AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER

Exhibit 2.01

Execution Copy

 

AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER

by and among

GOOGLE INC.,

SNOWMASS HOLDINGS INC.,

YOUTUBE, INC.

and

Each of the other parties identified on the signature pages hereto

as Stockholder Parties

Dated as of November 3, 2006

 

Table of Contents

 

 

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Index of Defined Terms

 

 

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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER

This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of November 3, 2006 (the “ Agreement ”) among Google Inc., a Delaware corporation (“ Parent ”), Snowmass Holdings Inc., a Delaware corporation (“ Merger Sub ”), YouTube, Inc., a Delaware corporation (the “ Company ”), and each of the stockholders of the Company listed on the signature pages hereof (collectively, the “ Stockholder Parties ”).

RECITALS:

WHEREAS, the Board of Directors of Parent has determined that it is in the best interests of its stockholders for Parent to acquire the Company upon the terms and subject to the conditions set forth herein;

WHEREAS, Parent, Merger Sub and the Company have previously entered into an Agreement and Plan of Merger, dated as of October 9, 2006 (the “ Effective Date ”, and such agreement, the “ Original Agreement ”), which they desire to amend and restate to effect certain changes with respect to the terms of such acquisition and their agreements with respect thereto, effective as of the date hereof;

WHEREAS, the Boards of Directors of Merger Sub and the Company have each approved the merger (the “ Merger ”) of Merger Sub with and into the Company, in accordance with Section 251 of the Delaware General Corporation Law (the “ DGCL ”) and subject to the conditions set forth herein, which Merger will result in, among other things, the Company becoming a wholly owned subsidiary of Parent;

WHEREAS, the Board of Directors of the Company has unanimously (i) approved and declared the Merger advisable upon the terms and subject to the conditions set forth in this Agreement and (ii) recommended the adoption of this Agreement and approval of the Merger by the stockholders of the Company;

WHEREAS, concurrently with execution and delivery of this Agreement and as a condition to the willingness of, and an inducement to, Parent and Merger Sub to enter into this Agreement, each of the Stockholder Parties has executed and delivered a voting agreement and proxy with respect to all shares of Common Stock and Preferred Stock owned by them or which they have the right to vote in favor of the adoption of this Agreement and approval of the Merger, substantially in the form of Exhibit A hereto (collectively, the “ Support Agreements ”);

WHEREAS, immediately following the execution and delivery of this Agreement, it is anticipated that each of the Stockholder Parties will execute and deliver to the Company, and the Company shall thereafter deliver to Parent, a true, correct and complete copy of an Action by Written Consent, in the form attached as an exhibit to the Support Agreements, providing for the adoption of this Agreement and approval of the Merger (the “ Stockholder Consents ”);

WHEREAS, concurrently with execution and delivery of the Original Agreement and as a condition to the willingness of, and an inducement to, the Company and the Stockholder

Parties to enter into this Agreement, Parent and the Company Stockholders have executed and delivered the Registration Rights Agreement, substantially in the form of Exhibit B hereto (the “ Registration Rights Agreement ”), which shall be effective only at and as of the Effective Time;

WHEREAS, concurrently with execution and delivery of the Original Agreement and as a condition to the willingness of, and an inducement to, Parent and Merger Sub to enter into this Agreement, each of the Founders has executed and delivered a non-competition agreement, substantially in the form of Exhibit C hereto, each of which shall be effective only at and as of the Effective Time; and

WHEREAS, for United States federal income tax purposes, the Merger is intended to qualify as a “reorganization” pursuant to the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”), and the parties intend, by executing this Agreement, to adopt a “plan of reorganization” within the meaning of Treasury Regulation Section 1.368-2(g) and Proposed Treasury Regulation Section 1.368-3.

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

ARTICLE 1

DEFINITIONS

1.1 Certain Definitions . The following are the definitions of certain defined terms used in this Agreement:

“ Action ” means any claim, suit, action, arbitration, cause of action, complaint, criminal prosecution or proceeding, whether at law or at equity, before or by any Court or Governmental Authority, any arbitrator or other tribunal.

“ Affiliate ” means, with respect to a Person, another Person that, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such first Person. For this definition, “ control ” (and its derivatives) means the possession, directly or indirectly, or as trustee or executor, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting Equity Interests, as trustee or executor, by Contract or credit arrangements or otherwise.

“ Aggregate Share Consideration ” means the quotient of (x) (i) $1,650,000,000 minus (ii) the aggregate amount of any principal and interest outstanding under any Bridge Note as of the Effective Time (but excluding any such principal amounts (and any interest relating thereto) that the Company and Parent mutually agree in writing prior to the loan or advancement of such principal amount shall be excluded) divided by (y) the Parent Closing Price.

“ beneficial owner ” (including the terms “beneficial ownership” and “to beneficially own”) with respect to a Person’s ownership of any securities means such Person or any of such Person’s Affiliates or associates (as defined in Rule 12b-2 under the Exchange Act) who is deemed to beneficially own, directly or indirectly, such securities within the meaning of Rule 13d-3 under the Exchange Act.

 

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“ Bridge Note ” means any promissory note issued by the Company payable to Parent or Merger Sub with respect to amounts loaned or advanced by Parent or Merger Sub to the Company during the period on or after the Effective Date and prior to the Effective Time.

“ Business Day ” means any day, other than a Saturday, Sunday or one on which banks are authorized by Law to be closed in either New York, New York or San Francisco, California.

“ Closing Date ” means the second Business Day after the satisfaction or waiver of the conditions set forth in ARTICLE 7 (excluding conditions that, by their terms, are to be satisfied on the Closing Date, but subject to the satisfaction or waiver of such conditions on the Closing Date), or such other date as the parties hereto agree in writing.

“ Commitment ” means (a) options, warrants, convertible securities, exchangeable securities, subscription rights, conversion rights, exchange rights, or other Contracts that could require a Person to issue any of its Equity Interests or to sell any Equity Interests it owns in another Person; (b) any other securities convertible into, exchangeable or exercisable for, or representing the right to subscribe for any Equity Interest of a Person or owned by a Person; (c) statutory pre-emptive rights or pre-emptive rights granted under a Person’s Organizational Documents or any Contract; and (d) stock appreciation rights, phantom stock, profit participation, or other similar rights with respect to a Person.

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

“ Company Disclosure Schedule ” means a schedule as of the Effective Date delivered by the Company to Parent concurrently with the execution of the Original Agreement, which, among other things, will identify exceptions and other matters with respect to the representations, warranties and covenants of the Company contained in certain sections and subsections of this Agreement; provided, however , that the disclosure set forth in a specific section or subsection of the Company Disclosure Schedule shall also qualify the representations, warranties or covenants set forth in any other sections or subsections of this Agreement (whether or not a specific cross-reference is included therein) if and to the extent that it is reasonably apparent on the face of such disclosure that such disclosure applies to such other sections or subsections.

“ Company Material Adverse Effect ” means any event, change, condition or circumstance that has had, or would reasonably be expected to result in, individually or in the aggregate, a material adverse effect on the business, operations, properties, assets, rights, liabilities, condition (financial or otherwise) or results of operations of the Company; provided, however , that no event, change, condition or circumstance (by itself or when aggregated with any other events, changes, conditions or circumstances) to the extent resulting from any of the following shall be deemed to be or constitute a “Company Material Adverse Effect,” and no event, change, condition or circumstance (by itself or when aggregated with any other such

 

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events, changes, conditions or circumstances) to the extent resulting from any of the following shall be taken into account when determining whether a “Company Material Adverse Effect” has occurred or may, would or could occur: (i) changes in applicable law, GAAP or international accounting standards; (ii) general economic (including financial, banking and/or securities markets), regulatory or political conditions to the extent that they that do not disproportionately affect the Company in any material respect relative to similarly situated participants in the industry in which the Company operates; (iii) compliance by the Company with the terms and conditions of this Agreement (other than actions taken in the Ordinary Course of Business), or changes resulting from the Company’s failure to take any action as a result of prohibitions and restrictions set forth in this Agreement; (iv) the announcement or pendency of the transactions contemplated by this Agreement; (v) acts of terrorism or war to the extent that they do not disproportionately affect the Company in any material respect relative to similarly situated participants in the industry in which the Company operates; (vi) any Action brought by any stockholders of the Company (other than the Stockholder Parties), on their own behalf or on behalf of the Company, arising out of or in connection with the transactions contemplated by this Agreement or (vii) the items set forth in Section 1.1(a) of the Company Disclosure Schedule.

“ Company Option Plan ” means the YouTube, Inc. 2005 Stock Plan, as amended.

