AGREEMENT AND PLAN OF MERGER

EXHIBIT 2.1

 

A GREEMENT AND P LAN OF M ERGER

 

A MONG

 

I NTERMIX M EDIA , I NC .

 

FL A CQUISITION C ORP .

 

A ND

 

F OCALEX , I NC .,

 

Jonathan A. Lieberman and

 

Seth W. Lieberman

 

O CTOBER 7, 2004

A GREEMENT AND P LAN OF M ERGER

 

This A GREEMENT A ND P LAN O F M ERGER (this “ Agreement ”) is made and entered into as of October 7, 2004 (the “ Agreement Date ”) by and among Intermix Media, Inc., a Delaware corporation (“ Parent ”), FL Acquisition Corp., a Massachusetts corporation that is a wholly-owned subsidiary of Parent (“ Sub ”), and Focalex, Inc., a Massachusetts corporation (“ Company ”), Jonathan A. Lieberman and Seth W. Lieberman (collectively, the “ Principal Shareholders ”).

 

R ECITALS

 

A. The parties intend that Sub will be merged with and into the Company in a reverse triangular merger, with the Company continuing as the surviving corporation (the “ Merger ”), all pursuant to the terms and conditions of this Agreement and applicable law.

 

B. The Boards of Directors of Parent, Sub and Company have determined that the Merger is in the best interests of their respective companies and shareholders, have approved and declared advisable this Agreement and, accordingly, have agreed to effect the Merger provided for herein upon the terms and conditions of this Agreement.

 

C. Upon the Effective Time of the Merger, and subject to the terms and conditions hereof, (i) the shares of capital stock and warrants of Company that are outstanding immediately prior to the effectiveness of the Merger will be converted into cash and shares of Common Stock of Parent, (ii) options and other rights to purchase Company capital stock that are outstanding immediately prior to the effectiveness of the Merger will be cancelled, and (iii) Sub will be merged with and into Company, in each case, as provided in this Agreement.

 

N OW , T HEREFORE , in consideration of the foregoing and the mutual promises, covenants and conditions contained herein, the parties hereby agree as follows:

 

ARTICLE 1

C ERTAIN D EFINITIONS

 

As used in this Agreement, the following terms will have the meanings set forth below:

 

1.1 “Cash Conversion Number” means the quotient (calculated to the fourth decimal place) obtained by dividing two million two hundred thousand dollars ($2,200,000) by the Share Number.

 

1.2 “Closing Sale Price” means the closing sale price of Parent Common Stock on the Nasdaq SmallCap Market, or if not traded on the Nasdaq SmallCap Market, the closing sale price on the principal national securities exchange or the over-the-counter system on which Parent Common Stock is so traded and if not available, the mean of the high and low prices on the principal national securities exchange or the over-the-counter system on which Parent Common Stock is so traded.

 

1.3 “Company Ancillary Agreements” means, collectively, the Articles of Merger, each certificate to be delivered by Company, an officer or officers of Company or any Principal Shareholder at the Closing pursuant to Article 10 of this Agreement, and each other agreement (other than this Agreement) which Company or any Principal Shareholder is to enter into as a party thereto pursuant to this Agreement.

 

1.4 “Company Common Stock” means common stock, $0.01 par value per share, of Company.

 

1.5 “Company Network” means all websites or other sites accessed via the Internet or any other electronic network (including without limitation any cable-based network or private network), that are, in whole or in part, owned or operated by Company, either as of the Agreement Date, the Closing Date or anytime in the past.

1.6 “Company Preferred Stock” means the Series A Preferred Stock, $0.01 par value per share (“ Series A Stock ”) of Company

 

1.7 “ Company Stock ” means Company Common Stock and Company Preferred Stock.

 

1.8 “Company Shareholders” means the record holders of issued and outstanding Company Common Stock and Company Preferred Stock immediately prior to the Effective Time of the Merger as set forth on Exhibit A attached hereto.

 

1.9 “Effective Time” means the date and time on which the Merger first becomes legally effective under the laws of the Commonwealth of Massachusetts as a result of the filing with the Secretary of the Commonwealth of the Articles of Merger in substantially the form attached hereto as Exhibit B (the “ Articles of Merger ”) and any required related certificates pursuant to, and in conformity with, the requirements of Chapter 156D, Section 11.06 of the Massachusetts General Laws (“ Massachusetts Law ”).

 

1.10 “Encumbrance” means, with respect to any asset, any mortgage, deed of trust, lien, pledge, charge, security interest, title retention device, collateral assignment, claim, charge, restriction or other encumbrance of any kind in respect of such asset (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset).

 

1.11 “knowledge,” means, with respect to any fact, circumstance, event or other matter in question, the actual knowledge of such fact, circumstance, event or other matter after reasonable inquiry of (a) an individual, if used in reference to an individual, or (b) any officer or director of such party, if used in reference to a person that is not an individual. Any such individual will be deemed to have actual knowledge of a particular fact, circumstance, event or other matter if such knowledge could be obtained from reasonable inquiry of the persons employed by such party charged with administrative or operational responsibility for such matters for such party.

 

1.12 “Legal Requirements” means any federal, state, local, municipal, foreign or other law, statute, constitution, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Authority.

 

1.13 “Material Adverse Change” or “Material Adverse Effect,” when used with reference to any entity or group of related entities, means any event, change, violation, inaccuracy, circumstance or effect that is or is reasonably likely to be, individually or in the aggregate, materially adverse to the condition (financial or otherwise), capitalization, properties, employees, assets, business, prospects, employees, operations or results of operations of such entity and its subsidiaries, taken as a whole; provided, however , that in no event shall a change in the price of the publicly traded stock of Parent constitute, in and of itself, a Material Adverse Change or Material Adverse Effect in Parent.

 

1.14 “Parent Ancillary Agreements” means, collectively, each certificate to be delivered by Parent or an officer or officers of Parent at the Closing pursuant to Article 9 of this Agreement and each agreement (other than this Agreement) which Parent is to enter into as a party thereto pursuant to this Agreement.

 

1.15 “ Parent Average Price Per Share ” means $2.578.

 

1.16 “Parent Common Stock” means the common stock, par value $0.001 per share of Parent.

 

1.17 “Person” means any individual, corporation, partnership, limited liability partnership, limited liability company, joint venture, estate, trust, firm, company, association, organization, entity or Governmental Authority.

 

1.18 “Principal Shareholders” means each of Jonathan A. Lieberman and Seth W. Lieberman.

