SCHEME OF ARRANGEMENT IN THE GRAND COURT OF THE CAYMAN ISLANDS FINANCIAL SERVICES DIVISION CAUSE NO : FSD0134 OF 2010(AJJ) IN THE MATTER OF AZALEA NETWORKS and IN THE MATTER OF SECTION 86 OF THE COMPANIES LAW (2009 REVISION) OF THE CAYMAN ISLANDS

“Adjusted Initial Consideration Value”

 

 

“Aggregate Bridge Notes Net Pay-Off Amount”

 

“Aggregate Bridge Notes Pay-Off Amount”

 

“Aggregate Bridge Notes Stock Consideration”

 

“Aggregate Ordinary Participation Value”

 

“Aggregate Ordinary Stock Consideration:

 

“Aggregate Participation Consideration Value”

 

“Aggregate Preferred Liquidation Value”

 

“Aggregate Preferred Participation Value”

 

“Aggregate Stock Consideration”

 

“Allowed Proceeding”

 

“Arrangement Agreement”

“Bridge Noteholders”

 

“Bridge Note Cash Exchange Amount”

 

“Bridge Notes”

“Bridge Note Pro Rata Share”

 

“Bridge Note Pay-Off Amount”

 

“Bridge Note Stock Exchange Amount”

 

“Business Day”

 

“Cayman Court”

 

“Companies Law”

 

“Company Ordinary Shares”

 

“Company Preference Shares”

 

“Company Series A Preference Shares”

 

“Company Series A-1 Preference Shares”

 

“Company Series A-2 Preference Shares”

 

“Company Series A-3 Preference Shares”

 

“Company Series B Preference Shares”

 

“Contingent Rights”

 

“Contingent Rights Payment Period”

 

“Contingent Rights Per Share Value”

 

“Contingent Rights Per Share Maximum”

 

“Contingent Rights Target Value”

 

 

“Contingent Rights Sale Value”

“Dollars” or “$”

 

“Effective Time”

 

“Initial Consideration Value”

“Latest Practicable Date”

 

“Other Third Party Debt”

 

“Ordinary Exchange Ratio”

 

 

“Parties”

 

 

“Pro Rata Portion”

 

“Proceeding”

 

“Prohibited Proceeding”

 

“Proxy Statement”

 

“Purchaser Common Stock”

 

“Purchaser Trading Price”

“Register”

“Scheme Consideration”

 

“Scheme Meetings”

 

“Scheme Shareholders”

 

“Scheme Shares”

 

“Scheme”

 

“Series A Aggregate Liquidation Value”

 

“Series A Aggregate Stock Consideration”

 

“Series A Exchange Ratio”

 

“Series A Per Share Liquidation Value”

 

“Series A Per Share Transaction Value”

 

“Series A-1 Aggregate Liquidation Value”

 

“Series A-1 Aggregate Stock Consideration”

 

“Series A-1 Exchange Ratio”

 

“Series A-1 Per Share Liquidation Value”

 

“Series A-1 Per Share Transaction Value”

“Series A-2 Aggregate Liquidation Value”

 

“Series A-2 Aggregate Stock Consideration”

 

“Series A-2 Exchange Ratio”

 

“Series A-2 Per Share Liquidation Value”

 

“Series A-2 Per Share Transaction Value”

 

“Series A-3 Aggregate Liquidation Value”

 

“Series A-3 Aggregate Stock Consideration”

 

“Series A-3 Exchange Ratio”

 

“Series A-3 Per Share Liquidation Value”

 

“Series A-3 Per Share Transaction Value”

 

“Series B Aggregate Liquidation Value”

 

“Series B Aggregate Stock Consideration”

 

“Series B Exchange Ratio”

 

“Series B Per Share Liquidation Value”

 

“Series B Per Share Transaction Value”

“Stock Consideration Percentage”

 

“Total Ordinary Shares Outstanding”

 

“Total Preference Shares Outstanding”

The Company was incorporated as an exempted limited company named Azalea Networks on April 7, 2005 in the Cayman Islands, under the Companies Law. As at the Latest Practicable Date, the authorized share capital of the Company consists of 48,480,000 Company Ordinary Shares, of which [9,506,736] shares are issued and outstanding; 4,000,000 Company Series A Preference Shares, all of which shares are issued and outstanding; 4,000,000 Company Series A-1 Preference Shares, of which 3,893,750 shares are issued and outstanding; 2,000,000 Company Series A-2 Preference Shares, all of which shares are issued and outstanding; 6,500,000 Company Series A-3 Preference Shares, all of which shares are issued and outstanding; and 10,250,000 Company Series B Preference Shares, of which 10,236,018 shares are issued and outstanding.

