AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

 

AGREEMENT AND PLAN OF MERGER

by and among

MICROTUNE, INC.,

ARROW ACQUISITION LTD.,

AUVITEK INTERNATIONAL LTD.

and

PETER MOK

(as Shareholders Representative)

Dated as of July 10, 2009

 

TABLE OF CONTENTS

 

 

-i-

TABLE OF CONTENTS

(continued)

 

 

-ii-

TABLE OF CONTENTS

(continued)

 

 

 

-iii-

INDEX OF DEFINED TERMS

 

AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (this “ Agreement ”) is made and entered into as of July 10, 2009, by and among Microtune, Inc., a Delaware corporation (“ Acquiror ”), Arrow Acquisition Ltd., an exempted company limited by shares incorporated under the laws of the Cayman Islands and an indirect wholly owned subsidiary of Acquiror whose registered office is C/O Walkers Corporate Services Limited, Walkers House, 87 Mary Street, Georgetown, Grand Cayman KY1-9001 (“ Merger Sub ”), Auvitek International Ltd., an exempted company limited by shares incorporated under the laws of the Cayman Islands whose registered office is C/O Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands (“ Target ”), and Peter Mok, an individual (as the “ Shareholders Representative ”).

W I T N E S S E T H:

WHEREAS, the respective boards of directors of Target, Merger Sub and Acquiror have approved and adopted this Agreement and declared advisable the merger of Merger Sub with and into Target, with Target continuing as the surviving company (the “ Merger ”), upon the terms and subject to the conditions of this Agreement and pursuant to the Companies Law (2007 Revision) of the Cayman Islands, as amended by Part XVA of the Companies (Amendment) Law, 2009 (the “ Companies Law ”);

WHEREAS, the respective boards of directors of Target and Merger Sub have recommended this Agreement and the Merger for adoption and approval by their respective shareholders;

WHEREAS, the sole shareholder of Merger Sub has approved and adopted this Agreement and the Merger in accordance with the Companies Law;

WHEREAS, certain details of the authorized and issued shares in the capital of Target and Merger Sub are set forth in Section 2.2 and Section 3.2(b) , respectively; and

WHEREAS, Target, Merger Sub and Acquiror desire to make certain representations, warranties and agreements in connection with, and establish various conditions precedent to, the Merger;

NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements set forth herein, and for other good and valuable consideration, the parties hereto agree as follows:

ARTICLE I.

THE TRANSACTIONS

SECTION 1.1 The Merger . At the Effective Time (as hereinafter defined) and subject to and upon the terms and conditions set forth in this Agreement and the applicable provisions of the Companies Law, Merger Sub shall be merged with and into Target. At the Effective Time, the separate corporate existence of Merger Sub shall cease and Target shall continue as the surviving company (as such, the “ Surviving Corporation ”).

 

1

SECTION 1.2 Closing . Unless this Agreement shall have been terminated pursuant to Article VII hereof, the closing of the transactions contemplated hereby (the “ Closing ”) shall take place as soon as practicable, but in no event later than five (5) business days, after each of the conditions set forth in Article VI hereof have been satisfied or waived pursuant to the terms of this Agreement, or at such other time as the parties hereto agree (the date of the Closing, the “ Closing Date ”). The Closing shall take place at the offices of Baker Botts L.L.P., 2001 Ross Avenue, Suite 1100, Dallas, Texas 75201, or at such other location as the parties hereto agree. Subject to the provisions of this Agreement, the parties hereto shall file with the Registrar of Companies of the Cayman Islands (the “ Cayman Registrar ”) a plan of merger and any other applicable documents (the “ Merger Documents ”) prior to the Closing Date pursuant to Section 5.8 hereof, such Merger Documents to be executed in accordance with the applicable provisions of the Companies Law, and shall make all other filings or recordings required under the Companies Law to effect the Merger; provided , however , that the Merger shall by its terms become effective on the date the applicable Merger Documents are registered by the Cayman Registrar or on such subsequent date as Merger Sub and Target shall agree and specify in the Merger Documents in accordance with the Companies Law (the “ Effective Time ”).

SECTION 1.3 Effect of the Merger . At the Effective Time, the Merger shall have the effects set forth in this Agreement, the other Merger Documents and the applicable provisions of the Companies Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of Target and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of Target and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

SECTION 1.4 Memorandum of Association and Articles of Association . At the Effective Time, the memorandum of association and articles of association of Merger Sub in the form attached as Exhibit A (the “ Merger Sub Governing Documents ”) immediately prior to the Effective Time shall be the memorandum of association and articles of association of the Surviving Corporation, until duly amended. The rights and restrictions attached to the shares of the Surviving Corporation shall be as set out in the Merger Sub Governing Documents.

SECTION 1.5 Directors and Officers . At the Effective Time, the directors and officers of Merger Sub immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, to hold office until such time as such directors and officers resign, are removed or their respective successors are duly elected or appointed and qualified.

SECTION 1.6 Stock Merger Consideration .

(a) As used herein “ Stock Merger Consideration ” shall mean one million (1,000,000) shares of Acquiror Common Stock (as defined below), adjusted for any stock splits, reverse stock splits, stock dividends, recapitalizations or similar events announced, effected or contemplated by Acquiror prior to the Closing Date.

(b) No fraction of a share of Acquiror Common Stock will be issued, but in lieu thereof each Series C Holder (as defined below) who would otherwise be entitled to a

 

2

fraction of a share of Acquiror Common Stock (after aggregating all fractional shares of Acquiror Common Stock to be received by such Series C Holder) shall be entitled to receive from Acquiror an amount of cash (rounded to the nearest whole cent) equal to (i) such fraction, multiplied by (ii) the closing bid price of one share of Acquiror Common Stock on the NASDAQ Global Market on the day prior to the Closing Date (any such amount, a “ Fractional Share Cash Amount ”).

(c) Except as set forth in this Section 1.6(c) , Acquiror shall not be obligated to cause the shares of Acquiror Common Stock issued for the Stock Merger Consideration to be registered under the Securities Act of 1933, as amended (the “ Securities Act ”); provided , however , upon the satisfaction of the six month holding period of Rule 144 promulgated under the Securities Act (“ Rule 144 ”), Acquiror shall promptly issue or obtain a Rule 144 legal opinion upon the request of a Series C Holder who owns Acquiror Common Stock issued for the Stock Merger Consideration (assuming satisfaction of the other requirements of Rule 144) and, for so long as any Series C Holder owns any Acquiror Common Stock issued for the Stock Merger Consideration, use commercially reasonable efforts to (i) make and keep public information available, as those terms are defined in Rule 144, and (ii) file with the Securities and Exchange Commission in a timely manner all reports and other documents required of the Acquiror under the Securities Act or the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”). With respect to the shares of Acquiror Common Stock issued as the Stock Merger Consideration, Acquiror shall provide each holder of such shares of Acquiror Common Stock with the registration rights set forth in a registration rights agreement, in substantially the form attached hereto as Exhibit B or in such form as otherwise mutually agreed upon by the parties (the “ Registration Rights Agreement ”).

SECTION 1.7 Cash Merger Consideration .

(a) As used herein “ Cash Merger Consideration ” shall mean the amount in cash calculated according to the following formula:

CMC = (EV + EC - D - TE + ECWC - PCWC + OEC)

 

 

3

(b) At least three (3) days prior to the Closing Date, Target shall prepare and deliver to Acquiror an estimated consolidated balance sheet of Target as of the open of business on the Closing Date, but assuming satisfaction of the conditions to Closing pursuant to the terms of this Agreement, including payment of the Transaction Expenses and the Bridge Notes (as defined herein) by Acquiror (the “ Estimated Closing Balance Sheet ”), which will include an estimated cash and cash equivalents balance (the “ Estimated Closing Cash ”) and a statement (the “ Estimated Cashless Working Capital Statement ”) of the estimated Cashless Working Capital, derived from the Estimated Closing Balance Sheet (the “ Estimated Cashless Working Capital ”). The Estimated Closing Balance Sheet and Estimated Cashless Working Capital shall be prepared by Target in accordance with GAAP, except for the year-end adjustments set forth on Schedule 1.7(b) . Following the Closing Date, Acquiror shall prepare and deliver to the Shareholders Representative, as soon as reasonably practicable but in no event later than seventy-five (75) days following the Closing Date, (i) a consolidated balance sheet of Target as of the open of business on the Closing Date, but assuming satisfaction of the conditions to Closing pursuant to the terms of this Agreement, including payment of the Transaction Expenses and the Bridge Notes by Acquiror (the “ Closing Balance Sheet ”), which will include a cash and cash equivalents balance (the “ Closing Cash ”) and a statement of Cashless Working Capital derived from the Closing Balance Sheet (the “ Cashless Working Capital Statement ”), (iii) reasonable documentation supporting any differences between (A) the Estimated Closing Balance Sheet, on the one hand, and the Closing Balance Sheet, on the other hand, and (B) the Estimated Cashless Working Capital Statement, on the one hand, and the Cashless Working Capital Statement, on the other hand, and (iv) other supporting documentation used in the preparation of the Closing Balance Sheet and the Cashless Working Capital Statement as is reasonably requested by the Shareholders Representative. The Closing Balance Sheet and the Cashless Working Capital Statement shall be prepared in accordance with GAAP, except for the year-end adjustments set forth on Schedule 1.7(b) . As used herein, “ Cashless Working Capital ” is defined as (i) the sum of accounts receivable, inventory, accrued tax assets (other than FAS 5 accruals), prepaid expenses and other current assets, determined in accordance with GAAP, except for the year-end adjustments set forth on Schedule 1.7(b) , less (ii) the sum of accounts payable, accrued tax obligations (other than FAS 5 accruals), accrued expenses and other current liabilities, but excluding the current portion of long term indebtedness (included in long-term debt), distributor deferred margin and Transaction Expenses, determined in accordance with GAAP, except for the year-end adjustments set forth on Schedule 1.7(b) . For the avoidance of doubt, in no event shall the accrual for or payment of the Transaction Expenses or the balance or repayment of the Bridge Notes be double counted in the formula for Cash Merger Consideration.

