EARN OUT AGREEMENT
Exhibit 2.2
This Earn Out Agreement (this “Agreement”) is being executed and
delivered as of September 11, 2005 by and among eBay Inc., a Delaware corporation (the
“Purchaser”), Skype Technologies S.A., a limited company registered under the laws
of the Grand Duchy of Luxembourg (the “Company”), and the parties identified on
Schedule I. Certain capitalized terms used in this Agreement are defined in Section 1.
Recitals
A. Concurrently with the execution and delivery of this Agreement, the Purchaser, the Company,
and the shareholders and warrantholders of the Company (collectively, the “Sellers”) are
entering into a Sale and Purchase Agreement (the “Purchase Agreement”), pursuant to which,
subject to the terms and conditions thereof, the Sellers are agreeing to sell to the Purchaser
and/or an Affiliate of the Purchaser nominated by the Purchaser, and the Purchaser and/or an
Affiliate of the Purchaser nominated by the Purchaser is agreeing to acquire from the Sellers, the
entire issued share capital of the Company. Capitalized terms used but not defined herein shall
have the meanings given to them in the Purchase Agreement.
B. The parties to this Agreement wish to provide for certain rights and obligations of the
Purchaser, the Company, the Earn Out Sellers and the Earn Out Representative in connection with the
post-Completion management of the Company and the delivery by the Purchaser to the Earn Out Sellers
of any Earn Out Election Per Share Post-Completion Consideration.
Agreement
For good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and as an inducement to the Sellers and the Purchaser to enter into the Purchase
Agreement, the parties to this Agreement, intending to be legally bound, agree as follows:
1. Definitions.
1.1 For purposes of this Agreement:
(a) “Acceleration Amount” shall be the amount, if any, by which: (i) the
product of: (A) the Earn Out Election Fraction; multiplied by (B) the Initial Acceleration
Amount; exceeds (ii) the aggregate of all Earn Out Amounts paid (in cash or in Purchaser
Shares) by the Purchaser pursuant to Section 2 prior to the date of payment of the
Acceleration Amount.
(b) “Acceleration Event” shall mean any of the following:
(i) a direct or indirect sale or transfer (in a single transaction or through a
series of related transactions) to any third party (other than a direct or indirect
wholly-owned Subsidiary of the Purchaser (disregarding directors’ qualifying shares
and similar arrangements for purposes of determining whether a Subsidiary is
wholly-owned by the Purchaser for this purpose), provided that: (A) such Subsidiary
complies with Section 4.6 as if it were a party to this Agreement
(and, in the case of a sale of assets, as if the term “Articles” referred to
the charter document of such Subsidiary); (B) such Subsidiary assumes all of the
Purchaser’s obligations under this Agreement; and (C) the Purchaser remains liable
for any breach of this Agreement by such Subsidiary) of: (1) securities representing
greater than 50% of the outstanding voting power, or economic interest in, the
Company (whether by way of a sale of securities, merger or otherwise); or (2) all or
substantially all of the assets of the Group, taken as a whole (it being understood
that a sale by the Purchaser of the outstanding securities of a wholly-owned
Subsidiary held by the Purchaser (disregarding directors’ qualifying shares and
similar arrangements for purposes of determining whether a Subsidiary is
wholly-owned by the Purchaser for this purpose) shall constitute a sale of all or
substantially all of the assets of such Subsidiary) (any transaction contemplated by
this clause “(i)” being referred to as a “Sale”);
(ii) the commencement by the Purchaser (whether by itself or by an Affiliate of
the Purchaser (provided that in the case of a Group Company, such action is taken at
the express direction of the Purchaser)) of a process intended to result in a Sale
as evidenced by actions similar to those taken by the Company and the Sellers in
connection with the transactions contemplated by the Purchase Agreement, provided
that the taking of the actions in clauses “(A)” and “(B)” of this sentence shall
conclusively establish the commencement of such process: (A) the preparation and
circulation by the Purchaser (whether by itself or by an Affiliate of the Purchaser
(provided that in the case of a Group Company, such action is taken at the express
direction of the Purchaser)) of an offering memorandum to and in connection with the
prospective solicitation of bids from (or the delivery by the Purchaser (whether by
itself or by an Affiliate of the Purchaser (provided that in the case of a Group
Company, such action is taken at the express direction of the Purchaser)), subject
to the terms of a confidentiality agreement, of confidential and proprietary
information relating to the Group Companies to), and the solicitation of bids from,
third parties (other than Affiliates of the Purchaser) with respect to a possible
Sale; and (B) the involvement of Senior Management (at the request of the Purchaser)
in more than an insignificant manner in such process;
(iii) the failure of the Purchaser Directors (as defined in Section 4.3), at a
duly called meeting of the Company Board, to vote in favor of the approval of any
proposed annual Budget or business plan recommended by the Company’s Chief Executive
Officer and the Company Directors, after consultation with the Company’s President,
to the Company Board (which proposed Budget or business plan shall have been
approved by the Company Directors) unless: (A) such proposed Budget or business plan
relates to any business lines that do not constitute business lines of the Company
existing as of the date of this Agreement or that have previously been approved by
the Company Board by a Supermajority Vote, or extensions thereof that are reasonably
related to such existing or previously approved business lines; (B) such proposed
Budget or business plan does not reasonably contemplate an EBIT Margin for the
fiscal year to which such proposed Budget or business plan relates at least as high
as the EBIT Margin
set forth in the Company Projections for the same fiscal year, unless an
amendment to or deviation from such EBIT Margin set forth in the Company Projections
has been previously approved by the Company Board by a Supermajority Vote; (C) such
proposed Budget or business plan is not otherwise commercially reasonable; or (D)
the Company Board approves such proposed Budget or business plan by a Majority Vote
notwithstanding the failure of the Purchaser Directors to vote in favor of approval
of such proposed Budget or business plan;
(iv) a material breach by the Purchaser of its obligations, if any, under
Section 4.5 to provide any external funding required by the annual Budgets approved
by the Company Board in accordance with the applicable provision of Section 4.4,
which breach, if curable, has not been cured within 30 days after receipt by the
Purchaser of written notice thereof from the Earn Out Representative;
(v) any increase or decrease in the number of members of the Company Board
effected by the Purchaser, acting in its capacity as the controlling shareholder of
the Company, without the approval of the Company Board by a Supermajority Vote;
(vi) any appointment by the Purchaser, acting in its capacity as controlling
shareholder of the Company, of an individual to fill a vacancy created by the
resignation, removal, incapacity or death of a Company Director (as defined in
Section 4.3) without the approval of the other Company Director;
(vii) a failure by the Purchaser Directors to attend any regularly scheduled
meeting of the Company Board with the effect of preventing a Required Quorum to be
present at such meeting, provided that: (A) another meeting of the Company Board is
held within 30 days after such regularly scheduled meeting; (B) prior written notice
of such subsequent meeting is provided to each member of the Company Board at least
five Business Days prior to such subsequent meeting; and (C) the Purchaser Directors
also fail (except by reason of force majeure) to attend such subsequent meeting;
(viii) the approval by the Purchaser Directors of the appointment of an
individual to serve as President of the Company, which individual was not approved
by the Company Directors in accordance with Section 4.1(b), unless: (A) such
appointment was not approved by the Company Board; or (B) the individual is replaced
by a nominee approved by the Company Directors within 30 days following such
individual’s appointment by the Company Board;
(ix) the actions described in clauses “(A)” through “(F)” of this sentence
occur: (A) the Purchaser (or any controlled Affiliate of the Purchaser other than a
Group Company) and a Group Company enter into a Related Party Transaction that, as
of the execution of the agreement relating thereto could reasonably be expected to
result in an adverse impact in a material respect on the
ability of the Earn Out Sellers to earn any Earn Out Amount (an “Adverse
Transaction”); (B) the Adverse Transaction is not approved or ratified by the
Company Board by a Supermajority Vote; (C) the Adverse Transaction is not authorized
by any member of Senior Management (other than the President, Chief Financial
Officer or General Counsel of the Company); (D) if the Chief Executive Officer or
the Vice President, Strategy of the Company or any Company Director has actual
knowledge of the Adverse Transaction and the material terms and conditions thereof,
such person communicated an objection to the Purchaser with respect to such Adverse
Transaction; (E) within 45 days after the Chief Executive Officer or any Company
Director has actual knowledge that the Purchaser (or any controlled Affiliate of the
Purchaser other than a Group Company) and any Group Company entered into the Adverse
Transaction and has actual knowledge of the material terms and conditions thereof,
the Company delivers to the Purchaser a written notice in which the Company demands
that the Purchaser (or the applicable controlled Affiliate of the Purchaser) rescind
the Adverse Transaction and return the parties to substantially the positions they
were in prior thereto; and (F) within 10 Business Days after receipt of the written
notice described in clause “(E)” of this sentence, the Purchaser (or the controlled
Affiliate of the Purchaser) does not rescind the Adverse Transaction and return the
parties substantially to such positions; and
(x) the liquidation or winding up of any Group Company without the approval of
the Company Board by a Supermajority Vote, unless in the case of a Group Company
that is not the Company, such liquidation or winding up could not reasonably be
expected to have an adverse impact in any material respect on the ability of the
Earn Out Sellers to earn any Earn Out Amount;
provided, however, that: (A) a sale of any or all shares of the Purchaser (whether by way of
merger, consolidation or otherwise) shall not constitute an Acceleration Event; (B) a sale
of substantially all of the assets of the Purchaser (including the shares of the Purchaser’s
Subsidiaries) shall not constitute an Acceleration Event; and (C) a sale of substantially
all of the assets of the Purchaser (excluding the shares of the Purchaser’s Subsidiaries)
and substantially all of the assets of the Purchaser’s Subsidiaries shall not constitute a
Sale or an Acceleration Event.
(c) “Active User”, for a particular month, shall mean a user of a Company
Communication Product who has launched or logged into a Company Communication Product within
30 days prior to the end of that month; provided, however, that a user of a Company
Communication Product shall not constitute an Active User if, in the case of a Company
Communication Product that is run as a stand-alone application on a desktop operating system
such as Microsoft Windows, Linux or Mac OS-X, such Company Communication Product does not
allow the user to disable the auto-launch feature of such Company Communication Product (it
being understood that the Company’s current Company Communication Product offerings satisfy
this requirement).
(d) “Affiliate” of any entity shall mean any other entity who either directly
or indirectly through one or more intermediaries is in control of, is controlled by, or is
under
common control with, such entity. For purposes of this definition, “control” when used
with respect to any entity means the power to direct the management and policies of such
entity, directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise.
(e) “Aggregate Outstanding Share Number” shall mean the sum of (without
duplication): (i) the aggregate number of Ordinary Shares outstanding immediately prior to
Completion; (ii) the aggregate number of Ordinary Shares issuable upon the conversion of
Preferred Shares: (A) outstanding immediately prior to Completion; and (B) issuable upon the
exercise of Warrants outstanding immediately prior to Completion; and (iii) the aggregate
number of Ordinary Shares issuable upon the exercise of Options outstanding immediately
prior to Completion.
(f) “Average User Number”, as of the end of any particular calendar quarter,
shall mean the average of the number of Active Users for each of the 12 months within the
four immediately preceding consecutive calendar quarters.
(g) “Average User Target” shall mean the number of Active Users set forth in
clause “(g)” of Schedule 1.1.
(h) “Base Gross Profit-Based Earn Out Aggregate Amount” shall, subject to the
proviso to Section 2.1(b), be determined as follows:
(i) if the Gross Profit Amount for the period from July 1, 2008 through June
30, 2009 is less than or equal to 85% of the Gross Profit Target, then the Base
Gross Profit-Based Earn Out Aggregate Amount shall be zero; and
(ii) if the Gross Profit Amount for the period from July 1, 2008 through June
30, 2009 is greater than 85% of the Gross Profit Target, then the Base Gross
Profit-Based Earn Out Aggregate Amount shall be the product of: (A) the Earn Out
Election Fraction; multiplied by (B)
€500,000,000; multiplied by (C) the fraction
having a numerator equal to the amount by which: (1) the lesser of: (x) the Gross
Profit Amount for the period from July 1, 2008 through June 30, 2009; and (y) the
Gross Profit Target; exceeds (2) 85% of the Gross Profit Target, and having a
denominator equal to 15% of the Gross Profit Target.