“ Company Options ” means options to purchase shares of Company Common Stock.

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

“ Company RSUs ” means restricted stock units for shares of Company Common Stock.

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

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

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

“ Company Stockholders ” means the holders of shares of Company Common Stock and Company Preferred Stock.

“ Company Transaction Expenses ” means all costs, fees and expenses incurred (whether or not invoiced) by the Company in connection with all efforts to sell the Company or its business, whether to Parent or any other party, including preparation and due diligence, and in connection with this Agreement and the other Transaction Agreements and any other documents prepared or delivered in connection therewith, and the transactions contemplated hereby and thereby, including fees and expenses of advisors, investment bankers, lawyers and accountants arising out of, relating to or incidental to the discussion, evaluation, financing, negotiation and documentation of the transactions contemplated hereby and thereby.

 

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“ Company Warrants ” means warrants to purchase shares of Company Stock.

“ Consent ” means any consent, approval, notification, registration, waiver or other similar action.

“ Contract ” means any contract, agreement, arrangement, commitment, letter of intent, memorandum of understanding, license, lease, promise, instrument, or other similar understanding, whether written or oral, in each case that is legally binding as of the date in question.

“ Copyright Action ” means any Action filed or otherwise instituted in any Court against the Company, Parent or any of their respective Subsidiaries with respect to copyright infringement and related matters (including, for the avoidance of doubt, any similar or related claims made in connection with such copyright infringement Action) with respect to www.youtube.com (“ Company Site ”).

“ Court ” means any court or arbitration tribunal of the United States, any domestic state, or any foreign country, and any political subdivision or agency thereof.

“ Damages ” means all damages, losses, payments, amounts paid in settlement, obligations, fines, penalties and expenses and other costs (including reasonable and documented fees and expenses of attorneys, accountants and other professional advisors and including any such fees, costs and expenses incurred in connection with investigating, defending against or settling any action or proceeding).

“ Enforceable ” means, with respect to a Contract, that such Contract is the legal, valid, and binding obligation of the applicable Person, enforceable against such Person in accordance with its terms, except as such enforceability may be subject to the effects of bankruptcy, insolvency, reorganization, moratorium, or other similar Laws relating to or affecting the rights of creditors, and general principles of equity regardless of whether such enforceability is considered in a proceeding in equity or at law.

“ Environmental, Health and Safety Requirements ” means all Orders and Laws concerning or relating to worker/occupational health and safety, or pollution or protection of the environment, including those relating to the presence, use, manufacturing, refining, production, generation, handling, transportation, treatment, recycling, transfer, storage, disposal, distribution, importing, labeling, testing, processing, discharge, release, threatened release, control, or other action or failure to act involving cleanup of any hazardous materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise, or radiation, each as amended and as now in effect.

“ Equity Interest ” means (a) with respect to a corporation, any and all shares of capital stock and any Commitments with respect thereto, (b) with respect to a partnership, limited liability company, trust or similar Person, any and all units, interests or other partnership/limited liability company interests, and any Commitments with respect thereto, and (c) any other equity ownership or participation in a Person.

 

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

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

“ Exchange Ratio ” means the quotient obtained by dividing (x) the Aggregate Share Consideration, by (y) Total Outstanding Shares.

“ Founders ” means Chad M. Hurley and Steve S. Chen.

“ Governmental Authority ” means any legislature, agency, bureau, branch, department, division, commission, court, tribunal, magistrate, justice, multi-national organization, quasi-governmental body, or other similar recognized organization or body of any federal, state, county, municipal, local, provincial or foreign government.

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

“ Indebtedness ” means (i) all indebtedness (whether or not contingent) for borrowed money, (ii) all obligations (contingent or otherwise) for the deferred purchase price of assets, property or services (other than current trade payables incurred in the Ordinary Course of Business), (iii) all obligations evidenced by notes, bonds, debentures or other similar instruments, (iv) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property, (v) all obligations, contingent or otherwise, as an account party under acceptance, letter of credit or similar facilities, (vi) all obligations under any currency, interest rate or other hedge agreement or any other hedging arrangement, (vii) all direct or indirect guarantee, support or keep well obligations in respect of obligations of the kind referred to in clauses (i) through (vi) above, and (viii) all obligations of the kind referred to in clauses (i) through (vii) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts and Contract rights) owned by the Company, whether or not the Company has assumed or become liable for the payment of such obligation.

“ Indemnified Copyright Action ” has the meaning set forth in Section 1.1(b) of the Company Disclosure Schedule.

“ Intellectual Property ” means all U.S. and foreign intellectual property rights, arising under any of the following: (i) patents and patent applications; (ii) trade secret rights or corresponding rights and rights in information with respect to confidential technology, inventions, discoveries, processes, designs and know-how; (iii) copyrights, neighboring rights, moral rights, rights against bootlegging, and corresponding rights throughout the world; including in copyrightable works (including rights in Systems, Documentation and related items, graphics, audiovisual works, photography and advertising and promotional materials); (iv) rights in trademarks, trade names, service marks, brand names, corporate names, domain names, logos, trade dress and other source indicators; (v) rights of privacy and publicity; and (vi) all similar, corresponding or equivalent rights throughout the world.

 

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“ Knowledge ” or “ knowledge ” means the actual knowledge of, with respect to any of the representations and warranties set forth in ARTICLE 3, the Persons identified in Section 1.1(c) of the Company Disclosure Schedule.

“ Law ” means any law (statutory, common, or otherwise), constitution, treaty, convention, ordinance, equitable principle, code, rule, regulation, executive order, or other similar authority enacted, adopted, promulgated, or applied by any Governmental Authority, each as amended and now in effect.

“ Liability ” means any liability or obligation, whether known or unknown, asserted or unasserted, absolute or contingent, matured or unmatured, conditional or unconditional, latent or patent, accrued or unaccrued, liquidated or unliquidated, or due or to become due.

“ Lien ” means any security interest, pledge, mortgage, lien (statutory or other), charge, option to purchase, lease or otherwise acquire any interest or any claim, restriction, covenant, title defect or limitation, hypothecation, assignment, deposit arrangement or other encumbrance of any kind or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement).

“ Merger Sub Common Stock ” means the common stock, $0.01 par value per share, of Merger Sub.

“ Order ” means any order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept, command, directive, approval, award, judgment, injunction, or other similar determination or finding issued, granted or made by any Governmental Authority or Court.

“ Ordinary Course of Business ” means the ordinary course of business consistent with past practice of the relevant Person and its Subsidiaries.

“ Organizational Documents ” means the articles of incorporation, certificate of incorporation, charter, bylaws, articles of formation, articles of association, regulations, operating agreement, certificate of limited partnership, partnership agreement, limited liability company agreement and all other similar documents, instruments or certificates executed, adopted, or filed in connection with the creation, formation, or organization of a Person, including any amendments thereto.

“ Outstanding Claim ” means the amount in dollars of any Indemnification Claim made by any Parent Indemnified Party pursuant to ARTICLE 9 that shall be outstanding and unresolved, or resolved in whole or in part in favor of the Parent Indemnified Party but not yet paid.

“ Parent Closing Price ” means the average daily closing price of a share of Parent Common Stock for the thirty (30) consecutive trading day period ending two trading days prior to the Effective Time (with the closing price for each day being the last reported sales price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the principal national securities

 

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exchange on which such securities are listed and admitted to trading, or, if not listed and admitted to trading on any such exchange on the Nasdaq Global Select Market, or if not quoted on the Nasdaq Global Select Market, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose).

“ Parent Common Stock ” means the Class A Common Stock, par value $0.001 per share, of Parent.

“ Parent Material Adverse Effect ” means any event, change, condition or circumstance that has had, or would reasonably be expected to result in, individually or in the aggregate, a material adverse effect on the business, operations, properties, assets, rights, liabilities, condition (financial or otherwise) or results of operations of Parent and its Subsidiaries, taken as a whole; provided, however , that no event, change, condition or circumstance (by itself or when aggregated with any other events, changes, conditions or circumstances) to the extent resulting from any of the following shall be deemed to be or constitute a “Parent Material Adverse Effect,” and no event, change, condition or circumstance (by itself or when aggregated with any other such events, changes, conditions or circumstances) to the extent resulting from any of the following shall be taken into account when determining whether a “Parent Material Adverse Effect” has occurred or may, would or could occur: (i) changes in applicable law, GAAP or international accounting standards; (ii) general economic (including financial, banking and/or securities markets), regulatory or political conditions to the extent that they that do not disproportionately affect Parent and its Subsidiaries in any material respect relative to similarly situated participants in the industry in which Parent operates; (iii) compliance by Parent with the terms and conditions of this Agreement (other than actions taken in the Ordinary Course of Business), or changes resulting from Parent’s failure to take any action as a result of prohibitions and restrictions set forth in this Agreement; (iv) the announcement or pendency of the transactions contemplated by this Agreement; (v) acts of terrorism or war to the extent that they do not disproportionately affect Parent and its Subsidiaries in any material respect relative to similarly situated participants in the industry in which Parent operates; or (vi) any Action brought by any stockholders of Parent, on their own behalf or on behalf of Parent, arising out of or in connection with the transactions contemplated by this Agreement.

