AGREEMENT AND PLAN OF MERGER

 

EXHIBITS

Exhibit A	-	Articles of Incorporation of Surviving Corporation
Exhibit B	-	Form of Lock-Up Agreement
Exhibit B-1	-	Form of Lott Lock-Up Agreement
Exhibit C	-	Form of Registration Rights Agreement
Exhibit D	-	Reserved
Exhibit E	-	Reserved
Exhibit F	-	Form of Employment Agreements
Exhibit G	-	Form of Re-Incorporation Stockholder Consent
Exhibit H	-	Form of Re-Incorporation Merger Agreement

 

 

INDEX OF DEFINED TERMS

 

DEFINED TERMS	SECTION DEFINED
Adjustment Event	Section 2.4
affiliate	Section 9.3(a)
Agreement	Preamble
Articles of Merger	Section 1.3
Closing	Section 1.2
Closing Balance Sheet	Section 2.4(b)
Closing Date	Section 1.2
Code	Section 2.6(a)
Company	Preamble
Company Acquisition Proposal	Section 5.3(a)
Company Advertising Contracts	Section 3.25
Company Articles of Incorporation	Section 2.1(c)
Company Common Stock	Recitals
Company Disclosure Schedule	Article III
Company Financial Statements	Section 3.5
Company Host Licenses	Section 3.24 (b)
Company IP Agreements	Section 3.14(g)
Company Material Contracts	Section 3.6(b)
Company Mergers	Section 9.3(b)
Company Target	Section 9.3(d)
Company Warrant	Section 2.7(b)
Company Shareholder Approval	Section 3.17
Company Shareholders Meeting	Recitals
Company Stock Certificates	Section 2.3(a)
Company Stock Plans	Section 3.3(a)
Company Trade Secrets	Section 3.14(h)
Company Warrant	Section 2.7(a)
Continuing Employees	Section 6.3(a)
Delaware Merger Corp.	Section 9.3
Dissenting Shares	Section 2.5
Director Indemnification Agreement	Section 7.3(j)
Effective Time	Section 1.3
Employee Plans	Section 3.11(a)
Employment Agreements	Section 9.3(g)
Environmental Laws	Section 3.13(d)(i)
Environmental Permits	Section 3.13(d)(ii)
ERISA	Section 3.11(a)
ERISA Affiliate	Section 3.11(a)
Exchange Act	Section 4.4(c)
Fiduciary	Section 3.11(e)
GAAP	Section 3.5

 

 

Government Entities	Section 3.4(c)
Governmental Entity	Section 3.4(c)
Hazardous Substances	Section 3.13(d)(iii)
Holdback Shares	Section 2.8
Indemnified Parties	Section 6.4(a)
Indoor Advertising Display	Section 3.24(b)
Intellectual Property	Section 3.14(a)
IRS	Section 3.11(g)
ISO	Section 2.6(a)
knowledge	Section 9.3(e)
Letter of Transmittal	Section 2.3(b)
Liens	Section 3.4(c)
Lock-Up Agreement	Section 2.1(d)
Lock-Up Period	Section 2.1(d)
material adverse change	Section 9.3(b)
material adverse effect	Section 9.3(b)
Merger	Recitals
Merger Consideration	Section 2.1(d)
Merger Sub	Preamble
NVGCL	Recitals
Other Company Documents	Section 3.8(c)
Other Parent Documents	Section 4.8(c)
Parent	Preamble
Parent Acquisition Proposal	Section 5.5
Parent Common Stock	Section 4.3(a)
Parent Disclosure Schedule	Article IV
Parent IP Agreements	Section 4.14(g)
Parent Material Contracts	Section 4.6(b)
Parent Re-incorporation Merger	Section 9.3
Parent SEC Documents	Section 4.5
Parent Trade Secrets	Section 4.14(h)
Permits	Section 3.8(a)
Company Permitted Liens	Section 3.9(b)
Person	Section 9.3(c)
Re-Incorporation Stockholder Consent	Section 7.2 (j)
Release	Section 3.13(d)(iv)
Registration Rights Agreement	Section 2.1(f)
Requisite Regulatory Approvals	Section 7.1(b)
Restraints	Section 7.2(c)
Sarbanes Oxley Act	Section 4.24
SEC	Section 4.5
Secretary	Section 1.3
Securities Act	Section 2.1(f)
Software	Section 3.14(a)
Subsidiary	Section 9.3(d)
Surviving Corporation	Section 1.1

 

 

Tangible Personal Property	Section 3.20
Tax	Section 3.10(i)(i)
Taxes	Section 3.10(i)(i)
Tax Return	Section 3.10(i)(ii)
Third Party Rights	Section 3.14(d)
WBCA	Recitals

 

 

THIS AGREEMENT AND PLAN OF MERGER (this “ Agreement ”) is made and entered into on this 30 ^th day of June 2005, by and among LIMELIGHT MEDIA GROUP, INC., a Nevada corporation (“ Parent ”), LIMELIGHT MERGER II CORP., a Washington corporation and wholly-owned subsidiary of Parent (“ Merger Sub ”), and IMPART, INC. , a Washington corporation (the “ Company ”).