(i) “Base Gross Profit-Based Earn Out Per Share Amount” shall be the amount
determined by dividing: (i) the Base Gross Profit-Based Earn Out Aggregate Amount; by (ii)
the aggregate number of Earn Out Election Shares.
(j) “Base Revenue-Based Earn Out Aggregate Amount” shall, subject to the
proviso to Section 2.1(a), be determined as follows:
(i) if: (A) the Net Revenue Amount for the period from July 1, 2008 through
June 30, 2009 is less than or equal to 85% of the Net Revenue Target; or (B) the
Gross Profit Margin for the period from July 1, 2008 through June 30, 2009 is less
than the Specified Gross Profit Margin, then the Base Revenue-Based Earn Out
Aggregate Amount shall be zero; and
(ii) if: (A) the Net Revenue Amount for the period from July 1, 2008 through
June 30, 2009 is greater than 85% of the Net Revenue Target; and (B) the Gross
Profit Margin for the period from July 1, 2008 through June 30, 2009 is greater than
or equal to the Specified Gross Profit Margin, then the Base Revenue-Based Earn Out
Aggregate Amount shall be the product of: (1) the Earn Out Election Fraction;
multiplied by (2) €500,000,000; multiplied by (3) the fraction having a numerator
equal to the amount by which: (x) the lesser of: (aa) the Net Revenue Amount for the
period from July 1, 2008 through June 30, 2009; and (bb) the Net Revenue Target;
exceeds (y) 85% of the Net Revenue Target, and having a denominator equal to 15% of
the Net Revenue Target.
(k) “Base Revenue-Based Earn Out Per Share Amount” shall be the amount
determined by dividing: (i) the Base Revenue-Based Earn Out Aggregate Amount; by (ii) the
aggregate number of Earn Out Election Shares.
(l) “Base User-Based Earn Out Aggregate Amount” shall, subject to the proviso
to Section 2.1(c), be determined as follows:
(i) if the Average User Number for the period from July 1, 2008 through June
30, 2009 is less than or equal to 85% of the Average User Target, then the Base
User-Based Earn Out Aggregate Amount shall be zero; and
(ii) if the Average User Number for the period from July 1, 2008 through June
30, 2009 is greater than 85% of the Average User Target, then the Base User-Based
Earn Out Aggregate Amount shall be the product of: (A) the Earn Out Election
Fraction; multiplied by (B) €500,000,000; multiplied by (C) the fraction having a
numerator equal to the amount by which: (1) the lesser of: (x) the Average User
Number for the period from July 1, 2008 through June 30, 2009; and (y) the Average
User Target; exceeds (2) 85% of the Average User Target, and having a denominator
equal to 15% of the Average User Target.
(m) “Base User-Based Earn Out Per Share Amount” shall be the amount determined
by dividing: (i) the Base User-Based Earn Out Aggregate Amount; by (ii) the aggregate number
of Earn Out Election Shares.
(n) “Bonus Gross Profit-Based Earn Out Aggregate Amount” shall be determined as
follows:
(i) if the Gross Profit Amount for the period from January 1, 2008 through
December 31, 2008 is less than or equal to the Gross Profit Target, then the Bonus
Gross Profit-Based Earn Out Aggregate Amount shall be zero; and
(ii) if the Gross Profit Amount for the period from January 1, 2008 through
December 31, 2008 is greater than the Gross Profit Target, then the Bonus Gross
Profit-Based Earn Out Aggregate Amount shall be the product of: (A) the Earn Out
Election Fraction; multiplied by (B) €166,670,000; multiplied by (C) the fraction
having a numerator equal to the amount by which: (1) the lesser of: (x) the Gross
Profit Amount for the period from January 1, 2008 through
December 31, 2008; and (y) 125% of the Gross Profit Target; exceeds (2)
the Gross Profit Target, and having a denominator equal to 25% of the Gross Profit
Target.
(o) “Bonus Gross Profit-Based Earn Out Per Share Amount” shall be the amount
determined by dividing: (i) the Bonus Gross Profit-Based Earn Out Aggregate Amount; by (ii)
the aggregate number of Earn Out Election Shares.
(p) “Bonus Revenue-Based Earn Out Aggregate Amount” shall be determined as
follows:
(i) If: (A) the Net Revenue Amount for the period from January 1, 2008 through
December 31, 2008 is less than or equal to the Net Revenue Target; or (B) the Gross
Profit Margin for the period from January 1, 2008 through December 31, 2008 is less
than the Specified Gross Profit Margin, then the Bonus Revenue-Based Earn Out
Aggregate Amount shall be zero; and
(ii) if: (i) the Net Revenue Amount for the period from January 1, 2008 through
December 31, 2008 is greater than the Net Revenue Target; and (ii) the Gross Profit
Margin for the period from January 1, 2008 through December 31, 2008 is greater than
or equal to the Specified Gross Profit Margin, then the Bonus Revenue-Based Earn Out
Aggregate Amount shall be the product of: (A) the Earn Out Election Fraction;
multiplied by (B) €166,670,000; multiplied by (C) the fraction having a numerator
equal to the amount by which: (1) the lesser of: (x) the Net Revenue Amount for the
period from January 1, 2008 through December 31, 2008; and (y) 125% of the Net
Revenue Target; exceeds (2) the Net Revenue Target, and having a denominator equal
to 25% of the Net Revenue Target.
(q) “Bonus Revenue-Based Earn Out Per Share Amount” shall be the amount
determined by dividing: (i) the Bonus Revenue-Based Earn Out Aggregate Amount; by (ii) the
aggregate number of Earn Out Election Shares.
(r) “Bonus User-Based Earn Out Aggregate Amount” shall be determined as
follows:
(i) if the Average User Number for the period from January 1, 2008 through
December 31, 2008 is less than or equal to the Average User Target, then the Bonus
User-Based Earn Out Aggregate Amount shall be zero; and
(ii) if the Average User Number for the period from January 1, 2008 through
December 31, 2008 is greater than the Average User Target, then the Bonus User-Based
Earn Out Aggregate Amount shall be the product of: (A) the Earn Out Election
Fraction; multiplied by (B) €166,660,000; multiplied by (C) the fraction having a
numerator equal to the amount by which: (1) the lesser of: (x) the Average User
Number for the period from January 1, 2008 through December 31, 2008; and (y) 125%
of the Average User Target; exceeds (2) the Average User Target, and having a denominator equal to 25% of the Average User
Target.
(s) “Bonus User-Based Earn Out Per Share Amount” shall be the amount determined
by dividing: (i) the Bonus User-Based Earn Out Aggregate Amount; by (ii) the aggregate
number of Earn Out Election Shares.
(t) “Budget” shall mean any annual or quarterly budget for the Group in
substantially the form of, and containing the information of the type described in, the
budget template initialed on each page by the Chief Executive Officer of the Company and the
Chief Financial Officer of the Purchaser, a copy of which has been provided by the Company
to the Purchaser prior to the date hereof.
(u) “Business Day” shall mean a day (other than a Saturday or a Sunday) on
which banks are open for business in London and Luxembourg.
(v) “Company Board” shall mean the board of directors of the Company.
(w) “Company Communication Product” shall mean any product of a Group Company
that includes voice or video communications over the Internet as at least one of the
principal components thereof.
(x) “Company Offering” shall mean any product, service or other offering of any
Group Company that reasonably relates to: (i) the business lines of a Group Company existing
as of the date of this Agreement or any extensions thereof that are reasonably related to
such existing business lines; (ii) new business lines that are approved by the Company Board
by a Supermajority in accordance with Section 4.4(c); or (iii) new business lines that are
specifically referred to in the Company Projections.
(y) “Company Projections” shall mean the yearly and quarterly projections of
the Company dated September 9, 2005, initialed on each page by the Chief Executive Officer
of the Company and the Chief Financial Officer of the Purchaser, a copy of which has been
provided by the Company to the Purchaser prior to the date hereof (it being understood that
such projections may be amended in writing from time to time with the approval of the
Company Board by a Supermajority Vote).
(z) “Completion” shall mean completion of the sale and purchase of the Sale
Shares under, and the other matters provided for in, this Agreement in accordance with the
provisions of Clause 8 of the Purchase Agreement.
(aa) “Cost of Revenue” shall mean: (i) the direct and indirect costs of all
Company Offerings, including product purchase or manufacturing costs, distribution or
delivery costs, product warranty and money back guarantee costs, royalties, customer service
and support costs, amortization of capitalized software, purchased technology or technology
licenses and depreciation of fixed assets, network operating and interconnect costs,
allocable facilities costs, salary, benefits, travel and other specific costs attributable
to employees, non-income based taxes, fees and tariffs incurred in delivering the Company
Offerings, account collections costs and provisions for uncollectible accounts
receivable, credit (debit) card and cash payment services costs (ACH) (expressed in
Euro and calculated in accordance with the Specified Accounting Principles and all
applicable Laws); and (ii) the Company’s share of costs incurred by Tel-online Limited from any
product offerings of the type included in the definition of “Company Offering,” as
Tel-online Limited is structured as of the date of this Agreement (expressed in Euro and
calculated in accordance with all applicable Laws); provided, however, Cost of Revenue shall
exclude: (x) the impact of amortization of purchased intangibles (purchase accounting
adjustments) or stock compensation costs consistent with the Specified Accounting
Principles; and (y) all direct and indirect costs incurred by the Group associated with any
Excluded Revenue.
(bb) “Earn Out Amount” shall mean each of the Base Revenue-Based Earn Out
Aggregate Amount, the Base Gross Profit-Based Earn Out Aggregate Amount, the Base User-Based
Earn Out Aggregate Amount, the Bonus Revenue-Based Earn Out Aggregate Amount, the Bonus
Gross Profit-Based Earn Out Aggregate Amount and the Bonus User-Based Earn Out Aggregate
Amount.
(cc) “Earn Out Election Fraction” shall be the fraction having a numerator
equal to the aggregate number of Earn Out Election Shares and having a denominator equal to
the Aggregate Outstanding Share Number.
(dd) “Earn Out Election Shares” shall mean each Ordinary Share outstanding
immediately prior to Completion with respect to which an Earn Out Election has been made.
(ee) “Earn Out Period” shall mean the period commencing on January 1, 2006 and
ending on the earliest of: (i) December 31, 2008, if each of the Base Revenue-Based Earn Out
Aggregate Amount, the Base Gross Profit-Based Earn Out Aggregate Amount and the Base
User-Based Earn Out Aggregate Amount has become payable to the Earn Out Sellers on or prior
to Xxxxx 00, 0000 (xx being understood that for purposes of this clause “(i)” all Objection
Notices shall be disregarded); (ii) June 30, 2009; and (iii) the date of the occurrence of
an Unwaived Acceleration Event.
(ff) “Earn Out Representative” shall mean the person appointed in accordance
with Section 5.1 to act on behalf of the Earn Out Sellers, or any successor Earn Out
Representative, also appointed in accordance with Section 5.1.
(gg) “Earn Out Sellers” shall mean the Sellers holding Earn Out Election Shares
at Completion and their successors and permitted assigns.
(hh) “EBIT Margin”, for any particular period, shall mean the consolidated
earnings of the Group before interest and taxes during such period determined in a manner
consistent with the Budget (excluding any Excluded Revenue and any direct and indirect costs
incurred by the Group associated with any Excluded Revenue) divided by the Net Revenue
during such period (calculated in the same manner as EBIT Margin is calculated in accordance
with the Specified Accounting Principles).
(ii) “Exchange Rate” shall mean, for the purpose of translating an amount
denominated in a currency other than Euro into Euro as of a specified date, the closing
mid-point rate for exchanges between the relevant currency and Euro on the Business
Day for which that rate is so quoted in the Financial Times (London edition) immediately prior to
such specified date.
(jj) “Governmental Entity” shall mean, in relation to anywhere in the world,
any supra-national, state, municipal or local government (including any subdivision, court,
administrative agency or commission or other authority thereof) or any other supranational,
governmental, intergovernmental, quasi-governmental authority, body, department or
organisation, including the European Union, or any regulatory body appointed by any of the
foregoing.
