AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

*** Text Omitted and Filed Separately

Confidential Treatment Requested

Under 17 C.F.R. §§ 200.80(b)(4)

and 240.24b-2

AGREEMENT AND PLAN

OF MERGER

T HIS A GREEMENT AND P LAN OF M ERGER is made and entered into as of May 17, 2009 ( “Agreement Date” ), by and among A PPLIED M ICRO C IRCUITS C ORPORATION , a Delaware corporation ( “Parent” ), E SPRESSO A CQUISITION C ORPORATION , a Delaware corporation and a wholly-owned subsidiary of Parent ( “Merger Sub” ), V ELOCE T ECHNOLOGIES , I NC ., a Delaware corporation (the “Company” ), Jeffrey Harrell, an individual, as representative of the stockholders of the Company pursuant to Section 9.1(a) (the “Stockholders’ Representative” ). Certain capitalized terms used herein and not otherwise defined are defined in Exhibit A to this Agreement.

R ECITALS

W HEREAS , simultaneously with the execution and delivery of this Agreement, (i) Parent and the Company are entering into that certain Development Agreement, dated as of even date herewith, in the form attached hereto as Exhibit B (the “Development Agreement” ), pursuant to which, among other things, the Company shall [… *** …], as described therein, for [… *** …], and (ii) Parent, the Company, the securityholders of the Company and Jeffrey Harrell, an individual, as the purchaser representative, are entering into that certain Securityholder Agreement, dated as of even date herewith, in the form attached hereto as Exhibit C (the “Securityholder Agreement” ), pursuant to which, among other things, such securityholders agree to certain voting provisions with respect to their shares of Company Common Stock, and certain restrictions on the transferability thereof, and the Company agrees not to issue additional equity interests in the Company except in accordance with the terms of such agreement;

W HEREAS , as an inducement to Parent and the Company to enter into the Development Agreement and the Securityholder Agreement, and to perform each of their respective obligations to the other party pursuant thereto, Parent, Merger Sub and the Company are entering into this Agreement, whereby Parent may or shall acquire all of the outstanding capital stock and other equity interests of the Company pursuant to a merger of Merger Sub into the Company (the “Merger” ) in accordance with this Agreement and the Delaware General Corporation Law (the “DGCL” ) upon the terms set forth herein. Upon consummation of the Merger, Merger Sub will cease to exist, and the Company will become a wholly-owned subsidiary of Parent;

W HEREAS , this Agreement has been approved by the respective boards of directors of Parent, Merger Sub and the Company and has been approved by Parent, as the sole stockholder of Merger Sub, and it is intended that the stockholders of the Company approve this Agreement and the Merger pursuant to an Action by Written Consent in the form attached hereto as Exhibit D (the “Stockholder Written Consent” ); and

N OW T HEREFORE , in consideration of the foregoing and the respective covenants, agreements and representations and warranties set forth herein, the parties to this Agreement, intending to be legally bound, agree as follows:

SECTION 1.

DESCRIPTION OF TRANSACTION

 

1.1 Mandatory Closing Obligation . In the event the Company achieves the First Product Milestone, then subject to the satisfaction (or waiver) of each of the conditions set forth in Section 5 and

 

Section 6 of the Agreement, the parties shall be obligated to consummate the Merger in accordance with the terms and conditions of this Agreement for the consideration set forth in this Section

1.2 Optional Closing Right . Subject to the obligations of the parties under Section 1.1, at any time during the period commencing on [… *** …] and ending on [… *** …] ( the “Option Expiration Date” ), Parent shall have the sole and exclusive right (the “Optional Closing Right” ), but not the obligation, to require the Company to effect the Closing (as defined herein) and consummate the Merger in accordance with the terms and conditions of this Agreement (subject to the satisfaction by Parent (or written waiver by the Company) of each of the conditions set forth in Section 6) for the consideration set forth in this Section 1.

1.3 Notice of Exercise of Optional Closing Right . To exercise its Optional Closing Right pursuant to Section 1.2, Parent shall deliver written notice of such election to the Company (the “Notice of Exercise ”) prior to the Option Expiration Date. The Notice of Exercise shall specify (i) the aggregate amount of consideration to be paid as determined pursuant to Section 1.8, and (ii) the aggregate amount of consideration to be paid in cash and/or to be paid in Parent Common Stock. The Closing shall occur no later than the date that is fifteen (15) Business Days after the date of delivery to the Company of the Notice of Exercise (the “Optional Closing Date” ); provided, however, that: (a) if the Merger cannot be consummated by reason of any applicable judgment, decree, order, Law (including, but not limited to, regulatory approval) or other legal impediment, then, in each case, the Optional Closing Date may be extended by Parent to a date not more than fifteen (15) Business Days after the date on which such final impediment is removed or becomes inapplicable; and (b) if prior notification to or approval of any Governmental Body is required in connection with the Merger, the Company or Parent, as the case may be, shall promptly cause to be filed, and shall expeditiously process, the required notice or application for approval (and the parties shall cooperate with one another in the filing of any such notice or application required to be filed by any party and the obtaining of any such approval required to be obtained by any party), and the Optional Closing Date may be extended by Parent to a date that is not more than twenty (20) Business Days after the later of (Y) the date on which any required notification or waiting period has expired or been validly terminated, or (Z) the date on which any required approval has been obtained.

1.4 Merger of Merger Sub into the Company . Subject to the achievement of the First Product Milestone or the exercise of the Optional Closing Right, and upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time (as defined herein), Merger Sub shall be merged with and into the Company, and the separate existence of Merger Sub shall cease. The Company will continue as the surviving corporation in the Merger (the “Surviving Corporation” ) and shall continue its existence under the laws of Delaware.

1.5 Effect of the Merger . The Merger shall have the effects set forth in this Agreement and in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, disabilities and duties of Merger Sub shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation.

1.6 Closing; Effective Time . Unless otherwise mutually agreed in writing between Parent and the Stockholders’ Representative, the consummation of the transactions contemplated by this Agreement (the “Closing” ) shall take place at the offices of Paul, Hastings, Janofsky & Walker LLP, 1117 S. California Avenue, Palo Alto, CA 94304-1106, at 10:00 a.m. Pacific Time on a date and time to be determined pursuant to (a) Section 1.1 or (b) Section 1.2 and Section 1.3 of this Agreement and after the date on which the last of the conditions set forth in Section 5 and Section 6, as applicable, has been satisfied or waived in writing and in accordance with this Agreement (except for conditions which in

 

accordance with their terms must be satisfied at the Closing). The date on which the Closing actually takes place is referred to in this Agreement as the “Closing Date.” Contemporaneously with or as promptly as practicable after the Closing, (i) a certificate of merger conforming to the requirements of the DGCL and in the form of Exhibit 1.6 (the “Certificate of Merger” ) shall be duly executed by the Company and shall be filed with the Secretary of State of the State of Delaware. The Merger shall become effective upon the date and time of the filing of the Certificate of Merger with the Secretary of State of the State of Delaware or such other date and time as Parent and the Company may mutually agree and include in the Certificate of Merger (the “Effective Time” ).

1.7 Certificate of Incorporation and Bylaws; Directors and Officers . Unless otherwise mutually determined by Parent and the Company prior to the Effective Time:

(a) the Certificate of Incorporation of the Company in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation from and after the Effective Time, until thereafter changed or amended as provided therein or by applicable Law;

(b ) the Bylaws of the Company in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation from and after the Effective Time, until thereafter changed or amended as provided therein or by applicable Law; and

(c) the directors and officers of Merger Sub as of immediately prior to the Effective Time shall be appointed as and shall be the directors and officers of the Surviving Corporation as of immediately after the Effective Time, until their successors are duly elected or appointed and qualified in accordance with applicable Law.

