AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

Exhibit 2.1

 

AGREEMENT AND PLAN OF MERGER

AND REORGANIZATION

among:

N OVACEA , I NC .,

a Delaware corporation;

P IVOT A CQUISITION , I NC .,

a Delaware corporation; and

T RANSCEPT P HARMACEUTICALS , I NC .

a Delaware corporation

 

Dated as of August 29, 2008

 

 

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

T HIS A GREEMENT AND P LAN OF M ERGER AND R EORGANIZATION (this “ Agreement ”) is made and entered into as of August 29, 2008, by and among N OVACEA , I NC . , a Delaware corporation (“ Pivot ”); P IVOT A CQUISITION , I NC . , a Delaware corporation (“ Merger Sub ”); and T RANSCEPT P HARMACEUTICALS , I NC . , a Delaware corporation (“ Merger Partner ”). Certain capitalized terms used in this Agreement are defined in Exhibit A .

R ECITALS

A. Pivot and Merger Partner intend to effect a merger of Merger Sub into Merger Partner (the “ Merger ”) in accordance with this Agreement and the DGCL. Upon consummation of the Merger, Merger Sub will cease to exist, and Merger Partner will become a wholly-owned subsidiary of Pivot.

B. Pivot, Merger Sub and Merger Partner intend to adopt this Agreement as a plan of reorganization and for the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code and the Treasury Regulations promulgated thereunder.

C. The Board of Directors of Pivot (i) has determined that the Merger is fair to, and in the best interests of, Pivot and its stockholders, (ii) has approved this Agreement, the Merger, the issuance of shares of Pivot Common Stock to the stockholders of Merger Partner pursuant to the terms of this Agreement, the change of control of Pivot, and the other actions contemplated by this Agreement and (iii) has determined to recommend that the stockholders of Pivot vote to approve the issuance of shares of Pivot Common Stock to the stockholders of Merger Partner pursuant to the terms of this Agreement, the change of control of Pivot and such other actions as contemplated by this Agreement.

D. The Board of Directors of Merger Sub (i) has determined that the Merger is fair to, and in the best interests of, Merger Sub and its sole stockholder, (ii) has approved this Agreement, the Merger, and the other actions contemplated by this Agreement and has deemed this Agreement advisable and (iii) has determined to recommend that the stockholder of Merger Sub vote to approve the Merger and such other actions as contemplated by this Agreement.

E. The Board of Directors of Merger Partner (i) has determined that the Merger is advisable and fair to, and in the best interests of, Merger Partner and its stockholders, (ii) has approved this Agreement, the Merger and the other transactions contemplated by this Agreement and has deemed this Agreement advisable and (iii) has approved and determined to recommend the approval and adoption of this Agreement and the approval of the Merger to the stockholders of Merger Partner.

F. In order to induce Pivot to enter into this Agreement and to cause the Merger to be consummated, certain stockholders of Merger Partner listed on Schedule F hereto, are executing voting agreements in favor of Pivot concurrently with the execution and delivery of this Agreement in the form substantially attached hereto as Exhibit B (the “ Merger Partner Stockholder Voting Agreements ”).

G. In order to induce Merger Partner to enter into this Agreement and to cause the Merger to be consummated, certain stockholders of Pivot listed on Schedule G hereto are executing voting agreements in favor of Merger Partner concurrently with the execution and delivery of this Agreement in the form substantially attached hereto as Exhibit C (the “ Pivot Stockholder Voting Agreements ”).

H . It is expected that within ten (10) calendar days following the execution and delivery of this Agreement by the parties hereto, the holders of shares of capital stock of Merger Partner sufficient to adopt and approve this Agreement and the Merger as required under the DGCL and Merger Partner’s Certificate of Incorporation and Bylaws will execute and deliver an action by written consent adopting this Agreement, in the form attached hereto as Exhibit D in order to obtain the Merger Partner Stockholder Approval (each, a “ Merger Partner Stockholder Written Consent ” and collectively, the “Merger Partner Stockholder Written Consents ”).

A GREEMENT

The parties to this Agreement, intending to be legally bound, agree as follows:

Section 1. D ESCRIPTION OF T RANSACTION

1.1 Structure of the Merger .

(a) Merger of Merger Sub into Merger Partner. Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time (as defined in Section 1.3), Merger Sub shall be merged with and into Merger Partner, and the separate existence of Merger Sub shall cease. Merger Partner will continue as the surviving corporation in the Merger (the “ Surviving Corporation ”).

(b) Alternative Structure . If all of the conditions to the Merger, except for the conditions set forth in Section 7.4(a) and Section 8.4(a) (the “ Tax Opinion Conditions ”), have been satisfied or waived, and the Tax Opinion Conditions could be satisfied if, immediately following the Merger, as part of one integrated plan for U.S. federal income tax purposes, the Surviving Corporation were merged in accordance with Delaware law into a limited liability company wholly-owned by Pivot that is disregarded as an entity separate from its owner for U.S. federal income tax purposes (the “ LLC ”) with the LLC surviving (such merger, the “ Second Merger ”), then the Second Merger shall be consummated; provided, however, that (i) the LLC shall become a party to, and shall become bound by, the terms of this Agreement and (ii) the Tax Representation Letters shall be executed and delivered. If the Second Merger occurs, references to the Merger in Recital B, Section 1.11, Section 2.12(n), Section 3.10(n), and Section 5 shall be to the Merger and the Second Merger, taken together as one integrated transaction for U.S. federal income tax purposes.

1.2 Effects of the Merger . The Merger shall have the effects set forth in this Agreement and in the applicable provisions of the DGCL. As a result of the Merger, Merger Partner will become a wholly-owned subsidiary of Pivot.

1.3 Closing; Effective Time . Unless this Agreement is earlier terminated pursuant to the provisions of Section 9.1 of this Agreement, and subject to the satisfaction or waiver of the conditions set forth in Sections 6, 7 and 8 of this Agreement, the consummation of the Merger (the “ Closing ”) shall take place at the offices of Latham & Watkins LLP, 140 Scott Drive, Menlo Park, California, as promptly as practicable (but in no event later than the third Business Day following the satisfaction or waiver of the last to be satisfied or waived of the conditions set forth in Sections 6, 7 and 8, other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of each of such conditions), or at such other time, date and place as Pivot and Merger Partner may mutually agree in writing. The date on which the Closing actually takes place is referred to as the “ Closing Date .” At the Closing, the Parties hereto shall cause the Merger to be consummated by executing and filing with the Secretary of State of the State of Delaware a Certificate of Merger with respect to the Merger, satisfying the applicable requirements of the DGCL and in a form reasonably acceptable to Pivot and Merger Partner. The Merger shall become effective at the time of the filing of such Certificate of Merger with the Secretary of State of the State of Delaware or at such later time as may be specified in such Certificate of Merger with the consent of Merger Partner (the time as of which the Merger becomes effective being referred to as the “ Effective Time ”).

1.4 Certificate of Incorporation and Bylaws; Directors and Officers . At the Effective Time:

(a) the Certificate of Incorporation of the Surviving Corporation shall be amended and restated in its entirety to read identically to the Certificate of Incorporation of Merger Sub as in effect immediately prior to the Effective Time, until thereafter amended as provided by the DGCL and such Certificate of Incorporation;

(b) the Certificate of Incorporation of Pivot shall be the Certificate of Incorporation of Pivot immediately prior to the Effective Time, until thereafter amended as provided by the DGCL and such Certificate of Incorporation; provided, however, that at the Effective Time, Pivot shall file an amendment to its certificate of incorporation to change the name of Pivot to “Transcept Pharmaceuticals, Inc.;”

 

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(c) the Bylaws of the Surviving Corporation shall be amended and restated in its entirety to read identically to the Bylaws of Merger Sub as in effect immediately prior to the Effective Time, until thereafter amended as provided by the DGCL and such Bylaws;

(d) the directors and officers of Pivot shall be as set forth in Section 5.17; and

(e) the directors and officers of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation, shall be the directors and officers of Pivot as set forth in Section 5.17, after giving effect to the provisions of Section 5.17.

1.5 Conversion of Shares and Issuance of Warrants .

(a) At the Effective Time, by virtue of the Merger and without any further action on the part of Pivot, Merger Sub, Merger Partner or any stockholder of Merger Partner:

(i) any shares of Merger Partner Common Stock or Merger Partner Preferred Stock held as treasury stock or held or owned by Merger Partner, Merger Sub or any Subsidiary of Merger Partner immediately prior to the Effective Time shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor;

(ii) Merger Partner shall have taken such action to effect a conversion of Merger Partner Series A Preferred Stock, Merger Partner Series B Preferred Stock, Merger Partner Series C Preferred Stock and Merger Partner Series D Preferred Stock (collectively, the “ Merger Partner Preferred Stock ”) to be converted into Common Stock immediately prior to the Effective Time (the “ Preferred Stock Conversion ”); and

(iii) subject to Section 1.5(c), each share of Merger Partner Common Stock outstanding immediately prior to the Effective Time (excluding shares to be canceled pursuant to Section 1.5(a)(i) and excluding Dissenting Shares) shall be converted solely into the right to receive a number of shares of Pivot Common Stock equal to the Exchange Ratio.

(b) If any shares of Merger Partner Common Stock outstanding immediately prior to the Effective Time are unvested or are subject to a repurchase option or the risk of forfeiture or under any applicable restricted stock purchase agreement or other agreement with Merger Partner, then the shares of Pivot Common Stock issued in exchange for such shares of Merger Partner Common Stock will to the same extent be unvested and subject to the same repurchase option or risk of forfeiture, and the certificates representing such shares of Pivot Common Stock shall accordingly be marked with appropriate legends. Merger Partner shall take all action that may be necessary to ensure that, from and after the Effective Time, Pivot is entitled to exercise any such repurchase option or other right set forth in any such restricted stock purchase agreement or other agreement.

(c) No fractional shares of Pivot Common Stock shall be issued in connection with the Merger, and no certificates or scrip for any such fractional shares shall be issued. Any holder of Merger Partner Common Stock who would otherwise be entitled to receive a fraction of a share of Pivot Common Stock (after aggregating all fractional shares of Pivot Common Stock issuable to such holder) shall, in lieu of such fraction of a share and upon surrender of such holder’s Merger Partner Stock Certificate(s) (as defined in Section 1.7), be paid in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the closing price of a share of Pivot Common Stock on The NASDAQ Global Market (or such other NASDAQ market on which the Pivot Common Stock then trades) on the date the Merger becomes effective.

(d) All Merger Partner Options outstanding immediately prior to the Effective Time under the Merger Partner Stock Option Plan and all Merger Partner Warrants outstanding immediately prior to the Effective Time shall be exchanged for options to purchase Pivot Common Stock or warrants to purchase Pivot Common Stock, as applicable, in accordance with Section 5.5.

 

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(e) Each share of Common Stock, $0.0001 par value per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of Common Stock, $0.0001 par value per share, of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares shall, as of the Effective Time, evidence ownership of such shares of Common Stock of the Surviving Corporation.

(f) If, between the date of this Agreement and the Effective Time, the outstanding shares of Merger Partner Capital Stock or Pivot Common Stock shall have been changed into, or exchanged for, a different number of shares or a different class, by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the Exchange Ratio shall be correspondingly adjusted to provide the holders of Merger Partner Common Stock, Merger Partner Preferred Stock, Merger Partner Options and Merger Partner Warrants the same economic effect as contemplated by this Agreement prior to such event.

