Exhibit 10.1

Execution Copy

AGREEMENT AND PLAN OF MERGER

among

AMAZON.COM, INC.,

ZETA ACQUISITION, INC.,

ZAPPOS.COM, INC.,

and

ALFRED LIN

Dated as of JULY 22, 2009

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TABLE OF CONTENTS

 

              Page ARTICLE I DEFINITIONS    2   Section 1.1    Certain Defined
Terms    2   Section 1.2    Table of Definitions    12 ARTICLE II THE MERGER;
EFFECT ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF
CERTIFICATES    15   Section 2.1    The Merger    15   Section 2.2    Closing;
Effective Time    15   Section 2.3    Effects of the Merger    15   Section 2.4
   Charter and Bylaws    15   Section 2.5    Directors; Officers    16   Section
2.6    Subsequent Actions    16   Section 2.7    Conversion of Capital Stock   
16   Section 2.8    Dissenting Shares    19   Section 2.9    Treatment of
Options and Other Equity-Based Awards.    19   Section 2.10    Exchange of
Shares    20   Section 2.11    Withholding Rights    24   Section 2.12   
Shareholder Representative    24   Section 2.13    Lock-Up    25 ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY    27   Section 3.1   
Organization    27   Section 3.2    Enforceability; Authority    27   Section
3.3    Capitalization    28   Section 3.4    Equity Interests    29   Section
3.5    No Approvals; No Conflicts    29   Section 3.6    Financial Statements   
30   Section 3.7    Absence of Certain Changes or Events    32   Section 3.8   
Taxes    33   Section 3.9    Property    35   Section 3.10    Contracts    36  
Section 3.11    Suppliers    38   Section 3.12    Warranties and Returns    38  
Section 3.13    Claims and Legal Proceedings; Government Orders    39   Section
3.14    Labor and Employment Matters    39   Section 3.15    Employee Benefit
Plans    41   Section 3.16    Intellectual Property    44   Section 3.17   
Corporate Books and Records    51   Section 3.18    Inventory    51

 

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TABLE OF CONTENTS

(Continued)

 

              Page   Section 3.19    Licenses, Permits, Authorizations, etc   
51   Section 3.20    Compliance With Laws    51   Section 3.21    Compliance
With Environmental Laws    51   Section 3.22    Insurance    53   Section 3.23
   Brokers or Finders    53   Section 3.24    Absence of Questionable Payments
   53   Section 3.25    Bank Accounts    54   Section 3.26    Insider Interests
   54   Section 3.27    Full Disclosure    54 ARTICLE IV REPRESENTATIONS AND
WARRANTIES OF PARENT AND MERGER SUB    55   Section 4.1    Organization    55  
Section 4.2    Enforceability; Due Authority    55   Section 4.3    No
Approvals; No Conflict    55   Section 4.4    SEC Reports    56   Section 4.5   
Brokers    57   Section 4.6    Parent Common Stock    57   Section 4.7    No
Prior Operation of Merger Sub    57 ARTICLE V COVENANTS    57   Section 5.1   
Conduct of Business Prior to the Closing    57   Section 5.2    Access to
Information    60   Section 5.3    Exclusivity    61   Section 5.4   
Shareholder Meeting; Written Consent    62   Section 5.5    Proxy Statement/Form
S-4    62   Section 5.6    Notification of Certain Matters; Supplements to
Disclosure Memorandum.    63   Section 5.7    Takeover Statutes    63   Section
5.8    Options; Warrants    63   Section 5.9    Confidentiality    64   Section
5.10    Commercially Reasonable Efforts.    64   Section 5.11    Public
Announcements    65   Section 5.12    Indemnification    65   Section 5.13   
Preferred Stock Conversion    66   Section 5.14    Parent Equity Grants    66  
Section 5.15    Section 280G    67   Section 5.16    Consideration Spreadsheet
   67   Section 5.17    New Law    67

 

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TABLE OF CONTENTS

(Continued)

 

              Page ARTICLE VI TAX MATTERS    67   Section 6.1    Actions    67  
Section 6.2    Representation Letters    67   Section 6.3    Transfer Taxes   
68 ARTICLE VII CONDITIONS TO CLOSING    68   Section 7.1    General Conditions
   68   Section 7.2    Conditions to Obligations of the Company    69   Section
7.3    Conditions to Obligations of Parent and Merger Sub    69 ARTICLE VIII
INDEMNIFICATION    72   Section 8.1    Survival of Representations and
Warranties.    72   Section 8.2    Indemnification by the Indemnifying
Shareholders and Consenting Optionholders    73   Section 8.3    Indemnification
by Parent and the Surviving Corporation    75   Section 8.4    Procedures    75
  Section 8.5    Limits on Indemnification    79   Section 8.6    Remedies Not
Affected by Investigation, Disclosure or Knowledge    81   Section 8.7   
Indemnity Escrow Fund; Shareholder Representative Expense Fund    81 ARTICLE IX
TERMINATION    84   Section 9.1    Termination    84   Section 9.2    Effect of
Termination    86 ARTICLE X GENERAL PROVISIONS    86   Section 10.1    Fees and
Expenses    86   Section 10.2    Amendment and Modification    86   Section 10.3
   Extension    86   Section 10.4    Waiver    86   Section 10.5    Notices   
87   Section 10.6    Interpretation    88   Section 10.7    Entire Agreement   
88   Section 10.8    No Third-Party Beneficiaries    88   Section 10.9   
Governing Law    88   Section 10.10    Submission to Jurisdiction    88  
Section 10.11    Assignment; Successors    89

 

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TABLE OF CONTENTS

(Continued)

 

             Page   Section 10.12   Enforcement    89   Section 10.13   Currency
   89   Section 10.14   Severability    89   Section 10.15   Waiver of Jury
Trial    90   Section 10.16   Counterparts    90   Section 10.17   Facsimile
Signature    90   Section 10.18   Time of Essence    90   Section 10.19   No
Presumption Against Drafting Party    90   Exhibits and Schedules   Exhibit A  
Form of Voting Agreement      Exhibit B-1   Form of Non-Compete Agreement-A     
Exhibit B-2   Form of Non-Compete Agreement-B      Exhibit B-3   Form of
Non-Compete Agreement-C      Exhibit B-4   Non-Compete Persons      Exhibit C  
Form of Escrow Agreement      Exhibit D   Key Employees      Exhibit E   Company
Knowledge      Exhibit F   Form of Letter of Transmittal      Exhibit G  
Disclosure Memorandum      Exhibit H-1   Gibson, Dunn & Crutcher LLP Required
Legal Opinions      Exhibit H-2   Fenwick & West LLP Required Legal Opinions   
  Exhibit I   Form of Option Consent      Exhibit J   Open Source Licenses     
Schedule 2.9   Options Not Assumed      Schedule 5.1   Operating Conditions     
Schedule 5.10(b)   Third Party Consents      Schedule 7.3(b)   Required Third
Party Consents      Schedule 8.2(a)   Disclosure Updates   

 

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER, dated as of July 22, 2009 (this “Agreement”),
is among Amazon.com, Inc., a Delaware corporation (the “Parent”), Zeta
Acquisition, Inc., a California corporation and a wholly owned subsidiary of
Parent (“Merger Sub”), Zappos.com, Inc., a California corporation (the
“Company”) and Alfred Lin, solely in his capacity as the initial Shareholder
Representative hereunder.

RECITALS

A. The Boards of Directors of each of Parent, the Company and Merger Sub have
(i) determined that the merger of Merger Sub with and into the Company (the
“Merger”) would be advisable and fair to, and in the best interests of, their
respective shareholders and (ii) approved the Merger upon the terms and subject
to the conditions set forth in this Agreement pursuant to the Law of the State
of Delaware (the “DGCL”) and the Law of the State of California (the “California
Law”).

B. As a condition to and concurrently with the execution of this Agreement,
shareholders that are Affiliates of the Company representing a majority of the
outstanding shares of Company Common Stock, on a fully diluted basis, a majority
of the outstanding shares of Preferred Stock, and a majority of the outstanding
shares of Series E Preferred Stock and Series F Preferred Stock collectively
have entered into a voting agreement substantially in the form of Exhibit A (the
“Voting Agreement”) pursuant to which such shareholders have agreed to vote
their shares in favor of the approval and adoption of this Agreement and the
transactions contemplated hereby.

C. As a condition to and concurrently with the execution of this Agreement,
Parent and each Key Employee have entered into a retention agreement.

D. A portion of the shares of Parent Common Stock to be issued by Parent in
connection with the Merger shall be placed in escrow by Parent, the release of
which shares shall be contingent upon certain events and conditions, all as set
forth in Article VIII hereof.

E. As a condition to and concurrently with the execution of this Agreement,
certain Key Employees and other Shareholders of the Company set forth on Exhibit
B-4 attached hereto are, concurrently with the execution of this Agreement,
entering into non-competition agreements with Parent or the Company (each, a
“Non-Competition Agreement”) substantially in the form of Exhibit B-1, Exhibit
B-2 or Exhibit B-3, in each case to become effective upon the Closing.

F. For United States federal income tax purposes, it is intended that the Merger
will qualify as a reorganization within the meaning of Section 368(a) of the
Code, and that this Agreement is intended to be, and hereby is, adopted as a
plan of reorganization within the meaning of Sections 354 and 361 of the Code.

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AGREEMENT

In consideration of the foregoing and the mutual covenants and agreements herein
contained, and intending to be legally bound hereby, the parties agree as
follows:

ARTICLE I

DEFINITIONS

Section 1.1 Certain Defined Terms. For purposes of this Agreement: “Affiliate”
means, with respect to any Person, any other Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such first Person.

“Affiliated Group” means any combined, consolidated, unitary or similar group
defined under state, local or foreign income Tax Law.

“Aggregate Exercise Amount” means the lesser of (a) $35,000,000 and (b) the
aggregate exercise price of all Stock Purchase Rights, whether vested or
unvested outstanding as of the Closing and that remain unexercised as of the
Closing, plus the aggregate exercise price of all Stock Purchase Rights
exercised between June 8, 2009 and the Effective Time.

“Aggregate Series E Liquidation Preferences” means an amount equal to the
product of (A) the total number of shares of Series E Preferred Stock
outstanding at the Effective Time multiplied by (B) $24.64.

“Aggregate Series F Liquidation Preferences” means an amount equal to the
product of (A) the total number of shares of Series F Preferred Stock
outstanding at the Effective Time multiplied by (B) $24.642.

“Assumed Debt” means $52,000,000.

“Books and Records” means (a) all copies, print outs, disks, hard drives and
other tangible manifestations in any form or format, electronic or otherwise,
complete or partial, of the Company IP or any of it; and (b) all of the
Company’s books and records (including all disks, tapes and other forms of media
or data storage) relating to the business of the Company as of the close of
business on the date hereof, including all of the Company’s current and in
process marketing information and procedures, and advertising and promotional
materials.

“Breach” or “Breached” A “Breach” of a representation, warranty, certification,
covenant, obligation, or other provision of this Agreement or any Operative
Document will occur, and a representation, warranty, certification, covenant,
obligation, or other provision of this Agreement or any Operative Document will
have been “Breached,” if there is or has been (a) any inaccuracy in or breach
of, or any failure to perform or comply (in whole or in part) with, such
representation, warranty, certification, covenant, obligation or other
provision; or (b) any other occurrence or circumstance that is or was
inconsistent with such representation, warranty, certification, covenant,
obligation or other provision, and the term “Breach” means any such inaccuracy,
breach, failure, occurrence or circumstance.

 

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“Business Day” means any day that is not a Saturday, a Sunday or other day on
which banks are required or authorized by Law to be closed in the cities of
Seattle, Washington or Henderson, Nevada.

“Bylaws” with respect to the Company, means the Amended and Restated Bylaws of
the Company, dated as of April 1, 2003, as amended as of April 11, 2007, as the
same shall be amended after the date hereof.

“Capital Stock” means the Company Common Stock and the Preferred Stock.

“Charter” with respect to the Company, means the Seventh Amended and Restated
Articles of Incorporation of the Company, filed with the Secretary of State of
the State of California on June 28, 2005, as amended as of August 9, 2005, and
November 14, 2005, as the same shall be amended after the date hereof.

“Claim” means any claim, demand, cause of action, suit, proceeding, arbitration,
audit, hearing, investigation or inquiry (whether formal or informal).

“COBRA” means the health care continuation provision of the Consolidated Omnibus
Budget Reconciliation Act of 1985, and all rules and regulations promulgated
thereunder, all as in effect from time to time.

“Code” means the Internal Revenue Code of 1986, and all rules and regulations
promulgated thereunder, as in effect from time to time.

“Common Exchange Ratio” is equal to the Common Merger Consideration Per Share
divided by the Parent Stock Price.

“Common Merger Consideration” means the Total Merger Consideration minus the
Preferred Merger Consideration.

“Common Merger Consideration Per Share” means the Common Merger Consideration
divided by the Fully Diluted Common Shares.

“Company Intellectual Property” means all artwork, audiovisual works, images,
graphics, photographs, literary works, performances, music, sounds, content,
computer programs, software, source code, object code, algorithms, techniques,
concepts, know-how, methods, customer lists, supplier lists, databases, data
collections, information, specifications, trademarks, service marks, trade
dress, brands, logos, marketing materials, domain names, URLs, user interfaces,
websites, inventions (whether or not patentable), invention disclosures,
discoveries, designs and other intellectual property owned (or purported to be
owned), used or licensed (whether as licensor or licensee) by the Company or any
Subsidiary thereof. For avoidance of doubt, Company Intellectual Property does
not include any intellectual property rights or proprietary rights in
intellectual property.

“Company Intellectual Property Rights” means all intellectual property rights
and proprietary rights worldwide owned (or purported to be owned), used or
licensed (whether as licensor or licensee) by the Company or any Subsidiary
thereof, including any and all foreign

 

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and domestic trade names, trademarks, service marks, trade dress rights, domain
names, copyrights, moral rights (including rights of attribution and integrity),
publicity rights, privacy rights, trade secret rights, rights in mask works,
rights in databases, patents, and patent rights and all associated rights and
all registrations, applications, renewals, extensions and continuations (in
whole or in part) of any of the foregoing, together with all goodwill associated
therewith and all rights and causes of action for infringement,
misappropriation, misuse, dilution, unfair trade practice or otherwise
associated therewith.

“Company-Owned IP” means Company IP that is owned by the Company or any
Subsidiary thereof.

“Consenting Optionholder” means each Optionholder that executes an Option
Consent.

“Contracts” means all legally binding contracts, agreements, permissions,
consents, leases, licenses, releases, covenants not to sue, commitments,
arrangements, undertakings and understandings, oral or written, including
purchase orders, security agreements, publication contracts, license agreements,
sublicense agreements, website terms of service, software development
agreements, service agreements, independent contractor agreements, freelancer
agreements, distribution agreements, joint venture agreements, reseller
agreements, credit agreements, co-marketing/content agreements, membership
agreements and instruments relating to the borrowing of money.

“control,” including the terms “controlled by” and “under common control with,”
means, for the purposes of the definition of Affiliate, the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, as
trustee or executor, as general partner or managing member, by Contract or
otherwise, including the ownership, directly or indirectly, of securities having
the power to elect a majority of the board of directors or similar body
governing the affairs of such Person.

“Debt” means any and all debt and other obligations (including principal and
accrued but unpaid interest) for borrowed money owed by the Company and its
Subsidiaries.

“DOL” means the United States Department of Labor.

“Employee Benefit Plan” means any retirement, pension, profit sharing, deferred
compensation, equity bonus, savings, bonus, incentive, cafeteria, medical,
dental, vision, hospitalization, life insurance, accidental death and
dismemberment, medical expense reimbursement, dependent care assistance, tuition
reimbursement, disability, sick pay, holiday, vacation, severance, change of
control, equity purchase, equity option, restricted equity, phantom equity,
equity appreciation rights, fringe benefit or other employee benefit plan,
program, policy, practice, contract, agreement, fund or arrangement (including
any “employee benefit plan,” as defined in Section 3(3) of ERISA) or any
employment, consulting or personal services contract, whether written or oral,
funded or unfunded or domestic or foreign, (a) sponsored, maintained,
contributed to or required to be contributed to by the Company, any of its
Subsidiaries, or any ERISA Affiliate or to which the Company, any of its
Subsidiaries, or any ERISA Affiliate is a

 

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party, (b) covering or benefiting any current or former officer, employee,
agent, director or independent contractor of the Company, any of its
Subsidiaries, or any ERISA Affiliate (or any dependent or beneficiary of any
such individual), or (c) with respect to which the Company, any of its
Subsidiaries, or any ERISA Affiliate has (or could have) any obligation or
liability (contingent or otherwise).

“Encumbrance” means liens, mortgages, pledges, deeds of trust, security
interests, charges, encumbrances and other adverse claims or interests of any
kind.

“Environmental Laws” means all foreign, federal, state, county and local laws
(whether under common law, statute, ordinance, rule, regulation or otherwise),
codes, permits, licenses, orders, decrees, judgments, guidelines, standards,
policies and other requirements of governmental authorities, whether existing as
of the Closing Date or at any time prior to the Closing Date, relating to the
protection of human health, safety, natural resources or the environment.

“ERISA” means the Employee Retirement Income Security Act of 1974, and all rules
and regulations promulgated thereunder, all as in effect from time to time.

“ERISA Affiliate” means any trade or business, whether or not incorporated,
under common control with the Company or any of its Subsidiaries and that,
together with the Company or any of its Subsidiaries, is treated as a single
employer within the meaning of Section 414(b), (c), (m) or (o) of the Code.

“Escrow Agent” means Mellon Investor Services, LLC, or its successor under the
Escrow Agreement.

“Escrow Agreement” means the Escrow Agreement to be entered into by Parent, the
Shareholder Representative and the Escrow Agent, substantially in the form of
Exhibit C.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exploit” or “Exploitation” means to use, reproduce, modify, display, market,
import, manufacture, perform, publish, transmit, broadcast, sell, distribute,
create improvements or derivative works based upon, otherwise exploit, or
authorize any third party to do any of the foregoing.

“Foreign Corrupt Practices Act” means the Foreign Corrupt Practices Act of 1977,
as amended.

“Fully Diluted Common Shares” means the aggregate number, without duplication,
of Shares (other than Shares to be cancelled in accordance with Section 2.7(b))
and Share equivalents (including Company Options, warrants and all other all
Stock Purchase Rights, other than all shares of Preferred Stock not converted to
Common Stock in connection with the transactions contemplated by this Agreement)
outstanding immediately prior to the Effective Time, including for purposes of
this computation the aggregate number of Shares issuable upon the exercise in
full of all Company Options, warrants or other Stock Purchase Rights,
immediately prior to the Effective Time, whether or not vested or currently
exercisable other than any shares of Preferred Stock.

 

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“GAAP” means United States generally accepted accounting principles and
practices as in effect on the date hereof.

“Governmental Body” means any government or any agency, bureau, board,
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government, whether federal, state or local,
domestic or foreign.

“Hazardous Materials” means all chemicals, materials, substances or wastes that
are regulated, designated, defined or included in any definition under any
Environmental Laws as dangerous, hazardous, radioactive, infectious or toxic or
as a pollutant or contaminant, including asbestos or asbestos-containing
materials, petroleum or petroleum products, polychlorinated biphenyls and urea
formaldehyde.

“HIPAA” means, the Health Insurance Portability and Accountability Act of 1996,
and all rules and regulations promulgated thereunder, all as in effect from time
to time.

“Immediate Family,” with respect to any specified Person, means such Person’s
spouse, parents, children and siblings, including adoptive relationships and
relationships through marriage, or any other relative of such Person that shares
such Person’s home.

“Indemnifying Shareholder” means (i) each Shareholder that is not, nor could
become, a holder of Dissenting Shares, (ii) each Shareholder who following the
Effective Time loses, or relinquishes, his/her/its right to be a dissenting
shareholder in accordance with Chapter 13 of the CGCL, and (iii) each Consenting
Optionholder that exercises any Parent Option prior to February 28, 2011, but
only with respect to such shares of Parent Common Stock deposited into the
Indemnity Escrow Fund.

“Indemnity Escrow Amount” means (a) if immediately prior to the Effective Time
the total number of issued and outstanding shares of Capital Stock that are, or
could become, Dissenting Shares is less than 5% of the total issued and
outstanding shares of Capital Stock at the Effective Time, that number of shares
of Parent Common Stock equal to ten percent (10%) of the shares of Parent Common
Stock issuable pursuant to Section 2.7(a), or (b) if immediately prior to the
Effective Time the total number of issued and outstanding shares of Capital
Stock that are, or could become, Dissenting Shares is equal to or greater than
5% of the total outstanding shares of Capital Stock at the Effective Time, that
number of shares of Parent Common Stock that would be equal to ten percent
(10%) of the shares of Parent Common Stock that would have been issuable
pursuant to Section 2.7(a) if there were no issued and outstanding shares of
Capital Stock that were, or could become, Dissenting Shares as of immediately
prior to the Effective Time.

“Indemnity Escrow Fund” means the Indemnity Escrow Amount deposited with the
Escrow Agent, as such sum may be increased or decreased as provided in the
Escrow Agreement.

 

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“Indemnity Escrow Ratio” means (a) if immediately prior to the Effective Time
the total number of issued and outstanding shares of Capital Stock that are, or
could become, Dissenting Shares is less than 5% of the total issued and
outstanding shares of Company Capital Stock at the Effective Time, 0.10, or
(b) if immediately prior to the Effective Time the total number of issued and
outstanding shares of Capital Stock that are, or could become, Dissenting Shares
is equal to or greater than 5% of the total issued and outstanding shares of
Company Capital Stock at the Effective Time, a ratio equal of (x) 0.10
multiplied by the ratio equal to (y) the total number of issued and outstanding
shares of Capital Stock of the Company as of immediately prior to the Effective
Time on a fully diluted basis (i.e., inclusive of Stock Purchase Rights) divided
by (A) the total number of issued and outstanding shares of Capital Stock of the
Company as of immediately prior to the Effective Time on a fully diluted basis
(i.e., inclusive of Stock Purchase Rights) minus (B) the total number of issued
and outstanding shares of Capital Stock of the Company that were, or could
become, Dissenting Shares as of immediately prior to the Effective Time.

“Investment Asset” means all debentures, notes and other evidences of
indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets owned of record or beneficially by the Company or
any of its Subsidiaries.

“IRS” means the United States Internal Revenue Service.

“Key Employee” means each employee of Company listed on Exhibit D hereto.

“Knowledge” with respect to any Person, means the knowledge of a Person, after
due inquiry. Knowledge of a Person that is not a natural Person shall mean the
knowledge of each executive officer of such Person, and with respect to the
Company shall also include the individuals set forth on Exhibit E, provided that
for purposes of determining “knowledge” of such executive officers of the
Company and those individuals set forth on Exhibit E, knowledge shall be deemed
to include written and electronic records that are or were in each such
individual’s possession (including emails), though only if such written and
electronic records would be reasonably expected to be reviewed by such
individual in the customary performance of such individuals duties and
responsibilities for the Company.

“Law” means any statute, law, ordinance, regulation, rule, code, executive
order, injunction, judgment, decree or order of any Governmental Body.

“Leased Real Property” means all real property leased, subleased or licensed to
the Company or any of its Subsidiaries or which the Company or any of its
Subsidiaries otherwise has a right or option to use or occupy, together with all
structures, facilities, fixtures, systems, improvements and items of property
previously or hereafter located thereon, or attached or appurtenant thereto, and
all easements, rights and appurtenances relating to the foregoing.

“Lock-Up Holder” means each of Anthony Hsieh, Alfred Lin and Fred Mossler.

“Material Adverse Effect” means any event, change, circumstance, occurrence, or
effect that is or would reasonably be expected to be materially adverse to the
business, assets,

 

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liabilities, condition (financial or otherwise), or results of operations of the
Company and its Subsidiaries, taken as a whole (for which Parent shall bear the
burden of proof), except to the extent that any such event, change,
circumstance, occurrence, or effect is caused by: (a) changes in general
economic conditions (provided that such changes do not affect Company in a
substantially disproportionate manner relative to its competitors), (b) changes
affecting the industry generally in which the Company operates (provided that
such changes do not affect Company in a substantially disproportionate manner
relative to its competitors), (c) changes in applicable laws or accounting
principles after the date hereof (provided that such changes do not affect
Company in a substantially disproportionate manner relative to its competitors),
(d) the announcement or pendency of the Merger (including any cancellation of or
delays in customer orders, any reduction in sales, any disruption in supplier,
distributor, partner or similar relationships, but each only to the extent
demonstrated to have been caused by such announcement), or (e) compliance with
the terms of, or the taking of any action required by, this Agreement, provided
that the Company shall bear the burden of proof that any such event, change,
circumstance, occurrence, or effect was caused by any of (a) through (e).

“Operative Documents” means the Voting Agreement, the Non-Compete Agreements,
the Escrow Agreement and all other agreements, documents and instruments
required to be delivered by any party pursuant to this Agreement, and any other
agreements, documents or instruments entered into at or prior to Closing in
connection with this Agreement or the transactions contemplated hereby.

“Option Consent” means an option consent agreement signed by an Optionholder, in
the form of Exhibit I, pursuant to which such Optionholder, effective upon the
Closing:

(a) agrees to be bound by the indemnification provisions of Article VIII of this
Agreement and the Escrow Agreement,

(b) agrees that if such Optionholder exercises any Parent Option prior to
February 28, 2011, (i) 10% or (ii) if immediately prior to the Effective Time
the total number of issued and outstanding shares of Capital Stock that are, or
could become, Dissenting Shares is equal to or greater than 5% of the total
issued and outstanding shares of Capital Stock as of the Effective Time, the
percentage equivalent of the Indemnity Escrow Ratio (rounded up to the nearest
one-hundredth of a percent), of the shares of Parent Common Stock issued in
connection with such exercise shall be deposited into the Indemnity Escrow Fund
on behalf of such Optionholder and shall be held on behalf of such Optionholder
as if he or she were a Shareholder at the Effective Time,

(c) agrees that if Parent shall be entitled to indemnification pursuant to
Article VIII (whether before or after any such exercise), such Optionholder’s
several portion of such indemnification obligation shall be satisfied by
forfeiture and cancellation of Parent Options equal to (x) 10% or (y) if
immediately prior to the Effective Time the total number of issued and
outstanding shares of Capital Stock that are, or could become, Dissenting Shares
is equal to or greater than 5% of the total issued and outstanding shares of
Capital Stock at the Effective Time, the percentage equivalent of the Indemnity
Escrow Ratio (rounded up to the nearest one-hundredth of a percent) of such
Optionholder’s Parent Options, provided that an additional number of Parent
Options having an intrinsic value (calculated as the difference between the

 

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closing trading price of Parent Common Stock on the date prior to the date of
such forfeiture and the exercise price of such Parent Option) equal to the
exercise price of such cancelled Parent Options shall also be forfeited and
cancelled in order to satisfy the unpaid exercise price of any such forfeited
Parent Options,

(d) appoints the Shareholder Representative pursuant to Section 2.12 as such
Optionholders representative and attorney-in-fact, and

(e) if applicable under the terms of any Stock Purchase Right between the
Company and an Optionholder, agrees to waive the ability to early exercise any
Stock Purchase Rights (including any such early exercise prior to the Closing).

“Optionholder” means each Person who holds a Stock Purchase Right immediately
prior to the Effective Time that is not otherwise converted into Company Common
Stock immediately prior to the Merger.

“Owned Real Property” means all real property owned by the Company or any of its
Subsidiaries, together with all structures, facilities, fixtures, systems,
improvements and items of property previously or hereafter located thereon, or
attached or appurtenant thereto, and all easements, rights and appurtenances
relating to the foregoing.

“Parent Stock Price” means $81.09.

“Permitted Acquisitions” means the potential acquisitions disclosed to and
approved by Parent in writing.

“Permitted Encumbrances” means: (a) statutory liens for Taxes that are not yet
due and payable or liens for Taxes that are being contested in good faith by
appropriate proceedings and are either (i) reflected as liabilities in the
Interim Balance Sheet in accordance with GAAP, or (ii) described in detail in
Schedule 3.8(b) of the Disclosure Memorandum; (b) statutory liens to secure
obligations to landlords, lessors or renters under leases or rental agreements;
(c) deposits or pledges made in connection with, or to secure payment of,
workers’ compensation, unemployment insurance or similar programs mandated by
applicable Law; (d) statutory liens in favor of carriers, warehousemen,
mechanics and materialmen, to secure claims for labor, materials or supplies and
other like liens; and (e) liens in favor of customs and revenue authorities
arising as a matter of Law to secure payments of customs duties in connection
with the importation of goods.

“Person” means any individual, corporation, partnership, trust, joint venture,
limited liability company, association, organization, other entity or
Governmental Body or regulatory authority.

“Personal Property” means all tangible personal property owned, leased or rented
by the Company or any of its Subsidiaries. For avoidance of doubt, Personal
Property does not include Company Intellectual Property Rights.

 

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“Pre-Closing Tax Periods” means collectively, all taxable periods ending on or
prior to the Closing Date and the portion through the end of the Closing Date of
all Straddle Periods.

“Preferred Merger Consideration” means, without duplication, the aggregate
dollar value of (a) all consideration paid to the holders of shares of Preferred
Stock pursuant to Section 2.7(a)(ii) through (a)(vii) in respect of their shares
of Preferred Stock, plus (b) all consideration which would have been paid
pursuant to Section 2.7(a)(ii) through (a)(vii) with respect to any shares of
Preferred Stock that were, or could become, Dissenting Shares as of the
Effective Time, if no such shares of Preferred Stock were, or could become,
Dissenting Shares as of the Effective Time.

“Related Party” with respect to any specified Person, means: (a) any Affiliate
of such specified Person, or any director, executive officer, general partner or
managing member of such Affiliate; (b) any Person who serves or within the past
three years has served as a director, executive officer, general partner, member
or in a similar capacity of such specified Person; (c) any Immediate Family
member of a Person described in clause (b); or (d) any other Person who holds,
individually or together with any Affiliate of such other Person and any
member(s) of such Person’s Immediate Family, more than 5% of the outstanding
equity or ownership interests of such specified Person.

“Release” means releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, migrating, disposing or
dumping.

