AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

by and among

ST SOFTWARE HOLDINGS, LLC

ST MERGERSUB, INC.

and

SUMTOTAL SYSTEMS, INC.

Dated as of April 23, 2009

TABLE OF CONTENTS

 

 

-i-

TABLE OF CONTENTS

(Continued)

 

 

-ii-

TABLE OF CONTENTS

(Continued)

 

 

-iii-

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “ Agreement ”) is made and entered into as of April 23, 2009 by and among ST Software Holdings, LLC, a Delaware limited liability company (“ Newco ”), ST Mergersub, Inc., a Delaware corporation and a wholly owned subsidiary of Newco (“ Merger Sub ”), and SumTotal Systems, Inc., a Delaware corporation (the “ Company ”). All capitalized terms that are used in this Agreement shall have the respective meanings ascribed thereto in Article I .

RECITALS:

A. The Company Board has (i)   unanimously determined that it is in the best interests of the Company and its stockholders, and declared it advisable, to enter into this Agreement providing for the merger of Merger Sub with and into the Company (the “ Merger ”) in accordance with the Delaware General Corporation law (the “ DGCL ”) upon the terms and subject to the conditions set forth herein, (ii) unanimously approved the execution and delivery of this Agreement by the Company, the performance by the Company of its covenants and other obligations hereunder and the consummation of the Merger upon the terms and subject to the conditions set forth herein, and (iii) unanimously resolved to recommend that the stockholders of the Company approve the Merger in accordance with the DGCL.

B. Each of the Manager of Newco and the board of directors of Merger Sub have (i) declared it advisable to enter into this Agreement, and (ii) approved the execution and delivery of this Agreement, performance of their respective obligations hereunder and the consummation of the Merger and the other transactions contemplated hereby upon the terms and subject to the conditions set forth herein.

C. Concurrently with the execution of this Agreement, and as a condition and inducement to the Company’s willingness to enter into this Agreement, Accel-KKR Capital Partners III, L.P. (the “ Guarantor ”) has entered into a guarantee, dated as of the date hereof and in the form attached hereto as Exhibit A (the “ Guarantee ”), in favor of the Company with respect to the obligations and liabilities of Newco and Merger Sub arising under, or in connection with, this Agreement.

D. Newco, Merger Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with this Agreement and the transactions contemplated hereby, and to prescribe certain conditions with respect to the consummation of the Merger and the other transactions contemplated by this Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements set forth herein, as well as other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, and intending to be legally bound hereby, Newco, Merger Sub and the Company hereby agree as follows:

ARTICLE I

DEFINITIONS & INTERPRETATIONS

1.1 Certain Definitions . For all purposes of and under this Agreement, the following capitalized terms shall have the following respective meanings:

(a) “ Acceptable Confidentiality Agreement ” shall mean an agreement that is either (i) in effect as of the execution and delivery of this Agreement or (ii) executed, delivered and effective after the execution, delivery and effectiveness of this Agreement, in either case containing provisions that require any counter-party(ies) thereto (and any of its(their) representatives named therein) that receive

material non-public information of or with respect to the Company to keep such information confidential, provided, in each case, that such confidentiality and other provisions (including “standstill” or similar provisions) are no less restrictive in the aggregate to such counter-party(ies) (and any of its(their) representatives named therein) than the terms of the Confidentiality Agreement; provided, however, that if the terms of such Acceptable Confidentiality Agreement are less restrictive in the aggregate to such counter-party(ies) (and any of its (their) representatives named therein) than the terms of the Confidentiality Agreement, then notwithstanding the foregoing, such agreement will be deemed an “Acceptable Confidentiality Agreement” if the Company offers to amend the Confidentiality Agreement so as to make the Confidentiality Agreement as restrictive in the aggregate as the confidentiality agreement signed by such counterparty(ies).

(b) “ Acquisition Proposal ” shall mean any offer or proposal (other than an offer or proposal by Newco or Merger Sub) to engage in an Acquisition Transaction.

(c) “ Acquisition Transaction ” shall mean any transaction or series of related transactions, alone or in combination, (other than the Merger) involving:

(i) any direct or indirect purchase or other acquisition by any Person or “group” (as defined in or under Section 13(d) of the Exchange Act), whether from the Company and/or any other Person(s), of shares of Company Common Stock representing more than twenty percent (20%) of the Company Common Stock outstanding after giving effect to the consummation of such purchase or other acquisition, including pursuant to a tender offer or exchange offer by any Person or “group” that, if consummated in accordance with its terms, would result in such Person or “group” beneficially owning more than twenty percent (20%) of the Company Common Stock outstanding after giving effect to the consummation of such tender or exchange offer;

(ii) any direct or indirect purchase or other acquisition by any Person or “group” (as defined in or under Section 13(d) of the Exchange Act) of more than twenty percent (20%) of the consolidated assets of the Company and its Subsidiaries taken as a whole (measured by the fair market value thereof as of the date of such sale, transfer, acquisition or disposition); or

(iii) any merger, consolidation, business combination, recapitalization, reorganization, liquidation, dissolution or other transaction involving the Company pursuant to which any Person or “group” (as defined in or under Section 13(d) of the Exchange Act) would hold shares of Company Common Stock representing more than twenty percent (20%) of the Company Common Stock outstanding after giving effect to the consummation of such transaction.

(d) “ Affiliate ” shall mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person. For purposes of the immediately preceding sentence, the term “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.

(e) “ Antitrust Law ” means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or significant impediments or lessening of competition or the creation or strengthening of a dominant position through merger or acquisition, in any case that are applicable to the transactions contemplated by this Agreement.

 

-2-

(f) “ Audited Company Balance Sheet ” shall mean the consolidated balance sheet of the Company and its consolidated Subsidiaries as of December 31, 2008 set forth in the Company’s Annual Report on Form 10-K filed by the Company with the SEC for the year ended December 31, 2008.

(g) “ Business Day ” shall mean any day, other than a Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York, or is a day on which banking institutions located in the State of New York are authorized or required by law or other governmental action to close.

(h) “ COBRA ” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and the rules and regulations promulgated thereunder, or any successor statute, rules and regulations thereto.

(i) “ Code ” shall mean the Internal Revenue Code of 1986, as amended.

(j) “ Company Board ” shall mean the Board of Directors of the Company.

(k) “ Company Capital Stock ” shall mean the Company Common Stock and the Company Preferred Stock.

(l) “ Company Common Stock ” shall mean the Common Stock, par value $0.001 per share, of the Company.

(m) “ Company Intellectual Property ” shall mean Intellectual Property Rights owned by the Company or any of its Subsidiaries.

(n) “ Company Material Adverse Effect ” shall mean any change, event, violation, inaccuracy, effect or circumstance (each, an “ Effect ”) that, individually or taken together with all other Effects that have occurred prior to the date of determination of the occurrence of the Company Material Adverse Effect, is or would reasonably be expected to be materially adverse to the business, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole; provided , however , that none of the following (by itself or when aggregated) shall be deemed to be or constitute a “Company Material Adverse Effect” or shall be taken into account when determining whether a “Company Material Adverse Effect” has occurred or may, would or could occur (subject to the limitations set forth below):

(i) changes in general economic conditions in the United States or any other country or region in the world, or changes in conditions in the global economy generally (but only to the extent such Effect has not had a disproportionate impact on the Company relative to other companies of a similar size operating in the industries in which the Company and its Subsidiaries conduct business);

(ii) changes in conditions in the financial markets, credit markets or capital markets in the United States or any other country or region in the world, including (A) changes in interest rates in the United States or any other country and changes in exchange rates for the currencies of any countries and (B) any suspension of trading in securities (whether equity, debt, derivative or hybrid securities) generally on any securities exchange or over-the-counter market operating in the United States or any other country or region in the world (but only to the extent such Effect has not had a disproportionate impact on the Company relative to other companies of a similar size operating in the industries in which the Company and its Subsidiaries conduct business);

 