1.6 Calculation of Net Cash .

(a) For the purposes of this Agreement, the “ Determination Date ” shall be the date that is ten (10) calendar days prior to the anticipated date for Closing, as agreed upon by Pivot and Merger Partner at least ten (10) calendar days prior to the Pivot Stockholders Meeting (the “ Anticipated Closing Date ”); provided, that, notwithstanding the foregoing, if the Form S-4 Registration Statement is not filed on or before October 5, 2008, then the “Determination Date” shall be December 31, 2008. Merger Partner shall reasonably cooperate with Pivot and provide Pivot, and require its Representatives, advisors, accountants and attorneys to provide, Pivot and its Representatives, advisors, accountants and attorneys, with all true, correct and complete information regarding Merger Partner that is required by law to be included in the Form S-4 Registration Statement or reasonably requested from Merger Partner to be included in the Form S-4 Registration Statement. On the fifth calendar day after the Determination Date, Pivot shall deliver to Merger Partner a schedule (an “ Estimated Net Cash Schedule ”) setting forth, in reasonable detail, Pivot’s calculation of Net Cash (using an estimate of Pivot’s accounts payable and accrued expenses, in each case as of such date and determined in a manner substantially consistent with the manner in which such items were determined for Pivot’s most recent SEC filings) (the “ Net Cash Calculation ”) as of such applicable Determination Date prepared by Pivot’s Chief Financial Officer. Within five (5) calendar days following the Determination Date, Pivot shall deliver to Merger Partner a schedule (a “ Final Net Cash Schedule ”) setting forth the Net Cash Calculation as of such Determination Date prepared by Pivot. Pivot shall make the work papers and back-up materials used in preparing the applicable Estimated Net Cash Schedule and Final Net Cash Schedule available to Merger Partner and, if requested by Merger Partners, its accountants and counsel at reasonable times and upon reasonable notice.

(b) Within three (3) calendar days after Pivot delivers the applicable Estimated Net Cash Schedule or Final Net Cash Schedule (a “ Response Date ”), Merger Partner shall have the right to dispute any part of such Estimated Net Cash Schedule or Final Net Cash Schedule by delivering a written notice to that effect to Pivot (a “ Dispute Notice ”). Any Dispute Notice shall identify in reasonable detail the nature of any proposed revisions to the applicable Net Cash Calculation.

(c) If on or prior to any Response Date, (i) Merger Partner notifies Pivot in writing that it has no objections to the applicable Net Cash Calculation or (ii) Merger Partner fails to deliver a Dispute Notice as provided in Section 1.6(b), then the Net Cash Calculation as set forth in the applicable Estimated Net Cash Schedule or Final Net Cash Schedule shall be deemed to have been finally determined for purposes of this Agreement and to represent the Net Cash at the Determination Date for purposes of this Agreement.

(d) If Merger Partner delivers a Dispute Notice on or prior to the applicable Response Date, then Representatives of Pivot and Merger Partner shall promptly meet and attempt in good faith to resolve the disputed item(s) and negotiate an agreed-upon determination of Net Cash, which agreed upon Net Cash amount shall be deemed to have been finally determined for purposes of this Agreement and to represent the Net Cash at the Determination Date for purposes of this Agreement.

 

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(e) If Representatives of Pivot and Merger Partner are unable to negotiate an agreed-upon determination of Net Cash at a Determination Date pursuant to Section 1.6(d) within three (3) calendar days after delivery of the applicable Dispute Notice (or such other period as Pivot and Merger Partner may mutually agree upon), then Pivot and Merger Partner shall jointly select an independent auditor of recognized national standing (the “ Accounting Firm ”) to resolve any remaining disagreements as to the Net Cash Calculation. Pivot shall promptly deliver to the Accounting Firm the work papers and back-up materials used in preparing the applicable Estimated Net Cash Schedule or Final Net Cash Schedule, and Pivot and Merger Partner shall use their best efforts to cause the Accounting Firm to make its determination within ten (10) calendar days of accepting its selection. Merger Partner and Pivot shall be afforded the opportunity to present to the Accounting Firm any material related to the unresolved disputes and to discuss the issues with the Accounting Firm; provided, however , that no such presentation or discussion shall occur without the presence of a Representative of each of Merger Partner and Pivot. The determination of the Accounting Firm shall be limited to the disagreements submitted to the Accounting Firm. The determination of the amount of Net Cash made by the Accounting Firm shall be deemed to have been finally determined for purposes of this Agreement and to represent the Net Cash at the Determination Date for purposes of this Agreement, and the Parties shall delay the Closing until the resolution of the matters described in this Section 1.6(e). The fees and expenses of the Accounting Firm shall be allocated between Pivot and Merger Partner in the same proportion that the disputed amount of the Net Cash that was unsuccessfully disputed by such Party (as finally determined by the Accounting Firm) bears to the total disputed amount of the Net Cash amount. If this Section 1.6(e) applies as to the determination of the Net Cash at the Determination Date described in Section 1.6(a), upon resolution of the matter in accordance with this Section 1.6(e), the Parties shall not be required to determine Net Cash again even though the Closing Date may occur later than the Anticipated Closing Date.

1.7 Closing of Merger Partner’s Transfer Books . At the Effective Time: (a) all shares of Merger Partner Common Stock and Merger Partner Preferred Stock outstanding immediately prior to the Effective Time shall automatically be canceled and retired and shall cease to exist, and all holders of certificates representing shares of Merger Partner Common Stock and Merger Partner Preferred Stock that were outstanding immediately prior to the Effective Time shall cease to have any rights as stockholders of Merger Partner; and (b)   the stock transfer books of Merger Partner shall be closed with respect to all shares of Merger Partner Common Stock and Merger Partner Preferred Stock outstanding immediately prior to the Effective Time. No further transfer of any such shares of Merger Partner Common Stock shall be made on such stock transfer books after the Effective Time. If, after the Effective Time, a valid certificate previously representing any shares of Merger Partner Common Stock outstanding immediately prior to the Effective Time (a “ Merger Partner Stock Certificate ”) is presented to the Exchange Agent (as defined in Section 1.8) or to the Surviving Corporation, such Merger Partner Stock Certificate shall be canceled and shall be exchanged as provided in Sections 1.5 and 1.8.

1.8 Surrender of Certificates .

(a) On or prior to the Closing Date, Pivot and Merger Partner shall agree upon and select a reputable bank, transfer agent or trust company to act as exchange agent in the Merger (the “ Exchange Agent ”). At the Effective Time, Pivot shall deposit with the Exchange Agent: (i) certificates representing the shares of Pivot Common Stock issuable pursuant to Section 1.5(a) and (ii) cash sufficient to make payments in lieu of fractional shares in accordance with Section 1.5(c). The shares of Pivot Common Stock and cash amounts so deposited with the Exchange Agent, together with any dividends or distributions received by the Exchange Agent with respect to such shares, are referred to collectively as the “ Exchange Fund .”

(b) At or before the Effective Time, Merger Partner will deliver to Pivot a true, complete and accurate listing of all record holders of Merger Partner Stock Certificates at the Effective Time, including the number and class of shares of Merger Partner’s capital stock held by such record holder and the number of shares of Pivot Common Stock such holder is entitled to receive pursuant to Section 1.5. Promptly after the Effective Time, the Parties shall cause the Exchange Agent to mail to the Persons who were record holders of Merger Partner Stock Certificates immediately prior to the Effective Time: (i) a letter of transmittal in customary form and containing such provisions as Pivot may reasonably specify (including a provision confirming that delivery

 

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of Merger Partner Stock Certificates shall be effected, and risk of loss and title to Merger Partner Stock Certificates shall pass, only upon delivery of such Merger Partner Stock Certificates to the Exchange Agent); and (ii) instructions for use in effecting the surrender of Merger Partner Stock Certificates in exchange for certificates representing Pivot Common Stock. Upon surrender of a Merger Partner Stock Certificate to the Exchange Agent for exchange, together with a duly executed letter of transmittal and such other documents as may be reasonably required by the Exchange Agent or Pivot: (A) the holder of such Merger Partner Stock Certificate shall be entitled to receive in exchange therefor a certificate representing the number of whole shares of Pivot Common Stock that such holder has the right to receive pursuant to the provisions of Section 1.5(a) (and cash in lieu of any fractional share of Pivot Common Stock); and (B) the Merger Partner Stock Certificate so surrendered shall be canceled. Until surrendered as contemplated by this Section 1.8(b), each Merger Partner Stock Certificate shall be deemed, from and after the Effective Time, to represent only the right to receive shares of Pivot Common Stock (and cash in lieu of any fractional share of Pivot Common Stock). If any Merger Partner Stock Certificate shall have been lost, stolen or destroyed, Pivot may, in its discretion and as a condition precedent to the delivery of any shares of Pivot Common Stock and in the case of Merger Partner Certificates representing Merger Partner Preferred Stock, require the owner of such lost, stolen or destroyed Merger Partner Stock Certificate to provide an applicable affidavit with respect to such Merger Partner Stock Certificate and post a bond indemnifying Pivot against any claim suffered by Pivot related to the lost, stolen or destroyed Merger Partner Stock Certificate or any Pivot Common Stock issued in exchange therefor as Pivot may reasonably request.

(c) No dividends or other distributions declared or made with respect to Pivot Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Merger Partner Stock Certificate with respect to the shares of Pivot Common Stock that such holder has the right to receive in the Merger until such holder surrenders such Merger Partner Stock Certificate in accordance with this Section 1.8 (at which time such holder shall be entitled, subject to the effect of applicable abandoned property, escheat or similar laws, to receive all such dividends and distributions, without interest).

(d) Any portion of the Exchange Fund that remains undistributed to holders of Merger Partner Stock Certificates as of the date 180 days after the Closing Date shall be delivered to Pivot upon demand, and any holders of Merger Partner Stock Certificates who have not theretofore surrendered their Merger Partner Stock Certificates in accordance with this Section 1.8 shall thereafter look only to Pivot for satisfaction of their claims for Pivot Common Stock, cash in lieu of fractional shares of Pivot Common Stock and any dividends or distributions with respect to shares of Pivot Common Stock.

(e) Each of the Exchange Agent, Pivot and the Surviving Corporation shall be entitled to deduct and withhold from any consideration deliverable pursuant to this Agreement to any holder of any Merger Partner Stock Certificate such amounts as are required to be deducted or withheld from such consideration under the Code or under any other applicable Legal Requirement and shall be entitled to request any reasonably appropriate Tax forms, including Form W-9 (or the appropriate Form W-8, as applicable) from any recipient of payments hereunder. To the extent such amounts are so deducted or withheld, 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 party to this Agreement shall be liable to any holder of any Merger Partner Stock Certificate or to any other Person with respect to any shares of Pivot Common Stock (or dividends or distributions with respect thereto) or for any cash amounts, delivered to any public official pursuant to any applicable abandoned property law, escheat law or similar Legal Requirement.

1.9 Appraisal Rights .

(a) Notwithstanding any provision of this Agreement to the contrary, shares of Merger Partner Capital Stock that are outstanding immediately prior to the Effective Time and which are held by stockholders who have exercised and perfected appraisal rights for such shares of Merger Partner Capital Stock in accordance with the DGCL and/or Chapter 13 of the California General Corporation Law (the “ CGCL ”) (collectively, the

 

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“ Dissenting Shares ”) shall not be converted into or represent the right to receive the per share amount of the merger consideration described in Section 1.5 attributable to such Dissenting Shares. Such stockholders shall be entitled to receive payment of the appraised value of such shares of Merger Partner Capital Stock held by them in accordance with the DGCL or the CGCL, unless and until such stockholders fail to perfect or effectively withdraw or otherwise lose their appraisal rights under the DGCL or CGCL. All Dissenting Shares held by stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their right to appraisal of such shares of Merger Partner Capital Stock under the DGCL or CGCL shall thereupon be deemed to be converted into and to have become exchangeable for, as of the Effective Time, the right to receive the per share amount of the merger consideration attributable to such Dissenting Shares upon their surrender in the manner provided in Section 1.5.

(b) Merger Partner shall give Pivot prompt written notice of any demands by dissenting stockholders received by Merger Partner, withdrawals of such demands and any other instruments served on Merger Partner and any material correspondence received by Merger Partner in connection with such demands.

1.10 Further Action . If, at any time after the Effective Time, any further action is determined by the Surviving Corporation to be necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full right, title and possession of and to all rights and property of Merger Partner, then the officers and directors of the Surviving Corporation shall be fully authorized, and shall use their commercially reasonable efforts (in the name of Merger Partner, in the name of Merger Sub and otherwise) to take such action.

1.11 Tax Consequences . For federal income tax purposes, the Merger is intended to constitute a reorganization within the meaning of Section 368(a) of the Code and the Treasury Regulations promulgated thereunder. The parties to this Agreement adopt this Agreement as a “plan of reorganization” within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the Treasury Regulations.

