MERGER AGREEMENT AND PLAN OF REORGANIZATION

 

EXHIBIT 2.1

 

MERGER AGREEMENT AND PLAN OF REORGANIZATION

BY AND AMONG

CELSIUS HOLDINGS, INC.,

CELSIUS, INC.,

ELITE FX, INC.

AND

THE OTHER PARTIES SIGNATORY HERETO

Dated as of January 24, 2007

 

 

 

 

 

 

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TABLE OF CONTENTS

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MERGER AGREEMENT AND PLAN OF REORGANIZATION

This MERGER AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of January 24, 2007, by and among Celsius Holdings, Inc., a Nevada corporation (" Parent "), Celsius, Inc., a Nevada corporation and wholly-owned subsidiary of Parent (" Sub "), Elite FX, Inc., a Florida corporation (the " Company "), Steve Haley (the " Indemnifying Officer ") and, with respect to Article 7 and Article 9 only, and Steve Haley as securityholder agent (" Securityholder Agent "). Capitalized terms used and not otherwise defined herein have the meanings given to them in Article 10 .

RECITALS

           A. The Boards of Directors of each of the Company, Parent and Sub believe it is in the best interests of each company and its respective shareholders that Parent acquire the Company through the statutory merger of the Company with and into the Sub (the " Merger ") and, in furtherance thereof, have approved the Merger.

            B. Pursuant to the Merger, among other things, all of the issued and outstanding capital stock of the Company and all of the issued and outstanding options and warrants to purchase shares of capital stock of the Company shall be converted into the right to receive the consideration set forth herein (the " Merger Consideration ").

           C. The Company, the Indemnifying Officer, Parent and Sub desire to make certain representations, warranties, covenants and other agreements in connection with the Merger.

           NOW, THEREFORE , in consideration of the covenants, promises, representations and warranties set forth herein, and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by the parties), intending to be legally bound hereby, the parties agree as follows:

ARTICLE 1: THE MERGER

            1.1 The Merger . At the Effective Time, and upon the terms and subject to the conditions of this Agreement and the applicable provisions of Nevada Law and Florida Law, the Company shall be merged with and into the Sub, the separate corporate existence of the Company shall cease, and the Sub shall continue as the surviving corporation and as a wholly-owned subsidiary of Parent. The surviving corporation in the Merger is sometimes referred to herein as the " Surviving Corporation ."

             1.2 Effective Time . Unless this Agreement is earlier terminated pursuant to Section 8.1 , the closing of the Merger (the " Closing ") will take place within two (2) days following satisfaction or waiver of the conditions set forth in Article 6 (excluding those conditions intended to be satisfied at the Closing), or such later time following satisfaction or waiver of such conditions as Parent determines in Parent's discretion, provided that such later time shall occur no later than January 31, 2007, at the offices of Venture Law Corporation, 618 - 688 West Hastings Street, Vancouver, British Columbia V6B 1P1, unless another place or time is agreed to by Parent and the Company. The date upon which the Closing actually occurs is herein referred to as the " Closing Date ." On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing an Agreement of Merger (or like instrument), in substantially the form attached hereto as Exhibit A (the " Agreement of Merger "), with the Secretary of State of the State of Nevada and with the Secretary of State of Florida in accordance with the relevant provisions of Nevada Law and Florida Law respectively (the time of acceptance by the Secretary of State of the State of Nevada of such filing, or such later time as may be agreed to by the parties and set forth in the Agreement of Merger, being referred to herein as the " Effective Time ").

           1.3 Effect of the Merger on Constituent Corporations . At the Effective Time, the effect of the Merger shall be as provided in this Agreement and the applicable provisions of Nevada Law and Florida Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, the Surviving Corporation shall succeed to all rights, privileges, powers, franchises and property of
 

 

 

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Company and Sub, and shall be subject to all debts, duties and Liabilities of Company and Sub in the same manner as if the Surviving Corporation had itself incurred them.

       1.4 Articles of Incorporation and Bylaws of Surviving Corporation .

1. At the Effective Time, the Articles of Incorporation of the Surviving Corporation shall be the Articles of Incorporation of Sub as in effect immediately prior to the Effective Time until thereafter amended in accordance with Nevada Law and as provided in such Articles of Incorporation.
2. The Bylaws of Sub as in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation at the Effective Time, until thereafter amended in accordance with Nevada Law and as provided in the Articles of Incorporation of the Surviving Corporation and such Bylaws.

       1.5 Directors and Officers of Surviving Corporation . The directors of the Company immediately prior to the Effective Time shall be the directors of the Surviving Corporation, each to hold office in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation. The officers of the Company immediately prior to the Effective Time shall be the officers of the Surviving Corporation, each to hold office in accordance with the Bylaws of the Surviving Corporation.

        1.6 Effect on Capital Stock . Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of Parent, Sub, the Company or any holder of Company Capital Stock, Company Options or Company Warrants, the following shall occur:

1. Company Common Stock . Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time and after giving effect to the assumed conversion described in Section 1.6(b)(i) (other than any Dissenting Shares (as defined in Section 1.8 and any shares canceled pursuant to Section 1.6(c)) shall be canceled and extinguished and automatically converted into the right to receive, upon the terms and subject to the conditions set forth below and throughout this Agreement (including Section 1.9 ), shares of Parent Common Stock equal to the Stock Exchange Ratio.
    
2. Preferred Stock . Each share of Company Preferred Stock outstanding immediately prior to the Effective Time will receive the consideration that the Company Common Stock issuable upon conversion thereof would receive under Section 1.6(a) as if such share of Company Preferred Stock converted into Company Common Stock immediately prior to the Effective Time.
    
3. Capital Stock of Sub . At the Effective Time, by virtue of the Merger and without any action on the part of any of the parties hereto, each share of capital stock of Sub 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. Each stock certificate of Sub evidencing ownership of any such shares shall continue to evidence ownership of shares of capital stock of the Surviving Corporation.
    
4. Company Options and Company Stock Plan; Treatment of Company Warrants . All Company Options outstanding immediately prior to the Effective Time, whether vested or unvested, together with the Company's 2006 Incentive Stock Plan (the " Company Stock Plan "), shall be assumed by Parent in accordance with the provisions set forth below. Issuances of Parent Common Stock and payments of cash upon exercise of Assumed Company Options (defined below) shall be subject to applicable withholding.
    

4. 1. Company Options . Each Company Option outstanding immediately prior to the Effective Time, whether vested or unvested, shall, in connection with the Merger be converted into an option (the " Assumed Company Option ") to acquire Parent Common Stock, in accordance with the provisions set forth below. Each Assumed

 

 

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Company Option shall continue to have, and be subject to, the same terms and conditions as were applicable to the Company Option immediately prior to the Effective Time (including any repurchase rights or Vesting provisions), subject to the provisions set forth below. It is the intention of the parties that the Assumed Company Options shall qualify following the Effective Time as incentive stock options as defined in Section 422 of the Code to the same extent that such Company Options qualified as incentive stock options immediately prior to the Effective Time, and the provisions of this Section 1.6(d) shall be applied in a manner consistent with this intent.

1. 1. Assumed Company Option . Each Assumed Company Option shall (subject to the Vesting provisions thereof) be exercisable for that number of whole shares of Parent Common Stock equal to the product obtained by multiplying the number of shares of Company Common Stock that were issuable upon exercise of such Company Option immediately prior to the Effective Time by the Stock Exchange Ratio (rounded down to the nearest whole number of shares of Parent Common Stock) (the " Assumed Option Share Number "). The per share exercise price for each share of Parent Common Stock issuable upon exercise of such Assumed Company Option shall be equal to the quotient (rounded up to the nearest whole cent) obtained by dividing the exercise price per share of Company Common Stock at which such Company Option was exercisable immediately prior to the Effective Time by the Stock Exchange Ratio.
       
   2. Unless Parent shall otherwise consent in writing prior to the Effective Time, the Company shall take all actions necessary or advisable to cause all Company Options to remain unchanged except (A) for the conversion into options to purchase shares of Parent Common Stock; and (B) that any acceleration of vesting, continuation of vesting after termination of employment or other special vesting (whether with the passage of time, upon the occurrence of certain events or otherwise) that might occur, result from or be related to the transactions contemplated by this Agreement and the Ancillary Agreements, except for the acceleration of vesting, continuation of vesting or other special vesting in effect as of the date hereof and which is set forth on Schedule 1.6(d)(i)(2) , shall be prevented from occurring through the modification, in a manner acceptable to Parent, of the applicable Company Option (and any employment or other agreement providing for such acceleration) prior to the date of this Agreement. Prior to the Effective Time, Company shall take all action necessary to effect the transactions contemplated by this Section 1.6(d)(i) under the terms of the Company Stock Plan, all Company option agreements, and any other plan, agreement or arrangement of Company, including, the giving of any notice required by this Section 1.6(d)(i) .

2. Treatment of Company Warrants . The Company agrees to use commercially reasonable efforts to enter into agreements with the holders of Company Warrants providing for the exercise or cancellation of such Company Warrant, prior to, or contingent upon, the Closing. At the Effective Time, each Company Warrant, whether or not Vested, shall by virtue of the Merger be assumed by Parent. Each Company Warrant so assumed by Parent under this Agreement (an " Assumed Warrant ") will continue to have, and be subject to, the same terms and conditions as provided in the respective warrant agreement governing such Company Warrant immediately prior to the Effective Time of the Merger (including without limitation Vesting schedules and Vesting commencement dates), including that the number of shares of Parent
   
    

 

 

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 Common Stock and Merger Cash purchasable upon exercise of each such Assumed Warrant, and exercise price per share of Parent Common Stock shall be as determined pursuant to the terms of such Company Warrant and as the shares underlying the warrant are treated under this Section 1.6.

5. Maximum Amount of Merger Consideration . Notwithstanding any provision contained herein to the contrary, the maximum amount of Parent Common Stock to be paid and issued in exchange for the acquisition by Parent of all outstanding Company Capital Stock shall be an amount of Parent Common Stock equal to the Aggregate Stock Consideration.

         1.7 Fractional Shares. No fractional share of Parent Common Stock shall be issued or paid by virtue of the Merger. In lieu thereof, each holder of shares of Company Capital Stock that would otherwise be entitled to receive a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock to be received by such holder at such time) shall be entitled to receive the nearest whole number of shares of Parent Common Stock (with .5 shares being rounded up). In addition, no fraction of a cent of cash shall be paid by virtue of the Merger. The aggregate cash to be paid to each holder of shares of Company Capital Stock shall be rounded to the nearest whole cent (with $0.005 being rounded up).

        1.8 Dissenting Shares .

1. Notwithstanding any provision of this Agreement to the contrary, any shares of Company Capital Stock held by a holder that has demanded and perfected dissenters' rights for such shares in accordance with Florida Law and who, as of the Effective Time, has not effectively withdrawn or lost such dissenters' rights (" Dissenting Shares ") shall not be converted into or represent the right to receive the consideration set forth in Section 1.6 , but the holder thereof shall only be entitled to such rights as are granted by Florida Law.
    
2. Notwithstanding the provisions of Section 1.8(a) , if any holder of shares of Company Capital Stock that demands, in accordance with Section 607.1302 of Florida Law, that the Company purchase such shares under Florida Law, shall effectively withdraw or lose (through failure to perfect or otherwise) such holder's dissenters' rights, then, as of the later of (i) the Effective Time or (ii) the occurrence of such event, such holder's shares shall automatically be converted into and represent only the right to receive the consideration set forth in Section 1.6 , (without interest) upon surrender to the Company of the certificate representing such shares in accordance with Section 1.9 .
    
3. The Company shall give Parent (i) prompt notice of its receipt of any written demands for purchase of any shares of Company Capital Stock, withdrawals of such demands, and any other instruments relating to the Merger served pursuant to Florida Law and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands for purchase under Florida Law. The Company shall not, except with the prior written consent of Parent or as may be required under applicable law, voluntarily make any payment with respect to any demands for purchase of Company Capital Stock, or offer to settle or settle any such demands.

 

 

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1.9 Exchange Procedures .

1. Exchange Agent . The Transfer Agent of Parent shall serve as the exchange agent (the " Exchange Agent ") in the Merger.
2. Parent Common Stock . As promptly as practicable after the Closing Date, Parent shall make available for exchange in accordance with this Article 1 the Merger Shares issuable pursuant to Section 1.6 in exchange for outstanding shares of Company Capital Stock.
3. Exchange Procedures . As soon as reasonably practicable after the Effective Time, the Surviving Corporation shall cause to be mailed to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Company Capital Stock (the " Certificates "), (i) a letter of transmittal in customary form, reasonably acceptable to Parent and Company (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent), (ii) instructions for use in effecting the surrender of the Certificates in exchange for Merger Consideration, and (iii) unless earlier delivered to Parent, a certificate to be signed and delivered by each holder of Company Capital Stock in substantially the form attached hereto as Exhibit B (the " Shareholder Certificate "). Upon surrender of a Certificate for cancellation to Exchange Agent or to such other agent or agents as may be appointed by Parent together with such letter of transmittal and Shareholder Certificate (unless, in the case of the Shareholder Certificate, such Shareholder Certificate has previously been executed and delivered by the holder), duly completed and validly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive in exchange therefore the Merger Consideration to which such holder is entitled pursuant to Section 1.6 . Until surrendered, each outstanding Certificate that, prior to the Effective Time, represented shares of Company Capital Stock will be deemed from and after the Effective Time, for all corporate purposes other than the payment of dividends, to evidence only the right to receive the Merger Consideration pursuant to this Article 1 .
4. Distributions With Respect to Unexchanged Shares of Company Capital Stock . No dividends or other distributions with respect to Parent Common Stock that have a record date and distribution date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Parent Common Stock represented thereby until the holder of record of such Certificate shall surrender such Certificate pursuant to the terms of this Section 1.9 . Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date and distribution date after the Effective Time theretofore payable (but for the provisions of this Section 1.9(d) ) with respect to such whole shares of Parent Common Stock.
5. Transfers of Ownership . If any certificate for shares of Parent Common Stock is to be issued pursuant to the Merger in a name other than that in which the Certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the Certificate so surrendered be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange will have paid to Parent or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for shares of Parent Common Stock in any name other than that of the registered holder of the Certificate surrendered, or that it be established to the satisfaction of Parent or any such agent that such tax has been paid or is not payable.

