AGREEMENT AND PLAN OF MERGER

 

 

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ARTICLE I	THE MERGER	8
1.1	The Merger	8
1.2	Closing	9
1.3	Effective Time	9
1.4	Effects	9
1.5	Certificate of Incorporation and Bylaws	9
1.6	Directors	9
1.7	Officers	9
ARTICLE II	EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES	10
2.1	Effect on Capital Stock	10
2.2	Exchange of Certificates	11
ARTICLE III	REPRESENTATIONS AND WARRANTIES OF THE COMPANY	14
3.1	Organization, Standing and Power	14
3.2	Company Subsidiaries; Equity Interests	14
3.3	Capital Structure	15
3.4	Authority; Execution and Delivery; Enforceability	17
3.5	No Conflicts; Consents	18
3.6	SEC Documents; Sarbanes-Oxley Compliance; NASDAQ	19
3.7	Absence of Certain Changes or Events	21
3.8	Contracts	22
3.9	Intellectual Property	24
3.10	Taxes	26
3.11	Company Benefit Plans	27
3.12	Benefit Plan Compliance	27
3.13	Labor Matters	30
3.14	Litigation	30
3.15	Compliance with Applicable Laws	30
3.16	Permits	31
3.17	Real Property	31
3.18	Environmental	31

 

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3.19	Brokers; Schedule of Fees and Expenses	33
3.20	Opinion of Financial Advisor	33
3.21	Insurance	33
3.22	Related Party Transactions	34
3.23	Customers	34
3.24	Suppliers	34
ARTICLE IV	REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB	35
4.1	Organization, Standing and Power	35
4.2	Merger Sub	35
4.3	Authority; Execution and Delivery; Enforceability	35
4.4	No Conflicts; Consents	36
4.5	Parent’s Balance Sheet; Debt	36
4.6	Information Supplied	36
4.7	Brokers	37
4.8	Financing	37
ARTICLE V	COVENANTS RELATING TO CONDUCT OF BUSINESS	37
5.1	Conduct of Business	37
5.2	No Solicitation	40
ARTICLE VI	ADDITIONAL AGREEMENTS	44
6.1	Preparation of Proxy Statement; Stockholders Meeting	44
6.2	Access to Information; Confidentiality	45
6.3	Reasonable Best Efforts; Notification	45
6.4	Equity Awards	47
6.5	Benefit Plans	48
6.6	Indemnification	49
6.7	Fees and Expenses	51
6.8	Public Announcements	51
6.9	Transfer Taxes	52
6.10	Stockholder Litigation	52
6.11	Cooperation With Financing	52
6.12	Additional Company Actions	52
6.13	Company Transaction Expenses	53

 

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ARTICLE VII	CONDITIONS PRECEDENT	53
7.1	Conditions to Each Party’s Obligation To Effect The Merger	53
7.2	Conditions to Obligations of Parent and Merger Sub	53
7.3	Conditions to Obligation of the Company	54
7.4	Frustration of Closing Conditions	55
ARTICLE VIII	TERMINATION, AMENDMENT AND WAIVER	55
8.1	Termination	55
8.2	Effect of Termination	56
8.3	Amendment	56
8.4	Extension; Waiver	57
ARTICLE IX	GENERAL PROVISIONS	57
9.1	Nonsurvival of Representations and Warranties	57
9.2	Notices	57
9.3	Definitions	58
9.4	Interpretation	60
9.5	Severability	61
9.6	Counterparts	61
9.7	Entire Agreement; No Third-Party Beneficiaries	61
9.8	Governing Law	61
9.9	Assignment	62
9.10	Consent to Jurisdiction	62
9.11	Waiver of Jury Trial	62
9.12	Enforcement	62

 

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AGREEMENT AND PLAN OF MERGER

 

This AGREEMENT AND PLAN OF MERGER (this “ Agreement ”) is made and entered into as of September 24, 2008, by and among Lineage Power Holdings, Inc., a Delaware corporation (“ Parent ”), Birdie Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“ Merger Sub ”), and Cherokee International Corporation, a Delaware corporation (the “ Company ”).

 

BACKGROUND

 

A.                                    The respective boards of directors of Parent, Merger Sub and the Company have deemed it advisable and in the best interests of their respective corporations and stockholders to consummate the merger (the “ Merger ”) of Merger Sub with and into the Company, upon the terms and subject to the conditions set forth in this Agreement.

 

B.                                      The respective boards of directors of Parent, Merger Sub and the Company have approved and declared advisable this Agreement and the transactions contemplated hereby, including the Merger.

 

C.                                      Concurrently with the execution and delivery of this Agreement and as a condition to Parent’s and Merger Sub’s willingness to enter into this Agreement, the Company, Parent and Merger Sub will enter into a voting agreement (the “ Voting Agreement ”) with certain holders of Company Common Stock (as defined herein) party thereto (collectively, the “ Principal Stockholders ”) in the form of Exhibit A attached hereto.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement, and intending to be legally bound hereby, the parties agree as follows:

 

ARTICLE I
THE MERGER

 

1.1                                The Merger .  Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the General Corporation Law of the State of Delaware (the “ DGCL ”), Merger Sub shall be merged with and into the Company at the Effective Time.  At the Effective Time, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation (the “ Surviving Corporation ”) and shall succeed to and assume all of the rights and obligations of the Company and of Merger Sub in accordance with the DGCL.

 

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1.2                                Closing .  Upon the terms and subject to the conditions set forth in this Agreement, the closing of the Merger (the “ Closing ”) shall take place at 10:00 a.m., California time, on a date to be specified by the parties, which shall be no later than the third business day after the satisfaction or (to the extent permitted by applicable Law) waiver of the conditions set forth in Article VII (other than those that, by their terms, cannot be satisfied until the time of the Closing), at the offices of Latham & Watkins LLP, 355 South Grand Avenue, Los Angeles, California, or at such other time, date or place agreed to in writing by Parent and the Company.  The date on which the Closing occurs is referred to in this Agreement as the “ Closing Date .”

 

1.3                                Effective Time .  Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date, a certificate of merger (the “ Certificate of Merger ”) shall be duly prepared, executed and acknowledged by the parties in accordance with the relevant provisions of the DGCL and filed with the Secretary of State of the State of Delaware.  The Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State of the State of Delaware or at such subsequent time or date as Parent and the Company shall agree and specify in the Certificate of Merger.  The time at which the Merger becomes effective is referred to in this Agreement as the “ Effective Time .”

