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EXHIBIT 2.4
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AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 1, 2006
BY AND AMONG
WEBSIDESTORY, INC.,
("PARENT")
VS ACQUISITION, LLC
("MERGER
SUB")
VISUAL SCIENCES, LLC,
(THE "COMPANY")
AND
NED SCHERER,
(THE "MEMBER REPRESENTATIVE")
================================================================================
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS
AGREEMENT AND PLAN OF MERGER (as amended from time to time pursuant
to
the terms hereof, this "Agreement") is made and entered into as of
February 1,
2006 by and among WebSideStory, Inc., a Delaware corporation
("Parent"), VS
Acquisition, LLC, a Delaware limited liability company ("Merger
Sub"), Visual
Sciences, LLC, a Delaware limited liability company (the
"Company"), and Ned
Scherer, solely in his capacity as the Member Representative (as
hereinafter
defined).
WITNESSETH:
WHEREAS, the Board of Directors of Parent and the respective
Managers
of Merger Sub and the Company have each determined that the merger
of the
Company with and into Merger Sub (the "Merger") is advisable and in
the best
interests of their respective stockholders and members, such Board
of Directors
and Managers have approved the Merger, Parent as the sole member of
Merger Sub
has approved the Merger and the requisite Unitholders (as defined
below) have
approved the Merger, upon the terms and subject to the conditions
set forth in
this Agreement;
WHEREAS, concurrently with the execution and delivery of this
Agreement, as a condition and inducement to Parent's willingness to
enter into
this Agreement, David Scherer and James MacIntyre have executed and
delivered to
Parent an agreement in substantially the form of Exhibit A (the
"Non-Competition
Agreements"), pursuant to which they have agreed, among other
things, to refrain
from competing with Parent or the Company following consummation of
the
transactions contemplated by this Agreement during the period
specified therein;
WHEREAS, concurrently with the execution and delivery of this
Agreement, as a condition and inducement to the Company's
willingness to enter
into this Agreement, Parent and the Unitholders have executed and
delivered the
Amended and Restated Registration Rights Agreement, which agreement
is in full
force and effect; and
WHEREAS, Parent, Merger Sub and the Company desire to make
certain
representations, warranties, covenants and agreements in connection
with the
transactions contemplated by this Agreement and also prescribe
various
conditions to the transactions contemplated by this Agreement.
AGREEMENT
NOW,
THEREFORE, in consideration of the foregoing premises, the
mutual
covenants, promises and agreements hereinafter set forth, the
mutual benefits to
be gained by the performance thereof, and for other good and
valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged and
accepted, the parties hereto hereby agree as follows:
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ARTICLE I.
DEFINITIONS
SECTION 1.1 Certain Definitions. As used in this Agreement, the
following
terms shall have the following respective meanings:
"Accredited Investor" is defined in Rule 501(a) promulgated under
the
Securities Act.
"Action" means any claim, action, suit, litigation or
proceeding,
arbitral action, governmental inquiry or audit, criminal
prosecution or other
investigation.
"Affiliate" means, when used with respect to a specified Person,
(a)
another Person that either directly or indirectly, through one or
more
intermediaries, controls, is controlled by, or is under common
control with, the
Person specified or (b) any director, partner or officer of such
Person or, for
any Person that is a limited liability company, any manager or
managing member
thereof. For purposes of this definition, "control" (and its
derivatives) means
the possession, directly or indirectly, of the power to direct or
cause the
direction of the management and policies of a Person, whether
through ownership
of equity, voting or other interests, as trustee or executor, by
contract or
otherwise.
"Amended and
Restated Registration Rights Agreement" means an amended
and restated registration rights agreement for the benefit of
certain holders of
Parent Common Stock and Parent Warrants pursuant to which certain
Unitholders
will receive registration rights, substantially in the form
attached as Exhibit
C.
"Ancillary Agreements" means the Non-Competition Agreements,
the
Amended and Restated Registration Rights Agreement, the Senior
Notes, the Parent
Warrants and the Escrow Agreement.
"Business"
means the business and operations of the Company or Parent,
as appropriate, as currently conducted.
"Business Day" means any day that is not a Saturday, Sunday or
other
day on which banks are required or authorized by Law or
Governmental Order to be
closed in the State of New York.
"CERCLA" means the Comprehensive Environmental Response,
Compensation
and Liability Act, 42 U.S.C. Section 9601 et seq.
"Class A Units" means the Class A units of membership interest in
the
Company.
"Class B Units" means the Class B units of membership interest in
the
Company.
"Class C Units" means the Class C units of membership interest in
the
Company.
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"Closing Date Payment Amount" means $52,500,000 (Fifty-Two
Million
Five Hundred Thousand U.S. Dollars) less any Transaction Expenses
that Parent
pays on behalf of the Company pursuant to Section 7.7.
"Closing Dividend" means a special cash distribution to the
Unitholders pro rata in respect of their outstanding Units that may
be made by
the Company, at the sole discretion of the Managers of the Company,
prior to
Closing from that portion, if any, of the Company's cash and cash
equivalents
that exceeds $2,000,000 (Two Million U.S. Dollars), after taking
into account
all Transaction Expenses to be paid at or prior to the Closing.
Such dividend
will be in addition to any distribution made by the Company with
respect to
taxes payable by Unitholders with respect to taxable income for
2005.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act
of
1985, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Benefit Plan" means any plan, program, policy,
practice,
Contract or other arrangement providing for compensation,
severance, termination
pay, deferred compensation, performance awards, Units or
Unit-related awards,
other equity-related awards, fringe benefits or other employee
benefits or
remuneration of any kind, whether written or unwritten, funded or
unfunded,
including each "employee benefit plan," within the meaning of
Section 3(3) of
ERISA, which the Company or any ERISA Affiliate of the Company
maintains,
administers, contributes to or is required to contribute to, or
maintained,
administered, contributed to or was required to contribute to, or
under or with
respect to which the Company or any ERISA Affiliate of the Company
has or may
have any liability or obligation.
"Company Employee" means an employee of the Company.
"Company Intellectual Property" means, collectively, (i)
Trademarks,
Patents, Company Copyrights, Domain Names and Trade Secrets, as
those terms are
defined in Section 5.13 of this Agreement and (ii) any proprietary
interest in
or to any documents or other tangible media containing any of the
foregoing
owned by or exclusively licensed to the Company.
"Company Material Adverse Effect" means a Material Adverse Effect
with
respect to the Company.
"Company Option Plan" means The VYSICS, LLC 2001 Equity
Incentive
Plan, as amended through immediately prior to the Effective
Time.
"Company Option" means an option to purchase Class A Units,
whether
vested or unvested, granted pursuant to the Company Option Plan
that is
outstanding, unexercised and unexpired immediately prior to the
Closing.
"Confidentiality Agreement" means the Non-Disclosure Agreement
between
Parent and the Company, dated as of August 3, 2005.
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"Consent" means any consent, approval, authorization,
clearance,
novation or waiver by any Person under any Contract, Law, Permit or
Governmental
Order.
"Contract" means any contract (including subcontracts),
agreement,
indenture, note, bond, loan, instrument, lease, conditional sales
contract,
mortgage, license, franchise agreement, commitment, obligation,
understanding or
undertaking, whether written or oral.
"Debt" means any amount owed (including, without limitation,
unpaid
interest and fees thereon) in respect of (i) borrowed money and
(ii) capitalized
lease obligations; provided, however, that notwithstanding the
foregoing, Debt
shall not be deemed to include any accounts payable incurred in the
ordinary
course of business or any undrawn letters of credit.
"Default" means (a) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Governmental
Order or
Permit, (b) any occurrence of any event that with the passage of
time or the
giving of notice or both would constitute a breach or violation of,
default
under, contravention of, or conflict with, any Contract, Law,
Governmental Order
or Permit, or (c) any occurrence of any event that with or without
the passage
of time or the giving of notice would give rise to a right of any
Person to
exercise any remedy or obtain any relief under, to terminate or
revoke, suspend,
cancel, or materially modify or change the current terms of, or
renegotiate, or
to accelerate the maturity or performance of, or to increase or
impose any
Liability under, any Contract, Law, Governmental Order or
Permit.
"DLLCA" means the Delaware Limited Liability Company Act.
"Encumbrance" means any security interest, pledge, mortgage,
lien,
charge, adverse claim of ownership or use, restriction on transfer
(such as a
right of first refusal or other similar rights), defect of title,
or other
encumbrance of any kind or character.
"Environmental Law" means any Law pertaining to land use, air,
soil,
surface water, groundwater (including the protection, cleanup,
removal,
remediation or damage thereof), public or employee health or safety
or any other
environmental matter, including, without limitation, the following
laws as in
effect on the Closing Date: (i) Clean Air Act (42 U.S.C. Section
7401, et seq.);
(ii) Clean Water Act (33 U.S.C. Section 1251, et seq.); (iii)
Resource
Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.);
(iv)
Comprehensive Environmental Response Compensation and Liability Act
(42 U.S.C.
Section 9601, et seq.); (v) Safe Drinking Water Act (42 U.S.C.
Section 300f, et
seq.); (vi) Toxic Substances Control Act (15 U.S.C. Section 2601,
et seq.);
(vii) Rivers and Harbors Act (33 U.S.C. Section 401, et seq.);
(viii) Endangered
Species Act (16 U.S.C. Section 1531, et seq.); (ix) Occupational
Safety and
Health Act (29 U.S.C. Section 651, et seq.); and (x) any other Law
relating to
Hazardous Materials or Hazardous Materials Activities.
"Environmental Permit" means any permit, approval,
identification
number, license and other authorization required under any
applicable
Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as
amended, any successor statute thereto, and the rules and
regulations
promulgated thereunder.
"ERISA Affiliate" of any Person means any entity that is, or at
any
relevant time was, a member of (i) a controlled group of
corporations (as
defined in Section 414(b) of the
4
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Internal Revenue Code), (ii) a group of trades or businesses under
common
control (as defined in Section 414(c) of the Internal Revenue Code)
or (iii) an
affiliated service group (as defined under Section 414(m) of the
Internal
Revenue Code or the regulations under Section 414(o) of the
Internal Revenue
Code) with such Person.
"Escrow Fund" means the Escrowed Common Stock.
"Escrowed Common Stock" means the 568,512 shares of Parent
Common
Stock to be held by the Escrow Agent pursuant to Article III.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fully Diluted Number of Units" means the aggregate number of
Units
issued and outstanding as of the Closing and Class A Units issuable
pursuant to
vested Company Options outstanding immediately prior to the
Closing.
"GAAP" means generally accepted accounting principles in the
United
States.
"Governmental Authority" means any government, any governmental
entity, department, commission, board, agency or instrumentality,
and any court,
tribunal, or judicial body, whether federal, state, county, local
or foreign.
"Governmental Order" means any order, judgment, injunction,
decree,
stipulation or determination issued, promulgated or entered by or
with any
Governmental Authority of competent jurisdiction.
"Hazardous Material" means any material or substance that is
prohibited or regulated by any Environmental Law or that has been
designated by
any Governmental Authority to be toxic, hazardous or otherwise a
danger to
health, reproduction or the environment, including asbestos,
petroleum, radon
gas, and radioactive matter.
"Hazardous Materials Activity" means the handling,
transportation,
transfer, recycling, storage, use, treatment, manufacture,
investigation,
removal, remediation, release, exposure of others to, sale, or
distribution of
any Hazardous Material or any product containing a Hazardous
Material.
"IRS" means the United States Internal Revenue Service, and any
successor agency thereto.
"Knowledge of the Company" or "known to the Company" and any
other
phrases of similar import means, with respect to any matter in
question relating
to the Company, the actual knowledge of James MacIntyre, David
Scherer, Lisa
Howe or Nicholas Lavezzo.
"Law" means any federal, state, county, local or foreign statute,
law,
ordinance, regulation, rule, code, order or rule of common law.
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"Liability" means any and all debts, liabilities and obligations
of
any kind or nature, whether accrued or fixed, absolute or
contingent, matured or
unmatured, or determined or determinable.
"Manager" means those Persons who are from time to time Managers
of
the Company in accordance with the terms of the Operating
Agreement.
"Material Adverse Effect" as to any party means any change or
effect
that is materially adverse to the assets (including intangible
assets),
Liabilities, business, financial condition or results of operations
of such
party or which would materially impair the ability of such party to
perform its
obligations under this Agreement or to consummate the transactions
contemplated
by this Agreement, except for any such changes or effects resulting
directly or
indirectly from: (i) changes in the industry in which such party
operates, which
changes do not disproportionately affect such party relative to
other
participants in such industry in any material respect; (ii) changes
in general
economic conditions worldwide or in one country or region where
such party has
significant operations or sales; (iii) (A) the announcement or
pendency of any
of the transactions contemplated by this Agreement, (B) legal,
accounting, or
other professional fees or expenses (other than investment banking
or broker
fees) incurred in connection with the transactions contemplated by
this
Agreement, (C) the payment of any amounts due to, or the provision
of any other
benefits to, any officers or employees under employment
contracts,
non-competition agreements, employee benefit plans, severance
arrangements or
other arrangements in existence as of the date of this Agreement
and disclosed
in a Disclosure Schedule, (D) any change in accounting requirements
or
principles or any change in applicable laws, rules or regulations
or the
interpretation thereof, provided such changes do not
disproportionately affect
such party relative to the other participants in such party's
industry in any
material respect; or (iv) any acts of terrorism not directed at
such party's
facilities or the outbreak of war (whether or not declared).
"Multiemployer Plan" means any "multiemployer plan," as defined
in
Section 4001(a)(3) or 3(37) of ERISA.
"Optionholder" means a holder of one or more Company Options as
of
immediately prior to the Closing, whether or not such Company
Options are
vested.
