Document:

ex10_2.htm

Exhibit 10.2

 

Agreement and Plan of Reorganization

 

by and among

ShoreTel, Inc.,

Mets Acquisition Corp.,

Mets Acquisition II LLC,

M5 Networks, Inc.

and

Fortis Advisors LLC, as Effective Time Holders’ Agent

Dated as of January 31, 2012

 

  

  

  

 

Exhibits

 

	  	  	  
	
Exhibit A

	
-

	
Definitions

	
Exhibit B-1

	
-

	
List of Initial Signatories to Company Stockholder Consent

	
Exhibit B-2

	
-

	
Form of Company Stockholder Consent

	
Exhibit B-3

	
-

	
Form of Company Stockholder Agreement

	
Exhibit C-1

	
-

	
List of Company Key Stockholders

	
Exhibit C-2

	
-

	
Form of Investment Representation Letter and Lock-Up Agreement

	
Exhibit C-3

	
-

	
List of Company Qualified Stockholders

	
Exhibit D

	
-

	
List of Key Employees

	
Exhibit E

	  	
List of Signatories to Non-Competition Agreements

	
Exhibit F-1

	
-

	
Form of Certificate of Merger

	
Exhibit F-2

	
-

	
Form of Second Certificate of Merger

	
Exhibit G

	
-

	
Form of Escrow Agreement

	
Exhibit H

	
-

	
Form of Parachute Payment Waiver

	
Exhibit I-1

	
-

	
List of Contracts Requiring Consent

	
Exhibit I-2

	
-

	
List of Contracts Requiring Termination

	
Exhibit I-3

	
-

	
List of Contracts Requiring Amendment

	
Exhibit J-1

	
-

	
Form of IRS Notice

	
Exhibit J-2

	
-

	
Form of FIRPTA Notice

	
Exhibit K

	  	
Form of Joinder Agreement

 

  

  

  

 

AGREEMENT AND PLAN OF REORGANIZATION

 

This Agreement and Plan of Reorganization (this “Agreement”) is made and entered into as of January 31, 2012 (the “Agreement Date”), by and among ShoreTel, Inc., a Delaware corporation (“Acquirer”), Mets Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Acquirer (“Sub I”), Mets Acquisition II LLC, a Delaware limited liability company and wholly owned subsidiary of Acquirer (“Sub II”, together with Sub I, the “Merger Subs”), M5 Networks, Inc., a Delaware corporation (the “Company”), and Fortis Advisors LLC, a Delaware limited liability company, solely with respect to express references herein, as Effective Time Holders’ Agent (as defined in Section 8.7).

 

RECITALS

 

A.          The Boards of Directors of the Company, Merger Subs and Acquirer have determined that it would be advisable and in the best interests of the stockholders of their respective companies that Sub I merge with and into the Company (the “First Merger”), pursuant to which the Company would be the surviving corporation and become a wholly owned subsidiary of Acquirer, and, as part of the same overall transaction, the surviving entity of the First Merger would merge with and into Sub II (the “Second Merger”, and together with the First Merger, the “Mergers”), with Sub II to survive the Second Merger and continue as a wholly owned subsidiary of Acquirer, all on the terms and subject to the conditions set forth in this Agreement, and, in furtherance thereof, have approved the Mergers, this Agreement and the other transactions contemplated by this Agreement.

 

B.           The Mergers taken together are intended to qualify to be a tax free reorganization under Section 368(a)(i)(A) of the Code.

 

C.           Pursuant to the First Merger, among other things, the issued and outstanding shares of capital stock of the Company shall be converted into the right to receive cash and shares of Acquirer Common Stock in the manner set forth herein.

 

D.          The Company, Merger Subs and Acquirer desire to make certain representations, warranties, covenants and other agreements in connection with the Mergers as set forth herein.

 

E.           Immediately following execution of this Agreement and as a material inducement to the willingness of Acquirer to enter into this Agreement, each Company Stockholder listed on Exhibit B-1 will execute and deliver (a) a written consent substantially in the form attached hereto as Exhibit B-2 (the “Company Stockholder Consent”) approving the Mergers and related items and adopting this Agreement and (b) a stockholder agreement substantially in the form attached hereto as Exhibit B-3 (the “Company Stockholder Agreement”).

 

F.           Concurrently with the execution of this Agreement and as a material inducement to the willingness of Acquirer to enter into this Agreement, each of the Company Securityholders identified on Exhibit C-1 hereto (each a “Company Key Stockholder”) is executing and delivering to Acquirer an Investment Representation Letter and Lock-Up Agreement in substantially the form attached hereto as Exhibit C-2, in each case to become effective upon the Closing.

 

G.           Concurrently with the execution of this Agreement and as a material inducement to the willingness of Acquirer to enter into this Agreement, certain employees of the Company and its Subsidiaries identified on Exhibit D (the “Key Employees”) have executed employee offer letters (including a non-disclosure and inventions assignment agreement and such other forms provided by Acquirer and as are part of Acquirer’s standard policy for commencement of employment) with Acquirer (collectively, the “Employment Documents”), in each case to become effective upon the Closing.

 

  

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H.           Concurrently with the execution of this Agreement and as a material inducement to the willingness of Acquirer to enter into this Agreement, each of the Company Securityholders identified on Exhibit E is entering into a non-competition agreement with Acquirer (each, a “Non-Competition Agreement”), in each case to become effective upon the Closing.

 

Now, Therefore, in consideration of the representations, warranties, covenants and other agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

ARTICLE 1

The Mergers

 

1.1           The Mergers.  At the Effective Time (as such term is defined in Section 1.4), on the terms and subject to the conditions set forth in this Agreement, the Certificate of Merger in substantially the form attached hereto as Exhibit F-1 (the “Certificate of Merger”) and the applicable provisions of Delaware Law, Sub I shall merge with and into the Company, the separate corporate existence of Sub I shall cease and the Company shall continue as the surviving corporation and shall become a wholly owned subsidiary of Acquirer.  The Company, as the surviving corporation after the First Merger, is hereinafter sometimes referred to as the “First Step Surviving Corporation.”  At the Second Effective Time (as such term is defined in Section 1.4), on the terms and subject to the conditions set forth in this Agreement, the Second Certificate of Merger in substantially the form attached hereto as Exhibit F-2 (the “Second Certificate of Merger”) and the applicable provisions of Delaware Law, the First Step Surviving Corporation shall merge with and into Sub II, the separate corporate existence of First Step Surviving Corporation shall cease and Sub II shall continue as the surviving entity and a wholly owned subsidiary of Acquirer (the surviving entity after the Second Merger, or its successor, is sometimes referred to herein as the “Final Surviving LLC”).

 

1.2           Closing.  Unless this Agreement is earlier terminated in accordance with Article 7, the closing of the transactions contemplated hereby (the “Closing”) shall take place (i) as promptly as practicable (and in any event within five (5) Business Days) after the satisfaction or waiver of each of the conditions set forth in Article 6 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions) or (ii) as such other time and date as the Acquirer and the Company may agree in writing.  The Closing shall take place at the offices of Fenwick & West LLP, Silicon Valley Center, 801 California Street, Mountain View, California, or at such other location as the parties hereto agree.  The date on which the Closing occurs is herein referred to as the “Closing Date.”

 

1.3           Closing Deliveries.

 

(a)           Acquirer Deliveries.  Acquirer shall deliver to the Company, at or prior to the Closing, each of the following:

 

(i)          a certificate, dated as of the Closing Date, executed on behalf of Acquirer by a duly authorized officer of Acquirer to the effect that each of the conditions set forth in clause (a) of Section 6.2 has been satisfied;

 

  

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(ii)         an Escrow Agreement, in substantially the form attached hereto as Exhibit G (the “Escrow Agreement”), dated as of the Closing Date and executed by Acquirer and the Escrow Agent; and

 

(iii)        the Second Certificate of Merger, executed on behalf of Sub II by a duly authorized officer of Sub II.

 

(b)           Company Deliveries.  The Company shall deliver to Acquirer, at or prior to the Closing, each of the following:

 

(i)          a certificate, dated as of the Closing Date and executed on behalf of the Company by its Chief Executive Officer, to the effect that each of the conditions set forth in clause (a) of Section 6.3 has been satisfied;

 

(ii)         a certificate, dated as of the Closing Date and executed on behalf of the Company by its Secretary, certifying the Company’s (A)  Sixth Amended and Restated Certificate of Incorporation, (B) Bylaws, (C) board resolutions adopting this Agreement, approving the Mergers and the other transactions contemplated by this Agreement and declaring the advisability thereof, (D) stockholder resolutions adopting this Agreement and approving the Mergers and the other transactions contemplated by this Agreement and other matters in Acquirer’s reasonable discretion;

 

(iii)        a certificate from the Secretaries of State of the States of Delaware, New York and Illinois and each other State or other jurisdiction in which the Company or any Subsidiary is qualified to do business as a foreign corporation, dated within three (3) days prior to the Closing Date and certifying that the Company or such Subsidiary is in good standing;

 

(iv)        the Company Closing Financial Certificate;

 

(v)         the Company Stockholder Consent executed by each Company Stockholder listed on Exhibit B-1;

 

(vi)        a Non-Competition Agreement executed by each of the Company Securityholders identified on Exhibit E;

 

(vii)       the Employment Documents executed by each of the employees of the Company or any Subsidiary (other than the Named Executives and the Key Employees) who accepts Acquirer’s offer of employment effective upon the Closing;

 

(viii)      evidence satisfactory to Acquirer of the resignation of each of the directors and each of the officers of the Company and of each Subsidiary in office immediately prior to the Closing as directors and/or officers, as applicable, of the Company and of each such Subsidiary, effective no later than immediately prior to the Effective Time;

 

(ix)        a Parachute Payment Waiver, in substantially the form attached hereto as Exhibit H (the “Parachute Payment Waiver”), executed by each Person required to execute such a waiver pursuant to Section 4.13 hereof;

 

(x)         unless otherwise instructed by Acquirer no later than two (2) Business Days prior to the Closing, resolutions adopted by Company’s Board of Directors terminating Company’s 401(k) plan (the “Company 401(k) Plan”) no later than the day prior to Closing;

 

  

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(xi)        evidence satisfactory to Acquirer of (A) the novation or consent to assignment of any Person whose novation or consent to assignment, as the case may be, may be required in connection with the Mergers or any other transaction contemplated by this Agreement under the contracts listed or described on Exhibit I-1 hereto, (B) the termination of each of the contracts of the Company listed or described on Exhibit I-2 hereto, and (C) the amendment of each of the contracts of the Company listed or described on Exhibit I-3 hereto in the manner described on such exhibit with respect to each such contract;

 

(xii)        the Spreadsheet and a certificate executed on behalf of the Company by its Chief Executive Officer, dated as of the Closing Date, certifying that such Spreadsheet is true, correct and complete;

 

(xiii)       (A) the Pay-off Letters and documentation in a form and substance reasonably satisfactory to Acquirer evidencing that all security interests in any assets of the Company under the Loans (as defined in Section 5.22) may be released pursuant to the terms described in the Pay-off Letters (as defined in Section 5.22), and (B) executed UCC-2 or UCC-3 termination statements executed by each Person holding a security interest in any assets of the Company or any Subsidiary as of the Closing Date terminating any and all such security interests and evidence reasonably satisfactory to Acquirer that all Encumbrances (other than Permitted Encumbrances) on assets of the Company and its Subsidiaries shall have been released prior to or shall be released simultaneously with the Closing;

 

(xiv)      FIRPTA documentation, including (A) a notice to the Internal Revenue Service, in accordance with the requirements of Treasury Regulation Section 1.897-2(h)(2), in substantially the form attached hereto as Exhibit J-1, dated as of the Closing Date and executed by the Chief Executive Officer of the Company on behalf of the Company, together with written authorization for Acquirer to deliver such notice form to the Internal Revenue Service on behalf of the Company after the Closing, and (B) a FIRPTA Notification Letter, in substantially the form attached hereto as Exhibit J-2, dated as of the Closing Date and executed by the Chief Executive Officer of the Company on behalf of the Company;

 

(xv)       a Joinder Agreement in substantially the form attached hereto as Exhibit K executed by a sufficient number of Company Securityholders such that holders of at least 95% of the shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time (or issuable upon the conversion of Company Series A Preferred Stock, Company Series B Preferred Stock, Company Series C Preferred Stock or the exercise of Company Options, Company Warrants or other Company Rights that are issued and outstanding immediately prior to the Effective Time) have executed a Stockholder Agreement or Joinder Agreement;

 

(xvi)      either (1) written consents and waivers executed by such number of eligible Company Stockholders as is required by the terms of Section 280G(b)(5)(B) of the Code so as to render the parachute payment provisions of Section 280G of the Code inapplicable to any and all accelerated vesting payments, benefits, options and/or stock provided pursuant to agreements, contracts or arrangements that might otherwise result, separately or in the aggregate, in the payment of any amount and/or the provision of any benefit that would not be deductible by reason of Section 280G of the Code, with such stockholder approval or non-approval to be obtained in a manner which satisfies all applicable requirements of Section 280G(b)(5)(B) of the Code and the Treasury Regulations thereunder, including Q&A-7 of Section 1.280G-1 of such Treasury Regulations, or (2) in the absence of such stockholder approval, none of those payments or benefits shall be paid or payable or provided, pursuant to the Parachute Payment Waivers delivered to Acquirer pursuant to Section 1.3(b)(ix) above;

 

  

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(xvii)     correct and complete copies of all election statements under Section 83(b) of the Code, if any, that are in the Company’s possession or subject to its control with respect to any unvested securities or other property issued by the Company, any Subsidiary or any ERISA Affiliate to any of their respective employees, non-employee directors, consultants and other service providers;

 

(xviii)    confirmatory assignments of Intellectual Property from all of its current and former employees and independent contractors and consultants identified on Schedule 5.10 in each case in a form that is reasonably acceptable to Acquirer;

 

(xix)       a Company Warrant Termination Agreement executed by each of the Company Warrantholders;

 

(xx)        the Certificate of Merger, executed by the Company;

 

(xxi)       an Investment Representation Letter and Lock-Up Agreement executed by each of the Company Stockholders that will be entitled to receive shares of Acquirer Common Stock pursuant to Section 1.8(a)(ii); and

 

(xxii)     evidence satisfactory to Acquirer that all promissory notes due and owing from Company employees to the Company shall have be repaid in full prior to the Closing or amended to account for a set-off from the net amounts payable to such employees for their Company Securities in the Merger.

 

1.4           Effective Time.  At the Closing, after the satisfaction or waiver of each of the conditions set forth in Article 6, Sub I and the Company shall cause the Certificate of Merger to be filed with the Secretary of State of the State of Delaware, in accordance with the relevant provisions of Delaware Law (the time of acceptance by the Secretary of State of the State of Delaware of such filing or such later time as may be agreed to by Acquirer and the Company and set forth in the Certificate of Merger being referred to herein as the “Effective Time”). Promptly following the Effective Time, but in no event later than three (3) Business Days thereafter, the Company and Sub II shall cause the Second Certificate of Merger to be filed with the Secretary of State of the State of Delaware, in accordance with the relevant provisions of Delaware Law (the time of acceptance by the Secretary of State of the State of Delaware of such filing or such later time as agreed to by Acquirer and the Company and set forth in the Second Certificate of Merger being referred to herein as the “Second Effective Time”).

 

1.5           Effect of the Mergers.  At the Effective Time, the effect of the First Merger shall be as provided in this Agreement, the Certificate of Merger and the applicable provisions of Delaware Law.  Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company and Sub I shall vest in the First Step Surviving Corporation, and all debts, liabilities and duties of the Company and Sub I shall become debts, liabilities and duties of the First Step Surviving Corporation.  At the Second Effective Time, the effect of the Second Merger shall be as provided in this Agreement, the Second Certificate of Merger and the applicable provisions of Delaware Law.  Without limiting the generality of the foregoing, and subject thereto, at the Second Effective Time, all the property, rights, privileges, powers and franchises of Sub II and the First Step Surviving Corporation shall vest in the Final Surviving LLC, and all debts, liabilities and duties of Sub II and the First Step Surviving Corporation shall become the debts, liabilities and duties of the Final Surviving LLC.

 

  

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1.6           Certificate of Incorporation and Bylaws.

 

(a)           At the Effective Time, (i) the Certificate of Incorporation of the First Step Surviving Corporation shall be amended in its entirety to read as set forth in the Certificate of Merger, until thereafter amended as provided by Delaware Law, and (ii) the Bylaws of Sub I shall become the Bylaws of the First Step Surviving Corporation, until thereafter amended as provided by Delaware Law, the Certificate of Incorporation of the First Step Surviving Corporation and such Bylaws.

 

(b)           At the Second Effective Time, (i) the Certificate of Formation of Sub II, as in effect immediately prior to the Second Effective Time, shall be the Certificate of Formation of the Final Surviving LLC, until thereafter amended as provided by Delaware Law (the “Final Surviving Entity Certificate of Formation”), and (ii) the Limited Liability Company Agreement of Sub II, as in effect immediately prior to the Second Effective Time, shall become the Limited Liability Company Agreement of the Final Surviving LLC (the “Final Surviving Entity Limited Liability Company Agreement”), until thereafter amended as provided by Delaware Law, the Final Surviving Entity Certificate of Formation and Final Surviving entity Limited Liability Company Agreement.

 

1.7           Directors and Officers.

 

(a)           At the Effective Time, (i) the members of the Board of Directors of Sub I immediately prior to the Effective Time shall be appointed as the members of the Board of Directors of the First Step Surviving Corporation immediately after the Effective Time until their respective successors are duly elected or appointed and qualified, and (ii) the officers of Sub I immediately prior to the Effective Time shall be appointed as the officers of the First Step Surviving Corporation immediately after the Effective Time until their respective successors are duly appointed.

 

(b)           At the Second Effective Time, (i) the members of the Board of Directors of Sub II immediately prior to the Second Effective Time shall be appointed as the members of the Board of Directors of the Final Surviving LLC immediately after the Second Effective Time until their respective successors are duly elected or appointed and qualified, and (ii) the officers of Sub II immediately prior to the Second Effective Time shall be appointed as the officers of the Final Surviving LLC immediately after the Second Effective Time until their respective successors are duly appointed.

 

1.8           Effect on Capital Stock and Options.

 

(a)           Treatment of Company Capital Stock, Company Options and Company Warrants.  On the terms and subject to the conditions set forth in this Agreement, and without any action on the part of any holder of the Company Capital Stock, Company Options and/or Company Warrants: 

 

(i)           Company Series A Preferred Stock, Company Series B Preferred Stock and Company Series C Preferred Stock.  At the Effective Time, each holder of share of the Company Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be treated as if such shares had been converted into shares of Company Common Stock immediately prior to the Effective Time in accordance with Section 4.1.1 of Company’s Sixth Amended and Restated Certificate of Incorporation (the “Conversion”). 

 

  

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(ii)          Company Common Stock Held by Company Qualified Stockholders.  At the Effective Time, each share of Company Common Stock (which, for the avoidance of doubt, includes each share of Company Common Stock deemed to have been issued upon conversion of all shares of Company Preferred Stock and other than Dissenting Shares and shares owned by the Company) issued and outstanding immediately prior to the Effective Time held by a Company Qualified Stockholder shall be automatically converted into the right to receive, subject to and in accordance with Section 1.9, (A) cash in an amount equal to the Common Qualified Closing Cash Amount Per Share, (B) a number of shares of Acquirer Common Stock equal to the Common Qualified Closing Stock Amount Per Share, (C) the right to receive upon release from escrow pursuant to Section 1.9(c)(iii) and the terms and conditions set forth in this Agreement and the Escrow Agreement, cash in an amount equal to up to the Common Qualified General Escrow Cash Amount Per Share (subject to reduction for payment of Indemnifiable Damages (as defined in Section 8.2) pursuant to the indemnification obligations of the Effective Time Holders under Article 8), (D) the right to receive upon release from escrow pursuant to Section 1.9(c)(iii) and the terms and conditions set forth in this Agreement and the Escrow Agreement, a number of shares of Acquirer Common Stock equal to up to the Common Qualified General Escrow Stock Amount Per Share (subject to reduction for payment of Indemnifiable Damages (as defined in Section 8.2) pursuant to the indemnification obligations of the Effective Time Holders under Article 8), (E) the right to receive upon release from escrow pursuant to Section 1.9(c)(iii) and the terms and conditions set forth in this Agreement and the Escrow Agreement, cash in an amount equal to up to the Common Qualified Special Escrow Cash Amount Per Share (subject to reduction for payment of Indemnifiable Damages (as defined in Section 8.2) pursuant to the indemnification obligations of the Effective Time Holders under Article 8), (F) the right to receive upon release from escrow pursuant to Section 1.9(c)(iii) and the terms and conditions set forth in this Agreement and the Escrow Agreement, a number of shares of Acquirer Common Stock equal to up to the Common Qualified Special Escrow Stock Amount Per Share (subject to reduction for payment of Indemnifiable Damages (as defined in Section 8.2) pursuant to the indemnification obligations of the Effective Time Holders under Article 8), and (G) the right to receive cash in an amount equal to the pro rata share allocable to such share of Company Common Stock of any Earnout Payment payable pursuant to Section 5.20.  The number of shares of Acquirer Common Stock each Company Qualified Stockholder is entitled to receive pursuant to each of the clauses (B), (D) and (F) in this Section 1.8(a)(ii) for the shares of Company Common Stock held by such Company Qualified Stockholder as of the Effective Time (including shares of Company Common Stock deemed to have been issued upon conversion of all shares of Company Preferred Stock held by such Company Qualified Stockholder as of the Effective Time) shall be rounded down to the nearest whole number of shares of Acquirer Common Stock and computed after aggregating all shares of Company Common Stock held by such Company Qualified Stockholder.  The amount of cash each Company Qualified Stockholder is entitled to receive pursuant to each of the clauses (A), (C), (E) and (G) in this Section 1.8(a)(ii) for the shares of Company Capital Stock held by such Company Qualified Stockholder as of immediately prior to the Effective Time shall be rounded to the nearest cent and computed after aggregating cash amounts for all shares of Company Capital Stock represented by a particular stock certificate held by such Company Qualified Stockholder.

 

(iii)         Company Common Stock Held by Company Non-Qualified Stockholders.  At the Effective Time, each share of Company Common Stock issued and outstanding immediately prior to the Effective Time held by a Company Non-Qualified Stockholder (which, for the avoidance of doubt, includes each share of Company Common Stock deemed to have been issued upon conversion of all shares of Company Preferred Stock and other than Dissenting Shares and shares owned by the Company) shall be automatically converted into the right to receive, subject to and in accordance with Section 1.9, (A) cash in an amount equal to the Common Non-Qualified Closing Amount Per Share, (B) the right to receive upon release from escrow pursuant to Section 1.9(c)(iii) and the terms and conditions of this Agreement and the Escrow Agreement, cash in an amount equal to up to the Common Non-Qualified General Escrow Amount Per Share (subject to reduction for payment of Indemnifiable Damages (as defined in Section 8.2) pursuant to the indemnification obligations of the Effective Time Holders under Article 8), (C) the right to receive upon release from escrow pursuant to Section 1.9(c)(iii) and the terms and conditions of this Agreement and the Escrow Agreement, cash in an amount equal to up to the Common Non-Qualified Special Escrow Amount Per Share (subject to reduction for payment of Indemnifiable Damages (as defined in Section 8.2) pursuant to the indemnification obligations of the Effective Time Holders under Article 8) and (D) the right to receive cash in an amount equal to the pro rata share allocable to such share of Company Common Stock of any Earnout Payment payable pursuant to Section 5.20.  The amount of cash each Company Non-Qualified Stockholder is entitled to receive pursuant to this Section 1.8(a)(iii) for the shares of Company Capital Stock held by such Company Non-Qualified Stockholder as of immediately prior to the Effective Time shall be rounded to the nearest cent and computed after aggregating cash amounts for all shares of Company Capital Stock represented by a particular stock certificate held by such Company Non-Qualified Stockholder.

 

  

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(iv)         Company Options.  At the Effective Time, each vested Company Option that is unexpired, unexercised and outstanding immediately prior to the Effective Time shall, on the terms and subject to the conditions set forth in this Agreement, be cancelled and extinguished and automatically converted into, subject to and in accordance with Section 1.9, the right to receive, for each share of Company Common Stock subject to such Company Option (A) the Option Cash-Out Closing Amount Per Share, (B) the right to receive upon release from escrow pursuant to Section 1.9(c)(iii) and the terms and conditions of this Agreement and the Escrow Agreement, cash in an amount equal to up to the Option Cash-Out General Escrow Amount Per Share (subject to reduction for payment of Indemnifiable Damages (as defined in Section 8.2) pursuant to the indemnification obligations of the Effective Time Holders under Article 8), (C) the right to receive upon release from escrow pursuant to Section 1.9(c)(iii) and the terms and conditions of this Agreement and the Escrow Agreement, cash in an amount equal to up to the Option Cash-Out Special Escrow Amount Per Share (subject to reduction for payment of Indemnifiable Damages (as defined in Section 8.2) pursuant to the indemnification obligations of the Effective Time Holders under Article 8) and (D) the right to receive cash in an amount equal to the pro rata share allocable to each share of Company Common Stock subject to such Company Option of any Earnout Payment payable pursuant to Section 5.20.  The amount of cash each Company Optionholder is entitled to receive pursuant to this Section 1.8(a)(iv) for the Company Options held by such Company Optionholder as of immediately prior to the Effective Time shall be rounded to the nearest cent and computed after aggregating cash amounts for all Company Options held by such Company Optionholder. At the Effective Time, each then outstanding Company Option issued under the Company’s 2010 Stock Option and Grant Plan that is unvested and unexercisable, shall be cancelled and extinguished without consideration payable in respect thereof.

 

(v)         Company Warrants.  At the Effective Time, each Company Warrant that is unexpired, unexercised and outstanding immediately prior to the Effective Time shall, on the terms and subject to the conditions set forth in this Agreement, be cancelled and extinguished and automatically converted into, subject to and in accordance with Section 1.9, the right to receive, for each share of Company Common Stock (which, for the avoidance of doubt, includes each share of Company Common Stock deemed to have been issued upon conversion of all shares of Company Capital Stock upon the exercise or contingent exercise of such Company Warrant prior to the Closing) subject to such Company Warrant (A) the Warrant Cash-Out Closing Amount Per Share, (B) the right to receive upon release from escrow pursuant to Section 1.9(c)(iii) and the terms and conditions of this Agreement and the Escrow Agreement, cash in an amount equal to up to the Warrant Cash-Out General Escrow Amount Per Share (subject to reduction for payment of Indemnifiable Damages (as defined in Section 8.2) pursuant to the indemnification obligations of the Effective Time Holders under Article 8), (C) the right to receive upon release from escrow pursuant to Section 1.9(c)(iii) and the terms and conditions of this Agreement and the Escrow Agreement, cash in an amount equal to up to the Warrant Cash-Out Special Escrow Amount Per Share (subject to reduction for payment of Indemnifiable Damages (as defined in Section 8.2) pursuant to the indemnification obligations of the Effective Time Holders under Article 8) and (D) the right to receive cash in an amount equal to the pro rata share allocable to each share of Company Common Stock subject to such Company Warrant of any Earnout Payment payable pursuant to Section 5.20.  The amount of cash each Company Warrantholder is entitled to receive pursuant to this Section 1.8(a)(v) for the Company Warrants held by such Company Warrantholder as of immediately prior to the Effective Time shall be rounded to the nearest cent and computed after aggregating cash amounts for all Company Warrants held by such Company Warrantholder.

 

  

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(vi)         Total Adjusted Purchase Price.  Notwithstanding anything to the contrary contained in this Agreement, in no event shall the aggregate consideration distributable by Acquirer to the Company Securityholders exceed the sum of (A) the Total Adjusted Purchase Price (less the sum of (i) the Aggregate Company Option Exercise Prices and (ii) the Aggregate Company Warrant Exercise Prices) and (B) the total Earnout Payments payable pursuant to Section 5.20.

 

(vii)       Conversion of Sub I Stock.  At the Effective Time, each share of capital stock of Sub I that is issued and outstanding immediately prior to the Effective Time will, by virtue of the First Merger and without further action on the part of the sole stockholder of Sub I, be converted into and become one share of common stock of the First Step Surviving Corporation (and the shares of the First Step Surviving Corporation into which the shares of Sub I capital stock are so converted shall be the only shares of the First Step Surviving Corporation’s capital stock that are issued and outstanding immediately after the Effective Time).  Each certificate evidencing ownership of shares of Sub I common stock will evidence ownership of such shares of common stock of the First Step Surviving Corporation.

 

(viii)       Treatment of Sub I Stock and Sub II Membership Interests.  At the Second Effective Time, all of the shares of common stock of the First Step Surviving Corporation that are issued and outstanding immediately prior to the Second Effective Time will, by virtue of the Second Merger and without further action on the part of the sole stockholder of Sub I, be cancelled and extinguished without any conversion thereof.  At the Second Effective Time, all of the membership interests of Sub II that is issued and outstanding immediately prior to the Second Effective Time will constitute, all of the membership interests of the Final Surviving LLC.  Such membership interests shall be the only equity interests of the Final Surviving LLC outstanding immediately after the Second Effective Time.

 

(b)           Treatment of Company Capital Stock Owned by the Company.  All shares of Company Capital Stock that are owned by the Company as treasury stock immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof.

 

(c)           Adjustments.  In the event of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into capital stock), reorganization, reclassification, combination, recapitalization or other like change with respect to the Company Capital Stock occurring after the date hereof and prior to the Effective Time, all references in this Agreement to specified numbers of shares of any class or series affected thereby, and all calculations provided for that are based upon numbers of shares of any class or series (or trading prices therefor) affected thereby, shall be equitably adjusted to the extent necessary to provide the parties the same economic effect as contemplated by this Agreement prior to such stock split, reverse stock split, stock dividend, reorganization, reclassification, combination, recapitalization or other like change.

 

(d)           Appraisal Rights.  Notwithstanding anything contained herein to the contrary, any Dissenting Shares shall not be converted into the right to receive the cash amount provided for in Section 1.8, but shall instead be converted into the right to receive such consideration as may be determined to be due with respect to any such Dissenting Shares pursuant to Delaware Law.  Each holder of Dissenting Shares who, pursuant to the provisions of Delaware Law, becomes entitled to payment thereunder for such shares shall receive payment therefor in accordance with Delaware Law (but only after the value therefor shall have been agreed upon or finally determined pursuant to such provisions).  If, after the Effective Time, any Dissenting Shares shall lose their status as Dissenting Shares, then any such shares shall immediately be converted into the right to receive the cash amount provided for in Section 1.8 in respect of such shares as if such shares never had been Dissenting Shares, and Acquirer shall deliver (or cause to be delivered) to the holder thereof, at (or as promptly as reasonably practicable after) the applicable time or times specified in Section 1.9(c), following the satisfaction of the applicable conditions set forth in Section 1.9(c), the cash amount to which such holder would be entitled in respect thereof under this Section 1.8 as if such shares never had been Dissenting Shares.  The Company shall give Acquirer (i) prompt notice of any demands for appraisal or purchase received by the Company, withdrawals of such demands, and any other instruments served pursuant to Delaware Law and received by the Company and (ii) the right to direct all negotiations and proceedings with respect to demands for appraisal or purchase under Delaware Law.  The Company shall not, except with the prior written consent of Acquirer, or as otherwise required under Delaware Law, voluntarily make any payment or offer to make any payment with respect to, or settle or offer to settle, any claim or demand in respect of any Dissenting Shares.  The payout of consideration under this Agreement to the stockholders of the Company (other than to holders of Dissenting Shares who shall be treated as provided in this Section 1.8 and under Delaware Law) shall not be affected by the exercise or potential exercise of appraisal rights or dissenters’ rights under Delaware Law by any other stockholder of the Company.

 

  

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(e)           Rights Not Transferable.  The rights of the Company Securityholders as of immediately prior to the Effective Time are personal to each such Company Securityholder and shall not be transferable for any reason otherwise than by operation of law, will or the laws of descent and distribution.  Any attempted transfer of such right by any holder thereof (otherwise than as permitted by the immediately preceding sentence) shall be null and void.

 

(f)            Fractional Shares.  No fractional shares of Acquirer Common Stock will be issued in connection with the Mergers, but in lieu thereof each holder of shares of Company Common Stock who would otherwise be entitled to a fraction of a share of Acquirer Common Stock (after aggregating for each particular stock certificate representing Company Capital Stock all fractional shares of Acquirer Common Stock to be received by such holder) shall receive from Acquirer an amount of cash (rounded to the nearest whole cent) equal to the product of (i) such fraction and (ii) the Acquirer Stock Value.

 

1.9           Surrender of Certificates.

 

(a)            Exchange Agent.  Computershare Trust Company, N.A. shall act as exchange agent (the “Exchange Agent”) in the Mergers.

 

(b)           Acquirer to Cause Deposit of Total Adjusted Purchase Price.  As soon as reasonably practicable after the Closing Date (and in no event later than three (3) Business Days after the Closing Date), Acquirer shall deliver (or cause to be delivered) to the Exchange Agent for exchange in accordance with this Article 1, (i) the cash payable pursuant to Sections 1.8(a)(ii)(A), 1.8(a)(iii)(A), 1.8(a)(iv)(A) and 1.8(a)(v)(A) (for the avoidance of doubt, not including the cash to be deposited into escrow in connection herewith pursuant to the provisions of Sections 1.8(a)(ii)(C), 1.8(a)(ii)(E), 1.8(a)(iii)(B), 1.8(a)(iii)(C), 1.8(a)(iv)(B), 1.8(a)(iv)(C), 1.8(a)(v)(B), 1.8(a)(v)(C), Section 1.9(c)(iii) and Article 8), (ii) the shares of Acquirer Common Stock issuable pursuant to Section 1.8(a)(ii)(B) (for the avoidance of doubt, not including the shares of Acquirer Common Stock to be deposited into escrow in connection herewith pursuant to the provisions of Sections 1.8(a)(ii)(D), 1.8(a)(ii)(F), Section 1.9(c)(iii) and Article 8), and (iii) cash in an amount sufficient to permit payment of cash in lieu of any fractional shares pursuant to Section 1.8(f).

 

  

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(c)            Exchange Procedures.

 

(i)           As soon as reasonably practicable after the Closing Date, the Exchange Agent shall mail to every holder of record of Company Capital Stock that was issued and outstanding immediately prior to the Effective Time and that has not previously delivered its Certificates (as defined below) together with a properly completed and duly executed letter of transmittal in customary form (the “Letter of Transmittal”) and every Company Optionholder and Company Warrantholder: (A) a form of Letter of Transmittal and (B) instructions for use of the Letter of Transmittal in effecting the surrender of certificates, warrants, option agreements or other instruments which immediately prior to the Effective Time represented issued and outstanding Company Capital Stock, Company Options or Company Warrants that were converted into the right to receive cash and/or shares of Acquirer Common Stock (and cash in lieu of fractional shares) pursuant to Section 1.8(a) (the “Certificates”) in exchange for certificates.  The Letter of Transmittal shall specify that delivery of Certificates shall be effected, and risk of loss and title to Certificates shall pass, only upon receipt thereof by the Exchange Agent, together with a properly completed and duly executed Letter of Transmittal, duly executed on behalf of each Person effecting the surrender of such Certificates, and shall be in such form and have such other provisions as Acquirer or the Exchange Agent may reasonably specify, including that the Effective Time Holders agree to be bound by the provisions of Section 1.9 and Article 8 of this Agreement and agree to release the Company and the Final Surviving LLC from any claims, rights, liabilities and causes of action whatsoever based upon, relating to or arising out of the Certificates.

 

(ii)         As soon as reasonably practicable after the date of delivery to the Exchange Agent of a Certificate, together with a properly completed and duly executed Letter of Transmittal and any other documentation required thereby, (A) the holder of record of such Certificate shall be entitled to receive a check representing the cash amount that such holder has the right to receive pursuant to Section 1.8(a) in respect of such Certificate (which for the avoidance of doubt excludes the Escrow Cash) and, solely with respect to the Common Qualified Stockholders, a certificate representing the number of whole shares of Acquirer Common Stock that such holder has the right to receive pursuant to Section 1.8(a)(ii)(B) in respect of such Certificate (along with any payment in lieu of fractional shares that such holder has the right to receive pursuant to Section 1.8(f) in respect to such Certificate), and shares of Acquirer Common Stock that such holder has the right to receive pursuant to Sections 1.8(a)(ii)(D) and 1.8(a)(ii)(F) will be deposited into escrow on such holder’s behalf pursuant to Section 1.9(c)(iii) and Article 8 and (B) such Certificate shall be canceled.