“Return” means any return, declaration, report, statement, information statement
and other document required to be filed with respect to Taxes.

“SEC” means the United States Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended.

“Series E Aggregate Transaction Expenses” means an amount equal to the product
of (a) the Series E Transaction Expense Ratio multiplied by (b) Transaction
Expenses set forth on the Schedule of Expenses.

“Series E Per Share Transaction Expenses” means an amount equal to (a) the
Series E Aggregate Transaction Expenses divided by (b) the total number of
shares of Series E Preferred Stock outstanding at the Effective Time, provided
that if any share of Series E Preferred Stock outstanding at the Effective Time
and not otherwise converted into Common Stock, did not vote in favor of the
Merger, the Series E Per Share Transaction Expenses shall be zero.

“Series E Transaction Expense Ratio” means an amount equal to (a) the Aggregate
Series E Liquidation Preferences divided by (b) the sum of (i) $786,000,000 and
(ii) the Aggregate Exercise Amount.

 

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“Series F Aggregate Transaction Expenses” means an amount equal to the product
of (a) the Series F Transaction Expense Ratio multiplied by (b) Transaction
Expenses set forth on the Schedule of Expenses.

“Series F Per Share Transaction Expenses” means an amount equal to (a) the
Series F Aggregate Transaction Expenses divided by (b) the total number of
shares of Series F Preferred Stock outstanding at the Effective Time, provided
that if any share of Series F Preferred Stock outstanding at the Effective Time
and not otherwise converted into Common Stock, did not vote in favor of the
Merger, the Series F Per Share Transaction Expenses shall be zero.

“Series F Transaction Expense Ratio” means an amount equal to (a) the Aggregate
Series F Liquidation Preferences divided by (b) the sum of (i) $786,000,000 and
(ii) the Aggregate Exercise Amount.

“Shareholder” means the beneficial owner of any share of Company Common Stock or
Preferred Stock.

“Shareholder Representative Expense Fund” means a fund to be established with
the Escrow Agent, which shall not be part of the Indemnity Escrow Fund, to be
used to reimburse the Shareholder Representative for expenses incurred by the
Shareholder Representative in performing its duties hereunder (including legal
fees and expenses related thereto).

“Shareholder Representative Expense Fund Amount” means that number of shares of
Parent Common Stock equal to 0.15% of the shares of Parent Common Stock issuable
pursuant to Section 2.7(a).

“Shareholder Representative Expense Fund Ratio” means 0.15%.

“Straddle Period” means each taxable period beginning before and ending after
the Closing Date.

“Subsidiary” means, with respect to any Person, any other Person controlled by
such first Person, directly or indirectly, through one or more intermediaries.

“Tax Returns” means any report, return, statement, election, notification or
other written information or document, including any schedules or attachments
thereto and any amendment thereof, filed with or submitted to, or required to be
filed with or submitted to, a taxing authority in connection with Taxes.

“Tax” (and, in the plural, “Taxes”) means any and all (a) domestic or foreign
federal, state or local taxes, charges, fees, levies, imposts, duties and
governmental fees or other like assessments or charges of any kind whatsoever
(including any income, net income, gross income, receipts, windfall profit,
severance, property, production, sales, use, business and occupation, license,
excise, escheat, registration, franchise, employment, payroll, withholding,
alternative or add-on minimum, intangibles, ad valorem, transfer, gains, stamp,
estimated, transaction, title, capital, paid-up capital, profits, occupation,
premium, value-added, recording,

 

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real property, personal property, inventory and merchandise, business privilege,
federal highway use, commercial rent or environmental tax, and any liability
under unclaimed property or similar laws), (b) interest, penalties, fines,
additions to tax or additional amounts imposed by any taxing authority in
connection with (i) any item described in clause (a) or (ii) the failure to
comply with any requirement imposed with respect to any Tax Returns, and
(c) liability in respect of any items described in clause (a) and/or (b) payable
by reason of Contract, assumption, transferee liability, operation of law
(including Treasury Regulation § 1.1502-6) or otherwise.

“Third Party IP” means Company IP that is not owned by the Company or any
Subsidiary thereof.

“Total Merger Consideration” means the aggregate of (a) $838,000,000, minus
(b) the Assumed Debt, plus (c) the Aggregate Exercise Amount, minus (d) the
lesser of $15,000,000, and the Transaction Expenses set forth on the Schedule of
Expenses.

“Transaction Expenses” means the aggregate of (a) all fees and expenses payable
by the Company and its Subsidiaries in connection with the transactions
contemplated by this Agreement and the Operative Documents, including fees and
expenses payable to all attorneys, accountants, financial advisors and other
professionals and bankers’, brokers’ or finders’ fees for persons not engaged by
Parent or Merger Sub, and (b) the cost of the Tail Policy. Under no
circumstances shall Transaction Expenses include any fees and expenses other
than fees and expenses of the Company and its Subsidiaries that are solely and
directly related to the Merger as provided in IRS Revenue Ruling 73-54.

Section 1.2 Table of Definitions. The following terms have the meanings set
forth in the Sections referenced below:

 

Definition

   Location

Acquisition Proposal

   5.3

Agreement

   Preamble

Agreement of Merger

   2.2(b)

California Law

   Recitals

Certificates

   2.10(b)

CGCL

   2.3

Closing

   2.2(a)

Closing Date

   2.2(a)

Common Stock Transaction

   2.13(a)

Company

   Preamble

Company Balance Sheet

   3.6(a)

Company Common Stock

   3.3(a)

Company IP

   3.16(a)

Company IP Registrations

   3.16(g)

Company Option

   2.9(a)

Company Shareholder Approval

   3.2

Company Stock Plan

   2.9(a)

Confidentiality Agreement

   5.9

 

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Definition

   Location Consideration Spreadsheet    5.16 Core Representations    8.1(a)
Deductible    8.5 DGCL    Recitals Disclosed Tax    8.2(e) Disclosure Memorandum
   Article III Dissenting Shares    2.8 Effective Time    2.2(b) Excess Parent
Common Stock    8.7(g) Exchange Agent    2.10(a) Exchange Fund    2.10(a)
Financial Statements    3.6(a) Foreign Plan    3.15(m) Form S-4    5.5 HSR Act
   3.5 Inbound Licenses    3.16(b)(i) Indemnified Party    8.4(a) Indemnifying
Party    8.4(a) Insured Party    5.12(a) Intellectual Property Agreements   
3.16(b) Interim Balance Sheet    3.6(a) Interim Financial Statements    3.6(a)
Letter of Transmittal    2.10(b) Locked-Up Shares    2.13(a) Lock-Up Period   
2.13(a) Losses    8.2 Majority Holders    2.12(b) Material Contract    3.10(a)
Merger    Recitals Merger Sub    Preamble New Law    8.2 Non-Competition
Agreement    Recitals Officer’s Certificate    8.4(c) Open Source Licenses   
3.16(m) Open Source Software    3.16(m) Outbound Licenses    3.16(b)(ii) Parent
   Preamble Parent Common Stock    2.7(a)(i) Parent Option    2.9(a) Preferred
Stock    3.3(a) Preferred Stock Conversion    5.13 Privacy Statement    3.16(l)
Quarterly Financials    3.6(a) Real Property    3.9(a) Relinquishing Shareholder
   8.7(b)

 

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Definition

   Location

Representatives

   5.2

Schedule of Expenses

   2.10(k)

SEC Reports

   4.4

Series A Preferred Stock

   3.3(b)

Series B Preferred Stock

   3.3(b)

Series C Preferred Stock

   3.3(b)

Series D Preferred Stock

   3.3(b)

Series E Preferred Stock

   3.3(b)

Series F Preferred Stock

   3.3(b)

Share

   2.7(a)(i)

Shareholder Meeting

   5.4

Shareholder Representative

   2.12(a)

Special Matters

   8.5(a)(vi)

Specified Representations

   7.3(a)

Stock Purchase Rights

   3.3(c)

Surviving Corporation

   2.1

Tail Policy

   5.12(a)

Third Party Claim

   8.4(a)

Voting Agreement

   Recitals

 

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ARTICLE II

THE MERGER; EFFECT ON THE CAPITAL STOCK OF THE

CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES

Section 2.1 The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time and in accordance with California Law, Merger
Sub shall be merged with and into the Company pursuant to which (a) the separate
corporate existence of Merger Sub shall cease, (b) the Company shall be the
surviving corporation in the Merger (the “Surviving Corporation”) and shall
continue its corporate existence under the laws of the State of California, as a
wholly owned Subsidiary of Parent and (c) all of the properties, rights,
privileges, powers and franchises of the Company will vest in the Surviving
Corporation, and all of the debts, liabilities, obligations and duties of the
Company will become the debts, liabilities, obligations and duties of the
Surviving Corporation.

Section 2.2 Closing; Effective Time.

(a) The closing of the Merger (the “Closing”) shall take place at the offices of
Gibson, Dunn & Crutcher LLP, 555 Mission Street, San Francisco, California, at
10:00 a.m., pacific time, on the second Business Day following the satisfaction
or, to the extent permitted by applicable Law, waiver of all conditions to the
obligations of the parties set forth in Article VII (other than such conditions
as may, by their terms, only be satisfied at the Closing or on the Closing
Date), or at such other place or at such other time or on such other date as the
parties mutually may agree. The day on which the Closing takes place is referred
to as the “Closing Date.”

(b) At the Closing, the parties shall cause an agreement of merger and other
appropriate documents to be executed and filed with the Secretary of State of
the State of California (in any such case, the “Agreement of Merger”), executed
in accordance with the relevant provisions of California Law. The Merger shall
become effective upon the filing of the Agreement of Merger with the Secretary
of State of the State of California. The date and time when the Merger shall
become effective is herein referred to as the “Effective Time.”

Section 2.3 Effects of the Merger. The Merger shall have the effects provided
for herein and in Section 1107 of the California General Corporation Law (the
“CGCL” ) and any other applicable provisions of California Law.

Section 2.4 Charter and Bylaws. At the Effective Time, (a) the charter of the
Company will be amended and restated to read the same as the charter of Merger
Sub, as in effect immediately prior to the Effective Time, except that the name
of the Surviving Corporation reflected therein shall be Zappos.com, Inc., and as
so amended shall be the charter of the Surviving Corporation until amended in
accordance with the provisions thereof and applicable Law and (b) the bylaws of
the Company will be amended and restated to read the same as the bylaws of
Merger Sub, as in effect immediately prior to the Effective Time, except that
the name of the Surviving Corporation reflected therein shall be Zappos.com,
Inc., and as so amended shall be the bylaws of the Surviving Corporation until
amended in accordance with the provisions thereof and applicable Law.

 

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Section 2.5 Directors; Officers. From and after the Effective Time, (a) the
directors of Merger Sub serving immediately prior to the Effective Time shall be
the directors of the Surviving Corporation until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be and (b) the officers of the Company serving
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.

Section 2.6 Subsequent Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either the Company or Merger Sub acquired or to be
acquired by the Surviving Corporation as a result of or in connection with the
Merger or otherwise to carry out this Agreement, the officers and directors of
the Surviving Corporation shall be authorized to execute and deliver, in the
name of and on behalf of either the Company or Merger Sub, all such deeds, bills
of sale, assignments and assurances and to take and do, in the name and on
behalf of each of such corporations or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties or assets in
the Surviving Corporation or otherwise to carry out this Agreement.

Section 2.7 Conversion of Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the Company, Parent, Merger Sub or
the holders of any shares of capital stock of the Company, Parent or Merger Sub:

(a) Subject to Section 2.8:

(i) each share of Company Common Stock (each, a “Share”) issued and outstanding
immediately prior to the Effective Time (other than shares of Company Common
Stock to be canceled in accordance with Section 2.7(b) or shares that could
become Dissenting Shares) shall thereupon be converted into and become
exchangeable for the number of shares of common stock, par value $ 0.01 per
share of Parent (“Parent Common Stock”) equal to the Common Exchange Ratio;

(ii) each share of Series A Preferred Stock issued and outstanding immediately
prior to the Effective Time if not otherwise converted into Company Common Stock
(other than shares of Series A Preferred Stock to be canceled in accordance with
Section 2.7(b) or shares that could become Dissenting Shares) shall thereupon be
converted into and become exchangeable for the number of shares of Parent Common
Stock equal to (A) $0.10, divided by (B) the Parent Stock Price;

 

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(iii) each share of Series B Preferred Stock issued and outstanding immediately
prior to the Effective Time if not otherwise converted into Company Common Stock
(other than shares of Series B Preferred Stock to be canceled in accordance with
Section 2.7(b) or shares that could become Dissenting Shares) shall thereupon be
converted into and become exchangeable for the number of shares of Parent Common
Stock equal to (A) $0.1949, divided by (B) the Parent Stock Price;

(iv) each share of Series C Preferred Stock issued and outstanding immediately
prior to the Effective Time if not otherwise converted into Company Common Stock
(other than shares of Series C Preferred Stock to be canceled in accordance with
Section 2.7(b) or shares that could become Dissenting Shares) shall thereupon be
converted into and become exchangeable for the number of shares of Parent Common
Stock equal to (A) $0.45273, divided by (B) the Parent Stock Price;

(v) each share of Series D Preferred Stock issued and outstanding immediately
prior to the Effective Time if not otherwise converted into Company Common Stock
(other than shares of Series D Preferred Stock to be canceled in accordance with
Section 2.7(b) or shares that could become Dissenting Shares) shall thereupon be
converted into and become exchangeable for the number of shares of Parent Common
Stock equal to (A) $0.7910, divided by (B) the Parent Stock Price;

(vi) each share of Series E Preferred Stock issued and outstanding immediately
prior to the Effective Time if not otherwise converted into Company Common Stock
(other than shares of Series E Preferred Stock to be canceled in accordance with
Section 2.7(b) or shares that could become Dissenting Shares) shall thereupon be
converted into and become exchangeable for the number of shares of Parent Common
Stock equal to (A) $24.64 minus the Series E Per Share Transaction Expenses,
divided by (B) the Parent Stock Price; and

(vii) each share of Series F Preferred Stock issued and outstanding immediately
prior to the Effective Time if not otherwise converted into Company Common Stock
(other than shares of Series F Preferred Stock to be canceled in accordance with
Section 2.7(b) or shares that could become Dissenting Shares) shall thereupon be
converted into and become exchangeable for the number of shares of Parent Common
Stock equal to (A) $24.642 minus the Series F Per Share Transaction Expenses,
divided by (B) the Parent Stock Price.

 

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(b) Each share of Capital Stock held in the treasury of the Company or owned,
directly or indirectly, by the Company, or any of the Company’s wholly-owned
Subsidiaries, Parent or Merger Sub immediately prior to the Effective Time shall
automatically be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.

(c) Each share of common stock, par value $0.01 per share, of Merger Sub issued
and outstanding immediately prior to the Effective Time shall be converted into
and become one (1) validly issued, fully paid and non-assessable share of common
stock, par value $0.001 per share, of the Surviving Corporation.

(d) The Common Exchange Ratio, the Parent Stock Price, the Common Merger
Consideration Per Share, and the shares of Parent Common Stock issuable to the
holders of Preferred Stock pursuant to Section 2.7(a) shall be adjusted to
reflect fully the appropriate effect of any stock split, split-up, reverse stock
split, dividend (whether stock or cash) or distribution of securities
convertible into Company Common Stock, Preferred Stock, or Parent Common Stock,
reorganization, recapitalization, reclassification or other like change with
respect to the Company Common Stock, Preferred Stock or Parent Common Stock
having a record date occurring on or after the date of this Agreement and prior
to the Effective Time.

(e) In no event will the number of shares of Parent Common Stock to be issued in
exchange for and upon conversion of all outstanding shares of Capital Stock, all
Company Options and all other Stock Purchase Rights be greater than the quotient
of Total Merger Consideration divided by the Parent Stock Price (except, if
applicable, as a result of adjustments made pursuant to Section 2.7(d)).

(f) Notwithstanding anything to the contrary contained in Sections 2.7(a)(i)
through 2.7(a)(vii), at the Effective Time, each Shareholder will be deemed to
have received, and hereby authorizes Parent’s deposit with the Escrow Agent
(i) that number of shares of Parent Common Stock equal to the number of shares
of Parent Common Stock to which such Shareholder is entitled pursuant to
Sections 2.7(a)(i) through(a)(vii) multiplied by the Indemnity Escrow Ratio
(plus any additional shares as may be issued after the Effective Time with
respect to the shares constituting the Indemnity Escrow Amount upon any stock
split, stock dividend or recapitalization effected by Parent after the Effective
Time) to be deposited into the Indemnity Escrow Fund, and (ii) that number of
shares of Parent Common Stock equal to the number of shares of Parent Common
Stock to which such Shareholder is entitled pursuant to Sections 2.7(a)(i)
through (a)(vii) multiplied by the Shareholders Representative Expense Fund
Ratio (plus any additional shares as may be issued after the Effective Time with
respect to the shares held in the Shareholder Representative Expense Fund upon
any stock split, stock dividend or recapitalization effected by Parent after the
Effective Time) to be deposited into the Shareholder Representative Expense
Fund. The shares of Parent Common Stock under (i) and (ii) to be deposited with
the Escrow Agent shall be deducted from the shares of Parent Common Stock that
such Shareholder would otherwise have been entitled to receive pursuant to
Section 2.10(b) without any act of any such Shareholder.

 

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Section 2.8 Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of Capital Stock (other than any shares to be cancelled
pursuant to Sections 2.7(b)) issued and outstanding immediately prior to the
Effective Time and held by a holder who has not voted in favor of the Merger or
consented thereto in writing and who has properly demanded that the Company
purchase such shares in accordance with Chapter 13 of the CGCL (“Dissenting
Shares”), shall not be converted into or be exchangeable for the right to
receive a portion of the Common Merger Consideration or Preferred Merger
Consideration unless and until such holder fails to perfect or withdraws or
otherwise loses his right to appraisal and payment under the CGCL. If, after the
Effective Time, any such holder fails to perfect or withdraws or loses his right
to appraisal, such Dissenting Shares shall thereupon be treated as if they had
been converted as of the Effective Time into the right to receive the portion of
the Common Merger Consideration or Preferred Merger Consideration, as
applicable, if any, to which such holder is entitled. The Company shall give
Parent (a) prompt notice of any demands received by the Company for appraisal of
any shares of Capital Stock, attempted written withdrawals of such demands, and
any other instruments served pursuant to applicable Law and received by the
Company relating to stockholders’ rights to appraisal with respect to the Merger
and (b) the opportunity to participate in all negotiations and proceedings with
respect to any exercise of such appraisal rights under applicable Law. The
Company shall not, except with the prior written consent of Parent, voluntarily
make any payment with respect to any demands for payment of fair value for
Capital Stock, offer to settle or settle any such demands or approve any
withdrawal of any such demands. Any payments with respect to Dissenting Shares
shall first be made from cash on hand at the Company immediately before Closing.

Section 2.9 Treatment of Options and Other Equity-Based Awards.

(a) At the Effective Time, each option (each, a “Company Option”) to purchase
shares of Company Common Stock granted under the Zappos.com, Inc. 2009 Stock
Plan (formerly known as the Zappos.com, Inc. 1999 Stock Plan) (the “Company
Stock Plan”) other than such Company Options set forth on Schedule 2.9(a),
whether vested or unvested, that is outstanding immediately prior to the
Effective Time shall, at the Effective Time, cease to represent a right to
acquire shares of Company Common Stock and shall be assumed and converted, at
the Effective Time, into an option to purchase shares of Parent Common Stock
(each such converted option, a “Parent Option”), on the same terms and
conditions (including any vesting or forfeiture provisions or repurchase rights)
as were applicable under such Company Option as of immediately prior to the
Effective Time, except to the extent that such terms were modified as a result
of the Option Consent. The number of shares of Parent Common Stock subject to
each such Parent Option shall be equal to (i) the number of shares of Company
Common Stock subject to each Company Option immediately prior to the Effective
Time multiplied by (ii) the Common Exchange Ratio, rounded down, if necessary,
to the nearest whole share of Parent Common Stock, and such Parent Option shall
have an exercise price per share (rounded up to the nearest whole cent) equal to
(A) the exercise price per share of Company Common Stock otherwise purchasable

 

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pursuant to such Company Option divided by (B) the Common Exchange Ratio;
provided, that in the case of any Company Option to which Section 421 of the
Code applies as of the Effective Time by reason of its qualification under
Section 422 of the Code, the exercise price, the number of shares of Parent
Common Stock subject to such option and the terms and conditions of exercise of
such option shall be determined in a manner consistent with the requirements of
Section 424(a) of the Code; provided further, that in the case of any Company
Option to which an exemption to Section 409A of the Code applies as of the
Effective Time, the exercise price, the number of shares of Parent Common Stock
subject to such option and the terms and conditions of exercise of such option
shall be determined in a manner consistent with the requirements of Section 409A
of the Code. The Company shall take all action necessary so that prior to the
Effective Time each outstanding Common Stock Option set forth on Schedule 2.9(a)
shall be fully vested and exercisable. At the Effective Time each outstanding
Common Stock Option set forth on Schedule 2.9(a) (whether vested or unvested)
shall be cancelled and not assumed by Parent.

(b) Prior to the Effective Time, the Company shall take all commercially
reasonable action necessary to enable the substitution of Parent Options for the
Company Options under this Section 2.9. The Company shall ensure that following
the Effective Time, no holder of a Company Option (or former holder of a Company
Option) or any participant in any Company Stock Plan shall have any right
thereunder to acquire any capital stock of the Company or the Surviving
Corporation or any other equity interest therein (including “phantom” stock or
stock appreciation rights).

(c) Parent shall reserve for issuance a number of shares of Parent Common Stock
at least equal to the number of shares of Parent Common Stock that will be
subject to Parent Options as a result of the actions contemplated by this
Section 2.9. As soon as practicable following the Effective Time, and in any
event within ten Business Days thereof, Parent shall file a registration
statement on Form S-8 (or any successor form, or if Form S-8 is not available,
other appropriate forms) with respect to the shares of Parent Common Stock
subject to such Parent Options and shall use its commercially reasonable efforts
to maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such Parent Options remain outstanding and the
exercise thereof or sales of such related shares of Parent Common Stock requires
such registration.

Section 2.10 Exchange of Shares.

(a) Promptly after the Effective Time (and in any event within five Business
Days thereafter), Parent shall deposit (or cause to be deposited) with a bank or
trust company designated by Parent (the “Exchange Agent”), for exchange in
accordance with this Article II, certificates representing shares of Parent
Common Stock issuable pursuant to Section 2.7(a) or otherwise make available
book entry shares of Parent Common Stock, provided that, on behalf of the
Shareholders, Parent shall withhold from such shares of Parent Common Stock a
number of such shares equal to the sum of (i) the Indemnity Escrow Amount, and
(ii) the Shareholder Representative Expense Fund

 

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Amount. The shares referred to in (i) shall be deposited by Parent in the
Indemnity Escrow Fund and the shares referred to in (ii) shall be deposited by
Parent with the Escrow Agent in the segregated Shareholder Representative
Expense Fund. In addition, Parent shall make available by depositing with the
Exchange Agent, as necessary from time to time after the Effective Time, any
dividends or distributions payable pursuant to Section 2.10(c) and any cash in
lieu of fractional shares of Parent Common Stock payable pursuant to
Section 2.10(e). All certificates representing shares of Parent Common Stock and
cash deposited with the Exchange Agent are hereinafter referred to as the
“Exchange Fund.”

(b) Parent and the Surviving Corporation shall use commercially reasonable
efforts to cause the Exchange Agent to mail, within five Business Days after the
Closing Date or such shorter period as is reasonably practicable, to each holder
of record of an outstanding certificate or outstanding certificates
(“Certificates”) that immediately prior to the Effective Time represented
outstanding shares of Capital Stock which were converted into the right to
receive the Parent Common Stock with respect thereto, any dividends or
distributions payable pursuant to Section 2.10(c) and any cash in lieu of
fractional shares of Parent Common Stock payable pursuant to Section 2.10(e):
(i) a form of letter of transmittal in substantially the form attached hereto as
Exhibit F (the “Letter of Transmittal”) (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates held by such Person
shall pass, only upon proper delivery of the Certificates to the Exchange Agent)
and (ii) instructions for use in effecting the surrender of Certificates in
exchange for the shares of Parent Common Stock payable with respect thereto, any
dividends or distributions payable pursuant to Section 2.10(c) and any cash in
lieu of fractional shares of Parent Common Stock payable pursuant to
Section 2.10(e). Upon surrender of a Certificate to the Exchange Agent, together
with such Letter of Transmittal, duly completed and validly executed, and such
other documents as the Exchange Agent may reasonably require that are referenced
in the Letter of Transmittal or which are otherwise reasonably necessary due to
the particular circumstances of the submitting Shareholder, the holder of such
Certificate shall be entitled to receive in exchange therefor (A) a certificate
representing that number of whole shares of Parent Common Stock (after taking
into account all shares of Company Capital Stock then held by such holder under
all Certificates so surrendered) to which such holder of Company Capital Stock
shall have become entitled pursuant to the provisions of Section 2.7(a) net of
any amounts deposited with the Escrow Agent pursuant to Section 2.7(f) (which
shall be in uncertificated book-entry form unless a physical certificate is
requested), (B) any dividends or distributions payable pursuant to
Section 2.10(c) and (C) any cash in lieu of fractional shares of Parent Common
Stock payable pursuant to Section 2.10(e), and the Certificate so surrendered
shall forthwith be cancelled. In the event of a transfer of ownership of a
Certificate representing shares of Capital Stock that is not registered in the
transfer records of the Company, a certificate representing the proper number of
shares of Parent Common Stock may be issued to a Person other than the Person in
whose name the Certificate so surrendered is registered, if such Certificate
shall be properly endorsed or otherwise in proper form for transfer and the
Person requesting such issuance shall pay any transfer or other Taxes required
by reason of the issuance of shares of Parent Common Stock to a Person other
than the registered holder of such Certificate or establish to the satisfaction
of Parent and the

 

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Exchange Agent that such Taxes have been paid or are not applicable. Until
surrendered as contemplated by this Section 2.10, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender or transfer the shares of Parent Common Stock
payable in respect of shares of Capital Stock theretofore represented by such
Certificate, any dividends or distributions payable pursuant to Section 2.10(c)
and any cash in lieu of fractional shares of Parent Common Stock payable
pursuant to Section 2.10(e). No interest will be paid or accrued on any unpaid
dividends and distributions or cash in lieu of fractional shares, if any,
payable to holders of Certificates.

(c) No dividends or other distributions with respect to Parent Common Stock with
a record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock that
the holder thereof has the right to receive upon the surrender thereof, and no
cash payment in lieu of fractional shares of Parent Common Stock shall be paid
to any such holder pursuant to Section 2.10(e), in each case until the holder
thereof shall surrender such Certificate in accordance with this Article II.
Promptly following the surrender of a Certificate in accordance with this
Article II, there shall be paid to the record holder thereof, without interest,
the amount of any dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock and the amount of any cash payable in lieu of a fractional share of
Parent Common Stock to which such holder is entitled pursuant to
Section 2.10(e).

(d) The shares of Parent Common Stock, any dividends or other distributions
payable pursuant to Section 2.10(c) and any cash in lieu of fractional shares of
Parent Common Stock payable pursuant to Section 2.10(e) issued and paid upon the
surrender for exchange of Certificates in accordance with the terms of this
Article II shall be deemed to have been issued and paid in full satisfaction of
all rights pertaining to the shares of Capital Stock formerly represented by
such Certificates. At the Effective Time, the stock transfer books of the
Company shall be closed and there shall be no further registration of transfers
on the stock transfer books of the Surviving Corporation of the shares of
Capital Stock that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation or the Exchange Agent for transfer, such shall be canceled and
exchanged as provided in this Article II.

(e) Notwithstanding anything to the contrary contained herein, no certificates
or scrip representing fractional shares of Parent Common Stock shall be issued
upon the surrender for exchange of Certificates, no dividends or other
distributions with respect to the Parent Common Stock shall be payable on or
with respect to any fractional share, and such fractional share interests shall
not entitle the owner thereof to vote or to any other rights of a stockholder of
Parent. In lieu of the issuance of any such fractional share, Parent shall pay
to each former Shareholder who otherwise would be entitled to receive a
fractional share of Parent Common Stock an amount in cash (without interest)
determined by multiplying (i) the fraction of a share of Parent Common Stock
which such holder would otherwise be entitled to receive (aggregating all shares
of Capital Stock held at the Effective Time by such holder and rounded to the
nearest thousandth when expressed in decimal form) pursuant to Section 2.7(a)
and Section 2.7(f) by (ii) the Parent Stock Price.

 

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(f) Any portion of the Exchange Fund that remains undistributed to the holders
of Certificates six (6) months after the Effective Time shall be delivered to
Parent, upon demand, and any holders of Certificates who have not theretofore
complied with this Article II shall thereafter look only to Parent (subject to
abandoned property, escheat or other similar laws), as general creditors
thereof, for payment of the shares of Parent Common Stock, any unpaid dividends
or other distributions payable pursuant to Section 2.10(c) and any cash in lieu
of fractional shares of Parent Common Stock payable pursuant to Section 2.10(e).

(g) None of Parent, the Surviving Corporation, the Exchange Agent or any other
Person shall be liable to any Person in respect of shares of Parent Common
Stock, dividends or other distributions with respect thereto or cash in lieu of
fractional shares of Parent Common Stock properly delivered to a public official
pursuant to any applicable abandoned property, escheat or similar Law.

(h) The Exchange Agent shall invest any cash included in the Exchange Fund as
directed by Parent on a daily basis. Any interest and other income resulting
from such investments shall be paid to Parent.

(i) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit, in form and substance reasonably acceptable to Parent,
of that fact by the Person claiming such Certificate to be lost, stolen or
destroyed and, if required by Parent or the Exchange Agent, the posting by such
Person of a bond in such amount as Parent or the Exchange Agent may determine is
reasonably necessary as indemnity against any claim that may be made against it
or the Surviving Corporation with respect to such Certificate, the Exchange
Agent will deliver in exchange for such lost, stolen or destroyed Certificate
shares of Parent Common Stock payable in respect thereof, any dividends or other
distributions payable pursuant to Section 2.10(c) and any cash in lieu of
fractional shares of Parent Common Stock payable pursuant to Section 2.10(e).

