SHARE PURCHASE AGREEMENT

Exhibit 10.46

 

SHARE PURCHASE AGREEMENT

among

M ULTI -F INELINE E LECTRONIX S INGAPORE P TE . L TD .

a private company of Singapore limited by shares;

P ELIKON L IMITED

a private limited company of England and Wales;

M ULTI -F INELINE E LECTRONIX , I NC .

a Delaware corporation;

THE S ELLING S HAREHOLDERS ;

and

M ICHAEL P OWELL , as the Shareholders’ Representative

 

Dated as of November 18, 2008

 

 

EXHIBITS AND SCHEDULES

 

 

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SHARE PURCHASE AGREEMENT

This S HARE P URCHASE A GREEMENT (this “ Agreement ”) is made and entered into as a deed as of November 18, 2008 (the “ Agreement Date ”), by and among Multi-Fineline Electronix Singapore Pte. Ltd., a private company of Singapore limited by shares (“ Purchaser ”), Pelikon Limited, a private limited company of England and Wales (the “ Company ”), Multi-Fineline Electronix, Inc., a Delaware corporation (“ Parent ”), the members of the Company set forth on the signature pages hereto (each a “ Selling Shareholder ” and together, the “ Selling Shareholders ”), and Michael Powell, an individual serving as and entering into this Agreement in the capacity of the Shareholders’ Representative (the “ Shareholders’ Representative ,” as replaced or substituted from time to time in accordance with Section 10.1(b) hereof ). Capitalized terms used in this Agreement and not otherwise defined shall have the meanings set forth in Exhibit A hereto.

RECITALS

WHEREAS, the Purchaser has made a bona fide offer on an arm’s length basis to purchase all of the issued ordinary shares of £0.001 each in the capital of the Company (the “ Company Ordinary Shares ”) for aggregate consideration as described in Article 1 hereof;

WHEREAS, the Selling Shareholders collectively own 92.7% of the issued Company Ordinary Shares;

WHEREAS, the Selling Shareholders desire to sell to the Purchaser all of the Company Ordinary Shares held by them (the “ Selling Shareholder Shares ”), and the Purchaser desires to purchase from the Selling Shareholders all of the Selling Shareholder Shares, on the terms and subject to the conditions contained in this Agreement;

WHEREAS, the Articles of Association of the Company provide that if holders of at least 75% of the issued Company Ordinary Shares intend to sell all of their holdings of Company Ordinary Shares to a proposed purchaser who has made a bona fide offer on an arm’s length basis for all of the issued Company Ordinary Shares, such selling holders can compel the remaining holders of Company Ordinary Shares (the “ Remaining Shareholders ” and, together with the Selling Shareholders, the “ Sellers ”) to sell all Company Ordinary Shares held by them (the “ Remaining Shareholder Shares ” and, together with the Selling Shareholder Shares, the “ Shares ”) to such purchaser on the same terms and conditions offered to the Selling Shareholders (such right to compel the sale of the Remaining Shareholder Shares being referred to herein as the “ Drag-Along Right ”); and

WHEREAS, the Selling Shareholders desire to exercise the Drag-Along Right such that upon the consummation of the transactions contemplated by this Agreement, the Purchaser will own 100% of the total issued share capital of the Company, on a fully-diluted basis.

NOW, THEREFORE, in consideration of the foregoing and the respective covenants, agreements and warranties set forth herein, the parties to this Agreement, intending to be legally bound, agree as follows:

 

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AGREEMENT

ARTICLE 1.

DESCRIPTION OF TRANSACTION

1.1 Purchase and Sale of the Shares .

(a) On the terms and subject to the conditions set forth in this Agreement and in accordance with the Drag-Along Right and Minority Shareholder SPA, at the Closing, each Seller shall sell, assign, transfer, convey and deliver to the Purchaser (or to the Purchaser’s designee), free and clear of all Encumbrances, and in the case of the Selling Shareholders, with full title guarantee, and the Purchaser (or Purchaser’s designee, if applicable) shall purchase from each Seller, all the Shares owned by such Seller in consideration of payment of any:

(i) amounts to the Sellers, on the dates and under the terms set forth in this Agreement and in the Sellers Promissory Notes (as defined in Section 1.6(a) ), with each Seller being entitled to receive an amount in cash equal to the product of (1) the Per Share Note Payment Amount, multiplied by (2) the number of Shares owned by such Seller, and

(ii) amounts of Contingent Consideration to the Sellers on the dates and under the terms set forth in this Agreement and in the Contingent Consideration Note (as defined in Section 1.7(a) ), with each Seller being entitled to receive an amount in cash, without interest, equal to the product of (1) the Per Share Contingent Consideration, multiplied by (2) the number of Shares owned by such Seller.

(b) For purposes of this Agreement:

(i) “ Financial Advisor Commission ” shall mean five percent (5%) of any Contingent Consideration earned by and payable to the Sellers pursuant to Section 1.7(b) of this Agreement, subject to the limitations set forth in Section 1.7(d) of this Agreement.

(ii) “ Fully Diluted Company Ordinary Shares ” shall mean the aggregate number of Company Ordinary Shares that are issued immediately prior to the Closing.

(iii) “ Per Share Contingent Consideration ” shall mean the quotient (rounded to the nearest cent) obtained by dividing (A) any Contingent Consideration earned by and payable to the Sellers pursuant to Section 1.7(b) of this Agreement, subject to the limitations set forth in Section 1.7(d) of this Agreement, less the Financial Advisor Commission, by (B) the Fully Diluted Company Ordinary Shares.

(iv) “ Per Share Note Payment Amount ” shall mean the quotient (rounded to the nearest cent) obtained by dividing (A) the Note Payment Amount (as defined in Section 1.6(a) ) paid to the Sellers under the terms of the Sellers Promissory Notes, if any, by (B) the Fully Diluted Company Ordinary Shares.

 

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1.2 Closing . Subject to the terms and conditions of this Agreement, the purchase and sale of the Shares and the consummation of the other transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of Burges Salmon LLP, Narrow Quay House, Narrow Quay, Bristol BS1 4AH, at 10:00 a.m., local time, on the last day of the month in which the last of the conditions set forth in Article 7 of this Agreement is satisfied or waived (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions), or on such other date as may be mutually agreed upon by the Selling Shareholders, on the one hand, and the Purchaser, on the other hand. The date on which the Closing actually takes place is referred to in this Agreement as the “ Closing Date ”.

1.3 Treatment of Company Rights . As of the Closing Date, all rights under any provision of any scheme, plan, program, agreement or arrangement providing for the issuance or grant of any interest in respect of the share capital of the Company shall be cancelled and terminated. Neither Purchaser nor any of its Affiliates shall be responsible for or otherwise assume any obligations with respect to any outstanding options, warrants or other rights to purchase share capital of the Company. The Company shall effectuate the foregoing and the Sellers and the Company shall ensure that, from and following the Closing Date, no Person shall have any right under any scheme, plan, program, agreement or arrangement with respect to share capital of the Company.

1.4 Estimated Balance Sheet and Estimated Closing Indebtedness . No later than five Business Days prior to the Closing Date, the Company shall deliver to the Purchaser (a) an estimated balance sheet of the Company, which estimated balance sheet reflects estimated balances as of the Closing Date (the “ Estimated Balance Sheet ”), (b) an itemized schedule of the estimated amount of Closing Indebtedness (separately listing each item of Indebtedness and the related creditor) (“ Estimated Closing Indebtedness ”), (c) an itemized schedule of the Transaction Costs paid or owed by the Company (separately listing each Transaction Cost and the related creditor), in each case as of the Closing Date (the “ Schedule of Company Transaction Costs ”), and (d) a certificate of the Company, executed by the Chief Executive Officer and the Chief Financial Officer of the Company, certifying that each of the Estimated Balance Sheet, Estimated Closing Indebtedness and Schedule of Company Transaction Costs were prepared by the Company in good faith in accordance with this Agreement, and, in the case of the Estimated Balance Sheet, in accordance with the Company’s accounting policies and generally accepted accounting practice in the United Kingdom (“ GAAP ”) applied in a manner consistent with the preparation of the Company Audited Financial Statements, except as otherwise specifically contemplated by this Agreement (the “ Closing Certificate ”).

1.5 Assumption of Closing Indebtedness . At the Closing, the Purchaser shall deliver to each creditor listed on the schedule of Estimated Closing Indebtedness attached to the Closing Certificate (other than creditors under Capital Lease Obligations) a promissory note, in substantially the form attached hereto as Exhibit B , in a principal amount equal to the amount of Indebtedness outstanding to such creditor immediately prior to the Closing, as reflected on the schedule of Estimated Closing Indebtedness (collectively, the “ Lender Promissory Notes ”); provided, that the aggregate principal amount of the Lender Promissory Notes shall not exceed an amount equal to US$4.857 million. As of the date hereof, the Purchaser and each creditor listed on the schedule of Estimated Closing Indebtedness (other than creditors under Capital

 

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Lease Obligations) have entered into an assignment agreement pursuant to which each such creditor has agreed, effective as of the Closing Date, to (a) assign all Indebtedness outstanding to such creditor immediately prior to the Closing, as reflected on the schedule of Estimated Closing Indebtedness, to the Purchaser and (b) provide the Purchaser with recordable form lien releases, note, trademark and patent assignments and other documents reasonably requested by the Purchaser, in exchange for delivery by the Purchaser of the Lender Promissory Note.

