AGREEMENT AND PLAN OF MERGER

Agreement and Plan of Merger

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CNET NETWORKS INC | CHEESE ACQUISITION SUB, INC., | TWOFOLD PHOTOS, INC.,

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Title: AGREEMENT AND PLAN OF MERGER
Governing Law: California Date: 7/21/2004
Industry: Computer Services Law Firm: Latham & Watkins LLP Sector: Technology

AGREEMENT AND PLAN OF MERGER, Parties: cnet networks inc , cheese acquisition sub inc. , twofold photos inc.

EXHIBIT 2.1

EXECUTION VERSION

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

CNET NETWORKS, INC.,

CHEESE ACQUISITION SUB, INC.,

TWOFOLD PHOTOS, INC.,

and

NICHOLAS WILDER

as

SHAREHOLDER REPRESENTATIVE

DATED AS OF JULY 14, 2004

ARTICLE 1. Definitions

Section 1.1 Certain Defined Terms

ARTICLE 2. The Merger

Section 2.1 The Merger

Section 2.2 Effective Time

Section 2.3 Effect of the Merger

Section 2.4 Articles of Incopriation and Bylaws of the Surviving Corporation

Section 2.5 Board of Directors and Officers of the Surviving Corporation

Section 2.6 Conversion of Securities

Section 2.7 Distribution of Consideration

Section 2.8 Payment of Deferred Consideration

Section 2.9 No Further Ownership Rights in Shares of Company Stock

Section 2.10 Lost, Stolen or Destroyed Certificates

Section 2.11 Closing Consideration Exhibit

Section 2.12 Dissenting Shares

Section 2.13 Withholding

Section 2.14 Closing Adjustment

ARTICLE 3. Closing Deliveries

Section 3.1 Closing Deliveries

ARTICLE 4. Representations and Warranties of the Company

Section 4.1 Organization

Section 4.2 Capitalization

Section 4.3 Subsidiaries

Section 4.4 Authority; No Violation

Section 4.5 Consents and Approvals

Section 4.6 Financial Statments

Section 4.7 Contracts

Section 4.8 Intellectual Property

Section 4.9 Employee Benefit Matters

Section 4.10 Labor and Other Employment Matters

Section 4.11 Tax Matters

Section 4.12 Legal Proceedings

Section 4.13 Compliance with Applicable Law

Section 4.14 Environmental Matters

Section 4.15 Properties

Section 4.16 Insurance

Section 4.17 No Broker

Section 4.18 Absence of Certain Changes or Events

Section 4.19 Sufficiency of and Title to Assets

Section 4.20 Potential Conflicts of Interest

Section 4.21 Transactions with Affiliates

Section 4.22 Governmental Regulation

Section 4.23 No Loss of Customers

Section 4.24 Usage

Section 4.25 Books and Records

Section 4.26 Foreign Corrupt Practices Act

Section 4.27 Material Misstatements and Omissions

ARTICLE 5. Representations and Warranties of Buyer and Merger Sub

Section 5.1 Organization

Section 5.2 Authority; No Violation

Section 5.3 Consents and Approvals

Section 5.4 No Broker

Section 5.5 Merger Consideration

Section 5.6 Financial Statements; Liabilities

Section 5.7 Board Approval; No Stockholder Approval Required

ARTICLE 6. Covenants and Additional Agreements

Section 6.1 Conduct of Business

Section 6.2 Confidentiality and Announcements

Section 6.3 Access by Buyer

Section 6.4 Notification of Certain Matters

Section 6.5 Acquisition Proposals

Section 6.6 Company Shareholder Approval; Shareholder Meeting

Section 6.7 Takeover Statutes

Section 6.8 Further Assurances

Section 6.9 Employee Matters

Section 6.10 Expenses

Section 6.11 Director and Officer Liability

Section 6.12 Contracts

ARTICLE 7. Tax Matters

Section 7.1 Section 338(h)(10) Election

Section 7.2 Tax Periods Ending on or before the Closing Date

Section 7.3 Tax Periods Beginning Before and Ending After the Closing Date

Section 7.4 Cooperation on Tax Matters

Section 7.5 Certain Taxes

Section 7.6 Characterization of Payments

Section 7.7 Carrybacks

ARTICLE 8. Conditions To Obligations

Section 8.1 Conditions to Each Party's Obligations to Effect the Merger

Section 8.2 Conditions to the Company's Obligations to Effect the Merger

Section 8.3 Conditions to the Obligations of Buyer and Merger Sub to Effect the Merger

ARTICLE 9. Termination

Section 9.1 Termination

Section 9.2 Effect of Termination

ARTICLE 10. Indemnification

Section 10.1 Survival of Represenations, Warranties and Covenants

Section 10.2 Indemnification by the Shareholders

Section 10.3 Indemnification by Buyer

Section 10.4 Procedures for Third-Party Claims

Section 10.5 Termination of Indemnification Obligations

Section 10.6 Limitations on Indemnity; Maximum Liability

Section 10.7 Holdback

Section 10.8 Shareholder Representative

ARTICLE 11. Miscellaneous

Section 11.1 Entire Agreement

Section 11.2 Interpretation

Section 11.3 Severability

Section 11.4 Notices

Section 11.5 Binding Effect; Persons Benefiting; No Assignment

Section 11.6 Counterparts

Section 11.7 Waiver of Jury Trial

Section 11.8 Governing Law

Section 11.9 Consent to Jurisdiction

Section 11.10 Attorneys' Fees

Index of Exhibits

Exhibit A List of Majority Shareholders

Exhibit B Form of Majority Shareholder Written Consent

Exhibit C Form of Key Employee Employment Agreement

Exhibit D Form of Non-Competition Agreement

Exhibit E Form of Voting Agreement

Exhibit F Form of Robinson Employment Agreement

Exhibit G Form of Certificate of Merger

Exhibit H Matters to be Set Forth in Opinion of Heller Ehrman White & McAuliffe LLP

Exhibit I Form of Securityholder Agreement

THIS AGREEMENT AND PLAN OF MERGER, dated as of July 14, 2004 (this “ Agreement ”), is made by and among CNET Networks, Inc., a Delaware corporation (“ Buyer ”), Cheese Acquisition Sub, Inc., a California corporation and a wholly owned subsidiary of Buyer (“Merger Sub ”), Twofold Photos, Inc., a California corporation (the “ Company ”) and Nicholas Wilder, as Shareholder Representative.

WHEREAS, each of the boards of directors of Merger Sub and the Company has approved and declared advisable the merger of Merger Sub with and into the Company (the “ Merger ”) upon the terms and subject to the conditions of this Agreement and in accordance with the Corporations Code of the State of California (the “ CCC ”);

WHEREAS, each of the boards of directors of Buyer, Merger Sub and the Company has determined that the Merger is in furtherance of and consistent with their respective business strategies and is in the best interest of their respective stockholders and shareholders, as the case may be, and the board of directors of the Company intends to recommend that the Shareholders (as defined herein) approve the Merger;

WHEREAS, immediately after the execution and delivery of this Agreement and as a condition to Buyer’s and Merger Sub’s willingness to enter into this Agreement, each of the shareholders of the Company set forth on Exhibit A hereto (the “ Majority Shareholders ”), will deliver their written consent in the form attached hereto as Exhibit B (the “ Majority Shareholder Written Consent”), pursuant to which the Majority Shareholders will approve this Agreement and the Merger and the other transactions contemplated hereby;

WHEREAS, contemporaneously herewith, as a condition and an inducement to Buyer and Merger Sub’s willingness to enter into this Agreement, each Key Employee (as defined herein) has entered into a Key Employee Employment Agreement with Buyer, each to become effective upon the Closing (as defined herein) and substantially in the form attached hereto as Exhibit C (collectively, the “ Key Employee Employment Agreements ”);

WHEREAS, contemporaneously herewith, as a condition and an inducement to Buyer and Merger Sub’s willingness to enter into this Agreement, each Key Employee has entered into a Non-Competition Agreement with Buyer, each to become effective upon the Closing and substantially in the form attached hereto as Exhibit D (collectively, the “ Non-Competition Agreements ”); and

WHEREAS, contemporaneously herewith, as a condition and an inducement to Buyer and Merger Sub’s willingness to enter into this Agreement, each Key Employee and Andrew Laakmann has entered into a Voting Agreement with Buyer, each to become effective upon the Closing and substantially in the form attached hereto as Exhibit E (collectively, the “ Voting Agreements ”).

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

ARTICLE 1.
DEFINITIONS

Section 1.1 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings:

“ 401(k) Plan ” shall have the meaning set forth in Section 6.10.2 of this Agreement.

“ Accounts Receivable ” shall have the meaning set forth in Section 4.6.2 of this Agreement.

“ Acquisition Proposal ” shall have the meaning set forth in Section 6.5 of this Agreement.

“ Affiliate ” shall mean any individual, partnership, corporation, entity or other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Person specified.

“ Aggregate Consideration ” shall mean Seventy Million Dollars ($70,000,000) plus or minus the adjustment made pursuant to Section 2.14.1 plus the aggregate exercise price of the Company Options paid in cash pursuant to Section 2.6.3(ii). No interest shall accrue with respect to the foregoing amounts except with respect to the Holdback Amount (as adjusted pursuant to the terms of this Agreement).

“ Agreement ” shall have the meaning set forth in the Preamble to this Agreement.

“ Ancillary Agreements ” shall mean the Key Employee Employment Agreements, the Robinson Employment Agreement, the Non-Competition Agreements and the Securityholder Agreements.

“ Applicable Law ” shall mean any Law applicable to the Company, any of the Shareholders, Buyer or Merger Sub or any of their respective Affiliates, properties, assets, officers, directors, employees or agents, as the case may be.

“ Benefit Arrangement ” shall mean any employment, consulting, severance or other similar contract, arrangement or policy (written or oral) and each plan, arrangement, program, agreement or commitment (written or oral) providing for insurance coverage (including, without limitation, any self-insured arrangements), workers’ compensation, disability benefits, supplemental unemployment benefits, vacation benefits, retirement benefits, life, health or accident benefits (including, without limitation, any “voluntary employees’ beneficiary association” as defined in Section 501(c)(9) of the Code providing for the same or other benefits) or for deferred compensation, profit-sharing, bonuses, stock options, stock appreciation rights, stock purchases or other forms of incentive compensation or post-retirement insurance, compensation or benefits which (a) is not a Welfare Plan, Pension Plan or Multiemployer Plan, (b) is entered into, maintained, contributed to or required to be contributed to, as the case may be, by the Company or any ERISA Affiliate or under which the Company or any ERISA Affiliate may incur any liability, and (c) covers any employee or former employee of the Company or any ERISA Affiliate.

“ Benefit Plan Enrollment Date ” shall have the meaning set forth in Section 6.10.1 of this Agreement.

“ Business Day ” shall mean any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in the State of California.

“ Buyer ” shall have the meaning set forth in the Preamble to this Agreement.

“ Buyer Benefit Plan ” shall have the meaning set forth in Section 6.10.1 of this Agreement.

“ Buyer Indemnitees ” shall have the meaning set forth in Section 10.2.1 of this Agreement.

“ Buyer Financials ” shall have the meaning set forth in Section 5.6.1 of this Agreement.

“ Buyer Material Adverse Effect ” shall mean any change, event, occurrence or condition which has had, or could reasonably be expected to have, individually or in the aggregate, a material adverse effect on the ability of Buyer or Merger Sub to complete the Closing pursuant to the terms hereof or comply with its respective material obligations hereunder.

“ Buyer SEC Reports ” shall mean all registration statements, prospectuses, reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated by reference) filed or required to be filed by Buyer with the SEC.

“ CCC ” shall have the meaning set forth in the Recitals to this Agreement.

“ CERCLA ” shall mean the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq.

“ Certificate of Merger ” shall have the meaning set forth in Section 2.2 of this Agreement.

“ Certificates ” shall have the meaning set forth in Section 2.7.1 of this Agreement.

“ Closing ” shall have the meaning set forth in Section 2.1.2 of this Agreement.

“ Closing Balance Sheet ” shall have the meaning set forth in Section 2.14.2 of this Agreement.

“ Closing Balance Sheet Date ” shall have the meaning set forth in Section 2.14.2 of this Agreement.

“ Closing Consideration Exhibit ” shall mean the exhibit prepared and delivered by the Company to Buyer at Closing that sets forth each Holder’s allocation of Aggregate Consideration and each Holder’s allocation of Holdback Amount.

“ Closing Date ” shall have the meaning set forth in Section 2.1.2 of this Agreement.

“ Closing Net Assets ” shall have the meaning set forth in Section 2.14.2 of this Agreement.

