AGREEMENT AND PLAN OF MERGER

 

TABLE OF CONTENTS

 

ARTICLE 1				THE OFFER	2
	1.1			The Offer	2
	1.2			Parent and Purchaser’s Obligations with Respect to the Offer	3
	1.3			The Company’s Obligations with Respect to the Offer	4
ARTICLE 2				THE MERGER	5
	2.1			The Merger	5
	2.2			Effects of the Merger	6
	2.3			Certificate of Incorporation and Bylaws of the Surviving Corporation	6
	2.4			Directors	6
	2.5			Officers	6
	2.6			Effect on Shares of Capital Stock	6
	2.7			Options; Stock Option Plans; Restricted Shares; Employee Stock Purchase Plan; Rights Plan	8
	2.8			Payment for Shares in the Merger	9
	2.9			Withholdings	11
	2.10			Additional Actions	11
ARTICLE 3				REPRESENTATIONS AND WARRANTIES OF THE COMPANY	12
	3.1			Organization and Standing	12
	3.2			Subsidiaries	13
	3.3			Corporate Power and Authority	13
	3.4			Capitalization of the Company	14
	3.5			Conflicts; Consents and Approvals	14
	3.6			Absence of Certain Changes	15
	3.7			Company SEC Documents	16
	3.8			Taxes.	17
	3.9			Compliance with Law	19
	3.10			Intellectual Property	19
	3.11			Title to and Condition of Properties	22
	3.12			Litigation	22
	3.13			Brokerage and Finder’s Fees; Expenses	22
	3.14			Employee Benefit Plans	22
	3.15			Contracts	25
	3.16			Privacy Matters; Security and Operation of the Service	26
	3.17			Labor Matters	27

 

i

 

	3.18			Undisclosed Liabilities	28
	3.19			Relationship with Content Providers	28
	3.20			Permits; Compliance	28
	3.21			Environmental Matters	28
	3.22			Opinion of Financial Advisor	29
	3.23			Board Approval	29
	3.24			Vote Required	30
	3.25			Insurance	30
	3.26			Company IT	30
	3.27			Related Party Transactions	30
	3.28			State Takeover Statutes	31
	3.29			Rule 14d-10(d)	31
ARTICLE 4				REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER	31
	4.1			Organization and Qualification	31
	4.2			Authority Relative to this Agreement	31
	4.3			No Violation; Required Filings and Consents	32
	4.4			Brokers	32
	4.5			Proxy Statement	32
	4.6			Offer Documents	32
	4.7			Legal Proceedings	33
	4.8			Availability of Funds	33
	4.9			Ownership of Company Capital Stock	33
ARTICLE 5				COVENANTS	33
	5.1			Interim Operations	33
	5.2			Merger Without a Stockholder Meeting; Preparation of the Proxy Statement; Stockholder Meeting	36
	5.3			Filings and Consents	37
	5.4			Access to Information	38
	5.5			Notification of Certain Matters	38
	5.6			Public Announcements	39
	5.7			Indemnification; Directors’ and Officers’ Insurance	39
	5.8			Further Assurances; Reasonable Efforts	41
	5.9			[intentionally deleted]	41
	5.10			No Solicitation.	41
	5.11			Deregistration	43

 

ii

 

	5.12			Option to Acquire Additional Shares	44
	5.13			Directors	45
	5.14			Employee Benefits	46
ARTICLE 6				CONDITIONS TO CONSUMMATION OF THE MERGER	47
	6.1			Conditions to the Obligations of Each Party	47
ARTICLE 7				TERMINATION	48
	7.1			Termination by Mutual Consent	48
	7.2			Termination by Purchaser, Parent or the Company	48
	7.3			Termination by the Company	48
	7.4			Termination by Purchaser or Parent	48
	7.5			Payment of Fees and Expenses	49
	7.6			Effect of Termination	50
ARTICLE 8				MISCELLANEOUS	50
	8.1			Third-Party Beneficiaries	50
	8.2			No Survival	50
	8.3			Modification or Amendment	50
	8.4			Entire Agreement; Assignment	51
	8.5			Notices	51
	8.6			Governing Law	52
	8.7			Descriptive Headings	52
	8.8			Counterparts	52
	8.9			Certain Definitions	52
	8.10			Extension; Waiver	53
	8.11			Severability	53
	8.12			Submission to Jurisdiction; Waiver of Jury Trial	53
	8.13			Enforcement of Agreement	53
	8.14			Calculation of Share Ownership	54

 

iii

 

AGREEMENT AND PLAN OF MERGER

 

THIS AGREEMENT AND PLAN OF MERGER (this “ Agreement ”), dated as of September 14, 2008, is entered into by and among Best Buy Co., Inc., a Minnesota corporation (“ Parent ”), Puma Cat Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent (“ Purchaser ”), and Napster, Inc., a Delaware corporation (the “ Company ”).

 

RECITALS

 

A.                                      The respective boards of directors of Parent, Purchaser and the Company have approved, and deem it advisable and in the best interests of their respective stockholders to consummate, the acquisition of the Company by Parent upon the terms and subject to the conditions set forth in this Agreement;

 

B.                                        In furtherance of such acquisition, Parent proposes to cause Purchaser to make a tender offer to purchase all of the issued and outstanding shares of common stock, par value $0.001 per share, and the associated stock purchase rights of the Company at a purchase price of $2.65 per share, without interest or accrued dividends, net to seller and subject to the conditions set forth in this Agreement;

 

C.                                        In furtherance of such acquisition, the respective boards of directors of Parent, Purchaser and the Company have approved the merger of Purchaser with and into the Company following the consummation of the above-described tender offer, on the terms and subject to the conditions set forth in this Agreement, whereby (i) Purchaser will be merged with and into the Company, with the Company continuing as the surviving corporation and a wholly-owned subsidiary of Parent following the merger; (ii) each issued and outstanding share of the Company’s Common Stock not owned by the Company, Parent, or Purchaser, or with respect to which the holder thereof has not properly asserted appraisal rights under the Delaware General Corporation Law (“ DGCL ”), shall be converted into the right to receive $2.65 in cash and (iii) each issued and outstanding share of Purchaser common stock will be converted into one (1) share of common stock of the surviving corporation; and

 

D.                                       To induce Parent and Purchaser to enter into this Agreement, certain stockholders of the Company have executed stockholder support agreements with Parent contemporaneously herewith.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, and for other good and valuable consideration, the parties agree as follows:

 

 

ARTICLE 1

THE OFFER

 

1.1                                  The Offer .

 

(a)                                        Provided that this Agreement shall not have been terminated in accordance with Article 7, as promptly as practicable and in any event within ten (10) Business Days of the date of this Agreement, Parent shall cause Purchaser to commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), an offer to purchase (the “ Offer ”) all issued and outstanding shares of common stock of the Company, par value $0.001 per share, and all stock purchase rights associated with such shares (the “ Shares ”) at a price of $2.65 per share, without any interest or accrued dividends, net to the seller in cash (the “ Offer Consideration ”).  For purposes of this Agreement, “ Business Day ” means any day, other than Saturday, Sunday or a federal holiday, and shall consist of the time period from 12:01 a.m. through 12:00 midnight Eastern Time; provided, however, for purposes of computing the required periods under Sections 5.10 and 7.4, a period of a certain number of Business Days shall in no event end earlier than that number of hours after the commencement of such period equal to the product of 24 and such number of Business Days.  The obligations of Purchaser to consummate the Offer, accept for payment and pay for Shares validly tendered in the Offer and not withdrawn shall be subject to those conditions set forth on Annex A hereto.