“ Parent RSUs ” means restricted stock units for shares of Parent Common Stock.

“ Permit ” means any license, permit, order, consent, approval, registration, authorization, qualification or filing with and under all Laws and Governmental Authorities and all industry or other non-governmental self-regulatory organizations.

“ Permitted Lien ” means any of the following: (i) statutory liens for Taxes, which are not yet due and payable, (ii) statutory or common law liens to secure landlords, lessors or renters under leases or rental agreements confined to the premises rented, (iii) deposits or pledges made in connection with, or to secure payment of, workers’ compensation, unemployment insurance, old age pension or other social security programs mandated under applicable Laws, (iv) statutory or common law liens in favor of carriers, warehousemen, mechanics and materialmen, to secure claims for labor, materials or supplies and other like liens, (v) restrictions on transfer of securities imposed by applicable state and federal securities Laws and (vi) liens imposed on the underlying fee interest in leased property.

 

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“ Person ” means any individual, sole proprietorship, partnership, limited liability company, corporation, association, joint stock company, trust, trustee, entity, joint venture, labor organization, unincorporated organization, Governmental Authority, executor, administrator or other legal representative.

“ Pro Rata Share ” means, with respect to each Company Stockholder, the product obtained by multiplying (x) the aggregate number of Escrow Shares, by (y) a fraction, the numerator of which is the aggregate number of shares of Parent Common Stock issued to such Company Stockholder pursuant to Section 2.6(b) of this Agreement (without taking into account the deduction of any portion of the Escrow Shares to be deposited with the Escrow Agent on behalf of such Company Stockholder pursuant to this Agreement in respect of such Company Stockholder’s shares of Company Stock), and the denominator of which is the sum of (x) the aggregate number of shares of Parent Common Stock issued or issuable to Company Stockholders pursuant to Section 2.6(b) of this Agreement (without taking into account the deduction of any portion of the Escrow Shares), minus (y) all shares of Restricted Stock that are forfeited prior to the one year anniversary of the Closing Date; provided, however , that the Pro Rata Share of each Company Stockholder may be adjusted from time to time to reflect appropriately any adjustments contemplated by this Agreement.

“ Regulation ” means any rule, regulation, policy or interpretation of any Governmental Authority having the effect of Law.

“ Restricted Stock ” means all unvested shares of Company Common Stock issued upon exercise of Company Options, and any other shares of Company Stock subject to forfeiture under any Contract between an employee and the Company.

“ SEC ” means the Securities and Exchange Commission.

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

“ Subsidiary ” means, with respect to any Person, any corporation, partnership, trust, limited liability company or other entity in which such Person (and/or one or more Subsidiaries of such Person) holds stock or other ownership interests representing (A) more that 50% of the voting power of all outstanding stock or ownership interests of such entity, (B) the right to receive more than 50% of the net assets of such entity available for distribution to the holders of outstanding stock or ownership interests upon a liquidation or dissolution of such entity or (C) a general or managing partnership interest or similar position in such entity.

“ Systems ” means software, firmware, middleware, applications, code, databases, systems, networks, circuits and websites.

“ Taxes ” means all taxes, charges, fees, levies, penalties or other assessments imposed by any United States federal, state, local or foreign taxing authority, including, but not limited to, profits, estimated, gross receipts, windfall profits, severance, property, intangible property, occupation, production, sales, use, license, excise, emergency excise, franchise, capital

 

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gains, capital stock, employment, withholding, transfer, stamp, payroll, goods and services, value added, alternative or add-on minimum tax, or any other tax, custom, duty or governmental fees or other taxes, including any interest, penalties, fines or additions attributable thereto, whether disputed or not.

“ Tax Return ” means any return, report, estimate, declaration, information return or other document (including any related, attached or supporting information) filed or required to be filed with any taxing authority with respect to Taxes.

“ Threatened ” means a demand or statement has been made (orally or in writing) or a notice has been given (orally or in writing), that would lead a prudent person to reasonably conclude that a cause of Action is likely to be asserted, commenced, taken, or otherwise initiated.

“ Total Outstanding Shares ” means the sum of (x) the aggregate number of shares of Company Common Stock outstanding as of immediately prior to the Effective Time (including all shares of Restricted Stock), plus (y) the aggregate number of shares of Company Common Stock issuable upon the conversion of all shares of Company Preferred Stock outstanding immediately prior to the Effective Time (including all shares of Restricted Stock), plus (z) the aggregate number of shares of Company Common Stock issuable upon the exercise or conversion in full of all Company Options, Company Warrants and any other Commitment to purchase or otherwise acquire shares of Company Stock outstanding immediately prior to the Effective Time (including upon vesting of Company RSUs), in each case whether or not currently exercisable, convertible or vested; provided, however , that “Total Outstanding Shares” shall not include (i) any shares of Company Stock otherwise issuable upon the exercise of Company Options and Company Warrants that are unvested as of immediately prior to the Effective Time but cancelled as of the Effective Time (or will be automatically cancelled within three months thereafter pursuant to the post-termination “tail” exercise period thereof without the ability or right to exercise prior to such termination), or (ii) any shares of Company Stock otherwise issuable upon the conversion of that certain convertible note set forth in Section 3.3(a)(ii) of the Company Disclosure Schedule.

“ Transaction Agreements ” means, collectively, the Support Agreements, the Registration Rights Agreement, the Escrow Agreement and the Non-Competition Agreements.

“ 2006 Retention Cash Bonus Plan ” means the Company bonus plan described on Schedule 1.1(d) hereto.

1.2 General Interpretive Principles . The name assigned to this Agreement and the article, Section and subsection captions used herein are for convenience of reference only and shall not be construed to affect the meaning, construction or effect hereof. The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. Unless otherwise specified, the terms “hereof,” “herein” and similar terms refer to this Agreement as a whole (including the Company Disclosure Schedule, the Parent Disclosure Letter and Exhibits hereto), and references herein to Articles or Sections refer to Articles or Sections of this Agreement. Pronouns in masculine, feminine, and neuter genders will be construed to include any other gender, and words in the singular form will be construed to include the plural and vice versa, unless the context otherwise requires. For purposes of this Agreement, the words,

 

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“include,” “includes” and “including,” when used herein, shall be deemed in each case to be followed by the words “without limitation.” For purposes of this Agreement (other than ARTICLE 2 hereof), references to the “Company” shall be deemed to include the Company’s Subsidiaries. Unless stated otherwise, the terms “dollars” and “$” shall mean United States dollars.

ARTICLE 2

THE MERGER

2.1 The Merger . At the Effective Time and subject to and upon the terms and conditions of this Agreement and in accordance with Section 251 of the DGCL, (a) Merger Sub shall be merged with and into the Company, (b) the separate corporate existence of Merger Sub shall cease, and (c) the Company shall, as the surviving corporation in the Merger, continue its existence under Delaware law as a wholly owned subsidiary of Parent. The Company as the surviving corporation after the Merger is hereinafter sometimes referred to as the “ Surviving Corporation .”

2.2 Effective Time . On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing a certificate of merger (the “ Certificate of Merger ”) with the Secretary of State of the State of Delaware in such form as required by and executed in accordance with the relevant provisions of the DGCL (the date and time of such filing, or such later date and time as may be specified in such filing by mutual agreement of Parent, Merger Sub and the Company, being the “ Effective Time ”).

2.3 Effect of the Merger . At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the DGCL. Without limiting the foregoing, from and after the Effective Time, the Surviving Corporation shall have all the properties, rights, privileges, purposes, and powers and debts, duties, and liabilities of the Company.

2.4 Certificate of Incorporation; Bylaws . The Certificate of Incorporation of the Company at the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended in accordance with the provisions thereof and applicable Law. The bylaws of the Company at the Effective Time shall be the bylaws of the Surviving Corporation until thereafter changed or amended in accordance with applicable Law.

2.5 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 the bylaws of the Surviving Corporation until their respective successors are duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation’s Certificate of Incorporation and bylaws. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation.