1.6 Delivery of Sellers Promissory Notes .

(a) At the Closing, the Purchaser shall deliver (i) to the Shareholders’ Representative, on behalf of the Remaining Shareholders, a promissory note in substantially the form attached hereto as Exhibit C (the “ Remaining Shareholder Promissory Note ”) and (ii) to each of the Selling Shareholders, a promissory note in substantially the form attached hereto as Exhibit D (each, a “ Selling Shareholder Promissory Note ” and, together with the Remaining Shareholder Promissory Note, the “ Sellers Promissory Notes ”). The aggregate principal amount of the Sellers Promissory Notes shall be calculated as follows (the “ Aggregate Principal Amount ”): (i) US$5.85 million, minus (ii) any unpaid Transaction Costs at Closing, minus (iii) any past due real property lease obligations reflected on the schedule of Estimated Closing Indebtedness, minus (iv) any other accounts payable or accrued liabilities reflected on the Estimated Balance Sheet (excluding those accounts payable and accrued liabilities reflected on Part 1.6(a) of the Company Disclosure Schedule, up to an aggregate amount of £219,000), minus (v) 50% of the Stamp Duty payable in connection with the transactions effected pursuant to this Agreement, plus (vi) any cash held by the Company at the Closing (taking into account any outstanding cheques), plus (vii) to the extent actually received by the Company on or before March 31, 2009, the 2008 R&D Tax Credit; provided , that the increase to the Aggregate Principal Amount, if any, pursuant to this subsection (vii) shall not exceed the reduction to the Aggregate Principal Amount, if any, pursuant to subsection (iv) above, without duplication and, in the case of (ii), (iii), (iv), (v), (vi) and (vii), converted into U.S. dollars, if necessary, based upon the Agreed Rate. The principal amount of each Selling Shareholder Promissory Note shall be equal to the result of (A)(1) the Aggregate Principal Amount, divided by (2) the Fully Diluted Company Ordinary Shares, multiplied by (B) the aggregate number of Company Ordinary Shares that are issued to the Selling Shareholder holding such Selling Shareholder Promissory Note immediately prior to the Closing. The principal amount of the Remaining Shareholder Promissory Note shall be equal to (1) the Aggregate Principal Amount, minus (2) the aggregate principal amount of the Selling Shareholder Promissory Notes, calculated in accordance with the foregoing sentence. The Sellers Promissory Notes shall be issued by the Purchaser or an Affiliate of the Purchaser and guaranteed by Parent as described with particularity in Article 5 hereof. The Remaining Shareholder Promissory Note shall be issued in the name of the Shareholders’ Representative who shall hold as nominee for the Remaining Shareholders, on behalf of the Remaining Shareholders, and is hereby authorized to propose, negotiate and agree (as applicable) to any variation to the terms of the Remaining Shareholder Promissory Note on behalf of the Remaining Shareholders, provided that any such variation shall not be to the detriment of any one or more of the Remaining Shareholders, diminish the value of the Remaining Shareholder Promissory Note nor deprive any one or more of the Remaining Shareholders of his, her or its entitlement to benefit under the terms of the Remaining Shareholder Promissory Note. The principal amount of each Sellers Promissory Note and any accrued interest earned thereon shall be subject to reduction to satisfy any rights of the Purchaser Parties to recover for Damages

 

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suffered by them in accordance with Section 1.6(b) and Article 9 of this Agreement. The aggregate amount of principal and accrued interest paid to the Sellers under the Seller Promissory Notes, as reduced to satisfy any rights of the Purchaser Parties to recover for Damages suffered by them in accordance with Section 1.6(b) and Article 9 of this Agreement (the “ Note Payment Amount ”), shall be for the benefit of the Sellers and for distribution in accordance with Section 1.1(a)(i) of this Agreement.

(b) In the event that any Purchaser Party shall incur any Damages for which it is entitled to recovery under this Agreement, the Purchaser shall be entitled to offset the aggregate amount of such Damages (converted into U.S. dollars in accordance with Section 9.4 , if necessary) against the principal amounts of the Sellers Promissory Notes and all accrued interest thereon in accordance with Section 9.4 hereof. In addition, if any Purchaser Party has any pending claim for recovery of Damages under this Agreement on the date on which final payment under the Sellers Promissory Notes is due, the Purchaser shall be entitled to withhold from the final payments due to the Sellers an amount equal to 100% of any Claimed Amount or Contested Amount, as applicable (converted into U.S. dollars, if necessary, in accordance with Section 9.4 ), in accordance with Section 9.4 hereof and the Purchaser shall not be obligated to deliver any of such withheld amount to the Sellers until the related claim for recovery of Damages is finally resolved in accordance with the terms set forth in this Agreement, at which time such amount shall be delivered to the Sellers together with any accrued interest thereon less any setoff in accordance with Section 9.4 of this Agreement.

1.7 Contingent Consideration .

(a) Delivery of Contingent Consideration Note . At the Closing, the Purchaser shall deliver to the Shareholders’ Representative a promissory note, in substantially the form attached hereto as Exhibit E (the “ Contingent Consideration Note ”), in a principal amount of up to US$9.426 million. For the avoidance of doubt, no amounts shall be payable pursuant to the Contingent Consideration Note unless and until such time as the Sellers have earned and are entitled to receive Contingent Consideration pursuant to this Section 1.7 , and then, only to the extent of the Contingent Consideration earned by and payable to the Sellers. The Contingent Consideration Note shall be issued by the Purchaser or an Affiliate of the Purchaser and guaranteed by Parent as described with particularity in Article 5 hereof and shall be issued in the name of the Shareholders’ Representative who shall hold as nominee for the Sellers, on behalf of the Sellers, and is hereby authorized to propose, negotiate and agree (as applicable) to any variation to the terms of the Contingent Consideration Note on behalf of the Sellers, provided that any such variation shall not be to the detriment of any one or more of the Sellers, diminish the value of the Contingent Consideration Note nor deprive any one or more of the Sellers of his, her or its entitlement to benefit under the terms of the Contingent Consideration Note.

(b) Calculation of Contingent Consideration . The Sellers shall be entitled to receive additional earn-out consideration equal to US$0.30, for each pSel Hybrid Display sold and delivered to any third party by the Purchaser, the Company or any of their respective Affiliates or licensees (collectively, the “ Selling Parties ”), without duplication and net of applicable returns (including returns for warranty claims), during calendar years 2009 and 2010, which shall be paid to the Sellers pursuant to the terms of the Contingent Consideration Note, subject to reduction, if any, to satisfy the rights of the Purchaser Parties to recover for Damages

 

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suffered by them in accordance with the terms of Section 1.7(d) and Article 9 of this Agreement (the “ Contingent Consideration ”), subject to the following:

(i) the Sellers shall not be entitled to receive any payments of Contingent Consideration pursuant the Contingent Consideration Note with respect to sales made during calendar year 2009 until such time as the Selling Parties have sold and delivered in excess of 3.65 million pSel Hybrid Display units to third parties, net of any applicable returns (including returns for warranty claims), in such year (in which case and at such time, the Sellers shall be deemed to have earned and shall be entitled to receive, on the next Installment Due Date, subject to the terms and conditions set forth in Section 1.7(d) , Contingent Consideration pursuant to the Contingent Consideration Note with respect to all units sold and delivered to third parties by the Selling Parties during such year, net of any applicable returns (including returns for warranty claims), and not merely the units in excess of 3.65 million units); provided , that the aggregate Contingent Consideration to be paid by the Purchaser pursuant to the Contingent Consideration Note shall not exceed US$2.19 million with respect to units sold and delivered to third parties by the Selling Parties during calendar year 2009;

(ii) the Sellers shall not be entitled to receive any payments of Contingent Consideration pursuant to the Contingent Consideration Note with respect to sales made during calendar year 2010 until such time as the Selling Parties have sold and delivered in excess of 12.9 million pSel Hybrid Display units to third parties, net of any applicable returns (including returns for warranty claims), in such year (in which case and at such time, the Sellers shall be deemed to have earned and shall be entitled to receive, on the next Installment Due Date, subject to the terms and conditions set forth in Section 1.7(d) , Contingent Consideration pursuant to the Contingent Consideration Note with respect to all units sold and delivered to third parties by the Selling Parties during such year, net of any applicable returns (including returns for warranty claims), and not merely the units in excess of 12.9 million units); provided , that the aggregate Contingent Consideration to be paid by the Purchaser pursuant to the Contingent Consideration Note shall not exceed US$7.236 million with respect to units sold and delivered to third parties by the Selling Parties during calendar year 2010; provided , further , that under no circumstances shall sales made during calendar year 2009 (regardless of whether any Contingent Consideration was payable) be taken into account in determining whether the 12.9 million unit threshold for 2010 has been achieved; and

(iii) notwithstanding the foregoing provisions of this Section 1.7(b) , if any Company Contract existing immediately prior to the Closing permits a Person (other than ELK Corporation, the Purchaser and their respective Affiliates) to manufacture and sell pSel Hybrid Display units following the Closing, the Contingent Consideration to be paid by the Purchaser pursuant to the Contingent Consideration Note with respect to each unit sold and delivered to a third party by such Person shall be equal to the lesser of (A) US$0.30 or (B) 50% of the amount actually paid by such Person to the Purchaser or an Affiliate of the Purchaser as a royalty, per unit or other license or similar payment on such units sold, and shall be subject to all of the limitations set forth in the foregoing clauses (i) and (ii).

