AGREEMENT AND PLAN OF MERGER BY AND AMONG NEXTWAVE WIRELESS LLC, PVC ACQUISITION CORP., PACKETVIDEO CORPORATION AND WILLIAM D. CVENGROS as the Stockholder Representative Dated as of May 25, 2005
EXHIBIT
2.2
BY
AND
AMONG
PVC
ACQUISITION CORP.,
PACKETVIDEO
CORPORATION
AND
XXXXXXX
X. XXXXXXXX
as
the
Stockholder Representative
Dated
as
of May 25, 2005
TABLE
OF CONTENTS
|
ARTICLE
I
|
DEFINITIONS
|
1
|
|
1.1
|
Certain
Definitions
|
1
|
|
ARTICLE
II
|
THE
MERGER
|
10
|
|
2.1
|
The
Merger
|
10
|
|
2.2
|
Closing
|
11
|
|
2.3
|
Effective
Time
|
11
|
|
2.4
|
Effects
of the Merger
|
11
|
|
2.5
|
Certificate
of Incorporation and By-laws
|
11
|
|
2.6
|
Directors
|
11
|
|
2.7
|
Officers
|
11
|
|
ARTICLE
III
|
EFFECT
OF THE MERGER ON THE SECURITIES OF THE COMPANY AND MERGER
SUB
|
12
|
|
3.1
|
Effect
on Capital Stock
|
12
|
|
3.2
|
Payment
for Company Securities
|
14
|
|
3.3
|
Aggregate
Consideration Spreadsheet
|
16
|
|
3.4
|
Stockholder
Representative Reserve
|
16
|
|
3.5
|
Payment
of Certain Amounts
|
17
|
|
ARTICLE
IV
|
TERMINATION,
AMENDMENT AND WAIVER
|
17
|
|
4.1
|
Termination
of Agreement
|
17
|
|
4.2
|
Effect
of Termination
|
18
|
|
4.3
|
Termination
Fee
|
18
|
|
4.4
|
Bridge
Loan
|
19
|
|
ARTICLE
V
|
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
|
20
|
|
5.1
|
Organization
and Good Standing
|
20
|
|
5.2
|
Authorization
of Agreement
|
20
|
|
5.3
|
Conflicts;
Consents of Third Parties
|
21
|
|
5.4
|
Capitalization
|
22
|
|
5.5
|
Subsidiaries
|
22
|
|
5.6
|
Corporate
Records
|
23
|
|
5.7
|
Financial
Statements
|
23
|
-i-
TABLE
OF CONTENTS
(continued)
|
5.8
|
No
Undisclosed Liabilities
|
24
|
|
5.9
|
Absence
of Certain Developments
|
24
|
|
5.10
|
Taxes
|
26
|
|
5.11
|
Property
and Assets
|
28
|
|
5.12
|
Technology
and Intellectual Property
|
29
|
|
5.13
|
Insurance
|
33
|
|
5.14
|
Material
Contracts and Obligations
|
33
|
|
5.15
|
Compliance
|
34
|
|
5.16
|
Employee
Benefits
|
34
|
|
5.17
|
Labor
|
35
|
|
5.18
|
Litigation
|
36
|
|
5.19
|
Related
Party Transactions
|
36
|
|
5.20
|
Banks
|
36
|
|
5.21
|
State
Takeover Statutes
|
36
|
|
5.22
|
Financial
Advisors
|
36
|
|
ARTICLE
VI
|
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
|
37
|
|
6.1
|
Organization
and Good Standing
|
37
|
|
6.2
|
Authorization
of Agreement
|
37
|
|
6.3
|
Conflicts;
Consents of Third Parties
|
37
|
|
6.4
|
Compliance
with Laws
|
38
|
|
6.5
|
Litigation
|
38
|
|
6.6
|
Financial
Advisors
|
38
|
|
6.7
|
Financing
|
38
|
|
ARTICLE
VII
|
COVENANTS
|
38
|
|
7.1
|
Access
to Information
|
38
|
|
7.2
|
Conduct
of the Business Pending the Closing
|
39
|
|
7.3
|
Notice
of Changes
|
41
|
|
7.4
|
Reasonable
Best Efforts; Regulatory Approvals
|
42
|
|
7.5
|
Stockholder
Consent
|
42
|
-ii-
TABLE
OF CONTENTS
(continued)
|
7.6
|
Stockholder
Litigation
|
43
|
|
7.7
|
Indemnification;
Insurance
|
43
|
|
7.8
|
No
Solicitation by the Company; Etc
|
43
|
|
7.9
|
Confidentiality
|
45
|
|
7.10
|
Publicity
|
45
|
|
7.11
|
Transaction
Expenses
|
45
|
|
7.12
|
Employee
Matters.
|
45
|
|
7.13
|
Employee
Agreements
|
46
|
|
7.14
|
Working
Capital Commitment
|
46
|
|
ARTICLE
VIII
|
CONDITIONS
TO CLOSING
|
46
|
|
8.1
|
Conditions
Precedent to Obligations of Parent and Merger Sub
|
46
|
|
8.2
|
Conditions
Precedent to Obligations of the Company
|
48
|
|
ARTICLE
IX
|
INDEMNIFICATION
|
49
|
|
9.1
|
Survival
of Representations and Warranties
|
49
|
|
9.2
|
Indemnification
|
49
|
|
9.3
|
Escrow
Arrangements
|
50
|
|
9.4
|
Exclusive
Remedy
|
54
|
|
9.5
|
Tax
Losses
|
54
|
|
9.6
|
Tax
Treatment of Indemnity Payments
|
54
|
|
ARTICLE
X
|
MISCELLANEOUS
|
55
|
|
10.1
|
Stockholder
Representative
|
55
|
|
10.2
|
Specific
Performance
|
57
|
|
10.3
|
Submission
to Jurisdiction; Consent to Service of Process
|
57
|
|
10.4
|
Governing
Law
|
58
|
|
10.5
|
Entire
Agreement; No Third-Party Beneficiaries
|
58
|
|
10.6
|
Amendment
and Waivers
|
58
|
|
10.7
|
Notices
|
58
|
|
10.8
|
Severability
|
59
|
|
10.9
|
Assignment
|
59
|
|
10.10
|
Counterparts
|
60
|
-iii-
Exhibits
Exhibit
A
- Form of Voting Agreement
Exhibit
B
- Form of Escrow Agreement
Exhibit
C
- Form of Amended and Restated Certificate of Incorporation
Exhibit
D
- Form of Release Agreement
Exhibit
E-1 - Form of Employee Non-Disclosure and Assignment Agreement
Exhibit
E-2 - Form of Non-Competition Agreement
Exhibit
F
- Form of Employee Retention Plan
Exhibit
G
- Form of Stock Option Plan
-iv-
THIS
AGREEMENT AND PLAN OF MERGER, dated as of May 25, 2005 (this “Agreement”),
by and
among NextWave Wireless LLC, a Delaware limited liability company (“Parent”),
PVC
Acquisition Corp., a corporation existing under the laws of Delaware and a
wholly-owned subsidiary of Parent (“Merger
Sub”),
PacketVideo Corporation, a corporation existing under the laws of Delaware
(the
“Company”),
and
Xxxxxxx X. Xxxxxxxx, as the Stockholder Representative (as defined
herein).
WHEREAS,
the respective Boards of Directors of Parent, Merger Sub and the Company have
approved and declared advisable this Agreement and the merger of Merger Sub
with
and into the Company (the “Merger”),
with
the Company being the surviving entity in the Merger, upon the terms and subject
to the conditions set forth in this Agreement;
WHEREAS,
concurrently herewith, the officers and directors of the Company that hold
capital stock of the Company will execute and deliver voting agreements
(“Voting
Agreements”)
in the
form of Exhibit
A
attached
hereto agreeing to vote the shares of Company Common Stock and/or Company
Preferred Stock held by them in favor of adoption and approval of this Agreement
and the approval of the Merger; and
WHEREAS,
Parent, Merger Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also
to
prescribe various conditions to the Merger.
NOW,
THEREFORE, in consideration of the representations, warranties, covenants and
agreements contained in this Agreement, the parties hereto agree as follows:
ARTICLE
I
DEFINITIONS
1.1 Certain
Definitions.
(a) For
purposes of this Agreement, the following terms shall have the meanings
specified in this Section
1.1:
“Affiliate”
means,
with respect to any Person, any other Person that, directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such Person, and the term “control” (including the terms
“controlled by” and “under common control with”) means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through ownership of voting securities,
by
contract or otherwise.
“Affiliated
Group”
means
any affiliated group within the meaning of Section 1504 of the Code or any
comparable or analogous group under state, local or foreign Law.
“Aggregate
Consideration”
means
the Common Stock Merger Consideration, the Preferred Stock Merger Consideration,
the Sale Bonus Amount, the Bridge Loan Principal, the Bridge Loan Fees, the
Transaction Expense Amount, and the Escrow Payment, if any.
“Aggregate
Consideration Spreadsheet”
means a
spreadsheet, to be prepared by the Company and the Stockholder Representative,
calculating and allocating to each Company Stockholder and/or holder of Company
Stock Options the Aggregate Consideration in reasonable detail and in a form
reasonably satisfactory to Parent and Merger Sub, a preliminary draft of which
will be delivered to Parent and Merger Sub by the Company and the Stockholder
Representative not later than three (3) Business Days after the date hereof,
which preliminary draft shall be updated as provided in Section
3.3.
“Bridge
Loan Principal”
means
$1,500,000 in principal payable as of the Closing Date pursuant to those certain
promissory notes dated April 12, 2005 and May 2, 2005 held by Xxxxx Xxxxxxxx
and
Xxxx Xxxxxxxx (the “Management
Notes”).
“Bridge
Loan Fees”
means
the
applicable interest and fees accrued and due and payable on the Management
Notes
as of the Closing Date in accordance with their terms.
“Business
Day”
means
any day of the year on which national banking institutions in New York are
open
to the public for conducting business and are not required or authorized to
close.
“Code”
means
the Internal Revenue Code of 1986, as amended.
“COI
Amendment”
means an
amendment to the Amended and Restated Certificate of Incorporation of the
Company providing that the transactions contemplated by this Agreement,
including the Merger shall not (i) be considered a liquidation of the
Company for the purposes of Article IV, Section D.3 of the Amended and Restated
Certificate of Incorporation or (ii) trigger the provisions of Article IV,
Section D.4 of the Amended and Restated Certificate of
Incorporation.
“Company
Securities”
means
the Common Stock and the Preferred Stock issued and outstanding immediately
prior to the Effective Time.
“Company
Stockholders”
means
each holder of a Company Security immediately prior to the Effective
Time.
“Contract”
means
any contract, agreement, indenture, note, bond, loan, instrument, lease,
commitment or other legally binding arrangement or agreement, whether written
or
oral.
“ERISA”
means
the Employment Retirement Income Security Act of 1974, as amended.
“Escrow
Agreement”
means
that certain Escrow Agreement to be entered into on the Closing Date by and
among Parent, the Stockholder Representative and the Escrow Agent
-2-
(as
therein defined), substantially in the form of Exhibit
B
hereto
(with such changes acceptable to Parent and the Stockholder Representative
as
may be required by the Escrow Agent).
“Escrow
Amount”
means
$3,000,000, plus any interest that accrues on such amount while it is held
in
the Escrow Fund.
“GAAP”
means
generally accepted accounting principles in the United States.
“Governmental
Body”
means
any government or governmental or regulatory body thereof, or political
subdivision thereof, whether federal, state, local or foreign, or any agency,
instrumentality or authority thereof, or any court or arbitrator (public or
private).
“Indebtedness”
of any
Person means, without duplication, (i) the principal of and premium (if
any) and prepayment penalties (if any) in respect of (A) indebtedness of
such Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (ii) all obligations of such Person issued
or assumed as the deferred purchase price of property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable and other accrued
current liabilities arising in the Ordinary Course of Business); (iii) all
obligations of such Person under leases required to be capitalized in accordance
with GAAP; (iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker’s acceptance or similar credit
transaction; and (v) all obligations of the type referred to in
clauses (i) through (iv) of any Persons for the payment of which such
Person is responsible or liable or for which any property or asset of such
Person is secured by a Lien, under any legally binding obligation, including
as
obligor, guarantor, surety or otherwise.
“Intellectual
Property”
means
any rights available with respect to the Technology under patent, copyright,
trade secret or trademark law or any other statutory provision or common law
doctrine, and also domain names.
“IRS”
means
the Internal Revenue Service.
“Knowledge”
means,
with respect to any Person, the actual knowledge of the senior management or
comparable representatives of such Person (who, with respect to the Company,
are
listed on Schedule
1.1)
and
such knowledge as would reasonably be expected to be known by such Persons
in
the ordinary and usual course of the performance of their professional
responsibilities.
“Law”
means
any foreign, federal, state or local law (including common law), statute, code,
ordinance, rule, regulation or other requirement issued, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Body.
“Legal
Proceeding”
means
any judicial, administrative or arbitral actions, suits, proceedings (public
or
private) or claims or proceedings by or before a Governmental Body.
-3-
“Liability”
means
any debt, loss, damage, adverse claim, liability or obligation (whether direct
or indirect, known or unknown, asserted or unasserted, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, or due or to become due,
and
whether in contract, tort, strict liability or otherwise).
“Lien”
shall
mean any lien, mortgage, encumbrance, security interest, claim, lease, charge,
or pledge that is not a Permitted Exception.
“Losses”
means
any and all damages, losses, liabilities, Taxes and Tax Losses (including any
Taxes incurred or resulting from receipt of a payment in respect of an
indemnifiable Loss) obligations, costs and expenses, and any and all claims,
demands or suits (by any Person, including without limitation any Governmental
Body), including the costs and expenses of any and all actions, suits,
proceedings, demands, assessments, judgments, settlements and compromises
relating thereto and including reasonable attorneys’ and other advisors’ fees,
costs and expenses in connection therewith; provided,
however,
that for
purposes of computing the amount of Losses incurred by a Person, there shall
be
deducted an amount equal to the amount of any insurance proceeds,
indemnification payments, contribution payments or reimbursements that are
received by such Person or any of such Person’s affiliates in connection with
such Losses or the circumstances giving rise thereto; and provided further
that
Losses shall not include any lost profits or punitive or special damages, except
to the extent a Parent Indemnified Party pays any such amounts to a third
party.
“Material
Adverse Effect”
means
any condition, change, situation or set of circumstances that has had or would
reasonably be expected to have a material adverse effect on (i) the Company
and its Subsidiaries, taken as a whole, or the business, assets, properties,
liabilities, financial condition, operations, or results of operations of the
Company and its Subsidiaries, taken as a whole, or (ii) the ability of the
Company to consummate the Merger and the other transactions contemplated by
this
Agreement or perform its material obligations under this Agreement or the
Company Documents; provided, however, that a Material Adverse Effect shall
not
include any condition, change, situation or set of circumstances or effect
relating to (i) the economy in general in the United States or any state or
locality in which such entity or any of its subsidiaries conducts business,
(ii)
United States or global financial or securities markets or conditions or any
act
of terrorism, epidemic, natural disaster or war, (iii) the telecommunications
and wireless industries generally, (iv) changes in applicable law or regulations
or in GAAP, (v) any claim made or threatened by, or any litigation, mediation
or
arbitration commenced by, any Person seeking damages based upon any alleged
breach by the Company of any agreement or commitment between the Company and
such Person in connection with the Company’s discussions or negotiations with
Parent, (vi) the execution and delivery of this Agreement or announcement of
the
transactions contemplated hereby, including the identity of Parent or (vii)
any
action taken by the Company or its Subsidiaries with Parent’s consent or from
compliance by the Company with the terms of, or the taking of any action
contemplated by, this Agreement.
“Merger
Consideration”
means
the Common Stock Merger Consideration and the Preferred Stock Merger
Consideration.
“Order”
means
any order, injunction, judgment, decree, ruling, writ, assessment or arbitration
award of a Governmental Body.
-4-
“Ordinary
Course of Business”
means
the ordinary and usual course of day-to-day operations of the business of the
Company and its Subsidiaries through the date hereof consistent with past
practice.
“Permits”
means
any approvals, authorizations, consents, licenses, permits or certificates
of a
Governmental Body.
“Permitted
Exceptions”
means
(i) all defects, exceptions, restrictions, easements, rights of way and
encumbrances disclosed in policies of title insurance which have been made
available to Parent; (ii) statutory liens for current Taxes, assessments or
other governmental charges not yet delinquent or the amount or validity of
which
is being contested in good faith by appropriate proceedings; (iii) mechanics’,
carriers’, workers’, repairers’ and similar Liens arising or incurred in the
Ordinary Course of Business that are not material to the business, operations
and financial condition of the assets of the Company so encumbered;
(iv) zoning, entitlement and other land use and environmental regulations
by any Governmental Body, provided that such regulations have not been violated
by the Company; (v) statutory or common law liens to secure obligations to
landlords, lessors or renters under leases or rental agreements; (vi) deposits
or pledges made in connection with, or to secure payment of, workers’
compensation, unemployment insurance or similar programs mandated by applicable
Law; (vii) any right, title or interest of a licensor under a license disclosed
in the Schedules to this Agreement or entered into in the Ordinary Course of
Business that are immaterial in the absence of any default by the licensee;
(viii) leases or subleases disclosed in the Schedules to this Agreement or
entered into in the Ordinary Course of Business following the date of this
Agreement that are immaterial; (ix) licenses or sublicenses granted to others
pursuant to any Material Contract; (x) immaterial, non-exclusive licenses or
sublicenses that are not required to be included on the Company’s disclosure
schedules; (xi) liens arising solely by virtue of any statutory or common law
provision relating to banker’s liens, rights of setoff or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; and (xii) liens in favor of other financial institutions
arising in connection with the Company’s deposit accounts or securities accounts
held at such institutions to secure customary fees, charges, and the
like.
“Person”
means
any individual, corporation, partnership, firm, joint venture, association,
joint-stock company, trust, unincorporated organization, Governmental Body
or
other entity.
“Pre-Closing
Tax Period”
means
any taxable year or period (or portion thereof) that ends on or before the
Closing Date.
“Preferred
Stock”
collectively means the Series A Preferred Stock, the Series B Preferred Stock,
the Series C Preferred Stock, the Series D Preferred Stock and the
Series E Preferred Stock.
“Pro
Rata Portion”
means,
for any holder of Preferred Stock, the ratio of (i) the liquidation preference
to which such holder would be entitled if the liquidation preferences set forth
in Section D.3(a) of Article IV of the Company’s Amended and Restated
Certificate of Incorporation were paid in full on the shares of Preferred Stock
held by such holder immediately
-5-
prior
to
the Effective Time, over (ii) the aggregate liquidation preference to which
all
holders of Preferred Stock would be entitled if the aggregate liquidation
preferences set forth in Section D.3(a) of Article IV of the Company’s Amended
and Restated Certificate of Incorporation were paid in full on all outstanding
shares of Preferred Stock immediately prior to the Effective Time.
“Sale
Bonus Amount”
means an
aggregate amount equal to $2.56 million, to be allocated in accordance with
the
Aggregate Consideration Spreadsheet pursuant to a duly adopted resolution of
the
Company’s Board of Directors; provided, that the aggregate Sale Bonus Amount
shall be reduced by the amount of any sale bonus allocated to any Company
employee who is listed on Schedule
8.1(j)
and who
does not enter into the non-compete agreement substantially in the form attached
hereto as Exhibit
E-2
(the
“Non-Competition
Agreement”).
“Software”
means
any and all computer programs, whether in source code or object code form,
together with all related documentation.
“Stockholder
Representative Reserve”
means
$100,000, intended to defray the costs and expenses incurred by the Stockholder
Representative in connection with his obligations under this
Agreement.
“Straddle
Period”
means
any taxable year or period that includes, but does not end on, the Closing
Date.
“Subsidiary”
means
any Person of which the Company directly or indirectly owns voting securities,
other voting rights or voting partnership interests which are sufficient to
elect at least a majority of such Person’s board of directors or other governing
body (or, if there are no such voting interests, the Company directly or
indirectly owns 50% of the equity interests of such Person).
“Superior
Proposal”
means
a
bona fide written Takeover Proposal made by a third party, obtained after the
date hereof and not in breach of this Agreement, on its most recently amended
or
modified terms, if amended or modified, which is on terms and conditions which
the Board of Directors of the Company determines in its good faith judgment
(after consultation with outside counsel) to be more favorable to the Company’s
stockholders from a financial point of view than the Merger, taking into account
at the time of determination, among other things, any changes to the terms
of
this Agreement that as of that time had been proposed by Parent in writing
and
the ability of the Person making such proposal to consummate the transactions
contemplated by such proposal (based upon, among other things, the availability
of financing and the expectation of obtaining any required regulatory or other
approvals). In addition to the foregoing, to constitute a Superior Proposal,
a
Takeover Proposal, (x) if related to the direct or indirect acquisition of
assets of the Company and its Subsidiaries (including securities of
Subsidiaries), must contemplate the acquisition of more than 50%, rather than
20% or more, of the Company’s consolidated assets or to which more than 50%,
rather than 20% or more, of the Company’s revenues or earnings on a consolidated
basis are attributable, (y) if related to the direct or indirect acquisition
of
any class of equity securities of the Company, must contemplate more than 50%,
rather than 20% or more, of the total equity securities of the
-6-
Company,
and (z) if related to a tender offer or exchange offer that if consummated
would
result in any Person or “group” beneficially owning any class of equity
securities of the Company, must contemplate more than 50%, rather than 20%
or
more, of the total equity securities of the Company.
“Takeover
Proposal”
means
any inquiry, proposal or offer from any Person or “group” (as defined in Section
13(d) of the Exchange Act), other than Parent and its Subsidiaries, relating
to
any (A) direct or indirect acquisition (whether in a single transaction or
a
series of related transactions) of assets of the Company and its Subsidiaries
(including securities of Subsidiaries) equal to 20% or more of the Company’s
consolidated assets or to which 20% or more of the Company’s revenues or
earnings on a consolidated basis are attributable, (B) direct or indirect
acquisition (whether in a single transaction or a series of related
transactions) of 20% or more of any class of equity securities of the Company,
(C) tender offer or exchange offer that if consummated would result in any
Person or “group” (as defined in Section 13(d) of the Exchange Act) beneficially
owning 20% or more of any class of equity securities of the Company or (D)
merger, consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any
of
its Subsidiaries; in each case, other than the transactions contemplated by
this
Agreement.
“Tax
Return”
means
any return, report or statement required to be filed with respect to any Tax
(including any schedules or attachments thereto, and any amendment thereof),
including any information return, claim for refund, amended return or
declaration of estimated Tax, and including, where permitted or required,
combined, consolidated or unitary returns for any group of entities that
includes the Company, any of its Subsidiaries, or any of their
Affiliates.
“Taxes”
means
(i) all federal, state, local or foreign taxes, charges, fees, imposts, levies
or other assessments, including all net income, gross receipts, capital, sales,
use, ad valorem, value added, transfer, franchise, profits, inventory, capital
stock, license, withholding, payroll, employment, social security, unemployment,
excise, severance, stamp, occupation, property and estimated taxes, customs
duties, fees, assessments and other taxes of any kind whatsoever, (ii) all
interest, penalties, fines, additions to tax or additional amounts imposed
by
any Taxing Authority in connection with any item described in clause (i), and
(iii) any transferee liability in respect of any items described in clauses
(i)
and/or (ii) payable by reason of contract, assumption, transferee liability,
operation of Law, Treasury Regulation Section 1.1502-6(a) (or any predecessor
or
successor thereof of any analogous or similar provision under Law) or
otherwise.
“Taxing
Authority”
means
the IRS and any other Governmental Body responsible for the administration
of
any Tax.
“Technology”
means,
collectively, all designs, formulae, algorithms, procedures, methods,
techniques, ideas, know-how, Software, programs, subroutines, tools, inventions,
creations, improvements, works of authorship and other similar materials, and
all recordings, graphs, drawings, reports, analyses, and other writings, and
any
other embodiments of the above, in any form whether or not specifically listed
herein, and all related technology, that are used in,
-7-
incorporated
or embodied in or displayed by any of the foregoing or used or useful in the
design, development, reproduction, maintenance or modification of any of the
foregoing.
“Transaction
Expenses”
means
all the transaction costs of the Company, the Company Stockholders and the
Stockholder Representative (excluding the Stockholder Representative Reserve)
including brokers’ or finders’ fees and fees and expenses of counsel, advisors,
consultants, investment bankers, accountants, auditors and experts, incurred
by
the Company or its Subsidiaries in connection with the negotiation and execution
of this Agreement and the consummation of the transactions contemplated by
this
Agreement.
“Transaction
Expense Amount”
means
the
amount of Transaction Expenses as of the Closing Date, which amount shall not
exceed $500,000.
“Transfer
Taxes”
means
all sales, use, stamp, documentary, filing, recording, transfer or similar
fees
or taxes or governmental charges as levied by any Governmental Body including
any interest and penalties) in connection with the transactions contemplated
by
this Agreement.
“Treasury
Regulations”
means
the regulations promulgated under the Code.
“WARN”
means
the Worker Adjustment and Retraining Notification Act of 1988, as
amended.
(b) Terms
Defined Elsewhere in this Agreement.
For
purposes of this Agreement, the following terms have meanings set forth in
the
sections indicated:
|
Term
|
Section
|
|
|
Agreement
|
Preamble
|
|
|
Balance
Sheet
|
5.7
|
|
|
Balance
Sheet Date
|
5.7
|
|
|
Certificate
of Merger
|
2.3
|
|
|
CGCL
|
3.2(h)
|
|
|
Closing
|
2.2
|
|
|
Closing
Date
|
2.2
|
|
|
COBRA
|
5.16(d)
|
|
|
Common
Stock
|
3.1
|
|
|
Common
Stock Merger Consideration
|
3.1(c)(ii)
|
|
|
Company
|
Preamble
|
|
|
Company
Adverse Recommendation Change
|
7.8(c)
|
|
|
Company
Documents
|
5.2(a)
|
|
|
Company
Plans
|
5.16(a)
|
|
|
Company
Stock Options
|
3.1(e)(i)
|
|
|
Company
Stockholder Approval
|
5.2(c)
|
|
|
Confidentiality
Agreement
|
7.9
|
|
|
Deductible
|
9.2(d)
|
-8-
|
Term
|
Section
|
|
|
DGCL
|
2.1
|
|
|
Dissenting
Holder
|
3.2(h)
|
|
|
Dissenting
Share Payments
|
9.2(d)
|
|
|
Effective
Time
|
2.3
|
|
|
Employees
|
5.16(a)
|
|
|
ERISA
Affiliate
|
5.16(a)
|
|
|
Escrow
Agent
|
3.1(g)
|
|
|
Escrow
Fund
|
3.1(g)
|
|
|
Escrow
Payment
|
3.1(d)(ii)
|
|
|
Escrow
Period
|
9.3(b)
|
|
|
Expiration
Date
|
9.1(a)
|
|
|
Financial
Statements
|
5.7
|
|
|
Management
Notes
|
1.1(a)
|
|
|
Material
Contracts
|
5.14
|
|
|
Material
Technology Partners
|
5.9(l)
|
|
|
Merger
|
Recitals
|
|
|
Merger
Sub
|
Preamble
|
|
|
Merger
Sub Common Stock
|
3.1
|
|
|
Multiemployer
Plan
|
5.16(b)
|
|
|
Officer’s
Certificate
|
9.3(b)
|
|
|
Parent
|
Preamble
|
|
|
Parent
Documents
|
6.2
|
|
|
Parent
Indemnified Parties
|
9.2
|
|
|
Parent
Indemnifiable Losses
|
9.2(d)
|
|
|
Paying
Agent
|
3.2(a)
|
|
|
Payment
Fund
|
3.2(a)
|
|
|
Preferred
Stock Merger Consideration
|
3.1(d)(ii)
|
|
|
Representatives
|
7.8(a)
|
|
|
Series
A Preferred Stock
|
3.1
|
|
|
Series
B Preferred Stock
|
3.1
|
|
|
Series
C Preferred Stock
|
3.1
|
|
|
Series
D Preferred Stock
|
3.1
|
|
|
Series
E Preferred Stock
|
3.1
|
|
|
Stock
Certificate
|
3.1(d)(ii)
|
|
|
Stockholder
Representative
|
10.1(a)
|
|
|
Stockholder
Representative Documents
|
10.1(h)
|
|
|
Surviving
Corporation
|
2.1
|
|
|
Tax
Losses
|
9.5(a)
|
|
|
Technology
Partners
|
5.9(l)
|
|
|
Third-Party
Interests
|
5.5
|
|
|
Title
IV Plans
|
5.16(b)
|
|
|
Unresolved
Claim
|
9.3(b)
|
|
|
Voting
Agreements
|
Recitals
|
|
-9-
c) Other
Definitional and Interpretive Matters.
Unless
otherwise expressly provided, for purposes of this Agreement, the following
rules of interpretation shall apply:
(i) Calculation
of Time Period.
When
calculating the period of time before which, within which or following which
any
act is to be done or step taken pursuant to this Agreement, the date that is
the
reference date in calculating such period shall be excluded. If the last day
of
such period is a non-Business Day, the period in question shall end on the
next
succeeding Business Day.
(ii) Dollars.
Any
reference in this Agreement to $ or dollars shall mean U.S.
dollars.
(iii) Exhibits/Schedules.
The
Exhibits and Schedules to this Agreement are hereby incorporated and made a
part
hereof and are an integral part of this Agreement. All Exhibits and Schedules
annexed hereto or referred to herein are hereby incorporated in and made a
part
of this Agreement as if set forth in full herein. Any capitalized terms used
in
any Schedule or Exhibit but not otherwise defined therein shall be defined
as
set forth in this Agreement.
(iv) Gender
and Number.
Any
reference in this Agreement to gender shall include all genders, and words
imparting the singular number only shall include the plural and vice
versa.
(v) Headings.
The
provision of a Table of Contents, the division of this Agreement into Articles,
Sections and other subdivisions and the insertion of headings are for
convenience of reference only and shall not affect or be utilized in construing
or interpreting this Agreement. All references in this Agreement to any
“Section” are to the corresponding Section of this Agreement unless otherwise
specified.
(vi) Herein.
The
words such as “herein,” “hereinafter,” “hereof,”
and
“hereunder”
refer to
this Agreement as a whole and not merely to a subdivision in which such words
appear unless the context otherwise requires.
(vii) Including.
The
word “including”
or any
variation thereof means “including,
without limitation”
and
shall not be construed to limit any general statement that it follows to the
specific or similar items or matters immediately following it.
(d) The
parties hereto have participated jointly in the negotiation and drafting of
this
Agreement and, in the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as jointly drafted by the parties
hereto and no presumption or burden of proof shall arise favoring or disfavoring
any party by virtue of the authorship of any provision of this
Agreement.
ARTICLE
II
THE
MERGER
2.1 The
Merger.
Upon
the terms and subject to the conditions set forth in this Agreement and in
accordance with the General Corporation Law of the State of Delaware
(the
-10-
“DGCL”),
Merger
Sub shall be merged with and into the Company at the Effective Time. Following
the Effective Time, the separate corporate existence of Merger Sub shall cease,
and the Company shall continue as the surviving corporation in the Merger (the
“Surviving
Corporation”)
and
shall succeed to and assume all the rights and obligations of Merger Sub in
accordance with the DGCL.
2.2 Closing.
Subject
to the satisfaction of the conditions set forth in Sections
8.1
and
8.2
(or the
waiver thereof by the party entitled to waive that condition), the closing
of
the Merger (the “Closing”)
shall
take place at the offices of Xxxxxx Godward LLP located at 0000 Xxxxxxxx Xxxx,
Xxx Xxxxx, Xxxxxxxxxx 00000 (or at such other place as the parties may designate
in writing) at 10:00 a.m. (San Diego time) on a date to be specified by the
parties, which date shall be no later than the second (2nd) Business Day after
the satisfaction or waiver of each conditions to the Closing set forth in
Article
VIII
(other
than conditions that by their nature are to be satisfied at the Closing, but
subject to the satisfaction or waiver of such conditions), unless another time
or date, or both, are agreed to in writing by the parties hereto. The date
on
which the Closing shall be held is referred to in this Agreement as the
“Closing
Date.”
2.3 Effective
Time.
Subject
to the provisions of this Agreement, as soon as practicable on the Closing
Date,
the parties shall file a certificate of merger (the “Certificate
of Merger”)
executed in accordance with the relevant provisions of the DGCL and, as soon
as
practicable on or after the Closing Date, shall make all other filings or
recordings required under the DGCL. The Merger shall become effective at such
time as the Certificate of Merger is duly filed with the Secretary of State
of
the State of Delaware, or at such other time as Parent and the Company shall
agree and shall specify in the Certificate of Merger (the time the Merger
becomes effective being the “Effective
Time”).
2.4 Effects
of the Merger.
The
Merger shall have the effects set forth in the DGCL.
2.5 Certificate
of Incorporation and By-laws.
(a) The
certificate of incorporation of the Surviving Corporation shall be amended
at or
prior to the Effective Time to be in the form of Exhibit
C
and, as
so amended, such certificate of incorporation shall be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable Law.
(b) The
bylaws of Merger Sub, as in effect immediately prior to the Effective Time,
shall be the bylaws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable Law.
2.6 Directors.
The
directors of Merger Sub immediately prior to the Effective Time shall be the
directors of the Surviving Corporation until the earlier of their resignation
or
removal or until their respective successors are duly elected and qualified,
as
the case may be.
2.7 Officers.
The
officers of Merger Sub immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, until the earlier of their resignation
or
removal or until their respective successors are duly elected and qualified,
as
the case may be.
-11-
ARTICLE
III
EFFECT
OF
THE MERGER ON THE
SECURITIES
OF THE COMPANY AND MERGER SUB
3.1 Effect on Capital Stock.
As of
the Effective Time, by virtue of the Merger and without any action on the part
of Merger Sub, the Company or the holders of (i) (A) any shares of the
Company’s common stock, par value $0.001 per share (the “Common
Stock”),
(B) any shares of the Company’s Series A Preferred Stock, par value
$0.001 per share (the “Series A
Preferred Stock”),
(C) any shares of the Company’s Series B Preferred Stock, par value
$0.001 per share (the “Series B
Preferred Stock”),
(D) any shares of the Company’s Series C Preferred Stock, par value
$0.001 per share (the “Series C
Preferred Stock”),
(E) any shares of the Company’s Series D Preferred Stock, par value
$0.001 per share (the “Series D
Preferred Stock”),
or
(F) any shares of the Company’s Series E Preferred Stock, par value
$0.001 per share (the “Series E
Preferred Stock”),
or
(ii) any shares of common stock, par value $0.01 per share (“Merger
Sub Common Stock”),
of
Merger Sub, the following shall occur:
(a) Common
Stock of Merger Sub.
The
shares of Merger Sub Common Stock issued and outstanding immediately prior
to
the Effective Time shall be converted into and exchangeable as a whole for
46,750,000 shares of common stock of the Surviving Corporation. Immediately
after the Effective Time, Parent shall be the sole stockholder of the Surviving
Corporation.
(b) Cancellation
of Treasury Stock.
Each
share of Common Stock and Preferred Stock issued and outstanding immediately
prior to the Effective Time that is owned by the Company (as treasury stock
or
otherwise) shall automatically be cancelled and retired and shall cease to
exist, and no cash or other consideration shall be delivered or deliverable
in
exchange therefor.
(c) Conversion
of Common Stock.
Each
holder of shares of Common Stock issued and outstanding immediately prior to
the
Effective Time (other than such shares of Common Stock held by the Company,
any
Subsidiary of the Company or a Dissenting Holder) shall be entitled to receive
an amount in cash, without interest, for each such share equal to the quotient
obtained by dividing:
(i) $500,000,
by
(ii) the
number of shares of Common Stock issued and outstanding immediately prior to
the
Effective Time (after giving effect to any option or warrant exercises at the
Effective Time and the cancellation of any shares of Common Stock that are
owned
by the Company (as treasury stock or otherwise) in accordance with Section
3.1(b)).
Collectively,
the amounts payable pursuant to this Section 3.1(c) in respect of such shares
of
Common Stock are referred to as the “Common
Stock Merger Consideration”.
The
holders of Common Stock shall not be entitled to, and the Common Stock Merger
Consideration shall not include, any portion of the Escrow Payment, if
any.
-12-
(d) Conversion
of Preferred Stock.
Each
holder of shares of Preferred Stock issued and outstanding immediately prior
to
the Effective Time (other than such shares of Preferred Stock held by the
Company, any Subsidiary of the Company or a Dissenting Holder) shall be entitled
to receive an amount in cash, without interest, equal to the sum
of:
(i) for
each
share of
|
(A)
|
Series A
Preferred Stock, $0.068235 per
share;
|
|
(B)
|
Series B
Preferred Stock, $0.122820 per
share;
|
|
(C)
|
Series C
Preferred Stock, $1.310120 per
share;
|
|
(D)
|
Series D
Preferred Stock, $3.119745 per share;
and
|
|
(E)
|
Series E
Preferred Stock, $3.766620 per share; plus
|
(ii) at
the
time set forth in, and subject to, Section
9.3
(and
with respect to the disbursement of any amounts remaining in the Stockholder
Reserve, Section 3.4), such holder’s Pro Rata Portion of the Escrow Payment, if
any. The aggregate “Escrow
Payment”
is an
amount equal to (I) the Escrow Amount, less (II) the aggregate amounts paid
or
payable in respect of indemnifiable Losses or any other expenses or amounts
deducted from the Escrow Fund, in each case in accordance with Article IX or the
Escrow Agreement, plus (III) any amounts remaining in the Stockholder
Representative Reserve.
Collectively,
the amounts payable pursuant to clauses (i) and (ii) of this Section 3.1(d)
in
respect of such shares of Preferred Stock are referred to as the “Preferred
Stock Merger Consideration”.
