AGREEMENT AND PLAN OF MERGER BY AND AMONG INTERNAP NETWORK SERVICES CORPORATION, IVY ACQUISITION CORP. AND VITALSTREAM HOLDINGS, INC.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ARTICLE I THE MERGER			1
	1.1	The Merger	1
	1.2	Effective Time; Closing	1
	1.3	Effect of the Merger	1
	1.4	Articles of Incorporation; Bylaws	1
	1.5	Directors and Officers	2
	1.6	Effect on Capital Stock	2
	1.7	Surrender of Certificates	3
	1.8	No Further Ownership Rights in Company Common Stock	5
	1.9	Lost, Stolen or Destroyed Certificates	5
	1.10	Taking of Necessary Action; Further Action	5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY			6
	2.1	Company Organization and Qualification.	6
	2.2	Company Power and Authority; Enforceability of this Agreement.	6
	2.3	Company Capitalization.	7
	2.4	Obligations With Respect to Company Capital Stock.	8
	2.5	Company Subsidiaries and Investments.	9
	2.6	Company SEC Reports; Compliance with OTCBB and NGM; Company Financial Statements.	9
	2.7	Absence of Certain Changes or Events	11
	2.8	Company Books and Records	12
	2.9	Company Taxes.	12
	2.10	Title and Operation of Company Properties.	14
	2.11	Company Intellectual Property.	15
	2.12	Company Employees; Location and Compensation	17
	2.13	Company Employee Benefit Plans.	17
	2.14	Company Labor.	20
	2.15	Company Litigation	20
	2.16	Compliance with Laws by Company.	21
	2.17	Environmental Matters of Company	21
	2.18	Company Contracts.	22
	2.19	Company Authority; Non-Contravention.	23
	2.20	Company Customer Contracts	24
	2.21	Company Brokers’ and Finders’ Fees	24
	2.22	Opinion of Company’s Financial Advisor	24
	2.23	Company Insurance	24
	2.24	Company Corporate Controls	25
	2.25	Transactions with Affiliates of Company.	25
	2.26	Copies of Documents	25
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB			25
	3.1	Organization and Qualification of Parent and Merger Sub.	26
	3.2	Power and Authority of Parent and Merger Sub; Enforceability of this Agreement.	26
	3.3	Parent Capitalization.	27
	3.4	Obligations With Respect to Parent Capital Stock.	27
	3.5	Parent SEC Reports; Compliance with AMEX and NGM; Parent Financial Statements.	28
	3.6	Absence of Certain Changes or Events	29
	3.7	Parent Books and Records	30

	3.8	Parent Taxes.	30
	3.9	Parent Litigation	31
	3.10	Environmental Matters of Parent.	31
	3.11	Parent Authority; Non-Contravention.	31
	3.12	Opinion of Parent’s Financial Advisor	33

 

 

 

 

 

ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME			33
	4.1	Conduct of Business by Company	33
	4.2	Conduct of Business by Parent	36
ARTICLE V ADDITIONAL AGREEMENTS			37
	5.1	Joint Proxy Statement, Registration Statement and Filings	37
	5.2	Meeting of Company Stockholders; Conditions to Change of Recommendation; Superior Proposal; Notification.	39
	5.3	No Solicitation	41
	5.4	Meeting of Parent Stockholders.	42
	5.5	Confidentiality; Access to Information	43
	5.6	Public Disclosure	43
	5.7	Reasonable Efforts; Notification	43
	5.8	Third Party Consents	44
	5.9	Indemnification of Directors	44
	5.10	Stockholder Litigation	44
	5.11	Section 16(b)	44
	5.12	Tax-Free Qualification.	45
	5.13	Tax Representation Letters	45
	5.14	Section 280G Matters	45
	5.15	Company Affiliates	45
	5.16	Voting Agreements	45
	5.17	Employment Agreements	45
	5.18	Noncompetition Agreements	45
ARTICLE VI CONDITIONS TO THE MERGER			46
	6.1	Conditions to Obligations of Each Party to Effect the Merger	46
	6.2	Additional Conditions to Obligations of Company	46
	6.3	Additional Conditions to the Obligations of Parent and Merger Sub	47
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER			48
	7.1	Termination	48
	7.2	Notice of Termination Effect of Termination	50
	7.3	Fees and Expenses	50
	7.4	Amendment	51
	7.5	Extension; Waiver	51
ARTICLE VIII GENERAL PROVISIONS			51
	8.1	Non-Survival of Representations and Warranties	51
	8.2	Notices	51
	8.3	Interpretation; Certain Defined Terms	52
	8.4	Counterparts	56
	8.5	Entire Agreement; Third Party Beneficiaries	56
	8.6	Severability	56
	8.7	Other Remedies; Specific Performance	56
	8.8	Governing Law	57
	8.9	Rules of Construction	57
	8.10	Assignment	57
	8.11	Attorney’s Fees	57
	8.12	Taxes	57
	8.13	Waiver Of Jury Trial	57

 

 

 

 

Index of Exhibits

 

Exhibit A    Affiliate Agreement

 

 

 

 

 

 

 

 

 

 

 

This Agreement and Plan of Merger (this “Agreement”) is made and entered into as of October 12, 2006, among Internap Network Services Corporation, a Delaware corporation (“Parent”), Ivy Acquisition Corp., a Nevada corporation and a wholly owned subsidiary of Parent (“Merger Sub”), and VitalStream Holdings, Inc., a Nevada corporation (“Company”).

 

Recitals

 

The respective Boards of Directors of Parent, Merger Sub and Company have approved this Agreement, and declared advisable the merger of Merger Sub with and into Company (the “Merger”) upon the terms and subject to the conditions of this Agreement and in accordance with the Nevada Revised Statutes Chapter 78 and Chapter 92A (collectively, “Nevada Corporate Law”).

 

In consideration of the foregoing and the representations, warranties, covenants and agreements set forth in this Agreement, the parties agree as follows:

 

THE MERGER

 

1.1  The Merger.  Upon the terms and subject to the conditions of this Agreement and the applicable provisions of Nevada Corporate Law, at the Effective Time, Merger Sub shall be merged with and into Company, the separate corporate existence of Merger Sub shall cease, and Company shall continue as the surviving corporation of the Merger (the “Surviving Corporation”).

 

1.2  Effective Time; Closing.  Subject to the provisions of this Agreement, the parties hereto shall cause the Merger to be consummated by filing articles of merger, in such appropriate form as determined by the parties, with the Secretary of State of the State of Nevada in accordance with the relevant provisions of Nevada Corporate Law (the “Articles of Merger”) (the time of such filing (or such later time as may be agreed in writing by Company and Parent and specified in the Articles of Merger) being the “Effective Time”) as soon as practicable following satisfaction or waiver of the conditions set forth in Article VI. The closing of the Merger (the “Closing”) shall take place at the offices of Morris, Manning & Martin, LLP, located at 3343 Peachtree Road, N.E., Suite 1600, Atlanta, Georgia 30326, at a time and date to be specified by the parties, which shall be no later than the second business day after the satisfaction or waiver of the conditions set forth in Article VI, or at such other time, date and location as the parties hereto agree in writing (the “Closing Date”).

 

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

 

1.4  Articles of Incorporation; Bylaws. 

 

(a)  At the Effective Time, the Articles of Incorporation of Merger Sub as in effect immediately prior to the Effective Time shall become the Articles of Incorporation of the Surviving Corporation, except that the name of Company, as the Surviving Corporation, shall be “Vine, Inc.” and Article FIRST of the Articles of Incorporation shall read in its entirety as follows: “The name of the corporation is “VitalStream Holdings, Inc.”

 

(b)  At the Effective Time, the Bylaws of Merger Sub as in effect immediately prior to the Effective Time shall become the Bylaws of the Surviving Corporation.

 

 

 

 

1.5  Directors and Officers.  The initial directors of the Surviving Corporation shall be the directors of Merger Sub immediately prior to the Effective Time, until their respective successors are duly elected or appointed and qualified. The initial officers of the Surviving Corporation shall be the officers of Merger Sub immediately prior to the Effective Time, until their respective successors are duly appointed.

 

1.6  Effect on Capital Stock.  Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or holders of any shares of capital stock of the Company, the following shall occur:

 

(a)  Company Common Stock. Each share of common stock, par value $0.001 per share, of the Company (the “Company Common Stock”) issued and outstanding immediately prior to the Effective Time (the “Shares”), other than shares of Company Common Stock to be canceled pursuant to Section 1.6(b), shall be automatically converted into and become exchangeable for 0.5132 (the “Exchange Ratio”) shares of common stock, par value $0.001 per share, of Parent (the “Parent Common Stock”) (the shares of Parent Common Stock into which each share of Company Common Stock is to be converted, the “Merger Consideration”) upon the surrender of the certificate representing such shares of Company Common Stock in the manner provided in Section 1.7 (or in the case of a lost, stolen or destroyed certificate, upon delivery of an affidavit (and bond, if required) in the manner provided in Section 1.9). As of the Effective Time, all shares of Company Common Stock shall no longer be outstanding, shall be canceled and extinguished and shall cease to exist and (i) each certificate (a “Certificate”) formerly representing any of such shares of Company Common Stock, other than shares of Company Common Stock to be canceled pursuant to Section 1.6(b), and (ii) each uncertificated share of Company Common Stock registered to a holder on the stock transfer books of the Company, other than shares of Company Common Stock to be canceled pursuant to Section 1.6(b), shall thereafter represent only the right to the Merger Consideration and the right, if any, to receive pursuant to Section 1.7(g) cash in lieu of fractional shares into which such shares of Company Common Stock have been converted pursuant to this Section 1.6(a) and any distribution or dividend pursuant to Section 1.7(h), in each case without interest.

 

(b)  Cancellation of Company-Owned and Parent-Owned Stock. Each share of Company Common Stock held by Company, any Company Subsidiaries, Merger Sub, Parent or any Parent Subsidiaries immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof.

