AGREEMENT AND PLAN OF MERGER

Table of Contents

EXHIBIT 2.1

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

LIGAND PHARMACEUTICALS INCORPORATED,

MARGAUX ACQUISITION CORP.,

LATOUR ACQUISITION, LLC

AND

PHARMACOPEIA, INC.

Dated as of September 24, 2008

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TABLE OF CONTENTS

 

 

i

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ii

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TABLE OF DEFINED TERMS

 

 

iii

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iv

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v

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INDEX OF EXHIBITS

 

Company Disclosure Letter

Parent Disclosure Letter

 

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AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (this “ Agreement ”) is made and entered into as of September 24, 2008, by and among Ligand Pharmaceuticals Incorporated, a Delaware corporation (“ Parent ”), Margaux Acquisition Corp., a Delaware corporation and direct wholly-owned subsidiary of Parent (“ Merger Sub 1 ”), Latour Acquisition, LLC, a Delaware limited liability company and direct wholly-owned subsidiary of Parent (“ Merger Sub 2 ,” and together with Parent and Merger Sub 1, the “ Parent Parties ”), and Pharmacopeia, Inc., a Delaware corporation (the “ Company ”).

RECITALS

A. The respective Boards of Directors of Parent, Merger Sub 1 and the Company have each deemed it advisable and in the best interests of their respective companies and stockholders that Parent, Merger Sub 1 and the Company consummate the business combination and other transactions provided for herein in order to advance their respective long-term strategic business interests.

B. The Board of Directors of Parent, on behalf of Parent, in its capacity as the sole managing member of Merger Sub 2, has deemed it advisable and in the best interests of Merger Sub 2 and its sole member that Merger Sub 2 consummate the business combination and other transactions provided for herein in order to advance its long-term strategic business interests.

C. The respective Boards of Directors of Parent, Merger Sub 1 and the Company have each approved, in accordance with the applicable provisions of the laws of the state of Delaware (“ Delaware Law ”), this Agreement and the transactions contemplated hereby, including the Mergers (as defined herein).

D. The Board of Directors of Parent, on behalf of Parent, in its capacity as the sole managing member of Merger Sub 2, has approved in accordance with the applicable provisions of Delaware Law, this Agreement and the transactions contemplated hereby, including the Mergers.

E. The Board of Directors of the Company has resolved to recommend to its stockholders the adoption of this Agreement.

F. Parent, as the sole stockholder of Merger Sub 1 and the sole managing member of Merger Sub 2, has adopted this Agreement and authorized the issuance of shares of Common Stock of Parent, par value $0.0001 per share (the “ Parent Common Stock ”) pursuant to the terms of this Agreement (the “ Share Issuance ”).

G. Parent, Merger Sub 1, Merger Sub 2 and the Company desire to make certain representations, warranties and agreements in connection with the Mergers and also to prescribe certain conditions to the Mergers.

H. For United States federal income tax purposes, the parties intend that the Mergers, taken together, shall qualify as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”), and the parties intend, by executing this Agreement, to adopt a plan of reorganization within the meaning of Treasury Regulations Sections 1.368-2(g) and 1.368-3(a).

 

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NOW, THEREFORE , in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE I

THE MERGERS

1.1 The Mergers.

(a) Merger 1 . Upon the terms and subject to the conditions hereof, at the Merger 1 Effective Time, Merger Sub 1 shall be merged with and into the Company (“ Merger 1 ”) and the separate corporate existence of Merger Sub 1 shall thereupon cease, and the Company shall continue as the surviving corporation (the “ Intermediate Surviving Corporation ”) in accordance with the General Corporation Law of the State of Delaware (the “ DGCL ”). Merger 1 shall become effective upon the filing of the certificate of merger with respect to Merger 1 (the “ Certificate of Merger 1 ”) with the Secretary of State of the State of Delaware in accordance with the provisions of the DGCL, or at such other time as Merger Sub 1 and the Company shall agree should be specified in the Certificate of Merger 1, which filing shall be made as soon as practicable on the Closing Date. When used in this Merger Agreement, the term “ Merger 1 Effective Time ” shall mean the time at which the Certificate of Merger 1 is accepted for filing by the Secretary of State of the State of Delaware or such time as otherwise specified in the Certificate of Merger 1. Merger 1 shall, from and after the Merger 1 Effective Time, have all the effects provided herein, in the Certificate of Merger 1 and in the applicable provisions of the DGCL.

(b) Merger 2 . Immediately following the consummation of Merger 1, upon the terms and subject to the conditions hereof, at the Merger 2 Effective Time, the Intermediate Surviving Corporation shall be merged with and into Merger Sub 2 (“ Merger 2” and, together with Merger 1, the “ Mergers ”) and the separate corporate existence of the Intermediate Surviving Corporation shall thereupon cease, and Merger Sub 2 shall continue as the surviving entity (the “ Surviving Entity ”) in accordance with the Limited Liability Company Act of the State of Delaware (the “ LLC Act ”). Merger 2 shall become effective upon the filing of the certificate of merger with respect to Merger 2 (the “ Certificate of Merger 2 ” and, together with the Certificate of Merger 1, the “ Certificates of Merger ”) with the Secretary of State of the State of Delaware in accordance with the provisions of the LLC Act, or at such other time as Merger Sub 2 and the Intermediate Surviving Corporation shall agree should be specified in the Certificate of Merger 2, which filing shall be made as soon as practicable on the Closing Date following the Merger 1 Effective Time. When used in this Merger Agreement, the term “ Merger 2 Effective Time ” shall mean the time at which the Certificate of Merger 2 is accepted for filing by the Secretary of State of the State of Delaware or such time as otherwise specified in the Certificate of Merger 2. Merger 2 shall, from and after the Merger 2 Effective Time, have all the effects provided herein, in the Certificate of Merger 2 and in the applicable provisions of the LLC Act.

1.2 Closing. The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of Latham & Watkins LLP (“ LW ”), located at 12636 High Bluff Drive, Suite 400, San Diego, California, at a time and date to be specified by the parties, which shall be no later than the second business day after the satisfaction or waiver of the conditions set forth in Article VI (other than those that by their terms are to be satisfied or waived at the Closing, it being understood that the occurrence of the Closing shall remain subject to the satisfaction or waiver of such conditions at the Closing), or at such other time, date and location as the parties hereto agree in writing. The date on which the Closing occurs is referred to herein as the “ Closing Date .”

1.3 Effect of the Mergers. At the Merger 1 Effective Time and Merger 2 Effective Time, the effect of Merger 1 and Merger 2, respectively, shall be as provided in this Agreement and the applicable provisions of Delaware Law, including Section 259 of the DGCL. Without limiting the generality of the foregoing, and subject thereto, (i) at the Merger 1 Effective Time, all the property, rights, privileges, powers and franchises of the Company and Merger Sub 1 shall vest in the Intermediate Surviving Corporation, and all debts, liabilities and

 

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duties of the Company and Merger Sub 1 shall become the debts, liabilities and duties of the Intermediate Surviving Corporation, and (ii) at the Merger 2 Effective Time, all the property, rights, privileges, powers and franchises of the Intermediate Surviving Corporation and Merger Sub 2 shall vest in the Surviving Entity, and all debts, liabilities and duties of the Intermediate Surviving Corporation and Merger Sub 2 shall become the debts, liabilities and duties of the Surviving Entity.

1.4 Organizational Documents.

(a) At the Merger 1 Effective Time, the certificate of incorporation of Merger Sub 1, as in effect immediately prior to the Merger 1 Effective Time, shall be the certificate of incorporation of the Intermediate Surviving Corporation. At the Merger 2 Effective Time, the limited liability company agreement of Merger Sub 2, as in effect immediately prior to the Merger 2 Effective Time, shall become the limited liability company agreement of the Surviving Entity except that Parent may provide for the amendment of the name of the Surviving Entity to Pharmacopeia, LLC.

(b) At the Merger 1 Effective Time, the bylaws of Merger Sub 1, as in effect immediately prior to the Merger 1 Effective Time, shall be the bylaws of the Intermediate Surviving Corporation.

1.5 Managing Member, Directors and Officers. The directors and officers of Merger Sub 1 immediately prior to the Merger 1 Effective Time shall be the directors and officers of the Intermediate Surviving Corporation. The managing member and officers of Merger Sub 2 immediately prior to the Merger 2 Effective Time shall be the managing member and officers of the Surviving Entity, each to hold office in accordance with the limited liability company agreement of the Surviving Entity, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, in any case in the manner provided in the limited liability company agreement of the Surviving Entity and in accordance with applicable Legal Requirements.