 

(iii)        Acquirer to Cause Deposit of Escrow Cash, Escrow Shares and Agent Expense Amount.  As soon as reasonably practicable after the Closing Date (and in no event later than three (3) Business Days after the Closing Date), Acquirer shall cause to be deposited with Computershare Trust Company, N.A. (or another institution selected by Acquirer and reasonably satisfactory to the Company) as escrow agent (the “Escrow Agent”) the Escrow Cash, the Escrow Shares and the Agent Expense Amount. The Escrow Cash and the Escrow Shares shall constitute security for the indemnification obligations of such Effective Time Holders pursuant to Article 8, and shall be held in and distributed in accordance with the provisions of the Escrow Agreement. The Agent Expense Account shall held in and distributed in accordance with the provisions of the Escrow Agreement and be available to cover the Effective Time Holders’ Agent Expenses and such funds shall not be available to Acquirer to cover Indemnifiable Damages and no portion of the Agent Expense Amount shall constitute part of the Escrow Fund.  The shares of Acquirer Common Stock distributable pursuant to Sections 1.8(a)(ii)(D) and 1.8(a)(ii)(F) shall be vested Acquirer Common Stock not subject to any repurchase rights or other restrictions.

 

  

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(d)           No Interest.  No interest shall accumulate on any shares of Acquirer Common Stock issuable, or cash payable in connection with the Mergers (other than interest accrued on the Escrow Cash according to the Escrow Agreement).

 

(e)           Transfers of Ownership.  If any shares of Acquirer Common Stock issuable or cash amount payable pursuant to Sections 1.8(a) and (f), is to be issued or paid to a Person other than the Person to which the Certificate surrendered in exchange therefor is registered, it shall be a condition of the payment thereof that the Certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and that the Person requesting such exchange shall have paid to Acquirer or any agent designated by it any transfer or other Taxes required by reason of the issuance of the shares of Acquirer Common Stock or payment of cash in any name other than that of the registered holder of the Certificate surrendered, or established to the satisfaction of Acquirer or any agent designated by it that such Tax has been paid or is not payable.

 

(f)            No Liability.  Notwithstanding anything to the contrary in this Section 1.9, none of the Escrow Agent, the Final Surviving LLC or any party hereto shall be liable to any person for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law.

 

(g)           Unclaimed Shares; Unclaimed Cash.  Any cash or certificates of shares of Acquirer Common Stock (including any distributions made thereon) or portion of funds (including any interest earned thereon) held by the Exchange Agent which have not been delivered to any holders of Certificates pursuant to this Article 1 within six (6) months after the Effective Time shall promptly be returned to Acquirer, and thereafter each holder of a Certificate who has not theretofore complied with the exchange procedures set forth in and contemplated by Section 1.9 shall look only to the Final Surviving LLC (subject to abandoned property, escheat and similar laws) for its claim, only as a general unsecured creditor thereof, to shares of Acquirer Common Stock issuable or cash amounts payable pursuant to Section 1.8(a).  Notwithstanding anything to the contrary contained herein, if any Certificate has not been surrendered prior to the earlier of the third anniversary of the Effective Time or such date on which the merger consideration contemplated by Section 1.8 in respect of such Certificate would otherwise escheat to or become the property of any Governmental Entity, any Acquirer Common Stock issuable or cash payable in respect of such Certificate shall, to the extent permitted by applicable law, become the property of Acquirer, free and clear of all claims or interests of any Person previously entitled thereto.

 

1.10         No Further Ownership Rights in the Company Capital Stock, Company Options or Company Warrants.  All cash and shares of Acquirer Common Stock paid or payable and/or issued or issuable following the surrender for exchange of shares of Company Capital Stock, Company Warrants and Company Options in accordance with the terms hereof shall be so paid or payable and/or issued or issuable in full satisfaction of all rights pertaining to such shares of Company Capital Stock, Company Warrants and/or Company Options, and there shall be no further registration of transfers on the records of the Final Surviving LLC of shares of Company Capital Stock, Company Warrants or Company Options which were issued and outstanding immediately prior to the Effective Time.  If, after the Effective Time, any Certificate is presented to the Final Surviving LLC for any reason, such Certificate shall be canceled and exchanged as provided in this Article 1.

 

1.11         Lost, Stolen or Destroyed Certificates.  In the event any Certificate shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such Certificate, following the making of an affidavit of that fact by the record holder thereof, such shares of Acquirer Common Stock and cash as may be required pursuant to Section 1.8 in respect of such Certificate; provided, however, that Acquirer or the Exchange Agent may, in its discretion and as a condition precedent to the issuance thereof, require the record holder of such Certificate to deliver a bond in such sum or execute an indemnification agreement as Acquirer or the Exchange Agent may direct as indemnity against any claim that may be made against Acquirer, the Final Surviving LLC, the Exchange Agent and/or any of their respective representatives or agents with respect to such Certificate.

 

  

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1.12         Tax Consequences.  It is the intent of the parties hereto that, for U.S. federal income tax purposes, the Mergers shall constitute a “reorganization” within the meaning of Section 368(a) of the Code, and that this Agreement shall constitute a “plan of reorganization” in respect of the Mergers for purposes of Sections 354 and 361 of the Code.  Acquirer makes no representations or warranties to the Company or to any holder of Company Capital Stock, Company Options or Company Warrants regarding the Tax treatment of the Mergers, or any of the Tax consequences to the Company or any holder of Company Capital Stock, Company Options or Company Warrants of this Agreement, the Mergers or any of the other transactions or agreements contemplated hereby.  The Company acknowledges that the Company and the holders of Company Capital Stock, Company Options and Company Warrants are relying solely on their own Tax advisors in connection with this Agreement, the Mergers and the other transactions and agreements contemplated hereby.  Notwithstanding anything to the contrary set forth herein, this Agreement shall be amended and Acquirer shall not be required to complete the Second Merger if Acquirer reasonably determines, in consultation with its tax and legal advisors and with the Company, that the cash portion of the merger consideration (excluding any amount treated as imputed interest, though including the full potential amount of the Earnout Payments and any cash amounts deposited into escrow pursuant to the provisions of Sections 1.8(a)(ii)(C), 1.8(a)(ii)(E), 1.8(a)(iii)(B), 1.8(a)(iii)(C), 1.8(a)(v)(B), 1.8(a)(v)(C), Section 1.9(c)(iii) and Article 8) paid to Company Stockholders in respect of the shares of Company Capital Stock held by them as of the Effective Time exceeds 60% of the total consideration (the “Threshold”) paid or payable to the Company Stockholders (excluding any amount treated as imputed interest, though including the full potential amount of the Earnout Payments and any cash amounts deposited into escrow pursuant to the provisions of Sections 1.8(a)(ii)(C), 1.8(a)(ii)(E), 1.8(a)(iii)(B), 1.8(a)(iii)(C), 1.8(a)(iv)(B), 1.8(a)(iv)(C), 1.8(a)(v)(B), 1.8(a)(v)(C), Section 1.9(c)(iii) and Article 8), and for purposes hereof, with each share of Acquirer Common Stock deemed to have a value equal to the closing price of Acquirer Common Stock as quoted on the NASDAQ Stock Market on the Agreement Date.  Notwithstanding anything to the contrary set forth herein, if the Threshold is exceeded, the Mergers will be treated by the parties as a taxable stock purchase of the Company for all purposes hereunder.

 

1.13         Withholding Rights.  After consultation with the Effective Time Holders’ Agent, Acquirer, the Final Surviving LLC and the Exchange Agent shall be entitled to deduct and withhold from the cash and shares of Acquirer Common Stock otherwise deliverable under this Agreement, and from any other payments otherwise required pursuant to this Agreement, to any holder of any shares of Company Capital Stock, any Company Options, any Company Warrants or any Certificates such amounts in cash or shares as Acquirer, the Final Surviving LLC or the Exchange Agent is required to deduct and withhold with respect to any such deliveries and payments under the Code or any provision of state, local, provincial or foreign Tax law.  To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been delivered and paid to such holders in respect of which such deduction and withholding was made.

 

1.14         Exemption from Registration.  The shares of Acquirer Common Stock to be issued in connection with the Mergers may, under certain circumstances, be issued in a transaction exempt from registration under the Securities Act, by reason of Section 4(2) thereof and/or Regulation D promulgated thereunder (a “Private Placement”) and, in which case, may not be re-offered or resold other than in conformity with the registration and/or qualification requirements of the Securities Act and other applicable State blue sky securities laws and regulations or pursuant to an exemption therefrom.  The certificates issued by Acquirer with respect to the shares of Acquirer Common Stock issued hereunder shall, if issued pursuant to a Private Placement, be legended to the effect described above and shall include such additional legends as necessary to comply with applicable U.S. federal securities laws, State blue sky securities laws and such other restrictions as shall be set forth in the Company Stockholder Agreement and the Investment Representation Letter and Lock-Up Agreement, if applicable.  If the shares of Acquirer Common Stock to be issued in the Merger are issued pursuant to a Private Placement, then Acquirer shall prepare and file a registration statement on Form S-3 (or any successor form) with the SEC covering the resale of such shares of Acquirer Common Stock issued in connection with the Merger within 30 days after the Closing (assuming timely receipt of the Spreadsheet, all information relating to the Effective Time Holders for inclusion in such registration statement, and all signatures, opinions and consents required for such registration statement) and Acquirer shall use its reasonable best efforts to cause such registration statement to become effective as promptly as practicable after filing and to keep such registration statement effective until one year after the Closing.

 

  

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1.15         Taking of Necessary Action; Further Action.  If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Final Surviving LLC with full right, title and interest in, to and under, and/or possession of, all assets, property, rights, privileges, powers and franchises of the Company, the officers and directors of the Final Surviving LLC are fully authorized,  in the name and on behalf of the Company or otherwise, to take all lawful action necessary or desirable to accomplish such purpose or acts, so long as such action is not inconsistent with this Agreement.

 

ARTICLE 2

Representations and Warranties of the Company

 

Subject to the disclosures set forth in the disclosure letter of the Company delivered to Acquirer concurrently with the parties’ execution of this Agreement (the “Company Disclosure Letter”) (each of which disclosures, in order to be effective, shall clearly indicate the Section and, if applicable, the Subsection of this Article 2 to which it relates (unless and only to the extent the relevance to other representations and warranties is reasonably apparent from the actual text of the disclosures), and each of which disclosures shall also be deemed to be representations and warranties made by the Company to Acquirer under this Article 2), the Company represents and warrants to Acquirer, as of the date hereof and as of the Closing Date, as follows:

 

2.1           Organization, Standing, Power and Subsidiaries.

 

(a)           Each of the Company and each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization.  Each of the Company and each Subsidiary has the corporate power to own its properties and to conduct its business as now being conducted and as currently proposed by it to be conducted and is duly qualified to do business and is in good standing in each jurisdiction where the failure to be so qualified and in good standing, individually or in the aggregate with any such other failures, would result in a material adverse effect on the Company.  Neither the Company nor any Subsidiary is in violation of any of the provisions of its certificate of incorporation or bylaws or equivalent organizational or governing documents.

 

(b)           Schedule 2.1(b) of the Company Disclosure Letter sets forth a true, correct and complete list of the Subsidiaries.  The Company owns, of record and beneficially, 100% of the issued and outstanding shares of capital stock and other securities of each of its Subsidiaries, free and clear of all Encumbrances, and all such shares are duly authorized, validly issued, fully paid and nonassessable and are not subject to any preemptive right or right of first refusal.  Other than the Subsidiaries listed in Schedule 2.1(b) of the Company Disclosure Letter, the Company does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, any equity or similar interest in, any Person.  None of the Company or any of its Subsidiaries has agreed or is obligated to make any future investment in or capital contribution to any Person.  There are no outstanding subscriptions, options, warrants, “put” or “call” rights, exchangeable or convertible securities or other Contracts of any character relating to the issued or unissued capital stock or other securities of any Subsidiary, or otherwise obligating the Company or any Subsidiary to issue, transfer, sell, purchase, redeem or otherwise acquire or sell any such securities.

 

  

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(c)           Schedule 2.1(c) of the Company Disclosure Letter sets forth a true, correct and complete list of: (i) the names of the members of the Board of Directors (or similar body) of the Company and each of its Subsidiaries; (ii) the names of the members of each committee of the Board of Directors (or similar body) of the Company and each of its Subsidiaries; and (iii) the names and titles of the officers of the Company and each of its Subsidiaries.

 

2.2           Capital Structure.

 

(a)           Authorized and Outstanding Capital Stock of Company.  The authorized capital stock of the Company consists solely of (i) 10,000,000 shares of Company Common Stock, and (ii) 5,000,000 shares of Company Preferred Stock, of which 1,205,043 shares are designated as Company Series A Preferred Stock, 767,512 shares are designated as Company Series B Preferred Stock and 700,000 shares are designated as Company Series C Preferred Stock.  A total of 2,629,629.856 shares of Company Common Stock, 1,191,210 shares of Company Series A Preferred Stock, 619,570 shares of Company Series B Preferred Stock and 651,764 shares of Company Series C Preferred Stock are issued and outstanding as of the Agreement Date.  The Company holds no treasury stock.  The number of issued and outstanding shares of Company Capital Stock held by each Company Stockholder as of the Agreement Date is set forth on Schedule 2.2(a)-1 of the Company Disclosure Letter.  No shares of Company Capital Stock are issued or outstanding as of the Closing Date that are not set forth on Schedule 2.2(a)-1 except for shares of Company Common Stock issued pursuant to the exercise of outstanding Company Options listed on Schedule 2.2(b).  All issued and outstanding shares of Company Capital Stock have been duly authorized and validly issued, are fully paid and nonassessable, are not subject to any right of rescission or “put” right, right of first refusal, preemptive right or “call” right, and have been offered, issued, sold and delivered by Company in material compliance with all requirements of Applicable Laws and all requirements set forth in applicable Contracts.  There is no Liability for dividends accrued and unpaid by Company.  The Company has never declared or paid any dividends on any shares of Company Capital Stock.  There is no Liability for dividends accrued and unpaid by Company.  As of the date of the Agreement, each share of Company Preferred Stock is, and will be as of the Closing Date, convertible into one share of Company Common Stock (after giving effect to any anti-dilution and similar adjustments).

 

(b)           Company Options and Other Equity Rights.  As of the Agreement Date, the Company has reserved 1,840,936 shares of Company Common Stock for issuance to employees, non-employee directors and consultants pursuant to the Company Option Plans, of which 1,173,776 shares are subject to outstanding and unexercised Company Options, and 232,414 shares remain available for issuance thereunder.  Schedule 2.2(b)-1 of the Company Disclosure Letter sets forth, as of the Agreement Date, a true, correct and complete list of all holders of outstanding Company Options (including if the Company Optionholder is not an employee of the Company, a description of the relationship between such Company Optionholder and the Company) whether or not granted under the Company Option Plans, including the number of shares of Company Common Stock subject to each Company Option, the date of grant, the exercise or vesting schedule (and the terms of any acceleration thereof), the exercise price per share, the Tax status of such option under Section 422 of the Code, the term of each Company Option and the plan from which such Company Option was granted.  A true and correct copy of the Company Option Plans, the standard agreement under the Company Option Plans and each agreement for each Company Option that does not conform to the standard agreement under the Company Option Plans have been delivered or made available by Company to Acquirer’s legal counsel.

 

  

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 All outstanding Company Options have been issued and granted in compliance with all requirements of Applicable Legal Requirements and all requirements set forth in applicable Contracts to which Company is a party or by which Company is bound.  Schedule 2.2(b)-2 of the Company Disclosure Letter sets forth, as of the Agreement Date, a true, correct and complete list of all holders of outstanding Company Warrants, including the number of shares and type of Company Capital Stock subject to each Company Warrant, the date of grant, the exercise or vesting schedule (and the terms of any acceleration thereof), the exercise price per share and the term of each Company Warrant. Except for the Company Options and Company Warrants described in Schedules 2.2(b)-1 and 2.2(b)-2 of the Company Disclosure Letter, there are no options, warrants, calls, rights or Contracts of any character to which the Company is a party or by which it is bound obligating the Company to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any Company Shares, Company Options, Company Warrants or other Company Rights, or any Company Voting Debt (as defined below) or obligating the Company to grant, extend, accelerate the vesting and/or repurchase rights of, change the price of, or otherwise amend or enter into any such option, warrant, call, Contract or other Company Right.  Except for the Company’s 2001 Equity Incentive Plan and as set forth on Schedule 2.2(b)-3, neither the Company Option Plans, nor any Company Option nor any other Contract to which Company is a party to or is bound relating to any shares of Company Capital Stock or other security of Company that is entitled (or is exercisable into a security that is entitled) to receive a portion of the merger consideration hereunder requires or otherwise provides for any accelerated vesting or exercisability of any such security in connection with the Mergers or any other transaction contemplated by this Agreement or upon termination of employment or service with the Company or with Acquirer following the Mergers or otherwise.  The vesting terms applicable to all Company Options that are unvested and outstanding as of the date of this Agreement and as of prior to the Effective Time shall have been accelerated (in accordance with the terms of the applicable Company Option Plan or otherwise) or terminated as of immediately prior to the Effective Time, and no unvested Company Options shall remain outstanding and exercisable as of the Effective Time.  Each of the Company Key Stockholders is an accredited investor.

 

(c)           No Voting Arrangements or Registration Rights.  Except as contemplated by this Agreement, there are no voting agreements applicable to any outstanding shares of Company Capital Stock or Company Options to which Company is a party or, to Company’s knowledge, otherwise.  Company is not under any obligation to register under the Securities Act any of its presently outstanding shares of stock or other securities or any stock or other securities that may be subsequently issued.

 

(d)           No Voting Debt.  No bonds, debentures, notes or other indebtedness of the Company or any of its Subsidiaries (i) granting its holder the right to vote on any matters on which stockholders may vote (or which is convertible into, or exchangeable for, securities having such right) or (ii) the value of which is any way based upon or derived from capital or voting stock of Company, is issued or outstanding as of the Agreement Date (collectively, “Company Voting Debt”).

 

2.3           Authority; Noncontravention.

 

(a)           The Company has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby.  The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Company’s Board of Directors.  This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms.  The Board of Directors of the Company, by resolutions duly adopted (and not thereafter modified or rescinded) by the unanimous vote of the Board of Directors of the Company, has approved and adopted this Agreement and approved the Mergers, determined that this Agreement and the terms and conditions of the Mergers and this Agreement are advisable and in the best interests of the Company and the Company Stockholders, and directed that the adoption of this Agreement be submitted to the Company Stockholders for consideration and unanimously recommended that all of the Company Stockholders adopt this Agreement.  The affirmative votes of (i) the holders of a majority of the outstanding shares of Company Common Stock and Company Preferred Stock (voting together as a single voting class on an as-converted to Company Common Stock basis) and (ii) the holders of at least sixty-nine percent (69%) of the outstanding shares of Company Preferred Stock (voting as a separate voting class on an as-if converted to Common Stock basis) are the only votes of the holders of the Company Capital Stock necessary to adopt this Agreement and approve the Mergers (the “Company Stockholder Approval”).  The execution of the Company Stockholder Consent by the Company Stockholders listed on Exhibit B-1 is sufficient for the Company Stockholder Approval.

 

  

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(b)           The execution and delivery of this Agreement by the Company does not, and the consummation of the transactions contemplated hereby will not, (i) result in the creation of any Encumbrance on any of the material properties or assets of the Company or any Subsidiary or to the knowledge of the Company, any of the shares of Company Capital Stock or (ii) conflict with, or result in any violation of or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under, or require any consent, approval or waiver from any Person pursuant to, (A) any provision of the Amended and Restated Certificate of Incorporation or Bylaws or other equivalent organizational or governing documents of the Company or any Subsidiary, in each case as amended to date, (B) any Material Contract, or (C) any Legal Requirements applicable to the Company or any Subsidiary or any of their respective material properties or assets, except in the case of clauses (ii) (B) or (C), where such violation, default, termination, cancellation or acceleration would not have a material effect on the Company.

 

(c)           No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to the Company or any Subsidiary in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, and (ii) such consents, authorizations, filings, approvals, notices and registrations which, if not obtained or made, would not be material to the Company’s ability to consummate the Merger or to perform its obligations under this Agreement and would not prevent, materially alter or delay any of the transactions contemplated by this Agreement.

 

(d)           The Company and the Company’s Board of Directors and stockholders have taken all actions such that the restrictive provisions of any “fair price,” “moratorium,” “control share acquisition,” “business combination,” “interested shareholder” or other similar anti-takeover statute or regulation, and any anti-takeover provision in the governing documents of the Company or its Subsidiaries will not be applicable to any of the Company, its Subsidiaries, Acquirer, the Final Surviving LLC, or to the execution, delivery of, or performance of the transactions contemplated by this Agreement or the Voting Agreements, including the consummation of the Mergers or any of the other transactions contemplated hereby or thereby.

 

2.4           Financial Statements.

 

(a)           The Company has made available to Acquirer its audited consolidated financial statements for each of the two (2) fiscal years ended December 31, 2009 and December 31, 2010 and its unaudited consolidated financial statements for the year ended December 31, 2011 (including, in each case, balance sheets, statements of operations and statements of cash flows) (collectively, the “Financial Statements”), which are included as Schedule 2.4(a) of the Company Disclosure Letter.  The Financial Statements (i) are derived from and in accordance with the books and records of the Company, (ii) complied as to form with applicable accounting requirements with respect thereto as of their respective dates, (iii) have been prepared in accordance with GAAP (except that the unaudited Financial Statements do not contain footnotes) applied on a consistent basis throughout the periods indicated and consistent with each other, (iv) fairly and accurately present the consolidated financial condition of the Company and the Subsidiaries at the dates therein indicated and the consolidated results of operations and cash flows of the Company and the Subsidiaries for the periods therein specified, and (v) are true, complete and correct in all material respects.

 

  

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(b)           Neither the Company nor any Subsidiary has any Liabilities of any nature other than (i) those set forth or adequately provided for in the Balance Sheet included in the Financial Statements as of December 31, 2011 (the “Company Balance Sheet”), (ii) those incurred in the conduct of the Company’s business since December 31, 2011 (the “Company Balance Sheet Date”) in the ordinary course, consistent with past practice, which are of the type that ordinarily recur and, individually or in the aggregate, are not material in nature or amount and do not result from any breach of Contract, warranty, infringement, tort or violation of law, and (iii) those incurred by the Company in connection with the execution of this Agreement.  Except for Liabilities reflected in the Financial Statements, the Company has no off balance sheet Liability of any nature to, or any financial interest in, any third party or entities, the purpose or effect of which is to defer, postpone, reduce or otherwise avoid or adjust the recording of expenses incurred by the Company.  All reserves that are set forth in or reflected in the Company Balance Sheet have been established in accordance with GAAP consistently applied and are adequate.

 

(c)           The Company has established and maintains a system of internal accounting controls sufficient to provide reasonable assurances (i) that transactions of the Company and its Subsidiaries are being executed and made only in accordance with appropriate authorizations of management and the Board of Directors of Company, and (ii) that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP.  Neither the Company, any of its Subsidiaries nor Company’s independent auditors, nor to the Company’s knowledge, any current or former employee, consultant or director of Company or any of its Subsidiaries, has identified or been made aware of any fraud, whether or not material, that involves Company’s management or other current or former employees, consultants directors of Company or any of its Subsidiaries, or any claim or allegation regarding any of the foregoing.

 

(d)           Neither the Company nor any of its Subsidiaries nor, to the Company’s knowledge, any director, officer, employee, auditor, accountant or representative of the Company or any of its Subsidiaries has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral, in each case, regarding deficient accounting or auditing practices, procedures, methodologies or methods of the Company or any of its subsidiaries or their respective internal accounting controls or any material inaccuracy in the Company’s financial statements.  No attorney representing the Company or any of its Subsidiaries, whether or not employed by the Company or any of its Subsidiaries, has reported to the Board of Directors of the Company or any committee thereof or to any director or officer of the Company evidence of a material violation of securities laws, breach of fiduciary duty or similar violation by the Company, its Subsidiaries or any of their respective officers, directors, employees or agents.

 

(e)           As of the Company Balance Sheet Date, there are no material deficiencies or material weaknesses in the design or operation of the Company’s internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data.  As of the Company Balance Sheet Date, there were no material loss contingencies (as such term is used in Statement of Financial Accounting Standards No. 5, as amended by SAFS No. 11, 113 and 114  (“Statement No. 5”) issued by the Financial Accounting Standards Board in March 1975) that are not adequately provided for in the Company Balance Sheet as required by said Statement No. 5.  There has been no change in the Company accounting policies since the Company’s inception, except as described in the Financial Statements.

 

  

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(f)            Schedule 2.4(f) of the Company Disclosure Letter accurately lists all Company Debt, including, for each item of Company Debt, the Contract governing the Company Debt and the interest rate, maturity date and any assets or properties securing such Company Debt.  All Company Debt may be prepaid at the Closing without penalty under the terms of the Contracts governing such Company Debt.

 

(g)           Schedule 2.4(g) of the Company Disclosure Letter sets forth the names and locations of all banks, trust companies, savings and loan associations and other financial institutions at which the Company and its Subsidiaries maintain accounts of any nature and the names of all persons authorized to draw thereon or make withdrawals therefrom.

 

2.5           Absence of Certain Changes.  Since the Company Balance Sheet Date, each of the Company and its Subsidiaries has conducted its business only in the ordinary course consistent with past practices, and since such date:

 

(a)           there has not occurred a Material Adverse Effect on the Company;

 

(b)           neither the Company nor any Subsidiary has made or entered into any Contract or letter of intent with respect to, or otherwise effected, any acquisition, sale, license, disposition or transfer of any material asset of the Company or any Subsidiary (other than Standard Outbound IP Agreements (as defined in Section 2.10(a)(ix)) entered into with its customers in the ordinary course of its business consistent with its past practice);

 

(c)           except as required by GAAP, there has not occurred any change in accounting methods or practices (including any change in depreciation or amortization policies or rates or revenue recognition policies or establishment of reserves) by the Company or any Subsidiary or any revaluation by the Company of any of its or any Subsidiary’s assets;

 

(d)           there has not occurred any declaration, setting aside, or payment of a dividend or other distribution with respect to any securities of the Company, or any direct or indirect redemption, purchase or other acquisition by the Company of any of its securities, or any change in any rights, preferences, privileges or restrictions of any of its outstanding securities;

 

(e)           neither the Company nor any Subsidiary has amended, renewed or terminated any Material Contract (other than in the ordinary course consistent with past practices), and there has not occurred any default or material breach under any Material Contract to which the Company or any Subsidiary is a party or by which it is, or any of its assets or properties are, bound;

 

(f)            there has not occurred any material amendment or change to the Company’s certificate of incorporation or Bylaws or other equivalent organizational or governing documents of the Company or any Subsidiary;

 

  

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(g)           except as otherwise required or permitted pursuant to this Agreement and as disclosed in Section 2.5(g) of the Company Disclosure Letter, there has not occurred any increase in or modification of the compensation or benefits payable or to become payable by the Company or any Subsidiary to any of its directors, officers, employees or consultants (other than increases in the ordinary course in connection with the Company’s annual salary review in the base salaries of employees who are not officers in an amount that does not exceed 10% of such base salaries), any adoption or modification of any Company Employee Plans (as defined in Section 2.13(a)), any material modification of any “nonqualified deferred compensation plan” within the meaning of Section 409A of the Code and the regulations thereunder, or any new loans or advances or extension of existing loans or advances to any such Persons (other than routine expense advances to employees of the Company or any Subsidiary consistent with past practice and loans permitted under the Company’s 401(k) Plan), and neither the Company nor any Subsidiary has entered into any Contract to grant or provide (nor has granted any) severance, acceleration of vesting or other similar benefits to any such Persons;

 

(h)           there has not occurred any change in title, office or position, or material reduction in the responsibilities of, or change in identity with respect to the management, supervisory or other key personnel of the Company or any Subsidiary and there has not occurred any terminations, suspensions or resignations with respect to the management, supervisory or other key personnel of the Company or any Subsidiary, any termination of employment of a material number of employees, or any labor dispute or claim of unfair labor practices involving the Company or any Subsidiary;

 

(i)             neither the Company nor any Subsidiary has incurred, created or assumed any Encumbrance (other than a Permitted Encumbrance) on any of its material assets or material properties, any Liability for borrowed money or any Liability as guarantor or surety with respect to the obligations of any other Person;

 

(j)             neither the Company nor any Subsidiary has cancelled or waived any Liabilities owed to it;

 

(k)            neither the Company nor any Subsidiary has made any deferral of the payment of any accounts payable other than in the ordinary course of business, consistent with past practice, or in an amount in excess of $50,000, or given any discount, accommodation or other concession other than in the ordinary course of business, consistent with past practice, in order to accelerate or induce the collection of any receivable;

 

(l)             neither the Company nor any Subsidiary has made any material change in the pricing of its products or services or in the manner in which it extends discounts, credits or warranties to customers or otherwise deals with its customers;

 

(m)           there has been no damage, destruction or loss, whether or not covered by insurance, affecting the material assets, properties or business of the Company or any Subsidiary;

 

(n)           neither the Company nor any Subsidiary has sold, disposed of, transferred or licensed to any Person any rights to any Company Intellectual Property (as defined in Section 2.10(a)(v)) other than in the ordinary course of business consistent with past practices, or has acquired or licensed from any Person any Intellectual Property (as defined in Section 2.10(a)(iii)) or sold, disposed of, transferred or provided a copy of any Company Source Code (as defined in Section 2.10(a)(xi)) to any Person; and

 

(o)           there has not occurred any entry into any Contract by the Company or any Subsidiary to do any of the things described in the preceding clauses (a) through (p) (other than negotiations and agreements with Acquirer and its representatives regarding the transactions contemplated by this Agreement).

 

  

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2.6           Litigation.  Except as set forth on Schedule 2.6 of the Company Disclosure Letter there is no private or governmental action, suit, proceeding, claim, mediation, arbitration or investigation pending against the Company or any of its Subsidiaries before any Governmental Entity (a “Legal Proceeding”), or, to the knowledge of the Company, threatened against the Company or any Subsidiary or any of their respective assets or properties or any of their respective directors, officers or employees (in their capacities as such or relating to their employment, services or relationship with the Company or any of its Subsidiaries).  There is no judgment, decree, injunction or order against the Company or any Subsidiary, any of their respective assets or properties, or, to the knowledge of the Company, any of their respective directors, officers or employees (in their capacities as such or relating to their employment, services or relationship with the Company or any of its Subsidiaries).  Neither the Company nor any Subsidiary has any Legal Proceedings pending against any other Person as of the Agreement Date.

 

2.7           Restrictions on Business Activities.  There is no Contract, judgment, injunction, order or decree binding upon the Company or any Subsidiary which has or would reasonably be expected to have, whether before or after consummation of the Mergers, the effect of prohibiting, restricting or impairing any current or presently proposed business practice of the Company or any Subsidiary, any acquisition of property by the Company or any Subsidiary or the conduct or operation of the Business or limiting the freedom of the Company or any Subsidiary to engage in any line of business, to sell, license or otherwise distribute services or products in any market or geographic area, or to compete with any Person.

 

2.8           Compliance with Laws; Governmental Permits.

 

(a)           Each of the Company and each Subsidiary has complied in all material respects with, is not in material violation of, and has not received any notices of violation with respect to, any Legal Requirement with respect to the conduct of the Business, or the ownership or operation of the Business where the violation of which would result in a material effect on the Company.  Neither the Company nor any of its Subsidiaries, nor any director, officer, Affiliate or employee thereof (in their capacities as such or relating to their employment, services or relationship with the Company or any of its Subsidiaries), has given, offered, paid, promised to pay or authorized payment of any money, any gift or anything of value, with the purpose of influencing any act or decision of the recipient in his or her official capacity or inducing the recipient to use his or her influence to affect an act or decision of a government official or employee, to any (i) governmental official or employee, (ii) political party or candidate thereof, or (iii) Person while knowing that all or a portion of such money or thing of value would be given or offered to a governmental official or employee or political party or candidate thereof.

 

(b)           Each of the Company and each Subsidiary has obtained each federal, national, state, county, local or foreign governmental consent, license, permit, grant, or other authorization of a Governmental Entity (i) pursuant to which the Company or any Subsidiary currently operates or holds any interest in any of its material assets or properties or (ii) that is required for the operation of the Business or the holding of any such interest (all of the foregoing consents, licenses, permits, grants, and other authorizations, collectively, the “Company Authorizations”), except where the failure to so obtain would not result in a material effect on the Company, and all of the Company Authorizations are in full force and effect.  Neither the Company nor any Subsidiary has received any written notice or other communication from any Governmental Entity regarding (i) any actual or possible violation of law or any Company Authorization or any failure to comply with any term or requirement of any Company Authorization or (ii) any actual or possible revocation, withdrawal, suspension, cancellation, termination or modification of any Company Authorization.  None of the Company Authorizations will be terminated or impaired, or will become terminable, in whole or in part, as a result of the consummation of the transactions contemplated by this Agreement.

 

  

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2.9           Title to, Condition and Sufficiency of Assets.

 

(a)           Each of the Company and each Subsidiary has good and valid title to all of their respective properties, and interests in properties and assets, real and personal, reflected on the Company Balance Sheet or acquired after the Company Balance Sheet Date (except properties and assets, or interests in properties and assets, sold or otherwise disposed of since the Company Balance Sheet Date in the ordinary course of business consistent with past practice), or, with respect to leased properties and assets, valid leasehold interests in such properties and assets which afford the Company valid leasehold possession of the properties and assets that are the subject of such leases, in each case, free and clear of all Encumbrances, except (i) Permitted Encumbrances, (ii) such imperfections of title and non-monetary Encumbrances as do not and will not materially detract from or interfere with the use of the properties subject thereto or affected thereby, or otherwise impair business operations involving such properties, and (iii) liens securing indebtedness that is reflected on the Company Balance Sheet.  Notwithstanding the foregoing, the representations in this Section 2.9(a) do not apply to Company Intellectual Property, which are covered by the representations in Section 2.10.  Schedule 2.9(a) of the Company Disclosure Letter identifies each parcel of real property leased by the Company or any Subsidiary.  Neither the Company nor any Subsidiary currently owns any real property.

 

(b)           The assets owned by the Company and each of its Subsidiaries (i) constitute all of the assets that are necessary to conduct, operate, and continue the Business, and (ii) constitute all of the assets that are used in the Business, without (A) the need for Acquirer to acquire or license any other asset, property or Intellectual Property, or (B) the breach or violation of any Contract.

 

2.10         Intellectual Property.

 

(a)           As used in this Agreement, the following terms shall have the meanings indicated below:

 

(i)           “Intellectual Property Rights” means any and all of the following and all rights in, arising out of, or associated therewith, throughout the world: patents, utility models, and applications therefor and all reissues, divisions, re-examinations, renewals, extensions, provisionals, continuations and continuations-in-part thereof, and all other rights in inventions and discoveries anywhere in the world (including rights in invention disclosures); common law and statutory rights associated with trade secrets, confidential and proprietary information, and know how; industrial designs and any registrations and applications therefor; trade names, logos, trade dress, trademarks and service marks, trademark and service mark registrations, trademark and service mark applications, and any and all goodwill associated with and symbolized by the foregoing items; Internet domain name applications and registrations, Internet and World Wide Web URLs or addresses; copyrights, copyright registrations and applications therefor, and all other rights corresponding thereto; and moral and economic rights of authors and inventors, however denominated, and any similar or equivalent rights to any of the foregoing.

 

(ii)          “Proprietary Information and Technology” means any and all of the following: works of authorship, computer programs, source code and executable code, whether embodied in software, firmware or otherwise, assemblers, applets, compilers, user interfaces, application programming interfaces, protocols, architectures, documentation, annotations, comments, designs, files, records, schematics, test methodologies, test vectors, emulation and simulation tools and reports, hardware development tools, models, prototypes, breadboards and other devices, data, data structures, databases, data compilations and collections, inventions (whether or not patentable), invention disclosures, discoveries, improvements, technology, proprietary and confidential ideas and information, know-how and information maintained as trade secrets, tools, concepts, techniques, methods, processes, formulae, patterns, algorithms and specifications, customer lists and supplier lists and any and all instantiations or embodiments of the foregoing or of any Intellectual Property Rights in any form and embodied in any media.

 

  

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(iii)         “Intellectual Property” means (A) Intellectual Property Rights; and (B) Proprietary Information and Technology.

 

(iv)         “Company-Owned Intellectual Property” means any and all Intellectual Property that is owned by the Company or any Subsidiary.

 

(v)         “Company Intellectual Property” means any and all Company-Owned Intellectual Property and any and all Third Party Intellectual Property that is licensed to the Company or any Subsidiary.

 

(vi)        “Company Intellectual Property Agreements” means any material Contract to which the Company or any Subsidiary is a party or is otherwise bound and (A) pursuant to which the Company or any Subsidiary has granted to a third party any rights with respect to any Company Intellectual Property or licensed from a third party any Third Party Intellectual Property, or (B) that otherwise governs any Company Intellectual Property.