(c) The Shareholders Representative shall have twenty (20) days following receipt of the Cashless Working Capital Statement to review the contents thereof. Subject to Section 8.9(g) , the Shareholders Representative may consult with such consultants and legal advisors and/or Acquiror’s Chief Executive Officer or Chief Financial Officer, as the Shareholders Representative deems advisable in relation to such review. If the Shareholders Representative does not deliver to Acquiror written notice of an objection to the Closing Cash and Cashless Working Capital Statement (which notice must contain a reasonably detailed

 

4

statement of each basis for such objection) within such twenty (20) day period, the amount of Cashless Working Capital set forth in the Cashless Working Capital Statement and the Closing Cash set forth on the Closing Balance Sheet shall be final, binding and conclusive for all purposes. If the Shareholders Representative timely notifies Acquiror of an objection to the Cashless Working Capital Statement or Closing Cash, Acquiror and the Shareholders Representative shall use reasonable good faith efforts to resolve such objection as promptly as practicable. If they are unable to resolve such objection within twenty (20) days of Acquiror’s receipt of the Shareholders Representative’s written notice of objection, the issues in dispute shall be promptly submitted for resolution to Deloitte & Touche LLP or such other reputable firm of independent accountants which shall not have provided any material services to Acquiror, Target or the Surviving Corporation at any time during the prior two years and who shall be selected by the mutual agreement of the Shareholders Representative and Acquiror (the “ Arbitration Firm ”); provided , however , that if the Shareholders Representative and Acquiror cannot so agree within thirty (30) days of Acquiror’s receipt of the Shareholders Representative’s written notice of objection, the American Arbitration Association may select an Arbitration Firm meeting the criteria set forth herein. Acquiror and the Shareholders Representative shall cooperate in good faith with the Arbitration Firm in connection with its efforts to resolve the issues in dispute, and Acquiror shall provide such work papers as the Arbitration Firm may reasonably request for purposes of preparing its calculation. The determination of the Arbitration Firm with respect to such issues, which shall be issued in written form to Acquiror and the Shareholders Representative, shall be final, binding and conclusive for all purposes and shall not be subject to any further dispute resolution procedures, including further mediation or arbitration or formal legal proceedings.

(d) Acquiror and the Shareholders Representative shall split equally the payment of all fees of the Arbitration Firm; provided , however , in the event that the Arbitration Firm concludes that the dispute was caused by the fraud, negligence, bad faith or willful misconduct of Acquiror or the Shareholders Representative, such party shall pay all fees of the Arbitration Firm.

(e) If, upon the final determination of the Cashless Working Capital and Closing Cash as provided in Section 1.7(b) and Section 1.7(c) , the sum of (i) the Cashless Working Capital and Closing Cash exceeds the sum of (ii) the Estimated Cashless Working Capital and Estimated Closing Cash, Acquiror shall promptly deliver, or cause to be delivered, an amount in cash equal to such excess to the Paying Agent for the benefit of the Escrow Shareholders (the “ Escrow Shareholders Excess Payment ”). Any such amounts shall be promptly distributed to the Escrow Shareholders in accordance with each such Escrow Shareholder’s pro rata share thereof. If, upon the final determination of the Cashless Working Capital and Closing Cash as provided in Section 1.7(b) and Section 1.7(c) , the sum of (a) the Estimated Cashless Working Capital and Estimated Cash exceeds the sum of (b) the Cashless Working Capital and Closing Cash, Acquiror shall promptly recover from the Working Capital Escrow Fund (and the Escrow Fund to the extent the Acquiror Excess Payment, if any, exceeds $100,000) the amount of such difference in accordance with the terms of this Agreement and the Escrow Agreement (as defined herein) (the “ Acquiror Excess Payment ”).

 

5

SECTION 1.8 Merger Consideration . The term “ Merger Consideration ” shall mean collectively, the Cash Merger Consideration, the Stock Merger Consideration and the Holder Earnout Amount (as defined herein).

SECTION 1.9 Paying Agent .

(a) Cash Merger Consideration . At the Closing, Acquiror shall deliver, by wire transfer of immediately available funds to Deutsche Bank National Trust Company or such other bank, trust company or other institution mutually acceptable to Acquiror and the Shareholders Representative (the “ Paying Agent ”), an amount in cash equal to the Cash Merger Consideration minus the Escrow Amount (as defined herein), the Working Capital Escrow Amount (as defined herein) and the Holders Fund (as defined herein), which amount shall be payable and distributed pursuant to this Article I and a paying agent agreement in substantially the form attached hereto as Exhibit C or in such form as otherwise mutually agreed upon by the parties (the “ Paying Agent Agreement ”) to be executed by the Paying Agent, Acquiror, Target, Merger Sub and the Shareholders Representative at or prior to the Closing.

(b) Stock Merger Consideration . At the Closing, Acquiror shall deliver to the Paying Agent, as payment in full of the Stock Merger Consideration, certificates or evidence of shares in book-entry form representing the shares of Acquiror Common Stock issuable pursuant to Section 1.6 hereof for the benefit of, and for distribution to, the Series C Holders pursuant to this Article I and all Fractional Share Cash Amounts.

(c) Escrow Funds . At the Closing, Acquiror shall deposit, by wire transfer of immediately available funds, on behalf of the Series C Holders, (i) cash in the amount of each of (a) the Escrow Amount and (b) the Working Capital Escrow Amount to the Escrow Agent (as defined herein), to be held in escrow by the Escrow Agent pursuant to the Escrow Agreement, and (ii) cash in the amount of $150,000 (the “ Holders Fund ”) to the Escrow Agent, to be held in escrow by the Escrow Agent pursuant to the Holders Escrow Agreement to be entered by the Shareholders Representative and the Escrow Agent prior to or at the Closing (the “ Holders Escrow Agreement ”).

(d) Holder Earnout Amount . Within the time period set forth in Section 1.17(d) hereof, Acquiror shall deliver, by wire transfer of immediately available funds to the Paying Agent, as payment in full of the Distributed Holder Earnout Amount, an amount in cash equal to the Distributed Holder Earnout Amount, which amount shall be payable and distributed pursuant to this Article I and the Paying Agent Agreement. In the event all or any portion of the Distributed Holder Earnout Amount is not paid within ten (10) days of when due pursuant to this Agreement, the Distributed Holder Earnout Amount, or unpaid portion thereof, shall accrue simple interest at an annual rate equal to six (6) month LIBOR, calculated based on a year of 360 days; provided , however , that no interest shall accrue during any period when the amount of the Distributed Holder Earnout Amount is in dispute pursuant to Section 1.17(b) .

SECTION 1.10 Acquiror Payments .

(a) Transaction Expenses . At the Closing, Acquiror shall deliver, on behalf of Target, to one or more accounts designated in writing by Target, by wire transfer of immediately

 

6

available funds, an amount equal, in the aggregate, to the amount of Target’s Transaction Expenses invoiced to Target in accordance with Section 7.3 hereof.

(b) Bridge Notes . At the Closing, Acquiror shall deliver, on behalf of Target, to one or more accounts designated in writing by Target, by wire transfer of immediately available funds, an amount equal, in the aggregate, to the amount of the Bridge Notes.

(c) Dissenting Shares . Acquiror shall deliver cash as and when required by the Companies Law, as the case may require, to satisfy the rights of holders of Dissenting Shares that are properly exercised.

(d) Pagemill Earnout Amount . Within the time period set forth in Section 1.17(d) hereof, Acquiror shall deliver, by wire transfer of immediately available funds, to Pagemill Partners, LLC, as payment in full of the Pagemill Earnout Amount, an amount in cash equal to the Pagemill Earnout Amount.

