of termination of the merger
agreement.
Additional Contribution Agreement
The following summary of the material terms of the additional
contribution agreement is qualified in its entirety by reference
to the additional contribution agreement, a copy of which is set
forth in Annex D to this proxy statement.
62
Victory Acquisition Corp. and Fred S.L. Chan.
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Contribution Requirements |
The merger agreement requires Vialta to deposit the merger
consideration with the exchange agent at the effective time of
the merger. In the event Vialta does not have sufficient cash to
pay the entire merger consideration required, the merger
agreement provides that Victory will contribute the shortfall,
in cash, not to exceed $4 million (the
Shortfall). Because Victory does not have any cash
assets, it entered into the additional contribution agreement,
pursuant to which Fred Chan agrees to advance the Shortfall to
Victory. The advance will be made in the form of a loan to
Victory, within two business days following demand by Victory,
subject to the terms of a promissory note in the form attached
to the additional contribution agreement. The promissory note is
payable 24 months following the date the money is advanced
and provides for interest payable at a rate of 6% per year.
Vialta is a third party beneficiary to this agreement.
Pledge Agreement
The following summary of the material terms of the pledge
agreement is qualified in its entirety by reference to the
additional contribution agreement, a copy of which is set forth
in Annex E to this proxy statement.
Victory Acquisition Corp. and Vialta, Inc.
The pledge agreement was entered into with respect to the
requirement contained in the merger agreement that Victory pay
any shortfall, up to $4 million, in the merger
consideration due in connection with the merger. Pursuant to the
terms of the pledge agreement, Victory granted to Vialta a
security interest in all Vialta common stock owned or later
acquired by Victory, to secure payment by Victory of the
shortfall requirement.
63
SELECTED HISTORICAL FINANCIAL DATA
Set forth below is certain selected historical financial
information with respect to Vialta and its subsidiaries,
excerpted from the financial statements of Vialta audited by
PricewaterhouseCoopers LLP, independent auditors, and set forth
in Vialtas Annual Report on Form 10-K for the fiscal
year ended December 31, 2004, a copy of which is attached
as Annex I to this proxy statement. The Form 10-K was
previously filed by Vialta with the SEC.
Additional financial information is included in the reports and
other documents filed by Vialta with the SEC. The following
summary information is qualified in its entirety by reference to
the Form 10-K and all of the financial information (including
any related notes) contained therein. The financial information
(including any related notes) contained in the Form 10-K is
incorporated herein by reference as described in more detail
below. See WHERE YOU CAN FIND MORE INFORMATION.
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Years Ended December 31, | |
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2004 | |
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2003 | |
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2002 | |
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2001 | |
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2000 | |
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(In thousands, except per share amounts) | |
Consolidated Statement of Operations Data:
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Revenue, net
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$ |
12,747 |
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$ |
10,331 |
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$ |
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$ |
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$ |
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Cost of good sold
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8,022 |
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2,941 |
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Gross profit
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4,725 |
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7,390 |
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Operating expenses:
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Product costs
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10,421 |
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Engineering and development
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1,247 |
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2,557 |
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13,264 |
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25,250 |
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19,558 |
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Sales and marketing
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2,011 |
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4,427 |
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3,100 |
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3,738 |
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2,927 |
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General and administrative
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4,573 |
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5,753 |
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5,643 |
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9,301 |
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6,699 |
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Amortization and impairment of content licenses
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11,395 |
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Total operating expenses
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7,831 |
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12,737 |
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43,823 |
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38,289 |
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29,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,106 |
) |
|
|
(5,347 |
) |
|
|
(43,823 |
) |
|
|
(38,289 |
) |
|
|
(29,184 |
) |
Interest income, net
|
|
|
717 |
|
|
|
733 |
|
|
|
1,244 |
|
|
|
3,606 |
|
|
|
7,688 |
|
Gain on investment
|
|
|
|
|
|
|
571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,266 |
) |
|
|
(1,682 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(2,389 |
) |
|
|
(4,043 |
) |
|
|
(42,579 |
) |
|
|
(35,949 |
) |
|
|
(23,178 |
) |
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(2,389 |
) |
|
$ |
(4,043 |
) |
|
$ |
(42,579 |
) |
|
$ |
(35,949 |
) |
|
$ |
(22,918 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(0.03 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.51 |
) |
|
$ |
(0.83 |
) |
|
$ |
(3.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
82,930 |
|
|
|
82,285 |
|
|
|
83,578 |
|
|
|
43,248 |
|
|
|
6,222 |
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and short-term investments
|
|
$ |
18,402 |
|
|
$ |
24,308 |
|
|
$ |
32,701 |
|
|
$ |
67,428 |
|
|
$ |
136,490 |
|
Restricted cash
|
|
|
3,057 |
|
|
|
2,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
|
22,261 |
|
|
|
25,365 |
|
|
|
30,201 |
|
|
|
66,830 |
|
|
|
109,870 |
|
Total assets
|
|
|
29,402 |
|
|
|
37,114 |
|
|
|
40,327 |
|
|
|
83,866 |
|
|
|
153,691 |
|
Total current liabilities
|
|
|
3,753 |
|
|
|
9,061 |
|
|
|
7,949 |
|
|
|
3,587 |
|
|
|
33,594 |
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,600 |
|
Total stockholders equity (deficit)
|
|
|
25,649 |
|
|
|
28,053 |
|
|
|
32,378 |
|
|
|
80,279 |
|
|
|
(22,503 |
) |
65
CERTAIN FINANCIAL MODELS RELATING TO POTENTIAL BROADBAND
PRODUCTS
Vialtas Beamer videophone products are compatible with
home phones over standard (analog) home phone lines. The current
analog videophone end-user market is relatively small, due in
part to functionality and quality limitations associated with
narrowband transmission. As a result, although the company has
received a number of awards and positive publicity for its
analog videophone products and enjoys a high market share, the
Beamer is a niche product and the companys overall sales
have been limited.
During 2004, Vialta announced that it had developed a broadband
version of Vialtas Beamer videophone and that
field-testing and public availability of a broadband Beamer
videophone would occur before the end of 2004. Vialta has since
delayed field-tests of its broadband videophone products while
it continues to refine and test prototypes of these products.
Vialta currently expects to field-test its broadband videophone
products with a few select broadband service providers in the
second half of 2005. Vialta expects commercial introduction of
broadband versions of its Beamer videophone products to occur in
2006. More recently, Vialta has been in preliminary discussions
with intermediaries that have relationships with an Asian based
cable company concerning representation of the company with
respect to potential customer sales in the Asian marketplace.
However, no assurances can be made that the company will
successfully develop a broadband product that will be accepted
in the marketplace.
In March 2005, at the request of Salem Partners, the company
prepared three different financial case scenarios with respect
to its broadband products, based on the following different
assumptions: (1) a business plan of analog products only,
(2) a business plan of actively developing its broadband
products and pursuing broadband sales, but no actual sales and
(3) a business plan of pursuing broadband sales, with sales
of 100,000 units in 2006. The three scenarios were then
incorporated into its overall financial projections for 2005 and
2006. The resulting projections were provided to the special
committee and Salem Partners for use in reviewing the merger
agreement. These models and the resulting projections were not
provided to Mr. Chan or his advisors although as a board
member, Mr. Chan has had access to scenario 1 below.
Unlike retail sales of its analog products, it is anticipated
that broadband videophones will be sold by manufacturers such as
Vialta to a limited number of cable companies and telephone
companies who would provide its end-users with a videophone as
an ancillary product to their broadband service. Since the
number of potential wholesale customers is relatively small, it
is further anticipated that the gross margins for such sales
will be compressed over time. There is no assurance as to the
market acceptance of broadband videophones by consumer
end-users, or as to the time frame of any roll-out of broadband
videophones by broadband service providers.
This prospective financial information was not prepared with a
view toward compliance with published guidelines of the
Securities and Exchange Commission or the guidelines established
by the American Institute of Certified Public Accountants for
preparation and presentation of prospective financial
information. While presented with numerical specificity, the
models and resulting projections are based upon a variety of
hypothetical assumptions at the time they were prepared. The
prospective financial information, including the assumptions,
were not necessarily prepared on a reasonable basis. Such
assumptions are subject to significant economic and competitive
uncertainties and contingencies, most of which are beyond
Vialtas control. Accordingly, Vialta cannot predict
whether the assumptions made in preparing such models and
resulting projections will prove accurate. Such projections are
inherently imprecise, and there can be no assurances that the
results presented in the actual results will not differ
materially from the results presented in the models and
resulting projections.
The prospective financial information included in this proxy
statement has been prepared by, and is the responsibility of,
the Companys management. PricewaterhouseCoopers LLP, the
Companys independent registered public accounting firm,
has neither examined nor compiled the accompanying prospective
financial information and, accordingly, PricewaterhouseCoopers
LLP does not express an opinion or any other form of assurance
with respect thereto. The PricewaterhouseCoopers LLP report
included in this proxy statement relates to the Companys
historical financial information. It does not extend to the
prospective financial information and should not be read to do
so.
66
The models and resulting projections were not prepared with a
view to public disclosure. The information concerning the models
and resulting projections is included in this proxy statement
solely because such information was furnished to the special
committee and its advisors and in part to Mr. Chan. The
inclusion of the models and resulting projections herein should
not be regarded as a representation by Vialta or any other
entity or person that the projected results will be achieved,
and none of Vialta, Victory or Mr. Chan assumes any
responsibility for the accuracy of such information or any
responsibility to update the models and resulting projections in
light of changed circumstances or additional information.
Readers are cautioned not to place undue reliance on this data.
67
VIALTA, INC.
PROJECTED STATEMENT OF OPERATIONS
ANALOG BUSINESS ONLY
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Revenue, net
|
|
$ |
12,166 |
|
|
$ |
14,600 |
|
Cost of goods sold
|
|
|
8,966 |
|
|
|
10,759 |
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,201 |
|
|
|
3,841 |
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Engineering and development
|
|
|
1,309 |
|
|
|
1,375 |
|
|
Sales and marketing
|
|
|
2,112 |
|
|
|
2,217 |
|
|
General and administrative
|
|
|
4,802 |
|
|
|
5,042 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
8,223 |
|
|
|
8,634 |
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(5,022 |
) |
|
|
(4,793 |
) |
Interest income and other:
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
697 |
|
|
|
700 |
|
|
|
|
|
|
|
|
|
|
Total interest income and other
|
|
|
697 |
|
|
|
700 |
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(4,325 |
) |
|
$ |
(4,093 |
) |
|
|
|
|
|
|
|
Basis of preparation of projected 2005 and 2006 statements of
operations, ANALOG BUSINESS ONLY
Key material hypothetical assumptions on which basis the above
projected statements of operations were prepared from the
historical statement of operations for the year ended
December 31, 2004 are:
|
|
|
a) There will be no sales to CEC. CEC was one of the major
Companys Chinese customers which notified the Company in
Q3 2004 that it no longer would purchase any Beamer product. |
|
|
b) All product lines unit sales increase 20% for each of
2005 and 2006 years from historical 2004 unit sales
(excluding sales to CEC). |
|
|
c) There are no changes in product mix and there are no new
types of products sold compared to the historical 2004 product
mix. |
|
|
d) Sold units are valued using standard costs (that
approximate actual cost) as of December 31, 2004. There are
no inventory reserve releases in COGS in relation to sold or
disposed inventory previously written off. |
|
|
e) The retail price for the BMTV and BM80 products
decreases by $25 and for the VistaFrame products by $50 compared
to historical average prices during the year ended
December 31, 2004. |
|
|
f) Operating expenses increase by 5% for each of 2005 and
2006 years from historical 2004 operating expenses. |
|
|
g) Interest income, net primarily represents interest
income on cash equivalents and short-term investments, and no
collection of the $5.0 million note receivable which
matured April 2005. |
None of these assumptions may be realized and they are
inherently subject to significant business economic and
competitive uncertainties and contingencies, all of which are
difficult to predict and many of which are beyond the
Companys control. Accordingly, the assumptions made in
preparation of above projection may not prove accurate, and
actual results may materially differ. In addition, the
projections do not take into account of the transaction
contemplated by the proposed acquisition of the Company. Readers
are cautioned not to place undue reliance on this data.
68
VIALTA, INC.
PROJECTED STATEMENT OF OPERATIONS
ANALOG BUSINESS PLUS DEVELOPMENT COSTS, BUT NO SALES, OF
BROADBAND
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Revenue, net
|
|
$ |
12,166 |
|
|
$ |
14,600 |
|
Cost of goods sold
|
|
|
8,966 |
|
|
|
10,759 |
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,201 |
|
|
|
3,841 |
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Engineering and development
|
|
|
1,309 |
|
|
|
1,375 |
|
|
BroadBand Development
|
|
|
333 |
|
|
|
667 |
|
|
Sales and marketing
|
|
|
2,262 |
|
|
|
2,675 |
|
|
General and administrative
|
|
|
4,802 |
|
|
|
5,042 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
8,706 |
|
|
|
9,758 |
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(5,505 |
) |
|
|
(5,917 |
) |
Interest income and other:
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
697 |
|
|
|
692 |
|
|
|
|
|
|
|
|
|
|
Total interest income and other
|
|
|
697 |
|
|
|
692 |
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(4,808 |
) |
|
$ |
(5,225 |
) |
|
|
|
|
|
|
|
Basis of preparation of projected 2005 and 2006 statements of
operations, ANALOG BUSINESS PLUS DEVELOPMENT COSTS, BUT NO
SALES, OF BROADBAND
Key material hypothetical assumptions on which basis the above
statement was prepared from historical statement of operations
for the year ended December 31, 2004 are:
|
|
|
a) There will be no sales to CEC. CEC was one of the major
Companys Chinese customers which notified the Company in
Q3 2004 that it no longer would purchase any Beamer product. |
|
|
b) All product lines unit sales increase 20% for each of
2005 and 2006 years from historical 2004 unit sales
(excluding sales to CEC). |
|
|
c) There are no changes in product mix and there are no new
types of products sold compared to the historical 2004 product
mix. |
|
|
d) Sold units are valued using standard costs (that
approximate actual cost) as of December 31, 2004. There are
no inventory reserve releases in COGS in relation to sold or
disposed inventory previously written off. |
|
|
e) The retail price for the BMTV and BM80 products
decreases by $25 and for the VistaFrame products by $50 compared
to historical average prices during the year ended
December 31, 2004. |
|
|
f) Operating expenses increase by 5% for each of 2005 and
2006 years from historical 2004 operating expenses.
Additionally, sales and marketing costs increase by $150,000 for
each of 2005 and 2006 years. |
|
|
g) Broadband development starts in 2005 at overall
incremental development cost $1 million with one-third of
the cost incurred in 2005 and two-thirds of the cost incurred in
2006. |
|
|
h) Interest income, net primarily represents interest
income on cash equivalents and short-term investments, and no
collection of the $5.0 million note receivable which
matured during April 2005. |
69
None of these assumptions may be realized and they are
inherently subject to significant business economic and
competitive uncertainties and contingencies, all of which are
difficult to predict and many of which are beyond the
Companys control. Accordingly, the assumptions made in
preparation of above projection may not prove accurate, and
actual results may materially differ. In addition, the
projections do not take into account of the transaction
contemplated by the proposed acquisition of the Company. Readers
are cautioned not to place undue reliance on this data.
70
VIALTA, INC.
STATEMENT OF OPERATIONS
ANALOG AND BROADBAND SALES
|
|
|
|
|
|
|
|
|
|
|
|
|
2005E | |
|
2006E | |
|
|
| |
|
| |
|
|
(In thousands) | |
Revenue, net
|
|
$ |
12,166 |
|
|
$ |
26,600 |
|
Cost of goods sold
|
|
|
8,966 |
|
|
|
20,759 |
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,201 |
|
|
|
5,841 |
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Engineering and development
|
|
|
1,309 |
|
|
|
1,375 |
|
|
BroadBand Development
|
|
|
333 |
|
|
|
667 |
|
|
Sales and marketing
|
|
|
2,262 |
|
|
|
2,675 |
|
|
General and administrative
|
|
|
4,802 |
|
|
|
5,042 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
8,706 |
|
|
|
9,758 |
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(5,505 |
) |
|
|
(3,917 |
) |
Interest income and other:
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
697 |
|
|
|
725 |
|
|
|
|
|
|
|
|
|
|
Total interest income and other
|
|
|
697 |
|
|
|
725 |
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(4,808 |
) |
|
$ |
(3,192 |
) |
|
|
|
|
|
|
|
71
MARKET PRICE AND DIVIDEND INFORMATION
Vialta common stock is traded on the OTC Bulletin Board under
the symbol VLTA. On March 7, 2005, there were
approximately 329 stockholders of record of Vialta common stock.
The following table sets forth the high and low bid prices for
the common stock as reported by the OTC Bulletin Board during
the periods indicated. Such prices reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
|
|
|
|
|
|
|
|
|
|
|
|
High | |
|
Low | |
|
|
| |
|
| |
Fiscal 2003:
|
|
|
|
|
|
|
|
|
|
First Quarter ended March 31, 2003
|
|
$ |
0.45 |
|
|
$ |
0.30 |
|
|
Second Quarter ended June 30, 2003
|
|
$ |
0.51 |
|
|
$ |
0.28 |
|
|
Third Quarter ended September 30, 2003
|
|
$ |
0.49 |
|
|
$ |
0.33 |
|
|
Fourth Quarter ended December 31, 2003
|
|
$ |
0.81 |
|
|
$ |
0.35 |
|
Fiscal 2004:
|
|
|
|
|
|
|
|
|
|
First Quarter ended March 31, 2004
|
|
$ |
0.70 |
|
|
$ |
0.32 |
|
|
Second Quarter ended June 30, 2004
|
|
$ |
0.39 |
|
|
$ |
0.32 |
|
|
Third Quarter ended September 30, 2004
|
|
$ |
0.35 |
|
|
$ |
0.23 |
|
|
Fourth Quarter ended December 31, 2004
|
|
$ |
0.25 |
|
|
$ |
0.16 |
|
Fiscal 2005:
|
|
|
|
|
|
|
|
|
|
First Quarter ended March 31, 2005
|
|
$ |
0.34 |
|
|
$ |
0.20 |
|
|
Second Quarter (through April 21, 2005)
|
|
$ |
0.34 |
|
|
$ |
0.34 |
|
The closing sale price for shares of the common stock on the OTC
Bulletin Board on March 28, 2005, the last trading day
before Vialta announced the proposal by the participating
stockholders, was $0.22 per share. Stockholders should
obtain a current market quotation for the common stock before
making any decision with respect to the merger.
Vialta has never declared or paid a cash dividend on its common
stock and does not plan to pay any cash dividends on its common
stock in the foreseeable future. Under the merger agreement,
Vialta has agreed not to pay dividends on its common stock
before the effective time of the merger.
RECENT TRANSACTIONS AND PRIOR STOCK PURCHASES
There have been no transactions in the common stock of Vialta
effected within 60 days of the date of this proxy statement
by Vialta, or, to Vialtas knowledge, any of the executive
officers or directors of Vialta (other than Mr. Chan). To
Vialtas knowledge, the only transaction in Vialta common
stock effected by the participating stockholders within
60 days of the date of this proxy statement was the
contribution of their shares to Victory and their commitment to
contribute any shares acquired before the effective time of the
merger in accordance with the terms of the contribution
agreement. None of the participating stockholders has purchased
common stock of Vialta during the past two years, to
Vialtas knowledge, nor has Vialta repurchased any of its
common stock during the past two years.
Vialta has not made an underwritten offering of its common stock
for cash at any time prior to the date of this proxy statement.
72
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information at
May 10, 2005 regarding the beneficial ownership of Vialta
common stock by each director, each person known by Vialta to
own beneficially more than 5% of Vialta common stock (including
any group as set forth in Section 13(d)(3) of
the Exchange Act), each named executive officer (as defined in
Item 402(a)(3) of Regulation S-K), and all directors
and current executive officers as a group based upon information
furnished by such persons. Except as indicated in the footnotes,
the persons listed have sole voting and investment power over
the shares beneficially owned.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of | |
Name and Address(1) |
|
Number of Shares | |
|
Class Outstanding | |
|
|
| |
|
| |
Knight Equity Markets, L.P.(2)
|
|
|
8,992,418 |
|
|
|
11 |
% |
|
545 Washington Blvd., 3rd Floor
|
|
|
|
|
|
|
|
|
|
Jersey City, NJ 07310
|
|
|
|
|
|
|
|
|
Victory Acquisition Corp.(3)
|
|
|
32,039,840 |
|
|
|
39 |
% |
Fred S.L. Chan(4)
|
|
|
33,658,420 |
|
|
|
40 |
% |
Didier Pietri(5)
|
|
|
3,496,936 |
|
|
|
4 |
% |
George M. Cain(6)
|
|
|
15,000 |
|
|
|
* |
|
Herbert Chang(7)
|
|
|
49,666 |
|
|
|
* |
|
Matthew K. Fong(8)
|
|
|
95,974 |
|
|
|
* |
|
Michael S. Dubester(9)
|
|
|
15,000 |
|
|
|
* |
|
William Scharninghausen(10)
|
|
|
165,208 |
|
|
|
* |
|
Yin-Wu Chen(11)
|
|
|
180,000 |
|
|
|
* |
|
All executive officers and directors as a group (8 persons)
|
|
|
37,676,204 |
|
|
|
43 |
% |
|
|
|
|
* |
The amount shown is less than 1% of the outstanding shares of
such class. |
|
|
|
|
(1) |
Unless otherwise indicated, the address for each beneficial
owner is c/o Vialta, Inc., 48461 Fremont Boulevard,
Fremont, CA 94538. |
|
|
(2) |
Based on a filing with the Securities and Exchange Commission on
May 10, 2005 indicating beneficial ownership as of
May 10, 2005. |
|
|
(3) |
The address for Victory Acquisition Corp. is 19770 Stevens
Creek Blvd., Cupertino, CA 95014. The participating stockholders
have acted as a group in contributing their Vialta shares to
Victory in connection with the proposed merger and may therefore
be deemed as a group to have beneficial ownership of the entire
32,039,840 shares of Vialta stock held by Victory. See
SPECIAL FACTORS Interests of Certain Persons
in the Merger. |
|
|
(4) |
Includes all shares held by Victory Acquisition Corp., an entity
controlled by Mr. Chan, and 1,618,580 shares which
Mr. Chan has the right to acquire on or within 60 days
of May 10, 2005 through the exercise of options. All of the
options will be cancelled in connection with the merger. |
|
|
(5) |
Includes 3,437,500 shares which Mr. Pietri has the
right to acquire on or within 60 days of May 10, 2005
through the exercise of options. |
|
|
(6) |
Includes 15,000 shares which Mr. Cain has the right to
acquire on or within 60 days of May 10, 2005 through
the exercise of options. |
|
|
(7) |
Includes 49,666 shares which Mr. Chang has the right
to acquire on or within 60 days of May 10, 2005
through the exercise of options. |
|
|
(8) |
Includes 15,000 shares which Mr. Fong has the right to
acquire on or within 60 days of May 10, 2005 through
the exercise of options. |
|
|
(9) |
Includes 15,000 shares which Mr. Dubester has the
right to acquire on or within 60 days of May 10, 2005
through the exercise of options. |
|
|
|
|
(10) |
Includes 165,208 shares which Mr. Scharninghausen has
the right to acquire on or within 60 days of May 10,
2005 through the exercise of options. |
73
|
|
(11) |
Includes 180,000 shares which Mr. Chen has the right
to acquire on or within 60 days of May 10, 2005
through the exercise of options. |
The sole director and executive officer of Victory Acquisition
Corp. is Fred S.L. Chan. His ownership of Vialta common stock is
set forth above.
FUTURE STOCKHOLDER PROPOSALS
Under Vialtas bylaws, no business may be brought before an
annual meeting unless it is specified in the notice of the
meeting or is otherwise properly brought before the meeting by
or at the direction of the board of directors or by an eligible
stockholder who has delivered written notice to Vialtas
Corporate Secretary not less than 120 days prior to the
date that Vialtas proxy statement was released to
stockholders in connection with the previous years annual
meeting of stockholders.
If the merger is completed, there will be no public
participation in any future meetings of stockholders of Vialta.
However, if the merger is not completed, Vialtas
stockholders will continue to be entitled to attend and
participate in Vialta stockholders meetings. If the merger
is not completed, Vialtas 2006 annual meeting will be
delayed. Vialta will inform its stockholders, by press release
or other means determined reasonable by Vialta, of the date by
which stockholder proposals must be received by Vialta for
inclusion in the proxy materials relating to the annual meeting,
which proposals must comply with the rules and regulations of
the SEC then in effect.
STOCKHOLDERS SHARING THE SAME ADDRESS
Some banks, brokers and other nominees are participating in the
practice of householding proxy statements and annual
reports. This means that only one proxy statement and set of
accompanying materials is being delivered to multiple security
holders sharing an address. Vialta will deliver, promptly upon
written or oral request, a separate copy of this proxy statement
and accompanying materials to a security holder at a shared
address to which a single copy of the documents was delivered. A
security holder who wishes to receive a separate copy of the
proxy statement and accompanying materials now or in the future,
or security holders sharing an address who are receiving
multiple copies of proxy materials and wish to receive a single
copy of such materials, should submit a written request to
Director of Finance, Vialta, Inc., 48461 Fremont Boulevard,
Fremont, CA 94538 or call 510-870-3068.
WHERE YOU CAN FIND MORE INFORMATION
Vialta files annual, quarterly and current reports, proxy
statements and other documents with the SEC under the Exchange
Act. Vialtas SEC filings made electronically through the
SECs EDGAR system are available to the public at the
SECs website at http://www.sec.gov. You may also read and
copy any document Vialta files with the SEC at the SECs
public reference room located at 450 Fifth Street, NW,
Washington, DC 20549. Please call the SEC at (800) SEC-0330
for further information on the operation of the public reference
room.
Vialta and Victory Acquisition Corp. have filed with the SEC a
Schedule 13E-3 with respect to the proposed merger. The
Schedule 13E-3, including any amendments and exhibits filed
or incorporated by reference as a part of it, is available for
inspection as set forth above.
In some cases, the SEC allows Vialta to incorporate by
reference information that it files with the SEC in other
documents into this proxy statement. This means that Vialta can
disclose important information to you, where permitted, by
referring you to another document filed separately with the SEC.
The information incorporated by reference is considered to be
part of this proxy statement.
74
Vialta incorporates by reference into this proxy statement the
following documents that it filed with the SEC under the
Exchange Act:
|
|
|
|
|
Annual Report on Form 10-K, for the year ended
December 31, 2004, a copy of which is attached to this
proxy statement as Annex I |
|
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|
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005, a copy of which is attached to this proxy
statement as Annex J. |
Vialta undertakes to provide without charge to each person to
whom a copy of this proxy statement has been delivered, upon
request, by first class mail or other equally prompt means,
within one business day of receipt of such request, a copy of
any or all of the documents incorporated by reference into this
proxy statement, other than the exhibits to these documents,
unless the exhibits are specifically incorporated by reference
into the information that this proxy statement incorporates. You
may obtain copies of documents incorporated by reference by
requesting them in writing or by telephone from
Finance Department
Vialta, Inc.
48461 Fremont Boulevard
Fremont, California 94538
Telephone: (510) 870-3088
Vialta will deliver such requested documents to you by first
class mail or equally prompt means within one business day of
receipt of such request.
This proxy statement does not constitute an offer to sell, or
a solicitation of an offer to buy, any securities, or the
solicitation of a proxy, in any jurisdiction to or from any
person to whom it is not lawful to make any offer or
solicitation in that jurisdiction. The delivery of this proxy
statement should not create an implication that there has been
no change in the affairs of Vialta since the date of this proxy
statement or that the information herein is correct as of any
later date.
Victory Acquisition Corp., Fred S.L. Chan and the other
participating stockholders have supplied, and Vialta has not
independently verified, the information in this proxy statement
related to Victory Acquisition Corp., Fred S.L. Chan and the
other participating stockholders.
Stockholders should not rely on information other than that
contained or incorporated by reference in this proxy statement.
Vialta has not authorized anyone to provide information that is
different from that contained in this proxy statement. This
proxy statement is
dated ,
2005. No assumption should be made that the information
contained in this proxy statement is accurate as of any date
other than that date, and the mailing of this proxy statement
will not create any implication to the contrary. Notwithstanding
the foregoing, in the event of any material change in any of the
information previously disclosed, Vialta will, where relevant
and if required by applicable law, (1) update such
information through a supplement to this proxy statement and
(2) amend the Transaction Statement on Schedule 13E-3
filed in connection with the merger, in each case, to the extent
necessary.
75
Execution Copy
Annex A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the
Agreement) is entered into as of this
28th day of March, 2005 by and between, Victory Acquisition
Corp., a Delaware corporation (Newco),
and Vialta, Inc., a Delaware corporation
(Target). Capitalized terms not
defined in the body of this Agreement shall have the meaning
ascribed to them on Exhibit A.
RECITALS
A. The parties intend that, subject to the terms and
conditions hereinafter set forth, Newco will merge with and into
Target in a statutory merger (the
Merger), with Target to be the
surviving corporation, all pursuant to the terms and conditions
of this Agreement and a Certificate of Merger substantially in
the form of Exhibit B (the Certificate
of Merger) and the applicable provisions of the
laws of the State of Delaware. Upon the effectiveness of the
Merger, all outstanding capital stock of Newco
(Newco Stock) will be converted into
capital stock of Target as the surviving corporation of the
Merger.
B. All outstanding shares of Newco are owned by
Fred S.L. Chan and certain family members and trusts for
the benefit of Mr. Chan and his family. Newco has been
formed solely to facilitate and effect this Merger with Target,
with the existence of Newco to be transitory and discontinued
upon the consummation of the Merger. Newco will conduct no
business prior to the Merger. Newco has pledged to Target, to
secure Newcos obligations under this Agreement, all shares
of Targets common stock owned or controlled by Newco
pursuant to the Pledge Agreement dated as of an even date hereof
and attached as Exhibit C hereto (the
Pledge Agreement).
C. The Merger is intended for federal income tax purposes
to be treated as a redemption of the shares of Target Common
Stock outstanding immediately prior to the Effective Time (other
than Target shares held by Newco contributed to Newco shortly
prior to the Closing Date by those stockholders of Target who
will continue as stockholders of Target after the Merger),
pursuant to Section 302 of the Code.
D. Following the Merger, Target will no longer be a
reporting company pursuant to Section 12 of the Exchange
Act.
E. The Board of Directors of Target and the Special
Committee appointed by the Board of Directors of Target (the
Special Committee): (i) has
determined that the Merger is advisable and fair to, and in the
best interests of, Target and its stockholders, (ii) has
approved this Agreement, the Merger and the other transactions
contemplated by this Agreement and (iii) has determined to
recommend that the stockholders of Target adopt and approve this
Agreement and approve the Merger. In addition, the Special
Committee has received the opinion of Salem Partners LLC that
the Merger is fair from a financial point of view to Target and
its stockholders (other than Mr. Chan and his Affiliates).
In consideration of the foregoing and the representations,
warranties, covenants and agreements set forth in this
Agreement, the parties agree as follows:
1. PLAN OF REORGANIZATION
1.1 The Merger. Subject to the terms
and conditions of this Agreement, at the Effective Time, Newco
will be merged with and into Target, with Target as the
Surviving Corporation in the Merger, pursuant to this Agreement
and the Certificate of Merger and in accordance with applicable
provisions of the laws of the State of Delaware, and the effect
of the Merger shall be as provided in this Agreement and the
applicable provisions of Delaware Law. Without limiting the
generality of the foregoing, at the Effective Time, all the
property, rights, privileges, powers and franchises of Newco and
Target shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Newco and Target shall become the
debts, liabilities and duties of the Surviving Corporation.
A-1
1.2 Effect on Capital Stock. Subject
to the terms and conditions of this Agreement, at the Effective
Time, by virtue of the Merger and without any action on the part
of Newco, Target or the holders of any of the following
securities:
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1.2.1 Certain Defined Terms. The term
Merger Consideration shall mean
$0.36 per share of Target Common Stock in cash. |
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1.2.2 Conversion of Newco Stock. Each
share of Newco capital stock immediately prior to the Effective
Time (the Newco Stock) will be
cancelled and extinguished and automatically converted into the
right to receive one share of Common Stock of the Surviving
Corporation. |
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|
1.2.3 Cancellation of Newco Stock.
Each share of Target Common Stock held by Newco or its officers,
directors, stockholders or Affiliates immediately prior to the
Effective Time (the Newco Target
Stock) shall automatically be cancelled and
retired and shall cease to exist, and no cash or other stock
consideration shall be delivered or deliverable in exchange
therefor. |
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1.2.4 Cancellation of Treasury Stock.
Each share of Target Common Stock held by Target or any
Subsidiary (as defined below) of Target (Treasury
Stock) shall automatically be cancelled and
retired and shall cease to exist, and no cash or other stock
consideration shall be delivered or deliverable in exchange
therefor. |
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1.2.5 Conversion of Other Shares.
Subject to Section 1.3, each share of Target Common Stock
issued and outstanding immediately prior to the Effective Time,
other than shares of Newco Target Stock and shares of
Treasury Stock, will be cancelled and extinguished and
automatically converted into the right to receive the Merger
Consideration in cash upon compliance with the procedures
contemplated in Section 6.2 hereof. |
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|
1.2.6 Options. At the Effective Time,
each holder of a then outstanding vested option which is then
exercisable to purchase shares of Target Common Stock
(Target Options) (other than options
held by Newco, its officers, directors, stockholders or
Affiliates immediately prior to the Effective Time
(Newco Options) which shall be
cancelled) shall automatically be cancelled and converted into
the right to receive in settlement thereof and net of applicable
withholding taxes, cash in an amount equal to the product of
(i) the Merger Consideration minus the applicable exercise
price per share of such Target Options multiplied by
(ii) the number of vested shares of Target Common Stock
that such option may purchase upon exercise. If and to the
extent required by the terms of the plans governing such options
or the option granted thereunder, Target shall use its
reasonable efforts to obtain the consent of each holder of
outstanding options to the foregoing treatment of such options.
At the Effective Time, each unvested Target Option shall
automatically be terminated without further rights. |
1.3 Dissenting Shares. Notwithstanding
any provision of this Agreement to the contrary, any shares of
Target Common Stock outstanding immediately prior to the
Effective Time and held by a holder who has not voted in favor
of the Merger or consented thereto in writing and who has
demanded appraisal for such shares in accordance with Delaware
Law or California Law, as applicable, shall not be converted
into or represent a right to receive the Merger Consideration as
provided in Section 1.2.5 but instead at the Effective Time
(or at such later time) shall be converted into the right to
receive only such consideration as may be determined to be due
with respect to such Dissenting Shares under Section 262 of
the Delaware Law or Chapter 13 of the California Law, as
applicable. From and after the Effective Time, a holder of
Target Common Stock that becomes a holder of Dissenting Shares
shall not be entitled to exercise any of the voting rights or
other rights of a stockholder of the Surviving Corporation. If
any holder of shares of Target Common Stock who demands
appraisal under Delaware Law and/or the California Law, as
applicable, shall effectively withdraw or lose (through failure
to perfect or otherwise) the right to appraisal, then, as of the
later of (i) the Effective Time and (ii) the
occurrence of such withdrawal or loss, such holders shares
shall no longer be Dissenting Shares and shall automatically be
converted into and represent only the right to receive its
portion of the Merger Consideration as provided in
Section 1.2.5 without interest thereon, upon surrender of
the certificate representing such shares pursuant to
Section 6.2(b).
A-2
1.4 Other Effects of the Merger.
Subject to the terms and conditions of this Agreement, at the
Effective Time (a) the Certificate of Incorporation of
Target shall be amended in its entirety to read as set forth in
Exhibit D hereto, (b) the Bylaws of Newco will
be the Bylaws of the Surviving Corporation, and
(c) the Board of Directors and officers of Newco will
become the Board of Directors and officers of the Surviving
Corporation.
1.5 Further Assurances. Target agrees
that if, at any time after the Effective Time, the Surviving
Corporation considers or is advised that any further deeds,
assignments or assurances are reasonably necessary or desirable
to vest, perfect or confirm in the Surviving Corporation title
to any property or rights of Target or Newco, the Surviving
Corporation and its proper officers and directors may execute
and deliver all such proper deeds, assignments and assurances
and do all other things necessary or desirable to vest, perfect
or confirm title to such property or rights in the Surviving
Corporation and otherwise to carry out the purpose of this
Agreement, in the name of Target or Newco.
1.6 Tax Treatment. The Merger is
intended to be treated for federal income tax purposes as a
redemption of the shares of Target Common Stock (other than
Newco Stock), pursuant to Section 302 of the Code. Cash
payable to stockholders of Target, other than Newco, will be
subject to taxable treatment under the Code. Shares of Newco
held by stockholders of Newco (received by them in exchange for
the contribution of an equal number of Target shares) will be
exchanged for shares of Target in the Merger, and will be
treated as continuing interests in Target.
1.7 Proxy Statement and
Schedule 13E-3.
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1.7.1 As promptly as practicable after the execution
of this Agreement, Target and Newco shall cooperate and promptly
prepare and file with the Securities and Exchange Commission
(SEC) a proxy statement relating to
the meeting of Targets stockholders to be held in
connection with the Merger (together with any amendments thereof
or supplements thereto, the Proxy
Statement), a joint Rule 13e-3 Transaction
Statement on Schedule 13E-3 (the
Schedule 13E-3) with respect to
the Merger and any other filings made by or required to be made
by Target with the SEC other than the Proxy Statement and
Schedule 13E-3 (the Other
Filings), if any. The respective parties shall
cause the Proxy Statement, the Schedule 13E-3 and any Other
Filings to comply as to form in all material respects with the
applicable provisions of the Exchange Act, including
Regulation 14A and Rule 13e-3 thereunder, and any
other applicable laws. The respective parties, after
consultation with the other, will use all reasonable efforts to
respond to any comments made by the SEC with respect to the
Proxy Statement, the Schedule 13E-3 and any Other Filings.
Target and Newco shall furnish to each other all information
concerning it and the holders of its capital stock as the other
may reasonably request in connection with such actions and the
preparation of the Proxy Statement, the Schedule 13E-3 and
any Other Filings. |
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As promptly as practicable after the clearance of the Proxy
Statement and the Schedule 13E-3 by the SEC, Target shall
mail the Proxy Statement to its stockholders (or, if the SEC
chooses not to review the Proxy Statement and the
Schedule 13E-3, within 10 days after the date that the
SEC notifies Target that it will not review the Proxy
Statement). The Proxy Statement shall include the recommendation
of the Target Board of Directors and the Special Committee that
adoption of the Merger Agreement by Targets stockholders
is advisable and that Target Board of Directors and the Special
Committee has determined that the Merger is fair to, and in the
best interests of, Target Stockholders other than Mr. Chan,
Newco and their Affiliates, subject to Target Board of Directors
or the Special Committees right to withdraw, modify or
amend such recommendation if Target Board of Directors or the
Special Committee, as applicable, determines in good faith,
after receipt of the advice of its outside counsel, that such
action is necessary for Target Board of Directors and the
Special Committee to comply with their fiduciary duties under
applicable law. |
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No amendment or supplement to the Proxy Statement, the
Schedule 13E-3 or any Other Filings will be made by Target
without the approval of Newco, which shall not be unreasonably
delayed or withheld. Target will advise Newco promptly after it
receives notice thereof, of any request by the SEC for |
A-3
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amendment of the Proxy Statement or any Other Filings or
comments thereon and responses thereto or requests by the SEC
for additional information. |
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1.7.2 Each of the parties agrees to use its
reasonable efforts to cooperate and to provide each other with
such information as any of such parties may reasonably request
in connection with the preparation of the Proxy Statement, the
Schedule 13E-3 and the Other Filings. Each party agrees
promptly to supplement, update and correct any information
provided by it for use in the Proxy Statement, the
Schedule 13E-3 and the Other Filings to the extent that it
is or shall have become incomplete, false or misleading. If at
any time prior to the Effective Time, any event or circumstance
relating to Newco or its officers and directors, should be
discovered by Newco which should be set forth in an amendment to
the Proxy Statement, the Schedule 13E-3 or Other Filings,
Newco shall promptly inform Target. If at any time prior to the
Effective Time, any event or circumstance relating to Target, or
its officers or directors, should be discovered by Target which
should be set forth in an amendment or a supplement to the Proxy
Statement, any Other Filing or the Schedule 13E-3, Target
shall promptly inform Newco. |
1.8 Stockholders Meeting.
Subject to Section 1.7 hereof, in accordance with
Targets certificate of incorporation and by-laws, Target
shall call and hold a meeting of its stockholders (including any
adjournment thereof, the Target Stockholders
Meeting) as promptly as practicable for the
purpose of voting upon the approval of the Merger, and Target
shall use its reasonable efforts to hold Target
Stockholders Meeting as promptly as practicable after the
date on which the Proxy Statement is cleared by the SEC.
Notwithstanding the foregoing, Target may adjourn, delay, cancel
or not call or hold the Target Stockholders Meeting at any
time before the vote of stockholders at the Target
Stockholders Meeting is taken with regard to the Merger
and this Agreement, if Targets Board of Directors or the
Special Committee withdraws, modifies or amends its
recommendation in accordance with Section 1.7.1 hereof or
determines in accordance with Section 1.7.1 that it is
required by its fiduciary duties or applicable law to notify the
Target Stockholders of any Acquisition Proposal prior to the
taking of such vote.
2. REPRESENTATIONS AND WARRANTIES OF
TARGET
Target hereby represents and warrants that, except as set forth
on the Target Disclosure Letter delivered to Newco herewith:
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2.1 Organization and Good Standing.
Target and each of its Subsidiaries is an entity duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its organization, has the corporate or other
power and authority to carry on its business as now conducted,
and is qualified as a foreign corporation in each jurisdiction
listed on Section 2.1 of the Target Disclosure Letter.
