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AGREEMENT AND PLAN OF MERGER

Agreement and Plan of Merger

AGREEMENT AND PLAN OF MERGER | Document Parties: COGNIZANT TECHNOLOGY SOLUTIONS CORP | COGNIZANT TECHNOLOGY CORPORATION | MARKETRX, INC You are currently viewing:
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COGNIZANT TECHNOLOGY SOLUTIONS CORP | COGNIZANT TECHNOLOGY CORPORATION | MARKETRX, INC

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Title: AGREEMENT AND PLAN OF MERGER
Governing Law: New Jersey     Date: 2/28/2008
Industry: Software and Programming     Law Firm: DLA Piper;Morgan Lewis     Sector: Technology

AGREEMENT AND PLAN OF MERGER, Parties: cognizant technology solutions corp , cognizant technology corporation , marketrx  inc
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Exhibit 10.21

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

by and among

COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION,

COGNIZANT TECHNOLOGY CORPORATION,

and

MARKETRX, INC.,

and

Jaswinder S. Chadha as the Stockholder Representative

Dated as of October 18, 2007

 


TABLE OF CONTENTS

 

         Page

ARTICLE I        THE MERGER

   2

1.1

 

The Merger

   2

1.2

 

Closing; Effective Time

   2

1.3

 

Effects of the Merger

   2

1.4

 

Further Assurances

   3

ARTICLE II        MERGER CONSIDERATION AND CONVERSION OF SECURITIES

   3

2.1

 

Merger Consideration

   3

2.2

 

Effect on Company Capital Stock

   5

2.3

 

Effect on Company Options and Series C Preferred Warrants

   6

2.4

 

Closing Payments

   7

2.5

 

Exchange Procedures and Payment of Merger Consideration

   9

2.6

 

Schedule of Merger Consideration

   11

2.7

 

Conversion of Buyer Subsidiary Capital Stock, Treasury Stock and Stock Owned by Buyer

   11

2.8

 

Dissenting Shares

   12

2.9

 

No Further Ownership Rights

   12

2.10

 

Lost Certificates

   12

2.11

 

No Further Transfer of Shares

   12

ARTICLE III        REPRESENTATIONS AND WARRANTIES OF THE COMPANY

   13

3.1

 

Organization, Qualification and Corporate Power

   13

3.2

 

Capitalization

   13

3.3

 

Authorization of Transaction

   15

3.4

 

Noncontravention

   16

3.5

 

Subsidiaries

   16

3.6

 

Financial Statements

   17

3.7

 

Absence of Certain Changes

   18

3.8

 

Undisclosed Liabilities

   18

3.9

 

Tax Matters

   18

3.10

 

Assets

   21

3.11

 

Owned Real Property

   21

 

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3.12

 

Real Property Leases

   21

3.13

 

Intellectual Property

   23

3.14

 

Contracts

   26

3.15

 

Accounts Receivable and Unbilled Receivables

   29

3.16

 

Powers of Attorney

   30

3.17

 

Insurance

   30

3.18

 

Litigation

   30

3.19

 

Warranties

   30

3.20

 

Employees

   31

3.21

 

Employee Benefits

   33

3.22

 

Environmental Matters

   35

3.23

 

Legal Compliance

   36

3.24

 

Customers and Suppliers

   36

3.25

 

Permits

   36

3.26

 

Certain Business Relationships With Affiliates

   37

3.27

 

Brokers’ Fees

   37

3.28

 

Books and Records

   37

3.29

 

Disclosure

   37

3.30

 

Backlog

   38

3.31

 

Absence of Certain Changes or Events

   38

3.32

 

Related Party Transactions

   40

3.33

 

No Illegal Payments

   40

3.34

 

Government Contracts

   40

3.35

 

Conditions Affecting the Company and the Subsidiaries

   40

3.36

 

Stockholder Approval

   40

ARTICLE IV        REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE BUYER SUBSIDIARY

   41

4.1

 

Organization and Corporate Power

   41

4.2

 

Authorization of Transaction

   41

4.3

 

Noncontravention

   41

4.4

 

Brokers’ Fees

   42

4.5

 

Litigation

   42

4.6

 

Payment of Merger Consideration

   42

 

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4.7

 

Buyer Subsidiary

   42

4.8

 

Disclosure

   42
ARTICLE V        COVENANTS    42

5.1

 

Closing Efforts

   42

5.2

 

Governmental and Third-Party Notices and Consents

   43

5.3

 

Stockholder Approval

   44

5.4

 

Operation of Business

   44

5.5

 

Negative Covenants

   45

5.6

 

Access to Information

   47

5.7

 

Notification of Certain Matters

   47

5.8

 

Exclusivity

   48

5.9

 

Expenses

   48

5.10

 

Employees

   48

5.11

 

Tax Matters

   48

5.12

 

Company Plans

   50

5.13

 

Employee Matters

   51

5.14

 

Severance, Other Arrangements and Prior Service

   51

ARTICLE VI        CONDITIONS TO CONSUMMATION OF MERGER

   52

6.1

 

Conditions to Each Party’s Obligations

   52

6.2

 

Conditions to Obligations of the Buyer and the Buyer Subsidiary

   52

6.3

 

Conditions to Obligations of the Company

   56

ARTICLE VII        INDEMNIFICATION

   57

7.1

 

Indemnification by the Indemnifying Stockholders

   57

7.2

 

Indemnification by the Buyer

   57

7.3

 

Indemnification Claims

   57

7.4

 

Survival of Representations and Warranties

   59

7.5

 

Limitations

   60

7.6

 

Stockholder Representative and Adoption of Provisions

   61

7.7

 

Tax Indemnification

   62

7.8

 

Procedures Relating to Indemnification of Tax Claims

   62

7.9

 

Tax Treatment of Indemnification Payments

   63

ARTICLE VIII        TERMINATION

   64

8.1

 

Termination of Agreement

   64

 

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8.2

 

Effect of Termination

   64

8.3

 

Remedies

   65
ARTICLE IX        DEFINITIONS    65

9.1

 

Definitions

   65

9.2

 

Other Defined Terms

   75
ARTICLE X        MISCELLANEOUS    76

10.1

 

Press Releases and Announcements

   76

10.2

 

No Third Party Beneficiaries

   76

10.3

 

Entire Agreement

   76

10.4

 

Succession and Assignment

   77

10.5

 

Counterparts and Facsimile Signature

   77

10.6

 

Headings

   77

10.7

 

Notices

   77

10.8

 

Governing Law

   78

10.9

 

Amendments and Waivers

   78

10.10

 

Severability

   79

10.11

 

Submission to Jurisdiction

   79

10.12

 

Construction

   79
Schedule A - Merger Consideration
Schedule B - Indebtedness
Exhibit A-1 - Certificate of Assistant Secretary of the Company
Exhibit A-2 Opinion of Counsel
Exhibit B - Form of Net Assets Statement
Exhibit C - Escrow Agreement
Exhibit D - Exchange Agreement
Exhibit E - Transmittal Letter
Exhibit F - Cancellation Acknowledgement
Exhibit G - Standard Proprietary Information Agreement
Exhibit H - Noncompetition Agreement

 

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (“ Agreement ”), dated as of October 18, 2007, is made by and among Cognizant Technology Solutions Corporation, a Delaware corporation (the “ Buyer ”), Cognizant Technology Corporation, a Delaware corporation and a wholly-owned subsidiary of the Buyer (the “ Buyer Subsidiary ”), marketRx, Inc., a Delaware corporation (the “ Company ”), and Jaswinder S. Chadha, solely in his capacity as representative of the Company Stockholders pursuant to the terms of this Agreement (the “ Stockholder Representative ”). Capitalized terms used in this Agreement are defined in ARTICLE IX or in the applicable Section of this Agreement to which reference is made in ARTICLE IX.

RECITALS :

WHEREAS, this Agreement contemplates a merger of the Buyer Subsidiary into the Company and in such merger, the Company Stockholders will receive cash in exchange for their capital stock of the Company;

WHEREAS, the respective Boards of Directors of the Buyer, the Buyer Subsidiary, the Company and the Subsidiaries deem it advisable and in the best interests of their respective stockholders to consummate the business combination provided for herein;

WHEREAS, the Board of Directors of the Company has recommended to the Company Stockholders the adoption of this Agreement;

WHEREAS, each of the Board of Directors of the Subsidiaries has recommended the adoption of this Agreement to the Company;

WHEREAS, the Buyer, as the sole stockholder of the Buyer Subsidiary, has adopted this Agreement; and

WHEREAS, immediately following the execution and delivery of this Agreement, certain of Company Stockholders, including WestBridge Ventures I, LLC, WestBridge Ventures II, LLC, WestBridge Ventures Co-Investment I, LLC, CBD Holdings, Richard S. Braddock, Incept LLC and the Key Management Stockholders, and each of their respective Affiliates (collectively, the “ Major Investors ”) are executing and adopting a stockholder consent approving this Agreement and the transactions set forth herein, including the Merger (the “ Stockholder Consent ”) and the Stockholder Consent shall constitute the Requisite Stockholder Approval; and

WHEREAS, immediately following the execution and delivery of this Agreement, the Buyer, as the sole stockholder of the Buyer Subsidiary, will execute and deliver to the Buyer Subsidiary an Action by Written Consent of Sole Stockholder, pursuant to which the Buyer will adopt this Agreement pursuant to and in accordance with the applicable provisions of Delaware Law and the Buyer Subsidiary’s Certificate of Incorporation and By-laws.

NOW, THEREFORE, in consideration of the foregoing premises and the respective representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the Buyer, the Buyer Subsidiary, the Stockholder Representative, the Company and each of the Subsidiaries agree as follows:

 


ARTICLE I

THE MERGER

1.1 The Merger . Subject to the terms and conditions of this Agreement and the Certificate of Merger in such form as is required by the relevant provisions of the Delaware General Corporation Law (the “ DGCL ”), at the Effective Time, the Buyer Subsidiary shall be merged with and into the Company and the separate corporate existence of the Buyer Subsidiary shall thereupon cease (the “ Merger ”). As a result of the Merger, the outstanding shares of capital stock of the Buyer Subsidiary and the Company shall be converted or canceled in the manner provided in ARTICLE II of this Agreement, the separate corporate existence of the Buyer Subsidiary shall cease and the Company shall be the surviving corporation following the Merger. The Company, as the surviving corporation following the Merger, is sometimes referred to herein as the “ Surviving Corporation ”.