 

(vii)       “Company Registered Intellectual Property” means all United States, international and foreign: (A) patents and patent applications (including provisional applications); (B) registered trademarks or service marks, applications to register trademarks or service marks, intent-to-use applications, or other registrations or applications related to trademarks or service marks; (C) registered Internet domain names; (D) registered copyrights and applications for copyright registration; and (E) any other Intellectual Property Right that is the subject of an application, certificate, filing, registration or other document issued, filed with, or recorded by any governmental authority owned by, registered or filed in the name of, the Company or any of its Subsidiaries.

 

(viii)      “Standard Inbound IP Agreements” means (i) non-disclosure agreements entered into by the Company or a Subsidiary in the ordinary course of its business, consistent with past practice (each a “Standard NDA”), granting to the Company a limited right to use a third party’s confidential information, and (ii) “shrink wrap” and similar generally available commercial end-user licenses to software that is not redistributed with or used in the development or provision of the Company Products that have an individual acquisition cost of $15,000 or less.

 

(ix)         “Standard Outbound IP Agreements” means (i) Standard NDAs, granting to a third party a limited right to use the Company’s confidential information, and (ii) non-exclusive object code licenses of Company Products granted by the Company or a Subsidiary in the ordinary course of its business consistent with past practice on its standard unmodified form of customer agreement (a copy of which has been made available to Acquirer’s counsel).

 

(x)          “Third Party Intellectual Property” means any and all Intellectual Property that is owned by a third party.

 

(xi)         “Company Products” means all products or services produced, marketed, licensed, sold, distributed or performed by or on behalf of the Company or any Subsidiary and all products or services currently under development by the Company or any Subsidiary which the Company or any Subsidiary intends to make commercially available within twelve (12) months after the date hereof.

 

  

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(xii)        “Company Source Code” means, collectively, any software source code or confidential manufacturing specifications or designs, any material portion or aspect of software source code or confidential manufacturing specifications or designs, or any material proprietary information or algorithm contained in or relating to any software source code or confidential manufacturing specifications or designs, of any Company-Owned Intellectual Property or Company Products.

 

(b)           Subject to the disclosure set forth in Schedule 2.10(m) of the Company Disclosure Letter, (i) the Company and its Subsidiaries own or have the valid right or license to use and, to the extent that it does any of the following, to develop, make, have made, offer for sale, sell, import, copy, modify, create derivative works of, distribute, license, and dispose of, all Intellectual Property used in the conduct of the Business and (ii) the Company Intellectual Property is sufficient for the conduct of the Business.

 

(c)           Neither the Company nor any Subsidiary has transferred ownership of, or agreed to transfer ownership of, any Intellectual Property that is or was Company-Owned Intellectual Property, to any third party.  Neither the Company nor any Subsidiary has permitted the Company’s rights in any Intellectual Property that is or was Company-Owned Intellectual Property, to (i) enter the public domain or, (ii) with respect to any Intellectual Property Rights for which the Company or its Subsidiaries have submitted an application or obtained a registration, to lapse (other than through the expiration of registered Intellectual Property at the end of its maximum statutory term or with respect to such applications or registrations which the Company or any of its Subsidiaries have permitted to lapse or has cancelled or abandoned in its reasonable business judgment).

 

(d)           The Company and its Subsidiaries own and have exclusive title to each item of Company-Owned Intellectual Property free and clear of any Encumbrances (other than Permitted Encumbrances).  After the Closing, all Company-Owned Intellectual Property will be fully transferable and licensable by Acquirer without restriction and without payment of any kind to any third party.  The right, license and interest of the Company or a Subsidiary in and to all Third Party Intellectual Property licensed to the Company or a Subsidiary are free and clear of all Encumbrances (other than restrictions contained in the applicable written license agreements with such Third Parties and Permitted Encumbrances).

 

(e)           (i) Schedule 2.10(e)(i) of the Company Disclosure Letter lists all Company Products (including services) that are owned by (A) the Company or any Subsidiary and (B) a third party, respectively.  (ii) Schedule 2.10(e)(ii) of the Company Disclosure Letter lists all Third Party Intellectual Property that is incorporated into, integrated into, or bundled with any of the Company Products owned by the Company or any Subsidiary (including any Third Party Intellectual Property used to provide such Company Products that are services) and identifies (A) the applicable Contract under which such Third Party Intellectual Property is licensed to Company or a Subsidiary and (B) the Company Product(s) into or with which such Third Party Intellectual Property is incorporated, integrated, or bundled (including, with respect to such Company Products that are services, the Company Product(s) which such Third Party Intellectual Property is used to provide).

 

(f)            Schedule 2.10(f) of the Company Disclosure Letter lists (i) all Company Registered Intellectual Property including the jurisdictions in which each such item of Intellectual Property has been issued or registered or in which any application for such issuance and registration has been filed, or in which any other filing or recordation has been made; (ii) all actions that are required to be taken by the Company or its Subsidiaries within 120 days of the Agreement Date with respect to any of the Company Registered Intellectual Property in order to avoid material prejudice to, impairment or abandonment of such Company Registered Intellectual Property; and (iii) any proceedings or actions before any court or tribunal anywhere in the world related to any of the Company Registered Intellectual Property (other than ordinary course pre-issuance proceedings and actions before the United States Patent and Trademark Office (“PTO”) and other similar Governmental Entities that are responsible for the issuance and registration of such Company Registered Intellectual Property).

 

  

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(g)           Each item of Company Registered Intellectual Property is subsisting and, (with respect to patents, to the knowledge of the Company), valid (or in the case of applications, applied for), all registration, maintenance and renewal fees currently due in connection with such Company Registered Intellectual Property have been paid and such Company Registered Intellectual Property has been duly maintained.  Without limiting the foregoing, the Company and its Subsidiaries have complied with the duty of candor and disclosure to the PTO and any relevant foreign patent office with respect to all patent applications filed by or on behalf of the Company or any Subsidiary (the “Company Patent Applications”) and have made no material misrepresentation in the Company Patent Applications.

 

(h)           With respect to the Company Intellectual Property Agreements:

 

(i)          Neither the Company nor any Subsidiary is or shall be as a result of the execution and delivery or effectiveness of this Agreement or the performance of the Company’s obligations under this Agreement, in breach of any Company Intellectual Property Agreement and the consummation of the transactions contemplated by this Agreement will not result in the modification, cancellation, termination, suspension of, or acceleration of any payments with respect to any Company Intellectual Property Agreement, or (with or without notice or lapse of time, or both) give any non-Company party to any Company Intellectual Property Agreement the right to do any of the foregoing, where such breach, modification, cancellation, or termination, or suspension or acceleration of payments would not have a material effect on the Company.

 

(ii)         Following the Closing, the Company (as wholly owned by Acquirer) will be permitted to exercise all of the Company’s and its Subsidiaries’ rights under the Company Intellectual Property Agreements to the same extent the Company and its Subsidiaries would have been able to had the transactions contemplated by this Agreement not occurred and without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments which the Company or any Subsidiary would otherwise be required to pay.

 

(iii)        None of the Company Intellectual Property Agreements grants to any third party exclusive rights to or under any Company Intellectual Property.

 

(iv)        Except as otherwise set forth in Schedule 2.10(h)(iv) of the Company Disclosure Letter, none of the Company Intellectual Property Agreements grants to any third party the right to sublicense any Company Intellectual Property.

 

(v)         Except as otherwise set forth in Schedule 2.10(h)(v) of the Company Disclosure Letter, there are no disputes regarding the scope of any Company Intellectual Property Agreements, or performance under any Company Intellectual Property Agreements including with respect to any payments to be made or received by the Company or any Subsidiary thereunder.

 

(vi)        No Company Intellectual Property Agreement requires the Company or a Subsidiary to include any Third Party Intellectual Property in any Company Product or obtain any third party’s approval of any Company Product at any stage of development, licensing, distribution or sale of such Company Product.

 

  

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(i)            Neither this Agreement nor the transactions contemplated by this Agreement will result in: (i) Acquirer or any of its Affiliates granting to any third party any right to or with respect to any Intellectual Property owned by or licensed to Acquirer or any of its Affiliates, or (ii) Acquirer or any of its Affiliates being bound by or subject to any exclusivity obligations, non-compete or other restrictions on the operation or scope of their respective businesses, or (iii) Acquirer or the Company being obligated to pay any royalties or other material amounts to any third party in excess of those payable by any of them, respectively, in the absence of this Agreement or the transactions contemplated hereby.

 

(j)            There are no royalties, honoraria, fees or other payments payable by the Company or any Subsidiary to any Person (other than salaries, or fees payable to employees, consultants and independent contractors not contingent on or related to use of their work product) as a result of the ownership, use, possession, license-in, license-out, sale, marketing, advertising or disposition of any Intellectual Property by the Company or any Subsidiary.

 

(k)            To the knowledge of the Company, there is no unauthorized use, unauthorized disclosure, infringement or misappropriation of any Company-Owned Intellectual Property by any third party.  Neither the Company nor any Subsidiary has brought any Legal Proceeding for infringement or misappropriation of any Intellectual Property Right or breach of any Company Intellectual Property Agreement.

 

(l)            Except as otherwise set forth in Schedule 2.10(l) of the Company Disclosure Letter, neither the Company nor any Subsidiary has been sued in any suit, action or proceeding (or received any written notice or, to the knowledge of the Company, threat) which involves a claim of infringement or misappropriation of any Intellectual Property Right of any third party or which contests the validity, ownership or right of the Company or any Subsidiary to exercise any Intellectual Property Right.  Except as otherwise set forth in Schedule 2.10(l) of the Company Disclosure Letter, neither the Company nor any Subsidiary has received any written communication that involves an offer to license or grant any other rights or immunities under any Intellectual Property Right of a third party.

 

(m)           Except as otherwise set forth in Schedule 2.10(m)(i) of the Company Disclosure Letter, the Company and its Subsidiaries are not infringing, misappropriating or violating and have not infringed, misappropriated or violated the Intellectual Property Rights of any third party.  In addition, the operation of the Business, including (i) the design, development, manufacturing, reproduction, branding, marketing, advertising, promotion, licensing, sale, offer for sale, importation, distribution, provision and/or use of any Company Product and (ii) the Company’s or any Subsidiary’s use of any product, device or process used in the Business has not infringed, misappropriated, or violated, and does not infringe, misappropriate, or violate the Intellectual Property Rights of any third party, and does not constitute unfair competition or unfair trade practices under the laws of any jurisdiction and, to the knowledge of the Company, there is no substantial basis for a claim that the design, development, manufacturing, reproduction, marketing, licensing, sale, offer for sale, importation, distribution, provision and/or use of any Company Product or the operation of the Business is infringing, misappropriating, or violating, or has infringed, misappropriated, or violated any Intellectual Property Right of a third party.

 

(n)           No Company-Owned Intellectual Property, Company Product owned by Company or any Subsidiary or, to the knowledge of Company, any Company Product owned by a third party is subject to any proceeding, outstanding decree, order, judgment, settlement or co-existence agreement, stipulation, or “march in” right that restricts  in any material manner the use, transfer, or licensing thereof by the Company or any Subsidiary, or which may affect the validity, use or enforceability of any such Company-Owned Intellectual Property.

 

(o)           Neither the Company nor any Subsidiary has received any written opinion of counsel that any Company Product or the operation of the Business does or does not infringe, misappropriate, or violate any Intellectual Property Right of a third party or that any Intellectual Property Right of a third party is invalid or unenforceable.

 

  

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(p)           All consultants, employees and independent contractors and any other Person who independently or jointly contributed to or participated in the conception, reduction to practice, creation or development of any Intellectual Property for the Company or any Subsidiary (each, a  “Company Author”) either (i) assigned to Company or any Subsidiary unencumbered and unrestricted exclusive ownership of all of each such Company Author’s Intellectual Property Rights in such contribution, or (ii) did so within the scope of his or her employment and all such Intellectual Property arising therefrom became the exclusive property of the Company or any Subsidiary from the moment of its creation.  No such Company Author has expressly retained any rights, licenses, claims or interest with respect to any Intellectual Property developed by such Company Author or the Company or any Subsidiary.

 

(q)           To the knowledge of the Company, no current or former employee, consultant or independent contractor of the Company or any Subsidiary:  (i) is in violation of any term or covenant of any Contract relating to employment, invention disclosure (including patent disclosure), invention assignment, non-disclosure or any other Contract with any other party by virtue of such employee’s, consultant’s or independent contractor’s being employed by, or performing services for, the Company or any Subsidiary or using trade secrets or proprietary information of others without permission; or (ii) has developed any technology, software or other copyrightable, patentable or otherwise proprietary work for the Company or any Subsidiary that is subject to any agreement under which such employee, consultant or independent contractor has assigned or otherwise granted to any third party any rights (including Intellectual Property Rights) in or to such technology, software or other copyrightable, patentable or otherwise proprietary work.

 

(r)            The Company and its Subsidiaries have taken commercially reasonable steps to protect and preserve the confidentiality of all confidential or non-public information of the Company or provided by any third party to the Company that derives independent economic value from not being generally known or readily ascertainable by others (“Company Confidential Information”).  All current and former employees and contractors of the Company and its Subsidiaries and any third party having access to Company Confidential Information have executed and delivered to the Company a written, legally binding agreement imposing on such employees and contractors obligations regarding the protection of such Company Confidential Information (“CCI Agreement”).  The Company has not breached any confidentiality obligations that the Company has with any customer, with respect to Company Confidential Information received by the Company from such customer.

 

(s)           Reserved.

 

(t)             To the knowledge of the Company, neither the Company nor any Subsidiary has (i) incorporated Open Source Materials (as defined below) into, or combined Open Source Materials with, the Company Intellectual Property or Company Products; (ii) distributed Open Source Materials in conjunction with any Company Intellectual Property or Company Products; or (iii) used Open Source Materials, in such a way that, with respect to (i), (ii), or (iii), creates, or purports to create obligations for the Company or such Subsidiary with respect to any Company Intellectual Property or grant, or purport to grant, to any third party, any rights or immunities under any Company Intellectual Property Rights  (including using any Open Source Materials that require, as a condition of use, modification and/or distribution of such Open Source Materials that other software incorporated into, derived from or distributed with such Open Source Materials be (A) disclosed or distributed in source code form, (B) be licensed for the purpose of making derivative works, or (C) be redistributable at no charge).

 

  

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(u)           All Company Products (including services) sold, licensed, leased or delivered by the Company or any Subsidiary to customers on or prior to the Closing Date conform to applicable contractual commitments, and express and implied warranties (to the extent not subject to legally effective express exclusions thereof).  Neither the Company nor any Subsidiary has any Liability (and, to the knowledge of the Company and any Subsidiary, there is no legitimate basis for any present or future Legal Proceeding against the Company or any Subsidiary giving rise to any material Liability relating to the foregoing Contracts) for replacement or repair of such Company Products (including re-performance thereof where such Company Products are services) or other damages in connection therewith in excess of any reserves therefor reflected on the Company Balance Sheet.

 

(v)           Except as otherwise set forth on Schedule 2.10(v) of the Company Disclosure Letter, neither the Company, any Subsidiary, nor any other Person then acting on their behalf has disclosed, delivered or licensed to any third party, agreed or obligated itself to disclose, deliver or license to any third party, or permitted the disclosure or delivery to any escrow agent or other third party of, any Company Source Code.

 

(w)           No event has occurred, and, to the knowledge of the Company, no circumstance or condition exists, that (with or without notice or lapse of time, or both) will result in the disclosure, delivery or license by the Company or any Subsidiary or any Person then acting on their behalf to any third party of any Company Source Code.  Without limiting the foregoing, neither the execution of this Agreement nor any of the transactions contemplated by this Agreement will result in release from escrow or other delivery to a third party of any Company Source Code other than independent contractors and consultants in connection with performing services on behalf of the Company and its Subsidiaries pursuant to CCI Agreements.

 

(x)            Neither the Company nor any Subsidiary has a present obligation to grant or offer to any third party any license or right to any Company-Owned Intellectual Property by virtue of Company’s or any other Person’s membership in, promotion of, or contributions to any industry standards body or any similar organization.

 

(y)           Neither the Company nor any Subsidiary has experienced any breach of security or otherwise unauthorized access by third parties to Company Confidential Information, including personally identifiable information in the Company’s or any Subsidiary’s possession, custody or control, except for any breach or unauthorized access which would not reasonably be expected to have a Material Adverse Effect.

 

(z)           The Company and each Subsidiary have complied with all applicable Legal Requirements and their respective publicly available privacy policies relating to (a) the privacy of users of the Company Products (including services) and all Internet websites owned, maintained or operated by Company or any Subsidiary (the “Company Websites”) and (ii) the use, collection, storage, disclosure and transfer of any personally identifiable information collected by or provided to the Company or any Subsidiary or by third parties having authorized access to the records, databases and Company Websites of the Company or any Subsidiary.  Each of the Company Websites, the Company Products and all other materials distributed or marketed by the Company or any of its Subsidiaries have at all times made all disclosures to users or customers required by applicable Legal Requirements in effect as of the applicable dates and none of such disclosures made or contained in any Company Website, any Company Product or in any such materials have been materially inaccurate or misleading or deceptive or in violation of any applicable Legal Requirement.  The Company and its Subsidiaries’ privacy practices conform, and at all times have conformed, in all respects to their respective publicly available privacy policies. No written claims have been asserted or, to the knowledge of the Company and its Subsidiaries, are threatened against the Company or any of its Subsidiaries by any Person or entity alleging a violation of such Person’s or entity’s privacy, personal or confidentiality rights under the privacy policies of the Company or its Subsidiaries. With respect to all personal and user information described in this Section 2.10(z), the Company and its Subsidiaries have at all times taken steps reasonably necessary (including, without limitation, implementing and monitoring compliance with adequate measures with respect to technical and physical security) to ensure that the information is protected against loss and against unauthorized access, use, modification, disclosure or other misuse.  To the knowledge of the Company or any of its Subsidiaries, there has been no unauthorized access to or other misuse of that information. The execution, delivery and performance of this Agreement, will comply with all applicable Legal Requirements relating to privacy and with the Company’s and each Subsidiary’s publicly available privacy policies.  Neither the Company nor any Subsidiary has received a complaint regarding the Company’s collection, use or disclosure of personally identifiable information.

 

  

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(aa)          Schedule 2.10(aa) of the Company Disclosure Letter contains a complete list of all material third party software development tools used by the Company or any of its Subsidiaries in the Business (the “Third PartyDevelopment Tools”).  The Company or any Subsidiary has sufficient right, title and interest in and to the Third Party Development Tools for the conduct of the Business.

 

(bb)         None of the Company Products: (i) contains hidden files, viruses, time bombs, Trojan horses, or other malicious code or files designed to interrupt, destroy, or limit the functionality of any computer software or hardware, (ii) contains back doors, trap doors or other similar code designed to allow access into any computer software or hardware without going through normal built-in security checks and logs, or (iii) contains or, to the knowledge of the Company, are susceptible to any vulnerability described by any industry-recognized security vulnerability or notification service, including without limitation the United States Computer Emergency Response Team and Symantec Bugtraq.

 

(cc)          Without limiting or qualifying Section 2.10(p) in any way, Schedule 2.10(cc) of the Company Disclosure Letter sets forth a complete list of (i) all Company-Owned Intellectual Property, including software, that has been developed, in whole or in part, by any Person outside of the United States (or with the assistance of a Person located outside of the United States), (ii) a description of such Company-Owned Intellectual Property, including how it is used by the Company and/or its Subsidiaries, (iii) the name of the Person located outside of the United States who developed or contributed to the development of such Company-Owned Intellectual Property, (iv) the jurisdiction outside of the United States where such Person who developed or contributed to the development of such Company-Owned Intellectual Property was located at the time such Person developed or contributed to the development of such Company-Owned Intellectual Property, and (v) the agreement pursuant to which such Company-Owned Intellectual Property was developed.

 

(dd)          The Company and its Subsidiaries have in place written security and disaster recovery plans which the Company and its Subsidiaries have complied with in all material respects, including by implementing both security arrangements to protect the Company’s and its Subsidiaries business systems from unauthorized access, and by implementing backups to ensure the continued operation of the Company’s and its Subsidiaries’ business (including the continued availability of the Company Products) in the event of a disaster or business interruption.  Neither the Company nor any Subsidiary has experienced any material business interruption that has not been remedied in all material respects or has received notice of any actual or threatened customer claims relating thereto.

 

2.11         Environmental Matters.

 

(a)           As used in this Agreement, the following terms shall have the meanings indicated below:

 

  

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(i)           “Environmental and Safety Laws” shall mean any federal, national, foreign, state or local laws, ordinances, codes, regulations, rules, policies and orders that are intended to assure the protection of the environment, or that classify, regulate, call for the remediation of, require reporting with respect to, or list or define air, water, groundwater, solid waste, hazardous or toxic substances, materials, wastes, pollutants or contaminants, or which are intended to assure the safety of employees, workers or other persons, including the public.

 

(ii)          “Hazardous Materials” shall mean any toxic or hazardous substance, material or waste or any pollutant or contaminant, or infectious or radioactive substance, material or waste defined in or regulated under any Environmental and Safety Laws, but excludes office and janitorial supplies properly and safely maintained.

 

(iii)         “Property” shall mean all real property leased or owned by the Company or any Subsidiary either currently or in the past.

 

(iv)         “Facilities” shall mean all buildings and improvements on the Property.

 

(b)           (i) All Hazardous Materials and wastes of the Company or any Subsidiary have been disposed of in accordance in all material respects with all Environmental and Safety Laws; (ii) neither the Company nor any Subsidiary has received any written notice of any noncompliance of the Facilities or its past or present operations with Environmental and Safety Laws; (iii) no notices or Legal Proceedings are pending or threatened relating to an actual or alleged violation of any applicable Environmental and Safety Laws by the Company or any Subsidiary; (iv) neither the Company nor any Subsidiary is a potentially responsible party under the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or any analogous state, local or foreign laws arising out of events occurring prior to the Closing Date; (v) to the Company’s knowledge, there have not been in the past, and are not now, any Hazardous Materials on, under or migrating to or from any of the Facilities or any Property; and (vi) the Facilities and the Company’s and each Subsidiary’s uses and activities therein have at all times materially complied with all Environmental and Safety Laws.

 

2.12         Taxes.

 

(a)           The Company and each Subsidiary, and any consolidated, combined, unitary or aggregate group for Tax purposes of which the Company or any Subsidiary is or has been a member, have properly completed and timely filed all Tax Returns required to be filed by them and have timely paid all Taxes whether or not shown on any Tax Return.  All Tax Returns were complete and accurate in all material respects.  The Company has made available to Acquirer correct and complete copies of all Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by the Company or any of its Subsidiaries.

 

(b)           The Company Balance Sheet reflects all Liabilities for unpaid Taxes of the Company and/or any Subsidiary for periods (or portions of periods) through the Company Balance Sheet Date.  Neither the Company nor any Subsidiary has any Liability for unpaid Taxes accruing after the Company Balance Sheet Date except for Taxes arising in the ordinary course of business subsequent to the Company Balance Sheet Date.  The Company has no Liability for unpaid Taxes for any period (or portions of any period) prior to, or through the Closing Date that are not included in the calculation of Company Net Working Capital.

 

  

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(c)           There is (i) no claim for Taxes being asserted against the Company or any Subsidiary that has resulted in a lien against the property of the Company or any Subsidiary other than liens for Taxes not yet due and payable, (ii) no audit or, to the knowledge of the Company, pending audit of, or Tax controversy associated with, any Tax Return of the Company or any Subsidiary being conducted by a Tax Authority, (iii) no extension of any statute of limitations on the assessment of any Taxes granted by the Company or any Subsidiary currently in effect, and (iv) no agreement to any extension of time for filing any Tax Return which has not been filed.  No claim has ever been made in writing by any Governmental Entity in a jurisdiction where the Company or any Subsidiary does not file Tax Returns that the Company or any Subsidiary is or may be subject to taxation by that jurisdiction. The Company does not have a “permanent establishment” in any foreign country, as such term is defined in any applicable tax treaty or convention between the United States and such foreign country.

 

(d)           Neither the Company nor any Subsidiary has been or will be required to include any adjustment in Taxable income for any Tax period (or portion thereof) pursuant to Section 481 or 263A of the Code or any comparable provision under state, local or foreign Tax laws as a result of transactions, events or accounting methods employed prior to the Mergers.

 

(e)           Neither the Company nor any Subsidiary is a party to or bound by any Tax sharing, Tax indemnity, or Tax allocation agreement nor does the Company or any Subsidiary have any Liability or potential Liability to another party under any such agreement.

 

(f)            Each of the Company and each Subsidiary has disclosed on its Tax Returns any Tax reporting position taken in any Tax Return which could result in the imposition of penalties under Section 6662 of the Code or any comparable provisions of state, local or foreign law.

 

(g)           Neither the Company nor any Subsidiary has participated in, nor are any of them currently participating in, a “Listed Transaction” or a “Reportable Transaction” within the meaning of Section 6707A(c) of the Code or Treasury Regulation Section 1.6011-4(b), or any transaction requiring disclosure under a corresponding or similar provision of state, local, or foreign law.

 

(h)           Neither the Company nor any Subsidiary or any predecessor of the Company or any Subsidiary has ever been a member of a consolidated, combined, unitary or aggregate group of which the Company or any predecessor of the Company was not the ultimate parent corporation.

 

(i)            Neither the Company nor any Subsidiary has any Liability for the Taxes of any Person (other than the Company or any Subsidiary) under Section 1.1502-6 of the Treasury Regulations (or any similar provision of state, local or foreign law) as a transferee or successor, by Contract or otherwise, other than pursuant to any commercial agreement entered into in the ordinary course of business the principal purpose of which is unrelated to Taxes, such as a customary credit agreement or similar contract.

 

(j)            The Company for itself and for each Subsidiary has disclosed in Schedule 2.12(j) of the Company Disclosure Letter the amount of any deferred gain or loss arising out of any intercompany transaction within the meaning of Section 1.1502-13 of the Treasury Regulations.

 

(k)            Neither the Company nor any Subsidiary will be required to include in income, or exclude any item of deduction from, Taxable income for any Taxable period (or portion thereof) ending after the Closing Date as a result of any (i) change in method of accounting for a Taxable period ending on or prior to the Closing Date; (ii) “closing agreement” described in Section 7121 of the Code (or any corresponding or similar provision of state, local, or foreign Tax law); (iii) intercompany transactions or any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of state, local, or foreign Tax law); (iv) installment sale or open transaction disposition made on or prior to the Closing Date; or (v) prepaid amount received on or prior to the Closing Date.

 

  

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(l)            The Company has provided to Acquirer all written analyses prepared by or on behalf of the Company in respect of the application of Section 382 of the Code to the net operating loss carryforwards of the Company.

 

(m)           To the knowledge of the Company, neither the Company nor any Subsidiary is the beneficiary of any Tax holidays or incentives.

 

(n)           Neither the Company nor any Subsidiary is nor have any of them ever been a “United States real property holding corporation” within the meaning of Section 897 of the Code, and the Company and each Subsidiary has filed with the Internal Revenue Service all statements, if any, which are required under Section 1.897-2(h) of the Treasury Regulations.

 

(o)           Neither the Company nor any Subsidiary has constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock qualifying for Tax-free treatment under Section 355 of the Code (i) in the two (2) years prior to the date of this Agreement or (ii) in a distribution that could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the Mergers.

 

(p)           Each of the Company and each Subsidiary has substantially complied (and until the Closing will comply) with all applicable Legal Requirements relating to the payment, reporting and withholding of Taxes (including withholding of Taxes pursuant to Sections 1441, 1442, 1445 and 1446 of the Code or similar provisions under any foreign law) and has, within the time and in the manner prescribed by law, withheld from employee wages or consulting compensation and paid over to the proper governmental authorities (or is properly holding for such timely payment) all amounts required to be so withheld and paid over, including federal and state income Taxes, Federal Insurance Contribution Act, Medicare, Federal Unemployment Tax Act, relevant state income and employment Tax withholding laws, and has timely filed all withholding Tax Returns, for all periods through and including the Closing Date.

 

(q)           There is no agreement, plan, arrangement or other Contract covering any current or former employee or other service provider of the Company or any Subsidiary or ERISA Affiliate (as defined below) to which the Company and/or any Subsidiary is a party or by which the Company and/or any Subsidiary is bound that, considered individually or considered collectively with any other such agreements, plans, arrangements or other Contracts, will, or would reasonably be expected to, as a result of the transactions contemplated hereby (whether alone or upon the occurrence of any additional or subsequent events), give rise directly or indirectly to the payment of any amount that would reasonably be expected to characterized as a “parachute payment” within the meaning of Section 280G of the Code (or any corresponding or similar provision of state, local or foreign Tax law).  Schedule 2.12(q) of the Company Disclosure Letter lists each Person (whether U.S. or foreign) who the Company reasonably believes is, with respect to the Company and/or any Subsidiary, a “disqualified individual” (within the meaning of Section 280G of the Code and the regulations promulgated thereunder), as determined as of the Agreement Date.  No stock of the Company or any Company Securityholder is readily tradeable on an established securities market or otherwise (within the meaning of Section 280G and the regulations promulgated thereunder), such that the Company is ineligible to seek shareholder approval in a manner that complies with Section 280G(b)(5) of the Code.

 

(r)            Each “nonqualified deferred compensation plan” (within the meaning of Section 409A of the Code) to which the Company or its Subsidiaries is a party, complies with the requirements of Section 409A(a) of the Code and the Regulations thereunder by its terms and has been operated in accordance with such requirements.

 

  

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(s)           The exercise price of all Company Options that became exercisable after December 31, 2004 is at least equal to the fair market value of the Company Common Stock on the date such Company Options were granted. No such Company Options have been materially modified since their date of grant within the meaning of Section 409A of the Code and the regulations thereunder, and neither the Company nor the Acquirer has incurred or will incur any liability or obligation to withhold taxes under Section 409A of the Code upon the vesting of any Company Options.

 

(t)           The Company has made available to Acquirer correct and complete copies of all election statements under Section 83(b) of the Code, together with evidence of timely filing of such election statements with the appropriate Internal Revenue Service Center with respect to any unvested Company Common Stock or other property issued by the Company to any of its employees, non-employee directors, consultants or other service providers.

 

2.13         Employee Benefit Plans and Employee Matters.

 

(a)           Schedule 2.13(a) of the Company Disclosure Letter lists, with respect to the Company or its Subsidiaries and any trade or business (whether or not incorporated) which is treated as a single employer with the Company (an “ERISA Affiliate”) within the meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all “employee benefit plans” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), (ii) each loan to an employee, (iii) other than the Company Option Plans, all stock option, restricted stock unit, equity incentive, stock purchase, phantom stock, stock appreciation right, supplemental retirement, severance, sabbatical, medical, dental, vision care, disability, employee relocation, training, tuition assistance, cafeteria benefit (Section 125 of the Code), dependent care (Section 129 of the Code), life insurance or accident insurance plans, programs or arrangements, (iv) all bonus, pension, profit sharing, savings, severance, retirement, deferred compensation or incentive plans, programs or arrangements, (v) all other fringe or employee benefit plans, programs or arrangements that apply to senior management and that do not generally apply to all employees, and (vi) all employment or executive compensation or severance agreements, written or otherwise, as to which unsatisfied obligations of the Company or any of its Subsidiaries of greater than $1,000 remain for the benefit of, or relating to, any present or former employee, consultant or non-employee director of the Company or such Subsidiary (all of the foregoing described in clauses (i) through (vi), collectively, the “Company Employee Plans”).  Correct and complete copies of all material documentation relating to the Company Employee Plans have been made available to Acquirer or Acquirer’s counsel prior to the Agreement Date.

 

(b)           The Company has made available to Acquirer’s counsel a true, correct and complete copy of each of the Company Employee Plans and related plan documents (including trust documents, insurance policies or Contracts, employee booklets, summary plan descriptions and other authorizing documents, and any material employee communications relating there) and has, with respect to each Company Employee Plan which is subject to ERISA reporting requirements, made available to Acquirer’s counsel true, correct and complete copies of the Form 5500 reports filed for the last three plan years.  Any Company Employee Plan intended to be qualified under Section 401(a) of the Code has either obtained from the Internal Revenue Service a favorable determination letter as to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has applied (or has time remaining in which to apply) to the Internal Revenue Service for such a determination letter prior to the expiration of the requisite period under applicable Treasury Regulations or Internal Revenue Service pronouncements in which to apply for such determination letter and to make any amendments necessary to obtain a favorable determination or has been established under a standardized prototype plan for which an Internal Revenue Service opinion letter has been obtained by the plan sponsor and is valid as to the adopting employer.  The Company has also made available to Acquirer a true, correct and complete copy of the most recent Internal Revenue Service determination or opinion letter issued with respect to each such Company Employee Plan, and, to the knowledge of the Company, nothing has occurred since the issuance of each such letter which would reasonably be expected to cause the loss of the Tax qualified status of any Company Employee Plan subject to Section 401(a) of the Code.  Neither the Company nor any Subsidiary sponsors or maintains material any self-funded Company Employee Plan, including any plan that includes stop-loss coverage.

 

  

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(c)            None of the Company Employee Plans promises or provides retiree medical or other retiree welfare benefits to any Person other than as required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) or similar state law and the Company has complied with the requirements of COBRA.  There has been no “prohibited transaction” (within the meaning of Section 406 of ERISA and Section 4975 of the Code and not exempt under Section 408 of ERISA and regulatory guidance thereunder) with respect to any Company Employee Plan.  Each Company Employee Plan has been administered, in all material respects, in accordance with its terms and in compliance with the requirements prescribed by any and all statutes, rules and regulations (including ERISA and the Code) and the Company and each ERISA Affiliate has performed in all material respects all obligations required to be performed by it under, is not in default under or in violation of, and has no knowledge of any default or violation by any other party to, any of the Company Employee Plans.  Neither the Company nor any Subsidiary or ERISA Affiliate is subject to any Liability or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any of the Company Employee Plans.  All contributions required to be made by the Company, any Subsidiary or any ERISA Affiliate to any Company Employee Plan have been made on or before their due dates and a reasonable amount has been accrued for contributions to each Company Employee Plan for the current plan years.  In addition, with respect to each Company Employee Plan intended to include a Code Section 401(k) arrangement, the Company, its Subsidiaries and ERISA Affiliates have at all times made timely deposits of employee salary reduction contributions and participant loan repayments, as determined pursuant to regulations issued by the United States Department of Labor.  No Company Employee Plan is covered by, and neither the Company nor ERISA Affiliate has incurred or expects to incur any Liability under Title IV of ERISA or Section 412 of the Code.  Each Company Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without Liability to Acquirer (other than ordinary administrative expenses typically incurred in a termination event).  With respect to each Company Employee Plan subject to ERISA as either an employee pension benefit plan within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan within the meaning of Section 3(1) of ERISA, the Company has prepared in good faith and timely filed all requisite governmental reports (which were true, correct and complete as of the date filed), including any required audit reports, and has properly and timely filed and distributed or posted all notices and reports to employees required to be filed, distributed or posted with respect to each such Company Employee Plan.  No suit, administrative proceeding, action, litigation or claim has been brought, or to the knowledge of the Company, is threatened, against or with respect to any such Company Employee Plan, including any audit or inquiry by the Internal Revenue Service or United States Department of Labor.

 

(d)           With respect to each Company Employee Plan, each of the Company and each United States Subsidiary has complied in all material respects with (i) the applicable health care continuation and notice provisions of COBRA and the regulations (including proposed regulations) thereunder, (ii) the applicable requirements of the Family Medical and Leave Act of 1993 and the regulations (including proposed regulations) thereunder, (iii) the applicable requirements of the Health Insurance Portability and Accountability Act of 1996 and the regulations (including proposed regulations) thereunder, (iv) the applicable requirements of the Americans with Disabilities Act of 1990, as amended and the regulations (including proposed regulations) thereunder, (v) the Age Discrimination in Employment Act of 1967, as amended, and (vi) the applicable requirements of the Women’s Health and Cancer Rights Act of 1998 and the regulations (including proposed regulations) thereunder.

 

  

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(e)           There has been no amendment to, written interpretation or announcement (whether or not written) by the Company, any Subsidiary or other ERISA Affiliate relating to, or change in participation or coverage under, any Company Employee Plan which would materially increase the expense of maintaining such Company Employee Plan above the level of expense incurred with respect to such Company Employee Plan for the most recent fiscal year included in the Financial Statements.  No Company Employee Plan will be subject to any surrender fees or service fees upon termination other than the normal and reasonable administrative fees associated with the termination of benefit plans.

 

(f)            Neither the Company nor current or former ERISA Affiliate currently maintains, sponsors, participates in or contributes to, or has ever maintained, established, sponsored, participated in, or contributed to, any pension plan (within the meaning of Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code.

 

(g)           Neither the Company nor ERISA Affiliate is a party to, or has any obligation under, any “multiemployer plan” as such term is defined in Section 3(37) of ERISA or any “multiple employer plan” as such term is defined in Section 413(c) of the Code.

