AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

 

A GREEMENT AND P LAN OF M ERGER

BY AND AMONG

U NIDYM , I NC .,

U NIDYM A CQUISITION , LLC,

C ARBON N ANOTECHNOLOGIES , I NC .

A ND

T HE S TOCKHOLDER R EPRESENTATIVE

D ATED AS OF M ARCH 21, 2007

 

TABLE OF CONTENTS

 

 

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INDEX OF EXHIBITS

 

 

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AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (this “ Agreement ”) is made and entered into as of March 21, 2007 (the “ Agreement Date ”), by and among Unidym, Inc ., a Delaware corporation (“ Parent ”), Unidym Acquisition, LLC , a Delaware limited liability company and a wholly-owned subsidiary of Parent (“ Merger LLC ”), Carbon Nanotechnologies, Inc. , a Delaware corporation (the “ Company ”), and William A. McMinn, an individual, solely for the purpose of acknowledging his appointment as the Stockholder Representative pursuant to Section 7.6. All capitalized terms are defined in Article IX.

RECITALS

A. Parent, Merger LLC and the Company intend to effect a merger (the “ Merger ”) of the Company with and into Merger LLC in accordance with this Agreement, the General Corporation Law of the State of Delaware (the “ DGCL ”) and the Limited Liability Company Act of the State of Delaware (the “ LLC Act ”), with Merger LLC to be the surviving company of the Merger.

B. The Company Board has unanimously (i) determined that the Merger is fair to, and in the best interests of, the Company and the Stockholders, (ii) approved this Agreement, the Merger, the Indemnification Escrow Agreement, in substantially the form set forth on Exhibit A (the “ Escrow Agreement ”), and the other Transactions contemplated by this Agreement and (iii) recommended that the Stockholders adopt and approve this Agreement and the Escrow Agreement and approve the Merger.

C. The Boards of Directors of Parent and Merger LLC have determined that it is in the best interests of their respective companies, members and stockholders to consummate the Merger in accordance with the terms of this Agreement.

D. For federal income tax purposes, it is intended that (i) the Merger shall qualify as a reorganization under the provisions of Section 368(a) of the Code, (ii) this Agreement shall constitute a plan of reorganization, and (iii) the Company and Parent shall each be a party to such reorganization within the meaning of Section 368(b) of the Code.

AGREEMENT

In consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, and intending to be legally bound hereby, the parties agree as follows:

ARTICLE I

THE MERGER

1.1 The Merger . At the Effective Time, and subject to and upon the terms and conditions of this Agreement and the provisions of the DGCL, the Company shall be merged

with and into Merger LLC, the separate existence of the Company shall cease, and Merger LLC shall continue as the surviving company and as a wholly-owned subsidiary of Parent. The surviving company after the Merger is sometimes referred to herein as the “ Surviving Company .”

1.2 Effective Time . Unless this Agreement is earlier terminated pursuant to Section 8.1, the closing of the transactions contemplated by this Agreement (the “ Closing ”) will take place as promptly as practicable, but on the date on which the conditions set forth in Article VI are satisfied or waived (other than conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions), at the offices of Goodwin Procter LLP, 10250 Constellation Blvd., 21st Floor, Los Angeles, California 90067-6221, unless another place or date is agreed to by Parent and the Company. The date upon which the Closing occurs is herein referred to as the “ Closing Date .” On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing a properly executed Certificate of Merger satisfying the requirements of the DGCL and the LLC Act in the form attached hereto as Exhibit B (the “ Certificate of Merger ”) with the Secretary of State of the State of Delaware in accordance with the relevant provisions of the DGCL and the LLC Act (the time of acceptance by the Secretary of State of the State of Delaware of such filing being referred to herein as the “ Effective Time ”).

1.3 Effect of the Merger . At the Effective Time, the effect of the Merger shall be as provided in this Agreement and the applicable provisions of the DGCL and the LLC Act. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all rights and property of the Company and Merger LLC shall vest in the Surviving Company, and all debts and liabilities of the Company and Merger LLC shall become debts and liabilities of the Surviving Company.

1.4 Operating Agreement . Unless otherwise determined by Parent prior to the Effective Time, at the Effective Time the Operating Agreement of Merger LLC shall be and remain the Operating Agreement of the Surviving Company until thereafter amended as provided by applicable Law and such Operating Agreement.

1.5 Directors and Officers of the Parent . At the Effective Time and by virtue of the Merger, the Board of Directors of Parent shall consist of seven (7) directors elected in accordance with the terms of the Amended and Restated Voting Agreement substantially in the form attached hereto as Exhibit C-1 (the “ Voting Agreement ”) as follows: four (4) directors shall be appointed by Arrowhead; two (2) directors shall be appointed by the holders of the Parent Series A Preferred Stock; and the last director shall be Dr. George Gruner, elected and holding office pursuant to the terms of that certain voting agreement in effect prior to the Merger among NanoPolaris, Inc., a Delaware corporation, Arrowhead and the security holders signatory thereto. At the Effective Time and by virtue of the Merger, the officers of the Parent immediately prior to the Effective Time shall remain the officers of the Surviving Company, each to hold office in accordance with the Bylaws of the Parent, in substantially the form set forth on Exhibit D (the “ Parent Bylaws ”).

1.6 Directors and Officers of Merger LLC . At the Effective Time and by virtue of the Merger, the Parent, the sole manager of Merger LLC immediately prior to the Effective Time,

 

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shall remain the sole manager of the Surviving Company, to manage and operate the Surviving Company in accordance with the Operating Agreement of the Surviving Company. At the Effective Time and by virtue of the Merger, the officers of Merger LLC immediately prior to the Effective Time shall remain the officers of the Surviving Company, each to hold office in accordance with the Operating Agreement of the Surviving Company.

1.7 Conversion of Securities; Escrow .

(a) Company Capital Shares . At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger LLC, the Company or the Stockholders:

(i) Each Company Common Share outstanding immediately prior to the Effective Time, other than Company Common Shares held in treasury by the Company or owned by Parent or Merger LLC or which constitute Dissenting Shares (as defined below), shall, by virtue of the Merger and without any action on the part of the holder thereof automatically be canceled and extinguished and be converted into the right to receive, upon surrender of a certificate representing any such shares in the manner provided in Section 1.9 hereof and upon the terms and subject to the conditions set forth in this Agreement and net of withholding and other Taxes, the number of fully paid and nonassessable shares of Parent Series A Preferred Stock, in the number set forth on the Post-Merger Capitalization Schedule, attached as Exhibit E hereto.

(ii) Each Company Preferred Share outstanding immediately prior to the Effective Time, other than Company Preferred Shares held in treasury by the Company or owned by Parent or Merger LLC or which constitute Dissenting Shares (as defined below), shall, by virtue of the Merger and without any action on the part of the holder thereof automatically be canceled and extinguished and be converted into the right to receive, upon surrender of a certificate representing any such shares in the manner provided in Section 1.9 hereof and upon the terms and subject to the conditions set forth in this Agreement and net of withholding and other Taxes, the number of fully paid and nonassessable shares of Parent Series B Preferred Stock, in the number set forth on the Post-Merger Capitalization Schedule, attached as Exhibit E hereto.

(b) Parent Capital Shares . At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger LLC, the Company or the Stockholders:

(i) Each Parent Common Share outstanding immediately prior to the Effective Time shall, without any action on the part of the holder(s) thereof, continue to be Parent Common Shares, in the number set forth on the Post-Merger Capitalization Schedule, attached as Exhibit E hereto.

(ii) Each share of Parent Series A Preferred Stock outstanding immediately prior to the Effective Time, other than Parent Preferred Shares which constitute Dissenting Shares (as defined below), shall, by virtue of the Merger and without any action on the part of the holder thereof automatically be canceled and extinguished and be converted into shares of Parent Series B Preferred Stock, in the number set forth on the Post-Merger Capitalization Schedule, attached as Exhibit E hereto.

 

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(c) Qualified Investor Status . Parent shall not be required to deliver any Parent Preferred Shares to any holder of Company Capital Shares that is receiving Merger Consideration pursuant to Section 1.7(a) hereof unless Parent shall have received from each such holder a duly executed investor representation letter substantially in the form attached hereto as Exhibit F (each a “ Representation Letter ”) on or prior to the Closing Date.

(d) Cancellation of Parent-Owned and Company-Owned Stock . Each Company Capital Share held in the treasury of the Company and each Company Capital Share owned by Parent or Merger LLC immediately prior to the Effective Time shall be cancelled and extinguished without any conversion thereof, and no payment or distribution shall be made with respect thereto.

(e) Company Stock Rights .

(i) Company Options . The Company shall take all steps necessary to terminate the Company Equity Incentive Plans and all option agreements such that all outstanding Company Options shall be cancelled and extinguished as of the Effective Time. The Company shall obtain, prior to the Closing, the consent from each holder of a Company Option to the termination of the Company Option pursuant to this Section 1.7(e)(i).

(ii) Restricted Stock Units .