(c) Sale of Company Products . Following the Closing, Purchaser shall not take any action that is specifically intended to affect the timing and delivery of Company Products in an effort to prevent the payment or decrease the amount of Contingent Consideration that may become payable under this Section 1.7 .

 

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(d) Payment of Contingent Consideration . Any Contingent Consideration earned pursuant to Section 1.7(b) shall be paid by the Purchaser to the Sellers in five installments under the terms of the Contingent Consideration Note. Installment payments under the Contingent Consideration Note shall be made on or before August 31, 2009, February 28, 2010, August 31, 2010, February 28, 2011 and August 31, 2011, or such later date with respect to all or any portion of the Contingent Consideration payable on each such date as necessary to resolve any disputes with respect to the calculation of Contingent Consideration pursuant to Section 1.7(e) and to resolve any pending claims for recovery of Damages pursuant to Article 9 (each, an “ Installment Due Date ”). On each of the first four Installment Due Dates, the Sellers shall be entitled to receive an amount equal to any Contingent Consideration earned by the Sellers pursuant to Section 1.7(b) during the relevant measurement period set forth in the Contingent Consideration Note (each, a “ Measurement Period ”) (subject to the limitations set forth in this Section 1.7(d) ). All calculations of the number of pSel Hybrid Display units sold and delivered at any time and the related calculation of any Contingent Consideration due pursuant to the Contingent Consideration Note shall be net of any applicable returns (including returns for warranty claims) without duplication; provided , that Purchaser shall be entitled to withhold an amount from the installment payment to be made on February 28, 2011 equal to the Estimated Remaining Return Amount. Purchaser shall pay the Excess Warranty Holdback Amount (to the extent such amount is a positive number) pursuant to the terms of the Contingent Consideration Note on the August 31, 2011 Installment Due Date. If the Excess Warranty Holdback Amount is zero or a negative number, Purchaser shall have no obligation to pay the Sellers any portion of the Estimated Remaining Return Amount. In the event that any Purchaser Party shall incur any Damages for which it is entitled to recovery under this Agreement, the Purchaser shall be entitled to offset in the manner described in Article 9 the aggregate amount of such Damages (converted into U.S. dollars in accordance with Section 9.4 , if necessary) against any Contingent Consideration otherwise payable to the Sellers under the Contingent Consideration Note pursuant to this Section 1.7 to the extent such Damages exceed the then-outstanding balance under the Sellers Promissory Notes (including accrued interest). In addition, if any Purchaser Party has any pending claim pursuant to Article 9 of this Agreement for the recovery of Damages under this Agreement on an Installment Due Date in excess of the then-outstanding balance under the Sellers Promissory Notes (including accrued interest), then the Purchaser shall be entitled to withhold from the Contingent Consideration otherwise payable to the Sellers under the Contingent Consideration Note an amount equal to the amount by which the Claimed Amount or Contested Amount, as applicable (converted into U.S. dollars in accordance with Section 9.4 , if necessary), exceeds the then-outstanding balance under the Sellers Promissory Notes (including accrued interest), and the Purchaser shall not be obligated to deliver any of such withheld Contingent Consideration to the Sellers pursuant to the Contingent Consideration Note until the related claim for recovery of Damages is finally resolved in accordance with the terms of this Agreement, at which time such Contingent Consideration shall be delivered to the Sellers together with any accrued interest thereon, less any setoff in accordance with Section 9.4 of this Agreement. For the avoidance of doubt, however, Purchaser’s withholding of amounts from payment on the February 28, 2011 Installment Due Date with respect to the Estimated Remaining Return Amount shall not extend the period for which Purchaser’s recourse for Damages is available pursuant to Article 9 or increase the amount available for recovery of Damages. Any payment of Contingent Consideration to the Sellers under the Contingent Consideration Note pursuant to this Section 1.7(d) shall be distributed in accordance with Section 1.1(a)(ii) of this Agreement.

 

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(e) Administration and Calculation of Contingent Consideration.

(i) Fifteen (15) Business Days prior to each of the first four Installment Due Dates, Purchaser shall: (A) prepare or cause to be prepared a statement (the “ Sales Statement ”) setting forth the number of pSel Hybrid Display units sold and delivered to third parties by the Selling Parties during the relevant Measurement Period, net of applicable returns (including returns for warranty claims), together with supporting documentation, and a calculation of the Contingent Consideration payable to the Sellers pursuant to the Contingent Consideration Note at such Installment Due Date and (B) deliver or cause to be delivered such Sales Statement to the Shareholders’ Representative.

(ii) In the event that the Shareholders’ Representative objects to Purchaser’s calculation of the number of pSel Hybrid Display units sold or the calculation of Contingent Consideration set forth in such Sales Statement or requires further information in order to perform and confirm such calculations or determine such amounts, then within ten (10) Business Days after receipt by the Shareholders’ Representative of the Sales Statement (the “ Initial Response Period ”), the Shareholders’ Representative shall deliver to Purchaser a written notice (an “ Initial Objection Notice ”): (A) describing in reasonable detail the Shareholders’ Representative’s objections to Purchaser’s calculation of the amounts set forth in the Sales Statement and containing a statement setting forth the actual number of pSel Hybrid Display units sold net of applicable returns (including returns for warranty claims), or the amount of any such Contingent Consideration, determined by the Shareholders’ Representative to be correct; or (B) requesting additional information from Purchaser that the Shareholders’ Representative reasonably requires in order to perform such calculations or determine such amounts (which information, to the extent reasonably necessary in order to perform such calculations, shall be provided by Purchaser within fifteen (15) Business Days after Purchaser’s receipt of such request). If the Shareholders’ Representative does not deliver an Initial Objection Notice to Purchaser during the Initial Response Period, then Purchaser’s calculation of the amounts set forth in the Sales Statement shall be final, binding and conclusive on Purchaser, Sellers and the Shareholders’ Representative. If the Shareholders’ Representative delivers an Initial Objection Notice to Purchaser accompanied by a request for additional information from Purchaser as described above during the Initial Response Period, then the Shareholders’ Representative shall have an additional ten (10) Business Days after receiving from Purchaser all of the information reasonably requested by Shareholders’ Representative and required in order for Shareholders’ Representative to perform its calculation of the Sales Statement (the “ Final Response Period ”) to deliver to Purchaser a written notice (a “ Final Objection Notice ”) describing in reasonable detail the Shareholders’ Representative’s objections to Purchaser’s calculations of the amounts set forth in the Sales Statement accompanied by a statement setting forth the number of pSel Hybrid Display units sold net of applicable returns (including returns for warranty claims), or the dollar amount of any such Contingent Consideration, determined by the Shareholders’ Representative to be correct. If the Shareholders’ Representative has requested additional information during the Initial Response Period and does not deliver a Final Objection Notice to Purchaser during the Final Response Period, then Purchaser’s calculation of the amounts set forth in the Sales

 

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Statement shall be final, binding and conclusive on Purchaser, the Sellers and the Shareholders’ Representative. If the Shareholders’ Representative delivers an Initial Objection Notice or Final Objection Notice, as the case may be, accompanied by a statement setting forth the number of pSel Hybrid Display units sold net of applicable returns (including returns for warranty claims), or the amount of any such Contingent Consideration, determined by the Shareholders’ Representative to be correct to Purchaser during either the Initial Response Period or the Final Response Period in accordance with this Section 1.7(e)(ii) , and if the Shareholders’ Representative and Purchaser are unable to agree upon the calculation of the amounts set forth in the Sales Statement within thirty (30) calendar days after such Initial Objection Notice or Final Objection Notice, as the case may be, is delivered to Purchaser, the dispute shall be finally settled by a U.S. nationally recognized independent accounting firm jointly selected by Purchaser and the Shareholders’ Representative; provided , that such independent accounting firm shall have had no material relationship with Seller or Purchaser or their respective Affiliates (the “ Accounting Referee ”). The determination by the Accounting Referee of the disputed amounts, number of pSel Hybrid Display units sold net of applicable returns (including returns for warranty claims) and/or the Contingent Consideration, if any, shall be final, conclusive and binding on Purchaser, the Sellers and the Shareholders’ Representative. The fees and other expenses of such independent accounting firm shall be paid by the party whose determination of Contingent Consideration payable most diverges (on an absolute dollar basis) from the determination of the Accounting Referee. For the avoidance of doubt, the Shareholders’ Representative shall be the sole party authorized, on behalf of the Sellers, to object to the calculations set forth in the Sales Statement, request additional information from the Purchaser related to such calculations and negotiate, adjudicate and enter into settlements and compromises of objections and claims made pursuant to this Section 1.7(e)(ii) .

(f) Payment of the Financial Advisor . To the extent that any Contingent Consideration has been earned by and is payable to the Sellers pursuant to this Section 1.7 and the Contingent Consideration Note, the Purchaser shall pay the Financial Advisor an amount in cash equal to the Financial Advisor Commission.

ARTICLE 2.

