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EXHIBIT 2.1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NUANCE COMMUNICATIONS, INC.
BERYLLIUM ACQUISITION CORPORATION
BERYLLIUM ACQUISITION LLC
BEVOCAL, INC.
U.S. BANK NATIONAL ASSOCIATION, AS ESCROW AGENT
AND
MIKAEL BERNER, AS STOCKHOLDER REPRESENTATIVE
DATED AS OF FEBRUARY 21, 2007
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TABLE OF CONTENTS
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ARTICLE I THE
MERGER................................................................................................
2
1.1 The Integrated
Merger..................................................................................
2
1.2 Effective
Time.........................................................................................
2
1.3 Effect of the First Step Merger and the Second Step
Merger............................................. 3
1.4 Formation
Documents....................................................................................
3
1.5
Management.............................................................................................
4
1.6 Effect of First Step Merger on the Capital Stock of the
Constituent Corporations....................... 4
1.7 Dissenting
Shares......................................................................................
19
1.8 Payment
Schedules......................................................................................
19
1.9 Surrender of
Certificates..............................................................................
20
1.10 No Further Ownership Rights in Company Capital
Stock................................................... 22
1.11 Lost, Stolen or Destroyed
Certificates.................................................................
22
1.12 Reorganization
Status..................................................................................
22
1.13 Taking of Necessary Action; Further
Action.............................................................
22
1.14
Adjustments............................................................................................
23
1.15 Cash/Stock
Election....................................................................................
23
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE
COMPANY............................................................
24
2.1 Organization of the
Company............................................................................
24
2.2 Company Capital
Structure..............................................................................
25
2.3
Subsidiaries...........................................................................................
26
2.4
Authority..............................................................................................
26
2.5 No
Conflict............................................................................................
27
2.6
Consents...............................................................................................
27
2.7 Company Financial
Statements...........................................................................
28
2.8 No Undisclosed
Liabilities.............................................................................
29
2.9 Internal
Controls......................................................................................
29
2.10 No
Changes.............................................................................................
29
2.11 Tax
Matters............................................................................................
31
2.12 Restrictions on Business
Activities....................................................................
33
2.13 Title to Properties; Absence of Liens and Encumbrances;
Condition of Equipment; Customer Information... 34
2.14 Intellectual
Property..................................................................................
35
2.15 Agreements, Contracts and
Commitments..................................................................
40
2.16 Interested Party
Transactions..........................................................................
41
2.17 Governmental
Authorization.............................................................................
41
2.18
Litigation.............................................................................................
41
2.19 Minute
Books...........................................................................................
41
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2.20 Environmental
Matters..................................................................................
42
2.21 Brokers' and Finders' Fees; Third Party
Expenses.......................................................
42
2.22 Employee Benefit Plans and
Compensation................................................................
42
2.23
Insurance..............................................................................................
46
2.24 Compliance with
Laws...................................................................................
47
2.25 Certain Information
Practices..........................................................................
47
2.26 Warranties;
Indemnities................................................................................
47
2.27 Bank Accounts, Letters of Credit and Powers of
Attorney................................................ 47
2.28 Information
Supplied...................................................................................
47
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND THE
SUBS................................................... 48
3.1 Organization, Standing and
Power.......................................................................
48
3.2
Authority..............................................................................................
48
3.3 Parent Capital
Structure...............................................................................
49
3.4 No
Conflict............................................................................................
50
3.5
Consents...............................................................................................
50
3.6 Broker's and Finders'
Fees.............................................................................
50
3.7 SEC
Documents..........................................................................................
50
3.8 Parent Financial
Statements............................................................................
51
3.9 No Undisclosed
Liabilities.............................................................................
51
3.10 Absence of Certain Changes or
Events...................................................................
51
3.11 Interim Operations of
Subs.............................................................................
52
3.12 Information
Supplied...................................................................................
52
3.13
Litigation.............................................................................................
52
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE
TIME......................................................................
52
4.1 Conduct of Business of the
Company.....................................................................
52
4.2 Certain Corporate
Actions..............................................................................
56
4.3 No
Solicitation........................................................................................
56
4.4 Procedures for Requesting Parent
Consent...............................................................
57
ARTICLE V ADDITIONAL
AGREEMENTS.....................................................................................
57
5.1 Permit Application, Hearing Request, Information Statement;
Stockholder Approval....................... 57
5.2 Access to
Information..................................................................................
59
5.3
Confidentiality........................................................................................
60
5.4
Expenses...............................................................................................
60
5.5 Public
Disclosure......................................................................................
61
5.6
Consents...............................................................................................
61
5.7 FIRPTA
Compliance......................................................................................
61
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5.8 Notification of Certain
Matters........................................................................
62
5.9 Additional Documents and Further
Assurances............................................................
62
5.10 New Employment
Arrangements............................................................................
62
5.11 Termination of 401(k)
Plan.............................................................................
63
5.12 Section
280G...........................................................................................
63
5.13
Financials.............................................................................................
63
5.14 Reasonable Efforts; Regulatory
Filings.................................................................
64
5.15 Employee Retention
Agreements..........................................................................
64
5.16 Parent Stock Sale
Agreement............................................................................
65
5.17 Indemnification of Directors and
Officers..............................................................
65
5.18 Nasdaq
Listing.........................................................................................
66
5.19 Section 16
Matters.....................................................................................
66
5.20 Transfer
Taxes.........................................................................................
66
ARTICLE VI CONDITIONS TO THE FIRST STEP
MERGER......................................................................
66
6.1 Conditions to Obligations of Each Party to Effect the First
Step Merger................................ 66
6.2 Conditions to the Obligations of Parent and Sub
I...................................................... 67
6.3 Conditions to Obligations of the
Company...............................................................
69
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND
WARRANTIES..............................................................
70
7.1 Survival of Representations, Warranties and
Covenants.................................................. 70
7.2
Indemnification........................................................................................
70
7.3 Escrow
Arrangements....................................................................................
72
7.4 Indemnification
Claims.................................................................................
74
7.5 Stockholder
Representative.............................................................................
79
7.6 Maximum Payments;
Remedy...............................................................................
80
ARTICLE VIII
EARNOUT................................................................................................
81
8.1 Earnout
Arrangements...................................................................................
81
8.2 Earnout
Determination..................................................................................
82
8.3 Earnout Distribution; Stockholder Representative
Objections............................................ 82
ARTICLE IX TERMINATION, AMENDMENT AND
WAIVER........................................................................
84
9.1
Termination............................................................................................
84
9.2 Effect of
Termination..................................................................................
85
9.3
Amendment..............................................................................................
85
9.4 Extension;
Waiver......................................................................................
85
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ARTICLE X GENERAL
PROVISIONS........................................................................................
86
10.1
Notices................................................................................................
86
10.2
Interpretation.........................................................................................
87
10.3
Counterparts...........................................................................................
87
10.4 Entire Agreement;
Assignment...........................................................................
87
10.5
Severability...........................................................................................
87
10.6 Other Remedies; Specific
Performance...................................................................
88
10.7 Governing
Law..........................................................................................
88
10.8 Rules of
Construction..................................................................................
88
10.9 WAIVER OF JURY
TRIAL...................................................................................
88
10.10 DISCLOSURE SCHEDULE
REFERENCES.........................................................................
88
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INDEX OF EXHIBITS
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Exhibit A Form of Voting Agreement
Exhibit B-1 Form of Employee Proprietary Information, Inventions
and Non-Competition Agreement for
3% Stockholders
Exhibit B-2 Form of Employee Proprietary Information, Inventions
and Non-Competition Agreement for
Employees Who Are Not 3% Stockholders
Exhibit C-1 Form of Certificate of Merger
Exhibit C-2 Form of Second Step Certificate of Merger
Exhibit D Form of Employee Retention Agreement
Exhibit E List of Employees Executing Employee Retention
Agreements
Exhibit F List of Specified Contracts
Exhibit G List of Company Executives for Purposes of Determining
Company Knowledge
Exhibit H List of Specified Employees
Exhibit I Earnout Bonus Milestone
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SCHEDULES
Company Disclosure Schedule
Schedule 3.6 (Parent Broker's and Finders' Fees)
Schedule 5.16 (List of Stockholders entering into Parent Stock Sale
Agreements)
Schedule 6.2(b) (Governmental Approval)
Schedule 6.2(d) (Liens)
Schedule 6.2(s) (Equity Issuance Obligations)
Schedule 6.2(t) (Agreements to be Terminated)
Schedule 8.1(b)(i)(1) (Distribution of the Earnout Bonus Pool
Payment)
Schedule y8.3 (2007 Quarterly Operating Plan)
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THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and
entered
into as of February 21, 2007 by and among Nuance Communications,
Inc., a
Delaware corporation ("PARENT"), Beryllium Acquisition Corporation,
a Delaware
corporation and a wholly owned subsidiary of Parent ("SUB I"),
Beryllium
Acquisition LLC, a Delaware limited liability company and a wholly
owned
subsidiary of Parent ("SUB II", and with SUB I, the "SUBS"),
BeVocal, Inc., a
Delaware corporation (the "COMPANY"), U.S. Bank National
Association, to act as
escrow agent hereunder, and as a party to this Agreement solely
with respect to
ARTICLE VII herein (the "ESCROW AGENT") and Mikael Berner, solely
in his
capacity as the representative of the Company's stockholders, and
is referred to
herein from time to time as the "STOCKHOLDER REPRESENTATIVE."
RECITALS
A. The Boards of Directors of each of Parent, the Subs and the
Company
believe it is in the best interests of each company and its
respective
stockholders that Parent acquire the Company through the statutory
merger of Sub
I with and into the Company (the "FIRST STEP MERGER") followed by
the Second
Step Merger (as defined below) and, in furtherance thereof, have
approved and
adopted the Merger (as defined below), this Agreement and the
transactions
contemplated hereby.
B. Immediately following the First Step Merger, Parent shall cause
the
Company to merge with and into Sub II (the "SECOND STEP MERGER"
and, taken
together with the First Step Merger, the "INTEGRATED MERGER" or the
"MERGER").
The Integrated Merger is intended to constitute a "reorganization"
within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the
"CODE"). Parent and the Company intend that the First Step Merger
and the Second
Step Merger will constitute integrated steps in a single "plan
of
reorganization" within the meaning of Treas. Reg. Sections
1.368-2(g) and
1.368-3, which plan of reorganization the parties adopt by
executing this
Agreement.
C. Pursuant to the First Step Merger, among other things, and
subject to
the terms and conditions of this Agreement, all of the issued and
outstanding
capital stock of the Company (other than the Dissenting Shares (as
defined
below)) shall be converted into the right to receive the
consideration set forth
herein.
D. A portion of the consideration payable in connection with the
First
Step Merger shall be placed in escrow as security for the
indemnification
obligations set forth in this Agreement.
E. The Company, on the one hand, and Parent and the Subs, on the
other
hand, desire to make certain representations, warranties, covenants
and other
agreements in connection with the Integrated Merger.
F. Concurrent with the execution and delivery of this Agreement, as
a
material inducement to Parent and the Subs to enter into this
Agreement, all
officers and directors of the Company, and certain stockholders of
the Company
are entering into Voting Agreements, in substantially the form
attached hereto
as EXHIBIT A (the "VOTING AGREEMENTS"), with Parent,
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pursuant to which such stockholders have irrevocably agreed to vote
in favor of
the Integrated Merger and the transactions contemplated thereby and
to other
matters set forth therein, and all employees of the Company who own
three
percent (3%) or more of the Total Outstanding Shares (as defined in
SECTION
1.6(a)) are entering into Employee Proprietary Information,
Inventions and
Non-Competition Agreements, each in substantially the form attached
hereto as
EXHIBIT B-1 and all other employees of the Company who accept
employment with
the Final Surviving Entity are entering into Employee Proprietary
Information,
Inventions and Non-Competition Agreements, each in substantially
the form
attached hereto as EXHIBIT B-2 (collectively the "EMPLOYEE
PROPRIETARY
INFORMATION, INVENTIONS AND NON-COMPETITION AGREEMENTS"), with
Parent or the
Final Surviving Entity, as determined by Parent.
G. Concurrent with the execution and delivery of this Agreement, as
a
material inducement to Parent and the Subs to enter into this
Agreement, the
persons listed on EXHIBIT H are entering into offer letters with
Parent.