-3-

(iii) changes in conditions in the industries in which the Company and its Subsidiaries conduct business, including changes in conditions in the software industry generally or the human capital management industry generally (but only to the extent such Effect has not had a disproportionate impact on the Company relative to other companies of a similar size operating in the industries in which the Company and its Subsidiaries conduct business);

(iv) changes in political conditions in the United States or any other country or region in the world (but only to the extent such Effect has not had a disproportionate impact on the Company relative to other companies of similar size operating in the industries in which the Company and its Subsidiaries conduct business);

(v) acts of war, sabotage or terrorism (including any escalation or general worsening of any such acts of war, sabotage or terrorism) in the United States or any other country or region in the world (but only to the extent such Effect has not had a disproportionate impact on the Company relative to other companies of similar size operating in the industries in which the Company and its Subsidiaries conduct business);

(vi) earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides, wild fires or other natural disasters, weather conditions and other force majeure events in the United States or any other country or region in the world (but only to the extent such Effect has not had a disproportionate impact on the Company relative to other companies of similar size operating in the industries in which the Company and its Subsidiaries conduct business);

(vii) any Effect resulting from the announcement of this Agreement or the pendency of the transactions contemplated hereby;

(viii) compliance with the terms of this Agreement;

(ix) any actions taken, or failure to take action, in each case, to which Newco has in writing following the date of this Agreement expressly approved, consented to or requested;

(x) changes in law or other legal or regulatory conditions (or the interpretation thereof);

(xi) changes in GAAP or other accounting standards (or the interpretation thereof);

(xii) changes in the Company’s stock price or the trading volume of the Company’s stock, in and of itself (provided, however, that the exception in this clause shall not in any way prevent or otherwise affect a determination that any Effect underlying such change has resulted in, or contributed to, a Company Material Adverse Effect);

(xiii) any failure, in and of itself, by the Company to meet any public estimates or expectations of the Company’s revenue, earnings or other financial performance or results of operations for any period, or any failure, in and of itself, by the Company to meet any internal budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations (it being understood that any cause of any such failure may be deemed to constitute, in and of itself, a Company Material Adverse Effect and may be taken into consideration when determining whether a Company Material Adverse Effect has occurred);

 

-4-

(xiv) the availability or cost of equity, debt or other financing to Newco or Merger Sub;

(xv) any legal proceedings made or brought by any of the current or former stockholders of the Company (on their own behalf or on behalf of the Company) against the Company arising out of the Merger or in connection with any other transactions contemplated by this Agreement; and

(xvi) any matters expressly set forth in Section 1.1(n)(xvi) of the Company Disclosure Letter.

For purposes of this definition, the term “companies of a similar size” shall include (at a minimum) the seven most similar sized publicly-traded companies operating in the industries in which the Company and its Subsidiaries conduct business.

(o) “ Company Options ” shall mean any options to purchase shares of Company Common Stock outstanding under any of the Company Stock Plans.

(p) “ Company Preferred Stock ” shall mean the Preferred Stock, par value $0.001 per share, of the Company.

(q) “ Company Stock-Based Award ” shall mean each right of any kind, contingent or accrued, to receive shares of Company Common Stock or benefits measured in whole or in part by the value of a number of shares of Company Common Stock granted under the Company Stock Plans or Employee Plans (including performance shares, restricted stock, restricted stock units, phantom units, deferred stock units and dividend equivalents, but not including any 401(k) plan of the Company), other than Company Stock Options.

(r) “ Company Stock Plans ” shall mean (i) the Company’s Amended and Restated 2004 Equity Incentive Plan, the UK Sub-Plan of the Company’s Amended and Restated 2004 Equity Incentive Plan, the Docent, Inc. (“Docent”) 1997 Stock Option Plan, the Docent 2000 Omnibus Equity Incentive Plan, the Click2learn, Inc. (“Click2learn”) 1998 Equity Incentive Plan, and the Intelliprep Technologies, Inc. 2000 Equity Incentive Plan, and (ii) any other compensatory option plans or Contracts of the Company, including option plans or Contracts assumed by the Company pursuant to a merger, acquisition or other similar transaction.

(s) “ Company Stockholders ” shall mean holders of shares of Company Capital Stock.

(t) “ Company Termination Fee ” shall mean an amount in cash equal to $4,950,000; provided , however , that notwithstanding the foregoing, “Company Termination Fee” shall mean an amount in cash equal to $3,100,000 in the event that this Agreement is terminated pursuant to Section 8.1(h) in order to enter into a definitive agreement to consummate a Superior Proposal with a Person that is an Excluded Party.

(u) “ Competing Acquisition Transaction ” shall have the same meaning as an “Acquisition Transaction” under this Agreement except that all references therein to “twenty percent 20%” shall be references to “fifty percent (50%).”

 

-5-

(v) “ Continuing Employees ” shall mean each individual who is an employee of the Company immediately prior to the Effective Time and continues to be an employee of the Surviving Corporation, Newco or a Subsidiary thereof immediately following the Effective Time.

(w) “ Continuing Party ” shall mean a Person that has made an Acquisition Proposal that the Company Board has concluded prior to the No Shop Period Start Date constitutes a Superior Proposal or is reasonably likely to lead to a Superior Proposal.

(x) “ Contract ” shall mean any written (or legally binding oral) contract, subcontract, note, bond, mortgage, indenture, lease, license, sublicense or other binding agreement.

(y) “ Delaware Law ” shall mean the DGCL and any other applicable law (including common law) of the State of Delaware.

(z) “ DOJ ” shall mean the United States Department of Justice or any successor thereto.

(aa) “ DOL ” shall mean the United States Department of Labor or any successor thereto.

(bb) “ Environmental Law ” shall mean any applicable law (and the regulations promulgated thereunder) relating to the protection of the environment (including ambient air, surface water, groundwater or land) or exposure of any Person to Hazardous Substances or otherwise relating to the production, use, emission, storage, treatment, transportation, recycling, disposal, discharge, release or other handling of any Hazardous Substances or the investigation, clean-up or remediation thereof.

(cc) “ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder, or any successor statute, rules and regulations thereto.

(dd) “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, or any successor statute, rules and regulations thereto.

(ee) “ Excluded Party ” shall mean (i) any Person, group of related Persons or group with whom the Company shall have entered into an Alternative Acquisition Agreement with respect to a Superior Proposal prior to the No-Shop Period Start Date, or (ii) any Continuing Party that enters into an Alternative Acquisition Agreement with the Company with respect to a Superior Proposal on the first Business Day following the Continuing Discussion Period.

(ff) “ FMLA ” shall mean the Family Medical Leave Act of 1993, as amended, and the rules and regulations promulgated thereunder, or any successor statute, rules and regulations thereto.

(gg) “ FTC ” shall mean the United States Federal Trade Commission or any successor thereto.

(hh) “ Fund Manager ” shall mean AKKR Fund III Management Company, L.P. or its designee.

(ii) “ GAAP ” shall mean generally accepted accounting principles, consistently applied, as applied in the United States.

 

-6-

(jj) “ Governmental Authority ” shall mean any government, any governmental or regulatory entity or body, department, commission, board, agency or instrumentality, and any court, tribunal or judicial body, in each case whether federal, state, county, provincial, and whether local or foreign.

(kk) “ Hazardous Substance ” shall mean any substance, material or waste that is characterized or regulated by a Governmental Authority under any Environmental Law as “hazardous,” “pollutant,” “contaminant,” “toxic” or “radioactive”, or words of similar meaning or effect, including petroleum and petroleum products, polychlorinated biphenyls and friable asbestos.

(ll) “ HSR Act ” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder, or any successor statute, rules and regulations thereto.

