Agreement and Plan of Merger By and Among Interwoven, Inc., Presidio Acquisition Corp., Discovery Mining, Inc. and Charles R. Work, as Representative July 23, 2008
Exhibit 2.1
By and Among
Interwoven, Inc.,
Presidio Acquisition Corp.,
Discovery Mining, Inc.
and
Xxxxxxx X. Work, as Representative
July 23, 2008
TABLE OF CONTENTS
Page(s) | ||||
ARTICLE 1 CERTAIN DEFINITIONS |
2 | |||
ARTICLE 2 PLAN OF MERGER |
10 | |||
2.1 The Merger |
10 | |||
2.2 Conversion and Exchange of Capital Stock and Company Options |
10 | |||
2.3 Adjustments |
12 | |||
2.4 Escrow |
12 | |||
2.5 Appraisal Rights |
12 | |||
2.6 Total Merger Consideration |
13 | |||
2.7 Net Working Capital Adjustment |
13 | |||
2.8 Effects of the Merger |
14 | |||
2.9 Tax Consequences |
15 | |||
2.10 Further Assurances |
15 | |||
2.11 Rights Not Transferable |
15 | |||
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF COMPANY |
15 | |||
3.1 Organization and Good Standing |
16 | |||
3.2 Subsidiaries |
16 | |||
3.3 Power, Authorization and Validity |
16 | |||
3.4 Capitalization |
17 | |||
3.5 No Conflicts |
19 | |||
3.6 Litigation |
19 | |||
3.7 Financial Statements |
20 | |||
3.8 Taxes |
21 | |||
3.9 Title to Assets and Properties; Condition of Equipment and Property |
23 | |||
3.10 Absence of Certain Changes |
24 | |||
3.11 Contracts |
25 | |||
3.12 No Default; No Restrictions |
28 | |||
3.13 Intellectual Property. |
28 | |||
3.14 Privacy |
33 | |||
3.15 Compliance with Laws |
34 |
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(continued)
(continued)
Page(s) | ||||
3.16 Certain Transactions and Agreements |
34 | |||
3.17 Employee Benefit Plans and Employee Matters |
34 | |||
3.18 Insurance |
39 | |||
3.19 Environmental Matters |
39 | |||
3.20 Customers and Suppliers |
40 | |||
3.21 Export Control Laws |
41 | |||
3.22 Accounts Receivable |
41 | |||
3.23 Certain Payments |
41 | |||
3.24 Corporate Documents |
42 | |||
3.25 No Brokers |
42 | |||
3.26 Approvals Required |
42 | |||
3.27 Takeover Statutes |
42 | |||
3.28 Disclosure |
42 | |||
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF ACQUIRER AND SUB |
42 | |||
4.1 Organization and Good Standing |
43 | |||
4.2 Power, Authorization and Validity |
43 | |||
4.3 No Conflicts |
43 | |||
4.4 Acquirer Options |
44 | |||
4.5 Financing |
44 | |||
4.6 No Prior Sub Operations |
44 | |||
4.7 Litigation |
44 | |||
4.8 SEC Reports |
44 | |||
ARTICLE 5 COVENANTS OF COMPANY |
44 | |||
5.1 Advice of Changes |
44 | |||
5.2 Maintenance of Business |
44 | |||
5.3 Conduct of Business |
45 | |||
5.4 Stockholder Approval and Board Recommendation |
47 | |||
5.5 No Solicitation |
47 |
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TABLE OF CONTENTS
(continued)
(continued)
Page(s) | ||||
5.6 Regulatory Approvals |
49 | |||
5.7 Necessary Consents |
49 | |||
5.8 Litigation |
49 | |||
5.9 Access to Information |
49 | |||
5.10 Satisfaction of Conditions Precedent |
50 | |||
5.11 Employees |
50 | |||
5.12 Termination of Employee Plans |
50 | |||
5.13 Company Options and Related Matters |
51 | |||
5.14 Company Certificates |
51 | |||
5.15 Parachute Payment Waivers |
52 | |||
5.16 Section 280G Stockholder Approval |
52 | |||
5.17 Tax Matters |
52 | |||
5.18 Pay-Off Letter; Termination of Financing Statements |
53 | |||
5.19 Company Resolutions |
53 | |||
5.20 Charter Amendment |
53 | |||
ARTICLE 6 COVENANTS OF ACQUIRER |
54 | |||
6.1 Covenants of Acquirer |
54 | |||
ARTICLE 7 CLOSING MATTERS |
55 | |||
7.1 The Closing |
55 | |||
7.2 Conversion of Company Capital Stock and Company Vested Options;
Exchange of Certificates |
55 | |||
7.3 Lost, Stolen or Destroyed Certificates |
56 | |||
ARTICLE 8 CONDITIONS TO OBLIGATIONS OF COMPANY |
57 | |||
8.1 Company Stockholder Approval |
57 | |||
8.2 Accuracy of Representations and Warranties |
57 | |||
8.3 Covenants |
57 | |||
8.4 Compliance with Law; No Legal Restraints |
57 | |||
8.5 Government Consents |
57 | |||
8.6 Escrow Agreement |
57 |
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(continued)
(continued)
Page(s) | ||||
8.7 Documents |
57 | |||
ARTICLE 9 CONDITIONS TO OBLIGATIONS OF ACQUIRER AND SUB |
58 | |||
9.1 Company Stockholder Approval |
58 | |||
9.2 Accuracy of Representations and Warranties |
58 | |||
9.3 Covenants |
58 | |||
9.4 Absence of Material Adverse Change |
58 | |||
9.5 Compliance with Law; No Legal Restraints |
58 | |||
9.6 Government Consents |
58 | |||
9.7 No Litigation |
59 | |||
9.8 Documents |
59 | |||
9.9 Good Standing Certificates |
59 | |||
9.10 No Outstanding Securities |
59 | |||
9.11 FIRPTA Documentation |
59 | |||
9.12 Opinion of Company’s Counsel |
59 | |||
9.13 Escrow Agreement |
59 | |||
9.14 Secretary’s Certificate |
59 | |||
9.15 Directors and Officers |
59 | |||
9.16 Certain Closing Certificates and Documents |
60 | |||
9.17 Employment Matters |
60 | |||
9.18 Contractors |
60 | |||
9.19 Amendment to Company 401(k) Plans |
60 | |||
9.20 Termination of Company Stockholder Agreements |
60 | |||
9.21 New Company Options |
60 | |||
9.22 Section 280G Stockholder Approval |
61 | |||
9.23 Pay-Off Letter; Termination of Financing Statements |
61 | |||
9.24 Stockholder Agreements |
61 | |||
9.25 Requisite Approval |
61 | |||
9.26 Confirmatory Assignment Agreements |
61 | |||
9.27 Charter Amendment |
61 |
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(continued)
(continued)
Page(s) | ||||
ARTICLE 10 TERMINATION OF AGREEMENT |
61 | |||
10.1 Termination |
61 | |||
10.2 Effect of Termination |
62 | |||
ARTICLE 11 SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES |
62 | |||
11.1 Survival of Representations |
62 | |||
11.2 Escrow Fund |
63 | |||
11.3 Agreement to Indemnify |
63 | |||
11.4 Limitations |
63 | |||
11.5 Appointment of Representative |
65 | |||
11.6 Notice of Claim |
66 | |||
11.7 Resolution of Notice of Claim |
67 | |||
11.8 Defense of Third-Party Claims |
68 | |||
11.9 Staged Release of Escrow Fund |
69 | |||
ARTICLE 12 GENERAL PROVISIONS |
69 | |||
12.1 Governing Law; Submission to Jurisdiction; Judicial Reference |
69 | |||
12.2 Assignment; Binding Upon Successors and Assigns |
70 | |||
12.3 Severability |
70 | |||
12.4 Counterparts |
70 | |||
12.5 Other Remedies |
71 | |||
12.6 Amendment and Waivers |
71 | |||
12.7 Expenses |
71 | |||
12.8 Attorneys’ Fees |
71 | |||
12.9 Notices |
71 | |||
12.10 Stamp Duty |
73 | |||
12.11 Interpretation; Rules of Construction |
73 | |||
12.12 No Joint Venture |
73 | |||
12.13 Absence of Third-Party Beneficiary Rights |
73 | |||
12.14 Confidentiality |
73 |
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(continued)
(continued)
Page(s) | ||||
12.15 Entire Agreement |
74 |
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This Agreement and Plan of Merger (this “Agreement”) is entered into as of July 23,
2008 (the “Agreement Date”) by and among Interwoven, Inc., a Delaware corporation (“Acquirer”),
Presidio Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Acquirer
(“Sub”), Discovery Mining, Inc., a Delaware corporation (“Company”), and Xxxxxxx X. Work, as
representative of the Company Securityholders (the “Representative”).
Recitals
A. The parties intend that, subject to the terms and conditions hereinafter set forth, Sub
will merge with and into Company (the “Merger”), with Company to be the surviving corporation of
the Merger, all pursuant to the terms and conditions of this Agreement, the Certificate of Merger
(as defined in Article 1) and the applicable provisions of the laws of the State of
Delaware.
B. Company, Sub and Acquirer desire to make certain representations, warranties, covenants and
other agreements in connection with the Merger as set forth herein.
C. Concurrently with the execution and delivery of this Agreement, and as a condition and
inducement for the parties’ willingness to enter into this Agreement, each of the employees of
Company listed on Schedule 9.17-1 attached hereto (each, a “Key Employee”) is executing and
delivering to Acquirer an offer letter for employment with Acquirer together with Acquirer’s
standard employee invention assignment and confidentiality agreement, in each case to become
effective upon the Closing (as defined in Section 7.1).
D. Concurrently with the execution and delivery of this Agreement, and as a condition and
inducement for the parties’ willingness to enter into this Agreement, each of the employees of
Company listed on Schedule 9.17-3 attached hereto is entering into a non-competition
agreement with Acquirer (each, a “Non-Competition Agreement”), in each case to become effective
upon the Closing.
E. Concurrently with the execution and delivery of this Agreement, and as a condition and
inducement for the parties’ willingness to enter into this Agreement, certain employees of Company
identified on Schedule 9.17-4 hereto who might otherwise have the right or entitlement to
receive (i) accelerated vesting of, or accelerated right to exercise, any Company Options (as
defined in Article 1) in connection with the Merger and/or the termination of employment or
service with Company or Acquirer following the Merger and/or (ii) any severance payments or other
benefits or payments in connection with the Merger and/or the termination of employment or service
with Company or Acquirer following the Merger, are entering into benefits waivers (each, a
“Benefits Waiver”), pursuant to which each such employee has agreed to waive elements of such
accelerated vesting, accelerated right to exercise, payments and benefits as set forth therein.
F. Concurrently with the execution and delivery of this Agreement, and as a condition and
inducement for the parties’ willingness to enter into this Agreement, certain employee
securityholders of Company identified on Schedule 9.17-5 hereto are entering into equity
agreements with Company with respect to the revesting of certain Company Options held by such
employee securityholders (each, an “Equity Agreement”), in each case to become effective upon the
Closing.
G. Concurrently with the execution and delivery of this Agreement and as a material inducement
to the willingness of Acquirer to enter into this Agreement, Company is delivering to Acquirer a
stockholder agreement substantially in the form attached hereto as Exhibit A-3 (the
“Stockholder Agreement”) executed by each Company stockholder listed on Exhibit A-1.
Immediately
following the execution and delivery of this Agreement, Company will, in accordance
with the terms of this Agreement, use commercially reasonable efforts to secure from each Company
stockholder listed on Exhibit A-1 a written consent substantially in the form attached
hereto as Exhibit A-2 (the “Company Stockholder Consent”) approving the Merger and adopting
this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
Certain Definitions
Certain Definitions
As used herein, the following terms will have the meanings set forth below:
“Acquirer Ancillary Agreements” means all agreements (other than this Agreement) and documents
to which Acquirer is or will be a party that are required to be executed pursuant to this
Agreement.
“Acquirer Common Stock” means the common stock, par value $0.001 per share, of Acquirer,
together with related stock purchase rights.
“Acquirer Options” means options to purchase shares of Acquirer Common Stock.
“Acquirer SEC Reports” has the meaning given in Section 4.8.
“Acquisition Proposal” means any agreement, offer, proposal or bona fide indication of
interest by a Person (other than Acquirer or any of its Subsidiaries) or any public announcement of
intention to enter into any such agreement or of (or intention to make) any offer, proposal or bona
fide indication of interest relating to or involving: (a) any acquisition or purchase of Company
Capital Stock or Company Rights from Company or from the Company Securityholders by any Person or
“group” (as defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) representing 10% or more of the voting interest in the total outstanding voting
securities of Company; (b) any tender offer or exchange offer that, if consummated, would result in
any Person or “group” (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) beneficially owning Company Capital Stock or Company Rights representing
10% or more of the voting interest in the total outstanding voting securities of Company; (c) any
merger, consolidation, business combination or similar transaction involving Company; (d) any sale,
lease, mortgage, pledge, exchange, transfer, license, acquisition or disposition of 10% or more of
the assets of Company in any single transaction or series of related transactions; (e) any sale,
lease, exchange, transfer, license or disposition to a Person of all or a significant portion of
the Company Business; (f) any initial public offering of capital stock or other securities of
Company pursuant to a registration statement filed under the Securities Act; or (g) any
liquidation, dissolution, recapitalization or other significant corporate reorganization of Company
or any extraordinary dividend (whether of cash or other property).
“Affiliate” means an “affiliate” as such term is defined in Rule 405 promulgated under the
Securities Act.
“Aggregate Exercise Price” means the sum of (a) the aggregate exercise price of all Company
Vested Options that will be cashed out, as set forth in Exhibit B-1, in connection with the
Merger pursuant to Section 2.2(b)(iii) and (b) the aggregate exercise price of all Company
Options held by Xxxxxx Xxxxxxx as of immediately prior to the Closing, as set forth in Exhibit
B-2.
2
“Applicable Laws” means all foreign, federal, state, local, municipal or other laws, statutes,
constitutions, principles of common law, resolutions, ordinances, codes, edicts, decrees,
regulations, rules and other provisions having the force or effect of law, and all judicial and
administrative orders, writs, injunctions, awards, judgments, decrees and determinations,
applicable to a specified Person or to such Person’s assets, properties or business.
“Assumed Options” has the meaning given in Section 2.2(c).
“Average Price Per Share” means the average closing price of Acquirer Common Stock on the
Nasdaq Stock Market (or such other exchange or quotation system on which shares of Acquirer Common
Stock are then traded or quoted) and reported at xxx.xxxxxx.xxx for the ten (10) consecutive
trading days ending on (and inclusive of) the Agreement Date.
“business day” means a day (a) other than Saturday or Sunday and (b) on which commercial banks
are permitted by Applicable Laws to be open for business in San Francisco, California.
“Closing Expenses Certificate” means a certificate executed by the Chief Financial Officer of
Company dated as of the Closing Date, certifying the amount of Transaction Expenses (including an
itemized list of each Transaction Expense with a description of the nature of such expense and the
Person to whom such expense was or is owed). The Closing Expenses Certificate shall include a
representation of Company, certified by the Chief Financial Officer of Company, that such
certificate includes all of the Transaction Expenses paid or payable at any time prior to, at or
following the Closing Date, it being the expressed intent of Company and Acquirer that to the
maximum extent possible all the Transaction Expenses be deducted in the calculation of the Total
Merger Consideration and that there be no Indemnifiable Transaction Expenses; provided,
however, that any Transaction Expenses paid on or prior to the Closing Date shall not be
included as an Indemnifiable Transaction Expense, provided that such amounts are appropriately
reflected in the NWC Calculations.
“Common Cash Amount Per Share” means (a) the Total Common Consideration divided by (b) the
Fully Diluted Company Stock.
“Certificate of Merger” means a certificate of merger in substantially the form of Exhibit
C.
“Closing” has the meaning given in Section 7.1.
“Closing Date” has the meaning given in Section 7.1.
“Code” means the Internal Revenue Code of 1986, as amended.
“Company Ancillary Agreements” means all agreements (other than this Agreement) and documents
to which Company is or will be a party that are required to be executed pursuant to this Agreement.
“Company Board” means the Board of Directors of the Company.
“Company Business” means the business of Company and its Subsidiaries as presently being
conducted and as presently proposed to be conducted.
“Company Capital Stock” means the capital stock of Company.
“Company Common Stock” means the Common Stock, par value of $0.001 per share, of Company.
3
“Company Disclosure Letter” has the meaning given in the lead-in paragraph to Article
3.
“Company IP Rights” means (a) any and all Intellectual Property used in the conduct of the
Company Business and (b) any and all other Intellectual Property owned by Company and its
Subsidiaries.
“Company Option Plan” means the Discovery Mining, Inc. 2003 Stock Incentive Plan.
“Company Optionholders” means the holders of Company Options.
“Company Options” means options to purchase shares of Company Common Stock, whether or not
under the Company Option Plan, but does not include the Company Preferred Stock.
“Company-Owned IP Rights” means (a) Company IP Rights that are owned or are purportedly owned
by or exclusively licensed by Company or any of its Subsidiaries and (b) Company IP Rights that
were developed for Company or a Subsidiary by full or part time employees or consultants of Company
or its Subsidiaries.
“Company Preferred Stock” means the Preferred Stock, par value of $0.001 per share, of
Company.
“Company Products” means all products or services produced, marketed, licensed, sold,
distributed or performed by or on behalf of Company or any of its Subsidiaries and all products or
services currently under development by Company or any of its Subsidiaries.
“Company Registered Intellectual Property” means all United States, international and foreign:
(i) patents and patent applications (including provisional applications); (ii) registered
trademarks and service marks, applications to register trademarks and service marks, intent-to-use
applications, or other registrations or applications related to trademarks and service marks, (iii)
registered Internet domain names, (iv) registered copyrights and applications for copyright
registration; and (iv) Intellectual Property that are subject to an application, certificate,
filing, registration or other document issued, filed with or recorded by any Governmental Entity,
in each case, owned by, or registered or filed in the name of, Company or any of its Subsidiaries.
“Company Rights” means all options, warrants, calls, rights, commitments, conversion
privileges or preemptive or other rights or agreements outstanding to purchase or otherwise acquire
any shares of Company Capital Stock or any securities or debt convertible into or exchangeable for
shares of Company Capital Stock or obligating Company to grant, extend or enter into any such
option, warrant, call, right, commitment, conversion privilege or preemptive or other right or
agreement.
“Company Securityholders” means the Company Stockholders and Company Optionholders,
collectively.
“Company Series A Stock” means the Series A Preferred Stock, par value $0.001 per share, of
Company.
“Company Source Code” means, collectively, any software source code or confidential
manufacturing specifications or designs, any material portion or aspect of software source code or
4
confidential manufacturing specifications or designs, or any material proprietary information or
algorithm contained in or relating to any software source code or
confidential manufacturing
specifications or designs, of any Company-Owned IP Rights or Company Products.
“Company Stockholder Approval” has the meaning given in Section 3.22.
“Company Stockholder Consent” has the meaning given in Section 3.22.
“Company Stockholders” means the record holders of shares of issued and outstanding Company
Capital Stock.
“Company Unvested Option” means an option to purchase Company Common Stock that, as of the
Effective Time, is not vested under the terms of any Contract with Company or otherwise, after
giving effect to any waiver of acceleration agreed to by the holder of such option.
“Company Vested Options” means an option to purchase Company Common Stock that, as of the
Effective Time, is vested under the terms of any Contract with Company or otherwise, after giving
effect to any waiver of acceleration agreed to by the holder of such option.
“Company Warrants” means warrants to purchase shares of Company Common Stock.
“Continuing Employees” means the Offerees (as defined in Section 5.11) who execute the
Offeree Documents (as defined in Section 5.11) and remain employees of the Surviving
Company (as defined in Section 2.1) or any of its Subsidiaries or become employees of
Acquirer or any of its Subsidiaries following the Effective Time.
“Contract” means any legally binding contract, agreement, arrangement, commitment,
undertaking, instrument, permit, mortgage, license, sublicense, letter of intent, quotation,
statement of work, contract order or purchase order (in each case, whether oral or in writing).
“Delaware Law” means the General Corporation Law of the State of Delaware.
“Dissenting Shares” shall mean any shares of Company Capital Stock that are issued and
outstanding immediately prior to the Effective Time and in respect of which appraisal or
dissenters’ rights shall have been perfected in accordance with Delaware Law in connection with the
Merger.
“Effective Time” means the date and time on which the Merger first becomes legally effective
under the laws of the State of Delaware.
“Effective Time Holders” means the Company Stockholders (other than holders of solely shares
of Company Capital Stock which constitute and remain Dissenting Shares) and holders of Company
Vested Options as of immediately prior to the Effective Time.
“Employee Agreement” means any management, employment, severance, consulting, contractor,
relocation, expatriation or other Contract (including any offer letter, agreement to employ or
other Contract providing for compensation or benefits) between Company or any of its ERISA
Affiliates and any current or former employee or director of Company or any of its ERISA
Affiliates.
“Employee Plan” means (i) any plan, program, policy, practice or Contract providing for
compensation, severance, termination pay, deferred compensation, performance awards, equity or
equity-related awards, bonus, pension, profit sharing, savings, retirement, welfare benefits,
fringe benefits
5
or other employee benefits or remuneration of any kind, whether written, unwritten
or otherwise, funded or unfunded, including each “employee benefit plan” within the meaning of
Section 3(3) of ERISA, which is or has been maintained, contributed to or required to be
contributed to by Company or any of its ERISA Affiliates (including those provided, if applicable,
through a human resources and benefits outsourcing entity or other provider) for the benefit of any
current or former employee, director or consultant of Company or any of its ERISA Affiliates or
with respect to which Company or any of its ERISA Affiliates has or may have any Liability and any
loan to an employee in excess of $10,000 and (ii) any International Plan.
“Encumbrance” means, with respect to any asset, any mortgage, deed of trust, lien, pledge,
charge, security interest, title retention device, conditional sale or other security arrangement,
collateral assignment, claim, charge, adverse claim of title, ownership or right to use,
restriction or other encumbrance of any kind in respect of such asset (including any restriction on
(a) the voting of any security or the transfer of any security or other asset, (b) the receipt of
any income derived from any asset, (c) the use of any asset, and (d) the possession, exercise or
transfer of any other attribute of ownership of any asset).
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate” means any Person under common control with Company within the meaning of
Section 414(b), (c), (m) or (o) of the Code and the regulations issued thereunder.
“Escrow Cash” means an amount of cash equal to 10% of the Total Merger Consideration.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Expense Funds” has the meaning given in Section 2.4.
“Fully Diluted Company Stock” means the sum, without duplication, of the aggregate number of
shares of Company Capital Stock that are issued and outstanding immediately prior to the Effective
Time or issuable upon the exercise of Company Options (excluding New Company Options), Company
Warrants or other direct or indirect rights to acquire shares of Company Capital Stock that are
issued and outstanding immediately prior to the Effective Time (whether or not then vested or
exercisable); provided, however, that for purposes of calculating the Fully Diluted
Company Stock, the Fully Diluted Company Stock shall exclude the New Company Options and the shares
of Company Common Stock into which the New Company Options are exercisable.
“Fully Diluted Company Series A Stock” means the sum, without duplication, of the aggregate
number of shares of Company Series A Stock that are issued and outstanding immediately prior to the
Effective Time or any direct or indirect rights to acquire shares of Company Series A Stock
that are issued and outstanding immediately prior to the Effective Time (whether or not then vested
or exercisable).
“GAAP” means United States generally accepted accounting principles.
“Governmental Authority” means any court, administrative agency, commission or other
governmental agency or authority.
“Group” shall have the definition ascribed to such term under Section 13(d) of the Exchange
Act, the rules and regulations thereunder and related case law.
6
“Indemnifiable Transaction Expenses” means any Transaction Expenses which have not been taken
into account in the calculation of the Total Merger Consideration. All Indemnifiable Transaction
Expenses shall constitute “Indemnifiable Damages” for purposes of Article 11.
“Intellectual Property” means any and all industrial and intellectual property rights and all
rights associated therewith throughout the world, including all patents and applications therefor
and all reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof, all inventions (whether patentable or not), invention disclosures,
improvements, trade secrets, proprietary information, know how, technology, technical data,
proprietary processes and formulae, algorithms, specifications, customer lists and supplier lists,
all industrial designs and any registrations and applications therefor, all trade names, logos,
common law trademarks and service marks, trademark and service xxxx registrations and applications
therefor, including the goodwill symbolized by the foregoing, Internet domain names, Internet and
World Wide Web URLs or addresses, all copyrights, copyright registrations and applications
therefor, and all other rights corresponding thereto, all mask works, mask work registrations and
applications therefor, and any equivalent or similar rights in semiconductor masks, layouts,
architectures or topology, all computer software, including all source code, object code, firmware,
development tools, files, records and data, all schematics, netlists, test methodologies, test
vectors, emulation and simulation tools and reports, hardware development tools, and all rights in
prototypes, breadboards and other devices, all databases and data collections and all rights
therein, all moral and economic rights of authors and inventors, however denominated, and any
similar or equivalent rights to any of the foregoing, and all tangible embodiments of the
foregoing.
“International Plan” means any Employee Plan that has been adopted or maintained by Company or
any of its ERISA Affiliates, whether informally or formally, for the benefit of current or former
employees, directors or consultants of Company or any of its ERISA Affiliates outside the United
States.
“Knowledge” of Company means, with respect to any fact, circumstance, event or other matter in
question, the knowledge of such fact, circumstance, event or other matter that would have been
ascertained after reasonable inquiry, consistent with such Person’s title and responsibilities, by
any of the following individuals or Company employees who directly report to such individuals:
Xxxxxxx Work, Xxxxxx Xxxxxxx, Xxxxxxxx Xxxx, Xxxxx Xxxxxx and Xxxxxx Xxxxx.
“Liability” means any debt, liability or obligation, whether accrued or fixed, absolute or
contingent, matured or unmatured, determined or determinable, known or unknown, and whether due or
to become due, including those arising under any law, action or governmental order and those
arising under any Contract.
“Material Adverse Change” or “Material Adverse Effect,” when used with reference to any
Person, means any change, event, circumstance or effect (each, an “Effect”) (regardless of whether
such Effect constitutes a breach of any representations or warranties made in this Agreement) that,
individually or in the aggregate, is or would be reasonably likely to become materially adverse to
the condition (financial or otherwise), capitalization, properties, employees, assets (including
intangible assets), Liabilities, business, operations, results of operations of such Person and its
Subsidiaries, taken as a whole, except to the extent that any such Effect directly results from:
(a) Effects in the economy or financial markets generally in the United States or Europe; (b)
Effects that are the result of acts of war or terrorism; (c) Effects that are the result of factors
generally affecting the industry in which the Person or its Subsidiaries operate; (d) changes in
GAAP; (e) changes, events, circumstances or effects resulting from (i) any actions taken, or
actions, plans, or intentions publicly announced by Acquirer or its affiliates, including any plans
for the sale of a division or operational or employment related changes, or (ii) any actions taken
or publicly announced by Company or its Subsidiaries at the prior written request or
7
direction of
Acquirer; (f) any failure by the Person to meet internal projections or forecasts or published
revenue or earnings predictions, in and of itself, provided, that such exclusion shall not apply to
the underlying Effect that may have caused such failure; and (g) the institution of legal
proceedings or litigation alleging breach of fiduciary duty based upon Company’s entry into this
Agreement; provided, however, that, with respect to clauses (a), (b), and (c)
change, event, circumstance or effect does not disproportionately adversely affect the Person and
its Subsidiaries compared to other companies operating in the industry in which the Person
operates.
“New Company Options” means Company Options granted pursuant to Section 5.11(b) under
the Company Option Plan, as amended pursuant to Section 5.11(b).
“Net Working Capital” means (a) Company’s consolidated total current assets as of the Closing
Date (as defined by and determined in accordance with GAAP) minus (b) Company’s
consolidated total current liabilities as of the Closing Date (as defined by and determined in
accordance with GAAP). For purposes of calculating Net Working Capital, Company’s current assets
shall include, among other things, accounts receivable, and Company’s current liabilities shall (i)
include (A) all Debt of Company whether short- or long-term and (B) all Taxes for any period or
portion of a period ending prior to or on the Closing Date (including liabilities for Taxes
required to be accrued in accordance with GAAP) and (ii) exclude Transaction Expenses.
“Net Working Capital Certificate” means a certificate executed by the Chief Financial Officer
of Company, certifying the amount of Net Working Capital (including (a) an itemized list of Debt of
Company with a description of the nature of such Debt and the Person to whom such indebtedness is
owed, (b) an itemized list of each element of Company’s consolidated current assets, and (c) an
itemized list of each element of Company’s consolidated current liabilities).
“Option Exchange Ratio” means the quotient obtained by dividing (a) the Common Cash Amount Per
Share by (b) the Average Price Per Share.
“Permitted Encumbrance” means any Encumbrance for Taxes, assessments and other governmental
charges that are not yet due and payable or that may thereafter be paid without penalty, or that
are being contested in good faith by appropriate proceedings, or any imperfection of title or other
Encumbrance that, individually or in the aggregate with other such imperfections and Encumbrances,
would not materially affect the use, transfer, sale or voting of such asset.
“Person” means any individual, corporation (including any not-for-profit corporation), general
or limited partnership, limited liability partnership, joint venture, estate, trust, firm, company
(including any limited liability company or joint stock company), association, organization, entity
or Governmental Authority.
“Pro Rata Share” means, with respect to a particular Effective Time Holder, the amount of cash
such Effective Time Holder is entitled to receive pursuant to Section 2.2(b) with respect
to its Company Capital Stock and Company Options and relative to the amount of cash all Effective
Time Holders are entitled to receive pursuant to Section 2.2(b) with respect to their
Company Capital Stock and Company Options.
“Regulations” means the Treasury Regulations issued under the Code.
“SEC” means the Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended.
8
“Series A Cash Amount Per Share” means (a) the Common Cash Amount Per Share plus (b) the
Series A Liquidation Preference Per Share.
“Series A Liquidation Preference Per Share” means $4.3371969.