1.2 Closing; Effective Time . The closing of the Merger (the “ Closing ”) shall take place at the offices of Morgan, Lewis & Bockius LLP, Princeton, New Jersey, at 10:00 a.m. on a date to be specified by the Parties, which shall be no later than two (2) Business Days after satisfaction (or waiver as provided herein) of the conditions set forth in ARTICLE IV (other than those conditions that by their nature will be satisfied at the Closing), unless another time, date and/or place is agreed to in writing by the Parties. The date upon which the Closing occurs is herein referred to as the “ Closing Date ”. Simultaneously with the Closing, the Company as the surviving corporation shall file the Certificate of Merger with the Secretary of State of the State of Delaware as is required by, and executed in accordance with, the relevant provisions of the DGCL. The Merger shall become effective, pursuant to the Certificate of Merger, at such time as the Certificate of Merger is so filed, which time is hereinafter referred to as the “ Effective Time ”.

1.3 Effects of the Merger .

(a) At and after the Effective Time, the Merger shall have the effects specified in the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all of the property, rights, privileges, powers, immunities, purposes and franchises of each of the Company, the Subsidiaries and the Buyer Subsidiary shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, disabilities and duties of each of the Company, the Subsidiaries and the Buyer Subsidiary shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation, all without act or deed.

(b) At the Effective Time, the Certificate of Incorporation of the Company shall be amended and restated in its entirety to be identical to the Certificate of Incorporation of the Buyer Subsidiary as in effect immediately prior to the Effective Time, except that Article I of the Certificate of Incorporation shall read: “The name of this corporation is marketRx, Inc.”. The Buyer may elect, in its sole discretion, to use a different name for the Surviving Corporation. As so amended and restated, the Certificate of Incorporation of the Company shall be the Certificate of Incorporation of the Surviving Corporation, until amended thereafter in accordance with applicable Law.

 

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(c) At the Effective Time, the by-laws of the Buyer Subsidiary as in effect immediately prior to the Effective Time shall be the by-laws of the Surviving Corporation until amended thereafter in accordance with applicable Law.

(d) At the Effective Time, each of the directors and officers of the Buyer Subsidiary immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, each to hold office until their respective death, permanent disability, resignation or removal or until his or her respective successor is duly elected and qualified, all in accordance with the Certificate of Incorporation and by-laws of the Surviving Corporation and applicable Law.

1.4 Further Assurances . If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments or similar instruments are necessary or proper to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its right, title and interest in, to or under any of the rights, privileges, powers, franchises, properties, assets, liabilities or other obligations of either of the Buyer Subsidiary, the Company, the Surviving Corporation and its proper officers and directors or their designees shall be authorized to execute and deliver, in the name and on behalf of either the Buyer Subsidiary or the Company, all such deeds, bills of sale, assignments and other similar instruments as may be necessary, desirable or proper to vest, perfect or confirm the Surviving Corporation’s right, title and interest in, to and under any of the rights, privileges, powers, franchises, properties, assets, liabilities or other obligations of either the Buyer Subsidiary or the Company.

ARTICLE II

MERGER CONSIDERATION AND CONVERSION OF SECURITIES

2.1 Merger Consideration .

(a) Estimated Net Assets . On or before the third Business Day prior to the Closing Date, the Company shall deliver to the Buyer a statement setting forth the Company’s good faith estimate of the Net Assets (“ Estimated Net Assets ”). The amount, if any, by which $5,778,000 exceeds the Estimated Net Assets is referred to herein as the “ Initial Deficiency ”, and the amount, if any, by which the Estimated Net Assets exceeds $5,778,000 is referred to herein as the “ Initial Surplus ”. On the Closing Date, if there is an Initial Deficiency, the Merger Consideration shall be reduced by the amount of the Initial Deficiency pursuant to Section 2.1(b). On the Closing Date, if there is an Initial Surplus, then such amount shall be subject to the final settlement of the Final Net Assets pursuant to Section 2.1(c).

(b) Genera l. Subject to the post closing adjustment set forth in Section 2.1(c) hereof, the aggregate amount to be paid by the Buyer on the Closing Date with respect to all of the outstanding shares of capital stock of the Company and any options or other rights to acquire any securities of the Company (including Common Stock, Preferred Stock and Vested Company Options) shall equal (such amount, the “ Merger Consideration ”) $135,000,000; provided , however , the amount actually payable to each Holder on the Closing Date is subject to reduction pursuant to (i) Section 2.1(a) with respect to an Initial Deficiency, (ii) Section 2.4(a)(i) with respect to the Indemnity Escrow Amount, (iii) Section 2.4(a)(ii) with respect to the Stockholder

 

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Representative Escrow Amount, (iv) the satisfaction of all outstanding Indebtedness as described in 2.4(b) below and as set forth on Schedule B ; (v) Section 2.5(g) with respect to the Merger Compensation Payments, (vi) Section 5.9 with respect to the Company’s costs and expenses (including legal and accounting fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby, and (vii) the terms of this Agreement. Pursuant to Section 2.6, the Merger Consideration shall be paid to each Company Stockholder as set forth on Schedule A , which Schedule A , the Parties acknowledge will be updated not more than two (2) Business Days prior to the Closing Date (hereafter, as so updated, “ Schedule A ”).

(c) Net Assets Adjustment . The Merger Consideration shall be subject to adjustment on a dollar for dollar basis as set forth in this Section 2.1(c).

(i) Net Assets Statement; Buyer’s Review . No later than seventy five (75) days following the Closing Date, the Buyer shall prepare and deliver to the Stockholder Representative (or its designee) the Net Assets Statement setting forth its calculation of the actual amount of the Net Assets as of the Closing Date calculated in accordance with GAAP consistently applied. The Stockholder Representative shall have a period of thirty (30) days from the receipt of the Net Assets Statement (the “ Review Period ”) to review the Net Assets Statement, during which Review Period the Buyer shall, upon reasonable request and during normal business hours, make available to the Stockholder Representative all relevant books and records in the Buyer’s possession or control and all personnel with knowledge of information relevant to the determination of the Net Assets as of the Closing Date. If as a result of such review, the Stockholder Representative disagrees with the Net Assets Statement, the Stockholder Representative shall deliver to the Buyer a written notice of disagreement (a “ Net Assets Dispute Notice ”) prior to the expiration of the Review Period. Any Net Assets Dispute Notice shall (i) specify in reasonable detail the nature and amount of any disagreement so asserted and (ii) include a calculation by the Stockholder Representative of the Net Assets as of the Closing Date.

(ii) Acceptance; Failure to Respond . If the Stockholder Representative does not disagree with the Net Assets Statement, the Stockholder Representative shall deliver a written statement to the Buyer within the Review Period accepting the Net Assets Statement (an “ Acceptance Notice ”), in which case the Buyer’s determination of the Net Assets as of the Closing Date as shown on the Net Assets Statement shall be final and binding on the parties, effective as of the date on which the Buyer receives the Acceptance Notice. If the Stockholder Representative does not deliver a Net Assets Dispute Notice or an Acceptance Notice within the Review Period, then the Buyer’s determination of the Net Assets as of the Closing Date as shown on the Net Assets Statement shall be final and binding on the parties, effective as of the first Business Day after the expiration of the Review Period.

(iii) Resolution of Net Assets Disputes . If the Stockholder Representative delivers a Net Assets Dispute Notice to the Buyer in a timely manner, then the Buyer and the Stockholder Representative shall attempt in good faith to resolve such dispute by negotiation between representatives who have authority to settle the dispute within thirty (30) days after delivery of the Net Assets Dispute Notice. If the Buyer and the Stockholder Representative cannot reach agreement within such thirty (30) day period (or such longer period as they may mutually agree), then the Buyer and the Stockholder Representative shall promptly

 

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refer the dispute to either Ernst & Young LLP or KPMG LLP (whichever shall be reasonably acceptable to both the Buyer and the Stockholder Representative) (the “ CPA Firm ”). The CPA Firm shall work to resolve such dispute promptly, based solely on written submissions by the Buyer and the Stockholder Representative, and, to the extent practicable, within thirty (30) days from the date the dispute is submitted to the CPA Firm. Any item not specifically referred to the CPA Firm for evaluation shall be deemed final and binding on the parties. The CPA Firm shall determine the Net Assets in accordance with GAAP consistently applied by selecting with respect to each item in dispute an amount between the Buyer’s position, as set forth in the Net Assets Statement, and the Stockholder Representative’s position, as set forth in the Net Assets Dispute Notice, or equal to the Buyer’s position or the Stockholder Representative’s position. The CPA Firm shall deliver to both the Buyer and the Stockholder Representative a written opinion setting forth the CPA Firm’s final determination of the Net Assets calculated in accordance with the provisions of this Agreement. The determination of the CPA Firm shall be final and binding on the Buyer and the Stockholder Representative, effective as of the date the CPA Firm’s written opinion is received by the Buyer and the Stockholder Representative. The fees, costs and expenses of the CPA Firm shall be borne equally by the Buyer and the Stockholder Representative. The final determination of the Net Assets, either pursuant to Section 2.1(c)(ii) or this Section 2.1(c)(iii) shall be referred to as the “ Final Net Assets .”

(iv) Final Settlement . Within ten (10) days of the determination of the Final Net Assets, (i) if the Final Net Assets is less than the Estimated Net Assets and also less than $5,778,000, then, from the Indemnity Escrow Fund, without giving effect to any limitations set forth in Section 7.5(a) of this Agreement, Stockholder Representative shall make an adjustment payment to the Buyer equal to the difference between the Final Net Assets and the lesser of $5,778,000 or the Estimated Net Assets, (ii) if the Final Net Assets is less than $5,778,000, but greater than the Estimated Net Assets, then the Buyer shall make an adjustment payment to Company Stockholders through the Exchange Agent equal to the difference between the Final Net Assets and the Estimated Net Assets, and (iii) if the Final Net Assets is greater than $5,778,000, then the Buyer shall make an adjustment payment to Company Stockholders through the Exchange Agent equal to the difference between the Final Net Assets and the lesser of Estimated Net Assets or $5,778,000. Any such payments shall include interest at the applicable Federal Funds Rate.

(v) Calculation of Net Assets, Estimated Net Assets and Final Net Assets . Net Assets, Estimated Net Assets and Final Net Assets shall all be calculated, prepared or determined as of immediately prior to the Merger, in accordance with the definition of Net Assets set forth in ARTICLE IX.

2.2 Effect on Company Capital Stock .

(a) Each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Common Stock of the Company (including all rights attendant thereto) issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares) shall, by virtue of the Merger and without any action on the part of the Buyer, the Company or the Holder thereof, be automatically converted into the right to receive an amount of cash equal to the amount set forth next to such Holder’s name on Schedule A , all as has been calculated in accordance with the Company’s Charter Documents.

 

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2.3 Effect on Company Options and Series C Preferred Warrants .