At
the
Effective Time, all shares of Common Stock or Preferred Stock issued and
outstanding immediately prior to the Effective Time shall no longer be
outstanding and such shares of Common Stock and Preferred Stock shall be
cancelled and retired and shall cease to exist, and each certificate (a
“Stock
Certificate”)
formerly representing any such shares of Common Stock and Preferred Stock (other
than such shares held by the Company, any Subsidiary of the Company or a
Dissenting Holder) shall thereafter represent only the right to receive the
applicable portion of the Common Stock Merger Consideration or Preferred Stock
Merger Consideration, as the case may be, and any such shares of Common Stock
or
Preferred Stock held by a Dissenting Holder shall thereafter represent only
the
right to receive the applicable payments set forth in Section
3.2(h).
(e) Company
Stock Options.
(i) All
outstanding options to purchase shares of Common Stock (the “Company
Stock Options”)
will,
pursuant to their respective terms, become fully vested and exercisable
immediately prior to the Effective Time. Holders of Company Stock Options,
except for vested options being exercised prior to the Closing Date in
accordance with the terms of the applicable Company Plan, shall be given the
opportunity to exercise their Company Stock Options, effective immediately
prior
to the Effective Time and conditioned upon the occurrence
-13-
of
the
Closing, and thereby to become Company Stockholders, entitled to receive the
Common Stock Merger Consideration for each share of Common Stock at the same
time and in the same manner as the other Company Stockholders pursuant to
Section
3.2.
All
written communications distributed generally to employees by or on behalf of
the
Company regarding such exercises will be mutually acceptable to Parent and
the
Company.
(ii) All
Company Stock Options that are outstanding immediately prior to the Effective
Time that are not exercised in accordance with Section
3.1(e)(i)
will,
pursuant to their respective terms, be cancelled and null and void as of the
Effective Time.
(iii) In
connection with the termination of the Company Plans, following the Effective
Time, no holder of Company Stock Options, or any participant in or beneficiary
of the Company Plans, will have any right to acquire or receive any equity
securities of the Surviving Corporation, any Subsidiary thereof, or any
consideration other than as contemplated pursuant to this Section
3.1(e).
(f) Warrants.
All
warrants issued by the Company that are not exercised prior to the Effective
Time will terminate and expire as of the Effective Time. Prior to the Effective
Time, the Company shall take all actions necessary to effectuate such
termination at the Effective Time.
(g) Escrow
Fund.
At the
Closing, Parent shall cause to be deposited with a mutually agreed upon escrow
agent (the “Escrow
Agent”),
the
Escrow Amount, which is to be held in an interest-bearing account in accordance
with the terms of the Escrow Agreement and Article
IX
(the
“Escrow
Fund”).
3.2 Payment
for Company Securities.
(a) Paying
Agent.
Prior
to the Effective Time, for the benefit of holders of Company Securities, Parent
shall designate a bank or trust company reasonably acceptable to the Company
to
act as agent (the “Paying
Agent”)
for the
payment of the Merger Consideration, upon surrender of the Stock Certificates,
from time to time after the Effective Time. At the Closing, Parent shall
deposit, or cause to be deposited, with the Paying Agent the Merger
Consideration (collectively, the “Payment
Fund”).
(b) Payment
Procedures.
No more
than two (2) Business Days after the Effective Time, Parent shall cause the
Paying Agent to mail to each holder of record of Common Stock and Preferred
Stock (i) a form of letter of transmittal (which shall (A) specify that delivery
shall be effected, and risk of loss and title to the Stock Certificates held
by
such Person shall pass, only upon proper delivery of the Stock Certificates
to
the Paying Agent, (B) be in customary form reasonably acceptable to Parent
and
the Company with no representations or warranties or indemnities from holders
thereof other than customary representations and warranties from such holders
with respect to ownership of such stock and the right and authority to sell
such
stock, and (C) have such other provisions as Parent and the Company shall
mutually agree (including an affidavit of non-foreign status of each of the
holders that complies with Section 1445 of the Code) and shall be in form and
substance reasonably satisfactory to Parent and the Company), and (ii)
instructions for use in effecting the surrender of the Stock
Certificates
-14-
or
the
appropriate documentation in exchange for the applicable Merger Consideration,
in each case in accordance with, and subject to, the terms of this Article
III.
Upon
surrender of a Stock Certificate for cancellation to the Paying Agent, together
with such letter of transmittal, duly completed and validly executed, and such
other documents as may reasonably be required by the Paying Agent consistent
with this Section
3.2(b),
as of
the Effective Time, the holder of such Stock Certificate shall be entitled
to
receive in exchange therefor the applicable Merger Consideration into which
the
shares formerly represented by such Stock Certificate shall have been converted
pursuant, and subject, to the terms of this Article
III,
and the
Stock Certificate so surrendered shall forthwith be cancelled.
In
the
event of a transfer of ownership of a share of a Company Security that is not
registered in the stock transfer books of the Company, the proper amount of
Merger Consideration (as determined in accordance with, and subject to, the
terms this Article
III)
may be
paid in exchange therefor to a Person other than the Person in whose name the
Certificate so surrendered is registered if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and accompanied by all
the
documents required by this Section
3.2(b),
and the
Person requesting such payment shall pay any transfer or other Taxes required
by
reason of the payment to a Person other than the registered holder of such
Certificate or establish to the satisfaction of Parent that such Tax has been
paid or is not applicable. No interest shall be paid or shall accrue on the
cash
payable upon surrender of any Certificate.
(c) No
Further Ownership Rights in Company Securities.
All
cash paid upon the surrender for exchange of Certificates in accordance with,
and subject to, the terms of this Article
III
shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
shares of Company Securities previously represented by such Certificates, and
at
the Effective Time the stock transfer books of the Company shall be closed
and
there shall be no further registration of transfers on the stock transfer books
of the Surviving Entity of the shares of Company Securities that were
outstanding immediately prior to the Effective Time. Subject to the last
sentence of Section
3.2(e),
if, at
any time after the Effective Time, Certificates are presented to the Surviving
Entity or the Paying Agent for any reason, they shall be canceled and exchanged
or redeemed as provided in this Article
III.
(d) No
Liability.
None of
the Surviving Corporation, Parent, the Company or the Paying Agent shall be
liable to any Person in respect of any cash delivered to a public official
pursuant to any applicable abandoned property, escheat or similar Law.
(e) Termination
of Payment Fund.
Any
portion of the Payment Fund that remains undistributed to the holders of the
Certificates for twelve (12) months after the Effective Time shall be delivered
to the Surviving Corporation, upon demand, and any holders of Certificates
who
have not theretofore complied with this Article
III
shall
thereafter look only to the Surviving Corporation for payment of their claim
for
the applicable Merger Consideration (as determined in accordance with, and
subject to, the terms this Article
III).
If any
Certificate shall not have been surrendered immediately prior to the date on
which any Merger Consideration (as determined in accordance with, and subject
to, the terms this Article
III)
would
otherwise escheat to or become the property of any Governmental Body, any such
Merger Consideration (as determined in accordance with, and subject to, the
terms this Article
III)
in
respect thereof shall,
-15-
to
the
extent permitted by applicable Law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any Person previously
entitled thereto.
(f) Lost
Certificates.
If any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit (and if the Surviving Corporation shall request, the posting of a
bond
in form and substance reasonably satisfactory to the Surviving Corporation)
of
that fact by the Person claiming such Certificate to be lost, stolen or
destroyed, the Paying Agent shall pay in respect of such lost, stolen or
destroyed Certificate the applicable amount of Merger Consideration (as
determined in accordance with, and subject to, the terms this Article
III).
(g) Withholding
Rights.
The
Surviving Corporation or the Paying Agent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement
such amounts as the Surviving Corporation or the Paying Agent is required to
deduct and withhold with respect to the making of such payment under the Code,
or any provision of U.S. state or local Tax Law. To the extent that amounts
are
so withheld and paid over to the appropriate Taxing Authority by the Surviving
Corporation or the Paying Agent, such withheld amounts shall be treated for
all
purposes of this Agreement as having been paid to the party otherwise entitled
to receive such payment in respect of which such deduction and withholding
was
made by the Surviving Corporation or the Paying Agent.
(h) Dissenting
Shares.
Notwithstanding anything in this Agreement to the contrary, any holder of
Company Securities issued and outstanding immediately prior to the Effective
Time who has the right to demand, and who properly demands, an appraisal of
such
shares in accordance with Section 262 of the DGCL (or any successor provision)
or Section 1300 of the California General Corporation Law (“CGCL”)
(or any
successor provision) (a
“Dissenting
Holder”)
shall
not have the right to receive the applicable Merger Consideration (as determined
in accordance with, and subject to, the terms this Article
III),
unless
such holder fails to perfect or otherwise loses such holder’s right to such
appraisal, if any. Each Dissenting Holder shall be entitled to receive only
the
payment provided by Section 262 of the DGCL or Section 1300 of the CGCL, as
the
case may be, with respect to shares of Common Stock or Preferred Stock owned
by
such Dissenting Holder. If, after the Effective Time, such holder fails to
perfect or loses any such right to appraisal, such holder shall be entitled
to
receive the full amount of such holder’s portion of the Merger Consideration (as
determined in accordance with, and subject to, the terms this Article
III).
3.3 Aggregate
Consideration Spreadsheet.
Three
(3) Business Days prior to the Closing Date, the Company and the Stockholder
Representative shall deliver to Parent an updated draft of the Aggregate
Consideration Spreadsheet setting forth the estimated amount and allocation
of
Aggregate Consideration that would be paid or issued to each Company Stockholder
and holders of Company Stock Options pursuant to this Article
III.
At the
Closing, the Company and the Stockholder Representative shall deliver to Parent
the Aggregate Consideration Spreadsheet setting forth the final calculation
of
such amounts.
3.4 Stockholder
Representative Reserve.
At the
Closing, Parent shall cause to be deposited, in an account designated by the
Stockholder Representative at least three (3) Business Days prior to Closing,
the Stockholder Representative Reserve. The Stockholder Representative Reserve
(and earnings thereon) may be applied as the Stockholder
-16-
Representative,
in its sole discretion, determines appropriate to defray, offset, or pay any
charges, fees, costs, liabilities or expenses of the Stockholder Representative
incurred in connection with the transactions contemplated by this Agreement
or
the Escrow Agreement. The balance of the Stockholder Representative Reserve
held
pursuant to this Section
3.4,
if any,
and any income earned thereon, shall be distributed to the Company Stockholders
who are entitled to receive the Preferred Stock Merger Consideration by
depositing such amount with the Escrow Agent for distribution concurrently
with,
and as part of, any remaining Escrow Payment. Notwithstanding the foregoing,
the
Stockholder Representative Reserve shall only be so distributed when the
Stockholder Representative determines, in its sole discretion, that such
distribution is appropriate. Parent and the Surviving Corporation shall have
no
liability or responsibility to the Company Stockholders or holders of Company
Stock Options with respect to the Stockholder Representative Reserve or the
actions and responsibilities of the Stockholder Representative contemplated
by
this Section
3.4.
3.5 Payment
of Certain Amounts.
At the
Closing, Parent shall pay, or cause to be paid by the Company, the Sale Bonus
Amount, the Transaction Expense Amount, the Bridge Loan Principal and the Bridge
Loan Fees (in each case in accordance with the Aggregate Consideration
Spreadsheet) by wire transfer of immediately available funds to the account(s)
designated by the recipients thereof upon receipt of an executed release or
pay-off letter, as applicable, by each such recipient.
ARTICLE
IV
TERMINATION,
AMENDMENT AND WAIVER
4.1 Termination
of Agreement.
This
Agreement may be terminated at any time prior to the Effective Time as
follows:
(a) At
the
election of either Parent or the Company on or after September 9, 2005, (the
“End
Date”)
if the
Closing shall not have occurred by the close of business on such date;
provided,
however,
that
the right to terminate this Agreement under this Section
4.1(a)
shall
not be available to any party who is in material default of any of its
obligations hereunder;
(b) by
mutual
written consent of Parent and the Company;
(c) by
either
Parent or the Company, if (i) there shall be in effect a final nonappealable
Order of a Governmental Body of competent jurisdiction restraining, enjoining
or
otherwise prohibiting the consummation of the transactions contemplated hereby
or (ii) there shall be any Law enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Body that would make consummation
of the Merger illegal;
(d) by
Parent, at any time prior to the Company Stockholder Approval if a Company
Adverse Recommendation Change shall have occurred;
(e) by
Parent, so long as Parent is not in material breach of its representations,
warranties, covenants or agreements under this Agreement, if there shall have
been a material breach of any representation, warranty, covenant or agreement
of
the Company set forth in this Agreement, which breach would give rise to a
failure of a condition set forth in Sections
8.1(a),
-17-
8.1(b)
or
8.1(c)
and is
incapable of being cured or, if capable of being cured, shall not have been
cured within twenty (20) Business Days following receipt by the Company of
notice of such breach from Parent;
(f) by
the
Company, so long as the Company is not in material breach of its
representations, warranties, covenants or agreements under this Agreement,
if
there shall have been a material breach of any representation, warranty,
covenant or agreement of Parent set forth in this Agreement, which breach would
give rise to a failure of a condition set forth in Sections
8.2(a)
or
8.2(b)
and is
incapable of being cured or, if capable of being cured, shall not have been
cured within twenty (20) Business Days following receipt by Parent of notice
of
such breach from the Company.
4.2 Effect
of Termination.
In the
event of the termination of this Agreement as provided in Section
4.1,
written
notice thereof shall be given to the other party or parties, specifying the
provision hereof pursuant to which such termination is made, and this Agreement
shall forthwith become null and void (other than Sections
4.2,
4.3,
4.4,
7.9,
7.10,
and
Article
X,
all of
which shall survive termination of this Agreement), and there shall be no
liability on the part of Parent, Merger Sub or the Company or their respective
directors, officers, and Affiliates, except (i) the Company may have liability
as provided in Section
4.3,
which
liability of the Company shall be the sole and exclusive remedy of Parent
against the Company and its directors, officers and Affiliates hereunder, other
than as provided in clause (iii) below, (ii) Parent may have liability as
provided in Section
4.4,
which
liability shall be the sole and exclusive remedy of the Company against Parent
and Merger Sub and their respective directors, officers and Affiliates
hereunder, other than as provided in clause (iii) below and (iii) nothing shall
relieve any party from liability for fraud or any breach of this Agreement,
subject to the final two sentences of Section
4.3(b).
4.3 Termination
Fee.
(a) In
the
event that:
(i) (A)
a
Takeover Proposal shall have been made known to the Company after the date
hereof or shall have been made directly to its stockholders generally or any
Person shall have publicly announced an intention (whether or not conditional
or
withdrawn) after the date hereof to make a Takeover Proposal and thereafter,
(B)
this Agreement is terminated by the Company or Parent pursuant to Section 4.1(a)
and the Company Stockholder Approval shall not have been obtained, or by Parent
pursuant to Section
4.1(e),
and the
Company’s breach or failure triggering such termination shall have been willful,
and (C) the Company consummates a transaction contemplated by any Takeover
Proposal (other than any Takeover Proposal involving a financing transaction
pursuant to which the Company issues securities constituting up to 35% of the
total equity securities of the Company) within twelve (12) months of the date
this Agreement is terminated; or
(ii) this
Agreement is terminated by Parent pursuant to Section
4.1(d);
then
in
any such event under clause (i)
or
(ii)
of this
Section 4.3(a), the Company shall pay to Parent a termination fee of $2.5
million in cash (the “Termination
Fee”).
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(b) Any
payment required to be made pursuant to clause (i)
of
Section 4.3(a)
shall be
made to Parent promptly (and in any event not later than two Business Days
after
delivery to the Company of notice of demand for payment) following consummation
of a Takeover Proposal; any payment required to be made pursuant to clause
(ii)
of
Section
4.3(a)
shall be
made to Parent promptly (and in any event not later than two business days
after
delivery to the Company of notice of demand for payment) following the earlier
of (A) consummation of a Takeover Proposal and (B) the one year anniversary
of
the date of termination of this Agreement. All such payments shall be made
by
wire transfer of immediately available funds to an account to be designated
by
Parent. In the case of a Termination by Parent pursuant to Section 4.1(e) in
which the Company’s breach or failure triggering such termination shall have
been willful, within 30 days after the date of termination hereof, the Company
shall reimburse Parent for its out-of-pocket expenses incurred by Parent in
connection with the negotiation and execution of this Agreement not to exceed
$500,000 (“Expense
Reimbursement”)
and the
reimbursement of such expenses shall be the sole and exclusive remedy of Parent
and Merger Sub for such termination unless a Termination Fee subsequently
becomes payable pursuant to Section 4.3(a)(i) because the Company consummates
a
transaction contemplated by Section 4.3(a)(i)(C). Any Expense Reimbursement
actually made shall be credited against any Termination Fee that subsequently
becomes payable. In the case of a Termination Fee payable pursuant to clauses
(i) or (ii)
of
Section
4.3 (a),
the
parties agree that the Termination Fee shall be the appropriate measure of
liquidated damages, and shall be the sole and exclusive remedy of Parent and
Merger Sub relating to the events which triggered the payment of the Termination
Fee. The parties further agree that any Expense Reimbursement shall be the
appropriate measure of liquidated damages for any termination giving rise to
such Expense Reimbursement.
(c) In
the
event that the Company shall fail to pay the Termination Fee or the Expense
Reimbursement when due, such amount shall accrue interest for the period
commencing on the date such amount became past due, at a rate equal to the
rate
of interest publicly announced by Citibank, in the City of New York from time
to
time during such period, as such bank’s Prime Lending Rate plus 1%. In addition,
if the Company shall fail to pay such amount when due, the Company shall also
pay to Parent all of Parent’s reasonable costs and expenses (including
attorneys’ fees) in connection with efforts to collect such amount. The Company
acknowledges that the Termination Fee and Expense Reimbursement and the other
provisions of this Section
4.3
are an
integral part of the transactions contemplated hereby and that, without these
agreements, Parent would not enter into this Agreement.
4.4 Bridge
Loan.
In
the
event that this Agreement is terminated pursuant to Sections
4.1(b),
(c)
or
(f),
and in
the absence of (i) a failure to obtain a consent, waiver or approval referred
to
in Schedule 8.1(f); (ii) a willful material breach of any representation,
warranty, covenant or agreement of the Company set forth in this Agreement
and
(iii) a Material Adverse Effect, Parent shall fund a convertible bridge loan
in
the amount of $2,000,000 to the Company with funding to occur within thirty
(30)
days of the effective date of such termination. The terms of such convertible
bridge loan shall include the following terms: (i) interest shall be at the
rate
of 12% per annum, (ii) the maturity date shall be no earlier than 12 months
from
the date of funding and (iii) the convertible bridge note shall be convertible
into shares of the next series of preferred stock issued by the Company in
connection with a financing of at least $5 million (including the
-19-
principal
and accrued interest of such bridge note) at the price per share at which such
shares of preferred stock of the Company are issued to the investors in such
financing. The Bridge Loan will rank senior in right of payment to all of the
Company’s existing and future Indebtedness. Parent acknowledges that the
provisions of this Section 4.4 are an integral part of the transactions
contemplated hereby and that, without these agreements, the Company would not
enter into this Agreement. If Parent fails to fund such convertible bridge
loan,
Parent shall pay the Company all damages suffered by the Company in connection
therewith and Parent shall also pay to the Company all of the Company’s
reasonable costs and expenses (including attorneys’ fees) in connection with
efforts to collect such damages.
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company hereby represents and warrants to each of Parent and Merger Sub on
the
date hereof that:
5.1 Organization
and Good Standing.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now conducted. The Company is duly qualified or authorized to do
business as a foreign corporation and is in good standing under the laws of
each
jurisdiction in which it owns or leases real property and each other
jurisdiction in which the conduct of its business or the ownership of its
properties requires such qualification or authorization, except where the
failure to be so qualified, authorized or in good standing would not have a
Material Adverse Effect.
5.2 Authorization
of Agreement.
(a) The
Company has all requisite power, authority and legal capacity to execute and
deliver this Agreement and each other agreement, document, or instrument or
certificate contemplated by this Agreement or to be executed by the Company
in
connection with the consummation of the transactions contemplated by this
Agreement (together with this Agreement, the “Company
Documents”),
and
subject to obtaining the Company Stockholder Approval, to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this
Agreement and each of the Company Documents by the Company, the performance
of
its obligations hereunder and thereunder and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by its
Board of Directors and, except for obtaining the Company Stockholder Approval,
no other corporate action on the part of the Company is necessary to authorize
the execution, delivery and performance by the Company of this Agreement and
the
consummation of the transactions contemplated hereby.
(b) This
Agreement has been, and each of the Company Documents will be at or prior to
the
Closing, duly and validly executed and delivered by the Company and (assuming
the due authorization, execution and delivery by the other parties hereto and
thereto) this Agreement constitutes, and each of the Company Documents when
so
executed and delivered will constitute, legal, valid and binding obligations
of
the Company, as applicable, enforceable
-20-
against
the Company in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors’ rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in
a
proceeding at law or in equity).
(c) The
Board
of Directors of the Company, at a meeting duly called and held at which all
the
directors of the Company were present in person or by telephone, duly and
unanimously adopted resolutions (i) approving and declaring advisable this
Agreement, the Merger, the COI Amendment and the other transactions contemplated
by this Agreement, (ii) directing that the adoption of this Agreement and the
COI Amendment be submitted to the stockholders of the Company and (iii)
recommending that the stockholders of the Company adopt this Agreement, which
resolutions have not been subsequently rescinded, modified or withdrawn in
any
way as of the date of this Agreement. The affirmative vote of the holders of
(i)
a majority of the outstanding shares of Common Stock and Preferred Stock, voting
together as a single class, (ii) a majority of the outstanding shares of Common
Stock, voting as a separate class, (iii) a majority of the outstanding shares
of
each series of Preferred Stock, each voting as a separate series, (iv) sixty-six
and two-thirds percent (66⅔%) of the outstanding Preferred Stock, voting
together as a single class and (v) sixty-six and two-thirds percent (66⅔%) of
the Series E Preferred Stock ((i), (ii), (iii), (iv) and (v) collectively,
“Company
Stockholder Approval”)
are,
except as may be required under Section 280G of the Code, the only approvals
of
holders of any class or series of Company capital stock necessary or required
(under applicable Law, the Company’s certificate of incorporation and bylaws, or
otherwise) to approve this Agreement and the transactions contemplated hereby,
including the Merger and the COI Amendment.
5.3 Conflicts;
Consents of Third Parties.
(a) Assuming
the receipt of the consents set forth in Section
5.3(b),
none of
the execution and delivery by the Company of this Agreement or the Company
Documents, the consummation of the Merger and the transactions contemplated
hereby or thereby, or compliance by the Company with any of the provisions
hereof or thereof will conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to
loss
of a material benefit under, or give rise to any obligation of the Company
to
make any payment under, or to the increased, additional, accelerated or
guaranteed rights or entitlements of any Person under, or result in the creation
of any Liens upon any of the properties or assets of Company or any Subsidiary
under, any provision of (i) the certificate of incorporation and by-laws or
comparable organizational documents of the Company or any Subsidiary;
(ii) any Intellectual Property, Technology, Material Contract or Permit to
which the Company or any Subsidiary is a party or by which any of the properties
or assets of the Company or any Subsidiary are bound; (iii) any Order of any
Governmental Body applicable to the Company or any Subsidiary or any of the
properties or assets of the Company or any Subsidiary; or (iv) any applicable
Law; except in the case of clause (ii), any conflict, violation, default, loss
or benefit that would not, individually or in the aggregate, be material to
the
Company and its subsidiaries, taken as a whole.
(b) No
consent, waiver, approval, Order, Permit or authorization of, or declaration
or
filing with, or notification to, any Person or Governmental Body is
required on the
-21-
part
of
the Company or any Subsidiary in connection with (i) the execution and
delivery of this Agreement or the Company Documents, the compliance by the
Company with any of the provisions hereof, or the consummation by the Company
of
the Merger or the other transactions contemplated hereby, or (ii) the
continuing validity and effectiveness immediately following the Closing of
any
Permit or Material Contract of the Company or any Subsidiary, except for those
consents and filings set forth on Schedule
5.3(b).
5.4 Capitalization.
(a) The
authorized capital stock of the Company consists of:
(i) 70,000,000
shares of common stock (the “Common
Stock”),
par
value $0.001 per share, of which 21,283,265 shares are issued and outstanding,
(ii) 5,139,996
shares of Series A Preferred Stock, par value $0.001 per share, of which
5,139,966 shares are issued and outstanding,
(iii) 8,955,255
shares of Series B Preferred Stock, par value $0.001 per share, of which
8,955,255 shares are issued and outstanding,
(iv) 4,375,000
shares of Series C Preferred Stock, par value $0.001 per share, of which
4,375,000 shares are issued and outstanding,
(v) 1,443,569
shares of Series D Preferred Stock, par value $0.001 per share, of which
1,443,569 shares are issued and outstanding, and
(vi) 7,246,377
shares of Series E Preferred Stock, par value $0.001 per share, of which
7,156,005 shares are issued and outstanding.
(b) Except
as
set forth on Schedule
5.4(b),
there
is no existing option, warrant, call, right or Contract of any character to
which the Company is a party requiring, and there are no securities of the
Company outstanding which upon conversion or exchange would require, the
issuance, sale or transfer of any additional shares of capital stock or other
equity securities of the Company or other securities convertible into,
exchangeable for or evidencing the right to subscribe for or purchase shares
of
capital stock or other equity securities of the Company. Except as set forth
on
Schedule
5.4(b),
the
Company is not a party to any voting trust or other Contract with respect to
the
voting, redemption, sale, transfer or other disposition of the capital stock
of
the Company.
5.5 Subsidiaries.
Schedule
5.5
sets
forth with respect to each Subsidiary, the jurisdiction in which it is
incorporated or organized, the jurisdictions, if any, in which it is qualified
to do business, the number of shares of its authorized capital stock, the number
and class of shares thereof duly issued and outstanding, the names of all
stockholders or other equity owners and the number of shares of stock owned
by
each stockholder or the amount of equity owned by each equity owner. Each
Subsidiary is a duly organized and validly existing corporation or other entity
in good standing under the laws of the jurisdiction of its incorporation or
organization and is duly qualified or authorized to do business as a foreign
corporation or entity and is in good standing under the laws of each
jurisdiction in which the conduct of its
-22-
business
or the ownership of its properties requires such qualification or authorization,
except for such jurisdictions in which the failure to be qualified and in good
standing would not have a Material Adverse Effect. Each Subsidiary has all
requisite corporate or entity power and authority to own its properties and
carry on its business as presently conducted. The outstanding shares of capital
stock or equity interests of each Subsidiary are validly issued, fully paid
and
non-assessable, and all such shares or other equity interests represented as
being owned by the Company are owned by it free and clear of any and all Liens
and are not subject to any option, right of first refusal, proxy, voting trust
or agreement, or transfer restriction under any shareholder or similar
agreement, except as set forth in Schedule
5.5.
No
shares of capital stock are held by any Subsidiary as treasury stock. There
is
no existing option, warrant, call, right or Contract to which any Subsidiary
is
a party requiring, and there are no convertible securities of any Subsidiary
outstanding which upon conversion would require, the issuance of any shares
of
capital stock or other equity interests of any Subsidiary or other securities
convertible into shares of capital stock or other equity interests of any
Subsidiary. Other than the Subsidiaries of the Company, neither the Company
nor
any Subsidiary of the Company owns, directly or indirectly, any shares of
capital stock or equity or ownership interests in, any other Person
(collectively, “Third-Party
Interests”).
Neither the Company nor any Subsidiary of the Company have any rights to, or
are
bound by any commitment or obligation to, acquire by any means, directly or
indirectly, any Third-Party Interests or to make any investment in any
Person.
5.6 Corporate
Records.
(a) The
Company has delivered to Parent true, correct and complete copies of the
certificates of incorporation (each certified by the Secretary of State or
other
appropriate official of the applicable jurisdiction of organization) and by-laws
(each certified by the secretary, assistant secretary or other appropriate
officer) or comparable organizational documents of the Company and each of
its
Subsidiaries.
(b) The
minute books of the Company and each Subsidiary previously made available to
Parent contain true, correct and complete records of all meetings and accurately
reflect in all material respects all other corporate action of the stockholders
and board of directors (including committees thereof) of the Company and its
Subsidiaries. The stock certificate books and stock transfer ledgers of the
Company and its Subsidiaries previously made available to Parent are true,
correct and complete. All stock transfer taxes levied or payable with respect
to
all transfers of shares of the Company and its Subsidiaries prior to the date
hereof have been paid and appropriate transfer tax stamps affixed.
5.7 Financial
Statements.
The
Company has furnished to Parent a true, correct and complete copy of (i) the
audited consolidated financial statements of the Company and its Subsidiaries
as
of and for the years ending December 31, 2003 and December 31, 2004, each of
which includes a statement of cash flows and statement of operations for such
fiscal year and a balance sheet as at the last day thereof and (ii) the
unaudited consolidated financial statement of the Company and its Subsidiaries
as of and for the fiscal quarter ending March 31, 2005, which includes a
statement of cash flows and statement of operations for such fiscal quarter
and
a balance sheet as of the last day thereof (collectively, the financial
statements referred to in clauses (i) and (ii) above are the “Financial
Statements”).
The
Financial
-23-
Statements
are in accordance with the books and records of the Company and present fairly
in all material respects the financial condition and results of operations
of
the Company and its Subsidiaries, as at the dates and for the periods indicated,
and have been prepared in accordance with GAAP consistently applied (except
as
may be indicated in the notes thereto and except that the unaudited Financial
Statements are subject to normal, customary year-end and audit adjustments
and
are subject to those items that may be disclosed in notes to audited financial
statements). The audited consolidated balance sheet of the Company and its
Subsidiaries as at December 31, 2004 is referred to herein as the “Balance
Sheet”
and
December 31, 2004 is referred to herein as the “Balance
Sheet Date.”
5.8 No
Undisclosed Liabilities.
Except
as set forth on Schedule
5.8,
neither
the Company nor any Subsidiary has any Indebtedness, obligations or Liabilities
of any kind required to be reflected in or reserved against or otherwise
described in balance sheets under GAAP other than those (i) fully reflected
in,
reserved against or otherwise described in the Balance Sheet or (ii) incurred
in
the Ordinary Course of Business since the Balance Sheet Date. There are no
known
liabilities not reflected on the Balance Sheet which are, or would reasonably
be
expected to be, material to the Company and its Subsidiaries, taken as a whole.
Since the Balance Sheet Date, neither the Company nor any of its Subsidiaries
has failed to promptly pay and discharge current liabilities expect where
disputed in good faith by appropriate proceedings, and has not accelerated
the
collection of any accounts receivable. As of the Closing Date, the Transaction
Expense Amount will not be greater than $500,000 and the aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (excluding the
Transaction Expense Amount and the Bridge Loan Fees) will not be greater than
$1.5 million.
5.9 Absence
of Certain Developments.
Except
as expressly contemplated by this Agreement or as set forth on Schedule
5.9,
since
the Balance Sheet Date through the date hereof (i) the Company and its
Subsidiaries have conducted their respective businesses only in the Ordinary
Course of Business and (ii) there has not been any Material Adverse Effect.
Without limiting the generality of the foregoing, since the Balance Sheet
Date:
(a) there
has
not been any loss, with respect to the tangible property and assets of the
Company or any Subsidiary having a replacement cost of more than $10,000 for
any
single loss or $50,000 for all such losses;
(b) there
has
not been any declaration, setting aside or payment of any dividend or other
distribution in respect of any shares of capital stock of the Company or any
repurchase, redemption or other acquisition by the Company or any Subsidiary
of
any outstanding shares of capital stock or other securities of, or other
ownership interest in, the Company or any Subsidiary;
(c) except
as
set forth on Schedule
5.9(c),
neither
the Company nor any Subsidiary has awarded or paid any bonuses to employees
of
the Company or any Subsidiary with respect to the fiscal year ended
December 31, 2004, except to the extent previously disclosed to Parent in
writing, or entered into any employment, deferred compensation, severance or
similar agreement other than employment offer letters for at-will employment
(nor amended any such agreement) or agreed to increase the compensation payable
or to become payable by it to any of the Company’s or any Subsidiary’s
directors, officers, employees, agents
-24-
or
representatives or agreed to increase the coverage or benefits available under
any severance pay, termination pay, vacation pay, company awards, salary
continuation for disability, sick leave, deferred compensation, bonus or other
incentive compensation, insurance, pension or other employee benefit plan,
payment or arrangement made to, for or with such directors, officers, employees,
agents or representatives;
(d) there
has
not been any material change by the Company or any Subsidiary in accounting
or
Tax reporting principles, methods or policies;
(e) neither
the Company nor any Subsidiary has failed to promptly pay and discharge current
material liabilities except where disputed in good faith by appropriate
proceedings;
(f) except
as
set forth on Schedule
5.9(f),
neither
the Company nor any Subsidiary has made any loans, cash advances, or capital
contributions to, or investments in, any Person or paid any fees or expenses
to
any stockholder of the Company or any director, officer, partner, stockholder
or
Affiliate of the Company or any Subsidiary;
(g) neither
the Company nor any Subsidiary has mortgaged, pledged or been subjected to
any
Lien on any of its assets, or acquired any assets or sold, assigned,
transferred, conveyed, leased or otherwise disposed of any material assets
of
the Company or any Subsidiary, except for assets acquired or sold, assigned,
transferred, conveyed, leased or otherwise disposed of in the Ordinary Course
of
Business;
(h) neither
the Company nor any Subsidiary has discharged or satisfied any Lien, or paid
any
obligation or liability (fixed or contingent) in excess of $20,000 individually
or $100,000 in the aggregate, except in the Ordinary Course of
Business;
(i) neither
the Company nor any Subsidiary has canceled or compromised any debt or pending
claim or amended, canceled, terminated, relinquished, waived or released any
Material Contract or material right except in the Ordinary Course of
Business;
(j) neither
the Company nor any Subsidiary has made or committed to make any capital
expenditures or capital additions or betterments in excess of $20,000
individually or $100,000 in the aggregate;
(k) except
as
set forth on Schedule
5.9(k),
neither
the Company nor any Subsidiary has issued, created, incurred, assumed or
guaranteed any Indebtedness;
(l) the
Company has not granted any license or sublicense of any rights under or with
respect to any Intellectual Property, except licenses granted to customers
in
the Ordinary Course of Business and parties to the Agreements listed in
Schedule
5.14
under
the heading “Material Technology Partner Agreements” (“Material
Technology Partners”)
and
non-exclusive licenses granted in the Ordinary Course of Business to other
developers of standards-based applications for wireless networks working on
projects with the Company (“Technology
Partners”)
pursuant
to other agreements that individually or in the aggregate are not material
to
the Company;
-25-
(m) neither
the Company nor any Subsidiary has received notice of, instituted or settled
any
material Legal Proceeding; and
(n) none
of
Company or any of its Subsidiaries has agreed, committed, arranged or entered
into any understanding to do anything set forth in this Section
5.9.
5.10 Taxes.
Except
as set forth on Schedule
5.10:
(a) The
Company and each of its Subsidiaries has filed or has obtained presently
effective extensions with respect to all Tax Returns which are required to
be
filed by it, such returns are true, correct and complete in all material
respects and the Company has maintained, to the extent required, documentation
supporting all positions taken thereon. The Company has timely paid, or
sufficiently provided on its Financial Statements for, all Taxes due and
payable. The amount shown on the audited Financial Statements as provision
for
Taxes is sufficient for payment of all accrued and unpaid Taxes for the period
then ended and all prior periods. The Company and each of its Subsidiaries
have
disclosed on its Tax Returns all positions taken therein that could give rise
to
a substantial understatement of federal income tax within the meaning of Section
6662 of the Code (or any corresponding local law). Neither the Company nor
any
of its Subsidiaries has participated in any reportable or listed transaction
as
defined under Section 6011 of the Code.
(b) None
of
the Company’s or any of its Subsidiaries’ federal income tax returns have been
audited, and no
controversy with respect to Taxes of any type in a material amount is pending
or, to the knowledge of the Company, threatened.
(c) The
Company and each of its Subsidiaries have complied in all material respects
with
all applicable Laws relating to the payment and withholding of Taxes, and has
duly and timely withheld and paid over to the appropriate Taxing Authority
all
amounts required to be so withheld and paid under all applicable
Laws.
(d) Schedule
5.10
lists
(i) all types of Taxes paid in a material amount, and all types of Tax Returns
reporting Taxes in a material amount filed, by or on behalf of the Company
and
each of its Subsidiaries and (ii) all jurisdictions that impose such Taxes
and/or duty to file such Tax Returns. The Company has delivered to the Parent
true and complete copies of all (i) audit reports issued with respect to the
six
year period prior to the date of this Agreement relating to any Taxes due from
or with respect to the Company and each of its Subsidiaries and (ii) material
Tax Returns of the Company and each of its Subsidiaries for all taxable periods
ending on or after December 31, 1999 and estimated tax calculations for the
taxable period ended December 31, 2005. No claim has been made in writing by
any
Taxing Authority in a jurisdiction where the Company or its Subsidiaries does
not file Tax Returns that it is or may be subject to taxation by, or required
to
file any Tax Return in, that jurisdiction. The Company and each of its
Subsidiaries do not have, nor have they ever had, a permanent establishment
in
any country other than their respective country of incorporation. The Company
is
not, nor has ever been, subject to Tax in a country outside the United States
and Korea.