“ COBRA ” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

“ Code ” shall mean the Internal Revenue Code of 1986, as amended.

“ Common Stock ” shall mean the common stock, no par value per share, of the Company.

“ Company ” shall have the meaning set forth in the Preamble to this Agreement.

“ Company Assets ” shall have the meaning set forth in Section 4.19 of this Agreement.

“ Company Business ” shall mean the business and operations of the Company in the manner in which the same have been conducted prior to the date hereof, are currently being conducted and are currently proposed to be conducted, whether conducted by the Company.

“ Company Business Employee ” shall mean any current or former employee of the Company.

“ Company Business Independent Contractor ” shall mean any current or former independent contractor of the Company.

“ Company Disclosure Schedule ” shall have the meaning set forth in the introduction to Article 4 of this Agreement.

“ Company Dissenting Shares ” shall have the meaning set forth in Section 2.12 of this Agreement.

“ Company Inbound License Agreement ” shall have the meaning set forth in Section 4.8.6.1 of this Agreement.

“ Company Insurance Policies ” shall have the meaning set forth in Section 4.16 of this Agreement.

“ Company Material Adverse Effect ” shall mean any change, event, occurrence or condition which has had, or could reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business, assets, liabilities, financial condition, results of operations or prospects of the Company, taken as a whole, or on the ability of the Company to complete the Closing pursuant to the terms hereof or comply with its material obligations hereunder; provided , however , that in no event shall any change, event, occurrence or condition resulting from compliance with the terms and conditions of this Agreement, alone or in combination, be deemed to constitute, nor shall such change, event, occurrence or condition be taken into account in determining whether there has been or will be, a Company Material Adverse Effect.

“ Company Option Plan ” shall mean the Company’s 2003 Common Stock Incentive Plan.

“ Company Options ” shall mean any and all options issued by the Company to purchase shares of Common Stock under any Company stock option plan or agreement.

“ Company Outbound License Agreement ” shall have the meaning set forth in Section 4.8.6.2 of this Agreement.

“ Company Owned Copyrights ” shall have the meaning set forth in Section 4.8.4.1 of this Agreement.

“ Company Policies ” shall have the meaning set forth in Section 4.8.15.1 of this Agreement.

“ Company Stock ” shall mean the Common Stock.

“ Company Transaction Expenses ” shall have the meaning set forth in Section 6.11 of this Agreement.

“ Company’s Auditors ” shall have the meaning set forth in Section 2.14.2 of this Agreement.

“ Content ” shall have the meaning set forth in Section 4.8.7 of this Agreement.

“ Contracts ” shall mean all written or oral contracts, agreements, evidences of indebtedness, guarantees, leases and executory commitments to which the Company is a party or by which any of the Company’s properties or assets are bound, or otherwise related to the Company Business.

“ Copyrights ” shall have the meaning set forth in Section 4.8.1 of this Agreement.

“ Court Order ” shall mean any judgment, decision, consent decree, injunction, ruling or order of any federal, state or local court or Governmental Authority that is binding on any Person or its property under Applicable Law.

“ Daily Page Views ” shall mean the number of times any and all webpages published by the Company are delivered to users on a given day (and the same webpage may be delivered more than once to the same or other users), as reasonably measured by the Company in the ordinary course of its business consistent with its past practice.

“ Daily Unique Users ” shall mean the number of users to whom, on a given day, the Company has delivered any webpage published by the Company, without counting the same user more than once, as reasonably measured by the Company in the ordinary course of its business consistent with its past practice.

“ Domain Names ” shall have the meaning set forth in Section 4.8.1 of this Agreement.

“ Effective Time ” shall have the meaning set forth in Section 2.2 of this Agreement.

“ Employee Plans ” shall mean all Benefit Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans.

“ Encumbrance ” shall mean any lien, pledge, mortgage, security interest, claim, charge, easement, limitation, commitment, encroachment, restriction (other than a restriction on transferability imposed by federal or state securities Laws) or other encumbrance of any kind or nature whatsoever (whether absolute or contingent).

“ Environmental Laws ” shall mean any and all federal, state, local and foreign statutes, laws, regulations, ordinances or rules in existence on the Closing Date relating to occupational safety and health; the effect of the environment or Substances on human health; or emissions, discharges or releases of Substances into the environment, including, without limitation, ambient air, surface water, groundwater or land; or otherwise relating to the handling of Substances or the investigation, clean-up or other remediation or analysis thereof.

“ Environmental Permit ” shall mean any permit, approval, identification number, license and other authorization required under any applicable Environmental Law.

“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended.

“ ERISA Affiliate ” shall mean any entity which is (or at any relevant time was) a member of a “controlled group of corporations” with, under “common control” with, or a member of an “affiliated service group” with, or otherwise required to be aggregated with, the Company as set forth in Section 414(b), (c), (m) or (o) of the Code.

“ Estimated Balance Sheet ” shall have the meaning set forth in Section 2.14.1 of this Agreement.

“ Estimated Net Assets ” shall have the meaning set forth in Section 2.14.1 of this Agreement.

“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.

“ Expiration Date ” shall mean the date that is two (2) years after the Closing Date.

“ GAAP ” shall mean generally accepted accounting principles, as applied in the United States.

“ Governmental Authority ” shall mean any United States or foreign government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including the SEC or any other United States or foreign government authority, agency, department, board, commission or instrumentality of the United States, any state of the United States or any political subdivision thereof or any foreign jurisdiction, and any court, tribunal or arbitrator(s) of competent jurisdiction, and any United States or foreign governmental or non-governmental self-regulatory organization, agency or authority (including the NYSE and the NASD).

“ Hazardous Materials ” shall mean (i) any petroleum, petroleum products, byproducts or breakdown products, radioactive materials, asbestos-containing materials or polychlorinated biphenyls or (ii) any chemical, material or other substance defined or regulated as toxic or hazardous or as a pollutant or contaminant or waste under any applicable Environmental Law.

“ Historical Audit ” shall have the meaning set forth in Section 8.3.11 of this Agreement.

“ Holdback Amount ” shall have the meaning set forth in Section 10.7 of this Agreement.

“ Holder ” shall have the meaning set forth in Section 2.6 of this Agreement.

“ HSR Act ” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“ Indebtedness ” shall mean indebtedness for borrowed money or other debt securities.

“ Indemnification Notice ” shall have the meaning set forth in Section 10.2.2.1 of this Agreement.

“ Indemnified Party ” shall have the meaning set forth in Section 10.4.1 of this Agreement.

“ Indemnity Cap ” shall have the meaning set forth in Section 10.6.2 of this Agreement.

“ Intellectual Property ” shall mean: worldwide (a) Patents, and other inventions and discoveries and rights of invention (whether or not patentable and whether or not reduced to practice); (b) Trademarks; (c) Copyrights; (d) Trade Secrets; (e) to the extent not covered by subsections (a) through (d), above, Software and web sites (including all related computer code and content); (f) rights to exclude others from appropriating any of such Intellectual Property, including the rights to sue for and remedies against past, present and future infringements of any or all of the foregoing and rights of priority and protection of interests therein; and (g) any other proprietary, intellectual property and other rights relating to any or all of the foregoing anywhere in the world.

“ Interim Period Unaudited Company Balance Sheet ” shall have the meaning set forth in Section 4.6.1 of this Agreement.

“ Interim Period Unaudited Company Financial Statements ” shall have the meaning set forth in Section 4.6.1 of this Agreement.

“ Investment Company Act ” shall have the meaning set forth in Section 4.22 of this Agreement.

“ Key Employee Employment Agreements ” shall have the meaning set forth in the Recitals to this Agreement.

“ Key Employees ” shall mean Julie Davidson, Narendra Rocherolle and Nicholas Wilder.

“ Knowledge ” of the Company shall mean the knowledge after reasonable inquiry by any of the following individuals: Renato Cedolin, Julie Davidson, Narendra Rocherolle, James Robinson, Sara Taunton, Nicholas Wilder and Andrew Yamashiro.

“ Laakmann Indebtedness ” shall mean that certain Indebtedness of the Company to Andy Laakmann, including the principal amount thereof of $2,000,000 and accrued interest thereon.

“ Law ” shall mean any domestic or foreign federal, state or local statute, law (whether statutory or common law), ordinance, rule, administrative interpretation, regulation, order, writ, injunction, directive, judgment, decree, policy, guideline or other requirement or arbitration award or finding of any Governmental Authority.

“ Losses ” shall have the meaning set forth in Section 10.2.1 of this Agreement.

“ Merger ” shall have the meaning set forth in the Recitals to this Agreement.

“ Merger Sub ” shall have the meaning set forth in the Preamble to this Agreement.

“ Multiemployer Plan ” shall mean any “multiemployer plan,” as defined in Section 4001(a)(3) or 3(37) of ERISA, which (a) the Company or any ERISA Affiliate maintains, administers, contributes to or is required to contribute to, or, after September 25, 1980, maintained, administered, contributed to or was required to contribute to, or under which the Company or any ERISA Affiliate may incur any liability and (b) covers any employee or former employee of the Company or any ERISA Affiliate.

“ Net Assets ” shall have the meaning set forth in Section 2.14.1.

“ Non-Competition Agreements ” shall have the meaning set forth in the Recitals to this Agreement.

“ Non-Disclosure Agreement ” shall mean that certain Non-Disclosure Agreement, dated as of May 17, 2004, by and between Buyer and the Company, as the same may be amended from time to time by the parties.

“ Outside Date ” shall have the meaning set forth in Section 9.1.2 of this Agreement.

“ Patents ” shall have the meaning set forth in Section 4.8.1 of this Agreement.

“ Pension Plan ” shall mean any “employee pension benefit plan” as defined in Section 3(2) of ERISA (other than a Multiemployer Plan) which (a) the Company or any ERISA Affiliate maintains, administers, contributes to or is required to contribute to, or, within the five (5) years prior to the Closing Date, maintained, administered, contributed to or was required to contribute to, or under which the Company or any ERISA Affiliate may incur any liability (including, without limitation, any contingent liability) and (b) covers any employee or former employee of the Company or any ERISA Affiliate.

“ Per Share Closing Consideration ” shall equal the dollar amount obtained by dividing (a) the difference between (i) the Aggregate Consideration and (ii) the Holdback Amount, by (b) the number of shares of Company Stock outstanding immediately prior to the Effective Time.

“ Per Share Deferred Consideration ” shall mean the right to receive the dollar amount equal to the quotient obtained by dividing (a) the Holdback Amount (as adjusted pursuant to the terms of this Agreement), by (b) the number of shares of Company Stock outstanding immediately prior to the Effective Time; and interest paid thereon at the annual rate of three percent (3%).

“ Permits ” shall have the meaning set forth in Section 4.13.1 of this Agreement.

“ Person ” shall mean any individual, corporation, company, partnership (limited or general), limited liability company, joint venture, association, trust or other business entity.

“ Personal Element ” shall mean a natural person’s full name (or last name if associated with an address), telephone number, e-mail address, Unique Identifying Number, photograph, credit card or other personal financial information, or any other information, alone or in combination, that allows the identification of a natural person.

“ Proceedings ” shall have the meaning set forth in Section 4.12 of this Agreement.

“ Pro Rata Share ” shall mean, with respect to any Holder, the percentage of the aggregate total Per Share Closing Consideration and Per Share Deferred Consideration attributable to such Holder based on the total Per Share Closing Consideration and Per Share Deferred Consideration received by such Holder.

“ Resolved Claim Notice ” shall have the meaning set forth in Section 10.2.2.1 of this Agreement.

“ Retained Company Employee ” shall have the meaning set forth in Section 6.10.1 of this Agreement.

“ Robinson Employment Agreement ” shall mean the form of employment agreement to be executed by James Robinson and to become effective upon the Closing, and substantially in the form attached hereto as Exhibit F .

“ Scheduled Contracts ” shall have the meaning set forth in Section 4.7 of this Agreement.

“ SEC ” shall mean the United States Securities and Exchange Commission, and any successor thereto.

“ Securities Act ” shall mean the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.

“ Securityholder Agreements ” shall have the meaning set forth in Section 3.1.1.7 of this Agreement.

“ Shareholder ” shall mean a holder of shares of Company Stock as of immediately prior to the Effective Time.

“ Shareholder Representative ” shall have the meaning set forth in Section 10.8.1 of this Agreement.

“ Software ” shall mean individually each, and collectively all, of the computer programs, including interfaces and any embedded software programs or applications, owned, licensed or used by the Company or otherwise included as an asset of the Company under this Agreement, including as to each program or application, the processes and routines used in the processing of data, the object code, source code (as to third-party source code, when rights to the source code may be obtained), tapes, disks, and all improvements, modifications, enhancements, versions and releases relating thereto.