1.8 Consideration.

(a ) Aggregate Merger Consideration . In the event the Closing is effected, at the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company or any securityholder of the Company:

(i) each share of Company Common Stock (other than Dissenting Shares (as defined herein)) outstanding as of immediately prior to the Effective Time shall be converted into the right to receive:

(1 ) at the Closing, an amount, payable (without interest) in such form as provided in Section 1.8(c), equal to the Per Share Initial Consideration;

(2) provided that the Final Merger Consideration is greater than the Preliminary Merger Consideration, at the time of the determination of the Final Merger Consideration, an amount, payable (without interest) in such form as provided in Section 1.8(c), equal to the Per Share Adjustment Consideration;

(3) upon the satisfaction of the First Target Reserve Consideration Conditions, an amount, payable (without interest) in such form as provided in Section 1.8(c), equal to (i) the Per Share First Target Reserve Consideration, plus (ii) the Per Share First Target Additional Reserve Consideration, minus (iii) in the event the Final Merger Consideration is less than the Preliminary Merger Consideration, the Per Share Adjustment Consideration;

 

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(4) upon the satisfaction of the Second Target Reserve Consideration Conditions, an amount, payable (without interest) in such form as provided in Section 1.8(c), equal to (i) the Per Share Second Target Reserve Consideration, plus (ii) Per Share Second Target Additional Reserve Consideration, plus (iii) the Per Share Contingent Consideration, minus (iv) in the event the Final Merger Consideration is less than the Preliminary Merger Consideration, the Per Share Adjustment Consideration (excluding the amount of any such Per Share Adjustment Consideration previously deducted pursuant to Section 1.8(a)(i)(3)); and

(5) upon release pursuant to the terms of the Escrow Agreement (as defined herein), an amount, payable (without interest) in such form as provided in Section 1.8(c), equal to the Per Share Initial Escrow Amount and the Per Share Adjustment Escrow Amount, provided that such amounts shall be subject to reduction, if any, to satisfy the indemnification obligations set forth in the Escrow Agreement and Section 8 of this Agreement.

(ii ) Each share of common stock of Merger Sub outstanding immediately prior to the Effective Time shall be converted into one share of common stock of the Surviving Corporation.

(b) For purposes of this Agreement:

(i ) The “Adjusted Per Share Consideration” shall mean the quotient obtained by dividing (A) the Adjustment Amount, by (B) the Fully Diluted Company Share Amount.

(ii) The “Adjusted Total Merger Consideration” shall mean (i) if the Merger is being effected pursuant to Section 1.1, an amount equal to (A) the Preliminary Merger Consideration, minus (B) the Excess Operations Payment, minus (C) the aggregate amount of all Transaction Expenses incurred by the Company but not paid as of the Closing Date that are not included in calculating Excess Liabilities, minus (D) the Excess Liabilities, plus (E) $60,000, and (ii) if the Merger is being effected pursuant to Section 1.2, an amount equal to (V) the Total Merger Consideration, minus (W) the Excess Operations Payment, minus (X) the aggregate amount of all Transaction Expenses incurred by the Company but not paid as of the Closing Date that are not included in calculating Excess Liabilities, minus (Y) the Excess Liabilities, plus (Z) $60,000.

(iii) The “Adjustment Amount” shall mean the absolute value of the Final Merger Consideration less the Preliminary Merger Consideration.

(iv ) The “Adjustment Escrow Amount” shall mean the amount obtained by multiplying (A) the Adjustment Amount, where the Final Merger Consideration exceeds the Preliminary Merger Consideration, by (B) (i) 0.10, in the event the Company has not disclosed a breach of any representation, warranty or covenant of the Company contained herein as of the Closing, and (ii) up to 0.77, in the event the Company has disclosed a breach of any representation, warranty or covenant of the Company contained herein as of the Closing and the Initial Escrow Amount was insufficient to satisfy the amount that Parent believed was reasonable to fully cover Parent’s Losses in connection therewith (the “Additional Escrow Shortfall” ), which amount shall be comprised of (Y) an amount up to 0.67 that Parent believes is necessary to cover the Additional Escrow Shortfall, which shall be held in escrow for purposes of satisfying the indemnification obligations with respect to such disclosed breach or breaches, and (Z) 0.10 of such amount shall be held in escrow for purposes of satisfying the indemnification obligations with respect to such other matters

 

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(v ) The “Applicable Parent Share Price” shall mean, as of any date a payment is or becomes payable under Section 1.8(a) and for purposes of Section 8.3, the closing price of Parent Common Stock as quoted on The Nasdaq Global Select Market (or such other Nasdaq Stock Market, LLC securities exchange on which Parent Common Stock is then listed) for the ten (10) trading days immediately preceding the date such payment is or becomes payable, as applicable.

(vi) The “Closing Per Share Consideration” shall mean the quotient obtained by dividing (A) the Adjusted Total Merger Consideration, by (B) the Fully Diluted Company Share Amount.

(vii) The “Excess Liabilities” shall mean (i) $0.00, in the event the aggregate amount of cash and cash equivalents that the Company has on hand as of immediately prior to the Closing is equal to or greater than the absolute value of the aggregate amount of any Designated Liabilities as of immediately prior to the Closing, and (ii) in the event the aggregate amount of cash and cash equivalents that the Company has on hand as of immediately prior to the Closing is less than the absolute value of the aggregate amount of any Designated Liabilities as of immediately prior to the Closing, the absolute value of the aggregate amount of such Designated Liabilities as of immediately prior to the Closing minus the aggregate amount of cash and cash equivalents that the Company has on hand as of immediately prior to the Closing.

(viii ) The “Excess Operations Payment” shall mean an amount equal to (A) the aggregate of all amounts paid by Parent to Company (and accepted by the Company) pursuant to the last sentence of Section 3.3 of the Development Agreement which have not, as of the Effective Time, been repaid by the Company to Parent in cash, plus (B) the aggregate of all amounts paid by Parent to Company in all calendar quarters after the twelfth (12th) calendar quarter in the Quarterly Payment Period (as defined in the Development Agreement) during which Parent is or may be required to make a payment to the Company pursuant to the Development Agreement.

(ix) The “Final Merger Consideration” shall mean the consideration determined using actual [… *** …] data and the First Product Consideration Date.

(x) The “First Target Reserve Consideration Conditions” shall mean the occurrence of (a) the First Module

[… *** …] and (b) either (i) Parent terminates the Company’s development of the Test Module Deliverables on or prior to the date that is one hundred eighty (180) days after the First Module [… *** …] (the “Test Module Deadline” ), or (ii) the Company delivers to Parent the Test Module Deliverables on or before the Test Module Deadline.

(xi) The “Fully Diluted Company Share Amount” shall mean the sum of (A) the Outstanding Company Share Amount, (B) the number of shares of Company Common Stock issuable pursuant to all unvested company stock options outstanding immediately prior to the Effective Time, (C) the number of shares of Company Common Stock issuable pursuant to all Company Warrants outstanding immediately prior to the Effective Time, and (D) the number of shares of Company Common Stock issuable upon the exercise or conversion of any convertible securities or any other rights (other than unvested company stock options and Company Warrants) to acquire shares of Company Common Stock that are outstanding immediately prior to the Effective Time.

(xii) The “Initial Escrow Amount” shall mean the amount obtained by multiplying (A) the Adjusted Total Merger Consideration, by (B) (i) 0.10, in the event the Company has not disclosed a breach of any representation, warranty or covenant of the Company contained herein as of the Closing, and (ii) up to 0.77, in the event the Company has disclosed a breach of any representation,

 

warranty or covenant of the Company contained herein as of the Closing, which amount shall be comprised of (Y) an amount up to 0.67 that Parent believes is reasonable to fully cover Parent’s Losses in connection therewith which shall be held in escrow for purposes of satisfying the indemnification obligations with respect to such disclosed breach or breaches, and (Z) 0.10 of such amount shall be held in escrow for purposes of satisfying the indemnification obligations with respect to such other matters.

(xiii) The “Outstanding Company Share Amount” shall mean the number of shares of Company Common Stock outstanding immediately prior to the Effective Time.

(xiv ) The “Per Share Adjustment Consideration” shall mean the amount equal to (A) (I) the Adjusted Per Share Consideration, multiplied by (II) 0.6, less (B) the Per Share Adjustment Escrow Amount.

(xv ) The “Per Share Adjustment Escrow Amount” shall mean the amount equal to the quotient obtained by dividing (A) the Adjustment Escrow Amount, by (B) the Outstanding Company Share Amount.

(xvi ) The “Per Share Contingent Consideration” shall mean an amount equal to the quotient obtained by dividing (A) $3,000,000, by (B) the Fully Diluted Company Share Amount.

(xvii) The “Per Share First Target Additional Reserve Consideration” shall mean an amount equal to (A) the Adjusted Per Share Consideration, multiplied by (B) 0.20.

(xviii ) The “Per Share First Target Reserve Consideration” shall mean an amount equal to (A) the Closing Per Share Consideration, multiplied by (B) 0.20.

(xix ) The “Per Share Initial Consideration” shall mean an amount equal to (A) (I) the Closing Per Share Consideration, multiplied by (II) 0.6, less (B) the Per Share Initial Escrow Amount.