 

(h)           The Company does not have any Company Employee Plans sponsored, maintained or contributed to under the law or applicable custom or rule of the relevant jurisdiction outside of the United States.

 

(i)            Schedule 2.13(i) of the Company Disclosure Letter lists as of the Agreement Date each employee of the Company or any Subsidiary who is not fully available to perform work because of disability or other leave and also lists, with respect to each such employee, the basis of such disability or leave and the anticipated date of return to full service.

 

(j)            Each of the Company and its Subsidiaries is in material compliance with all currently applicable Legal Requirements respecting employment, discrimination in employment, terms and conditions of employment, worker classification (including the proper classification of workers as independent contractors and consultants), wages, hours and occupational safety and health and employment practices, including the Immigration Reform and Control Act, and is not engaged in any unfair labor practice in violation of the National Labor Relations Act.  Each of the Company and its Subsidiaries has withheld all amounts required by law or by agreement to be withheld from the wages, salaries, and other payments to employees; and is not liable for any arrears of wages, compensation, Taxes, penalties or other sums for failure to comply with any of the foregoing.  The Company and each Subsidiary has paid in full to all employees, independent contractors and consultants all wages, salaries, commissions, bonuses, benefits and other compensation due to or on behalf of such employees, independent contractors and consultants.  Each of the Company and its Subsidiaries has maintained adequate up-to-date records regarding the service of its employees and has paid in full to all employees, independent contractors and consultants all wages, salaries, commissions, bonuses, benefits and other compensation due to or on behalf of such employees, independent contractors and consultants.  Neither the Company nor any of its Subsidiaries is liable for any payment to any trust or other fund or to any Governmental Entity, with respect to unemployment compensation benefits, social security or other benefits or obligations for employees (other than routine payments to be made in the normal course of business and consistently with past practice).  There are no pending claims against the Company and/or any Subsidiary under any workers compensation plan or policy or for long term disability.  Neither the Company nor any Subsidiary has any obligations under COBRA with respect to any former employees or qualifying beneficiaries thereunder, except for obligations that are not material in amount.  There is no litigation or controversies pending or, to the knowledge of the Company, threatened in writing or otherwise, between the Company or any of its Subsidiaries and any of their respective employees or any trade union or other organization formed for a similar purpose or any other employee representative(s), which controversies have or would reasonably be expected to result in an action, suit, proceeding, claim, arbitration or governmental investigation and, to the knowledge of the Company, there are no circumstances which are likely to give rise to such litigation or controversies.

 

  

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(k)           Schedule 2.13(k) of the Company Disclosure Letter sets forth a true, correct and complete list as of the Agreement Date of all severance Contracts and employment Contracts to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound.  Neither the Company nor any of its Subsidiaries has any obligation to pay any amount or provide any benefit to any former employee or officer, other than obligations (i) for which Company has established a reserve for such amount on the Company Balance Sheet and (ii) pursuant to Contracts entered into after the Company Balance Sheet Date and disclosed on Schedule 2.13(k) of the Company Disclosure Letter.  Neither the Company nor any of its Subsidiaries is a party to or bound by any collective bargaining agreement or other labor union Contract, no collective bargaining agreement is being negotiated by the Company or any of its Subsidiaries, and neither the Company nor any of its Subsidiaries has any duty to bargain with any labor organization.  There is no pending demand for recognition or any other request or demand from a labor organization for representative status with respect to any Person employed by the Company or any of its Subsidiaries.  Neither the Company nor any of its Subsidiaries has knowledge of any activities or proceedings of any labor union or to organize their respective employees.  There is no labor dispute, strike or work stoppage against the Company or any of its Subsidiaries pending or, to the knowledge of the Company, threatened which may interfere with the respective business activities of the Company or any of its Subsidiaries.  Neither the Company, any Subsidiary of the Company, nor to the knowledge of the Company any of their respective representatives or employees, has committed any unfair labor practice in violation of the National Labor Relations Act in connection with the operation of the Business, and there is no charge or complaint against the Company by the National Labor Relations Board or any comparable Governmental Entity pending or to the knowledge of the Company, threatened in writing.  No employee of the Company or any Subsidiary has been dismissed in the last 12 month period.

 

(l)            To the knowledge of the Company, no employee of the Company or any of its Subsidiaries has been alleged in a judicial complaint to be in violation of any term of any employment agreement, non-competition agreement, or any restrictive covenant to a former employer relating to the right of any such employee to be employed by the Company because of the nature of the Business or to the use of trade secrets or proprietary information of others.   Except as set forth on Schedule 2.13(l) of the Company Disclosure Letter, no employee of the Company or any of its Subsidiaries has given notice to the Company or such Subsidiary or is under a notice of dismissal, nor does the Company or such Subsidiary otherwise have knowledge, that any such employee intends to terminate his or her employment with the Company or such Subsidiary,  The employment of the employees of the Company or any of its Subsidiaries is “at will” (except for non-U.S. employees of the Company or any Subsidiary located in a jurisdiction that does not recognize the “at will” employment concept) and neither the Company nor any of its Subsidiaries has any obligation to provide any particular form or period of notice prior to terminating the employment of any of their respective employees, except as set forth on Schedule 2.13(l) of the Company Disclosure Letter.  As of the date hereof, neither the Company nor any of its Subsidiaries has (i) entered into any Contract that obligates or purports to obligate Acquirer to make an offer of employment to any present or former employee or consultant of the Company or such Subsidiary and/or (ii) promised to any present or former employee or consultant of the Company or such Subsidiary of any terms or conditions of employment with Acquirer following the Closing Date.

 

(m)           Schedule 2.13(m) of the Company Disclosure Letter sets forth a true, correct and complete list of the names, positions and rates of compensation of all officers, directors, and employees of the Company, showing each such person’s name, position, annual base salary, target bonus and target commissions, status as exempt/non-exempt.

 

  

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(n)           The Company has made available to Acquirer a true, correct and complete list of all of its and its Subsidiaries’ consultants, advisory board members and independent contractors and for each the initial date of the engagement and whether the engagement has been terminated by written notice by either party.

 

(o)           The Company has made available  to Acquirer’s counsel true copies of each of the following: standard forms of offer letters; standard forms of employment agreements and severance agreements; standard forms of services agreements and agreements with current and former consultants and/or advisory board members; all standard forms of confidentiality, non-competition or inventions agreements between current and former employees/consultants and the Company and its Subsidiaries (and a true list of employees, consultants and/or others not subject thereto); the most current management organization chart(s); all agreements and/or insurance binders, which insurance binders shall provide a complete and correct summary of the underlying insurance policies, providing for the indemnification of any officers or directors of the Company and its Subsidiaries; a summary of Liability for termination payments to current and former directors, officers and employees of the Company and its Subsidiaries; and a schedule of bonus commitments made to employees of the Company and its Subsidiaries.

 

(p)           The Company has delivered to Acquirer true and complete copies of all election statements under Section 83(b) of the Code, if any, that are in the Company’s possession with respect to any unvested securities or other property issued by the Company or any ERISA Affiliate to any of their respective employees, non-employee directors, consultants and other service providers.

 

(q)           The Company and each Subsidiary is in compliance in all material respects with the Worker Adjustment Retraining Notification Act of 1988, as amended (“WARN Act”), or any similar state or local law.  In the past two (2) years, (i) the Company has not effectuated a “plant closing” (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of its business; (ii) there has not occurred a “mass layoff” (as defined in the WARN Act) affecting any site of employment or facility of the Company; and (iii) the Company has not been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state, local or foreign law or regulation.  The Company has not caused any of its employees to suffer an “employment loss” (as defined in the WARN Act) during the 90 day period prior to the Agreement Date.

 

(r)            Neither the execution or delivery of this Agreement nor the consummation of the transactions contemplated by this Agreement or any termination of employment or service or any other event in connection therewith or subsequent thereto will, individually or together or with the occurrence of some other event, (whether contingent or otherwise), (i) result in any material payment or benefit (including severance, unemployment compensation, golden parachute, bonus or otherwise) becoming due or payable, or required to be provided, to any current or former employee, director, independent contractor or consultant, (ii) materially increase the amount or value of any benefit or compensation otherwise payable or required to be provided to any current or former employee, director, independent contractor or consultant, (iii) result in the acceleration of the time of payment, vesting or funding of any such benefit or compensation, (iv) increase the amount of compensation due to any Person, or (v) result in the forgiveness in whole or in part of any outstanding loans made by the Company to any Person.

 

2.14         Interested Party Transactions.  None of the officers and directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees or stockholders of the Company or any Subsidiary, nor any immediate family member of an officer, director, employee or stockholder of the Company or any Subsidiary, has any direct or indirect ownership, participation, royalty or other interest in, or is an officer, director, employee of or consultant or contractor for any firm, partnership, entity or corporation that competes with, or does business with, or has any contractual arrangement with, the Company or any of its Subsidiaries (except with respect to any interest in less than 5% of the stock of any corporation whose stock is publicly traded).  None of said officers, directors, employees or stockholders or any member of their immediate families, is a party to, or to the knowledge of the Company, otherwise directly or indirectly interested in, any Contract to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their respective assets or properties may be bound or affected, except for normal compensation for services as an officer, director or employee thereof.  To the knowledge of the Company, none of said officers, directors, employees, stockholders or immediate family members has any interest in any property, real or personal, tangible or intangible (including any Intellectual Property) that is used in, or that relates to, the Business, except for the rights of stockholders under applicable Legal Requirements.

 

  

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2.15         Insurance.  The Company and its Subsidiaries maintain the policies of insurance and bonds set forth in Schedule 2.15 of the Company Disclosure Letter, including all legally required workers’ compensation insurance and errors and omissions, casualty, fire and general liability insurance.  Schedule 2.15 of the Company Disclosure Letter sets forth the name of the insurer under each such policy and bond, the type of policy or bond, the coverage amount and any applicable deductible as well all material claims made under such policies and bonds during the last three fiscal years.  There is no claim pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds.  All premiums due and payable under all such policies and bonds have been timely paid and the Company and each Subsidiary is otherwise in compliance with the terms of such policies and bonds.  All such policies and bonds remain in full force and effect, and the Company has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies.

 

2.16         Books and Records.  The Company has delivered or made available to Acquirer or its legal counsel the minute books containing all records of all proceedings, consents, actions and meetings of board of directors and/or any committees thereof or stockholders of Company and its Subsidiaries.  The minute books of Company and its Subsidiaries made available to Acquirer contain a complete and accurate summary of all meetings of directors and stockholders or actions by written consent of Company and its Subsidiaries that have occurred since inception.  All actions that require approval of the board of directors and/or committees thereof or stockholders of Company and its Subsidiaries have been duly approved, as necessary, by the boards of directors and/or committees thereof and stockholders of Company and its Subsidiaries in accordance with Delaware Law and other applicable corporate law.

 

2.17         Material Contracts.

 

(a)           Except for this Agreement and the Contracts specifically identified in Schedule 2.17 of the Company Disclosure Letter (with each of such Contracts specifically identified under subsection(s) of such Schedule 2.17 that correspond to the Subsection or Subsections of this Section 2.17(a) applicable to such Contract), neither the Company nor any Subsidiary is a party to or bound by any of the following Contracts (each a “Material Contract”):

 

(i)          any distributor, subscriber, original equipment manufacturer, reseller, value added reseller, sales, agency or manufacturer’s representative Contract pursuant to which any Person has a right to market, resell or distribute any Company Products (each a “Reseller Agreement”);

 

(ii)         any continuing Contract for the purchase, sale or license of materials, supplies, equipment, services, software, Intellectual Property or other assets, other than Standard Inbound IP Agreements, Standard Outbound IP Agreements and Contracts listed in Schedule 2.17(a)(ix) or (x) of the Company Disclosure Letter;

 

  

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(iii)        any Contract that expires or may be renewed at the option of any Person other than the Company or any Subsidiary so as to expire more than one year after the date of this Agreement other than a Contract which is terminable for any reason by the Company or any Subsidiary within one year after the date of this Agreement and other than Standard Inbound IP Agreements, Standard Outbound IP Agreements and Contracts listed in Schedule 2.17(a)(ix) or (x) of the Company Disclosure Letter and standard “click-through” customer contracts in the ordinary course of business;

 

(iv)        any mortgage, promissory note, loan agreement or other Contract for the borrowing of money, any currency exchange, commodities or other hedging, forward, swap or other derivative arrangement, or any leasing transaction of the type required to be capitalized in accordance with GAAP;

 

(v)         any Contract providing for capital expenditures in excess of $100,000 in the aggregate;

 

(vi)        any Contract limiting the freedom of the Company or any Subsidiary to engage or participate, or compete with any other Person, in any line of business, market or geographic area, or to make use of any Intellectual Property, or any Contract granting most favored nation pricing, exclusive sales, distribution, marketing or other exclusive rights, rights of refusal, rights of first negotiation or similar rights and/or terms to any Person, or any Contract otherwise limiting the right of the Company or any of its Subsidiaries to sell, distribute or manufacture any products or services or to purchase or otherwise obtain any software, components, parts, subassemblies or services;

 

(vii)       any Contract pursuant to which the Company or any Subsidiary is a lessor or lessee of any machinery, equipment, motor vehicles, office furniture, fixtures or other personal property involving in excess of $50,000 per annum;

 

(viii)      any Contract of guarantee, indemnification, assumption or any similar commitment with respect to, the Liabilities or indebtedness of any other Person other than Intellectual Property Rights and other indemnities granted by the Company or any Subsidiary under Standard Inbound IP Agreements and Standard Outbound IP Agreements;

 

(ix)        other than Standard Outbound IP Agreements, all licenses, sublicenses and other Contracts pursuant to which any Person is granted any rights to Company Intellectual Property or pursuant to which the Company or any Subsidiary has agreed to any restriction on the right of the Company or any Subsidiary to use or enforce any Company-Owned Intellectual Property Rights or pursuant to which the Company or any Subsidiary agrees to encumber, transfer or sell rights in or with respect to any Company-Owned Intellectual Property;

 

(x)         other than Standard Inbound IP Agreements, all licenses, sublicenses and other Contracts pursuant to which the Company or any Subsidiary acquired or is granted any rights to Third Party Intellectual Property or pursuant to which the Company or any Subsidiary is granted the right to market, resell or distribute any products, technology or services of any Person;

 

(xi)        any Contract providing for the development of any software, content, technology or Intellectual Property, independently or jointly, by or for the Company or any Subsidiary, other than employee invention assignment agreements and consulting agreements with Authors on the Company’s standard form of agreement, copies of which have been made available Acquirer’s counsel;

 

  

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(xii)       any Contracts relating to the membership of, or participation by, the Company or any Subsidiary in, or the affiliation of the Company or any Subsidiary with, any industry standards group or association;

 

(xiii)      (A) any joint venture Contract, (B) other than Reseller Agreements, any Contract that involves a sharing of revenues, profits, cash flows, expenses or losses with other Persons or (C) any Contract that involves the payment of royalties to any other Person in excess of $50,000 per annum;

 

(xiv)      any Company Product warranty, other than standard warranties of Company or any Subsidiary included in the packaging of Company Products and warranties granted under Standard Outbound IP Agreements and Contracts listed in Schedule 2.17(a)(ix) of the Company Disclosure Letter;

 

(xv)       any Contract under which the Company or any Subsidiary provides any advice or services, consulting, professional services, software implementation, deployment or development services, or support services to any third party involving payments to the Company in excess of $50,000, other than standard technical support services for Company Products;

 

(xvi)      any Contract with any investment banker, broker, advisor or similar party retained by the Company, in connection with this Agreement and the transactions contemplated hereby;

 

(xvii)     any Contract pursuant to which the Company or any Subsidiary has acquired a business or entity, or material assets of a business or entity, whether by way of merger, consolidation, purchase of stock, purchase of assets, license or otherwise;

 

(xviii)    any Contract with any Governmental Entity, any Company Authorization, or any Contract with a government prime contractor, or higher-tier government subcontractor (each a “Government Contract”);

 

(xix)       any confidentiality, secrecy or non-disclosure Contract other than any such Contract entered into by the Company or a Subsidiary in the ordinary course of business consistent with past practice;

 

(xx)        any settlement agreement;

 

(xxi)       any Contract with any labor union or any collective bargaining agreement or similar agreement with its employees; any Contract (A) with any of its officers, directors, employees or stockholders or any member of their immediate families or (B) with any Person with whom the Company or any Subsidiary does not deal at arm’s length;

 

(xxii)      any Contract to license or authorize any third party to manufacture or reproduce any of the Company Products or Intellectual Property of the Company or any Subsidiary;

 

(xxiii)     any Contract for the employment of any director, officer, employee or consultant of the Company or any other type of Contract with any officer, employee or consultant of the Company or any Subsidiary that is not immediately terminable by the Company or such Subsidiary without cost or Liability, including any Contract requiring it to make a payment to any director, officer, employee or consultant on account of the Merger, any transaction contemplated by this Agreement or any Contract that is entered into in connection with this Agreement;

 

  

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(xxiv)     any Contract or plan (including any stock option, merger and/or stock bonus plan) relating to the sale, issuance, grant, exercise, award, purchase, repurchase or redemption of any shares of Company Capital Stock or any other securities of the Company or any of its Subsidiaries or any options, warrants, convertible notes or other rights to purchase or otherwise acquire any such shares of stock, other securities or options, warrants or other rights therefor, except for the repurchase rights disclosed on Schedules 2.2(b)-1, 2.2(b)-2 and 2.2(b)-3 of the Company Disclosure Letter;

 

(xxv)     any Contract pursuant to which rights of any third party are triggered or become exercisable, or under which any other consequence, result or effect arises, in connection with or as a result of the execution of this Agreement or the consummation of the Mergers or other transactions contemplated hereunder, either alone or in combination with any other event; or

 

(xxvi)    any other Contract or obligation not listed in clauses (i) through (xxv) that (A) is otherwise material to the Company or its Subsidiaries or their respective businesses, operations, financial condition, properties or assets, (B) involves the payment to or from the Company or any of its Subsidiaries of an individual amount of $50,000 or more or $100,000 or more in the aggregate and is not cancellable without penalty within thirty (30) days, (C) involves minimum purchase commitments by the Company or any of its Subsidiaries, (D) involves ongoing service or support obligations that are not cancellable without penalty within thirty (30) days, or (E) involves the development or delivery of any customer specified product enhancement or upgrades.

 

(b)           All Material Contracts are in written form.  The Company or the applicable Subsidiary has performed all of the obligations required to be performed by it and is entitled to all benefits under, and to the Company’s knowledge is not alleged to be in default in respect of, any Material Contract.  Each of the Material Contracts is 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.  There exists no default or event of default or event, occurrence, condition or act, with respect to the Company or any Subsidiary or to the Company’s knowledge, with respect to any other contracting party, which, with the giving of notice, the lapse of time or the happening of any other event or condition, would reasonably be expected to (i) become a default or event of default under any Material Contract or (ii) give any third party (A) the right to declare a default or exercise any remedy under any Material Contract, (B) the right to a rebate, chargeback, refund, credit, penalty, termination fee, or change in delivery schedule under any Material Contract, (C) the right to accelerate the maturity or performance of any obligation of the Company or any of its Subsidiaries under any Material Contract, or (D) the right to cancel, terminate or modify any Material Contract.  Neither the Company nor any of its Subsidiaries has received any written notice or other written communication regarding any actual or possible violation or breach of, default under, or intention to cancel or modify any Material Contract.  Neither the Company nor any of its Subsidiaries has any Liability for renegotiation of government Contracts.  Correct and complete copies of all Material Contracts (including all amendments thereto) have been made available to Acquirer prior to the Agreement Date.

 

2.18         Transaction Fees.  Neither the Company nor any Affiliate of the Company is obligated for the payment of any fees or expenses of any investment banker, broker, advisor, finder or similar party in connection with the origin, negotiation or execution of this Agreement or in connection with the Mergers or any other transaction contemplated by this Agreement.

 

2.19        Export Control Laws.  The Company and each Subsidiary has conducted its export transactions in accordance in all respects with applicable provisions of United States export control laws and regulations, including but not limited to the Export Administration Act and implementing Export Administration Regulations.  Without limiting the foregoing:

 

  

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(a)           the Company and each Subsidiary has obtained all export licenses and other approvals required for its exports of products, software and technologies from the United States;

 

(b)           the Company and each Subsidiary is in compliance with the terms of all applicable export licenses or other approvals;

 

(c)           there are no pending or, to the knowledge of the Company, threatened claims against the Company or any Subsidiary with respect to such export licenses or other approvals;

 

(d)           there are no actions, conditions or circumstances pertaining to the Company’s or any Subsidiary’s export transactions that would reasonably be expected to give rise to any future claims; and

 

(e)           no consents or approvals for the transfer of export licenses to Acquirer are required, except for such consents and approvals that can be obtained expeditiously without material cost.

 

2.20         Customers and Suppliers.

 

(a)           Neither the Company nor any Subsidiary has any outstanding material disputes concerning its products and/or services with any customer or distributor who, in the year ended December 31, 2011 or the 12-month period ended December 31, 2011, was one of the twenty (20) largest sources of revenues for the Company and its Subsidiaries, based on amounts paid or payable (each, a “Significant Customer”), and the Company has no knowledge of any material dissatisfaction on the part of any Significant Customer.  Each Significant Customer is listed on Schedule 2.20(a) of the Company Disclosure Letter.  Neither the Company nor any of its Subsidiaries has received any written information from any Significant Customer that such customer shall not continue as a customer of the Company or such Subsidiary (or the Final Surviving LLC or Acquirer) after the Closing or that such customer intends to terminate or materially modify existing Contracts with the Company or such Subsidiary (or the Final Surviving LLC or Acquirer).  The Company has not had any of its products returned by a purchaser thereof except for normal warranty returns consistent with past history and those returns that would not result in a reversal of any revenue by the Company.

 

(b)           Neither the Company nor any Subsidiary has any outstanding material dispute concerning products and/or services provided by any supplier who, in the year ended December 31, 2011 or the 12-month period ended December 31, 2011, was one of the twenty (20) largest suppliers of products and/or services to the Company and its Subsidiaries, based on amounts paid or payable (each, a “Significant Supplier”), and the Company has no knowledge of any material dissatisfaction on the part of any Significant Supplier.  Each Significant Supplier is listed on Schedule 2.20(b) of the Company Disclosure Letter.  Neither the Company nor any of its Subsidiaries has received any written information from any Significant Supplier that such supplier shall not continue as a supplier to the Company or such Subsidiary (or the Final Surviving LLC or Acquirer) after the Closing or that such supplier intends to terminate or materially modify existing Contracts with the Company or such Subsidiary (or the Final Surviving LLC or Acquirer).  The Company and its Subsidiaries have access, on commercially reasonable terms, to all products and services reasonably necessary to carry on their respective businesses, and the Company has no knowledge of any reason why they will not continue to have such access on commercially reasonable terms.

 

  

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2.21         Accounts Receivable.  The accounts receivable as reflected on the Company Balance Sheet and as will be reflected in the Company Net Working Capital Certificate arose in the ordinary course of business, consistent with past practices, represented bona fide claims against debtors for sales and other charges.  Allowances for doubtful accounts and warranty returns have been prepared in accordance with GAAP consistently applied and in accordance with the Company’s and its Subsidiaries’ past practices.  The accounts receivable of the Company and its Subsidiaries arising after the Balance Sheet Date and before the Closing Date arose or shall arise in the ordinary course of business, consistent with past practices, represented or shall represent bona fide claims against debtors for sales and other charges, less allowances for doubtful accounts and warranty returns determined in accordance with GAAP consistently applied.  No material amount of accounts receivable is contingent upon the performance by the Company or any Subsidiary of any obligation or Contract other than normal warranty repair and replacement.  No Person has any lien on any of such accounts receivable, and no agreement for deduction or discount has been made with respect to any of such accounts receivable.  Schedule 2.21 of the Company Disclosure Letter sets forth an aging of the Company’s and its Subsidiaries’ accounts receivable in the aggregate and by customer, and indicates the amounts of allowances for doubtful accounts and warranty returns.  Schedule 2.21 of the Company Disclosure Letter sets forth such amounts of accounts receivable of the Company and its Subsidiaries which are subject to asserted warranty claims by customers and reasonably detailed information regarding asserted warranty claims made within the last year, including the type and amounts of such claims.

 

2.22         Compliance with Regulation D; Shareholders.  The Company and each Company Securityholder is aware that the Acquirer Common Stock to be issued pursuant to the Mergers, if issued pursuant to a Private Placement, will constitute “restricted securities” within the meaning of Securities Act.  At no time was any Company Securityholder solicited by means of general advertising or general solicitation in connection with this Agreement or the transactions contemplated hereby.

 

2.23         Representations Complete.  To knowledge of the Company, none of the representations or warranties made by the Company herein or in any exhibit or schedule hereto, including the Company Disclosure Letter, or in any certificate furnished by the Company pursuant to this Agreement, when all such documents are read together in their entirety, contains any untrue statement of a material fact, or omits to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading.

 

ARTICLE 3

Representations and Warranties of Acquirer

 

Subject to the disclosures set forth in the disclosure letter of the Acquirer delivered to the Company concurrently with the parties’ execution of this Agreement (the “Acquirer Disclosure Letter”) (each of which disclosures, in order to be effective, shall clearly indicate the Section and, if applicable, the Subsection of this Article 3 to which it relates (unless and only to the extent the relevance to other representations and warranties is reasonably apparent from the actual text of the disclosures), and each of which disclosures shall also be deemed to be representations and warranties made by the Acquirer to the Company under this Article 3), and except as set forth in the Acquirer SEC Reports (as defined below), the Acquirer represents and warrants to the Company, as of the date hereof and as of the Closing Date, as follows:

 

3.1           Organization and Standing.  Each of Acquirer and Sub I are corporations duly organized, validly existing and in good standing under the laws of the State of Delaware.  Neither Acquirer nor either of the Merger Sub is in violation of any of the provisions of its Restated Certificate of Incorporation or Bylaws.   Sub II is a limited liability company duly organized and in good standing under the laws of the State of Delaware.  Sub II is not in violation of any of the provisions of its Certificate of Formation or Limited Liability Company Agreement.

 

  

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3.2           Authority; Noncontravention.

 

(a)           Each of Acquirer and the Merger Subs has all requisite corporate and limited liability company power and authority to enter into this Agreement and to consummate the transactions contemplated hereby.  The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate and limited liability company action on the part of Acquirer and the Merger Subs.  This Agreement has been duly executed and delivered by each of Acquirer and the Merger Subs and constitutes the valid and binding obligation of Acquirer and the Merger Subs enforceable against each Acquirer and the Merger Subs in accordance with its terms, subject only to the effect, if any, of (i) applicable bankruptcy and other similar laws affecting the rights of creditors generally and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.

 

(b)           The execution and delivery of this Agreement by Acquirer and the Merger Subs do not, and the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a benefit under, or require any consent, approval or waiver from any Person pursuant to, (i) any provision of the Restated Certificate of Incorporation or Bylaws of Acquirer, in each case as amended to date, or (ii) any applicable Legal Requirement, except where such conflict, violation, default, termination, cancellation or acceleration, individually or in the aggregate, would not be material to Acquirer’s or either Merger Subs’ ability to consummate the Mergers or to perform their respective obligations under this Agreement.

 

(c)           No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity, is required by or with respect to Acquirer in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Certificate of Merger and the Second Certificate of Merger with the Secretary of State of the State of Delaware, as provided in Section 1.4, and (ii) such consents, authorizations, filings, approvals, notices and registrations which, if not obtained or made, would not be material to Acquirer’s or Merger Subs’ ability to consummate the Mergers or to perform their respective obligations under this Agreement and would not prevent, materially alter or delay any of the transactions contemplated by this Agreement.

 

3.3           Capitalization.  The authorized capital stock of Acquirer consists of 500,000,000 shares of Common Stock, par value $0.001 per share, of which 48,167,574 were issued and outstanding as of January 27, 2012, and 5,000,000 shares of Preferred Stock, par value $0.001 per share, none of which were issued and outstanding as of January 30, 2012.

 

3.4           Issuance of Total Stock Consideration. The Total Stock Consideration to be issued by Acquirer to the Effective Time Holders pursuant to the terms of this Agreement and the transactions contemplated by this Agreement have been duly authorized by Acquirer and, when issued and delivered, will be duly and validly issued, fully paid and nonassessable.

 

3.5           SEC Filings; Financial Statements.

 

(a)           Acquirer has filed all forms, reports and documents required to be filed by Acquirer with the SEC since the date of this Agreement and has made available to Company such forms, reports and documents in the form filed with the SEC.  All such required forms, reports and documents (including those that Acquirer may file subsequent to the Agreement Date) are referred to herein as the “Acquirer SEC Reports.”  As of their respective dates, the Acquirer SEC Reports (i) were prepared in accordance with the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations of the SEC thereunder applicable to such Acquirer SEC Reports, and (ii) did not at the time they were filed (or if amended or superseded by a filing, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except to the extent corrected by a subsequently filed Acquirer SEC Report that was filed prior to the Agreement Date.

 

  

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(b)           Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Acquirer SEC Reports:  (i) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto; (ii) was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto); and (iii) fairly presented in all material respects the consolidated financial position of Acquirer and its Subsidiaries as at the respective dates thereof and the consolidated results of Acquirer’s operations and cash flows for the periods indicated, except that the unaudited interim financial statements may not contain footnotes and were or are subject to normal and recurring year-end adjustments.

 

3.6           Litigation.  There is no private or governmental action, suit, proceeding, claim, mediation, arbitration or investigation pending against the Acquirer or any of its subsidiaries before any Governmental Entity, or, to the knowledge of the Acquirer, threatened against the Acquirer or any of its subsidiaries or any of their respective assets or properties or any of their respective directors, officers or employees (in their capacities as such or relating to their employment, services or relationship with the Acquirer or any of its subsidiaries), except where any such action, suit, proceeding, claim, mediation, arbitration or investigation if adversely determined would not reasonably be expected to have a Material Adverse Effect on Acquirer or its Subsidiaries taken as a whole.  There is no judgment, decree, injunction or order against the Acquirer or any of its subsidiaries, any of their respective assets or properties, or, to the knowledge of the Company, any of their respective directors, officers or employees (in their capacities as such or relating to their employment, services or relationship with the Acquirer or any of its subsidiaries), except where any such judgment, decree, injunction or order would not reasonably be expected to have a Material Adverse Effect on Acquirer or its Subsidiaries taken as a whole.

 

3.7           No Prior Operations of Merger Subs.  Each of the Merger Subs 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 and are direct wholly owned subsidiaries of Acquirer.  Sub II is and will remain a disregarded entity for U.S. federal income tax purposes.

 

3.8           No Undisclosed Liabilities.  Neither Acquirer nor any of its Subsidiaries has any outstanding Liabilities, other than Liabilities (a) that were incurred after September 30, 2011 in the ordinary course of business consistent with past practice, (b) that were incurred under this Agreement or in connection with the transactions contemplated hereby, (c) that were disclosed or reserved against in the most recent the consolidated financial statements (including the notes thereto) included in the Acquirer SEC Reports filed prior to the date of this Agreement, or (d) that would not result in a Material Adverse Effect with respect to Acquirer or its Subsidiaries taken as a whole.

 

3.9           Absence of Certain Changes.  Since September 30, 2011, there has not been a Material Adverse Effect on Acquirer or its Subsidiaries taken as a whole.

 

  

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ARTICLE 4

Conduct Prior to the Closing Date

 

4.1           Conduct of Business of the Company and its Subsidiaries.  During the period from the Agreement Date and continuing until the earlier of the termination of this Agreement and the Effective Time:

 

(a)           the Company shall, and shall cause each Subsidiary of the Company to, conduct its business solely in the usual, regular and ordinary course in substantially the same manner as heretofore conducted (except to the extent expressly provided otherwise in this Agreement or as consented to in writing by Acquirer) and in compliance with all applicable Legal Requirements;

 

(b)           the Company shall, and shall cause each Subsidiary to, (A) pay all of its debts and Taxes when due, subject to good faith disputes over such debts or Taxes, (B) pay or perform its other obligations when due, (C) use commercially reasonable efforts consistent with past practice and policies to collect accounts receivable when due and not extend credit outside of the ordinary course of business consistent with past practices, (D) sell products consistent with past practices as to license, service and maintenance terms, incentive programs, and in accordance with GAAP requirements as to revenue recognition and (E) use its commercially reasonable efforts consistent with past practice and policies to preserve intact its present business organizations, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it, to the end that its goodwill and ongoing businesses shall be unimpaired at the Closing;

 

(c)           each party shall promptly notify the other party of any change, occurrence or event not in the ordinary course of its or any their respective subsidiary’s business, or of any change, occurrence or event which, individually or in the aggregate with any other changes, occurrences and events, would reasonably be expected to cause any of the conditions to closing set forth in Article 6 not to be satisfied;

 

(d)           the Company shall, and shall cause each Subsidiary to, assure that each of its Contracts (other than with Acquirer) entered into after the Agreement Date will not require the procurement of any consent, waiver or novation or provide for any change in the obligations of any party in connection with, or terminate as a result of the consummation of, the Mergers, and shall give reasonable advance notice to Acquirer prior to allowing any material Contract to lapse or terminate by its terms;

 

(e)           the Company shall, and shall cause each Subsidiaries to, maintain each of its leased premises in accordance with the terms of the applicable lease; and

 

(f)            the Company shall use its reasonable best efforts to obtain a certificate from the Secretaries of State of the States of Delaware, New York and Illinois and each other State or other jurisdiction in which the Company or any Subsidiary is qualified to do business as a foreign corporation, dated within three (3) days prior to the Closing Date, certifying that all applicable franchise Taxes (or other Taxes, if any, required as a condition precedent to effect the Mergers) and fees of the Company through and including the Closing Date have been paid.

