TABLE OF CONTENTS

 

			Page
Article I THE MERGERS			2
1.1	The Mergers		2
1.2	Effective Time		2
1.3	Effect of the Merger		3
1.4	Organizational Documents		3
1.5	Directors and Officers		3
1.6	Effect of the First Merger on the Capital Stock of the Constituent Corporations		4
1.7	Effect of Second Merger on Capital Stock		10
1.8	Dissenting Shares		10
1.9	Surrender of Certificates		11
1.10	No Further Ownership Rights in Company Capital Stock		12
1.11	Lost, Stolen or Destroyed Certificates		12
1.12	Tax Consequences		13
1.13	Taking of Necessary Action; Further Action		13
Article II REPRESENTATIONS AND WARRANTIES OF THE COMPANY			13
2.1	Organization of the Company		13
2.2	Company Capital Structure		14
2.3	Subsidiaries		16
2.4	Authority		17
2.5	No Conflict		17
2.6	Consents		18
2.7	Company Financial Statements		18
2.8	Internal Controls		18
2.9	No Undisclosed Liabilities		19
2.10	No Changes		19
2.11	Accounts Receivable		22
2.12	Tax Matters		23
2.13	Restrictions on Business Activities		25
2.14	Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment; Customer Information		25
2.15	Intellectual Property		27
2.16	Agreements, Contracts and Commitments		34
2.17	Interested Party Transactions		35
2.18	Governmental Authorization		36
2.19	Litigation		36
2.20	Minute Books		36
2.21	Environmental Matters		36
2.22	Brokers’ and Finders’ Fees; Third Party Expenses		37
2.23	Employee Benefit Plans and Compensation		37
2.24	Insurance		43
2.25	Compliance with Laws		43
2.26	Export Control Laws		43
2.27	Foreign Corrupt Practices Act		44

 

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TABLE OF CONTENTS

(continued)

 

			Page
2.28	Warranties; Indemnities		44
2.29	Substantial Customers and Suppliers		45
2.30	Complete Copies of Materials		45
2.31	Representations Complete		45
2.32	Information Statement		45
Article III REPRESENTATIONS AND WARRANTIES OF PARENT, SUB AND NEWLLC			45
3.1	Organization and Standing		45
3.2	Authority		45
3.3	No Conflict; Required Filings and Consents		46
3.4	Parent Common Stock		46
3.5	SEC Documents; Parent Financial Statements		46
3.6	Cash Resources		47
3.7	Brokers’ and Finders’ Fees		47
3.8	Authorized Capital Stock		47
3.9	Litigation		47
3.10	NASDAQ Compliance		47
Article IV CONDUCT PRIOR TO THE EFFECTIVE TIME			47
4.1	Conduct of Business of the Company		47
4.2	No Solicitation		51
4.3	Procedures for Requesting Parent Consent		51
Article V ADDITIONAL AGREEMENTS			52
5.1	Access to Information		52
5.2	Confidentiality		52
5.3	Public Disclosure		52
5.4	Reasonable Efforts		53
5.5	Notification of Certain Matters		53
5.6	Additional Documents and Further Assurances		53
5.7	Stockholder Approval; Fairness Hearing		53
5.8	Merger Notification		56
5.9	Notice to Holders of Company Options and Company Unvested Common Stock		57
5.10	Consents		57
5.11	Restrictions on Transfer		57
5.12	Reporting Requirements		57
5.13	New Employment Benefits		57
5.14	Termination of Certain Company Employee Plans		58
5.15	Expenses		58
5.16	Spreadsheet		59
5.17	Indemnification and Related Obligations		59
Article VI CONDITIONS TO THE MERGER			59
6.1	Conditions to Obligations of Each Party to Effect the First Merger		59
6.2	Conditions to the Obligations of Parent, Sub and NewLLC		59

 

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TABLE OF CONTENTS

(continued)

 

			Page
6.3	Conditions to Obligations of the Company		62
Article VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION; ESCROW			63
7.1	Survival of Representations and Warranties		63
7.2	Indemnification		63
7.3	Maximum Payments; Remedy		64
7.4	Escrow Arrangements		65
7.5	Stockholder Representative		72
Article VIII TERMINATION, AMENDMENT AND WAIVER			73
8.1	Termination		73
8.2	Effect of Termination		74
8.3	Amendment		74
8.4	Extension; Waiver		74
Article IX GENERAL PROVISIONS			74
9.1	Notices		74
9.2	Interpretation		76
9.3	Counterparts		76
9.4	Entire Agreement; Assignment		76
9.5	Severability		76
9.6	Other Remedies		76
9.7	No Third Party Beneficiaries		76
9.8	Governing Law; Exclusive Jurisdiction		77
9.9	Rules of Construction		77
9.10	Waiver of Jury Trial		77
9.11	USA Patriot Act Compliance		77
9.12	Acknowledgement		77

 

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INDEX OF EXHIBITS

 

Exhibit		Description
Exhibit A-1		Company Support Stockholders
Exhibit A-2		Form of Support Stockholder Written Consent
Exhibit B-1		Form of Certificate of Merger for First Merger
Exhibit B-2		Form of Certificate of Merger for Second Merger

 

Schedules
Schedule 1.6(a)(xxii)		Key Employees
Schedule 6.2(k)		Terminated Agreements
Schedule 6.2(r)		Liens to be Released

 

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CONFIDENTIAL

 

THIS AGREEMENT AND PLAN OF REORGANIZATION (the “ Agreement ”) is made and entered into as of September 4, 2008 by and among Advent Software, Inc., a Delaware corporation (“ Parent ”), Tenor Corporation, a Delaware corporation and a direct wholly-owned subsidiary of Parent (“ Sub ”), Tenor LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Parent (“ NewLLC ”), Tamale Software, Inc., a Delaware corporation (the “ Company ”), and with respect to Article VII, Article VIII and Article IX hereof only, Robert E. Richards, Jr. as stockholder representative (the “ Stockholder Representative ”), and U.S. Bank National Association as Escrow Agent.

 

RECITALS

 

A.                                   The Boards of Directors (or sole manager, in the case of NewLLC) of each of Parent, Sub, NewLLC and the Company believe it is advisable and in the best interests of each company and its respective stockholders (or sole member, in the case of NewLLC) that Parent acquire the Company through the statutory merger of Sub with and into the Company and, as part of the same overall transaction, the statutory merger of the First-Step Corporation with and into NewLLC immediately thereafter, upon the terms and conditions set forth herein, and, in furtherance thereof, have approved this Agreement and the transactions contemplated hereby, including the First Merger and the Second Merger.

 

B.                                     Pursuant to the First Merger, among other things, and subject to the terms and conditions of this Agreement, (i) all of the issued and outstanding capital stock of the Company shall be converted into the right to receive the consideration set forth herein, and (ii) all of the issued and outstanding options to purchase capital stock of the Company shall be cancelled, and (iii) all issued and outstanding warrants to purchase capital stock of the Company not otherwise exercised prior to the Merger shall be terminated.

 

C.                                     Pursuant to the Second Merger, among other things, and subject to the terms and conditions of this Agreement, all of the issued and outstanding capital stock of the First-Step Corporation shall be cancelled without any consideration or other payment therefor.

 

D.                                    A portion of the consideration otherwise payable by Parent in connection with the Merger shall be placed in escrow by Parent as partial security for the indemnification obligations set forth in this Agreement.

 

E.                                      The Company, on the one hand, and Parent and Sub, on the other hand, desire to make certain representations, warranties, covenants and other agreements in connection with the transactions contemplated hereby.

 

F.                                      Concurrent with the execution and delivery of this Agreement, as a material inducement to Parent and Sub to enter into this Agreement, (i) each of the Key Employees is executing an employment agreement, with Parent to be effective as of the Effective Time, (ii) each of the Key Employees is entering into a Non-Competition and Non-Solicitation Agreement with Parent to be effective as of the Effective Time (a “ Non-Competition and Non-Solicitation Agreement ”), and (iii) the Company’s Board of Directors shall have unanimously approved the Merger, this Agreement and the transactions contemplated hereby.

 

G.                                     Promptly after the execution and delivery of this Agreement, the Company shall submit to each of the persons and entities identified in Exhibit A-1 (the “ Company Support Stockholders ”) an irrevocable written consent in substantially the form attached hereto as Exhibit A-2 (the “ Support Stockholder Written Consent ”), which Support Stockholder Written Consent shall when executed (i)

 

 

become effective without any action on the part of Parent, Sub, the Company or the Company Support Stockholders immediately upon the issuance of the California Permit (or, as set forth in Section 5.7 , in the event Parent determines that the Private Placement Condition is satisfied, upon the notification by Parent to the Company of the satisfaction of such condition) and (ii) include and constitute the irrevocable approval of (1) the Company Support Stockholders of this Agreement and the transactions contemplated hereby, (2) the escrow and indemnification obligations of the Stockholders set forth in Article VII hereof and the deposit of the Escrow Amount into the Escrow Fund as contemplated by Section 1.9(b)  hereof, and (3) in favor of the appointment of Robert E. Richards, Jr. as Stockholder Representative; provided, however , that the Support Stockholder Written Consents shall terminate, if at all, upon termination of this Agreement in accordance with Section 8.1 hereof).

 

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

 

NOW, THEREFORE, in consideration of the mutual agreements, covenants and other premises set forth herein, the mutual benefits to be gained by the performance thereof, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the parties hereby agree as follows:

 

ARTICLE I

 

THE MERGERS

 

1.1                                 The Mergers .  At the Effective Time and subject to and upon the terms and conditions of this Agreement and the applicable provisions of the Delaware General Corporation Law (“ Delaware Law ”), Sub shall be merged with and into the Company (the “ First Merger ”), the separate corporate existence of Sub shall cease, and the Company shall continue as the surviving corporation.  The Company as the surviving corporation after the First Merger is sometimes referred to hereinafter as the “ First-Step Corporation .”  Immediately after the Effective Time, and as part of a single overall transaction with the First Merger and pursuant to an integrated plan, Parent shall cause the First-Step Corporation to be merged with and into NewLLC pursuant to the applicable provisions of Delaware Law (the “ Second Merger ”), whereupon the separate corporate existence of the First-Step Corporation shall cease and NewLLC shall continue as the surviving entity (the First Merger and the Second Merger are referred to herein together as the “ Mergers ”). NewLLC as the surviving entity after the Second Merger is sometimes referred to hereinafter as the “ Surviving LLC .”

 

1.2                                 Effective Time .  Unless this Agreement is earlier terminated pursuant to Section 8.1 hereof, the closing of the First Merger and the Second Merger (the “ Closing ”) will take place as promptly as practicable after the conditions set forth in Article VI hereof have been satisfied or waived, at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California, unless another time or place is mutually agreed upon in writing by Parent and the Company. The date upon which the Closing actually occurs shall be referred to herein as the “ Closing Date .”  On the Closing Date, the parties hereto shall cause the First Merger and the Second Merger to be consummated by filing or causing to be filed with the Secretary of State of the State of Delaware a certificate of merger in substantially the form attached hereto as Exhibit B-1 (the “ Certificate of First Merger ”), and immediately thereafter a certificate of

 

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merger in substantially the form attached hereto as Exhibit B-2 (the “ Certificate of Second Merger ,” together with the Certificate of First Merger, the “ Certificates of Merger ”) in accordance with the applicable provisions of Delaware Law (the time of filing of the Certificate of First Merger by the Secretary of State of the State of Delaware shall be referred to herein as the “ Effective Time ”).

 

1.3                                 Effect of the Merger .  The effect of the Mergers shall be as set forth in this Agreement and as provided in the applicable provisions of Delaware Law.  Without limiting the generality of the foregoing, and subject thereto, upon the filing of the Certificates of Merger, except as otherwise agreed to pursuant to the terms of this Agreement, all of the property, rights, privileges, powers and franchises of the Company, Sub and NewLLC shall vest in the Surviving LLC, and all debts, liabilities and duties of the Company, Sub and NewLLC shall become the debts, liabilities and duties of the Surviving LLC.

