SAJAN INC

The Merger Agreement includes a remedy of specific performance for the Company, Buyer and Merger Sub. The Merger Agreement also contains termination rights for each of the Company and Buyer. Among those rights, the Company or Buyer may terminate the Merger Agreement if the Merger has not occurred on or before October 25, 2017 or if the stockholders of the Company do not adopt the Merger Agreement and approve the Merger at the special meeting.

The Merger Agreement further provides that upon termination of the Merger Agreement under specified circumstances, including termination by the Company to accept and enter into a definitive agreement with respect to an unsolicited superior proposal, the Company will be required to pay a termination fee of $1,500,000 (the “Company Termination Fee”). A superior proposal is a bona fide written proposal made by a third party involving the direct or indirect acquisition pursuant to a tender offer, exchange offer, merger, consolidation or other business combination, of all or substantially all of the Company’s consolidated assets or a majority of the outstanding Company Common Stock, that the Company’s board of directors determines in good faith (after consultation with outside legal counsel and financial advisors) is more favorable from a financial point of view to the holders of Company Common Stock than the transactions contemplated by the Merger Agreement, taking into account (a) all financial considerations, (b) the identity of the third party making the superior proposal, (c) the anticipated timing, conditions (including any financing condition or the reliability of any debt or equity funding commitments) and prospects for completion of such superior proposal, (d) the other terms and conditions of such superior proposal and the implications thereof on the Company, including relevant legal, regulatory and other aspects of such superior proposal deemed relevant by the Company Board and (e) any revisions to the terms of the Merger Agreement and the Merger proposed by Buyer after receipt of the superior proposal. Any such termination of the Merger Agreement by the Company is subject to certain conditions, including the Company’s compliance with certain notice and other procedures set forth in the Merger Agreement, the entrance into a definitive agreement by the Company with a third party with respect to such alternative business combination transaction and payment of the Company Termination Fee by the Company to Buyer.

The foregoing summary of the material terms of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement. The Merger Agreement has been provided solely to inform investors of its terms. The representations, warranties and covenants contained in the Merger Agreement were made only for purposes of such agreement and as of specific dates, were made solely for the benefit of the parties to the Merger Agreement, and are intended not as statements of fact, but rather as a way of allocating risk to one of the parties if those statements prove to be inaccurate. In addition, the representations, warranties and covenants in the Merger Agreement may have been qualified by disclosures not reflected in the text of the Merger Agreement and may apply standards of materiality in a way that is different from what may be viewed as material by stockholders of, or other investors in, the Company. Investors are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company, Buyer, Merger Sub or any of their respective subsidiaries or affiliates.

General and Administrative.  General and administrative expense in the first quarter of 2017 increased $87,000, or 7%, compared to the same period of 2016. For the same periods, as a percentage of revenues, general and administrative expense was 18% in both 2017 and 2016. The increase was due principally to $123,000 of legal and other costs related to the pending Merger with Amplexor. Also contributing to the increase was incentive compensation of $49,000 earned under the Company’s Short-Term Incentive Plan. The Short-Term Incentive Plan has been in existence since the fourth quarter of 2013 and rewards all eligible employees when the Company exceeds its pre-determined quarterly financial targets. There were no amounts paid in the first quarter of 2016 because the Company did not meet its financial target. These increases were offset by lower compensation costs due to a decrease in the number of staff and lower professional fees.

Uncertainty about the effect of the Merger may impact our ability to attract, retain and motivate key personnel until the Merger is completed, and could cause customers and other third parties to seek to modify their business relationships with us. Although we intend to take steps designed to reduce any adverse effects from the pending Merger, these steps may be ineffective in addressing uncertainties arising from the Merger. If we are unable to attract or retain qualified employees, or if customers terminate or otherwise seek to modify their relationships with us, it could adversely affect our business, financial condition and results of operations. In addition, integration planning could place a significant burden on management, employees and other internal resources, which could otherwise have been devoted to pursuing other business opportunities.

The Merger Agreement contains provisions that may discourage or make it difficult for us to entertain a proposal from another party for the acquisition of Sajan. Subject to certain limited exceptions, the Merger Agreement prohibits our solicitation of proposals relating to alternative business combination transactions and restricts our ability to furnish non-public information to, or participate in any discussions or negotiations with, any third party with respect to any such transaction. In addition, we would be required to pay a termination fee of $1.5 million to Amplexor if the Merger Agreement is terminated under specified circumstances, including termination by us to accept and enter into a definitive agreement with respect to an unsolicited superior proposal, as defined in the Merger Agreement.

These provisions might discourage an otherwise interested third party from considering or proposing an acquisition of Sajan, even one that may be deemed to be of greater value than the Merger to our stockholders and other stakeholders. Furthermore, even if a third party elects to propose an acquisition, the concept of a termination fee may result in that third party’s offering of a lower value to our stockholders than such third party might otherwise have offered. In addition, our business, financial condition or results of operations could be significantly impaired if we are required to pay a termination fee to Amplexor in connection with a termination of the Merger Agreement.