Section 2. R EPRESENTATIONS AND W ARRANTIES OF M ERGER P ARTNER

Merger Partner represents and warrants to Pivot and Merger Sub as follows, except as set forth in the written disclosure schedule delivered by Merger Partner to Pivot (the “ Merger Partner Disclosure Schedule ”). The Merger Partner Disclosure Schedule shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this Section 2. The disclosures in any section or subsection of the Merger Partner Disclosure Schedule shall qualify other sections and subsections in this Section 2 to the extent it is reasonably clear from a reading of the disclosure that such disclosure is applicable to such other sections and subsections. The inclusion of any information in the Merger Partner Disclosure Schedule (or any update thereto) shall not be deemed to be an admission or acknowledgment, in and of itself, that such information is required by the terms hereof to be disclosed, is material, has resulted in or would result in a Merger Partner Material Adverse Effect, or is outside the Ordinary Course of Business.

2.1 Subsidiaries; Due Organization; Etc.

(a) Merger Partner has no Subsidiaries, except for the Entities identified in Part 2.1(a) of the Merger Partner Disclosure Schedule; and neither Merger Partner nor any of the other Entities identified in Part 2.1(a) of the Merger Partner Disclosure Schedule owns any capital stock of, or any equity interest of any nature in, any other Entity, other than the Entities identified in Part 2.1(a) of the Merger Partner Disclosure Schedule. Merger Partner has not agreed nor is obligated to make, nor is bound by any Contract under which it may become obligated to make, any future investment in or capital contribution to any other Entity. Merger Partner has not, at any time, been a general partner of, or has otherwise been liable for any of the debts or other obligations of, any general partnership, limited partnership or other Entity.

 

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(b) Each of Merger Partner and the Merger Partner Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all necessary power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Contracts by which it is bound.

(c) Each of Merger Partner and the Merger Partner Subsidiaries is qualified to do business as a foreign corporation, and is in good standing, under the laws of all jurisdictions where the nature of its business requires such qualification other than in jurisdictions where the failure to be so qualified individually or in the aggregate would not be reasonably expected to have a Merger Partner Material Adverse Effect.

2.2 Certificate of Incorporation; Bylaws; Charters and Codes of Conduct. Merger Partner has delivered to Pivot accurate and complete copies of the certificate of incorporation, bylaws and other charter and organizational documents, including all currently effective amendments thereto for Merger Partner and each Merger Partner Subsidiary. Part 2.2 of the Merger Partner Disclosure Schedule lists, and Merger Partner has delivered to Pivot, accurate and complete copies of: (a) the charters of all committees of Merger Partner’s board of directors; and (b) any code of conduct or similar policy adopted by Merger Partner or by the board of directors, or any committee of the board of directors, of Merger Partner. Neither Merger Partner nor any Merger Partner Subsidiary has taken any action in breach or violation of any of the provisions of its certificate of incorporation, bylaws and other charter and organizational documents nor is in breach or violation of any of the material provisions of their respective certificates of incorporation, bylaws and other charter and organizational documents, except as would not reasonably be expected to have, individually or in the aggregate, a Merger Partner Material Adverse Effect.

2.3 Capitalization, Etc.

(a) The authorized capital stock of Merger Partner consists of (i) 66,000,000 shares of Merger Partner Common Stock, par value $0.001 per share, of which 3,528,961 shares have been issued and are outstanding as of the date of this Agreement, (ii) 426,008 shares of Series A Preferred Stock, par value $0.001 per share of which 426,008 shares have been issued and are outstanding; (iii) 7,966,748 shares of Series B Preferred Stock, par value $0.001 per share of which 7,966,748 shares have been issued and are outstanding; (iv) 21,300,000 shares of Series C Preferred Stock, par value $0.001 per share of which 20,079,889 shares have been issued and are outstanding; and (v) 24,029,412 shares of Series D Preferred Stock, par value $0.001 per share of which 23,529,410 shares have been issued and are outstanding. Merger Partner does not hold any shares of its capital stock in its treasury. All of the outstanding shares of Merger Partner Common Stock and Merger Partner Preferred Stock have been duly authorized and validly issued, and are fully paid and nonassessable. Except as set forth in Part 2.3(a) of the Merger Partner Disclosure Schedule, none of the outstanding shares of Merger Partner Common Stock or Merger Partner Preferred Stock is entitled or subject to any preemptive right, right of participation, right of maintenance or any similar right and none of the outstanding shares of Merger Partner Common Stock or Merger Partner Preferred Stock is subject to any right of first refusal in favor of Merger Partner. Except as contemplated herein or as set forth in the Merger Partner Disclosure Schedule, there is no Merger Partner Contract relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or granting any option or similar right with respect to), any shares of Merger Partner Common Stock or Merger Partner Preferred Stock. Merger Partner is not under any obligation, nor is bound by any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding shares of Merger Partner Common Stock or other securities. Part 2.3(a) of the Merger Partner Disclosure Schedule accurately and completely describes all repurchase rights held by Merger Partner with respect to shares of Merger Partner Common Stock (including shares issued pursuant to the exercise of stock options) and Merger Partner Preferred Stock, and specifies each holder of Merger Partner Common Stock or Merger Partner Preferred Stock, the date of purchase of such Merger Partner Common Stock or Merger Partner Preferred Stock, the number of shares of Merger Partner Common Stock or Merger Partner Preferred Stock subject to such repurchase rights, the purchase price paid by such holder, the vesting schedule under which such repurchase rights lapse, and whether the holder of such Merger Partner Common Stock or Merger Partner

 

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Preferred Stock filed an election under Section 83(b) of the Code with respect to such Merger Partner Common Stock or Merger Partner Preferred Stock within thirty (30) days of purchase. Each share of Merger Partner Preferred Stock is convertible into one share of Merger Partner Common Stock.

(b) Except for the Merger Partner Amended and Restated 2002 Stock Option Plan (the “Merger Partner Stock Option Plan” ), Merger Partner does not have any stock option plan or any other plan, program, agreement or arrangement providing for any equity-based compensation for any Person. Merger Partner has reserved 10,043,185 shares of Merger Partner Common Stock for issuance under the Merger Partner Stock Option Plan, of which 1,760,062 shares have been issued and 7,707,034 shares are subject to issuance pursuant to stock options granted and outstanding under the Merger Partner Stock Option Plan and 576,089 shares of Merger Partner Common Stock are reserved for future issuance pursuant to stock options not yet granted under the Merger Partner Stock Option Plan. 1,103,769 shares of Merger Partner Series C Preferred Stock are reserved for future issuance pursuant to warrants to purchase Merger Partner Series C Preferred Stock (collectively, the “ Merger Partner Warrants ”). Part 2.3(b) of the Merger Partner Disclosure Schedule sets forth the following information with respect to each Merger Partner Option outstanding as of the date of this Agreement: (A) the name of the optionee; (B) the number of shares of Merger Partner Common Stock subject to such Merger Partner Option at the time of grant; (C) the number of shares of Merger Partner Common Stock subject to such Merger Partner Option as of the date of this Agreement; (D) the exercise price of such Merger Partner Option; (E) the date on which such Merger Partner Option was granted; (F) the applicable vesting schedule, including the number of vested and unvested shares; (G) the date on which such Merger Partner Option expires; and (H) whether such Merger Partner Option is an “incentive stock option” (as defined in the Code) or a non-qualified stock option. Merger Partner has made available to Pivot an accurate and complete copy of the Merger Partner Stock Option Plan, forms of all stock option agreements approved for use thereunder, copies of resolutions of the board of directors approving option grants and copies of stockholder resolutions approving all stock option plans pursuant to which Merger Partner has ever granted stock options. No Merger Partner Options are subject to the requirements of Section 409A of the Code. No vesting of Merger Partner Options will accelerate in connection with the closing of the Proposed Transactions.

(c) Except for the outstanding Merger Partner Options, Merger Partner Warrants or as set forth on Part 2.3(c) of the Merger Partner Disclosure Schedule, there is no: (i) outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock or other securities of Merger Partner; (ii) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of the capital stock or other securities of Merger Partner; (iii) stockholder rights plan (or similar plan commonly referred to as a “poison pill”) or Contract under which Merger Partner is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities; or (iv) condition or circumstance that may give rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any shares of capital stock or other securities of any Merger Partner. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or other similar rights with respect to Merger Partner.

(d) All outstanding shares of Merger Partner Common Stock, Merger Partner Preferred Stock, options, warrants and other securities of Merger Partner have been issued and granted in material compliance with (i) all applicable securities laws and other applicable Legal Requirements, and (ii) all requirements set forth in applicable Contracts. Merger Partner has delivered to Pivot accurate and complete copies of all Merger Partner Warrants.

2.4 Financial Statements.

(a) Part 2.4(a) of the Merger Partner Disclosure Schedule includes true and complete copies of Merger Partner’s audited consolidated balance sheet at December 31, 2007, Merger Partner’s unaudited consolidated balance sheet at June 30, 2008, and Merger Partner’s audited statements of income, cash flow and shareholders’ equity for the years ended December 31, 2005, 2006 and 2007 (collectively, the “ Merger Partner Financials ”). The Merger Partner Financials (i) were prepared in accordance with United States general accepted

 

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accounting principles (“ GAAP ”) (except as may be indicated in the footnotes to such Merger Partner Financials and that unaudited financial statements may not have notes thereto and other presentation items that may be required by GAAP and are subject to normal and recurring year-end adjustments that are not reasonably expected to be material in amount) applied on a consistent basis unless otherwise noted therein throughout the periods indicated and (ii) fairly present the financial condition and operating results of Merger Partner as of the dates and for the periods indicated therein.

(b) Each of Merger Partner and its Subsidiaries maintains a system of internal accounting controls designed to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; provided , however , that the Merger Partner has neither adopted, nor has it conducted an evaluation of compliance of Merger Partner’s internal accounting controls with, the Internal Control Framework developed by the Committee of Sponsoring Organizations of the Treadway Commission. Merger Partner maintains internal control over financial reporting that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting purposes.

(c) Part 2.4(c) of the Merger Partner Disclosure Schedule lists, and Merger Partner has delivered to Pivot accurate and complete copies of the documentation creating or governing, all securitization transactions and “off-balance sheet arrangements” (as defined in Item 303(c) of Regulation S-K under the Exchange Act) effected by Merger Partner since December 31, 2005.

(d) Since January 1, 2005, there have been no formal internal investigations regarding financial reporting or accounting policies and practices discussed with, reviewed by or initiated at the direction of the chief executive officer, chief financial officer or general counsel of Merger Partner, Merger Partner’s Board of Director or any committee thereof. Since January 1, 2005, neither Merger Partner nor its independent auditors have identified (i) any significant deficiency or material weakness in the system of internal accounting controls utilized by Merger Partner and the Merger Partner Subsidiaries, (ii) any fraud, whether or not material, that involves Merger Partner’s management or other employees who have a role in the preparation of financial statements or the internal accounting controls utilized by Merger Partner and the Merger Partner Subsidiaries or (iii) any claim or allegation regarding any of the foregoing.