1.6 Effect of Merger 1 on Capital Stock of the Company. Subject to the terms and conditions of this Agreement and the DGCL, at the Merger 1 Effective Time, by virtue of Merger 1 and without any action on the part of Parent, Merger Sub 1, the Company or the holders of any shares of capital stock of the following securities, the following shall occur:

(a) Company Common Stoc k. Each share of the Common Stock, par value $0.01 per share, of the Company (the “ Company Common Stock ”), including the associated preferred share purchase rights (the “ Company Rights ”) issued pursuant to the Rights Agreement between Pharmacopeia Drug Discovery, Inc. and American Stock Transfer & Trust Company, dated April 30, 2004 (“ Company Rights Agreement ”) (the Company Rights, together with the shares of the Company Common Stock, are hereinafter referred to as the “ Shares ”), issued and outstanding immediately prior to the Merger 1 Effective Time and each Share issuable pursuant to the Company Restricted Stock Units (as defined below) (other than (i) any Shares to be canceled pursuant to Section 1.6(b) and (ii) Dissenting Shares (as defined below)), will be canceled and extinguished and automatically converted (subject to Section 1.6(f) ) into the right to receive:

(i) a portion of a validly issued, fully paid and nonassessable share of Parent Common Stock equal to the Exchange Ratio (the “ Per Share Stock Consideration ”) upon surrender of the certificate representing such Share of Company Common Stock in the manner provided in Section 1.7 (or in the case of a lost, stolen or destroyed certificate, upon delivery of an affidavit (and bond, if required) in the manner provided in Section 1.9 ). “ Exchange Ratio ” means an amount equal to (A) (i) 17,600,000, minus (ii) the quotient of the aggregate Option Cancellation Payments made by the Company in accordance with Section 1.6(d) hereof divided by the Parent Common Stock Value and rounded to the nearest whole number (the “ Option Cancellation Amount ”) (the “ Numerator ”), divided by (B) an amount equal to the sum of (x) the aggregate number of Shares of Company Common Stock issued and outstanding immediately prior to the Merger 1 Effective Time, (y) the aggregate number of Shares of Company Common Stock issuable pursuant to restricted stock units issued under the Company Stock Plans issued and outstanding immediately prior to the Merger 1 Effective Time (the “ Company Restricted Stock Units ”) (after giving effect to any accelerated vesting as a result of the transactions contemplated by this Agreement), and (z) the aggregate number of Shares of Company Common Stock

 

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into which the Company Options issued and outstanding immediately prior to the Merger 1 Effective Time, if any, would be exercisable (after giving effect to any accelerated vesting as a result of the transactions contemplated by this Agreement), but without counting (1) the Company Options which will be canceled in accordance with Section 1.6(d) hereof prior to the Merger 1 Effective Time and (2) the aggregate number of Shares of Company Common Stock issuable upon exercise of Company Options which are excluded pursuant to the final paragraph of this subsection (a), (collectively, the “ Denominator ”); provided , however , that notwithstanding the foregoing, (1) if the Parent Common Stock Value is greater than $3.75 but not greater than $4.50, then the Numerator shall be equal to an amount that is the quotient of (I)(a) $66,000,000 minus (b) the aggregate Option Cancellation Payments divided by (II) such Parent Common Stock Value, (2) if the Parent Common Stock Value is greater than $4.50, then the Numerator shall be equal to 14,700,000 minus the Option Cancellation Amount, or (3) if the Parent Common Stock Value is less than $3.00, then the Numerator shall be equal to an amount that is the quotient of (A)(x) $52,800,000 minus (y) the aggregate Option Cancellation Payments divided by (B) such Parent Common Stock Value, but in no event shall the Numerator exceed 18,000,000. “ Parent Common Stock Value ” means the volume weighted average of the per share daily closing prices of a share of Parent Common Stock on The Nasdaq Global Market, as reported in The Wall Street Journal during the 20 consecutive trading days ending on the fifth trading day prior to the date that the Company Stockholders’ Meeting is held. The Exchange Ratio shall be calculated to the nearest one-ten thousandth of a share of Parent Common Stock and the Parent Common Stock Value shall be calculated to the nearest one-tenth of a cent;

(ii)(A) if the Parent Common Stock Value is equal to or greater than $2.38, but less than $3.00, per share cash consideration, if any, in an amount equal to the quotient obtained by dividing (1) an amount equal to (x) $52,800,000 minus the aggregate Option Cancellation Payments less (y) an amount equal to the product of such Parent Common Stock Value multiplied by the Numerator, by (2) the Denominator; and (B) if the Parent Common Stock Value is less than $2.38, per share cash consideration in an amount equal to the quotient obtained by dividing (x) $10,000,000 minus the aggregate Option Cancellation Payment by (y) the Denominator. Any cash consideration payable pursuant to this Section 1.6(a)(ii) shall be made without interest and herein referred to as the “ Additional Per Share Cash Consideration ”; and

(iii) one contingent value right (a “ CVR ”) which shall be subject to the terms and conditions of a contingent value rights agreement (the “ CVR Agreement ”) substantially in the form attached hereto as Exhibit 1.6 , and providing for an aggregate of $15 million in cash payable to the holders of the CVRs under certain circumstances. Any Merger Consideration payable pursuant to this clause (iii) relating to the Assumed Company Options and New Warrants will be paid by Parent upon exercise of such Assumed Company Option or New Warrant by the holder thereof and following the receipt by Parent of the applicable exercise price therefor.

The Per Share Stock Consideration, Additional Per Share Cash Consideration, if any, and CVR to be received in respect of each Share of Company Common Stock pursuant to this Section 1.6(a) are collectively referred to herein as the “ Merger Consideration .” In calculating the Denominator in clauses (i) and (ii) above, the Shares of Company Common Stock issuable upon exercise of Company Options not cancelled pursuant to Section 1.6(d) hereof shall be included in the calculation, except to the extent their exclusion would not conflict with the provisions of the following sentence and such Company Common Stock so issuable shall be excluded from the Denominator. Notwithstanding the foregoing, in no event will the aggregate number of shares of Parent Common Stock payable as Merger Consideration (including the Parent Common Stock which may be issuable with respect to the Company Restricted Stock Units, the Company Options which will not be cancelled in accordance with Section 1.6(d) hereof and the Existing Warrants) exceed 19.99% of the number of issued and outstanding shares of Parent Common Stock on the date of execution of this Agreement.

(b) Cancellation of Treasury and Parent Owned Stock . Each Share of Company Common Stock, if any, held by the Company or Parent or any direct or indirect wholly-owned Subsidiary of Parent immediately

 

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prior to the Merger 1 Effective Time shall be canceled and extinguished without any conversion thereof. Each Share of Company Common Stock, if any, held by any direct or indirect Subsidiary of the Company shall remain outstanding and shall become that number of shares of the Intermediate Surviving Corporation that bear the same ratio to the aggregate number of outstanding shares of the Intermediate Surviving Corporation as the number of shares held by such Subsidiary bore to the aggregate number of outstanding Shares of Company Common Stock immediately prior to the Merger 1 Effective Time.

(c) Capital Stock of Merger Sub 1 . Each share of common stock, par value $0.001, of Merger Sub 1 (the “ Merger Sub 1 Common Stock ”) issued and outstanding immediately prior to the Merger 1 Effective Time shall be converted into one validly issued, fully paid and nonassessable share of common stock, par value $0.001 per share, of the Intermediate Surviving Corporation. Following the Merger 1 Effective Time, each certificate evidencing ownership of shares of Merger Sub 1 Common Stock shall evidence ownership of such shares of capital stock of the Intermediate Surviving Corporation.

(d) Stock Options .

(i) Prior to the Merger 1 Effective Time, the Company shall offer to cancel, effective immediately prior to the Merger 1 Effective Time, any of the Company Options granted under the Company Stock Plans (a “ Cancellation Offer ”) in exchange for the payment of an amount to be determined by the Company up to $0.20 per share of Company Common Stock subject to such Company Options (each such payment, an “ Option Cancellation Payment ”); provided , however , that in no event shall the Option Cancellation Payments exceed $1,000,000 in the aggregate. To facilitate the foregoing, an option cancellation agreement (and other appropriate and customary information and transmittal materials) in such form as Parent and the Company shall mutually agree (an “ Option Cancellation Agreement ”) shall be distributed to each holder of a Company Option to whom a Cancellation Offer is made. The Option Cancellation Agreements shall provide that, upon execution by the holder of such Company Option and delivery of such Option Cancellation Agreement to the Company in accordance with the provisions set forth herein, such Company Option shall be cancelled in accordance with its terms, effective immediately prior to the Merger 1 Effective Time, and the holder of such Company Option, in cancellation and settlement therefor, shall be entitled to an Option Cancellation Payment reduced by any applicable withholding Taxes. The Option Cancellation Agreement will include a release of claims against the Company with respect to such Company Options. The Board of Directors of the Company shall adopt all appropriate resolutions and take all other actions necessary with respect to the Company Options subject to an Option Cancellation Agreement, to terminate the relevant individual option agreements and cancel the relevant Company Options as necessary to effectuate the provisions of this Section 1.6(d)(i) . Any Cancellation Offer by the Company shall be on such terms and conditions as are reasonably acceptable to Parent and shall comply in all material respects with applicable federal and state securities laws, including, if necessary, the rules applicable to tender offers.

(ii) At the Merger 1 Effective Time, each Company Option granted under the Amended and Restated 1994 Incentive Stock Plan of the Company and the 1995 Director Option Plan of the Company that is outstanding and unexercised immediately prior to the Merger 1 Effective Time and that is not subject to an effective Option Cancellation Agreement shall not be assumed by the Intermediate Surviving Corporation or Parent, but shall instead be cancelled (each such Company Option, a “ 1994/1995 Company Option ”). As of the Merger 1 Effective Time, all 1994/1995 Company Options shall no longer be outstanding and shall automatically cease to exist, and each holder of a 1994/1995 Company Option shall cease to have any rights with respect thereto. Prior to the Merger 1 Effective Time, the Company agrees to take all necessary action to (i) effect the termination of all 1994/1995 Company Options outstanding immediately prior to the Merger 1 Effective Time pursuant to this Section 1.6(d)(ii) and (ii) effect the termination, as of the Merger 1 Effective Time, of the Amended and Restated 1994 Incentive Stock Plan of the Company and the 1995 Director Option Plan of the Company and any other plan or agreement pursuant to which 1994/1995 Company Options have been issued by the Company. Each 1994/1995 Company Option cancelled pursuant to this Section 1.6(d)(ii) and each Company Option cancelled pursuant to an effective Option Cancellation Agreement pursuant to Section 1.6(d)(i) above, is referred to herein as a “ Cancelled Company Option ”).

 

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(iii) At the Merger 1 Effective Time, each Company Option that is not a Cancelled Company Option and that is outstanding and unexercised immediately prior to the Merger 1 Effective Time (whether vested or unvested) will be assumed by Parent (each, an “ Assumed Company Option ”). Each Assumed Company Option will continue to have, and be subject to, the same terms and conditions set forth in the applicable Assumed Company Option (including any applicable stock option agreement or other document evidencing such Assumed Company Option) immediately prior to the Merger 1 Effective Time (including any repurchase rights or vesting provisions), except that such Assumed Company Option will be exercisable (or will become exercisable in accordance with its terms) for the applicable Merger Consideration instead of shares of Company Common Stock.