SECTION 1.11 Effect on Securities .

(a) Series C Preferred Shares . Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of Acquiror, Merger Sub, Target or the holders of Target’s securities, each share of Series C Preference Shares, par value $0.0001 per share, of Target (“ Target Series C Preference Shares ”) issued and outstanding as of the Effective Time will be converted automatically into the right to receive (assuming the conversion of all Target Series C Notes (as defined herein) immediately prior to the Effective Time and the percentages and share numbers below in this Section 1.11(a) to be adjusted, as applicable, upon exercise of any Target Series C Warrants (as defined herein) at or prior to the Closing (the “ Series C Adjustment Events ”)), pursuant to the terms of this Agreement and, as applicable, the Paying Agent Agreement, Escrow Agreement or Holders Escrow Agreement (collectively with the Registration Rights Agreement, the “ Transaction Documents ”):

(i) approximately 0.00002606 percent of the total amount represented by the Cash Merger Consideration minus the Escrow Amount, the Working Capital Escrow Amount and the Holders Fund;

(ii) approximately 0.2606 shares of the Stock Merger Consideration;

(iii) any applicable Fractional Share Cash Amount calculated pursuant to Section 1.6(b) hereof;

(iv) the contingent right to receive approximately 0.00002606 percent of the Series C Holder Earnout Amount;

(v) the contingent right to receive approximately 0.00000603 percent of the Ordinary Holder Earnout Amount;

(vi) the contingent right to receive approximately 0.00002606 percent of any amount of the Escrow Fund distributed to Series C Holders;

 

7

(vii) the contingent right to receive approximately 0.00002606 percent of any amount of the Working Capital Escrow Fund distributed to Series C Holders; and

(viii) the contingent right to receive approximately 0.00002606 percent of any amount of the Holders Fund distributed to Series C Holders.

Assuming the conversion of all Target Series C Notes immediately prior to the Effective Time and the exercise of none of the Target Series C Warrants at or prior to the Closing, the (i) number of shares of the Stock Merger Consideration and (ii) percentage of each of (A) the total amount represented by the Cash Merger Consideration minus the Escrow Amount, the Working Capital Escrow Amount and the Holders Fund, (B) the Series C Holder Earnout Amount, (C) the Escrow Fund, (D) the Working Capital Escrow Fund and (E) the Holders Fund to be paid to each Series C Holder is set forth on Schedule 1.11(a) attached hereto.

(b) Series B Preferred Shares . Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of Acquiror, Merger Sub, Target or the holders of Target’s securities, each share of Series B Preference Shares, par value $0.0001 per share, of Target (“ Target Series B Preference Shares ”) issued and outstanding as of the Effective Time will be converted automatically into, pursuant to the terms of this Agreement and any applicable Transaction Document, the contingent right to receive approximately 0.00002764 percent of the Series B Holder Earnout Amount (such percentage to be adjusted, as applicable, upon exercise of any Target Series B Warrant (as defined herein) at or prior to the Closing (the “ Series B Adjustment Events ”)).

(c) Series A Preferred Shares . Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of Acquiror, Merger Sub, Target or the holders of Target’s securities, each share of Series A Preference Shares, par value $0.0001 per share, of Target (“ Target Series A Preference Shares ” and collectively with the Target Series C Preference Shares and Target Series B Preference Shares, the “ Target Preference Shares ”) issued and outstanding as of the Effective Time will be converted automatically into, pursuant to the terms of this Agreement and any applicable Transaction Document, the contingent right to receive approximately 0.00003556 percent of the Series A Holder Earnout Amount (such percentage to be adjusted, as applicable, upon exercise of any Target Series A Warrant (as defined herein) at or prior to the Closing (the “ Series A Adjustment Events ”)).

(d) Ordinary Shares . Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of Acquiror, Merger Sub, Target or the holders of Target’s securities, each share of Ordinary Shares, par value $0.0001 per share, of Target (“ Target Ordinary Shares ” and collectively with the Target Preference Shares, “ Target Capital Stock ”) issued and outstanding as of the Effective Time will be converted automatically into, pursuant to the terms of this Agreement and any applicable Transaction Document, the contingent right to receive approximately 0.00000603 percent of any Ordinary Holder Earnout Amount (assuming conversion of the Target Series C Notes, including the Target Series C Notes convertible into Target Ordinary Shares pursuant to the terms of such Target Series C Notes and related transaction documents and Article 24 of Target’s articles of association, as currently in effect (the “ Target Ordinary Shares Notes ”), and such percentage to

 

8

be adjusted, as applicable, upon exercise of any Target Series C Warrant, Target Series B Warrant or Target Series A Warrant, including any Target Series C Warrant or Target Series B Warrant convertible into Target Ordinary Shares pursuant to the terms of such Target Series C Warrant or Target Series B Warrant, as applicable, and related transaction documents and Article 24 of Target’s articles of association, as currently in effect, at or prior to Closing (the “ Target Ordinary Warrants ”), or exercise of any option for shares of Target Ordinary Shares, at or prior to Closing).

(e) Conversion of Target Series C Warrants and Target Series C Notes . Promptly following the execution of this Agreement, Target shall take all actions necessary to cause (i) each convertible Series C promissory note (collectively, the “ Target Series C Notes ”) to be converted or cancelled and (ii) each outstanding warrant to purchase shares of Target Series C Preference Shares (collectively, the “ Target Series C Warrants ”) or other right to purchase Target Series C Preference Shares to be exercised or surrendered, in each case so that all such notes, warrants or other rights are converted, exercised, surrendered or cancelled, as applicable, prior to the Effective Time.

(f) Cancellation of Target Capital Stock . At the Effective Time, all shares of the Target Capital Stock that are owned by Target as treasury stock, if applicable, and each share in the Target Capital Stock owned by Acquiror or any direct or indirect wholly owned subsidiary of Acquiror or of Target immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof.

(g) Target Stock Plan . At the Effective Time, neither Acquiror nor the Surviving Corporation shall assume any of the options to purchase Target Ordinary Shares or outstanding restricted stock awards (collectively “ Target Awards ”) granted under the Auvitek International 2004 Stock Plan, as amended (the “ Target Stock Plan ”), and such Target Stock Plan and any Target Awards granted thereunder shall be terminated in accordance with the respective terms thereof.

(h) Other Target Rights To Acquire Target Capital Stock . Each outstanding option, warrant or other right to purchase shares of Target Ordinary Shares, Target Series A Preference Shares or Target Series B Preference Shares that is outstanding at the Effective Time shall be terminated or cancelled, as applicable.

(i) Ordinary Shares of Merger Sub . At the Effective Time, each ordinary share, par value $0.001 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable ordinary share, par value $0.001 per share, of the Surviving Corporation.

(j) Dissenting Shares . Notwithstanding anything in this Agreement to the contrary, shares of the Target Capital Stock outstanding immediately prior to the Effective Time and held by a holder who has delivered to the Target written objection to the Merger pursuant to Section 251G(2) of the Companies Law (“ Dissenting Shares ”) shall not be converted into a right to receive the Merger Consideration, but, instead, such holder shall be entitled only to such rights as are granted by the Companies Law; provided , however , that if such holder fails to perfect or effectively withdraws or loses such rights under the Companies Law, such Dissenting Shares

 

9

shall be treated as if they had been converted as of the Effective Time into a right to receive the Merger Consideration in accordance with this Article I . Target shall give Acquiror prompt notice of any demands received by Target from any holder exercising such holder’s right to dissent under the Companies Law, and, prior to the Effective Time, Acquiror shall have the right to actively participate in all negotiations and proceedings with respect thereto. Prior to the Effective Time, Target shall not, except with the prior written consent of Acquiror, make any payment with respect to, or settle or offer to settle, any such objections or demands.

SECTION 1.12 Escrow

(a) $1,000,000 of the Cash Merger Consideration (the “ Escrow Amount ”) shall be deposited with Deutsche Bank National Trust Company, as escrow agent (the “ Escrow Agent “), to constitute a collateral fund (the “ Escrow Fund “) for purposes of securing the indemnification obligations of the former holders of the Target Series C Preference Shares (the “ Escrow Shareholders ”) under Article VIII of this Agreement. Notwithstanding anything to the contrary in this Agreement, recourse against the Working Capital Escrow Fund (solely in relation to Section 1.7 hereof) and the Escrow Fund (solely in relation to Section 1.7 hereof to the extent the Acquiror Excess Payment, if any, exceeds $100,000 and Article VIII hereof, subject to the limitations set forth in Section 8.4 hereof) shall constitute the sole and exclusive remedy of any Acquiror Indemnified Party (as defined in Article VIII ) under this Agreement, except as otherwise set forth in Section 9.6(a) hereof. The Escrow Amount shall be held in escrow pursuant to an escrow agreement in substantially the form attached hereto as Exhibit D or in such form as otherwise mutually agreed upon by the parties (the “ Escrow Agreement ”) to be executed by Acquiror, Target, the Shareholders Representative and the Escrow Agent at or prior to Closing.