 

1.4                                 Organizational Documents.

 

(a)                                   Unless otherwise determined by Parent prior to the Effective Time, the certificate of incorporation of the First-Step Corporation shall be amended and restated as of the Effective Time to be identical to the certificate of incorporation of Sub as in effect immediately prior to the Effective Time, until thereafter amended in accordance with Delaware Law and as provided in such certificate of incorporation; provided, however , that at the Effective Time, Article I of the certificate of incorporation of the First-Step Corporation shall be amended and restated in its entirety to read as follows: “The name of the corporation is “Tamale Software, Inc.”

 

(b)                                  Unless otherwise determined by Parent prior to the Effective Time, the bylaws of the First-Step Corporation shall be amended and restated as of the Effective Time to be identical to the bylaws of Sub as in effect immediately prior to the Effective Time, until thereafter amended in accordance with Delaware Law and as provided in the certificate of incorporation of the First-Step Corporation and such bylaws.

 

(c)                                   Unless otherwise determined by Parent prior to the Effective Time, the certificate of formation of the Surviving LLC shall be the certificate of formation of NewLLC as in effect immediately prior to the Effective Time, until thereafter amended in accordance with Delaware Law and as provided in the certificate of formation; provided, however, that at the effective time of the Second Merger, the certificate of formation of the Surviving LLC shall be amended to change the name of the Surviving LLC to “Tamale Software LLC.”

 

(d)                                  Unless otherwise determined by Parent prior to the Effective time, the operating agreement of the Surviving LLC shall be the operating agreement of NewLLC as in effect immediately prior to the Effective time, until thereafter amended in accordance with Delaware Law and as provided in such operating agreement.

 

1.5                                 Directors and Officers.

 

(a)                                   Directors of First-Step Corporation .  Unless otherwise determined by Parent prior to the Effective Time, the directors of Sub immediately prior to the Effective Time shall be the directors of the First-Step Corporation immediately after the Effective Time, each to hold the office of a director of the First-Step Corporation in accordance with the provisions of Delaware Law and the certificate of incorporation and bylaws of the First-Step Corporation until their successors are duly elected and qualified, or until their earlier resignation or removal.

 

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(b)            Officers of First-Step Corporation .  Unless otherwise determined by Parent prior to the Effective Time, the officers of Sub immediately prior to the Effective Time shall be the officers of the
First-Step Corporation immediately after the Effective Time, each to hold office in accordance with the provisions of the bylaws of the First-Step Corporation.

 

(c)            Directors of Subsidiaries of Surviving LLC .  Unless otherwise determined by Parent prior to the Effective Time, Parent, the Company and the Surviving LLC shall cause the directors of Sub immediately prior to the Effective Time to be the directors of any Subsidiaries immediately after the Effective Time, each to hold office as a director of each such Subsidiary in accordance with the provisions of the laws of the respective jurisdiction of organization and the respective bylaws or equivalent organizational documents of each such Subsidiary.

 

(d)            Officers of Subsidiaries of Surviving LLC .  Unless otherwise determined by Parent prior to the Effective Time, Parent, the Company and the Surviving LLC shall cause the officers of Sub immediately prior to the Effective Time to be the officers of any Subsidiaries immediately after the Effective Time, each to hold office as an officer of each such Subsidiary in accordance with the provisions of the laws of the respective jurisdiction of organization and the bylaws or equivalent organizational documents of each such Subsidiary.

 

1.6            Effect of the First Merger on the Capital Stock of the Constituent Corporations.

 

(a)            Definitions .  For all purposes of this Agreement, the following terms shall have the following respective meanings:

 

  (i)            “ Aggregate Consideration Amount” equals (A) $70,000,000 minus (B) the Estimated Third Party Expenses, minus (C) Option Repurchase Amounts minus (D) Company Indebtedness plus (E) Option and Warrant Exercise Proceeds and plus (F) Loan Repayments.

 

 (ii)            “ Business Day ” shall mean each day that is not a Saturday, Sunday or other day on which Parent is closed for business or banking institutions located in San Francisco, California are authorized or obligated by law or executive order to close.

 

(iii)            “ Company Capital Stock ” shall mean the Company Common Stock, the Company Preferred Stock and all other shares of capital stock, if any, of the Company, taken together.

 

(iv)            “ Company Common Stock ” shall mean shares of common stock, $0.001 par value per share, of the Company.

 

 (v)            “ Company Indebtedness ” shall mean all liabilities or obligations of the Company for borrowed amounts owed to Parent pursuant to the Secured Promissory Note between the Company and Parent dated July )), 2008 and which are outstanding as of the Effective Time.

 

(vi)            “ Company Material Adverse Effect ” shall mean any change, event or effect that is, or is reasonably likely to be, materially adverse to the business, assets (whether tangible or intangible), financial condition, prospects, operations or capitalization of the Company, taken as a whole with its Subsidiaries; provided, however , that in no event shall any of the following, alone or in combination with any of the others, be deemed to constitute, nor shall any of the following be taken into account in determining whether there has been, or is reasonably likely to be, a Company Material Adverse Effect: (A) any occurrence or occurrences relating to the industry in which the Company and its Subsidiaries operate, other than that

 

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which affects the Company and its Subsidiaries, taken as a whole, disproportionately; (B) any occurrence or occurrences that proximately results from the public announcement of this Agreement; or (C) general economic or business conditions or acts of war or terrorism, other than that which affects the Company disproportionately.

 

(vii)           “ Company Options ” shall mean all issued and outstanding options (excluding Company Warrants), to purchase or otherwise acquire Company Capital Stock (whether or not vested) held by any employee, consultant or director of the Company or its Subsidiaries.

 

(viii)          “ Company Preferred Stock ” shall mean the Company Series A Preferred Stock and the Company Series B Preferred Stock taken together.

 

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

 

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

 

(xi)            “ Company Unvested Common Stock ” shall mean any shares of Company Common Stock issued and outstanding immediately prior to the Effective Time that are unvested as of the Closing Date.  For purposes of this Agreement, a share of Company Common Stock shall be deemed “unvested” if such share is not vested or is subject to a repurchase option, risk of forfeiture or other condition under any applicable stock restriction agreement or other agreement with the Company.

 

(xii)           “ Company Vested Common Stock ” shall mean any shares of Company Common Stock issued and outstanding immediately prior to the Effective Time other than Company Unvested Common Stock.

 

(xiii)          “ Company Warrants ” shall mean all issued and outstanding warrants to purchase Company Capital Stock.

 

(xiv)          “ Continuing Employee ” shall mean each employee of the Company who (A) receives and accepts an offer of at-will employment (which offer of employment is not for a transitional period ending within a specified or estimated time period after the Effective Time) from Parent or any of its subsidiaries prior to the Effective Time and (B) is an employee of Parent or any of its subsidiaries immediately following the Effective Time.

 

(xv)           “ Court ” shall mean any court or arbitration tribunal of the United States, any domestic state, or any foreign country, and any political subdivision or agency thereof.

 

(xvi)          “ Escrow Agent ” shall mean U.S. Bank National Association or another institution acceptable to Parent and the Stockholder Representative.

 

(xvii)         “ Escrow Amount ” shall mean 226,098 shares of Parent Common Stock.

 

(xviii)        “ Estimated Third Party Expenses ” shall mean the amount of Third Party Expenses (both paid and unpaid) incurred or expected to be incurred by the Company as of the Closing Date as estimated by the Company in good faith and based on reasonable assumptions, as set forth on the Statement of Expenses and Adjustments.

 

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(xix)           “ FASB ” shall mean the Financial Accounting Standards Board.

 

(xx)            “ GAAP ” shall mean United States generally accepted accounting principles consistently applied.

 

(xxi)           “ HSR Act ” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

 

(xxii)          “ Key Employees ” shall mean the employees of Company identified on Schedule 1.6(a)(xxii) hereto.

 

(xxiii)         “ Knowledge ” or “ Known ” shall mean, with respect to the Company, the knowledge of the members of the Company’s board of directors and Mark Rice, Ken Jacobson, Mike Refojo, John Lee, John Fawcett, Zack Sung, Robert Tishman, Larry Longo and Daniel Dias after reasonable inquiry by them of all relevant employees and consultants of the Company.

 

(xxiv)        “ Law ” shall mean any law (statutory, common or otherwise), constitution, treaty, convention, ordinance, equitable principle, code, rule, regulation, executive order, or other similar authority enacted, adopted, promulgated, or applied by any Governmental Entity, each as amended and now in effect.

 

(xxv)         “ Lien ” shall mean any lien, pledge, charge, claim, mortgage, security interest or other encumbrance of any sort.

 

(xxvi)        “Loan Repayments” shall mean amounts received by the Company for the repayment of its loans outstanding as of the date of this Agreement to Mike Refojo, Ken Jacobson and Mark Rice.

 

(xxvii)       “ Merger Cash ” shall mean the product of 0.40 and the Aggregate Consideration Amount, rounded to the nearest whole cent (with 0.5 of a cent rounded up).

 

(xxviii)      “ Merger Cash Exchange Ratio ” shall mean the quotient obtained by dividing the Merger Cash by the Total Outstanding Shares, rounded to the nearest one-hundred thousandth (0.00001) of a cent (with 0.000005 of a cent and above rounded up).

 

(xxix)         “ Merger Shares ” shall mean the number of shares of Parent Common Stock equal to (i) the product of 0.60 multiplied by the Aggregate Consideration Amount, divided by (ii) the Trading Price, rounded down to the nearest whole share.

 

(xxx)          “ Merger Shares Exchange Ratio ” shall mean the quotient obtained by dividing the Merger Shares by the Total Outstanding Shares, rounded to the nearest one-hundred thousandth (0.00001) (with amounts 0.000005 and above rounded up).

 

(xxxi)         “Option and Warrant Exercise Proceeds” shall mean amounts paid by holders of Company Options and Company Warrants for exercise of such Company Options or Company Warrants, including the principal amounts of any promissory notes delivered by such holders, for the time period between the date of this Agreement and the Effective Time.

 

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(xxxii)        “Option Repurchase Amounts” shall mean (i) amounts paid by the Company in connection with the repurchase of Company Options as set forth in Section 1.6(c)(i)  hereof for the time period between the date of this Agreement and the Effective Time and (ii) employer and payroll taxes associated with such payments.

 

(xxxiii)       “ Order ” shall mean any order, ruling, decision, verdict, decree, writ, subpoena, mandate, precept, command, directive, approval, award, judgment, injunction, or other similar determination or finding issued, granted or made by any Governmental Entity or Court.

 

(xxxiv)       “ Parent Common Stock ” shall mean shares of the common stock, par value $0.01 per share, of Parent.

 

(xxxv)        “ Parent Material Adverse Effect ” shall mean any change, event or effect that is, or is reasonably likely to be, materially adverse to the business, assets (whether tangible or intangible), financial condition, operations or capitalization of Parent; provided, however , that in no event shall any of the following, alone or in combination with any of the others, be deemed to constitute, nor shall any of the following be taken into account in determining whether there has been, or is reasonably likely to be, a Parent Material Adverse Effect: (A) any change or changes in the price per share of the Parent Common Stock or a change in the trading volume of Parent Common Stock; (B) any occurrence or occurrences relating to the industry in which the Parent operates, other than that which affects Parent and its subsidiaries, taken as a whole, disproportionately; (C) failing to meet or otherwise satisfy analyst or other third party expectations relating to the results of Parent’s operations; (D) any occurrence or occurrences that proximately results from the public announcement of this Agreement; or (E) general economic or business conditions or acts of war or terrorism, other than that which affects Parent and its subsidiaries, taken as a whole, disproportionately.