“Sub Ancillary Agreements” means all agreements (other than this Agreement) and documents to
which Sub is or will be a party that are required to be executed pursuant to this Agreement.
“Subsidiary” of a specified entity means any corporation, partnership, limited liability
company, joint venture or other entity of which the specified entity (either alone or through or
together with any other subsidiary) owns, directly or indirectly, 50% or more of the stock or other
equity or partnership interests the holders of which are generally entitled to vote for the
election of the Board of Directors or other governing body of such corporation or other entity.
“Systems” means all records, databases, Company Websites (as defined in Section
3.14(a)), software, systems and networks used by Company in the conduct of the Company
Business.
“Tax” and “Taxes” mean all federal, state, local or foreign income, gross receipts, gains,
franchise, excise, capital stock, severance, stamp, premium, windfall profits, environmental,
custom duties, real property, personal property, sales, use, employment, license, payroll,
services, occupation, recording, registration, withholding, social security (or similar),
unemployment, disability, value added, alternative or add-on minimum or transfer taxes,
governmental charges, fees, levies, assessments or other taxes (whether payable directly or by
withholding) imposed by any Governmental Authority responsible for the imposition of any such taxes
(domestic or foreign) (each, a “Tax Authority”), and, with respect to such taxes, charges, fees,
levies and assessments, any estimated tax, interest, fines, penalties or additions and interest on
such fines, penalties and additions, whether disputed or not and including any obligations to
indemnify or otherwise assume or succeed to the Tax Liability of any other Person.
“Termination Date” means the date that is 30 days after the Agreement Date.
“Total Common Consideration” means (a) the Total Merger Consideration less (b) the
Total Series A Liquidation Preference.
“Total Series A Liquidation Preference” means the product of (a) the Fully Diluted Company
Series A Stock multiplied by (b) the Series A Liquidation Preference Per Share.
“Total Merger Consideration” means (a) $36,000,000 plus (b) the Aggregate Exercise
Price less (c) the sum of (i) the amount, if any, by which the Company Net Working Capital
is less than $1,500,000 as of immediately prior to the Closing and (ii) Transaction Expenses.
“Transaction Expenses” means all third party fees and expenses incurred by Company in
connection with the Merger and this Agreement and the transactions contemplated hereby whether or
not billed or accrued (including any fees and expenses of legal counsel and accountants, the
maximum amount of fees and expenses payable to financial advisors, investment bankers and brokers
of Company and the Subsidiaries notwithstanding any contingencies for earnouts, escrows, etc., and
any such fees incurred by Company employees and Company Securityholders paid for or reimbursed or
to be paid for or reimbursed by Company).
“Unvested Company Share” means any Company Capital Stock that is issued but not vested under
the terms of any Contract with Company (including any stock option agreement, stock option exercise
agreement or restricted stock purchase agreement).
9
ARTICLE 2
Plan of Merger
Plan of Merger
2.1 The Merger. Subject to termination of this Agreement as provided in Article
10, the parties hereto will cause the Merger to be consummated by filing the Certificate of
Merger with the Delaware Secretary of State in accordance with Delaware Law as soon as practicable
on or after the Closing Date. Subject to the terms and conditions of this Agreement, at the
Effective Time, Sub will be merged with and into Company in a statutory merger, the separate
existence of Sub will cease and Company will be the surviving company in the Merger (the “Surviving
Company”), all pursuant to the Certificate of Merger and in accordance with the applicable
provisions of the Delaware Law.
2.2 Conversion and Exchange of Capital Stock and Company Options.
(a) Conversion of Shares of Sub Capital Stock. Subject to the terms and conditions of
this Agreement, at the Effective Time, each share of capital stock of Sub that is issued and
outstanding immediately prior to the Effective Time will be converted into and become one validly
issued, fully paid and nonassessable share of common stock of the Surviving Company. Each
certificate evidencing ownership of shares of Sub common stock will evidence ownership of such
shares of common stock of the Surviving Company.
(b) Conversion of Company Capital Stock and Company Options.
(i) Company Series A Stock. Subject to the terms and conditions of this Agreement, at
the Effective Time, each share of Company Series A Stock that is issued and outstanding immediately
prior to the Effective Time (other than Dissenting Shares and shares owned by Company) will, by
virtue of the Merger and without any further action on the part of Acquirer, Sub, Company or the
holder thereof (except as expressly provided herein), be converted into and represent the right to
receive an amount of cash (without interest) equal to the Series A Cash Amount Per Share. The
amount of cash that each Effective Time Holder is entitled to receive pursuant to this Section
2.2(b)(i) shall be rounded to the nearest cent and computed after aggregating all cash such
Effective Time Holder is entitled to receive
pursuant to this Section 2.2(b). The preceding provisions of this Section
2.2(b)(i) are subject to the provisions of Section 2.2(e) (regarding withholding
rights) and Section 2.4 (regarding the Escrow Cash and Expense Funds).
(ii) Company Common Stock. Subject to the terms and conditions of this Agreement, at
the Effective Time, each share of Company Common Stock that is issued and outstanding immediately
prior to the Effective Time (other than Dissenting Shares and shares owned by Company) will, by
virtue of the Merger and without any further action on the part of Acquirer, Sub, Company or the
holder thereof (except as expressly provided herein), be converted into and represent the right to
receive an amount of cash (without interest) equal to the Common Cash Amount Per Share. The amount
of cash that each Effective Time Holder is entitled to receive pursuant to this Section
2.2(b)(ii) shall be rounded to the nearest cent and computed after aggregating all cash such
Effective Time Holder is entitled to receive pursuant to this Section 2.2(b). The
preceding provisions of this Section 2.2(b)(ii) are subject to the provisions of
Section 2.2(e) (regarding withholding rights) and Section 2.4 (regarding the Escrow
Cash and Expense Funds).
(iii) Company Vested Options. Subject to the terms and conditions of this Agreement,
at the Effective Time, each Company Vested Option (including Company Options that accelerate
pursuant to Section 11(b) of the Company Option Plan and Company Options that accelerate pursuant
to Section 2.2(c), but excluding Company Options for which acceleration is being waived pursuant to
a Benefits Waiver), that is unexpired, unexercised and outstanding immediately prior to the
10
Effective Time will, by virtue of the Merger and without any further action on the part of
Acquirer, Sub, Company or the holder thereof (except as expressly provided herein), be thereafter
no longer exercisable but will be converted into and represent the right to receive an amount of
cash (without interest) equal to the product of (1) the Common Cash Amount Per Share minus
the exercise price per share of Company Common Stock subject to such Company Vested Option
multiplied by (2) the number of shares of Company Common Stock subject to such Company
Vested Option. The amount of cash that each Effective Time Holder is entitled to receive pursuant
to this Section 2.2(b)(iii) shall be rounded to the nearest cent and computed after
aggregating all cash such Effective Time Holder is entitled to receive pursuant to this Section
2.2(b). The preceding provisions of this Section 2.2(b)(iii) are subject to the
provisions of Section 2.2(e) (regarding withholding rights) and Section 2.4
(regarding the Escrow Cash and Expense Funds).
(c) Company Unvested Options. At the Effective Time, each Company Unvested Option
held by a Continuing Employee that is unexpired, unexercised and outstanding immediately prior to
the Effective Time (including the Company Options for which acceleration is being waived and the
New Company Options), shall, on the terms and subject to the conditions set forth in this
Agreement, be assumed by Acquirer (as “Assumed Option”). Each such Company Unvested Option so
assumed by Acquirer under this Agreement shall continue to have, and be subject to, the same terms
and conditions as are in effect immediately prior to the Effective Time except as otherwise
provided in this Section 2.2(c), except that:
(i) such Assumed Option shall be exercisable for that number of whole shares of Acquirer
Common Stock equal to the product (rounded down to the next whole number of shares of Acquirer
Common Stock, with no cash being payable for any fractional share eliminated by such rounding) of
the number of shares of Company Common Stock that were issuable upon exercise of the related
Company Unvested Options immediately prior to the Effective Time and the Option Exchange Ratio,
(ii) the per share exercise price for the shares of Acquirer Common Stock issuable upon
exercise of such Assumed Option shall be equal to the quotient (rounded up to the next whole cent)
obtained by dividing the exercise price per share of Company Common Stock at which the related
Company Unvested Option was exercisable immediately prior to the Effective Time by the Option
Exchange Ratio, and
(iii) no Assumed Option may be “early exercised” (i.e., an Assumed Option may be exercised for
shares of Acquirer Common Stock only to the extent the Assumed Option is vested at the time of
exercise pursuant to the existing vesting schedule of the Company Unvested Option so assumed).
Subject to the terms of the Company Option Plan and the documents governing the outstanding options
under such plan as in effect on the date hereof, the Merger shall not terminate any of the
outstanding Company Unvested Options held by Continuing Employees under such plan. Each Company
Unvested Option held by a Person other than a Continuing Employee will, by virtue of the Merger and
without any further action on the part of any holder thereof or any other Person, be accelerated,
cashed out as a Company Vested Option pursuant to Section 2.2(b)(iii), cancelled and extinguished.
As soon as reasonably practicable following the Closing Date, but no later than five business days
after the Closing Date, Acquirer will cause the shares of Acquirer Common Stock issuable upon
exercise of the Company Unvested Options assumed by Acquirer under this Agreement to be registered
or to be issued pursuant to an effective registration statement on Form S-8 (or successor form)
under the Securities Act “Form S-8”). Notwithstanding the foregoing, Acquirer will not be
obligated to register the issuance of any shares of
11
Acquirer Common Stock that are subject to an Acquirer Option held by a Person who is ineligible to have
such Person’s securities registered on
Form S-8.
(d) Cancellation of Company Capital Stock Owned by Company. Notwithstanding
Section 2.2(b), each share of Company Capital Stock held by Company immediately prior to
the Effective Time will be canceled and extinguished without any conversion thereof and without the
issuance or payment of any consideration.
(e) Withholding Rights. Acquirer, the Surviving Company and the Exchange Agent (as
defined in Section 7.2(a)) will be entitled to deduct and withhold from the consideration
otherwise deliverable under this Agreement, and from any other payments otherwise required pursuant
to this Agreement, to any holder of Company Capital Stock or Company Options such amounts as
Acquirer, the Surviving Company or the Exchange Agent is required to deduct and withhold with
respect to any such deliveries and payments under the Code or any provision of state, local,
provincial or foreign Tax law. To the extent that amounts are so withheld, such withheld amounts
will be treated for all purposes of this Agreement as having been delivered and paid to such
holders in respect of which such deduction and withholding was made.
2.3 Adjustments. In the event of any stock split, reverse stock split, stock dividend
(including any dividend or distribution of securities convertible into capital stock),
reorganization, reclassification, combination, recapitalization or other like change with respect
to the Company Capital Stock or Acquirer Common Stock occurring after the Agreement Date and prior
to the Effective Time, all references in this Agreement to specified numbers of shares of any class
or series affected thereby, and all calculations provided for that are based upon numbers of shares
of any class or series (or trading prices therefor) affected thereby, shall be equitably adjusted
to the extent necessary to provide the parties the same economic effect as contemplated by this
Agreement prior to such stock split, reverse stock split, stock dividend, reorganization,
reclassification, combination, recapitalization or other like change.
2.4 Escrow. As soon as reasonably practicable after the Effective Time and pursuant
to the Escrow Agreement (as defined in Section 8.5), Acquirer will withhold from the
portion of the Total Merger Consideration payable to each Effective Time Holder in the Merger upon
conversion of his/her/its outstanding shares of Company Capital Stock and Company Vested Options
pursuant to Section 2.2(b) and shall cause to be deposited with the Escrow Agent (as
defined in Section 11.2) such Effective Time Holder’s Pro Rata Share of the Escrow Cash.
The Escrow Cash shall constitute security for the indemnification obligations of the Effective Time
Holders pursuant to Article 11. In addition, $100,000 of the Total Merger Consideration
shall be withheld pro rata from the portion of the Total Merger Consideration payable to each
Effective Time Holder in the Merger and shall deposited with the Escrow Agent, which deposited
amount, together with any interest and other income thereon (collectively, the “Expense Funds”), to
serve solely as a source of funds to reimburse the Representative for any expenses incurred or
reasonably expected to be incurred by the Representative in the performance of its obligations in
such capacity under this Agreement pursuant to Section 11.5 and, to the extent not used for
such purpose, shall be released to the Effective Time Holders pursuant to the terms and conditions
of this Agreement and the Escrow Agreement.
2.5 Appraisal Rights.
(a) Notwithstanding anything contained herein to the contrary, any Dissenting Shares shall not
be converted into the right to receive the cash amount provided for in Section 2.2(b), but
shall instead be converted into the right to receive such consideration as may be determined to be
due with respect to any such Dissenting Shares pursuant to Delaware Law. Each holder of Dissenting
Shares who, pursuant to the provisions of Delaware Law, becomes entitled to payment thereunder for
such shares
12
shall receive payment therefor in accordance with Delaware Law. If, after the
Effective Time, any Dissenting Shares shall lose their status as Dissenting Shares, then any such
shares
shall immediately be converted into the right to receive the cash payable pursuant to
Section 2.2(b) in respect of such shares as if such shares never had been Dissenting
Shares, and Acquirer shall issue and deliver to the holder thereof, at (or as promptly as
reasonably practicable after) the applicable time or times specified in Section 7.2(c),
following the satisfaction of the applicable conditions set forth in Section 7.2(c), the
amount of cash to which such holder would be entitled in respect thereof under this Section
2.5 as if such shares never had been Dissenting Shares. Company shall give Acquirer (i) prompt
notice of any demands for appraisal or purchase received by Company, withdrawals of such demands,
and any other instruments served pursuant to Delaware Law and received by Company and (ii) the
right to direct all negotiations and proceedings with respect to demands for appraisal or purchase
under Delaware Law. Company shall not, except with the prior written consent of Acquirer, or as
otherwise required under Delaware Law, voluntarily make any payment or offer to make any payment
with respect to, or settle or offer to settle, any claim or demand in respect of any Dissenting
Shares.
(b) The payout of consideration under this Agreement to the stockholders of Company (other
than to holders of Dissenting Shares who shall be treated as provided in this Section 2.5
and under Delaware Law) shall not be affected by the exercise or potential exercise of appraisal
rights or dissenters’ rights under Delaware Law by any stockholder of Company and the Company
Stockholders have no obligation to repay any amount Acquirer, in its sole discretion, pays as a
result of such expense.
2.6 Total Merger Consideration. Notwithstanding anything to the contrary contained in
this Agreement, in no event shall the aggregate consideration paid by Acquirer to the Company
Securityholders (including the value of the shares of Acquirer Common Stock or other consideration,
if any, that will be subject to Company Unvested Options assumed by Acquirer (excluding the New
Company Options) at the Effective Time pursuant to Section 2.2(c)) exceed the Total Merger
Consideration, except to the extent that any amount in excess of the Total Merger
Consideration is as a result of (a) any changes in the price of Acquirer Common Stock occurring
after the calculation of the Average Price Per Share or (b) any payment with respect to Dissenting
Shares.
2.7 Net Working Capital Adjustment.
(a) Company shall deliver the Net Working Capital Certificate to Acquirer not less than three
business days prior to the Closing Date.
(b) At Acquirer’s option, but in any event within 60 days after the Closing, Acquirer may
object to the Net Working Capital calculations included in the Net Working Capital Certificate (the
“NWC Calculations”) by delivering to the Representative a certificate (the “Acquirer NWC
Certificate”) executed by Acquirer’s Chief Financial Officer setting forth Acquirer’s calculation
of Net Working Capital and the amount by which Net Working Capital as calculated by Acquirer is
less than the Net Working Capital set forth in the Net Working Capital Certificate.
(c) The Representative may object to the Net Working Capital calculations set forth in the
Acquirer NWC Certificate by providing written notice of such objection to Acquirer within 20 days
after Acquirer’s delivery of the Acquirer NWC Certificate (the “Notice of Objection”).
(d) If the Representative timely provides the Notice of Objection, then the parties shall
confer in good faith for a period of up to 10 business days following Acquirer’s timely receipt of
the Notice of Objection, in an attempt to resolve any disagreement and any resolution by them shall
be in writing and shall be final and binding.
13
(e) If, after such 10-business day period, the Representative and Acquirer cannot resolve any
such disagreement, then the parties shall engage Deloitte & Touche USA LLP (the “Reviewing
Accountant”) to review the NWC Calculations. After review of the NWC Calculations and Company’s
books and records, the Reviewing Accountant shall promptly determine the Net Working Capital and
such determination shall be final and binding on the parties.
(f) If the Net Working Capital, as determined pursuant to Section 2.7(b) (in the event
there is no Notice of Objection) or Section 2.7(d) or Section 2.7(e), is in fact
less than the Net Working Capital set forth in the Net Working Capital Certificate (such
difference, the “Negative Adjustment Amount”), then, if and only if the Total Merger Consideration
would be reduced after giving effect to the Negative Adjustment Amount, Acquirer shall be
indemnified in accordance with Article 11, without any dispute by the Representative, for
the full amount of:
(i) the Negative Adjustment Amount;
(ii) if Net Working Capital as determined by the Reviewing Accountant, if applicable, is less
than or equal to Net Working Capital as set forth in the Acquirer NWC Certificate, all fees and
expenses, if any, of the Reviewing Accountant; and
(iii) if Net Working Capital as determined by the Reviewing Accountant, if applicable, is
greater than Net Working Capital as set forth in the Acquirer NWC Certificate, a percentage of the
fees and expenses, if any, of the Reviewing Accountant, which percentage shall equal the difference
between Net Working Capital as set forth in the Net Working Capital Certificate and Net Working
Capital as determined by the Reviewing Accountant, if applicable, divided by the difference
between Net Working Capital as set forth in the Net Working Capital Certificate and Net Working
Capital as set forth in the Acquirer NWC Certificate. Notwithstanding the foregoing, Acquirer
shall not be indemnified for any portion of fees and expenses, if any, of the Reviewing Accountant,
if the Net Working Capital as determined by the Reviewing Accountant is greater than the Net
Working Capital as set forth in the Acquirer NWC Certificate.
(g) Acquirer’s decision to provide or not to provide the Acquirer NWC Certificate pursuant to,
and to follow the procedure set forth in, this Section 2.7 shall not constitute a waiver of
any other remedy Acquirer may have in connection with the NWC Calculations, including the
indemnification provisions of Article 11.
2.8 Effects of the Merger.
(a) General. At the Effective Time, the effect of the Merger will be as provided in
this Agreement and the applicable provisions of Delaware Law. Without limiting the generality of
the foregoing, at the Effective Time, all of the properties, rights, privileges, powers and
franchises of Company and Sub will vest in the Surviving Company, and all Liabilities and duties of
Company and Sub will become the Liabilities and duties of the Surviving Company.
(b) Certificate of Incorporation. The Certificate of Incorporation of Sub immediately
prior to the Effective Time will be the Certificate of Incorporation of the Surviving Company
immediately after the Effective Time until thereafter amended in accordance with the provisions
thereof or as provided by law; provided, however, that Article I of the Certificate
of Incorporation of the Surviving Company will be amended at the Effective Time to read: “The name
of the corporation is Discovery Mining, Inc.”
14
(c) Bylaws. At the Effective Time, the Bylaws of the Surviving Company shall be
amended in their entirety to read as the Bylaws of Sub, until thereafter amended as provided by
Delaware Law, the Certificate of Incorporation of the Surviving Company and such Bylaws
(d) Directors and Officers.
(i) At the Effective Time, the members of the Board of Directors of Sub immediately prior to
the Effective Time shall be appointed as the members of the Board of Directors of the Surviving
Company immediately after the Effective Time until their respective successors are duly elected or
appointed and qualified.
(ii) At the Effective Time, the officers of Sub immediately prior to the Effective Time shall
be appointed as the officers of the Surviving Company immediately after the Effective Time until
their respective successors are duly appointed.
2.9 Tax Consequences. The parties intend the merger to be a taxable sale of the
Company Capital Stock by the Company Securityholders. Acquirer makes no representations or
warranties to Company or to any holder of and shares of Company Capital Stock or Company Options
regarding the Tax treatment of the Merger, or any of the Tax consequences to Company or any holder
of shares of Company Capital Stock or Company Options of this Agreement, the Merger or any of the
other transactions or agreements contemplated hereby. Company acknowledges that Company and the
holders of shares of Company Capital Stock and Company Options are relying solely on their own Tax
advisors in connection with this Agreement, the Merger and the other transactions and agreements
contemplated hereby. The parties hereby agree to treat the Escrow Fund (other than amounts
characterized as imputed interest) as proceeds from an installment sale within the meaning of, and
to the extent permitted by, Section 453 of the Code, and no party shall take any actions
inconsistent with this treatment.
2.10 Further Assurances. Company agrees that if, at any time after the Effective
Time, Acquirer believes or is advised that any further deeds, assignments or assurances are
reasonably necessary or desirable to vest, perfect, confirm or continue in the Surviving Company,
Sub or Acquirer title to any property or any right of Company as provided herein, Acquirer and any
of its officers are hereby authorized by Company to execute and deliver all such proper deeds,
assignments and assurances and do all other things necessary or desirable to vest, perfect, confirm
or continue title to such property or rights in the Surviving Company, Sub or Acquirer and
otherwise to carry out the purposes of this Agreement, in the name of Company or otherwise. The
parties further agree that, upon Acquirer’s request, the parties will amend this Agreement to cause
Company to merge into a different direct or indirect Subsidiary of Acquirer.
2.11 Rights Not Transferable. The rights of the Company Securityholders as of
immediately prior to the Effective Time, are personal to each such securityholder and will not be
transferable for any reason otherwise than by operation of law, will or the laws of descent and
distribution. Any attempted transfer of such right by any holder thereof (otherwise than as
permitted by the immediately preceding sentence) will be null and void.
ARTICLE 3
Representations and Warranties of Company
Representations and Warranties of Company
Company represents and warrants to Acquirer that, except as set forth in the letter addressed
to Acquirer from Company and dated as of the Agreement Date, including all Schedules thereto (which
will specifically reference the Sections of this Agreement to which the specific items of
disclosure therein constitute an exception and shall be deemed also disclosed in any other section,
subsection or clause of
15
the Company Disclosure Letter to the extent that it is clear, upon a reading of the actual
text of such disclosure, without any independent knowledge on the part of the reader regarding the
matter disclosed or any review of any external document or matter referred to by such disclosure
(other than references to defined terms in each of those external documents as noted), that such
disclosure is responsive to such other section, subsection or clause of this Article 3) which has
been delivered by Company to Acquirer concurrently with the parties’ execution of this Agreement
(the “Company Disclosure Letter”), each of the representations, warranties and statements contained
in the following Sections of this Article 3 is true and correct as of the Agreement Date
and will be true and correct on and as of the Closing Date. For all purposes of this Agreement,
the statements contained in the Company Disclosure Letter will also be deemed to be representations
and warranties made and given by Company under this Article 3.
3.1 Organization and Good Standing. Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has continuously been in
good standing under the laws of the State of Delaware at all times since its inception. Company
has the corporate power and authority to own, operate and lease its properties and to carry on the
Company Business and is duly qualified or licensed to do business and is in good standing in each
jurisdiction where the character of its properties owned or leased or the nature of its activities
make such qualification or licensing necessary (each such jurisdiction being listed on
Schedule 3.1 of the Company Disclosure Letter), except where the failure to be so qualified
or licensed would not, individually or in the aggregate, reasonably be expected to be material to
Company. Company is not in violation of its Certificate of Incorporation or Bylaws or other
equivalent organizational or governing documents.
3.2 Subsidiaries. Schedule 3.2 of the Company Disclosure Letter sets forth a
true, correct and complete list of each Subsidiary of Company, and each such Subsidiary is wholly
owned by Company. Company has no equity interest, direct or indirect, in, or loans to, any Person.
Company is not obligated to make, nor bound by any Contract to make, any investment in or capital
contribution in or on behalf of any other Person. Schedule 3.2 of the Company Disclosure
Letter sets forth, with respect to each Subsidiary of Company, (a) its jurisdiction of
incorporation or organization, (b) a correct and complete list of all jurisdictions in which it is
qualified to do business, and (c) the address of its principal executive offices. Each Subsidiary
of Company is duly organized, validly existing and in good standing (or appropriately recognized as
legally in existence and active under the laws of its jurisdiction) under the laws of its
jurisdiction of incorporation or organization identified on Schedule 3.2 of the Company
Disclosure Letter and has the power and authority to own, operate and lease its properties and to
carry on its business as presently being conducted. Each Subsidiary of Company is duly qualified
or licensed to do business and is in good standing in each jurisdiction where the character of its
properties owned or leased or the nature of its activities make such qualification or licensing
necessary, except where the failure to be so qualified or licensed would not, individually or in
the aggregate, have a material adverse effect on such Subsidiary. Neither Company nor any of its
Subsidiaries is a general or limited partner of any general partnership, limited partnership or
other entity.
3.3 Power, Authorization and Validity.
(a) Subject to adoption of this Agreement pursuant to the Company Stockholder Consent, Company
has all requisite corporate power and authority to enter into and perform its obligations under
this Agreement and all Company Ancillary Agreements. The execution and delivery of this Agreement
and the Company Ancillary Agreements and the consummation of the transactions contemplated hereby
have been duly and validly approved and authorized by the Company Board. This Agreement has been
duly executed and delivered by Company and constitutes the valid and binding obligation of Company
enforceable against Company in accordance with its terms, subject only to the effect, if any, of
(i) applicable bankruptcy and other similar laws affecting the rights of creditors generally and
(ii) rules of law governing specific performance, injunctive relief and other equitable remedies.
The
16
Company Board, by resolutions duly adopted (and not thereafter modified or rescinded) by the
unanimous vote of the Company Board, has approved and adopted this Agreement and approved the
Merger, determined that this Agreement and the terms and conditions of the Merger and this
Agreement are advisable and in the best interests of Company and its stockholders, and directed
that the adoption of this Agreement be submitted to the Company Stockholders for consideration and
recommended that all of the stockholders of Company adopt this Agreement.
(b) No filing, authorization, consent, approval, permit, order, registration or declaration,
governmental or otherwise, is necessary to enable Company to enter into, and to perform its
obligations under, this Agreement or the Company Ancillary Agreements, except for: (i) the filing
of the Certificate of Merger with the Delaware Secretary of State; and (ii) such other filings,
authorizations, consents, approvals, permits, orders, registrations and declarations, if any, that
if not made or obtained by Company would not be material to Company’s ability to consummate the
Merger or to perform its obligations under this Agreement and the Company Ancillary Agreements and
would not, individually or in the aggregate, be material to Company or its business.
3.4 Capitalization.
(a) The authorized capital stock of Company consist solely of (i) 10,000,000 shares of Company
Common Stock and (ii) 1,750,000 shares of Company Preferred Stock, all of which are designated as
Company Series A Stock. A total of 2,568,833 shares of Company Common Stock and 996,035 shares of
Company Series A Stock are issued and outstanding as of the Agreement Date. Company holds no
treasury shares. As of the Agreement Date, there are no other issued and outstanding shares of
capital stock or other securities of Company and no outstanding commitments or Contracts to issue
any shares of capital stock or other securities of Company other than pursuant to the exercise of
outstanding Company Options under the Company Option Plans. Schedule 3.4(a) of the Company
Disclosure Letter accurately sets forth, as of the Agreement Date, the name of each Person that is
the registered owner of any shares of Company Common Stock or Company Series A Stock and the number
of such shares so owned by such Person, and the number of shares of Company Common Stock that would
be owned by such Person assuming conversion of all shares of Company Preferred Stock so owned by
such Person giving effect to all anti-dilution and similar adjustments. The number of such shares
set forth as being so owned by such Person constitutes the entire interest of such Person in the
issued and outstanding capital stock or voting securities of Company as of the Agreement Date. All
issued and outstanding shares of Company Capital Stock are duly authorized, validly issued, fully
paid and non-assessable and are free of any Encumbrances, preemptive rights, rights of first
refusal or “put” or “call” rights created by statute, Company’s Certificate of Incorporation or
Bylaws, or any Contract to which Company is a party or by which Company is bound. All issued and
outstanding shares of Company Capital Stock were issued in material compliance with all Applicable
Laws and all material requirements set forth in applicable Contracts. There is no Liability for
dividends declared or accrued and unpaid by Company. Company is not under any obligation to
register under the Securities Act any shares of Company Capital Stock or any other securities of
Company, whether currently outstanding or that may subsequently be issued.
(b) There are no Unvested Company Shares issued and outstanding.
(c) As of the Agreement Date, Company has reserved an aggregate of 1,500,000 shares of Company
Common Stock for issuance to employees, non-employee directors and consultants pursuant to the
Company Option Plan, of which 543,415 shares are subject to outstanding and unexercised Company
Options and 956,585 shares remain available for issuance thereunder. Schedule 3.4(c)-1 of
the Company Disclosure Letter sets forth, as of the Agreement Date, a true, correct and complete
list of all holders of outstanding Company Options, including the number of shares of Company
17
Common Stock subject to each such option, the date of grant, the exercise or vesting schedule
(and the terms of any acceleration thereof), the exercise price per share, the Tax status of such
option under Section 422 of the Code and the plan arrangement or agreement pursuant to which such
options were granted. Schedule 3.4(c)-2 of the Company Disclosure Letter sets forth a
true, correct and complete list (which schedule will be a subset of Schedule 3.4(c)-1 of
the Company Disclosure Letter), as of the Agreement Date, of all holders of outstanding Company
Options that are held by Persons that are not employees of Company or any of its Subsidiaries
(including non-employee directors, consultants, advisory board members, vendors, service providers
or other similar persons), including a description of the relationship between each such Person and
Company. All issued and outstanding Company Options were issued in compliance with all Applicable
Laws and all requirements set forth in applicable Contracts. All Company Unvested Options to be
assumed by Acquirer pursuant to Section 2.2(c) were granted under, and in compliance with,
Rule 701 promulgated under the Securities Act and any applicable guidance issued thereunder.