(b) Subject to the last sentence of this Section 1.12(b) , the Escrow Amount plus the interest and any earnings accrued on the Escrow Amount less any amounts released earlier pursuant to this Agreement or the Escrow Agreement, will be released by the Escrow Agent on the date that is 24 months after the Closing Date (the “ Escrow Termination Date ”) to the Escrow Shareholders. Notwithstanding the foregoing, to the extent that any then pending and unresolved claims for indemnification under Section 8.2 exist, that portion of the Escrow Amount necessary to satisfy such claims shall be retained by the Escrow Agent until such claims are finally resolved.

(c) Claims against the Escrow Fund shall be resolved between the Indemnified Parties and the Shareholders Representative in the manner provided in Article VIII hereof.

SECTION 1.13 Working Capital Escrow.

(a) $100,000 of the Cash Merger Consideration (the “ Working Capital Escrow Amount ”) shall be deposited with the Escrow Agent, to constitute a collateral fund (the “ Working Capital Escrow Fund ”) for purposes of securing the Acquiror’s rights to recover amounts pursuant to Section 1.7(e) of this Agreement. The Working Capital Escrow Amount shall be held in escrow pursuant to the Escrow Agreement.

 

10

(b) The Working Capital Escrow Amount plus the interest and any earnings accrued on the Working Capital Escrow Amount less any amounts released earlier to the Acquiror pursuant to this Agreement, will be released by the Escrow Agent to the Series C Holders no later than the date that is ninety-five (95) days after the Closing Date (the “ Working Capital Escrow Termination Date ”); provided , however , that, in the event the Escrow Shareholders Excess Payment or Acquiror Excess Payment, as applicable, has not been finally determined pursuant to Section 1.7(e) hereof as of the Working Capital Escrow Termination Date, such Working Capital Escrow Termination Date shall be delayed until the Escrow Shareholders Excess Payment or Acquiror Excess Payment, as applicable, has been finally determined pursuant to Section 1.7(e) hereof.

(c) Claims against the Working Capital Escrow Fund shall be resolved between the Acquiror and the Shareholders Representative in the manner provided in Article VIII hereof.

SECTION 1.14 Surrender of Certificates .

(a) Exchange Procedures . Promptly after the Effective Time, the Paying Agent shall mail to each holder of record (the “ Former Target Shareholders ”) of shares of Target Capital Stock, whose shares were converted into the right (or contingent right) to receive any portion of the Merger Consideration pursuant to Section 1.11 , (i) a letter of transmittal in substantially the form attached hereto as Exhibit E or in such form as otherwise mutually agreed upon by the parties, which letter of transmittal shall contain representations and warranties with respect to the authority of such Former Target Shareholder to surrender such shares, such Former Target Shareholder’s title to and ownership of such Target Capital Stock, such Former Target Shareholder’s accredited investor status (for the avoidance of doubt, Acquiror will issue Acquiror Common Stock as Stock Merger Consideration to up to thirty-five (35) Former Target Shareholders that are not accredited investors under applicable law) and (ii) instructions for use in effecting the surrender of any certificate or certificates representing shares of Target Capital Stock (the “ Certificates ”), if applicable, in exchange for the Merger Consideration. Upon receipt by the Paying Agent of a Certificate, if applicable, for cancellation, together with the appropriate letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive the applicable portion of the Merger Consideration in exchange therefor, and the Certificate so surrendered shall forthwith be canceled. Until so surrendered, each outstanding Certificate that, prior to the Effective Time, represented shares of Target Capital Stock will be deemed from and after the Effective Time, for all corporate purposes, including the payment of dividends, to evidence the right to receive the applicable portion of the Merger Consideration into which such shares of Target Capital Stock shall have been so converted and the right to receive an amount in cash in lieu of the issuance of any fractional shares in accordance with Section 1.6(b) hereof.

(b) Distributions with Respect to Unexchanged Shares . No dividends or other distributions with respect to Acquiror Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate, if applicable, with respect to the shares of Acquiror Common Stock represented thereby, but shall instead be set aside for payment until the holder of record of such Certificate surrenders such Certificate. Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record

 

11

holder of the certificates representing whole shares of Acquiror Common Stock issued in exchange therefor, without interest, at the time of such surrender, the amount of any such dividends or other distributions with a record date after the Effective Time which would have been previously payable (but for the provisions of this Section 1.14(b) ) with respect to such shares of Acquiror Common Stock.

(c) Transfers of Ownership . If any certificate for shares of Acquiror Common Stock is to be issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition of the issuance thereof that the Certificate so surrendered is properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange will have paid to Acquiror, or any agent designated by it, any transfer or other taxes required by reason of the issuance of a certificate for shares of Acquiror Common Stock in any name other than that of the registered holder of the Certificate surrendered, or established to the reasonable satisfaction of Acquiror or any agent designated by it that such tax has been paid or is not payable.

(d) No Liability . Notwithstanding anything to the contrary in this Section 1.14 , neither the Surviving Corporation nor any party hereto shall be liable to any person for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law.

(e) Dissenting Shares . The provisions of this Section 1.14 shall also apply to Dissenting Shares that lose their status as such, except that the obligations of Acquiror under this Section 1.14 in relation to any such Dissenting Shares shall commence on the date of loss of such status and the holder of such shares shall be entitled to receive in exchange for such shares the Merger Consideration and cash in lieu of fractional shares to which such holder is entitled pursuant to Section 1.6(b) hereof.

SECTION 1.15 No Further Ownership Rights in Target Capital Stock . After the Effective Time, there shall be no further registration of transfers on the records of the Surviving Corporation of shares of the Target Capital Stock that were issued and outstanding immediately prior to the Effective Time. If, after the Effective Time, valid Certificates (other than Certificates representing Dissenting Shares) are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I .

SECTION 1.16 Lost, Stolen or Destroyed Certificates . In the event any Certificates have been lost, stolen or destroyed, Acquiror shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, the applicable portion of the Merger Consideration as may be required pursuant to Section 1.11 ; provided , however , that Acquiror may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to indemnify Acquiror against any claim that may be made against Acquiror or the Surviving Corporation with respect to the Certificates alleged to have been lost, stolen or destroyed; provided , further , that this Section 1.16 shall not apply to any shares of Target Capital Stock which were not certificated pursuant to the Companies Law.

 

12

SECTION 1.17 Earnout .

(a) Entitlement to Earnout Amount . If, during the twelve (12) month period beginning July 1, 2009 and ending on June 30, 2010 (the “ Earnout Period ”), Aggregate Revenues (as defined below) are greater than $5,000,000, (A) each former holder of Target Series C Preference Shares (each, a “ Series C Holder ”) shall be entitled to receive a portion of the Series C Holder Earnout Amount (as defined below), (B) those former Target employees set forth on Schedule 1.17(a) that continue as employees of Acquiror or the Surviving Corporation (each, an “ Earnout Employee ”) shall be entitled to receive a portion of the Employee Earnout Amount (as defined below), subject to the limitations set forth in the Retention Plan in the form attached hereto as Exhibit F (the “ Retention Plan ”), (C) each former holder of Target Series B Preference Shares (each a “ Series B Holder ”) shall be entitled to receive a portion of the Series B Holder Earnout Amount (as defined below), (D) each former holder of Series A Preference Shares (each a “ Series A Holder ”) shall be entitled to receive a portion of the Series A Earnout Amount (as defined below) and (E) each former holder of Ordinary Shares (each an “ Ordinary Shares Holder ” and together with Series C Holders, Series B Holders and Series A Holders, the “ Earnout Holders ”) shall be entitled to receive the applicable portion of the Ordinary Holder Earnout Amount (as defined below), each of (A), (C), (D) and (E) in accordance with this Section 1.17 and (B) in accordance with the Retention Plan. During the Earnout Period, Acquiror and the Surviving Corporation (i) shall not take any actions which would reasonably be expected to materially and adversely affect the Aggregate Revenues and (ii) shall, in good faith, use commercially reasonable efforts and practices to market, promote, and sell Target products in a manner that is consistent with the practices of Acquiror in relation to the other products and services of Acquiror.

(i) The term “ Employee Earnout Amount ” shall mean an amount equal to: (x) 0.35 multiplied by (y) Aggregate Revenues minus $5,000,000.

(ii) The term “ Holder Earnout Amount ” shall mean an amount equal to: (x) 0.95 multiplied by (y) Aggregate Revenues minus $5,000,000.