“ Subsidiary ” of a Person shall mean any other Person more than 50% of the voting stock (or of any other form of other voting or controlling equity interest in the case of a Person that is not a corporation) of which is beneficially owned by the Person directly or indirectly through one or more other Persons.

“ Substances ” shall mean any “hazardous substance,” “hazardous waste,” “pollutant,” “contaminant” or “toxic substance,” as defined by CERCLA, the Resources Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. , the Clean Water Act, 33 U.S.C. Section 1251 et seq. , the Clean Air Act, 42 U.S.C. Section 7401 et seq. , or the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq. , and regulations promulgated thereunder, or any analogous state and local Laws and regulations; petroleum and petroleum products; polychlorinated biphenyls or asbestos.

“ Surviving Corporation ” shall have the meaning set forth in Section 2.1.1 of this Agreement.

“ Takeover Statute ” shall mean any “fair price,” “moratorium,” “control share acquisition” or other similar antitakeover statute or regulation enacted under state or federal Laws in the United States.

“ Tax ” shall mean any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

“ Tax Returns ” means any report, declaration, return, information return, claim for refund, or statement relating to Taxes, including any schedule or attachment thereto, and including any amendments thereof.

“ Third-Party Claim ” shall have the meaning set forth in Section 10.4.1 of this Agreement.

“ Threshold Amount ” shall have the meaning set forth in Section 10.6.1 of this Agreement.

“ Trade Secrets ” shall have the meaning set forth in Section 4.8.5.1 of this Agreement.

“ Trademarks ” shall have the meaning set forth in Section 4.8.1 of this Agreement.

“ Transfer Taxes ” shall have the meaning set forth in Section 7.5 of this Agreement.

“ Transmittal Letter ” shall have the meaning set forth in Section 2.7.2 of this Agreement.

“ Treasury Regulations ” shall mean the United States Treasury regulations promulgated under the Code.

“ Unique Identifying Number ” shall mean an identifier uniquely associated with a person such as a social security number, driver’s license number, passport number or customer number, but excluding an identifier which is randomly or otherwise assigned so that it cannot reasonably be used to identify such person.

“ User Data ” shall mean, to the extent collected or acquired by or on behalf of the Company: (w) all data related to impression and click-through activity of users, including user identification and associated activities at a web site as well as pings and activity related to closed loop reporting and all other data associated with a user’s behavior on the Internet, including without limitation all e-mail lists or other user information acquired by the Company directly or indirectly from a third party that collected such information, (x) all data that contains a Personal Element, (y) known, assumed or inferred information or attributes about a user or identifier, and (z) all derivatives and aggregations of (w), (x) and (y), including user profiles.

“ Voting Agreement ” shall have the meaning set forth in the Recitals to this Agreement.

“ Welfare Plan ” shall mean any “employee welfare benefit plan” as defined in Section 3(1) of ERISA, which (a) the Company or any ERISA Affiliate maintains, administers, contributes to or is required to contribute to, or under which the Company or any ERISA Affiliate may incur any liability and (b) covers any employee or former employee of the Company or any ERISA Affiliate.

“ Year-End Unaudited Company Financial Statements ” shall have the meaning set forth in Section 4.6.1 of this Agreement.

ARTICLE 2.
THE MERGER

Section 2.1 The Merger.

Section 2.1.1 Merger of Merger Sub into the Company . Upon the terms and subject to satisfaction or waiver of the conditions set forth in this Agreement, and in accordance with the CCC, at the Effective Time, Merger Sub shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation of the Merger (the “ Surviving Corporation ”).

Section 2.1.2 Closing . Unless this Agreement shall have been terminated pursuant to Section 9.1 hereof, and subject to the satisfaction (or, to the extent permitted by this Agreement, the waiver) of each of the conditions set forth in Article 8 of this Agreement, the consummation of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of Latham & Watkins LLP, 505 Montgomery Street, Suite 1900, San Francisco, California 94111, at 10:00 a.m., local time, as soon as practicable following the satisfaction (or, to the extent permitted by this Agreement, the waiver) of each of the conditions set forth in Article 8 of this Agreement (and in any event, within five (5) Business Days thereafter), or at such other date, time and place as Buyer and the Company shall mutually agree in writing (the exact date on which the Closing takes place, the “ Closing Date”).

Section 2.2 Effective Time . Subject to the terms and conditions set forth in this Agreement, on the Closing Date, the parties hereto shall cause the Merger to be consummated by filing an agreement of merger, together with an officer’s certificate in the form attached hereto as Exhibit G (the “ Certificate of Merger ”) with the Secretary of State of the State of California, and executed in accordance with the relevant provisions of the CCC (the date and time of such filing, or if another date and time is specified in such filing, such specified date and time, being the “ Effective Time ”).

Section 2.3 Effect of the Merger . At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the CCC. Without limiting the generality of the foregoing, at the Effective Time, except as otherwise provided herein, all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

Section 2.4 Articles of Incorporation and Bylaws of the Surviving Corporation . At the Effective Time, the articles of incorporation as set forth in the Certificate of Merger shall become the articles of incorporation of the Surviving Corporation. At the Effective Time, the bylaws of the Company as in effect immediately prior to the Effective Time shall become the bylaws of the Surviving Corporation.

Section 2.5 Board of Directors and Officers of the Surviving Corporation . The board of directors of Merger Sub immediately prior to the Effective Time shall be the initial board of directors of the Surviving Corporation, each to hold office in accordance with the articles of incorporation of the Surviving Corporation. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, each to hold office in accordance with the articles of incorporation and bylaws of the Surviving Corporation.

Section 2.6 Conversion of Securities . At the Effective Time, by virtue of the Merger and without any action on the part of Buyer, Merger Sub, the Company or the holders of any of the following securities (each, a “ Holder ”):

Section 2.6.1 Shares of Common Stock of Merger Sub . Each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall automatically be converted into and thereafter represent one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation such that immediately following the Effective Time, Buyer will be the sole and exclusive owner of the capital stock of the Surviving Corporation.

Section 2.6.2 Shares of Company Stock . Each share of Common Stock outstanding immediately prior to the Effective Time (other than any shares of Common Stock held in the treasury of the Company immediately prior to the Effective Time, which shares shall be cancelled and extinguished without any payment being made in respect thereof, or any Company Dissenting Shares) shall be converted into the right to receive the Per Share Closing Consideration and the Per Share Deferred Consideration. All shares of Common Stock converted pursuant to this Section 2.6.2 shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist after the Effective Time.

Section 2.6.3 Company Options . The Company shall, prior to the Effective Time, accelerate the vesting of such Company Options then outstanding under the Company Option Plan, in whole or in part, as determined by the Company in its discretion; provided that the Company shall keep Buyer apprised, on a prompt basis, of such accelerated vesting; provided further that the holder of such Company Option renders continuous service to the Company as an employee, consultant or member of the Board of Directors of the Company from the date hereof until at least immediately prior to the Effective Time. Prior to the Effective Time, the Company shall adopt such procedures as it deems to be reasonably necessary to permit the holders of any outstanding Company Option to elect to either:

(i) if the fair market value of one share of Common Stock as determined in accordance with the Company Option Plan is greater than the exercise price for one share of Common Stock under such Company Option, effect a net exercise of the vested portion of such Company Option and thereby receive the number of shares of Common Stock upon exercise of the vested portion of such Company Option determined by dividing: (A) the number of shares of Common Stock purchasable under such Company Option multiplied by the difference between: (1) the fair market value of one share of Common Stock as determined in accordance with the Company Option Plan; and (2) the exercise price for one share of Common Stock under such Company Option; by (B) the fair market value of one share of Common Stock as determined in accordance with the Company Option Plan (it being understood that for purposes of this clause (i), the fair market value of one share of Common Stock shall be equal to the sum of the Per Share Closing Consideration plus the Per Share Deferred Consideration); or
(ii) exercise the vested portion of such Company Option in full by paying the Company the aggregate amount of the exercise price in cash;

provided , however , that any payments to a holder of Company Options shall be subject to all applicable withholding tax requirements; and provided further that adequate provision will be made for payment by the Shareholders to the Company of all applicable withholding taxes due thereto at the Effective Time. As of the Effective Time, by virtue of the Merger and in accordance with the terms of the Company Option Plan and/or the applicable Company Option, each outstanding Company Option, whether vested or unvested, shall be terminated and canceled and shall not be assumed by Buyer.

Section 2.7 Distribution of Consideration.

Section 2.7.1 Certificates Surrendered at Closing . Upon surrender for cancellation at the Closing to Buyer or its designated representative of any certificates evidencing Company Stock (“Certificates”), together with a duly executed and completed stock power, the holder of such Certificate shall be entitled to receive, in exchange therefor, the Per Share Closing Consideration to which such holder is entitled pursuant to Section 2.6.2 of this Agreement, which shall be delivered at the Closing by corporate check of Buyer or, if specified in the Closing Consideration Exhibit, by wire transfer, and the Per Share Deferred Consideration to which such holder is entitled pursuant to Section 2.6.2.

Section 2.7.2 Distribution of Transmittal Letter . As soon as practicable after the Effective Time, Buyer shall cause to be mailed to each record holder of a Certificate who did not surrender such Certificate at the Closing a letter of transmittal in customary form (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 Buyer or its designated representative and shall be in such form and have such other provisions as Buyer shall reasonably specify) (the “ Transmittal Letter ”) and instructions for such holder’s use in effecting the surrender of the Certificates and the exercise of the rights of such holder to obtain its Per Share Closing Consideration and Per Share Deferred Consideration to which such holder is entitled pursuant to Section 2.6.2.

Section 2.7.3 Delivery of Certificates . Upon surrender to Buyer or its designated representative of any Certificates for cancellation, together with a duly executed and completed Transmittal Letter, the holder of such Certificate shall be entitled to receive, in exchange therefor, the Per Share Closing Consideration to which such holder is entitled pursuant to Section 2.6.2 of this Agreement, which shall be delivered within five (5) business days after such surrender by corporate check of Buyer to the address specified for such holder on the Closing Consideration Exhibit or otherwise by such holder in writing, or by wire transfer if specified in the Closing Consideration Exhibit or by such holder in writing, and the Per Share Deferred Consideration to which such holder is entitled pursuant to Section 2.6.2.

Section 2.7.4 Cancellation of Company Stock . Until surrendered, each Certificate (other than Certificates representing Company Dissenting Shares) shall be deemed for all corporate purposes to evidence only the right to receive upon such surrender the Per Share Closing Consideration and the Per Share Deferred Consideration into which the Company Stock represented thereby shall have been converted in accordance with the terms and upon the conditions of this Agreement.

Section 2.8 Payment of Deferred Consideration . Buyer shall pay accrued interest at the annual rate of three percent (3%) on the Holdback Amount (as adjusted pursuant to the terms of this Agreement) on each of the six (6), twelve (12), eighteen (18), twenty-four (24), thirty (30) and thirty-six (36) months anniversaries of the Closing Date. Buyer shall pay each Holder such Holder’s Pro Rata Share of the accrued interest, which shall be delivered by corporate check of Buyer to the address specified for such Holder on the Closing Consideration Exhibit or otherwise by such Holder in writing, or by wire transfer if specified in the Closing Consideration Exhibit or by such Holder in writing. In addition, Buyer shall pay the Holdback Amount in accordance with the provisions set forth in Section 10.7.

Section 2.9 No Further Ownership Rights in Shares of Company Stock . The Per Share Closing Consideration and Per Share Deferred Consideration delivered upon the surrender for exchange of Company Stock in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Stock, and there shall be no further registration of transfers of Company Stock which were outstanding immediately prior to the Effective Time on the records of the Surviving Corporation. If, after the Effective Time, the Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Article 2.

Section 2.10 Lost, Stolen or Destroyed Certificates . In the event any Certificates shall have been lost, stolen or destroyed, Buyer shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, such Per Share Closing Consideration and Per Share Deferred Consideration as may be required pursuant to Section 2.6.2 of this Agreement; provided, however , that Buyer may, in its sole discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to indemnify Buyer against any claim that may be made against Buyer with respect to the Certificates alleged to have been lost, stolen or destroyed.

Section 2.11 Closing Consideration Exhibit . Two Business Days prior to the Closing Date, the Shareholder Representative shall deliver to the Buyer a draft of the Closing Consideration Exhibit which sets forth the amount of Aggregate Consideration that would be paid to each Holder pursuant to this Article 2 based on assumptions set forth therein. At the Closing, the Shareholder Representative shall deliver to the Buyer the Closing Consideration Exhibit setting forth the final calculation of such amounts (including in such calculation provision for those amounts described in the second proviso in the penultimate sentence of Section 2.6.3 of this Agreement).