2.5 Absence of Changes. Except as set forth on Part 2.5 of the Merger Partner Disclosure Schedule, since December 31, 2007:

(a) there has not been any material loss, damage or destruction to, or any material interruption in the use of, any of the assets or business of Merger Partner or any Merger Partner Subsidiary (whether or not covered by insurance);

(b) Merger Partner has not: (i) declared, accrued, set aside or paid any dividend or made any other distribution in respect of any shares of capital stock; or (ii) repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities;

(c) Merger Partner has not sold, issued or granted, or authorized the issuance of: (i) any capital stock or other security (except for Merger Partner Common Stock issued upon the valid exercise of outstanding Merger Partner Options); (ii) any option, warrant or right to acquire any capital stock or any other security (except for Merger Partner Options identified in Part 2.3(b) of the Merger Partner Disclosure Schedule); or (iii) any instrument convertible into or exchangeable for any capital stock or other security except for the repurchase or reacquisition of shares pursuant to Merger Partner rights arising upon an individual’s termination as an employee, director or consultant;

 

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(d) there has been no amendment to the certificate of incorporation, bylaws or other charter or organizational documents of Merger Partner or any Merger Partner Subsidiary, and neither Merger Partner nor any Merger Partner Subsidiary has effected or been a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction;

(e) Merger Partner has not amended or waived any of its rights under, or exercised its discretion to permit the acceleration of vesting under any provision of: (i) the Merger Partner Stock Option Plan; (ii) any Merger Partner Option or any Contract evidencing or relating to any Merger Partner Option; (iii) any restricted stock purchase agreement; or (iv) any other Contract evidencing or relating to any equity award (whether payable in cash or stock);

(f) Neither Merger Partner nor any Merger Partner Subsidiary has formed any Subsidiary or acquired any equity interest or other interest in any other Entity;

(g) Neither Merger Partner nor any Merger Partner Subsidiary has: (i) lent money to any Person; (ii) incurred or guaranteed any indebtedness; (iii) issued or sold any debt securities or options, warrants, calls or other rights to acquire any debt securities; (iv) guaranteed any debt securities of others; or (v) made any capital expenditure or commitment in excess of $100,000;

(h) Neither Merger Partner nor any Merger Partner Subsidiary has changed any of its accounting methods, principles or practices;

(i) Neither Merger Partner nor any Merger Partner Subsidiary has made, changed or revoked any material Tax election, filed any material amendment to any Tax Return, adopted or changed any accounting method in respect of Taxes, changed any annual Tax accounting period, entered into any Tax allocation agreement, Tax sharing agreement or Tax indemnity agreement, other than commercial contracts entered into in the Ordinary Course of Business with vendors, customers or landlords, entered into any closing agreement with respect to any Tax, settled or compromised any claim, notice, audit report or assessment in respect of material Taxes, applied for or entered into any ruling from any Tax authority with respect to Taxes, surrendered any right to claim a material Tax refund, or consented to any extension or waiver of the statute of limitations period applicable to any material Tax claim or assessment;

(j) Neither Merger Partner nor any Merger Partner Subsidiary has commenced or settled any Legal Proceeding;

(k) Neither Merger Partner nor any Merger Partner Subsidiary has entered into any material transaction outside the Ordinary Course of Business;

(l) Neither Merger Partner nor any Merger Partner Subsidiary has acquired any material assets nor sold, leased or otherwise irrevocably disposed of any of its material assets or properties, nor has any Encumbrance been granted with respect to such assets or properties, except for Encumbrances of immaterial assets in the Ordinary Course of Business consistent with past practices;

(m) there has been no entry into, amendment or termination of any Merger Partner Material Contract;

(n) there has been no (i) material change in pricing or royalties or other payments set or charged by Merger Partner or any Merger Partner Subsidiary to its customers or licensees, (ii) agreement by Merger Partner or any Merger Partner Subsidiary to change pricing or royalties or other payments set or charged by persons who have licensed Intellectual Property to Merger Partner or any Merger Partner Subsidiary, or (iii) as of the date of this Agreement, material change in pricing or royalties or other payments set or charged by persons who have licensed Intellectual Property to Merger Partner or any Merger Partner Subsidiary; and

(o) Neither Merger Partner nor any Merger Partner Subsidiary has negotiated, agreed or committed to take any of the actions referred to in clauses “(c)” through “(n)” above (other than negotiations between the Parties to enter into this Agreement).

 

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2.6 Title to Assets. Each of Merger Partner and the Merger Partner Subsidiaries owns, and has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all tangible properties or assets and equipment used or held for use in its business or operations or purported to be owned by it, including: (a) all assets reflected on the Merger Partner Unaudited Interim Balance Sheet; and (b) all other assets reflected in the books and records of Merger Partner or any Merger Partner Subsidiary as being owned by Merger Partner or such Merger Partner Subsidiary. All of said assets are owned by Merger Partner or a Merger Partner Subsidiary free and clear of any Encumbrances, except for: (i) any lien for current Taxes not yet due and payable or for Taxes that are being contested in good faith and for which adequate reserves have been made on Merger Partner’s Unaudited Interim Balance Sheet; (ii) minor liens that have arisen in the Ordinary Course of Business and that do not (in any case or in the aggregate) materially detract from the value of the assets subject thereto or materially impair the operations of Merger Partner; and (iii) liens described in Part 2.6 of the Merger Partner Disclosure Schedule.

2.7 Real Property; Leasehold. Neither Merger Partner nor any Merger Partner Subsidiary owns any real property or any interest in real property, except for the leaseholds created under the real property leases identified in Part 2.7 of the Merger Partner Disclosure Schedule which are in full force and effect and with no existing default thereunder.

2.8 Intellectual Property.

(a) Merger Partner, directly or through a Merger Partner Subsidiary, owns, or has the right to use, and has the right to bring actions for the infringement of, all Merger Partner IP Rights, except for any failure to own or have the right to use, or have the right to bring actions that would not reasonably be expected to have a Merger Partner Material Adverse Effect.

(b) Part 2.8(b) of the Merger Partner Disclosure Schedule is an accurate, true and complete listing of all Merger Partner Registered IP.

(c) Part 2.8(c) of the Merger Partner Disclosure Schedule accurately identifies (i) all Merger Partner IP Rights licensed to Merger Partner (other than (I) any non-customized software that (A) is so licensed solely in executable or object code form pursuant to a non-exclusive, internal use software license and other Intellectual Property associated with such software and (B) is not incorporated into, or material to the development, manufacturing, or distribution of, any of Merger Partner’s products or services and (II) any Intellectual Property licensed ancillary to the purchase or use of equipment, reagents or other materials); (ii) the corresponding Merger Partner Contracts pursuant to which such Merger Partner IP Rights are licensed to Merger Partner; and (iii) whether the license or licenses granted to Merger Partner are exclusive or non-exclusive.

(d) Part 2.8(d)(i) of the Merger Partner Disclosure Schedule accurately identifies each Merger Partner Contract pursuant to which any Person has been granted any license under, or otherwise has received or acquired any right (whether or not currently exercisable) or interest in, any Merger Partner IP Rights. Except as identified in Part 2.8(d)(ii) of the Merger Partner Disclosure Schedule, Merger Partner is not bound by, and no Merger Partner IP Rights are subject to, any Contract containing any covenant or other provision that in any way limits or restricts the ability of Merger Partner to use, exploit, assert, or enforce any Merger Partner IP Rights anywhere in the world.

(e) Merger Partner exclusively owns all right, title, and interest to and in Merger Partner IP Rights (other than Merger Partner IP Rights (i) exclusively and non-exclusively licensed to Merger Partner, as identified in Part 2.8(c) of the Merger Partner Disclosure Schedule and (ii) (I) any non-customized software that (A) is so licensed solely in executable or object code form pursuant to a non-exclusive, internal use software license and other Intellectual Property associated with such software and (B) is not incorporated into, or material to the development, manufacturing, or distribution of, any of Merger Partner’s products or services and (II) any Intellectual Property licensed ancillary to the purchase or use of equipment, reagents or other materials) free and

 

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clear of any Encumbrances (other than those Encumbrances granted pursuant to the Merger Partner Contracts listed in Part 2.8(d) of the Merger Partner Disclosure Schedule). Without limiting the generality of the foregoing:

(i) All documents and instruments necessary to register or apply for or renew registration of Merger Partner Registered IP have been validly executed, delivered, and filed in a timely manner with the appropriate Governmental Body except for any such failure, individually or collectively, that would not reasonably be expected to have a Merger Partner Material Adverse Effect.

(ii) Each Person who is or was an employee or contractor of Merger Partner and who is or was involved in the creation or development of any Merger Partner IP Rights has signed a valid, enforceable agreement containing an assignment of such Intellectual Property to Merger Partner and confidentiality provisions protecting trade secrets and confidential information of Merger Partner. No current or former stockholder, officer, director, or employee of Merger Partner has any claim, right (whether or not currently exercisable), or interest to or in any Merger Partner IP Rights. No employee of Merger Partner is (a) bound by or otherwise subject to any Contract restricting him or her from performing his or her duties for Merger Partner or (b) in breach of any Contract with any former employer or other Person concerning Merger Partner IP Rights or confidentiality provisions protecting trade secrets and confidential information comprising Merger Partner IP Rights.

(iii) No funding, facilities, or personnel of any Governmental Body were used, directly or indirectly, to develop or create, in whole or in part, any Merger Partner IP Rights in which Merger Partner has an ownership interest.

(iv) Merger Partner has taken reasonable steps to maintain the confidentiality of and otherwise protect and enforce their rights in all proprietary information that Merger Partner holds, or purports to hold, as a trade secret.

(v) Merger Partner has not assigned or otherwise transferred ownership of, or agreed to assign or otherwise transfer ownership of, any Merger Partner IP Rights to any other Person.

(vi) To the Knowledge of Merger Partner and its Subsidiaries, the Merger Partner IP Rights constitute all Intellectual Property necessary for Merger Partner to conduct its business as currently conducted and planned to be conducted.

(f) Merger Partner has delivered, or made available to Pivot, a complete and accurate copy of all Merger Partner IP Rights Agreements. Neither Merger Partner nor any Merger Partner Subsidiary is a party to any Contract (A) pursuant to which the execution, delivery and performance of this Agreement and the consummation of the Contemplated Transactions will constitute a breach, or (B) as a result of such execution, delivery and performance of this Agreement and the consummation of the Contemplated Transactions will cause the forfeiture or termination of or Encumbrance upon, or the grant of any license or other right to, or give rise to a right of forfeiture or termination of or Encumbrance upon, any Merger Partner IP Rights or Pivot IP Rights or impair the right of Merger Partner or the Surviving Corporation and its Subsidiaries to use, sell or license any Merger Partner IP Rights or Pivot IP Rights or portion thereof, except for the occurrence of any such breach, forfeiture, termination, Encumbrance, grant or impairment that would not individually or in the aggregate, reasonably be expected to result in a Merger Partner Material Adverse Effect. With respect to each of the Merger Partner IP Rights Agreements: (i) each such agreement is valid and binding on Merger Partner or its Subsidiaries, as applicable, and in full force and effect; (ii) Merger Partner has not received any notice of termination or cancellation under such agreement, or received any notice of breach or default under such agreement, which breach has not been cured or waived; and (iii) Merger Partner and its Subsidiaries, and to the Knowledge of Merger Partner, any other party to such agreement, is not in breach or default thereof in any material respect.

(g) Except as set forth on Part 2.8(g) of the Merger Partner Disclosure Schedule, neither the manufacture, marketing, license, sale or intended use of any product or technology currently licensed or sold or under development by Merger Partner violates any license or agreement between Merger Partner or its Subsidiaries and any third party or, to the Knowledge of Merger Partner and its Subsidiaries, infringes or

 

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misappropriates any Intellectual Property right of any other party, which infringement or misappropriation would reasonably be expected to have a Merger Partner Material Adverse Effect. Merger Partner has disclosed in correspondence to Pivot the third-party patents and patent applications found during all freedom to operate searches that were conducted by Merger Partner related to any product or technology currently licensed or sold or under development by Merger Partner. To the Knowledge of Merger Partner and its Subsidiaries, no third party is infringing upon, or violating any license or agreement with Merger Partner or its Subsidiaries relating to any Merger Partner IP Rights. There is no current or pending challenge, claim or Legal Proceeding (including, but not limited to, opposition, interference or other proceeding in any patent or other government office) contesting the validity, ownership or right to use, sell, license or dispose of any Merger Partner IP Rights, nor has Merger Partner received any written notice asserting that any Merger Partner IP Rights or the proposed use, sale, license or disposition thereof conflicts with or infringes or misappropriates or will conflict with or infringe or misappropriate the rights of any other party.

(h) Each item of Merger Partner IP Rights that is Merger Partner Registered IP is and at all times has been filed and maintained in compliance with all applicable Legal Requirements and all filings, payments, and other actions required to be made or taken to maintain such item of Merger Partner Registered IP in full force and effect have been made by the applicable deadline, except for any failure to perform any of the foregoing, individually or collectively, that would not reasonably be expected to have a Merger Partner Material Adverse Effect.

(i) No trademark (whether registered or unregistered) or trade name owned, used, or applied for by Merger Partner conflicts or interferes with any trademark (whether registered or unregistered) or trade name owned, used, or applied for by any other Person. None of the goodwill associated with or inherent in any trademark (whether registered or unregistered) in which Merger Partner has or purports to have an ownership interest has been impaired.

(j) Except as may be set forth in the Contracts listed on Parts 2.8(c) or 2.8(d) of the Merger Partner Disclosure Schedule (i) Merger Partner is not bound by any Contract to indemnify, defend, hold harmless, or reimburse any other Person with respect to any Intellectual Property infringement, misappropriation, or similar claim, and (ii) Merger Partner has never assumed, or agreed to discharge or otherwise take responsibility for, any existing or potential liability of another Person for infringement, misappropriation, or violation of any Intellectual Property right.