NOW, THEREFORE, in consideration of the mutual agreements,
covenants and
other promises set forth herein, the mutual benefits to be gained
by the
performance thereof, and for other good and valuable consideration,
the receipt
and sufficiency of which are hereby acknowledged and accepted, the
parties
hereby agree as follows:
ARTICLE I
THE MERGER
1.1 THE INTEGRATED MERGER. At the Effective Time (as defined in
SECTION
1.2 hereof) and subject to and upon the terms and conditions of
this Agreement
and the applicable provisions of the General Corporation Law of the
State of
Delaware ("DELAWARE LAW"), Sub I shall be merged with and into the
Company, the
separate corporate existence of Sub I shall cease, and the Company
shall
continue as the surviving corporation and as a wholly owned
subsidiary of
Parent. The surviving corporation after the First Step Merger is
hereinafter
referred to as the "INTERIM SURVIVING CORPORATION." Immediately
after the
Effective Time, and subject to and upon the terms and conditions of
this
Agreement and the applicable provisions of The Delaware Limited
Liability
Company Act (the "LLC ACT") and Delaware Law, the Interim Surviving
Corporation
shall be merged with and into Sub II, the separate corporate
existence of the
Interim Surviving Corporation shall cease, and Sub II shall
continue as the
surviving entity and as a wholly owned subsidiary of Parent. The
surviving
entity after the Second Step Merger is hereinafter referred to as
the "FINAL
SURVIVING ENTITY."
1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated
pursuant
to SECTION 9.1 hereof, the closing of the First Step Merger (the
"CLOSING") will
take place as promptly as practicable after the execution and
delivery hereof by
the parties hereto, and following satisfaction or waiver of the
conditions set
forth in ARTICLE VI hereof, at the offices of Wilson Sonsini
Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, CA 94304,
unless
another time or place is mutually agreed upon in writing by Parent
and the
Company. The date upon which the Closing actually occurs shall be
referred to
herein as the "CLOSING DATE." On the Closing
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Date, the parties hereto shall cause the First Step Merger to be
consummated by
filing a Certificate of Merger in substantially the form attached
hereto as
EXHIBIT C-1, with the Secretary of State of the State of Delaware
(the
"CERTIFICATE OF MERGER"), in accordance with the applicable
provisions of
Delaware Law (the time of the acceptance of such filing by the
Secretary of
State of the State of Delaware such filing shall be referred to
herein as the
"EFFECTIVE TIME"). Immediately after the Effective Time, Parent
shall cause the
Second Step Merger to be consummated by filing a Certificate of
Merger in
substantially the form attached hereto as EXHIBIT C-2 with the
Secretary of
State of the State of Delaware (the "SECOND STEP CERTIFICATE OF
MERGER"), in
accordance with the applicable provisions of Delaware Law and the
LLC Act.
1.3 EFFECT OF THE FIRST STEP MERGER AND THE SECOND STEP MERGER. At
the
Effective Time, the effect of the First Step Merger shall be as
provided in the
applicable provisions of Delaware Law. Without limiting the
generality of the
foregoing, and subject thereto, at the Effective Time, except as
otherwise
agreed to pursuant to the terms of this Agreement, all of the
property, rights,
privileges, powers and franchises of the Company and Sub I shall
vest in the
Interim Surviving Corporation, and all debts, liabilities and
duties of the
Company and Sub I shall become the debts, liabilities and duties of
the Interim
Surviving Corporation. At the effective time of the Second Step
Merger, the
effect of the Second Step Merger shall be as provided in the
applicable
provisions of Delaware Law and the LLC Act. Without limiting the
generality of
the foregoing, and subject thereto, at the effective time of the
Second Step
Merger, except as otherwise agreed to pursuant to the terms of this
Agreement,
all of the property, rights, privileges, powers and franchises of
the Interim
Surviving Corporation shall vest in Sub II as the surviving entity
in the Second
Step Merger, and all debts, liabilities and duties of the Interim
Surviving
Corporation shall become the debts, liabilities and duties of Sub
II as the
surviving entity in the Second Step Merger.
1.4. FORMATION DOCUMENTS.
(a) Unless otherwise determined by Parent prior to the
Effective
Time, the certificate of incorporation of the Interim Surviving
Corporation
shall be amended and restated as of the Effective Time to be
identical to the
certificate of incorporation of Sub I as in effect immediately
prior to the
Effective Time, until thereafter amended in accordance with
Delaware Law and as
provided in such certificate of incorporation; provided, however,
that at the
Effective Time, Article I of the certificate of incorporation of
the Interim
Surviving Corporation shall be amended and restated in its entirety
to read as
follows: "The name of the corporation is BeVocal, Inc."
(b) Unless otherwise determined by Parent prior to the
Effective
Time, the bylaws of Sub I, as in effect immediately prior to the
Effective Time,
shall be the bylaws of the Interim Surviving Corporation at the
Effective Time
until thereafter amended in accordance with Delaware Law and as
provided in the
certificate of incorporation of the Interim Surviving Corporation
and such
bylaws.
(c) Unless otherwise determined by Parent prior to the
Effective
Time, the certificate of formation of Sub II as in effect
immediately prior to
the effective time of the Second Step Merger shall be the
certificate of
formation of the Final Surviving Entity in the Second Step Merger
until
thereafter amended in accordance with the LLC Act and as provided
in such
certificate
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of formation; provided, however, that at the effective time of the
Second Step
Merger, Article I of such certificate of formation shall be amended
and restated
in its entirety to read as follows: "The name of this limited
liability company
is BeVocal, LLC."
(d) Unless otherwise determined by Parent prior to the
Effective
Time, the Limited Liability Company Agreement of Sub II as in
effect immediately
prior to the effective time of the Second Step Merger shall be the
Limited
Liability Company Agreement of the Final Surviving Entity, until
thereafter
amended in accordance with the LLC Act and as provided in such
Limited Liability
Company Agreement; provided, however, that at the Effective Time,
such Limited
Liability Company Agreement shall be amended and restated in its
entirety to
read as follows: "The name of this limited liability company is
BeVocal, LLC."
1.5 MANAGEMENT.
(a) DIRECTORS/MANAGERS OF COMPANY. Unless otherwise determined
by
Parent prior to the Effective Time, the directors of Sub I
immediately prior to
the Effective Time shall be the directors of the Interim Surviving
Corporation
immediately after the Effective Time and the managers of the Final
Surviving
Entity immediately after the effective time of the Second Step
Merger, each to
hold the office of a director/manager of the Interim Surviving
Corporation and
the Final Surviving Entity, respectively, in accordance with the
provisions of
Delaware Law and the certificate of incorporation and bylaws of the
Interim
Surviving Corporation and the LLC Act and the Certificate of
Formation of the
Final Surviving Entity until their respective successors are duly
elected and
qualified.
(b) OFFICERS OF COMPANY. Unless otherwise determined by Parent
prior
to the Effective Time, the officers of Sub I immediately prior to
the Effective
Time shall be the officers of the Interim Surviving Corporation
immediately
after the Effective Time and the officers of the Final Surviving
Entity after
the effective time of the Second Step Merger, each to hold office
in accordance
with the provisions of the bylaws of the Interim Surviving
Corporation and the
Limited Liability Company Agreement of the Final Surviving Entity,
respectively.
1.6 EFFECT OF FIRST STEP MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT
CORPORATIONS.
(a) DEFINITIONS. For all purposes of this Agreement, the
following
terms shall have the following respective meanings:
(i) "2007 REVENUE MILESTONE" means $56,000,000.
(ii) "AGGREGATE LIQUIDATION PREFERENCE" shall mean the sum of
(x) $10,000,000 plus (y) the Series E Aggregate Liquidation
Preference.
(iii) "AGGREGATE PARTICIPATING CASH CLOSING CONSIDERATION"
shall mean (x) the Cash Closing Consideration minus (y) the product
of (A) the
Aggregate Liquidation Preference multiplied by (B) the Cash
Proportion.
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(iv) "AGGREGATE PARTICIPATING STOCK CLOSING CONSIDERATION"
shall mean (x) the Stock Closing Consideration minus (y) the
product of (A) the
Aggregate Liquidation Preference multiplied by (B) the Stock
Proportion.
(v) "BUSINESS DAY(s)" shall mean each day that is not a
Saturday, Sunday or holiday on which banking institutions located
in New York,
New York are authorized or obligated by law or executive order to
close.
(vi) "CASH CLOSING CONSIDERATION" shall mean $30,000,000.
(vii) "CLOSING CONSIDERATION" shall mean the Cash Closing
Consideration and the Stock Closing Consideration.
(viii) "CASH PROPORTION" shall mean (x) the Cash Closing
Consideration divided by (y) the sum of the Cash Closing
Consideration plus the
Stock Closing Consideration.
(ix) "CLOSING PRICE" shall mean the average of the reported
closing price per share of the Parent Common Stock for the ten (10)
Business
Days prior to the Closing Date.
(x) "COMPANY BUSINESS" shall mean the business operations and
activities of the Company, as carried on as of the date hereof,
that result in
the earning of Revenues.
(xi) "COMPANY CAPITAL STOCK" shall mean shares of Company
Common Stock and Company Preferred Stock.
(xii) "COMPANY COMMON STOCK" shall mean shares of common
stock, $0.001 par value per share, of the Company.
(xiii) "COMPANY MATERIAL ADVERSE EFFECT" shall mean any
change, event or effect that is materially adverse to the business,
assets
(whether tangible or intangible), financial condition or results of
operations
("MATERIAL ADVERSE EFFECT") of the Company, taken as a whole;
provided that, in
no event shall any of the following, alone or in combination with
one another,
be deemed to constitute, nor shall any of the following be taken
into account in
determining whether there has been or would reasonably be expected
to be a
Company Material Adverse Effect: (A) any effect resulting from
changes or
effects in general worldwide or United States economic, capital
market or
political conditions (which changes or effects do not
disproportionately affect
the Company), (B) any effect resulting from changes or effects
generally
affecting the industries or markets in which the Company operates
(which changes
or effects do not disproportionately affect the Company), (C) any
effect
resulting from any act of war or terrorism (or, in each case, any
escalation
thereof) which changes or effects do not disproportionately affect
the Company),
(D) any changes in Applicable Law or GAAP, or (E) any effect
resulting from the
loss of the customer identified on SECTION 1.6(a)(XIII) of the
Disclosure
Schedule.
(xiv) "COMPANY OPTIONS" shall mean all options (including
commitments to grant options, but excluding Company Warrants) to
purchase or
otherwise acquire Company
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Common Stock (whether or not vested) held by any person or entity,
each of whom
are listed on SECTION 2.2(c) of the Disclosure Schedule (including
options that
have been granted in accordance with SECTION 4.1 hereof), that are
issued and
outstanding immediately prior to the Effective Time.
(xv) "COMPANY PREFERRED STOCK" shall mean the Series A
Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the
Series D Preferred Stock and the Series E Preferred Stock, taken
together.
(xvi) "COMPANY PREFERRED STOCKHOLDER" shall mean a holder of
Preferred Stock, each of whom is listed on SECTION 2.2(a) of the
Disclosure
Schedule.
(xvii) "COMPANY UNVESTED OPTIONS" shall mean all Company
Options that are unvested immediately prior to the Effective
Time.
(xviii) "COMPANY VESTED OPTIONS" shall mean all Company
Options that are vested (and have not been exercised) immediately
prior to the
Effective Time.
(xix) "COMPANY WARRANTS" shall mean all issued and outstanding
warrants or other rights (including commitments to grant warrants
or other
rights, but excluding Company Options) to purchase or otherwise
acquire Company
Capital Stock (whether or not vested) held by any person or entity,
each of whom
are listed on SECTION 2.2(c) of the Disclosure Schedule.
(xx) "CONTRACT" shall mean any written or oral agreement,
contract, subcontract, lease, binding understanding, instrument,
note, bond,
mortgage, indenture, option, warranty, purchase order, license,
sublicense,
benefit plan, obligation, commitment or undertaking of any
nature.
(xxi) "EARNOUT BONUS MILESTONE" shall mean the milestone set
forth on Exhibit I.
(xxii) "EARNOUT BONUS POOL PARTICIPANTS" shall mean those
persons identified on SCHEDULE 8.1(b)(i)(1) as Earnout Bonus Pool
Participants.
(xxiii) "EARNOUT CONSIDERATION" shall mean an amount of cash
equal to (i) $60,000,000 minus (ii) the Earnout Contingent Expense
Adjustment
Amount (as defined in SECTION 5.4 hereof).
(xxiv) "EARNOUT DETERMINATION DATE" means the date that is
eighteen (18) months from the Closing Date; provided, however, that
if such date
is not a Business Day, the next proceeding Business Day.
(xxv) "EARNOUT PAYMENT DATE" means the date on which the
Earnout Notice becomes final pursuant to SECTION 8.3 hereof.
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(xxvi) "ESCROW AMOUNT" shall mean that number of unrestricted,
fully paid, nonassessable shares of Parent Common Stock equal to
the number
obtained by dividing $16,250,000 by the Signing Price and rounding
down to the
nearest whole share.
(xxvii) "EXCHANGE ACT" shall mean the Securities Exchange Act
of 1934, as amended.
(xxviii) "GAAP" shall mean United States generally accepted
accounting principles consistently applied.
(xxix) "KNOWLEDGE" or "KNOWN" shall mean, with respect to the
Company, the knowledge of the persons listed on EXHIBIT G after due
and diligent
inquiry of those employees of the Company whom such persons
reasonably believe
would have actual knowledge of the matters represented.