(mm) “ Indebtedness ” shall mean any of the following liabilities or obligations: (i) indebtedness for borrowed money (including any principal, premium, accrued and unpaid interest, related expenses, prepayment penalties, commitment and other fees, sale or liquidity participation amounts, reimbursements, indemnities and all other amounts payable in connection therewith), (ii) liabilities evidenced by bonds, debentures, notes, or other similar instruments or debt securities, (iii) liabilities under or in connection with letters of credit or bankers’ acceptances or similar items (in each case whether or not drawn, contingent or otherwise), (iv) liabilities related to the deferred purchase price of property or services other than those trade payables incurred in the ordinary course of business, (v) liabilities arising from cash/book overdrafts, (vi) liabilities under capitalized leases, (vii) liabilities under conditional sale or other title retention agreements, (viii) liabilities with respect to vendor advances or any other advances, (ix) liabilities arising out of interest rate and currency swap arrangements and any other arrangements designed to provide protection against fluctuations in interest or currency rates, (x) deferred purchase price liabilities related to past acquisitions, (xi) liabilities with respect to deferred compensation for services, (xii) liabilities or obligations for severance, change of control payments, stay bonuses, retention bonuses, success bonuses, and other bonuses and similar liabilities, (xiii) liabilities arising in connection with earnouts or other contingent payment obligations, (xiv) liabilities arising from any breach of any of the foregoing, and (xv) indebtedness of others guaranteed by the Company or its Subsidiaries or secured by any lien or security interest on the assets of the Company or its Subsidiaries.

(nn) “ Intellectual Property Rights ” shall mean the rights associated with or arising under any of the following anywhere in the world, without limitation: (i) patents, applications therefor, and patent disclosures (“ Patents ”); (ii) copyrights, copyright registrations and applications therefor, copyrightable works, and all other rights in works of authorship, however denominated (“ Copyrights ”); (iii) rights in industrial designs and any registrations and applications therefor; (iv) trademark rights and corresponding rights in trade names, logos and service marks, trademark or service mark, and registrations and applications therefor, trade dress, corporate names, and Internet domain names, together with all goodwill associated with each of the foregoing (“ Trademarks ”); (v) trade secrets rights and corresponding rights in confidential business and technical information and know-how (“ Trade Secrets ”); (vi) computer Software, Software products, and Software systems; (vii) all other intellectual property; and (viii) any similar or equivalent rights to any of the foregoing anywhere in the world (as applicable).

(oo) “ IRS ” shall mean the United States Internal Revenue Service or any successor thereto.

(pp) “ IT Assets ” means all of the following used by the Company and its Subsidiaries: electronic data processing and storage, information, record keeping, communications, telecommunications, hardware, networks, peripherals and computer systems, including any outsourced systems and processes (e.g., call centers) and all documentation associated with any of the foregoing.

 

-7-

(qq) “ Knowledge ” of the Company, with respect to any matter in question, shall mean the actual knowledge of Arun Chandra and Neil Laird after reasonable inquiry of those employees who would reasonably be expected to have actual knowledge of the matter in question.

(rr) “ Legal Proceeding ” shall mean any claim, investigation, action, charge, lawsuit, litigation or other similarly formal legal proceeding brought by or pending before any Governmental Authority.

(ss) “ Minimum Closing Cash Amount ” shall mean $36,500,000

(tt) “ Nasdaq ” shall mean the NASDAQ Global Market, any successor stock exchange or inter-dealer quotation system operated by The Nasdaq Stock Market, Inc. or any successor thereto.

(uu) “ Net Cash ” shall mean (i) the sum of the Company’s cash and cash equivalents (determined in a manner consistent with the Company’s balance sheet presented in the Company’s audited financial statements included in the Company SEC Reports), minus (ii) all liabilities for funded Indebtedness of the Company and its Subsidiaries of the type referred to in clauses (i), (ii) and (iii) of the definition of “Indebtedness”, plus (iii) any out of pocket cash payments incurred and paid by the Company prior to the Closing Date in connection with this Agreement (including Section 5.3 hereof) and the transactions contemplated hereby (A) to legal, financial and accounting advisors and (B) to the extent in compliance with the terms of this Agreement, to settle Transaction Litigation or obtain third party consents.

(vv) “ Open Source ” shall mean any open source, public source or freeware Software, or any modification or derivative thereof that is licensed pursuant to any GNU general public license or limited general public license or other Software that is licensed pursuant to a license that purports (including as a condition to the effectiveness of the license) to require the distribution of, or access to, source code or purports (including as a condition to the effectiveness of the license) to restrict the licensee’s ability to charge for distribution of or to use Software for commercial purposes.

(ww) “ Permitted Liens ” shall mean any of the following: (i) liens for Taxes, assessments and governmental charges or levies either not yet delinquent or which are being contested in good faith and by appropriate proceedings and for which appropriate reserves have been established to the extent required by GAAP; (ii) mechanics, carriers’, workmen’s, warehouseman’s, repairmen’s, materialmen’s or other liens or security interests that are not yet due or that are being contested in good faith and by appropriate proceedings; (iii) licenses to Intellectual Property Rights, leases and subleases (other than capital leases and leases underlying sale and leaseback transactions); (iv) liens imposed by applicable law (other than Tax law); (v) pledges or deposits to secure obligations under workers’ compensation laws or similar legislation or to secure public or statutory obligations; (vi) pledges and deposits to secure the performance of bids, trade contracts, leases, surety and appeal bonds, performance bonds and other obligations of a similar nature, in each case in the ordinary course of business; (vii) defects, imperfections or irregularities in title, easements, covenants and rights of way (unrecorded and of record) and other similar liens (or other encumbrances of any type), and zoning, building and other similar codes or restrictions, in each case that do not adversely affect in any material respect the current use of the applicable property owned, leased, used or held for use by the Company or any of its Subsidiaries; (viii) liens the existence of which are disclosed in the notes to the consolidated financial statements of the Company included in the Recent SEC Reports filed as of the date of this Agreement; and (x) statutory, common law or contractual liens (or other encumbrances of any type) of landlords or liens against the interests of the landlord or owner of any Leased Real Property unless caused by the Company or any of its Subsidiaries.

 

-8-

(xx) “ Person ” shall mean any individual, corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, corporation (including any limited liability company or joint stock company), firm or other enterprise, association, organization, entity.

(yy) “ Registered Intellectual Property ” shall mean applications, registrations and filings for Intellectual Property Rights that have been registered, filed, certified or otherwise perfected or recorded with or by any state, government or other public or quasi-public legal authority.

(zz) “ Sarbanes-Oxley Act ” shall mean the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated thereunder, or any successor statute, rules or regulations thereto.

(aaa) “ SEC ” shall mean the United States Securities and Exchange Commission or any successor thereto.

(bbb) “ Securities Act ” shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, or any successor statute, rules or regulations thereto.

(ccc) “ Software ” means any and all (i) computer programs, libraries and middleware, including any and all Software implementations of algorithms, models and methodologies, whether in source code or object code, (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (iii) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing and (iv) all programmer and user documentation, including user manuals and training materials, relating to any of the foregoing.

(ddd) “ Subsidiary ” of any Person shall mean (i) a corporation more than fifty percent (50%) of the combined voting power of the outstanding voting stock of which is owned, directly or indirectly, by such Person or by one of more other Subsidiaries of such Person or by such Person and one or more other Subsidiaries thereof, (ii) a partnership of which such Person, or one or more other Subsidiaries of such Person or such Person and one or more other Subsidiaries thereof, directly or indirectly, is the general partner and has the power to direct the policies, management and affairs of such partnership, (iii) a limited liability company of which such Person or one or more other Subsidiaries of such Person or such Person and one or more other Subsidiaries thereof, directly or indirectly, is the managing member and has the power to direct the policies, management and affairs of such company or (iv) any other Person (other than a corporation, partnership or limited liability company) in which such Person, or one or more other Subsidiaries of such Person or such Person and one or more other Subsidiaries thereof, directly or indirectly, has at least a majority ownership and power to direct the policies, management and affairs thereof.