Section 2.12 Dissenting Shares . Any holder of shares of Company Stock issued and outstanding immediately prior to the Effective Time with respect to which dissenters’ rights, if any, are available by reason of the Merger pursuant to Chapter 13 of the CCC who has not voted in favor of the Merger or consented thereto in writing and who complies with Chapter 13 of the CCC (“ Company Dissenting Shares ”) shall not be entitled to receive any portion of the Aggregate Consideration pursuant to this Article 2, unless such holder fails to perfect, effectively withdraws or loses its dissenters’ rights under the CCC. Such holder shall be entitled to receive only such rights as are granted under Chapter 13 of the CCC. If any such holder fails to perfect, effectively withdraws or loses such dissenters’ rights under the CCC, such Company Dissenting Shares shall thereupon be deemed to have been converted as of the Effective Time into the right to receive the Aggregate Consideration to which such shares of Company Stock are entitled pursuant to this Article 2, without interest. The Company shall give Buyer prompt notice of any demands for appraisal pursuant to Chapter 13 of the CCC received by the Company, withdrawals of any such demands and any other documents or instruments received by the Company in connection therewith. Buyer shall have the right to participate in and direct all negotiations and proceedings with respect to any such demands. The Company shall not, except with the prior written consent of Buyer, make any payment with respect to, or settle or offer to settle, any such demands, or agree to do any of the foregoing. Any payments made with respect to Company Dissenting Shares shall be made solely by the Surviving Corporation, and no funds or other property have been or shall be provided by Buyer, Merger Sub or any of Buyer’s Affiliates for such payment.

Section 2.13 Withholding . Buyer shall be entitled to deduct and withhold from any consideration otherwise payable pursuant to this Agreement such amounts as it may be required to deduct and withhold with respect to the making of such payment under the Code, or any provision of applicable Tax law. To the extent that amounts are so withheld or paid over to or deposited with the relevant Governmental Authority by Buyer, such amounts shall be treated for all purposes of this Agreement as having been paid to the applicable Person in respect of which Buyer made such deduction and withholding.

Section 2.14 Closing Adjustment.

Section 2.14.1 Estimated Net Asset Adjustment . The Company shall deliver to Buyer, not later than five Business Days prior to the Closing, unaudited consolidated and consolidating balance sheets of the Company (the “ Estimated Balance Sheet ”) as of the most recent practicable month end immediately preceding the day of the Closing. The Estimated Balance Sheet shall be prepared in accordance with GAAP applied consistently with the consolidated balance sheet of the Company as of March 31, 2004, and shall present fairly the financial position of the Company as of the date thereof, but shall exclude any provision for the aggregate exercise price of the Company Options to be paid pursuant to Section 2.6.3(ii). If the total assets less the total liabilities (the “ Net Assets ”), of the Company as set forth on the Estimated Balance Sheet (the “ Estimated Net Assets ”) is less than Two Million Dollars ($2,000,000), the Aggregate Consideration shall be decreased by such deficiency.

Section 2.14.2 Preparation and Delivery of Closing Balance Sheet . Buyer shall prepare and deliver to the Shareholder Representative, not later than 90 days after the Closing, on both a consolidated and consolidating basis, a balance sheet of the Company as of the close of business on the Closing Date (“ Closing Balance Sheet Date ”), prior to any purchase accounting adjustments (the “ Closing Balance Sheet ”). The Closing Balance Sheet shall be prepared in accordance with GAAP applied consistently with the consolidated balance sheet of the Company as of March 31, 2004 (provided that in the event of a conflict between GAAP and consistency, GAAP shall control), and shall present fairly, in all material respects, the financial condition of the Company as of the Closing Date, but shall exclude any provision for the aggregate exercise price of the Company Options paid pursuant to Section 2.6.3(ii). Based on the Closing Balance Sheet, Buyer shall also prepare statements of the Company’s Net Assets as of the Closing Balance Sheet Date (the “ Closing Net Assets ”). The Shareholder Representative shall cooperate with Buyer and its accountants in the preparation of the Closing Balance Sheet (including providing access to all necessary books and records and instructing the Company’s independent certified public accountants (the “ Company’s Auditors ”) to provide access to its work papers, management letters and relevant personnel used in preparation of any prior audits of the Company).

Section 2.14.3 Review of Closing Balance Sheet . Buyer will cooperate with the Shareholder Representative and the Shareholder Representative’s auditors and will ensure that the Shareholder Representative and the Company’s certified public accountants will be able to review the Closing Balance Sheet, and the statement of Closing Net Assets as soon as practicable after they are delivered to the Shareholder Representative and, in connection therewith, have full access to the personnel and records of the Company. Within 30 days following the Shareholder Representative’s receipt of the Closing Balance Sheet, and the statement of Closing Net Assets, the Shareholder Representative shall notify Buyer in writing of any objections that the Shareholder Representative may have to the Closing Balance Sheet, and the statement of Closing Net Assets, stating in reasonable detail the basis for any such objections (an “Objection Notice ”); provided, that the only bases for objection shall be (i) non-compliance with the standards set forth in Section 2.14.2 for the preparation of the Closing Balance Sheet and (ii) computational errors. If the Shareholder Representative fails to deliver an Objection Notice to Buyer within such 30-day period, the Shareholder Representative will be deemed to have concurred with the Closing Balance Sheet, and the statement of Closing Net Assets.

Section 2.14.4 Dispute Resolution . If the Shareholder Representative timely delivers an Objection Notice to Buyer in accordance with Section 2.14.3, Buyer and the Shareholder Representative shall, together with their respective independent certified public accountants, promptly consult with each other in good faith and exercise reasonable efforts to attempt to resolve differences in their respective analyses of the Closing Balance Sheet, and the statement of Closing Net Assets, within ten days after the Shareholder Representative delivers the Objection Notice. Any matter not specifically referenced in the Objection Notice shall be conclusively deemed to have been agreed upon by the parties. If the parties are unable to resolve their differences within such ten-day period, the matter shall be promptly referred for arbitration to a third mutually satisfactory independent accounting firm which shall make its own determination of the matters in dispute within ten days after the matter is referred to it on the basis of the standards set forth above in Sections 2.14.1 and 2.14.2. The determination of such accounting firm will be final, binding and conclusive on the parties.

Section 2.14.5 Fees and Expenses . Each party shall bear the fees and expenses of its respective independent certified public accountants incurred in performing services pursuant to this Section. If a third accounting firm is selected to resolve differences between the Shareholder Representative and the Buyer in accordance with Section 2.14.4, the Shareholder Representative and the Buyer shall each pay one-half of the fees and expenses, including any retainers, of such firm in performing services pursuant to Section 2.14.4.

Section 2.14.6 Closing Net Asset Adjustment . Upon determination of the Closing Net Assets, as concurred with by the Shareholder Representative or as finally resolved in the manner set forth above, Buyer shall promptly pay to each Holder such Holder’s Pro Rata Share of the greater of (i) the excess, if any, of the Closing Net Assets over the Estimated Net Assets, and (ii) the excess, if any, of the Closing Net Assets over Two Million Dollars ($2,000,000); such payment, if any, shall be delivered by corporate check of Buyer to the address specified for such Holder on the Closing Consideration Exhibit or otherwise by such Holder in writing, or by wire transfer if specified in the Closing Consideration Exhibit or by such Holder in writing. If the Closing Net Assets, as concurred with by the Shareholder Representative or as finally resolved in the manner set forth above, is less than the Estimated Net Assets, then Buyer may offset, against the Holdback Amount, an amount equal to such difference.

ARTICLE 3.
CLOSING DELIVERIES

Section 3.1 Closing Deliveries.

Section 3.1.1 Closing Deliveries by the Company. At the Closing, the Company shall deliver, or shall cause to be delivered, to Buyer:

Section 3.1.1.1 the written opinion of Heller Ehrman White & McAuliffe LLP, counsel for the Company, dated as of the Closing Date, addressing the matters set forth in Exhibit H hereto;

Section 3.1.1.2 certified organizational documents and certificates of good standing issued by (x) the Secretary of State of the State of California and the California State Franchise Tax Board for the Company and (y) the Secretary of State of each state in which the Company is qualified to do business as a foreign corporation, in each case dated not more than five (5) Business Days prior to the Closing Date;

Section 3.1.1.3 a certificate, dated as of the Closing Date and executed by the Chief Executive Officer and Chief Financial Officer of the Company, as to the fulfillment of each of the conditions set forth in Section 8.3 of this Agreement;

Section 3.1.1.4 a certificate, dated as of the Closing Date and executed by the Secretary of the Company, certifying the resolutions adopted by the Company’s board of directors and shareholders relating to the transactions contemplated by this Agreement and the Ancillary Agreements, the Company’s articles of incorporation and bylaws as in effect immediately prior to the Effective Time;

Section 3.1.1.5 copies of all third-party and governmental notices, consents, approvals and filings required for the Company to consummate the transactions contemplated by this Agreement and the Ancillary Agreements;

Section 3.1.1.6 the Key Employee Employment Agreements, the Robinson Employment Agreement, the Non-Competition Agreements and the Voting Agreements, executed by the parties thereto;

Section 3.1.1.7 copies of the Securityholder Agreements, substantially in the form attached hereto as Exhibit I (the “ Securityholder Agreements ”), executed by each of the Shareholders representing, in the aggregate, at least ninety-five percent (95%) of the Company Stock outstanding immediately prior to the Effective Time;

Section 3.1.1.8 the Closing Consideration Exhibit; and

Section 3.1.1.9 such other documents as Buyer may reasonably request.

Section 3.1.2 Closing Deliveries by Buyer. At the Closing, Buyer shall deliver, or shall cause to be delivered, the following:

Section 3.1.2.1 a certificate, dated as of the Closing Date and executed by the Chief Executive Officer or Chief Financial Officer of each of Buyer and Merger Sub, as to the fulfillment of each of the conditions set forth in Section 8.2 of this Agreement;

Section 3.1.2.2 a certificate, dated as of the Closing Date and executed by the Secretary or any Assistant Secretary of each of Buyer and Merger Sub, certifying the resolutions adopted by each of Buyer’s and Merger Sub’s board of directors and Buyer, as the sole stockholder of Merger Sub, relating to the transactions contemplated by this Agreement and the Ancillary Agreements;

Section 3.1.2.3 copies of all third-party and governmental notices, consents, approvals and filings required in connection with the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements;

Section 3.1.2.4 the Securityholder Agreement, Employment Agreements and Non-Competition Agreements, executed by the Buyer;

Section 3.1.2.5 such other documents as the Company may reasonably request;

Section 3.1.2.6 certified organizational documents of Merger Sub issued by the Secretary of State of the State of California; and

Section 3.1.2.7 any payments required to be delivered at the Closing pursuant to Section 2.7.1.

ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

As a material inducement to Buyer and Merger Sub to enter into this Agreement, except as set forth in the Disclosure Schedule delivered by the Company to Buyer prior to the execution of this Agreement (the “ Company Disclosure Schedule ”), each section of which shall only qualify the representation or warranty in the correspondingly numbered Section of this Agreement, the Company (for purposes of this Article 4, the term “Company” shall include any and all predecessor entities of Twofold Photos, Inc. since January 1, 2002) hereby represents and warrants to Buyer as follows:

Section 4.1 Organization . The Company is a corporation, duly formed, validly existing and in good standing under the Laws of the State of California. The Company has the corporate power and authority and possesses all material governmental franchises, licenses, permits and authorizations and approvals necessary to carry on its businesses substantially in the manner as they are now being conducted and to own, lease and operate all of their respective properties and assets. Section 4.1 of the Company Disclosure Schedule sets forth a true, correct and complete list of each jurisdiction in which the Company is qualified to do business as a foreign corporation or other entity. The Company is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased or operated by it makes such qualification or licensing necessary except in jurisdictions where the failure of such license or qualification would not have a Company Material Adverse Effect. The copies of the Company’s articles of incorporation and bylaws delivered by the Company to Buyer prior to the execution of this Agreement are accurate, complete and correct copies of such instruments as in effect on the date hereof.

Section 4.2 Capitalization.

Section 4.2.1 Authorized, Issued and Outstanding Capital Stock . The authorized capital stock of the Company consists of Twenty Million (20,000,000) shares, without par value, all of which are Common Stock, and of which Ten Million One Hundred and Eighty Thousand (10,180,000) shares are issued and outstanding as of the date of this Agreement. No additional shares of Common Stock, Preferred Stock or other capital stock of the Company will be issued after the date of this Agreement, except for shares of Common Stock issued in connection with the exercise of Company Options outstanding on the date of this Agreement. The Company has no other capital stock authorized, issued or outstanding. Section 4.2.1 of the Company Disclosure Schedule sets forth the name of each Holder of shares of Company Stock, as well as the number of shares of Common Stock held by each such Holder.

