AGREEMENT AND PLAN OF MERGER AND REORGANIZATION PARALLELE BIOSCIENCE, INC., AFFYMETRIX, INC.

Agreement and Plan of Merger

You are currently viewing:

This Agreement and Plan of Merger involves

AFFYMETRIX INC | PARALLELE BIOSCIENCE, INC., | PINECONE ACQUISITION, INC.

. RealDealDocs™ contains millions of easily searchable legal documents and clauses from top law firms. Search for free - click here.

Title: AGREEMENT AND PLAN OF MERGER AND REORGANIZATION PARALLELE BIOSCIENCE, INC., AFFYMETRIX, INC.
Governing Law: California Date: 5/31/2005
Industry: Biotechnology and Drugs Law Firm: Michael S. Ringler Sector: Healthcare

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION PARALLELE BIOSCIENCE, INC., AFFYMETRIX, INC., Parties: affymetrix inc , parallele bioscience inc. , pinecone acquisition inc.

Exhibit 10.26

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

dated as of May 31, 2005 among

PARALLELE BIOSCIENCE, INC.,

AFFYMETRIX, INC.

PINECONE ACQUISITION, INC.

and

JONATHAN MACQUITTY, as Shareholders’ Representative

TABLE OF CONTENTS

		P AGE

	ARTICLE 1
	D EFINITIONS

Section 1.01.	Definitions	2

	ARTICLE 2
	M ERGER C ONSIDERATION ; T HE M ERGER

Section 2.01.	Unadjusted Merger Consideration	11
Section 2.02.	Determination of Adjusted Merger Consideration	11
Section 2.03.	Final Merger Consideration; Form Thereof	12
Section 2.04.	The Merger	13
Section 2.05.	Conversion of Shares	13
Section 2.06.	Surrender and Payment	14
Section 2.07.	Dissenting Shares	15
Section 2.08.	Stock Options	16
Section 2.09.	Adjustments	17
Section 2.10.	Fractional Shares	17
Section 2.11.	Withholding Rights	17
Section 2.12.	Escrow	17
Section 2.13.	Resolution of Disputed Amount	18
Section 2.14.	Lost Certificates	19

	ARTICLE 3
	T HE S URVIVING C ORPORATION

Section 3.01.	Articles of Incorporation	19
Section 3.02.	Bylaws	19
Section 3.03.	Directors and Officers	19

	ARTICLE 4
	R EPRESENTATIONS AND W ARRANTIES OF THE C OMPANY

Section 4.01.	Corporate Existence and Power	20
Section 4.02 .	Corporate Authorization	20
Section 4.03 .	Governmental Authorization	21
Section 4.04.	Non-Contravention	21
Section 4.05 .	Capitalization	22
Section 4.06.	Subsidiaries	23
Section 4.07.	Financial Statements	23

Section 4.08.	Absence of Certain Changes	24
Section 4.09.	No Undisclosed Liabilities	26
Section 4.10.	Compliance with Laws and Court Orders	26
Section 4.11 .	Agreements, Contracts and Commitments	26
Section 4.12.	Litigation	29
Section 4.13.	Finders’ Fees	29
Section 4.14 .	Tax Representations	29
Section 4.15.	Employee Matters and Employment Benefit Plans	30
Section 4.16.	Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment	33
Section 4.17 .	Products and Services	33
Section 4.18 .	Intellectual Property	34
Section 4.19 .	Insurance Coverage	38
Section 4.20 .	Licenses and Permits	38
Section 4.21 .	Receivables	39
Section 4.22.	Environmental Matters	39
Section 4.23 .	Certain Interests	40
Section 4.24 .	Customers; Suppliers	40
Section 4.25 .	Books and Records	41
Section 4.26 .	Tax Treatment	41
Section 4.27.	Final Working Capital	41
Section 4.28 .	Additional Representations	41

	ARTICLE 5
	R EPRESENTATIONS AND W ARRANTIES OF P ARENT

Section 5.01.	Corporate Existence and Power	41
Section 5.02.	Corporate Authorization	41
Section 5.03.	Governmental Authorization	42
Section 5.04.	Non-Contravention	42
Section 5.05 .	SEC Filings	42
Section 5.06 .	Absence of Certain Changes	43
Section 5.07 .	Common Stock	44
Section 5.08 .	Litigation	44
Section 5.09.	Taxes	44
Section 5.10 .	Tax Treatment	44

	ARTICLE 6
	C OVENANTS OF THE C OMPANY

Section 6.01.	Conduct of the Company	45
Section 6.02 .	Shareholder Approval	46
Section 6.03.	No Solicitation; Other Offers	46
Section 6.04 .	Access to Information	48
Section 6.05 .	Tax Matters	48
Section 6.06 .	401(k)	49
Section 6.07 .	Consents	49
	ii

Section 6.08 .	Capitalization Information	49
Section 6.09.	Supplemental Options	49
Section 6.10.	Certain Procedures	49

	ARTICLE 7
	C OVENANTS OF P ARENT

Section 7.01 .	Obligations of Merger Subsidiary	49
Section 7.02 .	Benefits; Prior Service	49
Section 7.03 .	Indemnification	50
Section 7.04 .	Listing Notifications	51
Section 7.05 .	Form S-8	51

	ARTICLE 8
	C OVENANTS OF P ARENT AND THE C OMPANY

Section 8.01.	Commercially Reasonable Efforts	51
Section 8.02.	Certain Filings	52
Section 8.03.	Public Announcements	52
Section 8.04 .	Further Assurances	52
Section 8.05 .	Notification of Certain Matters	52
Section 8.06 .	Registered Offering	53
Section 8.07 .	Confidentiality	54
Section 8.08 .	Tax-Free Reorganization	54
Section 8.09 .	Affiliates	54

	ARTICLE 9
	C ONDITIONS TO THE M ERGER

Section 9.01.	Conditions to Obligations of Each Party	54
Section 9.02.	Conditions to the Obligations of Parent and Merger Subsidiary	55
Section 9.03 .	Conditions to Obligations of the Company	57

	ARTICLE 10
	S URVIVAL OF R EPRESENTATION AND W ARRANTIES ; I NDEMNIFICATION

Section 10.01 .	Survival of Representation and Warranties	58
Section 10.02 .	Indemnification	58
Section 10.03 .	Shareholders’ Representative	61

	ARTICLE 11
	T ERMINATION

Section 11.01 .	Termination	63
Section 11.02 .	Effect of Termination	65

	ARTICLE 12
	M ISCELLANEOUS

	iii

Section 12.01 .	Notices	65
Section 12.02 .	Amendments; No Waivers	67
Section 12.03 .	Expenses	67
Section 12.04.	Successors and Assigns	68
Section 12.05.	Governing Law	68
Section 12.06.	Jurisdiction	68
Section 12.07.	WAIVER OF JURY TRIAL	68
Section 12.08.	Counterparts; Effectiveness; Benefit	68
Section 12.09.	Entire Agreement	69
Section 12.10.	Captions	69
Section 12.11.	Severability	69
Section 12.12.	Specific Performance	69

		INDEX TO EXHIBITS

Exhibit A		Form of Voting and Lockup Agreement
Exhibit B		Forms of Non-Competition and Non-Solicitation Agreement
Exhibit C		Form of Escrow Agreement
Exhibit D		Form of Affiliate Agreement

		INDEX TO ANNEXES

Annex A		List of Persons executing Voting and Lockup Agreements
Annex B		List of Persons executing Non-Competition and Non-Solicitation
		Agreements
Annex C		Amended and Restated Articles of Incorporation of the Surviving
		Corporation

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the “ Agreement ”) dated as of May 31, 2005, among ParAllele Bioscience, Inc., a California corporation (the “ Company ”), Affymetrix, Inc., a Delaware corporation (“ Parent ”), Pinecone Acquisition, Inc., a California corporation and a wholly-owned subsidiary of Parent (“ Merger Subsidiary ”) and Jonathan MacQuitty, as shareholders’ representative (“ Shareholders’ Representative ”).

WHEREAS, upon the terms and subject to the conditions of this Agreement and in accordance with California Law, Parent and the Company will enter into a business combination transaction pursuant to which Merger Subsidiary will merge with and into the Company (the “ Merger ”).

WHEREAS, the Board of Directors of the Company (i) has determined that the Merger is consistent with and in furtherance of the long-term business strategy of the Company and fair to, and in the best interests of, the Company and its shareholders and has approved and adopted this Agreement and the transactions contemplated by this Agreement and (ii) has recommended the approval and adoption of this Agreement by the shareholders of the Company.

WHEREAS, pursuant to the Merger, among other things, all of the issued and outstanding shares of capital stock of the Company shall be converted into the right to receive consideration as set forth in Article 2 hereof.

WHEREAS, concurrently with the execution of this Agreement, and as a condition and inducement to Parent’s and Merger Subsidiary’s willingness to enter into this Agreement, each Person listed on Annex A hereto shall enter into a Voting and Lockup Agreement in the form attached hereto as Exhibit A (a “ Voting and Lockup Agreement ”) and each of the individuals listed on Annex B hereto shall enter into a Non-Competition and Non-Solicitation Agreement in the form attached hereto with respect to such individual as Exhibit B (a “ Non-Competition and Non-Solicitation Agreement ”).

WHEREAS, Parent and the Company intend that, unless the Merger is an All-Cash Transaction (as defined herein), the transactions contemplated by this Agreement shall constitute a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.

WHEREAS, the Company, on the one hand, and Parent and Merger Subsidiary, on the other hand, desire to make certain representations, warranties, covenants and other agreements in connection with the Merger.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Merger Subsidiary and the Company hereby agree as follows:

ARTICLE 1
D EFINITIONS

Section 1.01. Definitions . (a) The following terms, as used herein, have the following meanings:

“Acquisition Proposal” means, other than the transactions contemplated by this Agreement, any offer or proposal by a Third Party relating to, or any indication of interest by a Third Party in, (i) any acquisition or purchase, direct or indirect, of any amount in excess of 25% of the assets of the Company or any amount in excess of 25% of any class of equity or voting securities of the Company, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in any Third Party beneficially owning any amount in excess of 25% of any class of equity or voting securities of the Company or (iii) a merger, consolidation, share exchange, business combination, sale of substantially all the assets, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving the Company.

“ Additional Cash Expenses ” shall mean the aggregate cash costs designated as such and associated with the actions specified in Schedule 6.01, including any such costs that are accrued but unpaid as of the Closing Date.

“ Affiliate ” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person.

“ All-Cash Transaction ” shall mean, as used in reference to the Merger, any situation in which the Final Merger Consideration consists exclusively of cash pursuant to Section 2.03(a) or Section 2.03(d) .

“ As-Converted ” means, with respect to the Company Common Stock, all outstanding shares and all shares issuable in respect of Company Convertible Securities (including shares issuable as a result of multiple or successive conversions of Company Convertible Securities), without adjustment for any amounts that may be payable in connection with the conversion of Company Convertible Securities, and including, without limitation, any Company Convertible Securities that are subject to vesting and that are not vested as of the date of such determination.

“ Average Pre-Closing Parent Stock Price ” means the average (rounded to the nearest 1/10,000) of the closing prices per share of Parent Common Stock on the NASDAQ National Market, as reported by Bloomberg Financial Markets (or such other source as the parties shall agree in writing), for the 30 calendar days immediately preceding (but not including) the Closing Date, disregarding for purposes of such calculation any days within such 30-day period that were not trading days on the NASDAQ National Market.

“ Average Pre-Signing Parent Stock Price ” means $49.5510.

“ Base Working Capital ” means ($4,335,000).

“Business Day” means a day other than Saturday, Sunday or any day on which commercial banks in San Francisco, California are authorized or required by law to close.

“ California Law ” means the California Corporations Code.

“ Cash Exchange Ratio ” means the number (rounded to the nearest 1/10,000) determined by dividing (i) the amount of cash included in the Final Merger Consideration, if any, by (ii) the Company Stock Number.

“ Closing Balance Sheet ” shall mean the balance sheet of the Company as of the close of business on the day before the Closing Date.

“ Closing Date ” means the date of the Closing.

“ Closing Working Capital ” means Working Capital as of the Closing Date.

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Company Balance Sheet ” means the balance sheet of the Company as of March 31, 2005 and the footnotes thereto.

“ Company Balance Sheet Date ” means March 31, 2005.

“ Company Common Stock ” means the shares of Common Stock, par value $0.001 per share, of the Company.

“ Company Convertible Securities ” means (i) the Company Preferred Stock, (ii) any options, warrants, stock appreciation rights, convertible promissory notes or other securities convertible into, or exercisable or exchangeable for Company Common Stock and/or Company Preferred Stock and (iii) any other conversion or exchange right or other right or agreement to purchase, redeem, repurchase or otherwise acquire any equity or equity-linked security of the Company; provided , that Company Convertible Securities shall not include the Supplemental Options.

“ Company Employee Stock Option ” means each Company Stock Option held by an individual who is an employee of the Company as of the date of this Agreement.

“ Company Preferred Stock ” means the Company Series A Preferred stock and the Company Series B Preferred stock.

“ Company Series A Preferred Stock ” means the shares of Series A Preferred stock, par value $0.001 per share, of the Company.

“ Company Series B Preferred Stock ” means the share of Series B Preferred stock, par value $0.001 per share, of the Company.

“ Company Stock ” means the Company Common Stock and the Company Preferred Stock.

“ Company Stock Number ” means, with respect to the Company as of the Closing Date, the number obtained by dividing the Adjusted Merger Consideration by the Participation Value.

“ Company Stock Option ” means each unexpired and unexercised option in respect of Company Common Stock granted under the Company Stock Option Plan other than any Supplemental Option.

“ Company Stock Option Plan ” means the ParAllele BioScience Inc. 2001 Stock Option Plan, as amended.

“ Company Warrant ” means each unexpired and unexercised outstanding warrant to purchase Company Stock.

“ Converted Note Principal Amount ” means the principal amount of any Notes that are converted into shares of Company Stock after the date of this Agreement.

“ Environmental Laws ” means any federal, state, local or foreign law (including, without limitation, common law), treaty, judicial decision, regulation, rule, judgment, order, decree, injunction, permit or governmental restriction or requirement or any agreement with any governmental authority or other third party, relating to the environment or to the use, treatment, storage, release, emission, disposal or recycling of pollutants, contaminants, wastes or chemicals or any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous substances, wastes or materials (including, without limitation, the effects on human health caused by such activities of the Company).

“ Environmental Permits” means all permits, licenses, franchises, certificates, approvals and other similar authorizations of governmental authorities relating to or required by Environmental Laws and affecting, or relating in any way to, the business of the Company as currently conducted.

“ ERISA ” means the Employee Retirement Income Security Act of 1974.

“ ERISA Affiliate ” of any entity means any other entity that, together with such entity, would be treated as a single employer under Section 414 of the Code.

“ Escrow Amount ” means the sum of the Indemnification Escrow Amount and, in the event of a disagreement between Parent and the Company with respect to Closing Working Capital pursuant to Section 2.02(c), any Disputed Amount.

“ Escrow Holdback ” means, with respect to a holder of Company Stock, such holder’s proportionate share of the Escrow Amount based on the relative portion of the Final Merger Consideration allocable to such holder pursuant to Section 2.05.

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

“ Indemnification Escrow Amount ” means 9.36% of the Final Merger Consideration.

“ Intellectual Property Rights ” means (i) inventions, whether or not patentable, reduced to practice or made the subject of one or more pending patent applications, (ii) national and multinational statutory invention registrations, patents and patent applications (including all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof) registered or applied for in the United States and all other nations throughout the world, all improvements to the inventions disclosed in each such registration, patent or patent application, (iii) rights of publicity, (iv) trademarks, service marks, trade dress, logos, domain names, trade names and corporate names (whether or not registered) in the United States and all other nations throughout the world, including all variations, derivations, combinations, registrations and applications for registration of the foregoing and all goodwill associated therewith, (v) copyrights (whether or not registered) and registrations and applications for registration thereof in the United States and all other nations throughout the world, including all derivative works, moral rights, renewals, extensions, reversions or restorations associated with such copyrights, now or hereafter provided by law, regardless of the medium of fixation or means of expression, (vi) mask works, (vii) computer software (including source code, object code, firmware, operating systems and specifications), (viii) trade secrets and, whether or not confidential, business information (including pricing and cost information, business and marketing plans and customer and supplier lists) and knowhow (including manufacturing and production processes and techniques and research and development information), (ix) industrial designs (whether or not registered), (x) databases and data collections, (xi) copies and tangible embodiments of any of the foregoing, in whatever form or medium, (xii) all rights to obtain and rights to apply for patents, and to register trademarks and copyrights, (xiii) all rights in all of the foregoing provided by treaties, conventions and common law and (xiv) all rights to sue or recover and retain damages and costs and attorneys’ fees for past, present and future infringement or misappropriation of any of the foregoing.

“ Knowledge ” of the Company means the knowledge of Nicholas Naclerio, Thomas Willis, Robert Smith, Elizabeth Krodel, Stephen Macevicz, Karen Kirk and George Karlin-Neuman, in each case after reasonable inquiry. “Knowledge” of any Person other than the Company that is not an individual means the knowledge of each of such Person’s officers after reasonable inquiry.

“ Licensed Intellectual Property Rights ” means all Intellectual Property Rights owned by a third party and licensed or sublicensed to the Company or for which the Company has obtained a covenant not to be sued.

“ Lien ” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For purposes of this Agreement, a Person shall be deemed to own subject to a Lien any property or asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset.

“ Material Adverse Effect ” means, with respect to any Person, any change or effect that is, or would reasonably be expected to be, materially adverse to the condition (financial or otherwise), business (including the continued operation thereof in accordance with past practice), assets or results of operations of such Person and its Subsidiaries, taken as a whole, provided, however , that in no event shall any of the following, either alone or in combination, be deemed to constitute, a Material Adverse Effect: (i) any changes resulting from or arising out of general economic conditions in the United States or any other jurisdictions in which such Person or any of its Subsidiaries conducts business (including any changes arising out of acts of terrorism, weather conditions or other force majeure events) that do not disproportionately affect such Person and its Subsidiaries, taken as a whole, in any material respect, (ii) any changes resulting from or arising out of conditions in the industries in which such Person or any of its Subsidiaries conducts business (including any changes arising out of acts of terrorism, weather conditions or other force majeure events) that do not disproportionately affect such Person and its Subsidiaries, taken as a whole, in any material respect, (iii) any changes resulting from or arising out of the announcement or pendency of this Agreement and the transactions contemplated hereby or (iv) any changes resulting from or arising out of actions taken pursuant to this Agreement or at the request of another party to this Agreement, or the failure to take any actions due to restrictions set forth in this Agreement.

“1933 Act” means the Securities Act of 1933, as amended.

“ 1934 Act ” means the Securities Exchange Act of 1934, as amended.

“ officer ” of any Person means any executive officer of such Person.

“ Option Exchange Ratio ” means the number (rounded to the nearest 1/10,000) determined by dividing (i) the quotient obtained by dividing the Adjusted Merger Consideration by the Average Pre-Closing Parent Stock Price by (ii) the Company Stock Number.

“ Owned Intellectual Property Rights ” means all Intellectual Property Rights owned by the Company.

“ Parent Common Stock” means shares of common stock, par value $0.01 per share, of Parent.

“ Participation Value ” means, with respect to the Company as of the Closing Date, the Subsequent Participation Value obtained by the following sequence of calculations: (i) dividing the Adjusted Merger Consideration by the number of shares of Company Common Stock outstanding as of the Closing Date, calculated on an As-Converted basis and including, without limitation, any Company Convertible Securities that are subject to vesting and that are not vested as of the date of such determination (such quotient, the “ Preliminary Participation Value ”); (ii) calculating the number of shares of Company Common Stock (the “ In-the-Money Securities Number ”) equal to the quotient obtained by (A) multiplying (x) the number of shares of Company Common

Stock subject to Company Stock Options that are in-the-money at the Preliminary Participation Value, including, without limitation, any shares of Company Common Stock subject to Company Stock Options that are subject to vesting and that are not vested as of the date of such determination by (y) the difference between the Preliminary Participation Value and the weighted average exercise price of the Company Stock Options included in clause (x) and dividing such product by (B) the Preliminary Participation Value; (iii) dividing the Adjusted Merger Consideration by the sum of (A) the number of shares of Company Common Stock and (B) the In-the-Money Securities Number (such quotient, the “ Subsequent Participation Value ”); (iv) recalculating the In-the-Money Securities Number using the Subsequent Participation Value obtained under clause (iii) in lieu of the Preliminary Participation Value and (v) repeating steps (iii) and (iv) successively until such time as a further iteration of the calculation of the Subsequent Participation Value would result in a change to such value of less than or equal to $0.001.

“ Person ” means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“ Post-Closing Tax Period ” means any Tax period beginning after the Closing Date; and, with respect to a Tax period that begins on or before the Closing Date and ends thereafter, the portion of such Tax period beginning after the Closing Date.

“ Pre-Closing Tax Period ” means any Tax period ending on or before the Closing Date; and, with respect to a Tax period that begins on or before the Closing Date and ends thereafter, the portion of such Tax period ending on the Closing Date.

“ Registered Intellectual Property Rights ” means all patents and patent applications, registered copyrights and copyright applications, registered trademarks and trademark applications and any other Intellectual Property Right that is the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any private or Governmental Authority.

“ SEC ” means the Securities and Exchange Commission.

“ Stock Exchange Ratio ” means the number (rounded to the nearest 1/10,000) determined by dividing (i) the number of shares of Parent Common Stock included in the Final Merger Consideration by (ii) the Company Stock Number.

“ Subsidiary ” means, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at any time directly or indirectly owned by such Person.

“ Superior Proposal ” means any bona fide, unsolicited written Acquisition Proposal for all or substantially all of the outstanding shares of Company Stock on terms that the Board of Directors of the Company determines in good faith, after consultation

with the Company’s financial advisor and taking into account all the terms and conditions of the Acquisition Proposal, including any break-up fees, expense reimbursement provisions and conditions to consummation, are more favorable to the Company’s shareholders, considered as a group, than this Agreement and the transactions contemplated hereby.

“ Target Working Capital ” means, with respect to the Company at the Closing Date, Base Working Capital plus the Converted Note Principal Amount and less (i) an amount equal to (A) $1,300,000 multiplied by (B) the sum of (x) the number of full months elapsed between the Company Balance Sheet Date and the Closing Date and (y) in the case of any partial month, the number of actual days elapsed since the end of the last full month included in the preceding clause divided by 30, (ii) an amount equal to (A) $333,333 multiplied by (B) the sum of (x) the number of full months elapsed between the date of this Agreement and the Closing Date and (y) in the case of any partial month, the number of actual days elapsed since the end of the last full month included in the preceding clause divided by 30, (iii) up to $1,350,000 actually paid in connection with the matter set forth on Schedule 1.01(a), (iv) the actual amount of Transaction Expenses (whether paid, accrued or reserved) up to a maximum of $1,500,000 and (v) the actual cost of any Tail D&O Policy up to a maximum of $50,000. As an example, if four months and fifteen days have elapsed between the Company Balance Sheet Date and the Closing Date, the amount deducted from Base Working Capital pursuant to clause (i) above would be $5,850,000.

“ Tax ” means (i) any tax, governmental fee or other like assessment or charge of any kind whatsoever (including, but not limited to, withholding on amounts paid to or by any Person), together with any interest, penalty, addition to tax or additional amount imposed by any governmental authority responsible for the imposition of any such tax (domestic or foreign) (a “Taxing Authority”), and any liability for any of the foregoing as transferee, (ii) in the case of the Company, liability for the payment of any amount of the type described in clause (i) as a result of being or having been before the Effective Time a member of an affiliated, consolidated, combined or unitary group, or a party to any agreement or arrangement, as a result of which liability of the Company to a Taxing Authority is determined or taken into account with reference to the activities of any other Person, and (iii) liability of the Company for the payment of any amount as a result of being party to any Tax Sharing Agreement or with respect to the payment of any amount imposed on any person of the type described in (i) or (ii) as a result of any existing express or implied agreement or arrangement (including, but not limited to, an indemnification agreement or arrangement).

“ Tax Asset ” means any net operating loss, net capital loss, investment tax credit, foreign tax credit, charitable deduction or any other credit or tax attribute that could be carried forward or back to reduce Taxes (including without limitation deductions and credits related to alternative minimum Taxes).

“ Tax Sharing Agreements ” means all existing agreements or arrangements (whether or not written) binding the Company that provide for the allocation, apportionment, sharing or assignment of any Tax liability or benefit, or the transfer or

assignment of income, revenues, receipts, or gains for the purpose of determining any person’s Tax liability.

“ Third Party ” means any Person as defined in this Agreement or in Section 13(d) of the 1934 Act, other than Parent or any of its Affiliates.

“ Transaction Expenses ” means all fees, costs and expenses incurred by the Company’s legal counsel, auditors, investment bankers and financial advisors and other expenses incurred with respect to this Agreement and the transactions contemplated hereby at any time, including, without limitation, any fees, costs and expenses incurred in connection with (i) the negotiation, preparation and review of this Agreement (including the Company Disclosure Schedule) and all agreements, certificates, opinions and other instruments and documents delivered or to be delivered in connection with the transactions contemplated by this Agreement and (ii) the preparation and submission by the Company of any filing or notice required to be made or given in connection with any of the transactions contemplated by this Agreement.

“ Working Capital ” means, with respect to the Company at a specified date, the excess of (i) current assets over (ii) the sum of (A) current liabilities and (B) long-term liabilities (excluding any amounts included in Additional Cash Expenses), in each case as shown on the balance sheet for the Company as of such date.

Any reference in this Agreement to a statute shall be to such statute, as amended from time to time, and to the rules and regulations promulgated thereunder.

(b) Each of the following terms is defined in the Section set forth opposite such term:

	Term	Section
	Adjusted Merger Consideration	2.02
	Agreement	Recitals
	Certificates	2.06
	Change of Recommendation	6.03
	Closing	2.03
	Company	Recitals
	Company Acquisition	12.03
	Company Disclosure Schedule	Article 4
	Company Securities	4.05
	Company Shareholder Meeting	6.02
	Damages	10.02
	Deductible	10.02
	Disputed Amount	2.02
	Effective Time	2.03
	Employee Agreements	4.17
	Employee Plans	4.15
	End Date	11.01
	Equipment	4.16

	Term	Section
	Escrow Account	2.12
	Escrow Agent	2.12
	Escrow Agreement	2.12
	Escrow Fund	2.12
	Exchange Agent	2.06
	Expiration Date	10.01
	Final Merger Consideration	2.03
	Final Working Capital	2.02
	GAAP	4.07
	Governmental Authority	9.01
	Indemnified Parties	7.03 (a)
	Indemnifying Party	10.02
	Independent Accountants	2.13
	Independent Accountants’ Working Capital	2.13
	Letter Agreement	6.03
	Material Contract	4.11
	Merger	Recitals
	Merger Subsidiary	Recitals
	Multiemployer Plan	4.15
	Non-Competition, Non-Solicitation and Restricted	Recitals
	Stock Agreement
	Notes	9.02(k)
	Parent	Recitals
	Parent Indemnified Parties	10.02
	Parent SEC Documents	5.05
	Permits	4.20
	Pre-Closing Date	11.01
	Proxy Materials	6.02
	Registered Intellectual Property Rights	4.18
	Registration Statement	8.06
	Return	4.14
	Sarbanes-Oxley Act	5.05(e)
	Schedule	Article 4
	Shareholders’ Representative	Recitals
	Shareholders’ Representative’s Expenses	10.03(c)
	Supplemental Options	6.09
	Surviving Corporation	2.03
	Tail D&O Policy	7.03(b)
	368 Reorganization	4.26
	Unadjusted Merger Consideration	2.01
	Voting and Lockup Agreement	Recitals
	WARN Act	4.15

ARTICLE 2
M ERGER C ONSIDERATION ; T HE M ERGER

Section 2.01. Unadjusted Merger Consideration . The unadjusted aggregate consideration in respect of the Merger (the “ Unadjusted Merger Consideration ”) shall be $116,244,000 plus the Converted Note Principal Amount and shall be subject to adjustment as provided in Section 2.02.

Section 2.02. Determination of Adjusted Merger Consideration . (a) No later than 7 days prior to the Closing Date, the Company will cause to be prepared and delivered to Parent a good faith estimate of the Closing Balance Sheet and a good faith estimate of Closing Working Capital. The Company’s estimate of Closing Working Capital shall (i) accurately reflect the Working Capital of the Company as of the Closing Date, (ii) be based upon balance sheet line items and accounts of the Company calculated in accordance with GAAP applied consistently with respect to the accounting policies, practices and procedures used in the preparation of the Company Balance Sheet and (iii) otherwise be prepared in accordance with this Agreement.

(b) If Parent disagrees in good faith with any item within the Company’s estimate of Closing Working Capital delivered pursuant to Section 2.02(a), Parent may, within 3 days after delivery of the documents referred to in Section 2.02(a), deliver a notice to the Company setting forth, in reasonable detail and to the extent practicable, each item or amount so disputed by Parent, Parent’s calculation of such item or amount and Parent’s good faith estimate of Closing Working Capital. Upon delivery of any such notice, Parent shall be deemed to have agreed with all other items and amounts set forth in the estimate of Closing Working Capital delivered pursuant to Section 2.02(a) that are not specifically the subject of dispute in any notice delivered by Parent as provided above.

(c) If Parent disagrees in good faith with the Company’s estimate of Closing Working Capital, Parent and the Company shall, during the time between the delivery of such estimate and the Closing Date, use commercially reasonable efforts to reach agreement on the disputed items or amounts in order to determine the Adjusted Merger Consideration. If, during such period, Parent and the Company are unable to reach such agreement, then the Adjusted Merger Consideration shall be determined based upon the Company’s good faith estimate of Closing Working Capital as provided in Section 2.02(d) and Section 2.02(e) and the Escrow Amount shall include the difference between Adjusted Merger Consideration as calculated based on the Company’s estimate of Closing Working Capital and Adjusted Merger Consideration as calculated based on Parent’s estimate of Closing Working Capital (the “ Disputed Amount ”); provided, however, that in no event shall the Disputed Amount exceed $5,000,000.

(d) Following the delivery of the Company’s estimate of Closing Working Capital delivered pursuant to Section 2.02(a), “ Final Working Capital ” shall mean (i) Closing Working Capital as shown in the Company’s calculation delivered pursuant to Section 2.02(a), if no notice of dispute with respect thereto is duly delivered pursuant to Section 2.02(b) or (ii) if a notice of dispute is duly delivered pursuant to and in

accordance with Section 2.02(b), the amount agreed as between Parent and the Company pursuant to Section 2.02(c), if so agreed, or in the absence of such agreement, the Company’s good faith estimate of Closing Working Capital.

(e) Following the determination of Final Working Capital, the “ Adjusted Merger Consideration ” shall be calculated as the Unadjusted Merger Consideration (i) less the amount by which Target Working Capital exceeds Final Working Capital, if Target Working Capital is greater than Final Working Capital (it being understood and agreed that if Target Working Capital is less than Final Working Capital there shall be no corresponding adjustment to the Unadjusted Merger Consideration) and (ii) less any Additional Cash Expenses.

Section 2.03. Final Merger Consideration; Form Thereof . The consideration to be received by holders of Company Stock pursuant to this Agreement (the “ Final Merger Consideration ”) shall be determined as follows:

(a) If the Average Pre-Closing Parent Stock Price is greater than the Average Pre-Signing Parent Stock Price multiplied by 1.3, then the Company may elect for the Final Merger Consideration to consist of an amount of cash equal to the Adjusted Merger Consideration. In order to so elect, the Company must provide Parent with written notice of its election pursuant to this Section 2.03(a) no later than five Business Days prior to the Closing Date. In the event that the Company does not so elect as provided in the preceding sentence, then Final Merger Consideration shall consist of the number of shares of Parent Common Stock determined by dividing (i) the Adjusted Merger Consideration by (ii) the Average Pre-Closing Parent Stock Price.

(b) If the Average Pre-Closing Parent Stock Price is greater than or equal to the Average Pre-Signing Parent Stock Price but less than or equal to the Average Pre-Signing Parent Stock Price multiplied by 1.3, then the Final Merger Consideration shall consist of the number of shares of Parent Common Stock determined by dividing (i) the Adjusted Merger Consideration by (ii) the Average Pre-Closing Parent Stock Price.

(c) If the Average Pre-Closing Parent Stock Price is less than the Average Pre-Signing Parent Stock Price but greater than or equal to the Average Pre-Signing Parent Stock Price multiplied by 0.7, then the Final Merger Consideration shall consist of:

     (i) An amount of cash equal to the lesser of:

      (A) The amount determined by multiplying (x) the Adjusted Merger Consideration by (y) one minus the amount determined by dividing the Average Pre-Closing Parent Stock Price by the Average Pre-Signing Parent Stock Price; and

      (B) The maximum amount of cash that (1) in the reasonable judgment of Parent’s counsel, will allow Parent’s counsel to render the tax opinion referred to in Section 9.02(f) and (2) in the reasonable

12

judgment of the Company’s counsel, will allow the Company’s counsel to render the tax opinion referred to in Section 9.03(c); and

      (ii) The number of shares of Parent Common Stock determined by dividing (A) the Adjusted Merger Consideration less the amount of cash determined pursuant to Section 2.03(c)(i) above by (B) the Average Pre-Closing Parent Stock Price.

(d) If the Average Pre-Closing Parent Stock Price is less than the Average Pre-Signing Parent Stock Price multiplied by 0.7, then the Final Merger Consideration shall consist of an amount of cash equal to the Adjusted Merger Consideration.

In each case in which the Final Merger Consideration includes shares of Parent Common Stock, the Final Merger Consideration shall include any cash delivered in lieu of fractional shares of Parent Common Stock pursuant to Section 2.10.

Section 2.04. The Merger . (a) At the Effective Time, Merger Subsidiary shall be merged with and into the Company in accordance with California Law, whereupon the separate existence of Merger Subsidiary shall cease, and the Company shall be the surviving corporation (the “ Surviving Corporation ”).

(b) As soon as practicable after satisfaction or, to the extent permitted hereunder, waiver of all conditions to the Merger, the Company and Merger Subsidiary will file an agreement of merger in customary form with the Secretary of State of the State of California and make all other filings or recordings required by California Law in connection with the Merger. Immediately prior to the filing of the agreement of merger, a closing (the “ Closing ”) will be held at the offices of Davis Polk & Wardwell, 1600 El Camino Real, Menlo Park, California 94025 (or such other place as the parties may agree). The Merger shall become effective at such time (the “ Effective Time ”) as the agreement of merger is duly filed with the Secretary of State of the State of California or at such later time as is specified in the agreement of merger.

(c) From and after the Effective Time, the Merger shall have the effect set forth under California Law, and without limiting the foregoing, from and after the Merger, the Surviving Corporation shall succeed without transfer to all rights and properties of the Company and Merger Subsidiary, and shall be subject to the debts and liabilities of the Company and Merger Subsidiary as if the Surviving Corporation had incurred such debts and liabilities, all as provided under California Law.

Section 2.05. Conversion of Shares . At the Effective Time:

(a) except as otherwise provided in Section 2.05(b), each share of Company Common Stock and Company Preferred Stock outstanding immediately prior to the Effective Time (which shares of Company Preferred Stock shall be deemed to have converted into Company Common Stock pursuant to Article IV.3(c) of the Company’s articles of incorporation) shall be converted into the right to receive (i) the number of

shares of Parent Stock, if any, equal to the Stock Exchange Ratio and (ii) an amount of cash, if any, equal to the Cash Exchange Ratio;

(b) each share of Company Stock held by the Company as treasury stock or owned by Parent or any of its Subsidiaries immediately prior to the Effective Time shall be canceled, and no payment shall be made with respect thereto; and

(c) each share of common stock of Merger Subsidiary outstanding immediately prior to the Effective Time shall be converted into and become one share of common stock of the Surviving Corporation with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation.

(d) if any shares of Company Stock outstanding immediately prior to the Effective Time are unvested or are subject to a repurchase option, risk of forfeiture or other condition under any applicable restricted stock purchase agreement or other agreement with the Company, then, at Parent’s option and in Parent’s sole discretion, the Final Merger Consideration in respect of such shares shall either be (i) paid to the holder thereof, in the manner provided in Section 2.06, without restriction or (ii) paid to the holder thereof over time upon satisfaction of the vesting requirements associated with the applicable restricted stock schedule.

Notwithstanding the foregoing, the parties acknowledge and agree that the Escrow Amount shall be deducted from the Final Merger Consideration payable to holders of Company Stock pursuant to this Article 2, and shall only be payable (x) upon release from the Escrow Account in accordance with this Agreement and the Escrow Agreement and (y) to the extent not reduced by indemnification payments pursuant to Article 10.

Section 2.06. Surrender and Payment . (a) Parent will appoint an exchange agent (the “ Exchange Agent ”) for the purpose of exchanging certificates representing the shares of Company Stock (the “ Certificates ”) for the Final Merger Consideration payable in respect of the shares of Company Stock evidenced by each such Certificate (less the Escrow Holdback). Immediately following the Effective Time, Parent will make available the Final Merger Consideration (less the Escrow Amount) to be paid in respect of the Certificates.

(b) Each holder of outstanding Company Stock that has been converted into the right to receive the Final Merger Consideration will be entitled to receive, upon surrender to the Exchange Agent of a Certificate, together with a properly completed letter of transmittal (which shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the Certificate to the Exchange Agent), the Final Merger Consideration less the Escrow Holdback issuable and/or payable for each share of Company Stock represented by such Certificate. Until so surrendered, from and after the Effective Time each such Certificate shall represent for all purposes only the right to receive such Final Merger Consideration.

(c) If any portion of the Final Merger Consideration is to be paid to a Person other than the Person in whose name the surrendered Certificate is registered, it shall be a condition to such payment that the Certificate so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the Person requesting such payment shall pay to the Exchange Agent any transfer or other taxes required as a result of such payment to a Person other than the registered holder of such Certificate or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable.

(d) After the Effective Time, there shall be no further registration of transfers of shares of Company Stock. If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be canceled and exchanged for the Final Merger Consideration provided for, and in accordance with the procedures set forth, in this Article 2.

(e) Any portion of the Final Merger Consideration made available to the Exchange Agent pursuant to Section 2.06(a) (and any interest or other income earned thereon) that remains unclaimed by the holders of shares of Company Stock ninety (90) Business Days after the Effective Time shall be returned to Parent, upon demand, and any such holder who has not exchanged shares of Company Stock for the Final Merger Consideration issuable and/or payable in respect of such shares of Company Stock (less the Escrow Holdback applicable thereto) in accordance with this Section 2.06 prior to that time shall thereafter look only to Parent for payment of the Final Merger Consideration issuable and/or payable in respect of such shares of Company Stock without any interest thereon. Notwithstanding the foregoing, Parent shall not be liable to any holder of shares of Company Stock for any amount paid to a public official pursuant to applicable abandoned property, escheat or similar laws. Immediately prior to such time when amounts remaining unclaimed by holders of shares of Company Stock would otherwise escheat to or become property of any governmental authority, such unclaimed amounts shall become, to the extent permitted by applicable law, the property of Parent free and clear of any claims or interest of any Persons previously entitled thereto.

(f) Any portion of the Final Merger Consideration made available to the Exchange Agent pursuant to Section 2.06(a) to pay for shares of Company Stock for which appraisal rights have been perfected shall be returned to Parent, upon demand.

Section 2.07. Dissenting Shares . Notwithstanding Section 2.05, shares of Company Stock outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who has demanded appraisal for such shares in accordance with California Law shall not be converted into a right to receive the Final Merger Consideration issuable and/or payable in respect of such shares of Company Stock, but the holder thereof shall be entitled only to such rights as are provided by California Law, unless such holder fails to perfect, withdraws or otherwise loses its right to appraisal. If, after the Effective Time, such holder fails to perfect, withdraws or loses its right to appraisal, such shares shall be treated as if they had been converted as of the Effective Time into a right to receive the Final Merger Consideration issuable and/or payable in respect of such shares of Company Stock less the Escrow Holdback applicable thereto. The Company shall give Parent

prompt notice of any demands received by the Company for appraisal of shares of Company Stock, and Parent shall have the right to participate in all negotiations and proceedings with respect to such demands. Except with the prior written consent of Parent, the Company shall not make any payment with respect to, or settle or offer to settle, any such demands.

Section 2.08. Stock Options . (a) All Company Employee Stock Options and Supplemental Options shall, at the Effective Time and by virtue of the Merger and without any action on the part of the holder thereof, be assumed by Parent. Each Company Employee Stock Option and Supplemental Option so assumed by Parent under this Agreement shall continue to have, and be subject to, substantially similar terms and conditions to those set forth in the Company Stock Option Plan or as provided in the respective option agreement immediately prior to the Effective Time (including the vesting schedule), except that (i) each Company Employee Stock Option and Supplemental Option will be exercisable for that number of whole shares of Parent Common Stock equal to the product of (A) the number of shares of Company Common Stock that were issuable upon exercise of such Company Employee Stock Option or Supplemental Option immediately prior to the Effective Time multiplied by (B) the Option Exchange Ratio, rounded down to the nearest whole number of shares of Parent Common Stock; and (ii) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such assumed Company Employee Stock Option or Supplemental Option will be equal to the quotient determined by dividing (A) the exercise price per share of Company Common Stock at which such Company Employee Stock Option or Supplemental Option was exercisable immediately prior to the Effective Time by (B) the Option Exchange Ratio, rounded up to the nearest whole cent. It is the intention of the parties hereto that the Company Employee Stock Options and Supplemental Options assumed by Parent following the Effective Time pursuant to this Section will, to the extent permitted by applicable law, qualify as incentive stock options as defined in Section 422 of the Code, to the extent any such Company Employee Stock Options or Supplemental Options qualified as incentive stock options immediately prior to the Effective Time.

(b) As soon as practicable after the Effective Time, Parent shall deliver to each holder of an outstanding Company Employee Stock Option or Supplemental Option an appropriate notice setting forth such holder’s rights pursuant thereto. Prior to the Closing, Parent shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Parent Common Stock for delivery upon exercise of assumed Company Employee Stock Options and Supplemental Options pursuant to the terms set forth in this Section.

(c) At the Effective Time, all Company Stock Options that are not Company Employee Stock Options shall accelerate in accordance with their terms and, to the extent not exercised, terminate in accordance with their terms. The Company shall provide notice to holders of such Company Stock Options in accordance with the terms of the Company Stock Option Plan.

Section 2.09. Adjustments . If, during the period between the date of this Agreement and the Effective Time, any change in the outstanding shares of Company Stock or Parent Common Stock shall occur, including by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of shares of Company Stock or Parent Common Stock, or stock dividend thereon with a record date during such period, the Final Merger Consideration, the Escrow Holdback, and any other amounts payable pursuant to this Agreement shall, to the extent necessary, be appropriately adjusted.

Section 2.10. Fractional Shares . No fractional shares of Parent Stock shall be issued in the Merger. All fractional shares of Parent Stock that a holder of shares of Company Common Stock would otherwise be entitled to receive as a result of the Merger shall be aggregated and if a fractional share results from such aggregation, such holder shall be entitled to receive, in lieu thereof, an amount in cash without interest determined by multiplying the Average Pre-Closing Parent Stock Price by the fraction of a share of Parent Stock to which such holder would otherwise have been entitled.

Section 2.11. Withholding Rights . Each of the Surviving Corporation and Parent shall be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to this Article 2 such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of federal, state, local or foreign tax law. If the Surviving Corporation or Parent, as the case may be, so withholds amounts, such amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Stock in respect of which the Surviving Corporation or Parent, as the case may be, made such deduction and withholding.

Section 2.12. Escrow. At the Effective Time, Parent shall withhold from the Final Merger Consideration otherwise issuable and/or payable in connection with the Merger an aggregate number of shares of Parent Common Stock and/or an aggregate amount of cash equal to the Escrow Amount, in the same relative proportions as the proportions of Parent Common Stock and cash that comprise the Final Merger Consideration. Prior to or simultaneously with the Effective Time, the Shareholders’ Representative and Parent shall enter into an escrow agreement (the “ Escrow Agreement ”) with an escrow agent selected by Parent and reasonably acceptable to the Shareholders’ Representative (the “ Escrow Agent ”) in the form of Exhibit C hereto. Pursuant to the terms of the Escrow Agreement, at the Effective Time Parent shall deposit the Escrow Amount into an escrow account, which account is to be managed by the Escrow Agent (the “ Escrow Account ”). Distributions of any shares of Parent Common Stock and/or cash from the Escrow Account shall be governed by the terms and conditions of this Agreement and the Escrow Agreement (the shares of Parent Common Stock and cash, if any, in the Escrow Account being referred to as the “ Escrow Fund ”). The Escrow Amount shall be withheld from, and allocated to, each holder of Company Stock based on such holder’s Escrow Holdback. All distributions from the Escrow Fund shall be made in shares of Parent Common Stock and/or cash in the same relative proportions as originally included in the Escrow Amount.

Section 2.13. Resolution of Disputed Amount . (a) In the event that any Disputed Amount is included in the Escrow Amount, Parent and the Shareholders’ Representative shall, during the 15 days following the Closing Date, use commercially reasonable efforts to reach agreement on the disputed items or amounts. If Parent and the Shareholders’ Representative are unable to reach agreement during such period, they shall promptly thereafter cause independent accountants of nationally recognized standing reasonably satisfactory to Parent and the Shareholders’ Representative (who shall not have any material relationship with Parent, the Company, the Shareholders’ Representative or any of their respective Affiliates) (the “ Independent Accountants ”), promptly to review the disputed items or amounts for the purpose of calculating Closing Working Capital (the “ Independent Accountants’ Working Capital ”). In calculating Independent Accountant’ Working Capital, such Independent Accountants shall consider only those items or amounts in the calculation of Closing Working Capital as to which Parent has disagreed pursuant to and in accordance with Section 2.02(b) . Such Independent Accountants shall deliver to Parent and the Shareholders’ Representative, as promptly as practicable (and in any event within 30 days following receipt of all information requested from the Company to calculate Closing Working Capital), a report that explains any discrepancies between such Independent Accountants’ Working Capital and Final Working Capital and sets forth the Independent Accountants’ calculation of Independent Accountants’ Working Capital. Such report and the calculations set forth therein shall be final and binding upon Parent, the Shareholders’ Representative and their respective Affiliates and shall not be subject to challenge by any of the foregoing in a court of law or otherwise. The cost of such review and report shall be paid from the Escrow Fund if Independent Accountants’ Working Capital is closer to Parent’s calculation of Closing Working Capital than the Company’s estimate of Closing Working Capital.

(b) As promptly as practicable following the delivery of the Independent Accountants’ report specified above, each of Parent and the Shareholders’ Representative shall direct the Escrow Agent to make distributions from the Escrow Fund, and the Escrow Agent shall make such distributions, as follows:

(i) If Independent Accountants’ Working Capital is less than Final Working Capital, then the Escrow Agent shall distribute from the Escrow Fund (A) to Parent, an amount equal to (1) the amount of the difference between the Adjusted Merger Consideration as actually determined pursuant to Section 2.02(e) above and the Adjusted Merger Consideration that would have resulted had such amount been calculated using Independent Accountants’ Working Capital in lieu of Final Working Capital plus (2) the cost of the Independent Accountants’ review and report pursuant to Section 2.13(a) and (B) to the former shareholders of the Company (in proportion to each such shareholder’s Escrow Holdback), the balance, if any, of the Disputed Amount that remains in the Escrow Fund following the distributions specified in clause (A) of this Section 2.13(b)(i); and

(ii) (A) If Independent Accountants’ Working Capital is greater than or equal to Final Working Capital, then the Escrow Agent shall distribute the Disputed Amount from the Escrow Fund to the former shareholders of the

Company (in proportion to each such shareholder’s Escrow Holdback) and (B) in the event that Independent Accountants’ Working Capital is greater than Final Working Capital, Parent shall issue and/or pay to the former shareholders of the Company (in proportion to each such shareholder’s Escrow Holdback), the number of shares of Parent Common Stock and/or cash not already included in the Disputed Amount that would have been issued and/or paid to such former shareholders if the Independent Accountants’ Working Capital had been the Final Working Capital at the Closing; provided , however, that in no event shall the amounts distributed to the former shareholders of the Company pursuant to this Section 2.13(b)(ii), when aggregated with the Final Merger Consideration, exceed the Unadjusted Merger Consideration.

For purposes of calculating the number of shares of Parent Common Stock to be included in a distribution of a given amount pursuant to this Section 2.13(b), Parent Common Stock shall be ascribed the same value given to it in connection with the calculation of Final Merger Consideration.

Section 2.14. Lost Certificates . If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the entry by such Person into an indemnification agreement in form satisfactory to Parent, or the posting by such Person of a bond, in such reasonable amount as the Surviving Corporation may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will pay, in exchange for such lost, stolen or destroyed Certificate, the Final Merger Consideration issuable and/or payable in respect of the shares of Company Stock evidenced by such Certificate (less the Escrow Holdback applicable thereto), as contemplated by this Article 2.

ARTICLE 3
T HE S URVIVING C ORPORATION

Section 3.01. Articles of Incorporation . The articles of incorporation of the Company in effect at the Effective Time shall be the articles of incorporation of the Surviving Corporation until amended in accordance with applicable law, provided that, at the Effective Time, such articles of incorporation shall be amended as set forth in Annex C.

Section 3.02. Bylaws . The bylaws of Merger Subsidiary in effect at the Effective Time shall be the bylaws of the Surviving Corporation until amended in accordance with applicable law.

Section 3.03. Directors and Officers . From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with applicable law, (i) the directors of Merger Subsidiary at the Effective Time shall be the directors of the Surviving Corporation and (ii) the officers of Merger Subsidiary at the Effective Time shall be the officers of the Surviving Corporation.

ARTICLE 4
R EPRESENTATIONS AND W ARRANTIES OF THE C OMPANY

The Company hereby represents and warrants to Parent that each of the statements contained in this Article 4 are true and complete, except as otherwise provided herein and except as specifically disclosed in the schedules attached hereto (each, a “ Schedule ” and together, the “ Company Disclosure Schedule ”). Each exception and other information set forth in the Company Disclosure Schedule shall be identified by reference to, or grouped under a heading referring to, a specific individual section or subsection of this Agreement and shall relate only to such section or subsection, except to the extent that (a) one portion of the Company Disclosure Schedule specifically refers to another portion thereof by specific cross reference or (b) it is readily apparent from the text of the disclosure in the Company Disclosure Schedule that an item disclosed in one section or subsection of the Company Disclosure Schedule is omitted from another section or subsection where such disclosure would be appropriate, in which case such item shall be deemed to have been disclosed in the section or subsection of the Company Disclosure Schedule from which such item is omitted.

Section 4.01. Corporate Existence and Power . The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California and has all corporate powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted, except for those licenses, authorizations, permits, consents and approvals the absence of which would not have, individually or in the aggregate, a Material Adverse Effect on the Company. The Company is qualified to do business in the State of California. There are no jurisdictions in which the Company is required to be qualified to do business as a foreign corporation, except for those jurisdictions where failure to be so qualified would not have, individually or in the aggregate, a Material Adverse Effect on the Company. The Company has heretofore delivered to Parent true and complete copies of the articles of incorporation and bylaws of the Company as currently in full force and effect. The Company is not in violation of any of the provisions of its articles of incorporation or bylaws.

Section 4.02 . Corporate Authorization. (a) The execution, delivery and performance by the Company of this Agreement and the Escrow Agreement and the consummation by the Company of the transactions contemplated hereby and thereby are within the Company’s corporate powers and have been duly authorized by all necessary corporate action on the part of the Company, other than approval and adoption of this Agreement and the Merger by the Company’s shareholders. The only votes of the holders of any of the Company’s capital stock necessary in connection with the consummation of the Merger are (i) the affirmative vote of at least 50% of the outstanding shares of the Company Series A Preferred Stock and the Company Series B Preferred Stock, voting together as a single class on an As-Converted basis, (ii) the affirmative vote of at least 50% of the outstanding shares of the Company Preferred Stock and (iii) the affirmative vote of at least 50% of the outstanding shares of the Company Common Stock. This Agreement, assuming due authorization, execution and delivery by the other parties hereto, constitutes a valid and binding agreement of the

Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors’ rights generally and by general equitable principles (regardless of whether enforceability is considered in a proceeding in equity or at law).

(b) At a meeting duly called and held, the Company’s Board of Directors has (i) unanimously determined that this Agreement is advisable, and that this Agreement and the Merger are fair to and in the best interests of the shareholders of the Company, (ii) unanimously approved and adopted this Agreement and the transactions contemplated hereby, and (iii) unanimously resolved to recommend approval and adoption of this Agreement by the shareholders of the Company.

Section 4.03 . Governmental Authorization. The execution, delivery and performance by the Company of this Agreement and the Escrow Agreement and the consummation by the Company of the transactions contemplated hereby and thereby require no action on the part of the Company by or in respect of, or filing with, any governmental body, agency, official or authority, domestic, foreign or supranational, other than (a) the filing of the agreement of merger with the California Secretary of State and appropriate documents with the relevant authorities of other states in which Company is qualified to do business, (b) compliance with any applicable requirements of the 1933 Act, and any other applicable securities laws, whether state or foreign, (c) such filings as may be required under the HSR Act and (d) any actions or filings the absence of which would not be reasonably expected to be, individually or in the aggregate, material to the Company or to materially impair the ability of the Company to consummate the transactions contemplated by this Agreement.

Section 4.04. Non-Contravention . The execution, delivery and performance by the Company of this Agreement and the Escrow Agreement and the consummation of the transactions contemplated hereby and thereby do not and will not (i) contravene, conflict with, or result in any violation or breach of any provision of the articles of incorporation or bylaws of the Company, (ii) assuming compliance with the matters referred to in Section 4.03, contravene, conflict with, or result in a violation or breach of any provision of any applicable law, statute, ordinance, rule, regulation, judgment, injunction, order or decree, except for such contraventions, conflicts, violations or breaches as would not reasonably be expected to be, individually or in the aggregate, material to the Company or to materially impair the ability of the Company to consummate the actions contemplated by this Agreement, (iii) require any material consent or other action by any Person under, constitute a default, or an event that, with or without notice or lapse of time or both, could become a default, under, or cause or permit the termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit to which the Company is entitled under any provision of any agreement or other instrument binding upon the Company or any license, franchise, permit, certificate, approval or other similar authorization affecting the assets or business of the Company, except for such failures to obtain any such consent or other action, defaults, terminations, cancellations, accelerations, changes, losses as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company or (iv) result in the

creation or imposition of any Lien on any asset of the Company, except for such Liens referred to in clause (iv) as would not be reasonably expected to be, individually or in the aggregate, material to the Company or to materially impair the ability of the Company to consummate the actions contemplated by this Agreement.

Section 4.05 . Capitalization. (a) The authorized capital stock of the Company consists of 67,858,333 shares, including 50,000,000 shares of Company Common Stock, 7,858,333 shares of Company Series A Preferred Stock and 10,000,000 shares of Company Series B Preferred Stock. The Company has no other capital stock authorized, issued or outstanding. The Company Stock is, as of the close of business on May 27, 2005, held by the Persons and in the amounts set forth in Schedule 4.05(a), with the latest known addresses of such Persons indicated thereon. All outstanding shares of the Company are duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the articles of incorporation or bylaws of the Company or any agreement to which the Company is a party or by which it is bound, and all outstanding shares of Company Stock and Company Convertible Securities have been issued in compliance in all material respects with federal and state securities laws. There are no declared or accrued unpaid dividends with respect to any shares of the Company Stock. The Company has heretofore delivered to Parent true and complete copies of each Company Warrant and any and all agreements to grant a warrant to purchase Company Stock.

(b) The Company has reserved 5,013,333 shares of Company Common Stock for issuance to employees, directors and consultants pursuant to the Company Stock Option Plan, of which 2,571,721 shares are outstanding pursuant to option exercises through May 27, 2005, 2,039,602 shares are subject to outstanding unexercised options as of May 27, 2005 and 402,009 shares remain available for future grant as of the date hereof. Schedule 4.05(b) sets forth each Company Stock Option outstanding, the name of the optionholder, whether the optionholder is an employee of the Company, the address of record for such optionholder, the grant date and number of shares of Company Common Stock subject to such option, the exercise price of such option, the vesting schedule for such option, including the extent vested to date and whether and to what extent the exercisability of such option will be accelerated as a result of the transactions contemplated by this Agreement (indicating the circumstances that may cause such acceleration), the date on which such option expires and whether and to what extent such option qualifies as an incentive stock option as defined in Section 422 of the Code. Schedule 4.05(b) further sets forth each Company Warrant outstanding, the name of the warrantholder, the address of record for such warrantholder, the grant date and number of shares of Company Stock subject to such warrant, the type of shares of Company Stock into which such warrant is convertible, the exercise price of such warrant, the vesting schedule for such warrant, including the extent vested to date and whether and to what extent the exercisability of such warrant will be accelerated as a result of the transactions contemplated by this Agreement (indicating the circumstances that may cause such acceleration) and the date on which such warrant expires. Schedule 4.05(b) of the Company Disclosure Schedule further sets forth each outstanding convertible promissory note of the Company, the name of the noteholder and the principal amount of each such

note. The Company has heretofore delivered or made available to Parent true and complete copies of the Company Stock Option Plan and each Company Stock Option and Company Warrant and any and all agreements to grant a Company Stock Option or Company Warrant.

(c) Schedule 4.05(c) sets forth as of the date hereof the name of the holder of any Company Common Stock subject to vesting, the number of shares of Company Common Stock subject to vesting and the vesting schedule for such Company Common Stock, including the extent vested to date and whether and to what extent the vesting of such shares of Company Common Stock will be accelerated as a result of the transactions contemplated by this Agreement, with or without the occurrence of any other event (indicating the circumstances that may cause such acceleration). Except as set forth on Schedule 4.05(c), no outstanding Company Stock is subject to vesting or forfeiture or rights of repurchase by the Company. There are no outstanding or authorized stock appreciation, dividend equivalent, phantom stock, profit participation, or other similar rights with respect to the Company or any of its securities.

(d) There are no voting trusts, proxies, or other agreements or understandings with respect to the voting stock of the Company or any other matters involving any securities of the Company, other than the Voting and Lockup Agreements.

(e) Except as set forth in this Section 4.05, there are no outstanding (i) shares of capital stock or voting securities of the Company or (ii) Company Convertible Securities (the items in clauses (i) and (ii) being referred to collectively as the “ Company Securities ”). There are no outstanding obligations, rights, commitments or agreements of any character, written or oral, to which the Company is a party or by which it is bound obligating the Company to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any Company Securities.

(f) The updated version of Schedules 4.05(a), 4.05(b) and 4.05(c) required to be delivered by the Company to Parent pursuant to Section 6.08 shall, as of the Closing Date, fairly and accurately present the matters required to be presented therein.

Section 4.06. Subsidiaries . The Company has no Subsidiaries.

Section 4.07. Financial Statements . The audited balance sheet of the Company as of December 31, 2003 and related audited statements of income and cash flows of the Company for the year ended December 31, 2003, the unaudited balance sheet of the Company as of December 31, 2004 and related unaudited statements of income and cash flows of the Company for the year ended December 31, 2004, and the unaudited interim financial statements of the Company as of the three months ended March 31, 2005 (subject to normal reconciling adjustments) attached hereto in Schedule 4.07 fairly present in all material respects and, in conformity with generally accepted accounting principles (“ GAAP ”) applied on a consistent basis (except as may be indicated in the notes thereto), the financial position of the Company as of the dates thereof and their results of operations and cash flows for the periods then ended (subject only to normal year-end adjustments and an absence of footnotes in the case of any unaudited interim

financial statements). The Company maintains a system of internal controls over financial reporting that is adequate to the business of the Company as currently conducted.

Section 4.08. Absence of Certain Changes . Since the Company Balance Sheet Date (and, with respect to clause (a) below, solely through the date of this Agreement), the business of the Company has been conducted in the ordinary course consistent with past practices and there has not been:

(a) any event, occurrence, development or state of circumstances or facts that has had, individually or in the aggregate, a Material Adverse Effect on the Company;

(b) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Company;

(c) with respect to any outstanding shares of capital stock or other securities of, or other ownership interests in, the Company, any direct or indirect (i) reclassification, combination, split or subdivision or (ii) redemption, repurchase, purchase or other acquisition by the Company, except for repurchases by the Company of Company Common Stock made in connection with the termination of employment of Company employees;

(d) any amendment of any material term of any outstanding security of the Company;

(e) any incurrence, assumption or guarantee by the Company of any indebtedness for borrowed money; or any issuance of any debt securities, other than new convertible notes issued upon the exercise of preemptive rights arising out of the issuance of the Notes and that have terms equivalent to those of the Notes;

(f) any creation or other incurrence by the Company of any material Lien on any material asset;

(g) any making of any loan, advance or capital contributions to or investment in any Person, except for reasonable advances to employees and consultants for travel and business expenses in the ordinary course of business consistent with past practices; provided , that purchases of inventory and raw materials by the Company in the ordinary course of business consistent with past practice shall not be deemed to be investments for purposes of this Section 4.08(g);

(h) any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the business or assets of the Company that has had or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company;

(i) any transaction or commitment made, or any contract or agreement entered into, by the Company relating to its assets or business (including the acquisition or

disposition of any assets) or any relinquishment by the Company of any contract or other right, in either case material to the Company, other than those contemplated by this Agreement or undertaken or entered into in the ordinary course of business consistent with past practice;

(j) any change in any method of accounting or accounting principles or practice by the Company, except for any such change required by reason of a concurrent change in GAAP;

(k) any (i) grant of any severance or termination pay to (or amendment to any existing arrangement with) any director, officer or employee of the Company, (ii) increase in benefits payable to any director, officer or employee of the Company under any existing severance or termination pay policies or employment agreements, (iii) entering into any employment, deferred compensation or other similar agreement (or any amendment to any such existing agreement) with any director, officer or employee of the Company, (iv) establishment, adoption or amendment (except as required by applicable law) of any collective bargaining, bonus, profit-sharing, thrift, pension, retirement, deferred compensation, compensation, stock option, restricted stock, termination, severance or other benefit plan, agreement, trust, fund, policy or arrangement covering or for the benefit of any director, officer or employee of the Company or (v) increase in compensation, bonus or other benefits payable to any director, officer or employee of the Company;

(l) any hiring, employment, or entry into a contract or agreement with any new employees or independent contractors, except as contemplated by the hiring plan attached hereto in Schedule 4.08(l);

(m) any labor dispute, other than routine individual grievances, or any activity or proceeding by a labor union or representative thereof to organize any employees of the Company, which employees were not subject to a collective bargaining agreement at the Company Balance Sheet Date, or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees;

(n) any material Tax election made or changed, any annual Tax accounting period changed, any method of Tax accounting adopted or changed, any material amended Tax Returns or claims for material Tax refunds filed, any closing agreement entered into, any material Tax claim, audit or assessment settled, or any right to claim a material Tax refund, offset or other reduction in Tax liability surrendered; or

(o) any material change in the terms of agreements between the Company and its customers or licensees, other than changes made in the ordinary course of business consistent with past practice;

(p) any capital expenditure, or commitment for a capital expenditure, for additions or improvements to property, plant and equipment, other than as set forth in Schedule 4.08(p) (which shall specify any capital expenditure of $100,000 or more that is planned or expected as of the date of this Agreement); or

(q) agreement by the Company or any officer or employee thereof in his or her capacity as such to do any of the things described in the preceding clauses (a) through (p) (other than negotiations with Parent and its representatives regarding the transactions contemplated by this Agreement).

Section 4.09. No Undisclosed Liabilities . There are no liabilities or obligations of the Company of any kind whatsoever that are both reasonably probable and material, and there is no existing condition, situation or set of circumstances that could reasonably be expected to result in such a liability or obligation, other than:

(a) liabilities or obligations disclosed and provided for in the Company Balance Sheet, and

(b) liabilities or obligations incurred in the ordinary course of business consistent with past practices since the Company Balance Sheet Date that would not reasonably be expected to be, individually or in the aggregate, material to the Company.

Section 4.10. Compliance with Laws and Court Orders . The business of the Company is and has at all times since its inception been conducted in compliance in all material respects with, and to the Knowledge of the Company (a) is not under investigation with respect to and (b) has not been threatened to be charged with or given notice of any violation of, any applicable law, statute, ordinance, rule, regulation, judgment, injunction, order or decree.

Section 4.11 . Agreements, Contracts and Commitments. (a) The Company is not a party to or bound by:

      (i) any lease or sublease (whether of real or personal property) providing for annual rentals of $50,000 or more;

      (ii) as of the date of this Agreement, any commitment for the purchase or license of materials, supplies, goods, services, equipment or other tangible or intangible assets providing for either (A) annual payments by the Company of $25,000 or more or (B) aggregate payments by the Company of $50,000 or more;

      (iii) as of the date of this Agreement, any license, sales, distribution or other similar agreement providing for the sale or license by the Company of materials, supplies, goods, services, equipment or other assets that provides for either (A) annual payments to the Company of $50,000 or more or (B) aggregate payments to the Company of $100,000 or more;

      (iv) any partnership, joint venture or other similar agreement or arrangement;

      (v) any agreement, contract or commitment relating to the acquisition or disposition of any business (whether by merger, sale of stock, sale of assets or otherwise);

      (vi) any agreement relating to indebtedness for borrowed money or the deferred purchase price of property (in either case, whether incurred, assumed, guaranteed or secured by any asset), except any such agreement with an aggregate outstanding principal amount not exceeding $50,000 and which may be prepaid on not more than 30 days notice without the payment of any penalty;

      (vii) except for agreements with customers by the Company in the ordinary course of business consistent with past practices, any option (other than employee stock options), license, franchise or similar agreement;

      (viii) any agency, dealer, sales representative, marketing, distribution, original equipment manufacturer, remarketer, joint marketing, channel partner or other similar agreement;

      (ix) except for agreements with customers that are ancillary to the sale of products to such customers in the ordinary course of business of the Company consistent with past practice, any development or collaboration agreement or other agreement for development of products and services for the Company;

      (x) any agreement that limits the freedom of the Company to compete in any line of business or with any Person or in any area or which could reasonably be expected to so limit the freedom of the Company after the Effective Time;

      (xi) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, other than those mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments that are not, individually or in the aggregate, material to the Company;

      (xii) any agreement with any Affiliate of the Company, with any director or officer of the Company, or with any “associate” or any member of the “immediate family” (as such terms are respectively defined in Rules 12b-2 and 16a-1 of the 1934 Act) of any such director or officer; or

      (xiii) other than Employee Plans, any employment or consulting agreement, contract or commitment with an employee or individual consultant or salesperson or consulting or sales agreement, contract or commitment with a firm or other organization;

      (xiv) any employment or consulting agreement or any agreement with severance, change in control or similar arrangements, that will result in any obligation (absolute or contingent) of the Company to make any payment as a result of the consummation of the Merger, termination of employment or both;

      (xv) other than the Company Stock Option Plan, any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan

or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement other than set forth on Schedule 4.11(a); or

(xvi) any other agreement, commitment, arrangement or plan not made in the ordinary course of business that is material to the Company.

(b) Each agreement, contract, plan, lease, arrangement or commitment required to be disclosed pursuant to this Agreement (other than those that have expired by their own terms) (each, a “ Material Contract ”) is a valid and binding agreement of the Company, enforceable against the Company (except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors’ rights generally and by general equitable principles, and regardless of whether enforceability is considered in a proceeding in equity or at law), and is in full force and effect with respect to the Company and, to the Knowledge of the Company, each other party thereto. The Company is not in default or breach in any material respect (beyond any applicable notice and cure period) under, and has fulfilled its material obligations under, the terms of each such Material Contract. As of the date of this Agreement and to the Knowledge of the Company, no other party to any Material Contract is in default or breach or has failed to fulfill its obligations in any material respect under the terms of any Material Contract. To the Knowledge of the Company, no event or circumstance h

SITE SEARCH

AGREEMENTS / CONTRACTS

CLAUSES

Search Contract Clauses >>

Browse Contract Clause Library>>

Get Email Updates