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Agreement And Plan Of Merger

Agreement and Plan of Merger

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 This Agreement and Plan of Merger involves

MERIT MEDICAL SYSTEMS INC | Merit Medical Systems, Inc, MMS Transaction Co, DFine, Inc | Priority Preferred Stockholders and Shareholder Representative Services LLC

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Title: Agreement and Plan of Merger
Governing Law: New York     Date: 8/8/2016
Industry: Medical Equipment and Supplies     Law Firm: Morrison Foerster     Sector: Healthcare

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Exhibit 2.1

 

Certain portions of this exhibit have been omitted pursuant to Rule 24b-2 and are subject to a confidential treatment request. Copies of this exhibit containing the omitted information have been filed separately with the Securities and Exchange Commission. The omitted portions of this document are marked with a ***.

 

 

 

Agreement and Plan of Merger

 

by and among

 

Merit Medical Systems, Inc.,

 

MMS Transaction Co.,

 

DFine, Inc.,

 

the Priority Preferred Stockholders,

 

solely for purposes of Article VII and VIII,

 

and

 

Shareholder Representative Services LLC,

 

solely in its capacity as the Stockholder Representative

 

dated as of

 

July 6, 2016

 

 


 

TABLE OF CONTENTS

 

 

 

Page

ARTICLE I DEFINITIONS

2

ARTICLE II THE MERGER

13

Section 2.01

The Merger.

13

Section 2.02

Closing.

13

Section 2.03

Repaid Indebtedness and Company Transaction Expenses; Closing Deliverables.

13

Section 2.04

Effective Time.

15

Section 2.05

Effects of the Merger.

15

Section 2.06

Certificate of Incorporation; By-laws.

15

Section 2.07

Directors and Officers.

16

Section 2.08

Effect of the Merger on Capital Stock.

16

Section 2.09

Treatment of Options and Equity Rights.

16

Section 2.10

Dissenting Shares.

16

Section 2.11

Surrender and Payment.

17

Section 2.12

Escrow Funds; Stockholder Representative Expense Fund.

18

Section 2.13

No Further Ownership Rights in Capital Stock.

18

Section 2.14

Withholding Rights.

18

Section 2.15

Lost Certificates.

19

Section 2.16

Working Capital Adjustment.

19

Section 2.17

Consideration Spreadsheet.

21

Section 2.18

Integration Procedures.

21

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY

23

Section 3.01

Organization and Qualification of the Acquired Companies.

23

Section 3.02

Authority; Board Approval.

23

Section 3.03

No Conflicts; Consents.

24

Section 3.04

Capitalization; Consideration Spreadsheet.

25

Section 3.05

No Subsidiaries.

26

Section 3.06

Financial Statements.

26

Section 3.07

Undisclosed Liabilities.

26

Section 3.08

Absence of Certain Changes, Events and Conditions.

27

Section 3.09

Material Contracts.

28

Section 3.10

Title to Assets; Real Property.

30

Section 3.11

Title to Assets; Condition And Sufficiency of Assets.

30

Section 3.12

Intellectual Property.

31

Section 3.13

Inventory.

32

Section 3.14

Accounts Receivable; Accounts Payable.

32

Section 3.15

Customers and Suppliers.

33

Section 3.16

Insurance.

33

Section 3.17

Legal Proceedings; Governmental Orders.

33

Section 3.18

Compliance With Laws; Permits.

34

Section 3.19

Environmental Matters.

34

Section 3.20

Employee Benefit Matters.

35

Section 3.21

Employment Matters.

38

Section 3.22

Taxes.

39

 

 


 

Section 3.23

Product Regulatory Review.

41

Section 3.24

FCPA Compliance; No Unlawful Payments; Payment Transparency.

42

Section 3.25

Compliance with Economic Sanctions Laws.

42

Section 3.26

Compliance with Privacy Laws.

43

Section 3.27

Books and Records.

43

Section 3.28

Related Party Transactions.

43

Section 3.29

Brokers.

43

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

44

Section 4.01

Organization and Authority of Parent and Merger Sub.

44

Section 4.02

No Conflicts; Consents.

44

Section 4.03

No Prior Merger Sub Operations.

44

Section 4.04

Brokers.

44

Section 4.05

Legal Proceedings.

45

ARTICLE V COVENANTS

45

Section 5.01

Stockholders Consent.

45

Section 5.02

Public Announcements.

45

Section 5.03

Director and Officer Liability and Indemnification.

46

Section 5.04

Documents and Information

46

ARTICLE VI TAX MATTERS

47

Section 6.01

Tax Covenants.

47

Section 6.02

Tax Returns.

47

Section 6.03

Straddle Period.

48

Section 6.04

Contests.

48

Section 6.05

Cooperation and Exchange of Information.

48

Section 6.06

Tax Treatment of Indemnification Payments.

48

ARTICLE VII INDEMNIFICATION

49

Section 7.01

Survival

49

Section 7.02

Indemnification of Parent Indemnitees

49

Section 7.03

Indemnification of Stockholder Indemnitees

50

Section 7.04

Certain Limitations

50

Section 7.05

Indemnification Procedures

51

Section 7.06

Tax Claims

52

Section 7.07

Payments; R&W Insurance Policy; Indemnification Escrow Fund

52

Section 7.08

Tax Treatment of Indemnification Payments

53

Section 7.09

Effect of Investigation; Mitigation

53

Section 7.10

Exclusive Remedies

53

ARTICLE VIII MISCELLANEOUS

54

Section 8.01

Stockholder Representative

54

Section 8.02

Expenses.

56

Section 8.03

Notices.

56

Section 8.04

Interpretation.

57

Section 8.05

Headings.

57

Section 8.06

Severability.

58

Section 8.07

Entire Agreement.

58

Section 8.08

Successors and Assigns.

58

 

 


 

Section 8.09

No Third-party Beneficiaries.

58

Section 8.10

Amendment and Modification; Waiver.

58

Section 8.11

Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.

58

Section 8.12

Specific Performance.

59

Section 8.13

Counterparts.

59

 

 

EXHIBITS

Integration Cost Schedule

Exhibit A – Employee Bonus Plan

Exhibit B – Form of Equity Rights Termination Agreement

Exhibit C – Escrow Agreement

Exhibit D – Management Bonus Plan

Exhibit E – Distribution Agent Agreement

Exhibit F – Form of Certificate of Merger

Exhibit G – Form of Letter of Transmittal

Exhibit H – Form of Lost Certificate Affidavit

Exhibit I – Form of Written Consent

 

 

AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (this “ Agreement ”), dated as of July 6, 2016, is entered into by and among Merit Medical Systems, Inc., a Utah corporation (“ Parent ”), MMS Transaction Co., a Delaware corporation and a wholly-owned subsidiary of Parent (“ Merger Sub ”), DFine, Inc., a Delaware corporation (the “ Company ”), the Priority Preferred Stockholders, solely for purposes of Article VII and Article VIII , and Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as the representative of the Priority Preferred Stockholders (the “ Stockholder Representative ”).

RECITALS

WHEREAS, the Company is a corporation duly formed and validly existing under the Laws of the State of Delaware;

WHEREAS, Parent is a corporation duly formed and validly existing under the Laws of the State of Utah, and Merger Sub, a wholly-owned subsidiary of Parent, is a corporation duly formed and validly existing under the laws of the State of Delaware;

WHEREAS, the parties intend that Merger Sub be merged with and into the Company, with the Company surviving the merger on the terms and subject to the conditions set forth herein (the “ Merger ”);

 

 


 

WHEREAS, the board of directors of the Company (the “ Company Board ”) and the board of directors of each of Parent and Merger Sub have (a) determined that this Agreement and the transactions contemplated hereby, including the Merger, are in the best interests of their respective companies and stockholders, and (b) approved and declared advisable this Agreement and the transactions contemplated hereby, including the Merger; and

WHEREAS, the Company Board and the board of directors of Merger Sub have each resolved to recommend adoption of this Agreement by their respective stockholders in accordance with the Delaware General Corporation Law (the “ DGCL ”).

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1

 


 

Article I
DEFINITIONS

The following terms have the meanings specified or referred to in this Article I :

Accounting Principles ” means GAAP, applied using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of the Audited Financial Statements for the fiscal year ended December 31, 2015, so long as such methods, practices, principles, policies and procedures were consistent with GAAP.

Acquired Companies ” means the Company and each of its Subsidiaries

Action ” means any action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity, in each case, by or before any Governmental Authority.

Actual Cash ” has the meaning set forth in Section 2.16(b) .

Actual Indebtedness ” has the meaning set forth in Section 2.16(b) .

Actual Transaction Expenses ” has the meaning set forth in Section 2.16(b) .

Actual Working Capital ” has the meaning set forth in Section 2.16(b) .

Actual Working Capital Adjustmen t” means Actual Working Capital, minus Target Working Capital.

Adjusted Closing Merger Consideration ” means the Enterprise Value, plus (a) the Actual Working Capital Adjustment (which may be a positive or negative number), minus (b) the amount, if any, by which Actual Cash is less than $1,000,000 (and otherwise $0), minus (c) the amount of Actual Indebtedness, minus (d) the amount of Actual Transaction Expenses, minus (e) the Indemnification Escrow Amount, minus (f) the Integration Cost Escrow Amount, minus (g) the Stockholder Representative Expense Amount.

Affiliate ” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

Agreement ” has the meaning set forth in the preamble.

Ancillary Documents ” means the Escrow Agreement and the Distribution Agent Agreement.

Audited Financial Statements ” has the meaning set forth in Section 3.06 .

Balance Sheet ” has the meaning set forth in Section 3.06 .

Balance Sheet Date ” has the meaning set forth in Section 3.06 .

Benefit Plan ” has the meaning set forth in Section 3.20(a) .

 

2

 


 

Business Day ” means any day except Saturday, Sunday or any other day on which commercial banks located in Salt Lake City, Utah or in San Jose, California are authorized or required by Law to be closed for business.

Cap ” has the meaning set forth in Section 7.04(c) .

Capital Stock ” means shares of Common Stock and Preferred Stock.

Cash ” means, as of any date of determination, all cash and cash equivalents of the Acquired Companies, including deposits and checks in transit, less the aggregate amount of all outstanding and unpaid checks issued by or on behalf of any of the Acquired Companies.

CERCLA ” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.

Certificate ” has the meaning set forth in Section 2.11(a) .

Certificate of Merger ” has the meaning set forth in Section 2.04 .

Closing ” has the meaning set forth in Section 2.02 .

Closing Statement ” has the meaning set forth in Section 2.16(a) .

Closing Date ” has the meaning set forth in Section 2.02 .

Closing Merger Consideration ” means the Enterprise Value, plus (a) the Estimated Working Capital Adjustment (which may be a positive or negative number), minus (b) the amount, if any, by which Estimated Cash is less than $1,000,000 (and otherwise $0), minus (c) the amount of Estimated Indebtedness, minus (d) the amount of Estimated Transaction Expenses, minus (e) the Indemnification Escrow Amount, minus (f) the Integration Cost Escrow Amount, minus and (g) the Stockholder Representative Expense Amount.

 “ Closing Per Share Merger Consideration ” means, with respect to each share of Capital Stock, the amount of Closing Merger Consideration, if any, to be distributed with respect to such share of Capital Stock, as set forth on the Consideration Spreadsheet. For the avoidance of doubt, the Closing Per Share Merger Consideration with respect to shares of a class or series of Capital Stock may be zero ($0.00).

Code ” means the Internal Revenue Code of 1986, as amended.

Common Stock ” means the common stock, par value $0.001 per share, of the Company.

Company ” has the meaning set forth in the preamble.

Company Board ” has the meaning set forth in the recitals.

Company Board Recommendation ” has the meaning set forth in Section 3.02(b) .

Company Charter Documents ” has the meaning set forth in Section 3.03 .

Company Intellectual Property ” means all Intellectual Property that is owned by any Acquired Company.

 

3

 


 

Company IP Agreements ” means all licenses, sublicenses, consent to use agreements, settlements, coexistence agreements, covenants not to sue, permissions and other Contracts (including any right to receive or obligation to pay royalties or any other consideration), whether written or oral, relating to Intellectual Property to which an Acquired Company is a party, beneficiary or otherwise bound.

Company IP Registrations ” means all Company Intellectual Property that is subject to any issuance registration, application or other filing by, to or with any Governmental Authority or authorized private registrar in any jurisdiction, including registered trademarks, domain names and copyrights, issued and reissued patents and pending applications for any of the foregoing.

 “Confidential Information” means all information not generally known to the public, in spoken, printed, electronic or any other form or medium, relating directly or indirectly to: business processes, practices, methods, policies, plans, publications, documents, research, operations, services, strategies, techniques, designs, agreements, contracts, transactions, negotiations, know-how, trade secrets, computer software, applications or systems, work-in-process, records, systems, materials, prospect information, client information, customer information, supplier information, vendor information, financial information, marketing information, pricing information, staffing and personnel information, employee lists, developments, reports, security procedures, graphics, market studies and competition information, notes, inventions, original works of authorship and discoveries of the Parent, Merger Sub or the Surviving Corporation or their respective businesses or any existing or prospective client, customer, supplier or other associated third party of the Parent, Merger Sub or the Surviving Corporation. Confidential Information also includes other information that is marked or otherwise identified as confidential or proprietary, or that would otherwise appear to a reasonable person to be confidential or proprietary in the context and circumstances in which the information is known or used.

Consideration Spreadsheet ” has the meaning set forth in Section 2.17(a) .

Contracts ” means all contracts, leases, deeds, mortgages, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures and all other agreements and legally binding commitments and arrangements, whether written or oral.

Current Assets ” means all current assets of the Acquired Companies, determined in accordance with the Accounting Principles. Notwithstanding the foregoing, “Current Assets” shall exclude Cash and deferred Tax assets, but shall include all prepaid Taxes, such as prepaid property taxes or similar Taxes, for which Parent will receive the benefit following the Closing.

Current Liabilities ” means all current liabilities of the Acquired Companies, determined in accordance the Accounting Principles. Notwithstanding the foregoing, for purposes of determining Estimated Working Capital, “Current Liabilities” shall not include any items included as Estimated Indebtedness or Estimated Transaction Expenses, and for purposes of determining Actual Working Capital, “Current Liabilities” shall not include any items included as Actual Indebtedness or Actual Transaction Expenses.

Deductible ” has the meaning set forth in Section 7.04(a) .

D&O Indemnified Party ” has the meaning set forth in Section 5.03(a) .

D&O Tail Policy ” has the meaning set forth in Section 5.03(c) .

DGCL ” has the meaning set forth in the recitals.

Direct Claim ” has the meaning set forth in Section 7.05(c) .

 

4

 


 

Disclosure Schedules ” means the Disclosure Schedules delivered by the Company and Parent concurrently with the execution and delivery of this Agreement.

Disputed Amounts ” has the meaning set forth in Section 2.16(c)(iii) .

Dissenting Shares ” has the meaning set forth in Section 2.10 .

Distribution Agent ” means Citibank, N.A.

Distribution Agent Agreement ” means the Distribution Agent Agreement, dated as of the Closing Date, by and among Parent, the Stockholder Representative and the Distribution Agent, a copy of which is attached hereto as Exhibit E .

Dollars or $ ” means the lawful currency of the United States.

Effective Time ” has the meaning set forth in Section 2.04 .

Employee Bonus Plan ” means that certain 2016 Change of Control Incentive Plan of the Company, effective as of immediately prior to the Closing, a copy of which is attached hereto as Exhibit A .

Encumbrance ” means any charge, community property interest, pledge, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

Enterprise Value ” means $97,500,000.

Environmental Attributes ” means any emissions and renewable energy credits, energy conservation credits, benefits, offsets and allowances, emission reduction credits or words of similar import or regulatory effect (including emissions reduction credits or allowances under all applicable emission trading, compliance or budget programs, or any other federal, state or regional emission, renewable energy or energy conservation trading or budget program) that have been held, allocated to or acquired for the development, construction, ownership, lease, operation, use or maintenance of the Acquired Companies as of: (a) the date of this Agreement; and (b) future years for which allocations have been established and are in effect as of the date of this Agreement.

Environmental Claim ” means any Action, Governmental Order, lien, fine, penalty, or, as to each, any settlement or judgment arising therefrom, by or from any Person alleging liability of whatever kind or nature (including liability or responsibility for the costs of enforcement proceedings, investigations, cleanup, governmental response, removal or remediation, natural resources damages, property damages, personal injuries, medical monitoring, penalties, contribution, indemnification and injunctive relief) arising out of, based on or resulting from: (a) the presence, Release of, or exposure to, any Hazardous Materials; or (b) any actual or alleged non-compliance with any Environmental Law or term or condition of any Environmental Permit.

Environmental Law ” means any applicable Law, and any Governmental Order or binding agreement with any Governmental Authority: (a) relating to pollution (or the cleanup thereof) or the protection of natural resources, endangered or threatened species, human health or safety, or the environment (including ambient air, soil, surface water or groundwater, or subsurface strata); or (b) concerning the presence of, exposure to, or the management, manufacture, use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, production, disposal or remediation of any Hazardous Materials. The term “Environmental Law” includes, without limitation, the following (including their implementing regulations and any state analogs): the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the

 

5

 


 

Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §§ 651 et seq.

Environmental Notice ” means any written directive, notice of violation or infraction, or notice respecting any Environmental Claim relating to actual or alleged non-compliance with any Environmental Law or any term or condition of any Environmental Permit.

Environmental Permit ” means any Permit, letter, clearance, consent, waiver, closure, exemption, decision or other action required under or issued, granted, given, authorized by or made pursuant to Environmental Law.

Equity Right ” means any warrant, option, convertible note, acquisition right or other right exercisable for, convertible into or exchangeable for Capital Stock or any other equity securities of any Acquired Company, other than the Options.

Equity Right Termination Agreement ” means a termination agreement substantially in the form attached as Exhibit B .

Equity Right Holder ” means a holder of an Equity Right.

ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

ERISA Affiliate ” means all employers (whether or not incorporated) that would be treated together with the Company or any of its Subsidiaries as a “single employer” within the meaning of Section 414 of the Code.

Escrow Agent ” means Wells Fargo Bank, National Association.

Escrow Agreement ” means the Escrow Agreement, dated as of the Closing Date, by and among Parent, the Stockholder Representative and the Escrow Agent, a copy of which is attached hereto as Exhibit C .

Escrow Funds ” has the meaning set forth in Section 2.12(b) .

Estimated Cash ” has the meaning set forth in Section 2.16(a) .

Estimated Indebtedness ” has the meaning set forth in Section 2.16(a) .

Estimated Transaction Expenses ” has the meaning set forth in Section 2.16(a) .