(a) After the date of this Agreement and prior to the Effective Time, the Board of Directors of the Company shall cause each outstanding Company Option that is listed on Section 2.3 of the Disclosure Schedule to become vested and exercisable to the extent set forth on such schedule. Upon the effectiveness of such action by the Board of Directors of the Company, the vested portion of each such Company Options that is listed on Section 2.3 of the Disclosure Schedule shall be a “ Vested Company Option .”

(b) At the Effective Time, each Vested Company Option that is outstanding immediately prior to the Effective Time, without any payment therefor except as otherwise provided in this Section 2.3, shall be automatically cancelled in accordance with its terms, and, prior to the Effective Time, the Board of Directors of the Company shall adopt appropriate resolutions and take all other actions necessary to terminate the portion of the Company Stock Plans and individual option agreements outside of the Company Stock Plans attributable to the Vested Company Options, as of the Effective Time. Each Vested Company Option, to the extent unexercised as of the Effective Time, shall thereafter no longer be exercisable but shall entitle each Holder of a Vested Company Option, in cancellation and settlement therefor, to a payment in cash, at the Effective Time, equal to the product of (i) the excess, if any, of the Merger Consideration per share of Common Stock underlying such Vested Company Option over the exercise price per share of Common Stock of such Vested Company Option, multiplied by (ii) the total number of vested shares of Common Stock as of the Effective Time subject to such Vested Company Option immediately prior to its cancellation (such payment to be net or withholding Taxes and without interest). Such payment shall be made at the same time as Company Stockholders receive the Merger Consideration, and if any Holder of a Vested Company Option is entitled to any portion of the Merger Consideration, such Holder shall deliver to the Company, prior to the Effective Time as a condition to any payment under this Section 2.3, documents evidencing the surrender of such Vested Company Options and release of claims related thereto in form and substance reasonably satisfactory to the Company and the Buyer.

(c) At the Effective Time, the portion of each Company Option that is not vested in accordance with Section 2.3(a) above, and any portion of each Company Option that becomes vested and exercisable after the Effective Time (the applicable portion of each such Company Option is referred to as an “Unvested Company Option”) and the portion of each Company Stock Plan and the individual option agreements outside of the Company Stock Plans attributable to the Unvested Company Options, if any, shall be assumed by the Buyer in a transaction described in Sections 409A or 424(a), as applicable, of the Code. Each Unvested Company Option so assumed by the Buyer under this Agreement will continue to have, and be subject to, the same terms and conditions of such Unvested Company Option immediately prior to the Effective Time, except that (i) each Unvested Company Option will be exchanged and converted into an option to purchase shares of common stock of the Buyer (“ Buyer Common Stock ”) in accordance with the applicable requirements of Sections 409A and 424 of the Code and the regulations promulgated thereunder. As soon as practicable after the Effective Time, the Buyer shall, or shall cause the Surviving Corporation to, deliver to the holders of Unvested Company Options, notices describing the conversion of such Unvested Company Options, and the agreements evidencing the Unvested Company Options shall continue in effect on the same

 

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terms and conditions. The Buyer shall comply with the terms of all such Unvested Company Options. Prior to the Effective Time, the Buyer shall reserve for issuance the number of shares of Buyer Common Stock necessary to satisfy the Buyer’s obligations under this Section 2.3. As soon as practicable after the Effective Time, provided, however no later than fifteen (15) days after the Effective Time, the Buyer shall file a registration statement or statements on Form S-8 (or any successor form) with respect to the shares of Buyer Common Stock subject to Unvested Company Options assumed by the Buyer pursuant to this Agreement in the event such shares are not already covered by an effective registration statement.

(d) Each Series C Preferred Warrant that is outstanding immediately prior to the Effective Time, shall, by virtue of the Merger and without any action on the part of the Buyer, the Company or the Holder thereof, be cancelled and converted into the right to receive a cash payment from the Merger Consideration equal to (i) the amount of cash to be paid to each Holder for each share of Series C Preferred Stock pursuant to Section 2.2(a) of this Agreement multiplied by (ii) the number of shares of Series C Preferred Stock issuable upon the net exercise of such Series C Preferred Warrant. Prior to the Effective Time, the Company shall take all actions that are reasonably necessary and appropriate to provide for such cancellation and conversion (or exercise) as of the Effective Time. In addition, each holder of Series C Preferred Warrant, for purposes of the applicable exchange procedures, shall be treated as a Participating Preferred Holder in accordance with Section 2.5(b) of this Agreement.

(e) Prior to the Effective Time, the Buyer and the Company shall take all such steps as may be required to cause any acquisitions of Buyer equity securities (including derivative securities with respect to any Buyer equity securities) and dispositions of Company equity securities (including derivative securities with respect to any Company equity securities) resulting from the transactions contemplated by this Agreement by each individual who is anticipated to be subject to the reporting requirements of Section 16(a) of the Exchange Act, with respect to the Buyer, to be exempt under Rule 16b-3 promulgated under the Exchange Act.

2.4 Closing Payments . At the Closing, the Buyer shall pay or cause to be paid the following amounts by wire transfers of immediately available funds:

(a) Escrow Amounts .

(i) Indemnity Escrow Amounts . At the Closing, a portion of the Merger Consideration in an amount equal to the Indemnity Escrow Amount shall be deposited by the Buyer with the escrow agent (the “ Escrow Agent ”) designated in the Escrow Agreement, substantially in the form of Exhibit C hereto, to be entered into at the Closing by the Buyer, the Company, the Stockholder Representative and the Escrow Agent. At any time, the amount of cash held by the Escrow Agent related to the Indemnity Escrow Amount, together with any proceeds thereon (which shall be apportioned pursuant to the terms of the Escrow Agreement), shall at such time constitute the “ Indemnity Escrow Fund ” and shall be used to satisfy Damages of an Indemnified Party pursuant to ARTICLE VII and to satisfy any payment to the Buyer pursuant to Section 2.1(c)(iv)(i). The Escrow Agreement sets forth the terms upon which disbursements shall be made by the Escrow Agent. Except as described below with respect to the portion of the Indemnity Escrow attributable to the Merger Compensation Payments, the Indemnity Escrow Fund shall be held in a separate trust fund and shall not be subject to any lien,

 

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attachment, trustee process or any other judicial process of any creditor of any Person. The Buyer shall cause the portion of the Indemnity Escrow Fund attributable to the Merger Compensation Payments (and any interest with respect thereto) to be structured in a manner so that under applicable tax law, such amount is not subject to income tax with respect to the Company Stockholders until distribution is made in accordance with the applicable terms of the Escrow Agreement. The Buyer shall cause such structure to be reflected in the terms of the Escrow Agreement. In addition, any amount to be paid from the Indemnity Escrow Fund attributable to the Merger Compensation Payments (and any interest with respect thereto) shall be administered and interpreted in accordance with Section 409A of the Code, and if required to avoid adverse consequences under Section 409A of the Code, all amounts then held in the Indemnity Escrow Fund attributable to the Merger Compensation Payments (and any interest with respect thereto) shall be distributed not later than five years following the Closing Date.

(ii) Stockholder Representative Escrow Amounts . At the Closing, a portion of the Merger Consideration in an amount equal to the Stockholder Representative Escrow Amount shall be deposited by the Buyer for a period of two (2) years with the Escrow Agent pursuant to the Escrow Agreement. At any time, such amount of cash held by the Escrow Agent, together with any proceeds thereon (which shall be apportioned pursuant to the terms of the Escrow Agreement), shall at all times constitute the “ Stockholder Representative Escrow Funds ” and shall be used to satisfy all costs and expenses of the Stockholder Representative pursuant to Section 7.5. Except as described below with respect to the portion of the Stockholder Representative Escrow Funds attributable to the Merger Compensation Payments, the Stockholder Representative Escrow Funds shall be held in a separate trust fund and shall not be subject to any lien, attachment, trustee process or any other judicial process of any creditor of any Person. The Buyer shall cause the portion of the Stockholder Representative Escrow Funds attributable to the Merger Compensation Payments (and any interest with respect thereto) to be structured in a manner so that under applicable tax law, such amount is not subject to income tax with respect to the Company Stockholders until distribution is made in accordance with the applicable terms of the Transmittal Letter. The Company shall cause such structure to be reflected in the terms of the Transmittal Letter. In addition, any amount to be paid from the Stockholder Representative Escrow Funds attributable to the Merger Compensation Payments (and any interest with respect thereto) shall be administered and interpreted in accordance with Section 409A of the Code, and if required to avoid adverse consequences under Section 409A of the Code, all amounts then held in the Stockholder Representative Escrow Funds attributable to the Merger Compensation Payments (and any interest with respect thereto) shall be distributed not later than five years following the Closing Date.

(b) Payoff of Indebtedness . Prior to the Closing, the Company shall pay the full amounts due in satisfaction of all outstanding Indebtedness, as set forth on Schedule B .

(c) Remaining Merger Consideration . At the Closing, the Buyer shall deposit, or shall cause to be deposited, with American Stock Transfer & Trust Company or such other bank or trust company as may be designated by the Buyer and reasonably acceptable to the Company (the “ Exchange Agent ”) for the benefit of the Holders, the aggregate amount of the Merger Consideration (such Merger Consideration, together with any interest with respect thereto, being hereinafter referred to as the “ Exchange Fund ”) less the Indemnity Escrow Amount deposited with the Escrow Agent pursuant to Section 2.4(a)(i), less the Stockholder

 

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Representative Escrow Amount deposited with the Escrow Agent pursuant to Section 2.4(a)(a)(ii) and any other adjustments to the Merger Consideration required under this Agreement. The Exchange Agent shall, pursuant to irrevocable instructions set forth in the Exchange Agent Agreement (the “ Exchange Agreement ”) substantially in the form of Exhibit D hereto, deliver the cash out of the Exchange Fund in exchange for the outstanding Company Securities. The Exchange Fund shall be held as a trust fund and shall not be subject to any lien, attachment, trustee process or any other judicial process of any creditor of any Person. Except as contemplated by this Section 2.4(c), the Exchange Fund shall not be used for any other purpose.