(xx) The “Per Share Initial Escrow Amount” shall mean an amount equal to the quotient obtained by dividing (A) the Initial Escrow Amount, by (B) the Outstanding Company Share Amount.

(xxi) The “Per Share Second Target Additional Reserve Consideration” shall mean an amount equal to (A) the Adjusted Per Share Consideration, multiplied by (B) 0.20.

(xxii) The “Per Share Second Target Reserve Consideration” shall mean an amount equal to (A) the Closing Per Share Consideration, multiplied by (B) 0.20.

(xxiii ) The “Preliminary Merger Consideration” shall mean the consideration determined using the [… *** …] on the First Product Consideration Chart and the First Product Consideration Date, with a [… *** …].

(xxiv ) The “Second Target Reserve Consideration Conditions” shall mean the occurrence of: (A) the First Product Milestone, (B) the achievement of the First Target Reserve Consideration Conditions, and (C) either (i) Parent terminates the Company’s development of the Second Product on or prior to the date that is the one (1)-year anniversary of the first achievement of the First Target Reserve Consideration Conditions (the “Second Product Deadline” ), or (ii) the Company delivers to Parent the Second Product on or before the Second Product Deadline.

 

(xxv) The “Total Merger Consideration” shall mean either:

(A) if the Merger is being effected pursuant to Section 1.1, (i) the Preliminary Merger Consideration, plus (ii) the Adjustment Amount, in the event the Final Merger Consideration is greater than the Preliminary Merger Consideration, and minus (iii) the Adjustment Amount, in the event the Final Merger Consideration is less than the Preliminary Merger Consideration; or

(B) if the Merger is being effected pursuant to Section 1.2 and the Test Module has not been delivered by the Company to Parent as of [… *** …]:

i) on or before [… *** …], that amount, as indicated on the First Product Consideration Chart, obtained by referencing the calendar quarter in which Parent, in its sole discretion, delivers the Notice of Exercise to the Company and (A) in the event Parent actually receives the First Product prior to the delivery of such Notice of Exercise, using the same method of price determination that would be used if the Milestone had been achieved prior to [… *** …], which determination shall be subject to the procedures set forth in Section 9.2 in the event of the Company’s disagreement with Parent’s determination, and (B) in the event Parent has not actually received the First Product prior to the delivery of such Notice of Exercise or the First Product does not meet the Veloce Minimum Requirements or a price cannot otherwise be determined, by using (i) the [… *** …], as indicated on the First Product Consideration Chart, and (ii) a [… *** …] in the First Product Consideration Chart; or

ii) after [… *** …], $5 million.

(C) if the Merger is being effected pursuant to Section 1.2 and the Test Module has been delivered by the Company to Parent as of [… *** …], $12 million.

(c) Form of Merger Consideration . In the event the Merger is consummated and any amounts become payable by Parent to the holders of the Company Common Stock pursuant to Section 1.8(a), Parent may, in its sole and absolute discretion (subject to the provisions of this Section 1.8(c)), elect to pay such consideration in the form of all cash, in the form of shares of Parent Common Stock or in any combination of cash and shares of Parent Common Stock. In the event Parent elects to pay all or any portion of any amounts payable under Section 1.8(a) in cash, then such amount, when paid, shall be paid by wire transfer in immediately available funds. In the event Parent elects to pay all or any portion of any amounts payable under Section 1.8(a) in the form of shares of Parent Common Stock, then the number of shares of Parent Common Stock to be issued as consideration therefore shall be determined by dividing (A) the total amount Parent elects to pay in shares of Parent Common Stock, by (B) the Applicable Parent Share Price. Such shares of Parent Common Stock will be evidenced by a Parent stock certificate and, when payable, delivered to the holder of Company Common Stock entitled thereto at the address provided to Parent by such holder. Upon making a determination to issue Parent Common Stock in the Merger, Parent shall reserve sufficient shares of Parent Common Stock for issuance pursuant to this Section 1.8(c).

(d) Notwithstanding anything herein to the contrary, in no event shall the total consideration paid or payable by Parent in connection with the Merger exceed the amount equal to (a) the maximum amount included on page E-4 of the First Product Consideration Chart, minus (b) the Excess Operations Payment, minus (c) the aggregate amount of all Transaction Expenses incurred by the Company but not paid as of the Closing Date that are not included in calculating Excess Liabilities, minus (D) the Excess Liabilities, plus (E) $3,060,000.

 

(e) Commercially Viable […***…] . In the event that the First Product is determined to be commercially viable by Parent in its reasonable discretion (which determination shall be based on actual written notice to the Company or commencement of shipment of commercial volumes of the First Product), notwithstanding the failure to meet the “Veloce Minimum Requirements” (as set forth in the First Product Consideration Chart), then the Total Merger Consideration shall be determined by using (i) the [… *** …], as indicated on the First Product Consideration Chart, (ii) the First Product Consideration Date and (iii) a [… *** …] in the First Product Consideration Chart.

(f) Test Module Purchase . In the event the Company delivers Parent the Test Module at or prior to [… *** …], but the Company fails to meet the First Product Milestone by [… *** …], and Parent does not elect to exercise its Optional Closing Right, then Parent and the Company shall negotiate in good faith regarding the consideration to be paid by Parent to the Company for the Test Module, provided that such consideration shall have a value agreed upon by the parties of at least $12 million.

1.9 Company Options . Prior to the Effective Time, the board of directors of the Company shall approve all resolutions required in order to provide that, as of immediately prior to the Effective Time, (i) each then outstanding: (A) subscription, option, call, warrant or other right (whether or not currently exercisable) to acquire any shares of capital stock or other securities of the Company; (B) security, instrument or obligation that is or may become convertible into or exchangeable for any shares of capital stock or other securities of the Company; (C) Contract under which the Company is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities of the Company; and (D) share of restricted stock of the Company (clauses (A) through (D) above, collectively “Company Options” ), shall be accelerated in its and their entirety effective as of immediately prior to the Effective Time, and all forfeiture rights with respect thereto in favor of the Company shall lapse in their entirety as of such time, and (ii) that each Company Option that has not been exercised, or remains subject to a right of forfeiture in favor of the Company, in either case as of immediately prior to the Effective Time (but after giving effect to the acceleration provided under clause (i) hereof), shall terminate and be canceled and the holders thereof shall have no further rights with respect thereto.

1.10 Closing of the Company’s Transfer Books . At the Effective Time, holders of certificates representing shares of capital stock of the Company that were outstanding as of immediately prior to the Effective Time shall cease to have any rights as stockholders of the Company, except the right to receive any Closing Per Share Consideration as set forth in this Agreement, and the stock transfer books of the Company shall be closed with respect to all shares of such capital stock of the Company outstanding as of immediately prior to the Effective Time. No further transfer of any such shares of capital stock of the Company shall be made on such stock transfer books after the Effective Time. If, after the Effective Time, a valid certificate previously representing any shares of capital stock of the Company (a “Company Stock Certificate” ) is presented to the Surviving Corporation or Parent, such Company Stock Certificate shall be canceled and shall be exchanged as provided in Section 1.11.

1.11 Exchange of Certificates.

(a) As soon as practicable but in any event within seven (7) days after the Effective Time, Parent will send to each of the registered holders of Company Stock Certificates a letter of transmittal in customary form and containing such provisions as Parent may reasonably specify and instructions for use in effecting the surrender of Company Stock Certificates in exchange for the Closing Per Share Consideration calculated in accordance with Section 1.8(a). Upon surrender of a Company Stock Certificate to Parent for exchange, together with a duly executed letter of transmittal and such other documents as may be reasonably required by Parent, Parent shall deliver to (i) the holder of such

 