Estimated Working Capital ” has the meaning set forth in Section 2.16(a) .

Estimated Working Capital Adjustmen t” means Estimated Working Capital, minus Target Working Capital.

Exclusivity Fee Cancellation Agreement ” means that certain Exclusivity Fee Cancellation Agreement, dated as of the date hereof, by and between Parent and the Company.

 

6

 


 

FDA ” has the meaning set forth in Section 3.23 .

Financial Statements ” has the meaning set forth in Section 3.06 .

Fundamental Representations ” mean the representations and warranties set forth in Section 3.01 , Section 3.02(a) , Section 3.04 , Section 3.29 , Section 4.01 and Section 4.04 .

GAAP ” means United States generally accepted accounting principles in effect from time to time.

Government Contracts ” has the meaning set forth in Section 3.09(a)(viii) .

Governmental Authority ” means any federal, state, provincial, local or foreign government or political subdivision thereof, or any agency, court or instrumentality of such government or political subdivision either with jurisdiction over any activities of any party to this Agreement or where a party to this Agreement conducts business, or any arbitrator, court or tribunal of competent jurisdiction.

Governmental Order ” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

Hazardous Materials ” means: (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral or gas, in each case, whether naturally occurring or manmade, that is hazardous, acutely hazardous, toxic, or words of similar import or regulatory effect under Environmental Laws; and (b) any petroleum or petroleum-derived products, radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing materials, urea formaldehyde foam insulation, and polychlorinated biphenyls.

Indebtedness ” means, with respect to the Acquired Companies, as of any date of determination and without duplication, all (a) indebtedness for borrowed money; (b) obligations for the deferred purchase price of property or services, (c) long or short-term obligations evidenced by any note, bond, debenture or other instrument; (d) obligations under any interest rate, currency swap or other hedging agreement or arrangement; (e) capital lease obligations; (f) reimbursement obligations under any letter of credit, banker’s acceptance or similar credit transaction, to the extent drawn; (g) guarantees made by an Acquired Company on behalf of any third party in respect of any obligation of the kind referred to in the foregoing clauses (a) through (f); (h) unpaid interest, prepayment penalties, premiums, costs and fees that would arise or become due as a result of the prepayment of any of the obligations referred to in the foregoing clauses (a) through (g).

Indemnifiable Taxes ” means (a) all Taxes of the Acquired Companies for all Pre-Closing Tax Periods; (b) all Taxes of any member of an affiliated, consolidated, combined or unitary group of which any Acquired Company (or any predecessor of any Acquired Company) is or was a member on or prior to the Closing Date by reason of a liability under Treasury Regulation Section 1.1502-6 or any comparable provisions of foreign, state or local Law; and (c) all Taxes of another Person imposed on any of the Acquired Companies arising under the principles of transferee or successor liability or by reason of a Tax Sharing Agreement or any contract providing for the payment of any Taxes of another person, in each case, relating to an event or transaction occurring before the Closing Date; provided, that , the defined term Indemnifiable Taxes shall not include any Taxes to the extent the Tax-related Loss in question results from Parent’s violation of Section 6.01(c) .

Indemnification Escrow Amount ” means $9,750,000.

Indemnification Escrow Fund ” has the meaning set forth in Section 2.12(a) .

 

7

 


 

Indemnification Obligation Pro Rata Share” means, with respect to each Priority Preferred Stockholder that executes the Merger Agreement on the Closing Date, and each Priority Preferred Stockholder that executes a joinder to the Merger Agreement following the Closing Date (other than any such joinder that is determined by a court of competent jurisdiction to be unenforceable), the quotient (expressed as a percentage) of (i) such Priority Preferred Stockholders’ pro rata share of the Closing Merger Consideration divided by (ii) the Closing Merger Consideration.

Indemnified Party ” has the meaning set forth in Section 7.05 .

Indemnifying Party ” has the meaning set forth in Section 7.05 .

Independent Accountant ” has the meaning set forth in Section 2.16(c)(iii) .

Insurance Policies ” has the meaning set forth in Section 3.16 .

Integration Cost Escrow Amount ” means $5,000,000.

Integration Cost Escrow Fund ” has the meaning set forth in Section 2.12(b) .

Integration Cost Target ” means $15,000,000.

Integration Costs ” has the meaning set forth in Section 2.18(a) .

Integration Period ” has the meaning set forth in Section 2.18(a) .

Intellectual Property ” means all intellectual property and industrial property rights and assets, and all rights, interests and protections that are associated with, similar to, or required for the exercise of, any of the foregoing, however arising, pursuant to the Laws of any jurisdiction throughout the world, whether registered or unregistered, including any and all: (a) trademarks, service marks, trade names, brand names, logos, trade dress, design rights and other similar designations of source, sponsorship, association or origin, together with the goodwill connected with the use of and symbolized by, and all registrations, applications and renewals for, any of the foregoing; (b) internet domain names, whether or not trademarks, registered in any top-level domain by any authorized private registrar or Governmental Authority, web addresses, web pages, websites and related content, accounts with Twitter, Facebook and other social media companies and the content found thereon and related thereto, and URLs; (c) works of authorship, expressions, designs and design registrations, whether or not copyrightable, including copyrights, author, performer, moral and neighboring rights, and all registrations, applications for registration and renewals of such copyrights; (d) inventions, discoveries, trade secrets, business and technical information and know-how, databases, data collections and other confidential and proprietary information and all rights therein; (e) patents (including all reissues, divisionals, provisionals, continuations and continuations-in-part, re-examinations, renewals, substitutions and extensions thereof), patent applications, and other patent rights and any other Governmental Authority-issued indicia of invention ownership (including inventor’s certificates, petty patents and patent utility models); and (f) software and firmware, including data files, source code, object code, application programming interfaces, architecture, files, records, schematics, computerized databases and other related specifications and documentation; and (g) mask works.

Interim Balance Sheet ” has the meaning set forth in Section 3.06 .

Interim Balance Sheet Date ” has the meaning set forth in Section 3.06 .

Interim Financial Statements ” has the meaning set forth in Section 3.06 .

Key Employees ” means Greg Barrett, Rick Short and Scott Lynch.

 

8

 


 

Knowledge ” means, when used with respect to the Company or the Acquired Companies, the actual knowledge of Greg Barrett, Rick Short, Dan Balbierz, Linda Lechner and Cindee Van Vleck, and the knowledge that each such person would reasonably be expected to obtain in the course of performing his or her duties with the Acquired Companies, or after due inquiry of their respective direct reports or reasonable investigation.

Law ” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.

Letter of Transmittal ” has the meaning set forth in Section 2.11(b) .

Losses ” means losses, damages, liabilities, deficiencies, Actions, judgments, interest, awards, penalties, fines, costs or expenses, including reasonable attorneys’ fees and the cost of enforcing any right to indemnification hereunder; provided, however, that “ Losses ” shall not include exemplary or punitive damages, except to the extent actually awarded to a Governmental Authority or other third party.

Majority Holder ” has the meaning set forth in Section 8.01(b) .

Management Bonus Plan ” means that certain 2016 Management Bonus Plan of the Company, effective as of immediately prior to the Closing, a copy of which is attached hereto as Exhibit D .

Material Adverse Effect ” means any event, occurrence, fact, condition or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to (a) the business, results of operations, condition (financial or otherwise) or assets of the Acquired Companies (taken as a whole), or (b) the ability of the Company to consummate the transactions contemplated hereby on a timely basis; provided, however, that “Material Adverse Effect” shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to: (i) general economic or political conditions; (ii) conditions generally affecting the industries in which any Acquired Company operates; (iii) any changes in financial or securities markets in general; (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any action required or permitted by this Agreement; (vi) any changes in applicable Laws or accounting rules, including GAAP; (vii) the announcement, pendency or completion of the transactions contemplated by this Agreement; or (viii) the failure of any of the Acquired Companies to meet or achieve any projection or forecast; provided, further, that any event, occurrence, fact, condition or change referred to in clauses (i) through (iv) immediately above shall be taken into account in determining whether a Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event, occurrence, fact, condition or change has, or would reasonably be expected to have, a disproportionate effect on the Acquired Companies (taken as a whole) compared to other participants in the industries in which any Acquired Company conducts its businesses.

Material Contracts ” has the meaning set forth in Section 3.09(a) .

Material Customers ” has the meaning set forth in Section 3.15(a) .

Material Suppliers ” has the meaning set forth in Section 3.15(b) .

Merger ” has the meaning set forth in the recitals.

Merger Consideration ” means the Closing Merger Consideration, together with those portions of (i) the Escrow Funds, (ii) the Stockholder Representative Expense Fund and (iii) the Post-Closing Adjustment (if any) that the Priority Preferred Stockholders become entitled to receive pursuant to the terms of this Agreement and the Escrow Agreement.

Merger Sub ” has the meaning set forth in the preamble.

 

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Non-Terminating Right ” has the meaning set forth in Section 2.03(b)(ix) .

Non-U.S. Benefit Plan ” has the meaning set forth in Section 3.20(a) .

Off-The-Shelf Agreements ” means generally commercially available off-the-shelf software licenses for Intellectual Property under which the annual recurring fees any Acquired Company is required to pay for use of such Intellectual Property are less than $10,000.

Option ” means any option to purchase Company Capital Stock granted under a Stock Option Plan and still outstanding as of immediately prior to the Effective Time.

Optionholder ” means a holder of an Option.

Organizational Documents ” has the meaning set forth in Section 5.03(b) .

Parent ” has the meaning set forth in the preamble.

Parent Closing Statement ” has the meaning set forth in Section 2.16(b) .

Parent Indemnitees ” has the meaning set forth in Section 7.02 .

Permits ” means all permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained, or required to be obtained, from Governmental Authorities.

“Permitted Encumbrances ” means those items set forth in Section 1 of the Disclosure Schedules; liens for Taxes not yet delinquent; liens for Taxes the amount or validity of which is being contested in good faith by appropriate proceedings and which are disclosed in Section 1 of the Disclosure Schedule; mechanics, carriers’, workmen’s, repairmen’s or other like liens arising or incurred in the ordinary course of business consistent with past practice or amounts that are not delinquent and which are not, individually or in the aggregate, material to the business of the Acquired Companies; or easements, rights of way, zoning ordinances and other similar encumbrances affecting Real Property which are not, individually or in the aggregate, material to the business of the Acquired Companies.

Person ” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.

Personal Information ” means the type of information regulated by Privacy Laws and collected, used, disclosed or retained by any Acquired Company such as an individual’s name, address, age, gender, identification number, family status, citizenship, employment, assets, liabilities, source of funds, payment records, credit information, personal references and health records.

Post-Closing Adjustment ” shall be an amount equal to the Adjusted Closing Merger Consideration, minus the Closing Merger Consideration.

Post-Closing Tax Period ” means any taxable period beginning after the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period beginning after the Closing Date.

Post-Closing Taxes ” means Taxes of the Acquired Companies for any Post-Closing Tax Period.

Pre-Closing Tax Period ” means any taxable period ending on or before the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period ending on and including the Closing Date.

 

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Pre-Closing Taxes ” means Taxes of the Acquired Companies for any Pre-Closing Tax Period.

Preferred Stock ” means the preferred stock, par value $0.001 per share, of the Company, which is designated Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock.

Preferred Stockholder ” means a holder of Preferred Stock.

Priority Preferred Stock ” means the Series E Preferred Stock and the Series F Preferred Stock.

Priority Preferred Stockholder ” means a holder of Priority Preferred Stock.

Privacy Laws ” means all applicable Laws of any nation in which any Acquired Company operates governing the collection, use, disclosure and retention of Personal Information.

Pro Rata Share ” means, with respect to any Priority Preferred Stockholder, such Person’s pro rata portion of the (i) Closing Merger Consideration, (ii) Post-Closing Adjustment, (iii) returned Indemnification Escrow Funds, (iv) returned Integration Cost Escrow Funds or (v) returned Seller Representative Expense Funds, as applicable.

Qualified Benefit Plan ” has the meaning set forth in Section 3.20(c) .

R&W Insurance Policy ” means a buyer-side representations and warranties insurance policy issued by AIG for the benefit of Parent and any additional insureds named by Parent with a retention amount equal to the R&W Insurance Policy Retention Amount and a coverage limit equal to the R&W Insurance Policy Coverage Limit.

R&W Insurance Policy Coverage Limit ” means $9,750,000.

R&W Insurance Policy Retention Amount ” means $1,462,500.

Real Property ” has the meaning set forth in Section 3.10(a) .

Release ” means any actual or threatened release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, abandonment, disposing or allowing to escape or migrate into or through the environment (including, without limitation, ambient air (indoor or outdoor), surface water, groundwater, land surface or subsurface strata or within any building, structure, facility or fixture).

Repaid Indebtedness ” has the meaning set forth in Section 2.03(a)(i) .

Representative ” means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.

Representative Losses ” has the meaning set forth in Section 8.01(c) .

Requisite Company Vote ” has the meaning set forth in Section 3.02(a) .

Resolution Period ” has the meaning set forth in Section 2.16(c)(ii) .

Review Period ” has the meaning set forth in Section 2.16(c)(i) .

Stockholder Representative Expense Amount ” means $250,000.

 

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Stockholder Representative Expense Fund ” has the meaning set forth in Section 2.12(c) .

Statement of Objections ” has the meaning set forth in Section 2.16(c)(ii) .

Stock Option Plan ” means each of the 2004 Stock Plan and the 2014 Stock Plan of the Company.

Stockholders ” means the holders of Capital Stock.

Stockholder Indemnitees ” has the meaning set forth in Section 7.03 .

Stockholder Notice ” has the meaning set forth in Section 5.01(b) .

Stockholder Representative ” has the meaning set forth in the preamble.

Straddle Period ” has the meaning set forth in Section 6.03 .

Subsidiaries ”  means, when used with respect to any party, any corporation or other organization, whether incorporated or unincorporated, a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its subsidiaries, or by such party and one or more of its subsidiaries.

Surviving Corporation ” has the meaning set forth in Section 2.01 .

Target Working Capital ” means $3,500,000.

Taxes ” means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, value added, transfer, franchise, registration, profits, license, lease, service, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, property (real or personal), windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.

Tax Claim ” has the meaning set forth in Section 6.04 .

Tax Return ” means any return, declaration, report, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

Tax Sharing Agreement ” means any agreement the primary purpose of which is (a) to allocate responsibility with respect to the payment of any Tax liabilities of any Person or (b) for the sharing or payment for any Tax attributes of any Person.

Third Party Claim ” has the meaning set forth in Section 7.05(a) .

Transaction Expenses ” means, as of any date of determination and without duplication, all unpaid fees and expenses incurred by the Acquired Companies or for which any Acquired Company is liable as of the Closing in connection with the preparation, negotiation and execution of this Agreement and the Ancillary Documents, and the performance and consummation of the Merger and the other transactions contemplated hereby and thereby, including (a) amounts payable pursuant to the Employee Bonus Plan, (b) any Taxes or other amounts required to be paid, withheld or contributed by the Acquired Companies under the Federal Insurance Contributions Act (“ FICA” ), Medicare or other similar Laws related to any amounts

 

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payable pursuant to the Employee Bonus Plan, (c) the cost of obtaining the D&O Tail Policy, (d) the amount payable to AIG to obtain the R&W Insurance Policy, and (e) three (3) months of salary, bonus, benefits and other monetary compensation for each of the Key Employees and any Taxes or other amounts required to be paid, withheld or contributed by the Acquired Companies under the Federal Insurance Contributions Act (“ FICA” ), Medicare or other similar Laws in respect of such salary continuation. For the avoidance of doubt, “Transaction Expenses” shall not include any amounts payable pursuant to the Management Bonus Plan.

Undisputed Amounts ” has the meaning set forth in Section 2.16(c)(iii) .

Union ” has the meaning set forth in Section 3.21(b) .

WARN Act ” means the federal Worker Adjustment and Retraining Notification Act of 1988, and similar state, local and foreign laws related to plant closings, relocations, and mass layoffs.

Working Capital ” means, as of any date of determination, Current Assets minus Current Liabilities.

Written Consent ” has the meaning set forth in Section 5.01(a) .

ARTICLE II
    
THE MERGER

Section 2.01      The Merger.

On the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time, (a) Merger Sub will merge with and into the Company, and (b) the separate corporate existence of Merger Sub will cease and the Company will continue its corporate existence under the DGCL as the surviving corporation in the Merger (sometimes referred to herein as the “ Surviving Corporation ”).

Section 2.02      Closing.

Subject to the terms and conditions of this Agreement, the closing of the Merger (the “ Closing ”) shall take place at 10:00 a.m., Mountain Time, on the date of this Agreement, at the offices of Parr Brown Gee & Loveless, a professional corporation, 101 South 200 East, Suite 700, Salt Lake City, Utah 84111, or at such other time or on such other date or at such other place as the Company and Parent may mutually agree upon in writing (the day on which the Closing takes place being the “ Closing Date ”).

Section 2.03      Repaid Indebtedness and Company Transaction Expenses; Closing Deliverables.

(a)     Repaid Indebtedness and Company Transaction Expenses.

(i)    It is contemplated by the parties that, contemporaneously with the Closing, all Indebtedness for borrowed money of the Acquired Companies as of immediately prior to the Closing set forth on the Repaid Indebtedness Schedule by the Company (the “ Repaid Indebtedness ”), will be fully repaid and that such repayment will be funded by Parent. The Company has delivered to Parent the Repaid Indebtedness Schedule along with customary payoff letters in respect of all Repaid Indebtedness to be effective upon the Closing, which payoff letters (A) acknowledge the aggregate principal amount and all accrued but unpaid interest constituting the Repaid Indebtedness and (B) provide that, upon receipt of such amounts, (1) all such Indebtedness shall have been repaid and discharged and (2) all Liens held by or on

 

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behalf of such lenders in respect of the properties and assets of the Acquired Companies shall be released and forever discharged.

(ii)    It is contemplated by the parties that, contemporaneously with the Closing, all Estimated Transaction Expenses of the Acquired Companies set forth in the Closing Statement will be fully paid and that such payment will be funded by Parent. The Company has delivered to Parent invoices for all such Estimated Transaction Expenses.

(iii)    In connection with the Closing and on behalf of the Acquired Companies, on the Closing Date, Parent shall pay in cash, by wire transfer of immediately available funds, the Repaid Indebtedness and the Estimated Transaction Expenses in order to fully discharge the amounts payable thereunder, in each case, in the amounts set forth on the Repaid Indebtedness Schedule (which reflects the amounts in the payoff letters) and the Closing Statement (which reflects the amounts in the invoices) delivered pursuant to this Section 2.03(a) , and pursuant to wire instructions provided by the Company to Parent prior to or at the Closing.

