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EXECUTION VERSION
EXHIBIT 99.1
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of October 18, 1999 (the "Agreement"),
between NORTEL NETWORKS CORPORATION, a Canadian corporation ("Grantee"), and
CLARIFY Inc., a Delaware corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Grantee and Issuer are entering into an
Agreement and Plan of Merger (the "Merger Agreement");
WHEREAS, as a condition and inducement to Grantee's execution of the
Merger Agreement and in furtherance of the transactions contemplated thereby and
in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined); and
WHEREAS, the Board of Directors of Issuer has approved the grant of the
Option and the Merger Agreement prior to the execution hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. The Option. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to an aggregate of 4,707,333 fully paid and nonassessable shares of the common
stock, $0.0001 par value per share, of Issuer ("Common Stock") at a price per
share equal to 1.3 times the closing price per share of the Grantee's common
shares as reported on the date hereof on the Consolidated Tape for New York
Stock Exchange issues (such price, as adjusted if applicable, the "Option
Price"); provided, however, that in no event shall the number of shares for
which this Option is exercisable exceed 19.9% of the issued and outstanding
shares of Common Stock at the time of exercise without giving effect to the
shares of Common Stock issued or issuable under the Option. The number of shares
of Common Stock that may be received upon the exercise of the Option and the
Option Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued
or otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5(a) hereof), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, such number together with any
shares of Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer to breach any provision of the Merger Agreement.
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2. Exercise; Closing. (a) Grantee and/or any other person that shall
become a holder of all or part of the Option in accordance with the terms of
this Agreement (each such person being referred to herein as the "Holder") may
exercise the Option, in whole or part, if, but only if, both an Initial
Triggering Event (as defined below) and a Subsequent Triggering Event (as
defined below) shall have occurred prior to the occurrence of an Exercise
Termination Event (as defined below), provided that the Holder shall have sent
written notice of such exercise (as provided in subsection (f) of this Section
2) within 180 days following such Subsequent Triggering Event (or such later
period as provided in Section 10).
(b) Each of the following shall be an "Exercise Termination Event":
(i) the Effective Time (as defined in the Merger Agreement);
(ii) termination of the Merger Agreement in accordance with the
provisions of Section 8.01(a), 8.01(d)(i), 8.01(d)(ii) or
8.01(d)(iii) of the Merger Agreement, or termination of the
Merger Agreement by the Issuer in accordance with the
provisions of Section 8.01(b) thereof, or termination of the
Merger Agreement by the Grantee in accordance with the
provisions of Section 8.01(b) thereof by reason solely of
non-willful breaches of representations warranties or
covenants by the Issuer, or termination of the Merger
Agreement by the Grantee in accordance with the provisions
of Section 8.01(c);
(iii) termination of the Merger Agreement by the Issuer in
accordance with the provisions of Section 8.01(c), or
termination of the Merger Agreement pursuant to Section
8.01(d)(iv) thereof, or termination of the Merger Agreement
by the Grantee in accordance with the provisions of Section
8.01(b) thereof under circumstances where clause (ii) above
is inapplicable, in each case only if such termination
occurs prior to the occurrence of an Initial Triggering
Event;
(iv) the passage of 12 months (or such later period as provided
in Section 10) after termination of the Merger Agreement
other than as set forth in clauses (ii) and (iii) above; or
(v) the receipt by Grantee (pursuant to its request) of the
Termination Fee.