(iv) Prior to the Merger 1 Effective Time, Parent shall take all necessary action to assume and adopt, effective as of the Merger 1 Effective Time, the Company’s Amended and Restated 2004 Stock Incentive Plan and the Company’s 2000 Stock Option Plan solely to the extent there are any Assumed Company Options granted thereunder. Following the Merger 1 Effective Time, Parent shall not issue any additional options under such plans, and the share reserve under each such plan shall be automatically reduced to the number of shares of Parent Common Stock issuable pursuant to the Assumed Company Options granted under such plan.

(e) Warrants . Subject to the consummation of Merger 1, effective as of immediately prior to the Merger 1 Effective Time, each warrant to acquire Shares of the capital stock of the Company (each, an “ Existing Warrant ”) shall be converted into a new warrant (each, a “ New Warrant ”) entitling its holder to receive, at a total price not to exceed that payable upon the exercise or conversion of the Existing Warrant, and in lieu of the Shares of the capital stock of the Company theretofore issuable upon exercise or conversion of the Existing Warrant, the applicable Merger Consideration that would have been receivable upon Merger 1 by the holder of the Existing Warrant if the Existing Warrant had been exercised immediately prior to the Merger 1 Effective Time.

(f) Fractional Shares; Additional Per Share Cash Consideration. No fraction of a share of Parent Common Stock will be issued by virtue of Merger 1, but in lieu thereof each holder of record of Shares of Company Common Stock who would otherwise be entitled to receive a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock that otherwise would be received by such holder of record) shall, upon surrender of such holder’s Certificate(s), receive from Parent an amount of cash (rounded to the nearest whole cent), without interest, equal to the product of (i) such fraction, multiplied by (ii) the Parent Common Stock Value. As promptly as practicable after the determination of the amount of cash, if any, to be paid to holders of fractional share interests, the Exchange Agent shall so notify Parent and Parent shall, or shall cause the Surviving Entity to, deposit such amount with the Exchange Agent and shall cause the Exchange Agent to forward payments to such holders of fractional share interests subject to and in accordance with the terms hereof. The aggregate Additional Per Share Cash Consideration, if any, included in the Merger Consideration to which a holder of Shares of Company Common Stock would otherwise be entitled for all of such holder’s shares shall be rounded to the nearest cent.

(g) Adjustments to Exchange Ratio . The Exchange Ratio shall be adjusted to reflect fully the appropriate effect of any stock split, reverse stock split, subdivision, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock or Company Common Stock), reorganization, recapitalization, reclassification, combination or exchange of shares or other like change with respect to Parent Common Stock or Company Common Stock having a record date on or after the date hereof and prior to the Merger 1 Effective Time.

1.7 Surrender of Certificates.

(a) Exchange Agent . Parent shall select an institution reasonably satisfactory to the Company to act as the exchange agent (the “ Exchange Agent ”) with respect to Merger 1.

(b) Parent to Provide Common Stock and Cash . Prior to the Merger 1 Effective Time, Parent shall enter into an agreement with the Exchange Agent which shall provide that Parent shall make available to the

 

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Exchange Agent for exchange in accordance with this Article I , the applicable Merger Consideration payable pursuant to Section 1.6 in exchange for outstanding Shares of Company Common Stock. In addition, Parent shall make available as necessary from time to time after the Merger 1 Effective Time as needed, cash in an amount sufficient for payment in lieu of fractional shares pursuant to Section 1.6(f) and any dividends or distributions to which holders of Shares of Company Common Stock may be entitled pursuant to Section 1.7(d) . Any cash and Parent Common Stock deposited with the Exchange Agent shall hereinafter be referred to as the “ Exchange Fund .”

(c) Exchange Procedures . Promptly after the Merger 1 Effective Time, Parent shall cause the Exchange Agent to mail to each holder of record (as of the Merger 1 Effective Time) of a certificate or certificates (the “ Certificates ”) which immediately prior to the Merger 1 Effective Time represented outstanding Shares of Company Common Stock or non-certificated Shares of Company Common Stock represented by book-entry (“ Book-Entry Shares ”) whose shares were converted into the right to receive the Merger Consideration pursuant to Section 1.6(a) , cash in lieu of any fractional shares pursuant to Section 1.6(f) and any dividends or other distributions pursuant to Section 1.7(d) : (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates or Book-Entry Shares shall pass, only upon delivery of the Certificates or Book-Entry Shares to the Exchange Agent and shall be in customary form and (ii) instructions for use in effecting the surrender of the Certificates or Book-Entry Shares in exchange for certificates representing whole shares of Parent Common Stock, CVRs and the cash, if any, constituting the Merger Consideration, cash in lieu of any fractional shares pursuant to Section 1.6(f) and any dividends or other distributions pursuant to Section 1.7(d) . Upon surrender of Certificates or Book-Entry Shares for cancellation to the Exchange Agent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto and such other documents as may reasonably be required by the Exchange Agent, the holder of record of such Certificates or Book-Entry Shares shall be entitled to receive in exchange therefor the number of whole shares of Parent Common Stock (after taking into account all Certificates and Book-Entry Shares surrendered by such holder of record) to which such holder is entitled pursuant to Section 1.6(a) (which, at the election of Parent, may be in uncertificated book entry form unless a physical certificate is requested by the holder of record or is otherwise required by applicable Legal Requirements or regulation), the portion of the cash, if any, constituting the Merger Consideration to which such holder is entitled pursuant to Section 1.6(a) , the CVRs to which such holder is entitled pursuant to Section 1.6(a) , the payment in lieu of fractional shares which such holder has the right to receive pursuant to Section 1.6(f) and any dividends or distributions payable pursuant to Section 1.7(d) , and the Certificates and Book-Entry Shares so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Shares of Company Common Stock which is not registered in the transfer records of the Company, the Merger Consideration to which such holder is entitled pursuant to Section 1.6(a) , the payment in lieu of fractional shares which such holder has the right to receive pursuant to Section 1.6(f) and any dividends or distributions payable pursuant to Section 1.7(d) , may be paid to a transferee if the Certificates or Book-Entry Shares representing such shares of Company Common Stock are presented and surrendered to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer, such other documents and guarantees as may be required by the Exchange Agent and by evidence that any applicable stock transfer taxes have been paid, and any such Certificates or Book-Entry Shares so presented and surrendered shall be forthwith canceled. Until so surrendered, outstanding Certificates and Book-Entry Shares will be deemed from and after the Merger 1 Effective Time, for all corporate purposes, to evidence (i) the ownership of the number of full shares of Parent Common Stock into which such Shares of Company Common Stock shall have been so converted pursuant to Section 1.6(a) , (ii) the right to receive the cash portion, if any, constituting the Merger Consideration to which such holder is entitled pursuant to Section 1.6(a) , (iii) the CVRs to which such holder is entitled pursuant to Section 1.6(a), (iv) the right to receive an amount in cash in lieu of the issuance of any fractional shares in accordance with Section 1.6(f) and (v) any dividends or distributions payable pursuant to Section 1.7(d) .

(d) Distributions With Respect to Unexchanged Shares . No dividends or other distributions with respect to Parent Common Stock with a record date after the Merger 1 Effective Time and no payment in lieu of fractional shares pursuant to Section 1.6(f) will be paid to the holders of any unsurrendered

 

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Certificates or Book-Entry Shares with respect to the shares of Parent Common Stock represented thereby until the holders of such Certificates or Book-Entry Shares shall surrender such Certificates or Book-Entry Shares in the manner provided in this Section 1.7 . Subject to applicable Legal Requirements, following surrender of any such Certificates or Book-Entry Shares in the manner provided in this Section 1.7 , the Exchange Agent shall deliver to the holders thereof, without interest (i) promptly after such surrender, the number of whole shares of Parent Common Stock issued in exchange therefor, pursuant to Section 1.6(a), the CVRs to which such holder(s) is entitled pursuant to Section 1.6(a) , the cash, if any, constituting the Merger Consideration payable in exchange therefor pursuant to Section 1.6(a) along with payment in lieu of fractional shares pursuant to Section 1.6(f) and the amount of any such dividends or other distributions with a record date after the Merger 1 Effective Time and theretofore paid with respect to such whole shares of Parent Common Stock and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Merger 1 Effective Time and a payment date subsequent to such surrender payable with respect to such whole shares of Parent Common Stock.

(e) Transfers of Ownership . If shares of Parent Common Stock are to be issued in a name other than that in which the Certificates or Book-Entry Shares surrendered in exchange therefor are registered, it will be a condition of the issuance thereof that the Certificates so surrendered will be properly endorsed and otherwise in proper form for transfer and that the Persons requesting such exchange will have paid to Parent or any agent designated by it any transfer or other Taxes required by reason of the issuance of shares of Parent Common Stock in any name other than that of the registered holder of the Certificates or Book-Entry Shares surrendered, or established to the reasonable satisfaction of Parent or any agent designated by it that such Tax has been paid or is not payable.

(f) Required Withholding . Each of Parent, the Intermediate Surviving Corporation, the Surviving Entity, and the Exchange Agent, as applicable, shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement such amounts as may be required to be deducted or withheld therefrom under the Code, under any provision of state, local or foreign Tax law, or under any other applicable Legal Requirement. To the extent such amounts are so deducted or withheld, the amount of such consideration shall be treated for all purposes under this Agreement as having been paid to the Person to whom such consideration would otherwise have been paid.

(g) No Liability . Notwithstanding anything to the contrary in this Section 1.7 , neither the Exchange Agent, the Intermediate Surviving Corporation, the Surviving Entity, nor any party hereto shall be liable to a holder of shares of Parent Common Stock or Company Common Stock for any amount paid to a public official pursuant to any applicable abandoned property, escheat or similar law.

(h) Investment of Exchange Fund . The Exchange Agent shall invest any cash included in the Exchange Fund as directed by Parent on a daily basis; provided that no gain or loss thereon or income or loss generated thereby shall affect the amounts payable to Company stockholders pursuant to this Article I . Any interest and other income resulting from such investment shall become a part of the Exchange Fund, and any amounts in excess of the amounts payable to Company stockholders pursuant to this Article I shall promptly be paid to Parent.