2.9 Agreements, Contracts and Commitments . Part 2.9 of the Merger Partner Disclosure Schedule identifies, except for Merger Partner Contracts set forth in Section 2.13 of the Merger Partner Disclosure Schedule:

(a) each Merger Partner Contract relating to any bonus, deferred compensation, severance, incentive compensation, pension, profit-sharing or retirement plans, or any other employee benefit plans or arrangements;

(b) each Merger Partner Contract relating to the employment of, or the performance of employment-related services by, any Person, including any employee, consultant or independent contractor, not terminable by Merger Partner or its Subsidiaries on ninety (90) days notice without liability, except to the extent general principles of wrongful termination law may limit Merger Partner’s, Merger Partner’s Subsidiaries’ or such successor’s ability to terminate employees at will;

(c) each Merger Partner Contract relating to any agreement or plan, including, without limitation, any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the Contemplated Transactions (either alone or in conjunction with any other event, such as termination of employment) or the value of any of the benefits of which will be calculated on the basis of any of the Contemplated Transactions;

(d) each Merger Partner Contract relating to any agreement of indemnification or guaranty not entered into in the Ordinary Course of Business other than indemnification agreements between Merger Partner and any of its respective officers or directors;

 

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(e) each Merger Partner Contract relating to any agreement, contract or commitment containing any covenant limiting the freedom of Merger Partner, its Subsidiaries or the Surviving Corporation to engage in any line of business or compete with any Person;

(f) each Merger Partner Contract relating to any agreement, contract or commitment relating to capital expenditures and involving obligations after the date of this Agreement in excess of $100,000 and not cancelable without penalty;

(g) each Merger Partner Contract relating to any agreement, contract or commitment currently in force relating to the disposition or acquisition of material assets or any ownership interest in any Entity;

(h) each Merger Partner Contract relating to any mortgages, indentures, loans, notes or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit in excess of $100,000 or creating any material Encumbrances with respect to any assets of Merger Partner or any Merger Partner Subsidiary or any loans or debt obligations with officers or directors of Merger Partner;

(i) each Merger Partner Contract relating to (i) any distribution agreement (identifying any that contain exclusivity provisions); (ii) any agreement involving provision of services or products with respect to any pre-clinical or clinical development activities of Merger Partner (iii) any dealer, distributor, joint marketing, alliance, joint venture, cooperation, development or other agreement currently in force under which Merger Partner or its Subsidiaries has continuing obligations to develop or market any product, technology or service, or any agreement pursuant to which Merger Partner or its Subsidiaries has continuing obligations to develop any Intellectual Property that will not be owned, in whole or in part, by Merger Partner or such Merger Partner Subsidiary; or (iv) any Contract currently in force to license any third party to manufacture or produce any Merger Partner product, service or technology or any Contract currently in force to sell, distribute or commercialize any Merger Partner products or service except agreements with distributors or sales representatives in the Ordinary Course of Business;

(j) each Merger Partner Contract with any Person, including without limitation any financial advisor, broker, finder, investment banker or other Person, providing advisory services to Merger Partner in connection with the Contemplated Transactions; or

(k) any other agreement, contract or commitment (i) which involves payment or receipt by Merger Partner or its Subsidiaries under any such agreement, contract or commitment of $100,000 or more in the aggregate or obligations after the date of this Agreement in excess of $100,000 in the aggregate, or (ii) that is material to the business or operations of Merger Partner and its Subsidiaries.

Merger Partner has delivered to Pivot accurate and complete (except for applicable redactions thereto) copies of all material written Merger Partner Contracts, including all amendments thereto. There are no material Merger Partner Contracts that are not in written form. Except as set forth on Part 2.9 of the Merger Partner Disclosure Schedule, neither Merger Partner nor any of its Subsidiaries has, nor to Merger Partner’s Knowledge, as of the date of this Agreement has any other party to a Merger Partner Material Contract (as defined below), breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any of the agreements, contracts or commitments to which Merger Partner or its Subsidiaries is a party or by which it is bound of the type described in clauses (a) through (k) above (any such agreement, contract or commitment, a “ Merger Partner Material Contract ”) in such manner as would permit any other party to cancel or terminate any such Merger Partner Material Contract, or would permit any other party to seek damages which would reasonably be expected to have a Merger Partner Material Adverse Effect. As to Merger Partner and its Subsidiaries, as of the date of this Agreement, each Merger Partner Material Contract is valid, binding, enforceable and in full force and effect, subject to: (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors; and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. The consummation of the Contemplated Transactions shall not (either alone or upon the occurrence of additional acts or events) result in any material payment or payments becoming due from Merger Partner, any Merger Partner Subsidiary, the Surviving Corporation or Pivot to any Person under any

 

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Merger Partner Contract or give any Person the right to terminate or alter the provisions of any Merger Partner Contract. No Person is renegotiating, or has a right pursuant to the terms of any Merger Partner Material Contract to renegotiate, any material amount paid or payable to Merger Partner under any Merger Partner Material Contract or any other material term or provision of any Merger Partner Material Contract. Part 2.9 of the Merger Partner Disclosure Schedule identifies and provides a brief description of each proposed Contract as to which any written bid, offer, award, proposal, term sheet or similar written document has been submitted or received by Merger Partner (other than term sheets and proposals provided by Merger Partner or to Merger Partner by any party related to the subject matter of this transaction or an Acquisition Proposal made prior to the date hereof) that if entered into by Merger Partner or any Merger Partner Subsidiary would be a Merger Partner Material Contract.

2.10 Liabilities . As of the date hereof, neither Merger Partner nor any Merger Partner Subsidiary has any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any kind, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in the financial statements in accordance with GAAP) (each a “ Liability ”), individually or in the aggregate, except for: (a) Liabilities identified as such in the “liabilities” column of the Merger Partner Unaudited Interim Balance Sheet; (b) normal and recurring current Liabilities that have been incurred by Merger Partner or its Subsidiaries since the date of the Merger Partner Unaudited Interim Balance Sheet in the Ordinary Course of Business and which are not in excess of $100,000 in the aggregate; (c) Liabilities for performance of obligations of Merger Partner or any Merger Partner Subsidiary under Merger Partner Contracts; and (d) Liabilities described in Part 2.10 of the Merger Partner Disclosure Schedule.

2.11 Compliance; Permits; Restrictions .

(a) Merger Partner and each Merger Partner Subsidiary are, and since January 1, 2005 have been, in compliance in all material respects with all applicable Legal Requirements. No investigation, claim, suit, proceeding, audit or other action by any Governmental Body or authority is pending or, to the Knowledge of Merger Partner, threatened against Merger Partner or any Merger Partner Subsidiary, nor has any Governmental Body or authority indicated to Merger Partner an intention to conduct the same. There is no agreement, judgment, injunction, order or decree binding upon Merger Partner or any Merger Partner Subsidiary which (i) has or would reasonably be expected to have the effect of prohibiting or materially impairing any business practice of Merger Partner or any Merger Partner Subsidiary, any acquisition of material property by Merger Partner or any Merger Partner Subsidiary or the conduct of business by Merger Partner or any Merger Partner Subsidiary as currently conducted, (ii) may have an adverse effect on Merger Partner’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 the Merger or any of the Contemplated Transactions.

(b) Merger Partner and the Merger Partner Subsidiaries hold all required Governmental Authorizations which are material to the operation of the business of Merger Partner (collectively, the “ Merger Partner Permits ”) as currently conducted. Part 2.11(b) of the Merger Partner Disclosure Schedule identifies each Merger Partner Permit. Each of Merger Partner and each Merger Partner Subsidiary is in material compliance with the terms of the Merger Partner Permits. No action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending or, to the Knowledge of Merger Partner, threatened, which seeks to revoke, limit, suspend, or materially modify any Merger Partner Permit. The rights and benefits of each material Merger Partner Permit will be available to the Surviving Corporation immediately after the Effective Time on terms substantially identical to those enjoyed by Merger Partner and its Subsidiaries as of the date of this Agreement and immediately prior to the Effective Time.

(c) There are no proceedings pending or threatened with respect to an alleged violation by Merger Partner 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 Body responsible for regulation of the development, clinical testing, manufacturing, sale, marketing, distribution and importation or exportation of drug products ( “Drug Regulatory Agency” ).

 

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(d) Merger Partner holds all required Governmental Authorizations issuable by any Drug Regulatory Agency necessary for the conduct of the business of Merger Partner as currently conducted, and development, clinical testing, manufacturing, marketing, distribution and importation or exportation, as currently conducted, of any of its products or product candidates, including Intermezzo and TO-2060 (the “Merger Partner Product Candidates” ) (the “Merger Partner Regulatory Permits” ) and no such Merger Partner Regulatory Permit has been (i) revoked, withdrawn, suspended, cancelled or terminated or (ii) modified in any adverse manner, other than immaterial adverse modifications. Merger Partner is in compliance in all material respects with the Merger Partner Regulatory Permits and has not received any written notice or other written communication from any Drug Regulatory Agency regarding (A) any material violation of or failure to comply materially with any term or requirement of any Merger Partner Regulatory Permit or (B) any revocation, withdrawal, suspension, cancellation, termination or material modification of any Merger Partner Regulatory Permit. Except for the information and files identified in Part 2.11(d) of the Merger Partner Disclosure Schedule, Merger Partner has made available to Pivot all information requested by Pivot in Merger Partner’s possession or control relating to the Merger Partner Product Candidates and the development, clinical testing, manufacturing, importation and exportation of the Merger Partner Product Candidates, including without limitation, complete copies of the following (to the extent there are any): (x) adverse event reports; clinical study reports and material study data; and inspection reports, notices of adverse findings, warning letters, filings and letters and other written correspondence to and from any Drug Regulatory Agency; and meeting minutes with any Drug Regulatory Agency; and (y) similar reports, material study data, notices, letters, filings, correspondence and meeting minutes with any other Governmental Authority.

(e) All clinical, pre-clinical and other studies and tests conducted by or on behalf of, or sponsored by, Merger Partner or in which Merger Partner or its current products or product candidates, including the Merger Partner Product Candidates, have participated were and, if still pending, are being conducted in all material respects in accordance with standard medical and scientific research procedures and in compliance with the applicable regulations of the Drug Regulatory Agencies and other applicable Legal Requirements, including, without limitation, 21 C.F.R. Parts 50, 54, 56, 58 and 312. Since January 1, 2005, Merger Partner has not received any notices, correspondence, or other communications from any Drug Regulatory Agency requiring, or to the Knowledge of Merger Partner, threatening to initiate, the termination or suspension of any clinical studies conducted by or on behalf of, or sponsored by, Merger Partner or in which Merger Partner or its current products or product candidates, including the Merger Partner Product Candidates, have participated.

(f) Neither Merger Partner nor any of the Merger Partner Subsidiaries is the subject of any pending, or to the Knowledge of Merger Partner or the Merger Partner Subsidiaries, threatened investigation in respect of its business or products by the FDA pursuant to its “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” Final Policy set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto. To the Knowledge of Merger Partner or any of the Merger Partner Subsidiaries, neither Merger Partner nor any of the Merger Partner Subsidiaries has committed any acts, made any statement, or failed to make any statement, in each case in respect of its business or products that would violate FDA’s “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” Final Policy, and any amendments thereto. Neither Merger Partner nor any of its officers, employees or agents has been convicted of any crime or engaged in any conduct that could result in a debarment or exclusion (i) under 21 U.S.C. Section 335a or (ii) any similar applicable Legal Requirement. To the Knowledge of Merger Partner, no debarment or exclusionary claims, actions, proceedings or investigations in respect of their business or products are pending or threatened against Merger Partner or any of its officers, employees or agents.

2.12 Tax Matters .

(a) Merger Partner and each Merger Partner Subsidiary have timely filed all federal income Tax Returns and other material Tax Returns that they were required to file under applicable Legal Requirements. All such Tax Returns were correct and complete in all material respects and have been prepared in material compliance with all applicable Legal Requirements. Neither Merger Partner nor any Merger Partner Subsidiary is

 

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currently the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where Merger Partner or any Merger Partner Subsidiary does not file Tax Returns that it is subject to taxation by that jurisdiction.