Section 4.2.2 Company Options . As of the date of this Agreement, One Million Five Hundred and Nineteen Thousand (1,519,000) shares of Common Stock are reserved for issuance upon the exercise of outstanding Company Options. Section 4.2.2 of the Company Disclosure Schedule sets forth the name of each Holder of Company Options, as well as the number of Company Options held by each such Holder, the number of shares of Common Stock for which each such Company Option is exercisable, the vesting schedule for each such Company Option and the price per share of Common Stock for which each such Company Option is exercisable (without taking into account whether or not such Company Option is in fact exercisable on the date hereof). No additional Company Options will be granted after the date of this Agreement. The Company has delivered to Buyer true, accurate and complete copies of each plan or agreement pursuant to which any Company Option has been granted, including any and all amendments thereto.

Section 4.2.3 No Other Capital Stock, Company Options or Company Warrants . Except for the Company Options referred to above, there are no outstanding options, warrants, convertible securities or rights of any kind to purchase or otherwise acquire any shares of capital stock or other securities of the Company. Except for the aggregate of One Million Eight Hundred and Twenty Thousand (1,820,000) shares of Common Stock reserved for issuance under the Company Option Plan (including those shares of Common Stock reserved for issuance upon the exercise of outstanding Company Options), no shares of capital stock of the Company are reserved for issuance.

Section 4.2.4 No Other Agreements . There are no outstanding contractual obligations between the Company and any of its security holders (i) restricting the transfer of; (ii) affecting the voting rights of; (iii) requiring the repurchase, redemption or disposition of, or containing any right of first refusal with respect to; (iv) requiring the registration or sale of or (v) granting any preemptive or antidilutive right with respect to, any shares of Common Stock or any capital stock of, or other equity interests in, the Company.

Section 4.2.5 Valid Issuances . All of the issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive rights in respect thereto. All outstanding securities of the Company have been issued in compliance with all applicable state and federal securities Laws. The stock ledgers and related records that have been delivered by the Company to Buyer are complete and accurate.

Section 4.3 Subsidiaries . The Company does not, directly or indirectly, own any Subsidiary or any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any Person, nor is Company subject to any obligation to make any investment in any other Person.

Section 4.4 Authority; No Violation.

Section 4.4.1 The Company has full corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Ancillary Agreements to which the Company is a party and the consummation of the transactions contemplated hereby and thereby have been duly and validly approved by all requisite corporate action on the part of the Company (other than shareholder approval), and no other corporate proceedings on the part of the Company are necessary to approve this Agreement or the Ancillary Agreements to which the Company is a party or to authorize or consummate the transactions contemplated hereby or thereby. This Agreement and the Ancillary Agreements to which the Company is a party have been duly and validly executed and delivered by the Company and (assuming the due authorization, execution and delivery of this Agreement and the Ancillary Agreements to which the Company is a party by each of the other parties hereto and thereto) constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as the enforceability thereof may be subject to or limited by bankruptcy, insolvency, reorganization, moratorium or similar Laws relating to or affecting the rights of creditors generally and the availability of equitable relief (whether in proceedings at law or in equity).

Section 4.4.2 Neither the execution and delivery by the Company or any of its Affiliates of this Agreement or the Ancillary Agreements to which the Company or any of its Affiliates is a party nor the consummation by the Company or any of its Affiliates of any of the transactions contemplated hereby or thereby, nor compliance by the Company or any of its Affiliates with any of the terms or provisions hereof or thereof, will (i) violate any provision of the articles of incorporation, charter or bylaws or comparable organizational documents of the Company or (ii) (x) violate, conflict with or require any notice, filing, consent, waiver or approval under any Applicable Law to which the Company or any of its properties, contracts or assets are subject, or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with or without notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate or result in a right of acceleration of the performance required by, result in the creation of any Encumbrance upon the Common Stock or any Encumbrance upon the properties, contracts or assets of the Company under, or require any notice, approval, waiver or consent under, any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Company is a party, or by which the Company or any of its properties or assets may be bound or affected.

Section 4.5 Consents and Approvals . Except for the filing of the Certificate of Merger with the Secretary of State of the State of California and those consents, approvals and notices set forth on Section 4.5 of the Company Disclosure Schedule, no consents or approvals of or notices to or filings, declarations or registrations with any Governmental Authority or any third party are necessary in connection with (i) the execution and delivery by the Company and its Affiliates of this Agreement or any of the Ancillary Agreements or (ii) the consummation by the Company or any of its Affiliates of the transactions contemplated hereby or thereby so as to permit the Surviving Corporation to continue the Company Business after the Closing Date.

Section 4.6 Financial Statements.

Section 4.6.1 Section 4.6.1 of the Company Disclosure Schedule sets forth true, correct and complete copies of (i) the unaudited consolidated balance sheet of the Company as of March 31, 2004 and the related consolidated statements of income and changes in shareholders’ equity for the three (3) months ended March 31, 2004 (the statements referred to in this clause (i) (including the balance sheet), the “ Interim Period Unaudited Company Financial Statements ” and the balance sheet as of March 31, 2004, the “ Interim Period Unaudited Company Balance Sheet ”); and (ii) the unaudited consolidated balance sheets of the Company as of December 31, 2003 and 2002 and the related consolidated statements of income and changes in shareholders’ equity for the fiscal years ended December 31, 2003 and 2002 (the statements referred to in this clause (ii) (including the balance sheets), the “ Year-End Unaudited Company Financial Statements ”). The Interim Period Unaudited Company Financial Statements and the Year-End Unaudited Company Financial Statements present fairly, in all material respects, the consolidated financial position of the Company as of the respective dates thereof and the results of the Company’s consolidated operations for the fiscal periods therein set forth. Each of the Year-End Unaudited Company Financial Statements and the Interim Period Unaudited Company Financial Statements have been prepared in accordance with both the Company’s past practice and GAAP consistently applied throughout such fiscal periods. There are no significant deficiencies or material weaknesses in the design or operation of the Company’s internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data. There is no fraud in connection with the Interim Period Unaudited Company Financial Statements or the Year-End Unaudited Company Financial Statements, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls. None of the Key Employees or James Robinson is, or has been, involved in any of the events described in Item 401(f) of Regulation S-K promulgated under the Securities Act of 1933, as amended.

Section 4.6.2 Section 4.6.2 of the Company Disclosure Schedule sets forth a true, correct and complete itemization of the accounts receivable (including aging) of the Company as of the date of this Agreement (the “ Accounts Receivable ”). The Accounts Receivable represent bona fide claims against debtors for sales, services performed or other charges arising on or before the respective dates of recording thereof, and all of the goods delivered and services performed which gave rise to the Accounts Receivable were delivered or performed in accordance with applicable orders, Contracts or customer requirements. All Accounts Receivable have been billed in accordance with the past practice of the Company consistently applied and are fully collectible in the ordinary course of business within three (3) months (though not guaranteed to be actually collected), except to the extent of an amount not in excess of the reserve for doubtful accounts reflected on the Interim Period Unaudited Company Balance Sheet.

Section 4.7 Contracts . Section 4.7(a) of the Company Disclosure Schedule sets forth a complete and accurate list or description of all Contracts: (v) pursuant to which the Company is either obligated to pay or entitled to receive in excess of $10,000 and that is not otherwise required to be disclosed pursuant to subsections (w), (x), (y) or (z) of this Section 4.7; provided, however , that Section 4.7 of the Company Disclosure Schedule does not omit any Contracts pursuant to which, when viewed collectively, the Company is either obligated to pay or entitled to receive in excess of $50,000 in the aggregate; (w) that are not terminable by the Company within ninety (90) days from the date of this Agreement without penalty or further obligation on the part of the Company; (x) that involve payments based on profits or revenues of the Company; (y) that are employment, management, consulting or severance agreements or other agreements or arrangements with any of the Company Business Employees or Company Business Independent Contractors; or (z) that include any noncompetition or nonsolicitation covenant or any exclusive dealing or similar arrangement that limits the ability of the Company or any of its Affiliates to compete (geographically or otherwise) in any line of business (collectively, the “Scheduled Contracts ”). Except as set forth in Section 4.7(b) of the Company Disclosure Schedule, as of the date hereof, each of the Contracts is a legal, valid and binding obligation of the Company (assuming the due authorization, execution and delivery by the other parties thereto) and is in full force and effect and enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and similar Laws relating to or affecting creditors generally and by the availability of equitable remedies (whether in proceedings at law or in equity). Except as set forth in Section 4.7(b) of the Company Disclosure Schedule, the Company has not received notice of cancellation of or default under or intent to cancel or call a default under any of the Contracts. Except as set forth in Section 4.7(b) of the Company Disclosure Schedule, the Company has performed all material obligations required to be performed by it to date under the Contracts, and there exists no event or condition which with or without notice or lapse of time or both would be a material breach or a material default on the part of the Company or, to the Knowledge of the Company, on the part of any other party to such Contracts. As of the Effective Date, each of the Contracts identified in Section 4.7 of the Company Disclosure Schedule has been executed and delivered by the parties thereto and is in full force and effect, notwithstanding disclosure to the contrary contained in Section 4.7 of the Company Disclosure Schedule.

Section 4.8 Intellectual Property.

Section 4.8.1 Generally . Section 4.8.1 of the Company Disclosure Schedule sets forth a complete and accurate list of all United States and foreign: (i) trademarks and service marks (whether registered or unregistered), trade names, trade dress, designs and general intangibles of like nature, together with all common law rights and goodwill related to the foregoing (collectively, “Trademarks ”); (ii) patents and patent applications (including any continuations, continuations-in-part, divisionals, reissues, renewals and applications for any of the foregoing) (collectively “ Patents ”); (iii) copyrights, moral rights and other rights of authorship or exploitation, and mask works (including any registrations and applications therefore and whether registered or unregistered) (collectively “ Copyrights ”); and domain names, including top-level Internet domain names and all lower-level Internet domain names for which such top-level domains are a root or parent, whether in the form of an address for use in electronic mail transfer, a Universal Resource Locator, a File Transfer Protocol location, or other form suitable for specifying the location of an electronic data file over a distributed computer network (collectively, “ Domain Names ”), in each case owned by or licensed to Company, in whole or in part, including jointly with others (such schedule specifying if such Intellectual Property is owned jointly), or used by the Company in the conduct or operation of the Company Business.

Section 4.8.2 Trademarks.

Section 4.8.2.1 All Trademarks of the Company for which an application for trademark registration has been filed are currently in compliance with all legal requirements, other than any requirement that, if not satisfied, would not result in a cancellation of any such registration or otherwise adversely affect the use, priority or enforceability of the Trademark in question. No registered Trademark of Company has been or is now involved in any opposition or cancellation proceeding in the United States Patent and Trademark Office. To the Knowledge of the Company, there has been no prior use of any Trademark of Company by any third party that confers upon said third party superior rights in any such Trademark.

Section 4.8.2.2 Except as set forth in Section 4.8.2.2 of the Company Disclosure Schedule, the Company is the owner of all right, title and interest in and to all of the Trademarks, in each case free and clear of any and all Encumbrances, covenants, conditions and restrictions or other adverse claims or interests of any kind or nature, and the Company has not received any written notice or claim or, to the Knowledge of the Company, any oral notice or claim, challenging the Company’s complete and exclusive ownership of the Trademarks or suggesting that any other Person has any claim of legal or beneficial ownership with respect thereto. There is no agreement, decree, arbitral award or other provision or contingency which obligates Company to grant licenses in future Trademarks.

Section 4.8.3 Patents.

Section 4.8.3.1 All Patents of the Company are currently in compliance with legal requirements (including payment of filing, examination, and maintenance fees and proofs of working or use) other than any requirement that, if not satisfied, would not result in a revocation or lapse or otherwise adversely affect the enforceability of the Patent in question and the Company has not taken any action or failed to take any action (including a failure to disclose material prior art in connection with the prosecution of any Patent), or used or enforced (or failed to use or enforce) any of the Patents in a manner that would result in the abandonment or unenforceability of any of the Patents.

Section 4.8.3.2 No Patent of the Company has been or is now involved in any interference, reissue, reexamination or opposing proceeding in the United States Patent and Trademark Office or any foreign patent office and, to the Knowledge of the Company, no such action has been threatened. There is no Patent of any Person that claims the same subject matter as any Patent of the Company and, to the Knowledge of the Company, no prior art that invalidates any claim of any Patent of the Company.