Company Stock Certificate, (A) that portion, if any, of the Closing Per Share Consideration that such holder has the right to receive at such time pursuant to Section 1.8(a) in cash, via wire transfer in immediately available funds, and (B) a certificate representing that number of shares of Parent Common Stock, if any, that such holder has the right to receive at such time pursuant to Section 1.8(a), less such holder’s Per Share Initial Escrow Amount, and (ii) deliver to the Escrow Agent (as defined herein) under the Escrow Agreement on behalf of such holder (A) that portion, if any, of such holder’s Per Share Initial Escrow Amount payable in cash, and (B) a certificate representing that number of shares of Parent Common Stock, if any, comprising such holder’s Per Share Initial Escrow Amount, provided that any certificates representing Parent Common Stock to be delivered to the holder of a Company Stock Certificate under clause (i) above and to the Escrow Agent under clause (ii) above shall, in each case, represent only whole shares of Parent Common Stock. In lieu of any fractional shares to which such holder would otherwise be entitled, after combining any fractional interests of such holder into as many whole shares as is possible, the holder of such Company Stock Certificate shall be entitled to receive cash in an amount equal to the sum of (1) the dollar amount (rounded to the nearest whole cent) determined by multiplying the Applicable Parent Share Price by the fraction of a share of Parent Common Stock that would otherwise be deliverable to such holder under clause (i) above and (2) the dollar amount (rounded to the nearest whole cent) determined by multiplying the Applicable Parent Share Price by the fraction of a share of Parent Common Stock that would otherwise be deliverable to the Escrow Agent under clause (ii) above. Notwithstanding the foregoing, Parent may deliver to the Escrow Agent one certificate representing the total number of shares of Parent Common Stock to be held in escrow pursuant to this Section 1.11(a) in lieu of issuing separate certificates representing any shares of Parent Common Stock comprising such holder’s Per Share Initial Escrow Amount. All Company Stock Certificates so surrendered shall be canceled. Until surrendered as contemplated by this Section 1.11, each Company Stock Certificate shall be deemed, from and after the Effective Time, to represent only the right to receive the Closing Per Share Consideration in accordance with this Agreement. If any Company Stock Certificate shall have been lost, stolen or destroyed, Parent may, in its discretion and as a condition precedent to the payment of any cash or issuance of any certificate representing Parent Common Stock or the payment of cash in lieu of fractional shares, require the owner of such lost, stolen or destroyed Company Stock Certificate to provide an appropriate affidavit and to deliver a bond (in such sum as Parent may reasonably direct) as indemnity against any claim that may be made against Parent or the Surviving Corporation with respect to such Company Stock Certificate.

(b) No dividends or other distributions declared or made with respect to Parent Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Company Stock Certificate with respect to the shares of Parent Common Stock represented thereby, and no cash payment in lieu of any fractional share shall be paid to any such holder, until such holder surrenders such Company Stock Certificate in accordance with this Section 1.11 (at which time such holder shall be entitled to receive all such dividends and distributions and such cash payment).

(c) Each of Parent and the Surviving Corporation shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement such amounts as it reasonably determines that it is required to deduct or withhold therefrom under the Code or under any provision of state, local or foreign tax law and to collect Forms W-8 or W-9, as applicable, or similar information from the holders of Company Common Stock and any other recipients of payments hereunder. To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

(d) Any portion of the Adjusted Total Merger Consideration which remains undistributed to the holders of Company Common Stock for one hundred eighty (180) days after the Effective Time shall be retained by Parent, and any holder of Company Common Stock who has not

 

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previously complied with this Section 1.11 shall thereafter look only to Parent, as a general unsecured creditor, for payment of its claim for cash, shares of Parent Common Stock, any cash in lieu of fractional shares of Parent Common Stock and any dividends or distributions with respect to shares of Parent Common Stock.

(e ) Neither Parent nor the Surviving Corporation shall be liable to any holder or former holder of capital stock of the Company for any shares of Parent Common Stock (or dividends or distributions with respect thereto), or for any cash amounts, delivered to any public official pursuant to any applicable abandoned property, escheat or similar law. If any Company Stock Certificate shall not have been surrendered prior to one (1) year after the Effective Time (or immediately prior to such earlier date on which any shares of Parent Common Stock and any cash payable to the holder of such Company Stock Certificate or any dividends or distributions payable to the holder of such Company Stock Certificate pursuant to this Section 1.11 would otherwise escheat to or become the property of any Governmental Body), any such shares of Parent Common Stock, or cash, dividends or distributions in respect of such Company Stock Certificate, shall, to the extent permitted by applicable Law, become the property of Parent, free and clear of all claims or interest of any Person previously entitled thereto.

(f) The Company will calculate the proper amount of Taxes required to be withheld for each holder of Company Common Stock and/or required to be paid by the Surviving Corporation with respect to each distribution of the Closing Per Share Consideration, which such Taxes shall include, if applicable, full FICA, full FUTA, full Employment Insurance, federal income taxes and any applicable state and provincial income taxes. Such withholding information shall be certified by the Company and be provided to Parent at least five (5) Business Days prior to the Closing to facilitate the distributions by Parent to holders of Company Common Stock required by this Agreement and shall be subject to the review and reasonable approval of Parent in all respects. The Company shall provide Parent and its Representatives with reasonable access to all relevant information and documentation relating to the Tax withholding calculation and the preparation thereof, including, without limitation, access to supporting detail and schedules. Parent shall or shall cause the Surviving Corporation to remit such Tax withholdings on a timely basis to the relevant taxing authorities.

1.12 Appraisal Rights . Notwithstanding anything in this Agreement to the contrary, shares of the capital stock of the Company held by a holder 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 Shares” ) shall not be converted into the right to receive any Closing Per Share Consideration. If, after the Effective Time, such holder withdraws, fails to perfect or loses any such right to payment, such holder’s Dissenting Shares shall be treated as having been converted as of the Effective Time into the right to receive the Closing Per Share Consideration, without interest, such holder would have otherwise been entitled to receive in accordance with Section 1.8 of this Agreement. At the Effective Time, any holder of Dissenting Shares shall cease to have any rights with respect thereto, except the rights provided in Section 262 of the DGCL or any respective successor provision to such provision and as provided in the immediately preceding sentence. The Company shall give prompt notice to Parent of any demands received by the Company for appraisal of shares of capital stock of the Company and the opportunity to participate in all negotiations and proceedings with respect to any such demand. Except to the extent otherwise required by the DGCL, the Company shall not make any payment or settlement offer prior to the Effective Time with respect to any such demand unless Parent shall have consented in writing to such payment or settlement offer.

1.13 Escrow of Consideration . Upon the Closing, Parent shall withhold an amount equal to the Initial Escrow Amount and deliver cash, shares of Parent Common Stock or a combination of cash and shares of Parent Common Stock (in the same proportion as Parent elects to pay pursuant to Section 1.8(c)) to La Salle Bank National Association, a national banking association, as escrow agent (or such

 

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other escrow agent agreed to in writing by Parent and the Stockholders’ Representative, the “Escrow Agent” ), to be held by the Escrow Agent as collateral (such amount, along with any interest earned on any cash portion thereon, the “Escrow Fund ”) and the sole and exclusive security to secure the rights of the Indemnified Parties under Section 8 hereof. The Escrow Fund shall be held pursuant to the provisions of an escrow agreement substantially in the form of Exhibit 1.13 (the “Escrow Agreement” ). In the event the Final Merger Consideration is greater than the Preliminary Merger Consideration, the Adjustment Escrow Amount shall immediately be added to, and become a part of, the Escrow Fund and governed by the Escrow Agreement. Any shares of Parent Common Stock comprising the Escrow Fund will be represented by a certificate or certificates issued in the name of the Escrow Agent and will be held by the Escrow Agent until 11:59 p.m. Pacific Time on the date that is the first-year anniversary of the Closing Date (the “Escrow Period” ); provided, however, that in the event any Indemnified Party has made a claim under Section 8 prior to the end of the Escrow Period, then, in accordance with and subject to the terms and conditions of the Escrow Agreement, the Escrow Period shall continue in respect of that portion of the Escrow Fund subject to the claim (and the Escrow Agent will continue to hold such portion of the Escrow Fund in escrow) until such claim is fully and finally resolved. Upon approval of this Agreement by the requisite majority of the Company’s stockholders, all such stockholders shall, without any further act of any Company stockholder, be deemed to have consented to and approved (i) the use of the Escrow Fund as collateral to secure the rights of the Indemnified Parties under Section 8 in the manner set forth herein and in the Escrow Agreement, and (ii) the appointment of the Stockholders’ Representative as the representative under the Escrow Agreement of the Persons receiving consideration under this Agreement and as the attorney-in-fact and agent for and on behalf of each such Person (other than holders of Dissenting Shares).

1.14 Further Action . If, at any time after the Effective Time, any further action is determined by Parent to be necessary or desirable to carry out the purposes of this Agreement and any Related Agreement or to vest the Surviving Corporation or Parent with full right, title and possession of and to all rights and property of Merger Sub and the Company effective as of the Effective Time, the officers and directors of the Surviving Corporation and Parent shall be fully authorized (in the name of Merger Sub, in the name of the Company and otherwise) to take any such action effective as of the Effective Time.

