AGREEMENT AND PLAN OF MERGER

EXHIBIT 2.2

EXECUTION COPY

 

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

HOLOGIC, INC.,

HYDROGEN ACQUISITION, INC.

AND

R2 TECHNOLOGY, INC.

DATED: APRIL 24, 2006

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of April 24, 2006, by and among: (i) Hologic, Inc., a Delaware corporation (the “ Parent ”); (ii) Hydrogen Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“ Merger Sub ”); (iii) R2 Technology, Inc., Inc., a Delaware corporation (the “ Company ”); and (iv) Scott Halsted, solely in his capacity as Stockholder Representative (as defined below). Certain capitalized terms used herein are defined in Article 11 hereof.

RECITALS:

WHEREAS, the Boards of Directors of the Parent, Merger Sub and the Company, deeming it advisable and for the respective benefit of the Parent, Merger Sub and the Company, and their respective stockholders, have approved the Merger of Merger Sub with and into the Company upon the terms and subject to the conditions set forth in this Agreement, and have approved this Agreement and authorized the transactions contemplated hereby;

WHEREAS, the Board of Directors of the Company has determined to recommend to all of the Company’s stockholders that the Merger, this Agreement and the transactions contemplated hereby be approved;

WHEREAS, pursuant to the Merger, each outstanding share of Company Capital Stock and each Eligible Derivative Security shall automatically be converted into the right to receive the applicable consideration specified in Section 1.7 hereof upon the terms and subject to the conditions hereinafter set forth;

WHEREAS, for federal income tax purposes, the Parent, Merger Sub and the Company intend that the Merger qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”), and that this Agreement shall be, and hereby is, adopted as a plan of reorganization for purposes of Section 368(a) of the Code;

WHEREAS, upon consummation of the Merger, the Company shall be a wholly-owned subsidiary of the Parent;

WHEREAS, as an inducement to the Parent and Merger Sub to enter into this Agreement, a portion of the shares of Parent Common Stock otherwise issuable by the Parent in connection with the Merger shall be placed in escrow by the Parent at the Closing for purposes of satisfying indemnification obligations of the Company Stockholders and Eligible Derivative Security Holders to the Parent, and shall be disbursed in accordance with an escrow agreement, in the form attached as Exhibit A hereto (the “ Escrow Agreement ”), to be entered into by and among the Parent, the Stockholder Representative and the Escrow Agent concurrently with the signing of this Agreement, with such Escrow Agreement to be effective upon the Closing of the Merger;

 

WHEREAS, as an inducement to the Parent and Merger Sub to enter into this Agreement, the stockholders of the Company set forth on Section 1.14(a) of the Company Disclosure Schedule have entered into a Voting Agreements and Waivers with the Parent, each in the form attached as Exhibit B hereto (the “ Voting Agreements ”), concurrently with the signing of this Agreement.

NOW THEREFORE, in consideration of the mutual promises made herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

ARTICLE I.

THE MERGER; CLOSING

 

1.1

THE MERGER

(a) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware General Corporation Law (the “ DGCL ”), the Merger Sub shall be merged with and into the Company at the Effective Time (the “ Merger ”). Following the Merger, the separate corporate existence of the Merger Sub shall cease, and the Company shall continue as the surviving corporation (the “ Surviving Corporation ”) under the name “R2 Technology, Inc.”

(b) Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Article 10 hereof, and subject to the satisfaction or waiver of the conditions set forth in Articles 6 and 7 hereof, the consummation of the Merger will take place on or as promptly as practicable (and in any event within two (2) business days) after satisfaction or waiver of the conditions set forth in Articles 6 and 7 hereof at the offices of Brown Rudnick Berlack Israels, LLP, One Financial Center, Boston, Massachusetts 02111 (the “ Closing ”), unless another date, time or place is agreed to in writing by the Company and the Parent.

 

1.2

EFFECTIVE TIME

At the Closing, the parties hereto shall cause the Merger to be consummated by filing a Certificate of Merger (the “ Certificate of Merger ”) in the form attached as Exhibit C hereto with the Secretary of State of the State of Delaware (the “ Delaware Secretary of State ”) in such form as is required by the relevant provisions of the DGCL. The Merger shall become effective at such time as the Certificate of Merger is filed with the Delaware Secretary of State or at such subsequent time as the Company and the Parent shall agree and shall be specified in the Certificate of Merger (the date and time the Merger becomes effective being the “ Effective Time ”).

 

1.3

EFFECTS OF THE MERGER

(a) General Effects . At and after the Effective Time, the Merger will have the effects set forth in this Agreement, the Certificate of Merger and the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of the Company and the Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and the Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

 

(b) Treasury Shares and Unissued Shares . At the Effective Time, each share of Company Capital Stock held in the Company’s treasury and each authorized but unissued share of Company Capital Stock shall cease to exist without payment of any consideration therefor.

(c) Merger Sub’s Common Stock . Each share of the Merger Sub’s common stock, $0.01 par value per share, issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of common stock, $0.01 par value per share, of the Surviving Corporation.

 

1.4

CERTIFICATE OF INCORPORATION OF SURVIVING CORPORATION

Unless otherwise determined by the Parent prior to the Effective Time, at the Effective Time, the certificate of incorporation of the Company shall be amended to read as set forth on Exhibit D attached hereto, and as so amended, shall be the certificate of incorporation of the Surviving Corporation, unless and until thereafter changed or amended in accordance with the DGCL.

 

1.5

BYLAWS OF SURVIVING CORPORATION

Unless otherwise determined by the Parent prior to the Effective Time, at the Effective Time, the bylaws of the Company shall be amended to read as set forth on Exhibit E attached hereto, and, as so amended, shall be the bylaws of the Surviving Corporation, unless and until thereafter changed or amended in accordance with the DGCL and the certificate of incorporation of the Surviving Corporation.

 

1.6

OFFICERS AND DIRECTORS OF SURVIVING CORPORATION

The officers listed on Schedule 1.6 of the Agreement shall be the officers of the Surviving Corporation at the Effective Time, in each case until the earliest of their resignation or removal from office or their otherwise ceasing to be officers or until their respective successors are duly elected and qualified. The directors of the Merger Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation at the Effective Time, each to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation as in effect immediately after the Effective Time.

 

1.7

CONVERSION OF SECURITIES

(a) Conversion of Company Preferred Stock . Immediately prior to the Effective Time, pursuant to Article V, Section 3(b) of the Company Certificate of Incorporation, each share of Company Preferred Stock shall be converted into the number of shares of Company Common Stock determined in accordance with the terms and provisions set forth in Article V, Section 3 of the Company Certificate of Incorporation.

 

(b) Company Common Stock . At the Effective Time, by virtue of the Merger, without any action on the part of any party hereto or any holder thereof and subject to the adjustments and other provisions of this Article 1, each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (except for shares held in the Company’s treasury) shall be canceled and extinguished and automatically converted into the right to receive and become exchangeable for a fraction of a Merger Share equal to the Stock Exchange Ratio. For purposes of this Agreement:

(i) “ Merger Share(s) ” means those shares of Parent Common Stock payable to holders of Company Common Stock and holders of Eligible Derivative Securities as merger consideration pursuant to Article 1 hereof.

(ii) “ Company Fully Diluted Capitalization ” means, as of a date and time immediately prior to the Effective Time, the number of shares of Company Common Stock (i) outstanding, (ii) outstanding upon conversion of the Company Preferred Stock as described in Section 1.7(a) hereof; (iii) underlying all outstanding Company Options; and (iv) underlying all outstanding Company Warrants, other than any Assumed Company Warrants (the Company securities described in clauses (iii) and (iv) are collectively referred to herein as “ Eligible Derivative Securities ”, and the holders of such Eligible Derivative Securities are referred to herein as “ Eligible Derivative Security Holders ”).

(iii) “ Per Share Merger Consideration Value ” means the quotient of (i) the Adjusted Merger Consideration, divided by (ii) the Company Fully Diluted Capitalization.

(iv) “ Stock Exchange Ratio ” means the quotient of (x) the Per Share Merger Consideration Value, divided by (y) the Closing Exchange Price.

(c) Eligible Derivative Securities.

(i) No later than ten (10) days prior to the Effective Time, each Company Option shall become vested and exercisable with respect to all of the shares of Company Common Stock subject thereto. Upon the terms and subject to the conditions set forth in this Agreement, the Board of Directors of the Company shall take such actions as are necessary or desirable to provide that each Company Option outstanding immediately prior to the Effective Time shall be cancelled, terminated and extinguished as of the Effective Time and upon the cancellation thereof be converted into the right to receive, in respect of each share of Company Common Stock then subject to such Company Option: a fraction of a Merger Share equal to the product of (A) the applicable Option Exchange Fraction multiplied by (B) the Stock Exchange Ratio. The number of Merger Shares issuable upon conversion of each Company Option pursuant to this Section 1.7(c)(i) shall be reduced to reflect any amount required to be withheld and deducted by the Parent or the Exchange Agent as a result of the conversion of such Company Option pursuant to Section 1.9(i) hereof.

(ii) For purposes of this Agreement, “ Option Exchange Fraction ” means, with respect to a particular Company Option, the quotient of (x) an amount equal to (1) the Per Share Merger Consideration Value, less (2) the exercise price per share of Company Common Stock subject to such Company Option, divided by (y) the Per Share Merger Consideration Value.

 

(iii) In the event that the holder of any Company Warrant shall not have elected to exercise its Company Warrant effective on or prior to the Effective Time, then, unless otherwise prohibited by the express terms of such Company Warrant, by virtue of the Merger and without any action by the holders of such Company Warrants, each Company Warrant outstanding immediately prior to the Effective Time shall be cancelled, terminated and extinguished as of the Effective Time and upon the cancellation thereof be converted into the right to receive, in respect of each share of Company Common Stock then subject to such Company Warrant, a fraction of a Merger Share equal to the product of (A) the applicable Warrant Exchange Fraction multiplied by (B) the Stock Exchange Ratio.

(iv) For purposes of this Agreement, “ Warrant Exchange Fraction ” means, with respect to a particular Company Warrant, the quotient of (x) an amount equal to (1) the Per Share Merger Consideration Value, less (2) the exercise price per share of Company Common Stock subject to such Company Warrant, divided by (y) the Per Share Merger Consideration Value.