(b) All material Taxes due and owing by Merger Partner or any Merger Partner Subsidiary on or before the date hereof (whether or not shown on any Tax Return) have been paid. The unpaid Taxes of Merger Partner and any Merger Partner Subsidiary have been reserved for on the Merger Partner Unaudited Interim Balance Sheet in accordance with GAAP. Since the date of the Merger Partner Unaudited Interim Balance Sheet, neither Merger Partner nor any Merger Partner Subsidiary has incurred any Liability for Taxes outside the Ordinary Course of Business or otherwise inconsistent with past custom and practice.

(c) Merger Partner and each Merger Partner Subsidiary have withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party.

(d) There are no Encumbrances for Taxes (other than Taxes not yet due and payable or Taxes that are being contested in good faith and for which adequate reserves have been made on Merger Partner’s Unaudited Interim Balance Sheet) upon any of the assets of Merger Partner or any Merger Partner Subsidiary.

(e) No deficiencies for Taxes with respect to Merger Partner or any Merger Partner Subsidiary have been claimed, proposed or assessed by any Governmental Body in writing. There are no pending (or, based on written notice, threatened) audits, assessments or other actions for or relating to any liability in respect of Taxes of Merger Partner or any Merger Partner Subsidiary. No issues relating to Taxes of Merger Partner or any Merger Partner Subsidiary were raised by the relevant Tax authority in any completed audit or examination that would reasonably be expected to result in a material amount of Taxes in a later taxable period. Merger Partner has delivered or made available to Pivot complete and accurate copies of all federal income Tax and all other material Tax Returns of Merger Partner and each Merger Partner Subsidiary (and predecessors of each) for all taxable years remaining open under the applicable statute of limitations, and complete and accurate copies of all examination reports and statements of deficiencies assessed against or agreed to by Merger Partner and each Merger Partner Subsidiary (and predecessors of each), with respect to federal income Tax and all other material Taxes. Neither Merger Partner nor any Merger Partner Subsidiary (or any of their predecessors) has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, nor has any request been made in writing for any such extension or waiver.

(f) All material elections with respect to Taxes affecting Merger Partner or any Merger Partner Subsidiary as of the date hereof, to the extent such elections are not shown on or in the Tax Returns that have been delivered or made available to Pivot, are set forth on Schedule 2.12(f). Neither Merger Partner nor any Merger Partner Subsidiary (i) has consented at any time under former Section 341(f)(1) of the Code to have the provisions of former Section 341(f)(2) of the Code apply to any disposition of the assets of Merger Partner or any Merger Partner Subsidiary; (ii) has agreed, or is required, to make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise; (iii) has made an election, or is required, to treat any of its assets as owned by another Person for Tax purposes or as a tax-exempt bond financed property or tax-exempt use property within the meaning of Section 168 of the Code; (iv) has acquired or owns any assets that directly or indirectly secure any debt the interest on which is tax exempt under Section 103(a) of the Code; (v) has made or will make a consent dividend election under Section 565 of the Code; (vi) has elected at any time to be treated as an S corporation within the meaning of Sections 1361 or 1362 of the Code; or (vii) has made any of the foregoing elections or is required to apply any of the foregoing rules under any comparable provision of state, local or foreign law.

(g) Neither Merger Partner nor any Merger Partner Subsidiary has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

 

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(h) Neither Merger Partner nor any Merger Partner Subsidiary is a party to any Tax allocation, Tax sharing or similar agreement (including indemnity arrangements), other than commercial contracts entered into in the Ordinary Course of Business with vendors, customers and landlords.

(i) Neither Merger Partner nor any Merger Partner Subsidiary has ever been a member of an affiliated group filing a consolidated, combined or unitary Tax Return (other than a group the common parent of which is Merger Partner) for federal, state, local or foreign Tax purposes. Neither Merger Partner nor any Merger Partner Subsidiary has any Liability for the Taxes of any Person (other than Merger Partner and any Merger Partner Subsidiary) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by Contract, or otherwise.

(j) Neither Merger Partner nor any Merger Partner Subsidiary has distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Section 355 of the Code or Section 361 of the Code.

(k) Neither Merger Partner nor any Merger Partner Subsidiary will be required to include any item of income in, or exclude any item of deduction from, taxable income for any period (or any portion thereof) ending after the Closing Date as a result of any (i) installment sale or other open transaction disposition made on or prior to the Closing Date, or (ii) agreement with any Tax authority (including any closing agreement described in Section 7121 of the Code or any similar provision of state, local or foreign law) made or entered into on or prior to the Closing Date.

(l) Neither Merger Partner nor any Merger Partner Subsidiary is a partner for Tax purposes with respect to any joint venture, partnership, or, to the Knowledge of Merger Partner, other arrangement or contract which is treated as a partnership for Tax purposes.

(m) Neither Merger Partner nor any Merger Partner Subsidiary has entered into any transaction identified as a “listed transaction” for purposes of Treasury Regulations Sections 1.6011-4(b)(2) or 301.6111-2(b)(2).

(n) Neither Merger Partner nor any Merger Partner Subsidiary has taken any action, or has any knowledge of any fact or circumstance, that could reasonably be expected to prevent the transactions contemplated hereby, including the Merger, from qualifying as a reorganization within the meaning of Section 368(a) of the Code.

2.13 Employee and Labor Matters; Benefit Plans.

(a) The employment of each of the Merger Partner and Merger Partner Subsidiary employees is terminable by Merger Partner or the applicable Merger Partner Subsidiary at will (or otherwise in accordance with general principles of wrongful termination law). Merger Partner has made available to Pivot accurate and complete copies of all employee manuals and handbooks, disclosure materials, policy statements and other materials relating to the employment of Merger Partner Associates to the extent currently effective and material.

(b) To the Knowledge of Merger Partner, no officer or Key Employee of Merger Partner or any Merger Partner Subsidiary intends to terminate his or her employment with Merger Partner or the applicable Merger Partner Subsidiary, nor has any such officer or Key Employee threatened or expressed in writing any intention to do so.

(c) Neither Merger Partner nor any Merger Partner Subsidiary is a party to, bound by, nor has a duty to bargain under, any collective bargaining agreement or other Contract with a labor organization representing any of its employees, and there are no labor organizations representing, purporting to represent or, to the Knowledge of Merger Partner, seeking to represent any employees of Merger Partner or any Merger Partner Subsidiary.

 

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(d) There has never been, nor has there been any threat of, any strike, slowdown, work stoppage, lockout, job action, union, organizing activity, question concerning representation or any similar union activity or dispute, affecting Merger Partner or any Merger Partner Subsidiary.

(e) Neither Merger Partner nor any Merger Partner Subsidiary is or has been engaged in any unfair labor practice within the meaning of the National Labor Relations Act. There is no Legal Proceeding, claim, labor dispute or grievance pending or, to the Knowledge of Merger Partner, threatened or reasonably anticipated relating to any employment contract, privacy right, labor dispute, wages and hours, leave of absence, plant closing notification, workers’ compensation policy, long-term disability policy, harassment, retaliation, immigration, employment statute or regulation, safety or discrimination matter involving any Merger Partner Associate, including charges of unfair labor practices or discrimination complaints. Part 2.13(e) of the Merger Partner Disclosure Schedule lists all written and describes all non-written employee benefit plans (as defined in Section 3(3) of ERISA) and all bonus, equity-based, incentive, deferred compensation, retirement or supplemental retirement, profit sharing, severance, golden parachute, vacation, cafeteria, dependent care, medical care, employee assistance program, education or tuition assistance programs and other similar fringe or employee benefit plans, programs or arrangements, including any employment or executive compensation or severance agreements, written or otherwise, which are currently in effect relating to any present or former employee or director of Merger Partner or any Merger Partner Subsidiary (or any trade or business (whether or not incorporated) which is a Merger Partner Affiliate) or which is maintained by, administered or contributed to by, or required to be contributed to by, Merger Partner, any Merger Partner Subsidiary or any Merger Partner Affiliate, or under which Merger Partner or any Merger Partner Subsidiary or any Merger Partner Affiliate has any current or may incur liability after the date hereof (each, a “ Merger Partner Employee Plan ”).

(f) With respect to Merger Partner Options granted pursuant to the stock-based compensation plans of Merger Partner (the “ Merger Partner Stock Plans ”), (i) each Merger Partner Option intended to qualify as an “incentive stock option” under Section 422 of the Code so qualifies, (ii) each grant of a Merger Partner Option was duly authorized no later than the date on which the grant of such Merger Partner Option was by its terms to be effective (the “ Grant Date ”) by all necessary corporate action, including, as applicable, approval by the board of directors of Merger Partner (or a duly constituted and authorized committee thereof) and any required stockholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto, (iii) each Merger Partner Option grant was made in accordance with the terms of the Merger Partner Stock Plans and all other applicable laws and regulatory rules or requirements and (iv) the per share exercise price of each Merger Partner Option was equal to the fair market value of a share of Merger Partner Common Stock on the applicable Grant Date.

(g) Each Merger Partner Employee Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination with respect to such qualified status from the Internal Revenue Service. To the Knowledge of Merger Partner, nothing has occurred that would reasonably be expected to adversely affect the qualified status of any such Merger Partner Employee Plan or the exempt status of any related trust.

(h) Each Merger Partner Employee Plan has been maintained in compliance, in all material respects, with its terms and, both as to form and operation, with all applicable Legal Requirements, including without limitation, the Code and ERISA.

(i) Neither Merger Partner nor any Merger Partner Subsidiary has engaged in any transaction in violation of Sections 404 or 406 of ERISA or any “prohibited transaction,” as defined in Section 4975(c)(1) of the Code, for which no exemption exists under Section 408 of ERISA or Section 4975(c)(2) or (d) of the Code, or has otherwise violated the provisions of Part 4 of Title I, Subtitle B of ERISA. Neither Merger Partner nor any Merger Partner Subsidiary has knowingly participated in a violation of Part 4 of Title I, Subtitle B of ERISA by any plan fiduciary of any Merger Partner Employee Plan subject to ERISA and neither Merger Partner nor any Merger Partner Subsidiary has been assessed any civil penalty under Section 502(l) of ERISA.

 

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(j) No Merger Partner Employee Plan is subject to Title IV or Section 302 of ERISA or Section 412 of the Code, and neither Merger Partner nor any Merger Partner Subsidiary or Merger Partner Affiliate has ever maintained, contributed to or partially or completely withdrawn from, or incurred any obligation or liability with respect to, any such plan. No Merger Partner Employee Plan is a Multiemployer Plan, and neither Merger Partner nor any Merger Partner Subsidiary or Merger Partner Affiliate has ever contributed to or had an obligation to contribute, or incurred any liability in respect of a contribution, to any Multiemployer Plan. No Merger Partner Employee Plan is a Multiple Employer Plan.

(k) No Merger Partner Employee Plan provides for medical or death benefits beyond termination of service or retirement, other than (i) pursuant to COBRA or an analogous state law requirement or (ii) death or retirement benefits under a Merger Partner Employee Plan qualified under Section 401(a) of the Code.

(l) Neither Merger Partner nor any Merger Partner Subsidiary is a party to any Contract that has resulted or would reasonably be expected to result, separately or in the aggregate, in the payment of (i) any “excess parachute payment” within the meaning of section 280G of the Code and (ii) any amount the deduction for which would be disallowed under Section 162(m) of the Code.

(m) To the Knowledge of Merger Partner, no payment pursuant to any Merger Partner Employee Plan or other arrangement to any “service provider” (as such term is defined in Section 409A of the Code and the United States Treasury Regulations and IRS guidance thereunder) to Merger Partner or any Merger Partner Subsidiary, including the grant, vesting or exercise of any stock option, would subject any Person to tax pursuant to Section 409A(1) of the Code, whether pursuant to the transactions contemplated by this Agreement or otherwise.

(n) Merger Partner has complied with all state and federal laws applicable to employees, including but not limited to COBRA, FMLA, CFRA, HIPPA, the Women’s Health and Cancer Rights Act of 1998, the Newborn’s and Mothers’ Health Protection Act of 1996, and any similar provisions of state law applicable to its Employees. To the extent required under HIPAA and the regulations issued thereunder, Merger Partner has, prior to the Closing Date, performed all obligations under the medical privacy rules of HIPAA (45 C.F.R. Parts 160 and 164), the electronic data interchange requirements of HIPAA (45 C.F.R. Parts 160 and 162), and the security requirements of HIPAA (45 C.F.R. Part 142). Merger Partner has no unsatisfied obligations to any Employees or qualified beneficiaries pursuant to COBRA, HIPAA or any state law governing health care coverage or extension.