 

WHEREAS, each of Parent, Merger Sub, and the Company desires Parent to consummate a business combination with the Company in a transaction whereby, upon the terms and subject to the conditions set forth in this Agreement, Merger Sub will merge with and into the Company (the “ Merger ”), each outstanding share of Common Stock, $.001 par value per share, of the Company (“ Company Common Stock ”) (other than shares cancelled and retired pursuant to Section 2.1(b) and Dissenting Shares (as defined herein), will be converted into the right to receive the Merger Consideration, and the Company will be the surviving corporation in the Merger;

 

WHEREAS , the Board of Directors of the Company unanimously has determined and resolved that the Merger and all of the transactions contemplated by this Agreement are in the best interest of the holders of Company Common Stock and that the Merger is fair and advisable, and has approved this Agreement in accordance with the Washington Business Corporation Act, as amended (the “ WBCA ”), and has further resolved unanimously to recommend to all holders of Company Common Stock that they authorize, approve, and adopt this Agreement and the transactions contemplated hereby   at a meeting of such holders to be duly called and convened for such purpose (the “ Company Shareholders Meeting ”); and

 

WHEREAS , the Board of Directors of Parent unanimously has determined and resolved that the Merger and all of the transactions contemplated by this Agreement are in the best interest of Parent and the holders of Parent Common Stock and has adopted this Agreement in accordance with the Nevada General Corporation Law, as amended (the “ NVGCL ”) and Parent, as sole stockholder of Merger Sub, has adopted this Agreement in accordance with the WBCA.

 

NOW, THEREFORE , in consideration of the mutual premises recited above and the representations, warranties, covenants, and agreements contained in this Agreement, the parties hereto (each a “ Party ,” and together, the “ Parties ”), intending to be legally bound, hereby agree as follows:

 

ARTICLE I

 

THE MERGER

 

SECTION 1.1    The Merger .    Upon the terms and subject to the conditions set forth in this Agreement and in accordance with the WBCA, at the Effective Time, Merger Sub shall be merged with and into the Company and the Company shall be the surviving corporation in the Merger (the “ Surviving Corporation ”) and, as such, the Company shall continue its corporate existence as a direct, wholly-owned subsidiary of Parent under the laws of the State of Washington, and the separate corporate existence of Merger Sub thereupon shall cease.

 

 

SECTION 1.2     Closing .    Subject to the satisfaction or, to the extent permitted by applicable law, waiver of the conditions to consummation of the Merger contained in Article VII hereof, the closing of the Merger (the “ Closing ”) shall take place at 10:00 a.m., New York time, on a date to be specified by the Parties (the “ Closing Date ”), which date shall not be later than the third (3rd) business day next following the satisfaction or, to the extent permitted by applicable law, waiver of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or, to the extent permitted by applicable law, waiver of those conditions), unless another time or date is agreed to by the Parties. The Closing will be held at the offices of Pryor Cashman Sherman & Flynn, LLP, legal counsel to Parent, located at 410 Park Avenue, 10th Floor, New York, New York 10022 or at such other location as is agreed to by the Parties.

 

SECTION 1.3     Effective Time .    Upon the terms and subject to the conditions set forth in this Agreement, at the Closing the Parties shall cause the Merger to be consummated by filing with the Secretary of State of the State of Washington (the “ Secretary ”) articles of merger (the “ Articles of Merger ”) duly executed and so filed in accordance with the WBCA and shall make all other filings and recordings required under the WBCA to effectuate the Merger and the transactions contemplated by this Agreement. The Merger shall become effective at such time as the Articles of Merger are duly filed with the Secretary, or at such subsequent date or time as Parent and the Company mutually shall agree and specify in the Articles of Merger (the time the Merger becomes so effective being hereinafter referred to as the “ Effective Time ”).

 

SECTION 1.4     Effects of the Merger .    The Merger shall have the effects set forth in the WBCA.

 

SECTION 1.5     Articles of Incorporation and By-laws of the Surviving Corporation .    The articles of incorporation of the Surviving Corporation shall be amended and restated to read as set forth in Exhibit A attached hereto and as so amended shall be the articles of incorporation of the Surviving Corporation until thereafter amended or restated as provided therein or by applicable law. The by-laws of Merger Sub in effect immediately prior to the Effective Time shall be the by-laws of the Surviving Corporation until thereafter amended or restated as provided therein or by applicable law.

 

SECTION 1.6      Directors and Officers .    The directors of Merger Sub at the Effective Time shall, from and after the Effective Time, be and become the directors of the Surviving Corporation until their successors shall have been duly elected and qualified or until their earlier death, resignation, or removal in accordance with the articles of incorporation and by-laws of the Surviving Corporation and the WBCA. The officers of Merger Sub at the Effective Time shall, from and after the Effective Time, be and become the officers of the Surviving Corporation until their successors shall have been duly appointed and qualified or until their earlier death, resignation, or removal in accordance with the articles of incorporation and the by-laws of the Surviving Corporation.

 

 

ARTICLE II

 

EFFECT OF THE MERGER ON THE CAPITAL STOCK

OF THE CONSTITUENT CORPORATIONS;

EXCHANGE OF CERTIFICATES

 

SECTION 2.1     Effect on Capital Stock .    At the Effective Time, by virtue of the Merger and automatically without any action on the part of any holder of capital stock of Parent, Merger Sub, or the Company, respectively:

 

(a)      Capital Stock of Merger Sub .    Each then-outstanding share of common stock, no par value, of Merger Sub shall be converted into and become one (1) duly authorized, validly issued, fully paid and nonassessable share of common stock, no par value, of the Surviving Corporation.

 

(b)      Cancellation of Treasury Stock and Parent Owned Stock .    Each share of Company Common Stock then issued and held in the Company's treasury and each share of Company Common Stock then owned by Parent, Merger Sub, or any other wholly owned subsidiary of Parent, shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor.

 

(c)      Company Common Stock .    Each then-outstanding share of Company Common Stock (but excluding shares cancelled and retired pursuant to Section 2.1(b) and Dissenting Shares), shall be converted into and become the right to receive, subject to Sections 2.2 and 2.8, 14.614568 duly authorized, validly issued, fully paid, and nonassessable shares of Parent Common Stock ((the shares of Parent Common Stock to be issued in exchange for the Company Common Stock are hereinafter referred to as the “ Merger Consideration ”).

 

(d)      Lock Up .    At the Closing, the holders of Parent Common Stock issued as Merger Consideration, will execute a Lock-Up Agreement in form substantially similar to Exhibit B attached hereto (the “Lock-Up Agreement”), which shall contain a lock-up period (the “Lock Up Period”) reasonably requested by the Parent’s financial advisors on the same terms as the other Parent stockholders required to execute a Lock-Up Agreement by the terms hereof.  