1.19 “Share Number” means the aggregate number of shares of Company Common Stock, Company Preferred Stock and any other option, warrant or other security exercisable for, or convertible into, Company Common Stock (each on a fully exercised and converted to Common Stock basis), that are issued and outstanding immediately prior to the Effective Time.

 

1.20 “Statement of Designations” means the Statement of Designations, Preferences and Rights of the Series A Preferred Stock of the Company filed with the Secretary of the Commonwealth of Massachusetts on or about April 22, 1999.

 

1.21 “Stock Consideration” means 548,314.09 shares of Parent Common Stock.

 

1.22 “Stock Conversion Number” means the quotient (calculated to the fourth decimal place) obtained by dividing (a) the Stock Consideration by (b) the Share Number.

 

1.23 “Shareholder’s Pro Rata Share” means each Company Shareholder’s pro rata portion of the Company Common Stock, based on the total number of shares of Company Common Stock held by all Company Shareholders on Exhibit A and Schedule 3.4.1(b) hereto.

 

1.24 “Sub Ancillary Agreements” means, collectively, each certificate to be delivered by Sub or an officer or officers of Sub at the Closing pursuant to Article 9 of this Agreement and each agreement (other than this Agreement) which Sub is to enter into as a party thereto pursuant to this Agreement.

 

1.25 “Subsidiary” of a specified entity means any corporation, partnership, limited liability company, joint venture or other legal entity of which the specified entity (either alone or through or together with any other subsidiary) owns, directly or indirectly, 50% or more of the stock or other equity or partnership interests the holders of which are generally entitled to vote for the election of the Board of Directors or other governing body of such corporation or other legal entity.

 

1.26 “Termination Date” means November 5, 2004.

 

Other capitalized terms defined elsewhere in this Agreement and not defined in this Article 1 will have the meanings assigned to such terms in this Agreement.

 

ARTICLE 2

T HE M ERGER

 

2.1 Conversion of Shares .

 

2.1.1 Conversion of Sub Stock . At the Effective Time, each share of Sub common stock that is issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation (as defined below).

 

2.1.2 Conversion of Company Capital Stock .

 

(a) Company Preferred Stock . At the Effective Time, each share of Company Preferred Stock that is issued and outstanding immediately prior to the Effective Time shall be converted automatically into the number of shares of Company Common Stock into which such shares of Company Preferred Stock are convertible in accordance with Section 5 of the Statement of Designations, by virtue of the Merger and without the need for any further action on the part of the holder thereof.

 

(b) Company Common Stock . Subject to the terms and conditions of this Agreement, at the Effective Time, each share of Company Common Stock held by a Company Shareholder that is issued and outstanding immediately prior to the Effective Time (including without limitation Company Common Stock issued upon the conversion of Company Preferred Stock in accordance with Section 2.1.2(a)) will, by virtue of the Merger and without the need for any further action on the part of the holder thereof (except as expressly provided herein), be converted into and represent the right to receive (i) the number of whole shares of Parent

Common Stock that is equal to the Stock Conversion Number and (ii) cash equal to the Cash Conversion Number. The preceding provisions of this Section 2.1.2(b) are subject to the provisions of Section 2.1.3 (regarding rights of holders of Dissenting Shares), Section 2.1.4 (regarding the elimination of fractional shares and Section 2.4 (regarding the withholding of Escrow Shares).

 

2.1.3 Dissenting Shares . As more fully set forth in Section 8.3, holders of shares of Company Stock who have complied with all requirements for perfecting shareholders’ rights of appraisal, as set forth in Chapter 156D, Section 13.02 of Massachusetts Law, shall be entitled to their rights under Massachusetts Law with respect to such shares. Any shares of Company Stock with respect to which such rights shall have been perfected shall not be converted into or represent a right to receive any shares of Parent Common Stock or cash.

 

2.1.4 Fractional Shares . No fractional shares of Parent Common Stock will be issued in connection with the Merger. In lieu thereof, each holder of Company Common Stock or Company Preferred Stock who would otherwise be entitled to receive a fraction of a share of Parent Common Stock pursuant to Section 2.1.2, computed after aggregating all shares of Parent Common Stock to be received by such holder pursuant to Section 2.1.2, will instead receive from Parent, upon surrender of such holder’s Company Certificates (as defined in Section 8.2) pursuant to Article 8 hereof, an amount of cash (rounded to the nearest cent) equal to the product obtained by multiplying (a) the Parent Average Price Per Share by (b) the fraction of a share of Parent Common Stock that such holder would otherwise have been entitled to receive.

 

2.2 Adjustments for Capital Changes . Notwithstanding the provisions of Section 2.1, if Parent recapitalizes, either through a subdivision (or stock split) of any of its outstanding shares of Parent Common Stock into a greater number of such shares, or a combination (or reverse stock split) of any of its outstanding shares of Parent Common Stock into a lesser number of such shares, or reorganizes, reclassifies or otherwise changes its outstanding shares of Parent Common Stock into the same or a different number of shares of other classes or series of Parent stock (other than through a subdivision or combination of shares provided for in the preceding clause), or declares a dividend or other distribution on its outstanding shares payable in shares of Parent Common Stock, in shares or securities convertible into shares of Parent Common Stock and/or other Parent equity securities (each, a “Capital Change” ), at any time after the Agreement Date and prior to the Effective Time, then the Parent Average Price Per Share and the Common Stock Conversion Number will be appropriately adjusted.

 

2.3 Company Options . At the Effective Time, all outstanding options (collectively, “ Company Options ”) to purchase Company Common Stock, including all Company Options granted under Company’s 1999 Equity Compensation Plan (the “ Company Plan ”), will be terminated.

 

2.4 Escrow . At the Effective Time, Parent will withhold from the shares of Parent Common Stock to be otherwise issued to the Company Shareholders in the Merger upon conversion of their Company Stock pursuant to Section 2.1.2 above, a number of shares of Parent Common Stock equal to sixty-seven percent (67%) of the Parent Common Stock otherwise to be received by all Company Shareholders in the aggregate pursuant to the provisions of Section 2.1.2 (such shares of Parent Common Stock withheld, being hereinafter referred to as the “ Escrow Shares ”). Parent will deposit the certificates representing such Escrow Shares in escrow with Thomas J. Flahie (the “ Escrow Agent ”) in accordance with the terms of the Escrow Agreement as security for the Company Shareholders’ indemnification obligations for Damages (as defined in Section 12.2) under Article 12 hereof. The Escrow Shares will be represented by a certificate or certificates issued in the names of each Company Shareholder in proportion to each Company Shareholder’s Pro Rata Share. Subject to the terms and conditions of Article 12 hereof and the Escrow Agreement, 100% of the Escrow Shares will be held by the Escrow Agent until the first anniversary of the Closing Date (the “ First Escrow Release Date ”) and the remaining 50% will be held by the Escrow Agent until the date that is eighteen (18) months from the Closing Date (the “ Second Escrow Release Date ”). Unless and until transferred to Parent pursuant to Section 12.2, the Escrow Shares shall be treated as owned by the Company Shareholder in whose name they are issued for all purposes, including voting rights and the right to receive any dividends paid by Parent to the holders of Parent Common Stock.