Except as listed on Section 2.1 of the Target Disclosure
Letter, Target does not own or lease any real property, has no
employees in, and does not maintain a place of business in any
foreign country or in any state of the United States other than
California. |
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2.2 Power, Authorization and Validity. |
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2.2.1 Power and Capacity. Target has
the corporate power and authority to enter into and, subject to
the approval of this Agreement by the requisite holders of the
issued and outstanding shares of Target Common Stock as required
by applicable law and this Agreement, perform its obligations
under this Agreement. The execution, delivery and performance of
this Agreement have been duly and validly approved and
authorized by Targets Board of Directors as required by
applicable law and Targets certificate of incorporation
and bylaws. |
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2.2.2 No Filings. No filing,
authorization or approval, governmental or otherwise, by Target
is necessary to enable Target to enter into, and to perform its
obligations under, this Agreement, except for (a) the
filing of the Certificate of Merger with the Delaware Secretary
of State, and the filing of appropriate documents with the
relevant authorities of other states in which Target is
qualified to do business, if any, (b) such filings as may
be required to comply with federal and state securities laws,
(c) compliance with Section 1203 of California Law and
(d) the approval of the holders of a majority of the issued
and outstanding shares of Target Common Stock of the
transactions contemplated hereby. |
A-4
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2.2.3 Binding Obligation. Subject to
approval of this Agreement and the Merger by the requisite vote
of the stockholders of Target, this Agreement is, assuming this
Agreement constitutes valid and binding obligations of Newco,
valid and binding obligations of Target enforceable in
accordance with its terms, except as to the effect, if any, of
(a) applicable bankruptcy, insolvency and other similar
laws affecting the rights of creditors generally, (b) rules
of law governing specific performance, injunctive relief and
other equitable remedies, and (c) the enforceability of
provisions requiring indemnification in connection with the
offering, issuance or sale of securities. |
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2.3 Capitalization. |
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2.3.1 Authorized and Outstanding Capital
Stock. The authorized capital stock of Target consists
of 400,000,000 shares of Common Stock, $0.001 par
value, of which 83,052,852 shares are issued and
outstanding, as of March 7, 2005. All issued and
outstanding shares of Target Common Stock have been duly
authorized and were validly issued, are fully paid and
nonassessable, are not subject to any right of rescission, are
not subject to preemptive rights by statute, the Certificate of
Incorporation or Bylaws of Target, or any agreement or document
to which Target is a party or by which it is bound and have been
offered, issued, sold and delivered by Target in compliance with
all registration or qualification requirements (or applicable
exemptions therefrom) of applicable federal and state securities
laws. There is no liability for dividends accrued but unpaid
with respect to Targets outstanding securities. |
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2.3.2 Options/Rights. Except as
disclosed in Section 2.3.2 of the Target Disclosure Letter,
there are no shares of preferred stock, stock appreciation
rights, options, warrants, calls, rights, commitments,
conversion privileges or preemptive or other rights or
agreements outstanding to purchase or otherwise acquire any of
Targets capital stock or any securities or debt
convertible into or exchangeable for shares of Target capital
stock or obligating Target to grant, extend or enter into such
option, warrant, call, commitment, conversion privileges or
preemptive or other right or agreement. Section 2.3.2 of
the Target Disclosure Letter sets forth a true and complete list
of each outstanding option to acquire shares of Target Common
Stock, the exercise price thereof, the vesting schedule therefor. |
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2.4 Subsidiaries. Except for the
Subsidiaries of Target listed on Section 2.4 of the Target
Disclosure Letter (collectively the
Subsidiaries and each a
Subsidiary), each of which is
wholly-owned by Target, Target does not have any subsidiaries or
any interest, direct or indirect, in any corporation,
partnership, joint venture or other business entity. |
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2.5 No Violation of Existing
Agreements. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby will conflict with, or (with or without notice or lapse
of time, or both) result in a termination, breach, impairment or
violation of (a) any provision of the Certificate of
Incorporation or Bylaws of Target or any Subsidiary, as
currently in effect, (b) in any material respect, any
material instrument or contract to which Target or any
Subsidiary is a party or by which Target or any Subsidiary is
bound or (c) subject to the filings or other compliance
contemplated by Section 2.2.2 any federal, state, local or
foreign judgment, writ, decree, order, statute, rule or
regulation applicable to Target or any Subsidiary or their
respective assets or properties. |
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2.6 Litigation. As of the date hereof
and except as disclosed on Section 2.6 of the Target
Disclosure Letter, to the knowledge of Target, there is no
action, proceeding, claim or investigation pending against
Target or any Subsidiary before any court or administrative
agency. As of the date hereof, there is not outstanding against
Target or any of it Subsidiaries or any of their properties any
judgment, writ or decree. |
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2.7 Taxes. Except as disclosed on
Section 2.7 of the Target Disclosure Letter, Target and
each of its Subsidiaries has filed all federal, state, local and
foreign tax returns required to be filed, has paid all taxes
required to be paid in respect of all periods for which returns
have been filed, has established an adequate accrual or reserve
for the payment of all taxes payable in respect of the periods
subsequent to the periods covered by the most recent applicable
tax returns, has made all necessary estimated tax payments.
Neither Target nor any Subsidiary is delinquent in the payment
of any tax or is delinquent in the filing of any tax returns,
and no deficiencies for any tax have been threatened, claimed,
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assessed in writing which have not been paid. No tax return of
Target or any Subsidiary is currently being audited by the
Internal Revenue Service or any state taxing agency or
authority. For the purposes of this Section, the terms
tax and
taxes include all federal, state,
local and foreign income, gains, franchise, excise, property,
sales, use, employment, license, payroll, occupation, recording,
value added or transfer taxes, governmental charges, fees,
levies or assessments (whether payable directly or by
withholding), and, with respect to such taxes, any estimated
tax, interest and penalties or additions to tax and interest on
such penalties and additions to tax. |
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2.8 Title to Properties. Target has
good and marketable title to all of its assets as shown on the
balance sheet filed with its most recent periodic filing with
the SEC under the Exchange Act (the Balance
Sheet), free and clear of all liens, charges,
restrictions or encumbrances (other than for taxes not yet due
and payable). All machinery and equipment included in such
properties is in good condition and repair, normal wear and tear
excepted, and all leases of real or personal property to which
Target or any Subsidiary is a party are fully effective and
afford Target or the Subsidiary peaceful and undisturbed
possession of the subject matter of the lease. |
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2.9 Contracts and Commitments. Neither
Target nor any Subsidiary is in default in any material respect
under any contract that is material to the business of Target or
a Subsidiary. |
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2.10 Intellectual Property. Target and
the Target Subsidiaries own, or have the right to use, all
material Intellectual Property Rights (as defined below)
required for the conduct of their respective businesses as
presently conducted (such Intellectual Property Rights being
hereinafter collectively referred to as the Target
IP Rights). There are no material royalties,
honoraria, fees or other payments payable by Target to any
person by reason of the ownership, use, license, sale or
disposition of the Target IP Rights (other than as set forth in
Section 2.10 of the Target Disclosure Letter). To the
Knowledge of Target, neither the manufacture, marketing,
license, sale or intended use of any product currently licensed
or sold by Target or any of the Target Subsidiaries violates any
license or agreement between Target or any of the Target
Subsidiaries and any third party or infringes any Intellectual
Property Right of any other party. Target has taken reasonable
and practicable steps designed to safeguard and maintain the
secrecy and confidentiality of, and its proprietary rights in,
all material Target IP Rights. All current officers, employees
and consultants of Target and each Subsidiary have executed and
delivered to Target or the Subsidiary an agreement regarding the
protection of proprietary information and the assignment to
Target or the Subsidiary of all Intellectual Property Rights
arising from the services performed for Target or the Subsidiary
by such persons. Exhibit 2.10 to the Target Disclosure
Letter sets forth a true and complete list of each material
(i) patent and patent application, (ii) copyright
registration and copyrights registration application;
(iii) each trademark registration and trademark
registration application and (iv) each domain name, in each
case pursuant to federal, state and foreign laws owned or filed
on behalf of Target or any of its Subsidiaries. To the Knowledge
of Target, as of the date hereof, no person is infringing
Targets Intellectual Property Rights. As used herein, the
term Intellectual Property Rights
shall mean all worldwide industrial and intellectual property
rights, including patents, patent applications, patent rights,
trademarks, trademark applications, trade names, service marks,
service mark applications, domain names, copyright, copyright
applications, franchises, licenses, inventories, know-how, trade
secrets, customer lists, proprietary processes and formulae, all
source and object code, algorithms, architecture, structure,
display screens, layouts, inventions, development tools and all
documentation and media constituting, describing or relating to
the above, including manuals, memoranda and records. |
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2.11 Compliance with Laws. Target and
each of its Subsidiaries has complied in all material respects
with all applicable laws, ordinances, regulations, and rules,
and all orders, writs, injunctions, awards, judgments, and
decrees applicable to it or to the assets, properties, and
business thereof (the violation of which would have a material
adverse effect upon its business), including: (a) all
applicable federal and state securities laws and regulations,
(b) all applicable federal, state, and local laws,
ordinances, regulations, and all orders, writs, injunctions,
awards, judgments, and decrees pertaining to (i) the sale,
licensing, leasing, ownership, or management of its owned,
leased or licensed real or personal property, products and
technical data, (ii) employment and employment practices,
terms and conditions of employment, and wages and hours and
(iii) safety, health, fire prevention, environmental
protection, |
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toxic waste disposal, building standards, zoning and other
similar matters, (c) the Export Administration Act and
regulations promulgated thereunder and all other laws,
regulations, rules, orders, writs, injunctions, judgments and
decrees applicable to the export or re-export of controlled
commodities or technical data, (d) the Immigration Reform
and Control Act, and (e) the Foreign Corrupt Practices Act.
Each of Target and the Subsidiaries has received all material
permits and approvals from, and has made all filings with,
government agencies and authorities that are necessary in
connection with its business as currently conducted. |
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2.12 Employees, ERISA and Other
Compliance. |
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2.12.1 Neither Target nor any Subsidiary has any
employment contracts or consulting agreements currently in
effect that are not terminable at will (other than agreements
with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions). |
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2.12.2 Copies of all Target Employee Plans (and, if
applicable, related trust agreements) and all amendments thereto
and written interpretations thereof (including summary plan
descriptions) have been filed in a timely manner, together with
the three most recent annual reports (Form 5500, including,
if applicable, Schedule B thereto) prepared in connection
with any such Target Employee Plan. All contributions due from
Target or any Subsidiary with respect to any of the Target
Employee Plans have been made as required under ERISA or have
been accrued on Targets or any such Target
Subsidiarys financial statements as of the date of the
Balance Sheet. Each Target Employee Plan has been maintained
substantially in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules
and regulations, including ERISA and the Code, which are
applicable to such Target Employee Plans. Target has no Target
Pension Plans. |
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2.12.3 No benefit payable or which may become
payable by Target or any Subsidiary pursuant to any Target
Employee Plan or as a result of or arising under this Agreement
shall constitute an excess parachute payment (as
defined in Section 280G(b)(1) of the Code) which is subject
to the imposition of an excise Tax under Section 4999 of
the Code or which would not be deductible by reason of
Section 280G of the Code. |
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2.13 No Brokers. Except for the fees
and expenses payable by Target to Salem Partners LLC in
accordance with that certain letter agreement dated
March 3, 2005 and expenses payable by Target to
Needham & Co., Inc., neither Target nor any of the
Target Stockholders is obligated for the payment of fees or
expenses of any investment banker, broker or finder in
connection with the origin, negotiation or execution of this
Agreement or the Certificate of Merger or in connection with any
transaction contemplated hereby or thereby. |
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2.14 Insurance. Target and its
Subsidiaries maintain and at all times during the prior three
years have maintained fire and casualty, general liability
insurance which it believes to be reasonably prudent for
similarly sized and similarly situated businesses. Target and
its Subsidiaries have in full force and effect workers
compensation insurance required in each jurisdiction where any
of them is required to maintain such insurance because of its
business operations. Target has not received any notification
from any carrier issuing any policy under which it is currently
the insured a notice of cancellation or of limitation of
coverage. Target does not have any claim pending under any
insurance policy of Target, and Target has not been denied
coverage under any such policy for any claim, asserted in
connection with any pending or threatened litigation against
Target or for any material claim asserted by Target under any
insurance policy in the last year. |
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2.15 SEC Documents. |
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2.15.1 SEC Reports. Since
January 1, 2003, as of their respective filing dates, or,
with respect to registration statements as of their effective
dates, and prior to the date of this Agreement, in each case as
amended or supplemented, Targets reports, filings,
registration statements and other documents required to be filed
by it with the SEC (Target SEC
Documents) were filed and complied in all material
respects with the requirements of the Exchange Act or the
Securities Act, as applicable, and none of the Target SEC
Documents contained any untrue statement of a material fact or
omitted to state a material |
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fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which
they were made, not misleading, except to the extent corrected,
modified or superseded by a subsequently filed Target SEC
Document. |
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2.15.2 Disclosure Statements.
(a) The Proxy Statement, as supplemented or amended, if
applicable, at the time such Proxy Statement or any amendment or
supplement thereto is first mailed to stockholders of Target, at
the time such stockholders vote on adoption of this Agreement
and at the Effective Time and (b) the Schedule 13E-3
and any Other Filings or any supplement or amendment thereto, at
the time of the filing thereof and at the time of any
distribution or dissemination thereof, in each case, will not
contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they are
made, not misleading. The representations and warranties
contained in this Section 2.15.2 will not apply to
statements or omissions included in the Proxy Statement,
Schedule 13E-3 or any Other Filings based upon information
furnished in writing to Target by or on behalf of Newco or its
Affiliates. |
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2.16 Certain Balance Sheet Items.
Section 2.16 of the Target Disclosure Letter sets forth, as
of February 28, 2005, Targets (i) cash and cash
equivalents, as defined by GAAP, and (ii) inventory changes
through such date from December 31, 2004 (the date of
Targets last physical inventory). Such information is
prepared from Targets books and records in accordance with
GAAP. |
3. REPRESENTATIONS AND WARRANTIES OF
NEWCO
Newco hereby represents and warrants that, except as set forth
on the Newco Disclosure Letter delivered to Target:
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3.1 Organization and Good Standing.
Newco is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has
the corporate power and authority to own, operate and lease its
properties. Newco has not and will not conduct any business
prior to the Effective Time. |
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3.2 Power, Authorization and Validity. |
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3.2.1 Newco has the right, power, legal capacity and
authority to enter into and perform its obligations under this
Agreement, and all agreements to which Newco is or will be a
party that are required to be executed pursuant to this
Agreement (the Newco Ancillary
Agreements). The execution, delivery and
performance of this Agreement and the Newco Ancillary Agreements
have been duly and validly approved and authorized by
Newcos Board of Directors in compliance with applicable
law and the certificate of incorporation and bylaws of the Newco. |
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3.2.2 No filing, authorization or approval,
governmental or otherwise, is necessary to enable Newco to enter
into, and to perform it obligations under, this Agreement and
the Newco Ancillary Agreements, except for the filing of the
Certificate of Merger with the Delaware Secretary of State. |
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3.2.3 This Agreement and the Newco Ancillary
Agreements are, or when executed by Newco will be, valid and
binding obligations of Newco enforceable in accordance with
their respective terms, except as to the effect, if any, of
(a) applicable bankruptcy, insolvency and other similar
laws affecting the rights of creditors generally, (b) rules
of law governing specific performance, injunctive relief and
other equitable remedies and (c) the enforceability of
provisions requiring indemnification in connection with the
offering, issuance or sale of securities; provided, however,
that the Certificate of Merger will not be effective until filed
with the Delaware Secretary of State. |
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3.3 No Violation of Existing
Agreements. Neither the execution and delivery of this
Agreement nor any Newco Ancillary Agreement, nor the
consummation of the transactions contemplated hereby, will
conflict with, or (with or without notice or lapse of time, or
both) result in a termination, breach, impairment or violation
of (a) any provision of the Certificate of Incorporation or
Bylaws of Newco, as currently in effect, (b) in any
material respect, any material instrument or contract to which
Newco is a party or by which Newco is bound, or (c) any
federal, state, local or foreign judgment, writ, decree, order,
statute, rule or regulation applicable to Newco or its assets or
properties. |
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3.4 Vote Required. All votes or
consents of the holders of any of the outstanding shares of
capital stock or any other securities of Newco necessary to
approve this Agreement or the Merger have been obtained. |
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3.5 Finders Fees. There is no
investment banker, broker, finder or other intermediary who
might be entitled to any fee or commission from Newco or any of
its Affiliates upon consummation of the Merger. |
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3.6 Additional Contribution. Newco has
entered into an Additional Contribution Agreement with
Mr. Chan. True and correct copies of the Additional
Contribution Agreement have been provided to Target. |
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3.7 Capitalization. The authorized
capital stock of Newco consists of 50,000,000 shares of
common stock, $0.0001 par value per share, of which
32,039,840 shares are issued and outstanding as of the date
hereof. On the date hereof, Newco and the parties listed on
Section 3.7 of the Newco Disclosure letter have entered
into the Contribution Agreement, a true and correct copy of
which is attached as Exhibit 3.7 hereto, whereby each party
thereto contributes all of the Target Common Stock owned,
legally or beneficially, by them, as of the date hereof or
hereafter through the Effective Time, to Newco. The parties to
the Contribution Agreement represent and, as of the Closing Date
will represent, all of the legal and beneficial owners of common
stock of Newco. Except as set forth on Section 3.7 of the
Newco Disclosure Letter, Newco has no liabilities. Newco has
good and marketable title to all of its assets, free and clear
of all liens, charges, restrictions or encumbrances (other than
for taxes not yet due and payable or the pledge of the Newco
Target Stock pursuant to the Pledge Agreement). |
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3.8 Voting. Newco has entered into the
Voting Agreement dated as of the date hereof among Newco and
Target attached hereto as Exhibit E. |
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3.9 Information in Securities Filings.
All documents required to be filed by Newco or its Affiliates
with the SEC in connection with the Merger, and any information
supplied by Newco or their Affiliates for inclusion or
incorporation by reference in the Proxy Statement, the
Schedule 13E-3 and any Other Filings, or any supplement or
amendment to any such filings, will not at the respective times
when such are filed with the SEC and/or are first published,
given or mailed to Targets stockholders, as the case may
be, and at the Effective Time, in each case, contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light
of the circumstances under which they are made, not misleading.
The representations and warranties contained in this
Section 3.9 will not apply to statements or omissions
included in any such filings based upon information furnished in
writing by or on behalf of Target. |
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3.10 Limited Operations of Newco.
Newco was formed in 2005 solely for the purpose of engaging in
the Merger. Newco has not engaged in any other business
activities. Except for (i) obligations or liabilities
incurred in connection with its organization and the Merger and
(ii) this Agreement and any other agreements and
arrangements contemplated hereby or entered into in furtherance
hereof, Newco has not incurred any obligations or liabilities or
engaged in any business activities. |
4. TARGET PRECLOSING COVENANTS
During the period from the date of this Agreement until the
earlier of the Effective Time or the termination of this
Agreement as permitted in Section 9.1, Target covenants and
agrees as follows:
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4.1 Advice of Changes. Target will
promptly advise Newco in writing of any change which is expected
to have a Material Adverse Effect on Target. Target shall also
deliver, promptly when available, to Newco a monthly unaudited
balance sheet and statement of operations commencing with the
month ending March 31, 2005, which financial statements
shall be prepared in the ordinary course of business, in
accordance with Targets books and records and GAAP. |
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4.2 Maintenance of Business. Except as
disclosed in the Target Disclosure Letter, as contemplated by
this Agreement or as consented to by Newco, which consent will
not be unreasonably delayed or withheld, Target will use
reasonable efforts to conduct its business and its relationships
with customers, |
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suppliers, employees and others in substantially the same manner
as it has prior to the date hereof and will not accelerate or
delay the payment or collection of accounts. Without limiting
the foregoing, until the Effective Time or earlier termination
of this Agreement, except as disclosed in the Target Disclosure
Letter or as contemplated by this Agreement, Target will not,
and will not permit any of its Subsidiaries to do any of the
following, without the prior written consent of the President of
Newco, which consent will not be unreasonably withheld or
delayed: |
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(a) Incur any indebtedness for borrowed money except
in the ordinary course of business consistent with past
practices; |
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(b) enter into any transaction not in the ordinary
course of business; |
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(c) encumber or permit to be encumbered any of its
assets except in the ordinary course of its business consistent
with past practice and to an extent which is not material; |
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(d) dispose of any of its assets except in the
ordinary course of business consistent with past practice; |
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(e) enter into any material lease or contract for
the purchase or sale of any property, real or personal; |
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(f) fail to maintain its equipment and other assets
in good working condition and repair according to the standards
it has maintained to the date of this Agreement, subject only to
ordinary wear and tear; |
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(g) pay any bonus, increased salary or special
remuneration to any officer, employee or consultant (except for
normal salary increases consistent with past practices not to
exceed 10% per year and except pursuant to existing
arrangements previously disclosed to Newco) or enter into any
new employment or consulting agreement with any such person; |
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(h) change accounting methods, except as required by
GAAP or by a governmental authority, or materially revalue any
of its assets; |
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(i) declare, set aside or pay any cash dividend or
distribution in respect of capital stock, or redeem or otherwise
acquire any of its capital stock; |
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(j) amend or terminate any contract, agreement or
license to which it is a party except those amended or
terminated in the ordinary course of business, consistent with
past practice, and which are not material in amount or effect; |
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(k) lend any amount to any person or entity, other
than (i) advances for travel and expenses which are
incurred in the ordinary course of business consistent with past
practice, not material in amount and documented by receipts for
the claimed amounts or (ii) any loans pursuant to the
Target 401(k) Plan; |
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(l) guarantee or act as a surety for any obligation
except for the endorsement of checks and other negotiable
instruments in the ordinary course of business, consistent with
past practice, which are not material in amount; |
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(m) waive or release any material right or claim
except in the ordinary course of business, consistent with past
practice; |
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(n) issue or sell any shares of its capital stock of
any class (except upon the exercise of an option or warrant
currently outstanding), or any other of its securities, or issue
or create any warrants, obligations, subscriptions, options,
convertible securities, or other commitments to issue shares of
capital stock, or accelerate the vesting of any outstanding
option or other security; |
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(o) split or combine the outstanding shares of its
capital stock of any class or enter into any recapitalization
affecting the number of outstanding shares of its capital stock
of any class or affecting any other of its securities; |
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(p) merge, consolidate or reorganize with, or
acquire any entity; |
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(q) amend its Certificate of Incorporation or Bylaws; |
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(r) license any of its technology or intellectual
property except on a non-exclusive basis and in the ordinary
course of business consistent with past practice; |
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(s) change any tax election, agree to any audit
assessment by any tax authority, settle any tax dispute or
liability, or file any federal or state income or franchise tax
return outside of the ordinary course of business; |
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(t) change any insurance coverage or permit any
coverage in force to lapse, or issue any certificates of
insurance; |
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(u) take any action with the intention directly or
indirectly to adversely impact any transaction contemplated by
this Agreement; |
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(v) unless authorized by the Board of Directors of
Target, commence any action at law or in equity or any
arbitrations, other than to enforce Targets rights and
remedies under this Agreement; or |
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(w) agree to do, or permit any Subsidiary to do or
agree to do, any of the things described in the preceding
clauses 4.3(a) through 4.3(v). |
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4.3 Regulatory Approvals. Target will
execute and file, or join in the execution and filing, of any
application or other document that may be necessary in order to
obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign which may be
reasonably required, or which Newco may reasonably request (at
Newcos sole cost and expense, except with regard to the
preparation and distribution of the Proxy Statement and the
conduct of the Target special meeting of stockholders to
consider the Merger and this Agreement), in connection with the
consummation of the transactions contemplated by this Agreement.
Target will use its reasonable efforts to obtain all such
authorizations, approvals and consents. |
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4.4 Necessary Consents. Target will
use its reasonable efforts to obtain such written consents and
take such other actions as may be necessary to allow the
consummation of the transactions contemplated hereby. |
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4.5 Litigation. Target will notify
Newco in writing promptly after learning of any material
actions, suits, proceedings or investigations by or before any
court, board or governmental agency, initiated against it or any
Subsidiary, or to the Knowledge of Target threatened against it
or any Subsidiary after the date of this Agreement. |
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4.6 Access to Information. Target will
allow Newco and its agents reasonable access the files, books,
records and offices of Target and each Subsidiary, including,
any and all information relating to Targets taxes,
commitments, contracts, leases, licenses, and real, personal and
intangible property and financial condition. Target will cause
its accountants to cooperate with Newco and its agents in making
available all financial information reasonably requested,
including the right to examine all working papers pertaining to
all financial statements prepared or audited by such accountants. |
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4.7 Target Dissenting Shares. As
promptly as practicable after the date of the Target
Stockholders Meeting and prior to the Closing Date, Target
shall furnish Newco with the name and address of each holder of
Dissenting Shares and the number of Dissenting Shares owned by
such Target Dissenting Stockholder. Surviving Corporation shall
take all steps required pursuant to Chapter 13 of the
California Law, to mail to each stockholder of Target, as
required, in a timely manner, a notice of the approval of the
Merger and containing such additional information as required
pursuant to Chapter 13 of the California Law. |
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4.8 Satisfaction of Conditions
Precedent. Subject to the fiduciary obligations of
Target, the Board of Directors and the Special Committee, Target
will use its reasonable efforts to satisfy or cause to be |
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satisfied all the conditions precedent which are set forth in
Section 8, and Target will use its reasonable efforts to
cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third
parties and to make all filings with, and give all notices to,
third parties that may be necessary on its part in order to
effect the transactions contemplated hereby. |
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4.9 Section 16 Matters. Prior to
the Effective Time, Target shall take action (in accordance with
that certain no-action letter, dated January 12, 1999,
issued by the SEC to Skadden, Arps, Slate, Meagher &
Flom) designed to provide that the treatment of Target Options
will qualify for exemption under Rule 16b-3(d) or (e), as
applicable, under the Exchange Act. |
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4.10 Other Proposals. Prior to Target
Board of Directors or Special Committee, after receiving an
Acquisition Proposal, withdrawing or modifying its approval or
recommendation of this Agreement or the Merger or adjourning or
canceling any scheduled meeting of stockholders of Target to
consider this Agreement or the Merger, approving or recommending
an Acquisition Proposal, or entering into an agreement with
respect to an Acquisition Proposal, Target shall provide Newco
with a written notice (a Notice of Acquisition
Proposal) advising Newco of the Acquisition
Proposal, specifying the material terms and conditions of such
Acquisition Proposal and identifying the person making such
Acquisition Proposal, and neither Target nor any Subsidiary
shall enter into an agreement with respect to an Acquisition
Proposal until two business days after the first Notice of
Acquisition Proposal with respect to a given third party was
given to Newco. |
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4.11 Available Cash. Target shall
deliver to Newco, two business days prior to the Closing Date,
Targets written good faith estimate of Targets cash
and cash equivalents as of midnight on the day prior to the
Closing Date. |
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4.12 Resignation of Directors and
Officers. Target shall use reasonable efforts to obtain
the resignation, as of the Effective Time, of the directors and
officers of Target in office immediately prior to the Effective
Time as directors and officers of the Surviving Corporation. |
5. NEWCO COVENANTS
During the period from the date of this Agreement until the
Effective Time, Newco covenants and agrees as follows:
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5.1 Advice of Changes. Newco will
promptly advise Target in writing of any event occurring
subsequent to the date of this Agreement that would render any
representation or warranty of Newco contained in this Agreement,
if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect. |
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5.2 Regulatory Approvals. Newco will
execute and file, or join in the execution and filing, of any
application or other document that may be necessary in order to
obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may
be reasonably required, or which Target may reasonably request,
in connection with the consummation of the transactions
contemplated by this Agreement. Newco will use its reasonable
efforts to obtain all such authorizations, approvals and
consents. |
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5.3 Satisfaction of Conditions
Precedent. Newco will use its reasonable efforts to
satisfy or cause to be satisfied all the conditions precedent
which are set forth in Section 7, and Newco will use its
reasonable efforts to cause the transactions contemplated by
this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or
reasonably required on its part in order to effect the
transactions contemplated hereby. |
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5.4 Indemnification; Insurance. At all
times following the Merger, the Surviving Corporation shall
indemnify all present and former directors or officers of Target
and its Subsidiaries (Indemnified Parties)
against any costs or expenses (including reasonable
attorneys fees), judgments, fines, losses, claims,
damages, penalties or liabilities (collectively,
Costs) incurred in connection with any claim, |
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action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of or
pertaining to matters, existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, by reason of the fact of such
Indemnified Partys service as a director or officer of
Target or any of its Subsidiaries, except to the extent it is
determined in a final, non-appealable determination by a court
of competent jurisdiction that such indemnification is
prohibited by applicable law, to the extent such Costs have not
been paid for by insurance and shall, in connection with
defending against any action for which indemnification is
available hereunder, promptly advance to such Indemnified
Parties any reasonable costs and expenses as incurred by or on
behalf of such Indemnified Parties; provided that such advance
shall be conditioned upon such Indemnified Parties
agreement promptly to return such amounts if a court of
competent jurisdiction shall ultimately determine that
indemnification of such Indemnified Parties is prohibited by
applicable law. The foregoing rights shall be in addition to any
rights to which any Indemnified Party may be entitled by reason
of the by-laws or certificate of incorporation of Target or any
of its Subsidiaries, any contract and/or any applicable law.
Target shall acquire and the Surviving Corporation will maintain
(and not cancel or allow to lapse) for a period of not less than
six years from the Effective Time Targets current
directors and officers liability insurance and
indemnification policy (or a policy providing substantially
similar coverage) (the D&O Insurance) for
all persons who are directors and officers of Target and its
Subsidiaries covered by Targets D&O Insurance as of
the Effective Time. The provisions of this Section are intended
for the benefit of, and shall be enforceable by, each
Indemnified Party and his or her heirs and representatives. |
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5.5 Section 16 Matters. Prior to
the Effective Time, Newco shall take action (in accordance with
that certain no-action letter, dated January 12, 1999,
issued by the SEC to Skadden, Arps, Slate, Meagher &
Flom) designed to provide that the treatment of Target Options
will qualify for exemption under Rule 16b-3(d) or (e), as
applicable, under the Exchange Act. |
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5.6 Target Common Stock. Newco will,
until the Effective Time or the earlier termination of this
Agreement, legally and beneficially own all of the shares of
Target Common Stock contributed pursuant to the Contribution
Agreement. No shareholder of Newco will legally or beneficially
own any shares of Target Common Stock other than indirectly
through the ownership of Newco Stock. |
6. CLOSING MATTERS
6.1 The Closing. Subject to
termination of this Agreement as provided in Section 9
below, the Closing will take place at the offices of Kaye
Scholer LLP, 1999 Avenue of the Stars, Suite 1700, Los
Angeles, CA 90067-6048, at 10:00 a.m., Pacific Time on the
date that is one business day following receipt of the required
Target stockholder approval, or, if all conditions to closing
have not been satisfied or waived by such date, one business day
after all conditions to closing have been satisfied or waived
(such date on which the Closing occurs, the Closing
Date). Concurrently with the Closing, the
Certificate of Merger will be filed in the office of the
Delaware Secretary of State. The Certificate of Merger will
provide that the Merger shall become effective upon filing or at
such later time as may be mutually agreed by Newco and Target.
6.2 Exchange of Certificates.
(a) Exchange Agent. Mellon Shareholder
Services, or other mutually acceptable entity, shall act as
exchange agent (the Exchange Agent) in
the Merger. Concurrent with the Effective Time, Target shall
irrevocably deposit with the Exchange Agent, for the benefit of
the holders of shares of Target Common Stock and vested Target
Options, and for exchange in accordance with this Agreement and
the Certificate of Merger, cash in an amount sufficient to pay
the Merger Consideration (such cash being hereinafter referred
to as the Exchange Fund) payable
pursuant to this Agreement and the Certificate of Merger, in
exchange for outstanding shares of Target Common Stock and
vested Target Options; provided, however, that if Target shall
not have sufficient cash to pay the entire Merger Consideration
at the Effective Time, then Newco shall, at the Effective Time,
deposit into the Exchange Fund an amount of cash equal to the
shortfall of such Merger Consideration
(Shortfall), not to exceed Four
Million Dollars ($4,000,000.00). In order to facilitate the
deposit by Newco of any such Shortfall, no later than two
(2) business days before the projected Closing Date, Target
shall deliver to Newco a written statement, signed by its Chief
Financial Officer, evidencing the
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amount of cash and cash equivalents which it then has on hand
and the amount of any projected Shortfall. Prior to the
Effective Time, Target shall provide to the Exchange Agent a
list of all holders of vested Target Options, including mailing
addresses for such holders contained in Targets books and
records.
(b) Exchange Procedures. As soon as
practicable after the Effective Time, the Surviving Corporation
shall cause the Exchange Agent to mail to each holder (other
than Newco, its Affiliates, Target, any Target Subsidiary or any
holder claiming to hold Dissenting Shares) of record of vested
Target Options or a certificate or certificates which
immediately prior to the Effective Time represented issued and
outstanding shares of Target Common Stock (collectively, the
Certificates), (i) a letter of
transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such customary form and have such other
customary provisions as Target and Newco may agree upon prior to
the Closing, including whereby any shares of Target Common Stock
surrendered in exchange for the Merger Consideration shall waive
any claim as Dissenting Shares) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. Upon surrender of a Certificate
for cancellation to the Exchange Agent, together with a duly
executed letter of transmittal and such other documents as may
be reasonably required by the Exchange Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor
the Merger Consideration multiplied by the number of shares of
Target Common Stock represented by such Certificate pursuant to
the provisions of this Agreement and the Certificate of Merger,
and the Certificate so surrendered shall forthwith be canceled.
In the event of a transfer of ownership of shares of Target
Common Stock which is not registered on the transfer records of
Target, the Merger Consideration may be issued to a transferee
if the Certificate representing such Target Common Stock is
presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence
that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 6.2(b), each
Certificate (other than Certificates held by Newco, its
Affiliates, Target, any Target Subsidiary or any holder claiming
to hold Dissenting Shares) shall be deemed, on and after the
Effective Time, to evidence only the right to receive Merger
Consideration as contemplated by this Agreement and the Delaware
Law, or to the extent the shares represented thereby constitute
Dissenting Shares, only the right to receive consideration as
set forth in Section 1.2. Upon delivery of a duly executed
letter of transmittal and such other documents as may be
reasonably requested by the Exchange Agent, the holder of Target
Options shall be entitled to receive, in cash, the amount
determined pursuant to Section 1.2.6 with respect to such
holders vested Target Options. No interest will accrue on
any Merger Consideration payable under this Agreement.
(c) No Further Ownership Rights in Target
Common Stock. All Merger Consideration paid upon the
surrender for exchange of shares of Target Common Stock and
Target Options in accordance with the terms of this Agreement
and the Certificate of Merger shall be deemed to have been
issued in full satisfaction of all rights pertaining to such
shares of Target Common Stock and Target Options, respectively.
After the Effective Time there shall be no further registration
of transfers on the stock transfer books of the Surviving
Corporation or Target of the shares of Target Stock or Target
Options, which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates or
Target Options are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in
this Section 6.2 and the Certificate of Merger.
(d) Termination of Exchange Fund. Any
portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains undistributed to the
stockholders of Target twelve months after the Effective Time
shall be delivered to Surviving Corporation. Any former
stockholders or optionholders of Target who have not theretofore
complied with this Section 6.2 and the Certificate of
Merger shall thereafter look only to the Surviving Corporation
for payment of their claim for Merger Consideration, as
determined pursuant to this Agreement.
(e) No Liability. Neither the Exchange
Agent, Newco or Target shall be liable to any holder of shares
of Target Common Stock for any amount delivered to a public
official pursuant to any applicable abandoned property, escheat
or similar law.
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(f) Lost, Stolen or Destroyed Certificates. In the event
any Certificates shall have been lost, stolen or destroyed, the
Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificates, upon the making of an affidavit of that
fact by the holder thereof and the posting of reasonable bond
therefor, the lost, stolen or destroyed certificate shall be
deemed presented for exchange pursuant to Section 6.2(b).
7. CONDITIONS TO OBLIGATIONS OF TARGET
Targets obligations hereunder are subject to the
fulfillment or satisfaction, on and as of the Closing, of each
of the following conditions (any one or more of which may be
waived by Target, but only in a writing signed by Target):
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7.1 Accuracy of Representations and
Warranties. Except where the failure of a representation
or warranty to be true and correct would not have a Material
Adverse Effect, the representations and warranties of Newco set
forth in Section 3 (as qualified by the Newco Disclosure
Letter) shall be true and accurate in all respects as of the
date of this Agreement, and on and as of the Closing, with the
same force and effect as if they had been made at the Closing,
and except for those representations and warranties that address
matters only as of a particular date (which shall remain true
and correct as of such particular date), with the same force and
effect as if they had been made at the Closing, and Target shall
receive a certificate to such effect executed by Newcos
President and Chief Financial Officer. |
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7.2 Covenants. Newco shall have
performed and complied in all material respects with all of its
covenants contained in Section 5 on or before the Closing,
and Target shall receive a certificate to such effect signed by
Newcos President and Chief Financial Officer. |
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7.3 Compliance with Law. There shall
be no order, decree, or ruling by any court or governmental
agency or threat thereof, or any other fact or circumstance,
which would prohibit, render illegal or enjoin the transactions
contemplated by this Agreement. |
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7.4 Stockholder Approval. This
Agreement shall have been validly approved and adopted by the
affirmative vote of the holders of a majority of the shares of
Target Common Stock outstanding as of the record date for the
Target Stockholders Meeting. |
8. CONDITIONS TO OBLIGATIONS OF NEWCO
The obligations of Newco hereunder are subject to the
fulfillment or satisfaction on, and as of the Closing, of each
of the following conditions (any one or more of which may be
waived by Newco, but only in a writing signed by Newco):
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8.1 Accuracy of Representations and
Warranties. Except where the failure of a representation
or warranty to be true and correct would not have, alone or in
the aggregate, a Material Adverse Effect, the representations
and warranties of Target set forth in Section 3 (as
qualified by the Target Disclosure Letter) shall be true and
accurate in all respects as of the date of this Agreement, and
on and as of the Closing, with the same force and effect as if
they had been made at the Closing, and except for those
representations and warranties that address matters only as of a
particular date (which shall remain true and correct as of such
particular date), with the same force and effect as if they had
been made at the Closing, and Newco shall receive a certificate
to such effect executed by Targets President and Chief
Financial Officer. |
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8.2 Covenants. Target shall have
performed and complied in all material respects with all of its
covenants contained in Section 4 on or before the Closing,
and Newco shall receive a certificate to such effect signed by
Targets President and Chief Financial Officer. |
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8.3 Absence of Material Adverse
Change. Since the date of this Agreement, there shall
not have been, in the reasonable judgment of the Board of
Directors of Newco, any Material Adverse Effect with respect to
Target. |
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8.4 Compliance with Law. There shall
be no order, decree, or ruling by any court or governmental
agency which would prohibit, render illegal or enjoin the
transactions contemplated by this Agreement. |
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8.5 Legal Opinion. Newco shall have
received from counsel to Target an opinion substantially in the
form of Exhibit 8.5. |
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8.6 Available Cash. Target shall not
have less than fourteen million five hundred thousand dollars
($14,500,000) in cash and cash equivalents as of midnight on the
day prior to the Closing Date. |
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8.7 Stockholder Approvals. This
Agreement shall have been approved and adopted by the
affirmative vote of the holders of a majority of the shares of
Target Common Stock outstanding as of the record date for the
Target Stockholders Meeting. |
9. TERMINATION OF AGREEMENT
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9.1 Termination. This Agreement may be
terminated at any time prior to the Effective Time, and except
as set forth below, whether before or after the requisite
approvals of the stockholders of Target or Newco: |
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(a) by mutual written consent duly authorized by the
Boards of Directors of Newco and Target; |
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(b) by either Target or Newco if the Merger shall
not have been consummated by August 13, 2005 for any
reason; provided, however, that the right to terminate
this Agreement under this Section 9.1(b) shall not be
available to any party whose action or failure to act has been a
principal cause of or resulted in the failure of the Merger to
occur on or before such date; |
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(c) by either Target or Newco if a governmental
entity shall have issued an order, decree or ruling or taken any
other action, in any case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger,
which order, decree, ruling or other action is final and
nonappealable; |
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(d) by either Target or Newco, if the approval and
adoption of this Agreement, and the approval of the Merger, by
the stockholders of Target shall not have been obtained by
reason of the failure to obtain the required vote at a meeting
of Target stockholders duly convened therefor or at any
adjournment thereof at which a vote thereon was taken;
provided, however, that the right to terminate this
Agreement under this Section 9.1(d) shall not be available
to Target where the failure to obtain the Target stockholder
approval shall have been caused by the failure of Target to
fulfill its obligations under Sections 1.7 or 1.8 and such
failure constitutes a material breach by Target of this
Agreement; |
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(e) by Newco (at any time prior to the adoption and
approval of this Agreement and the Merger by the required vote
of the stockholders of Target) if a Triggering Event shall have
occurred; |
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(f) by Target, upon a breach of any representation,
warranty, covenant or agreement on the part of Newco set forth
in this Agreement, or if any representation or warranty of Newco
shall have become untrue, in either case such that the
conditions set forth in Section 7.1 or Section 7.2
would not be satisfied as of the time of such breach or as of
the time such representation or warranty shall have become
untrue, provided that if such inaccuracy in Newcos
representations and warranties or breach by Newco is curable by
Newco through the exercise of its commercially reasonable
efforts, then Target may not terminate this Agreement under this
Section 9.1(f) for 30 days after delivery of written
notice from Target to Newco of such breach, provided Newco
continues to exercise commercially reasonable efforts to cure
such breach (it being understood that Target may not terminate
this Agreement pursuant to this paragraph (f) if such
breach by Newco is cured during such 30-day period, or if Target
shall have materially breached this Agreement); |
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(g) by Newco, upon a breach of any representation,
warranty, covenant or agreement on the part of Target set forth
in this Agreement, or if any representation or warranty of
Target shall have become untrue, in either case such that the
conditions set forth in Section 8.1 or Section 8.2
would not be satisfied as of the time of such breach or as of
the time such representation or warranty shall have become
untrue, provided that if such inaccuracy in Targets
representations and warranties or breach by Target is curable by
Target through the exercise of its commercially reasonable
efforts, then Newco may not terminate this Agreement under this
Section 9.1(g) for 30 days after delivery of written
notice from Newco to Target of such breach, provided Target
continues to exercise commercially reasonable efforts to cure
such breach |
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(it being understood that Newco may not terminate this Agreement
pursuant to this paragraph (g) if such breach by
Target is cured during such 30-day period, or if Newco shall
have materially breached this Agreement); or |
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(h) by Target before approval of this Agreement and
the Merger by Target Stockholders, if the Board of Directors of
Target or the Special Committee determines in good faith, after
consultation with outside legal counsel, that failure to
terminate the Agreement is necessary for the Board of Directors
of Target or the Special Committee to comply with their
fiduciary duties under applicable law. |
9.2 Effect of Termination. Any proper
termination of this Agreement under Section 9.1 above will
be effective immediately upon the delivery of written notice of
the terminating party to the other parties hereto. In the event
of the termination of this Agreement as provided in
Section 9.1, this Agreement shall be of no further force or
effect, except (i) as set forth in this Sections 9.2,
9.3, and 11, each of which shall survive the termination of
this Agreement, and (ii) nothing herein shall relieve any
party from liability for any willful breach of this Agreement.
No termination of this Agreement shall affect the obligations of
the parties contained in the Confidentiality Agreement, all of
which obligations shall survive termination of this Agreement in
accordance with their terms.
9.3 Fees and Expenses.
(a) General. Except as set forth in
this Section 9.3, all fees and expenses incurred in
connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses
whether or not the Merger is consummated.
(b) Target Payments. In the event that
this Agreement is terminated by Newco pursuant to
Section 9.1(e) or by Target pursuant to Section 9.1(h)
then Target shall promptly, but in no event later than two days
after such termination, pay to Newco the reasonable attorney
fees and other actual out of pocket expenses incurred by Newco
in connection with the negotiation and preparation of this
Agreement and related matters, not to exceed $250,000 in the
aggregate. In the event this Agreement is terminated by Newco
under Section 9.1(g), and within six (6) months
following such termination, the Target consummates an
Acquisition Proposal (other than with Newco), the Target shall
promptly, but in no event later than two days after the
consummation of such Acquisition Proposal, pay to Newco the
reasonable attorney fees and other actual out of pocket expenses
incurred by Newco in connection with the negotiation and
preparation of this Agreement and related matters, not to exceed
$250,000 in the aggregate. Target acknowledges that the
agreements contained in this Section 9.3(b) are an integral
part of the transactions contemplated by this Agreement, and
that, without these agreements, Newco would not enter into this
Agreement. Accordingly, if the Target fails to pay in a timely
manner the amounts due pursuant to this Section 9.3(b),
and, in order to obtain such payment, Newco makes a claim that
results in a judgment against the Target for the amounts set
forth in this Section 9.3(b), Target shall pay to Newco its
reasonable costs and expenses (including reasonable
attorneys fees and expenses) in connection with such suit.