2.6 Conversion of Securities . Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, Company or the holders of any of the following securities:

 

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(a) Conversion of Merger Sub Common Stock . Each share of Merger Sub Common Stock that is issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of Common Stock, $0.001 par value per share, of the Surviving Corporation, and the shares of the Surviving Corporation into which the shares of Merger Sub Common Stock are so converted shall be the only shares of the Surviving Corporation that are issued and outstanding immediately after the Effective Time. Following the Effective Time, each certificate evidencing ownership of shares of Merger Sub Common Stock shall evidence ownership of such shares of the Surviving Corporation.

(b) Conversion of Company Stock .

(i) Each share of Series A Preferred Stock that is issued and outstanding immediately prior to the Effective Time (other than any shares to be canceled pursuant to Section 2.6(f) and any Dissenting Shares) pursuant to the terms thereof will be deemed converted to Company Common Stock and such Company Common Stock will be automatically converted (subject to Section 2.6(h)) into the right to receive such number of shares of Parent Common Stock as is equal to the Exchange Ratio, upon surrender of the certificate representing such share of Series A Preferred Stock in the manner provided in Section 2.8 and subject to the deposit of the Escrow Shares pursuant to Section 2.9.

(ii) Each share of Series B Preferred Stock that is issued and outstanding immediately prior to the Effective Time (other than any shares to be canceled pursuant to Section 2.6(f) and any Dissenting Shares) pursuant to the terms thereof will be deemed converted to Company Common Stock and such Company Common Stock will be automatically converted (subject to Section 2.6(h)) into the right to receive such number of shares of Parent Common Stock as is equal to the Exchange Ratio, upon surrender of the certificate representing such share of Series B Preferred Stock in the manner provided in Section 2.8 and subject to the deposit of the Escrow Shares pursuant to Section 2.9.

(iii) Each share of Company Common Stock that is issued and outstanding immediately prior to the Effective Time (other than any shares of Company Common Stock to be canceled pursuant to Section 2.6(f) and any Dissenting Shares), will be automatically converted (subject to Section 2.6(h)) into the right to receive such number of shares of Parent Common Stock as is equal to the Exchange Ratio, upon surrender of the certificate representing such share of Company Common Stock in the manner provided in Section 2.8 and subject to the deposit of the Escrow Shares pursuant to Section 2.9. The shares of Parent Common Stock exchangeable for any shares of Restricted Stock will continue to have, and be subject to, the same terms and conditions as the Restricted Stock, including with regards to vesting.

(iv) No fraction of a share of Parent Common Stock will be issued by virtue of the Merger, but in lieu thereof, a cash payment shall be made pursuant to Section 2.6(g).

 

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(c) Company Options . Unless the terms of an agreement evidencing a Company Option or the provisions of the Company Option Plan applicable to a Company Option provide otherwise, each Company Option that is issued and outstanding immediately prior to the Effective Time, whether or not then exercisable, will be assumed by Parent and converted into an option to purchase Parent Common Stock (“ Assumed Company Options ”). Each Company Option so assumed and converted will continue to have, and be subject to, the same terms and conditions, except that (i) each converted Company Option shall be exercisable (or will become exercisable in accordance with its terms) for that number of whole shares of Parent Common Stock equal to the product of the number of shares of Company Common Stock that were issuable upon exercise of such Company Option immediately prior to the Effective Time multiplied by the Exchange Ratio (rounded down to the nearest whole share), and (ii) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such converted Company Option shall be equal to the quotient determined by dividing the exercise price per share of Company Common Stock at which such Company Option was exercisable immediately prior to the Effective Time by the Exchange Ratio (rounded up to the nearest whole cent); provided, however , that the terms of each of the Company Options will provide (x) for an equitable adjustment in the event that any Escrow Shares are delivered by the Escrow Agent to a Parent Indemnified Party so that the holder of such Company Option will bear a pro rata portion (relative to the Total Outstanding Shares) of the aggregate indemnifiable Damages giving rise to such delivery of Escrow Shares and (y) upon exercise of such Company Option, a portion of the Parent Common Stock issued upon such exercise (equal to the portion of Company Stock then held in the Escrow Account relative to the number of shares of Parent Common Stock previously delivered to the Company Stockholders pursuant to this Agreement) will be retained by Parent in escrow and transferred to either Parent or the holder of such Company Option, as applicable, at the same time and in the same relative proportion as the Escrow Shares are transferred out of the Escrow Account. The conversion of Company Options provided for in this Section 2.6(c) with respect to any Company Options that are “incentive stock options” (as defined in Section 422 of the Code) shall be effected in a manner consistent with Section 424(a) of the Code and otherwise in a manner intended to preserve incentive stock option treatment to the extent permitted by applicable law.

(d) Company Warrants .

(i) All Company Warrants that pursuant to their terms do not provide for assumption of such Company Warrants in connection with the Merger shall be cancelled at the Closing. Prior to the Effective Time, the Company shall take all actions necessary to effect the transactions anticipated by this Section 2.6(d) under all Company Warrant agreements, including delivering all notices required thereby. Within five (5) Business Days following the Effective Date, the Company shall notify the holders of such Company Warrants, which such notice shall be in compliance with the terms of such Company Warrants and shall specify the vested and unvested portions thereof, that such Company Warrants will be cancelled at the Closing. Materials to be submitted to the holders of Company Warrants in connection with the notice required under this Section 2.6(d) shall be subject to review and reasonable approval by Parent.

(ii) All Company Warrants that pursuant to their terms provide for assumption of such warrant in connection with the Merger (the “ Assumed Warrants ”)

 

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shall be assumed by Parent and converted into a warrant to purchase Parent Common Stock. Each Assumed Company Warrant will continue to have, and be subject to, the same terms and conditions (including with respect to vesting), except that (A) each Assumed Company Warrant shall be exercisable (or will become exercisable in accordance with its terms) for that number of whole shares of Parent Common Stock equal to the product of the number of shares of Company Common Stock that were issuable upon exercise of such Company Warrant immediately prior to the Effective Time multiplied by the Exchange Ratio (rounded down to the nearest whole share) and (B) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such Assumed Company Warrant shall be equal to the quotient determined by dividing the exercise price per share of Company Common Stock at which such Company Warrant was exercisable immediately prior to the Effective Time by the Exchange Ratio (rounded up to the nearest whole cent); provided, however , that the terms of each of the Company Warrants will provide (x) for an equitable adjustment in the event that any Escrow Shares are delivered by the Escrow Agent to a Parent Indemnified Party so that the holder of such Company Warrant will bear a pro rata portion (relative to the Total Outstanding Shares) of the aggregate indemnifiable Damages giving rise to such delivery of Escrow Shares and (y) upon exercise of such Company Warrant, a portion of the Company Stock issued upon such exercise (equal to the portion of Escrow Shares then held in the Escrow Account relative to the number of shares of Parent Common Stock previously delivered to the Company Stockholders pursuant to this Agreement) will be retained by Parent in escrow and transferred to either Parent or the holder of such Company Warrant, as applicable, at the same time and in the same relative proportion as the Escrow Shares are transferred out of the Escrow Account.

(e) Company RSUs . Each Company RSU that is issued and outstanding immediately prior to the Effective Time will be assumed by Parent and converted (subject to Section 2.6(h)) into a Parent RSU for that number of shares of Parent Common Stock as is equal to the Exchange Ratio (“ Assumed Company RSUs ”), provided, however , that the terms of each Parent RSU will provide (i) for an equitable adjustment in the event that any Escrow Shares are delivered by the Escrow Agent to a Parent Indemnified Party so that the holder of such Parent RSU will bear a pro rata portion (relative to the Total Outstanding Shares) of the aggregate indemnifiable Damages giving rise to such delivery of Escrow Shares and (ii) upon vesting of such Parent RSU, a portion of the Parent Common Stock issued (equal to the portion of Company Stock then held in the Escrow Account relative to the number of shares of Parent Common Stock previously delivered to the Company Stockholders pursuant to this Agreement) will be retained by Parent in escrow and transferred to either Parent or the holder of such Parent RSU, as applicable, at the same time and in the same relative proportion as the Escrow Shares are transferred out of the Escrow Account. Each Parent RSU will continue to have, and be subject to, the same terms and conditions as the Company RSU, including with regards to vesting.

(f) Cancellation of Company-Owned and Parent-Owned Stock . Each share of Company Stock held by the Company immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof.