(c) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (as defined in Rule 1-02
of Regulation S-X promulgated by the Securities and Exchange
Commission (the "SEC")) (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an
Acquisition Transaction (as defined below) with any person
(the term
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"person" for purposes of this Agreement having the meaning
assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
Exchange Act) other than Grantee or any of its Subsidiaries
(each a "Grantee Subsidiary") or the Board of Directors of
Issuer shall have recommended that the stockholders of
Issuer approve or accept any Acquisition Transaction (other
than the Merger referred to in the Merger Agreement). For
purposes of this Agreement, "Acquisition Transaction" shall
mean (w) a merger or consolidation, or any similar
transaction, involving Issuer or a Significant Subsidiary
(as defined in Rule 1-02 of Regulation S-X promulgated by
the SEC) of Issuer, (x) a purchase, lease or other
acquisition or assumption of all or more than 20% of the
consolidated assets of Issuer (including by way of merger,
consolidation, share exchange or otherwise involving any
Subsidiary of Issuer), (y) a purchase or other acquisition
(including by way of merger, consolidation, share exchange
or otherwise) of beneficial ownership (the term "beneficial
ownership" for purposes of this Agreement having the meaning
assigned thereto in Section 13(d) of the Exchange Act, and
the rules and regulations thereunder) of securities
representing 20% or more of the voting power of Issuer or
more than 20% of any Significant Subsidiary of Issuer, or
(z) any substantially similar transaction; provided,
however, that in no event shall any merger, consolidation,
purchase or similar transaction involving only the Issuer
and one or more of its wholly-owned Subsidiaries or
involving only any two or more of such wholly-owned
Subsidiaries, be deemed to be an Acquisition Transaction, if
such transaction is not entered into in violation of the
terms of the Merger Agreement;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized,
recommended, proposed or publicly announced its intention to
authorize, recommend or propose, to engage in an Acquisition
Transaction with any person other than Grantee or a Grantee
Subsidiary or shall have authorized or engaged in, or
announced its intention to authorize or engage in, any
negotiations regarding an Acquisition Transaction with any
person other than the Grantee or a Grantee Subsidiary, or
the Board of Directors of Issuer shall have failed to
recommend or shall have publicly withdrawn or modified, or
publicly announced its intention to withdraw or modify, in
any manner adverse to Grantee, its recommendation that the
stockholders of Issuer approve the Merger;
(iii) The shareholders of Issuer shall have voted and failed to
approve the Merger at a meeting which has been held for that
purpose or any adjournment or postponement thereof, or such
meeting shall not have been held in violation of the Merger
Agreement or shall have been canceled prior to termination
of the Merger Agreement if, prior to such meeting (or if
such meeting shall not have been held or shall have been
canceled, prior to such termination), any person (other than
the Grantee or a Grantee Subsidiary) shall have made a
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proposal to Issuer or its stockholders by public
announcement or written communication that is or becomes the
subject of public disclosure to engage in an Acquisition
Transaction;
(iv) (a) Any person other than Grantee or any Grantee Subsidiary
shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 20% or more of the then
outstanding shares of Common Stock or (b) any group (the
term "group" having the meaning assigned in Section 13(d)(3)
of the Exchange Act), other than a group of which the
Grantee or any Grantee Subsidiary is a member, shall have
been formed that beneficially owns 20% or more of the then
outstanding shares of Common Stock;
(v) Any person other than Grantee or any Grantee Subsidiary
shall have made a bona fide proposal to Issuer or its
stockholders to engage in an Acquisition Transaction and
such proposal shall have become publicly known, or shall
have commenced, or publicly announced its intention to
commence, a tender or exchange offer to acquire beneficial
ownership of 20% or more of the then outstanding shares of
Common Stock;
(vi) Issuer shall have willfully breached any representation,
warranty, covenant or obligation contained in the Merger
Agreement and such breach (x) would entitle Grantee to
terminate the Merger Agreement and (y) shall not have been
cured prior to the Notice Date (as defined below); or
(vii) Any person other than Grantee or any Grantee Subsidiary,
other than in connection with a transaction to which Grantee
has given its prior written consent, shall have filed with
any federal or state regulatory or governmental authority an
application for approval or notice of intention to engage in
an Acquisition Transaction.
(d) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person or by a group other than
Grantee or any Grantee Subsidiary of beneficial ownership of
25% or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of subsection (c) of this Section 2, except
that the references to 20% in clause (x) and clause (y)
shall each be deemed to be a reference to 25%.
(e) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
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(f) In the event the Holder is entitled to and wishes to exercise the
Option (or any portion thereof), it shall send to Issuer a written notice (the
date of which being herein referred to as the "Notice Date") specifying (i) the
total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 60 business
days from the Notice Date for the closing of such purchase (the "Closing Date");
provided, that if the closing of such purchase cannot be consummated by reason
of any applicable judgment, injunction, decree, order, law or regulation, the
period of time that would otherwise run pursuant to this sentence shall run
instead from the date on which such restriction on consummation has expired or
been terminated; and provided, further, that if prior notification to or
approval of any regulatory or antitrust agency is required in connection with
such purchase, the Holder shall promptly file the required notice or application
for approval, shall promptly notify Issuer of such filing and shall
expeditiously process the same and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto.