Section 4.8.3.3 The Company is the owner of all right, title and interest in and to all of the Patents, in each case free and clear of any and all Encumbrances, covenants, conditions and restrictions or other adverse claims or interests of any kind or nature, and the Company has not received any written or oral notice or claim challenging the Company’s complete and exclusive ownership of the Patents or suggesting that any other Person has any claim of legal or beneficial ownership with respect thereto. There is no agreement, decree, arbitral award or other provision or contingency which obligates the Company to grant licenses in future Patents.

Section 4.8.3.4 To the Knowledge of the Company, and after reasonable investigation customary in the industry, the inventions disclosed in the Patents may be practiced by the Company without infringing any other patents owned by any Person.

Section 4.8.4 Copyrights.

Section 4.8.4.1 The Company is the owner of all right, title and interest in and to each of the Copyrights used by the Company other than those as to which the rights being exercised by the Company under valid license from another Person (collectively, “ Company Owned Copyrights ”), free and clear of any and all Encumbrances, covenants, conditions and restrictions or other adverse claims or interests of any kind or nature, and the Company has not received any notice or claim (whether written or, to the Knowledge of the Company, oral) challenging the Company’s complete and exclusive ownership of the Company Owned Copyrights or suggesting that any other Person has any claim of legal or beneficial ownership with respect thereto.

Section 4.8.4.2 The Company has not received any notice or claim (whether written or, to the Knowledge of the Company, oral) challenging or questioning the validity or enforceability of any of the Company Owned Copyrights or indicating an intention on the part of any Person to bring a claim that any Company Owned Copyright is invalid, is unenforceable or has been misused and, to the Knowledge of the Company, no Company Owned Copyright otherwise has been challenged or threatened in any way.

Section 4.8.4.3 The Company has not taken any action or, to the Knowledge of the Company, failed to take any action (including a failure to disclose required information to the United States Copyright Office in connection with any registration of a registered copyright therewith), or used or enforced (or failed to use or enforce) any of the Company Owned Copyrights, in each case in a manner that would result in the unenforceability of any of the Company Owned Copyrights. The Company has taken all reasonable steps to protect the Company’s rights in and to the Company Owned Copyrights, in each case in accordance with standard industry practice. To the Knowledge of the Company, no other Person has infringed or is infringing any of the Company Owned Copyrights.

Section 4.8.5 Trade Secrets.

Section 4.8.5.1 The Company has taken all reasonable steps in accordance with normal industry practice to protect its rights in confidential information and proprietary information, including any formula, pattern, compilation, program, device, method, technique, or process, that: (1) derives independent economic value, actual or potential, from not being generally known to the public or to other Persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy (collectively, “ Trade Secrets ”).

Section 4.8.5.2 Without limiting the generality of Section 4.8.5.1, each employee, consultant and contractor of the Company has executed a proprietary information, confidentiality and assignment agreement substantially in the form provided to Buyer, assigning to the Company all rights to any Intellectual Property that is developed by such employee, consultant or contractor, as applicable, and that otherwise appropriately protects the Intellectual Property of the Company, and no such employee, consultant or contractor is, to the Knowledge of the Company, in breach or violation of any such agreement. Except under confidentiality obligations or in connection with the release of distribution of products, there has been no disclosure by the Company of its confidential information or Trade Secrets; nor have any actions been taken by the Company which would materially affect the Company’s ability to obtain U.S. or foreign protection for the Company’s inventions.

Section 4.8.6 License Agreements.

Section 4.8.6.1 Section 4.8.6.1 of the Company Disclosure Schedule sets forth a complete and accurate list of all license agreements (or forms of license agreements used by the Company in the ordinary course of business and containing no material deviations from such forms) granting to the Company any right to use or practice any rights under any Intellectual Property (other than “off-the-shelf” shrink wrap software commercially available on reasonable terms to any Person (collectively, the “ Company Inbound License Agreements ”), indicating for each the title and the parties thereto. No licensing fees, royalties or payments are due or payable by the Company in connection with any Company Inbound License Agreement except as set forth on Section 4.8.6.1 of the Company Disclosure Schedule.

Section 4.8.6.2 Section 4.8.6.2 of the Company Disclosure Schedule sets forth a complete and accurate list of all license agreements (or forms or license agreements used by the Company in the ordinary course and containing no material deviations from such forms) under which the Company grants licenses of Software or grants other rights in or to use or practice any rights under any Intellectual Property (collectively, the “ Company Outbound License Agreements ”), indicating for each the title and the parties thereto.

Section 4.8.6.3 There is no outstanding or, to the Knowledge of the Company, threatened dispute or disagreement with respect to any Company Inbound License Agreement or any Company Outbound License Agreement. Correct and complete executed copies of all Company Inbound License Agreements and Company Outbound License Agreements have been made available to Buyer.

Section 4.8.7 Domain Names . Company is the sole owner of the Domain Names, and all such Domain Names are currently registered by Company, as sole owner, with an ICANN accredited registrar, and the registration fees are paid through the date(s) listed on Section 4.8.7 of the Company Disclosure Schedule. The Company is the owner or authorized licensee of all content displayed on the Internet site associated with each of the Domain Names (collectively, the “ Content ”), and no consent, license or approval from any third party is required in connection with the sale or transfer of the ownership of the Domain Names and the continued use of the Content by the Surviving Corporation. To the Knowledge of the Company, no facts or circumstances exist which could reasonably form the basis of a challenge relating to Buyer’s unencumbered use of the Domain Names or Content, or any part thereof.

Section 4.8.8 Ownership; Sufficiency of Intellectual Property Assets . The Company owns or possesses adequate licenses or other rights to use, free and clear of Encumbrances (except in the case of licenses, the interests of the licensing party), orders, arbitration awards and contingent licenses arising from termination provisions (or other causes) in agreements between the Company and any other Person, all of its Intellectual Property. The Intellectual Property identified in Section 4.8.1 of the Company Disclosure Schedule, together with Trade Secrets, Company Owned Copyrights, the Company’s unregistered Copyrights and the Company’s rights granted to it under the Company Inbound License Agreements, constitute all the Intellectual Property rights and Company Inbound License Agreements used in or necessary for the operation of the Company Business as currently conducted and are all such Intellectual Property rights and Company Inbound License Agreements necessary to operate the Company Business after the Closing in substantially the same manner as the Company Business has been operated by the Company during the six (6) months prior to the Closing.

Section 4.8.9 No Infringement by the Company . The products used, manufactured, marketed, sold or licensed by the Company, and all Intellectual Property used in the conduct of the Company Business as currently conducted, do not infringe upon, violate or constitute the unauthorized use of any rights owned or controlled by any third party, including any Intellectual Property of any third party. No litigation is now, or since incorporation of Company has been, pending and no notice or other claim has been received by the Company, (A) alleging that the Company has engaged in any activity or conduct that infringes upon, violates or constitutes the unauthorized use of the Intellectual Property rights of any third party, including any contamination or misappropriation of trade secrets claims, or (B) challenging the ownership, use, validity or enforceability of any Intellectual Property owned or exclusively licensed by or to the Company.

Section 4.8.10 No Infringement by Third Parties . To the Knowledge of the Company, no third party is misappropriating, infringing, diluting or violating any Intellectual Property owned or exclusively licensed by the Company, and no claims for any of the foregoing have been brought against any third party by the Company. The Company has taken reasonable steps in accordance with normal industry practice to protect its Intellectual Property.

Section 4.8.11 Assignment; Change of Control . The execution, delivery and performance by the Company of this Agreement, the Ancillary Agreements and each of the other documents contemplated hereby or thereby to which it is a party, and the consummation of the transactions contemplated hereby and thereby, will not result in the loss or impairment of, or give rise to any right of any third party to terminate, any of the Company’s rights to own any of its Intellectual Property or rights under any Company Inbound License Agreement or Company Outbound License Agreement, nor require the consent of any Governmental Authority or third party in respect of any such Intellectual Property.

Section 4.8.12 Software . The Software owned or purported to be owned by the Company was: (i) developed by employees of the Company within the scope of their employment; (ii) developed by independent contractors who have assigned their rights to the Company pursuant to written agreements; or (iii) otherwise acquired by the Company from a third party who assigned all Intellectual Property rights in the Software to the Company. The Software performs in accordance with its documentation in all material respects free of any bugs, viruses or programming errors materially affecting any or all of its functionality. None of the Software is, in whole or in part, subject to the provisions of any open source or quasi-open source license agreement or any other agreement obligating the Company to make source code available to third parties or publish source code. The Company has made no submission or suggestion and is not subject to any agreement with standards bodies or other entities which would obligate the Company to grant licenses to or otherwise impair its control of its Intellectual Property. The Software contains all current revisions of such Software, and includes all computer programs, materials, tapes, know-how, object and source codes, other written materials, know-how and processes related to the Software. Company has delivered to Buyer complete and correct copies of the Software in its current form and all user and technical documentation related thereto. Company has kept secret and has not disclosed the source code for the Software to any person or entity other than certain employees of Company who are subject to the terms of a binding confidentiality agreement with respect thereto. Company does not have any obligation to compensate any person for the development, use, sale or exploitation of the Software nor has Company granted to any other person or entity any license, option or other rights to develop, use, sell or exploit in any manner the Software whether requiring the payment of royalties or not. e:1.0pt

Section 4.8.13 Encryption Technology . The Company Business as currently conducted and as currently proposed to be conducted complies with all Applicable Laws, rules and regulations, whether domestic or foreign, regarding encryption technology, including, without limitation, the import and export thereof.

Section 4.8.14 Performance of Existing Products . The Company’s existing and currently manufactured and marketed products perform, free of material defects, the functions described in any agreed specifications or end user documentation, press releases or other information provided to Buyer or to customers or potential customers of the Company on which such customers or potential customers relied or would reasonably be expected to rely upon when licensing or otherwise acquiring such products and the Company has not been notified, either in writing or, to the Knowledge of the Company, verbally, that such products do not perform as set forth above. To the extent that the Company’s products have not been launched, the Company has fully disclosed to Buyer in writing all currently known technical problems or concerns associated with such products that affect the performance of the Company’s products.

Section 4.8.15 Use of User Data.

Section 4.8.15.1 The Company’s use, license, sublicense and sale of any User Data collected from users at www.webshots.com and any co-branded websites which the Company manages have complied in all material respects with the Company’s published privacy policy and terms of use at the time such User Data was collected (collectively, the “ Company Policies ”), excluding any violation that, if disclosed, would not reasonably be expected to result in a material claim against the Company.

Section 4.8.15.2 The Company is in compliance in all material respects with all U.S. federal or state Applicable Laws and contractual obligations binding on the Company that relate to or govern the compilation, use and transfer of User Data.

Section 4.8.15.3 There is no Proceeding (including any audit or investigation) pending or, to the Knowledge of the Company, threatened, by any Person or any Governmental Authority involving the use, disclosure or transfer of any User Data by the Company, nor, to the Knowledge of the Company, has the Company been contacted by any Governmental Authority regarding the use, disclosure or transfer of any User Data by the Company.

Section 4.8.15.4 None of the Company Policies prohibits the transfer of User Data to Buyer and its Affiliates pursuant to Buyer’s acquisition of the websites of the Company pursuant to this Agreement (it being understood that, following such transfer, such User Data remains subject to the applicable use limitations set forth in such Company Policies).

Section 4.8.15.5 To the Knowledge of the Company, no Person has obtained unauthorized access to User Data stored on the computer systems of the Company (including, without limitation, any User Data contained in any hard copy printouts), nor has there been any other unauthorized acquisition of material computerized data of the Company (including, without limitation, any data contained in any hard copy printouts) that has compromised the security, confidentiality or integrity of any User Data maintained by the Company in any material manner.

Section 4.9 Employee Benefit Matters.

Section 4.9.1 Section 4.9.1 of the Company Disclosure Schedule contains a complete list of Employee Plans which cover or have covered employees of the Company. True and complete copies of each of the following documents have been delivered by the Company to Buyer: (i) each Employee Plan (and, if applicable, related trust agreements, annuity contracts or other funding instruments) which covers or has covered employees of the Company and all amendments thereto, all current summary plan descriptions, the most recent summary of material modifications (as defined in ERISA) and all written interpretations and descriptions thereof which the Company generally distributes to participants therein and a complete description of any Employee Plan which is not in writing, (ii) the most recent determination letter issued by the Internal Revenue Service and any opinion letter issued by the Department of Labor with respect to each Pension Plan and each voluntary employees’ beneficiary association as defined under Section 501(c)(9) of the Code (other than a Multiemployer Plan) which covers or has covered employees of the Company, (iii) for the two (2) most recent plan years, Annual Reports on Form 5500 Series required to be filed with any governmental agency for each Pension Plan or Welfare Plan which covers or has covered employees of the Company, (iv) a description of complete age, salary, service and related data as of the last day of the last plan year for employees and former employees of the Company, and (v) a description setting forth the amount of any liability of the Company as of the Closing Date for payments more than thirty (30) calendar days past due with respect to any Welfare Plan.