 

2.5 Effects of the Merger . At and upon the Effective Time of the Merger:

 

(a) the separate existence of Sub will cease and Sub will be merged with and into Company, and Company will be the surviving corporation of the Merger (sometimes hereinafter referred to as the “Surviving Corporation” ) pursuant to the terms of this Agreement and the Plan of Merger;

(b) the Articles of Organization of Sub, as in effect immediately prior to the Effective Time, will be the Articles of Organization of the Surviving Corporation immediately after the Effective Time;

 

(c) the Bylaws of Sub, as in effect immediately prior to the Effective Time, will be the Bylaws of the Surviving Corporation immediately after the Effective Time;

 

(d) each share of Company Common Stock and Company Preferred Stock that is outstanding immediately prior to the Effective Time will be converted into cash and shares of Parent Common Stock as provided in this Article 2 and as more fully set forth on Schedule 2.5(d);

 

(e) each Company Option that is outstanding immediately prior to the Effective Time will be terminated as provided in this Article 2;

 

(f) each share of Sub Common Stock that is outstanding immediately prior to the Effective Time will be converted into a share of common stock of the Surviving Corporation as provided in Section 2.1.1;

 

(g) the officers of the Surviving Corporation immediately after the Effective Time will be those individuals who were the officers of Sub immediately prior to the Effective Time, and each such individual shall, immediately after the Effective Time, hold the same office or offices of the Surviving Corporation as the office or offices that such individual held with Sub immediately prior to the Effective Time;

 

(h) the members of the Board of Directors of the Surviving Corporation immediately after the Effective Time will be the members of the Board of Directors of Sub immediately prior to the Effective Time; and

 

(i) the Merger will, from and after the Effective Time, have all the effects provided by applicable law.

 

2.6 Securities Law Issues . Parent shall issue the shares of Parent Common Stock to be issued to the Company Shareholders in the Merger pursuant to Section 2.1.2 pursuant to an exemption or exemptions from registration under Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act” ) and/or Regulation D promulgated under the Securities Act and the exemption from qualification under the laws of the State of California and other applicable state securities laws. Parent and Company shall comply with all applicable provisions of, and rules under, the Securities Act in connection with the offering and issuance of shares of Parent Common Stock in the Merger.

 

2.7 Tax Consequences . The parties to this Agreement agree that the Merger shall be treated for all purposes as a taxable sale of stock by the Company Shareholders to Parent. Notwithstanding such agreement, it is understood that Parent makes no representations or warranties to Company or to any Company Shareholder or other holder of Company securities regarding the tax treatment of the Merger, whether the Merger will qualify as a tax-free plan of reorganization under the Internal Revenue Code of 1986, as amended (the “ Code ”), or any of the tax consequences to any Company Shareholder or such holder of this Agreement, the Merger or any of the other transactions or agreements contemplated hereby, and Company and the Company Shareholders acknowledge that Company and the Company Shareholders are relying solely on their own tax advisors in connection with this Agreement, the Merger and the other transactions contemplated by this Agreement.

 

2.8 Further Assurances . If, at any time before or after the Effective Time, Parent believes or is advised that any further instruments, deeds, assignments or assurances are reasonably necessary or desirable to consummate the Merger or to carry out the purposes and intent of this Agreement at or after the Effective Time, then each party hereto and their respective officers and directors will execute and deliver all such proper deeds, assignments, instruments and assurances and do all other things necessary or desirable to consummate the Merger and to carry out the purposes and intent of this Agreement.

 

2.9 Grants of Options; Post-Closing Bonuses . Immediately after the closing, Parent will (i) grant options to purchase shares of Parent Common Stock in accordance with Parent’s standard equity compensation

practices at an exercise price equal to the fair market value on the date of grant, and subject to the other terms and conditions of options granted generally under Parent’s 1999 or 2004 Stock Awards Plan, to the persons remaining employed by Parent and (ii) cause the Company to pay bonuses to each of the individuals identified on Schedule 2.9 attached hereto in the respective amounts set forth on such Schedule, it being understood that the Principal Shareholders shall bear the Company Transaction Expenses out of the bonuses otherwise payable to them.

 

2.10 Deposit . On the Agreement Date, immediately following execution of this Agreement, Parent will initiate a wire transfer of immediately available funds to Company in the amount of $150,000 (the “ Deposit ”). In the event the Merger is not consummated, Company shall be entitled to retain the Deposit as a “break-up fee.” Upon consummation of the Merger, the Deposit shall remain property of the Surviving Corporation and conversion of Company Stock shall proceed in accordance with Section 2.1.2 hereof.

 

ARTICLE 3

R EPRESENTATIONS AND W ARRANTIES OF C OMPANY A ND THE P RINCIPAL S HAREHOLDERS

 

Each of the Principal Shareholders and Company represents and warrants to Parent that, except as set forth in the letter addressed to Parent from Company and dated as of the Agreement Date (including all schedules thereto) which has been delivered by Company to Parent concurrently herewith (the “Company Disclosure Letter” ), each of the representations, warranties and statements contained in the following sections of this Article 3 is true and correct as of the Agreement Date and will be true and correct on and as of the Closing Date (as defined in Section 8.1 hereof). For all purposes of this Agreement, the statements contained in the Company Disclosure Letter and its schedules shall also be deemed to be representations and warranties made and given by Company and the Principal Shareholders under Article 3 of this Agreement.

 

3.1 Organization and Good Standing . Company is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has continuously been in good standing under the laws of the state of Massachusetts at all times since its inception. Company has the corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted and as proposed to be conducted, and is qualified or licensed to do business, and is in good standing, in each jurisdiction where the properties owned, leased or operated by it or the nature of its activities make such qualification or licensing necessary, except where the failure to be so duly qualified or licensed would not, individually or in the aggregate, have a Material Adverse Effect on Company. Company has delivered to Parent true and correct copies of its currently effective Articles of Organization and Bylaws. Company is not in violation of its Articles of Organization or Bylaws.