(d) No bonds, debentures, notes or other indebtedness of Company or its Subsidiaries (i)
having the right to vote on any matters on which Company Stockholders may vote (or which is
convertible into, or exchangeable for, securities having such right) or (ii) the value of which is
in any way based upon or derived from capital or voting securities of Company, is issued or
outstanding as of the Agreement Date (collectively, “Company Voting Debt”).
(e) Except for the Company Options described in Schedule 3.4(c)-1 of the Company
Disclosure Letter and the New Company Options, there are no options, warrants, calls, rights or
Contracts of any character to which Company is a party or by which it is bound obligating Company
to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any shares of Company Capital Stock, options, warrants or other rights to purchase
shares of Company Capital Stock or other securities of Company, or any Company Voting Debt, or
obligating Company to grant, extend, accelerate the vesting and/or repurchase rights of, change the
price of, or otherwise amend or enter into any such option, warrant, call, right or Contract.
Except for the New Company Options, there are no Contracts relating to voting, purchase or sale of
any shares of Company Capital Stock (i) between or among Company and any of its securityholders,
other than written contracts granting Company the right to purchase unvested shares upon
termination of employment or service, and (ii) to Company’s Knowledge, between or among any of
Company’s securityholders. Neither the Company Option Plan nor any Contract of any character to
which Company and/or its Subsidiaries is a party to or by which Company and/or its Subsidiaries is
bound relating to any Company Options require or otherwise provide for any accelerated vesting of
any Company Options in connection with the Merger or any other transaction contemplated by this
Agreement or upon termination of employment or service with Company, Acquirer or any of their
respective Subsidiaries, or any other event, before, upon or following the Merger or otherwise. A
true and complete copy of the Company Option Plan, all agreements and instruments relating to or
issued under the Company Option Plan (including executed copies of all Contracts relating to the
Company Option and the shares of Company Capital Stock purchased under such option) have been
provided to Acquirer’s counsel, and such plans and Contracts have not been amended, modified or
supplemented since being provided to Acquirer’s counsel, and there are no Contracts or
understandings to amend, modify or supplement such plans or Contracts in any case from those
provided to Acquirer’s counsel.
(f) The Spreadsheet (as defined in Section 5.14) will accurately set forth, as of the
Closing, the name of each Person that is the registered owner of any shares of Company Capital
Stock and/or Company Options and the number and class of such shares of Company Capital Stock so
owned, or subject to Company Options so held, by such Person. The number of such shares set forth
as being so owned, or subject to Company Options so owned, by such Person will constitute the
entire interest of such person in the issued and outstanding capital stock, voting securities or
other securities of Company.
18
As of the Closing, no other Person not disclosed in the Spreadsheet will have a right to
acquire any shares of Company Capital Stock and/or Company Options from Company. In addition, the
shares of Company Capital Stock and/or Company Options disclosed in the Spreadsheet will be, as of
the Closing, free and clear of any Encumbrances created by Company’s Certificate of Incorporation
or Bylaws or any Contract to which Company is a party or by which it is bound.
(g) Company has good and marketable title to all of the issued and outstanding stock or other
securities or equity interests of each of its Subsidiaries set forth on Schedule 3.4(g) of
the Company Disclosure Letter, free and clear of any Encumbrance. All such issued and outstanding
stock or other securities or equity interests have been duly authorized and validly issued, are
fully paid and nonassessable, are not subject to any right of rescission, right of first refusal or
preemptive right, and have been offered, issued, sold and delivered by the relevant Subsidiary of
Company in compliance with all requirements of Applicable Laws and all requirements set forth in
applicable Contracts. There are no stock appreciation rights, options, warrants, calls, rights,
commitments, conversion privileges or preemptive or other rights or agreements outstanding to
purchase or otherwise acquire any stock or other securities or equity interests of any Subsidiary
of Company or any securities or debt convertible into or exchangeable for such stock or other
securities or equity interests or obligating such Subsidiary of Company to grant, extend or enter
into any such option, warrant, call, right, commitment, conversion privilege or preemptive or other
right or agreement.
3.5 No Conflicts. Neither the execution and delivery of this Agreement or the Company
Ancillary Agreements, nor the consummation of any of the transactions contemplated herein or
therein, will (a) conflict with, result in any violation or default under (with or without notice
or lapse of time, or both), give rise to a right of termination, cancellation or acceleration or
any obligation or loss of any benefit under, or require any consent, approval or waiver from any
Person pursuant to (i) any provision of Company’s Certificate of Incorporation or Bylaws or similar
charter documents of Company or any of its Subsidiaries, each as currently in effect, (ii) any
Applicable Law, or (iii) any Material Agreement to which Company or any of its Subsidiaries is a
party or by which Company or any of its Subsidiaries or any of their respective assets or
properties are bound or affected, except, in the case of clauses (ii) and (iii), as would not be
material to Company or (b) result in the creation of any Encumbrance on any of the material
properties or assets of Company or any of its Subsidiaries or, to Company’s Knowledge, any shares
of Company Capital Stock.
3.6 Litigation.
(a) There is no action, suit, arbitration, mediation, proceeding, claim or investigation
pending or, to Company’s Knowledge, threatened against Company or any of its Subsidiaries or any of
their respective assets or properties (or, to the Knowledge of Company and its Subsidiaries, there
is no action, suit, arbitration, mediation, proceeding, claim or investigation pending or
threatened against any director or officer in their capacity as such or relating to their
employment, services or relationship with Company or any of its Subsidiaries) before any
Governmental Authority or arbitrator.
(b) There is no judgment, decree, injunction, rule or order against Company or any of its
Subsidiaries or any of their respective assets or properties (or, to the Knowledge of Company and
its Subsidiaries, against any director or officer in their capacity as such or relating to their
employment, services or relationship with Company or any of its Subsidiaries).
(c) To Company’s Knowledge, no Person has submitted a written notice to Company asserting a
claim against Company or any of its Subsidiaries based upon Company’s entering into this Agreement
or any Company Ancillary Agreement or consummating the Merger or any of the transactions
contemplated by this Agreement or any Company Ancillary Agreement.
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(d) Neither Company nor any of its Subsidiaries has any material action, suit, arbitration,
mediation, proceeding, claim or investigation pending against any other Person.
3.7 Financial Statements.
(a) Company has delivered to Acquirer its consolidated unaudited financial statements for each
fiscal year and interim fiscal period subsequent to Company’s inception date (including, in each
case, balance sheets, statements of operations and statements of cash flows and including
consolidated unaudited financial statements for the six-month period ended June 30, 2008)
(collectively, the “Financial Statements”), which are included as Schedule 3.7(a) of the
Company Disclosure Letter. All of the Financial Statements (i) are prepared from and are in
accordance with the books and records of Company, (ii) complied as to form in all material respects
with applicable accounting requirements with respect thereto as of their respective dates, (iii)
have been prepared in accordance with GAAP applied on a consistent basis throughout the periods
covered; provided, however, that the Balance Sheet is subject to normal and
recurring year-end adjustments (which will not be material individually or in the aggregate) , (iv)
fairly present the consolidated financial condition of Company and its Subsidiaries at the dates
therein indicated and the consolidated results of operations and cash flows of Company and its
Subsidiaries for the periods therein specified, and (v) are true, complete and correct in all
material respects, insofar as the accounting policies have been consistently applied by Company’s
or its Subsidiaries’ accountants with those of prior years. Neither Company nor any of its
Subsidiaries has any Liabilities other than (A) those set forth or adequately provided for in the
Balance Sheet included in the Financial Statements as of June 30, 2008 (the “Balance Sheet”),
(B) those incurred in the conduct of Company’s business since June 30, 2008 (the “Balance Sheet
Date”) in the ordinary course, consistent with past practice, which are of the type that either
ordinarily recur and, individually or in the aggregate, or are not material in nature or amount and
do not result from any breach of Contract, tort or violation of law, and (C) those incurred by
Company in connection with the execution of this Agreement. Except for Liabilities reflected in
the Financial Statements, Company has no off balance sheet Liability of any nature to, or any
financial interest in, any third party or entities, the purpose or effect of which is to defer,
postpone, reduce or otherwise avoid or adjust the recording of expenses incurred by Company. All
reserves that are set forth in or reflected in the Balance Sheet have been established in
accordance with GAAP consistently applied and are adequate.
(b) Company has established and maintains a system of internal accounting controls sufficient
to provide reasonable assurances that (i) transactions, receipts and expenditures of Company and
its Subsidiaries are being executed and made only in accordance with appropriate authorizations of
management and the Company Board, (ii) transactions are recorded as necessary (A) to permit
preparation of financial statements in conformity with GAAP and (B) to maintain accountability for
assets, (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the assets of Company and its Subsidiaries, (iv) the amount
recorded for assets on the books and records of Company is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any differences. Neither
Company, any of its Subsidiaries or Company’s independent auditors nor, to Company’s Knowledge, any
current or former employee, consultant or director of Company or any of its Subsidiaries has
identified or been made aware of any fraud, whether or not material, that involves Company’s
management or other current or former employees, consultants, directors or management of Company or
any of its Subsidiaries who have a role in the preparation of financial statements or the internal
accounting controls utilized by Company or its Subsidiaries, or any claim or allegation regarding
any of the foregoing. Neither Company nor any of its Subsidiaries nor, to Company’s Knowledge, any
director, officer, employee, auditor, accountant or representative of Company or any of its
Subsidiaries has received or otherwise had or obtained knowledge of any material complaint,
allegation, assertion or claim, whether written or oral, in each case regarding deficient
accounting or auditing practices, procedures, methodologies or methods of Company
20
or any of its Subsidiaries or their respective internal accounting controls or any material
inaccuracy in Company’s financial statements. No attorney representing Company or any of its
Subsidiaries, whether or not employed by Company or any of its Subsidiaries, has reported to the
Company Board or any committee therefore or to any directors or officer of Company evidence of a
material violation of securities laws, breach of fiduciary duty or similar violation by Company,
its Subsidiaries or any of their respective officers, directors, employees or agents. There are no
significant deficiencies or material weaknesses in the design or operation of Company’s internal
controls which could adversely affect Company’s ability to record, process, summarize and report
financial data. At the Balance Sheet Date, there were no material loss contingencies (as such term
is used in Statement of Financial Accounting Standards No. 5 (“Statement No. 5”) issued by the
Financial Accounting Standards Board in March 1975) that are not adequately provided for in the
Balance Sheet as required by said Statement No. 5. There has been no material change in Company
accounting policies since Company’s inception, except as described in the Financial Statements or
required by GAAP.
(c) Schedule 3.7(c) of the Company Disclosure Letter sets forth the names and
locations of all banks, trust companies, savings and loan associations and other financial
institutions at which Company and its Subsidiaries maintain accounts of any nature and the names of
all persons authorized to draw thereon or make withdrawals therefrom.
(d) Schedule 3.7(d) of the Company Disclosure Letter accurately lists all indebtedness
of Company and its Subsidiaries (i) for money borrowed, (ii) evidenced by notes, bonds, debentures
or similar instruments, (iii) for the deferred purchase price of goods or services (other than
trade payables or accruals incurred in the ordinary course of business), (iv) under capital leases
or (v) in the nature of guarantees of the obligations described in clauses (i) through (iv) above
of any other Person (collectively, “Debt”), including, for each item of Debt, the agreement
governing the Debt and the interest rate, maturity date and any assets or properties securing such
Debt. All Debt may be prepaid at the Closing without penalty under the terms of the Contracts
governing such Debt.
3.8 Taxes.
(a) Company and each of its Subsidiaries have timely filed all returns, reports, declarations,
claims for refund, estimates and information returns and statements or other documents relating to
Taxes, including any schedule or attachment thereto and any amendment thereof (the “Returns”),
required to be filed by Company or such Subsidiary under all Applicable Laws and regulations. All
such Returns were true, complete and correct in all respects and were prepared in substantial
compliance with all Applicable Laws. Company and each of its Subsidiaries have paid all Taxes due
and owing (whether or not shown on any Return).
(b) The unpaid Taxes of Company and its Subsidiaries (i) did not, as of the Balance Sheet
Date, exceed the reserve for Tax Liability (rather than any reserve for deferred Taxes established
to reflect timing differences between book and Tax income) set forth on the face of the Balance
Sheet (rather than in any notes thereto) and (ii) do not exceed that reserve as adjusted for the
passage of time through the Closing Date in accordance with the past custom and practice of Company
and its Subsidiaries in filing their Returns. Since the Balance Sheet Date, neither Company nor
any of its Subsidiaries has incurred any Liability for Taxes arising from extraordinary gains or
losses, as that term is used in GAAP, outside the ordinary course of business consistent with past
custom and practice. There are no Encumbrances for Taxes (other than Taxes not yet due and
payable) upon any of the assets of Company or any of its Subsidiaries.
(c) No director or officer (or employee responsible for Taxes) of Company or any of its
Subsidiaries expects any authority to assess any additional Taxes for any period for which Returns
21
have been filed. No deficiencies for any Tax have been threatened, claimed, proposed or
assessed against Company or any of its Subsidiaries which have not been settled or paid. No Return
of Company or any of its Subsidiaries has ever been audited by the Internal Revenue Service or any
other Taxing agency or authority, no such audit is in progress and neither Company nor any of its
Subsidiaries has been notified of any request for such an audit or other examination. No claim has
ever been made by a Governmental Authority in a jurisdiction where Company or any of its
Subsidiaries does not file Returns that Company or any of its Subsidiaries is or may be subject to
taxation by that jurisdiction. No adjustment relating to any Returns filed by Company or any of
its Subsidiaries has been proposed by any Governmental Authority to Company or any of its
Subsidiaries (or any representative thereof). There is not in effect any waiver by Company or any
of its Subsidiaries of any statute of limitations with respect to any Taxes or agreement to any
extension of time for filing any Return which has not been filed, and Company has not consented to
extend to a date later than the Agreement Date the period in which any Tax may be assessed or
collected by any Governmental Authority. Company has delivered to Acquirer correct and complete
copies of all federal and state income tax Returns for all periods ending on or after December 31,
2002, examination reports and statements of deficiencies assessed against or agreed to by Company
or any of its Subsidiaries.
(d) Company is not a party to, and does not owe any amount under, any Tax-sharing or
allocation agreement. Company has not been a member of an affiliated group filing a consolidated
federal income Tax return (other than a group the common parent of which was Company) and has no
Liability for the Taxes of any Person (other than Company and its Subsidiaries) under
Section 1.1502-6 of the Regulations (or any similar provision of state, local or foreign law) as a
transferee or successor, by contract or otherwise.
(e) Company and each of its Subsidiaries have withheld and paid (and until Closing will
withhold and pay) all Taxes required to have been withheld and paid in connection with any amounts
paid or owing to any employee, independent contractor, creditor, stockholder or other third party.
(f) Each of Company and its Subsidiaries has disclosed on its federal income tax Returns all
positions taken therein that could give rise to a substantial understatement of federal income Tax
within the meaning of Section 6662 of the Code. None of Company or any of its Subsidiaries has
consummated, has participated in or is currently participating in any transaction which was or is a
“Tax shelter” transaction as defined in Section 6662, 6011, 6111 or 6112 of the Code or the
Regulations. None of Company or any of its Subsidiaries has entered into any reportable
transaction as defined in Section 1.6011-4(b) of the Regulations.
(g) Neither Company nor any of its Subsidiaries will be required to include any item of income
in, or exclude any item of deduction from, taxable income for any taxable period (or portion
thereof) ending after the Closing Date as a result of any: (i) change in method of accounting for
a taxable period ending on or prior to the Closing Date; (ii) “closing agreement” as described in
Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign
income Tax law) executed on or prior to the Closing Date; (iii) intercompany transaction;
(iv) installment sale or open transaction disposition made on or prior to the Closing Date; or (v)
prepaid amount received on or prior to the Closing Date.
(h) There is no agreement, plan, arrangement or other Contract covering any current or former
employee or other service provider of Company or any Subsidiary or ERISA Affiliate (as defined
below) to which Company and/or any Subsidiary is a party or by which Company and/or any Subsidiary
is bound that, considered individually or considered collectively with any other such agreements,
plans, arrangements or other Contracts, will, or could reasonably be expected to, as a result of
the transactions contemplated by this Agreement (whether alone or upon the occurrence of any
22
additional or subsequent events), give rise directly or indirectly to the payment of any
amount that could reasonably be expected to be non-deductible under Section 162(m) of the Code (or
any corresponding or similar provision of state, local or foreign Tax law) or characterized as a
“parachute payment” within the meaning of Section 280G of the Code (or any corresponding or similar
provision of state, local or foreign Tax law). Schedule 3.8(h) of the Company Disclosure
Letter lists each Person who Company reasonably believes is, with respect to Company, any
Subsidiary and/or any ERISA Affiliate, a “disqualified individual” (within the meaning of Section
280G of the Code and the regulations promulgated thereunder), as determined as of the Agreement
Date.
(i) Company is not a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code.
(j) To Company’s Knowledge, no payment pursuant to any Employee Plans or other arrangement
between Company or a Subsidiary and any “service provider” (as such term is defined in Section 409A
of the Code and the United States Treasury Regulations and IRS guidance thereunder), including,
without limitation, the grant, vesting or exercise of any equity option, would subject any Person
to a tax pursuant to Section 409A of the Code, whether pursuant to the consummation of the Merger,
any other transaction contemplated by this Agreement or otherwise.
(k) All Company Options have been appropriately authorized by the Company Board, including
approval of the option exercise price or the methodology for determining the option exercise price
and the substantive option terms. Except for the New Company Options to be granted pursuant to
Section 5.11(b), all Company Options granted to employees in the United States that are potentially
subject to Code Section 409A have a per share exercise price that reflects the fair market value of
the Company Common Stock as determined in good faith compliance with Section 409A of the Code and
the regulations issued thereunder on the date that the option was granted. No Company Options have
been retroactively granted, or the exercise price of any Company Option determined retroactively.
3.9 Title to Assets and Properties; Condition of Equipment and Property. Company and
its Subsidiaries have good and valid title to, or a valid leasehold interest in, all of the assets
and properties used in the Company Business, not including Company IP Rights, or shown on the
Balance Sheet, free and clear of any Encumbrance, except for Permitted Encumbrances. Such assets
and properties are sufficient for the continued operation of the business of Company and its
Subsidiaries as presently being conducted in all material respects. All machinery, vehicles,
equipment and other tangible personal property owned or leased by Company or any of its
Subsidiaries or used in the Company Business are (a) suitable for the uses to which they are
currently employed, (b) in generally good operating condition, (c) regularly and properly
maintained, and (d) not obsolete, dangerous or in need of renewal or replacement, except for
renewal or replacement in the ordinary course of business, consistent with past practice. All
properties used in the operations of Company or any of its Subsidiaries are reflected on the
Balance Sheet to the extent required under GAAP to be so reflected. All leases of real or personal
property to which Company or any of its Subsidiaries is a party are fully effective and afford
Company or such Subsidiary peaceful and undisturbed leasehold possession of the subject matter of
the lease. Company and its Subsidiaries are not materially in violation of any zoning, building,
safety or environmental ordinance, regulation or requirement applicable to the operation of its
owned or leased properties or of any other Applicable Law, nor has Company or any of its
Subsidiaries received any notice of violation of law from a Governmental Agency with jurisdiction
over Company relating to such issues with which it has not complied. Schedule 3.9-1 of the
Company Disclosure Letter identifies each parcel of real property leased by Company or any
Subsidiary. Company has heretofore provided to Acquirer’s counsel true, correct and complete
copies of all leases, subleases and other agreements under which Company and/or any Subsidiary uses
or occupies or has the right to use or occupy, now or in the future, any real property or facility,
including all modifications, amendments and supplements thereto.
23
Neither Company nor any of its Subsidiaries owns any real property. Company and its
Subsidiaries have adequate rights of ingress and egress into any real property used in the
operation of the Company Business. Schedule 3.9-2 of the Company Disclosure Letter sets
forth a complete and accurate list and a brief description of all personal property owned or leased
by Company or any of its Subsidiaries with an individual value of $10,000 or greater.
3.10 Absence of Certain Changes. Since the Balance Sheet Date, Company and each of
its Subsidiaries has carried on its business in the ordinary course in accordance with the
procedures and practices in effect on the Balance Sheet Date, and since the Balance Sheet Date
there has not been with respect to Company or any of its Subsidiaries:
(a) any Material Adverse Change;
(b) any Liability incurred other than in the ordinary course of business, consistent with past
practice, or any borrowing of monies in excess of $50,000 in the aggregate;
(c) any making of any loan, advance or capital contribution to, or investment in, any Person
other than travel loans or advances made in the ordinary course of business, consistent with past
practice;
(d) any Contract with respect to any acquisition, sale or transfer of any asset of Company or
any of its Subsidiaries (other than the sale or nonexclusive license of Company Products to its
customers in the ordinary course of business consistent with past practice or any such transaction
for which the consideration is less than $10,000);
(e) any material damage, destruction or loss, whether or not covered by insurance, affecting
its assets, properties or business;
(f) any declaration, setting aside or payment of any dividend on, or the making of any other
distribution in respect to any securities of Company or combination or recapitalization of any
securities of Company or any direct or indirect redemption, purchase or other acquisition by
Company of its securities, or any change in any rights, preferences, privileges or restrictions of
any of its outstanding securities;
(g) any entry into, amendment of, or relinquishment, termination or nonrenewal by it of any
Contract or other right or obligation other than in the ordinary course of business, consistent
with past practice, but in no event involving obligations (contingent or otherwise) of or payments
to it in excess of $50,000 individually or $100,000 in the aggregate;
(h) any payment or discharge of any Encumbrance or Liability, which Encumbrance or Liability
was not either (i) shown on the Balance Sheet or (ii) incurred in the ordinary course of business,
consistent with past practice, after the Balance Sheet Date;
(i) any sale, disposition, transfer or license to any Person of any rights to Company IP
Rights other than in the ordinary course of business consistent with past practice or any
acquisition or license from any Person of any Intellectual Property or any sale, disposition,
transfer or providing of any copy of any Company Source Code to any Person, in each case involving
consideration in excess of $10,000;
(j) any deferral of the payment of any accounts payable other than in the ordinary course of
business, consistent with past practice, or in an amount which is not material, or any discount,
24
accommodation or other concession made other than in the ordinary course of business,
consistent with past practice, in order to accelerate or induce the collection of any receivable;
(k) any material change in the manner in which it extends discounts, credits or warranties to
its customers or otherwise deals with its customers;
(l) any material labor dispute or any claim of unfair labor practices;
(m) any change with respect to its officers or management or supervisory employees
(collectively, the “Management Employees”);
(n) any modification of the benefits payable, or to become payable, to any of its directors,
officers or employees, or any increase in the compensation (including severance and equity
compensation) payable, or to become payable, to any of its directors, officers or employees, or any
bonus payment or arrangement made to or with any of such directors, officers or employees;
(o) any increase in or modification of any bonus, pension, insurance or other employee benefit
plan, payment or arrangement (including the granting of options, awards or appreciation rights with
respect to its capital stock) made to, for or with any of its directors, officers, employees,
consultants or independent contractors;
(p) any modification or change to the right to exercise or convert, or to the exercise or
purchase prices of, any shares of Company Capital Stock or other securities, or any acceleration or
other modification of (i) the vesting of or right to exercise any option, warrant or other right to
purchase shares of Company Capital Stock or other securities or (ii) the vesting or release of any
shares of Company Capital Stock or other securities from any repurchase options or rights of
refusal held by it or any other party or any other restrictions;
(q) any amendment or change to Company’s Certificate of Incorporation or Bylaws other
equivalent organizational or governing documents of Company or any Subsidiary; or
(r) any announcement of, any negotiation by or any entry into any Contract by Company or any
Subsidiary to do any of the things described in the preceding clauses (a) through (q) (other than
negotiations and agreements with Acquirer and its representatives regarding the transactions
contemplated by this Agreement).
3.11 Contracts. Except for this Agreement and the Contracts specifically identified
in the specific subsections of Schedule 3.11 of the Company Disclosure Letter, or which are
no longer in effect, neither Company nor any of its Subsidiaries is a party or subject to any of
the following (whether oral or in writing):
(a) any distribution, original equipment manufacturing, reseller, marketing, sales
representative or similar Contract under which any third party is authorized to sell, sublicense,
lease, distribute, market or take orders for any product, service or technology owned, marketed,
licensed or provided by it in excess of $50,000 per annum;
(b) any Contract for the purchase, sale, license, provision or manufacture of products,
materials, supplies, equipment or services, including online marketing, media purchase and
optimization Contracts, requiring payment to or from it in an amount in excess of $50,000 per
annum;
25
(c) any Contract (i) in which it has granted or received most favored customer pricing
provisions, exclusive sales, distribution, marketing, manufacturing or on-line distribution rights,
rights of refusal, rights of first negotiation or similar rights or (ii) limiting the right of
Company or any of its Subsidiaries (A) to sell, distribute or manufacture any products or services
or (B) to purchase or otherwise obtain any software, components, parts, subassemblies or services,
with respect to any Company Products;
(d) any Contract providing for the development of any software, content (including textual
content and visual or graphics content), technology or Intellectual Property, independently or
jointly, by or for (or for the benefit or use of) it;
(e) any Contract under which (i) it is a licensor of Intellectual Property rights, (ii) it is
a licensee of Intellectual Property rights of any other Person (other than “shrink wrap” and
similar generally available commercial end-user licenses to software that (A) is not incorporated
into, integrated or bundled with, or used by Company or any of its Subsidiaries in the development,
manufacture, compilation or provision of any of the Company Products and (B) that have an
individual acquisition cost of $1,000 or less (any such software licenses, “Immaterial Software
Licenses”)), (iii) it agrees to encumber, not assert, transfer or sell rights in or with respect to
any Intellectual Property, or (iv) it agrees to provide source code to any third party;
(f) any Contract to license or authorize any third party to manufacture or reproduce any of
its products, services, technology or Intellectual Property;
(g) any joint venture or partnership Contract, any Contract relating to a limited liability
company or any other Contract which has involved, or is reasonably expected to involve, a sharing
of revenues, profits, cash flows, expenses or losses by it with any other party;
(h) any confidentiality, secrecy or non-disclosure Contract other than any such Contract
entered into with customers and distributors in the ordinary course of business pursuant to
Company’s standard form which has not been materially modified (a copy of which has been delivered
to Acquirer’s counsel);
(i) any Contract for or relating to the employment or hiring for services of any of its
directors, officers, employees, consultants or independent contractors or any other type of
Contract with any of its directors, officers, employees, consultants or independent contractors
which is not immediately terminable by it without cost or other Liability to it, including any
Contract requiring it to make a payment to any director, officer, employee, consultant or
independent contractor on account of the Merger, any transaction contemplated by this Agreement or
any Contract that is entered into in connection with this Agreement;
(j) any Contract or trust deed encumbering any of its assets or properties, any promissory
note, any credit line, credit facility, loan agreement or other Contract for the borrowing of money
pursuant to which it may borrow or loan funds, any security agreement encumbering any of its assets
or properties, any security agreement encumbering any asset or property of a third party for its
benefit, any guarantee by it of any obligation or indebtedness of another party or any guarantee of
any of its obligations or indebtedness, and any Contract for a leasing transaction of a type
required to be capitalized in accordance with Statement of Financial Accounting Standards No. 13 of
the Financial Accounting Standards Board;
(k) any Contract, under which services are currently being provided or obligations of either
party thereto are continuing, containing indemnification, warranty or similar provisions with
26
respect to products or services or any Contract containing any support, maintenance or service
obligation or cost on the part of Company or any of its Subsidiaries (other than under its form of
standard customer or distributor agreement, the terms of which have not been materially modified,
the form of which has been delivered to Acquirer’s counsel);
(l) any Contract for the sale, licensing or leasing by or to it of any assets, properties,
products, services or rights having a value in excess of $50,000 per annum or which is material to
the Company Business and any Contract for the sale, purchase or disposition of any real property;
(m) any Company IP Rights Agreement (as defined in Section 3.13(g)) that (i) involves
or involved a payment to or from it of $50,000 or more, (ii) grants any exclusive rights, including
any exclusivity with respect to any product, service, market, industry, field of use or geographic
territory, (iii) requires the ongoing payment of any royalties or periodic fees or payments by it,
or (iv) is material to the Company Business, its Intellectual Property rights or technology or any
of its current or proposed products or services;
(n) any application hosting, application management, application usage, website hosting,
website linking, consent or data sharing, data feed, information exchange, advertising, fee
sharing, lead or customer referral, commerce, co-branding, framing, service, order or transaction
processing or similar Contract relating to any aspect or element of any of the Company Websites (as
defined in Section 3.14) or any other website or use of the public internet, or the
extranet or intranet of any Person;
(o) any Contract or plan (including any Company stock option, Company stock purchase and/or
Company stock bonus plan) relating to the sale, issuance, grant, exercise, award, purchase,
repurchase or redemption of any shares of Company Capital Stock or any other securities of Company
or any of its Subsidiaries or any options, warrants, convertible notes or other rights to purchase
or otherwise acquire any shares of Company Capital Stock, other securities or options, warrants or
other rights therefor, except for those Contracts disclosed on Schedule 3.4(c)-1 of the
Company Disclosure Letter;
(p) any Contract under which Company provides any advice or services to any third party,
including any consulting Contract, professional Contract or software implementation, deployment or
development services Contract (including, for each such Contract, a description of the percentage
of completion and expected additional hours, resources and costs necessary to complete such
services) in excess of $10,000;
(q) any Contract with any labor union or any collective bargaining agreement or similar
Contract with its employees;
(r) any Contract pursuant to which it has acquired a business or entity, or assets of a
business or entity, whether by way of merger, consolidation, purchase of stock, purchase of assets,
license or otherwise;
(s) any other Contract to which it is a party or by which it or any of its assets or
properties are bound that involves a future financial commitment by it in excess of $50,000; or
(t) any Contract between Company and any Governmental Authority.