 

(b)                                       Purchaser expressly reserves the right, subject to compliance with the  Exchange Act, to amend or waive any terms or conditions of the Offer and to increase the Offer Consideration, except that, without the prior written consent of the Company, Purchaser shall not (and Parent shall not cause Purchaser to) (i) decrease the Offer Consideration or change the form of consideration therefor or decrease the number of Shares sought pursuant to the Offer, (ii) amend, modify or change the conditions to the Offer set forth in Annex A hereto in a manner adverse to the holders of Shares, (iii) impose conditions to the Offer in addition to those set forth in Annex A , (iv) waive or amend the Minimum Condition or the conditions set forth in clauses (G) or (H) of Annex A , (v) extend or otherwise change the expiration date of the Offer (except as set forth in this Section 1.1(b)), or (vi) amend any other term of the Offer in a manner adverse to the holders of Shares.  The initial expiration date of the Offer shall be twenty (20) Business Days from the commencement of the Offer (determined in accordance with Rules 14d-1(g)(3) and 14d-2 under the Exchange Act) (as the same may be extended in accordance with this Agreement, each an “ Expiration Date ”).  Purchaser shall not, and Parent agrees that it shall cause Purchaser not to, terminate or withdraw the Offer other than in connection with the effective termination of this Agreement in accordance with Article 7 hereof.  Notwithstanding the foregoing, Purchaser may, without Parent receiving the consent of the Company, (A) extend the Expiration Date for any period required by applicable rules and regulations of the United States Securities and Exchange Commission (the “ SEC ”) or the stock exchange applicable to the Offer or (B) elect to provide a subsequent offering period for the Offer in accordance with Rule 14d-11 under the Exchange Act.  So long as the Offer and this Agreement have not been terminated pursuant to Article 7, if at any scheduled Expiration Date, the conditions to the Offer set forth in Annex A shall not have been satisfied or earlier waived, Purchaser shall, and Parent shall cause Purchaser to, extend the Offer and the Expiration Date to a date that is not more than ten (10) Business Days after such previously scheduled Expiration Date.  Other than as provided in the

 

2

 

immediately preceding two sentences, Purchaser shall not, and Parent shall cause Purchaser not to, extend or delay the Expiration Date (or expiration time) without the prior written consent of the Company.  Subject to the terms of the Offer and this Agreement and the satisfaction (or waiver, to the extent permitted by this Agreement) of the conditions to the Offer set forth in Annex A , Purchaser shall accept for payment all Shares validly tendered and not withdrawn pursuant to the Offer as soon as practicable after the applicable Expiration Date and shall pay for all such Shares promptly after acceptance (the date of acceptance for payment, the “ Acceptance Date ”).  Notwithstanding any other provision of this Agreement, the Offer shall terminate upon termination of this Agreement pursuant to Article 7.

 

(c)                                        In the event that the Acceptance Date occurs but Parent and Purchaser do not collectively own ninety percent (90%) of the Shares (including, for purposes of this Section 1.1(c), Shares accepted for purchase, other than shares tendered by means of guaranteed delivery and not yet delivered) by means of the Offer or, in Purchaser’s discretion, the Top-Up Option, Purchaser shall, and Parent shall cause Purchaser to provide for a subsequent offering period under Rule 14d-11 under the Exchange Act, of not less than three (3) Business Days nor more than twenty (20) Business Days, in accordance with Rule 14d-11 under the Exchange Act, so that on or prior to the expiration of such subsequent offering period, Purchaser shall have accepted for payment and paid for a number of Shares, which together with any Shares then owned by Parent and Purchaser, represents at least ninety percent (90%) of the Shares (including Shares accepted for purchase, other than shares tendered by means of guaranteed delivery and not yet delivered).

 

1.2                                           Parent and Purchaser’s Obligations with Respect to the Offer .  On the date of commencement of the Offer, Parent and Purchaser shall file or cause to be filed with the SEC a Tender Offer Statement on Schedule TO promulgated under Section 14(d)(1) of the Exchange Act (together with all amendments and supplements, the “ Schedule TO ”) with respect to the Offer which shall contain the offer to purchase and related letter of transmittal and other ancillary Offer documents and instruments pursuant to which the Offer shall be made (collectively, with any supplements or amendments thereto, the “ Offer Documents ”), which shall contain (or shall be amended in a timely manner to contain) all information which is required to be included therein in accordance with the Exchange Act and the rules and regulations thereunder and any other Laws, and which shall comply in all material respects with the Exchange Act and any other Laws. For purposes of this Agreement, “ Laws ” shall mean any federal, state, local or non-U.S. law, statue, code, ordinance, regulation, code, order, judgment, writ, injunction, decision, ruling or decree promulgated by any Governmental Authority.  The Company and its counsel shall be given a reasonable opportunity to review and comment on the Offer Documents and any amendments or supplements thereto prior to the filing thereof with the SEC.  Purchaser shall, and Parent agrees to cause Purchaser to, provide the Company with (in writing, if written), and consult with the Company regarding, any comments (written or oral) that may be received by Parent, Purchaser or their counsel from the SEC or its staff with respect to the Offer Documents as promptly as practicable after receipt thereof.  The Company and its counsel shall be given a reasonable opportunity to review and comment on such written and oral comments and proposed responses.  The Parent and Purchaser shall deliver a copy of the Schedule TO to the Company at its principal executive office and shall mail the Offer Documents to the holders of Shares.  In conducting the Offer, Parent and Purchaser shall

 

3

 

comply in all material respects with the provisions of the Exchange Act and any other Law.  Without limiting the foregoing, at the times the Offer Documents are filed with the SEC, sent to the stockholders of the Company and Shares are purchased pursuant to the Offer, the Offer Documents will 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.  Notwithstanding the foregoing, Parent and Purchaser make no representations or warranties with respect to any information supplied by the Company or the Company Representatives that is contained in or incorporated by reference in the Offer Documents.  Parent, Purchaser and the Company each agree promptly to correct any information provided by them for use in the Offer Documents if and to the extent that it shall have become false or misleading in any material respect, and Purchaser further agrees to take all lawful action necessary to cause the Offer Documents as so corrected to be filed promptly with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by Law.

 

1.3                                           The Company’s Obligations with Respect to the Offer .  Within one (1) Business Day of the filing by Parent and Purchaser of the Schedule TO, the Company shall file or caused to be filed with the SEC, a Solicitation/Recommendation Statement on Schedule 14D-9 (together with all amendments and supplements thereto, the “ Schedule 14D-9 ”) that, subject to Section 5.10(c), will contain the recommendation of the Board of Directors of the Company (the “ Company Board ”) in favor of the acceptance of the Offer and the approval of the Merger Agreement and the Merger by the stockholders of the Company (the “ Company Board Recommendation ”) and otherwise complying with Rule 14d-9 under the Exchange Act.  The Schedule 14D-9 shall comply in all material respects with the Exchange Act and any other Laws and shall contain (or shall be amended in a timely manner to contain) all information which is required to be included therein in accordance with the Exchange Act and the rules and regulations thereunder and any other Laws.  Parent and its counsel shall be given a reasonable opportunity to review and comment on the Schedule 14D-9 and any amendments or supplements thereto prior to the filing thereof with the SEC.  The Company shall provide Parent with (in writing, if written), and consult with the Parent regarding, any comments (written or oral) that may be received by the Company or its counsel from the SEC or its staff with respect to the Schedule 14D-9 as promptly as practicable after receipt thereof.  Parent and its counsel shall be given a reasonable opportunity to review and comment on such written and oral comments and proposed responses.  At the times the Schedule 14D-9 is filed with the SEC, given to the stockholders of the Company and Shares are purchased pursuant to the Offer, the Schedule 14D-9 will 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.  Notwithstanding the foregoing, the Company makes no representations or warranties with respect to any information supplied by Parent or Purchaser or any of their respective representatives that is contained in or incorporated by reference in the Schedule 14D-9.  Parent, Purchaser and the Company each agree promptly to correct any information provided by them for use in the Schedule 14D-9 if and to the extent that it shall have become false or misleading in any material respect, and the Company further agrees to take all lawful action necessary to cause the Schedule 14D-9 as so corrected to be filed promptly with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by Law.  In connection with the Offer, the Company