(kk) “Gross Profit” shall mean the amount in Euro by which the aggregate Net
Revenue during a particular period exceeds the aggregate Cost of Revenue incurred during
such period, in each case calculated in accordance with the Specified Accounting Principles
and all applicable Laws.
(ll) “Gross Profit Amount”, for the period ended as of the end of any
particular calendar quarter, shall be the aggregate amount of the Gross Profit during the
four immediately preceding consecutive calendar quarters.
(mm) “Gross Profit Margin”, for the period ended as of the end of any
particular calendar quarter, shall be the fraction having a numerator equal to the Gross
Profit Amount as of the end of such calendar quarter and having a denominator equal to the
Net Revenue Amount as of the end of such calendar quarter.
(nn) “Gross Profit Target” means the amount set forth in clause “(nn)” of
Schedule 1.1.
(oo) “Gross Sale Proceeds” shall mean the net present value (calculated using a
discount factor equal to the Specified Discount Factor per annum) of the gross proceeds
received by the Purchaser and other equity holders of any Group Company from a Sale,
including: (i) the value of any securities received by such persons in the Sale that are
traded on a securities exchange or through the Nasdaq National Market, which shall be valued
at the average of the closing prices of the securities on such exchange or quotation system
over the 10-day period ending three days prior to the consummation of the Sale; (ii) the
value of any non-cash proceeds, other than publicly-traded securities referred to in clause
“(i)” above, which shall be valued at the fair market value of such proceeds as determined
by an independent appraiser chosen by the Earn Out Representative with the consent of the
Purchaser (such consent not to be unreasonably withheld or delayed); and (iii) any debt or
capital lease obligations assumed or discharged by the buyer in the Sale or to which such
Group Company is subject as of the date of completion of the Sale, which shall be included
in Gross Sale Proceeds at its principal amount or accreted value, as the case may be, plus
accrued and unpaid interest.
(pp) “Group” shall mean, collectively, the Company and the Subsidiaries (as
defined in the Purchase Agreement).
(qq) “Group Company” shall mean a member of the Group.
(rr)
“Initial Acceleration Amount” shall mean € 900,000,000; provided,
however, that if a Sale is consummated during the Earn Out Period, then the Initial
Acceleration Amount shall be calculated as follows:
(i) if the Gross Sale Proceeds are less than or equal to the amount set forth
in clause “(rr)(i) — 1” of Schedule 1.1, then the Initial Acceleration Amount shall
be the amount set forth in clause “(rr)(i) — 2” of Schedule 1.1;
(ii) if the Gross Sale Proceeds are greater than the amount set forth in clause
“(rr)(ii) — 1” of Schedule 1.1 but less than or equal to the amount set forth in
clause “(rr)(ii) — 2” of Schedule 1.1, then the Initial Acceleration Amount shall be
equal to the sum of: (A) the amount set forth in clause “(rr)(ii) — 3” of Schedule
1.1; plus (B) the product of: (1) the amount set forth in clause “(rr)(ii) — 4” of
Schedule 1.1; multiplied by (2) the fraction having a numerator equal to the amount
by which: (x) the Gross Sale Proceeds; exceeds (y) the amount set forth in clause
“(rr)(ii) — 5” of Schedule 1.1, and having a denominator equal to the amount set
forth in clause “(rr)(ii) — 6” of Schedule 1.1; and
(iii) if the Gross Sale Proceeds are greater than the amount set forth in
clause “(rr)(iii) — 1” of Schedule 1.1, then the Initial Acceleration Amount shall
be equal to the sum of: (A) the amount set forth in clause “(rr)(iii) — 2” of
Schedule 1.1; plus (B) the product of: (1) the amount set forth in clause “(rr)(iii)
— 3” of Schedule 1.1; multiplied by (2) the fraction having a numerator equal to the
amount by which: (x) the lesser of: (aa) the Gross Sale Proceeds; and (bb) the
amount set forth in clause “(rr)(iii) — 4” of Schedule 1.1; exceeds (y) the amount
set forth in clause “(rr)(iii) — 5” of Schedule 1.1, and having a denominator equal
to the amount set forth in clause “(rr)(iii) — 6” of Schedule 1.1.
(ss) “Inter-Company Revenue” shall mean: (i) revenue from the sale of Company
Offerings by any Group Company to the Purchaser or any Subsidiary of the Purchaser (other
than any Group Company), whether or not settled in cash; and (ii) a portion of any revenue
derived by the Purchaser or any Subsidiary of the Purchaser (other than any Group Company)
from the sale by the Purchaser or any such Subsidiary to unaffiliated third parties of a
product or service that includes a Company Offering as a component thereof, in each case
based on terms negotiated between the Purchaser and the Chief Executive Officer of the
Company, with the approval of the Company Board by Supermajority Vote (it being understood
that: (A) such terms shall be: (1) based on commercially reasonable factors with respect to
comparable transactions, including: (x) the price paid by unaffiliated third parties to a
Group Company for a comparable Company Offering; and (y) the price received by the Purchaser
from unaffiliated third parties for a comparable product or service that does not include
the Company Offering as a component thereof (if no pricing is available under clause “(x)”
of this sentence); (2) consistent with, and at least as favorable in the aggregate to the Purchaser as those
in, comparable commercial agreements between the Company and unaffiliated third parties; and
(3) consistent with, and at least as favorable in the aggregate to the Group Company as
those in, comparable commercial agreements between the Purchaser and unaffiliated third
parties; and (B) any dispute regarding the amount of Inter-Company Revenue to be
included in Net Revenue that cannot be resolved between the Purchaser and the Earn Out Representative
shall be submitted for resolution in accordance with Section 3.2).
(tt) “Intervention Event” shall mean any of the following:
(i) the average Gross Profit over any two consecutive calendar quarters during
the Earn Out Period is less than the percentage set forth in clause “(tt)(i)” of
Schedule 1.1 of the average projected quarterly Gross Profit over the same period as
set forth in the Company Projections (unless any deviation from the Company
Projections is approved by the Company Board by a Supermajority Vote);
(ii) the average Gross Profit over any three consecutive quarters during the
Earn Out Period is less than the percentage set forth in clause “(tt)(ii)” of
Schedule 1.1 of the average projected quarterly Gross Profit over the same period as
set forth in the Company Projections (unless any deviation from the Company
Projections is approved by the Company Board by a Supermajority Vote);
(iii) any action is taken by any Group Company pursuant to any Budget or
business plan, or any transaction or arrangement is implemented or effected by any
Group Company, if such Budget, business plan, transaction or arrangement was
required to be, but was not, presented to the Company Board for approval by a
Supermajority Vote; provided, however, that the entering into of any Related Party
Transaction or other immaterial transaction or arrangement shall not constitute an
Intervention Event if either: (x) within 30 days after receipt by the Earn Out
Representative of notice thereof from the Purchaser, such transaction is either: (A)
ratified by the Company Board by a Supermajority Vote; or (B) terminated and any
Group Company involved in or affected by such transaction is put back in the same
position as if such transaction had never occurred; or (y) the Related Party
Transaction involves the Purchaser or any controlled Affiliate of the Purchaser
(other than a Group Company).
(iv) any Group Company shall have failed to operate in accordance with the
business plans and Budgets approved by the Company Board in accordance with the
applicable provision of Section 4.4 (unless any deviation therefrom is also approved
by the Company Board in accordance with the applicable provision of Section 4.4),
which failure: (A) has resulted in (or could reasonably be expected to result in)
material damage to the business, financial condition or results of operations of the
Group taken as a whole; and (B) resulted directly or indirectly from any willful or
grossly negligent act or omission by any member of Senior Management appointed by
the Nominating Committee or by any Earn Out Seller (whether in such person’s
capacity as an Earn Out Seller, as a
member of Senior Management of the Company or otherwise), and if curable, has
not been cured within 30 days after receipt by the Earn Out Representative of notice
thereof from the Purchaser;
(v) any Governmental Entity shall have commenced an investigation of, or
Proceeding against any Group Company or any member of Senior Management (other than
the President, Chief Financial Officer or General Counsel) of any Group Company with
respect to a possible violation of Law by any Group Company, by any member of Senior
Management (other than the President, Chief Financial Officer or General Counsel) of
any Group Company or with respect to any Company Offering and such investigation or
Proceeding is: (A) reasonably expected to result in a finding of wrongdoing on the
part of any Group Company or member of Senior Management (other than the President,
Chief Financial Officer or General Counsel) of any Group Company; and (B) reasonably
expected to result in material damages or a material adverse effect on the Group,
taken as a whole, or on the Purchaser and its Subsidiaries, taken as a whole;
provided, however, that no investigation or Proceeding referred to in this clause
“(v)” with respect to a possible violation of Law shall constitute an Intervention
Event if, within 45 days after receipt by the Earn Out Representative of notice of
such investigation or Proceeding from the Purchaser: (1) any and all actions or
omissions that are in violation of Law have entirely ceased; and (2) such
investigation or Proceeding did not result in, and is no longer reasonably expected
to result in, material damages to or a material adverse effect on the Group, taken
as a whole, or on the Purchaser and its Subsidiaries, taken as a whole;
(vi) any Group Company provides materially inaccurate financial information to
the Purchaser with respect to the operations or financial results of the Group,
taken as a whole; provided, however, that an Intervention Event shall not be deemed
to have occurred under this clause “(vi)” if: (A) the materially inaccurate
financial information that was provided to the Purchaser was so provided in
accordance with the accounting principles, procedures and practices provided to the
Group Companies by the Purchaser and the application of such principles, procedures
and/or practices were the primary cause of such financial information being
materially inaccurate; or (B) (1) the materially inaccurate financial information
was not provided in connection with the preparation of any quarterly or annual
financial statements of the Purchaser; (2) the materially inaccurate financial
information was not purposefully inaccurate; (3) prior to the public announcement by
the Purchaser of its financial results or the public filing by the Purchaser of its
quarterly or annual financial statements, the Group Company provided the Purchaser
with accurate financial information in place of such materially inaccurate financial
information; (4) the provision of such materially inaccurate financial information
did not result in, and is not reasonably expected to result in, material damages to
or a material adverse effect on the Group, taken as a whole, or on the Purchaser and
its Subsidiaries, taken as a whole; and (5) except for information of the type
described in clause “(A),” none of the Group Companies has repeatedly provided materially inaccurate financial
information to the Purchaser; or
(vii) a failure by the Company Directors to attend any regularly scheduled
meeting of the Company Board with the effect of preventing a
Required Quorum to be present at such meeting, provided that (A) another meeting of the Company Board is
held within 30 days after such regularly scheduled meeting; (B) prior written notice
is provided to each member of the Company Board at least five Business Days prior to
such subsequent meeting; and (C) the Company Directors also fail (except by reason
of force majeure) to attend such subsequent meeting.
(uu) “Laws” shall mean all legislation, orders, judgments, decrees and
Regulations, including regarding telecommunications, law enforcement, data protection and
anti-trust, competition and equivalent legislation and the expression “Law” shall be
construed accordingly.
(vv) “Majority Vote” shall mean the affirmative vote of at least three out of
the six members of the Company Board, with at least three affirmative votes from any
combination of the Company Directors, the Purchaser Directors and the President.
(ww) “Net Revenue” shall mean the consolidated revenue of the Company
(expressed in Euro and calculated in accordance with the Specified Accounting Principles and
all applicable Laws) that is attributable to (without duplication): (A) the sale or license
by any Group Company of Company Offerings, including Inter-Company Revenue, less related
pricing discounts and allowances, returns and refunds, promotions with contra-revenue
components (coupons), fraud losses, revenue-based fees and taxes and similar items; (B)
revenue from any joint venture or entity in which the Company has made an equity investment
to the extent (and in the amount) that such revenue can be reported as revenue by the
Purchaser in accordance with US generally accepted accounting principles; and (C) the
Company’s share of revenues earned by Tel-online Limited from any product offerings of the
type included in the definition of “Company Offering,” as Tel-online Limited is structured,
as of the date of this Agreement; provided, however, that Net Revenue shall not include
revenue resulting from:
(i) inter-company transactions between the Group Companies;
(ii) transactions between the Purchaser or any of its Subsidiaries and any
Group Company or between or among the Purchaser or any of its Subsidiaries and third
parties that are not expressly included in the definition of “Inter-Company
Revenue”;
(iii) transactions that will not ultimately be settled in cash, including
barter transactions, unless such transactions are included in the definition of
“Inter-Company Revenue”;
(iv) acquisitions;
(v) equity investments and joint ventures, to the extent that the Purchaser is
not able to report such revenue as revenue in accordance with United States
generally accepted accounting principles (except as set forth in clause “(C)”
above); or
(vi) non-recurring, one-time or non-operating items calculated in accordance
with the Specified Accounting Principles (all revenue that is excluded from Net
Revenue being referred to as “Excluded Revenue”).