(eee) “ Superior Proposal ” shall mean any bona fide written Acquisition Proposal for an Acquisition Transaction not solicited in material violation of Section 5.3 on terms that the Company Board shall have determined in good faith (after consultation with its financial advisor and outside legal counsel) would be more favorable from a financial point of view to the Company Stockholders (in their capacity as such) than the Merger (and is reasonably likely to be consummated in accordance with its terms) (in each case taking into account any revisions to this Agreement made or proposed in writing by Newco prior to the time of determination); provided , however , that for purposes of the reference to an “Acquisition Proposal” in this definition of a “Superior Proposal,” all references to “twenty percent (20%)” in the definition of “Acquisition Transaction” shall be references to “fifty percent (50%).”

 

-9-

(fff) “ Tax ” shall mean any and all U.S. federal, state, local and non-U.S. taxes assessments and similar governmental charges and impositions, including taxes based upon or measured by gross receipts, income, profits, sales, use, occupation, 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.

(ggg) “ Transaction Litigation ” shall mean any action commenced or, to any party’s knowledge, threatened against, such party or any of its Subsidiaries or Affiliates or otherwise relating to, involving or affecting such party or any of its Subsidiaries or Affiliates, in each case in connection with, arising from or otherwise relating to the Merger or any other transaction contemplated hereby.

(hhh) “ WARN ” shall mean the United States Worker Adjustment and Retraining Notification Act.

1.2 Additional Definitions . The following capitalized terms shall have the respective meanings ascribed thereto in the respective sections of this Agreement set forth opposite each of the capitalized terms below:

 

 

-10-

 

-11-

1.3 Certain Interpretations .

(a) Unless otherwise indicated, all references herein to Articles, Sections, Annexes, Exhibits or Schedules, shall be deemed to refer to Articles, Sections, Annexes, Exhibits or Schedules of or to this Agreement, as applicable.

(b) Unless otherwise indicated, the words “include,” “includes” and “including,” when used herein, shall be deemed in each case to be followed by the words “without limitation.”

(c) The table of contents and headings set forth in this Agreement are for convenience of reference purposes only and shall not affect or be deemed to affect in any way the meaning or interpretation of this Agreement or any term or provision hereof.

(d) When reference is made herein to a Person, such reference shall be deemed to include all direct and indirect Subsidiaries of such Person unless otherwise indicated or the context otherwise requires.

(e) Unless otherwise indicted, all references herein to the Subsidiaries of a Person shall be deemed to include all direct and indirect Subsidiaries of such Person unless otherwise indicated or the context otherwise requires.

(f) Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa.

(g) The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.

(h) References to “dollars” and “$” are to the currency of the United States.

(i) References to “made available” shall mean that such documents or information referenced shall have been contained prior to the date hereof in the Company’s electronic data room for Shakespeare 2009 maintained by Merrill Corporation to which Newco and its counsel had access.

ARTICLE II

THE MERGER

2.1 The Merger . Upon the terms and subject to the conditions set forth in this Agreement and the applicable provisions of the DGCL, on the Closing Date, Merger Sub shall be merged with and into the Company, the separate corporate existence of Merger Sub shall thereupon cease and the Company shall continue as the surviving corporation of the Merger. The Company, as the surviving corporation of the Merger, is sometimes referred to herein as the “ Surviving Corporation .”

2.2 The Effective Time . Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date, Newco, Merger Sub and the Company shall cause the Merger to be consummated under the DGCL by filing a certificate of merger (the “ Certificate of Merger ”) with the

 

-12-

Secretary of State of the State of Delaware in accordance with the applicable provisions of the DGCL (the time of such filing and acceptance for record by the Secretary of State of the State of Delaware, or such later time as may be agreed in writing by Newco, Merger Sub and the Company and specified in the Certificate of Merger, being referred to herein as the “ Effective Time ”).

2.3 The Closing . The consummation of the Merger shall take place at a closing (the “ Closing ”) to occur at the offices of Kirkland & Ellis LLP at 300 North LaSalle Drive, Chicago, Illinois, on a date and at a time to be agreed upon by Newco, Merger Sub and the Company, which date shall be no later than the first (1 ^st ) Business Day after the satisfaction or waiver (to the extent permitted hereunder) of the last to be satisfied or waived of the conditions set forth in Article VII (other than those conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver (to the extent permitted hereunder), of such conditions), or at such other location, date and time as Newco, Merger Sub and the Company shall mutually agree upon in writing. The date upon which the Closing shall actually occur pursuant hereto is referred to herein as the “ Closing Date .”

2.4 Effect of the Merger . At the Effective Time, the effect of the Merger shall be as provided in this Agreement and the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all of the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

2.5 Charter and Bylaws .

(a) Charter . At the Effective Time, subject to the provisions of Section 6.10(a) , the certificate of incorporation of the Company (the “ Charter ”) shall be amended and restated in its entirety to read substantially identically to the charter of Merger Sub, as in effect immediately prior to the Effective Time, and such amended and restated charter shall become the charter of the Surviving Corporation until thereafter amended in accordance with the applicable provisions of the DGCL and such Charter; provided , however , that at the Effective Time the Charter of the Surviving Corporation shall be amended so that the name of the Surviving Corporation shall be “SumTotal Systems, Inc.”

(b) Bylaws . At the Effective Time, subject to the provisions of Section 6.10(a) , the Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall become the Bylaws of the Surviving Corporation until thereafter amended in accordance with the applicable provisions of the DGCL, the Charter of the Surviving Corporation and such Bylaws.

2.6 Directors and Officers .

(a) Directors . At the Effective Time, the initial directors of the Surviving Corporation shall be the directors of Merger Sub immediately prior to the Effective Time, each to hold office in accordance with the charter and Bylaws of the Surviving Corporation until their respective successors are duly elected or appointed and qualified.

(b) Officers . At the Effective Time, the initial officers of the Surviving Corporation shall be the officers of Merger Sub immediately prior to the Effective Time, each to hold office in accordance with the charter and Bylaws of the Surviving Corporation until their respective successors are duly appointed.

 

-13-

2.7 Effect on Capital Stock .

(a) Capital Stock . Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of Newco, Merger Sub, the Company, or the holders of any of the following securities, the following shall occur:

(i) each share of common stock, par value $0.001 per share, of Merger Sub that is outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation, and thereupon each certificate representing ownership of such shares of common stock of Merger Sub shall thereafter represent ownership of shares of common stock of the Surviving Corporation; and

(ii) each share of Company Common Stock that is outstanding immediately prior to the Effective Time (other than (A) Owned Company Shares, (B) Dissenting Company Shares and (C) for the avoidance of doubt, anything for which a payment is made pursuant to Section 2.7(d) or Section 2.7(e) below) shall be canceled and extinguished and automatically converted into the right to receive cash in an amount equal to $3.80 (the “ Per Share Price ”), without interest thereon, in accordance with the provisions of Section 2.8 (or in the case of a lost, stolen or destroyed certificate, upon delivery of an affidavit (and bond, if required) in accordance with the provisions of in Section 2.10 ); and

(iii) each share of Company Common Stock that is held by the Company as treasury stock, owned by Newco or Merger Sub, or owned by any direct or indirect wholly-owned Subsidiary of Newco or Merger Sub, in each case immediately prior to the Effective Time (“ Owned Company Shares ”), shall be cancelled and extinguished without any conversion thereof or consideration paid therefor.

(b) Adjustment to Per Share Price . The Per Share Price shall be adjusted appropriately to reflect the effect of any stock split, reverse stock split, stock dividend (including any dividend or other distribution of securities convertible into Company Common Stock), reorganization, recapitalization, reclassification, combination, exchange of shares or other like change with respect to Company Common Stock occurring on or after the date hereof and prior to the Effective Time.

(c) Statutory Rights of Appraisal .