(o) Merger Partner is in compliance with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment, worker classification, tax withholding, prohibited discrimination, equal employment, fair employment practices, meal and rest periods, immigration status, employee safety and health, wages (including overtime wages), compensation, and hours of work, and in each case, with respect to Employees: (i) has withheld and reported all amounts required by law or by agreement to be withheld and reported with respect to wages, salaries and other payments to Employees, (ii) is not liable for any arrears of wages, severance pay or any Taxes or any penalty for failure to comply with any of the foregoing, and (iii) is not liable for any payment to any trust or other fund governed by or maintained by or on behalf of any governmental authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for Employees (other than routine payments to be made in the normal course of business and consistent with past practice). There are no actions, suits, claims or administrative matters pending, threatened or reasonably anticipated against Merger Partner, or any of their Employees relating to any Merger Partner employee, employment agreement or Merger Partner Employee Plan. There are no pending or threatened or reasonably anticipated claims or actions against Merger Partner, any of its Subsidiaries, any Merger Partner trustee or any trustee of any Subsidiary under any worker’s compensation policy or long-term disability policy. Neither Merger Partner nor any Subsidiary is party to a conciliation agreement, consent decree or other agreement or order with any federal, state, or local agency or governmental authority with respect to employment practices. Part 3.13(p) of the Disclosure Schedule lists all

 

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liabilities of Merger Partner to any Employee, that result from the termination by Merger Partner, Parent or any of its Subsidiaries of such Employee’s employment or provision of services, a change of control of Merger Partner, or a combination thereof. Neither Merger Partner nor any of its Subsidiaries has any material liability with respect to any misclassification of: (a) any Person as an independent contractor rather than as an employee, (b) any employee leased from another employer, or (c) any employee currently or formerly classified as exempt from overtime wages. Neither Merger Partner nor any Subsidiary has taken any action which would constitute a “plant closing” or “mass layoff” within the meaning of the WARN Act or similar state or local law, issued any notification of a plant closing or mass layoff required by the WARN Act or similar state or local law, or incurred any liability or obligation under WARN or any similar state or local law that remains unsatisfied. No terminations prior to the Closing would trigger any notice or other obligations under the WARN Act or similar state or local law.

2.14 Environmental Matters. Merger Partner and each Merger Partner Subsidiary is in compliance with all applicable Environmental Laws, which compliance includes the possession by Merger Partner of all permits and other Governmental Authorizations required under applicable Environmental Laws and compliance with the terms and conditions thereof. Neither Merger Partner nor any Merger Partner Subsidiary has received since January 1, 2005 any written notice or other communication (in writing or otherwise), whether from a Governmental Body, citizens group, employee or otherwise, that alleges that Merger Partner or any Merger Partner Subsidiary is not in compliance with any Environmental Law, and, to the Knowledge of Merger Partner, there are no circumstances that may prevent or interfere with Merger Partner’s compliance with any Environmental Law in the future. To the Knowledge of Merger Partner: (i) no current or prior owner of any property leased or controlled by Merger Partner has received since January 1, 2005 any written notice or other communication relating to property owned or leased at any time by Merger Partner, whether from a Governmental Body, citizens group, employee or otherwise, that alleges that such current or prior owner or Merger Partner is not in compliance with or violated any Environmental Law relating to such property and (ii) it has no material liability under any Environmental Law.

2.15 Insurance.

(a) Merger Partner has delivered to Pivot accurate and complete copies of all material insurance policies and all material self insurance programs and arrangements relating to the business, assets, liabilities and operations of Merger Partner and each Merger Partner Subsidiary. Each of such insurance policies is in full force and effect and Merger Partner and each Merger Partner Subsidiary are in compliance with the terms thereof. Other than customary end of policy notifications from insurance carriers, since January 1, 2005, neither Merger Partner nor any Merger Partner Subsidiary has received any notice or other communication regarding any actual or possible: (i) cancellation or invalidation of any insurance policy; (ii) refusal or denial of any coverage, reservation of rights or rejection of any material claim under any insurance policy; or (iii) material adjustment in the amount of the premiums payable with respect to any insurance policy. There is no pending workers’ compensation or other claim under or based upon any insurance policy of Merger Partner or any Merger Partner Subsidiary. All information provided to insurance carriers (in applications and otherwise) on behalf of Merger Partner and each Merger Partner Subsidiary is accurate and complete. Merger Partner and each Merger Partner Subsidiary have provided timely written notice to the appropriate insurance carrier(s) of each Legal Proceeding pending or threatened against Merger Partner or any Merger Partner Subsidiary, and no such carrier has issued a denial of coverage or a reservation of rights with respect to any such Legal Proceeding, or informed Merger Partner or any Merger Partner Subsidiary of its intent to do so.

(b) Merger Partner has delivered to Pivot accurate and complete copies of the existing policies (primary and excess) of directors’ and officers’ liability insurance maintained by Merger Partner and each Merger Partner Subsidiary as of the date of this Agreement (the “ Existing Merger Partner D&O Policies ”). Part 2.15(b) of the Merger Partner Disclosure Schedule accurately sets forth the most recent annual premiums paid by Merger Partner and each Merger Partner Subsidiary with respect to the Existing Merger Partner D&O Policies.

 

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2.16 Affiliates . Part 2.16 of the Merger Partner Disclosure Schedule identifies each Person who is (or who may be deemed to be) an “affiliate” (as that term is used in Rule 145 under the Securities Act) of Merger Partner as of the date of this Agreement. Since January 1, 2006, there have been no transactions between Merger Partner or any Merger Partner Subsidiary and any Person who is an affiliate of Merger Partner or any Merger Partner Subsidiary.

2.17 Legal Proceedings; Orders .

(a) Except as set forth on Part 2.17 of the Merger Partner Disclosure Schedule, there is no pending Legal Proceeding, and (to the Knowledge of Merger Partner) no Person has threatened in writing to commence any Legal Proceeding: (i) that involves Merger Partner or any of its Subsidiaries, any Merger Partner Associate (in his or her capacity as such) or any of the material assets owned or used by Merger Partner or its Subsidiaries; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Merger or any of the other Contemplated Transactions. To the Knowledge of Merger Partner, no event has occurred, and no claim, dispute or other condition or circumstance exists, that will, or that would reasonably be expected to, give rise to or serve as a basis for the commencement of any such Legal Proceeding. With regard to any Legal Proceeding set forth on Part 2.17 of the Merger Partner Disclosure Schedule, Merger Partner has provided Pivot or its counsel all pleadings and material written correspondence related to such Legal Proceeding, all insurance policies and material written correspondence with brokers and insurers related to such Legal Proceedings and other information material to an assessment of such Legal Proceeding. Merger Partner has an insurance policy or policies that is expected to cover such Legal Proceeding and has complied with the requirements of such insurance policy or policies to obtain coverage with respect to such Legal Proceeding under such insurance policy or policies.

(b) There is no order, writ, injunction, judgment or decree to which Merger Partner or any Merger Partner Subsidiary, or any of the material assets owned or used by Merger Partner or any Merger Partner Subsidiary, is subject. To the Knowledge of Merger Partner, no officer or other Key Employee of Merger Partner or any Merger Partner Subsidiary is subject to any order, writ, injunction, judgment or decree that prohibits such officer or other employee from engaging in or continuing any conduct, activity or practice relating to the business of Merger Partner or any Merger Partner Subsidiary or to any material assets owned or used by Merger Partner or any Merger Partner Subsidiary.

2.18 Authority; Binding Nature of Agreement . Merger Partner and each Merger Partner Subsidiary has all necessary corporate power and authority to enter into and to perform its obligations under this Agreement. The Board of Directors of Merger Partner (at one or more meetings duly called and held) has: (a) determined that the Merger is advisable and fair to and in the best interests of Merger Partner and its stockholders; (b) duly authorized and approved by all necessary corporate action, the execution, delivery and performance of this Agreement and the transactions contemplated hereby, including the Merger; and (c) recommended the adoption and approval of this Agreement by the holders of Merger Partner Common Stock and Merger Partner Preferred Stock and directed that this Agreement and the Merger be submitted for consideration by Merger Partner’s stockholders in connection with the solicitation of the Required Merger Partner Stockholder Vote. This Agreement has been duly executed and delivered by Merger Partner and assuming the due authorization, execution and delivery by Pivot, constitutes the legal, valid and binding obligation of Merger Partner, enforceable against Merger Partner in accordance with its terms, subject to: (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors; and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. Prior to the execution of the Merger Partner Stockholder Voting Agreements, the Board of Directors of Merger Partner approved the Merger Partner Stockholder Voting Agreements and the transactions contemplated thereby.

2.19 Inapplicability of Anti-takeover Statutes. The Board of Directors of Merger Partner has taken and will take all actions necessary to ensure that the restrictions applicable to business combinations contained in Section 203 of the DGCL are, and will be, inapplicable to the execution, delivery and performance of this

 

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Agreement and the Merger Partner Stockholder Voting Agreements and to the consummation of the Merger and the other Contemplated Transactions. No other state takeover statute or similar Legal Requirement applies or purports to apply to the Merger, this Agreement, the Merger Partner Stockholder Voting Agreements or any of the other Contemplated Transactions.

2.20 Vote Required . The affirmative vote (the “ Merger Partner Stockholder Approval ”) of (i) the holders of a majority of the shares of Merger Partner Common Stock, (ii) the holders of a majority of the shares of Merger Partner Common Stock and Merger Partner Preferred Stock and (iii) a majority of the outstanding Merger Partner Preferred Stock, voting together as a single class, each outstanding on the record date for the Merger Partner Stockholder Written Consent and entitled to vote thereon, voting as a single class (the “ Required Merger Partner Stockholder Vote ”), is the only vote of the holders of any class or series of Merger Partner Capital Stock necessary to adopt or approve this Agreement and approve the Merger and the matters set forth in Section 5.2(a).

2.21 Non-Contravention; Consents . Subject to compliance with the HSR Act and any foreign antitrust Legal Requirement, obtaining the Required Merger Partner Stockholder Vote for the applicable Contemplated Transactions and the filing of the Certificate of Merger required by the DGCL, neither (x) the execution, delivery or performance of this Agreement by Merger Partner, nor (y) the consummation of the Merger or any of the other Contemplated Transactions, will directly or indirectly (with or without notice or lapse of time):

(a) contravene, conflict with or result in a violation of (i) any of the provisions of the certificate of incorporation, bylaws or other charter or organizational documents of Merger Partner, or (ii) any resolution adopted by the stockholders, the board of directors or any committee of the board of directors of Merger Partner;

(b) contravene, conflict with or result in a material violation of, or give any Governmental Body or other Person the right to challenge the Merger or any of the other Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any order, writ, injunction, judgment or decree to which Merger Partner or its Subsidiaries, or any of the assets owned or used by Merger Partner or its Subsidiaries, is subject;

(c) contravene, conflict with or result in a material violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by Merger Partner or its Subsidiaries or that otherwise relates to the business of Merger Partner or its Subsidiaries or to any of the assets owned or used by Merger Partner or its Subsidiaries;

(d) contravene, conflict with or result in a violation or breach of, or result in a default under, any provision of any Merger Partner Contract, or give any Person the right to: (i) declare a default or exercise any remedy under any Merger Partner Contract; (ii) a rebate, chargeback, penalty or change in delivery schedule under any such Merger Partner Contract; (iii) accelerate the maturity or performance of any Merger Partner Contract; or (iv) cancel, terminate or modify any term of any Merger Partner Contract, except, in the case of any Merger Partner Material Contract, any non-material breach, default, penalty or modification and, in the case of all other Merger Partner Contracts, any breach, default, penalty or modification that would not result in a Merger Partner Material Adverse Effect;

(e) result in the imposition or creation of any Encumbrance upon or with respect to any asset owned or used by Merger Partner or its Subsidiaries (except for minor liens that will not, in any case or in the aggregate, materially detract from the value of the assets subject thereto or materially impair the operations of Merger Partner); or

(f) result in, or increase the likelihood of, the transfer of any material asset of Merger Partner or its Subsidiaries to any Person.