 

1.8

ADJUSTED MERGER CONSIDERATION; ESCROWED MERGER CONSIDERATION; DISSENTING SHARES

(a) Adjusted Merger Consideration . The maximum aggregate consideration payable by Parent and Merger Sub in the Merger to holders of outstanding Company Capital Stock and Eligible Derivative Securities (the “ Adjusted Merger Consideration ”) shall be an amount equal to (i) $220,000,000, minus (ii) any Company Transaction Costs, if any, minus (iii) any Excess Indebtedness, if any, minus (iv) any Prepayment Penalties, if any; minus (v) any adjustments relating to Assumed Company Warrants as provided in Section 1.8(f) below, if any; and plus (vi) the Derivative Security Exercise Amount.

(b) Escrowed Merger Consideration . Notwithstanding the other provisions of this Article 1, Parent shall deliver to the Escrow Agent that number of Merger Shares equal to (i) $22,000,000 divided by (ii) the Closing Exchange Price, and rounded to a whole number of shares on a holder-by-holder basis (such amount, the “ Escrowed Merger Consideration ”, and such Merger Shares to be delivered to the Escrow Agent as Escrowed Merger Consideration, the “ Escrowed Merger Shares ”). The portion of the Escrowed Merger Shares contributed on behalf of each Company Stockholder and Eligible Derivative Security Holder shall be in proportion to the aggregate number of Merger Shares to which such holder would otherwise be entitled to under Section 1.7. The Escrowed Merger Shares shall be withheld from the Merger Shares otherwise deliverable to the Company Stockholders and Eligible Derivative Security Holders on the Closing Date. The Escrowed Merger Shares shall be deposited with the Escrow Agent in an escrow fund (the “ Escrow Fund ”) and disbursed in accordance with the Escrow Agreement.

(c) Adjustments for Company Transaction Costs . The Adjusted Merger Consideration shall be reduced on a dollar-for-dollar basis by that portion of the fees and expenses incurred or accrued by the Company, including, without limitation, any broker or

 

investment banking fees, in connection with the authorization, negotiation and execution of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated by this Agreement that are not paid by the Company at or prior to the Closing (the “ Company Transaction Costs ”).

(d) Adjustments for Outstanding Indebtedness for Borrowed Money . At least five (5) business days prior to the Closing Date, the Company will deliver to Parent a certificate listing the amount of the Indebtedness for Borrowed Money of the Company and its Subsidiaries as of the Closing Date (the “ Closing Indebtedness ”) signed by the Chief Executive Officer of the Company (such certificate, the “ Closing Indebtedness Certificate ”). The Company will afford the Parent timely access to all supporting work papers and any other documentation of the Company used in the preparation of the Closing Indebtedness Certificate. The Closing Indebtedness Certificate shall be based on pay-off letters received from the holders of the Closing Indebtedness to the extent such pay-off letters are available. If, and only if, the Closing Indebtedness shown on the Closing Indebtedness Certificate exceeds the Permitted Indebtedness Amount (such amount, if any, by which the Closing Indebtedness exceeds the Permitted Indebtedness Amount being referred to herein as the “ Excess Indebtedness ”), the amount of any such Excess Indebtedness shall be deducted from the Adjusted Merger Consideration on a dollar-for-dollar basis pursuant to Section 1.8(a)(iii) above. For purposes of this Agreement, “ Permitted Indebtedness Amount ” shall equal the sum of (A) $3,900,000, (B) the aggregate dollar amount of accounts receivable from Parent to Company provided, however , that the amount in clause (B) shall not exceed $1,500,000, and (C) the Required Bonus Amount. Within 60 days of Closing, the Parent may dispute in good faith any amounts reflected or required to be reflected on the Closing Indebtedness Certificate by providing written notice to the Company (a “ Dispute Notice ”) specifying each disputed item and the amount thereof in dispute, setting forth, in reasonable detail, the basis for such dispute and specifying the Parent’s calculation of Excess Indebtedness. In the event of such a dispute, the Parent and the Company shall attempt to reconcile their differences. If the Parent and the Company are unable to resolve any such dispute within five (5) business days of the Parent’s written notification to the Company of any such disputed amounts pursuant to the Dispute Notice, the Company and the Parent shall submit the items remaining in dispute for resolution to an independent accounting firm of national reputation mutually acceptable to the Parent and the Company (such accounting firm being referred to herein as the “Independent Accounting Firm”). Such Independent Accounting Firm shall, as promptly as practicable (but in no event later than fifteen (15) business days after such submission), deliver a report to the Parent and the Stockholder Representative setting forth the Independent Accounting Firm’s calculation of the disputed items, the Closing Indebtedness and the Excess Indebtedness. The Independent Accounting Firm’s report and its resulting calculations of the Closing Indebtedness and the Excess Indebtedness shall be final and binding upon the Parent, the Company, the Company Stockholders, the Eligible Derivative Security Holders and all parties to this Agreement for all purposes of this Agreement. Upon the final determination of the Closing Indebtedness and the Excess Indebtedness by the Independent Accounting Firm, the Adjusted Merger Consideration shall be recalculated in accordance with Section 1.8 using the amounts of the Closing Indebtedness and the Excess Indebtedness as determined by the Independent Accounting Firm in lieu of the amounts of the Closing Indebtedness and the Excess Indebtedness stated on the Closing Indebtedness Certificate. If the Adjusted Merger Consideration as so adjusted is lower than the Adjusted Merger Consideration as calculated based on the amounts of the Closing Indebtedness and the Excess Indebtedness

 

stated on the Closing Indebtedness Certificate (such difference, if any, the “ Excess Indebtedness Adjustment ”), then the amount of such Excess Indebtedness Adjustment, if any, shall be paid to the Parent by a claim against the Escrow Fund without regard to the Company Deductible (an “ Excess Indebtedness Claim ”). If the Adjusted Merger Consideration as so adjusted is higher than the Adjusted Merger Consideration as calculated based on the amounts of the Closing Indebtedness and the Excess Indebtedness stated on the Closing Indebtedness Certificate (such difference, if any, the “ Indebtedness Reduction Adjustment ”), then the amount of such Indebtedness Reduction Adjustment, if any, shall be paid by the Parent to the Escrow Fund in the form of shares of Parent Common Stock valued at the Closing Exchange Price. The fees and expenses of the Independent Accounting Firm shall be allocated equally between Parent and the Company.

(e) Adjustments for Prepayment Penalties . The amount of any prepayment penalties, if any, incurred by the Company or its Subsidiaries as a result of the Company’s repayment of Indebtedness for Borrowed Money (collectively, “ Prepayment Penalties ”) between the date hereof and the Closing Date shall not be deemed to be Closing Indebtedness for purposes of the Closing Indebtedness Certificate but rather will be deducted from the Adjusted Merger Consideration on a dollar-for-dollar basis pursuant to Section 1.8(a)(iv).

(f) Adjustments for Assumed Company Warrants . If any holder of a Company Warrant does not exercise its Company Warrant in full effective on or prior to the Effective Time, the Adjusted Merger Consideration will be reduced by an amount equal to the fair market value of the portion of such Company Warrant that will remain outstanding following the Effective Time (an “ Assumed Company Warrant ”). For purposes of the foregoing, the fair market value of an Assumed Company Warrant shall be determined in accordance with US GAAP consistent with the Parent’s past practices, and will be used by the Parent in valuing an Assumed Company Warrant for purposes of calculating the total purchase price of the Merger under US GAAP.

(g) Adjustments Relating to the Derivative Security Exercise Amount . The Adjusted Merger Consideration will be increased by an amount (the “ Derivative Security Exercise Amount ”) equal to the product of (X) the aggregate number of shares of Company Common Stock subject to In the Money Derivative Securities multiplied by (Y) the aggregate exercise price of all In the Money Derivative Securities. For purposes of this Agreement, “ In the Money Derivative Securities ” shall mean all Company Options and Company Warrants outstanding immediately prior to the Effective Time (and immediately following the conversion of the Company Preferred Stock as described in Section 1.7(a) hereof) with an exercise price below the Per Share Merger Consideration Value.

(h) Adjustments to Exchange Ratios . Without limiting any other provision of this Agreement, the Stock Exchange Ratio, Option Exchange Ratio and Warrant Exchange Ratio shall each be appropriately adjusted to reflect fully the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock), reorganization, reclassification, recapitalization or other like change with respect to Parent Common Stock occurring or having a record date or an effective date on or after the date hereof and prior to the Effective Time.

 

(i) Dissenting Shares . Notwithstanding any provision of this Agreement to the contrary, shares of Company Capital Stock that are outstanding immediately prior to the Effective Time and that are held by Company Stockholders who (i) shall not have voted in favor of the Merger or consented thereto in writing and (ii) who shall have demanded properly in writing appraisal for such shares in accordance with Section 262 of the DGCL (collectively, the “ Dissenting Shares ”) shall not be converted into or represent the right to receive Merger Shares pursuant to Section 1.7 hereof. Such Company Stockholders shall be entitled to receive payment of the appraised value of such shares held by them in accordance with the provisions of Section 262 of the DGCL, except that all Dissenting Shares held by Company Stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such shares under Section 262 of the DGCL shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Time, the right to receive Merger Shares pursuant to Section 1.7 hereof, without any interest thereon, upon surrender, in the manner provided in Section 1.9 hereof, of the certificate or certificates that formerly evidenced such shares. The Company shall give the Parent: (i) prompt notice of any demands for appraisal received by Company or the Stockholder Representative, withdrawals of such demands, and any other instruments served pursuant to the DGCL and received by Company or the Stockholder Representative; and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands for appraisal under the DGCL. The Company shall not, except with the prior written consent of the Parent or as may be required under applicable Law, make any payment with respect to any demands for appraisal or offer to settle or settle any such demands.

(j) Parent Purchase Rights . Pursuant to the Parent’s shareholder rights plan adopted by the Parent’s board of directors on September 17, 2002, as effected by the Rights Agreement, dated as of September 17, 2002, between the Parent and American Stock Transfer & Trust Company, as Rights Agent, each Company Stockholder and each Eligible Derivative Security Holder shall also receive, together with each Merger Share issued to him, her or it in the Merger pursuant to this Article 1, an associated preferred share purchase right (“ Parent Purchase Right ”) pursuant to the Rights Agreement. References herein to Merger Shares herein shall be deemed to include the associated Parent Purchase Rights described in this Section 1.8(j).

 

1.9

SURRENDER OF CERTIFICATES

(a) Exchange Agent . The transfer agent for the Parent Common Stock, American Stock Transfer & Trust Company, or a bank or trust company designated by the Parent prior to the Effective Time, shall act as the exchange agent (the “ Exchange Agent ”) in the Merger.