 

(c)  Capital Stock of Merger Sub. Each share of common stock, par value $0.001 per share, of Merger Sub (“Merger Sub Common Stock”), issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of common stock, par value $0.001 per share, of the Surviving Corporation. Following the Effective Time, each certificate evidencing ownership of shares of common stock of Merger Sub shall evidence ownership of such shares of capital stock of the Surviving Corporation.

 

(d)  Employee Stock Options.

 

(i)    At the Effective Time, each outstanding option to purchase Company Shares (a “Company Option”) under the Company Plans identified in Section 2.12 of the Company Disclosure Letter as being the only Company Plans pursuant to which shares of Company Common Stock may be issued or benefits measured by the value of shares of Company Common Stock may be obtained (the “Company Stock Plans”), whether vested or unvested, shall be converted into an option to acquire a number of shares of Parent Common Stock equal to the product (rounded up to the nearest whole number) of (x) the number of shares of Company Common Stock subject to the Company Option immediately prior to the Effective Time and (y) the Exchange Ratio, at an exercise price per share (rounded down to the nearest whole cent) equal to (A) the exercise price per share of such Company Option immediately prior to the Effective Time divided by (B) the Exchange Ratio; provided, however, that the exercise price and the number of shares of Parent Common Stock purchasable pursuant to the Company Options shall be determined in a manner consistent with the requirements that must be met for Company Options to avoid classification as "deferred compensation" subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”); provided, further, that in the case of any Company Option to which Section 422 of the Code applies, the exercise price and the number of shares of Parent Common Stock purchasable pursuant to such option shall be determined in accordance with the foregoing, subject to such adjustments as are necessary in order to satisfy the requirements of Section 424(a) of the Code. Except as specifically provided above, following the Effective Time, each Company Option shall continue to be governed by the same terms and conditions as were applicable under such Company Option immediately prior to the Effective Time. At or prior to the Effective Time, Company shall take all such action necessary to adopt appropriate amendments to the Company Stock Plans, including using its reasonable best efforts in accordance with Section 5.2 to cause its stockholders to approve such amendments, to the extent necessary to effectuate the provisions of this Section 1.6(d), and the Board of Directors of the Company shall adopt such other appropriate resolutions as may be necessary to effectuate the provisions of this Section 1.6(d). At or prior to the Effective Time, Parent shall take all actions as are necessary for the assumption of the Company Stock Plans pursuant to this Section 1.6(d), including the issuance (subject to Section 1.6(d)(ii)) and listing of Parent Common Stock as necessary to effect the transactions contemplated by this Section 1.6(d).

 

 

 

 

(ii)    Parent shall file with the Securities and Exchange Commission (the “SEC”), within 5 business days following the Effective Time, a registration statement on Form S-8 (or any successor form), registering under the Securities Act of 1933, as amended (the “Securities Act”), options to purchase shares of, and shares of, Parent Common Stock issued under the Company Stock Plan, and shall use its commercially reasonable efforts to maintain the effectiveness of such registration statement (and to maintain the current status of the prospectus or prospectuses contained therein and comply with any applicable state securities or “blue sky” laws) for so long as awards granted under the Company Stock Plans remain outstanding. As soon as reasonably practicable after the registration of such interests or shares, as applicable, Parent shall deliver to the holders of Company Options by any permissible method appropriate notices setting forth such holders’ rights pursuant to the respective Company Stock Plans and agreements evidencing the grants of such Company Options, and stating that such Company Options and agreements have been assumed by Parent in accordance with the applicable terms.

 

(iii)    Without limiting the applicability of Sections 1.6(d)(i) and (ii), the Company shall take all necessary action to ensure that the Surviving Corporation will not be bound at the Effective Time by any options, or other rights, awards or arrangements under the Company Stock Plans that would entitle any Person after the Effective Time to acquire any shares of Company Common Stock or to receive any payments in respect thereof with respect to exercises or conversions occurring following the Effective Time. At or prior to the Effective Time, Company shall take all such action necessary to adopt appropriate amendments to the Company Stock Plans, including using its reasonable best efforts in accordance with Section 5.2 to cause its stockholders to approve such amendments, to the extent necessary to effectuate the provisions of this Section 1.6(d)(iii), and the Board of Directors of the Company shall adopt such other appropriate resolutions as may be necessary to effectuate the provisions of this Section 1.6(d)(iii).

 

(e)  Warrants. At the Effective Time, each outstanding and unexercised warrant to purchase shares of Company Common Stock (each, a “Company Warrant”), whether or not exercisable or vested as of such date, shall be canceled.

 

1.7  Surrender of Certificates. 

 

(a)  Paying Agent. At or before the Effective Time, Parent shall select, and enter into an agreement with, an institution reasonably acceptable to Company to act as the paying agent (the “Paying Agent”) in the Merger. Parent shall make available to the Paying Agent for payment in accordance with this Article I, and at or promptly after (but no more than three business days) the Effective Time, Parent shall deposit or cause to be deposited with the Paying Agent (i) certificates representing the shares of Parent Common Stock to be exchanged for shares of Company Common Stock, other than shares of Company Common Stock to be canceled pursuant to Section 1.6(b), in respect of the aggregate Merger Consideration to be issued in the Merger and (ii) any cash payable pursuant to Section 1.7(g) in lieu of fractional shares and dividends or other distributions payable pursuant to Section 1.7(h). Such certificates for shares of Parent Common Stock, together with the amount of any cash payable pursuant to Section 1.7(g) in lieu of fractional shares and dividends or other distributions payable pursuant to Section 1.7(h) shall hereinafter be referred to as the “Merger Fund.” With respect to the amount of cash to be deposited to satisfy its obligation under Section 1.7(g), Parent shall only be required to make a reasonable estimate of the amount of such cash that will be necessary; provided, however, that Parent shall use reasonable efforts to cause the Paying Agent to agree to notify Parent at any point when the amount of cash so paid to the Paying Agent to satisfy Parent's obligations pursuant to Section 1.7(g) reasonably appears to be inadequate, and Parent shall, upon receipt of such notice, timely deliver to the Paying Agent such additional cash amounts as it may deem reasonably necessary for such purpose.

 

 

 

 

(b)  Exchange Procedures. Promptly after the Effective Time, Parent shall cause the Paying Agent to mail to each holder of record (as of the Effective Time) of a Certificate that immediately prior to the Effective Time represented outstanding shares of Company Common Stock whose shares were converted into the right to receive the Merger Consideration pursuant to Section 1.6(a), (i) a letter of transmittal in customary form (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Paying Agent and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for receipt of the Merger Consideration. Upon surrender of Certificates for cancellation to the Paying Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificates shall be entitled to receive in exchange therefor the Merger Consideration to which such holder is entitled pursuant to Section 1.6(a), and the Certificates so surrendered shall forthwith be canceled. Until so surrendered, outstanding Certificates will be deemed from and after the Effective Time, for all corporate purposes, to evidence the ownership of the right to receive the Merger Consideration attributable thereto.

 

(c)  Transfer of Ownership. If any portion of the Merger Consideration is to be paid to a Person other than the Person in whose name the surrendered Certificates are registered, it will be a condition of payment thereof that the Certificates so surrendered will be properly endorsed and otherwise in proper form for transfer and that the Persons requesting such payment will have paid to Parent or any agent designated by it any transfer or other Taxes (as defined in Section 2.7) required by reason of the payment of the Merger Consideration in any name other than that of the registered holder of the Certificates surrendered, or established to the satisfaction of Parent or Paying Agent that such Tax has been paid or is not payable.

 

(d)  Required Withholding. Each of the Paying Agent and the Surviving Corporation shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement to any holder or former holder of Company Common Stock such amounts as may be required to be deducted or withheld therefrom under the Code or under any provision of state, local or foreign tax law or under any other applicable Legal Requirement (as defined in Section 2.2(c)). To the extent such amounts are so deducted or withheld, such amounts shall be treated for the purpose of Parent satisfying its obligation to deliver the Merger Consideration under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

 

(e)  No Liability. Notwithstanding anything to the contrary in this Section 1.7, neither the Paying Agent, Parent, the Surviving Corporation nor any party hereto shall be liable to a holder of shares of Company Common Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law.

 

(f)  Termination of Merger Fund. Any portion of the Merger Fund (including the proceeds of any investments thereof and any shares of Parent Common Stock) that remains undistributed to the holders of Certificates 180 days after the Effective Time shall, at the request of the instruction of Parent, be delivered to Parent. Any holders of the Certificates who have not surrendered such Certificates in compliance with this Section 1.7 shall after such delivery to Parent look only to Parent for delivery of any shares of Parent Common Stock and payment of any cash, dividends and other distributions in respect thereof payable or deliverable pursuant to Sections 1.6(a), 1.7(g) or 1.7(h), in each case without any interest thereon. Any such portion of the Merger Fund remaining unclaimed by holders of shares of Company Common Stock immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Entity (as defined in Section 2.4) shall, to the extent permitted by applicable Legal Requirements, become the property of Parent free and clear of any claims or interest of any Person previously entitled thereto.

 

 

 

 

(g)  Fractional Shares. Any other provision of this Agreement to the contrary notwithstanding, no fractional shares of Parent Common Stock shall be issued. Any holder of shares of Company Common Stock entitled to receive a fractional share of Parent Common Stock but for this Section 1.7(g) shall be entitled to receive an amount in cash (without interest) determined by multiplying such fraction (rounded to the nearest one-hundredth of a share) by the average of the closing price of a share of Parent Common Stock, as reported in the Wall Street Journal, New York City edition, for the five trading days ending on the trading day immediately prior to the Effective Time.

 

(h)  Distributions with Respect to Unexchanged Shares; Voting.

 

(i)    Whenever a dividend or other distribution is declared by Parent in respect of Parent Common Stock, the record date for which is at or after the Effective Time, that declaration shall include dividends or other distributions in respect of all shares of Parent Common Stock issuable pursuant to this Agreement. No dividends or other distributions in respect of such Parent Common Stock shall be paid to any holder of any unsurrendered Certificate until such Certificate is surrendered for exchange in accordance with this Article I (or in compliance with the provisions of Section 1.9 of this Agreement, as applicable). Subject to the effect of applicable Legal Requirements, following surrender of any such Certificate, there shall be issued and/or paid to the holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefor, without interest, (A) at the time of such surrender, the dividends or other distributions with a record date at or after the Effective Time and a payment date on or prior to the date of issuance of such whole shares of Parent Common Stock and not previously paid with respect to such shares and (B) at the appropriate payment date, the dividends or other distributions payable with respect to such whole shares of Parent Common Stock with a record date at or after the Effective Time but with a payment date subsequent to surrender.