(A) Parent shall assume the RSU Plan and each unvested Restricted Stock Unit (“ Assumed Restricted Stock Unit ”) that is outstanding as of the Effective Time, together with the restricted stock unit agreement representing each such Restricted Stock Unit. Each Assumed Restricted Stock Unit shall thereafter be exercisable for such number of Parent Common Shares as set forth on the Post-Merger Capitalization Schedule, attached as Exhibit E hereto and the vesting schedule for such Assumed Restricted Stock Unit shall remain unchanged and as set forth in the restricted stock unit agreement for such Assumed Restricted Stock Unit without any acceleration of vesting whatsoever. The Company and the Administrator of the RSU Plan (the “ Administrator ”) shall take all actions necessary or required under the RSU Plan and the restricted stock unit agreements to cause the RSU Plan and all Assumed Restricted Stock Units to be assumed on the terms and conditions set forth in the preceding sentence such that the vesting of no Assumed Restricted Stock Unit is accelerated.

(B) Each issued and outstanding unvested Restricted Stock Unit that was not granted by CNI pursuant to the RSU Plan shall be exchanged into the right to receive, upon surrender of the restricted stock unit agreement therefor in accordance with this Agreement, a restricted stock unit exercisable for such number of Parent Common Shares (the “ Parent Restricted Stock Units ”) as set forth on the Post-Merger Capitalization Schedule, attached as Exhibit E hereto and the vesting schedule for such Parent Restricted Stock Unit shall remain unchanged and as set forth in the restricted stock unit agreement for such Parent Restricted Stock Unit without any acceleration of vesting whatsoever. All holders of unvested Restricted Stock Units that were not issued pursuant to the RSU Plan shall be obligated to deliver to Parent a duly executed Representation Letter on or prior to the Closing Date, and Parent shall not be required to deliver any restricted stock unit agreement related to the Parent Restricted Stock Units to be held by such recipient until Parent receives such Representation Letter.

 

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(f) Company Warrant . Each unexercised and outstanding Company Warrant shall be exchanged into the right to receive, upon surrender of the Company Warrant therefor, a warrant exercisable for such number of shares of Parent Common Shares as set forth on the Post-Merger Capitalization Schedule, attached as Exhibit E hereto and terms of such Company Warrant shall remain unchanged and as set forth in the Company Warrant agreement. The holder of the Company Warrant shall be obligated to deliver to Parent a duly executed Representation Letter on or prior to the Closing Date and the Company shall take all necessary steps to obtain written evidence reasonably satisfactory to Parent as to the acceptance by the holder of the outstanding Company Warrant as to the foregoing.

(g) Escrow . At Closing, twenty percent (20%) of Parent’s issued and outstanding Parent Capital Shares shall be held in escrow pursuant to Article VII of this Agreement. The approval of this Agreement by the Stockholders will also constitute their approval of the terms and provisions of the Escrow Agreement, which is an integral term of the Merger. The Escrow Shares will be withheld in accordance with the provisions of Section 1.9 hereof. The delivery of the Escrow Shares will be made on behalf of the Stockholders and the holders of Parent Capital Shares in accordance with the provisions hereof, with the same force and effect as if such shares had been delivered by Parent directly to such holders and subsequently delivered by such holders to the Escrow Agent.

(h) No Fractional Shares . No fraction of a Parent Preferred Share will be issued, but in lieu thereof, each holder of Company Capital Shares who would otherwise be entitled to a fraction of a Parent Preferred Shares (after aggregating all fractional Parent Preferred Shares to be received by such holder) shall be entitled to receive from Parent such number of whole number of Parent Preferred Shares, rounded up or down to the nearest whole number (with a fractional interest equal to 0.5 rounded upward to the nearest whole number).

(i) Withholding Rights; Deductions from Consideration . Each of the Surviving Company and Parent shall be entitled to deduct and withhold from any payment to any Person under this Agreement or any other Transaction Agreements (i) such amounts as it is required to deduct and withhold with respect to the making of such payment or any other Tax withholding obligation with respect to the Merger under the Code or any provision of state, local or foreign Tax Law and (ii) to the extent applicable, the amount of any outstanding loans (including any accrued but unpaid interest thereon and any other amounts in respect thereof) owed by such Person to the Company as of the Closing. To the extent that amounts are so withheld or deducted by the Surviving Company or by Parent, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to such Person in respect of which such deduction and withholding was made by the Surviving Company or by Parent, as the case may be.

(j) No Further Ownership Rights in Company Capital Shares . The amounts paid or payable upon the surrender for exchange of Company Capital Shares in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such Company Capital Shares, and there shall be no further registration of transfers on the records of the Surviving Company of Company Capital Shares which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Company for any reason, they shall be canceled and exchanged as provided in this Article I.

 

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(k) Capital of Merger LLC . The ownership interests in Merger LLC immediately prior to the Effective Time shall be converted into and become the membership interests of the Surviving Company.

1.8 Dissenting Shares .

(a) Immediately after the execution and delivery of this Agreement, the Company shall solicit the approval by written consent of the execution and delivery by the Company of this Agreement and the consummation of the Merger, by the Stockholders holding the requisite number of shares of each class of Company Capital Shares required (the “ Stockholder Approval ”) to (i) approve the execution and delivery of this Agreement and the consummation of the Merger in accordance with the DGCL, the LLC Act and the Company Certificate of Incorporation, the Escrow Agreement and all other transactions contemplated hereby and thereby, and appoint William A. McMinn as the initial Stockholder Representative, and (ii) acknowledge that such approval is irrevocable and that such holder is aware of its rights to dissent pursuant to Section 262 of the DGCL, a copy of which was attached to such written consent, and that such holder has received and read a copy of Section 262 of the DGCL. The written consent shall be accompanied by an information statement containing (i) a description of the appraisal rights of holders of all Company Capital Shares available under Section 262 of the DGCL and (ii) such information concerning this Agreement and the transactions contemplated hereby as Parent shall have previously approved, and the form of Representation Letters to be completed and returned to the Company.

(b) After the effective date of the written consent described in Section 1.8(a), the Company shall give prompt notice of the taking of the actions described in Section 1.8(a) to all holders of Company Capital Shares not executing the written consent described therein.

(c) Notwithstanding any provision of this Agreement to the contrary, Company Capital Shares that are outstanding immediately prior to the Effective Time and which are held by Stockholders of the Company who shall not have voted in favor of the Merger or consented thereto in writing and 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 the Merger Consideration set forth in Section 1.8(a) hereof. Such stockholders shall be entitled to receive such consideration as is determined to be due with respect to such Dissenting Shares in accordance with the provisions of Section 262 of the DGCL, except that all Dissenting Shares held by stockholders of the Company 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 the Merger Consideration pursuant to Section 1.8(a) hereof in the manner provided in Section 1.8 hereof of the Certificate or Certificates that formerly evidenced by such Dissenting Shares.

 

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(d) The Company shall give Parent and the Stockholder Representative (i) prompt notice of any written demands for appraisal of any Company Capital Shares, withdrawals of such demands, and any other instruments or notices served pursuant to the DGCL on the Company 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 Parent and the Stockholder Representative, voluntarily make any payment with respect to any demands for appraisal of Company Capital Shares or offer to settle or settle any such demands. Notwithstanding the foregoing, to the extent that Parent or the Company (i) makes any payment or payments in respect of any Dissenting Shares in excess of the consideration that otherwise would have been payable in respect of such shares in accordance with this Agreement or (ii) incurs any other costs or expenses (including specifically, but without limitation, attorneys’ fees, costs and expenses in connection with any action or proceeding or in connection with any investigation) in respect of any Dissenting Shares (other than payments for such shares) (together “ Dissenting Share Payments ”), Parent shall be indemnified under the terms of Article VII (subject to the conditions and limitations therein) for the amount of such Dissenting Share Payments.

1.9 Surrender of Certificates .

(a) Parent shall act as exchange agent (the “ Exchange Agent ”) in the Merger. Parent shall deposit the Company Escrow Shares with the Escrow Agent out of the aggregate number of Parent Preferred Shares otherwise issuable pursuant to Section 1.7 hereof on behalf of the holders of Company Capital Shares and pursuant to Article VII hereof and the Escrow Agreement.

(b) Promptly after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates (the “ Certificates ”) which immediately prior to the Effective Time represented outstanding shares of Company Capital Shares whose shares were converted into the right to receive the Merger Consideration pursuant to Section 1.7(a) hereof, (i) a letter of transmittal (a “ Letter of Transmittal ”) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing Parent Preferred Shares and, in lieu of fractional shares thereof, cash pursuant to Section 1.7(h) hereof. Upon surrender of a Certificate (or Certificates) for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such Letter of Transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other customary documents as may be required pursuant to such instructions, the holder of such Certificate(s) shall be entitled to receive in exchange therefor a certificate representing the number of whole Parent Preferred Shares (less the number of Parent Preferred Shares to be deposited with the Escrow Agent on such holder’s behalf pursuant to Section 1.7(g) and Article VII hereof) to which such holder is entitled pursuant to Section 1.7(a) hereof, and the Certificate(s) so surrendered shall forthwith be canceled. As soon as practicable after the Effective Time, and subject to and in accordance with the provisions of Article VII hereof, Parent shall cause to be delivered to the Escrow Agent, on behalf of the holders of Certificates, a certificate or certificates representing the Company Escrow Shares which shall be registered in the name of the Escrow Agent. Such shares shall be beneficially owned by the holders on whose behalf such shares were deposited with the Escrow Agent and shall be available to Parent as provided in Article VII and the Escrow Agreement. Until so surrendered, each outstanding Certificate that,

 

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prior to the Effective Time, represented shares of Company Capital Shares (other than Dissenting Shares) will be deemed from and after the Effective Time, for all corporate purposes, other than the payment of dividends, to evidence the ownership of the number of full Parent Preferred Shares into which such shares of Company Capital Shares shall have been so converted and the right to receive an amount in cash in lieu of the issuance of any fractional shares in accordance with Section 1.7(h) hereof.