 

4

 

shall promptly furnish, or cause its transfer agent to furnish, Parent with mailing labels, security position listings and all available listings or computer files containing the names and addresses of the record holders of the Shares as of the latest practicable date and shall furnish, or cause its transfer agent to furnish, Parent with such information and assistance (including updated lists of stockholders, mailing labels and lists of security positions) as Parent or its agents may reasonably request in communicating the Offer to the record and beneficial holders of Shares.  Subject to the requirements of Law, and except for such actions as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Offer and the Merger, Parent and Purchaser and each of their Affiliates and representatives shall hold in confidence the information contained in such labels and lists, shall use such information only in connection with the Offer and the Merger, and, if this Agreement is terminated, in accordance with its terms, shall deliver promptly to the Company all copies of such information then in their possession or under their control.

 

ARTICLE 2

THE MERGER

 

2.1                                  The Merger .

 

(a)                                        Subject to the conditions contained in this Agreement, the closing of the Merger (the “ Closing ”) shall take place (i) at the offices of Robins, Kaplan, Miller & Ciresi L.L.P., 2800 LaSalle Plaza, 800 LaSalle Avenue, Minneapolis, Minnesota 55402, as promptly as practicable but in no event later than the third (3rd) Business Day following the satisfaction (or waiver if permissible) of the conditions set forth in Article 6 (other than those conditions that by their terms will be satisfied at the Closing), or (ii) at such other place and time and/or on such other date as the Company and Purchaser may agree in writing.  The date on which the Closing occurs is hereinafter referred to as the “ Closing Date .”

 

(b)                                       On the Closing Date, the Company and Purchaser shall cause a Certificate of Merger or Certificate of Ownership and Merger, as applicable (the “ Certificate of Merger ”) to be duly executed, acknowledged and filed, in the manner required by the DGCL, with the Secretary of State of the State of Delaware, and the parties shall take such other and further actions as may be required by Law to make the Merger effective.  The date and time the Merger becomes effective in accordance with Law is referred to herein as the “ Effective Time .”  At the Effective Time, subject to the terms and conditions of this Agreement and in accordance with the provisions of the DGCL, Purchaser shall be merged (the “ Merger ”) with and into the Company.  Following the Merger, the separate corporate existence of Purchaser shall cease, and the Company shall continue as the surviving corporation (the “ Surviving Corporation ”) and shall continue to be governed by the laws of the State of Delaware.

 

5

 

2.2                                  Effects of the Merger .  The Merger shall have the effects set forth herein, in the Certificate of Merger and in the DGCL.  Without limiting the generality of the foregoing, at the Effective Time, all the properties, rights, privileges, powers and franchises of the Company and the Purchaser shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and the Purchaser shall become the debts, liabilities and duties of the Surviving Corporation.

 

2.3                                  Certificate of Incorporation and Bylaws of the Surviving Corporation .

 

(a)                                        The Certificate of Incorporation of the Surviving Corporation shall be amended in its entirety to read as the Certificate of Incorporation of Purchaser in effect at the Effective Time until amended in accordance with applicable Law; provided , however , that Article I of the Certificate of Incorporation of the Surviving Corporation shall be amended to read in its entirety as follows:  “The name of the Corporation is Napster, Inc.” and such Certificate of Incorporation shall contain indemnification provisions consistent with the obligations set forth in Section 5.7.

 

(b)                                       The Bylaws of the Surviving Corporation shall be amended in their entirety to read as the Bylaws of Purchaser in effect at the Effective Time, until amended in accordance with the provisions thereof and hereof and applicable Law.

 

2.4                                           Directors .  The directors of Purchaser immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal in accordance with applicable Law and the Surviving Corporation’s Certificate of Incorporation and Bylaws.

 

2.5                                           Officers .  The officers designated by Purchaser immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

 

2.6                                           Effect on Shares of Capital Stock.

 

(a)                                             As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any Shares, the Company or Purchaser:

 

(i)                                      Each Share that is issued and outstanding immediately prior to the Effective Time (other than (i) Dissenting Shares and (ii) those Shares to be cancelled pursuant to Section 2.6(b)) shall be cancelled and extinguished and converted into the right to receive the Offer Consideration in cash (the “ Merger Consideration ”), payable to the holder thereof, without interest or dividends thereon, less any applicable withholding of taxes, in the manner provided in Section 2.9; and

 

(ii)                                   All such Shares, when so converted, shall no longer be outstanding and shall automatically be cancelled and each holder of a certificate or certificates representing

 

6

 

any such Shares shall cease to have any rights with respect thereto, except the right to receive the consideration described in this Section 2.6(a).

 

(b)                                       As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any Shares, the Company or Purchaser, each Share that is owned by the Company or any wholly-owned subsidiary as treasury stock or otherwise or owned by Purchaser or Parent immediately prior to the Effective Time (the “ Cancelled Shares ”) shall automatically be cancelled and shall cease to exist, and no cash or other consideration shall be delivered or deliverable in exchange therefor.

 

(c)                                        As of the Effective Time, each share of common stock, par value $0.001 per share, of Purchaser (“ Purchaser Common Stock ”) issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of Parent, the Company or Purchaser, be converted into one (1) validly issued, fully paid and non-assessable share of common stock, par value $0.001 per share, of the Surviving Corporation (“ Surviving Corporation Common Stock ”).  Each certificate that, immediately prior to the Effective Time, represented issued and outstanding shares of Purchaser Common Stock shall, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent the shares of Surviving Corporation Common Stock into which such shares have been converted pursuant to the terms hereof; provided , however , that the record holder thereof shall receive, upon surrender of any such certificate, a certificate representing the shares of Surviving Corporation Common Stock into which the shares of Purchaser Common Stock formerly represented thereby shall have been converted pursuant to the terms hereof.

 

(d)                                       Notwithstanding anything in this Agreement to the contrary, any Shares issued and outstanding immediately prior to the Effective Time (other than the Cancelled Shares) and held by a holder (a “ Dissenting Stockholder ”) who has not voted in favor of the Merger or consented thereto in writing and who has properly demanded appraisal for such Shares in accordance with Section 262 of the DGCL (“ Dissenting Shares ”) shall not be converted into a right to receive the Merger Consideration at the Effective Time in accordance with Section 2.6(a) hereof, but shall represent and become the right to receive such consideration as may be determined to be due to such Dissenting Stockholder pursuant to the DGCL, unless and until such holder fails to perfect or withdraws or otherwise loses such holder’s right to appraisal and payment under the DGCL.  If, after the Effective Time, such holder fails to perfect or effectively withdraws or otherwise loses such holder’s right to appraisal, such Dissenting Shares held by such holder shall be treated as if they had been converted as of the Effective Time into a right to receive, upon surrender as provided above, the applicable Merger Consideration, without any interest or dividends thereon, in accordance with Section 2.6(a), and the Surviving Corporation shall remain liable for payment of the Merger Consideration for such Shares.  The Company shall give Parent and Purchaser prompt notice of any demands received by the Company for appraisal of Shares, withdrawals of such demands and any other instruments served pursuant to the DGCL and received by the Company.  Parent shall have the right to direct all negotiations and proceedings with respect to such demands, and the Company shall not voluntarily make any payment with respect to any demands for payment and shall not, except with the prior written consent of Parent and Purchaser, settle or offer to settle any such demands.

