Exhibit 2.1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NEXTWAVE WIRELESS INC.,
IPW, LLC,
IPWIRELESS, INC.
AND
J. TAYLOR CRANDALL
AS THE STOCKHOLDER REPRESENTATIVE
DATED AS OF APRIL 6, 2007
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 6, 2007
(this "AGREEMENT"), by and among NextWave Wireless Inc., a Delaware
corporation
("PARENT"), IPW, LLC, a limited liability company existing under
the laws of
Delaware and a wholly-owned subsidiary of Parent ("MERGER SUB"),
IPWireless,
Inc., a Delaware corporation (the "COMPANY"), and J. Taylor
Crandall as the
Stockholder Representative.
WHEREAS, the respective Boards of Directors of Parent and the
Company and the Board of Managers of Merger Sub have approved and
declared
advisable this Agreement and the merger of Merger Sub with and into
the Company
(the "MERGER"), with the Company being the surviving entity in the
Merger, upon
the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, the Merger is a deemed liquidation of the Company
pursuant to Article IV, Section (B)(2)(c) of the Company's Twelfth
Amended and
Restated Certificate of Incorporation;
WHEREAS, the Board of Directors of the Company has recommended
the adoption of this Agreement to the stockholders of the Company,
and
concurrently with the execution and delivery of this Agreement,
stockholders of
the Company holding shares with voting power sufficient to approve
the Merger in
accordance with the DGCL and the Company's Certificate of
Incorporation and
Bylaws have adopted this Agreement and approved the Merger;
WHEREAS, Parent, Merger Sub and the Company desire to make
certain representations, warranties, covenants and agreements in
connection with
the Merger and also to prescribe various conditions to the Merger;
and
WHEREAS, it is intended that the Merger be deemed a direct
taxable purchase of stock from the stockholders of the Company for
United States
federal income tax purposes;
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained in this Agreement,
the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions.
(a) For purposes of this Agreement, the following terms shall
have the meanings specified in this Section 1.1:
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"2007 EARNOUT AMOUNT" means the lesser of (i) 30% of the
Booked Revenue for the TDtv Business and the Public Safety Business
recorded
after the date hereof but prior to the end of calendar year 2007 or
(ii)
$7,488,000; provided, however, that no such amounts shall become
payable until
the later of such time that the Company makes delivery, the
customers completes
satisfactory acceptance testing and the Company receives payment
under the
applicable orders or contracts giving rise to the Booked
Revenue.
"2007 EARNOUT MERGER CONSIDERATION AMOUNT" means the 2007
Earnout Amount less the Employee Incentive Plan 2007 Earnout
Allocation Amount
less the Special Acquisition Bonus 2007 Earnout Allocation
Amount.
"2007 EARNOUT PER SHARE AMOUNT" means the amount determined by
dividing (i) the 2007 Earnout Merger Consideration Amount by (ii)
the Series C-3
Shares Outstanding.
"2008 EARNOUT AMOUNT" means (a) zero, in the event Shipped
Revenue for the TDtv Business and the Public Safety Business
achieved during
calendar year 2008 is less than $65,859,000 or, (b) in the event
Shipped Revenue
for the TDtv Business and the Public Safety Business achieved
during calendar
year 2008 is greater than or equal to $65,859,000, the lesser of
(i) 36.8% of
Shipped Revenue for the TDtv Business and the Public Safety
Business in excess
of $65,859,000 achieved during calendar year 2008 or (ii)
$24,234,000.
"2008 EARNOUT MERGER CONSIDERATION AMOUNT" means the 2008
Earnout Amount less the Employee Incentive Plan 2008 Earnout
Allocation Amount
less the Special Acquisition Bonus 2008 Earnout Allocation
Amount.
"2008 EARNOUT PER SHARE AMOUNT" means the amount determined by
dividing (i) the 2008 Earnout Merger Consideration Amount by (ii)
the Series C-3
Shares Outstanding.
"2009 EARNOUT AMOUNT" means (a) zero, in the event Shipped
Revenue for the TDtv Business and the Public Safety Business
achieved during
calendar year 2009 is less than $144,793,000 or, (b) in the event
Shipped
Revenue for the TDtv Business and the Public Safety Business
achieved during
calendar year 2009 is greater than or equal to $144,793,000, the
lesser of (i)
36.8% of Shipped Revenue for the TDtv Business and the Public
Safety Business in
excess of $144,793,000 achieved during calendar year 2009 or (ii)
$53,279,000.
"2009 EARNOUT MERGER CONSIDERATION AMOUNT" means the 2009
Earnout Amount less the Employee Incentive Plan 2009 Earnout
Allocation Amount
less the Special Acquisition Bonus 2009 Earnout Allocation
Amount.
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"2009 EARNOUT PER SHARE AMOUNT" means the amount determined by
dividing (i) the 2009 Earnout Merger Consideration Amount by (ii)
the Series C-3
Shares Outstanding.
"ADDITIONAL CONSIDERATION PER SHARE AMOUNT" means the amount
determined by dividing (i) the Additional Merger Consideration
Amount by (ii)
the Series C-3 Shares Outstanding.
"ADDITIONAL ESCROW AMOUNT" means $21,000,000, which shall be
represented by a combination of (a) cash and (b) validly issued,
fully paid and
nonassessable shares of Parent Common Stock, as set forth in
Section 3.1(k);
provided that $6,000,000 of such amount shall exclusively be
available to cover
Intellectual Property Payments pursuant to Section 9.2 (the "IP
ESCROW").
"ADDITIONAL MERGER CONSIDERATION AMOUNT" means the Additional
Total Consideration less the Employee Incentive Plan Additional
Allocation
Amount less the Special Acquisition Bonus Additional Allocation
Amount.
"ADDITIONAL TOTAL CONSIDERATION" means an amount equal to (a)
$50,000,000, in the event the Northrop Grumman Shipped Revenue is
greater than
or equal to $35,000,000, or (b) $50,000,000 times a fraction, the
numerator of
which is the Northrop Grumman Shipped Revenue and the denominator
of which is
$35,000,000, in the event the Northrop Grumman Shipped Revenue is
less than
$35,000,000, in each such case less the Additional Escrow Amount if
the
Additional Total Consideration is paid prior to the Expiration
Date.
"AFFILIATE" means, with respect to any Person, any other
Person that, directly or indirectly through one or more
intermediaries,
controls, or is controlled by, or is under common control with,
such Person, and
the term "control" (including the terms "controlled by" and "under
common
control with") means the possession, directly or indirectly, of the
power to
direct or cause the direction of the management and policies of
such Person,
whether through ownership of voting securities, by contract or
otherwise.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Section 1504 of the Code or any comparable or analogous
group under
state, local or foreign Law.
"ALLOCATIONS SPREADSHEET" means the spreadsheet prepared by
the Company and provided to Parent within three (3) Business Days
of the date
hereof that sets forth: (i) for each Plan Participant, the portion
of the
Employee Incentive Plan Payments he or she is entitled to receive
under the
terms of the Employee Incentive Plan and this Agreement, together
with such Plan
Participant's contributions to the Escrow Fund based on his, her or
its Pro Rata
Portion; (ii) for each holder of Preferred Stock, the portion of
the Initial
Merger Consideration Amount he, she or it is entitled to receive
under the terms
of this Agreement (including the cash component of the Initial
Merger
Consideration Amount), together with each Participating
Stockholder's
contributions to the Escrow Fund based on his, her or its Pro Rata
Portion, and
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(iii) for each Bonus Participant, the portion of the Special
Acquisition Bonus
Initial Allocation Amount he or she is entitled to receive under
the terms of
the Special Acquisition Bonus, together with such participant's
contribution to
the Escrow Fund based on his, her or its Pro Rata Portion. In the
event of any
conflict between the final Allocations Spreadsheet delivered at
Closing and the
terms of this Agreement that allocate the amounts listed in clauses
(i), (ii)
and (iii) in the preceding sentence, the Allocations Spreadsheet
shall govern,
and further, in order to comply with applicable securities Laws,
Parent may pay
cash to any Person in lieu of shares of Parent Common Stock.
"AVERAGE PARENT STOCK PRICE" means an amount equal to the
average of the per share closing price of Parent Common Stock on
the NASDAQ
Global Market (as reported by Bloomberg, or, if not reported
thereby, any other
authoritative source) for the 30 consecutive trading days ending
with the third
trading day immediately preceding: (i) the Closing Date, in the
case of the
Initial Merger Consideration Amount, the Employee Incentive Plan
Initial
Allocation Amount and the Special Acquisition Bonus Initial
Allocation Amount;
(ii) the actual payment date, in the case of the Additional Merger
Consideration
Amount, the 2007 Earnout Merger Consideration Amount, the Special
Acquisition
Bonus 2007 Earnout Allocation Amount, the 2008 Earnout Merger
Consideration
Amount, the Special Acquisition Bonus 2008 Earnout Allocation
Amount, the 2009
Earnout Merger Consideration Amount, the Special Acquisition Bonus
2009 Earnout
Allocation Amount, the Employee Incentive Plan Initial Allocation
Stock Amount,
the Employee Incentive Plan Additional Allocation Amount, the
Special
Acquisition Bonus Additional Allocation Amount, the Employee
Incentive Plan 2007
Earnout Allocation Amount, the Employee Incentive Plan 2008 Earnout
Allocation
Amount and the Employee Incentive Plan 2009 Earnout Allocation
Amount; or (iii)
the date of the Officer's Certificate, in connection with Section
9.3(b).
"BONUS PARTICIPANT" means Jon Beizer as a participant in the
Special Acquisition Bonus.
"BOOKED REVENUE" means (i) amounts payable pursuant to
purchase orders placed by customers after the date hereof and prior
to December
31, 2007 in connection with the Public Safety Business or the TDtv
Business,
(ii) up-front or fixed license fees payable to the Company in
connection with
licenses granted to third parties after the date hereof and prior
to December
31, 2007 that enable such third parties to engage in the Public
Safety Business
or the TDtv Business, and (iii) proceeds from the sale of the
Public Safety
Business or TDtv Business, where the agreement for such sale was
entered into
after the date hereof and prior to December 31, 2007; provided,
however, that
Booked Revenue shall exclude nonrecurring engineering expense
payments
associated with the TDtv business, as well as amounts payable in
connection with
the Company's Northrop Grumman purchase order number PG10452, dated
October 16,
2006 - October 24, 2006, and any replacements, extensions or
modifications of
such purchase order; and provided further that any new business or
increase to
the size of such purchase order shall constitute Booked Revenue.
Booked Revenue
shall include Booked Revenue of the Company, the Successor
Corporation or any
successor to the relevant Public Safety Business or TDtv Business,
so long as
such business is owned by Parent or any affiliate of Parent, plus
(i) Booked
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Revenue of licensees of the Company who are licensees of the
Company as of the
date hereof, (ii) Booked Revenue of licensees of the Company who
become
licensees of the Company after the date hereof but prior to Closing
(provided
that Parent has consented thereto), and (iii) Booked Revenue of
licensees of the
Successor Corporation (or any successor to the relevant Public
Safety Business
or TDtv Business so long as such business is owned by Parent or any
affiliate of
Parent) who become licensees after the Closing; provided that
Booked Revenue of
any of such licensees shall only include the portion of the amount
payable that
is used to determine the royalty or license fee that the licensee
pays to the
Company. No amounts included in Booked Revenue shall be included in
Shipped
Revenue.
"BUSINESS DAY" means any day of the year on which national
banking institutions in California and New York are open to the
public for
conducting business and are not required or authorized to
close.
"CASH CAP" means $25,000,000 in cash.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time.
"COMMON STOCK" means the Common Stock of the Company, par
value $0.001 per share.
"COMPANY STOCK OPTION" means each option to purchase shares of
Common Stock or other right to receive shares of Common Stock
granted under the
IPWireless, Inc. 1999 Stock Plan.
"COMPANY STOCKHOLDERS" means the holders of any shares of
Common Stock or Preferred Stock issued and outstanding immediately
prior to the
Effective Time, after giving effect to any conversions, if any, of
Preferred
Stock or Convertible Notes at or prior to the Effective Time and
any option or
warrant exercises, if any, at or prior to the Effective Time.
"CONTRACT" means any contract, agreement, indenture, note,
bond, loan, instrument, lease, commitment or other legally binding
arrangement
or agreement, whether written or oral.
"CONVERTIBLE NOTES" means the convertible notes issued in
connection with the Convertible Note and Warrant Purchase
Agreement, dated
September 26, 2006.
"DISCLOSURE LETTER" means the Disclosure Letter of the
Company, as delivered in connection with this Agreement.
"EARNOUT AMOUNT" means the 2007 Earnout Amount, the 2008
Earnout Amount, or the 2009 Earnout Amount, as applicable.
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"EARNOUT MERGER CONSIDERATION AMOUNT" means the 2007 Earnout
Merger Consideration Amount, the 2008 Earnout Merger Consideration
Amount or the
2009 Earnout Merger Consideration Amount, as applicable.
"EMPLOYEE INCENTIVE PLAN" means the IPWireless, Inc. Employee
Incentive Plan, as the same may be amended from time to time in
accordance with
the terms of this Agreement.
"EMPLOYEE INCENTIVE PLAN 2007 EARNOUT ALLOCATION AMOUNT" means
the Adjusted Aggregate Plan Amount (as such term is defined in the
Employee
Incentive Plan) payable (if any) pursuant to the Employee Incentive
Plan as a
result of the payment of the 2007 Earnout Amount.
"EMPLOYEE INCENTIVE PLAN EARNOUT ALLOCATION AMOUNT" means the
2007 Employee Incentive Plan Earnout Allocation Amount, the 2008
Employee
Incentive Plan Earnout Allocation Amount, or the 2009 Employee
Incentive Plan
Earnout Allocation Amount, as applicable.
