Exhibit 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
VAXGEN, INC.,
VIOLET ACQUISITION CORPORATION,
VIOLET ACQUISITION LLC,
DIADEXUS, INC., AND
XXXX X. XXXXX, as Company Stockholders’ Agent
Dated as of May 28, 2010
TABLE OF CONTENTS
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Article 1 THE TRANSACTION |
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1.1 The Transaction |
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1.2 Effective Time |
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1.3 Effect of the Transaction |
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1.4 Certificate of Incorporation; Bylaws; Certificate of Formation; Operating Agreement |
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1.5 Directors, Managers and Officers of the Surviving Corporation and Surviving Entity; Name
of Parent |
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1.6 Effect on Capital Stock |
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1.7 Dissenting Shares |
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1.8 Exchange of Certificates |
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1.9 Stock Transfer Books |
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1.10 No Further Ownership Rights in Company Stock |
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1.11 Tax Consequences |
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1.12 Taking of Necessary Action; Further Action |
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Article 2 REPRESENTATIONS AND WARRANTIES OF COMPANY |
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2.1 Organization of Company |
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2.2 Capital Structure |
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2.3 Obligations with Respect to Capital Stock |
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2.4 Authority |
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2.5 Section 203 of Delaware Law not Applicable |
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2.6 Company Financial Statements; No Undisclosed Liabilities |
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2.7 Absence of Certain Changes or Events |
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2.8 Taxes |
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2.9 Intellectual Property |
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2.10 Compliance; Permits; Restrictions |
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2.11 Litigation |
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2.12 Brokers’ and Finders’ Fees |
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2.13 Employee Benefit Plans |
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2.14 Absence of Liens and Encumbrances; Condition of Equipment |
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2.15 Environmental Matters |
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2.16 Labor Matters |
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2.17 Agreements, Contracts and Commitments |
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2.18 Permit Application; Information Statement |
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2.19 Corporate Approval |
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2.20 Books and Records |
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2.21 Restrictions on Business Activities |
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2.22 Real Property Leases |
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2.23 Insurance |
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2.24 Certain Business Practices |
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2.25 Suppliers |
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2.26 Government Contracts |
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2.27 Interested Party Transactions |
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2.28 Disclosure |
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2.29 Product Liability; Product Warranties |
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2.30 Reorganization Matters |
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Article 3 REPRESENTATIONS AND WARRANTIES OF PARENT |
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3.1 Organization of Parent |
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3.2 Capital Structure |
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3.3 Obligations with Respect to Capital Stock |
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3.4 Authority |
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3.5 Section 203 of Delaware Law not Applicable |
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3.6 SEC Filings; Parent Financial Statements; No Undisclosed Liabilities |
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3.7 Absence of Certain Changes or Events |
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3.8 Taxes |
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3.9 Intellectual Property |
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3.10 Compliance; Permits; Restrictions |
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3.11 Litigation |
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3.12 Brokers’ and Finders’ Fees |
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3.13 Employee Benefit Plans |
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3.14 Absence of Liens and Encumbrances; Condition of Equipment |
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3.15 Environmental Matters |
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3.16 Labor Matters |
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3.17 Agreements, Contracts and Commitments |
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3.18 Permit Application; Registration Statement; Information Statement |
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3.19 Corporate Approval |
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3.20 Books and Records |
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3.21 Restrictions on Business Activities |
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3.22 Real Property Leases |
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3.23 Insurance |
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3.24 Certain Business Practices |
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3.25 Government Contracts |
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3.26 Interested Party Transactions |
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3.27 Fairness Opinion |
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3.28 Reorganization Matters |
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Article 4 CONDUCT OF BUSINESS PENDING THE |
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4.1 Conduct of Company Business |
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4.2 Conduct of Parent Business |
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Article 5 ADDITIONAL AGREEMENTS |
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5.1 Fairness Hearing and Permit Application; Registration Statement |
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5.2 Consent of Company Stockholders |
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5.3 Access to Information; Confidentiality |
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5.4 Consents; Approvals |
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5.5 Director Indemnification and Insurance |
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5.6 Notification of Certain Matters |
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5.7 Financial Statements |
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5.8 Public Announcements |
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5.9 Tax Free Reorganization |
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5.10 Board of Directors and Officers of Parent |
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5.11 Non-Solicitation by Company |
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5.12 Non-Solicitation by Parent |
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5.13 Company Stockholders’ Agent |
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5.14 Section 16 Matters |
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5.15 280G |
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5.16 Updated Merger Consideration Spreadsheet |
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5.17 Tax Matters |
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Article 6 CONDITIONS TO THE TRANSACTION |
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6.1 Conditions to Obligation of Each Party to Effect the Transaction |
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6.2 Additional Conditions to Obligations of Parent |
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6.3 Additional Conditions to Obligations of Company |
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Article 7 TERMINATION |
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7.1 Termination |
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7.2 Notice of Termination; Effect of Termination |
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7.3 Expenses; Termination Fees |
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Article 8 INDEMNIFICATION |
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8.1 Survival of Representations and Warranties |
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8.2 Indemnification and Escrow Fund |
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8.3 Limitations on Indemnification |
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8.4 Procedure for Recovery from Escrow Fund |
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8.5 Defense of Third Party Claims |
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8.6 Indemnification Claims |
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Article 9 GENERAL PROVISIONS |
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9.1 Notices |
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9.2 Amendment |
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9.3 Headings |
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9.4 Severability |
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9.5 Entire Agreement |
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9.6 Assignment |
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9.7 Parties In Interest |
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9.8 Waiver |
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9.9 Remedies Cumulative |
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9.10 Governing Law; Jurisdiction; Specific Performance |
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9.11 Counterparts |
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9.12 Attorney Fees |
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9.13 Cooperation |
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9.14 Construction |
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Exhibits |
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Exhibit A |
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Certain Definitions |
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Exhibit B |
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Form of Company Voting Agreement |
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Exhibit C |
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Form of Lock-Up Agreement |
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Exhibit D |
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Form of Certificate of Merger I |
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Exhibit E |
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Form of Certificate of Merger II |
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Exhibit F |
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Form of Escrow Agreement |
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Exhibit G |
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Merger Consideration Spreadsheet |
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, is made and entered into as of May 28,
2010 (the “
Agreement”), by and among
VaxGen, Inc. a
Delaware corporation (“
Parent”),
Violet Acquisition Corporation, a
Delaware corporation (“
Merger Sub I”),
Violet
Acquisition LLC, a
Delaware limited liability company (
“Merger Sub II” and together with
Merger Sub I, the
“Merger Subs”),
diaDexus, Inc., a
Delaware corporation (“
Company”), and
Xxxx X. Xxxxx, as the “
Company Stockholders’ Agent”. Certain capitalized terms used in
this Agreement are defined in
Exhibit A.
WHEREAS, the boards of directors of Parent and Company have each determined that it is
advisable and in the best interests of their respective stockholders for Parent to enter into a
business combination with Company upon the terms and subject to the conditions set forth herein.
WHEREAS, upon the terms and subject to the conditions set forth herein, Parent, Merger Subs
and Company intend to effect (i) a merger of Merger Sub I with and into Company with Company as
the surviving corporation (the “
Merger I”) in accordance with the applicable provisions of the
Delaware General Corporation Law (“
Delaware Law”) and (ii) immediately following the effectiveness
of Merger I, a merger of Company with and into Merger Sub II in accordance with applicable
provisions of
Delaware Law and the
Delaware Limited Liability Company Act (
“DLLCA”) (
“Merger II”
and together with Merger I, the
“Transaction”). Upon consummation of the Transaction, Company
will cease to exist and Merger Sub II will succeed to all of Company’s business, assets and
liabilities.
WHEREAS, Parent, Merger Subs and Company intend that Merger I and Merger II shall be treated
as an integrated transaction and that the Transaction shall qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “
Code”), and the
regulations promulgated thereunder;
WHEREAS, as a condition to the willingness of, and an inducement to Parent to enter into this
Agreement, contemporaneously with the execution and delivery of this Agreement, each of the
Company Voting Agreement Signatories is entering into a voting agreement, in favor of Parent, in
substantially the form of
Exhibit B attached hereto (the “
Company Voting Agreements”),
under which the Company Voting Agreement Signatories will agree to vote as stockholders in favor
of the Transaction and against any competing proposal pursuant to the terms and conditions of the
Company Voting Agreements, and each of the Company Lock-Up Agreement Signatories is entering into
a lock-up agreement, in substantially the form of
Exhibit C attached hereto (the
“Lock-Up
Agreements”); and
WHEREAS, on or prior to the date hereof, Company shall have consummated the Company Bridge
Financing.
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NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements
herein contained, the parties to this Agreement, intending to be legally bound, hereby agree as
follows:
ARTICLE 1
THE TRANSACTION
1.1 The Transaction.
(a) Merger of Merger Sub I into Company. Subject to and upon the terms and conditions
of this Agreement and Delaware Law, Merger Sub I shall be merged with and into Company, the
separate corporate existence of Merger Sub I shall cease, and Company shall continue as the
surviving corporation. Company as the surviving corporation after Merger I is hereinafter
sometimes referred to as the “Surviving Corporation.”
(b) Merger of Surviving Corporation into Merger Sub II. Subject to and upon the terms
and conditions of this Agreement and applicable provisions of Delaware Law and the DLLCA, Surviving
Corporation shall be merged with and into Merger Sub II, the separate corporate existence of
Surviving Corporation shall cease, and Merger Sub II shall continue as the surviving entity.
Merger Sub II as the surviving entity after Merger II is hereinafter sometimes referred to as the
“Surviving Entity.”
(c) Closing. Unless this Agreement shall have been terminated and the transactions
herein contemplated shall have been abandoned pursuant to Section 7.1, and subject to the
satisfaction or waiver of the conditions set forth in Article 6 (other than those conditions that
by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of
such conditions), the consummation of the Transaction will take place as promptly as practicable
(and in any event within two (2) business days) after satisfaction or waiver of the conditions set
forth in Article 6 (the “Closing”), at the offices of Xxxxxx LLP, 0000 Xxxxxxx Xxxxxx, Xxxx Xxxx,
XX 00000-0000, unless another date, time or place is agreed to in writing by the parties hereto
(the “Closing Date”).
1.2 Effective Time. On the Closing Date, Parent, Merger Sub I and Company shall cause
Merger I to be consummated by filing a Certificate of Merger for Merger I in accordance with the
relevant provisions of Delaware Law (the “Certificate of Merger I”), in substantially the
form of Exhibit D attached hereto, together with any required related certificates, with
the Secretary of State of the State of Delaware, in such form as required by, and executed in
accordance with the relevant provisions of, Delaware Law (the time of such filing being the
“Effective Time of Merger I”). Immediately following the Effective Time of Merger I, Parent,
Merger Sub II and the Surviving Corporation shall cause Merger II to be consummated by filing a
Certificate of Merger for Merger II in accordance with the relevant provisions of Delaware Law and
the DLLCA (the “Certificate of Merger II”), in substantially the form of Exhibit E attached
hereto, together with any required certificates, with the Secretary of State of the State of
Delaware, in such form as required by, and executed in accordance with the relevant provisions
of, Delaware Law and the DLLCA (the time of such filing being the “Effective Time of Merger
II”).
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1.3 Effect of the Transaction. The effect of the Transaction shall be as provided in
this Agreement, the Certificate of Merger I, the Certificate of Merger II, and the applicable
provisions of Delaware Law and the DLLCA. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time of Merger II all the property, rights, privileges, powers
and franchises of Company shall vest in the Surviving Entity, and all debts, liabilities,
obligations and duties of Company shall become the debts, liabilities, obligations and duties of
the Surviving Entity.
1.4 Certificate of Incorporation; Bylaws; Certificate of Formation; Operating
Agreement. Unless otherwise determined by Parent and Company:
(a) Certificate of Incorporation. The certificate of incorporation of Merger Sub I,
as in effect immediately prior to the Effective Time of Merger I, shall be the certificate of
incorporation of the Surviving Corporation until thereafter amended as provided by Delaware Law and
such certificate of incorporation.
(b) Bylaws. The bylaws of Merger Sub I, as in effect immediately prior to the
Effective Time of Merger I, shall be the bylaws of the Surviving Corporation until thereafter
amended as provided by Delaware Law, the certificate of incorporation of the Surviving Corporation
and such bylaws.
(c) Certificate of Formation. The Certificate of Formation of the Surviving Entity
immediately after the Effective Time of Merger II shall be in a form approved by Parent.
(d) Operating Agreement. The Operating Agreement of the Surviving Entity immediately
after the Effective Time of Merger II shall be in a form approved by Parent and in compliance with
Section 5.5(a).
1.5 Directors, Managers and Officers of the Surviving Corporation and Surviving Entity;
Name of Parent. Unless otherwise determined by Parent and Company:
(a) the board of directors of the Surviving Corporation immediately after the Effective Time
of Merger I shall be the board of directors of Merger Sub I;
(b) the officers of Company immediately prior to the Effective Time of Merger I shall be the
officers of the Surviving Corporation immediately following the Effective Time of Merger I until
such time as their respective successors are duly elected or appointed;
(c) the board of managers of the Surviving Entity immediately after the Effective Time of
Merger II shall be as set forth on Schedule 1.5 attached hereto;
(d) the officers of the Surviving Corporation immediately prior to the Effective Time of
Merger II shall be the officers of the Surviving Entity immediately following
the Effective Time of Merger II until such time as their respective successors are duly
elected or appointed; and
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(e) promptly following the Effective Time of Merger II, the name of Parent shall be changed to
diaDexus, Inc. and Xxxxxxx Xxxxxxx shall be appointed President and Chief Executive Officer of
Parent.
1.6 Effect on Capital Stock.
(a) Conversion of Company Capital Stock and Merger Sub I Common Stock. Upon the terms
and subject to the conditions set forth in this Agreement, at the Effective Time of Merger I, by
virtue of Merger I and without any action on the part of Parent, Merger Sub I, Company, any
stockholder of Company or any other Person:
(i) Company Series F Preferred Stock. Every share of Company Series F Preferred Stock
issued and outstanding immediately prior to the Effective Time of Merger I (excluding any shares to
be canceled pursuant to Section 1.6(b)) shall, by virtue of Merger I, be converted, subject to
Sections 1.6(e), 1.6(f) and 1.7, into (A) the right to receive the number of shares of validly
issued, fully paid and nonassessable shares of common stock of Parent, $.01 par value per share
(“Parent Common Stock”) equal to the Series F Exchange Ratio (less any such shares placed in the
Escrow Fund, pursuant to the Merger Consideration Spreadsheet), subject to adjustment as set forth
in this Agreement, and cash in lieu of any fractional shares of Parent Common Stock to be issued or
paid in consideration therefor, and (B) the right to receive a pro rata share of any release of
shares of Parent Common Stock held in the Escrow Fund to the Indemnifying Persons in accordance
with Section 8.2 and the Escrow Agreement (the “Series F Merger Consideration”).
(ii) Other Series of Company Preferred Stock and Company Common Stock. Each share of
Company Series A Preferred Stock, Company Series B Preferred Stock, Company Series C Preferred
Stock, Company Series D Preferred Stock, Company Series E Preferred Stock and Company Common Stock
issued and outstanding immediately prior to the Effective Time of Merger I shall, by virtue of the
Merger I, be canceled and extinguished without any conversion thereof and without payment of any
consideration therefor and cease to exist. Notwithstanding the foregoing, if the Charter Value of
Parent Common Stock is greater than or equal to $1.31, the parties hereto shall agree to amend this
Agreement, if necessary, to amend the Series F Exchange Ratio and provide for the payment of
consideration pursuant to Merger I to such other holders of Company securities as necessary to be
consistent with the liquidation provisions of Company’s certificate of incorporation (it being
understood that in no event shall this provision require the amendment of the Closing Company
Parent Share Number).
(iii) Merger Sub I Common Stock. Each share of Merger Sub I Common Stock then
outstanding shall be converted into one share of common stock of the Surviving Corporation. Each
stock certificate of Merger Sub I evidencing ownership of any such shares shall, as of the
Effective Time of Merger I, evidence ownership of such shares of common stock of the Surviving
Corporation.
(b) Cancellation of Company Capital Stock. Each Share held in the treasury of Company
and each Share owned by Parent or by any direct or indirect wholly owned Subsidiary of Company or
Parent immediately prior to the Effective Time of Merger I shall, by virtue of Merger I and without
any action on the part of the holder thereof, cease to be outstanding, be canceled and extinguished
without any conversion thereof and without payment of any consideration therefor and cease to
exist.
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(c) Company Options. Each Company Option that is outstanding and unexercised as of
immediately prior to the Effective Time of Merger I shall be terminated and cancelled at the
Effective Time of Merger I and the holders of any unexercised Company Options shall not be entitled
to receive any portion of the merger consideration or any other rights pursuant to this Agreement
or as a stockholder of Company. Prior to the Closing Date, and subject to the review and approval
of Parent, Company shall take all actions necessary to effect the transactions contemplated by this
Section 1.6(c) under applicable Legal Requirements, the Company Option Plans and all Company Option
agreements and any other plan or arrangement of Company (whether written or oral, formal or
informal), including delivering all notices required thereby.
(d) Warrants. Prior to the Effective Time of Merger I, Company shall cause each
unexercised warrant to purchase Company Common Stock or Company Preferred Stock to terminate and be
cancelled. Prior to the Closing Date, and subject to the review and approval of Parent, Company
shall take all actions necessary to effect the transactions contemplated by this Section 1.6(d)
under applicable Legal Requirements and all warrant agreements to purchase Company Capital Stock,
including delivering all notices required thereby.
(e) Adjustments to Exchange Ratio. The Series F Exchange Ratio shall be appropriately
adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including
any dividend or distribution of securities convertible into Parent Common Stock or Company Capital
Stock), reorganization, recapitalization or other like change with respect to Parent Common Stock
or Company Capital Stock occurring after the date hereof and prior to the Effective Time of Merger
I.
(f) Retention Bonus Plan. Pursuant to the diaDexus Retention Bonus Plan, as amended
and restated May 27, 2010 (the “Retention Bonus Plan”), Parent shall pay (or shall cause the
Surviving Corporation or Surviving Entity to pay) to each Person named in Schedule 1.6(f)
(collectively, the “Retention Bonus Plan Participants”) such Retention Bonus Plan Participant’s
Retention Bonus (within the meaning of the Retention Bonus Plan) pursuant to the terms and
conditions of the Retention Bonus Plan and at the times specified in the Retention Bonus Plan,
subject to deduction and withholding by Parent (or any Subsidiary of Parent, as applicable) of all
applicable state, Federal and local income, employment and excise tax withholding required by
applicable law in respect of such Retention Bonus and the escrow provisions described herein. To
the extent permitted by the Retention Bonus Plan, such payment shall be in the form of Retention
Bonus Shares. If any Retention Bonus Participant fails to meet the criteria set forth in the
Retention Bonus Plan to earn the Retention Bonus allocated to such Retention Bonus Participant,
then such Retention Bonus Participant will forfeit the Retention Bonus Participant’s Retention
Bonus, and the administrator of the Retention Bonus Plan shall not
reallocate such Retention Bonus to any other Retention Bonus Participant. Schedule 1.6(f)
sets forth the name and the “Percentage Interest” of each Retention Bonus Plan Participant as
contemplated by the Retention Bonus Plan, along with the current tax withholding rates for such
Retention Bonus Plan Participant with respect to supplementary wages; provided, that, Company may
amend Schedule 1.6(f) at any time prior to the tenth business day prior to the Closing in
compliance with the terms and conditions of the Retention Bonus Plan and this Agreement. To the
extent any cash is paid to a Retention Bonus Plan Participant to satisfy such Retention Bonus Plan
Participant’s tax withholding obligations, the number of Retention Bonus Shares issued to such
participant shall be reduced by the number of Retention Bonus Shares calculated by multiplying the
aggregate tax withholding rate used to calculate the Retention Bonus Plan Participant’s tax
withholding obligation times the aggregate number of Retention Bonus Shares that otherwise would
have been issuable to such Retention Bonus Plan Participant at the time such tax withholding
obligation arose.
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(g) Fractional Shares of Parent Common Stock. No fraction of a share of Parent Common
Stock will be issued in connection with the Merger and no certificates or scrip for any such
fractional shares shall be issued. Any Exchange Stockholder (after aggregating all fractional
shares of Parent Common Stock issuable to such Exchange Stockholder) shall, in lieu of such
fraction of a share, and upon surrender of such holders’ Certificate(s), be paid in cash the dollar
amount (rounded to the nearest whole cent), without interest, determined by multiplying such
fraction by the closing price of a share of Parent Common Stock on the Over the Counter Bulletin
Board on the last available date prior to the Closing Date.
(h) Restrictions. If any shares of Company Capital Stock outstanding immediately
prior to the Effective Time of Merger I are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase agreement or other
agreement with Company or under which Company has any rights, then the shares of Parent Common
Stock issued in exchange for such shares of Company Capital Stock will also be unvested and subject
to the same repurchase option, risk of forfeiture or other condition, and the certificates
representing such shares of Parent Common Stock may accordingly be marked with appropriate legends.
Company shall take all action that may be necessary to ensure that, from and after the Effective
Time of Merger I, Parent is entitled to exercise any such repurchase option or other right set
forth in any such restricted stock purchase agreement or other agreement.
(i) Conversion of Surviving Corporation Common Stock. By virtue of Merger II and
without any further action on the part of Parent, Merger Sub II or Surviving Corporation, (i) each
membership interest of Merger Sub II then outstanding shall remain outstanding and each certificate
therefor shall continue to evidence one membership interest of the Surviving Entity and (ii) each
share of common stock of Surviving Corporation then outstanding shall be converted into one
membership interest of the Surviving Entity.
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1.7 Dissenting Shares. Notwithstanding anything to the contrary contained herein, any
shares of Company Capital Stock issued and outstanding immediately prior to the Effective Time of
Merger I and held by a person who has not voted in favor of Merger I or consented thereto in
writing and who has properly demanded appraisal for such shares in accordance with
Delaware Law (the “Dissenting Shares”) shall not be entitled to receive any portion of the
Series F Merger Consideration, unless such holder fails to perfect, effectively withdraws or
otherwise loses its rights to appraisal or it is determined that such holder does not have
appraisal rights in accordance with Delaware Law. If after the Effective Time of Merger I, such
holder fails to perfect, effectively withdraws or otherwise loses its right to appraisal, or if it
is determined that such holder does not have appraisal rights, such shares shall be treated as if
they had been converted as of the Effective Time of Merger I into the right to receive the merger
consideration set forth in Section 1.6(a) hereof (if any) without interest thereon. Company shall
give Parent and Merger Sub I prompt notice of any demands received by Company for appraisal of
shares, and Parent and Merger Sub I shall have the right to participate in all negotiations and
proceedings with respect to such demands except as required by applicable Legal Requirements.
Prior to the Effective Time of Merger I, Company shall not, except with prior written consent of
Parent, make any payment with respect to, or settle or offer to settle, any such demands, or agree
to do any of the foregoing.
1.8 Exchange of Certificates.
(a) Exchange Agent. On or prior to the Closing Date, Parent shall select a reputable
bank or trust company to act as exchange agent in connection with the Transaction (the “Exchange
Agent”). As soon as practicable after the Effective Time of Merger I, Parent shall deposit with
the Exchange Agent (i) certificates representing the shares of Parent Common Stock issuable
pursuant to Section 1.6(a) and (ii) cash sufficient to make payments in lieu of fractional shares
in accordance with Section 1.6(f). The shares of Parent Common Stock and cash amounts so deposited
with the Exchange Agent are referred to collectively as the “Exchange Fund.”
(b) Exchange Procedures. As soon as reasonably practicable after the Effective Time
of Merger I, Parent will instruct the Exchange Agent to mail to the record holders of applicable
Company Stock Certificates (i) a letter of transmittal in customary form and containing such
provisions as Parent may reasonably specify (including a provision confirming that delivery of
Company Stock Certificates shall be effected, and risk of loss and title to Company Stock
Certificates shall pass, only upon delivery of such Company Stock Certificates to the Exchange
Agent), and (ii) instructions for use in effecting the surrender of Company Stock Certificates in
exchange for certificates representing Parent Common Stock and, in lieu of any fractional share
thereof, cash, if any. Upon surrender of a Company Stock Certificate to the Exchange Agent for
exchange, together with a duly executed letter of transmittal and such other documents as may be
reasonably required by the Exchange Agent or Parent, (A) if an Exchange Stockholder, the holder of
such Company Stock Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Parent Common Stock that such holder has the right to
receive pursuant to the provisions of Section 1.6(a) (and cash in lieu of any fractional share of
Parent Common Stock pursuant to Section 1.6(f)), and (B) the Company Stock Certificate so
surrendered shall be canceled. Until surrendered as contemplated by this Section 1.8(b), each
Company Stock Certificate held by an Exchange Stockholder shall be deemed, from and after the
Effective Time of Merger I, to represent only the right to receive Series F Merger Consideration,
as applicable, (and cash in lieu of any fractional share of Parent Common Stock). If any Company
Stock Certificate shall have been lost, stolen or destroyed, Parent may, in its discretion and as a
condition to the issuance of any certificate representing
Parent Common Stock, require the owner of such lost, stolen or destroyed Company Stock
Certificate to provide an appropriate affidavit and to deliver a bond (in such sum as Parent may
reasonably direct) as indemnity against any claim that may be made against the Exchange Agent,
Parent, the Surviving Corporation, or the Surviving Entity with respect to such Company Stock
Certificate.
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(c) Transfers of Ownership. If any certificate for shares of Parent Common Stock is
to be issued in a name other than that in which the Company Stock Certificate surrendered in
exchange therefor is registered, it will be a condition of the issuance thereof that the Company
Stock Certificate so surrendered will be properly endorsed and otherwise in proper form for
transfer and that the Person requesting such exchange will have paid to Parent or any Person
designated by it any transfer or other taxes required by reason of the issuance of a certificate
for shares of Parent Common Stock in any name other than that of the registered holder of the
Company Stock Certificate surrendered, or established to the satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.
(d) Unclaimed Portion of the Exchange Fund.
(i) Any portion of the Exchange Fund that remains undistributed to holders of Company Stock
Certificates as of the date one hundred eighty (180) days after the date on which Merger I becomes
effective shall be delivered to Parent upon demand, and any holders of Company Stock Certificates
who have not theretofore surrendered their Company Stock Certificates in accordance with this
Section 1.8 shall thereafter look only to Parent for satisfaction of their claims for Parent Common
Stock and any cash in lieu of fractional shares of Parent Common Stock; provided, however that any
shares of Parent Common Stock held in the Escrow Fund shall be held and distributed pursuant only
to the terms of the Escrow Agreement.
(ii) Neither Parent nor the Surviving Corporation or Surviving Entity shall be liable to any
holder or former holder of Exchanged Stock or to any other Person with respect to any shares of
Parent Common Stock (or dividends or distributions with respect thereto), or for any cash amounts,
delivered to any public official pursuant to any applicable abandoned property law, escheat law or
similar Legal Requirement.
(e) Withholding Rights. Each of the Exchange Agent, Parent, the Surviving
Corporation, and the Surviving Entity shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any holder or former
holder of Company Capital Stock such amounts as may be required to be deducted or withheld
therefrom under the Internal Revenue Code of 1986, as amended (the “Code”) or any provision of
state, local or foreign tax law or under any other applicable Legal Requirement. To the extent
such amounts are so deducted or withheld and remitted to the appropriate Governmental Body, such
amounts shall be treated for all purposes under this Agreement as having been paid to the Person to
whom such amounts would otherwise have been paid.
1.9 Stock Transfer Books. At the Effective Time of Merger I: (a) all shares of
Company Capital Stock outstanding immediately prior to the Effective Time of Merger I shall
automatically be canceled and retired and shall cease to exist, and all holders of certificates
representing shares of Company Capital Stock that were outstanding immediately prior to the
Effective Time of Merger I shall cease to have any rights as stockholders of Company; and (b) the
stock transfer books of Company shall be closed with respect to all shares of Company Capital Stock
outstanding immediately prior to the Effective Time of Merger I. No further transfer of any such
shares of Company Capital Stock shall be made on such stock transfer books after the Effective Time
of Merger I. If, after the Effective Time of Merger I, a valid certificate previously representing
any shares of Company Capital Stock (a “Company Stock Certificate”) is presented to the Exchange
Agent or to the Surviving Corporation, the Surviving Entity or Parent, such Company Stock
Certificate shall be canceled and shall be exchanged as provided in Section 1.8.
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1.10 No Further Ownership Rights in Company Stock. The Series F Merger Consideration
delivered upon the surrender for exchange of Company Series F Preferred Stock, as applicable, in
accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares.