            1.10 Adjustments to Exchange Ratios . The exchange ratios referred to in Section 1.6 shall be adjusted to reflect appropriately the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock), reorganization, recapitalization, reclassification or other like change with respect to Parent Common Stock occurring on or

 

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after the date hereof and prior to the Effective Time of the Merger, other than the stock split disclosed in Section 3.5.

          1.11 No Further Ownership Rights in Company Capital Stock . Any and all Merger Consideration issued or paid in exchange of shares of Company Capital 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 Capital Stock, and there shall be no further registration of transfers on the records of the Company of shares of Company Capital Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article 1 .

         1.12 Lost, Stolen or Destroyed Certificates . In the event any Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, the Merger Consideration and, if applicable, the dividends or distributions payable pursuant to Section 1.9(d) to which the holder of such shares of Company Capital Stock would be entitled under this Article 1 ; provided , however , that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificates to provide an indemnity or deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent with respect to the Certificates alleged to have been lost, stolen or destroyed.

          1.13 Taking of Necessary Action; Further Action . If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full right and title to and possession of all assets, property, rights, privileges, powers and franchises of the Company, or to effect the assignment to the Surviving Corporation of any and all Company Intellectual Property created by a founder, employee or consultant of the Company, or to complete and prosecute all domestic and foreign patent filings related to such Company Intellectual Property, the officers and directors of the Surviving Corporation are fully authorized to take, and shall take, all such lawful and necessary or desirable action.

         1.14 Required Withholding . The Company, and on its behalf Parent and the Surviving Corporation, shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable pursuant to this Agreement to any holder or former holder of Company Capital Stock such amounts as may be required to be deducted or withheld therefrom under the Code or under any provision of state, local or foreign tax law or under any other applicable legal requirement. To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the person to whom such amounts would otherwise have been paid.

         1.15 No Liability . Notwithstanding anything to the contrary in this Article 1, neither the Parent, the Surviving Corporation, nor any party hereto shall be liable to a holder of shares of Parent Common Stock or Company Capital Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law.

ARTICLE 2: REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE INDEMNIFYING OFFICER

Subject to such exceptions as are disclosed in the disclosure schedule (which is arranged in sections corresponding to the numbered sections contained in this Article 2 and is dated the date hereof) supplied by the Company to Parent (the " Company Disclosure Schedule "), the Company represents and warrants to Parent and Sub, and each Indemnifying Officer represents and warrants to their knowledge to Parent and Sub, as of the date hereof and as of the Closing Date (except where the representation and warranty is expressly made as of another date, in which case such representation or warranty is made only as of such other date), as follows:

 

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        2.1 Organization and Qualification .

1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of Florida, and has full corporate power and authority to conduct its business as now conducted and as currently proposed to be conducted and to own, use, license and lease its Assets and Properties. The Company is duly qualified, licensed or admitted to do business and is in good standing as a foreign corporation in each jurisdiction in which the ownership, use, licensing or leasing of its Assets and Properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except for such failures to be so duly qualified, licensed or admitted and in good standing as would not, individually or in the aggregate, have a Material Adverse Effect on the Company. Section 2.1(a) of the Company Disclosure Schedule sets forth each jurisdiction where the Company is so qualified, licensed or admitted to do business and separately lists each other jurisdiction in which the Company owns, uses, licenses or leases its Assets and Properties, conducts business or has employees or engages independent contractors. The Company is not in violation of any of the provisions of its articles of incorporation and bylaws. Section 2.1(a) of the Company Disclosure Schedule lists all of the directors and officers of the Company.
    
2. Except as indicated in Section 2.1(b) of the Company Disclosure Schedule , the operations now being conducted by the Company are not now and have never been conducted by the Company under any other name.

         2.2 Authority Relative to this Agreement .

                      (a) Subject only to the requisite approval and adoption of this Agreement and approval of the principal terms of the Merger by the shareholders of the Company as described in Section 2.2(b) below, the Company has full corporate power and authority to execute and deliver this Agreement and the other agreements of which forms are attached as exhibits hereto (the " Ancillary Agreements ") to which the Company is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The Company's board of directors has unanimously approved this Agreement and the Ancillary Agreements to which the Company is a party. Subject only to the requisite approval and adoption of this Agreement and approval of the principal terms of the Merger by the shareholders of the Company as described in Section 2.2(b) below, the execution and delivery by the Company of this Agreement and the Ancillary Agreements to which the Company is a party, the consummation by the Company of the transactions contemplated hereby and thereby, and the performance by the Company of its obligations hereunder and thereunder have been duly and validly authorized by all necessary action of the Company and no further action is required on the part of the Company to authorize this Agreement or the Ancillary Agreements to which the Company is a party or the consummation of the transactions contemplated hereby or thereby. This Agreement and the Ancillary Agreements to which the Company is a party have been or will be, as applicable, duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the other parties hereto and thereto, each constitutes or will upon such due execution and delivery constitute, as applicable, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to the enforcement of creditors' rights generally and by general principles of equity.

                     (b) The vote required of the holders of Company Capital Stock (the " Company Shareholders ") to duly approve the principal terms of this Agreement and the Merger and to satisfy all shareholder approval requirements under Florida Law and the Company's articles of incorporation and bylaws with respect to this Agreement and the transactions contemplated hereby (or otherwise required to effect the transactions contemplated hereby) is approval of holders of a majority of Company Common Stock, voting together as a single class.

 

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          2.3 Capital Stock .

1. The authorized capital stock of the Company consists of 10,000,000 shares of Common Stock, $0.01 par value per share (the " Company Common Stock "), of which 2,651,418 shares of Common Stock are issued and outstanding as of the date hereof. All of the issued and outstanding shares of Company Common Stock are duly authorized and validly issued, fully paid and nonassessable, and have been issued in compliance with all applicable federal, state and foreign securities Laws. There are no declared or accrued but unpaid dividends with respect to any shares of Company Capital Stock. None of the outstanding shares of Company Capital Stock were issued in violation of any preemptive rights, right of first refusal or similar rights, the articles of incorporation or bylaws of the Company or any agreement to which the Company is a party or by which it is bound. Except as set forth in Section 2.3(a) of the Company Disclosure Schedule , no shares of Company Common Stock are held in treasury or are authorized or reserved for issuance.
    
2. The Company Capital Stock is held of record, as of the date of this Agreement, by those persons with the addresses of record (as provided by such holder to the Company) and in the amounts set forth on Section 2.3(b) of the Company Disclosure Schedule , which schedule also sets forth (i) the share certificate numbers held by each holder and (ii) whether any shares of Company Capital Stock held by such shareholder are Restricted, the Vesting schedule for any such Restricted shares, including the extent to which any such Vesting has occurred as of the date of this Agreement and whether (and to what extent) the Vesting will be accelerated by the transactions contemplated by this Agreement.
    
3. Except as set forth in Section 2.3(c) of the Company Disclosure Schedule , there are no outstanding Company Options, Company Warrants or other Equity Equivalents of the Company, or shares of Company Restricted Stock or Contracts, including Restricted Stock Purchase Agreements, to which the Company is a party (written or oral) to issue any shares of capital stock, Equity Equivalents or any other security with respect to the Company. With respect to each Company Option, Company Warrant, Restricted Stock Purchase Agreement or share of Company Restricted Stock or any other Contract or arrangement (written or oral) pursuant to which the Company is obligated to issue capital stock, Equity Equivalents or any other security, Section 2.3(c) of the Company Disclosure Schedule sets forth the holder or counter party thereof, the number and type of securities issuable thereunder, and, if applicable, the exercise price therefor, the exercise period and Vesting schedule thereof (including a description of the circumstances under which such Vesting schedule can or will be accelerated). Except for the Company Stock Plan, the Company has never adopted or maintained any stock option plan or other plan providing for equity compensation of any person. The Company has reserved 600,000 shares of Company Common Stock for issuance to employees and directors of, and consultants to, the Company upon the exercise of Options granted under the Company Stock Plan, of which (i) 435,410 shares are issuable, as of the date hereof, upon the exercise of outstanding, unexercised options granted under the Company Stock Plan, (ii) no shares have been issued, as of the date hereof, upon the exercise of options granted under the Company Stock Plan, and (iii) 164,590 shares remain available, as of the date hereof, for issuance of additional options under the Company Stock Plan. All of the Company Options and Company Warrants were issued in compliance with all applicable federal, state and foreign securities Laws.
    
4. There are no Contracts of any character, written or oral, to which the Company is a party or by which it is bound obligating the Company to repurchase or redeem, or cause to be repurchased or redeemed, any shares of Company Capital Stock, or obligating the Company to grant, extend, accelerate the Vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar rights with respect to the Company.

 

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5. Except as set forth in Section 2.3(e) of the Company Disclosure Schedule , there are no preemptive rights or agreements, arrangements or understandings to issue preemptive rights with respect to the issuance or sale of Company Capital Stock created by statute, the articles of incorporation or bylaws of the Company, or any agreement or other arrangement to which the Company is a party (written or oral) or by which it is bound and there are no agreements, arrangements or understandings to which the Company is a party (written or oral) pursuant to which the Company has the right to elect to satisfy any Liabilities by issuing Company Capital Stock or Equity Equivalents.
    
6. The terms of the Company Stock Plan and the applicable stock option agreements related to the outstanding Company Options permit the assumption or substitution of options to purchase Parent Common Stock as provided in this Agreement, without the consent or approval of the holders of such securities, action by the shareholders of the Company or otherwise and, except as set forth in Section 2.3(b) of the Company Disclosure Schedule , without any acceleration of the exercise schedules or Vesting provisions in effect for such Company Options. True and complete copies of all agreements and instruments relating to or issued under the Company Stock Plan, and any other security, Contract or instrument required to be disclosed in Section 2.3(c) of the Company Disclosure Schedule , have been provided to Parent and such agreements and instruments have not been amended, modified or supplemented, and there are no agreements to amend, modify or supplement such agreements or instruments from the forms thereof provided to Parent.
    
7. Except as set forth in Section 2.3(g) of the Company Disclosure Schedule , the Company is not a party or subject to any agreement or understanding, and, to the Company's knowledge, there is no agreement, arrangement or understanding between or among any Persons which affects, restricts or relates to voting or giving of written consents with respect to the Company Capital Stock, including any voting trust agreement or proxy. Except as set forth in Section 2.3(g) of the Company Disclosure Schedule , no debt securities of the Company are issued and outstanding.
    
8. Except as set forth in Section 2.3(h) of the Company Disclosure Schedule , there are no registration rights or other Contracts to which the Company is a party or by which the Company is bound with respect to the registration under federal or state securities laws of any issuance or transfer of any equity security of any class of the Company.

           2.4 Subsidiaries . The Company does not have any Subsidiaries and does not otherwise own any shares of capital stock or any interest in (or any interest convertible, exchangeable or exercisable for any such interest), or control, directly or indirectly, any other corporation, partnership, association, joint venture or other business entity. The Company has not agreed and is not obligated to make any future investment in or capital contribution to any Person.

           2.5 No Conflicts . The execution and delivery by the Company of this Agreement and the Ancillary Agreements to which the Company is a party, and the consummation of the transactions contemplated hereby and thereby, will not (with or without notice or lapse of time, or both) conflict with or result in any violation of or default under or give rise to a right of termination, cancellation, modification or acceleration of any obligation or loss of any benefit (any such event, a " Conflict ") under (i) any provision of the articles of incorporation or bylaws of the Company, (ii) any Contract to which the Company or any of its properties or assets (including intangible assets), is subject (each, a " Company Contract ," and collectively, the " Company Contracts "), or (iii) any Legal Requirement applicable to the Company or any of its properties (tangible and intangible) or assets except, in the case of (ii) above, for such Conflicts as are not individually or in the aggregate material. Section 2.5 of the Company Disclosure Schedule lists all necessary consents, waivers and Approvals of parties to any Company Contract as are required thereunder in connection with the Merger, or for any such Company Contract to remain in full force and effect without limitation, modification or alteration after the Effective Time (" Third-Party Consents "). The Company has obtained, or will obtain prior to the Effective Time, all Third-Party Consents. Following the Effective Time, the Surviving Corporation will be permitted to exercise all of its rights under the Company Contracts without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments which the Company would otherwise be required to pay pursuant to the terms of such Company Contracts had the transactions contemplated by this Agreement not occurred.

 

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         2.6 Books and Records; Organizational Documents .

1. The books, records and accounts of the Company delivered to Parent for inspection are true, complete and correct in all material respects.
2. The Company has devised and maintains a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary (A) to permit preparation of financial statements in conformity with GAAP or any other criteria applicable to such statements, and (B) to maintain accountability for assets; and (iii) the amounts recorded for assets and liabilities on the books and records of the Company are in accordance with GAAP.
3. The Company has delivered to Parent or its counsel for examination the following: (a) copies of the articles of incorporation and bylaws of the Company as currently in effect; (b) all written records of all proceedings, consents, actions, and meetings of the shareholders, board of directors and any committees thereof of the Company; (c) stock ledger and journal reflecting all stock issuances and transfers of the Company; and (d) all Permits from Governmental Authorities issued to the Company by, and filings by the Company with, any regulatory agency, and all applications for such permits, orders, and consents. The written records of all proceedings, consents, actions, and meetings of the shareholders, board of directors and any committees thereof of the Company made available to counsel for Parent are the only minutes of the Company and contain accurate summaries of all meetings or actions by written consent of the Board of Directors (or committees thereof) of the Company and its shareholders since the time of incorporation of the Company.

         2.7 Consents . No consent, waiver, Approval, order or authorization of, or registration, declaration or filing with any Governmental Authority or any third party, including a party to any agreement with the Company (so as not to trigger any Conflict), is required by or with respect to the Company in connection with the execution and delivery of this Agreement and any Ancillary Agreement to which the Company is a party or the consummation of the transactions contemplated hereby and thereby, except for (i) such consents, waivers, Approvals, orders authorizations registrations, declarations and filings the lack of which, individually or in the aggregate, would not constitute a Material Adverse Effect and (ii) the filing of the Agreement of Merger with the Secretary of State of the State of Florida.

        2.8 Company Financials . The Company's Financials (including the notes thereto) to be provided by the Company to Parent on or before Closing will have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated therein and present fairly in all material respects the financial position and operating results of the Company as of the dates and during the periods indicated therein, subject, in the case of the Company Interim Financial Statements, to normal year-end adjustments, which adjustments will not be material in amount or significance and except that the Company Interim Financial Statements may not contain footnotes. The Company Financials will be at the time of presentation be correct and complete in all material respects and except as set forth in Section 2.8 of the Company Disclosure Schedule , there has been no material change in any accounting policies, principles, methods or practices of the Company, including any change with respect to reserves (whether for bad debts, contingent liabilities or otherwise), since its inception. The Company's unaudited consolidated balance sheet as of September 30, 2006 is referred to herein as the " Current Balance Sheet ."