2.5 Exchange Procedures and Payment of Merger Consideration . The Merger Consideration shall be payable as follows:

(a) Exchange Procedures . As promptly as practicable after the Effective Time, the Buyer shall cause the Exchange Agent to mail to each Holder of stock certificates, options or other securities which, immediately prior to the Effective Time represented outstanding Company Securities (collectively, the “ Certificates ”) (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent), substantially in the form attached hereto as Exhibit E (the “ Transmittal Letter ”), (ii) counterpart signature pages to the Escrow Agreement, (iii) in the case of a Holder of a Vested Company Option, a duly executed cancellation acknowledgement (a “ Cancellation Acknowledgement ”), substantially in the form attached hereto as Exhibit F and (iv) in the case of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Common Stock instructions for use in effecting the surrender of the Certificates in exchange for cash, in each case to the extent the Company has not previously received such documents duly executed by the applicable Holder. Upon surrender to the Exchange Agent of a Certificate for cancellation, together with such Transmittal Letter, Escrow Agreement and the Cancellation Acknowledgement, to the extent applicable (in each case to the extent the Company has not previously received such documents duly executed by the applicable Holder), each duly executed, and such other documents as may be reasonably required pursuant to such instructions (collectively, the “ Holder Documents ”), the Holder of such Certificate shall be entitled to receive in exchange therefor an amount of cash which such Holder has the right to receive in respect of the Company Securities formerly represented by such Certificates, and the Certificates so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of a Company Security which is not registered in the transfer records of the Company, the proper amount of cash may be paid to a transferee if the Certificate representing such Company Security is presented to the Exchange Agent, accompanied by such documents reasonably required to evidence and effect such transfer and by reasonable evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 2.5(a), each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the amount of cash to which such Holder is entitled pursuant to the terms of this Agreement.

(b) Exchange of Preferred Stock . Regarding Holders of Preferred Stock issued and outstanding as of the Effective Time (each, a “ Participating Preferred Holder ”), as soon as practicable after receipt by Exchange Agent of a Participating Preferred Holder’s Certificates and applicable Holder Documents executed and delivered in accordance with this Agreement, Exchange Agent shall deliver to that Participating Preferred Holder the amount of

 

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cash due to such Participating Preferred Holder for each share of Preferred Stock held by such Participating Preferred Holder as of the Effective Time as determined in accordance with the applicable provisions of Section 2.2 (less such Participating Preferred Holder’s portion of the Indemnity Escrow Fund and Stockholder Representative Escrow Funds).

(c) Exchange of Common Stock . Regarding Holders of Common Stock issued and outstanding as of the Effective Time (each, a “ Participating Common Holder ”), as soon as practicable after receipt by Exchange Agent of a Participating Common Holder’s Certificates and applicable Holder Documents executed and delivered in accordance with this Agreement, Exchange Agent shall deliver to that Participating Common Holder the amount of cash due to such Participating Common Holder for each share of Common Stock held by such Participating Common Holder as of the Effective Time as determined in accordance with the applicable provisions of Section 2.2 (less such Participating Common Holder’s portion of the Indemnity Escrow Fund and Stockholder Representative Escrow Funds).

(d) Exchange of Vested Company Options . Regarding Holders of Vested Company Options as of immediately prior to the Effective Time (each, a “ Participating Common Convertible Holder ”), as soon as practicable after receipt by Exchange Agent of a Participating Common Convertible Holder’s Vested Company Options, as applicable, and applicable Holder Documents executed and delivered in accordance with this Agreement, Exchange Agent shall deliver to that Participating Common Convertible Holder, an amount of cash due to such Participating Common Convertible Holder for each Vested Company Option held by such Participating Common Convertible Holder as of the Effective Time as determined in accordance with the applicable provision of Section 2.3 (less such Participating Common Convertible Holder’s portion of the Indemnity Escrow Fund and Stockholder Representative Escrow Funds), subject, in all cases, to the provisions of Section 2.5(g).

(e) Full Satisfaction . Except as provided herein, all cash paid upon exchange of the Company Securities (including amounts deposited into escrow pursuant to the Escrow Agreement) in accordance with the terms of this Agreement shall be deemed to have been paid in full satisfaction of all rights pertaining to such Company Securities.

(f) Undistributed Portions of Exchange Fund . Any portion of the Exchange Fund which remains undistributed to the Holders of Company Securities for one (1) year after the Effective Time, and all certificates or other documents in possession of the Exchange Agent relating to the transactions contemplated hereby, shall be promptly delivered to the Buyer, and the Exchange Agent’s duties shall terminate. Thereafter, each Holder of a Certificate representing Company Securities (other than certificates representing Dissenting Shares) may surrender such certificate to the Surviving Corporation and (subject to any applicable abandoned property, escheat or similar Law) receive in consideration therefor, the Merger Consideration relating thereto, without any interest thereon (except as otherwise set forth in the Escrow Agreement), calculated in accordance with this Section 2.5. Any portion of the Exchange Fund remaining unclaimed by Holders of Company Securities as of a date which is immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Entity shall, to the extent permitted by applicable Law, become the property of the Buyer free and clear of any claims or interest of any Person previously entitled thereto. None of the Buyer, the Company, the Surviving Corporation or the Exchange Agent shall be liable to any Holder for any cash delivered to a public official pursuant to any abandoned property, escheat or similar Law.

 

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(g) Payment of Merger Compensation Payments; Withholding Taxes . Notwithstanding any other provision of this Agreement, the Exchange Agent shall not directly pay Merger Compensation Payments to the former holders of Vested Company Options and Restricted Company Stock for which election under Section 83(b) of the Code was not timely made and which remain unvested as of the Closing Date as contemplated by Section 2.3, but shall instead transfer Merger Compensation Payments to the Surviving Corporation for immediate payment to such recipients through the Surviving Corporation’s payroll systems. The Surviving Corporation shall be entitled to deduct and withhold from Merger Compensation Payments and any other consideration otherwise payable pursuant to this Agreement to any person such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code, or any other applicable state, local or foreign Taxes Law. To the extent that amounts are so withheld by the Company, as the case may be, such withheld amounts (i) shall be remitted by the Company to the applicable Governmental Entity, and (ii) shall be treated for all purposes of this Agreement as having been paid to the Holder in respect of which such deduction and withholding was made by the Company, as the case may be.

(h) Adoption of Agreement . The adoption of this Agreement and the Requisite Stockholder Approval constitutes approval of the Exchange Agreement, the Escrow Agreement and of all of the arrangements relating thereto, including the placement of the Indemnity Escrow Fund and the Stockholder Representative Escrow Funds in escrow and the appointment of the Stockholder Representative.

2.6 Schedule of Merger Consideration . Schedule A sets forth, as of the date hereof, (i) the amount due in satisfaction of all outstanding Indebtedness pursuant to Section 2.4(b), (ii) the estimated amount of the Merger Consideration calculated pursuant to the formula set forth in Section 2.1, (iii) the estimated amount of Merger Consideration to be received at the Closing by each Holder (assuming no deductions related to Indemnity Escrow Fund or Stockholder Representative Escrow Funds), (iv) the estimated amount of the Indemnity Escrow Amount and Stockholder Representative Escrow Amount allocated to each Holder, and (v) the estimated net Merger Consideration payable to each Holder as of the Effective Time. At the Closing, the Company shall deliver to the Buyer an updated Schedule A as of the Closing Date which shall fully comply with the terms of the Charter Documents of the Company and with the terms of the Vested Company Options.

2.7 Conversion of Buyer Subsidiary Capital Stock, Treasury Stock and Stock Owned by Buyer . Notwithstanding anything to the contrary contained herein, the following shall apply:

(a) Stock of Buyer Subsidiary . Each share of capital stock of the Buyer Subsidiary issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the Buyer or the Company, be converted into one (1) share of common stock of the Surviving Corporation.

 

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(b) Treasury Shares and Stock owned by Buyer or Buyer Subsidiary . Each (i) share of Company Stock held in the Company’s treasury immediately prior to the Effective Time and (ii) Company Security owned beneficially by the Buyer or the Buyer Subsidiary immediately prior to the Effective Time, shall not represent the right to receive any Merger Consideration, and each such security shall, as of the Effective Time, be cancelled and retired and shall cease to exist, and no cash, securities or other property shall be payable in respect thereof, in each case without any conversion thereof pursuant to Sections 2.2 and 2.3.

2.8 Dissenting Shares . Notwithstanding anything in this Agreement to the contrary, the shares of Company Stock that are issued and outstanding immediately prior to the Effective Time and that are held by the Company Stockholders who did not vote in favor of the Merger and who comply with all of the relevant provisions of Section 262 of the DGCL (the “ Dissenting Shares ”) shall not be converted into or represent the right to receive the Merger Consideration and the Buyer shall retain the Merger Consideration applicable to such Dissenting Shares, unless and until such Holders shall have failed to perfect or shall have effectively withdrawn or lost their rights to appraisal under the DGCL; and any such Holder shall have only such rights in respect of the Dissenting Shares owned by them as are provided by Section 262 of the DGCL. If any such Holder shall have failed to perfect or shall have effectively withdrawn or lost such right, such Holder’s Dissenting Shares shall thereupon be deemed to have been converted into and to have become exchangeable, as of the Effective Time, for the right to receive the applicable Merger Consideration without any interest thereon, pursuant to the terms of this ARTICLE II. Prior to the Effective Time, the Company will not, except with the prior written consent of the Buyer, voluntarily make any payment with respect to, or settle or offer to settle, any claim made by the Company Stockholders with respect to the Dissenting Shares. Dissenting Shares, if any, after payments of fair value in respect thereto have been made to the Holders thereof pursuant to applicable Law, shall be canceled.

2.9 No Further Ownership Rights . Except as otherwise provided in this Agreement or in the Escrow Agreement, no interest will be paid or accrued on the amounts payable upon the surrender of the Certificates. Until surrendered in accordance with the provisions of Section 2.5, each Certificate shall represent for all purposes, only the right to receive the consideration pursuant to the terms of this ARTICLE II and the Escrow Agreement.

2.10 Lost Certificates . In the event any Certificates representing shares of Company Securities or exercisable for Company Securities (as of immediately prior to the Effective Time) shall have been lost, stolen or destroyed, Exchange Agent or the Buyer, as applicable, shall make such payment in accordance with Section 2.5 in exchange for such lost, stolen or destroyed Certificates upon the making of an affidavit of that fact by the Holder thereof in a form reasonably acceptable to the Buyer.

2.11 No Further Transfer of Shares . After the Effective Time, there shall be no transfers of shares of Company Stock that were outstanding immediately prior to the Effective Time on the stock transfer books of the Surviving Corporation. If, after the Effective Time, Certificates for Company Stock are presented to the Surviving Corporation for transfer, they shall be canceled and exchanged for cash as provided in this ARTICLE II. At the close of business on the day of the Effective Time, the stock ledger of the Company shall be closed.