1.15 Treatment of the Merger . The Parties intend that the transactions contemplated by this Agreement be treated as a merger and neither Parent, the Surviving Corporation, nor any other party to this Agreement shall take a position on any Tax Returns or other statement or report to any Governmental Body or taxing authority inconsistent with such intention unless required to do so by applicable tax Laws.

SECTION 2.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth on the Company Disclosure Schedule, the Company represents and warrants, as of the Agreement Date and as of the Closing Date, except for representations and warranties made as of a specific date, which shall remain true and correct as of such date, to and for the benefit of the Indemnified Parties, as follows:

2.1 Due Organization; Etc .

(a ) The Company is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware, has all requisite corporate power and authority to: (i) conduct its business in the manner in which its business is currently being conducted; (ii) own, lease and operate its properties and assets; and (iii) perform its obligations under all Company Contracts (as defined herein) to which it is a party.

 

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(b) The Company has not conducted any business under or otherwise used, for any purpose or in any jurisdiction, any fictitious name, assumed name, trade name or other name, other than the name “Veloce Technologies, Inc.”

(c) The Company is not and within the last two (2) years has not been required to be qualified, authorized, registered or licensed to do business as a foreign corporation in any jurisdiction other than the jurisdictions identified in Part 2.1(c) of the Company Disclosure Schedule. The Company is in good standing as a foreign corporation in each of the jurisdictions identified in Part 2.1(c) of the Company Disclosure Schedule.

(d) Part 2.1(d) of the Company Disclosure Schedule accurately sets forth (i) the names of the members of the Company’s board of directors, (ii) the names of the members of each committee of the Company’s board of directors, and (iii) the names and titles of the Company’s officers.

(e) Part 2.1(e) of the Company Disclosure Schedule accurately sets forth the Company’s Subsidiaries. The Company does not own, nor has it ever owned, beneficially or otherwise, any shares or other securities of, or any direct or indirect equity or other financial interest in, any Entity. The Company has not agreed and is not obligated to make any future investment in or capital contribution to any Entity. The Company has not guaranteed and is not responsible or liable for any obligation of any of the Entities in which it owns or has owned any equity or other financial interest. Neither the Company nor any of its stockholders has ever approved, or commenced any proceeding or made any election contemplating, the dissolution or liquidation of the business or affairs of the Company.

2.2 Certificate of Incorporation and Bylaws; Records . The Company has delivered to Parent accurate and complete copies of: (a) the Company’s Certificate of Incorporation and Bylaws, including all amendments and restatements thereto; (b) the stock records of the Company; and (c) the minutes and other records of the meetings and other proceedings (including any actions taken by written consent or otherwise without a meeting) of the Company’s stockholders, the Company’s board of directors and all committees of the Company’s board of directors (the items described in (a), (b) and (c) above, collectively, the “Company Constituent Documents” ). There have been no formal meetings or other proceedings of the Company’s stockholders, the Company’s board of directors or any committee of the Company’s board of directors that are not fully reflected in the Company Constituent Documents. There has not been any violation of the Company’s Certificate of Incorporation and Bylaws, including all amendments thereto. The books of account, stock records, minute books and other records of the Company are accurate, up-to-date and complete in all material respects, and have been maintained in accordance with applicable Laws and prudent business practices. All the records of the Company are in the actual possession and direct control of the Company.

2.3 Authority; Binding Nature of Agreement . Subject only to the approval of this Agreement by the Company’s stockholders pursuant to the requirements of the Company’s Certificate of Incorporation and Bylaws and the DGCL, the Company has the absolute and unrestricted right, power and authority to enter into and to perform its obligations under this Agreement and any Related Agreement to which it is a party, and the execution, delivery and performance by the Company of this Agreement and any Related Agreement to which it is a party have been, and will be through the Effective Time, duly authorized by all necessary action on the part of the Company. This Agreement and each Related Agreement to which the Company is a party constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.

 

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2.4 Non-Contravention; Consents . Neither (1) the execution, delivery or performance by the Company of this Agreement or any of the Related Agreements, nor (2) the consummation of the Merger or any of the other transactions contemplated by this Agreement or any of the Related Agreements, will directly or indirectly (with or without the giving of notice or the lapse of time or both):

(a) contravene, conflict with or result in a violation of any of the provisions of the Company Constituent Documents;

(b) contravene, conflict with or result in a violation of, in any material respect, or give any Governmental Body the right to challenge any of the transactions contemplated by this Agreement (other than the right to exercise appraisal rights under the DGCL) or any of the Related Agreements or to exercise any remedy or obtain any relief under, any Law or any order, writ, injunction, judgment or decree to which the Company, or any of the assets owned, used or controlled by the Company, is subject;

(c ) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by the Company or that otherwise relates to the business of the Company or to any of the assets owned, used or controlled by the Company;

(d) contravene, conflict with or result in a violation or breach of, in any material respect, or result in a default under, any provision of any Company Contract, or give any Person the right to (i) declare a default under any such Company Contract, or (ii) modify, terminate, or accelerate any right, liability or obligation of the Company under any such Company Contract, or charge any fee, penalty or similar payment to the Company under any such Company Contract; or

(e ) result in the imposition or creation of any Encumbrance (other than with respect to the transactions contemplated under this Agreement and the Related Agreements) upon or with respect to any asset owned or used by the Company.

Except for the filing of the Certificate of Merger and the approval of this Agreement by the Company’s stockholders pursuant to the requirements of the Company’s Certificate of Incorporation and Bylaws and the DGCL, no filing with, notice to or consent from any Person is required in connection with (i) the execution, delivery or performance of this Agreement or any of the Related Agreements, or (ii) the consummation of the Merger or any of the other transactions contemplated by this Agreement or any of the Related Agreements.

2.5 Capitalization.

(a) The authorized capital stock of the Company consists of: (i) ten million (10,000,000) shares of Company Common Stock, of which eight million one hundred thousand (8,100,000) shares have been issued and are outstanding as of the Agreement Date. All of the outstanding shares of Company Common Stock have been duly authorized and validly issued, and are fully paid and non-assessable. All of the outstanding shares of Company Common Stock and all outstanding Company Options have been issued and granted in compliance with (i) all applicable securities laws and other applicable Laws, and (ii) all requirements set forth in the Company Constituent Documents and applicable Contracts. Each of the Company’s stockholders is the record and beneficial owner of the shares of the Company Common Stock as set forth opposite such stockholder’s name on Part 2.5(a) of the Company Disclosure Schedule, and such shares are free and clear of all Encumbrances (other than those Encumbrances relating to applicable securities laws).

 

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(b) The Company has reserved two million forty thousand (2,040,000) shares of Company Common Stock for issuance under the Company Stock Option Plan, of which there are no outstanding options to purchase shares of Company Common Stock as of the Agreement Date.

(i ) Part 2.5(b) of the Company Disclosure Schedule accurately sets forth, with respect to each Company Option outstanding as of the date hereof (whether vested or unvested and whether issued pursuant to any Company Stock Option Plan or otherwise): (A) the name of the holder of such Company Option and the type of such Company Option; (B) the total number of shares of Company Common Stock that are subject to such Company Option and the number of shares of Company Common Stock with respect to which such Company Option is immediately exercisable; (C) the date on which such Company Option was granted and the expiration date of such Company Option; (D) the vesting schedule for such Company Option; (E) the exercise, or purchase, price per share of Company Common Stock purchasable under such Company Option; (F) whether (and to what extent) the vesting of such Company Option will be accelerated in any way by the transactions contemplated by this Agreement or by the termination of employment or engagement or change in position of any holder thereof following consummation of the Merger; and (G) whether such Company Option has been designated an “incentive stock option” as defined in Section 422 of the Code.

(ii) The Company has not issued any debt securities which grant the holder thereof any right to vote on, or veto, any actions by the Company. The Closing Capitalization Certificate referred to in Section 4.8 is accurate and complete.

(c) From its inception through the Agreement Date, the Company has never repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities of the Company. Part 2.5(c) of the Company Disclosure Schedule lists as of the Agreement Date all issued and outstanding shares of Company Common Stock that constitute restricted stock or that are otherwise subject to a repurchase or redemption right or right of first refusal in favor of the Company, indicating the name of the applicable stockholder, the class of any such shares, the lapsing schedule for any such shares, including the extent to which any such repurchase or redemption right or right of first refusal has lapsed as of the Agreement Date, whether (and to what extent) the lapsing will be accelerated in any way by the transactions contemplated by this Agreement or by termination of employment or change in position following consummation of the Merger, and whether such holder has the sole power to vote and dispose of such shares.