 

4.2           Restrictions on Conduct of Business of the Company and Subsidiaries.  Without limiting the generality or effect of the provisions of Section 4.1, during the period from the Agreement Date and continuing until the earlier of the termination of this Agreement and the Effective Time, the Company shall not, and shall cause each Subsidiary not to, do, cause or permit any of the following (except to the extent expressly provided otherwise in this Agreement or as consented to in writing by Acquirer, which consent shall not be unreasonably withheld, conditioned or delayed in the case of subsections (c), (e), (j), (k), (l) and (r) of this Section 4.2):

 

  

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(a)           Charter Documents.  Cause or permit any amendments to its certificate of incorporation or Bylaws or equivalent organizational or governing documents;

 

(b)           Dividends.  Declare or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or repurchase or otherwise acquire, directly or indirectly, any shares of its capital stock except from former employees, non-employee directors and consultants in accordance with agreements providing for the repurchase of shares in connection with any termination of service;

 

(c)           Material Contracts.  Enter into any Contract that would constitute a Material Contract or other Contract requiring a novation or consent in connection with the Merger or violate, terminate, amend, or otherwise modify (including by entering into a new Contract with such party or otherwise) or waive any of the terms of any of its Material Contracts; provided, however, that this provision shall not require the Company to seek or obtain Acquirer’s consent in order to set or change the prices at which the Company sells products or provides services to current customers in the ordinary course of business;

 

(d)           Issuance of Securities.  Issue, deliver or sell or authorize or propose the issuance, delivery or sale of, or purchase or propose the purchase of, any Company Voting Debt or any Company Capital Stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other Contracts of any character obligating it to issue any such shares or other convertible securities, other than:  (i) the issuance of shares of Company Capital Stock pursuant to the exercise of Company Options that are outstanding as of the Agreement Date; (ii) the issuance of shares of Company Capital Stock pursuant to the exercise of Company Warrants that are outstanding as of the Agreement Date and (iii) the repurchase of any shares of Company Common Stock from former employees, non-employee directors and consultants in accordance with Contracts providing for the repurchase of shares in connection with any termination of service;

 

(e)           Employees; Consultants; Independent Contractors.  (i) Hire any additional officers or other employees, or any consultants or independent contractors, other than open positions set forth as of the date hereof on Schedule 4.2 of the Company Disclosure Letter or the hiring of up to five (5) non-officer hires to fill open positions following the Agreement Date after consultation with Acquirer, (ii) terminate the employment, change the title, office or position, or materially reduce the responsibilities of any management, supervisory or other key personnel of the Company or any Subsidiary, (iii) enter into, amend or extend the term of any employment or consulting agreement with any officer, employee, consultant or independent contractor, other than customary compensation increases consistent with past practice in the first half of each calendar year if the Closing does not occur by March 31, 2012 and disclosed in Section 4.2(e) of the Company Disclosure Letter or (iv) enter into any Contract with a labor union or collective bargaining agreement (unless required by applicable Legal Requirements);

 

(f)            Loans and Investments.  (A) Make any loans or advances (other than routine expense advances to employees of the Company or any Subsidiary consistent with past practice) to, or any investments in or capital contributions to, any Person (other than ordinary course funding to its existing Subsidiaries in order to fund operations in amounts consistent with past practice), or forgive or discharge in whole or in part any outstanding loans or advances, or prepay any indebtedness for borrowed money, or (B) incur any indebtedness for borrowed money or guarantee any such indebtedness;

 

  

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(g)           Intellectual Property.  Transfer or license from any Person any rights to any Intellectual Property, or transfer or license to any Person any rights to any Company IP Rights (other than under Standard Inbound IP Agreements, Standard Outbound IP Agreements or otherwise in the ordinary course of business consistent with past practices), or transfer or provide a copy of any Company Source Code to any Person (including any current or former employee or consultant of the Company or any contractor or commercial partner of the Company) (other than providing access to Company Source Code to current employees and consultants of the Company or its Subsidiaries involved in the development of the Company Products on a need to know basis, consistent with past practices, or otherwise in the ordinary course of business consistent with past practices);

 

(h)           Exclusive Rights and Most Favored Party Provisions.  Enter into or amend any agreement pursuant to which any other party is granted exclusive rights or “most favored party” rights of any type or scope with respect to any of its products, technology, Intellectual Property or business, or containing any non-competition covenants or other restrictions relating to its or Acquirer’s business activities;

 

(i)            Dispositions; Acquisitions.  (A) Sell, lease, license or otherwise dispose of any of its properties or assets, other than sales and nonexclusive licenses of Company Products in the ordinary course of business consistent with its past practice, or enter into any Contract with respect to the foregoing, or (B) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to its and its Subsidiaries’ business, or enter into any Contract with respect to a joint venture, strategic alliance or partnership;

 

(j)            Leases.  Enter into any operating lease or similar transaction other than in the ordinary course of business in amounts not in excess of $50,000 individually or $100,000 in the aggregate;

 

(k)           Payment of Obligations.  Pay, discharge or satisfy any claim or Liability arising otherwise than in the ordinary course of business, other than the payment, discharge or satisfaction of Liabilities reflected or reserved against in the Financial Statements and Transaction Expenses, or defer payment of any accounts payable other than in the ordinary course of business consistent with past practice;

 

(l)            Capital Expenditures.  Make any capital expenditures, capital additions or capital improvements in excess of $50,000 individually or $100,000 in the aggregate;

 

(m)           Insurance.  Materially change the amount of any insurance coverage;

 

(n)           Termination or Waiver.  Cancel, release or waive any material claims or rights held by it;

 

  

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(o)           Employee Benefit Plans; Pay Increases.  Adopt or amend any employee or compensation benefit plan, including any stock issuance or stock option plan (other than the Company’s Option Plans), or amend any compensation, benefit, entitlement, grant or award provided or made under any such plan, except in each case as required under ERISA, applicable Legal Requirements or as necessary to maintain the qualified status of such plan under the Code, materially amend any deferred compensation plan within the meaning of Section 409A of the Code and the regulations thereunder except to the extent necessary to meet the requirements of such Section or Notice, pay any special bonus or special remuneration to any employee or non-employee director or consultant or increase the salaries, wage rates or fees of its employees or consultants (other than customary annual compensation increases consistent with past practice paid in the first half of each year and as disclosed in Section 4.2(o) of the Company Disclosure Letter or pursuant to preexisting plans, policies or Contracts which have been disclosed to Acquirer and are set forth on Schedule 4.2(o) of the Company Disclosure Letter), or add any new members to the Company Board or to the board of directors of any Subsidiary;

 

(p)           Severance Arrangements.  Grant or pay, or enter into any Contract providing for the granting of any severance, retention or termination pay, or the acceleration of vesting or other benefits, to any Person (other than payments or acceleration made pursuant to preexisting plans, policies or Contracts which have been disclosed to Acquirer and are set forth on Schedule 4.2(p) of the Company Disclosure Letter);

 

(q)           Lawsuits; Settlements.  (i) Commence a lawsuit other than for the routine collection of bills or for a breach of this Agreement, or (ii) settle or agree to settle any pending or threatened lawsuit or other dispute;

 

(r)            Accounting; Taxes.  (A) change accounting methods or practices (including any change in depreciation or amortization policies) or revalue any of its assets (including writing down the value of inventory or writing off notes or accounts receivable otherwise than in the ordinary course of business), except in each case as required by changes in GAAP as concurred with its independent accountants and after notice to Acquirer, or (B) make or change any election in respect of Taxes, file any federal, state, or foreign income Tax Return or any other material Tax Return, file any amendment to a federal, state, or foreign income Tax Return or any other material Tax Return, adopt or change any accounting method in respect of Taxes, enter into any Tax sharing or similar agreement or closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes, or enter into intercompany transactions giving rise to deferred gain or loss of any kind;

 

(s)           Real Property; Encumbrances.  Enter into any agreement for the purchase, sale or lease of any real property, or place or allow the creation of any Encumbrance (other than Permitted Encumbrances) on any of its properties;

 

(t)            Warranties, Discounts.  Materially change the manner in which it provides warranties, discounts or credits to customers, or give any discount, accommodation or other concession other than in the ordinary course of business consistent with past practice;

 

(u)           Interested Party Transactions.  Enter into any Contract in which any officer, director, employee, agent or stockholder of the Company (or any member of their immediate families) has an interest under circumstances that, if entered immediately prior to the Agreement Date, would require that such Contract be listed on Schedule 2.14 of the Company Disclosure Letter; and

 

(v)           Other.  Take or agree in writing or otherwise to take, any of the actions described in clauses (a) through (u) in this Section 4.2, or any action which would reasonably be expected to make any of the Company’s representations or warranties contained in this Agreement materially untrue or materially incorrect (such that the condition set forth in the first sentence of Section 6.3(a) would not be satisfied) or prevent the Company from performing or cause the Company not to perform one or more covenants required hereunder to be performed by the Company (such that the condition set forth in the second sentence of Section 6.3(a) would not be satisfied).

 

  

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ARTICLE 5

Additional Agreements

 

5.1           Stockholder Approval and Board Recommendation.

 

(a)           The Company shall use commercially reasonable efforts in accordance with this Agreement, Delaware Law, its certificate of incorporation and its Bylaws to secure the Company Stockholder Approval.  The Company’s obligation to secure the Company Stockholder Approval in accordance with this Section 5.1(a) shall not be limited to or otherwise affected by the commencement, disclosure, announcement or submission to Company of any Acquisition Proposal or in the event that the Company Board withholds, withdraws, amends or modifies its recommendation to the Company Stockholders in favor of the Company Stockholder Approval.  The Company shall obtain an executed Company Stockholder Consent and Stockholder Agreement from each Company Stockholder listed on Exhibit B-1 promptly, and in any event within forty-eight (48) hours following the execution and delivery of this Agreement by the Company, and shall exercise commercially reasonable efforts to obtain an executed Company Stockholder Agreement from each Company Stockholder not listed on Exhibit B-1 as soon as commercially practicable after the Agreement Date and prior to the Closing.  Promptly upon receipt of the executed Company Stockholder Consent from sufficient Company Stockholders to secure the Company Stockholder Approval, the Company shall deliver copies thereof to Acquirer.  The Company shall exercise commercially reasonable efforts to obtain an executed Joinder Agreement from each Company Securityholder not listed in Exhibit B-1.

 

(b)           (i) The Company’s Board of Directors shall unanimously recommend that the Company’s stockholders vote in favor of the approval of the Mergers and adoption of this Agreement pursuant to the Company Stockholder Consent; (ii) any information statement or other disclosure document distributed to the Company’s stockholders in connection with this transaction shall include a statement to the effect that the Company’s Board of Directors has unanimously recommended that the Company’s stockholders vote in favor of the approval of the Mergers and adoption of this Agreement pursuant to the Company Stockholder Consent (such document, the “Information Statement”); and (iii) neither the Company’s Board of Directors nor any committee thereof shall withhold, withdraw, amend or modify, or propose or resolve to withhold, withdraw, amend or modify in a manner adverse to Acquirer, the unanimous recommendation of the Company’s Board of Directors that the Company Stockholders vote in favor of the approval of the Mergers and adoption of this Agreement.

 

5.2           No Solicitation.

 

(a)           From and after the date of this Agreement until the Closing or termination of this Agreement pursuant to Article 7, neither the Company nor any of its Subsidiaries will, nor will any of them authorize or permit any of their respective officers, directors, affiliates, stockholders or employees or any investment banker, attorney or other advisor or representative retained by any of them (all of the foregoing collectively being the “Company Representatives”) to, directly or indirectly, (i) solicit, initiate, seek, entertain, encourage, facilitate, support or induce the making, submission or announcement of any inquiry, expression of interest, proposal or offer that constitutes, or could reasonably be expected to lead to, an Acquisition Proposal (as hereinafter defined), (ii) enter into, participate in, maintain or continue any communications (except solely to provide written notice as to the existence of these provisions) or negotiations regarding, or deliver or make available to any Person any non-public information with respect to, or take any other action regarding, any inquiry, expression of interest, proposal or offer that constitutes, or could reasonably be expected to lead to, an Acquisition Proposal, (iii) agree to, accept, approve, endorse or recommend (or publicly propose or announce any intention or desire to agree to, accept, approve, endorse or recommend) any Acquisition Proposal, (iv) enter into any letter of intent or any other Contract contemplating or otherwise relating to any Acquisition Proposal, or (v) enter into any other transaction or series of transactions not in the ordinary course of the Company’s business, the consummation of which could reasonably be expected to impede, interfere with, prevent or materially delay the Mergers.  Each of the Company and its Subsidiaries will promptly cease and cause to be terminated any and all existing activities, discussions or negotiations with any Persons conducted prior to or on the Agreement Date with respect to any Acquisition Proposal.  If any Company Representative, whether in his or her capacity as such or in any other capacity, takes any action that the Company is obligated pursuant to this Section 5.2 not to authorize or permit such Company Representative to take, then the Company shall be deemed for all purposes of this Agreement to have breached this Section 5.2.

 

  

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“Acquisition Proposal” shall mean, with respect to the Company, any agreement, offer, proposal or bona fide indication of interest (other than this Agreement or any other offer, proposal or indication of interest by Acquirer), or any public announcement of intention to enter into any such agreement or of (or intention to make) any offer, proposal or bona fide indication of interest, relating to, or involving: (A) any acquisition or purchase from the Company or any of its Subsidiaries, or from the Company Stockholders, by any Person or Group (as hereinafter defined) of more than a 10% interest in the total outstanding voting securities of Company or any of its Subsidiaries or any tender offer or exchange offer that if consummated would result in any Person or Group beneficially owning 10% or more of the total outstanding voting securities of the Company or any of its Subsidiaries or any merger, consolidation, business combination or similar transaction involving the Company or any of its Subsidiaries; (B) any sale, lease, mortgage, pledge, exchange, transfer, license (other than in the ordinary course of business), acquisition, or disposition of more than 10% of the assets of the Company and its Subsidiaries in any single transaction or series of related transactions; or (C) any liquidation, dissolution, recapitalization or other significant corporate reorganization of the Company or any of its Subsidiaries, or any extraordinary dividend, whether of cash or other property.

 

“Group” shall have the definition ascribed to such term under Section 13(d) of the Exchange Act, the rules and regulations thereunder and related case law.

 

(b)           The Company shall promptly notify Acquirer orally and in writing after receipt by the Company and/or any Subsidiary (or, to the knowledge of the Company, by any of the Company Representatives), of (i) any Acquisition Proposal, (ii) any inquiry, expression of interest, proposal or offer that constitutes, or would reasonably be expected to lead to, an Acquisition Proposal, (iii) any other notice that any Person is considering making an Acquisition Proposal, or (iv) any request for nonpublic information relating to the Company or any Subsidiary or for access to any of the properties, books or records of the Company or any Subsidiary by any Person or Persons other than Acquirer.  Such notice shall describe (1) the material terms and conditions of such Acquisition Proposal, inquiry, expression of interest, proposal, offer, notice or request, and (2) the identity of the Person or Group making any such Acquisition Proposal, inquiry, expression of interest, proposal, offer, notice or request.  The Company shall keep Acquirer informed of the status and details of, and any modification to, any such inquiry, expression of interest, proposal or offer and shall provide to Acquirer a true, correct and complete copy of such inquiry, expression of interest, proposal or offer and any amendments thereto, if it is in writing, or a reasonable written summary thereof, if it is not in writing.

 

5.3           Confidentiality; Public Disclosure.

 

(a)           The parties hereto acknowledge that Acquirer and the Company have previously executed a mutual confidentiality agreement dated September 30, 2011 (the “Confidentiality Agreement”) which shall continue in full force and effect in accordance with its terms.  The Effective Time Holders’ Agent hereby agrees to be bound by the terms and conditions of the Confidentiality Agreement to the same extent as though the Effective Time Holders’ Agent were a party thereto.  With respect to the Effective Time Holders’ Agent, as used in the Confidentiality Agreement the term “Information” shall include information relating to the Merger or this Agreement received by the Effective Time Holders’ Agent after the Closing or relating to the period after the Closing.

 

  

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(b)           The Company shall not, and the Company shall cause each Subsidiary and each Company Representative not to, directly or indirectly, issue any press release or other public statement relating to the terms of this Agreement or the transactions contemplated hereby without the prior written approval of Acquirer, unless required by law (in which event a satisfactory opinion of counsel to that effect shall be first delivered to Acquirer prior to any such disclosure) and except as reasonably necessary for the Company to obtain the consents and approvals of the Company Stockholders and other third parties contemplated by this Agreement.  Notwithstanding anything herein or in the Confidentiality Agreement, Acquirer and the Company shall mutually agree on the content of the joint press release announcing the Mergers and thereafter Acquirer may make such other public statements regarding this Agreement or the transactions contemplated hereby as Acquirer may determine is reasonably appropriate.

 

5.4           Reasonable Efforts.  Each of the parties hereto agrees to use its commercially reasonable efforts, and to cooperate with each other party hereto, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, appropriate or desirable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated hereby, including the satisfaction of the respective conditions set forth in Article 6, and including to execute and deliver such other instruments and do and perform such other acts and things as may be necessary or reasonably desirable for effecting completely the consummation of the Merger and the other transactions contemplated hereby.

 

5.5           Third Party Consents; Notices.

 

(a)           The Company shall use reasonable efforts to obtain prior to the Closing, and deliver to Acquirer at or prior to the Closing, all consents, waivers and approvals under each Contract listed or described on Exhibit I-1 of the Company Disclosure Letter (and any Contract entered into after the Agreement Date that would have been required to be listed or described on Exhibit I-1 of the Company Disclosure Letter if entered into prior to the Agreement Date).  The Company shall terminate prior to the Closing, and deliver evidence of such termination to Acquirer at or prior to the Closing, all of the Contracts listed or described on Exhibit I-2 hereto and to amend prior to the Closing, and deliver evidence of such amendment to Acquirer at or prior to the Closing, all of the Contracts listed or described on Exhibit I-3 hereto.

 

(b)           The Company shall give all notices and other information required to be given to the employees of the Company or any Subsidiary, any collective bargaining unit representing any group of employees of the Company or any Subsidiary, and any applicable government authority under the WARN Act, the National Labor Relations Act, as amended, the Code, COBRA and other applicable Legal Requirements in connection with the transactions contemplated by this Agreement.

 

5.6           Litigation. Each party will (i) notify the other party in writing promptly after learning of any Legal Proceeding initiated by or against it or any of its subsidiaries, or known by the such to be threatened against such party, any of its subsidiaries or any of their respective directors, officers, employees or stockholders in their capacity as such (a “New Litigation Claim”), and (ii) notify the other party of ongoing material developments in any New Litigation Claim.  The Company will consult in good faith with Acquirer regarding the conduct of the defense of any New Litigation Claim.

 

  

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5.7           Access to Information.  During the period commencing on the date hereof and continuing until the earlier of the termination of this Agreement and the Closing, the Company shall afford Acquirer and its accountants, counsel and other representatives, reasonable access during business hours to (a) all of the Company’s and each of its Subsidiaries’ properties, books, Contracts and records (b) all other information concerning the business, properties and personnel of the Company or any of its Subsidiaries as Acquirer may reasonably request and (c) to the Company’s auditors in connection with the review of the Audited 2011 Financial Statements and access to such Audited 2011 Financial Statements in draft form.  No information or knowledge obtained by Acquirer during the pendency of the transactions contemplated by this Agreement in any investigation pursuant to this Section 5.7 shall affect or be deemed to modify any representation, warranty, covenant, condition or obligation under this Agreement.

 

5.8           Expenses.  Whether or not the Mergers are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby (including Transaction Expenses) shall be paid by the party incurring such expense; provided, however, that all direct filing fees (and not legal, advisory or other costs) incurred in securing the regulatory approval described in Section 5.18 (the “HSR Expenses”) shall be borne by the Acquirer.  Notwithstanding the foregoing, (i) the Company shall obtain, as soon as reasonably practicable after the date of this Agreement, an estimate of the costs and expenses through completion of the audit of the Company’s financial statements for the fiscal year ended December 31, 2011 (the “Audit Expenses”), (ii) all Audit Expenses incurred by the Company (whether before or after the Closing) up to $175,000 (the “Audit Threshold”) shall be borne by the Company, shall be considered Transaction Expenses under this Agreement and shall be included in the Company Closing Financial Certificate, and (v) any Audit Expenses in excess of the Audit Threshold shall be borne by the Acquirer (though with no obligation on the part of Acquirer to make any such payments prior to the Closing).

 

5.9           Employees and Contractors.

 

(a)           With respect to any Offered Employees, the Company shall use best efforts to assist Acquirer with its efforts to enter into Employment Documents with such employee as soon as practicable after the date hereof and in any event prior to the Closing Date.  Notwithstanding any of the foregoing, neither Acquirer, Sub I nor Sub II (including the First Step Surviving Corporation and the Final Surviving LLC) shall have any obligation to make an offer of employment to any employee of the Company (other than the Employment Documents previously extended to and executed by the Named Executives and the Key Employees on the Agreement Date).  With respect to matters described in this Section 5.9, the Company will not, and shall cause each of its Subsidiaries not to, send any notices or other communication materials to any of their respective employees that may adversely affect Acquirer’s attempt to hire or retain such employees without Acquirer’s prior written consent.  Effective no later than immediately prior to the Closing, the Company shall, and shall cause its Subsidiaries to, terminate the employment of each of those Company and Subsidiary employees who (i) have not received an offer of continued employment with the First Step Surviving Corporation, the Final Surviving LLC or Acquirer prior to the Closing Date and (ii) have declined an offer of continued employment with the First Step Surviving Corporation, the Final Surviving LLC or Acquirer prior to the Closing Date (the “Designated Employees”).

 

(b)           The Company shall use commercially reasonable efforts to retain each Person specified on Schedule 5.9(b) and to cause such Persons to enter into an employment agreements with Acquirer (or its designee) prior to the Closing.

 

5.10           Confirmatory Intellectual Property Assignments. The Company shall obtain confirmatory assignments of Intellectual Property from all of its current and former employees and independent contractors and consultants identified on Schedule 5.10 in each case in a form that is reasonably acceptable to Acquirer.

 

  

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5.11         Termination of Benefit Plans.  Effective as of the day immediately preceding the Closing Date, the Company shall adopt resolutions of the its Board of Directors terminating the Company 401(k) Plan (unless Acquirer provides written notice to the Company no later than three Business Days prior to the Closing Date that such plan shall not be terminated).  Unless Acquirer provides such written notice to the Company, no later than three (3) Business Days prior to the Closing Date, the Company shall provide Acquirer with evidence of such resolutions of the Company’s Board of Directors.  The form and substance of such resolutions shall be subject to review and approval of Acquirer.

 

5.12        Section 280G Stockholder Approval.  The Company shall submit to Company Stockholders for approval by such number of Company Stockholders as is required by the terms of Section 280G(b)(5)(B) so as to render the parachute payment provisions of Section 280G of the Code inapplicable to any and all accelerated vesting payments, benefits, options and/or stock provided pursuant to agreements, contracts or arrangements that might otherwise result, separately or in the aggregate, in the payment of any amount and/or the provision of any benefit that would not be deductible by reason of Section 280G of the Code, with such stockholder vote to be sought in a manner which satisfies all applicable requirements of Section 280G(b)(5)(B) of the Code and the regulations promulgated thereunder.

 

5.13        Parachute Payment Waivers.  The Company shall use best efforts to obtain and deliver to Acquirer, prior to the initiation of the requisite stockholder approval procedure under Section 5.12, a Parachute Payment Waiver in substantially the form attached hereto as Exhibit H from each Person who the Company reasonably believes is, with respect to the Company, any Subsidiary and/or any ERISA Affiliate, a “disqualified individual” (within the meaning of Section 280G of the Code and the regulations promulgated thereunder), as determined immediately prior to the initiation of the requisite stockholder approval procedure under Section 5.12, and who might otherwise have, receive or have the right or entitlement to receive a parachute payment under Section 280G of the Code.

 

5.14        Termination of Financing Statements.  The Company shall take all actions necessary such that (i) UCC-2 or UCC-3 termination statements, as applicable, have been filed with respect to each of the UCC-1 financing statements filed in order to perfect security interests in assets of the Company that have not yet expired and (ii) all Encumbrances (other than Permitted Encumbrances) on assets of the Company shall be released prior to or simultaneously with the Closing.

 

5.15        Insurance.  Prior to the Closing, the Company may obtain up to a six year prepaid “tail policy” for its current and former directors and officers (“Indemnified D&Os”) with coverage amounts as the Company may determine in its sole discretion prior to the Closing; provided, however, that the fees and expenses associated with such “tail policy” for the term of such “tail policy” up to $60,000 shall be borne by Acquirer at the Closing and that the fees and expenses associated with such “tail policy” for the term of such “tail policy” in excess of $60,000, shall be included as a liability in the calculation of the Company Net Working Capital and shall be reflected in the Company Net Working Capital Certificate.  Acquirer shall cause the Final Surviving LLC to cause to be maintained in effect such “tail policy” during such six year period.  Acquirer will not, or will cause the Company not to, cancel or change such insurance policies in any respect.  This Section 5.15 is intended to be for the benefit of, and shall be enforceable by, the Indemnified D&Os, their heirs and personal representatives, and shall survive the consummation of the Mergers from and after the Effective Time, to benefit the Indemnified D&Os.  In the event Acquirer or the Final Surviving LLC or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any Person, then, and in each such case, to the extent necessary, Acquirer and the Final Surviving LLC shall use their best efforts to ensure proper provision shall be made so that the successors and assigns of Acquirer or the Final Surviving LLC, as the case may be, assume the obligations set forth in this Section 5.15.

 

  

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5.16        Director and Officer Indemnification.  For a period of six years following the Effective Time, Acquirer shall, or shall cause the Company to, fulfill the obligations of the Company to indemnify each Person who is or was a director or officer of the Company against any losses such Person may incur based upon matters existing or occurring prior to the Closing pursuant to any applicable indemnification agreement as in effect on the Agreement Date and pursuant to the terms of the Company’s certificate of incorporation, bylaws and other organizational documents as in effect on the date this Agreement.

 

5.17         Tax Matters.

 

The following provisions shall govern the allocation of responsibility and payment of Taxes as between Acquirer, the Company and the Effective Time Holders’ Agent (on behalf of the Effective Time Holders) for certain Tax matters prior to and following the Closing Date:

 

(a)           Between the date of this Agreement and the Closing Date, the Company and its Subsidiaries shall  prepare and file, on a timely basis, all Tax Returns that are required to be filed (taking account of extensions) prior to the Closing Date and shall pay all Taxes with respect thereto (and shall provide copies of such Tax Returns to the Effective Time Holders’ Agent); provided that all such tax returns will be prepared in a manner consistent with past practice, unless required by applicable law, and Company shall provide Tax Returns to Acquirer for its review and comment at least fifteen (15) days prior to the date on which such Tax Return is to be filed and no such Tax Return shall be filed without consent of Acquirer, which consent shall not be unreasonably withheld or delayed.

 

(b)           Acquirer shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for the Company and its Subsidiaries for all Tax periods ending on or prior to the Closing Date that are required to be filed after the Closing Date; provided that, Acquirer shall provide each such Tax Return to the Effective Time Holders’ Agent for its review and comment at least fifteen (15) days prior to the date on which such Tax Return is to be filed.

 

(c)           Acquirer shall prepare or cause to be prepared and file or cause to be filed any Tax Returns of the Company and its Subsidiaries for Straddle Periods; provided that, Acquirer shall provide each such Tax Return to the Effective Time Holders’ Agent for its review and comment at least fifteen (15) days prior to the date on which such Tax Return is to be filed.

 

(d)           All Tax Returns required to be prepared and filed by Acquirer under paragraphs (b) and (c) shall be prepared consistent with past practices unless otherwise required by applicable law.

 

(e)           The filing of any amended Return of the Company or any Subsidiary of the Company covering any period prior to the Closing Date, the Straddle Period or any post-Closing period will not in itself be the basis of any indemnification claim.

 

(f)            If, subsequent to the Closing Date, Acquirer, Company or any Subsidiary or Affiliate thereof shall receive written notice of an audit, examination, claim, or other administrative or judicial proceeding, contest, assessment, notice of deficiency, proposed adjustment, dispute or controversy relating to Taxes (each, a “Tax Contest”) with respect to Taxes the payment of which is the responsibility of the Effective Time Holders or for which the Effective Time Holders would have an indemnification obligation, Acquirer shall promptly notify the Effective Time Holders’ Agent in writing of such Tax Contest, provided that the failure of Acquirer to give such notice shall not relieve the Effective Time Holders of their indemnification obligations, except to the extent that the Effective Time Holders’ Agent can demonstrate actual loss and prejudice as a result of such failure.

 

  

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(g)           Each of Effective Time Holders’ Agent, on the one hand, and Acquirer, the Company and any Subsidiary or Affiliate of Acquirer or the Company, on the other hand, shall: (a) provide assistance to the other party as reasonably requested in preparing and filing Tax Returns; (b) make available to the other party as reasonably requested all information, records, and documents relating to Taxes concerning the Company and its Subsidiaries for Pre-Closing Periods and Straddle Periods; and (c) retain any books and records that could reasonably be expected to be necessary or useful in connection with any preparation by the other party of any Tax Return. Each of Effective Time Holders’ Agent, Acquirer, the Company and any Subsidiary or Affiliate of Acquirer or the Company shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with any Tax Contest. Such cooperation shall include, upon a party’s reasonable request, providing records and information that are reasonably relevant to any Tax Contest, making employees available on a mutually convenient basis to provide additional information, and explaining any materials provided pursuant.

 

(h)           For the portion of the calendar day after Effective Time, other than transactions expressly contemplated hereby, Acquirer shall cause the Company and its Subsidiaries to carry on their business only in the ordinary course in the same manner as heretofore conducted (and, for the avoidance of doubt, none of Acquirer, the Company or their Affiliates shall be permitted to make an election pursuant to Section 338 of the Code with respect to the Company or any Subsidiary for any Pre-Closing Period or Straddle Period).

 

5.1          Regulatory Approvals.

 

(a)           Acquirer shall promptly execute and file, or join in the execution and filing of, any application, notification (including any notification or provision of information, if any, that may be required under the HSR Act or other applicable federal, state or foreign antitrust law) or other document that may be necessary in order to obtain the expiration or termination of any applicable waiting period or the authorization, approval or consent of any Governmental Entity, whether federal, state, local or foreign, which may be reasonably required, or which the Company may reasonably request, in connection with the consummation of the Mergers and the other transactions contemplated by this Agreement.  Acquirer shall use commercially reasonable efforts to obtain, and to cooperate with the Company to promptly obtain, all such authorizations, approvals and consents and shall pay any associated filing fees payable by Acquirer, the Final Surviving LLC or the Company with respect to such authorizations, approvals and consents.  Acquirer shall promptly inform the Company of any material communication between Acquirer and any Governmental Entity regarding the Mergers or any other transaction contemplated by this Agreement.  If Acquirer or any of its Affiliates receives any formal or informal request for information or documentary material from any Governmental Entity with respect to the transactions contemplated by this Agreement, then Acquirer shall make, or cause to be made, as soon as reasonably practicable, a response in compliance with such request.  Acquirer shall direct, in its sole discretion, the making of such response, but shall consider in good faith the views of the Company.

 

(b)           The Company shall promptly execute and file, or join in the execution and filing of, any application, notification (including any notification or provision of information, if any, that may be required under the HSR Act or other applicable federal, state or foreign antitrust law) or other document that may be necessary in order to obtain the expiration or termination of any applicable waiting period or the authorization, approval or consent of any Governmental Entity, whether federal, state, local or foreign, which may be reasonably required, or which Acquirer may reasonably request, in connection with the consummation of the Mergers and the other transactions contemplated by this Agreement.  The Company shall use commercially reasonable efforts to cooperate with Acquirer to promptly obtain, all such authorizations, approvals and consents and shall pay, subject to the provisions of Section 5.8, any associated filing fees payable by the Company with respect to such authorizations, approvals and consents.  The Company shall promptly inform Acquirer of any material communication between the Company and any Governmental Entity regarding the Mergers or any other transaction contemplated by this Agreement.  If the Company or any of its Affiliates receives any formal or informal request for information or documentary material from any Governmental Entity with respect to the transactions contemplated by this Agreement, then the Company shall make, or cause to be made, as soon as reasonably practicable, a response in compliance with such request.  The Company shall direct, in its sole discretion, the making of such response, but shall consider in good faith the views of Acquirer.

 

  

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(c)           Notwithstanding anything to the contrary contained in this Agreement, if any administrative or judicial action or proceeding is instituted (or threatened to be instituted) challenging any transaction contemplated by this Agreement as in violation of any federal, state or foreign laws that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (collectively, “Antitrust Laws”), it is expressly understood and agreed that:  (i) Acquirer shall not have any obligation to litigate or contest or remove any administrative or judicial action or proceeding or any decree, judgment, injunction or other order, whether temporary, preliminary or permanent; and (ii) Acquirer shall be under no obligation to make proposals, execute or carry out agreements or submit to orders providing for (A) the sale, license or other disposition or holding separate (through the establishment of a trust or otherwise) of any assets or categories of assets of Acquirer, the Company or any of their respective Subsidiaries or Affiliates, (B) the imposition of any limitation or regulation on the ability of Acquirer or any of its Affiliates to freely conduct their business or own or exercise control of such assets, (C) the holding separate of the shares of Company Capital Stock or any limitation or regulation on the ability of Acquirer or any of its Affiliates to exercise full rights of ownership of the shares of Company Capital Stock, or (D) any other limitation on the complete and absolute authority of Acquirer to cause the Final Surviving LLC and each of its subsidiaries to operate its business and conduct its affairs as determined in Acquirer’s sole and absolute discretion (each of the restraints or limitations referred to in clauses “(A)” through “(D)” above being referred to herein as, an “Antitrust Restraint”).  Nothing in this Section 5.18 shall limit Acquirer’s or the Company’s right to terminate this Agreement pursuant to Section 7.1(b) if Acquirer or the Company, as applicable, has, until such date, complied in all material respects with its obligations under this Section 5.18.

 

5.19        Revenue Earnout Payment.

 

(a)           Revenue Earnout Payment.

 

(i)           2012 Revenue Earnout Amount.  Subject to the terms and conditions of this Agreement, Acquirer shall deliver (or cause to be delivered) to each Effective Time Holder (in each case, subject to such Effective Time Holder’s compliance with the requirements set forth in Section 1.9), as soon as reasonably practicable after the expiration of the Earnout Measurement Period (in each case, subject to the final resolution of any dispute in accordance with Section 5.19(b) below, and in the absence of any dispute, within seventy-five (75) calendar days after the expiration of the Earnout Measurement Period), through such reasonable procedures as Acquirer may adopt in consultation with the Effective Time Holders’ Agent, cash by wire transfer of immediately available funds, such Effective Time Holder’s Pro Rata Share of the 2012 Revenue Earnout Amount, if any.

 

(ii)           2013 Revenue Earnout Amount.  If any 2013 Revenue Earnout Amount shall be payable by Acquirer under this Agreement, Acquirer shall deliver (or cause to be delivered) to each Effective Time Holder (in each case, subject to such Effective Time Holder’s compliance with the requirements set forth in Section 1.9), by no later than January 7, 2014, through such reasonable procedures as Acquirer may adopt in consultation with the Effective Time Holders’ Agent, cash by wire transfer of immediately available funds, such Effective Time Holder’s Pro Rata Share of the 2013 Revenue Earnout Amount, if any.

 

  

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(b)           Calculation of 2012 Revenue Earnout Amount and 2013 Revenue Earnout Amount; Dispute Resolution.  After the expiration of the Earnout Measurement Period, within sixty (60) calendar days after the expiration of the Earnout Measurement Period, Acquirer shall prepare and deliver to the Effective Time Holders’ Agent a statement setting forth in reasonable detail Acquirer’s good faith calculation of the 2012 Revenue Earnout Amount (the “2012 Revenue Earnout Amount Calculation Statement”) and the 2013 Revenue Earnout Amount (the “2013 Revenue Earnout Amount Calculation Statement”, and together with the 2012 Revenue Earnout Amount Calculation Statement, the “Revenue Earnout Amount Calculation Statements”), as applicable.  Acquirer shall afford to the Effective Time Holders’ Agent reasonable access during normal business hours (subject to the Effective Time Holders’ Agent agreeing to be bound by the terms and conditions of the Confidentiality Agreement to the same extent as though the Effective Time Holders’ Agent were a party thereto), and upon reasonable notice after delivery of each Revenue Earnout Amount Calculation Statement by Acquirer to the Effective Time Holders’ Agent, to the books of account and records used by Acquirer to prepare such Revenue Earnout Amount Calculation Statement for purposes of the Effective Time Holders’ Agent verifying the calculation of the 2012 Revenue Earnout Amount or the 2013 Revenue Earnout Amount, as applicable (which shall be provided to the Effective Time Holders’ Agent in electronic format to the extent reasonably available).  The Effective Time Holders’ Agent shall notify Acquirer in writing within thirty (30) Business Days of receipt of a Revenue Earnout Amount Calculation Statement as to whether the Effective Time Holders’ Agent disputes the determination of the Revenue Earnout Amount, setting forth in reasonable detail the specific items in dispute and the basis for the dispute (an “Earnout Payment Dispute Notice”).  If the Effective Time Holders’ Agent does not deliver an Earnout Payment Dispute Notice within thirty (30) Business Days of receipt of a Revenue Earnout Amount Calculation Statement, or if the Effective Time Holders’ Agent accepts the amounts set forth in a Revenue Earnout Amount Calculation Statement in writing, the 2012 Revenue Earnout Amount or 2013 Revenue Earnout Amount calculations (as applicable) as contained in such Revenue Earnout Amount Calculation Statement shall be deemed final and binding.  In the event an Earnout Payment Dispute Notice is delivered, Acquirer and the Effective Time Holders’ Agent (or the designated representative of the Effective Time Holders’ Agent) shall meet within twenty (20) Business Days of the delivery of such Earnout Payment Dispute Notice to attempt to resolve such dispute in good faith.  If a final resolution of such dispute is reached as reflected in an agreement in writing, the agreed upon 2012 Revenue Earnout Amount or 2013 Revenue Earnout (as applicable) shall be deemed final and binding.  If no final resolution is reached within thirty (30) Business Days of the delivery of such Earnout Payment Dispute Notice after good faith negotiation, either party may require that the dispute (other than a dispute as to the calculation of any aspect of the applicable Revenue Earnout Amount Calculation Statement) be resolved in accordance with the dispute resolution mechanism set forth in Section 9.9; provided, however, that if the dispute relates to the method of calculation of any aspect of the applicable Revenue Earnout Amount Calculation Statement, the parties shall engage an auditing firm mutually acceptable to Acquirer and the Effective Time Holders’ Agent (the “Reviewing Accountant”) and the parties shall submit the dispute to the Reviewing Accountant for final resolution.  The Reviewing Accountants shall be authorized only to arbitrate the calculation of 2012 Revenue Earnout Amount or 2013 Revenue Earnout Amount (as applicable) and the underlying accounting basis, but shall not have any authority to arbitrate any other dispute relating to the matters addressed in this Section 5.19.  The Reviewing Accountants shall be instructed to review the applicable Revenue Earnout Amount Calculation Statement, the Earnout Payment Dispute Notice and all work papers related thereto to determine the 2012 Revenue Earnout Amount or 2013 Revenue Earnout Amount (as applicable) and use every reasonable effort to determine such amounts within sixty (60) days after the submission of such dispute to it, and in any event, as soon as practicable.  The Reviewing Accountant shall not undertake any review of any matters not specifically identified by the Effective Time Holders’ Agent as being in dispute in the Earnout Payment Dispute Notice and shall only decide the specific items under dispute by the parties and solely in accordance with the terms of this Agreement.  The Reviewing Accountants’ determination shall be based solely on presentations by Acquirer and the Effective Time Holders’ Agent and an independent review by the Reviewing Accountants of the books and records of Acquirer and on the definitions and other terms included herein.  The Reviewing Accountants shall set out the resolution of the dispute in writing, which shall be conclusive and binding upon the parties.  The costs and expenses of the Reviewing Accountants shall be borne (i) by Acquirer if the difference between the 2012 Revenue Earnout Amount or 2013 Revenue Earnout Amount (as applicable) as determined by Acquirer and as determined by the Reviewing Accountants is greater than the difference between the 2012 Revenue Earnout Amount or 2013 Revenue Earnout Amount (as applicable) as determined by the Effective Time Holders’ Agent and as determined by the Reviewing Accountants or (ii) by the Effective Time Holders’ Agent (on behalf of the Effective Time Holders (to be allocated among them on the basis of each Effective Time Holder’s Pro Rata Share of the merger consideration received by all of the Effective Time Holders under this Agreement)) if the difference between the 2012 Revenue Earnout Amount or 2013 Revenue Earnout Amount (as applicable) as determined by Acquirer and as determined by the Reviewing Accountants is lower than the difference between the 2012 Revenue Earnout Amount or 2013 Revenue Earnout Amount (as applicable) as determined by the Effective Time Holders’ Agent and as determined by the Reviewing Accountants, or (iii) 50% by the Acquirer and 50% by the Effective Time Holders (to be allocated among them on the basis of each Effective Time Holder’s Pro Rata Share of the merger consideration received by all of the Effective Time Holders under this Agreement), in any other case.