(xxx) "LIEN" shall mean any lien, pledge, charge, claim,
mortgage, security interest or other encumbrance of any sort.
(xxxi) "MERGER CONSIDERATION" shall mean the Closing
Consideration plus the Earnout Consideration.
(xxxii) "PARENT COMMON STOCK" shall mean the common stock, par
value $0.001 per share, of Parent.
(xxxiii) "PARENT MATERIAL ADVERSE EFFECT" shall mean any
change, event or effect that (i) is materially adverse to the
business, assets
(whether tangible or intangible), financial condition, or results
of operations
of Parent and its subsidiaries, taken as a whole or (ii) will or is
reasonably
likely to materially impede the ability of Parent to timely
consummate the
transactions contemplated by this Agreement in accordance with the
terms hereof;
provided, however, that, for purposes of clause (i) above, in no
event shall any
of the following be taken into account in determining whether there
has been or
will be a Parent Material Adverse Effect: (A) any effect resulting
from changes
or effects in general worldwide or United States economic, capital
market or
political conditions (which changes or effects do not
disproportionately affect
Parent), (B) any effect resulting from changes or effects generally
affecting
the industries or markets in which Parent operates (which changes
or effects do
not disproportionately affect Parent), (C) any effect resulting
from any act of
war or terrorism (or, in each case, any escalation thereof) which
changes or
effects do not disproportionately affect Parent), (D) any changes
in Applicable
Law or GAAP or (E) any change in and of itself in Parent's stock
price or
trading volume.
(xxxiv) "PARTICIPATING CLOSING CONSIDERATION" shall mean the
Aggregate Participating Cash Closing Consideration and the
Aggregate
Participating Stock Closing Consideration.
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(xxxv) "PER SHARE PARTICIPATING CASH CLOSING CONSIDERATION"
shall mean the quotient obtained by dividing (x) the Aggregate
Participating
Cash Closing Consideration by (y) the Total Outstanding Shares.
(xxxvi) "PER SHARE PARTICIPATING CLOSING CONSIDERATION" shall
mean the quotient obtained by dividing (x) the Participating
Closing
Consideration by (y) the Total -- Outstanding Shares.
(xxxvii) "PER SHARE PARTICIPATING STOCK CLOSING CONSIDERATION"
shall mean the quotient obtained by dividing (x) the Aggregate
Participating
Stock Closing Consideration by (y) the Total Outstanding
Shares.
(xxxviii) "PLAN" shall mean the Company's 1999 Stock
Option/Stock Issuance Plan.
(xxxix) "PRO RATA PORTION" shall mean, with respect to each
Stockholder (including any holder of a Company Vested Option or a
Company
Warrant to whom shares of Company Capital Stock are deemed to have
been
delivered pursuant to SECTION 1.6(d) or SECTION 1.6(e) hereof), the
quotient
obtained by dividing (A) the Stock Closing Consideration that such
Stockholder
is entitled to receive at the Effective Time (as determined
pursuant to SECTION
1.6(b)) including the number of shares to be contributed to the
Escrow Fund)
with respect to the shares of Company Capital Stock held by such
holder
immediately prior to the Effective Time (including any shares of
Company Capital
Stock deemed to have been delivered pursuant to SECTION 1.6(d) or
SECTION 1.6(e)
hereof) by (B) the Stock Closing Consideration.
(xl) "RELATED AGREEMENTS" shall mean the Certificates of
Merger, the Voting Agreements and the Employee Proprietary
Information,
Inventions and Non-Competition Agreements.
(xli) "REVENUES" shall mean (A) revenues as determined in
accordance with GAAP derived from (i) the sale or licensing of the
Company's
patents, (ii) the sale of the Company's VoComm product suite,
either hosted or
on customer premises, (iii) the sale of the Company's Beyond
product suite,
either hosted or on customer premises, (iv) the sale of products or
solutions
substantively based on the Company's existing products, (v) fees
from
professional services related to the installation or customization
of the
Company's VoComm and Beyond product suites and (vi) fees derived
from hosting
applications and services on the Company's infrastructure
(including, but not
limited to associated professional services and telephony fees),
plus (B) the
value of any reduction in revenues that are required as purchase
accounting
adjustments under GAAP, plus (C) the value of any discretionary
reduction in
revenues that (i) result from changing the classification of
Telephony and Other
Revenue on a Gross as a Principal basis under EITF 99-19, or (ii)
result from a
change in recognition policies and practices which are inconsistent
with the
Company's past practices for (a) recognition of activation or other
transaction
services revenue at the time of service delivery in multiple
element
arrangements as determined under EITF 00-21 and current contract
terms, (b) use
of the contractual period as the most appropriate determinant of
customer
relationship for recognition of initial professional services cost
and revenue
and such
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<PAGE>
period is not subject to change once revenue commencement has
begun, and (c) use
of release notes to document delivery to commence recognition of
professional
services revenue and costs over the remaining term of the
relationship.
(xlii) "SEC" shall mean the United States Securities and
Exchange Commission.
(xliii) "SECURITIES ACT" shall mean the Securities Act of
1933, as amended.
(xliv) "SERIES A PREFERRED STOCK" shall mean the Company's
Series A Preferred Stock, $0.001 par value per share.
(xlv) "SERIES A PRO RATA LIQUIDATION PREFERENCE" shall mean
(A) $0.28 per share multiplied by $5,500,000 divided by (B) the sum
of the
Series A Proportional Amount plus the Series B Proportional Amount
plus the
Series C Proportional Amount.
(xlvi) "SERIES A PROPORTIONAL AMOUNT" shall mean $0.28 per
share multiplied by the number of shares of Series A Preferred
Stock that are
issued and outstanding immediately prior to the Effective Time.
(xlvii) "SERIES B PREFERRED STOCK" shall mean the Company's
Series B Preferred Stock, $0.001 par value per share.
(xlviii) "SERIES B PRO RATA LIQUIDATION PREFERENCE" shall mean
(A) $2.95 per share multiplied by $5,500,000 divided by (B) the sum
of the
Series A Proportional Amount plus the Series B Proportional Amount
plus the
Series C Proportional Amount.
(xlix) "SERIES B PROPORTIONAL AMOUNT" shall mean $2.95 per
share multiplied by the number of shares of Series B Preferred
Stock that are
issued and outstanding immediately prior to the Effective Time.
(l) "SERIES C PREFERRED STOCK" shall mean the Company's Series
C Preferred Stock, $0.001 par value per share.
(li) "SERIES C PRO RATA LIQUIDATION PREFERENCE" shall mean (A)
$1.06 per share multiplied by $5,500,000 divided by (B) the sum of
the Series A
Proportional Amount plus the Series B Proportional Amount plus the
Series C
Proportional Amount.
(lii) "SERIES C PROPORTIONAL AMOUNT" shall mean $1.06 per
share multiplied by the number of shares of Series C Preferred
Stock that are
issued and outstanding immediately prior to the Effective Time.
(liii) "SERIES D PER SHARE LIQUIDATION PREFERENCE" shall mean
the quotient obtained by dividing (x) $4,500,000 by (y) the number
of shares of
Series D Preferred Stock -- issued and outstanding immediately
prior to the
Effective Time.
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<PAGE>
(liv) "SERIES D PREFERRED STOCK" shall mean the Company's
Series D Preferred Stock, $0.001 par value per share.
(lv) "SERIES E AGGREGATE LIQUIDATION PREFERENCE" shall mean
(x) the aggregate number of shares of Series E Preferred Stock
issued and
outstanding immediately prior to the Effective Time, multiplied by
(y) $0.0952
per share.
(lvi) "SERIES E PREFERRED STOCK" shall mean the Company's
Series E Preferred Stock, $0.001 par value per share.
(lvii) "SIGNING PRICE" shall mean $13.26 per share.
(lviii) "SPECIFIED CONTRACT" shall mean each of the Contracts
listed on EXHIBIT F hereto.
(lix) "SPECIFIED EMPLOYEE" shall mean each of the persons
listed in EXHIBIT H hereto.
(lx) "STOCK CLOSING CONSIDERATION" shall mean $110,000,000
minus (A) the Closing Consideration Third Party Expense Adjustment
Amount (as
defined in SECTION 5.4 hereof) and minus (B) the Pre-Closing
Dissenting Share
Payments (as defined in SECTION 1.7(c)).
(lxi) "STOCKHOLDER" shall mean any holder of any Company
Capital Stock that is issued and outstanding immediately prior to
the Effective
Time.
(lxii) "STOCK PROPORTION" shall mean (x) the Stock Closing
Consideration divided by (y) the sum of the Cash Closing
Consideration plus the
Stock Closing Consideration.
(lxiii) "TOTAL OUTSTANDING SHARES" shall mean the aggregate
number of shares of Company Common Stock issued and outstanding
immediately
prior to the Effective Time (including shares of Company Common
Stock deemed to
have been delivered pursuant to SECTION 1.6(d)(II) or SECTION
1.6(e) hereof and
including shares of Restricted Stock (as defined in SECTION
1.6(c)), plus the
number of shares of Company Common Stock issuable upon conversion
of all of the
shares of Company Preferred Stock issued and outstanding
immediately prior to
the Effective Time (including shares of Company Preferred Stock
deemed to have
been delivered pursuant to SECTION 1.6(e) hereof).
(b) EFFECT ON CAPITAL STOCK; DISTRIBUTION OF MERGER
CONSIDERATION.
By virtue of the First Step Merger and without any action on the
part of Sub I,
the Company or the holders of shares of Company Capital Stock, each
share of
Company Capital Stock issued and outstanding (including shares of
Company
Capital Stock deemed to have been delivered pursuant to SECTION
1.6(d)(II) or
SECTION 1.6(e) hereof) immediately prior to the Effective Time
(other than
Dissenting Shares (as defined in SECTION 1.7(a) hereof) and subject
to the
escrow provisions contained herein), upon the terms and subject to
the
conditions set forth in this SECTION 1.6 and throughout this
Agreement, will be
cancelled and extinguished and be converted automatically into the
right to
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<PAGE>
receive, upon surrender of the certificate representing such share
of Company
Capital Stock in the manner provided in SECTION 1.9 hereof, the
Merger
Consideration as follows in this SECTION 1.6(b):
(i) CLOSING CONSIDERATION PAYMENT. At the Effective Time,
Parent shall deliver to the Exchange Agent (as defined in SECTION
1.9) the
Closing Consideration, which shall be distributed as follows:
(1) Each holder of Series E Preferred Stock that is
issued and outstanding (including shares deemed to have been
delivered pursuant
to SECTION 1.6(e) hereof) immediately prior to the Effective Time
(other than
Dissenting Shares (as defined in SECTION 1.7 hereof)) shall be
entitled to
receive:
a) an amount of cash equal to the number of shares of
Series E Preferred Stock owned by such holder immediately prior to
the Effective
Time multiplied by $0.0952 per share multiplied by the Cash
Proportion, plus
b) that number of shares of Parent Common Stock equal
to: (A) the number of shares of Series E Preferred Stock owned by
such holder
immediately prior to the Effective Time multiplied by $0.0952 per
share
multiplied by the Stock Proportion divided by (B) the Signing Price
rounded down
to the nearest whole share, plus
c) an amount of cash equal to the number of shares of
Company Common Stock issuable upon conversion of the Series E
Preferred Stock
owned by such holder immediately prior to the Effective Time
multiplied by the
Per Share Participating Cash Closing Consideration, plus
d) that number of shares of Parent Common Stock equal
to: (A) the number of shares of Company Common Stock issuable upon
conversion of
the Series E Preferred Stock owned by such holder immediately prior
to the
Effective Time multiplied by the Per Share Participating Stock
Closing
Consideration divided by (B) the Signing Price rounded down to the
nearest whole
share.
(2) Each holder of Series D Preferred Stock that is
issued and outstanding (including shares deemed to have been
delivered pursuant
to SECTION 1.6(e) hereof) immediately prior to the Effective Time
(other than
Dissenting Shares) shall be entitled to receive:
a) an amount in cash equal to the number of shares of
Series D Preferred Stock owned by such holder immediately prior to
the Effective
Time multiplied by the Series D Per Share Liquidation Preference
multiplied by
the Cash Proportion, plus
b) that number of shares of Parent Common Stock equal
to (A) the number of shares of Series D Preferred Stock owned by
such holder
immediately prior to the Effective Time multiplied by the Series D
Per Share
Liquidation Preference multiplied by the Stock Proportion divided
by (B) the
Signing Price rounded down to the nearest whole share, plus
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c) an amount of cash equal to the number of shares of
Company Common Stock issuable upon conversion of the Series D
Preferred Stock
owned by such holder immediately prior to the Effective Time
multiplied by the
Per Share Participating Cash Closing Consideration, plus
d) that number of shares of Parent Common Stock equal
to: (A) the number of shares of Company Common Stock issuable upon
conversion of
the Series D Preferred Stock owned by such holder immediately prior
to the
Effective Time multiplied by the Per Share Participating Stock
Closing
Consideration divided by (B) the Signing Price rounded down to the
nearest whole
share.