(e) Since
December 31, 1999, the Company and each of its Subsidiaries have not (i)
inconsistent with past practice, made or changed any election concerning any
material
-26-
Taxes,
changed an annual accounting period or adopted or changed any accounting method
or (ii) amended any Tax Return, settled any material Tax action, suit,
investigation, audit or claim or surrendered any right to claim a refund of
any
material Taxes. The Company and each of its Subsidiaries have (i) neither agreed
to nor is required to make any adjustments pursuant to Section 481(a) of the
Code or any similar provision of state, local or foreign Law, (ii) no knowledge
that any Taxing Authority has proposed any such adjustment, and (iii) no
application pending with any Taxing Authority requesting permission for any
changes in accounting methods. The Company and each of its Subsidiaries have
not
executed or entered into any written agreement with, or obtained or applied
for
any written consents or written clearances or any other Tax rulings from, nor
has there been any written agreement executed or entered into on behalf of
any
of them with any Taxing Authority, relating to material Taxes, including any
IRS
private letter rulings or comparable rulings of any Taxing Authority and closing
agreements pursuant to Section 7121 of the Code or any predecessor provision
thereof or any similar provision of any Law.
(f) There
is
no taxable income of the Company or each of its Subsidiaries that was received
or accrued prior to the Closing that will be required under applicable Tax
Law
to be reported for a taxable period beginning after the Closing Date that is
attributable to a transaction (such as an installment sale) that occurred prior
to the Closing.
(g) There
are
no outstanding assessments, claims or deficiencies for any material Taxes of
the
Company or each of its Subsidiaries that have been proposed, asserted or
assessed. No issue has been raised by a Taxing Authority in any prior
examination of the Company or each of its Subsidiaries which, by application
of
the same or similar principles, would reasonably be expected to result in a
material proposed deficiency for any subsequent taxable period. The Company
and
each of its Subsidiaries (i) are not a party to any agreement extending the
time
within which to file any Tax Return, (ii) have not granted any extension of
the
statute of limitations for the assessment or collection of Taxes and (iii)
have
not granted to any Person any power of attorney that is currently in force
with
respect to any Tax matter.
(h) The
Company and each of its Subsidiaries (i) are not nor have ever been a member
of
any affiliated group (other than a group of which the Company was the Parent)
that filed or was required to file an affiliated, consolidated, combined or
unitary Tax Return, (ii) do not have any liability for the Taxes of another
Person under Treasury Regulation Section 1.1502-6 (or any comparable provision
of state, local or foreign Law) and (iii) are not a party to a Tax sharing
or a
Tax indemnity agreement.
(i) The
Company and each of its Subsidiaries have not constituted either a “distributing
corporation” or a “controlled corporation” (within the meaning of Section
355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code (A) in the two (2) years prior to the
date of this Agreement or (B) in a distribution which could otherwise constitute
part of a “plan” or “series of related transactions” (within the meaning of
Section 355(e) of the Code) in conjunction with the transactions contemplated
by
this Agreement.
(j) None
of
the transactions taken pursuant to this Agreement will give rise to any
withholding obligation under any provision of Law (including Section 1445
of the Code).
-27-
(k) There
is
no Contract covering any person that, individually or collectively, could give
rise to the payment of any amount that would not be deductible by the Company
or
any of its Subsidiaries by reason of Section 280G of the Code. The Company
is
not a “publicly held corporation” for purposes of Section 162(m) of the
Code.
(l) None
of
the assets of the Company or any of its Subsidiaries was held or used by a
“related party” as defined in Section 197 of the Code on or before August 10,
1993.
(m) The
Company and each of its Subsidiaries have (i) complied with all record keeping
and reporting obligations under Section 6038A of the Code with respect to its
ownership of and transactions with its foreign affiliates and (ii) maintained
appropriate documentation for all transfer pricing arrangements.
(n) The
Company has not, within the scope of Section 999 of the Code, participated
in or
cooperated with any international boycott or been requested to do so in
connection with any transaction or proposed transaction.
(o) The
Company would not be required to include any amount in income under Section
951
of the Code with respect to any of its Subsidiaries were its Subsidiaries’
taxable year deemed closed on the Closing Date.
(p) The
Company’s Subsidiaries (i) are not residents of any jurisdiction other than
their respective jurisdictions of incorporation, (ii) are not engaged in a
United States trade or business for federal income tax purpose, (iii) do not
have an investment in “United States Property” within the meaning of Section 956
of the Code and (iv) have never been treated as (A) a foreign personal holding
company (within the meaning of Section 552 of the Code), (B) a foreign
investment company (within the meaning of Section 1246(b) of the Code), or
(C) a
passive foreign investment company (within the meaning of Section 1297 of the
Code).
(q) The
Company is not subject to any gain recognition agreement under Section 367
of
the Code.
(r) For
purposes of this Section
5.10,
any
reference to the Company or its Subsidiaries shall be deemed to include any
person that merged with or was liquidated into the Company or its Subsidiaries,
respectively.
(s) Neither
the Company nor any of its Subsidiaries is a party to any tax sharing,
allocation, indemnity or similar agreement or arrangement (whether or not
written).
5.11 Property
and Assets.
The
Company and each of its Subsidiaries has good and marketable title to all of
the
tangible properties and assets used by it in the conduct of its business,
including all tangible properties and assets reflected in the audited Financial
Statements, except those disposed of since the Balance Sheet Date in the
Ordinary Course of Business, and none of such tangible properties or assets
is
subject to any Lien other than Permitted Exceptions and those specifically
identified on the Financial Statements or on Schedule
5.11.
The
Company owns no real property.
5.12 Technology
and Intellectual Property.
-28-
(a) Schedule
5.12(a)
sets
forth a complete and accurate list (as of the date of this Agreement) of: (i)
each issued patent owned by the Company or any of its Subsidiaries, (ii) each
pending patent application filed by or on behalf of the Company or any of its
Subsidiaries, (iii) each trademark registration, service xxxx registration,
and
copyright registration owned by the Company or any of its Subsidiaries, (iv)
each application for trademark registration, service xxxx registration, and
copyright registration made by or on behalf of the Company or any of its
Subsidiaries, (v) each domain name registered by or on behalf of the Company
or
any of its Subsidiaries ((i) through (v) collectively referred to as
“Owned
Registered IP”),
and
(vi) each material trade name, d/b/a, unregistered trademark, and unregistered
service xxxx used by the Company or any of its Subsidiaries in connection with
its business.
(b) Except
with respect to licenses of Software (i) generally available for an annual
or
one-time license fee of no more than $10,000, (ii) distributed as “freeware” or
“shareware” or (iii) distributed via Internet access without charge,
Schedule
5.12(b)
sets
forth a complete and accurate list (as of the date of this Agreement) of all
agreements pursuant to which the Company or any of its Subsidiaries licenses
in
or otherwise is authorized to use any Technology or Intellectual Property used
in the businesses of the Company and its Subsidiaries. Neither the Company
nor
its Subsidiaries is in default under any material provision of any such licenses
and authorizations. The Company has delivered to Parent correct, complete and
current copies of all such agreements. Except pursuant to the agreements
described in clause (i) above or identified on Schedule
5.12(b),
neither
the Company nor any of its Subsidiaries is required, obligated, or under any
liability whatsoever to make any payments in excess of $5,000 per year by way
of
royalties, fees or other express payment terms of the applicable agreements,
to
any third party with respect to use of any Technology or Intellectual
Property.
(c) Except
as
set forth on Schedule
5.12(b),
the
Company and its Subsidiaries own or otherwise have sufficient rights in and
to
all Software used in and necessary to conduct the business of the Company and
its Subsidiaries as presently conducted including, without limitation, the
design, development, manufacture, use, import, marketing, sale, distribution,
and provision of Software and services provided by the Company and its
Subsidiaries. Except as set forth on Schedule
5.12(b),
to the
Company’s Knowledge, the Company and its Subsidiaries own or otherwise have
sufficient rights in and to all Technology (other than Software) and
Intellectual Property used in and necessary to conduct the business of the
Company and its Subsidiaries as presently conducted including, without
limitation, the design, development, manufacture, use, import, marketing, sale,
distribution, and provision of products, technology and services.
(d) All
Owned
Registered IP (other than patents and patent applications) which is material
to
the business of the Company as presently conducted is owned entirely by the
Company and its Subsidiaries, is valid and subsisting, and all patents and
patent applications owned by the Company which are material to the business
of
the Company as presently conducted are owned entirely by the Company and its
Subsidiaries and, to the Company’s Knowledge, are valid and subsisting. All
necessary registration, maintenance, renewal, and other relevant filing fees
due
through the date hereof in connection with the Owned Registered IP have been
timely paid and all necessary documents and certificates in connection therewith
have been timely filed with the relevant patent, copyright, trademark, or other
authorities in the United States or foreign jurisdictions, as the case may
be,
for the purposes of maintaining such Owned Registered IP in full force and
effect. Except
as
set forth in Schedule
5.12(a),
there
are, to the
-29-
Company’s
Knowledge, as of the date of this Agreement, no filings, payments or similar
actions that must be taken by the Company within 120 days following the Closing
Date for the purposes of obtaining, maintaining, perfecting or renewing any
such
registrations and applications.
(e) Except
for the need to make and obtain those filings and consents set forth in Schedule
5.3(b), neither the Company nor any of its Subsidiaries is, nor will it be,
in
material breach of any agreement relating to any Intellectual Property of the
Company or any of its Subsidiaries or any third party as a result of the
execution and delivery of this Agreement, the performance of its obligations
under this Agreement, or the operation of its business as currently conducted.
Except as set forth on Schedule
5.12(e),
neither
the execution of this Agreement, the consummation of the transactions
contemplated by this Agreement, nor the conduct of the business and operations
of the Company and its Subsidiaries as presently conducted will result in:
(i) Parent’s granting to any third party any right to any Technology or
Intellectual Property owned by, or licensed to, the Company and its
Subsidiaries, or (ii) Parent’s being bound by, or subject to, any non-compete or
similar restriction on its ability to conduct its business.
(f) Schedule
5.12(f)
sets
forth a complete and accurate list of all agreements pursuant to which the
Company or any of its Subsidiaries has licensed a third party to use any
Technology or Intellectual Property owned or licensed by the Company or any
of
its Subsidiaries that is material to their business (other than non-exclusive
software licenses granted to customers and Material Technology Partners in
the
Ordinary Course of Business).
(g) Schedule
5.12(g)
sets
forth a complete and accurate list (as of the date of this Agreement) of all
agreements pursuant to which the Company or any of its Subsidiaries has agreed
to indemnify a third party against a charge of infringement or misappropriation
of any Intellectual Property of another Person (other than agreements entered
into with customers and Technology Partners in the Ordinary Course of Business).
Except
as
set forth in Schedule
5.12(g),
the
Company does not provide any indemnity to its customers or third parties against
a charge of patent infringement related to the use of multimedia standards
that
are incorporated in the embedded software and multimedia solutions that the
Company provides for the mobile devices sold by its customers. In addition,
the
Company’s agreements with its customers disclose to such parties their
obligation to directly license, any patent rights essential to the
implementation of such standards as part of their end products. To the Company’s
Knowledge, the practices set forth in the preceding two sentences are customary
in the industry with respect to the royalty payments to the patent rights
holders for embedded multimedia solutions, that include such patent rights,
for
mobile phones. Notwithstanding the foregoing, the Company is responsible for
licensing patent rights essential to the implementation of such standards for
non-embedded software products provided by the Company directly to end users
(e.g. PC utility software). Except as set forth on Schedule
5.12(g),
the
Company reports and pays royalties on such products to the applicable patent
licensing authorities.
(h) There
are
no agreements between the Company or any of its Subsidiaries and any third
party
relating to any Intellectual Property of the Company or any of its Subsidiaries
or any third party under which there is (as of the date of this Agreement),
or,
to the Company’s Knowledge, is expected (as of the date of this Agreement) to
be, any material dispute regarding
-30-
the
scope
or performance of such agreement except for disputes that would not reasonably
be expected to result in a Material Adverse Effect.
(i) Since
January 1, 2004, neither the Company nor any of its Subsidiaries has transferred
title to, or granted any exclusive license or right to use, or authorized the
retention of any exclusive rights to use or joint ownership of, any Technology
or Intellectual Property of the Company or any of its Subsidiaries, to any
Person.
(j) Neither
the Company nor any of its Subsidiaries, nor the manufacture, sale or
distribution by the Company or its Subsidiaries of any of their products has
infringed or misappropriated any copyright or trade secret right of any third
party, and neither the Company nor any of its Subsidiaries has engaged in any
operation or act that constitutes unfair competition or unfair trade practices
against any third party. The Company has not received any notice of any alleged
infringement of, or been notified of the existence of, any potentially adverse
patent, and ,to the Company’s Knowledge, neither the manufacture, use, offering
for sale, selling or importing by the Company or its Subsidiaries of any of
their Software products has infringed any patent right of any third
party
(k) Except
as
set forth in Schedule
5.12(k),
there
is no action, suit, proceeding, hearing, investigation, notice or complaint
pending or, to the Company’s Knowledge, threatened, before any court or tribunal
(including, without limitation, the United States Patent and Trademark Office
or
equivalent authority anywhere in the world) relating to any of Company’s or any
of its Subsidiaries’ Technology or Intellectual Property, nor has any claim or
demand been made that challenges the validity, enforceability, use or exclusive
ownership of any of such Technology or Intellectual Property or alleges any
infringement, misappropriation, violation, or unfair competition or trade
practices (including, without limitation, any claim that the Company or any
of
its Subsidiaries must license or refrain from using any Technology or
Intellectual Property of any third party), nor, to the Company’s Knowledge, is
there any basis for any such claim or demand.
(l) Except
as
set forth in Schedule
5.12(l),
to the
Company’s Knowledge as of the date of this Agreement, since January 1, 2004 no
third party has infringed or misappropriated any of Company’s or any of its
Subsidiaries’ Technology or Intellectual Property. Since January 1, 2004, the
Company has not brought any action, suit or proceeding or asserted any claim
(other than claims that have been resolved to the Company’s satisfaction)
against any Person for infringing or misappropriating any of Company’s or any of
its Subsidiaries’ Technology or Intellectual Property.
(m) None
of
the Company’s or any of its Subsidiaries’ owned Technology or Intellectual
Property are subject to any outstanding injunction, decree, order, judgment,
ruling, settlement agreement, or stipulation that restricts in any manner the
use, transfer or licensing thereof by the Company or any of its Subsidiaries
or
affects the validity, use or enforceability of any such Technology or
Intellectual Property.
(n) The
Company and its Subsidiaries have taken reasonable steps to protect the
Company’s and its Subsidiaries’ rights in their confidential information and
trade secrets. The Company and its Subsidiaries have executed valid written
agreements with all of their
-31-
employees
who have contributed to the development of the Technology and Intellectual
Property of the Company and its Subsidiaries, in which such employees have
assigned or agreed to assign) to the Company or its Subsidiaries all their
rights in and to all Technology and Intellectual Property they may develop
in
the course of their employment and agreed to hold all trade secrets and
confidential information of the Company and its Subsidiaries in confidence
both
during and after their employment. The Company and its Subsidiaries have
executed valid written agreements with all consultants and contractors who
have
been retained in connection with the development of Technology and Intellectual
Property by which the consultants and contractors have assigned to the Company
or its Subsidiaries all their rights in and to such Technology and Intellectual
Property and agreed to hold all trade secrets and confidential information
of
the Company and its Subsidiaries in confidence both during and after the term
of
their engagements.
(o) No
trade
secrets, or other confidential information, owned by the Company or any of
its
Subsidiaries that is material to their businesses as currently conducted have
been authorized to be disclosed or, to the Knowledge of the Company, actually
disclosed by the Company or any of its Subsidiaries to any of their employees
or
any third party other than pursuant to a written non-disclosure or
confidentiality agreement (or any agreement containing a non-disclosure or
confidentiality provision) that adequately protects the proprietary interests
of
the Company and its Subsidiaries in and to such trade secrets and confidential
information.
(p) Except
as
set forth on Schedule
5.12(p),
no
government funding and no facilities of a university, college, other educational
institution or research center were used in the development of any Intellectual
Property owned by the Company or any of its Subsidiaries where, as a result
of
such funding or the use of such facilities, the government or any university,
college, other educational institution or research center has any rights in
such
Intellectual Property. Except as set forth on Schedule
5.12(p),
to the
Company’s Knowledge, no current or former employee, consultant or independent
contractor of the Company or any of its Subsidiaries who contributed to the
creation or development of any Intellectual Property owned by the Company or
any
of its Subsidiaries has performed services for the government or a university,
college, or other educational institution or research center during a period
of
time during which such employee, consultant or independent contractor was also
performing services for the Company or any of its Subsidiaries.
(q) Except
as
set forth on Schedule
5.12(q),
as of
the date of this Agreement, the Company has no Knowledge of any facts or
circumstances that would render any Intellectual Property owned by the Company
or any of its Subsidiaries that is material to their businesses invalid or
unenforceable, or would adversely affect any pending application or registration
with respect to any Intellectual Property owned by the Company or any of its
Subsidiaries that is material to their businesses.
(r) Except
as
set forth on Schedule
5.12(r),
no open
source or public library Software, including, but not limited to, any version
of
any Software licensed pursuant to any GNU public license, was used in the
development or modification of any Software owned by the Company or its
Subsidiaries that is incorporated into or utilized by any products of the
Company or any of its Subsidiaries where, as a result of the use of such open
source or public library Software, the Company or any of its Subsidiaries is
obligated to make available to third parties
-32-
other
than its customers and Technology Partners the source code for the proprietary
Software owned by the Company or its Subsidiaries that is incorporated into
such
products.
(s) None
of
the Software owned by the Company and its Subsidiaries contains any program
routine, device, or other undisclosed feature, including, without limitation,
a
time bomb, virus, drop-dead device, malicious logic, worm, trojan horse, bug,
error, defect or trap door, that is designed to delete, disable, deactivate,
interfere with, or otherwise harm the Software or the hardware, data, or
computer programs or codes of a user of such Software, or that is designed
to
provide access or produce modifications not authorized by such
user.
5.13 Insurance.
Set
forth in Schedule
5.13
is a
list of all insurance policies and all fidelity bonds held by or applicable
to
the Company or any of the Subsidiaries setting forth, in respect of each such
policy, the policy name, policy number, carrier, term, type and amount of
coverage and annual premium. The insurance policies listed on Schedule
5.13
are in
full force and effect and the Company has timely paid all applicable premiums
thereunder. Except as set forth on Schedule
5.13,
to the
Knowledge of the Company, no event relating to the Company or any of the
Subsidiaries has occurred which would reasonably be expected to result in a
retroactive upward adjustment in premiums under any such insurance policies
or
which would reasonably be expected to result in a prospective upward adjustment
in such premiums. Excluding insurance policies that have expired without renewal
and been replaced in the Ordinary Course of Business, no insurance policy has
been cancelled within the last two (2) years and, to the Knowledge of the
Company, no threat has been made to cancel any insurance policy of the Company
or any of its Subsidiaries during such period. To the Knowledge of the Company,
no event has occurred, including, without limitation, the failure by the Company
or any of its Subsidiaries to give any notice or information or the Company
or
any of its Subsidiaries giving any inaccurate or erroneous notice or
information, which limits or impairs the rights of the Company or any of its
Subsidiaries under any such insurance policies.
5.14 Material
Contracts and Obligations.
Schedule
5.14
sets
forth a list of all material Contracts (the “Material
Contracts”)
to
which the Company or any of its Subsidiaries is a party or by which it is bound,
including without limitation (a) each Contract which requires future
expenditures by the Company or any of its Subsidiaries in excess of $50,000,
excluding Contracts that require future software maintenance and technical
support that could not be performed without making expenditures necessary to
maintain the Company’s existing overhead and infrastructure; (b) all items
required to be listed in Schedule
5.16(a);
(c) any Contract to which any stockholder, officer or director of the
Company or any of its Subsidiaries, or any “affiliate” or “associate” (as such
terms are defined in the rules and regulations promulgated under the Securities
Act) of such Persons is a party; (d) any indenture, loan or credit
agreement, note agreement, deed of trust, mortgage, security agreement,
promissory note or other Contract relating to or evidencing Indebtedness;
(e) any lease or agreement (other than Intellectual Property and Technology
licenses) under which the Company or any of its Subsidiaries is lessee of or
holds or operates any tangible property, real or personal, owned by any other
Person under which payments to such Person exceed $10,000 per annum;
(f) any lease or agreement (other than Intellectual property and Technology
licenses) under which the Company or any of its Subsidiaries is lessor or
permits any Person to hold or operate any property, real or personal, owned
or
controlled by the Company or any of its Subsidiaries; (g) any agreement
granting any
-33-
option
to
purchase assets, or acquire a license, preemptive right, right of first refusal
or similar right to any Person; (h) any covenant not to compete or similar
restriction on its ability to conduct a business and any standstill agreements;
(i) any material Contract with customers or business partners of the Company
or
any of its Subsidiaries; and (j) any agreement to register securities under
the Securities Act. The Company has made available to Parent copies of all
of
the foregoing Contracts (or written summaries in the case of oral Contracts).
All of such Contracts are valid, binding and in full force and effect on the
Company. Neither the Company nor any of its Subsidiaries is in default under
any
material provision of any of such Contracts and, to the Knowledge of the
Company, no other party to any such Contracts is in default under any provision
thereof. As of the date hereof, neither the Company nor any of its Subsidiaries
has received any written communication from any other party to the Contracts
listed on Schedule
5.14
stating
that such other party has decided or plans to terminate or otherwise discontinue
such Contract.
5.15 Compliance.
The
Company and each of its Subsidiaries has, in all material respects, complied
with all Laws and orders applicable to its business and has all material Permits
required thereby. There is no term or provision of any state or federal
judgment, decree, order, statute, rule or regulation applicable to or binding
upon the Company, that has had or would reasonably be expected to have a
Material Adverse Effect. To the Knowledge of the Company, none of the employees
of the Company or any of its Subsidiaries is in violation of any contract or
covenant (either with the Company or with another entity) relating to
employment, patent, other proprietary information disclosure, non-competition,
or non-solicitation.
5.16 Employee
Benefits.
(a) Schedule
5.16(a)
sets
forth a correct and complete list of all “employee benefit plans” (as defined in
Section 3(3) of ERISA), and all other employee benefit plans, programs,
agreements, policies, arrangements or payroll practices, including bonus plans,
employment, consulting or other compensation agreements with current employees,
officers and directors (other than employment offer letters for at-will
employment and proprietary invention and assignment agreements), collective
bargaining agreements, incentive, equity or equity-based compensation, or
deferred compensation arrangements, change in control, termination or severance
plans or arrangements, stock purchase, severance pay, sick leave, vacation
pay,
salary continuation for disability, hospitalization, medical insurance, life
insurance and scholarship plans and programs maintained by the Company or any
of
its Subsidiaries or to which the Company or any of its Subsidiaries contributed
or is obligated to contribute thereunder for the benefit of any current
employees, officers and directors of the Company or any of its Subsidiaries
or
for the benefit of any former employees, officers or directors of the Company
or
any of its Subsidiaries that terminated service following January 1, 2004 (the
“Employees”)
(collectively, the “Company
Plans”),
maintained by the Company or any of its Affiliates and any trade or business
(whether or not incorporated) that is or has ever been under common control,
or
that is or has ever been treated as a single employer, with any of them under
Section 414(b), (c), (m) or (o) of the Code (each, an “ERISA
Affiliate”)
or to
which the Company or any ERISA Affiliate contributed or has ever been obligated
to contribute thereunder.
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(b) None
of
the Company Plans is an “employee pension plan” (as defined in Section 3(2) of
ERISA, subject to Title IV of ERISA or Section 412 of the Code (the “Title
IV Plans”),
or a
“multiemployer plan” (as defined in Section 3(37) of ERISA (a “Multiemployer
Plan”)),
or is
or has been subject to Sections 4063 or 4064 of ERISA, and for the six years
immediately preceding the Closing Date, neither the Company nor its ERISA
Affiliates has maintained, been obligated to contribute to or otherwise incurred
an obligation with respect to a Title IV Plan or a Multiemployer Plan.
(c) The
Company Plans have been operated, administered and maintained in all material
respects in accordance with their terms. Each Company Plan intended to be
qualified under Section 401(a) of the Code and any related trust thereunder
intended to be exempt from Federal income taxation under Section 501(a) of
the
Code has either (i) applied for a favorable determination letter, prior to
the
expiration of the requisite remedial amendment period under applicable Treasury
Regulations or IRS pronouncements, but has not yet received a response; (ii)
obtained at least one favorable determination, notification, advisory and/or
opinion letter, as applicable, on which the Company is entitled to rely, as
to
its qualified status from the IRS; or (iii) still has a remaining period of
time
to apply for such a determination letter from the IRS and to make any amendments
necessary to obtain a favorable determination and nothing has occurred with
respect to the operation of such Company Plan that would reasonably be expected
to cause the revocation of such most recent determination (if any), or the
imposition of any liability, penalty or tax under ERISA or the Code, except
where any failure to comply has not had, nor reasonably would be expected to
have, a Material Adverse Effect.
(d) None
of
the Company Plans provides for post-employment life or health insurance,
benefits or coverage for any participant or any beneficiary of a participant,
except as may be required under the Consolidate Omnibus Budget Reconciliation
Act of 1985, as amended (“COBRA”),
and
except at the expense of the participant or the participant’s beneficiary. Each
of the Company and any ERISA Affiliate which maintains a “group health plan”
within the meaning Section 5000(b)(1) of the Code has substantially complied
with the notice and continuation requirements of Section 4980B of the Code,
COBRA, Part 6 of Subtitle B of Title I of ERISA and the regulations
thereunder.
(e) Except
as
set forth on Schedule
5.16(e)
or as
otherwise contemplated by this Agreement or the transactions contemplated
hereby, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment becoming due to any Employee, (ii) increase any benefits otherwise
payable under any Company Plan or Title IV Plan or (iii) result in the
acceleration of the time of payment or vesting of any such benefits under any
Company Plan or Title IV Plan.
5.17 Labor.
(a) Neither
the Company nor any of its Subsidiaries is a party to any labor or collective
bargaining agreement and there are no labor or collective bargaining agreements
which pertain to employees of the Company or any of its Subsidiaries.
(b) Except
as
set forth on Schedule 5.17(b),
no
Employees are represented by any labor organization. No labor organization
or
group of employees of the Company or any of
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its
Subsidiaries has made a pending demand for recognition, and there are no
representation proceedings or petitions seeking a representation proceeding
presently pending or, to the Knowledge of the Company, threatened to be brought
or filed, with the National Labor Relations Board or other labor relations
tribunal. To the Knowledge of the Company, there is no organizing activity
involving the Company or any of its Subsidiaries pending or threatened by any
labor organization or group of employees of the Company or any of its
Subsidiaries.
(c) There
are
no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or
(ii) material grievances or other labor disputes pending or, to the
Knowledge of the Company, threatened against or involving the Company or any
of
its Subsidiaries. To the Knowledge of the Company, there are no unfair labor
practice charges, grievances or complaints pending or threatened by or on behalf
of any employee or group of employees of the Company.
(d) There
are
no complaints, charges or claims against the Company or any of its Subsidiaries
pending with any Governmental Body or, to Knowledge of the Company, threatened
that could be brought or filed, with any Governmental Body or based on, arising
out of, in connection with or otherwise relating to the employment or
termination of employment or failure to employ by the Company or any of its
Subsidiaries, of any individual. There has been no “mass layoff” or “plant
closing” (as defined by WARN) with respect to the Company or any of its
Subsidiaries within the six (6) months prior to Closing.
5.18 Litigation.
Except
as set forth in Schedule
5.18,
there
is no Legal Proceeding pending or, to the Knowledge of the Company, threatened
against the Company or any of its Subsidiaries (or to the Knowledge of the
Company, pending or threatened, against any of the officers, directors or
employees of the Company or any of its Subsidiaries with respect to their
business activities on behalf of the Company), or to which the Company or any
of
its Subsidiaries is otherwise a party before any Governmental Body. Except
as
set forth on Schedule
5.18,
neither
the Company nor any Subsidiary is subject to any Order (other than Orders of
general applicability to the Company’s industry or business). Except as set
forth on Schedule
5.18,
neither
the Company nor any Subsidiary is engaged in any legal action to recover monies
due it or for damages sustained by it.
5.19 Related
Party Transactions.
Except
as set forth in Schedule
5.19
and
other then with respect to the Management Notes, to the Knowledge of the
Company, no director or officer of the Company or any of its Subsidiaries (i)
owns any direct or indirect interest of any kind in, or controls or is a
director, officer, employee or partner of, or consultant to, or lender to or
borrower from or has the right to participate in the profits of, any Person
which is (A) a competitor, supplier, customer, landlord, tenant, creditor
or debtor of the Company or any of its Subsidiaries, (B) engaged in a business
related to the business of the Company or any of its Subsidiaries, or (C) a
participant in any transaction to which the Company or any of its Subsidiaries
is a party or (ii) except as set forth in Schedule
5.19,
is a
party to any Contract with the Company or any of its Subsidiaries.
5.20 Banks.
Schedule
5.20
contains
a complete and correct list of the names and locations of all banks in which
Company or any Subsidiary has accounts or safe deposit boxes and the names
of
all persons authorized to draw thereon or to have access thereto.
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5.21 State
Takeover Statutes.
Neither
Section 203 of the DGCL nor any other state takeover or similar statute or
regulation is applicable to this Agreement, the Merger, the other transactions
contemplated by this Agreement.
5.22 Financial
Advisors.
Except
as set forth on Schedule
5.22,
no
Person has acted, directly or indirectly, as a broker, finder or financial
advisor for the Company in connection with the transactions contemplated by
this
Agreement and no Person is entitled to any fee or commission or like payment
in
respect thereof.
ARTICLE
VI
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Parent
and Merger Sub represent and warrant to the Company on the date hereof,
that:
6.1 Organization
and Good Standing.
Parent
is a limited liability company and Merger Sub is a corporation, each of which
is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has all requisite corporate power and authority
to own, lease and operate properties and carry on its business.
6.2 Authorization
of Agreement.
Each of
Parent and Merger Sub has full corporate power and authority to execute and
deliver this Agreement and each other agreement, document, instrument or
certificate contemplated by this Agreement or to be executed by Parent and/or
Merger Sub in connection with the consummation of the transactions contemplated
hereby and thereby (the “Parent
Documents”),
and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by each of Parent and Merger Sub of this Agreement
and
each Parent Document have been duly authorized by all necessary corporate action
on behalf of Parent and Merger Sub. This Agreement has been, and each Parent
Document will be at or prior to the Closing, duly executed and delivered by
each of Parent and Merger Sub and (assuming the due authorization, execution
and
delivery by the other parties hereto and thereto) this Agreement constitutes,
and each Parent Document when so executed and delivered will constitute, the
legal, valid and binding obligation of each of Parent and Merger Sub,
enforceable against it in accordance with its respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors’ rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
6.3 Conflicts;
Consents of Third Parties.
(a) Except
as
set forth on Schedule
6.3(a)
hereto,
neither of the execution and delivery by Parent and Merger Sub of this Agreement
and of the Parent Documents, nor the compliance by Parent with any of the
provisions hereof or thereof will (i) conflict with, or result in the breach
of,
any provision of the certificate of organization, operating agreement,
certificate of incorporation or by-laws of Parent or Merger Sub, (ii) conflict
with or violate the Third Joint Plan of Reorganization of the Parent as
confirmed on Xxxxx 0, 0000, (xxx) conflict with, violate,
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result
in
the breach of, or constitute a default under any note, bond, mortgage,
indenture, license, agreement or other obligation to which Parent is a party
or
by which Parent or its properties or assets are bound or (iv) violate any Law
or
Order of any Governmental Body by which Parent is bound, except, in the case
of
clauses (iii) and (iv), for such violations, breaches or defaults as would
not,
individually or in the aggregate, have a material adverse effect on Parent
or
the ability of Parent to consummate the transactions contemplated by this
Agreement.
(b) No
consent, waiver, approval, Order, Permit or authorization of, or declaration
or
filing with, or notification to, any Person or Governmental Body is required
on
the part of Parent and Merger Sub in connection with the execution and delivery
of this Agreement or the Parent Documents or the compliance by Parent and Merger
Sub with any of the provisions hereof or thereof.
6.4 Compliance
with Laws.
Parent
and Merger Sub are, and have been at all times since April 13, 2005, in
compliance with all applicable laws, except to the extent that the failure
to be
in compliance with any such laws has not had, and would not, individually or
in
the aggregate, reasonably be expected to have, a material adverse effect on
the
business, assets, operations, financial condition, or results of operations
of
Parent.
6.5 Litigation.
There
are no Legal Proceedings pending or, to the Knowledge of Parent, threatened
that
are reasonably likely to prohibit or restrain the ability of Parent and Merger
Sub to enter into this Agreement or consummate the transactions contemplated
hereby or that would otherwise result in a material adverse effect on the
business, assets, operations, financial condition, or results of operations
of
Parent.
6.6 Financial
Advisors.
No
Person has acted, directly or indirectly, as a broker, finder or financial
advisor for either Parent or Merger Sub in connection with the transactions
contemplated by this Agreement and no Person is entitled to any fee or
commission or like payment in respect thereof.
6.7 Financing.
Parent
has, and will have on the Closing Date, unrestricted cash available to
consummate the Merger and perform its obligations hereunder.
ARTICLE
VII
COVENANTS
7.1 Access
to Information.
The
Company agrees that, prior to the Effective Time, Parent shall be entitled,
through its officers, employees and representatives (including its legal
advisors and accountants), to make such investigation of the properties,
businesses and operations of the Company and its Subsidiaries and such
examination of the books, records and financial condition of the Company and
its
Subsidiaries as it reasonably requests and to make extracts and copies of such
books and records. Any such investigation and examination shall be conducted
during regular business hours and under reasonable circumstances, and the
Company shall reasonably cooperate, and shall cause the Company and its
Subsidiaries to reasonably cooperate, with all such reasonable requests. No
investigation by Parent prior to or after the date of this Agreement shall
diminish or obviate any of the representations, warranties, covenants
or
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agreements
of the Company contained in this Agreement or the Company Documents. In order
that Parent may have full opportunity to make such physical, business,
accounting and legal review, examination or investigation as it may reasonably
request of the affairs of the Company and its Subsidiaries, the Company shall
use commercially reasonable efforts to cause the officers, employees,
consultants, agents, accountants, attorneys and other representatives of the
Company and its Subsidiaries to cooperate fully with such representatives in
connection with such review and examination. The Company consents to Parent
contacting such customers as Parent deems necessary in connection with the
foregoing and to discuss the Company’s standing, performance and condition and
issues related to the consummation of the transactions contemplated by this
Agreement, provided that the Company is given reasonable advance notice and
an
opportunity to participate in any such meeting.
7.2 Conduct
of the Business Pending the Closing.
(a) Except
as
otherwise expressly provided in this Agreement or with the prior written consent
of Parent, during the period from the date of this Agreement to the Effective
Time, the Company shall, and shall cause its Subsidiaries to:
(i) conduct
the respective businesses of the Company and its Subsidiaries only in the
Ordinary Course of Business;
(ii) use
its
commercially reasonable efforts to (A) preserve its present business operations,
organization and goodwill of the Company and its Subsidiaries and (B) preserve
its present relationship with Persons having material business dealings with
the
Company and its Subsidiaries;
(iii) use
its
commercially reasonable efforts to maintain (A) all material assets and
properties of the Company and its Subsidiaries in their current condition,
ordinary wear and tear excepted and (B) insurance upon all of the properties
and
assets of the Company and its Subsidiaries in such amounts and of such kinds
comparable to that in effect on the date of this Agreement;
(iv) give
all
required notices of the transactions contemplated by this Agreement and use
its
reasonable best efforts to obtain all third party consents material to the
Company’s business that are necessary or advisable in order to consummate the
transactions contemplated by this Agreement; and
(v) not
take
any action which would reasonably be expected to adversely affect the ability
of
the parties to consummate the transactions contemplated by this
Agreement.