 

3.2 Subsidiaries . Company does not have any subsidiary or any equity or ownership interest, whether direct or indirect, in any corporation, partnership, limited liability company, joint venture or other business entity. Company is not obligated to make nor bound by any agreement or obligation to make any investment in or capital contribution in or on behalf of any other entity.

 

3.3 Power, Authorization and Validity .

 

3.3.1 Power and Authority . Each of the Principal Shareholders has the requisite capacity and authority, and the Company has all requisite corporate or other power and authority to enter into, execute, deliver and perform its respective obligations under, this Agreement and all Company Ancillary Agreements and to consummate the Merger. The execution, delivery and performance by Company of this Agreement, each of the Company Ancillary Agreements and all other agreements, transactions and actions contemplated hereby or thereby have been duly and validly approved and authorized by all necessary corporate action on the part of the Company, subject only to the approval and adoption of this Agreement and the approval of the Merger by Company Shareholders holding a majority of the outstanding Company Common Stock and a majority of the outstanding shares of Company Preferred Stock.

 

3.3.2 No Consents . No consent, approval, permit, order, authorization from, or registration, declaration or filing with, any court, administrative agency, commission or other governmental authority (each, a “ Governmental Authority ”), or any other person or entity, governmental or otherwise, is necessary or required to be made or obtained by Company or the Principal Shareholders to enable Company or the Principal Shareholders to lawfully execute and deliver, enter into, and to perform their obligations under, this Agreement and each of the Company Ancillary Agreements, and for Company to consummate the Merger except the filing of the Articles of Merger with the Secretary of the Commonwealth of Massachusetts.

 

3.3.3 Enforceability . This Agreement has been duly executed and delivered by the Company and the Principal Shareholders. This Agreement and each of the Company Ancillary Agreements are, or when executed by Company and the Principal Shareholders (if applicable) will be, valid and binding obligations of Company and the Principal Shareholders (if applicable), enforceable against Company and the Principal Shareholders (if applicable) in accordance with their respective terms, subject to the effect of (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors generally and (b) rules of law and equity governing specific performance, injunctive relief and other equitable remedies.

 

3.4 Capitalization of Company .

 

3.4.1 Outstanding Securities . As more fully disclosed on Section 3.4.1 of the Company Disclosure Letter, the authorized capital stock of Company consists entirely of: (a) 2,000,000 shares of Company Common Stock, of which a total of 854,164 shares are issued and outstanding and (b) 1,000,000 shares of Company Preferred Stock, of which 225,000 shares are designated Series A Preferred Stock, 200,000 of which are issued and outstanding. The numbers of issued and outstanding shares of Company Common Stock and Company Preferred Stock held by each of the Company Shareholders are set forth in Exhibit A attached hereto and Section 3.4.1 of the Company Disclosure Letter. Except as expressly set forth in Exhibit A attached hereto and Section 3.4.1 of the Company Disclosure Letter, no shares of Company Common Stock or Company Preferred Stock are issued or outstanding. Company holds no treasury shares. An aggregate of 64,250 shares of Company Common Stock are reserved and authorized for issuance upon the exercise of all Company Options. Schedule 3.4.1(a) to the Company Disclosure Letter lists each person who holds a Company Option, the exercise price for each such Company Option and the number of shares covered by each such Company Option. All such Company Options shall become fully vested immediately prior to the Effective Time.

 

3.4.2 Valid Issuance . As of the Closing Date, there will have been no change in the authorized or outstanding capital stock of Company as represented in Section 3.4.1. All issued and outstanding shares of Company Common Stock and Company Preferred Stock have been duly authorized and validly issued, are fully paid and nonassessable, are not subject to any preemptive right, right of first refusal, right of first offer or right of rescission, and have been offered, issued, sold and delivered by Company in compliance with (a) all registration or qualification requirements (or applicable exemptions therefrom) of all applicable securities laws and other applicable Legal Requirements and (b) all requirements set forth in applicable agreements or instruments. All outstanding Company Options have been issued and granted in compliance with (a) all registration or qualification requirements (or applicable exemptions therefrom) of all applicable securities laws and other applicable Legal Requirements and (b) all requirements set forth in applicable agreements or instruments.

 

3.4.3 No Other Options, Warrants or Rights . Other than the Company Options, there are no options, warrants, convertible securities or other securities, calls, commitments, conversion privileges, preemptive rights, rights of first refusal, rights of first offer or other rights or agreements outstanding to purchase or otherwise acquire (whether directly or indirectly) any shares of Company’s authorized but unissued capital stock or any securities convertible into or exchangeable for any shares of Company’s capital stock or obligating Company to grant, issue, extend, or enter into any such option, warrant, convertible security or other security, call, commitment, conversion privilege, preemptive right, right of first refusal, right of first offer or other right or agreement to obtain any shares of Company’s capital stock, and there is no liability for dividends accrued but unpaid. Immediately following the repurchase of the Company Options in accordance with Section 6.2, as set forth on Schedule 2.5(d), the only shareholders of the Company will be Stephen Burakoff, the Principal Shareholders and the holders of Company Preferred Stock.

 

3.4.4 No Voting Arrangements or Registration Rights . Except as contemplated by this Agreement, there are no voting agreements, voting trusts or proxies applicable to any of Company’s outstanding capital stock or any Company Options or to the conversion of any shares of Company’s capital stock in the Merger pursuant to any agreement or obligation to which Company or any Principal Shareholder is a party or, to Company’s or any Principal Shareholder’s knowledge, pursuant to any other agreement or obligation. Company is not under any obligation to register under the Securities Act or register or qualify under any state securities laws any of its presently outstanding shares of stock or other securities or any stock or other securities that may be subsequently issued.

3.5 No Conflict . Neither the execution and delivery of this Agreement nor any of the Company Ancillary Agreements by Company or any Principal Shareholder, nor the consummation of the Merger or any of the other transactions contemplated hereby or thereby, will (a) conflict with, or (with or without notice or lapse of time, or both) result in a termination, breach, impairment or violation of, or constitute a default under (i) any provision of the Articles of Organization or Bylaws of Company, or (ii) any federal, state, local or foreign judgment, writ, decree, order, statute, rule or regulation applicable to Company, the Principal Shareholders or any of its or their material assets or properties, or (b) except as set forth in Schedule 3.5 to the Company Disclosure Letter, require the consent, approval, assignment, notice, release, waiver, authorization or other certificate of any third party to ensure that, at and after the date hereof and including following the Effective Time, any agreement, contract, undertaking, understanding, letter of intent, memorandum of understanding, commitment (whether verbal or in writing), material instrument (including any note, bond, mortgage or indenture), lease, license, permit, franchise, assignment, transaction, obligation or Company Material Agreement (as defined in Section 3.11) to which the Company is a party or by which Company or any of its material assets or properties are bound or affected will continue to be in full force and effect without any breach or violation thereof. Neither Company’s or the Principal Shareholders’ entering into this Agreement nor the consummation of the Merger or any other transaction contemplated by this Agreement or any Company Ancillary Agreement will give rise to, or trigger the application of, any rights of any third party that would come into effect upon the consummation of the Merger.