(3) Each holder of Series C Preferred Stock that is
issued and outstanding (including shares deemed to have been
delivered pursuant
to SECTION 1.6(e) hereof) immediately prior to the Effective Time
(other than
Dissenting Shares) shall be entitled to receive:
a) an amount in cash equal to the number of shares of
Series C Preferred Stock owned by such holder immediately prior to
the Effective
Time multiplied by the Series C Pro Rata Liquidation Preference
multiplied by
the Cash Proportion, plus
b) that number of shares of Parent Common Stock equal
to: (A) the number of shares of Series C Preferred Stock owned by
such holder
immediately prior to the Effective Time multiplied by the Series C
Pro Rata
Liquidation Preference multiplied by the Stock Proportion divided
by (B) the
Signing Price rounded down to the nearest whole share, plus
c) an amount of cash equal to the number of shares of
Company Common Stock issuable upon conversion of the Series C
Preferred Stock
owned by such holder immediately prior to the Effective Time,
multiplied by the
Per Share Participating Cash Closing Consideration, plus
d) that number of shares of Parent Common Stock equal
to: (A) the number of shares of Company Common Stock issuable upon
conversion of
the Series C Preferred Stock owned by such holder immediately prior
to the
Effective Time multiplied by the Per Share Participating Stock
Closing
Consideration divided by (B) the Signing Price rounded down to the
nearest whole
share.
(4) Each holder of Series B Preferred Stock that is
issued and outstanding (including shares deemed to have been
delivered pursuant
to SECTION 1.6(e) hereof) immediately prior to the Effective Time
(other than
Dissenting Shares) shall be entitled to receive:
a) an amount in cash equal to the number of shares of
Series B Preferred Stock owned by such holder immediately prior to
the Effective
Time multiplied by the Series B Pro Rata Liquidation Preference
multiplied by
the Cash Proportion, plus
b) that number of shares of Parent Common Stock equal
to: (A) the number of shares of Series B Preferred Stock owned by
such holder
immediately prior to
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<PAGE>
the Effective Time multiplied by the Series B Pro Rata Liquidation
Preference
multiplied by the Stock Proportion divided by (B) the Signing Price
rounded down
to the nearest whole share, plus
c) an amount in cash equal to the number of shares of
Company Common Stock issuable upon conversion of the Series B
Preferred Stock
owned by such holder immediately prior to the Effective Time
multiplied by the
Per Share Participating Cash Closing Consideration, plus
d) that number of shares of Parent Common Stock equal
to: (A) the number of shares of Company Common Stock issuable upon
conversion of
the Series C Preferred Stock owned by such holder immediately prior
to the
Effective Time multiplied by the Per Share Participating Stock
Closing
Consideration divided by (B) the Signing Price rounded down to the
nearest whole
share.
(5) Each holder of Series A Preferred Stock that is
issued and outstanding (including shares deemed to have been
delivered pursuant
to SECTION 1.6(e) hereof) immediately prior to the Effective Time
(other than
Dissenting Shares) shall be entitled to receive:
a) an amount in cash equal to the number of shares of
Series A Preferred Stock owned by such holder immediately prior to
the Effective
Time multiplied by the Series A Pro Rata Liquidation Preference
multiplied by
the Cash Proportion, plus
b) that number of shares of Parent Common Stock equal
to: (A) the number of shares of Series A Preferred Stock owned by
such holder
immediately prior to the Effective Time multiplied by the Series A
Pro Rata
Liquidation Preference multiplied by the Stock Proportion divided
by (B) the
Signing Price rounded down to the nearest whole share, plus
c) an amount in cash equal to the number of shares of
Company Common Stock issuable upon conversion of the Series A
Preferred Stock
owned by such holder immediately prior to the Effective Time
multiplied by the
Per Share Participating Cash Closing Consideration, plus
d) that number of shares of Parent Common Stock equal
to: (A) the number of shares of Company Common Stock issuable upon
conversion of
the Series A Preferred Stock owned by such holder immediately prior
to the
Effective Time multiplied by the Per Share Participating Stock
Closing
Consideration divided by (B) the Signing Price rounded down to the
nearest whole
share.
(6) Each holder of Company Common Stock that is issued
and outstanding (including shares deemed to have been delivered
pursuant to
SECTION 1.6(d)(II) OR SECTION 1.6(E) hereof) immediately prior to
the Effective
Time (other than Dissenting Shares) shall be entitled to
receive:
a) an amount in cash equal to the number of shares of
Company Common Stock owned by such holder immediately prior to the
Effective
Time (but
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<PAGE>
excluding, for the purpose of clarity, any shares of Company Common
Stock
issuable upon conversion of any Company Preferred Stock owned by
such holder, or
deemed to have been delivered pursuant to SECTION 1.6(e) hereof))
multiplied by
the Per Share Participating Cash Closing Consideration, plus
b) that number of shares of Parent Common Stock equal
to: (A) the number of shares of Company Common Stock owned by such
holder
immediately prior to the Effective Time (but excluding, for the
purpose of
clarity, any shares of Company Common Stock issuable upon
conversion of any
Company Preferred Stock owned by such holder, or deemed to have
been delivered
pursuant to SECTION 1.6(e) hereof)) multiplied by the Per Share
Participating
Stock Closing Consideration divided by (B) the Signing Price
rounded down to the
nearest whole share.
(7) Each distribution of shares of Parent Common Stock
made to a Stockholder holding Company Capital Stock (or deemed to
be holding
Company Capital Stock pursuant to SECTION 1.6(d)(ii) or SECTION
1.6(e) hereof)
pursuant to this SECTION 1.6(b)(i) shall be reduced by such
Stockholder's Pro
Rata Portion of the Escrow Amount in accordance with SECTION 7.3
hereof.
(8) Notwithstanding anything in this SECTION 1.6(b)(i)
to the contrary, in no event shall Parent be obligated to
distribute in the
aggregate (x) any number of shares of Parent Common Stock in excess
of (A) the
Stock Closing Consideration divided by (B) the Signing Price
rounded down to the
nearest whole share or (y) an amount of cash in excess of the Cash
Closing
Consideration.
(ii) EARNOUT CONSIDERATION PAYMENT. As soon as practicable
following the Earnout Payment Date but in any event within three
(3) Business
Days of such date, Parent shall deliver to the Exchange Agent the
Earned Earnout
Amount (as defined in SECTION 8.1), if any, which shall be
distributed as
follows:
(1) Each holder of Company Capital Stock that was issued
and outstanding (including Company Capital Stock deemed to have
been delivered
pursuant to SECTION 1.6(d)(ii) or SECTION 1.6(e) hereof)
immediately prior to
the Effective Time shall, subject to the terms of the agreements
referenced in
SECTION 5.15 hereof, be entitled to receive a cash amount equal to:
(A) the
number of shares of Company Common Stock owned by such holder (or
deemed to be
owned pursuant to SECTION 1.6(d)(ii) hereof) immediately prior to
the Effective
Time (including shares of Company Common Stock issuable upon
conversion of
Company Preferred Stock owned by such holder (or deemed to be owned
pursuant to
SECTION 1.6(e) hereof) immediately prior to the Effective Time)
divided by (B)
the Total Outstanding Shares multiplied by (C) the Final Earnout
Amount.
(2) Notwithstanding anything in this SECTION 1.6(b)(II)
to the contrary, in no event shall Parent be obligated to
distribute in the
aggregate cash in excess of the Earnout Consideration.
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<PAGE>
(c) RESTRICTIONS ON SHARES OF COMPANY STOCK. With respect to
any
shares of Company Common Stock which immediately prior to the
Effective Time
were unvested or were subject to a repurchase option, substantial
risk of
forfeiture or other similar condition under any applicable
restricted stock
purchase agreement or other similar agreement with the Company
("RESTRICTED
STOCK") and which were acquired by the holder subsequent to
November 6, 2006,
the Merger Consideration issued in exchange therefor shall remain
unvested or
subject to such repurchase option, substantial risk of forfeiture
or other
similar condition.
(d) TREATMENT OF COMPANY OPTIONS.
(i) No Company Vested Option shall be assumed or otherwise
replaced by Parent. Each Company Vested Option which is unexercised
and
outstanding immediately prior to the Effective Time, shall in
accordance with
its terms and by virtue of the First Step Merger and without any
action on the
part of the Parent, the Subs, the Company or the holder thereof,
terminate and
cease to be outstanding (each such terminated Company Vested Option
shall be
referred to as a "CANCELLED OPTION").
(ii) Holders of Cancelled Options shall be given the
opportunity (of not more than 30 days) to decline to accept a
modification of
such Cancelled Option such that, immediately prior to the Effective
Time, and
conditioned on the consummation of the Merger, the holder of each
Cancelled
Option shall be deemed to have exercised such Cancelled Option
pursuant to a net
exercise program whereby the holder will be deemed to have paid the
aggregate
exercise price for such Cancelled Option by relinquishing that
number of shares
of Company Common Stock underlying such option in an amount
necessary to pay the
applicable aggregate exercise price and any applicable withholding
taxes
associated with such net exercise of such Cancelled Option. The
number of shares
of Company Common Stock deemed delivered to the holder of each
Cancelled Option
pursuant to this net exercise program shall be determined by
subtracting the Net
Exercise Consideration (as defined below) from the number of shares
of Company
Common Stock subject to such Cancelled Option. The holder of each
such Cancelled
Option shall thereafter (A) participate in the transactions
contemplated by this
Agreement in the same manner, and to the same extent, as if such
holder owned
that number of shares of Company Common Stock delivered after the
net exercise,
pursuant to this SECTION 1.6(d)(ii) and (B) receive, if applicable,
the
Fractional Share Payment (as defined in SECTION 1.6(d)(vi)). As
soon as
practicable following the execution of this Agreement, the Company
shall provide
to each holder of any Company Vested Option an informational notice
and consent
describing the treatment of such Cancelled Options pursuant to this
SECTION
1.6(d)(ii).
(iii) With respect to each Company Unvested Option that is
outstanding immediately prior to the Effective Time, Parent shall,
at its sole
discretion and pursuant to a written election of Parent made prior
to the
Closing, agree to either (A) assume such Company Unvested Option in
accordance
with the terms set forth below in this SECTION 1.6(d)(iii) or (B)
cause all such
Company Unvested Options to accelerate and terminate in accordance
with their
respective terms (each referred to herein as a "CASHED-OUT OPTION")
and Parent
will make a cash payment to the holder of each such Cashed Out
Option in an
amount equal to (x) the number of shares of Company
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<PAGE>
Common Stock underlying each Company Unvested Option held by such
holder
immediately prior to the Effective Time multiplied by (y) the Per
Share
Participating Closing Consideration and minus (z) the Aggregate
Unvested Option
Exercise Price. If Parent elects to assume all Company Unvested
Options, (i)
each such assumed Company Unvested Option shall thereby be
converted into an
option (an "ASSUMED OPTION") to purchase the number of 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 Unvested Option
immediately prior to
the Effective Time multiplied by the Closing Exchange Ratio (as
defined below),
rounded down to the nearest whole number of shares of Parent Common
Stock, and
(ii) the per share exercise price for the shares of Parent Common
Stock issuable
upon exercise of such Assumed Option shall be equal to the quotient
obtained by
dividing the per share exercise price of the Company Unvested
Option immediately
prior to the Closing Date by the Closing Exchange Ratio, rounded up
to the
nearest whole cent. Except as modified by the Employee Retention
Agreements
required to be executed pursuant to SECTION 5.15 hereof, each
Assumed Option
shall otherwise retain the terms and conditions (including vesting
schedule) of
the Company Unvested Option.
(iv) On the first Business Day after the occurrence of the
Earnout Payment Date (the "EARNOUT ADJUSTMENT DATE"):
(1) each holder of an Assumed Option as of the Effective
Time shall be entitled to receive either, at Parent's sole
discretion pursuant
to a written election of Parent delivered to the Stockholder
Representative, (A)
a cash payment from Parent in an amount equal to such holder's
Unvested Option
Earnout Value or (B) the number of shares of Parent Common Stock
equal to such
holder's Unvested Option Earnout Value divided by (ii) the Earnout
Price,
rounded down to the nearest whole share (with any fractional share
amount paid
in cash by Parent) (such amount in (A) or (B) the "OPTION EARNOUT
PAYMENT").