 

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to the Buyer that, except as set forth in the Disclosure Schedule, the statements contained in this ARTICLE III are true and correct as of the date of this Agreement and will be true and correct as of the Closing as though made as of the Closing, except to the extent such representations and warranties are specifically made as of a particular date (in which case such representations and warranties will be true and correct as of such date). The Disclosure Schedule shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this ARTICLE III. The disclosures in any section or subsection of the Disclosure Schedule shall qualify only the corresponding section or subsection in this ARTICLE III. For purposes of this ARTICLE III, the phrase “to the knowledge of the Company or each of the Subsidiaries” or any phrase of similar import shall be deemed to refer to the actual knowledge of the executive officers of the Company and each of the Subsidiaries, as well as any other knowledge which such executive officers would have possessed had they made reasonable inquiry of appropriate employees and agents of the Company and each of the Subsidiaries with respect to the matter in question.

3.1 Organization, Qualification and Corporate Power . The Company is a corporation duly organized, validly existing and in corporate and tax good standing under the laws of the State of Delaware. The Company is duly qualified to conduct business and is in corporate and tax good standing under the laws of each jurisdiction listed in Section 3.1 of the Disclosure Schedule, which jurisdictions constitute the only jurisdictions in which the nature of the Company’s businesses or the ownership or leasing of its properties requires such qualification. The Company has all requisite corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. The Company has furnished to the Buyer complete and accurate copies of its Certificate of Incorporation and By-laws. The Company is not in default under or in violation of any provision of its Certificate of Incorporation or By-laws.

3.2 Capitalization .

(a) The authorized capital stock of the Company consists of (i) 20,000,000 shares of Common Stock, of which, as of the date of this Agreement, 5,443,587 shares were issued and outstanding and 102,667 shares were held in the treasury of the Company, and (ii) 8,430,000 shares of Preferred Stock, of which (A) 1,400,000 shares have been designated as Series A Preferred Stock, of which, as of the date of this Agreement, 1,293,333 shares were issued and outstanding, (B) 3,000,000 shares have been designated as Series B Preferred Stock, of which, as of the date of this Agreement, 1,603,865 shares were issued and outstanding and (C) 4,030,000 shares have been designated as Series C Preferred Stock, of which, as of the date of this Agreement, 3,763,853 shares were issued and outstanding.

(b) Section 3.2 of the Disclosure Schedule sets forth a complete and accurate list, as of the date of the Agreement, of the Holders of capital stock of the Company, showing the number of shares of capital stock, and the class or series of such shares, held by each Company Stockholder and (for shares other than Common Stock) the number of shares of Common Stock (if any) into which such shares are convertible. Section 3.2 of the Disclosure Schedule also

 

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indicates all outstanding shares of Common Stock that constitute restricted stock or that are otherwise subject to a repurchase or redemption right, indicating the name of the applicable Company Stockholder, the vesting schedule (including any acceleration provisions with respect thereto), and the repurchase price payable by the Company. All of the issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All of the issued and outstanding shares of capital stock of the Company have been offered, issued and sold by the Company in compliance with all applicable federal and state securities laws.

(c) Section 3.2 of the Disclosure Schedule sets forth a complete and accurate list, as of the date of this Agreement of: (i) all Company Stock Plans, indicating for each Company Stock Plan the number of shares of Common Stock issued to date under such Plan, the number of shares of Common Stock subject to outstanding options under such Plan and the number of shares of Common Stock reserved for future issuance under such Plan; and (ii) all Holders of outstanding Company Options, indicating with respect to each Company Option the Company Stock Plan under which it was granted, the number of shares of Common Stock subject to such Company Option, the exercise price, the date of grant, and the vesting schedule (including any acceleration provisions with respect thereto). The Company has provided to the Buyer complete and accurate copies of all Company Stock Plans, forms of all stock option agreements evidencing Company Options. All of the shares of capital stock of the Company subject to Company Options will be, upon issuance pursuant to the exercise of such instruments, duly authorized, validly issued, fully paid and nonassessable. All Company Options have been granted with an exercise price that was not less then the fair market value of a share of Common Stock as of the date the Company Option was granted.

(d) Except as set forth in this Section 3.2 or in Section 3.2 of the Disclosure Schedule and other than the warrants to purchase 11,673 shares of Series C Preferred Stock (originally issued as Series B-1 Convertible Preferred Stock) held by Silicon Valley Bank, (i) no subscription, warrant, option, convertible security or other right (contingent or otherwise) to purchase or acquire any shares of capital stock of the Company is authorized or outstanding, (ii) the Company has no obligation (contingent or otherwise) to issue any subscription, warrant, option, convertible security or other such right, or to issue or distribute to Holders of any shares of its capital stock any evidences of Indebtedness or assets of the Company, (iii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or to make any other distribution in respect thereof, except as set forth in Section 6.2(t) of this Agreement; and (iv) there are no outstanding or authorized stock appreciation, phantom stock or similar rights with respect to the Company.

(e) No Company Option will by its terms require an adjustment in connection with the Merger, except as contemplated by this Agreement. Except as contemplated by this Agreement, neither the consummation of the transactions contemplated by this Agreement, nor any action taken or to be taken by the Company in connection with such transactions, will result in (i) any acceleration of exercisability or vesting (including, without limiting the foregoing, any right to acceleration of vesting that is contingent upon the occurrence of a subsequent event) in favor of any Holder of any Company Option, (ii) any additional benefits for any Holder of any Company Option, or (iii) the inability of the Buyer after the Effective Time to exercise any right

 

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or benefit held by the Company prior to the Effective Time with respect to any Company Option assumed by the Buyer. The assumption by the Buyer of the Company Stock Plans and the Unvested Company Options will not give rise to any event described in clauses (i) through (iii) of the immediately preceding sentence. Each Holder of a Company Option has been or will be given, or shall have properly waived, any required notice of the Merger prior thereto, and all such rights of notice will terminate at or prior to the Effective Time.

(f) Except as set forth in Section 3.2 of the Disclosure Schedule, there is no agreement, written or oral, between the Company and any Holder of its securities, or, to the best of the Company’s knowledge, among any Holders of its securities, relating to the sale or transfer (including agreements relating to rights of first refusal, co-sale rights or “drag-along” rights), registration under the Securities Act, or voting, of the capital stock of the Company.

(g) The conversion, exercise and/or exchange of Preferred Stock and Company Options prior to the Effective Time will be in compliance with the terms of the agreement pursuant to which such securities were issued and in compliance with all federal and state securities laws, and the issuance of shares of Common Stock upon conversion, exercise and/or exchange of such securities shall have been duly authorized by all requisite corporate action on the part of the Company. Any such issuance of Common Stock upon conversion, exercise and/or exchange of such securities shall be in accordance with the Company’s Charter Documents and shall not violate the rights of any Company Stockholder.

(h) Except as set forth in Section 3.2 of the Disclosure Schedule and except for the repurchase at cost of shares of Common Stock from employees of the Company and its Subsidiaries in connection with the termination of their employment, the Company has not repurchased or otherwise reacquired any of the Company Securities. The repurchase of any such securities was duly approved and authorized by the Board of Directors and complied in all respects with applicable law, and the Company has no liability, contingent or otherwise, to make any payments with respect to any such repurchased securities. There are no obligations, contingent or otherwise, of the Company to repurchase, redeem or otherwise acquire any of the Company Securities. There are no declared or accrued unpaid dividends with respect to any of the Company Securities.

(i) Except as set forth in Section 3.2 of the Disclosure Schedule, the Company does not have outstanding any bonds, debentures, notes or other obligations or debt securities the holders of which have the right to vote (or convertible into, or exercisable or exchangeable for, securities having the right to vote) on any matter.

3.3 Authorization of Transaction . The Company has all requisite power and authority to execute and deliver this Agreement and the other Transaction Documents to which the Company is a party and to perform its obligations hereunder. The execution and delivery by the Company of this Agreement and the other Transaction Documents to which the Company is a party and, subject to obtaining the Requisite Stockholder Approval, the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Company. Without limiting the generality of the foregoing, the Board of Directors of the Company, at a meeting duly called and held, by the unanimous vote of all directors (i) determined that the Merger is in the best interests of the

 

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Company and the Company Stockholders, (ii) adopted this Agreement in accordance with the provisions of the DGCL, and (iii) directed that this Agreement and the Merger be submitted to the Company Stockholders for their adoption and approval and resolved to recommend that the Company Stockholders vote in favor of the adoption of this Agreement and the approval of the Merger. This Agreement has been (and the other Transaction Documents to which the Company is a party when executed and delivered at the Closing will be) duly and validly executed and delivered by the Company and constitutes (and with respect to such other Transaction Documents will constitute at the Closing) a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms.

3.4 Noncontravention .

(a) Except as set forth in Section 3.4 of the Disclosure Schedule, and subject to the filing of the Certificate of Merger as required by the DGCL, neither the execution and delivery by the Company of this Agreement (and the other Transaction Documents to which it is a party), nor the consummation by the Company of the transactions contemplated hereby, will (a) conflict with or violate any provision of the Certificate of Incorporation or By-laws of the Company or the charter, by-laws or other organizational document of any Subsidiary, (b) conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party the right to terminate, modify or cancel, or require any notice, consent or waiver under, any contract or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound or to which any of their respective assets is subject, (c) result in the imposition of any Security Interest upon any assets of the Company or any Subsidiary or (d) assuming compliance by the Company with the matters referred to Section 3.4(a), require on the part of the Company or any Subsidiary any notice to or filing with, or any permit, authorization, consent or approval of, any Governmental Entity, other than any notice, filing, permit, authorization, consent or approval which if not obtained would not have a Company Material Adverse Effect or violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any Subsidiary or any of their respective properties or assets, other than such violations which would not have a Company Material Adverse Effect.

(b) No Authorization or Order of, registration, declaration or filing with, or notice to any Governmental Entity is required by the Company or any Subsidiary in connection with the execution and delivery of this Agreement (and the other Transaction Documents to which the Company or any Subsidiary is a party) and the consummation of the Merger, except for such Authorizations, Orders, declarations, filings and notices as may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “ Hart-Scott-Rodino Act ”) and the Other Antitrust Laws and the filing of the Certificate of Merger as may be required by the DGCL.

3.5 Subsidiaries .

(a) Section 3.5 of the Disclosure Schedule sets forth: (i) the name of each Subsidiary; (ii) the number and type of outstanding equity securities of each Subsidiary and a list of the Holders thereof; (iii) the jurisdiction of organization of each Subsidiary; (iv) the names of the officers and directors of each Subsidiary; and (v) the jurisdictions in which each Subsidiary is qualified or holds licenses to do business as a foreign corporation or other entity.