1.11 Tax Consequences. For federal income tax purposes, Merger I and Merger II shall
be treated as a single integrated transaction and shall constitute a reorganization within the
meaning of Section 368 of the Code. The parties to this Agreement hereby adopt this Agreement as a
“plan of reorganization” within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United
States Treasury Regulations.
1.12 Taking of Necessary Action; Further Action. Each of Parent and Company in good
faith will take all such commercially reasonable and lawful action as may be necessary or
appropriate in order to effectuate the Transaction in accordance with this Agreement as promptly as
possible. If, at any time after the Effective Time of Merger II, any such further action is
necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Entity
with full right, title and possession to all assets, property, rights, privileges, powers and
franchises of Company, the officers and managers of the Surviving Entity are fully authorized in
the name of the company or otherwise to take, and will take, all such lawful and necessary action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to Parent and Merger Subs that, except as set forth in
the Company Disclosure Schedule:
2.1 Organization of Company.
(a) The Company is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, has all requisite corporate power and authority to own, lease
and operate its property and to carry on its business as now being conducted and as proposed to be
conducted, and is duly qualified to do business and in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a Company
Material Adverse Effect. Company has made available a true and correct copy of the
certificate of incorporation and bylaws of Company, each as amended to date, to counsel for Parent.
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(b) The Company has no Subsidiaries. Company does not own any controlling interest in any
Entity and, except for the equity interests identified in Section 2.1(b) of the Company Disclosure
Schedule, Company has never owned, beneficially or otherwise, any shares or other securities of, or
any direct or indirect equity interest in, any Entity. Company has not agreed and is not obligated
to make any future investment in or capital contribution to any Entity. Company has not guaranteed
and is not responsible or liable for any obligation of any of the Entities in which it owns or has
owned any equity interest.
(c) Except as set forth in Section 2.1(c) of the Company Disclosure Schedule, Company has not
conducted any business under or otherwise used, for any purpose or in any jurisdiction, any
fictitious name, assumed name, trade name or other name, other than the name “diaDexus, Inc.”
2.2 Capital Structure. The authorized capital stock of Company consists of
170,000,000 shares of Common Stock, par value $0.01 per share, of which 1,814,494 shares are issued
and outstanding as of the date of this Agreement and 82,326,283 shares of Preferred Stock, par
value $0.01 per share, of which (a) 4,400,000 shares are designated as Series A Preferred Stock, of
which 4,400,000 shares are issued and outstanding as of the date of this Agreement, (b) 4,400,000
shares are designated as Series B Preferred Stock, of which 4,400,000 shares are issued and
outstanding as of the date of this Agreement, (c) 13,225,807 shares are designated as Series C
Preferred Stock, of which 13,225,807 shares are issued and outstanding as of the date of this
Agreement, (d) 20,833 shares are designated as Series D Preferred Stock, of which 20,833 shares are
issued and outstanding as of the date of this Agreement, (e) 48,135,340 shares are designated as
Series E Preferred Stock, of which 47,391,275 shares are issued and outstanding as of the date of
this Agreement, and (f) 12,144,303 shares are designated as Series F Preferred Stock, of which
10,839,694 shares are issued and outstanding as of the date of this Agreement. No shares of
capital stock are held in Company’s treasury. All outstanding shares of Company Capital Stock are
duly authorized, validly issued, fully paid and non-assessable and are not subject to preemptive
rights created by statute, the certificate of incorporation or bylaws of Company or any agreement
or document to which Company is a party or by which it is bound, and were issued in compliance with
all applicable federal and state securities Legal Requirements. As of the date hereof, Company has
reserved an aggregate of 23,163,326 shares of Company Common Stock, net of exercises, for issuance
to employees, consultants and non-employee directors pursuant to the Company Option Plans, under
which options are outstanding for an aggregate of 17,869,023 shares of Company Common Stock;
58,529,838 shares of Company Common Stock are reserved for issuance to holders of warrants to
purchase Company Common Stock upon their exercise and 744,066 shares of Company Series E Preferred
Stock are reserved for issuance to holders of warrants to purchase Company Series E Preferred
Stock upon their exercise. All shares of Company Capital Stock subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instruments pursuant to which they are
issuable, are duly authorized, validly issued, fully paid and non-assessable. Section 2.2 of the
Company Disclosure Schedule lists, as of the date of this Agreement, each holder of Company Capital
Stock and the number of shares of
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Company Capital Stock held by such holder, each outstanding Company Option and warrant to acquire shares of Company Capital Stock, the name of
the holder of such Company Option or warrant, the number of shares subject to such Company Option
or warrant, the exercise price of such Company Option or warrant, the vesting schedule and
termination date of such Company Option or warrant. Section 2.2 of the Company Disclosure Schedule
also lists, for each holder of Company Capital Stock, Company Option or warrant to acquire shares
of Company Capital Stock, as such information exists on the books and records of Company, the state
or other jurisdiction in which such holder currently resides, or, if such holder is an Entity, the
state where such holder’s principal office is located. Except as set forth on Section 2.2 of the
Company Disclosure Schedule, there are no outstanding equity securities of any kind of Company and
there are no other securities exchangeable or convertible into or exercisable for such equity
securities, authorized, issued, reserved for issuance or outstanding. Attached hereto as
Exhibit G, is a spreadsheet prepared by Company, identifying each holder of Company
securities and each Retention Bonus Plan Participant entitled to receive consideration pursuant to
Article I of this Agreement, the aggregate amount of Parent Common Stock issuable and cash (if any)
payable to each such Person in connection with the consummation of the Transaction, such Person’s
last known addresses, the number and kind of shares of Company securities held by such applicable
holder eligible for exchange for merger consideration (including respective certificate numbers),
and the number of shares of each such Person’s Parent Common Stock which shall be deposited in the
Escrow Fund, including such Person’s pro rata percentage of the Escrow Fund (the “Merger
Consideration Spreadsheet”). As of the date that is third business day prior to the Closing, the
Merger Consideration Spreadsheet, as updated pursuant to Section 5.16 hereof, shall be true and
correct and consistent with Company’s certificate of incorporation, applicable law and any other
oral or written obligation to which Company is subject.
2.3 Obligations with Respect to Capital Stock. Except as set forth in Section 2.3 of
the Company Disclosure Schedule, there are no calls, rights (including preemptive rights),
commitments or agreements of any character to which Company is a party or by which it is bound
obligating Company to issue, deliver or sell, or cause to be issued, delivered or sold, or to
repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or acquisition of, any
shares of capital stock of Company or obligating Company to grant, extend, accelerate the vesting
of or enter into any such option, warrant, equity security, call, right, commitment or agreement.
There are no registration rights and, to the knowledge of Company, there are no voting trusts,
proxies or other agreements or understandings with respect to any equity security of any class of
Company. There is no stockholder rights plan that will be applicable or triggered by the entry
into this Agreement or the consummation of the Transaction or the other transactions contemplated
hereunder.
2.4 Authority.
(a) Company has all requisite corporate power and authority to enter into 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 authorized by all
necessary corporate action on the part of Company, subject only to the approval of this Agreement
by the Required Company Stockholder Vote as contemplated by Section 5.2(a) and the filing and
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recordation of the Certificate of Merger I and Certificate of Merger II pursuant to Delaware Law and the DLLCA. This Agreement has been duly executed and
delivered by Company and, assuming the due authorization, execution and delivery by Parent, Merger
Subs and the Company Stockholders’ Agent, constitutes the valid and binding obligation of Company,
enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy and
other similar laws and general principles of equity. The execution and delivery of this Agreement
does not, and the performance of this Agreement will not, (i) conflict with or violate the
certificate of incorporation or bylaws of Company, (ii) subject to obtaining the approval of
Company’s stockholders of the Transaction as contemplated in Section 5.2(a) and compliance with the
requirements set forth in Section 2.4(b) below, conflict with or violate any Legal Requirement
applicable to Company or by which its properties is bound or affected, or (iii) result in any
breach of or constitute a default (or an event that with notice or lapse of time or both would
become a default) under, or impair Company’s rights or alter the rights of obligations of any third
party under, or give to others any rights of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or encumbrance on any of the properties or assets of
Company pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Company is a party or by which Company
or its properties are bound or affected except, with respect to clauses (ii) and (iii), for any
non-material conflicts, violations, defaults or other occurrences. Section 2.4 of the Company
Disclosure Schedule lists all material consents, waivers and approvals under any Company Contract
required to be obtained in connection with the consummation of the transactions contemplated
hereby.
(b) No consent, approval, order or authorization of, or registration, declaration or filing
with any Governmental Body is required by or with respect to Company in connection with the
execution and delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing by Parent (x) with the California Commissioner of Corporations
(the “California Commissioner”) of a permit application under Section 25121 of the California
Corporations Code, and a related information statement or other disclosure document (the “Permit
Application”), and the issuance by the California Commissioner of a permit under Section 25121 of
the California Corporations Code (following a hearing upon the fairness of the terms and conditions
of the Transaction, conducted pursuant to Section 25142 of the California Corporations Code) for
the issuance of the Parent Common Stock to be issued in Merger I or (y) if applicable, of a Form
S-4 Registration Statement (the “Registration Statement”) with the SEC in accordance with the
Securities Act, (ii) the filing of the Certificate of Merger I and Certificate of Merger II with
the Secretary of State of the State of Delaware, (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under applicable U.S.
federal and state securities laws and similar laws of any foreign country and (iv) such other
non-material consents, authorizations, filings, approvals and registrations.
2.5 Section 203 of Delaware Law not Applicable. The board of directors of Company has
taken all actions so that the restrictions contained in Section 203 of Delaware Law applicable to a
“business combination” will not apply to the execution, delivery or performance of this Agreement
or to the consummation of the Transaction or the other transactions contemplated by this Agreement.
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2.6 Company Financial Statements; No Undisclosed Liabilities.
(a) The audited consolidated financial statements (including any related notes thereto)
representing the financial results and condition of Company for the years ended December 31, 2007
and 2008 and the unaudited financial statements (including the notes thereto) representing the
financial results and condition of Company for the year ended December 31, 2009 and as of the
quarter ended March 31, 2010 (collectively, the “Company Financials”) (including any related notes
thereto) (a) were prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”) applied on a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto) and (b) fairly present in all material respects the consolidated financial
position of Company as of the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited interim financial
statements are subject to normal and recurring year-end adjustments which were not, or will not be,
material in amount. The balance sheet of Company as of March 31, 2010 is hereinafter referred to
as the “Company Balance Sheet.”
(b) Except as disclosed in the Company Financials, the Company does not have any liabilities
(absolute, accrued, contingent or otherwise) of a nature required to be disclosed on a balance
sheet or in the related notes to the consolidated financial statements prepared in accordance with
GAAP which are, individually or in the aggregate, material to the business, results of operations
or financial condition of Company, except liabilities (i) provided for in the Company Balance
Sheet, (ii) described in Section 2.6 of the Company Disclosure Schedule, or (iii) incurred since
the date of the Company Balance Sheet in the ordinary course of business consistent with past
practices in both type and amount.
2.7 Absence of Certain Changes or Events. Since December 31, 2009 through the date of
this Agreement, Company has conducted its business only in the ordinary course of business
consistent with past practice, and there has not been: (a) any event that has had a Company
Material Adverse Effect, (b) any material change by Company in its accounting methods, principles
or practices, except as required by concurrent changes in GAAP, (c) any revaluation by Company of
any of its assets or writing off of notes or accounts receivable other than in the ordinary course
of business, or (d) any other action, event or occurrence that would have required the consent of
Parent pursuant to Section 4.1 of this Agreement had such action, event or occurrence taken place
after the execution and delivery of this Agreement.
2.8 Taxes.
(a) Each of the material returns, declarations, estimates, information statements or reports
required to be filed with a Governmental Body with respect to Taxes (“Tax Returns”) by or with
respect to Company: (i) has been timely filed on or before the applicable due date (including any
extensions of such due date) and (ii) is true and complete in all material respects. All material
Taxes due and payable by Company (whether or not shown to be due on filed Tax Returns) have been
timely paid, except to the extent such amounts are being contested in good faith by Company or are
properly reserved for in the Company Financials.
(b) All material Taxes that Company has been required to collect or withhold have been duly
collected or withheld and, to the extent required by applicable Legal Requirements when due, have
been duly and timely paid to the proper Governmental Body.
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(c) There has not been any audit, examination or other administrative or court proceeding for
or relating to any liability in respect of Taxes by any Governmental Body in respect of which
Company has received a written notice, and Company has not been notified in writing by any
Governmental Body that any such audit, examination or other administrative or court proceeding
involving Taxes is contemplated or pending. No extension of time with respect to any date on which
a Tax Return was required to be filed by Company is in force (except where such Tax Return was
filed), and no waiver or agreement by or with respect to Company is in force for the extension of
time for the payment, collection or assessment of any Taxes, and no request has been made by
Company in writing for any such extension or waiver (except, in each case, in connection with any
request for extension of time for filing Tax Returns). No claim has been made in writing to
Company by any Governmental Body in a jurisdiction where Company does not file Tax Returns that
Company is subject to taxation by that jurisdiction and, to Company’s knowledge, there are no facts
or basis upon which any such claim could reasonably be made. Each deficiency issued to Company as
a result of any completed audit or examination relating to Taxes by any Governmental Body has been
timely paid or is being contested in good faith and has been adequately reserved for on the books
of Company. No issues relating to any material amount of Taxes were raised by the relevant
Governmental Body in any completed audit or examination that would reasonably be expected to recur
in a later taxable period.
(d) Company has not agreed, or will not be required, to make any adjustment for any period
after the date of this Agreement pursuant to Section 481(a) of the Code by reason of any change in
any accounting method made prior to the date hereof. There is no application pending with any
Governmental Body requesting permission for any such change in any accounting method of Company,
and the Internal Revenue Service has not issued in writing any pending proposal regarding any such
adjustment or change in accounting method.
(e) No closing agreements, private letter rulings, technical advice memoranda or similar
agreements or rulings have been entered into by Company with any taxing authority or issued by any
taxing authority to Company. There are no outstanding rulings of, or request for rulings with, any
Governmental Body addressed to Company that are, or if issued would be, binding on Company.
(f) Company is not a party to any agreement with any third party relating to allocating or
sharing the payment of, or liability for, Taxes or Tax benefits. Company has no liability for the
Taxes of any third party under Treasury Regulation §1.1502-6 (or any similar provision of state,
local or foreign Legal Requirement) as a transferee or successor, by contract or otherwise.
(g) Company is not a member of an affiliated group of corporations within the meaning of
Section 1504 of the Code or of any group that has filed a combined, consolidated or unitary Tax
return under state, local or foreign Tax Legal Requirement.
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(h) Company does not (i) own a single member limited liability company which is treated as a
disregarded entity, and (ii) is not a stockholder of a “controlled foreign corporation” as defined
in Section 957 of the Code.
(i) Company has not participated in a “reportable transaction” within the meaning of Treasury
Regulation Section 1.6011-4(b). Company believes it has substantial authority for or has disclosed
on its respective United States federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of United States federal income Tax within the meaning of
Section 6662 of the Code.
(j) Company is not (and has not been for the five-year period ending at Closing) a “United
States real property holding corporation” as defined in Section 897(c)(2) of the Code and the
applicable Treasury Regulations.
(k) Company does not have a permanent establishment in any country other than the United
States, as defined in any applicable Tax treaty between the United States and such other country.
(l) Company has not distributed to its stockholders or security holders stock or securities of
a controlled corporation, nor has stock or securities of Company been distributed in a transaction
to which Section 355 of the Code applies (i) in the two (2) years prior to the date of this
Agreement or (ii) in a distribution that could otherwise constitute part of a “plan” or “series of
transactions” (within the meaning of Section 355(e) of the Code) that includes the Transaction.
2.9 Intellectual Property.
(a) Part 1 of Section 2.9(a) of the Company Disclosure Schedule lists, as of the date of this
Agreement, all of the Patent Rights and all registered Trademark Rights (or Trademark Rights for
which applications for registration have been filed) owned solely by Company as of the date hereof,
setting forth in each case the jurisdictions in which patents have been issued, patent applications
have been filed, trademarks have been registered and trademark applications have been filed, along
with the respective application, registration or filing number and prosecution status or subsequent
registration activity thereof. Part 2 of Section 2.9(a) of the Company Disclosure Schedule lists,
as of the date of this Agreement, all of the Patent Rights and all registered Trademark Rights (or
Trademark Rights for which applications for registration have been filed) in which Company has any
co-ownership interest, other than those owned solely by Company, setting forth in each case the
jurisdictions in which patents have been issued, patent applications have been filed, trademarks
have been registered and trademark applications have been filed, along with the respective
application, registration or filing number and prosecution status or subsequent registration
activity thereof. Part 3 of Section 2.9(a) of the Company Disclosure Schedule lists, to the
knowledge of Company as of the date of this Agreement, all of the material Patent Rights and all
registered Trademark Rights (or Trademark Rights for which applications for registration have been
filed) in which Company has any right, title or interest (indicating where that right, title or
interest is exclusive to Company), other than those owned solely or co-owned by Company.
(b) Section 2.9(b) of the Company Disclosure Schedule lists, as of the date of this Agreement,
all oral and written contracts, agreements, licenses and other arrangements in effect as of the
date of this Agreement under which any third party has licensed, granted or conveyed to Company any
right, title or interest in or to any Material Company IP Rights other than non-exclusive licenses
to commercially available computer software that has not been modified or customized for Company.
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(c) Section 2.9(c) of the Company Disclosure Schedule lists, as of the date of this Agreement,
all oral and written contracts, agreements, licenses or other arrangements in effect as of the date
of this Agreement under which Company has licensed, granted or conveyed to any third party any
right, title or interest in or to any Material Company IP Rights.
(d) Company owns, co-owns or otherwise possesses a license to all Material Company IP Rights,
free and clear of all liens, pledges, charges, leases, mortgages and other encumbrances, and for
Material Company IP Rights owned or co-owned by Company, also free and clear of exclusive licenses
and non-exclusive licenses not granted in the ordinary course of business. Company owns, co-owns
or has a license to all IP Rights necessary for the operation of the business as currently
conducted. No third party is overtly challenging in writing the right, title or interest of
Company in, to or under the Material Company IP Rights, or the validity, enforceability or claim
construction of any Patent Rights owned or co-owned by Company, and there is no opposition,
cancellation, proceeding, objection or claim pending with regard to any Material Company IP Rights
owned by Company and the Material Company IP Rights owned by Company are not subject to any
outstanding order, judgment, decree or agreement adversely affecting Company’s use thereof or its
rights thereto. To the knowledge of Company, no valid basis exists for any of the foregoing
challenges or claims.
(e) Company’s current policies and procedures to protect and maintain the confidentiality of
the proprietary know-how and trade secrets included in the Company IP Rights are listed on Section
2.9(e) of the Company Disclosure Schedule. Company has taken all reasonable measures to protect
and maintain the Company IP Rights customary for similarly situated companies to take. All current
and former officers and employees of, and consultants and independent contractors to, Company who
have contributed to the creation or development of any Material Company IP Rights have assigned all
such rights to Company, and have executed and delivered to Company an agreement (containing no
exceptions or exclusions from the scope of its coverage) regarding the protection of proprietary
information and the assignment to Company, of any IP Rights arising from services performed for
Company by such persons, the forms of which agreements and any individual material variations
thereof have been made available in a data room for review by Parent or its advisors. To the
knowledge of Company, no current or former officers and employees of, or consultants or independent
contractors to, Company have breached any material term of any such agreements.
(f) The conduct of Company’s business as currently being conducted and, to the knowledge of
Company, as proposed to be conducted does not infringe, constitute contributory infringement,
inducement to infringe, misappropriation or unlawful use of any valid and enforceable IP Rights of
any other Person and Company has received no written notice alleging such infringement,
misappropriation or unlawful use.
(g) To the knowledge of Company, as of the date of this Agreement, no Material Company IP
Rights are being infringed or misappropriated by any third party.
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(h) Neither the execution, delivery or performance of this Agreement by Company nor the
consummation by Company of the transactions contemplated by this Agreement will contravene,
conflict with or result in any limitation on Company’s right, title or interest in or to any
Company IP Rights in any material respect.
(i) No funding, facilities, or personnel of any Governmental Body or any public or private
university, college, or other educational or research institution were used, directly or
indirectly, to develop or create, in whole or in part, any Company IP Rights.
(j) Section 2.9(j) of the Company Disclosure Schedule contains each Company Privacy Policy and
identifies, with respect to each Company Privacy Policy, (i) the period of time during which such
Company Privacy Policy was or has been in effect, (ii) whether the terms of a later Company Privacy
Policy apply to the data or information collected under such Company Privacy Policy, and (iii) if
applicable, the mechanism (such as opt-in, opt-out, or notice only) used to apply a later Company
Privacy Policy to data or information previously collected under such privacy policy.
(k) Part 2.9(k) of the Company Disclosure Schedule identifies and describes each distinct
electronic or other database containing (in whole or in part) Personal Data maintained by or for
Company at any time (the “Company Databases”), the types of Personal Data in each such database,
the means by which the Personal Data was collected, and the security policies that have been
adopted and maintained with respect to each such database. No material breach or violation of any
such security policy has occurred or, to the knowledge of Company, is threatened, and, to the
knowledge of Company, there has been no unauthorized or illegal use of or access to any of the data
or information in any of the Company Databases.
(l) Company has complied in all material respects at all times with all of the Company Privacy
Policies and with all applicable Legal Requirements pertaining to privacy, User Data, or Personal
Data.
(m) Neither the execution, delivery, or performance of this Agreement, nor the consummation of
any of the transactions contemplated by this Agreement, nor Parent’s possession or use of the User
Data or any data or information in the Company Databases, will result in any violation of any
Company Privacy Policy or any Legal Requirement pertaining to privacy, User Data, or Personal Data.
2.10 Compliance; Permits; Restrictions.
(a) Company is currently not, and has not been during the past three (3) years, in conflict
with or in default or violation of (i) any Legal Requirement, order, judgment or decree applicable
to Company or by which Company or its properties is bound or affected, or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Company is a party or by which Company or its properties is
bound or affected, except in each case for any immaterial conflicts, defaults or violations.
No investigation or review by any Governmental Body against Company has occurred during the past
three (3) years, nor has Company received written notice that any such investigation or review is
pending or, to the knowledge of Company, threatened against Company.
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(b) Except for matters addressed in Section 2.10(d), (i) Company holds all permits, licenses,
variances, exemptions, orders, clearances and approvals from governmental authorities which are
material to and necessary for the operation of the business of Company taken as a whole
(collectively, the “Company Permits”); (ii) Company is in material compliance with the terms of the
Company Permits; and (iii) no action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim is pending or, to the knowledge of Company, threatened, which seeks to revoke
or materially impair the rights of the holder of any Company Permit. A true, complete and correct
list of the Company Permits, as of the date of this Agreement, is set forth in Section 2.10(b) of
the Company Disclosure Schedule.
(c) Except as set forth in Section 2.10(c) of the Company Disclosure Schedule, during the past
three (3) years, Company has not received (i) any warning letters, untitled letters, notice of
adverse findings or similar correspondence or (ii) any inspection reports and lists of observations
provided to Company, including Establishment Inspection Reports (“EIRs”) and 483s, relating to
inspections for compliance with the Federal Food, Drug, and Cosmetic Act 21 U.S.C. 301 et seq.
(“FFDCA”).
(d) Section 2.10(d) of the Company Disclosure Schedule sets forth a list, as of the date of
this Agreement, of all recalls, field notifications, field corrections, market withdrawals or
replacements, warnings, safety alerts, medical device reports, or other notice of action relating
to an alleged lack of safety, efficacy, or regulatory compliance of the Company Products (“Safety
Notices”) during the past three (3) years.
(e) Company has been in compliance in all material respects with all applicable provisions of
the FFDCA, the Public Health Service Act and all applicable implementing FDA rules and regulations,
and all other foreign, state, provincial and local laws, rules and regulations relative to the
conduct and operation of Company’s business, the products manufactured or sold by Company
(including the good manufacturing practice requirements under the Quality System Regulation, 21
C.F.R. 820, the medical device reporting requirements under 21 C.F.R. 803 and the electronic
records and electronic signatures regulation at 21 C.F.R. Part 11) except for such instances of
noncompliance as would not have a Company Material Adverse Effect. A true, complete and correct
list of the Company Products, as of the date of this Agreement, is set forth in Section 2.10(e) of
the Company Disclosure Schedule.
(f) None of the employees of Company and, to the knowledge of Company, none of the agents or
independent contractors of Company has been disbarred under 21 U.S.C. 335a, or otherwise
disqualified or suspended from performing services by the FDA or any other Governmental Body or
professional body.
(g) To the knowledge of Company, the tests and preclinical and clinical studies conducted by
and on behalf of Company were and, if still pending, are being, conducted
in all material respects in accordance with applicable FDA laws and regulations, including
Good Laboratory Practices and Good Clinical Practices. To the knowledge of Company, the
descriptions provided to the FDA of the tests and preclinical and clinical studies conducted by or
on behalf of Company are accurate in all material respects and true, correct and complete copies
thereof have been furnished or made available by Company to Parent. To the knowledge of Company,
Company has not received any written notice or correspondence from the FDA or any foreign, state or
local governmental body exercising comparable authority or any Institutional Review Board or
comparable authority requiring the termination, suspension or clinical hold of any material tests
or preclinical or clinical studies conducted by or on behalf of Company.
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(h) All applications, approvals, reports and other submissions to any applicable Governmental
Authority related to Company Products, when submitted to the Governmental Authority were true,
complete and correct in all material respects as of the date of submission (or as subsequently
amended) and any necessary or required updates, changes, corrections or modifications to such
applications, approvals, reports and other submissions have been submitted to the Governmental
Authority.
(i) Company has not received any adverse event report pertaining to the products of Company
that has resulted or is likely, either individually or in the aggregate, to result in a material
claim, demand, complaint or proceeding.
2.11 Litigation. Except as set forth in Section 2.11 of the Company Disclosure
Schedule there is no action, suit, proceeding, claim, arbitration or investigation pending, or as
to which Company has received any notice of assertion, nor, to the knowledge of Company, is there
any threatened action, suit, proceeding, claim for arbitration or investigation against Company.
2.12 Brokers’ and Finders’ Fees. Except as set forth in Section 2.12 of the Company
Disclosure Schedule, Company has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders’ fees or agents’ commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
2.13 Employee Benefit Plans.
(a) Section 2.13(a) of the Company Disclosure Schedule sets forth, as of the date of this
Agreement, a complete and accurate list of each plan, program, policy, practice, contract,
agreement or other arrangement providing for employment, compensation, retirement, pension,
deferred compensation, loans, severance, separation, relocation, repatriation, expatriation, visas,
work permits, termination pay, performance awards, bonus, incentive, stock option, stock purchase,
stock bonus, phantom stock, stock appreciation right, supplemental retirement, profit sharing,
fringe benefits, cafeteria benefits, medical benefits, life insurance, disability benefits,
accident benefits, salary continuation, accrued leave, vacation, sabbatical, sick pay, sick leave,
unemployment benefits or other benefits, whether written or unwritten, including each “voluntary
employees’ beneficiary association” under Section 501(c)(9) of the Code and each “employee benefit
plan” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), in each case, for active, retired or former employees, directors or consultants,
which is currently sponsored, maintained, contributed to, or
required to be contributed to or with respect to which any potential liability is borne by
Company or any trade or business (whether or not incorporated) that is or at any relevant time was
treated as a single employer with Company within the meaning of Section 414 of the Code (an “ERISA
Affiliate”), (collectively, the “Company Employee Plans”). Neither Company nor, to the knowledge
of Company, any other person or entity, has made any commitment to modify, change or terminate any
Company Employee Plan, other than with respect to a modification, change or termination required by
Legal Requirements. There are no loans by Company to any of its officers, employees, contractors
or directors outstanding on the date hereof, except pursuant to loans under any Company Employee
Plan intended to qualify under Section 401(k) of the Code, and there have never been any loans by
Company subject to Regulation U of the Board of Governors of the Federal Reserve System as from
time to time in effect and any successor to all or a portion thereof establishing margin
requirements.
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(b) Company has made available to Parent true and complete copies of each of Company Employee
Plans and related plan documents, including trust documents, group annuity contracts, plan
amendments, insurance policies or contracts, participant agreements, employee booklets,
administrative service agreements, summary plan descriptions, compliance and nondiscrimination
tests (including 401(k) and 401(m) tests) for the last three (3) plan years, standard Consolidated
Omnibus Budget Reconciliation Act of 1985 (“COBRA”) forms and related notices, registration
statements and prospectuses and, to the extent still in its possession, any material employee
communications relating thereto. With respect to each Company Employee Plan that is subject to
ERISA reporting requirements, Company has made available in a data room for review by Parent copies
of the Form 5500 reports filed for the last three (3) plan years. Company has made available in a
data room for review by Parent the most recent Internal Revenue Service determination or opinion
letter issued with respect to each such Company Employee Plan, if any, and to Company’s knowledge,
nothing has occurred since the issuance of each such letter that would reasonably be expected to
cause the loss of the tax-qualified status of any Company Employee Plan subject to Code Section
401(a). Company has made available in a data room for review by Parent all filings made by Company
or any ERISA Affiliate of Company with any Governmental Body with respect to any Company Employee
Plan to the extent relevant to any ongoing obligation or liability of Company, including any
filings under the IRS’ Employee Plans Compliance Resolution System Program or any of its
predecessors or the Department of Labor Delinquent Filer Program.