(b)     Closing Deliverables of the Company.   On or prior to the Closing Date, the Company shall deliver or cause to be delivered to Parent the following:

(i)    the Escrow Agreement, duly executed by the Stockholder Representative;

(ii)    the Distribution Agent Agreement, duly executed by the Stockholder Representative;

(iii)    a certificate, dated the Closing Date and signed by a duly authorized officer of the Company, certifying that attached thereto are true and complete copies of (A) all resolutions adopted by the Company Board authorizing the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, (B) resolutions of the stockholders of the Company approving the Merger and adopting this Agreement, signed by stockholders of the Company representing at least the Requisite Company Vote, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby;

(iv)    a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of the Company certifying that (A) attached thereto are true and complete copies of the Company Charter Documents and (B) the names and signatures of the officers of the Company authorized to sign this Agreement, the Ancillary Documents and the other documents to be delivered hereunder and thereunder;

(v)    a good standing certificate of the Company from the Secretary of State of the State of Delaware;

(vi)    the Closing Statement contemplated in Section 2.16(a) ;

(vii)    the Consideration Spreadsheet contemplated in Section 2.17 ;

(viii)    a certificate, in the form required by Treasury Regulation Section 1.897-2(h) and 1.1445-2(c)(3), dated as of the Closing Date, to the effect that no interest in the Company is a U.S. real property interest; and

(ix)    Equity Right Termination Agreements duly executed and delivered to the Company terminating any and all Equity Rights that do not, automatically without the payment of any consideration or the taking of any action, terminate or expire by their terms effective as of the Closing (“ Non-Terminating Rights ”).

 

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(c)     Closing Deliverables of Parent . On or prior to the Closing Date, Parent shall deliver or cause or be delivered to the Company (or to such other Person as may be specified herein) the following:

(i)    the Escrow Agreement duly executed by Parent;

(ii)    the Distribution Agent Agreement duly executed by Parent and the Distribution Agent;

(iii)    payment to each Priority Preferred Stockholder and the Distribution Agent of the amounts required to be paid pursuant to Section 2.11(c) ;

(iv)    payment to the Escrow Agent, by wire transfer of immediately available funds, of the Indemnification Escrow Amount and the Integration Cost Escrow Amount;

(v)    payment to the Stockholder Representative, by wire transfer of immediately available funds, of the Stockholder Representative Expense Amount;

(vi)    payment to third parties, by wire transfer of immediately available funds, of that amount of money due and owing from the Acquired Companies to such third parties as Estimated Transaction Expenses; and

(vii)    payment to holders of outstanding Repaid Indebtedness, by wire transfer of immediately available funds, of that amount of money due and owing from the Acquired Companies to such third parties.

Section 2.04      Effective Time.

Subject to the provisions of this Agreement, at the Closing, the Company shall cause a certificate of merger in substantially the form of Exhibit F attached hereto (the “ Certificate of Merger ”) to be filed with the Secretary of State of the State of Delaware in accordance with the relevant provisions of the DGCL and shall make all other filings or recordings required under the DGCL. The Merger shall become effective at such time as the Certificate of Merger has been duly filed with the Secretary of State of the State of Delaware or at such later date or time as may be agreed by the Company and Parent in writing and specified in the Certificate of Merger in accordance with the DGCL (the effective time of the Merger being hereinafter referred to as the “ Effective Time ”).

Section 2.05      Effects of the Merger.

The Merger shall have the effects set forth herein and in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, from and after the Effective Time, all property, rights, privileges, immunities, powers, franchises, licenses and authority of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions and duties of each of the Company and Merger Sub shall become the debts, liabilities, obligations, restrictions and duties of the Surviving Corporation.

Section 2.06      Certificate of Incorporation; By-laws.

At the Effective Time, (a) the certificate of incorporation of Merger Sub as in effect immediately prior to the Effective Time shall be the certificate of incorporation of the Surviving Corporation until thereafter amended in accordance with the terms thereof or as provided by applicable Law, and (b) the by-laws of Merger Sub as in effect immediately prior to the Effective Time shall be the by-laws of the Surviving Corporation until thereafter amended in accordance with the terms thereof, the certificate of incorporation of the Surviving Corporation or as provided by applicable Law; provided, however , in each case, that the name of the corporation set forth therein shall be changed to the name of the Company.

 

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Section 2.07      Directors and Officers.

The directors and officers of Merger Sub, in each case, immediately prior to the Effective Time shall, from and after the Effective Time, be the directors and officers, respectively, of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and by-laws of the Surviving Corporation.

Section 2.08      Effect of the Merger on Capital Stock.

At the Effective Time, as a result of the Merger and without any action on the part of Parent, Merger Sub, the Company or any Stockholder:

(a)     Cancellation of Certain Company Capital Stock. Shares of Capital Stock that are owned by Parent, Merger Sub or the Company (as treasury stock or otherwise) or any of their respective direct or indirect wholly-owned Subsidiaries shall automatically be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor.

(b)     Conversion of Capital Stock. Each share of Capital Stock issued and outstanding immediately prior to the Effective Time (other than (i) shares to be cancelled and retired in accordance with Section 2.08(a) , and (ii) Dissenting Shares, if any) shall be converted into the right to receive, upon compliance with the requirements of Section 2.11(c) , the Closing Per Share Merger Consideration, if any, associated with such share of Capital Stock in cash, without interest, together with any amounts that may become payable in respect of such share of Capital Stock in the future from the Escrow Funds as provided in this Agreement and the Escrow Agreement or in respect of the Post-Closing Adjustment, at the respective times and subject to the contingencies specified herein and therein, in both cases, if any. For the avoidance of doubt, if the Closing Per Share Merger Consideration for a share of Capital Stock is zero, such share of Capital Stock shall be cancelled as set forth herein.

(c)     Conversion of Merger Sub Capital Stock. Each share of common stock, par value $0.0001 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one newly issued, fully paid and non-assessable share of common stock of the Surviving Corporation.

Section 2.09      Treatment of Options and Equity Rights.

(a)    At the Effective Time, each Option that is outstanding and unexercised immediately prior to the Effective Time, whether or not then vested or exercisable, shall be, by virtue of the Merger and without any additional action on the part of Parent, Merger Sub, the Company, the Optionholder or any other Person, cancelled and such Optionholder shall cease to have any rights with respect thereto, other that the right to receive, with respect to each share of Common Stock converted by each Option under the 2004 Stock Plan of the Company as of immediately prior to the Effective Time, the amount (if any), by which the Closing Per Share Merger Consideration of a share of Common Stock exceeds the exercise price of such Option.

(b)    At the Effective Time, each Equity Right, other than Non-Terminating Rights, that is outstanding and unexercised immediately prior to the Effective Time, shall be, by virtue of the Merger and without any additional action on the part of Parent, Merger Sub, the Company, the Equity Right Holder or any other Person, cancelled and such Equity Right Holder shall cease to have any rights with respect thereto.

Section 2.10      Dissenting Shares.

 

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Notwithstanding any provision of this Agreement to the contrary, including Section 2.08, shares of Capital Stock issued and outstanding immediately prior to the Effective Time (other than shares cancelled in accordance with Section 2.08(a)) and held by a holder who has not voted in favor of adoption of this Agreement or consented thereto in writing and who has properly exercised appraisal rights of such shares in accordance with Section 262 of the DGCL (such shares being referred to collectively as the “Dissenting Shares” until such time as such holder fails to perfect or otherwise loses such holder’s appraisal rights under the DGCL with respect to such shares) shall not be converted into a right to receive a portion of the Merger Consideration, but instead shall be entitled to only such rights as are granted by Section 262 of the DGCL; provided, however, that if, after the Effective Time, such holder fails to perfect, withdraws or loses such holder’s right to appraisal pursuant to Section 262 of the DGCL or if a court of competent jurisdiction shall determine that such holder is not entitled to the relief provided by Section 262 of the DGCL, such shares shall be treated as if they had been converted as of the Effective Time into the right to receive the portion of the Merger Consideration, if any, to which such holder is entitled pursuant to Section 2.08(b), without interest thereon. The Company shall provide Parent prompt written notice of any demand received by the Company for appraisal of shares of Capital Stock, any withdrawal of any such demand and any other demand, notice or instrument delivered to the Company prior to the Effective Time pursuant to the DGCL that relates to such demand, and Parent shall have the opportunity and right to direct all negotiations and proceedings with respect to such demands. Except with the prior written consent of Parent, the Company shall not make any payment with respect to, or settle or offer to settle, any such demand.

Section 2.11      Surrender and Payment.

(a)    At the Effective Time, all shares of Capital Stock shall automatically be cancelled and retired and shall cease to exist, and, subject to Section 2.10 , each holder of a certificate formerly representing any shares of Capital Stock (each, a “ Certificate ”) shall cease to have any rights as a holder of Capital Stock.

(b)    The Company has provided to each holder of Priority Preferred Stock a letter of transmittal in substantially the form attached as Exhibit G (a “ Letter of Transmittal ”) and instructions for use in effecting the surrender of Certificates in exchange for that portion of the Merger Consideration payable in respect of such holder’s Priority Preferred Stock pursuant to Section 2.08(b) .

(c)    On the Closing Date, Parent shall pay or cause to be paid to each holder of Priority Preferred Stock who has delivered to Parent a Letter of Transmittal, duly executed and completed in accordance with its requirements, by wire transfer of immediately available funds, an amount representing the Closing Per Share Merger Consideration associated with the Capital Stock held by such holder as set forth on the Consideration Spreadsheet and as contemplated by Section 2.03(c)(iii) . If any holder of Priority Preferred Stock has not delivered to Parent a Letter of Transmittal, duly executed and completed in accordance with its requirements prior to the Closing, Parent shall pay or cause or be paid to the Distribution Agent, by wire transfer of immediately available funds, an aggregate amount representing the Closing Per Share Merger Consideration associated with the Capital Stock held by all such holders, for further distribution to such holders upon receipt by the Distribution Agent of Letters of Transmittal duly executed and completed in accordance with its requirements.

(d)    If any portion of the Merger Consideration is to be paid to a Person other than the Person in whose name the surrendered Certificate is registered, it shall be a condition to such payment that (i) such Certificate shall be properly endorsed or shall otherwise be in proper form for transfer, and (ii) the Person requesting such payment shall pay to Parent any transfer or other Tax required as a result of such payment to a Person other than the registered holder of such Certificate or establish to the reasonable satisfaction of Parent that such Tax has been paid or is not payable.

(e)    Neither Parent nor the Distribution Agent shall be liable to any holder of Certificates for any amounts paid to a public official pursuant to applicable abandoned property, escheat or similar Laws. Any amounts remaining unclaimed by Priority Preferred Stockholders two years after the date on which

 

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such Priority Preferred Stockholder was entitled receive such amount (or such earlier date, immediately prior to such time when the amounts would otherwise escheat to or become property of any Governmental Entity) shall become, to the extent permitted by applicable Law, the property of Parent free and clear of any claims or interest of any Person previously entitled thereto.

Section 2.12      Escrow Funds; Stockholder Representative Expense Fund.

At the Closing, Parent shall deposit or cause to be deposited:

(a)    with the Escrow Agent, the Indemnification Escrow Amount (such amount, including any interest or other amounts earned thereon and less any disbursements therefrom in accordance with the Escrow Agreement, the “ Indemnification Escrow Fund ”), to be held for the purpose of securing the obligations of the Priority Preferred Stockholders set forth in Section 2.16(d) and Article VII of this Agreement;

(b)    with the Escrow Agent, the Integration Cost Escrow Amount (such amount, including any interest or other amounts earned thereon and less any disbursements therefrom in accordance with the Escrow Agreement, the “ Integration Cost Escrow Fund ”, and together with the Indemnification Escrow Fund, the “ Escrow Funds ”), to be held for the purpose of securing the obligations of the Priority Preferred Stockholders set forth in Section 2.18(c) ; and

(c)    to the Stockholder Representative, the Stockholder Representative Expense Amount (such amount, less any disbursements therefrom, the “ Stockholder Representative Expense Fund ”), to be held for the purpose of reimbursing the Stockholder Representative for, or paying directly, any amounts incurred in connection with the performance of its obligations under this Agreement, the Escrow Agreement or the Distribution Agent Agreement.

(d)    with the Distribution Agent, the Closing Merger Consideration to be held and/or paid out pursuant Section 2.11 of this Agreement and the Distribution Agent Agreement.

(e)    For U.S. federal income and other applicable Tax purposes, and pursuant to the terms of the Escrow Agreement, the Escrow Funds shall be treated as the property of the Parent and any income earned in respect of the Escrow Funds shall be taxable to Parent and any Taxes owed in respect of the Escrow Funds shall be paid by Parent, until such time as any Escrow Funds are released to the Priority Preferred Stockholders (along with the amount of any interest or other amounts earned thereon and less any disbursements therefrom, including, without limitation, disbursements that shall be made to Parent for the payment of any Taxes paid or payable by Parent with respect to any income earned in respect of the Escrow Funds, in accordance with the Escrow Agreement).

Section 2.13      No Further Ownership Rights in Capital Stock.

All Merger Consideration, if any, paid or payable upon the surrender of Certificates, in accordance with the terms hereof shall be deemed to have been paid or payable in full satisfaction of all rights pertaining to the shares of Capital Stock formerly represented by such Certificates, and from and after the Effective Time, there shall be no further registration of transfers of shares of Capital Stock on the stock transfer books of the Surviving Corporation. If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be cancelled and exchanged for the Merger Consideration, if any, provided for and in accordance with the procedures set forth, in this Article II and elsewhere in this Agreement.

Section 2.14      Withholding Rights.

Each of Parent, the Distribution Agent, the Escrow Agent, Merger Sub and the Surviving Corporation shall be entitled to deduct and withhold from the consideration otherwise payable to any

 

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Person pursuant to this Article II such amounts as are required to be deducted and withheld with respect to the making of such payment under any provision of applicable Tax Law; provided, that, (i) the appropriate party shall give the Stockholder Representative written notice of its intention to withhold and the basis for any withholdings that are required to be made as soon as reasonably practicable prior to the date of the applicable payment, and (ii) the parties will use commercially reasonable efforts to mitigate or eliminate any such required Tax withholdings to the fullest extent possible. To the extent that amounts are so deducted and withheld by Parent, the Distribution Agent, the Escrow Agent, Merger Sub or the Surviving Corporation, as the case may be, and properly paid over to the applicable Governmental Authority such amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which Parent, the Distribution Agent, Escrow Agent, Merger Sub or the Surviving Corporation, as the case may be, made such deduction and withholding.

Section 2.15      Lost Certificates.

If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed substantially in the form attached hereto as Exhibit H (a “Lost Certificate Affidavit”) and, if required by the Parent or the Distribution Agent, the posting by such Person of a bond, in such reasonable amount as Parent or the Distribution Agent shall direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Distribution Agent, shall issue, in exchange for such lost, stolen or destroyed Certificate, the portion of the Merger Consideration to be paid in respect of the Priority Preferred Stock formerly represented by such Certificate as contemplated under this Article II.

Section 2.16      Working Capital Adjustment.

(a)     Closing Statement. The Company has prepared and delivered to Parent a statement (the “ Closing Statement ”) setting forth its good faith estimate, as of immediately prior to the Closing, of (i) Cash (“ Estimated Cash ”), (ii) Working Capital (“ Estimated Working Capital ”), (iii) Indebtedness (“ Estimated Indebtedness ”), (iv) Transaction Expenses (“ Estimated Transaction Expenses ”), and (v) the resulting Closing Merger Consideration, which statement shall also contain an estimated balance sheet of the Acquired Companies as of immediately prior to the Closing (without giving effect to the transactions contemplated herein). The estimated balance sheet upon which the calculations set forth in the Closing Statement are based shall be prepared in accordance with the Accounting Principles.

(b)     Post-Closing Adjustment. Within 45 days after the Closing Date, Parent shall prepare and deliver to the Stockholder Representative a statement (the “ Parent Closing Statement ”) setting forth its calculation, as of immediately prior to the Closing, of the actual amount of (i) Cash (“ Actual Cash ”), (ii) Working Capital (“ Actual Working Capital ”), (iii) Indebtedness (“ Actual Indebtedness ”), (iv) Transaction Expenses (“ Actual Transaction Expenses ”), and (v) the resulting Adjusted Closing Merger Consideration and Post-Closing Adjustment, which statement shall also contain an actual balance sheet of the Acquired Companies as of immediately prior to the Closing (without giving effect to the transactions contemplated herein). The actual balance sheet upon which the calculations set forth in the Parent Closing Statement are based shall be prepared in accordance with the Accounting Principles.

(c)     Examination and Review.

(i)     Examination. After receipt of the Parent Closing Statement, the Stockholder Representative shall have thirty (30) days (the “ Review Period ”) to review the Parent Closing Statement. During the Review Period, the Stockholder Representative shall have access to the books and records of the Surviving Corporation, the personnel of, and work papers prepared by, Parent and/or its accountants to the extent that they relate to the Parent Closing Statement and to such historical financial information (to the extent in Parent’s possession) relating to the Parent Closing Statement as the Stockholder Representative may reasonably request for the purpose of reviewing the Parent Closing Statement and to prepare a

 

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Statement of Objections (defined below), provided, that , such access shall be in a manner that does not interfere with the business operations of Parent or the Surviving Corporation.

(ii)     Objection. On or prior to the last day of the Review Period, the Stockholder Representative may object to the Parent Closing Statement by delivering to Parent a written statement setting forth his objections in reasonable detail, indicating each disputed item or amount and the basis for its disagreement therewith (the “ Statement of Objections ”). If the Stockholder Representative fails to deliver the Statement of Objections before the expiration of the Review Period, the Parent Closing Statement and the Post-Closing Adjustment, as the case may be, reflected in the Parent Closing Statement shall be deemed to have been accepted by the Stockholder Representative. If the Stockholder Representative delivers the Statement of Objections before the expiration of the Review Period, Parent and the Stockholder Representative shall negotiate in good faith to resolve such objections within 30 days after the delivery of the Statement of Objections (the “ Resolution Period ”), and, if the same are so resolved within the Resolution Period, the Post-Closing Adjustment and the Parent Closing Statement with such changes as may be agreed in writing by Parent and the Stockholder Representative, shall be final and binding.