        2.9 No Undisclosed Liabilities . Except as reflected or reserved against in the Company Financials (including the notes thereto) or as disclosed in Section 2.9 of the Company Disclosure Schedule , there are no Liabilities of, relating to or affecting the Company or any of its Assets and Properties, other than Liabilities incurred (a) in the ordinary course of business consistent with past practice since the date of the Current Balance Sheet which, individually and in the aggregate, are not material to the business or condition of the Company or (b) in connection with and in accordance with the provisions of this Agreement.

        2.10 Absence of Changes . Since September 30, 2006, except as set forth in Section 2.10 of the Company Disclosure Schedule :

 

 

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1. the Company has not entered into any Contract, commitment or transaction or incurred any Liabilities other than in the ordinary course of business consistent with past practice;
    
2. the Company has not acquired an interest in or made any capital investment in, altered or entered into any Contract or other commitment to alter its interest in, any corporation, association, joint venture, partnership or business entity in which the Company directly or indirectly holds any interest;
    
3. the Company has not entered into any strategic alliance, joint development or joint marketing Contract;
    
4. there has not been any material amendment or other material modification (or agreement to do so) or violation of the terms of, any of the Contracts set forth or described in the Company Disclosure Schedule, except as described therein;
    
5. the Company has not entered into any transaction with any officer, director, shareholder, Affiliate or Associate of the Company, other than pursuant to any Contract in effect as of the date of the Current Balance Sheet and disclosed to Parent and identified on the Company Disclosure Schedule .
    
6. the Company has not entered into or amended any Contract pursuant to which any other Person is granted manufacturing, marketing, distribution, licensing or similar rights of any type or scope with respect to any products of the Company or Company Intellectual Property, other than any such Contracts and licenses (or amendments thereto) disclosed in the Company Disclosure Schedule ;
    
7. no Action or Proceeding has been commenced or, to the knowledge of the Company, threatened by or against the Company and no Action or Proceeding has been settled or compromised by the Company;
    
8. the Company has not declared, set aside or paid any dividends on or made any other distributions (whether in cash, stock or property) in respect of any Company Capital Stock or Equity Equivalents, or effected or approved any split, combination or reclassification of any Company Capital Stock or Equity Equivalents, or issued or authorized the issuance of any other securities in respect of, in lieu of or in substitution for shares of Company Capital Stock or Equity Equivalents, or repurchased, redeemed or otherwise acquired, directly or indirectly, any shares of Company Capital Stock or Equity Equivalents, except for repurchases of Company Capital Stock pursuant to agreements with Company employees, officers, directors and consultants relating to repurchases at cost upon termination of service with the Company;
    
9. except for the issuance of shares of Company Capital Stock upon exercise or conversion of options, warrants, or preferred stock listed in Section 2.3(c) of the Company Disclosure Schedule , (A) the Company has not issued, granted, delivered, sold or authorized or proposed to issue, grant, deliver or sell, or purchased or proposed to purchase, any shares of Company Capital Stock or Equity Equivalents, (B) the Company has not modified or amended the rights of any holder of any outstanding shares of Company Capital Stock or Equity Equivalents (including to reduce or alter the consideration to be paid to the Company upon the exercise of any outstanding options, warrants, stock purchase rights or other Equity Equivalents); and (C) the Company has not granted any options with an exercise price of less than the fair market value of the Company's Common Stock on the date the option was granted.
    
10. there has not been any amendment to the articles of incorporation or bylaws of the Company;
     
11. there has not been any transfer (by way of a license or otherwise) to any Person of rights to any Intellectual Property other than non-exclusive licenses with the Company's customers in the ordinary course of business consistent with past practice;

 

 

11

12. the Company has not made or agreed to make any disposition or sale, license or lease of, or incurrence of any Lien in an amount exceeding $50,000 individually or $100,000 in the aggregate, on, any Assets and Properties, other than sales of products or services, or grants of nonexclusive licenses (to object code only) of products, to customers in the ordinary course of business consistent with past practice;
     
13. the Company has not made or agreed to make any purchase of any Assets and Properties of any Person other than (i) acquisitions of inventory, or licenses of products, in the ordinary course of business consistent with past practice and (ii) other acquisitions in an amount not exceeding $50,000 in the case of any individual item or $100,000 in the aggregate;
     
14. the Company has not made or agreed to make any capital expenditures or commitments for additions to property, plant or equipment constituting capital assets individually or in the aggregate in an amount exceeding $50,000;
     
15. the Company has not made or agreed to make any write-off or write-down, or any determination to write off or write-down, or revalue, any of its Assets and Properties, or change any reserves or liabilities associated therewith in an amount exceeding $50,000;
     
16. the Company has not made or agreed to make payment, discharge or satisfaction, in an amount in excess of $50,000 in any one case, or $100,000 in the aggregate, of any claim, Liability or obligation (whether absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of Liabilities reflected or reserved against in the Company Financials;
     
17. the Company has not failed to pay or otherwise satisfy any Liabilities when due and payable, except such Liabilities which are being contested in good faith by appropriate means or procedures and which, individually and in the aggregate, are immaterial in amount;
     
18. the Company has not created, incurred, assumed or guaranteed any Indebtedness in an aggregate amount exceeding $50,000, or issued or sold any debt securities, or extended or otherwise modified the terms of any Indebtedness;
     
19. the Company has not granted or approved (i) any severance or termination pay to, (ii) any increase of greater than five percent (5%) in salary, rate of commissions, rate of consulting fees or any other compensation of, (iii) the payment of any consideration of any nature whatsoever (other than salary, commissions or consulting fees and customary benefits paid to any current or former officer, director, shareholder, employee or consultant) to, (iv) any loan or extension of credit to, or (v) any discretionary or stay bonus to, any director, current or former officer, employee, shareholder or consultant, except payments made pursuant to written Contracts outstanding on the date hereof, copies of which have been delivered to Parent and which are disclosed in Section 2.10(s) of the Company Disclosure Schedule ;
     
20. the Company has not adopted, entered into, amended, modified or terminated (partially or completely) any Employee Plan (as defined in Section 2.15(a)(vi)), other than any such Employee Plan disclosed in the Company Disclosure Schedule ;
     
21. there has been no filed claim or written notice to the Company of wrongful discharge or other unlawful labor practice or action with respect to the Company;
     
22. the Company has not made or changed any material election in respect of Taxes, adopted or changed any accounting method in respect of Taxes, entered into any tax allocation agreement, Tax sharing agreement, Tax indemnity agreement or closing agreement, settlement or compromise of any claim or assessment in respect of Taxes, nor has it consented to any extension or waiver of the statute of limitations period applicable to any claim or assessment in respect of Taxes;

 

 

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23. the Company has not made any change in accounting policies, principles, methods, practices or procedures;
     
24. the Company has not failed to renew any insurance policy; no insurance policy of the Company has been cancelled or materially amended; and the Company has given all notices and presented all claims (if any) under all such policies in a timely fashion;
     
25. there has been no material amendment or non-renewal of any Approvals, and the Company has used commercially reasonable efforts to maintain such Approvals and has observed in all material respects all Laws and Orders applicable to the business or Assets and Properties of the Company;
     
26. the Company has used commercially reasonable efforts to prosecute applications for its Registered Intellectual Property Rights, and has submitted all required documents and fees during the prosecution thereof;
     
27. there has been no physical damage, destruction or other casualty loss (whether or not covered by insurance) affecting any of the real or personal property or equipment of the Company individually or in the aggregate in an amount exceeding $50,000, other than ordinary wear and tear;
     

     bb.   no event or condition of any character has occurred that has had or is reasonably likely to have a Material Adverse Effect on the Company;
 

     cc.    the Company has not waived or released any material right or claim of the Company, including any write-off or other compromise of any material account receivable of the Company;
 

     dd.    the Company has not entered into any employment Contract, or modified the terms of any existing such Contract;
 

     ee.     the Company has not suffered any adverse change or any threat of any adverse change in its relations with, or any loss or threat of loss of, any of its licensors, distributors, suppliers or other business partners
               except for such changes or losses and threatened changes or losses (assuming for this purpose that such threats are realized) as would not individually or in the aggregate have or be reasonably expected to
               have a Material Adverse Effect; and
 

     ff.     the Company has not entered into or approved any contract, arrangement or understanding or acquiesced in respect of any arrangement or understanding, to do, engage in or cause or having the effect of any of
              the foregoing  items described in the preceding clauses (a) through (ee) of this Section 2.10 .
           

         2.11 Taxes .

1. Definition of Taxes . For the purposes of this Agreement, the term " Tax " or, collectively, " Taxes " shall mean (i) any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and Liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes as well as public imposts, fees and social security charges (including but not limited to health, unemployment, workers' compensation and pension insurance), together with all interest, penalties and additions imposed with respect to such amounts, (ii) any liability for the payment of any amounts of the type described in clause (i) of this Section 2.11(a) as a result of being a member of an affiliated, consolidated, combined or unitary group for any period, and (iii) any liability for the payment of any amounts of the type described in clauses (i) or (ii) of this Section 2.11(a) as a result of any express or implied obligation to indemnify any other person or as a result of any obligation under any agreement or arrangement with any other person with respect to such amounts and including any liability for taxes of a predecessor entity.

 

 

 

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2. Tax Returns and Audits .

1. 1. The Company has prepared and timely filed all required federal, state, local and foreign returns, estimates, information statements and reports (" Returns ") relating to any and all material Taxes concerning or attributable to the Company or its operations and such Returns are true and correct in all material respects and have been completed in accordance with applicable law, provided, that the Company's federal and state tax returns for 2004 and 2005 shall be amended based on the audit of the Company's financial statements.
       
   2. The Company has timely paid all material Taxes it is required to pay and has timely paid or withheld with respect to its Employees all federal, state and foreign income taxes and social security charges and similar fees, Federal Insurance Contribution Act, Federal Unemployment Tax Act and other Taxes required to be paid or withheld.
       
   3. The Company is not currently delinquent in the payment of any Tax, nor is there any Tax deficiency outstanding, assessed or proposed against the Company, nor has the Company executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any Tax, except as noted on the Company Disclosure Schedule .
       
   4. No audit or other examination of any Return of the Company is presently in progress, nor has the Company been notified of any request for such an audit or other examination.
       
   5. As of the date of the Current Balance Sheet, the Company did not have any Liabilities for unpaid Taxes which have not been accrued or reserved on the Current Balance Sheet, whether asserted or unasserted, contingent or otherwise, and the Company has not incurred any liability for Taxes since the date of the Current Balance Sheet other than in the ordinary course of business.
       
   6. The Company has made available to Parent or its legal counsel, copies of all foreign, federal, state and local income and all state and local sales and use Returns for the Company filed for all periods since its inception.
       
   7. There are (and immediately following the Effective Time there will be) no liens, pledges, charges, claims, restrictions on transfer, mortgages, security interests or other encumbrances of any sort (collectively, " Liens ") on the assets of the Company relating to or attributable to Taxes, other than Liens for Taxes not yet due and payable. The Company does not have knowledge of any basis for the assertion of any claim relating or attributable to Taxes, which, if adversely determined, would result in any Lien on the assets of the Company.
       
   8. The Company does not treat any of its assets as "tax-exempt use property," within the meaning of Section 168(h) of the Code.
       
   9. The Company has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the Company.
       
   10. The Company has (a) never been a member of an affiliated group (within the meaning of Code S 1504(a)) filing a consolidated federal income Tax Return (other than a group the common parent of which was Company), (b) never been a party to any Tax sharing, indemnification or allocation agreement, nor does the Company owe any amount under any such agreement (c) no liability for the Taxes of any person under Treas. Reg. S 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise and (d) never been a party to any joint venture, partnership or other agreement that could be treated as a partnership for Tax purposes.

 

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1. 11. The Company is not and has not been at any time, a "United States Real Property Holding Corporation" within the meaning of Section 897(c)(2) of the Code.
        
   12. No adjustment relating to any Return filed by the Company has been proposed formally or, to the Knowledge of the Company, informally by any tax authority to the Company or any representative thereof.
        
   13. The Company has not constituted either a "distributing corporation" or a "controlled corporation" in a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code (x) in the two years prior to the date of this Agreement or (y) in a distribution which could otherwise constitute part of a "plan" or "series of related transactions" (within the meaning of Section 355(e) of the Code) in conjunction with the Merger.

3. Executive Compensation Tax . There is no contract, agreement, plan or arrangement to which the Company is a party, including, without limitation, the provisions of this Agreement, covering any employee or former employee of the Company, which, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.

        2.12 Restrictions on Business Activities . Except as set forth on Section 2.12 of the Company Disclosure Schedule , there is no Contract or Legal Requirement to which the Company is a party or otherwise binding upon the Company which has or may reasonably be expected to have the effect of prohibiting or impairing any business practice of the Company, any acquisition of property (tangible or intangible) by the Company, the conduct of business by the Company as currently conducted or proposed to be conducted or otherwise limiting the freedom of the Company to engage in any line of business or to compete with any person. Except as set forth on Section 2.12 of the Company Disclosure Schedule , without limiting the generality of the foregoing, the Company has not entered into any agreement under which the Company is restricted from selling, licensing or otherwise distributing any of its technology or products or from providing services to customers or potential customers or any class of customers, in any geographic area, during any period of time, or in any segment of the market, and the Company has not granted any "most favored party" terms in any Contract.

        2.13 Legal Proceedings .

1. Except as set forth in Section 2.13 of the Company Disclosure Schedule :

1. 1. there are, and since the inception of the Company have been, no pending Actions or Proceedings against or relating to the Company, any of its Assets and Properties or any of the Company's officers or directors in such capacities;
       
   2. to the knowledge of the Company, there are, and since December 31, 2001 there have been, no Actions or Proceedings overtly threatened against or relating to the Company, any of its Assets and Properties or any of the Company's officers or directors in such capacities;
       
   3. there are no facts or circumstances known to the Company that would reasonably be expected to give rise to any Action or Proceeding against or relating to the Company, any of its Assets and Properties or any of the Company's officers or directors in such capacities which Action or Proceeding would, if determined against the Company, result in material damages, costs or expenses;

 

 

15

1. 4. the Company has no knowledge of facts or circumstances that constitute reasonable grounds to believe that any Governmental Authority intends to conduct an Action or Proceeding; and
       
   5. the Company has not received notice or otherwise has knowledge of any Orders outstanding or threatened against the Company.