 

1.4                                Effects .  The Merger shall have the effects set forth in Section 259 of the DGCL and all other effects specified in the applicable provisions of the DGCL.

 

1.5                                Certificate of Incorporation and Bylaws .

 

(a)                                   The Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time (the “ Company Certificate ”), shall be amended at the Effective Time to be in the form of Exhibit B , and, as so amended, such Company Certificate shall be the Restated Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable Law.

 

(b)                                  Subject to Section 6.6 of this Agreement, the Bylaws of Merger Sub as in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable Law.

 

1.6                                Directors .  At the Effective Time, each of the directors of the Company shall resign from the Board of Directors of the Company.  The directors of Merger Sub immediately prior to the Effective Time shall continue as the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

 

1.7                                Officers .  The officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected or appointed and qualified, as the case may be.

 

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ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES

 

2.1                                Effect on Capital Stock .  At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of any shares of common stock, par value $0.001 per share, of the Company (the “ Company Common Stock ”) or any shares of capital stock of Merger Sub:

 

(a)                                   Capital Stock of Merger Sub .  Each share of capital stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of common stock, par value $0.001 per share, of the Surviving Corporation.

 

(b)                                  Cancellation of Treasury Stock and Parent Owned Stock .  Each share of Company Common Stock that is owned by the Company or Parent or by any subsidiary of Parent immediately prior to the Effective Time shall automatically be cancelled without any conversion thereof and no consideration shall be delivered with respect thereto.

 

(c)                                   Conversion of Company Common Stock .

 

(1)                                   At the Effective Time, each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than shares to be cancelled in accordance with Section 2.1(b) and the Appraisal Shares), including shares subject to restrictions or forfeiture conditions relating to time, performance or otherwise, shall be converted into the right to receive $3.20 in cash, without interest (the “ Merger Consideration ”).

 

(2)                                   At the Effective Time, all such shares of Company Common Stock shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each holder of a certificate that immediately prior to the Effective Time represented any such shares of Company Common Stock (a “ Certificate ”) shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration.

 

(d)                                  Adjustments .  If, between the date of this Agreement and the Effective Time, there is a reclassification, recapitalization, stock split, stock dividend, subdivision, combination or exchange of shares with respect to, or rights issued in respect of, the Company Common Stock, the Merger Consideration shall be adjusted accordingly, without duplication, to provide the holders of Company Common Stock the same economic effect as contemplated by this Agreement prior to such event.

 

(e)                                   Appraisal Rights .  Notwithstanding anything in this Agreement to the contrary, those shares (“ Appraisal Shares ”) of Company Common Stock that are outstanding immediately prior to the Effective Time and that are held by any person who is entitled to demand and properly demands appraisal of such Appraisal Shares pursuant to, and who complies in all respects with, Section 262 of the DGCL (“ Section 262 ”) shall not be converted into the right to receive the Merger Consideration as provided in Section 2.1(c), but rather the holders of Appraisal Shares shall be entitled to payment of the fair value of such Appraisal Shares in accordance with Section 262. 

 

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At the Effective Time and as allowed under applicable Law, the Appraisal Shares shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each holder of Appraisal Shares shall cease to have any rights with respect thereto, except the right to receive the fair value of such shares in accordance with the provisions of Section 262.  Notwithstanding the foregoing, if any such holder shall fail to perfect or otherwise shall waive, withdraw or lose the right to appraisal under Section 262 or a court of competent jurisdiction shall determine that such holder is not entitled to relief provided by Section 262, then the right of such holder to be paid the fair value of such holder’s Appraisal Shares shall cease and such Appraisal Shares shall be deemed to have been converted as of the Effective Time into, and to have become exchangeable solely for, the right to receive the Merger Consideration as provided in Section 2.1(c).  The Company shall serve prompt notice to Parent of any demands received by the Company for appraisal of any shares of Company Common Stock, withdrawals of such demands and any other instruments served pursuant to the DGCL received by the Company, and Parent shall have the right to participate in and direct all negotiations and proceedings with respect to such demands.  Prior to the Effective Time, the Company shall not, without the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands, or agree to do any of the foregoing.

 

2.2                                Exchange of Certificates .

 

(a)                                   Paying Agent .  The parties have selected Union Bank of California, N.A. (the “ Paying Agent ”) as agent for the payment of the Merger Consideration upon surrender of Certificates in accordance with this Section 2.2, and in connection therewith, Merger Sub shall enter into an agreement with the Paying Agent in a form reasonably acceptable to the Company.  Immediately following the Effective Time, Merger Sub shall deposit, or Parent shall cause the Surviving Corporation to deposit, with the Paying Agent all the cash necessary to pay the Merger Consideration (such cash being hereinafter referred to as the “ Exchange Fund ”).

 

(b)                                  Exchange Procedure .  As soon as reasonably practicable after the Effective Time, Parent shall cause the Surviving Corporation to, and the Surviving Corporation shall cause the Paying Agent to, mail to each holder of record of a Certificate that immediately prior to the Effective Time represented outstanding shares of Company Common Stock whose shares were converted into the right to receive the Merger Consideration pursuant to Section 2.1(c), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Paying Agent and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration.  Upon surrender of a Certificate for cancellation to the Paying Agent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash into which the shares of Company Common Stock theretofore represented by such Certificate shall have been converted into the right to receive pursuant to Section 2.1, and the Certificate so surrendered shall forthwith be cancelled. 

 

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In the event of a transfer of ownership of Company Common Stock that is not registered in the stock transfer books of the Company, payment may be made to a person other than the person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of Parent that such tax has been paid or is not applicable.  Until surrendered as contemplated by this Section 2.2, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the amount of cash, without interest, into which the shares of Company Common Stock theretofore represented by such Certificate have been converted pursuant to Section 2.1.  No interest shall be paid or accrue on the cash payable upon surrender of any Certificate.

 

(c)                                   No Further Ownership Rights in Company Common Stock .  The Merger Consideration paid in accordance with the terms of this Article II upon the surrender of Certificates formerly representing shares of Company Common Stock shall be deemed to have been paid in full satisfaction of all rights pertaining to such shares of Company Common Stock, subject , however , to the Surviving Corporation’s obligation to pay any dividends or make any other distributions with a record date prior to the Effective Time that may have been declared or made by the Company on such shares of Company Common Stock in accordance with the terms of this Agreement or prior to the date of this Agreement and which remain unpaid at the Effective Time.