 

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(b) Each Subsidiary is a corporation duly organized, validly existing and in corporate and tax good standing under the laws of the jurisdiction of its incorporation. Each Subsidiary is duly qualified to conduct business and is in corporate and tax good standing under the laws of each jurisdiction in which the nature of its businesses or the ownership or leasing of its properties requires such qualification. Each Subsidiary has all requisite power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. The Company has delivered or made available to the Buyer complete and accurate copies of the charter, by-laws or other organizational documents of each Subsidiary. No Subsidiary is in default under or in violation of any provision of its charter, by-laws or other organizational documents. All of the issued and outstanding shares of capital stock of each Subsidiary are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. All shares of each Subsidiary that are held of record or owned beneficially by either the Company or any Subsidiary are held or owned free and clear of any restrictions on transfer (other than restrictions under the Securities Act and state securities laws), claims, Security Interests, options, warrants, rights, contracts, calls, commitments, equities and demands. There are no outstanding or authorized options, warrants, rights, agreements or commitments to which the Company or any Subsidiary is a party or which are binding on any of them providing for the issuance, disposition or acquisition of any capital stock of any Subsidiary. There are no outstanding stock appreciation, phantom stock or similar rights with respect to any Subsidiary. There are no voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of any Subsidiary.

(c) No Subsidiary of the Company has outstanding any bonds, debentures, notes or other obligations or debt securities the holders of which have the right to vote (or convertible into, or exercisable or exchangeable for, securities having the right to vote) on any Company matter.

(d) The Company does not control directly or indirectly or have any direct or indirect equity participation or similar interest in any corporation, partnership, limited liability company, joint venture, trust or other business association or entity which is not a Subsidiary.

3.6 Financial Statements .

(a) The Company has provided to the Buyer the audited financial statements set forth in paragraph (a) of the definition of Financial Statements set forth in this Agreement. Section 3.6 of the Disclosure Schedule includes the unaudited financial statements set forth in paragraph (b) of the definition of Financial Statements set forth in this Agreement. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, fairly present the consolidated financial condition, results of operations and cash flows of the Company and the Subsidiaries as of the respective dates thereof and for the periods referred to therein and are consistent with the books and records of the Company and the Subsidiaries; provided, however, that the Financial Statements referred to in clause (b) of the definition of such term do not include footnotes.

 

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(b) The Company and its Subsidiaries have in place systems and processes that are: (i) designed to provide reasonable assurances regarding the reliability of the Financial Statements; and (ii) to the Company’s knowledge, adequate for a company at the same stage of development as the Company. There have been no instances of fraud, whether or not material, which occurred during any period covered by the Financial Statements.

3.7 Absence of Certain Changes . Except as set forth in Section 3.7 of the Disclosure Schedule, since the Most Recent Balance Sheet Date, (a) there has occurred no event or development which, individually or in the aggregate, has had, or could reasonably be expected to have in the future, a Company Material Adverse Effect, and (b) neither the Company nor any Subsidiary has taken any of the actions set forth in paragraphs (a) through (r) of Section 5.5.

3.8 Undisclosed Liabilities . Except as set forth in Section 3.8 of the Disclosure Schedule, none of the Company and its Subsidiaries has any liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated and whether due or to become due), except for (a) liabilities shown on the Most Recent Balance Sheet, (b) liabilities which have arisen since the Most Recent Balance Sheet Date in the Ordinary Course of Business and (c) contractual and other liabilities incurred in the Ordinary Course of Business which are not required by GAAP to be reflected on a balance sheet.

3.9 Tax Matters .

(a) All Tax Returns required to have been filed by or with respect to the Company and each of its Subsidiaries have been duly and timely filed, and each such Tax Return correctly and completely reflects liability for Taxes and all other information required to be reported thereon. All Taxes owed by the Company and each of its Subsidiaries (whether or not shown on any Tax Return) have been timely paid. The Company and each of its Subsidiaries has adequately provided for, in its books of account and related records, liability for all unpaid Taxes, being current Taxes not yet due and payable.

(b) There is no action or audit currently proposed, threatened or pending against, or with respect to, the Company or any of its Subsidiaries in respect of any Taxes. Neither the Company nor any of its Subsidiaries is the beneficiary of any extension of time within which to file any Tax Return, nor has the Company or any of its Subsidiaries made any request for such an extension. No claim has ever been made by an authority in a jurisdiction where the Company or any of its Subsidiaries does not file Tax Returns that the Company or any of its Subsidiaries is or may be subject to taxation by that jurisdiction or that the Company or any of its Subsidiaries must file Tax Returns. There are no Security Interests on any of the stock or assets of the Company or any of its Subsidiaries with respect to Taxes, other than Security Interests for Taxes not yet due and payable.

(c) The Company and each of its Subsidiaries has withheld and timely paid all Taxes required to have been withheld with respect to amounts paid or owed to any Person and has complied with all information reporting and withholding requirements, including maintenance of required records with respect thereto.

 

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(d) There is no dispute or claim concerning any liability for Taxes with respect to the Company or any of its Subsidiaries for which notice from a Governmental Entity has been received, or which is asserted or threatened, or which is otherwise known to the Company Stockholders or the Company. No issues have been raised in any Taxes examination with respect to the Company or any of its Subsidiaries which, by application of similar principles, could be expected to result in liability for Taxes for any period not so examined. Section 3.9 of the Disclosure Schedule (i) lists all U.S. federal, state, local, and foreign income Tax Returns filed with respect to the Company and each of its Subsidiaries for taxable periods ended on or after 2000, (ii) indicates those Tax Returns that have been audited, and (iii) indicates those Tax Returns that currently are the subject of audit. The Stockholder Representative has delivered or made available to the Buyer correct and complete copies of all U.S. federal income Tax Returns filed, examination reports, and statements of deficiencies assessed against or agreed to by the Company since 2000. Neither the Company nor any of its Subsidiaries has waived (or is subject to a waiver of) any statute of limitations in respect of Taxes or has agreed to (or is subject to) any extension of time with respect to a Tax assessment or deficiency.

(e) Neither the Company nor any of its Subsidiaries has filed (or is subject to) a consent pursuant to the collapsible corporation provisions of the former Section 341(f) of the Code (or any corresponding provisions of state, local or foreign income Tax Law). None of the assets or properties of the Company or any of its Subsidiaries constitutes tax-exempt bond financed property or tax-exempt use property within the meaning of Section 168 of the Code. Neither the Company nor any of its Subsidiaries is a party to any “safe harbor lease” within the meaning of Section 168(f)(8) of the Code, as in effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982, or to any “long-term contract” within the meaning of Section 460 of the Code. Neither the Company nor any of its Subsidiaries has ever been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code. Neither the Company nor any of its Subsidiaries has ever made any payments, nor is obligated to make any payments, nor is a party to any agreement that as a result of the Merger and any other event could obligate it to make payments that would result in a nondeductible expense under Section 280G of the Code or an excise Tax to the recipient of such payments pursuant to Section 4999 of the Code. Neither the Company nor any of its Subsidiaries has participated in or cooperated with an international boycott as defined in Section 999 of the Code.

(f) Neither the Company nor any of its Subsidiaries has agreed to make and is not required to make, by reason of a change in accounting method, a proposed or threatened change in accounting method or otherwise, any adjustment under Section 481(a) of the Code. Neither the Company nor any of its Subsidiaries has been the “distributing corporation” (within the meaning of Section 355(c)(2) of the Code) with respect to a transaction described in Section 355 of the Code within the five-year period ending as of the date of this Agreement. Neither the Company nor any of its Subsidiaries has received (nor is it subject to) any ruling from any Taxing Authority, nor has it entered into (nor is it subject to) any agreement with a Taxing Authority. The Company has disclosed on its U.S. federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of U.S. federal income Tax within the meaning of Section 6662 of the Code.

(g) Except with respect to the affiliated group of corporation of which the Company is the common parent (as defined in Section 1504 of the Code), neither the Company

 

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or any of its Subsidiaries has ever been a member of an affiliated group of corporations (as that term is used by Section 1504 of the Code) or any comparable provision of state, local or foreign law. Except as set forth in Section 3.9 of the Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party to any Tax allocation or sharing agreement. Except with respect to the affiliated group of corporations of which the Company is the common parent (as defined in Section 1504 of the Code), neither the Company nor any of its Subsidiaries has any liability for the Taxes of any Person, (i) as a transferee or successor, (ii) by contract, (iii) under Section 1.1502-6 of the Regulations (or any similar provision of state, local or foreign Law), or (iv) otherwise. Neither the Company nor any of its Subsidiaries is a party to any joint venture, partnership or other arrangement that is treated as a partnership for U.S. federal income tax purposes.

(h) Neither the Company nor any of its Subsidiaries will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (i) intercompany transactions or excess loss accounts described in Treasury regulations under Section 1502 of the Code (or any similar provision of state, local, or foreign Tax Law), (ii) installment sale or open transaction disposition made on or prior to the Closing Date or (iii) prepaid amount received on or prior to the Closing Date.

(i) Section 3.9 of the Disclosure Schedule sets forth the following information with respect to the Company and the Subsidiaries as of August 31, 2007: (i) the basis of the Company and each of its Subsidiaries in its assets, (ii) the current and accumulated earnings and profits of the Company and each of its Subsidiaries, (iii) the basis of the stock of the Company and each of its Subsidiaries (or the amount of any excess loss account), (iv) the amount of any net operating loss, net capital loss, unused investment or other credit, unused foreign tax credit, or excess charitable contribution allocable to the Company or any of the Subsidiaries, (v) the amount of any deferred gain or loss allocable to the Company arising out of any intercompany transaction as described in the Treasury regulations under Section 1502 of the Code, and (vi) tax elections affecting the Company or any of its Subsidiaries.

(j) Neither the Company nor any of its Subsidiaries has operating losses or other tax attributes presently subject to limitation under Sections 279, 382, 383, or 384 of the Code, or the federal consolidated return regulations.

(k) Neither the Company nor any of its Subsidiaries has at any time been subject to (i) the dual consolidated loss provisions of Section 1503(d) of the Code, (ii) the overall foreign loss provisions of Section 904(f) of the Code or (iii) the recharacterization provisions of Section 952(c)(2) of the Code. Neither the Company nor any of its Subsidiaries has any “non-recaptured net Section 1231 losses” within the meaning of Section 1231(c)(2) of the Code.

(l) Neither the Company nor any of its Subsidiaries has entered into any transaction that is either a “listed transaction” or that the Company or its Stockholders believe in good faith is a “reportable transaction” or a “transaction of interest” (all as defined in Treas. Reg. § 1.6011-4).

 

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(m) No Subsidiary of the Company that is incorporated in a non-U.S. jurisdiction has, or at any time has had, an investment in “United States property” within the meaning of Section 956(c) of the Code. No Subsidiary of the Company is, or at any time has been, a passive foreign investment company within the meaning of Section 1297 of the Code and neither the Company nor any of its Subsidiaries is a shareholder, directly or indirectly, in a passive foreign investment company. No Subsidiary of the Company that is incorporated in a non-U.S. jurisdiction is, or at any time has been, engaged in the conduct of a trade or business within the United States, or treated as or considered to be so engaged and neither the Company nor any of its Subsidiaries has a permanent establishment in any country outside of its country of incorporation.