2. Prior to the execution of this Agreement, the Company has delivered to Parent all responses of counsel for the Company to auditors' requests for information (together with any updates provided by such counsel) regarding Actions or Proceedings pending or threatened against, relating to or affecting the Company.

           2.14 Compliance with Laws, Orders, Approvals and Contracts .

1. The Company has not violated, and is not currently in default or violation under, any Legal Requirement or Approval applicable to the Company or any of its Assets and Properties, except for such defaults or violations which are not, individually or in the aggregate, material and the Company has no knowledge of any claim of violation, or of any actual violation, of any such Legal Requirement or Approval by the Company.
2. The Company is in compliance with and has not breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any Company Contract, nor is the Company aware of any event that would constitute such a breach, violation or default with the lapse of time, giving of notice or both, except for such breaches, violations and defaults (including breaches, violations and defaults that would arise upon lapse of time following, and/or notice of, such events) which are not, individually or in the aggregate, material. Each Company Contract is in full force and effect and the Company is not subject to any default thereunder. To the knowledge of the Company, no party obligated to the Company pursuant to any such Company Contract is subject to any default thereunder.

          2.15 Employee Matters and Benefit Plans .

1. Definitions . With the exception of the definition of "Affiliate" set forth in Section 2.15(a)(i ) below (which definition shall apply only to this Section 2.15 ), for purposes of this Agreement, the following terms shall have the meanings set forth below:

1. 1. " Affiliate " shall mean any other person or entity under common control with the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations issued thereunder;
       
   2. (ii) COBRA " shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended;
       
   3. (iii) " DOL " shall mean the United States Department of Labor;
       
   4. (iv) " Employee " shall mean any current or former or retired employee, consultant or director of the Company or any Affiliate;
       
   5. " Employment Agreement " shall mean each management, employment, severance, consulting, relocation, repatriation, expatriation, visa, work permit or other agreement, contract or understanding between the Company or any Affiliate and any Employee;
       
   6. " Employee Plan " shall mean any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether written or unwritten or otherwise, funded or unfunded, including without limitation, each "employee benefit plan," within the meaning of Section 3(3) of ERISA which is or has been maintained, contributed to, or
      
      
                                                                                                                                                                             16
       

required to be contributed to, by a company or any Affiliate of such company for the benefit of any Employee, or with respect to which the company or any Affiliate of the company has or may have any liability or obligation;

1. 7. " ERISA " shall mean the Employee Retirement Income Security Act of 1974, as amended;
       
   8. " FMLA " shall mean the Family Medical Leave Act of 1993, as amended;
       
   9. " HIPAA " shall mean the Health Insurance Portability and Accountability Act of 1996, as amended;
       
   10. " IRS " shall mean the Internal Revenue Service;
        
   11. " Multiemployer Plan " shall mean any "Pension Plan" (as defined below) which is a "multiemployer plan," as defined in Section 3(37) of ERISA;
        
   12. " PBGC " shall mean the United States Pension Benefit Guaranty Corporation;
        
   13. " Pension Plan " shall mean each Employee Plan of the Company that is an "employee pension benefit plan," within the meaning of Section 3(2) of ERISA.

2. Schedule . Section 2.15(b) of the Company Disclosure Schedule contains an accurate and complete list of each Employee Plan and each Employment Agreement. Neither the Company, nor any Affiliate has, any plan or commitment to establish any new Employee Plan or Employment Agreement, to modify any Employee Plan or Employment Agreement (except to the extent required by law or to conform any such Employee Plan or Employment Agreement to the requirements of any applicable law, or as required by this Agreement), or to adopt or enter into any Employee Plan or Employment Agreement. Section 2.15(b) of the Company Disclosure Schedule also sets forth a table setting forth the name and salary of each employee of the Company.
    
3. Documents . The Company has provided to Parent correct and complete copies of: (i) all documents embodying each Employee Plan and each Employment Agreement including (without limitation) all amendments thereto and all related trust documents, administrative service agreements, group annuity contracts, group insurance contracts, and policies pertaining to fiduciary liability insurance covering the fiduciaries for each Plan; (ii) the most recent annual actuarial valuations, if any, prepared for each Employee Plan; (iii) the three (3) most recent annual reports (Form Series 5500 and all schedules and financial statements attached thereto), if any, required under ERISA or the Code in connection with each Employee Plan; (iv) if the Employee Plan is funded, the most recent annual and periodic accounting of Employee Plan assets; (v) the most recent summary plan description together with the summary(ies) of material modifications thereto, if any, required under ERISA with respect to each Employee Plan; (vi) all IRS determination, opinion, notification and advisory letters, and all applications and correspondence to or from the IRS or the DOL with respect to any such application or letter; (vii) all communications material to any Employee or Employees relating to any Employee Plan and any proposed Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to the Company; (viii) all correspondence to or from any governmental agency relating to any Employee Plan; (ix) all COBRA forms and related notices (or such forms and notices as required under comparable law); (x) the three (3) most recent plan years discrimination tests for each Employee Plan; and (xi) all registration statements, annual reports (Form 11-K and all attachments thereto) and prospectuses prepared in connection with each Employee Plan.
    
4. Employee Plan Compliance . Except as set forth on Section 2.15(d) of the Company Disclosure Schedule , the Company and its Affiliates have performed in all material respects all obligations required to be performed by it under, is not in default or violation of, and have no knowledge of
   
   
   
   
                                                                                                                                                                                      17

any default or violation by any other party to each Employee Plan, and each Employee Plan has been established and maintained in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code. Any Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code has (i) either applied for, prior to the expiration of the requisite period under applicable Treasury Regulations or IRS pronouncements, or obtained a favorable determination, notification, advisory and/or opinion letter, as applicable, as to its qualified status from the IRS or still has a remaining period of time under applicable Treasury Regulations or IRS pronouncements in which to apply for such letter and to make any amendments necessary to obtain a favorable determination, and (ii) incorporates or has been amended to incorporate all provisions required to have been adopted to comply with the Tax Reform Act of 1986 and subsequent legislation. For each Company Employee Plan that is intended to be qualified under Section 401(a) of the Code there has been no event, condition or circumstance that has adversely affected or is likely to adversely affect such qualified status. To the knowledge of the Company, no "prohibited transaction," within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of ERISA (or any administrative class exemption issued thereunder), has occurred with respect to any Employee Plan. There are no actions, suits or claims pending, or, to the knowledge of the Company, threatened or reasonably anticipated (other than routine claims for benefits) against any Employee Plan or against the assets of any Employee Plan. Each Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time, without liability to Parent, the Company or any of its Affiliates. There are no audits, inquiries or proceedings pending or, to the knowledge of the Company or any Affiliates, threatened by the IRS, the DOL or any other Governmental Authority with respect to any Employee Plan. Neither the Company nor any Affiliate is subject to any penalty or tax with respect to any Employee Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the Code. The Company and each Affiliate have timely made all contributions and other payments required by and due under the terms of each Employee Plan. 

5. Pension Plan . Neither the Company nor any Affiliate has ever maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
    
6. Collectively Bargained, Multiemployer and Multiple Employer Plans . At no time has the Company or any Affiliate contributed to or been obligated to contribute to any Multiemployer Plan. Neither the Company nor any Affiliate has at any time ever maintained, established, sponsored, participated in, or contributed to any multiple employer plans, or to any plan described in Section 413 or 419 of the Code.
    
7. No Post-Employment Obligations . Except as set forth in Section 2.15(g) of the Company Disclosure Schedule , no Employee Plan provides, or reflects or represents any liability to provide post-termination or retiree welfare benefits to any person for any reason, except as may be required by COBRA or other applicable statute, and neither the Company nor any Affiliate has ever represented, promised or contracted (whether in oral or written form) to any Employee (either individually or to Employees as a group) or any other person that such Employee(s) or other person would be provided with post-termination or retiree welfare benefits, except to the extent required by statute.
    
8. Health Care Compliance . Neither the Company nor any Affiliate has, prior to the Effective Time and in any material respect, violated any of the health care continuation requirements of COBRA, the requirements of FMLA, the requirements of HIPAA, the requirements of the Women's Health and Cancer Rights Act of 1998, the requirements of the Newborns' and Mothers' Health Protection Act of 1996, or any amendment to each such act, or any similar provisions of state law applicable to its Employees.
    
9. Self-Insurance . Neither the Company nor any Affiliate has, at any time, sponsored, contributed to or maintained any self-insured, whether wholly or partially, Employee Plan.

 

 

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10. Past Acquisitions . Neither the Company nor any Affiliate is currently obligated to provide an Employee with any compensation or benefits pursuant to an agreement (e.g., an acquisition agreement) with a former employer of such Employee.
     
11. Executive Loans . Neither the Company nor any Affiliate has violated Section 402 of Sarbanes-Oxley Act of 2005 and the execution of this Agreement and the consummation of the transactions contemplated hereby will not, to the knowledge of the Company, cause such a violation.
     
12. Effect of Transaction.

1. 1. Except as set forth on Schedule 2.15(l) of the Company Disclosure Schedule , the execution of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any Employee Plan, Employment Agreement, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Employee.
   2. Except as set forth on Schedule 2.15(l) of the Company Disclosure Schedule , no payment or benefit which will or may be made by the Company or its ERISA Affiliates with respect to any Employee or any other "disqualified individual" (as defined in Code Section 280G and the regulations thereunder) will be characterized as a "parachute payment," within the meaning of Section 280G(b)(2) of the Code.

13. Employment Matters . The Company: (i) is in compliance in all material respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Employees; (ii) has withheld and reported all amounts required by law or by agreement to be withheld and reported with respect to wages, salaries and other payments to Employees; (iii) is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund governed by or maintained by or on behalf of 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 normal course of business and consistent with past practice). There are no pending, threatened or reasonably anticipated claims or actions against the Company under any worker's compensation policy or long-term disability policy. Neither the Company nor any Affiliate has direct or indirect liability with respect to any misclassification of any person as an independent contractor rather than as an employee. 
     
14. Labor . No work stoppage or labor strike against the Company or any Affiliate is pending, threatened or reasonably anticipated. The Company does not know of any activities or proceedings of any labor union to organize any Employees. Except as set forth in Section 2.15(n) of the Company Disclosure Schedule , there are no actions, suits, claims, labor disputes or grievances pending, or, to the knowledge of the Company, threatened or reasonably anticipated relating to any labor, safety or discrimination matters involving any Employee, including, without limitation, charges of unfair labor practices or discrimination complaints. The Company has not engaged in any unfair labor practices within the meaning of the National Labor Relations Act. Except as set forth in Section 2.15(n) of the Company Disclosure Schedule , the Company is not presently, nor has it been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to Employees and no collective bargaining agreement is being negotiated by the Company. Neither the Company nor any Affiliate has incurred any material liability or material obligation under the Worker Adjustment and Retraining Notification Act or any similar state or local law that remains unsatisfied.

 

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         2.16 Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment .

1. The Company does not own any real property, nor has the Company ever owned any real property. Section 2.16(a) of the Company Disclosure Schedule sets forth a list of all real property currently leased by the Company, the name of the lessor, the date of the lease and each amendment thereto and, with respect to any current lease, the aggregate annual rental payable under any such lease (and, with respect to any property subleased out by the Company, the name of the sublessee, the duration of the sublease and the aggregate annual rental payable to the Company). All such current leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default), except for such defaults (including defaults that would arise upon lapse of time following, and/or notice of, such events) which are not, individually or in the aggregate, material.
    
2. The Company has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens, except (i) as reflected in the Current Balance Sheet, and (ii) such imperfections of title and encumbrances, if any, which do not detract from the value or interfere with the present use of the property subject thereto or affected thereby. Section 2.16(b) of the Company Disclosure Schedule sets forth a list of all personal property currently leased by the Company, the name of the lessor, the date of the lease and each amendment thereto and, with respect to any current lease, the aggregate annual rental payable under any such lease (and, with respect to any property subleased out by the Company, the name of the sublessee, the duration of the sublease and the aggregate annual rental payable to the Company). All such current leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default), except for such defaults (including defaults that would arise upon lapse of time following, and/or notice of, such events) which are not, individually or in the aggregate, material.
    
3. All material items of equipment (the " Equipment ") owned or leased by the Company are (i) adequate for the conduct of the business of the Company, as applicable, as currently conducted and as currently contemplated to be conducted, and (ii) in good operating condition, regularly and properly maintained, subject to normal wear and tear.

          2.17 Intellectual Property .

1. Definitions . For all purposes of this Agreement, the following terms shall have the following respective meanings:

1. 1. " Intellectual Property " shall mean any or all of the following and all rights in, arising out of, or associated therewith: (i) all United States, international and foreign patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof (" Patents "); (ii) all inventions (whether patentable or not), invention disclosures, improvements; (iii) trade secrets, confidential or proprietary information, know how, technology, technical data and customer lists, and all documentation relating to any of the foregoing (" Trade Secrets "); (iv) all copyrights, copyrights registrations and applications therefor, and all other rights corresponding thereto throughout the world (" Copyrights "); (v) all domain names, universal resource locators ("URLs") and other names and locators associated with the Internet; (vi) all industrial designs and any registrations and applications therefor throughout the world; (vii) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor throughout the world; (viii) all databases and data collections and all rights therein throughout the world; (ix) all moral and economic rights of authors and inventors, however denominated, throughout the world, (x) all Software (defined below), and (xi) any similar or equivalent rights to any of the foregoing anywhere in the world.

 

 

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1. 2. " Company Intellectual Property " shall mean any Intellectual Property, including the Company Registered Intellectual Property (as defined below) that is owned by, or exclusively licensed to, the Company.
       
   3. " Registered Intellectual Property Rights " shall mean all United States, international and foreign: (i) Patents, including applications therefor; (ii) registered trademarks, applications to register trademarks, including intent-to-use applications, or other registrations or applications related to trademarks; (iii) Copyright registrations and applications to register Copyrights; and (iv) any other Intellectual Property that is the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any private, state, government or other public or quasi-public legal authority at any time
       
   4. " Software " means any and all computer software and code, including assemblers, applets, compilers, source code, object code, data (including image and sound data), design tools and user interfaces, in any form or format, however fixed. Software shall include source code listings and documentation.