(g) At the closing referred to in subsection (f) of this Section 2, the
Holder shall (i) pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
provided that failure or refusal of Issuer to designate such a bank account
shall not preclude the Holder from exercising the Option by delivery of a
certified check or bank draft, and (ii) present and surrender this Agreement to
Issuer for cancellation in whole or (in the case of a partial exercise) in part.
(h) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (g) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder.
(i) Certificates for Common Stock delivered at a closing hereunder may
be endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under applicable securities laws (including the
Securities Act of 1933, as amended). A copy of such agreement is
on file at the principal office of Issuer and will be provided to
the holder hereof without charge upon receipt by Issuer of a
written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
arising under applicable securities laws, including the Securities Act of 1933,
as amended (the "Securities Act"), in the above legend shall be removed by
delivery of substitute certificate(s) without such
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reference if the Holder shall have delivered to Issuer a copy of a letter from
the staff of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the Securities Act or other applicable securities laws; (ii) the
reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference in the opinion of counsel to the Holder, in form and substance
reasonably satisfactory to Issuer; and (iii) the legend shall be removed in its
entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
The Holder understands and agrees that the Option is being issued to the Holder
pursuant to the registration and prospectus exceptions in paragraph 35(1) and
clause 72(1)(b) of the Securities Act (Ontario) (the "Ontario Act") and that the
resale of the Option or Common Stock issued upon exercise of the Option is
restricted by the provisions of the Ontario Act and other applicable Canadian
securities legislation.
(j) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (f) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and
covenants herein, Issuer agrees:
(a) that it shall at all times maintain, free from any subscriptive or
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights of third parties to purchase
Common Stock from Issuer or to cause Issuer to issue shares of Common Stock;
(b) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer; and
(c) promptly to take all action (i) as may from time to time be required
(including complying with all applicable notification, filing, reporting and
waiting period requirements under HSR or otherwise, and cooperating fully with
the Holder in preparing any applications or notices and providing such
information to any regulatory authority as it may require) in order to
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permit the Holder to exercise the Option and Issuer duly and effectively to
issue shares of Common Stock pursuant hereto, and (ii) as may from time to time
be required to protect the rights of the Holder against dilution
4. Exchange; Replacement. This Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of Issuer,
for other Agreements providing for Options of different denominations entitling
the holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Agreement" and "Option" as
used herein include any Agreements and related Options for which this Agreement
(and the Option granted hereby) may be exchanged. Upon receipt by Issuer of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by any person other than the holder of the new Agreement.
5. Adjustments. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 hereof, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5.
(a) In the event of any change in, or distributions in respect of, the
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof shall be appropriately adjusted and proper provision shall be
made so that, in the event that any additional shares of Common Stock are to be
issued or otherwise become outstanding as a result of any such change (other
than pursuant to an exercise of the Option), the number of shares of Common
Stock that remain subject to the Option shall be increased so that, after such
issuance and together with shares of Common Stock previously issued pursuant to
the exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), it equals 19.9% of the number of shares of Common
Stock then issued and outstanding.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the numerator
of which shall be equal to the number of shares of Common Stock purchasable
prior to the adjustment and the denominator of which shall be equal to the
number of shares of Common Stock purchasable after the adjustment.