(j) Promptly after the Effective Time, Parent shall deposit or cause to be
deposited the Indemnity Escrow Amount and the Shareholder Representative Expense
Fund Amount with the Escrow Agent. The Indemnity Escrow Fund and the Shareholder
Representative Expense Fund shall be held and distributed as provided in the
Escrow Agreement and this Agreement.

(k) Three Business Days prior to the intended Closing Date, the Company will
provide to Parent an itemized schedule (the “Schedule of Expenses”) containing
(i) a true and complete list of all Transaction Expenses that have been paid (or
for which bills have been received) or shall have, in the good faith estimate of
the Company, been paid as of the Closing Date, (ii) a good faith estimate of all
such additional Transaction Expenses that have been incurred or shall have been
incurred as of the Closing Date but are not reflected in clause (i) hereof, and
(iii) a good faith estimate of all additional Transaction Expenses that are
expected to be incurred after the Closing

 

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Date, together with a certificate of an authorized officer of the Company
certifying the accuracy and completeness of the Schedule of Expenses (subject to
such good faith estimates). The Schedule of Expenses shall include a good faith
estimate of all fees and expenses of Fenwick & West LLP, PricewaterhouseCoopers
and Morgan Stanley & Co. for services rendered. Any Transaction Expenses in
excess of the amount estimated therefor in the Schedule of Expenses shall be
recoverable by Parent from the Indemnity Escrow Fund and from Consenting
Optionholders by forfeiture of Company Options pursuant to the Option Consents.
Fees and expenses fees incurred by or on behalf of any Shareholder, other than
Transaction Expenses, shall not be paid by Parent, the Surviving Corporation or
any Affiliate thereof.

Section 2.11 Withholding Rights. Each of Parent, the Surviving Corporation and
the Exchange Agent shall be entitled to deduct and withhold from any
consideration otherwise payable to any Person pursuant to this Agreement such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Code, or any provision of applicable Tax Law. To the
extent that such amounts are so withheld or paid over to or deposited with the
relevant Governmental Body by Parent, the Surviving Corporation or the Exchange
Agent, such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the applicable Person in respect to which such deduction
and withholding was made.

Section 2.12 Shareholder Representative.

(a) Immediately upon the approval of this Agreement by the requisite vote or
written consent of the Shareholders, each Shareholder, and upon the execution of
an Option Consent, the Consenting Optionholder executing such Option Consent,
shall be deemed to have consented to the appointment of Alfred Lin as such
Shareholder’s and Consenting Optionholder’s, as applicable, representative and
attorney-in-fact (the “Shareholder Representative”), with full power of
substitution to act on behalf of the Shareholders and Consenting Optionholders
to the extent and in the manner set forth in this Agreement and the Escrow
Agreement. All decisions, actions, consents and instructions by the Shareholder
Representative shall be binding upon all of the Shareholders and Consenting
Optionholders, and no Shareholder or Consenting Optionholder shall have the
right to object to, dissent from, protest or otherwise contest the same. Parent
and Merger Sub shall be entitled to rely on any decision, action, consent or
instruction of the Shareholder Representative as being the decision, action,
consent or instruction of the Shareholders and Consenting Optionholders, and
Parent and Merger Sub are hereby relieved from any liability to any Person for
acts done by them in accordance with any such decision, act, consent or
instruction.

(b) The Shareholder Representative may resign at any time, and may be removed
for any reason or no reason by the vote or written consent of Shareholders
holding a majority of the aggregate shares of Capital Stock at the Effective
Time (the “Majority Holders”). In the event of the death, incapacity,
resignation or removal of the Shareholder Representative, a new Shareholder
Representative, that was either a former holder of Capital Stock or is a natural
person who manages a Person that was a former holder of Capital Stock, shall be
appointed by the vote or written consent of the Majority

 

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Holders. Notice of such vote or a copy of the written consent appointing such
new Shareholder Representative shall be sent to Parent and, after the Effective
Time, to the Surviving Corporation, such appointment to be effective upon the
later of the date indicated in such consent or the date such consent is received
by Parent and, after the Effective Time, the Surviving Corporation; provided,
that until such notice is received, Parent, Merger Sub and the Surviving
Corporation, as applicable, shall be entitled to rely on the decisions, actions,
consents and instructions of the prior Shareholder Representative as described
in Section 2.12(a). Any expenses incurred by the Shareholder Representative in
performing its duties hereunder (including legal fees and expenses related
thereto) and any indemnification in favor of the Shareholder Representative
shall be payable out of the Shareholder Representative Expense Fund and, to the
extent such expenses exceed the amount available from such fund, shall be borne
by the Shareholders and Consenting Optionholders.

(c) The Shareholder Representative shall not be liable to the Shareholders or
Consenting Optionholders for actions taken pursuant to this Agreement or the
Escrow Agreement, except to the extent such actions shall have been determined
by a court of competent jurisdiction to have constituted willful misconduct or
fraud. Except in cases where a court of competent jurisdiction has made such a
finding, the Shareholders and Consenting Optionholders shall jointly and
severally indemnify and hold harmless the Shareholder Representative from and
against any and all losses, liabilities, claims, actions, damages and expenses,
including reasonable attorneys’ fees and disbursements, arising out of and in
connection with his activities as Shareholder Representative under this
Agreement, the Escrow Agreement or otherwise, to the extent that such losses,
liabilities, claims, actions, damages and expenses, including reasonable
attorneys’ fees and disbursements are not fully satisfied by the Shareholder
Representative Expense Fund.

(d) The approval of this Agreement by the requisite vote or written consent of
Shareholders required by the Charter and applicable Law and execution of the
Option Consents shall also be deemed to constitute approval of all arrangements
relating to the transactions contemplated under this Agreement and to the
provisions hereof binding upon the Shareholders and Consenting Optionholders,
including, without limitation, Article VIII.

Section 2.13 Lock-Up.

(a) Except as otherwise provided for herein, each Lock-Up Holder will be
prohibited during the period commencing on the Closing Date and ending on date
of the one year anniversary of Closing Date (the “Lock-Up Period”) from directly
or indirectly: (i) offering, pledging, selling or contracting to sell any shares
of Parent Common Stock acquired pursuant to Section 2.7(a) or received upon the
assumption or conversion of any Company Options (the “Locked-Up Shares”);
(ii) offering, pledging, selling or contracting to sell any option to purchase
any shares of Parent Common Stock; (iii) granting any option, right or warrant
for the sale of any shares of Parent Common Stock; (iv) lending or otherwise
disposing of or transferring (or entering into any transaction or device
designed to, or that could be expected to, result in the disposition by

 

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any Person at any time in the future of) any Locked-Up Shares, or securities
convertible into or exercisable or exchangeable for Locked-Up Shares;
(v) entering into a swap or other derivatives transaction or agreement that
transfers, in whole or in part (directly or indirectly), the economic
consequences of ownership of any Locked-Up Shares, whether any such swap or
transaction described in clauses (i) through (v) is to be settled by delivery of
shares of Locked-Up Shares or other securities, in cash or otherwise, or
(vi) announcing his, her or its intention to do any of the foregoing (any of the
transactions described in clauses (i) through (vi), a “Common Stock
Transaction”); provided, that, subject to any other applicable restrictions
including Parent’s insider trading policy, during the period commencing on the
Closing Date and ending on the date of the one year anniversary of Closing Date,
a Lock-Up Holder may enter into a Common Stock Transaction, or any other
transaction, during each calendar quarter with respect to the sum of (A) up to
25% of the Locked-Up Shares received by such Lock-Up Holder (including with
respect to any Parent Options received in exchange for Company Options), and
(B) any Locked Up Shares (including with respect to any Parent Options received
in exchange for Company Options) which were eligible to be the subject of Common
Stock Transactions during any prior calendar quarter.

(b) For the avoidance of doubt, nothing contained in Section 2.13(a) shall
prevent a Lock-Up Holder from, or restrict the ability of a Lock-Up Holder to,
(i) purchase Parent Common Stock or other securities of Parent (ii) exercise any
options or other convertible securities granted under Parent’s incentive plans
or (iii) dispose of Locked-Up Shares which it beneficially owns (as such concept
is defined pursuant to Rule 13d-3 of the Exchange Act) in connection with a
transaction in which all other holders of Parent Common Stock are entitled to
receive the same consideration for their shares of Parent Common Stock as would
be received by the Lock-Up Holder.

(c) Notwithstanding the foregoing, each Lock-Up Holder shall be permitted to
transfer Locked-Up Shares during the Lock-Up Period (i) as a bona fide gift or
gifts, (ii) to any trust for the direct or indirect benefit of such Lock-Up
Holder or the Immediate Family of such Lock-Up Holder, (iii) by will or
intestate succession, provided that, in each case, (A) each transferee (or
trustee, as applicable) execute a lock-up agreement with the terms of this
Section 2.13 pursuant to which these persons agree not to sell or transfer the
Locked-Up Shares for the remainder of the Lock-Up Period and (B) any such
transfer shall not involve a disposition for value.

(d) Each certificate representing Locked-Up Shares and any other securities
issued upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall be stamped or otherwise imprinted with
legends in the following form (in addition to any other legends required under
applicable securities Laws):

“THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH CERTAIN TERMS AND RESTRICTIONS OF AN AGREEMENT AND PLAN OF
MERGER GOVERNING THE SHARES ACQUIRED BY THE STOCKHOLDER FROM THE COMPANY, A COPY
OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.”

 

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(e) In furtherance of the foregoing, Parent, and any duly appointed transfer
agent for the registration or transfer of the Lock-Up Shares, are hereby
authorized to decline to make any transfer of the Lock-Up Shares if such
transfer would constitute a violation or breach of this Section 2.13.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

OF THE COMPANY

Except as is otherwise set forth in the corresponding sections or subsections in
the Disclosure Memorandum attached hereto as Exhibit G (the “Disclosure
Memorandum”) (each of which shall qualify the identified sections or subsections
hereof to which such section or subsection of the Disclosure Memorandum relates
and shall not qualify any other provision of this Agreement and shall not be
deemed to be incorporated in any other schedule of the Disclosure Memorandum
except to the extent that the relevance to such other section or subsection is
otherwise reasonably apparent on the face of the Disclosure Memorandum), in
order to induce Parent to enter into and perform this Agreement and the other
Operative Documents to which Parent is a party, the Company represents and
warrants to Parent and Merger Sub as of the date of this Agreement and as of the
Closing (except in the case of representations and warranties which by their
terms speak only as of a specific date or dates, which representations and
warranties shall be true and correct as of such date or dates) as follows in
this Article III.

Section 3.1 Organization. Each of the Company and its Subsidiaries (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation as set forth on Schedule 3.1 to the
Disclosure Memorandum; (b) has all requisite corporate power and authority to
own, operate and lease its properties and assets, and to carry on its business
as now conducted; and (c) is duly qualified or licensed as a foreign corporation
to do business and is in good standing in each of the jurisdictions specified in
Schedule 3.1 to the Disclosure Memorandum, which are the only jurisdictions in
which the character of the properties occupied, owned or held under lease by it
or the nature of its business makes such qualification or licensing necessary.

Section 3.2 Enforceability; Authority. All corporate action on the part of the
Company and its directors, officers and shareholders necessary for the
authorization, execution, delivery and performance of this Agreement and the
other Operative Documents to which the Company is a party, the consummation of
the transactions contemplated by this Agreement and the other Operative
Documents to which the Company is a party, and the performance of all the
Company’s obligations under this Agreement and the other Operative Documents to
which the Company is a party has been taken other than (i) approval of the
Merger Agreement by a holders of a majority of all shares of Common Stock,
(ii) approval of the Merger Agreement by holders of a majority of all shares of
Preferred Stock, and (iii) approval of the Merger Agreement by holders of a
majority of the Series E Preferred Stock and Series F Preferred Stock voting
together (clauses (i)-(iii), collectively, the “Company Shareholder Approval”).
This Agreement has been,

 

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and each of the other Operative Documents to which the Company is a party at the
Closing will have been, duly executed and delivered by the Company and, assuming
the due authorization, execution and delivery by each of the parties hereto and
thereto other than the Company, this Agreement is, and each of the other
Operative Documents to which the Company is a party will be at the Closing, a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject only to the effect, if any, of
(x) applicable bankruptcy and other similar laws affecting the rights of
creditors generally and (y) rules of law governing specific performance,
injunctive relief and other equitable remedies. The Company has all requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and the other Operative Documents to which the Company is a
party, and to consummate the transactions contemplated hereby and thereby.

Section 3.3 Capitalization.

(a) The authorized capital stock of the Company consists solely of 60,000,000
shares of common stock, $0.001 par value (the “Company Common Stock”) and
35,997,223 shares of preferred stock, $0.001 par value (the “Preferred Stock”)
of which (i) 1,550,000 shares have been designated Series A Preferred Stock,
with a liquidation preference of $0.10 upon consummation of the Merger,
(ii) 7,725,000 shares have been designated Series B Preferred Stock, with a
liquidation preference of $0.1949 upon consummation of the Merger,
(iii) 17,300,000 shares have been designated Series C Preferred Stock, with a
liquidation preference of $0.45273 upon consummation of the Merger, (iv) 650,000
shares have been designated Series D Preferred Stock, with a liquidation
preference of $0.7910 upon consummation of the Merger, (v) 5,000,000 shares have
been designated Series E Preferred Stock, with a liquidation preference of
$24.64 upon consummation of the Merger, (vi) 3,772,223 shares have been
designated Series F Preferred Stock, with a liquidation preference of $24.642
upon consummation of the Merger.

(b) As of the date hereof, the issued and outstanding capital stock of the
Company consists solely of (i) 21,469,674 shares of Company Common Stock,
(ii) 1,490,500 shares of Company Series A Preferred Stock (the “Series A
Preferred Stock”), (iii) 4,514,499 shares of Company Series B Preferred Stock
(the “Series B Preferred Stock”), (iv) 10,295,572 shares of Company Series C
Preferred Stock (the “Series C Preferred Stock”), (v) 427,633 shares of Company
Series D Preferred Stock (the “Series D Preferred Stock”), (vi) 3,246,753 shares
of Company Series E Preferred Stock (the “Series E Preferred Stock”), and
(vii) 3,772,223 shares of Company Series F Preferred Stock (the “Series F
Preferred Stock”), which are held of record and beneficially by the shareholders
as set forth on Schedule 3.3(b) to the Disclosure Memorandum. Each outstanding
share of capital stock or other equity or ownership interest of the Company and
each of its Subsidiaries is duly authorized and validly issued, fully paid and
nonassessable, and in the case of its Subsidiaries except as set forth in
Schedule 3.3(b) to the Disclosure Memorandum, each such share or other equity or
ownership interest is owned by the Company or another Subsidiary of the Company,
free and clear of any Encumbrance. All of the aforesaid shares or other equity
or ownership interests have been issued by the Company or its Subsidiary in
compliance with all applicable federal, state and foreign laws. Except as set
forth in Schedule 3.3(b) to the

 

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Disclosure Memorandum, the Company has not repurchased or redeemed any shares of
its Capital Stock since inception of the Company. The Company does not have any
right or option to repurchase or redeem any shares of its Capital Stock. The
Company has not declared any dividends since its inception.

(c) Other than as set forth on Schedule 3.3 to the Disclosure Memorandum, there
are no outstanding rights of first refusal or offer, preemptive rights, options,
warrants, conversion rights, other rights or other agreements, either directly
or indirectly, for the purchase or acquisition from the Company, any of the
Company’s Subsidiaries, or to the Knowledge of the Company, any shareholder of
the Company or Subsidiary of the Company, of any shares of the Company’s or any
of its Subsidiaries’ capital stock or any securities or instruments convertible
into or exchangeable for shares of the Company’s capital stock or any of the
Company’s Subsidiaries’ capital stock (collectively, “Stock Purchase Rights”).
Other than with respect to the Company Options set forth on Schedule 2.9(a), the
Merger and the transactions related thereto will not accelerate or otherwise
change the vesting provisions of any Stock Purchase Rights. Other than as set
forth on Schedule 3.3 to the Disclosure Memorandum, all Company Stock Options
are owned by current employees of the Company. There are no outstanding rights
of refusal, rights of first offer, co-sale or tag-along rights, drag-along
rights, registration rights or similar rights granted by the Company or any of
its Subsidiaries with respect to the Company’s capital stock, any of the
Company’s Subsidiaries capital stock, or Stock Purchase Rights.

(d) Other than the Voting Agreement, the Company is not a party or subject to
any agreement or understanding, and to the Knowledge of the Company, there is no
other agreement or understanding between or among any Persons to which the
Company is not a party, that affects or relates to the voting or giving of
written consents with respect to any securities of the Company or the voting by
any director or shareholder of the Company. The Company has no contractual or
other obligation to register any of its presently outstanding securities or any
of its securities that may hereafter be issued.

(e) The information contained in the Consideration Spreadsheet will be true and
correct as of the Closing Date and the allocation of the merger consideration
set forth in the Consideration Spreadsheet will be consistent with the
organizational documents of the Company and any applicable Contract.

Section 3.4 Equity Interests. Except for the Subsidiaries listed in Schedule 3.3
to the Disclosure Memorandum, neither the Company nor any of its Subsidiaries
directly or indirectly owns any equity, partnership, membership or similar
interest in, or any interest convertible into, exercisable for the purchase of
or exchangeable for any such equity, partnership, membership or similar
interest, or is under any current or prospective obligation to form or
participate in, provide funds to, make any loan, capital contribution or other
investment in, or assume any liability or obligation of, any Person.

Section 3.5 No Approvals; No Conflicts. Except as described on Schedule 3.5 to
the Disclosure Memorandum, the execution, delivery and performance by the
Company of this Agreement and the other Operative Documents to which the Company
is a party and the

 

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consummation of the transactions contemplated hereby and thereby will not
(a) constitute a violation (with or without the giving of notice or lapse of
time, or both) of any provision of law or any judgment, decree, order,
regulation or rule of any court or other Governmental Body applicable to the
Company or any of its Subsidiaries; (b) require the Company or any of its
Subsidiaries to file, seek, or obtain any notice, to file, seek or obtain any
notice, authorization, approval, order, permit or consent of or with any
Governmental Body in connection with the execution, delivery and performance by
the Company of this Agreement and the Operative Documents to which the Company
is a party or the consummation of the transactions contemplated hereby or
thereby or in order to prevent the termination of any right, privilege, license
or qualification of the Company or any of its Subsidiaries, except for (i) any
filings required to be made under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the “HSR Act“), (ii) the filing of the Agreement of
Merger as required by applicable Law and (iii) such filings as may be required
by any applicable federal or state securities or “blue sky” laws; (c) require
any consent, approval or authorization of, declaration, filing or registration
with, or notice to, any Person including any consent, approval or authorization
of, declaration, filing or registration with, or notice to, any Person required
to be obtained or made in order to keep any Contract between such Person and the
Company or any of its Subsidiaries in effect following the transactions
contemplated by this Agreement or to provide that the Company or any of its
Subsidiaries is not in breach or violation of any such Contract following the
transactions contemplated by this Agreement by reason of the execution and
delivery of, or the performance of its obligations under, this Agreement or the
Operative Documents to which the Company is a party; (d) result in a default
(with or without the giving of notice or lapse of time, or both) under, or
acceleration or termination of, or the creation in any Person of the right to
accelerate, terminate, modify or cancel, any agreement, lease, note or other
restriction, Encumbrance, obligation or liability to which the Company or any of
its Subsidiary is a party or by which it is bound or to which any assets of the
Company or any of its Subsidiaries are subject, including the Contracts;
(e) result in the creation of any Encumbrance on any assets of the Company;
(f) conflict with or result in a breach of or constitute a default under any
provision of the Charter or the Bylaws of the Company or any of its
Subsidiaries; or (g) invalidate or adversely affect any permit, license or
authorization used in the conduct of the businesses of the Company or any of its
Subsidiaries.

Section 3.6 Financial Statements.

(a) The Company has delivered to Parent true and complete copies of the
following financial statements and related materials, which are attached as
Schedule 3.6(a) to the Disclosure Memorandum: (i) audited consolidated balance
sheets of the Company and its Subsidiaries as of December 31, 2008, December 31,
2007 and December 31, 2006 and the related audited consolidated statements of
income, shareholders’ equity and cash flows for the years ended December 31,
2008, December 31, 2007 and December 31, 2006, together with all related notes
and schedules thereto, accompanied by the reports thereon of the Company by
PricewaterhouseCoopers or Ernst & Young, LLP (collectively, the “Financial
Statements”); (ii) unaudited quarterly financials of the Company and its
Subsidiaries for the quarters ended March 31, 2009 and June 30, 2009, including
the consolidated balance sheet, statement of income and expense, statement of
cash flow and statement of shareholders’ equity of the Company and its
Subsidiaries as of March 31, 2009 and June 30, 2009 (the “Quarterly
Financials”);

 

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and (iii) monthly unaudited financials of the Company and its Subsidiaries for
each month of 2009 through June 30, 2009 (the “Interim Financial Statements”),
including the unaudited consolidated balance sheet (the “Interim Balance
Sheet”), statement of income and expense, statement of cash flow and statement
of shareholders’ equity of the Company and its Subsidiaries, as of June 30,
2009. The Company has delivered or made available to Parent true and complete
copies of all management letters and other correspondence received from the
Company’s independent auditors since January 1, 2006 relating to the foregoing
financial statements, accounting controls of the Company and all related
matters. The unaudited consolidated balance sheet of the Company and its
Subsidiaries as of March 31, 2009, together with all related notes and schedules
thereto, is herein referred to as the “Company Balance Sheet.” Each of the
Financial Statements, the Quarterly Financials, the Interim Financial
Statements, and the Interim Balance Sheet (x) are accurate, complete and
consistent with the books and records of the Company and its Subsidiaries for
the time therein presented; (y) have been prepared in conformity with GAAP on a
basis consistent with prior accounting periods, subject in the case of the
Quarterly Financials and the Interim Financial Statements to normal year end
adjustments which are not material in amount or significance for such periods
and except that any unaudited financial statements do not contain required
footnotes; and (z) fairly present the consolidated financial position, results
of operations and changes in financial position of the Company and its
Subsidiaries as of the dates and for the periods indicated therein.

(b) Neither the Company nor any of its Subsidiaries has any liabilities or
obligations of any nature (accrued, absolute, contingent or otherwise), whether
known or unknown, except for any liabilities or obligations (i) that are fully
reflected or reserved against in the Interim Balance Sheet, or are not otherwise
required to be reflected or reserved against in the Interim Balance Sheet under
GAAP, (ii) that will be Transaction Expenses, or (iii) that are or were incurred
since the date of the Interim Balance Sheet in the ordinary course of business
and consistent with past practice, that were for capital expenditures and are
set forth in Schedule 3.6(b) to the Disclosure Memorandum or which otherwise do
not exceed $500,000 individually or $1,000,000 in the aggregate. Except as
disclosed in the Financial Statements, neither the Company nor any of its
Subsidiaries is a guarantor, indemnitor, surety or other obligor of any
indebtedness of any other Person. Schedule 3.6(b) to the Disclosure Memorandum
sets forth (i) all indebtedness and other similar obligations to the Company or
its Subsidiaries of the shareholders, directors, officers or employees of each
of the Company and its Subsidiaries, or any of their respective Affiliates,
together with all amounts owed by such Persons in respect thereof; and (ii) all
outstanding liabilities of each of the Company and its Subsidiaries with respect
to any of their current or former shareholders, directors, officers, employees
or consultants, or any of their respective Affiliates (other than ordinary
course liabilities relating to salary and compensation for the current pay
period, reimbursement of travel expenses, and director and officer indemnity
agreements otherwise made available to Parent).

(c) Schedule 3.6(c) to the Disclosure Memorandum sets forth all outstanding Debt
as of the date of this Agreement, in the aggregate and with respect to each
Person entitled to payment of a portion of such Debt (with reference to the
Contract pursuant to which such Debt is owed).

 

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(d) The Company and its Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management’s general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management’s general
or specific authorization; (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences; and (v) the Company’s and its
Subsidiaries’ obligations are satisfied in a timely manner and as required under
the terms of any Contract. The Company has no unremedied significant
deficiencies or material weaknesses in the design or operation of “internal
control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange
Act). Except as otherwise disclosed in the Financial Statements or as required
by GAAP, the Company has not made any material change in any method of
accounting, accounting practice or policy or any internal control over financial
reporting since January 1, 2008.

(e) Neither the Company nor any of its Subsidiaries has identified any incident
of fraud since July 1, 2006 that involves any current or former directors,
officers or employees of the Company who have a role in the preparation of
financial statements or the internal accounting controls utilized by the Company
and its Subsidiaries or who otherwise are within the fifty most highly
compensated employees of the Company (or were prior to such employee’s
separation from the Company in the case of former employees).

(f) Schedule 3.6(f) to the Disclosure Memorandum lists all services currently
being performed, or which have been performed within the last three years, by
Ernst & Young, LLP for the Company and any persons currently employed by the
Company in any accounting or finance function or position that were employed by
Ernst & Young, LLP during the previous three years.

(g) Schedule 3.6(g) to the Disclosure Memorandum lists, and the Company has
delivered to Parent copies of the documentation creating or governing, all
securitization transactions and “off-balance sheet arrangements” (as defined in
Item 303(a) of Regulation S-K of the SEC) effected by the Company or any of its
Subsidiaries since their respective inceptions.

Section 3.7 Absence of Certain Changes or Events. Except for transactions
specifically contemplated in this Agreement, since the date of the Company
Balance Sheet, (a) the businesses of the Company and its Subsidiaries have been
conducted in the ordinary course of business and in a manner substantially
consistent with past practice (other than, in the case of the conduct of the
business of the Company and its subsidiaries after the date hereof, as may be
effected by the taking of any action required by this Agreement), (b) neither
the Company, nor any of its Subsidiaries, nor any of their respective officers
or directors, in their representative capacities on behalf of the Company or any
of its Subsidiaries, have taken any action that if taken between the date of
this Agreement and the Closing would require the prior written consent of Parent
pursuant to Section 5.1, and (c) there has not been a Material Adverse Effect.

 

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Section 3.8 Taxes.

(a) Schedule 3.8(a) to the Disclosure Memorandum sets forth (i) all income Tax
Returns filed by or on behalf of the Company and its Subsidiaries with any
jurisdiction for which the applicable statute of limitations on assessment and
collection has not expired, and (ii) all jurisdictions in which the Company or
its Subsidiaries is required to file any income Tax Return, sales and use Tax
Return, value added Tax Return, non-United States Tax Return and any other Tax
Return that is material (and the type of Tax Return) following the date hereof
for the current taxable period or the immediately preceding taxable period,
consistent with past practices.

(b) The Company and each of its Subsidiaries (i) has timely filed on or before
the applicable due date (taking into account valid extensions of time to file)
with each appropriate Governmental Body all Tax Returns required to be filed by
or with respect to it, and all such Tax Returns have been properly completed in
compliance with applicable legal requirements and are true, correct and
complete, and (ii) has fully and timely paid all Taxes required to be paid
(whether or not such Taxes have been reflected on any Tax Return). All Taxes for
which the Company or its Subsidiaries could be liable attributable to periods
ending on or prior to June 30, 2009 were paid prior to that date or are
reflected as liabilities for current taxes payable in the Interim Balance Sheet.
The Company and its Subsidiaries have no present or contingent liability for
Taxes, other than Taxes incurred in the ordinary course of business thereof and
reflected as liabilities for current taxes payable on the Interim Balance Sheet
or incurred in the ordinary course of business since June 30, 2009 in amounts
consistent with prior years (adjusted solely for changes in ordinary course
business operations). All Taxes that the Company and its Subsidiaries have been
required by law to withhold or to collect for payment have been duly withheld
and collected, and have been paid over to the appropriate Governmental Body in
compliance with all applicable legal requirements. The Company and its
Subsidiaries have complied with all information reporting and record keeping
requirements under all applicable Law, including retention and maintenance of
required records with respect thereto and all records kept by the Company and
its Subsidiaries in compliance with such Law are available for inspection at the
premises of the Company on reasonable notice.

(c)(i) Except as set forth on Schedule 3.8(c) to the Disclosure Memorandum,
there are no current, pending or threatened Claims by any Governmental Body with
respect to Taxes relating to the Company or its Subsidiaries; (ii) no extension
or waiver of the limitation period applicable to any Tax Return or the
assessment or collection of any Taxes for which the Company or its Subsidiaries
could be liable is in effect or has been requested; (iii) all deficiencies
claimed, proposed or asserted or assessments made as a result of any
examinations by any Governmental Body of the Tax Returns of, or with respect to,
the Company or its Subsidiaries have been fully paid or fully settled, or
(1) are specifically described in Schedule 3.8(c)(i) to the Disclosure
Memorandum, (2) are being contested in good faith by appropriate proceedings and
(3) reserves have been made for such Taxes on the Financial Statements in
accordance with GAAP; and (iv) there are no liens for Taxes on any of the assets
of the Company or its Subsidiaries, except liens for current Taxes not yet due
and payable. Neither the

 

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Company nor any of its Subsidiaries (A) is or will be required to include any
adjustment in taxable income for any Tax period ending after the Closing Date or
in any Tax Return not yet filed pursuant to Section 481 or 263A of the Code or
any comparable provision under state or foreign Tax Laws as a result of
transactions or events occurring, or accounting methods employed, prior to the
date of this Agreement; (B) has entered into a transaction that is being
accounted for under the installment method of Section 453 of the Code or similar
provision of U.S. state, U.S. local or foreign Tax Law, or (C) will be required
to recognize taxable income or take into account any other measure of tax that
will be reportable in taxable periods beginning on or after the Closing Date
that is attributable to a transaction or event that occurred prior to the
Closing. No power of attorney that currently is in effect has been granted by
the Company or any of its Subsidiaries with respect to any Tax matter.

(d) Neither the Company nor any of its Subsidiaries (i) has been a member of any
Affiliated Group that filed or was required to file a consolidated, combined or
unitary Tax Return, and (ii) is or will be liable for Taxes (to the extent such
Taxes are described in clause (a) or (b) of the definition of Taxes) of any
Person (other than its own Taxes) by reason of Contract, agreement, assumption,
transferee liability, operation of Law, Treasury Regulations Section 1.1502 6
(or any predecessor or successor thereof or any similar provision of Law) or
otherwise.