(2) each former holder of a Cashed-Out Option (if and as
applicable) shall be entitled to receive either, at Parent's sole
discretion
pursuant to a written election of Parent delivered to the
Stockholder
Representative, (A) a cash payment from Parent in an amount equal
to such
holder's Unvested Option Earnout Value or (B) the number of shares
of Parent
Common Stock equal to (i) such holder's Unvested Option Earnout
Value divided by
(ii) the Earnout Price, rounded down to the nearest whole share
(with any
fractional share amount paid in cash by Parent); provided that the
right to
receive any Option Earnout Payment shall be subject to vesting over
the vesting
schedule as applied to the Assumed Option as of the Effective Time
and the pro
rata portion of the Option Earnout Payment shall not be paid prior
to the
applicable vesting date.
(v) Notwithstanding anything to the contrary in this SECTION
1.6(d), the receipt of the Earnout Consideration with respect to
any Company
Vested Option and the receipt of any Option Earnout Payment shall
be limited by
and subject to the restrictions imposed by the Employee Retention
Agreements
required to be executed pursuant to SECTION 5.15 of this
Agreement.
(vi) For the purposes of this Section 1.6(d):
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(1) "CLOSING EXCHANGE RATIO" shall mean the quotient
obtained by dividing (A) the Per Share Assumed Option Closing
Consideration by
(B) the Closing Price.
(2) "EARNOUT PRICE" shall mean the average of the
reported closing price per share of Parent Common Stock for the ten
(10)
Business Days immediately preceding the Earnout Adjustment
Date.
(3) "FRACTIONAL SHARE PAYMENT" shall mean a payment in
cash determined by multiplying (A) the fractional share of Company
Common Stock
which was not required to be paid but was nevertheless forfeited as
required by
the rounding convention in the definition of "Net Exercise
Consideration" by (B)
the Per Share Participating Closing Consideration.
(4) "NET EXERCISE CONSIDERATION" shall mean that number
of shares of Company Common Stock determined by dividing (A) the
sum of the
total aggregate exercise price of the Cancelled Options and the
amount of the
appropriate tax withholdings by (B) the Per Share Participating
Closing
Consideration and then rounding that quotient up to the next whole
share.
(5) "PER SHARE ASSUMED OPTION CLOSING CONSIDERATION"
shall mean the sum of (A) the Per Share Participating Stock
Closing
Consideration divided by the Signing Price and multiplied by the
Closing Price
plus (B) the Per Share Participating Cash Closing
Consideration.
(6) "PER SHARE EARNOUT ALLOCATION" shall mean the
quotient obtained by dividing (x) the Earned Earnout Amount by (y)
the Total
Outstanding Shares.
(7) "UNVESTED OPTION EARNOUT VALUE" shall mean (A) the
number of shares of Company Common Stock underlying each Company
Unvested Option
held by a holder immediately prior to the Effective Time multiplied
by (B) the
Per Share Earnout Allocation.
(vii) If and to the extent necessary or required by the terms
of the Plan or the terms of any Company Option agreement, the
Company shall,
prior to the Effective Time, (i) provide any notices to and obtain
any consents
from holders of Company Options and (ii) amend the terms of its
equity incentive
plans or arrangements, to give effect to the provisions of this
SECTION 1.6(d).
It is intended that the assumption of the Company Unvested Options
by Parent
shall comply with Section 424 of the Code and shall also be
considered by Parent
and the Company to be in good faith compliance with respect to
Section 409A of
the Code. The Company shall take no action, other than those
actions
contemplated by this Agreement, which will cause or result in the
accelerated
vesting of the Company Unvested Options. As soon as practicable
after each of
the Effective Time and the Earnout Payment Date, Parent shall
deliver to the
holder of each Company Option appropriate notices setting forth the
number of
shares of Parent Common Stock underlying such Assumed Option then
held by each
such holder and the exercise price under each such Assumed Option,
each as
adjusted pursuant to SECTION 5.15.
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(viii) Parent shall take such actions as are necessary for the
assumption of the Company Options pursuant to this SECTION 1.6(d),
including the
reservation, issuance and listing of Parent Common Stock as is
necessary to
effectuate the transactions contemplated by this SECTION 1.6(d).
Parent shall
prepare and file with the SEC a registration statement on Form S-8
with respect
to the shares of Parent Common Stock subject to the Company as
promptly as
practicable and in no event later than ten (10) Business Days after
the
Effective Time and use commercially reasonable efforts to maintain
the
effectiveness of such registration statement covering such Company
Options for
so long as such Company Options remain outstanding.
(e) TREATMENT OF COMPANY WARRANTS. The Company shall take all
necessary actions (including providing all required notices) to
ensure that all
outstanding Company Warrants are terminated immediately prior to
the Effective
Time. Parent and the Company shall take all action necessary to
permit each
holder of a Company Warrant to exchange such Company Warrant (in
lieu of
exercising it) and receive the Merger Consideration payable with
respect to the
shares of Company Capital Stock for which the Company Warrant was
exercisable
immediately prior to the Effective Time, net of the aggregate
exercise price
payable under such Company Warrant and any applicable withholding
taxes.
(f) WITHHOLDING TAXES. Parent, the Company, the Subs, and the
Exchange Agent (as defined in SECTION 1.9) shall have the right to
deduct and
withhold Taxes (as defined in SECTION 2.11) from any payments to be
made
hereunder (including with respect to the Earned Earnout Amount, if
any) if such
withholding is required by law and to request any necessary Tax
forms, including
Form W-9 or the appropriate series of Form W-8, as applicable, or
any similar
information, from the Stockholders and any other recipients of
payments
hereunder. To the extent that amounts are so withheld, such
withheld amounts
shall be treated for all purposes of this Agreement as having been
delivered and
paid to the Stockholder or other recipient of payments in respect
of which such
deduction and withholding was made. Notwithstanding the foregoing,
the parties
acknowledge and agree that any Earnout Consideration paid to
holders of vested
stock or stock for which a Section 83(b) election has been made is
intended to
be consideration for shares of capital stock of the Company, rather
than
compensation for services, and none of Parent, the Company, the
Subs and the
Exchange Agent (as defined in SECTION 1.9) shall withhold Taxes
from any such
payment of the Earnout Consideration on the basis that such payment
is
compensation for services unless Parent has received an opinion
from nationally
recognized tax counsel that as a result of a pronouncement of law
published
after the Closing Date in a source allowable as "substantial
authority" under
Treasury Regulation Section 1.6662-4(d)(iii), no "reasonable basis"
within the
meaning of Treasury Regulation Section 1.6662-3(b)(3) exists for
treating such
payment of the Earnout Consideration as consideration for shares of
capital
stock of the Company.
(g) CAPITAL STOCK OF SUBS. Each share of Common Stock of Sub I
issued and outstanding immediately prior to the Effective Time
shall be
converted into and exchanged for one validly issued, fully paid
and
nonassessable share of Common Stock of the Interim Surviving
Corporation. Each
stock certificate of Sub I evidencing ownership of any such shares
shall
continue to evidence ownership of such shares of capital stock of
the Interim
Surviving Corporation. Each share of Common Stock of the Interim
Surviving
Corporation issued and outstanding immediately
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after the Effective Time shall be converted into and exchanged for
the
applicable corresponding interest of the Final Surviving Entity.
Each stock
certificate of the Interim Surviving Corporation evidencing
ownership of any
such shares shall continue to evidence the applicable corresponding
interest in
the Final Surviving Entity.
1.7 DISSENTING SHARES.
(a) Notwithstanding any other provisions of this Agreement to
the
contrary, any shares of Company Common Stock held by a holder who
has not voted
for the Merger and who shall have demanded properly in writing
appraisal for
such shares of Company Common Stock in accordance with Section 262
of Delaware
Law, and who has not effectively withdrawn or lost such holder's
appraisal
rights under Delaware Law (collectively, the "DISSENTING SHARES")
shall not be
converted into or represent a right to receive the applicable
consideration for
Company Common Stock set forth in SECTION 1.6 hereof, but the
holder thereof
shall only be entitled to such rights as are provided by Delaware
Law.
(b) Notwithstanding the provisions of SECTION 1.7(a) hereof, if
any
holder of Dissenting Shares shall effectively withdraw or lose
(through failure
to perfect or otherwise) such holder's appraisal rights under
Delaware Law,
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 Common Stock, as
applicable,
set forth in SECTION 1.6 hereof, 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 Delaware 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 or the
Company (i)
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 or (ii) incurs any other
costs or
expenses, (including specifically, but without limitation,
attorneys' fees,
costs and expenses in connection with any action or proceeding or
in connection
with any investigation) in respect of any Dissenting Shares
(excluding payments
for such shares) (together "DISSENTING SHARE PAYMENTS"). Dissenting
Share
Payments paid or incurred prior to Closing Date are referred to
herein as
"PRE-CLOSING DISSENTING SHARE PAYMENTS" and shall be deducted from
the Closing
Consideration as provided in SECTION 1.6(a)(VI). Dissenting Share
Payments paid
or incurred after the Closing Date are referred to herein as
"POST-CLOSING
DISSENTING SHARE PAYMENTS" which Parent shall be entitled to
recover under the
terms of Section 7.2 hereof.
1.8 PAYMENT SCHEDULES.
(a) At least two (2) Business Days prior to the Effective Time,
the
Company shall deliver to Parent an updated version of SECTIONS
2.2(a), 2.2(b)
and 2.2(c) of the Disclosure Schedule.
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<PAGE>
(b) At least two (2) Business Days prior to the Effective Time,
and
thereafter within two (2) Business Days prior to the Earnout
Payment Date, the
Stockholder Representative shall deliver to Parent and the Exchange
Agent a
schedule (each, a "PAYMENT SCHEDULE") setting forth (i) the name
and address of
each Stockholder/former Stockholder entitled to distribution of
Merger
Consideration at such time and (ii) the amount of consideration to
which each
such Stockholder/former Stockholder is then entitled, together with
any
supporting schedules and documentation (showing the number and type
of shares
held immediately prior to such time by each such holder). The
Exchange Agent
shall determine in accordance with each Stockholder's election
pursuant to
SECTION 1.15 hereof, and pursuant to any adjustment required by
SECTION 1.15
hereof, the form of consideration to be received by each
Stockholder. Parent and
the Exchange Agent may rely on the Payment Schedule for
distributions and shall
have no responsibility or liability with respect thereto.
1.9 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Parent, U.S. Bank National Association, or
another institution selected by Parent prior to the Effective Time
and
reasonably acceptable to the Stockholder Representative, shall
serve as the
exchange agent (Parent in such capacity, or such institution, the
"EXCHANGE
AGENT") for the Merger.
(b) PARENT TO PROVIDE CONSIDERATION. Subject to the provisions
of
SECTION 7.3 relating to escrow arrangements, at the Effective Time,
on the
Earnout Payment Date, Parent shall make available to the Exchange
Agent for
exchange in accordance with this ARTICLE I the consideration
payable at each
such time pursuant to SECTION 1.6; provided, however, that, at the
Effective
Time, Parent shall deposit into the Escrow Fund (as defined in
SECTION 7.3(a)
hereof) the shares of Parent Common Stock that comprise the Escrow
Amount out of
the aggregate number of unrestricted shares of Parent Common Stock
otherwise
deliverable to the Stockholders pursuant to SECTION 1.6 hereof. The
Pro Rata
Portion of the Parent Common Stock comprising the Escrow Amount
shall be deemed
to be contributed to the Escrow Fund with respect to each
Stockholder.
(c) EXCHANGE PROCEDURES. On or as promptly as practicable, and
in
any event within no later than three (3) Business Days after the
Closing Date,
Parent shall mail a letter of transmittal (in customary form and
containing such
provisions and instructions as Parent may reasonably specify and
the Company may
reasonably approve prior to the Effective Time) to each Stockholder
at the
address set forth opposite each such Stockholder's name on the
relevant Payment
Schedule. Upon surrender of a certificate or the certificates which
immediately
prior to the Effective Time represented outstanding shares of
Company Capital
Stock (the "COMPANY STOCK CERTIFICATES") for cancellation to the
Exchange Agent,
together with such letter of transmittal, duly completed and
validly executed in
accordance with the instructions thereto, subject to the terms of
SECTION 1.9(e)
hereof, the holder of such Company Stock Certificate shall be
entitled to
receive from the Exchange Agent in exchange therefor, Parent Common
Stock and/or
cash to which such holder is entitled pursuant to SECTION 1.6 (less
the Pro Rata
Portion of the Escrow Amount to be deposited into the Escrow Fund
with respect
to such Stockholder), and each Company Stock Certificate so
surrendered shall be
cancelled. Until so surrendered, each Company Stock Certificate
outstanding
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<PAGE>
after the Effective Time will be deemed, for all corporate purposes
thereafter,
to evidence only the right to receive the applicable portion of the
Merger
Consideration pursuant to SECTION 1.6 hereof (without interest)
into which such
shares of Company Capital Stock shall have been so converted. No
portion of the
Merger Consideration will be paid to the holder of any
unsurrendered Company
Stock Certificate with respect to shares of Company Capital Stock
formerly
represented thereby until the holder of record of such Company
Stock Certificate
shall surrender such Company Stock Certificate pursuant hereto;
provided,
however, that holders who are deemed to receive shares of Company
Capital Stock
pursuant to SECTION 1.6(d) or SECTION 1.6(e) shall be deemed to
have validly
surrendered such shares in accordance with this SECTION 1.9(c).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends
or other distributions declared or made after the Effective Time
with respect to
Parent Common Stock with a record date after the Effective Time
will be paid to
the holder of any unsurrendered Company Stock Certificate with
respect to the
shares of Parent Common Stock represented thereby until the holder
of record of
such Company Stock Certificate shall surrender such Company Stock
Certificate.