 

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(g) Fractional Shares . No fraction of a share of Parent Common Stock will be issued by virtue of the Merger, but in lieu thereof each former holder of shares of Company Stock who would otherwise be entitled to a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock that otherwise would be received by such holder) shall, upon surrender of such holder’s Certificate(s), receive from Parent an amount of cash in dollars (rounded to the nearest whole cent), without interest, less the amount of any withholding taxes with respect to the shares represented by such certificate as contemplated by Section 2.11(b), which are required to be withheld with respect thereto, equal to the product of (i) such fraction, multiplied by (ii) the closing sale price of one share of Parent Common Stock as quoted on the Nasdaq Global Select Market for the trading day that is one trading day prior to the Closing Date.

(h) Adjustments to Exchange Ratio . The Exchange Ratio shall be adjusted to reflect appropriately the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock or Company Stock), reorganization, recapitalization, reclassification or other like change with respect to Parent Common Stock or Company Stock occurring on or after the Effective Date and prior to the Effective Time.

2.7 Appraisal

(a) Notwithstanding any other provisions of this Agreement to the contrary, any shares of Company Stock held by a holder who has not effectively withdrawn or lost such holder’s appraisal, dissenters’ or similar rights for such shares under the DGCL or under Chapter 13 of the California Corporations Code (“ California Law ”), as applicable (collectively, the “ Dissenting Shares ”), shall not be converted into or represent a right to receive Parent Common Stock as set forth in Section 2.6 hereof, but the holder thereof shall only be entitled to such rights as are provided by DGCL and California Law.

(b) Notwithstanding the provisions of Section 2.7(a), if any holder of Dissenting Shares shall effectively withdraw or lose (through failure to perfect or otherwise) such holder’s appraisal or dissenters’ rights under the DGCL and California Law, as applicable, 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 Company Stock, as applicable, set forth in Section 2.6, without interest thereon, upon surrender of the certificate representing such shares.

(c) The Company shall give Parent (i) prompt notice of any written demand for appraisal received by the Company pursuant to the applicable provisions of the DGCL or California Law, and (ii) the opportunity to participate in all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent, make any payment with respect to any such demands or offer to settle or settle any such demands. Notwithstanding the foregoing, to the extent that Parent, the Surviving Corporation or the Company makes any payment or payments in respect of any Dissenting Shares in excess of the consideration that otherwise would have been payable in respect of such shares in accordance with this Agreement (“ Dissenting Share Payments ”), Parent shall be entitled to recover the amount of such Dissenting Share Payments pursuant to ARTICLE 9 hereof.

 

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2.8 Exchange of Certificates .

(a) Exchange Procedures . No later than promptly after the Effective Time, Parent shall mail to each holder of record of a certificate or certificates (“ Certificates ”) that immediately prior to the Effective Time represented outstanding shares of Company Stock whose shares were converted into the right to receive shares of Parent Common Stock pursuant to Section 2.6(b), cash in lieu of any fractional shares pursuant to Section 2.6(g) and any dividends or other distributions pursuant to Section 2.8(b), (i) a letter of transmittal in customary form (which shall include a joinder provision pursuant to which the signatory thereto shall agree to be bound by the provisions set forth in ARTICLE 9 hereof) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of Parent Common Stock. Upon surrender of Certificates for cancellation to Parent together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may reasonably be required by Parent (including any required Form W-9 or Form W-8), the holders of such Certificates shall be entitled to receive in exchange therefor (x) certificates representing the number of whole shares of Parent Common Stock (after aggregating all Certificates surrendered by such holder) into which such holder is entitled pursuant to Section 2.6(b), less the number of shares of Parent Common Stock to be deposited in the Escrow Account pursuant to Section 2.9, (y) a check in the amount of dollars in lieu of fractional shares that such holders have the right to receive pursuant to Section 2.6(g) and (z) any dividends or distributions payable pursuant to Section 2.8(b), and the Certificates so surrendered shall forthwith be canceled. Until so surrendered, outstanding Certificates will be deemed from and after the Effective Time, for all corporate purposes, to evidence only the right to receive upon surrender thereof the number of whole shares of Parent Common Stock to which such holder is entitled pursuant to Section 2.6(b), an amount in cash in lieu of the issuance of any fractional shares in accordance with Section 2.6(g) and any dividends or distributions payable pursuant to Section 2.8(b). No interest will be paid or accrued on any cash payable in lieu of fractional shares of Parent Common Stock or on any unpaid dividends or distributions payable to holders of Certificates. In the event of a transfer of ownership of shares of Company Stock that is not registered in the transfer records of the Company, a certificate representing the proper number of shares of Parent Common Stock and cash payable in lieu of fractional shares may be issued to a transferee if the Certificate representing such shares of Company Stock is presented to Parent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid.

(b) Distributions With Respect to Unexchanged Shares . No dividends or other distributions declared or made after the date hereof with respect to Parent Common Stock with a record date after the Effective Time will be paid to the holders of any unsurrendered Certificates with respect to the shares of Parent Common Stock represented thereby until the holders of record of such Certificates shall surrender such Certificates. Subject to applicable law, following surrender of any such Certificates, Parent shall deliver to the record holders thereof, without interest, (i) promptly after such surrender, the amount of any cash payable with respect to a fractional share of Parent Common Stock to which such holder is entitled pursuant to Section 2.6(g) and the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to the whole shares of Parent Common Stock represented thereby, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date occurring after surrender, payable with respect to such whole shares of Parent Common Stock.

 

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(c) Lost, Stolen or Destroyed Certificates . In the event that any Certificates shall have been lost, stolen or destroyed, Parent shall issue and pay in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, certificates representing the shares of Parent Common Stock into which the shares of Company Stock represented by such Certificates were converted pursuant to Section 2.6(b), cash for fractional shares, if any, as may be required pursuant to Section 2.6(g) and any dividends or distributions payable pursuant to Section 2.8(b).

(d) No Further Ownership Rights in Company Stock . All shares of Parent Common Stock, cash in lieu of fractional shares of Parent Common Stock and dividends or other distributions with respect to Parent Common Stock issued in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Stock, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Company Stock that were outstanding immediately prior to the Effective Time. If after the Effective Time Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this ARTICLE 2.

(e) Liability . Notwithstanding anything to the contrary in this Section 2.8, neither Parent, the Company, the Surviving Corporation nor any party hereto shall be liable to a holder of shares of Company Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law.

2.9 Escrow Account .

(a) Subject to Section 2.9(b), at the Closing, Parent shall deliver, and the Company Stockholders shall be deemed to have received and deposited, a certificate or certificates representing twelve and one-half percent (12.5%) of the Aggregate Share Consideration issuable in the Merger in respect of all shares of Company Stock pursuant to Section 2.6(b) (the “ Escrow Shares ”) to a non-interest bearing escrow account (the “ Escrow Account ”) to be established by Parent with an escrow agent to be designated by Parent and approved by the Company prior to the Closing (the “ Escrow Agent ”), to be held by the Escrow Agent pursuant to the terms of an escrow agreement, in substantially the form attached hereto as Exhibit D together with such other modifications as shall be required by the Escrow Agent that are reasonably satisfactory to Parent and the Stockholders Agent (the “ Escrow Agreement ”). Each Company Stockholder shall be deemed to have deposited into the Escrow Account such Company Stockholder’s Pro Rata Share of the Escrow Shares, and such shares shall be deducted from the shares of Parent Common Stock otherwise issuable to each such Company Stockholder pursuant to Section 2.6. Such Escrow Shares shall provide security for the satisfaction of claims for indemnification made by the Parent Indemnified Parties pursuant to ARTICLE 9 (subject to the exceptions set forth in Section 9.6). Any fees and expenses of the Escrow Agent shall be paid by Parent. The Escrow Shares shall be retained in the Escrow Account until released pursuant to this Section 2.9 or Section 9.3. During the period in which the Escrow Shares are retained in the Escrow Account, they will be held for the benefit of the Company Stockholders

 

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(and the Company Stockholders shall be entitled to receive cash dividends on, and vote, such shares of Parent Common Stock), unless and until and to the extent it has been determined that any Parent Indemnified Party is entitled to retain any of the Escrow Shares in respect of indemnification claims pursuant to ARTICLE 9. In the event that a Company Stockholder holds Restricted Stock at the Effective Time, then the shares of Parent Common Stock to be issued in the Merger in respect of such Company Stockholder’s shares of Company Stock which are not Restricted Stock shall be withheld and deposited in Escrow Account first and, thereafter, any shares of Parent Common Stock to be issued in the Merger in respect of such Company Stockholder’s Restricted Stock shall be withheld and deposited in escrow to the extent necessary to satisfy such Company Stockholder’s escrow deposit obligations in this Section 2.9 (it being understood and hereby agreed that any Escrow Shares so deposited in escrow which are restricted shall vest prior to any restricted shares of Parent Common Stock held by such Company Stockholder that are not so deposited in escrow). The release of any Escrow Shares in satisfaction of any indemnification obligations under ARTICLE 9 shall be made, with respect to each Company Stockholder, first with any Escrow Shares then being held in Escrow Account that are not restricted and then, if such Escrow Shares are insufficient to satisfy such indemnification obligation and only to the extent of such insufficiency, with Escrow Shares that are restricted. In the event that a Person holds Assumed Company Options and/or Assumed Company RSUs at the Effective Time, then a portion of the Company Stock issued upon the exercise thereof shall be withheld and deposited in the Escrow Account to the extent necessary to satisfy such holder’s escrow deposit obligations as a Company Stockholder set forth in this Section 2.9.