(d) Other than the Securityholder Agreement, the Company is not a party to or bound by any, and to the Knowledge of the Company, there are no, agreements or understandings with respect to the voting (including voting trusts and proxies) or sale or transfer (including agreements imposing transfer restrictions) of any shares of capital stock or other equity interests of the Company.

(e) The Company is not now, nor has it ever been, required to file with the SEC any periodic or other reports, or any registration statement, pursuant to the Securities Act or the Exchange Act.

2.6 Company Financial Status . Part 2.6(a) of the Company Disclosure Schedule lists the amount of the Company’s cash on hand as of May 17, 2009, and a schedule of the Company’s Liabilities as of such date

 

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2.7 Absence of Changes . Since the date of inception of the Company:

(a) no Company Material Adverse Effect has occurred, and no event, occurrence, development or state of circumstances or facts has occurred that will, or could reasonably be expected to, have such a Company Material Adverse Effect;

(b) there has not been any material loss, damage or destruction to, or any material interruption in the use of, any of the assets (whether or not covered by insurance) of the Company;

(c ) the Company has not declared, accrued, set aside or paid any dividend or made any other distribution or payment to any stockholder, officer or director or any Person with whom any such stockholder, officer or director has any direct or indirect relation, other than the payment of salaries and bonuses in the ordinary course of business, and has not repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities of the Company, except repurchases of unvested shares at cost in connection with the termination of the employment or consulting relationship with any Employee (as defined herein) or consultant pursuant to stock option or purchase agreements;

(d) no party to any Company Contract has given notice to the Company of any intention not to renew, not to extend, to cancel or otherwise terminate or materially modify its business relationship with the Company;

(e ) there has been no amendment to any of the Company Constituent Documents, except for the addition of resolutions and minutes of the Company’s board of directors and the Company’s stockholders in the ordinary course, accurate and complete copies of which have been delivered by the Company to Parent, and the Company has not effected or been a party to any Strategic Transaction, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction;

(f) the Company has not formed any Subsidiary or acquired any equity interest or other interest in any other Entity except for the operating Subsidiaries set forth on Schedule 2.1(e) of the Company Disclosure Schedule;

(g) the Company has not (i) entered into or permitted any of the assets owned or used by it to become bound by any Contract that is a material Contract, (ii) entered into or permitted any of the assets owned or used by it to become bound by any Contract other than in the ordinary course of business, or (iii) amended or prematurely terminated, or waived any right or remedy under, any Company Contract;

(h ) the Company has not (i) acquired, leased or licensed any right or other asset from any other Person, (ii) sold or otherwise disposed of, or leased or licensed, any right or other asset to any other Person, except for sales of inventory in the ordinary course of business, or (iii) waived or relinquished any right, except in each case for immaterial rights or other immaterial assets acquired, leased, licensed or disposed of in the ordinary course of business and consistent with the Company’s past practices;

(i) the Company has not (i) written off as uncollectible, or established any extraordinary reserve with respect to, any billed or unbilled account receivable or other indebtedness, or (ii) increased any reserves for contingent Liabilities (excluding any adjustment to bad debt reserves in the ordinary course of business)

 

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(j) the Company has not made any pledge of any of its assets or otherwise permitted any of its assets to become subject to any Encumbrance;

(k) the Company has not lent money to any Person (other than pursuant to routine travel advances made to employees of the Company (each an “ Employee ”) in the ordinary course of business or in connection with such Employee’s purchase of Company Common Stock);

(l) the Company has not changed any of its methods of accounting or accounting practices in any respect;

(m) there has not been any Tax election made or changed, annual tax accounting period changed, method of tax accounting adopted or changed, amended Tax Returns or claims for Tax refunds filed, closing agreement entered into, Tax claim, audit or assessment settled, or right to claim a Tax refund, offset or other reduction in Tax liability surrendered;

(n) the Company has not threatened, commenced or settled any Legal Proceeding; and

(o) the Company has not agreed to take, or committed to take, any of the actions referred to in clauses “(c)” through “(n)” above.

2.8 Title to Assets .

(a) The Company owns, and has good, valid and marketable title to, all assets purported to be owned by it, including, without limitation: (i) all assets referred to in Sections 2.1, 2.9 and 2.10 of this Agreement (subject, in the case of the assets referred to in Section 2.10, to the qualifications set forth therein); and (ii) all other assets reflected in the Company’s books and records as being owned by the Company. Except as set forth in Part 2.8(a) of the Company Disclosure Schedule, all of such assets are owned by the Company free and clear of any Encumbrances, except for (A) any lien for current Taxes not yet due and payable, and (B) minor liens that have arisen in the Company’s ordinary course of business and that do not (individually or in the aggregate) materially detract from the value of the assets subject thereto or materially impair the operations of the Company.

(b) Except for this Agreement, the Company does not have any Contract, absolute or contingent (i) to effect any Strategic Transaction; or (ii) to sell or otherwise transfer a material portion of the assets of the Company or any material asset of the Company, except in the Company’s ordinary course of business. All material tangible assets which are owned, leased or used by the Company are in good operating condition and repair, subject to normal wear and tear.

(c) All leases and licenses to the assets used by the Company are valid and enforceable in accordance with their terms against the parties thereto. Part 2.8(c) of the Company Disclosure Schedule identifies all material assets that are being leased or licensed to the Company.

2.9 Bank Accounts . Part 2.9 of the Company Disclosure Schedule provides accurate information with respect to each account maintained by or for the benefit of the Company at any bank or other financial institution including the name of the bank or financial institution, the account number and the balance as of the date hereof and the names of all individuals authorized to draw on or make withdrawals from such accounts

 

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2.10 Intellectual Property .

(a) Part 2.10(a) of the Company Disclosure Schedule accurately identifies (i) all Intellectual Property Rights or Intellectual Property licensed to the Company (other than any non-customized Software that (A) is so licensed solely in executable or object code form pursuant to a non-exclusive, internal use software license; (B) is not incorporated into, or used directly in the development, manufacturing, or distribution of, the Company’s products or services; and (C) is generally available on standard terms for less than $10,000); (ii) the corresponding Contract or Contracts pursuant to which such Intellectual Property Rights or Intellectual Property is licensed to the Company; and (iii) whether there are any royalties, license fees, or other fees payable by Company under such Contract or Contracts.

(b) Part 2.10(b) of the Company Disclosure Schedule accurately identifies each Contract pursuant to which any Person has been granted any license under, or otherwise has received or acquired any right (whether or not currently exercisable) or interest in, any Company IP.

(c) The Company has provided to Parent a complete and accurate copy of each standard form of Company IP Contract used by the Company, including, without limitation, each standard form of (i) employee agreement containing Intellectual Property assignment or license of Intellectual Property or Intellectual Property Rights or any confidentiality provision, and (ii) consulting or independent contractor agreement containing intellectual property assignment or license of Intellectual Property or Intellectual Property Rights or any confidentiality provision. The Company is not a party to any development agreement, except for the Development Agreement. Part 2.10(c) of the Company Disclosure Schedule accurately identifies each Company IP Contract that deviates in any material respect from the corresponding standard form agreement provided to Parent.

(d) As of the date hereof, the Company exclusively owns all right, title, and interest to and in the Company IP (other than Intellectual Property Rights exclusively licensed to the Company, as identified in Part 2.10(b) of the Company Disclosure Schedule) free and clear of any Encumbrances.

(e) Each Person who is or was an Employee or contractor of the Company and who is or was involved in the creation or development of any Company IP has signed a valid, enforceable agreement containing an assignment of Intellectual Property Rights to the Company and confidentiality provisions protecting the Company IP. No current or former Company stockholder, officer, director, or Employee has any claim, right (whether or not currently exercisable), or interest to or in any Company IP. To the Company’s Knowledge, no Employee is (a) bound by or otherwise subject to any Contract restricting him or her from performing his or her duties for the Company, or (b) in breach of any Contract with any former employer or other Person concerning Intellectual Property Rights or confidentiality.

(f) The Company has taken all reasonable steps to maintain the confidentiality of and otherwise protect and enforce its rights in all proprietary information that the Company holds, or purports to hold, as a trade secret. Without limiting the generality of the foregoing, no portion of the source code for any Software ever owned, developed, used, or distributed by the Company has been disclosed or licensed to any escrow agent or other Person and there are no contracts in existence that would permit, facilitate or provide any such disclosure or license.

(g) The Company is not and never was a member or promoter of, or a contributor to, any industry standards body or similar organization that could require or obligate the Company to grant or offer to any other Person any license or right to any Company IP.