"Overtly Threatened" means that a potential claimant has manifested
an
awareness of and present intention to assert a possible claim or
assessment.
"Parent Common Stock" means the common stock, $0.001 par value
per
share, of Parent.
"Parent Common Stock Price" means $18.4685 per share.
"Parent Material Adverse Effect" means a Material Adverse Effect
with
respect to Parent.
"Parent Warrant" means any of the warrants to purchase Parent
Common
Stock to be issued pursuant to Article III.
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"Pension Plan" means any "employee pension benefit plan" as defined
in
Section 3(2) of ERISA (other than a Multiemployer Plan).
"Permitted Encumbrances" means (i) all statutory or other liens
for
Taxes or assessments which are not yet due or delinquent, (ii) all
cashiers',
landlords', workmen's, repairmen's, warehousemen's and carriers'
liens and other
similar liens imposed by Law incurred in the ordinary course of
business, and
(iii) all leases, subleases, licenses, concessions or service
contracts to which
the Company is a party in the ordinary course of business.
"Performance Plan Shares" means that number of shares of Parent
Common
Stock equal to (i) $3,500,000 (Three Million Five Hundred Thousand
U.S.
Dollars), divided by (ii) Parent Common Stock Price.
"Person" means any natural person or any legal, commercial or
governmental entity such as, but not limited to, any general or
limited
partnership, firm, corporation, limited liability company,
association, joint
venture, trust, unincorporated organization or person acting in a
representative
capacity, as well as any syndicate or group that would be deemed to
be a person
under Section 13(d)(3) of the Exchange Act, any successor statutes
thereto, and
the rules and regulations promulgated thereunder.
"Pro Rata Share" means, with respect to each Unitholder, an
amount
equal to the quotient of (i) all Units held by such Person
immediately prior to
the Closing, divided by (ii) the Adjusted Fully Diluted Number of
Units.
"Representative" means, with respect to a Person, any one or more
of
its officers, directors, managers, members, employees,
representatives and
agents.
"Residuals" means information in non-tangible form that may be
retained by individuals who have had authorized access to the
Company
Intellectual Property, including ideas, concepts, know-how or
techniques
contained therein.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Notes" means the unsecured promissory notes in the
aggregate
principal amount of $20,000,000 (Twenty Million U.S. Dollars),
each
substantially in the form attached hereto as Exhibit D.
"Software" means
individually each, and collectively all, of the
computer programs, including interfaces and any embedded software
programs or
applications, owned or licensed by the Company and used in the
Company's
Business, including as to each program, the processes and routines
used in the
processing of data, the object code, source code (as to third-party
source code,
when rights to the source code may be obtained), tapes, disks, and
all
improvements, modifications, enhancements, versions and releases
relating
thereto.
"Subsidiary" means, any corporation or other organization,
whether
incorporated or unincorporated, (i) of which such party or any
other Subsidiary
of such party is a general partner (excluding partnerships, the
general
partnership interests of which held by such party or any Subsidiary
of such
party do not have a majority of the voting interests in such
partnership) or
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(ii) at least a majority of the securities or other interests of
which having by
their terms ordinary voting power to elect a majority of the Board
of Directors
or others performing similar functions with respect to such
corporation or other
organization is directly or indirectly owned or controlled by such
party or by
any one or more of its Subsidiaries, or by such party and one or
more of its
Subsidiaries.
"Tax" means any income, gross receipts, sales, use, occupancy,
ad
valorum, transfer, real estate, gains, excise, employment,
franchise, profits,
property, capital stock, premium, minimum and alternative minimum
or other
taxes, fees, stamp taxes and duties, assessments, levies, fees or
charges of any
kind whatsoever (whether payable directly or by withholding),
together with any
interest and any penalties, additions to tax or additional amounts
imposed by
any Taxing Authority with respect thereto.
"Tax Return" means a report, return, declaration or other
information
or statement required to be supplied to a Taxing Authority with
respect to any
Tax, including any claim for refund of any Tax.
"Taxing Authority" means any Governmental Authority responsible
for
the imposition or collection of any Tax.
"Transaction Expenses" means the amount of all fees, costs and
expenses that have been incurred or that are incurred by the
Company in
connection with the transactions contemplated by this Agreement,
including any
fees, costs or expenses payable to the Company's outside legal
counsel or to any
financial advisor, accountant or other Person who performed
services for or on
behalf of the Company, or who is otherwise entitled to any
compensation from the
Company, in connection with this Agreement or any of the
transactions
contemplated by this Agreement (except for salaries and other
compensation paid
or payable to employees of the Company and fees (including
accounting fees)
payable to service providers, in each case unrelated to this
Agreement or any
transaction contemplated by this Agreement, and arising only in the
ordinary
course of business consistent with past practice), but not
including (x) any and
all premiums, fees, costs and expenses incurred by the Company, or
for which the
Company has become obligated, prior to the Closing in connection
with the
purchase of any directors' and officers' liability insurance tail
policy, such
premiums, fees, costs and expenses not to exceed $40,000 in the
aggregate or (y)
any fees, costs or expenses payable with respect to the audit of
the Company's
financial statements for the year 2005, including without
limitation those
incurred by BDO Seidman, LLP and work done by third parties in
support thereof,
such fees, costs and expenses not to exceed $100,000 in the
aggregate.
"Units" means, collectively, the Class A Units, the Class B Units
and
the Class C Units.
"Unitholder" means a Person who holds any Units.
"Unpaid Transaction Expenses" means any Transaction Expenses
incurred
by the Company or for which the Company is otherwise liable that
have not been
paid in full at or prior to the Closing.
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"User Data" means, to the extent collected or acquired by or on
behalf
of the Company: (w) all data related to impression and "click
through" activity
of users, including user identification and associated activities
at a web site
as well as pings and activity related to closed loop reporting and
all other
data associated with a user's behavior on the Internet, including
without
limitation all e-mail lists or other user information acquired by
the Company
directly or indirectly from a third party that collected such
information, (x)
all data that contains a personal element allowing for the
identification of a
natural person, (y) known, assumed or inferred information or
attributes about a
user or identifier, and (z) all derivatives and aggregations of
(w), (x) and
(y), including user profiles.
"Welfare Plan" means any "employee welfare benefit plan" as defined
in
Section 3(1) of ERISA.
SECTION 1.2 Certain Additional Definitions. As used in this
Agreement, the
following terms shall have the respective meanings ascribed thereto
in the
respective sections of this Agreement set forth opposite each such
term below:
<TABLE>
<CAPTION>
Term
Section
----
-------
<S>
<C>
Accounting Firm
3.9(b)
Accounts Receivable
5.5(c)
Adjusted Closing Date Payment Amount 3.3(a)(i)
Agreement
Preamble
Article IX Indemnified Parties
9.2
Article IX Indemnity Notice
9.3(a)
Audited Company Financial Statements 5.5(a)
Cash
3.9(a)
Certificate of Formation
5.1
Certificate of Merger
2.3
Closing Certificate
3.7
Claim Notice
8.3(a)
Closing
2.2
Closing Date
2.2
Company
Preamble
Company Assets
5.12
Company Benefit Plan(s)
5.14
Company Copyrights
5.13(d)
Company Disclosure Schedule
Article V Preamble
Company Financial Statements
5.5(a)
Company Inbound License Agreements
5.13(f)
Company Indemnified Parties
7.2(b)
Company Insurance Policies
5.17
Company Outbound License Agreements
5.13(f)
Consents
5.4(c)
Content
5.13(g)
Copyrights
5.13(a)
Deductible Amount
8.4
Domain Names
5.13(a)
</TABLE>
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<TABLE>
<CAPTION>
Term
Section
----
-------
<S>
<C>
Effective Time
2.3
Escrow Agent
3.2
Escrow Agreement
3.2
Final Closing Amount
3.9(b)
Incentive Option Pool
7.8
Indemnified Party
8.3(a)
Indemnity Notice
8.3(d)
Investment Company Act
5.24
Losses
8.2(a)
Majority Unitholders
8.8(a)
Member Consent
5.25(a)
Member Representative
8.8(a)
Merger Sub
Preamble
Non-Competition Agreements
Recitals
Operating Agreement
5.1
Parent Benefit Plans
7.3(a)
Parent Disclosure Schedule
Article VI Preamble
Parent Indemnified Parties
8.2(a)
Parent SEC Filings
6.7
Parent Subsidiaries
6.4
Patents
5.13(a)
Payment Fund
4.1(a)
Permit
5.10
Privacy Policies
5.13(o)
Scheduled Contracts
5.7
SEC
6.7
Survival Period
8.1
Surviving Company
2.1
Third Party Claim
8.3(a)
Trademarks
5.13(a)
Trade Secrets
5.13(e)
Transaction Expenses List
7.7
Unaudited Company Balance Sheet
5.5(a)
Unaudited Company Financial Statements 5.5(a)
Valuation
7.4(a)
</TABLE>
ARTICLE II.
THE MERGER
SECTION 2.1 Merger. Upon the terms and subject to the conditions
hereof,
and in accordance with the DLLCA, the Company shall be merged with
and into
Merger Sub at the Effective Time (as hereinafter defined).
Following the Merger,
the separate existence of the Company shall cease. Merger Sub shall
continue as
the surviving limited liability company following the Merger (the
"Surviving
Company") and shall succeed to and assume all the rights
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and obligations of the Company in accordance with the DLLCA. The
separate
existence of Merger Sub, with all of its rights, privileges,
immunities, powers
and franchises, shall continue unaffected by the Merger.
SECTION 2.2 Closing. The closing of the Merger (the "Closing")
shall take
place at the offices of Latham & Watkins LLP, 12636 High Bluff
Drive, Suite 400,
San Diego, California 92130 immediately after the signing of this
Agreement or
at such other date and place as Parent and the Company shall agree
in writing
(such date hereinafter, the "Closing Date").
SECTION 2.3 Effective Time. The Merger shall become effective when
the
Certificate of Merger (the "Certificate of Merger"), executed in
accordance with
the relevant provisions of the DLLCA, is accepted for record by the
Secretary of
State of the State of Delaware. When used in this Agreement, the
term "Effective
Time" means the later of the date and time at which the Certificate
of Merger is
accepted for record or the date and time established by the
Certificate of
Merger.
SECTION 2.4 Effects of the Merger. At and after the Effective Time,
the
Merger shall have the effects set forth in the DLLCA, including
without
limitation, the effects set forth in Section 18-209(g) of the
DLLCA.
SECTION 2.5 Limited Liability Company Operating Agreement; Manager
and
Officers.
(a) At the
Effective Time, the Operating Agreement of the Surviving
Company shall be amended to read in form and substance
substantially the same as
Exhibit E hereto, until thereafter changed or amended as provided
therein or
applicable Law.
(b) The officers of Merger Sub immediately prior to the Effective
Time
shall be the officers of the Surviving Company as of the Effective
Time, until
the earlier of their resignation or removal or otherwise ceasing to
be an
officer or until their respective successors are duly elected and
qualified, as
the case may be. As the sole member of the Surviving Company,
Parent shall be
the managing member of the Surviving Company.
ARTICLE III.
CONVERSION OF SECURITIES
SECTION 3.1 Conversion of Securities.
(a) As of the Effective Time, by virtue of the Merger and without
any
action on the part of the holder of any Units or any outstanding
units of
membership interest in Merger Sub:
(i) Each Unit, if any, that is held in the treasury of the
Company or by any wholly owned subsidiary of the Company shall be
cancelled and
retired and no consideration shall be delivered in exchange
therefor.
(ii) Each Unit (whether a Class A Unit, Class B Unit or Class C
Unit) issued and outstanding immediately prior to the Effective
Time (other than
Units to be cancelled in accordance with Section 3.1(a)(i)) shall
be converted,
pursuant to Article IV, at the Effective
11
<PAGE>
Time into the right to receive from Parent: (A) an amount in cash,
without
interest, equal to the Closing Date Payment Amount plus the
aggregate exercise
price of all vested Company Options that were outstanding as of
January 31, 2006
but were exercised between January 31, 2006 and the Closing less
the aggregate
amount of cash to be received by holders of vested Company Options
pursuant to
Section 3.3(a)(i), less $20,000,000 (i.e., the original principal
amount of the
Senior Notes), less $10,500,000 (i.e., the initial value of the
Escrowed Common
Stock); plus (B) Senior Notes in the original principal amount
equal to
$20,000,000 (Twenty Million U.S. Dollars); plus (C) the total
number of shares
of Escrowed Common Stock required to be disbursed from the Escrow
Fund in
accordance with the Escrow Agreement (as and when any such
disbursements are
required to be made); plus (D) Parent Warrants exercisable for the
total number
of shares of Parent Common Stock reserved for issuance pursuant to
Section 3.6,
in the case of each of such clauses (A), (B), (C) and (D), divided
by the number
of Units outstanding as of immediately prior to the Effective
Time.
All such Units, when so converted, shall no longer be outstanding
and shall
automatically be cancelled and retired, and each Unitholder shall
cease to have
any rights with respect to such Units, except the right to receive
the
consideration provided for herein.
(b) Issued and outstanding units of membership interest in Merger
Sub
shall remain outstanding and not be affected by the Merger.
SECTION 3.2 Escrow. Concurrently with the execution and delivery of
this
Agreement (i) Parent, the escrow agent (the "Escrow Agent") and the
Member
Representative shall execute the escrow agreement substantially in
the form
attached hereto as Exhibit F (the "Escrow Agreement") and (ii)
Parent shall
deposit with the Escrow Agent, the Escrow Fund, for disbursement in
accordance
with the terms of the Escrow Agreement. Each Unitholder holding
Units shall be
entitled to receive his, her or its proportionate share of
distributions of
Escrowed Common Stock (or proceeds thereof) from the Escrow Fund in
respect of
each such Unit at such times and in the manner set forth in the
Escrow
Agreement. The parties intend for federal income tax purposes, that
property
held by the Escrow Agent shall be treated as delivered to recipient
Unitholders
at the time such property is distributed to them from escrow (and
not at the
time of deposit into escrow).