(b) At the Effective Time, the Parent shall deposit with the Exchange Agent, for exchange in accordance with this Section 1.9, for the benefit of the holders of shares of Company Capital Stock and Eligible Derivative Securities outstanding immediately prior to the Effective Time, an aggregate amount of Merger Shares (other than Escrowed Merger Shares) sufficient to pay the consideration for all issued and outstanding shares of Company Capital Stock and the Eligible Derivative Securities pursuant to Section 1.7 hereof, together with any cash payable in lieu of fractional shares pursuant to Section 1.10 hereof (the “ Exchange Fund ” ). From and after the date that is six (6) months after the Effective Time, the Parent shall be entitled to require the Exchange Agent to deliver to the Parent any portion of the Exchange Fund which had been made available to the Exchange Agent by or on behalf of the Parent and which has not been disbursed

 

to holders of Company Capital Stock and the Eligible Derivative Securities, and thereafter such holders shall be entitled to look to the Parent with respect to such consideration payable upon due surrender of their certificates for Company Capital Stock or evidence of their Eligible Derivative Securities.

(c) Exchange Procedures . Promptly after the Effective Time (but in no event later than five (5) business days after the Effective Time), the Parent shall cause the Exchange Agent to deliver, as applicable, to each holder of record of: (i) a certificate or certificates which immediately prior to the Effective Time evidenced outstanding shares of Company Capital Stock; or (ii) an instrument which immediately prior to the Effective Time evidenced an Eligible Derivative Security (such certificates and instruments collectively referred to herein as the “ Instruments ”), whose securities were converted into the right to receive the number of Merger Shares to which such holder is entitled pursuant to Section 1.7 hereof, together with any cash to be paid in lieu of fractional shares pursuant to Section 1.10 hereof: (A) a letter of transmittal in the form attached as Exhibit F-1 hereto (which specifies, among other things, that delivery shall be effected, and risk of loss and title to the Instruments shall pass, only upon proper delivery of the Instruments to the Exchange Agent) or in the case of any holder of an Eligible Derivative Security, a letter agreement in the form attached as Exhibit F-2 hereto (each such letter of transmittal and letter agreement referred to herein as a “ Letter of Transmittal ”) ; and (B) instructions to effect the surrender of the Instruments in exchange for the number of Merger Shares to which such holder is entitled pursuant to Section 1.7 hereof, together with any cash to be paid in lieu of fractional shares pursuant to Section 1.10 hereof. Upon surrender of an Instrument for cancellation to the Exchange Agent, together with the appropriate Letter of Transmittal duly completed and validly executed in accordance with the instructions thereto, a holder of such Instruments shall be entitled to receive in exchange therefor the number of Merger Shares to which such holder is entitled pursuant to Section 1.7 hereof, together with any cash to be paid in lieu of fractional shares pursuant to Section 1.10 hereof, and the Instruments so surrendered shall forthwith be canceled. Until so surrendered, each outstanding Instrument that, prior to the Effective Time, evidenced shares of Company Capital Stock or an Eligible Derivative Security will be deemed, from and after the Effective Time, for all corporate purposes, other than the payment of dividends or other distributions, to evidence the ownership of the number of Merger Shares to which such holder is entitled pursuant to Section 1.7 hereof, together with any cash to be paid in lieu of fractional shares pursuant to Section 1.10 hereof.

(d) Distributions With Respect to Unexchanged Shares . No dividends or other distributions with respect to shares of Parent Common Stock declared or made after the Effective Time and with a record date after the Effective Time will be paid to the holder of any unsurrendered Instrument with respect to the Merger Shares evidenced thereby until the holder of record of such Instrument shall surrender such Instrument pursuant to Section 1.9(c) hereof. Subject to applicable Law, following surrender of any such Instrument, there shall be paid to the record holder of the Instruments evidencing whole Merger Shares issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to such whole shares of Parent Common Stock.

(e) Transfers of Ownership . If any certificate for Merger Shares is to be issued in a name other than that in which the Instrument surrendered in exchange therefor is registered, it

 

will be a condition of the issuance thereof that the Instrument so surrendered will be properly endorsed and otherwise in proper form for transfer, accompanied by all documents reasonably required to evidence and effect such transfer pursuant to this Section 1.9(e), and that the Person requesting such transfer will have paid to the Parent or any agent designated by it any transfer or other Taxes required by reason of the issuance of a certificate for Merger Shares in any name other than that of the registered holder of the Instrument surrendered, or established to the reasonable satisfaction of the Parent or any agent designated by it that such Taxes have been paid or are not payable.

(f) No Liability . Notwithstanding anything to the contrary in this Section 1.9, none of the Exchange Agent, the Parent, Surviving Corporation, any other Subsidiary of the Parent or any party hereto shall be liable to any holder of shares of Company Capital Stock or an Eligible Derivative Security for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar Law.

(g) No Further Ownership Rights in Company Securities . From and after the Effective Time, holders of Instruments shall cease to have any rights with respect thereto, other than the right to receive the number of Merger Shares to which such holder is entitled pursuant to Section 1.7 hereof and cash in lieu of fractional shares in accordance with Section 1.10 hereof. The number of Merger Shares to which such holder is entitled pursuant to Section 1.7 hereof and cash in lieu of any fractional Merger Shares in accordance with Section 1.10 hereof delivered upon the surrender for exchange of shares of Company Capital Stock and Eligible Derivative Securities 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 Capital Stock and Eligible Derivative Securities, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Company Capital Stock or Eligible Derivative Securities which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Instruments are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Section 1.9.

(h) Lost, Stolen or Destroyed Certificates . In the event any Instruments evidencing shares of Company Capital Stock or Eligible Derivative Securities shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Instruments, upon the making of an affidavit of that fact by the holder thereof, such number of Merger Shares to which such holder is entitled pursuant to Section 1.7 hereof; provided, however, that Parent may, in its sole discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Instruments to deliver an indemnity or bond (in such sum as it may reasonably direct) as indemnity against any claim that may be made against Parent with respect to the Instruments alleged to have been lost, stolen or destroyed.

(i) Withholding Rights . The Parent or the Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Company Capital Stock or Eligible Derivative Securities such amounts as the Parent or the Exchange Agent is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign Tax Law (including, without limitation, any withholding obligation with respect to the exercise of any Eligible Derivative Securities). To the extent that amounts are so deducted and withheld by the Parent or the

 

Exchange Agent, such deducted and withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Company Capital Stock or Eligible Derivative Security, as applicable, in respect of which such deduction and withholding was made by the Parent or the Exchange Agent.

 

1.10

NO FRACTIONAL SHARES; MULTIPLE CERTIFICATES

Notwithstanding any provision of this Agreement to the contrary, neither certificates nor scrip for any fractional Merger Shares shall be issued in connection with the Merger, but in lieu thereof each holder of shares of Company Capital Stock or an Eligible Derivative Security otherwise entitled to receive a fraction of a Merger Share pursuant to the provisions of Section 1.7 and 1.9 shall be paid in cash, in accordance with this Section 1.10, in an amount equal to the product of (i) the fraction of a Merger Share to which such holder would otherwise be entitled, multiplied by (ii) the Closing Exchange Price. No such holder shall be entitled to dividends or interest on or, except for the cash payment referred to in the preceding sentence, other rights in respect of any such fractional interest. If more than one Instrument shall be surrendered for the account of the same Company Stockholder or Eligible Derivative Security Holder, the number of whole Merger Shares for which such Instruments shall be exchanged pursuant to this Section 1.10 shall be computed on the basis of the aggregate number of Merger Shares for which such Instruments are being exchanged.

 

1.11

ESCROW AGREEMENT

At the Effective Time, the Parent shall deposit with U.S. Bank, N.A. or any successor escrow agent (“ Escrow Agent ”) appointed pursuant to the Escrow Agreement, the Escrowed Merger Consideration in the form of Escrowed Merger Shares in the Escrow Fund in accordance with Section 1.8(b) hereof. The Escrowed Merger Shares shall be held in escrow in the Escrow Fund and applied in accordance with the terms of this Agreement and the Escrow Agreement.

 

1.12

STOCK TRANSFER BOOKS

At the close of business on the day prior to the Effective Time, the stock transfer books of the Company shall be closed and no transfer of Company Capital Stock shall thereafter be made on such stock transfer books.

 

1.13

STOCKHOLDER REPRESENTATIVE

(a) In the event that the Merger is approved by the Company Stockholders, effective upon such vote, and without any further act by any Company Stockholder, Scott Halsted is hereby appointed as the representative for and on behalf of the Company Stockholders (other than stockholders, if any, as shall have perfected their appraisal rights under the DGCL) and the Eligible Derivative Security Holders (the “ Stockholder Representative ”), and shall enter into the Escrow Agreement and take all actions required or permitted under the terms of this Agreement and the Escrow Agreement with respect to the interests and rights of the Stockholders with respect to the indemnity under Article 9 hereof, and by executing this Agreement the Stockholder Representative accepts such appointment. No bond shall be required of the Stockholder Representative and the Stockholder Representative shall receive no compensation for its services. Notices of communications to or from the Stockholder Representative pursuant

 

to the notice requirements set forth in Section 12.3 of this Agreement shall constitute notice to or from each of the Company Stockholders and the Eligible Derivative Security Holders. Notwithstanding the foregoing, the Stockholder Representative may deliver notice of communications to any Company Stockholders or Eligible Derivative Security Holders via email to an address specified by such Company Stockholders or Eligible Derivative Security Holders. If the Stockholder Representative is no longer able or willing to serve as the Stockholder Representative, a majority of the Company Stockholders shall select a replacement Stockholder Representative.

(b) The Stockholder Representative shall not be liable for any act done or omitted in such capacity while acting in good faith and in the exercise of reasonable judgment, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. The Company Stockholders (other than stockholders, if any, as shall have perfected their appraisal rights under the DGCL) and the Eligible Derivative Security Holders shall jointly and severally indemnify the Stockholder Representative and hold him harmless against any loss, liability or expense incurred without gross negligence or bad faith on the part of the Stockholder Representative and arising out of or in connection with the acceptance or administration of his duties, which may be paid from the Escrowed Merger Shares, if any, after all claims by the Parent Indemnified Persons have been satisfied.

(c) Any decision, act, consent or instruction of the Stockholder Representative shall constitute a decision of all Company Stockholders and Eligible Derivative Security Holders for whom a portion of the Escrowed Merger Shares otherwise issuable to them are deposited with the Escrow Agent pursuant to the Escrow Agreement, and shall be final, binding and conclusive upon every Company Stockholder and Eligible Derivative Security Holder, and the Escrow Agent, the Parent and the Surviving Corporation may rely upon any decision, act, consent or instruction of the Stockholder Representative as being the decision, act, consent, or instruction of every such Company Stockholder.