 

7

 

2.7                                  Options; Stock Option Plans; Restricted Shares; Employee Stock Purchase Plan; Rights Plan .

 

(a)                                        Effective at least fifteen (15) Business Days prior to the Effective Time (but subject to the occurrence of the Closing), each outstanding unexercised option to purchase Shares, whether or not then vested or fully exercisable, granted on or prior to such date (an “ Option ”), shall become immediately vested and exercisable in full, and at the Effective Time, all Options then-outstanding shall be cancelled, in each case, in accordance with and pursuant to the terms under which such Options were granted.  In consideration of such cancellation, each holder of an Option cancelled in accordance with this Section 2.7 will be entitled to receive from the Surviving Corporation in settlement of such Option promptly following the Effective Time, a cash payment, subject to any required withholding of taxes, equal to the product of (i) the total number of Shares otherwise issuable upon exercise of such Option and (ii) the excess, if any, of the Merger Consideration over the exercise price per Share of such Option (such product, the “ Option Consideration ”).  The Company Board agrees to timely provide required notices and take all actions necessary to fully accelerate the vesting schedule of all Options issued under the Company’s Stock Option Plans and, subject to the foregoing terms and conditions, to cause such Options to terminate as of the Effective Time.  Additionally, the Company agrees to terminate the Company’s 2003 Stock Plan, 2002 Stock Plan, Amended and Restated Napster, Inc. 2001 Stock Plan, Amended and Restated 2001 Director Option Plan, and Amended and Restated 2000 Stock Option Plan (collectively, the “ Stock Option Plans ”) as of the Effective Time (but subject to the occurrence of the Closing).

 

(b)                                       Each outstanding Share issued under the Company’s Stock Option Plans that is a restricted stock award to which vesting restrictions remain applicable at the Effective Time (the “ Restricted Shares ”) shall, as part of the Merger, be assumed by the Surviving Corporation (subject to applicable vesting and other provisions of the applicable Stock Option Plan, as the same may be amended from time to time following the Effective Time, and as modified by any applicable written employment agreement by and between the holder of any Restricted Shares and the Company entered into in connection with the Offer), and each holder thereof shall have the right to receive, upon expiration of any applicable vesting restrictions and in lieu of any shares of common stock, an amount of cash equal to $2.65 per Restricted Share; provided that the vesting schedule applicable to any such award of Restricted Shares shall (subject to any written employment agreement by and between the holder of any Restricted Shares and the Company entered into in connection with the Offer) be accelerated so that the shares (or cash substituted therefor, as the case may be) subject to such award shall vest (subject to applicable continued employment requirements through the respective vesting dates and applicable tax withholding requirements) as follows: (i) pursuant to the applicable terms of the Stock Option Plans and award agreements entered into thereunder, twenty-five percent (25%) of the portion of such award that is outstanding and not otherwise vested on the Acceptance Date shall vest as a result of the occurrence of and concurrent with the Acceptance Date, and the vested Shares held by the holder of such award, unless tendered in the Offer, shall be cancelled in exchange for the right to receive the Merger Consideration at the Effective Time, (ii) any portion of such award that is then outstanding and would otherwise vest in 2009 (other than pursuant to clause (iii) below) shall vest on January 1, 2009, (iii) pursuant to the applicable terms of the Stock Option Plans and award agreements entered into thereunder, twenty-five percent

 

8

 

(25%) of the portion of such award that is then outstanding and otherwise not vested on the first anniversary of the Acceptance Date shall vest on the first anniversary of the Acceptance Date, (iv) any portion of such award that is then outstanding and would otherwise vest in 2010 shall vest on January 1, 2010, and (v) any portion of such award that is then outstanding and would otherwise vest in 2011 or later shall vest on the second anniversary of the Acceptance Date.  Any cash payment required to be made after the Closing pursuant to this Section 2.7(b) with respect to any award of Restricted Shares shall be made upon or not later than thirty (30) days following the corresponding vesting date and shall be subject to applicable tax withholding.  For purposes of clarity, and notwithstanding the foregoing, any Restricted Share award granted to a person who is or was a member of the Company Board is subject to full (100%) accelerated vesting as a result of and concurrent with the Acceptance Date pursuant to the terms and conditions of the applicable award, and the vested Shares held by such persons shall, unless tendered in the Offer, be cancelled in exchange for the right to receive the Merger Consideration at the Effective Time.

 

(c)                                        The Company agrees to timely provide required notices and to take all such actions as are required to effectively terminate the Company’s 2001 Employee Stock Purchase Plan (the “ Company ESPP ”) effective as of, and conditioned upon the occurrence of, the Closing Date, with no further action by the Company, the Board of Directors (or any committee thereof), or the Company stockholders.  So long as the exercise prices payable by participants with respect to purchase rights outstanding under the Company ESPP have been previously withheld from such participants’ compensation, or are to be withheld prior to the Effective Time, and provided that no such withholdings have been revoked prior to the Effective Time, all purchase rights outstanding under the Company ESPP immediately prior to the Effective Time shall be deemed exercised immediately prior to the Effective Time with no further action by any party, and each participant in the Company ESPP will receive, in lieu of the Share issuable upon exercise, a cash payment from the Surviving Corporation, subject to any required withholding of taxes, equal to the product of (i) the total number of Shares otherwise issuable upon the exercise of such purchase right, times (ii) the Merger Consideration.

 

(d)                                       The Company has taken all actions necessary to amend the Preferred Stock Rights Agreement, dated May 18, 2001, between Roxio, Inc. and Mellon Investor Services, LLC (the “ Rights Plan ”) so that neither the execution of this Agreement, the commencement and consummation of the Offer, nor the completion of the Merger will trigger the conditions set forth therein, and the Rights Plan shall not be further amended in any manner without the prior written consent of Parent or Purchaser prior to the earliest to occur of the Effective Time or the termination of this Agreement.  An accurate and complete copy of the Rights Plan, as so amended, has been delivered to Parent and Purchaser.

 

2.8                                  Payment for Shares in the Merger .

 

(a)                                        Prior to the Effective Time, Parent and Purchaser shall appoint a commercial bank or trust company reasonably acceptable to the Company to act as exchange and paying agent, registrar and transfer agent (the “ Agent ”) for the purpose of payment of the Merger Consideration payable pursuant to Section 2.6 above with respect to certificates representing, immediately prior to the Effective Time, Shares surrendered after the Effective Time by the holders thereof.  Prior to the Effective Time, Parent or Purchaser shall deposit, or shall otherwise take all steps necessary to cause to be deposited, in trust with the Agent for the benefit of the

 

9

 

holders of Shares, cash in an aggregate amount equal to the sum of (i) the product of (A) the number of Shares issued and outstanding immediately prior to the Effective Time and entitled to receive the Merger Consideration in accordance with Section 2.6(a), and (B) the Merger Consideration (such amount is referred to herein as the “ Payment Fund ”).  The Agent shall, pursuant to instructions provided by Parent or Purchaser, make the payments provided for in Section 2.6 of this Agreement out of the Payment Fund.  The Payment Fund may be invested by the Agent, as directed by the Purchaser, in (i) obligations of or guaranteed by the United States, (ii) commercial paper rated A-1, P-1 or A-2, P-2, and (iii) certificates of deposit, bank repurchase agreements and bankers acceptances of any bank or trust company organized under federal Laws or the Laws of any state of the United States or the District of Columbia that has capital, surplus or undivided profits of at least $500,000,000 or in money market funds which are invested substantially in such investments.  Any net earnings with respect thereto shall be paid to Purchaser or, following the Effective Time, to the Surviving Corporation.  The Payment Fund shall not be used for any other purpose except as provided in this Agreement.