All Contracts required by subsections (a) through (t) of this Section 3.11 to be
listed on Schedule 3.11 of the Company Disclosure Letter (collectively, “Material
Agreements”) are valid and in
27
full force and effect. A true and complete copy of each Material Agreement and all amendments
and schedules thereto has been delivered to Acquirer’s counsel. No statement of work or contract
order will be deemed to be disclosed on Schedule 3.11 of the Company Disclosure Letter
unless such statement of work or contract order, as applicable, is specifically listed on
Schedule 3.11 of the Company Disclosure Letter.
3.12 No Default; No Restrictions.
(a) Company and its Subsidiaries are not, nor to Company’s Knowledge is any other party, in
material breach or default under any Material Agreement. No event has occurred, and no
circumstance or condition exists, caused either by Company or, to Company’s Knowledge, the contract
counterparty, that (with or without notice or lapse of time, or both) will, or would reasonably be
expected to, (i) result in a violation or breach of any provision of any Material Agreement by
Company; or (ii) to Company’s Knowledge, give the respective contract counterparty (A) the right to
declare a default or exercise any remedy under any Material Agreement, (B) the right to a material
rebate, chargeback, refund, credit, penalty or change in delivery schedule under any Material
Agreement, (C) the right to accelerate the maturity or performance of any obligation of Company or
any of its Subsidiaries under any Material Agreement, or (D) the right to cancel, terminate or
modify any Material Agreement. Neither Company nor any of its Subsidiaries has received any
written notice from a contract counterparty regarding any actual or possible violation or breach
of, default under, or intention to cancel or modify any Material Agreement. Neither Company nor
any of its Subsidiaries has any material Liability for renegotiation of Contracts or subcontracts
with any Governmental Authority.
(b) Neither Company nor any of its Subsidiaries is a party to, and no asset or property of
Company or any of its Subsidiaries is bound or affected by, any judgment, injunction, order, decree
or Contract that restricts or prohibits, or purports to restrict or prohibit, Company or any of its
Subsidiaries or, following the Effective Time, the Surviving Company, from freely engaging in the
Company Business or from competing anywhere in the world (including any judgments, injunctions,
orders, decrees or Contracts restricting the geographic area in which Company or any of its
Subsidiaries may sell, license, market, distribute or support any products or technology or provide
services or restricting the markets, customers or industries that Company or any of its
Subsidiaries may address in operating the Company Business or restricting the prices which Company
or any of its Subsidiaries may charge for their respective products, technology or services) or
that includes any grants by Company or any of its Subsidiaries of exclusive rights or licenses.
3.13 Intellectual Property.
(a) Company and its Subsidiaries (i) own and have independently developed or acquired or (ii)
have the valid right or license to all Company IP Rights. The Company IP Rights are sufficient for
the conduct of the Company Business as currently conducted and, to Company’s Knowledge, as
currently planned by Company to be conducted in the future.
(b) Neither Company nor any of its Subsidiaries has transferred ownership of any Intellectual
Property that is or was Company-Owned IP Rights to any third party or knowingly permitted Company’s
rights in any Intellectual Property that is or was Company-Owned IP Rights to enter the public
domain or, except as set forth in Schedule 3.13(b) of the Company Disclosure Letter, with
respect to any Company Registered Intellectual Property, lapse (other than through the expiration
of Company Registered Intellectual Property at the end of its maximum statutory term).
(c) Except as set forth in Schedule 3.13(c) of the Company Disclosure Letter, Company
and its Subsidiaries own and have good and exclusive title to each item of Company-Owned IP
28
Rights and each item of Company Registered Intellectual Property, free and clear of any
Encumbrances (other than non-exclusive object code licenses of software by Company or any of its
Subsidiaries in the ordinary course of its business consistent with past practice on its standard
form of customer agreement (a copy of which has been provided to Acquirer’s counsel) that has not
been materially modified (“Standard Form Agreements”)). Except as set forth in Schedule
3.13(c) of the Company Disclosure Letter, the right, license and interest of Company or any of
its Subsidiaries of Company in and to all third-party Intellectual Property rights licensed by
Company or any of its Subsidiaries from a third party are free and clear of all Encumbrances
(excluding restrictions contained in the applicable license agreements, including in any open
source licenses, with such third parties and Standard Form Agreements).
(d) Neither the execution and delivery or effectiveness of this Agreement nor the performance
of Company’s obligations under this Agreement will cause the forfeiture or termination of, or give
rise to a right of forfeiture or termination of, any Company-Owned IP Right or impair the right of
Company or any of its Subsidiaries or, after the Closing, Acquirer to use, possess, sell or license
any Company-Owned IP Right or portion thereof. Except as set forth in Schedule 3.13(d) of
the Company Disclosure Letter, after the Closing, all Company-Owned IP Rights will be fully
transferable, alienable or licensable by Acquirer without restriction and without payment of any
kind to any third party.
(e) Schedule 3.13(e) of the Company Disclosure Letter lists all Company Products by
name and version number.
(f) Schedule 3.13(f) of the Company Disclosure Letter lists all Company Registered
Intellectual Property, including the jurisdictions in which each such item of Intellectual Property
has been issued or registered or in which any application for such issuance and registration has
been filed or in which any other filing or recordation has been made. Schedule 3.13(f) of
the Company Disclosure Letter sets forth a list of all actions that are required to be taken by
Company or any of its Subsidiaries within 120 days of the Agreement Date with respect to any of the
Company Registered Intellectual Property in order to avoid prejudice to, or impairment or
abandonment of, such Company Registered Intellectual Property. Each item of Company Registered
Intellectual Property is valid and subsisting or, in the case of applications, applied for.
(g) Neither Company nor any of its Subsidiaries is or will be, as a result of the execution
and delivery or effectiveness of this Agreement or the performance of Company’s obligations under
this Agreement, in breach of any Contract governing any Company IP Rights (the “Company IP Rights
Agreements”) and the consummation of the transactions contemplated by this Agreement will not
result in the modification, cancellation, termination, suspension of, or acceleration of any
payments with respect to the Company IP Rights Agreements (other than with respect to any
Immaterial Software Licenses), or give any non-Company party to any Company IP Rights Agreement
(other than any Immaterial Software Licenses) the right to do any of the foregoing. Following the
Closing, the Surviving Company (as wholly-owned by Acquirer) will be permitted to exercise all of
the rights of Company and its Subsidiaries under the Company IP Rights Agreements (other than with
respect to any Immaterial Software Licenses) to the same extent Company and its Subsidiaries would
have been able to had the transactions contemplated by this Agreement not occurred and without the
payment of any additional amounts or consideration other than ongoing fees, royalties or payments
which Company or any of its Subsidiaries would otherwise be required to pay.
(h) There are no royalties, honoraria, fees or other payments payable by Company or any of its
Subsidiaries to any Person (other than salaries payable to employees, consultants and independent
contractors not contingent on or related to use of their work product or registration fees payable
with respect to any Company Registered Intellectual Property) as a result of the ownership, use,
29
possession, license-in, license-out, sale, marketing, advertising or disposition of any
Company-Owned IP Rights by Company or any of its Subsidiaries.
(i) To Company’s Knowledge, there is no unauthorized use, unauthorized disclosure,
infringement or misappropriation of any Company-Owned IP Rights by any third party, including any
employee or former employee of Company or any of its Subsidiaries. Except as set forth in
Schedule 3.13(i) of the Company Disclosure Letter, neither Company nor any of its
Subsidiaries has brought any action, suit or proceeding for infringement or misappropriation of any
Intellectual Property right or breach of any Company IP Rights Agreement.
(j) Neither Company nor any of its Subsidiaries has been sued in any suit, action or
proceeding (or received any written notice or, to Company’s Knowledge, threat) which involves a
claim of infringement or misappropriation of any Intellectual Property right of any third party or
which contests the validity, ownership or right of Company or any of its Subsidiaries to exercise
any Intellectual Property right. Neither Company nor any of its Subsidiaries has received any
written communication that involves an offer to license or grant any other rights or immunities
under any third-party Intellectual Property right.
(k) The operation of the Company Business, as currently conducted, by Company or any of its
Subsidiaries, and, to Company’s Knowledge, as currently planned by Company or any of its
Subsidiaries to be conducted in the future, including (i) the design, development, manufacturing,
reproduction, marketing, licensing, sale, offer for sale, importation, distribution, provision
and/or use of any Company Product and (ii) the use by Company or any of its Subsidiaries of any
product, device or process used in the Company Business as currently conducted by Company or any of
its Subsidiaries and, to Company’s Knowledge, as currently planned by Company or any of its
Subsidiaries to be conducted in the future, does not, has not and will not infringe or
misappropriate the Intellectual Property rights of any third party and does not, has not and will
not constitute unfair competition or unfair trade practices under the laws of any jurisdiction in
which Company or any of its Subsidiaries conducts the Company Business, and there is no basis for a
claim that the design, development, manufacturing, reproduction, marketing, licensing, sale, offer
for sale, importation, distribution, provision and/or use of any Company Product or the operation
of the Company Business, as currently conducted by Company or any of its Subsidiaries, and, to
Company’s Knowledge, as currently planned by Company or any of its Subsidiaries to be conducted in
the future, is infringing or has infringed on or misappropriated any Intellectual Property right of
a third party.
(l) Except as set forth on Schedule 3.13(l) of the Company Disclosure Letter, none of
the Company-Owned IP Rights, the Company Products, Company or any of its Subsidiaries is subject to
any proceeding or outstanding order or stipulation (i) restricting in any manner the use, transfer,
licensing or provision by Company or any of its Subsidiaries of any Company-Owned IP Right or any
Company Product, or which may affect the validity, use or enforceability of any such Company-Owned
IP Right or Company Product, or (ii) restricting the conduct of the Company Business in order to
accommodate third party Intellectual Property rights.
(m) Neither Company nor any of its Subsidiaries has received any written opinion of counsel
that any Company Product or the operation of the Company Business, as previously or currently
conducted, or as currently proposed to be conducted by Company or any of its Subsidiaries,
infringes or misappropriates any third party Intellectual Property rights.
(n) Except as set forth in Schedule 3.13(n) of the Company Disclosure Letter, Company
and each of its Subsidiaries has secured, from all of its consultants, employees and independent
contractors who independently or jointly contributed, to the conception, reduction to practice,
creation or development of any Company-Owned IP Rights, unencumbered and unrestricted exclusive
ownership of
30
all of such third party’s Intellectual Property in such contribution that Company or any of
its Subsidiaries does not already own by operation of law, and no current or former consultant,
employee or independent contractor of Company or any of its Subsidiaries has any right, license,
claim or interest whatsoever in or with respect to any Company-Owned IP Rights. Without limiting
the foregoing, Company and each of its Subsidiaries has obtained proprietary information and
invention disclosure and assignment agreements in the unmodified form provided to Acquirer’s
counsel (an “EIAA”) from all current and former consultants, employees and independent contractors
of Company and each of its Subsidiaries and no EIAA lists any Intellectual Property which is not
assigned to Company or any of its Subsidiaries under that EIAA.
(o) No current or former employee, consultant or independent contractor of Company or any of
its Subsidiaries: (i) is, except as set forth on Schedule 3.13(o) of the Company Disclosure
Letter, in violation of any term or covenant of any Contract relating to employment, invention
disclosure, invention assignment, non-disclosure or non-competition or any other Contract with any
third party by virtue of such employee’s, consultant’s or independent contractor’s being employed
by, or performing services for, Company or any of its Subsidiaries or using trade secrets or
proprietary information of others without permission; or (ii) has developed any technology,
software or other copyrightable, patentable or otherwise proprietary work for Company or any of its
Subsidiaries that is subject to any agreement under which such employee, consultant or independent
contractor has assigned or otherwise granted to any third party any rights (including Intellectual
Property rights) in or to such technology, software or other copyrightable, patentable or otherwise
proprietary work.
(p) Except as set forth on Schedule 3.13(p) of the Company Disclosure Letter, the
employment of any employee of Company or any of its Subsidiaries or the use by Company or any of
its Subsidiaries of the services of any consultant or independent contractor does not subject
Company or any of its Subsidiaries to any Liability to any third party for improperly soliciting
such employee, consultant or independent contractor to work for Company or any of its Subsidiaries,
whether such Liability is based on contractual or other legal obligations to such third party.
(q) Company and its Subsidiaries have taken all commercially reasonable steps to protect and
preserve the confidentiality of the following (“Confidential Information”): (i) all information
which is confidential or non-public, which is included in the Company IP Rights owned by Company
and which is material to the Company Business, and (ii) all information included in the Company IP
Rights which are not owned by Company, which are reasonably believed by Company to be confidential
or non-public or which Company and/or any of its Subsidiaries are legally obligated to keep
confidential. All use, disclosure or appropriation of Confidential Information owned by Company or
any of its Subsidiaries by or to a third party has been pursuant to the terms of a written
agreement or other legal binding arrangement between Company or a Subsidiary of Company and such
third party. All use, disclosure or appropriation by Company and its Subsidiaries of Confidential
Information not owned by Company or any of its Subsidiaries has been pursuant to the terms of a
written agreement between Company or such Subsidiary and the owner of such Confidential
Information, or is otherwise lawful. All current and former employees and consultants of Company
and its Subsidiaries having access to Confidential Information or proprietary information of any of
their respective customers or business partners have executed and delivered to Company an agreement
regarding the protection of such Confidential Information or proprietary information (in the case
of proprietary information of the customers and business partners of Company or any of its
Subsidiaries, to the extent required by such customers and business partners).
(r) Schedule 3.13(r) of the Company Disclosure Letter lists all software or other
material that is distributed as “free software”, “open source software” or under similar licensing
or distribution terms (including the GNU General Public License (GPL), GNU Lesser General Public
License (LGPL), Mozilla Public License (MPL), BSD licenses, the Artistic License, the Netscape
Public
31
License, the Sun Community Source License (SCSL) the Sun Industry Standards License (SISL) and
the Apache License) (“Open Source Materials”) used by Company or any of its Subsidiaries in any way
and describes the manner in which such Open Source Materials were used (such description will
include whether (and, if so, how) the Open Source Materials were modified and/or distributed by
Company or any of its Subsidiaries). Company is in compliance with the terms and conditions of all
licenses for the Open Source Materials.
(s) Neither Company nor any of its Subsidiaries has (i) incorporated Open Source Materials
into, or combined Open Source Materials with, the Company IP Rights or Company Products, (ii)
distributed Open Source Materials in conjunction with any Company IP Rights or Company Products, or
(iii) used Open Source Materials in such a way that, with respect to (i), (ii), or (iii), creates,
or purports to create, obligations for Company or any such Subsidiary to third parties with respect
to any Company IP Rights or grants, or purports to grant, to any third party, any rights or
immunities under any Company IP Rights (including using any Open Source Materials that require, as
a condition of use, modification and/or distribution of such Open Source Materials, that other
software incorporated into, derived from or distributed with such Open Source Materials (A) be
disclosed or distributed to third parties in source code form, (B) be licensed to third parties for
the purpose of making derivative works, or (C) be redistributable to third parties at no charge).
(t) All products sold, licensed, leased or delivered by Company or any of its Subsidiaries to
customers and all services provided by or through Company or any of its Subsidiaries to customers
on or prior to the Closing Date (i) conform to applicable and material contractual commitments,
express and implied warranties (to the extent not subject to legally effective express exclusions
thereof) and any legally binding representations provided to customers and (ii) conform in all
material respects to applicable packaging, advertising and marketing materials provided by Company
or any of its Subsidiaries and product or service specifications or documentation. Neither Company
nor any of its Subsidiaries has any Liability for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against Company or any of its
Subsidiaries giving rise to any material Liability relating to the replacement or repair of any
Company Products or other damages in connection therewith in excess of any reserves therefor
reflected on the Balance Sheet, and, to the Knowledge of Company and its Subsidiaries, there is no
legitimate basis for any such action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand.
(u) Company has made available to Acquirer all material documentation and notes in Company’s
possession or control relating to the testing of all Company Products. To the Knowledge of
Company, Company has documented all bugs, errors and defects in all Company Products, and such
documentation is retained and is available internally at Company.
(v) For all software (other than software licensed pursuant to Immaterial Software Licenses)
used by Company and its Subsidiaries in providing services, or in developing, making available or
providing any of the Company Products, Company or a Subsidiary of Company has implemented
consistent with general industry standards security patches or upgrades that are generally
available for that software, and Company and its Subsidiaries have current, valid, timely paid
Contracts for the provision of support, maintenance, updates, upgrades, enhancements and bug fixes
to Company and its Subsidiaries for such software.
(w) No (i) government funding; (ii) facilities of a university, college, other educational
institution or research center; or (iii) funding from any Person (other than funds received in
consideration for shares of Company Capital Stock or from the sale of products or services) was
used in the development of the Company-Owned IP Rights. No current or former employee, consultant
or independent contractor of Company or any of its Subsidiaries who was involved in, or who
contributed
32
to, the creation or development of any Company-Owned IP Rights has performed services for any
government, university, college or other educational institution or research center during a period
of time during which such employee, consultant or independent contractor was also performing
services for Company or any of its Subsidiaries.
(x) Except as set forth on Schedule 3.13(x) of the Company Disclosure Letter, neither
Company nor any of its Subsidiaries nor any other Person then acting on their behalf has disclosed,
delivered or licensed to any Person, agreed to disclose, deliver or license to any Person, or
permitted the disclosure or delivery to any escrow agent or other Person of, any Company Source
Code. No event has occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time, or both) will, or would reasonably be expected to, result in the disclosure,
delivery or license by Company or any of its Subsidiaries or any Person then acting on their behalf
to any Person of any Company Source Code. Schedule 3.13(x) of the Company Disclosure
Letter identifies each Contract pursuant to which Company or any of its Subsidiaries has deposited,
or is or may be required to deposit, with an escrow agent or any other Person any of the Company
Source Code and describes whether the execution of this Agreement or any of the transactions
contemplated by this Agreement, in and of itself, would reasonably be expected to result in the
release from escrow of any Company Source Code.
(y) Except as disclosed in Schedule 3.13(y) of the Company Disclosure Letter, there
has not occurred with respect to Company, any of its Subsidiaries or any customer for which Company
or any of its Subsidiaries provides hosting or hosted services (i) any unavailability of its
Internet-based services, any disruption to network operations or any network outage of more than
0.03% of the time in any calendar month or (ii) any material failure to comply with any service
unavailability, network performance standards or objectives set forth in any Contract with a
customer of Company or any of its Subsidiaries.
(z) Neither Company nor any Subsidiary is now or has ever been a member or promoter of, or a
contributor to, any industry standards body or any similar organization that could reasonably be
expected to require or obligate any of Company or any Subsidiary to grant or offer to any other
Person any license or right to any Company-Owned IP Rights.
(aa) Company and each Subsidiary has implemented and maintains a comprehensive security plan
consistent with generally accepted industry standards which (i) identifies internal and external
risks to the security of the Confidential Information, including personally identifiable
information; (ii) implements, monitors and improves adequate and effective administrative,
electronic and physical safeguards to control those risks; and (iii) maintains notification
procedures in compliance with Applicable Laws in the case of any breach of security compromising
unencrypted data containing personally identifiable information. Neither Company nor any
Subsidiary has experienced any breach of security or otherwise unauthorized access by third parties
to the Confidential Information, including personally identifiable information in Company’s
possession, custody or control.
3.14 Privacy. Neither Company nor any of its Subsidiaries has collected any
personally identifiable information from any third parties except as described on
Schedule 3.14 of the Company Disclosure Letter. Company and its Subsidiaries have complied
with all Applicable Laws and their respective internal privacy policies relating to (a) the privacy
of users of their products and services and all Internet websites owned, maintained or operated by
Company or any of its Subsidiaries (the “Company Websites”) and (b) the use, collection, storage
and transfer of any personally identifiable information collected by Company, any of its
Subsidiaries or by third parties having authorized access to the records of Company or any of its
Subsidiaries. The execution, delivery and performance of this Agreement and the Company
Ancillary Agreements comply with all Applicable Laws relating to privacy and with Company’s
and its Subsidiaries’ privacy policies. Copies of all current and prior privacy
33
policies of Company and its Subsidiaries, including the privacy policies included in the
Company Websites, are attached as Schedule 3.14 of the Company Disclosure Letter. Each of
the Company Websites and all materials distributed or marketed by Company or any of its
Subsidiaries have at all times made all disclosures to users or customers required by Applicable
Laws, and none of such disclosures made or contained in any Company Website or in any such
materials have been inaccurate, misleading or deceptive or in violation of any Applicable Law.
Neither Company nor any Subsidiary has received a complaint regarding Company’s or any of its
Subsidiaries’ collection, use or disclosure of personally identifiable information.
3.15 Compliance with Laws. Company and each of its Subsidiaries have complied in all
material respects and will be as of the Closing Date in material compliance with all Applicable
Laws. Company and each of its Subsidiaries have received all permits and approvals from, and have
made all filings with, third parties, including Governmental Authorities, that are necessary to the
conduct of the business of Company and its Subsidiaries as presently being conducted in all
material respects (“Governmental Permits”), and there exists no current material default under or
violation of any such Governmental Permit. None of the Governmental Permits will be terminated or
impaired, or will become terminable, in whole or in part, as a result of the consummation of the
transactions contemplated by this Agreement, in each case, in all material respects.
3.16 Certain Transactions and Agreements. None of the officers and directors of
Company or any of its Subsidiaries and, to the Knowledge of Company, no member of any such
director’s or officer’s, immediate family (a) has or ever had any direct or indirect ownership,
participation, royalty or other interest in, or any employment or consulting agreement with, any
firm, partnership, entity or corporation that competes or does business with Company, Acquirer or
any of their respective Subsidiaries (except with respect to any interest of less than 1% of the
outstanding voting shares of any corporation whose stock is publicly traded), (b) is or ever has
been directly or indirectly interested in any Material Agreement, except for compensation for
services as a director, officer or employee of Company or any of its Subsidiaries as listed on
Schedule 3.16 of the Company Disclosure Letter, (c) has or ever had any interest in any
property, real or personal, tangible or intangible, used in the Company Business, except for the
normal rights of a stockholder, or (d) has or ever had, either directly or indirectly, a material
interest in any Person which purchases from or sells, licenses or furnishes to Company or any of
its Subsidiaries any goods, property, technology or intellectual or other property rights or
services.
3.17 Employee Benefit Plans and Employee Matters.
(a) Schedule 3.17(a) of the Company Disclosure Letter lists, with respect to Company,
any Subsidiary and any ERISA Affiliates, all Employee Plans.
(b) Company has furnished to Acquirer’s counsel a true, correct and complete copy of each of
the Employee Plans and related plan documents (including trust documents, insurance policies or
Contracts, employee booklets, summary plan descriptions and other authorizing documents, and any
material employee communications relating thereto) and has, with respect to each Employee Plan
which is subject to ERISA reporting requirements, delivered to Acquirer’s counsel true, correct and
complete copies of the Form 5500 reports filed for the last three plan years. Any 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 amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, or has applied (or has time remaining in which to apply) to the Internal Revenue
Service for such a determination letter prior to the expiration of the requisite period under
applicable Treasury Regulations or Internal Revenue Service pronouncements in which to apply for
such determination letter and to make any amendments necessary
to obtain a favorable determination or has been established under a standardized prototype
plan for which
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an Internal Revenue Service opinion letter has been obtained by the plan sponsor and
is valid as to the adopting employer. Company has also delivered to Acquirer a true, correct and
complete copy of the most recent Internal Revenue Service determination or opinion letter issued
with respect to each such Employee Plan, and nothing has occurred since the issuance of each such
letter which would reasonably be expected to cause the loss of the Tax-qualified status of any
Employee Plan subject to Section 401(a) of the Code. Company has also delivered to Acquirer a
true, correct and complete copy of the most recent Internal Revenue Service determination or
opinion letter issued with respect to each such Employee Plan and nothing has occurred since the
issuance of each such letter which would reasonably be expected to cause the loss of the
Tax-qualified status of any Employee Plan subject to Section 401(a) of the Code. Company has also
delivered to Acquirer all registration statements and prospectuses prepared in connection with each
Employee Plan. All individuals who, pursuant to the terms of any Employee Plan, are entitled to
participate in any Employee Plan, are currently participating in such Employee Plan or have been
offered an opportunity to do so. Neither Company nor any Subsidiary sponsors or maintains any
self-funded employee benefit plan.
(c) None of the Employee Plans promises or provides retiree medical or other retiree welfare
benefits to any person other than as required under the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended (“COBRA”) or similar state law. To the best of Company’s Knowledge, there
has been no “prohibited transaction” (within the meaning of Section 406 of ERISA and Section 4975
of the Code and not exempt under Section 408 of ERISA and regulatory guidance thereunder) with
respect to any Employee Plan. Each Employee Plan has been substantially administered in accordance
with its terms and in compliance with the requirements prescribed by any and all statutes, rules
and regulations (including ERISA and the Code), and Company, each Subsidiary and each ERISA
Affiliate has performed all obligations required to be performed by it under, is not in default
under or in violation of, and has no knowledge of any default or violation by any other party to,
any of the Employee Plans. Neither Company nor any Subsidiary or 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 of the Employee Plans. All contributions required to be made by Company, any Subsidiary or
any ERISA Affiliate to any Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Employee Plan for the current plan
years (and no further contributions will be due or will have accrued thereunder as of the Closing
Date, other than contributions accrued in the ordinary course of business, consistent with past
practice, after the Company Balance Sheet Date as a result of the operations of Company and its
Subsidiaries after the Company Balance Sheet Date). In addition, with respect to each Employee
Plan intended to include a Code Section 401(k) arrangement, Company, its Subsidiaries and ERISA
Affiliates have at all times made timely deposits of employee salary reduction contributions and
participant loan repayments, as determined pursuant to regulations issued by the United States
Department of Labor. No Employee Plan is covered by, and neither Company nor any Subsidiary or
ERISA Affiliate has incurred or expects to incur any Liability under Title IV of ERISA or Section
412 of the Code. Each Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without Liability to Acquirer, the Surviving Company
and/or any Subsidiary (other than ordinary administrative expenses typically incurred in a
termination event), within thirty (30) days. With respect to each Employee Plan subject to ERISA
as either an employee pension benefit plan within the meaning of Section 3(2) of ERISA or an
employee welfare benefit plan within the meaning of Section 3(1) of ERISA, Company has prepared in
good faith and timely filed all requisite governmental reports (which were true, correct and
complete as of the date filed), including any required audit reports, 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 Employee Plan. No suit, administrative proceeding,
action or other litigation has been brought, or to the Knowledge of Company, is threatened, against
or with respect to any such Employee Plan, including any audit or inquiry by the Internal Revenue
Service or United States Department of Labor.
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(d) With respect to each Employee Plan, each of Company and each United States Subsidiary has
substantially complied with (i) the applicable health care continuation and notice provisions of
COBRA and the regulations (including proposed regulations) thereunder, (ii) the applicable
requirements of the Family Medical and Leave Act of 1993 and the regulations (including proposed
regulations) thereunder, (iii) the applicable requirements of the Health Insurance Portability and
Accountability Act of 1996 and the regulations (including proposed regulations) thereunder, (iv)
the applicable requirements of the Americans with Disabilities Act of 1990, as amended and the
regulations (including proposed regulations) thereunder, (v) the Age Discrimination in Employment
Act of 1967, as amended, and (vi) the applicable requirements of the Women’s Health and Cancer
Rights Act of 1998 and the regulations (including proposed regulations) thereunder.
(e) There has been no amendment to, written interpretation or announcement (whether or not
written) by Company, any Subsidiary or other ERISA Affiliate relating to, or change in
participation or coverage under, any Employee Plan which would materially increase the expense of
maintaining such Employee Plan above the level of expense incurred with respect to such Employee
Plan for the most recent fiscal year included in the Financial Statements. No Employee Plan will
be subject to any surrender fees or service fees upon termination other than the normal and
reasonable administrative fees associated with the termination of benefit plans.
(f) Neither Company nor any Subsidiary or current or former ERISA Affiliate currently
maintains, sponsors, participates in or contributes to, or has ever maintained, established,
sponsored, participated in, or contributed to, any pension plan (within the meaning of Section 3(2)
of ERISA) which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or
Section 412 of the Code.
(g) Neither Company nor any Subsidiary or ERISA Affiliate is a party to, or has made any
contribution to or otherwise incurred any obligation under, any “multiemployer plan” as such term
is defined in Section 3(37) of ERISA or any “multiple employer plan” as such term is defined in
Section 413(c) of the Code.
(h) Each International Plan is listed in Schedule 3.17(h) of the Company Disclosure
Letter. As regards each International Plan, (i) such International Plan is in material compliance
with the provisions of the Legal Requirements of each jurisdiction in which such International
Plan is maintained, to the extent those Legal Requirements are applicable to such International
Plan, (ii) all contributions to, and material payments from, such International Plan which may have
been required to be made in accordance with the terms of such International Plan, and, when
applicable, the Legal Requirements of the jurisdiction in which such International Plan is
maintained, have been timely made or shall be made by the Closing Date, and all such contributions
to such International Plan, and all payments under such International Plan, for any period ending
before the Closing Date that are not yet, but will be, required to be made, are reflected as an
accrued liability on the Company Balance Sheet, (iii) Company, each Subsidiary, and each ERISA
Affiliate has materially complied with all applicable reporting and notice requirements, and such
International Plan has obtained from the Governmental Entity having jurisdiction with respect to
such International Plan any required determinations, if any, that such International Plan is in
compliance with the Legal Requirements of the relevant jurisdiction if such determinations are
required in order to give effect to such International Plan, (iv) such International Plan has been
administered in all material respects at all times in accordance with its terms and applicable
Legal Requirements, (v) to the Knowledge of Company, there are no pending investigations by any
governmental body involving such International Plan, and no pending claims (except for claims for
benefits payable in the normal operation of such International Plan), suits or proceedings against
such International Plan or asserting any rights or claims to benefits under such International
Plan, (vi) the consummation of the transactions contemplated by this Agreement will not by itself
create or otherwise result in any Liability with respect to such
36
International Plan, and (vii) except as required by applicable Legal Requirements, no
condition exists that would prevent Company or any of its Subsidiaries from terminating or amending
any International Plan at any time for any reason in accordance with the terms of each such
International Plan without the payment of any fees, costs or expenses (other than the payment of
benefits accrued on the Company Balance Sheet and any normal and reasonable expenses typically
incurred in a termination event). The benefits available under all International Plans in the
aggregate do not provide materially greater benefits to employees of Company or any Subsidiary
participating in such plans than the benefits available under the Employee Plans for employees of
Company or any Subsidiary in the United States. No International Plan has unfunded Liabilities
that will not be offset by insurance or that are not fully accrued on the financial statements of
Company.