Purchaser proposes to acquire all the Scheme Shares pursuant to the terms of this Scheme of Arrangement, such that, at and after the Effective Time, the Company will become a wholly owned subsidiary of Purchaser.

The Parties intend that the Acquisition qualify as a taxable transaction for U.S. federal income tax purposes.

Purchaser has undertaken to the Cayman Court to be bound by this Scheme and to execute and do and procure to be executed and done all such documents, acts and things as may be necessary or desirable to be executed and done by it for the purpose of giving effect to this Scheme.

[Bridge Notes Exchange] At the Effective Time, all issued and outstanding Bridge Notes shall be surrendered to Purchaser for cancellation subject only to receipt of the consideration set forth in Clause 3(a) of this Scheme, together with written consents from the Bridge Noteholders, in such form as is reasonably satisfactory to Purchaser, pursuant to which such holders agree to the cancellation of the Bridge Notes in exchange for the consideration set forth in Clause 3(a) of this Scheme.

[Share Exchange] At the Effective Time, all issued and outstanding Scheme Shares shall be transferred to Purchaser in exchange for the consideration set forth in Clause 3(b) of this Scheme and such Scheme Shares shall be credited as fully paid and recorded in the Register in the name of Purchaser.

In consideration of the surrender and cancellation of the Bridge Notes pursuant to Clause 1 of this Scheme, but subject to the balance of this Scheme, at the Effective Time Purchaser shall pay and issue to each Bridge Noteholder the following: (i) a cash amount equal to the Bridge Note Cash Exchange Amount applicable to such holder’s Bridge Note; and (ii) a number of shares of Purchaser Common Stock equal to the Bridge Note Stock Exchange Amount applicable to such holder’s Bridge Note.

In consideration of the transfer of the Scheme Shares pursuant to Clause 2 of this Scheme, but subject to the balance of this Scheme (including, without limitation, Clause 3(d) below), at the Effective Time Purchaser shall issue Purchaser Common Stock as follows:

to each holder of Company Ordinary Shares transferred pursuant to Clause 2, for each Company Ordinary Share so transferred, a number of shares of Purchaser Common Stock equal to the Ordinary Exchange Ratio;

to each holder of Company Series A Preference Shares transferred pursuant to Clause 2, for each Company Series A Preference Share so transferred, a number of shares of Purchaser Common Stock equal to the Series A Exchange Ratio;

to each holder of Company Series A-1 Preference Shares transferred pursuant to Clause 2, for each Company Series A-1 Preference Share so transferred, a number of shares of Purchaser Common Stock equal to the Series A-1 Exchange Ratio;

to each holder of Company Series A-2 Preference Shares transferred pursuant to Clause 2, for each Company Series A-2 Preference Share so transferred, a number of shares of Purchaser Common Stock equal to the Series A-2 Exchange Ratio;

to each holder of Company Series A-3 Preference Shares transferred pursuant to Clause 2, for each Company Series A-3 Preference Share so transferred, a number of shares of Purchaser Common Stock equal to the Series A-3 Exchange Ratio; and

to each holder of Company Series B Preference Shares transferred pursuant to Clause 1, for each Company Series B Preference Share so transferred, a number of shares of Purchaser Common Stock equal to the Series B Exchange Ratio.

In further consideration of the transfer of the Scheme Shares pursuant to Clause 2 of this Scheme, but subject to the balance of this Scheme (including, without limitation, Clause 3(d) below), at the Effective Time Purchaser irrevocably grants to each and all of the Scheme Shareholders the Contingent Rights, on the terms set out at Part II of this Scheme. In further consideration of the surrender and cancellation of the Bridge Notes pursuant to Clause 1 of this Scheme, but subject to the balance of this Scheme (including, without limitation, Clause 3(d) below), at the Effective Time Purchaser irrevocably grants to each and all of the Bridge Noteholders the Contingent Rights, on the terms set out at Part II of this Scheme.