(iii) The term “ Series C Holder Earnout Amount ” shall mean an amount equal to the Distributed Holder Earnout Amount; provided , however , that the Series C Holder Earnout Amount shall not exceed $12,663,578.40 (to be adjusted, as applicable, upon the occurrence of any Series C Adjustment Events) minus the sum of (a) the Cash Merger Consideration, minus any Acquiror Excess Payment or plus any Escrow Shareholders Excess Payment, and (b) 1,000,000 multiplied by the closing bid price of one share of Acquiror Common Stock on the NASDAQ Global Market on the day prior to the Closing Date.

(iv) The term “ Series B Holder Earnout Amount ” shall mean that portion, if any, of the Distributed Holder Earnout Amount that exceeds the Series C Holder Earnout Amount; provided , however , that the Series B Holder Earnout Amount shall not exceed $11,940,964.20 (to be adjusted, as applicable, upon the occurrence of any Series B Adjustment Events).

 

13

(v) The term “ Series A Holder Earnout Amount ” shall mean that portion, if any, of the Distributed Holder Earnout Amount that exceeds the sum of the Series C Holder Earnout Amount and the Series B Holder Earnout Amount; provided , however , that the Series A Holder Earnout Amount shall not exceed $4,500,000 (to be adjusted, as applicable, upon the occurrence of any Series A Adjustment Events).

(vi) The term “ Ordinary Holder Earnout Amount ” shall mean that portion, if any, of the Distributed Holder Earnout Amount that exceeds the sum of the Series C Holder Earnout Amount, the Series B Holder Earnout Amount and the Series A Holder Earnout Amount.

(vii) The term “ Distributed Holder Earnout Amount ” shall mean an amount equal to the Holder Earnout Amount minus the Pagemill Earnout Amount.

(viii) The term “ Pagemill Earnout Amount ” shall mean 1.4% of the Holder Earnout Amount.

(ix) The term “ Aggregate Revenues ” shall mean (i) revenue recognized in accordance with GAAP and Acquiror’s accounting practices as determined by Acquiror (with a minimum of forty percent (40%) gross margin excluding the cost of the Holder Earnout Amount and the Employee Earnout Amount) from the sale of Target’s products during the Earnout Period plus (ii) the gross profit from the sale of Acquiror’s products during the Earnout Period when such products are sold with Target’s products as a single solution (with a minimum of forty percent (40%) blended gross margin excluding the cost of the Holder Earnout Amount and the Employee Earnout Amount); provided , however , that revenue or gross profit from other products, arrangements or accounts may be included in the calculation of Aggregate Revenues in the sole discretion of the Chief Executive Officer of Acquiror.

(x) In determining “gross margin” or “gross profit” as used in the definition of Aggregate Revenues, the following methodology shall be used: (i) cost of revenue shall include (A) product cost at standard at the time of product shipment, (B) all applicable variances to product cost at standard, (C) all direct/indirect product costs not included in the cost standard or variances, (D) applicable inventory reserves and (E) allocation of direct personnel costs and (ii) calculations and allocations shall be performed by Acquiror’s corporate accounting personnel in accordance with GAAP and Acquiror’s accounting practices.

(b) Calculation of Earnout Amounts . Not later than thirty (30) days after the expiration of the Earnout Period, Acquiror shall prepare and deliver to the Shareholders Representative a written report setting forth the calculation of Aggregate Revenues, the Holder Earnout Amount, if any, and the Employee Earnout Amount, if any, that is payable in accordance with Section 1.17(a) (the “ Earnout Report ”). The Earnout Report shall provide reasonable supporting documentation relating to the calculation of Aggregate Revenues, the Holder Earnout Amount and the Employee Earnout Amount. The Shareholders Representative shall have twenty (20) days following receipt of the Earnout Report to review the contents thereof. Subject to Section 8.9(g) , the Shareholders Representative may consult with such

 

14

consultants and legal advisors, including Acquiror’s Chief Executive Officer or Chief Financial Officer, as the Shareholders Representative deems advisable in relation to such review. If the Shareholders Representative does not deliver to Acquiror written notice of an objection to the Earnout Report (which notice must contain a reasonably detailed statement of each basis for such objection) within such twenty (20) day period, the amount of Aggregate Revenues, the Holder Earnout Amount and the Employee Earnout Amount set forth in the Earnout Report shall be final, binding and conclusive for all purposes. If the Shareholders Representative timely notifies Acquiror of an objection to the Earnout Report, Acquiror and the Shareholders Representative shall use reasonable good faith efforts to resolve such objection as promptly as practicable. If they are unable to resolve such objection within twenty (20) days of Acquiror’s receipt of the Shareholders Representative’s written notice of objection, the issues in dispute shall be promptly submitted for resolution to the Arbitration Firm. Acquiror and the Shareholders Representative shall cooperate in good faith with the Arbitration Firm in connection with its efforts to resolve the issues in dispute, and Acquiror shall provide such work papers as the Arbitration Firm may reasonably request for purposes of preparing its calculation. The determination of the Arbitration Firm with respect to such issues, which shall be issued in written form to Acquiror and the Shareholders Representative, shall be final, binding and conclusive for all purposes and shall not be subject to any further dispute resolution procedures, including further mediation or arbitration or formal legal proceedings. Acquiror and the Shareholders Representative shall split equally the payment of all fees of the Arbitration Firm; provided , however , in the event that the Arbitration Firm concludes that the dispute was caused by the fraud, negligence, bad faith or willful misconduct of Acquiror or the Shareholders Representative, such party shall pay all fees of the Arbitration Firm.

(c) No Transfer of Earnout . The right of each Earnout Holder or Earnout Employee to receive the applicable portion of the Holder Earnout Amount or the Employee Earnout Amount, as the case may be, under this Section 1.17 may not be sold, transferred, assigned, conveyed or pledged, other than transfer (a) of any portion of the Holder Earnout Amount or Employee Earnout Amount, or any right thereto, on death, by will or intestacy; (b) by instrument to an inter vivos or testamentary trust in which any portion of the Holder Earnout Amount or Employee Earnout Amount is passed to beneficiaries upon the death of the trustee; (c) made pursuant to any order, judgment or decree of a court of competent jurisdiction, including in connection with divorce, bankruptcy or liquidation; or (d) made by operation of law, including a merger.

(d) Payment of Earnout Amount . By the later of (i) forty (40) days after the Earnout Period or (ii) ten (10) business days after the final amount of Aggregate Revenues and the corresponding Holder Earnout Amount has been determined in accordance with this Section 1.17 but in no event later than August 10, 2010, Acquiror shall cause to be delivered to the Paying Agent, for the benefit of, and distribution to, the Earnout Holders the Distributed Holder Earnout Amount to which the Earnout Holders are entitled under this Section 1.17 . The portion of the Employee Earnout Amount to which each Earnout Employee is entitled under this Section 1.17 shall be paid pursuant to the terms of the Retention Plan.

SECTION 1.18 Withholding . Notwithstanding anything to the contrary in this Agreement, Acquiror shall be entitled to deduct and withhold from the Merger Consideration (including, without limitation, any portion of the Holder Earnout Amount and Employee Earnout

 

15

Amount) and any Cash Pool amounts (as defined herein), any amounts as are required to be withheld as to any holder of Target Capital Stock, Pagemill Partners, LLC, any Earnout Employee, and any other employee subject to withholding under the Internal Revenue Code of 1986, as amended (the “ Code ”), or any applicable provision of state, local or foreign Tax (as defined herein) law with respect to the making of such payment. To the extent that amounts are so withheld and properly paid to the appropriate Tax Authority (as defined herein), such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder, person or entity in respect of which such deduction and withholding was made.

ARTICLE II.

REPRESENTATIONS AND WARRANTIES OF TARGET

Target represents and warrants to Acquiror and Merger Sub that the statements contained in this Article II are true and correct as of the date hereof (except where reference is made to another date), except as set forth in the disclosure schedule delivered by Target to Acquiror in relation hereto (the “ Target Disclosure Schedule ”). The Target Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections and subsections contained in this Article II , and the disclosure in any section shall qualify only the corresponding or cross referenced section or subsection in this Article II. Any reference in this Article II to an agreement being “enforceable” shall be deemed to be qualified to the extent such enforceability may be limited by (i) laws of general application affecting or relating to bankruptcy, insolvency, reorganization, moratorium and the relief of debtors generally or other similar laws affecting the enforcement of creditors’ rights, and (ii) the availability of specific performance, injunctive relief and other equitable remedies. In this Article II , the term “Target” will be deemed to include (and each representation and warranty will apply separately and collectively to) Target and each Subsidiary, unless the context otherwise requires. For purposes of this Agreement, “ Subsidiary ” shall mean any corporation, limited liability company, partnership, joint venture, association or other business entity in which Target directly or indirectly owns fifty percent (50%) or more of the aggregate equity interests, whether voting or non-voting, or controls the ability to appoint, remove or replace a general partner or fifty percent (50%) or more of the board of directors.