SECTION 3.3 Cancellation of Company Options.
(a) The Managers of the Company have taken such actions as are
necessary to provide that:
(i) each vested Company Option outstanding immediately prior to
the Effective Time shall, in accordance with the Company Option
Plan, be
cancelled, terminated and extinguished immediately prior to the
Effective Time
in exchange for the right to receive from Parent an amount in cash,
without
interest, equal to (A) the number of Class A Units issuable
pursuant to such
vested Company Option, multiplied by (B) (x) the sum of the Closing
Date Payment
Amount plus the aggregate exercise price of all vested Company
Options
outstanding as of January 31, 2006 (such sum, the "Adjusted Closing
Date Payment
Amount") divided by (y) the Fully Diluted Number of Units,
provided, that the
cash consideration payable pursuant to this
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<PAGE>
subsection (i) shall be reduced by the amount of the aggregate
exercise price
for the Class A Units issuable pursuant to such vested Company
Option;
(ii) each unvested Company Option outstanding immediately prior
to the Effective Time shall, in accordance with the Company Option
Plan, be
cancelled, terminated and extinguished immediately prior to the
Effective Time
in exchange for the right to receive from Parent a restricted stock
award as set
forth in Section 3.4; and
(iii) the Company shall take or cause to be taken all actions
required to effect the terminations and cancellations set forth in
this Section
3.3(a) and the Company Option Plan shall terminate immediately
prior to the
Effective Time.
(b) Upon the cancellation of each Company Option, whether vested
or
unvested, each Optionholder shall cease to have any rights with
respect thereto,
except the right to receive from Parent the consideration payable
with respect
thereto pursuant to Section 3.3(a)(i) or Section 3.3(a)(ii), as
applicable.
SECTION 3.4 Restricted Stock Performance Plan.
(a) Parent has set aside the pool of Performance Plan Shares of
Parent
Common Stock for grants of restricted stock awards to the holders
of unvested
Company Options immediately prior to the Closing that are cancelled
pursuant to
Section 3.3(a)(ii) and others as indicated on Schedule 3.4(a). The
number of
Performance Plan Shares to be allocated to each recipient as of the
Closing is
set forth on Schedule 3.4(a). Each such restricted stock award
shall vest
according to the vesting schedule set forth on Schedule 3.4(a).
(b) All such restricted stock awards shall otherwise be subject to
the
terms and conditions of Parent's 2004 Equity Incentive Award Plan
and form of
Restricted Stock Award Agreement and such other terms and
conditions as have
been established by Parent's Board of Directors or the Compensation
Committee
thereof. Parent and its Board of Directors shall take such actions
as are
necessary or appropriate to effect such restricted stock awards as
promptly as
practicable after the Closing.
SECTION 3.5 Withholding Rights. Each of the Company, Parent, and
the Escrow
Agent shall be entitled to deduct and withhold from the
consideration otherwise
payable pursuant to this Agreement to any Unitholder or
Optionholder holding
vested Company Options such amounts as it is required to deduct and
withhold
with respect to the making of such payment under the Code, or any
provision of
state, local or foreign Tax Law. To the extent that amounts are so
withheld by
the Company, Parent or the Escrow Agent, as the case may be, such
withheld
amounts shall be treated for all purposes of this Agreement as
having been paid
to the Unitholder or Optionholder, as applicable, in respect of
which such
deduction and withholding was made.
SECTION 3.6 Reservation of Warrant Stock. 1,082,923 shares of
Parent Common
Stock have been duly reserved for future issuance upon the exercise
of Parent
Warrants issuable pursuant to this Article III. When issued upon
exercise of
Parent Warrants in exchange for payment of the exercise price
therefor, such
shares will be duly authorized, validly issued, fully paid and
nonassessable.
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<PAGE>
SECTION 3.7 Closing Certificate. The Company has provided to Parent
a
certificate, duly executed by an officer of the Company (the
"Closing
Certificate"), pursuant to which the Company certifies and
represents and
warrants to Parent as to the following amounts and provides
documents supporting
such amounts: (1) the name and address of record of each Person who
is a
Unitholder immediately prior to the Effective Time; (2) the name
and address of
each Optionholder immediately prior to the Effective Time, and with
respect to
Company Options held by each such Person, the number of Class A
Units subject to
such Company Options (after giving effect to any exercises of
Company Options
occurring prior to the Effective Time), the vesting schedule of
such Company
Options and the per Unit exercise price with respect to such
Company Options;
(3) the number (on a per class basis) of Units held by each
Unitholder
immediately prior to the Effective Time; (4) the amount of cash,
the number of
Parent Warrants and the principal amount of Senior Notes that each
such
Unitholder is entitled to receive in connection with the Closing
pursuant to
Section 3.1(a)(ii); (5) the amount of cash that each such
Optionholder is
entitled to receive with respect to his or her vested Company
Options in
connection with the Closing pursuant to Section 3.3(a)(i); and (6)
the number of
shares of Escrowed Common Stock to be deposited in the Escrow Fund
by Parent
pursuant to Section 3.2, and each Unitholder's Pro Rata Share of
the Escrow
Fund.
SECTION 3.8 Payment by Parent. Parent shall make all payments
required by
Section 3.3 concurrently with the Effective Time either directly or
by
depositing the cash and securities to be distributed hereunder with
the
Surviving Company's payroll service or any combination thereof.
SECTION 3.9 Closing Cash Adjustment.
(a) The
"Closing Cash Adjustment," if any, shall mean the positive
difference, if any, between (x) $2,000,000 (Two Million U.S.
Dollars) less (y)
the amount of the Company's cash and cash equivalents ("Cash") as
of the close
of business on the Closing Date.
(b) Post-Closing Determination. As promptly as practicable, but in
no
event later than sixty (60) days after the Closing, Parent shall
deliver to the
Member Representative Parent's determination of the actual amounts
of Cash of
the Company as of the close of business on the Closing Date (the
"Final Closing
Amount"). The Final Closing Amount shall be prepared in accordance
with GAAP,
based on the Company's books and records and other information then
available.
The Final Closing Amount shall take into account the Closing
Dividend, if any,
paid to the Company's Members prior to the Closing and all
Transaction Expenses
paid at or prior to the Closing. Parent shall provide access to and
make
reasonably available to the Member Representative and its agents,
advisors and
representatives all books, records, work papers, schedules and
calculations used
in preparing Parent's determination of the Final Closing Amount. If
the Member
Representative disagrees with Parent's determination of the Final
Closing
Amount, the Member Representative shall, within ten (10) days after
receipt of
Parent's determination of the Final Closing Amount, notify Parent
in writing of
such disagreement (such notice setting forth the basis for such
disagreement in
reasonable detail) and Parent and the Member Representative
thereafter shall
negotiate to resolve any such disagreement. If Parent and the
Member
Representative are unable to resolve any such disagreement within
twenty (20)
days after the Member Representative delivers its notice of
disagreement to
Parent, the Member Representative and Parent shall submit the
dispute to
Deloitte & Touche LLP (the "Accounting
14
<PAGE>
Firm"). Parent and the Member Representative shall use reasonable
efforts to
cause the Accounting Firm to resolve all disagreements over the
Final Closing
Amount as soon as practicable, but in any event within thirty (30)
days after
submission of the dispute to the Accounting Firm. Parent and the
Member
Representative shall instruct the Accounting Firm to resolve all
disagreements
over the computations of the Final Closing Amount at an amount
determined by the
Member Representative or at an amount determined by Parent or at
any amount
between such amounts. The resolution of such disagreements and the
determination
of the Final Closing Amount by the Accounting Firm shall be final
and binding on
Parent, the Member Representative and the Members. Parent and the
Member
Representative (on behalf of the Members) shall each pay one half
of the fees
and expenses of the Accounting Firm.
(c) Post-Closing Adjustment. In the event there is a Closing
Cash
Adjustment, then Parent may give written notice to the Escrow Agent
and the
Member Representative asserting a claim against the Escrow Fund in
the full
amount of such adjustment, without regard to the Deductible
Amount.
(d) Ordinary Course Operations by the Company. On the Closing
Date
after the Closing, the Company shall not at any time during such
period (i)
accelerate or delay in any material respect the collection of any
account
receivable in advance of or beyond its regular due date or the date
on which the
same would have been collected in the ordinary course of business
consistent
with past practice, (ii) delay or accelerate in any material
respect the payment
of any account payable in advance of its due date or the date such
liability
would have been paid in the ordinary course of business consistent
with past
practice or (iii) make any loans or distributions to the members of
the Company
or the Surviving Company or their respective Affiliates.
SECTION 3.10 Total Cash Consideration. In no event shall the total
amount
of cash distributed by parent pursuant to Sections 3.1 and 3.3
exceed
$22,000,000.
ARTICLE IV.
EXCHANGE OF UNITS
SECTION 4.1 Exchange of Units.
(a) Payment Fund. Subject to Section 4.1(b), following the
Closing,
Parent shall (i) issue and deliver Parent Warrants issuable
pursuant to Section
3.1(a)(ii), (ii) issue and deliver Senior Notes pursuant to Section
3.1(a), and
(iii) deliver cash deliverable pursuant to Section 3.1(a), in each
case in
exchange for Units (the Parent Warrants, the Senior Notes, and the
cash
delivered pursuant to Section 3.1(a) being hereinafter referred to
as the
"Payment Fund"). Except as contemplated by Section 4.1(f) hereof,
the Payment
Fund shall not be used for any other purpose.
(b) Exchange Procedures. Promptly following the date of this
Agreement, the Surviving Company shall deliver to each Unitholder
(other than
with respect to Units to be canceled or retired pursuant to Section
3.1(a)(i)),
(i) a letter of transmittal in a form and having such provisions as
Parent and
the Company have agreed and (ii) instructions for use in effecting
the surrender
of the Units in exchange for the consideration provided herein.
Upon delivery of
a letter of transmittal to Parent, duly executed, and such other
documents as
may reasonably be
15
<PAGE>
required by Parent, the Unitholder shall receive the amount of
consideration
into which such Units shall have been converted pursuant to Section
3.1(a). No
interest will be paid or will accrue on any cash payable between
the date of
submission of the letter of transmittal and payment with respect
thereto by
Parent. If payment is to be made to a person or entity other than
the registered
holder of a Unit, it shall be a condition of payment that the
Unitholder
requesting such payment follow the reasonable procedures requested
by Parent and
that the Person requesting such payment shall pay any transfer or
other taxes
required by reason of such request or establish to the satisfaction
of Parent
that such tax has been paid or is not applicable. Parent shall
cause all cash,
Senior Notes and Parent Warrants payable with respect to any Unit
to be
delivered to each former Unitholder no later than two (2) Business
Days after
Parent's receipt of the executed and delivered letter of
transmittal in proper
form.
(c) No Liability. None of Parent, the Company or any party
hereto
shall be liable to any holder of Units for any shares of Parent
Common Stock (or
dividends or distributions with respect thereto), Parent Warrants,
Senior Notes
or cash or interest from the Payment Fund delivered to a public
official
pursuant to any abandoned property, escheat or similar Law. Persons
who prior to
the Merger held Units shall look only to Parent (subject to the
terms of this
Agreement and abandoned property, escheat and other similar laws)
with respect
to any consideration that may be payable upon due surrender of the
Units held by
them, without interest.
(d) Distributions with Respect to Unexchanged Shares of Parent
Common
Stock. No dividends or other distributions declared or made after
the Effective
Time with respect to Parent Common Stock with a record date after
the Effective
Time shall be paid to the holder of any unsurrendered Unit with
respect to the
shares of Parent Common Stock represented thereby, unless and until
the holder
of such Unit shall have delivered a properly executed letter of
transmittal to
Parent.
(e) Fractional Shares. No certificates, scrip or book-entries
representing fractional shares of Parent Common Stock shall be
issued in
connection with the Merger, no dividend or distribution with
respect to Parent
Common Stock shall be payable on or with respect to any fractional
share and
such fractional share interests will not entitle the owner thereof
to any rights
of a stockholder of Parent, in lieu of such fractional shares,
after aggregating
all fractional shares of Parent Common Stock issuable to any
holder, such holder
shall be issued a number of whole shares of Parent Common Stock
rounded down to
the next whole share. The fractional share determination shall be
made
individually for each Unitholder. Each Parent Warrant initially
shall be
exercisable for the number of shares of Parent Common Stock
determined in
accordance with Section 3.1(a)(ii), rounded up or down to the
nearest whole
share.
(f) Termination of Payment Fund. Any portion of the Payment Fund
which
remains undistributed to the Unitholders for twelve (12) months
after the
Effective Time shall be retained by Parent without restriction, and
any
Unitholders who have not theretofore complied with this Article IV
shall
thereafter look only to Parent for the shares of Parent Common
Stock, Senior
Notes, Parent Warrants, cash deliverable pursuant to Section 3.1(a)
to which
they are entitled pursuant to Section 4.1(e), in each case, without
any interest
thereon, and any disbursements required to be made from the Escrow
Fund pursuant
to the terms of the Escrow Agreement.
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<PAGE>
SECTION 4.2 No Further Ownership Rights in Units; Closing of
Company
Transfer Books. At and after the Effective Time, each Unitholder
shall cease to
have any rights as a Unitholder, except the right to surrender his,
her or its
Units in exchange for payment of the consideration specified herein
and no
transfer of Units shall be made on the Unit transfer books of the
Company. At
the Effective Time, the Unit transfer books of the Company shall be
closed, and
no transfer of Units shall thereafter be made.