 

(e)      Registration Rights .    The holders of Parent Common Stock issued as Merger Consideration shall be entitled to receive certain demand and “piggy-back” registration rights with respect to such shares. Accordingly, at the Closing, Parent and the holders of Parent Common Stock issued as Merger consideration shall enter into (i) the Registration Rights Agreement attached hereto as Exhibit C (the “ Registration Rights Agreement ”).

 

 

SECTION 2.2     Fractional Shares .    No certificates representing fractional shares of Parent Common   Stock shall be issued upon the surrender for exchange of Company Stock Certificates, no dividend or distribution by Parent shall relate to such fractional share interests, and such fractional share interests shall not entitle the owner thereof to vote or to any rights as a stockholder of Parent. Further, no holder of a Company Stock Certificate who otherwise would have been entitled to receive in the Merger a fractional share interest in exchange for such Company Stock Certificate shall have the right to receive cash payment in lieu thereof. In lieu of any such fractional shares or cash payment, (x) any such fractional share interest greater than or equal to one-half of a share (0.5) shall be rounded up to the next whole share number, and (y) any such fractional share less than one-half of a share (0.5) shall be rounded down to the preceding whole share number and the certificates representing shares of Parent Common Stock to be issued in the Merger shall reflect such adjustments.

 

 

(a)       Subject to the provisions of Section 2.8 hereof, as soon as reasonably practicable after the Effective Time, Parent shall mail or otherwise deliver to each holder of record of a certificate (or certificates) which immediately prior to the Effective Time represented outstanding shares of Company Common Stock (the “ Company Stock Certificates ”) (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Company Stock Certificate(s) shall pass, only upon delivery of the Company Stock Certificate(s) (or affidavits of loss in lieu of such certificates) (the “ Letter of Transmittal ”) to the Parent and shall be in such form and have such other provisions as Parent reasonably may specify, and (ii) instructions for use thereof in surrendering Company Stock Certificate(s) in exchange for the Merger Consideration. Upon surrender to the Parent of a Company Stock Certificate in proper form for cancellation, together with a duly executed letter of transmittal, the holder of such Company Stock Certificate shall be entitled to receive in exchange therefor (i) a certificate (or certificates) representing such whole number of shares of Parent Common Stock as such holder is entitled to receive pursuant to Article II in such denominations and registered in such names as such holder may request. The shares represented by the Company Stock Certificate so surrendered shall forthwith be cancelled. Without limiting the generality of the foregoing (and notwithstanding any other provisions of this Agreement), no interest shall be paid or accrued in respect of any of the Merger Consideration payable to holders of Company Common Stock in accordance with this Article II. The Letter of Transmittal shall provide (A) procedures for holders whose Company Stock Certificates are lost, stolen, or destroyed to receive the Merger Consideration, and (B) procedures for the transfer of ownership of shares of the Company Common Stock that is not registered on the stock transfer books and records of the Company. Until surrendered in accordance with this Section 2.3 and as specified in the Letter of Transmittal, each Company Stock Certificate shall be deemed at all times from and after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration.

(b)      Notwithstanding any other provisions of this Agreement, no dividends or other distributions declared or made after the Effective Time in respect of shares of Parent Common Stock having a record date after the Effective Time shall be paid to the holder of any unsurrendered Company Stock Certificate until the holder shall surrender such Company Stock Certificate as provided in this Section 2.3. Subject to applicable law, following surrender of any such Company Stock Certificate, there shall be paid to the holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefor, in each case without any interest thereon, (i) at the time of such surrender, the amount of dividends or other distributions, if any, having a record date after the Effective Time theretofore payable with respect to such whole shares of Parent Common Stock and not paid, less the amount of all required withholding Taxes in respect thereof, and (ii) at the appropriate payment date subsequent to surrender, the amount of dividends or other distributions having a record date after the Effective Time but prior to the date of such surrender and having a payment date subsequent to the date of such surrender and payable with respect to such whole shares of Parent Common Stock, less the amount of all required withholding Taxes in respect thereof.

(c)      All shares of Parent Common Stock issued upon surrender of Company Stock Certificates in accordance with this Article II and as specified in the Letter of Transmittal shall be deemed to have been issued and paid in full satisfaction of all rights pertaining to such shares of Company Common Stock represented thereby and, as of the Effective Time, the stock transfer books and records of the Company shall be closed and there shall be no further registration of transfers on the stock transfer books and records of the Company of shares of Company Common Stock or Company Preferred Stock outstanding immediately prior to the Effective Time. If, after the Effective Time, Company Stock Certificates are properly presented to the Surviving Corporation for any reason (but otherwise in accordance with this Article II and as specified in the Letter of Transmittal), they shall be cancelled and exchanged for the Merger Consideration as provided in this Section 2.3.

(a)     If, after the date hereof and prior to the Effective Time and to the extent permitted by this Agreement, the outstanding shares of Parent Common Stock and Company Common Stock shall be changed into a different number, class, or series of shares by reason of any reclassification, recapitalization, or combination, forward stock split, reverse stock split, stock dividend, or rights issued in respect of such stock, or any similar event shall occur (any such action, an “ Adjustment Event ”), the Merger Consideration shall be adjusted correspondingly to provide to the holders of Company Common Stock the right to receive shares of Parent Common Stock having the same economic value as contemplated by this Agreement immediately prior to such Adjustment Event and Parent’s payment obligations likewise shall be correspondingly adjusted such that it shall be required to pay and deliver not more than the aggregate Merger Consideration contemplated by this Agreement.