 

  

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(c)           Operating Covenants During the Revenue Earnout Periods.  Following the Closing, any and all decisions with respect to any aspect of the operation of the business of Acquirer and its Subsidiaries, including the First Step Surviving Corporation or the Final Surviving LLC or any of its Subsidiaries and including matters directly or indirectly related to the 2012 Revenue Earnout Amount or the 2013 Revenue Earnout Amount, shall be made by  Acquirer in its sole discretion without any express or implied obligation.  Notwithstanding the foregoing, unless Acquirer and the Effective Time Holders’ Agent otherwise agree in writing and except as contemplated by this Agreement, from and after the Effective Time until such time as the Earnout Measurement Period has expired:

 

(i)           Acquirer shall not take any action, not otherwise justified for good faith business reasons which Acquirer has consulted with the Effective Time Holders’ Agent prior to implementing, which has the effect of reducing the earning or payment of the Earnout Payments;

 

(ii)          Acquirer shall cause the Business Unit to operate and function as a single division of Acquirer;

 

(iii)         Acquirer shall cause the Business Unit to be operated substantially in accordance with the business plan set forth on Schedule 5.18(c)(iii) hereto (the “Business Plan”) and any deviation by Acquirer from the Business Plan during the Earnout Period,  other than commercially reasonable variations in Funding Resources, not material individually or in the aggregate, based on timing and the reasonable judgment of the Business Unit management team and Acquirer’s CEO, shall require the consent of the Effective Time Holders’ Agent (which consent shall not be unreasonably withheld, conditioned or delayed);

 

(iv)        Acquirer shall allot or allocate funding resources to the operation of the Business Unit in accordance with the budget set forth on Schedule 5.18(c)(iv) hereto (the “Budget”) and any decrease by Acquirer in the funding resources set forth in the Budget from the Business Unit (the “Funding Resources”), other than commercially reasonable variations in Funding Resources, not material individually or in the aggregate, based on timing and the reasonable judgment of the Business Unit management team and Acquirer’s CEO, shall require the consent of the Effective Time Holders’ Agent (which consent shall not be unreasonably withheld, conditioned or delayed); and

 

  

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(v)         Acquirer may allot or allocate additional resources to the operation of the Business Unit in accordance with joint plans developed between Business Unit management team and management of the Acquirer prior to or following the Closing for the purposes exploiting revenue growth opportunities that may result from the combination of Company assets with Acquirer assets (the “Synergies”).  Revenues generated from Synergies related to the Company’s hosted business will be included in the 2012 Revenue (for purposes of calculating the 2012 Earnout Amount and 2013 Earnout Amount), and resources committed in pursuit of Synergies will be considered incremental to the Business Plan and Budget and not be accounted for as Funding Resources; and

 

(vi)        Each party hereto agrees that, from the Closing until the end of the Earnout Measurement Period, it shall, with respect to all matters related to this Agreement, act in good faith and the spirit of fair dealing such that the intent of this Agreement is carried out to the fullest extent practicable.

 

Notwithstanding the foregoing, the parties acknowledge and agree that it shall not, under any circumstance, be a breach of the operating covenants of Acquirer contained in this Section 5.19(c) if as a result of a Legal Proceeding or other demand requiring, or purporting to require, Acquirer to license any Third Party Intellectual Property or claiming infringement thereof, (a) Acquirer experiences a delay in or diminishment of its ability to sell Company Products during the Earnout Measurement Period or (b) Acquirer in its sole reasonable discretion determines, after consulting with the Effective Time Holders’ Agent, to revise the Business Plan in good faith to take into account such Legal Proceeding or other demand and its effect on the Business Unit.

 

(d)           Acceleration of Payment of the Earnout Amount.  In the event an Acceleration Event (as defined below) occurs prior to the end of the Earnout Measurement Period, Acquirer shall promptly pay to each Effective Time Holder through such reasonable procedures as Acquirer may adopt, cash by wire transfer of immediately available funds, such Effective Time Holder’s Pro Rata Share of the (i) maximum 2012 Revenue Earnout Amount and (ii) maximum 2013 Revenue Earnout Amount.   For purposes of this Agreement, an “Acceleration Event” shall mean (x) (a) a sale, lease, conveyance or other disposition of all or substantially all of the property or business of Acquirer (directly or through a subsidiary), (b) a merger or consolidation with or into any other entity, unless the stockholders of the Acquirer immediately before the transaction own 50% or more of the voting stock of the acquiring or surviving corporation following the transaction (taking into account, in the numerator, only stock of the Acquirer held by such stockholders before the transaction and stock issued in respect of such prior-held stock of the Acquirer), or (c) any other transaction which results in (assuming an immediate and maximum exercise/conversion of all derivative securities issued in the transaction) the holders of the Acquirer’s capital stock as of immediately before the transaction owning less than 50% of the voting power of the Acquirer’s capital stock as of immediately after the transaction, or (y) a willful and material breach by Acquirer of Sections 5.18(c)(i)-(v) (provided however that the Parties acknowledge and agree that the timing of the Earnout Payments, as described in Sections 5.19(a) and 5.19(b) above, shall not be affected in any way by the terms of this clause (y) of this Section 5.19(d)).

 

(e)           The Acquirer, the Company, and the Effective Time Holders agree for all tax purposes that the right of the Company Stockholders to the Earnout Amount shall be treated as deferred contingent purchase price that is, with respect to the sale of Company Capital Stock, eligible for installment sale treatment under Section 453 of the Code and any corresponding provision of foreign, state or local law, as appropriate.  A portion of the Earnout Amount shall be treated as imputed interest to the extent required by the Code and regulations thereunder.

 

  

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5.20        Financing.  Acquirer shall use commercially reasonable efforts to obtain financing, on terms acceptable to Acquirer in Acquirer’s sole discretion, as is necessary for Acquirer to have available sufficient funds to pay the Total Adjusted Cash Consideration (the “Debt Financing”).  The Company shall use commercially reasonable efforts to cooperate, and to cause its Subsidiaries and Representatives to cooperate, with Acquirer and Representatives of Acquirer in connection with the Debt Financing.  The Acquirer will update the Company with respect to the status of the Debt Financing from time to time.

 

5.21        Geckotech Amendment.

 

(a)           As soon as reasonably practicable following the date hereof, the Company shall finalize and enter into an amendment (the “Geckotech Amendment”) to that certain Asset Purchase Agreement, by and among the Company, M5 Acquisition Corp. and Geckotech, LLC (the “Geckotech”), dated as of November 1, 2010 (the “Geckotech Agreement”), in form and substance satisfactory to Acquirer in its sole discretion, providing that (i) neither the consummation of the Mergers nor the consummation of any of the other transactions contemplated by this Agreement will result in or give rise to any acceleration of any payment (including but not limited to the Second Anniversary Additional Purchase Price and/or Second Earn-In, each such term as defined in the Geckotech Agreement) or other right or obligation of any party other than the Company under the Geckotech Agreement; (ii) after the consummation of the Merger, the Second Earn-In will be payable in cash (and not in shares of Company Capital Stock or other Company Securities); and (iii) the total maximum amount of cash payable to the Seller (as defined in the Geckotech Agreement) in respect of the Second Earn-In will not exceed $1.25 million (such amount of cash payable to Geckotech, the “Geckotech Payment”), subject to the other terms and conditions of the Geckotech Agreement.

 

(b)           The Parties acknowledge and agree that, in the event that the Company enters into, prior to the Closing, a Geckotech Amendment that provides for the payment of the Geckotech Payment to Geckotech, out of the consideration otherwise payable to the Company Securityholders hereunder, at the Closing, such Geckotech Amendment shall be deemed to have satisfied this Section 5.21.

 

5.22        Pay-off Letters; Releases.  Prior to the Closing the Company shall use its commercially reasonable efforts to obtain executed pay-off and lien release letters (the “Pay-off Letters”) in a form reasonably satisfactory to Acquirer from Square 1 Bank (“Square 1”),  which Pay-off Letters shall include: (i) the balance required to pay-off the loans made pursuant to the Amended and Restated Loan and Security Agreement, by and among the Company and Square 1, dated as of September 27, 2010, as amended (collectively, the “Loans”) in full at Closing (including any prepayment penalties); (ii) the per-diem interest amount; (iii) a statement that upon pay-off of the Loans any related security interests in the Company’s assets shall immediately be released; (iv) attached draft UCC-3 termination statements; (v) wiring instructions; and (vi) consent to consummation of the Merger.  Except as otherwise contemplated by the Pay-off Letters, the Company shall take all actions necessary such that all Encumbrances on assets of the Company shall be released prior to or simultaneously with the Closing.

 

5.23        Spreadsheet; Company Closing Financial Certificate.  The Company shall prepare and deliver to Acquirer, not later than three (3) Business Days prior to the expected Closing Date, a draft of (i) the Company Closing Financial Certificate (which certificate shall be accompanied by such supporting documentation, information and calculations as are necessary for Acquirer to verify and determine the amounts set forth therein) and (ii) the Spreadsheet.  The draft of the Company Closing Financial Certificate shall set forth the Company’s good faith estimate, as of three (3) Business Days prior to the expected Closing Date, of items (i) through (iv) set forth in the definition of “Company Closing Financial Certificate” on Exhibit A hereto.

 

  

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5.24         Audited Financial Statements.  The Company shall use commercially reasonable efforts, to begin as soon as reasonably practicable after the date of this Agreement (and in any event by no later than February 10, 2012), and complete by the Closing Date (to the extent practicable), an audit of its consolidated financial statements for the year ended December 31, 2011 (including, balance sheets, statements of operations and statements of cash flows) (the “Audited 2011 Financial Statements”).  The Audited 2011 Financial Statements shall be prepared in a form that can be filed by Acquirer with the SEC with corresponding audit reports and consents required for filing with the SEC from the Company’s independent accountants with respect to such financial statements.  Acquirer shall be provided with regular updates as to the status of the Audited 2011 Financial Statements.

 

5.25         Termination of Company Options.  The Company shall have taken all action necessary (under the Company Option Plans or otherwise) to effectuate the cancellation of each Company Option as contemplated pursuant to Section 1.8(a)(iv) and to ensure that, from and after the Effective Time, each holder of a Company Option outstanding as of the date of this Agreement and as of immediately prior to the Effective Time shall cease to have any rights with respect thereto (other than the rights to receive the consideration described in Section 1.8(a)(iv), subject to the terms and conditions of this Agreement) prior to or as of the Effective Time.

 

5.26         Termination of Company Warrants.  The Company shall have taken all commercially reasonable efforts to effectuate the cancellation of each Company Warrant as contemplated pursuant to Section 1.8(a)(v) and to ensure that, from and after the Effective Time, each holder of a Company Warrant outstanding as of the date of this Agreement and as of immediately prior to the Effective Time shall cease to have any rights with respect thereto (other than the rights to receive the consideration described in Section 1.8(a)(v), subject to the terms and conditions of this Agreement) prior to or as of the Effective Time.

 

5.27        SEC Reporting/Registration Statement.  Following the Closing, Acquirer shall file all forms, reports and documents required to be filed by Acquirer with the SEC pursuant to the Exchange Act, and comply in all material respects with all other state, federal and SEC rules and regulations to enable the recipients of Acquirer Common Stock to sell such shares of Acquirer Common Stock on the NASDAQ Stock Market in accordance with the terms of the Rule 144 under the Securities Act and the Investment Representation Letter and Lock-Up Agreement.   In the event a recipient of Acquirer Common Stock is unable to sell such shares in accordance with Rule 144 following the lock-up period set forth in the Investment Representation Letter and Lock-Up Agreement due to the Acquirer’s noncompliance with the Exchange Act or other applicable requirements, the holders of a majority of the Acquirer’s Common Stock hereunder may require that Acquirer prepare and file, at its sole expense, a registration statement registering all or a portion of Acquirer’s Common Stock issued hereunder.  In the event such registration statement is needed, Acquirer and the Effective Time Holder’s Agent shall use commercially reasonable efforts to cooperate in good faith to coordinate the preparation and filing of a registration statement for such shares of Acquirer Common Stock in a timely manner, not to exceed sixty (60) days from such request.

 

5.28        Open Source.  As soon as practicable following the date of the this Agreement, the Company shall provide on a schedule to the Acquirer all software or other material that is distributed as “free software”, “open source software” or under similar licensing or distribution terms (including but not limited to the GNU General Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla Public License (MPL), BSD licenses, the Artistic License, the Netscape Public License, the Sun Community Source License (SCSL), the Sun Industry Standards License (SISL), the Apache License, and any license identified as an open source license by the Open Source Initiative (www.opensource.org)) (“Open Source Materials”) and that is used by the Company or any Subsidiary, and identifies for each item of Open Source Materials (i) the source from which the item was obtained, including any applicable URLs; (ii) the applicable open source license; (iii) whether the item is incorporated into or distributed with any Company Products, and if so, the applicable Company Products; (iv) and whether or not the item was modified by the Company or any Subsidiary. The Company is in compliance with the terms and conditions of all licenses for the Open Source Materials.

 

  

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5.29        Employee Promissory Notes.  As soon as practicable following the date of the this Agreement, the Company shall take action to ensure that all promissory notes due and owing from Company employees to the Company shall have be repaid in full or amended to account for a set-off from the net amounts payable to such employees for their Company Securities.

 

5.30        Company Bonus Plan.  The Company shall pay the proceeds from the Company Bonus Plan to the participants thereunder (the “Plan Participants”) at the Closing, unless an alternative arrangement regarding payment of the Company Bonus Plan Amount to the Plan Participants is agreed to by the parties following the date hereof and prior to the Closing.

 

ARTICLE 6

Conditions to the Mergers

 

6.1           Conditions to Obligations of Each Party to Effect the Mergers.  The respective obligations of each party hereto to consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions:

 

(a)           Company Stockholder Approval.  The Mergers shall have been duly and validly approved and this Agreement shall have been duly and validly adopted, as required by Delaware Law and the Company’s certificate of incorporation and Bylaws, each as in effect on the date of such approval and adoption, by the requisite written consent of the Company Stockholders.

 

(b)           No Order; Illegality.  No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition shall be in effect which (i) prevents the consummation of the Mergers (ii) prohibits Acquirer’s ownership or operation of any portion of the business of the Company or any of its Subsidiaries, (iii) compels Acquirer or the Company to dispose of or hold separate all or any material portion of the business or assets of Acquirer, the Company or any of their respective Subsidiaries or Affiliates as a result of the Mergers or (iv) imposes any other Antitrust Restraint.  No any action shall have been taken or threatened by any Governmental Entity seeking any of the foregoing restraints or limitations referred to in clauses (i) through (iv) above, and no statute, rule, regulation or order shall have been enacted, entered, enforced or deemed applicable to the Mergers, which would result in any of the foregoing restraints or limitations referred to in clauses (i) through (iv) above.

 

(c)           HSR Act.  All applicable waiting periods (and any extension thereof) under the HSR Act shall have expired or otherwise been terminated.

 

(d)           Governmental Approvals.  Acquirer and the Company shall have timely obtained from each Governmental Entity all approvals, waivers and consents, if any, necessary for consummation of, or in connection with, the Mergers and the other transactions contemplated hereby.

 

6.2           Additional Conditions to Obligations of the Company.  The obligations of the Company to consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (it being understood that each such condition is solely for the benefit of the Company and may be waived by the Company in writing in its sole discretion without notice or Liability to any Person):

 

  

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(a)           Representations, Warranties and Covenants.  The representations and warranties of Acquirer in this Agreement shall be true and correct in all material respects (except for such representations and warranties that are qualified by their terms by a reference to materiality or Material Adverse Effect, which representations and warranties as so qualified shall be true and correct in all respects) on and as of the date hereof and on and as of the Closing Date as though such representations and warranties were made on and as of such date (except for representations and warranties which address matters only as to a specified date, which representations and warranties shall be true and correct with respect to such specified date).  Acquirer shall have performed and complied in all material respects with all covenants and obligations of this Agreement required to be performed and complied with by it at or prior to the Closing.

 

(b)           No Material Adverse Effect.   No Material Adverse Effect shall have occurred with respect to Acquirer and its Subsidiaries, taken as a whole, since the Agreement Date.

 

(c)           Receipt of Closing Deliveries.  The Company shall have received each of the agreements, instruments and other documents set forth in Section 1.3(a).

 

6.3           Additional Conditions to the Obligations of Acquirer.  The obligations of Acquirer to consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (it being understood that each such condition is solely for the benefit of Acquirer and may be waived by Acquirer in writing in its sole discretion without notice or Liability to any Person):

 

(a)            Representations, Warranties and Covenants.  The representations and warranties of the Company in this Agreement shall be true and correct in all material respects (except for such representations and warranties that are qualified by their terms by a reference to materiality or Material Adverse Effect and the representations and warranties contained in Section 2.2, which representations and warranties shall be true and correct in all respects) on and as of the date hereof and on and as of the Closing Date as though such representations and warranties were made on and as of such date (except for representations and warranties which address matters only as to a specified date, which representations and warranties shall be true and correct with respect to such specified date).  The Company shall have performed and complied in all material respects with all covenants and obligations of this Agreement required to be performed and complied with by the Company at or prior to the Closing.

 

(b)           Receipt of Closing Deliveries.  Acquirer shall have received each of the agreements, instruments and other documents set forth in Section 1.3(b).

 

(c)            Employment Documents; Non-Competition Agreements.  (i) Each of the Key Employees shall have executed and delivered each of the Employment Documents required to be signed by such Key Employees, and such Employment Documents shall continue to be in full force and effect and no action shall have been taken by any such individual to rescind such Employment Documents;  (ii) no less than 85% of the Offered Employees shall have executed and delivered each of the Employment Documents required to be signed by such Offered Employees, and such Employment Documents shall continue to be in full force and effect and no action shall have been taken by any such individual to rescind such Employment Documents; and (iii) each of the two contractors of the Company located in Australia shall have executed and delivered each of the Employment Documents required to be signed by such Offered Employees.

 

(d)            Investment Representation Letter and Lock-Up Agreements.  Each of the Company Qualified Stockholders shall have executed and delivered an Investment Representation Letter and Lock-Up Agreement, and such Investment Representation Letter and Lock-Up Agreements shall continue to be in full force and effect and no action shall have been taken by any such individual to rescind such Investment Representation Letter and Lock-Up Agreements.

 

  

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(e)            Financing.  Acquirer shall have obtained the Debt Financing on terms acceptable to Acquirer in Acquirer’s sole discretion.

 

(f)            Appraisal Rights.  Company Stockholders representing ninety percent (90%) or more of the aggregate number of issued and outstanding shares of Company Capital Stock (on an as-converted to Company Common Stock basis) entitled to demand appraisal rights under Section 262 of the Delaware Law shall have executed the Company Stockholder Consent or shall have waived, or no longer be entitled to exercise, appraisal rights under Delaware Law.

 

(g)           No Material Adverse Effect.   No Material Adverse Effect shall have occurred with respect to the Company and its Subsidiaries, taken as a whole, since the Agreement Date.

 

(h)           Termination of Company Warrants.  All Company Warrants shall have been exercised in full, cancelled or terminated and there shall be no further obligation as of the Effective Time on the part of Acquirer, the First Step Surviving Corporation, the Final Surviving LLC or any other Person with respect to any such Company Warrants.

 

(i)            No Outstanding Securities.  Other than the shares of Company Preferred Stock, shares of Company Common Stock, Company Options and Company Warrants issued and outstanding as of immediately prior to the Effective Time, which are being canceled and converted into the right to receive, in the case of each share of Company Capital Stock held by a Company Qualified Stockholder as of immediately prior to the Effective Time, the cash and shares of Acquirer Common Stock as set forth in Section 1.8(a)(ii), and in the case of shares of Company Common Stock held by Company Non-Qualified Stockholders, Company Options and Company Warrants, the cash as set forth in Sections 1.8(a)(iii), 1.8(a)(iv) and 1.8(a)(v), subject in each case to the terms of this Agreement, there shall be no outstanding securities, warrants, options, commitments, agreements of the Company or other Company Rights immediately prior to the Effective Time that purport to obligate the Company to issue any shares of Company Capital Stock, Company Options, Company Warrants or any other securities of the Company or Company Rights under any circumstances.

 

(j)             Accredited Investors.   No greater than twenty (20) of the Company Securityholders who receive Acquirer Common Stock in the Merger shall be non-accredited investors (as set forth in each such Company Securityholder’s respective Investment Representation Letter and Lock-Up Agreement).

 

(k)            Geckotech Amendment.  The Company shall have entered into the Geckotech Amendment on terms and conditions satisfactory to Acquirer in its sole discretion, subject to the last sentence of Section 5.20 hereof.

 

ARTICLE 7

Termination, Amendment and Waiver

 

7.1           Termination.  At any time prior to the Closing, this Agreement may be terminated:

 

(a)           by mutual written consent duly authorized by the Company and Acquirer;

 

  

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(b)           by either Acquirer or the Company, if the Closing shall not have occurred on or before May 31, 2012 or such other date that Acquirer and the Company may agree upon in writing (the “Termination Date”); and provided, further, that the right to terminate this Agreement under this clause (b) of Section 7.1 shall not be available to any party whose breach of any covenant or agreement hereunder will have been the principal cause of, or will have directly resulted in, the failure of the Closing to occur on or before the Termination Date;

 

(c)           by either Acquirer or the Company, if (i) there shall be any applicable Legal Requirements that makes consummation of the Mergers illegal or otherwise prohibited or (ii) any permanent injunction or other order of a Governmental Entity of competent authority preventing the consummation of the Mergers shall have become final and nonappealable;

 

(d)           by Acquirer, if (i) the Company shall have breached any representation, warranty, covenant or agreement contained herein and such breach shall not have been cured within five (5) Business Days after receipt by the Company of written notice of such breach (provided, however, that no such cure period shall be available or applicable to any such breach which by its nature cannot be cured) and if not cured within the timeframe above and at or prior to the Closing, such breach would result in the failure of any of the conditions set forth in Section 6.1 or Section 6.3 to be satisfied, (ii) there shall have been a Material Adverse Effect with respect to the Company or (iii) if the Company Stockholder Approval is not obtained within forty-eight (48) hours following the execution of this Agreement by the parties hereto; or

 

(e)           by the Company, if Acquirer shall have breached any representation, warranty, covenant or agreement contained herein and such breach shall not have been cured within five (5) Business Days after receipt by Acquirer of written notice of such breach (provided, however, that no such cure period shall be available or applicable to any such breach which by its nature cannot be cured) and if not cured within the timeframe above and at or prior to the Closing, such breach would result in the failure of any of the conditions set forth in Section 6.1 or Section 6.2 to be satisfied or (ii) there shall have been a Material Adverse Effect with respect to the Acquirer.

 

Any termination of this Agreement under clauses (b) through (e) of this Section 7.1 will be effective by the delivery of a written notice of the terminating party to the other party hereto.

 

7.2           Effect of Termination.  In the event of termination of this Agreement as provided in Section 7.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Acquirer, Merger Subs, the Company or their respective officers, directors, stockholders or affiliates; provided, however, that (a) the provisions of Section 5.2 (Confidentiality; Public Disclosure), this Section 7.2 (Effect of Termination), Article 9 (General Provisions) and the Confidentiality Agreement shall remain in full force and effect and survive any termination of this Agreement and (b) nothing herein shall relieve any party hereto from liability in connection with any willful breach of such party’s representations, warranties or covenants contained herein.  Notwithstanding the foregoing, in the event that all of the conditions to the Mergers set forth in Section 6.1 and Section 6.3 (other than Section 6.3(e) (Financing)) have been satisfied, then following the termination of this Agreement in accordance with the terms of this Article 7, Acquirer shall, promptly (in any event within three (3) Business Days) following receipt of an invoice therefor by Acquirer, pay up to $800,000 of the Company’s reasonable and documented out-of-pocket legal and accounting fees and expenses incurred by the Company in connection with the transactions contemplated by this Agreement on or prior to the termination of this Agreement (the “Company Expenses”), by wire transfer of same day funds to one or more accounts designated by Company.  If Acquirer becomes obligated to pay the Company Expenses pursuant to this Section 7.2, the Company agrees that its right to receive the Company Expenses from Acquirer shall be its sole and exclusive remedy against Acquirer and its affiliates (including the Merger Subs), and upon payment thereof, neither Acquirer nor any of its affiliates (including Merger Subs) shall have any further liability or obligation to the Company relating to or arising out of this Agreement or the transactions contemplated hereby.

 

  

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7.3           Amendment.  The parties hereto may amend this Agreement at any time prior to the Closing Date pursuant to an instrument in writing signed on behalf of each of the parties hereto, and the Effective Time Holders’ Agent may cause this Agreement to be amended at any time after the Closing by execution of an instrument in writing signed on behalf of Acquirer and the Effective Time Holders’ Agent.

 

7.4           Extension; Waiver.  At any time at or prior to the Closing, any party hereto may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (c) waive compliance with any of the agreements or conditions for the benefit of such party contained herein.  At any time after the Closing, the Effective Time Holders’ Agent and Acquirer may (i) extend the time for the performance of any of the obligations or other acts of the other, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions for the benefit of such Person contained herein.  Any agreement on the part of a party hereto or the Effective Time Holders’ Agent to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.  No delay in exercising any right under this Agreement shall constitute a waiver of such right, and no waiver of any breach or default shall be deemed a waiver of any other breach or default of the same or any other provision in this Agreement.

 

ARTICLE 8

Escrow Fund and Indemnification

 

8.1           Escrow Fund.

 

(a)           As soon as reasonably practicable after the Closing Date (and in any event within three (3) Business Days after the Closing Date), the Escrow Cash and the Escrow Shares shall be deposited with the Escrow Agent, such deposit, together with any interest that may be earned thereof, to constitute the General Escrow Fund and the Special Escrow Fund (collectively, the “Escrow Funds”) and to be governed by the provisions set forth herein and in the Escrow Agreement.  Following the Effective Time, the Escrow Funds shall be available to compensate Acquirer (on behalf of itself or any other Indemnified Person (as such term is defined in Section 8.2 below)) for Indemnifiable Damages (as such term is defined in Section 8.2 below) pursuant to the indemnification obligations of the Effective Time Holders until 11:59 p.m. California time on the date that is twelve (12) months after the Closing Date (such date, the “Escrow Release Date”).  No portion (nor all) of the Escrow Funds, nor any beneficial interest therein, may be pledged, subjected to any Encumbrance, sold, assigned or transferred, by any Effective Time Holder, or be taken or reached by any legal or equitable process in satisfaction of any debt or other Liability of any Effective Time Holder, in each case prior to the disbursement of the Escrow Fund to any Effective Time Holder in accordance with Section 8.1(b) below.

 

(b)           Within ten (10) Business Days following the Escrow Release Date, Acquirer and the Effective Time Holders’ Agent will instruct the Escrow Agent to disburse to the Exchange Agent (on behalf of each Effective Time Holder) such Effective Time Holder’s Pro Rata Share of the Escrow Funds less (i) those portions of the Escrow Funds previously paid to Acquirer in satisfaction of claims for indemnification in accordance with Article 8 of this Agreement and (ii) those portions of the Escrow Funds that are determined, in the reasonable judgment of Acquirer, to be necessary to satisfy all unsatisfied or disputed claims for indemnification specified in any Claim Certificate (as defined in Section 8.5 below) delivered to the Effective Time Holders’ Agent prior to the Escrow Release Date.  Any portions of the Escrow Funds held following the Escrow Release Date with respect to pending but unresolved claims for indemnification that are not awarded to Acquirer upon the resolution of such claims shall be disbursed to the Effective Time Holders within ten (10) Business Days following resolution of such claims.  For the avoidance of doubt, only Company Qualified Stockholders shall receive any Escrow Shares.

 

  

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(c)           For purposes of claims against the Escrow Shares, such Escrow Shares shall be valued at the Claim Stock Value.  Claims made against the Escrow Fund shall be made against both the Escrow Cash and Escrow Shares on a proportional basis (with the Escrow Stock valued at the Claim Stock Value); provided, however, that additional Escrow Cash and fewer Escrow Shares shall be delivered as necessary (though in all cases in such manner as to account for each such Effective Time Holders’ respective Pro Rata Share) to be consistent with the intended treatment of the Mergers as a tax-free reorganization.

 

(d)           Acquirer, the Company, and the Effective Time Holders agree for all tax purposes that: (i) the right of the Effective Time Holders to the Escrow Funds shall be treated as deferred contingent purchase price that is, with respect to the sale of Company Capital Stock, eligible for installment sale treatment under Section 453 of the Code and any corresponding provision of foreign, state or local law, as appropriate; (ii) if and to the extent any amount of the Escrow Funds is actually distributed to the Effective Time Holders, interest may be imputed on such amount, as required by Section 483 or 1274 of the Code; (iii) Acquirer shall be treated as the owner of the Escrow Cash, and all interest and earnings earned from the investment and reinvestment of the Escrow Cash, or any portion thereof, shall be allocable to Acquirer; and (iv) for purposes of calculating the maximum amount of deferred contingent purchase price under the installment sale rules of Code Section 453, if the imputed interest amount is less than the amount of interest and earnings on the Escrow Funds paid to the Effective Time Holders, then an amount equal to the difference shall be treated as additional interest paid to the Effective Time Holders.

 

8.2           Indemnification.  Subject to the limitations set forth in this Article 8, each Effective Time Holder shall severally and not jointly, based on each such Effective Time Holders’ respective Pro Rata Share, indemnify and hold harmless Acquirer and its officers, directors, agents and employees, and each person, if any, who controls or may control Acquirer within the meaning of the Securities Act (each of the foregoing being referred to individually as an “Indemnified Person” and collectively as “Indemnified Persons”) from and against any and all losses, Liabilities, damages (which with respect to punitive damages, shall only include amounts actually paid to a third party), fees, interest, costs and expenses, including costs of investigation and defense and reasonable fees and expenses of lawyers, experts and other professionals, and re-engineering costs, directly or indirectly, whether or not due to a third-party claim (collectively, “Indemnifiable Damages”), arising out of, resulting from or in connection with (i) any failure of any representation or warranty made by the Company in this Agreement or the Company Disclosure Letter (including any exhibit or schedule to the Company Disclosure Letter) to be true and correct as of the Agreement Date and as of the Closing Date as though such representation or warranty were made as of the Closing Date (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), (ii) any breach of or default in connection with any of the covenants or agreements made by the Company in this Agreement, (iii) any inaccuracies in the Spreadsheet or the Company Closing Financial Certificate (including, for the avoidance of doubt, any inaccuracy in or failure to calculate properly the Company Net Working Capital, Transaction Expenses, Company Capital Leases Liability Adjustment Amount, Company Past Acquisition Liability Adjustment Amount, Company Bonus Expenses, or Company Debt),

 

  

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 (iv) any payments paid with respect to Dissenting Shares to the extent that such payments, in the aggregate, exceed the value of the amounts that otherwise would have been payable pursuant to Section 1.8(a) upon the exchange of such Dissenting Shares, and any interest, costs, expenses and fees incurred by any Indemnified Person in connection with the exercise of any dissenters’ rights; (v) any claim asserted or held by any current, former or alleged securityholder of the Company alleging any ownership of, interest in or right to acquire any shares or other securities of the Company or otherwise disputing the treatment of securityholders of the Company in connection with the Merger; (vi) any claim or right asserted or held by any person who is or at any time was an officer, director, employee or agent of the Company involving a right or entitlement or an alleged right or entitlement to indemnification, reimbursement of expenses or any other relief or remedy (under the charter documents or under any indemnification agreement or similar Contract, under any Legal Requirement or otherwise) with respect to any act or omission on the part of such person or any event or other circumstance that arose, occurred or existed at or prior to the Effective Time; (vii) the matters set forth on Schedule 8.2(vii) of the Company Disclosure Letter (the “Special Matters”); (viii) any claim or right asserted by any Company Warrantholder that does not execute a Company Warrant Termination Agreement which claim or right is related to the Company Warrants held by such Company Warrantholder; (ix) any claim related to the Company’s failure to execute the Geckotech Amendment; (x) the use or distribution by the Company or any Subsidiary of any Open Source Materials, or the inclusion or combination of any Open Source Materials in or with the Company Intellectual Property or Company Products (regardless of the disclosure of any matter set forth in the open source schedule to be provided by the Company pursuant to Section 5.28); (xi) any failure of any representation or warranty made by the Company in this Agreement or the Company Disclosure Letter (including any exhibit or schedule to the Company Disclosure Letter) with respect to Section 2.12 (Taxes) (the “Tax Matters”) to be true and correct as of the Agreement Date and as of the Closing Date as though such representation or warranty were made as of the Closing Date (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 (xii) the matter referred to on Schedule 8.2(xii) of the Company Disclosure Letter.  Materiality standards or qualifications, and qualifications by reference to the defined term “Material Adverse Effect” in any representation, warranty or covenant shall only be taken into account in determining whether a breach of or default in connection with such representation, warranty or covenant (or failure of any representation or warranty to be true and correct) exists, and shall not be taken into account in determining the amount of any Indemnifiable Damages with respect to such breach, default or failure to be true and correct.

 

8.3           Threshold; Other Limitations.

 

(a)           Notwithstanding anything contained herein to the contrary, no Indemnified Person may make a claim against the General Escrow Fund in respect of any claim for indemnification that is made pursuant to clause (i) of the first sentence of Section 8.2 (and that does not involve fraud or willful breach or any failure of any of the Fundamental Representations and Warranties (as defined below)), unless and until a Claim Certificate (as defined below) describing Indemnifiable Damages in an aggregate amount greater than $750,000 (the “Threshold”) has been delivered, in which case the Indemnified Person may make claims for indemnification for all Indemnifiable Damages (including the amount of the Threshold).

 

(b)           If the Merger is consummated, recovery from the General Escrow Fund shall constitute the sole and exclusive remedy for the indemnification obligations under this Agreement for the matters listed in clauses (i), (ii) (other than in the case of a willful breach of covenant or agreement by the Company in this Agreement), (iv), (x) and (xii) of the first sentence of Section 8.2 (in the case of clause (xii), subject to Section 8.3(i) below), except in the case of (A) fraud by the Company or any Company Securityholder; (B) any failure of any representation or warranty made by the Company in this Agreement or the Company Disclosure Letter with respect to Section 2.1 (Organization, Standing, Power, and Subsidiaries), Section 2.2 (Capital Structure), Section 2.3(a) (Authority), and Section 2.19 (Transaction Expenses) (such representations and warranties set forth in (B) above collectively referred to herein as the “Fundamental Representations and Warranties” and the matters set forth on (A) and (B) above collectively referred to as “Fundamental Matters”), (C) any willful breach of any of the covenants or agreements by the Company in this Agreement, (D) for the matters listed in clauses (iii), (v), (vi), (viii) and (ix) of the first sentence of Section 8.2 ((C) and (D) collectively referred to herein as “Select Matters”) and (E) the Tax Matters.

 

  

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(c)           In the case of Fundamental Matters, after Indemnified Persons have exhausted or made claims upon the General Escrow Fund (after taking into account all other claims for indemnification from the Escrow Fund made by Indemnified Persons), each Effective Time Holder shall be liable, severally and not jointly, based on each such Effective Time Holders’ respective Pro Rata Share, for any such Indemnifiable Damages resulting therefrom not to exceed the total amount payable to such Effective Time Holder hereunder (including any interest in the Earnout).