SECTION 2.1 Organization, Good Standing and Qualification . Target is an exempted company limited by shares duly incorporated, validly existing and in good standing under the laws of the Cayman Islands and has the requisite corporate power and authority to carry on its business as currently conducted by it. Target is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties or the presence of its employees makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed would not reasonably be expected to have, individually or in the aggregate, a Target Material Adverse Effect. Target has delivered to Acquiror or its advisors true, complete and correct copies of Target’s memorandum of association and articles of association, as amended to date (the “ Target Governing Documents ”).

SECTION 2.2 Capitalization and Voting Rights .

(a) As of the date hereof, the authorized share capital of Target consists of (i) 26,000,000 shares of Target Ordinary Shares, 6,327,407 of which are issued and outstanding as

 

16

of the date of this Agreement, and (ii) 17,609,375 shares of Target Preference Shares consisting of (A) 5,109,375 Target Series A Preference Shares, 2,812,500 of which are issued and outstanding as of the date of this Agreement, (B) 4,500,000 Target Series B Preference Shares, 3,618,474 of which are issued and outstanding as of the date of this Agreement and (C) 8,000,000 Target Series C Preference Shares, none of which are issued and outstanding as of the date of this Agreement. Section 2.2(a) of the Target Disclosure Schedule sets forth a complete and accurate list of all the holders (including the number of shares held by such holder) of Target Ordinary Shares, Target Series A Preference Shares, Target Series B Preference Shares and Target Series C Preference Shares as of the date of this Agreement. There are no other outstanding shares or voting securities and no outstanding commitments or agreements to which Target is a party or by which Target is bound obligating Target to issue any shares or voting securities after the date of this Agreement other than pursuant to the conversion of Target Series C Notes or the exercise of outstanding Target Warrants (as defined herein) and Target Awards outstanding as of the date of this Agreement.

(b) All outstanding shares of the Target Capital Stock have been duly authorized, validly issued, fully paid and are non-assessable and, to Target’s knowledge, are free of any security interests, mortgages, liens, pledges, charges or encumbrances of any kind or character (collectively, “ Liens ”) and, except as set forth in Section 2.2(b) of the Target Disclosure Schedule, are not subject to (or issued in violation of) statutory or similar preemptive rights, rights of first refusal, rights of first offer or similar rights created by statute, the Target Governing Documents or any agreement to which Target or, to Target’s knowledge, any of its shareholders is a party or by which it or any of them is bound.

(c) As of the date of this Agreement, Target has reserved (i) 3,837,448 shares of Target Series C Preference Shares for issuance upon conversion of the Target Series C Notes, (ii) 10,268,422 shares of Target Ordinary Shares for issuance upon conversion of Target Preference Shares, (iii) 2,828,200 shares of Target Ordinary Shares for issuance to employees, directors and consultants pursuant to the Target Stock Plans, of which 2,125,390 shares are subject to outstanding and unexercised Target Awards, (iv) 3,096,769 shares of Target Series C Preference Shares for issuance upon exercise of Target Series C Warrants, of which 3,096,769 shares are subject to outstanding and unexercised Target Series C Warrants, (v) 187,716 shares of Target Series B Preference Shares for issuance upon exercise of outstanding warrants to purchase shares of Target Series B Preference Shares (the “ Target Series B Warrants ”), of which 187,716 shares are subject to outstanding and unexercised Target Series B Warrants, (vi) 109,375 shares of Target Series A Preference Shares for issuance upon exercise of outstanding warrants to purchase shares of Target Series A Preference Shares (the “ Target Series A Warrants ” and collectively with the Target Series C Warrants, Target Series B Warrants and Target Ordinary Warrants, the “ Target Warrants ”), of which 109,375 shares are subject to outstanding and unexercised Target Series A Warrants and (vii) 151,878 shares of Target Ordinary Shares for issuance upon exercise of Target Ordinary Warrants, of which 151,878 shares are subject to outstanding and unexercised Target Ordinary Warrants. Except as set forth in Section 2.2(c) of the Target Disclosure Schedule, there are no other options, warrants, calls, rights, commitments or other agreements of any character to which Target is a party or by which Target is bound obligating Target to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the Target Capital Stock or

 

17

obligating Target to grant, extend, accelerate the vesting of, change the price of, or otherwise amend or enter into, any such options, warrants, calls, rights, commitments or agreements.

(d) There are no contracts, commitments or agreements with respect to the voting, purchase, sale or registration of Target Capital Stock or management or board nomination or participation rights (i) between or among Target and any of its shareholders and (ii) to Target’s knowledge, among any of Target’s shareholders or between any of Target’s shareholders and any third party, except for the Target Investor Documents. The term “ Target Investor Documents ” means the agreements or other documents set forth in Section 2.2(d) of the Target Disclosure Schedule. Without the consent or approval of the holders of the outstanding Target Awards or the shareholders of Target, the terms of the Target Stock Plans and the agreements evidencing awards thereunder permit Target to unilaterally cancel or terminate the Target Awards on or immediately prior to the Effective Time. True and complete copies of the forms of award agreements and instruments used under the Target Stock Plans and any individual award agreements that materially deviate from such forms have been made available to Acquiror, and such agreements and instruments have not been amended, modified or supplemented, and there are no agreements to amend, modify or supplement such agreements or instruments.

(e) All outstanding shares of Target Ordinary Shares (including any restricted shares), Target Series A Preference Shares, Target Series B Preference Shares, Target Series C Preference Shares and all outstanding Target Awards and Target Warrants were issued or granted in compliance with all applicable federal and state securities laws. Section 2.2(e) of the Target Disclosure Schedule contains a list of the legal residence of all holders of shares of the Target Capital Stock.

SECTION 2.3 Interests; Subsidiaries; Branch Offices .

(a) Section 2.3(a) of the Target Disclosure Schedule describes any interest owned or controlled by Target, directly or indirectly, in any corporation, limited liability company, partnership, joint venture, association, or other business entity.

(b) Each Subsidiary is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has the requisite power and authority to carry on its business as currently conducted by it. Each Subsidiary is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties or the presence of its employees makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed would not reasonably be expected to have, individually or in the aggregate, a Target Material Adverse Effect.

(c) Target is not a participant in any joint venture, partnership, or similar arrangement. Target has not directly or indirectly conducted business under or otherwise used, for any purpose, any fictitious, trade or assumed name.

(d) Section 2.3(d) of the Target Disclosure Schedule sets forth any branch, representative office or liaison office directly or indirectly maintained by Target as of the date

 

18

hereof (the “ Branch Office ”). Each Branch Office is duly registered and established under the laws of the jurisdiction of its formation. Each Branch Office has the requisite power and authority to conduct the activities as permitted by the jurisdiction of its formation. Each Branch Office is duly licensed and is in good standing in each jurisdiction in which the nature of its activities, the leasing of its properties or the presence of its employees makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed would not reasonably be expected to have, individually or in the aggregate, a Target Material Adverse Effect.

(e) For each Subsidiary, Section 2.3(e) of the Target Disclosure Schedule sets forth (i) the authorized, and the issued and outstanding, capital stock or equity of such Subsidiary, and (ii) the names, addresses and holdings of any other equity holders in such Subsidiary. Except as set forth on the Target Disclosure Schedule, each Subsidiary is wholly owned by Target.

(f) All outstanding equity of each Subsidiary is duly authorized, validly issued, fully paid and non-assessable and is free of any Liens (including, but not limited to, any pledges of equity of any Subsidiary) and is not subject to statutory or similar preemptive rights, rights of first refusal, rights of first offer or similar rights created by statute, each such Subsidiary’s governance documents or any agreement to which such Subsidiary is a party or by which such Subsidiary is bound. There are no outstanding or authorized options, warrants, calls, rights, commitments or agreements of any character to which any Subsidiary is a party or by which a Subsidiary is bound obligating such Subsidiary to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any equity or obligating it to grant, extend, accelerate the vesting of, change the price of, or otherwise amend or enter into any such options, warrants, calls, rights, commitments or agreements.

SECTION 2.4 Authority .

(a) Target has all requisite corporate power and authority to enter into this Agreement and the other Transaction Documents to which it is or shall be a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby, and the execution and delivery by Target of this Agreement and the other Transaction Documents, and the consummation by Target of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action on the part of Target, other than the adoption of this Agreement and approval of the Merger by the Target Required Shareholder Approval and subject to the filing of the Merger Documents with the Cayman Registrar. The board of directors of Target has approved this Agreement and declared the advisability of this Agreement and the Merger. This Agreement and each other Transaction Document to which Target is or shall be a party has been, or upon execution and delivery thereof shall be, duly and validly executed and delivered by Target and constitute, or upon execution and delivery shall constitute, assuming the due authorization, execution and delivery of this Agreement by the other parties hereto or thereto, the valid and binding obligations of Target enforceable against Target in accordance with their respective terms.