"EMPLOYEE INCENTIVE PLAN 2008 EARNOUT ALLOCATION AMOUNT" means
the Adjusted Aggregate Plan Amount payable (if any) pursuant to the
Employee
Incentive Plan as a result of the payment of the 2008 Earnout
Amount.
"EMPLOYEE INCENTIVE PLAN 2009 EARNOUT ALLOCATION AMOUNT" means
the Adjusted Aggregate Plan Amount payable (if any) pursuant to the
Employee
Incentive Plan as a result of the payment of the 2009 Earnout
Amount.
"EMPLOYEE INCENTIVE PLAN ADDITIONAL ALLOCATION AMOUNT" means
the Adjusted Aggregate Plan Amount payable pursuant to the Employee
Incentive
Plan as a result of the payment of the Additional Total
Consideration.
"EMPLOYEE INCENTIVE PLAN INITIAL ALLOCATION AMOUNT" means the
Adjusted Aggregate Plan Amount payable pursuant to the Employee
Incentive Plan
as a result of the Initial Closing Consideration.
"EMPLOYEE INCENTIVE PLAN PAYMENTS" means, collectively, the
Employee Incentive Plan Initial Allocation Amount, the Employee
Incentive Plan
Additional Allocation Amount, the Employee Incentive Plan 2007
Earnout
Allocation Amount, the Employee Incentive Plan 2008 Earnout
Allocation Amount
and the Employee Incentive Plan 2009 Earnout Allocation Amount.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ESCROW AGREEMENT" means that certain Escrow Agreement to be
entered into on the Closing Date by and among Parent, the
Stockholder
Representative and the Escrow Agent (as therein defined),
substantially in the
form of Exhibit A hereto.
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"ESCROW AMOUNT" means the Initial Escrow Amount and the
Additional Escrow Amount.
"EXCHANGE AGENT" means the party reasonably acceptable to
Parent and the Company selected to act as exchange agent pursuant
to an Exchange
Agent Agreement (or similar) to be entered into by and among
Parent, the Company
and the Stockholder Representative prior to the Effective Time.
"GAAP" means generally accepted accounting principles in the
United States as in effect from time to time.
"GOVERNMENTAL BODY" means any government or governmental or
regulatory body thereof, or political subdivision thereof, whether
federal,
state, local or foreign, or any agency, instrumentality or
authority thereof, or
any court or arbitrator (public or private).
"INDEBTEDNESS" of any Person means, without duplication, (i)
the principal of and premium (if any) and prepayment penalties (if
any) in
respect of (A) indebtedness of such Person for money borrowed and
(B)
indebtedness evidenced by notes, debentures, bonds or other similar
instruments
for the payment of which such Person is responsible or liable; (ii)
all
obligations of such Person issued or assumed as the deferred
purchase price of
property, all conditional sale obligations of such Person and all
obligations of
such Person under any title retention agreement (but excluding
trade accounts
payable and other accrued current liabilities arising in the
Ordinary Course of
Business); (iii) all obligations of such Person under leases
required to be
capitalized in accordance with GAAP; (iv) all obligations of such
Person for the
reimbursement of any obligor on any letter of credit, banker's
acceptance or
similar credit transaction; and (v) all obligations of the type
referred to in
clauses (i) through (iv) of any Persons for the payment of which
such Person is
responsible or liable or for which any property or asset of such
Person is
secured by a Lien under any legally binding obligation, including
as obligor,
guarantor, surety or otherwise.
"INDEMNIFICATION" of any Person means such indemnification
rights as set forth in Article IX of this Agreement.
"INDEMNIFIED PARTY" means any Person entitled to exercise such
indemnification rights as set forth in Article IX of this
Agreement.
"INITIAL CASH AMOUNTS" mean the Series C-1 Cash Amount, the
Series D Cash Amount, the Series C-3 Initial Cash Amount, the
Employee Incentive
Plan Initial Allocation Cash Amount and the Special Acquisition
Bonus Initial
Allocation Cash Amount.
"INITIAL CLOSING CONSIDERATION" means $100,000,000 (subject to
adjustment, as provided in Section 3.7) less 50% of the Transaction
Expenses
outstanding as of the Closing in excess of $3,000,000.
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"INITIAL ESCROW AMOUNT" means $5,000,000 (subject to
adjustment, as provided in Section 3.7), which shall be represented
by a
combination of (a) cash and (b) validly issued, fully paid and
nonassessable
shares of Parent Common Stock, as set forth in Section 3.1(k).
"INITIAL MERGER CONSIDERATION AMOUNT" means the sum of the
Series C-1 Cash Amount plus the Series C-3 Initial Total Amount
plus the Series
D Total Amount.
"INTELLECTUAL PROPERTY" means any rights available with
respect to the Technology under patent, copyright, trade secret or
trademark law
or any other statutory provision or common law doctrine, and also
domain names.
"INTELLECTUAL PROPERTY PAYMENTS" means royalty payments in
respect of the usage of third party Intellectual Property rights
incorporated in
any Company products shipped on or prior to the Closing Date, but
excluding any
Company products shipped thereafter, pursuant to a license or other
agreement
entered into after the Closing Date, provided, however, that the
royalty rate
applied to Company products shipped on or prior to the Closing Date
shall be the
same as the rate applied to comparable Company products shipped
after the
Closing Date.
"IRS" means the United States Internal Revenue Service.
"KEY EMPLOYEES" means those individuals identified as key
employees on Schedule 1.1 of the Company Disclosure Letter.
"KNOWLEDGE" means (i) with respect to the Parent, the actual
knowledge of the individual(s) listed on Schedule 1.1 and such
knowledge as
would reasonably be expected to be known by such individuals in the
ordinary and
usual course of the performance of their professional
responsibilities, and (ii)
with respect to the Company, the actual knowledge of the
individuals listed on
Schedule 1.1 and such knowledge as would reasonably be expected to
be known by
such individual(s) in the ordinary and usual course of the
performance of their
professional responsibilities.
"LAW" means any foreign, federal, state or local law
(including common law), statute, code, ordinance, rule, regulation
or other
requirement issued, enacted, adopted, promulgated, implemented or
otherwise put
into effect by or under the authority of any Governmental Body.
"LEGAL PROCEEDING" means any judicial, administrative or
arbitral actions, suits, proceedings (public or private) or claims
or
proceedings by or before a Governmental Body.
"LIABILITY" means any debt, loss, damage, adverse claim,
liability or obligation (whether direct or indirect, known or
unknown, asserted
or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or
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unliquidated, or due or to become due, and whether in contract,
tort, strict
liability or otherwise).
"LIEN" means any lien, mortgage, encumbrance, security
interest, claim, lease, charge, or pledge that is not a Permitted
Exception.
"LOSSES" means any and all damages, losses, Liabilities, Taxes
and Tax Losses (including any Taxes incurred or resulting from
receipt of a
payment in respect of an indemnifiable Loss but reduced by any Tax
benefit
actually realized and utilized by the end of the taxable year in
which payment
in respect of the indemnifiable Loss is received, determined using
a "with and
without" approach), obligations, costs and expenses, and any and
all claims,
demands or suits (by any Person, including any Governmental Body),
including the
costs and expenses of any and all actions, suits, proceedings,
demands,
assessments, judgments, settlements and compromises relating
thereto and
including reasonable attorneys' and other advisors' fees, costs and
expenses
incurred in connection therewith; provided, that Losses shall not
include any
accounts payable of the Company and Company Subsidiaries recorded
on the Closing
Statement.
"MANAGEMENT TEAM" means William Jones, Malcolm Gordon, Roger
Nichol, Alan E. Jones, Roger Quayle, Jon Beizer, Thierry Maupile,
Dan Burke, Jon
Hambidge and John Lockton.
"MATERIAL ADVERSE EFFECT" means, with respect to any party,
any condition, change, situation or set of circumstances that has
had or would
reasonably be expected to have a material adverse effect on (i) the
business,
assets, properties, liabilities, financial condition, operations,
or results of
operations of such party and its Subsidiaries, taken as a whole, or
(ii) the
ability of such party to consummate the Merger and the other
transactions
contemplated by this Agreement or perform its material obligations
under this
Agreement or the Company Documents, if applicable; provided,
however, that a
Material Adverse Effect shall not include any condition, change,
situation or
set of circumstances or effect relating to (A) the impact on the
Company's
customers, suppliers, distributors or employees relating to public
announcement
of this Agreement or the transactions contemplated hereby, (B) any
actions
required to be taken in compliance with the terms of this
Agreement, (C) any
change in Law or GAAP applicable or potentially applicable
generally to the
wireless communications industries in which the party or its
Subsidiaries
operate, (D) changes generally affecting the wireless
communications industries
in which the party or its Subsidiaries operate (except with respect
to changes
that disproportionately affect the party or its Subsidiaries
relative to other
participants in the industries in which the party and its
Subsidiaries operate),
(E) changes in economic conditions (including changes in the
prevailing interest
rates) in the United States or the United Kingdom (except with
respect to
changes that disproportionately affect the party or its
Subsidiaries relative to
other participants in the wireless communications industries in
which the party
and its Subsidiaries operate) or (F) any attack on, or by, outbreak
or
escalation of hostilities or acts of terrorism involving, the
United States, or
any declaration of war by the United States Congress or any
hurricane or other
natural disaster that does not disproportionately affect the party
or its
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Subsidiaries relative to other participants in the wireless
communications
industries in which the party and its Subsidiaries operate.
"MERGER CONSIDERATION PAYMENTS" means, collectively, the
payment of the Initial Merger Consideration Amount, the Additional
Merger
Consideration Amount, the 2007 Earnout Merger Consideration Amount,
the 2008
Earnout Merger Consideration Amount and the 2009 Earnout Merger
Consideration
Amount.
"NEW YORK PUBLIC SAFETY PROJECT" means the creation and
maintenance of a city-wide mobile wireless broadband network in New
York City
that will be used by public safety workers for communication and
response
services.
"NORTHROP GRUMMAN SHIPPED REVENUE" means the amount of payment
received by the Company and its Subsidiaries from Northrop Grumman
or its
Affiliates on or prior to June 30, 2008 (i) in connection with
product sales by
the Company for the New York Public Safety Project for which the
product has
been delivered by the Company (it being understood that if delivery
and payment
occur at different times, Northrop Grumman Shipped Revenue shall be
deemed to
occur at the time that the later of delivery or payment occur), or
(ii) for
software maintenance.
"ORDER" means any order, injunction, judgment, decree, ruling,
writ, assessment or arbitration award of a Governmental Body.
"ORDINARY COURSE OF BUSINESS" means the ordinary and usual
course of day-to-day operations of the business of the Company and
the Company
Subsidiaries through the date of this Agreement consistent with
past practice.
"PARENT COMMON STOCK" means the common stock, par value $0.001
per share, of Parent.
"PARTICIPATING STOCKHOLDERS" shall mean the holders of Series
C-3 Preferred Stock, and to the extent that the portion of the
Initial Closing
Consideration received by holders of the Series C-3 Preferred Stock
is
inadequate to fund the Initial Escrow Amount, the holders of the
Series D
Preferred Stock.
"PERMITS" means any approvals, authorizations, consents,
licenses, permits or certificates granted or issued by a
Governmental Body.
"PERMITTED EXCEPTIONS" means (i) all defects, exceptions,
restrictions, easements, rights of way and encumbrances disclosed
in policies of
title insurance which have been made available to Parent; (ii)
statutory liens
for current Taxes, assessments or other governmental charges not
yet delinquent
or the amount or validity of which is being contested in good faith
by
appropriate proceedings provided that adequate reserves have been
set aside on
the books and records of the Company or the Company Subsidiaries in
accordance
with GAAP; (iii) mechanics', carriers', workers', repairers' and
similar Liens
arising or incurred in the Ordinary Course of Business that are not
material to
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the business, operations and financial condition of the assets of
the Company so
encumbered; (iv) zoning, entitlement and other land use and
environmental
regulations by any Governmental Body, provided that such
regulations have not
been violated by the Company; (v) statutory or common law liens to
secure
obligations to landlords, lessors or renters under leases or rental
agreements;
(vi) deposits or pledges made in connection with, or to secure
payment of,
workers' compensation, unemployment insurance or similar programs
mandated by
applicable Law; (vii) liens arising solely by virtue of any
statutory or common
law provision relating to banker's liens, rights of setoff or
similar rights and
remedies as to deposit accounts or other funds maintained with a
creditor
depository institution; (viii) liens in favor of other financial
institutions
arising in connection with the Company's deposit accounts or
securities accounts
held at such institutions to secure customary fees, charges, and
the like; and
(ix) liens granted in the Ordinary Course of Business to, or
accounts receivable
assigned to in the Ordinary Course of Business, the Company's
contract
manufacturing partners.
"PERSON" means any individual, corporation, partnership,
limited liability company, firm, joint venture, association,
joint-stock
company, trust, unincorporated organization, Governmental Body or
other entity.
"PRE-CLOSING TAX PERIOD" means any taxable year or period (or
portion thereof) that ends on or before the Closing Date.
"PREFERRED STOCK" means, collectively, the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series
C-1 Preferred
Stock, Series C-3 Preferred Stock, Series C-4 Preferred Stock, and
Series D
Preferred Stock of the Company.
"PRIME RATE" means the Prime Rate as published in the Wall
Street Journal on the applicable measurement date.