 

(xxxvi)       “ Per Share Merger Consideration ” shall mean the quotient obtained by dividing (A) the Aggregate Consideration Amount, by (B) the Total Outstanding Shares.

 

(xxxvii)      “ Person ” shall mean an individual or entity, including a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a Governmental Entity (or any department, agency, or political subdivision thereof).

 

(xxxviii)     “ Plan ” shall mean the Company’s 2004 Stock Incentive Plan.

 

(xxxix)       “ Pro Rata Portion ” shall mean, with respect to each Stockholder (other than a Stockholder holding Dissenting Shares who does not effectively withdraw or lose such Stockholder’s dissenter’s rights as contemplated by Section 1.8(b)  hereof), an amount equal to the quotient obtained by dividing (A) the number of shares of Company Vested Common Stock and Company Preferred Stock owned by such Stockholder as of immediately prior to the Effective Time by (B) the total number of shares of Company Vested Common Stock and Company Preferred Stock issued and outstanding as of immediately prior to the Effective Time (other than Dissenting Shares held by Stockholders who do not effectively withdraw or lose such holders’ dissenters’ rights as contemplated by Section 1.8(b)  hereof).

 

(xl)    “ Related Agreements ” shall mean the Employment Agreements, the Non-Competition and Non-Solicitation Agreements and all other agreements and certificates entered into by the Company or any of the Stockholders in connection with the transactions contemplated herein.

 

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(xli)           “ Requisite Stockholder Vote ” shall mean the affirmative vote of the holders of at least a majority of the Company Capital Stock outstanding as of time of such vote.

 

(xlii)          “ SEC ” shall mean the United States Securities and Exchange Commission.

 

(xliii)         “ Securities Act ” shall mean the Securities Act of 1933, as amended.

 

(xliv)         “ Stockholder ” shall mean any holder of any Company Capital Stock immediately prior to the Effective Time including, for purposes of clarity, any shares issued upon exercise of Vested Company Options or Company Warrants prior to their termination.

 

(xlv)          “ Total Outstanding Shares ” shall mean the aggregate number of shares of Company Capital Stock issued and outstanding immediately prior to the Effective Time including, for purposes of clarity, any shares issued upon exercise of Vested Company Options or Company Warrants prior to their termination.

 

(xlvi)         “ Trading Price ” shall mean $46.44 per share of Parent Common Stock.

 

(xlvii)        “ Vested Company Option ” shall mean any Company Option (or portion thereof) that is vested immediately prior to the Effective Time, including any Company Option which vests as a result of the occurrence of the Effective Time.

 

(b)            Effect on Capital Stock .  At the Effective Time, by virtue of the Merger and without any action on the part of Sub, the Company or the holders of shares of Company Capital Stock, each share of Company Capital Stock (excluding, for avoidance of doubt, Company Options and Company Warrants, which shall be treated as provided for in Section 1.6(c)  below, and shares of Company Capital Stock held by the Company, which shall be treated as provided for in Section 1.6(d)  below) issued and outstanding immediately prior to the Effective Time, upon the terms and subject to the conditions set forth in this Section 1.6 and throughout this Agreement, including the escrow provisions set forth in Article VII hereof, will be cancelled and extinguished and will be converted automatically into the right to receive upon surrender of the certificate representing such shares of Company Capital Stock in the manner provided in Section 1.9 hereof, such portion of the Merger Consideration as set forth below:

 

(i)        each outstanding share of Company Series A Preferred Stock, Company Series B Preferred Stock, or Company Common Stock will be converted automatically into (A) a fractional share of Parent Common Stock equal to the Merger Shares Exchange Ratio and (B) an amount of cash (without interest) equal to the Merger Cash Exchange Ratio;

 

(ii)       for purposes of calculating the number of shares of Parent Common Stock issuable and the amount of cash payable to each Stockholder pursuant to this Section 1.6(b) , all shares of the Company Capital Stock held by each Stockholder shall be aggregated.  The aggregate number of shares of Parent Common Stock issuable and the amount of cash payable to a Stockholder, after aggregating all shares of Company Capital Stock held by such Stockholder, shall be rounded down to the nearest whole number of shares of Parent Common Stock and nearest whole cent, respectively; and

 

(iii)      notwithstanding anything set forth in this Section 1.6 , any Dissenting Shares will be treated as set forth in Section 1.8 hereof.

 

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(c)            Treatment of Company Options; Treatment of Company Warrants .

 

(i)         Company Options .  Each Company Option that is issued and outstanding immediately prior to the Effective Time, which has not been exercised prior to the Effective Time, shall, effective as of the Effective Time, be canceled and extinguished without any conversion or assumption thereof.  The Company may, prior to the Effective Time, distribute notices to Company Option holders permitting them to consent in writing to having a portion of their Company Options, not to exceed 1,500 shares per Company Option holder, cancelled prior to the Effective Time in exchange for a cash payment not to exceed the amount by which (i) the aggregate fair market value of the Company Common Stock subject to the cancelled Company Option(s) exceeds (ii) the aggregate exercise price of the Cancelled Company Option(s), the form and substance of such notice and amount of cash payment subject to the reasonable review and approval by Parent.  Such cancellations shall be the “ Option Repurchases ” and the cash payments shall be the “ Option Repurchase Amounts ”

 

(ii)        Company Warrants .  No Company Warrants shall be assumed by Parent and, at the Effective Time, each Company Warrant will by virtue of the Merger, and without any further action on the part of any holder thereof, be cancelled and extinguished.

 

(iii)       Necessary Actions .  Prior to the Effective Time, the Company shall take all actions necessary to effect the transactions anticipated by this Section 1.6 under all Company Option agreements, all agreements related to Company Unvested Common Stock, all Company Warrant agreements and any other plan or arrangement of the Company (whether written or oral, formal or informal), including delivering all required notices or obtaining any required consents.

 

(d)            Cancellation of Company Owned Stock .  Each share of Company Capital Stock held by the Company or any direct or indirect subsidiary of the Company immediately prior to the Effective Time shall be cancelled and extinguished as of the Effective Time.

 

(e)            Withholding Taxes .  The Company, Parent, the Surviving LLC, and the Escrow Agent shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement to any Person such amounts as may be required to be deducted or withheld therefrom under any provision of U.S. federal, state, local or non-U.S. law, and to request any necessary tax forms, including Form W-9 or the appropriate series of Form W-8 as applicable, or any similar information, from such person.  Any such amounts shall be withheld or deducted from the cash consideration payable, provided that if such cash consideration is insufficient to satisfy the full amount to be withheld or deducted, the remainder shall be satisfied out of the stock consideration issuable.  The number of shares of Parent Common Stock, if any, to be used to satisfy the remaining amount required to be so deducted or withheld shall be determined by dividing such remaining amount by the Trading Price, rounded to the nearest whole share (with 0.5 of a share rounded up).  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)             Stockholder Loans .  In the event that any Stockholder has outstanding loans from the Company as of the Effective Time, the consideration payable to such Stockholder pursuant to this Section 1.6 shall be reduced by an amount equal to the sum of the outstanding principal plus accrued interest of such Stockholder’s loans as of the Effective Time.  Any such amounts shall be deducted from the cash consideration payable to the Stockholder, provided that if such cash consideration is insufficient to satisfy the full amount of the outstanding principal plus accrued interest, the remainder shall be satisfied out of the stock

 

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consideration issuable to the Stockholder.  The number of shares of Parent Common Stock, if any, to be used to satisfy the remaining amount of the outstanding principal and interest shall be determined by dividing such remaining amount by the Trading Price, rounded to the nearest whole share (with 0.5 of a share rounded up).  Such loans shall be satisfied as to the amount by which the consideration is reduced pursuant to this Section 1.6(f) .  To the extent the consideration payable to such Stockholder is so reduced, such amount shall be treated for all purposes under this Agreement as having been paid to such Stockholder.

 

(g)            Capital Stock of Sub .  Each share of Common Stock of Sub issued and outstanding immediately prior to the First Merger shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of Common Stock of the First-Step Corporation.  Each stock certificate of Sub evidencing ownership of any such shares shall continue to evidence ownership of such shares of capital stock of the First-Step Corporation.

 

(h)            Capital Stock of First-Step Corporation .  Each share of Common Stock of First-Step Corporation issued and outstanding immediately prior to the First Merger shall be converted into and exchanged for a membership interest in the Surviving LLC.  Each stock certificate of First-Step Corporation evidencing ownership of any such membership interest in the Surviving LLC.

 

1.7            Effect of Second Merger on Capital Stock .  At the effective time of the Second Merger, each share of capital stock of the First-Step Corporation issued and outstanding immediately prior to the effective time of the Second Merger shall be cancelled without any consideration or other payment therefor.  At the effective time of the Second Merger, each membership interest in NewLLC issued and outstanding immediately prior to the effective time of the Second Merger shall remain issued and outstanding and shall not be effected by the Second Merger.

 

1.8            Dissenting Shares.

 

(a)           Notwithstanding any other provisions of this Agreement to the contrary, any shares of Company Capital Stock held by a holder who has made a demand for appraisal of such shares of Company Capital Stock in accordance with Section 262 of Delaware Law and who has not effectively withdrawn or lost such holder’s appraisal rights under Section 262 of Delaware Law (collectively, the “ Dissenting Shares ”), shall not be converted into or represent a right to receive the applicable consideration for Company Capital Stock set forth in Section 1.6 hereof, but the holder thereof shall only be entitled to such rights as are provided by Delaware Law.

 

(b)           Notwithstanding the provisions of Section 1.8(a)  hereof, if any holder of Dissenting Shares shall effectively withdraw or lose (through failure to perfect or otherwise) such holder’s appraisal rights under Delaware Law then, as of the later of the Effective Time and the occurrence of such event, such holder’s shares shall automatically be converted into and represent only the right to receive the consideration for Company Capital Stock, as applicable, set forth in Section 1.6 hereof, without interest thereon, and subject to the provisions of Section 7.4 hereof, upon surrender of the certificate or certificates representing such shares.

 

(c)           The Company shall give Parent (i) prompt notice of any written demand for appraisal received by the Company pursuant to Delaware Law, and (ii) the opportunity to participate in all negotiations and proceedings with respect to such demands.  The Company shall not make any payment with respect to any such demands or offer to settle or settle any such demands without the prior written consent of Parent, which consent shall not be unreasonably withheld, delayed or conditioned.  Any payment or payments in respect of a Dissenting Share in excess of the Per Share Merger Consideration and any Losses, (including

 

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attorneys’ and consultants’ fees, costs and expenses and including any such fees, costs and expenses incurred in connection with investigating, defending against or settling any action or proceeding) incurred in respect of any Dissenting Shares (excluding payments for such shares) are referred to herein as “ Dissenting Share Payments. ”

 

1.9            Surrender of Certificates.

 

(a)            Exchange Agent .  Computershare Investor Services LLC shall serve as the exchange agent (the “ Exchange Agent ”) for the Merger.

 

(b)            Parent to Provide Consideration .  Immediately following the Effective Time, Parent shall deposit with the Exchange Agent for exchange in accordance with this Article I that portion of the Merger Consideration payable pursuant to Section 1.6 hereof in exchange for outstanding shares of Company Capital Stock; provided, however , that Parent shall deposit into the Escrow Fund a number of shares equal to the Escrow Amount out of the Aggregate Consideration Amount otherwise payable to the holders of Company Capital Stock  pursuant to Section 1.6 hereof.