(e) The Company has delivered or made available to Parent correct and complete
copies of all Tax Returns of or with respect to the Company or its Subsidiaries
for which the statute of limitations has not expired, all audit reports, all
statements of deficiencies assessed against or agreed to by it, and any material
elections with respect to Taxes not included in such Tax Returns.

(f) Neither the Company nor any of its Subsidiaries is or has been a party to or
bound by any Tax indemnity agreement, Tax sharing agreement, Tax allocation
agreement or similar Contract; and neither the Company nor any of its
Subsidiaries is a party to or bound by any offer in compromise, closing
agreement, gain recognition agreement or other agreement with any Governmental
Body with respect to Taxes. No ruling with respect to Taxes has been issued to
or with respect to the Company or any of its Subsidiaries by any Governmental
Body.

(g) Neither the Company nor any of its Subsidiaries has nexus for any Tax
purpose in any jurisdiction other than jurisdictions for which all required Tax
Returns have been duly filed, and no Claim has been made by a Governmental Body
in a jurisdiction where the Company or any of its Subsidiaries does not file Tax
Returns that the Company or any of such Subsidiaries is or may be subject to
taxation by that jurisdiction.

(h) Except as disclosed in Section 3.8(h) to the Disclosure Memorandum, neither
the Company nor any of its Subsidiaries is a partner of a partnership for any
applicable income Tax purposes.

 

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(i) All Options or other rights issued by the Company or any of its Subsidiaries
that purport or otherwise were intended to be governed by Sections 421 or 422 of
the Code (or similar provisions of state or local Law) satisfied at all relevant
times the requirements for qualification under such sections (and, if
applicable, such similar provisions). Neither the Company nor any Subsidiary has
issued options or other rights intended or purported to be governed by
Section 423 of the Code.

(j) Neither the Company nor any of its Subsidiaries has made any payment or
payments, or is obligated to make any payment or payments, and is not a party to
(or a participating employer in) or bound by any agreement (or Employee Benefit
Plan) that has resulted or could result in the imposition on the Company, its
Subsidiaries, any Shareholder or Parent of any additional Tax or interest under
Section 409A of the Code (or under any similar provision of U.S. state, U.S.
local or foreign Tax Law) or has resulted in the imposition on any employee of
the Company or its Subsidiaries of any additional Tax or interest under
Section 409A of the Code (or under any similar provision of state or local Tax
Law).

(k) The Company and each of its Subsidiaries is not and has not been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code.

(l) Neither the Company nor any of its Subsidiaries has distributed stock of
another Person, nor had its stock distributed by another Person within the last
two years, in a transaction that was purported or intended to be governed in
whole or in part by Section 355 or Section 361 of the Code.

(m) Neither the Company nor any of its Subsidiaries has (i) taken a reporting
position on a Tax Return that, if not sustained, would be reasonably likely to
give rise to a penalty for substantial understatement of federal income Tax
under Section 6662 of the Code (or any similar provision of U.S. state, U.S.
local or foreign Tax Law), without regard to any disclosure thereof, or
(ii) participated in a reportable transaction (other than a reportable
transaction specifically disclosed in a Tax Return previously provided to
Parent) or listed transaction within the meaning of Section 1.6011-4(b) of the
Treasury Regulations.

(n) No Shareholder holds equity interests in the Company or any of its
Subsidiaries that are non-transferable and subject to a substantial risk of
forfeiture within the meaning of Section 83 of the Code with respect to which a
valid election under Section 83(b) of the Code has not been made.

Section 3.9 Property.

(a) Neither the Company nor any of its Subsidiaries owns, or has any interest
in, any real property other than the leasehold interests described on
Schedule 3.9(a) to the Disclosure Memorandum, which contains a complete and
accurate list of all real property leased or currently being used by the Company
and its Subsidiaries (the “Real Property”). The Company has delivered to Parent
true and

 

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complete copies of all written leases, subleases, rental agreements, contracts
of sale, tenancies or licenses relating to the Real Property and written
summaries of the terms of any oral leases, subleases, rental agreements,
contracts of sale, tenancies or licenses to which the Real Property is subject.

(b) The Company has delivered to Parent true and complete copies of all leases,
subleases, rental agreements, contracts of sale, tenancies or licenses to which
any Personal Property with a value in excess of $50,000 is subject.

(c) There are no properties or assets (whether real, personal or mixed, tangible
or intangible) reflected in the Interim Balance Sheet (except for such
properties or assets sold, used up or disposed of since the date of the Interim
Balance Sheet in the ordinary course of business and consistent with past
practice) that are not Real Property or Personal Property. Other than the
Company Intellectual Property, the Real Property and the Personal Property
include all material property used in the businesses of the Company and its
Subsidiaries and are sufficient for the conduct of the Company’s and its
Subsidiaries’ businesses. The Company’s and its Subsidiaries’ offices and other
structures and the Personal Property have been maintained in accordance with
generally accepted industry standards and are of a quality consistent with
industry standards, are in good operating condition and repair, normal wear and
tear excepted, are adequate for the uses to which they are being put, and comply
with, and are used by the Company and its Subsidiaries in compliance with,
applicable safety and other laws and regulations.

(d) The Company’s and its Subsidiaries’ leasehold interest in each parcel of the
Real Property is free and clear of all Encumbrances, except for Permitted
Encumbrances. Neither the Company nor any of its Subsidiaries has granted a
lease, sublease, tenancy or license of, or entered into any rental agreement or
contract of sale with respect to, any portion of the Real Property.

(e) The Personal Property is free and clear of all Encumbrances except for
(i) Permitted Encumbrances and (ii) Encumbrances securing Debt that is disclosed
in the Financial Statements or Interim Financial Statements, and the Company or
its Subsidiaries owns such Personal Property.

Section 3.10 Contracts.

(a) Schedule 3.10(a) to the Disclosure Memorandum contains a complete and
accurate list of (each, a “Material Contract”) (i) all Contracts, other than
vendor agreements and purchase orders with vendors entered into in the ordinary
course of business, to which the Company or any of its Subsidiaries is currently
a party or by which the Company or any of its Subsidiaries is currently bound
providing for potential payments by or to the Company or any of its Subsidiaries
in excess of $250,000 per annum (with Schedule 3.10(a) to the Disclosure
Memorandum identifying with respect to each Material Contract each of clauses
(i) through (vii) of Section 3.10(c) applicable to such Material Contract, if
any), (ii) each Contract relating to the Debt, and (iii) all other Contracts
that are material to the Company.

 

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(b) All Contracts to which the Company or any of its Subsidiaries is a party are
valid, binding and enforceable in accordance with their terms against the
Company or its Subsidiaries, as the case may be, and each other party thereto
and are in full force and effect (subject only to the effect, if any, of
applicable bankruptcy and other similar laws affecting the rights of creditors
generally and rules of law governing specific performance, injunctive relief and
other equitable remedies), the Company or its Subsidiaries, as the case may be,
has performed all obligations required to have been performed by it thereunder,
and neither the Company, its Subsidiaries, nor to the Knowledge of the Company,
any other party thereto is in breach or violation of, or default under
(including any such breach, violation or default caused by a violation of a
noncompetition, nonsolicitation or exclusivity provision contained therein), nor
is there any event that with notice or lapse of time, or both, would constitute
a breach, violation or default by the Company, its Subsidiaries, or any other
party thereunder, nor has the Company or any of its Subsidiaries received any
claim of any such breach, violation or default. There is not now and has not
been within the past 24 months any disagreement or dispute with any other party
to any Material Contract, nor is there any pending request or process for
renegotiation of any Material Contract. Further, there is not now and has not
been within the past 24 months any disagreement or dispute of any nature
whatsoever with any other party to any Contract having or reasonably likely to
have a Material Adverse Effect. True and complete copies of each such written
Material Contract (or written summaries of the terms of any such oral Material
Contract) have been delivered or been made available to Parent. The Company has
no reason to believe that any obligation that remains under any Material
Contract cannot be fulfilled by the Company or its Subsidiaries, as the case may
be, and has no notice or Knowledge that any party to a Material Contract listed
on Schedule 3.10(a) to the Disclosure Memorandum intends to cancel, terminate,
refuse to perform or refuse to renew such Material Contract (if such Material
Contract is renewable).

(c) Except for the Material Contracts listed in Schedule 3.10(a) to the
Disclosure Memorandum, neither the Company nor any of its Subsidiaries has any
other Contract:

(i) with a remaining term of greater than one year from the date of this
Agreement (which, for purposes of clarity, shall be determined based on the term
of the primary subject matter of such Contract, and not incidental obligations
such as non-disclosure, post-termination indemnity, etc.) that cannot be
canceled by the Company or its Subsidiaries, as the case may be, with no more
than 60 days’ notice without liability, penalty or premium (other than
non-disclosure agreements);

(ii) with a noncompetition, nonsolicitation, “most-favored-nations” pricing or
exclusivity agreement or other arrangement that would prevent, restrict or limit
in any way the Company from carrying on its business in any manner or in any
geographic location, other than restrictions in Intellectual Property Agreements
on the Exploitation of Third Party IP;

 

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(iii) for a joint venture or any other similar arrangement that involves a
sharing of profits or revenue with other Persons or that provides for the
payment of referral fees or bounties;

(iv) relating to any interest rate, currency or commodity derivatives or hedging
transaction;

(v) with any Governmental Body;

(vi) in which the Company or any of its Subsidiaries agrees to provide
indemnification that may result in liability in excess of $250,000; and

(vii) granting a power of attorney, agency or similar authority to another
Person.

Section 3.11 Suppliers. Schedule 3.11 to the Disclosure Memorandum sets forth a
complete and accurate list of the suppliers of the Company and its Subsidiaries
from whom (a) the Company has purchased 2.0% or more of the goods or services,
including product packaging, purchased by the Company, and (b) any of the
Company’s Subsidiaries has purchased 2.0% or more of the goods or services,
including product packaging, purchased by such Subsidiary, in each case in the
fiscal year ended December 31, 2008, showing the percentage of goods and
services purchased by the Company or such Subsidiary from such supplier in that
fiscal year. No supplier or other Person named on Schedule 3.11 to the
Disclosure Memorandum has during the last 12 months prior to the date of this
Agreement decreased or limited materially, or, to the Knowledge of the Company,
during the last 12 months prior to the date of this Agreement threatened to
decrease or limit materially, its supply of materials or services to the Company
or any of its Subsidiaries, as the case may be unless such decrease or limit was
requested or specified by the Company. As of the date of this Agreement, the
Company has no Knowledge of, and neither the Company nor any of its Subsidiaries
has received any notice from the Company’s or its Subsidiaries’ suppliers or
partners that would cause the Company or any of its Subsidiaries to expect any
material modification to their respective relationship with any suppliers or
other Persons named on Schedule 3.11 to the Disclosure Memorandum unless such
modification was requested or specified by the Company, nor is there or has
there been, as of and prior to the date of this Agreement, any dispute with or
Claim by any of the Company’s or any of its Subsidiaries’ suppliers concerning
the supply of materials or services to the Company or any of its Subsidiaries,
as the case may be.

Section 3.12 Warranties and Returns. Schedule 3.12 to the Disclosure Memorandum
sets forth all currently published return policies and warranties with respect
to the Company’s and its Subsidiaries’ businesses, products or services, and
current policies with respect to returns of products or refunds for products or
services in the course of the Company’s and its Subsidiaries’ conduct of
business. Schedule 3.12 to the Disclosure Memorandum also discloses the amounts
charged to “returns” from the Company’s and its Subsidiaries’ operations on the
Company’s and its Subsidiaries’ books and records for the fiscal years ended
2006, 2007 and 2008 and for each month in the Interim Financial Statements.
Except as set forth on Schedule 3.12 to the Disclosure Memorandum, neither the
Company nor any of its Subsidiaries has made any express warranties in
connection with the sale or license of products or services or the performance
of services.

 

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Section 3.13 Claims and Legal Proceedings; Government Orders.

(a) There are no Claims pending against the Company or involving the Company or,
to the Knowledge of the Company, threatened against the Company or any of its
Subsidiaries before or by any Person or that challenge, or seek to prevent, make
illegal or enjoin, alter, delay or otherwise interfere with any of the
transactions contemplated hereby or by the Operative Documents to which the
Company is a party, and there are no pending disagreements or disputes that are
reasonably likely to lead to the assertion of such a Claim against the Company
or any of its Subsidiaries. There are no outstanding or unsatisfied judgments,
orders, decrees or stipulations to which the Company or any of its Subsidiaries
is a party. Schedule 3.13 to the Disclosure Memorandum sets forth, in addition
to the above-referenced items, a description of any material disputes or Claims
that have been settled or resolved by litigation or arbitration during the
preceding twenty-four months or which contain continuing or future obligations.
To the Knowledge of the Company, there is no proposed order of any Governmental
Body that, if issued or otherwise put into effect, (i) would have a Material
Adverse Effect or a material adverse effect on the Company’s ability to perform
any covenant or obligation under this Agreement or the other Operative Documents
to which the Company is a party or (ii) would have the effect of preventing,
delaying, making illegal or otherwise interfering with the transactions
contemplated by this Agreement or any of the other Operative Documents to which
the Company is a party.

(b) To the Knowledge of the Company, (i) no current officer of the Company or
any of its Subsidiaries has been the subject of, or convicted in, a criminal
proceeding (excluding minor traffic violations), (ii) no petition under the
federal bankruptcy laws or any state insolvency law has been filed by or
against, or a receiver, fiscal agent or similar officer appointed for, any
current officer of the Company or any of its Subsidiaries, (iii) no current
officer of the Company or any of its Subsidiaries has ever been found by any
Governmental Body, in a judgment or finding not subsequently reversed or
vacated, to have violated any federal or state laws or regulations and (iv) no
current officer of the Company or any of its Subsidiaries is the subject of any
order, judgment or decree of, or has entered into an agreement with, any
Governmental Body permanently or temporarily enjoining him or her, or otherwise
limiting him or her, from engaging in any business, profession or business
practice. The Company performs the background checks with respect to each new
hire as described on Schedule 3.13(b) to the Disclosure Memorandum.

Section 3.14 Labor and Employment Matters.

(a) There are no material labor and/or employment disputes, employee grievances
or disciplinary actions pending or, to the Knowledge of the Company, threatened
against or involving the Company or any of its Subsidiaries or any of their
present or former employees. The Company and each of its Subsidiaries have
complied with all provisions of law relating to employment and employment
practices, terms and

 

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conditions of employment, wages and hours. Neither the Company nor any of its
Subsidiaries is engaged in any unfair labor practice and has no liability for
any unpaid wages or Taxes or penalties for failure to comply with any such
provisions of law. There is no labor strike, dispute, slowdown or stoppage
pending or, to the Knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries have experienced any work stoppage or other labor difficulty during
the preceding three years. To the Knowledge of the Company, no employee or
independent contractor intends to terminate his or her employment or
relationship with the Company. No collective bargaining agreement is binding on
the Company or any of its Subsidiaries. There are no organizational efforts
presently being made or, to the Knowledge of the Company, threatened by or on
behalf of any labor union with respect to employees of the Company or any of its
Subsidiaries. Each current and former employee, officer and independent
contractor of the Company has executed a nondisclosure and noncompetition
agreement in the form provided to Parent. To the Knowledge of the Company no
current or former employee or independent contractor (or Person performing
similar functions) of the Company is in violation of any such agreement or any
employment agreement, patent disclosure agreement, invention assignment
agreement, proprietary information agreement or other Contract relating to the
relationship of such employee or independent contractor with the Company or
actions by such employee or independent contractor on behalf of the Company, or
in the case of employees (other than non-management employees who perform call
center, customer service or fulfillment center job functions), in violation of
any noncompetition agreement.

(b) Schedule 3.14(b) to the Disclosure Memorandum lists (i) the names, titles
and current annual compensation amounts of all directors, officers and the fifty
most highly compensated employees of the Company and each of its Subsidiaries as
of the date of this Agreement; (ii) the wage rates for nonsalaried and
nonofficer salaried employees of the Company and each of its Subsidiaries by
classification, and all union contracts (if any); (iii) all group insurance
programs in effect for employees of the Company and each of its Subsidiaries;
(iv) the names and current compensation packages of all independent contractors
and consultants of the Company and each of its Subsidiaries; and (v) each
employment or consulting Contract to which the Company or any of its
Subsidiaries is a party or other Contract to which the Company or any of its
Subsidiaries is a party pursuant to which any Person is entitled to compensation
or other payments from the Company or any of its Subsidiaries in respect of past
or future employment or consulting services provided, or to be provided, to the
Company or any of its Subsidiaries by any such Person (other than offer letters
on the Company’s standard form which has been made available to Parent). Neither
the Company nor any of its Subsidiaries is in default with respect to any of its
obligations referred to in the preceding sentence and has no, and will not incur
any, obligation or liability for severance or back pay owed through or by virtue
of the transactions contemplated hereby. All employees of the Company and its
Subsidiaries are employed on an “at will” basis, are eligible to work and are
lawfully employed in the United States. Schedule 3.14(b) to the Disclosure
Memorandum also lists each state in which the Company or any of its Subsidiaries
employs any Person. All Persons who have performed services for the Company or
any of its Subsidiaries and have been classified as independent contractors, and
all Persons

 

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who have performed services for the Company or any of its Subsidiaries in the
United States and have been classified as exempt employees not entitled to
overtime pay, have been at all times properly classified as such in accordance
with all applicable Laws.

Section 3.15 Employee Benefit Plans.

(a) Plan Listing. Schedule 3.15(a) to the Disclosure Memorandum contains a
complete and accurate list of all Employee Benefit Plans. Neither the Company
nor any of its Subsidiaries has any agreement, arrangement, commitment or
obligation, whether formal or informal, whether written or unwritten and whether
legally binding or not, to create, enter into or contribute to any additional
Employee Benefit Plan, or to modify or amend any existing Employee Benefit Plan.
There has been no amendment, interpretation or other announcement (written or
oral) by the Company, any of its Subsidiaries, any ERISA Affiliate or any other
Person relating to, or change in participation or coverage under, any Employee
Benefit Plan that, either alone or together with other such items or events,
could increase the expense of maintaining such Employee Benefit Plan (or the
Employee Benefit Plans taken as a whole) above the level of expense incurred
with respect thereto for the most recent fiscal year included in the Financial
Statements. The terms of each Employee Benefit Plan permit the Company, any of
its Subsidiaries, or any ERISA Affiliate, as applicable, to amend and terminate
such Employee Benefit Plan at any time and for any reason without penalty and
without liability or expense.

(b) Provisions of Documents. The Company has delivered to Parent true, correct
and complete copies (or, in the case of unwritten Employee Benefit Plans,
descriptions) of all the Employee Benefit Plans (and all amendments thereto),
along with, to the extent applicable to a particular Employee Benefit Plan,
copies of the following: (i) the three most recent annual reports (Form 5500
series) filed with respect to such Employee Benefit Plan; (ii) the most recent
summary plan description, and all summaries of modifications related thereto,
distributed with respect to such Employee Benefit Plan; (iii) all contracts and
agreements (and any amendments thereto) relating to such Employee Benefit Plan,
including all trust agreements, investment management agreements, annuity
contracts, insurance contracts, bonds, indemnification agreements and service
provider agreements; (iv) the most recent determination letter issued by the IRS
with respect to such Employee Benefit Plan or, if reliance is permitted under
applicable IRS guidance, the favorable opinion letter or advisory letter of the
master and prototype or volume submitter plan sponsor of such Employee Benefit
Plan; (v) the most recent annual actuarial valuation prepared for such Employee
Benefit Plan, if applicable; (vi) all written communications during the last
three years relating to the creation, amendment or termination of such Employee
Benefit Plan, or an increase or decrease in benefits, acceleration of payments
or vesting or other events that could result in liability to the Company, any of
its Subsidiaries, or any ERISA Affiliate; (vii) all correspondence to or from
any Governmental Body relating to such Employee Benefit Plan; (viii) samples of
all administrative forms currently in use with respect to such Employee Benefit
Plan, including all COBRA and HIPAA forms and notices; and (ix) all coverage,
nondiscrimination, top-heavy and Code Section 415 tests performed with respect
to such Employee Benefit Plan for the last three years.

 

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(c) Compliance. With respect to each Employee Benefit Plan: (i) such Employee
Benefit Plan was legally established; (ii) such Employee Benefit Plan is, and at
all times has been, maintained, administered, operated and funded in all
respects in accordance with its terms and in compliance with all applicable
requirements of all applicable Law; (iii) the Company, any of its Subsidiaries,
each ERISA Affiliate have, at all times, properly performed all their duties and
obligations (whether arising by operation of law, by contract or otherwise)
under or with respect to such Employee Benefit Plan, including all reporting,
disclosure and notification obligations; (iv) all returns, reports (including
all Form 5500 series annual reports, together with all schedules and audit
reports required with respect thereto), notices, statements, summary plan
descriptions and other disclosures relating to such Employee Benefit Plan
required to be filed with any Governmental Body or distributed to any
participant therein have been properly prepared and duly filed or distributed in
a timely manner; (v) none of the Company, any of its Subsidiaries, any ERISA
Affiliate or any fiduciary of such Employee Benefit Plan has engaged in any
transaction or acted or failed to act in a manner that violates the fiduciary
requirements of ERISA or any other applicable law, statute, order, rule or
regulation; (vi) no transaction or event has occurred or, to the Knowledge of
the Company, is threatened or about to occur (including any of the transactions
contemplated in or by this Agreement) that constitutes or could constitute a
prohibited transaction under Section 406 or 407 of ERISA or under Section 4975
of the Code for which an exemption is not available; and (vii) neither the
Company nor any of its Subsidiaries or any ERISA Affiliate has incurred, and
there exists no condition or set of circumstances in connection with which the
Company, any of its Subsidiaries, any ERISA Affiliate or Parent could incur,
directly or indirectly, any liability or expense (except for routine
contributions and benefit payments) under ERISA, the Code or any other
applicable Law with respect to such Employee Benefit Plan.

(d) Qualification. Each Employee Benefit Plan that is intended to be qualified
under Section 401(a) of the Code is so qualified, and its related trust or group
annuity contract is exempt from taxation under Section 501(i) of the Code. Each
such Employee Benefit Plan (ii) is the subject of an unrevoked favorable
determination opinion or advisory letter from the IRS with respect to such
Employee Benefit Plan’s qualified status under the Code, as amended by that
legislation commonly referred to as “GUST” and “EGTRRA” and all subsequent
legislation, or (iii) has remaining a period of time under the Code or
applicable Treasury Regulations or IRS pronouncements in which to request, and
make any amendments necessary to obtain, such a letter from the IRS. Nothing has
occurred or is reasonably expected by the Company, any of its Subsidiaries, or
any ERISA Affiliate to occur that could adversely affect the qualification or
exemption of any such Employee Benefit Plan or its related trust or group
annuity contract. No such Employee Benefit Plan is a “top-heavy plan,” as
defined in Section 416 of the Code.

(e) Contribution, Premiums and Other Payments. All contributions, premiums and
other payments due or required to be paid to (or with respect to) each Employee
Benefit Plan have been timely paid, or, if not yet due, have been accrued as a
liability on the Company Balance Sheet or in the Company’s or its Subsidiaries’
books and records for periods after the date of the Company Balance Sheet in the
ordinary course of business. All Taxes that are required by Law to be withheld
from benefits derived under the Employee Benefit Plans have been properly
withheld and remitted to the proper depository in a timely manner.

 

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(f) Actions and Investigations. There are no Claims (other than routine Claims
for benefits) pending or, to the Knowledge of the Company, threatened with
respect to (or against the assets of) any Employee Benefit Plan, nor to the
Knowledge of the Company is there a basis for any such Claim. No Employee
Benefit Plan is currently under investigation, audit or review, directly or
indirectly, by the IRS, DOL or any other Governmental Body, and no such action
is contemplated or under consideration by the IRS, DOL or any other Governmental
Body.

(g) Pension Plans and Multiple Employer Welfare Agreements. Neither the Company
nor any of its Subsidiaries or any ERISA Affiliate sponsors, maintains or
contributes to, or has ever sponsored, maintained or contributed to (or been
obligated to sponsor, maintain or contribute to), (i) a “multiemployer plan,” as
defined in Section 3(37) or Section 4001(a)(3) of ERISA, (ii) a multiple
employer plan within the meaning of Section 4063 or Section 4064 of ERISA or
Section 413 of the Code, (iii) an employee benefit plan that is subject to
Section 302 of ERISA, Title IV of ERISA or Section 412 of the Code, or (iv) a
“multiple employer welfare arrangement,” as defined in Section 3(40) of ERISA.

(h) Post-Termination Benefits. None of the Company, any of its Subsidiaries, any
ERISA Affiliate or any Employee Benefit Plan provides or has any obligation to
provide (or contribute toward the cost of) post-employment or post-termination
benefits of any kind, including death and medical benefits, with respect to any
current or former officer, employee, agent, director or independent contractor
of the Company, any of its Subsidiaries, or any ERISA Affiliate, other than
(i) continuation coverage mandated by Sections 601 through 608 of ERISA and
Section 4980B(f) of the Code, (ii) retirement benefits under any Employee
Benefit Plan that is qualified under Section 401(a) of the Code, and
(iii) deferred compensation that is accrued as a current liability on the
Company Balance Sheet or in the Company’s or its Subsidiaries’ books and records
for periods after the date of the Company Balance Sheet. Neither the Company nor
any of its Subsidiaries or any ERISA Affiliate has any liability with respect to
any Employee Benefit Plan that is funded wholly or partly through an insurance
policy or Contract (including a stop-loss policy), in the nature of a
retroactive rate adjustment, a loss sharing arrangement or any other actual or
contingent liability arising from any event occurring on or before the Closing
Date.

(i) Effect of Transactions. Excluding any terms and conditions under the Key
Employee retention agreements with Parent or the Surviving Corporation in
connection with the Merger, neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated by this Agreement and the
other Operative Documents (either alone or upon the occurrence of any additional
or subsequent event(s)) will (i) entitle any individual to severance pay or any
other payment from the Company, any of its Subsidiaries, any ERISA Affiliate,
Parent, any of their respective Affiliates or any Employee Benefit Plan,
(ii) otherwise increase the amount of compensation due to any individual or
forgive indebtedness owed by any individual,

 

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(iii) result in any benefit or right becoming established or increased, or
accelerate the time of payment or vesting of any benefit, under any Employee
Benefit Plan, (iv) require the Company, any of its Subsidiaries, any ERISA
Affiliate, Parent or any of their respective Affiliates to transfer or set aside
any assets to fund or otherwise provide for any benefits for any individual, or
(v) result in payments or benefits under any of the Employee Benefit Plans or
otherwise that would not be deductible under Section 280G of the Code.

(j) Nonqualified Deferred Compensation Plans. There are no “nonqualified
deferred compensation plans” (within the meaning of Section 409A of the Code),
currently sponsored or maintained by the Company or any ERISA Affiliate (or to
which the Company or any of its Subsidiaries or any ERISA Affiliate is a party
or in which any of their current or former officers, employees, agents,
directors or independent contractors participated).

(k) Leased Employees. Neither the Company nor any of its Subsidiaries or any
ERISA Affiliate has received services from any individual who constituted a
leased employee of the Company or any of its Subsidiaries or any ERISA Affiliate
under Section 414(n) of the Code.

(l) Foreign Plans. Neither the Company nor any of its Subsidiaries has
maintained, administered, operated or funded an Employee Benefit Plan mandated
by a foreign (i.e., non-United States) Governmental Body or subject to the laws
of jurisdiction outside of the United States (“Foreign Plan”).

Section 3.16 Intellectual Property.

(a) Company Intellectual Property. The Company or its Subsidiaries
(i) exclusively and solely own free and clear of all Encumbrances or (ii) have
sufficient rights to: all Company Intellectual Property and Company Intellectual
Property Rights (collectively, the “Company IP”) sufficient for the conduct of
the business of the Company and its Subsidiaries as currently conducted.