(b) Except
as
otherwise expressly provided in this Agreement or with the prior written consent
of Parent, during the period from the date of this Agreement to the Effective
Time, the Company shall not and shall not permit its Subsidiaries
to:
(i) except
as
set forth on Schedule
7.2(b)(i),
declare,
set aside, make or pay any dividend or other distribution (whether in cash,
stock or property) in respect of the capital stock of the Company or repurchase,
redeem or otherwise acquire any outstanding shares of the capital stock or
other
securities of, or other ownership interests in, the Company or any of
its
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Subsidiaries,
except in connection with the exercise of repurchase rights or rights of first
refusal in favor of the Company with respect to shares issued upon exercise
of
Company Stock Options;
(ii) except
as
set forth on Schedule
7.2(b)(ii),
transfer, issue, sell or dispose of any shares of capital stock or other
securities of the Company or any of its Subsidiaries or grant options, warrants,
calls or other rights to purchase or otherwise acquire shares of the capital
stock or other securities of the Company or any of its Subsidiaries, except
pursuant to obligations existing on the date of this Agreement and previously
disclosed to Parent;
(iii) effect
any recapitalization, reclassification, stock split or like change in the
capitalization of the Company or any of its Subsidiaries;
(iv) amend
the
certificate of incorporation or by-laws of the Company or any of its
Subsidiaries;
(v) except
as
set forth on Schedule
7.2(b)(v)
or
otherwise in the Ordinary Course of Business with respect to employees other
than officers of the Company, (A) increase the annual level of compensation
of
any employee of the Company or any of its Subsidiaries, (B) increase the annual
level of compensation payable or to become payable by the Company or any of
its
Subsidiaries to any of their respective executive officers, (C) grant any
unusual or extraordinary bonus, benefit or other direct or indirect compensation
to any employee, director or consultant, (D) increase the coverage or benefits
available under any (or create any new) severance pay, termination pay, vacation
pay, company awards, salary continuation for disability, sick leave, deferred
compensation, bonus or other incentive compensation, insurance, pension or
other
employee benefit plan or arrangement made to, for, or with any of the directors,
officers, employees, agents or representatives of the Company or any of its
Subsidiaries or otherwise modify or amend or terminate any such plan or
arrangement or (E) enter into any collective bargaining, employment,
deferred compensation, severance, consulting, non-competition or similar
agreement (or amend any such agreement) to which the Company or any of its
Subsidiaries is a party or involving a director, officer or employee of the
Company or any of its Subsidiaries in his or her capacity as a director, officer
or employee of the Company or any of its Subsidiaries;
(vi) incur
or
assume any Indebtedness (other than Indebtedness set forth on Schedule
7.2(b)(vi));
(vii) subject
to any Lien or otherwise encumber or, except for Permitted Exceptions, permit,
allow or suffer to be encumbered, any of the properties or assets (whether
tangible or intangible), or any shares of capital stock of the Company or any
of
its Subsidiaries;
(viii) acquire
any material properties or assets or sell, assign, license (other than
non-exclusive licenses received from or granted to customers and Technology
Partners in the Ordinary Course of Business), transfer, convey, lease or
otherwise dispose of any of the material properties or assets of the Company
and
its Subsidiaries;
(ix) except
as
set forth on Schedule
7.2(b)(ix),
enter
into or agree to enter into any merger or consolidation with, any corporation
or
other entity, and not invest in, make a loan,
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material
advance or capital contribution to, or otherwise acquire the securities of
any
other Person, except in connection with the exercise of repurchase rights or
rights of first refusal in favor of the Company with respect to shares issued
upon exercise of Company Stock Options;
(x) cancel
or
compromise any material debt or claim or waive or release any material right
of
the Company or any of its Subsidiaries except in the Ordinary Course of
Business;
(xi) enter
into any commitment for capital expenditures of the Company and its Subsidiaries
in excess of $20,000 for any individual commitment and $100,000 for all
commitments in the aggregate;
(xii) enter
into, modify or terminate any labor or collective bargaining agreement of the
Company or any of its Subsidiaries or, through negotiation or otherwise, make
any commitment or incur any liability to any labor organization with respect
to
the Company or any of its Subsidiaries;
(xiii) except
as
set forth on Schedule
7.2(b)(xiv),
permit
the Company or any of its Subsidiaries to enter into any transaction or to
enter
into, modify or renew any Contract which would be a Material Contract if entered
into prior to the date hereof or that would reasonably be expected to have
a
Material Adverse Effect;
(xiv) except
for transfers of cash pursuant to normal cash management practices in the
Ordinary Course of Business, permit the Company or any of its Subsidiaries
to
make any investments in or loans to, or pay any fees or expenses to (other
than
pursuant to existing Contracts), or enter into or materially modify any Contract
with any Affiliate of the Company or any of its Subsidiaries, or any director,
officer or employee of the Company or any of its Subsidiaries;
(xv) make
or
change any material election concerning Taxes or Tax Returns, change an annual
accounting period, adopt or change any accounting method, file any amended
Tax
Return, enter into any closing agreement with respect to Taxes, settle any
Tax
claim or assessment or surrender any right to claim a refund of Taxes or obtain
or enter into any Tax ruling, in each case, if taking such action would
materially affect the amount of Taxes required to be paid by the Company or
any
of its Subsidiaries after the Effective Time;
(xvi) enter
into any Contract, understanding or commitment that restrains, restricts, limits
or impedes the ability of the Company or any Subsidiary to compete with or
conduct any business or line of business in any geographic area or enter into,
modify, amend or terminate any Contract which if so entered into, modified,
amended or terminated would be reasonably be expected to have a Material Adverse
Effect;
(xvii) terminate,
amend, restate, supplement or waive any rights under any Material Contract,
or
Permit that would reasonably be expected to have a Material Adverse Effect;
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(xviii) fail
to
promptly pay and discharge current liabilities expect where disputed in good
faith by appropriate proceedings, or accelerate the collection of any accounts
receivable; and
(xix) agree
to
do anything prohibited by this Section
7.2.
7.3 Notice
of Changes.
The
Company and Parent shall promptly advise the other party orally and in writing
of (i) any representation or warranty made by it (and, in the case of Parent,
made by Merger Sub) contained in this Agreement becoming untrue or inaccurate
in
any material respect or (ii) the failure of it (and, in the case of Parent,
of
Merger Sub) to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided,
however,
that no
such notification shall affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto) or the conditions
to the obligations of the parties under this Agreement.
7.4 Reasonable
Best Efforts; Regulatory Approvals.
(a) Upon
the
terms and subject to the conditions set forth in this Agreement, each of the
parties agrees to use its reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and cooperate with
the other parties in doing, all things reasonably necessary, proper or advisable
to consummate and make effective, in the most expeditious manner practicable,
the Merger and the other transactions contemplated by this
Agreement.
(b) In
connection with and without limiting Section
7.4(a),
each of
the Company and its Board of Directors and Parent and its Board of Directors
shall (i) take all action necessary to ensure that no state takeover statute
or
similar statute or regulation is or becomes applicable to this Agreement, the
Merger or any of the other transactions contemplated by this Agreement and
(ii)
if any state takeover statute or similar statute becomes applicable to this
Agreement, the Merger or any of the other transactions contemplated by this
Agreement, take all action necessary to ensure that the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly
as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on this Agreement, the Merger
and the other transactions contemplated by this Agreement.
7.5 Stockholder
Consent.
As
promptly as reasonably practicable after the date of this Agreement, the Company
shall prepare and distribute to the Company Stockholders a consent solicitation
statement for the purposes of obtaining the Company Stockholder Approval in
accordance with Section 228 of the DGCL, describing in reasonable detail the
Merger, the COI Amendment and the other transactions contemplated hereby.
Subject to Section
7.8(c)
hereof,
the Company shall, through its Board of Directors, recommend to its stockholders
adoption of this Agreement (the “Company
Board Recommendation”)
and
such recommendation will be included in the consent solicitation statement.
Promptly after obtaining the Company Stockholder Approval, the Company will
prepare and distribute to the Company Stockholders the notices required by
Section 228(e) and 262(d)(2) of the DGCL, and any other applicable provisions
of
the CGCL informing them that appraisal rights are available for their shares
pursuant to Section 262 of the DGCL Section 1300 of the CGCL and
otherwise
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complying
with all requirements under the DGCL and the CGCL. Parent will have the right
to
review and comment on all such notices and statements prior to their
distribution. Such materials shall not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the
statements made therein, in the light of the circumstances under which they
were
made, not misleading. The Company’s obligations pursuant to the first sentence
of this Section 7.5 shall not be affected by (i) the commencement, public
proposal, public disclosure or communication to the Company of any Takeover
Proposal or (ii) the withdrawal or modification by the Board of Directors of
the
Company or any committee thereof of the Company Board Recommendation or such
Board of Directors’ or such committee’s approval of this Agreement or the
Merger.
In
addition, the Company agrees to immediately notify Parent in writing upon its
receipt of any notices or other communications with respect to Dissenting
Shares.
7.6 Stockholder
Litigation.
The
Company shall give Parent the opportunity to participate in the defense or
settlement of any stockholder litigation or other third-party litigation against
the Company and/or its directors relating to the transactions contemplated
by
this Agreement, and no such settlement shall be agreed to without Parent’s prior
consent.
7.7 Indemnification;
Insurance.
(a) Parent
will pay for a 6-year run-off director and officer liability insurance policy,
effective as of the Closing, for the benefit of the directors and officers
of
the Company prior to the Closing Date. The run-off policy will provide
continuing liability coverage, equivalent as to limits, deductibles and other
features to the current director and officer liability insurance policy, for
claims made against the directors and officers of the Company prior to the
Closing Date during the term of the policy following the Closing Date for
actions taken by or omitted to be taken by them prior to the Closing
Date.
(b) Notwithstanding
Section 7.7(a), all rights to indemnification and exculpation from liabilities
for acts or omissions occurring at or prior to the Effective Time now existing
in favor of the current or former directors or officers of the Company as
provided in the Company’s certificate of incorporation, the Company’s bylaws or
any written indemnification agreement between such directors or officers and
the
Company (in each case, as in effect on the date hereof) shall be assumed by
the
Surviving Corporation (and its successors and assigns) in the Merger, without
further action, as of the Effective Time and shall survive the Merger and shall,
following the Closing, continue in full force and effect in accordance with
their terms and shall not be amended, repealed or otherwise modified for a
period of six (6) years from the Effective Time in any manner that would
adversely affect the rights thereunder of indemnified parties, unless such
modification is required by Law.
7.8 No
Solicitation by the Company; Etc.
(a) The
Company shall, and shall cause its Subsidiaries to, and shall use its reasonable
best efforts to cause the Company’s and its Subsidiaries’ respective directors,
officers, employees, investment bankers, financial advisors, attorneys,
accountants, agents and other representatives (collectively, “Representatives”)
to,
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immediately
cease and cause to be terminated any discussions or negotiations with any Person
conducted heretofore with respect to a Takeover Proposal, and use reasonable
best efforts to obtain the return from all such Persons or cause the destruction
of all copies of confidential information previously provided to such parties
by
the Company, its Subsidiaries or Representatives. The Company shall not, and
shall not permit its Subsidiaries and Representatives to, directly or indirectly
(i) solicit, initiate, knowingly facilitate or encourage (including by way
of
furnishing information) any inquiries or proposals that constitute, or may
reasonably be expected to lead to, any Takeover Proposal, (ii) other than
informing Persons of the existence of the provisions contained in this Section
7.8, participate in any discussions or negotiations with any third party
regarding any Takeover Proposal or (iii) enter into any agreement related to
any
Takeover Proposal; provided,
however,
that
(x) nothing contained in this Agreement shall prohibit the Company or the
Company’s Board from conducting business in the Ordinary Course of Business,
including business development and partnering discussions with third parties
inside and outside of the wireless industry, which discussions are not intended
by the Company to lead to a Takeover Proposal and (y) if after the date hereof
the Board of Directors of the Company receives an unsolicited, bona fide written
Takeover Proposal in circumstances not involving a breach of this Agreement,
and
the Board of Directors of the Company reasonably determines in good faith that
such Takeover Proposal constitutes or is reasonably likely to lead to a Superior
Proposal and with respect to which such Board determines in good faith, after
considering applicable provisions of state law and after consulting with and
receiving the advice of outside counsel, that the failure to take such action
would reasonably be expected to result in a breach of its fiduciary duties
to
the Company’s stockholders under Delaware law, then the Company may, at any time
prior to obtaining the Company Stockholder Approval (but in no event after
obtaining the Company Stockholder Approval) and after providing Parent not
less
than 24 hours written notice of its intention to take such actions (A) furnish
information with respect to the Company and its Subsidiaries, and afford access
to the properties, books, records or employees of the Company and its
Subsidiaries, to the Person making such Takeover Proposal, but only after such
Person enters into a customary confidentiality agreement with the Company (which
confidentiality agreement must be no less favorable to the Company (i.e.,
no less
restrictive with respect to the conduct of such Person) than the Confidentiality
Agreement), provided that (1) such confidentiality agreement may not include
any
provision calling for an exclusive right to negotiate with the Company and
(2)
the Company advises Parent of all such non-public information delivered to
such
Person and concurrently with its delivery to such Person the Company delivers
to
Parent all such information not previously provided to Parent, and (B)
participate in discussions and negotiations with such Person regarding such
Takeover Proposal. Without limiting the foregoing, it is understood that any
violation of the foregoing restrictions by the Company’s Subsidiaries or
Representatives shall be deemed to be a breach of this Section
7.8
by the
Company.
(b) In
addition to the other obligations of the Company set forth in this Section
7.8,
the
Company shall promptly advise Parent, orally and in writing, and in no event
later than 24 hours after receipt, if any proposal, offer, inquiry or other
contact is received by, any information is requested from, or any discussions
or
negotiations are sought to be initiated or continued with, the Company in
respect of any Takeover Proposal, and shall, in any such notice to Parent,
indicate the identity of the Person making such proposal, offer, inquiry or
other contact and the terms and conditions of any proposals or offers or the
nature of any inquiries or contacts
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(and
shall include with such notice copies of any written materials received from
or
on behalf of such Person relating to such proposal, offer, inquiry or request),
and thereafter shall promptly keep Parent informed of all material developments
affecting the status and terms of any such proposals, offers, inquiries or
requests (and the Company shall provide Parent with copies of any additional
written materials received that relate to such proposals, offers, inquiries
or
requests) and of the status of any such discussions or
negotiations.
(c) Except
as
expressly permitted by this Section
7.8(c),
neither
the Board of Directors of the Company nor any committee thereof shall (i)(A)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Parent, the Company Board Recommendation or the approval or
declaration of advisability by such Board of Directors of this Agreement and
the
Merger or (B) approve or recommend, or propose publicly to approve or recommend,
any Takeover Proposal (any action described in this clause (i) being referred
to
as a “Company
Adverse Recommendation Change”)
or (ii)
approve or recommend, or propose publicly to approve or recommend, or cause
or
authorize the Company or any of its Subsidiaries to enter into, any letter
of
intent, agreement in principle, memorandum of understanding, merger,
acquisition, purchase or joint venture agreement or other agreement related
to
any Takeover Proposal (other than a confidentiality agreement in accordance
with
Section 5.3(a)). Notwithstanding the foregoing, the Board of Directors of the
Company may withdraw or modify the Company Board Recommendation, or recommend
a
Superior Proposal, if such Board determines in good faith, after reviewing
applicable provisions of state law and after consulting with outside counsel,
that the failure to make such withdrawal, modification or recommendation would
constitute a breach by the Board of Directors of the Company of its fiduciary
duties to the Company’s stockholders under Delaware law.
7.9 Confidentiality.
Except
for disclosures expressly permitted by the terms of the Confidentiality
Agreement, dated effective as of April 15, 2005, between Parent and the Company
(as it may be amended from time to time, the “Confidentiality
Agreement”),
Parent
shall hold, and shall cause its officers, employees, accountants, counsel,
financial advisors and other Representatives to hold, all information received
from the Company, directly or indirectly, in confidence in accordance with
the
Confidentiality Agreement.
7.10 Publicity.
None of
the Company or Parent shall issue any press release or public announcement
concerning this Agreement or the transactions contemplated hereby without
obtaining the prior written approval of the other party hereto or in the event
such press release or public announcement identifies any Company Stockholder
the
prior written approval of such Company Stockholder, which, in each case,
approval will not be unreasonably withheld or delayed, unless disclosure is
otherwise required by applicable Law, provided that, to the extent required
by
applicable Law, the party intending to make such release shall use its
reasonable best efforts consistent with such applicable Law to consult with
the
other party with respect to the text thereof.
7.11 Transaction
Expenses.
The
Company shall use its commercially reasonable efforts to deliver to Parent,
no
later than three (3) Business Days prior to the Closing Date, pay-off letters
in
respect of the Transaction Expenses from any and all third-party service
providers to whom payments are required to be made by the Company or its
Subsidiaries in
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connection
with the transactions contemplated by this Agreement. The pay-off letters shall
provide that the amounts set forth therein represent payment in full for all
fees and expenses payable by the Company or its Subsidiaries in connection
with
the transactions contemplated by this Agreement.
7.12 Employee
Matters.
(a) Parent
covenants and agrees that for a period of one year following
the
Closing, it will not reduce the salary of or make an adverse change in the
position held by any of the employees of the Company and its Subsidiaries who
were employed immediately prior to the Closing. Such employees shall continue
their employment on an “at-will” basis following the Closing.
(b) For
a
period of one year following the Closing, or such longer period of time required
by applicable Law, Parent shall cause to be provided to employees of the Company
or any of its Subsidiaries the Company Plans which are welfare benefit plans
or
with coverage under other welfare benefit plans substantially comparable in
the
aggregate to such Company Plans immediately prior to the Closing that are,
in
each case, substantially equivalent or
more
favorable to
those
provided to such employee immediately prior to the Closing.
(c) The
Company shall reserve 8,250,000 shares of common stock of the Surviving
Corporation for grants pursuant to the PacketVideo 2005 Equity Incentive
Plan.
7.13 Employee
Agreements.
The
Company will use its reasonable best efforts to cause each United States based
employee to enter into the form of Employee Non-Disclosure and Assignment
Agreement set forth as Exhibit
E-1.
The
Company will use its reasonable best efforts to cause each employee set forth
on
Schedule
8.1(j)
to enter
into the form of the Non-Competition Agreement set forth as Exhibit
E-2.
The
Company will not be obligated to offer to any such employee any consideration
other than the Sales Bonus Amount allocated to such employee as an inducement
or
consideration to enter into the Non-Competition Agreement and will not be
obligated to terminate the employment of any employee who declines to execute
the Non-Competition Agreement.
7.14 Working
Capital Commitment.
In
order to ensure that the Company is adequately capitalized to satisfy its debts
and obligations as they become due and continue as a going concern for a
reasonable period following the Closing, upon the Closing, Parent shall deposit
at least $5 million in immediately available funds in an account designated
by
the Company and approved by Parent for the benefit of and use by the Company
as
working capital to fund the Company’s ongoing business operations. The use of
such funds by the Company is subject to the Company’s budget as approved from
time to time by the Board of Directors of the Company. Parent will provide
an
additional $5 million of funding to the Company in the form of an intercompany
loan (the amount and timing of this funding shall be in Parent’s sole
discretion). Subsequent fundings may be provided as intercompany loans or equity
investments, at Parent’s sole discretion. All intercompany services provided by
the Company for the benefit of Parent and its Affiliates (other than the Company
and its Subsidiaries) shall be compensated on a cost-plus basis.
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ARTICLE
VIII
CONDITIONS
TO CLOSING
8.1 Conditions
Precedent to Obligations of Parent and Merger Sub.
The
obligations of Parent and Merger Sub to consummate the transactions contemplated
by this Agreement are subject to the satisfaction, on or prior to the Closing
Date, of each of the following conditions (any or all of which may be waived
by
Parent and Merger Sub in whole or in part to the extent permitted by applicable
Law):
(a) the
representations and warranties of the Company (without giving effect to any
limitations as to materiality) shall be true and correct as of the Closing
as
though made at and as of the Closing, except to the extent such representations
and warranties expressly relate to an earlier date (in which case such
representations and warranties shall be true and correct on and as of such
earlier date), except where the failure of the representations and warranties
to
be true and correct, individually or in the aggregate, has not been, and would
not reasonably be expected to be, material to the Company and its Subsidiaries,
taken as whole;
(b) the
Company shall have performed and complied in all material respects with all
obligations and agreements required in this Agreement to be performed or
complied with by it prior to the Closing Date, and Parent shall have received
copies of such corporate resolutions and other documents evidencing the
performance thereof as Parent may reasonably request;
(c) there
shall not have been any Material Adverse Effect since the date of this
Agreement;
(d) there
shall not be in effect any Order by a Governmental Body of competent
jurisdiction restraining, enjoining or otherwise prohibiting the consummation
of
the transactions contemplated hereby;
(e) Parent
shall have received a certificate signed by each of the Chief Executive Officer
and General Counsel of the Company, each in form and substance reasonably
satisfactory to Parent, dated the Closing Date, to the effect that each of
the
conditions specified above in Sections
8.1(a)-(c)
have
been satisfied in all respects;
(f) the
Company shall have obtained all consents, waivers and approvals referred to
in
Schedule
8.1(f),
each
such consent, waiver and approval being in form and substance reasonably
satisfactory to Parent and not requiring as a term thereof or condition thereto
any adverse condition or requirement on the conduct of business by the Company,
any of its Subsidiaries, Parent or any of its subsidiaries;
(g) this
Agreement, the Merger, the COI Amendment and the other transactions contemplated
hereby will have been authorized, approved and consented to by (i) the Company
Stockholder Approval and (ii) shares of Preferred Stock entitled to receive
eighty percent (80%) of the Preferred Stock Merger Consideration, pursuant
to
the Aggregate Consideration Spreadsheet, and all written consents obtained
thereby will not have been
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rescinded,
cancelled or withdrawn and will be obtained in compliance with, and are valid
and effective under, Section 228 of the DGCL;
(h) Parent
shall have received written resignations of each of the directors of the
Company;
(i) each
officer and director of the Company that holds capital stock of the Company
shall have duly entered into, executed and delivered to Parent the release
agreement, substantially in the form attached hereto as Exhibit
D;
(j) the
Non-Competition Agreement, substantially in the form attached hereto as
Exhibit
E-2,
shall
have been entered into by (i) each of the employees set forth on Schedule
8.1(j)
under
the heading “Required Non-Compete Agreements” and (ii) 90% of the total number
of employees set forth on Schedule
8.1(j),
and
such agreements shall remain in full force and effect; provided,
however,
that
for purposes of calculating 90%, if a Person set forth on Schedule
8.1 (j)
terminates his or her employment with the Company prior to the Closing, the
numerator and denominator used to calculate this percentage will both be reduced
accordingly;
(k) Parent,
the Escrow Agent and the Stockholder Representative shall have duly entered
into, executed and delivered to the other party thereto the Escrow Agreement,
substantially in the form of Exhibit
B
(with
such changes as may be required by the Escrow Agent);
(l) the
Company Plans with respect to all Company Stock Options shall have terminated
and each holder of a Company Stock Option to purchase shares of capital stock
of
the Company shall have either exercised such option and purchased such shares
of
capital stock or such option shall be cancelled and null and void under its
terms or the terms of the plan pursuant to which it was granted. Each
outstanding warrant issued by the Company shall have been exercised or the
holder thereof shall have delivered to the Company an instrument canceling
such
warrant in form and substance satisfactory to Parent or such warrant shall
have
expired by its own terms;
(m) the
Company shall have delivered, or caused to be delivered, to Parent certificates
of good standing as of a recent date with respect to the Company issued by
the
Secretary of State of the State of Delaware and for each state in which the
Company is qualified to do business as a foreign corporation; and
(n) The
Company shall have adopted the Employee Retention Plan attached hereto as
Exhibit
F
and
shall make awards thereunder but only to the extent that such awards do not
result in a parachute payment as defined in Section 280G of the Code as a result
of the transactions contemplated hereby.
8.2 Conditions
Precedent to Obligations of the Company.
The
obligations of the Company to consummate the transactions contemplated by this
Agreement are subject to the fulfillment, prior to or on the Closing Date,
of
each of the following conditions (any or all of which may be waived by the
Company in whole or in part to the extent permitted by applicable
Law):
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(a) the
representations and warranties of Parent (without giving effect to any
limitations as to materiality) shall be true and correct as of the Closing
as
though made at and as of the Closing, except to the extent such representations
and warranties expressly relate to an earlier date (in which case such
representations and warranties shall be true and correct on and as of such
earlier date), except where the failure of the representations and warranties
to
be true and correct, individually or in the aggregate, has not been, and would
not reasonably be expected to be, material to Parent and its Subsidiaries,
taken
as a whole;
(b) Parent
shall have performed and complied in all respects with all obligations and
agreements required by this Agreement to be performed or complied with by Parent
on or prior to the Closing Date; and
(c) The
Company shall have adopted (i) the Employee Retention Plan attached hereto
as Exhibit
F
and
shall make awards thereunder but only to the extent that such awards do not
result in a parachute payment as defined in Section 280G of the Code as a result
of the transactions contemplated hereby and (ii) the Stock Option Plan attached
hereto as Exhibit
G,
each of
which shall be effective automatically upon the Closing.
ARTICLE
IX
INDEMNIFICATION
9.1 Survival
of Representations and Warranties.
i)
The
representations and warranties of the Company contained in this Agreement shall
survive the Closing until 5:00 p.m. EST on the nine month anniversary of the
Closing Date (the “Expiration
Date”).
Any
claim for a Loss asserted in good faith on or prior to the Expiration Date
which
sets forth in a written notice in reasonable detail (based on the facts then
available) the nature and estimated scope of such claim will be timely made
for
purposes hereof. Any claim for indemnification with respect to any of such
matters that is not asserted by notice to the other party on or prior to the
Expiration Date may not be pursued and is hereby irrevocably waived after such
time.
(b) All
covenants and agreements made by the parties to this Agreement which contemplate
performance following the Closing Date shall survive the Closing Date in
accordance with their terms. All covenants and agreements that contemplate
performance prior to the Closing Date shall not survive the Closing Date;
provided,
however,
that if
any such covenant or agreement is breached on or prior to the Closing Date,
the
non-breaching party shall, subject to Section 9.4, retain all rights and
remedies hereunder with respect to such breach following the Closing
Date.
9.2 Indemnification.
Until
the Expiration Date (except as provided in Section
9.3(b))
and
subject to the provisions of this Article
IX,
the
Escrow Fund shall be available to indemnify, defend and hold harmless Parent,
the Surviving Corporation, and their respective subsidiaries, directors,
officers, employees, consultants, independent contractors, agents and
representatives (the “Parent
Indemnified Parties”)
from
and against any and all Losses (irrespective of whether or not such Losses
arise
out of or in connection with a third party claim) to the extent, but only to
the
extent, relating to, resulting from or arising out of:
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(a) any
failure of the representations and warranties made by the Company set forth
in
this Agreement or in any Company Document to be true and correct;
(b) any
breach of any covenant or other agreement on the part of the Company under
this
Agreement or any Company Document;
(c) any
Tax
Losses;
(d) any
claim
made by a Dissenting Holder pursuant to Section
3.2(h),
to the
extent the Loss is in excess of the consideration receivable by such holder
in
the Merger (“Dissenting
Share Payments”);
or
(e) any
Bridge Loan Fees in excess of $260,000.
such
foregoing Losses being referred to herein as “Parent
Indemnifiable Losses;” provided,
however,
that,
(x) the Parent Indemnified Parties may not recover any amount for Parent
Indemnifiable Losses arising from the inaccuracies of, or breaches of, the
representations or warranties contained herein unless and until the aggregate
amount of all Parent Indemnifiable Losses exceeds $300,000 (the “Deductible”),
and
only with respect to such amounts in excess of the Deductible, provided
that the
Deductible shall not apply to breaches of any representations or warranties
contained in Sections
5.1,
5.2,
5.4,
5.6,
the
last sentence of 5.8,
5.10 or
5.22, (y) the sole recourse for Parent Indemnifiable Losses for which the Parent
Indemnified Parties shall be entitled to indemnification shall be to the Escrow
Fund and (z) notwithstanding any other provision of this Agreement, the costs
associated with the defense or settlement of any claim made or threatened by,
or
any litigation, mediation or arbitration commenced by, any Person seeking
damages based upon any alleged breach by the Company of any agreement or
commitment between the Company and such Person in connection with the Company’s
discussions or negotiations with Parent, including any such claim set forth
in
the Disclosure Schedule, shall be the sole and exclusive responsibility of
Parent. Parent shall indemnify and hold harmless the Company and its officers,
directors and Affiliates from all Losses associated therewith and no such cost
or Loss shall constitute a Parent Indemnifiable Loss. For purposes of
calculating Losses hereunder, after a breach or failure by the Company referred
to in Section 9.2(a)
or
(b)
has been
established, any materiality or Material Adverse Effect qualifications in the
representations, warranties, covenants and agreements shall be ignored for
purposes of determining the amount of the Loss.
9.3 Escrow
Arrangements.
(a) Escrow
Fund.
The
Escrow Amount shall be available to compensate the Parent Indemnified Parties
for any claims by such parties for any Losses incurred or sustained by them
and
for which they are entitled to recovery under this Article
IX.
(b) Escrow
Period; Distribution upon Termination of Escrow Period.
Subject
to the following requirements, the Escrow Fund shall be in existence as of
the
Closing and shall terminate at 5:00 p.m., local time, on the Expiration Date
(the “Escrow
Period”);
provided,
however,
that
the Escrow Period shall not terminate with respect to 120% of the amount of
any
unsatisfied claims specified in any Officer’s Certificate delivered in good
faith to the Escrow Agent prior to the Expiration Date with respect to facts
and
circumstances existing prior to the
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Expiration
Date (each, an “Unresolved
Claim”).
As
soon as all such claims have been resolved the Escrow Agent shall deliver to
the
Paying Agent, on behalf of the applicable Company Stockholders, the remaining
portion of the Escrow Amount, if any, not required to satisfy such Unresolved
Claims. For the purposes hereof, “Officer’s
Certificate”
shall
mean a certificate signed by any officer of Parent and delivered to the Escrow
Agent and the Stockholder Representative: (1) stating that Parent has paid,
incurred, sustained or accrued, or reasonably anticipates that it will have
to
pay, incur, sustain or accrue Losses, (2) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each
such
item was paid, incurred, sustained or accrued, or the basis for such anticipated
liability, and the nature of the misrepresentation, breach of warranty or
covenant to which such item is related, and (3) the amount of cash to be
delivered to Parent in compensation for such Losses.
(c) Claims
for Indemnification.
(i) Upon
receipt by the Escrow Agent at any time on or before the Expiration Date of
an
Officer’s Certificate, the Escrow Agent shall, subject to the provisions of
Section
9.3(d),
deliver
to Parent, as promptly as practicable, an amount of cash from the Escrow Fund
equal to the amount of Losses set forth in such Officer’s Certificate;
provided,
however,
that to
the extent an Officer’s Certificate alleges only the basis for anticipated
Losses, no amount shall be distributed until such Losses are actually paid,
incurred or sustained. If the Stockholder Representative does not object in
writing within the 30-day period set forth in Section
9.3(d)
after
delivery by Parent of the Officer’s Certificate to the Stockholder
Representative, such failure to so object shall constitute an irrevocable
acknowledgment by the Stockholder Representative on behalf of the Company
Stockholders that the Indemnified Party is entitled to the full amount of the
claim for Losses set forth in such Officer’s Certificate; provided,
however, that
to
the extent an Officer’s Certificate alleges only the basis for anticipated
Losses, no amount shall be distributed until such Losses are actually paid,
incurred or substantiated (notwithstanding the Stockholder Representative’s
failure to object in writing).
(d) Objections
to Claims against the Escrow Fund.
At the
time of delivery of any Officer’s Certificate to the Escrow Agent, a duplicate
copy of such certificate shall be delivered to the Stockholder Representative,
and for a period of thirty (30) days after such delivery, the Escrow Agent
shall
make no delivery to Parent of any portion of the Escrow Amount pursuant to
Section
9.3(c)
unless
the Escrow Agent shall have received written authorization from the Stockholder
Representative to make such delivery. After the expiration of such thirty
(30)-day period, the Escrow Agent shall make payment pursuant to Section
9.3(c)(i),
provided that no such payment may be made if the Stockholder Representative
shall object in a written statement to the claim made in the Officer’s
Certificate, and such statement shall have been delivered to the Escrow Agent
prior to the expiration of such thirty (30)-day period.
(e) Resolution
of Conflicts; Arbitration.
(i) If
the
Stockholder Representative shall object in writing to any claim or claims made
in any Officer’s Certificate to recover Losses from the Escrow Fund within
thirty (30) days after delivery of such Officer’s Certificate, then the
Stockholder Representative and Parent shall attempt in good faith to agree
upon
the rights of the respective parties with respect to each of such claims. If
the
Stockholder Representative and Parent should so agree, a
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memorandum
setting forth such agreement shall be prepared and signed by both parties and,
in the case of a claim against the Escrow Fund, shall be furnished to the Escrow
Agent. The Escrow Agent shall be entitled to rely on any such memorandum and
make distributions from the Escrow Fund in accordance with the terms
thereof.
(ii) If
no
such agreement can be reached after good faith negotiation and prior to sixty
(60) days after delivery of an Officer’s Certificate, either Parent or the
Stockholder Representative may demand arbitration of the matter unless the
amount of the Loss is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount is ascertained
or both parties agree to arbitration, and in either such event the matter shall
be settled by arbitration conducted by one arbitrator mutually agreeable to
Parent and the Stockholder Representative. In the event that, within thirty
(30)
days after submission of any dispute to arbitration, Parent and the Stockholder
Representative cannot mutually agree on one arbitrator, then, within fifteen
(15) days after the end of such thirty (30)-day period, Parent and the
Stockholder Representative shall each select one arbitrator. The two arbitrators
so selected shall select a third arbitrator. If one party but not the other
fails to select an arbitrator during this fifteen (15)-day period, then the
parties agree that the arbitration will be conducted by the one arbitrator
selected by the party which has made such a selection.
(iii) Any
such
arbitration shall be held in San Diego, California, under the rules and
procedures then in effect of the American Arbitration Association. The
arbitrator(s) shall determine how all expenses relating to the arbitration
shall
be paid, including the respective expenses of each party, the fees of each
arbitrator and the administrative fee of the American Arbitration Association.
The arbitrator or arbitrators, as the case may be, shall set a limited time
period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
judgment of the arbitrator or majority of the three arbitrators, as the case
may
be, to discover relevant information from the opposing parties about the subject
matter of the dispute. The arbitrator, or a majority of the three arbitrators,
as the case may be, shall rule upon motions to compel or limit discovery and
shall have the authority to impose sanctions, including attorneys’ fees and
costs, to the same extent as a competent court of law or equity, should the
arbitrators or a majority of the three arbitrators, as the case may be,
determine that discovery was sought without substantial justification or that
discovery was refused or objected to without substantial justification. The
decision of the arbitrator or a majority of the three arbitrators, as the case
may be, as to the validity and amount of any claim in such Officer’s Certificate
shall be final, binding, and conclusive upon the parties to this Agreement.
Such
decision shall be written and shall be supported by written findings of fact
and
conclusions which shall set forth the award, judgment, decree or order awarded
by the arbitrator(s), and the Escrow Agent shall be entitled to rely on, and
make distributions from the Escrow Fund in accordance with, the terms of such
award, judgment, decree or order as applicable. Within ten (10) days of a
decision of the arbitrator(s) requiring payment by one party to another, such
party shall make the payment to such other party. The Stockholder Representative
shall be entitled to pay such amounts from the Stockholder Representative
Reserve.
(iv) Judgment
upon any award rendered by the arbitrator(s) may be entered in any court having
jurisdiction. The foregoing arbitration provision shall apply to any dispute
between the Stockholder Representative and the Parent Indemnified Party under
this Article
IX,
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whether
relating to claims upon the Escrow Fund or to the other indemnification
obligations set forth in this Article
IX.
(f) Third-Party
Claims.
(i) In
the
event Parent becomes aware of a third-party claim which Parent reasonably
believes may result in a demand against the Escrow Fund or for other
indemnification pursuant to this Article
IX,
Parent
shall notify the Stockholder Representative in writing of such claim. The
Stockholder Representative shall have the right to elect to assume the defense
of such claim unless (x) the Losses arising from such claim may reasonably
be
expected to exceed the Escrow Amount, (based solely on the damages alleged
by
the third party, if any damages are alleged) or (y) the claim seeks relief
which
would limit or otherwise adversely affect the conduct of business by the
Company. Failure by the Stockholder Representative to notify Parent of its
election to assume the defense of any such claim or litigation by a third party
within ten (10) days after notice thereof has been given to the Stockholder
Representative shall be deemed a waiver by the Stockholder Representative of
its
right to assume the defense of such claim or litigation, and the Parent shall
have the right to retain its own counsel, without prejudice to its right of
indemnification under this Agreement. All claims for legal fees and expenses
or
other Losses against the Escrow Fund for which Parent is entitled to
indemnification pursuant to this Section 9.3(f) shall be subject to the claims
processing and dispute procedures set forth in this Section 9.3.
(ii) The
Stockholder Representative, if he is entitled to and does assume the defense,
shall retain counsel reasonably satisfactory to Parent to defend such claim
and
shall pay the fees and disbursements of such counsel with regard thereto. If
the
Stockholder Representative elects to assume the defense, the obligations under
Article
IX
of this
Agreement shall include taking all steps necessary in the investigation, defense
or settlement of such claim or litigation (including the retention of legal
counsel) and holding Parent harmless from and against any and all Losses caused
by or arising out of any settlement approved by the Stockholder Representative
or any judgment in connection with such claim or litigation; provided, however,
that (x) the Stockholder Representative shall first consult with Parent
regarding such settlement, (y) no settlement may be made by the Stockholder
Representative without the consent in writing of Parent, unless such settlement
(i) releases Parent from any liability in respect thereof, (ii) does not include
any admission of culpability on the part of Parent and (iii) does not impose
an
injunction or other equitable relief upon Parent, the Company or its
Subsidiaries or otherwise impose affirmative or negative covenants on Parent,
the Company or its Subsidiaries and (z) the Stockholder Representative shall
not
enter into any settlement with respect to Taxes without Parent’s consent, which
shall not be unreasonably withheld. If the Stockholder Representative elects
to
assume the defense, the Stockholder Representative shall permit Parent to
participate in such defense or settlement through separate counsel chosen by
Parent, with the fees and expenses of such separate counsel borne by Parent;
provided, however, that in the event Parent shall conclude (upon the advice
of
counsel) that there may be legal defenses or rights available to it which are
different from, in actual conflict with, or additional to those available to
the
Stockholder Representative, Parent shall be entitled to select separate counsel
to act on its behalf and the Stockholder Representative shall pay the reasonable
separate counsel fees and other reasonable expenses related thereto and, such
fees and expenses will be paid from the Escrow Fund. In the event that the
Stockholder Representative has consented in
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writing
to any settlement, the Company Stockholders shall have no power or authority
to
object under any provision of this Article
IX
to any
claim for an amount less than or equal to the amount of such settlement by
Parent against the Escrow Fund with respect to such settlement.
(iii) Parent,
if Parent is entitled to and does assume the defense, shall retain counsel
reasonably satisfactory to the Stockholder Representative to defend such claim
and shall pay the fees and disbursements of such counsel with regard thereto.