(b) Within two (2) Business Days following the one-year anniversary of the Closing (the “ Initial Escrow Release Date ”), Parent and the Stockholders Agent shall each instruct the Escrow Agent in writing to take the following actions:

(i) The Escrow Agent shall be instructed to retain aggregate Escrow Shares with a value (valuing such Escrow Shares at the Parent Closing Price) that is equal to the sum of the aggregate Outstanding Claims at such time, if any (or such lesser amount of Escrow Shares as shall be remaining in the Escrow Account at such time) (collectively, the “ Retained Escrow Consideration ”).

(ii) With respect to the Escrow Shares, if any, that are in excess of the Retained Escrow Consideration, the Escrow Agent shall be instructed to promptly (and, in any event, no later than two (2) Business Days after delivery of such instructions) deliver all of such Escrow Shares to the Company Stockholders in proportion to their respective Pro Rata Shares.

(c) In the event and to the extent that after the Initial Escrow Release Date (i) any Outstanding Claim, a Notice of Claim for which was delivered prior to the Initial Escrow Release Date, is resolved against the relevant Parent Indemnified Party(ies) (such amount, a “ Company Favorable Outcome ”) and (ii) the value of the Retained Escrow Consideration (valuing such Escrow Shares at the Parent Closing Price) exceeds the aggregate Outstanding Claims at such time, after giving effect to such Company Favorable Outcome (such excess, if any, the “ Retained Escrow Excess ”), each of Parent and the Stockholders Agent shall promptly instruct the Escrow Agent in writing to forthwith promptly (and, in any event, no later than two (2) Business Days after delivery of such instructions) distribute all of such Retained Escrow Excess to the Company Stockholders in proportion to their respective Pro Rata Shares.

 

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(d) In the event and to the extent that after the Initial Escrow Release Date any Outstanding Claim, a Notice of Claim for which was delivered prior to the Initial Escrow Release Date, is resolved in favor of the relevant Parent Indemnified Party(ies), each of Parent and the Stockholders Agent shall promptly instruct the Escrow Agent in writing to promptly (and, in any event, no later than two (2) Business Days after delivery of such instructions) deliver Retained Escrow Consideration to such Parent Indemnified Party(ies) in the manner set forth in Section 9.4.

2.10 Adjustment Provisions.

(a) No later than fifteen (15) Business Days following the one-year anniversary of the Closing, Parent shall prepare and deliver to the Stockholders Agent a statement (the “ Purchase Price Adjustment Statement ”) setting forth the Adjusted Exchange Ratio, calculated as set forth below. Parent shall make available to the Stockholders Agent all relevant books and records relating to the Purchase Price Adjustment Statement upon reasonable prior request. For purposes of this Section 2.10:

“ Adjusted Exchange Ratio ” means the quotient obtained by dividing (x) the Aggregate Share Consideration, by (y) the Adjusted Total Outstanding Shares.

“ Adjusted Total Outstanding Shares ” means (x) the Total Outstanding Shares, minus (y) all Forfeited Shares.

“ Forfeited Shares ” means the sum of (x) all shares of Restricted Stock that were outstanding immediately prior to the Effective Time that (i) prior to the one year anniversary of the Closing Date were forfeited to the Company following the termination of the relevant holder’s employment, and (ii) were not Escrow Shares or, if they were Escrow Shares, would have been released from the Escrow Account to the relevant holder on the one-year anniversary of the Closing Date, plus (y) all Company Options and Company RSUs that were outstanding immediately prior to the Effective Time and that were terminated (and not exercised) before the one-year anniversary of the Closing Date.

(b) If the Adjusted Exchange Ratio is greater than the original Exchange Ratio, then (i) Parent shall, as promptly as practicable, issue an additional number of shares of Parent Common Stock with respect to each share of Company Stock that was outstanding immediately prior to the Effective Time to the holders thereof at such Effective Time equal in amount to (x) the number of shares of Parent Common Stock that would have been issuable at the Effective Time with respect to such share of Company Stock if the Exchange Ratio had been equal to the Adjusted Exchange Ratio, minus (y) the number of shares of Parent Common Stock issued at the Effective Time (and including any fractional shares in lieu of which cash was issued pursuant to Section 2.6(g) with respect to such share of Company Stock) with respect to such share of Company Stock, (ii) the number of shares of Parent Common Stock issuable pursuant to each Assumed Company Option and Assumed Company RSU shall be adjusted to equal that number that it would have equaled if the Exchange Ratio had been equal to the Adjusted

 

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Exchange Ratio, and (iii) Parent shall issue to each holder of an Assumed Company Option and an Assumed Company RSU as of the Effective Time who exercised such Assumed Company Option or whose Assumed Company RSU vested, as the case may be, prior to the effective time of such adjustment a number of shares of Parent Common Stock equal in amount to (A) the number of shares of Parent Common Stock that would have been issuable upon such prior exercise of such Assumed Company Option or the vesting of such Assumed Company RSU, as the case may be, had the number of shares of Parent Common Stock issuable upon such exercise or vesting event been calculated after giving effect to the adjustment provided in clause (ii) of this Section 2.10(b), minus (B) the number of shares of Parent Common Stock previously issued upon such exercise or vesting event. Any shares of Parent Common Stock issued pursuant to this clause (iii) shall be subject to the same forfeiture, transfer and repurchase provisions that are applicable to the shares of Parent Common Stock issued at the relevant time of exercise. No fraction of a share of Parent Common Stock will be issued pursuant to this Section 2.10 and in lieu thereof, a cash payment shall be made using the methodology set forth in Section 2.6(g).

2.11 Tax Consequences and Withholding .

(a) Consequences . It is intended by the parties hereto that the Merger shall constitute a “reorganization” within the meaning of Section 368(a) of the Code and that the exchange of Company Stock for the Aggregate Share Consideration pursuant to Section 2.6 shall be treated as an exchange described in Section 354(a) of the Code. The parties hereto shall comply with all tax filing requirements under Sections 368 and 354 of the Code and shall not make any tax filing that is inconsistent with the foregoing intent. The parties hereto adopt this Agreement as a “plan of reorganization” within the meaning of Treasury Regulation Section 1.368-2(g) and Proposed Treasury Regulation Section 1.368-3(a).

(b) Withholding . Each of Parent and the Surviving Corporation shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement to any former Company Stockholder, holder of Company Warrants, or holder of Company Options such amounts as may be required to be deducted or withheld therefrom under the Code or under any provision of state, local or foreign tax law or under any other applicable law. To the extent such amounts are so deducted and withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person in respect of whom such deduction and withholding was made.

2.12 Further Assurances . If, at any time before or after the Effective Time, the Company or Parent reasonably believes or is advised that any further instruments, deeds, assignments or assurances are reasonably necessary or desirable to consummate the Merger or to carry out the purposes and intent of this Agreement at or after the Effective Time, then the Company, Parent, the Surviving Corporation and their respective officers and directors shall execute and deliver all such proper deeds, assignments, instruments and assurances and do all other things reasonably necessary or desirable to consummate the Merger and to carry out the purposes and intent of this Agreement.

 

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ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE FOUNDERS

Except as set forth in the Company Disclosure Schedule (it being understood and hereby agreed that the disclosure set forth in a specific section or subsection of the Company Disclosure Schedule shall qualify the representations and warranties set forth in the corresponding section and subsection of this ARTICLE 3 and any other representations and warranties set forth in any other sections or subsections of this ARTICLE 3 (whether or not a specific cross-reference is included therein) if and to the extent that it is reasonably apparent on the face of such disclosure that such disclosure applies to such other sections or subsections), the Company and each of the Founders hereby represents and warrants, severally and not jointly, to Parent and Merger Sub as follows:

3.1 Organization .

(a) The Company is a corporation duly organized, validly existing and in good standing under Delaware law and has all the requisite corporate power and authority, and is in possession of all franchises, grants, authorizations, licenses, permits, easements, consents, waivers, qualifications, certificates, Orders and approvals (collectively, “ Approvals ”) necessary to own, lease and operate its properties and to carry on its business as it is now being conducted other than those Approvals the failure of which to have would not result in a Company Material Adverse Effect. The Company is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except as would not have a Company Material Adverse Effect. Section 3.1(a) of the Company Disclosure Schedule lists every state or foreign jurisdiction in which the Company has Employees or facilities or otherwise has conducted its business since inception. Section 3.1(a) of the Company Disclosure Schedule lists the directors and officers of the Company as of the Effective Date.