(d) The adoption of this Agreement and the approval of the Merger and the transactions contemplated hereby by the Company Stockholders and the submission of a Letter of Transmittal by an Eligible Derivative Security Holder shall constitute: (i) approval by such Persons of this Agreement and the Escrow Agreement and of all of the arrangements relating thereto; (ii) approval of the appointment of the Stockholder Representative pursuant to this Agreement and the Escrow Agreement; and (iii) the approval of such Persons of the Stockholder Representative to perform all duties described in this Agreement and the Escrow Agreement on their behalf.

 

1.14

ANCILLARY AGREEMENTS

Simultaneously with the execution and delivery of this Agreement, the Persons listed on Section 1.14(a) of the Company Disclosure Schedule have executed and delivered to the Parent the Voting Agreements, and the Persons listed on Section 1.14(b) of the Company Disclosure Schedule have executed and delivered to the Parent the Affiliate Agreements in the form attached hereto as Exhibit G (each, an “ Affiliate Agreement ” and collectively, the “ Affiliate Agreements ” ).

 

1.15

TERMINATION OF STOCKHOLDER AGREEMENTS

Simultaneously with the execution and delivery of this Agreement, the Company and the requisite Company Stockholders shall execute and deliver termination agreements terminating each agreement listed on Section 1.15 of the Company Disclosure Schedule, which constitute all agreements to which the Company is a party that provide for registration rights, rights of first refusal or rights of co-sale with respect to, or which relate to the voting of, the Company securities, with each such termination to be effective immediately prior to the Effective Time.

ARTICLE II.

REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY

Except as set forth on the Company disclosure schedule attached hereto as Exhibit H , which shall be delivered by the Company to the Parent concurrently with the execution and delivery of this Agreement (the “ Company Disclosure Schedule ”), the Company hereby makes the following representations and warranties contained in this Article 2 to the Parent as of the date hereof and as of the Closing Date. The Company Disclosure Schedule is arranged and numbered to correspond to the numbered and lettered paragraphs contained in this Article 2. Unless otherwise specified herein, disclosure made in any particular Section of the Company Disclosure Schedule shall be deemed made in any other Section or Sections of the Company Disclosure Schedule to which the relevance of such disclosure is readily apparent from the text of such disclosure.

 

2.1

ORGANIZATION AND GOOD STANDING

(a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with full corporate power and authority to own, lease and operate its properties and to conduct its business in the manner and in the places where such properties are owned or leased or such business is conducted by it. Each Subsidiary of the Company is a corporation duly organized, validly existing and in good standing under the laws of the state of its organization (as disclosed on Section 2.1(a) of the Company Disclosure Schedule), with full corporate power and authority to own, lease and operate its properties and to conduct its business in the manner and in the places where such properties are owned or leased or such business is conducted by it. The Company and each Subsidiary of the Company is qualified to do business and is in good standing as a foreign corporation under the Laws of the jurisdictions listed on Section 2.1(a) of the Company Disclosure Schedule, and except as set forth on Section 2.1(a) of the Company Disclosure Schedule, neither the Company nor any Subsidiary of the Company is required to be licensed or qualified to conduct its business or own its properties in any other jurisdiction, except where the failure to be so licensed or qualified would not have a Company Material Adverse Effect.

(b) Attached to Section 2.1(b) of the Company Disclosure Schedule are correct and complete copies of the Organizational Documents of the Company and the Subsidiaries of the Company.

 

2.2

AUTHORITY; NO CONFLICT

(a) The Company has all necessary corporate power and authority to execute and deliver this Agreement and each of the Ancillary Agreements to which it is or will be a party, to consummate the Merger and the other transactions contemplated hereby and thereby and to perform its obligations under this Agreement and each of the Ancillary Agreements to which it is or will be a party. Except for the consent of the Company Stockholders, this Agreement has been duly authorized, approved, executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except: (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally; and (ii) that 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 therefor may be brought (the “ Bankruptcy and Equity Exception ”). Each of the Ancillary Agreements to which the Company is or will be a party have been duly authorized and approved and upon the execution and delivery of such Ancillary Agreements, such Ancillary Agreements constitute or will constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject to the Bankruptcy and Equity Exception.

(b) Except for the filing of the Permit Application (as defined in Section 2.34 hereof) and the issuance of the Fairness Approval (as defined in Section 4.12 hereof) by the California Department of Corporations, the filing and effectiveness of the Registration Statement (if required), any filings, notices, consents or approvals required under the HSR Act or any antitrust Law (and all regulations promulgated thereunder) in connection with the transactions contemplated hereunder, and except as set forth on Section 2.2(b) of the Company Disclosure Schedule, neither the execution and delivery of this Agreement or any Ancillary Agreement by the Company, nor the consummation or performance by the Company of the Merger or any of the other transactions contemplated hereby or thereby will, directly or indirectly (with or without notice or lapse of time or both):

(i) contravene, conflict with or result in a violation or breach of: (A) any provision of the Organizational Documents of the Company or any Subsidiary of the Company, (B) any resolution adopted by the board of directors or the stockholders of the Company or a Subsidiary of the Company, (C) any Law or Order applicable to the Company or a Subsidiary of the Company or any of their assets or properties, or (D) any Governmental Permit held by the Company or a Subsidiary of the Company, excluding from clauses (C) and (D) any contravention, conflict, violation or breach which would not, either individually or in the aggregate, have a Company Material Adverse Effect or materially impair or preclude the Parent’s, the Merger Sub’s or the Company’s ability to consummate the Merger or the transactions contemplated hereby;

(ii) result in a breach of or constitute a default, give rise to a right of termination, cancellation or acceleration, create any entitlement to any additional payment or benefit (other than any ongoing fees, royalties, payments or benefits which the Company or any of its Subsidiaries, as the case may be, would otherwise be required to pay or provide had the transactions contemplated by the Agreement not occurred), or require the consent, authorization

 

or approval of or any notice to or filing with, any third Person under any material Contract or any debt instrument to which the Company or a Subsidiary of the Company is a party or to which its or their assets or properties are bound, or require the consent, authorization or approval of or any notice to or filing with any Governmental Authority to which the Company or a Subsidiary of the Company or its or their assets or properties is subject, except for any breaches, defaults, rights of termination, cancellation or acceleration, entitlements, consents, approvals, notices or filings which would not, either individually or in the aggregate, have a Company Material Adverse Effect or materially impair or preclude the Parent’s, the Merger Sub’s or the Company’s ability to consummate the Merger or the transactions contemplated hereby; or

(iii) result in the imposition or creation of any Encumbrance or Lien upon any of the assets or properties owned by or used in the business of the Company or any Subsidiary of the Company.

 

2.3

CAPITALIZATION

(a) As of the date of this Agreement, the authorized Company Capital Stock consists of (i) 80,025,000 shares of Common Stock, $0.001 par value per share, of which 5,097,292 shares are validly issued and outstanding, and (ii) 65,550,000 shares of Preferred Stock, $0.001 par value per share, of which of which 4,000,000 shares have been designated Series A-1 Preferred Stock, 4,000,000 shares have been designated Series A-2 Preferred Stock, 4,850,000 shares have been designated Series B-1 Preferred Stock, 4,850,000 shares have been designated Series B-2 Preferred Stock, 7,500,000 shares have been designated Series C-1 Preferred Stock, 7,500,000 shares have been designated Series C-2 Preferred Stock, 4,400,000 shares have been designated Series D-1 Preferred Stock, 4,400,000 shares have been designated Series D-2 Preferred Stock, 1,800,000 shares have been designated Series E-1 Preferred Stock, 1,800,000 shares have been designated Series E-2 Preferred Stock, 4,500,000 shares have been designated Series F-1 Preferred Stock, 4,500,000 shares have been designated Series F-2 Preferred Stock, 5,725,000 shares have been designated Series G-1 Preferred Stock and 5,725,000 shares have been designated Series G-2 Preferred Stock. As of the date hereof, 3,825,500 shares of Series A-1 Preferred Stock, 4,769,213 shares of Series B-1 Preferred Stock, 7,045,687 shares of Series C-1 Preferred Stock, 4,399,998 shares of Series D-1 Preferred Stock, 1,747,526 shares of Series E-1 Preferred Stock, 4,205,117 shares of Series F-1 Preferred Stock and 3,514,500 shares of Series G-1 Preferred Stock are validly issued and outstanding, and no shares of Series A-2 Preferred Stock, Series B-2 Preferred Stock, Series C-2 Preferred Stock, Series D-2 Preferred Stock, Series E-2 Preferred Stock, Series F-2 Preferred Stock and Series G-2 Preferred Stock are issued and outstanding. The issuance of all of such issued and outstanding shares of Company Capital Stock was duly authorized and all such shares are fully paid and nonassessable, were issued in compliance with applicable federal and state securities laws, and were not issued in violation of any person’s preemptive rights or otherwise subject to preemptive rights created by statute. Section 2.3(a) of the Company Disclosure Schedule sets forth a complete and correct list as of the date of this Agreement of all of the Company Stockholders and the number of shares of Company Capital Stock owned, of record and beneficially, by each such Company Stockholder.

(b) Section 2.3(b) of the Company Disclosure Schedule also sets forth a complete and correct list, as of the date hereof, of all outstanding Company Options, Company Warrants, and all other securities or outstanding or authorized options, warrants rights or subscriptions

 

convertible or exercisable into, or exchangeable for, Company Capital Stock, including as to each holder thereof, the name of such holder, the number of shares of Company Capital Stock subject to such securities, the number of shares of Company Capital Stock for which each such security is exercisable, the exercise price or conversion rate of such securities, and the expiration date thereof. No “phantom” stock, stock appreciation rights or agreements or similar rights or agreements exist which are intended to confer on any person rights similar to any rights accruing to Company Stockholders. Except as set forth on Section 2.3(b) of the Company Disclosure Schedule: (i) there are no voting trusts or other Contracts or understandings to which the Company or a Subsidiary of the Company is a party (or, to the knowledge of the Company, to which any Company Stockholder or holder of an Eligible Derivative Security is a party) with respect to the transfer, voting or registration of the capital stock of the Company or a Subsidiary of the Company; (ii) there are no Contracts relating to the issuance, sale or transfer of any equity securities or other securities of the Company or a Subsidiary of the Company to which the Company or a Subsidiary of the Company is a party (or, to the knowledge of the Company, to which any Company Stockholder or holder of an Eligible Derivative Security is a party); (iii) neither the Company nor any Subsidiary of the Company owns or has any Contract to acquire any equity securities or other securities of any Person or any, direct or indirect, equity or ownership interest in any other business, except for securities relating to the ownership of securities of the Company by a Subsidiary of the Company or ownership of securities of a Subsidiary of the Company by the Company; and (iv) to the knowledge of the Company, there are no Contracts containing any preemptive or similar rights with respect to any security of the Company or any Subsidiary of the Company. The Company Certificate of Incorporation does not provide for any preemptive rights.