6. Registration. (a) Upon the occurrence of any Subsequent Triggering
Event that occurs prior to an Exercise Termination Event, Issuer shall, subject
to Section 6(d) hereof, at the
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request of Grantee delivered within twelve (12) months (or such later period as
provided in Section 10 hereof) of such Subsequent Triggering Event (whether on
its own behalf or on behalf of any subsequent holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto), promptly
prepare, file and keep current a shelf registration statement under the
Securities Act covering any shares issued and issuable pursuant to this Option
and shall use its reasonable best efforts to cause such registration statement
to become effective and remain current in order to permit the sale or other
disposition of any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement promptly to become effective and then to remain effective
for a period not in excess of 180 days from the day such registration statement
first becomes effective or such shorter time as may be reasonably necessary, in
the judgment of the Grantee or the Holder, to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations. The
Issuer shall bear the costs of such registrations (including, but not limited
to, Issuer's attorneys' fees, printing costs and filing fees, except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto). The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
the Option Shares as provided above, Issuer is in registration with respect to
an underwritten public offering by Issuer of shares of Common Stock, and if in
the good faith judgment of the managing underwriter or managing underwriters,
or, if none, the sole underwriter or underwriters, of such offering the
inclusion of the Option Shares would interfere with the successful marketing of
the shares of Common Stock offered by Issuer, the number of Option Shares
otherwise to be covered in the registration statement contemplated hereby may be
reduced to the extent necessary to eliminate such condition; provided, however,
that after any such required reduction the number of Option Shares to be
included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be sold by the Holder and Issuer in
the aggregate; and provided further, however, that if such reduction occurs,
then Issuer shall file a registration statement for the balance as promptly as
practicable thereafter as to which no reduction pursuant to this Section 6 shall
be permitted or occur and the Holder shall be deemed not to have made an
additional registration demand and the twelve (12) month period referred to in
the first sentence of this section shall be increased to twenty-four (24)
months. Each such Holder shall provide all information reasonably requested by
Issuer for inclusion in any registration statement to be filed hereunder. If
requested by any such Holder in connection with such registration, Issuer shall
become a party to any underwriting agreement relating to the sale of such
shares, but only to the extent of obligating itself in respect of
representations, warranties, indemnities and other agreements customarily
included in such underwriting agreements for Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall the
number of registrations that Issuer is obligated to effect be increased by
reason of the fact that there shall be more than one Holder as a result of any
assignment or division of this Agreement.
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(b) In the event that Grantee so requests, the closing of the sale or
other disposition of the Common Stock or other securities pursuant to a
registration statement filed pursuant to Section 6(a) hereof shall occur
substantially simultaneously with the exercise of the Option.
(c) If the Common Stock or the class of any other securities to be
acquired upon exercise of the Option are then listed on the Nasdaq National
Market of The Nasdaq Stock Market, Inc. ("Nasdaq") or any national securities
exchange, Issuer, upon the request of the Holder, shall promptly file an
application to list the Common Stock or other securities to be acquired upon
exercise of the Option on Nasdaq or such exchange and will use its reasonable
best efforts to obtain approval of such listing as soon as practicable.
(d) Issuer may delay any registration of the Option Shares required
pursuant to Section 6(a) hereof for a period not in excess of 90 days if, in the
reasonable good faith judgment of Issuer, such registration would materially and
adversely affect a proposed merger, consolidation or similar transaction
(including through the premature disclosure thereof) or offering or contemplated
offering of other securities by Issuer.
7. Repurchase of Option and/or Option Shares. (a) At any time commencing
upon the occurrence of a Repurchase Event (as defined in Section 7(d) hereof)
and ending twelve (12) months thereafter, (i) at the request of the Holder,
delivered in writing prior to an Exercise Termination Event (or such later
period as provided in Section 10), Issuer (or any successor thereto) shall
repurchase the Option from the Holder at a price (the "Option Repurchase Price")
equal to the amount by which (A) the market/offer price (as defined below)
exceeds (B) the Option Price, multiplied by the number of shares for which this
Option may then be exercised, and (ii) at the request of the owner of Option
Shares from time to time (the "Owner"), delivered in writing prior to an
Exercise Termination Event (or such later period as provided in Section 10),
Issuer (or any successor thereto) shall repurchase such number of the Option
Shares from the Owner as the Owner shall designate at a price (the "Option Share
Repurchase Price") equal to the market/offer price multiplied by the number of
Option Shares so designated. The term "market/offer price" shall mean the
highest of (i) the price per share of Common Stock at which a tender or exchange
offer therefor has been made and has been consummated or remains outstanding,
(ii) the price per share of Common Stock to be paid by any third party pursuant
to an agreement with Issuer after the date hereof, (iii) the highest average
closing price for shares of Common Stock for any 20 trading day period within
the three-month period immediately preceding the date the Holder gives notice of
the required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a sale
of all or substantially all of the consolidated assets of Issuer, the sum of the
net price paid in such sale for such assets and the current market value of the
remaining net assets of Issuer as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case may be,
and reasonably acceptable to Issuer, divided by the number of shares of Common
Stock outstanding at the time of such sale, which determination, absent manifest
error, shall be conclusive for all purposes of this Agreement. In determining
the market/offer price, the value of consideration other than cash shall be
determined by a nationally recognized investment banking firm selected by the
Holder or Owner, as the case may be, and reasonably acceptable to
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Issuer, which determination, absent manifest error, shall be conclusive for all
purposes of this Agreement.