 

 

(b)     Not later than thirty (30) days following the Closing Date, the Company shall deliver to Parent an audited balance sheet of the Company dated as at June 30, 2005, which balance sheet shall be prepared in accordance with generally accepted accounting principles and certified by the chief executive officer of the Company (the “ Closing Balance Sheet ”). If the total liabilities of the Company reflected on the Closing Balance Sheet (“ Actual Closing Liabilities ”) are greater than $1.7 million (“ Target Closing Liabilities ”), the aggregate Merger Consideration shall be reduced by an amount equal to (i) the difference between Actual Closing Liabilities and Target Closing Liabilities divided by (ii) $0.08. In the case of any such adjustment, the number of Holdback Shares issuuable by Parent after the Closing Date pursuant to Section 2.8 hereof shall reduced accordingly. Upon Parent’s request, Company shall provide Parent with copies of all workpapers and other books and records utilized by Company in preparing the Closing Balance Sheet.

SECTION 2.5     Shares of Dissenting Shareholders .    Notwithstanding anything in this Agreement to the contrary, any shares of Company Common Stock or Company Preferred Stock that are outstanding as of the Effective Time and that are held by a shareholder who has properly exercised his appraisal rights under Title 23B of the WBCA (the “ Dissenting Shares ”) shall not be converted into the right to receive the Merger Consideration; provided, however, if any such holder shall have failed to perfect or shall have effectively withdrawn or lost his right to dissent from the Merger under the WBCA and to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to and subject to the requirements of the WBCA, each share of such holder’s Company Common Stock thereupon shall be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the Merger Consideration in accordance with Article II. The Company shall give Parent prompt written notice of (i) all demands for appraisal or payment for shares of Company Common Stock received by the Company prior to the Effective Time in accordance with the WBCA, and (ii) any settlement or offer to settle any such demands.

 

SECTION 2.7     Tax-Free Reorganization .    The Merger is intended to qualify as a reorganization described in Section 368(a)(1)(B) of the Code, and the Parties agree not take any action which could result in the Merger failing to so qualify. The Parties hereto further agree to report the Merger for all purposes as a reorganization under Section 368 of the Code, and that this Agreement is intended to be a “plan of reorganization” within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.

 

 

SECTION 2.8    Holdback .    The parties hereto acknowledge that Parent does not presently, and at the Closing will not, have a sufficient number of duly authorized but unissued shares of Parent Common Stock to issue all of the shares of Parent Common Stock to be issued as Merger Consideration hereunder. Accordingly, the parties agree that, subject to the rights of Parent under Sections 2.4 and 6.3(f) hereof, fifty-seven million five hundred thousand (57,500,000) shares of Parent Common Stock (as adjusted to give effect to the Parent Re-incorporation Merger, the “Holdback Shares”) out of the total number of shares of Parent Common Stock to be issued as Merger Consideration hereunder shall be withheld from the aggregate number of shares of Parent Common Stock to be issued as Merger Consideration upon the Closing (which shares shall be withheld on a pro rata basis from each Company Shareholder) and shall be issued to the holders of Company Common Stock as of the Closing Date on a pro rata basis not later than ten (10) days following the later of (i) the effective date of the Parent Re-Incorporation Merger or (ii) Parent’s receipt of the audited financial statements of the Company for the years ended December 31, 2003 and 2004 and the three and six months ended June 30, 2005. Thereafter, stock certificates representing the Holdback Shares shall be issued in accordance with Section 2.2 hereof.

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as set forth on the Disclosure Schedule delivered by the Company to Parent prior to the execution of this Agreement which hereby is incorporated by reference in and constitutes an integral part of this Agreement (the “ Company Disclosure Schedule ”), the Company hereby represents and warrants to Parent and Merger Sub as follows:

 

(a)      Each of the Company and its subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of the State of Washington   and has the requisite corporate power and authority to carry on its business as presently being conducted. Each of the Company and its subsidiaries is duly qualified or licensed to conduct business and is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing individually or in the aggregate would not reasonably be expected to have a material adverse effect on the Company.

(b)       The Company has delivered or made available to Parent prior to the execution of this Agreement complete and correct copies of the articles of incorporation and by-laws of the Company and its subsidiaries, each as in effect at the date of this Agreement.

SECTION 3.3     Capital Structure .    The authorized capital stock of the Company consists of 40 million shares of Company Common Stock and no   shares of preferred stock. As of the date hereof:

(a)      (i) 10,477,559 shares of Company Common Stock are issued and outstanding; (ii) no shares of Company Common Stock are held by the Company in its treasury and no shares of Company Common Stock are held by subsidiaries of the Company; (iii) no   shares of Company Common Stock were reserved for issuance pursuant to any plans, agreements and arrangements providing for equity-based compensation to any director, employee, consultant or independent contractor of the Company or any of its subsidiaries (collectively, the “ Company Stock Plans ”) and (iv) no options or   warrants to purchase shares of Company Common Stock are issued and outstanding;

(b)      The Company has delivered to Parent a true and complete list, as of the close of business on the date hereof, of all outstanding Company Stock Options, the number of shares subject to each such Company Stock Option, the grant date, exercise price, term and vesting schedule of each such Company Stock Option and the names of the holders thereof.

(c)      All outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable and, except as set forth on Section 3.3 of the Company Disclosure Schedule, are not subject to preemptive rights created by statute, the Company’s articles of incorporation (the “ Company Articles of Incorporation ”) or any agreement to which the Company is a party or by which the Company may be bound. Except as set forth in this Section and except for changes since the date of this Agreement resulting from the exercise of Company Stock Options outstanding on such date, there are outstanding (i) no shares of capital stock or other voting securities of the Company, (ii) no securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company, and (iii) no options or other rights to acquire from the Company, and no obligation of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock of the Company.

(a)      The Company has the corporate power and authority to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby. Except for any required approval by the Company’s shareholders in connection with the consummation of the Merger, all corporate acts and proceedings required to be taken by or on the part of the Company to authorize the Company to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby have been duly and validly taken. This Agreement constitutes a valid and binding agreement of the Company.