(xx) “Net Revenue Amount”, for the period ended as of the end of any particular
calendar quarter, shall be the aggregate amount of Net Revenue during the four immediately
preceding consecutive calendar quarters.
(yy) “Net Revenue Target” shall mean the amount set forth in clause “(yy)” of
Schedule 1.1.
(zz) “Plan” shall have the meaning set forth in Section 4.7.
(aaa) “Proceedings” shall mean any proceedings or action arising out of or in
connection with this Agreement or any other document referred to herein.
(bbb) “Related Party Transaction” shall have the meaning set forth in Section 4.4(c).
(ccc) “Required Quorum” shall have the meaning set forth in Section 4.4(b).
(ddd) “Sale” shall have the meaning set forth in Section 1.1(b)(i).
(eee) “Senior Management” shall mean the Chief Executive Officer, Vice
President, Strategy, President, Chief Financial Officer, General Counsel and other officers
of the Company in charge of each of the following functional areas: marketing, business
development, technology, products and operations.
(fff) “Specified Accounting Principles” shall mean United States generally
accepted accounting principles as applied by the Company (acting reasonably) in consultation
with (and after taking into account the views of) the Purchaser in connection with the
preparation by the Company (prior to Completion) of the Company’s US generally accepted
accounting principles-based balance sheet, statement of operations, statement of cash flows
and statement of stockholders’ equity as of and for the period ended December 31, 2004 (such
financial statements being referred to as the “Baseline Financial Statements” and
such accounting principles as so applied being referred to as the “Baseline Accounting
Principles”); provided, however, that for purposes of the calculation and/or
determination of Net Revenue, Cost of Revenue, Gross Profit, Gross Margin, EBIT Margin and
“non-recurring, one-time or non-operating items” pursuant to this Agreement:
(i) the Baseline Accounting Principles may be modified by the Purchaser (acting
reasonably and after consultation with its outside auditors and
the Chief Executive Officer of the Company) to the extent that: (A) a
modification to the Baseline Accounting Principles is required by United States
generally accepted accounting principles as such generally accepted accounting
principles may exist from time to time from Completion until the end of the Earn Out
Period; or (B) the Company incorrectly applied United States generally
accepted accounting principles in connection with the preparation by the Company of the
Baseline Financial Statements; and
(ii) if any transaction occurs after the preparation of the Baseline Financial
Statements and there is no accounting principle that was applied by the Company in
connection with the preparation of the Baseline Financial Statements that properly
would apply to such transaction, then United States generally accepted accounting
principles in effect as of the time of the occurrence of such transaction shall be
applied by the Purchaser (consistent with the Purchaser’s application of such
principles across its business generally (taking into account any differences
between the nature of the Purchaser’s business and the nature of the Company’s
business) and which treatment shall be finally determined by the Purchaser, acting
reasonably after consultation with its outside auditors and the Chief Executive
Officer of the Company) with respect to such transaction.
(ggg) “Specified Discount Factor” means the discount factor set forth in clause
“(ggg)” of Schedule 1.1.
(hhh) “Specified Gross Profit Margin” means the Gross Profit Margin set forth
in clause “(hhh)” of Schedule 1.1.
(iii) “Specified Option Number” means the number set forth in clause “(iii)” of
Schedule 1.1.
(jjj) “Stock Payment Election” shall have the meaning set forth in Section 2.3.
(kkk) “Subsidiary” shall mean, with respect to any person, any entity in which
such person directly or indirectly owns, beneficially or of record: (a) an amount of voting
securities of or other interests in such entity that is sufficient to enable such person to
elect at least a majority of the members of such entity’s board of directors or other
governing body; or (b) at least 50% of the outstanding equity, voting or financial interests
in such entity.
(lll) “Supermajority Vote” shall have the meaning set forth in Section 4.4(c).
(mmm) “Transferee” shall have the meaning set forth in Section 2.5.
(nnn) “Unwaived Acceleration Event” shall mean any Acceleration Event with
respect to which the Earn Out Representative has not waived the Earn Out Sellers’ rights or
the Purchaser’s obligations under Section 2.2 in connection with such Acceleration Event.
2. Payment of Earn Out.
2.1 Subject to Section 2.3, unless an Unwaived Acceleration Event has occurred:
(a) on or prior to September 30, 2009, the Purchaser shall, in respect of each Earn Out
Election Share, deliver to the Earn Out Representative for distribution to the former
holder thereof (or to such former holder’s Transferee) the Base Revenue-Based Earn Out Per Share Amount,
if any; provided, however, that: (i) if as of the end of any calendar quarter during the period
commencing on December 31, 2006 and ending on March 31, 2009: (A) the Net Revenue Amount is greater
than or equal to the Net Revenue Target; and (B) the Gross Profit Margin is at least the Specified
Gross Profit Margin, then: (1) the Base Revenue-Based Earn Out Aggregate Amount shall be deemed to
be € 500,000,000; and (2) the Purchaser shall make the payments required pursuant to this Section
2.1(a) on or prior to the date that is 90 days following the end of such calendar quarter; and (ii)
notwithstanding anything to the contrary contained in this clause “(a),” if the Earn Out
Representative delivers an Objection Notice (as defined in Section 3.2) and such Objection Notice
contains an objection with respect to the Base Revenue-Based Earn Out Aggregate Amount, then the
Purchaser shall: (x) make the payment of any undisputed portion of the Base Revenue-Based Earn Out
Per Share Amount during the time frame set forth above; and (y) make any other payments required
pursuant to this Section 2.1(a) within five Business Days (or, in the event the Purchaser makes the
Stock Payment Election, within 20 days) after the dispute referred to in such Objection Notice is
finally resolved;
(b) on or prior to September 30, 2009, the Purchaser shall, in respect of each Earn Out
Election Share, deliver to the Earn Out Representative for distribution to the former holder
thereof (or to such former holder’s Transferee) the Base Gross Profit-Based Earn Out Per Share
Amount, if any; provided, however, that: (i) if the Gross Profit Amount as of the end of any
calendar quarter during the period commencing on December 31, 2006 and ending on March 31, 2009 is
greater than or equal to the Gross Profit Target, then: (A) the Base Gross Profit-Based Earn Out
Aggregate Amount shall be deemed to be € 500,000,000; and (B) the Purchaser shall make the
payments required pursuant to this Section 2.1(b) on or prior to the date that is 90 days following
the end of such calendar quarter; and (ii) notwithstanding anything to the contrary contained in
this clause “(b),” if the Earn Out Representative delivers an Objection Notice and such Objection
Notice contains an objection with respect to the Base Gross Profit-Based Earn Out Aggregate Amount,
then the Purchaser shall: (x) make the payment of any undisputed portion of the Base Gross
Profit-Based Earn Out Per Share Amount during the time frame set forth above; and (y) make any
other payments required pursuant to this Section 2.1(b) within five Business Days (or, in the event
the Purchaser makes the Stock Payment Election, within 20 days) after the dispute referred to in
such Objection Notice is finally resolved;
(c) on or prior to September 30, 2009, the Purchaser shall, in respect of each Earn Out
Election Share, deliver to the Earn Out Representative for distribution to the former holder
thereof (or to such former holder’s Transferee) the Base User-Based Earn Out Per Share Amount, if
any; provided, however, that: (i) if the Average User Number as of the end of any calendar quarter
during the period commencing on October 1, 2006 and ending on March 31, 2009 is greater than or
equal to the Average User Target, then: (A) the Base User-Based Earn Out Aggregate Amount shall be
deemed to be € 500,000,000; and (B) the Purchaser shall make the payments required pursuant to
this Section 2.1(c) on or prior to the date that is 90 days
following the end of such calendar quarter; and (ii) notwithstanding anything to the contrary
contained in this clause “(c),” if the Earn Out Representative delivers an Objection Notice and
such Objection Notice contains an objection with respect to the Base User-Based Earn Out Aggregate
Amount, then the Purchaser shall: (x) make the payment of any undisputed portion of the Base
User-Based Earn Out Per Share Amount during the time frame set forth above; and (y) make any other
payments required pursuant to this Section 2.1(c) within five Business Days (or,
in the event the Purchaser makes the Stock Payment Election, within 20 days) after the dispute referred to in such
Objection Notice is finally resolved;
(d) on or prior to March 31, 2009, the Purchaser shall, in respect of each Earn Out Election
Share, deliver to the Earn Out Representative for distribution to the former holder thereof (or to
such former holder’s Transferee) the Bonus Revenue-Based Earn Out Per Share Amount, if any;
provided, however, that if the Earn Out Representative delivers an Objection Notice and such
Objection Notice contains an objection with respect to the Bonus Revenue-Based Earn Out Aggregate
Amount, then the Purchaser shall: (x) make the payment of any undisputed portion of the Bonus
Revenue-Based Earn Out Per Share Amount during the time frame set forth above; and (y) make any
other payments required pursuant to this Section 2.1(d) within five Business Days (or, in the event
the Purchaser makes the Stock Payment Election, within 20 days) after the dispute referred to in
such Objection Notice is finally resolved;
(e) on or prior to March 31, 2009, the Purchaser shall, in respect of each Earn Out Election
Share, deliver to the Earn Out Representative for distribution to the former holder thereof (or to
such former holder’s Transferee) the Bonus Gross Profit-Based Earn Out Per Share Amount, if any;
provided, however, that if the Earn Out Representative delivers an Objection Notice and such
Objection Notice contains an objection with respect to the Bonus Gross Profit-Based Earn Out
Aggregate Amount, then the Purchaser shall: (x) make the payment of any undisputed portion of the
Bonus Gross Profit-Based Earn Out Per Share Amount during the time frame set forth above; and (y)
make any other payments required pursuant to this Section 2.1(e) within five Business Days (or, in
the event the Purchaser makes the Stock Payment Election, within 20 days) after the dispute
referred to in such Objection Notice is finally resolved; and.
(f) on or prior to March 31, 2009, the Purchaser shall, in respect of each Earn Out Election
Share, deliver to the Earn Out Representative for distribution to the former holder thereof (or to
such former holder’s Transferee) the Bonus User-Based Earn Out Per Share Amount, if any; provided,
however, that if the Earn Out Representative delivers an Objection Notice and such Objection Notice
contains an objection with respect to the Bonus User-Based Earn Out Aggregate Amount, then the
Purchaser shall: (x) make the payment of any undisputed portion of the Bonus User -Based Earn Out
Per Share Amount during the time frame set forth above; and (y) make any other payments required
pursuant to this Section 2.1(f) within five Business Days (or, in the event the Purchaser makes the
Stock Payment Election, within 20 days) after the dispute referred to in such Objection Notice is
finally resolved.
(For illustrative purposes only, Schedule II sets forth an example of the calculations and
payments to be made pursuant to this Section 2.)
2.2 Acceleration Events. The Purchaser shall notify the Earn Out Representative promptly after
the Purchaser becomes aware of the occurrence of any Acceleration Event prior to the end of the
Earn Out Period, unless an Intervention Event shall have occurred prior to the occurrence of an
Acceleration Event (the date such notice is received by the Earn Out Representative being referred
to as the “Acceleration Event Notice Date”). Subject to the final sentence of this Section
2.2 and to Section 2.3, if: (a) an Acceleration Event occurs during the Earn Out Period; and (b)
the Earn Out Representative notifies the Purchaser in writing (which
notice shall be within 30
Business Days following the Acceleration Event Notice Date if the Purchaser delivered a notice of
the Acceleration Event to the Earn Out Representative) that the Earn Out Representative, for and on
behalf of the Earn Out Sellers, has elected not to waive the Earn Out Sellers’ rights and the
Purchaser’s obligations under this Section 2.2 with respect to such Acceleration Event, then,
within 10 Business Days (or, if the Purchaser makes the Stock Payment Election, within 20 days)
following receipt of such written notice from the Earn Out Representative, the Purchaser shall, in
respect of each Earn Out Election Share, deliver to the Earn Out Representative for distribution to
the former holder thereof (or to such former holder’s Transferee) the amount determined by dividing
the Acceleration Amount by the aggregate number of Earn Out Election Shares (it being understood
that if the Purchaser delivers a notice of the Acceleration Event to the Earn Out Representative
and the Earn Out Representative shall not have provided the notice contemplated by this clause
"(b)” to the Purchaser within 30 Business Days following the Acceleration Event Notice Date, then
the Earn Out Representative shall be deemed to have irrevocably waived the Earn Out Sellers’ rights
and the Purchaser’s obligations under this Section 2.2 with respect to such Acceleration Event).