(c) No dividends or other distributions declared or made after the Effective Time with respect to Parent Preferred Shares with a record date after the Effective Time will be paid to the holder of any unsurrendered Certificate with respect to the Parent Preferred Shares represented thereby until the holder of record of such Certificate shall surrender such Certificate in exchange for Parent Preferred Shares in accordance with the terms of this Agreement. Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole Parent Preferred 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 paid with respect to such whole Parent Preferred Shares.

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

(e) Notwithstanding anything to the contrary in this Section 1.9, none of the Exchange Agent, Parent, the Surviving Company or any party hereto shall be liable to a holder of Parent Preferred Shares for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law.

(f) In the event any Certificates to be surrendered in accordance with Section 1.9(b) shall have been lost, stolen or destroyed, the Parent shall deem such lost, stolen or destroyed Certificates surrendered for purposes of Section 1.9(b), upon the receipt of an affidavit of that fact, in a form reasonably satisfactory to Parent, by the holder thereof pursuant to which such holder would agree to indemnify Parent and its Affiliates against any claim that may be made against Parent or its Affiliates with respect to the Certificates alleged to have been lost, stolen or destroyed.

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

 

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1.11 Restrictions on Parent Preferred Shares .

(a) The Parent Preferred Shares issuable pursuant to 1.7(a) hereof:

(i) shall not be registered under the Securities Act, or the securities laws of any state of the United States;

(ii) shall be issued in a transaction not involving any public offering within the meaning of the Securities Act, and, accordingly, shall be “restricted securities” within the meaning of Rule 144 under the Securities Act (“ Rule 144 ”), and therefore may not be offered or sold, directly or indirectly, without registration under the Securities Act and any applicable state securities laws or pursuant to an exemption from such registration requirements and applicable state securities laws; and

(iii) shall not be sold, pledged or otherwise transferred except (x) in another transaction otherwise exempt from registration under the Securities Act in compliance with Rule 144 and in compliance with any applicable state securities laws of the United States or (y) pursuant to another applicable exemption from such registration requirements and applicable state securities laws.

(b) Each certificate representing Parent Preferred Shares shall bear a legend substantially in the following form:

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE 1933 ACT AND ALL SUCH APPLICABLE LAWS OR EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.

“THE SECURITIES EVIDENCED HEREBY ARE SUBJECT TO THE TERMS OF A CERTAIN AMENDED AND RESTATED VOTING AGREEMENT, AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT AND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT BY AND AMONG PARENT AND CERTAIN INVESTORS IDENTIFIED THEREIN, INCLUDING CERTAIN RESTRICTIONS ON TRANSFER. A COPY OF THE AMENDED AND RESTATED VOTING AGREEMENT, AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT AND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT HAVE BEEN FILED WITH THE SECRETARY OF THE COMPANY AND ARE AVAILABLE UPON REQUEST.”

 

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ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to each of Parent and Merger LLC, subject to such exceptions as are set forth in the disclosure schedule dated as of the Agreement Date and delivered herewith to Parent (the “ Company Disclosure Schedule ”), as follows:

2.1 Organization of the Company . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Company is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction listed on Schedule 2.1(a) and in each jurisdiction in which the conduct of its business or the ownership, leasing, holding or use of its properties makes such qualification necessary, except where the failure to be so qualified or licensed or in good standing would not reasonably be expected to have a Company Material Adverse Effect. The Company has made available a true and correct copy of the Company Certificate of Incorporation and its By-Laws, each as amended to date and in full force and effect, to Parent. The Company is not in violation of the Company Certificate of Incorporation or its By-Laws in any material respect. Schedule 2.1(b) lists every state or foreign jurisdiction in which the Company has facilities, maintains an office or has a current Employee.

2.2 Authority .

(a) The Company has all requisite corporate power and authority to enter into this Agreement and each of the Certificate of Merger, the Escrow Agreement, and each other agreement, certificate or document contemplated thereby or hereby (collectively with the Agreement, the “ Transaction Agreements ”) to which it is or will be a party and to consummate the Transactions. The Company Board has unanimously (i) determined that the Merger is fair to, and in the best interests of, the Company and the Stockholders, (ii) approved the Transaction Agreements to which it is or will be a party and the Transactions, including the Merger, and (iii) recommended that the Stockholders adopt and approve this Agreement, the Escrow Agreement and the Transactions, including the Merger (the “ Board Approvals ”). The execution, delivery and performance by the Company of this Agreement and the other Transaction Agreements to which it is or will be a party and the consummation by the Company of the Transactions have been duly authorized by all necessary corporate action on the part of the Company and no further action is required on the part of the Company to authorize the Transaction Agreements to which it is or will be a party and the Transactions, subject only to the approval of this Agreement and the Merger by the Stockholders. The Board Approvals have not been revoked, rescinded or amended.

(b) This Agreement has been, and each of the other Transaction Agreements to which the Company is a party will be at the Closing, duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the other parties hereto and thereto (other than the Company), this Agreement constitutes, and in the case of such Transaction Agreements they will at the Closing constitute, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as

 

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such enforceability may be subject to applicable bankruptcy, reorganization, insolvency, moratorium and similar Laws affecting the enforcement of creditors’ rights generally and by general principles of equity; provided , however , that the Certificate of Merger will not be effective until filed with the Secretary of State of the State of Delaware.

2.3 No Conflict . Except as set forth on Schedule 2.3 , the execution and delivery by the Company of this Agreement and each other Transaction Agreement to which the Company is a party, and the consummation of the Transactions, do not and will not conflict with or result in any violation of or default under (with or without notice or lapse of time, or both) or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under, or result in the creation of any Lien upon any of the Company’s properties or assets (tangible or intangible) under (i) any provision of the Company Certificate of Incorporation, the Company’s By-Laws or other organizational documents of the Company or any of its Subsidiaries, (ii) any Company Contract, (iii) any Company Authorization or (iv) any Law applicable to the Company or any of its Subsidiaries or any of their respective properties or assets (whether tangible or intangible), except, with respect to clauses (ii), (iii) and (iv), for such conflicts, violations, defaults, rights of termination, cancellation or acceleration of any obligation or loss of benefit or creation of a Lien that individually or in the aggregate together would not reasonably be expected to have a Company Material Adverse Effect.

2.4 Consents . No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, or notice to any Governmental Entity, is required by, or with respect to, the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement and the other Transaction Agreements to which the Company or any of its Subsidiaries is a party or the consummation of the Transactions, except for the filing of the Certificate of Merger with the Secretary of State of the State of Delaware.

2.5 Subsidiaries . The Company does not own, directly or indirectly, any capital stock of or any other equity interest in, or control, directly or indirectly, any other Person (each, a “ Subsidiary ”), and the Company is not, directly or indirectly, a party to, member of or participant in any partnership, joint venture or similar business entity.

2.6 Company Capital Structure .

(a) Immediately prior to the Closing and the Conversion, the authorized capital stock of the Company consists of: 40,000,000 Company Common Shares, of which 13,530,053 shares are issued and outstanding as of the Agreement Date, and 5,000,000 shares of preferred stock, par value $0.001 per share, of which (i) 420,000 shares have been designated as Series A Convertible Preferred Stock (“ Company Series A Stock ”), all of which shares are issued and outstanding, (ii) 100,000 shares have been designated as Series B Convertible Preferred Stock (“ Company Series B Stock ”), all of which shares are issued and outstanding, (iii) 516,707 shares have been designated as Series C Convertible Preferred Stock (“ Company Series C Stock ”), all of which shares are issued and outstanding, (iv) 236,556 shares have been designated as Series D Convertible Preferred Stock (“ Company Series D Stock ”), all of which shares are issued and outstanding, and (v) 1,200,000 shares have been designated as Series E Preferred Stock, none of which shares are issued and outstanding as of the Agreement Date. Upon (A) the Conversion, (B) the exercise of Company Warrants to purchase 774,000 Company

 

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Common Shares and (C) the issuance of shares of Series E Preferred Stock pursuant to the Guarantor Stock Purchase Agreement, the issued and outstanding shares of the Company will consist only of 26,262,683 Company Common Shares and 1,080,000 shares of Series E Preferred Stock. The outstanding Company Capital Shares, including all shares subject to the Company’s right of repurchase, are held of record and beneficially by the Persons with the addresses on record with the Company and in the amounts set forth on Schedule 2.6(a ). All outstanding Company Capital Shares (i) have been duly authorized and validly issued and are fully paid, non-assessable and, except for the Company Preferred Shares, not subject to preemptive rights or similar rights created by statute, the Company Certificate of Incorporation, the Company’s By-Laws or any Company Contract, and (ii) have been offered, sold, issued and delivered by the Company in compliance with all applicable Laws, including federal and state securities Laws, in all material respects. There are no declared or accrued but unpaid dividends with respect to any Company Capital Shares.