(c) The Company directly owns, of record and beneficially, and has good, valid and indefeasible title to and the right to transfer all of the issued and outstanding capital stock of all of its Subsidiaries, free and clear of any and all Encumbrances and Liens of any kind or nature whatsoever. There are no voting trusts, stockholder agreements or any other Contracts or understandings to which the Company or a Subsidiary of the Company is a party with respect to the capital stock of any Subsidiary of the Company. All of the outstanding capital stock of the Subsidiaries of the Company has been duly authorized and validly issued and is fully paid and nonassessable.

 

2.4

BOOKS, RECORDS AND ACCOUNTS; INTERNAL CONTROLS

(a) The books of account and other records of the Company, taken as a whole, fairly reflect in all material respects the activities of the Company and its Subsidiaries. The stock records and minute books of the Company and each of its Subsidiaries fully reflect all meetings held of, and corporate action taken by, the stockholders, the board of directors, and committees of the board of directors of the Company and the Subsidiaries of the Company, respectively, and all issuances and redemptions of capital stock of the Company and, to the Company’s knowledge, all transfer of capital stock of the Company.

(b) Except as set forth in Section 2.4 of the Company Disclosure Schedule, the Company has maintained a system of internal accounting controls to provide reasonable assurance that: (i) transactions are executed in accordance with management’s authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity

 

with US GAAP and to maintain accountability for its assets; (iii) access to assets is permitted only in accordance with management’s authorization; (iv) the reported accountability for its assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; and (v) all material information related to such controls is reported or otherwise made known to the Company’s chief executive officer and chief financial officer.

 

2.5

FINANCIAL STATEMENTS

(a) For purposes of this Agreement: “ Financial Statements ” shall mean the following financial statements, including notes thereto for all Financial Statements (except the Most Recent Financial Statements, which lack footnotes) relating to the Company: (i) the Audited Financial Statements and (ii) the Most Recent Financial Statements. “ Audited Financial Statements ” shall mean the audited consolidated financial statements of the Company and its Subsidiaries as follows: (A) Consolidated Balance Sheets as of December 31, 2005 and 2004; (B) Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003; (C) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2005, 2004 and 2003; and (D) Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003. “ Most Recent Financial Statements ” shall mean the unaudited monthly consolidated financial statements of the Company and its Subsidiaries as follows: (A) Consolidated Balance Sheet as of February 28, 2006; (B) Consolidated Statements of Operations for the two months ended February 28, 2006; (C) Consolidated Statements of Stockholders’ Equity for the two months ended February 28, 2006; and (D) Consolidated Statements of Cash Flows for the two months ended February 28, 2006.

(b) True and complete copies of such Financial Statements, including the notes thereto for all Financial Statements (except the Most Recent Financial Statements, which lack footnotes) are attached to Section 2.5(b) of the Company Disclosure Schedule. The Financial Statements: (i) have been prepared from the books and records of the Company in accordance with US GAAP consistently applied during the periods covered thereby; (ii) are complete and correct in all material respects and (iii) fairly present in all material respects the financial position and the results of operations of the Company (on a consolidated basis) as of the dates and during the periods indicated therein except as otherwise noted therein, and subject, in the case of the Most Recent Financial Statements, to normal year-end adjustments and absence of complete footnotes.

 

2.6

NO UNDISCLOSED LIABILITIES

The Company and the Subsidiaries of the Company do not have any Liabilities or obligations of any nature (whether known or unknown, absolute, accrued, contingent or otherwise, and whether due or to become due), except for: (a) Liabilities or obligations reflected or reserved against in the Most Recent Financial Statements, including the notes thereto; (b) Liabilities incurred in the ordinary course of business since the Base Balance Sheet Date, consistent with past practices (none of which is a claim for breach of contract, breach of duty, breach of warranty, tort or infringement of an intellectual property right); and (c) Liabilities or obligations which would not have a Company Material Adverse Effect either individually or in the aggregate.

 

2.7

TAXES

(a) “ Taxes ” shall mean all taxes, charges, fees, Encumbrances, Liens, customs, duties or other assessments, however denominated, including any interest, penalties, additions to tax or additional taxes that may become payable in respect thereof, imposed by the United States government, any state, local or foreign government, or any agency or political subdivision of any such government (a “ Tax Authority ”), which taxes shall include, without limiting the generality of the foregoing, all income taxes, payroll and employee withholding taxes, unemployment insurance, social security, sales and use taxes, excise taxes, capital taxes, franchise taxes, gross receipt taxes, occupation taxes, real and personal property taxes, value added taxes, stamp taxes, transfer taxes, workers’ compensation taxes, taxes relating to benefit plans and other obligations of the same or similar nature. The term “ Returns ” shall mean all returns, reports, statements, declarations, forms, claims for refund, or other documents or information required to be filed with a taxing authority with respect to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

(b) (i) Each of the Company and each of the Subsidiaries of the Company has filed or caused to be filed with the appropriate Tax Authorities in a timely manner all Returns required to be filed by them; (ii) the information on such Returns is complete and accurate in all material respects; (iii) the Company and each Subsidiary of the Company has paid in full on a timely basis all Taxes or made adequate provision in the Financial Statements for all Taxes (whether or not shown on any Return) required to be paid by them; (iv) there are no Encumbrances or Liens for Taxes upon the assets or properties of the Company or the Subsidiaries of the Company other than for Taxes not yet due and payable; and (v) no deficiencies for Taxes have been claimed, proposed, or assessed in writing by any Tax Authority or other Governmental Authority with respect to the Company or the Subsidiaries of the Company, and there are no pending or, to the Company’s knowledge, threatened audits, investigations or claims for or relating to any liability in respect of Taxes of the Company or any Subsidiary of the Company.

(c) There are no outstanding Contracts or waivers with respect to the Company or any of its Subsidiaries extending the statutory period of limitation applicable to any Taxes, and neither the Company nor any Subsidiary of the Company has requested (or is the beneficiary of) any extension of time within which to file any Return, which has not yet been filed.

(d) Except as set forth in Section 2.7 of the Company Disclosure Schedule, (i) the Company and each Subsidiary of the Company has made provision for all Taxes payable by it and such provision is reflected on the Financial Statements with respect to any period covered thereby as to Taxes which are not payable prior to the date of such Financial Statements; (ii) the provisions for Taxes with respect to the Company (on a consolidated basis) for any period prior to the Closing (excluding any reserve for deferred Taxes established to reflect timing differences between book and Tax income) are adequate to cover all Taxes with respect to such period; (iii) the Company and each Subsidiary of the Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third Person; (iv) all material elections with respect to Taxes made by the Company or any Subsidiary of the Company as of the date hereof are set forth in Section 2.7 of the Company Disclosure Schedule; (v) there are no private letter rulings in respect of any Tax pending between the Company or any Subsidiary of the

 

Company and any Tax Authority, if such ruling would affect the Company or any Subsidiary of the Company; (vi) neither the Company nor any Subsidiary of the Company has ever been a member of an affiliated group within the meaning of Section 1504 of the Code (except for any group of which the Company is the common parent), or filed or been included in a combined, consolidated or unitary return of any Person (other than with respect to the Company and the Subsidiaries of the Company); (vii) neither the Company nor any Subsidiary of the Company is liable for Taxes of any other Person except with respect to sales taxes, and neither the Company nor any Subsidiary of the Company is currently under any contractual obligation to indemnify any Person with respect to Taxes, or a party to any tax sharing agreement or any other agreement providing for payments by the Company or a Subsidiary of the Company with respect to Taxes; (viii) neither the Company nor any Subsidiary of the Company is, or has been, a United States real property holding corporation (as defined in Section 897(c)(2) of the Code), during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code; (ix) neither the Company nor any Subsidiary of the Company is a personal holding company within the meaning of Section 542 of the Code; (x) neither the Company nor any Subsidiary of the Company is a party to any joint venture, partnership or other arrangement or Contract which could be treated as a partnership for Tax purposes; (xi) neither the Company nor any Subsidiary of the Company has agreed to or is required, as a result of a change in method of accounting or otherwise, to include any adjustment under Section 481 of the Code (or any corresponding provision of state, local or foreign Law) in taxable income; (xii) neither the Company nor any Subsidiary of the Company is a party to any Contract, arrangement or plan that could result (taking into account the transactions contemplated by this Agreement), separately or in the aggregate, in the payment of any “excess parachute payments” within the meaning of Section 280G of the Code; and (xiii) Section 2.7 of the Company Disclosure Schedule contains a list of all jurisdictions in which the Company or any Subsidiary of the Company files a return, and no claim has ever been made in writing by any Tax Authority in any other jurisdiction that the Company or any Subsidiary of the Company is subject to taxation in such jurisdiction.

(e) Neither the Company nor any Subsidiary of the Company has distributed stock of another corporation or other entity, or has had its stock distributed by another corporation or other entity, in a transaction that was purported or intended to be governed in whole or in part by Code section 355 or 361.

(f) None of the assets or properties owned by the Company or any Subsidiary of the Company is property that is required to be treated as owned by any other person pursuant to Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, as in effect immediately prior to the enactment of the Tax Reform Act of 1986, or is “tax-exempt use property” within the meaning of Section 168(h) of the Code.

 

2.8

ACCOUNTS RECEIVABLE

Section 2.8 of the Company Disclosure Schedule provides a schedule and aging of all accounts receivable of the Company as of the Base Balance Sheet Date. All existing accounts receivable of the Company (including those accounts receivable reflected on the Company’s balance sheet as of December 31, 2005 included in the Audited Financial Statements that have not yet been collected, and those accounts receivable that have arisen since the date of the Base Balance Sheet Date and have not yet been collected) represent valid obligations of customers of the Company arising from bona fide transactions.