 

(ii)    After the Effective Time, registered holders of unsurrendered Certificates shall be entitled to receive notice of, and vote at, any meeting of Parent’s stockholders with a record date at or after the Effective Time at any meeting of Parent’s stockholders with a record date at or after the Effective Time the number of whole shares of Parent Common Stock represented by such Certificates, as the case may be, regardless of whether such holders have surrendered their Certificates or delivered duly executed transmittal materials.

 

1.8  No Further Ownership Rights in Company Common Stock.  All Merger Consideration paid upon the surrender for payment of shares of Company Common Stock in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Common Stock, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Company Common Stock. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I.

 

1.9  Lost, Stolen or Destroyed 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 and, if required by Paying Agent, the posting by such Person of a bond, in such reasonable amount as the Surviving Corporation may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent shall pay, in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration (including payment for fractional shares set forth in Section 1.7(g) hereof) to be paid in respect of the Shares represented by such Certificate, as contemplated by this Article I.

 

1.10  Taking of Necessary Action; Further Action.  If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of Company and Merger Sub, the officers and directors of Company and Merger Sub will take all such lawful and necessary action. Parent shall cause Merger Sub to perform all of its obligations relating to this Agreement and the transactions contemplated hereby.

 

 

 

 

 

Company hereby represents and warrants to Parent and Merger Sub that, subject to the exceptions specifically disclosed in the disclosure letter (referencing the appropriate section and paragraph numbers) delivered by Company to Parent dated as of the date hereof (the “Company Disclosure Letter”), which exceptions shall be deemed to be representations and warranties as if made hereunder, the following statements are true and correct as of the date hereof, except where another date is specified, and will be true and correct as of the Closing Date, except where another date (including "as of the date hereof" is specified in the representation or warranty (for the avoidance of doubt, if any section in the Company Disclosure Letter discloses an item or information in such a way as to make its relevance to the disclosure required by another section of the Company Disclosure Letter readily apparent based on the substance of such disclosure, such matter shall be deemed to have been disclosed in such other section of the Company Disclosure Letter, notwithstanding the omission):

 

2.1  Company Organization and Qualification. 

 

(a)  Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and has all requisite corporate power and authority to own and operate its properties and to conduct its business as it is currently being conducted. Company is duly qualified or licensed to do business and is in good standing, or local law equivalent, in each jurisdiction in which the nature of its business or the ownership or leasing of its properties or operations makes such qualification or licensing necessary, except in such jurisdictions where the failure to be so qualified or licensed or to be in good standing, or local law equivalent, would not, individually or in the aggregate, have a Material Adverse Effect on Company.

 

(b)  Company has delivered or made available to Parent true, correct and complete copies of: (i) the Articles of Incorporation and Bylaws of Company, in each case as amended to date (collectively, the “Company Charter Documents”), (ii) its committee charters, codes of conduct or other comparable governing documents, in each case as amended to date, (iii) all existing written consents and minutes of the meetings of Company’s Board of Directors and each committee of its Board of Directors, and (iv) all the existing written consents and minutes of the meetings of the Company Stockholders. Each such instrument is in full force and effect. Company is not in violation of any of the provisions of the Company Charter Documents.

 

2.2  Company Power and Authority; Enforceability of this Agreement. 

 

(a)  Company has all requisite corporate power and authority to execute and deliver this Agreement, and subject to obtaining the Company Stockholder Approval, to perform its obligations hereunder and to consummate the Merger and the other transactions contemplated hereby. The Board of Directors of Company, at a meeting duly called and held at which all directors of Company were present in accordance with the Bylaws of Company, duly adopted resolutions (the “Company Board Approval”) (i) approving and declaring advisable this Agreement, the Merger and the other transactions contemplated hereby, (ii) declaring that it is advisable and making a determination that it is in the best interest of Company and the Company Stockholders that Company enter into this Agreement and consummate the Merger on the terms and subject to the conditions set forth in this Agreement, (iii) making a determination that this Agreement is fair to Company and the Company Stockholders, (iv) directing that this Agreement be submitted to a vote for adoption at a meeting of the Company Stockholders to be held as promptly as practicable as set forth in Section 5.2 hereof and (v) recommending that the Company Stockholders adopt and approve this Agreement, the Merger and the other transactions contemplated hereby, which resolutions have not been subsequently rescinded, modified or withdrawn in any way except as permitted by Section 5.2 hereof. The execution, delivery and performance of this Agreement by Company and the consummation by Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Company, subject to obtaining the Company Stockholder Approval (as defined below). The affirmative vote of the holders of a majority of the issued and outstanding shares of the Company Common Stock as of the record date established for the Company Stockholders’ Meeting, voting as a single class, in favor of adopting this Agreement and of approving the Merger and the other transactions contemplated hereby (the “Company Stockholder Approval”), is the only vote of the holders of any class or series of Company’s capital stock necessary to approve and adopt this Agreement, the Merger and the other transactions contemplated hereby.

 

 

 

 

(b)  The Board of Directors of Company has taken all action necessary to ensure that any restrictions on business combinations applicable to Company shall not apply to the transactions contemplated by this Agreement. No state or foreign takeover or similar statute or regulation is applicable to this Agreement or the transactions contemplated hereby.

 

(c)  This Agreement has been duly and validly executed and delivered by Company and, assuming the due authorization, execution and delivery by Parent and Merger Sub, constitutes the valid and binding obligation of Company, enforceable against Company in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, affecting creditors’ rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought.

 

2.3  Company Capitalization. 

 

(a)  The authorized capital stock of Company consists solely of 290,000,000 shares of the Company Common Stock and 10,000,000 shares of the Company Preferred Stock, of which 200,000 shares are designated as 1995 Series Preferred Stock, par value $0.001 per share (the “Company 1995 Series Preferred Stock”), 3,500 shares are designated as 1998 Series A Preferred Stock, par value $0.001 per share (the “Company 1998 Series A Preferred Stock”), 1,000 shares are designated as 2003 Series A Preferred Stock, par value $0.001 per share (the “Company 2003 Series A Preferred Stock”), and 1,100 shares are designated as 2003 Series B Preferred Stock, par value $0.001 per share (the “Company 2003 Series B Preferred Stock” and together with the Company 1995 Series Preferred Stock, the Company 1998 Series A Preferred Stock, the Company 2003 Series A Preferred Stock and the Company 2003 Series B Preferred Stock, the “Company Preferred Stock”), and (i) 23,224,272 shares of the Company Common Stock are issued and outstanding as of October 10, 2006, (ii) no shares of Company 1995 Series Preferred Stock are issued and outstanding, (iii) no shares of Company 1998 Series A Preferred Stock are issued and outstanding, (iv) no shares of Company 2003 Series A Preferred Stock are issued and outstanding, (v) no shares of Company 2003 Series B Preferred Stock are issued and outstanding, and (vi) no shares of Company’s capital stock are being held in Company’s treasury. Part 2.3(a) of the Company Disclosure Letter sets forth a true, correct and complete list of the number of shares of the Company Common Stock held by each registered holder thereof as of October 10, 2006, and since such date Company has not issued any securities (including derivative securities) except for any shares of the Company Common Stock issued upon exercise of Company Options outstanding under the Company Stock Plans prior to such date. All outstanding shares of the Company Common Stock and the Company Preferred Stock were duly authorized and validly issued, and are fully paid and nonassessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, pre-emptive right, subscription right or any similar right under the provisions of Nevada Corporate Law, the Company Charter Documents or any Contract to which Company is a party or by which it is bound. There are no accrued and unpaid dividends with respect to any outstanding shares of capital stock of Company or any Company Subsidiary.

 

(b)  Company has reserved 5,375,000 shares of the Company Common Stock for issuance to permitted grantees pursuant to the Company Stock Plans, of which (i) 1,325,114.5 shares of the Company Common Stock have been issued pursuant to option exercises as of the date hereof, (ii) 3,918,300.05 shares are subject to outstanding, unexercised options, with a weighted-average exercise price of $5.23 as of the date hereof, and (iii) 131,585 shares remain available for issuance thereunder as of the date hereof. Part 2.3(b) of the Company Disclosure Letter sets forth the following information with respect to each Company Option outstanding as of the date of this Agreement: (i) the name of the optionee; (ii) the number of shares of the Company Common Stock subject to such Company Option; (iii) the exercise price of such Company Option; (iv) the date on which such Company Option was granted; (v) the vesting schedule of such Company Option, and the extent to which such Company Option is vested as of the date of this Agreement; (vi) the date on which such Company Option expires; and (vii) whether the exercisability or vesting of such Company Option will be accelerated in any way by the transactions contemplated by this Agreement, and the extent of any such acceleration. Company has made available to Parent an accurate and complete copy of the Company Stock Plans and the forms of all stock option agreements evidencing Company Options. There are no options outstanding to purchase shares of the Company Common Stock other than pursuant to the Company Stock Plans. All shares of the Company Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, will be duly authorized, validly issued, fully paid and nonassessable. Other than as set forth on Part 2.3(b) of the Company Disclosure Letter, there are no Contracts of any character to which Company is bound obligating Company to accelerate the vesting of any Company Option as a result of the transactions contemplated by this Agreement. Other than as set forth on Part 2.3(b) of the Company Disclosure Letter, there are no outstanding or authorized stock appreciation, stock purchase, profit participation, “phantom stock,” or other similar plans or Contracts with respect to Company or any Company Subsidiary.