 

(d)                                  Termination of Exchange Fund .  Any portion of the Exchange Fund that remains undistributed to the holders of Company Common Stock for twelve (12) months after the Effective Time shall be delivered to the Surviving Corporation, upon demand, and any holder of a Certificate who has not theretofore complied with this Article II shall thereafter look only to the Surviving Corporation for payment of its claim for Merger Consideration.

 

(e)                                   No Liability .  None of Parent, Merger Sub, the Company or the Paying Agent shall be liable to any person in respect of any cash from the Exchange Fund delivered to a public official in compliance with or otherwise pursuant to any applicable state, Federal or other abandoned property, escheat or similar Law.  If any Certificate has not been surrendered prior to five years after the Effective Time (or immediately prior to such earlier date on which Merger Consideration in respect of such Certificate would otherwise escheat to or become the property of any Governmental Entity), any such shares, cash, dividends or distributions (including any undistributed Merger Consideration) 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 interest of any person previously entitled thereto.

 

(f)                                     Investment of Exchange Fund .  The Paying Agent shall invest any cash included in the Exchange Fund, as directed by Merger Sub or, if after the Effective Time, the Surviving Corporation; provided , however , that such investments shall be in obligations of or guaranteed by the United States of America or any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, in commercial paper obligations rated A-1 or P-1 or better by Moody’s Investors Service, Inc. or Standard & Poor’s Corporation, respectively, in certificates of deposit, bank repurchase agreements or banker’s acceptances of commercial banks with capital exceeding $1.0 billion (based on the most recent financial statements of such banks that are then publicly available) or in money market funds that are eligible under Rule 2a-7 promulgated under the Investment Company Act of 1940, as amended. 

 

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Any interest and other income resulting from such investments shall be paid to the Surviving Corporation.  If, for any reason (including losses), the cash in the Exchange Fund shall be insufficient to fully satisfy all of the payment obligations to be made in cash by the Paying Agent hereunder, Parent shall promptly deposit cash into the Exchange Fund in an amount which is equal to the deficiency in the amount of cash required to fully satisfy such cash payment obligations.

 

(g)                                  Lost Certificates .  If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent shall pay in respect of such lost, stolen or destroyed Certificate the Merger Consideration.

 

(h)                                  Withholding Rights .  Parent, the Surviving Corporation and the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock in such amounts as Parent, the Surviving Corporation or the Paying Agent are 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 and paid over to the appropriate taxing authority by Parent, the Surviving Corporation or the Paying Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by Parent, the Surviving Corporation or the Paying Agent.

 

(i)                                      Stock Transfer Books .  At the Effective Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers of Company Common Stock thereafter on the records of the Company.  From and after the Effective Time, the holders of Certificates representing shares of Company Common Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares of Company Common Stock, except as otherwise provided in this Agreement or by Law.  On or after the Effective Time, any Certificates presented to the Paying Agent or Merger Sub for any reason shall be cancelled against delivery of the Merger Consideration to which the holders thereof are entitled pursuant to Section 2.1(c).

 

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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to Parent and Merger Sub that, except (A) as identified in and reasonably apparent from the Company SEC Documents filed by the Company with the SEC since December 31, 2007 and publicly available prior to the date of this Agreement (the “ Filed Company SEC Documents ”) and only as and to the extent disclosed therein (other than any “risk factor” disclosure, forward looking discussions, or any other disclosure that is predictive, cautionary or forward looking in nature) and, without giving effect to any change of fact or circumstance subsequent to the date on which any such Filed Company SEC Document was filed, or (B) as set forth in the letter, dated as of the date of this Agreement, from the Company to Parent and Merger Sub (the “ !Company Disclosure Letter ”) (it being understood that any information set forth in one section or subsection of such Company Disclosure Letter 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 only to the extent that the relevance of such disclosure is reasonably apparent):

 

3.1                                Organization, Standing and Power .  Each of the Company and each of its subsidiaries (the “ Company Subsidiaries ”) is duly organized, validly existing and, where such concept is applicable, in good standing under the laws of the jurisdiction in which it is organized and has full corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the failure of which to possess, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect.  The Company and each Company Subsidiary is duly qualified or licensed to do business and, where such concept is applicable, in good standing in each jurisdiction where the nature of its business or their ownership or leasing of its properties make such qualification or licensing necessary, except such jurisdictions where the failure to be so qualified, licensed or in good standing has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.  The Company has made available to Parent prior to the execution of this Agreement true and complete copies of the Company Certificate and the Bylaws of the Company, as amended to the date of this Agreement (as so amended, the “ Company Bylaws ”), and the comparable charter and organizational documents of each Company Subsidiary, in each case as amended through the date of this Agreement.

 

3.2                                Company Subsidiaries; Equity Interests .

 

(a)                                   Section 3.2(a)  of the Company Disclosure Letter lists each Company Subsidiary and its jurisdiction of organization.  All the outstanding shares of capital stock of, or other equity interest in, each Company Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable and, other than directors’ qualifying shares, are owned by the Company, by one or more Company Subsidiaries or by the Company and another Company Subsidiary, free and clear of all pledges, liens, charges, mortgages, encumbrances and security interests of any kind or nature whatsoever (collectively, “ Liens ”).

 

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(b)                                  Except for its interests in the Company Subsidiaries, the Company does not own, directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any person.

 

3.3                                Capital Structure .

 

(a)                                   The authorized capital stock of the Company consists of 60,000,000 shares of Company Common Stock and 10,000,000 shares of preferred stock, par value $0.001 per share (the “ Company Preferred Stock ” and, together with the Company Common Stock, the “ Company Capital Stock ” ).  At the close of business on September 19, 2008 (the “ Capitalization Date ” ), (i) 19,475,892 shares of Company Common Stock were issued and outstanding (with no shares of Company Common Stock held by the Company in its treasury), (ii) 4,229,361 shares of Company Common Stock were reserved and available for issuance pursuant to the Company’s 2002 Stock Option Plan, 2004 Omnibus Stock Incentive Plan, as amended, 2004 Employee Stock Purchase Plan (the “ ESPP ”) and Executive Deferred Compensation Plan (such plans, collectively, the “ Company Stock Plans ”), of which 2,614,926 shares of Company Common Stock were subject to outstanding options (other than options under the ESPP) to acquire shares of Company Common Stock from the Company (the “ Company Stock Options ”) or agreements to issue Company Stock Options and no shares of Company Common Stock have been issued pursuant to the Executive Deferred Compensation Plan and (iii) no shares of Company Preferred Stock were issued or outstanding or held by the Company as treasury shares.   Except as set forth above, at the close of business on the Capitalization Date, no shares of capital stock or other voting securities of the Company, or any option, warrant or other right to acquire shares of capital stock or other securities of the Company, were issued, reserved for issuance or outstanding.  All outstanding shares of Company Capital Stock are, and all such shares that may be issued prior to the Effective Time will be when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the DGCL, the Company Certificate, the Company Bylaws or any Contract to which the Company is a party or by which it is otherwise bound.  There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of Company Common Stock may vote (“ Voting Company Debt ”).  Except for any obligations pursuant to this Agreement, and except for the Company Stock Options and obligations pursuant to the ESPP, as of the date of this Agreement, there are not any options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which the Company or any Company Subsidiary is a party or by which any of them is bound (i) obligating the Company or any Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity interests in, or any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest in, the Company or of any Company Subsidiary or any Voting Company Debt, (ii) obligating the Company or any Company Subsidiary to issue, grant or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking, or (iii) that give any person the right to receive any payment based on the revenues, earnings or financial performance of the Company. 