"PRO RATA PORTION" means, (a) with respect to the Initial
Escrow Amount, (x) for each Participating Stockholder, the ratio of
(i) the
amount of the Series C-3 Initial Total Amount to which such Person
is entitled
pursuant to Section 3.1 over (ii) the Series C-3 Initial Total
Amount (and if
the holders of the Series D Preferred Stock are required to fund a
portion of
the Initial Escrow Amount, the ratio of (A) the amount of the
Series D Total
Amount which such holder is entitled pursuant to Section 3.1 over
(B) the Series
D Total Amount), (y) for each Plan Participant, such Plan
Participant's pro rata
share (based on Participant Shares held under the Employee
Incentive Plan) of
$150,000, and (z) for the Bonus Participant, the amount by which
the Special
Acquisition Bonus would be reduced as a result of reducing the
Initial Closing
Consideration by $5,000,000, and (b) with respect to the Additional
Escrow
Amount, for each Participating Stockholder, Plan Participant and
Bonus
Participant, the ratio of (i) the amount of Additional Total
Consideration to
which such Person is entitled pursuant to Section 3.1 over (ii) the
Additional
Total Consideration.
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<PAGE>
"PROJECTED WORKING CAPITAL" means the Company's projected
Working Capital as at various dates, as set forth in Exhibit H
hereto. If the
Closing Date occurs between one of the dates listed in Exhibit H,
the applicable
Projected Working Capital shall be determined by linear
interpolation (ignoring
days other than Business Days).
"PUBLIC SAFETY ACTIVITIES" means the planning, funding,
preparation and training for, and/or provision of activities,
goods, and/or
services that are predominantly and traditionally understood to be
within the
scope of governmental functions relating to the health or safety of
members of
the public or to the protection or preservation of public or
private properties
or resources, such as, without limitation: (a) any and all
activities of all
branches of organized governmental military forces and government
security
organizations (such as the United States Central Intelligence
Agency), including
the deployment, operation and maintenance of communications systems
at army,
navy and air force military bases; (b) prevention of, and reaction
to, epidemics
or other threats to public health; and (c) protecting and promoting
public
safety through police, fire departments, emergency medical
services, disaster
assistance, emergency food aid, or the provision of emergency
shelter, whether
such activities, goods, or services are engaged in or provided by
governments or
their agencies or (except with respect to clause (a) above) by
non-profit
civilian agencies in the substantial absence of, or as a supplement
to,
governments capable of doing so.
"PUBLIC SAFETY BUSINESS" means the business of licensing,
selling, offering for sale, marketing, developing, installing
and/or maintaining
any application or implementation of TD-CDMA-based wireless
system(s) for use in
the course of or in support of Public Safety Activities, including
the sale or
license of infrastructure, chipsets, devices, modules, Software,
Intellectual
Property or other components. Public Safety Business shall also
include such
business activities in connection with quasi-commercial
applications conducted
through or in partnership with companies whose primary business is
defense
and/or government contracting, including without limitation
Northrop Grumman,
Lockheed Martin, General Dynamics, EADS and Singapore Technologies;
such
business activities may include but are not limited to
aeronautical, public
transportation and satellite applications.
"RECEIVABLES" means any and all accounts receivable, notes and
other amounts receivable from third parties by the Company or any
of the Company
Subsidiaries.
"SERIES A PREFERRED STOCK" means the Series A Preferred Stock
of the Company, par value $0.001 per share.
"SERIES B PREFERRED STOCK" means the Series B Preferred Stock
of the Company, par value $0.001 per share.
"SERIES C-1 PREFERRED STOCK" means the Series C-1 Preferred
Stock of the Company, par value $0.001 per share.
12
<PAGE>
"SERIES C-1 CASH AMOUNT" means the cash amount determined by
dividing (a) the value of the Series C-1 "Remaining Current
Dividend" as defined
in the Company Certificate of Incorporation by (b) the Series C-1
Shares
Outstanding.
"SERIES C-1 SHARES OUTSTANDING" means the number of shares of
Series C-1 Preferred Stock outstanding immediately prior to the
Effective Time.
"SERIES C-3 PREFERRED
STOCK" means the Series C-3 Preferred
Stock of the Company, par value $0.001 per share.
"SERIES C-3 INITIAL CASH AMOUNT" means the cash amount
determined by dividing (a) 25% of the Series C-3 Initial Total
Amount by (b) the
Series C-3 Shares Outstanding; provided, however, if any portion of
the Series
C-3 Initial Cash Amount would exceed the Cash Cap, taking into
account all other
cash amounts to be paid by Parent to the Company Stockholders, Plan
Participants
and Bonus Participant as of the Effective Time, such portion shall
be paid in
shares of Parent Common Stock equal to the amount of the excess
attributable to
the Series C-3 Initial Cash Amount divided by the Average Parent
Stock Price.
"SERIES C-3 INITIAL STOCK AMOUNT" means the number of shares
of Parent Common Stock determined by dividing (a) the quotient
determined by
dividing (1) 75% of the Series C-3 Initial Total Amount by (2) the
Average
Parent Stock Price by (b) the Series C-3 Shares Outstanding.
"SERIES C-3 INITIAL TOTAL AMOUNT" means the Initial Closing
Consideration less the Employee Incentive Plan Initial Allocation
Amount less
the Series C-1 Cash Amount less the Series D Total Amount and less
the Special
Acquisition Bonus Initial Allocation Amount.
"SERIES C-3 SHARES OUTSTANDING" means the number of shares of
Series C-3 Preferred Stock outstanding immediately prior to the
Effective Time.
"SERIES C-4 PREFERRED STOCK" means the Series C-4 Preferred
Stock of the Company, par value $0.001 per share.
"SERIES D PREFERRED STOCK" means the Series D Preferred Stock
of the Company, par value $0.001 per share.
"SERIES D CASH AMOUNT" means the cash amount determined by
dividing (a) 25% of the Series D Total Amount by (b) the Series D
Shares
Outstanding; provided, however, if any portion of the Series D Cash
Amount would
exceed the Cash Cap, taking into account all other cash amounts to
be paid by
Parent to the Company Stockholders, Plan Participants and Bonus
Participant as
of the Effective Time, such portion shall be paid in shares of
Parent Common
Stock equal to the amount of the excess attributable to the Series
D Cash Amount
divided by the Average Parent Stock Price.
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<PAGE>
"SERIES D SHARES OUTSTANDING" means the number of shares of
Series D Preferred Stock outstanding immediately prior to the
Effective Time
(after giving effect to the automatic conversion of the Convertible
Notes into
shares of Series D Preferred Stock and the exercise of warrants to
purchase
Series D Preferred Stock).
"SERIES D STOCK AMOUNT" means the number of shares of Parent
Common Stock determined by dividing (a) the quotient determined by
dividing (1)
75% of the Series D Total Amount by (2) the Average Parent Stock
Price by (b)
the Series D Shares Outstanding.
"SERIES D TOTAL AMOUNT" means the product of (a) $2.86750
times (b) the Series D Shares Outstanding, provided that such
amount shall not
exceed the Initial Closing Consideration less the Series C-1 Cash
Amount, less
the Employee Incentive Plan Initial Allocation Amount, less the
Special
Acquisition Bonus Initial Allocation Amount.
"SHIPPED REVENUE" means (i) the amount of payment received in
connection with product sales by the Company for which the product
has been
delivered (it being understood that if delivery and payment occur
at different
times, Shipped Revenue shall be deemed to occur at the time that
the later of
delivery or payment occur), plus (ii) fees received for software
maintenance
plus (iii) up-front or fixed license fees received in connection
with licenses
granted to third parties that enable such third parties to engage
in the Public
Safety Business or the TDtv Business plus (iv) proceeds from the
sale of the
Public Safety Business or TDtv Business; provided, however, that
Shipped Revenue
shall not include (a) any nonrecurring engineering expense payments
or service
payments made in connection with product sales, (b) amounts payable
in
connection with the Company's Northrop Grumman purchase order
number PG10452,
dated October 16, 2006 - October 24, 2006, and any replacements,
extensions or
modifications of such purchase order; and provided further that any
new business
or increase to the size of such purchase order shall constitute
Booked Revenue,
or (c) amounts paid or payable pursuant to Booked Revenue; and
provided,
further, that the amount of Shipped Revenue that is subject to
holdbacks or
deferred payment terms shall not be included in Shipped Revenue
until the amount
subject to holdback or deferred payment has been received. Shipped
Revenue shall
include Shipped Revenue of the Company, the Successor Corporation
or any
successor to the relevant Public Safety Business or TDtv Business,
so long as
such business is owned by Parent or any affiliate of Parent, plus
(i) Shipped
Revenue of licensees of the Company who are licensees of the
Company as of the
date hereof, (ii) Shipped Revenue of licensees of the Company who
become
licensees of the Company after the date hereof but prior to Closing
(provided
that Parent has consented thereto), and (iii) Shipped Revenue of
licensees of
the Successor Corporation (or any successor to the relevant Public
Safety
Business or TDtv Business so long as such business is owned by
Parent or any
affiliate of Parent) who become licensees after the Closing;
provided that
Shipped Revenue of any of such licensees shall only include the
amount of cash
received by such licensee that is used to determine the royalty or
license fee
that the licensee pays to the Company. If any equipment covered by
Shipped
Revenue has been delivered late and the Chief Executive Officer of
the Surviving
Corporation certifies to the Stockholder Representative that
penalties or
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<PAGE>
liquidated damages have been invoiced for such late delivery or
have not been
invoiced but are likely to be claimed, in either case in accordance
with the
terms of the agreement with the customer (as such terms and
agreement exist on
the date hereof), then Shipped Revenue shall be reduced by the
penalties or
liquidated damages that have been so invoiced or are so likely to
be claimed;
provided, however, any reduction in the Additional Total
Consideration or
Earnout Amounts resulting from a reduction in Shipped Revenue
caused by
penalties or liquidated damages that have not been invoiced but
have been
certified as likely to be claimed shall be placed into an escrow
account
acceptable to Parent and the Stockholder Representative until (i)
such time that
the penalties or liquidated damages are invoiced, at which time the
associated
amount held in escrow shall be released to Parent, (ii) such time
that the
penalties or liquidated damages are no longer payable by way of
agreement with
the customer, at which time the associated amount held in escrow
shall be
released to the Participating Stockholders, Plan Participants and
Bonus
Participant in accordance with Sections 3.3 or 3.4 below, or (iii)
December 31,
2009, at which time the associated amount held in escrow shall be
released to
the Participating Stockholders, Plan Participants and Bonus
Participant in
accordance with Sections 3.3 or 3.4 below.
"SOFTWARE" means any and all computer programs, whether in
source code or object code form, together with all related
documentation.
"SPECIAL ACQUISITION BONUS" means the bonus described in the
Amended and Restated Amendment to Offer Letter dated March 28, 2007
between the
Company and Jon Beizer.
"SPECIAL ACQUISITION BONUS 2007 EARNOUT ALLOCATION AMOUNT"
means the Special Acquisition Bonus payable (if any) as a result of
the payment
of the 2007 Earnout Amount.
"SPECIAL ACQUISITION BONUS 2008 EARNOUT ALLOCATION AMOUNT"
means the Special Acquisition Bonus payable (if any) as a result of
the payment
of the 2008 Earnout Amount.
"SPECIAL ACQUISITION BONUS 2009 EARNOUT ALLOCATION AMOUNT"
means the Special Acquisition Bonus payable (if any) as a result of
the payment
of the 2009 Earnout Amount.
"SPECIAL ACQUISITION BONUS ADDITIONAL ALLOCATION AMOUNT" means
the Special Acquisition Bonus payable (if any) as a result of the
payment of the
Additional Total Consideration.
"SPECIAL ACQUISITION BONUS EARNOUT ALLOCATION AMOUNT" means
the Special Acquisition Bonus 2007 Earnout Allocation Amount, the
Special
Acquisition Bonus 2008 Earnout Allocation Amount and the Special
Acquisition
Bonus 2009 Earnout Allocation Amount.
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<PAGE>
"SPECIAL ACQUISITION BONUS INITIAL ALLOCATION AMOUNT" means
the Special Acquisition Bonus payable (if any) as a result of the
payment of the
Initial Closing Consideration.
"SPECIAL ACQUISITION BONUS PAYMENTS" means, collectively, the
Special Acquisition Bonus Initial Allocation Amount, the Special
Acquisition
Bonus Additional Allocation Amount, the Special Acquisition Bonus
2007 Earnout
Allocation Amount, the Special Acquisition Bonus 2008 Earnout
Allocation Amount
and the Special Acquisition Bonus 2009 Earnout Allocation
Amount.
"STRADDLE PERIOD" means any taxable year or period that
includes, but does not end on, the Closing Date.
"SUBSIDIARY" means any Person of which any other Person
directly or indirectly owns voting securities, other voting rights
or voting
partnership interests which are sufficient to elect at least a
majority of such
first Person's board of directors or other governing body (or, if
there are no
such voting interests, the second Person directly or indirectly
owns 50% or more
of the equity interests of such first Person).
"TAKEOVER PROPOSAL" means any inquiry, proposal or offer from
any Person or "group" (as defined in Section 13(d) of the
Securities Exchange
Act of 1934, as amended, (the "Exchange Act")), other than Parent
and its
Subsidiaries, relating to any (A) direct or indirect acquisition
(whether in a
single transaction or a series of related transactions) of assets
of the Company
and the Company Subsidiaries (including securities of Subsidiaries)
equal to 10%
or more of the Company's consolidated assets or to which 10% or
more of the
Company's revenues or earnings on a consolidated basis are
attributable, (B)
direct or indirect acquisition (whether in a single transaction or
a series of
related transactions) of 10% or more of any class of equity
securities of the
Company, (C) tender offer or exchange offer that if consummated
would result in
any Person or "group" (as defined in Section 13(d) of the Exchange
Act)
beneficially owning 10% or more of any class of equity securities
of the Company
or (D) merger, consolidation, share exchange, business
combination,
recapitalization, liquidation, dissolution or similar transaction
involving the
Company or any of the Company Subsidiaries; in each case, other
than the
transactions contemplated by this Agreement.