If
Parent elects to assume the defense, the obligations under Article
IX
of this
Agreement shall include taking all steps necessary in the investigation, defense
or settlement of such claim or litigation (including the retention of legal
counsel) and holding the Stockholder Representative harmless from and against
any and all Losses caused by or arising out of any settlement approved by the
Parent or any judgment in connection with such claim or litigation; provided,
however, that
Parent shall first consult with the Stockholder Representative regarding such
settlement. If Parent elects to assume such third-party claim or litigation,
Parent shall permit the Stockholder Representative to participate in such
defense or settlement through separate counsel chosen by the Stockholder
Representative, with the fees and expenses of such separate counsel borne by
such the Stockholder Representative; provided,
however,
that in
the event the Stockholder Representative shall conclude (upon the advice of
counsel) that there may be legal defenses or rights available to it which are
different from, in actual conflict with, or additional to those available to
Parent, the Stockholder Representative shall be entitled to select separate
counsel to act on its behalf and the Stockholder Representative shall pay the
reasonable separate counsel fees and other reasonable expenses related thereto
and, such fees and expenses will be paid from the Escrow Fund. In the event
the
Company becomes aware of a third-party claim for which the Company reasonably
believes it may be indemnified by Parent pursuant to Section
9.2
hereof,
the Company shall notify Parent in writing of such claim and Parent shall assume
the defense, including all costs and expenses associated therewith, of such
claim.
(g) The
failure of the indemnified party to give reasonably prompt notice of any
indemnification claim shall not release, waive or otherwise affect the
indemnifying party’s obligations with respect thereto except to the extent that
the indemnifying party can demonstrate actual loss and prejudice as a result
of
such failure.
9.4 Exclusive
Remedy.
Except
as provided in Sections
4.2
and
4.3
and this
Section
9.4,
from
and after the Effective Time, resort to indemnification pursuant to this
Article
IX
and the
Escrow Fund shall be the exclusive right and remedy of Parent Indemnified
Parties for any Loss arising out of or related to any breach of this Agreement
or to the transactions contemplated by this Agreement. Except for claims for
equitable relief and claims with respect to fraud solely against the Person
or
Persons committing or alleged to have committed such fraud, recovery from the
Escrow Fund pursuant to this Article
IX
shall be
the sole and exclusive remedy of the Parent Indemnified Parties for any breach
of any provision of this Agreement or any matter that is otherwise indemnifiable
hereunder if the Merger contemplated hereby is consummated. Except as provided
in Section 4.3, nothing herein shall limit the liability of any party hereto
for
any breach or inaccuracy of any representation, warranty or covenant contained
in this Agreement if the Merger does not close.
9.5 Tax
Losses.
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(a) For
purposes of Section
9.2(c),
“Tax
Losses”
means
any and all Losses attributable to Taxes (or the non-payment thereof) of the
Company and its Subsidiaries for all Pre-Closing Tax Periods (including the
portion of any Straddle Period attributable to the Pre-Closing Tax Period);
provided,
however,
Tax
Losses shall not include any amounts clearly reflected as an accrual for current
Taxes (excluding any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) on the Balance Sheet.
(b) For
purposes of allocating income, gain, deductions and losses attributable to
the
period up to and including the Effective Time for a Straddle Period, (i) real,
personal and intangible property Taxes shall be allocated on a per diem basis,
(ii) exemptions, allowances or deductions that are calculated on an annual
basis, such as the deduction for depreciation, will be apportioned ratably
between such periods on a per diem basis and (iii) other Taxes (including income
taxes and taxes in lieu of income taxes to the extent not governed by clause
(ii)), shall be allocated based on a closing of the books as of the close of
business on the Closing Date (including, without limitation, a closing of the
books on the Closing Date for purposes of allocating income, gain, deductions
and losses attributable to the Company).
9.6 Tax
Treatment of Indemnity Payments.
The
Company and Parent agree to treat any indemnity payment made pursuant to this
Article
IX
as an
adjustment to the Merger Consideration for federal, state, local and foreign
income tax purposes unless a contrary treatment is required under applicable
Law.
ARTICLE
X
MISCELLANEOUS
10.1 Stockholder
Representative.
(a) Upon
the
adoption of this Agreement and the approval of the Merger and the transactions
contemplated hereby by the Company Stockholders and without further act of
any
Company Stockholder or any holder of Company Stock Options, Xxxxxxx X. Xxxxxxxx
(the “Stockholder
Representative”)
shall
be appointed as the Stockholder Representative hereunder to give and receive
notices and communications, to authorize payment to any Parent Indemnified
Party
from the Escrow Fund in satisfaction of claims and Losses by a Parent
Indemnified Party, to object to such payments, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims or
Losses, to receive payments on behalf of the Company Stockholders due and owing
pursuant to this Agreement and acknowledge receipt thereof, to waive any breach
or default of Parent or Merger Sub under this Agreement following the Effective
Time, to calculate the Aggregate Consideration Spreadsheet, to receive service
of process on behalf of the Company Stockholders in connection with any claims
under this Agreement or any related document or instrument, and to take all
other actions that are either (i) necessary or appropriate in the judgment
of
the Stockholder Representative for the accomplishment of the foregoing or (ii)
specifically mandated by the terms of this Agreement. Such agency may be changed
by the Company Stockholders from time to time upon not less than thirty (30)
days prior written notice to Parent; provided,
however,
that
the Stockholder Representative may not be removed unless holders of a two-thirds
interest of the Escrow Fund agree to such removal and to the identity
of
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the
substituted agent. A vacancy in the position of Stockholder Representative
may
be filled by the holders of a majority in interest of the Escrow Fund. No bond
shall be required of the Stockholder Representative, and the Stockholder
Representative shall not receive any compensation for its services. Notices
or
communications to or from the Stockholder Representative shall constitute notice
to or from the Company Stockholders.
(b) The
Stockholder Representative shall not be liable for any act done or omitted
without gross negligence or bad faith hereunder as Stockholder Representative.
Pursuant to the following sentence, and to the fullest extent permitted by
applicable Law, the Company Stockholders shall be, severally based on such
Company Stockholder’s Pro Rata Portion of the Preferred Stock Merger
Consideration and not jointly, obligated to indemnify the Stockholder
Representative and hold the Stockholder Representative harmless against any
loss, liability or expense incurred without gross negligence or bad faith on
the
part of the Stockholder Representative and arising out of or in connection
with
the acceptance or administration of the Stockholder Representative's duties
hereunder, including the reasonable fees and expenses of any legal counsel
retained by the Stockholder Representative. At the time of distribution pursuant
to Section
9.3(c)
to the
Company Stockholders of any proceeds remaining in the Escrow Fund, the
Stockholder Representative shall be entitled to deduct and withhold from such
income and gains included in such distribution to pay and reimburse fees and
expenses of third parties incurred or expected to be incurred in connection
with
its role as Stockholder Representative pursuant to this Agreement to the extent
that the Stockholder Representative Reserve would be insufficient to pay
and
reimburse fees and expenses of third parties.
(c) The
grant
of authority provided for in this Section
10.1:
(i) is coupled with an interest and is being granted, in part, as an
inducement to Parent and Merger Sub to enter into this Agreement and the Escrow
Agreement, and shall be irrevocable and survive the death, incompetency,
bankruptcy or liquidation of the Company or any Company Stockholder shall be
binding on any successor thereto and (ii) shall survive the delivery of an
assignment by any Company Stockholder of the whole or any fraction of his,
her
or its interest in the Escrow Fund.
(d) In
connection with the performance of its obligations hereunder and under the
Escrow Agreement, the Stockholder Representative shall have the right at any
time and from time to time to select and engage, at the cost and expense of
the
Company Stockholders (as contemplated by Section
10.1(b),
attorneys, accountants, investment bankers, advisors, consultants and clerical
personnel and obtain such other professional and expert assistance, and maintain
such records, as the Stockholder Representative may deem necessary or desirable
and incur other out-of-pocket expenses related to performing its services
hereunder.
(e) In
dealing with this Agreement, the Escrow Agreement and any instruments,
agreements or documents relating thereto, and in exercising or failing to
exercise all or any of the powers conferred upon the Stockholder Representative
hereunder or thereunder, (i) the Stockholder Representative and its agents,
counsel, accountants and other representatives shall not assume any, and shall
incur no, responsibility whatsoever (in each case, to the extent permitted
by
applicable Law) to the Company Stockholders, Parent or the Surviving Corporation
by reason of any error in judgment or other act or omission performed or omitted
hereunder or in connection with this Agreement, the Escrow Agreement or any
such
other agreement, instrument or document other than with respect to bad faith
or
gross negligence on the part of the
-56-
Stockholder
Representative, and (ii) the Stockholder Representative shall be entitled
to rely in good faith on the advice of counsel, public accountants or other
independent experts experienced in the matter at issue, and any error in
judgment or other act or omission of the Stockholder Representative pursuant
to
such advice shall in no event subject the Stockholder Representative to
liability to the Company Stockholders, Parent or the Surviving
Corporation.
(f) All
of
the immunities and powers granted to the Stockholder Representative under this
Agreement shall survive the Closing and/or any termination of this Agreement
and
the Escrow Agreement.
(g) A
decision, act, consent or instruction of the Stockholder Representative,
including an extension or waiver of this Agreement pursuant to Article
IV
or
Section
10.6,
as
applicable, shall constitute a decision of the Company Stockholders and holders
of Company Stock Options and shall be final, binding and conclusive upon the
Company Stockholders; and the Escrow Agent, Parent and the Surviving Corporation
may rely upon any such decision, act, consent or instruction of the Stockholder
Representative as being the decision, act, consent or instruction of the Company
Stockholders. The Escrow Agent, Parent and the Surviving Corporation are hereby
relieved from any Liability to any Person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholder
Representative.
(h) The
Stockholder Representative has all requisite power, authority and legal capacity
to execute and deliver this Agreement and each other agreement, document, or
instrument or certificate contemplated by this Agreement or to be executed
by
the Stockholder Representative in connection with the consummation of the
transactions contemplated by this Agreement (together with this Agreement,
the
“Stockholder
Representative Documents”),
and to
consummate the transactions contemplated hereby and thereby. The execution
and
delivery of this Agreement and each of the Stockholder Representative Documents,
the performance of its respective obligations hereunder and thereunder and
the
consummation of the transactions contemplated hereby and thereby have been
duly
authorized by all required action on the part of the Stockholder Representative.
This Agreement has been, and each of the Stockholder Representative Documents
will be at or prior to the Closing, duly and validly executed and delivered
by
the Stockholder Representative and (assuming the due authorization, execution
and delivery by the other parties hereto and thereto) this Agreement
constitutes, and each of the Stockholder Representative Documents when so
executed and delivered will constitute, legal, valid and binding obligations
of
the Stockholder Representative enforceable against it in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors’ rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
10.2 Specific
Performance.
The
Company and Parent acknowledge and agree that the breach of this Agreement
by
the other party would cause irreparable damage to Parent or the Company, as
the
case may be, and that Parent or the Company, as the case may be, will not have
an adequate remedy at law. Therefore, the obligations of the Company and the
obligations of Parent under this Agreement shall be enforceable by a decree
of
specific performance issued by any court of competent jurisdiction, and
appropriate injunctive relief may be applied for and
-57-
granted
in connection therewith. Subject to Section 9.4, such remedies shall, however,
be cumulative and not exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise.
10.3 Submission
to Jurisdiction; Consent to Service of Process.
(a) Except
for matters governed by Section
9.3(e),
the
parties hereto hereby irrevocably submit to the non-exclusive jurisdiction
of
any federal or state court located within the State of Delaware over any dispute
arising out of or relating to this Agreement or any of the transactions
contemplated hereby and each party hereby irrevocably agrees that all claims
in
respect of such dispute or any suit, action proceeding related thereto may
be
heard and determined in such courts. The parties hereby irrevocably waive,
to
the fullest extent permitted by applicable law, any objection which they may
now
or hereafter have to the laying of venue of any such dispute brought in such
court or any defense of inconvenient forum for the maintenance of such dispute.
Each of the parties hereto agrees that a judgment in any such dispute may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
(b) Each
of
the parties hereto hereby consents to process being served by any party to
this
Agreement in any suit, action or proceeding by delivery of a copy thereof in
accordance with the provisions of Section
10.7.
10.4 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York applicable to contracts made and performed in such state;
provided,
however,
that
the Merger shall be governed by the DGCL.
10.5 Entire
Agreement; No Third-Party Beneficiaries.
This
Agreement and the Confidentiality Agreement (a) constitute the entire agreement,
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter of this Agreement and
the
Confidentiality Agreement and (b) except for the provisions of Sections
7.7,
7.12
and
7.14
and
Article
IX,
are not
intended to confer upon any Person other than the parties hereto any rights
or
remedies.
10.6 Amendment
and Waivers.
This
Agreement may be amended, supplemented or changed by the parties hereto;
provided,
however,
that
there shall be made no amendment that by Law requires further approval by the
Company Stockholders without such approval having been obtained. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto. No action taken pursuant to this Agreement, including
any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representation,
warranty, covenant or agreement contained herein. The waiver by any party hereto
of a breach of any provision of this Agreement shall not operate or be construed
as a further or continuing waiver of such breach or as a waiver of any other
or
subsequent breach. No failure on the part of any party to exercise, and no
delay
in exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by such party preclude any other or further exercise thereof or the exercise
of
any other right, power or remedy. Any agreement on the part of a party to any
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. A termination
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of
this
Agreement pursuant to Section
4.1
or an
amendment or waiver of this Agreement shall, in order to be effective, require,
in the case of Parent or the Company, action by its Board of Directors. All
remedies hereunder are cumulative and are not exclusive of any other remedies
provided by law.
10.7 Notices.
All
notices and other communications under this Agreement shall be in writing and
shall be deemed given (i) when delivered personally by hand (with written
confirmation of receipt), (ii) when sent by facsimile (with written confirmation
of transmission) or (iii) one business day following the day sent by overnight
courier (with written confirmation of receipt), in each case at the following
addresses and facsimile numbers (or to such other address or facsimile number
as
a party may have specified by notice given to the other party pursuant to this
provision):
If
to the
Company, to:
PacketVideo
Corporation
00000
Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000,
Xxx
Xxxxx, XX 00000
Facsimile:
(000) 000-0000
Attention:
Legal Department
With
a
copy to:
Cooley
Godward LLP
0000
Xxxxxxxx Xxxx
Xxx
Xxxxx, XX 00000
Facsimile:
(000) 000-0000
Attention:
Xxxxxxxxx X. Xxxx, Esq.
If
to the
Stockholder Representative, to:
Xxxxxxx
X. Xxxxxxxx
00000
Xxxxxxxxx Xxxx
Xxx
Xxxx
Xxxxxxxxxx, XX 00000
Facsimile:
(000) 000-0000
If
to
Parent or Merger Sub, to:
000
Xxxx
Xxxxxx, 0xx Xxxxx
Xxxxxxxxx,
XX 00000
Facsimile:
(000) 000-0000
Attention:
Xxxxx Xxxxxx, Esq.
With
a
copy to:
Weil,
Gotshal & Xxxxxx LLP
000
Xxxxx
Xxxxxx
Xxx
Xxxx,
XX 00000
Facsimile: (000)
000-0000
Attention: Xxxxxx
X.
Xxxxxxx, Esq.
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10.8 Severability.
If any
term or other provision of this Agreement is invalid, illegal, or incapable
of
being enforced by any law or public policy, all other terms or provisions of
this Agreement shall nevertheless remain in full force and effect so long as
the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal, or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby are consummated as originally contemplated to the greatest extent
possible.
10.9 Assignment.
Neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned, in whole or in part, by operation of Law or otherwise by any of
the
parties without the prior written consent of the other parties, except that
Merger Sub may assign, in its sole discretion, any of or all its rights,
interests and obligations under this Agreement to any wholly owned Subsidiary
of
Parent, but no such assignment shall relieve Merger Sub of any of its
obligations hereunder. Subject to the preceding sentence, this Agreement will
be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
10.10 Counterparts.
This
Agreement may be executed in one or more counterparts, each of which will be
deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
**REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK**
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IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by
their respective officers thereunto duly authorized, all as of the date first
written above.
By:_______________________________________
Name:
Title:
PVC
ACQUISITION CORP.
By:_______________________________________
Name:
Title:
PACKETVIDEO
CORPORATION
By:_______________________________________
Name:
Title:
XXXXXXX
X. XXXXXXXX
_______________________________________
[Signature
Page to Agreement and Plan of Merger]
EXHIBIT
A
FORM
OF VOTING AGREEMENT
This
Voting Agreement (this “Agreement”)
is
dated as of May __, 2005, by and among NextWave Wireless LLC, a Delaware limited
liability company (“Parent”),
and
the undersigned stockholder (“Stockholder”)
of
PacketVideo Corporation, a Delaware corporation (the “Company”).
W
I T N E
S S E T H:
WHEREAS,
Parent is a party to that certain Agreement and Plan of Merger dated as of
the
date hereof (the “Merger
Agreement”)
by and
among PVC Acquisition Corp., a wholly-owned subsidiary of Parent (“Merger
Sub”),
the
Company and the Stockholders Representative (as named therein), which provides,
among other things, that Merger Sub will merge with and into the Company, with
the Company continuing as the surviving corporation (the “Merger”);
WHEREAS,
as of the date hereof, Stockholder is the record and beneficial owner of, and
has the right, acting alone, to vote and dispose of the number of shares of
capital stock in the Company (the “Company
Stock”)
set
forth below Stockholder’s name on the signature page hereto; and
WHEREAS,
as an inducement and a condition to Parent entering into the Merger Agreement
and incurring the obligations set forth therein, Parent has required that
Stockholder enter into this Agreement.
NOW,
THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Voting
of Owned Shares.
(a) Stockholder
hereby agrees that, during the Term (as defined below), at any meeting (whether
annual or special, and whether or not an adjourned or postponed meeting) of
the
Company’s stockholders, however called, or in connection with any written
consent of the Company’s stockholders presented to such Stockholder, Stockholder
shall vote (or cause to be voted), in its capacity as a stockholder of the
Company, all shares of Company Stock owned or beneficially owned by such
Stockholder on the date hereof (the “Owned
Shares”):
(i)
in favor of the Merger, the Merger Agreement (as amended from time to time)
and
the transactions contemplated by the Merger Agreement; and (ii) against any
action or agreement that (A) would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or of Stockholder under this Agreement or (B) is
intended to impede, interfere with, delay, postpone, or adversely affect the
Merger or the transactions contemplated by the Merger Agreement or this
Agreement.
A-1
(b) During
the Term, Stockholder, in its capacity as a stockholder of the Company, shall
not enter into any agreement, arrangement or understanding with any person
that
conflicts with or violates this Agreement.
(c) Stockholder’s
obligations hereunder are undertaken strictly in such Stockholder’s capacity as
a stockholder of the Company, and no such obligation shall be construed to
require Stockholder or its affiliates to take, or in any way limit any action
that Stockholder or its affiliates may take, to discharge their respective
fiduciary duties in their capacities as an officer or director of the Company,
including without limitation any action that may be taken in such other capacity
in connection with or relating to a Takeover Proposal (as defined in the Merger
Agreement) prior to the Company Stockholder Approval (as defined in the Merger
Agreement).
2. Termination.
The
Term of this Agreement shall mean the period commencing on the date of this
Agreement and continuing until the earlier to occur of (i) the Effective Time
(as defined in the Merger Agreement) of the Merger and (ii) the termination
of the Merger Agreement in accordance with its terms.
3. Restrictions
on Transfer; Other Proxies.
During
the Term, Stockholder shall not, directly or indirectly; (i) sell, transfer,
pledge, hypothecate, encumber, assign or dispose of any Owned Shares, offer
to
make such a sale, transfer or other disposition, or agree, whether or not in
writing, to effect any of the foregoing; (ii) grant any proxies or powers of
attorney, deposit any Owned Shares into a voting trust or enter into a voting
agreement, understanding or arrangement with respect to such Owned Shares;
or
(iii) take any action in its capacity as a stockholder of the Company that
would
make any representation or warranty of Stockholder contained herein untrue
or
incorrect or would result in a breach by Stockholder of its obligations under
this Agreement.
4. No
Solicitation.
Stockholder hereby agrees to comply with Section 7.8 of the Merger Agreement
to
the extent applicable to Stockholder.
5. Representations
and Warranties of Stockholder.
Stockholder hereby represents and warrants to Parent as follows, solely with
respect to itself:
(a) Stockholder
has all necessary power and authority to execute and deliver this Agreement
and
to perform its obligations hereunder. The execution and delivery by Stockholder
of this Agreement and the performance by Stockholder of its obligations
hereunder have been duly and validly authorized by the Board of Directors or
other governing body of Stockholder and no other corporate or other proceedings
on the part of Stockholder are necessary to authorize the execution, delivery
or
performance of this Agreement or the consummation of the transactions
contemplated hereby.
(b) This
Agreement has been duly and validly executed and delivered by Stockholder and,
assuming the due authorization, execution and delivery hereof by Parent,
constitutes a valid and binding obligation of Stockholder, enforceable against
it in accordance with its terms (subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors’ rights
A-2
generally
and general equitable principles (whether considered in a proceeding in equity
or at law)).
(c) Stockholder
is the record and beneficial owner of all of the Owned Shares indicated below
Stockholder’s name on the signature page hereto, which constitute all of the
Company Stock owned or beneficially owned by Stockholder.
(d) Neither
the execution and delivery of this Agreement nor the consummation by Stockholder
of the transactions contemplated hereby will conflict with or constitute a
violation of or default under any contract, commitment, agreement, arrangement
or restriction of any kind to which Stockholder is a party or by which
Stockholder is bound.
6. Further
Assurances.
From
time to time, at the other party’s reasonable request and without further
consideration, each party hereto shall execute and delivery such additional
documents and take all such further lawful action as may reasonably be necessary
or desirable to, consummate and make effective, as soon as reasonably
practicable, the transactions contemplated by this Agreement.
7. Miscellaneous.
(a) Other
than as set forth in the Merger Agreement or other agreements contemplated
thereby to which the parties hereto are parties, this Agreement constitutes
the
entire agreement between the parties hereto pertaining to the subject matter
hereof and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as set forth specifically
herein or contemplated hereby.
(b) Stockholder
agrees that this Agreement and the respective rights and obligations of
Stockholder hereunder shall attach to any shares of Company Stock, any
securities convertible into such shares, and any other securities of the Company
entitled, or which may be entitled, to vote or consent generally in the election
of directors and any securities convertible into or exercisable or exchangeable
for such securities (whether or not subject to contingencies with respect to
any
matter or proposal submitted for the vote or consent of the stockholders of
the
Company), that may become owned or beneficially owned by
Stockholder.
(c) This
Agreement and all of the provisions hereof shall be binding upon and inure
to
the benefit of the parties and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any party (whether by operation
of
law or otherwise) without the prior written consent of the other party to this
Agreement. Nothing in this Agreement, express or implied, is intended to or
shall confer upon any person (other than the parties hereto) any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
(d) This
Agreement may not be amended, changed, supplemented, or otherwise modified
or
terminated, except upon the execution and delivery of a written agreement
executed by each of the parties hereto. The failure of a party to exercise
any
right or remedy shall not be deemed or constitute a waiver of such right or
remedy in the future. No waiver of
A-3
any
of
the provisions of this Agreement shall be deemed or shall constitute a waiver
of
any other provision hereof (regardless of whether similar), nor shall any such
waiver constitute a continuing waiver unless otherwise expressly provided by
such other party hereunder, but any such waiver shall be effective only if
in
writing executed by the waiving party.
(e) Notices.
All
notices and other communications under this Agreement shall be in writing and
shall be deemed given (i) when delivered personally by hand (with written
confirmation of receipt), (ii) when sent by facsimile (with written confirmation
of transmission) or (iii) one business day following the day sent by overnight
courier (with written confirmation of receipt), in each case at the following
addresses and facsimile numbers (or to such other address or facsimile number
as
a party may have specified by notice given to the other party pursuant to this
provision):
If
to the
Stockholder:
at
the
address set forth below Stockholder’s signature on the signature page
hereof.
If
to
Parent:
000
Xxxx
Xxxxxx, 0xx Xxxxx
Xxxxxxxxx,
XX 00000
Facsimile:
(000) 000-0000
Attention:
Xxxxx Xxxxxx, Esq.
With
a
copy to:
Weil,
Gotshal & Xxxxxx LLP
000
Xxxxx
Xxxxxx
Xxx
Xxxx,
XX 00000
Facsimile:
(000) 000-0000
Attention:
Xxxxxx X. Xxxxxxx, Esq.
(f) If
one or
more provisions of this Agreement are held to be unenforceable under applicable
law, portions of such provisions, or such provisions in their entirety, to
the
extent necessary, shall be severed from this Agreement and the balance of the
Agreement shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms.
(g) Each
of
the parties hereto acknowledges and agrees that in the event of any breach
of
this Agreement, each non-breaching party would be irreparably and immediately
harmed and could not be made whole by monetary damages. It is accordingly agreed
that the parties hereto (i) will waive, in any action for specific performance,
the defense of adequacy of a remedy at law and (ii) shall be entitled, in
addition to any other remedy to
A-4
which
they may be entitled at law or in equity, to compel specific performance of
this
Agreement.
(h) All
rights, powers and remedies provided under this Agreement or otherwise available
in respect hereof at law or in equity shall be cumulative and not alternative,
and the exercise thereof by any party shall not preclude the simultaneous or
later exercise of any other such right, power or remedy by such party. The
failure of any party hereto to exercise any right, power or remedy provided
under this Agreement or otherwise available in respect hereof at law or in
equity, or to insist upon compliance by any other party hereto with its
obligations hereunder, and any custom or practice of the parties at variance
with the terms hereof, shall not constitute a waiver by such party of its right
to exercise any such or other right, power or remedy or to demand such
compliance.
(i) This
Agreement shall be governed by, and construed in accordance with, the laws
of
the State of Delaware, regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws thereof. In any action between any
of
the parties arising out of or relating to this Agreement or any of the
transactions contemplated by this Agreement: (a) each of the parties irrevocably
and unconditionally consents and submits to the exclusive jurisdiction and
venue
of the state and federal courts located in the State of Delaware; (b) if any
such action is commenced in a state court, then, subject to applicable law,
no
party shall object to the removal of such action to any federal court located
in
the State of Delaware; (c) each of the parties irrevocably waives the right
to
trial by jury; and (d) each of the parties irrevocably consents to service
of
process by first class certified mail, return receipt requested, postage
prepaid, to the address at which such party is to receive notice in accordance
with Section 0.
(j) The
headings of the sections herein are inserted for convenience of reference only
and are not intended to be a part of or to affect the meaning or interpretation
of this Agreement.
(k) This
Agreement may be executed in multiple counterparts each of which shall be deemed
an original and all of which shall constitute one instrument.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
A-5
In
Witness Hereof,
Parent
and Stockholder have caused this Agreement to be duly executed as of the day
and
year first above written.
PARENT:
By:_________________________________________
Name:_______________________________________
Title:________________________________________
A-6
STOCKHOLDER:
_______________________________________
Name:
Address:_______________________________________
______________________________________________
Shares
Held of Record
Common
Stock :
Series
A
Preferred Stock:_______________________________________
Series
B
Preferred Stock:_______________________________________
Series
C
Preferred Stock:_______________________________________
Series
D
Preferred Stock:_______________________________________
Series
E
Preferred Stock:_______________________________________
A-7
EXHIBIT
B
FORM
OF ESCROW AGREEMENT
This
ESCROW AGREEMENT (this “Escrow
Agreement”)
is made
and entered into as of this ___ day of May, 2005, by and among NextWave Wireless
LLC, a Delaware limited liability company (“Parent”),
JPMorgan Chase Bank, N.A., as escrow agent (the “Escrow
Agent”),
and
Xxxxxxx X. Xxxxxxxx (the “Stockholder
Representative”).
RECITALS
WHEREAS,
PacketVideo Corporation, a Delaware corporation (the “Company”),
Parent, PVC Acquisition Corp., a Delaware corporation (“Merger
Sub”),
and
the Stockholder Representative have entered into that certain
Agreement and Plan of Merger, dated as of May 25, 2005 (the “Merger
Agreement”).
WHEREAS,
as
a
condition precedent to the closing of the transactions contemplated by the
Merger Agreement, Parent, the Escrow Agent and the Stockholder Representative
have agreed to execute and deliver this Escrow Agreement.
WHEREAS,
capitalized terms used herein, unless otherwise defined herein, will have the
meanings ascribed to them in the Merger Agreement.
NOW,
THEREFORE, in consideration of the recitals and of the respective agreements
and
covenants contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE
I
DEPOSIT
OF ESCROW FUNDS
Section
1.1 Escrow
Funds.
(a)
Parent
is concurrently herewith delivering to the Escrow Agent, pursuant to Section
9.3(a) of the Merger Agreement, an aggregate amount of $3,000,000 together
with
any income or gain on such amount (the “Escrow
Funds”)
by wire
transfer of immediately available funds to an account designated by the Escrow
Agent. Following the date hereof, the Stockholder Representative may deposit
additional amounts into the Escrow Funds from the Stockholder Representative
Reserve.
(b) The
Escrow Funds will be held by the Escrow Agent in a separate account (the
“Escrow
Account”)
for
the benefit of (i) Parent and (ii) the applicable Company Stockholders (the
“Securityholders”)
upon
the terms and conditions set forth in this Escrow Agreement and the terms of
Article IX of the Merger Agreement. The Escrow Funds will be held in trust
and
will not be subject to any lien or attachment of any creditor of any party
hereto and will be used solely for the purposes and subject to the conditions
set forth herein.
B-1
Section
1.2 Acceptance
of Appointment as Escrow Agent.
The
Escrow Agent, by executing this Escrow Agreement, accepts the appointment as
Escrow Agent and agrees to hold, invest, reinvest and distribute the Escrow
Funds in accordance with the terms of this Escrow Agreement and the terms of
Article IX of the Merger Agreement.
Section
1.3 Investments.
(a) Pending
disbursement of the Escrow Funds, the Escrow Agent will invest the Escrow Funds
in the Money Market Account with the JPMorgan Chase Bank, N.A.
(b) As
and
when any amount of the Escrow Funds is needed for disbursement under this Escrow
Agreement, the Escrow Agent will cause a sufficient amount of Escrow Funds
to be
converted into cash. The Stockholder Representative will select the investments
or types of investments to be so converted from the appropriate Escrow Account.
Neither Parent nor the Stockholder Representative will be liable for any loss
of
principal or income due to the choice of Permitted Investments in which the
Escrow Funds are invested or the Permitted Investments sold or converted
pursuant to this Section 1.3(b).
(c) For
tax
purposes, all interest and other income earned on the Escrow Funds in any
calendar year shall be allocated to and reported by the Securityholders in
proportion to their respective ownership interests. It is understood that the
Escrow Agent will be responsible for income reporting only with respect to
income earned on investment of Escrow Funds and is not responsible for any
other
reporting.
Section
1.4 Segregation
of the Escrow Funds.
(a) Upon
delivery by Parent to the Escrow Agent of an Officer’s Certificate with respect
to any Unresolved Claim, the Escrow Agent will segregate from the Escrow Funds
the portion of such Escrow Funds (other than Escrow Funds that are at the time
necessary in order to make a payment required to be made under Sections 1.5(a)
or 1.5(c)) that may be necessary to satisfy the amount of such Unresolved Claim
set forth in such Officer’s Certificate, and will hold such portion in
accordance with this Section 1.4.
(b) Any
portion of the Escrow Funds segregated under Section 1.4(a) will continue to
be
segregated by the Escrow Agent until the Escrow Agent is directed to release
all
or a portion of such Escrow Funds in accordance with the terms of Section 9.3
of
the Merger Agreement.
Section
1.5 Release
of Indemnification Funds.
(a) Release
of Escrow Funds to Parent.
The
Escrow Agent will promptly disburse to Parent (but no later than 3 Business
Days
after such payment is due), in cash, such portion of the Escrow Funds as may
be
necessary to pay the Parent
B-2
Indemnifiable
Losses, if any, for which Parent is entitled to indemnification in accordance
with the claims processing and dispute procedures and other indemnification
terms of the Merger Agreement (which are incorporated herein by this reference).
(b) Release
of Escrow Funds to the Securityholders.
Within
3 Business Days after the Expiration Date, the Escrow Agent will distribute
to
the Securityholders in accordance with the percentages set forth on Exhibit
A
attached hereto) the remaining portion of the Escrow Funds, if any, other than
any Escrow Funds that continue to be segregated pursuant to Section 1.4 with
respect to then pending Unresolved Claims in an amount that does not exceed
120%
of the amount specified in the Officer’s Certificate with respect to such
Unresolved Claim. Within 3 Business Days after any such Unresolved Claim pending
as of the Expiration Date has been resolved in accordance with the terms of
the
Merger Agreement, the amount of the remaining Escrow Funds, if any, that
continue to be held with respect to such then resolved claim shall be
distributed to the Paying Agent (who will distribute such amounts to the
Securityholders in accordance with the percentages set forth on Exhibit A
attached hereto).
(c) Expenses.
Any
reasonable fees, expenses, disbursements and advances due to the Escrow Agent
from the Escrow Funds pursuant to Section
2.2
hereof
may be retained by the Escrow Agent from the Escrow Funds after five (5)
Business Days following a written notice by the Escrow Agent to Parent and
the
Stockholder Representative stating the amount and basis for such
payments.
(d) Account
Statements.
The
Escrow Agent will prepare and deliver to Parent and Stockholder Representative
within ten (10) calendar days after the end of each calendar month prior to
termination of this Escrow Agreement a written account describing all
transactions with respect to the Escrow Account during such calendar
month.
(e) Call
Backs.
In the
event fund transfer instructions are given (other than in writing at the time
of
the execution of the Agreement), whether in writing, by telecopier or otherwise
the Escrow Agent is authorized to seek confirmation of such instructions by
telephone call-back to the person or persons designated on the call-back
schedule attached hereto, and the Escrow Agent may rely upon the confirmations
of anyone purporting to be the person or persons so designated. The persons
and
telephone numbers for call-backs may be changed only in writing actually
received and acknowledged by the Escrow Agent. If the Escrow Agent is unable
to
contact any of the authorized representatives identified in the Call-Back
Schedule, the Escrow Agent is hereby authorized to seek confirmation of such
instructions by telephone call-back to any one or more of the executive officers
of Parent, in the case of an instruction from Parent (“Executive Officers”),
which shall include the titles of ___________, as the Escrow Agent may select.
Such “Executive Officer” shall deliver to the Escrow Agent a fully executed
Incumbency Certificate, and the Escrow Agent may rely upon the confirmation
of
anyone purporting to be any such officer. In the case of an instruction from
the
Stockholder Representative, such confirmation must be with the
Stockholder
B-3
Representative.
The Escrow Agent and the beneficiary’s bank in any funds transfer may rely
solely upon any account numbers or similar identifying numbers provided by
the
Parent or the Stockholder Representative to identify (i) the beneficiary, (ii)
the beneficiary’s bank, or (iii) an intermediary bank. The Escrow Agent may
apply any of escrowed funds for any payment order it executes using any such
identifying number, provided by parent or the Stockholder Representative, even
when its use may result in a person other than the beneficiary being paid,
or
the transfer of funds to a bank other than the beneficiary’s bank or an
intermediary bank designated. The parties to this Agreement acknowledge that
such security procedure is commercially reasonable.
ARTICLE
II
THE
ESCROW AGENT
Section
2.1 Rights
and Responsibilities of the Escrow Agent.
(a) The
duties and responsibilities of the Escrow Agent will be limited to those
expressly set forth in this Escrow Agreement and it will not be subject to,
nor
obligated to recognize, any provision of any other agreement between, or
direction or instruction of, any or all of the parties to this Escrow Agreement
(other than the definitions of capitalized terms that are defined in the Merger
Agreement and not otherwise defined herein).
(b) If
any
Escrow Funds are at any time attached, garnished or levied upon under any court
order or in case the payment of any such Escrow Funds will be stayed or enjoined
by any court order, or in case any order, judgment or decree will be made or
entered by any court affecting such Escrow Funds or any part thereof, then
and
in any of such events, the Escrow Agent is authorized, in its sole discretion,
to rely upon and comply with any such order, writ, judgment or decree which
it
is advised by legal counsel is binding upon it. If the Escrow Agent complies
with any such order, writ, judgment or decree, it will not be liable to any
of
the parties to this Escrow Agreement or to any other Person by reason of such
compliance even though such order, writ, judgment or decree may be subsequently
reversed, modified, annulled, set aside or vacated.
(c) The
Escrow Agent will not be liable for any act taken or omitted under this Escrow
Agreement if taken or omitted by it in good faith and in the exercise of
reasonable care under the circumstances. The Escrow Agent will also be fully
protected in relying upon any written notice, demand, certificate or document
that it in good faith believes to be genuine (including facsimiles
thereof).
(d) The
Escrow Agent, and any successor Escrow Agent, may resign at any time as Escrow
Agent hereunder by giving at least thirty (30) days prior written notice to
Parent and the Stockholder Representative. Upon such resignation and the
appointment of a successor Escrow Agent, the resigning Escrow Agent will be
absolved from any and all liability in connection with the exercise of its
powers and duties as Escrow Agent hereunder except for liability arising in
connection with its negligence,
B-4
willful
misconduct or bad faith. Upon their receipt of notice of resignation from the
Escrow Agent, Parent and the Stockholder Representative will use reasonable
efforts jointly to designate a successor Escrow Agent. In the event Parent
and
the Stockholder Representative do not agree upon a successor Escrow Agent within
thirty (30) days after the receipt of such notice, the Escrow Agent so resigning
may petition any court of competent jurisdiction for the appointment of a
successor Escrow Agent or other appropriate relief and any such resulting
appointment will be binding upon all parties hereto. By mutual agreement, Parent
and the Stockholder Representative will have the right at any time upon not
less
than ten (10) days’ written notice to the Escrow Agent to terminate their
appointment of the Escrow Agent, or successor Escrow Agent, as Escrow Agent.