10. EFFECT OF CLOSING ON REPRESENTATIONS AND
COVENANTS
10.1 No Survival of Representations.
All representations, warranties and covenants of the parties
contained in this Agreement will remain operative and in full
force and effect, regardless of any investigation made by or on
behalf of the parties to this Agreement after the date hereof,
until the earlier of the termination of this Agreement or the
Closing, whereupon such representations, warranties and
covenants will expire (except for covenants that by their terms
survive for a longer period).
11. MISCELLANEOUS
11.1 Governing Law. The internal laws
of the State of Delaware (irrespective of its choice of law
principles) will govern the validity of this Agreement, the
construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto.
11.2 Assignment; Binding Upon Successors and
Assigns. Neither party hereto may assign any of its
rights or obligations hereunder without the prior written
consent of the other party hereto. This Agreement
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will be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
11.3 Severability. If any provision of
this Agreement, or the application thereof, will for any reason
and to any extent be invalid or unenforceable, the remainder of
this Agreement and application of such provision to other
persons or circumstances will be interpreted so as reasonably to
effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
11.4 Counterparts. This Agreement may
be executed in any number of counterparts, each of which will be
an original as regards any party whose signature appears thereon
and all of which together will constitute one and the same
instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear
the signatures of both parties reflected hereon as signatories.
This Agreement may be executed and delivered by facsimile and
upon such delivery the facsimile signature will be deemed to
have the same effect as if the original signature had been
delivered to the other party.
11.5 Other Remedies. 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 on such
party, and the exercise of any one remedy will not preclude the
exercise of any other.
11.6 Amendment and Waivers. Any term
or provision of this Agreement may be amended, and the
observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively
or prospectively) only by a writing signed by the party to be
bound thereby. The waiver by a party of any breach hereof or
default in the performance hereof will not be deemed to
constitute a waiver of any other default or any succeeding
breach or default. The Agreement may be amended by the parties
hereto at any time before or after approval of the Target
Stockholders, but, after such approval, no amendment will be
made which by applicable law requires the further approval of
the Target Stockholders without obtaining such further approval.
11.7 No Waiver. The failure of any
party to enforce any of the provisions hereof will not be
construed to be a waiver of the right of such party thereafter
to enforce such provisions.
11.8 Attorneys Fees. Should suit
be brought by either party to this Agreement to enforce or
interpret any part of this Agreement, the prevailing party will
be entitled to recover, as an element of the costs of suit and
not as damages, reasonable attorneys fees to be fixed by
the court (including costs, expenses and fees on any appeal).
11.9 Notices. Any notice or other
communication required or permitted to be given under this
Agreement will be in writing, will be delivered personally,
facsimile or by registered or certified mail, postage prepaid
and will be deemed given upon delivery, if delivered personally,
or three days after deposit in the mails, if mailed, to the
following addresses:
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If to Newco:
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Victory Acquisition Corporation |
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19770 Stevens Creek Blvd. |
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Cupertino, CA 95014 |
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Attention: President |
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Facsimile: (408) 343-1018 |
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with a copy to:
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Fenwick & West LLP |
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275 Battery Street, 15th Floor |
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San Francisco, CA 94111 |
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Attention: Robert Dellenbach |
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Facsimile: (415) 281-1350 |
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If to Target:
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Vialta, Inc. |
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48461 Fremont Blvd. |
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Fremont, CA 94538 |
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Attention: Didier Pietri |
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Facsimile: (510) 870-3099 |
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with a copy to:
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Kaye Scholer LLP |
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1999 Avenue of the Stars, Suite 1700 |
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Los Angeles, CA 90067 |
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Attn: Barry L. Dastin |
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Facsimile: (310) 788-1200 |
or to such other address as a party may have furnished to the
other parties in writing pursuant to this Section 11.9.
11.10 Construction of Agreement. This
Agreement has been negotiated by the respective parties hereto
and their attorneys and the language hereof will not be
construed for or against either party solely by reason that such
party is the claimed drafter thereof. A reference to a Section
or an exhibit will mean a Section in, or exhibit to, this
Agreement unless otherwise explicitly set forth. The titles and
headings herein are for reference purposes only and will not in
any manner limit the construction of this Agreement that will be
considered as a whole. The term includes or
including are not limiting.
11.11 No Joint Venture. Nothing
contained in this Agreement will be deemed or construed as
creating a joint venture or partnership between any of the
parties hereto. No party is by virtue of this Agreement
authorized as an agent, employee or legal representative of any
other party. No party will have the power to control the
activities and operations of any other and their status is, and
at all times, will continue to be, that of independent
contractors with respect to each other. No party will have any
power or authority to bind or commit any other. No party will
hold itself out as having any authority or relationship in
contravention of this Section.
11.12 Further Assurances. Each party
agrees to cooperate fully with the other parties and to execute
such further instruments, documents and agreements and to give
such further written assurances as may be reasonably requested
by any other party to evidence and reflect the transactions
described herein and contemplated hereby and to carry into
effect the intents and purposes of this Agreement.
11.13 Absence of Third Party Beneficiary
Rights. No provisions of this Agreement are intended,
nor will be interpreted, to provide or create any third party
beneficiary rights or any other rights or remedies of any kind
in any client, customer, affiliate, stockholder, partner or any
party hereto or any other person or entity unless specifically
provided otherwise herein, and, except as so provided, all
provisions hereof will be personal solely between the parties
that are signatories to this Agreement.
11.14 Public Announcement. Upon
execution of this Agreement Newco and Target will issue a press
release approved by both parties announcing the Merger.
Thereafter, Newco and Target may issue such press releases, and
make such other disclosures regarding the Merger, as either
determines are required under applicable securities laws or
regulatory rules.
11.15 Confidentiality. Target and
Newco each recognize that they have received and will receive
confidential information concerning the other during the course
of the Merger negotiations and preparations. Accordingly, Newco
and Target each agrees (a) to use its respective reasonable
efforts to prevent the unauthorized disclosure of any
confidential information concerning the other that was or is
disclosed during the course of such negotiations and
preparations, and is clearly designated in writing as
confidential at the time of disclosure, and (b) to not make
use of or permit to be used any such confidential information
other than for the purpose of effectuating the Merger and
related transactions. The obligations of this section will not
apply to information that (i) is or becomes part of the
public domain, (ii) is disclosed by the disclosing party to
third parties without restrictions on disclosure, (iii) is
received by the receiving party from a third party without
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breach of a nondisclosure obligation to the other party or
(iv) is required to be disclosed by law. If this Agreement
is terminated, all copies of documents containing confidential
information shall be returned by the receiving party to the
disclosing party.
11.16 Entire Agreement. This Agreement
and the exhibits hereto constitute the entire understanding and
agreement of the parties hereto with respect to the subject
matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express
or implied, written or oral, between the parties with respect
hereto other than the Confidentiality Agreement between Target
and Fred S.L. Chan dated February 9, 2005, which Newco
expressly agrees hereby to be bound on the same basis as
Mr. Chan. The express terms hereof control and supersede
any course of performance or usage of the trade inconsistent
with any of the terms hereof.
[End of page; signatures follow on next page]
A-20
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement and Plan of Reorganization as of the date first above
written.
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Newco
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Target |
VICTORY ACQUISITION CORP
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VIALTA, INC. |
By:
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By: |
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Its:
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Its: |
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[Signature Page to Merger Agreement]
A-21
EXHIBIT A
DEFINITIONS
As used in this Agreement, each of the following terms has the
meaning ascribed to it in this Exhibit A
Acquisition Proposal shall mean with
respect to Target, any of the following (other than the Merger):
(A) any acquisition or purchase from the Target by any
person or group (as defined under Section 13(d)
of the Exchange Act and the rules and regulations thereunder) of
more than a 50% interest in the total outstanding voting
securities of the Target or any of its Subsidiaries or any
tender offer or exchange offer that if consummated would result
in any person or group (as defined under
Section 13(d) of the Exchange Act and the rules and
regulations thereunder) beneficially owning 50% or more of the
total outstanding voting securities of the Target or any of its
Subsidiaries or any merger, consolidation, business combination
or similar transaction involving the Target pursuant to which
the stockholders of the Target immediately preceding such
transaction hold less than 50% of the equity interests in the
surviving or resulting entity of such transaction or its parent
party; (B) any sale, lease, exchange, transfer, license,
acquisition, or disposition of all or substantially all of the
aggregate fair market value of assets of the Target; or
(C) any liquidation or dissolution of Target.
Affiliates shall mean an affiliate as
such term is defined under Section 13(d) of the Exchange
Act, provided however, it shall not include any officer or
director of Target, other than Mr. Chan, in the case of
either Mr. Chan or Newco.
California Law shall mean California
Corporations Code, as amended.
Certificate of Merger shall have the
meaning given to it in Recital A.
Code shall mean the Internal Revenue
Code of 1986, as amended.
Delaware Law shall mean Delaware
General Corporation Law, as amended.
Dissenting Shares shall mean shares of
Target capital stock held as of the Effective Time by a Target
stockholder (other than Newco Target Stock) who has not voted
such Target capital stock in favor of the adoption of this
Agreement and with respect to which appraisal shall have been
duly demanded and perfected in accordance with either
(i) Section 262 of the Delaware Law or
(ii) Section 1300 et seq. of the California Law,
and such perfected right was not effectively withdrawn or
forfeited.
Effective Time shall mean the filing
of the Certificate of Merger with the Secretary of State of
Delaware.
ERISA shall mean the Employee
Retirement Income Security Act of 1974, as amended.
ERISA Affiliate shall mean any entity
which is a member of (A) a controlled group of
corporations, as defined in Section 414(b) of the
Code, (B) a group of entities under common
control, as defined in Section 414(c) of the Code, or
(C) an affiliated service group, as defined in
Section 414(m) of the Code, or treasury regulations
promulgated under Section 414(o) of the Code, any of which
includes Target or any Subsidiary.
Exchange Act shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
GAAP shall mean United States
generally accepted accounting principles, as applied by Target
consistent with past practice.
Knowledge shall mean, with respect to
a party hereto and with respect to any matter in question, that
any of the executive officers (consisting solely of Didier
Pietri and William Scharninghausen with respect to Target) of
such party has actual knowledge of such matter, after reasonable
inquiry of such matter (including inquiry of Targets
employee, Yin-Wu Chen, by Mr. Pietri).
A-22
Material Adverse Effect shall mean,
when used in connection with an entity, any change, event,
circumstance or effect whether or not such change, event,
circumstance or effect is caused by or arises in connection with
a breach of a representation, warranty, covenant or agreement of
such entity in this Agreement that is or is reasonably likely to
be materially adverse to the business, assets (including
intangible assets), financial condition, operations or results
of operations of such entity taken as a whole with its
subsidiaries, except in the case of Target any change, event,
circumstance or effect resulting from general changes in
economic and financial market conditions, considered alone
without regard to any other change, circumstance or effect,
(i) changes in conditions (including as a result of changes
in laws, including common law, tariffs, export and import laws,
rules, and regulations or the interpretations thereof) generally
applicable to the telecommunications equipment, consumer
electronics, internet telephony or industries that are not
unique to Target and its Subsidiaries, (ii) changes
resulting from the announcement of the transactions described in
this Agreement or the identity of Newco or its Affiliates or
from the performance of this Agreement and compliance with the
covenants set forth herein, (iii) any change in the trading
prices of the Target Common Stock between the date hereof and
the Effective Time, (iv) any change in any law or GAAP,
which affect entities generally such as Target, (v) any
actions taken by Mr. Chan, Newco or any of their Affiliates
and (vi) any matters listed on Schedule A of the
Target Disclosure Letter, and which, in the cases of
clause (i) do not have a disproportionate impact on Target.
Merger shall have the meaning given to
it in Recital A.
Merger Consideration shall have the
meaning given to it in Section 1.2.1.
Newco Stock shall have the meaning
given to it in Recital A.
Proxy Statement shall mean a proxy
statement prepared in accordance with the Exchange Act and
applicable rules and regulations.
Securities Act shall mean the
Securities Act of 1933, as amended, including the rules and
regulations thereunder.
Surviving Corporation shall mean the
Target as the surviving corporation of the Merger.
Target Common Stock shall mean Common
Stock of Target at $0.001 par value.
Target Director Plan shall mean
Targets 2000 Directors Stock Option Plan, as amended
and restated.
Target Employee Plans shall mean
(i) employee benefit plan, as defined in
Section 3(3) of ERISA, and (ii) all other written or
formal plans or agreements involving direct or indirect
compensation or benefits (including any employment agreements
entered into between Target or any Subsidiary and any employee
of Target or any Subsidiary, but excluding workers
compensation, unemployment compensation and other
government-mandated programs) currently or previously
maintained, contributed to or entered into by Target or any
Subsidiary under which Target or any Subsidiary or any ERISA
Affiliate thereof has any present or future obligation or
liability.
Target Incentive Plan shall mean
Targets 1999 Stock Incentive Plan, as amended.
Target Options shall mean the
outstanding options to purchase Target Common Stock granted
under Target Plans.
Target Option Plan shall mean
Targets 2001 Nonstatutory Stock Option Plan, as amended.
Target Pension Plans shall mean all
Target Employee Plans that individually or collectively would
constitute an employee pension benefit plan, as
defined in Section 3(2) of ERISA.
Target Plans shall mean, collectively,
Target Incentive Plan, Target Option Plan, and Target Director
Plan.
Triggering Event shall be mean, and be
deemed to have occurred, if: (i) the Special Committee
shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Newco its recommendation in
favor of the adoption and approval of the Agreement or the
approval of the Merger;
A-23
(ii) Target shall have failed to include in the Proxy
Statement the recommendation of the Special Committee or the
Board of Directors of Target in favor of the adoption and
approval of the Agreement and the approval of the Merger;
(iii) the Special Committee fails to reaffirm its
recommendation in favor of the adoption and approval of the
Agreement and the approval of the Merger within 10 business days
after Newco requests in writing that such recommendation be
reaffirmed at any time following the public announcement of an
Acquisition Proposal; (iv) the Special Committee shall have
approved or publicly recommended any Acquisition Proposal other
than a liquidation or dissolution; (v) Target shall have
entered into any letter of intent or similar document or any
agreement, contract or commitment accepting any Acquisition
Proposal; or (vi) a tender or exchange offer for all of the
outstanding securities of Target shall have been commenced by a
person unaffiliated with Newco, and Target shall not have sent
to its securityholders pursuant to Rule 14e-2 promulgated
under the Exchange Act, within 10 business days after such
tender or exchange offer is first published sent or given, a
statement disclosing that Target recommends rejection of such
tender or exchange offer.
A-24
Annex B
STOCK CONTRIBUTION AGREEMENT
This Stock Contribution Agreement (this
Agreement) is made and entered into as
of March 28, 2005 by and among Victory Acquisition Corp., a
Delaware corporation (the Company),
and the parties listed on the Schedule of Investors attached to
this Agreement as Exhibit A (each hereinafter
individually referred to as an
Investor and collectively referred to
as the Investors).
A. The Company has been formed solely to facilitate
and effect a statutory merger (the
Merger) with Vialta, Inc., a Delaware
corporation (Vialta), under which
Vialta will be the surviving corporation, pursuant to the terms
and conditions of that certain Agreement and Plan of Merger
dated as of March 28, 2005 (Merger
Agreement). The existence of the Company is
transitory and will be discontinued upon the consummation of the
Merger. The Company will conduct no business prior to the Merger.
B. The Investors are holders of the outstanding
shares of stock of Vialta set forth on Exhibit A
(the Vialta Shares). Pursuant to this
Agreement, the Investors intend to contribute their Vialta
Shares to the Company in exchange for shares of the
Companys Common Stock as set forth on
Exhibit A (the Company
Shares), after which the Investors will hold all
of the outstanding shares of the Companys stock.
C. The contribution of stock under this Agreement
and the Merger are part of an integrated plan for Vialta to
redeem the Vialta stock (other than the Vialta Shares). The
contribution of stock under this Agreement and the Merger are
intended to be treated for tax purposes as a redemption of the
shares of Vialta stock outstanding immediately prior to the
effective time of the Merger (other than the Vialta Shares),
pursuant to Section 302 of the Internal Revenue Code of
1986, as amended (the Code).
NOW THEREFORE, the parties hereby agree as follows:
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1. CONTRIBUTION. As part of an
integrated plan with the Merger, each Investor hereby
contributes such Investors Vialta Shares to the Company in
exchange for, and in consideration of the issuance of, the
Company Shares, as specified on Exhibit A. Each
Investor hereby delivers to the Company: (a) the original
stock certificate representing such Investors Vialta
Shares together; and (b) a duly executed Stock Transfer
Power and Assignment in the form of Exhibit B. The
Company agrees to issue to each Investor a stock certificate
representing the number of Company Shares set forth opposite
such Investors name on Exhibit A. Until the earlier
of (i) the Effective Time of the Merger or (ii) the
Termination of the Merger Agreement, each Investor agrees that
it will contribute to the Company as an additional contribution
to capital all Vialta Shares which it acquires (if any) during
such period. |
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2. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY. The Company hereby represents and warrants to
each Investor that the statements in the following paragraphs of
this Section 2 are all true and complete: |
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2.1 Organization, Good Standing, Corporate
Power and Qualification. The Company has been duly
incorporated and organized, and is validly existing in good
standing, under the laws of the State of Delaware. The Company
has the requisite corporate power and authority to enter into
and perform this Agreement. |
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2.2 Due Authorization. All corporate
action on the part of the Company necessary for (i) the
authorization, execution, delivery of, and the performance of
all obligations of the Company under, this Agreement and;
(ii) the authorization, issuance, reservation for issuance
and delivery of all of the Company Shares under this Agreement. |
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2.3 Valid Issuance. The Company Shares
issued under this Agreement will be validly issued, fully paid
and nonassessable. |
B-1
3. REPRESENTATIONS, WARRANTIES AND CERTAIN
AGREEMENTS OF INVESTORS. Each Investor hereby represents
and warrants to, and agrees with, the Company, severally and not
jointly, that:
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3.1 Authorization. This Agreement
constitutes such Investors valid and legally binding
obligation, enforceable in accordance with its terms except as
may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to
or affecting the enforcement of creditors rights generally
and (ii) the effect of rules of law governing the
availability of equitable remedies. Each Investor represents
that such Investor has full power and authority to enter into
this Agreement. |
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3.2 Acquisition for Own Account. The
Company Shares to be acquired by such Investor hereunder will be
acquired for investment for such Investors own account,
not as a nominee or agent, and not with a view to the public
resale or distribution thereof within the meaning of the
Securities Act of 1933, as amended (the
1933 Act), and such Investor has
no present intention of selling, granting any participation in,
or otherwise distributing the same. |
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3.3 No Solicitation. At no time was
the Investor presented with or solicited by any publicly issued
or circulated newspaper, mail, radio, television or other form
of general advertising or solicitation in connection with the
offer, sale and purchase of the Company Shares. |
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3.4 Investment Experience. Such
Investor understands that the acquisition of the Company Shares
involves substantial risk. Such Investor is an accredited
investor within the meaning of Regulation D
promulgated under the 1933 Act and: (i) has experience
as an investor in securities of companies in the development
stage and acknowledges that such Investor is able to fend for
itself, can bear the economic risk of such Investors
investment in the Company Shares and has such knowledge and
experience in financial or business matters that such Investor
is capable of evaluating the merits and risks of this investment
in the Company Shares and protecting its own interests in
connection with this investment and/or (ii) has a
preexisting personal or business relationship with the Company
and certain of its officers, directors or controlling persons of
a nature and duration that enables such Investor to be aware of
the character, business acumen and financial circumstances of
such persons. |
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3.5 Restricted Securities. Such
Investor understands that the Company Shares are characterized
as restricted securities under the 1933 Act
inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under the
1933 Act and applicable regulations thereunder such
securities may be resold without registration under the
1933 Act only in certain limited circumstances. In this
connection, such Investor represents that such Investor is
familiar with Rule 144 of the U.S. Securities and
Exchange Commission (the SEC), as
presently in effect, and understands the resale limitations
imposed thereby and by the 1933 Act. Such Investor
understands that the Company is under no obligation to register
any of the securities sold hereunder. Such Investor understands
that no public market now exists for any of the Company Shares
and that it is uncertain whether a public market will ever exist
for the Company Shares. |
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3.6 Further Limitations on
Disposition. Without in any way limiting the
representations set forth above, such Investor further agrees
not to make any disposition of all or any portion of the Company
Shares unless and until there is then in effect a registration
statement under the 1933 Act covering such proposed
disposition and such disposition is made in accordance with such
registration statement. Notwithstanding the foregoing, no such
registration statement shall be required: (i) for any
transfer of any Company Shares in compliance with SEC
Rule 144 or Rule 144A, or (ii) for any transfer
of any Company Shares by an Investor that is a partnership or a
corporation without payment of consideration to (A) a
partner of such partnership or stockholder of such corporation,
(B) a controlled affiliate of such partnership or
corporation, (C) a retired partner of such partnership who
retires after the date hereof, (D) the estate of any such
partner or stockholder, or (iii) for the transfer by gift,
will or intestate succession by any Investor to his or her
spouse or lineal descendants or ancestors or any trust for any
of the foregoing; provided that in each of the foregoing
cases the transferee agrees in writing to be subject to the
terms of this Section 3 (other than Section 3.4) to
the same extent as if the transferee were an original Investor
hereunder. |
B-2
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3.8 Legends. It is understood that the
certificates evidencing the Company Shares and the Conversion
Shares will bear the legends set forth below: |
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(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
ACT), OR UNDER THE SECURITIES LAWS OF ANY OTHER
JURISDICTIONS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED
TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE
PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS. |
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(b) Any legend required by the laws of the State of
California, including any legend required by the California
Department of Corporations and Sections 417 and 418 of the
California Corporations Code or any other state securities laws. |
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The legend set forth in (a) above shall be removed by the
Company from any certificate evidencing Company Shares upon
delivery to the Company of an opinion by counsel, reasonably
satisfactory to the Company, that a registration statement under
the 1933 Act is at that time in effect with respect to the
legended security or that such security can be freely
transferred in a public sale without such a registration
statement being in effect and that such transfer will not
jeopardize the exemption or exemptions from registration
pursuant to which the Company issued the Company Shares. |
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3.9 Title to Vialta Shares. Investor
has valid marketable title to the Vialta Shares to be
contributed under this Agreement, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable
interest. The Vialta Shares constitute all of the shares of
Vialta stock owned or controlled by the Investor. |
4. GENERAL PROVISIONS.
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4.1 Successors and Assigns. Except as
otherwise provided in this Agreement, this Agreement, and the
rights and obligations of the parties hereunder, will be binding
upon and inure to the benefit of their respective successors,
assigns, heirs, executors, administrators and legal
representatives. |
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4.2 Governing Law. This Agreement will
be governed by and construed in accordance with the laws of the
State of California, without giving effect to that body of laws
pertaining to conflict of laws. |
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4.3 Counterparts. This Agreement may
be executed in any number of counterparts, each of which when so
executed and delivered will be deemed an original, and all of
which together shall constitute one and the same agreement. |
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4.4 Notices. Any and all notices
required or permitted to be given to a party pursuant to the
provisions of this Agreement will be in writing. |
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4.5 Amendments and Waivers. Any term
of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively),
only with the written consent of the Company and the holders of
a majority of the outstanding Company Shares issuable hereunder.
Any amendment or waiver effected in accordance with this Section
shall be binding upon each holder of any Company Shares at the
time outstanding, each future holder of such securities, and the
Company. No delay or failure to require performance of any
provision of this Agreement shall constitute a waiver of that
provision as to that or any other instance. No waiver granted
under this Agreement as to any one provision herein shall
constitute a subsequent waiver of such provision or of any other
provision herein, nor shall it constitute the waiver of any
performance other than the actual performance specifically
waived. |
B-3
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4.6 Severability. If any provision of
this Agreement is determined by any court or arbitrator of
competent jurisdiction to be invalid, illegal or unenforceable
in any respect, such provision will be enforced to the maximum
extent possible given the intent of the parties hereto. |
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4.11 Entire Agreement. This Agreement,
together with all the Exhibits hereto, constitutes the entire
agreement and understanding of the parties with respect to the
subject matter of this Agreement, and supersede any and all
prior understandings and agreements, whether oral or written,
between or among the parties hereto with respect to the specific
subject matter hereof. |
B-4
IN WITNESS WHEREOF, the parties hereto have executed this
Stock Contribution Agreement as of the date first written above.
VICTORY ACQUISITION CORPORATION:
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By: |
/s/ Fred Shiu Leung Chan |
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Name: Fred Shiu Leung Chan
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Title: President
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/s/ Fred S. L. Chan
Fred S. L. Chan
/s/ Annie M.H. Chan
Annie M.H. Chan
For TR UA 07-25-95, The Annie M.H. Chan Living Trust:
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/s/ Annie M.H. Chan |
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Annie M.H. Chan, Trustee |
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For The David Y.W. Chan Trust, UA DTD 12-21-87; The Edward
Y.C. Chan Trust, UA DTD 12-21-87; The Michael Y.J. Chan Trust,
UA DTD 3-16-92:
/s/ Mee Sim Lee
Mee Sim Lee, Trustee
/s/ Sung Kook Kim
Sung Kook Kim, Trustee
/s/ Myong Shin Kim
Myong Shin Kim, Trustee
For Shiu Leung Chan & Annie M.H. Chan Gift Trust
11/20/92:
/s/ Mee Sim Lee
Mee Sim Lee, Trustee
/s/ Sung Kook Kim
Sung Kook Kim, Trustee
B-5
For Evershine XVI, L.P.:
By: Everbright II, LLC
/s/ Fred Shiu Leung Chan
By: Fred Shiu Leung Chan, Manager
/s/ Annie M.H. Chan
By: Annie M.H. Chan, Manager
B-6
EXHIBIT A
Schedule of Investors
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Number of Vialta | |
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Number of Company | |
Investor |
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Shares | |
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Shares | |
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Fred Shiu Leung Chan
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5,044,744 |
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5,044,744 |
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Annie M.H. Chan
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5,748,960 |
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5,748,960 |
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Annie M. H. Chan TR UA 07-25-95, The Annie M. H. Chan Living
Trust
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8,042,932 |
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8,042,932 |
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Mee Sim Lee & Sung Kook Kim & Myong Shin Kim
TR UA DTD 12-21-87, The David Y. W. Chan Trust
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974,410 |
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974,410 |
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Mee Sim Lee & Sung Kook Kim & Myong Shin Kim
TR UA DTD 12-21-87, The Edward Y. C. Chan Trust
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974,408 |
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974,408 |
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Mee Sim Lee & Sung Kook Kim & Myong Shin Kim
TR UA DTD 3-16-92, The Michael Y. J. Chan Trust:
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334,939 |
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334,939 |
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Shiu Leung Chan & Annie M. H. Chan Gift
Trust Dated 11/20/92
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2,119,447 |
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2,119,447 |
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Evershine XVI, L.P.
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8,800,000 |
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8,800,000 |
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TOTALS:
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32,039,840 |
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32,039,840 |
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B-7
EXHIBIT B
Stock Power And Assignment
Separate From Stock Certificate
FOR VALUE RECEIVED and pursuant to that certain Stock
Contribution Agreement dated as of March 28, 2005, (the
Agreement), the undersigned hereby
sells, assigns and transfers unto Victory Acquisition
Corporation (the
Transferee), shares
of the Common Stock of Vialta, Inc., a Delaware corporation (the
Company), standing in the
undersigneds name on the books of the Company represented
by Certificate
No(s). delivered
herewith, and does hereby irrevocably constitute and appoint the
Secretary of the Company as the undersigneds
attorney-in-fact, with full power of substitution, to transfer
said stock on the books of the Company.
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Dated: |
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(Signature)
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(Please Print Name)
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(Spouses Signature, if any)
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(Please Print Spouses Name)
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B-8
Annex C
VOTING AGREEMENT
This VOTING AGREEMENT (the Agreement)
is entered into as of March 28, 2005, by and between
Vialta, Inc, a Delaware corporation (the
Company), and Victory Acquisition
Corp., a Delaware corporation (the
Stockholder).
RECITALS
A. Concurrently with the execution of this Agreement, the
Company an Stockholder are entering into an Agreement and Plan
of Reorganization (as may be amended or supplemented from time
to time, the Merger Agreement),
pursuant to which the parties thereto have agreed, upon the
terms and subject to the conditions set forth therein, to merge
Stockholder with and into the Company (the
Merger).
B. Concurrently with the execution of this Agreement, the
Company and Stockholder are entering in to a Pledge Agreement
(as may be amended or supplemented from time to time, the
Pledge Agreement).
C. As of the date hereof, Stockholder beneficially owns (as
such term is defined in Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended and the rules and
regulations promulgated thereunder (the Exchange
Act)), and has the sole right to vote and dispose
of, the number of shares (the Shares)
of common stock, par value $.001 per share, of the Company
(the Company Common Stock), set forth
opposite Stockholders name on Schedule I attached
hereto, (such Shares, together with any other shares of capital
stock of the Company acquired by Stockholder after the date
hereof and during the term of this Agreement (including through
the exercise of any stock options, warrants, convertible
securities or similar instruments), being collectively referred
to herein as the Subject Shares).
D. As a condition to its willingness to enter into the
Merger Agreement, the Company has required that Stockholder
agree, and Stockholder is willing to agree, to the matters set
forth herein. Capitalized terms used and not defined herein have
the meanings set forth in the Merger Agreement.
E. In consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties hereto
agree as follows:
1. Voting of Shares.
1.1 Voting Agreement.
For so long as this Agreement is in effect, Stockholder hereby
agrees at any duly called annual, special or other meeting of
the shareholders of the Company, and in any action by written
consent of the shareholders of the Company, with respect to
Subject Shares it beneficially owns as of the applicable record
date, (a) to appear at the meeting, if a meeting is held,
and any adjournment or postponement thereof, in person or by
proxy, or to otherwise cause such Subject Shares over which
Stockholder has sole voting power (and use reasonably commercial
efforts to cause such Subject Shares over which Stockholder has
joint voting power) to be counted as present thereat for
purposes of establishing a quorum; (b) to vote or consent
such Subject Shares over which Stockholder has sole voting power
(and cause to be voted or consented such Subject Shares over
which Stockholder has joint voting power), in person or by
proxy, in favor of the Merger and the adoption of the Merger
Agreement and the approval of the other transactions
contemplated thereby, and any actions required in furtherance
thereof (including, without limitation, any proposal to adjourn
any such meeting if necessary to permit further solicitation of
proxies in the event there are not sufficient votes at the time
of such meeting to approve the Merger Agreement); and
(c) to vote or consent such Subject Shares over which
Stockholder has sole voting power (and cause to be voted or
consented such Subject Shares over which Stockholder has joint
voting power), in person or by proxy, against any action or
agreement that would result in a breach of any covenant,
representation or warranty or any other obligation of the
Company under this Agreement or the Merger Agreement. Any vote
by Stockholder that is not in accordance with this
Section 1.1 shall be considered null and void. Stockholder
shall not enter into any agreement or understanding with any
person or entity prior to the termination of this Agreement to
vote or give instructions in a manner inconsistent with this
Section 1.1.
C-1
1.2 Fiduciary
Responsibilities. Each shareholder of Stockholder who is
or becomes during the term hereof a director or officer of the
Company does not make (and shall not be deemed to have made) any
agreement or understanding herein, or by virtue of contributing
his or her Shares to Stockholder, in his or her capacity as such
director or officer. Without limiting the generality of the
foregoing, each shareholder of Stockholder has contributed his
or her Shares to Stockholder solely in his, her or its capacity
as the record and/or beneficial owner, as applicable, of such
persons or entitys Shares and nothing herein shall
limit or affect any actions taken by such shareholder (or a
designee of such shareholder) in his or her capacity as an
officer or director of the Company in exercising his or her or
the Companys or the Company Board of Directors
rights in connection with the Merger Agreement or otherwise.
2. Representations and
Warranties of Stockholder. Stockholder represents and
warrants to the Company as follows:
2.1 Corporate Existence;
Authorization. Stockholder is duly organized, validly
existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to enter
into, deliver and perform all of its obligations under this
Agreement and to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement by
Stockholder, the performance by Stockholder of its obligations
hereunder and the consummation by Stockholder of the
transactions contemplated hereby have been duly authorized by
all requisite action on the part of Stockholder. This Agreement
has been duly and validly executed and delivered by Stockholder
and, assuming due execution and delivery by each of the other
parties hereto, this Agreement constitutes a legal, valid and
binding obligation of Stockholder enforceable against
Stockholder in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting
creditors rights generally and by general equitable
principles (regardless of whether enforceability is considered
in a proceeding in equity or at law).
2.2 No Conflict. Neither the execution and
delivery of this Agreement by Stockholder, the consummation of
the transactions contemplated hereby, nor the performance by
Stockholder of its obligations hereunder will, (a) conflict
with or result in a breach of any provision of its Certificate
of Incorporation or By-laws, (b) require any consent,
approval, authorization or permit of, registration, declaration
or filing (except for such filings as may be required under the
federal securities laws) with, or notification to, any
governmental entity, (c) result in a violation or breach
of, or constitute (with or without due notice or lapse of time
or both) a default (or give rise to any right of termination,
cancellation, or acceleration) under any contract, agreement,
instrument, commitment, arrangement or understanding applicable
to Stockholder or Stockholders Subject Shares, or result
in the creation of a security interest, lien, charge,
encumbrance, equity or claim with respect to any of
Stockholders Subject Shares, (d) require any material
consent, authorization or approval of any person other than a
governmental entity, or (e) violate or conflict with any
order, writ, injunction, decree, rule, regulation or law
applicable to Stockholder or Stockholders Shares, except
for such exceptions to the foregoing as will not have an adverse
effect on the valid performance by Stockholder of its
obligations hereunder.
2.3 Ownership of Shares. Stockholder is the
record and beneficial owner of the number of Shares set forth
opposite Stockholders name on Schedule I attached
hereto free and clear of any security interests, liens, charges,
encumbrances, equities, claims, options or limitations of
whatever nature and free of any other limitation or restriction
(including any restriction on the right to vote, sell or
otherwise dispose of such shares), other than interests granted
pursuant to the Pledge Agreement. There are no outstanding
options or other rights to acquire from Stockholder, or
obligations of Stockholder to sell or to dispose of, any shares
of Company Common Stock. Stockholder holds exclusive power to
vote the Shares set forth opposite Stockholders name on
Schedule I attached hereto, subject to the limitations set
forth in Section 1 of this Agreement. As of the date of
this Agreement, the Shares set forth opposite Stockholders
name on Schedule I attached hereto represent all of the
shares of capital stock of the Company beneficially owned by
Stockholder and by each shareholder of Stockholder.
2.4 Absence of Litigation. As of the date
hereof, there is no suit, action, investigation or proceeding
pending or, to the knowledge of Stockholder, threatened against
Stockholder before or by any governmental
C-2
entity that could impair the ability of Stockholder to perform
its obligations hereunder or to consummate the transactions
contemplated hereby on a timely basis.
3. Representations and Warranties of the
Company. The Company represents and warrants to
Stockholder as follows:
3.1 Corporate Authorization. The Company is
duly organized and validly existing under the laws of the State
of Delaware and has all requisite power and authority to enter
into, deliver and perform all of its obligations under this
Agreement and to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement by
the Company, the performance by the Company of its obligations
hereunder and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by
all requisite action on the part of the Company. This Agreement
has been duly executed and delivered by the Company and,
assuming the due and valid authorization, execution and delivery
hereof by the other parties hereto, this Agreement constitutes
the valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar
Laws affecting the rights of creditors generally and general
principles of equity.
3.2 No Conflict. Neither the execution and
delivery of this Agreement, the consummation by the Company of
the transactions contemplated hereby, nor the compliance by the
Company with any of the provisions hereof will (a) conflict
with or result in a breach of any provision of its Certificate
of Incorporation or By-laws, (b) require any consent,
approval, authorization or permit of, registration, declaration
or filing (except for such filings as may be required under the
federal securities laws) with, or notification to, any
governmental entity, (c) result in a violation or breach
of, or constitute (with or without due notice or lapse of time
or both) a default (or give rise to any right of termination,
cancellation, or acceleration) under any contract, agreement,
instrument, commitment, arrangement or understanding applicable
to the Company, (d) require any material consent,
authorization or approval of any person other than a
governmental entity, or (e) violate or conflict with any
order, writ, injunction, decree or law applicable to the
Company, except for such exceptions to the foregoing as are not
reasonably likely to have an adverse effect on the valid
performance by the Company of its obligations hereunder.
4. Transfer and Other Restrictions.
For so long as the Merger Agreement has not been terminated in
accordance with its terms:
4.1 Certain Prohibited Transfers. Stockholder
agrees not to (a) directly or indirectly, sell, transfer,
pledge, encumber, assign or otherwise dispose of, or enter into
any contract, option or other arrangement or understanding with
respect to the sale, transfer, pledge, encumbrance, assignment
or other disposition of, Stockholders Subject Shares or
any interest contained therein other than pursuant to the Pledge
Agreement (any of the foregoing, a
Transfer), other than to an affiliate
of Stockholder, provided in the case of a Transfer to an
affiliate, such affiliate shall have: (i) executed a
counterpart of this Agreement; and (i) agreed to hold such
Subject Shares (or interest in such Subject Shares) subject to
all of the terms and provisions of this Agreement;
(b) grant any proxies or powers of attorney or enter into a
voting agreement or other arrangement with respect to
Stockholders Subject Shares, other than this Agreement;
(c) enter into, or deposit Stockholders Subject
Shares into, a voting trust; nor (d) commit or agree to
take any of the foregoing actions.
4.2 Efforts. Stockholder agrees not to take
any action which would make any representation or warranty of
Stockholder herein untrue or incorrect in any material respect
or take any action that would have the effect of preventing or
disabling Stockholder from performing its obligations under this
Agreement.
4.3 Additional Shares. Without limiting the
provisions of the Merger Agreement, in the event (i) of any
stock dividend, stock split, recapitalization, reclassification,
combination or exchange of shares of capital stock of the
Company on, of or affecting Stockholders Subject Shares or
(ii) Stockholder shall become the beneficial owner of any
additional shares of Company Common Stock or other securities
entitling the holder thereof to vote or give consent with
respect to the matters set forth in Section 1 hereof, then
the terms of this Agreement shall apply to the shares of capital
stock or other securities of the Company held by Stockholder
immediately following the effectiveness of the events described
in clause (i) or Stockholder becoming the
C-3
beneficial owner thereof, as described in clause (ii), as
though they were Subject Shares of Stockholder hereunder.
Stockholder hereby agrees, while this Agreement is in effect, to
notify the Company of the number of any new shares of Company
Common Stock acquired by Stockholder, if any, after the date
hereof.
4.4 Certain Events. Stockholder agrees that
this Agreement and the obligations hereunder shall attach to the
Subject Shares and shall be binding upon any person or entity to
which legal or beneficial ownership of the Subject Shares shall
pass, whether by operation of law or otherwise, including
without limitation the Stockholders administrators,
successors or receivers.
5. Stop Transfer Order. In furtherance
of this Agreement, Stockholder shall and does hereby authorize
and request that the Company instruct its transfer agent to
enter a stop transfer order, consistent with the terms of this
Agreement and subject to such transfers as may be permitted by
the express terms hereof, with respect to all of the Subject
Shares beneficially owned by Stockholder.
6. Specific Enforcement. The parties
hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed
in accordance with the terms hereof or were otherwise breached
and that each party shall be entitled to specific performance of
the terms hereof in addition to any other remedy which may be
available at law or in equity. It is accordingly agreed that the
parties will be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any state or
federal located in the State of Delaware, the foregoing being in
addition to any other remedy to which they are entitled at law
or in equity. In addition, each of the parties hereto
(i) consents to submit itself to the personal jurisdiction
of any such state or federal court in the event any dispute
arises out of this Agreement or any of the transactions
contemplated by this Agreement, (ii) agrees that it will
not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court, and
(iii) agrees that it will not bring any action relating to
this Agreement or any of the transactions contemplated by this
Agreement in any court other than a state or federal located in
the State of Delaware.
7. Termination. This Agreement shall
automatically terminate, and neither the Company nor Stockholder
shall have any rights or obligations hereunder and this
Agreement shall become null and void and have no further effect,
upon the earliest to occur of (a) the written agreement of
the parties hereto to terminate this Agreement, (b) the
Effective Time of the Merger and (c) the date of
termination of the Merger Agreement in accordance with its terms.
8. Survival. The representations and
warranties of the parties contained in this Agreement shall
terminate upon the termination of this Agreement.
9. Notices. Any notice or other communication
required or permitted to be given under this Agreement shall be
in writing and shall be deemed given upon
(a) transmitters confirmation of a receipt of a
facsimile transmission, (b) confirmed delivery by a
standard overnight carrier or when delivered by hand or
(c) the expiration of three business days after the day
when mailed by certified or registered mail, postage prepaid,
addressed at the following addresses (or at such other address
for a party as shall be specified by like notice):
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If to the Company, to: |
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Vialta, Inc. |
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48461 Fremont Blvd. |
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Fremont, CA 94583 |
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Attn: Special Committee of the Board of Directors |
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Tel: (510) 870-3088 |
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Fax: (510) 870-3060 |
C-4
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with a copy to: |
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Kaye Scholer LLP |
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1999 Avenue of the Stars, Suite 1700 |
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Los Angeles, CA 90064 |
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Attn: Barry Dastin, Esq. |
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Tel: (310) 788-1000 |
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Fax: (310) 788-1200 |
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and a copy to: |
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Potter Anderson & Corroon LLP |
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Hercules Plaza, 6th Floor |
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1313 N. Market Street |
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Wilmington DE 19801 |
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Attn: John Grossbauer, Esq. |
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Tel: (302) 984-6000 |
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Fax: (302) 658-1192 |
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If to Stockholder, to: |
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Victory Acquisition Corp. |
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19770 Stevens Creek Blvd. |
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Cupertino, CA 95014 |
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Attn: Fred S.L. Chan |
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Tel: (408) 863-7332 |
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Fax: (408) 343-1018 |
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with a copy to: |
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Fenwick & West LLP |
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275 Battery Street, Suite 1500 |
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San Francisco, CA 94111 |
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Attn: Robert Dellenbach, Esq. |
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Tel: (415) 875-2323 |
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Fax: (415) 875-2350 |
10. Consideration. This Agreement is
granted in consideration of the execution and delivery of the
Merger Agreement by the Company.
11. Governing Law. The internal laws
of the State of Delaware (irrespective of its choice of law
principles) will govern the validity of this Agreement, the
construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto.
12. Assignment; Binding Upon Successors and
Assigns. Neither party hereto may assign any of its
rights or obligations hereunder without the prior written
consent of the other party hereto. This Agreement will be
binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Stockholder
agrees that this Agreement and the obligations hereunder shall
attach to Stockholders Subject Shares and shall be binding
upon any person or entity to which legal or beneficial ownership
of such Subject Shares shall pass, whether by operation of law
or otherwise, including Stockholders successors and
permitted assigns.