 

(b)                                       Promptly after the Effective Time, the Surviving Corporation shall cause the Agent to mail to each record holder of certificates (the “ Certificates ”) that immediately prior to the Effective Time represented Shares (i) a notice of the effectiveness of the Merger, (ii) a form letter of transmittal which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Agent, and (iii) instructions for surrendering such Certificates and receiving the Merger Consideration, in respect thereof.

 

(c)                                        Promptly following the surrender to the Agent of a Certificate, together with such letter of transmittal duly executed and completed in accordance with the instructions thereto, the holder of such Certificate (other than a certificate representing Dissenting Shares or Shares to be cancelled pursuant to Section 2.6(b)) shall be entitled to receive, in exchange therefor, cash in an amount equal to the product of (A) the number of Shares formerly represented by such Certificate, and (B) the Merger Consideration, which amounts shall be paid by Agent by check.  No interest or dividends shall be paid or accrued on the consideration payable upon the surrender of any Certificate.  If the consideration provided for herein is to be delivered in the name of a party other than the party in whose name the Certificate surrendered is registered, it shall be a condition of such delivery that the Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer, that such party establishes to the satisfaction of Parent and the Surviving Corporation that such transfer would not violate any applicable federal or state securities Laws, and that the party requesting such delivery shall pay any transfer or other taxes required by reason of such delivery to a party other than the registered holder of the Certificate, or that such party shall establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable.  Until surrendered in accordance with the provisions of this Section 2.08(c), each Certificate (other than Certificates representing Dissenting Shares or Shares to be cancelled pursuant to Section 2.6(b)) shall represent, for all purposes, only the right to receive the payment of the amount of cash described in this Section 2.8(c).

 

(d)                                       The consideration issued upon the surrender of Certificates in accordance with this Agreement shall be deemed to have been issued in full satisfaction of all rights pertaining to the Shares formerly represented thereby.  After the Effective Time, there shall be

 

10

 

no transfers on the stock transfer books of the Surviving Corporation of any Shares that were outstanding immediately prior to the Effective Time.  If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be cancelled and exchanged as provided in this Article 2.

 

(e)                                        Any portion of the Payment Fund that remains unclaimed at the six (6) month anniversary of the Closing Date shall be returned to the Surviving Corporation, upon demand, and any former stockholders of the Company who have not theretofore complied with this Article 2 shall, subject to Section 2.8(f), thereafter look only to the Surviving Corporation as a general unsecured creditor for payment of any Merger Consideration, without any interest or dividends thereon, that may be payable with respect to Shares held by such stockholder.

 

(f)                                          None of Parent, the Surviving Corporation or Agent shall be liable to a holder of Certificates or any other person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.  If any Certificates shall not have been surrendered prior to the date the amounts payable with respect thereto would otherwise escheat to or become the property of any Governmental Authority, any such shares, cash, dividends or distributions in respect of such Certificate shall, to the extent permitted by applicable Law, become the property of the Surviving Corporation, free and clear of all claims or interests of any person previously entitled thereto.

 

(g)                                       In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit (in form and substance acceptable to the Surviving Corporation and the Agent) of that fact by the person (who shall be the record owner of such Certificate) claiming such Certificate to be lost, stolen or destroyed, the Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration deliverable in respect thereof pursuant to this Agreement; provided , however , the Agent and Parent may, in their discretion, require the owner of such lost, stolen or destroyed Certificate to deliver a bond in such sum as they may reasonably direct as indemnity against any claim that may be made against the Agent or Parent with respect to the Certificates alleged to have been lost, stolen or destroyed.

 

2.9                                  Withholdings .  Parent, the Surviving Corporation or the Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Shares, Options or purchase rights under the Company ESPP such amounts as Parent, the Surviving Corporation, any of their respective Subsidiaries or Agent is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the “ Code ”) or any provision of state, local or foreign Tax Law.  To the extent that amounts are so withheld and paid over to the appropriate taxing authority by Parent, the Surviving Corporation or the Agent, such withheld amounts shall be treated for all purposes under this Agreement as having been paid to the holder of the Shares or Options in respect of which such deduction and withholding was made by Parent, the Surviving Corporation or the Agent.

 

2.10                            Additional Actions .  If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments or assurances in Law or any other acts are necessary or desirable to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its right, title or interest in, to or under any of the

 

11

 

rights, properties or assets of the Company or Purchaser, the Company and its officers and directors shall be deemed to have granted to the Surviving Corporation an irrevocable power of attorney to execute and deliver all such deeds, assignments and assurances in Law and to take all acts necessary, proper or desirable to vest, perfect or confirm title to and possession of such rights, properties or assets in the Surviving Corporation, and the officers and directors of the Surviving Corporation are authorized in the name of the Company to take any and all such action.

 

ARTICLE 3

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as set forth in the disclosure schedule delivered to Parent by the Company prior to the execution of this Agreement (the “ Company Disclosure Schedule ”) (it being understood that any information set forth in one section or subsection of the Company Disclosure Schedule shall be deemed to apply to and qualify the section or subsection of this Agreement to which it corresponds in number and each other section or subsection of this Agreement to which the relevance of such disclosure is manifest from such information without the need to review or examine any agreements or documents referenced therein), the Company hereby represents and warrants to Parent and Purchaser as follows:

 

3.1                                  Organization and Standing .  The Company is a corporation duly incorporated, validly existing and in good standing under the Laws of the state of Delaware with the requisite corporate power and authority to carry on its business as now being conducted.  Each of the Company and its Subsidiaries is a corporation or other legal entity duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization (except, in the case of good standing, for entities organized under the Laws of any jurisdiction that does not recognize such concept) with the requisite corporate or company power and authority to carry on its business as now being conducted.  The Company and each Subsidiary of the Company is duly qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the property it owns, leases or operates requires it to so qualify, except (i) in the case of good standing, for entities organized under the Laws of any jurisdiction that does not recognize such concept and (ii) where the failure to be so qualified or in good standing in such jurisdiction would not have, individually or in the aggregate, a Company Material Adverse Effect.  The Company is not in default in the performance, observance or fulfillment of any provision of its Certificate of Incorporation or in material default in the performance, observance or fulfillment of any provision of its bylaws, each as in effect on the date hereof (the “ Company Certificate ” and the “ Company Bylaws ”, respectively), and no Subsidiary of the Company is in default in the performance, observance or fulfillment of any provision of its Certificate of Incorporation or in material default in the performance, observance or fulfillment of any provision of its bylaws (or comparable organizational documents), each as in effect on the date hereof.  The Company has heretofore furnished to Parent a complete and correct copy of the Company Certificate and the Company Bylaws, as well as complete and correct copies of the Certificate of Incorporation and bylaws (or comparable organizational documents) of each of its Subsidiaries.

 

12

 

A “ Company Material Adverse Effect ” means any event, change or effect that (i) would have, or would reasonably be expected to have, a material adverse effect on the business, assets, liabilities, results of operations, or financial condition of the Company and its Subsidiaries, taken as a whole, or (ii) would, or would reasonably be expected to, prevent or prohibit the Company from consummating the Offer and the Merger; provided , however , that no event, change or effect directly or indirectly arising out of or attributable to any of the following shall constitute, or be considered in determining whether there has occurred or would reasonably be expected to occur, a Company Material Adverse Effect: (t) changes in United States generally accepted accounting principles (“ GAAP ”) or the interpretation thereof, (u) compliance with the terms of, or the taking of any action required by, this Agreement or consented to by Parent, (v) any changes in the market price or trading volume of Shares (it being understood that the underlying cause of any such change may be taken into consideration in determining whether a Company Material Adverse Effect has or would reasonably be expected to occur), (w) any changes in the general economy, financial market or political conditions in the United States or global economy as a whole, (x) economic or regulatory conditions in the industry or industries in which the Company or any of its Subsidiaries operates to the extent that it does not materially and disproportionately affect the Company and its Subsidiaries, taken as a whole, (y) the public announcement of, or the public or industry knowledge relating to, the execution of this Agreement and the transactions contemplated hereby (including, without limitation, actual or threatened actions or inactions of employees, customers or vendors), or (z) any changes, events or conditions relating to any act of terrorism, war, national or international calamity or any similar event.