(c) Each Company Employee Plan is being, and has been, administered materially in accordance
with its terms and in material compliance with the requirements prescribed by any and all Legal
Requirements (including ERISA and the Code). Company and each ERISA Affiliate are not in material
default under or material violation of, and have no knowledge of any material default or material
violation by any other party to, any of Company Employee Plans. Any Company Employee Plan intended
to be qualified under Section 401(a) of the Code has either obtained from the Internal Revenue
Service a favorable determination letter as to its qualified status under the Code, including all
currently effective amendments to the Code, and the corresponding related exemption of its trust
from U.S. federal income taxation under Section 501(a) of the Code, if applicable, or has applied
to the Internal Revenue Service for such favorable determination letter within the remedial
amendment period under
20
Section 401(b) of the Code. None of Company Employee Plans promises or
provides retiree medical or other retiree welfare benefits to any person. Company has not engaged in, or participated in,
any transaction which would be considered a non-exempt “prohibited transaction,” as such term is
defined in Section 406 of ERISA or Section 4975 of the Code, and to Company’s knowledge, no other
third-party fiduciary and/or party-in-interest has engaged in any such “prohibited transaction”
with respect to any Company Employee Plan. Neither Company nor any ERISA Affiliate is subject to
any liability or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any Company Employee Plan. All contributions required to be made by Company or any
ERISA Affiliate to any Company Employee Plan have been timely paid or accrued on Company Balance
Sheet, if required under GAAP. With respect to each Company Employee Plan, no “reportable event”
within the meaning of Section 4043 of ERISA (excluding any such event for which the thirty (30) day
notice requirement has been waived under the regulations to Section 4043 of ERISA) has occurred,
nor has any event described in Section 4062, 4063 or 4041 of ERISA occurred. Each Company Employee
Plan subject to ERISA has prepared in good faith and timely filed all requisite governmental
reports, which were true and correct in all material respects as of the date filed, and has
properly and timely filed and distributed or posted all notices and reports to employees required
to be filed, distributed or posted with respect to each such Company Employee Plan. No suit,
administrative proceeding or action has been brought, or to the knowledge of Company is overtly
threatened in communication with Company, against or with respect to any such Company Employee
Plan, including any audit or inquiry by the Internal Revenue Service or the United States
Department of Labor (other than routine claims for benefits arising under such plans). There has
been no amendment to, or written interpretation or announcement by Company or any ERISA Affiliate
regarding any Company Employee Plan that would materially increase the expense of maintaining such
Company Employee Plan above the level of expense incurred with respect to that plan for the fiscal
year ended December 31, 2009. None of the assets of Company or any ERISA Affiliate is, or may
reasonably be expected to become, the subject of any lien arising under Section 302 of ERISA or
Section 412(n) of the Code. To the knowledge of Company, all contributions and payments to Company
Employee Plans are deductible under Section 162 or 404 of the Code. No assets of any Company
Employee Plan are subject to a material amount of Tax as unrelated business taxable income under
Section 511 of the Code, and no excise Tax could be imposed upon Company under Chapter 43 of the
Code. With respect to Company Employee Plans, no event has occurred and, to the knowledge of
Company, there exists no condition or set of circumstances in connection with which Company would
reasonably expect to be subject to any material liability (other than for liabilities with respect
to routine benefit claims) under the terms of, or with respect to, such Company Employee Plans,
ERISA, the Code or any other applicable Legal Requirement.
(d) Neither Company nor any ERISA Affiliate has ever maintained, established, sponsored,
participated in or contributed to, or is obligated to contribute to, or otherwise incurred any
obligation or liability (including any contingent liability) under, any “multiemployer plan” (as
defined in Section 3(37) of ERISA) or any “pension plan” (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA or Section 412 of the Code. Neither Company nor any ERISA Affiliate
has, as of the date of this Agreement, any actual or potential withdrawal liability (including any
contingent liability) for any complete or partial withdrawal (as defined in Sections 4203 and 4205
of ERISA) from any multiemployer plan.
(e) Neither Company nor any ERISA Affiliate has ever maintained, established, sponsored,
participated in or contributed to any self-insured plan that is governed by ERISA and that provides
benefits to employees (including any such plan pursuant to which a stop-loss policy or contract
applies).
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(f) With respect to each Company Employee Plan, Company is in material compliance with (i) the
applicable health care continuation and notice provisions of COBRA and the regulations promulgated
thereunder or any state Legal Requirement governing health care coverage extension or continuation;
and (ii) the applicable requirements of the Family and Medical Leave Act of 1993 and the
regulations promulgated thereunder; (iii) the applicable requirements of the Health Insurance
Portability and Accountability Act of 1996 (“HIPAA”). Company has no material unsatisfied
obligations to any employees, former employees or qualified beneficiaries pursuant to COBRA, HIPAA
or any state Legal Requirement governing health care coverage extension or continuation.
(g) Each Company Employee Plan which is a nonqualified deferred compensation plan within the
meaning of Section 409A of the Code has been operated and maintained in a good faith effort to
comply in all material respects according to the applicable requirement of Section 409A of the
Code.
(h) The consummation of the Transaction will not (i) entitle any current or former employee or
other service provider of Company or any ERISA Affiliate to severance benefits or any other payment
(including unemployment compensation, golden parachute, bonus or benefits under any Company
Employee Plan), except as expressly provided in Section 2.13(h) of the Company Disclosure Schedule;
(ii) accelerate the time of payment or vesting of any such benefits or increase the amount of
compensation due any such employee or service provider; (iii) result in the forgiveness of any
indebtedness; (iv) result in any obligation to fund future benefits under any Company Employee
Plan; or (v) result in the imposition of any restrictions with respect to the amendment or
termination of any of Company Employee Plans. No benefit payable or that may become payable by
Company pursuant to any Company Employee Plan in connection with the transactions contemplated by
this Agreement or as a result of or arising under this Agreement shall constitute an “excess
parachute payment” (as defined in Section 280G(b)(1) of the Code) subject to the imposition of an
excise Tax under Section 4999 of the Code or the deduction for which would be disallowed by reason
of Section 280G of the Code. Each Company Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time of Merger I in accordance with its terms, without material
liability to Parent, Surviving Corporation or the Surviving Entity other than ordinary
administration expenses typically incurred in a termination event.
(i) Company is not a party to any contract, agreement, plan or arrangement, including but not
limited to the provisions of this Agreement, covering any employee or former employee of Company
that, individually or in the aggregate, would reasonably be expected to give rise to the payment of
any material amount that would be subject to the deductibility limits of Section 404 of the Code.
(j) Company does not sponsor, contribute to or have any liability with respect to any employee
benefit plan, program or arrangement that provides benefits to non-resident aliens with no United
States source income outside of the United States.
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(k) With respect to each Company Employee Plan that is an “employee welfare benefit plan”
within the meaning of Section 3(2) of ERISA, other than any health care reimbursement plan under
Section 125 of the Code, all claims incurred (including claims incurred but not reported) by
employees, former employees and their dependents thereunder for which Company is, or will become,
liable are (i) insured pursuant to a contract of insurance whereby the insurance company bears any
risk of loss with respect to such claims, (ii) covered under a contract with a health maintenance
organization (an “HMO”) pursuant to which the HMO bears the liability for such claims, or (iii)
reflected as a liability or accrued for on Company Financials for the fiscal year ended December
31, 2009.
2.14 Absence of Liens and Encumbrances; Condition of Equipment. Company has good and
valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all
material tangible properties and assets, real, personal and mixed, necessary for use in its
business, free and clear of any liens or encumbrances except as reflected in the Company Financials
and except for liens for taxes not yet due and payable. Each such tangible asset is in a good
state of maintenance and repair, free from material defects and in good operating condition
(subject to normal wear and tear) and is suitable for the purposes for which it presently is used.
2.15 Environmental Matters.
(a) No underground storage tanks and no amount of any substance that has been designated by
any Governmental Body or by applicable federal, state or local Legal Requirement, to be
radioactive, toxic, hazardous or otherwise a danger to health or the environment, including,
without limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations promulgated
pursuant to said laws, (a “Hazardous Material”), but excluding office and janitorial supplies, are
present, as a result of Company, or, to Company’s knowledge, as a result of any actions of any
third party or otherwise, in, on or under any property, including the land and the improvements,
ground water and surface water thereof, that Company has at any time owned, operated, occupied or
leased.
(b) Company has not transported, stored, used, manufactured, disposed of, released or exposed
its employees or others to Hazardous Materials in violation of any Legal Requirement in effect on
or before the date hereof, nor has Company disposed of, transported, sold, or manufactured any
product containing a Hazardous Material (collectively, “Hazardous Material Activities”) in
violation of any Legal Requirement promulgated by any Governmental Body in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
(c) Company currently hold all environmental approvals, permits, licenses, clearances and
consents (the “Company Environmental Permits”) necessary for the conduct of Company’s Hazardous
Material Activities and other businesses of Company as such activities and businesses are currently
being conducted.
(d) No material action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim is pending or, to Company’s knowledge, threatened concerning any Company
Environmental Permit, Hazardous Material or any Hazardous Material Activity of Company. Company is
not aware of any fact or circumstance which could involve Company in any environmental litigation
or impose upon Company any material environmental liability.
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2.16 Labor Matters.
(a) Section 2.16(a) of the Company Disclosure Schedule sets forth, as of the date of this
Agreement, a true, complete and correct list of all employees of Company along with their position,
hire date, 2009 annual compensation and current annual rate of compensation (including any bonuses
to which such employee may be eligible). All employees have entered into nondisclosure and
assignment of inventions agreements with Company, true, complete and correct copies of which have
previously been made available to Parent. To the knowledge of Company, no employee of Company is
in violation of any term of any patent disclosure agreement, non-competition agreement, or any
restrictive covenant (i) to Company, or (ii) to a former employer relating to the right of any such
employee to be employed because of the nature of the business conducted by Company or to the use of
trade secrets or proprietary information of others. No key employee or group of employees has
threatened in writing to terminate employment with Company.
(b) Company is not a party to or bound by any collective bargaining agreement, nor has it
experienced any strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes.
(c) Except as disclosed in Section 2.16(c) of the Company Disclosure Schedule, Company is not
a party to any written or oral: (i) agreement with any current or former employee the benefits of
which are contingent upon, or the terms of which will be materially altered by, the consummation of
the Transaction or other transactions contemplated by this Agreement; (ii) agreement with any
current or former employee of Company providing any term of employment or compensation guarantee
extending for a period longer than one year from the date hereof or for the payment of compensation
in excess of $50,000 per annum (other than compensation pursuant to at-will employment agreements);
or (iii) agreement or plan the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, upon the consummation of the Transaction.
2.17 Agreements, Contracts and Commitments. Except as set forth in Section 2.17 of
the Company Disclosure Schedule, Company is not a party to or bound by:
(a) any bonus, deferred compensation, severance, incentive compensation, pension,
profit-sharing or retirement plans, or any other employee benefit plans or arrangements;
(b) any employment or consulting agreement, contract or commitment with any officer or
director level employee, not terminable by Company on thirty (30) days notice without liability,
except to the extent general principles of wrongful termination may limit Company’s ability to
terminate employees at will;
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(c) any agreement or plan, including, without limitation, any stock option plan, stock
appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement;
(d) any agreement of indemnification or guaranty not entered into in the ordinary course of
business, including any indemnification agreements between Company and any of its officers or
directors;
(e) any agreement, contract or commitment containing any covenant limiting the freedom of
Company to engage in any line of business or compete with any person;
(f) any license, agreement, contract or commitment relating to any Material Company IP Right;
(g) any agreement, contract or commitment relating to capital expenditures and involving
future obligations in excess of $50,000 and not cancelable without penalty;
(h) any agreement, contract or commitment currently in force relating to the disposition or
acquisition of assets not in the ordinary course of business or any ownership interest in any
corporation, partnership, joint venture or other business enterprise;
(i) any mortgages, indentures, loans or credit agreements, security agreements or other
agreements or instruments relating to the borrowing of money or extension of credit;
(j) any joint marketing or development agreement;
(k) any distribution agreement (identifying any that contain exclusivity provisions); or
(l) any other agreement, contract or commitment (excluding real and personal property leases)
which involve an annual payment by Company under any such agreement, contract or commitment of
$50,000 or more in the aggregate and is not cancelable without penalty within thirty (30) days.
Section 2.17 of the Company Disclosure Schedule identifies and provides, as of the date of this
Agreement, a brief description of each proposed agreement, contract or commitment that is currently
being negotiated by Company. Neither Company nor to Company’s knowledge any
other party to a Company Contract, has breached, violated or defaulted under, or received notice
that it has breached, violated or defaulted under, any of the terms or conditions of any of the
agreements, contracts or commitments to which Company is a party or by which it is bound of the
type described in clauses (a) through (k) above (any such agreement, contract or commitment and
each other agreement identified in Section 2.17 of the Company Disclosure Schedule a “Company
Contract”) (including in connection with any Company Product recall) in such manner as would permit
any other party to cancel or terminate any such Company Contract, or would permit any other party
to seek damages. Company has made available to Parent an accurate and complete copy of each
Company Contract. Each Company Contract is a valid, binding and enforceable obligation of Company
and is in full force and effect, except as enforceability may be limited by bankruptcy and other
similar laws and general principles of equity.
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2.18 Permit Application; Information Statement. The information supplied by Company
for inclusion in the Permit Application shall not at the time the Permit Application is filed with
the California Commissioner and at the time the Fairness Hearing is held or for inclusion in the
Registration Statement shall not at the time the Registration Statement is filed with the SEC and
at the time it becomes effective, as applicable, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not false or
misleading. The information supplied by Company for inclusion in the Information Statement to be
sent to the stockholders of Company in connection with the solicitation of approval of this
Agreement, the Transaction and the transactions contemplated hereunder shall not, on the date the
Information Statement is first mailed to Company’s stockholders contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which they are made, not
false or misleading; or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of consents which has become false or
misleading. If at any time prior to the Effective Time of Merger I, any event relating to Company
or any of its Affiliates, officers or directors should be discovered by Company which should be set
forth in an amendment to the Permit Application or Registration Statement, as applicable, or a
supplement to the Information Statement, Company shall promptly inform Parent. Notwithstanding the
foregoing, Company makes no representation or warranty with respect to any information supplied by
Parent which is contained in or omitted from any of the foregoing documents.
2.19 Corporate Approval.
(a) The board of directors of Company has unanimously, as of the date of this Agreement, (i)
approved this Agreement, the Transaction and the transactions contemplated hereunder, (ii)
determined that the Transaction is fair to, and in the best interests of Company and its
stockholders, and (iii) recommended that the stockholders of Company approve this Agreement and the
transactions contemplated hereunder.
(b) The affirmative vote of (i) the holders of a majority of the outstanding shares of Series
F Preferred Stock and (ii) the holders of a majority of the outstanding shares of
Company Capital Stock (voting together as a single class on an as-converted to Company Common
Stock basis), are the only votes of the holders of any class or series of Company’s Capital Stock
necessary to adopt this Agreement and approve the Transaction and the other transactions
contemplated by this Agreement (the “Required Company Stockholder Vote”).
2.20 Books and Records. The minute books of Company made available to Parent are the
only minute books of Company and contain accurate summaries, in all material respects, of all
meetings of directors (or committees thereof) and stockholders or actions by written consent since
the time of incorporation of Company, as the case may be. The books and records of Company
accurately reflect in all material respects the assets, liabilities, business, financial condition
and results of operations of Company and have been maintained in accordance with good business and
bookkeeping practices.
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2.21 Restrictions on Business Activities. Other than as contemplated by this
Agreement, there is no agreement, judgment, injunction, order or decree binding upon or otherwise
applicable to Company which has, or would reasonably be expected to have, the effect of prohibiting
or materially impairing (a) any current business practice of Company; or (b) any acquisition of any
Person or property by Company.
2.22 Real Property Leases. Company has never owned any real property. Section 2.22
of the Company Disclosure Schedule sets forth, as of the date of this Agreement, all real property
leases or subleases to or by Company, including the term of such lease, any extension and expansion
options and the rent payable under it. Company has made available to Parent true, complete and
correct copies of the leases and subleases (as amended to date) listed in Section 2.22 of the
Company Disclosure Schedule. With respect to each lease and sublease listed in Section 2.22 of the
Company Disclosure Schedule,
(a) the lease or sublease is legal, valid, binding, enforceable and in
full force and effect and will continue to be legal, valid, binding, enforceable and in full force
and effect immediately following the Effective Time of Merger II in accordance with the terms
thereof as in effect immediately prior to the Effective Time of Merger I;
(b) Company is not in breach or violation of, or default under, any such lease or sublease,
and no event has occurred, is pending or, to the knowledge of Company, is threatened, which, after
the giving of notice, with lapse of time, or otherwise, would constitute a breach or default by
Company or, to the knowledge of Company, any other party under such lease or sublease;
(c) Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered
any interest in any lease or sublease; and
(d) there are no liens, easements, covenants or other restrictions applicable to the real
property subject to such lease, except for recorded easements, covenants and other restrictions
which do not materially impair the intended use or the occupancy by Company of the property subject
thereto.
2.23 Insurance.
(a) Section 2.23(a) of the Company Disclosure Schedule sets forth each insurance policy
(including fire, theft, casualty, general liability, workers compensation, business interruption,
environmental, product liability and automobile insurance policies and bond and surety
arrangements) (the “Insurance Policies”) to which Company is a party. Such Insurance Policies are
in full force and effect, maintained with reputable companies against loss relating to the
business, operations and properties and such other risks as companies engaged in similar business
as Company would, in accordance with good business practice, customarily insure. All premiums due
and payable under such Insurance Policies have been paid on a timely basis and Company is in
compliance in all material respects with all other terms thereof. True, complete and correct
copies of the Insurance Policies have been made available to Parent.
27
(b) There are no material claims pending as to which coverage has been questioned, denied or
disputed. All material claims thereunder have been filed in a due and timely fashion and Company
has not been refused insurance for which it has applied or had any policy of insurance terminated
(other than at its request), nor has Company received notice from any insurance carrier that: (i)
such insurance will be canceled or that coverage thereunder will be reduced or eliminated; or (ii)
premium costs with respect to such insurance will be increased, other than premium increases in the
ordinary course of business applicable on their terms to all holders of similar policies.
2.24 Certain Business Practices.
(a) Neither Company nor, to the knowledge of Company, any director, officer, employee or agent
of Company has: (i) used any funds for unlawful contributions, gifts, entertainment or other
unlawful payments relating to political activity; (ii) made any unlawful payment to any foreign or
domestic government official or employee or to any foreign or domestic political party or campaign
or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iii) made
any other unlawful payment.
(b) Since January 1, 2010, Company has not participated in activities of the type commercially
referred to as “trade loading” or “channel stuffing” or any other activity that reasonably could be
expected to result in an increase, temporary or otherwise, in the demand for the Company Products
prior to the Closing, including sales of such products (i) with payment terms longer than terms
customarily offered for such products, (ii) at a greater discount from listed prices than
customarily offered for such products, (iii) with shipment terms more favorable than shipment terms
customarily offered for such products, (iv) in a quantity greater than the reasonable resale
requirement of any particular distributor, or (v) in conjunction with other material benefits to a
distributor not previously offered in the ordinary course of business to such distributor.
2.25 Suppliers. Section 2.25(a) of the Company Disclosure Schedule sets forth a true,
complete and correct list, as of the date of this Agreement, of each supplier that is the sole
supplier of any significant product or service to Company. Since the Company Balance Sheet Date,
there has not been: (i) any materially adverse change in the business relationship of
Company with any supplier named in the Company Disclosure Schedule; or (ii) any change in any
material term (including credit terms) of the sales agreements or related agreements with any
supplier named in the Company Disclosure Schedule.
2.26 Government Contracts. Company has not been suspended or debarred from bidding on
contracts with any Governmental Body, and no such suspension or debarment has been initiated or
threatened. The consummation of the Transaction and other transactions contemplated by this
Agreement will not result in any such suspension or debarment of Company or Parent (assuming that
no such suspension or debarment will result (a) solely from the identity of Parent or (b) from any
contract, right, ruling, decree or obligation of or made with respect to Parent, and not of or with
respect to Company).
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2.27 Interested Party Transactions. No event has occurred during the past three (3)
years that would be required to be reported by Company as a Certain Relationship or Related
Transaction pursuant to Item 404 of Regulation S-K, if Company were required to report such
information in periodic reports pursuant to the Exchange Act.
2.28 Disclosure. To the knowledge of Company, (i) none of the representations or
warranties of Company contained herein, (ii) none of the information contained in the Company
Disclosure Schedule and (iii) none of the other information or documents furnished or to be
furnished to Parent by Company or pursuant to the terms of this Agreement is false or misleading in
any material respect or omits to state a fact herein or therein necessary to make the statements
herein or therein, in light of the circumstance in which they were made, not misleading in any
material respect.
2.29 Product Liability; Product Warranties.
(a) No Product Liability Claims have been asserted or, to the knowledge of the Company,
threatened against Company or in respect of any product tested, researched, developed,
manufactured, marketed, distributed, handled, stored, or sold by, on behalf of Company.
(b) Each Company Product has been in conformity in all material respects with all applicable
product specifications, contractual commitments, express and implied warranties and Legal
Requirements, and Company has no material liability (and, to the knowledge of the Company, there is
no reasonable basis for any present or future Legal Proceeding or demand against Company giving
rise to any material liability) for violations thereof or other damages in connection therewith,
including any obligation to recall, replace or repair any such products, subject only to the
reserve set forth in the Company Balance Sheet. No Company Product is subject to any guaranty,
warranty or other indemnity beyond the applicable standard terms and conditions of sale in any
material respect. Company has made available to Parent copies of the standard terms and conditions
of sale for each Company Product (containing applicable guaranty, warranty, and indemnity
provisions).
2.30 Reorganization Matters.
(a) Company currently conducts a “historic business” within the meaning of Treasury
Regulations Section 1.368-1(d), and no assets of Company have been sold, transferred, or otherwise
disposed of that would prevent Parent from continuing the “historic business” of Company or from
using a “significant portion” of Company’s “historic business assets” in a business following the
Transaction, as such terms are used in Treasury Regulations Section 1.368-1(d).
(b) Other than any amounts paid by Company in respect of Dissenting Shares, neither Company
nor any Person related to Company within the meaning of Treasury Regulations Section 1.368-1(e)(3),
(e)(4) and (e)(5) has redeemed, purchased or otherwise acquired, or made any distributions with
respect to, any of Company’s capital stock prior to and in contemplation of the Transaction, or
otherwise as part of a plan of which the Transaction is a part.
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(c) The fair market value of the assets of Company exceeds the sum of (i) the amount of the
liabilities of Company immediately prior to the Transaction and the liabilities, if any, to which
the transferred assets of Company are subject, and (ii) the amount of any money and the fair market
value of any other property (other than Parent Common Stock) received by Company stockholders in
connection with the Transaction. The liabilities of Company and the liabilities, if any, to which
the transferred assets of Company are subject, were incurred by Company in the ordinary course of
its business.
(d) Company is not an investment company within the meaning of Section 368(a)(2)(F)(iii) and
(iv) of the Code.
(e) Company is not under the jurisdiction of a court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
(f) Except as specifically set forth in the Agreement, Company will pay its respective
expenses, if any, incurred in connection with the Transaction, and Company has not agreed to
assume, and will not directly or indirectly assume, any expense or liability, whether fixed or
contingent, of any Company stockholder.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to Company that except as set forth in the Parent
Disclosure Schedule:
3.1 Organization of Parent. Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, has all requisite corporate power and
authority to own, lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction in which the failure to be so qualified
would have a Parent Material Adverse Effect. Parent has made available a true and correct copy of
the certificate of incorporation and bylaws of Parent, each as amended to date, to Company. Parent
owns 100% of the issued and outstanding shares of capital stock or interests, as applicable, of the
Merger Subs. Neither Merger Sub has ever conducted any business activities or operations and
neither Merger Sub has ever owned any property or become party to or bound by any contract or
agreement other than this Agreement. Merger Sub I is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and Merger Sub II is a
limited liability company duly organized, validly existing and in good standing under the laws of
the State of Delaware. Section 3.1 of the Parent Disclosure Schedule sets forth a complete and
correct list, as of the date of this Agreement, of each Subsidiary of Parent.
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3.2 Capital Structure. The authorized capital stock of Parent as of the date of this
Agreement consists of 65,000,000 shares of Common Stock, par value $0.01 per share, of which
33,106,523 shares are issued and outstanding as of the close of business on the day prior to the
date hereof and 20,000,000 shares of Preferred Stock, par value $0.01 per share, of which no shares
are issued and outstanding as of the close of business on the day prior to the date hereof. No
shares of capital stock are held in Parent’s treasury. All outstanding shares of Parent Common
Stock are duly authorized, validly issued, fully paid and non-assessable and are not subject to
preemptive rights created by statute, the certificate of incorporation or bylaws of Parent or any
agreement or document to which Parent is a party or by which it is bound, and were issued in
compliance with all applicable federal and state securities Legal Requirements. As of the date
hereof, Parent had reserved an aggregate of 8,973,970 shares of Parent Common Stock, net of
exercises, for issuance to employees, consultants and non-employee directors pursuant to the Parent
Option Plans, under which options were outstanding for an aggregate of 1,177,286 shares, and
2,073,063 shares of Parent Common Stock, net of exercises, were reserved for issuance to holders of
warrants to purchase Parent Common Stock upon their exercise. All shares of Parent Common Stock
subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, would be duly authorized, validly issued, fully
paid and non-assessable. The shares of Parent Common Stock issuable as Series F Merger
Consideration, upon issuance on the terms and conditions contemplated in this Agreement, would be
duly authorized, validly issued, fully paid and non-assessable. Except as set forth herein and in
Section 3.2 of the Parent Disclosure Schedule, there are no options, warrants, equity securities,
calls, rights (including preemptive rights), commitments or agreements of any character to which
Parent or any of its Subsidiaries is a party or by which it is bound obligating Parent or any of
its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, or to
repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or acquisition of, any
shares of capital stock of Parent or any of its Subsidiaries or obligating Parent or any of its
Subsidiaries to grant, extend, accelerate the vesting of or enter into any such option, warrant,
equity security, call, right, commitment or agreement.
3.3 Obligations with Respect to Capital Stock. Except as set forth in the Parent SEC
Documents, there are no registration rights and, to the knowledge of Parent, there are no voting
trusts, proxies or other agreements or understandings with respect to any equity security of any
class of Parent or with respect to any equity security of any class of any of its Subsidiaries.
There is no stockholder rights plan that will be applicable or triggered by the entry into this
Agreement or the consummation of the Transaction or the other transactions contemplated
hereunder.
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3.4 Authority.
(a) Parent has all requisite corporate power and authority to enter into 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 authorized by all necessary
corporate and limited liability company action, as applicable, on the part of Parent and Merger
Subs, subject only to the filing and recordation of the Certificate of Merger I and Certificate of
Merger II pursuant to Delaware Law and the DLLCA. This Agreement has been duly executed and
delivered by Parent and the Merger Subs and, assuming the due authorization, execution and delivery
of this Agreement by Company and the Company Stockholders’ Agent, this Agreement constitutes the
valid and binding obligation of Parent and the Merger Subs, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy and other similar laws and general
principles of equity. The execution and delivery of this Agreement by Parent and the Merger Subs
does not, and the performance of this Agreement by Parent or the Merger Subs will not, (i) conflict
with or violate the certificate of incorporation, certificate of formation, bylaws or operating
agreement of Parent or the Merger Subs, as applicable, (ii) subject to compliance with the
requirements set forth in Section 3.4(b) below, conflict with or violate any Legal Requirement
applicable to Parent or the Merger Subs or by which their respective properties are bound or
affected, or (iii) result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or impair Parent’s rights or alter the rights
or obligations of any third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the
properties or assets of Parent or the Merger Subs pursuant to, any Parent Contract, except, with
respect to clauses (ii) and (iii), for any non-material conflicts, violations, defaults or other
occurrences. Section 3.4 of the Parent Disclosure Schedule lists all material consents, waivers
and approvals under any Parent Contract required to be obtained in connection with the consummation
of the transactions contemplated hereby.