 

 

 

 

(c)  All outstanding shares of the Company Common Stock and the Company Preferred Stock, all outstanding Company Options, and all outstanding shares of capital stock of each Company Subsidiary have been issued and granted in compliance with (i) all applicable federal, state and foreign securities laws and other applicable Legal Requirements and (ii) all requirements set forth in applicable agreements or instruments. For the purposes of this Agreement, “Legal Requirements” means any federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, judgment, injunction, order, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity or the NGM.

 

2.4  Obligations With Respect to Company Capital Stock. 

 

(a)  Except as described in Section 2.3 or set forth on Parts 2.3, 2.4(a) and 2.5 of the Company Disclosure Letter, no capital stock of Company or any Company Subsidiary or any security convertible or exchangeable into or exercisable for such capital stock, is issued, reserved for issuance or outstanding as of the date hereof. Except as set forth on Part 2.3 or Part 2.4(a) of the Company Disclosure Letter, there are no subscriptions, options, warrants, calls, rights (including preemptive rights), commitments or agreements of any kind to which Company or any Company Subsidiary is bound obligating Company or any Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of Company or any Company Subsidiary or obligating Company or any Company Subsidiary to grant, extend or accelerate the vesting of or otherwise amend or enter into any such subscriptions, options, warrants, calls, rights (including preemptive rights), commitments or agreements. There are no rights or obligations, contingent or otherwise (including rights of first refusal in favor of Company), of Company or any Company Subsidiary, to repurchase, redeem or otherwise acquire any shares of capital stock of Company or any Company Subsidiary or any securities convertible or exchangeable into or exercisable for such capital stock or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any Company Subsidiary or any other Person. Neither Company nor any Company Subsidiary has any authorized, issued, or outstanding bonds, debentures, notes or other indebtedness having the right to vote on any matters on which the Company Stockholders have the right to vote.

 

(b)  Except as set forth on Part 2.4(b) of the Company Disclosure Letter, Company is not a party to or bound by any agreement with respect to the voting (including voting trusts, proxies, "poison pill" anti-takeover plans) registration under the Securities Act, or sale or transfer (including agreements related to pre-emptive rights, rights of first refusal, co-sale rights or "drag-along" rights but excluding restrictions required by the Securities Act in connection with private placements of securities) of any securities of Company or any Company Subsidiary. To the knowledge of Company, there are no agreements among other parties, to which Company is not a party and by which it is not bound, with respect to voting (including voting trusts and proxies) or sale or transfer (including agreements relating to rights of first refusal, co-sale rights or "drag along" rights but excluding restrictions required by the Securities Act in connection with private placements of securities) of any securities of Company or any Company Subsidiary.

 

 

 

 

(c)  The Company Common Stock constitutes the only class of securities of Company or Company Subsidiaries registered or required to be registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

2.5  Company Subsidiaries and Investments. 

 

(a)  Part 2.5 of the Company Disclosure Letter sets forth the name, jurisdiction of organization and number of outstanding shares of each Company Subsidiary, and lists of all of the stockholders of each Company Subsidiary (indicating the number of shares owned by each such stockholder). Company or one of Company Subsidiaries owns of record and beneficially holds valid title to all of the issued and outstanding shares of capital stock of each Company Subsidiary as set forth on Part 2.5 of the Company Disclosure Letter, and all such shares (other than directors’ qualifying shares in the case of foreign Subsidiaries, all of which are set forth on Part 2.5 of the Company Disclosure Letter) are free and clear of Encumbrances. All of the outstanding shares of capital stock of each Company Subsidiary were duly authorized, validly issued, and are fully paid and nonassessable and there are no outstanding options, rights or agreements of any kind relating to the issuance, sale or transfer of any capital stock or other equity securities (or securities convertible into or exchangeable for securities having such rights) of any Company Subsidiary to any Person except Company.

 

(b)  Each Company Subsidiary is a corporation or limited liability entity and is duly incorporated or formed and organized, validly existing and in good standing under the laws of its jurisdiction of organization, with the requisite power and authority to own its properties and to carry on its business as it is now being conducted. Each Company Subsidiary is duly qualified or licensed to do business and is in good standing, or local law equivalent, in each jurisdiction in which the nature of its business or the ownership or leasing of its properties or operations makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed or to be in good standing, or local law equivalent, would not reasonably be expected to have a Material Adverse Effect on Company. Except as set forth on Part 2.5 of the Company Disclosure Letter, neither Company nor any Company Subsidiary has a place of business or permanent establishment outside of the United States. Company has delivered, or made available to Parent true, correct and complete copies of the following documents: (i) the Articles of Incorporation and Bylaws (or similar organizational documents), in each case as amended, of each Company Subsidiary, (ii) all the existing written consents and minutes of the meetings of the Boards of Directors of each Company Subsidiary and each committee of such Boards of Directors, and (iii) all the existing written consents and minutes of the meetings of the stockholders of each Company Subsidiary.

 

(c)  Except as set forth on Part 2.5 of the Company Disclosure Letter, neither Company nor any Company Subsidiary owns any capital stock, any equity or partnership interest, any joint venture or profit sharing interest or any other ownership or proprietary interest in any Person.

 

2.6  Company SEC Reports; Compliance with OTCBB and NGM; Company Financial Statements. 

 

 

 

 

(a)  Company has filed on a timely basis all reports, schedules, forms, statements and other documents required to be filed by Company with the SEC since April 23, 2002 (the "Company Commencement Date"), including all exhibits thereto and all certifications and statements required by (x) Rule 13a-14 or 15d-14 under the Exchange Act, or (y) 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) (collectively, the “Certifications”), as such documents since the time of filing may have been amended or supplemented with the SEC (the “Company SEC Reports”). Since the Company Commencement Date, there have been no comment letters or other correspondence received by Company from the SEC (excluding letters related to confidential treatment applications and orders of effectiveness) or responses to such comment letters or other correspondence by or on behalf of Company that have not been provided to Parent, and the copies of such letters and responses delivered or made available to Parent were true, correct and complete. Company maintains disclosure controls and procedures required by Rule 13a-15 or 15d-15 under the Exchange Act, and such controls and procedures are designed to ensure that material information relating to Company, including Company Subsidiaries, required to be disclosed in the reports it files or submits under the Exchange Act is accumulated and communicated to Company’s principal executive officer and principal financial officer to allow timely decisions regarding financial disclosure. No Company Subsidiary is required to file with the SEC any report, schedule, form, statement or other document. As of their respective dates and except as subsequently corrected by amendment, the Company SEC Reports and all other filings that have been made by Company with the SEC complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Company SEC Reports, and Company has filed all exhibits required to be filed with the Company SEC Reports and all other filings that have been made by Company with the SEC, and all such exhibits were true, correct and complete in all material respects (except to the extent omissions were in reliance upon a confidential treatment request). The Company SEC Reports and all other filings that have been made by Company with the SEC (a) were and, in the case of Company SEC Reports and all other filings with the SEC filed by Company after the date hereof, will be prepared in all material respects in accordance with the applicable requirements of the Securities Act and the Exchange Act, as the case may be, and (b) did not at the time they were filed (or if amended or superseded by a filing prior to the date hereof, then on the date of such filing), and in the case of such forms, reports and documents filed by Company with the SEC after the date hereof, will not as of the time they are filed, contain any untrue statement of a material fact or omit to state a material fact required to be stated in or necessary in order to make the statements in such documents, in light of the circumstances under which they were and will be made, not misleading; provided, however, that all of the Certifications are each true and correct based upon the knowledge of the officer(s) making such Certifications, as made. Company has filed all amendments to the Company SEC Reports and all other filings that have been made by Company with the SEC as were required to be filed under applicable law. Company was in compliance with the requirements applicable to securities that are traded on the OTC Bulletin Board (the “OTCBB”) when its securities were traded on the OTCBB and is in compliance with the requirements applicable to securities that are traded on the NGM and has not, since the Company Commencement Date, received any notice from the OTCBB or the NGM, asserting any non-compliance with such requirements. As used in Sections 2.6 and 3.6 hereof, the term “file” shall be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available in writing to the SEC.

 

(b)  Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Company SEC Reports, including each Company SEC Report filed after the date hereof until the Closing (the “Company Financials”), (i) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto then in effect at the same time as such filing, (ii) was prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved (except as may be indicated therein or in the notes thereto or, in the case of unaudited interim financial statements, as may be permitted by the SEC on Form 10-Q, 8-K or any successor form under the Exchange Act) and (iii) fairly presented in all material respects the consolidated financial position of Company and Company Subsidiaries that are required by GAAP to be consolidated therein and fairly reflects its investment in any unconsolidated Subsidiary as of the respective dates thereof and the consolidated results of their operations and cash flows for the periods indicated, except that the unaudited interim financial statements may not contain footnotes and were or are subject to normal and recurring year-end adjustments. All Subsidiaries of Company that are required by GAAP to be consolidated in the Company Financials have been so consolidated. The balance sheet of Company contained in Company SEC Reports as of June 30, 2006 is hereinafter referred to as the “Company Balance Sheet.” The reserves reflected in the Company Financials have been calculated in accordance with GAAP. Except as disclosed in the Company Balance Sheet, neither Company nor any Company Subsidiary has any liabilities required under GAAP to be set forth on a balance sheet (absolute, accrued, contingent or otherwise) which are, individually or in the aggregate, material to the business, results of operations or financial condition of Company and Company Subsidiaries taken as a whole, except for liabilities incurred since the date of the Company Balance Sheet in the ordinary course of business consistent with past practices and liabilities incurred in connection with this Agreement. Neither Company nor any Company Subsidiary nor, to Company’s knowledge, any director, officer, employee, auditor, accountant or representative of Company or Company Subsidiaries has received or otherwise had or obtained knowledge of any written complaint, allegation, assertion or claim regarding the accounting or auditing practices, procedures, methodologies or methods of Company or Company Subsidiaries or their respective internal accounting controls, including any complaint, allegation, assertion or claim that Company or Company Subsidiaries has engaged in questionable accounting or auditing practices; provided that if such event arises after the date of this Agreement, Company shall provide Parent with prompt written notice of such event. Part 2.6(b) of the Company Disclosure Letter contains a description of all non-audit services performed by Company’s auditors for Company and Company Subsidiaries since January 1, 2006 and the fees paid for such services. All such non-audit services were approved as required by Section 202 of the Sarbanes-Oxley Act of 2002. In the reasonable opinion of Company’s audit committee, the fees paid to and the services performed by Company’s auditors relating to such non-audit services as set forth on Part 2.6(b) of the Company Disclosure Letter do not impair such auditor’s independence. Company has delivered or made available to Parent true, correct and complete copies of all policies, manuals and other documents promulgating Company’s internal accounting controls. Since the Company Commencement Date, no attorney representing Company or any Company Subsidiary, whether or not employed by Company or Company Subsidiaries, has reported evidence of a violation of securities laws, breach of fiduciary duty or similar violation by Company or any of its officers, directors, employees or agents to Company’s Board of Directors or any committee thereof or to any director or officer of Company; provided that if such event arises after the date of this Agreement, Company shall provide Parent with prompt written notice of such event.