(b) The Company has no Subsidiaries.

(c) The Company does not own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, directly or indirectly, any equity or similar interest in, any Person.

(d) There is no pending or, to the Knowledge of the Company, Threatened Action for the dissolution, liquidation, insolvency or rehabilitation of the Company.

3.2 Certificate of Incorporation and Bylaws . The Company has heretofore furnished to Parent a true and complete copy of its Certificate of Incorporation and bylaws, as modified, supplemented, amended or restated to the Effective Date. Such Certificate of Incorporation and bylaws are in full force and effect, and no other organizational documents are applicable to or binding upon the Company. None of such Certificate of Incorporation or bylaws restricts or limits the ability of the holders of Company Stock to act by written consent in lieu of a meeting.

3.3 Capitalization .

(a) As of the Effective Date, the authorized capital stock of the Company consists of (i) 25,000,000 shares of Company Common Stock, of which 12,454,000 shares are issued and outstanding and 1,251,700 shares are duly reserved for future issuance pursuant to

 

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outstanding Company Options (the “ Outstanding Company Options ”), (ii) 5,100,000 shares of Company Series A Preferred Stock, of which 5,085,714 shares are issued and outstanding; and (iii) 2,060,000 shares of Company Series B Preferred Stock, of which 2,000,000 shares are issued and outstanding. Each share of Company Series A Preferred Stock is convertible on a 1:1 basis into Company Common Stock and each share of Company Series B Preferred Stock is convertible on a 1:1 basis into Company Common Stock. None of the outstanding shares of Company Stock are subject to, nor were they issued in violation of, any purchase option, call option, right of first refusal or offer, preemptive right, subscription right or any similar right. All Outstanding Company Options were granted under the Company Option Plan. Section 3.3(a) of the Company Disclosure Schedule sets forth a correct and complete list of (i) each holder of Company Stock and the number of shares of Company Stock held by such holder and the extent to which such Company Stock is subject to vesting or forfeiture and the vesting schedule (if any) and (ii) each Company Option and other right to purchase Company Stock or other capital stock of the Company, if any, outstanding as of the Effective Date, together with the number of shares of Company Stock or any other capital stock of the Company subject to such option, warrant or right, the extent to which such option, warrant or right is vested and/or exercisable, the date of grant or issuance, the exercise price (and, in the case of Company Options, whether such option is a non-qualified stock option or intended to be an incentive stock option), and the vesting schedule and expiration date of each such option, warrant and right, and the total number of such options, warrants and rights. Each Company Option was granted with an exercise price per share equal to or greater than the per share fair market value (as such term is used in Code Section 409A and the Department of Treasury regulations and other interpretive guidance issued thereunder) of the Common Stock underlying such Company Option on the grant date thereof and was otherwise issued in compliance with all applicable Laws. There are no Company Options for any class of Company Stock other than Common Stock. Except as set forth above, no shares of voting or non-voting capital stock, other Equity Interests, or other voting securities of the Company are issued, reserved for issuance or outstanding. No Company Option shall entitle the holder thereof to receive anything after the Merger in respect of such Company Option except as provided in this Agreement. All outstanding shares of Company Stock are, and all shares which may be issued upon the exercise of Company Options will be, duly authorized, validly issued, fully paid and nonassessable and not subject to any purchase option, call option, right of first refusal or offer, preemptive right, subscription right or similar right. True and correct copies of each of the Company Warrants have been made available to Parent, and there are no outstanding warrants to purchase Company Stock other than the Company Warrants. Following the Merger, each of the Assumed Company Warrants will become exercisable for shares of Parent Common Stock as provided in Section 2.6(d). Except for the Company Stock, there are no bonds, debentures, notes, other Indebtedness or any other securities of the Company with voting rights (or convertible into, or exchangeable for, securities with voting rights) on any matters on which Company Stockholders of the Company may vote. There are no declared or accrued but unpaid dividends with respect to any shares of Company Stock. There have been no anti-dilution or similar adjustments made to the conversion terms or adjustments made to the exercise price of any Company Preferred Stock, or any warrants, notes, options or other Commitments since the issuance thereof. The certificate delivered by the Company pursuant to Section 6.18 shall be true and correct.

 

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(b) The Company is not subject to any obligation or requirement to provide funds for or to make any investment (including in the form of a loan or capital contribution) to or in any Person.

(c) Except as described in Section 3.3(a) above or set forth in Section 3.3(a) of the Company Disclosure Schedule, there are no outstanding securities, options, warrants, calls, rights, convertible or exchangeable securities or Contracts or obligations of any kind (contingent or otherwise) to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of the Company or other Equity Interest or obligating the Company to issue, grant, extend or enter into any such security, option, warrant, call, right, Equity Interest or Contract. There are no outstanding obligations of the Company (contingent or otherwise) to repurchase, redeem or otherwise acquire any shares of capital stock (or options or warrants to acquire any such shares) or other Equity Interests of the Company. There are no stock-appreciation rights, stock-based performance units, “phantom” stock rights or other Contracts or obligations of any character (contingent or otherwise) pursuant to which any Person is or may be entitled to receive any payment or other value based on the revenues, earnings or financial performance, stock price performance or other attribute of the Company or any of its businesses, assets, rights or properties or calculated in accordance therewith (other than ordinary course payments or commissions to sales representatives of the Company based upon revenues generated by them without augmentation as a result of the transactions contemplated hereby) (collectively, “ Stock-Based Rights ”) or to cause the Company to file a registration statement under the Securities Act, or which otherwise relate to the registration of any securities of the Company. There are no voting trusts, proxies or other Contracts of any character to which the Company or, to the Knowledge (as defined herein) of the Company, any of the Company Stockholders is a party or by which any of them is bound with respect to the issuance, holding, acquisition, voting or disposition of any shares of capital stock or similar interests of the Company.

3.4 Authorization and Enforceability . The Company has all necessary corporate power and authority to execute and deliver this Agreement and each other Transaction Agreement to which it is a party and each instrument required to be executed and delivered by it at the Closing, and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by the Company of this Agreement and each other Transaction Agreement to which it is a party, the performance of its obligations hereunder and thereunder, and the consummation of the transactions contemplated hereby and thereby, have been approved by the Company’s Board of Directors, duly and validly authorized by all requisite corporate action and subject only to the adoption of this Agreement and approval of the Merger by the Company Stockholders, no other actions or proceedings on the part of the Company are necessary to authorize the execution, delivery and performance of this Agreement and each other Transaction Agreement to which it is a party or to consummate the transactions so contemplated. The affirmative vote of the holders of (i) a majority of the outstanding shares of Company Stock, voting together as a single class, (ii) a majority of the outstanding shares of Company Common Stock, voting as a separate class, and (iii) a majority of the outstanding shares of Company Preferred Stock, voting together as a separate class is the only vote of the Company Stockholders necessary to adopt this Agreement and approve the Merger under the DGCL, California Law and the Company’s Certificate of Incorporation and

 

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bylaws (the “ Requisite Stockholder Vote ”). Upon receipt of the Stockholder Consents, no further vote of the holders of any class or series of the capital stock of the Company is necessary to adopt this Agreement and approve the Merger. Each of this Agreement and each other Transaction Agreement to which the Company is a party has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery thereof by Parent and Merger Sub, constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.

3.5 No Conflict; Required Filings and Consents .

(a) The execution and delivery by the Company of this Agreement, the other Transaction Agreements to which it is a party or any instrument required by this Agreement to be executed and delivered by the Company do not, and the performance of this Agreement, the Escrow Agreement or any instrument required by this Agreement to be executed and delivered by the Company, shall not, (i) conflict with or violate the Certificate of Incorporation or bylaws or equivalent organizational documents of the Company, (ii) conflict with or violate in any respect any Law or Order in each case applicable to the Company or by which any of its properties, rights or assets is bound or affected, other than those violations or breaches that would not be reasonably expected to be material to the Company, or (iii) result in any breach or violation of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair the Company’s rights or alter the rights or obligations of any party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of any payment obligation, or result in the creation of a Lien on any of the properties, rights or assets of the Company pursuant to, any bond, indenture, Contract, permit, franchise or other instrument or obligation to which the Company is a party or by which the Company or any of its properties, rights or assets is bound or affected, except, with respect to this clause (iii) as would not be reasonably expected to be material, individually or in the aggregate, to the Company.