(iii)     Resolution of Disputes. If the Stockholder Representative and Parent fail to reach an agreement with respect to all of the matters set forth in the Statement of Objections before expiration of the Resolution Period, then any amounts remaining in dispute (“ Disputed Amounts ” and any amounts not so disputed, the “ Undisputed Amounts ”) shall be submitted for resolution to the San Jose office of Grant Thornton or, if the San Jose office of Grant Thornton is unable to serve, by an office of Grant Thornton appointed by mutual agreement of the Parent and the Stockholder Representative, or no such other office of Grant Thornton is able to serve, the Parent and the Stockholder Representative shall appoint by mutual agreement the office of an impartial nationally recognized firm of independent certified public accountants (the “ Independent Accountant ”) who, acting as experts and not arbitrators, shall resolve the Disputed Amounts only and make any adjustments to the Post-Closing Adjustment, as the case may be, and the Parent Closing Statement. The parties hereto agree that all adjustments shall be made without regard to materiality. The Independent Accountant shall only decide the specific items under dispute by the parties and their decision for each Disputed Amount must be within the range of values assigned to each such item in the Parent Closing Statement and the Statement of Objections, respectively.

(iv)     Fees of the Independent Accountant. The fees and expenses of the Independent Accountant shall be paid by the Stockholder Representative (on behalf of the Stockholders) from the Stockholder Representative Expense Fund, on the one hand, and by Parent, on the other hand, based upon the percentage that the amount contested but not awarded to the Stockholder Representative or Parent, respectively, bears to the aggregate amount contested by the Stockholder Representative and Parent.

(v)     Determination by Independent Accountant. The Independent Accountant shall make a determination as soon as practicable within 30 days (or such other time as the parties hereto shall agree in writing) after its engagement, and its resolution of the Disputed Amounts and any adjustments to the Parent Closing Statement and/or the Post-Closing Adjustment shall be consistent with the Accounting Principles and shall be conclusive and binding upon the parties hereto, absent manifest error.

(d)     Payment of Post-Closing Adjustment.

(i)    If the Post-Closing Adjustment is a negative number, the Stockholder Representative and Parent shall, within three (3) Business Days after the final determination of the Post-Closing Adjustment, jointly instruct the Escrow Agent to disburse from the Escrow Fund by wire transfer of immediately available funds to Parent, the positive amount of the Post-Closing Adjustment.

(ii)    If the Post-Closing Adjustment is a positive number, Parent shall, within three (3) Business Days after the final determination of the Post-Closing Adjustment, deposit with the Distribution

 

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Agent, for distribution to the Preferred Stockholders in accordance with their Pro Rata Shares, the amount of the Post-Closing Adjustment.

(e)     Adjustments for Tax Purposes. Any payments made pursuant to Section 2.16 shall be treated as an adjustment to the Merger Consideration by the parties for Tax purposes, unless otherwise required by Law.

Section 2.17      Consideration Spreadsheet.

(a)    The Company has prepared and delivered to Parent a spreadsheet (the “ Consideration Spreadsheet ”), certified by the Chief Financial Officer of the Company (solely in his capacity as such), which sets forth, as of the Closing Date, the following:

(i)    the name and last known address of all Stockholders and the number, class and series of Capital Stock held by each Stockholder;

(ii)    detailed calculations of the Closing Merger Consideration and Closing Per Share Merger Consideration;

(iii)    each Stockholder’s Pro Rata Share (as a percentage interest), if any, of (A) the Closing Merger Consideration, (B) any Post-Closing Adjustment, (C) any returned Indemnification Escrow Funds, (D) any returned Integration Cost Escrow Funds and (E) any returned Seller Representative Expense Funds.

(b)    The parties agree that Parent, Distribution Agent and Merger Sub shall be entitled to rely on the Consideration Spreadsheet in making payments under Article II and Parent, Distribution Agent and Merger Sub shall not be responsible for the calculations or the determinations regarding such calculations in such Consideration Spreadsheet. The parties acknowledge and agree that the Closing Merger Consideration, as adjusted from time to time pursuant to this Agreement and giving effect to amounts released to the Priority Preferred Stockholders from the Escrow Funds are intended to be allocated among the Priority Preferred Stockholders consistent with the Company Charter Documents and the DGCL, and the Stockholder Representative is hereby authorized to update and deliver to Parent, the Distribution Agent, the Escrow Agent and any other applicable Persons the Consideration Spreadsheet from time to time to effectuate the foregoing, as necessary in the Stockholder Representative’s good faith judgment to provide for an allocation consistent with the foregoing; provided, that , Parent, the Distribution Agent and the Surviving Corporation shall be entitled to rely on the updated Consideration Spreadsheet in making payments under Article II and Parent, the Distribution Agent and the Surviving Corporation shall not be responsible for the calculations or the determinations regarding such calculations in any updated Consideration Spreadsheet.

Section 2.18      Integration Procedures.

(a)     Integration Costs.  Attached to this Agreement is an Integration Cost Schedule, which sets forth the following estimated restructuring and integration costs (the costs specified in clauses (i) through (iv) below and no other costs, the “ Integration Costs ”) that will be incurred by the Surviving Corporation and its Affiliates during the nine (9) month period immediately following the Closing Date (without duplication, the “ Integration Period ”), as more fully described in the Integration Cost Schedule:

(i)    the reasonable out-of-pocket expenses incurred in connection with terminating (or continuing until such time as all waiting periods under the WARN Act or other applicable Law have expired, including any requirements related to any work council, labor organization or Governmental Authority) the employment of all employees of the Acquired Companies who are set forth on Section 2.18(a)(i) of the Integration Cost Schedule (including the payment of all accrued but unpaid wages and accrued but untaken paid time off, and the payment of severance required by Law or otherwise consistent with the

 

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written policies, agreements or plans of the Acquired Companies) and any amounts paid as severance to the Key Employees pursuant to their employment agreements;

(ii)    the reasonable out-of-pocket expenses incurred in connection with terminating or subleasing all Leased Real Property, less any amounts received or saved in connection with subleasing any such Leased Real Property, as contemplated by Section 2.18(a)(ii) of the Integration Cost Schedule;

(iii)    the reasonable out-of-pocket expenses incurred in connection with winding down or terminating the Company’s third party contracts set forth on and as contemplated by Section 2.18(a)(iii) of the Integration Cost Schedule; and

(iv)    the other reasonable out-of-pocket restructuring and integration costs (not to exceed $1,000,000 in the aggregate) associated with the winding down of the Company’s operations as contemplated by Section 2.18(a)(iv) of the Integration Cost Schedule.

(b)     Covenants During Integration Period .

(i)    During the Integration Period, Parent shall, or shall cause Surviving Corporation, within ten (10) Business Days of each monthly anniversary of the Closing Date, prepare and deliver to the Stockholder Representative, a statement setting forth in reasonable detail, (i) a detailed determination of the Integration Costs incurred to date and (ii) a good faith estimate of the Integration Costs required to be incurred through the remainder of the Integration Period.

(ii)    During the Integration Period, the Chief Executive Officer of Parent shall, within ten (10) Business Days of the end of each fiscal quarter commencing with the quarter ending September 30, 2016, meet with Greg Barrett (or another individual designated by the Stockholder Representative) to review the status of the winding down of the Company and the Integration Costs.

(c)     Determination of Integration Costs; Distribution of the Integration Cost Escrow Fund. On the last day of the Integration Period, Parent shall, or shall cause Surviving Corporation to, prepare in good faith and deliver to the Stockholder Representative an updated Integration Cost Schedule detailing all Integration Costs incurred by the Surviving Corporation and its Affiliates during the Integration Period. After receipt of the updated Integration Cost Schedule, the Stockholder Representative shall have a thirty (30) day Review Period to review the updated Integration Cost Schedule and deliver a Statement of Objections of the type contemplated by Section 2.16(c)(ii) ; provided, that, the Stockholder Representative may only object with respect to expenses that: (i) it believes, acting in good faith, were not incurred by the Surviving Corporation or its Affiliates or (ii) are not Integration Costs. During such Review Period, the Stockholder Representative shall have access to the books and records of Parent and the Surviving Corporation, the personnel of, and work papers prepared by Parent and/or its accountants to the extent that they relate to the Integration Costs and to such historical financial information (to the extent in Parent’s or its Affiliates possession) relating to the Integration Costs as the Stockholder Representative may reasonably request for the purpose of reviewing the updated Integration Cost Schedule, provided, that , such access shall be in a manner that does not interfere with the business operations of Parent or the Surviving Corporation. If the Stockholder Representative disputes whether an expense was incurred by the Surviving Corporation or its Affiliates or was an Integration Cost, such dispute shall be resolved in accordance with the provisions of Section 2.16(c)(iii) , (iv) and (v) , as if (i) the disputed amount were the Disputed Amount, (ii) the amount or eligibility of disputed expense were substituted for the definition of Post-Closing Adjustment, and (iii) the definition of Integration Costs were substituted for the definition of Accounting Principles. If the Stockholder Representative fails to deliver a Statement of Objections during the Review Period, then the Stockholder Representative shall be deemed to have consented to Parent’s determination of the actual amount of Integration Costs. Following resolution of the actual amount of Integration Costs in accordance with this Section 2.18(c) : (x) if the Integration Costs do not exceed the Integration Cost Target, then Parent and the Stockholder Representative shall promptly, but in any event within three (3) Business Days of such determination, jointly instruct the Escrow Agent to disburse (A) 50% of the Integration Cost

 

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Escrow Funds to the Surviving Corporation to be used for payment to the participants in the Management Bonus Plan in accordance with the terms thereof, (B) 50% of the Integration Cost Escrow Funds, less the employer portion of Taxes (including amounts under FICA, Medicare or other Laws) owed by the Surviving Corporation with respect to the amounts payable pursuant to the Management Bonus Plan in accordance with the foregoing clause (A), to the Distribution Agent for further payment to the Priority Preferred Stockholders in accordance with their Pro Rata Shares of such amount, and (C) to the Surviving Corporation, the amount deducted from the foregoing clause (B) for the employer portion of Taxes as therein described; or (y) if the Integration Costs exceed the Integration Cost Target, then Parent and the Stockholder Representative shall promptly, but in any event within three (3) Business Days of such determination, jointly instruct the Escrow Agent to disburse to (A) Parent, solely from and only to the extent of the Integration Cost Escrow Funds, the amount of such excess, and to the extent any Integration Cost Escrow Funds remain following payment of any such excess, (B) (x) 50% of such remaining Integration Cost Escrow Funds to the Surviving Corporation to be used for payment to the participants in the Management Bonus Plan in accordance with the terms thereof, (y) 50% of such remaining Integration Cost Escrow Funds, less the employer portion of Taxes (including amounts under FICA, Medicare or other Laws) owed by the Surviving Corporation with respect to the amounts payable pursuant to the Management Bonus Plan in accordance with the foregoing clause (x), to the Distribution Agent for further payment to the Priority Preferred Stockholders in accordance with their Pro Rata Shares of such amount, and (z) to the Surviving Corporation, the amount deducted from the foregoing clause (y) for the employer portion of Taxes as therein described.

(d)    The sole and exclusive remedy of Parent and its Affiliates for reimbursement in respect of any Excess Integration Costs shall be to seek recovery from the Integration Cost Escrow Funds in accordance with this Section 2.18 ; provided, that , the foregoing limitation shall not prohibit any Parent Indemnitee from exercising any of its rights under Article VII , except to the extent of any indemnifiable Losses actually recovered by Parent or any of its Affiliates from the Integration Cost Escrow Funds .  

ARTICLE III
    
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in the Disclosure Schedules, the Company represents and warrants to Parent, as of the Effective Time, as set forth in this Article III . Notwithstanding the fact that each disclosure set forth in these Disclosure Schedules is identified by reference to, or grouped under a heading referring to, a specific individual section or subsection of the Agreement, each such disclosure shall be deemed to be a disclosure made against each other section or subsection of the Agreement if, and only if, it is reasonably apparent without further inquiry or investigation and without reference to any imputed or actual knowledge of Parent on the face of such disclosure that such disclosure is applicable to such other section or subsection of the Agreement, irrespective of whether such other section or subsection is explicitly referred to in such disclosure.

Section 3.01      Organization and Qualification of the Acquired Companies.

Each of the Acquired Companies is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation and has full corporate power and authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on its business as it has been and is currently conducted. Section 3.01 of the Disclosure Schedules sets forth each jurisdiction in which any Acquired Company is licensed or qualified to do business, and each Acquired Company is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business as currently conducted makes such licensing or qualification necessary, except in each case as would not result in a Material Adverse Effect.

Section 3.02      Authority; Board Approval.

 

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(a)    The Company has full corporate power and authority to enter into and perform its obligations under this Agreement and the Ancillary Documents to which it is a party and, subject to, in the case of the consummation of the Merger, adoption of this Agreement by the affirmative vote or consent of the Stockholders holding (i) a majority of the outstanding Common Stock and Preferred Stock voting together as a single class, (ii) a majority of the outstanding Preferred Stock voting as a single class, and (iii) a majority of the outstanding Common Stock voting as a single class (the “ Requisite Company Vote ”), to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by the Company of this Agreement and any Ancillary Document to which it is a party and the consummation by the Company of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of the Company and no other corporate proceedings on the part of the Company or any Acquired Company are necessary to authorize the execution, delivery and performance of this Agreement or to consummate the Merger and the other transactions contemplated hereby and thereby, subject only, in the case of consummation of the Merger, to the receipt of the Requisite Company Vote. The Requisite Company Vote is the only vote or consent of the holders of any class or series of the Company’s capital stock required to approve and adopt this Agreement and the Ancillary Documents, approve the Merger and consummate the Merger and the other transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by the Company, and (assuming due authorization, execution and delivery by each other party hereto) this Agreement constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. When each Ancillary Document to which any Acquired Company is or will be a party has been duly executed and delivered by such Acquired Company (assuming due authorization, execution and delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of such Acquired Company, enforceable against it in accordance with its terms.

(b)    The Company Board, by resolutions duly adopted by unanimous vote at a meeting of all directors of the Company duly called and held and, as of the date hereof, not subsequently rescinded or modified in any way, has, as of the date hereof (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, are fair to, and in the best interests of, the Stockholders, (ii) approved and declared advisable the “agreement of merger” (as such term is used in Section 251 of the DGCL) contained in this Agreement and the transactions contemplated by this Agreement, including the Merger, in accordance with the DGCL, (iii) directed that the “agreement of merger” contained in this Agreement be submitted to the Stockholders for adoption, and (iv) resolved to recommend that the Stockholders adopt the “agreement of merger” set forth in this Agreement (collectively, the “ Company Board Recommendation ”) and directed that such matter be submitted for consideration of the Stockholders.

Section 3.03      No Conflicts; Consents.

The execution, delivery and performance by the Company of this Agreement and by any Acquired Company of the Ancillary Documents to which it is a party, and the consummation of the transactions contemplated hereby and thereby, including the Merger, do not and will not: (i) conflict with or result in a violation or breach of, or default under, any provision of the certificate of incorporation, by-laws or other organizational documents of the Company (“Company Charter Documents”) or any Acquired Company; (ii) subject to, in the case of the Merger, obtaining the Requisite Company Vote, conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to any Acquired Company; (iii) except as set forth in Section 3.03 of the Disclosure Schedules, require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any Contract to which any Acquired Company is a party or by which any Acquired Company is bound or to which any of its properties or assets are subject (including any Material Contract) or any Permit affecting the properties, assets or business of any Acquired Company; or (iv) result in the creation or imposition of any Encumbrance on any property or asset of any Acquired Company, except in each case as would not result in a Material Adverse Effect. No consent, approval, Permit, Governmental Order, declaration or filing with, or

 

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notice to, any Governmental Authority is required by or with respect to the Company in connection with the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, except for the filing of the Certificate of Merger with the Secretary of State of Delaware.

Section 3.04      Capitalization; Consideration Spreadsheet.

(a)    The authorized Capital Stock of the Company consists of 450,000,000 shares of Common Stock and 258,103,000 shares of Preferred Stock, of which 32,504,514 shares of Common Stock and 216,092,280 shares of Preferred Stock are issued and outstanding as of the close of business on the date of this Agreement. Section 3.04(a) of the Disclosure Schedules describes the authorized and outstanding capitalization of each Subsidiary.

(b)     Section 3.04(b) of the Disclosure Schedules set forth, as of the close of business on the date hereof, (i) the name of each Person that is the registered owner of any shares of Capital Stock and the class, series and number of shares of Capital Stock owned by such Person and (ii) a list of all holders of outstanding Options, including the number of shares of Capital Stock subject to each such Option, the grant date, exercise price and vesting schedule for such Option, the extent to which such Option is vested and exercisable and the date on which such Option expires. Each Option was granted in compliance with (x) all applicable Laws and (y) all of the terms and conditions of the Stock Option Plan pursuant to which it was issued. Each Option was granted with an exercise price per share equal to or greater than the fair market value per share of the underlying shares on the date of grant and has a grant date identical to the date on which the Company Board or authorized compensation committee thereof actually awarded the Option. Each Option qualifies for the tax and accounting treatment afforded to such Option in the Company’s tax returns and the Company’s financial statements, respectively, and does not trigger any liability for the Optionholder under Section 409A of the Code. The Company has heretofore provided or made available to Parent (or Parent’s Representatives) true and complete copies of the standard form of option agreement and any stock option agreements that materially differ from such standard form.

(c)    Except as disclosed on Section 3.04(c) of the Disclosure Schedules and except for the Options granted pursuant to the 2004 Stock Plan of the Company, each of which will be canceled as of the Effective Time, (i) no subscription, warrant, option, convertible or exchangeable security, or other Equity Right of any Acquired Company is authorized or outstanding, and (ii) there is no commitment by any Acquired Company to issue shares, subscriptions, warrants, options, convertible or exchangeable securities, or other such rights or to distribute to holders of any of its equity securities any evidence of indebtedness or asset, to repurchase or redeem any securities of any Acquired Company or to grant, extend, accelerate the vesting of, change the price of, or otherwise amend any warrant, option, convertible or exchangeable security or other such right. There are no declared or accrued unpaid dividends with respect to any shares of Capital Stock or any other equity security of any Acquired Company.

(d)    Except as disclosed on Section 3.04(d) of the Disclosure Schedules, all issued and outstanding shares of the capital stock of the Acquired Companies (including all shares of Capital Stock) are (i) duly authorized, validly issued, fully paid and non-assessable; (ii) not subject to any preemptive right created by statute, the Company Charter Documents or any agreement to which any Acquired Company is a party; and (iii) free of any Encumbrance created by any Acquired Company in respect thereof. All issued and outstanding shares of the capital stock of the Acquired Companies (including all shares of Capital Stock), all Options and all Equity Rights were issued in compliance with all applicable Laws.

(e)    Except as disclosed on Section 3.04(e) of the Disclosure Schedules, no outstanding share of Capital Stock is subject to vesting or forfeiture rights or repurchase by the Company. There are no outstanding or authorized stock appreciation, dividend equivalent, phantom stock, profit participation or other similar rights with respect to any Acquired Company or any of its securities.