(b) No consent, approval, order or authorization of, or registration, declaration or filing
with any Governmental Body is required by or with respect to Parent in connection with the
execution and delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing with the SEC of any outstanding periodic reports due under the
Exchange Act, (ii) the filing by Parent with the California Commissioner of a Permit Application,
and the issuance by the California Commissioner of a permit under Section 25121 of the California
Corporations Code (following a hearing upon the fairness of the terms and conditions of the
Transaction, conducted pursuant to Section 25142 of the California Corporations Code) for the
issuance of the Parent Common Stock to be issued in Merger I, (iii) the filing of the Certificate
of Merger I and Certificate of Merger II with the Secretary of State of the State of Delaware, (iv)
such consents, approvals, orders, authorizations, registrations, declarations and filings as may be
required under applicable U.S. federal and state securities laws and similar laws of any foreign
country and (v) such other non-material consents, authorizations, filings, approvals and
registrations.
3.5 Section 203 of Delaware Law not Applicable. The board of directors of Parent has
taken all actions so that the restrictions contained in Section 203 of Delaware Law applicable to a
“business combination” will not apply to the execution, delivery or performance of this Agreement
or to the consummation of the Transaction or the other transactions contemplated by this Agreement.
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3.6 SEC Filings; Parent Financial Statements; No Undisclosed Liabilities.
(a) Parent has made available to Company accurate and complete copies of the Parent SEC
Documents, other than such documents that can be obtained on the SEC’s website at xxx.xxx.xxx. As
of the time it was filed with the SEC (or, if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing): (i) each of the Parent SEC Documents complied
in all material respects with the applicable requirements of the Securities Act or Exchange Act, as
applicable, and (ii) none of the Parent SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they were made, not
misleading. The certifications and statements required by (A) Rule 13a-14 under the Exchange Act
and (B) 18 U.S.C. §1350 (Section 906 of the Xxxxxxxx-Xxxxx Act) relating to the Parent SEC
Documents (collectively, the “Certifications”) are accurate and complete and comply as to form and
content with all applicable Legal Requirements. As used in this Section 3.6, the term “file” and
variations thereof shall be broadly construed to include any manner in which a document or
information is furnished, supplied or otherwise made available to the SEC.
(b) Parent maintains disclosure controls and procedures that satisfy the requirements of Rule
13a-15 under the Exchange Act. Such disclosure controls and procedures are designed to ensure that
all material information concerning Parent is made known on a timely basis to the individuals
responsible for the preparation of Parent’s filings with the SEC and other public disclosure
documents.
(c) The financial statements (including any related notes) contained or incorporated by
reference in the Parent SEC Documents (the “Parent Financials”): (i) complied as to form in all
material respects with the published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with GAAP (except as may be indicated in the notes to such financial
statements or, in the case of unaudited financial statements, as permitted by the SEC, and except
that the unaudited financial statements may not contain footnotes and are subject to normal and
recurring year-end adjustments that are not reasonably expected to be material in amount) applied
on a consistent basis unless otherwise noted therein throughout the periods indicated; and (iii)
fairly present in all material respects the consolidated financial position of Parent as of the
respective dates thereof and the consolidated results of operations and cash flows of Parent for
the periods covered thereby.
(d) Except as disclosed in the Parent Financials, neither Parent nor any of its Subsidiaries
has any liabilities (absolute, accrued, contingent or otherwise) of a nature required to be
disclosed on a balance sheet or in the related notes to the consolidated financial statements
prepared in accordance with GAAP which are, individually or in the aggregate, material to the
business, results of operations or financial condition of Parent and its Subsidiaries taken as
a whole, except liabilities (i) provided for in the Parent Financials, (ii) described in Section
3.6 of the Parent Disclosure Statement, or (iii) incurred since December 31, 2009 in the ordinary
course of business consistent with past practices in both type and amount.
3.7 Absence of Certain Changes or Events. Since December 31, 2009 through the date of
this Agreement, there has not been: (a) any event that has had a Parent Material Adverse Effect,
(b) any material change by Parent in its accounting methods, principles or practices, except as
required by concurrent changes in GAAP, (c) any revaluation by Parent of any of its assets or
writing off of notes or accounts receivable, or (d) any other action, event or occurrence that
would have required the consent of Company pursuant to Section 4.2 of this Agreement had such
action, event or occurrence taken place after the execution and delivery of this Agreement.
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3.8 Taxes.
(a) Each of the Tax Returns by or with respect to Parent: (i) has been timely filed on or
before the applicable due date (including any extensions of such due date) and (ii) is true and
complete in all material respects. All material Taxes due and payable by Parent (whether or not
shown to be due on filed Tax Returns) have been timely paid, except to the extent such amounts are
being contested in good faith by Parent or are properly reserved for in the Parent Financials.
(b) All material Taxes that Parent has been required to collect or withhold have been duly
collected or withheld and, to the extent required by applicable Legal Requirements when due, have
been duly and timely paid to the proper Governmental Body.
(c) There has not been any audit, examination or other administrative or court proceeding for
or relating to any liability in respect of Taxes by any Governmental Body in respect of which
Parent has received a written notice, and Parent has not been notified in writing by any
Governmental Body that any such audit, examination or other administrative or court proceeding
involving Taxes is contemplated or pending. No extension of time with respect to any date on which
a Tax Return was required to be filed by Parent is in force (except where such Tax Return was
filed), and no waiver or agreement by or with respect to Parent is in force for the extension of
time for the payment, collection or assessment of any Taxes, and no request has been made by Parent
in writing for any such extension or waiver (except, in each case, in connection with any request
for extension of time for filing Tax Returns). No claim has been made in writing to Parent by any
Governmental Body in a jurisdiction where Parent does not file Tax Returns that Parent is subject
to taxation by that jurisdiction and, to Parent’s knowledge, there are no facts or basis upon which
any such claim could reasonably be made. Each deficiency issued to Parent as a result of any
completed audit or examination relating to Taxes by any Governmental Body has been timely paid or
is being contested in good faith and has been adequately reserved for on the books of Parent. No
issues relating to any material amount of Taxes were raised by the relevant Governmental Body in
any completed audit or examination that would reasonably be expected to recur in a later taxable
period.
(d) Parent has not agreed, or will not be required, to make any adjustment for any period
after the date of this Agreement pursuant to Section 481(a) of the Code by reason of any change in
any accounting method made prior to the date hereof. There is no application pending with any
Governmental Body requesting permission for any such change in any accounting method of Parent, and
the Internal Revenue Service has not issued in writing any pending proposal regarding any such
adjustment or change in accounting method.
(e) No closing agreements, private letter rulings, technical advice memoranda or similar
agreements or rulings have been entered into by Parent with any taxing authority or issued by any
taxing authority to Parent. There are no outstanding rulings of, or request for rulings with, any
Governmental Body addressed to Parent that are, or if issued would be, binding on Parent.
(f) Parent is not a party to any agreement with any third party relating to allocating or
sharing the payment of, or liability for, Taxes or Tax benefits. Parent has no liability for the
Taxes of any third party under Treasury Regulation §1.1502-6 (or any similar provision of state,
local or foreign Legal Requirement) as a transferee or successor, by contract or otherwise.
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(g) Parent does not (i) own a single member limited liability company which is treated as a
disregarded entity other than Merger Sub II, and (ii) is not a stockholder of a “controlled foreign
corporation” as defined in Section 957 of the Code.
(h) Parent has not participated in a “reportable transaction” within the meaning of Treasury
Regulation Section 1.6011-4(b). Parent believes it has substantial authority for or has disclosed
on its respective United States federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of United States federal income Tax within the meaning of
Section 6662 of the Code.
(i) Parent is not (and has not been for the five-year period ending at Closing) a “United
States real property holding corporation” as defined in Section 897(c)(2) of the Code and the
applicable Treasury Regulations.
(j) Parent does not have a permanent establishment in any country other than the United
States, as defined in any applicable Tax treaty between the United States and such other country.
3.9 Intellectual Property.
(a) Section 3.9(a) of the Parent Disclosure Schedule lists, as of the date of this Agreement,
all oral and written contracts, agreements, licenses and other arrangements in effect as of the
date of this Agreement under which any third party has licensed, granted or conveyed to Parent any
right, title or interest in or to any Material Parent IP Rights other than non-exclusive licenses
to commercially available computer software that has not been modified or customized for Parent.
(b) Section 3.9(b) of the Parent Disclosure Schedule lists, as of the date of this Agreement,
all oral and written contracts, agreements, licenses or other arrangements in effect as of the date
of this Agreement under which Parent has licensed, granted or conveyed to any third party any
right, title or interest in or to any Material Parent IP Rights other than non-exclusive licenses
to commercially available computer software that has not been modified or customized for Parent.
(c) The conduct of Parent’s business as currently being conducted does not infringe,
constitute contributory infringement, inducement to infringe, misappropriation or unlawful use of
any valid and enforceable IP Rights of any other Person and Parent has received no written notice
alleging such infringement, misappropriation or unlawful use.
(d) To the knowledge of Parent, as of the date of this Agreement, no Material Parent IP Rights
are being infringed or misappropriated by any third party.
(e) Neither the execution, delivery or performance of this Agreement by Parent nor the
consummation by Parent of the transactions contemplated by this Agreement will contravene, conflict
with or result in any limitation on Parent’s right, title or interest in or to any Parent IP Rights
in any material respect.
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3.10 Compliance; Permits; Restrictions.
(a) Parent is currently not, and has not been during the past three (3) years, in conflict
with, or in default or violation of (i) any Legal Requirement, order, judgment or decree applicable
to Parent or any of its Subsidiaries or by which its or any of their respective properties is bound
or affected, or (ii) any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or any of its Subsidiaries is a
party or by which Parent or any of its Subsidiaries or its or any of their respective properties is
bound or affected, except in each case for any immaterial conflicts, defaults or violations. No
investigation or review by any Governmental Body against Parent has occurred during the past three
(3) years, nor has Parent received any written notice that any such investigation or review is
pending or, to the knowledge of Parent, threatened against Parent or its Subsidiaries.
(b) Parent holds all permits, licenses, variances, exemptions, orders, clearances and
approvals from governmental authorities which are material to and necessary for the operation of
the business of Parent and its Subsidiaries taken as a whole (collectively, the “Parent Permits”).
Parent and its Subsidiaries are in material compliance with the terms of the Parent Permits. No
action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is
pending or, to the knowledge of Parent, threatened, which seeks to revoke or materially impair the
rights of the holder of any Parent Permit. A true, complete and correct list of the Parent
Permits, as of the date of this Agreement, is set forth in Section 3.10(b) of the Parent Disclosure
Schedule.
3.11 Litigation. Except as set forth in Section 3.11 of the Parent Disclosure
Schedule or disclosed in the Parent SEC Documents, there is no action, suit, proceeding, claim,
arbitration or investigation pending, or as to which Parent has received any notice of assertion, nor, to
the knowledge of Parent, is there any threatened action, suit, proceeding, claim for arbitration or
investigation against Parent.
3.12 Brokers’ and Finders’ Fees. Except as set forth in Section 3.12 of the Parent
Disclosure Schedule, Parent has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders’ fees or agents’ commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
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3.13 Employee Benefit Plans.
(a) Section 3.13(a) of the Parent Disclosure Schedule sets forth, as of the date of this
Agreement, a complete and accurate list of each plan, program, policy, practice, contract,
agreement or other arrangement providing for employment, compensation, retirement, pension,
deferred compensation, loans, severance, separation, relocation, repatriation, expatriation, visas,
work permits, termination pay, performance awards, bonus, incentive, stock option, stock purchase,
stock bonus, phantom stock, stock appreciation right, supplemental retirement, profit sharing,
fringe benefits, cafeteria benefits, medical benefits, life insurance, disability benefits,
accident benefits, salary continuation, accrued leave, vacation, sabbatical, sick pay, sick leave,
unemployment benefits or other benefits, whether written or unwritten, including each “voluntary
employees’ beneficiary association” under Section 501(c)(9) of the Code and each “employee benefit
plan” within the meaning of Section 3(3) of ERISA, in each case, for active, retired or former
employees, directors or consultants, which is currently sponsored, maintained, contributed to, or
required to be contributed to or with respect to which any potential liability is borne by Parent
or any ERISA Affiliate (collectively, the “Parent Employee Plans”). Neither Parent nor, to the
knowledge of Parent, any other person or entity, has made any commitment to modify, change or
terminate any Parent Employee Plan, other than with respect to a modification, change or
termination required by Legal Requirements. There are no loans by Parent to any of its officers,
employees, contractors or directors outstanding on the date hereof, except pursuant to loans under
any Parent Employee Plan intended to qualify under Section 401(k) of the Code, and there have never
been any loans by Parent subject to Regulation U of the Board of Governors of the Federal Reserve
System as from time to time in effect and any successor to all or a portion thereof establishing
margin requirements.
(b) Parent has made available to Company true and complete copies of each of Parent Employee
Plans and related plan documents, including trust documents, group annuity contracts, plan
amendments, insurance policies or contracts, participant agreements, employee booklets,
administrative service agreements, summary plan descriptions, compliance and nondiscrimination
tests (including 401(k) and 401(m) tests) for the last three (3) plan years, standard COBRA forms
and related notices, registration statements and prospectuses and, to the extent still in its
possession, any material employee communications relating thereto. With respect to each Parent
Employee Plan that is subject to ERISA reporting requirements, Parent has made available in a data
room for review by Company copies of the Form 5500 reports filed for the last three (3) plan years.
Parent has made available in a data room for review by Company the most recent Internal Revenue
Service determination or opinion letter issued with respect to each such Parent Employee Plan, if
any, and to Parent’s knowledge, nothing has occurred since
the issuance of each such letter that would reasonably be expected to cause the loss of the
tax-qualified status of any Parent Employee Plan subject to Code Section 401(a). Parent has made
available in a data room for review by Company all filings made by Parent or any ERISA Affiliate of
Parent with any Governmental Body with respect to any Parent Employee Plan to the extent relevant
to any ongoing obligation or liability of Parent, including any filings under the IRS’ Employee
Plans Compliance Resolution System Program or any of its predecessors or the Department of Labor
Delinquent Filer Program.
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(c) Each Parent Employee Plan is being, and has been, administered materially in accordance
with its terms and in material compliance with the requirements prescribed by any and all Legal
Requirements (including ERISA and the Code). Parent and each ERISA Affiliate are not in material
default under or material violation of, and have no knowledge of any material default or material
violation by any other party to, any of Parent Employee Plans. Any Parent Employee Plan intended
to be qualified under Section 401(a) of the Code has either obtained from the Internal Revenue
Service a favorable determination letter as to its qualified status under the Code, including all
currently effective amendments to the Code, and the corresponding related exemption of its trust
from U.S. federal income taxation under Section 501(a) of the Code, if applicable, or has applied
to the Internal Revenue Service for such favorable determination letter within the remedial
amendment period under Section 401(b) of the Code. None of Parent Employee Plans promises or
provides retiree medical or other retiree welfare benefits to any person. Parent has not engaged
in, or participated in, any transaction which would be considered a non-exempt “prohibited
transaction,” as such term is defined in Section 406 of ERISA or Section 4975 of the Code, and to
Parent’s knowledge, no other third-party fiduciary and/or party-in-interest has engaged in any such
“prohibited transaction” with respect to any Parent Employee Plan. Neither Parent nor any ERISA
Affiliate is subject to any liability or penalty under Sections 4976 through 4980 of the Code or
Title I of ERISA with respect to any Parent Employee Plan. All contributions required to be made
by Parent or any ERISA Affiliate to any Parent Employee Plan have been timely paid or accrued on
Parent Balance Sheet, if required under GAAP. With respect to each Parent Employee Plan, no
“reportable event” within the meaning of Section 4043 of ERISA (excluding any such event for which
the thirty (30) day notice requirement has been waived under the regulations to Section 4043 of
ERISA) has occurred, nor has any event described in Section 4062, 4063 or 4041 for ERISA occurred.
Each Parent Employee Plan subject to ERISA has prepared in good faith and timely filed all
requisite governmental reports, which were true and correct in all material respects as of the date
filed, and has properly and timely filed and distributed or posted all notices and reports to
employees required to be filed, distributed or posted with respect to each such Parent Employee
Plan. No suit, administrative proceeding or action has been brought, or to the knowledge of Parent
is overtly threatened in communication with Parent, against or with respect to any such Parent
Employee Plan, including any audit or inquiry by the Internal Revenue Service or the United States
Department of Labor (other than routine claims for benefits arising under such plans). There has
been no amendment to, or written interpretation or announcement by Parent or any ERISA Affiliate
regarding any Parent Employee Plan that would materially increase the expense of maintaining such
Parent Employee Plan above the level of expense incurred with respect to that plan for the fiscal
year ended December 31, 2009. None of the assets of Parent or any ERISA Affiliate is, or may
reasonably be expected to become, the subject
of any lien arising under Section 302 of ERISA or Section 412(n) of the Code. To the
knowledge of Parent, all contributions and payments to Parent Employee Plans are deductible under
Section 162 or 404 of the Code. No assets of any Parent Employee Plan are subject to a material
amount of Tax as unrelated business taxable income under Section 511 of the Code, and no excise Tax
could be imposed upon Parent under Chapter 43 of the Code. With respect to Parent Employee Plans,
no event has occurred and, to the knowledge of Parent, there exists no condition or set of
circumstances in connection with which Parent would reasonably expect to be subject to any material
liability (other than for liabilities with respect to routine benefit claims) under the terms of,
or with respect to, such Parent Employee Plans, ERISA, the Code or any other applicable Legal
Requirement.
(d) Neither Parent nor any ERISA Affiliate has ever maintained, established, sponsored,
participated in or contributed to, or is obligated to contribute to, or otherwise incurred any
obligation or liability (including any contingent liability) under, any “multiemployer plan” (as
defined in Section 3(37) of ERISA) or any “pension plan” (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA or Section 412 of the Code. Neither Parent nor any ERISA Affiliate
has, as of the date of this Agreement, any actual or potential withdrawal liability (including any
contingent liability) for any complete or partial withdrawal (as defined in Sections 4203 and 4205
of ERISA) from any multiemployer plan.
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(e) Neither Parent nor any ERISA Affiliate has ever maintained, established, sponsored,
participated in or contributed to any self-insured plan that is governed by ERISA and that provides
benefits to employees (including any such plan pursuant to which a stop-loss policy or contract
applies).
(f) With respect to each Parent Employee Plan, Parent is in material compliance with (i) the
applicable health care continuation and notice provisions of COBRA and the regulations promulgated
thereunder or any state Legal Requirement governing health care coverage extension or continuation;
and (ii) the applicable requirements of the Family and Medical Leave Act of 1993 and the
regulations promulgated thereunder; (iii) the applicable requirements of HIPAA. Parent has no
material unsatisfied obligations to any employees, former employees or qualified beneficiaries
pursuant to COBRA, HIPAA or any state Legal Requirement governing health care coverage extension or
continuation.
(g) Each Parent Employee Plan which is a nonqualified deferred compensation plan within the
meaning of Section 409A of the Code has been operated and maintained in a good faith effort to
comply in all material respects according to the applicable requirement of Section 409A of the
Code.
(h) The consummation of the Transaction will not (i) entitle any current or former employee or
other service provider of Parent or any ERISA Affiliate to severance benefits or any other payment
(including unemployment compensation, golden parachute, bonus or benefits under any Parent Employee
Plan), except as expressly provided in Section 3.13(h) of the Parent Disclosure Schedule; (ii)
accelerate the time of payment or vesting of any such benefits or increase the amount of
compensation due any such employee or service provider; (iii) result in the forgiveness of any
indebtedness; (iv) result in any obligation to fund future benefits under any
Parent Employee Plan; or (v) result in the imposition of any restrictions with respect to the
amendment or termination of any of Parent Employee Plans. No benefit payable or that may become
payable by Parent pursuant to any Parent Employee Plan in connection with the transactions
contemplated by this Agreement or as a result of or arising under this Agreement shall constitute
an “excess parachute payment” (as defined in Section 280G(b)(1) of the Code) subject to the
imposition of an excise Tax under Section 4999 of the Code or the deduction for which would be
disallowed by reason of Section 280G of the Code. Each Parent Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time of Merger I in accordance with its
terms, without material liability to Company, the Surviving Corporation or the Surviving Entity
other than ordinary administration expenses typically incurred in a termination event.
(i) Parent is not a party to any contract, agreement, plan or arrangement, including but not
limited to the provisions of this Agreement, covering any employee or former employee of Parent
that, individually or in the aggregate, would reasonably be expected to give rise to the payment of
any material amount that would be subject to the deductibility limits of Section 404 of the Code.
39
(j) Parent does not sponsor, contribute to or have any liability with respect to any employee
benefit plan, program or arrangement that provides benefits to non-resident aliens with no United
States source income outside of the United States.
(k) With respect to each Parent Employee Plan that is an “employee welfare benefit plan”
within the meaning of Section 3(2) of ERISA, other than any health care reimbursement plan under
Section 125 of the Code, all claims incurred (including claims incurred but not reported) by
employees, former employees and their dependents thereunder for which Parent is, or will become,
liable are (i) insured pursuant to a contract of insurance whereby the insurance Parent bears any
risk of loss with respect to such claims, (ii) covered under a contract with an HMO pursuant to
which the HMO bears the liability for such claims, or (iii) reflected as a liability or accrued for
on Parent Financials for the fiscal year ended December 31, 2009.
3.14 Absence of Liens and Encumbrances; Condition of Equipment. Parent and each of
its Subsidiaries has good and valid title to, or, in the case of leased properties and assets,
valid leasehold interests in, all material tangible properties and assets, real, personal and
mixed, necessary for use in its business, free and clear of any liens or encumbrances except as
reflected in the Parent Financials and except for liens for taxes not yet due and payable. Each
such tangible asset is in a good state of maintenance and repair, free from material defects and in
good operating condition (subject to normal wear and tear) and is suitable for the purposes for
which it presently is used.
3.15 Environmental Matters.
(a) No Hazardous Materials are present, as a result of Parent or any of its Subsidiaries, or,
to Parent’s knowledge, as a result of any actions of any third party or otherwise, in, on or under
any property, including the land and the improvements, ground water and surface
water thereof, that Parent or any of its Subsidiaries has at any time owned, operated,
occupied or leased.
(b) Neither Parent nor any of its Subsidiaries has conducted Hazardous Material Activities in
violation of any Legal Requirement promulgated by any Governmental Body in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
(c) Parent and its Subsidiaries currently hold all environmental approvals, permits, licenses,
clearances and consents (the “Parent Environmental Permits”) necessary for the conduct of Parent’s
and its Subsidiaries’ Hazardous Material Activities and other businesses of Parent and its
Subsidiaries as such activities and businesses are currently being conducted.
(d) No material action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim is pending or, to Parent’s knowledge, threatened concerning any Parent
Environmental Permits, Hazardous Material or any Hazardous Material Activity of Parent or any of
its Subsidiaries. Parent is not aware of any fact or circumstance which could involve Parent or
any of its Subsidiaries in any environmental litigation or impose upon Parent or any of its
Subsidiaries any material environmental liability.
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3.16 Labor Matters.
(a) Section 3.16(a) of the Parent Disclosure Schedule sets forth a true, complete and correct
list, as of the date of this Agreement, of all employees of Parent and its Subsidiaries along with
their position, hire date, 2009 annual compensation and current annual rate of compensation
(including any bonuses to which such employee may be eligible). All employees have entered into
nondisclosure and assignment of inventions agreements with Parent, true, complete and correct
copies of which have previously been made available to Company. To the knowledge of Parent, no
employee of Parent is in violation of any term of any patent disclosure agreement, non-competition
agreement, or any restrictive covenant (i) to Parent, or (ii) to a former employer relating to the
right of any such employee to be employed because of the nature of the business conducted by Parent
or to the use of trade secrets or proprietary information of others. No key employee or group of
employees has threatened in writing to terminate employment with Parent.
(b) Parent is not a party to or bound by any collective bargaining agreement, nor has it
experienced any strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes.
(c) Except as disclosed in Section 3.16(c) of the Parent Disclosure Schedule, Parent is not a
party to any written or oral: (i) agreement with any current or former employee the benefits of
which are contingent upon, or the terms of which will be materially altered by, the consummation of
the Transaction or other transactions contemplated by this Agreement; (ii) agreement with any
current or former employee of Parent providing any term of employment or compensation guarantee
extending for a period longer than one year from the date hereof or for the payment of compensation
in excess of $50,000 per annum (other than compensation pursuant
to at-will employment agreements); or (iii) agreement or plan the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, upon the consummation of
the Transaction.
3.17 Agreements, Contracts and Commitments. Except as set forth in the most recent
exhibit list on Parent’s Form 10-K for the year ended December 31, 2009 or Section 3.17 of the
Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries is a party to or is bound
by:
(a) any bonus, deferred compensation, severance, incentive compensation, pension,
profit-sharing or retirement plans, or any other employee benefit plans or arrangements;
(b) any employment or consulting agreement, contract or commitment with any officer or
director level employee, not terminable by Parent or any of its Subsidiaries on thirty (30) days
notice without liability, except to the extent general principles of wrongful termination may limit
Parent’s or any of its Subsidiaries’ ability to terminate employees at will;
(c) any agreement or plan, including, without limitation, any stock option plan, stock
appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement;
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(d) any agreement of indemnification or guaranty not entered into in the ordinary course of
business, including any indemnification agreements between Parent or any of its Subsidiaries and
any of its officers or directors;
(e) any agreement, contract or commitment containing any covenant limiting the freedom of
Parent or any of its Subsidiaries to engage in any line of business or compete with any person;
(f) any license, agreement, contract or commitment relating to any Material Parent IP Right;
(g) any agreement, contract or commitment relating to capital expenditures and involving
future obligations in excess of $50,000 and not cancelable without penalty;
(h) any agreement, contract or commitment currently in force relating to the disposition or
acquisition of assets not in the ordinary course of business or any ownership interest in any
corporation, partnership, joint venture or other business enterprise;
(i) any mortgages, indentures, loans or credit agreements, security agreements or other
agreements or instruments relating to the borrowing of money or extension of credit;
(j) any joint marketing or development agreement;
(k) any distribution agreement (identifying any that contain exclusivity provisions); or
(l) any other agreement, contract or commitment (excluding real and personal property leases)
which involve an annual payment by Parent or any of its Subsidiaries under any such agreement,
contract or commitment of $50,000 or more in the aggregate and is not cancelable without penalty
within thirty (30) days.
Neither Parent nor any of its Subsidiaries, nor to Parent’s knowledge any other party to a Parent
Contract, has breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any of the agreements, contracts or
commitments to which Parent is a party or by which it is bound of the type described in clauses (a)
through (k) above (any such agreement, contract or commitment, a “Parent Contract”) in such manner
as would permit any other party to cancel or terminate any such Parent Contract, or would permit
any other party to seek damages. Parent has made available to Company an accurate and complete
copy of each Parent Contract (other than such agreements that can be obtained on the SEC’s website
at xxx.xxx.xxx). Each Parent Contract is a valid, binding and enforceable obligation of Parent or
its Subsidiary and is in full force and effect, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity.
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3.18 Permit Application; Registration Statement; Information Statement. The
information supplied by Parent for inclusion in the Permit Application shall not at the time the
Permit Application is filed with the California Commissioner and at the time the Fairness Hearing
is held or for inclusion in the Registration Statement shall not at the time the Registration
Statement is filed with the SEC and at the time it becomes effective, as applicable, contain any
untrue statement of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the circumstances under
which they are made, not false or misleading. The information supplied by Parent for inclusion in
the Information Statement to be sent to the stockholders of Company in connection with the
solicitation of approval of this Agreement, the Transaction and the transactions contemplated
hereunder shall not, on the date the Information Statement is first mailed to Company’s
stockholders contain any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading; or omit to state any material
fact necessary to correct any statement in any earlier communication with respect to the
solicitation of consents which has become false or misleading. Notwithstanding the foregoing,
Parent makes no representation or warranty with respect to any information supplied by Company
which is contained in or omitted from any of the foregoing documents.
3.19 Corporate Approval. The board of directors of Parent has unanimously, as of the
date of this Agreement, approved this Agreement, the Transaction and the transactions contemplated
hereunder and the issuance of Parent Common Stock in connection with Merger I.
3.20 Books and Records. The minute books of Parent and its Subsidiaries made
available to Company or counsel for Company are the only minute books of Parent and contain
accurate summaries, in all material respects, of all meetings of directors (or committees
thereof) and stockholders or actions by written consent since the time of incorporation of Parent
or such Subsidiaries, as the case may be. The books and records of Parent accurately reflect in
all material respects the assets, liabilities, business, financial condition and results of
operations of Parent and have been maintained in accordance with good business and bookkeeping
practices.