 

2.9

REORGANIZATION TREATMENT

(a) At the Effective Time, the Company will hold assets comprising at least ninety percent (90%) of the fair market value of the net assets and at least seventy percent (70%) of the fair market value of the gross assets held by the Company immediately prior to the Effective Time. For purposes of this representation, amounts paid by the Company to dissenting stockholders, amounts paid by the Company to Company Stockholders who receive cash or other property, amounts used by the Company to pay Merger expenses, amounts paid by the Company to redeem stock, securities, warrants or options of the Company as part of any overall plan of which the Merger is part, and amounts distributed by the Company to Company Stockholders (except for any normal, ordinary dividends) as part of an overall plan of which the Merger is a part, in each case will be treated as assets held by the Company immediately prior to the Effective Time.

(b) The business currently conducted by the Company is the Company’s “historic business” within the meaning of Treasury Regulations Section 1.368-1(d), and no assets of the Company have been sold, transferred, or otherwise disposed of that would prevent Parent, the Company or another member of Parent’s qualified group within the meaning of Treasury Regulation Section 1.368-1(d)(4)(ii) from continuing the “historic business” of the Company or from using a “significant portion” of the Company’s “historic business assets” in a business following the Merger, as such terms are used in Treasury Regulations Section 1.368-1(d).

(c) The Company is not an investment company, as defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.

(d) The Company is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.

(e) Neither the Company nor any Person related to the Company within the meaning of Treasury Regulations Sections 1.368-1(e)(3), (e)(4) and (e)(5) has purchased, redeemed or otherwise acquired, or made any distributions with respect to, any of the Company’s Common Stock prior to or in contemplation of the Merger, or otherwise as part of a plan of which the Merger is a part.

(f) At the Effective Time, there will be no intercorporate indebtedness existing between Parent or the Merger Sub, on one hand, and the Company, on the other hand, that was issued or acquired, or will be settled, at a discount.

(g) At the Effective Time, there will be no accrued but unpaid dividends on the Company Common Stock.

(h) In the Merger, stock of the Company representing “control” of the Company (within the meaning of Section 368(c) of the Code) will be exchanged solely for “voting stock” of Parent (within the meaning of Sections 368(a)(1)(B) and (2)(E) of the Code). For purposes of the preceding sentence, any Common Stock to be exchanged for cash or other property provided, directly or indirectly, by Parent is treated as constituting outstanding shares.

 

(i) Payments made in respect of the Dissenting Shares, if any, shall be made solely from the funds of the Company.

(j) The fair market value of the Company’s assets as of the Effective Time will exceed the sum of the Company’s liabilities assumed in the Merger, plus the amount of liabilities (if any) to which the Company’s assets are subject.

 

2.10

TITLE TO PROPERTIES; ENCUMBRANCES

(a) Neither the Company nor any Subsidiary of the Company owns or to the knowledge of the Company has ever owned any real property. Section 2.10 of the Company Disclosure Schedule sets forth all leases pursuant to which Facilities are leased by the Company (as lessee), true and correct copies of which have been delivered to Parent. Such leases constitute all leases, subleases or other occupancy agreements pursuant to which the Company occupies or uses Facilities. Except as set forth on Section 2.10 of the Company Disclosure Schedule, the Company has good and valid leasehold title to, and enjoys peaceful and undisturbed possession of, all leased property described in such leases, free and clear of any and all Encumbrances other than any Permitted Encumbrances which would not permit the termination of the lease therefor by the lessor.

(b) Also set forth on Section 2.10 of the Company Disclosure Schedule is a listing of the machinery, equipment and other tangible personal property with an original cost in excess of $50,000 owned by the Company or any Subsidiary of the Company, and a listing of all leases under which the Company or any Subsidiary of the Company leases any personal property as of the date of this Agreement requiring annual rental payments in excess of $50,000, together with a description of such personal property. Except as set forth on Section 2.10 of the Company Disclosure Schedule, all of the assets and properties of the Company and each Subsidiary of the Company are reflected on the Financial Statements (except to the extent not required to be so reflected by US GAAP).

(c) The Company and each Subsidiary of the Company are in compliance in all material respects with the terms and conditions of the agreements set forth on Section 2.10 of the Company Disclosure Schedule and, to the knowledge of the Company, no event has occurred nor does any circumstance exist that (with or without notice or lapse of time or both) could reasonably be expected to result in a material breach or material default by the Company or any Subsidiary of the Company or any other Person under any such agreement. Since January 1, 2004, neither the Company nor any Subsidiary of the Company has given or received written notice of any violation or of any default under (in each case, whether actual or alleged) any agreement set forth on Section 2.10 of the Company Disclosure Schedule.

(d) The Company and each Subsidiary of the Company has good and valid title to all of the material tangible assets and properties, real and personal, owned by it, and good and valid leasehold interests to all material tangible assets or properties, real or personal, leased by it from third parties. Except as set forth on Section 2.10 of the Company Disclosure Schedule, all assets and properties owned by the Company or any Subsidiary of the Company are free and clear of all Encumbrances and Liens, except for Permitted Encumbrances.

 

(e) To the Company’s knowledge, there are no condemnation, environmental, zoning or other land use regulation proceedings, either pending or threatened, that would detrimentally affect the use and operation of the Company’s leased real property for its intended purpose.

 

2.11

CONDITION OF ASSETS

The Company owns or leases all personal property (other than Intellectual Property, as they are addressed in Section 2.21 below) necessary for the conduct of the business as currently conducted, and such personal property (taken as a whole) is in such operating condition and repair (normal wear and tear excepted) as is necessary for the conduct of the business as currently conducted.

 

2.12

COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS

(a) Except as set forth on Section 2.12 of the Company Disclosure Schedule, the Company and each Subsidiary of the Company is in material compliance with all applicable Laws and Orders affecting the assets or properties owned or used by the Company or any Subsidiary of the Company or the business or operations of the Company or any Subsidiary of the Company. Neither the Company nor any Subsidiary of the Company has been charged with violating, nor, to the knowledge of the Company, threatened in writing with a charge of violating, in each case, in any material respect, any applicable Law or Order relating to any of its or their assets or properties or any aspect of its or their business.

(b) Section 2.12 of the Company Disclosure Schedule contains a complete and accurate list of each material Governmental Permit that is held by the Company or a Subsidiary of the Company. The Governmental Permits listed on Section 2.12 of the Company Disclosure Schedule constitute all of the Governmental Permits necessary for the Company and its Subsidiaries to conduct their businesses as currently conducted. Each Governmental Permit listed on Section 2.12 of the Company Disclosure Schedule is valid and in full force and effect and is not subject to any Proceedings for suspension, modification or revocation. The Company and each Subsidiary is in compliance with the Governmental Permits listed on Section 2.12 of the Company Disclosure Schedule, except where the failure to be in compliance would not, individually or in the aggregate, reasonably be expected to result in a Company Material Adverse Effect.

 

2.13

LEGAL PROCEEDINGS

Except as set forth on Section 2.13 of the Company Disclosure Schedule, the Company has not received a written notice or threat of, nor to the knowledge of the Company does there exist, any Proceeding (i) that has been commenced by or against the Company, any Subsidiary of the Company or any of the officers, directors, employees, stockholders or agents (or former officers, directors, employees, stockholders or agents) of the Company or any Subsidiary of the Company (in each case, in their capacities as such) or that otherwise relates to the business of, or any of the assets or properties owned or used by, the Company or any Subsidiary of the

 

Company which, if determined adversely, could reasonably be expected to result in a Company Material Adverse Effect, or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated by this Agreement.

 

2.14

ABSENCE OF CERTAIN CHANGES AND EVENTS

Except as set forth in Section 2.14 of the Company Disclosure Schedule, since the Base Balance Sheet Date, there has not been (with regard to the Company and each Subsidiary of the Company) any Company Material Adverse Effect, or any:

(a) Failure to operate the business in the ordinary course so as to use all commercially reasonable efforts to preserve the business intact and to preserve the continued services of the Company’s employees and the goodwill of suppliers, customers and others having business relations with the Company or its representatives;

(b) Damage, destruction or loss (whether or not covered by insurance) materially adversely affecting the assets or the business of the Company or any of its Subsidiaries;

(c) Amendments or changes to the Organizational Documents;

(d) Adoption, modification or termination of any Employee Benefit Plan;

(e) Declaration, setting aside or payment of any dividends or distribution (whether in cash, stock or property) in respect of any capital stock of the Company, or any redemption, purchase or other acquisition of equity securities of the Company (other than repurchases of Company Common Stock at cost from employees, directors, consultants or contractors in connection with the termination of services under existing repurchase rights or those repurchase rights granted in accordance with standard form employee agreements entered into following the date hereof in accordance with this Agreement);

(f) Acquisition of any equity interest in any other Person;

(g) Sale, lease, license or other disposition of any material properties or assets, other than sales of products and services in the ordinary course of business consistent with past practice;

(h) Payment, loan or advance, or guaranty of any amount to or in respect of, or the sale, transfer, license or lease of any properties or the assets to, or entering into any Contract with, any Related Person, except regular compensation to employees;

(i) New material Contracts, or extensions, modifications, terminations or renewals thereof, except for material Contracts entered into, modified or terminated in the ordinary course of business and consistent with past practice;

(j) Increase in the rate of compensation payable or to become payable to any officer or manager or representative of the Company, including any bonuses, salaries or other compensation to any stockholder, director, officer, consultant, agent, sales representative or employee, except in the ordinary course of business and consistent with past practice;

 

(k) Resignation or termination of any management or supervisory personnel of the Company or any Subsidiary of the Company;

(l) Loans made to any person or entity or guarantee of any debt securities of others (other than as a result of the endorsement of checks for collection and for advances for employee reimbursable expenses, in each case in the ordinary course of business consistent with past practice);

(m) Cancellation of any indebtedness or waiver of any rights of substantial value to the Company, except in the ordinary course of business and consistent with past practice;

(n) Material change in the accounting methods or practices by the Company;

(o) Revaluation of any of the significant assets of Company or any of its Subsidiaries, including the writing down of inventory or establishing reserves with respect to inventory, notes or accounts receivable (other than for which adequate reserves have been previously established);

(p) Failure to pay any material obligation of the Company when due;

(q) Indebtedness incurred by the Company for borrowed money or any commitment to borrow money entered into by the Company, or any loans made or agreed to be made by the Company, except in the ordinary course of business and consistent with past practices; or

(r) Agreement by the Company directly or indirectly to do any of the foregoing.