(b) (i) Except for the Company’s Second Amended and Restated Long-Term Incentive Plan and 2005 Long-Term Incentive Plan, each as amended to date (the “ Company Equity Incentive Plans ”), neither the Company nor any of its Subsidiaries has ever adopted, sponsored or maintained any stock option plan or any other plan providing for issuance of equity to any Person. The Company Equity Incentive Plans were duly authorized, approved and adopted by the Company Board and the Stockholders. The Company had reserved for issuance to Employees of, and consultants to, the Company and its Subsidiaries 5,000,000 Company Common Shares under the Company Equity Incentive Plans, of which, prior to the Agreement Date and the actions taken in accordance with Section 4.9 hereof, (i) 3,290,175 Company Common Shares were issuable upon the exercise of outstanding unexercised options (the “ Company Options ”), and (ii) 820,200 Company Common Shares were available for grant but had not yet been granted. All outstanding Company Options were offered, issued and delivered by the Company in compliance with all applicable Laws, in all material respects, and in compliance with the terms and conditions of the Company Equity Incentive Plans. As of the Agreement Date, the Company has delivered to Parent and Merger LLC a schedule setting forth for each previously outstanding Company Option, the name of the holder of such option, the domicile address of such holder on record with the Company, the date of grant or issuance of such option, the number of Company Common Shares subject to such option, the exercise price of such option and the vesting schedule for such option, it being understood that all Company Options were cancelled prior to the Agreement Date.

(ii) As of the Agreement Date, the Company has an outstanding warrant (the “ Company Warrant ”) for the purchase of an aggregate of 200,000 Company Common Shares. The Company Warrant has been offered, issued and delivered by the Company in compliance with all applicable Laws, in all material respects. Schedule 2.6(b)(ii ) sets forth for the Company Warrant, the name of the holder of such Company Warrant, the address of such holder on record with the Company, the date of grant or issuance of such Company Warrant, the number of Company Common Shares subject to such Company Warrant and the exercise price of such Company Warrant.

(iii) Except for the Company Options, Company Warrant, the Restricted Stock Units referenced in Section 2.6(b)(iv), and as set forth on Schedule 2.6(b)(ii ), there are no Company Stock Rights or Contracts to which the Company or any of its Subsidiaries

 

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is a party or by which the Company or any of its Subsidiaries is bound obligating the Company or any Subsidiary to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any Company Capital Shares or any capital stock or equity or other ownership interest of any Subsidiary or obligating the Company or any Subsidiary to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such Company Stock Right. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar rights with respect to the Company or any of its Subsidiaries.

(iv) The Company Board approved and adopted the Carbon Nanotechnologies, Inc. 2007 Restricted Stock Unit Plan (the “ RSU Plan ”) on March 21, 2007, a correct and complete copy of which, together with the allocation schedule thereto, has been provided to Parent. The RSU Plan was duly authorized, approved and adopted by the Company Board. As of the Agreement Date, the Company has outstanding Restricted Stock Units under the RSU Plan for an aggregate of 3,101,500 Company Common Shares and has outstanding 350,000 Restricted Stock Units that are issued outside of the Plan. All Restricted Stock Units issued outside of the RSU Plan have been offered, issued and delivered by the Company in compliance with all applicable Laws, in all material respects. The Company has delivered to Parent and Merger LLC a schedule setting forth for each outstanding Restricted Stock Unit, the name of the holder of such Restricted Stock Unit, the domicile address of such holder on record with the Company, the date of grant or issuance of such Restricted Stock Unit, and the number of Company Common Shares subject to such Restricted Stock Unit.

(c) There are no (i) voting trusts, proxies, or other Contracts or understandings with respect to the voting of any stock of the Company or any of its Subsidiaries to which the Company or any of its Subsidiaries is a party, by which the Company or any of its Subsidiaries is bound, or of which the Company has knowledge, or (ii) Contracts or understandings to which the Company or any of its Subsidiaries is a party, by which the Company or any of its Subsidiaries is bound, or of which the Company has knowledge relating to the registration, sale or transfer (including Contracts relating to rights of first refusal, “co-sale” rights or “drag-along” rights) of any Company Capital Shares. The holders of Company Capital Shares, Company Options and Company Warrant have been or will be properly given, or shall have properly waived, any required notice prior to the Merger.

2.7 Company Financial Statements and Internal Controls .

(a) Schedule 2.7 sets forth (i) the audited consolidated balance sheets and the related audited consolidated statements of operations, stockholders equity and cash flows of the Company and its Subsidiaries for the fiscal years ended December 31, 2004 and December 31, 2005, and (ii) the unaudited consolidated balance sheet and the related unaudited consolidated statements of operations, stockholders equity and cash flows of the Company and its Subsidiaries as of December 31, 2006 (the balance sheet included therein at December 31, 2006 being the “ Company Balance Sheet ”, and December 31, 2006 being the “ Balance Sheet Date ”) (the financial statements referred to in items (i) and (ii) referred to collectively as the “ Company Financial Statements ”). The Company Financial Statements are accurate and complete in all material respects and have been prepared in accordance with generally accepted accounting principles effective in the United States (“ GAAP ”) applied on a basis consistent throughout the

 

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periods indicated and consistent with each other, except for the absence of footnotes. The Company Financial Statements fairly present, in all material respects, the consolidated financial condition, results of operations and cash flows of the Company and its Subsidiaries as of the dates and during the periods indicated therein, subject to normal year-end adjustments, which are not material in amount or significance and such other adjustments described in Schedule 2.7 .

(b) The Company and each of its Subsidiaries has in place systems and processes that, taking into account the stage of development of the Company, are designed to provide reasonable assurances regarding the reliability in all material respects of the Company Financial Statements.

(c) To the Company’s knowledge, no Employee has provided information to any Governmental Entity regarding the commission of any crime or the violation of any Law by the Company, any of its Subsidiaries or an Employee in his or her capacity as such.

(d) The Company has in place a revenue recognition policy consistent in all material respects with GAAP.

2.8 Liabilities .

(a) Except as set forth on Schedule 2.8(a ), neither the Company nor any of its Subsidiaries has (i) any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or other (whether or not required to be reflected as a liability in Company Financial Statements in accordance with GAAP), that (A) exceeds $25,000 in the aggregate for all such items and (B) has not (x) been reflected in the Company Balance Sheet or (y) arisen in the ordinary course of business since the Balance Sheet Date, or (ii) any “off-balance sheet arrangements” (as such term is defined in Item 303(a)(4) of Regulation S-K promulgated under the Exchange Act).

(b) Schedule 2.8(b ) lists all accounts payable of the Company as of the Balance Sheet Date, which is accurate and complete in all material respects. All accounts payable of the Company and its Subsidiaries as of the Balance Sheet Date required to be reflected on the Company Financial Statements are reflected on the Company Financial Statements. All accounts payable of the Company and its Subsidiaries that arose after the Balance Sheet Date have been recorded on the accounting books and records of the Company. All outstanding accounts payable of the Company and its Subsidiaries represent valid obligations arising from bona fide purchases of assets or services, which assets or services have been delivered to the Company or its Subsidiaries. The Company and its Subsidiaries have each paid all of its accounts payable in the ordinary course of business and has not delayed or renegotiated payment of, or refused to pay, any of its accounts payable, except consistent with its past practices.

(c) Neither the Company nor any Subsidiary has, at any time, (i) made a general assignment for the benefit of creditors, (ii) filed, or had filed against it, any bankruptcy petition or similar filing, (iii) suffered the attachment or other judicial seizure of all or a substantial portion of its assets, (iv) admitted in writing its inability to pay its debts as they become due, or (v) been convicted of, or pleaded guilty or no contest to, any felony.

 

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(d) Neither the Company nor any Subsidiary is a party to any Contract whereby it has guaranteed or otherwise agreed to cause, insure or become liable for, or pledged any of its assets to secure, the performance or payment of, any obligation or other liability of any Person (other than the Company or a Subsidiary).

(e) Neither the Company nor any Subsidiary is insolvent.