(b) The execution and delivery by the Company of this Agreement, the other Transaction Agreements to which it is a party or any instrument required by this Agreement to be executed and delivered by the Company at the Closing do not, and the performance of this Agreement, other Transaction Agreements to which it is a party and any instrument required by this Agreement to be executed and delivered by the Company at the Closing, shall not, require the Company to, except as set forth in Section 3.5(a) of the Company Disclosure Schedule, obtain any Approval of any Person or Approval of, observe any waiting period imposed by, or make any filing with or notification to, any Governmental Authority, except for the filing of the Certificate of Merger in accordance with Delaware law, and other than those consents, approvals, actions, filings or notices, the failure of which to be obtained or made, would not be reasonably expected to be material, individually or in the aggregate, to the Company.

3.6 Compliance . The Company is in compliance with, and is not in default or violation of, (i) the Certificate of Incorporation and bylaws of the Company, (ii) any Law or

 

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Order or by which any of its properties, rights or assets are bound or affected, and (iii) the terms of all bonds, indentures, Contracts, permits, franchises and other instruments or obligations to which it is a party or by which any of it or any of its properties, rights or assets are bound or affected, except in the case of clauses (ii) and (iii) for noncompliance, defaults or violations that would not be reasonably expected to be material, individually or in the aggregate, to the Company. The Company is in material compliance with the terms of all applicable Approvals. The Company has not received notice of any revocation or modification of any material Approval of any Governmental Authority or that the Company is not in compliance with any material Approval or any Law or Order.

3.7 Financial Statements . Section 3.7 of the Company Disclosure Schedule contains a copy of the unaudited consolidated balance sheet of the Company as of August 31, 2006 (the “ Company Balance Sheet ”) and the unaudited consolidated statements of income and cash flows of the Company for the period from January 1, 2006 to August 31, 2006 (collectively, the “ Financial Statements ”). The Financial Statements were prepared in accordance with United States generally accepted accounting principles (“ GAAP ”), except for the absence of footnote disclosure, applied on a consistent basis throughout the periods involved and fairly present, in all material respects, the consolidated financial position of the Company as at the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated.

3.8 Absence of Changes .

(a) During the period from August 31, 2006 to the Effective Date, the Company has conducted its business only in the ordinary and usual course and in a manner consistent with past practice.

(b) During the period from June 30, 2006 to the Effective Date, there has not been any change, development, circumstance, condition, event, occurrence, damage, destruction or loss that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

(c) During the period from June 30, 2006 to the Effective Date, there has not been any change by the Company in its accounting methods, principles or practices, any revaluation by the Company of any of its assets, including writing down the value of inventory or writing off notes or accounts receivable.

(d) During the period from August 31, 2006 to the Effective Date, the Company has not taken any of the following actions:

(i) (A) made any distributions in respect of any of its Equity Interests, (B) redeemed or otherwise acquired any of its Equity Interests (except for forfeitures of Company Options pursuant to agreements outstanding on the Effective Date) or (C) issued any Equity Interests or any Commitments;

(ii) (A) granted any increase in the compensation or fringe benefits of any present or former director, officer or employee of the Company (except for increases in salary or wages of employees (other than the Executives) in the Ordinary Course of Business), (B) paid any severance or termination pay to any present or former director,

 

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officer or employee of the Company, (C) issued any Equity Interests, or (D) established, adopted, entered into, amended or terminated any Employee Plan except as required by applicable Law;

(iii) incurred or assumed any Liabilities for borrowed money or guaranteed any such Liabilities;

(iv) canceled any indebtedness or waived any claims or rights of having a value, in the aggregate, in excess of one hundred thousand dollars ($100,000);

(v) other than as required by concurrent changes in United States or Canadian generally accepted accounting principles, made any change in any method of accounting or accounting practice or policy;

(vi) made or incurred any capital expenditure, other than (A) in the Ordinary Course of Business or (B) not exceeding, in the aggregate, one hundred thousand dollars ($100,000);

(vii) sold, assigned, transferred, leased, licensed, sublicensed or otherwise disposed of, in whole or in part, any of its material assets, rights or properties (including Intellectual Property) other than (a) replacement of equipment and other tangible assets in the Ordinary Course of Business, (b) the disposition of unused and obsolete equipment in immaterial amounts or (c) licenses of Intellectual Property to end users in the Ordinary Course of Business;

(viii) made any loan, advance, or capital contribution to or investment in any Person (other than routine travel and business expense advances made to directors or employees in the Ordinary Course of Business);

(ix) created or incurred any Lien (other than Permitted Liens) on any of the assets, rights or properties (whether tangible or intangible) of the Company, other than purchase money security interests in connection with the acquisition of immaterial amounts of equipment in the Ordinary Course of Business;

(x) discharged or otherwise obtained the release of any Lien or paid or otherwise discharged any Liability, other than (A) current Liabilities in the Ordinary Course of Business or (B) other Liabilities not exceeding, in the aggregate, one hundred thousand dollars ($100,000);

(xi) merged with, entered into a consolidation with or acquired an interest in any Person or acquired by merging or consolidating with, or by purchasing a substantial portion of the assets, rights or properties of, or by any other manner, any business or any corporation, partnership, association, limited liability company, trust or other business organization or division thereof; or

(xii) agreed, whether in writing or otherwise, to do any of the foregoing.

 

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3.9 No Undisclosed Liabilities . The Company does not have any liabilities or obligations of any nature (whether absolute, accrued, fixed, contingent or otherwise), except liabilities or obligations (a) disclosed in the Company Balance Sheet, (b) incurred since August 31, 2006 in the Ordinary Course of Business (excluding any incurrence of Indebtedness), none of which are material to the Company, (c) disclosed in the Company Disclosure Schedule, or (d) that would not, individually or in the aggregate, have a Company Material Adverse Effect. The Company is not a party to, or has any commitment to become a party to, (i) any Contract associated with off balance sheet financing, including any arrangement for the sale of receivables or (ii) any interest rate, currency or other hedging arrangement or Contract relating to derivatives. All Indebtedness of the Company and Liens securing such Indebtedness, may in accordance with the terms of such Indebtedness, be prepaid, extinguished and released at or prior to the Closing and, assuming that any Indebtedness identified in Section 3.9 of the Company Disclosure Schedule is repaid as of the Closing, the Surviving Corporation shall have no other Indebtedness immediately after such repayment.

3.10 Tax Matters .

(a) All Tax Returns required to be filed by, or on behalf of, the Company have been timely filed, and all such Tax Returns were true, correct and complete in all material respects. All Taxes of the Company due and payable have been fully and timely paid. With respect to any taxable period (or portion thereof) ending on or before the date of the Company’s most recent balance sheet included in the Financial Statements for which Tax Returns have not been filed, or for which Taxes have accrued but are not yet due or owing, the Company has made due and sufficient current accruals for such Taxes on the Company Balance Sheet. The Company has not requested, or been granted any waiver of any federal, state, local or foreign statute of limitations with respect to, or any extension of a period for the assessment of, any Tax. No extension or waiver of time within which to file any Tax Return of, or applicable to, the Company has been granted or requested which has not since expired. The Company has no liability for unpaid Taxes accruing after the date of the Company Balance Sheet, except for Taxes arising in the Ordinary Course of Business subsequent to the date of the Company Balance Sheet.

(b) The Company has duly and timely withheld and paid over to the appropriate Governmental Authorities all Taxes and other amounts required to be so withheld and paid over for all periods under all applicable Laws.

(c) No audits, investigations or other proceedings are pending or being conducted with respect to Taxes of the Company and there are no matters under discussion, audit or appeal with any Governmental Authority relating to Taxes.

(d) (i) The Company has not received any written notice of any assessment or intent to make any assessment by any Governmental Authority regarding Taxes for which the Company may be liable; and (ii) no written claim has been made by a Governmental Authority in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to taxation by that jurisdiction or is obliged to act as withholding agent under the laws of that jurisdiction.

 

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(e) There are no Tax Liens (other than Taxes not yet due and payable) on any of the assets, rights or properties of the Company.

(f) The Company is not a party to or bound by or has a continuing obligation under any agreement providing for the allocation, sharing or indemnification of Taxes.

(g) The Company (A) is not and has never been a member of an affiliated group (other than a group the common parent of which is Company) filing a consolidated federal income Tax Return or (B) has any liability for Taxes of any person arising from the application of Treas