(i) Termination of Exchange Fund . Any portion of the Exchange Fund which remains undistributed to the holders of Certificates or Book-Entry Shares one (1) year after the Merger 1 Effective Time shall, at the request of Parent, be delivered to Parent or otherwise according to the instruction of Parent, and any holders of the Certificates or Book-Entry Shares who have not surrendered such Certificates or Book-Entry Shares in compliance with this Section 1.7 shall after such delivery to Parent look only to Parent for the shares of Parent Common Stock, CVRs and cash, if any, constituting the Merger Consideration pursuant to Section 1.6(a) , cash in lieu of any fractional shares pursuant to Section 1.6(f) and any dividends or other distributions pursuant to Section 1.7(d) with respect to the Shares of Company Common Stock formerly represented thereby. If any Certificate or Book-Entry Share shall not have been surrendered prior to three (3) years after the Merger 1 Effective Time (or immediately prior to such earlier time as such amounts would otherwise escheat to or become property of any Governmental Entity), any such portion of the

 

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Exchange Fund (including amounts held by Parent after the distribution to it of the Exchange Fund) remaining unclaimed by holders of Shares of Company Common Stock immediately prior to such time shall, to the extent permitted by law, become the property of Parent free and clear of any claims or interest of any Person previously entitled thereto.

1.8 No Further Ownership Rights in Company Common Stock . The Merger Consideration issued and paid upon the surrender for exchange of Shares of Company Common Stock in accordance with the terms hereof (including any cash paid in respect thereof pursuant to Sections 1.6(a) and 1.6(f) and any dividends or distributions paid in respect thereof pursuant to Section 1.7(d) ) shall be deemed to have been issued and paid in full satisfaction of all rights pertaining to such Shares of Company Common Stock, and there shall be no further registration of transfers on the records of the Intermediate Surviving Corporation of Shares of Company Common Stock which were outstanding immediately prior to the Merger 1 Effective Time. On or after the Merger 1 Effective Time, any Certificates or Book-Entry Shares presented to the Exchange Agent, Parent, the Intermediate Surviving Corporation or the Surviving Entity for any reason shall, subject to compliance with Section 1.7 , be converted into the Merger Consideration to which such holder is entitled pursuant to Section 1.6(a) , any cash in lieu of any fractional shares to which such holder is entitled pursuant to Section 1.6(f) and any dividends or other distributions to which such holder is entitled pursuant to Section 1.7(d) , in each case without any interest thereon.

1.9 Lost, Stolen or Destroyed Certificates . In the event any Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, such shares of Parent Common Stock, CVRs and cash, if any, constituting the Merger Consideration as to which such holder is entitled pursuant to Section 1.6 , cash for fractional shares, if any, as may be required pursuant to Section 1.6(f) and any dividends or distributions payable pursuant to Section 1.7(d) ; provided , however , that the Exchange Agent may, as a condition precedent to the issuance and payment thereof, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent, the Company, the Intermediate Surviving Corporation, the Surviving Entity, or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed.

1.10 [Intentionally Omitted].

1.11 Effect of Merger 2 on Capital Stock of the Intermediate Surviving Corporation and on the Membership Units of Merger Sub 2. As of the Merger 2 Effective Time, by virtue of Merger 2 and without any action on the part of the holder of any shares of capital stock of the Intermediate Surviving Corporation or any membership units of Merger Sub 2:

(a) All of the issued and outstanding shares of capital stock of the Intermediate Surviving Corporation shall be converted into and become 50% of the issued and outstanding membership interests of the Surviving Entity; and

(b) All of the issued and outstanding membership interests of Merger Sub 2 shall be converted into and become 50% of the issued and outstanding membership interests of the Surviving Entity.

1.12 Tax Consequences. It is intended by the parties hereto that, for United States federal income tax purposes, the Mergers, taken together, shall constitute a reorganization within the meaning of Section 368(a) of the Code. The parties hereto adopt this Agreement as a plan of reorganization within the meaning of Treasury Regulations Sections 1.368-2(g) and 1.368-3(a).

1.13 Further Action. The parties hereto shall execute and deliver such certificates and other documents and take such other actions as may be reasonably necessary or appropriate in order to effect the Mergers, including, but not limited to, making filings, recordings or publications required under the DGCL and the LLC Act. If at any time after the Merger 2 Effective Time any further action is necessary to vest in the Surviving Entity the title

 

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to all property or rights of Merger Sub 1, Merger Sub 2 or the Company, the managing member and authorized officers of the Surviving Entity are fully authorized in the name of Merger Sub 1, Merger Sub 2 or the Company, as the case may be, to take, and shall take, any and all such lawful action.

1.14 Dissenter’s Rights. Notwithstanding anything in this Agreement to the contrary, Shares of Company Common Stock issued and outstanding immediately prior to the Merger 1 Effective Time held by a holder who is entitled to demand and properly demands appraisal of such Shares of Company Common Stock (“ Dissenting Shares ”), pursuant to, and who complies in all respects with, Section 262 of the DGCL (the “ Appraisal Rights ”), shall not be converted into the right to receive the Merger Consideration, but shall be converted into the right to receive such consideration as may be due such holder pursuant to Section 262 of Delaware Law unless such holder fails to perfect, withdraws or otherwise loses such holder’s right to such payment or appraisal. From and after the Merger 1 Effective Time, a holder of Dissenting Shares shall not have and shall not be entitled to exercise any of the voting rights or other rights of a stockholder of the Company or the Intermediate Surviving Corporation. If, after the Merger 1 Effective Time, such holder fails to perfect, withdraws or otherwise loses any such Appraisal Rights, each such share of such holder shall no longer be considered a Dissenting Share and shall be deemed to have converted as of the Merger 1 Effective Time into the right to receive the Merger Consideration in accordance with Section 1.6(a) , cash in lieu of any fractional shares pursuant to Section 1.6(f) and any dividends or other distributions pursuant to Section 1.7(d) . The Company shall give prompt notice to Parent of any demands received by the Company for appraisal of Shares of Company Common Stock, withdrawals of such demands and any other instruments served pursuant to Delaware Law received by the Company, and Parent shall have the right to control all negotiations and proceedings with respect to such demands. Prior to the Merger 1 Effective Time, the Company shall not, except with the prior written consent of Parent, voluntarily make any payment with respect to, or settle or offer to settle, any such demands or agree to do or commit to do any of the foregoing.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as disclosed in writing in the disclosure letter (which letter shall in each case specifically identify by reference to sections of this Agreement any exceptions to each of the representations, warranties and covenants contained in this Agreement) supplied by the Company to Parent dated as of the date hereof and certified by a duly authorized executive officer of the Company (the “ Company Disclosure Letter ”), the Company represents and warrants to Parent and Merger Sub 1 as follows:

2.1 Organization; Standing and Power; Charter Documents; Subsidiaries.

(a) Organization; Standing and Power . The Company and each of its Subsidiaries (i) is a corporation or other organization duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, (ii) has the requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted, and (iii) is duly qualified or licensed and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to so qualify or to be in good standing, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect. For purposes of this Agreement, “ Subsidiary ,” when used with respect to any party, shall mean any corporation or other organization, whether incorporated or unincorporated, at least a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its Subsidiaries, or by such party and one or more of its Subsidiaries.

(b) Charter Documents . The Company has delivered or made available to Parent: (i) a true and correct copy of its Certificate of Incorporation (including any Certificate of Designations) and its Bylaws, each as

 

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amended or amended and restated to date (collectively, the “ Company Charter Documents ”) and (ii) the certificate of incorporation and bylaws, or like organizational documents (collectively, “ Subsidiary Charter Documents ”), of each of its Subsidiaries, and each such instrument is in full force and effect. The Company is not in violation of any of the provisions of the Company Charter Documents and each Subsidiary is not in material violation of its respective Subsidiary Charter Documents.

(c) Minutes . The Company has made available to Parent and its representatives true and complete copies of the minutes (or, in the case of minutes that have not yet been finalized, a brief summary of the meeting, including in each case a summary of any resolutions adopted by the Board of Directors of the Company) of all meetings of the stockholders, the Board of Directors and each committee of the Board of Directors of the Company and each of its Subsidiaries held since September 30, 2005.

(d) Subsidiaries . Section 2.1(d) of the Company Disclosure Letter sets forth each Subsidiary of the Company. All the outstanding shares of capital stock of, or other equity or voting interests in, each such Subsidiary have been duly authorized, validly issued and are fully paid and nonassessable and are owned by the Company, a wholly-owned Subsidiary of the Company, or the Company and another wholly-owned Subsidiary of the Company, free and clear of all pledges, claims, liens, charges, encumbrances, options and security interests of any kind or nature whatsoever (collectively, “ Liens ”), including any restriction on the right to vote, possess, use, sell, transfer or otherwise dispose of such capital stock or other ownership interests, except for restrictions imposed by applicable securities laws. Other than the Subsidiaries of the Company, neither the Company nor any of its Subsidiaries owns any capital stock of, or other equity or voting interests of any nature in, or any interest convertible, exchangeable or exercisable for, capital stock of, or other equity or voting interests of any nature in, any other Person.

2.2 Capital Structure.

(a) Capital Stock .

(i) The authorized capital stock of the Company consists of: (1) 100,000,000 Shares of Company Common Stock, par value $0.01 per share and (2) 2,500,000 shares of preferred stock, par value $0.01 per share (the “ Company Preferred Stock ”). At the close of business on September 19, 2008: (i) 29,775,543 Shares of Company Common Stock were issued and outstanding, and (ii) no shares of Company Preferred Stock were issued and outstanding. Since the close of business on September 19, 2008 through the execution of this Agreement, the Company has not issued any Shares of Company Common Stock, other than pursuant to the exercise of Company Options outstanding as of September 19, 2008 and granted pursuant to the Company Stock Plans. No Shares of Company Common Stock are owned or held by the Company or any Subsidiary of the Company. For purposes of this Agreement, “Company Stock Plans” shall mean the Company’s Amended and Restated 2004 Stock Incentive Plan, the Amended 1994 Incentive Stock Plan of the Company, the 1995 Director Option Plan of the Company, the 2000 Stock Option Plan of the Company and any other plan or agreement pursuant to which Company Options have been issued by the Company.