 

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Except (i) for any Consent set forth on Part 2.21 of the Merger Partner Disclosure Schedule under any Merger Partner Contract, (ii) the approval of this Agreement and the Contemplated Transactions by Merger Partner’s stockholders, (iii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware pursuant to the DGCL, (iv) any required filings under the HSR Act and any foreign antitrust Legal Requirement and (v) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws, neither Merger Partner nor any of its Subsidiaries was, is, nor will be required to make any filing with or give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of this Agreement, or (y) the consummation of the Merger or any of the other Contemplated Transactions.

2.22 Bank Accounts; Receivables.

(a) Part 2.22(a) of the Merger Partner Disclosure Schedule provides accurate information with respect to each account maintained by or for the benefit of Merger Partner or any Merger Partner Subsidiary at any bank or other financial institution, including the name of the bank or financial institution, the account number, the balance as of July 31, 2008 and the names of all individuals authorized to draw on or make withdrawals from such accounts.

(b) All existing accounts receivable of Merger Partner or any Merger Partner Subsidiary (including those accounts receivable reflected on the Merger Partner Unaudited Interim Balance Sheet that have not yet been collected and those accounts receivable that have arisen since the date of the Merger Partner Unaudited Interim Balance Sheet and have not yet been collected) (i) represent valid obligations of customers of Merger Partner or any Merger Partner Subsidiary arising from bona fide transactions entered into in the Ordinary Course of Business, and (ii) are current and are expected to be collected in full when due, without any counterclaim or set off, net of applicable reserves for bad debts on the Merger Partner Unaudited Interim Balance Sheet.

2.23 No Financial Advisor. Except as set forth on Part 2.23 of the Merger Partner Disclosure Schedule, no broker, finder or investment banker is entitled to any brokerage fee, finder’s fee, opinion fee, success fee, transaction fee or other fee or commission in connection with the Merger or any of the other Contemplated Transactions based upon arrangements made by or on behalf of Merger Partner or any of its Subsidiaries.

2.24 Disclosure. The information supplied by Merger Partner and each Merger Partner Subsidiary for inclusion in the Proxy Statement/Prospectus/Information Statement (including any Merger Partner Financials) will not, as of the date of the Proxy Statement/Prospectus/Information Statement or as of the date such information is prepared or presented, (i) contain any statement that is inaccurate or misleading with respect to any material facts, or (ii) omit to state any material fact necessary in order to make such information, in the light of the circumstances under which such information will be provided, not false or misleading.

Section 3. R EPRESENTATIONS AND W ARRANTIES OF P IVOT A ND M ERGER S UB

Pivot and Merger Sub represent and warrant to Merger Partner as follows, except as set forth in the written disclosure schedule delivered by Pivot to Merger Partner (the “ Pivot Disclosure Schedule ”). The Pivot Disclosure Schedule shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this Section 3. The disclosures in any section or subsection of the Pivot Disclosure Schedule shall qualify other sections and subsections in this Section 3 to the extent it is reasonably clear from a reading of the disclosure that such disclosure is applicable to such other sections and subsections. The inclusion of any information in the Pivot Disclosure Schedule (or any update thereto) shall not be deemed to be an admission or acknowledgment, in and of itself, that such information is required by the terms hereof to be disclosed, is material, has resulted in or would result in a Pivot Material Adverse Effect, or is outside the Ordinary Course of Business.

 

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3.1 Subsidiaries; Due Organization; Etc.

(a) Pivot has no Subsidiaries, except for Merger Sub; and Pivot does not owns any capital stock of, or any equity interest of any nature in, any other Entity, other than Merger Sub. Pivot has not agreed nor is obligated to make, nor is bound by any Contract under which it may become obligated to make, any future investment in or capital contribution to any other Entity. Pivot has not, at any time, been a general partner of, or has otherwise been liable for any of the debts or other obligations of, any general partnership, limited partnership or other Entity.

(b) Each of Pivot and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all necessary power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Contracts by which it is bound.

(c) Each of Pivot and Merger Sub is qualified to do business as a foreign corporation, and is in good standing, under the laws of all jurisdictions where the nature of its business requires such qualification other than in jurisdictions where the failure to be so qualified individually or in the aggregate would not be reasonably expected to have a Pivot Material Adverse Effect.

3.2 Certificate of Incorporation; Bylaws; Charters and Codes of Conduct. Pivot has delivered to Merger Partner accurate and complete copies of the certificate of incorporation, bylaws and other charter and organizational documents, including all amendments thereto, for Pivot. Part 3.2 of the Pivot Disclosure Schedule lists, and Pivot has delivered to Merger Partner, accurate and complete copies of: (a) the charters of all committees of Pivot’s board of directors; and (b) any code of conduct or similar policy adopted by Pivot or by the board of directors, or any committee of the board of directors, of Pivot.

3.3 Capitalization, Etc.

(a) The authorized capital stock of Pivot consists of 123,104,000 shares of Pivot Common Stock, par value $0.001 per share, of which 25,876,602 shares have been issued and are outstanding as of August 25, 2008. Pivot does not hold any shares of its capital stock in its treasury. All of the outstanding shares of Pivot Common Stock have been duly authorized and validly issued, and are fully paid and nonassessable. None of the outstanding shares of Pivot Common Stock is entitled or subject to any preemptive right, right of participation, right of maintenance or any similar right. None of the outstanding shares of Pivot Common Stock is subject to any right of first refusal in favor of Pivot, other than early exercise rights and rights of repurchases in favor of Pivot with respect to such early exercise rights. Except as contemplated herein and except as identified on Part 3.3(a)(i) of the Pivot Disclosure Schedule there is no Pivot Contract relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or granting any option or similar right with respect to), any shares of Pivot Common Stock. Pivot is not under any obligation, nor is bound by any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding shares of Pivot Common Stock or other securities. Part 3.3(a)(ii) of the Pivot Disclosure Schedule accurately and completely describes all repurchase rights held by Pivot with respect to shares of Pivot Common Stock (including shares issued pursuant to the exercise of stock options) and specifies which of those repurchase rights are currently exercisable.

(b) Except for the Pivot 2006 Incentive Award Plan and the Pivot 2001 Stock Option Plan, as amended (collectively, the “ Pivot Stock Plans ”), or except as set forth on Section 3.3(b) of the Pivot Disclosure Schedule, Pivot does not have any stock option plan or any other plan, program, agreement or arrangement providing for any equity or equity-based compensation for any Person. Part 3.3(b) of the Pivot Disclosure Schedule sets forth the aggregate number of Pivot Options outstanding and a weighted average exercise price of such options. Pivot has made available to Merger Partner accurate and complete copies of all stock option plans pursuant to which Pivot has ever granted stock options, the forms of all stock option agreements evidencing such options and evidence of board and stockholder approval of any of the Pivot Stock Plans and amendments thereto.

 

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(c) There is no: (i) outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock or other securities of Pivot; (ii) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of the capital stock or other securities of Pivot; (iii) stockholder rights plan (or similar plan commonly referred to as a “poison pill”) or Contract under which Pivot is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities; or (iv) condition or circumstance that may give rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any shares of capital stock or other securities of Pivot. There are not outstanding or authorized stock appreciation, phantom stock, profit participating or other similar rights with respect to Pivot.

(d) All outstanding shares of Pivot Common Stock and options, warrants and other securities of Pivot have been issued and granted in compliance with (i) all applicable securities laws and other applicable Legal Requirements, and (ii) all requirements set forth in applicable Contracts. There are no Pivot Warrants outstanding on the date of this Agreement.

3.4 SEC Filings; Financial Statements.

(a) Pivot has delivered to Merger Partner accurate and complete copies of all registration statements, proxy statements, Certifications (as defined below) and other statements, reports, schedules, forms and other documents filed by Pivot with the SEC since January 1, 2007 (the “ Pivot SEC Documents ”), other than such documents that can be obtained on the SEC’s website at www.sec.gov . Except as set forth on Part 3.4 of the Pivot Disclosure Schedule, all material statements, reports, schedules, forms and other documents required to have been filed by Pivot or its officers with the SEC have been so filed on a timely basis. As of the time it was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing), each of the Pivot SEC Documents complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act (as the case may be) and, to the Pivot’s knowledge, as of the time they were filed, none of the Pivot SEC Documents contained any untrue statement of a material fact or omitted 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. The certifications and statements required by (A) Rule 13a-14 under the Exchange Act and (B) 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act) relating to the Pivot SEC Documents (collectively, the “ Certifications ”) are accurate and complete and comply as to form and content with all applicable Legal Requirements. As used in this Section 3, the term “file” and variations thereof shall be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available to the SEC.

(b) The consolidated financial statements (including any related notes) contained or incorporated by reference in the Pivot SEC Documents: (i) complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto; (ii) were prepared in accordance with GAAP (except as may be indicated in the notes to such financial statements or, in the case of unaudited financial statements, as permitted by Form 10-Q of the SEC, and except that the unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments that are not reasonably expected to be material in amount) applied on a consistent basis unless otherwise noted therein throughout the periods indicated; and (iii) fairly present the consolidated financial position of Pivot as of the respective dates thereof and the consolidated results of operations and cash flows of Pivot for the periods covered thereby.

(c) Pivot does not hold any auction rate securities, or other marketable securities or cash equivalents which are not, to the knowledge of Pivot, fully liquid and freely tradable.

(d) Pivot’s auditor has at all times since the date of enactment of the Sarbanes-Oxley Act been: (i) a registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act); (ii) to the knowledge of Pivot, “independent” with respect to Pivot within the meaning of Regulation S-X under the Exchange Act; and (iii) to the knowledge of Pivot, in compliance with subsections (g) through (l) of Section 10A of the Exchange Act and the rules and regulations promulgated by the SEC and the Public Company Accounting Oversight Board thereunder.

 

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(e) From January 1, 2007, through the date hereof, Pivot has not received any comment letter from the SEC or the staff thereof or any correspondence from NASDAQ or the staff thereof relating to the delisting or maintenance of listing of the Pivot Common Stock on the NASDAQ Global Market. Pivot has not disclosed any unresolved comments in its SEC Documents.

(f) Since January 1, 2007, there have been no formal internal investigations regarding financial reporting or accounting policies and practices discussed with, reviewed by or initiated at the direction of the chief executive officer or chief financial officer of Pivot, Pivot’s Board of Director or any committee thereof, other than ordinary course audits or reviews of accounting policies and practices or internal controls required by the Sarbanes-Oxley Act.

3.5 Absence of Changes. Except as set forth on Part 3.5 of the Pivot Disclosure Schedule, since June 30, 2008:

(a) there has not been any Pivot Material Adverse Effect or an event or development that would, individually or in the aggregate, reasonably be expected to have a Pivot Material Adverse Effect;

(b) there has not been any material loss, damage or destruction to, or any material interruption in the use of, any of the assets or business of Pivot (whether or not covered by insurance);

(c) Pivot has not: (i) declared, accrued, set aside or paid any dividend or made any other distribution in respect of any shares of capital stock; or (ii) repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities;

(d) Pivot has not sold, issued or granted, or authorized the issuance of: (i) any capital stock or other security (except for Pivot Common Stock issued upon the valid exercise of outstanding Pivot Options); (ii) any option, warrant or right to acquire any capital stock or any other security (except for Pivot Options identified in Part 3.3(b) of the Pivot Disclosure Schedule); or (iii) any instrument convertible into or exchangeable for any capital stock or other security;

(e) Pivot has not amended or waived any of its rights under, or exercised its discretion to permit the acceleration of vesting under any provision of: (i) any of the Pivot Stock Plans; (ii) any Pivot Option or any Contract evidencing or relating to any Pivot Option; (iii) any restricted stock purchase agreement; or (iv) any other Contract evidencing or relating to any equity award (whether payable in cash or stock);

(f) there has been no amendment to the certificate of incorporation, bylaws or other charter or organizational documents of Pivot, and Pivot has not effected or been a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction;

(g) Pivot has not formed any Subsidiary other than Merger Sub or acquired any equity interest or other interest in any other Entity;

(h) Pivot has not: (i) lent money to any Person; or (ii) incurred or guaranteed any indebtedness for borrowed money; or (iii) issued or sold any debt securities or options, warrants, calls or other rights to acquire any debt securities; (iii) guaranteed any debt securities of others; or (iv) made any capital expenditure or commitment in excess of $100,000;

(i) Pivot has not, other than in the Ordinary Course of Business: (i)&nb