"TAX RETURN" means any return, report or statement required to
be filed with respect to any Tax (including any schedules or
attachments
thereto, and any amendment thereof), including any information
return, claim for
refund, amended return or declaration of estimated Tax, and
including, where
permitted or required, combined, consolidated or unitary returns
for any group
of entities that includes the Company, any of the Company
Subsidiaries, or any
of their Affiliates.
"TAXES" means (i) all
federal, state, local or foreign taxes,
including all net income, gross receipts, capital, sales, use, ad
valorem, value
added, transfer, franchise, profits, inventory, capital stock,
license,
withholding, payroll, employment, social security, unemployment,
national
insurance or health, excise, severance, stamp, occupation, property
and
16
<PAGE>
estimated taxes, customs duties, fees and charges in the nature of
taxes,
imposts, levies, assessments and other taxes of any kind
whatsoever, (ii) all
interest, penalties, fines, additions to tax or additional amounts
imposed by
any Taxing Authority in connection with any item described in
clause (i), and
(iii) any liability in respect of any items described in clauses
(i) and/or (ii)
payable by reason of Contract, assumption, transferee liability,
operation of
Law, Treasury Regulation Section 1.1502-6(a) (or any predecessor or
successor
thereof of any analogous or similar provision under Law) or
otherwise.
"TAXING AUTHORITY" means the IRS and any other Governmental
Body responsible for the administration of any Tax.
"TDTV BUSINESS" means the business of licensing, selling,
offering for sale, marketing, developing, installing and/or
maintaining any
application or implementation of a wireless system for use in the
delivery of
broadcast or multicast services, including the sale or license
of
infrastructure, chipsets, devices, modules, Software, Intellectual
Property or
other components.
"TECHNOLOGY" means, collectively, all designs, formulae,
algorithms, procedures, methods, techniques, ideas, know-how,
Software,
programs, subroutines, tools, inventions, creations, improvements,
works of
authorship and other similar materials, and all recordings, graphs,
drawings,
reports, analyses, and other writings, and any other embodiments of
the above,
in any form whether or not specifically listed herein, and all
related
technology, that are used in, incorporated or embodied in or
displayed by any of
the foregoing or used in the design, development, reproduction,
maintenance or
modification of any of the foregoing.
"T-MOBILE AGREEMENTS" means the following agreements between
the Company and T-Mobile, as such agreements are in effect as of
the date of
this Agreement: (i) a Frame Agreement on Terms and Conditions for
the Supply of
Equipment dated May 20, 2004, as amended by that Amendment 1 to
Frame Agreement
on Terms and Conditions for the Supply of Equipment dated June 29,
2006,
Amendment 2 to Frame Agreement on Terms and Conditions for the
Supply of
Equipment dated August 21, 2006, Amendment 3 to Frame Agreement on
Terms and
Conditions for the Supply of Equipment dated October 30, 2006 and
Amendment 4 to
Frame Agreement on Terms and Conditions for the Supply of Equipment
dated
February 2007 (subject to the Clarification in relation to
Amendment 4 to Frame
Agreement on Terms and Conditions for the Supply of Equipment dated
February
2007) and (ii) a Frame Agreement for the Supply of Equipment dated
May 20, 2005,
as amended by that Amendment 1 to Frame Agreement for the Supply of
Equipment
dated July 1, 2005 and Amendment 2 to Frame Agreement for the
Supply of
Equipment dated October 30, 2006.
"T-MOBILE" means T-Mobile Czech Republic a.s. or its
Affiliates.
"TRANSACTION EXPENSES" means all costs, fees or other expenses
incurred by the Company or the Company Subsidiaries on or prior to
the Closing
Date in connection with the negotiation and execution of this
Agreement and the
17
<PAGE>
consummation of the transactions contemplated by this Agreement,
whenever
incurred by the Company or the Company Subsidiaries on or prior to
the Closing
Date, including all such costs, fees and expenses of counsel,
advisors, brokers,
finders and investment bankers, auditors and accountants and any
bonus payments,
severance payments, retention payments or other amounts payable to
employees in
regard to such contemplated transaction or the Merger hereunder
(other than
payments under the Employee Incentive Plan or the Special
Acquisition Bonus,
which shall be excluded from calculating Transaction Expenses);
provided,
however, that only audit fees in excess of $150,000 incurred by the
Company in
connection with the audit of its 2006 Financial Statements shall be
included in
Transaction Expenses.
"TREASURY REGULATIONS" means the regulations promulgated under
the Code.
(b) Terms
Defined Elsewhere in this Agreement. For purposes of
this Agreement, the following terms have meanings set forth in the
sections
indicated:
Term
Section
----
-------
Agreement
Preamble
Balance Sheet
5.7
Balance Sheet Date
5.7
Certificate
3.5(a)
Certificate of Merger
2.3
Closing
2.2
Closing Date
2.2
Closing Working Capital
3.7(b)
Closing Statement
3.7(b)
COBRA
5.16(d)
Common Stock
3.1
Company
Preamble
Company Documents
5.2(a)
Company Material Adverse Effect
5.1
Company Plans
5.16(a)
Company Stock
5.4(a)
Company Subsidiary
5.5
Confidentiality Agreement
7.9
Deductible
9.2
Dispute Notice
3.7(c)
Dissenting Shares
3.6(a)
DGCL
2.1
Earnout Period
7.19
Effective Time
2.3
Employees
5.16(a)
End Date
4.1(a)
Environmental Laws
5.23(a)
18
<PAGE>
Term
Section
----
-------
ERISA Affiliate
5.16(a)
Escrow Agent
3.1(k)
Escrow Fund
3.1(k)
Escrow Period
9.3(b)
Estimated Working Capital
3.7(a)
Excess Shares
3.6(b)
Expiration Date
9.1(a)
EU
5.23(b)
Final Closing Working Capital
3.7(f)
Financial Statements
5.7
Foreign Antitrust Laws
5.3(b)
Foreign Plan
5.16(g)
Group Relief
5.10(hh)
HSR Act
5.3(b)
Independent Accountant
3.7(d)
Information Statement
7.17
IPWireless Stock Bonus Plan
7.11(c)
Material Contracts
5.14
Merger
Recitals
Merger Sub
Preamble
Merger Sub LLC Interests
3.1
Multiemployer Plan
5.16(b)
Non-Competition Agreement
8.1(o)
Officer's Certificate
9.3(b)
Owned Registered IP
5.12(a)
Parent
Preamble
Parent Balance Sheet
6.10
Parent Common Stock
Parent Disclosure Letter
Article VI
Parent Documents
6.2
Parent Indemnified Parties
9.2(a)
Parent Indemnifiable Losses
9.2(a)
Parent Material Adverse Effect
6.1
Parent SEC Reports
6.10
Parent Stock Plans
6.5(b)
Plan Participant
3.1(f)
Pre-Closing Statement
3.7(a)
Pre-Closing Tax Return
7.15(a)
Registration Statement
7.18
Representatives
7.7(a)
RoHS
5.23(b)
SEC
6.5(c)
Securities Act
5.14
Shares
3.6(a)
19
<PAGE>
Term
Section
----
-------
Stockholder Consents
5.2(d)
Stockholder Representative
10.1(a)
Stockholder Representative Documents
10.1(h)
Surviving Corporation
2.1
Taxes Act 1988
5.10(hh)
Tax Losses
9.5(a)
Tax Refund
5.10(hh)
TCGA 1992
5.10(cc)
Third-Party Interests
5.5
Title IV Plans
5.16(b)
United States
5.10(s)
Unresolved Claim
9.3(b)
WEEE
5.23(b)
Working Capital
3.7(a)
VATA
5.10(ee)
(c) Other Definitional and Interpretive Matters. Unless
otherwise expressly provided in this Agreement, for purposes of
this Agreement,
the following rules of interpretation shall apply:
(i) Calculation of Time Period. When calculating the
period of time before which, within which or following which
any act is to be done or step taken pursuant to this
Agreement, the date that is the reference date in calculating
such period shall be excluded. If the last day of such period
is a non-Business Day, the period in question shall end on the
next succeeding Business Day.
(ii) Dollars. Any reference in this Agreement to $ or
dollars shall mean U.S. dollars.
(iii) Exhibits/Schedules. The Exhibits and Schedules
annexed to this Agreement, including the Company Disclosure
Letter, are hereby incorporated and made a part hereof and are
an integral part of this Agreement. Any capitalized terms used
in any Schedule or Exhibit but not otherwise defined therein
shall be defined as set forth in this Agreement.
(iv) Gender and Number. Any reference in this
Agreement to gender shall include all genders, and words
imparting the singular number only shall include the plural
and vice versa.
(v) Headings. The provision of a Table of Contents,
the division of this Agreement into Articles, Sections and
other subdivisions and the insertion of headings are for
convenience of reference only and shall not affect or be
utilized in construing or interpreting this Agreement. All
references in this Agreement to any "Section" are to the
corresponding Section of this Agreement unless otherwise
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<PAGE>
specified. All references in this Agreement to any "Schedule"
are to schedules included in the Company Disclosure Letter.
(vi) Herein. The words such as "HEREIN,"
"HEREINAFTER," "HEREOF," and "HEREUNDER" refer to this
Agreement as a whole and not merely to a subdivision in which
such words appear unless the context otherwise requires.
(vii) Including. The word "INCLUDING" or any
variation
thereof means "INCLUDING, WITHOUT LIMITATION", and
shall not be construed to limit any general statement that it
follows to the specific or similar items or matters
immediately following it.
(viii) The parties hereto have participated jointly
in the negotiation and drafting of this Agreement and, in the
event an ambiguity or question of intent or interpretation
arises,
this Agreement shall be construed as jointly drafted
by the parties hereto and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the
authorship of any provision of this Agreement.
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement and in accordance with the General
Corporation Law
of the State of Delaware (the "DGCL"), Merger Sub shall be merged
with and into
the Company at the Effective Time. Following the Effective Time,
the separate
corporate existence of Merger Sub shall cease, and the Company
shall continue as
the surviving corporation in the Merger (the "SURVIVING
Corporation") and shall
succeed to and assume all the rights and obligations of Merger Sub
in accordance
with the DGCL. References to the Company following the Effective
Time shall be
deemed to be to the Surviving Corporation.
2.2 Closing. Subject to the satisfaction of the conditions set
forth in Sections 8.1 and 8.2 (or the waiver thereof by the party
entitled to
waive that condition), the closing of the Merger (the "CLOSING")
shall take
place at the offices of Weil, Gotshal & Manges LLP located at
767 Fifth Avenue,
New York, New York 10153 (or at such other place as the parties may
designate)
at 10:00 a.m. (New York time) on a date to be specified by the
parties, which
date shall be no later than the second (2nd) Business Day after the
satisfaction
or waiver of each condition to the Closing set forth in Article
VIII (other than
conditions that by their nature are to be satisfied at the Closing,
but subject
to the satisfaction or waiver of such conditions), unless another
time or date,
or both, are agreed to in writing by the parties hereto. The date
on which the
Closing shall be held is referred to in this Agreement as the
"CLOSING DATE."
2.3 Effective Time. Subject to the provisions of this
Agreement, as soon as practicable on the Closing Date, the parties
shall file a
certificate of merger (the "CERTIFICATE OF MERGER") executed in
accordance with
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<PAGE>
the relevant provisions of the DGCL and, as soon as practicable on
or after the
Closing Date, shall make all other filings or recordings required
under the
DGCL. The Merger shall become effective at such time as the
Certificate of
Merger is duly filed with the Secretary of State of the State of
Delaware, or at
such other time as Parent and the Company shall agree and shall
specify in the
Certificate of Merger (the time the Merger becomes effective being
the
"EFFECTIVE TIME").
2.4 Effects of the Merger. The Merger shall have the effects
set forth in the DGCL.
2.5 Certificate of Incorporation and By-laws.
(a) The certificate of incorporation of the Surviving
Corporation shall be amended at the Effective Time to be in the
form of Exhibit
B and, as so amended, such certificate of incorporation shall be
the certificate
of incorporation of the Surviving Corporation until thereafter
changed or
amended as provided therein or by applicable Law.
(b) The bylaws of the Company, as in effect immediately prior
to the Effective Time, shall be the bylaws of the Surviving
Corporation until
thereafter changed or amended as provided therein or by applicable
Law.
2.6 Directors. The managers of Merger Sub immediately prior to
the Effective Time, shall be the directors of the Surviving
Corporation until
the earlier of their resignation or removal or until their
respective successors
are duly elected and qualified in accordance with the certificate
of
incorporation and bylaws of the Surviving Corporation, as the case
may be.
2.7 Officers. The officers of Merger Sub immediately prior to
the Effective Time shall be the officers of the Surviving
Corporation, until the
earlier of their resignation or removal or until their respective
successors are
duly elected and qualified in accordance with the certificate of
incorporation
and bylaws of the Surviving Corporation, as the case may be.
ARTICLE III
EFFECT OF THE MERGER ON THE
SECURITIES OF THE COMPANY AND MERGER SUB
3.1 Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of Merger
Sub, the
Company or the holders of (i) (A) any shares of the Company's
common stock, par
value $0.001 per share (the "COMMON STOCK"), or (B) any shares of
Preferred
Stock, or (ii) any limited liability company interests of Merger
Sub ("MERGER
SUB LLC INTERESTS"), the following shall occur:
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(a) LLC Interests of Merger Sub. The Merger Sub LLC Interests
issued and outstanding immediately prior to the Effective Time
shall be
converted into and exchangeable as a whole for 1,000 shares of
common stock of
the Surviving Corporation and shall constitute the only outstanding
shares of
capital stock of the Surviving Corporation. From and after the
Effective Time,
all certificates representing Merger Sub LLC Interests shall be
deemed for all
purposes to represent the number of shares of common stock of the
Surviving
Corporation into which they were converted in accordance with the
immediately
preceding sentence.