WARRANTIES OF THE COMPANY

Except as set forth on the Company Disclosure Schedule, which shall qualify the warranties of the Company set forth in this Article 2 , the Company warrants, on a dollar for dollar basis and in accordance with Article 9 , as of the date of this Agreement and as of the Closing Date, to and for the benefit of the Purchaser Parties, as follows (an exception or disclosure made in the Company Disclosure Schedule with regard to a warranty of the Company shall be deemed made with respect to any other warranty to which the applicability of such exception or disclosure is reasonably apparent):

2.1 Organization; Standing and Power; Subsidiaries .

(a) The Company is a private limited company duly incorporated and validly existing under the laws of England and Wales, has all necessary power and authority to (i) own, lease and use its properties and assets in the manner in which its properties and assets are currently owned, leased and used; (ii) carry on its business in the manner in which its business is currently being conducted and (iii) perform its obligations under all Company Contracts.

 

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(b) The Company has not conducted any business under or otherwise used, for any purpose or in any jurisdiction, any fictitious name, assumed name, trade name or other name, other than the name Pelikon Limited or Elumin Limited.

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

(d) Part 2.1(d) of the Company Disclosure Schedule accurately sets forth (i) the names of the members of the board of directors of the Company (the “ Board ”), (ii) the names of the members of each committee of the Board (if any) and (iii) the names and titles of the officers of the Company.

(e) The Company has no Subsidiary. The Company does not own any controlling interest in any Entity and, except for the financial interests identified in Part 2.1(e) of the Company Disclosure Schedule, the Company has never owned, beneficially or otherwise, any shares or other securities of, or any direct or indirect equity or other financial interest in, any Entity. The Company has not agreed nor is it obligated to make any future investment in or capital contribution to any Entity. The Company has not guaranteed nor is it responsible or liable for any obligation of any of the Entities in which it owns or has owned any equity or other financial interest. Neither the Company nor any of its members has ever approved, or commenced any proceeding or made any election contemplating, the dissolution or liquidation of the business or affairs of the Company.

2.2 Company Constituent Documents; Records . The Company has delivered to Purchaser accurate and complete copies of (a) the Certificate of Incorporation of the Company, Memorandum of Association of the Company and the Articles of Association of the Company, in each case including all amendments thereto; (b) its statutory registers and (c) the minutes and other records of the meetings and other proceedings (including any actions taken by written consent or otherwise without a meeting) of its members in their capacity as such, the Board and all committees of the Board, in each case since January 1, 2001 (the items described in (a), (b) and (c) above, collectively, the “ Company Constituent Documents ”). There have been no formal meetings of or material actions taken by the Company’s members, the Board or any committee of the Board that are not fully reflected in the Company Constituent Documents. There has not been any violation of the Company Constituent Documents, and the Company has not taken any action that is inconsistent in any material respect with the Company Constituent Documents. The books of account, statutory registers (including the register of members and register of directors and register of charges) and other records of the Company are accurate, up-to-date and complete in all material respects, and have been maintained materially in accordance with applicable Legal Requirements and prudent business practices.

 

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2.3 Capitalization, Etc .

(a) The authorized share capital of the Company consists of 4,648,936,483 Company Ordinary Shares, of which 3,150,752,088 shares have been issued as of the date of this Agreement. None of the issued share capital of the Company is held by the Company in treasury. All the issued Company Ordinary Shares have been duly authorized and validly issued, are fully paid and were not issued in violation of any preemptive or other similar rights. All issued Company Ordinary Shares have been issued in compliance with (i) all applicable securities laws and other applicable Legal Requirements, and (ii) all requirements set forth in the Company Constituent Documents and applicable Contracts. Each of the Remaining Shareholders is the record and beneficial owner of the Shares as set forth opposite such Remaining Shareholder’s name on Part 2.3(a) of the Company Disclosure Schedule, and such Shares are free and clear of all Encumbrances. None of the Remaining Shareholders are organized or incorporated in or residents or citizens of the United States or Singapore. Upon execution and delivery by Purchaser of the Lender Promissory Notes, the Sellers Promissory Notes and the Contingent Consideration Note at the Closing, each Remaining Shareholder will convey good and marketable title to the Shares held by it set forth opposite its name on Part 2.3(a) of the Company Disclosure Schedule to Purchaser, free and clear of all Encumbrances. The assignments, endorsements, powers and other instruments of transfer delivered by each of the Remaining Shareholders (or their respective authorized agents) at the Closing will be sufficient to transfer to the Purchaser such Remaining Shareholder’s entire right, title and interest, legal and beneficial, in such Shares.

(b) As of the date of this Agreement, there are issued warrants to purchase 466,250,000 Company Ordinary Shares and stock options to purchase 1,031,934,395 Company Ordinary Shares. As of the Closing, there are no issued warrants, options or other rights to purchase Company Ordinary Shares.

(c) Except as set forth above in this Section 2.3 , as of the date of this Agreement, there is no (i) issued share capital or other voting securities of the Company; (ii) outstanding securities, instruments or obligations that are or may become convertible into or exchangeable or exercisable for any share capital or other securities of the Company; (iii) outstanding subscriptions, options, calls, warrants or rights (whether or not currently exercisable) to acquire any share capital or other securities of the Company; or (iv) commitments or agreements to which the Company is a party or by which it is bound, in any case obligating the Company to issue, deliver, sell, purchase, redeem or acquire, or cause to be issued, delivered, sold, purchased, redeemed or acquired, any share capital or other securities of the Company, or obligating the Company to enter into any such commitment or agreement or grant or extend any subscription, option, warrant, call or right to acquire any share capital of, or any securities that are convertible into or exchangeable or exercisable for any share capital of, or other securities of the Company (clauses (i) through (iv) of this Section 2.3(c) above, collectively “ Company Rights ”). The Company has not issued any debt securities which grant the holder thereof any right to vote on, or veto (except in the context of negative covenants over the Company’s ability to incur indebtedness and grant security interests in the assets or property of the Company), any actions by the Company (or which are convertible into, or exercisable or exchangeable for, securities having the right to vote on, or veto, any actions by the Company).

 

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(d) The Company has never repurchased, redeemed or otherwise reacquired any share capital or other securities of the Company other than pursuant to share purchase agreements or option agreements providing for the repurchase of such securities at the original issuance price of such securities. All securities so reacquired by the Company were reacquired in compliance with (i) the applicable provisions of the Companies Act 1985 and all other applicable Legal Requirements, and (ii) all requirements set forth in applicable subscription and shareholders’ agreements and other applicable Contracts.

2.4 Authority; Binding Nature of Agreement . The Company has all right, power and authority to execute and deliver this Agreement and any Related Agreement to which it is a party, to consummate the transactions contemplated hereby and thereby and to take all other actions required to be taken by it pursuant to the provisions hereof and thereof. The execution, delivery and performance of this Agreement and any Related Agreement to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company, and no other action on the part of the Company is necessary to authorize the execution, delivery and performance by the Company of this Agreement and any Related Agreement to which the Company is a party and to consummate the transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by the Company. This Agreement constitutes and, upon execution and delivery thereof by the Company, any Related Agreement to which it is a party will constitute (assuming due and valid authorization, execution and delivery hereof and thereof by the other parties hereto and thereto, if any) the valid and binding obligation of the Company, enforceable against the Company in accordance with their respective terms, except as such enforcement may be limited by any insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting creditors’ rights and remedies generally and by general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity.

2.5 Non-Contravention; Consents . Except as set forth in Part 2.5 of the Company Disclosure Schedule, the execution, delivery and performance of this Agreement and the Related Agreements and the consummation of the transactions contemplated hereby and thereby do not, directly or indirectly (with or without notice or lapse of time):

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

(b) contravene, conflict with or result in a violation of any Legal Requirement or any Order, writ, injunction, judgment or decree to which the Company or any of the assets owned, used or controlled by the Company is subject or, to the Knowledge of the Company, give any Governmental Body or other Person the right to challenge any of the transactions contemplated by this Agreement or any of the Related Agreements or to exercise any remedy or obtain any relief under, any such Legal Requirement or Order, writ, injunction, judgment or decree to which the Company or any of the assets owned, used or controlled by the Company is subject;

(c) contravene, conflict with or result in a violation of any of the terms or requirements of any Governmental Authorization that is held by the Company or that otherwise relates to the business of the Company or to any of the assets owned, used or controlled by the

 

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Company, including in such a manner as would, pursuant to the terms of such Governmental Authorization, give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify such Governmental Authorization;

(d) contravene, conflict with or result in a violation or breach of, or result in a default under, any provision of any Material Contract to which the Company or any of the assets owned, used or controlled by the Company is subject, or give any Person the right to (i) declare a default or exercise any remedy under any such Material Contract, (ii) accelerate the maturity or performance of any such Material Contract or (iii) cancel, terminate or modify any such Material Contract; or

(e) result in the imposition or creation of any Encumbrance upon or with respect to any asset owned or used by the Company (except for minor liens that will not, in any case or in the aggregate, materially detract from the value of the assets subject thereto or materially impair the operations of the Company).

The Company has complied, in all material respects, with all applicable Legal Requirements and Orders in connection with the execution, delivery and performance of this Agreement and any Related Agreements to which it is a party and the consummation of the transactions contemplated hereby and thereby. No filing with, notice to or consent from any Person (other than the parties hereto) is required in connection with the execution, delivery or performance of this Agreement or any of the Related Agreements by the Company, the consummation of the transactions contemplated hereby and thereby by the Company or the conduct of the business of the Company in the same manner immediately after the Closing Date as before the Closing Date.