SECTION 4.3 Further Assurances. At and after the Effective Time,
the
officers and Managers of the Company will be authorized to execute
and deliver,
in the name and on behalf of the Company or Merger Sub, any deeds,
bills of
sale, assignments or assurances and to take and do, in the name and
on behalf of
the Company or Merger Sub, any other actions and things to vest,
perfect or
confirm of record or otherwise in the Surviving Company any and all
right, title
and interest in, to and under any of the rights, properties or
assets acquired
or to be acquired by the Surviving Company as a result of, or in
connection
with, the Merger.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as
set forth in the written disclosure schedule dated as of the
date of this Agreement and previously delivered by the Company to
Parent (the
"Company Disclosure Schedule") (it being understood that the
Company Disclosure
Schedule shall be arranged in sections corresponding to the
sections contained
in this Agreement, and the disclosures in any section of the
Company Disclosure
Schedule shall qualify the representations in the corresponding
section of this
Article V and shall be deemed made in any other section or sections
of the
Company Disclosure Schedule where the relevance of such disclosures
is
reasonably apparent from the text of such disclosure), the Company
hereby
represents and warrants to Parent and Merger Sub as follows:
SECTION 5.1 Organization. The Company is a limited liability
company duly
organized, validly existing and in good standing under the Laws of
the State of
Delaware, and has all requisite limited liability company power and
authority to
own, operate or lease the properties and assets now owned, operated
or leased by
it, and to carry on its Business in all material respects as
currently
conducted. The Company is duly qualified to do business, and is in
good
standing, under the Laws of the Commonwealth of Virginia. True and
complete
copies of the Certificate of Formation (the "Certificate of
Formation") and
Operating Agreement of the Company (the "Operating Agreement"),
each as amended
and in effect as of the date of this Agreement, have been made
available to
Parent. The Company is not in material violation of any of the
provisions of the
Certificate of Formation or Operating Agreement. True and complete
copies of all
minutes of meetings (and consents in lieu thereof) of the Company's
Unitholders
and of its Managers have been made available by the Company to
Parent.
SECTION 5.2 Capitalization.
(a) As of the date of this Agreement, 755,000 uncertificated Class
A
Units are issued and outstanding, 20,000,000 uncertificated Class B
Units are
issued and outstanding and 12,188,690 uncertificated Class C Units
are issued
and outstanding. Except as set forth in the immediately preceding
sentence or on
the Closing Certificate, no other equity securities of
17
<PAGE>
the Company are issued or outstanding. All such issued and
outstanding Units
have been duly authorized and validly issued, and were not issued
in violation
of any preemptive or similar rights created by statute, the
Certificate of
Formation, the Operating Agreement or any agreement to which the
Company is a
party or by which it is bound. At the Effective Time, by virtue of
the Merger
and assuming Parent's payment of the consideration payable pursuant
to Article
III, Parent will acquire good and marketable title to all of the
issued and
outstanding Units as of the Closing, free and clear of all
Encumbrances. The
Closing Certificate sets forth, as of the date of this Agreement,
the name of
each Unitholder, his, her or its address of record and the number
and class of
Units held of record by each such Unitholder. There are no accrued
or unpaid
dividends or distributions with respect to any issued and
outstanding Units. At
the Closing, the holders of the Units shall have no claims against
Parent (other
than a claim for payment of the consideration payable pursuant to
Article III)
or the Company or their respective Affiliates, Managers, officers,
directors,
stockholders or Unitholders with respect to such Units.
(b) As of the date of this Agreement, except as set forth in
the
Closing Certificate, there are (i) no outstanding options,
warrants, calls,
rights of conversion or other rights, agreements, arrangements or
commitments of
any kind or character, whether written or oral, relating to the
Units to which
the Company is a party, or by which it is bound, obligating the
Company to
issue, deliver or sell, or cause to be issued, delivered or sold,
any Units, and
(ii) no outstanding or authorized Unit appreciation, phantom Unit,
profit
participation, or other similar rights with respect to the Company.
Each Company
Option was issued pursuant to and in accordance with the documents
listed on
Section 5.2(b) of the Company Disclosure Schedule. At the Closing,
all
outstanding Company Options shall be extinguished and, except for
the right to
receive the consideration payable pursuant to Article III, the
holders of vested
and unvested Company Options shall have no claims against Parent or
the Company
or their respective Affiliates, Managers, officers, directors or
Unitholders
with respect to such Company Options.
(c) As of the date of this Agreement and except as set forth in
Section 5.2(c) of the Company Disclosure Schedule, there are (i) no
rights,
agreements, arrangements or commitments of any kind or character,
whether
written or oral, relating to the Units to which the Company is a
party, or by
which it is bound, obligating the Company to repurchase, redeem or
otherwise
acquire any issued and outstanding Units; (ii) no voting
agreements, member
agreements, proxies or other agreements or understandings in effect
to which the
Company is a party, or by which it is bound, with respect to the
governance of
the Company or the voting or transfer of any Units and (iii) no
rights,
agreements, arrangements or commitments of any kind or character,
whether
written or oral, granting any right of first refusal with respect
to, or any
preemptive or antidilutive right with respect to, any Units.
SECTION 5.3 Subsidiaries. The Company has never had and it does
not
currently have any Subsidiaries. There are no other Persons in
which the Company
owns, of record or beneficially, any direct or indirect equity
interest or any
right (contingent or otherwise) to acquire any equity interest,
other than
investment securities in which cash in excess of that needed for
the Company's
operations is invested. The Company is not a member of any
partnership or
limited liability company, nor is the Company a participant in any
joint venture
or similar arrangement constituting a legal entity.
SECTION 5.4 Authorization; No Conflicts
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<PAGE>
(a) The Company has full power and authority to execute and
deliver
this Agreement and the Ancillary Agreements to which it is a party,
to perform
its obligations hereunder and thereunder and to consummate the
transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement
and the Ancillary Agreements to which the Company is a party and
the
consummation of the transactions contemplated hereby and thereby
have been duly
and validly approved by the Company's Managers and Unitholders and
no other
limited liability company proceedings on the part of the Company
and its
Managers and Unitholders are necessary to approve this Agreement or
the
Ancillary Agreements to which the Company is a party or to
authorize or
consummate the transactions contemplated hereby or thereby. This
Agreement and
the Ancillary Agreements to which the Company is a party have been
duly and
validly executed and delivered by the Company and (assuming the
due
authorization, execution and delivery of this Agreement and the
Ancillary
Agreements to which the Company is a party by each of the other
parties hereto
and thereto) constitute valid and binding obligations of the
Company,
enforceable against the Company in accordance with their respective
terms,
except as the enforceability thereof may be subject to or limited
by bankruptcy,
insolvency, reorganization, moratorium or similar Laws relating to
or affecting
the rights of creditors generally and the availability of equitable
relief
(whether in proceedings at law or in equity).
(b) Assuming the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, and that those
consents,
authorizations, filings, notifications and other actions set forth
on Section
5.4(b) of the Company Disclosure Schedule have been obtained or
made, neither
the execution and delivery by the Company of this Agreement or the
Ancillary
Agreements to which the Company is a party nor the consummation by
the Company
of any of the transactions contemplated hereby or thereby, nor
compliance by the
Company with any of the terms or provisions hereof or thereof, will
(i) violate
any provision of the Certificate of Formation or Operating
Agreement or (ii)
violate, conflict with or require any notice, filing, consent,
waiver or
approval under any material Law to which the Company or any of its
properties,
contracts or assets are subject.
(c) Set forth on Section 5.4(c) of the Company Disclosure Schedule
is
a list of each consent, notice, approval or waiver under any
material Contract
to which the Company is a party, or by which the Company or any of
its
properties or assets may be bound, which is required in order for
the Company to
consummate the transactions contemplated by this Agreement or to
comply with any
of the terms or provisions hereof or (y) where consummation of the
transactions
contemplated by this Agreement in the absence of such consent,
notice, approval
or waiver would violate, conflict with, result in a breach of any
provision of
or the loss of any benefit under, constitute a default (or an event
which, with
or without notice or lapse of time, or both, would constitute a
default) under,
result in the termination of or a right of termination or
cancellation under,
result in the creation of any Encumbrance under, or accelerate or
result in a
right of acceleration of the performance required by, any such
material Contract
(collectively, the "Consents"). The Company has not obtained any of
the
Consents.
SECTION 5.5 Financial Statements.
(a) Attached as Section 5.5(a) of the Company Disclosure Schedule
are
the following items: (i) the unaudited consolidated balance sheet
of the Company
as of December
19
<PAGE>
31, 2005 and the related consolidated statements of income and cash
flows for
the year ended December 31, 2005 (the statements referred to in
this clause (i)
(including the balance sheet), the "Unaudited Company Financial
Statements" and
the unaudited balance sheet as of December 31, 2005, the "Unaudited
Company
Balance Sheet"); and (ii) the audited consolidated balance sheets
of the Company
as of December 31, 2004 and 2003 and the related consolidated
statements of
income and cash flows for the fiscal years ended December 31, 2004
and 2003 (the
statements referred to in this clause (ii) (including the balance
sheets), the
"Audited Company Financial Statements" and together with the
Unaudited Company
Financial Statements, the "Company Financial Statements"). The
Company Financial
Statements present fairly, in all material respects, the financial
position of
the Company as of the respective dates thereof and the results of
the Company's
operations for the fiscal periods therein set forth. Section 5.5 of
the Company
Disclosure Schedule sets forth the Company's accounting policies
with respect to
certain matters and any instances in which the Company Financial
Statements have
not been prepared in accordance with GAAP consistently applied
throughout such
fiscal periods (subject to normal year-end audit adjustments with
respect to the
Unaudited Company Financial Statements), except as may be indicated
in the notes
thereto with respect to the Unaudited Company Financial
Statements.
(b) The Company maintains a system of internal accounting
controls
sufficient to provide reasonable assurance that (i) transactions
are executed
with management's authorizations, (ii) transactions are recorded as
necessary to
permit preparation of financial statements in accordance with GAAP
and to
maintain accountability for assets, (iii) the Company tracks and
monitors its
material assets and (iv) the recorded accountability for assets is
compared with
existing assets at reasonable intervals and appropriate action is
taken with
respect to any differences.
(c) The Company has made available to Parent an itemization of
the
accounts receivable (including aging) of the Company as of December
31, 2005
(the "Accounts Receivable"). The Accounts Receivable represent bona
fide claims
against debtors for sales, services performed (or to be performed)
or other
charges arising pursuant to binding agreements entered into on or
before the
respective dates of recording thereof. All Accounts Receivable have
been billed
in accordance with the past practice of the Company consistently
applied and, to
the Knowledge of the Company, are collectible in the ordinary
course of business
within one hundred eighty (180) days, except to the extent of an
amount not in
excess of the reserve for doubtful accounts reflected on the
Unaudited Company
Balance Sheet.
(d) To the Knowledge of the Company, there are no outstanding
claims
against the Company to return any products by reason of alleged
overshipments,
defective products or otherwise.
(e) The Company has made and kept (and made available to Parent)
its
books and records and accounts, which, in reasonable detail,
accurately and
fairly reflect the activities of the Company's Business. All
minutes of meetings
of the Company's Unitholders and Managers (and consents in lieu
thereof) have
been made available to Parent and are true and correct in all
material respects.
The Company has not maintained any bank account except for bank
accounts which
have been and are reflected in the Company's books and records.
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SECTION 5.6 Undisclosed Liabilities
(a) Except as set forth on Section 5.6 of the Company
Disclosure
Schedule, to the Knowledge of the Company, it has no liabilities or
obligations
(absolute, accrued, contingent or otherwise) except (a) liabilities
and
obligations (including warranties) under contracts and commitments
incurred in
the ordinary course of business and not required under GAAP to be
reflected in
the Company Financial Statements (including the notes thereto),
which are not
material to the assets, properties, business, financial condition
or operating
results of the Company, (b) liabilities and obligations which are
reflected and
properly reserved against in the Company Financial Statements in
accordance with
GAAP, and (c) liabilities and obligations incurred in the ordinary
course of
business and consistent with past practice since the Unaudited
Company Balance
Sheet Date. None of the liabilities or obligations described in
this Section 5.6
relates to any breach of Contract, breach of warranty, tort,
infringement,
misappropriation or violation of law or arose out of any
Action.
(b) The Company has never affected or otherwise been involved in
any
"off-balance sheet arrangements" (as defined in Item 303(a)(4) of
Regulation S-K
under the Exchange Act). Without limiting the generality of the
foregoing, the
Company is not providing a guarantee of any debt or other
obligation of any
other Person.