The aggregate number of shares of Purchaser Common Stock issuable to each Bridge Noteholder pursuant to Clause 3(a) in exchange for all Bridge Notes held by such Bridge Noteholder and to each Scheme Shareholder pursuant to Clause 3(b) in exchange for all Scheme Shares held by such Scheme Shareholder shall be rounded to the nearest whole share. The aggregate cash amount payable to each Bridge Noteholder or Scheme Shareholder pursuant to Clause 3(c) with respect to all shares of Purchaser Common Stock that are the subject of a given Sale Notice shall be rounded to the nearest whole cent.

[Post Closing Adjustments and Escrow] At the Effective Time, Purchaser will deposit with the Escrow Agent the Escrow Amount. That Escrow Amount will comprise the Escrow Fund and will be held, applied and otherwise dealt with in accordance with the terms of Article VII of the Arrangement Agreement, and Article VII of the Arrangement Agreement shall have force and effect as though it were set out in full herein (and for the avoidance of doubt, Article VII of the Arrangement Agreement will be construed and interpreted in accordance with the laws of Delaware).

[No Further Rights] As from the Effective Time:

the holders of Bridge Notes prior to the Effective Time shall in accordance with the Scheme cease to have any rights with respect to the Bridge Notes, except the right to receive the Bridge Notes Consideration.

the Scheme Shareholders prior to the Effective Time shall in accordance with this Scheme cease to have any rights with respect to the Scheme Shares, except the right to receive the Scheme Consideration; and

each instrument of transfer and certificate existing at the Effective Time in respect of a holding of any number of Scheme Shares shall cease to be valid for any purpose as an instrument of transfer or a certificate for such Scheme Shares.

[Issuance of Purchaser Common Stock] Following the Closing Date, Purchaser, or such other agent or agents as may be appointed by Purchaser, shall issue to (i) each Bridge Noteholder the number of whole shares of Purchaser Common Stock such holder is entitled to receive pursuant to Clause 3(a) above, and such holder’s Bridge Note shall automatically be cancelled; and (ii) each Scheme Shareholder the number of whole shares of Purchaser Common Stock such Scheme Shareholder is entitled to receive pursuant to Clause 3(b) above (less such Scheme Shareholder’s Pro Rata Portion of the number of shares of Purchaser Common Stock to be deposited in the Escrow Fund pursuant to Clause 4 above and Article VII of the Arrangement Agreement), and any Company stock certificates held by Scheme Shareholders shall be automatically cancelled.

Purchaser shall pay the Contingent Rights Per Share Value to each Bridge Noteholder and each Scheme Shareholder as follows:

A Contingent Right will be associated with and attached to each share of Purchaser Common Stock issued to (i) a given Bridge Noteholder pursuant to Clause 3(a) of this Scheme or (ii) a given Scheme Shareholder pursuant to Clause 3(b) of this Scheme (including such Scheme Shareholder’s Pro Rata Portion of shares held as Escrow Consideration, if any, upon their release from Escrow to such Scheme Shareholder).

The Contingent Rights Per Share Value shall only be paid with respect to a sale by a Bridge Noteholder or Scheme Shareholder, as applicable, of a share of Purchaser Common Stock issued pursuant to this Scheme taking place on the Nasdaq Stock Market (or any other exchange on which Purchaser hereafter lists) during the Contingent Rights Payment Period.

Subject to Clause 7(b), within ten (10) Business Days of the date a Bridge Noteholder or Scheme Shareholder, as applicable, sells any shares of Purchaser Common Stock issued to him, her or it pursuant to this Scheme, such Bridge Noteholder or Scheme Shareholder, as applicable, must deliver to Purchaser a notice of sale in the form attached hereto as Exhibit A (the “Sale Notice”). If the Sale Notice is not delivered within such ten (10) Business Days period, the Contingent Rights associated with the sold shares of Purchaser Common Stock shall be void and no amounts will be due under this Clause 7 to such Bridge Noteholder or Scheme Shareholder, as applicable, in respect of his, her or its sold shares of Purchaser Common Stock.