 

 

 

 

(c)  Neither Company nor any Company Subsidiary is a party to, or has any commitment to become a party to, any joint venture, partnership agreement or any similar Contract (including any Contract relating to any transaction, arrangement or relationship between or among Company or any Company Subsidiary, on the one hand, and any unconsolidated affiliate, including any structured finance, special purpose or limited purpose Person, on the other hand) where the purpose or intended effect of such arrangement is to avoid disclosure of any material transaction involving Company or any Company Subsidiary in the Company Financials.

 

2.7  Absence of Certain Changes or Events.  Except as contemplated by this Agreement, since the date of the Company Balance Sheet, Company and Company Subsidiaries have conducted their respective businesses in all material respects in the ordinary course of business. Since the date of the Company Balance Sheet, there has not been:

 

(a)  a Material Adverse Effect on Company;

 

(b)  (i) any split, combination or reclassification of any capital stock, (ii) any declaration, setting aside or payment of any dividend on, or other distribution (whether in cash, stock or property) in respect of, any of the shares of capital stock, or any purchase, redemption or other acquisition of any of the shares of capital stock or any other securities or other partnership interests or any options, warrants, calls or rights to acquire any such shares or other securities except for repurchases from employees or consultants following their termination pursuant to the terms of their pre-existing stock option or purchase agreements, or (iii) any amendment of any material term of any outstanding security;

 

(c)  any (i) any disposing or impairment of or permitting to lapse of any Company IP Rights that would be material and adverse to Company or outside the ordinary course of business, (ii) disposing of or disclosing (except as necessary in the conduct of its business) to any Person other than representatives of Parent any trade secret or other Intellectual Property Rights not theretofore a matter of public knowledge to any party that is not subject to a nondisclosure or similar agreement, or (iii) any material change to Company’s or any Company Subsidiary’s rights to use Intellectual Property Rights licensed from a third party, except, in the case of (i) through (iii) in the aggregate, as would not be material to Company and Company Subsidiaries, taken as a whole;

 

(d)  any sale, transfer, or other disposition of any material properties or assets (whether real, personal or mixed, tangible or intangible) except in the ordinary course of business consistent with past practices;

 

 

 

 

(e)  (i) any assumption, guarantee, endorsement or liability otherwise incurred (whether directly, contingently or otherwise) for the obligations of any other Person other than those of Company or Company Subsidiaries, or (ii) any making of any loan, advance or capital contribution to or investment in any Person, including any director, officer or other affiliate of Company, other than advances to employees for travel and other reimbursable expenses in the ordinary course of business;

 

(f)  (i) any material Tax election or material change in any Tax election, any material change in annual Tax accounting period or method of Tax accounting other than as required by applicable laws or regulations, any filing of any material amended Tax Returns, any entering into of a closing agreement, settlement of or consent to any Tax claim, any surrendering of any right to claim a material refund of Taxes, or any consent to any extension or waiver of the statutory period of limitation applicable to any material Tax claim, (ii) any material change in any method of accounting, method of accounting principles or practice, except for any such change required by reason of a concurrent change in GAAP or compliance with the applicable requirements of the rules and regulations promulgated by the SEC, or (iii) any revaluation of any material assets, including, without limitation, writing-off notes or accounts receivable other than in the ordinary course of business;

 

(g)  any loss of, or receipt of written notice of any intention to cancel or otherwise terminate, any identified Contract that would be reasonably likely, individually or in the aggregate, to be material to Company other than in the ordinary course of business consistent with past practices and other than threatened terminations of any identified Contract where Company has cured the underlying cause of the threat and such Contract still remains in full force and effect;

 

(h)  as of the date hereof, (i) any increase or change in any compensation, benefits or bonus paid or made payable to any of their executive officers or directors, or employees earning more than $100,000 in base salary annually, or any increase in severance or termination pay, or any material modification or amendment of any currently effective employment, severance, termination or indemnification agreement or any agreement or policy the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving Company of the nature contemplated hereby or (ii) any action taken to accelerate, amend or change the period of vesting or exercisability of options or restricted stock, or reprice Company Options granted under the Company Stock Plans or authorization of cash payments in exchange for any Company Options granted under the Company Stock Plans; or

 

(i)  any agreement, whether in writing or otherwise, to take any action described in this Section 2.7.

 

2.8  Company Books and Records.  All accounts, books, ledgers and official and other records material to Company’s business maintained by Company or Company Subsidiaries have been properly and accurately kept in all material respects, and there are no material inaccuracies or discrepancies contained or reflected therein. Company or Company Subsidiaries have under their control or possession all material records, systems, data or information used in Company’s business, and neither Company nor any Company Subsidiary uses any third party provider for records storage, except duplicate backup storage tapes which are maintained at a secure location and readily accessible by Company and Company Subsidiaries.

 

2.9  Company Taxes. 

 

(a)  Company and each Company Subsidiary have timely filed, or caused to be filed, taking into account any valid extensions of due dates, completely and accurately, in all material respects, all federal, state, local and foreign returns, estimates, information statements and reports relating to Taxes (“Tax Returns”) required to be filed by or on behalf of Company and each Company Subsidiary with any Tax authority. Such Tax Returns are true, correct and complete in all material respects. Company and each Company Subsidiary have paid all Taxes required to be paid.

 

 

 

 

(b)  Company and Company Subsidiaries have collected all sales, use, goods and services or other commodity Taxes required to be collected and remitted or will remit the same to the appropriate Tax authority within the prescribed time periods. Company and each Company Subsidiary have timely withheld or paid all federal and state income Taxes, Taxes pursuant to the Federal Insurance Contribution Act (“FICA”), Taxes pursuant to the Federal Unemployment Tax Act and other Taxes required to be withheld or paid by Company and each Company Subsidiary with respect to any of its employees, former employees, directors, officers, residents and non-residents or third parties.

 

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

 

(d)  Since January 1, 2002, none of the Tax Returns of Company or any Company Subsidiary have ever been audited by the IRS or any other Governmental Entity. No examination of any Tax Return of Company or any Company Subsidiary is currently in progress, and neither Company nor any Company Subsidiary has received written notice of any (i) pending or proposed audit or examination, (ii) request for information regarding Tax matters, or (iii) notice of deficiency or prepared adjustment for any amount of Tax proposed, asserted, or assessed by any Tax authority against Company or any Company Subsidiary, and Company does not expect any authority to assess any additional Taxes for any period for which Tax Returns have been filed.

 

(e)  Company has no liability for unpaid Taxes which has not been accrued for or reserved on the Company Balance Sheet in accordance with GAAP, whether asserted or unasserted, contingent or otherwise, which is material to Company, other than any liability for unpaid Taxes that may have accrued since the date of the Company Balance Sheet in connection with the operation of the business of Company and Company Subsidiaries in the ordinary course. The amount set up as an accrual for Taxes (aside from any reserve for deferred Taxes established to reflect timing differences between book and tax income) in the Company Balance Sheet is sufficient for the payment of all unpaid Taxes of Company and any Company Subsidiary, whether or not disputed, for all periods ended on or prior to the date hereof.

 

(f)  Company has delivered or made available to Parent or its legal counsel or accountants true, correct and complete copies of all Tax Returns for Company and Company Subsidiaries filed for all periods since December 31, 2002, and all such filings were true, correct and complete in all material respects when made.

 

(g)  There are (and immediately following the Effective Time there will be) no Encumbrances on the assets of Company relating to or attributable to Taxes other than Encumbrances for Taxes not yet due and payable. There is no basis for the assertion of any claim relating or attributable to Taxes that, if adversely determined, would result in any Encumbrance for Taxes on the assets of Company.

 

(h)  Neither Company nor any Company Subsidiary has (a) been a member of an affiliated group (within the meaning of Code §1504(a)) filing a consolidated federal income Tax Return (other than a group the common parent of which was Company) or any combined, consolidated or unitary state or local or foreign income Tax Return, (b) been a party to any Tax sharing, indemnification or allocation agreement, nor does Company owe any amount under any such agreement (c) liability for the Taxes of any Person under Treas. Reg. § 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by Contract, or otherwise or (d) been a party to any joint venture, partnership or other agreement that could be treated as a partnership for Tax purposes.

 

(i)  Neither Company nor any Company Subsidiary has constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock intended or purported to be governed by Section 355 or Section 361 of the Code.

 

(j)  Neither Company nor any Company Subsidiary has engaged in a transaction that is the same as or substantially similar to one of the types of transactions that the IRS has determined to be a tax avoidance transaction and identified by notice, regulation, or other form of published guidance as a listed transaction, as set forth in Treas. Reg. § 1.6011-4(b)(2).

 

 

 

 

(k)  Neither Company nor any Company Subsidiary is obligated to make any payments or is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Section 280G or Section 162(m) of the Code or under similar provisions of foreign, state, or local law.

 

(l)  Company and each Company Subsidiary has complied in all material respects with all applicable laws relating to accounting and Tax matters, intercompany transactions and transfer pricing, except where the failure to comply would not reasonably be expected to have a Material Adverse Effect on Company. Neither Company nor any Company Subsidiary has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. Neither Company nor any Company Subsidiary will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the date hereof as a result of any:

 

(i)  change in method of accounting for a taxable period beginning or ending on or prior to the date hereof;

 

(ii)  “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the date hereof;

 

(iii)  intercompany transaction or excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of state, local or foreign income Tax law);

 

(iv)  installment sale or open transaction disposition made on or prior to the date hereof; or

 

(v)  prepaid amount received on or prior to the date hereof.