Subject to applicable law, following surrender of any such Company
Stock
Certificate, there shall be paid to the record holder of the
certificates
representing whole shares of Parent Common Stock issued in exchange
therefor,
without interest, at the time of such surrender, the amount of
dividends or
other distributions with a record date after the Effective Time
theretofore paid
with respect to such whole shares of Parent Common Stock. No
interest shall be
payable on any cash deliverable upon the exchange of any Company
Capital Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of
Parent
Common Stock is to be issued in a name other than that in which the
Company
Stock Certificate surrendered in exchange therefor is registered,
or if any cash
amounts are to be disbursed pursuant to SECTION 1.6 hereof to
person other than
the person or entity whose name is reflected on the Company Stock
Certificate
surrendered in exchange therefor, it will be a condition of the
issuance or
delivery thereof that the certificate so surrendered will be
properly endorsed
and otherwise in proper form for transfer and that the person
requesting such
exchange will have paid to Parent or any agent designated by it any
transfer or
other taxes required by reason of the issuance of a certificate for
shares of
Parent Common Stock in any name other than that of the registered
holder of the
certificate surrendered, or established to the satisfaction of
Parent or any
agent designated by it that such tax has been paid or is not
payable.
(f) EXCHANGE AGENT TO RETURN PARENT COMMON STOCK. At any time
following the last day of the respective six (6) month period
following each of
the Effective Time and the Earnout Payment Date, as applicable,
Parent shall be
entitled to require the Exchange Agent to deliver to Parent or its
designated
successor or assign all shares of Parent Common Stock and cash that
have been
deposited with the Exchange Agent pursuant to SECTION 1.9(b)
hereof, and any
income or proceeds thereof, not disbursed to the holders of Company
Stock
Certificates pursuant to SECTION 1.9(c) hereof, and thereafter the
holders of
Company Stock Certificates shall be entitled to look only to Parent
(subject to
the terms of SECTION 1.9(g) hereof) only as general creditors
thereof with
respect to any and all amounts that may be payable to such holders
of Company
Stock
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<PAGE>
Certificates pursuant to SECTION 1.6 hereof upon the due surrender
of such
Company Stock Certificates in the manner set forth in SECTION
1.9(c) hereof.
(g) NO LIABILITY. Notwithstanding anything to the contrary in
this
SECTION 1.9, neither the Exchange Agent, the Final Surviving
Entity, nor any
party hereto shall be liable to a holder of shares of Company
Capital Stock for
any amount properly paid to a public official pursuant to any
applicable
abandoned property, escheat or similar law.
1.10 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK. The
cash
amounts paid and Parent Common Stock issued in respect of the
surrender for
exchange of shares of Company Capital Stock in accordance with the
terms hereof
shall be deemed to be full satisfaction of all rights pertaining to
such shares
of Company Capital Stock, and there shall be no further
registration of
transfers on the records of the Final Surviving Entity of shares of
Company
Capital Stock which were outstanding immediately prior to the
Effective Time.
If, after the Effective Time, Company Stock Certificates are
presented to the
Final Surviving Entity for any reason, they shall be canceled and
exchanged as
provided in this ARTICLE I.
1.11 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Company
Stock Certificates shall have been lost, stolen or destroyed, the
Exchange Agent
shall issue in exchange for such lost, stolen or destroyed
certificates, upon
the making of an affidavit of that fact by the holder thereof, such
amount, if
any, as may be required pursuant to SECTION 1.6 hereof; provided,
however, that
Parent may, in its discretion and as a condition precedent to the
issuance
thereof, require the Stockholder who is the owner of such lost,
stolen or
destroyed certificates to either (i) deliver a bond in such
reasonable and
customary amount as it may reasonably direct or (ii) provide an
indemnification
agreement in reasonable and customary form and substance, against
any claim that
may be made against Parent or the Exchange Agent with respect to
the
certificates alleged to have been lost, stolen or destroyed.
1.12 REORGANIZATION STATUS. The Integrated Merger is intended
to
constitute a "reorganization" within the meaning of Section 368(a)
of the Code.
Parent and the Company intend that the First Step Merger and the
Second Step
Merger will constitute integrated steps in a single "plan of
reorganization"
within the meaning of Treas. Reg. Section 1.368-2(g) and 1.368-3,
which plan of
reorganization the parties adopt by executing this Agreement. Each
of the
parties hereto shall use its reasonable best efforts to cause the
First Step
Merger and the Second Step Merger to be treated as one integrated
transaction
that qualifies as a "reorganization" within the meaning of Section
368(a) of the
Code and none of the parties hereto will take any action that would
be
reasonably expected to cause the First Step Merger and Second Step
Merger not so
to qualify.
1.13 TAKING OF NECESSARY ACTION; FURTHER ACTION. If at any time
after the
Effective Time, any further action is necessary or desirable to
carry out the
purposes of this Agreement and to vest the Final Surviving Entity
with full
right, title and possession to all assets, property, rights,
privileges, powers
and franchises of the Company and the Subs, and the officers and
directors of
the Company and the Subs are fully authorized in the name of their
respective
corporations or otherwise to take, and will take, all such lawful
and necessary
action.
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<PAGE>
1.14 ADJUSTMENTS. If, during the period between the date hereof and
the
Effective Time:
(a) any change in the outstanding capital stock of the Company
or
Parent shall occur by reason of any reclassification,
recapitalization, stock
split or combination, reverse stock split, exchange or readjustment
of shares,
or stock dividend thereon with a record date prior to the Effective
Time or
amendment of any material term of any outstanding security issued
by Parent,
then in each case, the Merger Consideration and any other amounts
payable
pursuant to this Agreement shall be appropriately and equitably
adjusted;
(b) except as addressed in SECTION 1.14(a), Parent declares,
sets
aside or pays any dividends on, or makes any other distributions
(whether in
cash, stock, equity securities or property) in respect of any
capital stock of
Parent, then the Merger Consideration and any other amounts payable
pursuant to
this Agreement shall be appropriately and equitably adjusted.
1.15 CASH/STOCK ELECTION.
(a) Notwithstanding any other provisions of this Agreement,
each
Stockholder will be entitled to elect to receive, in lieu of the
shares of
Parent Common Stock and cash otherwise deliverable to such
Stockholder in
respect of the Closing Consideration as determined in accordance
with SECTION
1.6, a number of shares of Parent Common Stock and an amount of
cash determined
pursuant to this SECTION 1.15. Each letter of transmittal to be
executed by
Stockholders in accordance with this Agreement shall contain a
provision whereby
each Stockholder shall indicate the percentage of the aggregate
value of the
Closing Consideration deliverable to such Stockholder that such
Stockholder
desires to receive in cash (the "DESIRED CLOSING CASH PERCENTAGE"),
and the
percentage of the aggregate value of the Closing Consideration
deliverable to
such Stockholder that such Stockholder desires to receive in Parent
Common Stock
(the "DESIRED CLOSING STOCK PERCENTAGE"), and in lieu of receiving
the shares of
Parent Common Stock and cash otherwise deliverable to such
Stockholder in
respect of the Closing Consideration determined in accordance with
SECTION 1.6,
such Stockholder shall instead be entitled to receive cash
reflecting the
Desired Closing Cash Percentage (the "DESIRED CLOSING CASH
CONSIDERATION") and
Parent Common Stock reflecting the Desired Closing Stock Percentage
(the
"DESIRED CLOSING STOCK CONSIDERATION") (subject to adjustment as
set forth in
SECTION 1.15(b) below).
(b) Notwithstanding paragraph (a) above, in no event shall Parent
be
obligated to deliver to Stockholders (or the Escrow Agent pursuant
to SECTION
7.3 hereof) in respect of the Closing Consideration an aggregate
number of
shares of Parent Common Stock with a value (at the Signing Price)
in excess of
the Stock Closing Consideration or an aggregate amount of cash in
excess of the
Cash Closing Consideration. In the event that the implementation of
the
elections of Stockholders contemplated by this SECTION 1.15 would
result in
either shares of Parent Common Stock being issued (in the
aggregate) with a
value (at the Signing Price) greater than the Stock Closing
Consideration or an
aggregate amount of cash in excess of the Cash Closing
Consideration,
respectively, then the number of shares of Parent Common Stock so
issuable and
cash so deliverable shall be adjusted as follows:
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<PAGE>
(i) if the elections provided in subparagraph (a) would
require shares of Parent Common Stock to be issued with an
aggregate value (at
the Signing Price) greater than the Stock Closing Consideration,
then:
(1) each Stockholder's Desired Closing Stock
Consideration shall be reduced such that the number of shares of
Parent Common
Stock to be issued to each Stockholder shall equal (A) (x) such
Stockholder's
Desired Closing Stock Consideration, divided by (y) the aggregate
Desired
Closing Stock Consideration of all Stockholders, multiplied by (B)
the Stock
Closing Consideration, divided by the Signing Price, and
(2) each Stockholder's Desired Closing Cash
Consideration shall be increased by an amount equal to the number
of shares so
reduced for such Stockholder in accordance with subparagraph (1)
above,
multiplied by the Signing Price.
(ii) if the elections provided in subparagraph (a) would
require more cash to be delivered (in the aggregate) than the Cash
Closing
Consideration, then:
(1) each Stockholder's Desired Closing Cash
Consideration shall be reduced such that the amount of cash to be
issued to each
Stockholder shall equal (A) (x) such Stockholder's Desired Closing
Cash
Consideration, divided by (y) Desired Closing Cash Consideration of
all
Stockholders, multiplied by (B) the Cash Closing Consideration,
and
(2) each Stockholder's Desired Closing Stock
Consideration shall be increased by a number of shares Parent
Common Stock equal
to the amount of cash so reduced for such Stockholder in accordance
with
subparagraph (1) above, divided by the Signing Price.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and the Subs,
except,
subject to SECTION 10.10 and SECTION 5.8 hereof as disclosed in the
disclosure
schedule supplied by the Company to Parent (the "DISCLOSURE
SCHEDULE") and dated
as of the date hereof, on the date hereof and as of the Effective
Time, as
though made at the Effective Time, as follows:
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation
duly
organized, validly existing and in good standing under the laws of
the State of
Delaware. The Company has the corporate power to own its properties
and to carry
on its business as currently conducted. The Company is duly
qualified or
licensed to do business and in good standing as a foreign
corporation in each
jurisdiction where such qualification is necessary in which it
conducts
business, except for those jurisdictions where failure to be so
qualified or
licensed and in good standing would not reasonably be expected to
have,
individually or in the aggregate, a Company Material Adverse
Effect. The Company
has delivered a true and correct copy of its certificate of
incorporation and
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<PAGE>
bylaws, each as amended to date and in full force and effect on the
date hereof
(collectively, the "CHARTER DOCUMENTS"), to Parent. SECTION 2.1 of
the
Disclosure Schedule lists the directors and officers of the Company
as of the
date hereof. The operations now being conducted by the Company are
not now and
have never been conducted by the Company under any other name.
SECTION 2.1 of
the Disclosure Schedule also lists (i) each jurisdiction in which
the Company is
qualified or licensed to do business and (ii) every state or
foreign
jurisdiction in which the Company has employees or facilities or
otherwise is
required to be qualified or licensed to do business.
2.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of
316,051,000 shares of Company Common Stock, of which 49,010,899
shares are
issued and outstanding as of the date hereof, 198,776,426 shares of
Company
Preferred Stock, of which 4,385,772 shares have been designated
Series A
Preferred Stock, of which 2,430,060 shares are issued and
outstanding as of the
date hereof, 16,000,000 shares have been designated Series B
Preferred Stock, of
which 13,164,496 shares are issued and outstanding as of the date
hereof,
25,000,000 shares have been designated Series C Preferred Stock, of
which
14,335,473 shares are issued and outstanding as of the date hereof,
27,339,654
shares have been designated Series D Preferred Stock, of which
26,177,150 shares
are issued and outstanding as of the date hereof and 126,051,000
shares have
been designated Series E Preferred Stock, of which 105,568,127
shares are issued
and outstanding as of the date hereof. As of the date hereof, the
capitalization
of the Company is as set forth in this SECTION 2.2(a). As of the
date hereof,
the Company Capital Stock is owned of record by the persons and in
the numbers
of shares set forth in SECTION 2.2(a) of the Disclosure Schedule.