SECTION 5.7 Contracts. Section 5.7 of the Company Disclosure
Schedule sets
forth a complete and accurate list or description of all Contracts
as of the
date of this Agreement: (v) pursuant to which the Company (i) was
billed by or
paid to a counterparty, or invoiced a customer, in excess of
$75,000 in calendar
year 2005 or (ii) has an obligation that the Company reasonably
believes will
result in it being billed by or making payments to a counterparty,
or that the
Company reasonably believes will result in it invoicing customers,
in excess of
$75,000 in 2006 or any calendar year thereafter pursuant to
Contracts currently
in force (other than, in the case of 2006 or thereafter, purchases
by the
Company of items costing less than $25,000 in any individual case
and made in
the ordinary course of business) and that is not otherwise required
to be
disclosed pursuant to subsections (x), (y) or (z) of this Section
5.7; (w)
agreements set forth under subsection (v) that are not terminable
by the Company
within ninety (90) days from the date of this Agreement without
penalty or
further obligation on the part of the Company; (x) that involve
material
payments based on profits or revenues of the Company; (y) that are
employment,
management, consulting or severance agreements or other agreements
or
arrangements with any employees or independent contractors of the
Company that
differ in any material respect from the Company's current standard
form of any
of the foregoing (other than standard offer letters which provide
for no
severance benefits materially in excess of such benefits afforded
to Company
employees generally), of which copies of such standard forms have
been
previously made available by the Company to Parent; or (z) that
include any
noncompetition or nonsolicitation covenant or any exclusive dealing
or similar
arrangement that limits the ability of the Company or any of its
Affiliates to
compete (geographically or otherwise) in any line of business
(collectively, the
"Scheduled Contracts"). True, correct and complete copies of the
current
standard form of offer letter, employee invention and proprietary
rights
assignment agreements or option agreements used by the Company (and
any prior
forms of employment agreement, employee invention and proprietary
rights
assignment agreements or option agreements that are currently in
effect and that
differ in any material respect from the Company's current standard
forms) have
been previously made available to Parent. True,
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correct and complete copies of each Scheduled Contract have been
made available
to Parent. As of the date of this Agreement, each of the Scheduled
Contracts is
a legal, valid and binding obligation of the Company (assuming the
due
authorization, execution and delivery by the other parties thereto)
and is in
full force and effect and enforceable in accordance with its terms,
except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization,
moratorium and similar Laws relating to or affecting creditors
generally and by
the availability of equitable remedies (whether in proceedings at
law or in
equity). The Company has not received written notice of
cancellation of or
default under or intent to cancel or call a default under any of
the Scheduled
Contracts. The Company has performed all obligations required to be
performed by
it to date under the Scheduled Contracts where such nonperformance
would result
in a material breach of or material default under any such
Scheduled Contract,
and there exists no event or condition which with or without notice
or lapse of
time or both would be a material breach or a material default on
the part of the
Company or, to the Knowledge of the Company, on the part of any
other party to
such Scheduled Contracts.
SECTION 5.8 Tax Matters.
(a) Filing of Tax Returns. Set forth on Section 5.8(a) of the
Company
Disclosure Schedule is a list of all Tax Returns that the Company
has filed.
Except as set forth on Section 5.8(a) of the Company Disclosure
Schedule, the
Tax Returns filed are complete and accurate in all respects. The
Company has
used the accrual method of accounting for income tax purposes since
January 1,
2003.
(b) Payment of Taxes. Except as set forth on Section 5.8(b) of
the
Company Disclosure Schedule: (i) the Company does not have, and
will not have,
any Liability for Taxes in respect to periods or partial periods
ending on or
before the Closing Date and (ii) all Taxes that the Company is
required by
applicable Law to withhold or collect for periods ending on or
before the
Closing Date have been duly withheld or collected and have been
timely paid over
to the appropriate governmental authorities to the extent due and
payable.
(c) Audits, Investigations or Claims. Except as set forth on
Section
5.8(c) of the Company Disclosure Schedule, no deficiencies for
Taxes of the
Company have been claimed, proposed or assessed by any taxing or
other
governmental authority. There are no pending audits, assessments or
other
Actions for or relating to any Liability in respect of Taxes of the
Company, and
to the Knowledge of the Company no audits, assessments or other
Actions for or
relating to any Liability in respect of Taxes of the Company are
Overtly
Threatened. The Company has not been notified that any taxing
authority intends
to audit a Tax Return for any other period. No extension of a
statute of
limitations relating to Taxes is in effect with respect to the
Company.
(d) Lien. There are no Encumbrances for Taxes (other than
Permitted
Encumbrances) on any asset of the Company.
(e) Derivative Liability for Taxes. The Company has never been
a
member of an affiliated group of corporations within the meaning of
Section 1504
of the Code. The Company has no Liability for the Taxes of any
other Person (i)
under Treasury Regulations
22
<PAGE>
Section 1.1502-6 (or any similar Regulations), (ii) as a transferee
or
successor, (iii) by contract, or (iv) otherwise.
(f) Tax Sharing Agreements. There are no Tax-sharing agreements
or
similar arrangements (including indemnity arrangements) with
respect to or
involving the Company, and, after the Closing Date, neither the
Company nor
Merger Sub (by virtue of the Merger) shall be bound by any such
Tax-sharing
agreements or similar arrangements (entered into prior to the
Closing) or have
any Liability thereunder for amounts due in respect of periods
prior to or after
the Closing Date.
(g) Foreign Person. Except as set forth on Section 5.8(g) of
the
Company Disclosure Schedule, for purposes of withholding under
Section 1445 of
the Code, neither the Company nor, to the Company's Knowledge, any
Person having
a direct or derivative equity interest in the Company is a "foreign
person" as
defined in Section 1445(f)(3) of the Code.
(h) Permanent Establishment; State Presence. The Company does not
have
and has not had a permanent establishment in any foreign country,
as defined in
any applicable tax treaty or convention between the United States
of America and
such foreign country. All jurisdictions in which the Company has
been or is as
of the Closing Date required to file a Tax Return is set forth on
Section 5.8(h)
of the Company Disclosure Schedule.
(i) Disallowance of Interest Deductions. None of the
outstanding
indebtedness of the Company constitutes indebtedness with respect
to which any
interest deductions may be disallowed under Section 163(i) or
163(l) or 279 of
the Code or under any other applicable Regulations.
(j) International Boycotts. The Company has never participated in
and
is not participating in an international boycott within the meaning
of Code
Section 999.
(k) Partnership Characterization. The Company is, will be through
the
time of the Closing, and at all times since its formation has been,
properly
characterized as a partnership for United States income tax
purposes and all
applicable state and local income and franchise tax purposes.
SECTION 5.9 Litigation and Governmental Orders. Except as set forth
on
Section 5.9 of the Company Disclosure Schedule, there are no
material legal,
administrative, arbitral or other proceedings (including
disciplinary
proceedings) or Actions of any nature pending or of which the
Company has
received written notice or that, to the Knowledge of the Company,
are Overtly
Threatened (i) against the Company, any assets of the Company or
its Business or
that challenge the validity or propriety of the transactions
contemplated by
this Agreement or by any of the Ancillary Agreements; (ii)
involving any of the
Company's products or services; or (iii) challenging the Company's
right to use
any products owned or licensed by any of the Company's vendors.
There is no
injunction, order, judgment, decree or material regulatory
restriction imposed
upon the Company or any assets of the Company or its Business.
SECTION 5.10 Compliance with Laws.
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<PAGE>
(a) The Company holds, and at all times has held, and at Closing
will
hold, all material licenses, franchises, decrees, permits and
authorizations
required under applicable Law (collectively, "Permits") for the
lawful
ownership, operation and use of the assets of the Company and the
conduct of the
Company's Business under and pursuant to, and has complied with
each in all
material respects, and the Company is not in material default under
any
applicable Law relating to the Company or any of its material
assets, properties
or operations, and there are no outstanding material violations of
any of the
above, and the Company has not received written notice asserting
any such
violation. The Company has been and is in compliance with all
Permits in all
material respects. Section 5.10(a) of the Company Disclosure
Schedule sets forth
a true and complete list of all material Permits currently held by
the Company.
The Company has all material Permits required to permit the Company
to conduct
its Business.
(b) No Governmental Authority has provided written notice to
the
Company of, and, to the Knowledge of the Company, no Governmental
Authority has
otherwise initiated or Overtly Threatened to commence, any Action,
proceeding or
investigation into the Business or operations of the Company or any
of its
officers, directors or employees in their capacity as such with the
Company.
There is no material unresolved deficiency, violation or exception
claimed by
any Governmental Authority with respect to any examination of the
Company.
SECTION 5.11 Properties.
(a) The Company has good and marketable title to, or valid
leasehold
interests in, all of its tangible properties and tangible assets.
All tangible
properties and tangible assets, other than tangible properties and
tangible
assets in which the Company has a leasehold interest, are free and
clear of all
Encumbrances, other than Permitted Encumbrances. The Company has
complied in all
material respects with all leases to which it is a party and under
which it is
in occupancy, and all such leases are in full force and effect. The
Company
enjoys peaceful and undisturbed possession under all such leases.
Section 5.11
of the Company Disclosure Schedule sets forth a complete list of
all real
property and interests in real property owned or leased by the
Company and a
true and complete list of all personal property, equipment and
fixtures (other
than individual items as noted on the respective invoices to the
Company for
such items having an invoiced amount of less than $25,000) owned by
the Company,
all of which personal property, equipment and fixtures are in good
condition,
normal wear and tear excepted.
(b) There are no pending or, to the Knowledge of the Company,
Overtly
Threatened, condemnation or similar Actions against the Company or
otherwise
relating to any of the properties or assets and the Company has not
received any
written notice of the same.
(c) Since December 31, 2005, there has not been any damage,
destruction or loss (whether or not covered by insurance) affecting
the
Company's assets or its Business which would reasonably be expected
to have a
Company Material Adverse Effect.
SECTION 5.12 Sufficiency of and Title to Assets. The Company owns
all
right, title and interest in and to or has sufficient rights to all
of the
properties, assets and rights of any
24
<PAGE>
kind, whether tangible or intangible, real or personal (including,
without
limitation, the Company Intellectual Property), necessary to enable
the Company
(prior to the Closing) and the Surviving Company (immediately after
the Closing)
to conduct the Business as currently conducted (the "Company
Assets"), free and
clear of any Encumbrances, other than Permitted Encumbrances. The
Company has
sole right, title and interest in and to or has sufficient rights
to all of its
assets, free and clear of any Encumbrances, other than Permitted
Encumbrances.
SECTION 5.13 Intellectual Property.
(a) Generally. Section 5.13(a) of the Company Disclosure Schedule
sets
forth a complete and accurate list of all of the Company's United
States and
foreign: (i) registered or filed applications for trademarks,
service marks and
trade names and designs owned by or exclusively licensed to the
Company
(collectively, "Trademarks") and for each Trademark, the
application serial
number or registration number thereof, if applicable, the class of
goods or the
description of the goods or services covered thereby, the countries
in which
such Trademark is registered, and the expiration date for each
country in which
trademark, service mark, trade name or design has been registered;
(ii) patents
and patent applications (including utility models and applications
therefor, as
applicable, and any continuations, continuations-in-part,
divisionals, reissues,
renewals and applications for any of the foregoing) that are owned
by or
exclusively licensed to the Company (collectively, "Patents") and
for each
Patent, the number, issue date, title and priority information for
each country
in which such Patent has been issued, and for each Patent
application, the
application number, date of filing, title and priority information
for each
country in which a Patent application is pending and (iii)
registered domain
names, and World Wide Web Universal Resource Locators that are
owned by or
exclusively licensed to the Company (collectively, "Domain Names");
in each
case, except where such intellectual property relates to (x)
Software generally
available on reasonable terms without charge or for a license fee
of no more
than $50,000 or (y) agreements relating to Company Intellectual
Property not
incorporated into or used in the development, manufacturing or
distribution of
the products or services of the Company.
(b) Trademarks.
(i) All required registration, maintenance and renewal fees
have
been made with respect to all Trademarks. No Trademark is now
involved in any
opposition or cancellation proceeding in the United States Patent
and Trademark
Office. Except as set forth on Section 5.13(b)(i) of the Company
Disclosure
Schedule, to the Knowledge of the Company, there has been no prior
use of any
Trademark of the Company by any third party that confers upon said
third party
superior rights in any such Trademark.
(ii) The Company has not received any written notice or claim
or
overt oral threat challenging the Company's ownership of the
Trademarks.
(c) Patents.
(i) All required registration, maintenance and renewal fees
have
been made with respect to all Patents that, if not made, would
result in a
revocation or lapse of the Patent in question.
25
<PAGE>
(ii) No Patent of the Company is now involved in any
interference, reissue, reexamination or opposition proceeding in
the United
States Patent and Trademark Office or any foreign patent office,
and, to the
Knowledge of the Company, no such action has been Overtly
Threatened.
(iii) The Company is the owner of all right, title and interest
in and to all of the Patents, in each case free and clear of any
and all
Encumbrances, and the Company has not received any written notice
or claim
challenging the Company's ownership of the Patents, and to the
Knowledge of the
Company, no such claim has been Overtly Threatened. There is no
agreement,
decree, arbitral award or other provision or contingency which
obligates the
Company to grant licenses in future Patents.
(d) Copyrights. Section 5.13(d) of the Company Disclosure
Schedule
sets forth a complete and accurate list of all the Company's
registered
copyrights. The Company is the owner of each of the copyrights used
by the
Company in its Business, in each case free and clear of any and
all
Encumbrances, other than those as to which the rights being
exercised by the
Company (i) have been licensed from another Person or (ii) that are
not
incorporated into, or used in the development, manufacturing, or
distribution of
the products or services of the Company (collectively, "Company
Copyrights"),
and no third party has challenged the Company's ownership or use of
the Company
Copyrights in any written notice and to the Knowledge of the
Company, no such
challenge has been Overtly Threatened. To the Knowledge of the
Company, no other
Person has infringed or is infringing any of the Company
Copyrights.
(e) Trade Secrets.
(i) Except as would not reasonably be expected to cause a
Company
Material Adverse Effect, the Company has taken commercially
reasonable steps to
protect its rights in confidential information and proprietary
information,
including any formula, pattern, compilation, program, device,
method, technique,
or process for which the Company has not sought Patent protection
used by the
Company in its Business, explicitly excluding Residuals, that the
Company has
reasonably determined: (1) derives independent economic value,
actual or
potential, from not being generally known to the public or to other
Persons who
can obtain economic value from its disclosure or use and (2) is the
subject of
efforts that are reasonable under the circumstances to maintain its
secrecy
(collectively, "Trade Secrets").