Section 4.9.2 Pension Plans.

Section 4.9.2.1 No Pension Plan is or was at any time subject to Title IV or Part 3 of Title I of ERISA or Section 412 of the Code and neither the Company nor any ERISA Affiliate is subject to any liability under Title IV or Part 3 of Title I of ERISA.

Section 4.9.2.2 Each Pension Plan and each related trust agreement, annuity contract or other funding instrument which covers or has covered employees or former employees of the Company which has been operated as a qualified plan (1) has received a favorable determination letter from the Internal Revenue Service stating that such Pension Plan and each related trust is qualified and tax-exempt under the provisions of Code Sections 401(a) (or 403(a), as appropriate) and 501(a) and (2) to the Knowledge of the Company has been so qualified during the period from its adoption to date.

Section 4.9.2.3 Each Pension Plan and each related trust agreement, annuity contract or other funding instrument which covers or has covered employees or former employees of the Company currently complies in all material respects and has been maintained in compliance in all material respects with its terms and, both as to form and in operation, with the requirements prescribed by any and all statutes, orders, rules and regulations which are applicable to such plans, including, without limitation, ERISA and the Code.

Section 4.9.3 Multiemployer Plans . Neither the Company nor any ERISA Affiliate has any liability with respect to a Multiemployer Plan, and no liability will arise or be imposed on the Company or any ERISA Affiliate under, or with respect to, any Multiemployer Plan.

Section 4.9.4 Welfare Plans.

Section 4.9.4.1 Each Welfare Plan which covers or has covered employees or former employees of the Company currently complies in all material respects and has been maintained in compliance in all material respects with its terms and, both as to form and operation, with the requirements prescribed by any and all statutes, orders, rules and regulations which are applicable to such Welfare Plan, including, without limitation, ERISA and the Code.

Section 4.9.4.2 Except as required by COBRA, none of the Company, any ERISA Affiliate or any Welfare Plan has any present or future obligation to make any payment to, or with respect to any present or former employee of the Company or any ERISA Affiliate pursuant to, any retiree medical benefit plan, or other retiree Welfare Plan.

Section 4.9.4.3 Each Welfare Plan which covers or has covered employees or former employees of the Company and which is a “group health plan,” as defined in Section 607(1) of ERISA, presently complies in all material respects with and has been operated in compliance in all material respects with provisions of COBRA.

Section 4.9.4.4 The insurance policies, if any, relating to each Welfare Plan provide coverage for each employee, consultant, independent contractor or retiree of the Company (and, if applicable, its dependents) who has been advised by the Company, whether through an Employee Plan or otherwise, that he or she is covered by such Welfare Plan.

Section 4.9.5 Benefit Arrangements . Each Benefit Arrangement which covers or has covered employees or former employees of the Company presently complies and has been maintained in compliance in all material respects with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations which are applicable to such Benefit Arrangement, including, without limitation, the Code.

Section 4.9.6 Unrelated Business Taxable Income; Unpaid Contributions . No Employee Plan (or trust or other funding vehicle pursuant thereto) has incurred any liability under Code Section 511. Neither the Company nor any ERISA Affiliate has any liability for unpaid contributions under Section 515 of ERISA with respect to any Pension Plan, Multiemployer Plan or Welfare Plan.

Section 4.9.7 Fiduciary Duties and Prohibited Transactions . Neither the Company nor any plan fiduciary of any Welfare Plan or Pension Plan which covers or has covered employees or former employees of the Company or any ERISA Affiliate has engaged in, or has any liability in respect of, any transaction in violation of Sections 404 or 406 of ERISA or any “prohibited transaction,” as defined in Section 4975(c)(1) of the Code, or has otherwise violated the provisions of Part 4 of Title I, Subtitle B of ERISA so as to create any liability of the Company or any Welfare )Plan or Pension Plan. The Company has not participated in a violation of Part 4 of Title I, Subtitle B of ERISA by any fiduciary of any Welfare Plan or Pension Plan, and the Company has not been assessed any civil penalty under Section 502(l) of ERISA.

Section 4.9.8 Litigation . There is no action, order, writ, injunction, judgment or decree outstanding or claim (other than routine claims for benefits), suit, litigation, proceeding, arbitration proceeding, governmental audit or investigation relating to or seeking benefits under any Employee Plan that is pending or, to the Knowledge of the Company, anticipated or threatened against the Company, any ERISA Affiliate or any Employee Plan.

Section 4.9.9 No Amendments . Neither the Company nor any ERISA Affiliate has announced to employees, former employees, consultants or directors an intention to create, or otherwise created, a legally binding commitment to adopt any additional Employee Plan which is intended to cover employees or former employees of the Company or to amend or modify any existing Employee Plan which covers or has covered employees or former employees of the Company.

Section 4.9.10 [intentionally left blank]

Section 4.9.11 Insurance Contracts . No Employee Plan holds as an asset of any Employee Plan any interest in any annuity contract, guaranteed investment contract or any other investment or insurance contract issued by an insurance company that is the subject of bankruptcy, conservatorship or rehabilitation proceedings.

Section 4.9.12 No Acceleration or Creation of Rights . Neither the execution and delivery of this Agreement or the Ancillary Agreements by the Company nor the consummation of the transactions contemplated hereby or thereby will result in the acceleration or creation of any rights of any person to benefits under any Employee Plan (including, without limitation, the acceleration of the vesting or exercisability of any stock options, the acceleration of the vesting of any restricted stock, the acceleration of the accrual or vesting of any benefits under any Pension Plan or the acceleration or creation of any rights under any severance, parachute or change in control agreement).

Section 4.9.13 No Other Material Liability . To the Knowledge of the Company, no event has occurred in connection with which the Company, any ERISA Affiliate or any Employee Plan, directly or indirectly, could be subject to any material liability (other than the payment of benefits under the terms of such Employee Plan) (A) under any statute, regulation or governmental order relating to any Employee Plan or (B) pursuant to any obligation of the Company to indemnify any person against liability incurred under any such statute, regulation or order as they relate to the Employee Plans.

Section 4.10 Labor and Other Employment Matters.

Section 4.10.1 Schedule 4.10.1 of the Company Disclosure Schedule sets forth a complete and accurate list (giving name, job title, credited service, current annual compensation (including a separate statement of base salary, bonus and benefits for each individual)) of each current Company Business Employee and his or her current employer. Each current Company Business Employee is in good standing with his or her respective employer. The Company is not and has never been delinquent in payments to any Company Business Employees or Company Business Independent Contractors for any wages, salaries, commissions, bonuses or other direct compensation for any services performed for it or amounts required to be reimbursed to such employee or independent contractor, as the case may be. The Company is and has always been in compliance with all Applicable Law respecting labor, employment, immigration, fair employment practices, terms and conditions of employment, workers’ compensation, occupational safety, plant closings, wages and hours. The Company has withheld all amounts required by Applicable Law or by agreement to be withheld from the wages, salaries, and other payments to employees; and the Company is not and has never been liable for any arrears of wages or any penalty for failure to comply with any of the foregoing. The Company is not and has never been liable for any payment to any trust or other fund or to any Governmental Authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for employees (other than routine payments to be made in the ordinary course of business and consistent with past practice). The employment of all persons presently employed or retained by the Company is terminable at will.

Section 4.10.2 There are no pending claims against the Company under any workers’ compensation plan or policy or for long-term disability. The Company is not bound by or subject to (and none of its assets or properties are bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the Knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending or, to the Knowledge of the Company, threatened. The Company has never received any demand letters, civil rights charges, suits, drafts of suits, administrative claims of or from any of its employees. There are no controversies pending or, to the Knowledge of the Company, threatened, between the Company and any Company Business Employees or Company Business Independent Contractors, which controversies have or could reasonably be expected to result in an action, suit, proceeding, claim, arbitration or investigation before any Governmental Authority.

Section 4.10.3 To the Knowledge of the Company, no Company Business Employees or Company Business Independent Contractors are or have ever been in violation of any term of any employment contract, non-disclosure agreement, noncompetition agreement, or any restrictive covenant to a former employer relating to the right of any such employee to be employed by the Company because of the nature of the business conducted or presently proposed to be conducted by the Company or to the use of trade secrets or proprietary information of others. To the Knowledge of the Company, no Company Business Employees or Company Business Independent Contractors are or have ever been in violation of any term of any employment contract, non-disclosure agreement, noncompetition agreement, or any restrictive covenant relating to the Company Business.

Section 4.10.4 No current Company Business Employee has given notice to the Company, nor is the Company otherwise aware, that any such Company Business Employee intends to terminate his or her employment with the Company. No current Company Business Independent Contractor has given notice to the Company, nor is the Company otherwise aware, that any such Company Business Independent Contractor intends to terminate his or her relationship with the Company. The Company is in compliance with all Applicable Laws concerning the classification of employees and independent contractors and has properly classified all such Persons for purposes of participation in the Employee Plans.

Section 4.11 Tax Matters.

Section 4.11.1 Filing of Tax Returns . The Company has duly and timely filed with the appropriate Tax authorities all Tax Returns required to be filed. All such Tax Returns are complete and accurate in all material respects. All Taxes due and owing by any of the Company on or before the date hereof (whether or not shown on any Tax Returns) have been paid. The Company is not currently the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by a Tax authority in a jurisdiction where the Company does not file Tax Returns that it is or may be subject to taxation by that jurisdiction.

Section 4.11.2 Payment of Taxes . The unpaid Taxes of the Company (i) did not, as of the dates of the Interim Period Unaudited Company Financial Statements, exceed the reserve for Tax liability (excluding any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Interim Period Unaudited Company Balance Sheet (rather than in any notes thereto), and (ii) will not exceed such reserve as reflected on the face of the Closing Balance Sheet (rather than in any notes thereto). Since December 31, 2003, the Company has not incurred any liability for Taxes outside the ordinary course of business or otherwise inconsistent with past custom and practice. For purposes of this representation, Taxes shall be allocated in the manner set forth in the last sentence in Section 7.3.

Section 4.11.3 Audits, Investigations or Claims . No deficiencies for Taxes with respect to the Company have been claimed or proposed in writing or assessed by a Tax authority. There are no pending or, to the Company’s Knowledge, threatened audits, assessments or other actions for or relating to any liability in respect of Taxes of the Company. There are no matters under discussion with any Tax Authority, or known to the Company, with respect to Taxes that are likely to result in an additional liability for Taxes with respect to the Company. The Company has delivered or made available to Buyer complete and accurate copies of federal, state and local income Tax Returns of the Company and its predecessors for the years ended December 31, 2001, 2002 and 2003, and complete and accurate copies of all examination reports and statements of deficiencies assessed against or agreed to by any of the Company or any predecessors since December 31, 2001, with respect to Taxes of any type. Neither the Company nor any predecessor has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, nor has any request been made in writing for any such extension or waiver. No power of attorney (other than powers of attorney authorizing employees of the Company to act on behalf of the Company) with respect to any Taxes has been executed or filed with any Tax authority.

Section 4.11.4 Liens . There are no liens for Taxes upon the assets of the Company (other than with respect to liens for Taxes not yet due and payable).

Section 4.11.5 No Withholding . The Company has not 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. The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party.

Section 4.11.6 Other Entity Liability . The Company does not have any liability for the Taxes of any other Person (other than the Company) under Treasury Regulation Section 1.1502–6 (or any similar provision of state, local, or foreign Law), as a transferee, by contract, or otherwise. The Company has not been a member of an affiliated group filing a consolidated federal income Tax Return.

Section 4.11.7 Tax Sharing Agreements . There are no Tax sharing agreements or similar arrangements (including indemnity arrangements) with respect to or involving the Company, and, after the Closing Date, the Company shall not be bound by any such Tax sharing agreements or similar arrangements or have any liability thereunder for amounts due in respect of periods prior to the Closing Date.

Section 4.11.8 Spin-Offs . The Company has not distributed the stock of any corporation in a transaction satisfying the requirements of Section 355 of the Code since April 16, 1997, and the stock of the Company has not been distributed in a transaction satisfying the requirements of Section 355 of the Code since April 16, 1997.