 

(m)   Except as would not have a Material Adverse Effect on Company, Company and Company Subsidiaries have complied with all registration, reporting, collection, and remittance requirements in respect of all federal and provincial sales tax legislation, including, but not limited to the Excise Tax Act and the Retail Sales Act.

 

2.10  Title and Operation of Company Properties. 

 

(a)  Company and Company Subsidiaries have good and valid title to, or enforceable leasehold interests in, or valid rights under Contract to use, all the properties and assets owned or used by it or them (real and personal, tangible and intangible), in each case free and clear of all Encumbrances, except for Company Permitted Encumbrances. The property and equipment owned or otherwise contracted for by Company and Company Subsidiaries are in a state of good maintenance and repair (ordinary wear and tear excepted) and are adequate and suitable for the purposes for which they are presently being used. “Company Permitted Encumbrances” mean all (i) Encumbrances for Taxes not yet payable or being contested in good faith and by proper proceedings diligently pursued and for which an adequate reserve has been made, (ii) Encumbrances upon equipment granted in connection with the purchase, lease or financing of such equipment provided that such Encumbrance attaches only to the equipment purchased, leased or financed with the proceeds secured thereby, (iii) carriers’, warehousemen’s, mechanics’ and materialmen’s Encumbrances arising in the ordinary course of business securing sums which are not past due, (iv) Encumbrances of landlords which are inchoate arising solely by operation of law with respect to the Company Real Property Leases, (v) Encumbrances on PINs and equipment held by providers thereof arising in the ordinary course of business for sums not yet past due or being contested in good faith and by proper proceedings diligently pursued and for which an adequate reserve has been made, (vi) with respect to real property, any zoning laws and ordinances or recorded easements and (vii) those Encumbrances set forth on Part 2.10(a) of the Company Disclosure Letter.

 

 

 

 

(b)  Neither Company nor any Company Subsidiary owns any real property (including ground leases) or holds any option or right of first refusal or first offer to acquire any real property, and neither Company nor any Company Subsidiary is obligated by Contract or otherwise to purchase any real property.

 

(c)  Part 2.10(c) of the Company Disclosure Letter contains a true, complete and correct list of each real property lease, sublease, license or other occupancy agreement, including any modification, amendment or supplement thereto and any other related document or agreement that is currently in effect and has been executed or entered into by Company or any Company Subsidiary (including any of the foregoing which Company or any Company Subsidiary has subleased or assigned to another Person and as to which Company or such Subsidiary remains liable) (each, a “Company Real Property Lease”). Company and Company Subsidiaries hold the leasehold estate on each Company Real Property Lease free and clear of all Encumbrances, except for Company Permitted Encumbrances and any mortgagees’ Encumbrances on the real property in which such leasehold estate is located. The real property leased by Company and Company Subsidiaries is in a state of good maintenance and repair and is adequate and suitable for the purposes for which it is presently being used, and, to the knowledge of Company, there are no material repair or restoration works needed in connection with any of the leased real properties which Company or any Company Subsidiary are responsible to make. Company or one of Company Subsidiaries is in physical possession and actual and exclusive occupation of the whole of each of its leased properties. Except as set forth on Part 2.10(c) of the Company Disclosure Letter, neither Company nor any Company Subsidiary owes any brokerage commission with respect to any Company Real Property Lease.

 

2.11  Company Intellectual Property. 

 

(a)  Company and the Company Subsidiaries own or have the valid right or license to use in the manner used by Company and the Company Subsidiaries all IP Assets and Intellectual Property Rights used by, or necessary to the operation of the business of, Company and the Company Subsidiaries. Such IP Assets and Intellectual Property Rights used by Company and the Company Subsidiaries are sufficient for the conduct of the business of Company and the Company Subsidiaries as currently conducted and as currently planned to be conducted. The consummation of the Merger and the other transactions contemplated by this Agreement and any ancillary agreements will not result in any termination or other material restriction being imposed on any Company IP Assets or Company IP Rights.

 

(b)  Except as otherwise set forth on Part 2.11(b) of the Company Disclosure Letter there are no royalties, honoraria, fees or other payments payable by Company and the Company Subsidiaries to any Person (other than salaries payable to employees, consultants and independent contractors not contingent on or related to use of their work product) as a result of the use, possession or ownership of any Company IP Assets, or any Company IP Rights, and none will become payable as a result of the consummation of the transactions contemplated by this Agreement.

 

(c)  To the knowledge of Company, neither the operation of the business of Company and the Company Subsidiaries, nor any product or service of Company and the Company Subsidiaries, nor the use of any Company IP Asset or the use or exercise of any Company IP Rights, infringes or misappropriates, or has infringed or misappropriated, any Intellectual Property Right of any other Person. There is no pending, or, to the knowledge of Company, threatened, claim or litigation against Company or any Company Subsidiary contesting the validity, ownership or other right of Company in any Company IP Asset or any Company IP Right nor, to Company’s knowledge, is there any legitimate basis for any such claim. Company and the Company Subsidiaries have not received any written notice asserting that the use, exercise, sale, license or disposition, or any proposed use, exercise, sale, license or disposition, of any Company IP Asset or any Company IP Right, or any business practice or product or service of Company and the Company Subsidiaries, conflicts, or will conflict with, any Intellectual Property Right of any other Person nor, to Company’s knowledge, is there any legitimate basis for any such assertion.

 

 

 

 

(d)  The Company IP Assets and Company IP Rights owned by Company and the Company Subsidiaries do not contain any derivative works or other materials not owned in their entirety by Company and the Company Subsidiaries. Company and the Company Subsidiaries have granted no third party any exclusive rights with respect to any Company IP Assets or Company IP Rights.

 

(e)  To Company’s knowledge, no current or former employee, consultant or independent contractor of Company or the Company Subsidiaries: (i) is in material violation of any term or covenant of any Contract relating to employment, patent disclosure, invention assignment, non-disclosure or non-competition or any other Contract with any other party by virtue of such employee’s, consultant’s or independent contractor’s being employed by, or performing services for, Company or the Company Subsidiaries or using Intellectual Property Rights of others without permission; or (ii) has developed any IP Assets or Intellectual Property Rights for Company or the Company Subsidiaries that is subject to any agreement under which such employee, consultant or independent contractor has assigned or otherwise granted to any Person (other than Company) any rights in or to such IP Assets or Intellectual Property Rights.

 

(f)  Company and the Company Subsidiaries have taken all appropriate steps to protect, preserve and maintain the secrecy and confidentiality of their respective confidential information, including trade secrets, and to preserve and maintain all of their respective interests and rights in Company IP Assets and the Company IP Rights owned by Company or any Company Subsidiary. Company and the Company Subsidiaries have adequately maintained all trade secrets and copyrights included in the Company IP Rights owned by Company or any Company Subsidiary. Company and the Company Subsidiaries have secured valid written assignments of all rights in or to any Company IP Assets and Company IP Rights owned by Company or any Company Subsidiary pursuant to valid "work for hire" agreements from all of Company’s and the Company Subsidiaries’ current and former employees, consultants and independent contractors who were involved in, or who contributed to, the creation or development of any such Company IP Assets or Company IP Rights, which agreements comply in all material respects with all applicable Legal Requirements. To Company’s knowledge, no current or former director, officer, employee, consultant or independent contractor of Company or the Company Subsidiaries has any right, license, claim or interest whatsoever in or with respect to any Company IP Assets or Company IP Rights.

 

(g)  Part 2.11(g) of the Company Disclosure Letter contains a true and complete list of (i) all registrations made in any and all jurisdictions throughout the world by or on behalf of Company and the Company Subsidiaries of any Company IP Rights, and (ii) all applications, registrations, filings and other formal written governmental actions made or taken pursuant to applicable laws by Company and the Company Subsidiaries to secure, perfect, protect or maintain its interest in Company IP Rights, including all patent applications, copyright applications, and applications for registration of trademarks and service marks (collectively, the “Registered Company IP Rights”). All Registered Company IP Rights are valid, enforceable and subsisting, and all necessary registration, maintenance and renewal fees that have become due in connection with the Registered Company IP Rights have been paid and all necessary documents and articles in connection with the Registered Company IP Rights have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of obtaining and maintaining the Registered Company IP Rights. There are no facts or circumstances that would render any Registered Company IP Rights invalid or unenforceable. Without limiting the foregoing, there are no information, materials, facts or circumstances, including any information or fact that would constitute prior art, that would render any of the Registered Company IP Rights invalid or unenforceable, or would adversely effect any pending application for any Registered Company IP Rights.

 

(h)  Company and the Company Subsidiaries possess all right, title and interest in and to all Company IP Assets and Company IP Rights owned by Company or any Company Subsidiary, free and clear of all Encumbrances and licenses (other than non-exclusive licenses granted to customers and resellers in the ordinary course of business and licenses and rights listed on Part 2.11(h) of the Company Disclosure Letter), other than Permitted Encumbrances. Without limiting the foregoing, Company represents and warrants that the Company IP Assets owned by the Company include without limitation all EONStreams components and the internal elements of its FastAim, EasyImpressions and MediaConsole products, and Company possesses sole ownership with respect thereto.

 

 

 

 

(i)  To Company’s knowledge, there is no current or past unauthorized use, disclosure, infringement or misappropriation of any Company IP Asset or Company IP Rights owned by Company or any Company Subsidiary by any Person, including any employee or former employee of Company or the Company Subsidiaries.

 

(j)  No (i) government funding, or (ii) facilities of a university, college, other educational institution or research center; was used in the development of any Company IP Assets or Company IP Rights owned by the Company or the Company Subsidiaries. To the Company's knowledge, no current or former employee, consultant or independent contractor of Company or the Company Subsidiaries who was involved in, or who contributed to, the creation or development of any Company IP Assets or Company IP Rights owned by Company or any Company Subsidiary, has performed services for the government, any university, college or other educational institution or any research center during a period of time during which such employee, consultant or independent contractor was also performing services for Company or the Company Subsidiaries. No university, college, other educational institution or research center has any right, title or interest in or to any Company IP Rights owned by Company or any Company Subsidiary.