The
Escrow Agent or successor Escrow Agent will continue to act as Escrow Agent
until a successor is appointed and qualified to act as Escrow
Agent.
(e) In
the
event conflicting demands are made or conflicting notices are served upon Escrow
Agent which are directly related to its duties under this Escrow Agreement,
the
parties hereto agree that the Escrow Agent will take no action until (i) such
action is agreed to in writing by the parties hereto or (ii) the issuance of
a
court order by a court of competent jurisdiction or a decision of an arbitrator
or arbitrators appointed in conformity with the Merger Agreement directing
Escrow Agent with respect to the action which is the subject of the conflicting
demands or notices.
(f) Parent
and the Stockholder Representative hereby agree, severally but not jointly,
to
indemnify Escrow Agent for, and to hold Escrow Agent harmless against, any
loss,
liability or expense incurred without negligence, willful misconduct or bad
faith on the part of Escrow Agent, arising out of or in connection with Escrow
Agent’s entering into this Escrow Agreement and carrying out Escrow Agent’s
duties hereunder, including costs and expenses of successfully defending Escrow
Agent against any claim of liability with respect thereto. One-half of any
payment made pursuant to this paragraph (f) will be paid by Parent and one-half
will be paid by the Stockholder Representative. Escrow Agent may consult with
counsel of its own choice and will have full and complete authorization and
protection for any action taken or suffered by it hereunder in good faith and
in
accordance with the opinion of such counsel.
(g) Anything
in this agreement to the contrary notwithstanding, in no event shall the Escrow
Agent be liable for special, indirect or consequential damage of any kind
whatsoever (including but not limited to lost profits), even if the Escrow
Agent
has been advised of the likelihood for such loss or damage and regardless of
the
form of action.
Section
2.2 Fees
and Expenses of Escrow Agent.
The
Escrow Agent will (a) be paid a fee for its services under this Escrow Agreement
as provided by Exhibit
A
and (b)
be entitled to reimbursement for reasonable expenses (including the reasonable
fees and disbursements of its counsel) actually incurred by the Escrow Agent
in
connection with its duties under this Escrow Agreement (such fees and expenses
being hereinafter referred to collectively as the “Escrow
Agent Fees and Expenses”).
All
Escrow Agent Fees and Expenses will be paid first out of interest earned and
accrued on
B-5
the
Escrow Funds and then, to the extent of any shortfall, will be shared equally
by
Parent and the Stockholder Representative. The Escrow Agent will not be entitled
to withdraw any amounts from the interest earned and accrued on the Escrow
Funds
for reimbursement of Escrow Agent Fees and Expenses until the expiration of
five
(5) Business Days following delivery of notice of the amount of such Escrow
Agent Fees and Expenses to Parent and the Stockholder
Representative.
ARTICLE
III
MISCELLANEOUS
Section
3.1 Notices.
All
notices, requests, consents or other communications required or permitted under
this Escrow Agreement will be in writing and will be deemed to have been duly
given or delivered by any party (a) when received by such party if delivered
by
hand, (b) upon confirmation when delivered by telecopy, (c) within one day
after
being sent by recognized overnight delivery service, or (d) within three (3)
business days after being mailed by first-class mail, postage prepaid, and
in
each case addressed as follows:
(i) if
to
Parent, to:
000
Xxxx
Xxxxxx Xxxxxx, 0xx
Xxxxx
Xxxxxxxxx,
XX 00000
Facsimile
No.: (000)
000-0000
Attention:Xxxxx
Xxxxxx, Esq.
With
a
copy to:
Weil,
Gotshal & Xxxxxx LLP
000
Xxxxx
Xxxxxx
Xxx
Xxxx,
XX 00000
Facsimile
No.: (000)
000-0000
Attention: Xxxxxx
X.
Xxxxxxx, Esq.
(ii) if
to the
Stockholder Representative, to:
Xxxxxxx
X. Xxxxxxxx
00000
Xxxxxxxxxx Xxxx
Xxx
Xxxx
Xxxxxxxxxxx, XX 00000
with
a
copy to:
B-6
(iii) if
to the
Escrow Agent, to:
JPMorgan
Chase Bank, N.A.
0
Xxx
Xxxx Xxxxx - 00xx Xxxxx
Xxx
Xxxx,
XX 00000
Facsimile
No.: 000-000-0000
Attention: Xxxxxx
Xxxxxxxx
Any
party
by written notice to the other parties pursuant to this Section
3.1
may
change the address or the persons to whom notices or copies thereof will be
directed.
Section
3.2 Assignment.
This
Escrow Agreement and the rights and duties hereunder will be binding upon and
inure to the benefit of the parties hereto and the successors and assigns of
each of the parties to this Escrow Agreement. No rights, obligations or
liabilities hereunder will be assignable by the Stockholder Representative
without the prior written consent of Parent. Parent may assign its rights under
this Escrow Agreement without obtaining the prior written consent of any other
party hereto.
Section
3.3 Amendment.
This
Escrow Agreement may be amended or modified only by an instrument in writing
duly executed by Parent and the Stockholder Representative.
Section
3.4 Waivers.
Any
waiver by any party hereto of any breach of or failure to comply with any
provision of this Escrow Agreement by any other party hereto will be in writing
and will not be construed as, or constitute, a continuing waiver of such
provision, or a waiver of any other breach of, or failure to comply with, any
other provision of this Escrow Agreement.
Section
3.5 Construction.
This
Escrow Agreement will be governed by the laws of the State of New York as
applied to contracts made and performed in such state. The headings in this
Escrow Agreement are solely for convenience of reference and will not be given
any effect in the construction or interpretation of this Escrow Agreement.
Unless otherwise stated, references to Sections and Exhibits are references
to
Sections and Exhibits of this Escrow Agreement.
Section
3.6 Third
Parties.
Nothing
expressed or implied in this Escrow Agreement is intended, or will be construed,
to confer upon or give any Person other than Parent, the Securityholders, the
Stockholder Representative and the Escrow Agent any rights or remedies under,
or
by reason of, this Escrow Agreement.
Section
3.7 Termination.
This
Escrow Agreement will terminate upon termination of the Escrow Period in
accordance with Section
9.3(b)
of the
Merger Agreement.
Section
3.8 Counterparts.
This
Escrow Agreement may be executed in one or more counterparts, each of which
will
be deemed an original and all of which together will constitute a single
instrument.
B-7
Section
3.9 Severability.
If any
provision of this Escrow Agreement as applied to any part or to any circumstance
will be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Escrow Agreement and the
application of such provision to any other part or to any other circumstance
will not be affected or impaired thereby.
Section
3.10 Waiver
of Offset Rights.
The
Escrow Agent hereby waives any and all rights to offset that it may have against
the Escrow Funds including, without limitation, claims arising as a result
of
any claims, amounts, liabilities, costs, expenses, damages, or other losses
that
the Escrow Agent may be otherwise entitled to collect from any party to this
Escrow Agreement.
Section
3.11 General.
Unless
the context otherwise requires, the singular shall include the plural and
vice-versa, each pronoun in any gender shall include all other genders, and
the
term “or” shall mean “and/or”. The terms and provisions of the this Escrow
Agreement constitute the entire agreement among the parties hereto in respect
of
the subject matter hereof.
Section
3.12 Tax
Ids and Account Opening Information.
Upon
execution of this agreement, each party shall provide the Escrow Agent with
a
fully executed W-8 or W-9 Internal Revenue Service form, which shall include
their Tax Identification Number (TIN) as assigned by the Internal Revenue
Service. Account Opening Information. IMPORTANT
INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT: To
help
the government fight the funding of terrorism and money laundering activities,
Federal law requires all financial institutions to obtain, verify, and record
information that identifies each person who opens an account. When an account
is
opened, the Escrow Agent will ask for information that will allow it to identify
relevant parties.
Section
3.13 Force
Majeure.
In the
event that any party or the Escrow Agent is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment
or
transmission failure or damage reasonably beyond its control, or other cause
reasonably beyond its control, the Escrow Agent shall not be liable for damages
to the other parties for any damages resulting from such failure to perform
otherwise from such causes. Performance under this Agreement shall resume when
the Escrow Agent is able to perform substantially.
Section
3.14 Merger
of Escrow Agent.
Any
corporation into which the Escrow Agent in its individual capacity may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Escrow Agent in its
individual capacity shall be a party, or any corporation to which substantially
all the corporate trust business of the Escrow Agent in its capacity may be
transferred, shall be the Escrow Agent under this Escrow Agreement without
further act.
B-8
IN
WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
PARENT:
By:_____________________________________
Name:___________________________________
Title:____________________________________
ESCROW
AGENT:
XX
XXXXXX XXXXX BANK, N.A.
By:_____________________________________
Name:___________________________________
Title:____________________________________
STOCKHOLDER
REPRESENTATIVE:
XXXXXXX
X. XXXXXXXX
_____________________________________
B-9
Exhibit
A
Fees
of
Escrow Agent
$5,000
per annum without pro-ration for partial years. First year’s fees are payable
upon execution of the agreement.
B-10
Call-Back
Schedule
Telephone
Number(s) for Call-backs and
Person(s)
Designated to Confirm Funds Transfer Instructions
If
to
Parent:
Wire
Instructions:
Name Telephone
Number
1.
_________________________ _________________________
2.
_________________________ _________________________
3.
_________________________ _________________________
If
authorized by Stockholder Representative for disbursement to Paying Agent or
Stockholder Representative:
Wire
Instructions to Paying Agent:
Name Telephone
Number
_________________________ ________________________
Wire
Instructions to Stockholder Representative:
Name Telephone
Number
Xxxxxxx
X. Cvengras___________
B-11
EXHIBIT
C
FORM
OF
AMENDED
AND RESTATED
CERTIFICATE
OF INCORPORATION
OF
PACKETVIDEO
CORPORATION
(Pursuant
to Section 242 and 245 of the
General
Corporation Law of the State of Delaware)
PacketVideo
Corporation (hereinafter called the “Corporation”), a corporation organized and
existing under the Delaware General Corporation Law (the “DGCL”), does hereby
certify as follows:
1. The
name
of the corporation is: PacketVideo Corporation.
2. The
original Certificate of Incorporation was filed with the Secretary of State
of
Delaware on July 22, 1998. The Corporation was originally incorporated under
the
name of M4, Inc. The Certificate of Incorporation was subsequently amended
and
restated on February 8, 2001.
3.
This
Amended and Restated Certificate of Incorporation has been duly adopted in
accordance with Sections 242 and 245 of the DGCL and by the written consent
of
the Corporation’s stockholders in accordance with Section 228 of the
DGCL.
4. The
Corporation’s Amended and Restated Certificate of Incorporation hereby is
amended and restated to read in its entirety as follows:
FIRST: The
name
of the corporation is: PacketVideo Corporation (the “Corporation”).
SECOND:
The address of the registered office of the Corporation in the State of Delaware
is 0 X. Xxxxxxxxxx Xxxxxx, Xxxx xx Xxxxx, Xxxxxx of Kent, State of Delaware.
The
name of the registered agent of the Corporation in the State of Delaware at
such
address is National Registered Agents, Inc.
C-1
THIRD:
The purpose of the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware, as from time to time amended.
FOURTH:
The total number of shares of capital stock which the Corporation shall have
authority to issue is 55,000,000, all of which shares shall be Common Stock
having a par value of $0.001.
FIFTH:
In
furtherance and not in limitation of the powers conferred by law, subject to
any
limitations contained elsewhere in this Certificate of Incorporation, by laws
of
the Corporation may be adopted, amended or repealed by a majority of the board
of directors of the Corporation, but any by-laws adopted by the board of
directors may be amended or repealed by the stockholders entitled to vote
thereon. Election of directors need not be by written ballot.
SIXTH:
(a) A director of the Corporation shall not be personally liable either to
the
Corporation or to any stockholder for monetary damages for breach of fiduciary
duty as a director, except (i) for any breach of the director’s duty of loyalty
to the Corporation or its stockholders, or (ii) for acts or omissions which
are
not in good faith or which involve intentional misconduct or knowing violation
of the law, or (iii) for any matter in respect of which such director shall
be
liable under Section 174 of Title 8 of the General Corporation Law of the State
of Delaware or any amendment thereto or successor provision thereto, or (iv)
for
any transaction from which the director shall have derived an improper personal
benefit. Neither amendment nor repeal of this paragraph (a) nor the adoption
of
any provision of this Certificate of Incorporation inconsistent with this
paragraph (a) shall eliminate or reduce the effect of this paragraph (a) in
respect of any matter occurring, or any cause of action, suit or claim that,
but
for this paragraph (a), would accrue or arise, prior to such amendment, repeal
or adoption of an inconsistent provision.
(b) The
Corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to, or testifies in, any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative in nature, by reason of the fact that such person is or was
a
director, officer, employee or agent of the Corporation, or is or was serving
at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, employee benefit plan, trust
or
other enterprise, against expenses (including attorneys’ fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding to the full extent permitted
by law, and the Corporation may adopt by laws or enter into agreements with
any
such person for the purpose of providing for such indemnification.
C-2
IN
WITNESS WHEREOF, said corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its duly authorized officer and
the
foregoing facts stated herein are true and correct this [ ] ___,
2005.
PACKETVIDEO
CORPORATION
By:_______________________________________
Name:
[
]
Title:
[
]
ACKNOWLEDGED:
By:_______________________________________
Name:
[
]
Title:
[
]
C-3
EXHIBIT
D
FORM
OF ACKNOWLEDGEMENT AND RELEASE
THIS
ACKNOWLEDGEMENT AND RELEASE, dated as of [________ __], 2005 (this “Release”),
is by
[_____________] (“Releasor”).
Releasor,
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and intending to be legally bound hereby, in order to induce
NextWave Wireless LLC, a Delaware limited liability company (“Parent”),
to
enter into and consummate that certain Agreement and Plan of Merger, dated
as of
May 25, 2005 (the “Merger
Agreement”),
by and
among Parent, PacketVideo Corporation, a Delaware corporation (together with
its
successors and assigns, the “Company”),
PVC
Acquisition Corp., a corporation existing under the laws of Delaware and a
direct, wholly-owned subsidiary of Parent, and Xxxxxxx X. Xxxxxxxx, as the
Stockholder Representative, hereby agrees as follows:
1. RELEASE.
Releasor,
on behalf of itself and each of its predecessors, successors and assigns
(collectively, the “Releasor
Related Parties”),
(a)
acknowledges and agrees that the Aggregate Consideration (as defined in the
Merger Agreement) to be received by it as reflected in the Aggregate
Consideration Spreadsheet (as defined in the Merger Agreement) is the sole
consideration payable to the Releasor Related Parties in connection with the
transactions contemplated by the Merger Agreement and (b) hereby unequivocally,
irrevocably and unconditionally releases, surrenders, acquits and forever
discharges the Company, Parent and each of their respective individual, joint
or
mutual, past, present and future directors, officers, stockholders, employees,
consultants, agents, attorneys, financial advisors, representatives, affiliates,
successors and assigns (each, a “Released
Party”
and
collectively, the “Released
Parties”),
from
any and all actions, causes of action, claims, suits, covenants, contracts,
controversies, agreements, promises, indemnities, damages, judgments, remedies,
demands and liabilities, of any nature whatsoever, in law, at equity or
otherwise (collectively, “Claims”),
whether direct, derivative or otherwise, which have been, may be or ever could
be asserted against any of the Released Parties, either for itself or otherwise
for or on behalf of any other Person (as defined in the Merger Agreement),
against any of the Released Parties, relating to any Claims arising under or
in
connection with the negotiation, execution or consummation of the Merger
Agreement (including, but not limited to, any Claims with respect to the
entitlement to receipt of amounts more than the Aggregate Consideration to
be
received by Releasor in connection with the Merger Agreement) (each, a
“Released
Claim”
and
collectively, the “Released
Claims”);
provided, however, that a Released Claim shall exclude (i) any Claims for
Parent’s breach of , or otherwise relating to Releasor or the Releasor Related
Parties enforcing rights under the Merger Agreement, including without
limitation rights under Articles II, IV, VII and IX of the Merger Agreement,
and
(ii) any claims relating to consideration that may be distributed to the
Releasor Related Parties under the Employee Retention Plan or Stock Option
Plan
(each as defined in the Merger Agreement) and other consideration that may
be
payable to any such Releasor Related Parties pursuant to employment and
consulting arrangements with the Company.
2. COVENANT
NOT TO XXX.
Releasor
hereby unequivocally, unconditionally and irrevocably agrees not to, directly
or
indirectly, initiate proceedings with respect to, institute,
D-1
assert
or
threaten to assert any Released Claim against any of the Released Parties.
This
Release shall constitute a complete defense to any Released Claim.
3. INDEMNIFICATION.
Without
in any way limiting any of the rights and remedies otherwise available to any
Released Party, Releasor shall indemnify, defend and hold harmless each Released
Party from and against all Losses (as defined in the Merger Agreement) whether
or not involving third party claims, arising directly or indirectly from or
in
connection with (i) the assertion by or at the direction of any Releasor Related
Party of any Released Claim and (ii) the assertion by any third party of any
Released Claim or demand against any Released Party which Released Claim or
demand arises directly or indirectly from, or in connection with, any assertion
by or at the direction of any Releasor Related Party against such third party
of
any Released Claims.
4. MISCELLANEOUS.
(a) Third-Party
Beneficiaries.
Each of
the Released Parties shall be third-party beneficiaries of this Release and
shall be entitled to enforce the provisions hereof as if it were a party
hereto.
(b) GOVERNING
LAW.
THIS
RELEASE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE.
(c) Severability.
If any
term, provision, covenant or restriction of this Release is held to be invalid,
void, unenforceable or against regulatory policy, the remainder of the terms,
provisions, covenants and restrictions of this Release shall remain in full
force and effect and shall in no way be affected, impaired or invalidated and
any such invalid, unenforceable or void term, provision, covenant or condition
shall be deemed, without further action on the part of the parties hereto,
modified, amended and limited to the extent necessary to render the same and
the
remainder of this Release valid, enforceable and lawful.
[SIGNATURES
BEGIN ON NEXT PAGE]
D-2
IN
WITNESS WHEREOF, the undersigned has duly executed and delivered this Release
as
of the day and year first above written.
[NAME
OF RELEASOR]
By:_______________________________________
Name:_____________________________________
Title:______________________________________
D-3
EXHIBIT
E-1
FORM
OF EMPLOYEE AGREEMENT
EMPLOYEE
NON-DISCLOSURE
AND
ASSIGNMENT AGREEMENT
This
Employee Non-Disclosure and Assignment Agreement (“Agreement”) is
effective
as of the first day of your employment with the Company
(the
“Effective Date”) by and between PacketVideo
Corporation, a
Delaware corporation, together with its affiliates (“PacketVideo”), and the
natural person listed in the signature block below (“you”). This Agreement and
any exhibits attached hereto constitute the complete and exclusive agreement
between the parties and supersede all prior written or oral proposals and
understandings related hereto. This Agreement may not be amended or modified
except in writing by duly authorized representatives of the parties. Both
parties acknowledge having read the terms and conditions set forth herein,
understand all terms and conditions, and agree to be bound by them. In
consideration of your employment or continued employment by PacketVideo, and
the
compensation now and hereafter paid to you, the parties hereby agree as
follows:
|
EMPLOYEE
NAME AND ADDRESS:
|
PACKETVIDEO:
|
|
Name:
|
PacketVideo
Corporation
|
|
Home
Address:
|
00000
Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
|
|
Xxx
Xxxxx, Xxxxxxxxxx 00000 XXX
|
|
|
Home
Telephone:
|
Attn:
Legal Department
|
|
Personal
Email:
|
Facsimile:
(000) 000-0000
|
|
Country
of Citizenship:
|
E-mail:
Xxxxx@xx.xxx
|
1. Confidential
Information.
At all
times during your employment and thereafter, you will hold in strictest
confidence and will not disclose, use, lecture upon or publish any of the
Company Confidential Information (defined below), except as such disclosure,
use
or publication may be required in connection with your work for the Company,
or
unless an officer of the Company expressly authorizes such in writing. During
your employment by the Company you will not improperly use or disclose any
confidential information or trade secrets of any former employer or any other
person to whom you have an obligation of confidentiality, and you will not
bring
onto the premises of the Company any unpublished documents or any property
belonging to any former employer or any other person to whom you have an
obligation of confidentiality unless previously consented to in writing by
that
former employer or person.
2.1. Intellectual
Property Rights.
The term
“Intellectual Property Rights”
means all trade secret, patent, copyright and other intellectual property rights
of the Company throughout the world.
2.2. Company
Confidential Information. The
term
“Company Confidential Information” means any and all confidential and/or
proprietary knowledge, data or information of the Company, its affiliated
entities, customers and suppliers, including but not limited to information
relating to products, processes, know-how, designs, formulas, methods,
developmental or experimental work, improvements, discoveries, inventions,
ideas, source and object codes, data, programs, other works of authorship,
and
plans for research and development.
2.3. Developments.
The term
“Developments” means all trade secrets,
inventions, mask works, ideas, processes, formulas, source and object codes,
data, programs, other works of authorship, know-how, improvements, discoveries,
designs and techniques. Developments made or created by you, solely or jointly
with other employees or consultants of the Company, including but not limited
to
Company Confidential Information, will be referred to as “Company
Developments.”
2.4. Prior
Developments.
You have
set forth on Exhibit B
(Previous Developments)
attached hereto a complete list of all Developments you have, alone or jointly
with others, made prior to the commencement of your employment with the Company
that you consider to be your property or the property of third parties and
that
you wish to have excluded from the scope of this Agreement (collectively
referred to as “Prior
Developments”).
If no
such disclosure is attached, you represent that there are no Prior Developments.
If, in the course of your employment with the Company, you incorporate a Prior
Development into a Company product, process or machine, the Company is hereby
granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual,
worldwide license (with rights to sublicense through multiple tiers of
sublicensees) to make, have made, modify, use and sell such Prior Development.
Notwithstanding the foregoing, you agree that you will not
E-1
incorporate,
or permit to be incorporated, any Prior Development into any Company Development
without the Company’s prior written consent.
2.5. Assignment
of Company Developments and Associated Intellectual Property
Rights.
Subject
to Section 2.7 and except
for those Developments which you can prove qualify under the provisions of
California Labor Code 2870 (as set forth in Exhibit
A),
you
hereby assign and agree to assign in the future to the Company all your right,
title and interest in and to all Company Developments and all Intellectual
Property Rights with respect thereto, as soon as such Company Developments
are
first reduced to practice or first fixed in a tangible medium, as applicable.
You will, at the Company’s request, promptly execute a written assignment to the
Company of any Company Developments and Intellectual Property Rights with
respect thereto, and you will preserve any Company Developments as part of
the
property of the Company.
2.6. Obligation
to Keep Company Informed. You
will
promptly and
fully
disclose in writing to the Company all Company Developments in which you have
been involved during your employment and for one (1) year after the termination
of your employment, including any that may be covered by Section 2870. You
agree
to assist in every proper way and to execute such documents and take such acts
as are reasonably requested by the Company to obtain, maintain and enforce
all
Intellectual Property Rights relating to Company Developments in the United
States or any other country.
2.7. Government
or Third Party. You
also
agree to assign all your right,
title and interest in and to any particular Company Development to a third
party, including without limitation the United States, as directed by the
Company.
3. No
Conflicting Obligation. You
represent that your performance of all the terms of this Agreement and as an
employee of the Company does not and will not breach any agreement to keep
in
confidence information acquired by me in confidence or in trust prior to your
employment by the Company. You have not entered into, and you agree you will
not
enter into, any agreement either written or oral in conflict
herewith.
4. Return
of Company Documents.
Upon
termination of your employment with the Company for any reason whatsoever,
voluntarily or involuntarily, and at any earlier time the Company requests,
you
will deliver to the person designated by the Company all originals and copies
of
all documents and other property of the Company in your possession, under your
control or to which you may have access. You will not reproduce or appropriate
for your own use, or for the use of others, any Company Confidential
Information, Company Developments or Intellectual Property Rights
thereto.
5. Non-Solicitation.
During
the term of my employment and for one year thereafter, I will not solicit any
employee or consultant of the Company to leave the Company for any reason.
However, this obligation shall not affect any responsibility I may have as
an
employee of the Company with respect to the bona fide hiring and firing of
Company personnel.
6. Non-Competition.
I agree
that during my employment with the Company, I will not engage in any employment,
business, or activity that is in any way competitive with the business or,
to
the extent of my actual knowledge and knowledge as would reasonably be expected
to be known by me in the ordinary and usual course of my professional
responsibilities, proposed business of the Company, and I will not assist any
other person or organization in competing with the Company or in preparing
to
engage in competition with the business or, to the extent of my actual knowledge
and knowledge as would reasonably be expected to be known by me in the ordinary
and usual course of my professional responsibilities, proposed business of
the
Company. The provisions of this paragraph shall apply both during normal working
hours and at all other times including, without limitation, nights, weekends
and
vacation time, while I am employed with the Company.
7. Legal
and Equitable Remedies.
Because
your services are personal and unique and because you may have access to and
become acquainted with Developments of the Company, the Company shall have
the
right to enforce this Agreement and any of its provisions by injunction,
specific performance or other equitable relief, without bond and without
prejudice to any other rights and remedies that the Company may have for a
breach of this Agreement.
8. Notices.
Any
notices required or permitted hereunder shall be given to the other party at
the
address specified above or at such other address as the party shall specify
in
writing. Such notice shall be deemed given upon personal delivery to such
address or if sent by certified or registered mail, three (3) days after the
date of mailing.
9. Employment.
You
agree and understand that nothing in this Agreement shall confer any right
with
respect to continuation of employment by the Company, nor shall it interfere
in
any way with your right or the Company’s right to terminate your employment at
any time, with or without cause.
10. General
Provisions.
This
Agreement will be governed by and construed according to the laws of the State
of California, as such laws are applied to agreements entered into and to be
performed entirely within California between California residents. In case
any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal
or
unenforceable provision had never been contained herein. This Agreement will
be
binding upon your heirs, executors,
E-2
administrators
and other legal representatives and will be for the benefit of the Company,
its
successors, and its assigns. The provisions of this Agreement shall survive
the
termination of your employment and the assignment of this Agreement by the
Company to any successor in interest or other assignee. No waiver by the Company
of any breach of this Agreement shall be a waiver of any preceding or succeeding
breach. No waiver by the Company of any right under this Agreement shall be
construed as a waiver of any other right. The obligations pursuant to Sections
1
and 2 of this Agreement shall apply to any time during which you were previously
employed, or are in the future employed, by the Company as a consultant if
no
other agreement governs nondisclosure and assignment of inventions during such
period. This Agreement is the final, complete and exclusive agreement of the
parties with respect to the subject matter hereof and supersedes and merges
all
prior discussions between us. No modification of or amendment to this Agreement,
nor any waiver of any rights under this Agreement, will be effective unless
in
writing and signed by the party to be charged. Any subsequent change or changes
in your duties, salary or compensation will not affect the validity or scope
of
this Agreement.
I
HAVE
READ THIS AGREEMENT CAREFULLY AND I UNDERSTAND AND ACCEPT THE OBLIGATIONS THAT
IT IMPOSES UPON ME WITHOUT RESERVATION. NO PROMISES OR REPRESENTATIONS HAVE
BEEN
MADE TO ME TO INDUCE ME TO SIGN THIS AGREEMENT. I SIGN THIS AGREEMENT
VOLUNTARILY AND FREELY, IN DUPLICATE, WITH THE UNDERSTANDING THAT ONE
COUNTERPART WILL BE RETAINED BY THE COMPANY AND THE OTHER COUNTERPART WILL
BE
RETAINED BY ME.
E-3
Exhibit
A
LIMITED
EXCLUSION NOTIFICATION
This
is to notify you
in
accordance with Section 2872 of the California Labor Code that the foregoing
Agreement between you and the Company does not require you to assign or offer
to
assign to the Company any invention that you developed entirely on your own
time
without using the Company’s equipment, supplies, facilities or trade secret
information except for those inventions that either:
1. Relate
at
the time of conception or reduction to practice of the invention to the
Company’s business, or actual or demonstrably anticipated research or
development of the Company; or
2. Result
from any work performed by you for the Company.
To
the
extent a provision in the foregoing Agreement purports to require you to assign
an invention otherwise excluded from the preceding paragraph, the provision
is
against the public policy of this state and is unenforceable.
This
limited exclusion does not apply to any patent or invention covered by a
contract between the Company and the United States or any of its agencies
requiring full title to such patent or invention to be in the United
States.
you
acknowledge receipt of
a copy
of this notification.
By:_______________________________________
Date:_______________________________________
E-4
Exhibit
B
DISCLOSURE
OF PREVIOUS INVENTIONS
TO:
PacketVideo Corporation
FROM:_______________________________________
DATE:_______________________________________
SUBJECT: Previous
Developments
E-5
1. Except
as
listed in Section 2 below, the following is a complete list of all inventions
or
improvements relevant to the subject matter of my employment by PacketVideo
Corporation
(the
“Company”)
that
have been made or conceived or first reduced to practice by me alone or jointly
with others prior to my engagement by the Company:
o No
inventions or
improvements.
o See
below:
| o |
Additional
sheets attached.
|
2. Due
to a
prior confidentiality agreement, I cannot complete the disclosure under
Section 1 above with respect to inventions or improvements generally listed
below, the proprietary rights and duty of confidentiality with respect to which
I owe to the following party(ies):
|
Development
or
Improvement
|
Party(ies)
|
Relationship
|
|||
|
(Generally)
|
|||||
|
1.
|
|||||
|
2.
|
|||||
|
3.
|
| o |
Additional
sheets attached.
|
E-6
EXHIBIT
E-2
FORM
OF NON-COMPETITION AGREEMENT
This
Non-Competition Agreement (this “Agreement”)
is
entered into, as of May __, 2005, by and among NextWave Wireless LLC, a Delaware
limited liability company (“NextWave”),
PacketVideo Corporation, a Delaware corporation (the “Company”),
and
______________ (“Key
Employee”).
RECITALS
The
Company is engaged in the business of (a) (i) designing and developing embedded
multimedia middleware and application software; (ii) providing client software
infrastructure in the form of an operating system independent Multimedia
Development Kit and generic services above the operating system to support
multimedia and other applications and associated features and functions; and
(iii) enabling mobile phones to play back streaming media, take digital
pictures, record movies, play back digital music and videos, including various
forms of audio and video mail, and make two-way video phone calls, and (b)
designing and developing multimedia software and functions for the distribution
and streaming of applications and multimedia content including audio and video
content to and from devices or communications nodes on a network (the
“Business”);
provided,
however,
that
the Business does not include (i) providing content for mobile phones, (ii)
sale
of portal server software to third parties, and (iii) marketing or otherwise
providing any services to mobile phone end-users.
NextWave
and the Company propose to engage in a merger transaction pursuant to which
a
wholly-owned subsidiary of NextWave will be merged with and into the Company,
the separate corporate existence of such subsidiary will cease, and the Company
will continue as the surviving corporation and be a wholly-owned subsidiary
of
NextWave (the “Merger”).
A. Key
Employee has a substantial equity interest in the Company and/or a material
economic interest in the consummation of the Merger, and will receive
significant cash proceeds and other valuable consideration as a result of,
or
otherwise in connection with the transactions contemplated by, the
Merger.
B. Key
Employee is one of the Company’s key employees and Key Employee acknowledges
that he has detailed knowledge of the Company Intellectual Property and other
confidential and proprietary information of the Company.
C. The
parties agree that it is their mutual desire that the entire goodwill of the
Company and the Business of the Company be preserved for the benefit of NextWave
as part of the Merger and acknowledge that they explicitly considered the value
of the goodwill transferred and that such goodwill was valued as a component
of
the consideration to be paid by NextWave in and for the Merger. The parties
further agree that NextWave’s failure to receive the entire goodwill
contemplated by the Merger would have the effect of reducing the value of the
Merger and the Company to NextWave.
E-7
D. Key
Employee holds shares of capital stock and/or options to purchase capital stock
of the Company that will be cancelled and/or exchanged in connection with the
Merger in exchange for cash proceeds. Key Employee will receive cash
consideration as part of the Company’s sale bonus plan in connection with the
Merger. Key Employee acknowledges that it is his intention to transfer the
goodwill reflected in the capital stock and/or options to purchase capital
stock
of the Company he owns. Key Employee has considered the effects of this
Agreement, considers them reasonable and, in order to induce NextWave to
consummate the Merger and the transactions contemplated by the Merger Agreement
and related documents, including the Employee Retention Plan and Stock Option
Plan, Key Employee has agreed to enter into this Agreement.
E. The
parties acknowledge that the relevant market for the Business is worldwide
in
scope and that there exists intense worldwide competition for the products
and
services of the Business.
F. In
order
to protect the goodwill related to the Business, NextWave and the Company have
agreed that NextWave’s obligation to consummate the Merger and the transactions
contemplated by the Merger Agreement and related documents is subject to the
condition, among others, that Key Employee shall have entered into this
Agreement and that this Agreement be in full force and effect.
NOW,
THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter set forth, Key Employee, the Company and NextWave,
intending to be legally bound, hereby agree as follows:
ARTICLE
1
NON-COMPETITION
1.1 Non-Competition.
As an
inducement for NextWave to enter into the Merger Agreement and consummate the
Merger, and in connection with the exchange of Key Employee’s equity interest in
the Company in connection with the Merger, Key Employee agrees that from and
after the closing of the Merger (the “Closing”)
and
until four (4) years following the Closing (the “Non-Competition
Period”):
(a) Key
Employee shall not, anywhere outside of the United States, directly or
indirectly, engage, without the express prior written consent of NextWave,
in
any business or activity in direct or indirect competition with the Business,
(a
“Competing Business”), whether as an employee, consultant, partner, principal,
agent, representative, equity holder or in any other individual, corporate
or
representative capacity (without limitation by specific enumeration of the
foregoing), or render any services or provide any advice to any Person in direct
or indirect competition with the Business (a “Competing
Business”),
or
render any services or provide any advice to any Competing Business, or seek
to
compete, directly or indirectly, with the Business.
(b) Key
Employee shall not, anywhere in the United States, directly or indirectly,
engage, without the express prior written consent of NextWave, in any Competing
Business, whether as an employee, consultant, partner, principal,
agent,
E-8
representative,
equity holder or in any other individual, corporate or representative capacity
(without limitation by specific enumeration of the foregoing), or render any
services or provide any advice to any Competing Business, or seek to compete,
directly or indirectly, with the Business.
(c) Key
Employee shall not, anywhere in the State of California or the State of
Illinois, directly or indirectly, engage, without the express prior written
consent of NextWave, in any Competing Business, whether as an employee,
consultant, partner, principal, agent, representative, equity holder or in
any
other individual, corporate or representative capacity (without limitation
by
specific enumeration of the foregoing), or render any services or provide any
advice to any Competing Business, or seek to compete, directly or indirectly,
with the Business.
(d) Key
Employee shall not, in San Diego County in the State of California, directly
or
indirectly, engage, without the express prior written consent of NextWave,
in
any Competing Business, whether as an employee, consultant, partner, principal,
agent, representative, equity holder or in any other individual, corporate
or
representative capacity (without limitation by specific enumeration of the
foregoing).
1.2 Public
Securities.
Notwithstanding the foregoing, Key Employee may own, directly or indirectly,
up
to one percent (1%) of any class of “publicly traded securities” of any Person
which owns or operates a business that is a Competing Business. For the purposes
of this Section
1.2,
“publicly traded securities” shall mean securities that are traded on a national
securities exchange or listed on the Nasdaq National Market.
Notwithstanding
the foregoing, the Non-Competition Period will expire upon any termination
of
the employment of Key Employee by NextWave or the Company without Cause. For
purposes of this Agreement “Cause”
means
any act or any failure to act on the part of a participant which
constitutes:
|
(a)
|
fraud,
embezzlement, theft or dishonesty against the Company or any of its
affiliates, or the Board of Directors of the Company or any of its
affiliates;
|
|
(b)
|
a
willful or grossly negligent material violation of law in connection
with
or in the course of the participant’s duties or employment with the
Company or any of its affiliates;
|
|
(c)
|
a
felony for which the participant is convicted or pleads nolo contendere;
|
|
(d)
|
engagement
in any activity competitive with the business of the Company as to
which
the Company has notified the participant in writing and the participant
has not ceased his or her participation in such activity (other than
for
reasons beyond the control of Key Employee) within 3 business days
after
receipt of written notice thereof from the Company or
NextWave;
|
E-9
|
(e)
|
a
failure to follow reasonable directions or instructions of a more
senior
officer or the Board of Directors of the Company which are consistent
with
the participant’s position and responsibilities as of the date hereof (as
such position and responsibilities may be changed from time to time
with
the prior consent of the participant), and such failure shall have
continued (other than for reasons beyond the control of the participant)
for a period of 3 business days after receipt of written notice thereof
from the Company or Nextwave;
|
|
(f)
|
willful
or grossly negligent breach of any stated material employment policy
of
the Company;
|
|
(g)
|
willful
and wrongful damage to material property of the Company or any of
its
affiliates; or
|
|
(h)
|
willful
and wrongful disclosure of confidential information of the Company
or any
of its affiliates.
|
ARTICLE
2
REMEDIES
AND CONFLICT RESOLUTION
2.1 Remedies.
The
parties to this Agreement agree that (i) if Key Employee materially breaches
Article 1 of this Agreement, the damage to NextWave may be substantial, although
difficult to ascertain, and money damages will not afford NextWave an adequate
remedy, and (ii) if Key Employee is in breach of any provision of this
Agreement, or threatens a breach of this Agreement, NextWave shall be entitled,
in addition to all other rights and remedies as may be provided by law, the
Merger Agreement or otherwise, to seek specific performance and injunctive
and
other equitable relief to prevent or restrain a breach of any provision of
this
Agreement notwithstanding Section
2.2
hereof.