 

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(f)    All distributions, dividends, repurchases and redemptions of the capital stock (or other equity interests) of the Acquired Companies were undertaken in compliance with the applicable charter documents then in effect, any agreement to which any Acquired Company then was a party and in compliance with all applicable Laws.

(g)    The Consideration Spreadsheet is accurate and complete in all respects, and the distribution of the Merger Consideration to the Stockholders as set forth therein is in full compliance with the Company Charter Documents in all respects.

(h)    The Company has taken all steps, including the timely provision of all notices, as required to cause each Option that is outstanding and unexercised immediately prior to the Effective Time, whether or not then vested or exercisable, by virtue of the Merger and without any additional action on the part of Parent, Merger Sub, the Company, the Optionholder or any other Person, to be cancelled in accordance with the terms of the Option.

(i)    The Company has taken all steps, including the timely provision of all notices, as required to cause each At the Effective Time, each Equity Right, other than Non-Terminating Rights, that is outstanding and unexercised immediately prior to the Effective Time, by virtue of the Merger and without any additional action on the part of Parent, Merger Sub, the Company, to be cancelled in accordance with the terms of the Equity Right.

Section 3.05      No Subsidiaries.

Except as disclosed on Section 3.05 of the Disclosure Schedules, the Company does not own or control (directly or indirectly) any shares, partnership interest, joint venture interest, equity participation or other security or interest in any other Person.

Section 3.06      Financial Statements.

Complete copies of the consolidated audited financial statements of the Company, consisting of the balance sheet of the Company and its consolidated Subsidiaries as at December 31 in each of the years 2014 and 2013 and the related statements of income and retained earnings, stockholders’ equity and cash flow for the years then ended (the “Audited Financial Statements”), the consolidated unaudited financial statements of the Company, consisting of the balance sheet of the Company and its consolidated Subsidiaries as at December 31, 2015 and the related statements of income and retained earnings, stockholders’ equity and cash flow for the year then ended and unaudited financial statements of the Company, consisting of the balance sheet of the Company and its consolidated Subsidiaries as at March 31, 2016 and the related statements of income and retained earnings, stockholders’ equity and cash flow for the three-month period then ended (the “Interim Financial Statements” and together with the Audited Financial Statements, the “Financial Statements”) have been delivered to Parent. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods involved, subject, in the case of the Interim Financial Statements, to normal and recurring year-end adjustments (the effect of which will not be materially adverse) and the absence of notes (that, if presented, would not differ materially from those presented in the Audited Financial Statements). The Financial Statements are based on the books and records of the Acquired Companies, and fairly present in all material respects the financial condition of the Acquired Companies as of the respective dates they were prepared and the results of the operations of the Acquired Companies for the periods indicated. The balance sheet of the Company and its consolidated Subsidiaries as of December 31, 2015 is referred to herein as the “Balance Sheet” and the date thereof as the “Balance Sheet Date” and the balance sheet of the Company and its consolidated Subsidiaries as of March 31, 2016 is referred to herein as the “Interim Balance Sheet” and the date thereof as the “Interim Balance Sheet Date.” The Acquired Companies maintain a standard system of accounting established and administered in accordance with GAAP.

Section 3.07      Undisclosed Liabilities.

 

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Except as disclosed on Section 3.07 of the Disclosure Schedules, the Acquired Companies have no liabilities other than (a) those which are adequately reflected or reserved against in the Balance Sheet as of the Balance Sheet Date, and (b) those which have been incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date and which are not, individually or in the aggregate, material in amount, and (c) contractual and other liabilities of a type not required to be reflected on a balance sheet of the Company and its consolidated Subsidiaries prepared in accordance with GAAP.

Section 3.08      Absence of Certain Changes, Events and Conditions.

Since the Balance Sheet Date, and other than (x) in the ordinary course of business consistent with past practice or (y) the early repayment of Indebtedness, there has not been, with respect to any Acquired Company, any:

(a)    event, occurrence or development that has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

(b)    amendment of the charter, by-laws or other organizational documents of the Acquired Company;

(c)    split, combination or reclassification of any equity securities of the Acquired Company;

(d)    issuance, sale or other disposition of any of any equity securities or grant of any option, warrant or other right to purchase or obtain (including upon conversion, exchange or exercise) any of its equity securities;

(e)    declaration or payment of any dividend or distribution on or in respect of any of its capital stock or redemption, purchase or acquisition of its capital stock;

(f)    material change in any method of accounting or accounting practice of the Acquired Company, except as required by GAAP or as disclosed in the notes to the Financial Statements;

(g)    material change in the Acquired Company’s cash management practices or its policies, practices and procedures with respect to collection of accounts receivable, establishment of reserves for uncollectible accounts, accrual of accounts receivable, inventory control, prepayment of expenses, payment of trade accounts payable, accrual of other expenses, deferral of revenue and acceptance of customer deposits;

(h)    incurrence, assumption or guarantee of any indebtedness for borrowed money except unsecured current obligations and liabilities incurred in the ordinary course of business consistent with past practice;

(i)    transfer, assignment, sale or other disposition of any of the assets shown or reflected in the Balance Sheet or cancellation of any debts or entitlements;

(j)    transfer, assignment or grant of any license or sublicense of any material rights under or with respect to any Company Intellectual Property or Company IP Agreements;

(k)    damage, destruction or loss (whether or not covered by insurance) to its property;

(l)    capital investment in, or any loan to, any other Person;

(m)    acceleration, termination, material modification to or cancellation of any Material Contract;

 

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(n)    material capital expenditure;

(o)    imposition of any Encumbrance upon any of the Acquired Company’s properties, capital stock or assets, tangible or intangible;

(p)    (i) grant of any bonus, whether monetary or otherwise, or increase in any wages, salary, severance, pension or other compensation or benefits in respect of its current or former employees, officers, directors, independent contractors or consultants, other than as provided for in any written agreements or required by applicable Law, (ii) change in the material terms of employment for any employee or any termination of any employees, for which the aggregate costs and expenses exceed $75,000, or (iii) action to accelerate the vesting or payment of any compensation or benefit for any current or former employee, officer, director, independent contractor or consultant;

(q)    adoption, modification or termination of any: (i) employment, severance, retention or other agreement with any current or former employee, officer, director, independent contractor or consultant, (ii) Benefit Plan or (iii) collective bargaining or other agreement with a Union, in each case whether written or oral;

(r)    loan to (or forgiveness of any loan to), or entry into any other transaction with, any of its stockholders or current or former directors, officers and employees, in each case, other than in connection with the incurrence of reimbursable expenses consistent with corporate policy;

(s)    entry into a new line of business or abandonment or discontinuance of any existing line of business;

(t)    adoption of any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy under any provisions of federal or state bankruptcy Law or consent to the filing of any bankruptcy petition against it under any similar Law, except for the Merger;

(u)    purchase, lease or other acquisition of the right to own, use or lease any property or assets for an amount in excess of $100,000, individually (in the case of a lease, per annum) or $100,000 in the aggregate (in the case of a lease, for the entire term of the lease, not including any option term), except for purchases of inventory or supplies in the ordinary course of business consistent with past practice;

(v)    acquisition by merger or consolidation with, or by purchase of a substantial portion of the assets or stock of, or by any other manner, any business or any Person or any division thereof;

(w)    action by any Acquired Company to make, change or rescind any material Tax election or amend any Tax Return; or

(x)    any Contract to do any of the foregoing, or any action or omission that would result in any of the foregoing.

Section 3.09      Material Contracts.

(a)     Section 3.09(a) of the Disclosure Schedules lists each of the following Contracts of the Acquired Companies (such Contracts, together with all Contracts concerning the occupancy, management or operation of any Real Property (including without limitation, brokerage contracts) listed or otherwise disclosed in Section 3.10 of the Disclosure Schedules and all Company IP Agreements set forth in Section 3.12(b) of the Disclosure Schedules, being “ Material Contracts ”):

(i)    each Contract of any Acquired Company involving (A) minimum aggregate consideration in excess of $100,000, or (B) under which the Acquired Company paid or received in excess

 

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of $100,000, in each case, during the year ended December 31, 2015 or the portion of 2016 up through the date hereof, in each case, other than a Benefit Plan;

(ii)    all Contracts that require any Acquired Company to purchase its total requirements of any product or service from a third party or that contain “take or pay” provisions;

(iii)    all Contracts that provide for the indemnification by any Acquired Company of any Person (other than customary indemnification provisions in customer and vendor agreements) or the assumption of any environmental or other liability of any Person;

(iv)    all Contracts that relate to the acquisition or disposition by any Acquired Company of any business, stock or real property, and all Contracts that relate to the acquisition or disposition by any Acquired Company of any other assets for more than $25,000 (in each case, whether by merger, sale of stock, sale of assets or otherwise);

(v)    all broker, distributor, dealer, manufacturer’s representative, franchise, agency, sales promotion, market research, marketing consulting and advertising Contracts to which any Acquired Company is a party;

(vi)    all employment agreements and Contracts with independent contractors or consultants (other than offer letters that provide for termination at-will and do not include severance or termination obligations and the Company’s law firms, accounting firms or investment banking firms) to which any Acquired Company is a party and which are still in effect;

(vii)    except for Contracts relating to trade receivables, all Contracts relating to Indebtedness (including, without limitation, guarantees) of any Acquired Company;

(viii)    all Contracts with any Governmental Authority (other than any hospital or other healthcare provider) to which any Acquired Company is a party (“ Government Contracts ”);

(ix)    all Contracts that limit or purport to limit the ability of any Acquired Company to compete in any line of business or with any Person or in any geographic area or during any period of time;

(x)    any Contracts to which any Acquired Company is a party that provide for any joint venture, partnership or similar arrangement by any Acquired Company;

(xi)    all collective bargaining agreements or Contracts with any Union to which any Acquired Company is a party;

(xii)    contracts continuing over a period of more than one year from the date thereof that are not terminable by any Acquired Company upon thirty (30) or fewer days’ notice without penalty, other than a Benefit Plan;

(xiii)    powers of attorney executed on behalf of any Acquired Company; and

(xiv)    any other Contract that is material to any Acquired Company involving aggregate consideration in excess of $100,000 and not previously disclosed pursuant to this Section 3.09 .

(b)    Each Material Contract is valid and binding on the respective Acquired Company in accordance with its terms and is in full force and effect. Neither the respective Acquired Company nor, to the Company’s Knowledge, any other party thereto is in breach of or default under (or is alleged to be in breach of or default under), or, except as otherwise expressly provided for in this Agreement, has provided or received any notice of any intention to terminate, any Material Contract. No event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event of default under any Material

 

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Contract or result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation or the loss of any benefit thereunder. Complete and correct copies of each Material Contract (including all modifications, amendments and supplements thereto and waivers thereunder) have been made available to Parent.

Section 3.10      Title to Assets; Real Property.

(a)    No Acquired Company owns any land, building, structure, easement or other right or interest appurtenant thereto (including air, oil, gas, mineral and water rights) (“ Real Property ”).

(b)     Section 3.10(b) of the Disclosure Schedules sets forth a list of all leases of Real Property (including all amendments, guaranties and other agreements with respect thereto) to which any Acquired Company is a party (such property, the “ Leased Real Property ”), the address of each parcel of Leased Real Property, the current annualized rent payment thereunder (including any property tax or other obligations determined by formula, which may be set forth at the amount actual paid in 2015) and the expiration date of the applicable lease. Except as set forth in Section 3.10(b) of the Disclosure Schedules, with respect to each of such leases, (A) such lease is legal, valid, binding and enforceable against any Acquired Company, and is in full force and effect; (B) the respective Acquired Company has good and valid title to, or a valid leasehold interest in all Leased Real Property; (C) neither the Acquired Company nor, to the Company’s Knowledge, any other party to such lease, is in material breach or default under such lease, and no event has occurred or circumstance exists that, with the delivery of notice, passage of time or both, would constitute such a material breach or default or permit the termination or modification of, or acceleration of rent under, such lease; and (D) all Leased Real Property is free and clear of Liens except for Permitted Encumbrances.

(c)    The Company has delivered or made available to Parent true, complete and correct copies of any leases or other Contracts affecting the Leased Real Property. No Acquired Company is a sublessor or grantor under any sublease or other instrument granting to any other Person any right to the possession, lease, occupancy or enjoyment of any Leased Real Property. The use and operation of the Leased Real Property in the conduct of the Acquired Companies’ business do not violate in any material respect any Law, covenant, condition, restriction, easement, license, permit or agreement. No material improvements constituting a part of the Leased Real Property encroach on real property owned or leased by a Person other than an Acquired Company. There are no Actions pending nor, to the Company’s Knowledge, threatened against or affecting the Leased Real Property or any portion thereof or interest therein in the nature or in lieu of condemnation or eminent domain proceedings.

(d)    The Leased Real Property comprises all of the Real Property used in, or otherwise related to, the Acquired Companies’ businesses; and no Acquired Company is a party to any agreement or option to purchase any Real Property or interest therein.

Section 3.11      Title to Assets; Condition And Sufficiency of Assets.

The Acquired Companies own or have a valid right to use their property and assets free and clear of all Liens, except for Permitted Encumbrances. With respect to the property and assets they lease, the Acquired Companies are in compliance with such leases and hold a valid leasehold interest. The buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property of the Acquired Companies are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. The buildings, plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property currently owned or leased by the Acquired Company, together with all other properties and assets of the Acquired Companies, are sufficient for the continued conduct of the Acquired Companies’ business after the Closing in substantially the same manner as conducted prior to the Closing and constitute

 

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all of the rights, property and assets necessary to conduct the business of the Acquired Companies as currently conducted.

Section 3.12      Intellectual Property.

(a)     Section 3.12(a) of the Disclosure Schedules sets forth, with the application number, application date, registration/issue number, registration/issue date, title or mark, country or other jurisdiction and owner(s), as applicable, a complete list of all Company IP Registrations. In addition, Section 3.12(a) of the Disclosure Schedules briefly identifies Company Intellectual Property, including software, that are not registered but that are material to the Acquired Companies business or operations. All required filings and fees related to the Company IP Registrations, which have a due date prior to the Closing, have been timely filed with and paid to the relevant Governmental Authorities and authorized registrars, and all Company IP Registrations are otherwise in good standing (except where any of the Acquired Companies has, in its reasonable business judgment and with Parent’s prior written consent, decided to cancel, abandon, allow to lapse or not renew such Company IP Registrations and such Company IP Registrations are listed as Intentionally Lapsed Registrations on Section 3.12(a) of the Disclosure Schedules). The Company has provided Parent with physical access to true and complete copies of file histories, documents, certificates, office actions, correspondence and other materials related to all Company IP Registrations.

(b)     Section 3.12(b) of the Disclosure Schedules lists all Company IP Agreements other than Off-the-Shelf Agreements. The Company has provided Parent with access to true and complete copies of all such Company IP Agreements other than Off-the-Shelf Agreements, including all modifications, amendments and supplements thereto and waivers thereunder. Each Company IP Agreement is valid and binding on the respective Acquired Company in accordance with its terms and is in full force and effect. Neither the respective Acquired Company nor, to the Company’s Knowledge, any other party thereto is in breach of or default under (or is alleged to be in breach of or default under), or has provided or received any notice of breach or default of or any intention to terminate, any Company IP Agreement.

(c)    The Acquired Companies are the sole and exclusive legal and beneficial, and with respect to the Company IP Registrations, record, owner of all right, title and interest in and to the Company Intellectual Property, and have the valid right to use all other Intellectual Property used in or necessary for the conduct of the Acquired Companies’ current business or operations, in each case, free and clear of Encumbrances other than Permitted Encumbrances. For the avoidance of doubt, the foregoing is not a representation or warranty regarding infringement of third party Intellectual Property and such representation and warranty is set forth exclusively in clause (f) below. Without limiting the generality of the foregoing, an Acquired Company has entered into binding, written agreements, substantially in the forms made available to Parent, with every current and former employee and independent contractor involved in the creation or development of any Intellectual Property for or on behalf of any Acquired Company, whereby such employees and independent contractors (i) assign to the respective Acquired Company any ownership interest and right they may have in the Company Intellectual Property; and (ii) acknowledge the respective Acquired Company’s exclusive ownership of all Company Intellectual Property. The Company has provided Parent access to true and complete copies of all such agreements.

(d)    The consummation of the transactions contemplated hereunder will not result in the loss or impairment of or payment of any additional amounts with respect to, nor require the consent of any other Person in respect of, any Acquired Company’s right to own, use or hold for use any Intellectual Property as owned, used or held for use in the conduct of the Acquired Companies’ business or operations as currently conducted.

(e)    The Acquired Companies’ rights in the Company IP Registrations (excluding any applications therefor) are valid, subsisting and enforceable. The Acquired Companies have taken all reasonable steps to maintain, protect and preserve the confidentiality of all trade secrets included in the

 

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Company Intellectual Property, including requiring all Persons having access thereto to execute written non-disclosure agreements.

(f)    Except as disclosed on Section 3.12(f) of the Disclosure Schedules, the conduct of the Acquired Companies’ business as currently and formerly conducted, and the products, processes and services of the Acquired Companies, have not infringed, misappropriated, diluted or otherwise violated, and do not currently infringe, dilute, misappropriate or otherwise violate the Intellectual Property or other rights of any Person. To the Company’s Knowledge, no Person has infringed, misappropriated, diluted or otherwise violated or is currently infringing, misappropriating, diluting or otherwise violating, any Company Intellectual Property.

(g)    There are no Actions (including any oppositions, interferences or re-examinations) settled, pending, threatened in writing (including in the form of offers to obtain a license), or to the Knowledge of the Company orally threatened: (i) alleging any infringement, misappropriation, dilution or violation of the Intellectual Property of any Person by any Acquired Company; (ii) challenging the validity, enforceability, registrability or ownership of any Company Intellectual Property or an Acquired Company’s rights with respect to any Company Intellectual Property; or (iii) by an Acquired Company alleging any infringement, misappropriation, dilution or violation by any Person of the Company Intellectual Property. No Acquired Company is subject to any outstanding or prospective Governmental Order (including any motion or petition therefor) that does or would restrict or impair the use of any Company Intellectual Property.