2. Section 2.17(b) of the Company Disclosure Schedule contains a complete and accurate list (by name and version number) of all products, Software or service offerings of the Company (collectively, " Company Products ") that have been sold or distributed commercially by the Company or which the Company intends to sell or distribute commercially in the future, including any products or service offerings under development.
    
3. Section 2.17(c) of the Company Disclosure Schedule of the Disclosure Schedule lists all Registered Intellectual Property Rights owned by, filed in the name of, or applied for, by the Company (the " Company Registered Intellectual Property ") and lists any Actions or Proceedings before any court, tribunal (including the United States Patent and Trademark Office (the " PTO ") or equivalent authority anywhere in the world) in which any of the Company Registered Intellectual Property or Company Intellectual Property is the express subject of the Action or Proceeding and to which Company is a party and has been noticed or served or which is otherwise known to Company.
    
4. Each item of Company Registered Intellectual Property is currently in compliance with all formal legal requirements (including payment of filing, examination and maintenance fees and proofs of use). All documents and certificates necessary to date in connection with such Company Registered Intellectual Property have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of perfecting, prosecuting and maintaining such Registered Intellectual Property. Except as set forth on Section 2.17(d) of the Company Disclosure Schedule , there are no actions that must be taken by the Company within sixty (60) days of the Closing Date, including the payment of any registration, maintenance or renewal fees or the filing of any responses to PTO office actions, documents, applications or certificates for the purposes of obtaining, maintaining, perfecting or preserving or renewing any Registered Intellectual Property Rights. Company has not claimed any status in the application for or registration of any Registered Intellectual Property Rights, including "small business status," that would not be applicable to Parent.
    
5. To the maximum extent provided for by, and in accordance with, applicable laws and regulations, the Company has recorded each assignment of a Patent assigned to the Company with the relevant governmental entity.
    
6. Except as set forth on Section 2.17(f) of the Company Disclosure Schedule , and except for non-exclusive licenses granted to end-user customers in the ordinary course of business, all Company Intellectual Property that is wholly owned by Company will be fully transferable, alienable or licensable by Surviving Corporation and/or Parent without restriction and without payment of any kind to any third party.

 

 

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7. The Company has no knowledge of any facts or circumstances that the Company knows would render any Company Intellectual Property invalid or unenforceable.
    
8. Each item of Company Intellectual Property that is wholly owned by Company is free and clear of any liens or encumbrances, except as set forth on Section 2.17(h) of the Company Disclosure Schedule , and except for non-exclusive licenses granted to the Company's customers in the ordinary course of business.
    
9. Except as set forth on Section 2.17(i) of the Company Disclosure Schedule , the Company has not (i) transferred ownership of, or granted any exclusive license of or right to use, or authorized the retention of any exclusive rights to use or joint ownership of, any Intellectual Property that is or was material Company Intellectual Property, to any other person, or (ii) permitted Company's rights in such material Intellectual Property to lapse or enter the public domain.
    
10. Except as set forth on Section 2.17(j) of the Company Disclosure Schedule , all Company Intellectual Property that is owned by the Company and that is used in or necessary to the conduct of Company's business as presently conducted or currently planned or contemplated to be conducted by the Company was written and created solely by either (i) employees of the Company acting within the scope of their employment who have assigned (to the maximum extent permitted under applicable law) their rights, including all Intellectual Property rights therein, to the Company or (ii) by third parties who have assigned (to the maximum extent permitted under applicable law) their rights, including all Intellectual Property rights therein, to the Company.
     
11. Except as set forth on Schedule 2.17(k) of the Company Disclosure Schedule , to the extent that any Intellectual Property has been developed or created by a third party for Company and is incorporated into any of the Company Products, the Company has a written agreement with such third party with respect thereto and Company thereby either (i) has obtained ownership of, and is the exclusive owner of (with assignments sufficient to irrevocably transfer (to the maximum extent permitted by law) all rights in and to such Intellectual Property to the Company including, in the case of Patent and Copyright assignments, the right to seek past and future damages with respect thereto), or (ii) has obtained a perpetual, nonterminable license sufficient for the conduct of its business as currently conducted and as currently planned or contemplated to be conducted to all such third party's Intellectual Property in, such work, material or invention by operation of law or by assignment, to the fullest extent it is legally possible to do so.
     
12. Except as set forth on Section 2.17(l) of the Company Disclosure Schedule , the Company Intellectual Property constitutes all the material Intellectual Property that is used in, or any Intellectual Property that is necessary, to the conduct of the business of the Company as it currently is conducted and as it is currently planned or contemplated to be conducted by the Company, including, without limitation, the design, development, manufacture, use, import and sale of Company Products.
     
13. Except as set forth on Section 2.17(m) of the Company Disclosure Schedule , no person who has licensed any material Intellectual Property to the Company has ownership rights or license rights to improvements made by or for the Company in such Intellectual Property.
     
14. Company has the right to use all Software development tools, library functions, compilers and all other third-party Software that are required to create, modify, compile, operate or support any Software that is material Company Intellectual Property or is incorporated into any Company Product. Without limiting the foregoing, except as set forth in Section 2.17(n) of the Company Disclosure Schedule , no open source or public library Software, including any version of any Software licensed pursuant to any GNU public license, was used in the development or modification of any Software that is Company Intellectual Property or is incorporated into any Company Product.
     
15. No government funding, facilities of a university, college, other educational institution or research center or funding from third parties was used by Company in the development of any Company
    
    
    
    
    
    
                                                                                                                                                                                                      22

Intellectual Property. Except as set forth on Section 2.17(o) of the Company Disclosure Schedule , to Company's knowledge, no current or former employee, consultant or independent contractor of Company, who was involved in, or who contributed to, the creation or development of any Company Intellectual Property, has performed services for the government, university, college, or other educational institution or research center during a period of time during which such employee, consultant or independent contractor was also performing services for Company.

16. Except as set forth on Section 2.17(p) of the Company Disclosure Schedule , the operation of the business of the Company as it is currently conducted, or is currently planned or contemplated to be conducted by the Company, including but not limited to the design, development, use, import, branding, advertising, promotion, marketing, manufacture and distribution of Company Products does not infringe or misappropriate and will not infringe or misappropriate when conducted by Surviving Corporation following the Closing (but only to the extent Surviving Corporation conducts the operation of the business as it is currently conducted, or is currently planned or contemplated to be conducted by the Company), any Intellectual Property of any person, violate any right of any person (including any right to privacy or publicity), or constitute unfair competition or trade practices under the laws of any jurisdiction and the Company has not received notice from any person claiming that such operation or any act, product, technology or service (including products, technology or services currently under development) of the Company infringes or misappropriates any Intellectual Property of any person or constitutes unfair competition or trade practices under the laws of any jurisdiction.
     
17. Except as set forth on Section 2.17(q) of the Company Disclosure Schedule , to Company's knowledge, no Company Intellectual Property, Company Product or service of the Company is subject to any proceeding or outstanding decree, order, judgment or settlement agreement or stipulation that restricts in any manner the use, transfer or licensing thereof by the Company or may affect the validity, use or enforceability of such Company Intellectual Property.
     
18. Other than inbound "shrink-wrap" and similar publicly-available commercial licenses, confidentiality/non-disclosure agreements, preprinted purchase order terms and conditions, and employee invention assignment agreements, Section 2.17(r)(i) of the Company Disclosure Schedule lists all contracts, licenses and agreements to which the Company is a party with respect to any Intellectual Property. All such contracts are in full force and effect. Except as set forth in Section 2.17(r)(ii) of the Company Disclosure Schedule, the Company is not in material breach of any of the foregoing contracts, licenses or agreements and, to the Company's knowledge, no other party to any such contract, license or agreement is in material breach thereof. Except as set forth in Section 2.17(r)(ii) of the Company Disclosure Schedule , the consummation of the transactions contemplated by this Agreement will neither violate nor result in the breach, modification, cancellation, termination or suspension of such contracts, licenses and agreements. Except as set forth in Section 2.17(r)(ii) of the Company Disclosure Schedule, following the Closing Date, the Surviving Corporation will be permitted to exercise all of Company's rights under such contracts, licenses and agreements to the same extent the Company would have been able to had the transactions contemplated by this Agreement not occurred and without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments which Company would otherwise be required to pay.
     
19. Section 2.17(s) of the Company Disclosure Schedule lists all material contracts, licenses and agreements between the Company and any other person wherein or whereby the Company has expressly agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any obligation or liability or provide a right of rescission with respect to the infringement or misappropriation by the Company or such other person of the Intellectual Property Rights of any person other than the Company.
     
20. Except as set forth in Section 2.17(t) of the Company Disclosure Schedule , to the knowledge of the Company, there are no contracts, licenses or agreements between the Company and any other person with respect to Company Intellectual Property under which there is any material dispute
    
    
    
    
    
                                                                                                                                                                                                    23

 regarding the scope of such agreement, or performance under such agreement, including with respect to any payments to be made or received by the Company thereunder.

21. Except as set forth in Section 2.17(u) of the Company Disclosure Schedule , to the Company's knowledge, no person is infringing or misappropriating any Company Intellectual Property.
     
22. The Company has taken all steps that are reasonably required to protect the Company's rights in confidential information and trade secrets of the Company or provided by any other person to the Company. Without limiting the foregoing, the Company has and enforces a policy requiring each employee and consultant of the Company to execute a proprietary rights and confidentiality agreement substantially in the form set forth in Exhibit C and all current employees and consultants of Company who have created or modified any of the Company Intellectual Property have executed such an agreement.
     
23. Except as set forth on Section 2.17(w) of the Company Disclosure Schedule , neither this Agreement nor the transactions contemplated by this Agreement will trigger under any Contract to which Company is a party (i) either Parent's or the Surviving Corporation's granting to any third party any right to any Intellectual Property owned by, or licensed to, either of them which, in the case of Surviving Corporation, would not have been granted by the Company had the Closing not occurred, (ii) either the Parent's or the Surviving Corporation's being bound by, or subject to, any non-compete or other restriction on the operation or scope of their respective businesses which, in the case of Surviving Corporation, the Company would not have been bound by or subject to had the Closing not occurred, or (iii) either the Parent's or the Surviving Corporation's being obligated to pay any royalties or other amounts to any third party in excess of those payable by Company prior to the Closing under any Contract to which Company is a party.

       2.18 Agreements, Contracts and Commitments .

1. Section 2.18(a) of the Company Disclosure Schedule , lists all of the following to which the Company is a party or bound by:

1. 1. any employment or consulting contract with an employee or individual consultant or salesperson, or consulting or sales agreement, contract, or commitment with a firm or other organization (other than offer letters, employee invention assignment agreements and option agreements pursuant to the Company's standard form previously provided to Parent; provided that there are no substantive modifications from such form; and provided , further , in the case of employee invention assignment agreements, that the employee has not excepted any inventions that are related to any Intellectual Property used in connection with Company Products);
       
   2. any Contract or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or any subsequent event or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement;
       
   3. any fidelity or surety bond or completion bond;
       
   4. any lease of personal property having a value in excess of $25,000 individually or $50,000 in the aggregate;
       
   5. any agreement, contract or commitment relating to capital expenditures and involving future payments in excess of $25,000 individually or $50,000 in the aggregate;
       
   6. any agreement, contract or commitment with customers of the Company that individually accounts for five percent (5%) or more of the Company's revenues;

 

 

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1. 7. any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise outside the ordinary course of the Company's business;
       
   8. any mortgages, indentures, guarantees, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit;
       
   9. any purchase order or contract for the purchase of materials or services involving single source suppliers, custom manufacturers or involving in excess of $25,000 individually or $50,000 in the aggregate;
       
   10. any construction contracts;
        
   11. any dealer, distribution, joint marketing or development agreement;
        
   12. any sales representative, original equipment manufacturer, value added, remarketer, distributor, reseller, or independent software vendor, or other agreement for distribution of the Company's products, technology or services by a third party;
        
   13. any Contract of indemnification or any guaranty other than any Contract of indemnification entered into in connection with the sale, license, distribution and development of Intellectual Property and advertising in the ordinary course of business;
        
   14. any Contract currently in force to provide source code to any third party for any product or technology;
        
   15. any material settlement agreement entered into prior to the date of this Agreement pursuant to which the Company has continuing obligations or rights;
        
   16. any Contract under which the consequences of a default or termination would reasonably be anticipated to have a Material Adverse Effect on the Company;
        
   17. any executory agreement under which the Company has advanced or loaned any amount to any of its directors, officers, and employees;
        
   18. any revenue or profit participation Contract which involves aggregate annual payments of more than $20,000; or
        
   19. any other Contract that involves $25,000 individually or $50,000 in the aggregate or more and is not cancelable without penalty within thirty (30) days, and any other Contract that is not cancelable without penalty within twelve (12) months.

           2.19 Insurance. Section 2.19 of the Company Disclosure Schedule lists all insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of the Company or any Affiliate. There is no claim by the Company, or any Affiliate pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid, and the Company and its Affiliates are otherwise in material compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). The Company does not have any knowledge of threatened termination of, or premium increase with respect to, any of such policies.

          2.20 Interested Party Transactions . Except as disclosed in the Company's financial statements, no officer, director or shareholder of the Company (nor any ancestor, sibling, descendant or spouse of any of such persons, or any trust, partnership or corporation in which any of such persons has or has had an interest), has or has had, directly or indirectly, (i) an interest in any entity which furnished or sold, or furnishes or sells, services, products or technology that the Company furnishes or sells, or proposes to furnish or sell, or (ii) any interest in any entity that purchases from or sells or furnishes to the Company,

 

 

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any goods or services, or (iii) a beneficial interest in any Contract to which the Company is a party; provided , however , that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed to be an "interest in any entity" for purposes of this Section 2.20 .

        2.21 Accounts Receivable . Except as set forth in Section 2.21 of the Company Disclosure Schedule , the accounts and notes receivable of the Company reflected on the Company Financials, and all accounts and notes receivable of the Company and arising subsequent to the date of the Current Balance Sheet, (a) arose from bona fide sales transactions in the ordinary course of business consistent with past practice, and are payable on ordinary trade terms, (b) are legal, valid and binding obligations of the respective debtors enforceable in accordance with their respective terms, (c) are current and collectible, (d) are not subject to any valid set-off or counterclaim, and (e) do not represent obligations for goods sold on consignment, on approval or on a sale-or-return basis or subject to any other repurchase or return arrangement.