(ii) Without limiting the generality of Section 5.13(e)(i), and
except as set forth in Section 5.13(e)(ii) of the Company
Disclosure Schedule,
the Company has a policy of requiring each relevant employee,
consultant and
contractor to execute proprietary information, confidentiality and
assignment
agreements substantially in the Company's standard forms that
assign to the
Company all rights to any Company Intellectual Property that are
developed by
the employees, consultants or contractors in the course of their
employment or
other service to the Company, as applicable, and that the Company
reasonably
believes otherwise appropriately protect the Company Intellectual
Property, to
the Knowledge of the Company such policy has been complied with in
all material
respects; and, except (A) subject to appropriate confidentiality
obligations,
(B) situations that would not reasonably be expected to cause a
Company Material
Adverse Effect or (C) demonstrations of Software and the
functionality of such
Software to customers, potential customers, vendors, partners or
other
26
<PAGE>
Persons with whom the Company has or is seeking a business
relationship in the
ordinary course of business, there has been no disclosure by the
Company of its
confidential information or Trade Secrets; nor, to the Knowledge of
the Company,
have any actions been taken by the Company which would affect the
Company's
ability to obtain U.S. or foreign protection for the Company's
inventions for
which Patent applications have been filed.
(f) License Agreements
(i) Section 5.13(f)(i) of the Company Disclosure Schedule sets
forth a complete and accurate list of all license agreements
granting to the
Company any right to use or practice any rights under any
intellectual property
rights of third parties currently used by the Company in the
operation of the
Company's Business (other than (x) Software generally available on
reasonable
terms without charge or for a license fee of no more than $50,000
or (y)
agreements relating to intellectual property rights of third
parties not
incorporated into or used in the development, manufacturing or
distribution of
the products or services of the Company) (collectively, the
"Company Inbound
License Agreements"), indicating for each the title and the parties
thereto.
(ii) Section 5.13(f)(ii) of the Company Disclosure Schedule
sets
forth a complete and accurate list of all license agreements (other
than "click
through" end user license agreements entered into by the Company in
the ordinary
course of business) currently in effect and under which the Company
invoiced in
calendar year 2005, or reasonably expects to invoice during
calendar year 2006,
providing for payments during either such year to the Company in
excess of
$100,000 under which the Company has granted licenses of Software
or other
rights to in or to use or practice any rights under any Company
Intellectual
Property (indicating for each the title and parties thereto) (the
"Company
Outbound License Agreements").
(iii) The Company has not received written notice of any
material
disagreement with respect to any Company Inbound License Agreement
or any
Company Outbound License Agreement. Correct and complete executed
copies of all
Company Inbound License Agreements and Company Outbound License
Agreements have
been made available to Parent.
(g) Domain Names. The Company is the sole owner of the Domain
Names,
and all such Domain Names are currently registered by the Company,
as sole
owner, with an ICANN accredited registrar, and the registration
fees are paid
through the date(s) listed on Section 5.13(g) of the Company
Disclosure
Schedule. To the Company's Knowledge and except as may be provided
on any such
internet site or in any terms of use or other policy governing the
use of or
access to any such internet site, the Company is the owner or has
sufficient
rights to display all content displayed on the Internet site
associated with
each of the Domain Names (collectively, the "Content"), and, except
pursuant to
Contracts listed on Section 5.4(c) of the Company Disclosure
Schedule, no
consent, license or approval from any third party is required in
connection with
the sale or transfer of the ownership of the Domain Names and the
continued use
of the Content by the Surviving Company.
(h) Ownership; Sufficiency of Intellectual Property Assets. The
Company owns or possesses adequate licenses or other rights to use,
free and
clear of Encumbrances
27
<PAGE>
(except in the case of licenses, the interests of the licensing
party) all
Company Intellectual Property and Software (to the extent owned or
exclusively
licensed), and, to the Knowledge of the Company, software not owned
or
exclusively licensed by the Company, in each case used in the
conduct of the
Company's Business. To the Company's Knowledge, the Company
Intellectual
Property together with the Company's rights granted to it under the
Company
Inbound License Agreements, constitute all intellectual property
used in the
operation of the Company's Business as currently conducted.
(i) No Infringement by the Company. Except as set forth on
Section
5.13(i) of the Company Disclosure Schedule, no litigation is now
pending and no
written notice has been received by the Company, or to the
Knowledge of the
Company, Overtly Threatened, (A) alleging that the Company has
engaged in any
activity or conduct that infringes upon, violates or constitutes
the
unauthorized use of the intellectual property rights of the Person
by whom such
notice or threat was made, including any contamination or
misappropriation of
trade secrets claims, or (B) challenging the ownership, use,
validity or
enforceability of any Patent.
(j)
No Infringement by Third Parties. Except as set forth on
Section
5.13(b)(j) of the Company Disclosure Schedule, to the Knowledge of
the Company,
no third party is misappropriating, infringing, diluting or
violating any
Company Intellectual Property or Company Software, and no claims
for any of the
foregoing have been brought against any third party by the Company.
The Company
has taken commercially reasonable steps to protect the Company
Intellectual
Property and the Company Software.
(k) Assignment; Change of Control. To the Knowledge of the
Company,
except for consents required pursuant to Contracts listed on
Section 5.4(c) of
the Company Disclosure Schedule, the execution, delivery and
performance by the
Company of this Agreement, the Ancillary Agreements and each of the
other
documents contemplated hereby or thereby to which it is a party,
and the
consummation of the transactions contemplated hereby and thereby,
will not
result in the loss or impairment of, or give rise to any right of
any third
party to terminate, any of the Company's rights to own any Company
Intellectual
Property or Company Software or rights under any Company Inbound
License
Agreement, nor require the consent of any Governmental Authority or
third party
in respect of any Company Intellectual Property or Company
Software.
(l) Software.
(i) The Software owned or purported to be owned by the Company
was: (i) developed by employees of the Company within the scope of
their
employment; (ii) developed by independent contractors who have
assigned their
rights in such Software to the Company pursuant to written
agreements; or (iii)
otherwise acquired by the Company from a third party who assigned
all
intellectual property rights in the Software to the Company. None
of the
Software owned or purported to be owned by the Company is, in whole
or in part,
subject to the provisions of any open source or quasi-open source
license
agreement that requires the disclosure of the source code to any
Software owned
or purported to be owned by the Company. The Company has made no
submission with
standards bodies or other entities, other than under Company
Inbound License
Agreements or Company Outbound License Agreements which
28
<PAGE>
would obligate the Company to grant licenses to or otherwise impair
its control
of the Company Intellectual Property or Company Software.
(ii) Section 5.13(l)(ii) of the Company Disclosure Schedule
includes a list of source code escrow arrangements into which the
Company has
entered.
(m) Encryption Technology. The Company's Business as currently
conducted complies with all U.S. applicable Laws, rules and
regulations
regarding encryption technology, including, without limitation, the
import and
export thereof. All CCAT's received by the Company are listed on
Section 5.13(m)
of the Company Disclosure Schedule.
(n) Use of User Data.
(i) The Company's use, license, sublicense and sale of any User
Data collected from users at its website and any co-branded
websites which the
Company manages comply in all material respects with the Company's
published
privacy policy, (collectively, the "Privacy Policies"), excluding
any violation
that, if disclosed, would not reasonably be expected to result in a
Company
Material Adverse Effect.
(ii) To the Company's Knowledge, it is in compliance in all
material respects with all contractual obligations binding on the
Company that
relate to or govern the compilation, use and transfer of User
Data.
(iii) There is no Action pending by any Person or any
Governmental Authority involving the use, disclosure or transfer of
any User
Data by the Company, nor, has the Company been contacted in writing
by any
Governmental Authority regarding the use, disclosure or transfer of
any User
Data by the Company.
(iv) None of the Privacy Policies currently in effect prohibits
the transfer of the User Data referred to in subsection (i) above
to Parent and
its Affiliates pursuant to Parent's acquisition of the websites,
products and
other assets of the Company pursuant to this Agreement (it being
understood
that, following such transfer, such User Data remains subject to
the applicable
use limitations set forth in such Privacy Policies).
(v) To the Knowledge of the Company, no Person has obtained
unauthorized access to User Data stored on the computer systems of
the Company
(including, without limitation, any User Data contained in any hard
copy
printouts), nor has there been any other unauthorized acquisition
of material
computerized data of the Company (including, without limitation,
any data
contained in any hard copy printouts) that has compromised the
security,
confidentiality or integrity of any User Data maintained by the
Company in any
material manner.
SECTION 5.14 Employee Benefit Matters.
(a) General. Section 5.14(a) of the Company Disclosure Schedule
contains a complete list of Company Benefit Plans. The Company and
its ERISA
Affiliates have performed in all material respects all obligations
required to
be performed by them under, are not in default under or violation
of any Company
Benefit Plan, and each Company Benefit Plan has been established
and maintained
in all material respects in accordance with its terms and in
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compliance with all applicable laws, statutes, orders, rules and
regulations,
including but not limited to ERISA and the Code. For the purposes
of this
Section 5.14(a), no action taken pursuant to this Agreement shall
be deemed to
constitute a default under or violation of any Company Benefit
Plan.
(b) Documents. True and complete copies of (i) each Company
Benefit
Plan listed on Section 5.14(a) of the Company Disclosure Schedule
(ii) the most
recent determination and opinion letters received from the Internal
Revenue
Service with respect to each such Company Benefit Plan that is
intended to be a
"qualified plan" under Section 401(a) of the Code or each
standardized prototype
plan on which each such Company Benefit Plan is based, (iii) for
the three (3)
most recent plan years, Annual Reports on Form 5500 Series required
to be filed
with any governmental agency for any Company Benefit Plan or
related trust, (iv)
if such Company Benefit Plan is funded, the most recent annual
accounting of
Company Benefit Plan assets, and (v) discrimination tests
demonstrating
compliance with Sections 401(a)(4), 401(k), 401(m) and 410(b) of
the Code (or
other applicable provisions of the Code) for each Company Benefit
Plan for each
year since the date of the plan's establishment, have been made
available to
Parent.
(c) Qualified Plans. Each Company Benefit Plan intended to be
qualified under Section 401(a) of the Code has received either a
favorable
determination letter or a favorable opinion letter from the
Internal Revenue
Service stating that such Company Benefit Plan, or the standardized
prototype
plan on which such Company Benefit Plan is based, is qualified and
that its
related trust, if any, is tax-exempt under the provisions of
Sections 401(a) (or
403(a), as appropriate) and 501(a) of the Code. For each Company
Benefit Plan
that is intended to be qualified under Section 401(a) of the Code,
to the
Company's Knowledge, there has been no event, condition or
circumstance that has
adversely affected or is likely to adversely affect such qualified
status that
could not be cured without material liability to the Company.
(d) Types of Plans. Neither the Company nor any ERISA Affiliate
has
ever maintained, established, sponsored, participated in or
contributed to, been
required to contribute to, or had any liability or obligation under
or relating
to any (i) Pension Plan that is subject to Section 302 or Title IV
of ERISA or
Section 412 of the Code, (ii) Multiemployer Plan, or (iii)
"multiple employer
plan" as defined in Section 3(40) of ERISA or Section 413(c) of the
Code, or
(iii) "welfare benefit fund" within the meaning of Section 419 of
the Code. No
Company Benefit Plan provides welfare benefits that are not fully
insured
through an insurance contract. Neither the Company nor any ERISA
Affiliate has
engaged in any transaction subject to Section 4069(a) or 4212(c) of
ERISA.
(e)
No Post-Employment Obligations. No Company Benefit Plan
provides,
or represents any material liability to provide, life insurance,
health or other
welfare benefits to any Company Employee upon his or her retirement
or
termination of employment or any reason, other than (i) coverage
mandated by
COBRA or any similar state or local law, (ii) death benefits under
any Pension
Plan, or (iii) disability benefits under any Welfare Plan that has
been fully
provided for by insurance or otherwise, and neither the Company nor
any ERISA
Affiliate has represented, promised or contracted (whether in oral
or written
form) to any Company Employee or any other person that such Company
Employee or
other person would be
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provided with life insurance, health or other welfare benefits upon
their
retirement or termination of employment, except those set forth in
clauses (i)
through (iii) of this Section 5.14(e).
(f) Unrelated Business Taxable Income. No Company Benefit Plan
(or
trust or other funding vehicle pursuant thereto) has incurred any
liability
under Code Section 511.
(g) Fiduciary Duties and Prohibited Transactions. No non-exempt
"prohibited transaction," within the meaning of Section 4975 of the
Code, or
transaction in violation of Section 406 or 407 of ERISA has
occurred with
respect to any Company Benefit Plan. Neither the Company nor any
ERISA Affiliate
is subject to any penalty or tax with respect to any Company
Benefit Plan under
Section 502(i) or 502(l) of ERISA or Subtitle A, Chapter 43 of the
Code.
(h) Litigation. There is no action, order, writ, injunction,
judgment
or decree outstanding or claim (other than routine claims for
benefits), suit,
litigation, proceeding, arbitration proceeding, governmental audit
or
investigation relating to or seeking benefits under any Company
Benefit Plan
that is pending against the Company, any ERISA Affiliate or any
Company Benefit
Plan.
(i) No Amendments. Neither the Company nor any ERISA Affiliate has
any
plan or commitment, whether legally binding or not, to establish
any new Company
Benefit Plan, to modify any Company Benefit Plan (except to the
extent required
by law or to conform any such Company Benefit Plan to the
requirements of any
applicable law, or as required by this Agreement), or to adopt or
enter into any
Company Benefit Plan. Except as set forth in Section 5.14(i) of the
Company
Disclosure Schedule, each Company Benefit Plan can be amended,
terminated or
otherwise discontinued after the Effective Time in accordance with
its terms,
without liability to Parent, the Company or any of its ERISA
Affiliates (other
than ordinary administration expenses normally associated with a
termination).