(i) Schedule 3.17(i) of the Company Disclosure Letter lists as of the Agreement Date
each employee of Company or any Subsidiary who is not fully available to perform work because of
disability or other leave and also lists, with respect to each such employee, the basis of such
disability or leave and the anticipated date of return to full service.
(j) None of the execution and delivery of this Agreement, the consummation of the Merger or
any other transaction contemplated hereby or any termination of employment or service in connection
therewith or subsequent thereto will, individually or together with the occurrence of some other
event, (i) result in any payment (including severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any Person, (ii) materially increase or otherwise enhance any
benefits otherwise payable by Company or any Subsidiary, (iii) result in the acceleration of the
time of payment or vesting of any such benefits, except as required under Section 411(d)(3) of the
Code, (iv) increase the amount of compensation due to any Person, or (v) result in the forgiveness
in whole or in part of any outstanding loans made by Company or any Subsidiary to any Person.
(k) Each of Company and each Subsidiary is in compliance in all material respects with all
currently applicable Legal Requirements respecting employment, discrimination in employment, terms
and conditions of employment, worker classification (including the proper classification of workers
as independent contractors and consultants), wages, hours and occupational safety and health and
employment practices, including the Immigration Reform and Control Act, and is not engaged in any
unfair labor practice. Each of Company and each Subsidiary has withheld all amounts required by
law or by agreement to be withheld from the wages, salaries, and other payments to employees; and
is not liable for any arrears of wages, compensation, Taxes, penalties or other sums for failure to
comply with any of the foregoing. Company and each Subsidiary has paid in full to all employees,
independent contractors and consultants all wages, salaries, commissions, bonuses, benefits and
other compensation due to or on behalf of such employees, independent contractors and consultants.
Neither Company nor any Subsidiary is liable for any payment to any trust or other fund or to any
Governmental Entity, with respect to unemployment compensation benefits, social security or other
benefits or obligations for employees (other than routine payments to be made in the normal course
of business and consistently with past practice). There are no pending claims against Company
and/or any Subsidiary under any workers compensation plan or policy or for long term disability.
Neither Company nor any Subsidiary has any obligations under COBRA with respect to any former
employees or qualifying beneficiaries thereunder, except for obligations that are not material in
amount. There are no controversies pending or, to the Knowledge of Company, threatened, between
Company or any Subsidiary and any of their respective employees, which controversies have or would
reasonably be expected to result in an action, suit, proceeding, claim, arbitration or
investigation before any Governmental Entity.
(l) Schedule 3.17(l) of the Company Disclosure Letter sets forth a true, correct and
complete list as of the Agreement Date of all severance Contracts and employment Contracts to which
Company and/or any Subsidiary is a party or by which Company and/or any Subsidiary is bound.
Neither
37
Company nor any of its Subsidiaries has any obligation to pay any amount or provide any
benefit to any former employee or officer, other than obligations (i) for which Company has
established a reserve for such amount on the Company Balance Sheet and (ii) pursuant to Contracts
entered into after the Company Balance Sheet Date and disclosed on Schedule 3.17(l) of the
Company Disclosure Letter. Neither Company nor any Subsidiary is a party to or bound by any
collective bargaining agreement or other labor union Contract, no collective bargaining agreement
is being negotiated by Company or any Subsidiary and neither Company nor any Subsidiary has any
duty to bargain with any labor organization. There is no pending demand for recognition or any
other request or demand from a labor organization for representative status with respect to any
Person employed by Company or any Subsidiary. Neither Company nor any Subsidiary has knowledge of
any activities or proceedings of any labor union or to organize their respective employees. There
is no labor dispute, strike or work stoppage against Company or any Subsidiary pending or, to the
Knowledge of Company, threatened which may interfere with the respective business activities of
Company or any Subsidiary. Neither Company nor any Subsidiary, nor to the Knowledge of Company and
each Subsidiary, any of their respective representatives or employees, has committed any unfair
labor practice in connection with the operation of the respective businesses of Company or any
Subsidiary, and there is no charge or complaint against Company or any Subsidiary by the National
Labor Relations Board or any comparable Governmental Entity pending or to the Knowledge of Company,
threatened.
(m) No employee of Company or any Subsidiary is in violation of any term of any employment
agreement, patent disclosure agreement, non-competition agreement, or any restrictive covenant to a
former employer relating to the right of any such employee to be employed by Company or any
Subsidiary because of the nature of the business conducted or presently proposed to be conducted by
Company or any Subsidiary or to the use of trade secrets or proprietary information of others. No
employee of Company or any Subsidiary has given notice to Company or any Subsidiary, nor does
Company or any Subsidiary otherwise have knowledge, that any such employee intends to terminate his
or her employment with Company or any Subsidiary. The employment of each of the employees of
Company or any Subsidiary is “at will” (except for non-U.S. employees of Company or any Subsidiary
located in a jurisdiction that does not recognize the “at will” employment concept) and Company and
each Subsidiary does not have any obligation to provide any particular form or period of notice
prior to terminating the employment of any of their respective employees. As of the Agreement
Date, Company and each Subsidiary has not, and to the Knowledge of Company or any Subsidiary, no
other Person has, (i) entered into any Contract that obligates or purports to obligate Acquirer to
make an offer of employment to any present or former employee or consultant of Company or any
Subsidiary and/or (ii) promised or otherwise provided any assurances (contingent or otherwise) to
any present or former employee or consultant of Company or any Subsidiary of any terms or
conditions of employment with Acquirer following the Effective Time.
(n) Each of Company and each Subsidiary has delivered to Acquirer a true, correct and complete
list of the names, positions and rates of compensation of all officers, directors, and employees of
Company and each Subsidiary, showing each such person’s name, position, annual remuneration, status
as exempt/non-exempt, bonuses and fringe benefits for the current fiscal year and the most recently
completed fiscal year. Each of Company and each Subsidiary has delivered to Acquirer the
additional following information for each of its international employees: city/country of
employment, citizenship, date of hire, supervisor’s name and work location, date of birth, and any
material special circumstances (including pregnancy, disability or military service).
(o) Each of Company and each Subsidiary has delivered to Acquirer a true, correct and complete
list of all of its consultants, advisory board members and independent contractors and for each the
initial date of the engagement and whether the engagement has been terminated by written notice by
either party.
38
(p) Each of Company and each Subsidiary has delivered to Acquirer’s counsel true, correct and
complete copies of each of the following: all forms of offer letters; all forms of employment
agreements and severance agreements; all forms of services agreements and agreements with current
and former consultants and/or advisory board members; all forms of confidentiality, non-competition
or inventions agreements between current and former employees/consultants and Company or any
Subsidiary (and a true, correct and complete list of employees, consultants and/or others not
subject thereto); the most current management organization chart(s); all agreements and/or
insurance policies providing for the indemnification of any officers or directors of Company or any
Subsidiary; summary of Liability for termination payments to current and former directors, officers
and employees of Company or any Subsidiary; and a schedule of bonus commitments made to employees
of Company or any Subsidiary.
(q) There are no performance improvement or disciplinary actions contemplated or pending
against any of Company’s or any Subsidiary’s current employees.
(r) Company and each Subsidiary is in compliance in all material respects with the Worker
Adjustment Retraining Notification Act of 1988, as amended (“WARN Act”), or any similar state or
local law. In the past two years, (i) Company has not effectuated a “plant closing” (as defined in
the WARN Act) affecting any site of employment or one or more facilities or operating units within
any site of employment or facility of its business; (ii) there has not occurred a “mass layoff” (as
defined in the WARN Act) affecting any site of employment or facility of Company; and (iii)
Company has not been affected by any transaction or engaged in layoffs or employment terminations
sufficient in number to trigger application of any similar state, local or foreign law or
regulation. Company has not caused any of its employees to suffer an “employment loss” (as defined
in the WARN Act) during the 90 day period prior to the Agreement Date.
(s) Company has delivered to Acquirer true and complete copies of all election statements
under Section 83(b) of the Code that are in Company’s possession or subject to its control with
respect to any unvested securities or other property issued by Company, any Subsidiary or any ERISA
Affiliate to any of their respective employees, non-employee directors, consultants and other
service providers.
3.18 Insurance. Each policy of insurance and bond (the “Insurance Policies”) now held
by Company and each of its Subsidiaries is set forth on Schedule 3.18 of the Company
Disclosure Letter, together with the name of the insurer, the type of policy or bond, the coverage
amount and any applicable deductible. All premiums due and payable under all such Insurance
Policies have been timely paid. Company and each of its Subsidiaries are in compliance with the
terms of its Insurance Policies, and all such Insurance Policies are in full force and effect.
Neither Company nor any of its Subsidiaries has any Knowledge of any threatened termination of, or
material premium increase with respect to, any of its Insurance Policies. There is no claim
pending under any such Insurance Policy as to which coverage has been questioned, denied or
disputed by the underwriters of such Insurance Policy.
3.19 Environmental Matters.
(a) As used in this Agreement, the following terms shall have the meanings indicated below:
(i) “Environmental and Safety Laws” shall mean any federal, state or local laws, ordinances,
codes, regulations, rules, policies and orders that are intended to assure the protection of the
environment, or that classify, regulate, call for the remediation of, require reporting with
respect to, or list or define air, water, groundwater, solid waste, hazardous or toxic substances,
materials, wastes,
39
pollutants or contaminants, or which are intended to assure the safety of employees, workers
or other persons, including the public.
(ii) “Hazardous Materials” shall mean any toxic or hazardous substance, material, waste,
pollutant, contaminant, or infectious or radioactive substance defined in or regulated under any
Environmental and Safety Laws, but excludes office and janitorial supplies properly and safely
maintained.
(iii) “Property” shall mean all real property leased or owned by Company or any Subsidiary
either currently or in the past.
(iv) “Facilities” shall mean all buildings and improvements on the Property.
(b) (i) All Hazardous Materials of Company or any Subsidiary pertaining to the Facilities have
been disposed of in accordance in all material respects with all Environmental and Safety Laws;
(ii) neither Company nor any Subsidiary has received any notice of any noncompliance of the
Facilities or its past or present operations with Environmental and Safety Laws; (iii) to Company’s
Knowledge, no notices, administrative actions or suits are pending or threatened relating to an
actual or alleged violation of any applicable Environmental and Safety Laws at the Facilities by
Company or any Subsidiary; (iv) to Company’s Knowledge, neither Company nor any Subsidiary is a
potentially responsible party under the federal Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, or any analogous state, local or foreign laws arising out of
events occurring prior to the Closing Date; (v) to Company’s Knowledge, there have not been in the
past, and are not now, any Hazardous Materials on, under or migrating to or from any of the
Facilities or any Property; (vi) to Company’s Knowledge, there have not been in the past, and are
not now, any underground tanks or underground improvements at, on or under any Property, including
treatment or storage tanks, sumps, or water, gas or oil xxxxx; and (vii) the Facilities and
Company’s and each Subsidiary’s uses and activities therein have at all times materially complied
with all Environmental and Safety Laws.
3.20 Customers and Suppliers.
(a) Neither Company nor any of its Subsidiaries has any outstanding material dispute
concerning its goods and/or services with any customer who, in the six (6) months ended June 30,
2008, was one of the ten largest sources of revenue for Company, based on amounts paid or payable
(each, a “Significant Customer”). Each Significant Customer is listed on Schedule 3.20(a)
of the Company Disclosure Letter. Neither Company nor any of its Subsidiaries has received a
written notice from any Significant Customer that such customer will not continue as a customer of
Company or such Subsidiary of Company (or the Surviving Company) after the Closing or that any such
customer intends to terminate or materially modify existing Contracts with Company or such
Subsidiary of Company (or the Surviving Company) or reduce the amount paid to Company or such
Subsidiary of Company (or the Surviving Company) for products and services.
(b) Neither Company nor any of its Subsidiaries has any outstanding material dispute
concerning goods and/or services provided by any supplier who, in the six (6) months ended June 30,
2008, was one of the ten largest suppliers of goods and/or services to Company, based on amounts
paid or payable (each, a “Significant Supplier”). Each Significant Supplier is listed on
Schedule 3.20(b) of the Company Disclosure Letter. Neither Company nor any of its
Subsidiaries has received a written notice from any Significant Supplier that such supplier will
not continue as a supplier of Company or such Subsidiary of Company (or the Surviving Company)
after the Closing or that any such supplier intends to terminate or materially modify existing
Contracts with Company or such Subsidiary of Company (or the
40
Surviving Company). Neither Company nor any of its Subsidiaries has received any notice of
termination or interruption of any existing Material Agreements with any Significant Supplier.
3.21 Export Control Laws. Each of Company and each of its Subsidiaries has conducted
its export transactions in accordance in all material respects with applicable provisions of United
States export control laws and regulations, including the Export Administration Act and
implementing Export Administration Regulations. Without limiting the foregoing: (a) each of
Company and each of its Subsidiaries has obtained, to the extent required by the Export
Administration Regulations, all export licenses and other approvals required for its exports of
products, software and technologies from the United States; (b) each of Company and each of its
Subsidiaries is in material compliance with the terms of all applicable export licenses or other
approvals; (c) there are no pending or, to Company’s Knowledge, threatened claims against Company
or any of its Subsidiaries with respect to such export licenses or other approvals, if any; and
(d) no consents or approvals for the transfer of export licenses to Acquirer are required, except
for such consents and approvals that can be obtained expeditiously without material cost.
3.22 Accounts Receivable. The accounts receivable included in the NWC Calculations
are collectible and will be collected in the amounts utilized in the NWC Calculations. The accounts
receivable shown on the Balance Sheet arose in the ordinary course of business, consistent with
past practice, represented bona fide claims against debtors for sales and other charges and have
been collected or are collectible in the book amounts thereof, less an amount not in excess of the
allowance for doubtful accounts provided for in the Balance Sheet. Allowances for doubtful
accounts and warranty returns have been prepared in accordance with GAAP, insofar as the accounting
policies have been consistently applied by Company’s or its Subsidiaries’ accountants with those of
prior years, and are sufficient to provide for any losses which may be sustained on realization of
the receivables. The accounts receivable of Company and its Subsidiaries arising after the Balance
Sheet Date and before the Closing Date arose or shall arise in the ordinary course of business,
consistent with past practices, represented or shall represent bona fide claims against debtors for
sales and other charges, and have been collected or are collectible in the book amounts thereof,
less allowances for doubtful accounts and warranty returns determined in accordance with GAAP,
insofar as the accounting policies have been consistently applied by Company’s or its Subsidiaries’
accountants with those of prior years, which are or shall be sufficient to provide for any losses
which may be sustained on realization of the receivables. None of the accounts receivable of
Company or any of its Subsidiaries is subject to any claim of offset, recoupment, setoff or
counterclaim. No material amount of accounts receivable is contingent upon the performance by
Company or any of its Subsidiaries of any obligation or Contract other than normal warranty repair
and replacement. No Person has any Encumbrance on any of such accounts receivable, and no
agreement for deduction or discount has been made with respect to any of such accounts receivable.
Schedule 3.22 of the Company Disclosure Letter sets forth an aging of Company’s accounts
receivable as of three (3) days prior to the Agreement Date in the aggregate and by customer and
indicates the amounts of allowances for doubtful accounts and warranty returns and the amounts of
accounts receivable which are subject to asserted warranty claims.
3.23 Certain Payments. Since inception, neither Company nor any of its Subsidiaries,
nor, to Company’s Knowledge, any director, officer, Affiliate or employee thereof, has given,
offered, paid, promised to pay or authorized payment of any money, any gift or anything of value,
with the purpose of influencing any act or decision of the recipient in his or her official
capacity or inducing the recipient to use his or her influence to affect an act or decision of a
government official or employee that relates to the business of Company, to any (a) governmental
official or employee, (b) political party or candidate thereof, or (c) Person while knowing that
all or a portion of such money or thing of value would be given or offered to a governmental
official or employee or political party or candidate thereof.
41
3.24 Corporate Documents. Company has provided to Acquirer’s counsel complete and
correct copies of all documents identified on the Company Disclosure Letter and each of the
following: (a) copies of Company’s Certificate of Incorporation and Bylaws or similar charter
documents of Company and each of its Subsidiaries, each as currently in effect; (b) copies of the
minute books containing records of all proceedings, consents, actions and meetings of the Company
Board, committees of the Company Board and stockholders of Company and each of its Subsidiaries;
(c) copies of Company’s stock ledger, journal and other records reflecting all Company stock
issuances and transfers and all Company Option grants and agreements of Company and each of its
Subsidiaries; and (d) all material permits, orders and consents issued by any regulatory agency
with respect to Company and each of its Subsidiaries, or any securities of Company and each of its
Subsidiaries, and all applications for such permits, orders and consents.
3.25 No Brokers. Except for fees payable to Savvian Advisors as set forth in the
engagement letter between Company and Savvian Advisors dated August 8, 2007, a correct and complete
version of which has been provided by Company to Acquirer, neither Company nor any Affiliate of
Company is obligated for the payment of any fees or expenses of any investment banker, broker,
finder or similar party in connection with the origin, negotiation or execution of this Agreement
or in connection with the Merger or any other transaction contemplated by this Agreement, and
Acquirer will not incur any Liability, either directly or indirectly, to any such investment
banker, broker, finder or similar party as a result of this Agreement, the Merger or any act or
omission of Company, any of its Affiliates or any of their respective directors, officers,
employees, stockholders or agents.
3.26 Approvals Required. The affirmative votes of (a) the holders of a majority of
the outstanding shares of Company Common Stock and Company Preferred Stock (voting together as a
single voting class on an as-converted to Company Common Stock basis), (b) the holders of a
majority of the outstanding shares of Company Common Stock (voting as a separate voting class), and
(c) the holders of a majority of the outstanding shares of Company Preferred Stock (voting as a
separate voting class) are the only votes of the holders of the Company Capital Stock necessary to
adopt this Agreement (the “Company Stockholder Approval”). The execution of the Company
Stockholder Consent by the Company Stockholders listed on Exhibit A-1 is sufficient for the
Company Stockholder Approval.
3.27 Takeover Statutes. Company, the Company Board and the Company Stockholders have
taken all actions such that the restrictive provisions of any “fair price,” “moratorium,” “control
share acquisition,” “business combination,” “interested stockholder” or other similar anti-takeover
statute or regulation, and any anti-takeover provision in the governing documents of Company or its
Subsidiaries, will not be applicable to any of Company, its Subsidiaries, Acquirer or the Surviving
Company or to the execution, delivery or performance of the transactions contemplated by this
Agreement or any Company Ancillary Agreement, including the consummation of the Merger or any of
the other transactions contemplated hereby or thereby.
3.28 Disclosure. Neither this Agreement, nor the Company Disclosure Letter, taken
together, contains or will contain at the Closing any untrue statement of a material fact or omits
or will omit at the Closing to state any material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances under which such statements were made,
not misleading.
ARTICLE 4
Representations and Warranties of Acquirer and Sub
Representations and Warranties of Acquirer and Sub
Acquirer and Sub represent and warrant to Company that each of the representations, warranties
and statements contained in the following Sections of this Article 4 is true and correct as
of the Agreement Date and will be true and correct on and as of the Closing Date.
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4.1 Organization and Good Standing. Acquirer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has the corporate power
and authority to own, operate and lease its properties and to carry on its business as presently
being conducted and as proposed to be conducted. Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has the corporate power
and authority to own, operate and lease its properties and to carry on its business as presently
being conducted.
4.2 Power, Authorization and Validity.
(a) Acquirer has the corporate power and authority to enter into and perform its obligations
under this Agreement and all Acquirer Ancillary Agreements. The execution, delivery and
performance of this Agreement and the Acquirer Ancillary Agreements, and the Merger, have been duly
and validly approved and authorized by Acquirer, and this Agreement has been duly executed and
delivered by Acquirer. Sub has the corporate power and authority to enter into and perform its
obligations under this Agreement and all Sub Ancillary Agreements. The execution, delivery and
performance of this Agreement and the Sub Ancillary Agreements, and the Merger, have been duly and
validly approved and authorized by Sub, and this Agreement has been duly executed and delivered by
Sub.
(b) No filing, authorization, consent, approval, permit, order, registration or declaration,
governmental or otherwise, is necessary to enable Acquirer and Sub to enter into, and to perform
their respective obligations under, this Agreement, the Acquirer Ancillary Agreements or the Sub
Ancillary Agreements, except for: (i) the filing of the Certificate of Merger with the Delaware
Secretary of State; (ii) the filing by Acquirer with the SEC of such reports and information under
the Exchange Act, and the rules and regulations promulgated by the SEC thereunder, as may be
required in connection with this Agreement, the Merger and the other transactions contemplated by
this Agreement; (iii) the filing by Acquirer with the SEC of the Form S-8 registration statement to
be filed by Acquirer pursuant to this Agreement; and (iv) such other filings, authorizations,
consents, approvals, permits, orders, registrations and declarations, if any, that if not made or
obtained by Acquirer or Sub would not be material to Acquirer’s or Sub’s ability to consummate the
Merger or to perform their respective obligations under this Agreement, the Acquirer Ancillary
Agreements and the Sub Ancillary Agreements.
(c) This Agreement and the Acquirer Ancillary Agreements are, or when executed by Acquirer
will be, valid and binding obligations of Acquirer enforceable against Acquirer in accordance with
their respective terms, subject only to the effect, if any, of (i) applicable bankruptcy and other
similar laws affecting the rights of creditors generally and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies. This Agreement and the Sub Ancillary
Agreements are, or when executed by Sub will be, valid and binding obligations of Sub enforceable
against Sub in accordance with their respective terms, subject only to the effect, if any, of
(i) applicable bankruptcy and other similar laws affecting the rights of creditors generally and
(ii) rules of law governing specific performance, injunctive relief and other equitable remedies.
4.3 No Conflicts. Neither the execution and delivery of this Agreement, the Acquirer
Ancillary Agreements or the Sub Ancillary Agreements, nor the consummation of any of the
transactions contemplated herein or therein, will (a) conflict with, result in any violation or
default under (with or without notice or lapse of time, or both), give rise to a right of
termination, cancellation or acceleration or any obligation or loss of any benefit under, or
require any consent, approval or waiver from any Person pursuant to (i) any provision of the
Certificate of Incorporation or Bylaws or other organizational documents of Acquirer and Sub, each
as currently in effect, (ii) any Applicable Law, or (iii) any Contract to which Acquirer or Sub is
a party or by which Acquirer or Sub or any of their respective assets or properties are bound or
affected, except, in the case of clauses (ii) and (iii), as would not be material to
43
Acquirer or Sub’s ability to consummate the Merger or to perform their respective obligations
under this Agreement.
4.4 Acquirer Options. Subject to the truth and accuracy of Company’s representations
and warranties in Section 3.4(c) regarding compliance with Rule 701 promulgated under the
Securities Act, all shares of Acquirer Common Stock that may be issued upon the exercise of Company
Options assumed by Acquirer hereunder will be, when issued in accordance with the terms hereof,
duly authorized, validly issued, fully paid and nonassessable and not subject to any preemptive
rights created by statute, the Certificate of Incorporation or Bylaws of Acquirer or any Contract
to which Acquirer is a party or by which it is bound.
4.5 Financing. Acquirer has, or has available to it, sufficient funds to consummate
the transactions contemplated by this Agreement.
4.6 No Prior Sub Operations. Sub was formed solely for the purpose of effecting the
Merger and has not engaged in any business activities or conducted any operations other than in
connection with the transactions contemplated hereby.
4.7 Litigation. There is no action, suit, arbitration, mediation, proceeding, claim
or investigation pending or, to the knowledge of Acquirer, threatened against Acquirer or any of
its Subsidiaries before any Governmental Authority or arbitrator which seeks to enjoin or prevent
the consummation of the Merger or any of the other transactions contemplated by this Agreement.
4.8 SEC Reports. As of the Agreement Date, Acquirer is current with regards to all
registration statements, forms, reports and other documents (including schedules, exhibits and
information statements and amendments and supplements thereto) required to be filed by Acquirer
with the SEC (the “Acquirer SEC Reports”). As of the Agreement Date, there are no material
outstanding unresolved issues with respect to Acquirer or the Acquirer SEC Reports noted in comment
letters or other correspondence received by Acquirer or its attorneys from the SEC.
ARTICLE 5
Covenants of Company
Covenants of Company
During the time period from the Agreement Date until the earlier to occur of (a) the Effective
Time and (b) the termination of this Agreement in accordance with the provisions of
Article 10, Company covenants and agrees with Acquirer and Sub as follows:
5.1 Advice of Changes. Company will promptly advise Acquirer in writing of (a) any
event occurring after the Agreement Date that would render any representation or warranty of
Company contained in this Agreement to be untrue or inaccurate, in either case if made on or as of
the date of such event or the Closing Date; (b) any breach of any covenant or obligation of Company
pursuant to this Agreement or any Company Ancillary Agreement; and (c) any Effect that has a
Material Adverse Effect on Company.
5.2 Maintenance of Business. If Company becomes aware of a material deterioration in
the relationship between Company and any Significant Customer, Management Employee or significant
number of other employees of Company, it will promptly bring such information to the attention of
Acquirer in writing and, if requested by Acquirer, will exert all commercially reasonable efforts
to restore and retain the relationship.
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5.3 Conduct of Business. Company will continue to conduct its business in the
ordinary course, consistent with past practice, and, to the extent consistent therewith, will use
all commercially reasonable efforts to carry on and preserve intact its current business
organization, keep available the services of its current officers and employees and preserve its
relationships with customers, licensors, licensees and others with whom Company has contractual or
other commercial relations in substantially the same manner as they have prior to the Agreement
Date. Without limiting the foregoing, prior to the Closing, Company will not, without Acquirer’s
prior written consent, enter into any Material Agreement, make any payment or take any action out
of the ordinary course of business, consistent with past practice, including:
(a) incur any Liability as guarantor or surety with respect to any obligation or make any
loan, advance or capital contribution to, or invest in, any Person, except for the endorsement of
checks and other negotiable instruments and the making of travel loans or advances (which travel
expenses will be documented by receipts for the claimed amounts in accordance with past practice),
in each case that are in the ordinary course of business, consistent with past practice, and which
are not material in amount;
(b) incur any indebtedness for borrowed money (other than the letter of credit with Silicon
Valley Bank used to finance accounts receivable of Company);
(c) place any Encumbrance on any of its material properties or grant any Encumbrance with
respect to any of its material assets;
(d) sell or otherwise dispose of, or enter into any Contract for the sale or other disposition
of, any assets or properties, other than end user licenses granted under the Standard Form
Agreements entered into in the ordinary course of business consistent with past practice;
(e) purchase or license, or enter into any Contract for the purchase or license of, any assets
or properties other than customer contracts in the ordinary course of business, consistent with
past practice, that are not in excess of $25,000 individually or $50,000 in the aggregate or
pursuant to purchase orders on Company’s standard sales terms in effect as of the Agreement Date;
(f) declare, set aside or pay any dividend on, or make any other distribution in respect of,
its securities, split, combine or recapitalize its securities or directly or indirectly redeem,
purchase or otherwise acquire its securities (except for the repurchase of shares of Company
Capital Stock from its officers, employees, consultants or independent contractors in connection
with the termination of their services to it at the original purchase price of such shares of
Company Capital Stock);
(g) amend (other than amendments of a purely ministerial nature), relinquish, terminate or not
renew any Material Agreement;
(h) pay or discharge any material Encumbrance or Liability other than in the ordinary course
of business, consistent with past practice;
(i) amend or change its Certificate of Incorporation or Bylaws or similar charter documents,
other than the Charter Amendment (as defined in Section 5.20);
(j) defer the payment of any accounts payable other than in the ordinary course of business,
consistent with past practice, or provide any discount, accommodation or other concession other
than in the ordinary course of business, materially consistent with past practice, in order to
accelerate or induce the collection of any receivable;
45
(k) materially change the manner in which it extends discounts, credits or warranties to
customers or otherwise deals with its customers;
(l) terminate the employment of (i) any Key Employee, (ii) any Management Employee, or
(iii) any Offeree;
(m) except with respect to the New Company Options, sell, issue, create, grant or authorize
the issuance or grant of (i) any shares of Company Capital Stock or any class or series or any
other security (other than pursuant to the exercise of outstanding Company Options identified on
Schedule 3.4(c)-1 of the Company Disclosure Letter or conversion of Series A Stock),
(ii) any option, call, warrant, obligation, subscription or other right to acquire any shares of
Company Capital Stock or any class or series or any other security, or (iii) any instrument
convertible into or exchangeable for shares of Company Capital Stock or any other security;
(n) except with respect to amendments to the Company Option Plan as are required in connection
with the issuance of the New Company Options, pay, increase or modify any bonus, pay any royalty,
pay any increased salary, pay any severance or special remuneration, increase or modify any
pension, insurance or other employee benefit plan, payment or arrangement (including the grant of
options, awards or appreciation rights with respect to its capital stock or the modification of any
exercise or conversion rights, exercise or purchase prices or vesting or release of any shares of
Company Capital Stock or other securities) or incur any Liability to, for or with any director,
officer, employee, consultant or independent contractor (except as is already accrued or pursuant
to existing Contracts disclosed in Schedule 3.18(a) of the Company Disclosure Letter),
amend any existing or enter into any new employment, consulting or severance agreement with any
such person;
(o) fail to maintain its equipment and other assets in good working condition and repair
according to the standards it has maintained to the Agreement Date, subject only to ordinary wear
and tear;
(p) change accounting methods or policies or revalue, write off or write up the value of any
assets, except as required by GAAP;
(q) waive or release any material right or claim;
(r) except for the Merger, merge, consolidate or reorganize with, or acquire, any Person;
(s) agree to any audit assessment by any Tax authority or file any Return (including an
amended Return) unless a copy of such Return has first been delivered to Acquirer for its review
and approval at a reasonable time prior to filing, enter into any closing agreement, settle any Tax
claim or assessment relating to Company or any of its Subsidiaries, surrender any right to claim a
refund of Taxes, or consent to any extension or waiver of the limitation period applicable to any
Tax claim or assessment relating to Company or any of its Subsidiaries;
(t) change any insurance coverage or issue any certificates of insurance (except for the
planned renewal of existing policies on terms not materially different from those in effect on the
Agreement Date and described in the Company Disclosure Letter);
(u) commence a lawsuit other than (i) for the routine collection of bills or (ii) in such
cases where it in good faith determines that failure to commence such a lawsuit would result in the
46
material impairment of a valuable aspect of the Company Business; provided,
however, that it consults with Acquirer at a reasonable time prior to the filing of such a
lawsuit; or
(v) agree, or enter into any negotiations, discussions or agreement, to do any of the things
described in the preceding clauses 5.3(a) through 5.3(u).