       2.22 Governmental Authorizations and Permits . Each Approval (i) pursuant to which the Company currently operates or holds any interest in any of its properties, or (ii) which is required for, or material to, the operation of the Company's business as currently conducted or currently contemplated to be conducted or the holding of any such interest (collectively, " Company Authorizations ") has been issued or granted to the Company. The Company Authorizations are in full force and effect and constitute all Company Authorizations required to permit the Company to operate or conduct its business or hold any interest in its properties or assets.

      2.23 Brokers' and Finders' Fees . The Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with the Agreement or any transaction contemplated hereby.

      2.24 Warranties; Indemnities . Except for the warranties and indemnities contained in those Contracts and agreements set forth in the Company Disclosure Schedule and warranties implied by law, the Company has not given any warranties or indemnities relating to products or technology sold or services rendered by the Company.

      2.25 Information Statement . The information supplied by the Company for inclusion in the information statement to be sent to the shareholders of the Company in connection with the Company shareholders' consideration of the Merger (the " Company Shareholder Action ") (such information statement as amended or supplemented is referred to herein as the " Information Statement ") shall not, on the date the Information Statement is first mailed to the Company's shareholders, at the time of the Company Shareholder Action or at the Effective Time, contain any statement which, at such time, is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they are made, not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies or written consents for the Company Shareholder Action which has become false or misleading.

      2.26 Employment Arrangements . Steve Haley, Jan Norelid, Richard McGee and Janice Haley shall have delivered executed employment agreements (each, an " Employment Agreements "), which Employment Agreements shall be effective as of the Closing Date. Such Employment Agreements will have set forth employment arrangements which will (i) have terms, including the position, salary and responsibilities of such employee, which will be determined by the Company's management, (ii) be for a term of not less than three years from Closing, and (iii) supersede any prior employment agreements and other arrangements with such employee in effect prior to the Closing Date.

      2.27 Disclosure . The representations and warranties of the Company contained in this Agreement, together with the Company Disclosure Schedule and any certificate furnished to Parent pursuant to any provision of this Agreement do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company has delivered or made available true and complete copies of each document (or summaries of same) that has been requested in writing by Parent or its counsel.

 

 

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The Company has not failed to disclose to Parent any fact or circumstance that would reasonably be expected to have a Material Adverse Effect on the Company.

ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB

           Parent and Sub hereby represent and warrant to the Company, subject to such exceptions as are disclosed with respect to this Article 3 in the disclosure schedule (the " Parent Disclosure Schedule ") delivered herewith and dated as of the date hereof, as follows:

        3.1 Authority Relative to this Agreement . Each of Parent and Sub 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. Parent's Board of Directors has unanimously approved this Agreement and the Ancillary Agreements to which the Parent is a party. The execution and delivery by each of Parent and Sub of this Agreement and the Ancillary Agreements to which it is a party and, the consummation by Parent and Sub of the transactions contemplated hereby and thereby and the performance by each of Parent and Sub of their respective obligations hereunder and thereunder have been duly and validly authorized by all necessary corporate action on the part of Parent and Sub and no further action is required on the part of Parent and Sub to authorize this Agreement or the Ancillary Agreements to which it is a party or the consummation of the transactions contemplated hereby or thereby. This Agreement and the Ancillary Agreements have been or will be, as applicable, duly and validly executed and delivered by Parent and Sub and, assuming the due authorization, execution and delivery hereof by the Company and/or the other parties thereto, each constitutes or will constitute, as applicable, a legal, valid and binding obligation of each of Parent and Sub enforceable against Parent and Sub in accordance with its respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Laws relating to the enforcement of creditors' rights generally and by general principles of equity.

        3.2 Organization and Qualification . Each of Parent and Sub is a corporation duly organized, validly existing and in good standing under the Laws of the State of Nevada. Each of Parent and Sub has full corporate power and authority to conduct its business as presently conducted and to own, use, license and lease its Assets and Properties. Each of Parent and Sub is duly qualified, licensed or admitted to do business and is in good standing in each jurisdiction in which the ownership, use, licensing or leasing of its Assets and Properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except for such failures to be so duly qualified, licensed or admitted and in good standing as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Parent.

        3.3 No Conflict . The execution and delivery of this Agreement or any of the Ancillary Documents to which the Parent or Sub is a party do not, and, the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a Conflict under (i) any provision of the articles of incorporation, as amended, and bylaws of Parent or Sub, (ii) any mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise or license to which Parent or any of its respective properties or assets are subject or (iii) any Legal Requirement applicable to Parent or Sub or their respective properties or assets, except in each case where such Conflict will not have a Material Adverse Effect or will not affect the legality, validity or enforceability of this Agreement.

        3.4 Consents . No consent, waiver, Approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority, or any third party is required by or with respect to Parent or Sub in connection with the execution and delivery of this Agreement and any Ancillary Agreements to which Parent or Sub is a party or the consummation of the transactions contemplated hereby and thereby, except for (i) such consents, waivers, Approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable securities laws, (ii) such consents, waivers, Approvals, orders, authorizations, registrations, declarations and filings which, if not obtained or made, would not,

 

 

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individually or in the aggregate, have a Material Adverse Effect, and (iii) the filing of the Agreement of Merger with the Secretary of State of the State of Nevada.

3.5 Parent Capital Stock .

    a.   Common Stock with a par value $0.001 per share (" Parent Common Stock "), of which at or just prior to the time of Closing 24,000,000 shares will be issued and outstanding on a fully-diluted basis after certain
          adjustments, and 50,000,000 shares of authorized Preferred Stock with a par value $0.001 per share, of which at the time of closing no shares of Parent Preferred Stock will be issued and outstanding, excluding the
         1,300,000 shares of  Parent Common  Stock to be issued on close of the proposed Private Placement to be conducted in support of this Agreement; and further excluding 2,783,000 shares of Parent Common Stock to
         be issued to purchase certain trademark rights to the  name "Celsius". In addition to the foregoing, on Closing Parent will issue warrants to Investa Capital Partners Inc. representing 3,557,812 shares of Parent
         Common Stock on   the terms on conditions set out in Exhibit G to this Agreement, along with the Merger Shares on Closing. All outstanding shares of Parent Common Stock at the time of Closing will be duly
         authorized,   validly issued, fully paid and non-assessable and not subject to preemptive  rights created by statute, the Articles of Incorporation or Bylaws of Parent or any agreement to which Parent
         is a party or by which it is bound and have been issued in compliance with federal and state securities laws. Parent, at the time of Closing will have no other capital stock authorized, issued or outstanding. Other
         than as described above, in Section 3.5 of the Parent Disclosure Schedule , and in the Registration Rights Agreement, there are no outstanding rights, options, warrants, preemptive rights, redemption rights, rights
         of first refusal or similar rights for the purchase or acquisition from Parent of any securities of Parent. There have been, and currently are, no

2. There are no Contracts of any character, written or oral, to which the Parent is a party or by which it is bound obligating the Parent or Sub to repurchase or redeem, or cause to be repurchased or redeemed, any shares of Parent Capital Stock, or obligating the Parent to grant, extend, accelerate the Vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar rights with respect to the Parent.
    
3. Except as set forth in Section 3.5(c) of the Parent Disclosure Schedule , there are no preemptive rights or agreements, arrangements or understandings to issue preemptive rights with respect to the issuance or sale of Parent Capital Stock created by statute, the articles of incorporation or bylaws of the Company, or any agreement or other arrangement to which the Parent is a party (written or oral) or by which it is bound and there are no agreements, arrangements or understandings to which the Parent is a party (written or oral) pursuant to which the Parent has the right to elect to satisfy any Liabilities by issuing Parent Capital Stock or Equity Equivalents.
    
4. Except as set forth in Section 3.5(d) of the Parent Disclosure Schedule , the Parent is not a party or subject to any agreement or understanding, and, to the Parent's knowledge, there is no agreement, arrangement or understanding between or among any Persons which affects, restricts or relates to voting or giving of written consents with respect to the Parent Capital Stock, including any voting trust agreement or proxy. Except as set forth in Section 3.5(d) of the Parent Disclosure Schedule , no debt securities of the Parent are issued and outstanding.

        3.6 Issuance of Parent Common Stock . The shares of Parent Common Stock to be issued pursuant to the Merger, when issued in accordance with the terms of this Agreement, will be duly authorized, validly issued, fully paid, and non-assessable and will be free of liens, charges, encumbrances and restrictions on transfer other than restrictions on transfer under this Agreement or the Ancillary Agreements and applicable state and federal securities laws and will be, subject to the truth and accuracy of the representations made by the Company in Section 2.3 and by the Company Shareholders in the Shareholder

  
 
 
     
       
 
 

 

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Certificate, issued in compliance with applicable federal and state securities laws. The shares of Parent Common Stock to be issued pursuant to the Merger are not subject to any preemptive rights or rights of first refusal or other similar rights that have not been effectively waived. The Parent Common Stock issuable upon exercise of the Company Options assumed by Parent pursuant to this Agreement has been duly and validly reserved and, when issued in compliance with the provisions of such assumed instruments and the articles of incorporation, as amended, of Parent, will be validly issued, fully paid and nonassessable, and will be free of liens, charges, encumbrances and restrictions on transfer other than restrictions on transfer under this Agreement and applicable state and federal securities laws.

           3.7 Parent Financial Statements . Parent has delivered to the Company (a) the audited consolidated balance sheets of the Parent as of September 30, 2006 and 2005, and the related audited statements of operations, changes in holders' equity and cash flows, respectively, for the fiscal years ended September 30, 2006 and 2005 (the " Parent Annual Financial Statements ") and (b) the unaudited consolidated balance sheet of Parent as of December 31, 2006, and the related unaudited statement of operations for the three month period ended on such date (the " Parent Interim Financial Statements " and, together with Parent Annual Financial Statements, the " Parent Financials "). The Parent Financials (including the notes to the Parent Annual Financial Statements) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated therein and present fairly in all material respects the financial position and operating results of Parent as of the dates and during the periods indicated therein, subject (1) to adjustments in compensation expense required by the Securities and Exchange Commission in connection with equity compensation, (2) to adjustments resulting from changes in accounting standards and emerging interpretive guidance relating to standards of financial accounting and reporting, and (3) in the case of the Parent Interim Financial Statements, to normal quarter-end and year-end adjustments, and except that the Parent Interim Financial Statements may not contain footnotes. The Parent's audited consolidated balance sheet as of September 30, 2006 is referred to herein as the " Parent Current Balance Sheet ."

           3.8 No Undisclosed Liabilities . Except as reflected or reserved against in Parents' Financials (including the notes thereto) or as disclosed in Section 3.8 of the Parent Disclosure Schedule , there are no Liabilities of, relating to or affecting the Parent or any of its Assets and Properties, other than Liabilities incurred (a) in the ordinary course of business consistent with past practice since the date of the Current Balance Sheet which, individually and in the aggregate, are not material to the business or condition of the Parent or Sub or (b) in connection with and in accordance with the provisions of this Agreement.

           3.9 Absence of Certain Changes . Since September 30, 2006, except as set forth in Section 3.9 of the Parent Disclosure Schedule Parent has operated its business in the ordinary course consistent with past practice, and since such date:

1. there has not occurred any change, event or condition that has resulted in a Material Adverse Effect;
    
2. there has not occurred any amendment or change in its articles of incorporation or bylaws;
    
3. there has not occurred any material change in accounting methods or practices;
    
4. the Parent has not made any declaration, setting aside or payment of a dividend on, or made any other distribution in respect of, the capital stock of Parent, or any split, combination or recapitalization of the capital stock of Parent or any direct or indirect redemption, purchase or other acquisition of any capital stock of Parent or any change in any rights, preferences, privileges or restrictions on any outstanding security of Parent
    
5. the Parent has not entered into any transaction with any officer, director, shareholder, Affiliate or Associate of the Parent, other than pursuant to any Contract in effect as of the date of the Current Balance Sheet and disclosed to Parent and identified on the Parent Disclosure Schedule.
    
6. no Action or Proceeding has been commenced, threatened, settled or compromised by the Parent and, to the knowledge of the Parent, no facts or circumstances exist that would give rise to any
   
   
   
   
   
                                                                                                                                                                                         29

Action or Proceeding (including without limitation, an Action or Proceeding arising out of Parent's mining property or search for mineral deposits);

7. the Parent has not: (A) issued, granted, delivered, sold or authorized or proposed to issue, grant, deliver or sell, or purchased or proposed to purchase, any shares of Parent Capital Stock or Equity Equivalents, (B) modified or amended the rights of any holder of any outstanding shares of Parent Capital Stock or Equity Equivalents (including to reduce or alter the consideration to be paid to the Parent upon the exercise of any outstanding options, warrants, stock purchase rights or other Equity Equivalents); and (C) not granted any options with an exercise price of less than the fair market value of the Parent's Common Stock on the date the option was granted.
    