 

(c)            Exchange Procedures .  Following the Closing Date, Parent or the Exchange Agent shall mail a letter of transmittal in a form reasonably acceptable to Company and Parent (the “ Letter of Transmittal ”) to each Stockholder at the address set forth opposite each such Stockholder’s name on the Spreadsheet.  The Letter of Transmittal shall include the agreement of each stockholder to a lock-up with respect to such Stockholder’s shares of Parent Common Stock for six months after the Effective Time.  After receipt of the Letter of Transmittal and any other documents referenced in the Letter of Transmittal (the “ Exchange Documents ”), the Stockholders will surrender the certificates, if any, representing their shares of Company Capital Stock (the “ Company Stock Certificates ”) to the Exchange Agent for cancellation together with duly completed and validly executed Exchange Documents.  Upon surrender of a Company Stock Certificate for cancellation to the Exchange Agent, or such other agent or agents as may be appointed by Parent with the prior written consent of the Stockholder Representative, which consent shall not be unreasonably withheld, delayed or conditioned, together with such Exchange Documents, duly completed and validly executed in accordance with the instructions thereto, subject to the terms of Section 1.9(e)  hereof, the holder of such Company Stock Certificate shall be entitled to receive from the Exchange Agent in exchange therefor, a certificate representing the number of whole shares of Parent Common Stock (less the Pro Rata Portion of the number of shares to be deposited in the Escrow Fund pursuant to Section 1.9(b)  hereof and Article VII hereof) and the cash payment to which such holder is entitled pursuant to Section 1.6 hereof, and the Company Stock Certificate so surrendered shall be cancelled. Until so surrendered, each Company Stock Certificate outstanding after the Effective Time will be deemed, for all corporate purposes thereafter, to evidence only the right to receive the number of full shares of Parent Common Stock and cash into which such shares of Company Capital Stock shall have been so converted.  No portion of the Merger Consideration will be paid to the holder of any unsurrendered Company Stock Certificate with respect to shares of Company Capital Stock formerly represented thereby until the holder of record of such Company Stock Certificate shall surrender such Company Stock Certificate (or complete an affidavit of Loss as set forth in Section 1.11 ) and the Exchange Documents pursuant hereto.

 

(d)            Distributions With Respect to Unexchanged Shares .  No dividends or other distributions declared or made after the Effective Time with respect to Parent Common Stock with a record date after the Effective Time will be paid to the holder of any unsurrendered Company Stock Certificate with respect to the shares of Parent Common Stock represented thereby until the holder of record of such Company Stock Certificate shall surrender such Company Stock Certificate.  Subject to applicable law, following

 

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surrender of any such Company Stock Certificate, there shall be paid to the record holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Parent Common Stock.

 

(e)            Transfers of Ownership .  If any certificate for shares of Parent Common Stock is to be issued in a name other than that in which the Company Stock Certificate surrendered in exchange therefor is registered it will be a condition of the issuance or delivery thereof that the certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange will have paid to Parent or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for shares of Parent Common Stock in any name other than that of the registered holder of the certificate surrendered, or established to the satisfaction of Parent or any agent designated by it that such tax has been paid or is not payable.

 

(f)             No Liability .  Notwithstanding anything to the contrary in this Section 1.9 , neither the Exchange Agent, the Surviving LLC, nor any party hereto shall be liable to a holder of shares of Company Capital Stock for any amount paid in good faith to a public official pursuant to any applicable abandoned property, escheat or similar law.

 

(g)            Exchange Agent to Return Undistributed Consideration .  At any time following the six (6) month anniversary of the Closing Date, Parent shall be entitled to require the Exchange Agent to deliver to Parent or its designated successor or assign all cash amounts and shares of Parent Common Stock that have been deposited with the Exchange Agent pursuant to this Agreement, and any and all interest thereon or other income or proceeds thereof, not disbursed to the holders of Company Stock Certificates pursuant to this Agreement, and thereafter the holders of Company Stock Certificates shall be entitled to look only to Parent as general creditors thereof with respect to any and all cash amounts and shares of Parent Common Stock that may be payable or issuable to such holders of Company Stock Certificates and duly executed letters of transmittal and related documents (if any) in the manner set forth in this Agreement.  No interest shall be payable for the cash amounts delivered to Parent pursuant to the provisions of this Section 1.9(g)  and which are subsequently delivered to the holders of Company Stock Certificates.

 

1.10          No Further Ownership Rights in Company Capital Stock .  The shares of Parent Common Stock issued and cash paid in respect of the surrender for exchange of shares of Company Capital Stock in accordance with the terms hereof shall be deemed to be full satisfaction of all rights pertaining to such shares of Company Capital Stock, and there shall be no further registration of transfers on the records of the Surviving LLC of shares of Company Capital Stock which were outstanding immediately prior to the Effective Time.  If, after the Effective Time, Company Stock Certificates are presented to the Surviving LLC for any reason, they shall be cancelled and exchanged as provided in this Article I.

 

1.11          Lost, Stolen or Destroyed Certificates .  In the event any Company Stock Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed certificates, upon the making of an affidavit of that fact by the holder thereof, such amount, if any, as may be required pursuant to Section 1.6 hereof; provided, however, that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the Stockholder who is the owner of such lost, stolen or destroyed certificates to either (i) deliver a bond in such amount as it may direct or (ii) provide an indemnification agreement in form and substance reasonably acceptable to Parent, against any claim that may be made against Parent or the Exchange Agent with respect to the certificates alleged to have been lost, stolen or destroyed.

 

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1.12          Tax Consequences .  Parent, Sub, NewLLC and the Company (i) intend that the Mergers shall constitute a reorganization within the meaning of Section 368(a)(1)(A) of the Code, (ii) shall treat the First Merger and the Second Merger as integrated steps in a single transaction as contemplated by this Agreement, (iii) shall report the mergers (if such Person has tax reporting obligations in respect thereof) as a single statutory merger of the Company with and into Parent qualifying as a reorganization within the meaning of Section 368(a)(1)(A) of the Code for federal income tax purposes, and (iv) by executing this Agreement, adopt a plan of tax-free reorganization within the meaning of Treasury Regulations Sections 1.368-2(g) and 1.368-3.  Except as specifically contemplated by this Agreement, none of Parent, Sub, NewLLC or the Company shall, and they shall not permit any of their respective subsidiaries to, take any action prior to or following the Closing which would reasonably be expected to cause the Mergers to fail to qualify as a reorganization within the meaning of Section 368(a) of the Code.  Notwithstanding the foregoing, no party hereto makes any representations or warranties regarding the tax treatment of the First Merger or the Second Merger, or any of the tax consequences relating to the First Merger or the Second Merger, this agreement, or any of the other transactions or agreements contemplated hereby.  Each party hereto acknowledges that it is relying solely on its own tax advisors in connection with the First Merger and the Second Merger, this Agreement and other transactions and agreements contemplated hereby.

 

1.13          Taking of Necessary Action; Further Action .  If at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving LLC with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company, Parent and the Surviving LLC and the officers and directors of Parent and the Surviving LLC are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action.

 

ARTICLE II

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Subject to the disclosures in the disclosure schedule the Company delivered to Parent concurrently with the execution of this Agreement (the “ Disclosure Schedule ”), the Company makes the following representations and warranties to Parent, Sub and New LLC.  The Disclosure Schedule contains sections numbered to correspond to the sections of this Article II .  A disclosure contained in a particular section of the Disclosure Schedule only qualifies or relates to (i) the corresponding section of Article II and (ii) each other section of Article II to which it is apparent on the face of such disclosure that such disclosure relates.

 

2.1            Organization of the Company.

 

(a)            The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.  The Company has the corporate power to own its properties and to carry on its business as currently conducted and as currently contemplated to be conducted.  The Company is duly qualified or licensed to do business and in good standing as a foreign corporation in each jurisdiction in which the character or location of its assets or properties (whether owned, leased or licensed) or the nature of its business make such qualifications necessary.  The Company has delivered or made available a true and correct copy of its Certificate of Incorporation, as amended to date (the “ Certificate of Incorporation ”) and bylaws, as amended to date, each in full force and effect on the date hereof (collectively, the “ Charter Documents ”), to Parent.  The Board of Directors of the Company has not approved or formally proposed any amendment to any of the Charter Documents.

 

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(b)            Section 2.1(b)  of the Disclosure Schedule lists the directors and officers of the Company as of the date hereof, separately noting which of such directors and officers has any rights to indemnification from the Company and the agreement(s), if any, governing such rights.  The operations now being conducted by the Company are not now and have never been conducted by the Company under any other name.

 

(c)            Section 2.1(c)  of the Disclosure Schedule lists every state or foreign jurisdiction in which the Company has Employees or facilities or otherwise conducts its business in a way that would reasonably require qualification to do business.

 

2.2            Company Capital Structure.

 

(a)            The authorized capital stock of the Company consists of 2,814,254 shares of Common Stock, of which 1,523,785 shares are issued and outstanding, 401,282 shares of Series A Preferred Stock, of which 401,282 shares are issued and outstanding and 464,342 shares of Series B Preferred Stock, of which 264,342 shares are issued and outstanding.  The Company Series A Preferred Stock and the Company Series B Preferred Stock are convertible on a one-share for one-share basis into Company Common Stock.  As of the date of this Agreement, the capitalization of the Company is as set forth in Section 2.2(a)  of the Disclosure Schedule.  The Company Capital Stock is held by the persons with the domicile addresses and in the amounts set forth in Section 2.2(a)  of the Disclosure Schedule which further sets forth for each such person the number of shares held, class and/or series of such shares and the number of the applicable stock certificates representing such shares.  All outstanding shares of Company Capital Stock are duly authorized, validly issued, fully paid and non-assessable and are not subject to preemptive rights created by statute, the Charter Documents, or any agreement to which the Company is a party or by which it is bound.  Other than as set forth in Section 2.2(a)  of the Disclosure Schedule, the Company has no other capital stock authorized, issued or outstanding.

 

(b)            Section 2.2(b)  of the Disclosure Schedule sets forth for all holders of Company Unvested Common Stock outstanding as of the date of this Agreement, the name of the holder of such Company Unvested Common Stock, the repurchase price of such Company Unvested Common Stock, the date of purchase of such Company Unvested Common Stock and the vesting schedule for such Company Unvested Common Stock, including the extent vested to date and whether the vesting of such Company Unvested Common Stock is subject to acceleration as a result of the transactions contemplated by this Agreement.

 

(c)            As of the date of this Agreement, the Company has reserved 313,301 shares of Company Common Stock for issuance to employees and directors of, and consultants to, the Company upon the issuance of stock or the exercise of options granted under the Plan, of which (i) 235,563 shares are issuable, as of the date of this Agreement, upon the exercise of outstanding, unexercised options granted under the Plan, (ii) 10,278 shares have been issued upon the exercise of options or purchase of restricted stock granted under the Plan and remain outstanding as of the date of this Agreement and (iii) 65,042 shares remain available for future grant.  In addition, as of the date of this Agreement 95,570 shares are issuable upon exercise of options granted outside the Plan.  As of the date of this Agreement, an aggregate of 17,932 shares of Company Common Stock are issuable upon the exercise of outstanding Company Warrants.  Section 2.2(b)  of the Disclosure Schedule sets forth for each outstanding Company Option and Company Warrant, the name of the holder of such option or warrant, the type of entity of such holder, and any ultimate parent entity of such holder, if not an individual, the domicile address of such holder, the number of shares of Company Capital Stock issuable upon the exercise of such option or warrant, the exercise price of such option

 

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or warrant, the date of grant of such option or warrant, the vesting schedule for such option or warrant, including the extent vested to date and whether the vesting of such option or warrant is subject to acceleration as a result of the transactions contemplated by this Agreement or any other events, whether such option was issued under the Plan and whether such option is a nonstatutory option or intended to qualify as an incentive stock option as defined in Section 422 of the Code.  Except for the Company Options and Company Warrants, there are no options, warrants, calls, rights, convertible securities, commitments or agreements of any character, written or oral, to which the Company or any of its Subsidiaries is a party or by which the Company is bound obligating the Company to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the capital stock of the Company or obligating the Company to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar rights with respect to the equity of the Company or any of its Subsidiaries (whether payable in equity, cash or otherwise).