(ii) All of the outstanding shares of capital stock of the Company are, and all shares of capital stock of the Company which may be issued as contemplated or permitted by this Agreement will be, when issued, duly authorized and validly issued, fully paid and nonassessable and not subject to any preemptive rights. For purposes of this Agreement, “ Contract ” shall mean any written, oral or other agreement, contract, subcontract, settlement agreement, lease, binding understanding, instrument, note, option, warranty, purchase order, license, sublicense, insurance policy, benefit plan or other legally binding commitment or undertaking of any nature, as in effect as of the date hereof or as may hereinafter be in effect.

(b) Stock Options, Warrants and Restricted Stock Units .

(i) As of the close of business on September 19, 2008: (i) 4,157,353 Shares of Company Common Stock were subject to issuance pursuant to outstanding options to purchase Company Common Stock under the Company Stock Plans (the “ Company Options ”), (ii) 2,680,119 Shares of Company

 

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Common Stock were reserved for future issuance pursuant to Company Options or other equity-based awards available for grant under the Company Stock Plans, (iii) 232,000 Shares of Company Common Stock were subject to issuance pursuant to outstanding Company Restricted Stock Units, and (iv) 1,626,063 Shares of Company Common Stock were subject to issuance pursuant to the Existing Warrants. Since the close of business on September 19, 2008 through the execution of this Agreement, no Company Options or Company Restricted Stock Units have been granted and no Shares of Company Common Stock have been reserved for future issuance pursuant to Company Options, Company Restricted Stock Units or other equity-based awards available for grant under the Company Stock Plans. There are no outstanding or authorized stock appreciation, phantom stock, stock-based performance units, agreements, understandings, claims or other commitments or other similar rights (whether payable in stock, cash or other property) of any type granted or entered into by the Company or any of its Subsidiaries relating to the issuance, sale, repurchase or transfer of any securities of the Company or that give any person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights of securities of the Company.

(ii) Section 2.2(b) of the Company Disclosure Letter sets forth a list of each outstanding Company Option issued and (a) the particular Company Stock Plan pursuant to which such Company Option was granted, (b) the name and last known state of domicile of the holder of such Company Option, (c) the number of Shares of Company Common Stock subject to such Company Option, (d) the exercise price of such Company Option (and whether such option is subject to Section 409A of the Code), (e) the date on which such Company Option was granted, (f) the applicable vesting schedule (including any acceleration provisions with respect thereto), and the extent to which such Company Option is vested and exercisable as of the date hereof, (g) the date on which such Company Option expires, and (h) whether such Company Option is intended to qualify as an incentive stock option as defined in Section 422 of the Code. All Shares of Company Common Stock subject to issuance under any Company Stock Plan or otherwise, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, would be duly authorized, validly issued, fully paid and nonassessable. True and complete copies of the forms of all agreements relating to Company Options issued under the Company Stock Plans have been provided to Parent, such forms of agreements are not materially different from the agreements evidencing such Company Options (other than with respect to the name of the holder, the per share exercise price, the number of Shares subject to such Company Options and the applicable vesting schedule), and such agreements and instruments have not been amended, modified or supplemented, and the Company has no obligations under any Contract to amend, modify or supplement such agreements in any case from the forms provided to Parent (or the actual agreements evidencing such Company Options).

(iii) Section 2.2(b) of the Company Disclosure Letter sets forth a list of each outstanding Company Restricted Stock Unit issued and (a) the particular Company Stock Plan pursuant to which such Company Restricted Stock Unit was granted, (b) the name and last known state of domicile of the holder of such Company Restricted Stock Unit, (c) the number of Shares of Company Common Stock subject to such Company Restricted Stock Unit, (d) the exercise price of such Company Restricted Stock Unit (and whether such Company Restricted Stock Unit is subject to Section 409A of the Code), (e) the date on which such Company Restricted Stock Unit was granted, and (f) the applicable vesting schedule (including any acceleration provisions with respect thereto). True and complete copies of the forms of all agreements relating to Company Restricted Stock Units issued under the Company Stock Plans have been provided to Parent, such forms of agreements are not materially different from the agreements evidencing such Company Restricted Stock Units (other than with respect to the name of the holder, the number of Shares subject to such Company Restricted Stock Units and the applicable vesting schedule), and such agreements and instruments have not been amended, modified or supplemented, and the Company has no obligations under any Contract to amend, modify or supplement such agreements in any case from the forms provided to Parent (or the actual agreements evidencing such Company Restricted Stock Units).

 

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(iv) Section 2.2(b) of the Company Disclosure Letter sets forth a list of each outstanding Existing Warrant issued and (a) the name of the original holder of such Existing Warrant, (b) the number of Shares of Company Common Stock subject to such Existing Warrant, (c) the exercise price of such Existing Warrant, and (d) the date on which such Existing Warrant expires. True and complete copies of the forms of all agreements relating to each Existing Warrant have been provided to Parent, such forms of agreements are substantially the same as the agreements evidencing such Existing Warrants (other than with respect to the name of the holder and the number of Shares subject to such Existing Warrant), and such agreements have not been amended, modified or supplemented, and the Company has no obligations under any Contract to amend, modify or supplement such agreements.

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

(d) Other Securities .

(i) As of the date hereof, there are no securities, options, warrants, calls, rights, contracts, commitments, agreements, instruments, arrangements, understandings, obligations or undertakings of any kind to which the Company or any of its Subsidiaries is a party or by which any of them is bound obligating the Company or any of its Subsidiaries to (including on a deferred basis) issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock, Voting Debt or other voting securities of the Company or any of its Subsidiaries, or obligating the Company or any of its Subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, instrument, arrangement, understanding, obligation or undertaking.

(ii) All outstanding Shares of Company Common Stock, all outstanding Company Options, outstanding warrants of the Company, and all outstanding shares of capital stock of each Subsidiary of the Company have been issued and granted in compliance in all material respects with (i) all applicable federal, state and foreign securities laws and all other applicable Legal Requirements and (ii) all requirements set forth in applicable material Contracts. There are not any outstanding Contracts of the Company or any of its Subsidiaries to (i) repurchase, redeem or otherwise acquire any shares of capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries or (ii) dispose of any shares of the capital stock of, or other equity or voting interests in, any of its Subsidiaries. The Company is not a party to any voting agreement with respect to shares of the capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries and, to the Knowledge of the Company, there are no irrevocable proxies and no voting agreements, voting trusts, rights plans, anti-takeover plans or registration rights agreements with respect to any shares of the capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries. For purposes of this Agreement, “ Legal Requirements ” shall mean any federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, order, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity.

2.3 Authority; Non-Contravention; Necessary Consents .

(a) Authority . The Company has all requisite corporate power and authority to enter into this Agreement and the CVR Agreement, subject to the adoption and approval of Merger 1 by the Required Company Stockholders (as defined below), to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the CVR Agreement and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize the execution and delivery of this Agreement and the CVR Agreement or to consummate Merger 1 and the other transactions contemplated hereby and thereby, subject only to the

 

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adoption of this Agreement by the Required Company Stockholders and the filing of the Certificate of Merger 1 as required by the DGCL. The affirmative vote of the holders of a majority of the outstanding Shares of Company Common Stock (the “ Required Company Stockholders ”) is the only vote of the holders of any class or series of Company capital stock necessary to approve this Agreement, the consummation of Merger 1 and the other transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and, assuming due authorization, execution and delivery by Parent, Merger Sub 1 and Merger Sub 2, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law).

(b) Non–Contravention . The execution and delivery of this Agreement and the CVR Agreement by the Company does not, and the performance of this Agreement and the CVR Agreement by the Company will not: (i) assuming the Required Company Stockholders adopt this Agreement, conflict with or violate the Company Charter Documents or any Subsidiary Charter Documents of any Subsidiary of the Company, (ii) subject to obtaining the adoption of this Agreement by the Company’s stockholders as contemplated in Section 5.2 and compliance with the requirements set forth in Section 2.3(d) , conflict with or violate any material Legal Requirements applicable to the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries or any of their respective properties is bound or affected, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or materially impair the Company’s or any of its Subsidiaries rights or materially alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on any of the properties or assets of the Company or any of its Subsidiaries pursuant to, any Company Scheduled Contract, except, as to clauses (ii) and (iii), respectively, for any such conflicts, violations, breaches, defaults or other occurrences which would not be material to the Company and its Subsidiaries, taken as a whole. Section 2.3(b) of the Company Disclosure Letter lists all consents, waivers and approvals under any of the Company Scheduled Contracts required to be obtained in connection with the consummation of the transactions contemplated hereby, which, if individually or in the aggregate not obtained, would result in a loss of benefits to the Company or any of its Subsidiaries that would be material to the Company and its Subsidiaries, taken as a whole.

(c) Section 2.3(c) of the Company Disclosure Letter lists all consents, waivers and approvals under any of the Company’s or its Subsidiaries’ Contracts required to be obtained in connection with the consummation of the transactions contemplated hereby (including Merger 1), which, if individually not obtained, would reasonably be expected to result in a Company Material Adverse Effect.

(d) Necessary Consents . No consent, approval, order or authorization of, or registration, declaration or filing with any supranational, national, state, municipal, local or foreign government, any instrumentality, subdivision, court, administrative agency or commission or other governmental authority or instrumentality, or any quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority (a “ Governmental Entity ”) is required to be obtained or made by the Company in connection with the execution and delivery of this Agreement or the CVR Agreement or the consummation of Merger 1 and other transactions contemplated hereby or thereby, except for: (i) the filing of the Certificate of Merger 1 with the Secretary of State of the State of Delaware and appropriate documents with the relevant authorities of other states in which the Company and/or Parent are qualified to do business, (ii) the filing of the Proxy Statement with the Securities and Exchange Commission (the “ SEC ”) in accordance with the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) and the effectiveness of the Registration Statement, in which the Proxy Statement will be included, (iii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal, foreign and state securities (or related) laws and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”) and satisfaction of such other requirements of the

 

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comparable applicable laws of other jurisdictions, (iv) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable state securities or “blue sky” laws and the securities laws of any foreign country, and (v) such other consents, orders, authorizations, filings, declarations, approvals and registrations which if not obtained or made would materially adversely affect the ability of the parties hereto to consummate Merger 1 within the time frame in which Merger 1 would otherwise be consummated in the absence of the need for such consent, approval, order, authorization, registration, declaration or filings.