All
outstanding shares of Company Capital Stock have been, and all
shares that may
be issued pursuant to the exercise of Company Options, or Company
Warrants will
be, when issued in accordance with the respective terms thereof,
duly
authorized, validly issued, fully paid and non-assessable and not
subject to
preemptive rights under Delaware Law, the Charter Documents or any
agreement to
which the Company is a party, and together with all Company Options
and Company
Warrants have been issued in compliance in all material respects
with all
applicable federal and state securities laws. There are no declared
or accrued
but unpaid dividends with respect to any shares of Company Capital
Stock. The
Company has no capital stock other than the Company Capital Stock
authorized,
issued or outstanding. As of the date hereof, the conversion price
of each
series of Company Preferred Stock is as set forth in Section E.1.
of Article
FOURTH of the Company's certificate of incorporation, as amended to
date and in
full force and effect on the date hereof.
(b) SECTION 2.2(b) of the Disclosure Schedule sets forth as of
the
date hereof, a list of each holder of Restricted Stock and (a) the
name of the
holder of such Restricted Stock, (b) the number of shares of
Restricted Stock
held by such holder, (c) the repurchase price of such Restricted
Stock, (d) the
date on which such Restricted Stock was purchased or granted and
(e) the
applicable vesting schedule pursuant to which the Company's right
of repurchase
or forfeiture lapses.
(c) Except for the Plan, the Company has never adopted, sponsored
or
maintained any stock option plan or any other plan or agreement
providing for
equity compensation to any
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<PAGE>
person. The Company has reserved 58,995,417 shares of Company
Common Stock for
issuance to employees and directors of, and consultants to, the
Company upon the
issuance of stock or the exercise of options granted under the Plan
or any other
plan, agreement or arrangement (whether written or oral, formal or
informal), of
which 24,808,423 shares are issuable, as of the date hereof, upon
the exercise
of outstanding, unexercised options. The Company has reserved
104,500 shares of
Company Common Stock and 157,563 shares of Series E Preferred Stock
for issuance
upon the exercise of warrants, all of which shares are issuable, as
of the date
hereof, upon the exercise of outstanding, unexercised warrants.
Except for (i)
the Company Options and Company Warrants set forth in SECTION
2.2(c) of the
Disclosure Schedule (such schedule to contain, for each holder of
Company
Options and Company Warrants, the name and address of such holder,
the number of
shares of Company Common Stock or Company Preferred Stock issuable
upon exercise
of such Company Options or Company Warrants held by such holder,
the vesting
schedule and exercise price of such Company Options and Company
Warrants, the
dates on which such Company Options and Company Warrants were
granted and will
expire, and whether any Company Options are intended to be
incentive stock
options under the Code) and (ii) changes since the date hereof
resulting from
the exercise of Company Options or Company Warrants outstanding on
such date or
the issuance of Company Options or Company Warrants as permitted
under this
Agreement, there are no options, warrants, calls, rights,
convertible
securities, commitments or agreements of any character, written or
oral, to
which the Company is a party or by which the Company is bound
obligating the
Company to issue, deliver, sell, repurchase or redeem, or cause to
be issued,
delivered, sold, repurchased or redeemed, any shares of the Company
Capital
Stock or obligating the Company to grant, extend, accelerate the
vesting of,
change the price of, otherwise amend or enter into any such option,
warrant,
call, right, commitment or agreement. There are no outstanding or
authorized
stock appreciation, phantom stock, profit participation, or other
similar rights
with respect to the Company. Except as contemplated hereby, there
are no voting
trusts, proxies, or other agreements or understandings to which the
Company is a
party with respect to the voting securities of the Company. There
are no
agreements to which the Company is a party relating to the
registration, sale or
transfer (including agreements relating to rights of first refusal,
co-sale
rights or "drag-along" rights) of any Company Capital Stock. To the
Knowledge of
the Company, as a result of the First Step Merger, Parent will be
the sole
record and beneficial holder of all issued and outstanding Company
Capital Stock
and all rights to acquire or receive any shares of Company Capital
Stock,
whether or not such shares of Company Capital Stock are
outstanding.
2.3 SUBSIDIARIES. The Company does not directly or indirectly own
any
equity or similar interest in or any interest convertible,
exchangeable or
exercisable for, any equity or similar interest in, any person.
2.4 AUTHORITY. The Company has all requisite power and authority to
enter
into this Agreement and any Related Agreements to which it is a
party and to
consummate the transactions contemplated hereby and thereby. The
execution and
delivery of this Agreement and any Related Agreements to which the
Company is a
party and the consummation of the transactions contemplated
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hereby and thereby have been duly authorized by all necessary
corporate action
on the part of the Company and no further action is required on the
part of the
Company to authorize the Agreement and any Related Agreements to
which it is a
party and the transactions contemplated hereby and thereby, subject
only to
obtaining the Sufficient Stockholder Vote. The vote required to
approve and
adopt this Agreement and the Integrated Merger by the Stockholders
(the
"SUFFICIENT STOCKHOLDER VOTE") is set forth in SECTION 2.4 of the
Disclosure
Schedule. This Agreement and the Integrated Merger have been
unanimously
approved by the Board of Directors of the Company. This Agreement
and each of
the Related Agreements to which the Company is a party has been
duly executed
and delivered by the Company and assuming the due authorization,
execution and
delivery by the other parties hereto and thereto, constitute the
valid and
binding obligations of the Company enforceable against it in
accordance with
their respective terms, except as such enforceability may be
subject to the laws
of general application relating to bankruptcy, insolvency, and the
relief of
debtors and rules of law governing specific performance, injunctive
relief, or
other equitable remedies.
2.5 NO CONFLICT. The execution and delivery by the Company of
this
Agreement and any Related Agreement to which the Company is a
party, and the
consummation of the transactions contemplated hereby and thereby,
will not
conflict with or result in any violation of or default under (with
or without
notice or lapse of time, or both) or give rise to a right of
termination,
cancellation, modification or acceleration of any obligation or
loss of any
benefit under (i) assuming that the Sufficient Stockholder Vote is
obtained, any
provision of the Charter Documents, (ii) assuming compliance with
the matters
referred to in SECTION 2.6, any Material Contract (as defined in
SECTION 2.15
hereof), or (iii) assuming compliance with the matters referred to
in SECTION
2.6 and obtaining the Sufficient Stockholder Vote, any judgment,
order, decree,
statute, law, ordinance, rule or regulation applicable to the
Company or any of
its properties (whether tangible or intangible) or assets. The
Company is in
compliance with and has not breached, violated or defaulted under,
or received
notice that it has breached, violated or defaulted under, any of
the terms or
conditions of any Material Contract in a manner which would, or
would reasonably
be likely to result in the ability of the other party to such
Material Contract
to terminate, modify in any material respect or require additional
payment
thereunder, nor does the Company have Knowledge of any event that
would
constitute such a breach, violation or default with the lapse of
time, giving of
notice or both. Each Material Contract is in full force and effect
and, to the
Knowledge of the Company no party obligated to the Company pursuant
to any such
Material Contract is subject to any material default thereunder.
SECTION 2.5 of
the Disclosure Schedule sets forth each Contract to which the
Company is a party
and which is material to the Company pursuant to which any consent,
waiver or
approval of, or payment to, any third party is required in
connection with the
Merger, or for any such Contract to remain in full force and effect
without
limitation, modification or alteration after the Effective Time so
as to
preserve all rights of, and benefits to, the Company under such
Contracts from
and after the Effective Time. Following the Effective Time, the
Interim
Surviving Corporation will be permitted to exercise all of its
rights under the
Material Contracts without the payment of any additional amounts
or
consideration other than ongoing fees, royalties or payments which
the Company
would otherwise be required to pay pursuant to the terms of such
Material
Contracts had the transactions contemplated by this Agreement not
occurred.
2.6 CONSENTS. No consent, notice, waiver, approval, order or
authorization
of, or registration, declaration or filing with any court,
administrative agency
or commission or other federal, state, county, local or other
foreign
governmental or regulatory authority, instrumentality, agency or
commission
(each, a "GOVERNMENTAL ENTITY"), is required by, or with respect
to, the
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Company in connection with the execution and delivery by the
Company of this
Agreement and any Related Agreement to which the Company is a party
or the
consummation of the transactions contemplated hereby and thereby,
except for (i)
applicable requirements of the hearing (the "FAIRNESS HEARING") to
be held
pursuant to section 25142 of the California Corporate Securities
Law of 1968, as
amended (the "CSL") and such other consents, notices, waivers,
approvals,
orders, authorizations, registrations, declarations and filings as
may be
required under applicable federal and state securities laws and the
rules and
regulations of the Nasdaq Stock Market ("NASDAQ"), (ii) the filing
of the
Certificates of Merger with the Secretary of State of the State of
Delaware
(iii) compliance with the pre-merger notification requirements of
the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR ACT")
and under the comparable non-U.S. competition laws the parties
reasonably
determine apply and (iv) the adoption of this Agreement and
approval of the
transactions contemplated by this Agreement by the Stockholders in
accordance
with the certificate of incorporation and bylaws of the Company and
Delaware
Law.
2.7 COMPANY FINANCIAL STATEMENTS.
(a) SECTION 2.7 of the Disclosure Schedule sets forth the
Company's
(i) audited balance sheet as of December 31, 2003 and the related
audited
statements of income, cash flow and stockholders' equity for the
twelve (12)
month period then ended, (ii) audited balance sheet as of December
31, 2004 and
the related audited statements of income, cash flow and
stockholders' equity for
the twelve (12) month period then ended, (iii) audited balance
sheet as of
December 31, 2005 and the related audited statements of income,
cash flow and
stockholders' equity for the twelve (12) month period then ended
(the financial
statements referred to in clauses (i), (ii) and (iii) collectively,
the
"YEAR-END FINANCIALS") and (iv) unaudited balance sheet as of
December 31, 2006
(the "BALANCE SHEET DATE"), and the related unaudited statement of
income, cash
flow and stockholders' equity for the twelve month period then
ended (the
"INTERIM FINANCIALS"). The Year-End Financials have been prepared
in accordance
with Regulation S-X promulgated under the Exchange Act ("REGULATION
S-X") and
meet the requirements for inclusion in a registration statement to
be filed with
the SEC. The Year-End Financials and the Interim Financials
(collectively
referred to as the "FINANCIALS") have been prepared in accordance
with GAAP
(except that the Interim Financials do not contain footnotes and
other
presentation items that may be required by GAAP) consistently
applied on a
consistent basis throughout the periods indicated and consistent
with each other
(except as may be indicated in the notes thereto). The Financials
fairly present
in all material respects the Company's financial condition, results
of
operations and cash flows as of the dates and during the periods
indicated
therein, subject in the case of the Interim Financials to normal
year-end
adjustments, which are not material in amount or significance in
any individual
case or in the aggregate. The Company's unaudited consolidated
balance sheet as
of the Balance Sheet Date is referred to hereinafter as the
"CURRENT BALANCE
SHEET."
(b) Any financial statements provided by the Company pursuant
to
SECTION 5.13 hereof, when delivered, will (i) have been derived
from the books
and records of the Company and (ii) fairly present, in all material
respects,
the financial position, results of operations and cash flows of the
Company at
the dates and for the periods indicated herein in accordance with
GAAP and
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Regulation S-X, except as indicated in the footnotes thereto and
(iii) meet the
requirements for inclusion in a registration statement to be filed
with the SEC.
2.8 NO UNDISCLOSED LIABILITIES. The Company has no liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of
any type, whether accrued, absolute, contingent, matured, unmatured
or other (in
each case of a nature required by GAAP to be set forth in the
Current Balance
Sheet) which is material to the Company individually or in the
aggregate
("LIABILITIES"), other than (i) those set forth or adequately
provided for in
the Current Balance Sheet or disclosed in the notes thereto or (ii)
those
incurred in the ordinary course of business consistent with past
practice since
the Balance Sheet Date.
2.9 INTERNAL CONTROLS. The Company maintains accurate books and
records
reflecting its assets and liabilities in all material respects and
maintains
proper and adequate internal accounting controls which provide
reasonable
assurance that (i) transactions are executed with management's
authorization and
(ii) transactions are recorded as necessary to permit preparation
of the
consolidated financial statements of the Company (including the
Financials) in
conformity with GAAP.