Subject to Clause 7(b), within ten (10) Business Days of Purchaser’s receipt of a Sale Notice, Purchaser shall remit to the Bridge Noteholder or Scheme Shareholder, as applicable, that submitted such Sale Notice a cash amount equal to the product of (A) the Contingent Rights Per Share Value multiplied by (B) the number of shares of Purchaser Common Stock that are the subject of such Sale Notice.

In no event shall any Contingent Right be transferrable or exercisable by anyone other than the Bridge Noteholder or Scheme Shareholder, as applicable, to which the underlying share of Purchaser Common Stock was initially issued pursuant to this Scheme as set forth herein.

Under no circumstances shall Purchaser be required to pay to the Bridge Noteholders and Scheme Shareholders in respect of their Contingent Rights more than the Contingent Rights Maximum Aggregate Value.

[The Effective Time] Parts I and II of this Scheme shall become effective at 5:00 p.m., United States Eastern Standard Time on August 2, 2010 or such earlier or later date and time as the Company and Purchaser shall agree in writing, provided that at or by that time all of the following conditions are satisfied:

this Scheme is approved by the affirmative vote at each Scheme Meeting of a majority in number of the applicable Scheme Shareholders representing 75% or more in value of the Scheme Shares present and voting in person or by proxy on the resolution to approve this Scheme;

this Scheme is approved by the affirmative vote at the applicable Scheme Meeting of a majority in number of the Bridge Noteholders representing 75% or more in value of the Bridge Notes present and voting in person or by proxy on the resolution to approve this Scheme;

the requisite court order sanctioning this Scheme is obtained from the Cayman Court;

a copy of the Sanction Order of the Cayman Court is lodged with the Cayman Islands Registrar of Companies;

all other conditions at Article VI of the Arrangement Agreement are satisfied or, to the extent permitted law and the Arrangement Agreement, waived by the Company and/or Purchaser in accordance with the Arrangement Agreement.

[Mandates, etc] All mandates or other instructions to the Company in force at the Effective Time relating to any of the Scheme Shares (including, without limitation, elections for the payment of dividends by way of scrip (if any)) shall, mutatis mutandis immediately after the Effective Time, be deemed to be valid as effective mandates or instructions in respect of shares of Purchaser Common Stock received in consideration of the transfer of such Scheme Shares; provided, however, that nothing in this Scheme shall in any way affect the right (if any) of a shareholder of the Company to receive any dividend declared by the Company prior to the Effective Time but which has not been paid prior to the Effective Time.

[Amendments] Subject to any applicable U.S. securities laws and written approval by Purchaser, this Scheme may be amended, modified or supplemented at any time before or after its approval by the shareholders of the Company at the Scheme Meetings. At the Cayman Court hearing to sanction this Scheme, the Cayman Court may impose such conditions, modifications and amendments as it deems appropriate in relation to this Scheme but will not impose any material changes without the joint consent of the Company and Purchaser. Purchaser and the Company may, subject to any applicable U.S. securities laws, consent to any condition, modification or amendment of this Scheme on behalf of the Scheme Shareholders which the Company may think fit to approve or impose. After its approval, no amendment, modification or supplement may be made or effected that legally requires further approval by shareholders or any class of shareholders of the Company without obtaining that approval.

[Termination] The Company or Purchaser may terminate or abandon this Scheme at any time prior to the Effective Time without obtaining the approval of the Scheme Shareholders, even though this Scheme may have been approved at the Scheme Meetings and sanctioned by the Cayman Court and all other conditions may have been satisfied, provided such termination is consistent with and not in breach of the Arrangement Agreement.

[Prohibited Proceedings] None of the Scheme Shareholders shall commence a Prohibited Proceeding in respect of or arising from this Scheme after the Effective Time. A Scheme Shareholder may commence an Allowed Proceeding against the Company or Purchaser after the Effective Time provided that it has first given the Company and Purchaser five clear Business Days’ prior notice in writing of its intention to do so.

[Savings Clause] The maximum amount issuable hereunder shall equal the Aggregate Acquisition Consideration Value. If for any reason the calculations herein yield an aggregate amount of consideration in excess of the Aggregate Acquisition Consideration Value, the Company and the Purchaser shall mutually agree to adjust such calculations as necessary.