(i) Notwithstanding anything to the contrary set forth in this Agreement, all shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time and held by Company Stockholders who shall have neither voted in favor of the Merger nor consented thereto in writing and who shall have properly and validly exercised their statutory rights of appraisal in respect of such shares of Company Common Stock in accordance with Section 262 of the DGCL (collectively, “ Dissenting Company Shares ”) shall not be converted into, or represent the right to receive, the Per Share Price pursuant to this Section 2.7 . Such Company Stockholders shall be entitled to receive payment of the appraised value of such Dissenting Company Shares in accordance with the provisions of Section 262 of the DGCL, except that all Dissenting Company Shares held by Company Stockholders who shall have failed to perfect or who shall have effectively withdrawn or lost their rights to appraisal of such Dissenting Company Shares under such Section 262 of the DGCL shall thereupon be deemed to have been converted into, and to have become exchangeable for, as of the Effective Time, the right to receive the Per Share Price, without any interest thereon, upon surrender of the certificate or certificates or Uncertificated Shares that formerly evidenced such shares of Company Common Stock in the manner provided in Section 2.8 .

(ii) The Company shall give Newco (A) prompt notice of any demands for appraisal received by the Company, withdrawals of such demands, and any other instruments served pursuant to Delaware Law and received by the Company in respect of Dissenting Company Shares and

 

-14-

(B) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under Delaware Law in respect of Dissenting Company Shares. The Company shall not, except with the prior written consent of Newco, voluntarily make any payment with respect to any demands for appraisal or settle or offer to settle any such demands for payment in respect of Dissenting Company Shares.

(d) Company Stock-Based Awards . Newco shall not assume any Company Stock-Based Awards and at the Effective Time each Company Stock-Based Award outstanding immediately prior to the Effective Time, whether vested or unvested, shall without any action on the part of Newco, Merger Sub, the Company or the holder thereof, be cancelled and converted into and shall become a right to receive an amount in cash, without interest, equal to the product of (x) the number of shares of Common Stock subject to the Company Stock-Based Award multiplied by (y) the excess, if any, of (A) the Per Share Price less (B) the exercise price per share attributable to such Company Stock-Based Award (if any) (the “ Company Stock-Based Award Consideration ”). The payment of the Company Stock-Based Award Consideration will be subject to withholding for all required taxes. The Company agrees to take all action necessary to effect this cancellation of Company Stock-Based Awards upon the Effective Time and to give effect to this Section 2.7(d) (including, without limitation, the satisfaction of the requirements of Rule 16b-3(e) under the Exchange Act). As soon as practicable (and in no event more than thirty (30) calendar days) following the Closing, the Company shall pay to each holder of a Company Stock-Based Awards the Company Stock-Based Consideration (if any), less any applicable withholding taxes, required to be paid to any such holder of a Company Stock-Based Award pursuant to this Section 2.7(d) . The cancellation of a Company Stock-Based Award as provided in the first sentence of this Section 2.7(d) shall be deemed the termination, and satisfaction in full of, any and all rights the holder had or may have had in respect of such Company Stock-Based Award.

(e) Company Options . Newco shall not assume any Company Options and at the Effective Time each Company Option outstanding immediately prior to the Effective Time, whether vested or unvested, shall without any action on the part of Newco, Merger Sub, the Company or the holder thereof, be cancelled and converted into and shall become a right to receive an amount in cash, without interest, equal to the product of (x) the excess, if any, of (A) the Per Share Price less (B) the exercise price per share attributable to such Company Option, multiplied by (y) the total number of shares of Company Common Stock issuable upon exercise in full of such Company Option (the “ Option Consideration ”). The payment of the Option Consideration will be subject to withholding for all required taxes. The Company agrees to take all action necessary to effect this cancellation of Company Options upon the Effective Time and to give effect to this Section 2.7(e) (including, without limitation, the satisfaction of the requirements of Rule 16b-3(e) under the Exchange Act). As soon as practicable (and in no event more than thirty (30) calendar days) following the Closing, the Company shall pay to each holder of a Company Option the Option Consideration (if any), less any applicable withholding taxes, required to be paid to any such holder of a Company Option pursuant to this Section 2.7(e) . The cancellation of a Company Option as provided in the first sentence of this Section 2.7(e) shall be deemed the termination, and satisfaction in full of, any and all rights the holder had or may have had in respect of such Company Option.

(f) (A) all Company Stock-Based Awards and all Company Stock Plans shall terminate as of the Effective Time, and the provisions in any other Employee Plan or Contract providing for the issuance or grant of any other interest in respect of the capital stock of the Company or any Subsidiary thereof shall be canceled as of the Effective Time, and (B) the Company shall ensure that following the Effective Time no participant in any Company Stock Plan or other Employee Plan shall have any right thereunder to acquire any equity securities of the Company, the Surviving Corporation or any Subsidiary thereof.

 

-15-

(g) Treatment of Employee Stock Purchase Plan . As soon as practicable following the date of this Agreement, the Company Board (or, if appropriate, any committee administering the Company’s Employee Stock Purchase Plan (the “ ESPP ”)) shall adopt such resolutions or take such other actions as may be required to provide that, with respect to the ESPP: (i) each individual participating in the Offering Period (as defined in the ESPP) in progress as of the date of this Agreement (the “ Final Offering ”) shall not be permitted (x) to increase the amount of his or her rate of payroll contributions thereunder from the rate in effect when the Final Offering commenced, or (y) to make separate non-payroll contributions to the ESPP on or following the date of this Agreement; (ii) no individual who is not participating in the ESPP as of the date of this Agreement may commence participation in the ESPP following the date of this Agreement; (iii) the Final Offering Period then in progress shall terminate as provided in Section 14 of the ESPP (as further described below); (iv) each ESPP participant’s accumulated contributions under the ESPP shall be used to purchase shares of Company Common Stock in accordance with the terms of the ESPP as of the end of the Final Offering; and (v) the ESPP shall terminate immediately following the end of the Final Offering and no further rights shall be granted or exercised under the ESPP thereafter. All shares of Company Common Stock purchased in the Final Offering shall be cancelled at the Effective Time and converted into the right to receive the Merger Consideration in accordance with the terms and conditions of this Agreement. The Company shall provide the notice contemplated by Section 14 of the ESPP as promptly as practicable following the date of this Agreement, which notice shall provide that the Offering Period will be shortened by setting a new exercise date and that the exercise date shall be 10 business days following the date of the delivery of such notice.

2.8 Exchange of Certificates .

(a) Payment Agent . Prior to the Effective Time, Newco shall select a bank or trust company reasonably acceptable to the Company to act as the payment agent for the Merger (the “ Payment Agent ”).

(b) Exchange Fund . At the Effective Time, Newco shall deposit (or cause to be deposited, including by utilizing the Company’s cash) with the Payment Agent, for payment to the holders of shares of Company Common Stock pursuant to the provisions of this Article II , an amount of cash equal to the aggregate consideration to which holders of Company Common Stock and holders of Company Stock-Based Awards and Company Options become entitled under this Article II . Until disbursed in accordance with the terms and conditions of this Agreement, such funds shall be invested by the Paying Agent, as directed by Newco or the Surviving Corporation, in obligations of or guaranteed by the United States of America or obligations of an agency of the United States of America which are backed by the full faith and credit of the United States of America (such cash being referred to herein as the “ Exchange Fund ”). To the extent that there are any losses with respect to any investments of the Exchange Fund, the Exchange Fund diminishes for any reason below the level required for the Paying Agent to promptly pay the cash amounts contemplated by this Article II , or all or any portion of the Exchange Fund is unavailable Newco to promptly pay the cash amounts contemplated by this Article II for any reason, Newco shall, or shall cause the Surviving Corporation to, promptly replace or restore the cash in the Exchange Fund so as to ensure that the Exchange Fund is at all times fully available for distribution and maintained at a level sufficient for the Paying Agent to make such payments contemplated by this Article II . Any income from investment of the Exchange Fund shall be payable to Newco.