(h)     Section 3.12(b) of the Disclosure Schedule sets forth all software that is distributed as “free software,” “open source software” or under a similar licensing or distribution model (including the GNU General Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla Public License (MPL), BSD licenses, the Artistic License, the Netscape Public License, the Sun Community Source License (SCSL), the Sun Industry Standards License (SISL) and the Apache License) (“ Open Source Materials ”) used by the Acquired Companies in the conduct of its current business. None of the Open Source Materials creates, or purports to create, obligations for the Parent or any Acquired Companies with respect to grant to any third party, any rights or immunities under any Company Intellectual Property (including by requirement, as a condition of use, modification or distribution of the Open Source Materials that other software incorporated into, derived from or distributed with the Open Source Materials be (1) disclosed or distributed in source code form, (2) be licensed for the purpose of making derivative works, or (3) be redistributable at no charge).

Section 3.13      Inventory.   Except as disclosed on Section 3.13 of the Disclosure Schedules, all inventory of the Acquired Companies, whether or not reflected in the Interim Balance Sheet, consists of a quality and quantity usable and salable in the ordinary course of business consistent with past practice, except for obsolete, damaged, defective or slow-moving items that have been written off or written down to fair market value or for which adequate reserves have been established. All such inventory is owned by the Acquired Companies free and clear of all Encumbrances, and no inventory is held on a consignment basis.

Section 3.14      Accounts Receivable; Accounts Payable.

(a)    The accounts receivable reflected on the Interim Balance Sheet, and all other accounts receivable of the Acquired Companies that have arisen from the Interim Balance Sheet Date and prior to the Closing Date, (i) have arisen from bona fide transactions entered into by the Acquired Companies involving the sale of goods or the rendering of services in the ordinary course of business consistent with past practice; (ii) constitute only valid, undisputed claims of the Acquired Companies not subject to claims of set-off or other defenses or counterclaims other than normal cash discounts accrued in the ordinary course of business consistent with past practice; and (iii) subject to a reserve for bad debts shown on the Interim Balance Sheet or, with respect to accounts receivable arising after the Interim Balance Sheet Date, on the accounting records of the Acquired Companies, are collectible in full within 90 days after billing. The reserve for bad debts shown on the Interim Balance Sheet or, with respect to accounts receivable arising

 

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after the Interim Balance Sheet Date, on the accounting records of the Acquired Companies have been determined in accordance with GAAP, consistently applied, subject to normal year-end adjustments and the absence of disclosures normally made in footnotes.

(b)    Since the Balance Sheet Date, the Acquired Companies have satisfied, paid and discharged all of their accounts payable and other current liabilities in a timely manner and in accordance with their respective terms of payment, except (i) for current accounts payable which are not yet delinquent and are properly accounted for in the Financial Statements in accordance with GAAP, consistently applied and (ii) accounts payable that are the subject of any bona fide dispute. Any and all such bona fide disputes that are currently unresolved are described on Section 3.14(b) of the Disclosure Schedules.

Section 3.15      Customers and Suppliers.

(a)     Section 3.15(a) of the Disclosure Schedules sets forth (i) each customer that was one of the twenty (20) largest sources of revenue to the Acquired Companies, based on amounts received, for each of the two (2) most recent fiscal years (collectively, the “ Material Customers ”); and (ii) the amount of consideration paid by each Material Customer during such period. No Acquired Company has received any notice, and has no reason to believe, that any of its Material Customers has ceased, or intends to cease after the Closing, to use its goods or services or to otherwise terminate or materially reduce its relationship with an Acquired Company.

(b)     Section 3.15(b) of the Disclosure Schedules sets forth (i) each supplier that was one of the twenty (20) largest suppliers of goods or services to the Acquired Companies, based on amounts paid, for each of the two (2) most recent fiscal years (collectively, the “ Material Suppliers ”); and (ii) the amount of purchases from each Material Supplier during such period. No Acquired Company has received any notice, and has no reason to believe, that any of its Material Suppliers has ceased, or intends to cease, to supply goods or services to an Acquired Company or to otherwise terminate or materially reduce its relationship with an Acquired Company.

Section 3.16      Insurance.

Section 3.16 of the Disclosure Schedules sets forth a true and complete list of all current policies or binders of fire, liability, product liability, umbrella liability, real and personal property, workers’ compensation, vehicular, directors’ and officers’ liability, fiduciary liability and other casualty and property insurance maintained by an Acquired Company and relating to the assets, business, operations, employees, officers and directors of the Acquired Companies (collectively, the “ Insurance Policies ”) and true and complete copies of such Insurance Policies have been made available to Parent. Such Insurance Policies are in full force and effect and shall remain in full force and effect immediately following the consummation of the transactions contemplated by this Agreement. No Acquired Company has received any written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of such Insurance Policies. All premiums due on such Insurance Policies have either been paid or, if due and payable prior to Closing, will be paid prior to Closing in accordance with the payment terms of each Insurance Policy. The Insurance Policies do not provide for any retrospective premium adjustment or other experience-based liability on the part of any Acquired Company. All such Insurance Policies (a) are valid and binding in accordance with their terms; (b) are provided by carriers who are financially solvent; and (c) have not been subject to any lapse in coverage. There are no claims related to the business of the Acquired Companies pending under any such Insurance Policies as to which coverage has been questioned, denied or disputed or in respect of which there is an outstanding reservation of rights. No Acquired Company is in default under, or has otherwise failed to comply with, in any material respect, any provision contained in any such Insurance Policy. The Insurance Policies are of the type and in the amounts customarily carried by Persons conducting a business similar to the Acquired Companies and are sufficient for compliance with all applicable Laws and Contracts to which any Acquired Company is a party or by which it is bound.

Section 3.17      Legal Proceedings; Governmental Orders.

 

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(a)    Except as disclosed on Section 3.17(a) of the Disclosure Schedules, there are no Actions pending or, to the Company’s Knowledge, threatened (i) against or by any Acquired Company affecting any of its properties or assets; or (ii) against or by any Acquired Company that challenges or seeks to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. To the Company’s Knowledge, no circumstances currently exist that would reasonably give rise to, or serve as a basis for, any such Action.

(b)    Except as disclosed on Section 3.17(b) of the Disclosure Schedules, there are no outstanding Governmental Orders and no unsatisfied judgments, penalties or awards against or affecting any Acquired Company or any of its properties or assets. The Acquired Companies are in compliance with the terms of each Governmental Order applicable to any Acquired Company. To the Company’s Knowledge, no event has occurred or circumstances exist that are likely to constitute or result in (with or without notice or lapse of time) a violation of any such Governmental Order.

Section 3.18      Compliance With Laws; Permits.

(a)    Except as set forth in Section 3.18(a) of the Disclosure Schedules, each of the Acquired Companies has since September 30, 2011, in all material respects, complied, and is now complying, with all Laws applicable to it or its business, properties or assets. To the Company’s Knowledge, except as set forth in Section 3.18(a) of the Disclosure Schedules, each of the Acquired Companies has at all times prior to September 30, 2011, in all material respects, complied with all Laws applicable to it or its business, properties or assets.

(b)    All Permits required for the Acquired Companies to conduct their business in compliance with Law have been obtained by it and are valid and in full force and effect. All fees and charges with respect to such Permits as of the date hereof have been paid in full. Section 3.18(b) of the Disclosure Schedules lists all current Permits issued to any Acquired Company, including the names of the Permits and their respective dates of issuance and expiration. To the Company’s Knowledge, no event has occurred that, with or without notice or lapse of time or both, would reasonably be expected to result in the revocation, suspension, lapse or material limitation of any Permit set forth in Section 3.18(b) of the Disclosure Schedules.

Section 3.19      Environmental Matters.

(a)    Except as set forth on Section 3.19 of the Disclosure Schedules, the Acquired Companies are currently, and for the past seven (7) years have been, in material compliance with all Environmental Laws and have not received from any Person any: (i) Environmental Notice or Environmental Claim; or (ii) written request for information pursuant to any Environmental Law, which, in each case, either remains pending or unresolved, or is the source of ongoing obligations or requirements as of the Closing Date.

(b)    The Acquired Companies have obtained and are in material compliance with all Environmental Permits (each of which is disclosed in Section 3.19(b) of the Disclosure Schedules) necessary for the ownership, lease, operation or use of the business or assets of any Acquired Company and all such Environmental Permits are in full force and effect and shall be maintained in full force and effect by the Company through the Closing Date in accordance with Environmental Law, and no Acquired Company is aware of any condition, event or circumstance that would be reasonably expected to prevent or impede, after the Closing Date, the ownership, lease, operation or use of the business or assets of the Acquired Companies as currently carried out.

(c)    No real property currently or formerly owned, operated or leased by any Acquired Company is listed on, or has been proposed for listing on, the National Priorities List (or CERCLIS) under CERCLA, or any similar state list.

(d)    To the Company’s Knowledge, there has been no material Release of Hazardous Materials in contravention of Environmental Law with respect to the business or assets of any Acquired

 

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Company or any real property currently or formerly owned, operated or leased by any Acquired Company, and no Acquired Company has received an Environmental Notice that any real property currently or formerly owned, operated or leased in connection with the business of any Acquired Company (including soils, groundwater, surface water, buildings and other structure located on any such real property) has been contaminated with any Hazardous Material which could reasonably be expected to result in an Environmental Claim against, or a violation of Environmental Law or term of any Environmental Permit by, any Acquired Company.

(e)     Section 3.19(e) of the Disclosure Schedules contains a complete and accurate list of all active or abandoned aboveground or underground storage tanks owned or operated by any Acquired Company during the last seven (7) years.

(f)    The Acquired Companies have not sent any Hazardous Materials off-site for disposal or otherwise arranged, by contract or otherwise, for treatment, storage, or disposal of Hazardous Materials at a location other than that owned by or operated by the Acquired Companies.

(g)    No Acquired Company has retained or assumed, by contract or operation of Law, any liabilities or obligations of third parties under Environmental Law.

(h)    The Company has provided or otherwise made available to Parent and has listed in Section 3.19(h) of the Disclosure Schedules: (i) any and all environmental reports, studies, audits, records, sampling data, site assessments, risk assessments, economic models and other similar documents with respect to the business or assets of any Acquired Company or any currently or formerly owned, operated or leased real property which are in the possession or control of any Acquired Company related to compliance with Environmental Laws, Environmental Claims or an Environmental Notice or the Release of Hazardous Materials; and (ii) any and all material documents concerning planned or anticipated capital expenditures required to reduce, offset, limit or otherwise control pollution and/or emissions, manage waste or otherwise ensure compliance with current or future Environmental Laws (including, without limitation, costs of remediation, pollution control equipment and operational changes).

(i)    The Acquired Companies own and control all Environmental Attributes (a complete and accurate list of which is set forth in Section 3.19(i) of the Disclosure Schedules) and no Acquired Company has entered into any contract or pledge to transfer, lease, license, guarantee, sell, mortgage, pledge or otherwise dispose of or encumber any Environmental Attributes as of the date hereof. No Acquired Company is aware of any condition, event or circumstance that would be reasonably expected to prevent, impede or materially increase the costs associated with the transfer (if required) to Parent of any Environmental Attributes after the Closing Date.

(j)    This Section 3.19 contains the sole representations and warranties of the Company with respect to the subject matter set forth therein.

Section 3.20      Employee Benefit Matters.

(a)     Section 3.20(a) of the Disclosure Schedules contains a true and complete list of each pension, retirement, compensation, employment, consulting, profit-sharing, deferred compensation, incentive, bonus, performance award, phantom equity, stock or stock-based, change in control, retention, severance, vacation, paid time off, group health, welfare, fringe-benefit and other similar agreement, plan, policy, program or arrangement (and any amendments thereto), in each case whether or not reduced to writing and whether funded or unfunded, including each “employee benefit plan” within the meaning of Section 3(3) of ERISA, whether or not tax-qualified and whether or not subject to ERISA, which is or has been maintained, sponsored, contributed to, or required to be contributed to by any Acquired Company for the benefit of any current or former employee, officer, director, retiree, independent contractor or consultant of any of the Acquired Companies or any spouse or dependent of such individual, and under which any Acquired Company has or may have any liability, contingent or otherwise (as listed on Section 3.20(a) of

 

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the Disclosure Schedules, not including, for the avoidance of doubt, contributions, payments and benefits under mandatory Law, each, a “ Benefit Plan ”). The Company has separately identified in Section 3.20(a) of the Disclosure Schedules each Benefit Plan that is maintained, sponsored, contributed to, or required to be contributed to by any of the Acquired Companies primarily for the benefit of employees outside of the United States (not including, for the avoidance of doubt, contributions, payments and benefits under mandatory Law, a “ Non-U.S. Benefit Plan ”).

(b)    With respect to each material Benefit Plan, the Company has made available to Parent accurate, current and complete copies of each of the following, to the extend applicable: (i) where the Benefit Plan has been reduced to writing, the plan document together with all material amendments; (ii) where the Benefit Plan has not been reduced to writing, a written summary of all material plan terms; (iii) where applicable, copies of any trust agreements or other funding arrangements, custodial agreements, insurance policies and material contracts, material administration agreements and similar material agreements, and investment management or investment advisory agreements, now in effect or required in the future as a result of the transactions contemplated by this Agreement or otherwise; (iv) copies of the current summary plan descriptions, subsequent summaries of material modifications, employee handbooks and any other material written communications relating to the Benefit Plan; (v) in the case of any Benefit Plan that is intended to be qualified under Section 401(a) of the Code, a copy of the most recent determination, opinion or advisory letter from the Internal Revenue Service relating to the plan; (vi) in the case of any Benefit Plan for which a Form 5500 is required to be filed, a copy of the two most recently filed Forms 5500, with schedules and financial statements attached; (vii) any material actuarial valuations and reports related to any Benefit Plans with respect to the two most recently completed plan years; (vii) the most recent nondiscrimination tests performed under the Code; and (viii) copies of all material notices, material letters or other material correspondence from the Internal Revenue Service, Department of Labor, Pension Benefit Guaranty Corporation or other Governmental Authority relating to the Benefit Plan.

(c)    Each Benefit Plan and any related trust has been established, administered and maintained in all material respects (i) in accordance with its terms and (ii) in compliance with all applicable Laws (including ERISA and the Code). Each Benefit Plan that is intended to be qualified within the meaning of Section 401(a) of the Code (a “ Qualified Benefit Plan ”) is so qualified and has received a favorable and current determination letter from the Internal Revenue Service, or with respect to a prototype or volume submitter plan, can rely on an opinion letter or advisory letter from the Internal Revenue Service to the prototype or volume submitter plan sponsor, to the effect that such Qualified Benefit Plan is so qualified in form and that the plan and the trust related thereto are exempt from federal income taxes under Sections 401(a) and 501(a), respectively, of the Code, and nothing has occurred that could reasonably be expected to adversely affect the qualified status of any Qualified Benefit Plan. Nothing has occurred with respect to any Benefit Plan that has subjected or could reasonably be expected to subject any Acquired Company or, with respect to any period on or after the Closing Date, Parent or any of its Affiliates, to a penalty under Section 502 of ERISA or to tax or penalty under Section 4975 of the Code. Except as set forth in Section 3.20(c) of the Disclosure Schedules, all material benefits, contributions and premiums payable by the Acquired Companies under or with respect to each Benefit Plan have been timely paid in accordance with the terms of such Benefit Plan and all applicable Laws, and all material benefits accrued but not yet payable under any unfunded Benefit Plan have been paid, accrued or otherwise adequately reserved to the extent required by, and in accordance with, GAAP. All Non-U.S. Benefit Plans that are intended to be funded and/or book-reserved are funded and/or book-reserved, as appropriate, based upon reasonable accounting and actuarial assumptions.

(d)    Except as set forth in Section 3.20(h) of the Disclosure Schedules, no Acquired Company or any of its ERISA Affiliates has incurred or reasonably expects to incur, either directly or indirectly, any material unpaid liability under ERISA or related provisions of the Code or applicable local Law relating to employee benefit plans, in each case, as a result of non-compliance therewith;

(e)    No Acquired Company or any of its ERISA Affiliates has, within the past six (6) years, maintained, sponsored, contributed to or incurred any liability or potential liability under any (i)

 

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“multiemployer plan” as defined in Section 3(37) of ERISA (ii) “multiple employer plan” within the meaning of Section 413(c) of the Code or a “multiple employer welfare arrangement” (as defined in Section 3(40) of ERISA); or (iii) other pension plan subject to the minimum funding standards of Section 412 of the Code or Title IV of ERISA.

(f)    Except as set forth in Section 3.20(h) of the Disclosure Schedules, each Benefit Plan can be amended, terminated or otherwise discontinued after the Closing in accordance with its terms, without any material liability to Parent, any Acquired Company or any of their Affiliates other than ordinary administrative expenses typically incurred in a termination event. Except as otherwise provided for in this Agreement, no Acquired Company has any commitment or obligation and has not made any representations to any employee, officer, director, independent contractor or consultant, whether or not legally binding, to adopt, amend, modify or terminate any Benefit Plan or any collective bargaining agreement, in connection with the consummation of the transactions contemplated by this Agreement or otherwise.

(g)    Other than as required under Section 601 et. seq. of ERISA or other analogous Law and except as set forth in Section 3.20(h) of the Disclosure Schedules, no Benefit Plan provides post-termination or retiree health or other welfare benefits to any individual for any reason, and none of the Acquired Companies has any liability to provide post-termination or retiree health or other welfare benefits to any individual or ever represented, promised or contracted to any individual that such individual would be provided with post-termination or retiree health or other welfare benefits.

(h)    Except as set forth in Section 3.20(h) of the Disclosure Schedules, there is no pending or, to the Company’s Knowledge, threatened Action relating to a Benefit Plan (other than routine claims for benefits), and no Benefit Plan has within the three years prior to the date hereof been the subject of an examination or audit by a Governmental Authority or the subject of an application or filing under, or is a participant in, an amnesty, voluntary compliance, self-correction or similar program sponsored by any Governmental Authority.

(i)    There has been no amendment to, announcement by any of the Acquired Companies relating to, or change in employee participation or coverage under, any Benefit Plan that would increase the annual expense of maintaining such plan above the level of the expense incurred for the most recently completed fiscal year with respect to any director, officer, employee, independent contractor or consultant, as applicable. Except as otherwise provided for in this Agreement, none of the Acquired Companies has any commitment or obligation or has made any representations to any director, officer, employee, independent contractor or consultant, whether or not legally binding, to adopt, amend, modify or terminate any Benefit Plan.

(j)    Each Benefit Plan that is subject to Section 409A of the Code has been administered in material compliance with (i) its terms and (ii) the operational and documentary requirements of Section 409A of the Code and all applicable regulatory guidance (including notices, rulings and proposed and final regulations) thereunder. None of the Acquired Companies has any obligation to gross up, indemnify or otherwise reimburse any individual for any Taxes, interest or penalties incurred pursuant to Section 409A of the Code or for any other Taxes.

(k)    Each individual who is classified by an Acquired Company as an independent contractor has been properly classified for purposes of participation and benefit accrual under each Benefit Plan.