2.9 Absence of Certain Changes . Except as contemplated by the Transactions, since the Balance Sheet Date through the Agreement Date there has not been, occurred or arisen any:

(a) transaction by the Company or any of its Subsidiaries in any amount in excess of $25,000 individually or $75,000 in the aggregate, except in the ordinary course of business;

(b) amendments or changes to the Company Certificate of Incorporation or comparable organizational documents of any of its Subsidiaries;

(c) capital expenditure or capital commitment by the Company or any of its Subsidiaries in any amount in excess of $25,000 in any individual case or $75,000 in the aggregate, except in the ordinary course of business;

(d) payment, discharge or satisfaction, in any amount in excess of $25,000 in any one case, or $75,000 in the aggregate, of any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise of the Company or any of its Subsidiaries), other than payments, discharges or satisfactions in the ordinary course of business of liabilities reflected or reserved against in the Company Balance Sheet;

(e) destruction of, damage to or loss of any material assets, business or Customer (whether or not covered by insurance);

(f) concerted work stoppage, labor strike or, to the Company’s knowledge, any action, suit, claim, or grievance relating to any labor, employment or safety matter involving the Company or any of its Subsidiaries, including charges of wrongful discharge, discrimination, wage and hour violations, or other unlawful labor or employment practices or actions;

(g) change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by the Company or any of its Subsidiaries;

(h) revaluation by the Company or any of its Subsidiaries of any of their assets, including the writing off of notes or accounts receivable, except in the ordinary course of business in an amount less than $25,000 individually or $75,000 in the aggregate;

(i) (x) declaration, setting aside or payment of a dividend or other distribution (whether in cash, stock or property) with respect to any Company Capital Shares or Subsidiary Securities, or any direct or indirect redemption, purchase or other acquisition by the Company or any Subsidiary of any Company Capital Shares or Subsidiary Securities, other than repurchases of Company Capital Shares from Employees, consultants or other Persons performing services for the Company pursuant to Contracts under which the Company has the option to repurchase

 

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such shares at cost upon the termination of employment or other services, (y) any split, combination or reclassification of any Company Capital Shares, or (z) any issuance or authorization of the issuance of any other securities in respect of, in lieu of or in substitution for, any Company Capital Shares or Subsidiary Securities;

(j) increase in the salary or other compensation payable or to become payable by the Company or any of its Subsidiaries to any of their Employees, consultants, contractors, or advisors, including the modification of any existing compensation or equity arrangements with such individuals (including any repricing of any Company Options (other then to the extent required to comply with Section 409A of the Code), Company Warrant or any amendment of any vesting terms related thereto held by such individuals), or the declaration, payment or commitment or obligation of any kind for the payment by the Company or any Subsidiary of a bonus or other additional salary or compensation to any such Person;

(k) involuntary terminations of Employees, it being understood that termination of Employees by reason of death or disability, with poor performance ratings or for cause shall not constitute a violation of this Section 2.9(k);

(l) (i) grant of any severance or termination pay to any Employee, except payments made pursuant to written Contracts outstanding on the Agreement Date and as disclosed in the Disclosure Schedule, (ii) adoption or amendment of any employee benefit plan or severance plan, or (iii) entering into any employment contract (other than any employment contract required under applicable Law), extension of any employment offer, payment or Contract to pay any bonus or special remuneration to any Employee, except payments made pursuant to written Contracts outstanding on the Agreement Date;

(m) except in the ordinary course of business, (i) entering into of any Company Contract (including any strategic alliance, joint development or joint marketing agreement or any loan agreement or instrument), or (ii) any termination, extension, amendment or modification of the material terms of any Company Contract or any waiver, release or assignment of any material rights or claims thereunder;

(n) sale, lease or other disposition of any of the material properties of the Company or any of its Subsidiaries, or creation of any Lien in such properties;

(o) loan by the Company or any Subsidiary to any Person, incurrence by the Company or any of its Subsidiaries of any indebtedness for borrowed money, guarantee by the Company or any of its Subsidiaries of any such indebtedness, issuance or sale of any debt securities of the Company or any of its Subsidiaries or purchase of or guaranteeing of any debt securities of others, except for advances to Employees for travel and business expenses in the ordinary course of business;

(p) waiver or release of any material right or claim of the Company or any of its Subsidiaries, including any write-off or other compromise of any account receivable of the Company, except in the ordinary course of business;

(q) commencement, or written notice or, to the Company’s knowledge, threat of commencement, of any lawsuit or proceeding against or investigation of the Company or any of its Subsidiaries or their affairs, or commencement or settlement of any litigation by the Company or any of its Subsidiaries;

 

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(r) (i) transfer or sale by the Company or any of its Subsidiaries of any rights to the Company Intellectual Property or the entering into of any license agreement (other than non-exclusive end-user license agreements entered into by the Company in the ordinary course of business that do not include any rights with respect to source code), distribution agreement, reseller agreement, security agreement, assignment or other conveyance or option for the foregoing, with respect to the Company Intellectual Property with any Person, (ii) purchase or other acquisition of any material Intellectual Property or entering into of any material license agreement, distribution agreement, reseller agreement, security agreement, assignment or other conveyance or option for the foregoing, with respect to the Intellectual Property of any Person (other than off-the-shelf shrink-wrap, click-through or similar licenses for commercially available software), (iii) material change in pricing or royalties set or charged by the Company or any of its Subsidiaries to its Customers or in pricing or royalties set or charged by Persons who have licensed Intellectual Property to the Company or any of its Subsidiaries (other than off-the-shelf shrink-wrap, click-through or similar licenses for commercially available software, in each case with no recurring license fee), or (iv) entering into, or material amendment of, any Contract with respect to the development of any Intellectual Property by, with or for any Person;

(s) Contract, or material modification to any Contract, pursuant to which any Person was granted marketing, distribution, development, manufacturing or similar rights of any type or scope with respect to any products, services or technology of the Company or any of its Subsidiaries, other than reseller agreements in the ordinary course of business;

(t) except as set forth in Schedule 2.6(b ), issuance, grant, delivery or sale (or authorization of the same) by the Company or any Subsidiary of any Company Capital Shares, any Company Options, any Company Warrant, any other Company Stock Right or any Subsidiary Securities;

(u) event, occurrence, change, effect or condition of any character, which individually or in the aggregate, has had or reasonably would be expected to have a Company Material Adverse Effect; or

(v) Contract by the Company or any of its Subsidiaries to do any of the things described in the preceding clauses (a) through (u) (other than the incurrence of any Transaction Expenses).

2.10 Restrictions on Business Activities . Except as set forth on Schedule 2.10 , there is no Company Contract (non-competition or other) or judgment, injunction, order or decree to which the Company or any of its Subsidiaries is a party or subject or which is otherwise binding upon the Company or any of its Subsidiaries or any of their property, that has had or would reasonably be expected to have the effect of prohibiting, impairing or limiting any business or business practice of the Company or any of its Subsidiaries, any acquisition of property by the Company or any of its Subsidiaries, the conduct of business by the Company or any of its Subsidiaries, or otherwise limiting the freedom of the Company or any of its Subsidiaries to engage in any line of business or to compete with any Person, in each case in any material

 

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respect whether arising as a result of a change in control of the Company or any of its Subsidiaries or otherwise. Without limiting the generality of the foregoing and except as set forth in Schedule 2.10 , neither the Company nor any of its Subsidiaries has (i) entered into any Contract under which the Company or any of its Subsidiaries is restricted from selling, licensing, manufacturing or otherwise distributing any of its technology or products or from providing services to Customers or potential Customers or any class of Customers, in any geographic area, during any period of time, or in any segment of the market or (ii) granted any Person exclusive rights to sell, license, manufacture or otherwise distribute any of the Company’s or any Subsidiary’s technology or products in any geographic area or with respect to any Customers or potential Customers or any class of Customers during any period of time or in any segment of the market.

2.11 Real Property; Leases .

(a) None of the real property used or occupied by the Company or any of its Subsidiaries, in each case, together with all build out, fixtures and improvements created thereon (“ Company Real Property ”), is owned by the Company or any of its Subsidiaries, nor has the Company or any of its Subsidiaries ever owned any real property. All of the Company Real Property is leased or subleased by the Company or one of its Subsidiaries, or the Company or one of its Subsidiaries has an interest in such Company Real Property pursuant to a warehousing, license or occupancy agreement.

(b) Schedule 2.11(b ) lists all leases, subleases and other Contracts pursuant to which the Company and each of its Subsidiaries derives its rights in the Company Real Property (the “ Leases ”), including, with respect to each such Lease, the identity of the landlord or sublandlord, the addresses, the date of such Lease and each amendment thereto.

(c) Each Lease is valid, binding and enforceable in accordance with its terms in all material respects, except as such enforceability may be subject to applicable bankruptcy, reorganization, insolvency, moratorium and similar Laws affecting the enforcement of creditors’ rights generally and by general principles of equity. There does not exist under any Lease any material default by the Company or any of its Subsidiaries or, to the Company’s knowledge, by any other Person, or any event that, with or without notice or lapse of time or both, would constitute a material default by the Company or any of its Subsidiaries or, to the Company’s knowledge, by any other Person. The Company has made available to Parent complete copies of all Leases, including all amendments and Contracts related thereto, and the Leases constitute the entire agreement between the Company or any of its Subsidiaries and each landlord or sublandlord with respect to the Company Real Property. All rent and other charges currently due and payable under the Leases have been paid, except for liabilities reflected or reserved against in the Company Balance Sheet.

(d) The Company or one of its Subsidiaries is the holder of the tenant’s interest under the Leases and has not assigned the Leases or subleased all or any portion of the premises leased thereunder. Neither the Company nor any of its Subsidiaries has made any material alterations, additions or improvements to the premises leased under the Leases that are required to be removed at the termination of the applicable Lease term. The Company or one of its Subsidiaries owns, or holds leasehold interest in, all trade fixtures, equipment and personal property located in the premises leased under the Leases and the landlords thereunder have no Lien thereon or claim thereto, except as may be provided in the Leases.

 

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2.12 Assets; Absence of Liens .

(a) The Company and each of its Subsidiaries has good and valid title to, or, in the case of Company Real Property and leased properties and assets, valid leasehold interests in, all of its material tangible properties, used or held for use in its business, free and clear of any Liens, except as reflected in the Company Financial Statements or on Schedule 2.12(a) . The Company does not have any equipment leases.