 

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As of the date of this Agreement, there are not any outstanding contractual obligations of the Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any Company Subsidiary.

 

(b)                                  Section 3.3(b)  of the Company Disclosure Letter sets forth the number of shares of Company Common Stock issuable upon exercise of the Company Stock Options outstanding as of the close of business on the Capitalization Date.  Section 3.3(b)  of the Company Disclosure Letter sets forth, as of the close of business on the Capitalization Date, (i) the name of the record holder of each Company Stock Option, (ii) any applicable expiration date and vesting date of each Company Stock Option, (iii) whether any Company Stock Option is intended to be an incentive stock option, (iv) the exercise price of each such Company Stock Option and (v) the number of shares of Company Common Stock issuable under or subject to each Company Stock Option.

 

(c)                                   To the Company’s knowledge, no Company Stock Option (i) has a per share exercise price lower than the fair market value of a share of Company Common Stock on the date of grant of such Company Stock Option, (ii) has had its grant date backdated or (iii) has had its grant date delayed in order to take advantage of the release or other public announcement of material non-public information regarding the Company or the Company Subsidiaries.  All of the shares of Company Common Stock and other issued and outstanding equity or other securities of the Company or any Company Subsidiary have been issued by the Company or such Company Subsidiary in compliance in all material respects with all applicable securities laws including the Securities Act and “blue sky” laws.

 

(d)                                  Except for the Voting Agreement, neither the Company nor any of the Company Subsidiaries is a party to any shareholders’ agreement, voting trust agreement, or registration rights agreement relating to any equity securities of the Company or any of the Company Subsidiaries or any other Contract relating to disposition, voting, or dividends with respect to any equity or other securities of the Company or of any Company Subsidiary.  No cash dividends on the Company Common Stock have been declared or have accrued during the last three (3) years.

 

(e)                                   Section 3.3(e)  of the Company Disclosure Letter sets forth the amount of contributions made to the ESPP from the beginning of the currently outstanding offering period under the ESPP through the date of this Agreement and an estimate of the total amount of contributions that are scheduled (based on current facts and circumstances) to be made to the ESPP through the last day of such offering period and an estimate of the maximum amount of contributions that can be made (based on current facts and circumstances) to the ESPP through the last day of such offering period.

 

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(f)                                     Section 3.3(f)  of the Company Disclosure Letter also sets forth a true and complete list, as of the date hereof, of all indebtedness for borrowed money, letters of credit and surety bonds of the Company and the Company Subsidiaries (other than (x) any such indebtedness owed to the Company or any of the Company Subsidiaries, (y) trade letters of credit or (z) any such indebtedness (including any related indebtedness) that does not exceed $50,000) outstanding on the date of this Agreement.  Neither the Company nor any of the Company Subsidiaries has outstanding bonds, debentures, notes or other obligations, the holders of which may have the right to vote with the stockholders of the Company or such Company Subsidiary on any matter.

 

3.4                                Authority; Execution and Delivery; Enforceability .

 

(a)                                   The Company has all requisite corporate power and authority to execute and deliver this Agreement and, subject to the receipt of the Stockholder Approval, to consummate the transactions contemplated by this Agreement.  The execution and delivery by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject, in the case of the Merger, to receipt of the Stockholder Approval.  The Company has duly executed and delivered this Agreement, and, assuming the due authorization, execution and delivery of this Agreement by each of the other parties hereto, this Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, subject to (i) applicable bankruptcy, insolvency or other similar Laws, now or hereafter in effect, affecting creditors’ rights generally and (ii) rules of law governing specific performance and injunctive or other forms of equitable relief.

 

(b)                                  The Board of Directors of the Company (the “ Company Board ”), at a meeting duly called and held, duly and unanimously adopted resolutions, which as of the date of this Agreement have not been rescinded, modified or withdrawn, (i) approving this Agreement, the Merger and the other transactions contemplated by this Agreement, (ii) determining that the terms of the Merger and the other transactions contemplated by this Agreement are fair to and in the best interests of the stockholders of the Company, (iii) directing that this Agreement be submitted to a vote at a meeting of the Company’s stockholders, (iv) recommending that the Company’s stockholders adopt this Agreement and (v) declaring that this Agreement is advisable.  To the Company’s knowledge, no state takeover statute or similar statute or regulation, other than Section 203 of the DGCL, applies or purports to apply to the Company with respect to this Agreement, the Merger or any other transaction contemplated by this Agreement.

 

(c)                                   The only vote of holders of any class or series of Company Capital Stock necessary to adopt this Agreement and approve the transactions contemplated hereby is the adoption of this Agreement by the holders of a majority of the outstanding shares of Company Common Stock entitled to vote thereon (the “ Stockholder Approval ”).

 

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3.5                                No Conflicts; Consents .

 

(a)                                   The execution and delivery by the Company of this Agreement do not, and the consummation of the Merger and the other transactions contemplated by this Agreement and compliance with the terms hereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any material obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or any Company Subsidiary under, any provision of (i) the Company Certificate, the Company Bylaws or the comparable charter or organizational documents of any Company Subsidiary, (ii) any contract (written or oral), lease, license, indenture, note, bond, letter of credit, mortgage, agreement, permit, concession, franchise or other binding commitment, obligation or instrument (a “ Contract ”) to which the Company or any Company Subsidiary is a party or by which any of their respective properties or assets is bound or (iii) subject to the filings and other matters referred to in Section 3.5(b), any judgment, order or decree of any Governmental Entity (“ Judgment ”) or statute, law, ordinance, rule, code, executive order or regulation of any Governmental Entity (“ Law ”) applicable to the Company or any Company Subsidiary or their respective properties or assets, other than, in the case of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.