(b) Intellectual Property Agreements. Schedule 3.16(b)(i) to the Disclosure
Memorandum lists all license agreements and other Contracts pursuant to which
the Company or any Subsidiary thereof has the right to Exploit any Third Party
IP (the “Inbound Licenses”) (except Schedule 3.16(b)(i) to the Disclosure
Memorandum does not list non-exclusive licenses to Third Party IP granted to the
Company or any Subsidiary in the ordinary course of business in written
agreements, where the license is merely incidental to the transaction
contemplated in such agreement, the commercial purpose of which is something
other than such license, such as a sales agreement that includes an incidental
license to use the third party’s copyrights or trademarks in advertising and
selling the third party’s products (“Incidental Inbound Licenses”) or standard
end user license agreements for off-the-shelf software not in excess of $1,000
per seat; although excluded from Schedule 3.16(b)(i) to the Disclosure
Memorandum, the Incidental Inbound Licenses and such end use license agreements
are included in the definition of Inbound Licenses). Schedule 3.16(b)(ii) to the
Disclosure Memorandum also

 

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lists all license agreements and other Contracts to which the Company or any
Subsidiary thereof is bound and pursuant to which any Person (other than the
Company or any Subsidiary thereof) is authorized to Exploit any Company-Owned IP
or pursuant to which the Company or any Subsidiary thereof granted any rights
under any other Company IP to any third Person (the “Outbound Licenses”) (except
Schedule 3.16(b)(ii) to the Disclosure Memorandum does not list non-exclusive
licenses to Company-Owned IP granted in the ordinary course of business in
written agreements, where the license is merely incidental to the transaction
contemplated in such agreement, the commercial purpose of which is something
other than such license, such as an agreement to distribute advertisements for
the Company that includes an incidental license to use the Company’s trademarks
in duplicating and distributing such advertisements (“Incidental Outbound
Licenses”); although excluded from Schedule 3.16(b)(ii) to the Disclosure
Memorandum, the Incidental Outbound Licenses are included in the definition of
Outbound Licenses (Outbound Licenses collectively with the Inbound Licenses, the
“Intellectual Property Agreements”). Except as set forth in Schedule
3.16(b)(iii) to the Disclosure Memorandum, the Company or its Subsidiaries own
all right, title and interest in and to all Company Owned IP free and clear of
all Encumbrances and free and clear of all licenses other than the Outbound
Licenses. Except as set forth in Schedule 3.16(b)(iv) to the Disclosure
Memorandum, and other than the Intellectual Property Agreements, there are no
Contracts governing any Company-Owned IP or Company’s rights relating to any
other Company IP. Except as set forth in Schedule 3.16(b)(v) to the Disclosure
Memorandum, with respect to the Intellectual Property Agreements: (A) all are
binding and enforceable obligations of the Company or its Subsidiary and, to the
Knowledge of the Company, the other party(ies) thereto, (B) the Company and its
Subsidiaries and, to the Knowledge of the Company, each other party thereto have
performed their obligations thereunder, (C) neither the Company nor any of its
Subsidiaries nor, to the Knowledge of the Company, any other party thereto is in
default or breach thereunder, (D) there are no restrictions on the transfer or
assignment by Company or any Subsidiary thereof of any Intellectual Property
Agreement to which Company or such Subsidiary is a party directly, by operation
of law or otherwise, which restriction would cause the transactions contemplated
herein to in any way impair any rights of Company or any Subsidiary under such
Intellectual Property Agreement, and (E) there is no event or circumstance that
with notice or lapse of time, or both, would constitute a default or event of
default on the part of the Company or any Subsidiary thereof or, to the
Knowledge of the Company, any other party thereto, or give to any other party
thereto the right to terminate or modify any Intellectual Property Agreement.
Except as set forth in Schedule 3.16(b)(vi) to the Disclosure Memorandum,
neither the Company nor any Subsidiary thereof has received notice or has any
Knowledge that any party to any Intellectual Property Agreement intends to
cancel, terminate or refuse to renew (if renewable) an Intellectual Property
Agreement, or to exercise or decline to exercise any option or right thereunder.
Except as set forth in Schedule 3.16(b)(vii) to the Disclosure Memorandum,
neither the Company nor any Subsidiary thereof will, as a result of the
execution and delivery of this Agreement or the performance of the Company’s
obligations hereunder, lose any rights to Exploit Company IP pursuant to any
Intellectual Property Agreement.

 

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(c) No Violation; No Impairment. Neither the execution, delivery nor performance
of this Agreement or the other Operative Documents nor the consummation of the
transactions contemplated herein and therein will (i) cause the termination of,
or give rise to a right of termination of, any Company-Owned IP or Intellectual
Property Agreement (other than, as the case may be, standard end user license
agreements for off-the-shelf software not in excess of $1,000 per seat) or
(ii) impair the right of the Company and its Subsidiaries to Exploit any
Company-Owned IP.

(d) Payments. Schedule 3.16(d) to the Disclosure Memorandum accurately lists all
Contracts, other than Intellectual Property Agreements, for future royalties,
commissions, fees and other payments payable in connection with the Exploitation
of the Company IP by the Company or its Subsidiaries.

(e) No Infringement. The Exploitation of the Company IP as used in the business
and the conduct of the business, in each case as previously conducted and as
currently conducted, (i) do not infringe, violate or misappropriate any
intellectual property right of any third Person and (ii) do not and will not
constitute unfair competition or unfair trade practices under the laws of any
jurisdiction to which the Company or any of its Subsidiaries is subject.

(f) Except as set forth in Schedule 3.16(f) to the Disclosure Memorandum, there
is no pending or, to the Knowledge of the Company, threatened Claim contesting
the right of the Company or any Subsidiary thereof to Exploit any Company IP, or
to conduct the business as previously conducted, or as currently conducted, or
contesting the ownership by the Company or any Subsidiary thereof of any
Company-Owned IP or the validity or enforceability of any Company-Owned IP.
Except as set forth in Schedule 3.16(f) to the Disclosure Memorandum, neither
the Company nor any Subsidiary thereof has received any notice or Claim
regarding any offer to license Third Party IP allegedly used without
authorization, infringed, violated or misappropriated by the Company or any
Subsidiary thereof, or otherwise regarding any infringement, misappropriation,
or violation of any intellectual property right of a third party by the Company,
or any Subsidiary thereof. Neither the Company nor its Subsidiaries has received
any oral or written opinions of counsel relating to infringement, invalidity or
unenforceability of any Company IP.

(g) Intellectual Property Registrations. Schedule 3.16(g) to the Disclosure
Memorandum sets forth all patents and all registrations, applications and
applications for registration made by or on behalf of the Company or any
Subsidiary thereof of or with respect to any patents, copyrights, trademarks,
service marks, domain names and any other Company-Owned IP and all foreign
equivalents (collectively, “Company IP Registrations”). Except as set forth on
Schedule 3.16(g) to the Disclosure Memorandum, all Company IP Registrations are
properly filed and maintained and in full force and effect (other than with
respect to abandoned applications that relate solely to Intellectual Property
Rights not used by the Company or any of its Subsidiaries in its business as
currently conducted), and the Company Intellectual Property Rights that are the
subject of any Company IP Registrations are all valid and (with respect to
Company Intellectual Property Rights that are the subject of issued Company IP
Registrations) enforceable in the applicable jurisdictions. Except as set forth
in Schedule 3.16(g) to the Disclosure Memorandum, there are no actions that must
be taken by the Company or any

 

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Subsidiary thereof within 180 days after the date of this Agreement for the
purpose of maintaining, perfecting, preserving or renewing any Company IP
Registration. Neither the Company nor any Subsidiary thereof has conducted its
business or used or enforced (or failed to use or enforce) the Company IP in a
manner that would result in the abandonment, cancellation or unenforceability of
any item of the Company IP or the Company IP Registrations. Schedule 3.16(g) to
the Disclosure Memorandum also lists all material trademarks, trade names, brand
names, service marks, logos or other identifiers and domain names currently used
by the Company or any Subsidiary thereof but for which no registration has been
sought and all material software and other material works of authorship with
respect to which the Company or any Subsidiary thereof owns (solely or jointly
with others), or holds any exclusive rights under, any copyright thereto
(whether or not registration of such copyright has been granted or sought). The
Company and its Subsidiaries have the sole right to prosecute and maintain the
Company IP Registrations and to file applications and applications for
registration with respect to any Company-Owned IP.

(h) Confidentiality. The Company and its Subsidiaries have all taken appropriate
steps, which are, as a whole, not less protective and comprehensive than the
steps that would be taken by reasonably prudent business persons operating in
the Company’s industry, to protect, preserve and maintain the secrecy and
confidentiality of their confidential and proprietary information and data.
Without limiting the foregoing, neither the Company nor any Subsidiary thereof
has (i) disclosed material confidential or proprietary information to any Person
other than an officer, director, employee or consultant of the Company or any
Subsidiary thereof, unless such disclosure was under an appropriate written
nondisclosure agreement or to a person subject to a fiduciary duty to maintain
the confidentiality thereof, or (ii) except as set forth in Schedule 3.16(h) to
the Disclosure Memorandum, deposited, disclosed or delivered to any Person
outside of the Company or its Subsidiaries, or permitted the deposit, disclosure
or delivery to any such Person outside of the Company or its Subsidiaries of,
any source code (e.g., human-readable computer programming code) included in the
Company IP, other than source code that is (i) licensed to the Company or any
Subsidiary in writing under an Open Source License or other nonexclusive license
that expressly authorizes such disclosure of such source code, (ii) not material
to the Company or its Subsidiaries, and (iii) not included, in whole or part, in
the Company-Owned IP (other than with respect to immaterial modifications to
such source code made by the Company or any of its Subsidiaries).

(i) Agreements With Employees and Contractors. Each director, officer, employee
and independent contractor of the Company or of any Subsidiary thereof who has
contributed to the creation or development of any Company IP has executed and
delivered to the Company (or a Subsidiary thereof if employed by such
Subsidiary) a valid and enforceable assignment of all right, title and interest
that such Person may have or may hereafter acquire in or to such Company IP and
a waiver of any and all moral rights that such Person may have therein, except
for Company IP (i) that was developed by an independent contractor under a
written Inbound License that expressly provided that such Company IP would be
owned by the independent contractor and licensed such Company IP to the Company
or applicable Subsidiary thereof or (ii)

 

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developed by an employee that is not covered by the assignment of intellectual
property provision of the Company’s standard form of employee assignment of
inventions of agreement (a copy of which has been provided to Parent) signed by
such employee, such as music licensed by the employee to the Company for public
performance on a blog operated or maintained by the Company that the employee
composed entirely on the employee’s own time without using the equipment,
supplies, facilities, or trade secret information of the Company or any
Subsidiary and that neither relates to the business or actual or demonstrably
anticipated research or development of the Company or any Subsidiary thereof nor
results from any work performed by the employee for the Company or any
Subsidiary thereof. Complete and correct copies of the form of each Contract
effecting such assignment of Company IP and waiver of moral rights have been
delivered to Parent. No current or former director, officer, employee,
consultant or contractor has any right, license, Claim, moral right (other than
inalienable moral rights that arise under applicable law) or interest whatsoever
in or with respect to any Company IP that the Company or any of its Subsidiaries
owns or purports to own.

(j) No Violation of Other Agreements. To the Knowledge of the Company, no
current or former director, officer, employee or independent contractor of the
Company or of any Subsidiary thereof (i) is in violation of any provision or
covenant of any employment agreement, invention assignment agreement,
nondisclosure agreement, noncompetition agreement or any other Contract with any
third Person by virtue of such director’s, officer’s, employee’s or independent
contractor’s being employed by, performing services for or serving on the board
of directors of the Company or any Subsidiary thereof, (ii) is using or has used
any trade secrets or other confidential or proprietary information of any third
Person in connection with performing any services for the Company or for any
Subsidiary thereof or the development or creation of any Company-Owned IP
without the permission of the Company and such third Person, or (iii) has
developed or created any Company-Owned IP that is subject to any agreement under
which such director, officer, employee, or independent contractor has assigned
or otherwise granted any third party any rights in or to such Company-Owned IP.
The employment of any current or former employee of the Company or any
Subsidiary thereof and the use by the Company or any Subsidiary thereof of any
services of any current or former director, officer, or independent contractor
have not subjected and do not subject the Company or any Subsidiary thereof to
any liability to any third Person for improperly engaging or soliciting such
employee, director, officer or independent contractor.

(k) Third Party Infringement. To the Knowledge of the Company, except as set
forth in Schedule 3.16(k)(1) to the Disclosure Memorandum, there is no and has
been no unauthorized use, unauthorized disclosure, infringement, violation or
misappropriation by any third Person of any Company IP owned by or exclusively
licensed to the Company or any Subsidiary thereof other than immaterial uses,
disclosures, infringements, violations or misappropriations that were reviewed
and deemed immaterial by in-house legal counsel for the Company and with respect
to which no action was taken (other than such review). Except as set forth in
Schedule 3.16(k)(2) to the Disclosure Memorandum, neither the Company nor any
Subsidiary thereof has received any notice that any third Person is infringing,
violating or misappropriating any

 

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part of the Company IP owned by or exclusively licensed to the Company or
otherwise making any unauthorized use or disclosure of such Company IP, other
than notices of immaterial actual or alleged infringement that were reviewed and
deemed immaterial or without merit by in-house legal counsel for the Company and
with respect to which no action was taken (other than such review).

(l) Privacy and Data Security. A privacy statement (the “Privacy Statement”)
regarding the collection, retention, use and distribution of the personally
identifiable information of individuals visiting the websites of the Company or
any Subsidiary thereof, is posted and accessible to individuals on each website
of the Company or any Subsidiary thereof. The Privacy Statements currently in
use are, and all Privacy Statements previously used by the Company or any
Subsidiary thereof were at all times while such Privacy Statements were used or
in effect, accurate and consistent with the Company’s and its Subsidiaries’
actual practices with respect to the collection, retention, use and disclosure
of individuals’ personally identifiable information. The Company and its
Subsidiaries (i) comply with the Privacy Statements as applicable to any given
set of personally identifiable information collected by the Company or any
Subsidiary thereof; (ii) comply with all applicable privacy laws and regulations
regarding the collection, retention, use and disclosure of personally
identifiable information; (iii) comply with all applicable payment card industry
standards regarding data security; and (iv) take appropriate measures to protect
and maintain the confidential nature of the personally identifiable information
provided to the Company or any Subsidiary thereof by individuals, which measures
are, as a whole, not less protective and comprehensive than those that would be
taken by reasonably prudent business persons operating in the Company’s
industry. The Company and its Subsidiaries have technological and procedural
measures in place to protect personal information collected from individuals
against loss, theft and unauthorized access or disclosure, which measures are,
as a whole, not less protective and comprehensive than those that would be taken
by reasonably prudent business persons operating in the Company’s industry.
Neither the Company nor any Subsidiary thereof knowingly collects information
from or targets children under the age of thirteen. Neither the Company nor any
Subsidiary thereof sells, rents or otherwise makes available to third parties
any personally identifiable information submitted by individuals, except as
clearly and prominently stated in the applicable Privacy Statement. Other than
as constrained by the Privacy Statements, by applicable laws and regulations or
by any Material Contract disclosed to Parent in Schedule 3.10(a) to the
Disclosure Memorandum, neither the Company nor any Subsidiary thereof is
restricted in its use and/or distribution of personal information collected by
the Company or any Subsidiary thereof. Neither the Company nor any Subsidiary
thereof has received any Claims, notices or complaints regarding the Company’s
or any of its Subsidiaries’ information practices or the disclosure, retention,
or misuse if any personally identifiable information. The Company has described
in the Privacy Statement the Company’s and its Subsidiaries’ use of cookies, web
beacons and other online tracking technologies, which descriptions are accurate
and not misleading.

(m) Open Source Software. Neither the Company nor any Subsidiary thereof has
used or otherwise Exploited any Open Source Software in such a way that creates
or purports to create obligations of the Company or any Subsidiary thereof on or

 

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before the Closing with respect to any Company IP (other than such Open Source
Software solely to the extent not included in the Company-Owned IP) or grants or
purports to grant to any third Person on or before the Closing any rights or
immunities under any Company IP (other than such Open Source Software solely to
the extent not included in the Company-Owned IP). Neither the Company nor any of
its Subsidiaries has used any Open Source Software that is subject to any Open
Source License set forth on Exhibit J or under which an obligation to disclose
source code for any software or make such source code available may be triggered
by allowing users to interact with such software (in source code or object code
form) remotely through a computer network. “Open Source Software” means any
software distributed under any license that requires that the software covered
by the license or any software incorporated into, based on, derived from or
distributed with such software (i) be disclosed, distributed or made available
in source code form or (ii) be licensed under the terms of any open source
software license (e.g., the BSD License, GNU General Public License and GNU
Lesser General Public License) (collectively, “Open Source Licenses”).

(n) Warranty Against Defects. The Company products and services are free from
material defects and substantially conform to the applicable warranties for such
products and services. The software included in the Company-Owned IP and, to the
Knowledge of the Company, all other software included in the Company
Intellectual Property does not contain (i) any clock, timer, counter or other
limiting or disabling code, design, routine or any viruses, Trojan horses or
other disabling or disruptive codes or commands that would cause the Company
Intellectual Property contained therein to be erased, made inoperable or
rendered incapable of performing in accordance with its performance
specifications and descriptions, or otherwise limit or restrict the ability of
the Company or any of its Subsidiaries to use the Company Intellectual Property;
and (ii) any back doors or other undocumented access mechanism allowing
unauthorized access to, and viewing, manipulation, modification or other changes
to, the Company Intellectual Property.

(o) Indemnification. Except as expressly stated in Schedule 3.16(o) to the
Disclosure Memorandum or as set forth in the Contracts listed on 3.10(a) of the
Disclosure Memorandum, neither the Company nor any Subsidiary thereof is
obligated to indemnify any Person against any actual or alleged Claim of
infringement, misappropriation or violation of any intellectual property right
of any third Person. Neither the Company nor any Subsidiary thereof has granted
any Person the right (contingent or otherwise) to bring or control any
infringement action with respect to, or otherwise to enforce, any of the
Company-Owned IP.

(p) Security and Disaster Recovery. The Company and its Subsidiaries have
implemented and maintained, consistent with customary industry practices and
their obligations to third Persons, security and other measures reasonably
adequate to protect computers, networks, software and systems used by the
Company or any Subsidiary thereof to store, process or transmit Company
Intellectual Property from unauthorized access, use or modification. Schedule
3.16(p) to the Disclosure Memorandum describes in reasonable detail the backup
procedures and disaster recovery plans followed and maintained by the Company
and its Subsidiaries.

 

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Section 3.17 Corporate Books and Records. The Company has furnished to Parent or
its representatives for their examination true and complete copies of (a) the
Charter and the Bylaws of the Company and each of its Subsidiaries as currently
in full force and effect, including all amendments thereto, (b) the minute books
of each of the Company and its Subsidiaries, and (c) the stock transfer books of
each of the Company and its Subsidiaries. Such minutes reflect all meetings of
the Company’s and each of its Subsidiaries’ shareholders, board of directors and
any committees of such board since their respective inception, and such minutes
accurately reflect the material events of and material actions taken at such
meetings (except to the extent relating to the transaction contemplated hereby,
which may be redacted). Such stock transfer books accurately reflect all
issuances, transfers and cancellations of shares of capital stock of the Company
and each of its Subsidiaries since their respective inceptions.

Section 3.18 Inventory. All items in the inventory (including finished products,
supplies, parts and packaging and labeling materials) reflected in the Company
Balance Sheet and acquired since the date of the Company Balance Sheet (i) have
been valued at the lesser of cost or fair market value determined in accordance
with GAAP consistently applied, including the establishment of reserves for
obsolete, damaged, slow-moving, defective or excessive inventories and (ii) meet
the Company’s and its Subsidiaries’ current specifications, and are of a quality
and quantity usable and salable at customary gross margins in the ordinary
course of the business of the Company and its Subsidiaries.

Section 3.19 Licenses, Permits, Authorizations, etc. The Company and each of its
Subsidiaries has received all governmental approvals, authorizations, consents,
licenses, orders, registrations and permits of all agencies, whether federal,
state, local or foreign, necessary for the conduct of the Company’s and its
Subsidiaries’ businesses as currently conducted. Neither the Company nor any of
its Subsidiaries have received any notifications of or have any Knowledge of any
asserted present failure by the Company or any of its Subsidiaries to have
obtained any such governmental approval, authorization, consent, license, order,
registration or permit, or any past and unremedied failure to obtain such items.

Section 3.20 Compliance With Laws. The Company and each of its Subsidiaries is
and has been in compliance with all federal, state, local and foreign laws,
rules, regulations, ordinances, decrees and orders applicable to it, to its
business, operations and employees, or to the Real Property and the Personal
Property (including laws prohibiting false, fraudulent, deceptive or misleading
advertising or trade practices). Neither the Company nor any of its Subsidiaries
has received any notification, nor does the Company have any Knowledge of, any
asserted present or past unremedied failure by the Company or its Subsidiaries
to comply with any of such laws, rules, regulations, ordinances, decrees or
orders.

Section 3.21 Compliance With Environmental Laws.

(a) The Company and each of its Subsidiaries has, to the extent required by
applicable Environmental Laws, obtained and is in material compliance with all
permits, licenses, approvals or other authorizations necessary for the conduct
of its business and use of the Real Property or the Personal Property and has
caused all registrations, reports and notifications to be made to all
Governmental Bodies with respect to the conduct of its business and use of the
Real Property or the Personal Property.

 

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(b) The Company and each of its Subsidiaries is, and at all times prior to the
date of this Agreement has been, in compliance with and has not violated, in
connection with the ownership, use, maintenance or operation of the Real
Property or the Personal Property or the conduct of its business, any
Environmental Laws. Neither the Company nor any of its Subsidiaries own, use or
store at its facilities any Hazardous Materials (except for cleaning supplies
and otherwise in material compliance with all Environmental Laws).

(c) The Company has disclosed in Schedule 3.21(c) to the Disclosure Memorandum
all material information in the possession of the Company and its Subsidiaries
regarding environmental matters or conditions affecting the Real Property, the
Personal Property, the Company’s and its Subsidiaries’ businesses, or compliance
or noncompliance of the Real Property or the Personal Property or the conduct of
the Company’s and its Subsidiaries’ businesses with any Environmental Laws.

(d) Neither the Company nor any of its Subsidiaries have received any notice,
nor does the Company have Knowledge of any notice, and no claim, demand, action
or proceeding has been commenced, asserted or, to the Knowledge of the Company,
threatened alleging, and no investigation has been commenced, asserted or, to
the Knowledge of the Company, threatened alleging, (i) any violation of any
Environmental Laws, including any violation with respect to the Real Property,
the Personal Property or conduct of the Company’s and its Subsidiaries
businesses or (ii) the Company’s and its Subsidiaries’ potential responsibility
for the Release of Hazardous Materials at any site.

(e) During the Company’s and its Subsidiaries’ occupation or control thereof, no
Release of Hazardous Materials has occurred from, upon, below, into or on the
Real Property or any other property. No Release of Hazardous Materials has
occurred on any adjacent property that has migrated to, through or under the
Real Property during the Company’s and its Subsidiaries’ occupation or control
thereof. No Hazardous Materials are present at the Real Property, or during the
Company’s and its Subsidiaries’ occupation or control thereof, have been present
at any other property, except in compliance with Environmental Laws. Without
limiting the foregoing, neither the Company nor any of its Subsidiaries is
responsible or liable for the Release of Hazardous Materials at any site.

(f) Neither the Company nor any of its Subsidiaries have generated, transported,
treated, stored, handled, disposed of, or arranged for the transportation,
treatment, storage, handling or disposal of, any Hazardous Materials that has
resulted in or contributed to a violation of any Environmental Laws or a Release
of Hazardous Materials at any site prior to the Closing Date.

 

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(g) No tanks used at any time for the storage of any Hazardous Materials above
or below ground are present on or at the Real Property. Any tanks previously
used for the storage of any Hazardous Materials above or below ground on or at
the Real Property that have been removed or closed by any Person were removed
and closed in compliance with all laws, including Environmental Laws, in effect
at the time of such actions.

Section 3.22 Insurance. Schedule 3.22 to the Disclosure Memorandum sets forth a
true and correct list of all insurance policies maintained by the Company or any
of its Subsidiaries and includes the policy number, amount of coverage and
contact information for each such policy. The Company or its Subsidiaries
maintains commercially reasonable levels of (a) insurance on its and its
Subsidiaries’ property (including leased premises) that insures against loss or
damage by fire or other casualty and (b) insurance against liabilities, claims
and risks of a nature and in such amounts as are normal and customary in the
Company’s and its Subsidiaries’ industries for companies of similar size and
financial condition. All insurance policies of the Company and its Subsidiaries
are in full force and effect, all premiums with respect thereto covering all
periods up to and including the date this representation is made have been paid
to the extent required to be paid, and no notice of cancellation or termination
has been received with respect to any such policy or binder. Such policies or
binders are sufficient for compliance with all requirements of law currently
applicable to the Company and its Subsidiaries and of all agreements to which
the Company and its Subsidiaries are a party, will remain in full force and
effect through the respective expiration dates of such policies or binders
without the payment of additional premiums, and will not in any way be affected
by, or terminate or lapse by reason of, the transactions contemplated by this
Agreement. The Company has complied with all Contracts under which the Company
or any of its Subsidiaries is required to maintain insurance coverage or to name
a Person as an additional insured under any insurance policy of the Company or
any of its Subsidiaries. Within the preceding 24 months, neither the Company nor
any of its Subsidiaries have been refused any insurance with respect to its
assets or operations, nor has its coverage been limited, by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance.

Section 3.23 Brokers or Finders. The Company and its Subsidiaries have not
incurred, and will not incur, directly or indirectly, as a result of any action
taken by or on behalf of the Company or any of its Subsidiaries, any liability
for brokerage or finders’ fees or agents’ commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby, except
for Morgan Stanley & Co. or its Affiliates, the fees and expenses of which shall
be Transaction Expenses.

Section 3.24 Absence of Questionable Payments. Neither the Company, nor any of
its Subsidiaries, nor any of their respective directors, officers, agents,
employees, shareholders or other Person acting on behalf of the Company or any
of its Subsidiaries, has used any corporate funds for improper or unlawful
contributions, payments, gifts or entertainment, or made any improper or
unlawful expenditures relating to political activity to domestic or foreign
government officials or others. The Company has reasonable financial controls to
prevent such improper or unlawful contributions, payments, gifts, entertainment
or expenditures. Neither the Company, nor any of its Subsidiaries, nor any of
their respective current directors, officers, agents, employees, shareholders or
other Person acting on behalf of the Company or any of its Subsidiaries, has
accepted or received any improper or unlawful contributions, payments, gifts or
expenditures. The Company and its Subsidiaries have at all times complied, and
is in compliance, in all respects with the Foreign Corrupt Practices Act and all
foreign laws and regulations relating to prevention of corrupt practices and
similar matters.

 

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Section 3.25 Bank Accounts. Schedule 3.25 to the Disclosure Memorandum sets
forth (a) a true and complete list of the names and locations of all banks,
trust companies, securities brokers and other financial institutions at which
the Company or any of its Subsidiaries have an account or safe deposit box or
maintains a banking, custodial, trading or other similar relationship; (b) a
true and complete list of each such account, box or relationship, indicating in
each case the account number and the names of the respective officers,
employees, agents or other similar representatives of the Company or its
Subsidiaries, as applicable, having signatory power with respect thereto; and
(c) a list of each Investment Asset held through or in each such account, box
and relationship, including the name of the record and beneficial owner thereof,
the location of the certificates, if any, the maturity date, if any, and any
stock or bond powers or other authority for transfer granted with respect
thereto.

Section 3.26 Insider Interests. Except as set forth in Schedule 3.26 to the
Disclosure Memorandum, no director, officer, or to the Company’s Knowledge,
Shareholder, employee or consultant of the Company or any of its Subsidiaries
have any interest (other than as a security holder of the Company or any of its
Subsidiaries) (a) in any Real Property or Personal Property used in or directly
pertaining to the business of the Company or any of its Subsidiaries, including
inventions, patents, trademarks or trade names, or (b) in any Contract relating
to the Company or any of its Subsidiaries, their present or prospective
businesses or their operations. There are no agreements, understandings or
proposed transactions between the Company or any of its Subsidiaries and any of
their respective directors, officers, or to the Company’s Knowledge,
Shareholders, employees, consultants, or Affiliates (or any Affiliates of the
foregoing). None of the Company, any of its Subsidiaries, and their respective
directors, officers, or to the Company’s Knowledge, employees, consultants, or
security holders has any interest, either directly or indirectly, in any entity,
including any corporation, partnership, joint venture, proprietorship, firm,
licensee, business or association (whether as an employee, officer, director,
manager, partner, shareholder, member, agent, independent contractor, security
holder, creditor, consultant or otherwise), other than ownership of capital
stock comprising less than 1% of any publicly held company, that presently
(i) provides any services, produces and/or sells any products or product lines,
or engages in any activity that is the same, similar to or competitive with any
activity or business in which the Company or any of its Subsidiaries is now
engaged or proposes to engage; (ii) is a supplier, customer or creditor of the
Company or any of its Subsidiaries; or (iii) has any direct or indirect interest
in any asset or property, real or personal, tangible or intangible, of the
Company or any of its Subsidiaries or any property, real or personal, tangible
or intangible, that is necessary for the present or currently anticipated future
conduct of the Company’s and its Subsidiaries’ businesses.

Section 3.27 Full Disclosure.

(a) None of the representations or warranties made by the Company herein
(including the Financial Statements, Quarterly Financials, Interim Financial
Statements, Interim Balance Sheet, and all information in the Disclosure
Memorandum and the other Exhibits hereto or the other Operative Documents), when
all such documents are read together in their entirety, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements so made not misleading.

 

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(b) The information supplied by the Company for inclusion in the proxy statement
relating to the Shareholder Meeting, or for inclusion in other documents to be
filed with the SEC in connection herewith, will not, on the date that the proxy
statement is first mailed to Shareholders, or on the date that such other
documents are filed with the SEC, contain any untrue statement of material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not false or misleading at the time and in
the light of the circumstances under which such statements are made.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

OF PARENT AND MERGER SUB

Parent and Merger Sub hereby represent and warrant to the Company as follows:

Section 4.1 Organization. Each of Parent and Merger Sub is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation and has all requisite corporate power and authority to own,
operate and lease its properties and assets, to carry on its business as now
conducted.

Section 4.2 Enforceability; Due Authority. All corporate action on the part of
Parent and Merger Sub and their directors, officers and shareholders necessary
for the authorization, execution, delivery and performance of this Agreement and
the other Operative Documents to which Parent or Merger Sub are a party, the
consummation of the transactions contemplated by this Agreement and the other
Operative Documents, and the performance of all Parent’s and Merger Sub’s
obligations under this Agreement and the other Operative Documents to which
Parent or Merger Sub are a party has been taken. This Agreement has been, and
each of the other Operative Documents to which Parent or Merger Sub are a party
at the Closing will have been, duly executed and delivered by Parent or Merger
Sub, as applicable, and assuming the due authorization, execution and delivery
by each of the parties hereto and thereto other than Parent and Merger Sub, this
Agreement is, and each of the other Operative Documents to which Parent or
Merger Sub is a party will be at the Closing, a legal, valid and binding
obligation of Parent or Merger Sub, as applicable, enforceable against Parent or
Merger Sub, as applicable, in accordance with its terms, subject only to the
effect, if any, of (x) applicable bankruptcy and other similar laws affecting
the rights of creditors generally and (y) rules of law governing specific
performance, injunctive relief and other equitable remedies. Each of Parent and
Merger Sub has all requisite corporate power and authority to enter into and
perform its obligations under this Agreement and the other Operative Documents
to which it is a party, and to consummate the transactions contemplated hereby
and thereby.