13. Counterparts. This Agreement may
be executed in two or more counterparts, each of which shall be
deemed to be an original, but all of which together shall
constitute one and the same instrument. This Agreement may be
executed and delivered by facsimile and upon such delivery the
facsimile signature will be deemed to have the same effect as if
the original signature had been delivered to the other party.
C-5
14. Severability. If any provision of
this Agreement, or the application thereof, will for any reason
and to any extent be invalid or unenforceable, the remainder of
this Agreement and application of such provision to other
persons or circumstances will be interpreted so as reasonably to
effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
15. Amendment. Any term or provision
of this Agreement may be amended, and the observance of any term
of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby;
provided that, no amendment or waiver by the Company shall be
effective unless first approved in writing by the Special
Committee of the Board of Directors of the Company. The waiver
by a party of any breach hereof or default in the performance
hereof will not be deemed to constitute a waiver of any other
default or any succeeding breach or default. The Agreement may
be amended by the parties hereto at any time before or after
approval of the Target Stockholders, but, after such approval,
no amendment will be made which by applicable law requires the
further approval of the Target Stockholders without obtaining
such further approval.
16. No Waiver. The failure of any
party to enforce any of the provisions hereof will not be
construed to be a waiver of the right of such party thereafter
to enforce such provisions.
17. Construction of Agreement. This
Agreement has been negotiated by the respective parties hereto
and their attorneys and the language hereof will not be
construed for or against either party solely by reason that such
party is the claimed drafter thereof. A reference to a Section
or an exhibit will mean a Section in, or exhibit to, this
Agreement unless otherwise explicitly set forth. The titles and
headings herein are for reference purposes only and will not in
any manner limit the construction of this Agreement that will be
considered as a whole. The term includes or
including are not limiting. Capitalized terms used
in this Agreement without definition shall have the meanings
assigned to them in the Merger Agreement.
18. Entire Agreement. This Agreement
constitutes the entire understanding and agreement of the
parties hereto with respect to the subject matter hereof and
supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto. The
express terms hereof control and supersede any course of
performance or usage of the trade inconsistent with any of the
terms hereof.
C-6
IN WITNESS WHEREOF, this Voting Agreement has been duly executed
and delivered by a duly authorized officer of the Stockholder
and a duly authorized officer of the Company on the day and year
first written above.
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VIALTA, INC. |
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/s/ Didier Pietri |
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Name: Didier Pietri |
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Its: Chief Executive Officer |
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VICTORY ACQUISITION CORP. |
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/s/ Fred Shiu Leung Chan |
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Name: Fred Shiu Leung Chan |
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Its: President |
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C-7
SCHEDULE I TO
VOTING AGREEMENT
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Name of Stockholder |
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Number of Shares | |
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Number of Options | |
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Victory Acquisition Corp.
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32,039,840 |
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0 |
(1) |
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(1) |
Fred S. L. Chan holds options to acquire 1,000,000 shares
of Company Common Stock. If Mr. Chan elects to exercise
such options, he is obligated to contribute any shares acquired
upon such exercise to the Stockholder pursuant to that certain
Stock Contribution Agreement of even date herewith. |
C-8
Annex D
ADDITIONAL CONTRIBUTION AGREEMENT
This Additional Contribution Agreement (this
Agreement) is made and entered into as
of March 28, 2005 by and among Victory Acquisition
Corporation, a Delaware corporation (the
Company), and Fred S. L. Chan
(Investor).
A. The Company has been formed solely to facilitate
and effect a statutory merger (the
Merger) with Vialta, Inc., a Delaware
corporation (Vialta), under which
Vialta will be the surviving corporation, pursuant to the terms
and conditions of that certain Agreement and Plan of Merger
dated as of March 28, 2005 (Merger
Agreement). The existence of the Company is
transitory and will be discontinued upon the consummation of the
Merger. The Company will conduct no business prior to the Merger.
B. The Investor and certain of his affiliates
(collectively, Investors) are holders
of the certain shares of stock of Vialta (the Vialta
Shares). Pursuant to that certain Stock
Contribution Agreement, dated as of even date herewith
(Contribution Agreement), the
Investors intend to contribute their Vialta Shares to the
Company in exchange for shares of the Companys Common
Stock (the Company Shares), after
which the Investors will hold all of the outstanding shares of
the Companys stock.
C. The contribution of stock under the Contribution
Agreement and the Merger are part of an integrated plan for
Vialta to redeem the Vialta stock (other than the Vialta
Shares), and are intended to be treated for tax purposes as a
redemption of the shares of Vialta stock outstanding immediately
prior to the effective time of the Merger (other than the Vialta
Shares), pursuant to Section 302 of the Internal Revenue
Code of 1986, as amended (the Code).
D. Section 6.2 of the Merger Agreement provides
that if after Vialta shall have deposited in the Exchange Fund
(as defined in the Merger Agreement) all cash and cash
equivalents available to Vialta immediately prior to the Closing
and the Exchange Fund still does not have sufficient cash to pay
the entire Merger Consideration (as defined in the Merger
Agreement), then the Company shall, within two (2) business
days, deposit into the Exchange Fund an amount of cash equal to
the shortfall of such Merger Consideration
(Shortfall), not to exceed Four
Million Dollars ($4,000,000.00).
E. The Company has no cash assets, and the Vialta
Shares to be held by the Company following the consummation of
the transactions set forth in the Contribution Agreement may not
be liquidated; accordingly, the Company would require outside
funding in order to meet its obligations under Section 6.2
of the Merger Agreement.
F. Investor has agreed to advance to the Company the
Shortfall, if needed, on the terms and conditions of this
Agreement.
D-1
NOW THEREFORE, the parties hereby agree as follows:
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1. LOAN. As part of an integrated plan
with the Merger, Investor hereby agrees that in the event of a
Shortfall, as determined by the Company, the Company shall make
a written demand (Demand) on Investor
requiring Investor to deliver to the Company (or to the Exchange
Fund on behalf of the Company) the amount of the Shortfall, in
cash in immediately available funds, up to a maximum of
$4 million (Loan Amount).
Investor hereby agrees to advance the Loan Amount to the
Company or to the Exchange Fund on behalf of the Company, as
requested by the Company pursuant to a Demand, as of the
Effective Time. The advance of the Loan Amount will be
considered a loan to the Company and the Companys
obligation to repay the Loan Amount will be evidenced by a
promissory note in the form of Exhibit A attached hereto
(Note). |
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2. GENERAL PROVISIONS. |
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2.1 Successors and Assigns. Except as
otherwise provided in this Agreement, this Agreement, and the
rights and obligations of the parties hereunder, will be binding
upon and inure to the benefit of their respective successors,
assigns, heirs, executors, administrators and legal
representatives. |
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2.2 Governing Law. This Agreement and
the Note will be governed by and construed in accordance with
the laws of the State of California, without giving effect to
that body of laws pertaining to conflict of laws. |
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2.3 Counterparts. This Agreement may
be executed in any number of counterparts, each of which when so
executed and delivered will be deemed an original, and all of
which together shall constitute one and the same agreement. This
Agreement may be executed and delivered by facsimile and upon
such delivery the facsimile signature will be deemed to have the
same effect as if the original signature had been delivered to
the other party. |
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2.4 Notices. Any and all notices
required or permitted to be given to a party pursuant to the
provisions of this Agreement will be in writing. |
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2.5 Amendments and Waivers. Any term
of this Agreement or the Note may be amended and the observance
of any term of this Agreement or the Note may be waived (either
generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company
and the Investor. No delay or failure to require performance of
any provision of this Agreement or the Note shall constitute a
waiver of that provision as to that or any other instance. No
waiver granted under this Agreement or the Note as to any one
provision herein or therein shall constitute a subsequent waiver
of such provision or of any other provision herein or therein,
nor shall it constitute the waiver of any performance other than
the actual performance specifically waived. Vialta shall be a
third party beneficiary hereof with respect to the deposit into
the Exchange Fund of the shortfall. |
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2.6 Severability. If any provision of
this Agreement or the Note is determined by any court or
arbitrator of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, such provision will be enforced to
the maximum extent possible given the intent of the parties
hereto. |
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2.7 Entire Agreement. This Agreement,
together with the Note, constitutes the entire agreement and
understanding of the parties with respect to the subject matter
of this Agreement, and supersedes any and all prior
understandings and agreements, whether oral or written, between
or among the parties hereto with respect to the specific subject
matter hereof. |
D-2
IN WITNESS WHEREOF, the parties hereto have executed this
Additional Contribution Agreement as of the date first written
above.
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VICTORY ACQUISITION CORPORATION: |
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By: |
/s/ Fred Shiu Leung Chan |
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Name: |
Fred Shiu Leung Chan |
INVESTOR:
FRED S.L. CHAN
/s/ Fred S.L. Chan
PROMISSORY NOTE
OF
VICTORY ACQUISITION CORPORATION
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$ |
Made as of , 2005 Maturity Date: [24 months following the date hereof] |
For value received, Victory Acquisition Corporation, a Delaware
corporation (the Company), hereby
promises to pay to Fred S. L. Chan
(Holder), or his registered assigns,
the principal sum of
$
(the Principal Amount), or such lesser
amount as shall then equal the outstanding principal amount
hereunder, together with simple interest on the unpaid principal
balance at a rate equal to 6% per annum, computed on the
basis of the actual number of days elapsed and a year of
365 days from the date of this Note, until the principal
amount and all interest accrued thereon and other amounts owed
hereunder are paid. Anything herein to the contrary
notwithstanding, if during any period for which interest is
computed hereunder, the amount of interest computed on the basis
provided for in this Note, together with all fees, charges and
other payments which are treated as interest under applicable
law, as provided for herein or in any other document executed in
connection herewith, would exceed the amount of such interest
computed on the basis of the Highest Lawful Rate, the Company
shall not be obligated to pay, and the Holder shall not be
entitled to charge, collect, receive, reserve or take, interest
in excess of the Highest Lawful Rate, and during any such period
the interest payable hereunder shall be computed on the basis of
the Highest Lawful Rate. As used herein, Highest
Lawful Rate means the maximum non-usurious rate of
interest, as in effect from time to time, which may be charged,
contracted for, reserved, received or collected by the Holder in
connection with this Note under applicable law. The unpaid
Principal Amount, together with any then unpaid accrued interest
and all other amounts owed hereunder, shall be due and payable
on the date 24 months following the date hereof (the
Maturity Date) or earlier when such
amounts are made automatically due and payable upon or after the
occurrence of an Event of Default (as defined below), at the
principal offices of the Company or by mail to the address of
the registered holder of this Note in lawful money of the United
States. Any payment
D-3
made by the Company under this Note will be applied first to
interest accrued and second to outstanding principal. This Note
may be prepaid at any time without penalty.
This Note is issued pursuant to that certain Additional
Contribution Agreement dated as of March [28], 2005, by and
among the Company and the original holder of this Note, and is
subject to the provisions thereof, and incorporates the
provisions thereof by reference.
An Event of Default will occur if any of the
following happens and such default is not cured within a five
(5) day period after the Holder has given the Company
written notice of such default:
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the Company fails to make any payment when due hereunder; |
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the Company breaches any material obligation to the Holder under
this Note or the Additional Contribution Agreement, or the
Company fails to perform promptly at the time and strictly in
the manner provided in this Note; or |
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a receiver is appointed for any material part of the
Companys property, the Company makes an assignment for the
benefit of creditors, or the Company becomes a debtor or alleged
debtor in a case under the U.S. Bankruptcy Code or becomes
the subject of any other bankruptcy or similar proceeding for
the general adjustment of its debts. |
Upon the occurrence of any Event of Default, all accrued but
unpaid expenses, accrued but unpaid interest, all principal and
any other amounts outstanding under this Note shall become
immediately due and payable in full without further notice or
demand.
The Company and all endorsers of this Note hereby waive notice,
presentment, protest and notice of dishonor.
In the event any party is required to engage the services of any
attorneys for the purpose of enforcing this Note, or any
provision thereof, the prevailing party shall be entitled to
recover its reasonable expenses and costs in enforcing this
Note, including attorneys fees.
D-4
IN WITNESS WHEREOF, the Company has caused this Note to
be signed in its name as of the date first above written.
VICTORY ACQUISITION CORPORATION:
INVESTOR:
FRED S.L. CHAN
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Annex E
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this Agreement) dated
as of March 28, 2005, is made by Victory Acquisition Corp.
(the Pledgor) in favor of Vialta, Inc.
(Target). Capitalized terms used herein which
are not defined herein shall have the meanings given them in the
Merger Agreement referred to below.
RECITALS
WHEREAS, pursuant to that certain Agreement and Plan of
Reorganization dated as of March 28, 2005 between the
Pledgor and Target (the Merger Agreement)
Pledgor shall merge with and into Target (the
Merger);
WHEREAS, the Pledgor owns the capital stock of Target described
on Exhibit A (the Securities)
certain of which are held in or will be transferred to certain
securities accounts described on Exhibit A attached hereto
(together with any successor or replacement account and all
subaccounts therein, the Accounts);
WHEREAS, Target has required as a condition, among other things,
to entering into the Merger Agreement, and in order to secure
the prompt and complete payment by Pledgor of its obligations to
pay any Shortfall in the Merger Consideration to the Exchange
Agent as, when and to the extent provided in Section 6.2(a)
of the Merger Agreement (collectively, the Payment
Obligation) that the Pledgor execute and deliver this
Agreement to Target. As used in this Agreement, the term
Payment Default shall mean the failure of Pledgor to
pay when and as due such Payment Obligation as required under
the Merger Agreement;
WHEREAS, Target has also required that as a condition of the
Merger, Pledgor enter into that certain Voting Agreement of even
date herewith regarding the voting of Targets securities
held by Pledgor in connection with the Merger (the
Voting Agreement).
NOW, THEREFORE, for and in consideration of the foregoing and
for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant of Security Interest. The Pledgor
hereby grants to Target, for the benefit of Target, as security
for the prompt and complete satisfaction of the Payment
Obligation, a security interest in all of the Pledgors now
owned or hereafter acquired right, title and interest in the
Securities and all replacements, renewals, substitutions and
proceeds thereof, and the Accounts (together with all of the
Securities collectively referred to as the Pledged
Interests), all rights, privileges, authority and
powers as owner or holder of the Securities, including all
contract rights related thereto, all documents, instruments or
certificates representing or evidencing the Securities, and all
dividends, distributions, cash, instruments and other property
from time to time received, receivable or otherwise distributed
in respect of, or in exchange for, the Securities, and any and
all proceeds of any of the foregoing (collectively, the
Pledged Collateral).
2. Perfection of Security Interest. The
Pledgor agrees (i) to deliver, or cause to be delivered, to
Target or Targets nominee, all certificates evidencing any
of the Pledged Collateral together with appropriate transfer
powers executed in blank, (ii) Target is authorized to
record such financing statements as Target may deem necessary or
desirable to perfect the security interests granted herein,
(iii) to cause any securities intermediary with custody of
any Pledged Collateral to deliver an agreement in form and
substance satisfactory to Target, providing Target with
control (as defined in Section 9-106 of the
Uniform Commercial Code as in effect in the State of California)
of such Pledged Collateral, and (iv) to take such other
steps as Target may from time to time reasonably request to
perfect and maintain Targets security interest in the
Pledged Collateral as a first priority security interest under
applicable law.
3. Voting Rights. So long as no Payment
Default shall have occurred and be continuing, during the term
of this Agreement, the Pledgor shall have the right to vote with
respect to the Securities and to give
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consents, ratifications and waivers with respect thereto,
subject to the Voting Agreement. Target shall, at the request of
the Pledgor, provide the Pledgor with appropriate proxies and
any other documents necessary or appropriate to permit the
Pledgor to exercise the rights set forth in the preceding
sentence.
4. Dividends and Other Distributions. Unless
a Payment Default has occurred and is continuing, any and all
dividends or distributions paid in respect of the Securities
shall be distributed or caused to be distributed to the Pledgor;
provided, however, that (a) during the existence of a
Payment Default all such amounts shall be paid over to Target
and (b) any cash paid, payable or otherwise distributed in
redemption of, in exchange for, or as a return of, the
Pledgors capital investment in any Securities shall be
paid directly to Target and any such amounts described in this
provision, if received by the Pledgor, shall be held in trust
for the benefit of Target, segregated from other property or
funds of the Pledgor, and forthwith delivered to Target as
Pledged Collateral in the same form as so received (with any
necessary endorsement). Such amounts paid directly to Target as
described in the immediately preceding sentence shall be held by
Target as cash collateral for the Payment Obligation and any
damages owing by the Pledgor for a breach thereof.
5. Representations. The Pledgor warrants and
represents as follows:
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(a) The Pledgor has the power and authority to execute,
deliver and perform this Agreement and to grant to Target the
security interests in the Pledged Collateral. No consent,
approval, or authorization of, or declaration or filing with,
any governmental authority, and no consent of any other person,
is required in connection with the Pledgors execution,
delivery, and performance of this Agreement except for those
already duly obtained. This Agreement has been duly executed and
delivered by the Pledgor, and constitutes the legal, valid and
binding obligation of the Pledgor, enforceable against it in
accordance with its terms. The Pledgors execution,
delivery, and performance of this Agreement does not, and will
not, conflict with, or constitute a violation or breach of, or
constitute a default under, or result in the creation or
imposition of any lien upon, the Pledged Collateral by reason of
the terms of (i) any contract, mortgage, lien, lease,
agreement, indenture, or instrument to which the Pledgor is a
party or which is binding upon it or its property except as
provided in this Agreement or (ii) any judgment, law,
statute, rule or governmental regulation applicable to the
Pledgor. |
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(b) The Pledgor is the sole, direct, legal and beneficial
owner of each of the Pledged Interests and the only securities
entitlement holder with respect to each of the Pledged Interests
which constitute securities entitlements, and each of the
Pledged Interests as applicable, have been duly authorized and
are fully paid and nonassessable. |
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(c) There are no restrictions upon the voting rights
associated with any of the Pledged Collateral other than those
under the Voting Agreement. |
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(d) The Pledgor has the right, subject to the provisions of
this Agreement, (i) to vote the Securities, subject to the
terms of the Voting Agreement, and (ii) to pledge and grant
a security interest in all or any part of the Pledged
Collateral, free of any lien or other charge, encumbrance or
restriction. |
6. Subsequent Changes Affecting Pledged
Collateral. The Pledgor represents to Target that the
Pledgor has made its own arrangements for keeping informed of
changes or potential changes affecting the Pledged Collateral
(including, but not limited to, rights to convert, rights to
subscribe, payment of interest, dividends, reorganization or
other exchanges, tender offers and voting rights), and the
Pledgor agrees that Target shall have no responsibility or
liability for informing the Pledgor of any such changes or
potential changes or for taking any action or omitting to take
any action with respect thereto.
7. Pledged Interests Adjustments. In the
event that, during the term of this Agreement, any stock
dividend, reclassification, readjustment or other change is
declared or made in the capital structure of Target (including,
without limitation, the issuance of additional shares of capital
stock), then Target shall have a security interest in all equity
and non-equity securities issued to or acquired by the Pledgor
by reason of any such change or exercise with respect to any
Pledged Interest, and such shares or other securities shall
become part of the Pledged Collateral.
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8. Warrants, Options and Other Rights. In the
event that, during the term of this Agreement, subscription
warrants or any other rights or options shall be issued by
Target on account of the Securities, then Target shall have a
security interest in such warrants, rights and options, and such
warrants, rights and options shall become part of the Pledged
Collateral.
9. Pledged Collateral Covenants. Except as
otherwise provided in the Merger Agreement, the Pledgor agrees
that it will not (a) sell or transfer any of the Securities
without the prior written consent of Target, or (b) create
or permit to exist any lien, security interest, or other charge
or encumbrance or restriction upon or with respect to any of the
Pledged Collateral, except for the security interest granted
under this Agreement and the application of federal and state
securities laws generally.
10. Remedies of Target. Upon the occurrence
and during the continuance of any Payment Default, Target shall
have such powers of sale and other powers as may be conferred by
applicable law with respect to the Pledged Collateral including,
without limitation, all of the rights and remedies with respect
to the Pledged Collateral of a secured party under the Uniform
Commercial Code as in effect in the State of California. With
respect to such Pledged Collateral or any part thereof, which
shall then be in, or shall thereafter come into, the possession
or custody of Target or which Target shall otherwise have the
ability to transfer under applicable law, Target may, in its
sole discretion, without notice except as specified below, upon
the occurrence and during the continuance of any Payment
Default, sell or cause the same to be sold at any brokers
board or at public or private sale, in one or more sales or
lots, at such price as Target reasonably may deem best, for cash
or on credit or for future delivery, without assumption of any
credit risk on the part of Target and the purchaser of any or
all of the Pledged Collateral so sold shall thereafter own the
same, absolutely free from any claim, encumbrance or right of
any kind whatsoever and any sale of the Pledged Collateral
conducted in conformity with reasonable commercial practices of
banks, commercial finance companies, insurance companies or
other financial institutions disposing of property similar to
the Pledged Collateral shall be deemed to be commercially
reasonable. Except with respect to any of the Pledged Collateral
which threatens to decline speedily in value or is, or becomes,
of a type sold on a recognized market, Target will give the
Pledgor reasonable notice of the time and place of any public
sale thereof, or of the time after which any private sale or
other intended disposition is to be made. Notwithstanding any
provision to the contrary contained herein, any requirements of
reasonable notice shall be met if ten (10) Business
Days notice of such sale or disposition is provided to the
Pledgor. Any other requirement of notice, demand or
advertisement for sale is, to the extent permitted by law,
waived. Target may, in its own name or in the name of a designee
or nominee, buy all or any part of the Pledged Collateral at any
public sale and, if permitted by applicable law, buy all or any
part of the Pledged Collateral at any private sale. In
connection with any disposition of Pledged Collateral after a
Payment Default, the Pledgor agrees to execute and deliver to
Target such documents of transfer as Target may from time to
time request to enable Target to transfer the Securities into
its name or the name of its nominee, or to register any of the
Securities to Target.
11. Term. This Agreement shall remain in full
force and effect until the earlier of the time at which
(i) the Payment Obligation shall have been paid and
satisfied in full or (ii) the Merger Agreement shall have
been terminated pursuant to its terms other than solely for
failure of Pledgor to perform the Payment Obligation. Upon the
termination of this Agreement as provided in the immediately
preceding sentence, Target shall promptly thereafter
(i) deliver to or at Pledgors direction all
certificates representing the Pledged Collateral, (ii) file
a termination of any financing statement filed by Target to
perfect the security interest in the Pledged Collateral under
this Agreement and (iii) notify any securities intermediary
(as such term is defined in the UCC) who holds any Pledged
Collateral of the termination of this Agreement and take such
further steps as the securities intermediary or the Pledgor
shall require to release the security interest granted in the
Pledged Collateral in such securities intermediarys
possession or control to Pledgor and to free such Pledged
Collateral from any security interest therein granted in this
Agreement.
12. Expenses. The Pledgor agrees to pay to
Target all reasonable expenses (including, without limitation,
reasonable attorneys fees and costs) incident to,
(a) the exercise or enforcement of any of the rights of
Target hereunder, and (b) the failure by the Pledgor to
perform or observe any provision hereof.
E-3
13. Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the Pledgor,
Target and their respective successors and assigns. The
Pledgors successors and assigns shall include, without
limitation, a receiver, trustee or debtor-in-possession of, or
for, the Pledgor.
14. Applicable Law and Severability. This
Agreement shall be governed by and construed in accordance with
the laws of the State of California. Whenever possible, each
provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any
provision of this Agreement shall be held to be prohibited or
invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
15. Further Assurances. The Pledgor agrees
that it will cooperate with Target and will execute and deliver,
or cause to be executed and delivered, all such stock powers,
proxies, instruments and documents and will take all such other
action as Target may reasonably request from time to time in
order to carry out the provisions and purposes hereof.
16. Waiver of Jury Trial. THE PLEDGOR AND
TARGET IRREVOCABLY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT.
17. Target Appointed Attorney-in-Fact. The
Pledgor hereby appoints Target as the Pledgors
attorney-in-fact, with full authority in the place and stead of
the Pledgor and in the name of the Pledgor or otherwise, from
time to time in Targets discretion, to take any action and
to execute any instrument or agreement which Target may deem
necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation, to receive, endorse
and collect all instruments made payable to the Pledgor
representing any interest payment, dividend or other
distribution in respect of the Pledged Collateral or any part
thereof and to give full discharge for the same. This power of
attorney created under this Paragraph, being coupled with an
interest, shall be irrevocable for the term of this Agreement
and thereafter as long as the Payment Obligation shall be
outstanding.
18. Targets Duty. Target shall not be
liable for any acts, omissions, errors of judgment or mistakes
of fact or law including, without limitation, those acts,
omissions, errors or mistakes with respect to the Pledged
Collateral, except for those arising out of or in connection
with (a) Targets gross negligence or willful
misconduct, or (b) the loss of any certificate evidencing
any of the Pledged Collateral which is in the physical
possession of Target. Without limiting the generality of the
foregoing, Target shall be under no obligation to take any steps
necessary to preserve rights in the Pledged Collateral against
any other parties but may do so at its option, and all
reasonable expenses incurred in connection therewith shall be
for the sole account of the Pledgor.
19. Notices. Any notice required or desired
to be served, given or delivered under this Agreement shall be
in writing, and shall be deemed to have been validly served,
given or delivered (a) four (4) Business Days after
deposit in the United States mails, with proper postage prepaid,
(b) when properly transmitted if sent by facsimile with
receipt confirmed, (c) one (1) Business Day after
being deposited with a reputable overnight courier with all
charges prepaid, or (d) when delivered, if hand-delivered,
by messenger, all of which shall be properly addressed to the
party to be notified and sent to the address or number set forth
on the signature page of this Agreement. If the Pledgor refuses
any such delivery, a notice so refused shall nonetheless be
deemed delivered.
20. Counterparts; Facsimile Execution. This
Agreement may be executed in separate counterparts, each of
which shall be an original and all of which, when taken
together, shall constitute one and the same instrument. Delivery
of any executed copy of this Agreement by facsimile shall be
equally as effective as delivery of a manually-executed original
of this Agreement. If the Pledgor delivers an executed copy of
this Agreement by facsimile, the Pledgor shall also deliver a
manually-executed original, but the failure of the Pledgor to do
so shall not affect the validity, enforceability or binding
effect of this Agreement against the Pledgor.
E-4
21. Section Headings. The section headings
herein are for convenience of reference only, and shall not
affect in any way the interpretation of any of the provisions
hereof.
[The remainder of this page is intentionally left blank.]
E-5
IN WITNESS WHEREOF, the Pledgor and Target have executed this
Agreement as of the day and year first above written.
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Victory Acquisition Corp. |
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By: |
/s/ Fred Shiu Leung Chan |
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Notice Address: |
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19770 Stevens Creek Blvd. |
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Cupertino, California 95014 |
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AGREED & ACCEPTED: |
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Vialta, Inc. |
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Its: CEO |
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Notice Address: |
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48461 Fremont Blvd. |
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Fremont, CA 94538 |
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Attn: Didier Pietri |
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With a copy to: |
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Kaye Scholer LLP |
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1999 Avenue of the Stars, Suite 1700 |
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Los Angeles, CA 90067 |
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Attn: Barry L. Dastin |
E-6
EXHIBIT A
32,039,840 shares of the common stock of Vialta, Inc.
Account No. #4495T432 at Smith Barney, a division of
Citigroup Global Markets Inc.
E-7
Annex F
March 28, 2005
Special Committee of the Board of Directors and
Board of Directors
Vialta, Inc.
48461 Fremont Blvd.
Fremont, CA 94538
Ladies and Gentlemen,
We understand that Vialta, Inc., a Delaware corporation
(Vialta or the Company), and Victory
Acquisition Corporation, a newly-formed Delaware corporation
(Newco) that is wholly-owned by Fred S.L. Chan
(Mr. Chan) and certain of his family members
and trusts affiliated with Mr. Chan (together, his
Affiliates) propose to enter into an Agreement and
Plan of Reorganization, dated as of March 28, 2005 (the
Merger Agreement). Pursuant to the terms of and
subject to the conditions set forth in the Merger Agreement,
Newco will be merged with and into the Company in accordance
with the General Corporation Law of the State of Delaware (the
Merger) and each share of common stock of the
Company, $0.001 par value per share (the Common
Stock), other than the shares held by Newco or its
officers, directors, stockholders or affiliates immediately
prior to Merger, will be converted into the right to receive
$0.36 per share in cash (the Merger
Consideration) upon consummation of the Merger. You have
requested our opinion as to the fairness, from a financial point
of view, of the Merger Consideration to be received by the
holders of the outstanding Common Stock (other than
Mr. Chan and his Affiliates).
We understand that the Companys Board of Directors has
formed a special committee (the Special Committee)
to consider the Merger and matters related thereto.
In connection with our review of the proposed Merger and the
preparation of our opinion herein, we have examined:
(a) the proposed Merger Agreement dated as of
March 28, 2005; (b) certain audited historical
financial statements of the Company for the three fiscal years
ended December 31, 2001, December 31, 2002 and
December 31, 2003; (c) the unaudited financial
statements of the Company for the fiscal year ended
December 31, 2004; (d) certain internal business,
operating and financial information and forecasts of the Company
prepared and provided by senior management of the Company (the
Forecasts); (e) the financial terms of the
Merger compared with publicly available information regarding
the financial terms of certain other business combinations we
deemed relevant; (f) the financial position and operating
results of the Company compared with those of certain other
publicly traded companies we deemed relevant; (g) current
and historical market prices and trading volumes of the Common
Stock of the Company; (h) presentations by
Needham & Co. (Needham) to the Board of
Directors of Vialta, as well as certain other materials prepared
by Needham, regarding various strategic alternatives, including
a potential sale of the Company; and (i) certain other
publicly available information about the Company. We have also
held discussions with members of the senior management of the
Company to discuss the foregoing, have considered other matters
which we have deemed relevant to our inquiry and have taken into
account such accepted financial and investment banking
procedures and considerations as we have deemed relevant. In
connection with our engagement, we were not requested or
authorized to approach, nor did we hold any discussions with,
any third parties to solicit offers or indications of interest
to acquire all or any part of the Company, nor did we evaluate
potential alternative transactions.
In rendering our opinion, we have assumed and relied upon,
without independent verification, the accuracy and completeness
of all the information supplied to, examined by or otherwise
reviewed or discussed
F-1
with us for purposes of this opinion, including, without
limitation, the Forecasts, and we have not assumed any
responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the
assets or liabilities of the Company or been furnished with any
such evaluation or appraisal, nor have we evaluated the solvency
or fair value of the Company under any state or federal laws
relating to bankruptcy, insolvency or similar matters. In
addition, we have not assumed any obligation to conduct any
physical inspection of the properties or facilities of the
Company. We have assumed that the Company is not aware of any
information that might be material to our opinion that has not
been provided to us. We have been advised by the senior
management of the Company that the Forecasts examined by us have
been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the senior management of
the Company as to the future performance, results of operations
and financial condition of the Company. In that regard, we have
assumed, with your consent, that all material assets and
liabilities (contingent or otherwise) of the Company are as set
forth in the Companys financial statements or other
information made available to us. We have relied upon and
assumed, without independent verification, that there has been
no material change in the assets, financial condition, business
or prospects of the Company since the date of the most recent
financial statements made available to us. Our opinion herein is
based upon economic, market, financial and other conditions
existing on, and other information disclosed to us as of, the
date of this letter and our opinion does not predict or take
into account any changes which may occur, or information which
may become available, after the date hereof. It should be
understood that, although subsequent developments may affect
this opinion, we do not have any obligation to update, revise or
reaffirm this opinion. We have relied as to all legal matters
regarding the Merger on advice of counsel to the Special
Committee, and have assumed that the Merger will be consummated
on the terms described in the Merger Agreement, without any
amendments thereto and without any waiver of any terms or
conditions thereunder. We were not requested to, and did not,
participate in the negotiation of, nor were we asked to
consider, and our opinion does not address, the relative merits
of the Merger as compared to any alternative business strategies
that might exist for the Company or the effect of any other
transaction in which the Company might engage. We were not
requested to, nor did we, seek alternative participants for the
proposed Merger. Consequently, we express no opinion as to
whether any alternative transaction might produce consideration
for the Stockholders in an amount in excess of the Merger
Consideration. We have acted as the financial advisor to the
Committee in connection with the Merger and will receive a fee
for our services, no portion of which is contingent upon the
consummation of the Merger. In addition, the Company has agreed
to indemnify us against certain liabilities arising out of our
engagement. Also, in the ordinary course of our business, we may
have long or short positions in the Common Stock for our own
account and for the accounts of customers.
Our opinion is being provided for the use and benefit of the
Special Committee and the Board in connection with its
consideration of the transaction contemplated by the Merger
Agreement, except that this letter may be included in its
entirety in any document filed by the Company with the
Securities and Exchange Commission (the SEC) in
connection with the Merger. Any reference to us or to our
opinion in such filing with the SEC, however, shall be subject
to our prior review and approval, which shall not be
unreasonably withheld. Our opinion is limited to the fairness,
from a financial point of view, of the Merger Consideration to
be paid to the holders of the outstanding Common Stock (other
than Mr. Chan and his Affiliates) in connection with the
Merger, and we do not address the merits of the underlying
decision by the Company to engage in the Merger and this opinion
does not constitute a recommendation to any stockholder as to
how such stockholder should vote with respect to the proposed
Merger. In addition, you have not asked us to address, and this
opinion does not address, the fairness to, or any other
consideration of, the creditors or other constituencies of the
Company. Except as set forth above, this letter may not be
disclosed, communicated or otherwise referred to, in whole or in
part, to any third party without our prior written consent.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Merger Consideration to be received
by the holders of the outstanding Common Stock (other than
Mr. Chan and his Affiliates) is fair from a financial point
of view.
SALEM PARTNERS LLC
F-2
Annex G
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
§ 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with
respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this
section and who has neither voted in favor of the merger or
consolidation nor consented thereto in writing pursuant to
§ 228 of this title shall be entitled to an appraisal
by the Court of Chancery of the fair value of the
stockholders shares of stock under the circumstances
described in subsections (b) and (c) of this section.
As used in this section, the word stockholder means
a holder of record of stock in a stock corporation and also a
member of record of a nonstock corporation; the words
stock and share mean and include what is
ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and
the words depository receipt mean a receipt or other
instrument issued by a depository representing an interest in
one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of
any class or series of stock of a constituent corporation in a
merger or consolidation to be effected pursuant to
§ 251 (other than a merger effected pursuant to
§ 251(g) of this title), § 252,
§ 254, § 257, § 258,
§ 263 or § 264 of this title:
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(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect
thereof, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of
the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of
§ 251 of this title. |
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(2) Notwithstanding paragraph (1) of this
subsection, appraisal rights under this section shall be
available for the shares of any class or series of stock of a
constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
§§ 251, 252, 254, 257, 258, 263 and 264 of this
title to accept for such stock anything except: |
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a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof; |
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b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 holders; |
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c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a. and b. of this paragraph; or |
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d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a., b. and c. of this paragraph. |
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(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under § 253 of
this title is not owned by the parent corporation immediately
prior to the merger, appraisal rights shall be available for the
shares of the subsidiary Delaware corporation. |
G-1
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as
a result of an amendment to its certificate of incorporation,
any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
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(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for any or
all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholders
shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for
appraisal of such stockholders shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such stockholders
shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation of
the date that the merger or consolidation has become
effective; or |
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(2) If the merger or consolidation was approved pursuant to
§ 228 or § 253 of this title, then either a
constituent corporation before the effective date of the merger
or consolidation or the surviving or resulting corporation
within 10 days thereafter shall notify each of the holders
of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the
merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation
the appraisal of such holders shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holders shares. If
such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of
the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder
who is entitled to appraisal rights and who has demanded
appraisal of such holders shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary
or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix,
in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the
notice is given. |
(e) Within 120 days after the effective date of the
merger or consolidation, the surviving or resulting corporation
or any stockholder who has complied with subsections
(a) and (d) hereof and who is otherwise
G-2
entitled to appraisal rights, may file a petition in the Court
of Chancery demanding a determination of the value of the stock
of all such stockholders. Notwithstanding the foregoing, at any
time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to
withdraw such stockholders demand for appraisal and to
accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and
with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days
after such stockholders written request for such a
statement is received by the surviving or resulting corporation
or within 10 days after expiration of the period for
delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after
such service file in the office of the Register in Chancery in
which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the
time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1
or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining
their fair value exclusive of any element of value arising from
the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest,
the Court may consider all relevant factors, including the rate
of interest which the surviving or resulting corporation would
have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit
discovery or other pretrial proceedings and may proceed to trial
upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section
and who has submitted such stockholders certificates of
stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct.
Payment shall be so made to each such stockholder, in the case
of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock.
The Courts decree may be enforced as other decrees in the
Court of Chancery may be enforced, whether such surviving or
resulting corporation be a corporation of this State or of any
state.
G-3
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorneys fees
and the fees and expenses of experts, to be charged pro rata
against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights
as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholders demand for an
appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the
merger or consolidation as provided in
subsection (e) of this section or thereafter with the
written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms
as the Court deems just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation.
G-4
Annex H
CALIFORNIA GENERAL CORPORATION LAW SECTION 1300-1313
CHAPTER 13 DISSENTERS RIGHTS
1300.
(a) If the approval of the outstanding shares
(Section 152) of a corporation is required for a
reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each
shareholder of the corporation entitled to vote on the
transaction and each shareholder of a subsidiary corporation in
a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to
purchase for cash at their fair market value the shares owned by
the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of
the day before the first announcement of the terms of the
proposed reorganization or short-form merger, excluding any
appreciation or depreciation in consequence of the proposed
action, but adjusted for any stock split, reverse stock split,
or share dividend which becomes effective thereafter.
(b) As used in this chapter, dissenting shares
means shares which come within all of the following descriptions:
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(1) Which were not immediately prior to the reorganization
or short-form merger either (A) listed on any national
securities exchange certified by the Commissioner of
Corporations under subdivision (o) of Section 25100 or
(B) listed on the National Market System of the NASDAQ
Stock Market, and the notice of meeting of shareholders to act
upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that
this provision does not apply to any shares with respect to
which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further,
that this provision does not apply to any class of shares
described in subparagraph (A) or (B) if demands
for payment are filed with respect to 5 percent or more of
the outstanding shares of that class. |
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(2) Which were outstanding on the date for the
determination of shareholders entitled to vote on the
reorganization and (A) were not voted in favor of the
reorganization or, (B) if described in
subparagraph (A) or (B) of paragraph (1)
(without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that
subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by
written consent rather than at a meeting. |
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(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance
with Section 1301. |
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(4) Which the dissenting shareholder has submitted for
endorsement, in accordance with Section 1302. |
(c) As used in this chapter, dissenting
shareholder means the recordholder of dissenting shares
and includes a transferee of record.
1301.
(a) If, in the case of a reorganization, any shareholders
of a corporation have a right under Section 1300, subject
to compliance with paragraphs (3) and (4) of
subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to
each such shareholder a notice of the approval of the
reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this
section, a statement of the price determined by the corporation
to represent the fair market value of the dissenting shares, and
a brief description of the procedure to be followed if the
shareholder desires to exercise the shareholders right
under such sections. The statement of price constitutes an offer
by the corporation to purchase at the price stated any
H-1
dissenting shares as defined in subdivision (b) of
Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the
corporation to purchase the shareholders shares for cash
under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision
(b) thereof, and who desires the corporation to purchase
such shares shall make written demand upon the corporation for
the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for
any purpose unless it is received by the corporation or any
transfer agent thereof (1) in the case of shares described
in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the
provisos in that paragraph), not later than the date of the
shareholders meeting to vote upon the reorganization, or
(2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares
pursuant to subdivision (a) or the notice pursuant to
subdivision (i) of Section 1110 was mailed to the
shareholder.
(c) The demand shall state the number and class of the
shares held of record by the shareholder which the shareholder
demands that the corporation purchase and shall contain a
statement of what such shareholder claims to be the fair market
value of those shares as of the day before the announcement of
the proposed reorganization or short-form merger. The statement
of fair market value constitutes an offer by the shareholder to
sell the shares at such price.
1302.
Within 30 days after the date on which notice of the
approval by the outstanding shares or the notice pursuant to
subdivision (i) of Section 1110 was mailed to the
shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent
thereof, (a) if the shares are certificated securities, the
shareholders certificates representing any shares which
the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of
appropriate denomination so stamped or endorsed or (b) if
the shares are uncertificated securities, written notice of the
number of shares which the shareholder demands that the
corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new
certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together
with the name of the original dissenting holder of the shares.
1303.
(a) If the corporation and the shareholder agree that the
shares are dissenting shares and agree upon the price of the
shares, the dissenting shareholder is entitled to the agreed
price with interest thereon at the legal rate on judgments from
the date of the agreement. Any agreements fixing the fair market
value of any dissenting shares as between the corporation and
the holders thereof shall be filed with the secretary of the
corporation.
(b) Subject to the provisions of Section 1306, payment
of the fair market value of dissenting shares shall be made
within 30 days after the amount thereof has been agreed or
within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is
later, and in the case of certificated securities, subject to
surrender of the certificates therefor, unless provided
otherwise by agreement.
1304.
(a) If the corporation denies that the shares are
dissenting shares, or the corporation and the shareholder fail
to agree upon the fair market value of the shares, then the
shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after
the date on which notice of the approval by the outstanding
shares (Section 152) or notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the
shares are dissenting shares or the fair market value of the
dissenting shares or both or may intervene in any action pending
on such a complaint.
(b) Two or more dissenting shareholders may join as
plaintiffs or be joined as defendants in any such action and two
or more such actions may be consolidated.
H-2
(c) On the trial of the action, the court shall determine
the issues. If the status of the shares as dissenting shares is
in issue, the court shall first determine that issue. If the
fair market value of the dissenting shares is in issue, the
court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305.
(a) If the court appoints an appraiser or appraisers, they
shall proceed forthwith to determine the fair market value per
share. Within the time fixed by the court, the appraisers, or a
majority of them, shall make and file a report in the office of
the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on
such evidence as the court considers relevant. If the court
finds the report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make
and file a report within 10 days from the date of their
appointment or within such further time as may be allowed by the
court or the report is not confirmed by the court, the court
shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306,
judgment shall be rendered against the corporation for payment
of an amount equal to the fair market value of each dissenting
share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is
entitled to require the corporation to purchase, with interest
thereon at the legal rate from the date on which judgment was
entered.
(d) Any such judgment shall be payable forthwith with
respect to uncertificated securities and, with respect to
certificated securities, only upon the endorsement and delivery
to the corporation of the certificates for the shares described
in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable
compensation to the appraisers to be fixed by the court, shall
be assessed or apportioned as the court considers equitable,
but, if the appraisal exceeds the price offered by the
corporation, the corporation shall pay the costs (including in
the discretion of the court attorneys fees, fees of expert
witnesses and interest at the legal rate on judgments from the
date of compliance with Sections 1300, 1301 and 1302 if the
value awarded by the court for the shares is more than
125 percent of the price offered by the corporation under
subdivision (a) of Section 1301).