 

(b)                                  No consent, approval, license, permit, order or authorization (“ Consent ”) of, or registration, declaration or filing with, notice to or permit from, any Federal, state, local or foreign government or any court of competent jurisdiction, administrative or regulatory agency or commission or other governmental authority or instrumentality, domestic or foreign (a “ Governmental Entity ”) is required to be obtained or made by or with respect to the Company or any Company Subsidiary in connection with the execution, delivery and performance of this Agreement or the consummation of the Merger or the transactions contemplated by this Agreement, other than (i) compliance with and filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”), or any other applicable competition, merger control, antitrust or similar laws (each, an “ Antitrust Law ”) of any foreign jurisdiction, (ii) the filing with the Securities and Exchange Commission (the “ SEC ”) of (A) a proxy statement relating to the adoption of this Agreement by the Company’s stockholders (the “ Proxy Statement ”) and (B) such reports under Securities Exchange Act of 1934, as amended (including the rules and regulations of the SEC promulgated thereunder, the “ Exchange Act ”), as may be required in connection with this Agreement, the Merger and the other transactions contemplated by this Agreement, (iii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and appropriate documents with the relevant authorities of the other jurisdictions in which the Company is qualified to do business, (iv) any filings required under the rules and regulations of the NASDAQ Stock Market LLC, and (v) such other consents, approvals, orders, authorizations, registrations, declarations, filings and notices the failure of which to be obtained or made, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.

 

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3.6                                SEC Documents; Sarbanes-Oxley Compliance; NASDAQ.

 

(a)                                   The Company has timely filed or furnished all reports, schedules, forms, statements and other documents required to be filed or furnished by the Company with the SEC since January 1, 2005 (such documents, together with any documents filed or furnished during such period by the Company with the SEC on a voluntary basis on Current Reports on Form 8-K, the “ Company SEC Documents ”).  No Company Subsidiary is subject to the periodic reporting requirements of Section 13(d) or Section 15(d) of the Exchange Act.  The Company has made available to Parent all material correspondence between the SEC and the Company since January 1, 2006 up to the date of this Agreement and, as of the date of this Agreement, there are no unresolved comments issued by the staff of the SEC with respect to any Company SEC Documents.

 

(b)                                  As of its respective date of filing, each Company SEC Document complied in all material respects (including as to form) with the requirements of the Securities Act of 1933, as amended (including the rules and regulations of the SEC promulgated thereunder, the “ Securities Act ”), the Exchange Act and the Sarbanes-Oxley Act of 2002, as amended (including the rules and regulations of the SEC promulgated thereunder) (the “ Sarbanes-Oxley Act ”), in each case as applicable to such Company SEC Document, and 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.  None of the Company SEC Documents, at the time it was filed, contained any untrue statement of a material fact or omitted 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.  The Company has timely made all certifications and statements required by Sections 302 and 906 of the Sarbanes-Oxley Act.  No Company Subsidiary is subject to periodic reporting requirements under the Exchange Act.  The consolidated financial statements (including the notes and schedules thereto) of the Company included in each of the Company SEC Documents complied at the time it was filed in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto in effect at the time of filing, were prepared in accordance with generally accepted accounting principles (“ GAAP ”) (except, in the case of unaudited statements, as permitted by the rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly presented in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods shown (subject, in the case of unaudited statements, to normal year-end audit adjustments).  The Company is in material compliance with, and has complied in all material respects with, the listing, corporate governance and other rules, regulations and requirements for listing on the NASDAQ National Market.

 

(c)                                   The Company is in compliance with, and since January 1, 2005, has complied, in all material respects, with the applicable provisions of the Sarbanes-Oxley Act and the related rules and regulations promulgated under such Act. 

 

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Without limiting the foregoing, the Company (i) has established and maintains a system of internal accounting 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 GAAP, (ii) the Company has disclosed, based on its most recent evaluation of internal controls, to the Company’s auditors and its audit committee, (A) any significant deficiencies and material weaknesses within the knowledge of the Company in the design or operation of its internal accounting controls which are reasonably likely to materially and adversely affect the Company’s ability to record, process, summarize, and report financial information, and (B) any material fraud known to the Company that involves management or other employees who have a significant role in internal controls, and (iii) the Company has not received any complaint, allegation, assertion, or claim in writing regarding the accounting practices, procedures, methodologies, or methods of the Company or its internal accounting controls over financial reporting, including any such complaint, allegation, assertion, or claim that the Company has engaged in questionable accounting or auditing practices.

 

(d)                                  Neither the Company nor any Company Subsidiary has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, other than liabilities or obligations (i) reflected or reserved against in the consolidated balance sheet of the Company as of December 30, 2007 included in the Filed Company SEC Documents publicly available prior to the date of this Agreement (or described in the notes thereto), (ii) incurred since December 30, 2007 in the ordinary course of business consistent with past practice, or (iii) incurred in connection with the transactions contemplated by this Agreement.  Neither the Company nor any of the Company Subsidiaries is a party to, or has any commitment to become a party to, any joint venture or off-balance sheet partnership (including any Contract or arrangement relating to any transaction or relationship between or among the Company or any of the Company Subsidiaries, on the one hand, and any unconsolidated affiliate, on the other hand, including any structured finance, special purpose or limited purpose entity or person) or any “off-balance sheet arrangements” as defined in Item 303(a)(4) of Regulation S-K.

 

(e)                                   None of the information included or incorporated by reference in the Proxy Statement or any other document filed with the SEC in connection with the Merger (the “ Other Filings ”) will, in the case of the Proxy Statement, as of the date it is first mailed to the Company’s stockholders or at the time of the Stockholders Meeting or at the time of any amendment or supplement thereof, or, in the case of any Other Filing, as of the date it is first filed with the SEC, 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 are made, not misleading; provided , however , that the Company makes no representation with respect to statements made or incorporated by reference in the Proxy Statement or Other Filings that are based on information supplied by Parent or Merger Sub or any affiliate of Parent or Merger Sub in connection with the preparation of the Proxy Statement or the Other Filings for inclusion or incorporation by reference therein.  The Proxy Statement and the Other Filings that are filed by the Company will comply as to form in all material respects with the requirements of the Securities Act, the Exchange Act and the Sarbanes-Oxley Act, as the case may be, and the rules and regulations promulgated thereunder.