(b) Except as set forth in Section 2.4(b) of the Target Disclosure Schedule, the execution and delivery by Target of this Agreement and the other Transaction Documents to

 

19

which it is or shall be a party do not, and the consummation of the transactions by Target contemplated hereby and thereby shall not, conflict with or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (i) any provision of the Target’s Governing Documents, (ii) any Target Material Contract (as defined herein) or (iii) any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation material to Target or any of its properties or assets, except in the case of clause (ii) or (iii) where such conflict, violation, default, termination, cancellation or acceleration would not be reasonably expected, individually or in the aggregate, to have a Target Material Adverse Effect.

(c) Except as would not have a Target Material Adverse Effect, no consent, approval, order or authorization of, or registration, declaration or filing with, any domestic or foreign court, administrative agency or commission or other governmental authority or instrumentality (“ Governmental Entity ”) is required by or with respect to Target in connection with the execution and delivery by Target of this Agreement or any other Transaction Document to which it is or shall be a party or the consummation by Target of the transactions contemplated hereby or thereby, except for (i) the filing of the Merger Documents with the Cayman Registrar, pursuant to the Companies Law, (ii) such filings as may be required under applicable federal and state securities laws of the United States and the securities laws of any other applicable jurisdiction and (iii) the filing of the documents set forth on Section 2.4(c) of the Target Disclosure Schedule with any Governmental Entity with regard to Target’s qualification to do business and to participate in programs run, sponsored or maintained by any such Governmental Entity.

SECTION 2.5 Financial Statements and No Undisclosed Liabilities .

(a) Section 2.5(a) of the Target Disclosure Schedule sets forth true and correct copies of (i) Target’s audited consolidated financial statements (balance sheet, profit and loss statement, statement of shareholders’ equity and statement of cash flows, including notes thereto) as of and for the fiscal years ended December 31, 2007 and December 31, 2008, and (ii) Target’s unaudited consolidated financial statements (balance sheet and profit and loss statement) as of and for the three (3) month period ended March 31, 2009. All financial statements described in this Section 2.5(a) are collectively referred to as the “ Target Financial Statements ”.

(b) The Target Financial Statements have been prepared in accordance with generally accepted accounting principles of the United States (“ GAAP ”) applied on a consistent basis throughout the periods indicated; provided , however , the unaudited Target Financial Statements as of and for the three (3) month period ended March 31, 2009 (the “ Interim Target Financial Statements ”) do not contain all footnotes required by GAAP and were or are subject to the year-end adjustments set forth on Section 2.5(b) of the Target Disclosure Schedules. The Target Financial Statements fairly present the financial condition of Target at the respective dates thereof and the operating results of Target for the periods indicated therein, subject in the case of Interim Target Financial Statements to the absence of any footnotes. The Target Financial Statements are based on, and were prepared from, the books and records of Target. All accounting policies utilized by Target in 2009 are consistent with the accounting policies utilized by Target in preparing the 2007 and 2008 audited financial statements.

 

20

(c) Except as set forth in Section 2.5(c) of the Target Disclosure Schedule, neither Target nor, to the knowledge of Target, its independent auditors, have identified (A) any significant deficiency or material weakness in the preparation of the Target Financial Statements, (B) any fraud, whether or not material, that involves Target’s management or other employees who have a role in the preparation of financial statements or (C) any claim or allegation of such fraud.

(d) Except as set forth in the Target Financial Statements, Target has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to March 31, 2009 or incurred in connection with the transactions contemplated by this Agreement, (ii) liabilities or obligations under contracts and commitments incurred in the ordinary course of business or (iii) liabilities or obligations not required under GAAP to be reflected in the Target Financial Statements. Except as disclosed in the Target Financial Statements, Target is not a guarantor or indemnitor of any indebtedness of any other person or entity.

SECTION 2.6 Absence of Certain Changes . Since March 31, 2009 through the date hereof, there has not been:.

(a) any material change in the assets, liabilities, financial condition or operating results of Target from that reflected in the Target Financial Statements, except changes in the ordinary course of business or in connection with the transactions contemplated by this Agreement;

(b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business of Target (as such business is currently conducted and as it is currently proposed to be conducted on a stand alone basis);

(c) any satisfaction or discharge of any Lien or payment of any obligation by Target, except in the ordinary course of business and that is not material to the assets, properties, financial condition, operating results or business of Target (as such business is currently conducted and as it is currently proposed to be conducted on a stand alone basis);

(d) any material change or amendment to a Target Material Contract;

(e) any material change in any material compensation arrangement or material agreement with any employee;

(f) any sale, assignment, license or transfer of any Target Intellectual Property (other than non-exclusive licenses granted in the ordinary course of business);

(g) any resignation or termination of employment of any key employee or officer of Target;

(h) any Lien created by Target with respect to any of its material properties or assets, except liens for Taxes not yet due or payable or Permitted Liens;

 

21

(i) any loans or guarantees made by Target to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of business;

(j) any declaration, setting aside or payment or other distribution in respect of any Target Capital Stock, or any direct or indirect redemption, purchase or other acquisition of any of such Target Capital Stock by Target;

(k) to Target’s knowledge, any other event or condition of any character that might materially and adversely affect the assets, properties, financial condition, operating results, prospects or business of Target; or

(l) any agreement or commitment by Target to do any of the things described in this Section 2.6 .

SECTION 2.7 Litigation . Except as set forth in Section 2.7 of the Target Disclosure Schedule, there is no private or governmental action, suit, proceeding, claim, arbitration or investigation pending before any agency, court or tribunal, foreign or domestic, to which Target is a party, or, to the knowledge of Target, currently threatened against Target or any of its properties or officers or directors (in their capacities as such), except for the registration, prosecution and maintenance of Target Intellectual Property in the ordinary course of business. There is no judgment, decree or order against Target or any of its directors or officers (in their capacities as such), or, to the knowledge of Target, currently threatened (including, but not limited to, by means of a demand), that:

(a) questions the validity of this Agreement;

(b) questions the right of Target to enter into this Agreement or to consummate the transactions contemplated hereby;

(c) could reasonably be expected to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement; or

(d) could reasonably be expected to have a Target Material Adverse Effect.

The foregoing includes, without limitation, actions, suits, proceedings or investigations, pending or threatened, involving the prior employment of any of Target’s employees, such employees’ use in connection with Target’s business of any information or techniques allegedly proprietary to any of such employees’ former employers or such employees’ obligations under any agreements with prior employers. Target is not a party to, or, to Target’s knowledge, subject to the provisions of (without being a party to), any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by Target currently pending or that Target intends to initiate.

SECTION 2.8 Restrictions on Business Activities . There is no agreement, judgment, injunction, order or decree binding upon Target that has or would reasonably be expected to have the effect of prohibiting any current business practice of Target, any acquisition of property by Target or the conduct of business by Target as currently conducted, other than the

 

22

license restrictions set forth in Section 2.8 of the Target Disclosure Schedule, none of which would reasonably be expected to have a Target Material Adverse Effect. Target has not granted exclusive rights to develop, manufacture, produce, assemble, license, market, or sell its products to any third party.

SECTION 2.9 Title to Property . Other than to Target Intellectual Property (as defined herein), Target has (a) good and marketable title to all of its properties, interests in properties and assets, real and personal, that are necessary for the conduct of its business as presently conducted, reflected in the Interim Target Financial Statements or acquired after the date of the Interim Target Financial Statements (except properties, interests in properties and assets sold or otherwise disposed of in the ordinary course of business since the date of the Interim Target Financial Statements), or (b) with respect to leased properties and assets, valid leasehold interests therein, in each case free and clear of all Liens, except (i) Liens for current Taxes which are not yet due and payable or which are being contested in good faith, (ii) Liens arising by operation of law or statutory liens, (iii) Liens that arise under leasing arrangements relating to equipment or other personal property transferred, and (iv) Liens that arise under zoning, land use and other similar laws and other imperfections of title or encumbrances, if any, which do not materially impair the marketability or use of the property subject thereto as used as of the Effective Time, (clauses (i) through (iv), collectively, “ Permitted Liens ”). All material plant, property and equipment of Target that are used in the operations of its business are in sufficiently good operating condition and repair, except for ordinary wear and tear. All properties used in the operations of Target are reflected in the Target Financial Statements to the extent GAAP requires the same to be reflected. Target owns no real property.

SECTION 2.10 Target Intellectual Property .

(a) “ Target Owned Software ” includes all software owned by Target, including owned software programs included in or developed for inclusion in Target’s products. Except as otherwise described in Section 2.10 of the Target Disclosure Schedule, Section 2.10(a) of the Target Disclosure Schedule sets forth (i) under the caption “Target Owned Software” a complete list by file name of all material computer programs (source code or object code) owned by Target, including owned software programs included in or developed for inclusion in Target’s products, and (ii) under the caption “Target Licensed Software” a complete list by file name of all material computer programs (source code or object code) licensed to Target by any third party (excluding off-the-shelf software programs that have an acquisition price greater than $1.00 and less than $5,000) and that are licensed by Target to any third party (collectively, the “ Target Licensed Software ” and, together with the Target Owned Software, the “ Target Software ”). Target is in actual possession of the source code and object code for each computer program included in the Target Owned Software. Target is in actual possession of or has access to the object code and user manuals (if any) for each computer program included in the Target Licensed Software.