(c) Payment Procedures . Promptly following the Effective Time, Newco and the Surviving Corporation shall cause the Payment Agent to mail to each holder of record (as of immediately prior to the Effective Time) of (i) a certificate or certificates (the “ Certificates ”) which immediately prior to the Effective Time represented outstanding shares of Company Common Stock and (ii) uncertificated

 

-16-

shares of Company Common Stock (the “ Uncertificated Shares ”) (A) a letter of transmittal in customary form (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Payment Agent), and/or (B) instructions for use in effecting the surrender of the Certificates and Uncertificated Shares in exchange for the Per Share Price payable in respect thereof pursuant to the provisions of this Article II . Upon surrender of Certificates for cancellation to the Payment Agent or to such other agent or agents as may be appointed by Newco, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holders of such Certificates shall be entitled to receive in exchange therefor an amount in cash equal to the product obtained by multiplying (x) the aggregate number of shares of Company Common Stock represented by such Certificate, by (y) the Per Share Price (less any applicable withholding taxes payable in respect thereof), and the Certificates so surrendered shall forthwith be canceled. Upon receipt of an “agent’s message” by the Payment Agent (or such other evidence, if any, of transfer as the Payment Agent may reasonably request) in the case of a book-entry transfer of Uncertificated Shares, the holders of such Uncertificated Shares shall be entitled to receive in exchange therefor an amount in cash equal to the product obtained by multiplying (x) the aggregate number of shares of Company Common Stock represented by such holder’s transferred Uncertificated Shares, by (y) the Per Share Price (less any applicable withholding taxes payable in respect thereof), and the transferred Uncertificated Shares so surrendered shall forthwith be canceled. The Payment Agent shall accept such Certificates and transferred Uncertificated Shares upon compliance with such reasonable terms and conditions as the Payment Agent may impose to effect an orderly exchange thereof in accordance with normal exchange practices. No interest shall be paid or accrued for the benefit of holders of the Certificates and Uncertificated Shares on the Per Share Price payable upon the surrender of such Certificates and Uncertificated Shares pursuant to this Section 2.8 . Until so surrendered, outstanding Certificates and Uncertificated Shares shall be deemed from and after the Effective Time, to evidence only the right to receive the Per Share Price, without interest thereon, payable in respect thereof pursuant to the provisions of this Article II .

(d) Transfers of Ownership . In the event that a transfer of ownership of shares of Company Common Stock is not registered in the stock transfer books or ledger of the Company, or if the Per Share Price is to be paid in a name other than that in which the Certificates or Uncertificated Shares surrendered in exchange therefor are registered in the stock transfer books or ledger of the Company, the Per Share Price may be paid to a Person other than the Person in whose name the Certificate or Uncertificated Shares so surrendered is registered in the stock transfer books or ledger of the Company only if such Certificate is properly endorsed and otherwise in proper form for surrender and transfer and the Person requesting such payment has paid to Newco (or any agent designated by Newco) any transfer Taxes required by reason of the payment of the Per Share Price to a Person other than the registered holder of such Certificate or Uncertificated Shares, or established to the satisfaction of Newco (or any agent designated by Newco) that such transfer Taxes have been paid or are otherwise not payable.

(e) Required Withholding . Each of the Payment Agent, Newco and the Surviving Corporation shall be entitled to deduct and withhold from any cash amounts payable pursuant to this Agreement to any holder or former holder of shares of Company Common Stock, Company Stock-Based Awards and Company Options such amounts as may be required to be deducted or withheld therefrom under U.S. federal or state, local or non-U.S. Tax laws. To the extent that such amounts are so deducted or withheld and paid over to the appropriate Governmental Authority, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

(f) No Liability . Notwithstanding anything to the contrary set forth in this Agreement, none of the Payment Agent, Newco, the Surviving Corporation or any other party hereto shall be liable to a holder of shares of Company Common Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law.

 

-17-

(g) Distribution of Exchange Fund to Newco . Any portion of the Exchange Fund that remains undistributed to the holders of the Certificates or Uncertificated Shares on the date that is six (6) months after the Effective Time shall be delivered to Newco upon demand, and any holders of shares of Company Common Stock that were issued and outstanding immediately prior to the Merger who have not theretofore surrendered their Certificates or Uncertificated Shares representing such shares of Company Common Stock for exchange pursuant to the provisions of this Section 2.8 shall thereafter look for payment of the Per Share Price payable in respect of the shares of Company Common Stock represented by such Certificates or Uncertificated Shares solely to Newco (subject to abandoned property, escheat or similar laws), as general creditors thereof, for any claim to the applicable Per Share Price to which such holders may be entitled pursuant to the provisions of this Article II . Any amounts remaining unclaimed by holders of any such Certificates or Uncertificated Shares two (2) years after the Effective Time or at such earlier date as is immediately prior to the time at which such amounts would otherwise escheat to, or become property of, any Governmental Authority shall, to the extent permitted by applicable law, become the property of the Surviving Corporation free and clear of any claims or interest of any such holders or their successors, assigns or personal representatives previously entitled thereto.

2.9 No Further Ownership Rights in Company Common Stock . From and after the Effective Time, all shares of Company Common Stock shall no longer be outstanding and shall automatically be cancelled, retired and cease to exist, and each holder of Uncertificated Shares or a Certificate theretofore representing any shares of Company Common Stock shall cease to have any rights with respect thereto, except the right to receive the Per Share Price payable therefor in accordance with the provisions of Section 2.7 , or in the case of Dissenting Company Shares, the rights pursuant to Section 2.7(c) . The Per Share Price paid in accordance with the terms of this Article II shall be deemed to have been paid in full satisfaction of all rights pertaining to such shares of the Company Common Stock. From and after the Effective Time, there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Company Common Stock that were issued and outstanding immediately prior to the Effective Time, other than transfers to reflect, in accordance with customary settlement procedures, trades effected prior to the Effective Time. If, after the Effective Time, Certificates or Uncertificated Shares are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article II .

2.10 Lost, Stolen or Destroyed Certificates . In the event that any Certificates shall have been lost, stolen or destroyed, the Payment 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, the Per Share Price payable in respect thereof pursuant to Section 2.7 ; provided , however , that Newco may, in its discretion and as a condition precedent to the payment of such Per Share Price, require the owners 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 Newco, the Surviving Corporation or the Payment Agent with respect to the Certificates alleged to have been lost, stolen or destroyed.

2.11 Necessary Further Actions . If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Merger Sub, the directors and officers of the Company and Merger Sub shall take all such lawful and necessary action.

 

-18-

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

With respect to any Section of this Article III , except (i) as disclosed in the reports, statements and other documents filed by the Company with the SEC or furnished by the Company to the SEC, in each case pursuant to the Exchange Act (other than (x) any disclosures contained or referenced therein under the captions “Risk Factors”, “Forward-Looking Statements”, “Quantitative and Qualitative Disclosures About Market Risk” and any other disclosures contained or referenced therein of information, factors or risks that are predictive, cautionary or forward-looking in nature, and (y) any disclosures included in any exhibits or other documents appended thereto), in each case on or after December 31, 2008 and prior to the date of this Agreement (the “ Recent SEC Reports ”) (it being understood that any matter disclosed in any Recent SEC Report shall be deemed to be disclosed in a section of the Company Disclosure Letter only to the extent that it is reasonably apparent from such disclosure in such Recent SEC Report that such disclosure is applicable to such section of the Company Disclosure Letter, other than, in each case, any matters required to be disclosed for purposes of Section 3.7 (Company Capitalization), Section 3.8 (Subsidiaries), Section 3.10 (Company Financial Statements), Section 3.12 (Absence of Changes), Section 3.16 (Intellectual Property) and Section 3.18 (Employee Plans) of this Agreement which matters shall be specifically disclosed in Sections 3.7 , 3.8 , 3.10 , 3.12 , 3.16 and 3.18 of the Company Disclosure Letter, respectively) or (ii) subject to the terms of Section 9.12 below, as set forth in the disclosure letter delivered by the Company to Newco and Merger Sub on the date of this Agreement (the “ Company Disclosure Letter ”), the Company hereby represents and warrants to Newco and Merger Sub as follows:

3.1 Organization; Good Standing . The Company is a corporation duly organized, validly existing and in good standing under Delaware Law, and has the requisite corporate power and authority to conduct its business as it is presently being conducted and to own, lease or operate its properties and assets, except where the failure to be in good standing would not have a Company Material Adverse Effect. The Company is duly qualified to do business and is in good standing in each jurisdiction where the character of its properties owned or leased or the nature of its activities make such qualification necessary (to the extent the “good standing” concept is applicable in the case of any jurisdiction outside the United States), except where the failure to be so qualified or in good standing would not have, individually or in the aggregate, a Company Material Adverse Effect. The Company has delivered or made available to Newco complete and correct copies of the Charter and bylaws of the Company, each as amended to date. The Company is not in violation of the Charter or its bylaws.