2.2 Arbitration.
Except
as provided in Section 2.1,
any
controversy, dispute or claim between the parties to this Agreement, including
any claim arising out of, in connection with, or in relation to the
interpretation, performance or breach of this Agreement, shall be resolved
exclusively and finally by confidential binding arbitration in accordance with
the following procedures:
(a) The
arbitration shall be conducted in the county of San Diego, California, or such
other location as the parties mutually agree.
(b) The
arbitration proceedings will be conducted in accordance with, and pursuant
to,
the then most applicable rules (the “Arbitration
Rules”)
of the
American Arbitration Association. In the event of any conflict between the
Arbitration Rules and the provisions of this Section
2.2,
the
provisions of this Section
2.2
shall
control.
(c) There
will be a single neutral arbitrator (“Arbitrator”)
who
will be selected pursuant to the Arbitration Rules; provided,
however,
that
notwithstanding the Arbitration Rules, each party shall have the right to
preemptively challenge any Arbitrator that has previously arbitrated any matter
for either party.
E-10
(d) The
Arbitrator will have the same power (but no greater power) to grant all
appropriate legal and equitable relief, both by way of interim relief and as
a
part of the final award, as may be granted by any court of competent
jurisdiction, in order to carry out the terms of this Agreement (including,
without limitation, declaratory and injunctive relief and damages). All awards
and orders of the Arbitrator, including interim relief, may be enforced by
any
court of competent jurisdiction.
(e) The
parties intend that appropriate rights of discovery (including the right to
depose witnesses, submit interrogatories and request documents) be granted
to
each party. In that regard, the parties agree to work together in good faith
and
with the Arbitrator to arrive upon mutually acceptable procedures regarding
the
time limits for, and type, amount, scope and degree of, such rights of discovery
and the periods of time within which the matters submitted to arbitration must
be heard and determined by the Arbitrator. If the parties are unable to so
agree, such issues will be submitted to the Arbitrator for his or her
determination. If proper notice of any hearing has been given, the Arbitrator
will have full power to proceed to take evidence or to perform any other acts
necessary to arbitrate the matter in the absence of any party who fails to
appear. At the request of any party, the Arbitrator, attorneys, parties to
the
arbitration, witnesses, experts, court reporters or other persons present at
the
arbitration shall agree in writing to maintain strict confidentiality regarding
the arbitration proceedings. Following such request, in rendering an award,
the
Arbitrator shall endeavor not to include confidential information in his or
her
written opinion explaining the award or shall redact such opinion to the
standards required by the parties.
(f) Notwithstanding
the foregoing and without limit to the rights reserved in Section
2.1,
a party
may apply to a court of competent jurisdiction within the State of California
for provisional relief, pursuant to California Code of Civil Procedure Section
1281.8 or any comparable provision, in the form of a temporary restraining
order
or preliminary injunction, or other provisional remedy pending appointment
of an
Arbitrator or pending final determination of a claim through arbitration in
accordance with this Section
2.2.
In the
event a dispute is submitted to arbitration hereunder during the term of this
Agreement, the parties shall continue to perform their respective obligations
hereunder, subject to any interim relief that may be ordered by the Arbitrator
or by a court of competent jurisdiction pursuant to the previous
sentence.
(g) The
parties, by joint written stipulation, may expand or contract the rights, duties
or obligations provided above, or otherwise modify the arbitration procedures
as
suits their convenience, consistent with that which is otherwise permissible
within the framework of the Arbitration Rules.
(h) The
parties shall share equally all fees and expenses of the arbitrator to the
extent permitted by law. Each party shall personally bear all other costs and
fees, including attorney’s fees, incurred by that party in the course of the
arbitration.
(i) The
Arbitrator shall render an award and written opinion explaining the award,
and
the decisions and award of the Arbitrator shall be final and binding upon the
parties. The parties hereto hereby waive to the fullest extent permitted by
law
any rights to appeal or to review of such award by any court or tribunal. The
parties agree that the award
E-11
of
the
Arbitrator may be enforced against the parties to the proceeding or their assets
wherever they may be found and that a judgment upon the award may be entered
in
any court having jurisdiction thereof.
2.3 Acknowledgment.
STOCKHOLDER HAS READ AND UNDERSTANDS SECTION
2.2
OF THIS
AGREEMENT, WHICH DISCUSSES ARBITRATION. STOCKHOLDER UNDERSTANDS THAT BY SIGNING
THIS NON-COMPETITION AGREEMENT, STOCKHOLDER AGREES TO SUBMIT ANY CLAIMS ARISING
OUT OF, RELATING TO, OR IN CONNECTION WITH THIS NON-COMPETITION AGREEMENT,
OR
THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION
THEREOF TO CONFIDENTIAL BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE
CONSTITUTES A WAIVER OF EMPLOYEE’S RIGHT TO A JURY TRIAL.
ARTICLE
3
MISCELLANEOUS
3.1 Entire
Agreement; Amendments and Waivers; Several Agreements.
This
Agreement contains the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements, written or oral,
with
respect thereto. This Agreement may be amended or modified and the terms and
conditions hereof may be waived, only by a written instrument signed by each
of
the parties or, in the case of waiver, by the party waiving compliance. No
delay
on the part of either party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part
of
either party of any right, power or privilege hereunder, nor any single or
partial exercise of any right, power or privilege hereunder, preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege hereunder. The rights and remedies provided herein are cumulative
and
are not exclusive of any rights or remedies that either party may otherwise
have
at law or in equity. In addition to this Agreement, NextWave has entered into
a
similar agreement with other key employees of the Company. It is expressly
agreed that this Agreement and the obligations of the parties hereunder are
to
be construed separately from any similar agreements with any other key employee
of the Company and a breach of a similar agreement by any other key employee
of
the Company shall not constitute a breach of this Agreement. No
waiver
by NextWave of any term or condition of this Agreement with respect to Key
Employee, in any one or more instances, shall be deemed to be or construed
as a
waiver of the same or any other term or condition of any other agreement with
respect to any other equity
holder, employee
of the Company or any other Person.
3.2 Representations
and Warranties.
Key
Employee represents and warrants that this Agreement is a legal, valid and
binding obligation, enforceable against Key Employee in accordance with its
terms to the fullest extent permitted under applicable federal, state or local
law, subject to the consummation of the Merger and the occurrence of the
Effective Time and subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors’ rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a
E-12
proceeding
at law or in equity). NextWave represents and warrants that this Agreement
is a
legal, valid and binding obligation, enforceable against NextWave in accordance
with its terms to the fullest extent permitted under applicable federal, state
or local law, subject only to the consummation of the Merger and the occurrence
of the Effective Time and subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors’ rights and
remedies generally, and subject, as to enforceability, to general principles
of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law
or
in equity).
3.3 Notices.
All
notices, requests, claims, demands and other communications hereunder shall
be
in writing and sufficient if delivered in person, by cable, telegram, telex
or
telecopy, or sent by mail (registered or certified mail, postage prepaid, return
receipt requested) or overnight courier (prepaid) to the respective parties
as
follows:
|
If
to NextWave:
|
NextWave
Wireless LLC
000
Xxxx Xxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxx,
XX 00000
Facsimile
No.: (000)
000-0000
Attention: Xxxxx
Xxxxxx, Esq.
With
a copy to:
Weil,
Gotshal & Xxxxxx LLP
000
Xxxxx Xxxxxx
Xxx
Xxxx, XX 00000
Facsimile
No. (000) 000-0000
Attn: Xxxxxx
X. Xxxxxxx, Esq.
|
|
If
to Key Employee:
|
To
the address or facsimile number for notice set forth on the last
page
hereof (or if none so set forth, to any address then set forth for
the Key
Employee in the books and records of
NextWave).
|
All
such
notices, requests and other communications will (a) if delivered personally
to the address as provided in this section, be deemed given upon delivery,
(b) if delivered by facsimile transmission to the facsimile number as
provided for in this section, be deemed given upon facsimile confirmation,
and
(c) if delivered by overnight courier to the address as provided in this
section, be deemed given on the earlier of the first Business Day following
the
date deposited with such overnight courier with the requisite payment and
instructions to effect delivery on the next Business Day or upon receipt (in
each case regardless of whether such notice, request or other communication
is
received by any other Person to whom a copy of such notice is to be delivered
pursuant to this section). Any party from time to time may change its address,
facsimile number or other information for the purpose of notices to that party
by giving written notice specifying such change to the other parties
hereto.
E-13
3.4 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of California, without giving effect to any choice of law
or
conflict of law provision or rule (whether of the State of California or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California.
3.5 Merger.
In the
event the Merger is not consummated and the Merger Agreement is terminated
for
any reason in accordance with its terms, this Agreement shall be null and
void.
3.6 Severability.
To the
extent any provision of this Agreement, including without limitation the
provisions set forth in Article
2
hereof,
shall be determined to be unlawful or otherwise unenforceable, in whole or
in
part, such determination shall not affect the validity of the remainder of
this
Agreement, and this Agreement shall be reformed to the extent necessary to
carry
out its provisions to the greatest extent possible and to insure that the
resolution of all conflicts between the parties, including those arising out
of
statutory claims, shall be resolved by neutral, binding arbitration. In the
absence of such reformation, such part of such provision shall be considered
deleted from this Agreement and the remainder of such provision and of this
Agreement shall be unaffected and shall continue in full force and effect.
In
furtherance and not in limitation of the foregoing, should the duration or
geographical extent of, or business activities covered by any provision of
this
Agreement be in excess of that which is valid and enforceable under applicable
law, then such provision shall be construed to cover only that duration, extent
or activities which may validly and enforceably be covered. To the extent any
provision of this Agreement shall be declared invalid or unenforceable for
any
reason by any Governmental Body in any jurisdiction, this Agreement (or
provision thereof) shall remain valid and enforceable in each other jurisdiction
where it applies. Key Employee acknowledges the uncertainty of the law in this
respect and expressly stipulates that this Agreement shall be given the
construction which renders its provisions valid and enforceable to the maximum
extent (not exceeding its express terms) possible under applicable
law.
3.7 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties hereto,
the heirs and legal representatives of Key Employee and the successors and
assigns of NextWave and the Company. Key Employee shall not be entitled to
assign his obligations hereunder. NextWave and the Company may assign their
respective rights under this Agreement to any Person solely in connection with
the assignment of all or substantially all of the assets of the Business. Key
Employee agrees that, upon request therefor, he will, in writing, acknowledge
and consent to any such assignment of this Agreement.
3.8 Definitions.
Capitalized terms used herein and not defined shall have the respective meanings
ascribed to them in the Merger Agreement unless otherwise expressly
indicated.
3.9 Independent
Review and Advice.
Key
Employee represents and warrants (a) that Key Employee has carefully read this
Agreement; (b) that Key Employee executes this Agreement with full knowledge
of
the contents of this Agreement, the legal consequences thereof, and any and
all
rights which each party may have with respect to one another; (c) that Key
Employee has had the opportunity to receive independent legal advice with
respect
E-14
to
the
matters set forth in this Agreement and with respect to the rights and asserted
rights arising out of such matters; (d) that Key Employee has been advised
to,
and has had the opportunity to, consult with Key Employee’s personal attorney
prior to entering into this Agreement; and (e) that Key Employee is entering
into this Agreement of Key Employee’s own free will. Key Employee expressly
agrees that he has no expectations or understandings contrary to the Agreement
and no usage of trade or regular practice in the industry shall be used to
modify this Agreement. The parties agree that this Agreement shall not be
construed for or against either party in any interpretation thereof. Key
Employee acknowledges that Xxxxxx Godward LLP represents the Company and does
not represent Key Employee in connection with the Merger Agreement, this
Agreement, or any of the transactions contemplated thereby or
hereby.
E-15
IN
WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first written above.
| NEXTWAVE WIRELESS LLC | KEY EMPLOYEE | |
| Signature | Signature | |
| Print Name and Title | Print Name | |
| Address | ||
| Facsimile Number | ||
| PACKETVIDEO CORPORATION | ||
| Signature | ||
| Print Name and Title | ||
E-16
EXHIBIT
F
Form
of PacketVideo
Corporation
Employee
Retention Plan
Effective ,
2005
Section
1 Purpose.
PacketVideo Employee Retention Plan (“Plan”), effective as of __, 2005 (the
“Effective Date”), provides a select group of key employees with additional
incentives up to an aggregate amount of $3,440,000 to continue their employment
with the PacketVideo Corporation (“Company”). The Plan is a bonus plan and
therefore is exempt from the application of the Employee Retirement Income
Security Act of 1974, as amended.
Section
2.1 Eligibility
and Terms of Participation.
The
Board of Directors of the Company shall determine in its sole discretion the
key
employees who are entitled to participate in the Plan, the amount of retention
bonus for each participant and the terms and conditions applicable to each
retention bonus. No employee shall be entitled to participate unless and until
his or her participation is confirmed in writing by the Company by means of
a
separate letter of participation (“Participation Letter”). A Participation
Letter may set forth any additional terms and conditions of participation
(beyond the provisions of the Plan) as the Company may, in its sole discretion,
determine. If so provided in a Participation Letter, an participant shall not
become a participant unless and until he or she signs and agrees to the terms
and conditions of such Participation Letter and the Plan.
Section
2.2 Termination
of Participation.
A
participant’s participation in the Plan shall automatically terminate, without
notice to or consent of the participant, and the participant shall not be
treated as a participant, upon the earliest to occur of the following
events:
|
(a)
|
the
participant’s termination of employment by the Company or any of its
affiliates for Cause,
|
|
(b)
|
the
participant’s resignation other than for Good Reason from the Company,
or
|
|
(c)
|
any
termination of participation in accordance with the participant’s
Participation Letter.
|
In
addition, a participant who transfers employment from the Company to any
affiliate thereof, including any subsidiary, shall be entitled to receive a
retention bonus multiplied by a fraction, the numerator of which is the number
of months of actual employment from the Effective Date through the transfer
date
and the denominator of which is 18, and shall no longer participate in the
Plan,
unless otherwise specifically determined in writing by the Company.
F-1
Section
3.1 Retention
Bonus.
Unless
a different payment schedule is set forth in a participant’s Participation
Letter, each participant who is actively employed with the Company shall be
entitled to receive:
|
(i)
|
50%
of the total retention bonus established for such participant on
the
sooner of 18 months or completion of the first formal release of
Initiative 1: V4 middleware software as described in Schedule 1,
and
|
|
(ii)
|
50%
of the total retention bonus established for such participant on
the
sooner of 18 months or completion of NextWave’s portal development based
on specifications to be mutually agreed upon between the Company
and
NextWave.
|
Such
retention bonus shall be paid as soon as practicable thereafter.
Section
3.2 Termination
of Employment.
Upon a
participant’s termination of employment with the Company for any reason, the
participant’s entitlement, if any, to a retention bonus shall be determined and
his or her participation in the Plan shall end, unless otherwise specifically
agreed or determined in writing by the Company’s Board of
Directors.
(a) Involuntary
Termination Without Cause or Resignation for Good Reason.
Each
participant whose employment with the Company is terminated by the Company
without Cause or by the participant for Good Reason prior to payment of the
full
amount of the participant’s retention bonus award shall be entitled to receive
the entire unpaid balance of such bonus, payable at the participant’s Monthly
Pay Rate in accordance with the company’s normal payroll practices unless
otherwise provided in the participant’s Participation Letter. “Monthly
Pay Rate”
means
one twelfth of the participant’s actual regular salary paid for the twelve
months immediately preceding his or her date of termination of employment for
all services as an employee rendered to the Company.
(b) Involuntary
Termination for Cause or Resignation Without Good Reason.
Each
participant whose employment with the Company was terminated by the participant
without Good Reason or by the Company (or was terminable by the Company) for
Cause shall forfeit any right to payment of any unpaid balance of the
participant’s retention bonus award unless otherwise provided in the
participant’s Participation Letter.
(c) Death
or Disability.
Each
participant whose employment is terminated by reason of the participant’s death
or total disability (as determined in accordance with the Company’s long term
disability plan applicable to the participant or, if no such plan, the Company’s
long term disability plan applicable to employees generally, or if none, in
accordance with Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended) prior to payment of the full amount of the participant’s retention
bonus award shall be entitled to receive a pro rata amount of the full amount
of
such award (such pro rata amount based on a fraction, the numerator of which
is
the number of months of actual employment from the
F-2
Effective
Date through the termination date and the denominator of which is 18 reduced
by
any retention bonuses previously paid).
(d) No
Duplication or Mitigation.
The
amounts payable under the Plan are in consideration of a participant’s
continuation of employment or availability for continued employment and shall
not be treated as severance pay. Accordingly, the amounts payable under the
Plan
shall not be reduced by any severance to which the participant may be entitled
under other severance plans of or agreements with the Company, if any. A
participant shall not be required to undertake any mitigation in order to
receive payment of any amounts otherwise payable under the Plan.
Section
3.3 Release.
Notwithstanding any other provision in the Plan, each participant (other than
any deceased participant) shall, as a condition to entitlement to any and all
benefits under the Plan, provide to the Company a Release, Covenant Not to
Xxx,
Non-Disclosure and Non-Solicitation Agreement executed by the participant,
in
the form set forth in Schedule 2 to this Plan (“Release Agreement”), and that
such Release Agreement be effective and not revocable.
Section
4 Administration.
The
Company shall administer the Plan, except as otherwise set forth in the Plan
and
subject to direction by the Company’s Board of Directors. The Company’s Board of
Directors shall have the authority and responsibility to do all things necessary
or appropriate to effect the purposes of and to administer the Plan, including,
without limitation, the power in its sole discretion to:
|
(a)
|
provide
rules for the management, operation and administration of the Plan,
and to
amend or supplement such rules;
|
|
(b)
|
interpret
or construe the terms of the Plan;
|
|
(c)
|
correct
any defect, supply any omission, clarify any ambiguity or reconcile
any
inconsistency in the Plan in such manner and to such extent as it
shall
deem appropriate in its sole
discretion;
|
|
(d)
|
make
reasonable determinations as to a participant’s eligibility for benefits
under the Plan, including determinations as to Cause and Good
Reason.
|
The
determinations, decisions and actions of the Company’s Board of Directors or its
duly authorized delegate shall be final, conclusive and binding for all purposes
of the Plan, and shall not be subject to any appeal or review.
Section
5 Amendment
or Termination.
Notwithstanding any other provision of the Plan, the Plan (including any
Schedules) may be amended, modified, suspended, or terminated by the Company;
provided, however, that any such amendment, modification, suspension or
termination shall not adversely affect the rights of any participant in respect
of any outstanding retention bonus.
F-3
Section
6.1 Severability.
If any
term or condition of the Plan shall be invalid or unenforceable to any extent
or
in any application, then the remainder of the Plan, with the exception of such
invalid or unenforceable provision, shall not be affected thereby and shall
continue in effect and application to its fullest extent. If, however, the
Company determines in good faith that any term or condition of the Plan which
is
invalid or unenforceable is material to the interests of the Company, the
Company may declare the Plan null and void in its entirety.
Section
6.2 No
Employment Rights.
The
establishment of the Plan and the selection of any employee for participation
in
the Plan does not, and shall be held or construed to, confer upon any employee
the right to a continuation of employment by the Company or any of its
affiliates. Subject to any applicable employment agreement, the Company reserves
the right to dismiss any employee or otherwise deal with any employee to the
same extent as though the Plan had not been adopted.
Section
6.3 Non-Property
Interest.
The
Plan is unfunded and any liability of the Company to any person with respect
to
benefits payable under the Plan shall give rise to a claim as an unsecured
creditor against the general assets of the Company. Any participant who may
have
or claim any interest in or right to any compensation, payment or benefit
payable hereunder, shall rely solely upon the unsecured promise of the Company
for the payment thereof, and nothing herein contained shall be construed to
give
to or vest in the participant or any other person now or at any time in the
future, any right, title, interest or claim in or to any specific asset, fund,
reserve, account, insurance or annuity policy or contract, or other property
of
any kind whatsoever owned by the Company, or in which the Company may have
any
right title or interest now or at any time in the future.
Section
6.4 Other
Rights.
The
Plan shall not affect or impair the rights or obligations of the Company or
a
participant under any other written plan, contract, arrangement, or pension,
profit sharing or other compensation plan.
Section
6.5 Incapacity.
If the
Company determines that a participant or a beneficiary thereof is unable to
care
for his or her affairs because of illness or accident or because he or she
is a
minor, any benefit due to such individual may be paid to such individual’s
spouse or any other person deemed by the Company to have incurred expense for
such individual (including a duly appointed guardian, committee or other legal
representative), and any such payment shall be a complete discharge of the
Company’s obligation hereunder.
Section
6.6 Transferability
of Rights.
The
Company shall have the unrestricted right to transfer its obligations under
the
Plan with respect to one or more participants to any person, including, but
not
limited to, any purchaser of all or any part of the Company’s business. No
participant or spouse of a participant shall have any right to commute,
encumber, transfer or otherwise dispose of or alienate any present or future
right or expectancy which the participant or such spouse may have at any time
to
receive payments of benefits hereunder, which benefits and the right thereto
are
expressly declared to be non-assignable and nontransferable, except to the
extent required by law. Any attempt to transfer or assign a benefit, or any
rights granted hereunder, by a participant or the spouse of a participant shall,
in the sole discretion of the Company (after consideration of such facts as
it
deems pertinent), be grounds
F-4
for
terminating any rights of the participant or his or her spouse to any portion
of
the Plan benefits not previously paid.
Section
6.7 Entire
Document.
The
Plan, as set forth herein, supersedes any and all prior practices,
understandings, agreements, descriptions or other non-written arrangements
respecting retention bonus payments, severance, except for any severance policy
or agreement, if any, existing as of the Effective Date, and written employment
contracts signed by the Company.
Section
6.8 Governing
Law.
The
Plan shall be construed, administered, and enforced according to the laws of
the
State of California, except to the extent that such laws are preempted by the
federal laws of the United States of America.
Section
7 Definitions.
The
following words and phrases as used herein shall have the following meanings,
unless a different meaning is required by the context:
“Cause”
means
any act or any failure to act on the part of a participant which
constitutes:
|
(a)
|
fraud,
embezzlement, theft or dishonesty against the Company or any of its
affiliates, or the Board of Directors of the Company or any of its
affiliates;
|
|
(b)
|
a
willful or grossly negligent material violation of law in connection
with
or in the course of the participant’s duties or employment with the
Company or any of its affiliates;
|
|
(c)
|
a
felony for which the participant is convicted or pleads nolo contendere;
|
|
(d)
|
willful
or grossly negligent engagement in any activity competitive with
the
business of the Company as to which the Company has notified the
participant in writing and the participant has not ceased (other
than for
reasons beyond the control of participant) within 3 business days
following receipt of such notice his or her participation in such
activity;
|
|
(e)
|
a
failure to follow reasonable directions or instructions of a more
senior
officer or the Board of Directors of the Company which are consistent
with
the participant’s position and responsibilities as of the date of his or
her initial participation in the Plan (as such position and
responsibilities may be changed from time to time with the prior
consent
of the participant), and such failure shall have continued (other
than for
reasons beyond the control of the participant) for a period of 3
business
days after receipt of written notice thereof from the
Company;
|
|
(f)
|
willful
or grossly negligent breach of any stated material employment policy
of
the Company;
|
F-5
|
(g)
|
willful
and wrongful damage to material property of the Company or any of
its
affiliates; or
|
|
(h)
|
willful
and wrongful disclosure of confidential information of the Company
or any
of its affiliates.
|
“Good
Reason”
means
with respect to a participant (i) a reduction in the participant’s annual base
salary (other than any reduction applicable to management employees generally
or
any reduction not exceeding 5% during any 12-month period), (ii) a material
change in the participant’s position, duties or responsibilities as an employee
of the Company without the participant’s prior consent (excluding any changes
consistent with the participant’s position as of the Effective Date for purposes
of transitioning all or a portion of the participant’s duties and
responsibilities to another person, provided that such transition period does
not exceed 6 months), (iii) a change in the participant’s principal work
location by more than 50 miles and more than 50 miles from the participant’s
principal place of abode as of the date of such change in job location, or
(iv)
any other event or condition set forth in the Participation Letter with respect
to the participant.
EXECUTED,
at California,
this day of ___________, 2005.
PACKETVIDEO
CORPORATION
By:
_______________________
Chief
Executive Officer
F-6
Schedule
1
Initiative
1: V4
|
·
|
Integrated
multimedia middleware solution
package
|
Ø Image,
video, audio & communication functions are integrated into a single flexible
solution package
Ø All
solution components (e.g., 3G324M) have been thoroughly tested
Ø Solution
can be updated to support a new component (e.g., a new codec)
Ø New
features and functionalities can be easily created via a flexible
architecture
Ø Customizable
user interface
Ø Capability
for accepting downloadable drop-in modules
Ø Supports
flash graphics
|
·
|
Easily
ported to support multiple hardware / software
platforms
|
Ø OMA
compliant
Ø PV
releases support Symbian, Linux and win32 operating systems on ARM and TI
hardware
Ø Porting
package enables OEMs to support all current & future embedded
platforms
Ø Porting
guide includes documentation and standard self administered tests to insure
customer success
Ø Source
code supplied for end applications to encourage OEM development
F-7
EXHIBIT
G
FORM
OF PacketVideo
Corporation
2005
EQUITY INCENTIVE PLAN
As
Adopted Effective , 2005
Termination
Date: , 2015
1. PURPOSES.
(a) Effective
Date.
The
PacketVideo Corporation 2005 Equity Incentive Plan has been adopted effective
as
of , 2005.
(b) Eligible
Stock Award Recipients.
The
persons eligible to receive Stock Awards are the Employees, Directors and
Consultants of the Company and its Affiliates.
(c) Available
Stock Awards.
The
purpose of the Plan is to provide a means by which eligible recipients of Stock
Awards may be given an opportunity to benefit from increases in value of the
Common Stock through the granting of the following Stock Awards: (i) Incentive
Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv)
rights to acquire restricted stock.
(d) General
Purpose.
The
Company, by means of the Plan, seeks to retain the services of the group of
persons eligible to receive Stock Awards, to secure and retain the services
of
new members of this group and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
2. DEFINITIONS.
(a) “Adjusted
Option”
has the
meaning ascribed to that term in Section 12(c).
(b) “Affiliate”
means
any parent corporation or subsidiary corporation of the Company, whether now
or
hereafter existing, as those terms are defined in Sections 424(e) and (f),
respectively, of the Code.
(c) “Board”
means
the Board of Directors of the Company.
(d) “Capitalization
Adjustment”
has the
meaning ascribed to that term in Section 11(a).
(e) “Cause”
shall
means any act or any failure to act on the part of a participant which
constitutes (i) willful misconduct which is injurious to the Company, (ii)
fraud, embezzlement, theft or dishonesty against the Company or any of its
affiliates, or the Board of Directors of the Company or any of its affiliates,
(iii) a willful or grossly negligent violation of law in connection with or
in
the course of the participant’s duties or employment with the Company or any of
its affiliates, (iv) a felony for which the participant is convicted or pleads
nolo
contendere,
(v)
willful or grossly negligent engagement in any activity competitive with
the
G-1
business
of the Company as to which the Company has notified the participant in writing
and the participant has not ceased (other than for reasons beyond the control
of
participant), within 3 business days following receipt of such notice, his
or
her participation in such activity, (vi) a failure to follow reasonable
directions or instructions of a more senior manager or the Board of Directors
of
the Company which are consistent with the participant’s position and
responsibilities, and such failure shall have continued (other than for reasons
beyond the control of the participant) for a period of 3 business days after
receipt of written notice thereof from the Company, (vii) willful or grossly
negligent breach of any stated employment policy of the Company, (viii) willful
and wrongful damage to material property of the Company or any of its affiliates
or (ix) willful and wrongful disclosure of confidential information of the
Company or any of its affiliates.
(f) “Code”
means
the Internal Revenue Code of 1986, as amended.
(g) “Committee”
means a
committee of one or more members of the Board appointed by the Board in
accordance with subsection 3(c).
(h) “Common
Stock”
means
the common stock of the Company, subject to subsection 12(f).
(i) “Company”
means
PacketVideo Corporation, a Delaware corporation.
(j) “Consultant”
means
any person, including an advisor, (i) engaged by the Company or an Affiliate
to
render consulting or advisory services and who is compensated for such services
or (ii) who is a member of the Board of Directors of an Affiliate. However,
the
term “Consultant” shall not include either Directors who are not compensated by
the Company for their services as Directors or Directors who are merely paid
a
director’s fee by the Company for their services as Directors.
(k) “Continuous
Service”
means
that the Participant’s service with the Company or an Affiliate, whether as an
Employee, Director or Consultant, is not interrupted or terminated. The
Participant’s Continuous Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Participant renders service
to
the Company or an Affiliate as an Employee, Consultant or Director or a change
in the entity for which the Participant renders such service, provided that
there is no interruption or termination of the Participant’s Continuous Service.
For example, a change in status from an Employee of the Company to a Consultant
of an Affiliate or a Director will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party’s sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal
leave.
(l) “Conversion
Ratio”
has the
meaning ascribed to that term in Section 12(b).
(m) “Conversion
Time”
has the
meaning ascribed to that term in Section 12(a).
(n) “Corporate
Parent”
means
Parent or any corporation that is beneficially owned by Parent and beneficially
owns the Company.
G-2
(o) “Corporate
Transaction” means:
(i) a sale or other disposition of all or substantially all of the assets of
the
Company; (ii) a merger or consolidation in which the Company is not the
surviving entity; or (iii) a reverse merger in which the Company is the
surviving entity but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise.
(p) “Covered
Employee”
means
the chief executive officer and the four (4) other highest compensated officers
of the Company for whom total compensation is required to be reported to
stockholders under the Exchange Act, as determined for purposes of Section
162(m) of the Code.
(q) “Director”
means a
member of the Board of Directors of the Company.
(r) “Disability”
means
(i) before the Listing Date,
the
inability of a person, in the opinion of a qualified physician acceptable to
the
Company, to perform the major duties of that person’s position with the Company
or an Affiliate of the Company because of the sickness or injury of the person
and (ii) after the Listing Date, the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(s) “Employee”
means
any person employed by the Company or an Affiliate. Mere service as a Director
or payment of a director’s fee by the Company or an Affiliate shall not be
sufficient to constitute “employment” by the Company or an Affiliate.
(t) “Exchange
Act”
means
the Securities Exchange Act of 1934, as amended.
(u) “Fair
Market Value”
means,
as of any date, the value of the Common Stock determined as
follows:
(i) If
the
Common Stock is listed on any established stock exchange or traded on the Nasdaq
National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share
of Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange or market (or the
exchange or market with the greatest volume of trading in the Common Stock)
on
the last market trading day prior to the day of determination, as reported
in
The
Wall Street Journal or
such
other source as the Board deems reliable.
(ii) In
the
absence of such markets for the Common Stock, the Fair Market Value shall be
determined in good faith by the Board.
(iii) Prior
to
the Listing Date, the value of the Common Stock shall be determined in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations.
(v) “Incentive
Stock Option”
means an
Option intended to qualify as an incentive stock option within the meaning
of
Section 422 of the Code and the regulations promulgated
thereunder.
G-3
(w) “Listing
Date” means
the
first date upon which any security of the Company or a Corporate Parent is
listed (or approved for listing) upon notice of issuance on any securities
exchange or designated (or approved for designation) upon notice of issuance
as
a national market security on an interdealer quotation system if such securities
exchange or interdealer quotation system has been certified in accordance with
the provisions of Section 25100(o) of the California Corporate Securities Law
of
1968.
(x) “New
Common Stock”
has the
meaning ascribed to that term in Section 12(a).
(y) “Non-Employee
Director” means
a
Director who either (i) is not a current Employee or Officer of the Company
or
its parent or a subsidiary, does not receive compensation (directly or
indirectly) from the Company or its parent or a subsidiary for services rendered
as a consultant or in any capacity other than as a Director (except for an
amount as to which disclosure would not be required under Item 404(a) of
Regulation S-K promulgated pursuant to the Securities Act (“Regulation S-K”)),
does not possess an interest in any other transaction as to which disclosure
would be required under Item 404(a) of Regulation S-K and is not engaged in
a
business relationship as to which disclosure would be required under
Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
“non-employee director” for purposes of Rule 16b-3.
(z) “Nonstatutory
Stock Option”
means an
Option not intended to qualify as an Incentive Stock Option.
(aa) “Officer”
means
(i) before the Listing Date, any person designated by the Company as an officer
and (ii) on and after the Listing Date, a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules
and regulations promulgated thereunder.
(bb) “Option”
means an
Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the
Plan.
(cc) “Option
Agreement”
means a
written agreement between the Company and an Optionholder evidencing the terms
and conditions of an individual Option grant. Each Option Agreement shall be
subject to the terms and conditions of the Plan.
(dd) “Optionholder” or
“Optionee” means
a
person to whom an Option is granted pursuant to the Plan or, if applicable,
such
other person who holds an outstanding Option.
(ee) “Outside
Director”
means a
Director who either (i) is not a current employee of the Company or an
“affiliated corporation” (within the meaning of Treasury Regulations promulgated
under Section 162(m) of the Code), is not a former employee of the Company
or an
“affiliated corporation” receiving compensation for prior services (other than
benefits under a tax qualified pension plan), was not an officer of the Company
or an “affiliated corporation” at any time and is not currently receiving direct
or indirect remuneration from the Company or an “affiliated corporation” for
services in any capacity other than as a Director or (ii) is otherwise
considered an “outside director” for purposes of Section 162(m) of the
Code.
(ff) “Parent”
means
Nextwave Wireless LLC or any successor thereto.
G-4
(gg) “Parent
Common Stock”
means
any common stock of Parent or any Corporate Parent.
(hh) “Participant”
means a
person to whom a Stock Award is granted pursuant to the Plan or, if applicable,
such other person who holds an outstanding Stock Award.
(ii) “Plan”
means
this PacketVideo Corporation 2005 Equity Incentive Plan.
(jj) “Rule
16b-3”
means
Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3,
as
in effect from time to time.
(kk) “Securities
Act”
means
the Securities Act of 1933, as amended.
(ll) “Stock
Award”
means
any right granted under the Plan, including an Option, a stock bonus and a
right
to acquire restricted stock.
(mm) “Stock
Award Agreement”
means a
written agreement between the Company and a holder of a Stock Award evidencing
the terms and conditions of an individual Stock Award grant. Each Stock Award
Agreement shall be subject to the terms and conditions of the Plan.
(nn) “Ten
Percent Stockholder”
means a
person who owns (or is deemed to own pursuant to Section 424(d) of the Code)
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) Administration
by Board.
The
Board shall administer the Plan unless and until the Board delegates
administration to a Committee, as provided in subsection 3(c).
(b) Powers
of Board.
The
Board shall have the power, subject to, and within the limitations of, the
express provisions of the Plan:
(i) To
determine from time to time which of the persons eligible under the Plan shall
be granted Stock Awards; when and how each Stock Award shall be granted; what
type or combination of types of Stock Award shall be granted; the provisions
of
each Stock Award granted (which need not be identical), including the time
or
times when a person shall be permitted to receive Common Stock pursuant to
a
Stock Award; and the number of shares of Common Stock with respect to which
a
Stock Award shall be granted to each such person.
(ii) To
construe and interpret the Plan and Stock Awards granted under it, and to
establish, amend and revoke rules and regulations for its administration. The
Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Stock Award Agreement, in a manner and
to
the extent it shall deem necessary or expedient to make the Plan fully
effective.
(iii) To
amend
the Plan or a Stock Award as provided in Section 13.
(iv) To
terminate or suspend the Plan as provided in Section 14.
G-5
(v) Generally,
to exercise such powers and to perform such acts as the Board deems necessary
or
expedient to promote the best interests of the Company which are not in conflict
with the provisions of the Plan.
(c) Delegation
to Committee.
(i) General.
The
Board may delegate administration of the Plan to a Committee or Committees
of
one (1) or more members of the Board, and the term “Committee” shall apply to
any person or persons to whom such authority has been delegated. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, including the power to delegate to a subcommittee any of the
administrative powers the Committee is authorized to exercise (and references
in
this Plan to the Board shall thereafter be to the Committee or subcommittee),
subject, however, to such resolutions, not inconsistent with the provisions
of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration
of
the Plan.
(ii) Committee
Composition when Common Stock is Publicly Traded.
At such
time as the Common Stock is publicly traded, in the discretion of the Board,
a
Committee may consist solely of two or more Outside Directors, in accordance
with Section 162(m) of the Code, and/or solely of two or more Non-Employee
Directors, in accordance with Rule 16b-3. Within the scope of such authority,
the Board or the Committee may (1) delegate to a committee of one or more
members of the Board who are not Outside Directors the authority to grant Stock
Awards to eligible persons who are either (a) not then Covered Employees and
are
not expected to be Covered Employees at the time of recognition of income
resulting from such Stock Award or (b) not persons with respect to whom the
Company wishes to comply with Section 162(m) of the Code and/or) (2) delegate
to
a committee of one or more members of the Board who are not Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act.
(d) Effect
of Board’s Decision.
All
determinations, interpretations and constructions made by the Board in good
faith shall not be subject to review by any person and shall be final, binding
and conclusive on all persons.
4. SHARES
SUBJECT TO THE PLAN.
(a) Share
Reserve.
Subject
to the provisions of Section 11 relating to adjustments upon changes in Common
Stock and Section 12 relating to certain initial public offerings, the Common
Stock that may be issued pursuant to Stock Awards shall not exceed in the
aggregate 8,250,000 shares of Common Stock; provided, however, that the Common
Stock that may be issued pursuant to Stock Awards consisting of restricted
stock
shall not exceed in the aggregate 4,125,000 shares of Common Stock.