Payment by the Purchaser of the Acceleration Amount to the Earn Out Representative for distribution
to each former holder of Earn Out Election Shares (or to such former holder’s Transferee) shall
constitute a full and final settlement of any and all amounts that may become due pursuant to
Section 2.1 or otherwise in connection with this Agreement or any prior or alleged breach thereof
(it being understood that upon payment of the Acceleration Amount, the Purchaser shall have no
further obligations, and the Earn Out Representative and Earn Out Sellers would have no further
rights, under Section 2.1 or with respect to the payment of any Earn Out Amount). The parties
expressly agree that: (i) a waiver of an Acceleration Event by the Earn Out Representative shall
not constitute a waiver of any claim the Earn Out Sellers may have against the Purchaser (whether
such claim is based in contract or tort law or in law or equity) other than the right to receive
the Acceleration Amount in respect of the particular Acceleration Event; and (ii) the Acceleration
Amount is not intended by the parties to reflect a measure of damages relating to any breach of
contract by the Purchaser and the parties intend that such amount shall have no relevance in
connection with any dispute under this Agreement other than disputes with respect to payment of the
Acceleration Amount.
2.3 Stock Payment Election. At the Purchaser’s sole discretion, the Purchaser may elect to
issue Purchaser Shares in lieu of paying any portion of any Earn Out Amount or the Acceleration
Amount in cash by providing written notice to the Earn Out Representative at least 20 days prior to
the date that such payment is due (such election being referred to as a “Stock Payment
Election”). Subject to Section 2.4, if the Purchaser makes a Stock Payment Election with
respect to any portion of any Earn Out Amount or the Acceleration Amount, then: (a) the Purchaser
shall reduce the amount of cash otherwise payable in respect of each Earn Out Share in connection
with the payment of such Earn Out Amount or the Acceleration Amount, as the case may be, pursuant
to Section 2.1 or Section 2.2 by subtracting the Per Share Stock Payment
Amount (as defined below) therefrom; and (b) the Purchaser shall, in respect of each Earn Out
Share, issue to the Earn Out Representative for distribution to the former holder thereof (or such
former holder’s Transferee) the number of Purchaser Shares determined by dividing: (i) the Per
Share Stock Payment Amount; by (ii) the average closing sale price of a Purchaser Share as reported
on the Purchaser Primary Exchange for the period of 15 consecutive trading days following the date
of the Stock Payment Election (translated into Euro at the Exchange Rate as of the date that is 15
days after the date of the Stock Payment Election and adjusted as
appropriate to reflect any stock
split, reverse stock split or similar transaction effected by the Purchaser between the beginning
of such period and the date such Purchaser Shares are issued). The Purchaser may make the Stock
Payment Election only if any Purchaser Shares issued pursuant to this Section 2.3 are registered
for resale by the Purchaser as of the date of such issuance or shall otherwise not be subject to
restrictions on resale under applicable United States securities laws or otherwise solely as a
result of actions taken by or against the Purchaser. For purposes of this Agreement: (A) “Stock
Payment Amount” shall mean the portion of any Earn Out Amount or the Acceleration Amount to
which a Stock Payment Election applies; and (B) “Per Share Stock Payment Amount” shall be
the quotient of the Stock Payment Amount divided by the aggregate number of Earn Out Shares.
2.4 No Fractional Shares. No fractional Purchaser Shares shall be issued pursuant to this
Agreement, and no certificates or scrip for any such fractional shares shall be issued. Any Seller
who would otherwise be entitled to receive a fraction of a Purchaser Share (after aggregating all
fractional Purchaser Shares issuable to such Seller) shall, in lieu of such fraction of a share, be
paid in cash the amount in Euro (rounded to the nearest whole Euro cent), without interest,
determined by multiplying such fraction by the quotient of: (a) the closing price of a Purchaser
Share on the Purchaser Primary Exchange on the date of issuance of such Purchaser Shares; divided
by (b) the Exchange Rate on such date.
2.5 Permitted Transfers. The interests of any Earn Out Seller in any Earn Out Amount or in
any portion of the Acceleration Amount shall not be assignable or transferable, except: (a) by
operation of law; (b) in connection with a Permitted Transfer (as defined below); or (c) following
the first anniversary of Completion (the assignee or transferee of any assignment or transfer
permitted pursuant to this Section 2.5 being referred to as a “Transferee”); provided,
however, that no assignment or transfer of any such interest may occur pursuant to this Section
2.5: (i) unless the Purchaser shall have received from the transferring Earn Out Seller an opinion
of counsel reasonably satisfactory to the Purchaser that such assignment or transfer will not
constitute or result in a violation of applicable securities Laws; (ii) if such assignment or
transfer could reasonably be expected to result in any obligation to register any security under
Section 12 of the Securities Exchange Act of 1934, as amended, or result in there being more than
400 holders of any security that may be created as a result of this Agreement, prior to the end of
the Earn Out Period; and (iii) unless the assignee on transfer signs or delivers to the Purchaser a
counterpart to this Agreement agreeing to be bound by all of the terms hereof (it being understood
that any attempted assignment or transfer in violation of any part of clause “(i),” clause “(ii)”
or clause “(iii)” of this sentence shall be null and void). For purposes of this Section 2.5,
“Permitted Transfer” shall mean any transfer: (A) if an Earn Out Seller is an individual,
upon the death of such Earn Out Seller pursuant to any will, trust or similar instrument or
pursuant to the laws of descent and distribution; or (B) if the Earn Out Seller is a corporation,
trust, partnership or limited liability company, to one or more stockholders, beneficiaries, partners
or members of such Earn Out Seller.
3. Administration of Earn Out Payments.
3.1 Preparation and Delivery of Statements.
(a) During the Earn Out Period, on or before the date that is 45 days after the end of the
last calendar quarter with respect to which the payment of any Earn Out Amount would reasonably be
expected to be due, the Purchaser shall, after consultation with the Chief Executive Officer of the
Company: (i) prepare or cause to be prepared a statement (a “Statement”) setting forth such
Earn Out Amount and the Net Revenue Amount, Gross Profit Amount, Gross Profit Margin and/or Average
User Number, as the case may be, underlying such Earn Out Amount (collectively, the
“Results”); and (ii) deliver or cause to be delivered the Statement, together with a
summary of the basis for determination of the Results, to the Earn Out Representative who will be
deemed to have received the Statement for and on behalf of all of the Earn Out Sellers.
(b) Within 45 days following the end of each calendar quarter during the Earn Out Period, the
Purchaser shall after consultation with the Chief Executive Officer of the Company: (i) prepare or
cause to be prepared a statement (the “Quarterly Statement”) setting forth the Net
Revenues, Gross Profits and the average of the number of Active Users for each of the three months
during such calendar quarter, and, commencing on December 31, 2006, the Net Revenue Amount, the
Gross Profit Amount and the Average User Number; and (ii) deliver or cause to be delivered the
Quarterly Statement, together with a summary of the basis for determination of such amounts, to the
Earn Out Representative who will be deemed to have received the Quarterly Statement for and on
behalf of all of the Earn Out Sellers. The Quarterly Statements are being provided for information
purposes only and shall not estop either party from taking a contrary position with respect to the
information contained therein.
3.2 Dispute Resolution.
(a) In the event that the Earn Out Representative objects to the Results set forth in the
Statement, then within 35 days after the delivery to the Earn Out Representative of the Statement
(the “Response Period”), the Earn Out Representative shall deliver to the Purchaser a
written notice (an “Objection Notice”) describing in reasonable detail the Earn Out
Representative’s objections to the Statement and setting forth the Results determined by the Earn
Out Representative to be correct. If the Earn Out Representative does not deliver an Objection
Notice to the Purchaser during the Response Period, then the Purchaser’s calculation of the Results
shall be binding and conclusive on the Purchaser, the Earn Out Sellers and the Earn Out
Representative.
(b) If the Earn Out Representative delivers an Objection Notice objecting to the Results
(other than the calculation of the applicable Average User Number) during the Response Period in
accordance with Section 3.2(a), and if the Earn Out Representative and the Purchaser are unable to
resolve such dispute within 20 days after such Objection Notice is delivered to the Purchaser, then
the dispute shall be finally settled by an independent “big four”
accounting firm mutually selected by the Purchaser and the Earn Out Representative (it being
understood that, if requested by the Earn Out Representative, such independent accounting firm may
examine, among other things, the manner in which the Purchaser applied the Specified Accounting
Principles to any particular transaction, taking into account all relevant factors (including, to
the extent that the independent accounting firm deems it to be appropriate, a comparison of the
manner in which the Purchaser applied the Specified Accounting Principles to such transaction to
the manner in which companies substantially comparable to the Purchaser
apply United States
generally accepted accounting principles to similar transactions). The determination by the
independent accounting firm of: (i) the applicable Earn Out Amount, if any, determined to be
correct (the “Actual Earn Out Amount”); and (ii) the non-prevailing party (as described
below), shall be conclusive and binding on the Purchaser, the Earn Out Sellers and the Earn Out
Representative. The non-prevailing party in such dispute shall be determined by the independent
accounting firm and shall be the party whose calculation of the Earn Out Amount in dispute was
furthest from the Actual Earn Out Amount. The Purchaser and the Earn Out Representative shall each
bear and pay 50% of the fees and other expenses of the independent accounting firm in connection
with the dispute resolution process set forth in this Section 3.2(b); provided, however, that if
the difference between the non-prevailing party’s calculation of the Earn Out Amount in dispute and
the Actual Earn Out Amount is greater than 5% of the Actual Earn Out Amount, then the
non-prevailing party shall be responsible for reimbursing the prevailing party for all of its
reasonable out-of-pocket costs and expenses incurred in connection with the resolution of the
dispute, including all reasonable attorneys’ fees, accounting fees and experts’ fees, and shall
also be responsible for paying all of the costs associated with the dispute resolution process
provided for by this Section 3.2(b), including all fees and expenses of the independent accounting
firm in connection with the dispute resolution process.
(c) If the Earn Out Representative delivers an Objection Notice objecting to the applicable
Average User Number to the Purchaser during the Response Period in accordance with Section 3.2(a),
and if the Earn Out Representative and the Purchaser are unable to resolve such dispute within 20
days after such Objection Notice is delivered to the Purchaser, then either the Earn Out
Representative or the Purchaser may notify the other of their intention (“Notice of
Intent”) to submit the dispute for determination by a board of three experts (the
“Experts”, and each an “Expert”). Each of the Purchaser and the Earn Out
Representative shall have the right to appoint one Expert and the two Experts so appointed by them
shall select a third Expert, all of whom shall be qualified by education, knowledge and experience
in the appropriate field or discipline relating to the substance of the dispute. Each of the Earn
Out Representative and the Purchaser shall appoint their respective Expert within 15 Business Days
from the date of the Notice of Intent, and give the other the name, position, address, phone
number, email address (if any) and experience of its Expert. If either party fails to name its
Expert within the said 15 Business Day period, the other party shall name a second Expert. If the
two Experts so named shall fail within 10 Business Days after the appointment of the second Expert
to agree upon and to select a third Expert (the “Third Expert”), then either of the
Purchaser or the Earn Out Representative may thereafter request the President of the Law Society of
England and Wales from time to time to select the Expert to complete the board of three. Should
the Third Expert be or become unwilling or unable to act, another shall be selected in the same
manner. In the event that either Expert named by the Purchaser and the Earn Out Representative is
or becomes unwilling or unable to act, the party selecting that Expert shall select another Expert
within a reasonable time of learning of the unwillingness or inability of the original Expert to
act. A person selected or appointed as an Expert may not be (a) in the regular salary employ of
either of the Purchaser or any of the Earn Out Sellers or Affiliates thereof; (b) a consultant or
legal counsel for either the Purchaser or any of the Earn Out Sellers, or (c) a person who has
previously voted as an expert or arbitrator against any of the Purchaser or any of the Earn Out
Sellers or has represented others in proceedings against one of them. The jurisdiction of the
Experts shall be limited to: (a) determining the applicable Average User Number; and (b)
determining the non-prevailing party in such dispute. The Claim Dispute shall be decided by a
majority vote of the Experts within 75 Business Days from the date the Third Expert was appointed.