5.4 Stockholder Approval and Board Recommendation
(a) Company shall take all action necessary in accordance with this Agreement, Delaware Law,
its Certificate of Incorporation and its Bylaws to secure the Company Stockholder Approval.
Company’s obligation to secure the Company Stockholder Approval in accordance with this Section
5.4(a) shall not be limited to or otherwise affected by the commencement, disclosure,
announcement or submission to Company of any Acquisition Proposal, including a Superior Proposal,
or in the event that the Company Board withholds, withdraws, amends or modifies its recommendation
to the Company Stockholders in favor of the Company Stockholder Approval. Notwithstanding the
foregoing, prior to execution of the Company Stockholder Consent by a sufficient number of Company
Stockholders to obtain the Company Stockholder Approval, the Company Board may withhold, withdraw,
amend or modify its recommendation to the Company Stockholders if (A) it receives an unsolicited
written Acquisition Proposal and reasonably concludes in good faith (following the receipt of
advice from an investment bank of national standing) that such Acquisition Proposal, if accepted,
is reasonably likely to be consummated (taking into account all legal, financial and regulatory
aspects of the proposal, the likelihood of the proposal being financed and the Person making the
proposal), and would, if consummated, result in a transaction more favorable to the Company
Stockholders from a financial point of view than the Merger and (B) it reasonably concludes in good
faith (following the receipt of advice from outside counsel) that modification or withdrawal of its
recommendation is required in order to comply with its fiduciary obligations to the Company
Stockholders under Delaware law (“Superior Proposal”). Company shall exercise commercially
reasonable efforts to obtain an executed Company Stockholder Consent from each Company Stockholder
not listed in Exhibit A-1.
(b) (i) The Company Board shall recommend that Company’s stockholders vote in favor of the
adoption of this Agreement pursuant to the Company Stockholder Consent; (ii) any information
statement or other disclosure document distributed to Company’s stockholders in connection with
this transaction shall include a statement to the effect that the Company Board has recommended
that Company’s stockholders vote in favor of the adoption of this Agreement pursuant to the Company
Stockholder Consent; and (iii) neither the Company Board nor any committee thereof shall withhold,
withdraw, amend or modify, or propose or resolve to withhold, withdraw, amend or modify in a manner
adverse to Acquirer, the recommendation of the Company Board that the Company Stockholders vote in
favor of the adoption of this Agreement. Notwithstanding the foregoing, prior to execution of the
Company Stockholder Consent by a sufficient number of Company Stockholders to obtain the Company
Stockholder Approval, the Company Board may withhold, withdraw, amend or modify its recommendation
to the Company Stockholders if it receives a Superior Proposal.
5.5 No Solicitation.
(a) From and after the date of this Agreement until the Closing or termination of this
Agreement pursuant to Article 10, neither Company nor any of its Subsidiaries will, nor
will any of them authorize or permit any of their respective officers, directors, affiliates,
stockholders or employees or any investment banker, attorney or other advisor or representative
retained by any of them (all of the foregoing collectively being the “Company Representatives”) to,
directly or indirectly, (i) solicit, initiate, knowingly encourage, facilitate, support or induce
the making, submission or announcement of any inquiry, expression of interest, proposal or offer
that constitutes, or would reasonably be expected to lead
47
to, an Acquisition Proposal (as hereinafter defined), (ii) enter into, participate in,
maintain or continue any communications (except solely to provide written notice as to the
existence of these provisions) or negotiations regarding, or deliver or make available to any
Person any non-public information with respect to, or take any other action regarding, any inquiry,
expression of interest, proposal or offer that constitutes, or would reasonably be expected to lead
to, an Acquisition Proposal, (iii) agree to, accept, approve, endorse or recommend (or publicly
propose or announce any intention or desire to agree to, accept, approve, endorse or recommend) any
Acquisition Proposal (except for a Superior Proposal in compliance with Section 5.5(c)), (iv) enter
into any letter of intent or any other Contract contemplating or otherwise relating to any
Acquisition Proposal, or (v) submit any Acquisition Proposal to the vote of any securityholders of
Company or any Subsidiary. Each of Company and its Subsidiaries will immediately cease and cause
to be terminated any and all existing activities, discussions or negotiations with any Persons
conducted prior to or on the date of this Agreement with respect to any Acquisition Proposal. If
any Company Representative, whether in his or her capacity as such or in any other capacity, takes
any action that Company is obligated pursuant to this Section 5.5 to cause such Company
Representative not to take, then Company shall be deemed for all purposes of this Agreement to have
breached this Section 5.5.
(b) Company shall as promptly as practicable, and in any event within one business day, notify
Acquirer orally and in writing after receipt by Company and/or any Subsidiary (or, to the Knowledge
of Company, by any of the Company Representatives), of (i) any Acquisition Proposal, (ii) any
inquiry, expression of interest, proposal or offer that constitutes, or would reasonably be
expected to lead to, an Acquisition Proposal, (iii) any other notice that any Person is considering
making an Acquisition Proposal, or (iv) any request for nonpublic information relating to Company
or any Subsidiary or for access to any of the properties, books or records of Company or any
Subsidiary by any Person or Persons other than Acquirer. Such notice shall describe (A) the
material terms and conditions of such Acquisition Proposal, inquiry, expression of interest,
proposal, offer, notice or request, and (B) the identity of the Person or Group making any such
Acquisition Proposal, inquiry, expression of interest, proposal, offer, notice or request. Company
shall keep Acquirer fully informed of the status and details of, and any modification to, any such
inquiry, expression of interest, proposal or offer and any correspondence or communications related
thereto and shall provide to Acquirer a true, correct and complete copy of such inquiry, expression
of interest, proposal or offer and any amendments, correspondence and communications related
thereto, if it is in writing, or a reasonable written summary thereof, if it is not in writing.
Company shall provide Acquirer with 48 hours prior notice (or such lesser prior notice as is
provided to the members of the Company Board) of any meeting of the Company Board at which the
Company Board is reasonably expected to discuss any Acquisition Proposal.
(c) In the event that any Person submits to Company (and does not withdraw) a Superior
Proposal or an unsolicited, written, bona fide Acquisition Proposal that the Company Board
determines in good faith (after receipt of consultation with its outside legal counsel and a
financial advisor of national standing) is, or would reasonably be expected to be or become, a
Superior Proposal, then notwithstanding Section 5.5(a), Company may, so long as the Company
Stockholder Approval has not yet been obtained, (i) enter into discussions with such Person
regarding such Acquisition Proposal, and (ii) deliver or make available to such Person nonpublic
information regarding Company and its Subsidiaries, provided, in every case, that Company,
its Subsidiaries and the Company Representatives comply with each of the following: (A) neither
Company, any of its Subsidiaries nor any Company Representative shall have violated any of the
restrictions set forth in this Section 5.5, (B) the Company Board first shall have
determined in good faith, after consultation with its outside counsel, that taking such action is
required in order to comply with its fiduciary obligations to the Company Stockholders under
Delaware law, (C) Company first shall have provided Acquirer with written notice of the identity of
such Person and all of the material terms and conditions of such Acquisition Proposal and of
Company’s intention to take such actions, (D) Company first shall have received from such Person an
executed confidentiality
48
agreement containing terms at least as restrictive with regard to Company’s confidential
information as the Non-Disclosure Agreement (as defined in Section 12.14(a)), it being
understood that such confidentiality agreement shall not include any provision calling for any
exclusive right to negotiate with such Person or having the purported effect of restricting it from
satisfying its obligations under this Agreement, (E) Company first shall have given Acquirer at
least 48 hours advance notice of its intent to take such actions, and (F) prior to or
contemporaneously with delivering or making available any such nonpublic information to such
Person, Company shall, to the extent such nonpublic information has not been previously delivered
by Company to Acquirer, deliver such nonpublic information to Acquirer.
5.6 Regulatory Approvals. Company shall, and shall cause each of its Subsidiaries to,
promptly execute and file, or join in the execution and filing of, any application, notification or
other document that may be necessary in order to obtain the authorization, approval or consent of
any Governmental Authority, whether federal, state, local or foreign, which may be reasonably
required, or which Acquirer may reasonably request, in connection with the consummation of the
Merger and the other transactions contemplated by this Agreement. Company shall use commercially
reasonable efforts to obtain, and to cooperate with Acquirer to promptly obtain, all such
authorizations, approvals and consents and shall pay any associated filing fees payable by Company
with respect to such authorizations, approvals and consents. Company shall promptly inform
Acquirer of any material communication between Company and any Governmental Authority regarding any
of the transactions contemplated hereby. If Company or any affiliate of Company receives any
formal or informal request for supplemental information or documentary material from any
Governmental Authority with respect to the transactions contemplated hereby, then Company shall
make, or cause to be made, as soon as reasonably practicable, a response in compliance with such
request. Company shall direct, in its sole discretion, the making of such response, but shall
consider in good faith the views of Acquirer.
5.7 Necessary Consents. Company will use all reasonable efforts to obtain such
written consents, assignments, waivers and authorizations or other certificates from third parties
(including those listed on Schedule 3.5(a)(iii) of the Company Disclosure Letter), give
notices to third parties and take such other actions as may be necessary or appropriate, in
addition to those set forth in this Article 5, to facilitate and effect the consummation of
the transactions provided for herein and to facilitate and allow Acquirer and the Surviving Company
to carry on the Company Business after the Effective Time and to keep in effect and avoid the
breach of, violation of, termination of, or adverse change to any Contract to which Company is a
party or is bound or by which any of its assets or properties are bound or affected. Company will
use all commercially reasonable efforts to terminate prior to the Closing, and deliver evidence of
such termination to Acquirer at or prior to the Closing, all of the Contracts listed or described
on Schedule 5.7(a) hereto and to amend prior to the Closing, and deliver evidence of such
amendment to Acquirer at or prior to the Closing, all of the Contracts listed or described on
Schedule 5.7(b) hereto.
5.8 Litigation. Company will (a) notify Acquirer in writing promptly after learning
of any action, suit, arbitration, mediation, proceeding, claim, or investigation by or before any
Governmental Authority or arbitrator initiated by or against it or any of its Subsidiaries, or to
Company’s Knowledge is threatened in writing against Company, any of its Subsidiaries or any of
their respective directors or officers in their capacity as such (a “New Litigation Claim”),
(b) notify Acquirer of ongoing material developments in any New Litigation Claim and (c) consult in
good faith with Acquirer regarding the conduct of the defense of any New Litigation Claim.
5.9 Access to Information. Company will provide Acquirer and its agents with full
access at reasonable times and upon reasonable prior notice, to the files, books, records,
technology, properties, assets, Contracts, personnel and offices of Company, including any and all
information relating to Taxes, commitments, Contracts, real, personal and intangible property,
Liabilities and financial condition. Company will use commercially reasonable efforts to cause its
accountants to cooperate with Acquirer
49
and its agents in making available all financial information reasonably requested by Acquirer,
including all working papers pertaining to all financial statements prepared or audited by such
accountants.
5.10 Satisfaction of Conditions Precedent. Company will use all commercially
reasonable efforts to satisfy or cause to be satisfied all of the conditions precedent which are
set forth in Article 9 as promptly as reasonably possible and will use all commercially
reasonable efforts to cause the transactions provided for herein to be consummated as promptly as
reasonably possible.
5.11 Employees.
(a) Company shall cooperate and work with Acquirer to help Acquirer identify employees of
Company to whom Acquirer may elect to offer continued employment with Acquirer or any of its
Subsidiaries (including the Surviving Company). With respect to each employee of Company who
receives an offer of employment from Acquirer or any of its Subsidiaries (including the Surviving
Company) (each, an “Offeree”), Company shall assist Acquirer with its efforts to enter into an
offer letter and Acquirer’s standard employee invention assignment and confidentiality agreement
(collectively, the “Offeree Documents”) with such employee as soon as practicable after the
Agreement Date and in any event prior to the Closing Date. Company will use all reasonable efforts
to retain the employment of each Offeree and each Key Employee and to secure their continued
employment after the Closing by Acquirer or any of its Subsidiaries (including the Surviving
Company), and Company will promptly notify Acquirer if it becomes aware that any such employee
intends to leave the employ of Company. Notwithstanding any of the foregoing, neither Acquirer nor
any of its Subsidiaries (including the Surviving Company) shall have any obligation to make an
offer of employment to any employee of Company. With respect to matters described in this
Section 5.11, Company will consult with Acquirer (and will consider in good faith the
advice of Acquirer) prior to sending any notices or other communication materials to its employees.
Effective no later than immediately prior to the Closing, Company shall terminate the employment
of each employee of Company who has not received an offer of continued employment with Acquirer or
any of its Subsidiaries (including the Surviving Company) prior to the Closing Date (the
“Designated Employees”). Unless otherwise agreed in writing by Acquirer, Company shall cause the
relationships of each of the Persons listed on Schedule 3.4(c)-2 of the Company Disclosure
Letter with Company to be terminated at or prior to the Closing and Company Options held by such
Persons to be terminated in accordance with their terms at the time of such termination. Company
shall obtain confirmatory assignments of Intellectual Property from those current and former
employees and independent contractors and consultants listed on Schedule 5.11, in each case
in substantially the form of Exhibit I (the “Confirmatory Assignment Agreement”).
(b) Prior to the Effective Time, Company will, upon consultation with Acquirer, grant New
Company Options exercisable for up to the number of shares of Company Common Stock equal to
$1,900,000 as determined using the Black-Scholes model, to certain employees to whom Acquirer makes
an offer of employment. Unless indicated otherwise by Acquirer in writing, such New Company
Options shall: (i) be non-qualified stock options under the Code with an exercise price per shares
of Company Common Stock equal to approximately 50% of the Common Cash Amount Per Share; (ii) vest
over a four-year period with 25% vesting on the first anniversary of the Closing Date, with the
balance vesting ratably monthly over the remaining 36-months thereafter; (iii) have a ten-year
term; (iv) have terms of exercise that will not give rise to the payment of federal income tax
pursuant to Section 409A of the Code and (v) shall not provide for acceleration of vesting upon any
event. In connection with the issuance of such New Company Options, Company also agrees to amend
the Company Option Plan to the extent necessary to permit the grant of such New Company Options.
5.12 Termination of Employee Plans. Effective as of the day immediately preceding the
Closing Date, Company will (i) terminate all Employee Plans that are “employee benefit plans”
within the
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meaning of ERISA, including any Employee Plans intended to include a Code Section 401(k)
arrangement (“Company 401(k) Plans”) (unless Acquirer provides written notice to Company no later
than three business days prior to the Closing Date that such Company 401(k) Plans shall not be
terminated) and (ii) if applicable, terminate participation in all Employee Plans of any kind that
are provided through a human resources and benefits outsourcing entity or other provider. Unless
Acquirer provides such written notice to Company, no later than three business days prior to the
Closing Date, Company will provide Acquirer with evidence that such Employee Plan(s) have been
terminated (effective no later than the day immediately preceding the Closing Date) pursuant to
resolutions of the Company Board. The form and substance of such resolutions will be
subject to Acquirer’s review and reasonable approval. Company also will take such other actions in
furtherance of terminating such Employee Plan(s) as Acquirer may reasonably require. In the event
that termination of the Company 401(k) Plans would reasonably be anticipated to trigger liquidation
charges, surrender charges or other fees then Company will take such actions as are necessary to
reasonably estimate the amount of such charges and/or fees and provide such estimate in writing to
Acquirer prior to the Closing Date.
5.13 Company Options and Related Matters.
(a) Company shall use its commercially reasonable efforts to ensure that, except for Company
Unvested Options to be assumed by Acquirer at the Effective Time pursuant to Section 2.2(c)
and Company Vested Options to be cashed out pursuant to Section 2.2(b)(iii), there shall be
no outstanding securities, commitments or agreements of Company immediately prior to the Effective
Time that purport to obligate Company to issue any shares of Company Capital Stock, Company Options
or Company Warrants under any circumstances.
(b) Company shall use its commercially reasonable efforts to cause the delivery to Acquirer at
or prior to the Closing of a true, correct and complete copy of each election statement under
Section 83(b) of the Code filed by each Person who acquired unvested shares of Company Capital
Stock (where applicable) after the Agreement Date (or prior to the Agreement Date to the extent not
previously provided by Company), together with evidence of timely filing of such election statement
with the appropriate Internal Revenue Service Center.
5.14 Company Certificates. Company will prepare and deliver to Acquirer, not later
than three business days prior to the Closing Date, a draft of each of the Net Working Capital
Certificate, Closing Expenses Certificate and a spreadsheet (the “Spreadsheet”), in form acceptable
to Acquirer and the Exchange Agent (as defined in Section 7.2(a)), which Spreadsheet will
be dated as of the Closing Date and will accurately set forth, as of the Closing Date and
immediately prior to the Effective Time (in addition to the other required data and information
specified therein): (a) the names of all Company Stockholders and holders of Company Options and
their respective addresses and, where available, taxpayer identification numbers; (b) the number
and kind of share of Company Capital Stock held by, or subject to the Company Options held by, such
Persons and, in the case of outstanding shares, the respective certificate numbers, and, in the
case of outstanding Company Options, the respective instrument numbers and plan or agreement
pursuant to which such options were granted and whether such options are New Company Options;
(c) the exercise price per share in effect for each Company Option; (d) the Tax status of each
Company Option under Section 422 of the Code; (e) the calculation of the Fully Diluted Company
Stock, Fully Diluted Company Series A Stock, Total Merger Consideration, Aggregate Exercise Price,
Total Series A Liquidation Preference, Total Common Consideration, Common Cash Amount Per Share,
Series A Cash Amount Per Share, Average Price Per Share, Option Exchange Ratio, and the amount of
cash to be placed in the Escrow Fund (as defined in Section 11.1) on behalf of each
Effective Time Holder; (f) the amount of cash payable to each Company Stockholder in exchange for
the shares of Company Capital Stock held by such Persons (and amount of cash required to be
deducted and withheld from such Persons for Taxes); (g) the amount of cash payable to each holder
of a Company
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Vested Option in exchange for the Company Vested Option held by such Persons (and amount of
cash required to be deducted and withheld from such Persons for Taxes); (h) the number of shares of
Acquirer Common Stock subject to, and exercise price of, each Acquirer Option issuable to each
holder of Company Unvested Options and whether such Acquirer Option is an incentive stock option or
non-qualified stock option under the Code (and the amount of cash or options required to be
deducted and withheld from such Persons for Taxes); and (i) each Effective Time Holder’s Pro Rata
Share and the interest in dollar terms of each Effective Time Holder in the Escrow Fund.
5.15 Parachute Payment Waivers. Company shall obtain and deliver to Acquirer, prior
to the initiation of the requisite stockholder approval procedure under Section 5.16, a
Parachute Payment Waiver, in substantially the form attached hereto as Exhibit D
(“Parachute Payment Waiver”), from each Person who Company reasonably believes is, with respect to
Company, any Subsidiary and/or any ERISA Affiliate, a “disqualified individual” (within the meaning
of Section 280G of the Code and the regulations promulgated thereunder), as determined immediately
prior to the initiation of the requisite stockholder approval procedure under Section 5.16,
and who might otherwise have, receive or have the right or entitlement to receive a parachute
payment under Section 280G of the Code as a result of (a) the accelerated vesting of such Person’s
Company Options in connection with the Merger and/or the termination of employment or service with
Company, the Surviving Company, Acquirer or any Subsidiary before, upon or following the Merger,
(b) any severance payments, bonus payments or other benefits or payments in connection with the
Merger and/or the termination of employment or service with Company, the Surviving Company,
Acquirer or any Subsidiary before, upon or following the Merger, and/or (c) the receipt of any
Company Options or Company Capital Stock within the 12-month period ending on the date on which the
Effective Time occurs, pursuant to which each such Person shall agree to waive any and all right or
entitlement to the accelerated vesting, payments, benefits, options and stock referred to in
clauses (a), (b) and (c) to the extent the value thereof exceeds 2.99 times such Person’s base
amount determined in accordance with Section 280G of the Code and the regulations promulgated
thereunder, unless the requisite stockholder approval of such accelerated vesting, payments,
benefits, options and stock is obtained pursuant to Section 5.16.
5.16 Section 280G Stockholder Approval. Company shall use its commercially reasonable
efforts to obtain the approval by such number of stockholders of Company as is required by the
terms of Section 280G(b)(5)(B) so as to render the parachute payment provisions of Section 280G of
the Code inapplicable to any and all accelerated vesting payments, benefits, options and/or stock
provided pursuant to agreements, contracts or arrangements that might otherwise result, separately
or in the aggregate, in the payment of any amount and/or the provision of any benefit that would
not be deductible by reason of Section 280G of the Code, with such stockholder vote to be obtained
in a manner which satisfies all applicable requirements of Section 280G(b)(5)(B) of the Code and
the regulations promulgated thereunder.
5.17 Tax Matters.
(a) Company shall use its commercially reasonable efforts to cause the delivery to Acquirer at
or prior to the Closing of a true, correct and complete copy of each election statement under
Section 83(b) of the Code filed by each Person who acquired unvested shares of Company Capital
Stock (where applicable) after the Agreement Date (or prior to the Agreement Date to the extent not
previously provided by Company), together with evidence of timely filing of such election statement
with the appropriate Internal Revenue Service Center.
(b) Company will (and will cause its Subsidiaries to) (i) retain all books and records with
respect to Tax matters pertinent to Company and its Subsidiaries relating to any taxable period
beginning on or before the Closing Date (collectively, “Tax Records”) and abide by all record
retention
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agreements entered into with any Tax authority and (ii) give Acquirer reasonable written
notice prior to transferring, destroying or discarding any such Tax Records. For purposes of the
foregoing sentence, Tax Records shall include copies of workpapers, supporting documents and legal
documents, whether prepared by Company or by its outside accountants, legal counsel or other
service providers. To the extent necessary, Company and its Subsidiaries will obtain copies of all
Tax Records from sources outside of Company and its Subsidiaries, which may include outside service
providers.
(c) Upon Acquirer’s request, Company will use its best efforts to obtain any certificate or
other document from any Governmental Authority or other Person as may be reasonably necessary to
mitigate, reduce or eliminate any Tax that could be imposed on Company or any of its Subsidiaries
(including with respect to the transactions contemplated hereby).
(d) Upon Acquirer’s request, Company will provide Acquirer with all information that either
Company or Acquirer may be required to report pursuant to Section 6043 of the Code or Section 6043A
of the Code and, in each case, all Regulations promulgated thereunder.
5.18 Pay-Off Letter; Termination of Financing Statements. In the event that Company
does not pay in full the loan from Silicon Valley Bank (“SVB”) to Company pursuant to the Loan and
Security Agreement, dated as of July 2, 2007, by and between SVB and Company (the “SVB Loan
Agreement”) (such loan, the “SVB Loan”) prior to the Closing, then Company shall, prior to the
Closing, use its commercially reasonable best efforts to obtain an executed pay-off and lien
release letter (“Pay-off Letter”) in a form reasonably satisfactory to Acquirer from SVB, which
Pay-off Letter shall include: (a) the balance required to pay-off the SVB Loan in whole as of the
Closing (including outstanding principal, all accrued and unpaid interest, the terminal payment and
the total amount of all installment payments of interest that would have accrued and been payable
from the date of prepayment through the maturity of such loan); (b) the per-diem interest amount;
(c) a statement that upon pay-off of the SVB Loan, any related security interests in Company’s
assets shall immediately be released; (d) attached draft UCC-2 or UCC-3 termination statements; (e)
wiring instructions; (f) the written consent of SVB to the Merger; and (g) an acknowledgement that
the Merger shall not constitute an Event of Default (as defined in the SVB Loan Agreement). In the
event that the SVB Loan is paid in full prior to the Closing, Company shall take all actions
necessary such that (1) UCC-2 or UCC-3 termination statements, as applicable, have been filed with
respect to each of the UCC-1 financing statements filed in order to perfect security interests in
assets of Company that have not yet expired, including those secured by the SVB Loan, and (2) all
Encumbrances (other than Permitted Encumbrances) on assets of Company shall be released prior to or
simultaneously with the Closing.
5.19 Company Resolutions. Unless requested otherwise by Acquirer in writing no less
than three business days prior to the Closing Date, Company shall have delivered to Acquirer
resolutions adopted by the Company Board authorizing (i) the termination of the Company 401(k)
Plans no later than the day before the Closing Date, (ii) the termination of each or all other
Employee Plans that are “employee benefit plans” within the meaning of ERISA and (iii) if
applicable, the termination of participation in all Employee Plans of any kind that are provided
through a human resources and benefits outsourcing entity or other provider.
5.20 Charter Amendment. Prior to Closing, Company shall file an amendment to
Company’s Certificate of Incorporation substantially in the form attached hereto as Exhibit
J (the “Charter Amendment”) with the Secretary of State of the State of Delaware, which Charter
Amendment shall be duly authorized and approved by the Company Board and the Company Stockholders.
53
ARTICLE 6
Covenants of Acquirer
Covenants of Acquirer
6.1 Covenants of Acquirer. During the period from the Agreement Date until the
earlier to occur of (a) the Effective Time and (b) the termination of this Agreement in accordance
with the provisions of Article 10, Acquirer covenants and agrees with Company as follows:
(a) Advice of Changes. Acquirer will promptly advise Company in writing of (i) any
event occurring after the Agreement Date that would render any representation or warranty of
Acquirer contained in this Agreement to be untrue or inaccurate, in either case if made on or as of
the date of such event or the Closing Date; (ii) any breach of any covenant or obligation of
Acquirer pursuant to this Agreement or any Acquirer Ancillary Agreement; and (iii) any event
occurring after the Agreement Date that would be materially adverse to the consummation of the
transactions contemplated herein.
(b) Regulatory Approvals.
(i) Acquirer shall promptly execute and file, or join in the execution and filing of, any
application, notification or other document that may be necessary in order to obtain the
authorization, approval or consent of any Governmental Authority, whether foreign, federal, state,
local or municipal, which may be reasonably required in connection with the consummation of the
Merger and the other transactions contemplated by this Agreement. Acquirer shall use commercially
reasonable efforts to obtain, and to cooperate with Company to promptly obtain, all such
authorizations, approvals and consents and shall pay any associated filing fees payable by Acquirer
with respect to such authorizations, approvals and consents. Acquirer shall promptly inform
Company of any material communication between Acquirer and any Governmental Authority regarding any
of the transactions contemplated hereby. If Acquirer receives any formal or informal request for
supplemental information or documentary material from any Governmental Authority with respect to
the transactions contemplated hereby, then Acquirer shall make, or cause to be made, as soon as
reasonably practicable, a response in compliance with such request. Acquirer shall direct, in its
sole discretion, the making of such response, but shall consider in good faith the views of
Company.
(ii) Notwithstanding anything in this Agreement to the contrary, if any administrative or
judicial action or proceeding is instituted (or threatened to be instituted) challenging any
transaction contemplated by this Agreement as violative of any federal, state or foreign statutes,
rules, regulations, orders or decrees that are designed to prohibit, restrict or regulate actions
having the purpose or effect of monopolization or restraint of trade, it is expressly understood
and agreed that: (A) Acquirer will not have any obligation to litigate or contest any
administrative or judicial action or proceeding or any decree, judgment, injunction or other order,
whether temporary, preliminary or permanent; and (B) Acquirer will be under no obligation to make
proposals, execute or carry out agreements or submit to orders providing for (1) the sale, license
or other disposition or holding separate (through the establishment of a trust or otherwise) of any
assets or categories of assets of Acquirer or any of its Affiliates or Company, (2) the imposition
of any limitation or regulation on the ability of Acquirer or any of its Affiliates to freely
conduct their business or own such assets, or (3) the holding separate of any shares of Company
Capital Stock or any limitation or regulation on the ability of Acquirer or any of its Affiliates
to exercise full rights of ownership of any shares of Company Capital Stock (any of the foregoing,
an “Antitrust Restraint”).
(c) Satisfaction of Conditions Precedent. Acquirer will use all commercially
reasonable efforts to satisfy or cause to be satisfied all of the conditions precedent which are
set forth in Article 8 as promptly as reasonably possible and will use all commercially
reasonable efforts to cause the transactions provided for herein to be consummated as promptly as
reasonably possible.
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(d) Continuing Employees. Acquirer agrees that for a period of twelve months
following the Closing Date, the Surviving Company and its Subsidiaries and successors shall provide
the Continuing Employees with employee plans and programs which provide benefits that are
substantially similar in the aggregate to those provided to similarly situated employees of
Acquirer. To the extent permitted by such Employee Plans, Continuing Employees shall receive credit
for purposes of accrual of seniority with respect to termination or severance benefits and
eligibility to participate and vesting under any employee benefit plan, program or arrangement
(other than the 401(k) Plan or any equity awards) that is established or maintained by the
Surviving Company or any of its Subsidiaries and in which such employees are eligible to
participate after the Closing Date for service accrued or deemed accrued prior to the Closing Date
with Company or any Subsidiary; provided, however, that such benefits shall accrue
pursuant to Acquirer’s accrual policies; provided, further, that such crediting of
service shall not operate to duplicate any benefit or the funding of any such benefit. Subject to
the provisions of this Section 6.1(d), nothing shall require Acquirer to provide the
Continuing Employees with any particular employee benefit plans, agreements, or programs or
preclude or limit Acquirer’s ability to modify, amend, or terminate any new plan or any of Employee
Plans as it deems appropriate. For the avoidance of doubt, Continuing Employees shall not be
considered third party beneficiaries of this Section 5.12(b) or any other section of this
Agreement.