(b) Cancellation of Treasury Stock. Each share of Common Stock
and Preferred Stock issued and outstanding immediately prior to the
Effective
Time that is owned by the Company (as treasury stock or otherwise)
shall
automatically be cancelled and retired and shall cease to exist,
and no cash or
other consideration shall be delivered or deliverable in exchange
thereof.
(c) Series C-1 Preferred Stock of the Company. Subject to
Sections 3.5(f) and 9.3, each share of Series C-1 Preferred Stock
issued and
outstanding immediately prior to the Effective Time (other than any
shares of
such stock to be cancelled pursuant to Section 3.1(b) and any
Dissenting Shares)
shall be converted into the right to receive an amount in cash,
without
interest, equal to the Series C-1 Cash Amount.
(d) Series D Preferred Stock of the Company. Subject to
Sections 3.5(f), 3.5(g) and 9.3, each share of Series D Preferred
Stock issued
and outstanding immediately prior to the Effective Time (other than
any shares
of such stock to be cancelled pursuant to Section 3.1(b) and any
Dissenting
Shares) shall be converted into the right to receive (1) an amount
in cash,
without interest, equal to the Series D Cash Amount and (2) a
number of shares
of Parent Common Stock equal to the Series D Stock Amount.
(e) Series C-3 Preferred Stock of the Company. Subject to
Sections 3.3, 3.5(f), 3.5(g) and 9.3, each share of Series C-3
Preferred Stock
issued and outstanding immediately prior to the Effective Time
(other than any
shares of such stock to be cancelled pursuant to Section 3.1(b) and
any
Dissenting Shares) shall be converted into the right to receive
(subject to
adjustment pursuant to Section 3.7):
(i) (1) an amount in cash, without interest, equal to
the Series C-3 Initial Cash Amount and (2) a number of shares
of Parent Common Stock equal to the Series C-3 Initial Stock
Amount; and
(ii) an amount equal to the 2007 Earnout Per Share
Amount, the 2008 Earnout Per Share Amount, the 2009 Earnout
Per Share Amount and the Additional Consideration Per Share
Amount, which Earnout Amounts shall be payable either in cash,
without interest, or in shares of Parent Common Stock based on
the applicable Average Parent Stock Price, or a combination
thereof; provided, that Parent shall have the right to make
such election with respect to 75% of any Earnout Amount and
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the Stockholder Representative shall have the right to make
such election with respect to 25% of any Earnout Amount, and
with respect to the Additional Consideration Per Share Amount,
100% of such amount shall be payable at the election of Parent
either in cash, without interest, or in Shares of Parent
Common Stock based on the applicable Average Parent Stock
Price.
(f) Employee Incentive Plan. Subject to Sections 3.5(f),
3.5(g) and 9.3, the Employee Incentive Plan Initial Allocation
Amount, the
Employee Incentive Plan Additional Allocation Amount and the
Employee Incentive
Plan Earnout Allocation Amount shall be issued and paid to the
applicable
participants of the Employee Incentive Plan (the "PLAN
PARTICIPANTS") as
follows:
(i) at the Effective Time, either, or a combination
of, a number of shares of Parent Common Stock and cash,
without interest, equal to the Employee Incentive Plan Initial
Allocation Amount; provided that all Plan Participants who are
not members of the Management Team shall be paid 100% cash and
all members of the Management Team shall be paid in cash
and/or shares of Parent Common Stock in the same proportion
paid to holders of Series C-3 Preferred and Series D Preferred
with respect to the Series C-3 Initial Total Amount and the
Series D Total Amount, respectively;
(ii) at
the time set forth in Section 3.3 below,
either, or a combination of, a number of shares of Parent
Common Stock and cash, without interest, equal to the Employee
Incentive Plan Additional Allocation Amount; provided that all
Plan Participants who are not members of the Management Team
shall be paid 100% cash and all Plan Participants who are
members of the Management Team shall be paid in cash and/or
shares of Parent Common Stock, in the same proportion paid to
holders of Series C-3 Preferred with respect to the Additional
Merger Consideration Amount;
(iii) within the time period set forth in Section 3.4
below, either, or a combination of, a number of shares of
Parent Common Stock and cash, without interest, equal to the
Employee Incentive Plan 2007 Earnout Allocation Amount;
provided that all Plan Participants who are not members of the
Management Team shall be paid 100% cash and all Plan
Participants who are members of the Management Team shall be
paid in cash and/or shares of Parent Common Stock, in the same
proportion paid to holders of Series C-3 Preferred with
respect to the 2007 Earnout Amount;
(iv) within the time period set forth in Section 3.4
below, either, or a combination of, a number of shares of
Parent Common Stock and cash, without interest, equal to the
Employee Incentive Plan 2008 Earnout Allocation Amount;
provided that all Plan Participants who are not members of the
Management Team shall be paid 100% cash and all Plan
Participants who are members of the Management Team shall be
paid in cash and/or shares of Parent Common Stock, in the same
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proportion paid to holders of Series C-3 Preferred with
respect to the 2008 Earnout Amount; and
(v) within the time period set forth in Section 3.4
below, either, or a combination of, a number of shares of
Parent Common Stock and cash, without interest, equal to the
Employee Incentive Plan 2009 Earnout Allocation Amount;
provided that all Plan Participants who are not members of the
Management Team shall be paid 100% cash and all Plan
Participants who are members of the Management Team shall be
paid in cash and/or shares of Parent Common Stock, in the same
proportion paid to holders of Series C-3 Preferred with
respect to the 2009 Earnout Amount.
(g) Special Acquisition Bonus. Subject to Sections 3.5(f),
3.5(g) and 9.3, the Special Acquisition Bonus Initial Allocation
Amount, the
Special Acquisition Bonus Additional Allocation Amount and the
Special
Acquisition Bonus Earnout Allocation Amount shall be paid to the
Bonus
Participant:
(i) at the Effective Time, a combination of a number
of shares of Parent Common Stock and cash, without interest,
equal to the Special Acquisition Bonus Initial Allocation
Amount, in the same proportion paid to holders of the Series
C-3 Preferred and Series D Preferred with respect to the
Series C-3 Initial Total Amount and the Series D Total Amount,
respectively;
(ii) at the time set forth in Section 3.3 below,
either, or a combination of, a number of shares of Parent
Common Stock and cash, without interest, equal to the Special
Acquisition Bonus Additional Allocation Amount to be paid in
cash, without interest, and/or shares of Parent Common Stock,
in the same proportion paid to holders of Series C-3 Preferred
with respect to the Additional Merger Consideration Amount;
(iii) within the time period set forth in Section 3.4
below, either, or a combination of, a number of shares of
Parent Common Stock and cash, without interest, equal to the
Special Acquisition Bonus 2007 Earnout Allocation Amount to be
paid in cash and/or shares of Parent Common Stock, in the same
proportion paid to holders of Series C-3 Preferred with
respect to the 2007 Earnout Amount;
(iv) within the time period set forth in Section 3.4
below, either, or a combination of, a number of shares of
Parent Common Stock and cash, without interest, equal to the
Special Acquisition Bonus 2008 Earnout Allocation Amount to be
paid in cash and/or shares of Parent Common Stock, in the same
proportion paid to holders of Series C-3 Preferred with
respect to the 2008 Earnout Amount; and
(v) within the time period set forth in Section 3.4
below, either, or a combination of, a number of shares of
Parent Common Stock and cash, without interest, equal to the
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Special Acquisition Bonus 2009 Earnout Allocation Amount to be
paid in cash and/or shares of Parent Common Stock, in the same
proportion paid to holders of Series C-3 Preferred with
respect to the 2009 Earnout Amount.
Notwithstanding any provisions in this Agreement to the
contrary, (i) the Initial Merger Consideration Amount, the Employee
Incentive
Plan Initial Allocation Amount and the Special Acquisition Bonus
Initial
Allocation Amount shall not in the aggregate exceed $100,000,000
(subject to
adjustment, as provided in Section 3.7) and the amount of cash
included in such
amount shall not exceed $25,000,000, (ii) the amounts identified in
clause (i)
together with the Additional Merger Consideration Amount, the
remaining Employee
Incentive Plan Payments, the remaining Special Acquisition Bonus
Payments, the
2007 Earnout Amount, the 2008 Earnout Amount and the 2009 Earnout
Amount shall
not in the aggregate exceed $235,000,000 (it being understood for
purposes of
calculating any of these amounts that the Parent Common Stock shall
be valued
using the values established at the time of issuance as provided
elsewhere in
this Agreement), (iii) Parent shall have no obligation to issue
shares of Parent
Common Stock hereunder to any Person who has not provided Parent or
the Company
with a duly executed accredited investor certificate in the form
previously
approved by Parent, and shall, in lieu thereof make payment
therefor in cash,
(iv) in respect of any Earnout Amount, Parent shall not issue
shares of Parent
Common Stock under this Agreement if the effect of doing so would
reasonably be
expected to result in a violation of Nasdaq Marketplace Rule
4350(i), and shall
in lieu thereof make payment therefor in cash, and (v) Parent shall
have no
obligation to pay cash in excess of $4,464,412 in aggregate to Plan
Participants
who are not members of the Management Team in connection with the
Employee
Incentive Plan Payments. From and after the Effective Time, Parent
shall cause
the Company to pay all Employee Incentive Plan Payments and Special
Acquisition
Bonus Payments (including by providing the Company with sufficient
funds and/or
shares of Parent Common Stock to make timely payment thereof).
(h) Series C Preferred Stock, Series B Preferred Stock, Series
A Preferred Stock and Common Stock. Each share of Series C
Preferred Stock,
Series B Preferred Stock, Series A Preferred Stock and Common Stock
issued and
outstanding immediately prior to the Effective Time (other than any
shares of
such stock to be cancelled pursuant to Section 3.1(b) and any
Dissenting Shares)
shall be cancelled as of the Effective Time and shall have no right
to receive
any portion of any payments provided for in this Agreement or other
amount.
(i) Company Stock Options.
(i) All Company Stock Options will become, pursuant
to their respective terms, fully vested and exercisable prior
to the Effective Time. Holders of the Company Stock Options
shall be given the opportunity to exercise their Company Stock
Options effective prior to the Effective Time. All Company
Stock Options that remain unexercised and outstanding as of
26
<PAGE>
the Effective Time will be cancelled and null and void
pursuant to their respective terms as of the Effective Time.
(ii) Following the Effective Time, no holder of
Company Stock Options, or any participant in or beneficiary of
any of the Company Plans, will have any right to acquire or
receive any equity securities or other interests of the
Surviving Corporation or any Subsidiary thereof, or any other
consideration.
(j) Warrants. All warrants issued by the Company that are not
exercised prior to the Effective Time will terminate and expire as
of the
Effective Time. Prior to the Effective Time, the Company shall take
all actions
necessary to effectuate such termination at the Effective Time and
shall deliver
the cancelled warrant certificates to the Parent at the
Closing.
(k) Escrow Fund. Notwithstanding the provisions of Sections
3.1(a)-(f), Parent shall (i) (1) at the Closing, (A) withhold from
each
Participating Stockholder a portion of the Initial Closing
Consideration
otherwise allocable to such Participating Stockholder equal to his,
her or its
Pro Rata Portion of the Initial Escrow Amount, (B) withhold from
each Plan
Participant, his, her or its Pro Rata Portion of the Initial Escrow
Amount, and
(C) withhold from each Bonus Participant, his, her or its Pro Rata
Portion of
the Initial Escrow Amount, and (2) if Additional Total
Consideration is paid
prior to the Expiration Date, withhold from (A) each Participating
Stockholder a
portion of the Additional Escrow Amount otherwise allocable to
such
Participating Stockholder equal to his, her or its Pro Rata Portion
of the
Additional Escrow Amount, (B) withhold from each Plan Participant,
his, her or
its Pro Rata Portion of the Additional Escrow Amount, and (C)
withhold from each
Bonus Participant, his, her or its Pro Rata Portion of the
Additional Escrow
Amount, and (ii) cause such withheld amounts and shares to be
deposited with a
mutually agreed upon escrow agent (the "ESCROW AGENT"), in
accordance with the
terms of the Escrow Agreement and Article IX (the "ESCROW FUND");
provided,
however, if Additional Total Consideration is paid after the
Expiration Date and
Parent has suffered Parent Indemnifiable Losses under Section 9.2
in excess of
the Initial Escrow Amount, Parent shall deduct from (A) each
Participating
Stockholder his, her or its Pro Rata Portion of such Parent
Indemnifiable
Losses, not to exceed the Additional Escrow Amount otherwise
allocable to such
Participating Stockholder, (B) withhold from each Plan Participant,
his, her or
its Pro Rata Portion of such Parent Indemnifiable Losses, not to
exceed the
Additional Escrow Amount otherwise allocable to such Plan
Participant and (C)
withhold from each Bonus Participant, his, her or its Pro Rata
Portion of such
Parent Indemnifiable Losses, not to exceed the Additional Escrow
Amount
otherwise allocable to such Bonus Participant. The Participating
Stockholders
shall have the sole and exclusive right to exercise any and all
voting and
consensual rights and powers, and shall be entitled to receive and
retain any
and all cash dividends, accruing to an owner of such Participating
Stockholder's
respective portion of the shares of Parent Common Stock pursuant to
the terms of
the Escrow Agreement. For income tax purposes, the Participating
Stockholders
shall be deemed the owners of their portion of the Escrow Fund, all
earnings on
investments of the Participating Stockholders' portion of the cash
deposited by
Parent shall be reported by the applicable Participating
Stockholder, and the
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<PAGE>
Participating Stockholders will be responsible for paying all taxes
on such
earnings. The parties hereto acknowledge and agree that they will
not treat any
portion of a payment to the Participating Stockholders from the
Escrow Fund upon
release of the amounts held pursuant to the Escrow Agreement as a
payment of
interest to the Participating Stockholders by Parent, except as
otherwise
required by a taxing authority. The parties shall instruct the
Escrow Agent to
disburse funds to the Stockholder Representative for payment to
the
Participating Stockholders within thirty (30) days following each
calendar year
in an amount equal to the net amount of all earnings on investments
of such cash
deposit held in the Escrow Fund allocable to the Participating
Stockholders
earned in such calendar year multiplied by forty-five percent
(45%).