The determination by the Experts of: (a) the applicable Average User Number (the “Actual
Average User Number”); and (b) the non-prevailing party (as described below) shall be
conclusive and binding on the Purchaser, the Earn Out Sellers and the Earn Out Representative. The
non-prevailing party in such dispute shall be determined by the Experts and shall be the party
whose calculation of the Average User Number was furthest from the Actual Average User Number. The
Purchaser and the Earn Out Representative shall each bear and pay 50% of the fees and other
expenses of the Experts in connection with the dispute resolution process set forth in this Section
3.2(c); provided, however, that if the difference between the non-prevailing party’s calculation of
the Average User Number and the Actual Average User Number is greater than 5% of the Actual Average
User Number, then the non-prevailing party shall be responsible for reimbursing the prevailing
party for all of its reasonable out-of-pocket costs and expenses incurred in connection with the
resolution of the dispute, including all reasonable attorneys’ fees, accounting fees and experts’
fees, and shall also be responsible for paying all of the costs associated with the dispute
resolution process provided for by this Section 3.2(c), including all fees and expenses of the
Experts in connection with the dispute resolution process.
(d) Except as provided in Sections 3.2(b) and 3.2(c), if the Earn Out Representative or the
Purchaser has any other dispute with the other in connection with this Agreement, then either the
Earn Out Representative or the Purchaser may submit the dispute to be settled by binding
arbitration in London in accordance with the ICC Rules of Arbitration then in effect. Arbitration
will be conducted by one arbitrator, mutually selected by the Purchaser and the Earn Out
Representative; provided, however, that if the Purchaser and the Earn Out Representative fail to
mutually select an arbitrator within 15 Business Days after such dispute is submitted to
arbitration, then the arbitrator shall be selected by the ICC in accordance with its Rules of
Arbitration then in effect. The Earn Out Representative and the Purchaser agree to use
commercially reasonable efforts to cause the arbitration hearing to be conducted within 75 days
after the appointment of the arbitrator, and to use commercially reasonable efforts to cause the
decision of the arbitrator to be furnished within 15 days after the conclusion of the arbitration
hearing. The determination by the ICC of: (a) the resolution of any such disputes; and (b) the
non-prevailing party (as described below) shall be conclusive and binding on the Purchaser, the
Earn Out Sellers and the Earn Out Representative. The non-prevailing party in such dispute shall be
determined by the ICC. The Purchaser and the Earn Out Representative shall each bear and pay 50% of
the fees and other expenses of the ICC in connection with the dispute resolution process set forth
in this Section 3.2(d); provided, however, that if the ICC identifies a prevailing party, then the
non-prevailing party shall be responsible for reimbursing the prevailing party for all of its
reasonable out-of-pocket costs and expenses incurred in connection with the resolution of the
dispute, including all reasonable attorneys’ fees, accounting fees and experts’ fees, and shall
also be responsible for paying all of the costs associated with the dispute resolution process
provided for by this Section 3.2(d), including all fees and expenses of the ICC in connection
with the dispute resolution process.
3.3 Access to Necessary Information.
(a) At reasonable times and during normal business hours, the Company shall permit
representatives of the Purchaser and the Purchaser’s legal, accounting and financial advisors to
have full access to the books, records and personnel of the Company and to make
such inspections and copies of such books and records as they may request, from time to time and for any reason
whatsoever.
(b) At reasonable times during normal business hours and upon reasonable notice provided to
the Purchaser, the Purchaser shall permit the Earn Out Representative (who shall have executed a
confidentiality agreement in form and substance reasonably satisfactory to the Purchaser) and his
legal, accounting and financial advisors to examine the financial books and records of the Company,
to make such inspections and copies of such books and records as they may reasonably require, and
to discuss such matters with the appropriate personnel of the Company and the Purchaser, each to
the extent incident to the exercise of the Earn Out Representative’s right to object to the
Purchaser’s calculation of the amounts set forth in the Statement. The Earn Out Representative
agrees that he shall hold (and shall cause his advisors referred to in the preceding sentence to
hold) all information acquired during such examination in strict confidence and shall use (and
shall cause his advisors referred to in the preceding sentence to use) such information solely for
purposes of making calculations under Section 2 or in connection with any dispute under this
Agreement.
4. Post-Completion Management of the Company.
4.1 Officers of the Company. From Completion until the end of the Earn-Out Period, unless an
Intervention Event shall have occurred, the following provisions shall apply:
(a) until the employment of Xxxxxx Xxxxxxxxx or Xxxxx Xxxxx, as the case may be, with the
Company is terminated (through such individual’s voluntarily termination, through such individual’s
involuntarily termination pursuant to this Agreement or due to such individual’s death or
“Incapability,” as such term is defined in such individual’s employment agreement with the Company
or an Affiliate of the Company), Xxxxxx Xxxxxxxxx shall have the title and customary
responsibilities of Chief Executive Officer of the Company and Xxxxx Xxxxx shall have the title and
customary responsibilities of Vice President, Strategy of the Company;
(b) the President of the Company (and any successor thereto) shall be appointed by a Majority
Vote of the Company Board from a list of candidates provided by the Purchaser (it being understood
that the President of the Company shall not be appointed without the approval of the Company
Directors, which approval shall not be unreasonably withheld or delayed);
(c) the Chief Financial Officer and General Counsel of the Company (and any successor thereto)
shall be mutually agreed upon by the Purchaser and the Company Directors, in each case such
agreement not to be unreasonably withheld or delayed;
(d) a three-person committee of the Company Board (the “Nominating Committee”)
consisting of the Company Directors and a member of the Company Board designated by the Purchaser
shall (acting reasonably and taking into account all relevant factors, including a person’s
professional experience and general background), appoint the initial members of Senior Management,
other than the Chief Executive Officer, the Vice President, Strategy, the President, the Chief
Financial Officer and the General Counsel;
(e) the Company’s Chief Executive Officer (or if there is no Chief Executive Officer at the
time, the Company’s most senior officer) shall have the exclusive authority (acting reasonably and
taking into account all relevant factors, including a person’s professional experience and other
qualifications) and after consultation with a Purchaser Director or his or her designee, to appoint
all non-Senior Management positions of the Company;
(f) the Nominating Committee shall have the exclusive authority, acting reasonably, to
determine the terms of employment of each member of Senior Management (which terms may include
performance-based incentives), subject in each case to the terms of the Budget approved by the
Company Board in accordance with the applicable provisions of Section 4.4 and to the terms of such
individual’s employment contract existing prior to the date of such determination, and provided
that: (i) such terms of employment are consistent with the Purchaser’s compensation structure; and
(ii) the Nominating Committee shall have no authority with respect to any equity-based compensation
(whether such equity-based compensation relates to equity of the Purchaser, any Group Company or
otherwise) other than with respect to the Plan;
(g) subject to Section 4.1(j), the Nominating Committee and the Chief Executive Officer shall
have the concurrent authority, acting reasonably, to terminate the employment of any member of
Senior Management, other than the Chief Executive Officer, President, General Counsel or Chief
Financial Officer of the Company, subject to compliance with the terms of such individual’s
employment agreement with the Company or an Affiliate of the Company;
(h) the Company Board, by a Majority Vote, shall have the authority to terminate the
employment of the Chief Financial Officer and General Counsel of the Company, subject to compliance
with the terms of such individual’s employment agreement with the Company or an Affiliate of the
Company;
(i) subject to Section 4.1(k), the Company Board, by a Supermajority Vote, shall have the
authority to terminate the employment of the Chief Executive Officer of the Company or the
President of the Company, subject to compliance with the terms of such individual’s employment
agreement with the Company or an Affiliate of the Company;
(j) notwithstanding anything to the contrary contained in this Agreement, the Company Board,
by a Majority Vote, shall have the authority to terminate the employment of any member of Senior
Management, other than the Chief Executive Officer of the Company and the President of the Company,
for “Cause” (as such term is defined in such individual’s employment agreement with the Company or
an Affiliate of the Company);
(k) notwithstanding anything to the contrary contained in this Agreement, the Purchaser
Directors shall have the authority to terminate the employment of the Chief Executive Officer for
“Cause” (as such term is defined in such individual’s employment agreement with the Company or an
Affiliate of the Company);
(l) upon the termination of employment of any member of Senior Management, other than the
Chief Executive Officer, President, General Counsel or Chief Financial Officer of the Company, the
Nominating Committee shall have the exclusive authority
(acting reasonably and taking into account all relevant factors, including a person’s professional experience and general background) and upon
consultation with the Purchaser, to appoint a successor thereto;
(m) in the event the employment of the Chief Executive Officer of the Company terminates
(through his voluntarily termination, through his involuntarily termination pursuant to this
Agreement or due to his death or Incapability) , any replacement Chief Executive Officer shall not
be appointed without the approval of the Purchaser Directors, which approval shall not be
unreasonably withheld or delayed; and
(n) subject to the other provisions of this Agreement, each member of Senior Management,
except for the President of the Company, shall have responsibilities customary for persons with
similar positions in similar companies. The President shall have such duties as are determined by
the Company Board by a Supermajority Vote.
4.2 Management of the Company. From Completion through the end of the Earn Out Period, unless
an Intervention Event shall have occurred, subject to the enumerated powers of the Company Board
set forth of Section 4.4, the day-to-day management of the Company shall be conducted by the
executive officers of the Company in accordance with the Budgets and business plans approved by the
Company Board (it being understood that no director of the Company shall sign any contract on
behalf of and with the effect of binding the Company, except in their capacity as an officer of the
Company); provided, however, that the Company shall at all times be subject to the Purchaser’s
policies and procedures relating to corporate governance, internal financial and disclosure
controls, internal audit policies, documentation of contracts, compensation and benefits and
regulatory and legal compliance. All officers of the Company (other than the President of the
Company) shall report to the Company’s Chief Executive Officer, as well as, with respect to the
Chief Financial Officer and General Counsel, to such officer’s functional head in the Purchaser’s
organization. The President of the Company shall report on a “solid line” basis to the Chief
Executive Officer of the Company and shall report on “dotted line” basis to the Chief Executive
Officer of the Purchaser.