 

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3.7                                Absence of Certain Changes or Events .  Except for liabilities incurred in connection with this Agreement, as expressly permitted pursuant to Section 5.1, since December 30, 2007, the Company has conducted its business only in the ordinary course of business, and during such period there has not been any event, change, effect or development that, individually or in the aggregate, has had, or would reasonably be expected to have, a Material Adverse Effect.  Since December 30, 2007 to the date of this Agreement, there has not been (i) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any Company Capital Stock or any equity security of any Company Subsidiary, (ii) any repurchase (other than pursuant to a Withholding Event) for value by the Company of any Company Capital Stock or any equity security of any Company Subsidiary; (iii) any split, combination or reclassification of any Company Capital Stock or any equity security of any Company Subsidiary, (iv) any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of Company Capital Stock or any equity security of any Company Subsidiary; (v) except in the ordinary course of business consistent with past practice or as required pursuant to any Company Benefit Plan in effect on December 30, 2007, (A) any granting by the Company or any Company Subsidiary to any current or former director or executive officer of the Company or any Company Subsidiary of any increase in compensation or benefits, (B) any granting by the Company or any Company Subsidiary to any such current or former director or executive officer of any increase in severance or termination pay or (C) any entry by the Company or any Company Subsidiary into, or any amendment of, any employment, consulting, severance or termination agreement with any such current or former director or executive officer; (vi) any change in accounting methods, principles or practices by the Company or any Company Subsidiary materially affecting the consolidated assets, liabilities or results of operations of the Company, except insofar as may have been required by a change in GAAP; (vii) any material election, or change in a material election, with respect to Taxes by the Company or any Company Subsidiary, any settlement or compromise by the Company or any Company Subsidiary of any material Tax liability or refund, any filing of an amended Tax Return with respect to material Taxes (except as required by applicable Law), any change in any annual tax accounting period, any closing agreement relating to a material amount of Taxes, any waiver or extension of the statute of limitations in respect of Taxes (other than pursuant to extensions of time to file Tax Returns obtained in the ordinary course of business) other than, in each case, in the ordinary course of business and consistent with past practice; (viii) any purchase, redemption or other acquisition by the Company or any Company Subsidiary of any shares of Company Common Stock or any equity security of any Company Subsidiary or any right, warrant or option to acquire such Company Stock or any equity security of any Company Subsidiary, other than (X) the acquisition by the Company of shares of Company Common Stock in connection with the surrender of shares of Company Common Stock by holders of Company Stock Options in order to pay the exercise price thereof, (Y) the withholding or repurchase by the Company of shares of Company Common Stock to satisfy tax obligations with respect to awards granted pursuant to the Company Stock Plans, or (Z) the acquisition by the Company of Company Stock Options in connection with the forfeiture of such awards (each transaction contemplated by clauses (X), (Y) or (Z), a “ Withholding Event ”); or (ix) any action taken that, if taken between the date hereof and the Closing, would be prohibited by Section 5.1 (other than subsections (9) and (11) thereof).

 

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3.8                                Contracts .

 

(a)                                   As of the date of this Agreement, neither the Company nor any Company Subsidiary is a party to or bound by any:

 

(1)                                   Contract that would be required to be filed by the Company as a “material contract” pursuant to Item 601(b)(10) of Regulation S-K of the Securities Act;

 

(2)                                   written employment Contract that (x) provides for annual cash compensation in excess of $200,000 or (y) provides for annual cash compensation in excess of $100,000 and is not terminable by the Company or any Company Subsidiary by notice of not more than 90 days without cost or penalty;

 

(3)                                   collective bargaining agreement or other Contract with any labor organization, union or association;

 

(4)                                   Contract that materially restricts the ability of the Company or any Company Subsidiary to compete with any business or in any geographical area or to solicit customers or other service providers;

 

(5)                                   lease, sublease or similar Contract with any person (other than the Company or a Company Subsidiary) under which the Company or a Company Subsidiary is a lessor or sublessor of, or makes available for use to any person (other than the Company or a Company Subsidiary), (A) any Company Property that is material to the conduct of the business of the Company and the Company Subsidiaries as presently conducted or (B) any portion of any premises otherwise occupied by the Company or a Company Subsidiary;

 

(6)                                   lease, sublease or similar Contract with any person (other than the Company or a Company Subsidiary) under which the Company or a Company Subsidiary is a lessor or sublessor of, or makes available for use by any person, any tangible personal property owned or leased by the Company or a Company Subsidiary, in any such case which provides for a future liability or receivable, as the case may be, in excess of $250,000 annually or $750,000 over the term of the Contract, and is not terminable by the Company or a Company Subsidiary by notice of not more than 90 days without cost or penalty;

 

(7)                                   lease, sublease or similar Contract with any person (other than the Company or a Company Subsidiary) under which the Company or a Company Subsidiary is a lessee or sublessee of any tangible personal property, in any such case which provides for a future liability in excess of $250,000 annually or $750,000 over the term of the Contract, and is not terminable by the Company or a Company Subsidiary by notice of not more than 90 days without cost or penalty;

 

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(8)                                   Contract under which the Company or a Company Subsidiary has borrowed any money from, or issued any note, bond, debenture or other evidence of Indebtedness to, any person (other than the Company or a Company Subsidiary), in each case involving an aggregate principal amount in excess of $250,000, other than trade payables arising in the ordinary course of business;

 

(9)                                   Contract (including any so-called take-or-pay or keepwell agreements) under which (A) any person, other than the Company or a Company Subsidiary, has guaranteed Indebtedness, liabilities or obligations of the Company or a Company Subsidiary or (B) the Company or a Company Subsidiary has guaranteed Indebtedness, liabilities or obligations of any person, other than the Company or another Company Subsidiary, in each case involving an aggregate guaranteed amount in excess of $250,000 (other than endorsements for the purpose of collection in the ordinary course of business);

 

(10)                             Contract under which the Company or a Company Subsidiary has made any advance, loan, extension of credit or capital contribution to, or other investment in, any person (other than the Company or a Company Subsidiary and other than extensions of trade credit and other advances of operating expenses in the ordinary course of business), in each case involving an aggregate amount in excess of $250,000;

 

(11)                             Contract creating or granting any Lien (including Liens upon properties acquired under conditional sales and capital leases but excluding Permitted Liens), other than Liens granted in the ordinary course of business consistent with past practice which are not material to the Company and the Company Subsidiaries;

 

(12)                             Contract for the purchase of raw materials, supplies or equipment or for any other capital expenditure that provides for cash payments by the Company or any Company Subsidiary that are reasonably expected to exceed $250,000 per annum;