1306.
To the extent that the provisions of Chapter 5 prevent the
payment to any holders of dissenting shares of their fair market
value, they shall become creditors of the corporation for the
amount thereof together with interest at the legal rate on
judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be
payable when permissible under the provisions of Chapter 5.
1307.
Cash dividends declared and paid by the corporation upon the
dissenting shares after the date of approval of the
reorganization by the outstanding shares (Section 152) and
prior to payment for the shares by the corporation shall be
credited against the total amount to be paid by the corporation
therefor.
1308.
Except as expressly limited in this chapter, holders of
dissenting shares continue to have all the rights and privileges
incident to their shares, until the fair market value of their
shares is agreed upon or determined. A dissenting shareholder
may not withdraw a demand for payment unless the corporation
consents thereto.
H-3
1309.
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to
be entitled to require the corporation to purchase their shares
upon the happening of any of the following:
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(a) The corporation abandons the reorganization. Upon
abandonment of the reorganization, the corporation shall pay on
demand to any dissenting shareholder who has initiated
proceedings in good faith under this chapter all necessary
expenses incurred in such proceedings and reasonable
attorneys fees. |
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(b) The shares are transferred prior to their submission
for endorsement in accordance with Section 1302 or are
surrendered for conversion into shares of another class in
accordance with the articles. |
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(c) The dissenting shareholder and the corporation do not
agree upon the status of the shares as dissenting shares or upon
the purchase price of the shares, and neither files a complaint
or intervenes in a pending action as provided in
Section 1304, within six months after the date on which
notice of the approval by the outstanding shares or notice
pursuant to subdivision (i) of Section 1110 was mailed
to the shareholder. |
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(d) The dissenting shareholder, with the consent of the
corporation, withdraws the shareholders demand for
purchase of the dissenting shares. |
1310.
If litigation is instituted to test the sufficiency or
regularity of the votes of the shareholders in authorizing a
reorganization, any proceedings under Sections 1304 and
1305 shall be suspended until final determination of such
litigation.
1311.
This chapter, except Section 1312, does not apply to
classes of shares whose terms and provisions specifically set
forth the amount to be paid in respect to such shares in the
event of a reorganization or merger.
1312.
(a) No shareholder of a corporation who has a right under
this chapter to demand payment of cash for the shares held by
the shareholder shall have any right at law or in equity to
attack the validity of the reorganization or short-form merger,
or to have the reorganization or short-form merger set aside or
rescinded, except in an action to test whether the number of
shares required to authorize or approve the reorganization have
been legally voted in favor thereof; but any holder of shares of
a class whose terms and provisions specifically set forth the
amount to be paid in respect to them in the event of a
reorganization or short-form merger is entitled to payment in
accordance with those terms and provisions or, if the principal
terms of the reorganization are approved pursuant to subdivision
(b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved
reorganization.
(b) If one of the parties to a reorganization or short-form
merger is directly or indirectly controlled by, or under common
control with, another party to the reorganization or short-form
merger, subdivision (a) shall not apply to any shareholder
of such party who has not demanded payment of cash for such
shareholders shares pursuant to this chapter; but if the
shareholder institutes any action to attack the validity of the
reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, the
shareholder shall not thereafter have any right to demand
payment of cash for the shareholders shares pursuant to
this chapter. The court in any action attacking the validity of
the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall
not restrain or enjoin the consummation of the transaction
except upon 10 days prior notice to the corporation
and upon a determination by the court that clearly no other
remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
H-4
(c) If one of the parties to a reorganization or short-form
merger is directly or indirectly controlled by, or under common
control with, another party to the reorganization or short-form
merger, in any action to attack the validity of the
reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded,
(1) a party to a reorganization or short-form merger which
controls another party to the reorganization or short-form
merger shall have the burden of proving that the transaction is
just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to
a reorganization shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of any
party so controlled.
1313.
A conversion pursuant to Chapter 11.5 (commencing with
Section 1150) shall be deemed to constitute a
reorganization for purposes of applying the provisions of this
chapter, in accordance with and to the extent provided in
Section 1159.
H-5
Annex I
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One) |
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934. |
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For the Fiscal Year ended December 31, 2004. |
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OR |
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TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934. |
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For the transition period
from: to: . |
Commission file number 0-32809
Vialta, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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94-3337236 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(I.R.S. Employer
Identification No.) |
48461 Fremont Boulevard
Fremont, California 94538
(Address, including zip code, of Registrants principal
executive offices)
(510) 870-3088
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the
Form 10-K or any amendments to this
Form 10-K. o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act
Rule 126-2) Yes o No þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant on June 30,
2004 (based on the average bid and ask price on the OTC
Bulletin Board as of such date) was approximately
$17,818,000.
The number of outstanding shares of the registrants common
stock, par value $0.001 per share, on March 7, 2005
was 83,052,852 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement
relating to its 2005 annual meeting of stockholders to be filed
with the Securities and Exchange Commission not later than
120 days after the end of the fiscal year to which this
Report relates, are incorporated by reference into Part III
of this Form 10-K Report.
I-1
VIALTA, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 2004
INDEX
I-2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve
risks and uncertainties. All statements contained in this report
that are not purely historical could be deemed forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. When used in this
report, words such as may, might,
will, should, expects,
plans, anticipates,
believes, estimates,
predicts, potential, intend,
continue, and similar expressions, are intended to
identify forward-looking statements. These forward-looking
statements might include, without limitation, projections of our
future financial performance, our anticipated growth and
anticipated trends in our businesses; the features, benefits and
advantages of our products; the development of new products,
enhancements or technologies; business and sales strategies;
developments in our target markets; matters relating to
distribution channels, proprietary rights, facilities needs,
competition and litigation; future gross margins and operating
expense levels; and capital needs. These statements reflect the
current views of Vialta or its management with respect to future
events and are subject to risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize,
or should underlying assumptions proved incorrect, our actual
results, performance or achievements in fiscal 2005 and beyond
could differ materially from those expressed in, or implied by,
these forward-looking statements. Factors that could cause or
contribute to material differences include, but are not limited
to, the merger with Victory Acquisition Corp. not occurring or
not closing within the expected timeframe, those discussed below
in Item 7 under the heading Other Factors That May
Affect Our Business and Future Results: and the risks
discussed in our other filings with the Securities and Exchange
Commission. We encourage you to read that section carefully. You
should not regard the inclusion of forward-looking information
as a representation by us or any other person that the future
events, plans or expectations contemplated by us will be
achieved. Vialta undertakes no obligation to release publicly
any updates or revisions to any forward-looking statements to
reflect events or circumstances occurring after the date of this
report.
I-3
PART I
Item 1: Business
We develop, design and market consumer electronics products
designed to maximize the advantages of digital technology in a
convenient and easy-to-use manner. Our primary products are the
Beamertm
personal videophone line and the
VistaFrametm
digital picture frame. Our Beamer videophone products add color
video to phone calls, enabling users to see the person they are
calling. Since both parties to a video call must have a Beamer
videophone product (or compatible videophone), our videophone
products are primarily sold in pairs. Our Beamer videophone
products work with any home phone over any standard
(analog) home phone line, at no additional cost to a
regular phone call.
On March 29, 2005, we announced a definitive agreement to
merge with Victory Acquisition Corp., a newly formed entity
established by Fred S.L. Chan, Chairman of the Company, and
certain of his family members. Victory will acquire the
approximately 60% of our stock not owned by it for
$0.36 per share in cash. The merger is expected to be
completed in the second quarter of 2005 and is subject to Vialta
shareholder and customary approvals.
We were incorporated in April 1999 as a wholly owned subsidiary
of ESS Technology, Inc. (ESS). In August 2001, we
were spun off from ESS Technology, Inc. and operate as a
stand-alone entity.
See Item 8 Financial Statements and Supplementary
Data for additional financial information regarding our
business.
Products
We have developed and introduced two distinct product lines:
Beamer videophones and VistaFrame, both designed to offer
greater convenience and ease-of-use to consumers.
Our Beamer videophone products include models that are
standalone (such as our first videophone product known as
Beamer) or connect through most televisions (the Beamer
TVtm),
and may include the ability to send and receive digital pictures
(the Beamer
FXtm).
All of our Beamer videophone products are compatible with any
home phone over any standard (analog) home phone line and
do not require any additional equipment (other than a compatible
television, in the case of Beamer TV) or wiring. In addition,
our Beamer videophone products provide the consumer with three
viewing options (the calling party, the receiving party, or
picture-in-picture) and the ability to adjust the level of
movement fluidity in relation to detail. Our videophone products
also have a snapshot feature that temporarily pauses
any new video transmission, resulting in a higher resolution
image on the LCD or television screen, depending on the model. A
video start feature gives users full control over
initiating the video transmission to another user, for complete
video privacy whenever desired. Beamer won a 2003 Best of
Innovations award in the telephone category from the
Consumer Electronics Association based on criteria consisting of
value to users, aesthetics, innovativeness, and contributions to
quality of life. Beamer also won a 2003 Good Buy
award from Good Housekeeping magazine based on criteria
including ingenuity, value and exceptional performance. In
addition, Beamer TV won a 2004 Best of Innovations Honoree
Award from the Consumer Electronics Association.
During 2004, we announced that we had developed a broadband
version of our Beamer videophone and that field-testing and
public availability of a broadband Beamer videophone would occur
before the end of 2004. We have delayed field-tests of our
broadband videophone products while we continue to refine and
test prototypes of these products. We currently expect to
field-test our broadband videophone products with a few select
broadband service providers in the second half of 2005. We
expect commercial introduction of broadband versions of our
Beamer videophone products to occur in 2006.
Our VistaFrame product is a digital picture frame that allows
users to display photographs directly from a digital camera
memory card or from VistaFrames internal memory.
VistaFrame is compatible with most standard card formats and
does not require a camera or computer connection, special wiring
or web based services to display digital photographs. With
VistaFrame, consumers can view digital pictures individually or
in a custom slideshow format with the user selecting the
pictures, the display sequence, display interval and the
transition effect.
I-4
Sales and Marketing
We began nationwide retail distribution of our first Beamer
videophone during the third quarter of 2002. Beamer TV, Beamer
FX and VistaFrame began nationwide retail distribution in the
third quarter of 2003. Our Beamer videophone products are
currently carried by retailers such as Best Buy, Frys
Electronics, The Good Guys, The Discovery Channel, Cinmar (The
Frontgate Catalog) and The Sharper Image, among others.
VistaFrame is currently carried by retailers such as The Sharper
Image, The Discovery Channel, Cinmar and The Good Guys. Sales to
The Sharper Image represented 23% and sales to CEC represented
12% of our total revenue in 2004. We market our Beamer
videophone products and VistaFrame to retailers and distributors
in the U.S. market through a combination of our direct
sales force and independent sales representatives. All of our
products may also be purchased directly by consumers from our
on-line web store. In 2004 our retail and marketing initiatives
included targeted print advertising such as in product circulars
and catalogs, special promotions and price rebates. In 2004 we
continued to expand our distribution for our Beamer videophone
products and VistaFrame in the international consumer market
through distributors and strategic partners in such countries as
China, Taiwan, Korea, Greece, Mexico, The Netherlands,
Switzerland, Turkey, The United Kingdom, France, India,
Indonesia, Portugal, South Africa, Spain and Belgium.
To continue to build consumer demand and acceptance for our
products, we expect to continue to provide for retail and
consumer initiatives, including direct mail, e-marketing
campaigns, special promotions and other initiatives. Whenever
possible, we will combine branding with product promotion
opportunities. In addition, we will continue to place an
emphasis on generating favorable press from industry analysts,
trade reporters and the general consumer media.
Product Development
Our product development efforts focus on bringing innovative
digital consumer electronics products to the retail marketplace.
Because much of the core development related to our Beamer
videophone products and VistaFrame has already been completed,
our engineers are engaged in the development of new products and
other improvements and modifications to our existing products.
We are currently continuing the development of our Beamer
videophone products for broadband. We currently expect to
field-test our broadband videophone products with a few select
broadband service providers in the second half of 2005 and we
expect commercial introduction of broadband versions of our
Beamer videophone products to occur in 2006.
Intellectual Property
We rely on a combination of patent, trademark and copyright law,
trade secret protection and confidentiality or license
agreements with our employees, customers, partners and others to
protect proprietary rights. We have filed two patent
applications, one to cover proprietary functions and digital
encoder and decoder solutions for ViDVD, a product we
discontinued in 2002 and another to cover audio compression
technology. In addition, we have filed similar applications in
Taiwan and under the Patent Cooperation Treaty. To date, none of
the patents have been issued.
We have filed trademark applications in the U.S., Brazil,
Canada, China, the European Union, Hong Kong, Japan, Singapore
and Taiwan. The marks for which we have filed applications
include, among others, the Vialta logo, Beamer, Phone Video
Station, PVS and Viewphone.
In connection with our spin-off by ESS, we entered into a master
technology ownership and license agreement with ESS, pursuant to
which we and ESS acknowledged the specific technology and
trademarks related to our business that are owned by us.
At the time of our formation, we entered into several
intellectual property agreements with ESS. We purchased from ESS
all of ESS proprietary rights and benefits conferred under
U.S. laws with respect to its videophone business. The
master technology ownership and license agreement supercedes
prior intellectual property and research and development
agreements between ESS and us. In addition, we entered into a
purchase agreement under which ESS agreed to provide us with
semiconductor products. Financial information regarding our
related party transactions with ESS are set forth in Note 9
of the Notes to Consolidated Financial Statements in Item 8
of this report.
I-5
Manufacturing
We have developed all of our products internally and outsource
manufacturing. Our Beamer videophone products and VistaFrame are
currently manufactured by two contract manufacturers located in
China. We believe these manufacturers will provide us with
sufficient manufacturing capacity to meet our current product
demand. Our quality assurance engineers are located in China to
oversee our contract manufacturers. We outsource import and
export logistics, including clearance of Chinese and
U.S. customs and ocean freight. We currently handle
warehousing and all shipments to retail distribution centers,
individual retailers and individual customers purchasing our
products online.
Seasonality
Our operating results are subject to seasonality and to
quarterly and annual fluctuations. Domestic consumer electronic
product sales have traditionally been much higher during the
holiday shopping season than during other times of the year. Our
domestic sales this past year reflected this anticipated
seasonality.
Competition
Our Beamer videophone products compete directly with several
other companies in the videophone market that offer products
delivering similar features. We believe none of these companies
has secured nationwide retail distribution relationships. The
majority of our competitors videophone products are
primarily available through specialized retailers and websites.
Furthermore, the majority of other videophone models have been
integrated with handsets and have a significantly higher per
unit retail price than our Beamer videophone products. We
believe the key competitive factors for videophone products are
price, cost to use, quality of the video (especially moving
images), retail distribution, brand awareness and ease of
installation and use. We believe that among manufacturers of
videophones that use analog phone lines, we compete favorably on
the basis of price, video quality, product availability and ease
of installation and use. In addition, we face competition from
other video communication products utilizing Internet and
broadband connections and digital camera cellular telephones.
Internet and broadband products, which frequently are priced
less than our Beamer videophone products, utilize a personal
computer or television, currently require subscription to an ISP
and may require additional subscription services. These products
may also be interoperable with users of competitive products,
provide multiple transmission and storage options, and act as a
digital camera. Digital camera cellular telephones only offer
still picture transmission or reception and require a digital
cellular connection. Many of the current and prospective
competitors in this market are larger, better known and have
greater resources and experience than us.
VistaFrame competes directly with several other companies in the
digital picture frame market that offer products that are
similar to VistaFrame. The majority of these products are
primarily available through specialized or regional retailers
and websites. In addition other digital picture frame products
either have limited digital camera memory card compatibility or
require a phone line connection and a fee-based subscription
service in order to download pictures into the frame.
Financial Information about Segments and Geographic Areas
We operate as one business segment in two geographic
areas domestic and international. Financial
information about our business and geographic areas is set forth
in Note 14 of the Notes to Consolidated Financial
Statements in Item 8 of this report.
Employees
As of February 28, 2005, we had 38 employees, including 11
in research and development, 6 in marketing, sales and support,
12 in manufacturing and operations and 9 in finance and
administration.
Item 2: Properties
As of February 28, 2005, our corporate headquarters
occupies approximately 31,000 square feet of a building
located in Fremont, California, under a lease from ESS that
expires in July 2005. We also lease office space for a
development center in Hong Kong. We believe that our existing
facilities are adequate for our
I-6
current needs. We believe that, if necessary, we will be able to
renew our lease prior to its expiration in July 2005 or we will
be able to find adequate office space elsewhere in the area at
comparable rates.
Item 3: Legal
Proceedings
We are not a party to any litigation at the present time.
Item 4: Submission of
Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders
during the fourth quarter of the fiscal year ended
December 31, 2004.
I-7
PART II
|
|
Item 5: |
Market for the Registrants Common Equity, Related
Shareholder Matters and Issuer Purchases of Equity
Securities |
Our common stock has been quoted on the OTC Bulletin Board
under the symbol VLTA since August 21, 2001.
The following table sets forth the high and low bid prices for
the common stock as reported by the OTC Bulletin Board
during the periods indicated. Such prices reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may
not necessarily represent actual transactions.
|
|
|
|
|
|
|
|
|
|
|
|
High | |
|
Low | |
|
|
| |
|
| |
Fiscal 2002:
|
|
|
|
|
|
|
|
|
|
First Quarter ended March 31, 2002
|
|
$ |
1.50 |
|
|
$ |
1.01 |
|
|
Second Quarter ended June 30, 2002
|
|
$ |
1.07 |
|
|
$ |
0.45 |
|
|
Third Quarter ended September 30, 2002
|
|
$ |
1.18 |
|
|
$ |
0.59 |
|
|
Fourth Quarter ended December 31, 2002
|
|
$ |
0.72 |
|
|
$ |
0.26 |
|
Fiscal 2003:
|
|
|
|
|
|
|
|
|
|
First Quarter ended March 31, 2003
|
|
$ |
0.45 |
|
|
$ |
0.30 |
|
|
Second Quarter ended June 30, 2003
|
|
$ |
0.51 |
|
|
$ |
0.28 |
|
|
Third Quarter ended September 30, 2003
|
|
$ |
0.49 |
|
|
$ |
0.33 |
|
|
Fourth Quarter ended December 31, 2003
|
|
$ |
0.81 |
|
|
$ |
0.35 |
|
Fiscal 2004:
|
|
|
|
|
|
|
|
|
|
First Quarter ended March 31, 2004
|
|
$ |
0.70 |
|
|
$ |
0.32 |
|
|
Second Quarter ended June 30, 2004
|
|
$ |
0.39 |
|
|
$ |
0.32 |
|
|
Third Quarter ended September 30, 2004
|
|
$ |
0.35 |
|
|
$ |
0.23 |
|
|
Fourth Quarter ended December 31, 2004
|
|
$ |
0.25 |
|
|
$ |
0.16 |
|
As of March 7, 2005, there were approximately 329 record
holders of our common stock.
We have never declared or paid any cash dividends on our common
stock. We currently anticipate that we will retain any earnings
for use in our business, and we do not anticipate paying any
cash dividends in the foreseeable future.
I-8
Item 6: Selected
Consolidated Financial Data
You should read the selected consolidated financial data set
forth below in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements and
related notes included elsewhere in this report. The selected
consolidated statement of operations data set forth below is
derived from our audited consolidated financial statements. The
information below is not necessarily indicative of the results
of operations to be expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands, except per share amounts) | |
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, net
|
|
$ |
12,747 |
|
|
$ |
10,331 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Cost of good sold
|
|
|
8,022 |
|
|
|
2,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
4,725 |
|
|
|
7,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product costs
|
|
|
|
|
|
|
|
|
|
|
10,421 |
|
|
|
|
|
|
|
|
|
|
Engineering and development
|
|
|
1,247 |
|
|
|
2,557 |
|
|
|
13,264 |
|
|
|
25,250 |
|
|
|
19,558 |
|
|
Sales and marketing
|
|
|
2,011 |
|
|
|
4,427 |
|
|
|
3,100 |
|
|
|
3,738 |
|
|
|
2,927 |
|
|
General and administrative
|
|
|
4,573 |
|
|
|
5,753 |
|
|
|
5,643 |
|
|
|
9,301 |
|
|
|
6,699 |
|
|
Amortization and impairment of content licenses
|
|
|
|
|
|
|
|
|
|
|
11,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
7,831 |
|
|
|
12,737 |
|
|
|
43,823 |
|
|
|
38,289 |
|
|
|
29,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,106 |
) |
|
|
(5,347 |
) |
|
|
(43,823 |
) |
|
|
(38,289 |
) |
|
|
(29,184 |
) |
Interest income, net
|
|
|
717 |
|
|
|
733 |
|
|
|
1,244 |
|
|
|
3,606 |
|
|
|
7,688 |
|
Gain on investment
|
|
|
|
|
|
|
571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,266 |
) |
|
|
(1,682 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(2,389 |
) |
|
|
(4,043 |
) |
|
|
(42,579 |
) |
|
|
(35,949 |
) |
|
|
(23,178 |
) |
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(2,389 |
) |
|
$ |
(4,043 |
) |
|
$ |
(42,579 |
) |
|
$ |
(35,949 |
) |
|
$ |
(22,918 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(0.03 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.51 |
) |
|
$ |
(0.83 |
) |
|
$ |
(3.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
82,930 |
|
|
|
82,285 |
|
|
|
83,578 |
|
|
|
43,248 |
|
|
|
6,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and short-term investments
|
|
$ |
18,402 |
|
|
$ |
24,308 |
|
|
$ |
32,701 |
|
|
$ |
67,428 |
|
|
$ |
136,490 |
|
Restricted cash
|
|
|
3,057 |
|
|
|
2,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
|
22,261 |
|
|
|
25,365 |
|
|
|
30,201 |
|
|
|
66,830 |
|
|
|
109,870 |
|
Total assets
|
|
|
29,402 |
|
|
|
37,114 |
|
|
|
40,327 |
|
|
|
83,866 |
|
|
|
153,691 |
|
Total current liabilities
|
|
|
3,753 |
|
|
|
9,061 |
|
|
|
7,949 |
|
|
|
3,587 |
|
|
|
33,594 |
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,600 |
|
Total stockholders equity (deficit)
|
|
|
25,649 |
|
|
|
28,053 |
|
|
|
32,378 |
|
|
|
80,279 |
|
|
|
(22,503 |
) |
I-9
Item 7: Managements
Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion includes forward-looking statements
with respect to our future financial performance. Actual results
may differ materially from those currently anticipated depending
on a variety of factors, including those described below under
the sub-heading, Cautionary Statement Regarding
Forward-Looking Statements as well as Other Factors
That May Affect Our Business and Future Results and the
risks discussed in our most recent filing with the Securities
and Exchange Commission. This following discussion should be
read in conjunction with the Selected Consolidated Financial
Data and the Consolidated Financial Statements and notes thereto
that appear elsewhere in this report.
Overview
We develop, design and market consumer electronics products
designed to maximize the advantages of digital technology in a
convenient and easy-to-use manner. Our primary products are the
Beamertm
personal videophone line and the
VistaFrametm
digital picture frame. Our Beamer videophone products add color
video to phone calls, enabling users to see the person they are
calling. Since both parties to a video call must have a Beamer
videophone product (or compatible videophone), our videophone
products are primarily sold in pairs. Our Beamer videophone
products work with any home phone over any standard
(analog) home phone line, at no additional cost to a
regular phone call. Our Beamer videophone products include
models that are standalone (such as our first videophone product
known as Beamer) or connect through most televisions (the Beamer
TVtm),
and may include the ability to send and receive digital pictures
(the Beamer
FXtm).
Our Beamer videophone products are currently carried by
retailers such as Best Buy, Frys Electronics, The Good
Guys, The Discovery Channel, Cinmar (The Frontgate Catalog) and
The Sharper Image, among others.
Our VistaFrame product is a digital picture frame that allows
users to display photographs directly from a digital camera
memory card or from VistaFrames internal memory.
VistaFrame is compatible with most standard card formats and
does not require a camera or computer connection, special wiring
or web based services to display digital photographs. With
VistaFrame, consumers can view digital pictures individually or
in a custom slideshow format with the user selecting the
pictures, the display sequence, display interval and the
transition effect. VistaFrame is currently carried by retailers
such as The Sharper Image, The Discovery Channel, Cinmar and The
Good Guys.
Since our inception, we have financed our operations primarily
from funds raised in private offerings of convertible preferred
stock and common stock and through vendor credit. For the years
ended December 31, 2004, 2003, and 2002 we had net losses
of $2.4 million, $4.0 million and $42.6 million,
respectively, and expect to incur losses in 2005. As of
December 31, 2004, we had an accumulated deficit of
$109.1 million.
On March 29, 2005, we announced a definitive agreement to
merge with Victory Acquisition Corp., a newly formed entity
established by Fred S.L. Chan, Chairman of the Company, and
certain of his family members. Victory will acquire the
approximately 60% of our stock not owned by it for
$0.36 per share in cash. The merger is expected to be
completed in the second quarter of 2005 and is subject to Vialta
shareholder and customary approvals.
Results of Operations
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|
|
For the year ended December 31, 2004 compared with
the year ended December 31, 2003 |
Net revenue. Net revenue was $12.7 million for the
year ended December 31, 2004 compared to $10.3 million
for the year ended December 31, 2003. The revenue growth
was substantially driven by an increase in units sales
volume. Net revenue included $9.3 million in domestic sales
for 2004 compared to $7.1 million for 2003 and
$3.4 million in international sales for 2004 compared to
$3.2 million for 2003. Net revenue from sales of our Beamer
videophone products accounted for 73% of total net revenue. The
increase in net revenue reflected the recognition in 2004 of
$5.2 million of revenue deferred at December 31, 2003,
compared to $3.2 million of revenue that was deferred at
December 31, 2002 and that was recognized in fiscal 2003.
At December 31, 2004 the Company had $3.1 million in
deferred revenue. For the fiscal year 2004, The Sharper Image
and CEC accounted for approximately 23% and 12%, respectively,
of our net revenue. For the fiscal year 2003, Best Buy and CEC
accounted for approximately 18% and 16%, respectively, of our
net revenue.
I-10
Cost of goods sold. Cost of goods sold was
$8.0 million for the year ended December 31, 2004
compared to $2.9 million for the year ended
December 31, 2003. This increase is primarily due to
additional inventory reserves of $3.4 million on raw
material and finished goods inventory, which was recorded during
the third quarter of 2004. In addition, during the second half
of 2004 product costs were recorded at full cost as compared to
the first half of 2004 and fiscal 2003 where 56% and 83%,
respectively, of our inventory costs for our Beamer videophone
products were expensed in prior periods. At September 30,
2002, we had no historical experience selling Beamer (our first
videophone Product) and there was significant uncertainty
regarding our ability to recover costs incurred in building
inventories related to Beamer. As a result, we expensed Beamer
inventory costs as incurred through the third quarter of 2002.
Following the nationwide commercial launch of Beamer, we began
to capitalize the additional value of Beamer inventory costs in
the fourth quarter of 2002. Because a significant portion of our
inventory for raw materials and finished goods for our Beamer
videophone products was expensed in prior periods, cost of goods
sold for the years ended December 31, 2004 and 2003 was
lower than what would otherwise have been recorded.
Gross profit. Gross profit was $4.7 million for the
year ended December 31, 2004 compared to $7.4 million
for the year ended December 31, 2003. If we had not
previously expensed inventory costs, our gross profit would have
been approximately $2.0 million for the year ended
December 31, 2004.
Engineering and development. Engineering and development
expenses were $1.2 million for the year ended
December 31, 2004, compared to $2.6 million for the
year ended December 31, 2003. The decrease was primarily
due to reductions in engineering and development personnel and a
decrease in depreciation expense due to equipment being fully
depreciated. We expect engineering and development expenses to
remain constant in future periods.
Sales and marketing. Sales and marketing expenses were
$2.0 million for the year ended December 31, 2004,
compared to $4.4 million for the year ended
December 31, 2003. The decrease is primarily due to a
decrease of $2.1 million in television advertising and
promotional campaigns that occurred in the fourth quarter of
2003. There were no comparable television advertising expenses
for the year ended December 31, 2004 and promotion campaign
expenses were lower in the fourth quarter of 2004 compared to
the fourth quarter of 2003. We do not expect an increase in
sales and marketing expenses in future periods, and we currently
do not have the resources to support a significant and sustained
national advertising and consumer awareness program which may be
necessary to maintain or significantly increase sales.
General and administrative. General and administrative
expenses were $4.6 million for the year ended
December 31, 2004, compared to $5.8 million for the
year ended December 31, 2003. The decrease was primarily
due to a reduction in general and administrative personnel, and
decreases in legal expense, insurance and office rent. We expect
general and administrative expenses to remain constant in future
periods.
Interest income and other, net. Interest income and
other, net, was $717,000 for the year ended December 31,
2004, compared to $733,000 for the year ended December 31,
2003.
Gain on Investment. During the fourth quarter of 2003, we
recorded a gain on investments of $571,000. The gain on
investments was attributable to a cash dividend paid to us on
preferred shares we previously acquired in an unrelated company.
Our original investment in this company had been written down to
zero in a prior period. There is no comparable gain for the year
ended December 31, 2004.
|
|
|
For the year ended December 31, 2003 compared with
the year ended December 31, 2002 |
Net revenue. Net revenue was $10.3 million for the
year ended December 31, 2003. There was no revenue for the
year ended December 31, 2002. Included in net revenue for
2003 was approximately $7.1 million in domestic sales and
approximately $3.2 million from international sales. In
addition to revenue generated from our first videophone product,
Beamer, we also recorded domestic net revenue during the fourth
quarter of 2003 from sales activity related to our new products
BeamerTV, BeamerFX (which was introduced in the fourth quarter
of 2003 on a very limited basis) and VistaFrame. Net revenue
from sales of our Beamer videophone products accounted for 97%
of total net revenue for the year ended December 31, 2003.
During the first quarter of 2003, we began to recognize revenue
on sales of Beamer, net of estimated warranty claims and
estimated returns. We began nationwide distribution of Beamer
during the third quarter of 2002 and more significant shipments
during the fourth quarter of 2002. For most of these shipments,
the standard warranty
I-11
and return period had not been completed as of December 31,
2002. Due to a limited history of warranty and sales returns for
Beamer, we did not recognize revenue for sales through
December 31, 2002. As a result, revenue for the year ended
December 31, 2003, includes the recognition of deferred
revenue of approximately $3.2 million related to shipments
of Beamer, which were made during the third and fourth quarters
of 2002.
Cost of goods sold. Cost of goods sold was
$2.9 million for the year ended December 31, 2003.
There was no similar expense for the year ended
December 31, 2002. Because a significant portion of our
inventory for raw materials and finished goods for our Beamer
videophone products was expensed in prior periods, cost of goods
sold for the year ended December 31, 2003 was lower than
what would otherwise have been recorded. If we had not
previously expensed inventory costs, our cost of goods sold
would have been $7.8 million for the year ended
December 31, 2003.
Gross profit. Gross profit was $7.4 million for the
year ended December 31, 2003. If we had not previously
expensed inventory costs, our gross profit would have been
approximately $2.5 million for the year ended
December 31, 2003.
Product Costs. Product costs were $10.4 million for
the year ended December 31, 2002. Product costs represent
inventory expenditures for raw materials and finished goods
related to our Beamer videophone products. At September 30,
2002, we had no historical experience selling Beamer (our first
videophone product) and there was significant uncertainty
regarding our ability to recover costs incurred in building
inventories related to Beamer. As a result, we expensed Beamer
inventory costs as incurred through the third quarter of 2002.
Following the nationwide commercial launch of Beamer, we began
to capitalize the additional value of Beamer inventory costs in
the fourth quarter of 2002.
Engineering and development. Engineering and development
expenses were $2.6 million for the year ended
December 31, 2003, compared to $13.3 million for the
year ended December 31, 2002. The decrease was primarily
due to reductions in engineering and development personnel and
other development expenditures as we shifted our focus to sales
and marketing efforts from core development activities. Included
in engineering and development expenses for the year ended
December 31, 2002 were development expenses related to
ViDVD and ViMagazine as well as expenses related to our Internet
Service Provider, known as ViZip. Since all development
activities related to ViDVD, ViMagazine and ViZip were
discontinued during 2002, there were no comparable expenses for
the year ended December 31, 2003.
Sales and Marketing. Sales and marketing expenses were
$4.4 million for the year ended December 31, 2003,
compared to $3.1 million for the year ended
December 31, 2002. The increase in sales and marketing
expenses is primarily due to $2.1 million in television
commercials that aired in certain markets (Los Angeles and
San Francisco) and in-store demonstration programs (in
selected stores and regions), which occurred, in the fourth
quarter of 2003. This increase was partially offset by an
overall decrease in sales and marketing expenses for the year
ended December 31, 2003 when compared to the prior fiscal
year.
General and Administrative. General and administrative
expenses were $5.8 million for the year ended
December 31, 2003, compared to $5.6 million for the
year ended December 31, 2002.
Amortization and Impairment of Content Licenses.
Amortization and impairment of content licenses for ViMagazine
was $11.4 million in the year ended December 31, 2002.
During January 2002, we licensed feature film content from
Artisan Entertainment for $10.0 million to use as part of
our ViMagazine. Starting in the first quarter of 2002, we began
to expense our content licenses, based on the greater of the
royalty amounts due or amortization on a straight-line basis
over an estimated life of three years. During the fourth quarter
of 2002, we concluded that the content licenses had suffered a
permanent decline in value, as a result of our decision not to
market ViMagazine, and the remaining unamortized balance of
$8.3 million was written down to zero. The
$10.0 million license fee to Artisan Entertainment included
a $5.0 million note that matures in April 2005 and would
convert to a license fee if certain events occurred. We continue
to receive current interest payments on the note and, since
conversion is unlikely, we may receive the principal at
maturity. If we were to be paid at maturity we would recognize a
gain at that time. There is no comparable expense for the year
ended December 31, 2003.
Interest Income, Net. Interest income was $733,000 for
the year ended December 31, 2003, compared to
$1.2 million for the year ended December 31, 2002. The
decrease in interest income was primarily due to
I-12
lower cash balances and lower yields on available-for-sale
securities during the year ended December 31, 2003 as
compared to the year ended December 31, 2002.
Gain on Investment. During the fourth quarter of 2003 we
recorded a gain on investments of $571,000. The gain on
investments was attributable to a cash dividend paid to us on
preferred shares we previously acquired in an unrelated company.
Our original investment in this company had been written down to
zero in a prior period.
Off-Balance Sheet Arrangements
In January 2000, we entered into a three-year non-cancelable
lease agreement for our headquarters with ESS. In July 2003, we
amended the lease. The terms of the amendment include a 60%
reduction in the amount of square footage leased, a reduction in
the monthly rent to current market rates and an extension of the
term from December 31, 2003 to June 30, 2005. Under
the terms of this and other leases, with various expiration
dates through 2006, our future minimum rental payments as of
December 31, 2004 are as follows: $351,000 and $141,000 for
the years 2005 and 2006 respectively.
Apart from operating leases disclosed above, we do not have any
off-balance sheet arrangements.
Liquidity and Capital Resources
As of December 31, 2004, we had $21.5 million in cash
and cash equivalents, restricted cash and short-term investments
compared to $26.5 million as of December 31, 2003,
representing a decrease of $5.0 million.
Our principal sources of liquidity are cash and cash equivalents
and investments. Net cash used in operating activities was
$5.9 million for the year ended December 31, 2004
compared to $7.9 million for the year ended
December 31, 2003, representing a decrease of approximately
$2.0 million. The decrease in cash used in operating
activities was primarily due to a significant reduction in our
operating expenses, combined with cash received from sales of
our products. In addition, our cash flow from operations for the
year ended December 31, 2004 benefited from a decrease in
inventory.
Net cash provided by investing activities for the year ended
December 31, 2004 was $3.8 million compared to
$2.4 million of cash used in investing activities for the
year ended December 31, 2003 representing an increase of
approximately $6.2 million. The increase in net cash
provided by investing activities for the year ended
December 31, 2004 compared to net cash used in investing
activities for the year ended December 31, 2003 was
primarily due to a reduction in purchases and sales of
short-term investments.
Net cash provided by financing activities was insignificant for
the year ended December 31, 2004 compared to
$285,000 net cash used in financing activities for the year
ended December 31, 2003, which was primarily related to
repurchases of our common stock.
Capital expenditures for the 12-month period ending
December 31, 2005 are anticipated to be approximately
$100,000, primarily to acquire capital equipment.
In September 2001, the Board of Directors authorized the
repurchase of up to 10,000,000 shares of our common stock
in open market or private transactions over a twelve-month
period. In June 2002, the Board of Directors authorized the
existing stock repurchase program be extended to include the
repurchase of up to an additional 10,000,000 shares of
common stock. Through December 31, 2003, we repurchased
approximately 11,964,000 shares of common stock at an
aggregate cost of $9.4 million. There were no common stock
repurchases during the year ended December 31, 2004. As of
December 31, 2004, approximately 8,036,000 shares
remain authorized for repurchase.
We believe that our existing cash and cash equivalents and
investments will be sufficient to fund our operations through
December 31, 2005. However, to continue our operations
beyond that date, or if our current level of operations change,
or to achieve our longer-term goals of introducing additional
products to consumers, we believe we will need to raise
additional capital, which may not be available on acceptable
terms, if at all. We have historically used vendor credit as
well as private offerings of convertible preferred stock and
common stock to fund operations and provide for capital
requirements. However, the price per share of any future
equity-related financing will be determined at the time the
offering is made and cannot be anticipated at this time. If
additional funds are raised through the issuance of equity
securities, the percentage
I-13
ownership of current stockholders is likely to or will be
reduced and such equity securities may have rights, preferences
or privileges better than those of current stockholders. We
cannot assure you that any additional financing will be
available or that, if available, it will be sufficient or it can
be obtained on terms favorable to us or our stockholders. If
adequate funds are not available if and when needed, we would be
required to delay, limit or eliminate some or all of our
proposed operations.
Critical Accounting Policies and Estimates
The preparation of financial statements and the related
disclosures in conformity with accounting principles generally
accepted in the United States requires management to make
estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. We base our
estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances. On an ongoing basis, we evaluate our estimates to
ensure that our estimates remain reasonable under current
conditions. Actual results may differ from these estimates,
which may have a material impact on our results of operations
and financial condition.
Critical accounting policies that require significant judgments
and estimates for the preparation of our consolidated financial
statements are as follows:
Revenue recognition
We generally recognize revenue on products sold to end customers
upon shipment provided that we have no post-sale obligations, we
can reliably estimate and accrue warranty costs and sales
returns, the price is fixed or determinable and collection of
the resulting receivable is reasonably assured. For sales to
international distributors and strategic partners we generally
recognize revenue based on the above criteria and upon receipt
of payment in full. For sales to end customers that do not meet
the above criteria, revenue is deferred until such criteria are
met.
Products sold to retailers and distributors are subject to
rights of return. We defer recognition of revenue on products
sold to retailers and distributors until the retailers and
distributors sell the products to their customers. Revenue is
also deferred for the initial thirty-day period during which our
direct customers, retailers and distributors have the
unconditional right to return products. We recognize revenue
from distributors and some retailers according to information on
shipments to their customers provided by those distributors and
retailers. In determining the appropriate amount of revenue to
recognize, we use this data and apply judgment in reconciling
differences between their reported inventories and activities.
If distributors and retailers incorrectly report their
inventories or activities, or if our judgment is in error, it
could lead to inaccurate reporting of our revenues and deferred
income and net income.
Allowances for sales returns and for doubtful accounts
Sales return allowances are recorded at the time when revenue is
recognized based on historical returns, current economic trends
and changes in customer demands. Such allowances are adjusted
periodically to reflect actual experience and anticipated
returns.
Allowance for doubtful accounts is our best estimate of the
amount of probably credit losses in our existing accounts
receivable. We determine the allowance based on historical
write-off experience. We review our allowance for doubtful
accounts monthly. Past due balances over 90 days and over
are reviewed individually for collectibility. Account balances
are charged off against the allowance when we feel it is
probable that receivable will not be recovered.
If these considered factors fail to represent future returns of
our products or collectibility of our accounts receivable, or if
our judgment is in error, it could lead to inaccurate reporting
of our accounts receivables, revenues, deferred profit and net
income.
I-14
The following is a summary of activities in allowance for
doubtful accounts and returns (in thousands):
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Balance at | |
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Write-offs | |
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Beginning | |
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Net of | |
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Balance at End | |
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of Year | |
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Additions | |
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Recoveries | |
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of Year | |
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| |
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| |
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| |
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| |
December 31, 2004
|
|
$ |
63 |
|
|
$ |
14 |
|
|
$ |
|
|
|
$ |
77 |
|
December 31, 2003
|
|
$ |
30 |
|
|
$ |
33 |
|
|
$ |
|
|
|
$ |
63 |
|
December 31, 2002
|
|
$ |
665 |
|
|
$ |
|
|
|
$ |
(635 |
) |
|
$ |
30 |
|
Warranty
We provide a limited warranty on our products for periods
ranging from 90 days to 12 months from the date of
sale to the end customers. We estimate warranty costs based on
historical experience and accrue for estimated costs as a charge
to cost of sales when revenue is recognized. If these considered
factors fail to represent our future warranty expenses or if our
judgment is in error, it could lead to inaccurate reporting of
our cost of sales and net income.
The following table shows the details of the product warranty
accrual, as required by FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, for the years ended December 31, 2004 and
2003 (in thousands):
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|
December 31, | |
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December 31, | |
|
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2004 | |
|
2003 | |
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| |
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| |
Beginning balance
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$ |
484 |
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|
$ |
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|
Accruals for warranties issued during the year
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564 |
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814 |
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Settlements made during the year
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(649 |
) |
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(330 |
) |
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|
Ending balance
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$ |
399 |
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$ |
484 |
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Inventories are stated at the lower of cost or market, with cost
being determined by the first-in, first-out method. We record
our inventory reserve for estimated losses based on assumptions
about future demand and market conditions. If actual demand or
market conditions are less favorable than those projected by
management, additional inventory reserves may be required.
We expensed $10.4 million of inventory costs on our Beamer
videophone products, through September 30, 2002. We began
capitalizing our inventory costs in the fourth quarter of 2002
following commercial introduction of our products.
Following the analysis of inventory quantity on hand and
expected demand, additional inventory reserves of
$3.4 million were recorded in fiscal 2004. Additional
inventory reserves may be needed if actual demand or market
conditions are less favorable than managements projections.
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is generally
computed using the straight-line method over the estimated
useful lives of the assets.
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Computer equipment
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3-5 years |
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Furniture and fixtures
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5 years |
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Software and web site development costs
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1-3 years |
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Repairs and maintenance costs are expensed as incurred.
The recoverability of property and equipment is evaluated
whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable, primarily
based on estimated selling prices, appraised values or projected
undiscounted cash flows. Our cash flow estimates are based on
historical results adjusted for estimated current industry
trends, the economy and operating conditions. Significant
changes in these estimates and assumptions could result in
impairment changes in the future.
I-15
We account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion
No. 25, or APB No. 25, Accounting for Stock
Issued to Employees. Under APB No. 25, compensation
cost is measured as the excess, if any, of the quoted market
price of its stock at the date of grant over the exercise price
of the option granted. Compensation cost for stock options, if
any, is recognized ratably over the vesting period. We provide
additional pro forma disclosures as required under
SFAS No. 123, Accounting for Stock-Based
Compensation and SFAS No. 148, Accounting
for Stock-Based Compensation, Transition and Disclosure.