3.2 Allocations Spreadsheet. Three (3) Business Days prior to
the Closing Date, the Company shall deliver to Parent an updated
draft of the
Allocations Spreadsheet reflecting (i) the deduction of (x) the
Transaction
Expenses deducted from the calculation of the Initial Closing
Consideration and
(y) the Initial Escrow Amount as determined pursuant to Section
3.1(k), and (ii)
the Average Parent Stock Price. At the Closing, the Company shall
deliver to
Parent the final Allocations Spreadsheet, which shall be prepared
in
consultation with Parent in order that Parent may confirm the
information
contained therein, setting forth the final calculation of the
amounts for
distribution in accordance with Section 3.1.
3.3 Additional Consideration Spreadsheet. Within ten (10)
Business Days following the earlier of (a) the date the Northrop
Grumman Shipped
Revenue first equals or exceeds $35,000,000 or (b) June 30, 2008,
Parent shall
deliver to the Stockholder Representative a statement setting forth
its
calculation of the Northrop Grumman Shipped Revenue, the Additional
Total
Consideration, the allocation of the Additional Total Consideration
among the
holders of Series C-3 Preferred Stock in accordance with Section
3.1, the
allocation of the Employee Incentive Plan Additional Allocation
Amount among the
Plan Participants and the allocation of the Special Acquisition
Bonus Additional
Allocation Amount among those entitled to the Special Acquisition
Bonus,
together with such supporting documentation as is reasonably
necessary to
determine the accuracy of such calculations and allocations (the
"ADDITIONAL
CONSIDERATION SPREADSHEET"). The Stockholder Representative shall
notify Parent,
within twenty (20) Business Days of its receipt of the Additional
Consideration
Spreadsheet, of any objections to the calculations and allocations
set forth
therein. If the Stockholder Representative agrees with the
calculations and
allocations set forth in the Additional Consideration Spreadsheet
by providing
written notice thereof to Parent or does not raise any written
objection thereto
to Parent within such twenty (20) Business Day period, Parent,
within five (5)
Business Days thereafter, shall deliver or cause to be delivered to
each
Participating Stockholder, Plan Participant and Bonus Participant,
either a cash
amount and/or a certificate (or evidence of shares in book entry
form)
representing that number of whole shares of Parent Common Stock
(and cash in
lieu of fractional shares, if any) such holder is entitled to
receive in
accordance with Section 3.1(e), Section 3.1(f)(ii) and Section
3.1(g)(ii) and as
set forth in the Additional Consideration Spreadsheet. In the event
the
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Stockholder Representative objects to the calculations or
allocations set forth
in the Additional Consideration Spreadsheet, the parties shall
resolve the
dispute pursuant to the procedures set forth in Section 9.3(e).
Parent shall
have no obligation to make any cash payments or issue any shares of
Parent
Common Stock under this Section 3.3 until a final determination has
been made
pursuant to Section 9.3(e).
3.4 Earnout Consideration Spreadsheets. As promptly as
reasonably practicable following the end of each of the calendar
years 2007,
2008 and 2009, but not later than the earlier of (a) 120 days
following the end
of such calendar year or (b) the date of completion of the audit of
Parent's
financial statements for such calendar year, Parent shall deliver
to the
Stockholder Representative a statement setting forth its
calculation of the
applicable Shipped Revenue, the applicable Earnout Amount, the
applicable
Earnout Merger Consideration Amount, the applicable Employee
Incentive Plan
Earnout Allocation Amount, the Special Acquisition Bonus Earnout
Allocation
Amount and the allocation of such amounts to the Participating
Stockholders, the
Plan Participants and the Bonus Participant in accordance with this
Agreement,
together with such supporting documentation as is reasonably
necessary to
determine the accuracy of such calculations and allocations (each,
an "EARNOUT
CONSIDERATION SPREADSHEET"). The Stockholder Representative shall,
within twenty
(20) Business Days of its receipt of each Earnout Consideration
Spreadsheet,
notify Parent of any objections to the calculations and allocations
set forth
therein. If the Stockholder Representative agrees with the
calculations and
allocations set forth in such Earnout Consideration Spreadsheet by
providing
written notice thereof to Parent or does not raise any written
objection thereto
to Parent within such twenty (20) Business Day period, Parent
shall, within five
(5) Business Days thereafter, deliver or cause to be delivered to
each
Participating Stockholder, each Plan Participant and Bonus
Participant a cash
amount and/or a certificate (or evidence of shares in book entry
form)
representing that number of whole shares of Parent Common Stock
(and cash in
lieu of fractional shares, if any, and, at the election of Parent,
cash in lieu
of any shares of Parent Common Stock in order to comply with
applicable
securities Laws) such person is entitled to receive in accordance
with this
Agreement and as set forth in such Earnout Consideration
Spreadsheet. In the
event the Stockholder Representative objects to the calculations or
allocations
set forth in an Earnout Consideration Spreadsheet, the parties
shall resolve the
dispute pursuant to the procedures set forth in Section 9.3(e).
Parent shall
have no obligation to make any cash payments or issue any shares of
Parent
Common Stock under this Section 3.4 until a final determination has
been made
pursuant to Section 9.3(e). Notwithstanding the foregoing, in the
event that at
the time of payment of the 2007 Earnout Amount such amount still
has the
potential to increase as a result of the Company's receipt of
additional
payments associated with Booked Revenue included in the 2007
Earnout Amount,
then additional Earnout Consideration Spreadsheets shall be
delivered and the
foregoing process shall be repeated on a monthly basis with respect
to the 2007
Earnout Amount until the earlier of (i) such time that the maximum
2007 Earnout
Amount has been achieved, or (ii) December 31, 2009.
3.5 Exchange of Certificates.
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<PAGE>
(a) Exchange Procedure. Promptly after the Effective Time, but
no later than ten (10) Business Days after the Effective Time,
Parent shall
mail, or shall cause to be mailed, to each Participating
Stockholder, (i) a
letter of transmittal (which shall specify that delivery shall be
effected, and
risk of loss and title to the certificates formerly representing
any shares of
Company Stock (the "CERTIFICATES") shall pass, only upon delivery
of the
Certificates to Parent), substantially in the form of Exhibit C
attached hereto
and (ii) instructions for use in effecting the surrender of the
Certificates in
exchange for certificates representing the applicable Merger
consideration, any
dividends or other distributions to which holders of Certificates
are entitled
pursuant to Section 3.5(b) and cash in lieu of any fractional
Parent Common
Stock to which such holders are entitled pursuant to Section
3.5(g). Upon
surrender of a Certificate for cancellation to Parent, together
with such letter
of transmittal, duly completed and validly executed in accordance
with the
instructions (and such other customary documents as may reasonably
be required
by Parent), the holder of such Certificate shall be entitled to
receive in
exchange therefor (A) the applicable cash payment, (B) a
certificate
representing that number of shares of Parent Common Stock that such
holder has
the right to receive pursuant to the provisions of this Article III
after taking
into account all the shares of Company Stock then held by such
holder under all
such Certificates so surrendered, (C) any dividends or other
distributions to
which such holder is entitled pursuant to Section 3.5(b) and (D)
cash in lieu of
any fractional Parent Common Stock to which such holder is entitled
pursuant to
Section 3.5(g), and the Certificate so surrendered shall forthwith
be canceled.
In the event of a transfer of ownership of shares of Company Stock
that is not
registered in the transfer records of the Company, a certificate
representing
the proper number of shares of Parent Common Stock may be issued to
a Person
other than the Person in whose name the Certificate so surrendered
is
registered, if, upon presentation to Parent, such Certificate shall
be properly
endorsed or shall otherwise be in proper form for transfer and the
Person
requesting such issuance shall have paid any transfer and other
taxes required
by reason of the issuance of Parent Common Stock to a Person other
than the
registered holder of such Certificate or shall have established to
the
reasonable satisfaction of the Surviving Corporation that such tax
either has
been paid or is not applicable. Until surrendered as contemplated
by this
Section 3.5(a), each Certificate shall be deemed at any time after
the Effective
Time to represent only the right to receive the applicable Merger
Consideration
Payments, any dividends or other distributions to which the holder
of such
Certificate is entitled pursuant to Section 3.5(b) and cash in lieu
of any
fractional Parent Common Stock to which such holder is entitled
pursuant to
Section 3.5(g), in each case, without interest.
(b) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Parent Common
Stock with a
record date after the Effective Time shall be paid to the holder of
any
unsurrendered Certificate with respect to the shares of Parent
Common Stock that
the holder thereof has the right to receive upon the surrender
thereof, and no
cash payment in lieu of any fractional shares of Parent Common
Stock shall be
paid to any such holder pursuant to Section 3.5(g), in each case
until the
holder of such Certificate shall surrender such Certificate in
accordance with
this Article III. Following surrender of any Certificate in
accordance with this
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Article III, there shall be paid to the record holder thereof,
without interest,
(i) promptly following the time of such surrender, the amount of
cash payable in
lieu of any fractional shares of Parent Common Stock to which such
holder is
entitled pursuant to Section 3.5(g) and the amount of dividends or
other
distributions, payable with respect to that number of whole shares
of Parent
Common Stock issuable in exchange for such Certificate pursuant to
this Article
III, with a record date after the Effective Time and paid with
respect to Parent
Common Stock prior to such surrender, and (ii) at the appropriate
payment date,
the amount of dividends or other distributions with a record date
after the
Effective Time but prior to such surrender and a payment date
subsequent to such
surrender payable with respect to such whole shares of Parent
Common Stock.
(c) Transfer Books; No Further Ownership Rights in Company
Stock. All shares of Parent Common Stock issued upon the surrender
for exchange
of Certificates in accordance with the terms of this Article III
(including any
dividends or other distributions paid pursuant to Section 3.5(b)
and cash paid
in lieu of any fractional shares pursuant to Section 3.5(g)) shall
be deemed to
have been issued (and paid) in full satisfaction of all rights
pertaining to the
shares of Company Stock previously represented by such Certificates
(other than
any right to receive Additional Merger Consideration Amounts,
Earnout Merger
Consideration Amounts and amounts that may be released from escrow
pursuant to
this Agreement), and at the close of business on the day on which
the Effective
Time occurs, the stock transfer books of the Company shall be
closed and
thereafter there shall be no further registration of transfers on
the stock
transfer books of the Surviving Corporation of the shares of
Company Stock that
were outstanding immediately prior to the Effective Time. From and
after the
Effective Time, the holders of Certificates that evidenced
ownership of shares
of Company Stock outstanding immediately prior to the Effective
Time shall cease
to have any rights with respect to such shares, except as otherwise
provided for
herein or by applicable Law. If, at any time after the Effective
Time,
Certificates are presented to the Surviving Corporation or the
Exchange Agent
for any reason, they shall be canceled and exchanged as provided in
this Article
III.
(d) Lost, Stolen or Destroyed Certificates. If any Certificate
shall have been lost, stolen or destroyed, upon the making of an
affidavit of
that fact by the Person claiming such Certificate to be lost,
stolen or
destroyed and, if reasonably required by Parent in lieu of the
Person's
agreement to indemnify Parent, the posting by such Person of a
bond, in such
reasonable amount as Parent may direct, as indemnity against any
claim that may
be made against it with respect to such Certificate, Parent will
issue, in
exchange for such lost, stolen or destroyed Certificate, the
applicable Merger
consideration, and cash in lieu of any fractional shares of Parent
Common Stock
to which such holder would be entitled pursuant to Section 3.5(g),
in each case
pursuant to this Agreement.
(e) No Liability. Notwithstanding any provision of this
Agreement to the contrary, none of the Surviving Corporation,
Parent or the
Company shall be liable to any Person in respect of any shares of
Parent Common
Stock (or dividends or other distributions with respect thereto) or
cash in lieu
of any fractional shares of Parent Common Stock or cash from the
Escrow Fund, in
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each case delivered to a public official pursuant to any applicable
abandoned
property, escheat or similar Law.
(f) Withholding Taxes. Parent shall be entitled to deduct and
withhold from the consideration otherwise payable to a holder of
shares of
Company Stock pursuant to this Agreement or a Plan Participant or a
Bonus
Participant such amounts as may be required to be deducted and
withheld with
respect to the making of such payment under the Code, or under any
provision of
state, local or foreign tax Law. To the extent amounts are so
withheld and paid
over to the appropriate taxing authority, Parent and the Exchange
Agent shall be
treated as though they withheld from the type of consideration from
which
withholding is required, an appropriate amount otherwise payable
pursuant to
this Agreement to any such Person in order to provide for such
withholding
obligation and such withheld amounts shall be treated for the
purposes of this
Agreement as having been paid to such Person. If withholding is
required from
shares of Parent Common Stock, Parent shall be treated as having
sold such
consideration for an amount of cash equal to the fair market value
of such
consideration at the time of such deemed sale and paid such cash
proceeds to the
appropriate taxing authority. For the purposes of reporting
compensation income
and calculating the applicable income and employment tax
withholding with
respect to the payments to the Plan Participants and the Bonus
Participant, the
Company shall be deemed the owner of the portion of the Escrow Fund
allocable to
the Plan Participants and Bonus Participants and the applicable
information
reporting and the timing and amount subject to income and
employment tax
withholding shall be based upon the amounts actually received by
the Plan
Participants and the Bonus Participant, whether paid by the Escrow
Agent or by
the Company or Parent. Furthermore, the Company shall be entitled
to an annual
distribution of forty-five percent (45%) of the amount of the
earnings on such
Plan Participants' and Bonus Participant's investments of the cash
portion of
the Escrow Fund.