(b) The Holder and the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant to
this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. Prior to the later of (x) the date that is five business days after
the surrender of the Option and/or certificates representing Option Shares and
the receipt of such notice or notices relating thereto and (y) the day on which
a Repurchase Event occurs, Issuer shall deliver or cause to be delivered to the
Holder the Option Repurchase Price and/or to the Owner the Option Share
Repurchase Price or the portion thereof that Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall promptly so notify the Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to use its
reasonable best efforts to obtain all required regulatory and legal approvals
and to file any required notices as promptly as practicable in order to
accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option and/or the Option Shares whether in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall promptly
(i) deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price and/or the Option Share Repurchase Price that Issuer is
not prohibited from delivering; and (ii) deliver, as appropriate, either (A) to
the Holder, a new Agreement evidencing the right of the Holder to purchase that
number of shares of Common Stock obtained by multiplying the number of shares of
Common Stock for which the surrendered Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Option Repurchase Price less the portion thereof theretofore delivered to
the Holder and the denominator of which is the Option Repurchase Price, and/or
(B) to the Owner, a certificate for the Option Shares it is then so prohibited
from repurchasing. If an Exercise Termination Event shall have occurred less
than 30 days prior to the date of the notice by Issuer described in the first
sentence of this subsection (c), or shall be scheduled to occur at any time
before the expiration of a period ending on the thirtieth day after such date,
the Holder shall nonetheless have the right to exercise the Option until the
expiration of such 30-day period after the date of the Exercise Termination
Event or the notice date, respectively.
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(d) For purposes of this Section 7, a Repurchase Event shall be deemed
to have occurred (i) upon the consummation of any merger, consolidation or
similar transaction involving Issuer or any purchase, lease or other acquisition
of all or substantially all of the assets of Issuer on a consolidated basis,
other than any such transaction which would not constitute an Acquisition
Transaction pursuant to the proviso to Section 2(c)(i) hereof or (ii) upon the
acquisition by any person of beneficial ownership of 50% or more of the then
outstanding shares of Common Stock; provided that no such event shall constitute
a Repurchase Event unless a Subsequent Triggering Event shall have occurred
prior to an Exercise Termination Event.
8. Substitute Option. (a) In the event that prior to an Exercise
Termination Event, Issuer shall enter into an agreement (i) to consolidate with
or merge into any person, other than Grantee or any of its Subsidiaries
(collectively, "Excluded Persons") and Issuer shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) to permit any
person, other than an Excluded Person, to merge into Issuer and Issuer shall be
the continuing or surviving or acquiring corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged or acquiring company, or (iii) to sell or otherwise
transfer all or substantially all of its assets to any person, other than an
Excluded Person, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving person of a consolidation or merger with Issuer
(if other than Issuer), (ii) Issuer in a merger in which
Issuer is the continuing or surviving or acquiring person,
and (iii) the transferee of all or substantially all of
Issuer's assets.
(ii) "Substitute Shares" shall mean the shares of capital stock
(or similar equity interest) with the greatest voting power
in respect of the election of directors (or other persons
similarly responsible for direction of the business and
affairs) of the issuer of the Substitute Option.
(iii)"Assigned Value" shall mean the market/offer price as
defined in Section 7.