 

3.6 Litigation . There is no action, suit, arbitration, mediation, proceeding, claim or investigation pending against Company (or against any officer, director, employee or agent of Company in their capacity as such or relating to their employment, services or relationship with Company) or any Principal Shareholder before any court, Governmental Authority or arbitrator, nor, to Company’s or the Principal Shareholders’ knowledge, has any such action, suit, arbitration, mediation, proceeding, claim or investigation been threatened. There is no judgment, decree, injunction, rule or order of any court, Governmental Authority or arbitrator outstanding against Company or the Principal Shareholders. To Company’s or the Principal Shareholders’ knowledge, there is no basis for any person to assert a claim against Company or the Principal Shareholders based upon: (a) Company’s or the Principal Shareholders’ entering into this Agreement or any Company Ancillary Agreement or consummating the Merger or any of the transactions contemplated by this Agreement or any Company Ancillary Agreement, (b) any confidentiality or similar agreement entered into by Company; or (c) any claim that Company or the Principal Shareholders has agreed to sell or dispose all or any substantial portion of its assets or business or shares of Company Common Stock or Company Preferred Stock to any party other than Parent, whether by way of merger, consolidation, sale or assets or otherwise; (d) any wrongful failure by Company to issue any of its stock or other securities to any party; (e) any rights under any agreement among Company and the Company Shareholders; or (f) a claim of ownership of, or options, warrants or other rights to acquire ownership of, any shares of the capital stock of Company or any rights as a Company Shareholder, including any option, warrant or preemptive rights or rights to notice or to vote, other than the rights of the Company Shareholders with respect to the Company Common Stock and Company Preferred Stock shown as being owned by such persons on Schedule 3.4.1(a) hereof and the rights of holders of Company Options shown as being owned by such persons on Schedule 3.4.1(b) hereof.

 

3.7 Taxes .

 

3.7.1 Company has timely filed all federal, state, local and foreign tax and information returns required to be filed by it, has timely paid all taxes required to be paid by it for which payment is due, except to the extent that an accrual or reserve for such taxes has been reflected in accordance with GAAP (as defined in Section 3.8) on the Balance Sheet (as defined in Section 3.8), has established an adequate accrual or reserve for the payment of all taxes payable in respect of the periods subsequent to the periods covered by its most recent applicable tax returns (which accrual or reserve as of the Balance Sheet Date is fully reflected on the Balance Sheet and in any more recent balance sheet of Company provided by Company to Parent on or before the Agreement Date), has made all necessary estimated tax payments and has no liability for taxes in excess of the amount so paid or accruals or reserves so established. All such returns and reports are true, correct and complete, and Company has provided Parent with true and correct copies of such returns and reports. Company is not delinquent in the payment of any tax or in the filing of any tax returns, and no deficiencies for any tax have been threatened, claimed, proposed or assessed against Company or any of the officers, employees or agents of Company in their capacity as such. Company has not received any notification from the Internal Revenue Service or any other taxing authority

regarding any issues that: (a) are currently pending before the Internal Revenue Service or any other taxing authority (including but not limited to any sales or use tax authority) regarding Company, or (b) have been raised by the Internal Revenue Service or other taxing authority and not yet finally resolved. No tax return of Company is under audit by the Internal Revenue Service or any state or local taxing agency or authority and any such past audits (if any) have been completed and fully resolved to the satisfaction of the applicable tax authority conducting such audit and all taxes and any penalties or interest determined by such audit to be due from Company have been paid in full to the applicable taxing authorities. No tax liens are currently in effect against any assets of Company other than liens which arise by operation of law for taxes not yet due and payable. There is not in effect any waiver by Company of any statute of limitations with respect to any taxes or agreed to any extension of time for filing any tax return which has not been filed; and Company has not consented to extend to a date later than the date hereof the period in which any tax may be assessed or collected by any taxing authority. Company is not a “personal holding company” within the meaning of the Code. Company has not filed any election under Section 341(f) of the Code. Company has withheld all taxes, including but not limited to federal and state income taxes, FICA, Medicare, FUTA and other taxes, required to be withheld, and paid such withheld amounts to the appropriate tax authority within the time prescribed by law. Since its inception, Company has not been a “United States real property holding corporation,” as defined in Section 897(c)(2) of the Code, and in Section 1.897-2(b) of the Treasury Regulations issued thereunder (the “ Regulations ”), and Company has filed with the Internal Revenue Service all statements, if any, with its United States income tax returns which are required under Section 1.897-2(h) of the Regulations.

 

3.7.2 No benefit payable or which may become payable by Company pursuant to any Company Benefit Arrangement or as a result of or arising under this Agreement or the Articles of Merger will constitute an “excess parachute payment” (as defined in Section 280G(b)(1) of the Code) which is subject to the imposition of an excise tax under Section 4999 of the Code or which would not be deductible by reason of Section 280G of the Code.

 

3.7.3 For the purposes of this Section, the terms “ tax ” and “ taxes ” include all federal, state, local and foreign income, alternative or add-on minimum income, gains, franchise, excise, property, property transfer, sales, use, employment, license, payroll, ad valorem, documentary, stamp, withholding, occupation, recording, value added or transfer taxes, governmental charges, fees, customs duties, levies or assessments (whether payable directly or by withholding), and, with respect to any such taxes, any estimated tax, interest, fines and penalties or additions to tax and interest on such fines, penalties and additions to tax.