 

(k)  Except as set forth on Part 2.11(k) of the Company Disclosure Letter the Company IP Assets owned by the Company and the Company Subsidiaries do not contain any Publicly Available Software or any Harmful Code.

 

2.12  Company Employees; Location and Compensation.  Part 2.12 of the Company Disclosure Letter is a true, complete and correct list as of the date hereof showing (a)(i) the names and positions of all employees and consultants of Company and Company Subsidiaries, (ii) the principal offices where such employees and consultants work, (iii) a statement of the current annual salary, and the annual salary, bonus and incentive compensation paid or payable to such individuals, and a statement of the projected bonus and incentive compensation payable with respect to the fiscal year ending December 31, 2006, and the fringe benefits of such employees and consultants not generally available to all employees of Company and Company Subsidiaries; (b) the names of all retired employees, if any, of Company or Company Subsidiaries who are receiving or entitled to receive any healthcare or life insurance benefits or any payments from Company or any of Company Subsidiaries not covered by any pension plan to which Company or any of Company Subsidiaries is a party, their ages and current unfunded pension rate, if any; and (c) a description of the current severance and vacation policy of Company and Company Subsidiaries. Other than as set forth in the Company Disclosure Letter, neither Company nor any Company Subsidiary has, because of past practices or previous commitments with respect to its employees, established any rights on the part of any of its employees to additional compensation with respect to any period after the Closing Date (other than wage increases in the ordinary course of business).

 

2.13  Company Employee Benefit Plans. 

 

(a)  Part 2.13(a) of the Company Disclosure Letter lists (a) all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)); (b) all “specified fringe benefit plans” (as defined in Section 6039D(d)(1) of the Code); (c) all “nonqualified deferred compensation plans” (as defined in Sections 409A(d)(1) or 3121(v)(2)(C) of the Code); and (d) all bonus, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance, termination, unemployment, disability, bonus, stock options, stock appreciation rights or other forms of incentive compensation, health, vision, dental or other insurance, or other benefit plans, programs or arrangements, or other Contracts; whether covering one Person or more than one Person, and whether or not subject to any of the provisions of ERISA, which are or have been maintained, contributed to or sponsored by Company or any ERISA Affiliate for the benefit of any employee, independent contractor, agent, director or stockholder of Company or any ERISA Affiliate or for the benefit of any spouse, dependents or beneficiaries of such Persons, other than Social Security, Medicare and state unemployment programs to which Company and the Company Subsidiaries are required by statute to contribute (each item listed on Part 2.13(a) of the Company Disclosure Letter being referred to herein individually, as a “Company Plan” and collectively, as the “Company Plans”). Company has delivered or made available to Parent, to the extent applicable, a true, complete and correct copy of: (i) each written Company Plan and descriptions of any unwritten Company Plan (including all amendments thereto whether or not such amendments are currently effective); (ii) each summary plan description and summary of material modifications relating to a Company Plan (if applicable); (iii) each trust agreement or other funding arrangement with respect to each Company Plan, including insurance Contracts (if applicable); (iv) the three most recently filed IRS Form 5500 relating to each Company Plan (if applicable); (v) the most recently received IRS determination letter for each Company Plan (if applicable); (vi) the three most recently prepared actuarial reports and financial statements in connection with each Company Plan (if applicable); (vii) all policies pertaining to fiduciary liability insurance covering the fiduciaries of any Company Plan, and all bonds pertaining to any Company Plan (if applicable); (viii) all nondiscrimination test results required under the Code for any Company Plan for the prior three years; and (ix) all material rulings, opinion letters, information letters, advisory opinions or other correspondence to or from or issued by the IRS, the United States Department of Labor or the Pension Benefit Guaranty Corporation with respect to any Company Plan. Except as set forth on Part 2.13(a) of the Company Disclosure Letter, neither Company nor any Company Subsidiary has made any commitment, (A) to create or cause to exist any Company Plan not set forth on Part 2.13(a) of the Company Disclosure Letter or (B) except as necessary to comply with changes in applicable Legal Requirements, to modify, change or terminate any Company Plan.

 

 

 

 

(b)  Except as set forth on Part 2.13(b) of the Company Disclosure Letter, neither Company nor any ERISA Affiliate has maintained, established, sponsored, contributed to, or participated in any (a) multi-employer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA), (b) multiple employer plan subject to Sections 4063 and 4064 of ERISA, (c) multiple employer plan (within the meaning of Section 413(c) of the Code), (d) multiple employer welfare arrangement (within the meaning of Section 3(40)(A) of ERISA), (e) plan subject to the minimum funding requirements of Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code, or (f) plan subject to Title IV of ERISA, nor does Company or any ERISA Affiliate have any obligations or liabilities, including withdrawal or successor liabilities, regarding any such plan. As used herein, the term “ERISA Affiliate” means any Person that, together with Company or Parent, as the case may be, is considered a “single employer” pursuant to Section 4001(b) of ERISA or Sections 414(b), (c), (m) or (o) of the Code. None of the Company Plans cover Employees providing services outside the United States.

 

(c)  Except as set forth on Part 2.13(c) of the Company Disclosure Letter, Company and Company Subsidiaries have expressly reserved the right, in all Company Plan documents provided to employees, former employees, officers, directors and other participants and beneficiaries, to amend, modify or terminate at any time such Company Plans, and Company is not aware of any fact, event or condition that could reasonably be expected to restrict or impair such right.

 

(d)  Each Company Plan is now and has been operated in accordance with the requirements of all applicable laws, including ERISA, the Health Insurance Portability and Accountability Act of 1996 and the Code, and the regulations and authorities published thereunder. Company and Company Subsidiaries performed all material obligations required to be performed by them under, are not in any material respect in default under or in violation of, and Company has no knowledge of any material default or violation by any party to, any Company Plan. No legal action, suit, audit, investigation or claim is pending or to the knowledge of Company is threatened, with respect to any Company Plan (other than claims for benefits in the ordinary course of business), and no fact, event or condition exists that would be reasonably likely to provide a legal basis for any such action, suit, audit, investigation or claim. All material reports, disclosures, notices and filings with respect to such Company Plans required to be made to employees, participants, beneficiaries, alternate payees and any Governmental Entity have been timely made or an extension has been timely obtained.

 

(e)  Each Company Plan which is intended to be qualified under Section 401(a) of the Code is so qualified and has been so qualified during the period from its adoption to date, and each trust established in connection with any Company Plan which is intended to be exempt from federal income taxation under Section 501(a) of the Code is so exempt. Each Company Plan intended to be qualified under Section 401(a) of the Code and each trust intended to be exempt from federal income taxation under Section 501(a) of the Code has received either (i) a determination letter from the IRS that it is so qualified or exempt as applicable or (ii) an opinion letter from the IRS as to the qualified form of its plan documents. No fact or event has occurred or condition exists since the date of such determination letter from the IRS which would be reasonably likely to adversely affect the qualified status of any such Company Plan or the exempt status of any such trust and which cannot be corrected pursuant to IRS Revenue Procedure 2006-27 (including any subsequent authority modifying or superseding such Revenue Procedure), and to the extent such fact or event has occurred or such condition exists which can be corrected pursuant to such Revenue Procedure, all material facts and circumstances relating to such fact, event or condition have been set forth on Part 2.13(e) of the Company Disclosure Letter.

 

 

 

 

(f)  There has been no prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Company Plan. Neither Company nor any Company Subsidiary has incurred or failed to pay any liability for any excise tax arising under Sections 4971, 4972, 4975, 4976, 4977, 4978, 4979, 4980, 4980B, 4980D or 4980E of the Code or any civil penalty arising under Sections 502(i) or 502(l) of ERISA, and no fact, event or condition exists which could give rise to any such liability. Neither Company nor any ERISA Affiliate has incurred any liability under, arising out of or by operation of Title IV of ERISA and, no fact, event or condition exists which could give rise to any such liability. No complete or partial termination of an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA has occurred within the five years preceding the date hereof with respect to any Company Plan maintained by Company or any ERISA Affiliate.

 

(g)  All contributions, premiums or payments required to be made, paid or accrued with respect to any Company Plan have been made, paid or accrued on or before their due dates, including extensions thereof. All such contributions have been fully deducted for income tax purposes and no such deduction has been challenged or disallowed by any Governmental Entity and no fact or event exists which could give rise to any such challenge or disallowance.

 

(h)  With respect to each Company Plan that is a nonqualified deferred compensation plan within the meaning of Section 409A of the Code, (i) such Company Plan has been operated in good faith compliance with the provisions of Section 409A of the Code and Notice 2005 1 since January 1, 2005 if it was not terminated on or before December 31, 2005, (ii) such Company Plan has not been “materially modified” (within the meaning of Section 885(d)(2)(B) of the American Jobs Creation Act of 2004 and any applicable guidance issued thereunder) since October 3, 2004, in a manner which would cause amounts deferred in taxable years beginning before January 1, 2005, under such plan to be subject to Section 409A of the Code if such plan was in existence prior to October 3, 2004, and (iii) no event has occurred and no condition exists, that could subject any Person to any tax, fine, penalty or other liability under Section 409A of the Code (“409A Liability”). None of the transactions contemplated by this Agreement could, directly or indirectly, subject any Person to any 409A Liability.