Any notice or other written communication to be given under or in relation to this Scheme (other than pursuant to Clause 15 below) shall be given in writing and shall be deemed to have been duly given if it is delivered by hand or by courier, or sent by post or by email to:

in the case of the Company:

Azalea Networks
673 S. Milpitas Blvd.
Suite 105
Milpitas, CA 95035
Attention: Felix Zhao
Telephone: (408)  ###-###-####
Facsimile No.: (408)  ###-###-####

in the case of Purchaser:

Aruba Networks, Inc.
1344 Crossman Avenue
Sunnyvale, California 94089
Attn: General Counsel
Telephone: (408)  ###-###-####
Facsimile: (408)  ###-###-####

in the case of the Shareholder Representative:

Hans Tai
c/o InnoBridge International Inc.
2905 Stender Way, Suite 20
Santa Clara, CA
Telephone: (408)  ###-###-####
Facsimile: (408)  ###-###-####

in the case of any Scheme Shareholder, its address as it appeared on the Register immediately prior to the Effective Time; and

in the case of any other person, including any Bridge Noteholder, any address set forth for that person in any agreement entered into in connection with this Scheme or the last known address according to the records of the Company, or by fax to its last known fax number according to the records of the Company.

In proving service, it shall be sufficient proof, in the case of a notice sent by post, that the envelope was properly stamped, addressed and placed in the post.

the Company and Purchaser shall not be responsible for any loss or delay in the transmission of any notices, or other documents posted by or to a Scheme Shareholder, which shall be posted at the risk of such Scheme Shareholder.

[Notice of Closing] Purchaser shall give notification to the Bridge Noteholders and the Scheme Shareholders of Parts I and II of this Scheme having become effective. This notification, and any other notice or other written communication that is required to be given to all or substantially all of the Bridge Noteholders and Scheme Shareholders, may (but is not required to) be made by issuing a press release.

[Governing Law; Jurisdiction] Subject to Clause 4, the operative terms of this Scheme shall be governed by, and construed in accordance with, the laws of the Cayman Islands and the Scheme Shareholders hereby agree that the courts of the Cayman Islands shall have exclusive jurisdiction to hear and determine any Proceeding and to settle any dispute which arises out of or connected with the terms of this Scheme or their implementation or out of any action taken or omitted to be taken under this Scheme or in connection with the administration of this Scheme and for such purposes, the Parties irrevocably submit to the jurisdiction of the courts of the Cayman Islands.

[Severability] If any provision (or any part of any provision) of this Scheme is found by the Cayman Court to be illegal or unenforceable, it shall be severed from this Scheme and the remaining provisions of this Scheme shall continue in force.

[Latest Effective Time] Notwithstanding any other clause of this Scheme, unless Parts I and II of this Scheme has become effective on or before December 31, 2010 (or such later date, if any, as the Company and Purchaser may agree and the Cayman Court may allow), this Scheme shall lapse and be of no further effect.

 

 

 

 

Name:

 

 

 

Address:

 

 

 

 

 

Date of Sale: 

 

 

 

 

 

 

The undersigned received these shares pursuant to the Arrangement Agreement.

If the undersigned was an Employee at the Effective Time, the undersigned has remained an Employee through the date hereof or the undersigned’s service was terminated between the Effective Time and the date hereof without “Cause” or the undersigned voluntarily terminated his/her service during such time for “Good Reason” (each as defined below).

For purposes hereof, “Cause” shall mean: (a) unauthorized use or disclosure of the Company’s confidential information or trade secrets, (b) a material failure to comply with the Company’s written policies or rules, (c) conviction of, or plea of “guilty” or “no contest” to, a felony under the laws of the United States or any state thereof or (d) gross misconduct.

For purposes hereof, “Good Reason” shall mean: the voluntary resignation of an employee following (i) a change in position with the Company that materially reduces the employee’s level of authority or responsibility or materially changes employee’s duties or reporting relationship, (ii) a material reduction in the employee’s base salary, target bonus or benefits or (iii) receipt of notice that employee’s principal workplace will be relocated more than 35 miles.

The undersigned received these shares directly pursuant to the Arrangement Agreement, and has held them pursuant to the terms of the Arrangement Agreement through the Exercise Period.

 

 

 

Date