(b)      The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not, conflict with or result in a 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 under (i) any provision of the Company Articles of Incorporation, (ii) any material loan or credit agreement, note, mortgage, indenture, lease, or other material agreement or (iii) material instrument, permit, license, judgment, order, decree, statute, law, ordinance, rule, or regulation applicable to the Company or its properties or assets.

(c)      The execution, delivery, and performance by the Company of this Agreement and the consummation of the Merger by the Company require no consent, approval, order or authorization of, action by or in respect of, or registration or filing with, any governmental body, court, agency, official or authority (each, a “ Governmental Entity ”, collectively “ Government Entities ”) other than the filing of the Articles of Merger with the Secretary of State of the State of Washington.

(d)      The execution and delivery of this Agreement and the consummation of the Merger will not result in the creation of any pledges, claims, liens, charges, encumbrances, adverse claims, mortgages, and security interests of any kind or nature whatsoever (collectively, “ Liens ”) upon any asset of the Company.

(e)      Except as set forth in Section 3.4(e) of the Company Disclosure Schedule, no consent, approval, waiver, or other action by any person (other than the Governmental Entities referred to in (c) above) under any Company Material Contract (as defined below) is required or necessary for, or made necessary by reason of, the execution, delivery, and performance of this Agreement by the Company or the consummation of the Merger.

(a)     The Company will furnish prior to Closing to the Parent true, correct, and complete copies of: (i) unaudited balance sheets of the Company as of December 31, 2003 and December 31, 2004 and an unaudited balance sheet of the Company as of March 31, 2005 reviewed by the Company’s independent accountants; (ii) unaudited income statements of the Company for the fiscal years ended December 31, 2003 and December 31, 2004 and an unaudited income statement of the Company for the three (3) month period ended March 31, 2005 reviewed by the Company’s independent accountants and (iii) unaudited statements of cash flows of the Company for the fiscal year ended December 31, 2003 and December 31, 2004 and an unaudited statement of cash flows of the Company for the three (3) month period ended March 31, 2005 reviewed by the Company’s independent accountants (collectively, the “ Company Financial Statements ”). The Company Financial Statements have been prepared by the Company on the basis of the books and records maintained by the Company in the ordinary course of business in a manner consistently used and applied throughout the periods involved. The Company Financial Statements have been prepared in all material respects in accordance with generally accepted accounting principles (“ GAAP ”) and fairly present in all material respects the financial condition of the Company and its subsidiaries as at the respective dates thereof, except that the Company’s reviewed balance sheet as of March 31, 2005 and its income statement and statement of cash flows for the three (3) month period then ended are subject to normal year end adjustments in the ordinary course of business.

(b)     Except for liabilities (i) set forth in Section 3.5 of the Company Disclosure Schedule, (ii) reflected in the Company Financial Statements or (iii) incurred in the ordinary course of business, consistent with past practice or in connection with this Agreement or the transactions contemplated hereby, neither the Company nor any of its subsidiaries has any material liabilities or obligations of any nature.

(a)     Each Company Material Contract (as defined below) is valid and binding on and enforceable against the Company (or, to the extent a subsidiary is a party, such subsidiary) and, to the knowledge of the Company, each other party thereto and is in full force and effect. Neither the Company nor any of its subsidiaries is in breach or default under any Company Material Contract. Neither the Company nor any of its subsidiaries knows of, and has not received notice of, any material violation or default under (nor, to the knowledge of the Company, does there exist any condition which with the passage of time or the giving of notice or both would result in such a violation or default under) any Company Material Contract by any other party thereto. Prior to the date hereof, the Company has made available to Parent true and complete copies of all Company Material Contracts.

(b)     As used in this Agreement, “ Company Material Contracts ” shall mean any contract, license agreement, commitment, lease, or restriction of any kind, including without limitation, any Company Host License or Company Advertising Contract) to which the Company is a party or by which the Company or any of its subsidiaries is bound or to which any of the Company’s or any of its subsidiaries’ assets are subject which involve payments to or from the Company of at least Fifty Thousand Dollars ($50,000).

SECTION 3.7         Absence of Certain Changes .    Except for liabilities incurred in connection with this Agreement or the transactions contemplated hereby, and except as set forth in Section 3.7 of the Company Disclosure Schedule, (i) since December 31, 2004, there has not been any material adverse change in the Company or any of its subsidiaries or any event which either individually or when aggregated with other event(s) has or reasonably would be expected to have a material adverse effect on the Company or any of its subsidiaries taken as a whole, and (ii) there are not, to the Company’s knowledge, any facts, circumstances, or events that make it reasonably likely that the Company will not be able to fulfill its obligations under this Agreement in all material respects.

(a)     The Company and its subsidiaries own and/or possess all material permits, licenses, variances, authorizations, exemptions, orders, registrations, and approvals of all Governmental Entities which are required for the operation of the business of the Company and its subsidiaries (the “ Permits ”) as presently conducted. The Company and its subsidiaries are in compliance in all material respects with the terms of the Permits, and all the Permits are in full force and effect and no suspension, modification, or revocation of any of them is pending or, to the knowledge of the Company, threatened nor, to the knowledge of the Company, do grounds exist for any such action.

(b)     Each of the Company and its subsidiaries is in compliance in all material respects with all applicable statutes, laws, regulations, ordinances, Permits, rules, writs, judgments, orders, decrees, and arbitration awards of each Governmental Entity applicable to the Company or any of its subsidiaries.

(c)     Except for filings with respect to Taxes, which are the subject of Section 3.10 and not covered by this Section 3.8(c), each of the Company and each of its subsidiaries has timely filed all regulatory reports, schedules, forms, registrations, and other documents, together with any amendments required to be made with respect thereto, that they were required to file with each Governmental Entity (the “ Other Company Documents ”), and have timely paid all fees and assessments, if any, due and payable in connection therewith, except where the failure to make such payments and filings individually or in the aggregate would not have a material adverse effect on the Company.