(e) For a period of six years after the Closing Date, Company shall indemnify and hold
harmless the current and former officers and directors of Company in a manner that is not
materially less advantageous to such officers and directors than the exculpation and
indemnification currently available under Company’s Certificate of Incorporation and Bylaws, each
as amended to date, and any indemnification agreements with such officers and directors.
ARTICLE 7
Closing Matters
Closing Matters
7.1 The Closing. The closing of the Merger (the “Closing”) will take place at the
offices of Fenwick & West LLP, 000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx, at a
time and date to be specified by the parties, which will be no later than the second business day
after the satisfaction or waiver of the conditions set forth in Article 8 and
Article 9 in accordance with this Agreement, or at such other location, time and date as
the parties hereto agree in writing (the “Closing Date”).
7.2 Conversion of Company Capital Stock and Company Vested Options; Exchange of
Certificates.
(a) Exchange Agent. U.S. Bank N/A or such other agent or agents as may be appointed
by Acquirer, shall act as exchange agent (the “Exchange Agent”) in the Merger.
(b) Acquirer to Cause Deposit of Cash. As soon as reasonably practicable after the
Closing Date, but no later than the next business day, Acquirer shall deliver to the Exchange Agent
for exchange in accordance with Article 2, through such reasonable procedures as Acquirer
may adopt, the cash payable pursuant to Section 2.2(b), less the Escrow Cash and Expense
Funds.
(c) Exchange Procedures.
(i) As soon as reasonably practicable after the Closing Date, Company shall mail to every
holder of record of Company Capital Stock and Company Vested Option that was issued and outstanding
immediately prior to the Effective Time and that, if applicable, has not previously delivered its
Certificates (as defined below) together with a properly completed and duly executed letter of
transmittal in the form attached hereto as Exhibit E-1 or Exhibit E-2, as
applicable (each, a “Letter of
55
Transmittal”): (A) a form of Letter of Transmittal and (B) instructions for use of the Letter
of Transmittal in effecting the surrender of certificates or instruments which immediately prior to
the Effective Time represented issued and outstanding Company Capital Stock or Company Vested
Options that were converted into the right to receive consideration pursuant to
Section 2.2(b) (the “Certificates”) in exchange for such cash. The Letter of Transmittal
shall specify that delivery of Certificates shall be effected, and risk of loss and title to
Certificates shall pass, only upon receipt thereof by the Exchange Agent, together with a properly
completed and duly executed Letter of Transmittal, together with any required Form W-9 or Form W-8,
duly executed on behalf of each Person effecting the surrender of such Certificates
(ii) As soon as reasonably practicable after the date of delivery to the Exchange Agent (or to
such other agent or agents as may be appointed by Acquirer) of a Certificate, together with a
properly completed and duly executed Letter of Transmittal and any other documentation required
thereby, (A) the holder of record of such Certificate shall be entitled to receive a check
representing the cash amount that such holder has the right to receive pursuant to
Section 2.2(b) in respect of such Certificate, less, in the case of Effective Time Holders,
such Effective Time Holder’s Pro Rata Share of the Escrow Cash and Expense Funds, and (B) such
Certificate shall be canceled.
(d) No Interest. No interest shall accumulate on any cash payable in connection with
the Merger (other than interest accrued on the Escrow Cash according to the Escrow Agreement).
(e) Transfers of Ownership. If any cash amount payable pursuant to Section
2.2(b) is to be paid to a Person other than the Person to which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of the payment thereof that the
Certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and
that the person requesting such exchange shall have paid to Acquirer or any agent designated by it
any transfer or other Taxes required by reason of the payment of cash in any name other than that
of the registered holder of the Certificate surrendered, or established to the satisfaction of
Acquirer or any agent designated by it that such Tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Section 7.2, none of the Exchange Agent, the Surviving Company or any party hereto shall be
liable to any person for any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(g) Unclaimed Cash. Any portion of funds held by the Exchange Agent which have not
been delivered to any holders of Certificates pursuant to this Article 7 within six months
after the Effective Time shall promptly be paid to Acquirer, and thereafter each holder of a
Certificate who has not theretofore complied with the exchange procedures set forth in and
contemplated by Section 7.2(c) shall look to Acquirer (subject to abandoned property,
escheat and similar laws) for its claim, only as a general unsecured creditor thereof, to the cash
payable pursuant to Section 2.2(b) Notwithstanding anything to the contrary contained
herein, if any Certificate has not been surrendered prior to the date on which the merger
consideration contemplated by Section 2.2 in respect of such Certificate would otherwise
escheat to or become the property of any Governmental Entity, any amounts payable in respect of
such Certificate shall, to the extent permitted by applicable law, become the property of Acquirer,
free and clear of all claims or interests of any Person previously entitled thereto.
7.3 Lost, Stolen or Destroyed Certificates. In the event any Certificate shall have
been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such Certificate,
following the making of an affidavit of that fact by the record holder thereof, such cash as may be
required pursuant to Section 2.2(b) in respect of such Certificate.
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ARTICLE 8
Conditions to Obligations of Company
Conditions to Obligations of Company
The obligations of Company hereunder are subject to the fulfillment or satisfaction, on and as
of the Closing, of each of the following conditions (any one or more of which may be waived by
Company, but only in a writing signed on behalf of Company by Company’s Chief Executive Officer or
Chief Financial Officer):
8.1 Company Stockholder Approval. This Agreement shall have been duly and validly
adopted, as required by Delaware Law, and Company’s Certificate of Incorporation and Bylaws, each
as in effect on the date of such approval and adoption, by the requisite written consent of the
Company Stockholders.
8.2 Accuracy of Representations and Warranties. The representations and warranties of
Acquirer and Sub set forth in this Agreement (a) that are qualified by materiality or Material
Adverse Effect will be true and correct and (b) that are not qualified by materiality or Material
Adverse Effect will be true and correct in all material respects, in each case on and as of the
Closing with the same force and effect as if they had been made on the Closing Date (except for any
such representations and warranties that, by their terms, speak only as of a specific date or
dates, in which case such representations and warranties that are qualified by materiality or
Material Adverse Effect will be true and correct, and such representations and warranties that are
not qualified by materiality or Material Adverse Effect will be true and correct in all material
respects, on and as of such specified date or dates), and Company will have received a certificate
dated as of the Closing Date to such effect executed on behalf of Acquirer and Sub by a duly
authorized officer of Acquirer.
8.3 Covenants. Acquirer will have performed and complied in all material respects
with all of its covenants and obligations contained in this Agreement on or before the Closing (to
the extent that such covenants and obligations require performance by Acquirer on or before the
Closing), and Company will have received a certificate dated as of the Closing Date to such effect
executed on behalf of Acquirer by a duly authorized officer of Acquirer.
8.4 Compliance with Law; No Legal Restraints. There will not be issued, enacted or
adopted, or threatened in writing by any Governmental Authority, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute, regulation, action or
proceeding, or any judgment or ruling by any Governmental Authority that prohibits or renders
illegal or imposes limitations on the Merger or any other material transaction contemplated by this
Agreement, any Acquirer Ancillary Agreement or any Sub Ancillary Agreement.
8.5 Government Consents. There will have been obtained at or before the Closing Date
such permits or authorizations, and there will have been taken such other actions, as may be
required to consummate the Merger by any regulatory authority having jurisdiction over the parties
and the actions herein proposed to be taken, including satisfaction of all requirements under
applicable federal and state securities laws.
8.6 Escrow Agreement. Acquirer will have delivered to Company an Escrow Agreement, in
substantially the form attached hereto as Exhibit F (the “Escrow Agreement”), dated as of
the Closing Date and executed by Acquirer and the Escrow Agent.
8.7 Documents. Company will have received all written consents, assignments, waivers,
authorizations or other certificates, and will have provided all notices, in each case that are set
forth on Schedule 8.7 attached hereto.
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ARTICLE 9
Conditions to Obligations of Acquirer and Sub
Conditions to Obligations of Acquirer and Sub
The obligations of Acquirer and Sub hereunder are subject to the fulfillment or satisfaction,
on and as of the Closing, of each of the following conditions (any one or more of which may be
waived by Acquirer and Sub, but only in a writing signed on behalf of Acquirer and Sub by
Acquirer’s Chief Executive Officer or General Counsel):
9.1 Company Stockholder Approval. This Agreement shall have been duly and validly
adopted, as required by Delaware Law, and Company’s Certificate of Incorporation and Bylaws, each
as in effect on the date of such approval and adoption, by the requisite written consent of the
Company Stockholders.
9.2 Accuracy of Representations and Warranties. The representations and warranties of
Company set forth in this Agreement, as qualified by the Company Disclosure Letter (a) relating to
authorization and capitalization will be true and correct in all respects, (b) that are qualified
by materiality or Material Adverse Effect will be true and correct and (c) that are not qualified
by materiality or Material Adverse Effect will be true and correct in all material respects, in
each case on and as of the Closing with the same force and effect as if they had been made on the
Closing Date (except for any such representations or warranties that, by their terms, speak only as
of a specific date or dates, in which case such representations and warranties that are qualified
by materiality or Material Adverse Effect will be true and correct, and such representations and
warranties that are not qualified by materiality or Material Adverse Effect will be true and
correct in all material respects, on and as of such specified date or dates), and Acquirer will
have received a certificate dated as of the Closing Date to such effect executed on behalf of
Company by Company’s Chief Executive Officer.
9.3 Covenants. Company will have performed and complied in all material respects with
all of its covenants and obligations contained in this Agreement on or before the Closing (to the
extent that such covenants and obligations require performance by Company on or before the
Closing), and Acquirer will have received a certificate dated as of the Closing Date to such effect
executed on behalf of Company by Company’s Chief Executive Officer.
9.4 Absence of Material Adverse Change. There will not have been any Material Adverse
Change in Company, whether or not resulting from a breach in any representation, warranty or
covenant contained herein, and Acquirer will have received a certificate dated as of the Closing
Date to such effect executed on behalf of Company by Company’s Chief Executive Officer.
9.5 Compliance with Law; No Legal Restraints. There will not be issued, enacted or
adopted, or threatened in writing by any Governmental Authority, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute, regulation, action or
proceeding, or any judgment or ruling by or before any Governmental Authority that prohibits or
renders illegal or imposes limitations on: (a) the Merger or any other material transaction
contemplated by this Agreement or any Company Ancillary Agreement; or (b) Acquirer’s right (or the
right of any Subsidiary of Acquirer) to own, retain, use or operate any of its products, assets or
properties (including products, assets or properties of Company) on or after the Effective Time or
seeking a disposition or divestiture of any such products, assets or properties or any other
Antitrust Restraint.
9.6 Government Consents. There will have been obtained at or before the Closing Date
such permits or authorizations, and there will have been taken such other actions, as may be
required to consummate the Merger by any regulatory authority having jurisdiction over the parties
and the actions
58
herein proposed to be taken, including satisfaction of all requirements under applicable
federal and state securities laws.
9.7 No Litigation. No litigation or proceeding will be pending or threatened which
seeks to enjoin or prevent the consummation of the Merger or any of the other transactions
contemplated by this Agreement. No litigation or proceeding will be pending or threatened which
could reasonably be expected to have a Material Adverse Effect on Company or Acquirer.
9.8 Documents. Acquirer will have received all written consents, assignments,
waivers, authorizations or other certificates, in a form reasonably acceptable to Acquirer, and
will have provided all notices, in each case that are set forth on Schedule 9.8 attached
hereto.
9.9 Good Standing Certificates. Company shall have delivered to Acquirer a
certificate from the Secretary of State of the States of Delaware and California and each other
State or other jurisdiction in which Company or any Subsidiary is qualified to do business as a
foreign corporation dated within three days prior to the Closing Date certifying that Company or
such Subsidiary is in good standing and that all applicable Taxes and fees of Company or such
Subsidiary through and including the Closing Date have been paid.
9.10 No Outstanding Securities. Other than Company Unvested Options issued and
outstanding as of immediately prior to the Effective Time which are being assumed by Acquirer at
the Effective Time pursuant to Section 2.2(c), the Company Vested Options being cashed out
in connection with the Merger pursuant to Section 2.2(b)(iii) and the New Company Options
pursuant to Section 5.10(b), there shall be no outstanding securities, warrants, options,
commitments or agreements of Company immediately prior to the Effective Time that purport to
obligate Company to issue any shares of Company Capital Stock, Company Options, Company Warrants or
any other securities under any circumstances.
9.11 FIRPTA Documentation. Acquirer will have received from Company FIRPTA
documentation, including (a) a notice to the Internal Revenue Service, in accordance with the
requirements of Section 1.897-2(h)(2) of the Regulations, in substantially the form attached hereto
as Exhibit G-1, dated as of the Closing Date and executed by Company, together with written
authorization for Acquirer to deliver such notice form to the Internal Revenue Service on behalf of
Company after the Closing, and (b) a FIRPTA Notification Letter, in substantially the form attached
hereto as Exhibit G-2, dated as of the Closing Date and executed by Company.
9.12 Opinion of Company’s Counsel. Acquirer will have received from Xxxxxxxx &
Xxxxxxxx LLP, counsel to Company, an opinion in substantially the form attached hereto as
Exhibit H.
9.13 Escrow Agreement. Company will have delivered to Acquirer the Escrow Agreement,
dated as of the Closing Date and executed by the Representative (as such term is defined in
Section 11.5).
9.14 Secretary’s Certificate. Company shall have delivered to Acquirer a certificate,
dated as of the Closing Date and executed on behalf of Company by its Secretary, certifying
Company’s (a) Certificate of Incorporation, (b) the Charter Amendment, (c) Bylaws, (d) board
resolutions approving the Merger and adopting this Agreement and (e) stockholder resolutions
approving the Merger and adopting this Agreement.
9.15 Directors and Officers. Company will have delivered to Acquirer evidence
satisfactory to Acquirer of the resignation of each of the directors and each of the officers of
Company and of each Subsidiary in office effective as of the Effective Time.
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9.16 Certain Closing Certificates and Documents. Acquirer will have received the
final Net Working Capital Certificate and Closing Expenses Certificate and the final Spreadsheet;
provided, however, that such receipt shall not be deemed to be an agreement by
Acquirer that the amounts set forth in any such document is accurate and shall not diminish
Acquirer’s remedies hereunder if any of the foregoing documents is not accurate.
9.17 Employment Matters. (a) Each Key Employee shall have remained continuously
employed with Company from the Agreement Date through the Closing and shall have signed the Offeree
Documents, and no action shall have been taken by any such individual to rescind any such document;
(b) no fewer than 75% (the “Minimum Employee Number”) of the individuals set forth on
Schedule 9.17-2 hereto shall have remained continuously employed with Company from the
Agreement Date through the Closing and shall have signed the Offeree Documents, and no action shall
have been taken by any such individual to rescind any such document; (c) each
employee-securityholder set forth on Schedule 9.17-3 hereto shall have signed a
Non-Competition Agreement with Acquirer, such Non-Competition Agreements shall continue to be in
full force and effect and no action shall have been taken by any such individual to rescind such
Non-Competition Agreements; (d) each employee set forth on Schedule 9.17-4 hereto shall
have signed a Benefits Waiver with Company, such Benefits Waivers shall continue to be in full
force and effect and no action shall have been taken by any such individual to rescind such
Benefits Waivers; (e) each employee securityholder set forth on Schedule 9.17-5 hereto
shall have signed an Equity Agreement with Company such Equity Agreements shall continue to be in
full force and effect and no action shall have been taken by any such individual to rescind such
Equity Agreements; and (f) the employment of each of the Designated Employees and each other
employee who has declined Acquirer’s offer of continued employment shall have been terminated
effective no later than immediately prior to the Closing.
9.18 Contractors. The relationship of each of the Persons listed on
Schedule 3.4(c)-2 of the Company Disclosure Letter with Company shall have been terminated
at or prior to the Closing.
9.19 Amendment to Company 401(k) Plans. Unless requested otherwise by Acquirer in
writing no less than three business days prior to the Closing Date, Company will have delivered to
Acquirer (a) an amendment to the Company 401(k) Plans, executed by Company, that is sufficient to
assure compliance with all applicable requirements of the Code and regulations thereunder so that
the Tax-qualified status of the Company 401(k) Plans will be maintained at the time of its
termination, with such amendment and termination to be effective on the date immediately preceding
the Effective Time and contingent upon the Closing, (b) the termination of the Company 401(k) Plan
no later than the day before the Closing Date, (c) the termination of each or all other Employee
Plans that are “employee benefit plans” within the meaning of ERISA, and (d) if applicable, the
termination of participation in all Employee Plans of any kind that are provided through a human
resources and benefits outsourcing entity or other provider.
9.20 Termination of Company Stockholder Agreements. The agreements listed on
Schedule 9.20 attached hereto (the “Company Stockholder Agreements”) will have been
terminated, effective as of the Effective Time, in accordance with their respective terms, and the
parties to the Company Stockholder Agreements will have waived all of their respective rights
thereunder, effective as of the Effective Time.
9.21 New Company Options. Company will have delivered to Acquirer satisfactory
evidence that the option grants for the New Company Options have been made and the Company Option
Plan has been amended as necessary to permit such grants.
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9.22 Section 280G Stockholder Approval. Any agreements, contracts or arrangements
that may result, separately or in the aggregate, in the payment of any amount or the provision of
any benefit that would not be deductible by reason of Section 280G of the Code shall have been
submitted for approval by such number of stockholders of Company as is required by the terms of
Section 280G in order for such payments and benefits not to be deemed parachute payments under
Section 280G of the Code, with such approval to be obtained in a manner which satisfies all
applicable requirements of Section 280G(b)(5)(B) of the Code and the Treasury Regulations
thereunder, including Q-7 of Section 1.280G-1 of such Treasury Regulations, and, in the absence of
such stockholder approval, none of those payments or benefits shall be paid or provided, pursuant
to the Parachute Payment Waivers.
9.23 Pay-Off Letter; Termination of Financing Statements. Company will have delivered
to Acquirer (A) documentation in a form and substance reasonably satisfactory to Acquirer, in its
sole discretion, evidencing that all security interests in any assets of the Company relating to
the SVB Loan Agreement have been released, with the SVB Loan paid in full by Company, or will be
released pursuant to the terms described in the Pay-Off Letter and reflected in the Net Working
Capital, and (B) executed UCC-2 or UCC-3 termination statements executed by each Person holding a
security interest in any asset of Company (other than pursuant to the SVB Loan Agreement) as of the
Closing Date terminating any and all such security interests and evidence satisfactory to Acquirer
that all Encumbrances on assets of Company shall have been released prior to or simultaneously with
the Closing.
9.24 Stockholder Agreements. Acquirer will have received a Stockholder Agreement,
executed by each of the Company Stockholders listed on Exhibit A-1.
9.25 Requisite Approval. Acquirer will have received a Company Stockholder Consent
from Company Stockholders owning at least 95% of the total number of outstanding shares of Company
Capital Stock approving the Merger and adopting this Agreement.
9.26 Confirmatory Assignment Agreements. Agreement will have received Confirmatory
Assignment Agreements from those current and former employees and independent contractors and
consultants listed on Schedule 5.11.
9.27 Charter Amendment. The Charter Amendment shall have been fully adopted by
Company by all necessary corporate action of the Company Board and the Company Stockholders and
shall have been duly filed and accepted by Secretary of State of the State of Delaware.
ARTICLE 10
Termination of Agreement
Termination of Agreement
10.1 Termination. This Agreement may be terminated at any time before the Closing,
whether before or after approval of the Merger by the Company Stockholders:
(a) by the mutual written consent of Acquirer and Company;
(b) by either Acquirer or Company, if all conditions to such party’s obligations to consummate
the transactions contemplated by this Agreement have not been satisfied or waived, and the Closing
has not occurred, on or before the Termination Date; provided, however, that the
right to terminate this Agreement under this Section 10.1(b) will not be available to any
party whose breach of a covenant under Article 5, in the case of Company, or Article 6, in the case
of Acquirer, hereunder will have been a principal cause of, or will have resulted in, the failure
of the Closing to occur on or before such date;
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(c) by Company, if there has been a breach by Acquirer of any representation, warranty,
covenant or agreement contained herein on the part of Acquirer, or if any representation or
warranty of Acquirer will have become untrue, in either case which causes any of the conditions set
forth in Article 8 to not be satisfied and which Acquirer fails to cure within a reasonable
time, not to exceed ten (10) business days, after written notice thereof has been given to Acquirer
by Company (except that no cure period will be provided for a breach by Acquirer which by its
nature cannot be cured);
(d) by Acquirer, if (i) there has been a breach by Company of any representation, warranty,
covenant or agreement contained herein on the part of Company, or if any representation or warranty
of Company will have become untrue, in either case which causes any of the conditions set forth in
Article 9 to not be satisfied and which Company fails to cure within a reasonable time, not
to exceed ten (10) business days, after written notice thereof has been given to Company by
Acquirer (except that no cure period will be provided for a breach by Company which by its nature
cannot be cured), (ii) if there has been a Material Adverse Change in Company, or (iii) Company
shall have breached Section 5.7;
(e) by either Company or Acquirer, if a permanent injunction or other order by any federal or
state court which would make illegal or otherwise restrain or prohibit the consummation of the
Merger will have been issued and will have become final and nonappealable; or
(f) notwithstanding anything herein to the contrary, unless this Agreement has been mutually
extended by the parties hereto, Company may terminate this Agreement on or after November 23, 2008,
provided that Company shall have exercised all commercially reasonable efforts to fulfill its
obligations hereunder.
10.2 Effect of Termination. If this Agreement is terminated as provided in
Section 10.1, this Agreement will be of no further force or effect; provided,
however, that (a) this Section 10.2, Article 12 and the Non-Disclosure
Agreement (as defined in Section 12.14) will survive the termination of this Agreement and
will remain in full force and effect and (b) the termination of this Agreement will not relieve any
party from any Liability for any breach of this Agreement.
ARTICLE 11
Survival of Representations, Indemnification and Remedies
Survival of Representations, Indemnification and Remedies
11.1 Survival of Representations. All representations and warranties of Company
contained in this Agreement will remain operative and in full force and effect, regardless of any
investigation or disclosure made by or on behalf of any of the parties to this Agreement, until the
earlier of (a) the termination of this Agreement in accordance with its terms and (b) the 18-month
anniversary of the Effective Time (the “Claim Expiration Date”); provided, however,
that the representations and warranties of Company contained in Section 3.3 (Power,
Authorization and Validity), Section 3.4 (Capitalization) and Section 3.8 (Taxes)
and in any other agreements, certificates and documents regarding capitalization or Taxes,
contemplated by this Agreement, will remain operative and in full force and effect, regardless of
any investigation or disclosure made by or on behalf of any of the parties to this Agreement, until
the expiration of the applicable statute of limitations (if later than the expiration of the 18
months following the Closing Date) (the “Special Claim Expiration Date”); provided,
further, that such expiration shall not affect the rights of any Indemnified Person under
this Article 11 or otherwise to seek recovery for Indemnifiable Damages arising out of any
fraud or intentional misrepresentation by Company or any Subsidiary until the expiration of the
applicable statute of limitations. All representations and warranties of Acquirer and Sub
contained in this Agreement and the other agreements, certificates and documents contemplated by
this Agreement will remain operative and in full force and effect, regardless of any investigation
or disclosure made by or on behalf of any of the parties to
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this Agreement, until the earlier of (a) the termination of this Agreement in accordance with
its terms and (b) the Effective Time. All covenants of the parties will survive according to their
respective terms.
11.2 Escrow Fund. The Escrow Cash shall be deposited with U.S. Bank National
Association. (or another institution selected by Acquirer and reasonably satisfactory to Company
and the Representative) as escrow agent (the “Escrow Agent”), such deposit, together with any
earnings thereon, to constitute an escrow fund (the “Escrow Fund”) and to be governed by the
provisions set forth herein and in the Escrow Agreement. The Escrow Fund shall be available to
compensate Acquirer (on behalf of itself or any other Indemnified Person) for Damages pursuant to
the indemnification obligations of the Effective Time Holders.
11.3 Agreement to Indemnify. Each Effective Time Holder will severally, and not
jointly, based on each Effective Time Holder’s Pro Rata Share, indemnify and hold harmless
Acquirer, the Surviving Company and their respective directors, officers, agents, representatives,
stockholders and employees, and each Person, if any, who controls or may control Acquirer or the
Surviving Company within the meaning of the Securities Act or the Exchange Act (each, an
“Indemnified Person” and, collectively, the “Indemnified Persons”), from and against any and all
claims, demands, suits, actions, causes of actions, losses, reductions in value, costs (including
settlement costs), damages, Liabilities and expenses, including reasonable attorneys’ fees, other
professionals’ and experts’ reasonable fees, and court or arbitration costs (collectively,
“Damages”), directly or indirectly incurred, paid or accrued in connection with, resulting from or
arising out of: (a) any inaccuracy, misrepresentation or default in, or breach of, any of the
representations or warranties given or made by Company in this Agreement, the Company Disclosure
Letter or any agreement, certificate or document delivered by or on behalf of Company or an officer
of Company pursuant hereto (excluding the Net Working Capital Certificate and the Spreadsheet);
(b) any failure of any Effective Time Holder to have good and valid title to the shares of Company
Capital Stock or Company Options held by such Effective Time Holder as set forth in the Spreadsheet
or any inaccuracy in the Spreadsheet; (c) any default in, or breach of, any of the covenants made
by Company in this Agreement, the Company Disclosure Letter or any agreement, certificate or
document delivered by or on behalf of Company or an officer of Company pursuant hereto; (d) any of
the matters set forth on the Schedule 3.6 to the Company Disclosure Letter or that is or
would be an exception to the representations and warranties made in Section 3.6
(Litigation); (e) any inaccuracy in the Spreadsheet, the Net Working Capital Certificate or the
Closing Expenses Certificate; (f) any Indemnifiable Transaction Expenses and (g) the Specified
Claim (as defined in Schedule 11.3). In determining the amount of any Damages in respect
of any inaccuracy, misrepresentation or default in, or breach of, any representation, warranty or
covenant, any materiality standard or qualification contained in such representation or warranty
shall be disregarded.
11.4 Limitations.
(a) Limitation on Liability.
(i) The Effective Time Holders shall not be liable for indemnification under Section
11.3(a) until the aggregate dollar amount of all Damages exceeds One Hundred Thousand Dollars
($100,000) (the “Claim Threshold”); provided, however, that Damages directly or
indirectly incurred, paid or accrued in connection with, resulting from or arising out of the
following shall not be subject to the Claim Threshold:
(A) fraud or intentional misrepresentation by Company or any Subsidiary;
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(B) any failure of the representations and warranties contained in Section 3.8 (Taxes)
to be true and correct;
(C) the failure of Company to collect the accounts receivable included in the NWC
Calculations; provided, that, in the event that Acquirer and Specified Party (as
defined in Schedule 11.4) enter into a written agreement for Acquirer to:
(1) perform a Data Transfer (as defined in Schedule 11.4), then the consideration
received by Acquirer prior to the Claim Expiration Date for the Data Transfer (the “Data Transfer
Consideration”) will be applied to the Specified Accounts Receivable (as defined in Schedule
11.4) and the Indemnified Persons shall only be entitled to the Damages for the difference, if
any, between the Specified Accounts Receivable and the Data Transfer Consideration; or
(2) perform Specified Services (as defined in Schedule 11.4) at the Specified Services
Charge (as defined in Schedule 11.4), the difference between the Standard Services Charge
(as defined in Schedule 11.4) and the Specified Services Charge (the “Charge Difference”)
will be applied to the Specified Accounts Receivable and the Indemnified Persons shall only be
entitled to the Damages for the difference, if any, between the Specified Accounts Receivable and
the sum of the Charge Difference received by Acquirer prior to the Claim Expiration Date.
With respect to all indemnified matters to which the Claim Threshold applies, once Indemnified
Persons have made claims for indemnification hereunder in an aggregate amount in excess of the
Claim Threshold, then, subject to the terms hereof, Indemnified Persons shall be entitled to
indemnification for all Damages, including amounts up to the Claim Threshold.
(ii) With regard to the Specified Claim:
(A) the Effective Time Holders shall only be liable for indemnification of fifty percent (50%)
of the Specified Amount (as defined in Schedule 11.4) of Damages directly or indirectly
incurred, paid or accrued in connection with, resulting from or arising out of the Specified Claim;
(B) all Damages in excess of the Specified Amount up to the remaining amount of the Escrow
Cash remaining in the Escrow Fund at the time the Specified Claim is made shall be borne solely by
the Effective Time Holders;
(C) if Company has withheld from Acquirer material information regarding the Specified Claim
then the Effective Time Holders shall be liable for all Damages resulting from the Specified Claim
from the first dollar and the Claim Threshold and the Specified Amount shall be inapplicable; and
(D) if the Specified Claim is brought against Acquirer or Company and a court of law
determines in a final judgment that neither Acquirer nor Company is liable therefor, then all
attorneys’ fees related to the defense of the Specified Claim above the Specified Amount shall be
borne solely by Acquirer.
(iii) If the Merger is consummated, recovery from the Escrow Fund shall be the sole and
exclusive remedy for the indemnity obligations under this Agreement for the matters listed in
Section 11.3, except in the case of (A) fraud or intentional misrepresentation by Company
or any Subsidiary, (B) any failure of any of the representations and warranties contained in
Section 3.3 (Power, Authorization and Validity), Section 3.4 (Capitalization) or
Section 3.8 (Taxes), to be true and correct and
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(C) any inaccuracy in the Spreadsheet, the Net Working Capital Certificate or the Closing
Expenses Certificate that would have resulted in a reduction in the Total Merger Consideration
(claims related to the matters referred to in clauses (A)-(C) of this Section 11.4(b)(ii)
are referred to herein as “Special Claims”).