3.21 Restrictions on Business Activities. Other than as contemplated by this
Agreement, there is no agreement, judgment, injunction, order or decree binding upon or otherwise
applicable to Parent which has, or would reasonably be expected to have, the effect of prohibiting
or materially impairing (a) any current business practice of Parent; or (b) any acquisition of any
Person or property by Parent.
3.22 Real Property Leases. Parent has never owned any real property. Section 3.22 of
the Parent Disclosure Schedule sets forth, as of the date of this Agreement, all real property
leases or subleases to or by Parent, including the term of such lease, any extension and expansion
options and the rent payable under it. Parent has made available to Company true, complete and
correct copies of the leases and subleases (as amended to date) listed in Section 3.22 of the
Parent Disclosure Schedule. With respect to each lease and sublease listed in Section 3.22 of the
Parent Disclosure Schedule,
(a) the lease or sublease is legal, valid, binding, enforceable and in
full force and effect and will continue to be legal, valid, binding, enforceable and in full force
and effect immediately following the Effective Time of Merger II in accordance with the terms
thereof as in effect immediately prior to the Effective Time of Merger I;
43
(b) Parent is not in breach or violation of, or default under, any such lease or sublease, and
no event has occurred, is pending or, to the knowledge of Parent, is threatened, which, after the
giving of notice, with lapse of time, or otherwise, would constitute a breach or default by Parent
or, to the knowledge of Parent, any other party under such lease or sublease;
(c) Parent has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered
any interest in any lease or sublease; and
(d) there are no liens, easements, covenants or other restrictions applicable to the real
property subject to such lease, except for recorded easements, covenants and other restrictions
which do not materially impair the intended use or the occupancy by Parent of the property subject
thereto.
3.23 Insurance.
(a) Section 3.23(a) of the Parent Disclosure Schedule sets forth each Insurance Policy to
which Parent is a party. Such Insurance Policies are in full force and effect, maintained with
reputable companies against loss relating to the business, operations and properties and such other
risks as companies engaged in similar business as Parent would, in accordance with good business
practice, customarily insure. All premiums due and payable under such Insurance Policies have been
paid on a timely basis and Parent is in compliance in all material respects with
all other terms thereof. True, complete and correct copies of the Insurance Policies have
been made available to Company.
(b) There are no material claims pending as to which coverage has been questioned, denied or
disputed. All material claims thereunder have been filed in a due and timely fashion and Parent
has not been refused insurance for which it has applied or had any policy of insurance terminated
(other than at its request), nor has Parent received notice from any insurance carrier that: (i)
such insurance will be canceled or that coverage thereunder will be reduced or eliminated; or (ii)
premium costs with respect to such insurance will be increased, other than premium increases in the
ordinary course of business applicable on their terms to all holders of similar policies.
3.24 Certain Business Practices. Neither Parent nor, to the knowledge of Parent, any
director, officer, employee or agent of Parent or its Subsidiaries has: (a) used any funds for
unlawful contributions, gifts, entertainment or other unlawful payments relating to political
activity; (b) made any unlawful payment to any foreign or domestic government official or employee
or to any foreign or domestic political party or campaign or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (c) made any other unlawful payment.
3.25 Government Contracts. Parent has not been suspended or debarred from bidding on
contracts with any Governmental Body, and no such suspension or debarment has been initiated or
threatened. The consummation of the Transaction and other transactions contemplated by this
Agreement will not result in any such suspension or debarment of Parent.
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3.26 Interested Party Transactions. Except as set forth in the Parent SEC Documents,
no event has occurred during the past three (3) years that would be required to be reported by
Parent as a Certain Relationship or Related Transaction pursuant to Item 404 of Regulation S-K.
3.27 Fairness Opinion. The board of directors of Parent has, as of the date of this
Agreement, received a fairness opinion from Aquilo Partners, L.P., financial advisor to Parent,
dated the date of this Agreement, to the effect that the Series F Exchange Ratio is fair to the
stockholders of the Parent from a financial point of view. Parent has furnished an accurate and
complete copy of said written opinion to Company.
3.28 Reorganization Matters.
(a) Merger Subs are entities newly formed for the purpose of participating in the Transaction,
and at no time prior to the Effective Time of Merger I and the Effective Time of Merger II have had
assets (other than nominal assets contributed upon the formation of Merger Subs, which assets will
be held by Merger Sub II following the Transaction) or business operations. At all times since its
formation, Merger Sub II has been disregarded as separate from Parent for federal income Tax
purposes. No IRS Form 8832 has ever been filed with respect to Merger Sub II to treat Merger Sub II
as other than a disregarded entity.
(b) Except with respect to (i) open-market purchases of Parent’s stock pursuant to a general
stock repurchase program of Parent that has not been created or modified in connection with the
Transaction, (ii) repurchases in the ordinary course of business of unvested shares, if any,
acquired from terminated employees and (iii) payments of cash in lieu of the issuance of fractional
shares, neither Parent nor any Person related to Parent within the meaning of Treasury Regulations
Sections 1.368-1(e)(3), (e)(4) and (e)(5) has any plan or intention to repurchase, redeem or
otherwise acquire any Parent Common Stock issued to the Company Stockholders pursuant to this
Agreement following the Transaction. Other than pursuant to this Agreement, neither Parent nor any
Person related to Parent within the meaning of Treasury Regulations Sections 1.368-1(e)(3), (e)(4)
and (e)(5) has acquired any Company Common Stock or Company Preferred Stock in contemplation of the
Transaction, or otherwise as part of a plan of which the Transaction is a part.
(c) Following the Transaction, Parent, or a member of its qualified group of corporations (as
defined by Treasury Regulations Section 1.368-1(d)(4)(ii)), will cause Merger Sub II (the Surviving
Entity) to continue the historic business of Company (or, alternatively, if Company has more than
one line of business, will cause Merger Sub II (the Surviving Entity) to continue at least one
significant line of Company’s historic business) or use a significant portion of Company’s historic
business assets in a business, in a manner consistent with Treasury Regulations Section 1.368-1(d).
For purposes of this representation, Parent will be deemed to satisfy the foregoing representation
if (a) the members of Parent’s qualified group (as defined in Treasury Regulations
Section 1.368-1(d)(4)(ii)), in the aggregate, continue the historic business of Company or use a
significant portion of Company’s historic business assets in a business or (b) the foregoing
activities are undertaken by a partnership as contemplated by Treasury Regulations
Section 1.368-1(d)(4).
45
(d) Neither Parent nor any of its Subsidiaries has any plan or intention to sell or otherwise
dispose of the assets of the Company except for dispositions made in the ordinary course of
business or transfers and successive transfers permitted under Treasury Regulation Section
1.368-2(k)(1).
(e) Neither Parent nor either of the Merger Subs is an “investment company” within the meaning
of Section 368(a)(2)(F)(iii) and (iv) of the Code.
(f) Except as specifically set forth in the Agreement, Parent and the Merger Subs will pay
their respective expenses, if any, incurred in connection with the Transaction. In the Transaction,
no liabilities of the Company stockholders will be assumed by Parent or the Merger Subs, and
neither Parent nor either of the Merger Subs will assume any liens, encumbrances or any similar
liabilities relating to any Company capital stock acquired by Parent in the Transaction.
(g) Prior to the Transaction, Parent will be in control of Merger Sub I within the meaning of
Section 368(c) of the Code and will own 100% of the membership interests of Merger Sub II, and
following the Transaction, Parent will own 100% of the membership interests of the Surviving
Entity. Parent has no plan or intention to cause the Surviving Entity, after the
Effective Time of Merger II, to issue additional membership interests or to dispose of the
membership interests of the Surviving Entity.
(h) The payment of cash in lieu of fractional shares of Parent Common Stock is solely for the
purpose of avoiding the expense and inconvenience to Parent of issuing fractional shares of Parent
Common Stock.
(i) None of the compensation received (or to be received) by any Company stockholder will be
separate consideration for, or allocable to, any of its shares of Company stock; none of the shares
of Parent Common Stock received by any Company stockholder pursuant to Merger I will be separate
consideration for, or allocable to, any employment agreement or service arrangement; and the
compensation paid to any Company stockholder who also provides services to Company will be for
services actually rendered (or to be rendered) and will be commensurate with amounts paid to third
parties bargaining at arm’s-length for similar services.
(j) The fair market value of the assets of Parent exceeds the amount of the liabilities of
Parent immediately following the Transaction.
(k) Following the Transaction, Parent intends to comply, and cause the Surviving Entity to
comply, with the record-keeping and information filing requirements of Treasury
Regulation Section 1.368-3.
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ARTICLE 4
CONDUCT OF BUSINESS PENDING THE
CONSUMMATION OF THE TRANSACTION
4.1 Conduct of Company Business. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant to its terms or the
Effective Time of Merger I, Company agrees, except to the extent that Parent consents in writing
(which consent shall not be unreasonably withheld, conditioned or delayed), to carry on its
business diligently and in accordance with good commercial practice and to carry on its business in
the usual, regular and ordinary course, in substantially the same manner as heretofore conducted,
to pay its debts and taxes when due subject to good faith disputes over such debts or taxes, to pay
or perform other material obligations when due, and use its commercially reasonable efforts
consistent with past practices and policies to preserve intact its present business organization,
keep available the services of its present officers and employees and preserve its relationships
with customers, suppliers, distributors, licensors, licensees, and others with which it has
business dealings. In addition, without limiting the foregoing, other than as expressly
contemplated by this Agreement, without obtaining the written consent of Parent (which consent
shall not be unreasonably withheld, conditioned or delayed), Company shall not do any of the
following:
(a) amend or otherwise change its certificate of incorporation or bylaws, or otherwise alter
its corporate structure through merger, liquidation, reorganization or otherwise;
(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge,
disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of capital stock, or any
other ownership interest (including, without limitation, any phantom interest) (except for the
issuance of shares of common stock upon exercise of Company Options under the Company Option Plans
or pursuant to currently outstanding warrants, as the case may be, which options, warrants or
rights, as the case may be, are outstanding on the date hereof);
(c) redeem, repurchase or otherwise acquire, directly or indirectly, any shares of capital
stock of such party;
(d) sell, pledge, dispose of or encumber any assets (except for (i) sales of assets in the
ordinary course of business and in a manner consistent with past practice and (ii) dispositions of
obsolete or worthless assets);
(e) fail to make any expenditures that are necessary and sufficient to maintain or, to the
extent budgeted or consistent with the past practice, improve the conditions of its properties,
facilities and equipment, including, without limitation, budgeted expenditures relating to
maintenance, repair and replacement;
(f) accelerate, amend or change the period (or permit any acceleration, amendment or change)
of exercisability of options or warrants or authorize cash payments in exchange for any options
except as may be required with respect to Company Options under the Company Options Plans;
47
(g) (i) declare, set aside, make or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of any of its capital stock, (ii) split,
combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its capital stock or
(iii) amend the terms of, repurchase, redeem or otherwise acquire any of its securities, or propose
to do any of the foregoing;
(h) sell, transfer, license, sublicense or otherwise dispose of any material IP Rights, or
amend or modify any existing agreements with respect to any material IP Rights;
(i) (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof; (ii) incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee (other than guarantees of bank
debt entered into in the ordinary course of business) or endorse or otherwise as an accommodation
become responsible for, the obligations of any person, or make any loans or advances, except in the
ordinary course of business consistent with past practice; (iii) enter into or materially amend any
Company Contract; (iv) authorize any capital expenditures or purchase of fixed assets which are, in
the aggregate, in excess of $50,000, taken as a whole; or
(v) enter into or amend any contract, agreement, commitment or arrangement to effect any of
the matters prohibited by this Section 4.1(i);
(j) increase the compensation payable or to become payable to its directors, officers or
employees, except for increases in salary or wages of employees who are not officers in accordance
with past practices, or grant any severance or termination pay to, or enter into any employment or
severance agreement with, any director, officer or other employee, or establish, adopt, enter into
or amend any employee benefit plan;
(k) take any action, other than as required by GAAP, to change accounting policies or
procedures;
(l) make any material tax election inconsistent with past practices or settle or compromise
any material federal, state, local or foreign tax liability or agree to an extension of a statute
of limitations for any assessment of any tax;
(m) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction
in the ordinary course of business and consistent with past practice of liabilities reflected or
reserved against in the financial statements of Company, or incurred in the ordinary course of
business and consistent with past practice or as otherwise contemplated by this Agreement;
(n) enter into any partnership arrangements, joint development agreements or strategic
alliances;
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(o) initiate any litigation, action, suit, proceeding, claim or arbitration or settle or agree
to settle any litigation, action, suit, proceeding, claim or arbitration;
(p) terminate, amend or otherwise change the Retention Bonus Plan (other than as permitted by
Section 1.6(f));
(q) form or acquire any Subsidiaries; or
(r) take, or agree in writing or otherwise to take, any of the actions described in Sections
4.1(a) through (q) above.
If Company wishes to obtain the consent of Parent to take actions for which prior consent is
required pursuant to this Section 4.1, Company shall request such consent in writing by telecopy to
the attention of the President of Parent. A consent signed by the President of Parent shall be
deemed sufficient for purposes hereof.
4.2 Conduct of Parent Business. During the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement pursuant to its terms or the
Effective Time of Merger I, Parent agrees, except to the extent that Company consents in writing
(which consent shall not be unreasonably withheld, conditioned or delayed), to carry on its
business diligently and in accordance with good commercial practice and to carry on its business
in the usual, regular and ordinary course, in substantially the same manner as conducted in
the last twelve (12) months, to pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, and to pay or perform other material obligations when due. In addition,
without limiting the foregoing, other than as expressly contemplated by this Agreement, without
obtaining the written consent of Company (which consent shall not be unreasonably withheld,
conditioned or delayed), Parent shall not, and shall not permit its Subsidiaries to, do any of the
following:
(a) amend or otherwise change its certificate of incorporation or bylaws, or otherwise alter
its corporate structure through merger, liquidation, reorganization or otherwise;
(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge,
disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of capital stock, or any
other ownership interest (including, without limitation, any phantom interest) (except for the
issuance of shares of common stock upon exercise of Parent Options under the Parent Option Plans or
pursuant to currently outstanding warrants, as the case may be, which options, warrants or rights,
as the case may be, are outstanding on the date hereof);
(c) redeem, repurchase or otherwise acquire, directly or indirectly, any shares of capital
stock of such party;
(d) sell, pledge, dispose of or encumber any assets (except for (i) sales of assets in the
ordinary course of business and in a manner consistent with past practice and (ii) dispositions of
obsolete or worthless assets);
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(e) fail to make any expenditures that are necessary and sufficient to maintain the conditions
of its properties, facilities and equipment, including, without limitation, budgeted expenditures
relating to maintenance, repair and replacement;
(f) accelerate, amend or change the period (or permit any acceleration, amendment or change)
of exercisability of options or warrants or authorize cash payments in exchange for any options
except as may be required with respect to Parent Options under the Parent Option Plans;
(g) (i) declare, set aside, make or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of any of its capital stock, except that a
wholly owned Subsidiary may declare and pay a dividend to its parent, (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii)
amend the terms of, repurchase, redeem or otherwise acquire, or permit any Subsidiary to
repurchase, redeem or otherwise acquire, any of its securities or any securities of its
Subsidiaries, or propose to do any of the foregoing;
(h) sell, transfer, license, sublicense or otherwise dispose of any material IP Rights, or
amend or modify any existing agreements with respect to any material IP Rights;
(i) (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof; (ii) incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee (other than guarantees of bank
debt of its Subsidiaries entered into in the ordinary course of business) or endorse or otherwise
as an accommodation become responsible for, the obligations of any person, or make any loans or
advances, except in the ordinary course of business consistent with past practice; (iii) enter into
or amend any Parent Contract; (iv) authorize any capital expenditures or purchase of fixed assets
which are, in the aggregate, in excess of $50,000, taken as a whole; (v) enter into or amend any
contract, agreement, commitment or arrangement to effect any of the matters prohibited by this
Section 4.2(i); or (vi) engage in any new business;
(j) increase the compensation payable or to become payable to its directors, officers or
employees, except for increases in salary or wages of employees who are not officers in accordance
with past practices, or grant any severance or termination pay to, or enter into any employment or
severance agreement with, any director, officer or other employee, or establish, adopt, enter into
or amend any employee benefit plan;
(k) take any action, other than as required by GAAP, to change accounting policies or
procedures;
(l) make any material tax election inconsistent with past practices or settle or compromise
any material federal, state, local or foreign tax liability or agree to an extension of a statute
of limitations for any assessment of any tax;
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(m) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction
of liabilities reflected or reserved against in the financial statements of Company, or incurred in
the ordinary course of business and consistent with past practice or as otherwise contemplated by
this Agreement;
(n) enter into any partnership arrangements, joint development agreements or strategic
alliances;
(o) initiate any litigation, action, suit, proceeding, claim or arbitration or settle or agree
to settle any litigation, action, suit, proceeding, claim or arbitration;
(p) take, or agree in writing or otherwise to take, any of the actions described in Sections
4.2(a) through (o) above.
If Parent wishes to obtain the consent of Company to take actions for which prior consent is
required pursuant to this Section 4.2, Parent shall request such consent in writing by telecopy to
the attention of the Chief Executive Officer and the Chief Financial Officer of Company. A consent
signed by either such officers shall be deemed sufficient for purposes hereof.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Fairness Hearing and Permit Application; Registration Statement.
(a) As promptly as practicable after the date of this Agreement, Company shall prepare, with
the cooperation of Parent, an information statement for the holders of Company Capital Stock to
approve this Agreement and the transactions contemplated hereby (the “Information Statement”). The
Information Statement shall constitute a disclosure document for the offer and issuance of the
shares of Parent Common Stock pursuant to this Agreement. Company and Parent shall each use
commercially reasonable efforts to cause the Information Statement to comply with applicable
federal and state securities laws requirements. Each of Parent and Company agree to provide
promptly to the other such information concerning its business and financial statements and affairs
as, in the reasonable judgment of the providing party or its counsel, may be required or
appropriate for inclusion in the Information Statement, or in any amendments or supplements
thereto, and to cause its counsel and auditors to cooperate with the other’s counsel and auditors
in the preparation of the Information Statement. Company will promptly advise Parent, and Parent
will promptly advise Company, in writing if at any time prior to the Effective Time of Merger I
either shall obtain knowledge of any facts that might make it necessary or appropriate to amend or
supplement the Information Statement in order to make the statements contained or incorporated by
reference therein not misleading or to comply with applicable law. Subject to Section 5.2(a)(ii):
(A) the Information Statement shall include a statement to the effect that the board of directors
of Company unanimously recommends that Company’s stockholders vote to adopt this Agreement (the
unanimous recommendation of Company’s board of directors that Company’s stockholders vote to adopt
this Agreement being referred to as the “Company Board Recommendation”); and (B) the Company Board
Recommendation shall not be withdrawn or modified in a manner adverse to Parent, and no resolution
by the board of directors of Company or any committee thereof to withdraw or modify the Company
Board Recommendation in a manner adverse to Parent shall be adopted or proposed. Company shall not
include in the Information Statement any information with respect to Parent or its affiliates, the
form and content of which information shall not have been approved by Parent prior to such
inclusion.
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(b) As promptly as practicable after the date of this Agreement, Parent shall prepare, with
the cooperation of Company, and cause to be filed with the California Commissioner the Permit
Application, and shall request a hearing (the “Fairness Hearing”) on the fairness of the terms and
conditions of the Transaction pursuant to Section 25142 of the California Corporations Code.
Company and Parent shall use commercially reasonable efforts to cause the California Commissioner
to approve the fairness of the terms and conditions of the Transaction at such a Fairness Hearing
(the “Fairness Approval”); provided, however, that
Parent shall not be required to modify its certificate of incorporation or any of the economic
terms of the Transaction in order to cause the California Commissioner to approve the fairness of
such terms and conditions. Company shall promptly furnish Parent all information concerning
Company and stockholders of Company that may be required or reasonably requested in connection with
any action contemplated by this Section 5.1(b). If either Parent or Company becomes aware of any
information that should be disclosed in an amendment or supplement to the Permit Application, then
such party: (i) shall promptly inform the other party thereof; (ii) shall provide the other party
(and its counsel) with a reasonable opportunity to review and comment on any amendment or
supplement to the Permit Application prior to it being filed with the California Commissioner; and
(iii) shall provide the other party with a copy of such amendment or supplement promptly after it
is filed with the California Commissioner.
(c) If for any reason whatsoever the California Commissioner makes a final determination not
to render a Fairness Approval of the terms and conditions of the Transaction and the issuance of
the Parent Common Stock as contemplated by this Agreement, Parent and Company shall prepare and
cause to be filed with the SEC the Registration Statement. Each of Parent and Company shall use
commercially reasonable efforts: (i) to cause the Registration Statement to comply with the
applicable rules and regulations promulgated by the SEC; (ii) to promptly notify the other of,
cooperate with each other with respect to and respond promptly to any comments of the SEC or its
staff; (iii) to have the Registration Statement declared effective under the Securities Act as
promptly as practicable after it is filed with the SEC; and (iv) to keep the Registration Statement
effective through the Closing in order to permit the consummation of the Transaction. Each of
Parent and Company shall promptly furnish the other party all information concerning such parties,
its Subsidiaries and stockholders that may be required or reasonably requested in connection with
any action contemplated by this Section 5.1(c). If either Parent or Company becomes aware of any
information that should be disclosed in an amendment or supplement to the Registration Statement,
then such party: (i) shall promptly inform the other party thereof; (ii) shall provide the other
party (and its counsel) with a reasonable opportunity to review and comment on any amendment or
supplement to the Registration Statement prior to it being filed with the SEC; (iii) shall provide
the other party with a copy of such amendment or supplement promptly after it is filed with the
SEC; and (iv) shall cooperate, if appropriate, in mailing such amendment or supplement to the
stockholders of Company.
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(d) Prior to the Effective Time of Merger I, Parent shall use commercially reasonable efforts
to obtain all regulatory approvals needed to ensure that the Parent Common Stock to be issued in
Merger I will (to the extent required) be registered or qualified or exempt from registration or
qualification under the securities law of every state of the United States in which any registered
holder of Company Series F Preferred Stock has an address of record on the record date for
determining the stockholders entitled to notice of and to vote on the adoption of this Agreement
and the transactions contemplated hereunder; provided, however, that Parent shall not be required:
(i) to qualify to do business as a foreign corporation in any jurisdiction in which it is not now
qualified; or (ii) to file a general consent to service of process in any jurisdiction.
5.2 Consent of Company Stockholders.
(a) Company Stockholder Consent.
(i) As promptly as practicable after the California Commissioner shall have issued a permit
under Section 25121 of the California Corporations Code for the issuance of the Parent Common Stock
to be issued in Merger I or the Registration Statement is declared effective under the Securities
Act, as applicable, Company will use its commercially reasonable efforts to solicit and obtain the
Required Company Stockholder Vote by written consent with respect to the adoption of this Agreement
and the approval of the Transaction and the transactions contemplated hereby, each in accordance
with applicable Legal Requirements and its certificate of incorporation and bylaws (but in no event
any later than ten business days following the receipt of the permit or the effective date of the
Registration Statement, as applicable).
(ii) Notwithstanding anything to the contrary contained in Section 5.1(a) or 5.2(a)(i), at any
time prior to the adoption of this Agreement by the Required Company Stockholder Vote, the Company
Board Recommendation may be withdrawn or modified in a manner adverse to Parent if:
(A) (1) neither Company nor any of its Representatives shall have breached or taken any
action inconsistent with any of the provisions set forth in Section 5.12 with respect to the
foregoing; (2) an unsolicited, bona fide Company Acquisition Proposal is made to Company and
is not withdrawn; (3) Company provides Parent with at least three business days prior notice
of any meeting of Company’s board of directors at which such board of directors will
consider and determine whether such offer is a Company Superior Offer; (4) Company’s board
of directors determines in good faith, after consulting with its independent reputable
financial advisor and outside legal counsel, that such offer constitutes a Company Superior
Offer; (5) Company’s board of directors determines in good faith, after having taken into
account the advice of Company’s outside legal counsel, that, in light of such Company
Superior Offer, the failure to withdraw or modify the Company Board Recommendation would be
inconsistent with the Company board of directors’ fiduciary obligations to Company’s
stockholders under applicable Legal Requirements; (6) the Company Board Recommendation is
not withdrawn or modified in a manner adverse to Parent at any time within three business
days after Parent receives written notice from Company confirming that Company’s board of
directors has determined that such offer is a Company Superior Offer; and (7) during such
three business day period, if requested by Parent, Company engages in good faith
negotiations with Parent to amend this Agreement in such a manner that the Company
Acquisition Proposal that was determined to constitute a Company Superior Offer no longer
constitutes a Company Superior Offer; or
53
(B) other than the development or circumstances contemplated by clause “(A)” of this
Section 5.2(a)(ii), a material development or change in circumstances occurs or arises after
the date of this Agreement that was neither known to Company or any Representative of
Company nor reasonably foreseeable to Company as of the date of this Agreement (such
material development or change in circumstances being referred to as a “Company Intervening
Event”); provided, however, that (1) in no event shall the
receipt, existence of or terms of a Company Acquisition Proposal or a Company Superior
Offer or any inquiry relating thereto or the consequences thereof constitute a Company
Intervening Event; (2) in no event shall any event, occurrence, fact, condition, effect,
change or development that has an adverse effect on the business, financial condition or
results of operations of Parent, constitute a Company Intervening Event, unless such event,
occurrence, fact, condition, effect, change or development has had or would reasonably be
expected to have a Parent Material Adverse Effect; (3) at least three business days prior to
any meeting of the Company board of directors at which the Company board of directors will
consider whether such Company Intervening Event requires the Company board of directors to
effect, or cause Company to effect, a Company Change in Recommendation, the Company provides
Parent with a written notice specifying the date and time of such meeting and the reasons
for holding such meeting; (4) during such three business day period, if requested by Parent,
Company engages in good faith negotiations with Parent to amend this Agreement in such a
manner that obviates the need for the Company board of directors to effect, or cause the
Company to effect, a Company Change in Recommendation as a result of such Company
Intervening Event; and (4) the Company board of directors determines in good faith, after
having consulted with its outside legal counsel, that, in light of such Company Intervening
Event, a failure to make a Company Change in Recommendation would be inconsistent with the
Company board of directors’ fiduciary obligations to Company’s stockholders under applicable
Legal Requirements.
(iii) The Company’s obligation to solicit the consent of its stockholders in accordance with
Section 5.2(a)(i) shall not be limited or otherwise affected by the commencement, disclosure,
announcement or submission of any Company Superior Offer or other Company Acquisition Proposal, or
by any withdrawal or modification of the Company Board Recommendation.
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(b) Parachute Payments. If applicable, Company shall promptly submit for approval by
the stockholders of Company by the requisite vote (and in a manner satisfactory to Parent) any
payments or benefits that the Company reasonably determines (through an analysis that is reasonably
satisfactory to Parent) may constitute a “parachute payment” pursuant to Section 280G of the Code
and which have been waived pursuant to a 280G Waiver, such that all such payments and benefits
shall not be deemed to be “parachute payments” pursuant to Section 280G of the Code or shall be
exempt from such treatment under such Section 280G, and deliver to Parent evidence reasonably
satisfactory to Parent that a vote of stockholders of Company was received in conformance with
Section 280G and the regulations thereunder, or that such requisite stockholder approval has not
been obtained with respect to any payment or benefit that may be deemed to constitute a “parachute
payment” within the meaning of Section 280G of the Code that is subject to a 280G Waiver and as a
consequence, that, pursuant to the 280G Waiver, such “parachute payment” shall not be made or
provided.
5.3 Access to Information; Confidentiality. Upon reasonable notice and subject to
restrictions contained in confidentiality agreements and applicable Legal Requirements to which
such party is subject, Company and Parent shall each afford to the officers, employees,
accountants, counsel and other Representatives of the other party, reasonable access, during the
period prior to the Effective Time of Merger I (the “Pre-Closing Period”), to all its
properties, books, contracts, commitments and records (including, without limitation, Tax records)
and, during such period, Company and Parent each shall furnish promptly to the other all
information concerning its business, properties and personnel as such other party may reasonably
request, and each shall make available to the other the appropriate individuals (including
attorneys, accountants and other professionals) for discussion of the other’s business, properties
and personnel as either party may reasonably request; provided, that each of Company and Parent
reserves the right to withhold any information if access to such information could adversely affect
the attorney-client privilege between it and its counsel. Without limiting the generality of the
foregoing, during the Pre-Closing Period, the Company and Parent shall promptly provide the other
party with copies of: (a) any changes to financial forecasts prepared by Company or Parent (or
their respective Representatives), as applicable; (b) any written materials or communications sent
by or on behalf of such party to its stockholders; (c) any material notice, document or other
communication sent by or on behalf of any of such party to any third party to any Company Contract
or Parent Contract, as applicable, or sent to Company or Parent by any third party to any Company
Contract or Parent Contract, as applicable, (other than any communication that relates solely to
routine commercial transactions and that is of the type sent in the ordinary course of business and
consistent with past practices); (d) any notice, report or other document filed with or sent to any
Governmental Body in connection with the Transaction or any of the other transactions contemplated
by this Agreement; and (e) any material notice, report or other document received from any
Governmental Body. Each party shall keep such information confidential in accordance with the
terms of the currently effective confidentiality agreement (the “Confidentiality Agreement”)
between Parent and Company.