 

2.15

CONTRACTS; NO DEFAULTS

(a) Except for Contracts described in Section 2.15 of the Company Disclosure Schedule, neither the Company nor any Subsidiary of the Company is a party to or subject to any written Contract:

(i) involving future expenditures or liabilities, actual or potential, in excess of $50,000 after the date hereof or otherwise material to the Company;

(ii) creating any obligations of the Company after the Base Balance Sheet Date which call for payments of more than $10,000 during any month for agreements without a fixed term or more than $50,000 over the term of the agreement for agreements with a fixed term;

(iii) providing for the purchase of all or substantially all of the Company’s or a Subsidiary’s requirements of a particular product from a supplier;

(iv) for joint marketing, teaming or development;

 

(v) with any dealer, franchiser, original equipment manufacturer, value-added reseller, or manufacturer’s representative, or sale agent or distributor of products of the Company or any Subsidiary of the Company, in each case involving $50,000 or more, or for the sale of products of the Company or any Subsidiary of the Company not made in the ordinary course of business;

(vi) for a license (other than off-the-shelf, fully paid up, shrink wrap software licenses or standard back-office or administrative software not included in the products of the Company) involving payments of more than $50,000 per year individually, or franchise (as licensor or licensee or franchisor or franchisee);

(vii) involving any arrangement or obligation with respect to the return of products other than on account of standard rejection remedies or a defect in condition, or failure to conform to the applicable Contract;

(viii) with the United States government;

(ix) any collective bargaining agreement;

(x) containing covenants restricting the business activity of the Company or any Subsidiary of the Company or limiting the freedom of the Company or any Subsidiary of the Company or any of their employees to engage in any line of business or to compete with any Person or hire any Person;

(xi) any employment or consulting agreement, contract or commitment between the Company or any Subsidiary of the Company, on the one hand, and its employees, consultants, independent contractors or leased employees, on the other hand, under which the Company or any Subsidiary of the Company has any outstanding obligation or liability (other than agreements that are terminable on thirty (30) days notice or less without penalty);

(xii) with a Related Person;

(xiii) promissory notes, loans, agreements, indentures, evidences of indebtedness, letters of credit, guarantees or other instruments relating to an obligation to pay money, whether the Company shall be the borrower, lender or guarantor thereunder (excluding credit provided by the Company in the ordinary course of business to purchasers or its products and obligations to pay vendors in the ordinary course of business and consistent with past practice);

(xiv) pursuant to which the Company or any Subsidiary of the Company acquired any assets outside the ordinary course of business involving $50,000 or more; or

(xv) any other Contract under which the consequences of a breach or default could, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

(b) Except as set forth on Section 2.15 of the Company Disclosure Schedule:

 

(i) Each Contract required to be identified in Section 2.15 of the Company Disclosure Schedule is in full force and effect and is valid and enforceable against the Company or such Subsidiary of the Company and, to the knowledge of the Company, against the other parties thereto, in accordance with its respective terms.

(ii) The Company and each of the Subsidiaries of the Company is in compliance in all material respects with all applicable terms and requirements of each Contract required to be identified in Section 2.15 of the Company Disclosure Schedule.

(iii) To the knowledge of the Company, all other parties to any Contract required to be identified in Section 2.15 of the Company Disclosure Schedule are in compliance in all material respects with all applicable terms and requirements of such Contract.

(iv) To the knowledge of the Company, no event has occurred and no circumstance exists that (with or without notice or lapse of time or both) could reasonably be expected to result in a material breach of or material default under any Contract required to be identified in Section 2.15 of the Company Disclosure Schedule. Neither the Company nor any of its Subsidiaries has received any written notice of any default or threat thereof with respect to any Contract required to be identified in Section 2.15 of the Company Disclosure Schedule.

(v) To the knowledge of the Company, the Company has not entered into any oral contract under which the consequences of a breach or default could, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

 

2.16

INSURANCE

(a) Section 2.16 of the Company Disclosure Schedule sets forth a complete and accurate list of all insurance policies of the Company and each Subsidiary of the Company, which policies are in full force and effect in accordance with their terms. The Company is not in default under any such policies. True, correct and complete copies of all insurance policies of the Company and each Subsidiary of the Company have been furnished to the Parent.

(b) Except for amounts deductible under the policies of insurance listed on Section 2.16 of the Company Disclosure Schedule or with respect to risks assumed as a self-insurer and described in such Section, neither the Company nor any Subsidiary of the Company is, nor has the Company or any Subsidiary of the Company at any time been, subject to any liability as a self-insurer of the business or assets of the Company or any Subsidiary of the Company.

(c) Except as set forth on Section 2.16 of the Company Disclosure Schedule, there are no material claims, by or with respect to the Company, pending under any of the policies of insurance listed on Section 2.16 of the Company Disclosures. The Company has not received any written notice regarding any possible cancellation or termination of any insurance policy, refusal of any coverage or rejection of any material claim under any insurance policy, or material adjustment in the amount of the premiums payable with respect to any such insurance policy. The Company has no knowledge of any insurance carrier’s insolvency or inability to perform its obligations or pay any claims pursuant to any of the insurance policies maintained by the Company.

 

2.17

ENVIRONMENTAL MATTERS

(a) Each of the Company and each Subsidiary of the Company is in material compliance with all applicable Environmental Laws which compliance includes, but is not limited to, the possession by the Company and each Subsidiary of the Company of all material Governmental Permits required under applicable Environmental Laws to conduct their business as currently conducted. Neither the Company nor any Subsidiary of the Company has received any notice, and is not aware of any such notice, actual or threatened, to the effect that: (i) it is not in compliance with, or is in violation of, any such Environmental Laws or Governmental Permits required thereunder or (ii) any currently existing circumstances are reasonably likely to result in a failure of the Company or any of its Subsidiaries to comply with, or result in a violation by any of them of, any such Environmental Laws or Governmental Permits required thereunder. Neither the Company nor any Subsidiary of the Company has generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which at any time violates in any material respect any applicable Environmental Law or Governmental Permit, and the Company and each Subsidiary of the Company have no material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, handling, or disposal of any Hazardous Materials.

(b) Environmental Claims . There are no existing or, to the knowledge of the Company, potential Environmental Claims against the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has received any written notification or otherwise has any knowledge, of any allegation of any actual, or potential responsibility for, or any inquiry or investigation regarding, any disposal, Release or threatened Release at any location or any Facilities of any Hazardous Materials generated or transported by the Company or any of its Subsidiaries.

(c) Hazardous Materials . Neither the Company, nor any Subsidiary of the Company, nor any other Person acting on behalf of the Company or any Subsidiary of the Company (solely with respect to any such other Person, with the Company’s knowledge or the knowledge of any Subsidiary of the Company) has disposed of, transported, stored or arranged for the disposal of any Hazardous Materials to, at or upon: (i) any location other than a site lawfully permitted to receive such Hazardous Materials; (ii) any Facilities; or (iii) any site which, pursuant to CERCLA or any similar state Law, has been placed on the National Priorities List, CERCLIS or their state equivalents. During the period the Company, any Subsidiary of the Company or any predecessor in interest has operated or possessed any Facility, neither the Company nor any of its Subsidiaries has knowledge of any past or present occurrence a Release, or threatened Release, of any Hazardous Materials on, into or beneath the surface of, or adjacent to, any Facilities other than Releases authorized by Environmental Laws including, without limitation, the Governmental Permits required hereunder. No Hazardous Materials are currently located on any of the Facilities that would give rise to any corrective action by or remedial obligation of the Company or any of its Subsidiaries under Environmental Laws.

 

2.18

EMPLOYEES

(a) The Company has made available to Parent on request a complete and accurate list of the following information for each employee of the Company and each Subsidiary of the Company: name; job title; department; base salary; bonus; vacation accrued; date of hire.

(b) To the knowledge of the Company, no officer or employee of the Company or any Subsidiary of the Company is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, noncompetition, or proprietary rights agreement, between such officer or employee and any other Person that could materially adversely affect: (i) the performance of his duties as an officer or employee of the Company or any Subsidiary of the Company; or (ii) the ability of the Company or any Subsidiary of the Company to conduct its business.

(c) Neither the Company nor any Subsidiary of the Company has had a “Plant Closing” or a “Mass Layoff” within the meaning of the federal Workers Adjustment and Retraining Notification Act of 1988 ( “ WARN ” ).

(d) The Company has delivered to the Parent or its counsel prior to the date hereof true and complete copies of any employment agreements and any procedures and policies relating to the employment of employees of the Company and all of the Subsidiaries of the Company and the use of temporary employees and independent contractors by the Company and any Subsidiaries of the Company (including summaries of any procedures and policies that are unwritten).

(e) Set forth on Section 2.18 of the Company Disclosure Schedule is a list of all Contracts entered into by the Company or a Subsidiary of the Company, on the one hand, and an employee or director of the Company, on the other hand: (i) after the Base Balance Sheet Date; and/or (ii) in contemplation of the transactions contemplated by this Agreement.

 

2.19

EMPLOYEE BENEFITS

(a) Except for the Employee Benefit Plans listed on Section 2.19(a) of the Company Disclosure Schedule, neither the Company nor any Subsidiary of the Company (either individually or collectively) maintains, has an obligation to contribute to or has any actual or contingent liability with respect to any Employee Benefit Plan. The Company has delivered to the Parent or its counsel prior to the date hereof true and complete copies of: (i) plan instruments and amendments thereto for all Employee Benefit Plans (or written summaries of any Employee Benefit Plans that are unwritten) and related trust agreements, insurance and other material contracts, summary plan descriptions, and summaries of material modifications, and material communications distributed to the participants of each Plan; (ii) to the extent annual reports on Form 5500 are required with respect to any Employee Benefit Plan, the three most recent annual reports and attached schedules for each Employee Benefit Plan as to which such report is required to be filed; and (iii) where applicable, the most recent (w) opinion, notification and determination letters, (x) audited financial statements, (y) actuarial valuation reports and (z) nondiscrimination tests performed under the Code (including 401(k) and 401(m) tests) for each Employee Benefit Plan.

 

(b) Neither Company nor any Subsidiary of the Company has or has ever had an ERISA Affiliate.

(c) Neither the Company nor any Subsidiary of the Company maintains or has ever maintained or contributes to or has ever contributed to an Employee Benefit Plan subject to Title IV of ERISA (including a multiemployer plan) and no facts exist under which the Company or any Subsidiary of the Company could incur any liability under Title IV of ERISA.

(d) With respect to each Employee Benefit Plan: (i) no party in interest or disqualified person (as defined in Section 3(14) of ERISA and Section 4975 of the Code, respectively) has at any time engaged in a transaction which could subject the Parent, the Surviving Corporation or the Company or any Subsidiary of the Company, directly or indirectly, to a tax, penalty or liability for prohibited transactions imposed by ERISA or the Code; and (ii) to the knowledge of the Company no fiduciary (as defined in Section 3(21) of ERISA) with respect to any Employee Benefit Plan, for whose conduct the Company or any Subsidiary in any material respect of the Company could have any liability (by reason of indemnities or otherwise), has breached any of the responsibilities or obligations imposed upon the fiduciary under Title I of ERISA.