 

(d)           In the case of Select Matters and Tax Matters, after Indemnified Persons have exhausted or made claims upon the General Escrow Fund (after taking into account all other claims for indemnification from the Escrow Fund made by Indemnified Persons), each Effective Time Holder shall be liable, severally and not jointly, based on each such Effective Time Holders’ respective Pro Rata Share, for any such Indemnifiable Damages resulting therefrom not to exceed forty percent (40%) of the total amount payable to such Effective Time Holder hereunder (including any interest in the Earnout).

 

(e)           If the Merger is consummated, the Special Escrow Fund shall be available to compensate Acquirer (on behalf of itself or any other Indemnified Person) for Indemnifiable Damages solely arising out of, solely resulting from or solely in connection with the Special Matters.  For the avoidance of doubt, Acquirer (on behalf of itself or any other Indemnified Person) shall be entitled to then seek recourse against the Special Escrow Fund first and then the General Escrow Fund second (only, in the later case, if the Special Escrow Fund is not sufficient to cover the Indemnifiable Damages solely related to the Special Matters).  Subject to Section 8.2(g) below, recovery from the Special Escrow Fund first and the General Escrow Fund second shall be the sole remedy of the Indemnified Persons with respect to the Special Matters.

 

(f)            No Indemnified Person may recover any Indemnifiable Damages for the value, condition or diminution of any Tax attribute (e.g. net operating loss carryforward or tax credit carryforward).  For purposes of this Article 8, Indemnifiable Damages shall be calculated net of actual recoveries under insurance policies (with the amount of such recoveries calculated after deduction of collection costs and premium increases, if any); provided, however, that no Indemnified Person shall be under any obligation to acquire any insurance policy or pursue or seek any recovery under any insurance policy.

 

(g)           Notwithstanding anything to the contrary herein, nothing in this Agreement shall limit an Effective Time Holder’s liability in the case of fraud if such Effective Time Holder committed such fraud or had actual knowledge of fraud committed by the Company at the time such fraud occurred or was committed.

 

(h)           If the Merger is consummated, Acquirer (on behalf of itself or any other Indemnified Person) shall be entitled to collect Indemnifiable Damages with respect to Tax liabilities reflected in the calculation of Company Net Working Capital only to the extent that the amount of such Indemnifiable Damages exceeds such Tax liabilities as reflected in the Company Closing Financial Certificate.

 

  

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(i)            In no event shall the Effective Time Holders be responsible for Indemnifiable Damages with respect to the matters reflected in clause (xii) of the first sentence of Section 8.2 in excess of $50,000 in the aggregate.

 

8.4           Period for Claims Against Escrow Funds.  Except with respect to Fundamental Matters, Select Matters and Tax Matters, the period during which claims for Indemnifiable Damages may be made (the “Claims Period”) against the General Escrow Fund and/or Special Escrow Fund for Indemnifiable Damages shall commence at the Closing and terminate at 11:59 p.m. California time on the date that is twelve (12) months after the Closing Date (the “Escrow Period”).  The Claims Period for Indemnifiable Damages arising out of, resulting from or in connection with Fundamental Matters and Tax Matters shall commence at the Closing and terminate upon the expiration of the applicable statute of limitations with respect to such matter.  The Claims Period for Indemnifiable Damages arising out of, resulting from or in connection with Select Matters shall commence at the Closing and terminate upon the two (2) year anniversary of the Closing Date.  The availability of the Escrow Funds to indemnify the Indemnified Persons will be determined without regard to any right to indemnification which any Effective Time Holder may have in his or her capacity as an officer, director, employee, or agent of the Company or any of the Subsidiaries and no such Effective Time Holder will be entitled to any indemnification from the Company or the Final Surviving LLC for amounts paid for indemnification under this Article 8.

 

8.5           Claims.

 

(a)           With respect to claims for Indemnifiable Damages against the Escrow Funds, on or before the last day of the applicable Claims Period, Acquirer may deliver to the Effective Time Holders’ Agent a certificate signed by any officer of Acquirer (an “Claim Certificate”):

 

(i)          stating that an Indemnified Person has incurred, paid, reserved or accrued, or that it reasonably believes it will incur, pay, reserve or accrue, Indemnifiable Damages;

 

(ii)         stating the amount of such Indemnifiable Damages (which, in the case of Indemnifiable Damages not yet incurred, paid, reserved or accrued, may be the maximum amount reasonably believed by Acquirer to be incurred, paid, reserved, accrued or demanded by a third party); and

 

(iii)        specifying in reasonable detail (based upon the information then possessed by Acquirer) the individual items of such Indemnifiable Damages included in the amount so stated and the nature of the claim to which such Indemnifiable Damages are related.

 

(iv)        if applicable, the portion of the amount of Indemnifiable Damages for which Acquirer seeks recovery from the General Escrow Fund and the portion of the amount of Indemnifiable Damages for which Acquirer seeks recovery from the Special Escrow Funds; and

 

(v)         the applicable Claim Stock Value determined in accordance with the terms of the Merger Agreement.

 

No delay in providing such Claim Certificate within the applicable Claims Period shall affect an Indemnified Person’s rights hereunder, unless (and then only to the extent that) the Effective Time Holders’ Agent or the Effective Time Holders are materially prejudiced thereby.  At the time of delivery of any Claim Certificate to the Effective Time Holders’ Agent, if such delivery is on or before the Escrow Release Date, a duplicate copy of such Claim Certificate shall be delivered to the Escrow Agent by or on behalf of Acquirer (on behalf of itself or any other Indemnified Person).  

 

  

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8.6           Resolution of Objections to Claims.

 

(a)           If the Effective Time Holders’ Agent does not contest, by written notice to Acquirer, any claim or claims by Acquirer made in any Claim Certificate within twenty (20) Business Days after any such Claim Certificate is received by the Effective Time Holders’ Agent, then the Effective Time Holders’ Agent will be conclusively deemed to have consented, on behalf of all Effective Time Holders, to the recovery by the Indemnified Person of the full amount of Indemnifiable Damages specified in the Claim Certificate, including the forfeiture of such amount from the Escrow Funds (subject to the terms and conditions set forth in Section 8.3 above) having a value sufficient to satisfy such Indemnifiable Damages and, without further notice, to have stipulated to the entry of a final judgment for Indemnifiable Damages against the Effective Time Holders for such amount in any court having jurisdiction over the matter where venue is proper.

 

(b)           If the Effective Time Holders’ Agent objects in writing to any claim or claims by Acquirer made in any Claim Certificate within such twenty (20) Business Day period, Acquirer and the Effective Time Holders’ Agent shall attempt in good faith for thirty (30) Business Days after Acquirer’s receipt of such written objection to resolve such objection.  If Acquirer and the Effective Time Holders’ Agent shall so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties.  The Escrow Agent shall be entitled to conclusively rely on any such memorandum and the Escrow Agent shall distribute such amount from the Escrow Funds in accordance with the terms of such memorandum.

 

(c)           If no such agreement can be reached during the thirty (30) Business Day period for good faith negotiation, but in any event upon the expiration of such thirty (30) Business Day period, either Acquirer or the Effective Time Holders’ Agent may proceed in accordance with the terms set forth in Section 9.9 of this Agreement to resolve the matter.  The decision of the J.A.M.S. arbitrator as to the validity and amount of any claim in such Claim Certificate shall be nonappealable, binding and conclusive upon the parties to this Agreement and the Escrow Agent shall be entitled to conclusively rely and to act in accordance with such decision and the Escrow Agent shall distribute such amount from the Escrow Funds in accordance therewith.

 

(d)          Judgment upon any award rendered by the trial court may be entered in any court having jurisdiction.  For purposes of this Section 8.6(d), in any suit hereunder in which any claim or the amount thereof stated in the Claim Certificate is at issue, Acquirer shall be deemed to be the non-prevailing party unless the trial court awards Acquirer more than one-half of the amount in dispute, in which case the Effective Time Holders shall be deemed to be the non-prevailing party.  The non-prevailing party to a suit shall pay its own expenses and the expenses and the fees and expenses of the prevailing party, including attorneys’ fees and costs, reasonably incurred in connection with such suit.

 

8.7           Effective Time Holders’ Agent.

 

(a)           At the Closing, Fortis Advisors LLC, a Delaware limited liability company, shall be constituted and appointed as the Effective Time Holders’ Agent.  For purposes of this Agreement, the term “Effective Time Holders’ Agent” shall mean the agent for and on behalf of the Effective Time Holders to: (i) execute, as Effective Time Holders’ Agent, this Agreement and any agreement or instrument entered into or delivered in connection with the transactions contemplated hereby; (ii) give and receive notices, instructions, and communications permitted or required under this Agreement, or any other agreement, document or instrument entered into or executed in connection herewith, for and on behalf of any Effective Time Holder, to or from Acquirer (on behalf of itself or any other Indemnified Person) relating to this Agreement or any of the transactions and other matters contemplated hereby or thereby (except to the extent that this Agreement expressly contemplates that any such notice or communication shall be given or received by each Company Securityholder individually and not by the Effective Time Holders’ Agent);

 

  

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(ii) review, negotiate and agree to and authorize deliveries to Acquirer of cash from the Escrow Fund in satisfaction of claims asserted by Acquirer (on behalf of itself or any other Indemnified Person, including by not objecting to such claims) pursuant to this Article 8; (iii) object to such claims pursuant to Section 8.5; (iv) consent or agree to, negotiate, enter into, or, if applicable, contest, prosecute or defend, settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to, such claims, resolve any such claims, take any actions in connection with the resolution of any dispute relating hereto or to the transactions contemplated hereby by arbitration, settlement or otherwise, and take or forego any or all actions permitted or required of any Effective Time Holder or necessary in the judgment of the Effective Time Holders’ Agent for the accomplishment of the foregoing and all of the other terms, conditions and limitations of this Agreement; (v) consult with legal counsel, independent public accountants and other experts selected by it, solely at the cost and expense of the Effective Time Holders; (vi) consent or agree to any amendment to this Agreement or to waive any terms and conditions of this Agreement providing rights or benefits to the Effective Time Holders (other than with respect to the issuance of the Common Qualified Total Consideration and Common Non-Qualified Total Consideration less the Escrow Fund) in accordance with the terms hereof and in the manner provided herein; (vii) negotiate matters concerning 2012 Revenue, the 2012 Revenue Earnout Amount and the 2013 Revenue Earnout Amount and the calculation thereof with Acquirer; (viii) review and determine 2012 Revenue, the 2012 Revenue Earnout Amount and the 2013 Revenue Earnout Amount and cooperate and work with Acquirer regarding such review and determination; (ix) enter into agreements, settlements and compromises regarding the calculation and determination of 2012 Revenue, the 2012 Revenue Earnout Amount and the 2013 Revenue Earnout Amount; and (x) take all actions necessary or appropriate in the judgment of the Effective Time Holders’ Agent for the accomplishment of the foregoing, in each case without having to seek or obtain the consent of any Person under any circumstance.  Effective Time Holders’ Agent Effective Time HoldersEffective Time HoldersEffective Time Holder  Acquirer, Merger Subs and their respective Affiliates (including without limitation, after the Closing Date, the Final Surviving LLC) shall be entitled to rely on the appointment of Fortis Advisors LLC, a Delaware limited liability company, as the Effective Time Holders’ Agent and treat such Effective Time Holders’ Agent as the duly appointed attorney-in-fact of each Effective Time Holder and has having the duties, power and authority provided for in this Section 8.7.  The Effective Time Holders shall be bound by all actions taken and documents executed by the Effective Time Holders’ Agent in connection with this Article 8, and Acquirer and other Indemnified Persons shall be entitled to rely exclusively on any action or decision of the Effective Time Holders’ Agent.

 

(b)           The Effective Time Holders’ Agent shall not be liable to any Company Securityholder for any act done or omitted hereunder as the Effective Time Holders’ Agent while acting in good faith (and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith) and without gross negligence or willful misconduct.  In addition, certain Company Securityholders (the “Advisory Group”) have concurrently herewith entered into a letter agreement with the Effective Time Holders’ Agent providing, among other things, that the Advisory Group shall have the authority to direct the Effective Time Holders’ Agent on matters of material interest to the Effective Time Holders.  The Effective Time Holders acknowledge the authority of the Advisory Group and agree that the Advisory Group shall not be liable to the Effective Time Holders for any liability incurred by the members of the Advisory Group while acting in good faith and arising out of or in connection with the exercise of their authority (it being understood that any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith), even if such act or omission constitutes negligence on the part of the Advisory Group or one of its members.  Without limiting the generality of the foregoing, the Effective Time Holders’ Agent (i) shall not be subject to any implied duties, and (ii) shall not be required to take any action that, in the opinion of its counsel, reasonably could be expected to expose the Effective Time Holders’ Agent to liability or that is contrary to law.

 

  

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All expenses of Effective Time Holders’ Agent in excess of amounts available to the Effective Time Holders’ Agent to cover Effective Time Holders’ Agent Expenses (as defined below) shall be borne by the Effective Time Holders.  The Effective Time Holders shall severally indemnify the Effective Time Holders’ Agent and hold it harmless against any loss, liability or expense incurred without gross negligence, willful misconduct or bad faith on the part of the Effective Time Holders’ Agent and arising out of or in connection with the acceptance or administration of his duties hereunder, including all reasonable out-of-pocket costs and expenses and legal fees and other legal costs reasonably incurred by the Effective Time Holders’ Agent (collectively, the “Effective Time Holders’ Agent Expenses”).  At the Effective Time, Acquirer will deposit $400,000 with the Escrow Agent (the “Agent Expense Amount”) and to be governed by the provisions set forth herein and in the Escrow Agreement.  The Agent Expense Amount will be available to indemnify the Effective Time Holders’ Agent against any liability, loss, damage, penalty, fine, cost or expense incurred by the Effective Time Holders’ Agent without gross negligence or bad faith on the part of the Effective Time Holders’ Agent and arising out of or in connection with the acceptance or administration of his duties under this Agreement.  For tax purposes the parties shall treat the Agent Expense Amount as having been received by the Effective Time Holders at the Effective Time.  To the extent such Effective Time Holders are employees or former employees of the Company for which employment tax withholding is required for their portion of the Total Consideration, Acquirer shall be entitled at the Effective Time to withhold such amounts as if Acquirer had directly paid the Agent Expense Amount to the relevant recipient, and shall satisfy its tax reporting requirements in accordance with such treatment, provided that, in order to ensure that the full Agent Expense Amount has been deposited without reduction, Acquirer (with the concurrence of the Effective Time Holders’ Agent) is entitled to reduce such other payments to these recipients made under this Agreement by the proper amount of withholding in respect of the Agent Expense Amount attributable to such recipient.  The Effective Time Holders shall be treated as the owners of the Agent Expense Amount and shall report any income earned on the Agent Expense Amount.

 

(c)           The Effective Time Holders’ Agent will be entitled to recover Effective Time Holders’ Agent Expenses from the Escrow Agent out of the Agent Expense Amount, without the requirement of any consent or approval by Acquirer, upon delivery to the Escrow Agent, from time to time, of an itemized list of expenses incurred by the Effective Time Holders’ Agent in connection with the Effective Time Holders’ Agent duties under this Agreement.  The Escrow Agent shall reimburse the Effective Time Holders’ Agent for Effective Time Holders’ Agent Expenses, upon the request of the Effective Time Holders’ Agent, from the Agent Expense Amount or from any interest accruing on the Agent Expense Amount or from any Escrow Funds available for distribution to the Effective Time Holders at the time such amounts, if any, otherwise would be distributed to the Effective Time Holders after the Escrow Release Date (and after final resolution of any pending but unresolved claims for indemnification that are not awarded to Acquirer upon the resolution of such claims in accordance with this Article 8) (collectively, the “Agent Expense Funds”).  In addition to reimbursement for Agent Effective Time Holders’ Agent Expenses then incurred to date, the Effective Time Holders’ Agent may request that the Escrow Agent reserve from time to time out of the Agent Expense Funds an amount reasonably calculated by the Effective Time Holders’ Agent to cover reasonably anticipated Effective Time Holders’ Agent Expenses.  The Agent Expense Funds shall not be available to Acquirer to cover Indemnifiable Damages and no portion of the Agent Expense Amount shall constitute part of the Escrow Funds.  Any interest on the Agent Expense Amount shall, subject to this Section 8.5, be paid to the Effective Time Holders as provided for in Sections 1.9 and 8.1(b).

 

  

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(d)           Any notice or communication given or received by, and any decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of, the Effective Time Holders’ Agent that is within the scope of the Effective Time Holders’ Agent’s authority under Section 8.7(a) shall constitute a notice or communication to or by, or a decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of all the Effective Time Holders and shall be final, binding and conclusive upon each such Effective Time Holder; and each Indemnified Person shall be entitled to rely exclusively upon any such notice, communication, decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction as being a notice or communication to or by, or a decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of, each and every such Effective  Time Holder. Acquirer, the other Indemnified Persons are hereby relieved from any Liability to any Person for any acts done by them in accordance with such notice, communication, decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of the Effective Time Holders’ Agent.  All of the indemnification obligations of the Effective Time Holders under this Section 8.7 shall survive the termination of this Agreement or the Escrow Agreement.

 

8.8           Third-Party Claims.  In the event Acquirer becomes aware of a third-party claim which Acquirer in good faith believes may result in a claim for indemnification under this Article 8 by or on behalf of an Indemnified Person, Acquirer shall have the right to conduct the defense of and to settle or resolve any such claim (and the costs and expenses incurred by Acquirer in connection with such defense, settlement or resolution (including reasonable attorneys’ fees, other professionals’ and experts’ fees and court or arbitration costs) shall be included in the Indemnifiable Damages for which Acquirer may seek indemnification pursuant to a claim made hereunder).  The Effective Time Holders’ Agent shall have the right to receive copies of all pleadings, notices and communications with respect to the third-party claim to the extent that receipt of such documents does not affect any privilege relating to any Indemnified Person and shall be entitled, at its expense, to participate in, but not to determine or conduct, any defense of the third-party claim or settlement negotiations with respect to the third-party claim.  However, except with the consent of the Effective Time Holders’ Agent, which consent shall not be unreasonably withheld, conditioned or delayed and which shall be deemed to have been given unless the Effective Time Holders’ Agent shall have objected within fifteen (15) Business Days after a written request for such consent by Acquirer, no settlement or resolution by Acquirer of any claim that gives rise to a claim against the Escrow Fund by or on behalf of an Indemnified Person shall be determinative of the existence of or amount of Indemnifiable Damages relating to such matter.  In the event that the Effective Time Holders’ Agent has consented to any such settlement or resolution, neither the Effective Time Holders’ Agent nor any Effective Time Holder shall have any power or authority to object under Section 8.5 or any other provision of this Article 8 to the amount of any claim by or on behalf of any Indemnified Person against the Escrow Fund or otherwise for indemnity with respect to such settlement or resolution.

 

8.9           Exclusive Remedy.  The parties hereto acknowledge and agree that, in the event that the Closing occurs, the remedies provided for in this Article 8 shall be the Indemnified Persons’ sole and exclusive remedy for any breach of the representations and warranties or covenants contained in this Agreement or any claims relating to this Agreement or any other document, certificate or agreement delivered pursuant hereto, except in connection with (a) pursuing remedies under applicable Legal Requirements for fraud or intentional misrepresentation, (b) any noncompete agreement, nonsolicitation or employment agreement contemplated by this Agreement, or (c) bringing an action for specific performance or other equitable relief.

 

ARTICLE 9

General Provisions

 

9.1           Survival of Representations and Warranties and Covenants.  If the Merger is consummated, the representations and warranties of the Company contained in this Agreement, the Company Disclosure Letter (including any exhibit or schedule to the Company Disclosure Letter), and the other certificates contemplated hereby shall survive the Closing and remain in full force and effect, regardless of any investigation or disclosure made by or on behalf of any of the parties to this Agreement, until 11:59 p.m.

 

  

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 California time on the date that is twelve (12) months after the Closing Date, or (a) in the case of the Fundamental Representations and Warranties or Tax Matters, until the expiration of the applicable statute of limitations with respect to such Fundamental Representations and Warranties and Tax Matters and (b) in the case of the Select Matters, until the two (2) year anniversary of the Closing Date; provided, however, that no right to indemnification pursuant to Article 8 in respect of any claim based upon an inaccuracy or breach of a representation or warranty that is set forth in an Claim Certificate delivered to the Effective Time Holders’ Agent prior to the applicable expiration date of such representation or warranty shall be affected by the expiration of such representation or warranty; and provided, further, that such expiration shall not affect the rights of any Indemnified Person under Article 8 or otherwise to seek recovery of Indemnifiable Damages arising out of any fraud by the Company or any Subsidiary until the expiration of the applicable statute of limitations.  The representations, warranties and covenants of Acquirer contained in this Agreement and the other agreements, certificates and documents contemplated hereby shall survive the Closing and remain in full force and effect, regardless of any investigation or disclosure made by or on behalf of any of the parties to this Agreement, until 11:59 p.m. California time on the date that is twelve (12) months after the Closing Date; provided, however, that any covenants of the Acquirer or its subsidiaries that require performance beyond such expiration date shall continue to survive.  If the Merger is consummated, all covenants of the parties (including the covenants set forth in Article 4 and Article 5) shall expire and be of no further force or effect as of the Closing, except to the extent such covenants provide that they are to be performed after the Closing.

 

9.2           Notices.  All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with confirmation of receipt) to the parties hereto at the following address (or at such other address for a party as shall be specified by like notice):

 

(i)           if to Acquirer or Sub, to:

 

	 	
ShoreTel, Inc.

	 
	 	960 Stewart Dr.	 
	 	Sunnyvale, CA 94085	 
	 	Attention:  General Counsel	 
	 	Facsimile No.:  (408) 331-3333	 
	 	Telephone No.:  (408) 331-3300	 
	 	 	 
	 	with a copy (which shall not constitute notice) to:	 
	 	 	 
	 	Fenwick & West LLP	 
	 	Silicon Valley Center	 
	 	801 California Street	 
	 	Mountain View, CA 94041	 
	 	Attention: Jeffrey R. Vetter, Esq.	 
	 	Kris S. Withrow, Esq.	 
	 	Facsimile No.: (650) 938-5200	 
	 	
Telephone No.: (650) 988-8500

	 

      

  

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(ii)          if to the Company, to:

 

	 	
M5 Networks, Inc.

	 
	 	
245 West 17th Street, 9th Floor

	 
	 	New York, NY 10011-5383	 
	 	Attention:  Daniel Hoffman	 
	 	Facsimile No.:  (646) 230-5001	 
	 	Telephone No.: (646) 230-5000	 
	 	 	 
	 	with a copy (which shall not constitute notice) to:	 
	 	 	 
	 	Goodwin Procter LLP	 
	 	The New York Times Building	 
	 	620 Eighth Avenue	 
	 	New York, NY 10018	 
	 	Attention:  Stephen M. Davis	 
	 	Facsimile:   (212) 355-3333	 
	 	Telephone:  (212) 813-8804	 
	 	E-mail:  sdavis@goodwinprocter.com	 

 

(iii)         If to the Effective Time Holders’ Agent, to:

 

	 	
Fortis Advisors LLC

	 
	 	
4225 Executive Square, Suite 1040

	 
	 	
La Jolla, CA 92037

	 
	 	
Attention:  Notice Department

	 
	 	
Facsimile No.:  (858) 408-1843

	 
	 	
Telephone No.:  (858) 227-9210

	 

 

9.3           Interpretation.  When a reference is made in this Agreement to Articles, Sections or Exhibits, such reference shall be to an Article or Section of, or an Exhibit to this Agreement unless otherwise indicated.  The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.  The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.”  The phrases “provided to,” “furnished to,” and phrases of similar import when used herein, unless the context otherwise requires, shall mean that a true, correct and complete paper copy of the information or material referred to has been provided to the party to whom such information or material is to be provided.  Unless the context of this Agreement otherwise requires: (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; and (iii) the terms “hereof,” “herein,” “hereunder” and derivative or similar words refer to this entire Agreement.

 

9.4           Counterparts.  This Agreement may be executed in one 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 hereto and delivered to the other parties hereto; it being understood that all parties hereto need not sign the same counterpart.

 

9.5           Entire Agreement; Nonassignability; Parties in Interest.  This Agreement and the documents and instruments and other agreements specifically referred to herein or delivered pursuant hereto, including all the exhibits attached hereto, the Schedules, including the Company Disclosure Letter, (a) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties hereto with respect to the subject matter hereof, except for the Confidentiality Agreement, which shall continue in full force and effect, and shall survive any termination of this Agreement, in accordance with its terms, (b) are not intended to confer, and shall not be construed as conferring, upon any Person other than the parties hereto any rights or remedies hereunder (except that Article 8 is intended to benefit Indemnified Persons) and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided herein.

 

  

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9.6           Assignment.  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 of the parties hereto without the prior written consent of the other parties hereto, and any such assignment without such prior written consent shall be null and void, except that Acquirer may, without the prior written consent of the other parties hereto, assign this Agreement to any direct or indirect wholly owned subsidiary of Acquirer or in connection with any merger, consolidation or sale of all or a significant portion of its assets or in connection with any similar transaction.  Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and assigns.  Any assignment in violation of this Section 9.6 will be void.

 

9.7           Severability.  In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement shall continue in full force and effect and shall be interpreted so as reasonably necessary to effect the intent of the parties hereto.  The parties hereto shall use all reasonable efforts to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that shall achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision.

 

9.8           Remedies Cumulative.  Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party hereto shall be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party hereto of any one remedy shall not preclude the exercise of any other remedy and nothing in this Agreement shall be deemed a waiver by any party of any right to specific performance or injunctive relief.  It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they are entitled at law or in equity, and the parties hereby waive the requirement of any posting of a bond in connection with the remedies described herein.

 

9.9           Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law.  Any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, shall be determined by arbitration in Santa Clara County, California before one arbitrator. The arbitration shall be administered by J.A.M.S./ENDISPUTE or its successor (“J.A.M.S.”) pursuant to J.A.M.S.’ Streamlined Arbitration Rules and Procedures. Judgment on the Award may be entered in any court having jurisdiction. This clause shall not preclude parties from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction.  The parties agree that any dispute and arbitration shall be governed by the United States Arbitration Act, 9 U.S.C., Section 1 et seq.  Either Acquirer or the Effective Time Holders’ Agent may commence the arbitration process called for by this Agreement by filing a written demand for arbitration with J.A.M.S. and giving a copy of such demand to each of the other parties to this Agreement.  The single arbitrator shall be mutually agreed on by Acquirer and the Effective Time Holders’ Agent and selected from J.A.M.S.’s panel of neutrals.  If the parties cannot mutually agree within thirty (30) days of the filing of an arbitration demand, the parties agree that an arbitrator may be appointed in accord with the applicable J.A.M.S. rules and procedures then in place relating to the appointment of an arbitrator by J.A.M.S.  The parties will cooperate with J.A.M.S. and with each other in promptly selecting the arbitrator from J.A.M.S.’s panel of neutrals, and in scheduling the arbitration proceedings in order to fulfill the provisions, purposes and intent of this Agreement.

 

  

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  The parties covenant that they will participate in the arbitration in good faith, and that the parties to the arbitration will bear the expense of deposits and advances required by the arbitrator in equal proportions.  The provisions of this Section 9.9 may be enforced by any court of competent jurisdiction, and the party seeking enforcement will be entitled to an award of all costs, fees and expenses, including attorneys’ fees, to be paid by the party against whom enforcement is ordered.  Judgment upon the award rendered by the arbitrator may be entered in any court having competent jurisdiction.  If for any reason J.A.M.S. or its successor no longer is in business, then the arbitration shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association.  Upon the conclusion of any arbitration proceedings hereunder, the arbitrator will render findings of fact and conclusions of law and a final written arbitration award setting forth the basis and reasons for any decision reached (the “Final Award”) and will promptly deliver such documents to Escrow Agent, the Effective Time Holders’ Agent and Acquirer, together with a copy of the Final Award signed by the arbitrator.

 

9.10         WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEROF.

 

9.11         Rules of Construction.  The parties hereto have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, hereby waive, with respect to this Agreement, each Schedule and each Exhibit attached hereto, the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document shall be construed against the party drafting such agreement or document.

 

[Signature Page(s) Follow]

 

  

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IN WITNESS WHEREOF, Acquirer, Sub I, Sub II, the Company, and the Effective Time Holders’ Agent have caused this Agreement to be executed and delivered, all as of the date first written above.

 

 

	 	
Shortel, Inc.

	 	 
	 	 
	
 

	
By: 

	 
	 	Name:	 
	 	Title:	 

 

 

	 	

Mets Acquisition CORP

	 	 
	 	 
	
 

	
By: 

	 
	 	Name:	 
	 	Title:

 

 

	 	

Mets Acquisition II LLC

	 	 
	 	 
	
 

	
By: 

	 
	 	Name:	 
	 	Title:

 

 

	 	

M5 Networks, Inc.

	 	 
	 	 
	
 

	
By: 

	 
	 	Name:	 
	 	Title:

 

	 	

Fortis Advisors LLC

	 	 
	 	 
	
 

	
By: 

	 
	 	Name:	 
	 	Title:

                                                 

  

  

  

EXHIBIT A

DEFINITIONS

 

As used in this Agreement, the following terms shall have the meanings indicated below.  Unless indicated otherwise, all mathematical calculations contemplated hereby shall be rounded to the tenth decimal place.

 

All references to dollar amounts or figures used in this Agreement means such dollar amount or such figure in terms of U.S. dollars.

 

“2012 Revenue” shall mean the revenue of the Business Unit recognized by Acquirer during the Earnout Measurement Period in accordance with GAAP.

 

 “2012 Revenue Earnout Amount” means (i) $0.00 in the event that the 2012 Revenue is less than or equal to $55,899,999.99, (ii) $2,000,000 in the event that the 2012 Revenue is equal to or greater than $55,900,000.00 and less than or equal to $55,909,999.99, (iii) $4,000,000 in the event that the 2012 Revenue is equal to or greater than $55,910,000.00 and less than or equal to $57,209,999.99, (iv) $6,000,000 in the event that the 2012 Revenue is equal to or greater than $57,210,000.00 and less than or equal to $59,999,999.99, and (v) $10,000,000 in the event that the 2012 Revenue is greater than or equal to $60,000,000.00.  For the avoidance of doubt, the amounts set forth in (i) through (v) above shall not be additive.

 

“2013 Revenue Earnout Amount” means (i) $0.00 in the event that the 2012 Revenue is less than or equal to $55,899,999.99, (ii) $737,500.00 in the event that the 2012 Revenue is equal to or greater than $55,900,000.00 and less than or equal to $55,909,999.99, (iii) $1,475,000.00 in the event that the 2012 Revenue is equal to or greater than $55,910,000.00 and less than or equal to $57,209,999.99, (iv) $2,212,500.00 in the event that the 2012 Revenue is equal to or greater than $57,210,000.00 and less than or equal to $59,999,999.99, and (v) $3,687,500.00 in the event that the 2012 Revenue is greater than or equal to $60,000,000.00.  For the avoidance of doubt, the amounts set forth in (i) through (v) above shall not be additive to other items of the 2013 Revenue Earnout Amount but shall be additive to the applicable 2012 Revenue Earnout Amount.

 

“accredited investor” shall have the meaning set forth in Rule 501(a) of Regulation D promulgated under the Securities Act.

 

“Acquirer Business” means the business of the Acquirer and its subsidiaries as currently conducted and as currently proposed to be conducted by the Acquirer or any of its subsidiaries.

 

“Acquirer Common Stock” means the Common Stock, par value $0.001 per share, of Acquirer.

 

“Acquirer Stock Value” means $6.55 per share of Acquirer Common Stock.

 

“Affiliate” has the meaning set forth in Rule 144 promulgated under the Securities Act.

 

“Aggregate Company Option Exercise Prices” means the aggregate exercise prices of all vested Company Options that remain outstanding as of immediately prior to the Effective Time (for the avoidance of doubt, excluding Company Options net exercised, if any).

 

  

i

  

 

“Aggregate Company Warrant Exercise Prices” means the aggregate exercise prices of all Company Warrants that remain outstanding as of immediately prior to the Effective Time (for the avoidance of doubt, excluding Company Warrants net exercised, if any).

 

“Business” means the business of the Company and its Subsidiaries as currently conducted and as currently proposed to be conducted by the Company or any of its Subsidiaries.

 

“Business Day” means a day, other than Saturday or Sunday, on which commercial banks are open for business in San Francisco, California.

 

“Business Unit” shall mean the Final Surviving LLC.

“Claim Stock Value” means the average of the closing prices of Acquirer Common Stock as quoted on the NASDAQ Stock Market for the twenty (20) consecutive trading days ending with the date of the Claim Certificate.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Common Amount Per Share” means the quotient obtained by dividing (i) the Total Adjusted Purchase Price, by (ii) the Fully-Diluted Company Common Stock.

 

“Common Non-Qualified Amount Per Share” means the quotient obtained by dividing (i) the Common Non-Qualified Total Consideration by (ii) the Fully-Diluted Company Non-Qualified Common Stock.

 

“Common Non-Qualified Closing Amount Per Share” means (i) the Common Non-Qualified Amount Per Share minus (ii) the Common Non-Qualified General Escrow Amount Per Share minus (iii) the Common Non-Qualified Special Escrow Amount Per Share.

 

“Common Non-Qualified General Escrow Amount Per Share” means the product obtained by multiplying (i) the General Escrow Percentage by (ii) the Common Non-Qualified Amount Per Share.

 

“Common Non-Qualified Special Escrow Amount Per Share” means the product obtained by multiplying (i) the Special Escrow Percentage by (ii) the Common Non-Qualified Amount Per Share.

 

“Common Non-Qualified Total Consideration” means (i) the Total Adjusted Cash Consideration, minus (ii) the Common Qualified Total Cash Consideration.

 

“Common Qualified Cash Amount Per Share” means (i) the Common Amount Per Share, minus (ii) the product obtained by multiplying (X) the Common Qualified Stock Amount Per Share by (Y) the Acquirer Stock Value.

 

“Common Qualified Closing Cash Amount Per Share” means (i) the Common Qualified Cash Amount Per Share minus (ii) the Common Qualified General Escrow Cash Amount Per Share minus (iii) the Common Qualified Special Escrow Cash Amount Per Share.

 

“Common Qualified Closing Stock Amount Per Share” means (i) the Common Qualified Stock Amount Per Share minus (ii) the Common Qualified General Escrow Stock Amount Per Share minus (iii) the Common Qualified Special Escrow Stock Amount Per Share.

 

  

ii

  

 

“Common Qualified General Escrow Cash Amount Per Share” means the product obtained by multiplying (i) the General Escrow Percentage by (ii) the Common Qualified Cash Amount Per Share.

 

“Common Qualified General Escrow Stock Amount Per Share” means the product obtained by multiplying (i) the General Escrow Percentage by (ii) the Common Qualified Stock Amount Per Share.

 

“Common Qualified Special Escrow Cash Amount Per Share” means the product obtained by multiplying (i) the Special Escrow Percentage by (ii) the Common Qualified Cash Amount Per Share.

 

“Common Qualified Special Escrow Stock Amount Per Share” means the product obtained by multiplying (i) the Special Escrow Percentage by (ii) the Common Qualified Stock Amount Per Share.

 

“Common Qualified Stock Amount Per Share” means the quotient obtained by dividing (i) the Total Stock Consideration, by (ii) the Fully-Diluted Company Qualified Common Stock.

 

“Common Qualified Total Cash Consideration” means the product obtained by multiplying (i) the Fully-Diluted Company Qualified Common Stock by (ii) the Common Qualified Cash Amount Per Share.

 

“Company Bonus Expenses” means all short and long term liabilities of the Company to directors, employees and/or consultants for cash payments that are payable by the Company or its successors or assigns in connection with the First Merger or otherwise outside the ordinary course of business consistent with past practice, including without limitation any bonus, severance, notice pay or other payments due upon consummation of the First Merger or upon termination of employment or service or any other event, before, upon or following the First Merger.

 

“Company Bonus Plan” means a bonus plan established by the Company and approved by the Company Stockholders to pay certain Company Securityholders and employees at the Closing, subject to Section 5.30 hereof.

 

“Company Bonus Plan Amount” means the aggregate amount, if any, payable under the Company Bonus Plan, which amount shall not exceed $2,900,000 in the aggregate.

 

“Company Capital Leases Liability” means short and long term liabilities for all capitalized leases of the Company or any of its Subsidiaries as of the Closing Date; provided, however, that, notwithstanding anything to the contrary herein, “Company Capital Leases Liability” shall not include any equipment leases of the Company and any of its Subsidiaries.

 

“Company Capital Leases Liability Adjustment Amount” means the amount, if any, by which the Company Capital Leases Liability is greater than $3,000,000 as of the Closing Date.

 

“Company Capital Stock” means the capital stock of the Company.