Recent Accounting Pronouncements
In November 2004, the FASB has issued FASB Statement
No. 151, Inventory Costs, and Amendment of ARB
No. 43, Chapter 4
(FAS No. 151). The amendments made by
FAS No. 151 are intended to improve financial
reporting by clarifying that abnormal amounts of idle facility
expense, freight, handling costs, and wasted materials
(spoilage) should be recognized as current-period charges
and by requiring the allocation of fixed production overheads to
inventory based on the normal capacity of the production
facilities.
The guidance is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during
fiscal years beginning after November 23, 2004. The
provisions of FAS No. 151 will be applied
prospectively. We do not expect the adoption of
FAS No. 151 to have material impact on our
consolidated financial position, results of operations or cash
flows.
In December 2004, the FASB issued FASB Statement No. 123R,
Share-Based Payment, an Amendment of FASB Statement
No. 123 (FAS No. 123R).
FAS No. 123R requires companies to recognize in the
statement of operations the grant-date fair value of stock
options and other equity-based compensation issued to employees.
FAS No. 123R is effective beginning our third quarter
of fiscal 2005. We are currently evaluating the impact of
FAS No. 123R on our financial position and results of
operations.
In December 2004, the FASB issued SFAS Statement
No. 153, Exchanges of Nonmonetary Assets. The
Statement is an amendment of APB Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial
impact on its financial statements. We do not expect the
adoption of FAS No. 153 to have material impact on our
consolidated financial position, results of operations or cash
flows.
Other Factors That May Affect Our Business and Future
Results
Our future business, operating results and financial condition
are subject to various risks and uncertainties, including those
described below.
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If our products do not achieve broad market acceptance, we
may not be able to continue operating our business. |
We are currently marketing a limited number of products. As a
result, our success is highly dependent upon consumer acceptance
of these products. Consumer acceptance requires, among other
things, that we:
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educate consumers on the advantages of our Beamer videophone
products and VistaFrame; |
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commit a substantial amount of human and financial resources to
support the retail distribution of our products; |
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continue to develop our sales, marketing and support activities
to consumers and retailers; and |
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expand the number and location of retailers carrying our
products. |
We may not achieve any or all of these objectives. As a result
despite our national retail presence, consumers may not be aware
of our products. This could delay or prevent our ability to
achieve broad market acceptance of our products. We do not
currently have the resources to support a significant and
sustained national advertising and consumer awareness program
which may be necessary to significantly increase sales.
I-16
The failure of our products to achieve sufficient consumer and
retailer acceptance would impair our ability to continue
operating our business.
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We have incurred net losses and may never achieve
significant revenues or profitability. |
We have incurred losses and have had negative cash flow since
our inception. As of December 31, 2004, we had
$21.5 million in cash and cash equivalents, restricted cash
and short-term investments. For the fiscal year ended
December 31, 2004, we had a net loss of $2.4 million.
We expect to continue to incur losses for the foreseeable
future. The size of these net losses will depend in part on any
future product launches, any growth in sales of our products and
the rate of increase in our expenses. As a result, we will need
to generate significant revenues to achieve profitability.
Several factors, including consumer acceptance, retailer
arrangements and competitive factors make it impossible to
predict when or whether we will generate significant revenues or
attain profitability. Consequently, we may never achieve
significant revenues or profitability, and even if we do, we may
not sustain or increase profitability on a quarterly or annual
basis in the future.
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It may take a substantial amount of time and resources to
achieve broad market acceptance of our products, and we cannot
be sure that these efforts will generate the level of broad
market acceptance necessary to generate sufficient revenues to
sustain our business. |
The current videophone end-user market is relatively small.
Although videophones have been commercially available for many
years, previous videophone models have had high retail prices,
limited retail distribution, limited functionality, poor video
quality and have been integrated with a handset. Even though we
believe our Beamer videophone products have addressed many of
the limitations associated with videophones and videophone
technology, consumer demand remains low and may not increase.
Similar to the videophone end-user market, the digital picture
frame market is small and only a recent phenomenon resulting
from the growth of the digital camera market. Although
VistaFrame is compatible with most standard digital camera
memory card formats and does not require a camera or computer
connection, special wiring or web based services, consumer
demand is low and may not increase. Even after educating
consumers on the features of our products, consumers may still
perceive little or no benefit or may already own other products
that provide similar benefits or functionality. As a result,
consumers may not value, or may be unwilling to purchase, our
products at profitable prices. We also do not have an
established brand image, and the expense of a national
advertising campaign to build and sustain brand awareness is not
within our reach. Accordingly, to develop market acceptance of
our products, we will need to devote a substantial amount of
resources to educate consumers about the features and benefits
of our products via alternative means including targeted public
relations, promotional campaigns and extensive retail
distribution. However, we cannot assure you that this commitment
of resources will be successful in generating the revenues
required to sustain our business. If we are unsuccessful, the
future of our Company will be in doubt.
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If we are unable to raise additional capital on acceptable
terms, our ability to develop and market our products and
operate our business could be harmed. |
To introduce follow-on products and sustain and grow our
business, we must continue to make significant investments to
develop, enhance and market our products. We will also need
significant working capital to take advantage of future
opportunities and to respond to competitive pressures or
unanticipated requirements. We expect that our existing capital
resources will be sufficient to meet our cash requirements
through December 31, 2005, although our current resources
could be exhausted more quickly depending on the payment terms
that we are able to negotiate with our vendors and suppliers and
our success in generating and collecting on accounts receivable.
The magnitude of our future capital requirements will depend on
many factors, including, among others, promotional campaigns,
investments in working capital, and the amount of income, if
any, generated by operations.
When we do need to raise additional capital, that capital may
not be available on acceptable terms, or at all. If we cannot
raise necessary additional capital on acceptable terms, we may
not be able to develop or enhance our products, take advantage
of future opportunities, respond to competitive pressures or
unanticipated requirements or even continue operating our
business.
I-17
If additional capital is raised through the issuance of equity
securities, the percentage ownership of our existing
stockholders will decline. Also, if any securities are issued,
our stockholders may experience dilution in net book value per
share, and these securities may have rights, preferences or
privileges superior to those of the holders of our common stock.
Any debt financing, if available, may also require limitations
or restrictions on our operations or future opportunities.
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Our limited operating history may make it difficult for us
or investors to evaluate trends and other factors that affect
our business. |
We were incorporated in April 1999 and have a limited operating
history. As a result of our limited operations, our historical
financial and operating information is of limited value in
evaluating our future potential operating results. In addition,
any evaluation of our business and prospects must be made in
light of the risks and difficulties encountered by start-up
companies developing products in new and rapidly evolving
markets. For example, it may be difficult to accurately predict
our future revenues, costs of revenues, expenses or results of
operations. Our Beamer videophone products, VistaFrame and any
other future products represent new products for most consumers.
It may be difficult to predict the creation of any market or the
growth rate, if any, or size of the market for our existing
products or other new products we may develop. We may be unable
to accurately forecast customer needs or behavior or recognize
or respond to emerging trends, changing preferences or
competitive factors facing us. As a result, we may be unable to
make accurate financial forecasts or adjust our spending in a
timely manner to compensate for any unexpected changes or
revenue shortfall. This inability could cause our results of
operations in a given quarter to be worse than expected, and
could cause the price of our stock to decline.
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We face intense competition from participants in the
consumer electronics market, which may impair our revenues and
ability to generate customers. |
The consumer electronics market is intensely competitive and
rapidly evolving. Existing participants and new entrants in this
market currently offer and may develop and offer additional
products that will compete directly with our existing products
or future products that we may develop.
The consumer electronics industry in particular is characterized
by rapid technological innovation and intense price competition.
The competition for consumer spending and acceptance is also
intense. Our Beamer videophone products compete directly with
several other companies in the videophone market. All of these
companies currently offer videophone products to consumers that
operate over standard (analog) phone lines with no
additional cost to the user, similar to our Beamer videophone
products. In addition to these companies, we face competition
from a competitively priced videophone product that utilizes a
consumers broadband connection (as opposed to a
standard phone line) to deliver a video image over a
consumers television during a phone call. Our Beamer
videophone products also face competition from PC-based Internet
video and from digital camera cellular telephones manufacturers
and potential future offerings from current telephone
manufacturers. Like our Beamer videophones, VistaFrame competes
directly with several other companies in the digital picture
frame marketplace. Although lacking some of the features of our
VistaFrame product, these companies offer digital picture frame
products which provide features similar to VistaFrame.
In addition, many of the manufacturers and distributors of these
competing products have substantially greater brand recognition,
market presence, distribution channels, financial resources and
promotional and other strategic partners than us.
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If we fail to create consumer demand and consumer
acceptance of our Beamer videophone products and VistaFrame, we
may not be able to generate sufficient revenues to sustain our
business. |
The success of our existing products depends on a number of
factors, including, but not limited to, strategic allocation of
our limited financial and technical resources, accurate
forecasting of consumer demand, timely completion of product
development and introduction to market, and market and industry
acceptance of our future and existing products.
I-18
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If we are unable to develop and introduce new products, we
may not be able to generate sufficient revenues to sustain and
grow our business. |
We develop and engineer all of our products in-house. To
introduce follow-on products as well as new products, we must
continue to make investments in product development and
engineering. The development of new products is a time consuming
process and may result in products which, although technically
feasible, may not be commercially viable. In addition,
competitors with greater resources may be able to develop and
introduce new products that could eclipse our development
initiatives and prevent us from introducing similar products. If
we fail to develop new products, we may not be able to sustain
our business.
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We depend on two contract manufacturers and a limited
number of other third parties, including ESS, to manufacture and
supply critical components for our products, and we may be
unable to operate our business if those parties do not perform
their obligations. |
We rely on two contract manufacturers located in China to meet
our current product demand. We also rely on ESS and a limited
number of other third party suppliers for a number of key
components for our products, including modem chips, video chips
and LCD screens. We do not have long-term agreements in place
with our suppliers. We do not control the time and resources
that these suppliers devote to our business. We cannot be sure
that these suppliers will perform their obligations as expected
or that any revenue, cost savings or other benefits will be
derived from the efforts of these parties. Our need for
semiconductors as a key component of our products indirectly
subjects us to a number of risks relating to ESS and any
other future semiconductor suppliers reliance on
independent foundries to produce those semiconductors, including
the absence of adequate capacity, the unavailability of, or
interruption in access to, certain process technologies and
reduced control over delivery schedules, manufacturing yields
and costs, and risks related to the international location of
most major foundries. If any of our third party suppliers
breaches or terminates its agreement with us or otherwise fails
to perform its obligations in a timely manner, we may be delayed
or prevented from launching or marketing our products. Because
our relationships with these parties are non-exclusive, they may
also support products that compete directly with ours, or offer
similar or greater support to our competitors. Any of these
events could require us to undertake unforeseen additional
responsibilities or devote additional resources to commercialize
our products. This outcome would harm our ability to compete
effectively and quickly achieve market acceptance and brand
recognition.
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We may have potential business conflicts of interest with
ESS with respect to the companies ongoing relationships,
and we may not be able to resolve these conflicts on terms
favorable to us. |
Conflicts of interest may arise between ESS and us in a number
of areas relating to ongoing relationships between the
companies, including:
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Although we entered into agreements with ESS that govern our
business relationship after the distribution of our stock to ESS
shareholders, ESS has no obligation to extend the terms of those
agreements beyond their stated duration; |
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ESS may supply semiconductors to competitors, which may affect
ESS capacity to supply semiconductors to us; |
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We may compete with ESS with respect to business opportunities
that are attractive to both companies, and ESS is not restricted
from competing with our business. |
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If we are unable to maintain satisfactory relationships
with, or increase the number of, retailers and distributors that
sell our products, our business will suffer. |
In order to maintain our relationships with retailers and
distributors we may be required to accept arrangements and
terms, which may not be favorable to us. Such terms may include
consignment arrangements, pricing concessions, marketing
incentives, aggressive return allowances, commissions and other
requirements, which could adversely affect the profitability of
our products. In addition, we expect that our retailers and
distributors will sell products offered by our competitors. If
our competitors offer retailers and distributors more favorable
terms or have more products available to meet their needs, those
retailers and distributors may decline to carry or may not
adequately promote our products. Although we are attempting to
I-19
increase the number of retailers that market our products to
consumers, there can be no assurance that we will be able to do
so. If we are unable to maintain successful relationships with
distributors and retailers or to expand our distribution
channels, our business may fail.
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We may need to expand our operations for future growth,
and our failure to manage any such growth could disrupt business
and impair our ability to generate revenues. |
We may need to expand our headcount, facilities and
infrastructure to support potential sales growth and to allow us
to pursue market opportunities. This potential expansion could
place a significant strain on our management, operational and
financial resources and systems. Specific risks we face as our
business expands include:
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We may need to attract and retain qualified personnel, and any
failure to do so may impair our ability to offer new products or
grow our business. We may be unable to successfully attract,
integrate or retain sufficiently qualified personnel. If we are
unable to hire, train, retain or manage the necessary personnel,
we may be unable to successfully introduce new products or
otherwise implement our business strategy. |
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We may need to provide acceptable customer support, and any
inability to do so will impair our ability to develop consumer
acceptance of our products. We expect that some of our customers
will require support when using our products. We also anticipate
that purchasers of any future products will require support in
their use of such products. We do not have experience with
widespread deployment of our products to a diverse customer
base, and we may not have adequate personnel to provide the
levels of support that our customers will require. Our failure
to provide adequate customer support for our products will
damage our reputation in the consumer electronics marketplace
and strain our relationships with customers and strategic
partners. This could prevent us from gaining new or retaining
existing customers and could harm our reputation and brand. |
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We may need to improve our operational and financial systems,
procedures and controls to support our expected growth, and any
inability to do so will adversely impact our ability to grow our
business. Our current and planned systems, procedures and
controls may not be adequate to support our future operations
and expected growth. Delays or problems associated with any
improvement or expansion of our operational systems and controls
could adversely impact our relationships with customers and harm
our reputation and brand. |
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Product defects, system failures or interruptions may have
a negative impact on our revenues, reputation and ability to
attract new customers. |
Errors and product defects can result in significant warranty
and repair problems, which could cause customer relations
problems. Correcting product defects requires significant time
and resources, which could delay product releases and affect
market acceptance of our products. Any delivery by us of
products with undetected material product defects could harm our
credibility and market acceptance of our products.
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Our future results could be harmed by economic, political,
regulatory and other risks associated with our reliance on
international sales and operations. |
Our products are currently manufactured, assembled and tested by
two contract manufacturers located in China. In addition, most
of our suppliers are located in China, Hong Kong and Taiwan.
Because of our international operations and relationships, and
our reliance on foreign third-party manufacturing, assembly and
testing operations, we are subject to the risks of conducting
business outside of the United States, including:
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changes in political and strategic relations between China,
Taiwan and the U.S.; |
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changes in foreign currency exchange rates; |
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changes in a specific countrys or regions political
or economic conditions, particularly in China, Taiwan and other
emerging Asian markets; |
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trade protection measures and import or export licensing
requirements; |
I-20
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potentially negative consequences from changes in tax laws; |
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difficulty in managing widespread sales and manufacturing
operations; |
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less effective protection of intellectual property. |
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Our success partly depends on our ability to secure and
protect our proprietary rights. |
Our success and ability to compete are partly dependent upon our
internally developed technology. We rely on patent, trademark
and copyright law, trade secret protection and confidentiality
or license agreements with our employees, customers, partners
and others to protect our proprietary rights. However, the steps
we take to protect our proprietary rights may be inadequate. We
have filed two U.S. patent applications, one to cover ViDVD
proprietary functions and digital encoder and decoder solutions
and another to cover digital audio signal compression and
processing. In addition, we have filed corresponding
applications in Taiwan and with the patent cooperation treaty,
which reserves the right to file in foreign countries. To date,
no patents have been issued, and we cannot assure you that any
patents will ever be issued, that any issued patents will
protect our intellectual property or that third parties will not
challenge any issued patents. Moreover, other parties may
independently develop similar or competing technologies designed
around any patents that may be issued to us.
The laws of certain foreign countries in which our products are
or may be designed, manufactured or sold, including various
countries in Asia, may not protect our products or intellectual
property rights to the same extent as do the laws of the U.S.,
and thus make the possibility of piracy of our technology more
likely. We cannot assure you that the steps taken by us to
protect our proprietary information will be adequate to prevent
misappropriation of our technology or that our competitors will
not independently develop technologies that are substantially
equivalent or superior to our technology. Our failure to protect
our proprietary rights could harm our business.
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We may be subject to claims that our intellectual property
infringes upon the proprietary rights of others, and a
successful claim could harm our ability to sell and develop our
products. |
If other parties claim that our products infringe upon their
intellectual property, we could be forced to defend ourselves or
our customers, manufacturers or suppliers against those claims.
We could incur substantial costs to prosecute or defend those
claims. A successful claim of infringement against us, or any
failure or inability of us to develop non-infringing technology
or license the infringed technology on acceptable terms and on a
timely basis, could harm our business, financial condition and
results of operations.
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If we lose key management personnel, we may not be able to
successfully operate our business. |
Our future performance is substantially dependent on the
continued services of our senior management, especially our
Chairman, Fred S.L. Chan, our President and Chief Executive
Officer, Didier Pietri, and other key personnel. The loss of any
members of our executive management team and our inability to
hire additional executive management could harm our business and
results of operations. We employ our key personnel on an at-will
basis. We do not maintain key person insurance policies on any
of the members of our executive management team.
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Any future business acquisitions may disrupt our business,
dilute stockholder value or distract management
attention. |
As part of our ongoing business strategy, we may consider
acquisitions of, or significant investments in, additional
businesses that offer or develop products and technologies
complementary to our own. Such acquisitions could materially
adversely affect our operating results and/or the price of our
stock. Acquisitions also entail numerous risks, including:
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difficulty of integrating the operations, products and personnel
of the acquired businesses; |
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potential disruption of our ongoing business; |
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unanticipated costs associated with the acquisition; |
I-21
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inability of management to manage the financial and strategic
position of acquired or developed products and technologies; |
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inability to maintain uniform standards, controls, policies and
procedures; and |
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impairment of relationships with employees and customers that
may occur as a result of integration of the acquired business. |
To the extent that shares of our stock or other rights to
purchase stock are issued in connection with any future
acquisitions, dilution to our existing stockholders may result
and our earnings per share may suffer. Any future acquisitions
or strategic investments may not generate additional revenue or
provide any benefit to our business, and we may not achieve a
satisfactory return on our investment in any acquired businesses.
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Laws or regulations that govern the consumer electronics
industry, the telecommunications industry, copyrighted works or
the Internet could expose us to legal action if we fail to
comply or could require us to change our business. |
Because our products are expected to provide our customers with
access to a variety of methods of electronic communication, it
is difficult to predict what laws or regulations will be
applicable to our business. Therefore, it is difficult to
anticipate the impact of current or future laws and regulations
on our business. Among the many regulations that may be
applicable to our business are the following:
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Federal Communications Commission regulations relating to the
electronic emissions of consumer products; |
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Federal Communications Commission regulations relating to
consumer products that connect to the public telephone network; |
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federal export regulations relating to the export of sensitive
computer technologies such as encryption and authentication
software. |
Changes in the regulatory climate or the enforcement or
interpretation of existing laws could expose us to legal action
if we fail to comply. In addition, any of these regulatory
bodies could promulgate new regulations or interpret existing
regulations in a manner that would cause us to incur significant
compliance costs or force us to alter the features or
functionality of our products.
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Our stock may be subject to the requirements for penny
stocks, which could adversely affect your ability to sell and
the market price of our shares. |
Our stock may fit the definition of a penny stock. The
Securities and Exchange Act of 1934 defines a penny stock as any
equity security that is not traded on a national securities
exchange or authorized for quotation on The NASDAQ National
Market and that has a market price of less than $5.00 per
share, with certain exceptions. Penny stocks are subject to
Rule 15g under the Securities and Exchange Act of 1934,
which imposes additional sales practice requirements on
broker-dealers who sell such securities. In general, a
broker-dealer, prior to a transaction in a penny stock, must
deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock
market. The broker-dealer must provide the customer with current
bid and offer quotations for the penny stock, information about
the commission payable to the broker-dealer and its salesperson
in the transaction and monthly statements that disclose recent
price information for each penny stock in the customers
account. Finally, prior to any transaction in a penny stock, the
broker-dealer must make a special written suitability
determination for the purchaser and receive the purchasers
written consent to the transaction prior to sale. All of these
requirements may restrict your ability to sell our stock and
could limit the trading volume of our stock and adversely affect
the price investors are willing to pay for our stock.
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Our quarterly operating results may fluctuate
significantly, which may adversely affect the market prices of
our stock and could lead to us becoming the target of costly
securities class action litigation. |
We expect our operating results, including any revenues we may
generate, to fluctuate significantly due to a number of factors,
many of which are outside of our control. Therefore, you should
not rely on period-to-period comparisons of results of
operations as an indication of our future performance. It is
possible that in
I-22
some future periods our operating results may fall below the
expectations of market analysts and investors. In this event,
the market prices of our stock would likely fall. Factors that
may affect our quarterly operating results include:
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consumer awareness and demand for our products; |
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ongoing demand and supply for our products; |
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seasonality and other consumer and advertising trends; |
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changes in the economic terms of our relationships with our
strategic partners; |
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shortfalls in the supply of components necessary for the
manufacture of our products; |
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changes in our pricing policies, the pricing policies of our
competitors and general pricing trends in the consumer
electronics market; |
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unanticipated shortfalls in revenue due to the fact that our
expenses precede associated revenues; |
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changes in estimates of our financial performance or changes in
recommendations by securities analysts; |
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release of new or enhanced products or services or introduction
of new marketing initiatives by us or our competitors; |
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announcements by us or our competitors of the creation or
termination of significant strategic partnerships, joint
ventures, significant contracts, or acquisitions; |
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the market price generally for consumer electronics and retail
industry stocks; |
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market conditions affecting the consumer electronics industry; |
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additions or departures of key personnel; |
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demand for and consumer acceptance of other anticipated future
products offerings; and |
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general economic conditions. |
In the past, securities class action litigation has often been
brought against a company following stock price declines. We may
be the target of similar litigation in the future if the price
of our common stock declines. Securities litigation could result
in substantial costs and diversion of management attention and
resources, all of which could materially harm our business,
financial condition and results of operations.
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Seasonal trends may cause our quarterly operating results
to fluctuate, which may adversely affect the market price of our
stock. |
Domestic consumer electronic product sales have traditionally
been much higher during the holiday shopping season than during
other times of the year. Although predicting consumer demand for
our products and any future products will be very difficult, we
believe that sales of our existing products will be higher
during the holiday shopping season when compared to other times
of the year. We believe we have adequate capital to continue to
operate for the 12-month period ending December 31, 2005.
However, if we are unable to generate sufficient revenues during
the 2005 holiday shopping season, or any future season, we may
not be able to continue our business
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Our historical financial information may not be
representative of our future operating results as a separate
company. |
Our historical financial information does not necessarily
reflect what our financial position, operating results and cash
flows would have been had we been a stand-alone entity during
the periods presented. In addition, our historical information
is not necessarily indicative of what our operating results,
financial position and cash flows will be in the future.
I-23
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Conflicts of interest may arise because our Chairman is
also the Chairman of ESS and both he and another director own
securities of both companies. |
Fred S.L. Chan, our Chairman, owns a significant amount of ESS
stock and our stock and options to purchase ESS stock and our
stock. In addition, Matthew K. Fong, a member of our board of
directors, owns ESS stock and options to purchase ESS stock.
Mr. Chan is the Chairman of ESS. These factors could
create, or appear to create, potential conflicts of interest
when these directors are faced with decisions that could have
different implications for ESS and us.
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ESS submitted a request to the Internal Revenue Service
(IRS) to rule that its distribution of our shares to ESS
shareholders was tax-free. The IRS determined that it would not
provide such a ruling. |
The IRS decision not to provide a ruling on the distribution
does not mean that the distribution is taxable. We believe that
the distribution is tax-free. ESS has advised us that they
reported the distribution as tax-free in its federal income tax
filings. ESS has also advised us that it is seeking an opinion
from its tax advisors that the distribution is tax-free. No
assurance can be given that such an opinion will be obtained or
the level of assurance such opinion will provide.
Even if such an opinion is obtained, no assurance can be given
that the IRS will not determine at a later date that the
distribution is taxable. If the IRS determines that the
distribution is taxable, recipients of our stock in distribution
may be required to pay income taxes as a result of the
distribution, with the amount of ordinary income and gain
dependent upon the value of the stock they received and their
share of ESS earnings and profits. Determining whether or
not the distribution will qualify for tax-free status requires a
complex analysis of many factors, including, among others, the
business purpose for the distribution, the nature of the
business to be engaged in by ESS and us following the
distribution, and the extent to which ESS remains in control of
us following the distribution. Because of the fact-intensive
nature of this analysis, there will be substantial uncertainty
as to whether the distribution will qualify for tax-free
treatment.
ACCORDINGLY, WE CANNOT ASSURE RECIPIENTS OF OUR STOCK IN THE
DISTRIBUTION THAT THE IRS WILL NOT SUCCESSFULLY ASSERT THAT THE
DISTRIBUTION IS TAXABLE. IN ADDITION, SUCH RECIPIENTS MAY BE
TAXED BY THE STATE, LOCAL OR FOREIGN JURISDICTION IN WHICH THEY
RESIDE. ACCORDINGLY, ALL RECIPIENTS OF OUR STOCK IN THE
DISTRIBUTION ARE STRONGLY URGED TO CONSULT WITH THEIR OWN
FINANCIAL ADVISORS REGARDING THE POTENTIAL TAX IMPACT TO THEM OF
THE DISTRIBUTION AND TO PREPARE FOR THE SIGNIFICANT POSSIBILITY
THAT THE TRANSACTION WILL BE TAXABLE TO THEM.
If the distribution is taxable to them, the value of the shares
they received will be treated as taxable ordinary income, return
of cost or as taxable capital gain up to the value of the stock
distributed. If the distribution is taxable, they will incur
this tax whether or not they decide to sell the shares they
receive in the distribution. Unless a recipient of shares in the
distribution is required to make quarterly estimated tax
payments to the IRS, this tax would generally have to be paid on
or before the April 15, 2002 due date for the 2001 tax
return. If such recipients do not have the cash available to pay
the tax at or before the time it is due, they may have to sell
all or a portion of their shares of our stock to pay the tax or
risk incurring interest and penalties imposed by the IRS. If
holders of a significant percentage our stock are also forced to
sell in order to pay their taxes, or if there is for any other
reason, a decline in the trading price of our shares following
the distribution, recipients of our stock in the distribution
may have to sell their shares of our stock at a lower price than
they might otherwise have obtained.
Item 7A: Quantitative
and Qualitative Disclosure About Market Risk
Interest Rate Risks. We invest in short-term investments.
Consequently, we are exposed to fluctuations in interest rates
on these investments. Increases or decreases in interest rates
generally translate into decreases and increases in the fair
value of these investments. In addition, the credit worthiness
of the issuer, relative values of alternative investments, the
liquidity of the instrument, and other general market conditions
may affect the fair values of interest rate sensitive
investments. In order to reduce the risk from fluctuation in
rates, we invest in highly liquid governmental notes and bonds
with contractual maturities of less than two years. All
I-24
of the investments have been classified as available for sale,
and at December 31, 2004, are recorded at market values.
Fixed income securities are subject to interest rate risk. The
fair value of our investment portfolio would not be
significantly impacted by either a 100 basis point increase
or decrease in interest rate due mainly to the short-term nature
of the major portion of our investment portfolio.
Foreign Exchange Risks. Because our products are
manufactured primarily in Asia, we are exposed to market risk
from changes in foreign exchange rates, which could affect our
results of operations and financial condition. In order to
reduce the risk from fluctuation in foreign exchange rates, our
product sales and all of our arrangements with our third party
manufacturers and component vendors are denominated in
U.S. dollars. We do not engage in any currency hedging
activities.
I-25
Item 8: Financial
Statements and Supplementary Data
The following documents are filed as part of this Report:
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Financial Statements Schedules
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All schedules have been omitted because they are not applicable,
not required, or the information required is included in the
financial statements or notes thereto |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Vialta, Inc.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of
stockholders equity and of cash flows present fairly, in
all material respects, the financial position of Vialta, Inc.
and its subsidiaries at December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2004 in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
San Jose, California
March 30, 2005
I-27
VIALTA, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
7,296 |
|
|
$ |
9,356 |
|
|
Restricted cash
|
|
|
3,057 |
|
|
|
2,226 |
|
|
Short-term investments
|
|
|
11,106 |
|
|
|
14,952 |
|
|
Accounts receivable, net
|
|
|
2,761 |
|
|
|
3,941 |
|
|
Inventories
|
|
|
4,500 |
|
|
|
5,196 |
|
|
Prepaid expenses and other current assets
|
|
|
351 |
|
|
|
729 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
29,071 |
|
|
|
36,400 |
|
Property and equipment, net
|
|
|
302 |
|
|
|
685 |
|
Other assets
|
|
|
29 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
29,402 |
|
|
$ |
37,114 |
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
373 |
|
|
$ |
1,915 |
|
|
Accrued expenses and other current liabilities
|
|
|
2,070 |
|
|
|
3,149 |
|
|
Deferred profit
|
|
|
1,310 |
|
|
|
3,997 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,753 |
|
|
|
9,061 |
|
|
|
|
|
|
|
|
Commitments (Note 15)
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock, $0.001 par value;
30,000 shares authorized, no shares issued and outstanding
(Note 8)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 400,000 shares
authorized, 95,017 and 94,702 shares issued, 83,053 and
82,738 shares outstanding
|
|
|
95 |
|
|
|
95 |
|
|
Additional paid-in capital
|
|
|
144,122 |
|
|
|
144,114 |
|
|
Treasury stock
|
|
|
(9,458 |
) |
|
|
(9,458 |
) |
|
Accumulated deficit
|
|
|
(109,098 |
) |
|
|
(106,709 |
) |
|
Accumulated other comprehensive income (loss)
|
|
|
(12 |
) |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
25,649 |
|
|
|
28,053 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible preferred stock and
stockholders equity
|
|
$ |
29,402 |
|
|
$ |
37,114 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
I-28
VIALTA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share | |
|
|
amounts) | |
Revenue, net
|
|
$ |
12,747 |
|
|
$ |
10,331 |
|
|
$ |
|
|
Cost of goods sold
|
|
|
8,022 |
|
|
|
2,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
4,725 |
|
|
|
7,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product costs
|
|
|
|
|
|
|
|
|
|
|
10,421 |
|
|
Engineering and development
|
|
|
1,247 |
|
|
|
2,557 |
|
|
|
13,264 |
|
|
Sales and marketing
|
|
|
2,011 |
|
|
|
4,427 |
|
|
|
3,100 |
|
|
General and administrative
|
|
|
4,573 |
|
|
|
5,753 |
|
|
|
5,643 |
|
|
Amortization and impairment of content licenses
|
|
|
|
|
|
|
|
|
|
|
11,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
7,831 |
|
|
|
12,737 |
|
|
|
43,823 |
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,106 |
) |
|
|
(5,347 |
) |
|
|
(43,823 |
) |
Interest income, net
|
|
|
717 |
|
|
|
733 |
|
|
|
1,244 |
|
Gain on investment
|
|
|
|
|
|
|
571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(2,389 |
) |
|
$ |
(4,043 |
) |
|
$ |
(42,579 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$ |
(0.03 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.51 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
82,930 |
|
|
|
82,285 |
|
|
|
83,578 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
I-29
VIALTA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | |
|
|
|
|
|
|
|
Accumulated | |
|
Total | |
|
|
|
|
(See Note 8) | |
|
Additional | |
|
|
|
|
|
Other | |
|
Stockholders | |
|
|
|
|
| |
|
Paid In | |
|
Treasury | |
|
Accumulated | |
|
Comprehensive | |
|
Equity | |
|
Comprehensive | |
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Stock | |
|
Deficit | |
|
Income | |
|
(Deficit) | |
|
Loss | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance at December 31, 2001
|
|
|
85,625 |
|
|
$ |
92 |
|
|
$ |
144,164 |
|
|
$ |
(4,046 |
) |
|
$ |
(60,087 |
) |
|
$ |
156 |
|
|
$ |
80,279 |
|
|
|
|
|
Shares transferred to ESS Technology, Inc
|
|
|
612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stapled stock options
|
|
|
1,419 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
69 |
|
|
|
1 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
Repurchase of common stock
|
|
|
(4,969 |
) |
|
|
|
|
|
|
|
|
|
|
(5,117 |
) |
|
|
|
|
|
|
|
|
|
|
(5,117 |
) |
|
|
|
|
Income tax benefit on disqualified disposition of stock options
|
|
|
|
|
|
|
|
|
|
|
(77 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77 |
) |
|
|
|
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,579 |
) |
|
|
|
|
|
|
(42,579 |
) |
|
$ |
(42,579 |
) |
|
Unrealized losses on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(148 |
) |
|
|
(148 |
) |
|
|
(148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(42,727 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
82,756 |
|
|
|
94 |
|
|
|
144,105 |
|
|
|
(9,163 |
) |
|
|
(102,666 |
) |
|
|
8 |
|
|
|
32,378 |
|
|
|
|
|
Exercise of stapled stock options
|
|
|
701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
40 |
|
|
|
1 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
Repurchase of common stock
|
|
|
(759 |
) |
|
|
|
|
|
|
|
|
|
|
(295 |
) |
|
|
|
|
|
|
|
|
|
|
(295 |
) |
|
|
|
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,043 |
) |
|
|
|
|
|
|
(4,043 |
) |
|
$ |
(4,043 |
) |
|
Unrealized gains on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(4,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
82,738 |
|
|
|
95 |
|
|
|
144,114 |
|
|
|
(9,458 |
) |
|
|
(106,709 |
) |
|
|
11 |
|
|
|
28,053 |
|
|
|
|
|
Exercise of stapled stock options
|
|
|
283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
32 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
Components of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,389 |
) |
|
|
|
|
|
|
(2,389 |
) |
|
$ |
(2,389 |
) |
|
Unrealized losses on available-for-sale investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23 |
) |
|
|
(23 |
) |
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,412 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
83,053 |
|
|
$ |
95 |
|
|
$ |
144,122 |
|
|
$ |
(9,458 |
) |
|
$ |
(109,098 |
) |
|
$ |
(12 |
) |
|
$ |
25,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
I-30
VIALTA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(2,389 |
) |
|
$ |
(4,043 |
) |
|
$ |
(42,579 |
) |
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
389 |
|
|
|
1,638 |
|
|
|
6,036 |
|
|
|
Amortization and impairment of content license fees
|
|
|
|
|
|
|
|
|
|
|
11,395 |
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivables, net
|
|
|
1,180 |
|
|
|
(2,579 |
) |
|
|
(1,362 |
) |
|
|
|
Related party receivables/payables, net
|
|
|
(154 |
) |
|
|
248 |
|
|
|
97 |
|
|
|
|
Inventories
|
|
|
696 |
|
|
|
(2,362 |
) |
|
|
(2,834 |
) |
|
|
|
Prepaid expense and other assets
|
|
|
378 |
|
|
|
540 |
|
|
|
1,672 |
|
|
|
|
Restricted cash deposit
|
|
|
(831 |
) |
|
|
(2,226 |
) |
|
|
|
|
|
|
|
Deferred profit
|
|
|
(2,687 |
) |
|
|
767 |
|
|
|
3,115 |
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(2,467 |
) |
|
|
97 |
|
|
|
1,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in operating activities
|
|
|
(5,885 |
) |
|
|
(7,920 |
) |
|
|
(23,323 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of short-term investments
|
|
|
(11,448 |
) |
|
|
(25,835 |
) |
|
|
(36,677 |
) |
|
Proceeds from sales of short-term investments
|
|
|
15,271 |
|
|
|
23,624 |
|
|
|
33,397 |
|
|
Purchase of content licenses
|
|
|
|
|
|
|
|
|
|
|
(10,053 |
) |
|
Acquisition of property and equipment
|
|
|
(6 |
) |
|
|
(191 |
) |
|
|
(170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) investing activities:
|
|
|
3,817 |
|
|
|
(2,402 |
) |
|
|
(13,503 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
8 |
|
|
|
10 |
|
|
|
20 |
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(295 |
) |
|
|
(5,117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities:
|
|
|
8 |
|
|
|
(285 |
) |
|
|
(5,097 |
) |
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(2,060 |
) |
|
|
(10,607 |
) |
|
|
(41,923 |
) |
Cash and cash equivalents, beginning of the period
|
|
|
9,356 |
|
|
|
19,963 |
|
|
|
61,886 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$ |
7,296 |
|
|
$ |
9,356 |
|
|
$ |
19,963 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on available-for-sale investments
|
|
$ |
(23 |
) |
|
$ |
3 |
|
|
$ |
(148 |
) |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
I-31
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We develop, design and market consumer electronics products
designed to maximize the advantages of digital technology in a
convenient and easy-to-use manner. Our primary products are the
Beamertm
personal videophone line and the
VistaFrametm
digital picture frame. Our Beamer videophone products add color
video to phone calls, enabling users to see the person they are
calling. Since both parties to a video call must have a Beamer
videophone product (or compatible videophone), our videophone
products are primarily sold in pairs. Our Beamer videophone
products work with any home phone over any standard
(analog) home phone line, at no additional cost to a
regular phone call. Our Beamer videophone products include
models that are standalone (such as our first videophone product
known as Beamer) or connect through most televisions (the Beamer
TV), and may include the ability to send and receive digital
pictures (the Beamer FX). Beamer videophone products are carried
by such retailers as Best Buy, Frys Electronics, The Good
Guys, The Discovery Channel, The Sharper Image and Cinmar (The
Frontgate Catalog), among others.
Our VistaFrame product is a digital picture frame that allows
users to display photographs directly from a digital camera
memory card or from VistaFrames internal memory.
VistaFrame is compatible with most standard card formats and
does not require a camera or computer connection, special wiring
or web based services to display digital photographs. With
VistaFrame, consumers can view digital pictures individually or
in a custom slideshow format with the user selecting the
pictures, the display sequence, display interval and the
transition effect. VistaFrame is currently available through
retailers such as The Discovery Channel, The Sharper Image, The
Good Guys and Cinmar, among others.
Since our inception, we have incurred substantial losses and
negative cash flows from operations. We expect operating losses
and negative cash flows from operations to continue for the
foreseeable future and anticipate that losses may increase from
current levels because of additional costs and expenses related
to sales and marketing activities, expansion of operations,
expansion of product offerings and development of relationships
with other businesses. We believe that we have sufficient cash
and cash equivalents, restricted cash and investments to fund
our existing operations through December 31, 2005. However,
in the longer term, failure to generate sufficient revenues,
raise additional capital or reduce spending could have a
material adverse effect on our ability to continue to operate
our business.
|
|
Note 2 |
Summary of Significant Accounting Policies |
The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
|
|
|
Principles of Consolidation |
The consolidated financial statements include the accounts of
Vialta, Inc. and our subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
|
|
|
Cash Equivalents and Investments |
We consider all highly liquid investments with an initial
maturity of 90 days or less to be cash equivalents. Cash
equivalents primarily represent money market accounts, recorded
at cost, which approximate their fair value.
Investments are comprised primarily of debt instruments that
have been classified as available-for-sale. Management
determines the appropriate classification of securities at the
time of purchase and re-evaluates the classification at each
reporting date. Marketable equity and debt securities are
carried at their fair market value based on quoted market prices
as of the balance sheet date. Realized gains or losses are
determined
I-32
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
using the specific identification method and are reflected in
income. Net unrealized gains or losses are recorded directly in
stockholders equity except those unrealized losses that
are deemed to be other than temporary, which are reflected in
investment losses.
Investments with maturity dates of 90 days or more at the
date of purchase are classified as short-term investments since
we have the ability to redeem them within the year.
Approximately $3.1 million and $2.2 million of cash at
December 31, 2004 and 2003, respectively is restricted as
collateral for letters of credit to a contract manufacturer and
raw materials supplier.
|
|
|
Fair Value of Financial Instruments |
The reported amounts of certain of our financial instruments,
including cash and cash equivalents, short-term investments,
accounts receivable, accounts payable and accrued expenses and
other current liabilities approximated fair value due to their
short maturities.
Inventories are stated at the lower of cost or market, with cost
being determined by the first-in, first-out method.
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is generally
computed using the straight-line method over the estimated
useful lives of the assets.
|
|
|
|
|
Computer equipment
|
|
|
3-5 years |
|
Furniture and fixtures
|
|
|
5 years |
|
Software and web site development costs
|
|
|
1-3 years |
|
Repairs and maintenance costs are expensed as incurred.
|
|
|
|
|
We review long-lived assets based upon an undiscounted cash flow
basis and record an impairment charge whenever events or changes
in circumstances indicate the carrying amount of the assets may
not be fully recoverable. If an asset is considered impaired,
the asset is written down to its estimated fair market value.
|
|
|
Comprehensive Income (Loss) |
Comprehensive income (loss) is defined to include all changes in
equity during a period from non-owner sources. Other
comprehensive income (loss) for the years ended
December 31, 2004 and 2003 was comprised of unrealized
gains (losses) on available-for-sale investment and amounted to
($23,000) and $3,000, respectively.
Products sold to retailers and distributors are subject to
rights of return. We defer recognition of revenue on products
sold to retailers and distributors until the retailers and
distributors sell the products to their customers. Revenue is
also deferred for the initial thirty-day period during which our
end customers, retailers and distributors have the unconditional
right to return products.
For products sold to end customers we generally recognize
revenue upon shipment provided that we have no post-sale
obligations, we can reliably estimate and accrue warranty costs
and sales returns, the price is fixed or determinable and
collection of the resulting receivable is reasonably assured.
For sales to international distributors we generally recognize
revenue based on the above criteria and upon receipt of payment
in full. For sales to end customers that do not meet the above
criteria, revenue is deferred until such criteria are met.
I-33
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Allowances for Sales Return and for Doubtful
Accounts |
Sales return allowances are recorded at the time when revenue is
recognized based on historical returns, current economic trends
and changes in customer demand. Such allowances are adjusted
periodically to reflect actual experience and anticipated
returns.
Allowance for doubtful accounts is our best estimate of the
amount of probable credit losses in our existing accounts
receivable. We determine the allowance based on historical
write-off experience. We review our allowance for doubtful
accounts monthly. Past due balances over 90 days and over are
reviewed individually for collectibility. Account balances are
charged off against the allowance when we feel it is probable
that receivable will not be recovered.