(iv) "Average Price" shall mean the average closing price per
Substitute Share, on the principal trading market on which
such shares are traded as reported by a recognized source,
for the 20 trading day period immediately preceding the
consolidation, merger or sale in question, but in no event
higher than the closing price of the Substitute Shares on
such market on the day preceding
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such consolidation, merger or sale; provided that if Issuer
is the issuer of the Substitute Option, the Average Price
shall be computed with respect to a share of common stock
issued by the person merging into Issuer or by any company
which controls or is controlled by such person, as the
Holder may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible to the
terms of the Option and (to the extent permitted by applicable law) in no event
less advantageous to the Holder. The issuer of the Substitute Option shall also
enter into an agreement with the then Holder or Holders of the Substitute Option
in substantially the same form as this Agreement (after giving effect for such
purpose to the provisions of Section 9 hereof), which agreement shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
Substitute Shares as is equal to the Assigned Value multiplied by the number of
shares of Common Stock for which the Option was exercisable immediately prior to
the event described in the first sentence of Section 8(a) hereof, divided by the
Average Price. The exercise price of the Substitute Option per Substitute Share
shall then be equal to the Option Price multiplied by a fraction, the numerator
of which shall be the number of shares of Common Stock for which the Option was
exercisable immediately prior to the event described in the first sentence of
Section 8(a) hereof and the denominator of which shall be the number of
Substitute Shares for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
number of shares purchasable upon exercise of the Substitute Option exceed 19.9%
of the Substitute Shares then issued and outstanding at the time of exercise
(without giving effect to Substitute Shares issued or issuable under the
Substitute Option). In the event that the Substitute Option would be exercisable
for more than 19.9% of the Substitute Shares then issued and outstanding prior
to exercise but for this clause (e), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall make a cash payment to Holder equal to the
excess of (i) the value of the Substitute Option without giving effect to the
limitation in this clause (e) over (ii) the value of the Substitute Option after
giving effect to the limitation in this clause (e). This difference in value
shall be determined by a nationally recognized investment banking firm selected
by Grantee (or, if Grantee is not then the Holder owning Options with respect to
the largest number of Shares, the largest Holder) and reasonably acceptable to
Issuer, which determination, absent manifest error, shall be conclusive for all
purposes of this Agreement.
(f) In addition to any other restrictions or covenants, Issuer agrees
that it shall not enter or agree to enter into any transaction described in
Section 8(a) hereof unless (i) the Acquiring Corporation and any person that
controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder and (ii) the Substitute Option Issuer agrees to comply with
this Section 8 and agrees to take all action necessary to prevent the exercise
of any rights of any holder of Substitute Shares or shares of capital stock of
any successor to the Substitute Option Issuer that any holder of the Substitute
Option (each such person being referred to herein as a
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"Substitute Option Holder") or any holder of Substitute Shares (each such person
being referred to herein as a "Substitute Share Owner") purchased upon exercise
of the Substitute Option by a Substitute Option Holder would be prohibited or
precluded from exercising or the exercise of which would adversely affect the
rights of any Substitute Option Holder under the agreement for such Substitute
Option or the transactions contemplated by the Merger Agreement.
9. Repurchase of Substitute Option. (a) At the written request of a
Substitute Option Holder, the Substitute Option Issuer shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price") equal to the amount by which (i) the Highest Closing
Price (as hereinafter defined) exceeds (ii) the exercise price of the Substitute
Option multiplied by the number of Substitute Shares for which the Substitute
Option may then be exercised, and at the request of the Substitute Share Owner,
the Substitute Option Issuer shall repurchase the Substitute Shares at a price
(the "Substitute Share Repurchase Price") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term "Highest
Closing Price" shall mean the highest average closing price for Substitute
Shares for any 20 trading day period within the three-month period immediately
preceding the date the Substitute Option Holder gives notice of the required
repurchase of the Substitute Option or the Substitute Share Owner gives notice
of the required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective rights to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and/or certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable and in any event within five business days
after the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating thereto,
the Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor or the
portion thereof which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full, the Substitute Option Issuer shall
promptly so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Option Repurchase Price and/or the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five (5) business days after the date on which the Substitute
Option Issuer is no longer so prohibited; provided, however, that if the
Substitute Option Issuer is at any time after delivery of a notice of repurchase
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pursuant to subsection (b) of this Section 9 is prohibited under applicable law
or regulation from delivering to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the Substitute Option Repurchase Price
and the Substitute Share Repurchase Price, respectively, in full (and the
Substitute Option Issuer shall use its best efforts to receive all required
regulatory and legal approvals as promptly as practicable in order to accomplish
such repurchase), the Substitute Option Holder and/or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of the prohibition, whereupon, in the
latter case, the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that portion
of the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Issuer is not prohibited from delivering; and
(ii) deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of Substitute Shares obtained by multiplying the number of
Substitute Shares for which the surrendered Substitute Option was exercisable at
the time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, and/or (B) to the Substitute
Share Owner, a certificate for the Substitute Option Shares it is then so
prohibited from repurchasing. If an Exercise Termination Event shall have
occurred less than 30 days prior to the date of the notice by the Substitute
Option Issuer described in the first sentence of this subsection (c), or shall
be scheduled to occur at any time before the expiration of a period ending on
the thirtieth day after such date, the Substitute Option Holder shall
nevertheless have the right to exercise the Substitute Option until the
expiration of such 30-day period after the date of the Exercise Termination
Event or the notice date, respectively.