(g) No Fractional Shares. No certificates or scrip
representing fractional shares of Parent Common Stock shall be
issued upon the
Merger Consideration Payments, no dividends or other distributions
of Parent
shall relate to such fractional shares and such fractional shares
will not
entitle the owner thereof to vote or to any rights of a stockholder
of Parent.
In lieu of such fractional shares, Parent shall pay to each holder
of a
Certificate (at such time as Parent is required to deliver any
applicable Merger
consideration to such holder) an amount in cash equal to the
product obtained by
multiplying (A) the fractional share to which such holder (after
taking into
account all shares of Company Stock held at the Effective Time by
such holder)
would otherwise be entitled by (B) the applicable Average Parent
Stock Price.
(h) Tax Treatment. The parties agree that a portion of the
consideration paid post-closing pursuant to this Article III shall
be treated as
interest pursuant to Section 483 of the Code.
3.6 Appraisal Rights.
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(a) Notwithstanding anything in this Agreement to the
contrary, shares of Common Stock or Preferred Stock (the "SHARES")
that are
issued and outstanding immediately prior to the Effective Time and
which are
held by a stockholder who did not vote in favor of the Merger (or
consent
thereto in writing) and who is entitled to demand and properly
demands appraisal
of such shares pursuant to, and who complies in all respects with,
the
provisions of Section 262 of the DGCL (the "DISSENTING
STOCKHOLDERS"), shall not
be converted into or be exchangeable for the right to receive the
Merger
consideration (the "DISSENTING SHARES"), but instead such holder
shall be
entitled to payment of the fair value of such Shares in accordance
with the
provisions of Section 262 of the DGCL (and at the Effective Time,
such
Dissenting Shares shall no longer be outstanding and shall
automatically be
canceled and shall cease to exist, and such holder shall cease to
have any
rights with respect thereto, except the right to receive the fair
value of such
Dissenting Shares in accordance with the provisions of Section 262
of the DGCL),
unless and until such holder shall have failed to perfect or shall
have
effectively withdrawn or lost rights to appraisal under the DGCL.
If any
Dissenting Stockholder shall have failed to perfect or shall have
effectively
withdrawn or lost such right, such holder's Shares shall thereupon
be treated as
if they had been converted into and become exchangeable for the
right to
receive, as of the Effective Time, the applicable Merger
Consideration Payments
for each such Share, in accordance with Section 3.1(c), without any
interest
thereon. The Company shall give Parent (i) prompt notice of any
written demands
for appraisal of any Shares, attempted withdrawals of such demands
and any other
instruments served pursuant to the DGCL and received by the Company
relating to
stockholders' rights of appraisal, and (ii) the opportunity to
participate in
all negotiations and proceedings with respect to demands for
appraisal under the
DGCL. The Company shall not, except with the prior written consent
of Parent,
voluntarily make any payment with respect to, or settle, or offer
or agree to
settle, any such demand for payment.
(b) If the Dissenting Shares represent more than five percent
(5%) of the outstanding Shares of Company Stock (the excess being
the "EXCESS
SHARES"), then an adjustment shall be made to the relative
proportion of cash
and Shares of Parent Common Stock in the Initial Merger
Consideration Amount
such that the amount of shares of Parent Common Stock will be
increased and the
amount of cash will be decreased by the amount of cash that would
have been paid
on account of the Excess Shares had those shares received all cash
in the
transaction (to the extent such shares were entitled to receive a
portion of the
Initial Merger Consideration Amount pursuant to the terms of this
Agreement),
with such adjustment being reflected in the final Allocations
Spreadsheet.
3.7 Working Capital Adjustment
(a) No later than three (3) days prior to the Closing Date,
the Company shall cause to be prepared and delivered to Parent the
Pre-Closing
Statement (as defined below) and a certificate based on such
Pre-Closing
Statement setting forth the Company's calculation of estimated
Closing Working
Capital (as defined below). The pre-closing statement (the
"PRE-CLOSING
STATEMENT") shall present the Company's estimate of Working Capital
as of the
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close of business on the Closing Date ("ESTIMATED WORKING
CAPITAL"). "WORKING
CAPITAL" means the cash, cash equivalents, accounts receivable
(including
recoverable value added Tax), inventory held for sale and trial
equipment of the
Company and its Subsidiaries (but excluding deferred revenue and
deferred
inventory cost), reduced by the accounts payable of the Company and
its
Subsidiaries (exclusive of Transaction Expenses and any amounts
payable with
respect to the Employee Incentive Plan or the Special Acquisition
Bonus), in
each case as determined in accordance with GAAP, applied using the
same
accounting methods, practices, principles, policies and procedures,
with
consistent classifications that were used in the preparation of the
Company's
audited Financial Statements delivered in satisfaction of Section
8.1(1). Parent
and the Company shall agree on the calculations set forth in the
Pre-Closing
Statement prior to the Closing Date. For the purposes of the
calculations in
this Section 3.7(a), the absolute value of any negative numbers
shall be used.
(i) If the Estimated Working Capital is less than the
product of (x) 0.85 and (y) the Projected Working Capital as
of the Closing Date, the Initial Escrow Amount shall be
reduced by the difference between (1) such product and (2) the
Estimated Working Capital, with such cash and shares of Parent
Common Stock being retained by Parent and no longer being
available as Initial Closing Consideration.
(ii)
If the Estimated Working Capital is greater than
the Projected Working Capital as of the Closing Date, the
Initial Closing Consideration shall be increased by the excess
of (1) the Estimated Working Capital over (2) the Projected
Working Capital if such excess is the result of cash reflected
on the Pre-Closing Statement obtained through the issuance
after the date hereof of equity of the Company or debt
convertible into equity of the Company at or prior to the
Effective Time issued in compliance with Section 7.2(b)(ii).
(b) As promptly as practicable, but no later than sixty (60)
days after the Closing Date, Parent shall cause to be prepared and
delivered to
the Stockholder Representative the Closing Statement (as defined
below) and a
certificate based on such Closing Statement setting forth Parent's
calculation
of Closing Working Capital (as defined below). The closing
statement (the
"CLOSING STATEMENT") shall present the actual Working Capital as of
the close of
business on the Closing Date ("CLOSING WORKING CAPITAL").
(c) Subsequent to the Closing and upon reasonable notice,
Parent and the Surviving Corporation shall afford to the officers,
employees,
accountants, counsel and other representatives of the Stockholder
Representative
reasonable access during normal working hours to the Surviving
Corporation's
properties, books, Contracts and records reasonably necessary to
evaluate the
Closing Statement, and Parent and the Surviving Corporation shall
furnish
promptly to the Stockholder Representative, pursuant to a
customary
confidentiality agreement, all such information concerning the
business,
properties, books, Contracts, records and personnel (including
outside auditor
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<PAGE>
work papers) as the Stockholder Representative may reasonably
request for the
purposes of evaluating the Closing Statement. Parent and the
Surviving
Corporation shall make available to the officers, employees,
accountants,
outside auditors, counsel and other representatives of the
Stockholder
Representative upon the reasonable request of the Stockholder
Representative and
during normal working hours all officers, employees accountants,
outside
auditors, counsel and other representatives or agents of the
Surviving
Corporation and Parent for discussion of such matters pertaining to
the Closing
Statement as the Stockholder Representative may reasonably request.
If the
Stockholder Representative disagrees with Parent's calculation of
Closing
Working Capital delivered pursuant to Section 3.7(b), the
Stockholder
Representative may, within thirty (30) days after delivery of the
Closing
Statement to the Stockholder Representative, deliver a notice to
Parent (a
"DISPUTE Notice") stating that the Stockholder Representative
disagrees with
such calculation and specifying in reasonable detail those items or
amounts as
to which the Stockholder Representative disagrees and the basis
therefore. Upon
expiration of such thirty-day period, if the Stockholder
Representative has not
provided a Dispute Notice in accordance with this Section 3.7(c),
the
Stockholder Representative shall be deemed to have agreed with the
calculation
of Closing Working Capital delivered pursuant to Section
3.7(b).
(d) If a Dispute Notice shall be duly delivered pursuant to
Section 3.7(c), the Stockholder Representative and Parent shall,
during the
fifteen (15) days following such delivery, use their commercially
reasonable
efforts to reach agreement on the disputed items or amounts in
order to
determine, as may be required, the Closing Working Capital. If
during such
period the Stockholder Representative and Parent are unable to
reach such
agreement, they shall promptly thereafter cause Deloitte &
Touche or such other
independent accounting firm as shall be mutually agreed by Parent
and
Stockholder Representative, as the case may be (the "INDEPENDENT
Accountant"),
to review this Agreement and the disputed items or amounts for the
purpose of
calculating Closing Working Capital (it being understood that in
making such
calculation, the Independent Accountant shall be functioning as an
expert and
not as an arbitrator). Each of Parent and the Stockholder
Representative agrees
that it shall not engage or agree to engage the Independent
Accountant to
perform any services other than as the Independent Accountant
pursuant hereto
until the Closing Statement and Final Closing Working Capital (as
defined below)
have been finally determined pursuant to this Section 3.7. Each
party agrees to
execute, if requested by the Independent Accountant, a reasonable
engagement
letter. Parent and the Stockholder Representative shall cooperate
with the
Independent Accountant and promptly provide all documents and
information
reasonably requested by the Independent Accountant. In making such
calculation,
the Independent Accountant shall consider only those items or
amounts in the
Closing Statement and Parent's calculation of Closing Working
Capital as to
which the Stockholder Representative has indicated it disagrees in
its Dispute
Notice. The Independent Accountant shall deliver to the
Stockholder
Representative and Parent, as promptly as practicable (but in any
case no later
than thirty (30) days from the date of engagement of the
Independent
Accountant), a report setting forth such calculation. Such report
shall be
deemed a final arbitration award that is binding on Parent and the
Stockholder
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<PAGE>
Representative, and neither Parent nor the Stockholder
Representative shall seek
further recourse to courts or other tribunals, other than to
enforce such
report. The cost of the Independent Accountant's review and report
shall be
borne equally by Parent and the Stockholder Representative.
(e) The Stockholder Representative, Parent and the Company
shall, and shall cause their respective representatives to,
cooperate and assist
in the preparation of the Closing Statement and the calculation of
Closing
Working Capital and in the conduct of the review referred to in
this Section
3.7, including by making available to the extent necessary books,
records, work
papers and personnel.
(f) (i) If Final Closing Working Capital is less than the
product of (x) 0.85 and (y) the Projected Working Capital as of the
Closing
Date, Parent shall be entitled to withdraw from the Escrow Fund,
and the
Stockholder Representative shall instruct the Escrow Agent to
release from the
Escrow Fund, an amount equal to difference between (1) such product
and (2)
Final Closing Working Capital; provided, however, that such amount
to be
released from the Escrow Fund shall be reduced by the amount not
deposited into
the Escrow Fund and retained by Parent pursuant to Section
3.7(a)(i); and
provided further, that such amount to be released to Parent from
the Escrow Fund
shall be increased by the amount of any increase in the Initial
Closing
Consideration effected pursuant to Section 3.7(a)(ii). For the
purposes of the
calculations in this Section 3.7(f), the absolute value of any
negative numbers
shall be used.
(ii) If Final Closing Working Capital is greater than
the Projected Working Capital as of the Closing Date, and if
such excess is the result of cash reflected on the Pre-Closing
Statement obtained through the issuance after the date hereof
of equity of the Company or debt convertible into equity of
the Company at or prior to the Effective Time issued in
compliance with Section 7.2(b)(ii), the Initial Closing
Consideration shall be increased by the amount of the excess
and distributed in accordance with the Allocations Spreadsheet
in the manner and with interest as provided in Section 3.7(g);
provided, however, that the amount of such payment shall be
reduced by the amount of any increase in the Initial Closing
Consideration effected pursuant to Section 3.7(a)(ii); and
provided further, that the amount of such payment shall be
increased by the amount not deposited into the Escrow Fund and
retained by Parent pursuant to Section 3.7(a)(i).
(iii) If it is determined that Final Closing Working
Capital should not result in any adjustment to the Escrow Fund
or the Initial Closing Consideration, and an adjustment was
made pursuant to Section 3.7(a)(i) or Section 3.7(a)(ii), (A)
Parent shall deposit, on its behalf and on behalf of the
Company, in the Escrow Fund an amount equal to the amount not
deposited into the Escrow Fund and retained by Parent pursuant
to Section 3.7(a)(i) or (B) Parent shall be entitled to
withdraw from the Escrow Fund, and the Stockholder
Representative shall instruct the Escrow Agent to release from
the Escrow Fund, an amount equal to the amount of any increase
in the Initial Closing Consideration effected pursuant to
Section 3.7(a)(ii).
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<PAGE>
(iv) "FINAL CLOSING WORKING CAPITAL" means Closing
Working Capital (i) as shown in Parent's calculation set forth
in the Closing Statement delivered pursuant to Section 3.7(b)
if no Dispute Notice with respect thereto is duly delivered
pursuant to Section 3.7(c); or (ii) if a Dispute Notice is
delivered, (A) as agreed by the Stockholder Representative and
Parent pursuant to Section 3.7(d) or (B) in the absence of
such agreement, as shown in the Independent Accountant's
calculation delivered pursuant to Section 3.7(d).