8. the Parent has not made or agreed to make any disposition or sale, license or lease of, or incurrence of any Lien in an amount exceeding $5,000 individually or $10,000 in the aggregate, on, any Assets and Properties;
    
9. the Parent has not made or agreed to make any purchase of any Assets and Properties of any Person other than (i) acquisitions of inventory, or licenses of products, in the ordinary course of business consistent with past practice and (ii) other acquisitions in an amount not exceeding $5,000 in the case of any individual item or $10,000 in the aggregate;
    
10. the Parent has not made or agreed to make any capital expenditures or commitments for additions to property, plant or equipment constituting capital assets individually or in the aggregate in an amount exceeding $5,000;
     
11. the Parent has not made or agreed to make any write-off or write-down, or any determination to write off or write-down, or revalue, any of its Assets and Properties, or change any reserves or liabilities associated therewith in an amount exceeding $5,000;
     
12. the Parent has not made or agreed to make payment, discharge or satisfaction, in an amount in excess of $5,000 in any one case, or $10,000 in the aggregate, of any claim, Liability or obligation (whether absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of Liabilities reflected or reserved against in the Parent Financials;
     
13. the Parent has not failed to pay or otherwise satisfy any Liabilities when due and payable, except such Liabilities which are being contested in good faith by appropriate means or procedures and which, individually and in the aggregate, are immaterial in amount;
     
14. the Parent has not created, incurred, assumed or guaranteed any Indebtedness in an aggregate amount exceeding $5,000, or issued or sold any debt securities, or extended or otherwise modified the terms of any Indebtedness;
     
15. the Parent has not granted or approved (i) any severance or termination pay to, (ii) any increase of greater than five percent (5%) in salary, rate of commissions, rate of consulting fees or any other compensation of, (iii) the payment of any consideration of any nature whatsoever (other than salary, commissions or consulting fees and customary benefits paid to any current or former officer, director, shareholder, employee or consultant) to, (iv) any loan or extension of credit to, or (v) any discretionary or stay bonus to, any director, current or former officer, employee, shareholder or consultant;
     
16. the Parent has not adopted, entered into, amended, modified or terminated (partially or completely) any Employee Plan (as defined in Section 2.15(a)(vi));
     
17. there has been no filed claim or written notice to the Parent, and Parent has no knowledge of facts or circumstances that would give rise to a claim of wrongful discharge or other unlawful labor practice or action with respect to the Parent;

 

 

 

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18. the Parent has not made or changed any material election in respect of Taxes, adopted or changed any accounting method in respect of Taxes, entered into any tax allocation agreement, Tax sharing agreement, Tax indemnity agreement or closing agreement, settlement or compromise of any claim or assessment in respect of Taxes, nor has it consented to any extension or waiver of the statute of limitations period applicable to any claim or assessment in respect of Taxes;
     
19. the Parent has not failed to renew any insurance policy; no insurance policy of the Parent has been cancelled or materially amended; and the Parent has given all notices and presented all claims (if any) under all such policies in a timely fashion;
     
20. there has been no material amendment or non-renewal of any Approvals, and the Parent has used commercially reasonable efforts to maintain such Approvals and has observed in all material respects all Laws and Orders applicable to the business or Assets and Properties of the Parent;
     
21. there has been no physical damage, destruction or other casualty loss (whether or not covered by insurance) affecting any of the real or personal property or equipment of the Parent individually or in the aggregate in an amount exceeding $5,000, other than ordinary wear and tear;
     
22. the Parent has not entered into any employment Contract, or modified the terms of any existing such Contract;
     
23. the Parent has not entered into or approved any contract, arrangement or understanding or acquiesced in respect of any arrangement or understanding, to do, engage in or cause or having the effect of any of the foregoing items described in the preceding clauses of this Section 3.90.

        3.10 Dividends or Distributions . Parent has not declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its capital stock.

        3.11 Registration Rights . Except as provided in the Registration Rights Agreement attached as Exhibit H, Parent is presently not obligated and has not granted any rights to register under the Securities Act or to register or qualify under any state securities any of its presently outstanding securities or any of its securities that may subsequently be issued.

       3.12 Legal Proceedings . There are, and since the date of the Parent Current Balance Sheet, have been, no material Actions or Proceedings pending or, to the knowledge of the Parent, threatened against, relating to or affecting the Parent or any of its Assets and Properties and Parent has not received notice or otherwise has knowledge of any Orders outstanding against the Parent.

       3.13 Employment Matters . Parent has no employees. There are no pending material claims or actions against the Parent under any worker's compensation policy or long-term disability policy.

       3.14 Patents and Trademarks . To Parent's knowledge, Parent owns, or has the right to use (or will be able to obtain the right to use on reasonable commercial terms), all patents, trademarks, service marks, trade names, copyrights, licenses, trade secrets or other proprietary rights necessary to its business as now conducted and as proposed to be conducted without conflicting with or infringing upon the right or claimed right of any person under or with respect to the forgoing, except as would not have a Material Adverse Effect on Parent.

      3.15 Compliance with Other Instruments . Parent is not in violation or default of any provision of its articles of incorporation or bylaws, each as amended and in effect on and as of the date hereof. Parent is not in violation or default of any material provision of any instrument, mortgage, deed of trust, loan, contract, commitment, judgment, decree, order or obligation to which it is a party or by which it or any of its properties or assets are bound which would, individually or in the aggregate, be reasonably likely to result in a Material Adverse Effect or of any provision of any federal, state or, to its knowledge, local statute, rule or governmental regulation which would, individually or in the aggregate, be reasonably likely to result in a Material Adverse Effect. The execution, delivery and performance of and compliance with this Agreement and the Ancillary Agreements to which the Parent is a party, and the exchange and delivery

 

 

 

31

of the Merger Consideration will not result in any such violation, be in Conflict with or constitute, with or without the passage of time or giving of notice, a default under any such provision, require any consent or waiver under any such provision (other than any consents or waivers that have been obtained), or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the Assets and Properties of Parent pursuant to any such provision.

      3.16 Title to Property and Assets . Parent owns its Assets and Property free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair Parent's ownership or use of such Assets and Property. With respect to the Assets and Property it leases, Parent is in compliance with such leases in all material respects and, to its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances.

     3.17 Books and Records; Organizational Documents .

1. The books, records and accounts of the Parent delivered to Company for inspection are true, complete and correct in all material respects.
2. The Parent has devised and maintains a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary (A) to permit preparation of financial statements in conformity with GAAP or any other criteria applicable to such statements, and (B) to maintain accountability for assets; and (iii) the amounts recorded for assets and liabilities on the books and records of the Parent are in accordance with GAAP.
3. The Parent has delivered to Parent or its counsel for examination the following: (a) copies of the articles of incorporation and bylaws of the Parent as currently in effect; (b) all written records of all proceedings, consents, actions, and meetings of the shareholders, board of directors and any committees thereof of the Parent; (c) stock ledger and journal reflecting all stock issuances and transfers of the Parent; and (d) all Permits from Governmental Authorities issued to the Parent by, and filings by the Parent with, any regulatory agency, and all applications for such permits, orders, and consents. The written records of all proceedings, consents, actions, and meetings of the shareholders, board of directors and any committees thereof of the Parent made available to counsel for Parent are the only minutes of the Parent and contain accurate summaries of all meetings or actions by written consent of the Board of Directors (or committees thereof) of the Parent and its shareholders since the time of incorporation of the Parent.

      3.18 Disclosure . The representations and warranties of the Parent and Sub contained in this Agreement, together with the Parent Disclosure Schedule and any certificate furnished to Company pursuant to any provision of this Agreement do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Parent has not failed to disclose to the Company any fact or circumstances that would reasonably be expected to have a Material Adverse Effect on Parent.

     3.19 Brokers and Finders' Fees . Parent has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with the Agreement or any transaction contemplated hereby.

       3.20 Tax Returns, Payments and Elections . The Parent has prepared and timely filed all required federal, state, local and foreign returns, estimates, information statements and reports ("Returns") and such Returns are true and correct in all material respects and have been completed in accordance with applicable law. The provisions for Taxes of Parent as shown in the Parent Financials are adequate in all material respects for Taxes due or accrued as of the date hereof. Since the date of the Parent Interim Financial Statements, Parent has not incurred any material Taxes, assessments or governmental charges other than in the ordinary course of business and Parent has made adequate provisions on its books of account for all material Taxes, assessments and governmental charges with respect to its business, properties and operations for such period.

 

 

32

     3.21 Parent SEC Documents . Parent has furnished or made available to the Company, Indemnifying Officer and Securityholder Representative a correct and complete copy of Parent's Annual Report on Form 10-KSB filed with the SEC with respect to the fiscal year ended September 30, 2006, and Parent's Quarterly Report on Form 10-QSB filed with the SEC with respect to the fiscal quarter ended June 30, 2006, (the " Form 10-QSB "), and registration statement filed on Form 8-K filed by Parent with the SEC on or after the date of filing of the Form 10-QSB, which are all the documents that Parent was required to file (or otherwise did file) with the SEC in accordance with Sections 13, 14 and 15(d) of the Securities Exchange Act on or after the date of filing with the SEC of the Form SB-2 (as amended, the "Parent SEC Documents"). As of their respective filing dates, or in the case of the Form SB-2 registration statement, their respective effective times, none of the Parent SEC Documents (including all exhibits and schedules thereto and documents incorporated by reference therein) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Parent SEC Documents complied when filed, or in the case of registration statements, as of their respective effective times, in all material respects with the then applicable requirements of the Securities Act or the Securities Exchange Act, as the case may be, and the rules and regulations promulgated by the SEC thereunder.

     3 .22 Information Statement . The information supplied by Parent in writing for inclusion in the Information Statement shall not, on the date the Information Statement is first mailed to the Company's shareholders, at the time of the Company Shareholder Action or at the Effective Time, contain any statement which, at such time, is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they are made, not false or misleading, or omit to state any material fact necessary to correct any statement based on information provided in writing by Parent for inclusion in any earlier communication with respect to the solicitation of proxies or written consents for the Company Shareholder Action which has become false or misleading.

    3.23 Closing Cash Statement . The Closing Cash Statement delivered by Parent pursuant to Section 5.21 will state the amount of Parent's cash and cash equivalents (within the meanings of such terms under GAAP) on the Closing Date, which shall not be less than One Million One Hundred Thousand (US$ 1,100,000) United States Dollars.

     3.24 Subsidiaries . The Parent does not have any Subsidiaries other than Sub and does not otherwise own any shares of capital stock or any interest in (or any interest convertible, exchangeable or exercisable for any such interest), or control, directly or indirectly, any other corporation, partnership, association, joint venture or other business entity. The Parent has not agreed and is not obligated to make any future investment in or capital contribution to any Person.

ARTICLE 4: CONDUCT PRIOR TO THE EFFECTIVE TIME

       4.1 Conduct of Business . During the period from the date of this Agreement and continuing until the earlier to occur of the termination of this Agreement pursuant to Article 8 hereof and the Effective Time, each of the Parent, Sub and Company agree (unless such party is required to take such action pursuant to this Agreement or such other party shall give its prior consent in writing), subject to the prohibitions set forth in this Section 4.1 and in Section 4.2 , to carry on its business in the usual, regular and ordinary course consistent with past practice, to pay its Liabilities, Taxes and other obligations consistent with its past practices (and in any event when due), and, to the extent consistent with such business, to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensees, independent contractors and other Persons having business dealings with it, all with the express purpose and intent of preserving unimpaired its goodwill and ongoing businesses at the Effective Time. Except as expressly contemplated by this Agreement, none of the parties shall, without the prior written consent of such other party, take or agree in writing or otherwise to take, any action that would result in the occurrence of any of the changes described in Section 2.10 or Section 3.9 or any other action that would make any of its representations or warranties contained in this Agreement untrue or incorrect in any material respect (individually or in the

 

33

aggregate) or prevent such party from performing or cause it not to perform its agreements and covenants hereunder or cause any condition to any other party's closing obligations in Article 6 not to be satisfied. Without limiting the generality of the foregoing, during the period from the date of this Agreement until the earlier to occur of the termination of this Agreement pursuant to Article 8 hereof, or the Effective Time, the respective party or parties shall not, except as set forth in such party's respective Disclosure Schedule, cause or permit any of the following, without the prior written consent of the respective other party:

1. Stock Option Plans : accelerate, amend or change the period of exercisability or vesting of Options or other rights granted under its stock plans or otherwise, authorize cash payments in exchange for any Options or other rights granted under any of such plans, grant any additional Options or waive any repurchase rights with respect to any Restricted Stock;
    
2. Intellectual Property : (i) sell, license or transfer to any person or entity any rights to any Company Intellectual Property or enter into any Contract with respect to any Company Intellectual Property with any person or entity; provided , that the Company may enter into non-exclusive licenses of Company Intellectual Property with licensees (A) in the ordinary course of the Company's business consistent with past practice and (B) outside of the ordinary course of the Company's business consistent with past practice with the prior written consent of Parent, which consent shall not be unreasonably withheld or delayed), (ii) buy or license any Intellectual Property or enter into any agreement with respect to the Intellectual Property of any person or entity, other than with respect to off-the-shelf software pursuant to "shrink wrap" or "click wrap" license agreements, (iii) enter into any agreement with respect to the development of any Intellectual Property with a third party, or (iv) change pricing or royalties charged by the Company to its customers or licensees, or agree to any change in the pricing or royalties set or charged by persons who have licensed Intellectual Property to the Company;
    
3. Product and Technology Rights : enter into or amend any Contract, commitment or transaction pursuant to which any other party is granted marketing, distribution, development or other similar rights of any type or scope with respect to any of products or technology of the Company;

4. Contracts : amend or otherwise modify (or agree to do so), or violate the terms of, any of the Contracts set forth or described in the respective Disclosure Schedule;
    
5. Capital Stock : declare, set aside, or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any Capital Stock, or split, combine or reclassify any Capital Stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of Capital Stock, or repurchase, redeem or otherwise acquire, directly or indirectly, any shares of Capital Stock (or options, warrants or other rights exercisable therefor);
    
6. Issuances of Capital Stock : issue, grant, deliver or sell or authorize or propose the issuance, grant, delivery or sale of, or purchase or propose the purchase of, any shares of Capital Stock or any securities convertible into, or subscriptions, rights, warrants or Options to acquire, or other agreements or commitments of any character obligating it to issue or purchase any such shares or other convertible securities, except for issuances of Company Common Stock pursuant to exercises of Company Options or Company Warrants disclosed in Section 2.3(c) of the Company Disclosure Schedule and the conversion of the Company Preferred Stock disclosed in Section 2.3(a) of the Company Disclosure Schedule ;
    
7. Amendments to Articles : cause or permit any amendments to such party's articles of incorporation or bylaws;
    
8. Dispositions : sell, lease, license or otherwise dispose of or encumber any Assets or Property, except for Assets or Property that are not Company Intellectual Property in the ordinary course of business consistent with past practice; provided , that the Company may enter into non-exclusive licenses of Company Intellectual Property with licensees (A) in the ordinary course of the Company's business consistent with past practice and (B) outside of the ordinary course of the
   
   
   
   
   
   
   
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Company's business consistent with past practice with the prior written consent of Parent, which consent shall not be unreasonably withheld or delayed;

9. Indebtedness : incur any indebtedness for borrowed money or guarantee any such indebtedness, issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities or guarantee any debt securities of others, enter into any "keep well" or other agreement to maintain any financial statement condition, or enter into any arrangement having the economic effect of any of the foregoing other than in connection with the financing of ordinary course trade payables and capital equipment leases consistent with past practice;
    
10. Loans : grant any loans to others or purchase debt securities of others or amend the terms of any outstanding loan agreement;
     
11. Payment of Obligations : pay, discharge or satisfy any claim or Liability arising other than in the ordinary course of business, other than the payment, discharge or satisfaction of Liabilities reflected or reserved against in such respective party's Financials or incurred since the date of the Current Balance Sheet in the ordinary course of business and reasonable expenses incurred in connection with the transactions contemplated by this Agreement;
     
12. Expenditures : make any expenditures or enter into any commitment or transaction exceeding $25,000 individually or $50,000 in the aggregate as to the Company and $2,500 individually or $5,000 in the aggregate as to the Parent;
     
13. Insurance : reduce the amount of any insurance coverage provided by existing insurance policies;
     
14. Employees : hire or terminate any Employees, or encourage any Company Employees to resign from the Company, other than Non-Continuing Employees;
     
15. Severance Arrangements : grant or increase or modify in favor of any Employee any severance or termination pay to any Employee except payments made pursuant to standard written agreements or plans outstanding on the date hereof and disclosed in the respective party's Disclosure Schedule;
     
16. Employee Contracts : enter into or amend any Contract with any officer, director or employee;
     
17. Employee Plans : adopt or amend any Employee Plan, enter into any employment Contract, pay or agree to pay any special bonus or special remuneration to any director, officer or Employee, or increase the salaries, wage rates, or other compensation of its Employees except payments made pursuant to standard written agreements in place on the date hereof and disclosed in the respective party's Disclosure Schedule;
     
18. Litigation : commence or settle any litigation (other than a lawsuit for breach of this Agreement);
     
19. Taxes : make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle or compromise any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes;
     
20. Acquisitions : acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or equity securities of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, or otherwise acquire or agree to acquire any assets which are material, individually or in the aggregate, to the respective party's business;
     
21. Revaluation : revalue any of its assets, including, without limitation, writing down the value of inventory or writing off notes or accounts receivable; or

 

 

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22. Other : take or agree in writing or otherwise to take, any of the actions described in Section 4.1(a) through Section 4.1(u) above, or any other action that would prevent the respective party from performing, or cause the respective party not to perform, its covenants and agreements hereunder.