5.4 Consents; Approvals. Company and Parent shall each use commercially reasonable
efforts to (a) obtain all Consents (including, without limitation, all United States’ and foreign
governmental and regulatory rulings and approvals) and (b) make all filings (including, without
limitation, all filings with United States and foreign governmental or regulatory agencies)
required in connection with the authorization, execution and delivery of this Agreement by Company
and Parent and the consummation by them of the transactions contemplated hereby. Within ten
business days following the date hereof: (i) Company shall deliver all notices and other
information required by any Company Contract in connection with the Transaction (except for notices
and information required under the Company’s lease, dated as of November 23, 1999, with Xxxxxxxx
Xxxx Northern California Development, Inc., as amended, which shall be delivered by the Company
within five business days following the date hereof) and (ii) Parent shall deliver all notices and
other information required by any Parent Contract in connection with the Transaction.
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5.5 Director Indemnification and Insurance.
(a) From and after the Effective Time of Merger I, Parent will fulfill and honor in all
respects the obligations of Company and Parent which exist prior to the date hereof to indemnify
Company’s and Parent’s present and former directors and officers and their heirs, executors and
assigns; provided, however, that Company directors and officers which become directors and officers
of Parent shall enter into Parent’s standard form of indemnification agreement. The operating
agreement of the Surviving Entity will contain provisions at least as
favorable as the provisions relating to the indemnification and elimination of liability for
monetary damages set forth in the certificate of incorporation and bylaws of Company, and the
provisions relating to the indemnification and elimination of liability for monetary damages set
forth in the certificate of incorporation, bylaws and operating agreement of the Surviving Entity
and Parent will not be amended, repealed or otherwise modified for a period of six (6) years from
the Effective Time of Merger I in any manner that would adversely affect the rights thereunder of
individuals who, at the Effective Time of Merger I, were directors, officers, employees or agents
of Company or Parent, unless such modification is required by Legal Requirements.
(b) Effective as of the Effective Time of Merger II, (i) Parent shall use commercially
reasonable efforts to secure a “tail” policy on Parent’s existing directors and officers liability
insurance policy for a period of six (6) years, at a total cost not to exceed the amount set forth
on Schedule 5.5(b)(i) and (ii) the Surviving Entity shall use commercially reasonable efforts to
secure a “tail” policy on Company’s existing directors and officers liability insurance policy for
a period of six (6) years, at a total cost not to exceed the amount set forth on Schedule
5.5(b)(ii).
(c) This Section 5.5 will survive the consummation of the Transaction at the Effective Time of
Merger II, is intended to benefit Company, the Surviving Corporation, the Surviving Entity, Parent
and the parties indemnified hereby, and will be binding on all successors and assigns of the
Surviving Entity.
5.6 Notification of Certain Matters.
(a) Company shall give prompt notice to Parent, and Parent shall give prompt notice to
Company, of (i) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which would be likely to cause any representation or warranty contained in this Agreement to be
untrue or inaccurate, and (ii) any failure of Company or Parent, as the case may be, materially to
comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.6 shall
not limit or otherwise affect the remedies available hereunder to the party receiving such notice;
and provided, further, that failure to give such notice shall not be treated as a breach of
covenant for the purposes of Sections 6.2(b) and 6.3(b) unless the failure to give such notice
results in material prejudice to the other party.
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(b) Each of Company and Parent shall give prompt notice to the other of: (i) any notice or
other communication from any person alleging that the consent of such person is or may be required
in connection with the Transaction or other transactions contemplated by this Agreement; (ii) any
notice or other communication from any Governmental Body in connection with the Transaction or
other transactions contemplated by this Agreement; (iii) any litigation relating to or involving or
otherwise affecting Company or Parent that relates to the Transaction or other transactions
contemplated by this Agreement; (iv) the occurrence of a default or event that, with notice or
lapse of time or both, will become a material default under a Company Contract; and (v) any change
that would be considered reasonably likely to result in a Parent Material Adverse Effect or Company
Material Adverse Effect, or is likely to impair in any
material respect the ability of either Company or Parent to consummate the transactions
contemplated by this Agreement.
5.7 Financial Statements. Within ten business days following the date hereof, Company
shall deliver copies of its audited consolidated financial statements (including any related notes
thereto) representing the financial results and condition of Company for the year ended December
31, 2009. As promptly as possible following the last day of each fiscal month end after the date
hereof until the Effective Time of Merger I, and in any event within twenty (20) days after the end
of each such fiscal month end, Company shall deliver to Parent the consolidated balance sheet of
Company and the related consolidated statements of income, changes in stockholders’ equity and cash
flows of Company for the one-month period then ended and for the period then ended since the date
of the Company Balance Sheet (collectively, the “Interim Financial Statements”). The Interim
Financial Statements shall be prepared so as to present fairly, in all material respects, the
consolidated financial condition, retained earnings, assets and liabilities of Company as of the
date thereof, subject to normal year-end adjustments which are not expected to be material in
amount. Company shall use its commercially reasonable efforts to assist Parent in the preparation
and filing, on the earliest practicable date or dates after the date hereof, of Current Reports on
Form 8-K for Parent containing the information required therein, including the audited and
unaudited financial statements of Parent required by Rule 3-05 of Regulation S-X of the SEC, and
the pro forma financial information with respect to the transactions contemplated by this Agreement
to the extent required by Article 11 of Regulation S-X of the SEC. Such financial statements shall
present fairly in all material respects the consolidated financial position of Company as of the
respective dates thereof and the consolidated results of operations and consolidated cash flows of
Company for the periods covered thereby, as applicable.
5.8 Public Announcements. Parent and Company shall consult with each other before
issuing any press release or otherwise making any public statements with respect to the Transaction
or this Agreement and shall not issue any such press release or make any such public statement
without the prior consent of the other party, which shall not be unreasonably withheld, conditioned
or delayed; provided, however, that, on the advice of legal counsel, either party may comply with
Legal Requirements, in which case commercially reasonable efforts to consult with the other party
will be made prior to such release or public statement. Notwithstanding the foregoing, Parent may
comply with any SEC requirements under the Securities Act or Exchange Act which requires any public
disclosure, without the consent or review of Company.
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5.9 Tax Free Reorganization.
(a) Parent and Company shall cooperate in the preparation, execution and filing of all
returns, questionnaires, applications or other documents regarding any real property transfer or
gains, sales, use, transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in connection with the
transactions contemplated hereby that are required or permitted to be filed on or before the
Effective Time of Merger I.
(b) Parent and Company will each use its commercially reasonable efforts to cause the
Transaction to be treated as a reorganization within the meaning of Section 368 of the Code, and
Parent and Company shall each use its commercially reasonable efforts not to, and shall use its
commercially reasonable efforts not to permit any of its respective subsidiaries to, take any
action that would prevent or impede the Transaction from qualifying within the meaning of Section
368 of the Code.
5.10 Board of Directors and Officers of Parent. Parent shall take all actions
necessary to cause the board of directors of Parent, immediately after the Effective Time of Merger
II, to consist of the persons listed as directors on Schedule 5.10(a) hereto; provided, however,
the parties acknowledge that so long as Parent remains a public reporting company, the nominations
by Company and Parent hereunder shall allow Parent to comply with such applicable Legal
Requirements. The executive officers of Parent immediately after the Effective Time of Merger II
shall be the persons listed on Schedule 5.10(b) hereto.
5.11 Non-Solicitation by Company.
(a) Company shall not and shall not authorize or permit any Representative of Company,
directly or indirectly, to, (i) solicit, initiate, knowingly encourage, induce or facilitate the
making, submission or announcement of any Company Acquisition Proposal or take any action that
could reasonably be expected to lead to any Company Acquisition Proposal, (ii) furnish any
information regarding Company to any Person in connection with or in response to any Company
Acquisition Proposal or an inquiry or indication of interest that could lead to a Company
Acquisition Proposal, (iii) engage in discussions or negotiations with any Person with respect to
any Company Acquisition Proposal, (iv) approve, endorse or recommend any Company Acquisition
Proposal or (v) enter into any letter of intent or similar document or any agreement contemplating
or otherwise relating to any Company Acquisition Transaction; provided, however, that prior to the
adoption of this Agreement by the Required Company Stockholder Vote, this Section 5.11(a) shall not
prohibit Company from furnishing nonpublic information regarding Company to, or entering into
discussions with, any Person in response to a Company Acquisition Proposal that, after consultation
with an independent reputable financial advisor and outside legal counsel, Company’s board of
directors determines in good faith is, or would reasonably be expected to result in, a Company
Superior Offer that is submitted to Company by such Person (and not withdrawn) if (1) neither
Company nor any Representative of Company shall have breached or taken any action inconsistent with
any of the provisions set forth in this Section 5.11(a) with respect to the foregoing, (2) the
board of directors of Company concludes in good faith, after having taken into account the advice
of its outside legal counsel,
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that the failure to take such action would be inconsistent with the
Company board of directors’ fiduciary obligations to Company’s stockholders under applicable Legal
Requirements, (3) at least two (2) business days prior to furnishing any such information to, or
entering into discussions with, such Person, Company gives Parent written notice of the identity of
such Person and of Company’s intention to furnish information to, or enter into discussions with,
such Person, and Company receives from such Person an executed confidentiality agreement containing
customary limitations on the use and disclosure of all nonpublic written and oral information
furnished to such Person by or on behalf of Company and (4) at least two (2) business days prior to
furnishing any such information to such Person, Company furnishes such
nonpublic information to Parent (to the extent such nonpublic information has not been
previously furnished by Company to Parent). Without limiting the generality of the foregoing,
Company acknowledges and agrees that any action inconsistent with of any of the provisions set
forth in the preceding sentence by any Representative of Company, whether or not such
Representative is purporting to act on behalf of Company, shall be deemed to constitute a breach of
this Section 5.11(a) by Company.
(b) Company shall promptly (and in no event later than one (1) business day after receipt of
any Company Acquisition Proposal, any inquiry or indication of interest that could lead to any
Company Acquisition Proposal or any request for nonpublic information) (i) advise Parent orally
and in writing of any Company Acquisition Proposal, any inquiry or indication of interest that
could lead to any Company Acquisition Proposal or any request for nonpublic information relating to
Company (including the identity of the Person making or submitting such Company Acquisition
Proposal, inquiry, indication of interest or request, and the material financial terms thereof)
that is made or submitted by any Person during the Pre-Closing Period and (ii) provide Parent a
copy of any written Company Acquisition Proposal and a copy of all written materials (including
copies of any written materials received via e-mail or other electronic medium) received by Company
in connection with such Company Acquisition Proposal. Company shall keep Parent reasonably
informed with respect to the status of any such Company Acquisition Proposal, inquiry, indication
of interest or request and any modification or proposed modification thereto.
(c) Company shall immediately cease and cause to be terminated any existing discussions with
any Person that relate to any Company Acquisition Proposal.
(d) Company agrees not to release or permit the release of any Person from, or to waive or
permit the waiver of any provision of, any confidentiality, “standstill” or similar agreement to
which Company is a party or under which Company has any rights, and will use its best efforts to
enforce or cause to be enforced each such agreement at the request of Parent. Company also will
promptly request each Person that has executed, within twelve (12) months prior to the date of this
Agreement, a confidentiality agreement in connection with its consideration of a possible Company
Acquisition Transaction to return all confidential information heretofore furnished to such Person
by or on behalf of Company.
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5.12 Non-Solicitation by Parent.
(a) Parent shall not and shall not authorize or permit any of its Subsidiaries or any
Representative of Parent or its Subsidiaries, directly or indirectly, to, (i) solicit, initiate,
knowingly encourage, induce or facilitate the making, submission or announcement of any Parent
Acquisition Proposal or take any action that could reasonably be expected to lead to any Parent
Acquisition Proposal, (ii) furnish any information regarding Parent or its Subsidiaries to any
Person in connection with or in response to any Parent Acquisition Proposal or an inquiry or
indication of interest that could lead to any Parent Acquisition Proposal, (iii) engage in
discussions or negotiations with any Person with respect to any Parent Acquisition Proposal, (iv)
approve, endorse or recommend any Parent Acquisition Proposal or (v) enter into any letter of
intent or similar document or any agreement contemplating or otherwise relating to any Parent
Acquisition Transaction; provided, however, that, this Section 5.12(a) shall not prohibit
Parent from furnishing nonpublic information regarding Parent and its Subsidiaries to, or entering
into discussions with, any Person in response to any Parent Acquisition Proposal that, after
consultation with an independent reputable financial advisor outside legal counsel, Parent’s board
of directors determines in good faith is, or would reasonably be expected to result in, a Parent
Superior Offer that is submitted to Parent by such Person (and not withdrawn) if (1) neither the
Parent nor any Representative of Parent (or its Subsidiaries) shall have breached or taken any
action inconsistent with any of the provisions set forth in this Section 5.12(a) with respect to
the foregoing, (2) the board of directors of Parent concludes in good faith, after having taken
into account the advice of its outside legal counsel, that failure to take such action would be
inconsistent with the Parent board of directors’ fiduciary obligations to the Parent’s stockholders
under applicable Legal Requirements, (3) at least two (2) business days prior to furnishing any
such information to, or entering into discussions with, such Person, Parent gives Company written
notice of the identity of such Person and of Parent’s intention to furnish information to, or enter
into discussions with, such Person, and Parent receives from such Person an executed
confidentiality agreement containing customary limitations on the use and disclosure of all
nonpublic written and oral information furnished to such Person by or on behalf of Parent and
containing customary “standstill” provisions, and (4) at least two (2) business days prior to
furnishing any such information to such Person, Parent furnishes such nonpublic information to
Company (to the extent such nonpublic information has not been previously furnished by Parent to
Company). Without limiting the generality of the foregoing, Parent acknowledges and agrees that
any action inconsistent with of any of the provisions set forth in the preceding sentence by any
Representative of Parent (or its Subsidiaries), whether or not such Representative is purporting to
act on behalf of Parent (or its Subsidiaries), shall be deemed to constitute a breach of this
Section 5.12(a) by Parent.
(b) Parent shall promptly (and in no event later than one (1) business day after receipt of
any Parent Acquisition Proposal, any inquiry or indication of interest that could lead to any
Parent Acquisition Proposal or any request for nonpublic information) (i) advise Company orally and
in writing of any Parent Acquisition Proposal, any inquiry or indication of interest that could
lead to any Parent Acquisition Proposal or any request for nonpublic information relating to Parent
or its Subsidiaries (including the identity of the Person making or submitting such Parent
Acquisition Proposal, inquiry, indication of interest or request, and the material financial terms
thereof) that is made or submitted by any Person during the Pre-Closing Period and (ii) provide
Company a copy of any written Parent Acquisition Proposal and a copy of all written materials
(including copies of any written materials received via e-mail or other electronic medium) received
by Parent in connection with such Parent Acquisition Proposal. Parent shall keep Company
reasonably informed with respect to the status of any such Parent Acquisition Proposal, inquiry,
indication of interest or request and any modification or proposed modification thereto.
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(c) Parent shall immediately cease and cause to be terminated any existing discussions with
any Person that relate to any Parent Acquisition Proposal.
(d) Parent agrees not to release or permit the release of any Person from, or to waive or
permit the waiver of any provision of, any confidentiality, “standstill” or similar
agreement to which Parent (or its Subsidiaries) is a party or under which Parent (or its
Subsidiaries) has any rights, and will use its best efforts to enforce or cause to be enforced each
such agreement at the request of Company. Parent also will promptly request each Person that has
executed, within twelve (12) months prior to the date of this Agreement, a confidentiality
agreement in connection with its consideration of a possible Parent Acquisition Transaction to
return all confidential information heretofore furnished to such Person by or on behalf of Parent
(or its Subsidiaries).
5.13 Company Stockholders’ Agent.
(a) Appointment of Company Stockholders’ Agent. The Company Stockholders’ Agent is
hereby appointed, authorized and empowered to be the exclusive proxy, representative, agent and
attorney-in-fact of Company stockholders, with full power of substitution, to make all decisions
and determinations and to act and execute, deliver and receive all documents, instruments and
consents on behalf of and as agent for such stockholder at any time in connection with, and that
may be necessary or appropriate to accomplish the intent and implement the provisions of this
Agreement, including, without limitation, Article 8 of this Agreement and the Escrow Agreement, and
to facilitate the consummation of the transactions contemplated hereby and thereby. By executing
this Agreement, the Company Stockholders’ Agent accepts such appointment, authority and power.
Without limiting the generality of the foregoing, the Company Stockholders’ Agent shall have the
power to take any of the following actions on behalf of Company stockholders: to execute, deliver
and perform the Escrow Agreement; to give and receive notices, communications and consents
hereunder and under the Escrow Agreement; to negotiate, enter into settlements and compromises of,
resolve and comply with orders of courts and awards of arbitrators or other third-party
intermediaries with respect to any disputes arising under this Agreement or the Escrow Agreement;
and to make, execute, acknowledge and deliver all such other agreements, guarantees, orders,
receipts, endorsements, notices, requests, instructions, certificates, stock powers, letters and
other writings, and, in general, to do any and all things and to take any and all action that the
Company Stockholders’ Agent, in its sole and absolute discretion, may consider necessary or proper
or convenient in connection with or to carry out the activities described in this Section 5.13 and
the transactions contemplated hereby or by the Escrow Agreement. Notwithstanding the foregoing or
anything herein to the contrary, the Company Stockholders’ Agent shall not have the authority to
take any action that would (i) have a disproportionate adverse effect on a particular Company
stockholder’s interests or (ii) expand the liability of any Company stockholder.
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(b) Authority. The appointment of the Company Stockholders’ Agent by each stockholder
is coupled with an interest and may not be revoked in whole or in part (including, without
limitation, upon the death or incapacity of any stockholder). Such appointment shall be binding
upon the heirs, executors, administrators, estates, personal Representatives, officers, directors,
security holders, successors and assigns of each Company stockholder. All decisions of the Company
Stockholders’ Agent shall be final and binding on all of Company stockholders, and no stockholder
shall have the right to object, dissent, protest or otherwise contest the same. Parent shall be
entitled to rely upon, without independent investigation, any act, notice, instruction or
communication from the Company Stockholders’ Agent and any document executed by the Company
Stockholders’ Agent on behalf of any stockholder and shall be fully
protected in connection with any action or inaction taken or omitted to be taken in reliance
thereon absent willful misconduct. The Company Stockholders’ Agent shall not be responsible for any
loss suffered by, or liability of any kind to, the stockholders arising out of any act done or
omitted by the Company Stockholders’ Agent in connection with the acceptance or administration of
the Company Stockholders’ Agent’s duties hereunder, unless such act or omission involves gross
negligence or willful misconduct.
(c) Resignation, Death or Incapacity of Company Stockholders’ Agent. The Company
Stockholders’ Agent may resign by providing thirty (30) days prior written notice to Parent. Upon
the resignation of the Company Stockholders’ Agent, the Company Stockholders’ Agent shall appoint a
replacement Company Stockholders’ Agent (who shall be reasonably acceptable to Parent) to serve in
accordance with the terms of this Agreement; provided, however, that such appointment shall be
subject to such newly-appointed Company Stockholders’ Agent’s notifying Parent in writing of its
appointment and appropriate contact information for purposes of this Agreement and the Escrow
Agreement, and Parent shall be entitled to rely upon, without independent investigation, the
identity of such newly-appointed Company Stockholders’ Agent as set forth in such written notice.
Upon the death or incapacity of the Company Stockholders’ Agent, Company stockholders holding at
least 50% of the Parent Common Stock payable as consideration to Exchange Stockholders shall elect
a replacement Company Stockholders’ Agent (who shall be reasonably acceptable to Parent).
5.14 Section 16 Matters. Subject to the following sentence, prior to the Effective
Time of Merger I, Parent and Company shall take all such steps as may be required (to the extent
permitted under applicable Legal Requirements and no-action letters issued by the SEC) to cause any
acquisition of Parent Common Stock (including derivative securities with respect to Parent Common
Stock) by each individual who is or will be subject to the reporting requirements of Section 16(a)
of the Exchange Act with respect to Parent, to be exempt under Rule 16b-3 under the Exchange Act.
At least thirty (30) days prior to the Closing Date, Company shall furnish the following
information to Parent for each individual who, immediately after the Effective Time of Merger I,
will become subject to the reporting requirements of Section 16(a) of the Exchange Act with respect
to Parent: (a) the number of shares of Company Capital Stock held by such individual and expected
to be exchanged for shares of Parent Common Stock pursuant to Merger I; and (b) the number of other
derivative securities (if any) with respect to Company Capital Stock held by such individual and
expected to be converted into shares of Parent Common Stock or derivative securities with respect
to Parent Common Stock in connection with Merger I.
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5.15 280G. Company shall use commercially reasonable efforts to obtain and deliver to
Parent a waiver agreement in a form reasonably acceptable to Parent (a “280G Waiver”), from each
Person who is, with respect to the Company, a “disqualified individual” (within the meaning of
Section 280G of the Code and the regulations promulgated thereunder) who might otherwise receive or
have the right or entitlement to receive a “parachute payment” within the meaning of Section 280G
of the Code, unless the requisite Company stockholder approval of those payments and/or benefits is
obtained pursuant to Section 280G of the Code.
5.16 Updated Merger Consideration Spreadsheet. At least three business days prior to
the Closing, Company shall deliver to Parent a final Merger Consideration Spreadsheet.
5.17 Tax Matters. If applicable, prior to the effectiveness of the Registration
Statement: (a) Company shall execute and deliver to Xxxxxx LLP and Xxxxxx & Xxxxxxx LLP a tax
representation letter in a customary form for transactions such as the Transaction in which shares
of capital stock are registered on Form S-4 as may be reasonably requested by Xxxxxx LLP or Xxxxxx
& Xxxxxxx LLP; and (b) Parent and the Merger Subs shall execute and deliver to Xxxxxx LLP and
Xxxxxx & Xxxxxxx LLP a tax representation letter in a customary form for transactions such as the
Transaction in which shares of capital stock are registered on Form S-4 as may be reasonably
requested by Xxxxxx LLP or Xxxxxx & Xxxxxxx LLP.
ARTICLE 6
CONDITIONS TO THE TRANSACTION
6.1 Conditions to Obligation of Each Party to Effect the Transaction. The respective
obligations of each party to effect the Transaction shall be subject to the satisfaction at or
prior to the Effective Time of Merger I the following conditions:
(i) The California Commissioner shall have issued a permit under Section 25121 of the
California Corporations Code (following a Fairness Hearing) for the issuance of the Parent Common
Stock to be issued in Merger I, and all applicable requirements of Section 3(a)(10) of the
Securities Act shall have been satisfied; or
(ii) The Registration Statement shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the Registration Statement shall
have been issued by the SEC, and no proceedings for that purpose shall have been initiated or, to
the knowledge of Parent or Company, threatened by the SEC.
(b) No Restraints. No temporary restraining order, preliminary or permanent
injunction or other Order preventing the consummation of the Transaction shall have been issued by
any court of competent jurisdiction or other Governmental Body and remain in effect, and there
shall not be any Legal Requirement enacted or deemed applicable to the Transaction that makes
consummation of the Transaction illegal.
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(c) No Governmental Litigation. There shall not be pending or overtly threatened any
Legal Proceeding in which a Governmental Body is or is threatened to become a party: (i)
challenging or seeking to restrain, prohibit, rescind or unwind the consummation of the Transaction
or any of the other transactions contemplated hereunder; (ii) seeking to prohibit or limit in any
material respect Parent’s ability to vote, transfer, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Surviving Corporation or the Surviving
Entity; (iii) that would reasonably be expected to materially and adversely affect the right or
ability of Parent or Company to own any of the material assets or materially limit the operation of
the business of Company; (iv) seeking to compel Company, Parent or any Subsidiary of Parent to
dispose of or hold separate any material assets or material business as a
result of the Transaction or any of the other transactions contemplated hereunder; or (v)
relating to the Transaction or the other transactions contemplated hereunder and seeking to impose
(or that would reasonably be expected to result in the imposition of) any criminal sanctions or
criminal liability on Parent or Company.
(d) Governmental Authorizations. Any Governmental Authorization required to be
obtained with respect to the Transaction under any applicable Legal Requirements shall have been
obtained and shall remain in full force and effect (other than any such Governmental Authorization
under other Legal Requirements, for which the failure to obtain would not result in a Parent
Material Adverse Effect or Company Material Adverse Effect).
(e) Blue Sky Laws. The actions set forth on Schedule 6.1(e) (relating to the state
securities laws that must be complied with in connection with the Transaction) shall have been
complied with and any Consent issued by any Governmental Body related thereto shall be in full
force and effect.
(f) Stockholder Approval. Company shall have obtained the Required Company
Stockholder Vote.
6.2 Additional Conditions to Obligations of Parent. The obligations of Parent to
effect the Transaction are also subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of Company
contained in this Agreement (together with the Company Disclosure Schedule) shall be true and
correct in all respects on and as of the Closing Date, with the same force and effect as if made on
and as of the Closing Date, except for those representations and warranties which address matters
only as of a particular date (which shall remain true and correct as of such date); provided,
however, that: (i) for purposes of determining the accuracy of such representations and warranties
as of the foregoing dates all materiality and Company Material Adverse Effect qualifications
limiting the scope of such representations and warranties shall be disregarded; and (ii) any
inaccuracies in such representations and warranties will be disregarded if the circumstances giving
rise to all such inaccuracies (considered collectively) do not constitute a Company Material
Adverse Effect.
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(b) Agreements and Covenants. Company shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time of Merger I.
(c) Material Adverse Change. Since the date of this Agreement, there shall have been
no Company Material Adverse Effect.
(d) Current Liabilities. Company shall have aggregate Current Liabilities, excluding
the current portion of any long-term debt and the principal amount of the Parent Bridge Financing
(including any interest thereon), of no more than $3,500,000.
(e) Litigation. There shall not be pending or overtly threatened any Legal Proceeding
relating to the Transaction or the other transactions contemplated hereunder and seeking material
damages that would reasonably be expected to require Company or Parent (following the consummation
of the Transaction) to incur material defense costs or result in a material judgment against
Company or payment by Company of a material settlement amount, taking into account the availability
of insurance to cover costs of defense and any claims.
(f) Employment Agreement. The amended and restated employment agreement between
Xxxxxxx Xxxxxxx and Company (the “Plewman Agreement”) shall continue to be in full force and effect
and Xxxxxxx Xxxxxxx shall continue to be employed by Company pursuant to the terms thereof.
(g) Closing Deliverables. Parent shall have received the following agreements and
documents, each of which shall be in full force and effect:
(i) a certificate executed by the Chief Executive Officer and Chief Financial Officer of
Company confirming that the conditions set forth in Sections 6.1(f), 6.2(a) and 6.2(b) have been
duly satisfied;
(ii) a certificate executed by the secretary of Company attaching and certifying Company’s
current certificate of incorporation, bylaws and certificates of good standing of Company in its
jurisdiction of organization and the various foreign jurisdictions in which it is qualified, the
incumbency of Company officers and the resolutions of Company’s board of directors and stockholders
approving and adopting this Agreement, the Transaction and the other transactions contemplated by
this Agreement;
(iii) a statement pursuant to Treasury Regulations Sections 1.1445-2(c)(3) and 1.897-2(h)
certifying that interests in the Company are not “United States real property interests”;
(iv) the Escrow Agreement executed by each of the Escrow Agent and the Company Stockholders’
Agent; and
(v) an amendment to the Supply Agreement with BioCheck, Inc., dated April 16, 2003, amended
August 23, 2005 and December 1, 2007, executed by Company and BioCheck, Inc. which extends the term
of the agreement until April 16, 2013 or a new agreement between Company and BioCheck, Inc. in a
form reasonably acceptable to Parent.
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6.3 Additional Conditions to Obligations of Company. The obligation of Company to
effect the Transaction is also subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of Parent
contained in this Agreement (together with the Parent Disclosure Schedule) shall be true and
correct in all respects on and as of the Closing Date, with the same force and effect as if made on
and as of the Closing Date, except for those representations and warranties which address matters
only as of a particular date (which shall remain true and correct as of such date);
provided, however, that: (i) for purposes of determining the accuracy of such representations
and warranties as of the foregoing dates all materiality and Parent Material Adverse Effect
qualifications limiting the scope of such representations and warranties shall be disregarded; and
(ii) any inaccuracies in such representations and warranties will be disregarded if the
circumstances giving rise to all such inaccuracies (considered collectively) do not constitute a
Parent Material Adverse Effect.