 

3.8 Company Financial Statements . Company has delivered to Parent as an attachment to the Company Disclosure Letter audited consolidated balance sheets, statements of operations, statements of cash flows and statements of changes in shareholders’ equity for the fiscal years ended June 30, 2004, 2003 and 2002 (all such financial statements of Company and any notes thereto are hereinafter collectively referred to as the “ Company Financial Statements ”). The Company Financial Statements: (a) are derived from and are in accordance with the books and records of Company, (b) fairly present the financial condition of Company at the dates therein indicated and the results of operations for the periods therein specified, and (c) have been prepared in accordance with United States generally accepted accounting principles (“ GAAP ”) applied on a basis consistent with prior periods. The audited balance sheet of the Company as of June 30, 2004 (the “ Balance Sheet Date ”) included in the Company Financial Statements is hereinafter referred to as the “ Balance Sheet .” Except as disclosed in the Company Financial Statements, since the Balance Sheet Date, neither the Company nor any of its subsidiaries has any liabilities required under GAAP to be set forth on a balance sheet (absolute, accrued, contingent or otherwise) which are, individually or in the aggregate, material to the business, results of operations or financial condition of the Company, except for liabilities incurred in connection with this Agreement. All reserves established by Company that are set forth in or reflected in the Balance Sheet are adequate. At the Balance Sheet Date, there were no material loss contingencies (as such term is used in Statement of Financial Accounting Standards No. 5 issued by the Financial Accounting Standards Board in March 1975) which are not adequately provided for in the Balance Sheet as required by said Statement No. 5. The Financial Statements comply in all material respects with the SEC’s (defined below) Staff Accounting Bulleting No. 101.

 

3.9 Title to Properties . Company has good and marketable title to, or a valid leasehold interest in, all of the assets and properties used in Company’s business free and clear of all Encumbrances, other than liens for current taxes that are not yet due and payable and except for liens which in the aggregate do not secure more than $10,000 in liabilities. All machinery, vehicles, equipment and other tangible personal property owned or leased by Company or used in its business are in good condition and repair, normal wear and tear excepted, and all leases of real or personal property to which Company is a party are fully effective and afford Company peaceful and

undisturbed leasehold possession of the real or personal property that is the subject of the lease. Company is not in violation of any zoning, building, safety or environmental ordinance, regulation or requirement or other law or regulation applicable to the operation of its owned or leased properties, nor has Company received any notice of violation of law with which it has not complied. Company does not own and has never owned any real property. Schedule 3.9 to the Company Disclosure Letter sets forth a complete and accurate list and a brief description of all personal property owned or leased by Company with an individual value of $1,000 or greater.

 

3.10 Absence of Certain Changes . Since the Balance Sheet Date, Company has operated its business in the ordinary course consistent with its past practice, and since such date there has not been with respect to Company any:

 

(a) Material Adverse Change in Company;

 

(b) amendment or change in the Articles of Organization or Bylaws;

 

(c) incurrence, creation or assumption by Company of (i) any Encumbrance on any of the assets or properties of Company, (ii) any obligation or liability or any indebtedness for borrowed money, or (iii) any contingent liability as a guarantor or surety with respect to the obligations of others;

 

(d) grant or issuance of any options, warrants or other rights to acquire from Company, directly or indirectly, except as described in Sections 3.4.1 and 3.4.2 hereof, or any offer, issuance or sale by Company of any debt or equity securities of Company;

 

(e) acceleration or release of any vesting condition to the right to exercise any option, warrant or other right to purchase or otherwise acquire any shares of Company’s capital stock, or any acceleration or release of any right to repurchase shares of Company’s capital stock upon the shareholder’s termination of employment or services with Company;

 

(f) payment or discharge by the Company of any liability of the Company or Encumbrance on any asset or property of the Company in an amount in excess of $10,000 for any individual liability or Encumbrance or $50,000 in the aggregate;

 

(g) purchase, license, sale, assignment or other disposition or transfer, or any agreement or other arrangement for the purchase, license, sale, assignment or other disposition or transfer, of any of the assets, properties or goodwill of Company;

 

(h) damage, destruction or loss of any material property or asset, whether or not covered by insurance;

 

(i) declaration, setting aside or payment of any dividend on, or the making of any other distribution in respect of, the capital stock of Company, or any split, combination or recapitalization of the capital stock of Company or any direct or indirect redemption, purchase or other acquisition of any capital stock of Company or any change in any rights, preferences, privileges or restrictions of any outstanding security of Company;

 

(j) change or increase in the compensation, including severance compensation, payable or to become payable to any of the officers, directors, employees or consultants of Company, or in any bonus or pension, insurance or other benefit payment or arrangement (including stock awards, stock option grants, stock appreciation rights or stock option grants) made to or with any of such officers, employees or agents except in connection with normal employee salary or performance reviews in the ordinary course of Company’s business consistent with its past practice and except as contemplated in this Agreement;

 

(k) change with respect to the management, supervisory or other key personnel of Company;

(l) obligation or liability incurred by Company to any of its officers, directors or shareholders, except for normal and customary compensation and expense allowances payable to Company officers in the ordinary course of Company’s business consistent with its past practice;

 

(m) making by Company of any loan, advance or capital contribution to, or any investment in, any officer, director or shareholder of Company or any firm or business enterprise in which any such person had a direct or indirect material interest at the time of such loan, advance, capital contribution or investment;

 

(n) entering into, amendment of, relinquishment, termination or non-renewal by Company of any contract, lease, transaction, commitment or other right or obligation other than in the ordinary course of its business consistent with its past practice; or any written or oral indication or assertion by the other party thereto of any material problems with Company’s services or performance under such contract, lease, transaction, commitment or other right or obligation or its desire to so amend, relinquish, terminate or not renew any such contract, lease, transaction, commitment or other right or obligation;

 

(o) assertion by any customer, advertiser, publisher or subscriber of Company or the Company Network of any complaint regarding Company’s services or products which, if substantiated, either individually or in the aggregate with all other such complaints, would be reasonably likely to have a Material Adverse Effect on Company;

 

(p) grant of any exclusive promotion, distribution or, sponsorship or other rights with respect to any portion of the Company Network;

 

(q) any agreement made by Company to provide exclusive services to any person or not to engage in any type of business activity;

 

(r) material change in the manner in which Company extends discounts, credits or warranties to customers or otherwise deals with its customers;

 

(s) entering into by Company of any transaction, contract or agreement that by its terms requires or contemplates a current and/or future financial commitment, expense (inclusive of overhead expense) or obligation on the part of Company that involves in excess of $20,000 or that is not entered into in the ordinary course of Company’s business, or the conduct of any business or operations other than in the ordinary course of Company’s business consistent with its past practice; or

 

(t) any license, transfer or grant of a right under any Company IP Rights (as defined in Section 3.13 below), other than those licensed, transferred or granted in the ordinary course of Company’s business consistent with its past practices.