 

(d)            As a result of the Merger, Parent will be the sole record and beneficial holder of all issued and outstanding Company Capital Stock and all rights to acquire or receive any shares of Company Capital Stock, whether or not such shares of Company Capital Stock are outstanding.

 

(e)            All outstanding shares of Company Capital Stock, Company Options and Company Warrants have been issued or repurchased (in the case of shares that were outstanding and repurchased by the Company or any Stockholder of the Company) in compliance with all applicable federal, state, foreign, or local statutes, laws, rules, or regulations, including federal and state securities laws, and were issued, transferred and repurchased (in the case of shares that were outstanding and repurchased by the Company or any Stockholder of the Company) in accordance with any right of first refusal or similar right or limitation, including those in the Charter Documents.  Other than amounts paid to holders in repurchase of capital stock and other equity rights, and other expenses normally incurred in connection with the issuance or repurchase of capital stock and other equity rights, the Company has not, and will not have, suffered or incurred any liability (contingent or otherwise) or claim, loss, liability, damage, deficiency, cost or expense relating to or arising out of the issuance or repurchase of any Company Capital Stock, Company Options or Company Warrants, or out of any agreements or arrangements relating thereto (including any amendment of the terms of any such agreement or arrangement).  No Stockholder has exercised any right of redemption, if any, provided in the Certificate of Incorporation with respect to shares of the Company Preferred Stock, and the Company has not received notice that any Stockholder intends to exercise such rights.  There are no declared or accrued but unpaid dividends with respect to any shares of Company Capital Stock.

 

(f)             The allocation of the Merger Consideration set forth in Section 1.6(b)  hereof is consistent with the certificate of incorporation of the Company as amended as of immediately prior to the Effective Time.

 

(g)            Section 2.2(g)  of the Disclosure Schedule sets forth the outstanding principal, accrued interest and applicable rate of interest of all outstanding Stockholder loans described in Section 1.6(f)  hereof.

 

(h)            Section 2.2(b) of the Disclosure Schedule sets forth whether, to the Knowledge of the Company, each holder listed on the schedule has made a timely election with the Internal Revenue Service under Section 83(b) of the Code with respect to such Company Unvested Common Stock.

 

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(i)             Except for the Plan, neither the Company nor any of its Subsidiaries has ever adopted, sponsored or maintained any stock option plan or any other plan or agreement providing for equity compensation to any person.  True and complete copies of all agreements and instruments relating to or issued under the Plan have been provided or made available to Parent and such agreements and instruments have not been amended, modified or supplemented, and there are no agreements to amend, modify or supplement such agreements or instruments from the forms thereof provided or made available to Parent.

 

(j)             Except as contemplated hereby, there are no voting trusts, proxies, or other agreements or understandings with respect to the voting stock of the Company or any of its Subsidiaries.  There are no agreements to which the Company or any of its Subsidiaries is a party relating to the registration, sale or transfer (including agreements relating to rights of first refusal, co-sale rights or “drag-along” rights) of any Company Capital Stock.

 

2.3            Subsidiaries.

 

(a)            Section 2.3(a)  of the Disclosure Schedule lists each entity in which the Company owns any shares of capital stock or any interest in, or controls, directly or indirectly, any other corporation, limited liability company, partnership, association, joint venture or other business entity.

 

(b)            Section 2.3(b)  of the Disclosure Schedule lists each corporation, limited liability company, partnership, association, joint venture or other business entity of which the Company owns or has owned, directly or indirectly, more than 50% of the stock or other equity interest entitled to vote on the election of the members of the board of directors or similar governing body (each, a “ Subsidiary ”).

 

(c)            Each entity listed on Section 2.3(a)  of the Disclosure Schedule that is no longer in existence has been duly dissolved in accordance with its charter documents and the laws of the jurisdiction of its incorporation or organization and there are no outstanding liabilities or obligations (outstanding, contingent or otherwise), including Taxes, with respect to any such entity.

 

(d)            Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization.

 

(e)            Each Subsidiary has the corporate power to own its properties and to carry on its business as currently conducted and as currently contemplated to be conducted.

 

(f)             Each Subsidiary is duly qualified or licensed to do business and in good standing in each jurisdiction in which the character or location of its assets or properties (whether owned, leased or licensed) or the nature of its business make such qualifications necessary.  A true and correct copy of each Subsidiary’s organizational documents, each as amended to date and in full force and effect on the date hereof, has been delivered or made available to Parent.

 

(g)            Section 2.3(g)  of the Disclosure Schedule lists the directors and officers of each Subsidiary as of the date of this Agreement.

 

(h)            The operations now being conducted by each Subsidiary are not now and have never been conducted under any other name.

 

(i)             All of the outstanding shares of capital stock of each Subsidiary are owned of record and beneficially by the Company.  All outstanding shares of stock of each Subsidiary are duly authorized,

 

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validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the charter documents or bylaws of such Subsidiary, or any agreement to which such Subsidiary is a party or by which it is bound, and have been issued in compliance with all applicable legal requirements.  There are no options, warrants, calls, rights, commitments or agreements of any character, written or oral, to which any Subsidiary is a party or by which any Subsidiary is bound obligating the Subsidiary to issue, deliver, sell, repurchase or redeem, or cause to be issued, sold, repurchased or redeemed, any shares of the capital stock of such Subsidiary or obligating such Subsidiary to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call right, commitment or agreement.  There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar rights with respect to any of the Subsidiaries.  Neither the Company nor any Subsidiary has agreed or is obligated to make any future investment in or capital contribution to any Person.

 

2.4            Authority .  The Company has all requisite power and authority to enter into this Agreement and any Related Agreements to which it is a party and, subject to the items specified in 2.6(i) through (iii), to consummate the transactions contemplated hereby and thereby.  The execution and delivery of this Agreement and any Related Agreements to which the Company is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company and no further action is required on the part of the Company to authorize the Agreement and any Related Agreements to which it is a party and the transactions contemplated hereby and thereby, subject to the items specified in 2.6(i) through (iii).  This Agreement and the transactions contemplated hereby have been unanimously approved by the Board of Directors of the Company.  This Agreement and each of the Related Agreements to which the Company is a party have been duly executed and delivered by the Company and assuming the due authorization, execution and delivery by the other parties hereto and thereto, constitute the valid and binding obligations of the Company enforceable against it in accordance with their respective terms.

 

2.5            No Conflict .  The execution and delivery by the Company of this Agreement and any Related Agreement to which the Company is a party, and the consummation of the transactions contemplated hereby and thereby, will not conflict with or result in any violation of or default under (with or without notice or lapse of time, or both) or give rise to a right of termination, cancellation, modification or acceleration of any obligation or loss of any benefit under (any such event, a “ Conflict ”) (i) any provision of the Charter Documents or the organizational documents of any of its Subsidiaries, as amended, (ii) any mortgage, indenture, lease (including, without limitation, all Lease Agreements), contract, covenant, plan, insurance policy or other agreement, instrument or commitment, permit, concession, franchise or license (each a “ Contract ” and collectively the “ Contracts ”) to which the Company is a party or by which any of its properties or assets (whether tangible or intangible) are bound, or (iii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries or any of their respective properties or assets (whether tangible or intangible).  Section 2.5 of the Disclosure Schedule sets forth all necessary notices, consents, waivers and approvals as are required under any Contracts in connection with the Merger, or for any such Contract to remain in full force and effect without limitation, modification or alteration after the Effective Time so as to preserve all rights of, and benefits to, the Company and its Subsidiaries under such Contracts from and after the Effective Time and the items set forth on Section 2.5 of the Disclosure Schedule shall be referred to as the “ Required Consents ”.  Following the Effective Time, the Surviving LLC will be permitted to exercise all of its rights under the Contracts without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments which the Company or any of its Subsidiaries, as the case may be, would otherwise be required to pay pursuant to the terms of such Contracts had the transactions contemplated by this Agreement not occurred.

 

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2.6            Consents .  No consent, notice, waiver, approval, order or authorization of, or registration, declaration or filing with any court, tribunal, administrative agency or commission or other federal, state, county, local or other foreign governmental authority, instrumentality, agency or commission, or regional or international organization (each, a “ Governmental Entity ”), is required by, or with respect to, the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement and any Related Agreement to which the Company or any of its Subsidiaries is a party or the consummation of the transactions contemplated hereby and thereby, except for (i) such consents, notices, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable securities laws, (ii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and (iii) the adoption of this Agreement and approval of the transactions contemplated by this Agreement by the Stockholders.

 

2.7            Company Financial Statements .  Section 2.7 of the Disclosure Schedule sets forth the Company’s (i) audited consolidated balance sheet as of December 31, 2007, and the related consolidated statements of income, cash flow and stockholders’ equity for the twelve (12) month period then ended (the “ Year-End Financials ”), and (ii) unaudited consolidated balance sheet as of June 30, 2008 (the “ Balance Sheet Date”), and the related unaudited consolidated statements of income, cash flow and stockholders’ equity for the six (6) months then ended (the “ Interim Financials ”).  The Year-End Financials and the Interim Financials (collectively referred as the “ Financials ”) are true and correct in all material respects and have been prepared in accordance with GAAP consistently applied on a consistent basis throughout the periods indicated and consistent with each other (except that the Interim Financials do not contain footnotes and other presentation items that may be required by GAAP).  The Financials present fairly in all material respects the Company’s consolidated financial condition, operating results and cash flows as of the dates and during the periods indicated therein, subject in the case of the Interim Financials to normal year-end adjustments, which are not material in amount or significance in any individual case or in the aggregate.  The Company’s unaudited consolidated balance sheet as of the Balance Sheet Date is referred to hereinafter as the “ Current Balance Sheet .”  The Company has not had any dispute with any of its auditors regarding accounting matters or policies during any of its past two full fiscal years or during the current fiscal year-to-date.  The books and records of the Company and each Subsidiary have been, and are being maintained in all material respects in accordance with applicable legal and accounting requirements and the Financials are consistent with such books and records.  Neither the Company nor any of its Subsidiaries is a party to, or has any commitment to become a party to, any joint venture, off-balance sheet partnership or any similar Contract relating to any transaction or relationship between or among the Company or any of its Subsidiaries, on the one hand, and any unconsolidated affiliate, including any structured finance, special purpose or limited purpose Person on the other hand, or any “off-balance sheet arrangement” (as defined in Item 303(a) of Regulation S-K of the SEC).

 

2.8            Internal Controls .  The Company and each of its Subsidiaries has established and maintains a system of internal accounting controls that are sufficient to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP (including the Financials), including policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company and its Subsidiaries, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company and its Subsidiaries are being made only in accordance with appropriate authorizations of management and the Board of Directors of the Company and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of the Company and its Subsidiaries.  Neither the Company nor any of its Subsidiaries (including any Employee thereof) nor

 

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the Company’s independent auditors has identified or been made aware of (i) any significant deficiency or material weakness in the system of internal accounting controls utilized by the Company and its Subsidiaries, (ii) any fraud or other wrongdoing that involves the Company’s management or other Employees who have a role in the preparation of financial statements or the internal accounting controls utilized by the Company and its Subsidiaries or (iii) any claim or allegation regarding any of the foregoing.

 

2.9            No Undisclosed Liabilities .  Neither the Company nor any of its Subsidiaries has any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected in financial statements in accordance with GAAP)(collectively, “ Liabilities ”), except for Liabilities that (i) have been reflected in the Current Balance Sheet,  (ii) have arisen in the ordinary course of business consistent with past practices since the Balance Sheet Date, (iii) Liabilities in the aggregate of no greater than $50,000 incurred prior to the Balance Sheet Date or (iv) future obligations under contracts which have been provided or made available to Parent evident on the face of such contract.