4.3 Composition of the Company Board. Immediately following Completion, the Company Board
shall consist of the following six individuals: (a) the Chief Executive Officer and the Vice
President, Strategy of the Company (each such individual, and any successor thereto designated in
accordance with this Section 4.3, being referred to as a “Company Director”); (b) the
Purchaser’s Chief Executive Officer and another individual designated by the Purchaser prior to
Completion (each such individual, and any successor thereto designated in accordance with this
Section 4.3, being referred to as a “Purchaser Director”); (c) the President of the
Company; and (d) a Luxembourg resident director (the “Luxembourg Director”) mutually
agreed to by the Company Directors and the Purchaser Directors, with each such individual
referred to in clauses “(a)” through “(d)” of this sentence being entitled to serve as a director
on the Company Board until such individual’s resignation, removal, incapacity or death. Prior to
the end of the Earn Out Period, unless an Intervention Event has occurred, any vacancy on the
Company Board created by the resignation, removal, incapacity or death of a director shall be
filled: (i) in the case of the resignation, removal, incapacity or death of a Company Director, by
an individual designated by the other Company Director (or in the event no Company Directors are in
office, by the Earn Out Representative), which individual: (A) was an Earn Out Seller as
of the Completion Date or an Affiliate of a person who was an Earn Out Seller as of the Completion Date
and continues to be an Earn Out Seller; and (B) if as of the time that such vacancy is filled,
there remain Earn Out Sellers who are also officers (or other employees at the level of Vice
President or higher) of the Company, is an officer or such other employee; (ii) in the case of the
resignation, removal, incapacity or death of a Purchaser Director, an individual designated by the
Purchaser; (iii) in the case of the resignation, removal, incapacity or death of the President of
the Company, by the individual who is appointed as the successor President of the Company in
accordance with Section 4.1(b); and (iv) in the case of the resignation, removal, incapacity or
death of the Luxembourg Director, by an individual mutually agreed to by the Company Directors and
the Purchaser Directors. If an Intervention Event occurs prior to the end of the Earn Out Period,
the Purchaser Directors shall be entitled, at any time following the date of such occurrence, to:
(A) appoint additional directors to the Company Board to ensure that the Purchaser controls the
Company Board; and (B) otherwise take over complete control of the Company in all respects, and the
Company Directors shall cooperate with and assist the Purchaser in effecting the changes described
in clauses “(A)” and “(B)” of this sentence. Without limiting the generality of the foregoing, the
provisions set forth in Sections 4.1, 4.2, 4.3, 4.4(a), 4.4(b), 4.4(c), 4.5 and 4.6 shall terminate
and no longer have any force or effect upon the occurrence of an Intervention Event. A Company
Director shall resign from the Company Board if and when such Company Director’s employment with
the Company is terminated; provided that Xxxxxx Xxxxxxxxx and Xxxxx Xxxxx each may remain a Company
Director even if such person’s employment with the Company is terminated, except if such person’s
employment is terminated for Cause in accordance with this Agreement.
4.4 Board Meetings; Board Approval; Exculpation and Fiduciary Duties.
(a) From Completion until the end of the Earn Out Period, unless an Intervention Event shall
have occurred: (i) the Company Board shall hold at least four regularly scheduled meetings per
year, of which three shall be held in Luxembourg to the extent determined by the Purchaser to be
required to qualify from time to time for any beneficial tax treatment, unless otherwise approved
by the Company Board by a Supermajority Vote; (ii) at least 20 Business Days prior to each
regularly scheduled meeting of the Company Board immediately prior to the beginning of each
calendar year during the Earn Out Period, the Chief Executive Officer of the Company shall provide
to each member of the Company Board a proposed annual Budget with respect to such calendar year,
and as soon as practicable prior to each other regularly scheduled meeting of the Company Board
during each calendar year during the Earn Out Period, the Chief Executive Officer of the Company
shall provide each member of the Company Board with any proposed modifications to any such annual
Budget that was previously approved by the Company Board; (iii) the Chief Executive Officer of the
Company shall cause a reminder notice of each regularly scheduled meeting of the Company Board to
be provided to each director at least five Business Days prior to the meeting, which notice may
be waived by each member of the Company Board in attendance at such meeting; provided that each
Purchaser Director and each Company Director is present at such meeting; (iv) additional meetings
of the Company Board may be held at any time from Completion until the end of the Earn Out Period,
by written notice given by any director to the Purchaser, the Earn Out Representative and each of
the other directors at least five Business Days prior to the meeting; (v) each written notice of a
meeting (including the reminder notice referred to above) shall include an agenda for such meeting,
as well as a list of matters to be presented for consideration
by the Company Board at such meeting; and (vi) the Company Board may not approve any matter at a meeting that is not
specifically identified on the list of matters to be presented for consideration at such meeting
accompanying the notice of such meeting, unless such matter is approved by a Supermajority Vote.
(b) From Completion until the end of the Earn Out Period, unless an Intervention Event shall
have occurred: (i) the overall strategic direction and operations of the Company shall at all times
be as contemplated by the Budgets and the business plans approved by the Company Board in
accordance with the applicable provisions of this Section 4.4, but otherwise shall be the
responsibility of the executive officers of the Company; (ii) a Majority Vote of the Company Board
shall be required to review and approve actions customarily approved by a board of directors,
including ordinary course business plans and Budgets; (iii) no action shall be taken by the Company
Board from Completion until the end of the Earn Out Period without a Required Quorum; and (iv) no
action may be taken by the Company Board without a meeting unless all members of the Company Board
consent thereto in writing. A “Required Quorum” shall consist of at least three directors,
including one Company Director and one Purchaser Director. From Completion until the end of the
Earn Out Period, unless an Intervention Event shall have occurred, if the Earn Out Representative
or Senior Management has demonstrated to the Purchaser that it is reasonable that either: (i) both
the Base Revenue-Based Earn Out Aggregate Amount and the Base Gross Profit-Based Earn Out Aggregate
Amount will become payable during the Earn Out Period; or (ii) either the Base Revenue-Based Earn
Out Aggregate Amount or the Base Gross Profit-Based Earn Out Aggregate Amount will exceed
€250,000,000, then the Purchaser shall cause the Purchaser Directors to vote in favor of the
approval of every proposed annual Budget and business plan recommended by the Company’s Chief
Executive Officer and the Company Directors, after consultation with the Company’s President, to
the Company Board unless: (A) such proposed Budget or business plan relates to any business lines
that do not constitute business lines of the Company existing as of the date of this Agreement or
that have previously been approved by the Company Board by a Supermajority Vote, or extensions
thereof that are reasonably related to such existing or previously approved business lines; (B)
such proposed Budget or business plan does not reasonably contemplate an EBIT Margin for the fiscal
year to which such proposed Budget or business plan relates at least as high as the EBIT Margin set
forth in the Company Projections for the same fiscal year, unless an amendment or a deviation from
such EBIT Margin has been previously approved by the Company Board by a Supermajority Vote; (C)
such proposed Budget or business plan is not otherwise commercially reasonable; or (D) the Company
Board approves such proposed Budget or business plan by a Majority Vote notwithstanding the failure
of the Purchaser Directors to vote in favor of approval of such proposed Budget or plan.
(c) From Completion until the end of the Earn Out Period, unless an Intervention Event shall
have occurred, the vote of both of the Company Directors and both of the Purchaser Directors (a
“Supermajority Vote”) shall be required to approve: (i) business plans, Budgets (and any
deviations therefrom) and transactions that: (A) contemplate or involve any material deviation from
business lines of the Company existing as of the date of this Agreement (or any extensions thereof
that are reasonably related to such existing business lines); (B) could reasonably be expected to
result in an EBIT Margin for the fiscal year to which such business plan or Budget relates of less
than the EBIT Margin for the Group Companies set forth in the Company Projections for the same
fiscal year; or (C) are not otherwise commercially reasonable;
(ii) any material contract to which any Group Company is to become a party or by which a Group Company is to become bound that is
outside the ordinary course of business; (iii) acquisitions or dispositions of securities,
businesses or other assets (whether by way of stock purchase, merger, consolidation or otherwise)
by any Group Company, other than acquisitions or dispositions of assets in the ordinary course of
business; (iv) transactions: (A) between any Group Company and the Purchaser or any Affiliate of
the Purchaser; or (B) between any Group Company; and: (1) any director, any member of Senior
Management or any other officer of any Group Company; or (2) any entity with respect to which any
person described in clause “(1)” of this sentence is an Affiliate, equity holder, director,
principal, manager, employee, consultant, adviser, agent or representative, but excluding under
clause “(A)” of this sentence: (x) transactions between or among Group Companies; and (y)
immaterial transactions in the ordinary course of business (each such transaction in this clause
"(iv),” a “Related Party Transaction”); (v) the issuance of any securities by any Group
Company; (vi) to the extent the Purchaser determines that to qualify from time to time for any
beneficial tax treatment, three out of four regularly scheduled meetings of the Company Board must
be held in Luxembourg, any change in the requirement set forth in Section 4.4(a) that three out of
four of the regularly scheduled meetings of the Company Board be held in Luxembourg; (vii) any
matter presented at a meeting of the Company Board that is not specifically identified on the list
of matters to be presented for consideration at such meeting accompanying the notice of such
meeting; (viii) the termination of employment of the President of the Company or the Chief
Executive Officer of the Company, in the case of the President of the Company, with or without
Cause and in the case of the Chief Executive Officer of the Company, without Cause; (ix) any
liquidation or winding up of any Group Company; (x) the incurrence of indebtedness for borrowed
money by any Group Company from a third party; (xi) except as set forth in Section 4.3, any
increase or decrease in the number of members of the Company Board; (xii) any amendment to or
deviation from the Company Projections; (xiii) the assignment by the Purchaser of its rights and
obligations under this Agreement, unless the conditions set forth in Section 5.4 have been
satisfied; and (xiv) any amendment to the Articles that adversely impacts the rights and
obligations of any party to this Agreement.
(d) The Earn Out Sellers hereby agree that none of the Purchaser, any Group Company or any of
the members of the Company Board shall have any liability (express, implied or otherwise) to any
Earn Out Seller or other person for failure of any Group Company to achieve any of the financial
results or Average User Numbers required for any Earn Out Amount to become payable to the Earn Out
Sellers. Members of the Company Board shall owe their fiduciary duties to the Company and its
shareholder and not to any employee, creditor, or other person.
4.5 Funding Requirements. From Completion through the end of the Earn Out Period, the
Purchaser shall provide, or cause to be provided, to the Company cash in an amount sufficient to
meet the external cash needs of the Company as contemplated by annual Budgets approved by the
Company Board in accordance with the applicable provision of Section 4.4. The Purchaser may elect
to provide any amounts required to be provided to the Company pursuant to this Section 4.5 in the
form of a loan or capital contribution; provided, however, that if it is provided in the form of a
loan, the loan shall be subordinated to all other indebtedness of the Company and to all
obligations to the Earn Out Sellers, and no payments in respect of such
indebtedness shall be made until the later of the end of the Earn Out Period and payment of all amounts due to the Earn Out
Sellers.
4.6 Company Articles. The parties to this Agreement shall ensure that from Completion through
the end of the Earn Out Period, the Articles shall, to the extent permitted under applicable Law,
include appropriate provisions implementing, and that are otherwise consistent with, this Section 4
(it being understood that the language included in the Articles to implement Section 4 may differ
from the language contained in Section 4 to the extent necessary or appropriate under Luxembourg
law).
4.7 Company Stock Incentive Plan. Prior to Completion, the Purchaser shall, at its election,
either cause its Board of Directors to adopt a stock incentive plan that has available for grant
exclusively to, or cause its Board of Directors to reserve under one or more of its existing stock
incentive plans exclusively for, existing employees, directors and consultants of the Group
Companies and new employees, directors and consultants of the Group Companies that are engaged
through December 31, 2005 options (which shall not be “incentive stock options” under the Internal
Revenue Code of 1986, as amended) to purchase the Specified Option Number of Purchaser Shares, as
adjusted for any stock split, reverse stock split or similar transaction (such options being
referred to herein as the “Incentive Options” and such plan or reserve being referred to
herein as the “Plan”); provided, however, that if the Purchaser, in consultation with
Xxxxxx Xxxxxxxxx, determines: (a) that the tax and other costs to employees, directors and/or
consultants associated with such Incentive Options in certain jurisdictions are substantially
higher than the tax and other costs to employees, directors and/or consultants associated with such
Incentive Options in the United Kingdom; or (b) not to grant Incentive Options in jurisdictions in
which it (or any of its Affiliates) currently has operations but does not grant stock options, then
the Purchaser and Xxxxxx Xxxxxxxxx shall mutually agree on alternative retention incentives for
employees, directors and/or consultants in such jurisdictions (and the total number of Incentive
Options shall be appropriately adjusted). Prior to Completion, the Purchaser and Xxxxxx Xxxxxxxxx
shall mutually agree on the allocation of approximately 50% of the Incentive Options to Senior
Management. The Plan, all awards thereunder and all terms applicable thereto shall be administered
by the Nominating Committee; provided, however, that: (a) unless the Purchaser and Xxxxxx Xxxxxxxxx
otherwise agree, approximately 50% of the Incentive Options shall be granted to Senior Management
as described above; (b) no Incentive Options shall be granted until after Completion; and (c) all
Incentive Options shall have terms, including with respect to the exercise prices, performance
metrics and vesting schedules thereof, as mutually determined through reasonable consultation
between the Chief Executive Officer of the Company and the Purchaser prior to Completion (it being
understood that if the Chief Executive Officer of the Company and the Purchaser cannot agree on
such terms, then such terms shall be consistent with stock options granted to similarly situated
employees of the Purchaser). It is
further intended that after December 31, 2005, any newly engaged employees, directors and
consultants will be granted incentive stock options in accordance with the then-existing policies
and procedures of the Purchaser. The Purchaser shall promptly upon the request of the Nominating
Committee from time to time take any actions required to implement any awards determined by the
Nominating Committee consistent with this Section 4.7.