(b) All facilities, machinery, equipment, fixtures, vehicles, and other tangible properties owned, leased or used by the Company or any of its Subsidiaries (i) are adequate for the conduct of the business of the Company and its Subsidiaries as currently conducted in all material respects, and (ii) are in good operating condition, subject to normal wear and tear, and reasonably fit and usable for the purposes for which they are being used.

2.13 Intellectual Property .

(a) Schedule 2.13(a ) lists: (i) all Company Registered Intellectual Property; (ii) all hardware products and tools, software and firmware products and tools and services that are currently sold, offered for sale or under development by the Company and any Subsidiary; and (iii) all licenses (in and out), sublicenses and other agreements to which the Company and any Subsidiary is a party and pursuant to which the Company or any Subsidiary or any other Person is authorized to use any of the Company Intellectual Property or exercise any rights with respect thereto, other than (x) “shrink wrap” end user licenses and similar generally available commercial binary code end user licenses that are not used for software development or in any software, products or services provided by the Company to customers and (y) limited licenses to customers to do research and development with and evaluation of, Company’s products.

(b) Following the Closing Date, the Surviving Company will be permitted to exercise all of the Company’s or any Subsidiary’s rights under any license, sublicense or other agreement to which the Company or any Subsidiary is a party or otherwise bound relating to any of the Company Intellectual Property to the same extent the Company and each Subsidiary would have been able to had the transactions contemplated by this Agreement not occurred and without the payment of any additional amounts or consideration other than fees, royalties or payments which the Company or any Subsidiary would otherwise have been required to pay had the transactions contemplated by this Agreement not occurred. Except as set forth in Schedule 2.13(b ), neither the Company nor any Subsidiary is obligated to provide any consideration (whether financial or otherwise) to any third party, nor is any third party otherwise entitled to any consideration, with respect to any exercise of rights by the Company or any Subsidiary or the Surviving Company, as successor to the Company, in the Company Intellectual Property.

(c) To the knowledge of the Company, the use of the Company Intellectual Property by the Company and its Subsidiary in the conduct of the business of the Company and its Subsidiary as it is currently conducted and is currently proposed to be conducted, including all products and services currently planned or under development, does not directly infringe any

 

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issued U.S. patent claims of another Person that the Company believes it could not obtain a license to or would not be invalidated by a court of competent jurisdiction. To the Company’s knowledge, there are no claims, or threatened claims: (i) challenging the validity, enforceability or ownership by the Company or any Subsidiary of any of the Company Intellectual Property or (ii) of infringement by the Company or any Subsidiary of any Intellectual Property right of any Person. To the Company’s knowledge, there are no legal or governmental proceedings, including interference, re-examination, reissue, opposition, nullity, or cancellation proceedings pending that relate to any of the Company Intellectual Property, other than review of pending patent and trademark applications, and neither the Company nor any Subsidiary is aware of any information indicating that such proceedings are threatened or contemplated by any Governmental Entity or any other Person. To the Company’s knowledge, there is no confirmed unauthorized use, infringement, or misappropriation of any Company Intellectual Property by any third party, employee or former employee, except it is understood that third parties may be infringing issued patents controlled (owned or exclusively licensed to) by the Company or any Subsidiary.

(d) The Company and each Subsidiary has taken commercially reasonable measures consistent with industry standards to protect the proprietary nature of Company Intellectual Property and to maintain in confidence all trade secrets and confidential information owned or Used by the Company and each Subsidiary.

2.14 Product Warranties; Defects; Liabilities; Services .

(a) Each product manufactured, sold, licensed, leased or made available by the Company or any Subsidiary (the “ Company Products ”) is in material conformity in all material respects with the specifications for such Company Product, all applicable contractual commitments and all applicable express and implied warranties. To the Company’s knowledge, neither the Company nor any Subsidiary has any material liability or obligation for replacement or repair thereof or other damages in connection therewith except liabilities or obligations for replacement or repair incurred in the ordinary course of business. No Company Product is subject to any guaranty, warranty, or other indemnity beyond the applicable standard terms and conditions of sale, license or lease or imposed by applicable Law. Schedule 2.14 includes a copy of the standard terms and conditions of sale, license, or lease for each of the Company Products.

(b) All services provided by the Company or any of its Subsidiaries to any Person (“ Services ”) are being and were performed in conformity in all material respects with the terms and requirements of all applicable warranties and other Company Contracts and with all applicable Laws in all material respects. There is no written claim pending or, to the Company’s knowledge, threatened against the Company or any of its Subsidiaries relating to any Services.

2.15 Company Contracts .

(a) Schedule 2.15(a ) sets forth each Company Contract in the following categories (to the extent that any such Company Contracts are not Immaterial Contracts):

(i) any fidelity or surety bond or completion bond;

 

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(ii) any Contract of indemnification or guaranty to any Person, except for indemnification obligations that arise from (a) standard terms and conditions for the sale of Company Products and (b) license contracts that were disclosed pursuant to Section 2.13 above;

(iii) any Contract containing any covenant limiting the freedom of the Company or any Subsidiary to engage in any line of business or in any geographic territory or to compete with any Person, or which grants to any Person any exclusivity to any geographic territory, any Customer, or any product or service;

(iv) any Contract relating to capital expenditures and involving future payments in excess of $25,000;

(v) any Contract relating to the disposition of assets or any interest in any business enterprise outside the ordinary course of business or any Contract relating to the acquisition of assets or any interest in any business enterprise outside the ordinary course of business;

(vi) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or the extension of credit;

(vii) any unpaid or unperformed purchase order or customer or supplier contract (including for services) involving $25,000 or more;

(viii) any dealer, distribution, joint marketing, development, content provider, destination site or merchant Contract;

(ix) any joint venture, partnership, strategic alliance or other Contract involving the sharing of profits, losses, costs or liabilities with any Person or any development, data-sharing, marketing, resale, distribution or similar arrangement relating to any product or service;

(x) any Contract pursuant to which the Company or any Subsidiary has granted or may be obligated to grant in the future, to any Person, a source code license or option or other right to Use or acquire source code, including any Contracts which provide for source code escrow arrangements;

(xi) any Contract pursuant to which the Company or any Subsidiary has advanced or loaned any amount to any Stockholder of the Company or any director, Employee, or consultant thereof or of any Subsidiary, other than business expense advances in the ordinary course of business;

(xii) any Contract pursuant to which products or services are provided to a federal Governmental Entity;

(xiii) any licenses, sublicenses and other agreements pursuant to which any Person (other than the Company or a Subsidiary) is authorized to Use any of the Company Intellectual Property or exercise any rights with respect thereto;

 

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(xiv) any Contract that would entitle any Person to receive a license or any other right to Intellectual Property of Parent or any of Parent’s Affiliates following the Effective Time; or

(xv) any Contract pursuant to which the Company agreed to provide “most favored nation” pricing or others terms and conditions to any Person with respect to the Company’s sale, distribution, license or support of any Company Products or Services.

(b) Each Company Contract required to be listed in Schedule 2.15(a ) is in full force and effect and is valid, binding and enforceable in accordance with its terms in all material respects, except as such enforceability may be subject to applicable bankruptcy, reorganization, insolvency, moratorium and similar Laws affecting the enforcement of creditors’ rights and by general principles of equity. The Company and each of its Subsidiaries are in compliance in all material respects with and are not in material breach, violation or default under, or received written notice that they have materially breached, violated or defaulted under, any of the terms or conditions of any such Company Contract, nor does the Company have knowledge of any event or occurrence that would constitute such a material breach, violation or default (with or without the lapse of time, giving of notice or both) or knowledge of any default by any third party. The Company has made available to Parent accurate and complete copies of all Company Contracts required to be listed on Schedule 2.15(a ).

2.16 Change of Control Payments . There are no plans, Contracts or arrangements of the Company or any Subsidiary of the Company pursuant to which any amounts may become payable (whether currently or in the future including upon any future end of employment) to Employees as a result of or in connection with the Merger.

2.17 Interested Party Transactions .

(a) Except as set forth in Schedule 2.17 , no officer, director or Affiliate of the Company or any of its Subsidiaries (nor any spouse or immediate family member of any of such Persons, or any trust, partnership or corporation in which any of such Persons has or has had an economic interest), has directly or indirectly, (i) an economic interest in any Person which furnished or sold, or furnishes or sells, services or products that the Company or any Subsidiary has furnished or sold or furnishes or sells, or (ii) an economic interest in any Person that purchases from or sells or furnishes to, the Company or any Subsidiary, any goods or services or (iii) a beneficial interest in any Company Contract; provided , however , that ownership of no more than 5% of the outstanding voting stock of a publicly traded corporation shall not be deemed an “economic interest in any entity” for purposes of this Section 2.17.

(b) There are no receivables of the Company or any Subsidiary owed by any Employee of or consultant to the Company or any Subsidiary (or any spouse or immediate family member of any such Persons, or any trust, partnership, or corporation in which any of such Persons has an economic interest), other than advances in the ordinary and usual course of business for reimbursable business expenses (as determined in accordance with the Company’s established employee reimbursement policies and consistent with past practice). None of the Company’s Stockholders has agreed to, or assumed, any obligation or duty to guaranty or otherwise assume or incur any obligation or liability of the Company or any Subsidiary.