2.6 Financial Statements .

(a) Part 2.6 of the Company Disclosure Schedule includes the following financial statements (collectively, the “ Company Financial Statements ”):

(i) The audited consolidated balance sheet of the Company as of December 31, 2007 and 2006 (the “ Balance Sheet ”) and the related audited profit and loss account of the Company for the periods then ended together with the notes thereto and the unqualified report and opinion of Deloitte & Touche LLP relating thereto (collectively, the “ Company Audited Financial Statements ”); and

(ii) the unaudited consolidated balance sheets of the Company as of September 30, 2008 (the “ Balance Sheet Date ”) and the related unaudited profit and loss account of the Company for the period from January 1, 2008 through the Balance Sheet Date (the “ Unaudited Interim Financial Statements ”).

(b) The Company Audited Financial Statements give a true and fair view of the financial position of the Company as of the dates thereof and the results of operations and cash flows of the Company for the periods covered thereby. The Company Audited Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered. The Company Audited Financial Statements were prepared from the books and records of the Company, which books and records have been maintained in accordance with sound business practices and all applicable Legal Requirements and reflect all financial transactions of the Company that are required to be reflected in accordance with GAAP.

 

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(c) The Unaudited Interim Financial Statements have been prepared with due care and attention, on a basis consistent with the Company Audited Financial Statements, and give a fair and reasonable view of the assets and liabilities of the Company as at their date and of the profits and losses for the period in respect of which they have been prepared, subject to year-end adjustments.

(d) The Company maintains accurate books and records reflecting its assets and liabilities and maintains proper and adequate internal accounting controls which provide assurance that (i) transactions are executed with management’s authorization; (ii) transactions are recorded as necessary to permit preparation of the financial statements of the Company in accordance with GAAP and to maintain accountability for the Company’s assets; (iii) access to the Company’s assets is permitted only in accordance with management’s authorization; (iv) the reporting of the Company’s assets is compared with existing assets at regular intervals and (v) accounts and other receivables and inventory are recorded in good faith and reserves established against them based upon actual prior experience and in accordance with GAAP, and proper procedures are implemented for the collection thereof on a commercially reasonable basis. The Company does not have any Knowledge of any significant deficiencies or material weaknesses in the design or operation of the Company’s internal control structure and procedures over financial reporting. The Company has heretofore made available to Purchaser a true, complete and correct copy of any disclosure (or, if unwritten, a summary thereof) by any Representative of the Company to the Company’s independent auditors relating to (A) any significant deficiencies in the design or operation of internal controls that could adversely affect the ability of the Company to record, process, summarize and report financial data and any material weaknesses in internal controls and (B) any fraud, whether or not material, that involves management or other Employees who have a significant role in the internal control over financial reporting of the Company.

(e) The Company possesses books and records which contain all financial and other information from the date of its incorporation through the date hereof necessary for the preparation of financial statements.

2.7 Absence of Certain Changes . Except as set forth in Part 2.7 of the Company Disclosure Schedule, since the Balance Sheet Date, the Company has conducted its business only in the ordinary course of business consistent with past practice. Except as set forth in Part 2.7 of the Company Disclosure Schedule, since the Balance Sheet Date:

(a) there has not been any Company Material Adverse Effect, and, to the Knowledge of the Company, no event has occurred that will, or could reasonably be expected to, have a Company Material Adverse Effect;

(b) the Company has not (i) suffered any damage, destruction or loss, or any interruption in the use of, any of its assets with a value in excess of US$50,000 in the aggregate (whether or not covered by insurance) or (ii) suffered any repeated, recurring or prolonged shortage, cessation or interruption of supplies or services required to conduct its business;

 

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(c) the Company has not declared, accrued, set aside or paid any dividend or made any other distribution in respect of any capital shares or other equity securities, and, other than repurchases at cost of shares or other equity securities subject to repurchase options, has not repurchased, redeemed or otherwise reacquired any of its capital shares or other securities;

(d) the Company has not sold, issued or authorized the issuance of (i) any of its capital shares or other securities or (ii) any Company Rights;

(e) there has been no amendment to any of the Company Constituent Documents, and the Company has not effected or been a party to any Acquisition Transaction, recapitalization, reclassification of shares or similar transaction;

(f) the Company has not formed any Subsidiary or acquired any equity interest or other interest in any other Entity;

(g) the Company has not made any capital expenditure which, when added to all other capital expenditures made on behalf of the Company since the Balance Sheet Date, exceeds US$50,000;

(h) the Company has not written off as uncollectible, or established any extraordinary reserve with respect to, any billed or unbilled account receivable or other indebtedness outside existing reserves;

(i) the Company has not incurred any liabilities in excess of US$50,000 in the aggregate, other than in the ordinary course of business consistent with past practice, or failed to pay or discharge when due any liabilities of which the failure to pay or discharge has caused or will cause any material damage or risk of material loss to it or relating to any of its assets or properties;

(j) the Company has not (i) acquired, leased or licensed any right or other asset from any other Person, (ii) sold, assigned, transferred or otherwise disposed of, or leased or licensed, any right or other asset to any other Person or (iii) waived or relinquished any right, except, in each case, for (A) immaterial rights or other immaterial assets acquired, leased, licensed or disposed of, (B) non-exclusive licenses of Intellectual Property in connection with sales of Company Products or services to customers and (C) sales of Company Products, in each case in the ordinary course of business and consistent with past practice;

(k) the Company has not (i) loaned any sum of money to any Person (other than pursuant to advances for ordinary and necessary business expenses made to employees in the ordinary course of business consistent with past practice), (ii) created, incurred, assumed or guaranteed any indebtedness for money borrowed or (iii) mortgaged, pledged or otherwise permitted any of its assets or properties to become subject to any Encumbrance, except for Permitted Encumbrances made in the ordinary course of business consistent with past practice;

(l) the Company has not (i) made or suffered any amendment or termination of any Contract to which it is a party or by which it is bound and under which it is entitled to receive or obligated to pay US$25,000 or more in the aggregate or (ii) cancelled, modified or waived any debts or claims in excess of US$25,000 in the aggregate held by it, whether or not in the ordinary course of business;

 

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(m) the Company has not (i) established, adopted or materially amended any employee benefit plan, (ii) paid or committed to pay any bonus or made any profit-sharing or similar payment to, or increased the amount of wages, salary commissions, fringe benefits, pension or welfare benefits, severance benefits, stock-based benefits or other compensation or remuneration payable to, any of its current or former directors, consultants, officers or employees, or (iii) hired any new director, consultant, officer or any other employee;

(n) the Company has not changed any of its methods of accounting or accounting practices in any respect, except as may be required by GAAP;

(o) the Company has not made any Tax election;

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

(q) the Company has not entered into any transaction involving US$25,000 or more other than in the ordinary course of business consistent with past practice;

(r) the Company has not entered into, or agreed to enter into, any agreements granting any Person a license to any Company Intellectual Property, other than non-exclusive licenses of Intellectual Property in connection with sales of Company Products or services to customers in the ordinary course of business and consistent with past practice;

(s) the Company has not terminated the employment of any Employees;

(t) the Company has not hired any executive officer of the Company;

(u) the Company has not terminated or reduced any development activities; and

(v) the Company has not agreed to take, or committed to take, any of the actions referred to in clauses (c) through (u) above.

2.8 Title to and Sufficiency of Assets .

(a) Except as set forth in Part 2.8(a) of the Company Disclosure Schedule and save for any Real Property, the Company is the sole legal and beneficial owner of all the assets that it purports to own, including, without limitation, (i) all assets referred to in Sections 2.9 and 2.11 of this Agreement, and (ii) all other assets reflected in the Company’s books and records as being owned by the Company. All such assets are owned by the Company free and clear of any Encumbrances, except for (A) Permitted Encumbrances and (B) Encumbrances specifically described in the notes to the Company Audited Financial Statements.

 

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(b) The assets of the Company constitute all the assets used in or necessary to carry on its business as such business is being conducted as of the date hereof and as of immediately prior to the Closing.

(c) Except for this Agreement, the Company does not have any Contract, absolute or contingent, (i) to effect any Acquisition Transaction or (ii) to sell or otherwise transfer any assets of the Company, except for sales of Company Products or services to be made in the ordinary course of business consistent with past practice.

2.9 Bank Accounts; Accounts Receivable; Inventory .

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

(b) Part 2.9(b) of the Company Disclosure Schedule provides an accurate and complete breakdown and aging of all billed and unbilled accounts receivable and other receivables of the Company as of the Balance Sheet Date. All existing accounts receivable of the Company (including those accounts receivable that have not yet been billed or that have not yet been collected and those accounts receivable that have arisen since the Balance Sheet Date and have not yet been collected) are (i) valid, genuine and subsisting obligations of customers of the Company, arising from bona fide sales and deliveries of goods, performance of services or other business transactions in the ordinary course of business and (ii) are fully collectible (except to the extent reserved against in the Company Financial Statements, which such reserves have been determined based upon actual prior experience and are consistent with GAAP, consistently applied) and are not presently, other than as set forth in Part 2.9(b) of the Company Disclosure Schedule, subject to defences, set-offs or counterclaims.

(c) Part 2.9(c) of the Company Disclosure Schedule sets forth a true, correct and complete list of all of the inventory of the Company. All of the inventory of the Company (i) was acquired for the operation of its business in the ordinary course consistent with past practice, (ii) is of a quality and quantity usable or saleable in the ordinary course of business (except as reserved against in the Company Financial Statements), and (iii) is valued on the books and records of the Company at the lower of cost or market value with the cost determined under the first-in-first-out inventory valuation method consistent with past practice.

2.10 Equipment . Part 2.10 of the Company Disclosure Schedule sets forth a true, correct and complete list of all equipment and other tangible assets owned by the Company having an original cost in excess of US$10,000 and regularly or customarily used by the Company in the operation of its business. All equipment and other tangible assets that are owned, leased or used by the Company (i) are free of material defects and deficiencies and in good operating condition and repair, subject to normal wear and tear and continued repair and replacement in accordance with past practice, and (ii) comply in all material respects with, and are being operating and otherwise used in material compliance with, all applicable Legal Requirements. During the past twelve (12) months there has not been any significant interruption of the operations of the Company due to inadequate maintenance of such assets.

 

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2.11 Real Property .

(a) The Company does not own, nor has it ever owned, any real property or any interest in any real property, except for the leasehold interests created under the real property leases identified in Part 2.13(a)(viii) of the Company Disclosure Schedule (each, a “ Lease ”).

(b) Part 2.11(b) of the Company Disclosure Schedule includes a complete list of all real property leased, subleased or licensed by the Company (the “ Real Property ”). No material damage or destruction has occurred with respect to any of the Real Property for which the Company corporation may be liable.

(c) The premises leased pursuant to each Lease are supplied with utilities and other services necessary for the operation of such premises.

2.12 Intellectual Property .

(a) Part 2.12(a) of the Company Disclosure Schedule sets forth a complete and accurate list of all Registered IP owned, in whole or in part, by, under an obligation to be assigned to, or filed in the name of the Company.

(b) Part 2.12(b) of the Company Disclosure Schedule sets forth all Intellectual Property (including software programs) and Intellectual Property Rights (other than Registered IP) owned, in whole or in part, by or under an obligation to be assigned to the Company that are material to the conduct of its business as presently being conducted.

(c) Part 2.12(c) of the Company Disclosure Schedule sets forth all In-Licenses, other than software that is generally commercially available for a cost of not more than US$5,000 for a perpetual license for a single user or work station (or US$25,000 in the aggregate for all users and work stations), and excluding “open source” materials described in Section 2.12(p) below.

(d) Part 2.12(d) of the Company Disclosure Schedule sets forth all Out-Licenses, other than non-exclusive licenses and related agreements of Company Products granted to end user customers in the ordinary course of business pursuant to the standard form of end user license agreement used by the Company and other than written non-disclosure agreements.

(e) Except as set forth in Part 2.12(e) of the Company Disclosure Schedule, the Company exclusively owns all Company Intellectual Property and all Company Intellectual Property is free and clear of any Encumbrances other than Permitted Encumbrances and nonexclusive licenses granted to end user customers in the ordinary course of business. The Intellectual Property and the Intellectual Property Rights owned or used by the Company are not subject to any restriction or limitation of any kind (including geographic restrictions or limitations) that would materially adversely affect the right by the Company to use or exploit thereof, or the right to manufacture, market, distribute, or sell any Company Products currently being developed, offered, manufactured, distributed or sold by the Company.

 

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(f) The Company owns or otherwise has sufficient rights to all Intellectual Property and Intellectual Property Rights necessary to conduct its businesses as currently conducted.

(g) The Company does not jointly own any Intellectual Property or Intellectual Property Rights with any of its directors, officers, employees, consultants or any other Person pursuant to any non-disclosure, collaboration, license or other agreement or otherwise.

(h) The Company is no longer subject to the exclusivity provision set forth in Section 6.3(a) of that certain Development and Engineering Services Agreement, dated October 23, 2006, between the Company and Motorola related to wireless communications voice devices.

(i) The Registered IP owned by the Company (i) has not been adjudged invalid or unenforceable, (ii) to the Knowledge of the Company, is valid, subsisting, and enforceable, (iii) is not the subject of any pending or threatened proceeding in which the scope, validity, or enforceability of any Registered IP is being or has been contested or challenged and (iv) is in compliance with all formal legal requirements, and all filings, payments, and other actions required to be made or taken to maintain such Registered IP in full force and effect have been made by the applicable deadline.

(j) The Company has not, within the last six years, infringed, misappropriated, or otherwise violated the Intellectual Property Rights of any third party. There are no pending or, to the Knowledge of the Company, threatened infringement, misappropriation, or similar claims or proceedings against the Company. The Company has not received any written notice or other written communication of any alleged infringement or misappropriation of any third party’s Intellectual Property Rights by the Company.

(k) To the Knowledge of the Company, no person or entity is infringing, misappropriating, or otherwise violating any Intellectual Property Rights owned by the Company.

(l) The Company has taken all reasonable steps to maintain the confidentiality of or otherwise protect and enforce its rights in its confidential information, in particular the trade secrets owned by the Company.

(m) None of the software distributed, licensed, or sold by the Company (“ Company Software ”) fails to comply in any material respect with any applicable warranty or other contractual commitment by the Company relating to the use, functionality, or performance of such software.

(n) Except as set forth in Part 2.12(n) of the Company Disclosure Schedule, no portion of any Company Software has been delivered, made available, or licensed to any third party, nor is the Company obligated to deliver, make available, or license such software in source code form to any third party under any circumstance, other than to the Company’s contractors or consultants who have been hired to develop, manage, and/or modify such Company Software and are obligated to maintain the confidentiality of such source code.

 

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(o) To the Knowledge of the Company, no Company Software contains any “back door,” “drop dead device,” “time bomb,” “Trojan horse,” “virus,” or “worm” (as such terms are commonly understood in the software industry) or any other code designed to (i) disrupt, disable, harm, or otherwise impede in any manner the operation of, or provide unauthorized access to, a computer system or network or other device on which such code is stored or installed or (ii) damage or destroy any data or files without the user’s consent.

(p) No Company Software is subject to any “copyleft” or other obligation or condition (including any obligation or condition under any “open source” license such as the GNU Public License, Lesser GNU Public License, the wxWindows Library License, or Mozilla Public License) that would require the disclosure, licensing or distribution of any source code for the Company Software owned by the Company.

(q) All Employees of the Company who have created or developed any Intellectual Property or Intellectual Property Rights for the Company have signed written agreements that are valid and enforceable, containing a confidentiality provision protecting the Company’s confidential information and assigning to the Company his or her Intellectual Property Rights developed within the scope of his or her employment or engagement (as applicable) with the Company.

(r) Other than IP Contracts with third parties set forth in Part 2.12(c) and Part 2.12(d) of the Company Disclosure Schedule and agreements with the Company’s customers entered into in the ordinary course of business, the Company is not bound by any agreement to indemnify any other person or entity for intellectual property infringement, misappropriation, or similar claims.

(s) Neither the execution, delivery, or performance of this Agreement (or any of the Related Agreements) nor the consummation by the Company of any of the transactions contemplated by this Agreement (or any of the Related Agreements) will, with or without notice or lapse of time, directly or indirectly result in (i) a loss of, or encumbrance or restriction on any Intellectual Property or Intellectual Property Rights owned by or used by the Company that are material to the conduct of its business as presently being conducted, (ii) a breach of any In-License, (iii) the grant, assignment, or transfer to any third party of any license or other right or interest under, to, or in any of the Company Intellectual Property.

2.13 Contracts .

(a) Except as set forth in Part 2.13(a) of the Company Disclosure Schedule, the Company is not a party to nor is it bound by any written or oral:

(i) Contract with any present or former shareholder, partner, member other equity holder, director, officer, employee or consultant or for the employment of, performance of services by or payment of commissions to any Person, including any consultant;

(ii) Contract with any labor union or other representative of employees;

 

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(iii) Contract relating to the acquisition, transfer, use, development, sharing or license of any Company Intellectual Property other than (A) licenses of Intellectual Property in connection with the sales of Company Products or services in the ordinary course of business consistent with past practice, (B) end user software licenses that are generally available on standard terms for less than US$5,000; and (C) contracts relating to technology and proprietary assets immaterial to the Company’s business as presently conducted;

(iv) Contract relating to any material acquisition, issuance or transfer of any securities (other than issuances of Company securities in connection with connection with the Company’s share option scheme and employee equity arrangements);

(v) Contract for the purchase of, or payment for, supplies, products or services (A) from a Related Party or (B) involving (1) in any one case, US$25,000 or more or (2) in the aggregate, US$50,000 or more;

(vi) Contract to sell or supply products or to perform services, (A) to or for a Related Party or (B) involving (1) in any one case, US$25,000 or more or (2) in the aggregate, US$50,000 or more;

(vii) Contract creating or involving any agency relationship, distribution arrangement or franchise relationship;

(viii) Contract relating to the lease of or license to enter any Real Property;

(ix) Contract relating to the lease of any equipment used by the Company;

(x) note, debenture, bond, conditional sale agreement, equipment trust agreement, loan agreement or other contract or commitment for the borrowing or lending of money (including, without limitation, loans to or from present or former shareholders, partners, members, other equity holders, officers, directors, employees or any member of their immediate families);

(xi) Contract relating to the creation of an Encumbrance (other than a Permitted Encumbrance) with respect to any asset of the Company or involving or incorporating any indemnity or surety arrangement, guaranty, security agreement, pledge, performance or completion bond or pursuant to which the Company otherwise undertakes the indebtedness of any other Person;

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

(xiii) Contract involving Tax sharing;

(xiv) Contract relating to a charitable or political contribution;

 

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(xv) Contract for any individual capital expenditure in excess of US$25,000, or US$50,000 in the aggregate;

(xvi) Contract imposing any restriction on the Company’s right or ability (A) to compete with any other Person, (B) to acquire any product or other assets or any services from any other Person, to sell any amount of product or other assets to, or perform any services for any other Person, or (C) to develop or distribute any technology, nor, to the Knowledge of the Company, is any officer or employee of the Company subject to any such Contract, other than with the Company;

(xvii) Contract not made in the ordinary course of business; or

(xviii) Contract not otherwise listed in Part 2.13(a) of the Company Disclosure Schedule that (A) continues over a period of more than twelve (12) months from the date hereof, (B) exceeds US$25,000 in value and (C) may not be terminated by the Company (without penalty) within 30 days after the delivery of a termination notice by the Company.

Contracts in the respective categories described in clauses (i) through (xviii) of this Section 2.13 are referred to in this Agreement as “ Material Contracts ”.

(b) The Company has provided Purchaser with true, correct and complete copies of all written Material Contracts. Part 2.13(b) of the Company Disclosure Schedule provides an accurate description of the terms of each Material Contract that is not in written form. Each Material Contract is valid and in full force and effect and is enforceable in accordance with its terms.

(c) Except as set forth in Part 2.13(c) of the Company Disclosure Schedule:

(i) The Company has not violated or breached, or committed any default under, any provision of any Material Contract, and, to the Knowledge of the Company, no other Person has violated or breached, or committed any default under, any provision of any Material Contract;

(ii) No event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or could reasonably be expected to, (A) result in a violation or breach of any provision of any Material Contract, (B) give any Person the right to declare a default or exercise any remedy under any Material Contract, (C) give any Person the right to accelerate the maturity or performance of any Material Contract, or (D) give any Person the right to cancel, terminate or modify any Material Contract;

(iii) The Company has not received any notice or other communication regarding any actual or possible violation or breach of, or default under, any Material Contract that has not been resolved; and

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

 

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

(e) The Company Contracts collectively constitute all of the Contracts necessary to enable the Company to conduct its business substantially in the manner in which its business is being conducted as of the date hereof and as of immediately prior to the Closing.

(f) Except as disclosed in Part 2.13(f) of the Company Disclosure Schedule, with respect to each Material Contract, the Material Contract will continue to be valid, binding, enforceable, and in full force and effect on identical terms immediately following the consummation of the transactions contemplated by this Agreement and the Related Agreements, and the consummation of the transactions contemplated hereby and thereby shall not result in any payment or payments becoming due from the Company to any Person or give any Person the right to terminate or alter the provisions of such Material Contract. The consummation of the transactions described herein will not affect any of the Material Contracts in a manner that could reasonably be expected to result in a Company Material Adverse Effect.

2.14 Customers; Accounts Payable .

(a) Part 2.14(a) of the Company Disclosure Schedule identifies each Person that has committed (whether oral or written and whether pursuant to an agreement or purchase order or otherwise) to purchase products or services with a dollar value of US$25,000 or more from the Company, and sets forth for each such Person the quantities or amounts of such products or services that such Person has committed to purchase (the “ Purchase Commitments ”) and whether such commitment is oral or written. The Company has provided to Purchaser true and complete copies of all documents evidencing such Purchase Commitments. All such Purchase Commitments are in full force and effect, have not been withdrawn, amended, modified or terminated and, if accepted and performed by the Company prior to any such withdrawal, amendment, modification or termination, are enforceable by the Company and, upon consummation of the Transactions, will be enforceable by Purchaser, against the other party to such Purchase Commitments. No fact, condition or circumstance exists that would give any party the right to withdraw, amend, modify or terminate any Purchase Commitment and no Person has given any notice to the Company, and the Company has no knowledge, that any Person intends to withdraw, amend, modify or terminate any Purchase Commitment.

(b) Part 2.14(b) of the Company Disclosure Schedule provides an accurate and complete breakdown and aging of the Company’s accounts payable as of the Balance Sheet Date. Part 2.14(b) of the Company Disclosure Schedule accurately identifies, and provides an accurate and complete breakdown of the amounts paid to, each supplier or other Person (other than Employees) that received more than $50,000 from the Company during 2006, 2007 or 2008.

2.15 Liabilities . Except (i) as not required in accordance with GAAP to be reflected or reserved against in the Company Financial Statements, (ii) as and to the extent reflected or reserved against in the Company Financial Statements (including the notes thereto), (iii) as set forth in Part 2.15 of the Company Disclosure Schedule or (iv) as incurred in the

 

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ordinary course of business since the Balance Sheet Date, the Company does not have any material direct or indirect debts, liabilities, claims, losses, damages, deficiencies, costs, expenses or obligations (whether absolute, accrued, known or unknown, contingent or otherwise) of any nature whatsoever (including, without limitation, obligations under capital leases or any unfunded obligations as required for funding on an ongoing basis under any Plan or arrangement or any uninsured liabilities resulting from failure to comply with any applicable Legal Requirement). The Company does not have any off-balance sheet liabilities.

2.16 Compliance with Legal Requirements; Governmental Authorizations .

(a) The Company is, and has at all times been, in material compliance with all applicable Legal Requirements. The Company has not received any notice or other communication from any Governmental Body regarding any actual or possible violation of, or failure to comply with, any material Legal Requirement. To the Knowledge of the Company, no Governmental Body has proposed or is considering any Legal Requirement that, if adopted or otherwise put into effect, would reasonably be expected to have an adverse effect on the Company’s business, condition, assets, liabilities, operations, financial performance, net income or prospects.

(b) Part 2.16(b) of the Company Disclosure Schedule identifies each Governmental Authorization held by the Company and the Company has delivered to Purchaser accurate and complete copies of all Governmental Authorizations identified in Part 2.16(b) of the Company Disclosure Schedule. The Governmental Authorizations identified in Part 2.16(b) of the Company Disclosure Schedule are valid and in full force and effect, collectively constitute all Governmental Authorizations necessary to enable the Company to conduct its business in the manner in which its business is currently being conducted and will continue in full force and effect immediately following the Closing. The Company is in substantial compliance with the terms and requirements of the respective Governmental Authorizations identified in Part 2.16(b) of the Company Disclosure Schedule. The Company has not received any notice or other communication from any Governmental Body regarding (i) any actual or possible violation of or failure to comply with any material term or requirement of any Governmental Authorization or (ii) any actual or possible revocation, withdrawal, suspension, cancellation, termination or modification of any material Governmental Authorization.

2.17 Tax Matters .

(a) General .

(i) All notices, returns (including any land transaction returns), reports, accounts, computations, statements, assessments and registrations and any other necessary information submitted by the Company to any Taxation Authority for the purpose of Taxation have been made on a proper basis, were submitted within applicable time limits, were accurate and complete in all material respects when supplied and remain, to the Knowledge of the Company, accurate and complete in all material respects. None of the above is, or, to the Knowledge of the Company, is likely to be, the subject of any material dispute with any Taxation Authority.

 

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(ii) All Taxation (whether of the UK or elsewhere), for which the Company has been liable or is liable to account for, has been duly paid (insofar as such Taxation ought to have been paid) and the Company will not become liable to pay any Taxation as a result of any event occurring before Closing or income profits or gains arising to or earned by the Company before Closing.

(iii) The Company has, within applicable time limits, maintained all records in relation to Taxation as they are required by law to maintain.

(iv) The Company has complied within applicable time limits with all notices served on them and any other requirements lawfully made of them by any Taxation Authority.

(v) The Company has not made any payments representing installments of corporation tax pursuant to the Corporation Tax (Installment Payments) Regulations 1998 in respect of any current or preceding accounting periods and is not under any obligation to do so.

(vi) The Company has not paid, within the past seven years ending on the Agreement Date, any penalty, fine, surcharge or interest charged by virtue of the TMA 1970 or any other Tax Statute.

(vii) All Taxation and national insurance deductible and payable under the Pay-As-You-Earn system and/or any other Taxation Statute has, so far as is required to be deducted, been deducted from all payments made (or treated as made) by the Company. All amounts due to be paid to the relevant Taxation Authority prior to the date of this Agreement have been so paid, including without limitation all Tax chargeable on benefits provided for directors, employees or former employees of the Company or any persons required to be treated as such.

(viii) Proper records have been maintained in respect of all such deductions and payments, and all applicable regulations have been complied with.

(ix) The Company is not involved in any dispute with any Taxation Authority and has not, within the past 12 months, been subject to any visit, audit, investigation, discovery or access order by any Taxation Authority. The Company is not aware of any circumstances existing which make it likely that a non-routine visit, audit, investigation, discovery or access order will be made in the next 12 months.

(x) The Company Disclosure Schedule contains details of any concession, agreement or other formal or informal arrangement (that is, an arrangement which is not based on a strict interpretation of all relevant Taxation Statutes, published extra-statutory concessions and published statements of practice) with any Taxation Authority.

(xi) The Company Disclosure Schedule contains details of all transactions, schemes or arrangements in respect of which the Company has been a party or has otherwise been involved for which a statutory clearance application was made. The Company Disclosure Schedule also contains copies of all relevant applications for clearances and copies of

 

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all clearances obtained in connection with such transactions, schemes or arrangements. All such clearances have been obtained on the basis of full and accurate disclosure of all material facts and considerations relating thereto. All such transactions, schemes or arrangements have been implemented strictly in accordance with the terms of such clearances.

(xii) The Company is not, or will not become, liable to make to any Person (including any Taxation Authority) any payment in respect of any liability to Taxation which is primarily or directly chargeable against, or attributable to, any other Person (other than the Company).

(xiii) The Company Financial Statements make full provision or reserve within GAAP for any period ended on or before the date to which they were drawn up for all Taxation assessed or liable to be assessed on the Company, or for which the Company is accountable at that date, whether or not the Company has (or may have) any right of reimbursement against any other person. Proper provision has been made and shown in the Company Financial Statements for deferred taxation in accordance with GAAP.

(b) Chargeable Gains . The book value shown in, or adopted for the purposes of, the Company Financial Statements as the aggregate value of the assets of the Company, on the disposal of which a chargeable gain or allowable loss could arise, does not exceed the amount which on a disposal of the assets at the date of this Agreement would be deductible, in each case, disregarding any statutory right to claim any allowance or relief other than amounts deductible under Section 38 of TCGA 1992.

(c) Capital Allowances .

(i) If the assets of the Company were disposed of at the Closing Date for their book value as shown in, or adopted for the purpose of, the Company Financial Statements, or for the value of consideration actually given for them on their acquisition (if such assets were acquired since the Balance Sheet Date), no balancing charge under CAA 2001 would be made on the Company.

(d) Distributions and Other Payments.

(i) No distribution or deemed distribution, within the meaning of Sections 209, 210 or 211 of ICTA 1988, has been made (or will be deemed to have been made) by the Company, except dividends shown in the Company Audited Financial Statements, and the Company is not bound to make any such distribution.

(ii) No rents, interest, annual payments or other sums of an income nature, paid or payable by the Company or which the Company is under an existing obligation to pay in the future, are or will be wholly or partially disallowable as deductions, management expenses or charges in computing taxable profits for Taxation purposes.

(iii) The Company has not, within the period of seven years preceding the Closing Date, been engaged in, or been a party to, any of the transactions set out in Sections 213 to 218 (inclusive) of ICTA 1988, nor has it made or received a chargeable payment as defined in Section 218(1) of ICTA 1988.

 

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(e) Loan Relationships .

(i) All interests, discounts and premiums payable by the Company in respect of its loan relationships (within the meaning of Section 81 of the Finance Act 1996) are eligible to be brought into account by the Company as a debit for the purposes of Chapter II of Part IV of the Finance Act 1996 at the time, and to the extent that such debits are recognized in the statutory accounts of the Company.

(ii) The Company is not a party to a debtor relationship (within the meaning of Section 103 of the Finance Act 1996) to which paragraph 2 of Schedule 9 to the Finance Act 1996 applies or may apply.

(iii) The Company is not a party to a loan relationship made other than on arm’s length terms. There are no circumstances in which paragraphs 11 and 11A of Schedule 9 to the Finance Act 1996 could apply to require an adjustment of debits and/or credits brought into account by the Company.

(iv) The Company has not been a party to a loan relationship which had an unallowable purpose (within the meaning of paragraph 13 of Schedule 9 to the Finance Act 1996).

(f) Close Companies . The Company is not, nor has it ever been a close company within the meaning of Sections 414 and 415 of ICTA 1988.

(g) Intangible Assets . For the purposes of this paragraph (g), references to intangible fixed assets means intangible fixed assets and goodwill within the meaning of Schedule 29 to the Finance Act 2002 to which that Schedule applies. References to an intangible fixed asset  shall be construed accordingly.

(i) Part 2.17(g)(i) of the Company Disclosure Schedule sets out the amount of expenditure on each of the intangible fixed assets of the Company and provides the basis on which any debit relating to that expenditure has been taken into account in the Company Financial Statements.

(ii) No claims or elections have been made by the Company under Part 7 of, or paragraph 86 of Schedule 29 to, the Finance Act 2002 in respect of any intangible fixed asset of the Company.

(iii) Since the Balance Sheet Date:

(1) the Company has not owned an asset which has ceased to be a chargeable intangible asset in the circumstances described in paragraph 108 of Schedule 29 to the Finance Act 2002;

(2) the Company has not realized or acquired an intangible fixed asset for the purposes of Schedule 29 to the Finance Act 2002; and

 

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(3) no circumstances have arisen which have required, or will require, a credit to be brought into account by the Company on a revaluation of an intangible fixed asset.

(h) Company Residence, Treasury Consents and Overseas Interests .

(i) The Company has, throughout the past seven years, been resident in the UK for corporation tax purposes and has not, to the Knowledge of the Company, at any time in the past seven years, been treated as resident in any other jurisdiction for the purposes of any double taxation arrangements having effect under Section 249 of the Finance Act 1994, Section 788 of ICTA 1988 or for any other tax purpose.

(ii) The Company has not caused, permitted or entered into any of the transactions specified in Section 765 of ICTA 1988 (migration of companies) without the prior written consent of HM Treasury, or without having duly provided the required information to HM Revenue & Customs (as appropriate).

(iii) The Company does not hold shares in a company which is not resident in the UK and which would be a close company if it were resident in the UK in circumstances such that a chargeable gain accruing to the company not resident in the UK could be apportioned to the Company pursuant to Section 13 of TCGA 1992.

(iv) The Company is not holding, or has not held in the past seven years, any interest in a controlled foreign company within Section 747 of ICTA 1988. The Company does not have any material interest in an offshore fund as defined in Section 759 of ICTA 1988.

(v) The Company has not had, nor within the last seven years has it had, a permanent establishment outside the UK.

(vi) The Company is not an agent or permanent establishment of another company, Person, business or enterprise for the purpose of assessing the company, Person, business or enterprise to Taxation in the country of residence of the Company.

(i) Anti-Avoidance . All transactions or arrangements made by the Company have been made on fully arm’s length terms. There are no circumstances in which Section 770A of, or Schedule 28AA to, ICTA 1988 or any other rule or provision could apply allowing any Taxation Authority to make an adjustment to the terms on which such transaction or arrangement is treated as being made for Taxation purposes, and no notice or enquiry has been made by any Taxation Authority in connection with any such transactions or arrangements.

(j) Inheritance Tax .

(i) The Company has not:

(1) made any transfer of value within Sections 94 and 202 of IHTA 1984; or

 

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(2) received any value such that liability might arise under Section 199 of IHTA 1984; or

(3) been a party to associated operations in relation to a transfer of value as defined by Section 268 of IHTA 1984.

(ii) There is no unsatisfied liability to inheritance tax attached to, or attributable to, the Shares or any asset of the Company. None of them are subject to any HM Revenue & Customs charge as mentioned in Section 237 and 238 of IHTA 1984.

(iii) No asset owned by the Company, nor the Shares, are liable to be subject to any sale, mortgage or charge by virtue of Section 212(1) of IHTA 1984.

(k) Value Added Tax .

(i) The Company is a taxable Person and is registered for the purposes of VAT. The Company is not, nor has it been in the period of six years ending with the Closing Date, a member of a group of companies for VAT purposes.

(ii) The Company is registered, for the purposes of VAT, with monthly prescribed accounting periods. Such registration, as is referred to this Section 2.17(k)(ii) is not subject to any conditions imposed by or agreed with HM Revenue & Customs. The Company is not (nor are there any circumstances by virtue of which it may become) under a duty to make monthly payments on account under the Value Added Tax (Payments on Account) Order 1993. The Company has complied with all statutory provisions, rules, regulations, orders and directions in respect of VAT.

(iii) All supplies made by the Company are taxable supplies. The Company has not been, nor, to the Company’s Knowledge, will it be, denied full credit for all input tax paid or suffered by it. All VAT paid or payable by the Company is input tax as defined in Section 24 of the VATA 1994 and regulations made under it.

(iv) No act or transaction has been effected in consequence of which the Company is liable for any VAT arising from supplies made by another company. No direction has been given by HM Revenue & Customs under Schedule 9A to the VATA 1994 as a result of which the Company would be treated for the purposes of VAT as a member of a group.

(v) The Company does not own, or has at any time within the period of ten years preceding the date of this Agreement owned, any assets which are capital items subject to the capital goods scheme under Part XV of the VAT Regulations 1995.

(vi) The Company has not made any claim for any bad debt relief under Section 36 of the VATA 1994.

 

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(l) Stamp Duty, Stamp Duty Land Tax and Stamp Duty Reserve Tax .

(i) Any document that is necessary in proving the title of the Company to any asset which is owned by the Company at the Closing Date, and each document which the Company may wish to enforce or produce in evidence is, so far as required by law, duly stamped for stamp duty purposes. No such documents which are outside the UK would attrac