Section 4.3 No Approvals; No Conflict. The execution, delivery and performance
by Parent and Merger Sub of this Agreement and the other Operative Documents to
which Parent or Merger Sub are a party and the consummation of the transactions
contemplated hereby and thereby will not (a) constitute a violation (with or
without the giving of notice or

 

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lapse of time, or both) of any provision of law or any judgment, decree, order,
regulation or rule of any court or other Governmental Body applicable to Parent
or Merger Sub; (b) require any consent, approval or authorization of,
declaration, filing or registration with, or notice to, any Person including any
consent, approval or authorization of, declaration, filing or registration with,
or notice to, any Person required to be obtained or made in order to keep any
Contract between such Person and Parent or Merger Sub in effect following the
transactions contemplated by this Agreement or to provide that neither Parent
nor Merger Sub is in breach or violation of any such Contract following the
transactions contemplated by this Agreement by reason of the execution and
delivery of, or the performance of its obligations under, this Agreement or the
Operative Documents; (c) result in a default (with or without the giving of
notice or lapse of time, or both) under, or acceleration or termination of, or
the creation in any Person of the right to accelerate, terminate, modify or
cancel, any agreement, lease, note or other restriction, Encumbrance, obligation
or liability to which Parent or Merger Sub is a party or by which it is bound or
to which any assets of Parent or Merger Sub are subject, including the
Contracts; (d) result in the creation of any Encumbrance on any assets of Parent
or Merger Sub; (e) conflict with or result in a breach of or constitute a
default under any provision of the charter or the bylaws of Parent or Merger
Sub; or (f) invalidate or adversely affect any permit, license or authorization
used in the conduct of the business of Parent. To the Knowledge of Parent, there
is no proposed order of any Governmental Body that, if issued or otherwise put
into effect, (i) would have a material adverse effect on the Parent’s ability to
perform any covenant or obligation under this Agreement or the other Operative
Documents or (ii) would have the effect of preventing, delaying, making illegal
or otherwise interfering with the transactions contemplated by this Agreement or
any of the other Operative Documents.

Section 4.4 SEC Reports. Parent has filed all forms, reports and documents
required to be filed by it with the SEC since January 1, 2009 (collectively,
“SEC Reports”). As of its filing date or, in the case of SEC Reports that are
registration statements filed pursuant to the requirements of the Securities
Act, its effective date, each SEC Report complied as to form in all material
respects with the applicable requirements of the Securities Act and the Exchange
Act, and the applicable rules and regulations promulgated thereunder, as the
case may be, each as in effect on the date such SEC Report was filed. As of its
filing date (or, if amended or superseded by a filing prior to the date of this
Agreement, on the date of such amended or superseded filing), each SEC Report
filed pursuant to the Exchange Act did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. Each SEC Report that is a registration statement, as
amended or supplemented, if applicable, filed pursuant to the Securities Act, as
of the date such registration statement or amendment became effective, did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements made
therein not misleading. The information, if any, supplied by Parent, Merger Sub
or their Affiliates to the Company for inclusion in the proxy statement or other
documents to be filed with the SEC in connection herewith will not on the dates
that the proxy statement is first mailed to Shareholders contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not false or
misleading at the time and in the light of the circumstances under which such
statements are made.

 

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Section 4.5 Brokers. Except for Lazard Freres & Co. LLC, the fees of which will
be paid by Parent, no broker, finder or investment banker is entitled to any
brokerage, finder’s or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
Parent or Merger Sub.

Section 4.6 Parent Common Stock. All shares of Parent Common Stock which may be
issued pursuant to the Merger, including upon the exercise of Parent Options
issued by Parent hereunder will be, when issued in accordance with the terms
hereof and, in the case of Parent Options, thereof, duly authorized, validly
issued, fully paid and nonassessable, free and clear of any Encumbrances created
by Parent (including restrictions on rights of disposition other than
restrictions created under applicable securities laws other than as contained in
this Agreement or Parent’s insider trading policies) and not subject to any
preemptive rights created by statute, the certificate of incorporation or bylaws
of Parent or any Contract to which Parent is a party or by which it is bound.

Section 4.7 No Prior Operation of Merger Sub. Merger 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.

ARTICLE V

COVENANTS

Section 5.1 Conduct of Business Prior to the Closing. Between the date of this
Agreement and continuing until the earlier of termination of this Agreement and
the Closing Date, unless Parent shall otherwise agree in writing (and except to
the extent expressly provided otherwise in this Agreement), the business of the
Company and its Subsidiaries shall be conducted only in the ordinary course of
business consistent with past practice; and the Company shall use commercially
reasonable efforts to, and shall use commercially reasonable efforts to cause
each of its Subsidiaries to, preserve substantially intact the business
organization and assets of the Company and its Subsidiaries, keep available the
services of the current officers, employees and consultants of the Company and
its Subsidiaries and preserve the current relationships of the Company and its
Subsidiaries with customers, suppliers and other persons with which the Company
or any of its Subsidiaries has significant business relations. By way of
amplification and not limitation, between the date of this Agreement and the
earlier of the Closing and the termination of this Agreement, except as set
forth in Schedule 5.1 of the Disclosure Memorandum, neither the Company nor any
of its Subsidiaries shall do, or propose to do, directly or indirectly, any of
the following without the prior written consent of Parent:

(a) amend or otherwise change its Charter or Bylaws or equivalent organizational
documents;

(b) issue, sell, pledge, dispose of or otherwise subject to any Encumbrance
(i) any shares of capital stock of the Company or any of its Subsidiaries, or
any options, warrants, convertible securities or other rights of any kind to
acquire any such shares, or any other ownership interest in the Company or any
of its Subsidiaries other than (A) issuance of shares of Company Common Stock
upon the exercise of Stock Purchase Rights outstanding on the date of this
Agreement, (B) grants of Company Stock

 

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Options to newly hired employees of the Company with an exercise price equal to
the fair market value of the Company’s Common Stock at the time of such grants
if the aggregate amount of exercise prices for all such Company Stock Options
granted after June 8, 2009 and all other Stock Purchase Rights outstanding on
June 8, 2009 do not exceed $35,000,000 and which are otherwise on terms
consistent with the Company’s prior grants of Company Stock Options, including
that no such grants may provide for acceleration of vesting as a result of the
transactions contemplated by this Agreement, (C) issuance of shares of Company
Common Stock in connection with Permitted Acquisitions, and (D) issuance of new
stock certificates in connection with transfers by Shareholders, provided that
such transfers do not violate the Voting Agreement, or (ii) any properties or
assets of the Company or any of its Subsidiaries, other than sales or transfers
of inventory or accounts receivable in the ordinary course of business
consistent with past practice, sales of obsolete or worn out equipment or sales
of an immaterial amount of assets that are no longer used in the conduct of the
Company’s business, or subjecting such properties or assets to Permitted
Encumbrances;

(c) declare, set aside, make or pay any dividend or other distribution, payable
in cash, stock, property or otherwise, or make any other payment on or with
respect to any of its capital stock, except for dividends by any direct or
indirect wholly owned Subsidiary of the Company to the Company;

(d) reclassify, combine, split, subdivide or redeem, or purchase or otherwise
acquire, directly or indirectly, any of its capital stock or make any other
change with respect to its capital structure;

(e) acquire any corporation, partnership, limited liability company, other
business organization or division thereof or any material amount of assets,
other than in connection with a Permitted Acquisition, or enter into any joint
venture, strategic alliance, exclusive dealing, noncompetition or similar
contract or arrangement;

(f) except for the Merger or in connection with a Permitted Acquisition, adopt a
plan of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any of
its Subsidiaries, or otherwise alter the Company’s or a Subsidiary’s corporate
structure;

(g) incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise become responsible for, the
obligations of any Person, or make any loans or advances, except in the ordinary
course of business consistent with past practice under loan agreements set forth
in the Company Disclosure Memorandum; provided, that in no event shall the
Company or any of its Subsidiaries (i) incur, assume or guarantee any long-term
indebtedness for borrowed money or (ii) make any optional repayment of any
indebtedness for borrowed money;

(h) except in the ordinary course of business, enter into, amend, waive, modify
or consent to the termination of any Material Contract, or amend, waive, modify
or consent to the termination of the Company’s or any of its Subsidiaries’
rights thereunder, or enter into any other Contract other than in the ordinary
course of business consistent with past practice;

 

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(i) authorize, or make any commitment with respect to, any single capital
expenditure that is in excess of $500,000 or capital expenditures that are, in
the aggregate, in excess of $1,000,000 for the Company and its Subsidiaries
taken as a whole;

(j) enter into any lease of real or personal property or any renewals thereof
involving a term of more than one year or rental obligation exceeding $100,000
per year in any single case and $200,000 in any single year in the aggregate for
all such leases;

(k) enter into or amend any employment, consulting or agency Contract, or
increase, defer or fail to pay the compensation payable or to become payable to
its officers, employees, agents or consultants or grant any severance or
termination pay to (other than as required by applicable Law), or enter into any
employment or severance Contract (other than for less than $25,000, in the
ordinary course of business in connection with employees who are being
terminated or who have been terminated) with, any director, officer or employee
of the Company, or establish, adopt, enter into, terminate, fail to renew, or
amend any Employee Benefit Plan, collective bargaining agreement, Contract,
trust, fund, policy or arrangement for the benefit of any director, officer or
employee, except for normal merit and cost-of-living increases consistent with
past practice in salaries or wages of employees of the Company or any of its
Subsidiaries who are not directors or officers of the Company or any of its
Subsidiaries and who receive less than $150,000 in total annual cash
compensation from the Company or any of its Subsidiaries, or pay, loan or
advance any amount to, any director, officer or employee of the Company or any
of its Subsidiaries, or forgive, cancel or defer any indebtedness or waive any
claims or rights of material value (including any indebtedness owing by any
shareholder, officer, director, employee or Affiliate of the Company);

(l) enter into any Contract with any Related Party of the Company or any of its
Subsidiaries;

(m) enter into any Contract relating to or containing any marketing or joint
marketing arrangements;

(n) make any change in any method of accounting or accounting practice or
policy, except as required by GAAP;

(o) make, revoke or modify any material Tax election, settle or compromise any
Tax liability, file any Return other than on a basis consistent with past
practice, enter into any agreement with a Governmental Body with respect to
Taxes or otherwise enter into a Contract with respect to Taxes;

(p) pay, discharge or satisfy any Claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice, of liabilities reflected or reserved against on
the Company Balance Sheet or subsequently incurred in the ordinary course of
business consistent with past practice or in connection with the transactions
contemplated by this Agreement;

 

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(q) cancel, compromise, waive or release any right or Claim other than in the
ordinary course of business consistent with past practice;

(r) materially change the amount of any insurance coverage;

(s) permit the lapse of any right relating to Intellectual Property currently
used in the business of the Company or any of its Subsidiaries or sell, assign,
transfer or otherwise Encumber any rights to Exploit Company IP;

(t) except in the ordinary course of business consistent with past practice,
accelerate the collection of or discount any accounts receivable, delay the
payment of accounts payable or defer expenses, reduce inventories or otherwise
increase cash on hand;

(u) commence or settle any Claim other than (A) for the routine collection of
bills, (B) in such cases where it in good faith determines that failure to
commence suit would result in the material impairment of a valuable aspect of
its business (provided that it consults with Parent), or (C) for a breach of
this Agreement;

(v) amend or otherwise take any action that would permit or cause any Company
Option to accelerate in contemplation of or as a consequence of the Merger or
the other transactions contemplated by this Agreement;

(w) take any action, or intentionally fail to take any action, that would cause
any representation or warranty made by the Company in this Agreement or any
Operative Document to be untrue or result in a breach of any covenant made by
the Company in this Agreement or any Operative Document such that the conditions
set forth in Section 7.3(a) would not be satisfied, or that has or would
reasonably be expected to have a Material Adverse Effect; or

(x) enter into any binding agreement, or otherwise make a commitment, to do any
of the foregoing.

Section 5.2 Access to Information. Between the date of this Agreement and the
earlier of the Closing and the termination of this Agreement, the Company and
its Subsidiaries shall afford Parent and its officers, directors, principals,
employees, advisors, auditors, agents, bankers and other representatives
(collectively, “Representatives”) reasonable access (including for inspection)
at all reasonable times to the Representatives, properties, offices, plants and
other facilities, books and records of the Company and each of its Subsidiaries,
and shall furnish Parent (including copies thereof) with financial, operating,
Tax and other similar information as Parent may reasonably request.
Notwithstanding the foregoing, the Company may restrict the foregoing access to
the extent that (a) in the reasonable judgment of the Company, any Law, treaty,
rule or regulation of any Governmental Body applicable to the Company requires
the Company or its Subsidiaries prohibit access to any such properties or

 

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information, (b) in the reasonable judgment of the Company, the information is
subject to confidentiality obligations to a third party and disclosure by the
Company is not permitted, (c) in the reasonable judgment of the Company, such
disclosure would result in disclosure of any trade secrets of third parties and
such disclosure by the Company is not permitted, or (d) in the reasonable
judgment of the Company, disclosure of any such information or document would
result in the loss of the Company’s attorney-client privilege; provided,
however, that in the case of each of (a), (b), (c) or (d), Parent and the
Company each agree to use commercially reasonable efforts to establish a process
that, through use of steps such as targeted redactions, provision of information
to counsel to review and summarize for Parent or use of a ‘clean room’
environment for analysis and review of information by joint integration teams in
coordination with counsel and the Company, will provide Parent with timely
access to the fullest extent possible to the substance of the information
described in this Section 5.2 in a manner that allows the Company to comply with
applicable law and its confidentiality obligations to third parties or preserve
the Company’s attorney-client privilege, as the case may be. All information
furnished pursuant to this Section 5.2 shall be subject to the Confidentiality
Agreement.

Section 5.3 Exclusivity. The Company agrees that between the date of this
Agreement and the earlier of the Closing and the termination of this Agreement,
the Company shall not, and shall take all action necessary to ensure that none
of its Subsidiaries or any of their respective Affiliates and Representatives
shall, directly or indirectly (a) solicit, initiate, facilitate, knowingly
encourage or accept any proposal or offer that constitutes an Acquisition
Proposal or (b) participate in any discussions, conversations, negotiations or
other communications regarding, or furnish to any other Person any information
with respect to, or otherwise cooperate in any way, assist or participate in,
facilitate or knowingly encourage the submission of, any proposal that
constitutes, or would reasonably be expected to lead to, an Acquisition
Proposal. The Company immediately shall cease and cause to be terminated all
existing discussions, conversations, negotiations and other communications with
any Persons conducted heretofore with respect to any of the foregoing. The
Company shall notify Parent promptly, but in any event within 24 hours, orally
and in writing if any such Acquisition Proposal, or any inquiry or other contact
with any Person with respect thereto, is made. Any such notice to Parent shall
indicate in reasonable detail the identity of the Person making such Acquisition
Proposal, inquiry or other contact and the terms and conditions of such
Acquisition Proposal, inquiry or other contact, and Company shall provide Parent
with a copy of any written proposal. The Company shall not, and shall cause its
Subsidiaries not to, release any Person from, or waive any provision of, any
confidentiality or standstill agreement to which the Company or any of its
Subsidiaries is a party, without the prior written consent of Parent. For
purposes of this Agreement, “Acquisition Proposal” means any offer or proposal
for, or any indication of interest in, any of the following (other than the
Merger): (i) any direct or indirect acquisition, purchase, sale, lease,
exchange, mortgage, pledge, transfer or other disposition of all or a portion of
the capital stock of the Company or any of its Subsidiaries or any assets of the
Company or any of its Subsidiaries (other than inventory to be sold in the
ordinary course of business consistent with past practice, sales of obsolete or
worn out equipment or sales of an immaterial amount of assets that are no longer
used in the conduct of the Company’s business), (ii) any merger, share exchange,
consolidation or other business combination relating to the Company or any of
its Subsidiaries or (iii) any recapitalization, reorganization or any other
extraordinary business transaction involving or otherwise relating to the
Company or any of its Subsidiaries. Notwithstanding the foregoing, nothing in
this Section 5.3 shall prohibit the Company from registering or processing
transfers or sales of the Company’s Capital Stock unless such transfers or sales
are otherwise prohibited by any Operative Document.

 

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Section 5.4 Shareholder Meeting; Written Consent. As promptly as practicable
after the Form S-4 is declared effective under the Securities Act, the Company
shall take all action necessary in accordance with California Law and the
Company’s Charter and Bylaws to (a) duly call, give notice of, convene and hold
a meeting of its Shareholders (the “Shareholder Meeting”) for such Shareholders
to consider and vote upon the approval of the Merger and the adoption and
approval of this Agreement and the transactions contemplated hereby, including a
vote by the holders of each of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock
for the Preferred Stock Conversion, or (b) the Company shall seek a vote to
approve the Merger and for the adoption and approval of this Agreement and the
transactions contemplated hereby, including a vote by the holders of each of the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock and the Series D Preferred Stock for the Preferred Stock Conversion via
written consent. The Company will, through its Board of Directors, recommend to
the Shareholders the adoption and approval of this Agreement and the
transactions contemplated hereby, shall not withdraw, modify or change such
recommendation, and shall use its best efforts to obtain Company Shareholder
Approval.

Section 5.5 Proxy Statement/Form S-4. As promptly as practicable following the
date of this Agreement, (a) the Company and Parent shall prepare and file with
the SEC a proxy statement in preliminary form and (b) Parent shall prepare and
file with the SEC a Registration Statement on Form S-4 (the “Form S-4”), in
which the proxy statement will be included as a prospectus. Each of the Company
and Parent shall use its reasonable efforts to have the Form S-4 declared
effective under the Securities Act as promptly as practicable after such filing.
The Company shall use reasonable best efforts to cause the proxy statement to be
mailed to the Shareholders as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. Parent shall also take any action
(other than qualifying to do business in any jurisdiction in which it is not now
so qualified or filing a general consent to service of process) required to be
taken under any applicable state securities or “blue sky” laws in connection
with the issuance and reservation of shares of Parent Common Stock in the
Merger, and the Company shall furnish all information concerning the Company and
the holders of Company Capital Stock and rights to acquire Company Capital Stock
as may be reasonably requested in connection with any such action. No filing of,
or amendment or supplement to, the Form S-4 or the proxy statement will be made
by Parent or the Company, as applicable, without providing the other the
opportunity to review and comment thereon. If at any time prior to the Effective
Time any information relating to the Company or Parent, or any of their
respective Affiliates, officers or directors, should be discovered by the
Company or Parent that should be set forth in an amendment or supplement to any
of the Form S-4 or the proxy statement, so that any of such documents would not
include any misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, the party that discovers such information
shall promptly notify the other parties hereto and an appropriate amendment or
supplement describing such information shall promptly be filed with the SEC and,
to the extent required under applicable law, disseminated to the Shareholders.

 

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Section 5.6 Notification of Certain Matters; Supplements to Disclosure
Memorandum.

(a) Between the date of this Agreement and the earlier of the Closing and the
termination of this Agreement, the Company shall give prompt written notice to
Parent of (i) the occurrence or non-occurrence of any change, condition or event
the occurrence or non-occurrence of which would render any representation or
warranty of the Company contained in this Agreement or any Operative Document,
if made on or immediately following the date of such event, untrue or
inaccurate, (ii) the occurrence of any change, condition or event that has had
or is reasonably likely to have a Material Adverse Effect, (iii) any failure of
the Company or any of its Subsidiaries or any other Affiliate of the Company to
comply with or satisfy any covenant or agreement to be complied with or
satisfied by it hereunder; (iv) the occurrence of any event, or the existence of
any condition, that creates a substantial risk of the nonfulfillment of any of
the conditions to Parent’s and Merger Sub’s obligations hereunder, (v) any
notice or other communication from any Person alleging that the consent of such
Person is or may be required in connection with the consummation of the
transactions contemplated by this Agreement or the Operative Documents or
(vi) any Claim pending or, to the Company’s Knowledge, threatened against a
party or the parties relating to the transactions contemplated by this Agreement
or the Operative Documents.

(b) At least three Business Days prior to the proposed Closing Date, the Company
shall supplement the information set forth on the Disclosure Memorandum with
respect to any matter now existing or hereafter arising that, if existing or
occurring at or prior to the date of this Agreement, would have been required to
be set forth or described in the Disclosure Memorandum or that is necessary to
correct any information in the Disclosure Memorandum or in any representation or
warranty of the Company which has been rendered inaccurate thereby promptly
following discovery thereof. Except as set forth in Section 8.2(a) and
Section 8.2(b), no such supplement shall be deemed to cure any breach of any
representation or warranty made in this Agreement or any Operative Document or
have any effect for purposes of determining the satisfaction of the conditions
set forth in Section 7.3, the compliance by the Company with any covenant set
forth herein or the indemnification provided for in Section 8.2.

Section 5.7 Takeover Statutes. If any state takeover statute or similar Law
shall become applicable to the transactions contemplated by this Agreement or
the Operative Documents, the Company and its Board of Directors shall grant such
approvals and take such actions as are necessary so that the transactions
contemplated hereby or thereby may be consummated as promptly as practicable on
the terms contemplated hereby or thereby and otherwise act to eliminate the
effects of such statute or regulation on the transactions contemplated hereby or
thereby.

Section 5.8 Options; Warrants. Prior to the Effective Time, the Company shall
take all commercially reasonable actions to cause or ensure that (a) all of the
Company’s warrants shall have been exercised prior to the Effective Time,
(b) each Optionholder shall have executed and delivered to Parent an Option
Consent in form and substance satisfactory to Parent, (c) Parent’s Board of
Directors or Compensation Committee shall be the administrator of the

 

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Company Stock Plan, and (d) after the Effective Time, the Company is not bound
by any Stock Purchase Right or other equity-based right that would entitle any
Person, other than Parent or its Affiliates, to beneficially own, or receive any
consideration or other payments other than as contemplated by Section 2.9 in
respect of, any capital stock of the Company or the Surviving Corporation. As
soon as reasonably practicable following the date of this Agreement and
conditional upon the Closing, the Company (and its board of directors) shall
take all commercially reasonable actions and/or adopt such resolutions as may be
required in order to give effect to and accomplish the transactions contemplated
by Section 2.9 and this Section 5.8, including, without limitation, amending the
Company Stock Plan (i) if and to the extent necessary and practicable, to
reflect the transactions contemplated by this Agreement, including the
acceleration and cancellation of the Stock Options set forth on Schedule 2.9 as
of the Effective Time, and (ii) to preclude any discretionary, automatic or
formulaic grant of any Company Options, Stock Purchase Rights or other
equity-based awards thereunder on or after the Closing Date.

Section 5.9 Confidentiality. Each of the parties shall hold, and shall cause its
Representatives to hold, in confidence all documents and information furnished
to it by or on behalf of any other party to this Agreement in connection with
the transactions contemplated hereby pursuant to the terms of the
confidentiality agreement dated March 19, 2009 between Parent and the Company
(the “Confidentiality Agreement”), which shall continue in full force and effect
until the Closing Date. If for any reason this Agreement is terminated prior to
the Closing Date, the Confidentiality Agreement shall nonetheless continue in
full force and effect in accordance with its terms.

Section 5.10 Commercially Reasonable Efforts.

(a) Each of the parties shall use all commercially reasonable efforts to take,
or cause to be taken, all appropriate action to do, or cause to be done, all
things necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the transactions contemplated by this Agreement
and the Operative Documents as promptly as practicable, including to (i) obtain
from Governmental Bodies and other Persons all consents, approvals,
authorizations, qualifications and orders as are necessary for the consummation
of the transactions contemplated by this Agreement and the Operative Documents,
(ii) promptly make all necessary filings, and thereafter promptly make any other
required submissions, with respect to this Agreement required under the HSR Act
or any other applicable Law and (iii) contest and have vacated, lifted, reversed
or overturned any order, decree, ruling, judgment, injunction or other action
(whether temporary, preliminary or permanent) that is in effect and that
enjoins, restrains, conditions, makes illegal or otherwise restricts or
prohibits the consummation of the transactions contemplated by this Agreement
and the Operative Documents. In furtherance and not in limitation of the
foregoing, the Company shall permit Parent reasonably to participate in the
defense and settlement of any claim, suit or cause of action relating to this
Agreement, the Merger or the other transactions contemplated hereby, and the
Company shall not settle or compromise any such claim, suit or cause of action
without Parent’s written consent. Notwithstanding anything herein to the
contrary, Parent shall not be required by this Section to take or agree to
undertake any action, including entering into any consent decree, hold separate
order or other arrangement, that

 

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would (x) require the divestiture of any assets of Parent, the Company or any of
their respective Affiliates or (y) limit Parent’s freedom of action with respect
to, or its ability to consolidate and control, the Company and its Subsidiaries
or any of their assets or businesses or any of Parent’s or its Affiliates’ other
assets or businesses.

(b) Without limitation to the provisions of subsection (a) hereof, the Company
and its Subsidiaries shall give promptly such notice to third parties and use
commercially reasonable efforts to obtain such third party consents and estoppel
certificates as are set forth on Schedule 5.10(b). Parent and Merger Sub shall
cooperate with and assist the Company and its Subsidiaries in giving such
notices and obtaining such consents and estoppel certificates; provided,
however, that neither Parent nor Merger Sub shall have any obligation to give
any guarantee or other consideration of any nature in connection with any such
notice, consent or estoppel certificate or consent to any material change in the
terms of any agreement or arrangement that Parent in its sole discretion may
reasonably deem adverse to the interests of Parent, Merger Sub or the Company or
any of its Subsidiaries.

Section 5.11 Public Announcements. On and after the date hereof and through the
Closing Date (including in connection with any termination of this Agreement),
the parties shall consult with each other before issuing any press release or
otherwise making any public statements with respect to this Agreement or the
transactions contemplated hereby, and none of the parties shall issue any press
release or make any public statement prior to obtaining the other parties’
written approval, which approval shall not be unreasonably withheld, except that
no such approval shall be necessary to the extent disclosure may be required by
applicable Law, upon advice of counsel or as required by any listing agreement
of any party hereto.

Section 5.12 Indemnification.

(a) From and after the Effective Time, the Surviving Corporation shall, to the
fullest extent permitted under applicable Law, the Charter, the Bylaws or under
any indemnification agreements binding on the Company as of the date of this
Agreement and furnished or made available to Parent, indemnify and hold harmless
the present and former directors and officers of the Company (each, an “Insured
Party”) against all costs and expenses (including reasonable attorneys’ fees),
judgments, fines, losses, claims, damages, liabilities and settlement amounts
paid in connection with any claim, action, suit, proceeding or investigation
based on the fact that such individual is or was a director or officer of the
Company or any of its Subsidiaries and arising out of or pertaining to any
action or omission occurring at or prior to the Effective Time (including the
transactions contemplated hereby) (and shall pay any expenses in advance of the
final disposition of such action or proceeding to each Insured Party to the
fullest extent permitted under applicable Law, upon receipt from the Insured
Party for whom expenses are paid of any undertaking to repay such amounts
required under applicable Law), and Parent will not prohibit the Surviving
Corporation from honoring such indemnification obligations and agreements,
subject to applicable Law. In the event of any such claim, action, suit,
proceeding or investigation, (i) the Surviving Corporation shall pay the
reasonable fees and expenses of counsel selected by the Insured Parties, which
counsel shall be reasonably satisfactory to the Surviving Corporation, promptly
after statements

 

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therefor are received and (ii) the Surviving Corporation shall cooperate in the
defense of any such matter; provided, however, that the Surviving Corporation
shall not be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld); provided further,
that the Surviving Corporation shall not be obligated pursuant to this
Section 5.12 to pay the fees and expenses of more than one counsel for all
Insured Parties in any single action unless a conflict of interest precludes the
effective representation of more than one Insured Party with respect to the
applicable claim, action, suit, proceeding or investigation. Furthermore, and
notwithstanding the foregoing, the Company may, prior to or in connection with
the Closing, purchase a “tail” policy under the Company’s existing directors’
and officers’ insurance policy (the “Tail Policy”), with the cost of such Tail
Policy included in the Transaction Expenses. If (x) the Surviving Corporation
consolidates with or merges into any other Person and is not the continuing or
surviving corporation or entity of such consolidation or merger, (y) the
Surviving Corporation transfers or conveys a material portion of its properties
and assets to any Person, or (z) Parent transfers or conveys all or
substantially all of the voting equity securities of the Surviving
Corporation to any Person, proper provision shall be made so that the continuing
or surviving corporation or entity of such consolidation or merger, or Person to
whom such properties and assets or voting equity securities are transferred or
conveyed, expressly assumes the obligations set forth in this Section 5.12.

(b) The articles of incorporation of the Surviving Corporation shall contain
provisions no less favorable with respect to indemnification than are set forth
in the articles of incorporation and bylaws of the Company, which provisions
shall not be amended, repealed or otherwise modified for a period of four years
from the Effective Time in any manner that would affect adversely the rights
thereunder of individuals who, prior to the Effective Time, were directors,
officers, employees, fiduciaries or agents of the Company, with respect to acts
or omissions occurring prior to the Effective Time, unless such modification
shall be required by applicable Law.

Section 5.13 Preferred Stock Conversion. The Company shall take all necessary
action to enable the holders of each of the Series A Preferred Stock, the Series
B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock
to vote for an automatic conversion of such series of Preferred Stock into
Shares immediately prior to the Merger pursuant to Section 3(b)(ii) of the
Charter (the “Preferred Stock Conversion”).

Section 5.14 Parent Equity Grants. In order to retain the Company’s employees
after consummation of the Merger, Parent is implementing a retention program by
which it will make grants of Parent restricted stock units or cash payments
equal to approximately $40 million (at least $20 million of which will be broad
based grants) to Persons employed by the Company as of the Effective Time,
including grants made to Key Employees pursuant to the retention agreements as
described in Recital C of this Agreement. Parent and the chief executive officer
of the Company will consult regarding the allocation of such grants, but final
determination of all such grants will be in Parent’s sole discretion. All grants
pursuant to such retention program shall be made in exchange for services to be
provided following the Closing and not in exchange for Capital Stock or services
provided prior to the Closing.

 

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Section 5.15 Section 280G Notwithstanding anything to the contrary contained in
this Agreement, the Company shall use commercially reasonable efforts to ensure
that (i) the receipt of any compensation, benefits or amounts that may
reasonably be deemed to result in an “excess parachute payment” (within the
meaning of Section 280G(c) of the Code) to each person who is a “disqualified
individual” with respect to the Company, within the meaning of Section 280G(c)
of the Code shall be subject to shareholder approval in accordance with
Section 280G(b)(5)(A)(ii) of the Code and the Treasury Regulations thereunder
and that (ii) such compensation, benefits or amounts shall not be payable or
otherwise inure to the benefit of such person in a manner that will result in
such amount being treated as such an “excess parachute payment.” The Company
shall have provided to Parent written evidence, in a form reasonably
satisfactory to Parent, that the Company has complied with its obligations under
this Section 5.15.