(n) All material related party transactions involving the Company, and any of its Subsidiaries or Affiliates, have been supported by an arm’s length study in compliance with Section 482 of the Code and the Treasury Regulations promulgated thereunder, and to the extent applicable, any comparable provisions of state, local, or foreign Law.

(o) The operations conducted by marketRx India, prior to the Closing Date, properly qualify for exemption from Taxes under Section 10A of the Income Tax Act of 1961.

3.10 Assets .

(a) The Company or the applicable Subsidiary is the true and lawful owner, and has good title to, all of the assets (tangible or intangible) purported to be owned by the Company or the Subsidiaries, free and clear of all Security Interests. Each of the Company and the Subsidiaries owns or leases all tangible assets sufficient for the conduct of its businesses as presently conducted and as presently proposed to be conducted. Each such tangible asset is free from material defects, has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear) and is suitable for the purposes for which it presently is used.

(b) Section 3.10(b) of the Disclosure Schedule lists individually (i) all fixed assets (within the meaning of GAAP) of the Company or the Subsidiaries having a book value greater than $10,000, indicating the cost, accumulated book depreciation (if any) and the net book value of each such fixed asset as of the Most Recent Balance Sheet Date, and (ii) all other assets of a tangible nature (other than inventories) of the Company or the Subsidiaries whose book value exceeds $10,000.

(c) Each item of equipment, motor vehicle and other asset that the Company or a Subsidiary has possession of pursuant to a lease agreement or other contractual arrangement is in such condition that, upon its return to its lessor or owner under the applicable lease or contract, the obligations of the Company or such Subsidiary to such lessor or owner will have been discharged in full.

3.11 Owned Real Property . The Company does not own any Owned Real Property.

3.12 Real Property Leases . Section 3.12 of the Disclosure Schedule is an accurate and complete list of all Leases and lists all documents comprising such Leases, the term

 

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of such Leases, any extension and expansion options, the rent payable thereunder, the type of use (e.g., office, warehouse), and the location. The Company has delivered or made available to the Buyer complete and accurate copies of the Leases. With respect to each Lease:

(a) such Lease is legal, valid, binding, enforceable and in full force and effect;

(b) such Lease will continue to be legal, valid, binding, enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing and no consent of the landlord, sublandlord or any other party is required under the such Lease in connection with the transactions contemplated hereby;

(c) neither the Company nor any Subsidiary nor, to the knowledge of the Company or any Subsidiary, any other party, is in breach or violation of, or default under, any such Lease, and no event has occurred, is pending or, to the knowledge of the Company or any Subsidiary, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a breach or default by the Company or any Subsidiary or, to the knowledge of the Company or any Subsidiary, any other party under such Lease;

(d) there are no disputes, oral agreements or forbearance programs in effect as to such Lease;

(e) neither the Company nor any Subsidiary has licensed, assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold or subleasehold;

(f) to the knowledge of the Company or any Subsidiary, all facilities leased or subleased thereunder are supplied with utilities and other services adequate for the operation of said facilities;

(g) the Company or any Subsidiary is not aware of any Security Interest, easement, covenant or other restriction applicable to the real property subject to such lease which would reasonably be expected to materially impair the current uses or the occupancy by the Company or a Subsidiary of the property subject thereto;

(h) the Company or a Subsidiary enjoys peaceful and quiet possession of the leased property;

(i) to the knowledge of the Company or any Subsidiary, such Lease and the use and operation thereof comply with all applicable Laws and conditions affecting the leased property and no written notice or other information has been received by the Company or any Subsidiary calling attention to the need for any material work, repairs or environmental remediation;

(j) there is no damage to the leased property from fire or other casualty that has not been repaired and, to the knowledge of the Company or any Subsidiary, no condemnation or similar proceedings are pending or threatened with regard to the leased property; and

 

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(k) no work has been performed and there is no work in progress at the leased property for which a mechanic’s or materialmen’s lien may be filed.

3.13 Intellectual Property .

(a) Section 3.13 of the Disclosure Schedule sets forth an accurate and complete list and description of all Company Intangibles, and, in the case of Company Software, a product description, the language in which it is written, and the type of hardware platform(s) on which it runs. Except as set forth on Section 3.13 of the Disclosure Schedule, no other Intangibles are used to operate or held in connection with the Company.

(b) Except as set forth on Section 3.13 of the Disclosure Schedule, the Company has good, marketable, and indefeasible title to, and has the full right to use, all of Company Intangibles, free and clear of any Security Interest. Except as set forth on Section 3.13 of the Disclosure Schedule, no rights of any third party are necessary to market, sell, distribute, support, maintain, license or grant any rights in or to, sell, modify, update, or create derivative works based upon any or all of the Company Intangibles. Neither the Company nor any Subsidiary has granted or assigned to any other person or entity any right to manufacture, have manufactured, assemble or sell the products or proposed products or to provide the services or proposed services of the Company or any Subsidiary.

(c) Except as set forth on Section 3.13 of the Disclosure Schedule, all of the copyrights, websites, logos, symbols, Software, written works, visual works, audio works, multimedia works, and databases and other works eligible for copyright protection of any kind or fashion included in the Company Intangibles were created as works made for hire (as defined under U.S. copyright law) by regular full-time employees of the Company. To the extent that (i) any author, contributor, creator, or developer of any Company Intangible (A) was not a regular full-time employee of the Company at the time such person contributed to, authored, created, or developed any Company Intangible, or (B) was a regular full-time employee of the Company at the time such person contributed to, authored, created, or developed any Company Intangible, but such authoring, creation, contribution, or development was not in the scope of such person’s employment with the Company, or (ii) such person authored, contributed, created, developed, designed, conceived, or reduced to practice any Intangible that is not a work made for hire, such author, contributor, creator, or developer has irrevocably assigned to the Company in writing all Intellectual Property Rights in such Person’s work with respect to such Company Intangibles. All authors, creators, contributors, and developers of Company Intangibles have waived any and all paternity, integrity, moral and other similar rights that they may have now or in the future in the Company Intangibles. None of the employees, contractors, or consultants of the Company (y) is subject to any contractual or legal restrictions that might interfere with the use of his or her best efforts to promote the interests of the Company, or (z)(A) has used any other Person’s trade secrets or other confidential information in the course of his or her work or (B) is, or is reasonably expected to be, in default under any term of any Contract or restrictive covenant relating to the Company Intangibles or any other Contract or restrictive covenant. No employee of the Company has entered into any Contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, convey, or disclose information concerning any Company Intangible to anyone other than the Company.

 

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(d) With respect to the Company Software included in the Company Intangibles, (i) the Company maintains machine-readable master-reproducible copies, source code listings, technical documentation and user manuals for the most current releases or versions thereof and for all earlier releases or versions thereof currently being supported or maintained by or on behalf of the Company; (ii) in each case, the machine-readable copy substantially conforms to the corresponding source code listing; (iii) it is written in the language set forth on Section 3.13 of the Disclosure Schedule for use on the hardware set forth on Section 3.13 of the Disclosure Schedule or with standard operating systems; (iv) it can be maintained and modified by reasonably competent programmers familiar with such language, hardware and operating systems; (v) in each case, it operates in accordance with the user manual therefor without material operating defects; and, (vi) none of the Company Intangibles contains, uses, includes, is based upon, is integrated or bundled with, is derived from, or incorporates (A) any version of any Software that contains, or is derived in any manner (in whole or in part) from, any Software that is distributed as free software, open source software (for example, among others, Linux), public software, or via similar licensing or distribution models (including GNU’s General Public License or Lesser/Library GPL, the Artistic/PERL License, the Mozilla Public License, the Netscape Public License, the Sun Community Source License, or the Sun Industry Standards License), (B) any version of any Software that requires as a condition of use, modification or distribution that other Software distributed with such Software (I) be disclosed or distributed in source code form, (II) be licensed for the purpose of making derivative works, or (III) be redistributable at no charge, or (C) any version of any Software the design or development of which was funded in whole or in part by any Governmental Entity. Except as disclosed on Section 3.13 of the Disclosure Schedule, all modifications, fixes, work-arounds, circumventions, improvements, enhancements, versions, new releases, updates, and upgrades of the Company Software, to the extent the foregoing are in development or design by or on behalf of the Company (whether in alpha test mode, beta test mode, production, or otherwise) are either (i) fully backwards compatible with any and all releases, versions, and other forms of the Company Software in use on the date of this Agreement without further development or the expenditure of additional time or money, or (ii) can be promptly made fully backwards compatible without any further material development effort or the expenditure of a material amount of time or money.

(e) None of the Company Intangibles or their respective past or current uses, including the preparation, distribution, marketing or licensing thereof, has violated or infringed upon or has interfered with, or is violating or infringing upon or interfering with, any Intellectual Property Right of any Person. None of the Company Intangibles is subject to any Judgment. No Legal Proceeding is pending or, to the Company’s knowledge, is threatened, nor has any claim or demand been made, which challenges or challenged the legality, validity, enforceability, use or exclusive ownership by the Company of any of the Company Intangibles. No Person is violating or infringing upon or interfering with, or has violated or infringed upon or interfered with at any time, any of the Company Intangibles. Except as listed on Schedule 3.13, there are no registered copyrights, copyright applications, patents or patent applications (including divisions, continuations, continuations-in-part, substitutes, renewals, reissues and extensions of the foregoing (as and to the extent applicable)) covering any of the Company Intellectual Property.

(f) The Company has adequately maintained all Intellectual Property Rights with respect to the Company Intangibles. Except as set forth on Schedule 3.13, the Company has

 

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not disclosed or delivered to any escrow agent or to any other Person, or permitted the disclosure to any escrow agent or to any other Person of, the source code (or any aspect or portion thereof) for or relating to any Company Software or any past, present or future product of the Company. The trade secrets included in the Company Intellectual Property are not part of the public knowledge or literature, and, have not been used, divulged, or appropriated either for the benefit of any Person (other than the Company) or to the detriment of the Company. All necessary registration, maintenance and renewal fees currently due in connection with the Company Intangibles have been made, all formal legal requirements (including the timely post-registration applications) have been met, and all necessary documents, recordations and certificates in connection with such Company Intangibles have been filed with the relevant patent, trademark or other authorities in the U.S. or foreign jurisdictions, as the case may be, for the purposes of perfecting and maintaining such Company Intangibles.