 

(i)  Except as set forth on Part 2.13(i) of the Company Disclosure Letter (a) each of the employees of Company and any Company Subsidiary is employed at will, (b) none of the Company Plans, or any employment agreement or other Contract to which Company or any Company Subsidiary is a party or bound, (i) provides for the payment of or obligates Company or any Company Subsidiary to pay separation, severance, termination, as deferred compensation, consulting, post termination or similar type benefits to any Person as a result of any transaction contemplated by this Agreement or as a result of a “change in control,” within the meaning of such term under Section 280G of the Code, or (ii) obligates Company or any Company Subsidiary to pay separation, severance, termination or similar type benefits solely as a result of any transaction contemplated by this Agreement or as a result of a “change in control,” within the meaning of such term under Section 280G of the Code, and (c) the consummation of the transactions contemplated by this Agreement will not, alone or together with any other event, (A) entitle any Person to bonus pay, golden parachute payment, severance pay, unemployment compensation or any other payment from Company or any Company Subsidiary, (B) accelerate the time of payment or vesting, or increase the amount of compensation or benefits due to any such Person from Company or any Company Subsidiary, or (C) result in any forgiveness of indebtedness from Company or any Company Subsidiary.

 

 

 

 

2.14  Company Labor.

 

(a)  Company and Company Subsidiaries have materially complied with all applicable laws related to the employment of labor, including provisions thereof relating to wages, hours, equal employment opportunity, collective bargaining, non-discrimination, and withholding and payment of social security and other Taxes. There are no actions, suits, claims, charges, labor disputes or grievances pending, or to Company’s knowledge, threatened involving Company or any Company Subsidiary and any of their respective employees. There are no complaints, charges, lawsuits, arbitrations or other proceedings pending, or to Company’s knowledge, threatened by or on behalf of any present or former employee of Company or any Company Subsidiary alleging any claim for material damages including breach of any express or implied contract of employment, wrongful termination, infliction of emotional distress or violation of any federal, state or local statutes or regulations concerning terms and conditions of employment, including wages and hours, employee safety, termination of employment and/or workplace discrimination and harassment; provided that if such event arises after the date of this Agreement, Company shall provide Parent with prompt written notice of such event. There has been (i) no labor union organizing or, to Company’s knowledge, attempting to organize any employees of Company or any Company Subsidiary into one or more collective bargaining units, or (ii) no labor dispute, strike, work slowdown, work stoppage or lock out or other collective labor action by or with respect to any employees of Company or any Company Subsidiary, or, to the knowledge of Company, threatened against or affecting Company or any Company Subsidiary. Neither Company nor any Company Subsidiary is presently, nor has it been in the past, a party to, or bound by, any collective bargaining agreements or other agreement with any labor organization applicable to the employees of Company or any Company Subsidiary and no such agreement is currently being negotiated.

 

(b)  To the knowledge of Company, (i) no employee of Company or any Company Subsidiary has provided or is providing information to any law enforcement agency regarding the commission or possible commission of any crime or the violation or possible violation of any applicable law involving Company or any Company Subsidiary; provided that if such event arises after the date of this Agreement, Company shall provide Parent with prompt written notice of such event, and (ii) neither Company nor any Company Subsidiary nor any officer, employee, contractor, subcontractor or agent of Company or any Company Subsidiary has discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against an employee of Company or any Company Subsidiary in the terms and conditions of employment because of any act of such employee described in 18 U.S.C. Section 1514A(a).

 

(c)  Neither Company nor any Company Subsidiary has effectuated (i) a “plant closing” as defined in the WARN Act, affecting any site of employment or one or more facilities or operating units within any site of employment or facility of Company or any Company Subsidiary, or (ii) a “mass layoff” (as defined in the WARN Act) affecting any site of employment or facility of Company or any Company Subsidiary; nor has Company or any Company Subsidiary engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state, local or foreign law or regulation similar to the WARN Act that is applicable to Company or any Company Subsidiary. To Company’s knowledge, neither Company’s nor any Company Subsidiary’s employees has suffered an “employment loss” (as defined in the WARN Act) in the ninety (90) days prior to the date of this Agreement.

 

2.15  Company Litigation.  Except as set forth on Part 2.15 of the Company Disclosure Letter, there is no claim, action, suit, proceeding at law or in equity by any Person, or any arbitration or any administrative or other proceeding by or before (or to the knowledge of Company, any investigation, inquiry or subpoena by) any Governmental Entity, pending or, to the knowledge of Company, threatened against Company or any Company Subsidiary with respect to this Agreement or the transactions contemplated hereby, or otherwise against (or, to the knowledge of Company, affecting) Company or any Company Subsidiary or their respective properties or assets. Neither Company nor any Company Subsidiary is subject to any order entered in any lawsuit or proceeding that would have a Material Adverse Effect on Company or would prevent the consummation of the transactions contemplated by this Agreement. There has not been since January 1, 2003, nor are there currently, any internal investigations or inquiries being conducted by Company, Company Subsidiaries, their respective Boards of Directors or other equivalent management bodies or any third party or Governmental Entity or at the request of any of the foregoing concerning any financial, accounting, Tax, conflict of interest, self dealing, fraudulent or deceptive conduct or other misfeasance or malfeasance matters.

 

 

 

 

2.16  Compliance with Laws by Company. 

 

(a)  Each of Company and Company Subsidiaries are, and Company’s business has been conducted in compliance with all Legal Requirements applicable to Company or such Subsidiary or by which Company or any of its properties is bound or affected, except in each case where the failure to so comply would not be material with respect to Company. No investigation or review by any Governmental Entity is pending or, to Company’s knowledge, has been threatened against Company or Company Subsidiaries in a writing delivered to Company.

 

(b)  Company and Company Subsidiaries have all permits, licenses, variances, exemptions, orders and approvals required by any Governmental Entity that are material to the operation of the business of Company and Company Subsidiaries as currently conducted and the use of their respective properties and assets as presently operated or used (collectively, the “Company Permits”), and are in material compliance with the terms of the Company Permits. All of the Company Permits are in full force and effect. No action or claim is pending, nor to the knowledge of Company is threatened, to involve or terminate any Company Permits or declare any such Company Permit invalid in any material respect.

 

2.17  Environmental Matters of Company

 

(a)  Except as would not reasonably be expected to have a Material Adverse Effect on Company:

 

(i)  each of Company and Company Subsidiaries possesses all Environmental Permits necessary to conduct its businesses and operations as now being conducted, and each such Environmental Permit is in full force and effect; none of Company or Company Subsidiaries has received written notification from any Governmental Entity that any such Environmental Permits will be modified, suspended or revoked;

 

(ii)  each of Company and Company Subsidiaries is in compliance with all applicable Environmental Laws and the terms and conditions of all Environmental Permits, and none of Company or any Company Subsidiary has received written notification from any Governmental Entity or other Person that alleges that Company or any Company Subsidiary has violated or is, or may be, liable under any Environmental Law;

 

(iii)  there are no past or pending or, to the knowledge of Company, threatened Environmental Claims (A) against Company or any Company Subsidiary or (B) against any Person whose liability for any Environmental Claim Company or any Company Subsidiary has retained or assumed either by Contract or by operation of law, and none of Company or any Company Subsidiary has contractually retained or assumed any liabilities that could reasonably be expected to provide the basis for any Environmental Claim;

 

(iv)  to the knowledge of Company, there have been no Releases of any Hazardous Materials at, from, in, to, on or under any real properties currently or previously owned, leased, or utilized by Company or any Company Subsidiary or their predecessors or Affiliates that could reasonably be expected to form the basis of any Environmental Claim against Company or any Company Subsidiary; and

 

(v)  neither Company nor any Company Subsidiary or their predecessors or Affiliates transported or arranged for the transportation, treatment, storage, handling or disposal of any Hazardous Materials to any off site location that could reasonably be anticipated to result in an Environmental Claim.

 

 

 

 

(b)  To the knowledge of Company, there are no (i) underground storage tanks, active or abandoned, (ii) polychlorinated biphenyl containing equipment or (iii) asbestos containing material within the leasehold of any site or building utilized by Company or any Company Subsidiary.

 

(c)  There have been no environmental investigations, studies, tests, audits, reviewed or other analyses conducted by, on behalf of, or which are in the possession of, Company or any Company Subsidiary that have not been delivered or made available to Parent.

 

2.18  Company Contracts. 

 

(a)  Company has delivered or made available to Parent true, correct and complete copies (and all exhibits and schedules thereto and all amendments, modifications and supplements thereof) of the following Contracts, and all of such Contracts in existence on the date hereof are listed on Part 2.18 of the Company Disclosure Letter, in each case only if such Contract either (x) by its terms requires, or is reasonably likely to require, payment to, or by, Company or the Company Subsidiaries of at least $50,000 over the stated minimum term of the Contract or (y) is material to the business of Company and the Company Subsidiaries (it being understood that any Contract described in clauses (iv), (vii), (ix), (x), (xi), (xiii) or (xvi) are deemed to be material to the business of the Company and the Company Subsidiaries (the “Company Contracts”):

 

(i)  any distributor, supplier, sales, advertising, agency or manufacturer’s representative Contract;

 

(ii)  any license agreement or other written or oral agreement or permission pursuant to which Company has granted to any third party with respect to any IP Assets or Intellectual Property Rights (other than pursuant to Company's standard customer agreements in the ordinary course of business);

 

(iii)  any license, sublicense, agreement or other permission pursuant to which Company uses or otherwise possesses the IP Assets or Intellectual Property Rights of any third party;

 

(iv)  any Contract of Company or any Company Subsidiaries containing any material support or maintenance obligation on the part of Company or any Company Subsidiaries outside of the ordinary course of business;

 

(v)  all Contracts with any customer of the business of the Company and the Company Subsidiaries (provided that for customers that have executed a standard form of agreement, a copy of such form agreement and a list of the customers that have so executed such form agreement shall be sufficient);

 

(vi)  all Contracts of Company or any Company Subsidiaries relating to indebtedness of Company or any Company Subsidiaries

 

(vii)  any agreement pursuant to which any other party is granted exclusive marketing or other exclusive rights of any type or scope with respect to any of products or services of Company or any Company Subsidiaries;

 

(viii)  any continuing Contract for the purchase of materials, supplies, equipment, services or capital expenditures by Company or the Company Subsidiaries involving in the case of any such Contract more than fifty thousand dollars ($50,000) over the life of the Contract;

 

(ix)  all Contracts of Company or any of the Company Subsidiaries that involve the sale or purchase of any assets of Company or any of the Company Subsidiaries, other than in the ordinary course of business;