 

2.10          No Changes .  For purposes of this Section 2.10 “in the aggregate” shall refer to a series of related transactions with a single party or group of related parties.  Except as expressly permitted under or required under this Agreement or specifically consented to by Parent pursuant to Section 4.1 or Section 4.3 hereof, there has not been, occurred or arisen any:

 

(a)            transaction by the Company except in the ordinary course of business as conducted on that date and consistent with past practices since the Balance Sheet Date;

 

(b)            modifications, amendments or changes to the Charter Documents or organizational documents of any Subsidiary since December 31, 2007;

 

(c)            expenditure, transaction or commitment exceeding $50,000 individually or $100,000 in the aggregate or any commitment or transaction of the type described in Section 2.13 hereof in any case by the Company or any of its Subsidiaries since the Balance Sheet Date;

 

(d)            payment, discharge, waiver or satisfaction, in any amount in excess of $50,000 in any one case, or $100,000 in the aggregate, of any claim, liability, right or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise of the Company or any of its Subsidiaries) since the Balance Sheet Date, other than payments, discharges or satisfactions in the ordinary course of business of liabilities reflected or reserved against in the Current Balance Sheet;

 

(e)            destruction of, damage to, or loss of any material assets (whether tangible or intangible), material business or material customer of the Company or any of its Subsidiaries (whether or not covered by insurance) since the Balance Sheet Date;

 

(f)             employment dispute involving the Company, including claims or matters raised by any individual, Governmental Entity, or any workers’ representative organization, bargaining unit or union regarding labor trouble or claim of wrongful discharge or other unlawful employment or labor practice or action with respect to the Company or any of its Subsidiaries since December 31, 2007;

 

(g)            adoption or change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by the Company or any of its Subsidiaries other than as required by GAAP since December 31, 2007;

 

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(h)            adoption of or change in any Tax accounting method or material Tax election, closing agreement in respect to Taxes, or settlement of any Tax claim or assessment, or extension or waiver of the limitation period applicable to any Tax claim or assessment since December 31, 2007;

 

(i)             revaluation by the Company or any of its Subsidiaries of any of its assets (whether tangible or intangible), including writing down the value of inventory or writing off notes or accounts receivable since December 31, 2007;

 

(j)             declaration, setting aside or payment of a dividend or other distribution (whether in cash, stock or property) in respect of any Company Capital Stock or the capital stock of any Subsidiary, or any split, combination or reclassification in respect of any shares of Company Capital Stock or the capital stock of any Subsidiary, or any issuance or authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of Company Capital Stock or the capital stock of any Subsidiary, or any direct or indirect repurchase, redemption, or other acquisition by the Company of any shares of Company Capital Stock or the capital stock of any Subsidiary (or options, warrants or other rights convertible into, exercisable or exchangeable therefor) since December 31, 2007;

 

(k)            increase in or other change to the salary or other compensation payable or to become payable by the Company or any of its Subsidiaries to any of their respective officers, directors, employees, consultants or advisors, or the declaration, payment or commitment or obligation of any kind for the payment (whether in cash, equity or other property) by the Company or any of its Subsidiaries of a severance payment, change of control payment, termination payment, bonus or other additional salary or compensation to any such person since the Balance Sheet Date;

 

(l)             agreement, contract, covenant, instrument, lease, license or commitment involving an expenditure, commitment or transaction exceeding $50,000 individually or $100,000 in the aggregate to which the Company or any of its Subsidiaries is a party or by which it or any of their respective assets (whether tangible or intangible) are bound or any termination, extension, waiver, amendment or modification of the terms of any Contract other than (i) licenses of Company Products in the ordinary course of business and in substantially the form provided or made available to Parent or (ii) as specifically permitted by this Agreement since the Balance Sheet Date;

 

(m)           sale, lease, sublease, license or other disposition of any of the assets (whether tangible or intangible) or properties of the Company or any of its Subsidiaries other than licenses of Company Products in the ordinary course of business and in substantially the form attached to Section 2.10(l)  of the Disclosure Schedule, including the sale of any accounts receivable of the Company or any of its Subsidiaries, or any creation of any security interest in such assets or properties since the Balance Sheet Date;

 

(n)            loan by the Company or any of its Subsidiaries to any Person, or purchase by the Company or any of its Subsidiaries of any debt securities of any Person or amendment to the terms of any outstanding loan agreement, except for advances to employees for travel and business expenses in the ordinary course of business consistent with past practices since December 31, 2007;

 

(o)            incurring by the Company or any of its Subsidiaries of any indebtedness for borrowed money, amendment of the terms of any outstanding loan agreement, guaranteeing by the Company or any of its Subsidiaries of any indebtedness, issuance or sale of any debt securities of the Company or any of its Subsidiaries or guaranteeing of any debt securities of others, except for advances to employees for travel

 

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and business expenses in the ordinary course of business consistent with past practices since December 31, 2007;

 

(p)            waiver or release of any right or claim of the Company or any of its Subsidiaries, including any waiver, release or other compromise of any account receivable of the Company or any of its Subsidiaries since December 31, 2007;

 

(q)            commencement or settlement of any lawsuit by the Company or any of its Subsidiaries, the commencement, settlement, notice or, to the Knowledge of the Company, threat of any lawsuit or proceeding or other investigation against the Company or any of its Subsidiaries or relating to their respective businesses, properties or assets, or any reasonable basis for any of the foregoing since December 31, 2007;

 

(r)             notice of any claim or potential claim of ownership, interest or right by any person other than the Company or any of its Subsidiaries of the Company Intellectual Property owned by or developed or created by the Company or any of its Subsidiaries or of infringement by the Company or any of its Subsidiaries of any other Person’s Intellectual Property since December 31, 2007;

 

(s)            issuance, grant, delivery, sale or purchase, or proposal, contract or agreement to issue, grant, deliver, sell or purchase, by the Company or any of its Subsidiaries, of any shares of Company Capital Stock or shares of capital stock of any of its Subsidiaries or securities convertible into, or exercisable or exchangeable for, shares of Company Capital Stock or shares of capital stock of any of its Subsidiaries, or any subscriptions, warrants, options, rights or securities to acquire any of the foregoing, except for issuances of Company Capital Stock upon the exercise of Company Options or Company Warrants or the conversion of Company Preferred Stock or the grant of options to purchase Company Common Stock to employees of the Company under the Plan in the ordinary course of business and consistent with past practice since December 31, 2007;

 

(t)             (i) sale, lease, license or transfer of any Company Intellectual Property or execution, modification or amendment of any agreement with respect to Company Intellectual Property with any Person or with respect to the Intellectual Property of any Person except in the ordinary course of business consistent with past practice, or (ii) purchase or license of any Intellectual Property or execution, modification or amendment of any agreement with respect to the Intellectual Property of any Person, (iii) agreement or modification or amendment of an existing agreement with respect to the development of any Intellectual Property with a third party, or (iv) change in pricing or royalties set or charged by the Company or any of its Subsidiaries to their respective customers or licensees or in pricing or royalties set or charged by Persons who have licensed Intellectual Property to the Company since December 31, 2007;

 

(u)            agreement or modification to any Contract pursuant to which any other party is or was granted marketing, distribution, development, manufacturing or similar rights of any type or scope with respect to any Company Products (as defined below) since December 31, 2007;

 

(v)            purchase or sale of any interest in real property, granting of any security interest in any real property or lease, license, sublease or other occupancy of any Leased Real Property or other real property by the Company or any of its Subsidiaries since the Balance Sheet Date;

 

(w)           acquisition by the Company or any of its Subsidiaries or agreement by the Company or any of its Subsidiaries to acquire by merging or consolidating with, or by purchasing any assets or equity

 

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securities of, or by any other manner, any business or corporation, partnership, association or other business organization or division thereof, or other acquisition or agreement to acquire any assets or any equity securities that are material, individually or in the aggregate, to the business of the Company or any of its Subsidiaries since December 31, 2007;

 

(x)             grant by the Company or any of its Subsidiaries of any severance, change in control or termination pay (in cash or otherwise) to any Employee, including any officer, except payments made pursuant to written agreements disclosed in the Disclosure Schedule since December 31, 2007;

 

(y)            except as specifically permitted by the Agreement, adoption, amendment or termination of any Company Employee Plan, execution or amendment of any Employee Agreement, or payment or agreement by the Company or any of its Subsidiaries to pay any bonus or special remuneration to any director or Employee, or increase or modify the salaries, wage rates or other compensation (including any equity-based compensation) of any Employee since December 31, 2007;

 

(z)             waiver of any stock repurchase rights, acceleration, amendment or change in the period of exercisability of options, restricted stock or any other equity or similar incentive awards (including without limitation any long term incentive awards), or repricing of stock options (through amendment, exchange or otherwise) or authorization of cash payments or new equity awards in exchange for any stock options since December 31, 2007;

 

(aa)          execution of any strategic alliance, affiliate or joint marketing arrangement or agreement by the Company or any of its Subsidiaries since December 31, 2007;

 

(bb)          hiring, promotion, demotion or termination or other change to the employment status or title of any officer or hiring, promotion, demotion or termination or other change to the employment status or title of any other employees outside the ordinary course of business since the Balance Sheet Date;

 

(cc)          alteration of any interest of the Company in any corporation, association, joint venture, partnership or business entity in which the Company directly or indirectly holds any interest since December 31, 2007;

 

(dd)          cancellation, amendment or renewal of any insurance policy of the Company or any of its Subsidiaries since December 31, 2007; or

 

(ee)          agreement by the Company or any of its Subsidiaries, or any officer or employees on behalf of the Company or any of its Subsidiaries, to do any of the things described in the preceding clauses (a) through (dd) of this Section 2.10 (other than negotiations with Parent and its representatives regarding the transactions contemplated by this Agreement and any Related Agreements) since the relevant date referenced in such clause.

 

2.11          Accounts Receivable.

 

(a)            The Company has made available to Parent a list of all accounts receivable of the Company and its Subsidiaries as of the Balance Sheet Date, together with an aging schedule indicating a range of days elapsed since invoice.

 

(b)            All of the accounts receivable of the Company and its Subsidiaries arose in the ordinary course of business, are carried at values determined in accordance with GAAP consistently applied,

 

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are not subject to any valid set-off or counterclaim, do not represent obligations for goods sold on consignment, on approval or on a sale-or-return basis or subject to any other repurchase or return arrangement and are collectible except to the extent of reserves therefor set forth in the Current Balance Sheet or, for receivables arising subsequent to the Balance Sheet Date, as reflected on the books and records of the Company (which receivables are recorded in accordance with GAAP consistently applied).  No person has any Lien on any accounts receivable of the Company and its Subsidiaries and no request or agreement for deduction or discount has been made with respect to any accounts receivable of the Company and its Subsidiaries.

 

2.12          Tax Matters.

 

(a)            Definition of Taxes .  For the purposes of this Agreement, the term “ Tax ” or, collectively, “ Taxes ” shall mean (i) any and all U.S. federal, state, local and non-U.S. taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes as well as public imposts, fees and social security charges (including health, unemployment, workers’ compensation and pension insurance), together with all interest, penalties and additions imposed with respect to such amounts, (ii) any liability for the payment of any amounts of the type described in clause (i) of this Section 2.12(a)  as a result of being a member of an affiliated, consolidated, combined, unitary or similar group for any period (including any arrangement for group or consortium relief or similar arrangement), and (iii) any liability for the payment of any amounts of the type described in clauses (i) or (ii) of this Section 2.12(a)  as a result of any express or implied obligation to indemnify any other person or as a result of any obligation under any agreement or arrangement with any other person with respect to such amounts and including any liability for taxes of a predecessor or transferor or otherwise by operation of law.

 

(b)            Tax Returns and Audits .