3.2 Corporate Power; Enforceability . The Company has the requisite corporate power and authority to execute and deliver this Agreement, to perform its covenants and obligations hereunder and, subject to receiving the Requisite Stockholder Approval, to consummate the Merger. The execution and delivery of this Agreement by the Company, the performance by the Company of its covenants and obligations hereunder and the consummation of the Merger have been duly authorized by all necessary corporate action on the part of the Company and no additional corporate proceedings on the part of the Company are necessary to authorize the execution and delivery of this Agreement by the Company, the performance by the Company of its covenants and obligations hereunder or, subject to the receipt of the Requisite Stockholder Approval, the consummation of the Merger. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Newco and Merger Sub, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that such enforceability (a) may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting or relating to creditors’ rights generally, and (b) is subject to general principles of equity.

 

-19-

3.3 Company Board Approval; Fairness Opinion; Anti-Takeover laws .

(a) The Company Board has   unanimously (i) determined that it is in the best interests of the Company and its stockholders, and declared it advisable, to enter into this Agreement and consummate the Merger upon the terms and subject to the conditions set forth herein, (ii) approved the execution and delivery of this Agreement by the Company, the performance by this Company of its covenants and obligations hereunder and the consummation of the Merger upon the terms and conditions set forth herein, and (iii) resolved to recommend that the Company Stockholders approve the Merger in accordance with the applicable provisions of the DGCL (the “ Company Board Recommendation ”).

(b) The Company Board has received the written opinion of its financial advisor RBC Capital Markets dated April 23, 2009 that, as of the date of such opinion and subject to the assumptions, qualifications and limitations set forth therein, the Per Share Price was fair, from a financial point of view, to the holders of Company Common Stock.

(c) Assuming that the representations of Newco and Merger Sub set forth in Section 4.7 are true and correct, the Company Board has taken all necessary actions such that the restrictions on business combinations set forth in Section 203 of the DGCL and any other similar applicable “anti-takeover” law will not be applicable to the Merger.

3.4 Requisite Stockholder Approval . The affirmative vote of the holders of a majority the outstanding shares of Company Common Stock (the “ Requisite Stockholder Approval ”) is the only vote of the holders of any class or series of Company Capital Stock that is necessary under applicable law, the Charter and the Company’s bylaws to consummate the Merger.

3.5 Non-Contravention . The execution and delivery of this Agreement by the Company, the performance by the Company of its covenants and obligations hereunder and the consummation of the Merger do not and will not (i) violate or conflict with any provision of the Charter or bylaws of the Company or its Subsidiaries, (ii) violate, conflict with, or result in the breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, any Material Contract, (iii) assuming compliance with the matters referred to in Section 3.6 and, in the case of the consummation of the Merger, subject to obtaining the Requisite Stockholder Approval, violate or conflict with any law or order applicable to the Company or any of its Subsidiaries or by which any of their respective properties or assets are bound, or (iv) result in the creation of any lien upon any of the properties or assets of the Company or any of its Subsidiaries, except in the case of each of clauses (ii), (iii) and (iv) above, for such violations, conflicts, defaults, terminations, accelerations or liens which would not have, individually or in the aggregate, a Company Material Adverse Effect or prevent or materially delay the consummation of the Merger or the ability of the Company to fully perform its covenants and obligations under this Agreement.

3.6 Requisite Governmental Approvals . No consent, approval, order or authorization of, filing or registration with, or notification to (any of the foregoing being referred to herein as a “ Consent ”), any Governmental Authority is required on the part of the Company in connection with the execution and delivery of this Agreement by the Company, the performance by the Company of its covenants and obligations hereunder or the consummation of the Merger, except (i) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and such filings with Governmental Authorities to satisfy the applicable laws of states in which the Company and its Subsidiaries are qualified to do business, (ii) such filings and approvals as may be required by any federal or state securities laws, including compliance with any applicable requirements of the Exchange Act, and (iii) compliance with any applicable requirements of the HSR Act.

 

-20-

3.7 Company Capitalization .

(a) The authorized capital stock of the Company consists of (i) 100,000,000 shares of Company Common Stock, and (ii) 5,000,000 shares of Company Preferred Stock. As of the close of business in New York City on April 17, 2009 (the “ Capitalization Date ”): (A) 31,236,602 shares of Company Common Stock were issued and outstanding, (B) no shares of Company Preferred Stock were issued and outstanding, and (C) there were no shares of Company Capital Stock held by the Company as treasury shares. All outstanding shares of Company Common Stock are validly issued, fully paid, nonassessable and free of any preemptive rights. Since the close of business on the Capitalization Date, the Company has not issued or granted any shares of Company Capital Stock or any Company Securities other than pursuant to the exercise of Company Options granted prior to the date hereof under a Company Stock Plan and pursuant to Company Stock-Based Awards granted prior to the date hereof.

(b) As of the Capitalization Date, the Company has reserved 10,799,571 shares of Company Common Stock for issuance under the Company Stock Plans, of which as of the Capitalization Date 7,255,118 shares of Company Common Stock have been reserved for future issuance pursuant to outstanding grants under the Company Stock Plans, and, since such date, no additional shares have been reserved. As of the close of business on the Capitalization Date, there were (i) outstanding Company Options to acquire up to 1,545,164 shares of Company Common Stock (x) with an exercise price per share less than the Price Per Share and (y) with a weighted average exercise price (rounded to the nearest penny) of $3.03, and, since such date, the Company has not granted, committed to grant or otherwise created or assumed any obligation with respect to any Company Options, and (ii) Company Stock-Based Awards representing the right to receive 996,243 shares of Company Common Stock, and, since such date, the Company has not granted, committed to grant or otherwise created or assumed any obligation with respect to any Company Stock-Based Awards. As of the close of business on the Capitalization Date, there were outstanding Company Options to acquire up to 4,713,711 shares of Company Common Stock with an exercise price per share equal to or greater than the Price Per Share.

(c) All outstanding shares of Company Common Stock have been, and all shares that may be issued pursuant to any Company Stock Plan will be, when issued in accordance with the respective terms thereof, duly authorized and validly issued and are (or, in the case of shares that have not yet been issued, will be) fully paid, nonassessable and free of preemptive rights.

(d) Except as set forth in this Section 3.7 or Section 3.7 of the Company Disclosure Letter, as of the Capitalization Date (and since such date, none were granted, committed to grant, reserved, created or assumed) there were (i) no outstanding shares of capital stock of, or other equity or voting interest in, the Company, (ii) no outstanding securities of the Company convertible into or exchangeable for shares of capital stock of, or other equity or voting interest in, the Company, (iii) no outstanding options, warrants or other rights or binding arrangements to acquire from the Company, or that obligates the Company to issue, any capital stock of, or other equity or voting interest in, or any securities convertible into or exchangeable for shares of capital stock of, or other equity or voting interest in, the Company, (iv) no obligations of the Company to grant, extend or enter into any subscription, warrant, right, convertible or exchangeable security or other similar Contract relating to any capital stock of, or other equity or voting interest (including any voting debt) in, the Company, (v) no outstanding restricted shares, restricted share units, stock appreciation rights, performance shares, contingent value rights, “phantom” stock or similar securities or rights that are derivative of, or provide economic benefits based, directly or indirectly, on the value or price of, any capital stock of, or other securities or ownership interests in, the Company or its Subsidiaries (the items in clauses (i), (ii), (iii), (iv) and (v), together with the capital stock of the Company, being referred to collectively as “ Company Securities ”), (vi) voting trusts, proxies or similar arrangements or understandings to which the Company is a party or by which the Company is bound with respect to the voting of any shares of capital stock of the Company, (vii) obligations or binding commitments of any character restricting the transfer of any shares of capital stock of the Company to which the Company is a party or by which it is bound, and (viii) no other obligations

 

-21-

by the Company to make any payments based on the price or value of any Company Securities. With respect to each Company Stock-Based Award and Company Option, the Company Disclosure Letter sets forth (i) the record owner, (ii) the vesting status (to the extent not fully accelerated at the Effective Time), (iii) the exercise price, and (iv) the Company Plan pursuant to which such Company Stock-Based Award or Company Option was issued. Neither the Company nor any of its Subsidiaries is a party to any Contract that obligates the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any Company Securities. There are no accrued and unpaid dividends with respect to any outstanding shares of capital stock of the Company or any of its Subsidiaries. The Company does not have a stockholder rights plan in effect.