 

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2.18 Compliance with Laws . The Company and each of its Subsidiaries is in compliance with and is not in violation of any Law, except for such instances of noncompliance or violations which individually or in the aggregate have not had and would not reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any Subsidiary has received any written notice from any Governmental Entity or any other Person regarding any actual or alleged violation of, or failure to comply with, any Law.

2.19 Litigation . There is no action, suit or proceeding of any nature pending or, to the Company’s knowledge, threatened against the Company or any of its Subsidiaries, any of their respective properties or any of their respective current Employees in their capacity as such. There is no investigation pending or, to the Company’s knowledge, threatened against the Company or any of its Subsidiaries, any of their respective properties or any of their respective current Employees in their capacity as such by or before any Governmental Entity. No Governmental Entity has at any time in writing challenged or questioned the legal right of the Company or any Subsidiary to conduct its operations as presently or previously conducted and none of the Company, its Subsidiaries or their properties is subject to any order of a Governmental Entity that materially impairs the Company’s or such Subsidiary’s ability to operate.

2.20 Insurance . Schedule 2.20 lists all insurance policies and fidelity bonds covering the properties, business, operations and Employees of the Company, any of its Subsidiaries or any Affiliate thereof. There is no claim by the Company or any of its Subsidiaries or any Affiliate thereof pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed. As of the Agreement Date, there is no pending claim that is reasonably expected to exceed the policy limits. All premiums due and payable under all such policies and bonds have been paid (or if installment payments are due, will be paid if incurred prior to the Closing) and the Company, its Subsidiaries and its Affiliates are otherwise in material compliance with the terms of such policies and bonds. The Company has no knowledge of a threatened termination of, or premium increase with respect to, any of such policies.

2.21 Minute Books; Records . The corporate minutes of the Company and its Subsidiaries made available to counsel for Parent contain complete and accurate records of all material actions taken, and summaries of all meetings held, by the Stockholders and the board of directors of the Company and its Subsidiaries (and any committees thereof) since the time of incorporation of the Company and each Subsidiary, as the case may be. The books, records and accounts of the Company are true, complete and correct in all material respects, and are stated in reasonable detail and accurately and fairly reflect in all material respects the material transactions and dispositions of the assets of the Company.

2.22 Environmental Matters .

(a) Neither the Company nor any of its Subsidiaries has: (i) operated any underground storage tanks at any property that the Company or any Subsidiary has at any time owned, operated, occupied or leased; or (ii) released any substance that has been designated by any Governmental Entity or by applicable federal, state, local or foreign law to be radioactive, toxic, hazardous or otherwise a danger to health or the environment, including without limitation PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous substances

 

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pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to the federal Resource Conservation and Recovery Act of 1976, as amended, and the regulations promulgated pursuant to said laws (a “ Hazardous Material ”), but excluding office and janitorial supplies properly and safely maintained. No Hazardous Materials are present, as a result of the actions of the Company or any Subsidiary, or, to the Company’s knowledge, as a result of any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water thereof, that the Company or any Subsidiary has at any time owned, operated, occupied or leased.

(b) Neither the Company nor any of its Subsidiaries has transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any law, rule, regulation, treaty or statute promulgated by any Governmental Entity, nor has the Company or any of its Subsidiaries disposed of, transported, sold, or manufactured any product containing a Hazardous Material (any or all of the foregoing being collectively referred to as “ Hazardous Materials Activities ”) in violation of any law, rule, regulation, treaty or statute promulgated by any Governmental Entity to prohibit, regulate or control Hazardous Materials or any Hazardous Materials Activity.

(c) Neither the Company nor any Subsidiary holds any environmental approvals, permits, licenses, clearances and consents (the “ Environmental Permits ”) and such Environmental Permits are not necessary for the conduct of their respective Hazardous Material Activities, if any, or any other business as such activities and business are currently being conducted and as currently proposed to be conducted.

(d) No action, proceeding, investigation, revocation proceeding, amendment procedure, writ, injunction or claim is pending or, to the Company’s knowledge, threatened, concerning any Environmental Permit, Hazardous Material or any Hazardous Materials Activity of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is aware of any fact or circumstance which could involve the Company or any Subsidiary in any environmental litigation or impose upon the Company or any Subsidiary any environmental liability.

(e) The Company has not agreed to indemnify or hold harmless any Person with respect to any environmental liability, or to assume any environmental compliance obligations of any person or entity.

2.23 Brokers’ and Finders’ Fees . Neither the Company nor any of its Subsidiaries has incurred, or will incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement, the Merger or any of the other Transactions other than as disclosed on Schedule 2.23 , and all such disclosed fees, commissions or other charges shall be paid or otherwise satisfied in full by the Company prior to the Merger.

 

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2.24 Employee Benefit Plans .

(a) Schedule . Schedule 2.24(a ) sets forth each Company Employee Plan. Neither the Company nor any of its Subsidiaries has any stated plan, intention or commitment to establish any new Company Employee Plan, to modify any Company Employee Plan (except to the extent required by Law or to conform any such Company Employee Plan to the requirements of any applicable Law, in each case as previously disclosed to Parent in writing, or as required by this Agreement), or to enter into any Company Employee Plan.

(b) Documents . The Company has previously made available to Parent: (i) correct and complete copies of each Company Employee Plan, including all amendments thereto and written interpretations thereof; (ii) the most recent annual actuarial valuations, if any, prepared for each Company Employee Plan; (iii) the three most recent annual reports (including Series 5500 and all schedules thereto), if any, required under ERISA or the Code, or any similar Laws of other jurisdictions applicable to the Company or its Subsidiaries, in connection with each Company Employee Plan or related trust; (iv) if any Company Employee Plan is funded, the most recent annual and periodic accounting of Company Employee Plan assets; (v) the most recent summary plan description together with the most recent summary of material modifications, if any, with respect to each Company Employee Plan; (vi) all determination, opinion, notification and advisory letters and rulings from the IRS or any similar Governmental Entity having jurisdiction over the Company or its Subsidiaries relating to Company Employee Plans and copies of any correspondence regarding actual or potential audits or investigations to or from the IRS, DOL or any other Governmental Entity with respect to any Company Employee Plan; (vii) all material written agreements and contracts relating to each Company Employee Plan, including fidelity or ERISA bonds, administrative service agreements, group annuity contracts and group insurance contracts; (viii) all material communications to any Employee relating to any Company Employee Plan and any proposed Company Employee Plans, in each case relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to the Company and which are not reflected in the current summary plan description and plan document; (ix) all material forms and notices relating to the provision of post-employment continuation of health coverage; (x) all policies pertaining to fiduciary liability insurance covering the fiduciaries of each Company Employee Plan; and (xi) all discrimination and qualification tests, if any, for each Company Employee Plan for the most recent plan year.

(c) Employee Plan Compliance . (i) The Company and each Subsidiary has performed all material obligations required to be performed by it under each Company Employee Plan and each Company Employee Plan has been established and maintained in material compliance with its terms and all applicable Law, including ERISA and the Code; (ii) each Company Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code has either received a favorable determination letter or opinion letter from the IRS with respect to such Company Employee Plan as to its qualified status under the Code, or has a period of time remaining under applicable Treasury regulations or IRS pronouncements in which to apply for and obtain such a letter, and all required amendments to such Company Employee Plans have been made on a timely basis; (iii) no non-exempt “prohibited transaction,” within the meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to any Company Employee Plan; (iv) there are

 

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no actions, suits or claims pending, or, to the knowledge of the Company, threatened or anticipated (other than routine claims for benefits) against any Company Employee Plan or fiduciary thereto or against the assets of any Company Employee Plan; (v) each Company Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without material liability to the Company, any of its Subsidiaries, Parent or any of its ERISA Affiliates (other than ordinary administration expenses typically incurred in a termination event); (vi) there are no audits, inquiries or proceedings pending or, to the knowledge of the Company, threatened by the IRS or DOL or any other similar Governmental Entity having jurisdiction over the Company or its Subsidiaries with respect to any Company Employee Plan; (vii) all annual reports and other filings required by the DOL or IRS or any similar Governmental Entity having jurisdiction over the Company or its Subsidiaries have been timely made, including the filing of all Form 5500s with respect to all Company Employee Plans; (viii) neither the Company nor any of its Subsidiaries nor any ERISA Affiliate is subject to any material penalty or Tax with respect to any Company Employee Plan under Section 501(i) of ERISA, Section 4975 through 4980D of the Code or any similar Laws of other jurisdictions applicable to the Company or its Subsidiaries and (ix) no Company Employee Plan is sponsored or maintained by any Co-Employer.

(d) Plan Status . None of the Company, any Subsidiary or any ERISA Affiliate now, or has ever, maintained, established, sponsored, participated in, or contributed to, any pension plan which is subject to Title IV of ERISA or Section 412 of the Code. Neither the Company nor any ERISA Affiliate has incurred, nor do they reasonably expect to incur, any liability with respect to any transaction described in Section 4069 of ERISA. No Company Employee Plan is a “multiple employer plan” as defined in Section 210 of ERISA.