4.8 Noncompetition. From Completion through the end of the Earn Out Period, the Purchaser
covenants that it shall not, and that it shall cause all of its controlled Affiliates not to,
conduct any business or provide any good or service that directly enables the use of voice or video
communications over the Internet, other than through or pursuant to transactions with the Company
or one of the Company’s wholly-owned subsidiaries (it being understood that: (a) the entities
identified on Schedule III are not currently controlled Subsidiaries of the
Purchaser; and (b) for the avoidance of doubt, transactions of the type conducted by users of the
trading, marketplace and/or payments platforms of the Purchaser and its Affiliates on or through
such platforms, including the offering of goods and services by such users, as long as neither the
Purchaser nor any of its Affiliates sell such goods on their own behalf or receive revenue from
such transactions in excess of their customary types of fees, shall not constitute a breach of this
Section 4.8).
4.9 Good Faith and Fair Dealing. Each party hereto agrees that, from Completion until the end
of the Earn Out Period, it shall, with respect to all matters related to this Agreement, act in
good faith and the spirit of fair dealing such that the intent of this Agreement is carried out to
the fullest extent practicable.
4.10 Possible Restructuring. The parties hereto acknowledge that the Purchaser and the Company
are considering a restructuring involving one or more of the Group Companies, including a
restructuring pursuant to which a wholly-owned Subsidiary of the Purchaser (“NewCo”) would
acquire a controlling interest in the Company prior to, at or after Completion and the Company
would distribute the shares of the US operating subsidiary of the Company to NewCo (the
“Restructuring”). The parties agree to reasonably cooperate to effect the Restructuring so
long as it does not adversely affect any party’s rights or obligations hereunder.
5. Miscellaneous.
5.1 Earn Out Representative.
(a) Subject to Section 5.1(d), as soon as practicable following the date of this Agreement,
and in any event prior to Completion, the Key Employees will notify the Purchaser in writing of the
identity of the Earn Out Representative (it being understood that until an Earn Out Representative
shall be appointed, Xxxxxx Xxxxxxxxx shall serve as the Earn Out Representative).
(b) Promptly upon appointment, the appointed Earn Out Representative shall enter into a Deed
of Adherence.
(c) Each Earn Out Seller hereby irrevocably confirms that such Earn Out Seller shall be bound
by any steps or actions taken or agreement entered into by the Earn Out Representative (or such
other person appointed for the time being pursuant to this Section 5.1(c)
acting as the Earn Out Representative on the terms of this Agreement), provided that the
written consent of each Earn Out Seller affected thereby shall be required in order to approve any
amendment or variation to the terms of this Agreement that involves either (i) a reduction in the
amount or a variation in the form of the consideration receivable by any Earn Out Seller hereunder,
or (ii) an increase in the scope and/or quantum of the liability of any Earn Out Seller hereunder.
(d) If:
(i) Earn Out Sellers who held 66 2/3 per cent or more of the aggregate number
of Earn Out Election Shares immediately prior to Completion so direct in writing; or
(ii) for any reason, the then current Earn Out Representative shall not be able
to act as the Earn Out Representative and Earn Out Sellers who held 50 per cent or
more of the aggregate number of Earn Out Election Shares immediately prior to
Completion nominate in writing another person to fill the role of Earn Out
Representative hereunder,
such other person as shall be so notified in writing to the Purchaser by such Earn Out Sellers
shall be the Earn Out Representative in substitution for the then current Earn Out Representative
from time to time; provided, however, that the Earn Out Representative shall be the same person as
the Sellers’ Representative and shall not be a member of Senior Management (except prior to
Completion as described in Section 5.1(a)).
(e) The Earn Out Sellers shall severally indemnify and hold harmless the Earn Out
Representative from and against any costs, expenses, losses, claims, damages or liabilities (or
actions in respect thereof) related to or arising out of the performance of his function as Earn
Out Representative, save for any such costs, expenses, losses, claims, damages or liabilities that
result from the fraud or dishonesty of the Earn Out Representative. The Earn Out Representative
shall have no liability (whether direct or indirect, in contract or tort or otherwise) to any Earn
Out Seller or any other party to this Agreement in connection with the performance of his function
as Earn Out Representative except for liability for any costs, expenses, losses, claims, damages,
liabilities or expenses that are incurred by any Earn Out Seller as a result of the fraud or
dishonesty of the Earn Out Representative.
(f) Each Earn Out Seller agrees and undertakes to co-operate fully and set in good faith in
relation to any request or attempt from or by the Earn Out Representative to consult or otherwise
communicate with such Earn Out Seller.
(g) The Earn Out Representative: (a) shall have no rights under or with respect to this
Agreement, except as expressly set forth in this Agreement or the Purchase Agreement; and (b) shall
not be involved in the management or operations of the Company.
5.2 Termination. This Agreement shall terminate and shall cease to have any further force or
effect upon the valid termination of the Purchase Agreement in accordance with Section 20 of the
Purchase Agreement; provided, however, that Section 5 shall survive the termination of this
Agreement.
5.3 Remedies and Waivers. Except as otherwise expressly provided in this Agreement, no delay
or omission by any party to this Agreement in exercising any right, power or remedy provided by Law
or under this Agreement or any other documents referred to in it shall: (a) affect that right,
power or remedy; or (b) operate as a waiver thereof. Except as otherwise expressly provided in this
Agreement, the single or partial exercise of any right, power or remedy provided by Law or under
this Agreement shall not preclude any other or further exercise of it or the exercise of any other
right, power or remedy. Except as otherwise expressly
provided in this Agreement, the rights,
powers and remedies provided in this Agreement are cumulative and not exclusive of any rights,
powers and remedies provided by Law.
5.4 Assignment. The Purchaser may assign its rights, in whole or in part, and/or delegate
its obligations, in whole or in part, under this Agreement only: (a) with the prior written consent
of the Earn Out Representative, which consent shall not be unreasonably withheld or delayed; (b) to
an Affiliate of the Purchaser as long as the Purchaser remains liable for any breach of this
Agreement by such Affiliate; or (c) in connection with a Sale, provided that: (i) the buyer in the
Sale unconditionally assumes all obligations of the Purchaser under this Agreement; and (ii) the
buyer in the Sale is either approved by the Earn Out Representative, in his sole and absolute
discretion, or the buyer (together with all of its Affiliates, including the Group Companies), has
a market capitalization or shareholders’ equity (or in the event that the buyer is a private equity
buyer, assets under management) of not less than €5 billion. Any delegation by the Purchaser of
its obligations under this Agreement in accordance with clause “(a)” or clause “(c)” of the
immediately preceding sentence shall constitute a novation of this Agreement and the Purchaser
shall no longer have any obligations under this Agreement to the extent of such delegation;
provided that such novation shall not relieve the Purchaser of any obligation to pay any
Acceleration Amount triggered by such action of the Purchaser under clause “(a)” or “(c),” as the
case may be.
5.5 Entire Agreement. This Agreement, the Purchase Agreement, the Registration Rights
Agreement, the Disclosure Letter, the Non-Competition Agreements, the Shareholder Certification and
Agreement (for Non-US Investors), the Shareholder Certification and Agreement (for US Investors)
and the other agreements referred to herein constitute the whole and only agreement among the
parties relating to the sale and purchase of the Sale Shares and the other matters provided for
herein. In entering into this Agreement, each party acknowledges that it is not relying upon any
pre-contractual statement that is not expressly set out herein. Except in the case of fraud or
dishonesty, no party shall have any right of action against any other party to this Agreement
arising out of or in connection with any pre-contractual statement except to the extent that it is
repeated. For the purposes of this Section 5.5, “pre-contractual statement” means any
draft, agreement, undertaking, representation, warranty, promise, assurance or arrangement of any
nature whatsoever, whether or not in writing, relating to the subject matter of this Agreement made
or given by any person at any time prior to the date of this Agreement. This Agreement may only be
varied in writing signed by or on behalf of the Purchaser, the Company and the Earn Out
Representative, subject to the provisions of Section 5.1.
5.6 Notices. Clause 16 of the Purchase Agreement is hereby incorporated by reference into
this Agreement.
5.7 Counterparts. This Agreement may be executed in any number of counterparts, and by the
parties to it on separate counterparts, but shall not be effective until each party has executed at
least one counterpart. Each counterpart shall constitute an original of this Agreement, but all the
counterparts shall together constitute but one and the same instrument.
5.8 Contracts (Rights of Third Parties) Xxx 0000. Save as otherwise expressly provided in
this Agreement, the parties to this Agreement do not intend that any term of this Agreement should
be enforceable, by virtue of the Contracts (Rights of Third Parties) Xxx 0000,
by any person who is not a party to (or an assignee of a party to) this Agreement. Notwithstanding the foregoing, any
benefits conferred by this Agreement on any third party by virtue of such statute, the parties to
this Agreement may agree to vary or rescind this Agreement without any such third party’s consent.
5.9 Severability. If any provision of this Agreement is held to be invalid or unenforceable,
then such provision shall (so far as it is invalid or unenforceable) be given no effect and shall
be deemed not to be included in this Agreement but without invalidating any of the remaining
provisions of this Agreement.
5.10 Choice of Governing Law. This Agreement shall be governed by and construed in accordance
with English law.
5.11 Jurisdiction. Except as set forth in Section 3.2, and except with respect to disputes
regarding the occurrence of an Intervention Event or an Acceleration Event (which shall be
submitted for resolution in accordance with Section 6 of Schedule 9 to the Purchase Agreement as if
such dispute were a Claim Dispute), the courts of England are to have exclusive jurisdiction to
settle any dispute arising out of or in connection with this Agreement. Nothing in this Agreement
shall preclude any party from seeking interim relief in any court of competent jurisdiction. Each
party waives (and agrees not to raise) any objection, on the ground of forum non conveniens or on
any other ground, to the jurisdiction of the English courts. Each party also agrees that a
judgment against it in Proceedings brought in England shall be conclusive and binding upon it and
may be enforced in any other jurisdiction. Each party irrevocably submits and agrees to submit to
the jurisdiction of the English courts.
5.12 Interpretation.
(a) For purposes of this Agreement, whenever the context requires: the singular number shall
include the plural, and vice versa; the masculine gender shall include the feminine and neuter
genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the effect that ambiguities are
to be resolved against the drafting party shall not be applied in the construction or
interpretation of this Agreement.
(c) As used in this Agreement, the words “include” and “including,” and variations thereof,
shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the
words “without limitation.”
(d) Except as otherwise indicated, all references in this Agreement to “Sections” and
“Exhibits” are intended to refer to Sections of this Agreement and Exhibits to this Agreement.
[Remainder of page intentionally left blank]
In witness whereof, the parties hereto have caused this Agreement to be executed and
delivered as of the date first set forth above.
| eBay Inc., a Delaware corporation |
||||
| By: | /s/ Xxxxxxxx X. Xxxxxxx | |||
| Skype Technologies S.A., a limited company registered under the laws of the Duchy of Luxembourg |
||||
| By: | /s/ Xxxxxx Xxxxxxxxx | |||
In witness whereof, the parties hereto have caused this Agreement to be executed and
delivered as of the date first set forth above.
| Seller: | ||
| /s/ [Seller signatures] | ||
| Name: | ||
| Title: |
List of Schedules:
Schedule I
|
- | List of Earn Out Sellers* | ||
Schedule II
|
- | Example of Earn Out Calculations* | ||
Schedule III
|
- | Non-controlled Subsidiaries of Purchaser* | ||
Schedule 1.1
|
- | Certain metrics* |
* Omitted pursuant to Item 601 of Regulation S-K. eBay Inc. agrees to supplementally furnish a copy
of any omitted attachment to the Securities and Exchange Commission upon request.