 

  

iii

  

 

“Company Closing Financial Certificate” means a certificate (which certificate shall be accompanied by such supporting documentation, information and calculations as are necessary for Acquirer to verify and determine the amounts of items (i) through (iv) below) executed by the Chief Executive Officer and Chief Financial Officer of the Company dated as of the Closing Date, certifying (i) the amount of Company Net Working Capital (including (A) the Company’s balance sheet as of the Closing Date prepared on a consistent basis with the Company Balance Sheet (as defined in Section 2.4(b)), (B) an itemized list of each element of the Company’s consolidated current assets (as defined in the definition of Company Net Working Capital), and (C) an itemized list of each element of the Company’s consolidated total current and long term liabilities (as defined in the definition of Company Net Working Capital)); (ii) the Transaction Expenses that remain unpaid as of the Closing; (iii) the amount of Company Debt (including a list of each Company Debt item with a description of the nature of such Company Debt, the Person to whom such Company Debt is owed and details of any prepayment or termination penalty under the terms of the Contracts governing such Company Debt that remains outstanding and unpaid as of the Closing Date); (iv) Company Bonus Expenses that remain unpaid as of the Closing, (v) the Company Capital Leases Liability Adjustment Amount, if any, and (vi) the Company Capital Leases Liability Adjustment Amount, if any.

 

“Company Common Stock” means the Common Stock of the Company, par value of $0.0001 per share.

 

“Company Debt” means, without duplication, (i) all obligations and liabilities of Company or any of its Subsidiaries for borrowed money; (ii) all obligations and liabilities of Company or any of its Subsidiaries evidenced by bonds, debentures, notes or similar instruments; (c) all obligations of others for borrowed money secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Encumbrance on property owned or acquired by Company, whether or not the obligation secured thereby has been assumed by Company or any of its Subsidiaries; (d) all guarantees by Company or any of its Subsidiaries of obligations of others for borrowed money; (e) all obligations and liabilities, contingent or otherwise, of the Company or any of its Subsidiaries as an account party in respect of letters of credit and letters of guaranty; and (f) all obligations and liabilities, contingent or otherwise, related to any equipment leases of the Company or any of its Subsidiaries; provided however, that Company Capital Leases shall not constitute Company Debt.

 

“Company Net Working Capital” means (i) the Company’s consolidated total current assets as of the Closing Date (as defined by and determined in accordance with GAAP) less (ii) the Company’s consolidated total current and long term liabilities as of the Closing Date (as defined by and determined in accordance with GAAP).  For purposes of calculating Company Net Working Capital, (X) the Company’s current and long term liabilities (1) shall exclude Company Debt, Company Bonus Expenses, Transaction Expenses, any Company Capital Leases Liability and any Company Past Acquisition Contingent Liability, and (2) shall include all liabilities for Taxes as of the Closing Date (including but not limited to sales, income, property, telecommunications and transaction-related Taxes such as the employer portion of payroll Taxes or other withholding obligations (such as social security and Medicare Taxes) with respect to payments made or to be made in connection with the cash-out or exercise of Company Options or for Company Bonus Expenses), whether or not such liabilities for Taxes would be then due and payable and whether or not they would be treated as a current liability under GAAP,  and (Y) the Company’s current assets (1) shall not include any deferred Tax assets and (2) shall exclude accounts receivable that are outstanding for more than ninety (90) days or that are otherwise doubtful.

 

“Company Non-Qualified Stockholder” means a Company Stockholder other than a Company Qualified Stockholder.

 

“Company Option Plans” means each stock option plan, program or arrangement of the Company, collectively, including the Company’s 2001 Equity Incentive Plan and the Company’s 2010 Stock Option and Grant Plan.

 

  

iv

  

 

“Company Options” means options to purchase shares of Company Common Stock.

 

“Company Optionholders” means the holders of Company Options.

 

“Company Past Acquisition Liability” means Liabilities for purchase price consideration (including earnouts or deferred stock or cash payments) due and owing by the Company relating to the acquisition of Callfinity, Inc. and/or Geckotech, Inc.

 

“Company Past Acquisition Liability Adjustment Amount” means the amount, if any, by which the Company Past Acquisition Liability is greater than $5,060,000.

 

“Company Preferred Stock” means the Company Series A Preferred Stock, the Company Series B Preferred Stock, and the Company Series C Preferred Stock.

 

“Company Qualified Stockholder” means each (a) Company Key Stockholder and (b) of Company Stockholders set forth set forth on Exhibit C-3 hereto, each of whom (i) will hold, as of immediately prior to the Effective Time, 30,000 or more shares of Company Common Stock (which, for the avoidance of doubt, (x) includes each share of Company Common Stock deemed to have been issued upon conversation of all shares of Company Preferred Stock and (y) excludes any shares of Company Capital Stock subject to Company Options and/or Company Warrants except to the extent that such Company Options and/or Company Warrants have been affirmatively exercised prior to or as of immediately prior to the Effective Time), and (ii) shall, have executed and delivered an Investment Representation Letter and Lock-Up Agreement in substantially the form attached hereto as Exhibit C-2 by no later than three (3) days prior to the Closing, have the right to receive the cash and shares of Acquirer Common Stock payable and issuable, respectively, to the Company Qualified Stockholders pursuant to Section 1.8(ii) in exchange for such shares of Company Common Stock held by such Company Stockholder as of immediately prior to the Effective Time, subject to the terms and conditions of this Agreement.

 

“Company Rights” means all stock appreciation rights, options, warrants, restricted stock, calls, rights, commitments, conversion privileges or preemptive or other rights or agreements outstanding to purchase or otherwise acquire any shares of Company Capital Stock or any securities or debt convertible into or exchangeable for shares of Company Capital Stock or obligating Company to grant, extend or enter into any such option, warrant, call, right, commitment, conversion privilege or preemptive or other right or agreement.

 

“Company Securities” means Company Series A Preferred Stock, Company Series B Preferred Stock, Company Series C Preferred Stock, Company Common Stock, Company Warrants and Company Options.

 

“Company Securityholders” means the Company Stockholders, the Company Optionholders and Company Warrantholders.

 

“Company Series A Preferred Stock” means the Series A Convertible Preferred Stock, par value $0.0001 per share, of the Company.

 

“Company Series B Preferred Stock” means the Series B Convertible Preferred Stock, par value $0.0001 per share, of the Company.

 

“Company Series C Preferred Stock” means the Series C Convertible Preferred Stock, par value $0.0001 per share, of the Company.

 

  

v

  

 

“Company Stockholders” means the record holders of issued and outstanding shares of Company Capital Stock.

 

“Company Warrant Termination Agreement” means an agreement, in form and substance reasonably satisfactory to Acquirer, providing (a) for the cancellation of the Company Warrants as contemplated by Section 1.8(a)(v) and (b) that, from and after the Effective Time, each holder such Company Warrant shall cease to have any rights (other than the rights to receive the consideration described in Section 1.8(a)(v), subject to the terms and conditions of this Agreement) with respect thereto or the shares of Company Capital Stock issuable thereunder prior to or as of the Effective Time.

 

“Company Warrants” means any warrants to purchase shares of Company Capital Stock.

 

“Company Warrantholders” means the record holders of issued and outstanding Company Warrants.

 

“Continuing Employees” means the employees of the Company as set forth on Exhibit D hereto and the Offered Employees who execute the Employment Documents and remain employees of the First Step Surviving Corporation or its Subsidiaries following the Effective Time, of the Final Surviving LLC following the Second Effective Time or of the Acquirer as of the Effective Time.

 

“Contract” means any written or oral legally binding contract, agreement, instrument, commitment or undertaking of any nature (including leases, licenses, mortgages, notes, guarantees, sublicenses, subcontracts, letters of intent and purchase orders).

 

“Delaware Law” means the General Corporation Law of the State of Delaware or the Delaware Limited Liability Company Act, as applicable.

 

“Dissenting Shares” means any shares of Company Capital Stock that are outstanding immediately prior to the Effective Time that have not been voted for approval of this Agreement and with respect to which dissenters’ rights or appraisal rights are properly asserted in accordance with Delaware Law in connection with the Merger.

 

“Earnout Measurement Period” means the period beginning on and including January 1, 2012 and ending on and including December 31, 2012, provided however, that if the Closing occurs on or after April 1, 2012, then the Earnout Measurement Period shall mean the period beginning on April 1, 2012 and ending on and including March 31, 2013.

 

“Earnout Payment” shall refer to any payment made to the Effective Time Holders in accordance with Section 5.20 above (the aggregate of such payments being referred to as the “Earnout Payments”).

“Effective Time Holder” means a Company Stockholder, Company Optionholder or Company Warrantholder as of immediately prior to the Effective Time (other than a holder of solely shares of Company Capital Stock which constitute and remain Dissenting Shares).

 

“Encumbrance” means, with respect to any asset, any mortgage, deed of trust, lien, pledge, charge, security interest, title retention device, conditional sale or other security arrangement, collateral assignment, claim, charge, adverse claim of title, ownership or right to use, restriction or other encumbrance of any kind in respect of such asset (including any restriction on (i) the voting of any security or the transfer of any security or other asset, (ii) the receipt of any income derived from any asset, (iii) the use of any asset, and (iv) the possession, exercise or transfer of any other attribute of ownership of any asset).

 

  

vi

  

 

“Escrow Cash” means the General Escrow Cash and the Special Escrow Cash, collectively.

 

“Escrow Shares” means the General Escrow Shares and the Special Escrow Shares, collectively.

 

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

 

“Fully-Diluted Company Common Stock” means the sum, without duplication, of the aggregate number of shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time, or issuable upon the conversion of Company Series A Preferred Stock, Company Series B Preferred Stock, Company Series C Preferred Stock or the exercise of Company Options, Company Warrants or other Company Rights that are issued and outstanding immediately prior to the Effective Time.

 

“Fully-Diluted Company Qualified Common Stock” means the sum, without duplication, of the aggregate number of shares of Company Common Stock that are (i) issued and outstanding immediately prior to the Effective Time, or issuable upon the conversion of Company Series A Preferred Stock, Company Series B Preferred Stock, Company Series C Preferred Stock or the exercise of Company Options, Company Warrants or other Company Rights that are issued and outstanding immediately prior to the Effective Time and (ii) held by Company Qualified Stockholders.

 

“Fully-Diluted Company Non-Qualified Common Stock” means the sum, without duplication, of the aggregate number of shares of Company Common Stock that are (i) issued and outstanding immediately prior to the Effective Time, or issuable upon the conversion of Company Series A Preferred Stock, Company Series B Preferred Stock, Company Series C Preferred Stock or the exercise of Company Options, Company Warrants or other Company Rights that are issued and outstanding immediately prior to the Effective Time and (ii) held by Company Non-Qualified Stockholders.

 

“GAAP” means United States generally accepted accounting principles that are applicable to the circumstances of the date of determination, consistently applied.

 

“General Escrow Cash” means an amount of cash equal to the product obtained by multiplying (i) the General Escrow Percentage by (ii) the Total Adjusted Cash Consideration.

 

“General Escrow Fund” means the General Escrow Cash and the General Escrow Shares, collectively.

 

“General Escrow Percentage” means fifteen percent (15%).

 

“General Escrow Shares” means an aggregate number of shares of Acquirer Common Stock (rounded up to the nearest whole share) equal to the product obtained by multiplying (i) the General Escrow Percentage by (ii) the Total Stock Consideration.

 

“Governmental Entity” means any supranational, national, state, municipal, local or foreign government, any court, tribunal, arbitrator, administrative agency, commission or other governmental official, authority or instrumentality, in each case whether domestic or foreign, any stock exchange or similar self-regulatory organization or any quasi-governmental or private body exercising any regulatory, Taxing or other governmental or quasi-governmental authority (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or entity and any court or other tribunal).

 

  

vii

  

 

“Indemnified Person,” or “Indemnified Persons” has the meaning set forth in Section 8.2 hereto.

 

“knowledge” means, with respect to any fact, circumstance, event or other matter in question, the knowledge of such fact, circumstance, event or other matter after reasonable inquiry of (i) an individual, if used in reference to an individual or (ii) with respect to the Company, the officers and directors of the Company, referred to herein as the “Company Representatives.”  Any such individual or Company Representative will be deemed to have knowledge of a particular fact, circumstance, event or other matter if such knowledge could be obtained from reasonable inquiry of the persons employed by such Person charged with administrative or operational responsibility for such matters for such Person.

 

“Legal Requirements” means any national, federal, state, foreign, local, municipal or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity and any orders, writs, injunctions, awards, judgments and decrees applicable to the Company or any Subsidiary or to any of their respective assets, properties or businesses.

 

“Liabilities” means all outstanding debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, determined or determinable, asserted or unasserted, known or unknown, including those arising under any law, action or governmental order and those arising under any Contract, regardless of whether such debt, liability or obligation would be required to be disclosed on a balance sheet prepared in accordance with GAAP.

 

“made available,” “delivered,” “provided” and words or similar meaning or import shall mean, with respect to any statement in Article 2 of this Agreement to the effect that any information, document or other material has been “made available,” “delivered” or “provided” to Acquirer or its representatives, that such information, document, or material was (a) made available for review (on a continuous basis and without subsequent modification) by Acquirer or its representatives in the virtual data room found at www.intralinks.com at least two (2) Business Days prior to the Agreement Date or (b) actually delivered (whether by physical or electronic delivery) upon request to Acquirer or its representatives at least two (2) Business Days prior to the Agreement Date.

 

“Material Adverse Effect” with respect to any entity means any change, event, violation, inaccuracy, circumstance or effect (each, an “Effect”) that, individually or taken together with all other Effects, and regardless of whether or not such Effect constitutes a breach of the representations or warranties made by such entity in this Agreement, is, or would reasonably likely to, be or become materially adverse in relation to the condition (financial or otherwise), business, operations, assets (including intangible assets), liabilities, or results of operations of such entity and its subsidiaries, taken as a whole, or (ii) materially impede or delay such entity’s ability to consummate the transactions contemplated by this Agreement in accordance with its terms and applicable Legal Requirement, except to the extent that any such Effect directly results from:  (A) changes in general economic conditions (provided that such changes do not affect such entity disproportionately as compared to such entity’s competitors); (B) changes affecting the industry generally in which such entity operates (provided that such changes do not affect such entity disproportionately as compared to such entity’s competitors); (C) changes in applicable laws or accounting rules, including GAAP after the Agreement Date (provided that such changes do not affect such entity disproportionately as compared to such entity’s competitors); (D) the effect of any change arising in connection with earthquakes, hostilities, acts of war, sabotage or terrorism or military actions or any escalation or material worsening of any such hostilities, acts of war, sabotage, or terrorism or military actions existing or underway as of the date hereof, (E) any action taken at the written request of the Parent or a Merger Sub, or (F) any failure of the Company to meet any projection or forecast prior to the Closing.

 

  

viii

  

 

“Offered Employees” means the employees of the Company and its Subsidiaries other than the Named Executives and Key Employees that Acquirer has made a written offer of employment at least five (5) Business Days prior to the Closing.

 

“Option Cash-Out Closing Amount Per Share” means, for any Company Option, (i) the Common Non-Qualified Amount Per Share minus (ii) the exercise price per share of Company Common Stock subject to such Cash-Out Option minus (iii) the Option Cash-Out General Escrow Amount Per Share minus (ii) the Option Cash-Out Special Escrow Amount Per Share.

 

“Option Cash-Out General Escrow Amount Per Share” means, for any Company Option, the product obtained by multiplying (i) the General Escrow Percentage by (ii) the Common Non-Qualified Amount Per Share.

 

“Option Cash-Out Special Escrow Amount Per Share” means, for any Company Option, the product obtained by multiplying (i) the Special Escrow Percentage by (ii) the Common Non-Qualified Amount Per Share.

 

“Permitted Encumbrances” means:  (i) statutory liens for Taxes that are not yet due and payable or liens for Taxes being contested in good faith by any appropriate proceedings for which adequate reserves have been established; (ii) statutory liens to secure obligations to landlords, lessors or renters under leases or rental agreements; (iii) deposits or pledges made in connection with, or to secure payment of, workers’ compensation, unemployment insurance or similar programs mandated by applicable law; and (iv) statutory liens in favor of carriers, warehousemen, mechanics and materialmen, to secure claims for labor, materials or supplies and other like liens.

 

“Person” means any natural person, company, corporation, limited liability company, general partnership, limited partnership, limited liability partnership, trust, estate, proprietorship, joint venture, business organization or Governmental Entity.

 

“Pre-Closing Period” means any taxable year or period that ends on or before the Closing Date and, with respect to any Straddle Period, the portion of such Straddle Period ending on and including the Closing Date.

 

“Pro Rata Share” means with respect to each Effective Time Holder, the total consideration such Effective Time Holder is entitled to receive as of the Effective Time pursuant to Section 1.8(a) with respect to the Company Securities held by such Effective Time Holder (including any Escrow Cash and Escrow Shares such Effective Time Holder has a right to receive but excluding any Dissenting Shares) relative to the total consideration all Effective Time Holders are entitled to receive as of the Effective Time pursuant to Section 1.8(a) with respect to their Company Securities (including the Escrow Cash and Escrow Shares but excluding any Dissenting Shares).  For purposes of this definition of “Pro Rata Share,” each share of Acquirer Common Stock shall be deemed to have a value equal to the Acquirer Stock Value (as adjusted to appropriately reflect any stock split, reverse stock split, stock dividend, reorganization, reclassification, combination, recapitalization or other like change with respect to Acquirer Common Stock occurring after the Effective Time).

 

  

ix

  

 

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

 

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

 

“Special Escrow Fund” means the Special Escrow Cash and the Special Escrow Shares, collectively.

 

“Special Escrow Cash” means an amount of cash equal to the product obtained by multiplying (i) the Special Escrow Percentage by (ii) the Total Adjusted Cash Consideration.

 

“Special Escrow Percentage” means five percent (5%).

 

“Special Escrow Shares” means an aggregate number of shares of Acquirer Common Stock (rounded up to the nearest whole share) equal to the product obtained by multiplying (i) the Special Escrow Percentage by (ii) the Total Stock Consideration.

 

“Spreadsheet” means a spreadsheet, in form acceptable to Acquirer and the Exchange Agent, which Spreadsheet will be dated as of the Closing Date and will set forth, as of the Closing Date and immediately prior to the Effective Time (in addition to the other required data and information specified therein):  (i) the name and address of each Company Stockholder, each Company Optionholder and each Company Warrantholder; (ii) the number of shares of Company Common Stock held by such Company Stockholder and the respective stock certificate numbers, the number of Company Options held by Company Optionholder and the number of Company Warrants held by such Company Warrantholder; (iii) the amount of cash payable to each Company Securityholder pursuant to Sections 1.8(a)(ii)-(v); (iv) the amount of cash and the number of shares of Acquirer Common Stock to be placed in the Escrow Fund on behalf of each Effective Time Holder; (v) each Effective Time Holder’s Pro Rata Share; and (vi) the calculation of the aggregate consideration under the Mergers, Total Stock Consideration, Total Adjusted Cash Consideration, Common Qualified Closing Cash Amount Per Share, Common Qualified Closing Stock Amount Per Share, Common Qualified General Escrow Cash Amount Per Share, Common Qualified Special Escrow Cash Amount Per Share, Common Qualified General Escrow Stock Amount Per Share, Common Qualified Special Escrow Stock Amount Per Share, Common Non-Qualified Closing Amount Per Share, Common Non-Qualified General Escrow Amount Per Share and Common Non-Qualified Special Escrow Amount Per Share.

 

“Straddle Period” means any taxable year or period that begins on or before and ends after the Closing Date.

 

“Subsidiary” means any corporation, partnership, limited liability company or other Person of which the Company, either alone or together with one or more Subsidiaries or by one or more other Subsidiaries (i) directly or indirectly owns or purports to own, beneficially or of record securities or other interests representing more than 50% of the outstanding equity, voting power, or financial interests of such Person, or (ii) is entitled, by Contract or otherwise, to elect, appoint or designate directors constituting a majority of the members of such Person’s board of directors or other governing body.

 

“Tax” (and, with correlative meaning, “Taxes” and “Taxable”) means any net income, alternative or add-on minimum tax, gross income, estimated, gross receipts, sales, use, ad valorem, value added, transfer, franchise, fringe benefit, capital stock, profits, license, registration, withholding, payroll, social security (or equivalent), employment, unemployment, disability, excise, telecommunications or utility excise, federal or state regulatory fee and assessment, 911 or E911 fee, severance, stamp, occupation, premium, property (real, tangible or intangible), Code Section 59A environmental or windfall profit tax, custom duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount (whether disputed or not) imposed by any Governmental Entity responsible for the imposition of any such tax (domestic or foreign) (each, a “Tax Authority”), (ii) any Liability for the payment of any amounts of the type described in clause (i) of this sentence as a result of being a member of an affiliated, consolidated, combined, unitary or aggregate group for any Taxable period, and (iii) any Liability for the payment of any amounts of the type described in clause (i) or (ii) of this sentence as a result of being a transferee of or successor to any Person or as a result of any express or implied obligation to assume such Taxes or to indemnify any other Person.

 

  

x

  

 

“Tax Return” means any return, statement, report or form (including estimated Tax returns and reports, withholding Tax returns and reports, any schedule or attachment, and information returns and reports) required to be filed with respect to Taxes.

 

“Total Adjusted Cash Consideration” means the Total Initial Cash Consideration less (i) all Transaction Expenses that remain unpaid as of immediately prior to the Effective Time, less (ii) all Company Debt that remains unpaid as of immediately prior to the Effective Time, less (iii) all Company Bonus Expenses that remain unpaid as of immediately prior to the Effective Time, less (iv) the Capital Leases Adjustment Amount, if any, less (v) the Company Past Acquisition Liability Adjustment Amount, if any, less (vi) the amount, if any, by which the Company Net Working Capital is negative (i.e., less than $0), less (vii) the Agent Expense Amount, less (viii) the Geckotech Payment (if the Geckotech Amendment is entered into prior to the Closing as contemplated by Section 5.21(b)), less (ix) the Company Bonus Plan Amount, plus (x) the Aggregate Company Option Exercise Prices, plus (xi) the Aggregate Company Warrant Exercise Prices.

 

“Total Adjusted Purchase Price” means the sum of (i) the product obtained by multiplying (A) the Total Stock Consideration by (B) the Acquirer Stock Value, and (ii) the Total Adjusted Cash Consideration.

 

“Total Initial Cash Consideration” means cash in an aggregate amount equal to $84,087,500.

 

 “Total Stock Consideration” means 9,500,000 shares of Acquirer Common Stock.

 

“Transaction Expenses” means all third party fees, costs, expenses, payments and expenditures incurred by Company with respect to this Agreement, the Mergers and the transactions contemplated hereby, whether or not billed or accrued, including the expenses and fees of Company’s own accountants, attorneys, investment bankers and other professionals, and any such fees, costs, expenses, payment and expenditures incurred by any Company Securityholders or Company’s employees, directors, officers, consultants and/or advisors paid for or to be paid for by the Company; provided, however, that HSR Expenses shall not be considered Transaction Expenses hereunder.

 

“Warrant Cash-Out Closing Amount Per Share” means, for any Company Warrant, (i) the Common Non-Qualified Amount Per Share minus (ii) the exercise price per share of Company Capital Stock subject to such Cash-Out Warrant minus (iii) the Warrant Cash-Out General Escrow Amount Per Share minus (ii) the Warrant Cash-Out Special Escrow Amount Per Share.

 

“Warrant Cash-Out General Escrow Amount Per Share” means, for any Company Warrant, the product obtained by multiplying (i) the General Escrow Percentage by (ii) the Common Non-Qualified Amount Per Share.

 

  

xi

  

 

“Warrant Cash-Out Special Escrow Amount Per Share” means, for any Company Warrant, the product obtained by multiplying (i) the Special Escrow Percentage by (ii) the Common Non-Qualified Amount Per Share.

 

Other capitalized terms defined elsewhere in this Agreement and not defined in this Exhibit A shall have the meanings assigned to such terms in this Agreement.

[Exhibits B-1, B-2, B-3, C-1, C-2, C-3, D, E, F-1, F-2,

G, H, I-1, I-2, I-3, J-1, J-2 and K have been omitted]

 

 

 xiiCYTOMEDIX,
inc.

 

CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS

OF

SERIES E CONVERTIBLE PREFERRED STOCK

 

PURSUANT
TO SECTION 151 OF THE Delaware GENERAL CORPORATION LAW

 

The undersigned, Martin
Rosendale and Andrew Maslan, do hereby certify that:

 

1. They are the Chief Executive
Officer and Secretary, respectively, of Cytomedix, Inc., a Delaware corporation (the “Corporation”).

 

2. The Corporation is authorized
to issue 15,000,000 shares of preferred stock, par value $0.0001 per share, of which 166,747 shares are issued and outstanding
as of the date hereof.

 

3. The following resolutions
were duly adopted by the Board of Directors of the Corporation (the “Board”):

 

WHEREAS, the Certificate
of Incorporation of the Corporation, as amended to date, provides for a class of its authorized stock known as preferred stock,
consisting of 15,000,000 shares, $0.0001 par value per share, issuable from time to time in one or more series;

 

WHEREAS, the Board
is authorized to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation
preferences of any wholly unissued series of preferred stock and the number of shares constituting any series and the designation
thereof, of any of them; and

 

WHEREAS, it is the
desire of the Board, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating
to a series of the preferred stock, which shall consist of up to 250,000 shares of the preferred stock which the Corporation has
the authority to issue, as follows:

 

NOW, THEREFORE, BE IT
RESOLVED, that the Board does hereby provide for the issuance of a series of preferred stock for cash or exchange of other
securities, rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters relating
to such series of preferred stock as follows:

 

TERMS OF PREFERRED STOCK

 

Section
1.         Definitions.
For the purposes hereof, the following terms shall have the following meanings:

 

“Business
Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or
any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to
close.

 

“Closing”
means the closing of the purchase and sale of the Securities as defined in the Exchange Agreement.

 

“Closing
Date” means the Trading Day on which all of the transaction documents have been executed and delivered by the applicable
parties thereto and all conditions precedent to (i) each Holder’s obligations to pay the Exchange Amount and (ii) the Corporation’s
obligations to deliver the Securities have been satisfied or waived.

 

    	1

    	 

    

 

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

 

“Common
Stock” means the Corporation’s common stock, par value $0.0001 per share, and stock of any other class of securities
into which such securities may hereafter be reclassified or changed.

 

“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Exchange
Agreement” means Exchange and Purchase Agreement among Cytomedix, Inc., Aldagen, Inc., Aldagen, Holdings, LLC and the
stockholders of Aldagen, Inc. named therein dated on or about February 8, 2012.

 

“GAAP”
means United States generally accepted accounting principles.

 

“Liquidation”
shall have the meaning set forth in Section 5.

 

“Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Preferred
Stock” shall have the meaning set forth in Section 2.

 

“Securities”
means the Preferred Stock and shares of Common Stock underlying the Preferred Stock.

 

“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Stated
Value” shall have the meaning set forth in Section 2.

 

“Purchase
Amount” shall mean, as to each Holder, the aggregate amount to be paid for the Preferred Stock purchased pursuant to
the Exchange Agreement as specified below such Holder’s name on the signature page of the Exchange Agreement .

 

“Trading
Day” means a day on which the principal Trading Market is open for business.

 

“Trading
Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the NYSE AMEX, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing).

 

“Transaction
Documents” means this Certificate of Designation, the Exchange Agreement, all exhibits and schedules thereto and hereto
and any other documents or agreements executed in connection with the transactions contemplated pursuant to the Exchange Agreement.

 

“Transfer
Agent” means the current transfer agent of the Corporation, and any successor transfer agent of the Corporation.

 

    	2

    	 

    

 

Section
2.         Designation,
Amount and Par Value. The series of preferred stock shall be designated as its Series E Convertible Preferred Stock (the “Preferred
Stock”) and the number of shares so designated shall be up to 250,000. Each share of Preferred Stock shall have a par
value of $0.0001 per share and a stated value equal to $100.00.

 

Section
3.         Dividends.
The Preferred Stock shall be entitled to dividends, when, as and if declared by the Board, but only out of funds that are legally
available therefor. Such dividends may be paid (to the extent permissible under the Delaware Law) to the Preferred Stock holders
in cash, or, as available, in non-cash distributions in whatever form as may be determined by the Board.

 

Section
4.         Voting
Rights. So long as the Preferred Stock is outstanding, each share of the Preferred Stock shall entitle the holder thereof to
vote on all matters voted on by holders of the Common Stock of the Corporation voting together, on an as converted basis, as a
single class with the other shares entitled to vote, at all meetings of the stockholders of the Corporation. With respect to any
such vote, each share of the Preferred Stock shall entitle the holder thereof to cast the number of votes equal to the number of
votes which could be cast in such vote by a holder of One Hundred (100) shares of Common Stock of the Corporation.

 

Section
5.         Liquidation.
Upon any dissolution, liquidation and winding up of the Corporation, except as otherwise may be specifically required under the
Delaware Law, the Preferred Stock shall be entitled to the same liquidation rights as those of the Common Stock shares. 

 

Section 6.          Conversion.
Each share of the Preferred Stock will automatically convert into shares of Common Stock upon the Automatic Conversion set forth
below, at the Conversion Rate defined below.

 

(a)   Automatic
Conversion. Following the occurrence of a Conversion Event as that term is defined below, each share of the Preferred Stock
outstanding shall be converted automatically (a “Conversion”), without any further requirement of notice or any other
action on the part of the Corporation, any holder of the Preferred Stock or any other Person, into One Hundred (100) shares of
Common Stock (the “Conversion Rate,” as may be adjusted from time to time, as provided elsewhere in this document).
The Corporation’s filing of its Certificate of Amendment to the Certificate of Incorporation, as amended to date, with the
Secretary of State of the State of Delaware to increase the Corporation’s authorized capital stock from 115,000,000 to 175,000,000
shares and the Corporation’s authorized Common Stock from 100,000,000 to 160,000,000 shares shall constitute a “Conversion
Event” and the date of such filing shall constitute a “Conversion Date”.

 

(b)   Mechanics
of Conversion. Upon the conversion of the Preferred Stock as contemplated hereunder, the holders of the Preferred Stock shall:

 

(i)          complete
and manually sign the conversion notice provided by the conversion agent designated by the Corporation, or provide a facsimile
of the conversion notice and deliver this irrevocable notice to the conversion agent;

 

(ii)         if
required, furnish appropriate endorsements and transfer documents;

 

(iii)        if
required, pay all transfer or similar taxes, stamps or funds therefor, or provide evidence of payment thereof; and,

 

(iv)        comply
with all other applicable procedures for converting Preferred Stock into shares of Common Stock.

 

    	3

    	 

    

 

The Automatic Conversion
of any outstanding shares of the Preferred Stock shall be deemed to have occurred upon the Conversion Date and the Persons entitled
to receive shares of Common Stock issuable upon Automatic Conversion shall be treated for all purposes as the record holders of
such shares of Common Stock at and from the Conversion Date; provided, however, that the Corporation may defer the payment
of any dividend or other distribution with respect to such Common Stock until such deliveries have been made.

 

(c)   Taxes.
Upon the conversion of the Preferred Stock, the Corporation shall pay any documentary, stamp or similar issue or transfer tax due
on the issuance of the Common Stock upon conversion, but the holder shall pay to the Corporation the amount of any tax that is
due (or shall establish to the satisfaction of the Corporation payment thereof) if the shares are to be issued in a name other
than the name of such holder.

 

(d)   Fractional
Shares. The Corporation shall not issue any fraction of a share of Common Stock upon any conversion. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of the Preferred Stock by a holder thereof shall
be aggregated for purposes of determining whether the conversion would result in the issuance of a fraction of a share of Common
Stock. If, after the aforementioned aggregation, the issuance would result in the issuance of a fraction of a share of Common Stock,
the Corporation shall round such fraction of a share of Common Stock up to the nearest whole share.

 

(e)   Adjustments.
The Conversion Rate shall be subject to adjustment from time to time as follows:

 

1. Adjustments for Stock
Splits, Stock Dividends, Etc. If the Corporation (1) pays a dividend in shares of the Common Stock to holders of the Common
Stock, (2) makes distributions in shares of Common Stock to holders of the Common Stock, (3) subdivides the outstanding shares
of Common Stock into a greater number of shares of Common Stock, (4) combines the outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or (5) takes action resulting in a similar effect upon the Common Stock, then, and in every such
case, the Conversion Rate in effect immediately prior to such action shall be adjusted to equal the Conversion Rate in effect immediately
prior to such action multiplied by a fraction, the numerator of which is the number of issued and outstanding shares of Common
Stock immediately following such action and the denominator of which is the number of issued and outstanding shares of Common Stock
immediately prior to such action. An adjustment made pursuant to this Section shall become effective on the record date in the
case of a dividend or distribution and on the effective date in the case of a subdivision or combination.

 

2. Adjustments for Other
Distributions. If the Corporation distributes pro rata to all holders of the Common Stock shares of any class of capital stock
(excluding the Common Stock), or options, rights or warrants to acquire any class of capital stock (including the Common Stock),
or cash or other assets of the Corporation (excluding capital stock of the Corporation held in its treasury), then, and in any
such case, the holder of each share of the Preferred Stock shall be entitled to receive, at the time such distribution is made,
the capital stock, options, rights, warrants, cash or other assets so distributed as if such holder had owned the number of shares
of Common Stock that such holder would have owned at the time of such distribution if the Conversion Date had occurred immediately
prior to the record date for such distribution. Such adjustment shall become effective on the record date for determination of
the holders of Common Stock entitled to receive the distribution.

 

(f)          Computations.
All calculations under this Section shall be made to the nearest 1/100,000th of a share.

 

    	4

    	 

    

 

(g)          Notices.
Any notice required by the provisions of this Section shall be in writing and shall be deemed effectively given (i) upon personal
delivery to the party to be notified, (ii) when sent be telex, e-mail or facsimile if sent during normal business hours of the
recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return
receipt requested, postage pre-paid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All notices shall be addressed to each holder of record at the address
of such holder appearing on the books of the Corporation.

 

Section 7.          Miscellaneous.

 

a)         Notices.
Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation,
any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight
courier service, addressed to the Corporation, at the address set forth above Attention: Andrew Maslan, CFO, facsimile number
240-499-2690, or such other facsimile number or address as the Corporation may specify for such purposes by notice to the Holders
delivered in accordance with this Section 7. Any and all notices or other communications or deliveries to be provided by the Corporation
hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service
addressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Corporation, or if no
such facsimile number or address appears on the books of the Corporation, at the principal place of business of such Holder, as
set forth in the Exchange Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number
set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section on a day that is not
a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date
of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given.

 

b)         Absolute
Obligation. Except as expressly provided herein, no provision of this Certificate of Designation shall alter or impair the
obligation of the Corporation, which is absolute and unconditional, to pay liquidated damages, accrued dividends and accrued interest,
as applicable, on the shares of Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.

 

c)         Lost
or Mutilated Preferred Stock Certificate. If a Holder’s Preferred Stock certificate shall be mutilated, lost, stolen
or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated
certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of
Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of
such certificate, and of the ownership hereof reasonably satisfactory to the Corporation.

 

d)         Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designation
shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to
the principles of conflict of laws thereof.

 

e)         Waiver.
Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as
or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate
of Designation or a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to
any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or
any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of
Designation on any other occasion. Any waiver by the Corporation or a Holder must be in writing.

 

    	5

    	 

    

 

f)         Severability.
If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation
shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable
to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates
the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum
rate of interest permitted under applicable law.

 

g)         Next
Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.

 

h)         Headings.
The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not
be deemed to limit or affect any of the provisions hereof.

 

i)         Vote
to Change the Terms of the Preferred Stock. Following the issuance of any shares of the Preferred Stock, the affirmative vote
at a meeting duly called for such purpose or the written consent without a meeting, of the holders of not less than two-thirds
(2⁄3) of the then outstanding shares of the Preferred Stock, shall be required for any change to this Certificate of Designation
or the Corporation’s Certificate of Incorporation, as amended and restated, which would amend, alter, change or repeal any
of the powers, designations, preferences and rights of the Preferred Stock.

 

j)         Status
of Converted Preferred Stock. Shares of Preferred Stock may only be issued pursuant to the Exchange Agreement. If any shares
of Preferred Stock are converted, such shares shall resume the status of authorized but unissued shares of preferred stock and
shall no longer be designated as Series E Convertible Preferred Stock.

 

*********************

 

    	6

    	 

    

 

RESOLVED, FURTHER, that
the Chairman, the president or any vice-president, and the secretary or any assistant secretary, of the Corporation be and they
hereby are authorized and directed to prepare and file this Certificate of Designation of Preferences, Rights and Limitations in
accordance with the foregoing resolution and the provisions of Delaware law.

 

IN WITNESS WHEREOF, the
undersigned have executed this Certificate this 8th day of February, 2012.

 

	/s/ Martin Rosendale	 	/s/ Andrew Maslan	 
	Name:  Martin Rosendale	 	Name:  Andrew Maslan	 
	Title:  Chief Executive Officer	 	Title:  Chief Financial Officer, Secretary	 

 

    	7

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