 

(i)            The Company and each of its Subsidiaries has (a) prepared and timely filed all required U.S. federal, state, local and non-U.S. returns, estimates, information statements and reports, including attachments and amendments thereto (“ Returns ”) relating to Taxes required to be filed by the Company or any of its Subsidiaries or their respective operations and such Returns are true and correct and have been completed in accordance with applicable law and (b) timely paid all Taxes they are required to pay.

 

(ii)           The Company and its Subsidiaries has paid or withheld with respect to their respective Employees and other third parties, all U.S. federal, state and non-U.S. income Taxes and social security charges and similar fees, Federal Insurance Contribution Act amounts, Federal Unemployment Tax Act amounts and all other Taxes required to be withheld or paid, and has timely paid over any such Taxes withheld to the appropriate authorities.

 

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

 

(iv)         No audit or other examination of any Return of the Company or any of its Subsidiaries is presently in progress, nor has the Company or any of its Subsidiaries been notified of any request for such an audit or other examination.  No adjustment relating to any Return filed by the Company or

 

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any of its Subsidiaries has been proposed by any Tax authority to the Company or any of its Subsidiaries or any representative thereof.  No claim has ever been made that the Company or any of its Subsidiaries is or may be subject to taxation in a jurisdiction in which it does not file Returns.

 

(v)          Neither the Company nor any of its Subsidiaries as of the date of this Agreement has any liabilities for unpaid Taxes which were not accrued or reserved on the Current Balance Sheet, whether asserted or unasserted, contingent or otherwise, and neither the Company nor any of its Subsidiaries has incurred any liability for Taxes since the Balance Sheet Date other than in the ordinary course of business.  The Company and each of its Subsidiaries has identified all uncertain tax positions contained in all Returns filed by the Company and its Subsidiaries and has established adequate reserves and made any appropriate disclosures in the Financials in accordance with the requirements of Financial Interpretation No. 48 of FASB Statement No. 109.

 

(vi)         The Company has made available to Parent or its legal counsel for copying all Returns for the Company and its Subsidiaries filed for all periods since inception.

 

(vii)        There are (and immediately following the Effective Time there will be) no Liens on the assets of the Company or any of its Subsidiaries relating to or attributable to Taxes other than Liens for Taxes not yet due and payable.

 

(viii)       Neither the Company nor any of its Subsidiaries has (a) ever been a member of an affiliated group (within the meaning of Code §1504(a)) filing a consolidated federal income Tax Return (other than a group the common parent of which was Company), (b) ever been a party to any Tax sharing, indemnification or allocation agreement, nor does the Company or any of its Subsidiaries owe any amount under any such agreement, (c) any liability for the Taxes of any Person, under Treasury Regulation §1.1502-6 (or any similar provision of state, local or non-U.S. law, and including any arrangement for group or consortium relief or similar arrangements), as a transferee or successor, by contract or agreement, by operation of law or otherwise and (d) ever been a party to any joint venture, partnership or other arrangement that could be treated as a partnership for Tax purposes.

 

(ix)          Neither the Company nor any of its Subsidiaries has been, at any time, a “United States Real Property Holding Corporation” within the meaning of Section 897(c)(2) of the Code.

 

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

 

(xi)          Neither the Company nor any of its Subsidiaries has engaged in a “reportable transaction” as set forth in Treas. Reg. §1.6011-4(b), including any transaction that is the same or substantially similar to one of the types of transactions that the Internal Revenue Service has determined to be a Tax avoidance transaction and identified by notice, regulation, or other form of published guidance as a “listed transaction,” as set forth in Treasury Regulation Section 1.6011-4(b)(2).

 

(xii)         Neither the Company nor any of its Subsidiaries is subject to Tax in any jurisdiction other than its country of incorporation or formation by virtue of having a permanent establishment, place of business or source of income in that jurisdiction.

 

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(xiii)                                         The Company will not be required to include any income or gain or exclude any deduction or loss from taxable income for any taxable period or portion thereof after the Closing as a result of any (a)  change in method of accounting under Section 481 of the Code made prior to the Closing, (b) closing agreement under Section 7121 of the Code executed prior to the Closing, (c) deferred intercompany gain or excess loss account under Treasury Regulations under Section 1502 of the Code in connection with a transaction consummated prior to the Closing (or in each of items (a), (b), or (c), under any similar provision of applicable law), (d) installment sale or open transaction disposition consummated prior to the Closing or (e) receipt of a prepaid amount received prior to the Closing.

 

(xiv)                                        The Company and its Subsidiaries are in full compliance with all terms and conditions of any Tax exemption, Tax holiday or other Tax reduction agreement or order (each, a “ Tax Incentive ”) and the consummation of the transactions contemplated by this Agreement will not have any adverse effect on the continued validity and effectiveness of any such Tax Incentive.

 

(xv)                                           The Company and its Subsidiaries are in compliance in all material respects with all applicable transfer pricing laws and regulations, including the maintenance of contemporaneous documentation substantiating the transfer pricing practices and methodology of the Company and its subsidiaries.  The prices for any property or services (or for the use of any property) provided by or to the Company or any of its subsidiaries are arm’s length prices for purposes of all applicable transfer pricing laws, including Treasury Regulations promulgated under Section 482 of the Code.

 

(c)                                   Executive Compensation Tax .  There is no contract, agreement, plan or arrangement to which the Company or any of its Subsidiaries is a party, including the provisions of this Agreement, covering any Employee of the Company or any of its Subsidiaries, which, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Sections 280G, or Section 404 of the Code.

 

2.13                            Restrictions on Business Activities .  There is no agreement (non-competition or otherwise), commitment, judgment, injunction, order or decree to which the Company or any of its Subsidiaries is a party or, to the Company’s Knowledge, otherwise binding upon the Company or any of its Subsidiaries which has or may reasonably be expected to have the effect of prohibiting or impairing any business practice of the Company or any of its Subsidiaries, any acquisition of property (tangible or intangible) by the Company or any of its Subsidiaries, the conduct of business by the Company or any of its Subsidiaries, or otherwise limiting the freedom of the Company or any of its Subsidiaries to engage in its or Parent’s line of business or to compete with any person.  Without limiting the generality of the foregoing, neither the Company nor any of its Subsidiaries has entered into any agreement under which the Company or any of its Subsidiaries is restricted from selling, licensing, manufacturing or otherwise distributing any of its technology or Company Products or from providing services to customers or potential customers or any class of customers, in any geographic area, during any period of time, or in any segment of the market.

 

2.14                            Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment; Customer Information.

 

(a)                                   Neither the Company nor any of its Subsidiaries owns any real property, nor has the Company or any of its Subsidiaries ever owned any real property.  Section 2.14(a)  of the Disclosure Schedule sets forth a complete and accurate list of all real property currently leased, subleased or licensed by or from the Company or any of its Subsidiaries or otherwise used or occupied by the Company or any of its

 

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Subsidiaries (the “ Leased Real Property ”), including the name of the lessor, licensor, sublessor, master lessor and/or lessee, the date and term of the lease, license, sublease or other occupancy right and each amendment thereto and, with respect to any current lease, license, sublease or other occupancy right, the square footage of the premises leased thereunder and the aggregate annual rental payable thereunder.

 

(b)                                  The Company has provided or made available to Parent true, correct and complete copies of all leases, lease guaranties, subleases, agreements for the leasing, use or occupancy of, or otherwise granting a right in or relating to the Leased Real Property, including all amendments, terminations and modifications thereof and all consents and waivers relating thereto (“ Lease Agreements ”); and there are no other Lease Agreements for real property affecting the Leased Real Property or to which Company or any of its Subsidiaries is bound, other than those identified in Section 2.14(a)  of the Disclosure Schedule. All such Lease Agreements are in full force and effect and valid and effective in accordance with their respective terms, and there is not, under any of such Lease Agreements, any existing default, and no rentals past due (or event which with notice or lapse of time, or both, would reasonably constitute a default).  Neither the Company nor any of its Subsidiaries has received any notice of a default, alleged failure to perform, or any offset or counterclaim with respect to any such Lease Agreement, which has not been fully remedied and withdrawn.  The Closing will not affect the enforceability against any Person of any such Lease Agreement or any rights of the Company or any of its Subsidiaries or the Surviving LLC thereunder or otherwise with respect to any Leased Real Property, including, without limitation, the right to the continued use and possession of the Leased Real Property for the conduct of business as presently conducted.  The Company and its Subsidiaries currently occupy all of the Leased Real Property for the operation of its business except as set forth in Section 2.14(a)  of the Disclosure Schedule.  There are no other parties occupying, or with a right to occupy, the Leased Real Property, except as set forth in Section 2.14(a)  of the Disclosure Schedule.  Neither the Company nor any of its Subsidiaries owes any brokerage commissions or finders fees with respect to any such Leased Real Property or would owe any such fees if any existing Lease Agreement were renewed pursuant to any renewal options contained in such Lease Agreements.

 

(c)                                   The Leased Real Property and all of its operating systems are in good operating condition and repair, free from structural, physical and mechanical defects, is maintained in a manner consistent with standards generally followed with respect to similar properties, and is structurally sufficient and otherwise suitable for the conduct of the business as presently conducted, normal wear and tear excepted.  Neither the operation of the Company or any of its Subsidiaries on the Leased Real Property nor, to the Company’s Knowledge, such Leased Real Property, including the improvements thereon, violate in any material respect any applicable building code, zoning requirement or Law relating to such property or operations thereon, and any such non-violation is not dependent on so-called non-conforming use exceptions.  Neither the Company nor any of its Subsidiaries has received any notice from any insurance company of any defects or inadequacies in any Leased Real Property or any part thereof which could materially and adversely affect the insurability of such Leased Real Property or the premiums for the insurance thereof.  No notice has been given to the Company by any insurance company which has issued a policy with respect to any portion of any Leased Real Property or by any board of fire underwriters (or other body exercising similar functions) requesting the performance of any repairs, alterations or other work with which compliance has not been made.  To the Company’s Knowledge, there exist no structural, soil or other conditions with respect to any Leased Real Property that could increase the probability of material damage to any Leased Real Property as a result of earthquake, flood or other peril.  There is not existing, neither the Company nor any of its Subsidiaries has received any notice of, and to the Knowledge of the Company, there is not presently contemplated or proposed, any eminent domain, condemnation or similar action, or zoning action or proceeding, with respect to any portion of the Leased Real Property.  The Company or any of its Subsidiaries shall not be required to expend more than $50,000 in the aggregate under all Lease Agreements to restore the

 

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Leased Real Property at the end of the term of the applicable Lease Agreement to the condition required under the Lease Agreement (assuming the conditions existing in such Leased Real Property as of the date of this Agreement and as of the Closing).

 

(d)                                  As of the date of this Agreement, the landlord under each Lease Agreement has complied with all of the material requirements, conditions, representations, warranties and covenants of the landlord thereunder, including, without limitation, the timely completion of construction of the leased premises in a good and workmanlike manner and otherwise in accordance with the Lease Agreements.

 

(e)                                   The Company and its Subsidiaries have good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens, except (i) as reflected in the Current Balance Sheet, (ii) Liens for Taxes not yet due and payable, and (iii) such imperfections of title and encumbrances, if any, which do not detract from the value or interfere with the present use of the property subject thereto or affected thereby.  Each Lease Agreement constitutes the entire agreement of the landlord and the tenant thereunder, and no term or condition thereof has been modified, amended or waived, except as described in Section 2.14(a)  of the Disclosure Schedule and shown in the copies of the Lease Agreements that have previously been delivered by the Company to Parent.  The Company and its Subsidiaries have not transferred or assigned any interest in any such Lease Agreement, nor has the Company or any of its Subsidiaries subleased or otherwise granted rights of use or occupancy of any of the premises described therein to any other Person.