 

3.2         Subsidiaries .  Schedule 3.2 of the Company Disclosure Schedule sets forth (i) a complete and accurate list of all direct and indirect majority-owned subsidiaries of the Company, and (ii) the Company’s percentage ownership of the voting securities thereof, as well as a complete and accurate list of all equity or other ownership interests in any other entities.  The Company is not subject to any obligation or requirement to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any entity or enterprise that is not wholly-owned by the Company.  The Company owns directly or indirectly all of the outstanding shares of capital stock (or other ownership interests having by their terms voting power to elect a majority of directors or others performing similar functions with respect to such Subsidiary) of each of the Company’s Subsidiaries, free and clear of all liens, pledges, security interests, claims or other encumbrances.  Each of the outstanding shares of capital stock of each of the Company’s Subsidiaries is duly authorized, validly issued, fully paid and nonassessable.  There are no outstanding subscriptions, options, warrants, puts, calls, agreements, understandings, claims or other commitments or rights of any type relating to the issuance, sale, repurchase or transfer of any capital stock or other securities of any Subsidiary of the Company, nor are there outstanding any securities which are convertible into or exchangeable for any shares of capital stock or other securities of any Subsidiary of the Company, and neither the Company nor any Subsidiary of the Company has any obligation of any kind to issue any additional shares of capital stock or other securities of any Subsidiary of the Company or to pay for or repurchase any shares of capital stock or other securities of any Subsidiary of the Company.

 

3.3         Corporate Power and Authority .  The Company has all requisite corporate power and authority to enter into and deliver this Agreement, to perform its obligations hereunder and

 

13

 

to consummate the Merger, subject to, if applicable, approval of this Agreement and the Merger by the stockholders of the Company.  The execution, delivery and performance of the Merger Agreement by the Company have been duly and validly authorized by all necessary corporate action on the part of the Company, other than, if applicable, the approval of this Agreement by the holders of a majority of the Shares entitled to vote in accordance with the DGCL and the Company Certificate and the Company Bylaws (the “ Requisite Company Vote ”).  This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery hereof by Parent and Purchaser, constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, affecting creditors’ rights generally and (ii) rules of law governing specific performance and injunctive and other forms of equitable relief.

 

3.4         Capitalization of the Company .  The authorized capital stock of the Company consists solely of (a) 100,000,000 shares of common stock, par value $0.001 per share, of which 47,898,271 Shares were issued and outstanding as of the date of this Agreement, and (b) 10,000,000 shares of preferred stock, par value $0.001 per share, none of which have been issued or are outstanding as of the date of this Agreement.  As of the date of this Agreement, (i) 3,794,346 Shares were issued and outstanding under the Company Stock Option Plans as restricted stock awards and remain subject to vesting restrictions, (ii) 2,869,061 Shares were subject to outstanding Options, and (iii) no Shares were held by the Company in its treasury.  Except for the foregoing, there are no options, warrants, calls, subscriptions, convertible securities or other rights, or other agreements obligating the Company to issue, transfer or sell any shares of capital stock of, or other equity interests in, the Company.  All issued and outstanding Shares are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights, rights of refusal or similar rights or limitations, and, except for the repurchase of Shares in connection with the vesting of Restricted Shares under the Stock Option Plans and the agreements executed thereunder, there are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of, or other equity interests in, the Company.  Except for the Stock Option Plans and the agreements executed thereunder and any support agreements entered into in connection with the Offer and the Merger at the request of Parent or Purchaser, there are no contracts, commitments or agreements relating to the voting, purchase or sale of Shares (i) between or among the Company or its Subsidiaries and any of its stockholders, or (ii)  except as disclosed in any forms, reports, statements or schedules filed by a third party with the SEC, among any of the Company’s stockholders or between any of the Company’s stockholders and any third party.  The Stock Option Plans and the agreements executed thereunder permit the acceleration and cancellation of outstanding Options and acceleration of Restricted Shares as well as the termination of the Stock Option Plans as contemplated by Section 2.7 of this Agreement, and do not require the consent or approval of the holders of the outstanding Options or Restricted Shares, the Company’s stockholders, or any other party to effect such acceleration, cancellation and termination except for the action of the Company Board described in Section 2.7.

 

3.5         Conflicts; Consents and Approvals .  Subject to the Requisite Company Vote, neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby shall:

 

14

 

(a)              conflict with, or result in a breach of any provision of, the Company Certificate or the Company Bylaws;

 

(b)              violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with the giving of notice, the passage of time or otherwise, would constitute a default) under, or entitle any party (with the giving of notice, the passage of time or otherwise) to terminate, accelerate, modify or call a default under, or result in the creation of any lien, security interest or encumbrance upon any of the properties or assets of the Company under, or result in a material payment or other material obligation under, any Material Contract;

 

(c)              violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any of its Subsidiaries or any of their respective properties or assets; or

 

(d)              require any action or consent or approval of, or review by, or registration or filing by the Company or any of its Affiliates with, any local, domestic, foreign or multi-national or supra-national court, tribunal, administrative agency or commission or other governmental or regulatory body, agency, instrumentality or authority (a “ Governmental Authority ”), other than (A) approval of the Merger Agreement and the Merger by the Requisite Company Vote, (B) registrations, filings, consents, approvals or other actions required under federal and state securities Laws, and (C) the filings required under the HSR Act and foreign Antitrust Laws pursuant to Section 5.3(a) and the expiration of the waiting periods required in connection therewith.

 

3.6         Absence of Certain Changes .

 

(a)              Except as set forth in the Company SEC Documents, or as otherwise required by this Agreement, since March 31, 2008 (the “ Company Balance Sheet Date ”), through the date of this Agreement, (i) the Company and each of its Subsidiaries have conducted their respective businesses in the ordinary course of business consistent with past practice and (ii) there has not occurred: (A) any acquisition, sale, or transfer of any material asset of the Company or its Subsidiaries, except for sales of assets and licenses of Company Intellectual Property in the ordinary course of business consistent with past practices, (B) except as required by applicable Laws or GAAP, any material change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by the Company or any revaluation by the Company of any of its material assets, (C) any declaration, setting aside or payment of a dividend or other distribution with respect to the Shares, or any direct or indirect redemption, purchase or other acquisition by Company or any of its Subsidiaries of any of its shares of capital stock, respectively (except for any Shares withheld in connection with the vesting of any Restricted Shares), (D)  any amendment or change to the Company Certificate or the respective organizational documents of any of its Subsidiaries, (E) any Material Contract entered into by the Company or any of its Subsidiaries, other than as provided to Parent, or any material amendment or termination of, or default under, any Material Contract (or contract that, but for such termination, would be a Material Contract), (F) any increase in or modification of the compensation or benefits payable or to become payable by Company or any of its Subsidiaries to any of their respective directors, employees or consultants other than any increase or

 

15

 

modification in the ordinary course of business consistent with past practice, or (G) any agreement by the Company or any of its Subsidiaries to do any of the things described in the preceding clauses (A) through (F).