(b) Agreements and Covenants. Parent shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be performed or complied
with by it on or prior to the Effective Time of Merger I.
(c) Material Adverse Change. Since the date of this Agreement, there shall have been
no Parent Material Adverse Effect.
(d) Current Liabilities. Parent shall have aggregate Current Liabilities, including
indebtedness, but excluding obligations and deferred rent under Parent’s real property leases, of
no more than $400,000.
(e) Litigation. There shall not be pending or overtly threatened any Legal Proceeding
relating to the Transaction or the other transactions contemplated hereunder and seeking material
damages that would reasonably be expected to require Parent (following the consummation of the
Transaction) to incur material defense costs or result in a material judgment against Parent or
payment by Parent of a material settlement amount, taking into account the availability of
insurance to cover costs of defense and any claims.
(f) Closing Deliverables. Company shall have received the following agreements and
documents, each of which shall be in full force and effect:
(i) a certificate executed by the President of Parent confirming that the conditions set forth
in Sections 6.3(a) and 6.3(b) have been duly satisfied;
(ii) a certificate executed by the secretary of Parent attaching and certifying Parent’s
current certificate of incorporation, bylaws and certificates of good standing of Parent in its
jurisdiction of organization and the various foreign jurisdictions in which it is qualified, the
incumbency of Parent officers and the resolutions of Parent’s board of directors approving and
adopting this Agreement, the Transaction and the other transactions contemplated by this Agreement;
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(iii) the Escrow Agreement executed by Parent; and
(iv) a guaranty in a form reasonably acceptable to Parent and Company executed by Parent in
favor of Xxxxxxx Xxxxxxx pursuant to which Parent agrees to guaranty the payment of the monetary
compensation payable to Xx. Xxxxxxx under the Plewman Agreement (it being understood that Parent
shall not otherwise guaranty any other obligations or liabilities of Company to Xx. Xxxxxxx).
(g) 280G Stockholder Approval.
(i) Company shall have used commercially reasonable efforts to obtain from each Person who is,
with respect to Company, a “disqualified individual” (within the meaning of Section 280G of the
Code and the regulations promulgated thereunder), and any such 280G Waiver shall be in full force
and effect immediately prior to the solicitation of requisite Company.
(ii) With respect to any payments and/or benefits that Company reasonably determines (through
an analysis that is reasonably satisfactory to Parent) may constitute “parachute payments” under
Section 280G of the Code with respect to any employees who have executed a 280G Waiver, the
stockholders of Company shall have (i) approved, pursuant to the method provided for in the
regulations promulgated under Section 280G of the Code, any such “parachute payments” or (ii) shall
have voted upon and disapproved such parachute payments, and, as a consequence, such parachute
payments shall not be paid or provided for in any manner, and Parent and the Merger Subs shall not
have any liabilities with respect to such parachute payments.
ARTICLE 7
TERMINATION
7.1 Termination. This Agreement may be terminated at any time prior to the Effective
Time of Merger I, notwithstanding approval thereof by the stockholders of Company and Parent:
(a) by mutual written consent duly authorized by the boards of directors of Parent and
Company;
(b) by either Parent or Company if the Transaction shall not have been consummated by the End
Date (provided that the right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Transaction to occur on or before such date);
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(c) by either Parent or Company if a court of competent jurisdiction or governmental,
regulatory or administrative agency or commission shall have issued a non-appealable final order,
decree or ruling or taken any other action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Transaction;
(d) by either Parent or Company, if the required approval of the stockholders of Company
contemplated by this Agreement shall not have been obtained by reason of the failure to obtain the
requisite vote upon a vote taken at a meeting of stockholders convened therefor or at any
adjournment thereof (provided that the right to terminate this Agreement under this Section 7.1(d)
shall not be available to any party where the failure to obtain stockholder approval of such party
shall have been caused by the action or failure to act of such party in breach of this Agreement);
(e) by Parent or Company, upon a breach of any covenant or agreement on the part of Company or
Parent, respectively, set forth in this Agreement, in either case, such that the conditions set
forth in Section 6.2(b), or Section 6.3(b), would not be satisfied (a “Terminating Breach”),
provided that, if such Terminating Breach is curable prior to the expiration of thirty (30) days
from its occurrence (but in no event later than the End Date) by Parent or Company, as the case may
be, through the exercise of its commercially reasonable efforts and for so long as Parent or
Company, as the case may be, continues to exercise such commercially reasonable efforts, neither
Company nor Parent, respectively, may terminate this Agreement under this Section 7.1(e) unless
such thirty (30) day period expires without such Terminating Breach having been cured;
(f) by Company, if there shall have occurred any Parent Material Adverse Effect since the date
of this Agreement;
(g) by Parent, if there shall have occurred any Company Material Adverse Effect since the date
of this Agreement;
(h) by Parent (at any time prior to the adoption of this Agreement by the Required Company
Stockholder Vote) if a Company Triggering Event shall have occurred; or
(i) by Company if a Parent Triggering Event shall have occurred.
7.2 Notice of Termination; Effect of Termination. Any termination of this Agreement
under Section 7.1 above will be effective immediately upon the delivery of written notice of the
terminating party to the other parties hereto. In the event of the termination of this Agreement
pursuant to Section 7.1, this Agreement shall forthwith become void and there shall be no liability
on the part of any party hereto or any of its Affiliates, directors, officers or stockholders
except (i) as set forth in Sections 7.2, 7.3 and Articles 8 and 9 hereof, and (ii) nothing herein
shall relieve any party from liability for any willful breach hereof. No termination of this
Agreement shall affect the obligations of the parties contained in the Confidentiality Agreement,
all of which obligations shall survive termination of this Agreement in accordance with its terms.
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7.3 Expenses; Termination Fees.
(a) Except as set forth in this Section 7.3, all fees and expenses incurred in connection with
this Agreement and the transactions contemplated by this Agreement shall be paid by the party
incurring such expenses, whether or not the Transaction is consummated; provided, however, that:
(i) Pursuant to the provisions of that certain Summary of Terms dated April 12, 2010 by and
between Company and Parent (the “Term Sheet”), Parent shall reimburse Company for reasonable
out-of-pocket transaction expenses actually incurred by Company prior to the date of this Agreement
in connection with the negotiation of this Agreement (the “Reimbursed Expenses”).
(ii) Parent and Company shall share equally all fees and expenses, other than attorneys’ fees,
incurred in connection with (A) the filing, printing and mailing of the Information Statement or
Registration Statement and any amendments or supplements thereto and (B) the filing of the Permit
Application.
(b) If this Agreement is terminated by Parent pursuant to Section 7.1(h), then Company shall
pay to Parent, in cash, a nonrefundable fee in the amount of $850,000 (the “Company Break-Up Fee”),
with such payment to be made no later than the earlier of: (i) the last day of the 12th full
calendar month following the date of such termination or (ii) the consummation of a Company
Acquisition Transaction.
(c) If this Agreement is terminated by Company pursuant to Section 7.1(i), then Parent shall
pay to Company, in cash, within two (2) business days after the termination of this Agreement, a
nonrefundable fee in the amount of $850,000 less the aggregate amount of Reimbursed Expenses (the
“Parent Break-Up Fee”).
(d) If this Agreement is terminated by Parent or Company pursuant to Section 7.1(d) and the
board of directors of Company determined to effect a Company Acquisition Transaction,, within
twelve (12) months following the date this Agreement is terminated, then, Company shall pay Parent
the Company Break-Up Fee, within two (2) business days after the consummation of such transaction.
(e) If Company fails to pay when due any amount payable by Company under this Section 7.3,
then (i) Company shall reimburse Parent for all costs and expenses (including fees and
disbursements of counsel) incurred in connection with the collection of such overdue amount and the
enforcement by Parent of its rights under this Section 7.3, and (ii) Company shall pay to Parent
interest on such overdue amount (for the period commencing as of the date such overdue amount was
originally required to be paid and ending on the date such overdue amount is actually paid to
Parent in full) at a rate per annum equal to the “prime rate” (as announced by Bank of America or
any successor thereto) in effect on the date such overdue amount was originally required to be
paid. If Parent fails to pay when due any amount payable by Parent under this Section 7.3, then
(i) Parent shall reimburse Company for all costs and expenses (including fees and disbursements of
counsel) incurred in connection with the collection of such overdue amount and the enforcement by
Company of its rights under this Section 7.3, and (ii) Parent shall pay to Company interest on such
overdue amount (for the period commencing as of the date such overdue amount was originally
required to be paid and ending on the date such overdue amount is actually paid to Company in full)
at a rate per annum equal to the “prime rate” (as announced by Bank of America or any successor
thereto) in effect on the date such overdue amount was originally required to be paid.
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ARTICLE 8
INDEMNIFICATION
8.1 Survival of Representations and Warranties. The representations and warranties of
Company and Parent set forth in this Agreement and in any certificate, exhibit or
schedule hereto shall survive the Closing and expire on the 12 month anniversary of the
Closing Date (the “Expiration Date”); provided, however, if Parent delivers to the Company
Stockholders’ Agent, before expiration of a representation or warranty, a claim notice pursuant to
Section 8.4 based upon a breach of or inaccuracy in such representation or warranty, then the
applicable representation or warranty shall survive until the resolution of any claims arising from
or related to the matter covered by such notice. Subject to the disclosures contained in the
Company Disclosure Schedule, the representations and warranties made by Company, and the covenants
and obligations of Company, and the rights and remedies that may be exercised by the Parent
Indemnified Persons, shall not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or knowledge of, any of the Parent
Indemnified Persons’ officers, directors, stockholders, employees, agents or Affiliates. The
agreements, covenants and other obligations of Company and Parent set forth in this Agreement and
in any certificate, exhibit or schedule hereto shall survive the Closing and the Effective Time of
Merger II in accordance with their respective terms.
8.2 Indemnification and Escrow Fund. At the Closing, Parent shall, on behalf of the
Indemnifying Persons, transfer to Deutsche Bank (“Escrow Agent”) the number of shares of Parent
Common Stock equal to ten percent (10%) (rounded down to the nearest whole share) of the Closing
Company Parent Share Number (the “Escrow Fund”), which shares shall be held the Escrow Agent under
the terms set forth in an Escrow Agreement (substantially in the form of Exhibit F hereto)
among the Parent, the Company Stockholders’ Agent and the Escrow Agent (“Escrow Agreement”) and
shall be available to indemnify the Parent Indemnified Persons pursuant to the indemnification
provisions set forth in this Article 8. Subject to Section 8.3, the Indemnifying Persons shall
indemnify the Parent Indemnified Persons from and against any and all Losses paid, incurred,
sustained or accrued by Parent, the Surviving Corporation, the Surviving Entity, or any other
Parent Indemnified Person arising from or in connection with any of the matters set forth in
clauses (a) through (d) below, and, subject to Section 8.1 and 8.3, the Indemnifying Persons shall
indemnify Parent, the Surviving Corporation, the Surviving Entity and the other Parent Indemnified
Persons for and in respect of, and hold each of them harmless from and against, any and all such
Losses:
(a) any breach of or inaccuracy in any representation or warranty of Company contained (i) in
this Agreement, either when made as of the date of this Agreement or immediately prior to the
Effective Time of Merger I as though made immediately prior to the Effective Time of Merger I
(except for such representations that speak only as of a particular time, which need only be
accurate as of such time) or (ii) in any certificate delivered by Company to Parent pursuant to
this Agreement;
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(b) any breach or nonperformance by Company of or noncompliance by Company with any covenant,
agreement or other obligation of Company set forth in or arising under this Agreement;
(c) any payment to a stockholder or former stockholder of Company in settlement or
satisfaction of a claim or threatened claim under the appraisal rights provisions of the Delaware
General Corporation Law exceeding the amount that such holder is entitled to
receive pursuant to Section 1.6(a) of this Agreement (including the costs of defense of any
such claim); and
(d) any legal proceeding relating to clauses (a) through (c) above.
8.3 Limitations on Indemnification. Notwithstanding the foregoing, the right to
indemnification under this Article 8 shall be subject to the following terms:
(a) Except in the case of actual fraud involving a knowing and intentional misrepresentation
of a fact material to the transactions contemplated by this Agreement made with the intent of
inducing any other party hereto to enter into this Agreement and upon which such other party has
relied (as opposed to any fraud claim based on constructive knowledge, negligent misrepresentation
or a similar theory) under applicable tort laws, (i) no indemnification arising from Section 8.2(a)
shall be payable unless and until the amount of all claims for indemnification arising from Section
8.2(a) exceed $250,000 (the “General Deductible”) in the aggregate, whereupon indemnification
arising from Section 8.2(a) shall be payable for all amounts in excess of the General
Deductible and (ii) no indemnification arising from Section 8.2(c) shall be payable
unless and until the amount of all claims for indemnification arising from Section 8.2(c) exceed
$250,000 (the “Appraisal Deductible”) in the aggregate, whereupon indemnification arising from
Section 8.2(c) shall be payable for all amounts in excess of the Appraisal Deductible.
(b) No indemnification shall be payable pursuant to Section 8.2 for claims asserted other than
as set forth in Section 8.4.
(c) Except in the case of actual fraud involving a knowing and intentional misrepresentation
of a fact material to the transactions contemplated by this Agreement made with the intent of
inducing any other party hereto to enter into this Agreement and upon which such other party has
relied (as opposed to any fraud claim based on constructive knowledge, negligent misrepresentation
or a similar theory) under applicable tort laws, the Escrow Fund shall be the exclusive means for
Parent Indemnitees to collect any Losses under this Agreement.
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(d) In the case of actual fraud involving a knowing and intentional misrepresentation of a
fact material to the transactions contemplated by this Agreement made with the intent of inducing
any other party hereto to enter into this Agreement and upon which such other party has relied (as
opposed to any fraud claim based on constructive knowledge, negligent misrepresentation or a
similar theory) under applicable tort laws, the following provisions shall apply:
(i) the Parent Indemnified Persons shall have recourse to the Escrow Fund with respect to any
Losses which arise from or as a result of, or are connected with, such actual fraud (irrespective
of the Person who actually participated in or had knowledge of such fraudulent or intentional
misrepresentation); and
(ii) in addition to the rights and remedies referred to in clause “(i)” of this sentence, with
respect to any Exchange Stockholder who knowingly participated in or had
actual knowledge of such actual fraud, there shall be no limit on such Exchange Stockholder’s
liability for such actual fraud.
8.4 Procedure for Recovery from Escrow Fund. The Parent Indemnified Persons and the
Company Stockholders’ Agent, on behalf of the Indemnifying Persons, shall follow the procedures set
forth in the Escrow Agreement in order to recover Losses from the Escrow Fund.
8.5 Defense of Third Party Claims.
(a) In the event of the assertion or commencement by any Person of any claim or Legal
Proceeding (whether against the Merger Subs or Company, against Parent or against any other Person)
with respect to which any Indemnifying Person may become obligated to indemnify any Parent
Indemnified Person pursuant to Section 8, Parent shall have the right, at its election, to proceed
with the defense of such claim or Legal Proceeding on its own with counsel reasonably satisfactory
to the Company Stockholders’ Agent. If Parent so proceeds with the defense of any such claim or
Legal Proceeding:
(i) subject to the other provisions of Section 8, all reasonable expenses relating to the
defense of such claim or Legal Proceeding shall be borne and paid exclusively by the Escrow Fund;
and
(ii) Parent shall have the right to settle, adjust or compromise such claim or Legal
Proceeding.
(b) Parent shall give the Company Stockholders’ Agent prompt notice of the commencement of any
such Legal Proceeding against Parent, the Merger Subs or Company; provided, however, that any
failure on the part of Parent to so notify the Company Stockholders’ Agent shall not limit any of
the obligations of the Indemnifying Persons under Section 8 (except to the extent such failure
materially prejudices the defense of such Legal Proceeding). If Parent does not elect to proceed
with the defense of any such claim or Legal Proceeding, the Company Stockholders’ Agent may proceed
with the defense of such claim or Legal Proceeding with counsel reasonably satisfactory to Parent;
provided, however, that the Company Stockholders’ Agent may not settle, adjust or compromise any
such claim or Legal Proceeding without the prior written consent of Parent (which consent may not
be unreasonably withheld, conditioned or delayed).
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8.6 Indemnification Claims.
(a) In order to seek indemnification under this Section 8, a Parent Indemnified Person shall
deliver, in good faith, a written demand (an “Indemnification Demand”) to the Company Stockholders’
Agent which contains (i) a description and the amount (the “Asserted Damages Amount”) of any Losses
incurred or reasonably expected to be incurred by the Parent Indemnified Person, (ii) a statement
that the Parent Indemnified Person is entitled to indemnification under this Section 8 for such
Losses and a reasonable explanation of the basis therefor, and (iii) a demand for payment in the
amount of such Losses. Parent shall also deliver a copy of the Indemnification Demand to the
Escrow Agent contemporaneously with its delivery to
the Company Stockholders’ Agent. For all purposes of this Section 8.6(a), the Company
Stockholders’ Agent shall be entitled to deliver Indemnification Demands to Parent on behalf of the
Indemnifying Persons.
(b) Within twenty (20) days after delivery of an Indemnification Demand to the Company
Stockholders’ Agent, the Company Stockholders’ Agent shall deliver to the Parent Indemnified Person
a written response (the “Response”) in which the party providing the Response shall: (i) agree that
the Parent Indemnified Person is entitled to receive all of the Asserted Damages Amount (in which
case, the Company Stockholders’ Agent and Parent shall deliver to the Escrow Agent, within three
(3) days following the delivery of the Response, a written notice executed by both such parties
instructing the Escrow Agent to distribute to Parent such number of shares of Parent Common Stock
held in the Escrow Fund as have an aggregate Charter Value equal to the Asserted Damages Amount);
(ii) agree that the Parent Indemnified Person is entitled to receive part, but not all, of the
Asserted Damages Amount (such portion, the “Agreed Portion”) (in which case, the Company
Stockholders’ Agent and Parent shall deliver to the Escrow Agent, within three (3) days following
the delivery of the Response, a written notice executed by both such parties instructing the Escrow
Agent to distribute to Parent such number of shares of Parent Common Stock held in the Escrow Fund
as have an aggregate Charter Value equal to the Amount of the Agreed Portion); or (iii) dispute
that the Parent Indemnified Person is entitled to receive any of the Asserted Damages Amount.
(c) In the event that the Company Stockholders’ Agent shall (i) dispute that the Parent
Indemnified Person is entitled to receive any of the Asserted Damages Amount, or (ii) agree that
the Parent Indemnified Person is entitled to only the Agreed Portion of the Asserted Damages
Amount, the Company Stockholders’ Agent and Parent shall attempt in good faith to agree upon the
rights of the respective parties with respect to each of the indemnification claims that comprise
the Asserted Damages Amount (or the portion of the Asserted Damages Amount not comprising the
Agreed Portion). If the Company Stockholders’ Agent and Parent should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both such parties and, in the case of
a demand for recovery from the Escrow Fund, shall be furnished to the Escrow Agent. If no such
agreement can be reached after good faith negotiation within sixty (60) days after delivery of a
Response, either Parent or the Company Stockholders’ Agent may demand arbitration of any matter set
forth in the applicable Indemnification Demand. The matter shall be settled by arbitration
conducted by one arbitrator mutually agreeable to Parent and the Company Stockholders’ Agent. In
the event that, within thirty (30) days after submission of any dispute to arbitration, Parent and
the Company Stockholders’ Agent cannot mutually agree on one arbitrator, then the parties shall
arrange for the American Arbitration Association to designate a single arbitrator in accordance
with the rules of the American Arbitration Association.
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(d) Any such arbitration shall be held in San Francisco, California, under the rules and
procedures then in effect of the American Arbitration Association. The arbitrator shall determine
how all expenses relating to the arbitration shall be paid, including the respective expenses of
each party, the fees of the arbitrator and the administrative fee of the American Arbitration
Association. The arbitrator shall set a limited time period and establish procedures designed to
reduce the cost and time for discovery while allowing Parent and the Company
Stockholders’ Agent an opportunity, adequate in the sole judgment of the arbitrator to
discover relevant information from the opposing parties about the subject matter of the dispute.
The arbitrator shall rule upon motions to compel or limit discovery and shall have the authority to
impose sanctions, including attorneys’ fees and costs, to the same extent as a competent court of
law or equity, should the arbitrator determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial justification. The
decision of the arbitrator as to the validity and amount of any indemnification claim in such
Indemnification Demand shall be subject to the limitations set forth in this Agreement and final,
binding and conclusive upon the parties. Such decision shall be written and shall be supported by
written findings of fact and conclusions which shall set forth the award, judgment, decree or order
awarded by the arbitrator. All payments required by the arbitrator shall be made within thirty
(30) days after the decision of the arbitrator is rendered. Judgment upon any award rendered by
the arbitrator may be entered in any court having jurisdiction. The reasonable fees, expenses and
costs of Parent associated with the arbitration process shall be considered “Losses” for purposes
of this Agreement (subject to the exceptions and the proviso in the definition thereof).
ARTICLE 9
GENERAL PROVISIONS
9.1 Notices. All notices and other communications given or made pursuant hereto shall
be in writing and shall be deemed to have been duly given or made as of the date delivered if
delivered personally, three (3) days after being sent by registered or certified mail (postage
prepaid, return receipt requested), one day after dispatch by recognized overnight courier
(provided delivery is confirmed by the carrier) and upon transmission by facsimile or electronic
(i.e., PDF) transmission, confirmed received, to the parties at the following addresses (or at such
other address for a party as shall be specified by like changes of address):
VaxGen, Inc.
000 Xxxxxx Xxxxx Xxxxxxxxx, Xxxxx 00
Xxxxx Xxx Xxxxxxxxx, XX 00000
Attn: Xxxxx Xxxxx
E-Mail: xxxxxx@xxxxxx.xxx
Facsimile: (000) 000-0000
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With a copy to:
Xxxxxx LLP
0000 Xxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attn.: Xxxxx Xxxxxxx
E-Mail: xxxxxxxx@xxxxxx.xxx
Facsimile: (000) 000-0000
and
Xxxxxx LLP
0000 Xxxxxxxx Xxxx
Xxx Xxxxx, XX 00000
Attn.: Xxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
diaDexus, Inc.
000 Xxxxxx Xxxxx Xxxxxxxxx
Xxxxx Xxx Xxxxxxxxx, XX 00000
Attn: President and Chief Executive Officer
E-Mail: XXxxxxxx@xxxxxxxx.xxx
Facsimile: (000) 000-0000
With a copy to:
Xxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxxx
Xxxxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxx
E-Mail: xxxxxx.xxxxxx@xx.xxx
Facsimile: (000) 000-0000
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(c) |
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If to Company Stockholders’ Agent: |
Xxxx X. Xxxxx
c/x Xxxxxxx & Company
Xxx Xxxxxxxxxxx xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx XX 00000-0000
E-Mail: xxxxxx@x-x.xxx
Facsimile: (000)000-0000
With a copy to:
Xxxxxx & Xxxxxxx LLP
000 Xxxxx Xxxxx
Xxxxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxx
E-Mail: xxxxxx.xxxxxx@xx.xxx
Facsimile: (000) 000-0000
9.2 Amendment. This Agreement may be amended by the parties hereto by action taken by
or on behalf of their respective boards of directors or managers, as applicable, at any time prior
to the Effective Time of Merger I; provided, however, that, after approval of the Transaction by
the stockholders of Company, no amendment may be made which by Legal Requirements requires further
approval by such stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
9.3 Headings. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this Agreement.
9.4 Severability. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public policy, all other conditions
and provisions of this Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision is invalid, illegal
or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent
possible.
9.5 Entire Agreement. This Agreement constitutes the entire agreement and supersedes
all prior agreements and undertakings (other than the Confidentiality Agreement), both written and
oral, among the parties, or any of them, with respect to the subject matter hereof and, except as
otherwise expressly provided herein, are not intended to confer upon any other person any rights or
remedies hereunder.
9.6 Assignment. No party may assign this Agreement or any of its rights, interests or
obligations hereunder without the prior written approval of the other parties hereto.
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9.7 Parties In Interest. This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, expressed or implied, is intended to
or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under
or by reason of this Agreement, other than Section 5.5 (which is intended to be for the benefit of
the parties indemnified thereby and may be enforced by such parties).
9.8 Waiver. No failure or delay on the part of any party hereto in the exercise of
any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor shall any single or partial
exercise of any such right preclude other or further exercise thereof or of any other right. At
any time prior to the Effective Time of Merger I, any party hereto may, with respect to any other
party hereto, (a) extend the time for the performance of any of the obligations or other acts, (b)
waive any inaccuracies in the representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions
contained herein. Any such extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound.
9.9 Remedies Cumulative. All rights and remedies existing under this Agreement are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
9.10 Governing Law; Jurisdiction; Specific Performance. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the
laws that might otherwise govern under applicable principles of conflicts of laws thereof. In any
action between any of the parties arising out of or relating to this Agreement or any of the
transactions contemplated by this Agreement: (a) each of the parties irrevocably and
unconditionally consents and submits to the exclusive jurisdiction and venue of the state and
federal courts located in the Northern District of California; (b) if any such action is commenced
in a state court, then, subject to applicable law, no party shall object to the removal of such
action to any federal court located in the Northern District of California; (c) each of the
parties irrevocably waives the right to trial by jury; and (d) each of the parties irrevocably
consents to service of process by first class certified mail, return receipt requested, postage
prepaid, to the address at which such party is to receive notice in accordance with Section 9.1.
The parties agree that irreparable damage would occur and that the parties would not have any
adequate remedy at law in the event that any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement, this being in addition to
any other remedy to which they are entitled at law or in equity.
9.11 Counterparts. This Agreement may be executed in one or more counterparts, and by
the different parties hereto in separate counterparts and by facsimile or electronic (i.e, PDF)
transmission, each of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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9.12 Attorney Fees. In any action at law or suit in equity to enforce this Agreement
or the rights of any of the parties hereunder, the prevailing party in such action or suit shall be
entitled to receive a reasonable sum for its attorneys’ fees and all other reasonable costs and
expenses incurred in such action or suit.
9.13 Cooperation. Each party hereto agrees to cooperate fully with the other parties
hereto and to execute and deliver such further documents, certificates, agreements and instruments
and to take such other actions as may be reasonably requested by the other parties hereto to
evidence or reflect the transactions contemplated by this Agreement and to carry out the intent and
purposes of this Agreement.
9.14 Construction.
(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 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,” “Exhibits”
and “Schedules” are intended to refer to Sections of this Agreement and Exhibits or Schedules to
this Agreement.
(e) The term “knowledge of Company”, and all variations thereof, shall mean the actual
knowledge of the persons set forth on Schedule 9.14(e)(i) after reasonable inquiry; provided
however, that with respect to matters in Section 2.9 (other than with respect to Section 2.9(e)),
“knowledge of Company” means the actual knowledge of the person set forth on Schedule 9.14(e)(ii)
for each such section without the further qualification, obligation or inquiry or imputation of
knowledge. The term “knowledge of the Parent”, and all variations thereof, shall mean the actual
knowledge of the persons set forth on Schedule 9.14(e)(iii) after reasonable inquiry; provided
however, that with respect to matters in Section 3.9, “knowledge of Parent” means the actual
knowledge of such persons for each such section without the further qualification, obligation or
inquiry or imputation of knowledge. For purposes of this Section 9.14(e), “reasonable inquiry” by
any individual shall be deemed to mean obtaining actual knowledge of the following: (i) each fact,
circumstance, event or other matter that is reflected in one or more documents (whether written or
electronic, including electronic mails sent to or by such individual) in, or that have been in, the
possession of such individual, (ii) each fact, circumstance, event or other matter that is
reflected in one or more documents (whether written or electronic) contained in books and records
of such person that would reasonably be expected to be reviewed by an individual who has the duties
and responsibilities of such individual in the customary performance of such duties and
responsibilities, and (iii) knowledge that could be obtained from reasonable inquiry of an
individual’s direct reports.
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[Signature Page Follows]
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IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be executed as of
the date first written above.
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VAXGEN, INC.
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By: |
/s/ Xxxxx X. Xxxxx
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Name: |
Xxxxx X. Xxxxx |
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Title: |
President |
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VIOLET ACQUISITION CORPORATION
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By: |
/s/ Xxxxx X. Xxxxx
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Name: |
Xxxxx X. Xxxxx |
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Title: |
President |
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VIOLET ACQUISITION LLC
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By: |
VaxGen, Inc.