(iv) In the case of the Special Claims, after Indemnified Persons have exhausted or made
claims upon all amounts of Escrow Cash in the Escrow Fund (after taking into account all other
claims for indemnification from the Escrow Fund made by Indemnified Persons), each Effective Time
Holder shall be liable for such holder’s Pro Rata Share of the amount of any Indemnifiable Damages
resulting therefrom; provided, however, that such liability shall be limited to
such holder’s Pro Rata Share of the Total Merger Consideration (including the Escrow Cash).
(v) The parties hereto agree that the indemnification provisions of this Agreement shall apply
to and be the exclusive remedy for all claims for all damages, including without limitation,
Indemnifiable Damages, arising out of, resulting from or in connection with this Agreement.
(b) Time Limit for Claims. Except with respect to Special Claims, which may be
brought at any time on or before the Special Claim Expiration Date with respect to such claim, no
Claim may be asserted or brought by an Indemnified Person against the Effective Time Holders after
the Claim Expiration Date; provided, however, that (i) any Claim asserted by an
Indemnified Person against the Effective Time Holders prior to the Claim Expiration Date may
thereafter be prosecuted as provided in this Article 11 and recovery on such Claim may be
had by the Indemnified Person as provided herein and (ii) any Special Claim asserted by an
Indemnified Person against the Effective Time Holders prior to the Special Claim Expiration Date
may thereafter be prosecuted as provided in this Article 11 and recovery on such Special
Claim may be had by the Indemnified Person as provided herein.
(c) In no event shall the Effective Time Holders be liable to Indemnified Person for punitive,
multiple, or other exemplary damages, unless such Indemnified Person is itself liable for such
damages to a third party.
(d) Notwithstanding anything to the contrary in the other provisions of this Article
11, the amount that any Effective Time Holder may be required to pay to an Indemnified Party
pursuant to this Article 11 shall be reduced (retroactively, if necessary) by any insurance
proceeds or refunds actually recovered by or on behalf of the applicable Indemnified Person in
reduction of the related Damages; provided, however, that no Indemnified Party
shall be obligated to seek such insurance proceeds or refunds. If an Indemnified Person receives
the payment required by this Article 11 from the Effective Time Holders in respect of
Damages and subsequently receives insurance proceeds in respect of such Damages, then the
Indemnified Person shall promptly repay to the Effective Time Holders a sum equal to the amount of
such insurance proceeds or refunds actually received, net of costs and expenses, but not exceeding
the amount paid by the Effective Time Holders to such Indemnified Person in respect of such
Damages. No representation, warranty, covenant, or agreement contained in this Agreement is for
the benefit of any insurer.
(e) Indemnification obligations under this Article 11 will be determined without
regard to any right to indemnification which any Effective Time Holder may have in his or her
capacity as an officer, director, employee or agent of Company prior to the Effective Time and no
such Effective Time Holder will be entitled to any indemnification from Company or the Surviving
Company, including pursuant to Section 6.1(e), for amounts paid for indemnification under this
Article 11.
11.5 Appointment of Representative.
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(a) Each Effective Time Holder approves the designation of and designates Xxxxxxx X. Work as
the representative of the Effective Time Holders and as the attorney-in-fact and agent for and on
behalf of each Effective Time Holder (such person and any successor, the “Representative”) with
respect to claims for indemnification pursuant to this Article 11 and the taking by the
Representative of any and all actions and the making of any decisions required or permitted to be
taken by the Representative pursuant to this Agreement, including the exercise of the power to:
(a) authorize the release or delivery to Acquirer of Escrow Cash from the Escrow Fund in
satisfaction of indemnification claims of any Indemnified Person pursuant to this
Article 11; (b) agree to, negotiate, enter into settlements and compromises of, and comply
with orders of courts with respect to, any claim for indemnification pursuant to this
Article 11; (c) resolve, settle or compromise any claim for indemnification made pursuant
to this Article 11; and (d) take all actions necessary in the judgment of the
Representative for the accomplishment of the foregoing. The Representative will have authority and
power to act on behalf of each Effective Time Holder with respect to the disposition, settlement or
other handling of all claims for indemnification pursuant to this Article 11 and all rights
or obligations arising under this Article 11. The Effective Time Holders will be bound by
all actions taken and documents executed by the Representative in connection with this
Article 11, and the Indemnified Persons will be entitled to rely on any action or decision
of the Representative. In performing the functions specified in this Agreement, the Representative
will not be liable to any Effective Time Holder in the absence of gross negligence or willful
misconduct on the part of the Representative. Each Effective Time Holder will severally, and not
jointly, on a pro rata basis based on such Effective Time Holder’s Pro Rata Share of the Escrow
Fund, indemnify and hold harmless the Representative from and against any Liability incurred
without gross negligence or willful misconduct on the part of the Representative and arising out of
or in connection with the acceptance or administration of his duties hereunder. Any out-of-pocket
costs and expenses reasonably incurred by the Representative in connection with actions taken by
the Representative pursuant to the terms of this Article 11 (including the hiring of
counsel and the incurring of legal fees and costs) will be paid directly by the Effective Time
Holders to the Representative on a pro rata basis based on each Effective Time Holder’s Pro Rata
Share of the Escrow Fund, and no such amounts will be paid from the Escrow Fund. The
Representative shall have no obligation under this Agreement, whether with respect to Third-Party
Claims or non-Third Party Claims, for any amounts in excess of the Escrow Fund then held by the
Escrow Agent under the Escrow Agreement (other than in his capacity as a Company Stockholder for
his Pro Rata Share of any Damages related to Special Claim in excess of the Escrow Fund). The
Representative shall have no obligation under this Agreement in the case of any failure by any
Effective Time Holder (other than the Representative himself) to have good and valid title to the
shares of Company Capital Stock or Company Options held by such Effective Time Holder as set forth
in the Spreadsheet. The person serving as the Representative may be replaced from time to time by
the Effective Time Holders who held, as of immediately prior to the Effective Time, a majority of
the outstanding shares of Company Capital Stock.
(b) The Representative shall be entitled to reimbursement from the Expense Funds, in
accordance with Section 2.4 for expenses that are incurred in connection with its
performance hereunder. If the aggregate amount of such expenses exceeds the Expense Funds, then
each Effective Time Holder shall be liable for its Pro Rata Share of such excess expenses
(including reasonable attorneys’ fees). In the event that any Effective Time Holder shall not have
reimbursed the Representative for any such excess expenses, the Representative shall be entitled to
reimbursement in the amount of such expenses out of any portion of the Escrow Fund that otherwise
would be distributed to the Effective Time Holders, after satisfaction or resolution of all
indemnification claims.
11.6 Notice of Claim. As used herein, “Claim” means a claim for indemnification of
any Indemnified Person for Damages pursuant to this Article 11. Acquirer will provide a
written notice of a Claim executed by an officer of Acquirer (a “Notice of Claim”) (i) to the
Representative and the Escrow Agent, whether for its own Damages or for Damages incurred by any
other Indemnified Person for any
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amounts equal to or less than the Escrow Fund then held by the Escrow Agent, or (ii) to each
Effective Time Holder from whom indemnity is sought, whether for its own Damages or for Damages
incurred by any other Indemnified Person for any amounts more than the Escrow Fund then held by the
Escrow Agent. Acquirer may deliver a Notice of Claim based on, arising from, relating to or caused
by:
(a) any item specified in Section 11.3 (or that with respect to any Tax matters, that
any Tax Authority may raise such matter in audit of Acquirer or its subsidiaries, which could give
rise to indemnifiable Damages); or
(b) the assertion, whether oral or in writing, against any Indemnified Person of a claim,
demand, suit, action, cause of action, dispute, arbitration, investigation, inquiry or proceeding
brought by a third party against such Indemnified Person (in each such case, a “Third-Party Claim”)
that is based on, arises out of, relates to or is caused by any item specified in
Section 11.3.
Each Notice of Claim by Acquirer given pursuant to this Section 11.6 will contain the
following:
(1) a statement that the Indemnified Person has incurred, paid, reserved or accrued (in
accordance with GAAP) or, in good faith, believes it will have to incur, pay, reserve or accrue (in
accordance with GAAP) Damages (or that with respect to any Tax matters, that any Tax Authority may
raise such matter in audit of Acquirer or its subsidiaries, which could give rise to Damages) in an
aggregate stated amount arising from such Claim (which amount may be the amount of damages claimed
by a third party in a Third-Party Claim); and
(2) a brief description of the facts, circumstances or events giving rise to the alleged
Damages, including copies of any formal demand or complaint and a good faith estimate of the amount
of Damages.
Notwithstanding anything herein to the contrary, an Indemnified Person shall be entitled to
make a Claim relating to the Specified Claim if, and only if, prior to the Expiration Claim Date
(A) such Indemnified Person shall incurred, paid, reserved or accrued (in accordance with GAAP)
Damages relating to the Specified Claim or (B) at any time after the Agreement Date, if Acquirer or
any of its subsidiaries, including, but not limited to the Surviving Company, or one or more
companies operating a similar business to Acquirer (i) receives an invitation to license the
Specified Item (as defined in Schedule 11.4) or (ii) is alleged to have committed a
Specified Claim, either (i) or (ii) shall establish Acquirer’s good faith belief that it will have
to incur, pay, reserve or accrue (in accordance with GAAP) Damages relating to the Specified Claim.
No delay on the part of Acquirer in giving the Representative and the Escrow Agent (or, if
applicable, the Effective Time Holder from whom indemnity is sought) a Notice of Claim will relieve
the Representative or any Effective Time Holder from any of its obligations pursuant to this
Article 11 unless (and then only to the extent that) the Representative or such Effective
Time Holder is materially prejudiced thereby.
11.7 Resolution of Notice of Claim. Each Notice of Claim delivered by Acquirer will
be resolved as follows:
(a) Uncontested Claims. If, within 20 calendar days after a Notice of Claim is
received by the Representative, the Representative does not contest such Notice of Claim in writing
to Acquirer and the Escrow Agent as provided in Section 11.7(b), then (i) the
Representative will be conclusively deemed to have consented, on behalf of all Effective Time
Holders, to the recovery by the
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Indemnified Person of the full amount of the Damages specified in the Notice of Claim,
including the forfeiture of cash in the Escrow Fund and, without further notice, to have stipulated
to the entry of a final judgment for damages against the Effective Time Holders for such amount in
any court having jurisdiction over the matter where venue is proper and (ii) the Escrow Agent will
distribute to the Indemnified Person an amount of cash equivalent to the amount of such Damages.
(b) Contested Claims. If the Representative gives Acquirer and the Escrow Agent
written notice contesting all or any portion of a Notice of Claim (a “Contested Claim”) within the
20-day period specified in Section 11.7(a), then such Contested Claim will be resolved by
either (i) a written settlement agreement executed by Acquirer and the Representative or (ii) in
the absence of such a written settlement agreement, a final judgment by a court of competent
jurisdiction, obtained under the procedures set forth in Section 12.1. The Escrow Agent
shall distribute cash from the Escrow Fund in accordance with such written settlement agreement or
final judgment, as applicable.
11.8 Defense of Third-Party Claims.
(a) An Indemnified Person will notify the Representative in writing, and in reasonable detail,
of a Third Party Claim within a reasonable time after receipt by such Indemnified Person of written
notice of the Third Party Claim; provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder, except to the extent the
Effective Time Holders shall have been actually prejudiced as a result of such failure.
(b) Acquirer will defend a Third-Party Claim, and the Representative (or, if applicable, the
Effective Time Holder from whom indemnity is sought) shall be entitled to participate in the
defense thereof. The costs and expenses incurred by Acquirer in connection with such defense
(including reasonable attorneys’ fees, other professionals’ and experts’ fees and court or
arbitration costs) will be included in the Damages for which Acquirer may seek indemnification
pursuant to a Claim made by any Indemnified Person hereunder. Acquirer will consult in good faith
with Xxxxxxx Work with respect to the Specified Claim.
(c) The Representative will have the right to receive copies of all pleadings, notices and
communications with respect to any Third-Party Claim to the extent that receipt of such documents
by the Representative does not affect any privilege relating to the Indemnified Person and may
participate at its own expense in settlement negotiations with respect to such Third-Party Claim.
No Indemnified Person will enter into any settlement of a Third-Party Claim (including the
Specified Claim) without the Representative’s prior written consent (which consent will not be
unreasonably withheld, conditioned or delayed (taking into account the terms of such proposed
settlement and the likelihood of success on the merits of the Third Party Claim) and which shall be
deemed to have been given unless the Representative shall have objected within 20 calendar days
after a written request for such consent by Acquirer); provided, however, that for
a Third-Party Claim regarding good and valid title to the shares of Company Capital Stock or
Company Options, no Indemnified Person will enter into any settlement without the Effective Time
Holder’s prior written consent (which consent will not be unreasonably withheld and which shall be
deemed to have been given unless the Effective Time Holder shall have objected within 20 calendar
days after a written request for such consent by Acquirer). The Indemnified Person shall not,
without the written consent of the Representative or Effective Time Holder, as the case may be,
(which consent will not be unreasonably withheld and which shall be deemed to have been given
unless the Representative shall have objected within 20 calendar days after a written request for
such consent by Acquirer) settle or compromise or consent to entry of any judgment with respect to
any such Third-Party Claim in which any relief other than the payment of money damages is or has
been sought against the Representative or Effective Time Holder. If the Representative shall be
determined to have unreasonably
68
withheld his consent or if such consent shall have been given, the Representative shall be
deemed to have agreed to the indemnification of such matter for all purposes hereunder.
11.9 Staged Release of Escrow Fund. The Escrow Fund shall be released pursuant to
Section 5 of the Escrow Agreement.
ARTICLE 12
General Provisions
General Provisions
12.1 Governing Law; Submission to Jurisdiction; Judicial Reference. The internal laws
of the State of California, irrespective of its choice of law principles, will govern the validity
of this Agreement, the construction of its terms, and the interpretation and enforcement of the
rights and duties of the parties hereto. Each of the parties hereto agrees to the following:
(a) Any dispute arising out of or relating to this Agreement, any Acquirer Ancillary
Agreement, any Sub Ancillary Agreement or any Company Ancillary Agreement shall, to the extent not
determined in federal court, be determined exclusively in a court in the County of Santa Clara,
California, by a judicial reference as provided in California Code of Civil Procedure Sections
638(a) for the hearing and determination of any and all of the issues, whether of fact or of law,
without a jury.
(b) The referee shall be a former judge. The parties agree to the appointment of one referee
and shall use their best efforts to agree on the selection of the referee. If the parties are
unable to agree on the referee within ten (10) calendar days after a written request to do so by
either party, then each party shall submit three (3) names to the Presiding Judge of the Court,
each party may strike no more than two (2) of the three (3) names submitted by the opposing party
and the Court shall designate one of the unstricken names as referee.
(c) The referee shall (i) be requested to set the matter for hearing within sixty (60) days
after the date of selection of the referee and (ii) try any and all issues of law or fact and
report a statement of decision upon them, if possible, within ninety (90) days of the first date a
party first provides notice that a controversy, dispute or claim exists under this Agreement. Any
decision rendered by the referee will be final, binding and conclusive and judgment shall be
entered pursuant to CCP § 644 in any court in the State of California having jurisdiction.
(d) Except as expressly set forth in this Agreement, the referee shall determine the manner in
which the reference proceeding is conducted including the time and place of all hearings, the order
of presentation of evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the referee, except for trial,
shall be conducted without a court reporter except that when any party so requests, a court
reporter will be used at any hearing conducted before the referee. The party making such a request
shall have the obligation to arrange for and pay for the court reporter. The costs of the court
reporter at the trial shall be borne equally by the parties.
(e) The referee shall be required to determine all issues in accordance with existing case law
and the statutory laws of the State of California. The rules of evidence applicable to proceedings
at law in the State of California will be applicable to the reference proceeding. The referee
shall be empowered to enter equitable as well as legal relief, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding upon the parties. The
referee shall issue a single judgment at the close of the reference proceeding which shall dispose
of all of the claims of the parties that are the subject of the reference. The parties hereto
expressly reserve the right to contest or appeal from the final judgment or any appealable order or
appealable judgment entered by the referee. The
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parties hereto expressly reserve the right to findings of fact, conclusions of laws, a written
statement of decision, and the right to move for a new trial or a different judgment, which new
trial, if granted, is also to be a reference proceeding under this provision.
(f) In the event that the enabling legislation which provides for appointment of a referee is
repealed (and no successor statute is enacted) or appointment of a referee is for any other reason
precluded by applicable law or rules of procedure, any dispute between the parties that would
otherwise be determined by the reference procedure herein described will be resolved and determined
by arbitration. The arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, § 1280 through § 1294.2 of the CCP as amended from time to
time. The limitations with respect to discovery as set forth hereinabove shall apply to any such
arbitration proceeding.
(g) All hearings and determination of any issues, whether of fact or of law, shall be heard
exclusively in Santa Xxxxx County, California.
(h) THE PARTIES HEREBY ACKNOWLEDGE THAT THIS PROVISION FOR JUDICIAL REFERENCE REPLACES ANY AND
ALL RIGHTS TO A TRIAL BY JURY FOR ALL CIVIL ACTIONS OR PROCEEDINGS INVOLVING A DISPUTE ARISING OUT
OF OR RELATING TO THIS AGREEMENT, ANY ACQUIRER ANCILLARY AGREEMENT, ANY SUB ANCILLARY AGREEMENT OR
ANY COMPANY ANCILLARY AGREEMENT. IN THE EVENT THAT ANY DISPUTE ARISING OUT OF OR RELATING TO THIS
AGREEMENT, ANY ACQUIRER ANCILLARY AGREEMENT, ANY SUB ANCILLARY AGREEMENT OR ANY COMPANY ANCILLARY
AGREEMENT IS REQUIRED TO BE RESOLVED IN FEDERAL COURT, ALL HEARINGS AND DETERMINATION OF ANY
ISSUES, WHETHER OF FACT OR OF LAW, SHALL BE HEARD EXCLUSIVELY BY THE UNITED STATES DISTRICT COURT
IN AND FOR THE NORTHERN DISTRICT OF CALIFORNIA, WITHOUT A JURY.
12.2 Assignment; Binding Upon Successors and Assigns. No party hereto may assign any
of its rights or obligations hereunder without the prior written consent of the other parties
hereto; provided, however, that Acquirer may, without the consent of any other
party hereto, assign this Agreement, the Acquirer Ancillary Agreements and the Sub Ancillary
Agreements (a) to any of its majority-owned Subsidiaries, (b) by operation of law or (c) in
connection with any merger, consolidation or sale of all or a significant portion of its assets or
in connection with any similar transaction, provided, that the obligations of Acquirer under this
Agreement shall continue to be binding upon Acquirer. This Agreement will be binding upon and
inure to the benefit of the parties hereto and their respective successors and permitted assigns.
Any assignment in violation of this Section 12.2 will be void.
12.3 Severability. If any provision of this Agreement, or the application thereof, is
for any reason held to any extent to be invalid, illegal or unenforceable, then the remainder of
this Agreement and the application thereof will nevertheless remain in full force and effect so
long as the economic and legal substance of the transactions contemplated by this Agreement are not
affected in any manner materially adverse to any party hereto. Upon such determination that any
provision is invalid, illegal or unenforceable, the parties agree to replace such provision with a
valid, legal and enforceable provision that will achieve, to the maximum extent legally
permissible, the economic, business and other purposes of such provision.
12.4 Counterparts. This Agreement may be executed in any number of counterparts, each
of which will be an original as regards any party whose signature appears thereon and all of which
together will constitute one and the same instrument. This Agreement will become binding when one
or more counterparts hereof, individually or taken together, will bear the signatures of all
parties reflected herein
70
as signatories and have been delivered by each party to this Agreement to each other party to
this Agreement.
12.5 Other Remedies. Except as otherwise provided herein, any and all remedies herein
expressly conferred upon a party will be deemed cumulative with and not exclusive of any other
remedy conferred by this Agreement or by law on such party, and the exercise of any one remedy will
not preclude the exercise of any other. Notwithstanding the foregoing, any termination of this
Agreement prior to the Closing pursuant to Article 10 will be governed by the terms of
Article 10. The parties hereto agree that irreparable damage would occur 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 will be entitled to seek an
injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the
terms and provisions hereof; provided, however, that any such injunction shall be
sought in a court sitting in Santa Xxxxx County, California.
12.6 Amendment and Waivers. This Agreement may not be amended or modified except by a
written instrument signed by Acquirer, Sub and Company. This Agreement may be amended by the
parties hereto as provided in this Section 12.6 at any time before or after approval of
this Agreement by the Company Stockholders; provided, however, that, after such
approval, no amendment will be made which by Applicable Laws requires the further approval of the
Company Stockholders without obtaining such further approval. At any time prior to the Effective
Time, each of Company and Acquirer, may, to the extent legally allowed: (a) extend the time for
the performance of any of the obligations or other acts of the other contained herein or in any
agreement, certificate or document delivered pursuant hereto; (b) waive any inaccuracies in the
representations and warranties made to it contained herein or in any agreement, certificate or
document delivered pursuant hereto; and/or (c) waive compliance with any of the agreements or
conditions for its benefit contained herein or in any agreement, certificate or document delivered
pursuant hereto. No such extension or waiver will be effective unless signed in writing by the
party against whom such extension or waiver is asserted. The waiver by a party of any breach
hereof or default in the performance hereof will not be deemed to constitute a waiver of any other
breach or default or any succeeding breach or default. The failure of any party to enforce any of
the provisions hereof will not be construed to be a waiver of the right of such party thereafter to
enforce such provisions.
12.7 Expenses. Each party will bear its respective expenses and fees incurred with
respect to this Agreement, the Merger and the transactions contemplated by this Agreement,
including the expenses and fees of its own accountants, attorneys, investment bankers and other
professionals and in the case of Company, for expenses of any Subsidiary of Company, Company
Securityholder and/or employee of Company paid by Company. If, for any reason, Acquirer directly
or indirectly pays any Transaction Expenses of Company or any of its securityholders or employees
(the “Unpaid Transaction Expenses”), then Acquirer will be entitled to treat the Unpaid Transaction
Expenses as Damages recoverable under Section 11.3(e), except to the extent that such
Unpaid Transaction Expenses are deducted from the Net Working Capital.
12.8 Attorneys’ Fees. Should suit be brought to enforce or interpret any part of this
Agreement, the prevailing party will be entitled to recover, as an element of the costs of suit and
not as damages, reasonable attorneys’ fees to be fixed by the court (including costs, expenses and
fees on any appeal). The prevailing party will be entitled to recover its costs of suit, including
without limitation the cost of the referee to which such suit is referred pursuant to Section
12.1, regardless of whether such suit proceeds to final judgment.
12.9 Notices. All notices and other communications required or permitted under this
Agreement will be in writing and will be either hand delivered in person, sent by facsimile, sent
by certified or registered first-class mail, postage pre-paid, or sent by nationally recognized
express courier
71
service. Such notices and other communications will be effective upon receipt if hand
delivered or sent by facsimile, five days after mailing if sent by mail, and one day after dispatch
if sent by express courier, to the following addresses, or such other addresses as any party may
notify the other parties in accordance with this Section 12.9:
(a)
|
If to Acquirer or Sub: | ||
Interwoven, Inc. | |||
000 Xxxx Xxxxxx Xxxxx | |||
Xxx Xxxx, XX 00000 | |||
Attention: Chief Financial Officer | |||
Fax: (000) 000-0000 | |||
with a copy (which shall not constitute notice) to: | |||
Fenwick & West LLP | |||
000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx | |||
Xxx Xxxxxxxxx, XX 00000 | |||
Attention: Xxxxxxx X. Xxxxxxx Xxxxxxx X. Xxxxx |
|||
Fax: (000) 000-0000 | |||
(b)
|
If to Company: | ||
Discovery Mining, Inc. | |||
00 Xxxxxx Xxxxxx, Xxxxx 000 | |||
Presidio of Xxx Xxxxxxxxx | |||
Xxx Xxxxxxxxx, XX 00000 | |||
Attention: Chief Financial Officer | |||
Fax: (000) 000-0000 | |||
with a copy (which shall not constitute notice) to: | |||
Xxxxxxxx & Xxxxxxxx LLP | |||
0000 Xxxxxx xx xxx Xxxxxxxx | |||
Xxx Xxxx, XX 00000 | |||
Attention: Xxxx X. Xxxxxxx | |||
Fax: (000) 000-0000 | |||
(c)
|
If to the Representative: | ||
Xxxxxxx X. Work [Address] |
|||
with a copy (which shall not constitute notice) to: | |||
Xxxxxxxx & Xxxxxxxx LLP | |||
0000 Xxxxxx xx xxx Xxxxxxxx | |||
Xxx Xxxx, XX 00000 | |||
Attention : Xxxx X. Xxxxxxx | |||
Fax: (000) 000-0000 |
72
12.10 Stamp Duty. Any stamp duty, transfer Tax or similar Tax payable in connection
with the transfer of shares of Company Capital Stock by any Company Stockholder will be payable by
such Company Stockholder.
12.11 Interpretation; Rules of Construction. When a reference is made in this
Agreement to Exhibits, Sections or Articles, such reference will be to an Exhibit, a Section or an
Article, respectively, to this Agreement unless otherwise indicated. The words “include,”
“includes” and “including” when used herein will be deemed in each case to be followed by the words
“without limitation.” The headings contained in this Agreement are for reference purposes only and
will not affect in any way the meaning or interpretation of this Agreement. When reference is made
herein to “the business of” an entity, such reference will be deemed to include the business of all
Subsidiaries of such entity. The parties hereto agree that they have been represented by counsel
during the negotiation and execution of this Agreement and the other agreements, certificates and
documents contemplated by this Agreement and, therefore, waive the application of any law,
regulation, holding or rule of construction providing that ambiguities in an agreement, certificate
or document will be construed against the party drafting such agreement, certificate or document.
Each reference herein to a law, statute, regulation, document or Contract will be deemed in each
case to include all amendments thereto.
12.12 No Joint Venture. Nothing contained in this Agreement will be deemed or
construed as creating a joint venture or partnership between any of the parties hereto. Except as
otherwise specified herein: (a) no party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party; (b) no party will have the power to control
the activities and operations of any other and their status is, and at all times will continue to
be, that of independent contractors with respect to each other; (c) no party will have any power or
authority to bind or commit any other party; and (d) no party will hold itself out as having any
authority or relationship in contravention of this Section 12.12.
12.13 Absence of Third-Party Beneficiary Rights. No provisions of this Agreement are
intended, nor will be interpreted, to provide or create any third-party beneficiary rights or any
other rights of any kind in any client, customer, Affiliate, stockholder, partner or employee of
any party hereto or any other Person, unless specifically provided otherwise herein, and, except as
otherwise so provided, all provisions hereof will be personal solely between the parties to this
Agreement; provided, however, that Article 11 is intended to benefit the
Representative and the Indemnified Persons.
12.14 Confidentiality.
(a) Company and Acquirer each confirm that they have entered into a Mutual Nondisclosure
Agreement dated January 11, 2008 (the “Non-Disclosure Agreement”) and that they are each bound by,
and will abide by, the provisions of the Non-Disclosure Agreement. If this Agreement is
terminated, the Non-Disclosure Agreement will remain in full force and effect, and all copies of
documents containing confidential information of a disclosing party will be returned by the
receiving party to the disclosing party or be destroyed, as provided in the Non-Disclosure
Agreement. If the Merger is consummated, after the Effective Time, Acquirer shall not be bound by
any of the terms of the Non-Disclosure Agreement. The Representative hereby agrees to be bound by
the terms and conditions of the Non-Disclosure Agreement to the same extent as though the
Representative were a party thereto. With respect to the Representative, as used in the
Non-Disclosure Agreement the term “Confidential Information” shall include information relating to
the Merger or this Agreement received by the Representative after the Closing or relating to the
period after the Closing.
(b) Company shall not, and Company shall cause each Subsidiary and each Company Representative
not to, directly or indirectly, issue any press release or other public statement
73
relating to the terms of this Agreement or the transactions contemplated hereby, or use
Acquirer’s name or refer to Acquirer directly or indirectly in connection with Acquirer’s
relationship with Company in any media interview, advertisement, news release, press release or
professional or trade publication, or in any print media, whether or not in response to an inquiry,
without the prior written approval of Acquirer, unless required by law (in which event a
satisfactory opinion of counsel to that effect shall be first delivered to Acquirer prior to any
such disclosure) and except as reasonably necessary for Company to obtain the consents and
approvals of Company Stockholders and other third parties contemplated by this Agreement.
Notwithstanding anything herein or in the Confidentiality Agreement, Acquirer may issue such press
releases or make such other public statements regarding this Agreement or the transactions
contemplated hereby as Acquirer may, in its reasonable discretion, determine.
12.15 Entire Agreement. This Agreement, including the Exhibits and Schedules hereto,
the Company Ancillary Agreements, the Acquirer Ancillary Agreements, the Sub Ancillary Agreements
and the Non-Disclosure Agreement constitute the entire understanding and agreement of the parties
hereto with respect to the subject matter hereof and thereof and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions, express or implied, oral
or written, between the parties.
[Remainder of Page Intentionally Left Blank.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above
written.
Interwoven, Inc. | Discovery Mining, Inc. | |||||
By:
|
/s/ Xxx Xxxxx | By: | /s/ Xxxxxxx Work | |||
Name:
|
Xxx Xxxxx | Name: | Xxxxxxx X. Work | |||
Title:
|
Chief Executive Officer | Title: | Chief Executive Officer | |||
Presidio Acquisition Corp. | ||||||
By:
|
/s/ Xxx Xxxxx | |||||
Name:
|
Xxx Xxxxx | |||||
Title:
|
President and Chief Executive Officer |
Representative |
||
/s/ Xxxxxxx Work
|
||
Name: Xxxxxxx X. Work |
[Signature Page to Agreement and Plan of Merger]