Section 4.11.9 Tax Elections . The Company (i) has not consented at any time under former Section 341(f)(1) of the Code to have the provisions of former Section 341(f)(2) of the Code apply to any disposition of the assets of the Company; (ii) has not agreed, and is not required, to make any adjustment under Section 481(a) of the Code for any period after the Closing Date by reason of a change in accounting method or otherwise; (iii) has not made an election, and is not required, to treat any of its assets as owned by another Person pursuant to the provisions of former Section 168(f) of the Code or as tax–exempt bond financed property or tax–exempt use property within the meaning of Section 168 of the Code; (iv) has not acquired and does not own any assets that directly or indirectly secure any debt the interest on which is tax exempt under Section 103(a) of the Code; (v) has not made and will not make a consent dividend election under Section 565 of the Code; or (vi) made any of the foregoing elections or is required to apply any of the foregoing rules under any comparable state or local Tax provision.

Section 4.11.10 Partnerships, Single Member LLCs, CFCs, PHCs, and PFICs . The Company (i) is not a partner for Tax purposes with respect to any joint venture, partnership, or other arrangement or Contract which is treated as a partnership for Tax purposes, (ii) does not own a single member limited liability company which is treated as a disregarded entity, (iii) is a shareholder of a “controlled foreign corporation” as defined in Section 957 of the Code (or any similar provision of state, local or foreign law), (iv) is not a “personal holding company” as defined in Section 542 of the Code (or any similar provision of state, local or foreign Law), and (v) is not a shareholder of a “passive foreign investment company” within the meaning of Section 1297 of the Code.

Section 4.11.11 Permanent Establishments . The Company does not have and has not had a permanent establishment in any foreign country, as defined in any applicable Tax treaty or convention between the United States of America and such foreign country.

Section 4.11.12 Disallowance of Interest Deductions . None of the outstanding indebtedness of the Company constitutes indebtedness with respect to which any interest deductions may be disallowed under Sections 163(i) or 163(l) or 279 of the Code or under any other provision of applicable law.

Section 4.11.13 S Corporation Status . The Company has been a validly electing S corporation within the meaning of Code Sections 1361 and 1362 (and any comparable state or local Tax provisions) at all times during its existence, and the Company will be an S corporation up to and including the Closing Date.

Section 4.11.14 Built-in Gain . The Company will not be liable for any Tax under Section 1374 of the Code in connection with the deemed sale of its assets caused by the Section 338(h)(10) Election. The Company has not, in the past 10 years, (i) acquired assets from another corporation in a transaction in which the Company’s Tax basis for the acquired assets was determined, in whole or part, by reference to the Tax basis of the acquired assets in the hands of the transferor or (ii) acquired the stock of any corporation which is a “qualified subchapter S subsidiary” within the meaning of Section 1361(b)(3)(B) of the Code.

Section 4.11.15 Tax Shelters . The Company has not entered into any transaction identified as a “listed transaction” for purposes of Treasury Regulations §§ 1.6011-4(b)(2) or 301.6111-2(b)(2). If the Company has entered into any transaction such that, if the treatment claimed by it were to be disallowed, the transaction would constitute a substantial understatement of federal income tax within the meaning of Code Section 6662, then it believes that it has either (x) substantial authority for the tax treatment of such transaction or (y) disclosed on its Tax Return the relevant facts affecting the tax treatment of such transaction.

Section 4.12 Legal Proceedings . There are no legal, administrative, arbitral or other proceedings (including disciplinary proceedings), claims, suits, actions or governmental or regulatory investigations of any nature (collectively, “ Proceedings ”) that are pending or, to the Knowledge of the Company, threatened (i) against the Company, any of the Company Assets or the Company Business or that challenge the validity or propriety of the transactions contemplated by this Agreement or by any of the Ancillary Agreements; (ii) involving any of the Company’s products; or (iii) challenging the Company’s right to use any products owned or licensed by any of the Company’s vendors. There is no injunction, order, judgment, decree or regulatory restriction imposed upon the Company, any of the Company Assets or the Company Business.

Section 4.13 Compliance with Applicable Law.

Section 4.13.1 The Company holds, and at all times has held, and at Closing will hold, all licenses, franchises, decrees, permits and authorizations required under Applicable Law (collectively, “ Permits ”) for the lawful ownership, operation and use of the Company Assets and the conduct of the Company Business under and pursuant to, and has complied with each, and the Company is not in default under any Applicable Law relating to the Company or any of its assets, properties or operations in any material respect, and to the Company’s Knowledge there are no outstanding material violations of any of the above, and the Company has not received notice asserting any such violation. The Company has been and is in compliance with all Permits. Section 4.13.1 of the Company Disclosure Schedule sets forth a true and complete list of all Permits currently held by the Company.

Section 4.13.2 No Governmental Authority has initiated, and no Governmental Authority has provided notice to the Company of any threatened proceeding or investigation into the business or operations of the Company or any of its officers, directors or employees in their capacity as such with the Company and, to the Knowledge of the Company, no such proceedings or investigations are contemplated. There is no unresolved deficiency, violation or exception claimed or asserted by any Governmental Authority with respect to any examination of any of the Company.

Section 4.14 Environmental Matters . The Company (v) is in compliance with all, and is not subject to any liability, in each case with respect to any, applicable Environmental Laws, (w) holds or has applied for all Environmental Permits necessary to conduct their current operations, and (x) is in compliance with its Environmental Permits. The Company has not received any notice, demand, letter, claim or request for information alleging that the Company may be in violation of, or liable under, any Environmental Law. The Company (y) has not entered into or agreed to any consent decree or order or is subject to any judgment, decree or judicial order relating to compliance with Environmental Laws, Environmental Permits or the investigation, sampling, monitoring, treatment, remediation, removal or cleanup of Hazardous Materials and no investigation, litigation or other proceeding is pending or threatened with respect thereto, or (z) is an indemnitor in connection with any claim threatened or asserted by any third-party indemnitee for any liability under any Environmental Law or relating to any Hazardous Materials. The Company does not use any Hazardous Materials in the conduct or operation of the Company Business. None of the real property owned or leased by the Company is listed or, to the Knowledge of the Company, proposed for listing on the “National Priorities List” under CERCLA, as updated through the date hereof, or any similar state or foreign list of sites requiring investigation or cleanup.

Section 4.15 Properties . The Company has good and marketable title to, or valid leasehold interests in, all of its properties and assets. All such assets and properties, other than assets and properties in which the Company has a leasehold interest, are free and clear of all Encumbrances. The Company has complied with the terms of all leases to which it is a party and under which it is in occupancy, and all such leases are in full force and effect. The Company enjoys peaceful and undisturbed possession under all such leases. Section 4.15 of the Company Disclosure Schedule sets forth a complete list of all real property and interests in real property owned or leased by the Company and a true and complete list of all personal property, equipment and fixtures (other than items or categories of items having a book value of less than $5,000 individually) owned by the Company, all of which personal property, equipment and fixtures are in good condition, normal wear and tear excepted.

Section 4.16 Insurance . Section 4.16 of the Company Disclosure Schedule includes a list of all policies of fire, liability, product liability, workmen’s compensation, health and other forms of insurance presently in effect with respect to the Company Business (the “ Company Insurance Policies ”), including the named insured(s) and all beneficiaries thereunder, true and complete copies of which have been delivered to, or made available for review by, Buyer. All Company Insurance Policies are valid, outstanding and enforceable policies and provide insurance coverage for the Company Assets and operation of the Company Business, of the kinds, in the amounts and against the risks required to comply with Applicable Law and/or any contractual or other obligations, and such policies are of the scope and amount customary and reasonable for the businesses in which the Company has engaged. The Company has not been refused any insurance with respect to any aspect of the operations of its business, nor has its coverage been limited by any insurance carrier to which it has applied for insurance or with which it has carried insurance. No notice of cancellation or termination has been received with respect to any such policy. The activities and operations of the Company have been conducted in a manner so as to materially conform to all applicable provisions of the Company Insurance Policies.

Section 4.17 No Broker . No broker, finder or similar intermediary has acted for or on behalf of, or is entitled to any broker’s, finder’s or similar fee or other commission from, the Company or any of its Affiliates in connection with this Agreement, any of the Ancillary Agreements or the transactions contemplated hereby or thereby. The Company has heretofore provided to Buyer a complete copy of all agreements between the Company and any broker, finder or similar intermediary pursuant to which such Person would be entitled to any payment relating to the transactions contemplated by this Agreement or any of the Ancillary Agreements.

Section 4.18 Absence of Certain Changes or Events. Since December 31, 2003, there has not been any:

Section 4.18.1 Company Material Adverse Effect or any event or development that could, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect;

Section 4.18.2 failure to operate the Company Business in the ordinary course so as to use all commercially reasonable efforts to preserve the Company Business intact and to preserve the continued services of the Company’s employees and the goodwill of suppliers, customers and others having business relations with the Company;

Section 4.18.3 resignation or termination of any key employee or independent contractor, officer or manager, or any increase in the rate of compensation payable or to become payable to any officer or manager of the Company (other than general, regularly-scheduled reviews), including the making of any loan to, or the payment, grant or accrual of any bonus, incentive compensation, service award or other similar benefit to, any such Person, or the addition to, modification of, or increased contribution to any Employee Plan;

Section 4.18.4 sale, assignment, license, transfer or Encumbrance of any of the Company Assets, tangible or intangible, singly or in the aggregate, other than sales of products and services in the ordinary course of business and consistent with past practice;

Section 4.18.5 new Contracts, or extensions, modifications, terminations or renewals thereof, except for Contracts entered into, modified or terminated in the ordinary course of business and consistent with past practice;

Section 4.18.6 change in accounting methods or practices by the Company or revaluation by the Company of any of the Company Assets, including writing off or establishing reserves with respect to inventory, notes or accounts receivable (other than for which adequate reserves have been previously established);

Section 4.18.7 damage, destruction or loss (whether or not covered by insurance) which has had a Company Material Adverse Effect;

Section 4.18.8 declaration, setting aside or payment of any dividend or distribution in respect of any capital stock of the Company or any redemption, purchase or other acquisition of any equity securities of the Company;

Section 4.18.9 failure to pay any material obligation of the Company when due;

Section 4.18.10 cancellation of any indebtedness or waiver of any rights of substantial value to the Company, except in the ordinary course of business and consistent with past practice;

Section 4.18.11 indebtedness incurred by the Company for borrowed money or any commitment to borrow money entered into by the Company, or any loans made or agreed to be made by the Company;

Section 4.18.12 acquisition of any equity interest in any other Person; Section 4.18.13 adoption, modification or termination of any Employee Plan; or

Section 4.18.14 agreement by the Company directly or indirectly to do any of the foregoing.

Section 4.19 Sufficiency of and Title to Assets . The Company owns, and upon the consummation of the transactions contemplated by this Agreement Buyer or the Surviving Corporation will own, all right, title and interest in and to all of the properties, assets and rights of any kind, whether tangible or intangible, real or personal (including, without limitation, the Company’s Intellectual Property), necessary to enable the Company (prior to the Closing) and Buyer and the Surviving Corporation (after the Closing) to conduct the Company Business (the “ Company Assets ”), free and clear of any Encumbrances. Except for those licenses, consents and payments set forth on Section 4.19 of the Company Disclosure Schedule, which licenses, consents and payments have been duly obtained or made, as the case may be, no licenses or consents from, or payments to, any Person are or will be necessary for Buyer to use any of the Company Assets in substantially the manner in which the Company and its Affiliates have used the Company Assets. No restrictions will exist on Buyer’s right to sell, resell, license or sublicense any of the Company Assets or engage in the Company Business, nor will any such restrictions be placed on Buyer as a consequence of the Merger or any of the other transactions contemplated by this Agreement or any of the Ancillary Agreements. The Company has sole right, title and interest in and to all of the assets on the Interim Period Unaudited Company Balance Sheet, free and clear of any Encumbrances. Section 4.19 of the Company Disclosure Schedule sets forth all Contracts, Company Assets or any other assets used in the Company Business that are owned by any Person other than the Company.

Section 4.20 Potential Conflicts of Interest. Neither the Company nor, to the Knowledge of the Company, any director or officer of the Company:

Section 4.20.1 owns, directly or indirectly, any interest in (excepting less than one percent (1%) stock holdings for investment purposes in securities of publicly traded companies), or is an officer, director, employee or consultant of, any Person that carries on business in competition with the Company; or

Section 4.20.2 has any claim against, or owes any amount to, the Company, except for claims for salary, commissions, accrued vacation pay and accrued benefits under Employee Plans.

Section 4.21 Transactions with Affiliates . No Contract, understanding or arrangement between the Company, on the one hand, and any of its directors, officers or security holders, on the other hand, will continue in effect subsequent to the Closing Date. After the Closing, none of the Shareholders will have any interest in any Company Asset. None of the Shareholders provides any material services to the Company other than in his or her capacity as an employee of the Company.

Section 4.22 Governmental Regulation . The Company is not an “

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AGREEMENT AND PLAN OF MERGER