(g) Any payment by Parent or Company to the Exchange Agent
pursuant to the first sentence of this Section 3.7(f) shall be made
within one
(1) Business Days after the Final Closing Working Capital has been
determined by
wire transfer by Parent or Company to the Exchange Agent of
immediately
available funds to the account designated in writing by the
Exchange Agent in
accordance with the Allocations Spreadsheet. The amount of any
payment to be
made pursuant to this Section 3.7 shall bear interest from and
including the
Closing Date to but excluding the date of payment at the Prime Rate
during the
period from the Closing Date to the date of payment. Such interest
shall be
payable at the same time as the payment to which it relates and
shall be
calculated daily on the basis of a year of 365 days and the actual
number of
days elapsed.
ARTICLE IV
TERMINATION, AMENDMENT AND WAIVER
4.1 Termination of Agreement. This Agreement may be terminated
at any time prior to the Effective Time as follows:
(a) At the election of either Parent or the Company on or
after August 31, 2007 (the "END DATE") if the Closing shall not
have occurred by
the close of business on such date; provided, however, that the
right to
terminate this Agreement under this Section 4.1(a) shall not be
available to any
party who is in material default of any of its obligations
hereunder;
(b) by mutual written consent of Parent and the Company (in
the case of the Company, as evidenced by the approval of the Board
of Directors
of the Company);
(c) by either Parent or the Company if (i) there shall be in
effect a final nonappealable Order of a Governmental Body of
competent
jurisdiction restraining, enjoining or otherwise prohibiting the
consummation of
the transactions contemplated hereby or (ii) there shall be any Law
enacted,
promulgated or issued or deemed applicable to the Merger by any
Governmental
Body that would make consummation of the Merger illegal;
(d) (by Parent, so long as Parent is not in material breach of
its representations, warranties, covenants or agreements under this
Agreement,
if there shall have been a material breach of any representation,
warranty,
covenant or agreement of the Company set forth in this Agreement,
which breach
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<PAGE>
would give rise to a failure of a condition set forth in Sections
8.1(a), 8.1(b)
or 8.1(c) and is incapable of being cured or, if capable of being
cured, shall
not have been cured within twenty (20) Business Days following
receipt by the
Company of notice of such breach from Parent; or
(e) by the Company, so long as the Company is not in material
breach of its representations, warranties, covenants or agreements
under this
Agreement, if there shall have been a material breach of any
representation,
warranty, covenant or agreement of Parent set forth in this
Agreement, which
breach would give rise to a failure of a condition set forth in
Sections 8.2(a)
or 8.2(b) and is incapable of being cured or, if capable of being
cured, shall
not have been cured within twenty (20) Business Days following
receipt by Parent
of notice of such breach from the Company.
4.2 Effect of Termination. In the event of the termination of
this Agreement as provided in Section 4.1, written notice thereof
shall be given
to the other party or parties, specifying the provision hereof
pursuant to which
such termination is made, and this Agreement shall forthwith become
null and
void (other than this Section 4.2 and Article X, all of which shall
survive
termination of this Agreement); provided, however, that nothing
contained herein
shall relieve any party from liability for fraud or any willful
breach hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent
and Merger Sub on the date hereof that, subject to such exceptions
and
disclosures as set forth in the disclosure letter supplied by the
Company to
Parent dated as of the date hereof (the "COMPANY DISCLOSURE
LETTER") (it being
understood and agreed that the disclosure set forth in a specific
section or
subsection of the Company Disclosure Letter shall qualify the
representations
and warranties set forth in the corresponding section and
subsection of this
Article V (whether or not a specific cross-reference is included
therein) if and
to the extent that it is reasonably apparent on the face of such
disclosure that
such disclosure applies to such other section or subsection):
5.1 Organization and Good Standing. The Company is a
corporation duly organized, validly existing and in good standing
under the laws
of the State of Delaware and has all requisite corporate power and
authority to
own, lease and operate its properties and to carry on its business
as now
conducted. The Company is duly qualified or authorized to do
business as a
foreign corporation and is in good standing under the laws of each
jurisdiction
in which it owns or leases real property and each other
jurisdiction in which
the conduct of its business or the ownership of its properties
requires such
qualification or authorization, except where the failure to be so
qualified,
authorized or in good standing would not have a Material Adverse
Effect with
respect to the Company (a "COMPANY MATERIAL ADVERSE EFFECT"). The
Company is not
subject to the requirements of Section 2115(b) of the California
Corporations
Code.
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5.2 Authorization of Agreement.
(a) The Company has all requisite power, authority and legal
capacity to execute and deliver this Agreement, the Escrow
Agreement and the
certificates referred to in Section 8.1 (together with this
Agreement, the
"COMPANY DOCUMENTS") and to consummate the transactions
contemplated hereby and
thereby. The execution and delivery of this Agreement and each of
the Company
Documents by the Company, the Company's performance of its
obligations hereunder
and thereunder and the consummation by the Company of the
transactions
contemplated hereby and thereby have been duly authorized by its
Board of
Directors and, subject to obtaining the Stockholder Consents, no
other corporate
action on the part of the Company is necessary to authorize the
execution,
delivery and performance by the Company of this Agreement and the
consummation
by the Company of the transactions contemplated hereby.
(b) Each Company Document has been duly and validly executed
and delivered by the Company and (assuming the due authorization,
execution and
delivery by the other parties hereto and thereto) this Agreement
constitutes,
and each of the other Company Documents when so executed and
delivered will
constitute, legal, valid and binding obligations of the Company, as
applicable,
enforceable against the Company in accordance with their respective
terms,
subject to applicable bankruptcy, insolvency, reorganization,
moratorium and
similar laws affecting creditors' rights and remedies generally,
and subject, as
to enforceability, to general principles of equity, including
principles of
commercial reasonableness, good faith and fair dealing (regardless
of whether
enforcement is sought in a proceeding at law or in equity).
(c) The Board of Directors of the Company, at a meeting duly
called and held at which all the directors of the Company were
present in person
or by telephone (or, in lieu of a meeting, by the written consent
of the
directors of the Company), duly and unanimously adopted resolutions
(i)
approving and declaring advisable this Agreement, the Merger and
the other
transactions contemplated by this Agreement, (ii) directing that
the adoption of
this Agreement be submitted to the Company Stockholders and (iii)
recommending
that the Company Stockholders adopt this Agreement, which
resolutions have not
been subsequently rescinded, modified or withdrawn in any way.
(d) Schedule 5.4(a) sets forth a true, correct and complete
list of the Company Stockholders as of the date hereof. The Company
has
delivered to Parent true, correct and complete copies of the
irrevocable written
consents approving the Merger, which are valid and effective under
Section 228
of the DGCL, of (i) the holders of a majority of the outstanding
shares entitled
to vote of Common Stock and Preferred Stock, voting together as a
single class;
(ii) the holders of a majority of the outstanding shares entitled
to vote of
Series C Preferred Stock, Series C-3 Preferred Stock and Series C-4
Preferred
Stock, voting together as a single class; (iii) the holders of a
majority of the
outstanding shares entitled to vote of Series C-3 Preferred Stock
and Series D
Preferred Stock, voting together as a single class; and (iv) the
holders of a
majority of the outstanding shares entitled to vote of Series A
Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series C-3
Preferred Stock
and Series C-4 Preferred Stock, voting together as a single class
(collectively,
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<PAGE>
the "STOCKHOLDER CONSENTS"). The Stockholder Consents are the only
approval of
holders of any class or series of Company capital stock necessary
or required
(under applicable Law, the Company's certificate of incorporation
and bylaws, or
otherwise) to approve this Agreement and the transactions
contemplated hereby,
including the Merger. The Stockholder Consents are in full force
and effect and
are valid and effective under Section 228 or the DGCL. Each Company
Stockholder
who has delivered a Stockholder Consent is an "accredited investor"
within the
meaning of Regulation D under the Securities Act and has certified
as to such
status to the Company.
5.3 Conflicts; Consents of Third Parties.
(a) Other than the consents, waivers, approvals, Orders,
Permits, authorizations, declarations, filings and notifications
which are
disclosed in Schedule 5.3(b), none of the execution and delivery by
the Company
of this Agreement or the other Company Documents, the consummation
by the
Company of the Merger and the transactions contemplated hereby or
thereby, or
compliance by the Company with any of the provisions hereof or
thereof will
conflict with, or result in any violation of, default or breach
(with or without
notice or lapse of time, or both) under, or give rise to a right of
termination,
cancellation or acceleration of any obligation or to loss of a
material benefit
under, or give rise to any obligation of the Company to make any
payment under,
or to the increased, additional, accelerated or guaranteed rights
or
entitlements of any Person under, or result in the creation of any
Liens upon
any of the properties or assets of Company or any Company
Subsidiary under, any
provision of (i) the certificate of incorporation and by-laws or
comparable
organizational documents of the Company or any Company Subsidiary;
(ii) any
Intellectual Property, Technology, Material Contract or Permit to
which the
Company or any Company Subsidiary is a party or by which any of the
properties
or assets of the Company or any Company Subsidiary are bound; (iii)
any Order of
any Governmental Body applicable to the Company or any Company
Subsidiary or any
of the properties or assets of the Company or any Company
Subsidiary; or (iv)
any applicable Law; except in the case of clauses (ii), (iii) or
(iv), any
conflict, violation, default, breach, termination, cancellation,
acceleration,
guarantee, loss of benefit or Lien that would not, individually or
in the
aggregate, be material to the Company and its Subsidiaries, taken
as a whole.
(b) No consent, waiver, approval, Order, Permit or
authorization of, or declaration or filing with, or notification
to, any Person
or Governmental Body is required on the part of the Company or any
Company
Subsidiary in connection with (x) the execution and delivery of
this Agreement
or the other Company Documents by the Company, the compliance by
the Company
with any of the provisions hereof or thereof, or the consummation
by the Company
of the Merger or the other transactions contemplated hereby or
thereby, or (y)
the continuing validity and effectiveness immediately following the
Closing of
any Permit or Material Contract of the Company or any Company
Subsidiary, except
for (i) those consents and filings set forth on Schedule 5.3(b),
(ii) any
notices required to be filed under the Hart-Scott-Rodino Antitrust
Improvements
Act of 1976, as amended (the "HSR ACT"), (iii) the filings required
under, and
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<PAGE>
in compliance with, other applicable requirements of non-U.S. laws
intended to
prohibit, restrict or regulate actions or transactions having the
purpose or
effect of monopolization, restraint of trade or harm to
competition
(collectively, "FOREIGN ANTITRUST LAWS"), (iv) the filing of the
Certificate of
Merger with the Delaware Secretary of State pursuant to the DGCL,
and (v) any
consent, waiver, approval, Order, Permit, authorization,
declaration, filing or
notification the failure of which to be obtained or made,
individually or in the
aggregate, would not, individually or in the aggregate, be material
to the
Company and its Subsidiaries, taken as a whole.
5.4 Capitalization.
(a) The authorized capital stock of the Company consists of:
(i) 385,000,000 shares of Common Stock, par value
$0.001 per share, of which 17,561,475 shares are issued and
outstanding, and 18,895,401 shares are subject to Company
Stock Options, and
(ii) 298,500,000 shares of Preferred Stock, par value
$0.001 per share, consisting of:
(A) 7,500,000
shares of Series A Preferred
Stock, of which 7,452,000 shares are issued
and outstanding;
(B) 33,900,000
shares of Series B Preferred
Stock, of which 33,573,321 shares are issued
and outstanding;
(C) 27,000,000
shares of Series C Preferred
Stock, of which 2,975,169 shares are issued
and
outstanding;
(D) 2,800,000
shares of Series C-1 Preferred
Stock, of which 2,683,161 shares are issued
and outstanding;
(E)
123,000,000 shares of Series C-3 Preferred
Stock, of which 90,483,668 shares are issued
and outstanding; and
(F) 20,000,000
Shares of Series C-4 Preferred
Stock, of which no shares are issued and
outstanding.
(G) 84,300,000
shares of Series D Preferred
Stock, of which 21,205,953 shares are issued
and outstanding.
All of the issued and outstanding shares of Common Stock and
Preferred Stock (the "Company Stock") have been duly authorized,
are validly
issued, fully paid, and nonassessable, and are held of record by
the Company
41
<PAGE>
Stockholders as set forth in Schedule 5.4(a), which includes each
Company
Stockholder's residency.
(b) Except as set forth above, immediately before the
Effective Time, there will be no outstanding shares of capital
stock of the
Company or securities, directly or indirectly, convertible into, or
exchangeable
or exercisable for, shares of capital stock of the Company or any
outstanding
phantom stock rights, stock appreciation rights, restricted stock
awards,
dividend equivalent awards, or other stock-based awards or rights
relating to or
valued by reference to the capital stock of the Company or the
dividends paid on
the capital stock of the Company, and there are no calls, rights
(including
preemptive rights), commitments or agreements (including
employment, termination
and similar agreements) to which the Company is a party or by which
either of
them is bound, in any case obligating the Company to issue,
deliver, sell,
purchase, redeem or acquire, any debt or equity securities of the
Company, or
obligating the Company to grant, extend or enter into any such
option, warrant,
call, right, commitment or agreement. None of the outstanding
shares of capital
stock of the Company are subject to, or were issued in violation
of, preemptive
or other similar rights.
5.5 Subsidiaries. Schedule 5.5 sets forth with respect to each
direct or indirect Subsidiary of the Company (each, a "COMPANY
SUBSIDIARY"), the
jurisdiction in which it is incorporated or organized, the
jurisdictions, if
any, in which it is qualified to do business, the number of shares
of its
authorized capital stock, the number and class of shares thereof
duly issued and
outstanding, the names of all stockholders or other equity owners
and the number
of shares of stock owned by each stockholder or the amount of
equity owned by
each equity owner. Each Company Subsid