(e) Each Employee Benefit Plan which is a “welfare plan” within the meaning of Section 3(1) of ERISA and which provides health, disability or death benefits is fully insured; neither the Company nor any Subsidiary of the Company is obligated to directly pay any such benefits or to reimburse any third Person payor for the payment of such benefits.

(f) Each Employee Benefit Plan which is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA (a “ Pension Plan ”) and which is subject to Sections 201, 301 or 401 of ERISA has received a favorable determination or opinion letter from the Internal Revenue Service covering all amendments required by the Tax Reform Act of 1986 and prior legislation and there are no circumstances that are likely to result in revocation of any such favorable determination or opinion letter. No Pension Plan has assets other than securities listed on a public exchange, mutual fund shares registered under federal law, publicly traded debt or government debt instruments, or participant loans extended in accordance with such a Pension Plan’s terms. Each Employee Benefit Plan is and has been operated in material compliance with its terms and all applicable Laws, Orders or governmental rules and regulations currently in effect with respect thereto, and by its terms can be amended and/or terminated at any time in accordance with applicable law. As of and including the Closing Date, the Company and each Subsidiary of the Company: (i) shall have performed all material obligations required to be performed by it under, and shall not be in material default under or in material violation of any Employee Benefit Plan; and (ii) shall have made all contributions or payments required to be made by it up to and including the Closing Date with respect to each Employee Benefit Plan, or adequate accruals (including accruals for 401(k) match, if any) therefor have been provided for and are reflected on the Financial Statements provided to Parent by the Company. All notices, filings and disclosures required by ERISA or the Code (including notices under Section 4980B of the Code and certifications under the Health Insurance Portability and Accountability Act) have been timely made.

 

(g) Neither the Company nor any Subsidiary of the Company has received written notice or is aware of any Proceeding (other than routine claims for benefits) pending or, to the knowledge of the Company, threatened with respect to any Employee Benefit Plan or against any fiduciary of any Employee Benefit Plan, and there are no facts that could give rise to any such Proceeding.

(h) There are no complaints, charges or claims against the Company or any Subsidiary of the Company pending or, to the Company’s knowledge, threatened to be brought by or filed with any Governmental Authority and no facts exist as a result of which the Company or any Subsidiary of the Company could have any liability resulting in a Company Material Adverse Effect based on, arising out of, in connection with or otherwise relating to the classification of any individual by the Company or any Subsidiary of the Company as an independent contractor or “leased employee” (within the meaning of Section 414(n) of the Code) rather than as an employee.

(i) (i) No Employee Benefit Plan is an employee stock ownership plan (within the meaning of Section 4975(e)(7) of the Code) or otherwise invests in Company Capital Stock; and (ii) except as set forth on Section 2.19(i) of the Company Disclosure Schedule, the consummation of the transactions contemplated by this Agreement will not, alone or together with any other event, (x) entitle any employee or former employee of the Company or any Subsidiary of the Company to any payment, (y) result in an increase in the amount of compensation or benefits or accelerate the vesting or timing of payment of any benefits or compensation payable in respect of any employee or former employee or (z) result in any parachute payment under Section 280G of the Code, whether or not such payment is considered reasonable compensation for services rendered. The Company will take all actions within its control to ensure that all actions required to be taken by a fiduciary of any Employee Benefit Plan in order to effectuate the transactions contemplated by this Agreement shall comply with the terms of such Plan, ERISA and other applicable Laws.

(j) No Employee Benefit Plan provides benefits, including, without limitation, death or medical benefits (through insurance or otherwise) with respect to any employee or former employee of the Company or any Subsidiary of the Company beyond their retirement or other termination of service other than: (i) coverage mandated by applicable Law; (ii) retirement or death benefits under any Pension Plan; (iii) disability benefits under any welfare plan that have been fully provided for by insurance or otherwise; (iv) deferred compensation benefits accrued as liabilities on the consolidated books of the Company; or (v) benefits in the nature of severance pay.

(k) No Employee Benefit Plan is a “multiple employer plan” as described in Section 3(40) of ERISA or Section 413(c) of the Code.

(l) No Employee Benefit Plan, other than a Pension Plan, is funded through a trust intended to be exempt from tax pursuant to Section 501 of the Code.

(m) Neither the Company nor any Subsidiary of the Company has proposed, agreed to or announced any changes to any Employee Benefit Plan that would cause a material increase in benefits under any such Employee Benefit Plan (or the creation of new benefits or plans) or to change any employee coverage which would cause a material increase in the expense of maintaining any such plan.

 

(n) The Company has made available to Parent a true and complete list of each current or former employee, officer or director of the Company or any Subsidiary of the Company who holds: (i) any option to purchase Company Capital Stock, together with the number of shares of Company Capital Stock subject to such option, the option price of such option (to the extent determinable), whether such option is intended to qualify as an incentive stock option within the meaning of Section 422(b) of the Code, and the expiration date of such option; (ii) any shares of Company Capital Stock that are restricted as a result of an agreement with the Company or the stock plan of the Company; and (iii) any other right, directly or indirectly, to receive Company Capital Stock or any other compensation based in whole or in part on the value of Company Capital Stock, together with the number of shares of Company Capital Stock subject to such right.

(o) Section 2.19(o) of the Company Disclosure Schedule sets forth a true and complete list of: (i) all agreements with consultants who are individuals obligating the Company or any Subsidiary of the Company to make annual cash payments in an amount exceeding $250,000; and (ii) all agreements with respect to the services of independent contractors or leased employees who are individuals or individuals doing business in a corporate form whether or not they participate in any of the Employee Benefit Plans obligating the Company or any Subsidiary of the Company to make annual cash payments in an amount exceeding $250,000.

 

2.20

LABOR RELATIONS

Except as set forth on Section 2.20 of the Company Disclosure Schedule:

(a) The Company and each Subsidiary of the Company is in compliance in all material respects with all applicable Laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and none of them is engaged in any unfair labor practice.

(b) No collective bargaining agreement with respect to the business of the Company or any Subsidiary of the Company is currently in effect or being negotiated. Neither the Company nor any Subsidiary of the Company has encountered any attempt by any labor union or collective bargaining organizing activity to make the Company conform to the demands of organized labor relating to its employees or to enter into a binding agreement with organized labor that would cover the employees of the Company. Neither the Company nor any Subsidiary of the Company has any obligation to negotiate any such collective bargaining agreement.

(c) To the knowledge of the Company, there are no labor strikes, slowdowns or work stoppages pending or threatened with respect to the employees of the Company or any Subsidiary of the Company.

(d) There is no representation claim or petition pending or, to the knowledge of the Company, threatened before the National Labor Relations Board or any state or local labor agency.

 

(e) There are no complaints or charges pending, or to the knowledge of the Company, threatened against the Company or any Subsidiary of the Company before the National Labor Relations Board or any state or local labor agency.

(f) To the knowledge of the Company, no charges with respect to or relating to the business of the Company or any Subsidiary of the Company are pending before the Equal Employment Opportunity Commission or any state or local agency responsible for the prevention of unlawful employment practices.

(g) Section 2.20(g) of the Company Disclosure Schedule accurately sets forth all unpaid severance which, as of the date hereof, is due, or claimed in writing to be due, from the Company or any Subsidiary of the Company to any Person whose employment with the Company or any Subsidiary of the Company was terminated.

(h) Neither the Company nor any Subsidiary of the Company has received written notice that any Governmental Authority responsible for the enforcement of labor or employment Laws intends to conduct an investigation of the Company or any Subsidiary of the Company, and, to the knowledge of the Company, no such investigation is in progress as of the date hereof.

(i) Neither the Company nor any Subsidiary of the Company is and, to the knowledge of the Company, no employee of the Company or any Subsidiary of the Company is, in violation in any material respect of any employment agreement, non-disclosure agreement or non-compete agreement regarding an employee’s employment with the Company or any Subsidiary of the Company.

(j) To the knowledge of the Company, neither the Company nor any Subsidiary of the Company is liable for any claims for past due wages or any penalties for failure to comply with any of the foregoing.

(k) The Company and all Subsidiaries of the Company do not have and will not have as of the Closing Date, any contingent liabilities for sick leave, vacation, holiday pay, severance pay or similar items not set forth in the Most Recent Financial Statements, except for such obligations incurred in the ordinary course of business and consistent with past practices.

 

2.21

INTELLECTUAL PROPERTY

(a) Rights . The Company and each Subsidiary of the Company owns all right, title and interest in and to the Intellectual Property (or licenses or otherwise possesses legally valid and enforceable rights to use the Intellectual Property), and the Company and such Subsidiaries of the Company may transfer such rights as contemplated by this Agreement. The Company and each Subsidiary of the Company has made all necessary filings and recordations to protect and maintain its interest in the Intellectual Property.

(b) Agreements . Section 2.21 of the Company Disclosure Schedule contains a true, correct and complete list of all material Contracts licensing the Intellectual Property to third parties or by which the Company has in-licensed Intellectual Property. Other than as set forth on Section 2.21 of the Company Disclosure Schedule, neither the Company nor any Subsidiary of the Company is, nor will it be as a result of the execution and delivery of this Agreement or the

 

performance of its obligations hereunder, in breach or violation of any agreement described on Section 2.21 of the Company Disclosure Schedule. Each license of Intellectual Property listed in Section 2.21 of the Company Disclosure Schedule is valid, subsisting, and enforceable, and shall continue in effect on its current terms upon consummation of the transactions contemplated by this Agreement.

(c) Patents . (i) Section 2.21 of the Company Disclosure Schedule contains a true, correct and complete list of all Patents owned by the Company constituting a part of the Intellectual Property, to the knowledge of the Company, all such Patents are valid and subsisting and all maintenance fees, annuities and the like have been paid; (ii) except as set forth on Section 2.21 of the Company Disclosure Schedule, to the knowledge of the Company, none of such Patents is infringed; (iii) except as set forth on Section 2.21 of the Company Disclosure Schedule, none of such Patents has been challenged or threatened in any way by any Person, and, to the knowledge of the Company, none of the products of the Company infringes or is alleged to infringe any rights of any Person; and (iv) all Company products sold or offered for sale have been marked with appropriate patent notice markings.

(d) Trademarks . (i) Section 2.21 of the Company Disclosure Schedule contains a true, correct and complete list of all registered Marks owned by the Company constituting a part of the Intellectual Property; (ii)