 

3.11 Contracts and Commitments/Licenses and Permits . Schedule 3.11 to the Company Disclosure Letter sets forth a list of each of the following written or oral contracts, agreements, leases, licenses, permits, assignments, mortgages, transactions, obligations, commitments or other instruments to which Company is a party or to which Company or any of its assets or properties is bound:

 

(a) any contract or agreement providing for payments (whether fixed, contingent or otherwise) by or to Company in an aggregate amount of $100,000 or more;

 

(b) any contract providing for the development of any software, content (including textual content and visual, photographic or graphics content), technology or intellectual property for (or for the benefit or use of) Company, or providing for the purchase or license of any software, content (including textual content and visual or graphics content), technology or intellectual property to (or for the benefit or use of) Company, which software, content, technology or intellectual property is in any manner used or incorporated (or is contemplated by Company to be used or incorporated) in connection with any aspect or element of any product, service or technology of Company (other than software generally available to the public at a per copy license fee of less than $500 per copy);

(c) any joint venture or partnership contract or other agreement which has involved, or is reasonably expected to involve, a sharing of profits, expenses or losses with any other party;

 

(d) any contract or commitment for or relating to the employment of any officer, employee or consultant of Company or any other type of contract or understanding with any officer, employee or consultant of Company that is not immediately terminable by Company without cost or other liability;

 

(e) any indenture, mortgage, trust deed, promissory note, loan agreement, security agreement, guarantee or other agreement or commitment for the borrowing of money, for a line of credit or for a leasing transaction of a type required to be capitalized in accordance with Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board;

 

(f) any website hosting, website linking, content or data sharing, data feed, information exchange, advertising, distribution, fee sharing, lead or customer referral, commerce, co-branding or similar agreement relating to any aspect or element of the Company Network;

 

(g) any lease or other agreement under which Company is lessee of or holds or operates any items of tangible personal property or real property owned by any third party;

 

(h) any agreement that restricts Company from engaging in any aspect of its business; from participating or competing in any line of business or market; from freely setting prices for Company’s products, services or technologies from engaging in any business in any market or geographic area; or from soliciting potential employees, consultants, contractors or other suppliers or customers;

 

(i) any Company IP Rights Agreement (as defined in Section 3.13);

 

(j) any agreement relating to the sale, issuance, grant, exercise, award, purchase, repurchase or redemption of any shares of capital stock or other securities of Company or any options, warrants or other rights to purchase or otherwise acquire any such shares of capital stock, other securities or options, warrants or other rights therefor, except for those agreements conforming to the standard agreement under the Company Plan;

 

(k) any contract with or commitment to any labor union; and

 

(l) any Governmental Permit (as defined in Section 3.14.3).

 

A true and complete copy of each agreement or document required by these subsections (a) through (k) of this Section to be listed on Schedule 3.11 to the Company Disclosure Letter (such agreements and documents being hereinafter collectively referred to as the “ Company Material Agreements ”) and a copy of each Governmental Permit required by subsection (l) of this Section to be listed on Schedule 3.11 to the Company Disclosure Letter has been delivered to Parent’s legal counsel.

 

3.12 No Default; No Restrictions . (a) Company is not, nor to the Company’s or the Principal Shareholders’ knowledge is any other party, in material breach or default under any Company Material Agreement. No event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or would reasonably be expected to, (i) result in a violation or breach of any of the provisions of any Company Material Agreement, or (ii) to Company’s or the Principal Shareholders’ knowledge, give any third party (A) the right to declare a default or exercise any remedy under any Company Material Agreement, (B) the right to a refund, rebate, chargeback or penalty under any Company Material Agreement, (C) the right to accelerate the maturity or performance of any obligation of Company under any Company Material Agreement, or (D) the right to cancel, terminate or modify any Company Material Agreement. Each Company Material Agreement is valid, binding and in full force and effect. Company has not received any notice or other communication regarding any actual or possible violation or breach of, or default under, any Company Material Agreement. Company has no material liability for renegotiation of government contracts or subcontracts, if any.

(b) Company is not a party to, and no asset or property of Company is bound or affected by, any judgment, injunction, order, decree, contract, covenant or agreement (noncompete or otherwise) that restricts or prohibits, purports to restrict or prohibit, Company or, following the Effective Time, the Surviving Corporation or Parent, from freely engaging in any business now conducted or contemplated by Company or from competing anywhere in the world (including any contracts, covenants or agreements restricting the geographic area in which Company may sell, license, market, distribute or support any products or technology or provide services; or restricting the markets, customers or industries that Company may address in operating its business; or restricting the prices which Company may charge for its products or technology or services), or includes any grants by Company of exclusive rights or licenses.

 

3.13 Intellectual Property .

 

3.13.1 Company (i) owns and has independently developed, or (ii) has the valid right or license to use, possess, develop, sell, license, copy, distribute, market, advertise and/or dispose of all Intellectual Property (as defined below) used in the conduct of the Company Business (as defined below) (such Intellectual Property being hereinafter collectively referred to as the “ Company IP Rights ”). Such Company IP Rights are sufficient for such conduct of the Company Business. As used herein, the term “ Company Business ” means the business of Company as presently conducted and proposed to be conducted. As used herein, the term “ Intellectual Property ” means, collectively, all worldwide industrial and intellectual property rights, including patents, patent applications, patent rights, trademarks, trademark registrations and applications therefor, trade dress rights, trade names, service marks, service mark registrations and applications therefor, Internet domain names, Internet and World Wide Web URLs or addresses, copyrights, copyright registrations and applications therefor, mask work rights, mask work registrations and applications therefor, franchises, licenses, inventions, trade secrets, know-how, customer lists, supplier lists, proprietary processes and formulae, software source code and object code, algorithms, net lists, architectures, structures, screen displays, photographs, images, layouts, inventions, development tools, designs, blueprints, specifications, technical drawings (or similar information in electronic format) and all documentation and media constituting, describing or relating to the foregoing, including manuals, programmers’ notes, memoranda and records. As used in this Section 3.13, “ Company-Owned IP Rights ” means Company IP Rights which are owned or exclusively licensed to Company; and “ Company-Licensed IP Rights ” means Company IP Rights which are not Company-Owned IP Rights.

 

3.13.2 Neither the execution, delivery and performance of this Agreement, the Articles of Merger, or the consummation of the Merger and the other transactions contemplated by this Agreement and/or by Company Ancillary Agreements will, in accordance with their terms: (a) constitute a material breach of or default under any instrument, contract, license or other agreement governing any Company IP Right to which Company is a party (collectively, the “ Company IP Rights Agreements ”); (b) cause the forfeiture or termination of, or give rise to a right of forfeiture or termination of, any Company IP Right; or (c) materially impair the right of Company or the Surviving Corporation to use, possess, sell or license any Company IP Right or portion thereof. There are no royalties, honoraria, fees or other payments payable by Company to any third person (other than salaries payable to employees and independent contractors not contingent on or related to use of their work product) as a result of the ownership, use, possession, license-in, sale, marketing, advertising or disposition of any Company IP Rights by Company to the extent necessary for the conduct of the Company Business and none will become payable as a result of the consummation of the transactions contemplated by this Agreement.

 

3.13.3 Neither the use, development, manufacture, marketing, license, sale, furnishing or intended use of any product or service currently licensed, utilized, sold, provided or furnished by Company or currently under development by Company violates any license or agreement between Company and any third party or infringes or misappropriates any Intellectual Property Right of any other party; and there is no pending or threatened, claim or litigation contesting the validity, ownership or right of Company to exercise any Company IP Right nor, to the best knowledge of Company, is there any legitimate basis for any such claim, nor has Company received any notice asserting that any Company IP Right or the proposed use, sale, license or disposition thereof conflicts or will conflict with the rights of any other party, nor, to the best knowledge of Company, is there any legitimate basis for any such assertion.

 

3.13.4 No current or former employee, consultant or independent contractor of Company: (a) is in material violation of any term or covenant of any employment contract, patent disclosure agreement, invention assignment agreement, non-disclosure agreement, noncompetition agreement or any other contract or agreement

with any other party by virtue of such employee’s, consultant’s, or independent contractor’s being employed by, or performing services for, Company or using trade secrets or proprietary information of others without permission; or (b) has developed any technology, software or other copyrightable, patentable, or otherwise proprietary work for Company that is subject to any agreement under which such employee, consultant or independent contractor has assigned or otherwise granted to any third party any rights (including Intellectual Property) in or to such technology, software or other copyrightable, patentable or otherwise proprietary work. The employment of any employee of Company or the use by Company of the services of any consultant or independent contractor does not subject Company to any liability to any third party for improperly soliciting such employee or consultant, or independent contractor to work for Company, whether such liability is based on contractual or other legal obligations to such third party.

 

3.13.5 Company has taken all necessary and appropriate steps to protect, preserve and maintain the secrecy and confidentiality of the Company IP Rights and to preserve and maintain all Company’s interests and proprietary rights in Company IP Rights. All officers, employees and consultants of Company having access to proprietary information of Company, its customers or business partners and inventions owned by Company, have executed and delivered to Company an agreement regarding the protection of such proprietary information and the assignment of any of such officer’s, employee’s or consultant’s inventions to Company (in the case of proprietary information of Company’s customer and business partners, to the extent required by such customers and business partners); and copies of all such agreements have been delivered to Parent’s counsel. Company has secured valid written assignments from all of Company’s consultants, contractors and employees who were involved in, or who contributed to, the creation or development of any Company-Owned IP Rights, of the rights to such contributions that may be owned by such persons or that Company does not already own by operation of law. No current or former employee, officer, director, consultant or independent contractor of Company has any right, license, claim or interest whatsoever in or with respect to any Company IP Rights.

 

3.13.6 Schedule 3.13.6 to the Company Disclosure Letter contains a true and complete list of (i) all worldwide registrations made by or on behalf of Company of any patents, copyrights, mask works, trademarks, service marks, Internet domain names or Internet or World Wide Web URLs or addresses with any governmental or quasi-governmental authority, including Internet domain name registries; and (ii) all applications, registrations, filings and other formal written governmental actions made or taken pursuant to federal, state and foreign laws by Company to secure, perfect or protect its interest in Company IP Rights, including all patent applications, copyright applications, and applications for registration of trademarks and service marks. All registered patents, trademarks, service marks, Internet domain names, Internet or World Wide Web URLs or addresses, and copyrights held by Company are valid, enforceable and subsisting.

 

3.13.7 The Company owns all right, title and interest in and to all Company-Owned IP Rights free and clear of all Encumbrances and licenses (other than licenses and rights listed in Schedule 3.13.8). Company’s right, license and interest in and to all Company-Licensed IP Rights are free and clear of all Encumbrances and licenses (other than licenses and rights listed in Schedule 3.13.8).

 

3.13.8 Schedule 3.13.8 to the Company Disclosure Letter contains a true and complete list of (i) all licenses, sublicenses and other agreements as to which Company is a party and pursuant to which any person or entity is authorized to use any Company IP Rights, and (ii) all licenses, sublicenses and other agreements as to which Company is a party and pursuant to which Company is authorized to use any third party Intellectual Property.

 

3.13.9 Neither Company nor any other party acting on behalf, has disclosed or delivered to any party, or permitted the disclosure or delivery to any escrow agent or other party, of any Company Source Code (as defined below). No event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or would reasonably be expected to, result in the disclosure or delivery by Company or any other party acting on Company’s behalf to any party of any Company Source Code (as defined below). Schedule 3.13.9 of the Company Disclosure Letter identifies each contract, agreement and instrument (whether written or oral) pursuant to which Company has deposited, or is or may be required to deposit, with an escrow holder or any other party, any Company Source Code and further describes whether the execution of this Agreement or the consummation of the Merger or any of the other transactions contemplated by this Agreement, in and of itself, would reasonably be expected to result in the release from escrow of any Company Source Code. As used in this Section 3.13.9, “ Company Source Code ” means, collectively, any software source code, or any material portion or aspect of the software source code, or any material proprietary information or algorithm contained in or relating to any software source code, of any Company-Owned IP Rights or any other product marketed or currently proposed to be marketed by Company.

3.13.10 To Company’s and the Principal Shareholders’ knowledge, there is no unauthorized use, disclosure, infringement or misappropriation of any Company IP Rights by any third party, including any employee or former employee of Company. Company has not agreed to indemnify any person for any infringement of any Intellectual Property of any third party by any product or service that has been sold, licensed to third parties, leased to third parties, supplied, marketed, distributed, or provided by Company.

 

3.13.11 All software developed by Company and licensed by Company to customers and all services provided by or through Company to customers on or prior to the Closing Date conform in all material respects (to the extent required in contracts with such customers) to applicable contractual commitments, express and implied warranties, product specifications and product documentation and to any representations provided to customers and Company has no material liability (and, to Company’s and the Principal Shareholders’ knowledge, there is no legitimate basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against Company giving rise to any material liability relating to the foregoing contracts) for replacement or repair thereof or other damages in connection therewith in excess of any reserves therefor reflected on the Balance Sheet.

 

3.14 Compliance with Laws .

 

3.14.1 Company has materially complied, and is now and at the Closing Date will be in material compliance with, all applicable federal, state or local laws, ordinances, regulations, and rules, and all orders, writs, injunctions, awards, judgm