(a)      Each of the Company and its subsidiaries has (i) filed with the appropriate Governmental Entities all United States federal income and other material Tax Returns required to be filed by it (giving effect to all extensions) and such Tax Returns are true, correct, and complete in all material respects; (ii) paid in full all United States federal income and other material Taxes required to have been paid by it; and (iii) made adequate provision for all accrued Taxes not yet due. The accruals and provisions for Taxes reflected in the Company Financial Statements are adequate in accordance with GAAP for all Taxes accrued or accruable through the date of such statements.

(b)      As of the date of this Agreement, no Federal, state, local, or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of the Company or any of its subsidiaries, and neither the Company nor any of its subsidiaries has received a written notice of any material pending or proposed claims, audits, or proceedings with respect to Taxes.

(c)     No deficiency or proposed adjustment which has not been settled or otherwise resolved for any amount of Tax has been proposed, asserted, or assessed in writing by any Governmental Entity against, or with respect to, the Company or any of its subsidiaries. There is no action, suit, or audit now in progress, pending or, to the knowledge of the Company, threatened against or with respect to the Company or any of its subsidiaries with respect to any material Tax.

 

(d)     Neither the Company nor any of its subsidiaries has been included in any “consolidated,”“unitary” or “combined” Tax Return (other than Tax Returns which include only the Company) provided for under the laws of the United States, any foreign jurisdiction or any state or locality with respect to Taxes for any taxable year.

(e)     No election under Section 341(f) of the Code has been made by the Company or any of its subsidiaries.

(f)     No claim has been made in writing by any Governmental Entities in a jurisdiction where the Company or any of its subsidiaries does not file Tax Returns that the Company is, or may be, subject to taxation by that jurisdiction.

(g)     Each of the Company and its subsidiaries has made available to Parent correct and complete copies of (i) all of its material Tax Returns filed within the past three (3) years, (ii) all audit reports, letter rulings, technical advice memoranda, and similar documents issued by a Governmental Entity within the past three (3) years relating to the Federal, state, local, or foreign Taxes due from or with respect to the Company or any of its subsidiaries, and (iii) any closing letters or agreements entered into by the Company with any Governmental Entities within the past three (3) years with respect to Taxes.

(h)     Neither the Company nor any of its subsidiaries has received any notice of deficiency or assessment from any Governmental Entity for any amount of Tax that has not been fully settled or satisfied, and to the knowledge of the Company, no such deficiency or assessment is proposed.

(i)     For purposes of this Agreement:

(a)      Section 3.11 of the Company Disclosure Schedule contains a true and complete list of all pension, stock option, stock purchase, benefit, welfare, profit-sharing, retirement, disability, vacation, severance, hospitalization, insurance, incentive, deferred compensation, and other similar fringe or employee benefit plans, funds, programs or arrangements, whether written or oral, in each of the foregoing cases which (i) covers, is maintained for the benefit of, or relates to any or all current or former employees of the Company or any of its subsidiaries and any other entity (“ ERISA Affiliate ”) related to the Company under Section 414(b), (c), (m) and (o) of the Code and (ii) is not a “multiemployer plan” as defined in Section 3(37) or Section 4001(a)(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”) or Section 414 of the Code (the “ Employee Plans ”). Section 3.11 of the Company Disclosure Schedule identifies and includes but is not limited to, each of the Employee Plans that is subject to Section 302 or Title IV of ERISA or Section 412 of the Code. Neither the Company, any of its subsidiaries nor any ERISA Affiliate of the Company or any of its subsidiaries has any commitment or formal plan, whether or not legally binding, to create any additional employee benefit plan or modify or change any existing Employee Plan other than as may be required by the express terms of such Employee Plan or applicable law.

(b)      With respect to each Employee Plan that has been qualified or is intended to be qualified under the Code or that is an “Employee Benefit Plan” within the meaning of Section 3.3 of ERISA, such Employee Plan has been duly approved and adopted by all necessary and appropriate action of the board of directors of the Company (or a duly constituted committee thereof).

(c)      With respect to the Employee Plans, all required contributions for all periods ending before the Closing Date have been or will be paid in full by the Closing Date. Subject only to normal retrospective adjustments in the ordinary course, all required insurance premiums have been or will be paid in full with regard to such Employee Plans for policy years or other applicable policy periods ending on or before the Closing Date by the Closing Date. As of the date hereof, none of the Employee Plans has unfunded benefit liabilities, as defined in Section 4001(a)(16) of ERISA.

(d)      The Company has no “multi-employer plans,” as defined in Section 3(37) or Section 4001(a)(3) of ERISA or Section 414 (“ Multi-Employer Plans ”), and never has had any such plans.

 

(e)      With respect to each Employee Plan (i) no prohibited transactions as defined in Section 406 of ERISA or Section 4975 of the Code have occurred or are expected to occur as a result of the Merger or the transactions contemplated by this Agreement, (ii) no action, suit, grievance, arbitration, or other type of litigation, or claim with respect to the assets of any Employee Plan (other than routine claims for benefits made in the ordinary course of plan administration for which plan administrative review procedures have not been exhausted) is pending or, to the knowledge of the Company, threatened or imminent against the Company, any ERISA Affiliate or any fiduciary, as such term is defined in Section 3(21) of ERISA (“ Fiduciary ”), including, but not limited to, any action, suit, grievance, arbitration, or other type of litigation, or claim regarding conduct that allegedly interferes with the attainment of rights under any Employee Plan. To the knowledge of the Company, neither the Company, nor its directors, officers, employees or any Fiduciary has any material liability for failure to comply with ERISA or the Code for any action or failure to act in connection with the administration or investment of such plan. None of the Employee Plans is subject to any pending investigations or to the knowledge of the Company threatened investigations from any Governmental Agencies who enforce applicable laws under ERISA and the Code.