10. Extension. The periods for exercise of certain rights under Sections
2, 6, 7, 9 and 12 hereof shall be extended: (i) to the extent necessary to
obtain all governmental and regulatory approvals for the exercise of such rights
(for so long as the Holder, Substitute Option Holder or Substitute Share Owner,
as the case may be, is using its reasonable best efforts to obtain such
regulatory approvals), and for the expiration of all statutory waiting periods;
(ii) during any period for which an injunction or similar legal prohibition on
exercise shall be in effect; (iii) to the extent necessary to avoid liability
under Section 16(b) of the Exchange Act by reason of such exercise; and (iv) by
the number of days by which Issuer shall have delayed any registration pursuant
to Section 6(d) hereof.
11. Representations and Warranties. (a) Issuer hereby represents and
warrants to Grantee as follows:
(i) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by
the Board of Directors of Issuer and no other corporate
proceedings on the part of Issuer are necessary to authorize
this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly
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executed and delivered by Issuer and constitutes a valid and
legally binding obligation of Issuer enforceable against
Issuer in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer
and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles,
whether such principles are considered at law or in equity).
(ii) Issuer has taken all necessary corporate action to authorize
and reserve and to permit it to issue, and at all times from
the date hereof through the termination of this Agreement in
accordance with its terms will have reserved for issuance
upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder,
and all such shares, upon issuance pursuant to the Option,
will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all
claims, liens, encumbrances and security interests (other
than those created by this Agreement) and not subject to any
preemptive rights.
(iii)The execution, delivery and performance of this Agreement
does not or will not, and the consummation by Issuer of any
of the transactions contemplated hereby will not, constitute
or result in (i) a breach or violation of or a default
under, its articles or certificate of incorporation or
by-laws, or the comparable governing instruments of any of
its subsidiaries, or (ii) a breach or violation of or a
default under, any agreement, lease, contract, note,
mortgage, indenture, arrangement or other obligation of it
or any of its subsidiaries (with or without the giving of
notice, the lapse of time or both) or under any law, rule,
ordinance or regulation or judgment, decree, order, award or
governmental or non-governmental permit or license to which
it or any of its subsidiaries is subject, except where such
breach, violation or default would not in the aggregate have
a Material Adverse Effect (as defined in the Merger
Agreement) and would not materially impair Issuer's ability
to consummate the transactions contemplated by this
Agreement.
(b) Grantee hereby represents and warrants to Issuer that Grantee has
full corporate power and authority to enter into this Agreement and, subject to
obtaining the approvals referred to in this Agreement, to consummate the
transactions contemplated by this Agreement; the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Grantee; and
this Agreement has been duly executed and delivered by Grantee and constitutes a
valid and legally binding obligation of Grantee enforceable against Grantee in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles, whether such principles are
considered at law or in equity).
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12. Assignment. Neither of the parties hereto may assign any of its
rights or obligations under this Agreement or the Option created hereunder to
any other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within
twelve (12) months following such Subsequent Triggering Event (or such later
period as provided in Section 10 hereof) provided that the assignee executes a
supplement to this Agreement agreeing to be bound by this Agreement's terms.
13. Filings; Other Actions. Each of Grantee and Issuer will use its
reasonable best efforts to make all filings with, and to obtain consents of, all
third parties and regulatory and governmental authorities necessary for the
consummation of the transactions contemplated by this Agreement, including,
without limitation, notices and filings under HSR and making application to list
the shares of Common Stock issuable hereunder on Nasdaq upon official notice of
issuance.
14. Specific Performance. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be enforceable by
either party hereto through injunctive or other equitable relief.
15. Severability. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire, or Issuer or
Substitute Option Issuer, as applicable, is not permitted to repurchase pursuant
to Section 7 or 9 hereof, as applicable, the full number of shares of Common
Stock provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or
Section 5 hereof), it is the express intention of Issuer to allow the Holder to
acquire or to require Issuer to repurchase such lesser number of shares as may
be permissible, without any amendment or modification hereof.
16. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by fax, telecopy, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement or such other address as shall be provided in
writing.
17. Governing Law. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the State of New York, without regard to the
conflicts of laws principles thereof.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
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19. Expenses. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
20. Entire Agreement. Except as otherwise expressly provided herein or
in the Merger Agreement, this Agreement contains the entire agreement between
the parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereof,
written or oral. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assignees. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors except as assignees, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
21. Limitation on Profit. (a) Notwithstanding any other provision of
this Agreement, the Grantee's Total Profit (as hereinafter defined) shall be
limited to $70,000,000 and, if it otherwise would exceed this amount, the
Grantee, at its sole election, shall either (i) reduce the number of shares of
Common Stock subject to this Option (or the number of shares of common stock of
the Substitute Option Issuer subject to this Substitute Option, as the case may
be), (ii) deliver to the Issuer (or Substitute Option Issuer) for cancellation
Option Shares (or Substitute Shares) previously purchased by Grantee (or
subsequent share owner), (iii) pay cash to the Issuer (or Substitute Option
Issuer), or (iv) any combination thereof, so that Grantee's realized Total
Profit shall not exceed $70,000,000 after taking into account the foregoing
actions.
(b) Notwithstanding any other provision of this Agreement, this Option
(or Substitute Option) may not be exercised for a number of shares as would, as
of the date of exercise, result in a Notional Total Profit (as defined below)
which would exceed $70,000,000; provided, that nothing in this sentence shall
restrict any exercise of the Option (or Substitute Option) permitted hereby on
any subsequent date.
(c) As used in this Agreement, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) (x) the amount received by
Grantee and any other Holder or Substitute Option Holder pursuant to Issuer's
repurchase of the Option (or any portion thereof) or any Option Shares in
accordance with Section 7, or pursuant to Substitute Option Issuer's repurchase
of the Substitute Option (or any portion thereof) or any Substitute Shares in
accordance with Section 9, less, in the case of any repurchase of Option Shares
or Substitute Shares, (y) the Grantee's and any other Holder's or Substitute
Option Holder's purchase price for such Option Shares or Substitute Shares, as
the case may be, (ii) (x) the net cash amounts (and the fair market value of any
other consideration) received by Grantee and any other Holder or Substitute
Option Holder pursuant to the sale of Option Shares or Substitute Shares (or any
other securities into which such Option Shares or Substitute Shares are
converted or exchanged) to any unaffiliated party, less (y) the Grantee's (or
any other Holder's or Substitute Option Holder's) purchase price of the Option
Shares or Substitute Shares, and (iii) the net cash
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amounts (and the fair market value of any other consideration) received by
Grantee (or any other Holder or Substitute Option Holder) on the transfer of the
Option or Substitute Option (or any portion thereof) to any unaffiliated party.
In the case of clauses (ii) (x) and (iii) above, the Grantee and any Holder or
Substitute Option Holder agree to furnish as promptly as reasonably practicable
after any disposition of all or a portion of the Option or Option Shares or of
the Substitute Option or Substitute Shares a complete and correct statement,
certified by a responsible executive officer or partner of the Grantee or Holder
or Substitute Option Holder, of the net cash amounts (and the fair market value
of any other consideration) received in connection with any sale or transfer of
the Option or Option Shares or of the Substitute Option or Substitute Shares.
(d) As used in this Agreement, the term "Notional Total Profit" with
respect to any number of shares as to which Grantee and any other Holder or
Substitute Option Holder may propose to exercise this Option or Substitute
Option shall be the Total Profit determined as of the date of such proposal
assuming that this Option or Substitute Option were exercised on such date for
such number of shares and assuming that such shares, together with all other
Option Shares or Substitute Shares held by Grantee and any other Holders or
Substitute Option Holders and their respective affiliates as of such date, were
sold for cash at the closing market price for the Common Stock (or the common
stock of the Substitute Option Issuer, as the case may be) as of the close of
business on the preceding trading day (less customary brokerage commissions).
22. Captions; Capitalized Terms. The section and paragraph captions
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
NORTEL NETWORKS CORPORATION
By: /s/
---------------------------------
Name:
Title:
By: /s/
---------------------------------
Name:
Title:
CLARIFY Inc.
By: /s/
---------------------------------
Name:
Title:
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