 

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(h) To the Company’s Knowledge, no Person has infringed, misappropriated, or otherwise violated, and no Person is currently infringing, misappropriating, or otherwise violating, any Company IP.

(i) Neither the execution, delivery, or performance of this Agreement (or any of the Related Agreements) nor the consummation of any of the transactions contemplated by this Agreement (or any of the Related Agreements) will, with or without notice or lapse of time, result in, or give any other Person the right or option to cause or declare, (a) a loss of, or Encumbrance on, any Company IP; (b) a breach of any license agreement listed or required to be listed in Part 2.10(b) of the Company Disclosure Schedule; (c) the release, disclosure, or delivery of any Company IP by or to any escrow agent or other Person; or (d) the grant, assignment, or transfer to any other Person of any license or other right or interest under, to, or in any of the Company IP.

(j) To the Company’s Knowledge, it has never infringed (directly, contributorily, by inducement, or otherwise), misappropriated, or otherwise violated and does not currently infringe, misappropriate, or violate any Intellectual Property Right of any other Person. No infringement, misappropriation, or similar claim or Legal Proceeding is pending or, to the best the Company’s Knowledge, threatened against the Company. The Company has never received any notice or other communication (in writing or otherwise) relating to any actual, alleged, or suspected infringement, misappropriation, or violation of any Intellectual Property Rights of another Person.

(k) The Company will comply with all Laws, rules, judgments and regulations relating to its performance under the Development Agreement.

(l) The Company will perform the Project in a professional and workmanlike manner and dedicate sufficient resources, including qualified personnel to perform the Project in a timely manner.

(m) Before being allowed to begin performing the Project, all individuals (including Employees and agents of the Company) who contribute to or participate in the conception, creation, or development of the Work Product (as defined in the Development Agreement) will have unconditionally and irrevocably assigned in writing all of their right, title and interest in and to the Work Product to the Company.

(n) As of the date hereof, the Company knows of no facts or circumstances that would impair, limit, or delay its performance of the Project in accordance with the Development Agreement.

(o) The Company has full right, power and authority to enter into the Development Agreement, to perform its obligations under the Development Agreement in accordance with the Development Agreement, and to assign the rights in the Work Product and grant the licenses granted to Parent under the Agreement.

(p) The Company will not grant, directly or indirectly, any right or interest in the Work Product to any other Person.

(q) The Company may not incorporate into the Work Product any Technology (as defined in the Development Agreement) (excluding for purposes hereof any Third-Party Technology (as defined below) for which the Company has obtained approval from Parent for inclusion in the Work Product) that misappropriates a third party trade secret, infringes a third party copyright, or that, to the

 

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Company’s Knowledge, infringes a third party patent (including patents issuing from pending patent applications known to Company).

(r) Any Technology licensed or obtained by the Company from any third party or which the Company knows is owned by any third party or infringes any third party’s Intellectual Property Rights (including any pending patent applications) (collectively, “Third-Party Technology” ) may not be used by the Company in the performance of the Project unless such Third-Party Technology has been specifically identified and its use approved by Parent in writing.

(s) For purposes of this Section 2.10 only, “Company Knowledge” means any of the following individuals is actually aware of such fact or other matter: any of the Company’s officers, directors, management or key technologists (or former officers, directors, management or key technologists of the Company who served in such capacity within ninety (90) days of the applicable measurement date); provided that for purposes of this Section 2.10, a Person shall be deemed to have “Knowledge” of the contents of any patent or patent application which lists such Person as an inventor.

2.11 Anti-Takeover Law . The Company (including the board of directors of the Company) has taken all action necessary or required to render inapplicable to the Merger, this Agreement or any Related Agreement and the transactions contemplated herein or therein (a) any state takeover law that may purport to be applicable to the Merger and the transactions contemplated by this Agreement and the Related Agreements, (b) any takeover provision in the Company Constituent Documents, and (c) any takeover provision in any Contract to which the Company is a party or by which it or its properties may be bound.

2.12 Contracts .

(a) Part 2.12(a) of the Company Disclosure Schedule sets forth a true, correct and complete list of the following Contracts (the “Company Contracts” ) currently in force to which the Company is a party or under which the Company has continuing liabilities and/or obligations:

(i) each Contract relating to the employment of, or the performance of services by, any Person, including any Employee, consultant or independent contractor;

(ii) each Contract relating to the acquisition, transfer, use, development, sharing or license of any technology or any Intellectual Property;

(iii) all Contracts that: (A) limit, or purport to limit, the ability of the Company to compete in any line of business or with any Person or in any geographic area or during any period of time; (B) would by their terms purport to be binding upon or impose any obligation upon Parent or any of its Affiliates (other than the Surviving Corporation or its Subsidiaries); (C) contain any so called “most favored nation” provisions or any similar provision requiring the Company to offer a third party terms or concessions (including levels of service or content offerings) at least as favorable as offered to one or more other parties; or (D) provide for “exclusivity,” preferred treatment or any similar requirement or under which the Company is restricted, or which after the Closing would restrict Parent or any of its Affiliates, with respect to distribution, licensing, marketing, co-marketing or development;

(iv) each Contract creating or involving any agency relationship, distribution arrangement or franchise relationship on behalf of the Company;

(v) each Contract relating to the acquisition, issuance or transfer of any securities;

 

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(vi) bonds, debentures, notes, guarantees, credit or loan agreements or loan commitments, mortgages or other similar Contracts relating to the borrowing of money or the deferred purchase price of property or binding upon any properties or assets (real, personal or mixed, tangible or intangible) of the Company;

(vii) each Contract relating to the creation of any Encumbrance with respect to any asset of the Company;

(viii) each Contract involving or incorporating any guaranty, any pledge, any performance or completion bond, any indemnity or any surety arrangement;

(ix) each Contract creating or relating to any partnership or joint venture or any sharing of revenues, profits, losses, costs or liabilities;

(x) each Contract relating to the purchase or sale of any product or other asset by or to, or the performance of any services by or for, any Related Party;

(xi) each Contract providing for “earn outs,” “performance guarantees” or other similar contingent payments, by or to the Company involving more than $100,000 over the term of any such Contract;

(xii) Contracts for capital expenditures or the acquisition or construction of fixed assets requiring the payment by the Company of an amount in excess of $100,000 (unless otherwise approved in accordance with the procedures under Section 4.2(b)(vi));

(xiii) Contracts granting any Person an option or a right of first refusal, first-offer or similar preferential right to purchase or acquire any assets of the Company;

(xiv) Contracts for the granting or receiving of a license, sublicense or franchise or under which any Person is obligated to pay or has the right to receive a royalty, license fee, franchise fee or similar payment;

(xv) any Tax-sharing Contract;

(xvi) each Contract that was entered into outside the ordinary course of business; and

(xvii) any other Contract that (A) contemplates or involves (1) the payment or delivery of cash or other consideration in an amount or having a value in excess of $100,000 in the aggregate, or (2) the purchase or sale of any product, or performance of services by or to the Company having a value in excess of $250,000 in the aggregate, (B) has a term of more than sixty (60) days and that may not be terminated by the Company (without penalty) within sixty (60) days after the delivery of a termination notice by the Company, or (C) is material to the Company, individually or in the aggregate.

(b) The Company has delivered to Parent accurate and complete copies of all written Company Contracts. Part 2.12(b) of the Company Disclosure Schedule provides an accurate description of the terms of each Company Contract that is not in written form. Each Company Contract is valid and in full force and effect, is enforceable by the Company in accordance with its terms, and after the Effective Time will continue to be legal, valid, binding and enforceable on identical terms. No Consent is required to be obtained from any third party under any Company Contract in connection with the Merger. The

 

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consummation of the transactions contemplated hereby shall not (either alone or upon the occurrence of additional acts or events) result in any payment or payments becoming due from the Company, the Surviving Corporation, Parent or any of its Affiliates to any Person or give any Person the right to terminate or alter the provisions of any Company Contract. The consummation of the transactions described herein will not affect any of the Company Contracts in a manner that could reasonably be expected to result in a Material Adverse Effect on the Company.

(c) There is no term, obligation, understanding or agreement that would modify any term of a written Company Contract or any right or obligation of a party thereunder which is not reflected on the face of such Contract.

(d) The Company has not violated or breached, or committed any default under, any Company Contract, and, to the Knowledge of the Company, no other Person has violated or breached, or committed any default under, any Company Contract.