2.10 NO CHANGES. Since the Balance Sheet Date and through the date
hereof,
there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with past
practices;
(b) amendments or changes to the certificate of incorporation
or
bylaws of the Company;
(c) capital expenditure or commitment by the Company, except for
(i)
those contemplated by the capital expenditure budget for the
Company that is
attached to SECTION (c) of the Disclosure Schedule (the "CAPEX
BUDGET") and (ii)
any unbudgeted capital expenditures not to exceed $10,000
individually or
$100,000 in the aggregate;
(d) payment, discharge or satisfaction, in any amount in excess
of
$25,000 in any one case, or $100,000 in the aggregate, of any
claim, liability
or obligation (absolute, accrued, asserted or unasserted,
contingent or
otherwise of the Company), other than payments, discharges or
satisfactions (x)
in the ordinary course of business, consistent with past practices,
or (y) of
liabilities reflected or reserved against in the Current Balance
Sheet;
(e) destruction of, damage to, or other casualty loss affecting
any
material assets (whether tangible or intangible), material business
or material
customer of the Company (whether or not covered by insurance);
(f) employment dispute, including but not limited to, claims or
matters raised by any individuals or any workers' representative
organization,
bargaining unit or union regarding labor trouble or claim of
wrongful discharge
or other unlawful employment or labor practice or action with
respect to the
Company;
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<PAGE>
(g) change in accounting methods or practices (including any
change
in depreciation or amortization policies or rates) by the Company
other than as
required by GAAP;
(h) adoption of or change in any material election in respect
of
Taxes (as defined below), adoption of or change in any accounting
method in
respect of Taxes, entry into any closing agreement, settlement or
compromise of
any material claim or assessment in respect of Taxes, or extension
or waiver of
the limitation period applicable to any material claim or
assessment in respect
of Taxes;
(i) revaluation by the Company of any of its material assets
(whether tangible or intangible), including without limitation,
writing down the
value of material inventory or writing off material notes or
accounts
receivable, other than writing down of physical assets not found in
inventory
count in the ordinary course of business consistent with past
practice;
(j) declaration, setting aside or payment of a dividend or
other
distribution (whether in cash, stock or property) in respect of any
Company
Common Stock, or any split, combination or reclassification in
respect of any
shares of Company Common Stock, or any issuance or authorization of
any issuance
of any other securities in lieu of or in substitution for shares of
Company
Common Stock, or any direct or indirect repurchase, redemption, or
other
acquisition by the Company of any shares of Company Common Stock
(or options,
warrants or other rights convertible into, exercisable or
exchangeable
therefor), other than from former employees, directors and
consultants in
accordance with currently effective agreements providing for the
repurchase of
shares in connection with any termination of service to the
Company;
(k) increase in the salary or other compensation payable or to
become payable by the Company to any of its respective officers,
directors,
employees or advisors, or the declaration, payment or commitment or
obligation
of any kind for the payment (whether in cash or equity) by the
Company of a
severance payment, termination payment, bonus or other additional
salary or
compensation to any such person;
(l) sale, lease, license or other disposition of any of the
assets
(whether tangible or intangible) or properties of the Company
outside of the
ordinary course of business, including, but not limited to, any
such sale of any
accounts receivable of the Company, or any such creation of any
security
interest in such assets or properties;
(m) loan by the Company to any person or entity, or purchase by
the
Company of any debt securities of any person or entity, except for
advances to
employees for travel and business expenses in the ordinary course
of business
consistent with past practices;
(n) incurrence by the Company of any indebtedness for borrowed
money, amendment of the terms of any outstanding loan agreement,
guaranteeing by
the Company of any indebtedness, issuance or sale of any debt
securities of the
Company or guaranteeing of any debt securities of others;
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(o) waiver or release of any material right or claim of the
Company,
other than in the ordinary course of business consistent with past
practices;
(p) commencement or settlement of any lawsuit by the Company;
(q) event or condition of any character that has had or is
reasonably likely to have a Company Material Adverse Effect; or
(r) agreement binding on the Company to do any of the things
described in the preceding clauses (a) through (w) of this SECTION
2.10 (other
than negotiations with Parent and its representatives regarding the
transactions
contemplated by this Agreement and the Related Agreements).
2.11 TAX MATTERS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement,
the
term "TAX" or, collectively, "TAXES" shall mean (i) any and all
U.S. federal,
state, local and non-U.S. taxes and other similar governmental
charges,
assessments, duties, impositions and liabilities, including taxes
based upon or
measured by gross receipts, income, profits, sales, use and
occupation, and
value added, ad valorem, transfer, franchise, withholding, payroll,
recapture,
employment, excise and property taxes as well as public imposts,
fees and social
security charges (including but not limited to health, unemployment
and pension
insurance), together with all interest, penalties and additions
imposed with
respect to such amounts, (ii) any liability for the payment of any
amounts of
the type described in clause (i) of this SECTION 2.11(a) as a
result of being a
member of an affiliated, consolidated, combined or unitary group
for any period
prior to the Closing (including any arrangement for group or
consortium relief
or similar arrangement), and (iii) any liability for the payment of
any amounts
of the type described in clauses (i) or (ii) of this SECTION
2.11(a) as a result
of any express or implied obligation to indemnify any other person
or as a
result of any obligation under any agreement or arrangement with
any other
person with respect to such amounts and including any liability for
taxes of a
predecessor entity.
(b) TAX RETURNS AND AUDITS.
(i) The Company has (a) prepared and timely filed in
accordance with applicable law all required U.S. federal, state,
local and
non-U.S. income, franchise, and other material returns, estimates,
information
statements and reports ("RETURNS") relating to any and all Taxes
concerning or
attributable to the Company or its operations and such Returns are
true and
correct in all material respects and (b) timely paid all Taxes it
is required to
pay.
(ii) The Company has paid or withheld with respect to its
Employees and other third parties, all U.S. federal, state and
non-U.S. income
taxes and social security charges and similar fees, Federal
Insurance
Contribution Act ("FICA"), Federal Unemployment Tax Act ("FUTA")
and other Taxes
required to be withheld, and has timely paid over any such withheld
Taxes to the
appropriate authorities.
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<PAGE>
(iii) The Company has not been delinquent in the payment of
any material Tax, nor is there any Tax deficiency assessed or, to
the Knowledge
of the Company, proposed against the Company, nor has the Company
executed any
waiver of any statute of limitations on or extending the period for
the
assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the
Company is presently in progress, nor has the Company been notified
of any
request for such an audit or other examination. No adjustment
relating to any
Return filed by the Company has, to the Knowledge of the Company,
been proposed
by any Tax authority to the Company or any representative thereof.
No claim has
ever been made by an authority in a jurisdiction where the Company
does not file
Tax Returns that it is or may be subject to taxation by that
jurisdiction.
(v) As of the date of the Current Balance Sheet, the Company
has established (or has had established on its behalf and for its
sole benefit
and recourse) in accordance with GAAP an adequate accrual for all
Taxes through
the date of the Current Balance Sheet, and the Company has not
incurred any
liability for Taxes since the date of the Current Balance Sheet
other than in
the ordinary course of business.
(vi) The Company has made available to Parent or its legal
counsel, copies of all material Tax Returns for the Company filed
for all
periods since its inception.
(vii) There are (and immediately following the Effective Time
there will be) no Liens on the assets of the Company relating to or
attributable
to Taxes, other than Liens for Taxes that are being contested in
good faith by
appropriate proceedings and for which the Company has set aside on
its books
adequate reserves and Liens for Taxes not yet due and payable.
(viii) None of the Company's assets is treated as "TAX-EXEMPT
USE PROPERTY," within the meaning of Section 168(h) of the
Code.
(ix) The Company has (a) never been a member of an affiliated
group (within the meaning of Code Section 1504(a)) filing a
consolidated federal
income Tax Return (other than a group the common parent of which
was Company),
(b) never been a party to any Tax sharing, indemnification,
allocation or
similar agreement, and (c) no liability for the Taxes of any person
(other than
Company) under Treasury Regulation Section 1.1502-6 (or any similar
provision of
state, local or foreign law (including any arrangement for group or
consortium
relief or similar arrangement)), as a transferee or successor, by
contract or
agreement, or otherwise.
(x) The Company has not been, at any time in the five-year
period ending on the Closing Date, a "UNITED STATES REAL PROPERTY
HOLDING
CORPORATION" within the meaning of Section 897(c)(2) of the
Code.
(xi) The Company has not constituted either a "distributing
corporation" or a "controlled corporation" in a distribution of
stock intended
to qualify for tax-free treatment under Section 355 of the
Code.
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<PAGE>
(xii) The Company has not engaged in a reportable transaction
under Treas. Reg. Section 1.6011-4(b), including a transaction that
is the same
as or substantially similar to one of the types of transactions
that the
Internal Revenue Service has determined to be a tax avoidance
transaction and
identified by notice, regulation, or other form of published
guidance as a
listed transaction, as set forth in Treas. Reg. Section
1.6011-4(b)(2).
(xiii) The Company will not be required to include any income
or gain or exclude any deduction or loss from Taxable income as a
result of (a)
any change in method of accounting under Section 481(c) of the
Code, (b) any
closing agreement under Section 7121 of the Code or (c) an
installment sale or
open transaction disposition.
(xiv) The Company uses the accrual method of accounting for
tax purposes.
(xv) The Company is and has at all times been resident for Tax
purposes in its country of incorporation or formation and is not
and has not at
any time been treated as resident in any other country for any Tax
purpose
(including any arrangement for the avoidance of double taxation).
The Company is
not subject to Tax on a net income basis in any jurisdiction other
than its
country of incorporation or formation by virtue of having a
permanent
establishment or other place of business in that country.
(xvi) The Company is in full compliance with all material
conditions of any Tax exemption, Tax holiday or other Tax reduction
agreement or
order ("TAX INCENTIVE") and the consummation of the transactions
contemplated by
this Agreement will not have any material adverse effect on the
continued
validity and effectiveness of any such Tax Incentive.
(c) 409A. Except as set forth on SECTION 2.11(c) of the
Disclosure
Schedule, the Company is not party to any contract, agreement or
arrangement
that is a "nonqualified deferred compensation plan" subject to
Section 409A of
the Code. Each such nonqualified deferred compensation plan has
been operated
since January 1, 2005 in good faith compliance with Section 409A of
the Code and
IRS Notice 2005-1. No nonqualified deferred compensation plan has
been
"materially modified" (within the meaning of IRS Notice 2005-1) at
any time
after October 3, 2004. No stock option or other right to acquire
Company Common
Stock or other equity of the Company (i) has an exercise price that
has been or
may be less than the fair market value of the underlying equity as
of the date
such option or right was granted, as determined by the Board of
Directors of the
Company in good faith, (ii) has any feature for the deferral of
compensation
other than the deferral of recognition of income until the later of
exercise or
disposition of such option or rights, or (iii) has been granted
after December
31, 2004, with respect to any class of stock of the Company that is
not "service
recipient stock" (within the meaning of applicable regulations
under Section
409A).
2.12 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth in
SECTION
2.12 or SECTION 2.15(f) of the Disclosure Schedule, there is no
agreement
(non-competition or otherwise), commitment, judgment, injunction,
order or
decree to which the Company is a party or otherwise binding upon
the Company
which has or may reasonably be expected to have the effect of
prohibiting or
impairing any business practice of the Company, any acquisition of
property
(tangible
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or intangible) by the Company, the conduct of business by the
Company,
or otherwise limiting the freedom of the Company to engage in any
line of
business or to compete with any person. Without limiting the
generality of the
foregoing, except as set forth in SECTION 2.12 or SECTION 2.15(f)
of the
Disclosure Schedule, the Company has not entered into any agreement
under which
the Company is restricted from selling, licensing, manufacturing or
otherwise
distributing any of its technology or products or from providing
services to
customers or potential customers or any class of customers, in any
geographic
area, during any period of time, or in any segment of the
market.
2.13 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES;
CONDITION OF
EQUIPMENT; CUSTOMER INFORMATION.
(a) The Company does not own any real property, nor has the
Company
ever owned any real property. SECTION 2.13(a) of the Disclosure
Schedule sets
forth a list of (i) all real property currently leased, subleased
or licensed by
or from the Company or otherwise used or occupied by the Company
for the
operation of its business (the "LEASED REAL PROPERTY"), and (ii)
each lease,
license, sublease or other occupancy right and each amendment
thereto (the
"LEASE AGREEMENTS") with respect to each Leased Real Property. All
such Lease
Agreements are valid and effective in accordance with their
respective terms,
and there is not, under any of such leases, any existing default,
rentals past
due, or other event of default which would reasonably be likely to
result in the
ability of the other party to such Lease Agreement to terminate,
modify in any
material respect or require additional payment thereunder (or event
which with
notice or lapse of time, or both, would constitute a default). The
Company has
not received any written notice of a default, alleged failure to
perform, or any
offset or counterclaim with respect to any such Lease Agreement,
which has not
been fully remedied and withdrawn. To the Knowledge of the Company
the Closing
will not affect the enforceability against any person of any such
Lease
Agreement or the rights of the Company to the continued use and
possession of
the Leased Real Property for the conduct of business as presently
conducted.
(b) The Leased Real Property is in good operating condition and
repair, free from structural, physical and mechanical defects and
is
structurally sufficient and otherwise suitable for the conduct of
the business
as presently conducted. Neither the operation of the Company on the
Leased Real
Property nor, to the Company's Kn
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