         4.2 No Solicitation . Until the earlier of (i) the Effective Time, or (ii) the date of termination of this Agreement pursuant to the provisions of Section 8.1 hereof, the parties shall not, nor shall the parties permit any of its directors, employees, shareholders, agents, representatives or Affiliates to (and each party shall instruct them not to), directly or indirectly, take any of the following actions with any third party: (a) solicit, encourage, initiate or participate in any inquiry, negotiations or discussions with respect to any Acquisition Proposal (provided that this subsection (a) shall not, by its reference to the defined term "Acquisition Proposal", and such term's reference to subsection (i) of the defined term "Competing Transaction," prohibit discussions and negotiations with existing or potential customers regarding commercial services relationships in the ordinary course of business), (b) disclose any material non-public information to any Person concerning the such party's business, technologies or properties, or afford to any Person or entity access to its properties, technologies, books or records, not customarily afforded to new non-strategic customers in the ordinary course of business, (c) assist or cooperate with any Person to make any Acquisition Proposal, (d) enter into any Contract with any Person other than de minimus Contracts in the ordinary course of business, or (e) effect any Competing Transaction; provided , however , that (d) and (e) shall not prohibit the Company from, on and after November 24, 2006, entering into non-exclusive licenses of Company Intellectual Property with licensees (A) in the ordinary course of the Company's business consistent with past practice and (B) outside of the ordinary course of the Company's business consistent with past practice with the prior written consent of Parent, which consent shall not be unreasonably withheld or delayed). In the event that a party or any of such party's Affiliates shall receive, prior to the earlier of the Effective Time or the termination of this Agreement pursuant to Article 8 hereof, any Acquisition Proposal, or request, directly or indirectly, of the type referenced in clause (a) or (c) above, or any request for disclosure or access pursuant to clause (b) above, such party shall immediately notify the other party thereof, including information as to the identity of the offeror or the third party making any such Acquisition Proposal and the specific terms of such Acquisition Proposal or request, as the case may be, and such other information related thereto as the other party hereto may reasonably request. The parties hereto agree that irreparable damage would occur in the event that the provisions of this Section 4.2 were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed by the parties hereto that any party hereto shall be entitled to seek an injunction or injunctions to prevent breaches of the provisions of this Section 4.2 and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which such other party may be entitled at law or in equity.

ARTICLE 5: ADDITIONAL AGREEMENTS

        5.1 Shareholder Approval .

1. The Company shall submit this Agreement, the Agreement of Merger and the transactions contemplated hereby to its shareholders for approval and adoption as provided by Florida Law and the articles of incorporation and bylaws of the Company within five days of the date hereof. Such submission, and any proxy or consent in connection therewith, (i) shall include a solicitation of the approval of the holders of Company Common Stock and (ii) shall specify that adoption of this Agreement and approval of the Merger shall constitute approval by the Company Shareholders of the appointment of Steve Haley as Securityholder Agent, under and as defined in this Agreement. The Company shall use its commercially reasonable efforts to obtain the consent of the Company Shareholders sufficient to (i) approve the Merger, this Agreement and the transactions contemplated hereby, (ii) constitute a majority of the outstanding shares of Company Common Stock and Company Preferred Stock, voting together, (iii) constitute a majority of the outstanding shares of Company Common Stock, and (iv) enable the Closing to occur as promptly as practicable. In addition, the Company shall (i) promptly submit for approval by the Company Shareholders by the requisite vote (and in a manner satisfactory to Parent) any payments of stock contemplated by this Agreement that Parent determines may constitute "parachute payments" pursuant to Section 280G of
   
   
   
   
   
   
   
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the Code, such that all such payments resulting from the transactions contemplated hereby shall not be deemed to be "parachute payments" pursuant to Section 280G of the Code or shall be exempt from such treatment under such Section 280G, or (ii) deliver to Parent evidence satisfactory to Parent that a Company Shareholder vote was held in conformance with Section 280G and the regulations thereunder, or that such requisite Shareholder approval has not been obtained with respect to any payment of stock that may be deemed to constitute a "parachute payment" within the meaning of Section 280G of the Code and, as a consequence, that such "parachute payment" shall not be made or provided.

2. Each of Parent and the Company agrees to provide promptly to the other such information concerning its business and affairs as may be required or appropriate in the disclosure materials submitted to the Company Shareholders (the " Soliciting Materials ") and to cause its representatives to cooperate with the other's representatives in the preparation of the Soliciting Materials. The Soliciting Materials submitted to the Company Shareholders shall be subject to the review and approval by Parent (and include information regarding the Company, the terms of the Merger and this Agreement and the recommendation of the Board of Directors of the Company in favor of the Merger and this Agreement, and the transactions contemplated hereby). The Company warrants that none of the information contained in any documents mailed or delivered to the Company Shareholders in connection with soliciting their consent to this Agreement or the Merger, including the Soliciting Materials, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information supplied by Parent in writing specifically for inclusion or incorporation by reference in any of the Soliciting Materials. Parent warrants that none of the information supplied by Parent in writing for inclusion in any documents mailed or delivered to the Company Shareholders in connection with soliciting their consent to this Agreement and the Merger, including the Soliciting Materials, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Company shall promptly advise Parent, and Parent shall promptly advise the Company, in writing, if at any time prior to the Effective Time either the Company or Parent shall obtain knowledge of any facts that would make it necessary or appropriate to amend or supplement the Soliciting Materials in order to make the statements contained or incorporated by reference therein not misleading or to comply with applicable Law.
3. The Company agrees to arrange for, at Parent's expense (not to exceed $5,000), a Purchaser Representative who shall have such knowledge and experience in financial and business matters that the Purchaser Representative is capable of evaluating the merits and risks of an investment in the Parent Common Stock, and who shall otherwise satisfy the requirements of Rule 501(h) under the Securities Act, to act as "purchaser representative" within the meaning of Rule 501(h) under the Securities Act, for certain of the Company Shareholders in connection with the Merger. The Purchaser Representative shall be available at reasonable times to meet with Company Shareholders to discuss with them the merits and risks of the investment in Parent Common Stock pursuant to the Merger.

       5.2 Restricted Shares; Shareholders' Representations Regarding Securities Law Matters .

1. The parties hereto acknowledge and agree that the shares of Parent Common Stock issuable to the Company Shareholders pursuant to Section 1.6 hereof shall constitute "restricted securities" within the meaning of Rule 144 of the Securities Act and will be issued in a private placement transaction in compliance with Section 4(2) of the Securities Act and Regulation D promulgated thereunder. The certificates evidencing the shares of Parent Common Stock to be issued in the Merger shall bear appropriate legends to identify such privately placed shares as being "restricted securities" under the Securities Act, to comply with state and federal securities laws and, if applicable, to notice the restrictions on transfer of such shares.

 

 

 

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2. Each shareholder of the Company, by virtue of the Merger and the conversion into Parent Common Stock of the Company Capital Stock held by such shareholder, shall be bound by the following provisions:

1. 1. Such shareholder will not offer, sell, transfer or otherwise dispose of any shares of Parent Common Stock unless (A) such sale, transfer or other disposition is within the limitations of and in compliance with the Securities Act and the rules and regulations thereunder, including without limitation Rule 144 promulgated by the SEC under the Securities Act, and the shareholder furnishes Parent with reasonable proof of compliance with such Rule, (B) in the opinion of counsel, reasonably satisfactory to Parent and its counsel, some other exemption from registration under the Securities Act is available with respect to any such proposed sale, transfer, or other disposition of Parent Common Stock, or (C) the offer and sale of Parent Common Stock is registered under the Securities Act. Notwithstanding the foregoing, no such registration statement or opinion of counsel shall be necessary for the following transfers for no consideration (1) a transfer by a shareholder that is a partnership or limited liability company to a partner of such partnership or a member of such limited liability company or a retired partner of such partnership who retires after the date hereof or a retired member of such limited liability company who retires after the date hereof, or to the estate of any such partner, retired partner, member or retired member; (2) a transfer by a corporation to its subsidiaries or stock holders; or (3) the transfer by gift, will or intestate succession by any shareholder or any partner or member (current or retired) of a shareholder to his or her spouse or to the siblings, lineal descendants or ancestors of such shareholder, partner or member (current or retired) or his or her spouse, if the transferee agrees in writing to be subject to the terms hereof.
       
   2. Provided that each officer and director of Parent who owns stock or options to purchase stock of Parent and all one-percent security holders and all other persons with registration rights also agrees to such restrictions, each Company Shareholder agrees that, if, in connection with a public offering of Parent's securities completed within twelve (12) months from Closing, Parent or the underwriters managing the offering so request, the Company Shareholder shall not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of Parent (other than those included in the registration) without the prior written consent of Parent or such underwriters, as the case may be, for 90 days from the effective date of such registration in the case of any other public offering of the Parent's securities. This Section 5.2(b)(iii) shall be binding on all transferees or assignees of Parent Common Stock issued to each Company Shareholder in the Merger.

        5.3 Company Financial Statements . The Company shall, at its sole cost and expense, deliver to Parent, at the earliest possible date, audited financial statements for the Company's fiscal year ended December 31, 2005 (the " Company Year End Financials "), and unaudited quarterly financial period for the quarter ended September 30, 2006 (the " Company Quarterly Statements ") which shall be in form suitable for filing with the SEC and for which the auditors for the Company shall have consented to the inclusion of the SEC filings of Parent.

       5.4 Access to Information . Each party shall afford the other party and its accountants, counsel and other representatives, reasonable access during the period from the date hereof and prior to the earlier of (a) the Effective Time and (b) the termination of this Agreement pursuant to Article 8 hereof, to (i) all of the party's properties, books, contracts, commitments and records, (ii) all other information concerning the business, properties and personnel (subject to restrictions imposed by applicable law) of a party as such other party may reasonably request, and (iii) all Employees. Each party agrees to provide to the other and its accountants, counsel and other representatives copies of internal financial statements (including Tax returns and supporting documentation) promptly upon reasonable request. No information or knowledge obtained in any investigation pursuant to this Section 5.4 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Merger in accordance with the terms and provisions hereof.

 

 

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        5.5 Confidentiality . Except as required by law, each party and its representatives will hold in strict confidence all documents and information concerning the other party furnished in connection with the transactions contemplated by this Agreement (except to the extent that such information can be shown to have been (a) in the public domain through no action by the party in violation of this Section 5.5, (b) in the party's possession at the time of disclosure and not acquired by the party directly or indirectly from the other party on a confidential basis or (c) disclosed by the other party to others on an unrestricted, non-confidential basis) and will not, without the consent of the other party, (i) release or disclose any such documents or information to any other person or (ii) use or permit others to use such documents or information except in connection with this Agreement and the transactions contemplated hereby. In the event of the termination of this Agreement, each party shall return to the other parties all documents, work papers and other material so obtained by it, or on its behalf, and all copies, digests, abstracts or other materials relating thereto, whether so obtained before or after the execution hereof, and will comply with the terms of the confidentiality provisions set forth herein.

        5.6 Expenses; Severance Payments . Whether or not the Merger is consummated, all fees and expenses incurred in connection with the Merger including, without limitation, all legal, accounting, financial advisory, consulting and all other fees and expenses of third parties (" Third Party Expenses ") incurred by a party in connection with the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby, shall be the obligation of the respective party incurring such fees and expenses. The fees of Venture Law Corporation, counsel to the Parent, incurred in connection the negotiation and effectuation of the terms and conditions of this Agreement and the transactions contemplated hereby shall be paid by the Parent at the Closing (which payment not exceed for legal services shall not exceed $50,000 without the prior approval of the Company). The Company shall provide to Parent, at least one (1) business day prior to the Closing Date, with a statement of Third Party Expenses incurred by the Company in form reasonably satisfactory to the Parent (the " Statement of Expenses "). The Company shall also include in the Statement of Expenses an accounting of (A) all severance payments paid out to employees, consultants or directors of the Company during the period beginning on September 30, 2006 and ending immediately prior to the Effective Time, (B) all existing obligations entered into or otherwise agreed to by the Company or Company management with respect to severance arrangements with employees, consultants or directors of the Company, and (C) a good faith estimate by the Company of commissions owed by the Company to its employees, agents and consultants ((A), (B) and (C) collectively, the " Severance Payments and Obligations ," and (C) individually, the " Estimated Commissions ").

       5.7 Public Disclosure . None of the parties nor any officer, director, employee or agent of such party (and each party shall cause each of them to be aware of and comply with this prohibition) shall issue any statement or communication to any third party (other than their respective representatives or agents) regarding the subject matter of this Agreement or the transactions contemplated hereby, including, if applicable, the termination of this Agreement and the reasons therefor, without the consent of the other party, which consent shall not be unreasonably withheld.

       5 .8 Consents . The Company shall use commercial