(g) All licenses, sublicenses and other Contracts covering or relating to the Company Intangibles are legal, valid, binding, enforceable and in full force and effect, and upon consummation of the transactions contemplated hereby, will continue to be legal, valid, binding, enforceable and in full force and effect on terms identical to those in effect immediately prior to the consummation of the transactions contemplated hereby. The Company is not in breach of or default under any license, sublicense or other Contract covering or relating to any Company Intangible and has not performed any act or omitted to perform any act which gives any Person any right to be indemnified, defended, released, or held harmless by the Company under any license, sublicense or other Contract covering or relating to any Company Intangible. No Legal Proceeding is pending or, to the Company’s knowledge, threatened which challenges the legality, validity, enforceability or ownership of any license, sublicense or other Contract covering or relating to any Company Intangible.

(h) None of the Company Software or other Company Intangibles is owned by or registered in the name of any current or former owner, shareholder, partner, director, executive, officer, employee, salesman, agent, customer, representative or contractor of the Company or any Affiliate nor does any such Person have any interest therein or right thereto, including the right to royalty payments.

(i) No portion of any Company Software or other Company Intangible contains any “back door,” “time bomb,” “Trojan horse,” “worm,” “drop dead device,” “virus” or other Software routines, coding, or programming or hardware components that damage, interfere with, intercept, permit access to, or disable or erase software, hardware, any computer or other system, information, or data without the consent of the user, or that are intended to do so or that facilitate or enable the doing of such.

(j) There is no governmental prohibition or restriction on the use of any of the Company Intangibles in any jurisdiction or on the export or import of any of the Company Intangibles from or to any jurisdiction.

(k) The Company maintains, in connection with the Company and the Company Intangibles, access detection controls and filters, authorization and authentication policies, intrusion and misuse controls, virus detection and eradication Software, information security vulnerability and risk management controls and policies, and similar information

 

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security controls, devices, and policies, and the foregoing (i) ensure the integrity and confidentiality of the Company Intangibles and the data and information processed in connection therewith, and (ii) are at least as stringent and efficacious as the highest information security controls, devices, and policies used in the data processing, information technology, and software industries.

(l) To the best of the Company’s knowledge, no third party has claimed or has reason to claim, or has threatened, that any person employed by or affiliated with the Company, in connection with his or her employment by or affiliation with the Company, (i) has violated or is violating any of the terms or conditions of his employment, non-competition or non-disclosure agreement with such third party, (ii) has disclosed or is disclosing or has utilized or is utilizing any trade secret or proprietary information or documentation of such third party or (iii) has interfered or is interfering in the employment relationship between such third party and any of its present or former employees. To the best of the Company’s knowledge, no person employed by or affiliated with the Company has employed or proposes to employ any trade secret or any information or documentation proprietary to any former employer, and to the best of the Company’s knowledge, no person employed by or affiliated with the Company has violated any confidential relationship which such person may have had with any third party, in connection with the development, manufacture or sale or any product or proposed product or the development or sale of any service or proposed service of the Company, and the Company has no reason to believe there will be any such employment or violation. To the best of the Company’s knowledge, none of the execution or delivery of this Agreement, or the carrying on of business of the Company as officers, employees or agents by any officer, director or key employee of the Company, or the conduct or proposed conduct of the business of the Company, will conflict with or result in a breach of the terms, conditions or provisions of or constitute a default under any contract, covenant or instrument under which any such person is obligated.

3.14 Contracts .

(a) Section 3.14 of the Disclosure Schedule contains a complete and accurate list of each Contract or series of related Contracts to which the Company or any Subsidiary is a party or is subject, or by which any of their respective assets are bound, to as of the date of this Agreement:

(i) for the purchase of materials, products, supplies, goods, services, equipment or other assets or for the furnishing or receipt of services (A) which calls for performance over a period of more than one (1) year, (B) which involves annual payments by the Company or any of the Subsidiaries of $50,000 or more, (C) ) which involves aggregate payments by the Company or any of the Subsidiaries of $50,000 or more or (D) in which the Company or any Subsidiary has granted “most favored nation” pricing provisions or marketing or distribution rights relating to any products or territory or has agreed to purchase a minimum quantity of goods or services or has agreed to purchase goods or services exclusively from a certain party;

(ii) for the sale by the Company or any of the Subsidiaries of materials, products, supplies, goods, services, equipment or other assets or for the furnishing or receipt of services (A) which calls for performance over a period of more than one (1) year, (B) which

 

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involves a specified annual minimum dollar sales amount by the Company or any of the Subsidiaries of $50,000 or more, (C) pursuant to which the Company or any of its Subsidiaries received payments of more than $50,000 in the year ended 2006 or expects to receive payments of more than $50,000 in the year ended 2007, or (D) in which the Company or any Subsidiary has granted “most favored nation” pricing provisions or marketing or distribution rights relating to any products or territory or has agreed to purchase a minimum quantity of goods or services or has agreed to purchase goods or services exclusively from a certain party;

(iii) that requires the Company or any of the Subsidiaries to purchase its total requirements of any product or service from a third party or that contains “take or pay” provisions;

(iv) pursuant to which (A) the Company or any of the Subsidiaries purchases components for inclusion into its products other than components purchased solely on a purchase order basis or (B) pursuant to which a third party manufactures or assembles products on behalf of the Company or any of the Subsidiaries;

(v) that continues over a period of more than six (6) months from the date hereof and involves payments to or by the Company or any of its Subsidiaries exceeding $50,000, other than arrangements disclosed pursuant to the preceding subparagraphs (i) and (ii);

(vi) that is a Software license, Software support, Software maintenance, managed services or statement of work Contract under which the Company is the licensor, marketer, developer, designer, distributor or provider of services;

(vii) that is a Contract for the purchase, lease and/or maintenance of computer equipment and other equipment under which the Company is the purchaser, licensee, lessee or user;

(viii) that is a Contract under which any rights in and/or ownership of any Company Software or other Company Intangible, or any prior version thereof, or any part of the customer base were obtained or acquired;

(ix) that is a (A) Lease or (B) Contract for the lease of personal property from or to third parties, in either case providing for payments to or by the Company or any of the Subsidiaries in any one case in excess of $50,000 per annum, $50,000 or more over the term of the lease or having a remaining term longer than six (6) months;

(x) that is a partnership, joint venture, limited liability company or similar Contract;

(xi) that is a distribution, dealer, representative or sales agency Contract;

(xii) with any Governmental Entity;

(xiii) that under which it has created, incurred, assumed or guaranteed (or may create, incur, assume or guarantee) Indebtedness (including capitalized lease obligations) involving more than $50,000 or under which it has imposed (or may impose) a Security Interest on any of its assets, tangible or intangible;

 

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(xiv) that is a note, debenture, bond, equipment trust, letter of credit, loan or other Contract for Indebtedness or lending of money (other than to employees for travel expenses in the Ordinary Course of Business) or Contract for a line of credit or guarantee, pledge or undertaking of the Indebtedness of any other Person;

(xv) for a charitable or political contribution in any one case in excess of $10,000 or any such Contracts in the aggregate greater than $25,000;

(xvi) for any capital expenditure or leasehold improvement in any one case in excess of $25,000 or any such Contracts in the aggregate greater than $50,000;

(xvii) that restricts or purports to restrict the right of the Company or any of its Subsidiaries to engage in any line of business, acquire any property, develop or distribute any product or provide any service (including geographic restrictions) or to compete with any Person or granting any exclusive distribution rights, in any market, field or territory;

(xviii) for the disposition of any significant portion of the assets or business of the Company or any Subsidiary (other than sales of products in the Ordinary Course of Business) or for the acquisition of the assets or business of any other entity (other than purchases of inventory or components in the Ordinary Course of Business);

(xix) that concerns confidentiality or noncompetition;

(xx) that is an employment, consulting, employee benefit, pension, bonus, profit-sharing, stock option, stock purchase or similar plan or arrangement, distributor or sales representative, termination or severance Contract, other than any such Contract that is terminable at-will by the Company or any of its Subsidiaries without material liability to the Company or such Subsidiary;

(xxi) that involves any current or former officer, director or stockholder of the Company or an Affiliate or “associate” (as such term is defined in the rules and regulations promulgated under the Securities Act) thereof, including without limitation any agreement or other arrangement providing for the furnishing of services by, rental of real or personal property from, or otherwise requiring payments to, any such person or entity;

(xxii) that under which the consequences of a default or termination would reasonably be expected to have a Company Material Adverse Effect;

(xxiii) that contains any provisions requiring the Company or any Subsidiary to indemnify any other party (excluding indemnities contained in agreements for the purchase, sale or license of products entered into in the Ordinary Course of Business);

(xxiv) that either involves more than $50,000 or is not entered into in the Ordinary Course of Business; and

 

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(xxv) that is otherwise material to the Company and its Subsidiaries as a whole and not previously disclosed pursuant to this Section 3.14.

(b) Except as set forth in Section 3.14 of the Disclosure Schedule, each of the customers of the Company has signed and is bound by a written contract (including click wrap Contracts) that is similar to one of the form agreements in all material respects that is referred to on Section 3.14 of the Disclosure Schedule, and, to the knowledge of the Company, the provisions of each such customer Contract, including provisions regarding proprietary protection and limitations on liability, are binding on the customer. Except as set forth in Section 3.14 of the Disclosure Schedule, all customers have accepted the Software, products and/or services described in their respective customer Contracts. Except as set forth in Section 3.14 of the Disclosure Schedule, within the last three (3) years, the Company (i) has not failed to achieve a service level commitment set forth in any Contract, (ii) has no outstanding claims for service level commitments, or (iii) has not breached any “most favored customer” pricing provisions contained in any agreement listed in Section 3.13 or Section 3.14 of the Disclosure Schedule.

(c) The Company has delivered or made available to the Buyer a complete and accurate copy of each agreement listed in Section 3.13 or Section 3.14 of the Disclosure Schedule. With respect to each agreement so listed: (i) the agreement is legal, valid, binding and enforceable and in full force and effect; (ii) the agreement will continue to be legal, valid, binding and enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing; and (iii) neither the Company nor any Subsidiary nor, to the knowledge of the Company, any other party, is in breach or violation of, or default under, any such agreement, and no event has occurred, is pending or, to the knowledge of the Company, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a breach or default by the Company or any Subsidiary or, to the knowledge of the Company, any other party under such agreement.

(d) Except as set forth on Section 3.14 of the Disclosure Schedule, no Person is renegotiating, or has the right to renegotiate, any amount paid or payable to the Company under any Material Contract or another other term or provision of any Material Contract.

(e) The Material Contracts are all the Contracts necessary and sufficient to operate the Company’s business as currently operated.

3.15 Accounts Receivable and Unbilled Receivables .

(a) Accounts Receivable . All accounts receiva


 
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