(l)    Except (i) as set forth in Section 3.20(k) of the Disclosure Schedules, (ii) required by applicable Law or (iii) as otherwise provided for in this Agreement, neither the execution of this Agreement nor any of the transactions contemplated by this Agreement will (either alone or upon the occurrence of any additional or subsequent events): (i) entitle any current or former director, officer, employee, independent contractor or consultant of any of the Acquired Companies to severance pay or any other material payment; (ii) accelerate the time of payment, funding or vesting, or increase the amount of compensation due to any such individual; (iii) limit or restrict the right of any of the Acquired Companies to merge, amend or

 

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terminate any Benefit Plan; (iv) increase the amount payable under or result in any other material obligation pursuant to any Benefit Plan; (v) result in “excess parachute payments” within the meaning of Section 280G(b) of the Code; or (vi) require a “gross-up” or other payment to any “disqualified individual” within the meaning of Section 280G(c) of the Code.

(m)    The Company Board has adopted resolutions and appropriate amendments to the Company’s 401(k) plan, in form reasonably acceptable to Parent, terminating the Company’s 401(k) plan immediately prior to Closing, with the 401(k) plan’s assets to be distributed and its affairs wound-up by the Surviving Corporation following the Closing.

(n)    This Section 3.20 and Section 3.04 contain the sole representations and warranties of the Company with respect to the subject matter set forth therein.

Section 3.21      Employment Matters.

(a)     Section 3.21(a) of the Disclosure Schedules contains a list of all persons who are employees, independent contractors or consultants (each not including, for the avoidance of doubt, the Company’s law firms, accounting firms or investment banking firms) of any Acquired Company as of the date hereof, including any employee who is on a leave of absence of any nature, paid or unpaid, authorized or unauthorized, and sets forth for each such individual the following: (i) name; (ii) title or position (including whether full or part time); (iii) hire date; (iv) current annual base compensation rate; (v) current target annual commission, bonus or other incentive-based compensation; provided, that , to the extent applicable privacy or data protection Laws would prohibit the disclosure of certain personally identifiable information without the individual’s consent, Section 3.21(a) shall provide such information in aggregated or de-identified form in compliance with applicable Laws. Except as set forth in Section 3.21(a) of the Disclosure Schedules, as of the date hereof, each of the Acquired Companies has paid in full all compensation, including wages, commissions and bonuses, due and payable as of the date hereof to its employees (other than amounts accrued in full on the balance sheet contained in the Closing Statement).

(b)    Except as set forth on Section 3.21(b) of the Disclosure Schedules, (i) no Acquired Company is, or has been for the past three years, a party to, bound by, or negotiating any collective bargaining agreement or other Contract with a union, works council or labor organization (collectively, “ Union ”), (ii) there is not, and has not been for the past three years, any Union representing or, to the Company’s Knowledge purporting to represent, any employee of any Acquired Company, and, to the Company’s Knowledge, no Union or group of employees is seeking or has sought to organize employees for the purpose of collective bargaining, (iii) there has not been any threat of, any strike, slowdown, work stoppage, lockout, concerted refusal to work overtime or other similar labor disruption or dispute affecting any Acquired Company or any of its employees and (iv) no Acquired Company has any duty to bargain with any Union.

(c)    The Acquired Companies are and since September 30, 2011 have been in material compliance with all applicable Laws pertaining to employment and employment practices, including, without limitation, all Laws relating to labor relations, equal employment opportunities, fair employment practices, employment discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits, immigration, wages, hours, overtime compensation, child labor, hiring, promotion and termination of employees, working conditions, meal and break periods, privacy, health and safety, federal or state OSHA obligations, whistleblower protection, workers’ compensation, leaves of absence and unemployment insurance. All individuals characterized and treated by any Acquired Company as independent contractors or consultants are properly classified and treated as independent contractors under all applicable Laws. The Company has analyzed and has properly classified all employees of the Acquired Companies as either exempt or non-exempt under the Fair Labor Standards Act and any applicable state and local laws and otherwise has complied with all requirements relating to the calculation of hours worked and the payment of overtime. Except as set forth in Section 3.21(b) of the Disclosure Schedules there are no Actions against any Acquired Company pending, or to the Company’s Knowledge, threatened to be

 

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brought or filed, by or with any Governmental Authority or arbitrator by or on behalf of any current or former applicant, employee, consultant, volunteer, intern, or independent contractor of any Acquired Company relating to unfair labor practices, employment discrimination, harassment, retaliation, equal pay, wages and hours or any other employment-related matter arising under applicable Laws.

(d)    The Acquired Companies have complied with the WARN Act since September 30, 2011.

(e)    With respect to each Government Contract, the Acquired Companies are and since September 30, 2011 have been in material compliance, to the extent applicable, with Executive Order No. 11246 of 1965 (“ E.O. 11246 ”), Section 503 of the Rehabilitation Act of 1973 (“ Section 503 ”) and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (“ VEVRAA ”), including all implementing regulations. The Acquired Companies maintain and comply with affirmative action plans in compliance with E.O. 11246, Section 503 and VEVRAA, including all implementing regulations. To the Company’s Knowledge, no Acquired Company is, and no Acquired Company has been since September 30, 2011, the subject of any audit, investigation or enforcement action by any Governmental Authority in connection with any Government Contract or related compliance with E.O. 11246, Section 503 and VEVRAA. No Acquired Company has been debarred, suspended or otherwise made ineligible from doing business with the United States government or any government contractor since September 30, 2011.

(f)     Section 3.21(f) of the Disclosure Schedules contains a list of all individuals who will receive any payments under the Employee Bonus Plan or the Management Bonus Plan, including the estimated amount of such payment as of the Closing Date.

Section 3.22      Taxes.

Except as set forth in Section 3.22 of the Disclosure Schedules:

(a)    All federal, state, or other income Tax Returns, all federal employment Tax Returns, all sales or value added Tax Returns and all other material Tax Returns required to be filed on or before the Closing Date by each of the Acquired Companies have been, or will be, timely filed. Such Tax Returns are, or will be, true, complete and correct in all material respects. All Taxes due and owing by each of the Acquired Companies (whether or not shown on any Tax Return) have been, or will be, timely paid.

(b)    Each of the Acquired Companies has withheld and paid each Tax required to have been withheld and paid by it in connection with amounts paid or owing to any employee, independent contractor, creditor, customer, shareholder, lender or other party, and each Acquired Company is in material compliance with all information reporting and backup withholding provisions of applicable Law.

(c)    No written claim has been made by any taxing authority in any jurisdiction where any of the Acquired Companies does not file Tax Returns that it is, or may be, subject to Tax by that jurisdiction.

(d)    No extensions or waivers of statutes of limitations are currently in force or have been requested with respect to any Taxes of any of the Acquired Companies.

(e)    The amount of any unpaid Taxes of the Acquired Companies for all periods ending on or before the Interim Balance Sheet Date does not, in the aggregate, exceed the amount of accruals for Taxes (excluding reserves for deferred Taxes established to reflect timing differences between book and Tax income) reflected on the Interim Financial Statements. The amount of any unpaid Taxes of the Acquired Companies for all periods following the Interim Balance Sheet Date shall not, in the aggregate, exceed the amount of required accruals for Taxes (excluding reserves for deferred Taxes established to reflect timing differences between book and Tax income) as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Acquired Companies.

 

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(f)     Section 3.22(f) of the Disclosure Schedules sets forth:

(i)    the taxable years of the Acquired Companies for which the applicable statutes of limitations relating to the assessment and collection of federal, state and other income Taxes have not yet expired;

(ii)    those taxable years for which any examinations by any taxing authorities have been completed; and

(iii)    those taxable years for which any examinations by taxing authorities are presently being conducted.

(g)    Except as disclosed on Section 3.22(g) of the Disclosure Schedules, all deficiencies asserted, or assessments made, against the any of the Acquired Companies as a result of any examinations by any taxing authority have been fully settled, resolved, or otherwise paid.

(h)    No Acquired Company is currently a party to any Action by any taxing authority. No taxing authority has stated in writing that it intends to initiate a future Action against any Acquired Company in respect of Taxes.

(i)    The Company has delivered to Parent copies of all federal, state, local and foreign income, franchise and similar Tax Returns of, and examination reports and statements of deficiencies assessed against, or agreed to by, each of the Acquired Companies for all Tax periods ending after December 31, 2010.

(j)    There are no Encumbrances for Taxes (other than Permitted Encumbrances) upon the assets of any of the Acquired Companies.

(k)    No Acquired Company is a party to, or bound by, any Tax Sharing Agreement.

(l)    Except as disclosed on Section 3.22(l) of the Disclosure Schedules, no private letter rulings, technical advice memoranda or similar agreement or rulings have been requested, entered into or issued by any taxing authority with respect to any of the Acquired Companies.

(m)    No Acquired Company has been a member of an affiliated, combined, consolidated or unitary Tax group for Tax purposes, other than any Tax group of which the Company either was or is the common parent. No Acquired Company has Liability for Taxes of any Person under Treasury Regulations Section 1.1502-6 (or any corresponding provision of state, local or foreign Law), or as a transferee or successor, or by reason of any contract, including a Tax Sharing Agreement or similar agreement.

(n)    No Acquired Company will be required to include any item of income in, or exclude any item or deduction from, taxable income for taxable period or portion thereof ending after the Closing Date as a result of:

(i)    any change in a method of accounting under Section 481 of the Code (or any comparable provision of state, local or foreign Tax Laws), or use of an improper method of accounting, for a taxable period ending on or prior to the Closing Date;

(ii)    an installment sale or open transaction occurring on or prior to the Closing Date;

(iii)    a prepaid amount received on or before the Closing Date;

(iv)    any closing agreement under Section 7121 of the Code, or similar provision of state, local or foreign Law; or

 

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(v)    any election under Section 108(i) of the Code.

(o)    No Acquired Company is, nor has been, a United States real property holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(1)(A) of the Code.

(p)    No Acquired Company has been a “distributing corporation” in connection with a distribution described in Section 355 of the Code.

(q)    No Acquired Company is, or has been, a party to, or a promoter of, a “reportable transaction” within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations Section 1.6011-4(b).

(r)    No Subsidiary is or has been a “passive foreign investment company” within the meaning of Code Section 1297.

(s)     Section 3.22(s) of the Disclosure Schedules sets forth for each Acquired Company all jurisdictions outside the United States in which the Acquired Company is subject to Tax, is engaged in business or has a permanent establishment. No Acquired Company has entered into a gain recognition agreement pursuant to Treasury Regulations Section 1.367(a)-8 or transferred an intangible asset the transfer of which would be subject to the rules of Section 367(d) of the Code.

(t)    Section 3.04(b), Section 3.06, Section 3.20, Section 3.21(e) and this Section 3.22 contain the sole representations and warranties of the Company with respect to the subject matter set forth therein, and no representations or warranties are being made as to the current amount or potential future availability of any net operating losses or any other tax attributes of any kind.

Section 3.23      Product Regulatory Review.

With respect to each of the products of the Acquired Companies subject to oversight by the United States Food and Drug Administration (“FDA”) or corresponding regulatory authorities in other jurisdictions, including those products that are or have been under research and/or development by the Acquired Companies:

(a)    Except as disclosed on Section 3.23(a) of the Disclosure Schedules, to the Company’s Knowledge, all products are being and have been researched, developed, manufactured, tested, distributed and/or marketed in compliance in all material respects with all applicable requirements under the Federal Food, Drug and Cosmetic Act and similar Laws and regulations applicable to such products, including for jurisdictions in which the Acquired Companies are conducting or preparing to conduct business related to such products, those laws and regulations enacted by any other federal, state or foreign Governmental Authority relating to investigational use, premarket approval, good manufacturing practices, labeling, advertising, promotion, record keeping, filing of reports and security.

(b)    Except as disclosed on Section 3.23(b) of the Disclosure Schedules, no Acquired Company has received any notice or other communication from the FDA or any other federal, state or foreign Governmental Authority where the Acquired Companies are conducting business related to such products (i) contesting the premarket approval of, the uses of or the labeling and promotion of any such product or (ii) otherwise alleging any violation by any Acquired Company of any Law, regulation or other legal provision applicable to any such product which would significantly impact the marketing of such products.

(c)    To the Company’s Knowledge, no Acquired Company has made an untrue statement of a material fact or fraudulent statement to the FDA or other federal, state or foreign Governmental Authority

 

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performing similar functions or failed to disclose a material fact required to be disclosed to the FDA or such other federal, state or foreign Governmental Authority.

(d)    Except as set forth in Section 3.23(d) of the Disclosure Schedules, to the Company’s Knowledge, the Acquired Companies have all approvals, clearances, authorizations, licenses or registrations required by the FDA or other Governmental Authority to permit the activities (including pre-clinical testing) undertaken by the Company (the “ Activities to Date ”) in any jurisdiction where any Acquired Company currently conducts or in the past seven (7) years has conducted such activities. To the Company’s Knowledge, the Acquired Companies are in compliance with all applicable Laws, rules and regulations pertaining to the Activities to Date.

(e)    To the Company’s Knowledge, the studies, non-clinical laboratory studies, tests, preclinical trials, and clinical trials conducted by or on behalf of, or (if applicable) sponsored by, any Acquired Company respects were and, to the extent still pending, are being conducted in accordance with experimental protocols, procedures and controls pursuant to, where applicable, standard medical and accepted professional scientific research procedures and standards and the requirements of the FDA and all applicable Governmental Authorities. No Acquired Company has received any notice or correspondence from the FDA or any other Governmental Authority exercising comparable authority requiring the termination, suspension or material modification of any such study, test or trial. The Company has no Knowledge of any other validated study or test the results of which call into question the safety and efficacy results of the above referenced tests. The Acquired Companies have operated and currently are in compliance with all applicable rules and regulations of the FDA (and all other applicable Governmental Authorities with oversight over similar activities), and no Acquired Company has received any notice or other correspondence from the FDA or any other Governmental Authority requiring the termination, suspension or modification of any of the above referenced feasibility, preclinical or clinical studies or tests.

Section 3.24      FCPA Compliance; No Unlawful Payments; Payment Transparency.

Except as disclosed on Section 3.24 of the Disclosure Schedules, since September 30, 2011, no Acquired Company nor, to the Knowledge of the Company, any manager, officer, agent, employee or affiliate or any other Person acting on behalf of any Acquired Company has (i) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977 (the “FCPA”) or the U.S. Anti-Kickback Statute (42 USC § 1320a-7b(b)) or any other similar Law; (ii) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any Person, private or public, regardless of what form, whether in money, property, or services; or (iii) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity. The Acquired Companies are in material compliance with the applicable “sunshine provisions” of the Patient Protection and Affordable Health Care Act, and with applicable, territorial equivalent payment transparency Laws issued, enacted or promulgated by any Governmental Authority.

Section 3.25      Compliance with Economic Sanctions Laws .

(a)    Each Acquired Company is and, for the past three (3) years has been, in material compliance with all Laws (i) administered by the Office of Foreign Assets Control (“ OFAC ”), (ii) administered by any other Governmental Authority imposing economic sanctions and trade embargoes against designated countries and Persons, or (iii) otherwise relating to import and export control applicable to the activities of each Acquired Company (collectively, “ Economic Sanctions Laws ”).

(b)    Neither any Acquired Company nor, to the Company’s Knowledge, any director, officer or equivalent of Acquired Company (i) is listed on the Specially Designated Nationals and Blocked Persons List maintained by OFAC and/or on any other list of terrorists or terrorist organizations maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Economic Sanction Laws (such lists are collectively referred to as the “Lists”), (ii) is a Person that has been determined by applicable Governmental Authority to be subject to the prohibitions contained in OFAC or

 

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any other Economic Sanctions Laws, or (iii) is owned or controlled by, nor acts for or on behalf of, any Person on the Lists or any other Person that has been determined by applicable Governmental Authority to be subject to the prohibitions contained in OFAC or any other Economic Sanctions Laws.

Section 3.26      Compliance with Privacy Laws .

(a)    The collection, use and retention of the Personal Information by the Acquired Companies, and the transfer of the Personal Information by the Acquired Companies to Parent as a result of the Merger comply with all Privacy Laws and are consistent with each Acquired Company’s own Privacy Statements. In connection with its collection, storage, transfer (including, without limitation, any transfer across national borders) and/or use of any Personal Information, each Acquired Company is and has been in compliance with all applicable Privacy Laws and the requirements of any contract or codes of conduct to which the Acquired Company is subject or a party. Each Acquired Company has used commercially reasonable physical, technical, organizational and administrative security measures and policies in place to protect all Personal Information collected by it or on its behalf from and against unauthorized access, use and/or disclosure. Each Acquired Company is and has been in compliance in all material respects with all Laws relating to data loss, theft and breach of security notification obligations.

(b)    There are no Actions pending, ongoing, or to the Company’s Knowledge, threatened with respect to any Acquired Company’s collection, use, disclosure or retention of the Personal Information.

(c)    Except as disclosed on Section 3.26(c) of the Disclosure Schedules, no decision, judgment or order, whether statutory or otherwise, is pending or has been made, and no notice has been given pursuant to any Privacy Laws, requiring any Acquired Company to take (or refrain from taking) any action with respect to the Personal Information.

Section 3.27      Books and Records.

The minute books and stock record books of each Acquired Company, all of which have been made available to Parent, are complete and correct in all material respects. The minute books of each Acquired Company contain accurate and complete records of all meetings, and actions taken by written consent of, the equity holders, Board of Directors or equivalent body, committees of such Board of Directors or equivalent body, and no meeting, or action taken by written consent, of any such equityholders, Board of Directors, or committee has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of the Surviving Corporation.

Section 3.28      Related Party Transactions.

No executive officer or director of any Acquired Company or any person owning 5% or of the Capital Stock (or any of such person’s immediate family members or Affiliates) is a party to any Contract with or binding upon any Acquired Company or any of its assets, rights or properties or has any interest in any property owned by any Acquired Company or has engaged in any transaction with any of the foregoing within the last twelve (12) months, other than offers letters, employment arrangements and other customary compensation arrangements, which are, to the extent required by Section 3.09, disclosed in Section 3.09 of the Disclosure Schedule.

Section 3.29      Brokers.

Except for Piper Jaffray & Co. and Oxford Finance LLC, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any Ancillary Document based upon arrangements made by or on behalf of any Acquired Company.

 

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ARTICLE IV
    
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Parent and Merger Sub represent and warrant to the Company, as of the Effective Time, as follows:

S ection 4.01      Organization and Authority of Parent and Merger Sub.

Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation. Each of Parent and Merger Sub has full corporate power and authority to enter into and perform its obligations under this Agreement and the Ancillary Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by Parent and Merger Sub of this Agreement and any Ancillary Document to which they are a party and the consummation by Parent and Merger Sub of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of Parent and Merger Sub and no other corporate proceedings on the part of Parent and Merger Sub are necessary to authorize the execution, delivery and performance of this Agreement or to consummate the Merger and the other transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by Parent and Merger Sub, and (assuming due authorization, execution and delivery by each other party hereto) this Agreement constitutes a legal, valid and binding obligation of Parent and Merger Sub enforceable against Parent and Merger Sub in accordance with its terms. When each Ancillary Document to which Parent or Merger Sub is or will be a party has been duly executed and delivered by Parent or Merger Sub (assuming due authorization, execution and delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of Parent or Merger Sub enforceable against it in accordance with its terms.

Section 4.02      No Conflicts; Consents.

The execution, delivery and performance by Parent and Merger Sub of this Agreement and the Ancillary Documents to which they are a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the certificate of incorporation, by-laws or other organizational documents of Parent or Merger Sub; (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to Parent or Merger Sub; or (c) require the consent, notice or other action by any Person under any Contract to which Parent or Merger Sub is a party. Parent, as the sole stockholder of Merger Sub, has approved and adopted this Agreement, and no other vote of the holders of any class or series of capital stock of Parent or Merger Sub is required to adopt this Agreement and approve the transactions contemplated hereby. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to Parent or Merger Sub in connection with the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby, except for the filing of the Certificate of Merger with the Secretary of State of Delaware.

Section 4.03      No Prior Merger Sub Operations.

Merger Sub was formed solely for the purpose of effecting the Merger and has not engaged in any business activities or conducted any operations other than in connection with the transactions contemplated hereby. Prior to the Effective Time, Merger Sub will not have engaged in any other business activities or incurred any liabilities or obligations except as contemplated by this Agreement. All of the issued and outstanding capital stock of Merger Sub is, and as of the Effective Time will be, owned by Parent.

Section 4.04      Brokers.

 

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Except for Canaccord Genuity, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any Ancillary Document based upon arrangements made by or on behalf of Parent or Merger Sub.

 

Section 4.05      Legal Proceedings.

There are no Actions pending or, to Parent’s or Merger Sub’s knowledge, threatened against or by Parent, Merger Sub or any of their respective Affiliates, the adverse outcome or effect of which would, individually or in the aggregate, would prevent, enjoin or otherwise delay, or that challenges or seeks to prevent, enjoin or otherwise delay, the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise or serve as a basis for any such Action.

ARTICLE V
    
COVENANTS

Section 5.01      Stockholders Consent.

(a)    On the Closing Date, the Company shall obtain the Requisite Company Vote pursuant to written consents of the Stockholders in substantially the form attached hereto as Exhibit I (the “ Written Consent ”). The materials submitted to the Stockholders in connection with the Written Consent shall include the Company Board Recommendation and all other materials required by the DGCL. Promptly following receipt of the Written Consent, on the Closing Date, the Company shall deliver a copy of such Written Consent to Parent.

(b)    The Company has prepared and delivered to Parent a notice (the “ Stockholder Notice ”) to be sent to every Stockholder that did not execute the Written Consent. The Stockholder Notice (i) includes a statement to the effect that the Company Board unanimously determined that the Merger is advisable in accordance with Section 251(b) of the DGCL and in the best interests of the Stockholders and unanimously approved and adopted this Agreement, the Merger and the other transactions contemplated hereby, (ii) provides the Stockholders to whom it will be sent with notice of the actions taken in the Written Consent, including the approval and adoption of this Agreement, the Merger and the other transactions contemplated hereby in accordance with Section 228(e) of the DGCL and the bylaws of the Company and (iii) notifies such Stockholders of their dissent and appraisal rights pursuant to Section 262 of the DGCL, to the extent not previously waived. The Stockholder Notice includes therewith a copy of Section 262 of Delaware Law and all such other information as Parent reasonably requested, and is sufficient in form and substance to start the twenty (20) day period during which a Stockholder must demand appraisal of such Stockholder’s Capital Stock as contemplated by Section 262(d)(2) of the DGCL.

(c)    Promptly following the Closing Date, Parent or the Surviving Corporation shall deliver, or cause to be delivered, the Stockholder Notice to each Stockholder that did not execute the Written Consent at the addresses of each such Stockholder set forth in the Consideration Spreadsheet.

Section 5.02      Public Announcements.

For a period of twenty (20) days following the Closing, Parent shall give the Stockholder Representative a reasonable opportunity to review and comment prior to making any press release or public announcement relating to the existence or the subject matter of this Agreement. Except as otherwise required by Law, the Priority Preferred Stockholders shall not issue any press release or make any public announcement relating to the existence or the subject matter of this Agreement, and shall keep the existence of this Agreement and its terms confidential, until after July 6, 2016; provided , that , any such press releases or public announcements made after such date shall include only factually accurate information.  

 

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Section 5.03      Director and Officer Liability and Indemnification.

(a)    Parent and Merger Sub agree that all rights to indemnification, advancement of expenses and exculpation by each Acquired Company now existing in favor of each Person who is now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time an officer, managing member, manager, director or equivalent Person of any Acquired Company (each, a “ D&O Indemnified Party ”) as provided in the Organizational Documents, in each case as in effect on the date of this Agreement, or pursuant to any other Contracts in effect on the date hereof and disclosed in Section 3.09 of the Disclosure Schedules, shall be assumed by the Surviving Corporation in the Merger, without further action, at the Effective Time and shall survive the Merger and shall remain in full force and effect in accordance with their terms, and, in the event that any proceeding is pending or asserted or any claim made during such period, until the final disposition of such proceeding or claim.

(b)    For a period of six (6) years after the Closing, Parent shall not, and shall not permit the Surviving Corporation or any of its Subsidiaries to, amend, repeal or modify any provision in their respective certificate of incorporation, by-laws or other organizational documents (collectively, the “ Organizational Documents ”) relating to the indemnification, exculpation or advancement of expenses of any D&O Indemnified Parties (unless required by applicable Law), it being the intent of the parties that the officers, managing members, managers, directors and equivalent Persons of the Company and its Subsidiaries and any other person who is entitled to indemnification under the Organizational Documents of the Company and its Subsidiaries as of the date of this Agreement, as applicable, that are no less favorable in the aggregate than the relevant provisions in place in such Organizational Documents as applicable immediately prior to the Closing, and shall continue to be entitled to such exculpation and indemnification to the full extent of applicable Law.

(c)    Effective as of the Closing, the Acquired Companies have obtained “tail” insurance policies with a claims period of at least six (6) years from the Effective Time with at least the same coverage and amount and containing terms and conditions that are not less advantageous to the D&O Indemnified Parties as the Acquired Companies’ existing policies with respect to claims arising out of or relating to events which occurred before or at the Effective Time (including in connection with the transactions contemplated by this Agreement) (the “ D&O Tail Policy ”). The Company shall bear the cost of the D&O Tail Policy, and such costs, to the extent not paid prior to the Closing, shall be included in the determination of Transaction Expenses. During the term of the D&O Tail Policy, Parent shall not (and shall cause the Surviving Corporation not to) take any action following the Closing to cause the D&O Tail Policy to be cancelled or any provision therein to be amended or waived; provided, that neither Parent, the Surviving Corporation nor any Affiliate thereof shall be obligated to pay any premiums or other amounts in respect of such D&O Tail Policy.

(d)    In the event that Parent, the Surviving Corporation, or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity in such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in each case, proper provision shall be made so that the successors and assigns of Parent or the Surviving Corporation, as the case may be, honor the indemnification and other obligations set forth in this Section 5.03 .

Section 5.04      Documents and Information . Parent and the Surviving Corporation shall, until the seventh (7 th ) anniversary of the Closing Date, retain all books, records and other documents pertaining to the business of the Acquired Companies in existence on the Closing Date and make the same available for inspection and copying by the Stockholder Representative (at the Stockholder Representative’s own expense) solely for bona fide reporting and compliance purposes during normal business hours of Parent and the Surviving Corporation, upon reasonable request and reasonable notice.

 

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ARTICLE VI
    
TAX MATTERS

Section 6.01      Tax Covenants.

(a)    Without the prior written consent of Parent, prior to the Closing, the Acquired Companies shall not make, change or rescind any Tax election, or amend any Tax Return, or otherwise take any action, that would have the effect of materially increasing the Tax liability of Parent or the Acquired Companies in respect of any Post-Closing Tax Period other than elections made and actions taken that are consistent with the past Tax accounting and reporting practices of the Acquired Companies.

(b)    All transfer, documentary, sales, use, or stamp taxes, and any other similar Taxes imposed in connection with the transfer of shares of Capital Stock pursuant to this Agreement and the Ancillary Documents shall be borne and paid by the applicable Stockholder to which such Taxes relate when due. The Person(s) required to do so by applicable Law shall timely file any Tax Return or other document with respect to such Taxes, as necessary or appropriate (and Parent shall cooperate with respect thereto as necessary).

(c)    Parent shall not without the prior written consent of the Stockholder Representative (i) cause or permit any Acquired Company to take any action outside the ordinary course of business on the Closing Date if such action increases the Taxes for which Stockholders are responsible under this Article VI or (ii) make any election under Code Sections 336(e) or 338, or under any similar provisions of state or local or other applicable Tax Laws, with respect to the transaction contemplated by this Agreement.

Section 6.02      Tax Returns.

(a)    Parent shall prepare and timely file, or cause to be prepared and timely filed, all Tax Returns required to be filed by any of the Acquired Companies after the Closing Date with respect to a Pre-Closing Tax Period and for any Straddle Period. Any such Tax Return shall be prepared in a manner consistent with past practice (unless otherwise required by Law) and, if such Tax Return may give rise to a reimbursement or indemnification obligation on the part of the Priority Preferred Stockholders under Section 7.02 , such Tax Return shall be submitted by Parent to the Stockholder Representative (together with schedules, statements and, to the extent requested by the Stockholder Representative, supporting documentation) at least sixty (60) days prior to the due date (including extensions) of such Tax Return. If the Stockholder Representative objects to any item on any such Tax Return that relates to a Pre-Closing Tax Period, it shall, within thirty (30) days after delivery of such Tax Return, notify Parent in writing that it so objects, specifying with particularity any such item and stating the specific factual or legal basis for any such objection. If the Stockholder Representative fails to object to such position within such thirty (30) day period, the Stockholder Representative shall be deemed to have agreed in writing to the position. If a notice of objection shall be duly delivered, Parent and the Stockholder Representative shall negotiate in good faith and use their reasonable efforts to resolve such items. If Parent and the Stockholder Representative are unable to reach such agreement within ten (10) days after receipt by Parent of such notice, the disputed items shall be resolved by the Independent Accountant and any determination by the Independent Accountant shall be final. The Independent Accountant shall resolve any disputed items within twenty (20) days of having the item referred to it pursuant to such procedures as it may require. The costs, fees and expenses of the Independent Accountant shall be borne by Parent and the Stockholder Representative (on behalf of the Priority Preferred Stockholders) in proportion to the relative level of conformity with the positions ultimately adopted by the Independent Accountant (such that if a party’s original proposed positions are the same as the positions ultimately adopted by the Independent Accountant, then such party shall bear no portion of the relevant costs, fees, and expenses). The preparation and filing of any Tax Return of any of the Acquired Companies that does not relate to a Pre-Closing Tax Period or Straddle Period shall be exclusively within the control of Parent. Parent shall not amend any Tax Return with respect to a Pre-Closing Tax Period or Straddle Period, or otherwise take any

 

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position on any Tax Return (other than a position ultimately adopted by the Independent Accountant in accordance with this Section 6.02(a) ) that may be reasonably expected to result in an indemnification obligation of the Priority Preferred Stockholders in respect of Indemnifiable Taxes under Section 7.02 , without the prior written consent of the Stockholder Representative.

Section 6.03      Straddle Period.

In the case of Taxes that are payable with respect to a taxable period that begins before and ends after the Closing Date (each such period, a “Straddle Period”), the portion of any such Taxes that are treated as Pre-Closing Taxes for purposes of this Agreement shall be:

(a)    in the case of Taxes (i) based upon, or related to, income, receipts, profits, wages, capital or net worth, (ii) imposed in connection with the purchase, acquisition, sale, transfer or assignment of property, or (iii) required to be withheld or otherwise relating to payroll, deemed equal to, in each case, the amount which would be payable if the taxable year ended at the close of the Closing Date; and

(b)    in the case of other Taxes, deemed to be the amount of such Taxes for the entire period multiplied by a fraction the numerator of which is the number of days in the period ending through and including the Closing Date and the denominator of which is the number of days in the entire period.

Section 6.04      Contests.

Parent agrees to give written notice to the Stockholder Representative of the receipt after Closing of any written notice by any of the Acquired Companies, Parent or any of Parent’s Affiliates which involves the assertion of any claim, or the commencement of any Action, in respect of which an indemnity may be sought by Parent pursuant to Article VII (a “Tax Claim”). The Stockholder Representative shall have the ability to elect to control the contest or resolution of any Tax Claim for which the Priority Preferred Stockholders may be liable for indemnification under Section 7.02; provided, however, that the Stockholder Representative shall obtain the prior written consent of Parent (which consent shall not be unreasonably withheld, conditioned or delayed) before entering into any settlement of a claim or ceasing to defend such claim; and, provided, further, that Parent shall be entitled to participate in the defense of such claim and to employ counsel of its choice for such purpose, the fees and expenses of which separate counsel shall be borne solely by Parent.

Sec ti on 6.05      Cooperation and Exchange of Information.

The Stockholder Representative, the Company and Parent shall provide each other with such cooperation and information as either of them reasonably may request of the others in filing any Tax Return pursuant to this Section 6.05 or in connection with any audit or other proceeding in respect of Taxes of the Acquired Companies. Such cooperation and information shall include providing copies of relevant Tax Returns or portions thereof, together with accompanying schedules, related work papers and documents relating to rulings or other determinations by tax authorities. Each of the Stockholder Representative, the Company and Parent shall retain all Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Acquired Companies for any taxable period beginning before the Closing Date until the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate, without regard to extensions except to the extent notified by any of the other parties in writing of such extensions for the respective Tax periods. Prior to transferring, destroying or discarding any Tax Returns, schedules and work papers, records and other documents in its possession relating to Tax matters of the Acquired Companies for any taxable period beginning before the Closing Date, the Stockholder Representative, the Company or Parent (as the case may be) shall provide the other parties with reasonable written notice and offer the other parties the opportunity to take custody of such materials.

Section 6.06      Tax Treatment of Indemnification Payments.

 

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Any indemnification payments pursuant to Article VII shall be treated as an adjustment to the Merger Consideration by the parties for Tax purposes, unless otherwise required by Law.

ARTICLE VII
    
INDEMNIFICATION

Section 7.01      Survival . Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the Closing and shall remain in full force and effect until the date that is eighteen (18) months from the Closing Date and shall expire at such time; provided, however , that (a) the Fundamental Representations and the representations and warranties contained in Section 3.19 (Environmental Matters) and Section 3.20 (Employee Benefit Matter) shall survive the Closing until thirty (30) days after expiration of the applicable statute of limitations and shall expire at such time and (b) the representations and warranties contained in Section 3.22 (Taxes) shall survive the Closing until thirty (30) days after the date on which no Tax Return for any Pre-Closing Tax Period may be audited under applicable United States federal law, but not later than the seven (7) year anniversary of the Closing Date, and shall expire at such time. All covenants and agreements of the parties contained herein shall survive the Closing until fully performed and shall expire when fully performed. Notwithstanding the foregoing, any claims asserted in good faith and in compliance with the requirements of this Agreement prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of the relevant representation, warranty, covenant or agreement and such claims shall survive until finally resolved. It is the express intent of the parties that, if an applicable survival period as contemplated by this Section 7.01 is shorter than the statute of limitations that would otherwise have been applicable, then, by contract, the applicable statute of limitations shall be reduced to the shortened survival period contemplated hereby.

Section 7.02      Indemnification of Parent Indemnitees . Subject to the other terms and conditions of this Article VII , each of Parent and its Affiliates (including the Surviving Corporation) and their respective Representatives (collectively, the “ Parent Indemnitees ”), shall be indemnified, reimbursed and held harmless by the Priority Preferred Stockholders and pursuant to the R&W Insurance Policy for any and all Losses incurred or sustained by, or imposed upon any of them based upon, arising out of, with respect to or by reason of:

(a)    any inaccuracy in or breach of any of the representations or warranties of the Company contained in this Agreement or in any certificate or instrument delivered by or on behalf of the Company pursuant to this Agreement;

(b)    any breach or non-fulfillment of any covenant, agreement or obligation to be performed by the Company (prior to the Effective Time) or by the Priority Preferred Stockholders or the Stockholder Representative pursuant to this Agreement;

(c)    any claim made by any Stockholder, any Optionholder, any Equity Rights Holder or any other alleged holder of any Capital Stock or rights to acquire Capital Stock relating to such Person’s rights with respect to the Merger Consideration or the calculations and determinations set forth on the Consideration Spreadsheet;

(d)    any amounts (including costs and attorneys’ fees) paid to the holders of Dissenting Shares, including any interest required to be paid thereon, that are in excess of what such holders would have received hereunder had such holders not been holders of Dissenting Shares and all costs, expenses and other Losses associated with any Actions or related correspondence, discussion, investigations or other matters associated therewith;

(e)    any Transaction Expenses or Indebtedness of any Acquired Company outstanding as of the Closing to the extent not paid or satisfied by any Acquired Company prior to the Closing, or if paid by

 

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Parent or Merger Sub at or prior to the Closing, to the extent not deducted in the determination of Closing Merger Consideration or Adjusted Merger Consideration;

(f)    any Indemnifiable Taxes; or

(g)    any fraud in the inducement by the Company prior to the Closing in connection with the negotiation of the transactions contemplated by this Agreement.

Section 7.03      Indemnification of Stockholder Indemnitees . Subject to the other terms and conditions of this Article VII , each Priority Preferred Stockholder and its Affiliates and each of their respective Representatives (collectively, the “ Stockholder Indemnitees ”) shall be indemnified, reimbursed and held harmless by Parent for any and all Losses incurred or sustained by, or imposed upon any of them based upon, arising out of, with respect to or by reason of:

(a)    any inaccuracy in or breach of any of the representations or warranties of Parent and Merger Sub contained in this Agreement or in any certificate or instrument delivered by or on behalf of Parent, Merger Sub or (following the Effective Time) the Surviving Corporation pursuant to this Agreement; or

(b)    any breach or non-fulfillment of any covenant, agreement or obligation to be performed by the Compa


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