(b) Section 2.10(b) of the Target Disclosure Schedule sets forth a complete list (including, to the extent applicable, registration number, application or file numbers, title, jurisdiction in which filing was made or from which registration issued, date of filing or issuance, and names of all current applicant(s) and registered owner(s)) of all currently subsisting patents, registered trademarks and/or service marks, domain names and registered copyrights

 

23

owned by Target, alone or jointly with others, and all applications for registration of any of the foregoing, including any additions thereto or extensions, continuations, renewals, reissues or divisions thereof (collectively, together with all trade dress, trade secrets, chip designs (including design bases, layouts, and resistor-transistor logic), reference designs, simulations, processes, formulae, designs, know-how, inventions, Target Owned Software and other intellectual property rights that are owned by Target, the “ Target Intellectual Property ”). Correct and complete copies of each registration or application for registration (not including any file wrappers or other related documents to such registration) covering any of the Target Intellectual Property which is registered with, or in respect of which any application for registration has been filed with, any Governmental Entity have been provided to Acquiror. All assignments of registrations or applications for registration covering any of the Target Intellectual Property have been properly executed and recorded. All issuance, renewal, annuity, maintenance and other payments related to the filing, prosecution or maintenance of the registered or applied-to-be-registered Target Intellectual Property that have become due have been timely paid, or will be timely paid, by or on behalf of Target. Except as set forth in Section 2.10(b) of the Target Disclosure Schedule, no issuance, renewal, annuity, maintenance or other payments related to the filing, prosecution or maintenance of the registered or applied-to-be-registered Target Intellectual Property will become due within 90 days after the Closing Date.

(c) All Target Intellectual Property is owned exclusively by Target and a description of the intercompany ownership of all Target Intellectual Property is set forth in Section 2.10(c) of the Target Disclosure Schedule. Except as described in Section 2.10(c) of the Target Disclosure Schedule, all material rights to Target Intellectual Property developed or acquired by Auvitek Corporation, Auvitek Shanghai, Ltd., Auvitek Hong Kong Limited or any branch office, liaison office or representative office of the preceding entities or any employees of the foregoing were assigned, directly or indirectly, to Auvitek International, Ltd. at the time of development or acquisition of such Target Intellectual Property. Except as set forth in Section 2.10(c) of the Target Disclosure Schedule, Target has good, marketable and exclusive title to use, the Target Intellectual Property free and clear of all Liens, other than Liens appurtenant to license agreements specifically identified in the Section 2.10(l) of the Target Disclosure Schedule. To the knowledge of Target, there are no inventorship challenges, reissue, re-examination, opposition or nullity proceedings or interferences declared, commenced, or threatened with respect to any patents or patent applications included in the Target Intellectual Property. Target has complied with its duty of candor and disclosure to the United States Patent and Trademark Office and any relevant foreign patent office with respect to all patent and trademark applications filed by or on behalf of Target and has made no material misrepresentation in such applications.

(d) Except as set forth in Section 2.10(d) of the Target Disclosure Schedule, material Target Intellectual Property has been conceived, designed and authored by (i) regular employees of Target within the scope of their employment, or (ii) independent contractors of Target who have executed valid and binding agreements expressly assigning to Target all right, title and interest in any inventions and works of authorship, whether or not patentable, that were invented, created, developed, conceived and/or reduced to practice during the term of such employee’s employment or such independent contractor’s work for Target, and all intellectual property rights therein. Target is not a party to any agreement that contains restrictions on the ability of Target or any of its successors or assigns to sell, license, lease, transfer, use, reproduce,

 

24

distribute, modify or otherwise exploit any Target Intellectual Property, except for license rights Target has granted in the agreements specifically identified in Section 2.10(l) of the Target Disclosure Schedule. Auvitek International, Ltd. is not a party to any agreement that contains material restrictions on the ability of it or any of its successors or assigns to sell, license, lease, transfer, use, reproduce, distribute, modify or otherwise exploit any Target Intellectual Property, except for license rights Auvitek International, Ltd. has granted in the agreements specifically identified in Section 2.10(l) of the Target Disclosure Schedule.

(e) Each item of Target Intellectual Property and Target Software will be owned or available for use by Surviving Corporation immediately following the Closing on substantially the same terms and conditions as it was owned or available for use by Target immediately prior to the Closing, except for those agreements identified in Section 2.10(e) of the Target Disclosure Schedule.

(f) Except as set forth in Section 2.10(f) of the Target Disclosure Schedule, Target has taken reasonable measures to protect the proprietary nature of each material item of Target Intellectual Property, and information that Target currently considers to be its trade secrets and confidential information that is included in such Target Intellectual Property. Without limiting the foregoing, Target has enforced a commercially reasonable policy of requiring each employee, consultant, contractor, intern, and potential business partner or investor to execute proprietary information and confidentiality agreements materially and substantially consistent with Target’s standard forms thereof (complete and current copies of which have been delivered to Acquiror). To its knowledge, Target has complied in all material respects with all applicable contractual and legal requirements pertaining to information, confidentiality, privacy and security. No material complaint relating to an improper use or disclosure of, or a breach in the security of, any such information has been made or threatened against Target. To Target’s knowledge, there has been no: (i) material unauthorized disclosure of any third party proprietary or confidential information in the possession, custody or control of Target, or (ii) material breach of Target’s security procedures wherein such third party proprietary or confidential information has been disclosed to a third person.

(g) Target does not own any registered trademarks which are used in any way in connection with the current or past conduct of Target business.

(h) All material copyrights of Target included in the Target Intellectual Property which are used in any way in connection with the current or past conduct of the business of Target relate to works of authorship (i) created by (A) employees of Target within the scope of their employment and who have assigned all of their rights (without limitation or reservation) to Target pursuant to enforceable written agreements, or (B) independent contractors who have assigned all of their rights (without limitation or reservation) to Target pursuant to enforceable written agreements, or (ii) acquired from the original author(s) or subsequent assignees. The works covered by such copyrights were not copies of nor derived from any work for which Target does not own the copyrights, and to Target’s knowledge no other person has any claim to authorship or ownership of any part thereof.

(i) Target has valid registrations for each of the domain names set forth in Section 2.10(b) of the Target Disclosure Schedule and there are no other domain names used in

 

25

the current or past conduct of the business by Target. The registration of each such domain name is free and clear of all Liens and is in full force and effect and in full compliance with all applicable domain name registration requirements. Target has paid all fees and have adhered to and complied with all administrative policies required to maintain each registration. Target’s registrations or uses of the domain names have not been disturbed or placed “on hold” and Target has not received written notice of any claim asserted against Target adverse to its rights to such domain names.

(j) To Target’s knowledge, neither the operation of Target’s business as currently or previously conducted nor the sale, license, lease, transfer, use, reproduction, distribution, modification or other exploitation by Target or any of its resellers or distributors (without any obligation to investigate with respect to the resellers and distributors) as currently or previously conducted of any Target Software or Target Intellectual Property (i) infringes on any registered patent, trademark, copyright or other intellectual property right of any other person, or (ii) constitutes a misuse or misappropriation of any trade secret, know-how, process, proprietary information or other right of any other person. Target has not received any complaint, assertion, threat or allegation or otherwise (or any notice of any lawsuit, claim, demand, proceeding or investigation) involving matters of the type contemplated by the immediately preceding sentence, and Target is not aware of any facts or circumstances that could reasonably be expected to give rise to any such lawsuit, claim, demand, proceeding or investigation. Target has not received any request or demand for indemnification or defense from any reseller, distributor, customer, user, or any other third party. Target has not obtained any legal opinions, studies and analyses relating to any alleged or potential infringement, violation or misappropriation of the nature described above.

(k) To Target’s knowledge, no person (including any current or former employee or consultant of Target) is infringing, violating or misappropriating any of the Target Intellectual Property. Target has taken all commercially reasonable steps to protect and enforce the Target Intellectual Property. Target has not obtained any analyses, legal opinions related to any infringement, violation or misappropriation of any Target Intellectual Property and has not filed any complaints, claims, notices or threats concerning the infringement, violation or misappropriation of any Target Intellectual Property.

(l) Section 2.10(l) of the Target Disclosure Schedule identifies each agreement pursuant to which Target has assigned, transferred, licensed or distributed to any third party, or covenanted not to assert any right against any third party with respect to, any Target Intellectual Property or Target Owned Software. Except as disclosed in Section 2.10(l) of the Target Disclosure Schedule, Target has not agreed to indemnify any person against any infringement or misappropriation of any intellectual property rights. Target is not a member of or party to