(e) Neither the Company nor any of its Subsidiaries is a party to any Contract relating to the voting of, requiring registration of, or granting any preemptive rights, anti-dilutive rights or rights of first refusal or other similar rights with respect to any securities of the Company.

(f) At or prior to the Effective Time, the Company shall have taken all necessary action such that all Company Stock-Based Awards and Company Options shall be cancelled as of the Effective Time, and shall be of no further force or effect thereafter, and, for the avoidance of doubt, no such Company Stock-Based Awards or Company Options shall be assumed by the Surviving Corporation.

(g) Except for the Company Stock Plans listed specifically in clause (i) of the definition thereof, there are no Company Stock Plans.

3.8 Subsidiaries .

(a) Section 3.8(a) of the Company Disclosure Letter contains a complete and accurate list of the name, jurisdiction of organization, capitalization and schedule of stockholders of each Subsidiary of the Company. Each of the Subsidiaries of the Company is duly organized, validly existing and in good standing under the laws of the jurisdiction of its respective organization (to the extent the “good standing” concept is applicable in the case of any jurisdiction outside the United States). Each of the Subsidiaries of the Company has the requisite corporate power and authority to carry on its respective business as it is presently being conducted and to own, lease or operate its respective properties and assets, except where the failure to be in good standing would not have a Company Material Adverse Effect. Each of the Subsidiaries of the Company is duly qualified to do business and is in good standing in each jurisdiction where the character of its properties owned or leased or the nature of its activities make such qualification necessary (to the extent the “good standing” concept is applicable in the case of any jurisdiction outside the United States), except where the failure to be so qualified or in good standing would not have, individually or in the aggregate, a Company Material Adverse Effect. The Company has delivered or made available to Newco complete and correct copies of the charters and bylaws or other constituent documents, as amended to date, of each of the Subsidiaries of the Company. None of the Subsidiaries of the Company is in violation of its charter, bylaws or other constituent documents.

(b) All of the outstanding capital stock of, or other equity or voting interest in, each Subsidiary of the Company (i) have been duly authorized, validly issued and are fully paid and nonassessable and (ii) are owned, directly or indirectly, by the Company, free and clear of all liens and free of any other restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other equity or voting interest) that would prevent the Subsidiaries of the Company from conducting their respective businesses as of the Effective Time in substantially the same manner such businesses are conducted on the date hereof. Except for the capital stock and other ownership interests of the Subsidiaries of the Company, the Company does not own, directly or indirectly, more than five percent (5%) of the capital stock or other voting or equity securities or interests in any Person.

 

-22-

(c) There are no outstanding (i) securities of any Subsidiary convertible into or exchangeable for shares of capital stock of, or other equity or voting interest in, any Subsidiaries of the Company, (ii) options, warrants or other rights or arrangements obligating the Company or any of its Subsidiaries to acquire from any Subsidiaries of the Company, or that obligates any Subsidiaries of the Company to issue, any capital stock of, or other equity or voting interest in, or any securities convertible into or exchangeable for shares of capital stock of, or other equity or voting interest in, any Subsidiaries of the Company, (iii) obligations of any Subsidiaries of the Company to grant, extend or enter into any subscription, warrant, right, convertible or exchangeable security or other similar Contract relating to any capital stock of, or other equity or voting interest (including any voting debt) in, any Subsidiaries of the Company, (iv) outstanding restricted shares, restricted share units, stock appreciation rights, performance shares, contingent value rights, “phantom” stock or similar securities or rights that are derivative of, or provide economic benefits based, directly or indirectly, on the value or price of, any capital stock of, or other voting securities or ownership interests in, any Subsidiary of the Company (the items in clauses (i), (ii), (iii) and (iv), together with the capital stock of the Subsidiaries of the Company, being referred to collectively as “ Subsidiary Securities ”), (v) voting trusts, proxies or other similar agreements or understandings to which any Subsidiary of the Company is a party or by which any Subsidiary of the Company is bound with respect to the voting of any shares of capital stock of any Subsidiary of the Company, (v) obligations or commitments of any character restricting the transfer of any shares of capital stock of any Subsidiary of the Company, or (vii) other obligations by any Subsidiaries of the Company to make any payments based on the price or value of any shares of any Subsidiaries of the Company. Neither the Company nor any of its Subsidiaries is a party to any Contract that obligates any Subsidiaries of the Company to repurchase, redeem or otherwise acquire any outstanding Subsidiary Securities.

3.9 Company SEC Reports . The Company has filed all forms, reports and documents with the SEC that have been required to be filed by it under applicable laws prior to the date hereof, and the Company will file prior to the Effective Time all forms, reports and documents with the SEC that are required to be filed by it under applicable laws prior to such time (all such forms, reports and documents, together with all exhibits and schedules thereto, the “ Company SEC Reports ”). Each Company SEC Report complied, or will comply, as the case may be, as of its filing date, in all material respects with the applicable requirements of the Securities Act or the Exchange Act, as the case may be, each as in effect on the date such Company SEC Report was, or will be, filed. True and correct copies of all Company SEC Reports filed prior to the date hereof have been furnished to Newco or are publicly available in the Electronic Data Gathering, Analysis and Retrieval (EDGAR) database of the SEC. As of its filing date (or, if amended or superseded by a filing prior to the date of this Agreement, on the date of such amended or superseded filing), each Company SEC Report did not and will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. None of the Company’s Subsidiaries is required to file any forms, reports or other documents with the SEC. No executive officer of the Company has failed to make the certifications required of him or her under Section 302 or 906 of the Sarbanes-Oxley Act with respect to any Company SEC Report, except as disclosed in certifications filed with the Company SEC Reports. Neither the Company nor any of its executive officers has received notice from any Governmental Authority challenging or questioning the accuracy, completeness, form or manner of filing of such certifications.

3.10 Company Financial Statements .

(a) The consolidated financial statements of the Company and its Subsidiaries filed with the Company SEC Reports have been or will be, as the case may be, prepared in accordance with GAAP consistently applied during the periods and at the dates involved (except as may be indicated in the notes thereto or as otherwise permitted by Form 10-Q with respect to any financial statements filed on Form 10-Q), and fairly present in all material respects, or will present in all material respects, as the case

 

-23-

may be, the consolidated financial position of the Company and its Subsidiaries as of the dates thereof and the consolidated results of operations and cash flows for the periods then ended. There are no unconsolidated Subsidiaries of the Company or any off-balance sheet arrangements of the type required to be disclosed pursuant to Item 303(a)(4) of Regulation S-K promulgated under the Securities Act that have not been so described in the Company SEC Reports.

(b) The Company has established and maintains a system of internal accounting controls which are effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP, including policies and procedures that (i) require the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company and its Subsidiaries, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company and its Subsidiaries are being made only in accordance with appropriate authorizations of management and the Company Board and (iii) provide assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of the Company and its Subsidiaries. Neither the Company nor, to the Knowledge of the Company, the Company’s independent registered public accounting firm, has identified or been made aware of (A) any significant deficiency or material weakness in the system of internal control over financial reporting utilized by the Company and its Subsidiaries, in each case which has not been subsequently remediated, or (B) any fraud that involves the Company&r