(e) Multiemployer Plans . At no time has the Company, any Subsidiary or any ERISA Affiliate contributed to or been requested to contribute to any “multiemployer plan”, as defined in Section 3(37) of ERISA.

(f) No Post-Employment Obligations . No Company Employee Plan provides, nor does the Company or any Subsidiary have any liability to provide, life insurance, medical or other employee welfare benefits to any Employee upon or after his or her retirement or termination of employment for any reason, except as may be required by Law, and neither the Company nor any Subsidiary has ever represented, promised or contracted (whether in oral or written form) to any Employee (either individually or to Employees as a group) that such Employee(s) would be provided with life insurance, medical or other employee welfare benefits upon or after their retirement or termination of employment, except to the extent required by Law.

(g) 409A . Each Plan that is a “nonqualified deferred compensation plan” (as defined in Section 409A(d)(1) of the Code) has been operated in good faith compliance with Section 409A of the Code and guidance promulgated thereunder, including all withholding and reporting requirements thereof.

(h) Funding of Plans . With respect to each Company Employee Plan for which a separate fund of assets is or is required to be maintained, full and timely payment has been made of all amounts required of the Company and its Subsidiaries, under the terms of each

 

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such Company Employee Plan or applicable law, as applied through the Closing Date. The current value of the assets of each such Company Employee Plan, as of the end of the most recently ended plan year of that Company Employee Plan, equals or exceeded the current value of all benefits liabilities under that Company Employee Plan.

(i) Effect of Transaction . The execution and delivery by the Company of this Agreement and other Transaction Agreements to which the Company is a party, and the consummation of the Transactions, do not and will not conflict with or result in any violation of or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation, modification or acceleration of any obligation or loss of any benefit under any Company Employee Plan, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Employee.

2.25 Employment Matters . The Company and its Subsidiaries make the following representations in respect of their respective Employees.

(a) As of the Agreement Date, the Company has delivered to Parent and Merger LLC a schedule setting forth, with respect to each current Employee of the Company and its Subsidiaries (including any employee who is on a leave of absence, sick leave, disability leave or on layoff status subject to recall) (i) the name of such employee and the date as of which such employee was originally hired by the Company or any of its Subsidiaries, and whether the employee is on active or inactive status; (ii) such employee’s title; (iii) such employee’s compensation as of the Agreement Date, including annualized base salary, vacation or paid time off accrual amounts, bonus or commission potential, severance pay potential, and any other cash compensation forms; (iv) whether such employee is not fully available to perform work because of disability or other leave and, if applicable, the anticipated date of return to full service; (v) whether such employee is employed by the Company or one of its Subsidiaries, and if by a Subsidiary, the name of the Subsidiary; and (vi) the Company or Subsidiary facility at which such employee is deemed to be located.

(b) As of the Agreement Date, the Company has delivered to Parent and Merger LLC a schedule setting forth a list of individuals who are currently performing services for the Company or any of its Subsidiaries and are classified as “consultants” or “independent contractors” and the respective compensation of each such “consultant” or “independent contractor”. All consulting and independent contractor agreements have been made available to Parent and such consultants and independent contractors are listed on Schedule 2.25(b ). Any Persons now engaged by the Company or any of its Subsidiaries as independent contractors, rather than employees, have been properly classified as such, are not entitled to any compensation or benefits to which regular, full-time employees are entitled, and have been engaged in accordance with all applicable Laws in all material respects, except for such instances of misclassification, noncompliance or violations which individually or in the aggregate have not and would not reasonably be expected to have a Company Material Adverse Effect.

(c) The Company and its Subsidiary have not entered into any Employment Agreement with any Employees.

 

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(d) (i) As of the Agreement Date, none of the current Employees have given the Company or any of its Subsidiaries written notice terminating his or her employment with the Company or any of its Subsidiaries, or terminating his or her employment upon a sale of, or business combination relating to, the Company or any Subsidiary or in connection with the Transactions; (ii) neither the Company nor any Subsidiary has a present intention to terminate the employment of any current Employee which termination will, or would reasonably be expected to have, a material adverse effect in any way on the Company’s business or operations; (iii) to the Company’s knowledge, no current Employee has received, or is currently considering, an offer to join a business that likely would be competitive with the Company’s or any Subsidiary’s business; (iv) to the Company’s knowledge, no current Employee, consultant or contractor is a party to or is bound by any employment contract, patent disclosure agreement, noncompetition agreement, any other restrictive covenant or other contract with any Person, or subject to any judgment, decree or order of any court or administrative agency, any of which has, or would reasonably be expected to have, a material adverse effect in any way on (A) the performance by such Person of any of his or her duties or responsibilities for the Company or any Subsidiary, or (B) the Company’s business or operations; (v) to the Company’s knowledge, no current Employee, contractor or consultant is in violation of any term of any employment contract, patent disclosure agreement, noncompetition agreement, or any other restrictive covenant to a former employer or entity relating to the right of any such Employee, contractor or consultant to be employed or retained by the Company or any Subsidiary, as the case may be; and (vi) neither the Company nor any Subsidiary is engaged in any dispute or litigation with an Employee regarding Intellectual Property matters.

(e) Neither the Company nor any of its Subsidiaries is party to or bound by any union contract, collective bargaining agreement or similar Contract. Neither the Company nor any of its Subsidiaries knows of any activities or proceedings of any labor union to organize any Employees.

(f) Each Employee has been, and each current Employee currently is, properly classified under the Fair Labor Standards Act of 1938, as amended, and under any applicable Law, except for such instances of misclassification, noncompliance or violations which individually or in the aggregate have not and would not reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries is delinquent to, or has failed to pay, any of its Employees, consultants or contractors for any wages (including overtime), salaries, commissions, bonuses, benefits or other compensation for any services performed by them or amounts required to be reimbursed to such individuals. Neither the Company nor any of its Subsidiaries is liable for any payment to any trust or other fund or to any Governmental Entity, with respect to unemployment compensation benefits, social security or other benefits or obligations for Employees (other than routine payments to be made in the normal course of business and consistent with past practice).

(g) (i) Neither the Company nor any of its Subsidiaries is liable for any severance pay, bonus compensation, acceleration of payment or vesting of any equity interest, or other payments (other than accrued salary, vacation, or other paid time off in accordance with the Company’s and the Subsidiaries’ policies) to any Employee arising from the termination of employment under any benefit or severance policy, practice, Contract, plan, program of the Company or any Subsidiary, applicable Law or otherwise; and (ii) as a result of or in connection

 

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with the Transactions, the Company will not have (A) any liability that exists or arises, or may be deemed to exist or arise, under any Company or any of its Subsidiaries’ benefit or severance policy, practice, Contract, plan or program, including severance pay, bonus compensation or similar payment, or (B) to accelerate the time of payment or vesting, or increase the amount of or otherwise enhance any benefit due any Employee.

(h) The Company and each of its Subsidiaries is in compliance in all material respects with all applicable Laws and Contracts respecting employment, employment practices, employee benefits, terms and conditions of employment, immigration matters, labor matters, and wages and hours, in each case, with respect to its current Employees. Neither the Company nor any of its Subsidiaries has any obligation to pay any amount or provide any benefit to any former Employee, other than obligations (i) for which the Company has established a reserve for such amount on the Company Balance Sheet and (ii) pursuant to Contracts entered into after the Balance Sheet Date and listed on Schedule 2.25(h ).

(i) There are no claims pending or, to the Company’s knowledge, threatened, before any Governmental Entity by any Employees for compensation, pending severance benefits, vacation time, vacation pay or pension benefits, or, to the Company’s knowledge, any other claim threatened or pending before any Governmental Entity (or any state “referral agency”) from any Employee or any other Person arising out of the Company’s or any Subsidiary’s status as employer, whether in the form of claims for employment discrimination, harassment, retaliation, unfair labor practices, grievances, wrongful discharge, breach of contract, tort, unfair competition or otherwise. In addition, to the Company’s knowledge, there are no pending or threatened claims or actions against the Company or any of its Subsidiaries under any workers compensation policy.

(j) The employment of each of the employees of the Company or any of its Subsidiaries is “at will” and the Company and each such Subsidiary does not have any obligation to provide any particular form or period of notice prior to terminating the employment of any of their respective employees.

2.26 Tax Matters .

(a) The Company and each Subsidiary of the Company have timely filed all material Tax Returns required to be filed. The Company and each Subsidiary of the Company have timely paid (or the Company has paid on behalf of) to the appropriate Governmental Entity all Taxes due and payable (whether or not such Taxes were shown as due on such Tax Returns) except for those Taxes that are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in the Company Financial Statements in accordance with GAAP. All Tax Returns filed by the Company and the Subsidiaries of the Company were complete and correct in all material respects, and such Tax Returns correctly reflected the facts regarding the income, business, assets, operations, activities, status and other matters of the Company and the Subsidiaries of the Company and any other information required to be shown thereon. Neither the Company nor any Subsidiary of the Company has participated, within the meaning of Treasury Regulation Section 1.6011-4(c), in (i) any “reportable transaction” within the meaning of Section 6011 of the Code and the Treasury Regulations thereunder, (ii) any “confidential corporate tax shelter” within the meaning of Section 6111 of

 

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the Code and the Treasury Regulations thereunder, or (iii) any “potentially