Section 5.16 Consideration Spreadsheet. Prior to the Closing the Company shall
prepare and deliver to Parent a spreadsheet (the “Consideration Spreadsheet”),
certified by the Chief Financial Officer of the Company, that includes the total
issued and outstanding Capital Stock of the Company by each class and series,
and the total outstanding number of Company Options and any other Stock Purchase
Rights outstanding, each as of the Effective Time. Such Consideration
Spreadsheet shall set forth for each record and beneficial holder of any shares
of Capital Stock, Company Options or Stock Purchase Rights, the number of shares
of Capital Stock by series and class, and the number of Company Options or other
Stock Purchase Rights owned by each such holder, the number of shares of Parent
Common Stock issuable to each such holder pursuant to Section 2.7, the number of
shares of Parent Common Stock to be delivered to the Escrow Agent on behalf of
such holder pursuant to Section 2.7(f) (stating separately the number of shares
to be held in the Indemnity Escrow Fund and the number of shares to be held in
the Shareholder Representative Expense Fund), the amount of cash in lieu of
fractional shares payable to each such holder pursuant to Section 2.10(e) and
the number of Parent Options issuable to such holder upon conversion of Company
Options pursuant to Section 2.9.

Section 5.17 New Law. Upon the enactment prior to the Closing Date of a New Law,
the Company shall take such actions as reasonably requested by Parent to comply
with or challenge such New Law.

ARTICLE VI

TAX MATTERS

Section 6.1 Actions. None of Parent, Merger Sub or the Company shall take any
action that would reasonably be expected to cause the Merger to fail to qualify
as a reorganization within the meaning of Section 368(a) of the Code. Each of
Parent, Sub and the Company shall report the Merger as a “reorganization” within
the meaning of Section 368(a) of the Code.

Section 6.2 Representation Letters. Each of Parent, Merger Sub and the Company
shall deliver on a timely basis to the counsel referred to in Section 7.1(d) the
representation letters referred to therein as reasonably requested by such
counsel. The parties acknowledge that Parent’s representation letter will
include a representation to the effect that, following the Merger, Parent
intends to cause the Surviving Corporation to be reincorporated into another
state by merger of the Surviving Corporation with and into a newly formed
corporation.

 

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Section 6.3 Transfer Taxes. Each Shareholder shall be responsible for all share
transfer or similar Taxes imposed on such Shareholder in connection with the
Merger.

ARTICLE VII

CONDITIONS TO CLOSING

Section 7.1 General Conditions. The respective obligations of each party to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment, at or prior to the Closing, of each of the following
conditions, any of which may, to the extent permitted by applicable Law, be
waived in writing by any party in its sole discretion (provided, that such
waiver shall only be effective as to the conditions for the benefit of such
party):

(a) No Injunction or Prohibition. No action shall have been taken, or any
statute, rule, regulation or order shall have been enacted or deemed applicable
to the transactions contemplated by this Agreement, and no temporary or
permanent restraining order or preliminary or permanent injunction or other
order shall have been issued by, any Governmental Body, that would prohibit the
consummation of the transactions contemplated by this Agreement.

(b) HSR Act. Any waiting period (and any extension thereof) under the HSR Act
applicable to the transactions contemplated by this Agreement and the Operative
Documents shall have expired or shall have been terminated.

(c) Approval of Shareholders. Company Shareholder Approval shall have been
validly obtained under applicable Law and the Company’s Charter and Bylaws.

(d) Reorganization for Tax Purposes. Parent and the Company shall have received
a written opinion from Gibson, Dunn & Crutcher LLP and Fenwick & West LLP,
respectively, in form and substance reasonably satisfactory to them, to the
effect that the Merger will constitute a “reorganization” within the meaning of
Section 368(a) of the Code, it being understood that the issuance of such
opinions shall be conditioned upon the accuracy of assumptions referred to
therein and on the receipt by such counsel of and reliance on customary
representation letters from each of Parent, Merger Sub and the Company, in each
case, in form and substance reasonably satisfactory to such counsel and each
such representation letter shall be dated on the date of such opinion and shall
not have been withdrawn or modified in any material respect, and such opinions
shall not have been withdrawn; provided, however, that if either party fails to
receive such an opinion (or such opinion has been withdrawn prior to Closing)
and counsel for the other party has delivered (and not withdrawn) its opinion,
the party that failed to receive such an opinion shall be deemed to have waived
this condition and shall be required to rely on the opinion of counsel for the
other party, subject to such counsel’s consent.

 

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(e) Registration Statement Effective. The SEC shall have declared the Form S-4
effective. No stop order suspending the effectiveness of the Form S-4 or any
part thereof shall have been issued, and no proceeding for such purpose, and no
similar proceeding in respect of the proxy statement, shall have been initiated
or threatened in writing by the SEC, and all requests for additional information
on the part of the SEC shall have been complied with to the reasonably
satisfaction of the Company and Parent.

Section 7.2 Conditions to Obligations of the Company. The obligations of the
Company to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment, at or prior to the Closing, of each of the following
conditions, any of which may be waived in writing by the Company in its sole
discretion:

(a) Representations, Warranties and Covenants. The representations and
warranties of Parent or Merger Sub contained in this Agreement and any Operative
Document, taken as a whole, shall be true and correct in all material respects,
both when made and as of the Closing Date, or in the case of representations and
warranties that are made as of a specified date, such representations and
warranties shall have been true and correct in all material respects taken as a
whole, as of such specified date in each case without giving effect to any
limitation or qualification as to “materiality” (including the word “material”),
“Material Adverse Effect” or any similar qualifications, contained or
incorporated directly or indirectly in such representations and warranties.
Parent and Merger Sub shall have materially performed all obligations and
agreements and materially complied with all covenants and conditions required by
this Agreement or any Operative Document to be performed or complied with by
them prior to or at the Closing. The Company shall have received from each of
Parent and Merger Sub a certificate to the effect set forth in the preceding
sentences, signed by a duly authorized officer of each of Parent and Sub.

(b) Operative Documents. The Company shall have received an executed counterpart
of each of the Operative Documents to which it is a party, signed by each party
other than the Company.

(c) Legal Opinion. The Company shall have received a legal opinion from Gibson,
Dunn & Crutcher LLP, addressed to the Company and dated the Closing Date as to
the matters set forth on Exhibit H-1.

Section 7.3 Conditions to Obligations of Parent and Merger Sub. The obligations
of Parent and Merger Sub to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions, any of which may be waived in writing by
Parent in its sole discretion:

(a) Representations, Warranties and Covenants. (i) The representations and
warranties of the Company contained in this Agreement and any Operative
Document, taken as a whole, shall have been true and correct in all material
respects as of the date of this Agreement; provided, however, that any breach or
inaccuracy of the representations and warranties of the Company contained in
Section 3.1 (Organization) and 3.8 (Taxes) of this Agreement resulting from the
failure to collect

 

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state sales or use Taxes with respect to sales made in the ordinary course of
business and arising out of or resulting from those facts relating thereto
disclosed to Parent in the Company’s virtual data-room on or before the date of
this Agreement shall be taken into account in determining whether the condition
in this Section 7.3(a)(i) is satisfied only to the extent such breach or
inaccuracy, individually or in the aggregate with all other breaches or
inaccuracies of representations and warranties of the Company, can reasonably be
expected to have a Material Adverse Effect; and (ii)(A) the representations and
warranties made by the Company in Sections 3.1 (Organization) (but only to the
extent the breach or inaccuracy would not have occurred but for the enactment,
following the date of this Agreement, of a New Law requiring the Company or a
Subsidiary to collect and remit sales and use Taxes in a jurisdiction in which
the Company or a Subsidiary was not registered to collect and remit sales and
use Taxes prior to the Effective Time), 3.5 (No Approvals; No Conflicts),
Section 3.8 (Taxes), 3.10 (Contracts), 3.11 (Suppliers), 3.13 (Claims and Legal
Proceedings; Government Orders), 3.16 (Intellectual Property), 3.19 (Licenses,
Permits, Authorizations, etc.), 3.20 (Compliance with Laws) and 3.27 (Full
Disclosure) (collectively, the “Specified Representations”) shall be true and
correct as of the Closing Date as if made on the Closing Date, except where the
failure to be so true and correct has not had, and would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect, and
(B) the representations and warranties made by the Company in this Agreement and
any Operative Document, taken as a whole, other than the Specified
Representations, shall be true and correct in all material respects as of the
Closing Date as if made on the Closing Date (except (X) in the case of clauses
(i) and (ii), for representations and warranties that were made as of a
specified date, which shall have been true and correct in all material respects,
taken as a whole, as of such date; and (Y) in each case under clauses (i) and
(ii) without giving effect to any limitation or qualification as to
“materiality” (including the word “material”), “Material Adverse Effect” or any
similar qualifications, contained or incorporated directly or indirectly in such
representations and warranties). The Company shall have materially performed all
obligations and agreements and materially complied with all covenants and
conditions required by this Agreement or any Operative Document to be performed
or complied with by it prior to or at the Closing. Parent shall have received
from the Company a certificate to the effect set forth in the preceding
sentences, signed by a duly authorized officer thereof.

(b) Consents and Approvals. All third party consents to the Merger set forth on
Schedule 7.3(b) and all authorizations, consents, orders and approvals from all
Governmental Bodies and officials shall have been received and shall be
satisfactory in form and substance to Parent in its reasonable discretion.

(c) No Litigation. No Claim shall have been commenced or threatened in writing
on behalf of any Governmental Body that, in the reasonable, good faith
determination of Parent, is reasonably likely to (i) result in the payment of
monetary damages as a result of the consummation of the transactions
contemplated by this Agreement or any Operative Document which would not be
recoverable from the Indemnity Escrow Fund, (ii) require divestiture of any
assets of Parent as a result of the transactions contemplated by this Agreement
or the divestiture of any assets of the Company or any of its Subsidiaries,
(iii) prohibit or impose limitations on Parent’s

 

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ownership or operation of all or a material portion of its or the Company’s
business or assets (or those of any of its Subsidiaries or Affiliates) or
(iv) impose limitations on the ability of Parent or its Affiliates, or render
Parent or its Affiliates unable, effectively to control the business, assets or
operations of the Company or its Subsidiaries in any material respect.

(d) Operative Documents. Parent shall have received an executed counterpart of
each of the Operative Documents to which it is a party, signed by each party
other than Parent or Merger Sub, except as otherwise provided in Section 7.3(l).

(e) Legal Opinion. Parent shall have received a legal opinion from Fenwick &
West LLP, addressed to Parent and dated the Closing Date as to the matters set
forth on Exhibit H-2.

(f) Certification. The Company shall have delivered a certificate, in form and
substance reasonably satisfactory to Parent, no earlier than thirty (30) days
prior to the Closing, to the effect that interests in the Company, including the
shares of Company Common Stock and Preferred Stock, are not “United States real
property interests” within the meaning of Section 897 of the Code.

(g) Resignations. Parent shall have received letters of resignation from the
directors of the Company and each of its Subsidiaries.

(h) Schedule of Transaction Expenses. The Company shall have delivered to Parent
the Schedule of Expenses.

(i) Third Party Expense Statements and Releases. Parent shall have received from
each third party referred to in the Schedule of Expenses a written instrument in
form and substance reasonably satisfactory to Parent containing (i) the bill for
the aggregate unpaid fees and expenses of such party incurred by the Company as
of the Closing Date (and stating the amount of previously paid fees and
expenses) that are or may be characterized as Transaction Expenses hereunder and
(ii) a statement releasing and discharging Parent, Merger Sub, the Company, the
Surviving Corporation and any of their Affiliates from any liability for any
Transaction Expenses or amounts thereof not specifically referred to in the
Schedule of Expenses, though for purposes of clarity, only for services rendered
prior to the Closing.

(j) Maximum Dissenting Shares. Not more than 15% of the total Shares and shares
of Preferred Stock collectively outstanding immediately prior to the Effective
Time shall be, or have the ability to become, Dissenting Shares.

(k) Non-Competition Agreements. Each of the Non-Competition Agreements shall
remain in full force and effect.

(l) Option Consents. Optionholders who in the aggregate hold at least 85% of the
Company Options outstanding at the Effective Time shall have delivered an Option
Consent.

 

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(m) No Material Adverse Effect. There shall not have occurred since the date of
this Agreement a Material Adverse Effect, which is continuing.

(n) Officers. Each of Anthony Hsieh, Alfred Lin and Fred Mossler shall remain
employed by the Company in his current position and none shall have indicated he
intends to terminate his employment or relationship with the Company.

(o) Consideration Spreadsheet. The Consideration Spreadsheet shall have been
delivered to Parent and shall have been certified by the Chief Financial Officer
of the Company as being true and correct and Parent shall have approved the
accuracy such spreadsheet.

(p) Software. The Company and all of its Subsidiaries shall have (i) completely
ceased using or otherwise Exploiting in any way any version of the Gitorious
software or any derivative work based thereon, including, without limitation,
any version thereof distributed by Shortcut AS under the GNU Affero General
Public License and any derivative work based on any such version (collectively,
“Gitorious”) and (ii) deleted or destroyed all copies of Gitorious in the
possession or under the control of the Company or any Subsidiary thereof and all
copies of any other software in the possession or under the control of the
Company or any Subsidiary thereof that is subject to any Open Source License
under which the Company or any Subsidiary thereof obtained any copy of Gitorious
or any rights in or relating to Gitorious; and the Company shall have delivered
to Parent the written statement of an authorized of the Company, certifying that
the condition specified in this Section 7.3(p) has been fully satisfied in all
respects.

ARTICLE VIII

INDEMNIFICATION

Section 8.1 Survival of Representations and Warranties.

(a) From and after the Effective Time, the representations and warranties of the
Company, Parent and Merger Sub contained in this Agreement and the Operative
Documents and any schedule, certificate or other similar document delivered
pursuant hereto or thereto by such parties in connection with the transactions
contemplated hereby or thereby shall survive the Closing until 5:00 p.m.,
Seattle, Washington time on February 28, 2011; provided, however, that: the
representations and warranties set forth in Sections 3.2 and 4.2 relating to
enforceability and authority, Section 3.3 relating to capitalization, 3.4
relating to equity interests, Section 3.8 relating to Taxes, and Sections 3.23
and 4.5 relating to broker’s fees and finder’s fees (Sections 3.2, 3.3, 3.4,
3.8, 3.23, 4.2 and 4.5 are collectively referred to herein as the “Core
Representations”), and any representation in the case of fraud, intentional
misrepresentation or intentional breach, shall survive indefinitely.

(b) No party shall have any liability whatsoever with respect to any such
representations and warranties unless a claim is made hereunder prior to the
expiration of the survival period for such representation and warranty and as
set forth herein, in which case such representation and warranty shall survive
as to such claim until such claim has been finally resolved.

 

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Section 8.2 Indemnification by the Indemnifying Shareholders and Consenting
Optionholders. From and after the Effective Time, the Indemnifying Shareholders
and the Consenting Optionholders, severally on a pro rata basis, shall save,
defend, indemnify and hold harmless Parent, Merger Sub, the Surviving
Corporation and their Affiliates, and the respective Representatives and
permitted successors and assigns of each of the foregoing from and against any
and all losses, damages, liabilities, deficiencies, Claims, diminution of value,
interest, awards, judgments, penalties, costs and expenses (including reasonable
outside attorneys’ fees, reasonable costs and other out-of-pocket expenses
incurred in investigating, preparing or defending the foregoing) (hereinafter
collectively, “Losses”), asserted against, incurred, sustained or suffered by
any of the foregoing as a result of, arising out of or relating to:

(a) any Breach of any representation or warranty made by the Company contained
in this Agreement or any Operative Document to which the Company is a party or
any schedule, certificate or other similar document delivered pursuant hereto or
thereto or any Third Party Claim that if meritorious would have been a breach of
any representation or warranty made by the Company contained in this Agreement
or any Operative Document to which the Company is a party or any schedule,
certificate or other similar document delivered pursuant hereto or thereto (for
purposes of determining Losses under this Section 8.2(a), without giving effect
to any limitations or qualifications thereto relating to materiality, Material
Adverse Effect, or any supplements or updates to the Disclosure Memorandum made
after the date hereof other than inclusion in a supplement to the Disclosure
Schedule of (i) any of the items set forth on Schedule 8.2(a), and (ii) any
matter to which Parent provided its consent pursuant to Section 5.1) or any
Breach of the covenant contained in Section 5.6(b);

(b) any Breach of any covenant (other than contained in Section 5.6(b)) or
agreement by Company contained in this Agreement or any Operative Document to
which the Company is a party or any schedule, certificate or other similar
document delivered pursuant hereto or thereto (including as a result of the
action or failure to act of the Company or any of its Subsidiaries) or the
taking of any action prohibited by Section 5.1 for which Parent did not
expressly consent, or any Breach of the Non-Compete by a Key Employee, but only
to the extent of shares of Parent Common Stock escrowed on behalf of such
breaching Key Employee (for purposes of clarity, such Key Employee’s Breach to
be the several obligation of such Key Employee);

(c)(i) any Transaction Expenses charged to Parent, Merger Sub, the Surviving
Corporation or the Company that were either not reflected on the Schedule of
Expenses or were in excess of $15,000,000, or (ii) any amounts required to be
paid to any Shareholder in excess of amounts set forth in the Consideration
Spreadsheet;

(d) any amounts required to be paid to holders of Dissenting Shares, including
any interest required to be paid thereon, that are in excess of what such
Shareholder would have received hereunder had such Shareholder not been a holder
of Dissenting Shares, or

 

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(e) without duplication of any amounts indemnified pursuant to Section 8.2(a),
any Tax that is a Disclosed Tax (as hereinafter defined) and all Losses related
thereto; provided, however, that the indemnity obligation for a Disclosed Tax
shall be reduced (but not below zero) by the reserve for such Disclosed Tax that
is included as a liability for Taxes in the Interim Balance Sheet, to the extent
the reserve was established for the issue that gave rise to such indemnity
obligation. For purposes of this Section 8.2(e), a “Disclosed Tax” means a Tax
(whether or not stated in terms of amount) that is disclosed as a liability or
potential liability, or that could result from one or more issues or potential
issues referred to, in Schedule 3.8 of the Disclosure Memorandum, and (without
duplication) any Tax that may be imposed as a result of audits referred to in
Schedule 3.8 of the Disclosure Memorandum.

From and after the Effective Time, the Indemnifying Shareholders and the
Consenting Optionholders shall have no rights of contribution or otherwise from
the Company or any Subsidiary of the Company with respect to any indemnification
obligations such Indemnifying Shareholders and Consenting Optionholders may have
under this Article VIII. Notwithstanding the foregoing, a Breach of a
representation in Section 3.1 or Section 3.8 that would not have occurred but
for the enactment, following the date of this Agreement, of one or more new Laws
requiring the Company or a Subsidiary to collect and remit sales and use Taxes
in a jurisdiction in which the Company or a Subsidiary was not registered to
collect and remit sales and use Taxes prior to the Effective Time, (“New Law”)
shall not give rise to a claim for indemnity pursuant to Section 8.2(a) based on
such Breach, it being understood that any Breach of a representation in
Section 3.1 or Section 3.8 that would have occurred absent the enactment of such
New Law shall continue to give rise to a claim for indemnity pursuant to
Section 8.2(a).

 

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Section 8.3 Indemnification by Parent and the Surviving Corporation. From and
after the Effective Time, Parent and the Surviving Corporation shall save,
defend, indemnify and hold harmless the Indemnifying Shareholders, the
Consenting Optionholders and their Affiliates and the respective
Representatives, successors and assigns of each of the foregoing from and
against any and all Losses asserted against, incurred, sustained or suffered by
any of the foregoing as a result of, arising out of or relating to:

(a) any Breach of any representation or warranty made by Parent or Merger Sub
contained in this Agreement or any Operative Document or any schedule,
certificate or other similar document delivered pursuant hereto or thereto (for
purposes of determining Losses under this Section 8.3(a), without giving effect
to any limitations or qualifications as to materiality, or Material Adverse
Effect); and

(b) any Breach of any covenant or agreement by Parent or Merger Sub contained in
this Agreement or any Operative Document or any schedule, certificate or other
similar document delivered pursuant hereto or thereto.

Section 8.4 Procedures.

(a) In order for a party (the “Indemnified Party”) to be entitled to any
indemnification provided for under this Article VIII of this Agreement in
respect of, arising out of or involving a Loss or a claim or demand made by any
person (including notice of the commencement of any legal proceeding, threat,
audit or examination) against the Indemnified Party (a “Third Party Claim”),
such Indemnified Party shall deliver notice thereof (which in the case of Parent
shall be in the form of an Officer’s Certificate) to the Shareholder
Representative, on behalf of the Indemnifying Shareholders and the Consenting
Optionholders, or to Parent, as applicable (the “Indemnifying Party”, for
avoidance of doubt, the Indemnifying Shareholders and Consenting Optionholders
are collectively the “Indemnifying Party” as such term is used in this Agreement
and not each individually the “Indemnifying Party”) and shall provide the
Indemnifying Party with such information with respect thereto as the
Indemnifying Party may reasonably request (but, at a minimum, shall provide the
following: (i) the amount of such Losses (which, in the case of Losses not yet
incurred or paid may be the maximum amount reasonably likely to be incurred or
paid), including a statement of the number of shares of Parent Common Stock
representing such claim, and identifying the specific clause or clauses of this
Agreement pursuant to which an Indemnified Party is entitled to indemnification,
and (ii) specifying in reasonable detail (based upon the information then
possessed) the facts and circumstances related to the breach and the individual
items of such Losses arising out of, resulting from or in connection with such
breach). The failure to provide such notice or any delay in providing it,
however, shall not release the Indemnifying Party from any of its obligations
under this Article VIII except to the extent that the Indemnifying Party is
materially prejudiced by such failure or delay (other than in the event that
such notice is provided after the applicable time by which a claim must be made
under this Agreement as provided in Section 8.1(b)). If the Indemnifying Party
acknowledges in writing its obligation to indemnify the Indemnified Party
against any and all Losses that may result from a Third Party Claim pursuant to
the terms of this Agreement (and if such Third Party Claim does not attempt to
impose

 

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equitable remedies or any obligation on the Indemnified Party other than solely
the payment of money damages for which the Indemnified Party will be indemnified
hereunder), the Indemnifying Party shall have the right, upon written notice to
the Indemnified Party within 15 days of receipt of notice from the Indemnified
Party of the commencement of such Third Party Claim, to assume the defense
thereof at the expense of the Indemnifying Party (which expenses shall not be
applied against any indemnity limitation herein) with counsel selected by the
Indemnifying Party and reasonably satisfactory to the Indemnified Party. The
Indemnifying Party shall be liable for the fees and expenses of counsel employed
by the Indemnified Party for any period during which the Indemnifying Party has
failed to assume the defense thereof. If the Indemnifying Party does not
expressly elect to assume the defense of such Third Party Claim within the time
period and otherwise in accordance with the first sentence of this
Section 8.4(b), the Indemnified Party shall have the sole right to assume the
defense of and to settle such Third Party Claim. If the Indemnifying Party
assumes the defense of such Third Party Claim at the Indemnifying Party’s sole
cost and expense, the Indemnified Party shall have the right to employ separate
counsel and to participate in the defense thereof, but the fees and expenses of
such Indemnified Party’s counsel shall be at the expense of the Indemnified
Party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the Indemnifying Party or (ii) the named parties to the
Third Party Claim (including any impleaded parties) include both the Indemnified
Party and the Indemnifying Party, and the Indemnified Party reasonably
determines that representation by counsel to the Indemnifying Party of both the
Indemnifying Party and such Indemnified Party may present such counsel with a
conflict of interest. If the Indemnifying Party assumes the defense of any Third
Party Claim, the Indemnified Party shall, at the Indemnifying Party’s expense,
cooperate with the Indemnifying Party in such defense and make available to the
Indemnifying Party all witnesses, pertinent records, materials and information
in the Indemnified Party’s possession or under the Indemnified Party’s control
relating thereto as is reasonably required by the Indemnifying Party. If the
Indemnifying Party assumes the defense of any Third Party Claim, the
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party, enter into any settlement or compromise or consent to the
entry of any judgment with respect to such Third Party Claim if such settlement,
compromise or judgment (A) involves a finding or admission of wrongdoing,
(B) does not include an unconditional written release by the claimant or
plaintiff of the Indemnified Party from all liability in respect of such Third
Party Claim, (C) imposes equitable remedies or any obligation on the Indemnified
Party other than solely the payment of money damages for which the Indemnified
Party will be indemnified hereunder, or (D) could affect the liability of
Parent, the Company or their Affiliates in periods not specifically addressed in
such Third Party Claim. The Indemnifying Party shall not be entitled to require
that any action be made or brought against any other Person before action is
brought or Claim is made against it hereunder by the Indemnified Party.

(b) If any Indemnified Party should have a claim against any Indemnifying Party
hereunder that does not involve a Third Party Claim being asserted against or
sought to be collected from such Indemnified Party, the Indemnified Party shall
deliver notice of such claim with reasonable promptness to the Indemnifying
Party (which in the case of Parent shall be in the form of an Officer’s
Certificate) and shall

 

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provide the Indemnifying Party with such information with respect thereto as the
Indemnifying Party may reasonably request (but, at a minimum, shall provide the
following: (i) the amount of such Losses (which, in the case of Losses not yet
incurred or paid may be the maximum amount reasonably likely to be incurred or
paid), and identifying the specific clause or clauses of this Agreement pursuant
to which an Indemnified Party is entitled to indemnification, (ii) specifying in
reasonable detail (based upon the information then possessed) the facts and
circumstances related to the breach and the individual items of such Losses
arising out of, resulting from or in connection with such breach). The failure
to provide such notice, however, shall not release the Indemnifying Party from
any of its obligations under this Article VIII except to the extent that the
Indemnifying Party is materially prejudiced by such failure and shall not
relieve the Indemnifying Party from any other obligation or liability that it
may have to the Indemnified Party or otherwise than pursuant to this
Article VIII (other than in the event that such notice is provided after the
applicable time by which a claim must be made under this Agreement as provided
in Section 8.1(b)). If the Indemnifying Party does not notify the Indemnified
Party within twenty days following its receipt of such notice that the
Indemnifying Party disputes its liability to the Indemnified Party hereunder,
such claim specified by the Indemnified Party in such notice shall be
conclusively deemed a liability of the Indemnifying Party hereunder and the
Indemnifying Party shall pay the amount of such liability to the Indemnified
Party on demand. If the Indemnifying Party agrees that it has an indemnification
obligation but asserts that it is obligated to pay a lesser amount than that
claimed by the Indemnified Party, the Indemnifying Party shall pay such lesser
amount promptly to the Indemnified Party, without prejudice to or waiver of the
Indemnified Party’s claim for the difference, which payment in the case of
indemnification pursuant to Section 8.2 shall be made by pro rata and severally
by forfeiture of shares of Parent Common Stock held in the Indemnity Escrow Fund
and forfeiture of Parent Options by Consenting Optionholders.

(c) At any time on or before the termination of the Indemnity Escrow Fund, upon
receipt by the Escrow Agent of a certificate signed by any officer of Parent (an
“Officer’s Certificate”): (A) stating that Parent has paid or properly accrued
or reasonably anticipates that it will have to pay or accrue Losses, and
(B) specifying in reasonable detail the individual items of Losses included in
the amount so stated, or the basis for such anticipated Liability, and the
nature of the misrepresentation, breach of warranty or covenant to which such
item is related and shall provide the Indemnifying Party with such information
with respect thereto as the Indemnifying Party may reasonably request (but, at a
minimum, shall provide the following: (i) the amount of such Losses (which, in
the case of Losses not yet incurred or paid may be the maximum amount reasonably
likely to be incurred or paid), including a statement of the number of shares of
Parent Common Stock representing such claim, and identifying the specific clause
or clauses of this Agreement pursuant to which an Indemnified Party is entitled
to indemnification, and (ii) specifying in reasonable detail (based upon the
information then possessed) the facts and circumstances related to the breach
and the individual items of such Losses arising out of, resulting from or in
connection with such breach), the Escrow Agent shall, subject to the provisions
of Section 8.4(e) hereof, deliver to Parent out of the Indemnity Escrow Fund, as
promptly as practicable, shares of Parent Common Stock held in the Indemnity
Escrow Fund having a value, determined in accordance with

 

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Section 8.4(d), equal to the amount of such Losses (or in the case of each
Consenting Optionholder, to the extent such Consenting Optionholder has not
contributed shares into the Indemnity Escrow Fund to cover their respective
several obligation for such Losses, Parent shall be entitled to offset such
Losses against their respective Parent Options pursuant to the Option Consent).

(d) For the purposes of determining the number of shares of Parent Common Stock
to be delivered to Parent out of the Indemnity Escrow Fund pursuant to
Section 8.4(c) hereof (or with respect to the Consenting Optionholders, in
connection with determining their respective pro rata share of the Losses), the
shares of Parent Common Stock shall be valued at Parent Stock Price.

(e) At the time of delivery of any Officer’s Certificate to the Escrow Agent as
described in Section 8.4(c), a duplicate copy of such Officer’s Certificate
shall be delivered to the Shareholder Representative, and for a period of 20
days after such delivery the Escrow Agent shall make no delivery to Parent of
any of the Indemnity Escrow Fund pursuant to Section 8.4(c) hereof unless the
Escrow Agent shall have received written authorization from the Shareholder
Representative to make such delivery. After the expiration of such 20 day
period, the Escrow Agent shall make delivery of shares of Parent Common Stock
from the Indemnity Escrow Fund in accordance with Section 8.4(c) hereof,
provided that no such payment or delivery may be made if Shareholder
Representative shall object in a written statement to the claim made in the
Officer’s Certificate, and such statement shall have been delivered to the
Escrow Agent and Parent prior to the expiration of such 20 day period.

(f) In case the Shareholder Representative shall timely object in writing to any
claim or claims made in any Officer’s Certificate, the Shareholder
Representative and Parent shall attempt in good faith to agree upon the rights
of the respective parties with respect to each of such claims. If the
Shareholder Representative and Parent should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any
such memorandum and distribute shares of Parent Common Stock from the Escrow
Fund in accordance with the terms thereof. If no such agreement can be reached
after good faith negotiation, the parties shall resolve any such dispute as
provided in Section 10.10.

(g) Notwithstanding the provisions of Section 10.10, each Indemnifying Party
hereby consents to the nonexclusive jurisdiction of any court in which a Claim
in respect of a Third Party Claim is brought against any Indemnified Party for
purposes of any Claim that an Indemnified Party may have under this Agreement
with respect to such Claim or the matters alleged therein and agrees that
process may be served on each Indemnifying Party with respect to such Claim
anywhere.

 

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Section 8.5 Limits on Indemnification.

(a) Notwithstanding anything to the contrary contained in this Agreement:

(i) Deductible. An Indemnifying Party shall not be liable for any claim for
indemnification pursuant to Section 8.2(a) or Section 8.3(a), as the case may
be, unless and until the aggregate amount of Losses which may be recovered from
the Indemnifying Party (other than with respect to Breaches of Core
Representations or Losses resulting therefrom which shall not be counted towards
the Deductible nor subject to the Deductible) equals or exceeds $1,000,000, (the
“Deductible”), in which case the Indemnifying Party shall be liable only for the
Losses in excess of the Deductible.

(ii) Maximum Liability for Breach of non-Core Representation by Parent. The
maximum aggregate amount of Losses which may be recovered by an Indemnified
Party arising out of or relating to the causes set forth in Section 8.3(a)
(other than a Breach of a Core Representation or arising out of or relating to
the untruth or breach of any representation or warranty in the event of fraud,
intentional misrepresentation or intentional breach) shall be an amount equal to
ten percent (10%) of the Total Merger Consideration.

(iii) Maximum Liability for Breach of Core Representation or Covenant by Parent.
The maximum aggregate amount of Losses which may be recovered by an Indemnified
Party arising out of or relating to the causes set forth in Section 8.3(a) for a
Breach of a Core Representation or under Section 8.3(b) shall be an amount equal
to the Total Merger Consideration.

(iv) Maximum Liability for Breach of non-Core Representation or Certain Tax
Matters by the Company. The maximum aggregate amount of Losses which may be
recovered by an Indemnified Party arising out of or relating to (x) the causes
set forth in Section 8.2(a) (other than a Breach of a Core Representation or
arising out of or relating to the untruth or breach of any representation or
warranty in the event of fraud or intentional misrepresentation), and (y) the
untruth or breach of any representation or warranty made in any Core
Representation under Section 8.2(a) to the extent such Losses are comprised of
state sales or use Taxes with respect to sales made in the ordinary course of
business or state income Taxes (as well as any interest and penalties thereon
and any investigative and defense costs, including reasonable attorney’s fees,
relating thereto), in each case, that the Company or any Subsidiary failed to
pay prior to the Closing, shall be an amount equal to, and consisting solely of,
the value of:

(A) the shares of Parent Common Stock (based on the Parent Stock Price) in the
Indemnity Escrow Fund (including any additional shares as may be issued after
the Effective Time with respect to the shares constituting the Indemnity Escrow
Amount upon any stock split, stock dividend or recapitalization effected by
Parent after the Effective Time), minus

(B) the number of shares of Parent Common Stock (based on the Parent Stock
Price) placed in the Indemnity Escrow Fund by holders of shares that were or
could have become Dissenting Shares who shall have withdrawn or relinquished
their rights as dissenting shareholders and deposited additional shares of
Parent Common Stock into the Indemnity Escrow Fund to the extent not distributed
pursuant to Section 8.7(b) below), plus

 

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(C) the aggregate number of Parent Options subject to forfeiture pursuant to the
terms of all Option Consents.

(v) Maximum Liability for Special Matters by the Company. Subject to the
limitations set forth in Section 8.5(a)(iv) with respect to state sales, use and
income Taxes, the maximum aggregate amount of Losses which may be recovered by
an Indemnified Party arising out of or relating to the Special Matters (other
than arising out of or relating to the untruth or breach of any representation
or warranty in the event of fraud or intentional misrepresentation) shall be
limited to an amount equal to the value of the shares of Parent Common Stock
(based on the Parent Stock Price) actually received by all such Indemnifying
Shareholders (including shares of Parent Common Stock in the Indemnity Escrow
Fund), and all of the Parent Options issued to Consenting Optionholders pursuant
to Section 2.9; provided, that with respect to Special Matters, the Indemnified
Persons must first seek to recover any Losses to which they are entitled from
the Indemnity Escrow Fund and exhaust all amounts in the Indemnity Escrow Fund
(after taking into account all other indemnification obligations recoverable
from the Indemnity Escrow Fund) before seeking recovery from any Indemnifying
Shareholder pursuant to this Agreement.

(vi) Liability for Fraud, Etc. The maximum aggregate amount of Losses which may
be recovered by an Indemnified Party arising out of or relating to the untruth
or breach of any representation or warranty in the event of fraud or intentional
misrepresentation shall not be subject to any limitation.

(vii) Limits on Deductible for Parent. The limits of Sections 8.5(a)(i) shall
not apply to Losses arising out of or relating Breach of a Core Representation
under Section 8.3(a), any representation or warranty in the event of fraud,
intentional misrepresentation or intentional breach by Parent or Merger Sub, or
the matters arising under Section 8.3(b).

(viii) Limits on Deductible for the Indemnifying Shareholders and Consenting
Optionholders. The limits of Sections 8.5(a)(i), shall not apply to(A) Losses
arising out of or relating to the untruth or breach of any representation or
warranty made in any Core Representation by the Company under Section 8.2(a),
(B) Losses arising out of or relating to the untruth or breach of any
representation or warranty in the event of fraud, intentional misrepresentation
or intentional breach by the Company or (C) to those items set forth in Sections
8.2(b), (c), (d), or (e) (Sections 8.5(a)(viii)(A), (B) and (C) are
collectively, the “Special Matters”).

(ix) Limit on Parent and Surviving Corporation Indemnification to Preserve
Reorganization Status. Parent’s indemnity obligations under this Agreement and
the Operative Documents shall be reduced to the extent necessary so that the
Merger will not to fail to qualify as a reorganization, as defined in
Section 368(a)(1)(A) of the Code by reason of Section 368(a)(2)(E) of the Code,
as a result of payments in cash to holders or former holders of Dissenting
Shares, if any, and the indemnity obligations of Parent and the Company set
forth herein or arising under any other of the Operative Documents. Upon request
by Parent following a final determination or agreement that any cash

 

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amounts are owed by Parent or the Surviving Corporation to the former
shareholders of the Company (other than by reason of Section 2.8), the
Shareholder Representative and Parent shall agree in writing upon the amount of
the reduction, if any, in such obligation required under this
Section 8.5(a)(ix), and Parent and the Surviving Corporation shall be deemed to
have satisfied their obligations under this Section 8.5(a)(ix), and shall not be
deemed to have breached Section 6.1, by paying such reduced amount.

(b) An Indemnified Party may not make a claim for indemnification under
Section 8.2(a) or Section 8.3(a), as the case may be, for breach by the
Indemnifying Party of a particular representation or warranty after the
expiration of the survival period thereof specified in Section 8.1, except as
otherwise provided in such Section.

(c) The amount of any Losses that are subject to indemnification under this
Article VIII shall be calculated net of the amount of any insurance proceeds,
indemnification payments or contribution payments actually received by Parent,
Merger Sub, the Surviving Corporation and their Affiliates, provided that
Parent, Merger Sub, the Surviving Corporation and/or their Affiliates shall be
under no obligation to seek any such insurance proceeds, indemnification
payments or contribution payments.

Section 8.6 Remedies Not Affected by Investigation, Disclosure or Knowledge.
Subject to the limitations set forth in this Article VIII, if the transactions
contemplated hereby are consummated, Parent expressly reserves the right to seek
indemnity or other remedy for any Losses arising out of or relating to any
breach of any representation, warranty or covenant contained herein,
notwithstanding any investigation by, disclosure to or Knowledge of such party
in respect of any fact or circumstance that reveals the occurrence of any such
breach, whether before or after the execution and delivery hereof.

Section 8.7 Indemnity Escrow Fund; Shareholder Representative Expense Fund.

(a) If the Merger is consummated, the indemnification provisions in this Article
VIII shall be the sole and exclusive remedy for any and all Claims with respect
to this Agreement other than in the case of fraud or intentional
misrepresentation.

(b) If the Indemnity Escrow Ratio used to calculate the number of shares of
Parent Common Stock contributed to the Indemnity Escrow Fund on behalf of the
Indemnifying Shareholders is greater than 10% as of the Closing Date, and if
between the Closing Date and the thirty day anniversary of the Closing Date any
Shareholder who was not an Indemnifying Shareholder as of the Closing Date shall
have withdrawn or relinquished his/her/its rights as dissenting shareholders
under Chapter 13 of the CGCL in connection with the Merger (a “Relinquishing
Shareholder”), Parent agrees that it shall, as soon as commercially practicable
after such thirty day anniversary of the Closing Date, instruct the Escrow Agent
to deliver to each Indemnifying Shareholder (that was not a Relinquishing
Shareholder), a pro rata portion of the shares of Parent Common Stock placed in
the Indemnity Escrow Fund by such Relinquishing Shareholders to reflect an
Indemnity Escrow Ratio as of the Closing for each such Indemnifying Shareholder
as of such thirty day anniversary date of the Closing of: (x) 0.10 multiplied

 

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by the ratio of (y) the total number of outstanding shares of Capital Stock of
the Company as of immediately prior to the Effective Time on a fully diluted
basis (i.e., inclusive of Stock Purchase Rights) divided by that number equal to
(1) the total number of outstanding shares of Capital Stock of the Company on a
fully diluted basis (i.e., inclusive of Stock Purchase Rights) minus (2) the
total number of issued and outstanding shares of Capital Stock that are
dissenting shares in accordance with Chapter 13 of the CGCL as of such thirty
day anniversary of the Closing Date. Additionally, as provided in the Option
Consent, such Consenting Optionholders shall also be subject to a pro rata
reduction in their indemnity obligations under the Option Consent in an amount
consistent with the formulation described above to account for any such shares
of Parent Common Stock placed in the Indemnity Escrow Fund by such Relinquishing
Shareholders.

(c) Promptly, but in any event within five Business Days, after February 28,
2011, Parent shall instruct the Escrow Agent to release all amounts in the
Indemnity Escrow Fund in excess of (i) $40 million of Parent Common Stock
(valued at the Parent Stock Price), plus (ii) an amount of Parent Common Stock
(valued at the Parent Stock Price) equal to any unsatisfied indemnification
claims pending that were described in any Officer’s Certificate delivered prior
to February 28, 2011 to the Indemnifying Shareholders pro rata in accordance
with the contributions made to the Escrow Fund by such Indemnifying Shareholders
(as adjusted for any amounts delivered to Parent with respect to a several
Breach by any such Indemnifying Shareholder).

(d) Upon the termination of the Indemnity Escrow Fund on the four year
anniversary of the Closing Date (or such later date to the extent of pending
claims) and otherwise pursuant to the terms of the Escrow Agreement, the Escrow
Agent shall deliver any shares of Parent Common Stock remaining in the Indemnity
Escrow Fund to the Indemnifying Shareholders. Delivery of such Parent Common
Stock (and any amounts earned thereon) to Indemnifying Shareholders shall be
made pro rata in accordance with the contributions made to the Escrow Fund by
such Indemnifying Shareholders (as adjusted for any amounts delivered to Parent
with respect to a several Breach by any such Indemnifying Shareholder).
Notwithstanding the foregoing, the Escrow Agent shall make no distributions to
Indemnifying Shareholders from the Indemnity Escrow Fund to the extent necessary
and shall retain an amount equal to any unsatisfied indemnification claims
pending that were described in any Officer’s Certificate delivered prior to the
four year anniversary of the Closing Date.

(e) Each Indemnifying Shareholder shall have voting rights with respect to the
shares of Parent Common Stock deposited to the Indemnity Escrow Fund and the
Shareholder Representative Expense Fund by or on behalf of such Indemnifying
Shareholder (and any additional shares as may be issued after the Effective Time
with respect to the shares constituting the Indemnity Escrow Amount or the
Shareholder Representative Expense Fund Amount upon any stock split, dividend or
recapitalization effected by Parent after the Effective Time) unless paid
pursuant to an indemnification claim. Each Indemnifying Shareholder shall have
the right to receive any cash dividends or distributions made with respect to
shares of Parent Common Stock deposited to the Indemnity Escrow Fund and the
Shareholder Representative Expense Fund, but any

 

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additional shares of Parent Common Stock as may be issued after the Effective
Time with respect to the shares constituting the Indemnity Escrow Amount or the
Shareholder Representative Expense Fund Amount, in either case, upon any stock
split, stock dividend or recapitalization effected by Parent after the Effective
Time shall be retained in the Indemnity Escrow Fund, or in the case of the
Shareholder Representative Expense Fund, in the Shareholder Representative
Expense Fund. For federal income Tax purposes, the Indemnifying Shareholders on
whose behalf the Shares of Parent Common Stock in the Indemnity Escrow Fund were
deposited will be treated as the owners of such Shares unless and until such
Shares are returned to Parent.

(f) Pursuant to the terms of this Agreement and the Escrow Agreement, the shares
of Parent Common Stock constituting the Shareholder Representative Expense Fund
shall be held in a segregated account by the Escrow Agent and shall be solely
available to reimburse the Shareholder Representative for expenses incurred by
the Shareholder Representative in performing its duties hereunder (including
legal fees and expenses related thereto) and in connection therewith, the
Shareholder Representative shall have the authority to instruct the Escrow Agent
to liquidate any shares of Parent Common Stock then placed in the Shareholder
Representative Expense Fund and to distribute any amounts received upon such
liquidation to either the Shareholder Representative personally, or at the
instruction of the Shareholder Representative, to any third party providing
services to the Shareholder Representative in connection with his obligations
hereunder (including legal fees and expenses related thereto, and for purpose of
clarity, relating to the defense of third party claims against the Indemnifying
Shareholders and Consenting Optionholders). If any shares of Parent Common Stock
remain in the Shareholder Representative Expense Fund at such time as the
Shareholder Representative reasonably believes that all of his obligations have
been satisfied pursuant to the terms of this Agreement and the Escrow Agreement,
such shares shall be distributed by the Escrow Agent to the Shareholders based
on their pro rata interest therein (as calculated based on the number of shares
of Parent Common Stock placed in the Shareholder Representative Expense Fund by
each such Indemnifying Shareholder). For federal income Tax purposes, the
Shareholders on whose behalf the shares of Parent Common Stock in the
Shareholder Representative Expense Fund were deposited will be treated as the
owners of such Shares and of any income thereon or proceeds therefrom unless and
until such amounts are distributed from the Shareholder Representative Expense
Fund to pay expenses as provided in this Agreement and the Escrow Agreement.

(g) Upon any distribution of shares of Parent Common Stock to Indemnifying
Shareholders from the Indemnity Escrow Fund or the Shareholder Representative
Expense Fund, in lieu of any fractional shares, Indemnifying Shareholders who
would otherwise have been entitled to receive a fraction of a share of Parent
Common Stock will be paid an amount in cash (without interest) equal to such
holder’s respective proportionate interest in the net proceeds from the sale or
sales in the open market by the Escrow Agent, on behalf of all such Indemnifying
Shareholder, of the aggregate fractional shares of Parent Common Stock which
would otherwise be released. Prior to any such release, the Escrow Agent shall
determine the excess of (i) the number of shares of Parent Common Stock to be
distributed to Indemnifying Shareholders

 

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(without excluding fractional shares), over (ii) the aggregate number of whole
shares of Parent Common Stock to be distributed to Indemnifying Shareholders
(excluding fractional shares) (such excess being collectively called the “Excess
Parent Common Stock”). The Escrow Agent, as agent and trustee for the
Indemnifying Shareholders, shall as promptly as reasonably practicable sell the
Excess Parent Common Stock at the prevailing prices on NASDAQ (or on the
principal exchange on which the Parent Common Stock is then traded or quoted).
The sales of the Excess Parent Common Stock by the Escrow Agent shall be
executed on NASDAQ (or such other exchange) through one or more member firms of
NASDAQ (or such other exchange) and shall be executed in round lots to the
extent practicable. Until the net proceeds of such sales have been distributed
to the Indemnifying Shareholders to whom fractional shares of Parent Common
Stock otherwise would have been issued, the Escrow Agent will hold such proceeds
in trust for such former holders. As soon as practicable after the determination
of the amount of cash to be paid to Indemnifying Shareholders in lieu of any
fractional shares of Parent Common Stock, the Escrow Agent shall distribute such
amounts to such Indemnifying Shareholders.

ARTICLE IX

TERMINATION

Section 9.1 Termination. This Agreement may be terminated at any time prior to
the Closing:

(a) by mutual written consent of Parent and the Company

(b)(i) by the Company, if Parent or Merger Sub breaches or fails to perform in
any respect any of its representations, warranties or covenants contained in
this Agreement or any Operative Document and such breach or failure to perform
(A) would give rise to the failure of a condition set forth in Section 7.2,
(B) cannot be or has not been cured within 30 days following delivery of written
notice of such breach or failure to perform and (C) has not been waived by the
Company or (ii) by Parent, if the Company breaches or fails to perform in any
respect any of its representations, warranties or covenants contained in this
Agreement or any Operative Document and such breach or failure to perform
(A) would give rise to the failure of a condition set forth in Section 7.3,
(B) cannot be or has not been cured within 30 days (or 45 days in the case of a
Breach of the representation and warranty contained in Section 3.7(c)) following
delivery of written notice of such breach or failure to perform and (C) has not
been waived by Parent;

(c)(i) by the Company, if any of the conditions set forth in Section 7.1 or
Section 7.2 shall have become incapable of fulfillment prior to December 31,
2009 or (ii) by Parent, if any of the conditions set forth in Section 7.1 or
Section 7.3 shall have become incapable of fulfillment prior to December 31,
2009; provided, that the right to terminate this Agreement pursuant to this
Section 9.1(c) shall not be available if the failure of the party so requesting
termination to fulfill any obligation under this Agreement shall have been the
cause of the failure of such condition to be satisfied on or prior to such date,
provided, further, that any failure by any Shareholder of the Company to
promptly make all necessary filings, and thereafter promptly make any other
required

 

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submissions, with respect to this Agreement required under the HSR Act or any
other applicable Law with respect to such Shareholder’s acquisition of shares of
Parent Common Stock in connection with the Merger shall be deemed a failure by
the Company for purposes of this Section 9.1(c);

(d) by either the Company or Parent if the Merger shall not have been
consummated by December 31, 2009; provided, that the right to terminate this
Agreement under this Section 9.1(d) shall not be available if the failure of the
party so requesting termination to fulfill any obligation under this Agreement
shall have been the cause of the failure of the Merger to be consummated on or
prior to such date, provided, further, that any failure by any Shareholder of
the Company to promptly make all necessary filings, and thereafter promptly make
any other required submissions, with respect to this Agreement required under
the HSR Act or any other applicable Law with respect to such Shareholder’s
acquisition of shares of Parent Common Stock in connection with the Merger shall
be deemed a failure by the Company for purposes of this Section 9.1(d);

(e) by either the Company or Parent in the event that any Governmental Body
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and nonappealable; provided, that Parent and Merger Sub (if Parent is so
requesting termination) or the Company (if it is so requesting termination), as
the case may be, shall have used their commercially reasonable efforts, in
accordance with Section 5.10, to have such order, decree, ruling or other action
vacated; or

(f) by Parent, if between the date hereof and the Closing, a Material Adverse
Effect occurs and has remained continuing for at least 45 days following written
notice to the Company by Parent of the existence of a Material Adverse Effect.

The party seeking to terminate this Agreement pursuant to this Section 9.1
(other than Section 9.1(a)) shall give prompt written notice of such termination
to the other party.

 

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Section 9.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 9.1, this Agreement shall forthwith become void and there
shall be no liability on the part of either party except (a) for the provisions
of Section 3.23 and Section 4.5 relating to broker’s fees and finder’s fees,
Section 5.9 relating to confidentiality, Section 5.11 relating to public
announcements, Section 10.1 relating to fees and expenses, Section 10.5 relating
to notices, Section 10.8 relating to third-party beneficiaries, Section 10.9
relating to governing law, Section 10.10 relating to submission to jurisdiction
and this Section 9.2 and (b) that nothing herein shall relieve either party from
liability for any willful Breach of this Agreement prior to termination.

ARTICLE X

GENERAL PROVISIONS

Section 10.1 Fees and Expenses. Except as otherwise provided herein, all fees
and expenses incurred in connection with or related to this Agreement and the
Operative Documents and the transactions contemplated hereby and thereby shall
be paid by the party incurring such fees or expenses, whether or not such
transactions are consummated; provided, however, that if the Merger is
consummated, all Transaction Expenses shall be paid as provided in this
Agreement. In the event of termination of this Agreement, the obligation of each
party to pay its own expenses will be subject to any rights of such party
arising from a breach of this Agreement by the other.

Section 10.2 Amendment and Modification. This Agreement may be amended, modified
or supplemented by the parties by action taken or authorized by their respective
Boards of Directors at any time prior to the Closing Date (notwithstanding any
shareholder approval); provided, however, that after approval of the
transactions contemplated hereby by the Shareholders, no amendment shall be made
which pursuant to applicable Law requires further approval by such Shareholders
without such further approval. This Agreement may not be amended, modified or
supplemented in any manner, whether by course of conduct or otherwise, except by
an instrument in writing specifically designated as an amendment hereto, signed
on behalf of each of the parties in interest at the time of the amendment.

Section 10.3 Extension. At any time prior to the Effective Time, the parties, by
action taken or authorized by their respective Boards of Directors, may, to the
extent permitted by applicable Law, extend the time for the performance of any
of the obligations or other acts of the parties. Any agreement on the part of a
party to any such extension shall be valid only if set forth in a written
instrument executed and delivered by a duly authorized officer on behalf of such
party.

Section 10.4 Waiver. At any time prior to the Effective Time, the parties may,
by action taken or authorized by their respective Boards of Directors, to the
extent permitted by applicable Law, (a) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or any document delivered pursuant hereto or (b) subject to applicable Law,
waive compliance with any of the agreements or conditions of the other parties
contained herein. Any agreement on the part of a party to any such waiver shall
be valid only if set forth in a written instrument executed and delivered by a
duly authorized officer on behalf of such party. No failure or delay of any
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operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such right or power, or any course of conduct, preclude any other or further
exercise thereof or the exercise of any other right or power. The rights and
remedies of the parties hereunder are cumulative and are not exclusive of any
rights or remedies which they would otherwise have hereunder.

Section 10.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or if by facsimile, upon written confirmation of receipt by
facsimile or otherwise, (b) on the first Business Day following the date of
dispatch if delivered utilizing a next-day service by a recognized next-day
courier or (c) on the earlier of confirmed receipt or the fifth Business Day
following the date of mailing if delivered by registered or certified mail,
return receipt requested, postage prepaid. All notices hereunder shall be
delivered to the addresses set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:

(i) if to Parent, Merger Sub or the Surviving Corporation, to:

Amazon.com, Inc.

1200 12th Avenue South, Suite 1200

Seattle, WA 98144-2734

Attention: General Counsel

Facsimile: (206) 266-7010

with a copy (which shall not constitute notice) to:

Gibson, Dunn & Crutcher LLP

555 Mission Street, Suite 3000

San Francisco, CA 94105

Attention: Peter T. Heilmann

Facsimile: 415-374-8450

(ii) if to Company or the Shareholder Representative, to:

Zappos.com, Inc.

2280 Corporate Circle

Henderson, NV 89074

Attention: Alfred Lin

Facsimile: (702) 943-7778

with a copy (which shall not constitute notice) to:

Fenwick & West LLP

Silicon Valley Center

801 California Street

Mountain View, CA 94041

Attention: William R. Schreiber & Kris S. Withrow

Facsimile: 650-938-5200

 

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Section 10.6 Interpretation. When a reference is made in this Agreement to a
Section, Article or Exhibit such reference shall be to a Section, Article or
Exhibit of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement or in any Exhibit are for convenience of
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Any
capitalized terms used in any Exhibit but not otherwise defined therein shall
have the meaning as defined in this Agreement. All Exhibits annexed hereto or
referred to herein are hereby incorporated in and made a part of this Agreement
as if set forth herein. The word “including” and words of similar import when
used in this Agreement will mean “including, without limitation,” unless
otherwise specified.

Section 10.7 Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto), the Operative Documents and the Confidentiality Agreement
constitute the entire agreement, and supersede all prior written agreements,
arrangements, communications and understandings and all prior and
contemporaneous oral agreements, arrangements, communications and understandings
among the parties with respect to the subject matter hereof and thereof.
Notwithstanding any oral agreement or course of action of the parties or their
Representatives to the contrary, no party to this Agreement shall be under any
legal obligation to enter into or complete the transactions contemplated hereby
unless and until this Agreement shall have been executed and delivered by each
of the parties.

Section 10.8 No Third-Party Beneficiaries. Except as provided in Section 5.12
and Article VIII, nothing in this Agreement, express or implied, is intended to
or shall confer upon any Person other than the parties and their respective
successors and permitted assigns any legal or equitable right, benefit or remedy
of any nature under or by reason of this Agreement.

Section 10.9 Governing Law. This Agreement and all disputes or controversies
arising out of or relating to this Agreement or the transactions contemplated
hereby shall be governed by, and construed in accordance with, the internal laws
of the State of Washington, without regard to the laws of any other jurisdiction
that might be applied because of the conflicts of laws principles of the State
of Washington.

Section 10.10 Submission to Jurisdiction. Each of the parties irrevocably agrees
that any legal action or proceeding arising out of or relating to this Agreement
brought by any other party or its successors or assigns shall be brought and
determined in any Washington State or federal court sitting in King County in
the State of Washington (or, if such court lacks subject matter jurisdiction, in
any appropriate Washington State or federal court), and each of the parties
hereby irrevocably submits to the exclusive jurisdiction of the aforesaid courts
for itself and with respect to its property, generally and unconditionally, with
regard to any such action or proceeding arising out of or relating to this
Agreement and the transactions contemplated hereby. Each of the parties agrees
not to commence any action, suit or proceeding relating thereto except in the
courts described above in Washington, other than actions in any court of
competent jurisdiction to enforce any judgment, decree or award rendered by any
such court in Washington as described herein. Each of the parties further agrees
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constitute sufficient service of process and the parties further waive any
argument that such service is insufficient. Each of the parties hereby
irrevocably and unconditionally waives, and agrees not to assert, by way of
motion or as a defense, counterclaim or otherwise, in any action or proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby, any claim (a) that it is not personally subject to the jurisdiction of
the courts in Washington as described herein for any reason, (b) that it or its
property is exempt or immune from jurisdiction of any such court or from any
legal process commenced in such courts (whether through service of notice,
attachment prior to judgment, attachment in aid of execution of judgment,
execution of judgment or otherwise) or (c) that (i) the suit, action or
proceeding in any such court is brought in an inconvenient forum, (ii) the venue
of such suit, action or proceeding is improper or (iii) this Agreement, or the
subject matter hereof, may not be enforced in or by such courts.

Section 10.11 Assignment; Successors. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement may be assigned or
delegated, in whole or in part, by operation of law or otherwise, by any party
without the prior written consent of Parent (in the case of an assignment by the
Company) or the Company (in the case of an assignment by Parent or Merger Sub),
and any such assignment without such prior written consent shall be null and
void; provided, however, that Parent or Merger Sub may assign this Agreement to
any Affiliate of Parent without the prior consent of the Company; provided
further, that no assignment shall limit the assignor’s obligations hereunder
(including in connection with any such assignment by Parent and including those
transactions specifically contemplated by Section 2.7 and 2.9 hereof, which
shall in no way be effected by any such assignment by Parent). Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.

Section 10.12 Enforcement. The parties 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. Accordingly,
each of the parties shall be entitled to specific performance of the terms
hereof, including an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in any Washington State or federal court sitting in King County (or, if such
court lacks subject matter jurisdiction, in any appropriate Washington State or
federal court), this being in addition to any other remedy to which such party
is entitled at law or in equity. Each of the parties hereby further waives
(a) any defense in any action for specific performance that a remedy at law
would be adequate and (b) any requirement under any law to post security as a
prerequisite to obtaining equitable relief.

Section 10.13 Currency. All references to “dollars” or “$” or “US$” in this
Agreement or any Operative Document refer to United States dollars, which is the
currency used for all purposes in this Agreement and any Operative Document.

Section 10.14 Severability. Whenever possible, each provision or portion of any
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable Law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable Law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
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portion of any provision in such jurisdiction, and this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.

Section 10.15 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

Section 10.16 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.

Section 10.17 Facsimile Signature. This Agreement may be executed by facsimile
signature and a facsimile signature shall constitute an original for all
purposes.

Section 10.18 Time of Essence. Time is of the essence with regard to all dates
and time periods set forth or referred to in this Agreement.

Section 10.19 No Presumption Against Drafting Party. Each of Parent, Merger Sub
and the Company acknowledges that each party to this Agreement has been
represented by counsel in connection with this Agreement and the transactions
contemplated by this Agreement. Accordingly, any rule of law or any legal
decision that would require interpretation of any claimed ambiguities in this
Agreement against the drafting party has no application and is expressly waived.

[The remainder of this page is intentionally left blank.]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the date first written above by their respective officers thereunto duly
authorized.

 

AMAZON.COM, INC. By:  

/s/    Peter Krawiec

Name:   Peter Krawiec Title:   Vice President ZETA ACQUISITION, INC. By:  

/s/    Peter Krawiec

Name:   Peter Krawiec Title:   Vice President ZAPPOS.COM, INC. By:  

/s/    Alfred Lin

Name:   Alfred Lin Title:   Chairman, COO/CFO SHAREHOLDER REPRESENTATIVE By:  

/s/    Alfred Lin

Name:   Alfred Lin

[Signature Page to Agreement and Plan of Merger]