(f)      Each of the Employee Plans is, and has been, operated in all material respects in accordance with its terms and each of the Employee Plans, and administration thereof, is, and has been, in all material respects in compliance with the requirements of any and all applicable statutes, orders, or governmental rules or regulations currently in effect, including, but not limited to, ERISA and the Code. All required reports and descriptions of the Employee Plans (including but not limited to Form 5500 Annual Reports, Form 1024 Application for Recognition of Exemption Under Section 501(a), Summary Annual Reports and Summary Plan Descriptions) have been timely filed and distributed as required by ERISA and the Code. Any notices required by ERISA or the Code or any other state or federal law or any ruling or regulation of any state or federal administrative agency with respect to the Employee Plans, including but not limited to any notices required by Section 4980B of the Code, have been appropriately given.

(g)      The Internal Revenue Service (the “ IRS ”) has issued a favorable determination letter or opinion letter with respect to each Employee Plan intended to be “qualified” within the meaning of Section 401(a) of the Code that has not been revoked and, to the knowledge of the Company, no circumstances exist that could adversely affect the qualified status of any such plan and the exemption under Section 501(a) of the Code of the trust maintained thereunder. Each Employee Plan intended to satisfy the requirements of Section 125, 501(c)(9) or 501(c)(17) of the Code has satisfied such requirements in all material respects.

(h)      With respect to each Employee Plan to which the Company or any ERISA Affiliate made, or was required to make, contributions on behalf of any employee during the five-year period ending on the last day of the most recent plan year end prior to the Closing Date, (i) no liability under Title IV or Section 302 of ERISA has been incurred by the Company or any ERISA Affiliate that has not been satisfied in full, and (ii) to the knowledge of the Company, no condition exists that presents a material risk to the Company or any ERISA Affiliate of incurring any such liability, and (iii) the present value of accrued benefits under such plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such plan’s actuary with respect to such plan did not exceed, as of its latest valuation date, the then current value of the assets of such plan allocable to such accrued benefits. No Employee Plan or any trust established thereunder has incurred any “accumulated funding deficiency” (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of the last day of the most recently ended fiscal year.

 

(i)      Except as set forth in Section 3.11 of the Company Disclosure Schedule, no Employee Plan provides medical, surgical, hospitalization, death or similar benefits (whether or not insured) for employees for periods extending beyond their retirement or other termination of service, other than (i) coverage mandated by Section 4980B of the Code, Section 601 of ERISA or other applicable law, (ii) death benefits under any “pension plan,” (iii) benefits the full cost of which is borne by the employee (or his beneficiary), or (iv) Employee Plans that can be amended or terminated by the Company without consent. The Company does not have any current or projected liability with respect to post-employment or post-retirement welfare benefits for retired, former, or current employees of the Company.

(j)      No material amounts payable under the Employee Plans will fail to be deductible for Federal income tax purposes by virtue of Section 162(m) of the Code.

(k)      To the extent that the Company is deemed to be a fiduciary with respect to any Plan that is subject to ERISA, the Company (i) during the past five (5) years has complied with the requirements of ERISA and the Code in the performance of its duties and responsibilities with respect to such employee benefit plan and (ii) has not knowingly caused any of the trusts for which it serves as an investment manager, as defined in Section 3(38) of ERISA, to enter into any transaction that would constitute a “prohibited transaction” under Section 406 of ERISA or Section 4975 of the Code, with respect to any such trusts, except for transactions that are the subject of a statutory or administrative exemption.

(l)      No person will be entitled to a “gross up” or other similar payment in respect of excise taxes under Section 4999 of the Code with respect to the transactions contemplated by this Agreement.

(m)      None of the Employee Plans have been completely or partially terminated and none has been the subject of a “reportable event” as that term is defined in Section 4043 of ERISA. No amendment has been adopted which would require the Company or any ERISA Affiliate to provide security pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code.

(a)      With respect to employees of the Company or its subsidiaries: (i) to the knowledge of the Company, no senior executive or key employee has any plans to terminate employment with the Company or any of its subsidiaries; (ii) there is no unfair labor practice charge or complaint against the Company pending or, to the knowledge of the Company, threatened before the National Labor Relations Board or any other comparable Governmental Entity; (iii) there is no demand for recognition made by any labor organization or petition for election filed with the National Labor Relations Board or any other comparable Governmental Entity; (iv) no grievance or any arbitration proceeding arising out of or under collective bargaining agreements is pending and, to the knowledge of Company, no claims therefor have been threatened other than grievances or arbitrations incurred in the ordinary course of business; (v) the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby will not give rise to termination of any existing collective bargaining agreement or permit any labor organization to commence or initiate any negotiations in respect of wages, hours, benefits, severance, or working conditions under any such existing collective bargaining agreements; and (vi) there is no litigation, arbitration proceeding, governmental investigation, administrative charge, citation or action of any kind pending or, to the knowledge of the Company, proposed or threatened against the Company relating to employment, employment practices, terms and conditions of employment or wages, benefits, severance, and hours.

(b)      Section 3.12(b) of the Company Disclosure Schedule lists the name, title, date of employment, and current annual salary of each current salaried employee whose total annual compensation exceeds $75,000. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby will not (i) result in any payment (including severance, unemployment compensation, tax gross-up, bonus or otherwise) becoming due to any current or former director, employee or independent contractor of the Company or any of its subsidiaries, from the Company or any of its subsidiaries under any Employee Plan or other agreement, (ii) materially increase any benefits otherwise payable under any Employee Plan or other agreement, or (iii) result in the acceleration of the time of payment, exercise, or vesting of any such benefits.