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Its: Sole Member |
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By: |
/s/ Xxxxx X. Xxxxx
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Name: |
Xxxxx X. Xxxxx |
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Title: |
President |
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[Signature Page to Agreement and Plan of Merger and Reorganization]
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DIADEXUS, INC.
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By: |
/s/ Xxxxxxx Xxxxxxx
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Xxxxxxx Xxxxxxx |
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President & Chief Executive Officer |
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[Signature Page to Agreement and Plan of Merger and Reorganization]
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Xxxx X. Xxxxx, P.h.D.,
as Company Stockholders’ Agent
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/s/ Xxxx X. Xxxxx
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[Signature Page to Agreement and Plan of Merger and Reorganization]
EXHIBIT A
For purposes of this Agreement (including this Exhibit A):
“Affiliates” shall mean, with respect to any Person, any other Person which directly or
indirectly controls, is controlled by or is under common control with such Person.
“Charter Value” shall mean an amount equal to the average closing bid or sale price of the
Parent Common Stock over the 30 day period ending 3 business days prior to the Closing.
“Closing Company Exchanged Stock Share Number” shall mean the Closing Company Parent Share
Number minus the Retention Bonus Shares.
“Closing Company Parent Share Number” shall mean the product of (1) the Company Ownership
Percentage divided by the Parent Ownership Percentage, multiplied by (b) the Closing Parent Share
Number (rounded down to the nearest whole share).
“Closing Company Share Number” shall mean the sum of the number of shares of Exchanged Stock
outstanding immediately prior to the Effective Time of Merger I.
“Closing Parent Share Number” shall mean the sum of the number of shares of Parent Common
Stock outstanding immediately prior to the Effective Time of Merger I.
“Company Acquisition Proposal” shall mean any offer, proposal, inquiry or indication of
interest contemplating or otherwise relating to any Company Acquisition Transaction.
“Company Acquisition Transaction” shall mean any transaction or series of transactions
involving:
(a) any merger, consolidation, amalgamation, share exchange, business combination, issuance
of securities, acquisition of securities, tender offer, exchange offer or other similar
transaction (i) in which Company is a constituent corporation, (ii) in which a Person
directly or indirectly acquires beneficial or record ownership of securities representing
more than 20% of the outstanding securities of any class of voting securities of Company, or
(iii) in which Company issues securities representing more than 20% of the outstanding
securities of any class of voting securities of Company (other than as contemplated under
this Agreement);
(b) any sale, lease, exchange, transfer, license, acquisition or disposition of any business
or businesses or assets that constitute or account for 20% or more of the consolidated net
revenues, net income or assets of Company; or
(c) any liquidation or dissolution of Company.
A-1
“Company Bridge Financing” shall mean the loan of $1,500,000 to the Company by certain of the
Company’s existing stockholders pursuant to the terms and conditions of that certain Note Purchase
Agreement.
“Company Capital Stock” shall mean the Company Common Stock and the Company Preferred Stock.
“Company Common Stock” shall mean the Common Stock, $0.01 par value per share, of Company.
“Company Disclosure Schedule” shall mean the written disclosure schedule delivered by Company
to Parent, which shall be arranged in sections corresponding to the representations and warranties
set forth in Article 2; provided, however, the information and disclosures contained in one section
of the Company Disclosure Schedule shall be deemed to be disclosed and incorporated by reference in
each of the other sections of the Company Disclosure Schedule as though fully set forth in such
other section of the Company Disclosure Schedule (whether or not specific cross-references are
made) where it is reasonably apparent on the face of such disclosure that such disclosure is
relevant to another representation and warranty.
“Company IP Rights” means all IP Rights owned solely or co-owned by Company or in which
Company has any right, title or interest.
“Company Lock-Up Agreement Signatories” shall mean: (a) each officer and director of Company;
and (b) each stockholder of Company holding at least 10% of the outstanding shares of Company
Capital Stock.
“Company Material Adverse Effect” shall mean any Effect that, considered together with all
other Effects, is or would reasonably be expected to be or result in a material adverse effect on:
(a) the business, financial condition or results of operations of Company taken as a whole;
provided, however, that, in no event shall any Effects resulting from any of the following, alone
or in combination, be deemed to constitute, or be taken into account in determining whether there
has occurred, a Company Material Adverse Effect: (i) conditions generally affecting the industries
in which Company participates or the U.S. or global economy as a whole, to the extent that such
conditions do not have a disproportionate impact on Company, taken as a whole; (ii) general
conditions in the financial markets, and any changes therein (including any changes arising out of
acts of terrorism, war, weather conditions or other force majeure events), to the extent that such
conditions do not have a disproportionate impact on Company, taken as a whole; (iii) changes in
GAAP (or any interpretations of GAAP) applicable to Company; or (iv) loss of employees, suppliers
or customers (including customer orders or contracts) resulting directly from the announcement or
pendency of this Agreement or the transactions contemplated hereunder; or (b) the ability of
Company to consummate the Transaction or any of the other transactions contemplated hereunder or to
perform any of its covenants or obligations under this Agreement; or (c) Parent’s ability to vote,
transfer, receive dividends with respect to or otherwise exercise ownership rights with respect to
the stock of the Surviving Corporation or the Surviving Entity or to exercise its rights under this
Agreement.
A-2
“Company Option” shall mean an option to purchase shares of Company Common Stock.
“Company Option Plans” shall mean the Company 2000 Equity Incentive Plan the Company 2010
Equity Incentive Plan, in each case, as amended through the date of this Agreement.
“Company Ownership Percentage” shall mean 38.49 if the Parent Bridge Financing is equal to
$4,000,000 or less. If the Parent Bridge Financing exceeds $4,000,000 then the Company Ownership
Percentage shall be reduced by an amount equal to 0.000001915 for every dollar the Parent Bridge
Financing exceeds $4,000,000.
“Company Preferred Stock” shall mean the Preferred Stock, $0.01 par value per share, of
Company.
“Company Privacy Policy” shall mean each external or internal, past or present privacy policy
of Company, including any policy relating to (a) the privacy of users of the Company Products or of
any Company Website, (b) the collection, storage, disclosure, and transfer of any User Data or
Personal Data, and (c) any employee information.
“Company Product” shall mean any product or service designed, developed, manufactured,
marketed, distributed, licensed, or sold at any time by Company.
“Company Series A Preferred Stock” shall mean the Series A Preferred Stock, $0.01 par value
per share, of Company.
“Company Series B Preferred Stock” shall mean the Series B Preferred Stock, $0.01 par value
per share, of Company.
“Company Series C Preferred Stock” shall mean the Series C Preferred Stock, $0.01 par value
per share, of Company.
“Company Series D Preferred Stock” shall mean the Series D Preferred Stock, $0.01 par value
per share, of Company.
“Company Series E Preferred Stock” shall mean the Series E Preferred Stock, $0.01 par value
per share, of Company.
“Company Series F Preferred Stock” shall mean the Series F Preferred Stock, $0.01 par value
per share, of Company.
“Company Superior Offer” shall mean a bona fide written Company Acquisition Proposal made by a
third party for Company, that is determined by the board of directors of Company, in its good faith
judgment, after consulting with an independent reputable financial advisor and outside legal
counsel, and after taking into account all legal, regulatory, financial and other aspects of the
proposal, including the likelihood and anticipated timing of consummation, to be more favorable
from a financial point of view to Company’s stockholders than the Transaction and is reasonably
capable of being completed; provided, however, that for
purposes of this definition of “Company Superior Offer,” the defined term “Company Acquisition
Proposal” shall have the meaning assigned to such term herein, except that all references to “20%”
contained in the definition of “Company Acquisition Transaction” when it is used in the definition
of Company Acquisition Proposal shall be deemed to be a reference to “50%.”
A-3
A “Company Triggering Event” shall be deemed to have occurred if: (a) the board of directors
of Company shall have failed to recommend that Company’s stockholders vote to adopt this Agreement,
or shall have withdrawn or shall have modified in a manner adverse to Parent the Company Board
Recommendation; (b) Company shall have failed to include in the Information Statement the Company
Board Recommendation; (c) the board of directors of Company shall have approved, endorsed or
recommended any Company Acquisition Proposal, including, without limitation, a Company Superior
Offer; (d) Company shall have entered into any letter of intent or similar document or any other
agreement relating to any Company Acquisition Proposal; (e) a tender or exchange offer relating to
securities of Company shall have been commenced and Company shall not have sent to its
securityholders, within ten (10) business days after the commencement of such tender or exchange
offer, a statement disclosing that Company recommends rejection of such tender or exchange offer;
(f) a Company Acquisition Proposal shall have been publicly announced, and Company shall have
failed to issue a press release announcing its opposition to such Company Acquisition Proposal
within ten (10) business days after such Company Acquisition Proposal is announced; (g) the board
of directors of Company shall have approved a plan of liquidation, bankruptcy or other dissolution;
(h) Company shall have materially breached its obligations under Section 5.11; or (i) Company shall
have breached its obligations under Section 5.2(a).
“Company Voting Agreement Signatories” shall mean: (a) Scale Venture Partners and its
Affiliates; (b) Xxxxx Brothers and its Affiliates; and (c) each of the directors and officers of
Company, each to the extent the same holds Company Capital Stock as of the date of this Agreement.
“Company Website” shall mean any public or private website owned, maintained, or operated at
any time by or on behalf of Company.
“Consent” shall mean any approval, consent, ratification, permission, waiver or authorization
(including any Governmental Authorization).
“Copyrights” shall mean all copyrightable works and copyrighted works, registered or
unregistered, published or unpublished, including without limitation databases and other
compilations of information, and all categories of works eligible for protection under U.S. and
international copyright law, including rights of authorship, exclusive ownership, of attribution
and integrity, and include exclusive rights to use, copy, publish, reproduce, distribute, perform,
display, sell, assign, adapt, create derivative works, import, export, and transmit, as well as
exclusive rights to register, seek registration and obtain renewals and extensions of
registrations, together with all other rights and interests under U.S. and international copyright
law.
A-4
“Current Liabilities” shall mean liabilities of Company or Parent, as applicable, that are to
be settled in cash within a twelve month period; provided, however, “Current Liabilities” shall not
include any fees or expenses related to events that relate to or result from the pendency or
consummation of the transactions contemplated hereunder, including, without limitation, fees,
expenses and other charges of any legal counsel, financial advisors, accountants and other third
party professionals, or any financial printers, incurred by Parent or Company, as applicable, (or
for which such Person is otherwise responsible) in connection with this Agreement, the Transaction
and/or the transactions contemplated hereunder.
“Customer Offerings” shall mean (a) the products that Company (i) currently develops,
manufactures, markets, distributes, makes available, sells or licenses commercially to third
parties, or (ii) has developed, manufactured, marketed, distributed, made available, sold or
licensed to third parties within the previous four (4) years and (b) the services that Company (i)
currently provides or makes available to third parties, or (ii) has provided or made available to
third parties within the previous four (4) years.
“Effect” shall mean any effect, change, event or circumstance.
“End Date” shall mean the date that is six (6) months after the date of this Agreement.
“Entity” shall mean any corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture, estate, trust,
company (including any company limited by shares, limited liability company or joint stock
company), firm, society or other enterprise, association, organization or entity.
“Exchange Act” shall mean the Securities Exchange of 1934, as amended.
“Exchange Stockholders” shall mean the holders of Company Series F Preferred Stock issued and
outstanding immediately prior to the Effective Time of Merger I.
“Exchanged Stock” shall mean the Company Series F Preferred Stock.
“FDA” shall mean the U.S. Food and Drug Administration.
“Governmental Authorization” shall mean any: (a) permit, license, certificate, franchise,
permission, variance, clearance, registration, qualification or authorization issued, granted,
given or otherwise made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any agreement, arrangement, understanding or contract
with any Governmental Body.
“Governmental Body” shall mean any: (a) nation, state, commonwealth, province, territory,
county, municipality, district or other jurisdiction of any nature; (b) federal, state, local,
municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, regulatory agency, department, agency, commission,
instrumentality, official, ministry, fund, foundation, center, organization, unit, body or Entity
and any court or other tribunal).
A-5
“Indemnifying Persons” shall mean the holders of Series F Preferred Stock and certain of the
Retention Bonus Plan Participants, as identified in the Merger Consideration Spreadsheet, that are
entitled to Parent Common Stock pursuant to Section 1.6 of this Agreement, to the extent the same
constitutes the Escrow Fund, and, to the extent applicable, their respective successors, assigns,
heirs and legal representatives and estate.
“IP Rights” shall mean any and all of the following in any country or region: (a) Copyrights,
Patent Rights, Trademark Rights, moral rights, trade secrets, technology licenses, know-how, and
other intellectual property rights; and (b) the right (whether at law, in equity, by contract or
otherwise) to enjoy or otherwise exploit any of the foregoing, including the right to xxx for and
seek remedies against past, present and future infringements of any or all of the foregoing, and
rights of priority and protection of interests therein under the Legal Requirements of any
jurisdiction worldwide.
“Legal Proceeding” shall mean any action, suit, litigation, arbitration, proceeding (including
any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry,
audit, examination or investigation commenced, brought, conducted or heard by or before, or
otherwise involving, any court or other Governmental Body or any arbitrator or arbitration panel.
“Legal Requirements” shall mean any federal, state, local, municipal, foreign or other law,
statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule,
regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
“Losses” shall mean any and all losses, claims, shortages, damages, liabilities, expenses
(including reasonable attorney and accountant fees), assessments, Taxes (including interest or
penalties thereon) sustained, suffered or incurred by any Parent Indemnified Person; provided,
however, that any adverse effect on the price of Parent Common Stock shall not be used as a
measurement of the amount of any Losses.
“Material Company IP Rights” shall mean all Company IP Rights other than those which,
individually or in the aggregate, are immaterial to the conduct of the current Company business;
provided, however, that all Company IP Rights that relate directly to the Company Products shall
constitute Material Company IP Rights.
“Material Parent IP Rights” shall mean all Parent IP Rights other than those which,
individually or in the aggregate, are immaterial to the conduct of the current Parent business.
“Merger Sub I Common Stock” shall mean the Common Stock, $0.001 par value per share, of the
Merger Sub I.
“Not Substantially Equivalent Letter” shall mean a letter from the FDA stating that a device
is not substantially equivalent to a predicate and may not be legally marketed in the United
States.
“Order” shall mean any order, writ, injunction, judgment or decree.
A-6
“Parent Acquisition Proposal” shall mean any offer, proposal, inquiry or indication of
interest contemplating or otherwise relating to any Parent Acquisition Transaction.
“Parent Acquisition Transaction” shall mean any transaction or series of transactions
involving:
(d) any merger, consolidation, amalgamation, share exchange, business combination, issuance
of securities, acquisition of securities, tender offer, exchange offer or other similar
transaction (i) in which Parent (or its Subsidiaries) is a constituent corporation, (ii) in
which a Person directly or indirectly acquires beneficial or record ownership of securities
representing more than 20% of the outstanding securities of any class of voting securities
of Parent (or its Subsidiaries), or (iii) in which Parent (or its Subsidiaries) issues
securities representing more than 20% of the outstanding securities of any class of voting
securities of Parent (other than as contemplated under this Agreement);
(e) any sale, lease, exchange, transfer, license, acquisition or disposition of any business
or businesses or assets that constitute or account for 20% or more of the consolidated net
revenues, net income or assets of Parent (or its Subsidiaries); or
(f) any liquidation or dissolution of any of Parent (or its Subsidiaries).
“Parent Disclosure Schedule” shall mean the written disclosure schedule delivered by Parent to
Company, which shall be arranged in sections corresponding to the representations and warranties
set forth in Article 3; provided, however, the information and disclosures contained in one section
of the Parent Disclosure Schedule shall be deemed to be disclosed and incorporated by reference in
each of the other sections of the Parent Disclosure Schedule as though fully set forth in such
other section of the Parent Disclosure Schedule (whether or not specific cross-references are made)
where it is reasonably apparent on the face of such disclosure that such disclosure is relevant to
another representation and warranty.
“Parent Bridge Financing” shall mean the loan of up to $6,000,000 to the Company by Parent
pursuant to the terms and conditions of that certain Loan Agreement by and between Company and
Parent dated as of May 28, 2010.
“Parent Indemnified Person” shall mean and include, Parent, Parent’s Affiliates and
Subsidiaries (including, without limitation, after the Effective Time of Merger I, the Surviving
Corporation, and, after the Effective Time of Merger II, the Surviving Entity) and each of their
respective successors and assigns, and the respective officers and directors of each of the
foregoing Persons.
“Parent IP Rights” means all IP Rights owned solely or co-owned by Parent or in which Parent
has any right, title or interest.
A-7
“Parent Material Adverse Effect” shall mean any Effect that, considered together with all
other Effects, is or would reasonably be expected to be or result in a material adverse effect on:
(a) the business, financial condition or results of operations of Parent and its Subsidiaries,
taken as a whole; provided, however, that, in no event shall any Effects resulting from any of the
following, alone or in combination, be deemed to constitute, or be taken into account in
determining whether there has occurred, a Parent Material Adverse Effect: (i) conditions generally
affecting the industries in which Parent participates or the U.S. or global economy as a whole, to
the extent that such conditions do not have a disproportionate impact on Parent and its
Subsidiaries, taken as a whole; (ii) general conditions in the financial markets, and any changes
therein (including any changes arising out of acts of terrorism, war, weather conditions or other
force majeure events), to the extent that such conditions do not have a disproportionate impact on
Parent and its Subsidiaries, taken as a whole; (iii) changes in the trading price or trading volume
of Parent Common Stock (it being understood, however, that, except as otherwise provided in clauses
“(i),” “(ii),” “(iv),” “(v)” or “(vi)” of this sentence, any Effect giving rise to or contributing
to such changes in the trading price or trading volume of Parent Common Stock may give rise to a
Parent Material Adverse Effect and may be taken into account in determining whether a Parent
Material Adverse Effect has occurred); (iv) changes in GAAP (or any interpretations of GAAP)
applicable to Parent or any of its Subsidiaries; or (v) loss of employees, suppliers or customers
(including customer orders or contracts) resulting directly from the announcement or pendency of
this Agreement or the transactions contemplated hereunder; or (b) the ability of Parent or the
Merger Subs to consummate the Transaction or any of the other transactions contemplated hereunder
or to perform any of its covenants or obligations under this Agreement.
“Parent Option Plans” shall mean (a) Parent’s 1996 Stock Option Plan, as amended and (b)
Parent’s 1998 Director Stock Option Plan, as amended.
“Parent Ownership Percentage” shall be equal to one hundred minus the Company Ownership
Percentage.
“Parent SEC Documents” shall mean each report, registration statement and definitive proxy
statement filed by Parent with the SEC since January 1, 2008.
“Parent Superior Offer” shall mean a bona fide written Parent Acquisition Proposal made by a
third party for Parent, that is determined by the board of directors of Parent, in its good faith
judgment, after consulting with an independent reputable financial advisor and outside legal
counsel, and after taking into account all legal, regulatory, financial and other aspects of the
proposal, including the likelihood and anticipated timing of consummation, to be more favorable
from a financial point of view to Parent’s stockholders than the Transaction and is reasonably
capable of being completed; provided, however, that for purposes of this definition of “Parent
Superior Offer,” the defined term “Parent Acquisition Proposal” shall have the meaning assigned to
such term herein, except that all references to “20%” contained in the definition of “Parent
Acquisition Transaction” when it is used in the definition of Parent Acquisition Proposal shall be
deemed to be a reference to “50%.”
A-8
A “Parent Triggering Event” shall be deemed to have occurred if: (a) the board of directors
of Parent shall have approved, endorsed or recommended any Parent Acquisition Proposal, including,
without limitation, a Parent Superior Offer; (b) Parent shall have entered into any letter of
intent or similar document or any other agreement relating to any Parent Acquisition Proposal; (c)
a tender or exchange offer relating to securities of Parent shall have
been commenced and Parent shall not have sent to its securityholders, within ten (10) business
days after the commencement of such tender or exchange offer, a statement disclosing that Parent
recommends rejection of such tender or exchange offer; (d) a Parent Acquisition Proposal shall have
been publicly announced, and Parent shall have failed to issue a press release announcing its
opposition to such Parent Acquisition Proposal within ten (10) business days after such Parent
Acquisition Proposal is announced; (e) the board of directors of Parent shall have approved a plan
of liquidation, bankruptcy or other dissolution; or (f) Parent shall have materially breached its
obligations under Section 5.12.
“Patent Rights” shall mean all issued patents, pending patent applications and abandoned
patents and patent applications provided that they can be revived (which for purposes of this
Agreement shall include utility models, design patents, industrial designs, certificates of
invention and applications for certificates of invention and priority rights) in any country or
region, including all provisional applications, substitutions, continuations,
continuations-in-part, divisions, renewals, reissues, re-examinations and extensions thereof.
“Person” shall mean any person, Entity, Governmental Body, or group (as defined in Section
13(d)(3) of the Exchange Act).
“Personal Data” shall mean a natural person’s name, street address, telephone number, e-mail
address, photograph, social security number, driver’s license number, passport number, or customer
or account number, or any other piece of information that allows the identification of a natural
person.
“Product Liability Claims” shall mean any actual or alleged liability for death or injury to
person or property as a result of any actual or alleged defect in any product, any actual or
alleged warranty, recall or similar liability for any product, or any statutory liability or any
liability assessed with respect to any failure to warn arising out of and product.
“Product Registration” shall mean permission from FDA or an analogous governmental authority
allowing a medical device to be lawfully distributed for clinical studies or for commercial use in
a country, including establishment registration and device listing with FDA, investigational device
exemptions, premarket notification clearances and premarket approvals in the United States,
and those submissions, reports, registrations, listings, markings and other filings with any
governmental entities analogous to FDA that are necessary to allow a medical device to be lawfully
distributed for clinical studies or commercial use in a country.
A party’s “Representatives” shall include each Person that is or becomes (a) a Subsidiary or
other Affiliate of such party or (b) an officer, director, employee, partner, attorney, advisor,
accountant, agent or representative of such party or of any such party’s Subsidiaries or other
Affiliates.
“Retention Bonus Shares” shall mean 8% of the Closing Company Parent Share Number (rounded
down to the nearest whole share).
A-9
An entity shall be deemed to be a “Subsidiary” of another Person if 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 or financial interests of such Entity.
“SEC” shall mean the United States Securities Exchange Commission.
“Securities Act” shall mean the Securities Act of 1933, as amended.
“Series F Exchange Ratio” shall mean (a) the Closing Company Exchanged Stock Share Number,
divided by (b) the Closing Company Share Number.
“Substantially Equivalent Letter” shall mean a letter from the FDA stating that a device is
substantially equivalent to a predicate and may be legally marketed in the United States.
“Tax” and “Taxes” shall mean all income, profits, gross receipts, environmental, customs duty,
capital stock, sales, use, occupancy, value added, ad valorem, stamp, franchise, withholding,
payroll, employment, unemployment, disability, excise, property, production and other taxes, duties
or assessments of any nature imposed by any Governmental Body (whether national, local, municipal
or otherwise) or political subdivision thereof, together with all interest, penalties and additions
imposed with respect to such Taxes and any interest in respect of such penalties or additions.
“Trademark Rights” shall mean all trademarks, registered trademarks, applications for
registration of trademarks, trade dress, logos, service marks, registered service marks,
applications for registration of service marks, trade names, registered trade names and
applications for registration of trade names, corporate names, business identifiers, registered or
unregistered, domain names, website addresses, and intranet sites together with all translations,
transliterations, adaptions, derivations, and combinations thereof; and including goodwill
associated therewith and all intent to use any of the foregoing if not registered or subject to a
pending application.
“User Data” shall mean any Personal Data or other data or information collected by or on
behalf of Company from users of the Company Products or of any Company Website.
Additionally, the following terms have the meanings assigned to such terms in the Sections of
this Agreement set forth below opposite such term:
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|
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Defined Word |
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Section of Agreement |
“280G Waiver” |
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Section 5.15 |
“Agreed Portion” |
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Section 8.6(b) |
“Agreement” |
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Preamble |
“Appraisal Deductible” |
|
Section 8.3(a) |
“Asserted Damages Amount” |
|
Section 8.6(a) |
“California Commissioner” |
|
Section 2.4(b) |
“Certificate of Merger I” |
|
Section 1.2 |
“Certificate of Merger II” |
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Section 1.2 |
A-10
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|
|
“Certifications” |
|
Section 3.6(a) |
“Closing” |
|
Section 1.1(c) |
“Closing Date” |
|
Section 1.1(c) |
“COBRA” |
|
Section 2.13(b) |
“Code” |
|
Section 1.8(e) |
“Company” |
|
Preamble |
“Company Balance Sheet” |
|
Section 2.6(a) |
“Company Board Recommendation” |
|
Section 5.1(a) |
“Company Break-Up Fee” |
|
Section 7.3(b) |
“Company Contract” |
|
Section 2.17 |
“Company Databases” |
|
Section 2.9(k) |
“Company Employee Plans” |
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Section 2.13(a) |
“Company Environmental Permits” |
|
Section 2.15(c) |
“Company Financials” |
|
Section 2.6(a) |
“Company Intervening Event” |
|
Section 5.2(a)(ii)(B) |
“Company Permits” |
|
Section 2.10(b) |
“Company Stock Certificate” |
|
Section 1.9 |
“Company Stockholders’ Agent” |
|
Preamble |
“Company Voting Agreements” |
|
Recitals |
“Confidentiality Agreement” |
|
Section 5.3 |
“Delaware Law” |
|
Recitals |
“Dissenting Shares” |
|
Section 1.7 |
“DLLCA” |
|
Recitals |
“Effective Time of Merger I” |
|
Section 1.2 |
“Effective Time of Merger II” |
|
Section 1.2 |
“EIRs” |
|
Section 2.10(c) |
“ERISA” |
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Section 2.13(a) |
“ERISA Affiliate” |
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Section 2.13(a) |
“Escrow Agent” |
|
Section 8.2 |
“Escrow Agreement” |
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Section 8.2 |
“Escrow Fund” |
|
Section 8.2 |
“Exchange Agent” |
|
Section 1.8(a) |
“Exchange Fund” |
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Section 1.8(a) |
“Expiration Date” |
|
Section 8.1 |
“Fairness Approval” |
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Section 5.1(b) |
“Fairness Hearing” |
|
Section 5.1(b) |
“FFDCA” |
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Section 2.10(c) |
“GAAP” |
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Section 2.6(a) |
“General Deductible” |
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Section 8.3(a) |
“Hazardous Material” |
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Section 2.15(a) |
“Hazardous Material Activities” |
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Section 2.15(b) |
“HIPAA” |
|
Section 2.13(f) |
“HMO” |
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Section 2.13(k) |
“Indemnification Demand” |
|
Section 8.6(a) |
“Information Statement” |
|
Section 5.1(a) |
“Insurance Policies” |
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Section 2.23(a) |
“Interim Financial Statements” |
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Section 5.7 |
“knowledge of Company” |
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Section 9.14(e) |
“knowledge of Parent” |
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Section 9.14(e) |
A-11
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“Lock-Up Agreements” |
|
Recitals |
“Merger I” |
|
Recitals |
“Merger II” |
|
Recitals |
“Merger Consideration Spreadsheet” |
|
Section 2.2 |
“Merger Sub I” |
|
Preamble |
“Merger Sub II” |
|
Preamble |
“Merger Subs” |
|
Preamble |
“Parent” |
|
Preamble |
“Parent Break-Up Fee” |
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Section 7.3(c) |
“Parent Common Stock” |
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Section 1.6(a)(i) |
“Parent Contract” |
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Section 3.17 |
“Parent Employee Plans” |
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Section 3.13(a) |
“Parent Environmental Permits” |
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Section 3.15(c) |
“Parent Financials” |
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Section 3.6(c) |
“Parent Permits” |
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Section 3.10(b) |
“Permit Application” |
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Section 2.4(b) |
“Plewman Agreement” |
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Section 6.2(f) |
“Pre-Closing Period” |
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Section 5.3 |
“reasonable inquiry” |
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Section 9.14(e) |
“Registration Statement” |
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Section 2.4(b) |
“Reimbursed Expenses” |
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Section 7.3(a)(i) |
“Required Company Stockholder Vote” |
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Section 2.19(b) |
“Response” |
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Section 8.6(b) |
“Retention Bonus Plan” |
|
Section 1.6(f) |
“Retention Bonus Plan Participants” |
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Section 1.6(f) |
“Safety Notices” |
|
Section 2.10(d) |
“Series F Merger Consideration” |
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Section 1.6(a)(i) |
“Surviving Corporation” |
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Section 1.1(a) |
“Surviving Entity” |
|
Section 1.1(b) |
“Tax Returns” |
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Section 2.8(a) |
“Term Sheet” |
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Section 7.3(a)(i) |
“Terminating Breach” |
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Section 7.1(e) |
“Transaction” |
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Recitals |
A-12