 

(13)                             Contract for the sale of any material asset of the Company or a Company Subsidiary or the grant of any preferential rights to purchase any such asset or requiring the consent of any party to the transfer thereof, other than any such Contract entered into in the ordinary course of business;

 

(14)                             Contract for any joint venture, general partnership or limited partnership agreement (each, a “ Joint Venture Agreement ”);

 

(15)                             Contract involving any swap, forward, future, option, cap, floor or collar financial contract, or any other interest-rate or foreign currency hedge or protection contract;

 

(16)                             Contract relating to development, ownership, licensing or use of any Intellectual Property that is material to the operation of the business of the Company and the Company Subsidiaries;

 

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(17)                             Contract to which the Company or any Company Subsidiary is a party that, by its terms, calls for aggregate payments by or to the Company or any Company Subsidiary of more than $500,000 on an annual basis; or

 

(18)                             Contract providing the Company or any Company Subsidiary with a call right or other right to purchase Company Common Stock.

 

(b)                                  Each of the Contracts filed as an exhibit to a Company SEC Document (except to the extent any such Contract has expired pursuant to its terms) or to be set forth in Section 3.8 of the Company Disclosure Letter (the “ Material Contracts ”) is valid, binding and in full force and effect and is enforceable by the Company or the applicable Company Subsidiary in accordance with its terms, except for such failures to be valid, binding, in full force and effect or enforceable that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.  Neither the Company nor any of the Company Subsidiaries (other than Cherokee Netherlands I BV and its direct and indirect subsidiaries) have contractually guaranteed any of the debts, obligations or other liabilities of Cherokee Netherlands I BV and its direct and indirect subsidiaries.  The Company or the applicable Company Subsidiary has performed all material obligations required to be performed by it through the date of this Agreement under the Material Contracts, and it is not (with or without the lapse of time or the giving of notice, or both) in breach or default in any respect thereunder and, to the knowledge of the Company, no other party to any Material Contract is (with or without the lapse of time or the giving of notice, or both) in breach or default in any respect thereunder, except for such noncompliance, breaches and defaults that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.  Neither the Company nor any of the Company Subsidiaries has received any notice of the intention of any party to terminate any Material Contract.  Complete and correct copies of all Material Contracts, together with all modifications and amendments thereto, have been made available to Parent.

 

3.9                                Intellectual Property .

 

(a)                                   Section 3.9 of the Company Disclosure Letter sets forth, as of the date of this Agreement, a true and complete list of all registered Intellectual Property owned by the Company or any Company Subsidiary.  The Intellectual Property set forth on Section 3.9 of the Company Disclosure Letter is referred to in this Agreement as the “ Registered Company Intellectual Property .”  Except as would not reasonably be expected to have a Material Adverse Effect, (i) the Company or a Company Subsidiary is the sole and exclusive owner of, and the Company and the Company Subsidiaries have the right to use, execute, reproduce, display, perform, modify, enhance, distribute, prepare derivative works of and sublicense, without payment to any other person, all Registered Company Intellectual Property, and the consummation of the transactions contemplated hereby does not and will not conflict with, alter or impair any such rights, and (ii) during the past three years neither the Company nor any of the Company Subsidiaries has received any written communication from any person asserting any ownership interest in any owned Registered Company Intellectual Property.

 

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(b)                                  Neither the Company nor any Company Subsidiary has granted any license of any kind relating to any owned Company Intellectual Property or the marketing or distribution thereof, except (i) nonexclusive licenses granted in the ordinary course of business and (ii) exclusive licenses relating to the development of Intellectual Property specifically for a customer and licensed to such customer in the ordinary course of business.

 

(c)                                   Neither the Company nor any Company Subsidiary is bound by or a party to any option, license or similar Contract relating to the Intellectual Property of any other person for the use of such Intellectual Property in the conduct of the business of the Company and the Company Subsidiaries that is material to the conduct of the business of the Company and the Subsidiaries as presently conducted, except for so-called “shrink-wrap” license agreements relating to computer software licensed to the Company or a Company Subsidiary in the ordinary course of business.

 

(d)                                  The conduct of the business of the Company and the Subsidiaries as presently conducted does not violate, conflict with or infringe the Intellectual Property of any other person, except for such violations, conflicts or infringements that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.

 

(e)                                   No claims are pending or, to the knowledge of the Company, threatened, as of the date of this Agreement against the Company or any Company Subsidiary by any person with respect to the ownership, validity, enforceability, effectiveness or use in the business of the Company and the Company Subsidiaries of any Intellectual Property, except for such claims that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.

 

(f)                                     To the knowledge of the Company, no third party is infringing or misappropriating any Intellectual Property owned by the Company or any Company Subsidiary, except for such infringements or misappropriations that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.

 

(g)                                  The Company has used commercially reasonable efforts to protect the confidentiality of the trade secrets of the Company.

 

(h)                                  In this Agreement, “ Intellectual Property ” means, with respect to any person, any patent (including all reissues, divisions, continuations and extensions thereof), patent application, patent right, trademark, trademark registration, trademark application, servicemark, trade name, brand name, copyright (including copyright in software and technology), registration, design, design registration, domain name registration, or all other proprietary rights, trade secrets, or other intellectual property rights used in the business of such person as currently conducted, and any right to any of the foregoing.

 

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3.10                         Taxes .

 

(a)                                   Each of the Company and each Company Subsidiary has timely filed, or has caused to be timely filed on its behalf, all material Tax Returns required to be filed by it, and all such Tax Returns are true, complete and accurate in all material respects.  All Taxes shown to be due on such Tax Returns, and all material Taxes otherwise owed by the Company and each Company Subsidiary, have been timely paid or will be timely paid in full or disputed by the due date thereof.  Without taking into account any transaction contemplated by this Agreement and based on activities to date, adequate reserves in accordance with GAAP have been established by the Company and each Company Subsidiary for all material Taxes not yet due and payable in respect of taxable periods ending on the date hereof.

 

(b)                                  In all material respects, all Taxes required to be withheld by the Company and the Company Subsidiaries have been or will be timely withheld and paid over to the appropriate Governmental Entity.

 

(c)                                   No deficiency with respect to any material amount of Taxes has been proposed, asserted or assessed in writing against the Company or any Company Subsidiary (or, to the knowledge of the Company, has been threatened or proposed), and no requests for waivers of the time to assess any such Taxes are pending.  No audit or other proceeding by any Governmental Entity is underway, pending or threatened with respect to any Tax that might be payable by the Company or any Company Subsidiary.  No claim has ever been made by any Tax Authority in a jurisdiction where the Company or any Company Subsidiary does not file Tax Returns that it is or may be subject to Taxes by that jurisdiction.