 

(b)              Since the Company Balance Sheet Date, there has not occurred, individually or in the aggregate, a Company Material Adverse Effect.

 

3.7         Company SEC Documents .

 

(a)              The Company has timely filed or furnished (as required or permitted) with the SEC all forms, reports, schedules, statements and other documents required to be filed by it since March 31, 2005, under the Exchange Act or the Securities Act of 1933, as amended, (the “ Securities Act ”) (such documents, as supplemented and amended since the time of filing, collectively, the “ Company SEC Documents ”).  The Company SEC Documents, including, without limitation, any financial statements, exhibits or schedules included or incorporated by reference therein, at the time filed (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of mailing, respectively) (i) did not contain any untrue statement of a material fact or omit to state a 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, and (ii) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be.  The financial statements of the Company included in the Company SEC Documents at the time filed (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of mailing, respectively; and, if amended, as of the date of the last such amendment) fairly present in all material respects, the consolidated financial position of the Company and its consolidated Subsidiaries, as at the respective dates thereof, and the consolidated results of their operations and their consolidated cash flows for the respective periods then ended (subject, in the case of the unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein, including the notes thereto) in conformity with GAAP (except, in the case of the unaudited statements, as permitted by the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) unless otherwise corrected in the Company SEC Documents.  No Subsidiary of the Company is subject to the periodic reporting requirements of Section 13(a) or Section 15(d) of the Exchange Act or required to file any form, report or other document with the SEC or any other comparable Governmental Authority.  As of the date hereof, there are no unresolved comments issued by the staff of the SEC with respect to any of the Company SEC Documents.

 

(b)              The Company is in compliance with, and since March 31, 2005, has complied, in all material respects, with the applicable provisions of the Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated under such Act (the “ Sarbanes-Oxley Act ”).  Without limiting the foregoing:

 

(i)             The Company has devised and maintains a system of internal controls over financial reporting required by Rules 13a-15(f) or 15d-15(f) of the Exchange Act which are sufficient to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with

 

16

 

GAAP including policies and procedures that (A) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company, (B) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the Company Board, and (C) provide reasonable assurances regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of the Company that could have a material effect on the Company’s financial statements.  The Company has disclosed to its independent auditors and the audit committee of the Company Board any significant deficiency or material weakness in the design or operation of internal control over financial reporting which is reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information. Since March 31, 2007, the Company has not identified nor have its independent auditors advised it in writing of (X) any significant deficiency or material weakness in the system of internal controls utilized by the Company, (Y) any fraud, whether or not material, that involves the Company’s management or other Company employees who have a significant role in the internal controls utilized by the Company, or (Z) any claim or allegation regarding any of the foregoing, and as of March 31, 2008, there were no unresolved significant deficiencies, material weaknesses, fraud or claims or allegations regarding the same that had previously been identified by the Company or that the Company had been advised of in writing by its independent auditors.

 

(ii)            The Company’s disclosure controls and procedures, required by Rules 13a-15(e) or 15d-15(f) of the Exchange Act, are reasonably designed in all material respects to ensure that all material information relating to the Company required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that all such material information is accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosure.

 

3.8         Taxes .

 

(a)              The Company and its Subsidiaries (i) have duly filed all Tax Returns (including, but not limited to, those filed on a consolidated, combined or unitary basis) required to have been filed (taking into account any extensions of time within which to file) by the Company or its Subsidiaries, all of which Tax Returns are true and complete in all material respects, (ii) have within the time and manner prescribed by applicable Law paid all Taxes shown as due and owing on such Tax Returns, (iii) have established in accordance with their normal accounting practices and procedures, accruals and reserves that are adequate for the payment of all Taxes not yet due and payable, and (iv) to the Company’s Knowledge, have not received written notice of any deficiencies for any Tax from any Governmental Authority against the Company or any of its Subsidiaries, which deficiency has not been satisfied.  Neither the Company nor any of its Subsidiaries is the subject of any currently ongoing Tax audit.  Neither the Company nor any of its Subsidiaries has requested, or been granted, an extension of time in which to file Tax Returns or pay Taxes, which extension has continuing effect.  With respect to any taxable period ended prior to March 31, 2005, all federal income Tax Returns including the Company or any of its Subsidiaries have been audited by the Internal Revenue Service or are closed by the applicable statute of limitations.  Neither the Company nor any of its Subsidiaries

 

17

 

is a party to any “gain recognition agreement” as described in Treasury Regulation Section 1.367(a)-8 (or any analogous provision of foreign Law).  There are no liens with respect to Taxes upon any of the properties or assets, real or personal, tangible or intangible, of the Company or any of its Subsidiaries (other than liens for Taxes not yet due and payable).  To the Company’s Knowledge, no claim has ever been made in writing by a Governmental Authority in a jurisdiction where the Company or its Subsidiaries do not file Tax Returns that the Company or any of its Subsidiaries is or may be subject to taxation by that jurisdiction.

 

(b)              Neither the Company nor any of its Subsidiaries is now or has ever been a party to or bound by any contract, agreement or other arrangement (whether or not written and including, without limitation, any arrangement required or permitted by applicable Law (including pursuant to Treasury Regulation Section 1.1502-6 or any analogous provision of state, local or foreign Law)) that (i) requires the Company or any of its Subsidiaries to make any Tax payment to or for the account of any other person, including without limitation persons no longer in existence, (ii) affords any other person the benefit of any net operating loss, net capital loss, investment Tax credit, foreign Tax credit, charitable deduction or any other credit or Tax attribute which could reduce Taxes (including, without limitation, deductions and credits related to alternative minimum Taxes) of the Company or any of its Subsidiaries, or (iii) requires or permits the transfer or assignment of income, revenues, receipts or gains to the Company or any of its Subsidiaries from any other person, other than payments made to the Company and its Subsidiaries in the ordinary course of business.  Neither the Company nor any of its Subsidiaries is a party to any transaction that is or was (i) since January 1, 2000 intended to qualify under Code sections 355 or 368 (other than as a recapitalization pursuant to Code Section 368(a)(1)(E)), or (ii) required to be reported as a “listed transaction” to any Governmental Authority under Treasury Regulation Section 1.6011-4(b)(2) (or any comparable or predecessor provision of federal, state, local or foreign Law).

 

(c)              The Company and its Subsidiaries have withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party.

 

(d)              None of the Company or any of its Subsidiaries has been a U.S. real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

 

(e)              Since March 31, 2005, neither the Company nor any of its Subsidiaries has received written notice of any claims, levies or assessments for escheated or unclaimed property under applicable escheat or unclaimed property Laws.

 

(f)               To the Company’s Knowledge, other than as a result of the transactions contemplated by this Agreement, (i) the Company and each of its Subsidiaries has not experienced an “ownership change” within the meaning of Section 382 of the Code, and (ii) the ability of the Company and each of its Subsidiaries to use net operating losses realized in the current taxable year, net operating loss carryforwards, tax credits and other tax attributes is not limited by Sections 382, 383 or 384 of the Code for Federal income tax purposes.

 

18

 

(g)              For purposes of this Agreement, (i) “Tax” (and, with correlative meaning, “ Taxes ”) means any federal, state, local or foreign income, gross receipts, windfall profit, severance, property, sales, use, license, excise, franchise, employment, payroll, premium, withholding, alternative or added minimum, ad valorem, inventory, transfer or excise tax, environmental or other tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, imposed by any Governmental Authority, and (ii) “Tax Return” means any return, report or similar statement required to be filed with respect to any Tax (including any attached schedules), including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax.