(c)      Section 3.12(c) of the Company Disclosure Schedule sets forth all contracts, agreements, plans, or arrangements covering any employee of the Company or its subsidiaries containing “change of control,”“stay-put,” transition, retention, severance,or similar provisions, and sets forth the names and titles of all such employees, the amounts payable under such provisions, whether such provisions would become payable as a result of the Merger and the transactions contemplated by this Agreement, and when such amounts would be payable to such employees, all of which are in writing, have heretofore been duly approved by the Company’s board of directors, and true and complete copies of all of which have heretofore been delivered to Parent. There is no contract, agreement, plan, or arrangement (oral or written) covering any employee of the Company that individually or collectively could give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G of the Code.

SECTION 3.13     Environmental Matters .    Except for such matters which would not, individually or in the aggregate, reasonably be expected to result in a material adverse effect on the Company or are listed in Section 3.13 of the Company Disclosure Schedule:

(a)      Compliance . To the Company’s knowledge, (i) The Company and its subsidiaries are in compliance in all material respects with all applicable Environmental Laws; (ii) neither the Company nor any of its subsidiaries has received any written communication from any person or governmental entity that alleges that the Company or any of its subsidiaries is not in compliance with applicable Environmental Laws; and (iii) there have not been any Releases of Hazardous Substances by the Company or any of its subsidiaries, or, by any other party, at any property currently or formerly owned or operated by the Company or any of its subsidiaries that occurred during the period of the Company’s or any of its subsidiaries’ ownership or operation of such property.

(b)      Environmental Permits . The Company and its subsidiaries have all Environmental Permits necessary for the conduct and operation of its business, and all such permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, and the Company or its subsidiaries are in compliance with all terms and conditions of all such Environmental Permits and is not required to make any expenditure in order to obtain or renew any Environmental Permits.

(c)      Environmental Claims . There are no Environmental Claims pending or, to the Company’s knowledge, threatened, against the Company, or against any real or personal property or operation that the Company owns, leases or manages.

(d)      As used in this Agreement:

(a)      Section 3.14(a) of the Company Disclosure Schedule sets forth, for the Intellectual Property (as defined below) owned or purported to be owned by the Company or any of its subsidiaries, a complete and accurate list of all U.S. and foreign (i) patents and patent applications, (ii) trademarks and service marks which are registered or the subject of an application for registration and material unregistered trademarks or service marks, (iii) copyrights which are registered or the subject of an application for registration, and (iv) Internet domain names. The Company or one of its subsidiaries owns or has the valid right to use all patents and patent applications, patent rights, trademarks, service marks, trademark or service mark registrations and applications, trade names, logos, designs, Internet domain names, slogans, and general intangibles of like nature, together with all goodwill related to the foregoing, copyrights, copyright registrations, renewals, and applications, Software (as defined below), technology, inventions, discoveries, trade secrets, and other confidential information, know-how, proprietary processes, designs, processes, techniques, formulae, algorithms, models and methodologies, licenses, and all other proprietary rights (collectively, the “ Intellectual Property ”) that it owns or purports to own or is licensed to Company in a manner sufficient for the conduct of the business of the Company as it currently is conducted. “ Software ” means any and all (i) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (iii) descriptions, flow-charts, and other work product used to design, plan, organize, and develop any of the foregoing, (iv) the technology supporting and content contained on any owned or operated Internet site(s), and (v) all documentation, including user manuals and training materials, relating to any of the foregoing.

 

(b)      All of the Intellectual Property owned or purported to be owned by the Company or any of its subsidiaries is free and clear of all Liens. The Company or one of its subsidiaries is listed in the records of the appropriate United States, state, or foreign agency as, the sole owner of record for each patent and patent application and trademark, service mark, and copyright which is registered or the subject of an application for registration that is listed in Section 3.14(a) of the Company Disclosure Schedule.

(c)      All of the patents, patent applications (to the Company’s knowledge), trademarks, service marks, and copyrights owned or purported to be owned by Company which have been issued by, or registered or the subject of an application filed with, as applicable, the U.S. Patent and Trademark Office, the U.S. Copyright Office, or in any similar office or agency anywhere in the world, including, but not limited to the items listed in Section 3.14(a) of the Company Disclosure Schedule are subsisting, enforceable, in full force and effect, and have not been cancelled, expired, abandoned, or otherwise terminated, and all renewal fees in respect thereof have been duly paid and are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications) and are, to the Company’s knowledge, valid. There is no pending or, to the Company’s knowledge, threatened opposition, interference, invalidation, or cancellation proceeding before any court or registration authority in any jurisdiction against any of the items listed in Section 3.14(a) of the Company Disclosure Schedule or, to the Company’s knowledge, against any other Intellectual Property used by the Company or its subsidiaries.

(d)      To the Company’s knowledge, the conduct of the Company’s or each of its subsidiaries’ business as currently conducted does not infringe upon (either directly or indirectly such as through contributory infringement or inducement to infringe), dilute, misappropriate, or otherwise violate (i) any Intellectual Property owned or controlled by any third party (“ Third Party Rights ”), other than the rights of any third party under any patent, or (ii) to the Company’s knowledge, the rights of any third party under any patent. There are no pending, or, to the knowledge of the Company, threatened claims against the Company or any of its subsidiaries alleging that the operation of the business as currently conducted, infringes on or conflicts with any Third Party Rights.

 

(e)      To the Company’s knowledge, no third party is misappropriating, infringing, diluting, or violating any Intellectual Property owned or purported to be owned by or licensed to or by the Company or its subsidiaries and no such claims have been made against a third party by the Company or any of its subsidiaries.

(f)      Each material item of Software, which is used by the Company or any of its subsidiaries in connection with the operation of its business as currently conducted, is either (i) owned by the Company or any of its subsidiaries, (ii) currently in the public domain or otherwise available to the Company without the need of a license, lease or consent of any third party, or (iii) used under rights granted to the Company or any of its subsidiaries pursuant to a written agreement, license or lease from a third party.

(g)      Section 3.14(g) of Company Disclosure Schedule sets forth a complete list of all agreements under which