 

(d)                                  The Federal income Tax Returns of the Company and each Company Subsidiary consolidated in such Tax Returns have been examined by and settled with the United States Internal Revenue Service, or have closed by virtue of the expiration of the relevant statute of limitations, for all years through fiscal year 2003.  All assessments for Taxes due with respect to such completed and settled examinations or any concluded litigation have been fully paid or are being disputed in good faith by the Company.

 

(e)                                   There are no material Liens for Taxes (other than for Permitted Liens) on the assets of the Company or any Company Subsidiary.  Neither the Company nor any Company Subsidiary is bound by any agreement with respect to Taxes, including any agreement under which the Company or any Company Subsidiary could be liable for Taxes of an entity that is neither the Company nor any Company Subsidiary.

 

(f)                                     Neither the Company nor any Company Subsidiary has constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code in the two years prior to the date of this Agreement.

 

(g)                                  None of the Company or any of the Company Subsidiaries has entered into a “listed transaction” that has given rise to a disclosure obligation under Section 6011 of the Code and the Treasury Regulations promulgated thereunder and that has not been disclosed in the relevant Tax Return of the Company or relevant Company Subsidiary.

 

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(h)                                  Neither the Company nor any Company Subsidiary owns, directly or indirectly, any interest in any entity classified as a partnership for the United States federal income Tax purposes.  The Company has never been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.  Neither the Company nor any Company Subsidiary has agreed to or is required to make any adjustment pursuant to Section 481(a) of the Code.

 

(i)                                      For purposes of this Agreement, “ Taxes ” includes all forms of taxation, whenever created or imposed, and whether of the United States or elsewhere, and whether imposed by a local, municipal, governmental, state, foreign, Federal or other Governmental Entity, as transferee or successor or in connection with any agreement with respect to Taxes, including all charges, fees, levies, imposts, customs duties or other assessments, excise, real and personal property, sales, transfer, import, export, ad valorem, payroll, use, goods and services, value added, capital, capital gains, alternative, net worth, profits, withholding, employer health and franchise taxes (including any interest, penalties, fines or additions attributable to or imposed on or with respect to any such assessment) and any similar charges in the nature of a tax including unemployment and employment insurance payments and workers compensation premiums, together with any installments with respect thereto and any estimated payments or estimated taxes and whether disputed or not.  “ Tax Return ” means all Federal, state, local, provincial and foreign Tax returns, declarations, statements, reports, schedules, forms and information returns and any amended Tax return relating to Taxes.

 

3.11                         Company Benefit Plans .  Each material Company Benefit Plan is identified in the Filed Company SEC Documents or in Section 3.11 of the Company Disclosure Letter.  Except in the ordinary course of business, as disclosed in the Filed Company SEC Documents, or as otherwise disclosed in Section 3.11 of the Company Disclosure Letter, from the date of the most recent consolidated financial statements of the Company included in the Filed Company SEC Documents to the date of this Agreement, there has not been any adoption or amendment by the Company or any Company Subsidiary of any Company Benefit Plan that would materially increase the aggregate costs to the Company and the Company Subsidiaries of the Company Benefit Plans.

 

3.12                         Benefit Plan Compliance .

 

(a)                                   The Company has made available to Parent true, complete and correct copies of (i) each writing constituting a material part of each material Company Benefit Plan, including all material amendments thereto, (ii) the most recent annual report on Form 5500 and accompanying schedules, if any, filed with the Internal Revenue Service with respect to each Company Benefit Plan (if any such report was required), (iii) the most recent summary plan description for each Company Benefit Plan for which such summary plan description has been prepared, (iv) the most recent (A) discrimination tests, (B) audited financial statements and (C) actuarial valuation reports in each case, if any, with respect to each Company Benefit Plan, (v) the most recent determination letter, if any, from the Internal Revenue Service for each Company Benefit Plan, (vi) any related trust agreement or material funding instrument now in effect and (vii) the current form of the Company’s handbook distributed generally to its employees.

 

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(b)                                  No Company Benefit Plan is and neither the Company, any Company Subsidiary or any ERISA Affiliate has within the past six years maintained or contributed to a plan that was (i) a “multiemployer plan” within the meaning of Section 3(37) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”), (ii) subject to Title IV of ERISA, or (iii) subject to the minimum funding standards of Section 412 of the Internal Revenue Code of 1986, as amended (the “ Code ”), or Section 302 of ERISA.

 

(c)                                   Except as disclosed in Section 3.12(c)  of the Company Disclosure Letter, each Company Benefit Plan intended to be qualified under Section 401(a) of the Code has obtained a currently effective favorable determination notification, advisory and/or opinion letter, as applicable, as to its qualified status (or the qualified status of the master or prototype form on which it is established) from the IRS covering the amendments to the Code effected by the Tax Reform Act of 1986 and all subsequent legislation for which the IRS will currently issue such a letter, and no amendment to such Company Benefit Plan has been adopted since the date of such letter covering such Company Benefit Plan that would reasonably be expected to adversely affect such favorable determination.  With respect to each Company Benefit Plan set forth in Section 3.12(c)  of the Company Disclosure Letter, the Company still has a remaining period of time in which to apply for or receive such letter and to make any amendments necessary to obtain a favorable determination.

 

(d)                                  Except as would not reasonably be expected individually or in the aggregate to have a Company Material Adverse Effect:

 

(1)                                   each Company Benefit Plan has been maintained and administered in compliance with its terms and with the requirements prescribed by all Laws applicable to such Company Benefit Plan;

 

(2)                                   all contributions, reserves or premium payments required to be made or accrued as of the Closing Date to the Company Benefit Plans have been timely made or accrued;

 

(3)                                   no “Prohibited Transaction,” within the meaning of Section 4975 of the Code or Sections 406 or 407 of ERISA and not otherwise exempt under Section 408 of ERISA, has occurred with respect to any Company Benefit Plan;

 

(4)                                   no action, suit or claim (excluding claims for benefits incurred in the ordinary course) is pending or, to the knowledge of the Company, threatened against or with respect to any Company Benefit Plan; and

 

(5)                                   there are no audits, inquiries or proceedings pending or, to the knowledge of the Company, threatened by any Governmental Entity with respect to any Company Benefit Plan.

 

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(e)                                   Each Company Benefit Plan that is a