 

(f)                                     Section 2.14(f)  of the Disclosure Schedule lists all material items of equipment (the “ Equipment ”) owned or leased by the Company or any of its Subsidiaries, and such Equipment is (i) adequate for the conduct of the business of the Company or any of its Subsidiaries as currently conducted and as currently contemplated to be conducted, and (ii) in good operating condition and regularly and properly maintained, subject to normal wear and tear.

 

(g)                                  The Company and its Subsidiaries have sole and exclusive ownership, free and clear of any Liens, of all customer lists, customer contact information, customer correspondence and customer licensing and purchasing histories relating to its current and former customers (the “ Customer Information ”).  No person other than the Company or any of its Subsidiaries possesses any claims or rights with respect to use of the Customer Information.

 

2.15                            Intellectual Property.

 

(a)                                   Definitions .  For all purposes of this Agreement, the following terms shall have the following respective meanings:

 

“ Intellectual Property ” shall mean any or all of the following (i) works of authorship including computer programs, source code, and executable code, whether embodied in software, firmware or otherwise, architecture, documentation, designs, files, records, and data, (ii) inventions (whether or not patentable),  and improvements thereto (iii) proprietary and confidential information, trade secrets and know how, (iv) databases, data compilations and collections and technical data, (v)  tools, methods and processes, and (vi)  any and all instantiations of the foregoing in any form and embodied in any media.

 

“ Intellectual Property Rights ” shall mean worldwide common law and statutory rights associated with (i) patents and patent applications, (ii) copyrights, copyright registrations and copyright

 

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applications, “moral” rights and mask work rights, (iii) the protection of trade and industrial secrets and confidential information, (iv) logos, trade names, trade dress, trademarks and service marks, (v) domain names and web addresses, (vi) other proprietary rights relating to intangible intellectual property, (vii) analogous rights to those set forth above, and (viii) divisions, continuations, renewals, reissuances and extensions of the foregoing (as applicable).

 

“ Company Intellectual Property ” shall mean any and all Intellectual Property Rights that are owned or purported to be owned by, held in the name of, or exclusively and irrevocably licensed (in a manner tantamount to ownership) to the Company or any of its Subsidiaries and all such Company Intellectual Property are identified in Section 2.15(a)  of the Disclosure Schedule.

 

“ Registered Intellectual Property ” shall mean Intellectual Property Rights that have been registered, filed, certified or otherwise perfected or recorded with or by any state, government or other public or quasi-public legal authority.

 

(b)                                  Section 2.15(b)(1)  of the Disclosure Schedule (i) lists all Registered Intellectual Property owned or purported to be owned by, or filed or held in the name of, the Company or any of its Subsidiaries (the “ Company Registered Intellectual Property ”) and (ii) lists any currently pending proceedings or actions (other than routine, non-substantive actions or proceedings) before any Governmental Entity (including the United States Patent and Trademark Office (the “ PTO ”) or equivalent authority anywhere in the world) in which any of the Company Registered Intellectual Property is involved, including without limitation any proceedings or actions in which claims are raised relating to the validity, enforceability, scope, ownership or infringement of any of the Company Registered Intellectual Property.  Section 2.15(b)(2)  of the Disclosure Schedule lists all products and services currently or previously researched, designed, developed, licensed, sold, distributed, offered and/or made commercially available by the Company or any of its Subsidiaries (each a “ Company Product ”).

 

(c)                                   Each item of Company Registered Intellectual Property is valid and subsisting, and all necessary registration, maintenance and renewal fees in connection with such Company Registered Intellectual Property have been paid and all necessary documents and certificates in connection with such Company Registered Intellectual Property have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Registered Intellectual Property. There are no actions that must be taken by the Company within 60 days of the Closing Date, including the payment of any registration, maintenance or renewal fees or the filing of any documents, applications or certificates for the purposes of maintaining, perfecting or preserving or renewing any Registered Intellectual Property.

 

(d)                                  All Company Intellectual Property will be fully transferable, alienable and/or licensable by Surviving LLC and/or Parent without restriction and without payment of any kind to any third party.

 

(e)                                   Each item of Company Intellectual Property, including all Company Registered Intellectual Property is free and clear of any Liens other than those set forth on Section 2.15(e)  of the Disclosure Schedule.  The Company is the exclusive owner or exclusive licensee of all Company Intellectual Property.

 

(f)                                     To the extent that any Intellectual Property or Intellectual Property Right has been (i) developed or created independently or jointly by any person other than the Company or any of its Subsidiaries

 

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for which the Company or any of its Subsidiaries has, directly or indirectly, provided consideration for such development or creation or (ii) otherwise been acquired from any other person, the Company or its Subsidiaries have obtained a valid and enforceable written assignment sufficient to irrevocably transfer all rights and exclusive ownership in such Intellectual Property and the associated Intellectual Property Rights (including the right to seek past and future damages with respect thereto) to the Company or any of its Subsidiaries and, to the maximum extent provided for by, and in accordance with, applicable laws and regulations, the Company and its Subsidiaries have (1) recorded each such assignment with the relevant governmental authorities, including the PTO, the U.S. Copyright Office, or their respective equivalents in any relevant foreign jurisdiction, as the case may be, and (2) required the waiver of all non-assignable rights, including all author or moral rights, if any, to the extent permitted by applicable law.

 

(g)                                  Neither the Company nor any of its Subsidiaries has (i) transferred ownership of, or granted any exclusive license of or exclusive right to use, or authorized the retention of any exclusive rights to use or joint ownership of, any Intellectual Property Right that is or was Company Intellectual Property, to any other person or (ii) permitted the Company’s or any Subsidiary’s rights in such Company Intellectual Property to lapse or enter into the public domain.

 

(h)                                  All Intellectual Property and Intellectual Property Rights used in or necessary to the conduct of Company’s or any Subsidiary’s business as presently conducted or currently contemplated to be conducted by the Company or any of its Subsidiaries (i) was written and created solely by either (1) employees of the Company or any of its Subsidiaries acting within the scope of their employment who have validly and irrevocably assigned all of their rights, including all Intellectual Property Rights therein, to the Company or any of its Subsidiaries or (2) by third parties who have validly and irrevocably assigned all of their rights, including all Intellectual Property Rights therein, to the Company or any of its Subsidiaries, and no third party owns or has any rights to any such Intellectual Property and Intellectual Property Rights, or (ii) is (1) licensed to Company pursuant to one of the licenses set forth on Section 2.15(i)(1)  of the Disclosure Schedule or (2) listed in Section 2.15(u)  (Open Source Software) of the Disclosure Schedule.

 

(i)                                      Other than (i) the Open Source Software listed in Section 2.15(u)  of the Disclosure Schedule and “off-the-shelf” software priced at less than $3,000 per copy that is commercially available on substantially the same terms to Parent (“ Off-The-Shelf Software ”), and (ii) the licenses set forth on Section 2.15(i)(1)  of the Disclosure Schedule, the Company Intellectual Property constitutes all of the Intellectual Property and Intellectual Property Rights that are used in, necessary to or otherwise would be infringed by the conduct of the business of the Company or any of its Subsidiaries as it currently is conducted or planned to be conducted, including the design, development, manufacture, use, import, marketing, licensing out and sale of any Company Product.  Other than the Open Source Software listed in ! Section 2.15(u)  and Off-The-Shelf Software, Section 2.15(i)(2)  of the Disclosure Schedule sets forth all third party software (including without limitation hardware embedded software) and any other third party Intellectual Property that is used in or necessary to the conduct of the business of the Company or any of its Subsidiaries as it currently is conducted or planned to be conducted, including the design, development, manufacture, use, import, marketing, licensing out and sale of any Company Product.  Section 2.15(i)(2)  of the Disclosure Schedule also specifies how such Intellectual Property is used or currently planned to be used by the Company or any of its Subsidiaries, under what licenses, and whether there is or has been any failure to comply with the terms of these licenses.

 

(j)                                      Other than (i)(1) the Open Source Software listed in Section 2.15(u)  of the Disclosure Schedule, (2) standard licenses for Off-The-Shelf Software and (3) the licenses set forth on Section 2.15(i)(1) , and (ii)  non-exclusive licenses and related agreements with respect thereto of the

 

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Company  Products to end-users pursuant to written agreements that have been entered into in the ordinary course of business that do not materially differ in substance from the Company’s or any Subsidiary’s standard form(s) of end-user license including attachments (which is or are included in Section 2.15(j)  of the Disclosure Schedule), Section 2.15(j)  of the Disclosure Schedule lists all contracts, licenses and agreements to which the Company is a party with respect to any Intellectual Property and Intellectual Property Rights (“ Company IP Agreements ”).

 

(k)                                   No third party that has provided or licensed Intellectual Property or Intellectual Property Rights to the Company or any of its Subsidiaries has ownership rights or license rights to improvements or derivative works made by the Company or any of its Subsidiaries in such Intellectual Property that has been licensed to the Company or any of its Subsidiaries.

 

(l)                                      Other than (i) the Open Source Software listed in Section 2.15(u)  of the Disclosure Schedule, and (ii) other non-exclusive licenses and related agreements with respect thereto of the Company Products to end-users pursuant to written agreements that have been entered into in the ordinary course of business that do not materially differ in substance from the Company’s or any Subsidiary’s standard form(s) of end-user license including attachments (which is or are included in Section 2.15(l)  of the Disclosure Schedule), Section 2.15(l)  of the Disclosure Schedule lists all contracts, licenses and agreements between the Company or any of its Subsidiaries and any other person wherein or whereby the Company or any of its Subsidiaries has agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any obligation or liability or provide a right of rescission with respect to the infringement or misappropriation of the Intellectual Property Rights of any person other than the Company or any of its Subsidiaries.

 

(m)                                There are no contracts, licenses or agreements between the Company or any of its Subsidiaries and any other person with respect to Company Intellectual Property or other Intellectual Property used in and/or necessary to the conduct of the business as it is currently conducted or planned to be conducted under which there is any dispute regarding the scope of such agreement, or performance under such agreement including with respect to any payments to be made or received by the Company or any of its Subsidiaries thereunder.

 

(n)                                  The operation of the business of the Company and its Subsidiaries as it is currently conducted, or is contemplated to be conducted, by the Company and its Subsidiaries, including the design, development, use, import, branding, advertising, promotion, marketing, manufacture, licensing out and sale of any Company Product,  has not and does not infringe or misappropriate and will not infringe or misappropriate when conducted by Parent and/or Surviving LLC in substantially the same manner following the Closing, any Intellectual Property Rights of any person, violate any right of any person (including any right to privacy or publicity), or constitute unfair competition or trade practices under the laws of any jurisdiction, and neither the Company nor any of its Subsidiaries has received notice from any person claiming that such operation or any act, any Company Product or Intellectual Property of the Company or any of its Subsidiaries infringes or misappropriates any Intellectual Property Rights of any person or constitutes unfair competition or trade practices under the laws of any jurisdiction (nor does the Company have Knowledge of any basis therefor).

 

(o)                                  Neither this Agreement nor the transactions contemplated by this Agreement, including the assignment to Parent by operation of law or otherwise of any contracts or agreements to which the Company or any of its Subsidiaries is a party, will result in: (i) Parent, any of its subsidiaries or the Surviving LLC granting to any third party any right to or with respect to any Intellectual Property Rights

 

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owned by, or licensed to, any of them, (ii) Parent, any of its subsidiaries or the Surviving LLC, being bound by, or subject to, any non-compete or other material restriction on the operation or scope of their respective businesses, or (iii) Parent, any of its subsidiaries or the Surviving LLC being obligated to pay any royalties or other material amounts, or offer any discounts, to any third party in excess of those payable by, or required to be offered by, any of them, respectively, in the absence of this Agreement or the transactions contemplated hereby.

 

(p)                                  To the Knowledge of the