2.4 SEC Filings; Financial Statements; Internal Controls.

(a) SEC Filings . The Company has filed all required registration statements, prospectuses, reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated by reference) required to be filed by it with the SEC since September 30, 2005. All such required registration statements, prospectuses, reports, schedules, forms, statements and other documents are referred to herein as the “ Company SEC Reports .” As of their respective dates or, if amended or supplemented prior to the date of this Agreement, as of the date of such amendment or supplement, each Company SEC Report (i) complied in all material respects with the requirements of the Securities Act of 1933, as amended (the “ Securities Act ”), or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Company SEC Reports and (ii) did not at the time such Company SEC Report was filed (or became effective in the case of a registration statement), or if amended, supplemented or superseded by a filing prior to the date of this Agreement then on the date of such superseding filing, amendment or supplement, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. None of the Company’s Subsidiaries is required to file any forms, reports or other documents with the SEC. The Company has not prepared any amendments or modifications, which have not yet been filed with the SEC but which are required to be filed, to agreements, documents or other instruments which previously had been filed by the Company with the SEC pursuant to the Securities Act or the Exchange Act.

(b) Financial Statements . Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Company SEC Reports (the “ Company Financials ”) (as amended or supplemented prior to the date of this Agreement, if applicable): (i) was prepared in accordance with United States generally accepted accounting principles (“ GAAP ”) applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited interim financial statements, as may be permitted by the SEC on Form 10-Q, 8-K or any successor forms under the Exchange Act), and (ii) fairly presented in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as at the respective dates thereof and the consolidated results of the Company’s operations and cash flows for the periods indicated except that the unaudited interim financial statements were or are subject to normal year end adjustments which were not, or are not expected to be, material in amount to the Company and its Subsidiaries, taken as a whole. The Company does not intend to correct or restate, nor to the Company’s Knowledge, is there any basis for any correction or restatement of, in any material respect, any aspect of the Company Financials. The balance sheet of the Company dated as of June 30, 2008 contained in the Company SEC Report filed with the SEC on July 31, 2008 is hereinafter referred to as the “ Company Balance Sheet .” Except as disclosed in the Company Financials, neither the Company nor any of its Subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of a nature required to be reflected or reserved against on a consolidated balance sheet or in the related notes to the consolidated financial statements prepared in accordance with GAAP, except for liabilities or obligations (1) under this Agreement or incurred in connection with the transactions contemplated hereby, (2) incurred in the ordinary course of business since June 30, 2008, or (3) which are not, individually or in the aggregate, material to the business, results of operations or financial condition of the Company and its Subsidiaries, taken as a whole.

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and 15d-15 under the Exchange Act. The Company’s disclosure controls and procedures are reasonably designed to ensure that all material information required to be disclosed by the Company in the reports that it files or furnishes under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that all such material information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure and to make the certifications required pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”). The Company’s management has completed an assessment of the effectiveness of the Company’s system of internal control over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act for the fiscal year ended December 31, 2007, and such assessment concluded that such controls were effective and the Company’s independent registered accountant has issued (and not subsequently withdrawn or qualified) an attestation report concluding that the Company maintained effective internal control over financial reporting as of December 31, 2007. Since December 31, 2007 and through the date hereof, to the Knowledge of the Company, no events, facts or circumstances have occurred, or exist, such that management would not be able to complete its assessment of the effectiveness of the Company’s system of internal control over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act for the fiscal year ended December 31, 2007, and conclude, after such assessment, that such controls were effective. The principal executive officer and principal financial officer of the Company have made all certifications required by the Sarbanes-Oxley Act and any related rules and regulations promulgated by the SEC since December 31, 2005. The Company and each of its Subsidiaries has established and maintains and adheres to and enforces in all material respects a system of internal control over financial reporting, which is sufficient in all material respects to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements (including the Company Financials) for external purposes in accordance with GAAP. To the Knowledge of the Company, since the date of the Company’s most recent quarterly report on Form 10-Q filed with the SEC, neither the Company nor any of its Subsidiaries (including any Employee), nor the Company’s independent auditors has identified or been made aware of (A) any significant deficiency or material weakness in the design or operation of internal control over financial reporting utilized by the Company and its Subsidiaries, (B) any fraud, whether or not material, that involves the Company’s management or other Employees, or (C) any claim or allegation regarding any of the foregoing. In connection with the periods covered by the Company Financials since January 1, 2008, the Company has disclosed in the Company SEC Reports all significant deficiencies and material weaknesses identified in writing by the Company or the Company’s independent auditors (whether current or former) in the design or operation of the internal control over financial reporting utilized by the Company and its Subsidiaries. The Company is in compliance in all material respects with (i) the applicable provisions of the Sarbanes-Oxley Act and (ii) the applicable listing and corporate governance rules and regulations of The Nasdaq Stock Market, Inc. (“ Nasdaq ”).

2.5 Absence of Certain Changes or Events. Since the date of the Company Balance Sheet, there has not been any Company Material Adverse Effect. Except as set forth in Section 2.5 of the Company Disclosure Letter, during the period from the date of the Company Balance Sheet to the date hereof, there has not been: (i) any declaration, setting aside or payment of any dividend on, or other distribution (whether in cash, stock or property) in respect of, any of the Company’s or any of its Subsidiaries’ capital stock, or any purchase, redemption or other acquisition by the Company or any of its Subsidiaries of any of the Company’s capital stock or any other securities of the Company or its Subsidiaries or any options, warrants, calls or rights to acquire any such shares or other securities, other than repurchases of unvested shares in connection with the termination of the employment relationship with any employee, or upon the resignation of any director or consultant, pursuant to stock option or purchase agreements and, in each case, at no cost or for a de minimis cost, (ii) any split, combination or reclassification of any of the Company’s or any of its Subsidiaries’ capital stock; (iii) any granting by the Company or any of its Subsidiaries of any increase in compensation or fringe benefits, except for normal increases in the ordinary course of business consistent with past practice, or any payment by the Company or any of its Subsidiaries of any bonus, except for bonuses made in the ordinary course of business

 

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consistent with past practice, or any granting by the Company or any of its Subsidiaries of any increase in severance or termination pay or any entry by the Company or any of its Subsidiaries into any currently effective employment, severance, termination, change of control or indemnification agreement (other than offer letters and letter agreements entered into in the ordinary course of business consistent with past practice with employees who are not officers and are terminable “at will” without the Company or its Subsidiaries incurring any material liability or financial obligation), (iv) entry by the Company or any of its Subsidiaries into any licensing or other agreement with regard to the acquisition or disposition of any material Intellectual Property other than licenses, distribution agreements, advertising agreements, sponsorship agreements or merchant program agreements entered into in the ordinary course of business consistent with past practice, (v) any amendment or consent with respect to any Company Scheduled Contract in effect since the date of the Company Balance Sheet, (vi) any material change by the Company in its accounting methods, principles or practices, except as required by concurrent changes in GAAP, (vii) any change in any Tax accounting method, Tax accounting period or Tax election, any amended Tax Return filed, any settlement or compromise with respect to any Tax liability or claims, any agreement to extend or waive the statute of limitations with respect to the assessment or determination of Taxes, any Tax indemnity, Tax allocation or Tax sharing agreement entered into, any private letter ruling, closing agreement or similar ruling or agreement entered into with respect to any Tax, or any surrender of any right to claim a Tax refund, in each case by the Company or any of its Subsidiaries, or (viii) any material revaluation by the Company or any of its Subsidiaries of any of its assets, including, without limitation, writing down the value of capitalized inventory or writing off notes or accounts receivable other than in the ordinary course of business consistent with past practice.

2.6 Taxes.

(a) Definitions . For the purposes of this Agreement, the term “ Tax ” or, collectively, “ Taxes ” shall mean any and all U.S. federal, state, local and non-U.S. taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts; and “ Tax Return ” shall mean any report, return (including information return), claim for refund, election, estimated tax filing or declaration relating to Taxes, including any schedule or attachment thereto, and including any amendments thereof.

(b) Tax Matters .

(i) The Company and each of its Subsidiaries have prepared or caused to be prepared and timely filed or caused to be filed all required material Tax Returns relating to any and all Taxes concerning or attributable to the Company, its Subsidiaries or their respective operations, taking into account any extensions of time within which to file such Tax Returns, and such Tax Returns, in all material respects, are true and correct and have been completed in accordance with applicable Legal Requirements. Neither the Company nor any of its Subsidiaries is currently the beneficiary of any extension of time within which to file any Tax Return.

(ii) The Company and each of its Subsidiaries have timely paid all material Taxes required to be paid, and paid or withheld with respect to their Employees and other third parties (and paid over to the appropriate Taxing authority) all income taxes, Federal Insurance Contribution Act, Federal Unemployment Tax Act and other Taxes required to be paid or withheld. No claim has ever been made by any Taxing authority in a jurisdiction where the Company and its Subsidiaries do not file Tax Returns that the Company or any of its Subsidiaries is or may be subject to Tax in that jurisdiction.

(iii) Neither the Company nor any of its Subsidiaries has been delinquent in the payment of any material Tax, nor is there any material Tax deficiency outstanding, assessed or proposed in writing against the Company or any of its Subsidiaries, nor has the Company or any of its Subsidiaries executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax.

 

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(iv) No audit or other examination of any Tax Return of the Company or any of its Subsidiaries is pending or presently in progress, nor has the Company or any of its Subsidiaries been notified in writing of any request for such an audit or other examination.