(j) Insurance Contracts. No Company Benefit Plan holds as an asset
of
any Company Benefit Plan any interest in any annuity contract,
guaranteed
investment contract or any other investment or insurance contract
issued by an
insurance company that is the subject of bankruptcy,
conservatorship or
rehabilitation proceedings.
(k) Health Care Compliance. Neither the Company nor any ERISA
Affiliate has, in any material respect, violated the requirements
of COBRA, the
Family Medical Leave Act, the Health Insurance Portability and
Accountability
Act of 1996, the Women's Health and Cancer Rights Act of 1998, the
Newborns' and
Mothers' Health Protection Act of 1996, or any amendment to each
such act or any
similar provisions of state law applicable to Company
Employees.
(l)
Effect of Transaction. Except as set forth in Section 5.14(l)
of
the Company Disclosure Schedule or distributions to be made
pursuant to Article
III, the execution and delivery of this Agreement or the Ancillary
Agreements by
the Company and the consummation of the transactions contemplated
hereby or
thereby will not (either alone or upon the occurrence of any
additional or
subsequent events) constitute an event under any Company
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Benefit Plan 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 Company
Employee. No payment or benefit (or portion thereof) that will or
may be made by
the Company, its ERISA Affiliates or Parent or any of its
affiliates under any
Company Benefit Plan or this Agreement or the Ancillary Agreements
with respect
to any Company Employee will be a "parachute payment" within the
meaning of
Section 280G(b)(2) of the Code.
(m) No Other Material Liability. To the Knowledge of the Company,
no
event has occurred in connection with which the Company, any ERISA
Affiliate or
any Company Benefit Plan, directly or indirectly, could be subject
to any
material liability (other than the payment of benefits under the
terms of such
Company Benefit Plan) (A) under any statute, regulation or
governmental order
relating to any Company Benefit Plan or (B) pursuant to any
obligation of the
Company to indemnify any person against liability incurred under
any such
statute, regulation or order as they relate to the Company Benefit
Plans.
SECTION 5.15 Labor Matters
(a) Section 5.15(a) of the Company Disclosure Schedule includes
a
complete and accurate list (giving name, job title, credited
service, current
annual compensation (including a separate statement of base salary,
bonus and
benefits for each individual)) of each current Company Employee.
Except as set
forth on Section 5.15 of the Company Disclosure Schedule, the
employment of each
Company Employee is terminable at-will by the Company. The Company
has never
been materially delinquent in payments to any Company Employees or
Company
independent contractors for any wages, salaries, commissions,
bonuses or other
direct compensation for any services performed for it or amounts
required to be
reimbursed to such employee or contractor. The Company is and has
always been in
compliance in all material respects with all applicable Laws
respecting labor,
employment, immigration, fair employment practices, terms and
conditions of
employment, workers' compensation, occupational safety, plant
closings, wages
and hours. The Company has withheld all amounts required by
applicable Law or by
agreement to be withheld from the wages, salaries, and other
payments to
employees; and the Company has never been materially liable for any
arrears of
wages or any penalty for failure to comply with any of the
foregoing. The
Company has never been liable for any payment to any trust or other
fund or to
any Governmental Authority, with respect to unemployment
compensation benefits,
social security or other benefits or obligations for employees
(other than
routine payments to be made in the ordinary course of business and
consistent
with past practice).
(b) There are no pending claims against the Company under any
workers'
compensation plan or policy or for long-term disability. The
Company is not
bound by or subject to (and none of its assets or properties are
bound by or
subject to) any written or oral, express or implied, contract,
commitment or
arrangement with any labor union, and no labor union has requested
or, to the
Knowledge of the Company, has sought to represent any of the
employees,
representatives or agents of the Company. There is no strike or
other labor
dispute involving the Company pending or, to the Knowledge of the
Company,
Overtly Threatened. The Company has not, during the three year
period prior to
the date of this Agreement, received any demand letters, civil
rights charges,
suits, drafts of suits, or administrative claims of or from any
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of its employees. There are no material controversies pending or,
to the
Knowledge of the Company, Overtly Threatened, between the Company
and any
Company Employees or Company independent contractors.
(c) Except as set forth on Section 5.15(c) of the Company
Disclosure
Schedule, to the Knowledge of the Company, no Company Employees or
Company
independent contractors are or have ever been in material violation
of any term
of any employment contract, non-disclosure agreement,
noncompetition agreement,
or any restrictive covenant to a former employer relating to the
right of any
such employee to be employed by the Company because of the nature
of the
Company's Business or to the use by the Company of trade secrets or
proprietary
information of others. To the Knowledge of the Company, no Company
Employees or
Company independent contractors are or have ever been in material
violation of
any term of any employment contract, non-disclosure agreement,
noncompetition
agreement, or any restrictive covenant relating to the Company's
Business.
(d) No current Company Employees or Company independent
contractors
have given notice to the Company, nor is the Company otherwise
aware, that any
such Person intends to terminate his or her employment with the
Company. The
Company is in compliance with all Laws concerning the
classification of
employees and independent contractors and has properly classified
all such
Persons for purposes of participation in the Company Benefit
Plans.
SECTION 5.16 Environmental Matters. The Company (v) is in
material
compliance with all, and is not subject to any material liability,
in each case
with respect to any, applicable Environmental Laws, (w) holds or
has applied for
all Environmental Permits necessary to conduct its current
operations, and (x)
is in material compliance with its Environmental Permits. The
Company has not
received any notice, demand, letter, claim or request for
information alleging
that the Company may be in violation of, or liable under, any
Environmental Law.
The Company (y) has not entered into or agreed to any consent
decree or order or
is subject to any judgment, decree or judicial order relating to
compliance with
Environmental Laws, Environmental Permits or the investigation,
sampling,
monitoring, treatment, remediation, removal or cleanup of Hazardous
Materials
and no investigation, litigation or other proceeding is pending or
Overtly
Threatened with respect thereto, or (z) is not an indemnitor in
connection with
any claim Overtly Threatened by any third-party indemnitee for any
liability
under any Environmental Law or relating to any Hazardous Materials.
To the
Company's Knowledge, the Company does not use any Hazardous
Materials in the
conduct or operation of the Company's Business. None of the real
property owned
or leased by the Company is listed or, to the Knowledge of the
Company, proposed
for listing on the "National Priorities List" under CERCLA, as
updated through
the date of this Agreement, or any similar state or foreign list of
sites
requiring investigation or cleanup. (i) To the Company's Knowledge,
no Hazardous
Material is present at any of the real property owned or leased by
the Company
in material violation of any applicable Environmental Law, (ii) the
Company has
not engaged in any Hazardous Materials Activity in material
violation of any
applicable Environmental Law, and (iii) no Action seeking material
damages is
pending or, to the Knowledge of the Company, has been Overtly
Threatened against
the Company concerning any of the Hazardous Materials Activities of
the Company,
or Hazardous Materials Activity on any of the real property owned
or leased by
the Company.
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SECTION 5.17 Insurance. Section 5.17 of the Company Disclosure
Schedule
includes a list of all material policies of fire, liability,
product liability,
workmen's compensation, health and other forms of insurance
presently in effect
with respect to the Company's Business (the "Company Insurance
Policies"),
including the named insured(s), true and complete copies of which
have been made
available for review by Parent. All Company Insurance Policies are
valid,
outstanding and enforceable policies and provide insurance coverage
for the
Company Assets and operation of the Company's Business, of the
kinds, in the
amounts and against the risks required to comply with applicable
Law and/or any
contractual or other obligations. The Company has not been refused
any insurance
with respect to any aspect of the operations of its Business, nor
has its
coverage been limited by any insurance carrier to which it has
applied for
insurance or with which it has carried insurance. No notice of
cancellation or
termination has been received with respect to any such policy. The
activities
and operations of the Company have been conducted in a manner so as
to conform
in all material respects to all applicable provisions of the
Company Insurance
Policies.
SECTION 5.18 Brokers. No broker, finder or similar intermediary has
acted
for or on behalf of, or is entitled to any broker's, finder's or
similar fee or
other commission from, the Company or any of its Affiliates in
connection with
this Agreement, any of the Ancillary Agreements or the transactions
contemplated
hereby or thereby.
SECTION 5.19 Warranties; Product Liability.
(a) Warranties. Except pursuant to the terms of any Scheduled
Contract
or Company Outbound License Agreement or other standard agreement
to purchase or
license the Company's products in its ordinary course of business
or as may be
required by Law, there are no warranties, express or implied,
written or oral,
with respect to the products or services of the Company, and there
are no
Actions pending or, to the Knowledge of the Company, Overtly
Threatened, with
respect to any such warranty.
(b) Product Liability. Since January 1, 2001, there have been
no
product liability Actions involving the Company relating to
products or services
developed, manufactured, sold or provided by the Company, nor, to
the Knowledge
of the Company, has any such Action been Overtly Threatened.
SECTION 5.20 Absence of Certain Changes or Events. Since December
31, 2005
until the date of this Agreement, other than as set forth on
Section 5.20 of the
Company Disclosure Schedule there has not been any:
(a) Company Material Adverse Effect or any event or development
that
would reasonably be expected to have a Company Material Adverse
Effect;
(b) material failure to operate the Company's Business in the
ordinary
course so as to use all commercially reasonable efforts to preserve
the
Company's Business intact and to preserve the continued services of
the
Company's employees and the goodwill of suppliers, customers and
others having
business relations with the Company;
(c) resignation or termination of any key employee or
independent
contractor, officer or manager, or (except with respect to changes
in
compensation to the amount
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reflected on the list of employees made available to Parent) any
increase in the
rate of compensation payable or to become payable to any officer or
manager of
the Company (other than in connection with general,
regularly-scheduled
reviews), including the making of any loan to, or the payment,
grant or accrual
of any bonus, incentive compensation, service award or other
similar benefit to,
any such Person, or the addition to, modification of, or
contribution to any
Company Benefit Plan;
(d) sale, assignment, license, transfer or Encumbrance of any
material
Company Assets, tangible or intangible, singly or in the aggregate,
other than
(i) sales or licenses of products and services in the ordinary
course of
business and consistent with past practice and (ii) Permitted
Encumbrances;
(e) new Contracts, or extensions, modifications, terminations
or
renewals thereof, except for Contracts entered into, modified or
terminated in
the ordinary course of business and consistent with past practice
or Contracts
that are otherwise immaterial to the Company;
(f) change in accounting methods or practices by the Company or
revaluation by the Company of any of the Company Assets, including
writing off
or establishing reserves with respect to inventory, notes or
accounts receivable
(other than for which adequate reserves have been previously
established);
(g) declaration, setting aside or payment of any dividend or
distribution in respect of any Units of the Company or any
redemption, purchase
or other acquisition of any Units or other equity securities of the
Company
other than the Closing Dividend, any distribution made with respect
to taxes
payable by Unitholders with respect to taxable income for 2005 and
purchases by
the Company of Class A Units held by Unitholders who are not
Accredited
Investors;
(h) failure to pay any material obligation of the Company when
due,
unless the Company is disputing such obligation in good faith and
maintaining
appropriate reserves therefor;
(i) acceleration or delay in any material respect of the collection
of
any account receivable in advance of or beyond its regular due date
or the date
on which the same would have been collected in the ordinary course
of business
consistent with past practice or (ii) delay or acceleration in any
material
respect of the payment of any account payable in advance of its due
date or the
date such liability would have been paid in the ordinary course of
business
consistent with past practice;.
(j) failure to pay any material obligation of the Company when
due,
unless the Company is disputing such obligation in good faith and
maintaining
appropriate reserves therefor;
(k) cancellation of any material indebtedness or waiver of any
rights
of substantial value to the Company, except in the ordinary course
of business
and consistent with past practice;
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(l) indebtedness incurred by the Company for borrowed money or
any
commitment to borrow money entered into by the Company, or any
loans made or
agreed to be made by the Company;
(m) acquisition of any equity interest in any other Person;
(n) adoption, modification or termination of any Company Benefit
Plan
except (x) as required by Law, or (y) changes to the Company Option
Plan
contemplated by this Agreement; or
(o) agreement by the Company directly or indirectly to do any of
the
foregoing.
SECTION 5.21 Customers. Section 5.21 of the Company Disclosure
Schedule
sets forth the Company's ten largest customers by revenues
recognized in the
Unaudited Company Financial Statements. None of such ten largest
customers has
notified the Company in writing of its intent to terminate the
license agreement
or services agreement between such customer and the Company or to
materially
reduce the services thereunder (nor, to the Knowledge of the
Company, has any
such customer Overtly Threatened to terminate the license agreement
or services
agreement between such customer and the Company or to materially
reduce the
services thereunder).
SECTION 5.22 Prohibited Transactions. None of Company or any
Representative
acting on its behalf, has offered, paid, or agreed to pay any
Person, including
any Government Authority, directly or indirectly, any thing of
value for the
purpose of, or with the intent of obtaining or retaining any
business included
in the Company's Business in violation of applicable Laws,
including (i) using
any corporate funds for any unlawful contribution, gift,
entertainment or other
unlawful expense relating to political activity, (ii) making any
direct or
indirect unlawful payment to any foreign or domestic government
official or
employee from corporate funds, (iii) violating any provision of the
Foreign
Corrupt Practices Act of 1977, as amended, or (iv) making any
bribe, rebate,
payoff, influence payment, kickback or other unlawful payment.
SECTION 5.23 Conflicts of Interest; Affiliate Transactions.
(a) Neither the Company, nor, to the Knowledge of the Company,
any
Unitholder, Manager or officer of the Company:
(i) owns, directly or indirectly, any interest in (excepting
less
than one percent (1%) stock holdings for investment purposes in
securities of
publicly traded companies), or is an officer, director, employee or
consultant
of, any Person that carries on business in competition with the
Company; or
(ii) has any material claim against, or owes any material
amount
to, the Company, except for claims for salary, commissions, accrued
vacation pay
and accrued benefits under Company Benefit Plans.