(e) No event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or could reasonably be expected to, (i) result in a violation or breach of any of the provisions of any Company Contract, (ii) give any Person the right to declare a default or exercise any remedy under any Company Contract, (iii) give any Person the right to accelerate the maturity or performance of any Company Contract, or (iv) give any Person the right to cancel, terminate or modify any Company Contract.

(f) The Company has not received any notice or other communication regarding any actual or possible violation or breach of, or default under, any Company Contract.

(g) The Company has not waived any of its rights under any Company Contract.

(h) No Person is renegotiating, or has a right pursuant to the terms of any Company Contract to renegotiate, any amount paid or payable to the Company under any Company Contract or any other material term or provision of any Company Contract.

(i) Part 2.12(i) of the Company Disclosure Schedule identifies and provides a brief description of each proposed Contract as to which any bid, offer, award, written proposal, term sheet or similar document has been submitted or received by the Company.

2.13 Liabilities . As of the Closing Date, the Company has no Liabilities, except for: (a) Liabilities identified as such in the “liabilities” column of the balance sheet most recently delivered by the Company to Parent prior to the Closing Date; (b) accounts payable or accrued compensation that have been incurred by the Company since the date of such balance sheet in the ordinary course of business; and (c) Liabilities under the Company Contracts, none of which, individually, exceeds $50,000.

2.14 Compliance with Laws . The Company is, and has at all times been, in compliance in all material respects with all Laws that are applicable to it or to the conduct of its business or the ownership or use of any of its assets. Since inception, the Company has not received any notice or other communication from any Governmental Body regarding any actual or possible violation of, or failure to comply with, any Laws. The Company has not received, at any time, any notice or other communication from any Governmental Body or any other Person regarding (a) any actual, alleged, possible or potential violation of, or failure to comply with, any Laws; or (b) any actual, alleged, possible or potential obligation on the part of the Company to undertake, or to bear all or any portion of the cost of, any cleanup or any remedial, corrective or response action of any nature. The Company has delivered or made available to Parent an accurate and complete copy of each report, study, survey or other document to

 

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which the Company has access that addresses or otherwise relates to the compliance of the Company with, or the applicability to the Company of, any Laws.

2.15 Governmental Authorizations .

(a) Part 2.15 of the Company Disclosure Schedule identifies each material Governmental Authorization held by the Company. The Governmental Authorizations held by the Company are valid and in full force and effect, and collectively constitute all material Governmental Authorizations necessary (i) to enable the Company to conduct its business in the manner in which its business is currently being conducted and in the manner in which its business is proposed to be conducted; and (ii) to permit the Company to own and use its assets in the manner in which they are currently owned and used and in the manner in which they are proposed to be owned and used. The Company is, and at all times since its inception has been, in compliance with the terms and requirements of the respective Governmental Authorizations held by the Company. Since the date of the Company’s inception, the Company has not received any notice or other communication from any Governmental Body regarding (A) any actual or possible violation of or failure to comply with any term or requirement of any Governmental Authorization; or (B) any actual or possible revocation, withdrawal, suspension, cancellation, termination or modification of any Governmental Authorization.

(b) (i) The Company and, to the Company’s Knowledge, its Employees are, and have at all times been, in full compliance with all of the terms and requirements of each Governmental Authorization identified or required to be identified in Part 2.15 of the Company Disclosure Schedule; (ii) no event has occurred, and no condition or circumstance exists, that might (with or without notice or lapse of time) (A) constitute or result directly or indirectly in a violation of or a failure to comply with any term or requirement of any Governmental Authorization identified or required to be identified in Part 2.15 of the Company Disclosure Schedule; or (B) result directly or indirectly in the revocation, withdrawal, suspension, cancellation, termination or modification of any Governmental Authorization identified or required to be identified in Part 2.15 of the Company Disclosure Schedule; (iii) the Company has never received, and, to the Knowledge of the Company, no Employee has ever received, any notice or other communication from any Governmental Body or any other Person regarding (x) any actual, alleged, possible or potential violation of or failure to comply with any term or requirement of any Governmental Authorization; or (y) any actual, proposed, possible or potential revocation, withdrawal, suspension, cancellation, termination or modification of any Governmental Authorization; and (iv) all applications required to have been filed for the renewal of the Governmental Authorizations required to be identified in Part 2.15 of the Company Disclosure Schedule have been duly filed on a timely basis with the appropriate Governmental Bodies, and each other notice or filing required to have been given or made with respect to such Governmental Authorizations has been duly given or made on a timely basis with the appropriate Governmental Body.

2.16 Tax Matters .

(a) All Tax Returns due to have been filed by the Company through the Agreement Date in accordance with all applicable Laws (pursuant to an extension of time or otherwise) have been duly filed and are true, correct and complete in all respects.

(b) All Taxes for which the Company has liability (whether or not shown on any Tax Return) have been paid in full or are accrued as Liabilities for Taxes on the books and records of the Company.

(c) The amounts accrued as Liabilities for Taxes (including Taxes accrued as currently payable but excluding any accrual to reflect timing differences between book and Tax income)

 

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on the books of the Company, shall be adequate based on the tax rates and applicable Laws in effect to satisfy all liabilities for Taxes of the Company in any jurisdiction through the Closing Date, including Taxes accruable upon income earned through the Closing Date.

(d) No claims have been asserted and no proposals or deficiencies for any Taxes of the Company are being asserted, proposed or, to the Knowledge of the Company, threatened, and no audit or investigation of any Tax Return of the Company is currently underway, pending or threatened.

(e) The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any Employee, independent contractor, creditor or stockholder thereof or other third party.

(f) There are no outstanding waivers or agreements between any Governmental Body and the Company for the extension of time for the assessment of any Taxes or deficiency thereof, nor are there any requests for rulings, outstanding subpoenas or requests for information, notice of proposed reassessment of any property owned or leased by the Company or any other matter pending between the Company and any Governmental Body.

(g) There are no Encumbrances for Taxes with respect to the Company or the assets or properties of the Company, nor is there any such Encumbrance that is pending or, to the Knowledge of the Company, threatened.

(h) The Company is not a party to or bound by any Tax allocation or sharing agreement.

(i) The Company has never been a member of an “affiliated group” of corporations (within the meaning of Code § 1504) filing a consolidated federal income tax return (other than a group the common parent of which was the Company).

(j) The Company does not have any liability for the Taxes of any Person (other than for itself) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Law), as a transferee or successor, by contract or otherwise.

(k) None of the Tax Returns described in Subsection (a) of this Section 2.16 contains any position which is or would be subject to penalties under Section 6662 of the Code (or any similar provision of provincial, state, local or foreign law) and the Treasury Regulations issued thereunder.

(l) The Company has not made any payments, is obligated to make any payments, or is a party to any Contract that could obligate it to make any payments that will not be deductible under Section 280G of the Code (or any similar provision of provincial, state, local or foreign Law). The Company is not a party to any Contract, nor does it have any obligation (current or contingent), to compensate any individual for excise Taxes paid pursuant to Section 4999 of the Code. Notwithstanding any disclosure in the Company Disclosure Schedule, the Company has not made any distribution of stock of any “controlled corporation” as that term is defined in Section 355(a)(1) of the Code, the Company does not have any Liability for Taxes as a result of any such distribution, and the Merger shall not result in any such Taxes.

(m) The Company is, and has at all times been, in compliance with the provisions of Section 6011, 6111 and 6112 of the Code relating to tax shelter disclosure, registration and list maintenance and with the Treasury Regulations thereunder.

 

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(n) The Company has not, at any time, engaged in or entered into a “listed transaction” within the meaning of Treasury Regulation Sections 1.6011-4(b)(2), 301.6111-2(b)(2) or 301.6112-1(b)(2)(A), and no IRS Form 8886 has been filed with respect to the Company nor has the Company entered into any tax shelter or listed transaction with the sole or dominant purpose of the avoidance or reduction of a Tax liability with respect to which there is a significant risk of challenge of such transaction by a Governmental Body.

(o) The Company has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

2.17 Company Benefit Plans .

(a) Part 2.17(a) of the Company Disclosure Schedule contains a true, correct and complete list of each Company Benefit Plan and ERISA Affiliate Plan. Any special tax status or tax benefits for plan participants enjoyed or offered by a Company Benefit Plan or ERISA Affiliate Plan is noted on such schedule.

(b) With respect to each Company Benefit Plan and ERISA Affiliate Plan identified on Part 2.17(a) of the Company Disclosure Schedule, the Company has heretofore delivered to Parent true, correct and complete copies of the