(v) Neither the Company nor any of its Subsidiaries has any material liabilities for unpaid Taxes as of the date of the Company Balance Sheet which have not been accrued or reserved on the Company Balance Sheet in accordance with GAAP, and neither the Company nor any of its Subsidiaries has incurred any liability for Taxes since the date of the Company Balance Sheet other than in the ordinary course of business.

(vi) The Company has made available to Parent or its legal counsel, copies of all material Tax Returns for the Company and each of its Subsidiaries filed since the fiscal year ended December 31, 2004.

(vii) There are no Tax liens upon any property or assets of the Company or any of its Subsidiaries except for liens for current Taxes not yet due and payable or Taxes which are being contested in good faith and for which adequate reserves have been established on the Company Balance Sheet in accordance with GAAP.

(viii) Neither the Company nor any of its Subsidiaries is, or has been during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code, a “United States Real Property Holding Corporation” within the meaning of Section 897(c)(2) of the Code.

(ix) Except as set forth in Section 2.6(b) of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries has (a) ever been a member of an affiliated group (within the meaning of Code Section 1504(a)) filing a consolidated U.S. federal income Tax Return (other than a group the common parent of which was the Company), (b) ever been a party to any Tax sharing, indemnification or allocation agreement, nor does the Company or any of its Subsidiaries owe any amount under any such agreement and (c) any liability for the Taxes of any Person (other than the Company or any of its Subsidiaries) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign law, including any arrangement for group or consortium relief or similar arrangement), as a transferee or successor, by operation of law, by contract, or otherwise.

(x) Neither the Company nor any of its Subsidiaries has constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code during the four-year period immediately preceding the Closing Date.

(xi) Neither the Company nor any of its Subsidiaries has engaged in a reportable transaction under Treasury Regulations Section 1.6011-4(b), including any transaction that is the same as or substantially similar to one of the types of transactions that the Internal Revenue Service has determined to be a tax avoidance transaction and identified by notice, regulation, or other form of published guidance as a listed transaction.

(xii) Neither the Company nor any of its Subsidiaries (i) is or was a “surrogate foreign corporation” within the meaning of Section 7874(a)(2)(B) of the Code or is treated as a U.S. corporation under Section 7874(b) of the Code; and (ii) was created or organized both in the United States and in a foreign jurisdiction such that such entity would be taxable in the United States as a domestic entity pursuant to Treasury Regulations Section 301.7701-5(a).

(xiii) None of the Company or any of its Subsidiaries or, to the Knowledge of the Company, any of the Company’s affiliates has taken or agreed to take any action that would prevent the Mergers, taken together, from qualifying as a reorganization within the meaning of Section 368(a) of the Code. The Company is not aware of any agreement, plan or other circumstance that would prevent the Mergers, taken together, from qualifying as a reorganization within the meaning of Section 368(a) of the Code.

 

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2.7 Intellectual Property. Section 2.7(a) of the Company Disclosure Letter sets forth a true and complete list of all Registered (i) trademarks, service marks, certification marks, collective marks, d/b/a’s, Internet domain names, logos, symbols, trade dress, assumed names, fictitious names, trade names, and other indicia of origin, all applications and registrations for the foregoing, and all goodwill associated therewith and symbolized thereby, including all renewals of same; (ii) inventions and discoveries, whether patentable or not, and all patents, registrations, invention disclosures and applications therefor, including divisions, continuations, continuations-in-part and renewal applications, and including renewals, extensions and reissues; (iii) confidential information, trade secrets and know-how, and similar proprietary rights in inventions, discoveries, analytic models, improvements, products, product candidates, processes, schematics, business methods, formulae, drawings, prototypes, designs and supplier lists (collectively, “ Trade Secrets ”); (iv) published and unpublished works of authorship, whether copyrightable or not (including without limitation databases and other compilations of information), copyrights therein and thereto, and registrations and applications therefor, and all renewals, extensions, restorations and reversions thereof; and (v) all other material intellectual property or proprietary rights ((i) through (v) collectively, “ Intellectual Property ”), in each case that are currently owned or co-owned by the Company or its Subsidiaries, except for Intellectual Property that the Company or its Subsidiaries intentionally abandoned by the Company or its Subsidiaries, indicating for each registered item the registration or application number and the applicable filing jurisdiction (collectively, the “ Scheduled Intellectual Property ”). The Company and/or its Subsidiaries exclusively or jointly own with third parties (beneficially, and of record where applicable) or has the valid right to use all Scheduled Intellectual Property, and to the Knowledge of the Company, free and clear of all Liens (excluding licenses, covenants not to sue and related restrictions). To the Knowledge of the Company, the Scheduled Intellectual Property is valid, subsisting and enforceable, and is not subject to any outstanding order, judgment, decree or agreement adversely affecting the Company’s and its Subsidiaries’ use thereof or its rights thereto, except as would not reasonably be expected to have a Company Material Adverse Effect. “ Registered ” means issued by, registered with, renewed by or the subject of a pending application before any Governmental Entity or Internet domain name registrar.

(b) Section 2.7(b) of the Company Disclosure Letter sets forth a true and complete list of all agreements to which the Company or its Subsidiaries are a party that grant the Company and its Subsidiaries rights to use any material Intellectual Property owned or held by any other Person (the “ Licensed Intellectual Property ”), material non-assertion agreements, agreements granting rights to any third party to use any material Intellectual Property owned or co-owned by the Company or any of its Subsidiaries, material trademark coexistence agreements and material trademark consent agreements (the “ Intellectual Property Contracts ”) (other than licenses for commercial “off-the-shelf” or “shrink-wrap” software and other than agreements granting non-exclusive licenses to distributors, marketing agents, contract manufacturers and other contractors, consultants or agents). To the Company’s Knowledge, the Licensed Intellectual Property is valid, subsisting and enforceable and is not subject to any outstanding order, judgment, decree or agreement adversely affecting the Company’s or its Subsidiaries’ use thereof or their rights thereto, except as would not reasonably be expected to have a Company Material Adverse Effect. Consummation of the transactions contemplated by this Agreement will not place the Company or its Subsidiaries in breach or default of any Intellectual Property Contract, or trigger any modification, termination or acceleration thereunder, or create any license under or Lien on Intellectual Property owned or held by Parent, except as would not reasonably be expected to have a Company Material Adverse Effect.

(c) To the Knowledge of the Company, the Company and its Subsidiaries have sufficient rights to use all Intellectual Property used in their business as presently conducted and to be used in their business as proposed to be conducted, all of which rights shall survive unchanged the consummation of the transactions contemplated by this Agreement, except as would not reasonably be expected to have a Company Material Adverse Effect. The Company and its Subsidiaries do not and have not in the past five (5) years knowingly infringed or otherwise violated the Intellectual Property rights of any third party, except as would not reasonably be expected to have a Company Material Adverse Effect. Except as set forth in Section 2.7(c) of the Company Disclosure Letter, there is no litigation, opposition, cancellation, proceeding, objection or claim pending, or to the Knowledge of the Company, asserted or threatened in writing in the past two (2) years against the Company or its Subsidiaries concerning the ownership, validity, registerability,

 

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enforceability, infringement or use of, or licensed right to use, any material Intellectual Property (other than in the ordinary course of prosecution of the Company’s and its Subsidiaries’ Intellectual Property before any Governmental Entity). To the Company’s Knowledge, no valid basis for any such litigation, opposition, cancellation, proceeding, objection or claim exists. To the Company’s Knowledge, no Person is violating any Scheduled Intellectual Property right or other Intellectual Property right that the Company or its Subsidiaries hold exclusively, except as would not reasonably be expected to have a Company Material Adverse Effect.

(d) The Company and its Subsidiaries have taken reasonable measures to protect the confidentiality and value of all material Trade Secrets that are owned, used or held by the Company and its Subsidiaries, including entering into licenses and contracts that require employees, licensees, consultants employed or engaged by the Company or its Subsidiaries, and other third Persons who have contributed to the creation and development of such Trade Secrets to keep such Trade Secrets confidential. In the case of employees and consultants who have contributed to the creation and development of Intellectual Property intended to be owned by the Company or its Subsidiaries, such employees or consultants are required to assign to the Company all Intellectual Property created by such employee or consultant in the scope of employment or consultancy with the Company or its Subsidiaries to the extent that the Company or its Subsidiaries does not acquire such rights (pursuant to a work for hire agreement or otherwise) as a matter of law. To the Company’s Knowledge, such material Trade Secrets have not been used, disclosed to or discovered by any Person except pursuant to valid and appropriate non-disclosure and/or license agreements which have not been breached.

(e) Except as set forth on Section 2.7(e) of the Company Disclosure Letter, to the Knowledge of the Company, no employee, consultant or agent of the Company or any of its Subsidiaries, past or present, is in default or breach of any term of any employment agreement, nondisclosure agreement, assignment of invention agreement or similar agreement or contract relating in any way to the protection, ownership, development, use or transfer of Scheduled Intellectual Property or Licensed Intellectual Property. To the Knowledge of the Company, none of the Company’s or its Subsidiaries’ current employees is the owner of any patent issued or applications pending for any device, process, design or invention of any kind that is necessary for the Company or its Subsidiaries to conduct business, which patents or applications have not been assigned to the Company or a Subsidiary of the Company. To the Company’s Knowledge, the Company’s and its Subsidiaries’ employees’ performance of their employment activities does not violate any third party’s Intellectual Property rights or such employees’ contractual obligations to any third Person.

(f) To the Knowledge of the Company, there are no patentability or non-infringement opinions in the possession of the Company with respect to (i) the p38 kinase inhibitor program partnered with Bristol-Myers Squibb Company or (ii) the CXCR2 antagonist program partnered with Schering Plough.

2.8 Compliance; Permits. The Company and its Subsidiaries are, and since January 1, 2004 have been, in compliance in all material respects with all applicable Legal Requirements. No investigation, claim, suit, proceeding, audit or other legal action by any Governmental Entity or authority is pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries. There is no agreement, judgment, injunction, order or decree binding upon the Company or any of its Subsidiaries which (i) has or could reasonably be expected to have the effect of prohibiting or materially impairing any current business practice of the Company or any of its Subsidiaries, any acquisition of material property by the Company or any of its Subsidiaries or the conduct of business by the Company or any of its Subsidiaries as currently conducted, (ii) may have an adverse effect on the Company’s ability to comply with or perform any covenant or obligation under this Agreement, or (iii) may have the effect of preventing, delaying, making illegal or otherwise interfering with Merger 1 or any of the other transactions contemplated hereby.