The following is a summary of activities in allowance for
doubtful accounts and returns (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at | |
|
|
|
Write-offs | |
|
|
|
|
Beginning | |
|
|
|
Net of | |
|
Balance at | |
|
|
of Year | |
|
Additions | |
|
Recoveries | |
|
End of Year | |
|
|
| |
|
| |
|
| |
|
| |
December 31, 2004
|
|
$ |
63 |
|
|
$ |
14 |
|
|
$ |
|
|
|
$ |
77 |
|
December 31, 2003
|
|
$ |
30 |
|
|
$ |
33 |
|
|
$ |
|
|
|
$ |
63 |
|
December 31, 2002
|
|
$ |
665 |
|
|
$ |
|
|
|
$ |
(635 |
) |
|
$ |
30 |
|
We provide a limited warranty on our products for periods
ranging from 90 days to 12 months from the date of
sale to the end customers. We estimate warranty costs based on
historical experience and accrue for estimated costs as a charge
to cost of sales when revenue is recognized. The following table
shows the details of the product warranty accrual, as required
by FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, for the
years ended December 31, 2004 and 2003 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Beginning balance
|
|
$ |
484 |
|
|
$ |
|
|
Accruals for warranties issued during the year
|
|
|
564 |
|
|
|
814 |
|
Settlements made during the year
|
|
|
(649 |
) |
|
|
(330 |
) |
|
|
|
|
|
|
|
Ending balance
|
|
$ |
399 |
|
|
$ |
484 |
|
|
|
|
|
|
|
|
|
|
|
Engineering and Development |
Engineering and development costs are expensed as incurred.
Advertising production costs are expensed as incurred. Total
advertising and promotional expenses were approximately
$397,000, $2.3 million, and $430,000 for the years ended
December 31, 2004, 2003 and 2002, respectively.
We account for income taxes under the asset and liability
approach that requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences
of timing differences between the carrying amounts and the tax
bases of assets and liabilities. During 2004, we established a
full valuation allowance against our deferred tax assets because
we determined it is more likely than not that these deferred tax
assets will not be realized in the foreseeable future.
I-34
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Foreign Currency Translation |
The functional currencies of our foreign subsidiaries are the
local currencies. Accordingly, all assets and liabilities of the
foreign operations are translated to U.S. dollars at
current period end exchange rates, and revenues and expenses are
translated to U.S. dollars using average exchange rates in
effect during the period. Currency transaction and translation
gains and losses have not been significant.
Basic net loss per share excludes dilution and is computed by
dividing net loss by the weighted average number of common
shares outstanding for the period. Diluted net income per share
reflects the potential dilution that would occur if securities
or other contracts to issue common stock were exercised or
converted into common stock.
We account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion
No. 25, or APB No. 25, Accounting for Stock
Issued to Employees. Under APB No. 25, compensation
cost is measured as the excess, if any, of the quoted market
price of its stock at the date of grant over the exercise price
of the option granted. Compensation cost for stock options, if
any, is recognized ratably over the vesting period. We provide
additional pro forma disclosures as required under
SFAS No. 123, Accounting for Stock-Based
Compensation and SFAS No. 148, Accounting
for Stock-Based Compensation, Transition and Disclosure.
The following table illustrates the effect on our net loss and
net loss per share if we had recorded compensation costs based
on the estimated grant date fair value as defined by
SFAS No. 123 for all granted stock-based awards (in
thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Net loss, as reported
|
|
$ |
(2,389 |
) |
|
$ |
(4,043 |
) |
|
$ |
(42,579 |
) |
Deduct: Stock-based employee compensation expense determined
under fair value based method for all awards
|
|
|
(672 |
) |
|
|
(1,738 |
) |
|
|
(3,208 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$ |
(3,061 |
) |
|
$ |
(5,781 |
) |
|
$ |
(45,787 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(0.03 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.51 |
) |
|
Pro forma
|
|
$ |
(0.04 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.55 |
) |
|
|
|
Revision in Classification of Certain Securities |
In connection with preparation of these financial statements, we
concluded that it was appropriate to classify our auction rate
securities as current investments. Previously, such investments
had been classified as cash and cash equivalents. Accordingly,
we have revised the classification to exclude $5.3 million
and $4.4 million from cash and cash equivalents at
December 31, 2004 and 2003, respectively, and to include
such amounts as short-term investments. In addition, we have
made corresponding revisions to the accompanying statements of
cash flows to reflect the purchases and proceeds form sale of
the auction rate securities as investing activities. These
revisions resulted in a net decrease in cash provided by
investing activities of $900,000 in 2004, net increase in cash
used in investing activities of $2.5 million in 2003 and
net increase in cash used in investing activities of
$1.9 million in 2002. These revisions had no impact on
previously reported results of our operation, operating cash
flows or working capital.
I-35
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Recent Accounting Pronouncements |
In November 2004, the FASB has issued FASB Statement
No. 151, Inventory Costs, and Amendment of ARB
No. 43, Chapter 4
(FAS No. 151). The amendments made by
FAS No. 151 are intended to improve financial
reporting by clarifying that abnormal amounts of idle facility
expense, freight, handling costs, and wasted materials
(spoilage) should be recognized as current-period charges
and by requiring the allocation of fixed production overheads to
inventory based on the normal capacity of the production
facilities.
The guidance is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during
fiscal years beginning after November 23, 2004. The
provisions of FAS No. 151 will be applied
prospectively. We do not expect the adoption of
FAS No. 151 to have material impact on our
consolidated financial position, results of operations or cash
flows.
In December 2004, the FASB issued FASB Statement No. 123R,
Share-Based Payment, an Amendment of FASB Statement
No. 123 (FAS No. 123R).
FAS No. 123R requires companies to recognize in the
statement of operations the grant-date fair value of stock
options and other equity-based compensation issued to employees.
FAS No. 123R is effective beginning our third quarter
of fiscal 2005. We are currently evaluating the impact of
FAS No. 123R on our financial position and results of
operations.
In December 2004, the FASB issued SFAS Statement
No. 153, Exchanges of Nonmonetary Assets. The
Statement is an amendment of APB Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial
impact on its financial statements. We do not expect the
adoption of FAS No. 153 to have material impact on our
consolidated financial position, results of operations or cash
flows.
|
|
Note 3 |
Risks and Uncertainties |
We operate in a single business segment that is characterized by
rapid technological advances, changes in customer requirements
and evolving industry standards. Any failure by us to anticipate
or respond to changes in demand could have a material adverse
effect on our business and operating results.
Certain of our products contain critical components supplied by
a single or a limited number of third parties. We have been
required to purchase and inventory certain of the components
around which we design our products to ensure an available
supply of products for our customers. Any significant shortage
of critical components or the failure of the third party
suppliers to maintain or enhance these products could materially
adversely affect our results of operations.
Currently, we rely on two third party manufacturers for the
manufacture of our products. Reliance on third-party
manufacturers involves a number of risks, including the lack of
control over the manufacturing process and the potential absence
or unavailability of adequate capacity. If our third party
manufacturers cannot or will not manufacture our products in
required volumes, on a cost-effective basis, in a timely manner,
or at all, we will have to secure additional manufacturing
capacity. Even if the additional capacity is available at
commercially acceptable terms, the qualification process could
be lengthy and could cause interruptions in product shipments.
Factors that could impact our future business, consolidated
financial position, results of operations or cash flows and
cause future results to differ from our expectations include the
following: the merger with Victory Acquisition Corp. not
occurring or not closing within the expected time frame; the
ability to achieve revenues and profitability; the ability to
raise additional capital; competition; pricing pressures; the
dependence on a limited number of products and the need to
develop new products and features; the success of our existing
products and other consumer products we may develop; component
supply shortages; potential conflicts with ESS Technology, Inc.,
our former parent; the success of current distribution and
retail relationships and the ability to enter into additional
distribution agreements; risks associated with the expansion of
our business,
I-36
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
including increased costs and the strain on management and other
resources; the risk of product defects, system failures or
interruptions; general economic, political and regulatory
changes including in Asia; claims by third parties of
intellectual property infringement; dependence on key management
personnel and the need to attract and retain additional
qualified personnel; risks associated with possible business
acquisitions; regulatory changes that affect consumer
electronics, telecommunications, copyrights or the internet;
quarterly fluctuations in operating results; risks of class
action lawsuits based on fluctuations in our stock price; and
seasonal trends.
Three customers comprise 62% of our gross accounts receivable
balance of $2.8 million at December 31, 2004. These
customers represented 9%, 24% and 29% of total accounts
receivable. Three customers comprise 44% of our net revenue of
$12.7 million for the year ended December 31, 2004.
These customers represented 23%, 12% and 9% of total net revenue.
|
|
Note 4 |
Marketable Securities |
Our portfolio of marketable securities at December 31,
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Available-for-Sale Securities | |
|
Available-for-Sale Securities | |
|
|
| |
|
| |
|
|
|
|
Gross |
|
Gross | |
|
|
|
|
|
Gross | |
|
Gross |
|
|
|
|
|
|
Unrealized |
|
Unrealized | |
|
|
|
|
|
Unrealized | |
|
Unrealized |
|
|
|
|
Cost | |
|
Gains |
|
Losses | |
|
Fair Value | |
|
Cost | |
|
Gains | |
|
Losses |
|
Fair Value | |
|
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
Money market funds
|
|
$ |
4 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2 |
|
Commercial paper
|
|
|
2,542 |
|
|
|
|
|
|
|
|
|
|
|
2,542 |
|
|
|
4,101 |
|
|
|
|
|
|
|
|
|
|
|
4,101 |
|
Cash
|
|
|
4,750 |
|
|
|
|
|
|
|
|
|
|
|
4,750 |
|
|
|
5,253 |
|
|
|
|
|
|
|
|
|
|
|
5,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$ |
7,296 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7,296 |
|
|
$ |
9,356 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market auction preferred securities
|
|
$ |
5,300 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,300 |
|
|
$ |
4,400 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,400 |
|
U.S. government debt securities
|
|
|
4,741 |
|
|
|
|
|
|
|
(10 |
) |
|
|
4,731 |
|
|
|
3,470 |
|
|
|
10 |
|
|
|
|
|
|
|
3,480 |
|
Corporate debt securities
|
|
|
1,077 |
|
|
|
|
|
|
|
(2 |
) |
|
|
1,075 |
|
|
|
7,071 |
|
|
|
1 |
|
|
|
|
|
|
|
7,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$ |
11,118 |
|
|
$ |
|
|
|
$ |
(12 |
) |
|
$ |
11,106 |
|
|
$ |
14,941 |
|
|
$ |
11 |
|
|
$ |
|
|
|
$ |
14,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5 |
Content Licenses |
During 2002 and 2001, we entered into licensing agreements with
various entertainment content providers in connection with
ViMagazine, a proprietary, encrypted, magazine-style DVD-format
disk, which was designed to contain a wide variety of
entertainment that could be used exclusively with our ViDVD
players. Starting in January 2002, we amortized prepaid content
licenses based on the greater of the royalty amounts due or
amortization on a straight-line basis over an estimated life of
three years. In December 2002 we concluded that content licenses
had suffered a permanent decline in value, as a result of our
decision not to market ViMagazine, and the remaining unamortized
balance was written down to zero. The total amortization and
impairment charge on content licenses recognized by us during
the year ended December 31, 2002 was $11.4 million.
In connection with the acquisition of certain content licenses
in 2002, we received a note receivable of $10 million, of
which $5 million remained outstanding as of
December 31, 2004 and 2003. This note bears interest at
7.5% per annum, compounded quarterly. This note was fully
reserved in 2002 due to uncertainties regarding its collection.
If we collect this note, we will record a gain in the period in
which it is collected.
I-37
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During years ended December 31, 2004, 2003 and 2002, we
received interest payments on this note of $384,000, $380,000
and $286,000, respectively.
|
|
Note 6 |
Inventories and Product Costs |
The following table summarizes the activity in inventories and
reserves for the years ended December 31, 2003 and 2004 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
Reserve | |
|
Net | |
|
|
| |
|
| |
|
| |
As of December 31, 2002
|
|
$ |
11,866 |
|
|
$ |
(9,032 |
) |
|
$ |
2,834 |
|
|
Purchase of inventories
|
|
|
5,369 |
|
|
|
|
|
|
|
5,369 |
|
|
Shipments, net
|
|
|
(7,361 |
) |
|
|
4,603 |
|
|
|
(2,758 |
) |
|
Use or disposal of inventories
|
|
|
(542 |
) |
|
|
293 |
|
|
|
(249 |
) |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2003
|
|
|
9,332 |
|
|
|
(4,136 |
) |
|
|
5,196 |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of inventories
|
|
|
10,906 |
|
|
|
|
|
|
|
10,906 |
|
|
Additional reserves
|
|
|
|
|
|
|
(3,390 |
) |
|
|
(3,390 |
) |
|
Shipments, net
|
|
|
(10,205 |
) |
|
|
2,395 |
|
|
|
(7,810 |
) |
|
Use or disposal of inventories
|
|
|
(493 |
) |
|
|
91 |
|
|
|
(402 |
) |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004
|
|
$ |
9,540 |
|
|
$ |
(5,040 |
) |
|
$ |
4,500 |
|
|
|
|
|
|
|
|
|
|
|
|
Raw material
|
|
$ |
4,041 |
|
|
$ |
(1,615 |
) |
|
$ |
2,426 |
|
|
Finished goods
|
|
|
5,499 |
|
|
|
(3,425 |
) |
|
|
2,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,540 |
|
|
$ |
(5,040 |
) |
|
$ |
4,500 |
|
|
|
|
|
|
|
|
|
|
|
Included in cost of goods sold for the year ended
December 31, 2004 was $3.4 million in additional
reserves for slow moving and obsolete finished goods inventory
related to our products. During the year ended December 31,
2004 cost of goods sold was higher than what would have been
recognized had these additional reserves not been recorded. In
addition, because a portion of our inventory costs for our
Beamer videophone products were expensed in prior periods, the
cost of goods sold for the years ended December 31, 2004
and 2003 was lower than what would have been recorded had
inventory costs not been previously expensed.
Prior to September 30, 2002, all inventory costs were fully
reserved because of the significant uncertainties regarding
realization. As there were no sales, the expense was classified
as product cost under operating expenses in the statement of
operations.
|
|
Note 7 |
Other Balance Sheet Components (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Short-term investments
|
|
|
|
|
|
|
|
|
US Government debt securities
|
|
$ |
4,731 |
|
|
$ |
3,480 |
|
Market auction preferred securities
|
|
|
5,300 |
|
|
|
4,400 |
|
Corporate debt securities
|
|
|
1,075 |
|
|
|
7,072 |
|
|
|
|
|
|
|
|
|
|
$ |
11,106 |
|
|
$ |
14,952 |
|
|
|
|
|
|
|
|
Due after one year
|
|
$ |
3,385 |
|
|
$ |
3,989 |
|
Due within one year
|
|
|
7,721 |
|
|
|
10,963 |
|
|
|
|
|
|
|
|
|
|
$ |
11,106 |
|
|
$ |
14,952 |
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$ |
2,838 |
|
|
$ |
4,004 |
|
Less: Allowance for doubtful accounts
|
|
|
(77 |
) |
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
$ |
2,761 |
|
|
$ |
3,941 |
|
|
|
|
|
|
|
|
I-38
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Prepaid expenses and other
|
|
|
|
|
|
|
|
|
Prepaid insurance
|
|
$ |
207 |
|
|
$ |
308 |
|
Other receivables from supplier
|
|
|
|
|
|
|
296 |
|
Other current assets
|
|
|
144 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
$ |
351 |
|
|
$ |
729 |
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
$ |
1,037 |
|
|
$ |
5,918 |
|
Furniture and fixtures
|
|
|
551 |
|
|
|
561 |
|
Software and web site development cost
|
|
|
259 |
|
|
|
5,323 |
|
|
|
|
|
|
|
|
|
|
|
1,847 |
|
|
|
11,802 |
|
Less: Accumulated depreciation
|
|
|
(1,545 |
) |
|
|
(11,117 |
) |
|
|
|
|
|
|
|
|
|
$ |
302 |
|
|
$ |
685 |
|
|
|
|
|
|
|
|
Accrued liabilities and other
|
|
|
|
|
|
|
|
|
Accrued compensation costs
|
|
$ |
880 |
|
|
$ |
1,241 |
|
Customer deposits
|
|
|
12 |
|
|
|
764 |
|
Product return/warranty liability
|
|
|
399 |
|
|
|
484 |
|
Accrued charges, related party
|
|
|
127 |
|
|
|
281 |
|
Professional fees
|
|
|
274 |
|
|
|
216 |
|
Other current liabilities
|
|
|
378 |
|
|
|
163 |
|
|
|
|
|
|
|
|
|
|
$ |
2,070 |
|
|
$ |
3,149 |
|
|
|
|
|
|
|
|
Deferred profit
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$ |
3,086 |
|
|
$ |
5,198 |
|
Deferred costs
|
|
|
(1,776 |
) |
|
|
(1,201 |
) |
|
|
|
|
|
|
|
Deferred profit
|
|
$ |
1,310 |
|
|
$ |
3,997 |
|
|
|
|
|
|
|
|
|
|
Note 8 |
Spin-Off and Recapitalization of Equity |
Prior to August 21, 2001, we were a subsidiary of ESS
Technology, Inc. (ESS). On July 24, 2001, we
were re-capitalized, pursuant to which we separated our common
stock into Class A common stock with 3.8 votes per share
and Class B common stock with one vote per share. Upon
exchange of 5,892,000 shares of common stock for
Class B common stock, we issued 589,000 additional shares
of Class B common stock to non-ESS common stockholders.
Except for the voting power, Class A and Class B
stockholders had the same rights. We authorized
30,000,000 shares of preferred stock and
400,000,000 shares of common stock, 100,000,000 shares
of which are designated Class A common stock, 50,000,000 of
which are designated Class B common stock and 250,000,000
of which are designated non-classified common stock.
As part of the August 21, 2001 spin-off transaction, all
preferred stock owned by ESS converted to Class A common
stock based on a conversion ratio of 1 to 1. All other preferred
stock converted to Class B common stock at a ratio of 1 to
1.1. As a result, 91,000,000 shares of preferred stock were
converted to 60,000,000 shares of Class A common stock
and 34,100,000 shares of Class B common stock.
As part of the spin-off transaction, ESS returned approximately
9,840,000 shares of Class A common stock to us at no
cost. These shares are reserved by us for issuance upon exercise
of stapled options that were granted by us to ESS optionees as
part of the spin-off transaction. In accordance with
FIN No. 44, no compensation expense has been or will
be recorded in conjunction with these stock option grants.
I-39
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below summarizes the effect of the these conversions
of common stock outstanding at December 31, 2001 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A | |
|
Class B | |
|
|
|
|
Preferred | |
|
Conversion | |
|
Common | |
|
Common | |
|
Outstanding | |
Capital Stock |
|
Shares | |
|
Ratio | |
|
Stock | |
|
Stock | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Series A ESS owned
|
|
|
40,000 |
|
|
|
1 to 1 |
|
|
|
40,000 |
|
|
|
|
|
|
|
40,000 |
|
Series B ESS owned
|
|
|
20,000 |
|
|
|
1 to 1 |
|
|
|
20,000 |
|
|
|
|
|
|
|
20,000 |
|
Series B third party owned
|
|
|
31,000 |
|
|
|
1.1 to 1 |
|
|
|
|
|
|
|
34,100 |
|
|
|
34,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,000 |
|
|
|
|
|
|
|
60,000 |
|
|
|
34,100 |
|
|
|
94,100 |
|
Shares returned to Vialta by ESS, reserved for issuance upon
exercise of stapled options
|
|
|
|
|
|
|
|
|
|
|
(9,840 |
) |
|
|
|
|
|
|
(9,840 |
) |
Additional shares transferred by ESS as part of the spin-off
transaction
|
|
|
|
|
|
|
|
|
|
|
(612 |
) |
|
|
|
|
|
|
(612 |
) |
Issuance of common stock upon exchange of third party owned
common stock for Class B common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
589 |
|
|
|
589 |
|
Conversion of original common stock to Class A and
Class B common stock
|
|
|
|
|
|
|
|
|
|
|
400 |
|
|
|
5,892 |
|
|
|
6,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total effect of re-capitalization and spin-off transaction on
Class A and Class B common stock outstanding
|
|
|
|
|
|
|
|
|
|
|
49,948 |
|
|
|
40,581 |
|
|
|
90,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In July 2002, each share of our outstanding Class A and
Class B common stock converted into a single class of
common stock in accordance with the provisions of our Articles
of Incorporation. As a result of the above conversion,
approximately 53,141,000 shares, including 10,169,000 of
shares held by us as treasury stock, of issued Class A
common stock and approximately 40,580,000 shares of issued
Class B common stock were converted into approximately
93,721,000 shares of the non-classified common stock.
Holders of the non-classified common stock are entitled to one
vote per share on all matters.
In November 2002, we returned approximately 612,000 shares
to ESS at no cost. These shares were originally returned by ESS
to us as part of spin-off transaction in August 2001.
I-40
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 9 |
Related Party Transactions |
The following is a summary of major transactions between us and
ESS Technology, Inc., which was our parent company prior to
August 2001, for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Net receivables (payables) at beginning of period
|
|
$ |
(281 |
) |
|
$ |
(33 |
) |
|
$ |
64 |
|
Charges by Vialta to ESS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative & management service fees
|
|
|
|
|
|
|
|
|
|
|
223 |
|
|
Other
|
|
|
26 |
|
|
|
4 |
|
|
|
77 |
|
Charges by ESS to Vialta:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative & management service fees
|
|
|
(14 |
) |
|
|
(73 |
) |
|
|
(201 |
) |
|
Purchase of products
|
|
|
(782 |
) |
|
|
(412 |
) |
|
|
(1,403 |
) |
|
Building lease
|
|
|
(502 |
) |
|
|
(1,182 |
) |
|
|
(1,852 |
) |
Cash receipts from ESS
|
|
|
(26 |
) |
|
|
(4 |
) |
|
|
(424 |
) |
Cash payments made to ESS
|
|
|
1,452 |
|
|
|
1,419 |
|
|
|
3,483 |
|
|
|
|
|
|
|
|
|
|
|
Net payables at end of period
|
|
$ |
(127 |
) |
|
$ |
(281 |
) |
|
$ |
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Note 10 |
Net Loss Per Share |
Basic and diluted net loss per share is computed by dividing net
loss by the weighted average number of common shares outstanding
for the periods (in thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Net loss
|
|
$ |
(2,389 |
) |
|
$ |
(4,043 |
) |
|
$ |
(42,579 |
) |
Basic and diluted weighted average common shares outstanding
|
|
|
82,930 |
|
|
|
82,285 |
|
|
|
83,578 |
|
Basic and diluted net loss per share
|
|
$ |
(0.03 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.51 |
) |
The following table sets forth potential shares of common stock
that are not included in the diluted net loss per share
calculation above because to do so would be anti-dilutive for
the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Effect of potential shares of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding
|
|
|
11,609 |
|
|
|
12,149 |
|
|
|
11,255 |
|
|
|
|
|
|
|
|
|
|
|
Total potential shares of common stock
|
|
|
11,609 |
|
|
|
12,149 |
|
|
|
11,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11 |
Common Stock and Stock Options |
In September 2001, our Board of Directors authorized us to
repurchase up to 10 million shares of our common stock in
the open market.
In June 2002, the Board of Directors authorized an additional
10 million shares for repurchase. During fiscal 2002, we
repurchased a total of 4,969,000 shares of common stock for
an aggregate cost of $5.1 million. During fiscal 2003, we
repurchased approximately 759,000 shares of common stock
for an aggregate cost of approximately $295,000. No shares were
repurchased during fiscal 2004.
I-41
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
1999 Stock Incentive Plan |
In August 1999, we adopted the 1999 stock incentive plan. Under
the 1999 Plan, our incentive stock options may be granted to our
employees, directors, non-employee directors and consultants.
The aggregate number of shares reserved for awards under the
1999 Plan shall not exceed 10,000,000 shares. The exercise
price of the 1999 Plan shall not be less than 100% of the fair
market value (110% for 10 percent shareholders); the
exercise price of a non-incentive stock option shall not be less
than 85% of the fair market value (110% for 10 percent
shareholders). Options shall generally vest over a four-year
period.
|
|
|
2000 Directors Stock Option Plan |
In February 2000, we adopted the 2000 Directors Stock
Option Plan. Under the 2000 Director Plan, our nonqualified
stock options may be granted to nonemployee members of the board
of directors. The aggregate number of shares reserved for
issuance is 300,000 shares subject to adjustment as
provided in this 2000 Director Plan. Each nonemployee
director will automatically be granted an option for
32,000 shares. The exercise price of the option shall be
the fair market value at the time the option is granted. Options
shall generally vest over a four-year period.
On June 17, 2003 our shareholders approved the Amended and
Restated 2000 Directors Stock Option plan, which increased
the maximum number of shares under the plan from
300,000 shares to 600,000 shares, decreased the
initial grant of options from 32,000 shares to
20,000 shares, and increased each annual grant to
nonemployee directors from 8,000 shares to
20,000 shares.
|
|
|
2001 Non-Statutory Stock Option Plan |
In August 2001, we adopted the 2001 non-statutory option plan.
Under the 2001 Plan, our non-statutory stock options may be
granted to our employees, directors, non-employee directors and
consultants. The aggregate number of shares reserved for awards
under the 2001 Plan shall not exceed 10,000,000 shares. The
exercise price of a non-statutory stock option shall not be less
than 85% of the fair market value (110% for 10 percent
shareholders). Options shall generally vest over a four-year
period.
A summary of the activities in the 1999 Plan, the
2000 Director Plan and the 2001 Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
|
|
|
| |
|
|
|
|
|
|
Weighted | |
|
|
|
|
|
|
Average | |
|
|
Available for | |
|
Numbers of | |
|
Exercise | |
|
|
Grant | |
|
Options | |
|
Price | |
|
|
| |
|
| |
|
| |
Balance at December 31, 2001
|
|
|
5,789,995 |
|
|
|
13,106,606 |
|
|
|
0.29 |
|
Granted
|
|
|
(913,957 |
) |
|
|
913,957 |
|
|
|
0.85 |
|
Cancelled
|
|
|
1,277,205 |
|
|
|
(1,277,205 |
) |
|
|
0.79 |
|
Exercised
|
|
|
|
|
|
|
(1,488,670 |
) |
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
6,153,243 |
|
|
|
11,254,688 |
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(2,510,595 |
) |
|
|
2,510,595 |
|
|
|
0.35 |
|
Cancelled
|
|
|
875,842 |
|
|
|
(875,842 |
) |
|
|
0.71 |
|
Exercised
|
|
|
|
|
|
|
(740,697 |
) |
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
4,518,490 |
|
|
|
12,148,744 |
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(210,009 |
) |
|
|
210,009 |
|
|
|
0.21 |
|
Cancelled
|
|
|
434,474 |
|
|
|
(434,474 |
) |
|
|
0.49 |
|
Exercised
|
|
|
|
|
|
|
(314,341 |
) |
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
4,742,955 |
|
|
|
11,609,938 |
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
I-42
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The options outstanding and currently exercisable at
December 31, 2004 are detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted | |
|
|
|
|
|
|
|
|
Average | |
|
Weighted | |
|
|
|
Weighted | |
|
|
|
|
Remaining | |
|
Average | |
|
|
|
Average | |
|
|
Number | |
|
Contractual | |
|
Exercise | |
|
Number | |
|
Exercise | |
Exercise Price |
|
Outstanding | |
|
Life (Years) | |
|
Price | |
|
Exercisable | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$0.00
|
|
|
4,995,312 |
|
|
|
3.60 |
|
|
$ |
|
|
|
|
4,622,488 |
|
|
$ |
|
|
$0.25 $0.34
|
|
|
3,201,750 |
|
|
|
7.21 |
|
|
|
0.32 |
|
|
|
2,386,792 |
|
|
|
0.31 |
|
$0.36 $1.18
|
|
|
3,250,876 |
|
|
|
7.08 |
|
|
|
0.70 |
|
|
|
2,389,973 |
|
|
|
0.76 |
|
$1.20 $1.95
|
|
|
100,000 |
|
|
|
6.41 |
|
|
|
1.69 |
|
|
|
98,000 |
|
|
|
1.70 |
|
$2.01
|
|
|
62,000 |
|
|
|
4.07 |
|
|
|
2.01 |
|
|
|
62,000 |
|
|
|
2.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,609,938 |
|
|
|
5.60 |
|
|
$ |
0.31 |
|
|
|
9,559,253 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The options with a $0.00 exercise price represent stapled
options (see Note 8)
The weighted average fair value of options granted in fiscal
years 2004, 2003 and 2002 was $0.21, $0.27 and $0.59,
respectively. Options exercisable were 9,559,253, 6,481,763 and
4,470,834 as of December 31, 2004, 2003 and 2002,
respectively.
The fair value of each employee stock option grant is estimated
on the date of grant using the Black-Scholes option-pricing
model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended | |
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Expected dividend yield
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
Risk-free interest rate
|
|
|
3.69 |
% |
|
|
1.29 |
% |
|
|
3.50 |
% |
Expected volatility
|
|
|
88 |
% |
|
|
99 |
% |
|
|
96 |
% |
Expected life (in years)
|
|
|
3 |
|
|
|
4 |
|
|
|
4 |
|
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options, which have no
vesting restrictions and are fully transferable. In addition,
option-pricing models require the input of highly subjective
assumptions, including expected stock price volatility. Because
our employee stock options have characteristics significantly
different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair
value estimate, in managements opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of our employee stock options.
There was no federal, state or foreign income tax provision in
2004, 2003 and 2002 because our operations resulted in pre-tax
losses.
I-43
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation between the benefit from (provision for) income
taxes computed at the federal statutory rate of 35% for the
years ended December 31, 2004, 2003 and 2002 and the
benefit from (provision for) income taxes is as follows (amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Benefit from income taxes at statutory rate
|
|
$ |
836 |
|
|
$ |
1,415 |
|
|
$ |
14,903 |
|
State income taxes net of federal tax benefit
|
|
|
45 |
|
|
|
232 |
|
|
|
1,971 |
|
Other
|
|
|
(448 |
) |
|
|
636 |
|
|
|
359 |
|
Tax losses not benefited
|
|
|
(433 |
) |
|
|
(2,283 |
) |
|
|
(17,233 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit/(expense)
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and those used for
federal and state income tax purposes. Significant components of
deferred tax assets for federal and state income taxes are as
follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
Net operating loss carryforwards
|
|
$ |
33,919 |
|
|
$ |
31,161 |
|
Depreciation and amortization
|
|
|
2,102 |
|
|
|
3,519 |
|
Accruals and reserves
|
|
|
3,140 |
|
|
|
3,806 |
|
Federal and state credits carryforward
|
|
|
1,121 |
|
|
|
1,232 |
|
Other
|
|
|
3,211 |
|
|
|
3,209 |
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
43,493 |
|
|
|
42,927 |
|
Valuation allowance
|
|
|
(43,493 |
) |
|
|
(42,927 |
) |
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
At December 31, 2004, we had approximately
$90.2 million and 40.8 million of federal and state
net operating loss carryforward, respectively. These losses will
begin expiring in 2020 and 2007, respectively. We also had
approximately $744,000 of federal and $580,000 of state research
and development tax credits available to offset future tax. The
federal credits begin to expire in 2020 for federal purposes if
not utilized. State credits carry forward indefinitely.
|
|
Note 13 |
Employee Benefit Plans |
In August 2001, the Vialta, Inc. 401(k) Plan was adopted. Under
the terms of the 401(k) plan, eligible employees may elect to
contribute a portion of their compensation as salary deferral
contributions to the 401(k) plan, subject to certain statutorily
prescribed limits. The 401(k) plan also permits, but does not
require, us to make discretionary matching contributions and
discretionary profit-sharing contributions. As a tax-qualified
plan, contributions to the 401(k) plan are generally deductible
by us when made, and are not taxable to participants until
distributed from the 401(k) plan. Under the 401(k) plan,
participants may direct the trustees to invest their accounts in
selected investment options. We did not make any matching
contributions or discretionary profit-sharing contributions in
the years ended December 31, 2004, 2003 and 2002.
|
|
Note 14 |
Segment and Geographic Information |
We have operated as one segment since our inception on
April 20, 1999 through December 31, 2004. Therefore,
results of operations are reported on a consolidated basis for
purposes of segment reporting. As of December 31, 2004,
2003 and 2002, long-lived assets held outside the United States
of America were not material.
I-44
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated net revenue for the year ended December 31,
2004 was $12.7 million, consisting of domestic net revenue
of $9.3 million and international net revenue of
$3.4 million. Consolidated net revenue for the year ended
December 31, 2003 was $10.3 million, consisting of
domestic net revenue of $7.1 million and international net
revenue of $3.2 million. Companies in China accounted for
approximately 12% and 16% of net revenue for the years ended
December 31, 2004 and 2003, respectively.
|
|
Note 15 |
Commitments and Contingencies |
In January 2000, we entered into a three-year non-cancelable
lease agreement for our headquarters with ESS. In July 2003, we
amended the lease. The terms of the amendment include a 60%
reduction in the amount of square footage leased, a reduction in
the monthly rent to current market rates and an extension of the
term from December 31, 2003 to June 30, 2005. Under
the terms of this and other leases, with various expiration
dates through 2006, our future minimum rental payments as of
December 31, 2004 are as follows: $351,000 and $141,000 for
the years 2005 and 2006 respectively.
Apart from operating leases disclosed above, we do not have any
off-balance sheet arrangements.
Rent expense was approximately $557,000, $1.4 million and
$2.3 million for the years ended December 31, 2004,
2003 and 2002, respectively.
From time to time, we are involved in litigation in the normal
course of business. We do not believe that the outcome of
matters to date will have a material adverse impact on our
consolidated financial position, results of operations or cash
flows.
|
|
Note 16 |
Subsequent Events |
On March 29, 2005, we announced a definitive agreement to
merge with Victory Acquisition Corp., a newly formed entity
established by Fred S.L. Chan, Chairman of the Company, and
certain of his family members. Victory will acquire the
approximately 60% of our stock not owned by it for $0.36 per
share in cash. The merger is expected to be completed in the
second quarter of 2005 and is subject to Vialta shareholder and
customary approvals.
Selected Quarterly Operation Results (unaudited):
The following table presents un-audited quarterly financial
information for each of our last eight quarters. This
information has been derived from our un-audited financial
statements and has been prepared on the same basis as the
audited Consolidated Financial Statements appearing elsewhere in
this Form 10-K. In the
I-45
VIALTA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
opinion of management, all necessary adjustments, consisting
only of normal recurring adjustments, have been included to
present fairly the quarterly results (in thousands, except per
share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended | |
|
|
| |
|
|
March 31, | |
|
June 30, | |
|
September 30, | |
|
December 31, | |
|
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Revenue
|
|
$ |
4,974 |
|
|
$ |
2,782 |
|
|
$ |
1,365 |
|
|
$ |
3,626 |
|
Cost of goods sold
|
|
|
1,396 |
|
|
|
997 |
|
|
|
3,718 |
|
|
|
1,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
3,578 |
|
|
|
1,785 |
|
|
|
(2,353 |
)1 |
|
|
1,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering and development
|
|
|
336 |
|
|
|
266 |
|
|
|
321 |
|
|
|
324 |
|
Sales and marketing
|
|
|
605 |
|
|
|
511 |
|
|
|
284 |
|
|
|
611 |
|
General and administrative
|
|
|
1,360 |
|
|
|
1,333 |
|
|
|
845 |
|
|
|
1,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,301 |
|
|
|
2,110 |
|
|
|
1,450 |
|
|
|
1,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
1,277 |
|
|
|
(325 |
) |
|
|
(3,803 |
) |
|
|
(255 |
) |
Interest income, net
|
|
|
209 |
|
|
|
160 |
|
|
|
171 |
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
1,486 |
|
|
$ |
(165 |
) |
|
$ |
(3,632 |
) |
|
$ |
(78 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to common
shares basic & diluted
|
|
$ |
0.02 |
|
|
$ |
(0.00 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
82,803 |
|
|
|
82,907 |
|
|
|
82,985 |
|
|
|
83,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended | |
|
|
| |
|
|
March 31, | |
|
June 30, | |
|
September 30, | |
|
December 31, | |
|
|
2003 | |
|
2003 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
Revenue
|
|
$ |
3,843 |
|
|
$ |
2,520 |
|
|
$ |
1,284 |
|
|
$ |
2,684 |
|
Cost of goods sold
|
|
|
863 |
|
|
|
570 |
|
|
|
517 |
|
|
|
991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,980 |
|
|
|
1,950 |
|
|
|
767 |
|
|
|
1,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering and development
|
|
|
968 |
|
|
|
621 |
|
|
|
480 |
|
|
|
488 |
|
Sales and marketing
|
|
|
442 |
|
|
|
641 |
|
|
|
547 |
|
|
|
2,797 |
|
General and administrative
|
|
|
1,730 |
|
|
|
1,974 |
|
|
|
1,091 |
|
|
|
958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,140 |
|
|
|
3,236 |
|
|
|
2,118 |
|
|
|
4,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(160 |
) |
|
|
(1,286 |
) |
|
|
(1,351 |
) |
|
|
(2,550 |
) |
Interest income, net
|
|
|
188 |
|
|
|
178 |
|
|
|
168 |
|
|
|
199 |
|
Gain on investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
28 |
|
|
$ |
(1,108 |
) |
|
$ |
(1,183 |
) |
|
$ |
(1,780 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to common
shares basic & diluted
|
|
$ |
0.0 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
82,238 |
|
|
|
82,151 |
|
|
|
82,227 |
|
|
|
82,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
The gross loss for the three months ended September 30,
2004 includes additional inventory reserves of $3.4 million
on raw materials and finished good inventory. |
I-46
Item 9: Changes In and
Disagreements with Accountants on Accounting and Financial
Disclosure
None
Item 9A: Controls and
Procedures
Our Chief Executive Officer and Chief Financial Officer (our
principal executive officer and principal financial officer,
respectively) have concluded, based on their evaluation as of
the end of the period covered by this quarterly report, that our
disclosure controls and procedures are effective to ensure that
material information required to be disclosed by us in reports
filed or submitted by us under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and
reported within the time period specified in the SECs
rules and forms, and includes controls and procedures designed
to ensure that material information required to be disclosed by
us in such reports is accumulated and communicated to our
management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
There have been no significant changes in our internal controls
or in other factors that could significantly affect these
controls during our most recent fiscal quarter.
I-47
PART III
Certain information required by Part III is omitted from
this Report since we plan to file with the Securities and
Exchange Commission the definitive proxy statement for our 2005
Annual Meeting of Shareholders (the Proxy Statement)
not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein
is incorporated herein by reference.
Item 10: Directors and
Executive Officers of the Registrant
The information required by this Item is incorporated by
reference in our Proxy Statement, which we will file with the
Commission not later than 120 days after our fiscal
year-end.
Item 11: Executive
Compensation
The information required by this Item is incorporated by
reference to the sections in our Proxy Statement entitled
Executive Compensation, which we will file with the
Commission not later than 120 days after our fiscal
year-end.
|
|
Item 12: |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The information required by this Item is incorporated by
reference in our Proxy Statement, which we will file with the
Commission not later than 120 days after our fiscal
year-end.
The following table summarizes information with respect to
options under our equity compensation plans at December 31,
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
|
Number of Securities | |
|
|
Securities to be | |
|
|
|
Remaining Available for | |
|
|
Issued upon Exercise | |
|
Weighted Average | |
|
Future Issuance under | |
|
|
of Outstanding | |
|
Exercise Price of | |
|
Equity Compensation Plans | |
|
|
Options, Warrants | |
|
Outstanding Options, | |
|
(Excluding Securities | |
|
|
and Rights(1) | |
|
Warrants and Rights | |
|
Reflected in Column (a)) | |
|
|
(a) | |
|
(b) | |
|
(c) | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by security holders
|
|
|
11,609,938 |
|
|
$ |
0.31 |
|
|
|
4,742,955 |
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,609,938 |
|
|
$ |
0.31 |
|
|
|
4,742,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes only options outstanding under our stock option plans,
as no stock warrants or rights were outstanding as of
December 31, 2004. |
Item 13: Certain
Relationships and Related Transactions
The information required by this Item is incorporated by
reference in our Proxy Statement, which we will file with the
Commission not later than 120 days after our fiscal
year-end.
Item 14: Principle
Accountant Fees and Services
The information required by this Item is incorporated by
reference in our Proxy Statement, which we will file with the
Commission not later than 120 days after our fiscal
year-end.
I-48
PART IV
|
|
Item 15: |
Exhibits, Financial Statement Schedules |
(a)(1) Financial Statements
See the Consolidated Financial Statements and Supplementary Data
at Item 8 of this report.
(2) Financial Statement Schedules
No schedules have been filed because the information required to
be set forth therein is not applicable or is shown in the
Consolidated Financial Statements and Supplementary Data or
notes thereto at Item 8 of this report.
(3) Exhibits
See Exhibit Index for the exhibits filed as part of or
incorporated by reference into this report.
(b) Reports on Form 8-K
We did not file any Reports on Form 8-K during the fourth
quarter of 2004.
With the exception of the information incorporated by reference
to our Proxy Statement for the 2005 Annual Meeting of
Shareholders in Items 10, 11, 12 and 13 of
Part III, the Proxy Statement is not deemed to be filed as
part of this Report.
I-49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
|
Didier Pietri |
|
Chief Executive Officer |
Date: March 31, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ Didier Pietri
Didier
Pietri |
|
Chief Executive Officer
(principal executive officer) |
|
March 31, 2005 |
|
/s/ William M.
Scharninghausen
William
M. Scharninghausen |
|
Chief Financial Officer
(principal financial officer) |
|
March 31, 2005 |
|
/s/ Fred S.L. Chan
Fred
S.L. Chan |
|
Chairman of the Board |
|
March 31, 2005 |
|
/s/ George M. Cain
George
M. Cain |
|
Director |
|
March 31, 2005 |
|
/s/ Herbert Chang
Herbert
Chang |
|
Director |
|
March 31, 2005 |
|
/s/ Michael S. Dubester
Michael
S. Dubester |
|
Director |
|
March 31, 2005 |
|
/s/ Matthew K. Fong
Matthew
K. Fong |
|
Director |
|
March 31, 2005 |
I-50
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
|
2 |
.1 |
|
Form of Master Distribution Agreement between the Registrant and
ESS Technology, Inc. (Exhibit No. 2.1 to Form 10 File No.
000-32809) |
|
2 |
.2 |
|
Form of Master Technology Ownership and License Agreement
between the Registrant and ESS Technology, Inc. (Exhibit
No. 2.2 to Form 10 File No. 000-32809) |
|
|
2 |
.3 |
|
Form of Employee Matters Agreement between the Registrant and
ESS Technology, Inc. (Exhibit No. 2.3 to Form 10 File No.
000-32809) |
|
|
2 |
.4 |
|
Form of Tax Sharing and Indemnity Agreement between the
Registrant and ESS Technology, Inc. (Exhibit No. 2.4 to
Form 10 File No. 000-32809) |
|
|
2 |
.5 |
|
Form of Real Estate Matters Agreement between the Registrant and
ESS Technology, Inc. (Exhibit No. 2.5 to Form 10 File No.