 

3.9         Compliance with Law .  The Company is in compliance with all applicable Laws relating to the Company or its Subsidiaries or their respective business or properties, except where the failure to be in compliance with such Laws would not have, individually or in the aggregate, a Company Material Adverse Effect, and the Company is in compliance with the Foreign Corrupt Practices Act.  To the Company’s Knowledge, no investigation or proceeding by any Governmental Authority with respect to the Company is pending or threatened, nor has any Governmental Authority indicated in writing an intention to conduct the same other than those the outcome of which would not have, individually or in the aggregate, a Company Material Adverse Effect.

 

3.10       Intellectual Property .

 

(a)              Definitions.  For the purposes of this Section 3.10, the following terms have the following definitions:

 

(i)             “ Intellectual Property ” shall mean the following: (i) all patents, patent applications, patent disclosures, and patentable inventions, (ii) all proprietary rights in know-how and technology and applications therefor, (iii) all copyrights and applications therefor, (iii) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor, (iv) all rights in databases and data collections throughout the world, and (v) all domain names.  Without limiting the generality of the foregoing and for the purpose of clarity, “Intellectual Property” includes intellectual property identified in clauses (i) through (v) of the preceding sentence which may be embodied in:  computer software (including source code, object code, data, databases and related documentation); systems, processes, methods, devices, machines, designs or articles of manufacture (whether patentable or unpatentable and whether or not reduced to practice); improvements thereto; technology; proprietary information; specifications; flowcharts; blueprints; schematics; protocols; programmer notes; customer and supplier lists; pricing and cost information; business and marketing plans; and proposals.

 

(ii)            “ Company Intellectual Property ” shall mean any Intellectual Property that is owned by, controlled by or licensed to the Company or any of its Subsidiaries.  Without in any way limiting the generality of the foregoing, Company Intellectual Property includes all Intellectual Property owned or licensed by the Company and relating to the Company’s products and services.

 

19

 

(iii)           “ Company Owned Intellectual Property ” shall mean any Intellectual Property that is owned by or purported to be owned by the Company or any of its Subsidiaries.  Without in any way limiting the generality of the foregoing, Company Intellectual Property includes all Company Registered Intellectual Property and all other Intellectual Property owned by the Company and relating to the Company’s products and services.

 

(iv)           “ Registered Intellectual Property ” shall mean all United States, international and foreign: (i) patents and patent applications (including provisional applications), (ii) registered trademarks, applications to register trademarks, intent-to-use applications, or other registrations or applications related to trademarks, and any domain name registrations, (iii) registered copyrights and applications for copyright registration, (iv) any mask work registrations and applications to register mask works, and (v) any other Intellectual Property that is the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any state, government or other public legal authority.

 

(v)            “ Company Registered Intellectual Property ” means all of the Registered Intellectual Property owned by, exclusively licensed to, or filed in the name of, the Company or any of its Subsidiaries.

 

(b)              Schedule 3.10(b) of the Company Disclosure Schedule contains a complete and accurate list of all Company Registered Intellectual Property and specifies, where applicable, (i) the jurisdictions in which each such item of Company Registered Intellectual Property has been issued or registered, (ii) the owner of the Company Registered Intellectual Property, (iii) the issuance, application, serial or registration number, and (iv) the date of application and issuance or registration.

 

(c)              No Company Owned Intellectual Property is subject to any proceeding or outstanding decree, order, or judgment restricting in any manner the use, transfer, or licensing thereof by the Company or any of its Subsidiaries, or which may affect the validity, use or enforceability of such Company Owned Intellectual Property.

 

(d)              To the Knowledge of the Company, each item of Company Registered Intellectual Property is valid and subsisting.  All necessary registration, maintenance and renewal fees currently due in connection with such Company Registered Intellectual Property have been made, and all necessary documents, recordations and certificates in connection with such Company Registered Intellectual Property have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Company Registered Intellectual Property, except in the case where failure to pay fees or file would not result, individually or in the aggregate, in a Company Material Adverse Effect.

 

(e)              Company owns and has good and exclusive title to, each item of the Company Owned Intellectual Property free and clear of any lien or encumbrance, other than liens or encumbrances incidental to the ordinary course of the Company’s business or those liens or encumbrances that are not material to the Company.  Without limiting the foregoing: (i) the Company or a Subsidiary of the Company is the exclusive owner of all trademarks and trade names used in connection with the operation or conduct of the business of the Company and its

 

20

 

Subsidiaries, including the sale, distribution or provision of any Company products or services by the Company or its Subsidiaries, and (ii) the Company or a Subsidiary of the Company owns exclusively, and has good title to, all material copyrighted works that the Company or any of its Subsidiaries purports to own, except in the case where a breach of any of the foregoing clauses (i) through (ii) would not result, individually or in the aggregate, in a Company Material Adverse Effect.

 

(f)               To the extent that any technology, software or Intellectual Property has been developed or created independently or jointly by a third party specifically for the Company or any of its Subsidiaries, the Company has a written agreement with such third party with respect thereto and the Company thereby either (i) has obtained ownership of, and is the exclusive owner of, or (ii) has obtained valid rights (sufficient for the conduct of its business as currently conducted) to all such third party’s Intellectual Property in such work, material or invention by operation of Law or by valid assignment, except where the failure to so obtain a written agreement would not result, individually or in the aggregate, in a Company Material Adverse Effect.

 

(g)              To the Knowledge of the Company, the Company Intellectual Property includes all Intellectual Property required for the operation of the business of the Company and its Subsidiaries as such business is currently conducted, including the Company’s and its Subsidiaries’ design, development, manufacture, distribution, reproduction, marketing or sale of the products or services of Company and its Subsidiaries.  To the Knowledge of the Company, the Company’s use of any product, device or process does not infringe or misappropriate the Intellectual Property of any third party, except where such use would not result, individually or in the aggregate, in a Company Material Adverse Effect.

 

(h)              Neither the Company nor any of its Subsidiaries has received written notice from any third party (i) alleging invalidity with respect to any Intellectual Property used by the Company or its Subsidiaries, or (ii) that the operation of the business of Company or any of its Subsidiaries or any act, product or service of Company or any of its Subsidiaries, infringes or misappropriates the Intellectual Property of any third party or constitutes unfair competition or trade practices under the Laws of any jurisdiction.

 

(i)               To the Knowledge of the Company, no third party is infringing or has misappropriated any of the Company Owned Intellectual Property.

 

(j)               All of the computer software, computer firmware, computer hardware (whether general or special purpose) and other similar or related computer systems or software that are used or relied on by Company and its Subsidiaries in the conduct of their respective businesses is sufficient for the immediate and currently contemplated future needs of such businesses and is currently functioning without material errors.

 

(k)              The Company and each of its Subsidiaries have taken prudent and reasonable steps to protect their respective rights in their trade secrets and confidential information, as well as any trade secrets or confidential information of third parties provided to the Company or any of its Subsidiaries, including imposing and enforcing a requirement that employees involved in the development of or having access to Company Intellectual Property

 

21

 

execute a commercially reasonable form of nondisclosure and assignment of copyrights and inventions agreement, except where the failure to enforce such requirement would not result, individually or in the aggregate, in a Company Material Adverse Effect.

 

3.11       Title to and Condition of Properties .  The Company owns or holds under valid leases all material real property, plants, machinery and equipment necessary for the conduct of the business of the Company in substantially the same manner as presently conducted.  The plants, property and equipment used in the operations of the respective businesses of the Company and each of its Subsidiaries are in good operating condition and repair, normal wear and tear excepted.

 

3.12       Litigation .  There is no suit, claim, action, proceeding, audit or investigation (an “ Action ”) pending or threatened against the Company which would have, individually or in the aggregate, a Company Material Adverse Effect.  The Company and its Subsid