(b) The Company and its Subsidiaries hold all material permits, licenses, variances, clearances, consents, authorizations, commissions, franchises, exemptions, orders and approvals from Governmental Entities (“ Permits ”) that are required for the operation of the business of the Company as currently conducted (collectively, “ Company Permits ”). Section 2.8(b) of the Company Disclosure Letter identifies

 

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each Company Permit. The Company and each Subsidiary is in material compliance with the terms of the Company Permits. No action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending or, to the Knowledge of the Company, threatened, which seeks to revoke, limit, suspend, or materially modify any Company Permit. The rights and benefits of each material Company Permit will be available to the Intermediate Surviving Corporation immediately after the Merger 1 Effective Time on terms substantially identical to those enjoyed by the Company and its Subsidiaries as of the date of this Agreement and immediately prior to the Merger 1 Effective Time.

(c) There are no proceedings pending or, to the Knowledge of the Company, threatened with respect to an alleged violation by the Company or any of its Subsidiaries of the Federal Food, Drug, and Cosmetic Act (“ FDCA ”), Food and Drug Administration (“ FDA ”) regulations adopted thereunder, the Controlled Substance Act or any other similar Legal Requirements promulgated by the FDA or other comparable Governmental Entity responsible for regulation of the development, clinical testing, manufacturing, sale, marketing, distribution and importation or exportation of drug products (“ Drug Regulatory Agency ”).

(d) The Company, its Subsidiaries and to the Company’s Knowledge, its collaboration partners, hold all Permits issuable by any Drug Regulatory Agency necessary for the conduct of the business of the Company as currently conducted and the development, clinical testing, manufacturing, marketing, distribution and importation or exportation, as currently conducted, of any of its products or product candidates, including, but not limited to, PS433540, PS178990, PS031291, PS291822 (CXCR2) and PS540446 (p38) (the “ Company Product Candidates ”) (the “ Company Regulatory Permits ”) and each such Company Regulatory Permit is in full force and effect. The Company, its Subsidiaries and to the Company’s Knowledge, its collaboration partners, have fulfilled and performed all of their respective obligations with respect to the Company Regulatory Permits, and are otherwise in compliance in all material respects with the Company Regulatory Permits. None of the Company, its Subsidiaries or to the Company’s Knowledge, its collaboration partners, has received any written notice or other written communication from any Drug Regulatory Agency regarding (A) any actual or possible violation of or failure to comply with any term or requirement of any Company Regulatory Permit or (B) any actual or possible revocation, withdrawal, suspension, cancellation, termination or material modification of any Company Regulatory Permit, and to the Knowledge of the Company, no event has occurred which allows, or after notice or lapse of time to cure would allow, any Drug Regulatory Agency to take any of the foregoing actions. Except for the information and files identified in Section 2.8(d) of the Company Disclosure Letter, the Company has made available to Parent all material information in its possession or control relating to the clinical Company Product Candidates (including without limitation, any information provided to the Company by the Company’s collaboration partners) and the development, clinical testing, manufacturing, importation and exportation of the clinical Company Product Candidates by the Company, its Subsidiaries and its collaboration partners, including without limitation, complete and correct copies of the following (to the extent there are any): (x) serious adverse event reports; clinical study reports and material study data; material inspection reports, notices of adverse findings, warning letters, filings and letters and other material correspondence to and from any Drug Regulatory Agency and the Company, its Subsidiaries and its collaboration partners; and related meeting minutes with any Drug Regulatory Agency; and (y) similar material reports, study data, notices, letters, filings, correspondence and meeting minutes among the Company, its Subsidiaries, its collaboration partners and any other Governmental Entity.

(e) To the Company’s Knowledge, all pre-clinical trials conducted by or on behalf of, or sponsored by, the Company or in which the Company or its current products or product candidates, including the Company Product Candidates, have participated, either (i) have been conducted in accordance, in all material respects, with applicable Good Laboratory Practice (“ GLP ”) requirements, including those contained in 21 C.F.R. Part 58 or (ii) involved experimental research techniques that were not required to be performed by a registered GLP testing laboratory (with appropriate notice being given to the FDA or the applicable Governmental Entity).

(f) To the Company’s Knowledge, all clinical trials conducted by or on behalf of, or sponsored by, the Company or in which the Company or its current products or product candidates, including the Company

 

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Product Candidates, have participated were and, if still pending, are being conducted in material compliance with the applicable regulations of the Drug Regulatory Agency and other applicable Legal Requirements, including, without limitation, 21 C.F.R. Parts 50, 54, 56, 58 and 312. Except as set forth on Section 2.8(f) of the Company Disclosure Letter, no investigational new drug application filed by the Company or, to the Knowledge of the Company, one of its collaboration partners with the FDA for the Company Product Candidates has been terminated or suspended by the FDA, and neither the FDA nor any applicable foreign Governmental Entity has commenced, or, to the Knowledge of the Company, threatened to initiate, any action to place a clinical hold order on, or otherwise terminate, materially delay, suspend, any proposed or ongoing clinical investigation conducted or proposed to be conducted by the Company or, to the Knowledge of the Company, its collaboration partners.

(g) All applications, notifications, submissions, information, claims, reports and statistics, and other data and conclusions derived therefrom, utilized as the basis for or submitted in connection with any and all requests for a Company Regulatory Permit from the FDA or other Governmental Entity relating to the Company, its business and the Company Product Candidates, when submitted to the FDA or other Governmental Entity, did not contain any materially false or misleading information, any materially false statements or any material omissions, and any necessary or required updates, changes, corrections or modification to such applications, submissions, information and data have been submitted to the FDA or other Governmental Entity.

(h) Except as set forth on Section 2.8(h) of the Company Disclosure Letter, the manufacture of Company Product Candidates by or, to the Company’s Knowledge, on behalf of the Company is being conducted in compliance in all material respects with all applicable Legal Requirements, including, without limitation, applicable provisions of FDA’s current good manufacturing practice regulations at 21 CFR Parts 210-211.

2.9 Litigation. There are no claims, suits, actions, judgments or proceedings pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries, before any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator that seeks to (a) restrain or enjoin the consummation of the transactions contemplated hereby or (b) which would reasonably be expected, either singularly or in the aggregate with all such claims, actions, judgments or proceedings, to be material to the Company and its Subsidiaries, taken as a whole.

2.10 Brokers’ and Finders’ Fees. Except for fees payable to Cowen and Company, LLC pursuant to an engagement letter dated June 11, 2008 (the “ Cowen Agreement ”) a copy of which has been provided to Parent, the Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby, and the Company has not entered into any indemnification agreement or arrangement with any Person in connection with this Agreement and the transactions contemplated hereby other than pursuant to the Cowen Agreement.

2.11 Transactions with Affiliates. Except as set forth in the Company SEC Reports, since the date of the Company’s last proxy statement filed with the SEC, no event has occurred as of the date hereof that would be required to be reported by the Company pursuant to Item 404 of Regulation S-K promulgated by the SEC that was not so reported. Section 2.11 of the Company Disclosure Letter identifies each Person who is an “affiliate” (for purposes of Rule 145 promulgated under the Securities Act) of the Company as of the date hereof.

2.12 Employee Benefit Plans.

(a) Schedule . Section 2.12(a) of the Company Disclosure Letter sets forth a correct and complete list of (i) each “employee benefit plan,” within the meaning of Section 3(3) of ERISA, and (ii) each material plan, program or agreement providing for compensation, severance, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or

 

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remuneration of any kind, whether written or unwritten, funded or unfunded (it being understood and agreed that any plan, program or agreement providing severance, termination pay, deferred compensation or stock or stock-related awards shall be deemed material), which, in the case of plans, programs or agreements described in clauses (i) or (ii) is maintained, contributed to, or required to be contributed to, by the Company or any Controlled Group Affiliate (as defined in Section 2.12(e) ), or with respect to which the Company or any Controlled Group Affiliate has or may have any material liability or obligation, in either case, for the benefit of any current or former employee, consultant or director (each, an “ Employee ”) employed by, or otherwise providing services to, the Company or any Controlled Group Affiliate (each such plan, program and agreement, a “ Company Employee Plan ”); and (iii) each material management, employment, severance, consulting, relocation, repatriation, expatriation or other agreement or contract between the Company or any Controlled Group Affiliate and any Employee (each, an “ Employee Agreement ”). Except to the extent required by Law or to conform any such Company Employee Plan or Employee Agreement to the requirements of any applicable Legal Requirements, as required by the terms of such Company Employee Plan or Employee Agreement or as permitted by the terms of this Agreement, neither the Company nor any Controlled Group Affiliate has any plan or commitment to establish any new Company Employee Plan or Employee Agreement, to modify any Company Employee Plan or Employee Agreement or to adopt or enter into any Company Employee Plan or Employee Agreement.

(b) Documents . The Company has made available to Parent for review (to the extent applicable) (i) the current plan document for each Company Employee Plan and each Employee Agreement including (without limitation) all amendments thereto and related trust documents, administrative service agreements, group annuity contracts, group insurance contracts, and policies pertaining to fiduciary liability insurance covering the fiduciaries for each Company Employee Plan, and with respect to any Company Employee Plan that has been merged into another Company Employee Plan, the plan documents in effect immediately prior to the merger of such plan, (ii) the most recent annual actuarial valuations and/or audited statement of assets and liabilities for each Company Employee Plan, (iii) the three (3) most recent annual reports, returns, securities registration statements (other than those available on EDGAR) or other filings, if any, required to be filed with any Governmental Entity under any applicable Legal Requirement in connection with each Company Employee Plan, (iv) the most recent IRS determination, opinion, notification and advisory letters with respect to Company Employ