000-32809) |
|
|
2 |
.6 |
|
Form of Master Confidential Disclosure Agreement between the
Registrant and ESS Technology, Inc. (Exhibit No. 2.6 to
Form 10 File No. 000-32809) |
|
|
2 |
.7 |
|
Form of Master Transitional Services Agreement between the
Registrant and ESS Technology, Inc. (Exhibit No. 2.7 to
Form 10 File No. 000-32809) |
|
|
3 |
.1 |
|
Amended and Restated Certificate of Incorporation of the
Registrant (Exhibit No. 4.1 to Form S-8 File
No. 333-65752) |
|
|
3 |
.2 |
|
Amended and Restated Bylaws of the Registrant (Exhibit
No. 4.2 to Form S-8 File No. 333-65752) |
|
|
4 |
.1 |
|
Form of Class A Common Stock Certificate of the Registrant
(Exhibit No. 4.1 to Form 10 File No. 000-32809) |
|
|
4 |
.2 |
|
Form of Class B Common Stock Certificate of the Registrant
(Exhibit No. 4.2 to Form 10 File No. 000-32809) |
|
|
10 |
.1 |
|
1999 Stock Incentive Plan (Exhibit No. 10.1 to Form 10 File
No. 000-32809)* |
|
|
10 |
.2 |
|
2000 Directors Stock Option Plan, as amended and restated
(Exhibit No. 10.2 to Form 10 File No. 000-32809)* |
|
|
10 |
.3 |
|
2001 Nonstatutory Stock Option Plan, as amended on
August 1, 2001 (Exhibit No. 10.3 to Form 10 File No.
000-32809)* |
|
|
10 |
.4 |
|
2001 Employee Stock Purchase Plan (Exhibit No. 10.4 to Form
10 File No. 000-32809)* |
|
|
10 |
.5 |
|
Lease Agreement between the Registrant and ESS Technology, Inc.
for the premises located at 48461 Fremont Boulevard, Fremont,
California (Exhibit No. 10.5 to Form 10 File No. 000-32809) |
|
|
10 |
.6 |
|
Purchase Agreement between the Registrant and ESS Technology,
Inc. (Exhibit No. 10.6 to Form 10 File No. 000-32809) |
|
|
10 |
.7 |
|
DVD Manufacturing License Agreement between the Registrant and
Macrovision Corporation (Exhibit No. 10.7 to Form 10 File
No. 000-32809) |
|
|
10 |
.8 |
|
Offer Letter Agreement between the Registrant and Charles Root
(Exhibit No. 10.8 to Form 10 File No. 000-32809)* |
|
|
10 |
.9 |
|
Lease Agreement between the Registrant and 235 Investments
Limited for the premises located at 235 Yorkland Boulevard,
Ontario, Canada (Exhibit No. 10.9 to Form 10 File No.
000-32809) |
|
|
10 |
.10 |
|
Lease Agreement between Vialta.com Hong Kong Company Limited and
Upcentre Investments Limited for the premises located at 238
Nathan Road, Kowloon, Hong Kong (Exhibit No. 10.10 to Form
10 File No. 000-32809) |
|
|
10 |
.11 |
|
Trademark License Agreement between the Registrant and Digital
Theater Systems, Inc. (Exhibit No. 10.11 to Form 10 File
No. 000-32809) |
|
|
10 |
.12 |
|
Software License Agreement between the Registrant and EnReach
Technology, Inc. (Exhibit No. 10.12 to Form 10 File No.
000-32809) |
|
|
10 |
.13 |
|
Offer Letter Agreement between the Registrant and Didier Pietri
(Exhibit No. 10.13 to Form 10 File No. 000-32809)* |
|
|
10 |
.14 |
|
Offer Letter Agreement between the Registrant and Steve Charng
(Exhibit No. 10.5 to Form 10 File No. 000-32809) |
I-51
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
|
|
10 |
.15 |
|
Offer Letter Agreement between the Registrant and Michael Wang
(Exhibit No. 10.9 to Form 10 File No. 000-32809) |
|
|
10 |
.16 |
|
Agreement and Plan of Reorganization, dated March 28, 2005,
by and between Victory Acquisition Corp. and Vialta, Inc.
(Exhibit No. 10.1 to Form 8-K filed March 31,
2005). |
|
|
21 |
.1 |
|
Subsidiaries of the Registrant (Exhibit No. 21.1 to Form 10
File No. 000-32809) |
|
|
23 |
.1 |
|
Consent of PricewaterhouseCoopers LLP (filed herewith) |
|
|
31 |
.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
|
|
31 |
.2 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
|
|
32 |
.1 |
|
Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32 |
.2 |
|
Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
* |
Indicates a management contract or compensatory plan. |
I-52
Annex J
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
|
|
(Mark One)
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. |
|
|
|
For the quarterly period ended March 31, 2005. |
OR |
|
o
|
|
TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period
from: to: .
Commission file number 0-32809
VIALTA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
|
|
|
Delaware |
|
94-3337236 |
(State or Other Jurisdiction of
Incorporation or Organization) |
|
(I.R.S. Employer
Identification No.) |
48461 Fremont Boulevard
Fremont, California 94538
(Address, including zip code, of Registrants principal
executive offices)
(510) 870-3088
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange
Act). Yes o No þ
The number of outstanding shares of the registrants common
stock, par value $0.001 per share, on May 9, 2005 was
83,088,185 shares.
J-1
VIALTA, INC.
FORM 10-Q: QUARTER ENDED MARCH 31, 2005
TABLE OF CONTENTS
J-2
PART I. FINANCIAL INFORMATION
|
|
ITEM 1: |
Financial Statements |
VIALTA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
|
|
(Unaudited) | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
14,101 |
|
|
$ |
7,296 |
|
|
Restricted cash
|
|
|
3,066 |
|
|
|
3,057 |
|
|
Short-term investments
|
|
|
4,278 |
|
|
|
11,106 |
|
|
Accounts receivable, net
|
|
|
518 |
|
|
|
2,761 |
|
|
Inventories
|
|
|
4,497 |
|
|
|
4,500 |
|
|
Prepaid expenses and other current assets
|
|
|
262 |
|
|
|
351 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
26,722 |
|
|
|
29,071 |
|
Property and equipment, net
|
|
|
265 |
|
|
|
302 |
|
Other assets
|
|
|
29 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
27,016 |
|
|
$ |
29,402 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
221 |
|
|
$ |
373 |
|
|
Accrued expenses and other liabilities
|
|
|
1,837 |
|
|
|
2,070 |
|
|
Deferred profit
|
|
|
376 |
|
|
|
1,310 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,434 |
|
|
|
3,753 |
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
95 |
|
|
|
95 |
|
|
Additional paid-in capital
|
|
|
144,122 |
|
|
|
144,122 |
|
|
Treasury stock
|
|
|
(9,458 |
) |
|
|
(9,458 |
) |
|
Accumulated deficit
|
|
|
(110,169 |
) |
|
|
(109,098 |
) |
|
Accumulated other comprehensive loss
|
|
|
(8 |
) |
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
24,582 |
|
|
|
25,649 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
27,016 |
|
|
$ |
29,402 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
J-3
VIALTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, except | |
|
|
per share data) | |
|
|
(Unaudited) | |
Net revenue
|
|
$ |
2,958 |
|
|
$ |
4,974 |
|
Cost of goods sold
|
|
|
2,170 |
|
|
|
1,396 |
|
|
|
|
|
|
|
|
Gross profit
|
|
|
788 |
|
|
|
3,578 |
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Engineering and development
|
|
|
292 |
|
|
|
336 |
|
|
Sales and marketing
|
|
|
292 |
|
|
|
605 |
|
|
General and administrative
|
|
|
1,478 |
|
|
|
1,360 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,062 |
|
|
|
2,301 |
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1,274 |
) |
|
|
1,277 |
|
Interest income and other, net
|
|
|
203 |
|
|
|
209 |
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(1,071 |
) |
|
$ |
1,486 |
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
83,077 |
|
|
|
82,803 |
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
83,077 |
|
|
|
88,552 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
J-4
VIALTA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands) | |
|
|
(Unaudited) | |
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(1,071 |
) |
|
$ |
1,486 |
|
|
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
37 |
|
|
|
197 |
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
2,243 |
|
|
|
2,061 |
|
|
|
|
Inventories
|
|
|
3 |
|
|
|
(914 |
) |
|
|
|
Prepaid expenses and other
|
|
|
89 |
|
|
|
234 |
|
|
|
|
Restricted cash deposit
|
|
|
(9 |
) |
|
|
(807 |
) |
|
|
|
Deferred profit
|
|
|
(934 |
) |
|
|
(2,042 |
) |
|
|
|
Accounts payable and accrued liabilities and other
|
|
|
(385 |
) |
|
|
(1,820 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(27 |
) |
|
|
(1,605 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchases of short-term investments
|
|
|
(516 |
) |
|
|
(5,064 |
) |
|
Proceeds from sales of short-term investments
|
|
|
7,348 |
|
|
|
6,111 |
|
|
Acquisitions of property and equipment
|
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
6,832 |
|
|
|
1,041 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
6,805 |
|
|
|
(564 |
) |
Cash and cash equivalents, beginning of the period
|
|
|
7,296 |
|
|
|
9,356 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$ |
14,101 |
|
|
$ |
8,792 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
J-5
VIALTA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
We develop, design and market consumer electronics products
designed to maximize the advantages of digital technology in a
convenient and easy-to-use manner. Our primary products are the
Beamertm
personal videophone line and the
VistaFrametm
digital picture frame. Our Beamer videophone products add color
video to phone calls, enabling users to see the person they are
calling. Since both parties to a video call must have a Beamer
videophone product (or compatible videophone), our videophone
products are primarily sold in pairs. Our Beamer videophone
products work with any home phone over any standard
(analog) home phone line, at no additional cost to a
regular phone call. Our Beamer videophone products include
models that are standalone (such as our first videophone product
known as Beamer) or connect through most televisions (the Beamer
TV), and may include the ability to send and receive digital
pictures (the Beamer FX). Beamer videophone products are carried
by such retailers as Best Buy, Frys Electronics, The Good
Guys, The Discovery Channel, The Sharper Image and Cinmar (The
Frontgate Catalog), among others.
Our VistaFrame product is a digital picture frame that allows
users to display photographs directly from a digital camera
memory card or from VistaFrames internal memory.
VistaFrame is compatible with most standard card formats and
does not require a camera or computer connection, special wiring
or web based services to display digital photographs. With
VistaFrame, consumers can view digital pictures individually or
in a custom slideshow format with the user selecting the
pictures, the display sequence, display interval and the
transition effect. VistaFrame is currently available through
retailers such as The Discovery Channel, The Sharper Image, The
Good Guys and Cinmar, among others.
Since our inception, we have incurred substantial losses and
negative cash flows from operations. We expect operating losses
and negative cash flows from operations to continue for the
foreseeable future and anticipate that losses may increase from
current levels because of additional costs and expenses related
to sales and marketing activities, expansion of operations,
expansion of product offerings and development of relationships
with other businesses. We believe that we have sufficient cash
and cash equivalents, restricted cash and investments to fund
our existing operations through December 31, 2005. However,
in the longer term, failure to generate sufficient revenues,
raise additional capital or reduce spending could have a
material adverse effect on our ability to continue to operate
our business.
On March 28, 2005, we announced entering into a definitive
merger agreement with Victory Acquisition Corp., a newly formed
entity established by Fred S.L. Chan, Chairman of the Company,
and certain of his family members. Victory will acquire the
approximately 60% of our stock not owned by it for
$0.36 per share in cash. The proposed merger is expected to
be completed in the third quarter of 2005 and is subject to
Vialta shareholder and customary approvals.
|
|
NOTE 2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The accompanying unaudited condensed consolidated financial
statements have been prepared by us pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles in the United States of America
have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying
unaudited condensed interim financial statements contain all
adjustments, all of which are normal and recurring in nature,
necessary to fairly present our financial position, operating
results and cash flows. These unaudited condensed consolidated
financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto for
the year ended December 31, 2004, included in our Annual
Report on Form 10-K filed on March 31, 2005. The
results of operations for the three months ended March 31,
2005 are not necessarily indicative of the results that may be
expected for any other period or for the fiscal year ending
December 31, 2005.
J-6
VIALTA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Principles of consolidation |
The consolidated financial statements include the accounts of
Vialta, Inc. and our subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
|
|
|
Cash equivalents and investments |
We consider all highly liquid investments with an initial
maturity of 90 days or less to be cash equivalents. Cash
equivalents primarily represent money market accounts, recorded
at cost, which approximate their fair value.
Investments are comprised primarily of debt instruments that
have been classified as available-for-sale. Management
determines the appropriate classification of securities at the
time of purchase and re-evaluates the classification at each
reporting date. Marketable equity and debt securities are
carried at their fair market value based on quoted market prices
as of the balance sheet date. Realized gains or losses are
determined using the specific identification method and are
reflected in income. Net unrealized gains or losses are recorded
directly in stockholders equity except those unrealized
losses that are deemed to be other than temporary, which are
reflected in investment losses.
Investments with maturity dates of 90 days or more at the
date of purchase are classified as short-term investments since
we have the ability to redeem them within the year.
Approximately $3.1 million of cash at March 31, 2005
and 2004 is restricted as collateral for letters of credit to a
contract manufacturer and raw materials supplier.
Products sold to retailers and distributors are subject to
rights of return. We defer recognition of revenue on products
sold to retailers and distributors until the retailers and
distributors sell the products to their customers. Revenue is
also deferred for the initial thirty-day period during which our
end customers, retailers and distributors have the unconditional
right to return products.
For products sold to end customers we generally recognize
revenue upon shipment provided that we have no post-sale
obligations, we can reliably estimate and accrue warranty costs
and sales returns, the price is fixed or determinable and
collection of the resulting receivable is reasonably assured.
For sales to international distributors we generally recognize
revenue based on the above criteria and upon receipt of payment
in full. For sales to end customers that do not meet the above
criteria, revenue is deferred until such criteria are met.
|
|
|
Allowances for sales returns and Doubtful Accounts |
Sales return allowances are recorded at the time when revenue is
recognized based on historical returns, current economic trends
and changes in customer demand. Such allowances are adjusted
periodically to reflect actual experience and anticipated
returns.
Allowance for doubtful accounts is our best estimate of the
amount of probable credit losses in our existing accounts
receivable. We determine the allowance based on historical
write-off experience. We review our allowance for doubtful
accounts monthly. Past due balances over 90 days are
reviewed individually for collectibility. Account balances are
charged off against the allowance when we feel it is probable
that the receivable will not be recovered.
We provide a limited warranty on our products for periods
ranging from 90 days to 12 months from the date of
sale to the end customer. We estimate warranty costs based on
historical experience and accrue for estimated costs as a charge
to cost of sales when revenue is recognized. The following table
shows the details of the product warranty accrual, as required
by FASB Interpretation No. 45, Guarantors
Accounting and
J-7
VIALTA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, for the three months
ended March 31, 2005 and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
March 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Beginning balance
|
|
$ |
399 |
|
|
$ |
484 |
|
Accruals for warranties issued during the period
|
|
|
159 |
|
|
|
460 |
|
Settlements made during the period
|
|
|
(210 |
) |
|
|
(285 |
) |
|
|
|
|
|
|
|
Ending balance
|
|
$ |
348 |
|
|
$ |
659 |
|
|
|
|
|
|
|
|
Comprehensive gain is defined to include all changes in equity
during a period from non-owner sources. Other comprehensive gain
for the three months ended March 31, 2005 and 2004 was
comprised of unrealized gains on available-for-sale investments
and amounted to $4,000 and $2,000, respectively.
We account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion
No. 25, or APB No. 25, Accounting for Stock
Issued to Employees. Under APB No. 25, compensation
cost is measured as the excess, if any, of the quoted market
price of its stock at the date of grant over the exercise price
of the option granted. Compensation cost for stock options, if
any, is recognized ratably over the vesting period. We provide
additional pro forma disclosures as required under
SFAS No. 123, Accounting for Stock-Based
Compensation and SFAS No. 148, Accounting
for Stock-Based Compensation, Transition and Disclosure.
The following table illustrates the effect on our net income and
net income per share if we had recorded compensation costs based
on the estimated grant date fair value as defined by
SFAS No. 123 for all granted stock-based awards (in
thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Net income (loss), as reported
|
|
$ |
(1,071 |
) |
|
$ |
1,486 |
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects
|
|
|
(69 |
) |
|
|
(234 |
) |
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$ |
(1,140 |
) |
|
$ |
1,252 |
|
|
|
|
|
|
|
|
Pro forma net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
Diluted
|
|
$ |
(0.01 |
) |
|
$ |
0.01 |
|
|
|
|
Revision in Classification of Certain Securities |
In connection with preparation of these financial statements, we
concluded that it was appropriate to classify our auction rate
securities as current investments at December 31, 2004.
Previously, such investments had been classified as cash and
cash equivalents. Accordingly, we have revised the
classification to exclude $5.8 million from cash and cash
equivalents at March 31, 2004, and to include such amounts
as short-term investments. In addition, we have made
corresponding revisions to the accompanying statements of cash
flows to reflect the purchases and proceeds form sale of the
auction rate securities as investing activities. These revisions
resulted in a net decrease in cash provided by investing
activities of $1.4 million for the three months ending
March 31, 2004.
J-8
VIALTA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 3. |
RELATED PARTY TRANSACTIONS |
The following is a summary of major transactions between us and
ESS Technology, Inc., which was our parent company prior to
August 2001, for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
|
Ended March 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Net payables at beginning of period
|
|
$ |
(127 |
) |
|
$ |
(281 |
) |
Charges by Vialta to ESS
|
|
|
208 |
|
|
|
2 |
|
Charges by ESS to Vialta:
|
|
|
|
|
|
|
|
|
|
Purchase of products
|
|
|
(12 |
) |
|
|
(339 |
) |
|
Building lease
|
|
|
(125 |
) |
|
|
(124 |
) |
|
Other
|
|
|
(2 |
) |
|
|
(6 |
) |
Cash receipts from ESS
|
|
|
(208 |
) |
|
|
(2 |
) |
Cash payments made to ESS
|
|
|
169 |
|
|
|
436 |
|
|
|
|
|
|
|
|
Net payables at end of period
|
|
$ |
(97 |
) |
|
$ |
(314 |
) |
|
|
|
|
|
|
|
|
|
NOTE 4. |
MARKETABLE SECURITIES |
Our portfolio of marketable securities at March 31,
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2005 | |
|
December 31, 2004 | |
|
|
Available-for-Sale Securities | |
|
Available-for-Sale Securities | |
|
|
| |
|
| |
|
|
|
|
Gross |
|
Gross | |
|
|
|
|
|
Gross |
|
Gross | |
|
|
|
|
|
|
Unrealized |
|
Unrealized | |
|
|
|
|
|
Unrealized |
|
Unrealized | |
|
|
|
|
Cost | |
|
Gains |
|
Losses | |
|
Fair Value | |
|
Cost | |
|
Gains |
|
Losses | |
|
Fair Value | |
|
|
| |
|
|
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
Money market funds
|
|
$ |
11 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
11 |
|
|
$ |
4 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4 |
|
Commercial paper
|
|
|
9,442 |
|
|
|
|
|
|
|
(1 |
) |
|
|
9,441 |
|
|
|
2,542 |
|
|
|
|
|
|
|
|
|
|
|
2,542 |
|
Cash
|
|
|
4,649 |
|
|
|
|
|
|
|
|
|
|
|
4,649 |
|
|
|
4,750 |
|
|
|
|
|
|
|
|
|
|
|
4,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$ |
14,102 |
|
|
$ |
|
|
|
$ |
(1 |
) |
|
$ |
14,101 |
|
|
$ |
7,296 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market auction preferred securities
|
|
$ |
500 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
500 |
|
|
$ |
5,300 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,300 |
|
U.S. government debt securities
|
|
|
3,267 |
|
|
|
|
|
|
|
(5 |
) |
|
|
3,262 |
|
|
|
4,741 |
|
|
|
|
|
|
|
(10 |
) |
|
|
4,731 |
|
Corporate debt securities
|
|
|
518 |
|
|
|
|
|
|
|
(2 |
) |
|
|
516 |
|
|
|
1,077 |
|
|
|
|
|
|
|
(2 |
) |
|
|
1,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$ |
4,285 |
|
|
$ |
|
|
|
$ |
(7 |
) |
|
$ |
4,278 |
|
|
|
11,118 |
|
|
$ |
|
|
|
$ |
(12 |
) |
|
$ |
11,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J-9
VIALTA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the activity in inventories and
reserves for the three months ended March 31, 2005 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross | |
|
Reserve | |
|
Net | |
|
|
| |
|
| |
|
| |
As of December 31, 2004
|
|
$ |
9,540 |
|
|
$ |
(5,040 |
) |
|
$ |
4,500 |
|
Purchase of inventories
|
|
|
751 |
|
|
|
|
|
|
|
751 |
|
Shipments and Returns
|
|
|
(751 |
) |
|
|
|
|
|
|
(751 |
) |
Use or Disposal of inventories
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
As of March 31, 2005
|
|
$ |
9,537 |
|
|
$ |
(5,040 |
) |
|
$ |
4,497 |
|
|
|
|
|
|
|
|
|
|
|
Raw Material
|
|
$ |
2,708 |
|
|
$ |
(1,615 |
) |
|
$ |
1,093 |
|
Finished Goods
|
|
|
6,829 |
|
|
|
(3,425 |
) |
|
|
3,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,537 |
|
|
$ |
(5,040 |
) |
|
$ |
4,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6. |
BALANCE SHEET COMPONENTS (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Short-term investments
|
|
|
|
|
|
|
|
|
US Government debt securities
|
|
$ |
3,262 |
|
|
$ |
4,731 |
|
Market auction preferred securities
|
|
|
500 |
|
|
|
5,300 |
|
Corporate debt securities
|
|
|
516 |
|
|
|
1,075 |
|
|
|
|
|
|
|
|
|
|
$ |
4,278 |
|
|
$ |
11,106 |
|
|
|
|
|
|
|
|
Due after one year
|
|
$ |
1,370 |
|
|
$ |
3,385 |
|
Due within one year
|
|
|
2,908 |
|
|
|
7,721 |
|
|
|
|
|
|
|
|
|
|
$ |
4,278 |
|
|
$ |
11,106 |
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$ |
681 |
|
|
$ |
2,838 |
|
Less: Allowance for doubtful accounts
|
|
|
(163 |
) |
|
|
(77 |
) |
|
|
|
|
|
|
|
|
|
$ |
518 |
|
|
$ |
2,761 |
|
|
|
|
|
|
|
|
Prepaid expenses and other
|
|
|
|
|
|
|
|
|
Prepaid insurance
|
|
$ |
129 |
|
|
$ |
207 |
|
Other current assets
|
|
|
133 |
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
$ |
262 |
|
|
$ |
351 |
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
$ |
1,037 |
|
|
$ |
1,037 |
|
Furniture and fixtures
|
|
|
551 |
|
|
|
551 |
|
Software and web site development cost
|
|
|
259 |
|
|
|
259 |
|
|
|
|
|
|
|
|
|
|
|
1,847 |
|
|
|
1,847 |
|
Less: Accumulated depreciation
|
|
|
(1,582 |
) |
|
|
(1,545 |
) |
|
|
|
|
|
|
|
|
|
$ |
265 |
|
|
$ |
302 |
|
|
|
|
|
|
|
|
J-10
VIALTA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Accrued liabilities and other
|
|
|
|
|
|
|
|
|
Accrued compensation costs
|
|
$ |
620 |
|
|
$ |
880 |
|
Professional fees
|
|
|
394 |
|
|
|
274 |
|
Other current liabilities
|
|
|
378 |
|
|
|
390 |
|
Product return/warranty liability
|
|
|
348 |
|
|
|
399 |
|
Accrued charges, related party
|
|
|
97 |
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
$ |
1,837 |
|
|
$ |
2,070 |
|
|
|
|
|
|
|
|
Deferred profit
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$ |
1,032 |
|
|
$ |
3,086 |
|
Deferred costs
|
|
|
(656 |
) |
|
|
(1,776 |
) |
|
|
|
|
|
|
|
Deferred profit
|
|
$ |
376 |
|
|
$ |
1,310 |
|
|
|
|
|
|
|
|
|
|
NOTE 6. |
COMPUTATION OF NET INCOME (LOSS) PER SHARE |
Basic net income (loss) per share is computed by dividing the
net income for the three months ended March 31, 2005 and
March 31, 2004 by the weighted average number of shares of
common stock outstanding during the periods.
Diluted net income (loss) per share is calculated by using the
weighted average number of common shares outstanding for the
three months ended March 31, 2005 and March 31, 2004
and gives effect to all dilutive potential common shares
outstanding for the three months ended March 31, 2005 and
March 31, 2004. The reconciling difference between the
computation of basic and diluted net income (loss) per share for
the three months ended March 31, 2005 and March 31,
2004 presented is the inclusion of the dilutive effect of stock
options issued to employees under employee stock option plans.
Diluted net income (loss) per share excludes out-of-the-money
stock options totaling 6.7 million and 2.6 million
shares for the three months ended March 31, 2005 and
March 31, 2004, respectively. While these options are
currently anti-dilutive, they could be dilutive in the future. A
reconciliation of basic and diluted income (loss) per share is
presented below (in thousands, except per share amounts):
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|
|
|
|
|
|
|
|
|
|
For the Three Months | |
|
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Ended March 31, | |
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|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Basic:
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|
|
|
|
|
|
|
Net income (loss)
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|
$ |
(1,071 |
) |
|
$ |
1,486 |
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|
|
|
|
|
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|
Weighted shares outstanding
|
|
|
83,077 |
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|
|
82,803 |
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|
|
|
|
|
|
Net income (loss) per share
|
|
$ |
(0.01 |
) |
|
$ |
0.02 |
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|
|
|
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|
Diluted:
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|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(1,071 |
) |
|
$ |
1,486 |
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|
|
|
|
|
|
|
Weighted shares outstanding
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|
|
83,077 |
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|
|
82,803 |
|
Effects of dilutive securities: stock options
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|
|
|
|
|
|
5,749 |
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|
|
|
|
|
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|
Diluted weighted shares outstanding
|
|
|
83,077 |
|
|
|
88,552 |
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|
|
|
|
|
|
|
Net income (loss) per share
|
|
$ |
(0.01 |
) |
|
$ |
0.02 |
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J-11
VIALTA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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NOTE 7. |
SUBSEQUENT EVENTS |
In connection with the acquisition of certain content licenses
in 2002, we received a note receivable of $10.0 million of
which $5.0 million remained outstanding as of
March 31, 2005. This note bears interest at 7.5% per
annum, compounded quarterly. This note was fully reserved in
2002 due to uncertainties regarding its collection. On
April 28, 2005, we collected the outstanding balance of
$5.0 million on this note. Accordingly, we will record the
related gain of $5.0 million in the quarter ending
June 30, 2005.
J-12
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ITEM 2: |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
The following discussion includes forward-looking statements
with respect to our future financial performance. Actual results
may differ materially from those currently anticipated depending
on a variety of factors, including those described below under
the sub-heading, Cautionary Statement Regarding
Forward-Looking Statements as well as Other Factors
That May Affect Our Business and Future Results and the
risks discussed in our most recent filing with the Securities
and Exchange Commission. This following discussion should be
read in conjunction with the Selected Consolidated Financial
Data and the Consolidated Financial Statements and notes thereto
that appear elsewhere in this report. There is no assurance that
the proposed merger will be consummated, that the diversion of
management time necessary to complete the proposed merger or the
costs associated with the proposed merger will not effect our
results of operations or that actions we take in anticipation on
the proposed merger may not be undone if the merger is not
consummated.
We develop, design and market consumer electronics products
designed to maximize the advantages of digital technology in a
convenient and easy-to-use manner. Our primary products are the
Beamertm
personal videophone line and the
VistaFrametm
digital picture frame. Our Beamer videophone products add color
video to phone calls, enabling users to see the person they are
calling. Since both parties to a video call must have a Beamer
videophone product (or compatible videophone), our videophone
products are primarily sold in pairs. Our Beamer videophone
products work with any home phone over any standard (analog)
home phone line, at no additional cost to a regular phone call.
Our Beamer videophone products include models that are
standalone (such as our first videophone product known as
Beamer) or connect through most televisions (the Beamer
TVtm),
and may include the ability to send and receive digital pictures
(the Beamer
FXtm).
Our Beamer videophone products are currently carried by
retailers such as Best Buy, Frys Electronics, The Good
Guys, The Discovery Channel, Cinmar (The Frontgate Catalog) and
The Sharper Image, among others.
Our VistaFrame product is a digital picture frame that allows
users to display photographs directly from a digital camera
memory card or from VistaFrames internal memory.
VistaFrame is compatible with most standard card formats and
does not require a camera or computer connection, special wiring
or web based services to display digital photographs. With
VistaFrame, consumers can view digital pictures individually or
in a custom slideshow format with the user selecting the
pictures, the display sequence, display interval and the
transition effect. VistaFrame is currently carried by retailers
such as The Sharper Image, The Discovery Channel, Cinmar and The
Good Guys.
Since our inception, we have financed our operations primarily
from funds raised in private offerings of convertible preferred
stock and common stock and through vendor credit. For the three
months ended March 31, 2005 we had a net loss of
$1.0 million and expect to incur losses for at least the
remainder of fiscal 2005. As of March 31, 2005, we had an
accumulated deficit of $110.2 million.
On March 28, 2005, we announced entering into a definitive
merger agreement with Victory Acquisition Corp., a newly formed
entity established by Fred S.L. Chan, Chairman of the Company,
and certain of his family members. Victory will acquire the
approximately 60% of our stock not owned by it for
$0.36 per share in cash. The proposed merger is expected to
be completed in the third quarter of 2005 and is subject to
Vialta shareholder and customary approvals.
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For the three months ended March 31, 2005 compared with
three months ended March 31, 2004 |
Net revenue. Net revenue was $3.0 million for the
three months ended March 31, 2005 compared to
$5.0 million for the three months ended March 31,
2004. Net revenue included $2.5 million and
$4.1 million in domestic sales for the three months ended
March 31, 2005 and 2004, respectively, and $494,000 and
$887,000 in international sales for the three months ended
March 31, 2005 and 2004, respectively. Revenue for the
first quarter of 2005 includes the recognition of deferred
revenue of approximately $2.5 million, that was deferred at
December 31, 2004. Revenue for the first quarter of 2004
includes the recognition of deferred revenue of approximately
$3.3 million, that was deferred at December 31, 2003.
The decrease in revenue is the
J-13
result of lower unit sales for our Beamer videophone in both the
domestic and international market. For the three months ended
March 31, 2005, Best Buy and The Sharper Image accounted
for approximately 34% and 14%, respectively, of our net revenue.
For the three months ended March 31, 2004, Frys and Best
Buy accounted for approximately 16% and 15%, respectively, of
our net revenue.
Cost of goods sold. Cost of goods sold was
$2.2 million for the three months ended March 31, 2005
compared to $1.4 million for the three months ended
March 31, 2004. This increase is primarily due to during
the first quarter of 2005 product costs were recorded at full
cost as compared to the first quarter of 2004 where our
inventory costs for our Beamer videophone products were expensed
in prior periods. Because a significant portion of our inventory
for raw materials and finished goods for our Beamer videophone
products was expensed in prior periods, cost of goods sold for
the three months ended March 31, 2004 was lower than what
would otherwise have been recorded.
Gross profit. Gross profit was $788,000 for the three
months ended March 31, 2005 compared to $3.6 million
for the three months ended March 31, 2004. If we had not
previously expensed inventory costs, our gross profit for the
first quarter of 2004 would have $1.6 million.
Engineering and development. Engineering and development
expenses were $292,000 for the three months ended March 31,
2005, compared to $336,000 for the three months ended
March 31, 2004. The decrease was primarily due to
reductions in engineering and development personnel. We expect
engineering and development expenses to be relatively constant
in future periods.
Sales and marketing. Sales and marketing expenses were
$292,000 for the three months ended March 31, 2005,
compared to $605,000 for the three months ended March 31,
2004. The decrease was primarily due to reductions in sales and
marketing personnel and a decrease in certain marketing
initiatives such as e-marketing and direct mail. We expect sales
and marketing expenses to be relatively constant in future
periods, and we currently do not have the resources to support a
significant and sustained national advertising and consumer
awareness program which may be necessary to maintain or
significantly increase sales.
General and administrative. General and administrative
expenses were $1.4 million for the three months ended
March 31, 2005 compared to $1.4 million for the three
months ended March 31, 2004. Although there was no
significant variance in general and administrative expenses, the
composition between the three months ended March 31, 2005
and 2004 included reductions in general and administrative
personnel, decreases in depreciation due to assets becoming
fully depreciated and a credit to state income taxes resulting
from a refund of previously paid taxes in California. These
decreases were offset by increases in legal expenses and outside
services in connection with the proposed merger with Victory
Acquisition Corp. We expect to incur significant additional
expenses for legal and other professional services related to
the proposed merger.
Interest income and other, net. Interest income and
other, net, was $203,000 for the three months ended
March 31, 2005, compared to $209,000 for the three months
ended March 31, 2004.
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Liquidity and Capital Resources |
As of March 31, 2005, we had $21.4 million in cash and
cash equivalents, restricted cash and short-term investments
compared to $25.8 million as of March 31, 2004,
representing a decrease of $4.4 million. As discussed in
Note 7 of the Notes to the Condensed Consolidated Financial
Statements, on April 28, 2005 we received cash of
$5.0 million representing payment of a note receivable.
Our principal sources of liquidity are cash and cash equivalents
and investments. Net cash used in operating activities was
$27,000 for the three months ended March 31, 2005 compared
to $1.6 million for the three months ended March 31,
2004, representing a decrease of approximately
$1.6 million. The decrease in cash used in operating
activities during the three months ended March 31, 2005
compared to the three months ended March 31, 2004, was
primarily due to a significant increase in cash collected from
sales of our products offset by a decrease in deferred profit
and accounts payable.
Net cash provided by investing activities for the three months
ended March 31, 2005 was $6.8 million compared to
$1.0 million for the three months ended March 31, 2004
representing an increase of approximately $5.8 million. Net
cash provided by investing activities for the three months ended
March 31,
J-14
2005 and 2004 was primarily due to a reduction in purchases and
an increase in sales of short-term investments.
There was no net cash used in financing activities for the three
months ended March 31, 2005 and 2004.
Capital expenditures for the 12-month period ending
December 31, 2005 are anticipated to be approximately
$100,000, primarily to acquire capital equipment.
In September 2001, the Board of Directors authorized the
repurchase of up to 10,000,000 shares of our common stock
in open market or private transactions over a twelve-month
period. In June 2002, the Board of Directors authorized the
existing stock repurchase program be extended to include the
repurchase of up to an additional 10,000,000 shares of
common stock. Through December 31, 2003, we repurchased
approximately 11,964,000 shares of common stock at an
aggregate cost of $9.4 million. There were no common stock
repurchases during the year ended December 31, 2004 and the
three months ended March 31, 2005. As of March 31,
2005, approximately 8,036,000 shares remain authorized for
repurchase.
In January 2000, we entered into a three-year non-cancelable
lease agreement for our headquarters with ESS. In July 2003, we
amended the lease. The terms of the amendment include a 60%
reduction in the amount of square footage leased, a reduction in
the monthly rent to current market rates and an extension of the
term from December 31, 2003 to June 30, 2005. Under
the terms of this and other leases, with various expiration
dates through 2006, our future minimum rental payments as of
March 31, 2005 are as follows: $225,000 and $141,000 for
the nine months ended 2005 and for the year ended 2006.
We believe that our existing cash and cash equivalents and
investments will be sufficient to fund our operations through
March 31, 2006. However, to continue our operations beyond
that date, or if our current level of operations change, or to
achieve our longer-term goals of introducing additional products
to consumers, we believe we will need to raise additional
capital, which may not be available on acceptable terms, if at
all. We have historically used vendor credit as well as private
offerings of convertible preferred stock and common stock to
fund operations and provide for capital requirements. However,
the price per share of any future equity-related financing will
be determined at the time the offering is made and cannot be
anticipated at this time. If additional funds are raised through
the issuance of equity securities, the percentage ownership of
current stockholders is likely to or will be reduced and such
equity securities may have rights, preferences or privileges
better than those of current stockholders. We cannot assure you
that any additional financing will be available or that, if
available, it will be sufficient or it can be obtained on terms
favorable to us or our stockholders. If adequate funds are not
available if and when needed, we would be required to delay,
limit or eliminate some or all of our proposed operations.
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Revision in Classification of Certain Securities |
In connection with preparation of these financial statements, we
concluded that it was appropriate to classify our auction rate
securities as current investments at December 31, 2004.
Previously, such investments had been classified as cash and
cash equivalents. Accordingly, we have revised the
classification to exclude $5.8 million from cash and cash
equivalents at March 31, 2004, and to include such amounts
as short-term investments. In addition, we have made
corresponding revisions to the accompanying statements of cash
flows to reflect the purchases and proceeds form sale of the
auction rate securities as investing activities. These revisions
resulted in a net decrease in cash provided by investing
activities of $1.4 million for the three months ended
March 31, 2004.
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Critical Accounting Policies |
Our critical accounting policies were disclosed in Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations, of our Form 10-K
for the year ended December 31, 2004. On an ongoing basis,
we re-evaluate our judgments and estimates including those
related to valuation of inventories, valuation of long-lived
assets and certain risks and concentrations. We base our
estimates and judgments on our historical experience, knowledge
of current conditions and our beliefs of what could occur in the
future considering available information. Actual results may
differ from these estimates under different assumptions or
conditions. We apply our estimates and judgments consistently
for all periods presented.
J-15
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Other Factors That May Affect Our Business and Future
Results |
Factors that could impact our future business, consolidated
financial position, results of operations or cash flows and
cause future results to differ from our expectations include the
following: the ability to achieve revenues and profitability;
the risks and expenses of the proposed merger with Victory; the
ability to raise additional capital; competition; pricing
pressures; the dependence on a limited number of products and
the need to develop new products and features; the success of
our existing products and other consumer products we may
develop; component supply shortages; potential conflicts with
ESS Technology, Inc., our former parent; the success of current
distribution and retail relationships and the ability to enter
into additional distribution agreements; risks associated with
the expansion of our business, including increased costs and the
strain on management and other resources; the risk of product
defects, system failures or interruptions; general economic,
political and regulatory changes including in Asia; claims by
third parties of intellectual property infringement; dependence
on key management personnel and the need to attract and retain
additional qualified personnel; risks associated with possible
business acquisitions; regulatory changes that affect consumer
electronics, telecommunications, copyrights or the internet;
quarterly fluctuations in operating results; risks of class
action lawsuits based on fluctuations in our stock price;
seasonal trends identified in the our Annual Report on
Form 10-K for the fiscal year ended December 31, 2004
and other filings with the Securities and Exchange Commission.
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ITEM 3: |
Quantitative and Qualitative Disclosure About Market
Risk |
Interest Rate Risks. We invest in short-term investments.
Consequently, we are exposed to fluctuations in interest rates
on these investments. Increases or decreases in interest rates
generally translate into decreases and increases in the fair
value of these investments. In addition, the credit worthiness
of the issuer, relative values of alternative investments, the
liquidity of the instrument, and other general market conditions
may affect the fair values of interest rate sensitive
investments. In order to reduce the risk from fluctuation in
rates, we invest in highly liquid governmental notes and bonds
with contractual maturities of less than two years. All of the
investments have been classified as available for sale, and at
March 31, 2005, are recorded at market values.
Fixed income securities are subject to interest rate risk. The
fair value of our investment portfolio would not be
significantly impacted by either a 100 basis point increase
or decrease in interest rate due mainly to the short-term nature
of the major portion of our investment
Foreign Exchange Risks. Because our products are
manufactured primarily in Asia, we are exposed to market risk
from changes in foreign exchange rates, which could affect our
results of operations and financial condition. In order to
reduce the risk from fluctuation in foreign exchange rates, our
product sales and all of our arrangements with our third party
manufacturers and component vendors are denominated in
U.S. dollars. We do not engage in any currency hedging
activities.
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ITEM 4: |
Controls and Procedures |
Our Chief Executive Officer and Chief Financial Officer (our
principal executive officer and principal financial officer,
respectively) have concluded, based on their evaluation as of
the end of the period covered by this quarterly report, that our
disclosure controls and procedures are effective to ensure that
material information required to be disclosed by us in reports
filed or submitted by us under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and
reported within the time period specified in the SECs
rules and forms, and includes controls and procedures designed
to ensure that material information required to be disclosed by
us in such reports is accumulated and communicated to our
management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
There have been no significant changes in our internal controls
or in other factors that could significantly affect these
controls subsequent to the date of our evaluation.
J-16
PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports
on Form 8-K
(a) Exhibits. We
incorporate by reference all exhibits filed in connection with
our annual report on Form 10K for the year ended
December 31, 2004.
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31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
J-17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
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VIALTA, INC. (Registrant) |
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Didier Pietri |
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President and Chief Executive Officer |
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By: |
/s/ William M. Scharninghausen |
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William M. Scharninghausen |
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Chief Financial Officer |
Date: May 16, 2005
J-18
PLEASE VOTE TODAY!
THANK YOU FOR VOTING!
ÚTO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE AND RETURN IN THE ENVELOPE PROVIDEDÚ
P R O X Y
VIALTA, INC.
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD _____ ___, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
VIALTA, INC.
The undersigned constitutes and appoints DIDIER PIETRI and WILLIAM M. SCHARNINGHAUSEN, and each of
them, each with full power to act without the other, and each with full power of substitution, the
true and lawful proxies of the undersigned, to represent and vote, as designated below and in their
discretion upon such other business as may properly come before the Special Meeting or any
adjournment or postponement thereof, all shares of common stock of Vialta, Inc. that the
undersigned is entitled to vote at the Special Meeting of stockholders of such corporation to be
held at the Fremont Marriott, 46100 Landing Parkway, Fremont, CA 94538, on ___, 2005 at
___a.m., local time, and at any adjournment or postponement thereof.
The Board of Directors recommends a vote FOR Items 1 and 2.
This proxy when properly executed will be voted in the manner directed herein by the undersigned
stockholder. If you fail to vote your shares by not returning this proxy card, this has the same
effect as a vote AGAINST Item 1, but has no effect on Item 2. If you submit a proxy without giving
voting instructions, the proxies will vote your proxy FOR Item 1 and Item 2. The proxies are
authorized to vote upon such other business as may properly come before the Special Meeting or any
adjournments or postponements thereof.
The undersigned acknowledges receipt of the notice of said Special Meeting and the accompanying
proxy statement.
(Continued and to be signed on reverse side)
YOUR VOTE IS IMPORTANT
Please take a moment now to vote your shares of Vialta, Inc.
common stock for the upcoming Special Meeting of Stockholders
PLEASE REVIEW THE PROXY STATEMENT
AND VOTE TODAY:
ÚPLEASE DETACH PROXY CARD HERE AND RETURN IN THE ENVELOPE PROVIDEDÚ
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Please mark your
votes as in this
example using
dark ink only. |
VIALTA, INC.
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD __________, 2005
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FOR |
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AGAINST |
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ABSTAIN |
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1.
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To approve and adopt the
Agreement and Plan of
Reorganization, dated as
of March 28, 2005, by and
between Victory Acquisition
Corp. and Vialta, Inc. and
the merger contemplated
thereby.
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*
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*
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FOR |
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AGAINST |
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ABSTAIN |
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2.
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To adjourn the Special Meeting
if necessary to permit further
solicitation of proxies in the
event there are not sufficient
votes at the time of the Special
Meeting to approve the Agreement
and Plan of Reorganization
referred to in Item 1.
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*
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*
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Date , 2005 |
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Signature |
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Signature (if jointly held) |
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NOTE:
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Please sign exactly as your name appears
on the left. Joint owners should each
sign personally. A corporation should
sign full corporate name by duly
authorized officers and affix corporate
seal, if any. When signing as attorney,
executor, administrator, trustee or
guardian, give full title as such. |
PLEASE VOTE, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE