AGREEMENT AND PLAN OF MERGER REORGANIZATION

Exhibit 2.5

AGREEMENT AND PLAN OF MERGER REORGANIZATION

BY AND AMONG

NETLOGIC MICROSYSTEMS, INC.

ROADSTER MERGER CORPORATION

RMI CORPORATION

AND

THE REPRESENTATIVE OF CERTAIN OF THE HOLDERS OF ALL OF THE

CAPITAL STOCK OF RMI CORPORATION

Dated as of May 31, 2009

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EXHIBITS

 

 

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INDEX OF DEFINED TERMS

 

 

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AGREEMENT AND PLAN OF MERGER REORGANIZATION

THIS AGREEMENT AND PLAN OF MERGER REORGANIZATION is made as of May 31, 2009 (this “ Agreement ”) by and among NetLogic Microsystems, Inc., a Delaware corporation (“ Parent ”), Roadster Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (“ Merger Sub ”), RMI Corporation, a Delaware corporation (the “ Company ”), and, solely with respect to Sections 1.6, 14, 15 and 17, the Representative (as defined below). The holders of all of the capital stock of the Company (the “ Company Stock ”) are collectively referred to as the “ Company Stockholders. ” Parent and the Company are referred to collectively herein as the “ Parties ” and each individually as a “ Party .”

WHEREAS, the board of directors of the Company has unanimously (i) determined that the merger of Merger Sub with and into the Company upon the terms and subject to the conditions set forth herein (the “ Merger ”) is desirable and in the best interests of the Company and the Company Stockholders, (ii) approved, in accordance with the applicable provisions of the General Corporation Law of the State of Delaware (the “ DGCL ” or “ Delaware Law ”) this Agreement and each of the transactions contemplated hereby, including the Merger; and (iii) determined to recommend that the Company Stockholders approve this Agreement and each of the transactions contemplated hereby, including the Merger; and

WHEREAS, the board of directors of Merger Sub has unanimously (i) determined that the Merger is advisable and in the best interests of Merger Sub and (ii) approved, in accordance with the applicable provisions of the DGCL, this Agreement and each of the transactions contemplated hereby, including the Merger; and

WHEREAS, in furtherance of such combination, the board of directors of Parent, as the sole stockholder of Merger Sub, approved this Agreement and the Merger, has unanimously (i) determined that the Merger upon the terms and subject to the conditions set forth herein is desirable and in the best interests of Parent and Merger Sub, (ii) approved, in accordance with the applicable provisions of the DGCL this Agreement and each of the transactions contemplated hereby, including the Merger, and (iii) determined to recommend that Parent Stockholders approve the matters set forth in the Proxy Statement; and

WHEREAS, the parties intend, for federal income tax purposes, that the Merger qualify as a reorganization as described in Section 368(a) of the Code;

WHEREAS, concurrently with the execution and delivery of this Agreement, certain of the Company Stockholders listed on Exhibit A are entering into a standstill agreement with Parent substantially in the form attached as Exhibit A (“ Standstill Agreement ”); and

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

SECTION 1. The Merger .

1.1 The Merger . At the Effective Time (as defined below), and subject to and upon the terms and conditions of this Agreement and the applicable provisions of Delaware Law, Merger Sub shall be merged with and into the Company, the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation. The Company as the surviving corporation after the Merger is hereinafter sometimes referred to as the “ Surviving Corporation .”

1.2 Effective Time; Closing . Unless this Agreement is earlier terminated pursuant to Section 12, the closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place as soon as reasonably practicable after the satisfaction or waiver of each of the conditions set forth in Sections 7, 8 and 9 below (other than conditions that by their nature are to be satisfied solely by the performance thereof at Closing, and subject to the satisfaction or waiver of those conditions at such time), or at such other time as Parent and the Company shall otherwise agree (the “ Closing Date ”). In connection with the Closing, the parties shall cause the Merger to be consummated by filing a certificate of merger with the Secretary of State of the State of Delaware, as contemplated by the DGCL and substantially in the form attached hereto as Exhibit B (the “ Certificate of Merger ”) and make all other filings or recordings required by Delaware Law in connection with the Merger. The Merger shall be effective upon the later of: (a) the date and time of the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, or (b) such other date and time as may be specified in the Certificate of Merger (such later date being referred to as the “ Effective Time ”). The Closing shall take place at 10:00 a.m., Pacific Time, on the Closing Date at the offices of Bingham McCutchen LLP, 1900 University Avenue, East Palo Alto, California 94303.

1.3 Effect of the Merger . At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Certificate of Merger and the applicable provisions of Delaware Law, including Section 259 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 the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

1.4 Certificate of Incorporation; Bylaws; Corporate Records .

(a) Certificate of Incorporation . At the Effective Time, the Amended and Restated Certificate of the Company shall be amended and restated in its entirety to be identical to the Certificate of Incorporation of Merger Sub, as in effect immediately prior to the Effective Time, until thereafter amended in accordance with the DGCL and as provided in such Certificate of Incorporation, except that the name of the Surviving Corporation as stated in such Certificate of Incorporation shall be “RMI Corporation.”

(b) Bylaws . At the Effective Time, the Bylaws of the Company shall be amended and restated in their entirety to be identical to the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, until thereafter amended in accordance with the DGCL and such Bylaws, except that the name of the Surviving Corporation on the face of such Bylaws shall be “RMI Corporation.”

(c) Corporate Records . At or prior to the Closing, the Company shall deliver or cause to be delivered to Parent the minute books, stock record books and, to the extent requested by Parent, all other documents, books, records, agreements and financial data, of the Company.

1.5 Directors and Officers . The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation, and the officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified, or their earlier death, resignation or removal.

 

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1.6 Appointment of Representative; Agreements Binding on Company Stockholders . Each (i) Company Stockholder that does not perfect his, her or its appraisal or dissenters’ rights under the DGCL and is otherwise entitled to receive a portion of the Merger Consideration pursuant to Section 2 of this Agreement (the “ Indemnifying Securityholders ”), by virtue of having approved and adopted this Agreement shall be deemed to (a) have irrevocably constituted and appointed, effective as of the Effective Time, WP VIII Representative LLC (together with its permitted successors, the “ Representative ”), as their true and lawful agent, proxy and attorney-in-fact, to execute and deliver this Agreement and the Escrow Agreement on their behalf and exercise all or any of the powers, authority and discretion conferred on it under this Agreement (including, without limitation, Section 14 and Section 15), the Escrow Agreement or any other agreement or instrument entered into or delivered in connection with the transactions contemplated hereby, and (b) have irrevocably agreed to, and be bound by and comply with, all of the obligations of the Indemnifying Securityholders set forth herein (including, without limitation, Section 14 and Section 15) and in the Escrow Agreement. The Representative agrees to act as, and to undertake the duties and responsibilities of, such agent and attorney-in-fact. This power of attorney is coupled with an interest and is irrevocable.

1.7 Certain Definitions . For purposes of this Agreement, the following terms shall have the following meanings:

“ Applicable Advance Earn-Out Credit ” shall mean the dollar amount of the result of dividing (a) the Nominal Advance Earn-Out Credit, by (b) the Applicable Closing Price, and multiplying such quotient by (c) the Parent Average Closing Price.

“ Applicable CEO Special Incentive Consideration ” shall mean the dollar amount of the result of dividing (a) the Nominal CEO Special Incentive Consideration, by (b) the Applicable Closing Price, and multiplying such quotient by (c) the Parent Average Closing Price.

“ Applicable Closing Price ” shall mean the Parent Average Closing Price; provided , that, if the Parent Average Closing Price is greater than $34.90, the “Applicable Closing Price” shall mean $34.90; provided , further , that, if the Parent Average Closing Price is less than $26.97, the “Applicable Closing Price” shall mean $26.97.

“ Applicable Directed Common Consideration ” shall mean the dollar amount of the result of dividing (a) the Nominal Directed Common Consideration, by (b) the Applicable Closing Price, and multiplying such quotient by (c) the Parent Average Closing Price.

“ Applicable Earn-Out Consideration ” shall mean the dollar amount of the result of dividing (a) the Nominal Earn-Out Consideration, by (b) the Applicable Closing Price, and multiplying such quotient by (c) the Parent Average Closing Price.

“ Applicable Merger Consideration ” shall mean the result of dividing (a) the Nominal Merger Consideration, by (b) the Applicable Closing Price, and multiplying such quotient by (c) the Parent Average Closing Price.

“ Applicable Total Consideration ” shall mean (a) Applicable Merger Consideration plus (b) Applicable Earn-Out Consideration.

“ Applicable Law ” shall mean any Legal Requirements applicable to the Company or its Subsidiaries.

“ Bylaws ” shall mean the Bylaws of the Company as in effect as of the date of this Agreement.

 

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“ Cause ” shall mean commission of (i) any act of fraud or embezzlement by the employee, (ii) any intentional unauthorized use or disclosure by such employee of confidential information or trade secrets of Parent, the Surviving Corporation or any other subsidiary of Parent, or (iii) any act of dishonesty or other intentional misconduct by such person adversely affecting the business affairs of Parent, the Surviving Corporation or any other subsidiary of Parent in a material manner.

“ Change in Control Payments ” shall mean any cash severance, retention, bonus or any other similar payment made or that becomes payable by the Company or any of its Subsidiaries to any director, officer, employee or consultant solely as a result of the Company entering into this Agreement or the consummation of the Merger.

“ Common Merger Consideration ” shall have the meaning given to such term in Section 2.1(a)(ii)(A) or Section 2.1(a)(iii)(A), as applicable.

“ Common Preference Amount ” is the number of shares of Company Common Stock outstanding immediately prior to the Effective Time multiplied by $0.10 per share.

“ Company Common Stock ” shall mean the Common Stock, par value $.001 per share, of the Company.

“ Company Debt ” shall mean all Indebtedness of the Company.

“ Company Material Adverse Effect ” shall mean any change in, event, or effect on the Company or any of its Subsidiaries (in each case, a “ Company Effect ”) that, when taken individually or in the aggregate with all other Effects, (i) is or are materially adverse in relation to the Company’s and its Subsidiaries’ financial condition, properties, assets, liabilities or business operations, taken as a whole, or (ii) may materially impair the ability of the Company to consummate the transactions contemplated hereby, except to the extent that such Company Effect or Company Effects results from (1) changes in general economic conditions and changes affecting the industry in which the Company and its Subsidiaries operates generally that do not adversely affect the Company or any of its Subsidiaries to a materially disproportionate degree, (2) adverse conditions or events expressly disclosed to Parent in the Disclosure Schedule, or (3) changes or effects caused by the execution and delivery of this Agreement, by actions required under this Agreement, or by actions requested by Parent in writing to be taken by the Company.

“ Company Organizational Documents ” shall mean the Charter and the Bylaws.

“ Company Preferred Stock ” shall mean, collectively, the Series A Preferred Stock, the Series B-1 Preferred Stock, the Series B-2 Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock of the Company.

“ Company Solicitation Statement and Notice of Appraisal Rights ” shall mean the document used by the Company to solicit written consents of the Company Stockholders pursuant to Section 6.10 of this Agreement, as such is amended from time to time.

“ Confidential Information ” shall mean information or materials classified as confidential under the terms of the Confidentiality Agreement (as defined in Section 6.1(a) this Agreement).

“ Disclosure Schedule ” shall mean the disclosure schedule supplied by the Company to Parent, dated as of the date of this Agreement and delivered concurrently with the execution hereof.

 

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“ Earn-Out Common Consideration ” shall mean (a) Total Common Consideration minus (b) Common Merger Consideration.

“ Earn-Out Distribution Date ” means the earlier of (a) the date set forth in Section 2.5(b), and (b) the date that Parent notifies the Representative that the Earn-Out Consideration is zero.

“ Earn-Out Per Share Common Consideration ” shall mean the (a) Earn-Out Common Consideration, divided by (b) number of shares of Company Common Stock outstanding immediately prior to the Effective Time.

“ Earn-Out Per Share Series A Consideration ” shall mean the (a) Earn-Out Series A Consideration, divided by (b) 6,650,000, which quotient is divided by (c) Parent Average Closing Price.

“ Earn-Out Per Share Series B-1 Consideration ” shall mean the (a) Earn-Out Series B-1 Consideration, divided by (b) 35,491,041, which quotient is divided by (c) Parent Average Closing Price.

“ Earn-Out Per Share Series B-2 Consideration ” shall mean the (a) Earn-Out Series B-2 Consideration, divided by (b) Fully Diluted Series B-2 Preferred Share Number, which quotient is divided by (c) Parent Average Closing Price.

“ Earn-Out Per Share Series C Consideration ” shall mean the (a) Earn-Out Series C Consideration, divided by (b) Fully Diluted Series C Preferred Share Number, which quotient is divided by (c) Parent Average Closing Price.

“ Earn-Out Per Share Series D Consideration ” shall mean the (a) Earn-Out Series D Consideration, divided by (b) 15,822,785, which quotient is divided by (c) Parent Average Closing Price.

“ Earn-Out Period ” shall mean the 12 full consecutive calendar months beginning on the first day of the first calendar month immediately following the Closing Date.

“ Earn-Out Series A Consideration ” shall mean (a) Total Series A Consideration minus (b) Series A Merger Consideration, subject to adjustment as provided in Section 2.6.

“ Earn-Out Series B-1 Consideration ” shall mean (a) Total Series B-1 Consideration minus (b) Series B-1 Merger Consideration, subject to adjustment as provided in Section 2.6.

“ Earn-Out Series B-2 Consideration ” shall mean (a) Total Series B-2 Consideration minus (b) Series B-2 Merger Consideration, subject to adjustment as provided in Section 2.6.

“ Earn-Out Series C Consideration ” shall mean (a) Total Series C Consideration minus (b) Series C Merger Consideration, subject to adjustment as provided in Section 2.6.

“ Earn-Out Series D Consideration ” shall mean (a) Total Series D Consideration minus (b) Series D Merger Consideration, subject to adjustment as provided in Section 2.6.

“ Escrow Consideration ” shall mean (a) 10.2%, multiplied by (b) Total Preferred Merger Consideration.

“ Estimated Transaction Expenses ” shall mean the Company’s good faith estimate with supporting documentation of Transaction Expenses delivered to Parent in accordance with Section 6.8.

 

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“ Excess Dissenting Shares ” shall mean any and all Dissenting Shares in excess of 2.5% of the number of shares of Company Preferred Stock and 15% of the number of Company Common Stock. The order in which appraisal rights are exercised shall determine which Dissenting Shares are Excess Dissenting Shares.

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

“ Expense Consideration ” shall mean (a) 0.3%, multiplied by (b) the Total Preferred Merger Consideration.

“ Fully Diluted Common Share Number ” shall mean the sum of the number of shares of Company Common Stock outstanding immediately prior to the Effective Time.

“ Fully Diluted Preferred Share Number ” shall mean the sum of (a) Fully Diluted Series A Preferred Share Number, (b) Fully Diluted Series B-1 Preferred Share Number, (c) Fully Diluted Series B-2 Preferred Share Number, (d) Fully Diluted Series C Preferred Share Number, and (e) Fully Diluted Series D Preferred Share.

“ Fully Diluted Series A Preferred Share Number ” shall mean the number of shares of Company Common Stock into which the shares of Company Series A Preferred Stock outstanding are convertible, which equals 6,650,000 shares.

“ Fully Diluted Series B-1 Preferred Share Number ” shall mean the number of shares of Company Common Stock into which the shares of Company Series B-1 Preferred Stock outstanding are convertible, which equals 35,491,041 shares.

“ Fully Diluted Series B-2 Preferred Share Number ” shall mean the number of shares of Company Common Stock into which the shares of Company Series B-2 Preferred Stock outstanding are convertible, which equals 68,489,838 shares plus the number of Series B-2 Preferred Stock Warrants exercised subsequent to the date of this Agreement.

“ Fully Diluted Series C Preferred Share Number ” shall mean the number of shares of Company Common Stock into which the shares of Company Series C Preferred Stock outstanding immediately prior to the Effective Time are convertible, which equals 50,730,395 shares plus the number of Series C Preferred Stock Warrants exercised subsequent to the date of this Agreement.

“ Fully Diluted Series D Preferred Share Number ” shall mean the number of shares of Company Common Stock into which the shares of Company Series D Preferred Stock outstanding are convertible, which equals 17,770,828 shares, subject to adjustment in accordance with Section 2.5(b)(ii)(F).

“ Fully Diluted Total Share Number ” shall mean the sum of (a) the number of shares of Company Common Stock outstanding immediately prior to the Effective Time, (b) Fully Diluted Series A Preferred Share Number, (c) Fully Diluted Series B-1 Preferred Share Number, (d) Fully Diluted Series B-2 Preferred Share Number, (e) Fully Diluted Series C Preferred Share Number, and (f) Fully Diluted Series D Preferred Share Number.

“ Involuntary Termination ” shall mean termination of employment that occurs by reason of dismissal for any reason other than Cause or of voluntary resignation following: (i) a change in the position the employee accepted with Parent or its subsidiaries that materially reduces the level of employee’s responsibility, (ii) a material reduction in employee’s base salary, or (iii) relocation by more than 50 miles from the principal office where employee is located at the commencement of employment

 

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with the Company; provided that clauses (ii) and (iii) above will apply only if employee has not consented to the change or relocation. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Company (or any Parent or its subsidiaries) may consider as grounds for the dismissal or discharge of such employee.

“ Legal Requirements ” shall mean any United States federal, state, municipal or local or foreign order, judgment, writ, injunction, decree, law, statute, standard ordinance, code, resolution, promulgation, rule, regulation or any similar provision having the force or effect of law.

“ Merger Consideration ” shall mean collectively, the Common Merger Consideration, the Series A Merger Consideration, the Series B-1 Merger Consideration, the Series B-2 Merger Consideration, the Series C Merger Consideration and the Series D Merger Consideration.

“ Net Revenue ” shall mean total gross revenue of the Surviving Corporation recognized in accordance with GAAP, consistently applied (after giving effect to any reductions for any discount, return, credit, exchange, bad debt reserve or other adjustment) in connection with the preparation of Parent’s consolidated financial statements for public reporting purposes.

“ Net Revenue Target ” shall mean the sum of the dollar amounts listed on Schedule 2.5 as the “Net Revenue Target” for each corresponding full calendar month during the Earn-Out Period.

“ Nominal Advance Earn-Out Credit ” shall mean a total of Two Million Dollars ($2,000,000).

“ Nominal CEO Special Incentive Consideration ” shall mean the dollar amount calculated in accordance with Section 2.6.

“ Nominal Directed Common Consideration ” shall mean a total of Two Million Three Hundred Fifty Thousand Dollars ($2,350,000).

“ Nominal Earn-Out Consideration ” shall mean the dollar amount calculated in accordance with Section 2.5.

“ Nominal Merger Consideration ” shall mean a total of One Hundred Seventy Nine Million Dollars ($179,000,000).

“ Option ” shall mean any option (including, commitments to grant options) to acquire shares of Company Common Stock, including options granted under the Option Plan, but excluding the Warrants.

“ Option Plan ” shall mean the Company’s 2002 Stock Incentive Plan.

“ Parent Average Closing Price ” shall mean the average closing price of a share of Parent Common Stock reported on the Nasdaq Global Market Select market for the 20-day trading period in which the last day will be the third trading day prior to the Closing Date.

“ Parent Common Stock ” shall mean the common stock, par value $.01 per share, of the Parent.

“ Parent Material Adverse Effect ” shall mean any change in, event, or effect on Parent or any of its subsidiaries (in each case a “ Parent Effect ”) that, when taken individually or in the aggregate with all other Parent Effects, that (i) is or are materially adverse in relation to Parent’s and its subsidiaries’ financial condition, properties, assets, liabilities or business operations, taken as a whole, or (ii) may materially impair the ability of Parent to consummate the transactions contemplated hereby, except to the

 

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extent that such change Parent Effect or Parent Effects results from (1) changes in general economic conditions and changes affecting the industry in which Parent operates generally that do not adversely affect Parent and its subsidiaries to a materially disproportionate degree, (2) adverse conditions or events expressly disclosed to Company in this Agreement or exhibits or schedules hereto, or (3) changes or effects caused by the execution and delivery of this Agreement, by actions required under this Agreement, or by actions requested by Company in writing to be taken by Parent.

“ Parent Special Meeting ” shall mean the Parent Special Meeting referred to in Section 6.11(c) to be held for purposes of obtaining the Parent Stockholder Approval.

“ Parent Stockholder Approval ” shall mean the stockholder approval required by Nasdaq Marketplace Rules in order for the Parent to issue to the Company Stockholders the consideration set forth herein, and any other Parent Stockholder approvals required to effect this transaction.

“ Per Share Common Merger Consideration ” shall mean the (a) Common Merger Consideration, divided by (b) number of shares of Common Stock outstanding immediately prior to the Effective Time.

“ Per Share Initial Series A Merger Consideration ” shall mean (a) the Per Share Series A Merger Consideration minus (b) the Per Share Preferred Escrow Consideration minus (c) the Per Share Preferred Expense Amount Consideration.

“ Per Share Initial Series B-1 Merger Consideration ” shall mean (a) the Per Share Series B Merger Consideration minus (b) the Per Share Preferred Escrow Consideration minus (c) the Per Share Preferred Expense Amount Consideration.

“ Per Share Initial Series B-2 Merger Consideration ” shall mean the (a) Per Share Series B-2 Merger Consideration minus (b) the Per Share Preferred Escrow Consideration minus (c) the Per Share Preferred Expense Amount Consideration.

“ Per Share Initial Series C Merger Consideration ” shall mean the (a) Per Share Series C Merger Consideration minus (b) the Per Share Preferred Escrow Consideration minus (c) the Per Share Preferred Expense Amount Consideration.

“ Per Share Initial Series D Merger Consideration ” shall mean the (a) Per Share Series D Merger Consideration minus (b) the Per Share Preferred Escrow Consideration minus (c) the Per Share Preferred Expense Amount Consideration.

“ Per Share Preferred Expense Amount Consideration ” in each case shall mean 0.3% of the Per Share Series A Merger Consideration, the Per Share Series B-1 Merger Consideration, the Per Share Series B-2 Merger Consideration, the Per Share Series C Consideration and the Per Share Series D Consideration, as applicable.

“ Per Share Preferred Escrow Consideration ” in each case shall mean 10.2% of the Per Share Series A Merger Consideration, the Per Share Series B-1 Merger Consideration, the Per Share Series B-2 Merger Consideration, the Per Share Series C Consideration and the Per Share Series D Consideration, as applicable.

“ Per Share Series A Merger Consideration ” shall mean the (a) Series A Merger Consideration, divided by (b) 6,650,000, which quotient is divided by (c) Parent Average Closing Price.

 

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“ Per Share Series B-1 Merger Consideration ” shall mean the (a) Series B-1 Merger Consideration, divided by (b) 35,491,041, which quotient is divided by (c) Parent Average Closing Price.

“ Per Share Series B-2 Merger Consideration ” shall mean the (a) Series B-2 Merger Consideration, divided by (b) Fully Diluted Series B-2 Preferred Share Number, which quotient is divided by (c) Parent Average Closing Price.

“ Per Share Series C Merger Consideration ” shall mean the (a) Series C Merger Consideration, divided by (b) Fully Diluted Series C Preferred Share Number, which quotient is divided by (c) Parent Average Closing Price.

“ Per Share Series D Merger Consideration ” shall mean the (a) Series D Merger Consideration, divided by (b) 15,822,785, which quotient is divided by (c) Parent Average Closing Price.

“ SEC ” shall mean the Securities and Exchange Commission.

“ Series A Merger Consideration ” shall have the meaning given to such term in Section 2.1(a)(ii)(B) or Section 2.1(a)(iii)(B), as applicable.

“ Series A Preference Amount ” is the number of shares of Series A Preferred Stock outstanding multiplied by $1.18420 per share, which equals $7,874,930.

“ Series A Preferred Stock ” shall mean the Series A Preferred Stock, par value $.001 per share, of the Company.

“ Series B-1 Merger Consideration ” shall have the meaning given to such term in Section 2.1(a)(ii)(C) or Section 2.1(a)(iii)(C), as applicable.

“ Series B-1 Preference Amount ” is the number of outstanding shares of Series B-1 Preferred Stock multiplied by $0.81430 per share, which equals $28,900,355.

“ Series B-1 Preferred Stock ” shall mean the Series B-1 Preferred Stock, par value $.001 per share, of the Company.

“ Series B-2 Merger Consideration ” shall have the meaning given to such term in Section 2.1(a)(ii)(D) or Section 2.1(a)(iii)(D), as applicable.

“ Series B-2 Preference Amount ” is the number of outstanding shares of Series B-2 Preferred Stock immediately prior to the Effective Time multiplied by $1.02575 per share, which equals $70,253,451 plus the number of Series B-2 Preferred Stock Warrants exercised subsequent to the Merger Agreement and immediately prior to the Effective Time multiplied by $1.02575 per share.

“ Series B-2 Preferred Stock ” shall mean the Series B-2 Preferred Stock, par value $.001 per share, of the Company.

“ Series C Merger Consideration ” shall have the meaning given to such term in Section 2.1(a)(ii)(E) or Section 2.1(a)(iii)(E), as applicable.

“ Series C Preference Amount ” is the number of outstanding shares of Series C Preferred Stock immediately prior to the Effective Time multiplied by $1.40680 per share, which equals $71,367,520 plus the number of Series C Preferred Stock Warrants exercised subsequent to the Merger Agreement and immediately prior to the Effective Time multiplied by $1.40680 per share.

 

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“ Series C Preferred Stock ” shall mean the Series C Preferred Stock, par value $.001 per share, of the Company.

“ Series D Merger Consideration ” shall have the meaning given to such term in Section 2.1(a)(ii)(F) or Section 2.1(a)(iii)(F), as applicable.

“ Series D Preference Amount ” is the number of outstanding shares of Series D Preferred Stock multiplied by $1.58000 per share, which equals $25,000,000.

“ Series D Preferred Stock ” shall mean the Series D Preferred Stock, par value $.001 per share, of the Company.

“ Stock Closing Payment ” shall mean the amount payable to each Company Stockholder, with respect to each Company Stock certificate held by such Company Stockholder as specified below: (A) the number of shares of Company Common Stock represented by such certificate, and the aggregate Per Share Common Merger Consideration to be paid to such Company Stockholder, if any, in accordance with the terms hereof and in the manner provided herein in respect of the shares of Company Common Stock, if any, held by such Company Stockholder immediately prior to the Effective Time, and (B) the number and class or series of shares of Company Preferred Stock represented by such certificate and the aggregate Per Share Preferred Merger Consideration to be paid to such Company Stockholder, if any, in accordance with the terms hereof and in the manner provided herein in respect of the shares of Company Preferred Stock, if any, held by such Company Stockholder immediately prior to the Effective Time.

“ Total Preference Amount ” is the sum of (a) the Common Preference Amount, (b) the Series A Preference Amount, (c) the Series B-1 Preference Amount, the Series B-2 Preference Amount, (d) the Series C Preference Amount, and (e) the Series D Preference Amount.

“ Total Preferred Merger Consideration ” shall mean the sum of (a) the Series A Merger Consideration, (b) the Series B-1 Merger Consideration, (c) the Series B-2 Merger Consideration, (d) the Series C Merger Consideration and (e) the Series D Merger Consideration.

“ Transaction Expenses ” shall mean any and all reasonable legal, accounting, consulting, investment banking, financial advisory, brokerage and other fees and expenses incurred by the Company, any of its Subsidiaries or any other Person (for which the Company or any of its Subsidiaries may pay or reimburse others or may otherwise be obligated to pay or reimburse others or may be or may become liable) in solely in connection with this Agreement, the Merger or any of the transactions contemplated hereby, outstanding on the Closing Date including, without limitation, any reasonable fees and expenses associated with obtaining necessary or appropriate waivers, consents or approvals of any Governmental Authority or third parties on behalf of the Company or any of its Subsidiaries, but excluding the Change in Control Payments.

“ Warrants ” shall mean any warrants to acquire shares of Company Stock and Company Preferred Stock.

 

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SECTION 2. Conversion And Exchange Of Securities .

2.1 Effect on Capital Stock . At the Effective Time and upon the terms and subject to the conditions of this Agreement, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or any Company Stockholder, the shares of Company Stock will be entitled to receive, as and to the extent provided below, their specific portions of (i) the Merger Consideration, (ii) the Earn-Out Consideration, (iii) the Escrow Consideration, and (iv) the Expense Consideration, in each and every case subject to the applicable provisions of this Agreement:

(a) Conversion of Securities .

(i) Subject to the provisions of this Section 2.1, each share of Company Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares), shall be cancelled, extinguished and converted automatically into the right to receive: (A) in the case of each share of Company Common Stock, cash in the amount of the Per Share Common Merger Consideration, and (B) (1) in the case of each share of Series A Preferred Stock, a fraction of Parent Common Stock equal to the Per Share Initial Series A Merger Consideration plus the Per Share Preferred Escrow Consideration, (2) in the case of each share of Series B-1 Preferred Stock, a fraction of Parent Common Stock equal to the Per Share Initial Series B-1 Merger Consideration plus the Per Share Preferred Escrow Consideration, (3) in the case of each share of Series B-2 Preferred Stock, a fraction of Parent Common Stock equal to the Per Share Initial Series B-2 Merger Consideration plus the Per Share Preferred Escrow Consideration, (4) in the case of each share of Series C Preferred Stock, a fraction of Parent Common Stock equal to the Per Share Initial Series C Merger Consideration plus the Per Share Preferred Escrow Consideration, and (5) in the case of each share of Series D Preferred Stock, a fraction of Parent Common Stock equal to the Per Share Initial Series D Merger Consideration plus the Per Share Preferred Escrow Consideration (in each case, subject to Section 2.1(f)), upon the surrender of the certificates representing such shares in accordance with the terms hereof and in the manner provided herein.

(ii) In the event the Applicable Merger Consideration is less than the Total Preference Amount, then:

(A) “ Common Merger Consideration ” shall mean the quantity (a)(i) Applicable Merger Consideration, multiplied by a fraction which is equal to (ii) the Common Preference Amount, divided by (iii) the Total Preference Amount, with the resulting product to be increased by the sum of the Applicable Directed Common Consideration plus the Applicable Advance Earn-Out Credit;

(B) “ Series A Merger Consideration ” shall mean the quantity Applicable Merger Consideration, multiplied by a fraction which is equal to (a) the Series A Preference Amount, divided by (b) the Total Preference Amount (subject to escrow withholding);

(C) “ Series B-1 Merger Consideration ” shall mean the quantity Applicable Merger Consideration, multiplied by a fraction which is equal to (a) the Series B-1 Preference Amount, divided by (b) the Total Preference Amount (subject to escrow withholding);

(D) “ Series B-2 Merger Consideration ” shall mean the quantity Applicable Merger Consideration, multiplied by a fraction which is equal to (a) the Series B-2 Preference Amount, divided by (b) the Total Preference Amount (subject to escrow withholding);

(E) “ Series C Merger Consideration ” shall mean the quantity Applicable Merger Consideration, multiplied by a fraction which is equal to (a) the Series C Preference Amount, divided by (b) the Total Preference Amount (subject to escrow withholding); and

 

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(F) “ Series D Merger Consideration ” shall mean the quantity Applicable Merger Consideration, multiplied by a fraction which is equal to (a) the Series D Preference Amount, divided by (b) the Total Preference Amount (subject to escrow withholding).

(iii) In the event the Applicable Merger Consideration is greater than or equal to the Total Preference Amount, then:

(A) “ Common Merger Consideration ” shall mean the quantity (a)(i) Applicable Merger Consideration minus Total Preference Amount which difference if greater than zero shall be multiplied by a fraction which is equal to (ii) the Fully Diluted Common Share Number divided by (iii) the Fully Diluted Total Share Number to which quotient shall be added to the sum of (b) the Common Preference Amount, plus (c) the Applicable Directed Common Consideration, plus (c) the Applicable Advance Earn-Out Credit;

(B) “ Series A Merger Consideration ” shall mean the quantity (i) Applicable Merger Consideration minus Total Preference Amount which difference if greater than zero shall be multiplied by (ii) a fraction which is equal to (a) the Fully Diluted Series A Preferred Share Number divided by (b) the Fully Diluted Total Share Number to which product of (i) and (ii) shall be added to the sum of (iii) the Series A Preference Amount (subject to escrow withholding);

(C) “ Series B-1 Merger Consideration ” shall mean the quantity (i) Applicable Merger Consideration minus Total Preference Amount which difference if greater than zero shall be multiplied by (ii) a fraction which is equal to (a) the Fully Diluted Series B-1 Preferred Share Number divided by (b) the Fully Diluted Total Share Number to which product of (i) and (ii) shall be added the sum of (iii) the Series B-1 Preference Amount (subject to escrow withholding);

(D) “ Series B-2 Merger Consideration ” shall mean the quantity (i) Applicable Merger Consideration minus Total Preference Amount which difference if greater than zero shall be multiplied by (ii) a fraction which is equal to (a) the Fully Diluted Series B-2 Preferred Share Number divided by (b) the Fully Diluted Total Share Number to which product of (i) and (ii) shall be added the sum of (iii) the Series B-2 Preference Amount (subject to escrow withholding);

(E) “ Series C Merger Consideration ” shall mean the quantity (i) Applicable Merger Consideration minus Total Preference Amount which difference if greater than zero shall be multiplied by (ii) a fraction which is equal to (a) the Fully Diluted Series C Preferred Share Number divided by (b) the Fully Diluted Total Share Number to which product of (i) and (ii) shall be added the sum of (iii) the Series C Preference Amount (subject to escrow withholding); and

(F) “ Series D Merger Consideration ” shall mean the quantity (i) Applicable Merger Consideration minus Total Preference Amount which difference if greater than zero shall be multiplied by (ii) a fraction which is equal to (a) the Fully Diluted Series D Preferred Share Number divided by (b) the Fully Diluted Total Share Number to which product of (i) and (ii) shall be added the sum of (iii) the Series D Preference Amount (subject to escrow withholding).

(b) Cancellation . From and after the Effective Time, by virtue of the Merger, each such share of Company Stock converted pursuant to Section 2.1(a)(i) shall no longer be outstanding and shall be automatically cancelled and retired and shall cease to exist, and each holder of a certificate formerly representing each such share shall cease to have any rights with respect thereto, except the right to receive (subject to the terms of this Agreement) the portion of the Merger Consideration and Earn-Out Consideration payable with respect to such Company Stock, without interest, upon the surrender of such certificate in accordance with the terms hereof and in the manner provided

 

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herein, or, if such share of Company Stock is a Dissenting Share, the right, if any, to receive payment from the Surviving Corporation of the “fair value” or “fair market value” of such Dissenting Share as determined in accordance with the applicable provisions of the DGCL.

(c) Treasury Stock . Each share of Company Stock owned by the Company as treasury stock or owned by Parent, Merger Sub or any direct or indirect wholly owned subsidiary of Parent immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, cease to be outstanding, be canceled and retired without payment of any consideration therefor and cease to exist.

(d) Treatment of Subsidiary Shares . At the Effective Time, each of the shares of common stock of each of the Company’s Subsidiaries shall continue to be outstanding.

(e) Capital Stock of Merger Sub . Each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become, and shall represent, one fully paid and nonassessable 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.

(f) Fractional Shares . No fraction of a share of Parent Common Stock shall be issued as Merger Consideration or Earn-Out Consideration. In lieu of any fractional shares, the fractional amount of Parent Common Stock to which any holder of Company Stock is entitled to receive under Section 2.1 shall be paid in cash based on the Parent Average Closing Price.

(g) Restrictions on Merger Consideration . All shares of Parent Common Stock issued as Merger Consideration will be delivered subject to lock-up restrictions prohibiting sales or other liquidity transactions as described in the Proxy Statement with respect to (i) 100% of the shares of Parent Common Stock issued to a Company Stockholder until the six month anniversary date of the Closing Date and (ii) 50% of the shares of Parent Common Stock issued to a Company Stockholder for a period of six months following such six month anniversary date (the “ Lock-up Restrictions ”). Such shares shall bear a restrictive legend in substantially the following form and substance:

DURING THE PERIOD COMMENCING THROUGH AND INCLUDING [INSERT DATE 12 MONTHS FOLLOWING CLOSING DATE] (THE “ RESTRICTED PERIOD ”), THE HOLDER OF THE SHARES REPRESENTED BY THIS CERTIFICATE (THE “ SHARES ”) WILL NOT, DIRECTLY OR INDIRECTLY, (I) OFFER, PLEDGE, SELL, CONTRACT TO SELL, SELL ANY OPTION OR CONTRACT TO PURCHASE, PURCHASE ANY OPTION OR CONTRACT TO SELL, GRANT ANY OPTION, RIGHT OR WARRANT FOR THE SALE OF, MAKE ANY SHORT SALE OR OTHERWISE DISPOSE OF OR TRANSFER ANY SHARES, OR (II) ENTER INTO ANY SWAP OR ANY OTHER AGREEMENT OR ANY TRANSACTION THAT TRANSFERS, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, THE ECONOMIC CONSEQUENCE OF OWNERSHIP OF ANY SHARES, WHETHER ANY SUCH SWAP OR TRANSACTION IS TO BE SETTLED BY DELIVERY OF COMMON STOCK OF NETLOGIC MICROSYSTEMS, INC. OR OTHER SECURITIES, IN CASH OR OTHERWISE. THE FOREGOING RESTRICTION IS EXPRESSLY INTENDED TO PRECLUDE THE HOLDER OF THE SHARES FROM ENGAGING IN ANY HEDGING OR OTHER TRANSACTION WHICH IS DESIGNED TO OR WHICH REASONABLY COULD BE EXPECTED TO LEAD TO OR RESULT IN A SALE OR

 

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DISPOSITION OF ANY OF SUCH SHARES EVEN IF SUCH SECURITIES WOULD BE DISPOSED OF BY SOMEONE OTHER THAN THE HOLDER OF THE SHARES. SUCH PROHIBITED HEDGING OR OTHER TRANSACTION WOULD INCLUDE WITHOUT LIMITATION ANY SHORT SALE OR ANY PURCHASE, SALE OR GRANT OF ANY RIGHT (INCLUDING WITHOUT LIMITATION ANY PUT OR CALL OPTION) WITH RESPECT TO ANY SHARES OR WITH RESPECT TO ANY SECURITY THAT INCLUDES, RELATES TO, OR DERIVES ANY SIGNIFICANT PART OF ITS VALUE FROM SUCH; PROVIDED , HOWEVER , THAT THE TERMS OF CLAUSES (I) AND (II) SHALL NOT APPLY TO 50% OF THE SHARES AFTER THE END OF THE SIX MONTH PERIOD IMMEDIATELY FOLLOWING THE CLOSING DATE.

The transfer agent of the Parent will deliver such shares in compliance with this Section 2.1(g). The terms and provisions of this Section 2.1(g) are specific terms of the Merger, and the approval and adoption of this Agreement and approval of the Merger by the Company Stockholders shall constitute approval by such Company Stockholders, as specific terms of the Merger, and the irrevocable agreement of such Company Stockholders to be bound by such terms and provisions.

2.2 Dissenting Holders .

(a) Notwithstanding anything in this Agreement to the contrary, any shares of Company Stock outstanding immediately prior to the Effective Time that are eligible under the DGCL to exercise appraisal or dissenters’ rights and are held by a holder who (a) has not voted in favor of this Agreement and the Merger, (b) has exercised and perfected appraisal or dissenters’ rights for such shares in accordance with Section 262 of the DGCL and (c) has not effectively withdrawn or lost such appraisal or dissenters’ rights (collectively, the “ Dissenting Shares ”) shall not be converted into or represent the right to receive such consideration for Company Stock set forth in Section 2.1(a)(i), but rather such shares shall be converted into the right to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to the DGCL.

(b) Notwithstanding the provisions of Section 2.2(a), if any holder of Dissenting Shares shall effectively withdraw or lose (through failure to perfect or otherwise) such holder’s appraisal and dissenters’ rights under Section 262 of the DGCL then, as of the later of the Effective Time and the occurrence of such event, such holder’s shares shall automatically be converted into and represent only the right to receive the consideration for such shares set forth in Section 2.1(a)(i), without interest, less the withholdable portion of the Escrow Amount with respect to such shares (whether or not actually withheld) as set forth in Sections 2.1(a) and 2.6, upon surrender of the certificate representing such Dissenting Shares.

(c) The Company shall (i) comply with the requirement of Section 262 of the DGCL, (ii) give Parent prompt notice of any written demand for appraisal or payment of the fair value of any shares received by the Company pursuant to Section 262 of the DGCL and of withdrawals of such demands, and provide copies of any documents or instruments served pursuant to the DGCL and received by the Company and (iii) give Parent the opportunity to participate in all negotiations and proceedings with respect to any such demands. Prior to the Effective Time, the Company shall not make any payment or settlement offer with respect to any such demand unless Parent shall have consented in writing to such payment or settlement offer.

 

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(d) Any consideration paid by Parent, the Company or the Surviving Corporation to any Person with respect to any Excess Dissenting Shares pursuant to Section 262 of the DGCL in excess of the consideration that would otherwise be payable pursuant to Section 2 for each such Excess Dissenting Share (such consideration, unless determined in a final, non-appealable judgment of a court, being subject to the written approval of the Representative, which approval shall not be unreasonably withheld, conditioned or delayed), and all interest, costs, expenses and fees as incurred by the Company, Parent or the Surviving Corporation in connection with the exercise of all rights under Section 262 of the DGCL with respect to any Excess Dissenting Shares shall constitute “Damages” for purposes of this Agreement, and Parent and the Surviving Corporation, as the case may be, shall, without limiting any other rights, be entitled to recover such Damages from the Indemnification Funds.

2.3 Options . The Company shall take all necessary and appropriate action such that each outstanding and unexercised Option shall be terminated one Business Day prior to the Closing Date (unless exercised contingent on the Closing prior to such termination date), including but not limited to, not less than 30 days prior to the Closing Date, sending notice thereof to every holder of an Option.

2.4 Warrants . The Company shall take all necessary and appropriate action such that each outstanding and unexercised Warrant shall be terminated one Business Day prior to the Closing Date (unless exercised contingent on the Closing prior to such termination date), including but not limited to, not less than 30 days prior to the Closing Date, sending notice thereof to every holder of a Warrant.

2.5 Earn-Out Consideration .

(a) The holders of the Company Stock immediately prior to the Effective Time (other than the holders of Dissenting Shares) shall be entitled to receive on the Earn-Out Distribution Date, consideration equal to the quotient obtained by dividing the Nominal Earn-Out Consideration, if any, by the Applicable Closing Price (the “ Earn-Out Consideration ”). The Nominal Earn-Out Consideration shall be calculated as follows:

(i) In the event Net Revenue during the Earn-Out Period is less than or equal to 75% of the Net Revenue Target then the Nominal Earn-Out Consideration shall be $0;

(ii) In the event Net Revenue during the Earn-out Period is greater than 75% of the Net Revenue Target then the Nominal Earn-Out Consideration shall be the Adjusted Percentage Number multiplied by $2.4 million. “ Adjusted Percentage Number ” shall mean a number equal to: (A) the difference of (I) the percentage up to 100% that Net Revenue is of the Net Revenue Target and (II) 75% multiplied by (B) 100. The Earn-Out Consideration shall be payable in cash and shares of Parent Common Stock as set forth in Section 2.5(b) with each share of Parent Common Stock being deemed to have a per share value equal to the Applicable Closing Price; and

(iii) In the event Net Revenue during the Earn-out Period is greater than 90% of the Net Revenue Target then the Nominal Earn-Out Consideration shall be as determined in (ii) above plus an additional amount equal to the Additional Adjusted Percentage Number multiplied by $1.0 million. “ Additional Adjusted Percentage Number ” shall mean a number equal to: (A) the difference of (I) the percentage up to 100% that Net Revenue is of the Net Revenue Target and (II) 90% multiplied by (B) 100. The Earn-Out Consideration shall be payable in cash and shares of Parent Common Stock as set forth in Section 2.5(b) with each share of Parent Common Stock being deemed to have a per share value equal to the Applicable Closing Price.

For the avoidance of doubt, under no circumstances shall the total amount of Nominal Earn-Out Consideration exceed $70,000,000 payable as set forth in Section 2.5(b) in cash and shares of Parent Common Stock with each share of Parent Common Stock being deemed to have a per share value equal to the Applicable Closing Price.

 

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(b) Within 90 days following the one-year anniversary of the Closing Date (the “ Earn-Out Distribution Date ”), Parent shall deposit the Earn-Out Consideration with the “Paying Agent” (as defined in Section 2.8(a)) which shall be promptly (but in any event within five (5) Business Days) distributed by the Paying Agent to Company Stockholders (other than holders of Dissenting Shares) in such amounts as calculated in accordance with this Section 2.5(b). On such date, Company Stockholders (other than holders of Dissenting Shares) shall receive for each share of Company Stock held by such Company Stockholder immediately prior to the Effective Time, (i) in the case of each share of Company Common Stock, cash in the amount of the Earn-Out Per Share Common Consideration, and (ii) in the case of Company Preferred Stock, a fraction of Parent Common Stock equal to (A) in the case of each share of Series A Preferred Stock, the Earn-Out Per Share Series A Consideration, (B) in the case of each share of Series B-1 Preferred Stock, the Earn-Out Per Share Series B-1 Consideration, (C) in the case of each share of Series B-2 Preferred Stock, the Earn-Out Per Share Series B-2 Consideration, (D) in the case of Series C Preferred Stock, the Earn-Out Per Share Series C Consideration and (E) in the case of Series D Preferred Stock, the Earn-Out Per Share Series D Consideration (in each case, subject to Section 2.5(e)):

(i) in the event the Applicable Total Consideration is less than the Total Preference Amount, then:

(A) “ Total Common Consideration ” shall mean the greater of (a) Common Merger Consideration or (b)(i) Applicable Total Consideration, multiplied by (ii) Common Preference Amount, which product shall be divided by (iii) Total Preference Amount to which quotient shall be added (iv) the Applicable Directed Common Consideration;

(B) “ Total Series A Consideration ” shall mean the (a) Applicable Total Consideration, multiplied by (b) Series A Preference Amount, which product shall be divided by (c) Total Preference Amount;

(C) “ Total Series B-1 Consideration ” shall mean the (a) Applicable Total Consideration, multiplied by (b) Series B-1 Preference Amount, which product shall be divided by (c) Total Preference Amount;

(D) “ Total Series B-2 Consideration ” shall mean the (a) Applicable Total Consideration, multiplied by (b) Series B-2 Preference Amount, which product shall be divided by (c) Total Preference Amount;

(E) “ Total Series C Consideration ” shall mean the (a) Applicable Total Consideration, multiplied by (b) Series C Preference Amount, which product shall be divided by (c) Total Preference Amount; and

(F) “ Total Series D Consideration ” shall mean the (a) Applicable Total Consideration, multiplied by (b) Series D Preference Amount, which product shall be divided by (c) Total Preference Amount.

(ii) in the event the Applicable Total Consideration is greater than or equal to the Total Preference Amount, then:

(A) “ Total Common Consideration ” shall mean the greater of (a) the Common Merger Consideration or (b)(i) the Common Preference Amount plus (ii)(A) the Applicable Total Consideration minus Total Preference Amount, which difference shall be multiplied by a fraction which is equal to (B) the number of shares of Common Stock outstanding immediately prior to the Effective Time, divided by the Fully Diluted Total Share Number to which quotient shall be added (C) the Applicable Directed Common Consideration;

 

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(B) “ Total Series A Consideration ” shall mean (a) the Series A Preference Amount plus (b)(i) the Applicable Total Consideration minus Total Preference Amount, multiplied by (ii) the Fully Diluted Series A Preferred Share Number, which product shall be divided by (iii) the Fully Diluted Total Share Number;

(C) “ Total Series B-1 Consideration ” shall mean (a) the Series B-1 Preference Amount, plus (b)(i) the Applicable Total Consideration minus Total Preference Amount, multiplied by (ii) the Fully Diluted Series B-1 Preferred Share Number, which product shall be divided by (iii) the Fully Diluted Total Share Number;

(D) “ Total Series B-2 Consideration ” shall mean (a) the Series B-2 Preference Amount plus (b)(i) the Applicable Total Consideration minus Total Preference Amount, multiplied by (ii) the Fully Diluted Series B-2 Preferred Share Number, which product shall be divided by (iii) the Fully Diluted Total Share Number;

(E) “ Total Series C Consideration ” shall mean (a) the Series C Preference Amount plus (b)(i) the Applicable Total Consideration minus Total Preference Amount, multiplied by (ii) the Fully Diluted Series C Preferred Share Number, which product shall be divided by (iii) the Fully Diluted Total Share Number; and

(F) “ Total Series D Consideration ” shall mean (a) the Series D Preference Amount plus (b)(i) the Applicable Total Consideration minus Total Preference Amount, multiplied by (ii) the Fully Diluted Series D Preferred Share Number, divided by (iii) the Fully Diluted Total Share Number; provided, however, if the preceding calculation would result in an amount of Total Series D Consideration that is greater than $31,250,000, then the conversion price used to calculate the Fully Diluted Series D Preferred Share Number in accordance with Company Organizational Documents shall be adjusted to decrease the Total Series D Consideration to an amount that equals $31,250,000, but in no event shall the conversion price used to calculate the Fully Diluted Series D Preferred Share Number be increased above $1.58 such that in no event shall the Fully Diluted Series D Preferred Share Number be less than 15,822,785 shares.

(c) Parent shall prepare (or cause to be prepared) and deliver to the Representative no later than 30 days after receipt by Parent of the financial statements of the Surviving Corporation and in no event later than the Earn-Out Distribution Date, a calculation of the Net Revenue of the Surviving Corporation for the Earn-Out Period and a statement of the amount, if any, of Earn-Out Consideration and the cash and number of shares of Parent Common Stock to be delivered to the Company Stockholders for the applicable period. In addition, any claim by Representative challenging the amount of Earn-Out Consideration must be asserted by written notice to Parent within sixty days after the delivery of the calculation specified in Section 2.5(b).

(d) In the event that Parent, prior to the completion of the Earn-Out Period elects, to divest, discontinue, adopt a licensing model for, or second source one or more of the Company Products or businesses, and such action could be reasonably expected to materially adversely impair the opportunity to achieve the maximum Earn-Out Consideration, Parent shall pay the full Earn-Out Consideration as if it had been achieved.

(e) No fraction of a share of Parent Common Stock shall be issued as Earn-Out Consideration. In lieu of any fractional shares, the fractional amount of Parent Common Stock to which any holder of Company Common Stock is entitled to receive under Section 2.5 shall be paid in cash based on the Parent Average Closing Price.

 

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(f) The terms and provisions of this Section 2.5 are specific terms of the Merger, and the approval and adoption of this Agreement and approval of the Merger by the Company Stockholders shall constitute approval by such Company Stockholders, as specific terms of the Merger, and the irrevocable agreement of such Company Stockholders to be bound by such terms and provisions. The adoption of this Agreement and the approval of the Merger by the Company Stockholders shall constitute approval of the Earn-Out terms and conditions specified in this Section 2.5.

2.6 CEO Special Incentive Consideration .

(a) For purposes of this Section 2.6, the “ Total Return to Preferred Stockholders ” will be defined as (i) Total Preferred Merger Consideration, plus (ii) Applicable Earn-Out Consideration, minus (iii) Earn-Out Common Consideration, minus (iv) Total Preference Amount, plus (v) Common Preference Amount.

(b) Provided that Behrooz Abdi continues to provide services to Parent, the Surviving Corporation or another subsidiary of Parent as an employee, officer or director through the Earn-Out Distribution Date, he shall be entitled to receive on the Earn-Out Distribution Date but in no event later than 90 days following the one-year anniversary of the Closing Date, in the aggregate, that number of shares of Parent Common Stock equal to the quotient obtained by dividing the Nominal CEO Special Incentive Consideration, if any, by the Applicable Closing Price, subject to all applicable withholding amounts. The Nominal CEO Special Incentive Consideration shall be calculated as follows:

(i) In the event that (A) the Applicable Total Consideration is less than or equal to the Total Preference Amount or (B) the Net Revenue during the Earn-Out Period is less than or equal to 75% of the Net Revenue Target, then the Nominal CEO Special Incentive Consideration shall be $0;

(ii) In the event that (A) the Applicable Total Consideration is greater than the Total Preference Amount and (B) Net Revenue during the Earn-Out Period is greater than 75% but less than or equal to 100% of the Net Revenue Target, then the Nominal CEO Special Incentive Consideration shall be the lesser of (X) CEO Adjusted Number multiplied by $40,000, or (Y) Total Return to Preferred Stockholders. “ CEO Adjusted Number ” shall mean a number equal to (C) the difference of: (I) the percentage that Net Revenue is of the Net Revenue Target and (II) 75%, multiplied by (D) 100; and

(iii) In the event that (A) the Applicable Total Consideration is greater than the Total Preference Amount and (B) Net Revenue during the Earn-Out Period is greater than 100%, then the Nominal CEO Special Incentive Consideration shall be the lesser of (X) $1,000,000 or (Y) Total Return to Preferred Stockholders.

(c) In the event that the Applicable CEO Special Incentive Consideration is paid pursuant to this Section 2.6, the following defined terms shall be adjusted as follows:

(i) “ Earn-Out Series A Consideration ” shall be reduced by an amount equal to (a) Applicable CEO Special Incentive Consideration, multiplied by (b) the Fully Diluted Series A Preferred Share Number, divided by (c) the Fully Diluted Preferred Share Number;

 

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(ii) “ Earn-Out Series B-1 Consideration ” shall be reduced by an amount equal to (a) Applicable CEO Special Incentive Consideration, multiplied by (b) the Fully Diluted Series B-1 Preferred Share Number, divided by (c) the Fully Diluted Preferred Share Number;

(iii) “ Earn-Out Series B-2 Consideration ” shall be reduced by an amount equal to (a) Applicable CEO Special Incentive Consideration, multiplied by (b) the Fully Diluted Series B-2 Preferred Share Number, divided by (c) the Fully Diluted Preferred Share Number;

(iv) “ Earn-Out Series C Consideration ” shall be reduced by an amount equal to (a) Applicable CEO Special Incentive Consideration, multiplied by (b) the Fully Diluted Series C Preferred Share Number, divided by (c) the Fully Diluted Preferred Share Number;

(v) “ Earn-Out Series D Consideration ” shall be reduced by an amount equal to (a) Applicable CEO Special Incentive Consideration, multiplied by (b) the Fully Diluted Series D Preferred Share Number, divided by (c) the Fully Diluted Preferred Share Number.

2.7 Escrow .

(a) At the Effective Time, shares of Parent Common Stock with a value equal to the sum of (i) the Escrow Consideration and (ii) the Expense Consideration, each share of Parent Common Stock being deemed to have a per share value equal to the Applicable Closing Price (the “ Escrow Amount ”), shall be withheld from the payment of the Total Preferred Merger Consideration and be delivered or caused to be delivered by Parent to Wells Fargo Bank, N.A., as escrow agent (the “ Escrow Agent ”) pursuant to the provisions of the escrow agreement in the form attached as Exhibit C hereto, subject to any amendments to such form requested by the Escrow Agent and mutually agreed to by Parent and the Representative (the “ Escrow Agreement ”). The Escrow Agreement shall be entered into prior to or concurrently with the Effective Time, by and among Parent, the Representative, on behalf of the Indemnifying Securityholders, and the Escrow Agent, and shall (i) provide Parent with recourse against the Escrow Consideration held in escrow by the Escrow Agent (the “ Escrow Funds ”) with respect to any and all Parent Claims made under Section 14, subject to the terms and conditions set forth in the Escrow Agreement and in such Section 14 of this Agreement and (ii) provide the Representative with recourse against the Expense Consideration to reimburse the Representative pursuant to Section 14.6. The Escrow Amount (or any portion thereof) shall be distributed to the Indemnifying Securityholders and the Representative, and Parent at the times, and upon the terms and conditions, set forth in the Escrow Agreement. The escrow described above shall commence on the Effective Time and terminate on the 12-month anniversary thereof (the “ Expiration Date ”) and the period between the Effective Time and the Expiration Date shall be referred to as the “ Escrow Period ”), provided , however , that the portion of the Escrow Funds, which, in the reasonable judgment of Parent, subject to the objection of the Representative and the subsequent resolution of the matter in the manner provided in Section 14.9, is necessary to satisfy any unsatisfied claims specified in any Officer’s Certificate theretofore delivered to the Escrow Agent and the Representative prior to termination of the Escrow Period with respect to Damages incurred or litigation pending prior to expiration of the Escrow Period, shall remain in the foregoing escrow until such claims have been finally resolved, or, if earlier, until released in accordance with Section 14.9 below, provided further that the Expense Consideration shall remain in the foregoing escrow pursuant to the terms of the Escrow Agreement. The terms and provisions of the Escrow Agreement and the transactions contemplated thereby are specific terms of the Merger, and the approval and adoption of this Agreement and approval of the Merger by the Indemnifying Securityholders shall constitute approval by such Indemnifying Securityholders, as specific terms of the Merger, and the irrevocable agreement of such Indemnifying Securityholders to be bound by and comply with, the Escrow Agreement and all of the arrangements and provisions of this Agreement relating thereto, including, without limitation, the deposit of the Escrow Amount into escrow, the indemnification obligations set forth in Section 14 hereof and the appointment and sole authority to act on behalf of the Indemnifying Securityholders of the Representative, as provided for herein and in the Escrow Agreement.

 

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(b) Parent Indemnifying Parties shall have no recourse to the Expense Consideration. The Expense Consideration shall be for the exclusive use of the Representative pursuant to Section 14.6 and the Escrow Agreement.

2.8 Surrender of Certificates .

(a) Paying Agent . At the Effective Time, Parent or Merger Sub shall deposit, or cause to be deposited, with Wells Fargo Bank, N.A., as paying agent (the “ Paying Agent ”) for the benefit of the Company Stockholders (i) the Total Initial Common Consideration plus (ii) the Total Initial Preferred Consideration, less the Escrow Amount.

(b) Surrender Procedures .

(i) On or prior to the Effective Time, the Company shall mail to each Company Stockholder (A) a letter of transmittal substantially in the form agreed upon by Parent, the Representative and the Company, which shall contain all covenants, conditions and restrictions made applicable to the shares of Parent Common Stock to be issued under this Agreement or any of the exhibits hereto (including those contained in Sections 14 and 15 of this Agreement) and the Company Stockholder recipient’s receipt of such shares under this Agreement or any of the exhibits hereto (“ Letter of Transmittal ”), which shall include, among other things, the agreement of the surrendering Company Stockholders to the appointment of the Representative, the indemnification of the Representative, the payment of expenses of the Representative pursuant to the terms of this Agreement and a release of claims as set forth in Section 16 of this Agreement and (B) instructions for use in effecting the surrender of certificate(s) representing all of the shares of Company Stock held by such Company Stockholder in exchange for the Stock Closing Payment and the right to receive future payment of any Earn-Out Consideration. The payment of the Stock Closing Payment and future Earn-Out Consideration with respect to each such certificate is conditioned upon (1) the execution and delivery of the Letter of Transmittal, (2) a representation by the Company Stockholder that such Company Stockholder owns all right, title and interest to all shares of Company Stock registered in the name of such Company Stockholder and (3) the delivery of such certificates related thereto (or an affidavit of loss with respect to such certificates). As soon as practicable after receipt by the Paying Agent of such certificate(s), properly endorsed or otherwise in proper form for transfer, for cancellation (or affidavit, as applicable), together with such duly executed Letter of Transmittal, the Paying Agent shall, in exchange therefor, pay to such Company Stockholder the Stock Closing Payment payable in respect of the shares of Company Stock formerly represented by the certificate(s) surrendered, but without any interest earned thereon, and the certificate(s) so surrendered shall forthwith be canceled. If payment of any portion of the applicable Stock Closing Payment is to be made to a person, firm, entity, partnership, association or any business organization or division thereof (each a “ Person ”) other than the Person in whose name the surrendered certificate(s) are registered, it shall be a condition of payment that the Person requesting such payment (A) shall have paid any transfer and other Taxes required by reason of the payment of those amounts to a Person other than the registered holder of the certificate(s) surrendered, and shall have established to the satisfaction of the Parent that such Tax has been paid, or (B) shall have established to the satisfaction of the Parent that such Tax is not applicable. From and after the Effective Time, until surrendered as contemplated by this Section 2.8(b), each certificate formerly representing shares of Company Stock (other than any Dissenting Shares) shall be deemed to represent for all purposes only the right to receive the portion of the Merger Consideration and Earn-Out Consideration as provided pursuant to Section 2.1(a) hereof, if any, in respect of such shares of Company Stock formerly represented thereby in accordance with the terms hereof and in the manner provided herein. In connection with the surrender of the certificates representing shares of Company stock each Company Stockholder will be required to acknowledge that all the shares of Parent Common Stock issued in exchange therefor will be subject to the Lock-Up Restrictions.

 

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(c) Transfer Books; No Further Ownership Rights in the Shares . At the Effective Time, the stock transfer books of the Company shall be closed, and thereafter there shall be no further registration of transfers of the shares of Company Stock on the records of the Company. From and after the Effective Time, the holders of certificates formerly evidencing ownership of the shares of Company Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares, except as otherwise provided for herein or by Applicable Law. After the Effective Time, the Surviving Corporation or the Paying Agent shall cancel and exchange, as provided in this Section 2, any presented certificate representing shares of Company Stock outstanding immediately prior to the Effective Time.

(d) Termination of Fund; No Liability . At any time following the Earn-Out Distribution Date, Parent or the Surviving Corporation shall be entitled to require the Paying Agent to deliver to it any funds (including, without limitation, any earnings received with respect thereto) that had been made available to the Paying Agent and that have not been disbursed to Company Stockholders and thereafter such Company Stockholders shall be entitled to look only to Parent or the Surviving Corporation (subject to abandoned property, escheat or other similar Legal Requirements), upon due surrender of their certificates formerly representing shares of Company Stock or rights to purchase such shares, without any interest thereon. Notwithstanding the foregoing, none of Parent, the Surviving Corporation or the Paying Agent shall be liable to any holder of a certificate formerly representing shares of Company Stock for any amounts delivered to a public official pursuant to any applicable abandoned property, escheat or similar Legal Requirement.

(e) Withholding Rights . Each of Parent, the Surviving Corporation and the Paying Agent shall be entitled to deduct and withhold from payment of any amounts (or any portion thereof) payable pursuant to this Agreement to, or on behalf of, any Company Stockholder or any other Person, and the Escrow Agent shall be entitled to deduct and withhold from payment of any Company Stockholder’s pro rata portion of the Escrow Amount (or any portion thereof) otherwise payable pursuant to this Agreement to any Company Stockholder, such amounts as may be required to be deducted and withheld with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the “ Code ”), or any other Legal Requirement. To the extent that amounts are so withheld by Parent, the Surviving Corporation, the Paying Agent or the Escrow Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Company Stockholder or such other Person to whom such amounts would otherwise have been paid.

(f) Lost, Stolen or Destroyed Certificates . In the event any certificate(s) which formerly represented shares of Company Stock shall have been lost, stolen or destroyed, upon the making and delivery of an affidavit of that fact by the Company Stockholder thereof in form reasonably satisfactory to Parent and the execution and delivery of a letter of transmittal in accordance with Section 2.8(b), Parent shall instruct the Paying Agent to pay such Company Stockholder the applicable Stock Closing Payment as provided in this Section 2; provided , however , that Parent may, in its reasonable discretion, acting in good faith, and as a condition precedent to issuing such instruction to the Paying Agent, require the owner of such lost, stolen or destroyed certificate(s) to deliver an agreement of indemnification in form reasonably satisfactory to Parent and a bond in such sum as Parent may reasonably direct as indemnity, against any claim that may be made against Parent, the Surviving Corporation or the Paying Agent with respect to the certificate(s) alleged to have been lost, stolen or destroyed.

 

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(g) Dissenting Shares . The provisions of this Section 2.8 shall also apply to Dissenting Shares that lose their status as such, except that the obligations of Parent under this Section 2.8 shall commence on the date of loss of such status and the holder of such shares shall be entitled to receive in exchange for such shares the applicable amounts provided in Section 2.

2.9 Further Action . If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Merger Sub, the officers and directors of the Company and Merger Sub immediately prior to the Effective Time are and will remain fully authorized in the name of the Company and Merger Sub or otherwise to take, and shall take, all such action.

SECTION 3. Representations and Warranties of the Company . The Company represents and warrants to Parent and Merger Sub that the statements in this Section 3 are true, complete and correct as of the date hereof and will be true at the Effective Time (unless the particular statement speaks expressly as of another date, in which case it is true, complete and correct as of such other date), subject, in any case, to the exceptions provided in the Disclosure Schedule (or an updated Disclosure Schedule, which shall, among other things, reflect actions taken pursuant to Section 5.1 of this Agreement, performed under the direction of Parent or as mutually agreed upon by the Parent and the Company, which the Company provides to the Parent prior to the Effective Time), with specific reference to the Sections hereof to which such exception relates, provided that the inclusion of an item as an exception or qualification to one section of this Agreement shall cause that item to be an exception or qualification only to another section of this Agreement if it is reasonably clear on its face, upon reading of the disclosure without any independent knowledge on the part of the reader regarding the matter disclosed, that such disclosure is responsive to such section:

3.1 Organization and Standing .

(a) The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to conduct its business as currently conducted. The Company is duly qualified to do business as a foreign corporation and is in good standing in every jurisdiction where the properties, owned, leased or operated, or the business conducted by it requires such qualification. The Company is not subject to Section 2115 of the California Corporations Code.

(b) Prior to the date of this Agreement, the Company has furnished to Parent complete and correct copies of the Company Organizational Documents as currently in effect. The Company Organizational Documents are in full force and effect and the Company is not in violation of any provision of its Company Organizational Documents in any material respects. Section 3.1 of the Disclosure Schedule lists the directors and officers of the Company as of the date hereof.

3.2 Capitalization and Ownership of Shares . The authorized capital stock of the Company on the date hereof consists of (a) 278,000,000 shares of Company Common Stock, of which 33,634,736 shares are issued outstanding, (b) 182,000,000 shares of Company Preferred Stock, of which (i) 6,650,000 shares have been designated as Series A Preferred Stock, of which 6,650,000 shares are issued outstanding, (ii) 35,491,041 shares have been designated as Series B-1 Preferred Stock, of which 35,491,041 shares are issued outstanding, (iii) 70,167,963 shares have been designated as Series B-2 Preferred Stock, of which 68,489,838 shares are issued outstanding, (iv) 52,000,000 shares have been designated as Series C Preferred Stock, of which 50,730,395 shares are issued outstanding, and (v) 16,000,000 shares have been designated as Series D Preferred Stock, of which 15,822,785 shares are issued outstanding. All of the issued and outstanding shares of Company Stock have been, and all of the

 

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shares of Company Stock that may be issued pursuant to any Option granted under the Option Plan or pursuant to the Warrants will be, when issued in accordance with the respective terms thereof, duly authorized and validly issued, fully paid and nonassessable. Except as set forth in Section 3.2(b) of the Disclosure Schedule or for the Options and Warrants listed on the Securityholder Schedule, no subscription, warrant, option, convertible security or other right (contingent or otherwise) to purchase or acquire any shares of capital stock of the Company is authorized or outstanding. From and after the Effective Time, no holder of any Option or Warrant will have the right to any consideration with respect thereto, except shares of Company Stock properly acquired upon exercise thereof prior to the Effective Time as set forth in this Agreement. The Company does not have any obligation (whether written, oral, contingent or otherwise) to issue any subscription, warrant, option, convertible security or other such right or to issue or distribute to holders of any shares of its capital stock any evidences of indebtedness or assets of the Company. The Company does not have any obligation (whether written, oral, contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or similar rights with respect to the Company. All of the issued and outstanding shares of capital stock of the Company have been offered, issued and sold by the Company in compliance with all Applicable Law.

3.3 Subsidiaries .

(a) Except for the Persons set forth on Section 3.3(a) of the Disclosure Schedule (each a “ Subsidiary ”), the Company does not own and has never otherwise owned, directly or indirectly, any capital stock of or any other equity or ownership interest in, or controlled, directly or indirectly, any other Person, and the Company is not and has not otherwise been, directly or indirectly, a party to, member of or participant in any partnership, joint venture or similar business entity. Each Subsidiary is duly organized, validly existing and in good standing (to the extent applicable) under the Laws of its jurisdiction of formation. Each Subsidiary has all requisite power and authority to own, lease and operate its properties and to carry on its business as currently conducted. The Company has furnished to Parent an accurate and complete copy of the organizational document for each Subsidiary, each as amended to date and in full force and effect on the date hereof. None of the Subsidiaries has violated its organizational documents in any material respect.

(b) The authorized capitalization of each Subsidiary, including the identity of each holder of any outstanding equity interest therein, is set forth on Section 3.3(b) of the Disclosure Schedule. All of the outstanding capital stock of, or other equity or ownership interests in, each Subsidiary is owned by the Company, directly or indirectly, free and clear of any Security Interest and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other equity or ownership interests). There are no outstanding capital stock or other equity securities of the Company or any of its Subsidiaries convertible into or exchangeable for shares of capital stock or other voting securities or equity or ownership interests in any Subsidiary. All of the outstanding capital stock of each Subsidiary has been duly authorized and are validly issued, fully paid and non-assessable.

3.4 Securityholder Lists and Agreements .

(a) The information set forth as of the date hereof in Section 3.4 of the Disclosure Schedule and as updated prior to the Effective Time pursuant to Section 10.1(r) (the “ Securityholder Schedule ”), is true, complete and accurate as of the date hereof and, as updated prior to the Effective Time, will be true, complete and accurate as of the Effective Time, and the calculations performed to compute such information are, and will be, accurate and in accordance with the terms of this Agreement, the Company Organizational Documents and all other agreements and instruments among the Company and the Company Stockholders. The Securityholder Schedule sets forth the following information with respect to each Company Stockholder:

(i) the name and the mailing address of each Company Stockholder as reflected on the stock transfer or other corporate records of the Company;

 

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(ii) with respect to each Company Stock certificate held by such Company Stockholder (A) the number of shares of Company Common Stock represented by such certificate, and (B) the number and class or series of shares of Preferred Stock represented by such certificate;

(b) Each Company Stockholder shall deliver to Parent all shares of Company Stock registered in the name of such Company Stockholder free and clear of any Security Interests.

(c) Except for the agreements set forth on Section 3.4(c) of the Disclosure Schedule (the “ Rights Agreements ”) and the Standstill Agreements, there are no agreements, written or oral, between the Company and any holder of its securities or others, or among any holders of its securities, relating to the acquisition (including, without limitation, rights of first refusal, anti-dilution or pre-emptive rights), disposition, registration under the Securities Act of 1933, as amended (the “ Securities Act ”), or voting of the capital stock of the Company. Effective as of the Effective Time, the Rights Agreements shall terminate and be of no further force or effect.

(d) Each of the currently outstanding Options were granted under the Option Plan and, except for the Option Plan, the Company has never adopted, sponsored or maintained any stock option plan or any other plan or agreement providing for equity compensation to any Person. True and complete copies of the Option Plan and all agreements and instruments relating to or issued under each such plan (including executed copies of all Contracts relating to each Option and the shares of Company Common Stock purchased under such plan), and all agreements and instruments related to the Warrants, have been made available or provided to Parent, and the Option Plan and such Contracts have not been amended, modified or supplemented since being made available or provided to Parent, and there are no Contracts to amend, modify or supplement the Option Plan or such Contracts in any case from those made available or provided to Parent. Each grant of an Option was duly authorized by all necessary corporate action no later than the date on which the grant of such Option was by its terms to be effective. Each Option may be treated in accordance with the applicable provisions of Section 2.3 without the consent of the holder of such Option.

3.5 Authority for Agreement .

(a) The Company has all requisite corporate power and authority to execute and deliver this Agreement and each instrument required hereby to be executed and delivered by it and, subject to Section 3.6, to perform its obligations hereunder and thereunder and to consummate the transactions hereby and thereby. The execution, delivery and performance by the Company of this Agreement and each instrument required hereby to which it is a party and the consummation of the transactions contemplated to be performed by it hereby and thereby have been, subject to Section 3.6, duly authorized by all necessary and proper corporate action on the part of the Company. This Agreement has been, and each instrument required hereby to be executed and delivered by the Company at the Closing will be, duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Parent, Merger Sub and the Representative, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, reorganization or similar laws of general application affecting the rights and remedies of creditors, and to general equity principles. Effective upon the written consent

 

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of a majority of the holders of the Company Preferred Stock waiving the Merger as a liquidation event under the Charter, each Company Stockholder is entitled to receive in the Merger the consideration as set forth in this Agreement and no Company Stockholder shall be entitled to receive in the Merger any different or additional amount in the Merger with respect to shares of Company Stock held by such Company Stockholder. At the Effective Time, the Company will have taken all necessary and appropriate actions so that each Option and Warrant will be treated in the Merger in accordance with the provisions of this Agreement.

(b) Assuming the Requisite Stockholder Approval is obtained, the execution and delivery of this Agreement by the Company and each instrument required hereby to be executed and delivered by the Company at the Closing, the compliance by the Company with the provisions of this Agreement and each instrument required hereby to be executed and delivered by the Company at the Closing and the consummation of the transactions contemplated hereby or thereby, will not (i) conflict with or violate the Company Organizational Documents, each as currently in effect in any material respect, (ii) conflict with, result in a material breach of, constitute (with or without due notice or lapse of time or both) a material default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice, consent or waiver under, any Contract, Permit, Security Interest or other interest to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or to which its assets are subject, (iii) result in the creation or imposition of any Security Interest upon any assets of the Company or any of its Subsidiaries or any shares of Company Stock or shares of capital stock of its Subsidiaries, or (iv) violate in any material respect any Applicable Law. For purposes of this Agreement, “ Security Interest ” means any material mortgage, security interest, pledge, encumbrance, charge, restriction on the right to sell or dispose, lien or other adverse claim of any kind (whether arising by contract or by operation of law and whether voluntary or involuntary).

3.6 Consents . No consent, notice, waiver, approval, order, Permit or authorization of, or registration, declaration or filing with, or notification to (together, the “ Consents ”) any United States federal, state, municipal or local or any foreign government, or political subdivision thereof, or any multinational organization or authority or any authority, agency or commission entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or Taxing Authority power, or any court or tribunal (or any department, bureau or division thereof), or any arbitrator or arbitral body (collectively, “ Governmental Authorities ”) is required to be obtained by the Company, any of its Subsidiaries or any Company Stockholder in connection with the execution and delivery of this Agreement or the Escrow Agreement or completion of the Merger or the other transactions to be consummated at the Closing as contemplated by this Agreement, except for (i) the filing and recordation of the Certificate of Merger with the Secretary of State of the State of Delaware,(ii) notices and filings (“ Antitrust Filings ”) as may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any other applicable U.S. or foreign antitrust laws (collectively, “ Antitrust Laws ”); and (iii) any filings that are required under U.S. federal, state and foreign tax, securities and corporation laws.

3.7 Financial Statements .

(a) Attached hereto as Section 3.7 of the Disclosure Schedule are the following financial statements (collectively, the “ Financial Statements ”): (i) the consolidated audited balance sheets of the Company as of December 31,2006, December 31, 2007 and December 31, 2008 and the related consolidated statements of operations, shareholders’ equity and cash flows for the fiscal year then ended, including the notes thereto, and (ii) the unaudited balance sheet of the Company as of March 31, 2009 (the “ Unaudited Balance Sheet ”) and the related statements of operations and changes in shareholders’ equity for the three months then ended, in each case prepared in accordance with United States generally accepted accounting principles (“ GAAP ”), except that a statement of cash flows for the

 

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three months then ended shall not be provided and all the notes that would be required by GAAP shall not be provided. Subject to the foregoing, the Financial Statements are complete and correct in all material respects, are in accordance with the books and records of the Company and each of its Subsidiaries and present fairly the financial condition and results of operations of the Company and each of its Subsidiaries as of the dates and for the periods indicated.

(b) The Company has in place systems and processes (including the maintenance of proper books and records) that are customary for a company at the same stage of development as the Company designed to (i) provide reasonable assurances regarding the reliability of the Financial Statements and (ii) in a timely manner accumulate and communicate to the Company’s principal executive officer and principal financial officer the type of information that would be required to be disclosed in the Financial Statements (such systems and processes are herein referred to as the “ Controls ”). Neither the Company nor any of its Subsidiaries, nor the Company’s independent auditors has identified or been made aware of any complaint, allegation, deficiency, assertion or claim, whether written or oral, regarding the Controls or the Financial Statements. There have been no instances of fraud, whether or not material, that occurred during any period covered by the Financial Statements. The Company has in place a revenue recognition policy consistent with GAAP.

3.8 Absence of Changes . Since March 31, 2009, there has been no Company Material Adverse Effect. In addition, and without limiting the generality of the foregoing, except as Parent may consent to in writing following the date of this Agreement, as permitted pursuant to Section 5.1 of this Agreement, or as set forth in Section 3.8 of the Disclosure Schedule, since March 31, 2009, neither the Company nor any of its Subsidiaries have:

(a) declared, set aside, made or paid any dividend or other distribution in respect of its capital stock, or agreed to do any of the foregoing, or purchased or redeemed or agreed to purchase or redeem, directly or indirectly, any shares of its capital stock, except for (i) the repurchase of shares of its capital stock from employees, officers, directors, consultants or other persons performing services for the Company or any of its Subsidiaries pursuant to agreements under which the Company has the option to repurchase such shares of capital stock upon the occurrence of certain events, such as termination of employment, and (ii) commitment to pay Warrant termination fees, not to exceed $500,000 in the aggregate, in connection with the cancellation of Warrants not exercised on or before the Effective Date.

(b) adopted, amended, modified, or terminated in any material respect any Company Employee Plan or collective bargaining agreement (other than as may have been required by the terms of the Company Employee Plan or collective bargaining agreement, or as may have been required by Applicable Law) or announced its intention to adopt any arrangement or program which would constitute a Company Employee Plan;

(c) except as set forth in Section 3.8(c) of the Disclosure Schedules, materially increased any compensation or fringe benefits (including, but not limited to, the granting of Options or other equity awards under the Option Plan not in the ordinary course of business), paid any bonus, granted or increased any severance or termination pay of amounts or otherwise changed any of the material terms of employment or service for any of its employees, officers, directors or consultants, except as provided for in this Agreement;

(d) entered into any loan with, or advanced (other than travel and business expenses) any money or other property to, any of its employees, officers, directors or consultants;

 

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(e) subjected to any Security Interest, any of its properties or assets, tangible or intangible;

(f) acquired or disposed of any assets or properties having a value in excess of $250,000 (singly or in the aggregate) other than inventory in the ordinary course of business;

(g) forgiven or canceled any debts or claims, or waived any rights, having a value in excess of $250,000 (singly or in the aggregate);

(h) incurred a capital expenditure or made a commitment to incur a capital expenditure exceeding $250,000 individually or $500,000 in the aggregate other than in the ordinary course of business;

(i) changed any accounting method or practice in any material respects (including any change in depreciation or amortization policies or rates) other than as required by GAAP;

(j) changed any election in respect of Taxes, adopted or changed any material accounting method in respect of Taxes, agreed to or settled any claim or assessment in respect of Taxes, filed any amended Tax Return or extended or waived the limitation period applicable to any material claim or assessment in respect of Taxes;

(k) revalued (other than Section 409A appraisals) any of its assets (whether tangible or intangible), including, without limitation, writing down the value of inventory or writing off, discounting or otherwise compromising any notes or accounts receivable in an amount in excess of $250,000 singly or $500,000 in the aggregate, in each case in excess of reserves;

(l) made any payment of any nature to any employee, director or consultant other than salary, sales bonuses, fees or business related reimbursements payable in the ordinary course of business consistent with past practices;

(m) commenced or settled any Action;

(n) except as otherwise provided for in Section 5.1 of this Agreement, conducted its business, other than in the ordinary course consistent with past practice;

(o) suffered any damage, destruction or loss, whether or not covered by insurance, with respect to its property and assets having a replacement cost of more than $250,000 for any single loss or $500,000 for all such losses;

(p) entered into any transaction or Contract not otherwise provided for in this Section 3.8 other than in the ordinary course of business with an aggregate annual value in excess of $250,000;

(q) changed or modified in any material respect its credit, collection or payment policies, procedures or practices, or failed to pay or delayed payment of material payables or other material liabilities, except as reflected in the Financial Statements, provided, however, that the Company may accelerate the collection of its receivables (whether or not past due); or

(r) entered into any agreement, commitment or obligation to do any of the foregoing, except as provided for in this Agreement.

 

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3.9 Absence of Undisclosed Liabilities . The Company and its Subsidiaries do not have any Indebtedness or other liability or obligation of the type required to be disclosed in the Company’s financial statements and notes thereto prepared in accordance with GAAP, except for (a) liabilities or obligations shown on the Unaudited Balance Sheet and (b) liabilities which have arisen since the date of the Unaudited Balance Sheet in the ordinary course of business and which are, in nature and amount, consistent with those incurred historically, are permitted by the terms of Section 5.1 of this Agreement, are consented to in writing by Parent following the date hereof or are not material to the Company or its Subsidiaries, individually or in the aggregate. Except as set forth in the Unaudited Balance Sheet or Section 3.9 of the Disclosure Schedule, there is no Company Debt. For purposes of this Agreement, “ Indebtedness ” shall include all liabilities and obligations, including any applicable penalties (including with respect to any prepayment thereof), interest and premiums, (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of goods or services (other than trade payables incurred in the ordinary course of business), (iv) under capital leases, (v) with respect to letters of credit, (vi) in the nature of guarantees of the obligations described in clauses (i) through (v) above of any other Person, or (vii) in the nature of obligations of the type referred to in clauses (i) through (vi) of any other Person secured by any Security Interest on any asset of the Company or any of its Subsidiaries.

3.10 Taxes .

(a) (i) All Tax Returns required to be filed by or on behalf of the Company and its Subsidiaries have been duly and timely filed with the appropriate Taxing Authority in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such Tax Returns are true, complete and correct in all respects. All Taxes that have become due and payable by the Company and its Subsidiaries have been timely paid, and none of the Company or any of its Subsidiaries is or will be liable for any additional Taxes in respect of any Taxable period or any portion thereof ending on or before the date of the Unaudited Balance Sheet in an amount that exceeds the corresponding reserve therefor reflected in the Unaudited Balance Sheet, and any Taxes of the Company or any of its Subsidiaries arising after such date and at or before the Effective Time have been or will be incurred in the ordinary course of the business of the Company or its Subsidiaries.

(b) The Company and each of its Subsidiaries have complied with all Applicable Laws relating to the withholding of Taxes and payment of such withheld amounts and have duly and timely withheld and paid over to the appropriate Taxing Authority all amounts required to be so withheld and paid under all Applicable Laws.

(c) Parent has been furnished (or the Company has made available to Parent) complete copies of all Tax Returns of, or including, the Company and each of its Subsidiaries for all Tax periods since their respective dates of formation and all relevant documents and information with respect thereto, including, without limitation, work papers, records, examination reports and statements of deficiencies proposed, assessed against or agreed to by the Company or any of its Subsidiaries.

(d) No claim has been made by a Taxing Authority in a jurisdiction where the Company and its Subsidiaries do not file a Tax Return that any of them is or may be subject to taxation in that jurisdiction.

(e) No deficiency or adjustment in respect of Taxes has been proposed, asserted in writing or assessed by any Taxing Authority against the Company or any of its Subsidiaries. All deficiencies asserted or assessments made as a result of any examinations by any Taxing Authority of the Tax Returns of, or including, the Company or any of its Subsidiaries have been fully paid. No federal,

 

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state, local or foreign audits, examinations, investigations or other administrative proceedings or court proceedings are presently in progress, pending or threatened in writing with regard to any Taxes of the Company or any of its Subsidiaries or Tax Returns filed by or on behalf of the Company or any of its Subsidiaries. No issue has been raised by any Taxing Authority in any prior examination of the Company or any of its Subsidiaries which, by application of the same or similar principles, could reasonably be expected to result in a proposed deficiency for any subsequent Tax period.

(f) Neither t