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(b) No Contract, understanding or arrangement between the Company,
on
the one hand, and any of its respective Unitholders, Managers or
officers, on
the other hand, will continue in effect subsequent to the Closing
Date, except
for such rights as pertain to such person as an employee of the
Company or a
holder of the Company's equity securities.
SECTION 5.24 Investment Company Act. The Company is not an
"investment
company" within the meaning of the Investment Company Act of 1940,
as amended
(the "Investment Company Act"), which is required to be registered
under the
Investment Company Act in order to engage in the transactions
described in
Section 7 of that Act. The Company is not a "broker" or "dealer"
within the
meaning of the Exchange Act. The Company does not act as investment
adviser or
subadviser to any "investment company," as defined in the
Investment Company
Act, which is registered under such Act.
SECTION 5.25 Member Consent; Accredited Investors.
(a) The only vote of any class or series of the Company's Units or
the
Company Options necessary to adopt or approve this Agreement, the
Ancillary
Agreements, the Merger and the other transactions contemplated
hereby and
thereby are: (i) the consent of a majority of the Units, voting
together as a
single class, (ii) the consent of James W. MacIntyre IV as Chief
Executive
Officer of the Company, and (iii) the consent of David Scherer as
Chief
Technology Officer of the Company (collectively, the "Member
Consent"). The
Member Consent has been obtained.
(b) Each Unitholder holding Class A Units, each Unitholder
holding
Class B Units and each Unitholder holding Class C Units is an
Accredited
Investor.
(c) The information supplied by the Company for inclusion in
the
materials submitted to the holders of Units in connection with the
solicitation
of their votes regarding this Agreement and the transactions
contemplated hereby
did not contain any untrue statement of a material fact or omit to
state any
material fact required to be stated therein or necessary in order
to make the
statements therein, in light of the circumstances under which they
were made,
not misleading.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in the written disclosure schedule dated as of
the
date of this Agreement and previously delivered by Parent and
Merger Sub to the
Company (the "Parent Disclosure Schedule") (it being understood
that Parent
Disclosure Schedule shall be arranged in sections corresponding to
the sections
contained in this Agreement, and the disclosures in any section of
Parent
Disclosure Schedule shall qualify the representations in the
corresponding
section of this Article VI and shall be deemed made in any other
section or
sections of Parent Disclosure Schedule where the relevance of such
disclosures
is reasonably apparent from the text of such disclosure), Parent
and Merger Sub
hereby jointly and severally represent and warrant to the Company
as follows:
SECTION 6.1 Organization. Parent is a corporation duly organized,
validly
existing and in good standing under the Laws of the State of
Delaware, and has
all requisite corporate power
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and authority to own, operate or lease the properties and assets
now owned,
operated or leased by it, and to carry on its Business in all
material respects
as currently conducted. Merger Sub is a limited liability company
duly
organized, validly existing and in good standing under the Laws of
the State of
Delaware and has all requisite limited liability company power and
authority to
own, operate or lease the properties and assets now owned, operated
or leased by
it, and to carry on its Business in all material respects as
currently
conducted. Parent is duly qualified or licensed as a foreign
corporation to do
business, and is in good standing, under the Laws of each
jurisdiction in which
the character of its properties owned, operated or leased by it, or
the nature
of its activities, makes such qualification necessary, except in
those
jurisdictions where the failure to be so qualified or licensed and
in good
standing would not have a Parent Material Adverse Effect.
SECTION 6.2 Authorization; No Conflicts
(a) Each of Parent and Merger Sub has full power and authority
to
execute and deliver this Agreement and the Ancillary Agreements to
which it is a
party and to consummate the transactions contemplated hereby and
thereby. The
execution and delivery of this Agreement and the Ancillary
Agreements to which
each of Parent and Merger Sub is a party and the consummation of
the
transactions contemplated hereby and thereby have been duly
authorized by all
necessary corporate action on the part of each of Parent and Merger
Sub, and no
other corporate action on the part of Parent or Merger Sub is
necessary to
approve this Agreement or the Ancillary Agreements to which they
are a party or
authorize or consummate the transactions contemplated hereby and
thereby. This
Agreement and the Ancillary Agreements to which each of Parent and
Merger Sub is
a party have been duly and validly executed and delivered by each
of Parent and
Merger Sub (assuming the due authorization, execution and delivery
of this
Agreement and the Ancillary Agreements by the other parties hereto
and thereto)
and constitute valid and binding obligations of each of Parent and
Merger Sub,
enforceable against each of Parent and Merger Sub in accordance
with their
terms, except as the enforceability thereof may be subject to or
limited by
bankruptcy, insolvency, reorganization, moratorium or similar Laws
relating to
or affecting the rights of creditors generally and the availability
of equitable
relief (whether in proceedings at law or in equity).
(b) Assuming all consents, approvals, authorizations, filings
and
notifications and other actions set forth in Section 6.3 have been
obtained or
made, neither the execution and delivery of this Agreement or the
Ancillary
Agreements to which it is a party by each of Parent and Merger Sub
nor the
consummation by Parent or Merger Sub of the transactions
contemplated hereby or
thereby to be performed by Parent or Merger Sub, nor compliance by
Parent or
Merger Sub with any of the terms or provisions hereof or thereof,
will (i)
violate any provision of the organizational documents of Merger Sub
or violate
any provision of the certificate of incorporation or bylaws of
Parent, (ii) (x)
violate, conflict with or require any notice, filing, consent or
approval under
any material applicable Law to which Parent, Merger Sub or any of
their
respective properties, contracts or assets are subject, or (y)
violate, conflict
with, result in a breach of any provision of or the loss of any
benefit under,
constitute a default (or an event which, with or without notice or
lapse of
time, or both, would constitute a default) under, result in the
termination of
or a right of termination or cancellation under, accelerate or
result in a right
of acceleration of the performance required by, result in the
creation of any
Encumbrance upon Parent Common Stock, properties, contracts or
assets of Parent
or Merger
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Sub under, or require any notice, approval or consent under, any
note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or
other
instrument or obligation to which Parent Merger Sub is a party, or
by which
Parent Merger Sub, or any of their respective properties or assets,
may be bound
or affected in any material respect.
SECTION 6.3 Consents, Approvals, Etc. Except where the failure to
obtain
any consents, approvals, authorizations or actions, or to make such
filings or
notifications would not, when taken together with all other such
failures by
Parent and Merger Sub, have a material adverse effect on the
ability of Parent
or Merger Sub to perform its respective obligations under this
Agreement or
consummate the transactions contemplated by this Agreement, no
consents,
waivers, approvals, authorizations, orders or permits of, or
declarations,
filings or registrations with, or notifications to, any
Governmental Authority
or any third party are necessary in connection with the execution
and delivery
by Parent or Merger Sub of this Agreement and the Ancillary
Agreements to which
it is a party or the consummation by Parent of the transactions
contemplated
hereby or thereby.
SECTION 6.4 Litigation and Governmental Orders. As of the date of
this
Agreement, there are no material Actions pending or of which Parent
has received
written notice against Parent, Merger Sub or any Subsidiaries of
Parent ("Parent
Subsidiaries"), or any of the assets or properties of Parent,
Merger Sub or any
Parent Subsidiaries, that would (x) prevent either Parent or Merger
Sub from
performing its obligations under this Agreement, (y) prevent either
Parent or
Merger Sub from consummating the transactions contemplated hereby,
or (z)
reasonably be expected to result in a Parent Material Adverse
Effect. Parent,
Merger Sub and Parent Subsidiaries and their respective assets and
properties
are not subject to any material Governmental Order that would
prevent either
Parent or Merger Sub from performing its obligations under this
Agreement or
consummating the transactions contemplated hereby.
SECTION 6.5 Brokers. Except for Friedman, Billings, Ramsey &
Co., Inc., no
broker, finder or similar intermediary has acted for or on behalf
of, or is
entitled to any broker's, finder's or similar fee or other
commission from,
Parent or Merger Sub in connection with this Agreement or the
transactions
contemplated hereby.
SECTION 6.6 Valid Issuance of Shares. The shares of Parent Common
Stock to
be issued by Parent in connection with the transactions
contemplated by this
Agreement, when issued in accordance with the terms of this
Agreement, will be
duly authorized, validly issued, fully paid and nonassessable and
will not be
issued in violation of any preemptive rights.
SECTION 6.7 SEC Filings. As of their respective filing dates, all
of the
forms, reports and documents filed by Parent with the U.S.
Securities and
Exchange Commission ("SEC") since October 1, 2004 (collectively,
the "Parent SEC
Filings") complied in all material respects with the requirements
of the
Securities Act and the Exchange Act, as the case may be, and none
of Parent SEC
Filings contained any untrue statement of a material fact or
omitted to state a
material fact required to be stated therein or necessary to make
the statements
made therein, in the light of the circumstances under which they
were made, not
misleading, in each case except to the extent corrected by a
subsequent Parent
SEC Filing. The financial statements of Parent included in Parent
SEC Filings
filed on or after November 25, 2005 complied as to form in all
material respects
with applicable accounting requirements and the published rules
and
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regulations of the SEC with respect thereto, were prepared in
accordance with
generally accepted accounting principles (except, in the case of
unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis
during the periods involved (except as may be indicated in the
notes thereto)
and fairly presented the consolidated financial position of Parent
as of the
dates thereof and the consolidated results of its operations and
cash flows for
the periods then ended (subject, in the case of unaudited
statements, to normal
year-end audit adjustments). Between September 30, 2005 and the
date of this
Agreement, Parent has not incurred any liabilities of the type
required to be
disclosed in the liabilities column of a balance sheet prepared in
accordance
with U.S. generally accepted accounting principles, except for (i)
liabilities
incurred in the ordinary course of business, and (ii) liabilities
that would not
have a Parent Material Adverse Effect.
SECTION 6.8 Capitalization.
Authorized, Issued and Outstanding Capital Stock. The
authorized
capital stock of Parent consists of 85,000,000 shares, of which (i)
75,000,000
shares are Parent Common Stock and (ii) 10,000,000 shares are
preferred stock,
none of which have been designated or issued. As of January 1,
2006: Parent had
18,992,886 shares of Parent Common Stock issued and outstanding;
2,823,099
shares of Parent Common Stock were duly reserved for future
issuance upon the
exercise of stock options and stock awards granted on or prior to
such date
pursuant to Parent's option and incentive plans; 10,000 shares of
Parent Common
Stock were duly reserved for issuance upon the exercise of warrants
issuable to
a third party; and 1,690,582 shares of Parent Common Stock were
duly reserved
for future issuance upon the exercise of employee stock options and
stock awards
available for grant after such date pursuant to Parent's option and
incentive
plans. Other than as set forth in the previous sentence and other
than
securities issuable pursuant to the transactions contemplated by
this Agreement,
there are no outstanding securities, options, warrants, calls,
rights,
commitments, agreements, arrangements or undertakings of any kind
(contingent or
otherwise) to which Parent is a party or bound obligating Parent to
issue,
deliver or sell, or cause to be issued, delivered or sold
additional shares of
capital stock or other voting securities of Parent or obligating
Parent to
issue, grant, extend or enter into any agreement to issue, deliver
or sell any
such capital stock or securities. Neither Parent nor any Subsidiary
of Parent is
subject to any obligation or requirement to provide material funds
for or to
make any material investment (in the form of a loan or capital
contribution) in
any Person (other than to or in the Parent or any of its
Subsidiaries). There
are no accrued or unpaid dividends with respect to any issued and
outstanding
shares of Parent Common Stock. There are no bonds, debentures,
notes or other
indebtedness of Parent having the right to vote (or convertible
into securities
having the right to vote) on any matters on which stockholders of
Parent may
vote.
SECTION 6.9 Absence of Certain Changes or Events. Since September
30, 2005
through the date of this Agreement, there has not occurred (i) any
Parent
Material Adverse Effect, (ii) except as set forth on Section 6.9 of
Parent
Disclosure Schedule, any material change by Parent in its
accounting methods,
principles or practices except as required by concurrent changes in
U.S.
generally accepted accounting principles, (iii) any material
reevaluation by
Parent of any of its assets, including, without limitation, writing
down the
value of capitalized inventory or writing off notes or accounts
receivable other
than in the ordinary course, (iv) any declaration, setting aside or
payment of
any dividend or other distribution (whether in cash, stock
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or property) with respect to any of Parent's capital stock, (v) any
damage,
destruction or loss (whether or not covered by insurance)
materially adversely
affecting Parent's assets or the Business of Parent, (vi) material
indebtedness
incurred by Parent for borrowed money or any commitment to borrow
money entered
into by Parent, or any loans made or agreed to be made by Parent,
(vii) any
failure to pay any material obligation of Parent when due (subject
to any
applicable grace periods) or (viii) agreement by Parent directly or
indirectly
to do any of the foregoing.
SECTION 6.10 Interim Operations of Merger Sub (No Parent Vote
Required).
Merger Sub was formed solely for the purpose of engaging in the
transactions
contemplated by this Agreement, has engaged in no other business
activities and
has conducted its operations only as contemplated in this
Agreement. No vote or
other action of the stockholders of Parent is required by Law,
Parent's
Certificate of Incorporation or Parent's Bylaws or otherwise in
order for Parent
and Merger Sub to consummate the Merger.
SECTION 6.11 Solvency. As of and immediately following the
Effective Time,
(a) Parent and the Surviving Company shall be able to pay their
respective debts
as they become due and shall own assets having a fair saleable
value greater
than the amounts required to pay their respective debts (including
a reasonable
estimate of the amount of all contingent liabilities) as they
become due, and
(b) Parent and the Surviving Company shall have reasonably adequate
capital to
carry on their respective Businesses. No transfer of property is
being made and
no obligation is being incurred