(b) Reversion
of Shares to the Share Reserve.
If any
Stock Award shall for any reason expire or otherwise terminate, in whole or
in
part, without having been exercised in full, or if any shares of Common Stock
issued to a Participant pursuant to a Stock Award are forfeited back to the
Company, or are repurchased by the Company as a result of the failure to meet
a
G-6
contingency
or condition required for the vesting of such shares, then the shares of Common
Stock not acquired under such Stock Award shall revert to and again become
available for issuance under the Plan.
(c) Source
of Shares.
The
shares of Common Stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
(d) Share
Reserve Limitation.
Prior to
the Listing Date, at no time shall the total number of shares issuable upon
exercise of all outstanding Options and the total number of shares provided
for
under any stock bonus or similar plan of the Company exceed the applicable
percentage as calculated in accordance with the conditions and exclusions of
Section 260.140.45 of Title 10 of the California Code of Regulations, based
on
the shares of the Company that are outstanding at the time the calculation
is
made.
5. ELIGIBILITY.
(a) Eligibility
for Specific Stock Awards.
Incentive Stock Options may be granted only to Employees. Stock Awards other
than Incentive Stock Options may be granted to Employees, Directors and
Consultants.
(b) Ten
Percent Stockholders.
(i) A
Ten
Percent Stockholder shall not be granted an Incentive Stock Option unless the
exercise price of such Option is at least one hundred ten percent (110%) of
the
Fair Market Value of the stock at the date of grant and the Option is not
exercisable after the expiration of five (5) years from the date of grant.
(ii) Prior
to
the Listing Date, no Ten Percent Stockholder shall be eligible for the grant
of
a Nonstatutory Stock Option unless the exercise price of such Option is at
least
(i) one hundred ten percent (110%) of the Fair Market Value of the stock at
the
date of grant or (ii) such lower percentage of the Fair Market Value of the
stock at the date of grant as is permitted by Section 260.140.41 of Title 10
of
the California Code of Regulations at the time of the grant of the Option.
(iii) Prior
to
the Listing Date, no Ten Percent Stockholder shall be eligible for a restricted
stock award or stock bonus unless the purchase price of the restricted stock
award (or the value of past services provided in consideration of the stock
bonus) is at least (i) one hundred percent (100%) of the Fair Market Value
of
the stock at the date of grant of the award or (ii) such lower percentage of
the
Fair Market Value of the stock at the date of grant as is permitted by Section
260.140.42 of Title 10 of the California Code of Regulations at the time of
grant of the award.
(c) Section
162(m) Limitation.
Subject
to the provisions of Section 11 relating to adjustments upon changes in the
shares of Common Stock, no Employee shall be eligible to be granted Options
covering more than four hundred thousand (400,000) shares of Common Stock of
the
Company during any calendar year; provided, however that to the extent that
Options are granted in connection with the commencement of employment of any
person, the total number of shares of the Company’s common stock covered under
such Options shall not exceed seven
G-7
hundred
thousand (700,000) shares. This subsection 5(c) shall not apply prior to the
Listing Date and, following the Listing Date, this subsection 5(c) shall not
apply until (i) the earliest of: (1) the first material modification of the
Plan
(including any increase in the number of shares reserved for issuance under
the
Plan in accordance with Section 4); (2) the issuance of all of the shares of
Common Stock reserved for issuance under the Plan; (3) the expiration of the
Plan; or (4) the first meeting of stockholders at which Directors are to be
elected that occurs after the close of the third calendar year following the
calendar year in which occurred the first registration of an equity security
under Section 12 of the Exchange Act; or (ii) such other date required by
Section 162(m) of the Code and the rules and regulations promulgated thereunder.
(d) Consultants.
(i) Prior
to
the Listing Date, a Consultant shall not be eligible for the grant of a Stock
Award if, at the time of grant, either the offer or the sale of the Company’s
securities to such Consultant is not exempt under Rule 701 of the Securities
Act
(“Rule 701”) because of the nature of the services that the Consultant is
providing to the Company, or because the Consultant is not a natural person,
or
as otherwise provided by Rule 701, unless the Company determines that such
grant
need not comply with the requirements of Rule 701 and will satisfy another
exemption under the Securities Act as well as comply with the securities laws
of
all other relevant jurisdictions.
(ii) From
and
after the Listing Date, a Consultant shall not be eligible for the grant of
a
Stock Award if, at the time of grant, a Form S-8 Registration Statement under
the Securities Act (“Form S-8”) is not available to register either the offer or
the sale of the Company’s securities to such Consultant because of the nature of
the services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that
such
grant (A) shall be registered in another manner under the Securities Act
(e.g.,
on a
Form S-3 Registration Statement) or (B) does not require registration under
the
Securities Act in order to comply with the requirements of the Securities Act,
if applicable, and (ii) that such grant complies with the securities laws of
all
other relevant jurisdictions.
(iii) Rule
701
and Form S-8 generally are available to consultants and advisors only if (i)
they are natural persons; (ii) they provide bona fide services to the issuer,
its parents, its majority-owned subsidiaries or majority-owned subsidiaries
of
the issuer’s parent; and (iii) the services are not in connection with the offer
or sale of securities in a capital-raising transaction, and do not directly
or
indirectly promote or maintain a market for the issuer’s
securities.
6. OPTION
PROVISIONS.
Each
Option shall be in such form and shall contain such terms and conditions as
the
Board shall deem appropriate. All Options shall be separately designated
Incentive Stock Options or Nonstatutory Stock Options at the time of grant,
and,
if certificates are issued, a separate certificate or certificates will be
issued for shares of Common Stock purchased on exercise of each type of Option.
The provisions of separate Options need not be identical, but
G-8
each
Option shall include (through incorporation of provisions hereof by reference
in
the Option or otherwise) the substance of each of the following
provisions:
(a) Term.
Subject
to the provisions of subsection 5(b) regarding Ten Percent Stockholders, no
Option granted prior to the Listing Date shall be exercisable after the
expiration of ten (10) years from the date it was granted, and no Incentive
Stock Option granted on or after the
Listing Date shall be exercisable after the expiration of ten (10) years from
the date it was granted.
(b) Exercise
Price of an Incentive Stock Option.
Subject
to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the
exercise price of each Incentive Stock Option shall be not less than one hundred
percent (100%) of the Fair Market Value of the stock subject to the Option
on
the date the Option is granted. Notwithstanding the foregoing, an Incentive
Stock Option may be granted with an exercise price lower than that set forth
in
the preceding sentence if such Option is granted pursuant to an assumption
or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) Exercise
Price of a Nonstatutory Stock Option.
Subject
to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the
exercise price of each Nonstatutory Stock Option granted prior to the Listing
Date shall be not less than eighty-five percent (85%) of the Fair Market Value
of the stock subject to the Option on the date the Option is granted. The
exercise price of each Nonstatutory Stock Option granted on or after the Listing
Date shall be not less than eighty-five percent (85%) of the Fair Market Value
of the stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with
an exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the
Code.
(d) Consideration.
The
purchase price of Common Stock acquired pursuant to an Option shall be paid,
to
the extent permitted by applicable statutes and regulations, either (i) in
cash
at the time the Option is exercised or (ii) at the discretion of the Board
(1)
by delivery to the Company of other Common Stock, (2) according to a deferred
payment or other similar arrangement with the Optionholder, (3) by a “net
exercise” arrangement (described below), or (4) in any other form of legal
consideration that may be acceptable to the Board. Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant
to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six (6)
months (or such longer or shorter period of time required to avoid a charge
to
earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock’s “par value,” as defined
in the Delaware General Corporation Law, shall not be made by deferred
payment.
In
the
case of any deferred payment arrangement, interest shall be compounded at least
annually and shall be charged at the minimum rate of interest necessary to
avoid
(1) the treatment as interest, under any applicable provisions of the Code,
of
any amounts other than amounts stated to be interest under the deferred payment
arrangement, and (2) adverse financial accounting treatment of the
Option.
G-9
In
the
case of any “net exercise” payment arrangement, the Company will reduce the
number of shares of Common Stock issued upon exercise by the largest whole
number of shares with a Fair Market Value that does not exceed the aggregate
exercise price; provided,
however,
that the
Company shall accept a cash or other payment from the Participant to the extent
of any remaining balance of the aggregate exercise price not satisfied by such
holding back of whole shares; provided,
further,
that
shares of Common Stock will no longer be outstanding under an Option and will
not be exercisable thereafter to the extent that (A) shares are used to pay
the
exercise price pursuant to the “net exercise,” (B) shares are delivered to the
Participant as a result of such exercise, and (C) shares are withheld to satisfy
tax withholding obligations. No “net exercise” payment arrangement shall be
permitted prior to the Company’s adoption of FAS 123, as revised.
(e) Transferability
of an Incentive Stock Option.
An
Incentive Stock Option shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable during the lifetime of
the
Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the
Option.
(f) Transferability
of a Nonstatutory Stock Option.
A
Nonstatutory Stock Option granted prior to the Listing Date shall not be
transferable except by will or by the laws of descent and distribution and,
to
the extent provided in the Option Agreement, to such further extent as permitted
by Section 260.140.41(d) of Title 10 of the California Code of Regulations
at
the time of the grant of the Option, and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder. A Nonstatutory Stock
Option granted on or after the Listing Date shall be transferable to the extent
provided in the Option Agreement. If the Nonstatutory Stock Option does not
provide for transferability, then the Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution and
shall
be exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter
be
entitled to exercise the Option.
(g) Vesting
Generally.
The
total number of shares of Common Stock subject to an Option may, but need not,
vest and therefore become exercisable in periodic installments that may, but
need not, be equal. The Option may be subject to such other terms and conditions
on the time or times when it may be exercised (which may be based on performance
or other criteria) as the Board may deem appropriate. The vesting provisions
of
individual Options may vary. The provisions of this subsection 6(g) are subject
to any Option provisions governing the minimum number of shares of Common Stock
as to which an Option may be exercised.
(h) Minimum
Vesting Prior to the Listing Date. Notwithstanding
the foregoing subsection 6(g), to the extent that the following restrictions
on
vesting are required by Section 260.140.41(f) of Title 10 of the California
Code
of Regulations at the time of grant of the Option, then:
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(i) Options
granted prior to the Listing Date to an Employee who is not an Officer,
Director or Consultant shall provide for vesting of the total number of shares
of Common Stock at a rate of at least twenty percent (20%) per year over five
(5) years from the date the Option was granted, subject to reasonable conditions
such as continued employment; and
(ii) Options
granted prior to the Listing Date to Officers, Directors or Consultants may
become fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established by the Company; for
example, the vesting provision of the Option may provide for vesting of less
than twenty percent (20%) per year of the total number of shares subject to
the
Option.
(i) Termination
of Continuous Service.
In the
event an Optionholder’s Continuous Service terminates for reasons other than for
Cause or upon the Optionholder’s death or Disability), the Optionholder may
exercise his or her Option (to the extent that the Optionholder was entitled
to
exercise such Option as of the date of termination) but only within such period
of time ending on the earlier of (i) the date three (3) months following the
termination of the Optionholder’s Continuous Service (or such longer or shorter
period specified in the Option Agreement, which, for Options granted prior
to
the Listing Date, shall not be less than thirty (30) days, unless such
termination is for cause), or (ii) the expiration of the term of the Option
as
set forth in the Option Agreement. If, after termination, the Optionholder
does
not exercise his or her Option within the time specified in the Option
Agreement, the Option shall terminate.
(j) Extension
of Termination Date.
An
Optionholder’s Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionholder’s Continuous Service (other
than upon the Optionholder’s death or Disability) would be prohibited at any
time solely because the issuance of shares of Common Stock would violate the
registration requirements under the Securities Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of the Option set
forth in subsection 6(a) or (ii) the expiration of a period of three (3) months
after the termination of the Optionholder’s Continuous Service during which the
exercise of the Option would not be in violation of such registration
requirements.
(k) Disability
of Optionholder.
In the
event that an Optionholder’s Continuous Service terminates as a result of the
Optionholder’s Disability, the Optionholder may exercise his or her Option (to
the extent that the Optionholder was entitled to exercise such Option as of
the
date of termination), but only within such period of time ending on the earlier
of (i) the date twelve (12) months following such termination (or such longer
or
shorter period specified in the Option Agreement, which, for Options granted
prior to the Listing Date, shall not be less than six (6) months) or (ii) the
expiration of the term of the Option as set forth in the Option Agreement.
If,
after termination, the Optionholder does not exercise his or her Option within
the time specified herein, the Option shall terminate.
(l) Death
of Optionholder.
In the
event (i) an Optionholder’s Continuous Service terminates as a result of the
Optionholder’s death or (ii) the Optionholder dies within the period (if any)
specified in the Option Agreement after the termination of the Optionholder’s
Continuous Service for a reason other than death, then the Option may be
exercised (to the extent the Optionholder was entitled to exercise such Option
as of the date of death) by the
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Optionholder’s
estate, by a person who acquired the right to exercise the Option by bequest
or
inheritance or by a person designated to exercise the option upon the
Optionholder’s death pursuant to subsection 6(e) or 6(f), but only within the
period ending on the earlier of (1) the date eighteen (18) months following
the
date of death (or such longer or shorter period specified in the Option
Agreement, which, for Options granted prior to the Listing Date, shall not
be
less than six (6) months) or (2) the expiration of the term of such Option
as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
(m) Termination
for Cause.
In the
event an Optionholder’s Continuous Service is terminated for Cause or was
terminable for Cause, the Option shall terminate upon the termination date
of
such Optionholder’s Continuous Service and the Optionholder is prohibited from
exercising his or her Option as of the time of such termination.
(n) Early
Exercise.
The
Option may, but need not, include a provision whereby the Optionholder may
elect
at any time before the Optionholder’s Continuous Service terminates to exercise
the Option as to any part or all of the shares of Common Stock subject to the
Option prior to the full vesting of the Option. Subject to the “Repurchase
Limitation” in subsection 10(h), any unvested shares of Common Stock so
purchased may be subject to a repurchase option in favor of the Company or
to
any other restriction the Board determines to be appropriate. Provided that
the
“Repurchase Limitation” in subsection 10(h) is not violated, the Company will
not exercise its repurchase option until at least six (6) months (or such longer
or shorter period of time required to avoid a charge to earnings for financial
accounting purposes) have elapsed following exercise of the Option unless the
Board otherwise specifically provides in the Option.
(o) Right
of Repurchase. Subject
to the “Repurchase Limitation” in subsection 10(h), the Option may, but need
not, include a provision whereby the Company may elect, prior to the Listing
Date, to repurchase all or any part of the vested shares acquired by the
Optionholder pursuant to the exercise of the Option. Provided that the
“Repurchase Limitation” in subsection 10(h) is not violated, the Company will
not exercise the repurchase option set forth in this paragraph (o) until at
least six (6) months (or such longer or shorter period of time required to
avoid
a charge to earnings for financial accounting purposes) have elapsed following
exercise of the Option unless the Board otherwise specifically provides in
the
Option.
(p) Right
of First Refusal. The
Option may, but need not, include a provision whereby the Company may elect,
prior to the Listing Date, to exercise a right of first refusal following
receipt of notice from the Optionholder of the intent to transfer all or any
part of the shares of Common Stock received upon exercise of the Option. Except
as expressly provided in this subsection 6(p) or the Stock Award Agreement
for
the Option, such right of first refusal shall otherwise comply with any
applicable provisions of the Bylaws of the Company.
(q) Re-Load
Options.
(i) Without
in any way limiting the authority of the Board to make or not to make grants
of
Options hereunder, the Board shall have the authority (but not an obligation)
to
include as part of any Option Agreement a provision entitling the Optionholder
to a further
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Option
(a
“Re-Load Option”) in the event the Optionholder exercises the Option evidenced
by the Option Agreement, in whole or in part, by surrendering other shares
of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Unless otherwise specifically provided in the Option, the
Optionholder shall not surrender shares of Common Stock acquired, directly
or
indirectly from the Company, unless such shares have been held for more than
six
(6) months (or such longer or shorter period of time required to avoid a charge
to earnings for financial accounting purposes).
(ii) Any
such
Re-Load Option shall (1) provide for a number of shares of Common Stock equal
to
the number of shares of Common Stock surrendered as part or all of the exercise
price of such Option; (2) have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (3) have an exercise price which is equal to one hundred percent
(100%) of the Fair Market Value of the stock subject to the Re-Load Option
on
the date of exercise of the original Option. Notwithstanding the foregoing,
a
Re-Load Option shall be subject to the same exercise price and term provisions
heretofore described for Options under the Plan.
(iii) Any
such
Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock Option,
as the Board may designate at the time of the grant of the original Option;
provided, however, that the designation of any Re-Load Option as an Incentive
Stock Option shall be subject to the one hundred thousand dollar ($100,000)
annual limitation on the exercisability of Incentive Stock Options described
in
subsection 10(d) and in Section 422(d) of the Code. There shall be no Re-Load
Options on a Re-Load Option. Any such Re-Load Option shall be subject to the
availability of sufficient shares of Common Stock under subsection 4(a) and
the
“Section 162(m) Limitation” on the grants of Options under subsection 5(c) and
shall be subject to such other terms and conditions as the Board may determine
which are not inconsistent with the express provisions of the Plan regarding
the
terms of Options.
7. PROVISIONS
OF STOCK AWARDS OTHER THAN OPTIONS.
(a) Stock
Bonus Awards.
Each
stock bonus agreement shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The terms and conditions of
stock bonus agreements may change from time to time, and the terms and
conditions of separate stock bonus agreements need not be identical, but each
stock bonus agreement shall include (through incorporation of provisions hereof
by reference in the agreement or otherwise) the substance of each of the
following provisions:
(i) Consideration.
A stock
bonus may be awarded in consideration for past services actually rendered to
the
Company or an Affiliate for its benefit.
(ii) Vesting.
Subject
to the “Repurchase Limitation” in subsection 10(h), shares of Common Stock
awarded under the stock bonus agreement may, but need not, be subject to a
share
repurchase option in favor of the Company in accordance with a vesting schedule
to be determined by the Board.
(iii) Termination
of Participant’s Continuous Service.
Subject
to the “Repurchase Limitation” in subsection 10(h), in the event a Participant’s
Continuous Service
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terminates,
the Company may reacquire any or all of the shares of Common Stock held by
the
Participant which have not vested as of the date of termination under the terms
of the stock bonus agreement.
(iv) Transferability.
For a
stock bonus award made before the Listing Date, rights to acquire shares of
Common Stock under the stock bonus agreement shall not be transferable except
by
will or by the laws of descent and distribution and shall be exercisable during
the lifetime of the Participant only by the Participant. For a stock bonus
award
made on or after the Listing Date, rights to acquire shares of Common Stock
under the stock bonus agreement shall be transferable by the Participant only
upon such terms and conditions as are set forth in the stock bonus agreement,
as
the Board shall determine in its discretion, so long as Common Stock awarded
under the stock bonus agreement remains subject to the terms of the stock bonus
agreement.
(b) Restricted
Stock Awards.
Each
restricted stock purchase agreement shall be in such form and shall contain
such
terms and conditions as the Board shall deem appropriate. The terms and
conditions of the restricted stock purchase agreements may change from time
to
time, and the terms and conditions of separate restricted stock purchase
agreements need not be identical, but each restricted stock purchase agreement
shall include (through incorporation of provisions hereof by reference in the
agreement or otherwise) the substance of each of the following
provisions:
(i) Purchase
Price.
At the
time of grant of a Restricted Stock Award, the Board will determine the price
to
be paid by the Participant for each share subject to the Restricted Stock Award.
Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders,
the purchase price under each restricted stock purchase agreement shall be
such
amount as the Board shall determine and designate in such restricted stock
purchase agreement. For restricted stock awards made prior to the Listing Date,
the purchase price shall not be less than eighty-five
percent (85%) of the stock’s Fair Market Value on the date such award is made or
at the time the purchase is consummated. For restricted stock awards made on
or
after the Listing Date, the purchase price shall not be less than eighty-five
percent (85%) of the stock’s Fair Market Value on the date such award is made or
at the time the purchase is consummated.
(ii) Consideration.
At the
time of the grant of a Restricted Stock Award, the Board will determine the
consideration permissible for the payment of the purchase price of the
Restricted Stock Award. The purchase price of Common Stock acquired pursuant
to
the restricted stock purchase agreement shall be paid either: (i) in cash at
the
time of purchase; (ii) at the discretion of the Board, according to a deferred
payment or other similar arrangement with the Participant; or (iii) in any
other
form of legal consideration that may be acceptable to the Board in its
discretion; provided, however, that at any time that the Company is incorporated
in Delaware, then payment of the Common Stock’s “par value,” as defined in the
Delaware General Corporation Law, shall not be made by deferred
payment.
(iii) Vesting.
Subject
to the “Repurchase Limitation” in subsection 10(h), shares of Common Stock
acquired under the restricted stock purchase agreement may, but need not, be
subject to a share repurchase option in favor of the Company in accordance
with
a vesting schedule to be determined by the Board.
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(iv) Termination
of Participant’s Continuous Service.
Subject
to the “Repurchase Limitation” in subsection 10(h), in the event a Participant’s
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of Common Stock held by the Participant which have
not
vested as of the date of termination under the terms of the restricted stock
purchase agreement.
(v) Transferability.
For a
restricted stock award made before the Listing Date, rights to acquire shares
under the restricted stock purchase agreement shall not be transferable except
by will or by the laws or descent and distribution and shall be exercisable
during the lifetime of the Participant only by the Participant. For a restricted
stock award made on or after the Listing Date, rights to acquire shares of
Common Stock under the restricted stock purchase agreement shall be transferable
by the Participant only upon such terms and conditions as are set forth in
the
restricted stock purchase agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the restricted stock purchase
agreement remains subject to the terms of the restricted stock purchase
agreement.
8. COVENANTS
OF THE COMPANY.
(a) Availability
of Shares.
During
the terms of the Stock Awards, the Company shall keep available at all times
the
number of shares of Common Stock required to satisfy such Stock
Awards.
(b) Securities
Law Compliance.
The
Company shall seek to obtain from each regulatory commission or agency having
jurisdiction over the Plan such authority as may be required to grant Stock
Awards and to issue and sell shares of Common Stock upon exercise of the Stock
Awards; provided, however, that this undertaking shall not require the Company
to register under the Securities Act the Plan, any Stock Award or any Common
Stock issued or issuable pursuant to any such Stock Award. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission
or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of Common Stock under the Plan, the Company shall
be
relieved from any liability for failure to issue and sell Common Stock upon
exercise of such Stock Awards unless and until such authority is
obtained.
9. USE
OF PROCEEDS FROM STOCK.
Proceeds
from the sale of Common Stock pursuant to Stock Awards shall constitute general
funds of the Company.
10. MISCELLANEOUS.
(a) Acceleration
of Exercisability and Vesting.
The
Board shall have the power to accelerate the time at which a Stock Award may
first be exercised or the time during which a Stock Award or any part thereof
will vest in accordance with the Plan, notwithstanding the provisions in the
Stock Award stating the time at which it may first be exercised or the time
during which it will vest.
(b) Stockholder
Rights.
No
Participant shall be deemed to be the holder of, or to have any of the rights
of
a holder with respect to, any shares of Common Stock subject to
such
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Stock
Award unless and until such Participant has satisfied all requirements for
exercise of the Stock Award pursuant to its terms.
(c) No
Employment or other Service Rights.
Nothing
in the Plan or any instrument executed or Stock Award granted pursuant thereto
shall confer upon any Participant any right to continue to serve the Company
or
an Affiliate in the capacity in effect at the time the Stock Award was granted
or shall affect the right of the Company or an Affiliate to terminate (i) the
employment of an Employee with or without notice and with or without cause,
(ii)
the service of a Consultant pursuant to the terms of such Consultant’s agreement
with the Company or an Affiliate or (iii) the service of a Director pursuant
to
the Bylaws of the Company or an Affiliate, and any applicable provisions of
the
corporate law of the state in which the Company or the Affiliate is
incorporated, as the case may be.
(d) Incentive
Stock Option $100,000 Limitation.
To the
extent that the aggregate Fair Market Value (determined at the time of grant)
of
the stock with respect to which Incentive Stock Options are exercisable for
the
first time by any Optionholder during any calendar year (under all plans of
the
Company and its Affiliates) exceeds one hundred thousand dollars ($100,000),
the
Options or portions thereof which exceed such limit (according to the order
in
which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) Investment
Assurances.
The
Company may require a Participant, as a condition of exercising or acquiring
Common Stock under any Stock Award, (i) to give written assurances satisfactory
to the Company as to the Participant’s knowledge and experience in financial and
business matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in financial
and business matters and that he or she is capable of evaluating, alone or
together with the purchaser representative, the merits and risks of exercising
the Stock Award; and (ii) to give written assurances satisfactory to the Company
stating that the Participant is acquiring Common Stock subject to the Stock
Award for the Participant’s own account and not with any present intention of
selling or otherwise distributing the Common Stock. The foregoing requirements,
and any assurances given pursuant to such requirements, shall be inoperative
if
(1) the issuance of the shares of Common Stock upon the exercise or acquisition
of Common Stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or (2) as to any
particular requirement, a determination is made by counsel for the Company
that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the Common
Stock.
(f) Withholding
Obligations.
To the
extent provided by the terms of a Stock Award Agreement, the Participant may
satisfy any federal, state or local tax withholding obligation relating to
the
exercise or acquisition of Common Stock under a Stock Award by any of the
following means (in addition to the Company’s right to withhold from any
compensation paid to the Participant by the Company) or by a combination of
such
means: (i) tendering a cash payment; (ii) authorizing the Company to withhold
shares of Common Stock from the shares of Common Stock otherwise issuable to
the
Participant as a result of the exercise or acquisition of
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Common
Stock under the Stock Award, provided, however, that no shares of Common Stock
are withheld with a value exceeding the minimum amount of tax required to be
withheld by law (or such lower amount as may be necessary to avoid adverse
financial accounting consequences); or (iii) delivering to the Company owned
and
unencumbered shares of Common Stock.
(g) Information
Obligation. Prior
to
the Listing Date, to the extent required by Section 260.140.46 of Title 10
of
the California Code of Regulations, the Company shall deliver financial
statements to Participants at least annually. This subsection 10(g) shall not
apply to key Employees whose duties in connection with the Company assure them
access to equivalent information.
(h) Repurchase
Limitation. The
terms
of any repurchase option shall be specified in the Stock Award and may be either
at Fair Market Value at the time of repurchase or at not less than the original
purchase price. To the extent required by Section 260.40.41 and Section
26.140.42 of Title 10 of the California Code of Regulations at the time a Stock
Award is made, any repurchase option contained in a Stock Award granted prior
to
the Listing Date to a person who is not an Officer, Director or Consultant
shall
be upon the terms described below:
(i) Fair
Market Value. If
the
repurchase option gives the Company the right to repurchase the shares of Common
Stock upon termination of employment at not less than the Fair Market Value
of
the shares to be purchased on the date of termination of Continuous Service,
then (i) the right to repurchase shall be exercised for cash or cancellation
of
purchase money indebtedness for the shares of Common Stock within ninety (90)
days of termination of Continuous Service (or in the case of shares of Common
Stock issued upon exercise of Stock Awards after such date of termination,
within ninety (90) days after the date of the exercise) or such longer period
as
may be agreed to by the Company and the Participant (for example, for purposes
of satisfying the requirements of Section 1202(c)(3) of the Code regarding
“qualified small business stock”) and (ii) the right terminates when the shares
of Common Stock become publicly traded.
(ii) Original
Purchase Price. If
the
repurchase option gives the Company the right to repurchase the shares of Common
Stock upon termination of Continuous Service at the original purchase price,
then (i) the right to repurchase at the original purchase price shall lapse
at
the rate of at least twenty percent (20%) of the shares of Common Stock per
year
over five (5) years from the date the Stock Award is granted (without respect
to
the date the Stock Award was exercised or became exercisable) and (ii) the
right
to repurchase shall be exercised for cash or cancellation of purchase money
indebtedness for the shares of Common Stock within ninety (90) days of
termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Options after such date of termination, within ninety
(90) days after the date of the exercise) or such longer period as may be agreed
to by the Company and the Participant (for example, for purposes of satisfying
the requirements of Section 1202(c)(3) of the Code regarding “qualified small
business stock”).
11. ADJUSTMENTS
UPON CHANGES IN STOCK.
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(a) Capitalization
Adjustments. If any change is made in, or other event occurs with respect to,
the Common Stock subject to the Plan, or subject to any Stock Award, without
the
receipt of consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend
in
property other than cash, stock split, liquidating distribution, combination
of
shares, exchange of shares, change in corporate structure or other transaction
not involving the receipt of consideration by the Company but excluding any
merger or consolidation of Company and Parent or its sucessors (each a
“Capitalization
Adjustment”)),
the Plan will be appropriately adjusted in the class(es) and maximum number
of
securities subject to the Plan pursuant to Sections 4(a) and 4(b), and the
maximum number of securities subject to award to any person pursuant to
subsection 5(c), and the outstanding Stock Awards will be appropriately adjusted
in the class(es) and number of securities and price per share of Common Stock
subject to such outstanding Stock Awards. The Board shall make such adjustments,
and its determination shall be final, binding and conclusive. (The conversion
of
any convertible securities of the Company shall not be treated as a transaction
“without receipt of consideration” by the Company.)
(b) Dissolution
or Liquidation.
In the
event of a dissolution or liquidation of the Company, then all outstanding
Stock
Awards shall terminate immediately prior to the completion of such dissolution
or liquidation, and shares of Common Stock subject to the Company’s repurchase
option may be repurchased by the Company notwithstanding the fact that the
holder of such stock is still in Continuous Service.
(c) Asset
Sale, Merger, Consolidation or Reverse Merger.
In the
event of a Corporate Transaction, then any surviving corporation or acquiring
corporation shall assume any Stock Awards outstanding under the Plan or shall
substitute similar stock awards (including an award to acquire the same
consideration paid to the stockholders in the Corporate Transaction for those
outstanding under the Plan), and any reacquisition or repurchase rights held
by
the Company in respect of Common Stock issued pursuant to Stock Awards may
be
assigned by the Company to the successor of the Company (or such successor’s
parent company), if any, in connection with such Corporate Transaction. In
the
event any surviving corporation or acquiring corporation refuses to assume
such
Stock Awards or to substitute similar stock awards for those outstanding under
the Plan, then with respect to Stock Awards held by Participants whose
Continuous Service has not terminated, the vesting of such Stock Awards (and,
if
applicable, the time during which such Stock Awards may be exercised) shall
(contingent upon the effectiveness of the Corporate Transaction) be accelerated
in full, and the Stock Awards shall terminate if not exercised (if applicable)
at or prior to such Corporate Transaction and any reacquisition or repurchase
rights held by the Company under the Plan or any Stock Award Agreement with
respect to such Stock Awards held by Participants whose Continuous Service
has
not terminated shall (contingent upon the effectiveness of the Corporate
Transaction) lapse. With respect to any
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other
Stock Awards outstanding under the Plan, such Stock Awards shall terminate
if
not exercised (if applicable) prior to the effective time of the Corporate
Transaction.
12. CONVERSION
OF OPTIONS UPON AN INITIAL PUBLIC OFFERING OF PARENT COMMON
STOCK.
(a) Conversion
of Options.
Subject
to satisfaction of the condition set forth in subparagraph (g) below, if Parent
or any Corporate Parent consummates a public offering of its common stock by
filing a registration statement on Form S-1 (or comparable replacement form)
pursuant to the Securities Act prior to the date the Company completes a similar
public offering of its common stock, then each outstanding Option, whether
or
not vested, shall be automatically converted into an option or other award
to
purchase shares of common stock of the Parent or Corporate Parent, as the case
may be, upon consummation of such public offering (in either case, the
“New
Common Stock”).
Parent
or Corporate Parent shall provide each Participant holding an outstanding Option
with reasonable prior notice of the date of consummation of any public offering
by Parent or any Corporate Parent and all conversions pursuant to this Section
12 shall be effective immediately prior to the effectiveness of such public
offering (the “Conversion
Time”).
(b) Conversion
Ratio.
Subject
to adjustment as provided in subparagraph (e) below, each Option outstanding
at
the Conversion Time shall be converted into an Option to purchase shares of
New
Common Stock, at an initial conversion ratio of one share of Common Stock
converting into one share of New Common Stock (the “Conversion
Ratio”).
(c) Conversion.
Upon
conversion of an Option, pursuant to this Section 12, such Option shall be
amended and converted into an option to acquire, on the same terms and
conditions as were applicable under such Option, the number of shares of New
Common Stock (rounded down to the nearest whole share) determined by multiplying
the number of shares of Common Stock subject to such Option by the Conversion
Ratio, at a price per share of New Common Stock equal to (A) the aggregate
exercise price for the shares of Common Stock otherwise purchasable or issuable
pursuant to such Option divided by (B) the aggregate number of shares of New
Common Stock deemed purchasable or issuable pursuant to such Option, as the
case
may be (each, as so adjusted, an “Adjusted
Option”),
provided
that
such exercise price shall be rounded up to the nearest whole cent. The
adjustments provided herein with respect to any Options that are “incentive
stock options” as defined in Section 422 of the Code shall be and are intended
to be effected in a manner which is consistent with Section 424(a) of the Code
to the extent the ratio conversion requirements under Section 424(a) can be
satisfied.
(d) Other
Terms.
The
aggregate exercise price under any Participant’s Adjusted Options shall be the
same as the aggregate exercise price of such Participant’s Options being
converted pursuant to this Section 12. Except as otherwise contemplated by
this
Section 12 and except to the extent required under the respective terms of
the
Options, all restrictions or limitations on transfer and vesting with respect
to
Options awarded under the Plan, to the extent that such restrictions or
limitations shall not have already lapsed, shall remain in full force and effect
with respect to such Adjusted Options.
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(e) Conversion
Ratio Adjustments.
Notwithstanding any other provision to the contrary, if prior to the Conversion
Time the outstanding shares of Common Stock or Parent Common Stock shall have
been changed into a different number of shares or a different class by reason
of
the occurrence or record date of any stock dividend, subdivision,
reclassification, recapitalization, split, combination, exchange of shares
or
similar transaction, or any other change is made in such shares without the
receipt of consideration by the Company or Corporate Parent (through merger,
consolidation, reorganization, reincorporation, or other transaction not
involving the receipt of consideration), as the case may be, the Conversion
Ratio shall be appropriately adjusted to reflect such event or
transaction.
(f) Adjustments
to Common Stock.
Upon any
conversion of an Option pursuant to this Section 12 by amending and converting
such Option such that the resulting Adjusted Option remains subject to the
terms
of the Plan, any references to Common Stock in the Plan shall be deemed to
include New Common Stock unless the context indicates otherwise.
(g) Compliance
with Section 409A of the Code.
Notwithstanding anything to the contrary set forth herein, the conversion of
the
Options will occur pursuant to this Section 12 to the fullest extent permitted
without the Options becoming subject to the provisions of Section 409A of the
Code. To the extent the conversion of the Options pursuant to this Section
12
would not occur as a result of this subsection 12(g), then Parent shall have
the
right to establish an arrangement subject to and consistent with Section 409A
of
the Code that provides the same value as the Options that could not be converted
and permits distribution upon any of the events described in Section 409A of
the
Code.
13. AMENDMENT
OF THE PLAN AND STOCK AWARDS.
(a) Amendment
of Plan.
The
Board at any time, and from time to time, may amend the Plan. However, except
as
provided in Section 11 (a) relating to Capitalization Adjustments, no
amendment shall be effective unless approved by the stockholders of the Company
to the extent stockholder approval is necessary to satisfy the requirements
of
Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing
requirements.
(b) Stockholder
Approval.
The
Board may, in its sole discretion, submit any other amendment to the Plan for
stockholder approval, including, but not limited to, amendments to the Plan
intended to satisfy the requirements of Section 162(m) of the Code and the
regulations thereunder regarding the exclusion of performance-based compensation
from the limit on corporate deductibility of compensation paid to certain
executive officers.
(c) Contemplated
Amendments.
It is
expressly contemplated that the Board may amend the Plan in any respect the
Board deems necessary or advisable to provide eligible Employees with the
maximum benefits provided or to be provided under the provisions of the Code
and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(d) No
Impairment of Rights.
Rights
under any Stock Award granted before amendment of the Plan shall not be impaired
by any amendment of the Plan unless (i) the Company requests the consent of
the
Participant and (ii) the Participant consents in writing.
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(e) Amendment
of Stock Awards.
The
Board at any time, and from time to time, may amend the terms of any one or
more
Stock Awards; provided, however, that the rights under any Stock Award shall
not
be impaired by any such amendment unless (i) the Company requests the consent
of
the Participant and (ii) the Participant consents in writing.
14. TERMINATION
OR SUSPENSION OF THE PLAN.
(a) Plan
Term.
The
Board may suspend or terminate the Plan at any time. Unless sooner terminated,
the Plan shall terminate on the day before the tenth (10th) anniversary of
the
date the Plan is adopted by the Board or approved by the stockholders of the
Company, whichever is earlier. No Stock Awards may be granted under the Plan
while the Plan is suspended or after it is terminated.
(b) No
Impairment of Rights.
Suspension or termination of the Plan shall not impair rights and obligations
under any Stock Award granted while the Plan is in effect except with the
written consent of the Participant.
15. EFFECTIVE
DATE OF PLAN.
The
Plan
shall become effective as determined by the Board, but no Stock Award shall
be
exercised (or, in the case of a stock bonus, shall be granted) unless and until
the Plan has been approved by the stockholders of the Company, which approval
shall be within twelve (12) months before or after the date the Plan is adopted
by the Board.
16. CHOICE
OF LAW.
The
law
of the State of California shall govern all questions concerning the
construction, validity and interpretation of this Plan, without regard to such
state’s conflict of laws rules.
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