ASSET PURCHASE AGREEMENT BY AND AMONG MARCHEX, INC. PIKE STREET INDUSTRIES, INC. AND THE STOCKHOLDERS OF PIKE STREET INDUSTRIES, INC. DATED April 26, 2005

Exhibit 2.1

 

 

ASSET PURCHASE AGREEMENT

BY AND AMONG

MARCHEX, INC.

PIKE STREET INDUSTRIES, INC.

AND THE STOCKHOLDERS OF PIKE STREET INDUSTRIES, INC.

DATED April 26, 2005

 

TABLE OF CONTENTS

 

 

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Exhibits and Schedules to the Asset Purchase Agreement have been omitted. The following is a list of omitted Exhibits and Schedules which the Registrant agrees to furnish supplementally to the Commission upon request:

 

EXHIBITS

 

A	Form of Escrow Agreement

 

B	Form of Bill of Sale, Assignment and Assumption Agreement

 

C	Form of Executive Employment Agreement

 

SCHEDULES

 

8.6	Required Consents

 

11.4	Percentage of Purchase Price

 

DISCLOSURE SCHEDULES

 

1.1	Purchase of Assets

 

1.2	Retained Assets

 

1.3	Assumed Liabilities

 

2.1	Corporate Organization

 

2.3	Consents and Approvals; No Violations

 

2.4	Capitalization

 

2.5	Financial Statements; Business Information

 

2.6	Absence of Undisclosed Liabilities

 

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2.7	Absence of Certain Changes or Events

 

2.8	Legal Proceedings, etc.

 

2.9

Taxes

 

2.10	Title to Properties and Related Matters

 

2.11	Intellectual Property; Proprietary Rights; Employee Restrictions

 

2.12

Contracts

 

2.13	Employees; Employee Benefits

 

2.15	Ability to Conduct Business

 

2.16	Major Partners

 

2.17

Insurance

 

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ASSET PURCHASE AGREEMENT

 

ASSET PURCHASE AGREEMENT (the “ Agreement ”) dated as of April 26, 2005, by and among Marchex, Inc., a Delaware Corporation (the “ Parent ” and “ Buyer ”), Pike Street Industries, Inc., a Washington corporation (the “ Seller ” or the “ Company ”), and the undersigned holders of all of the issued and outstanding capital stock of the Company (collectively, the “Stockholders ”).

 

This Agreement sets forth the terms and conditions upon which the Buyer will purchase from the Company, and the Company will sell to the Buyer, all of the assets of the Company (other than the Retained Assets, as hereinafter defined) and the business and goodwill of the Company as a going concern, subject to those liabilities of the Company which are specifically hereinafter described, for the consideration provided herein.

 

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements set forth herein, and intending to be legally bound hereby, the parties hereby agree as follows:

 

ARTICLE I

 

PURCHASE AND SALE OF ASSETS

 

1.1 Purchase of Assets . Upon the terms and subject to the conditions contained in this Agreement, at the Closing (as defined in Section 1.9 below), the Company shall sell, assign, transfer and convey to Buyer, and Buyer shall purchase, acquire and accept from the Company all of the Company’s assets of every kind and description that are used or useful in the Company’s business, free and clear of any liens whatsoever (the “ Purchased Assets ”) (other than those assets included in the Retained Assets as defined in Section 1.2 below) and subject only to the liabilities and obligations of the Company which are defined in Section 1.3 (the “ Assumed Liabilities ”). The Purchased Assets include without limitation:

 

(a) all of the Company’s rights under all licenses, permits, authorizations, orders, registrations, certificates, approvals, consents and franchises, or any pending applications for any of the foregoing, to the extent such rights relate to the conduct of the Company’s Business (as defined in Section 1.1) and in each case to the extent transferable or assignable;

 

(b) all of the interest of the Company and the Stockholders (whether held directly or indirectly through any other person or entity) in intellectual property, patents, copyrights, trade names, service marks, trademarks, domain names, websites, licenses and sublicenses granted in respect thereto and rights thereunder, used in the conduct of the Company’s Business, remedies against infringement thereof and rights of protection of interests therein and all related goodwill;

 

(c) all of the rights of the Company and the Stockholders (whether held directly or indirectly through any other person or entity) to any domain names, universal resource locators (URLs), websites, webpages and booking engines to the extent used in the conduct of the Company’s Business as set forth on Schedule 1.1(c) ;

 

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(d) all of the Company’s rights under those contracts, agreements, licenses, leases, commitments, undertakings, arrangements, understandings or such other documents or instruments as set forth on Schedule 1.1(d) , to the extent such rights relate to the conduct of the Company’s Business (the “ Purchased Contracts ”);

 

(e) all of the Company’s claims, customer deposits, prepayments, prepaid expenses, refunds, causes of action, choses in action, rights of recovery, rights of setoff and rights of recoupment, to the extent any of the foregoing relate to the conduct of the Company’s Business after the Closing and whether or not recorded in the books and records of the Company;

 

(f) all of the Company’s (i) advertiser and customer lists and all other sales and marketing information, (ii) know-how, technology, drawings, engineering specifications, bills of materials, (iii) software, database and related programs used in the conduct of the Company’s Business, and (iv) other intangible assets of the Company;

 

(g) all tangible property, machinery, computers, printers, servers and equipment owned or leased by the Company;

 

(h) all records which relate to the operations and finance of the Company, including, without limitation, books, records, ledgers, files, documents, correspondence, computer discs, diagrams, construction data, blueprints, instruction manuals, maintenance manuals, reports and similar documents used or useful in connection with the Company’s Business (the “ Records ”);

 

(i) the Company’s corporate name and any trade names (current and any former, if applicable) and any and all goodwill associated therewith; and

 

(j) all other assets of the Company of every kind and description, tangible or intangible, to the extent used in the conduct of the Company’s Business not provided for above.

 

For the purposes of this Agreement, the Company’s Business shall mean the development, operation and/or management of websites, content services or directory services in the following markets:

 

(a)

Yellow Pages;

 

(b)

White Pages;

 

(c)

Local or geographical search and content; and

 

(d)

College Leads.

 

1.2 Retained Assets . The Company will retain ownership of only the following assets (collectively, the “ Retained Assets ”):

 

(a) all of the Company’s minute and stock record books;

 

(b) all of the Company’s trade and accounts receivable (billed and unbilled) immediately prior to the Closing Date (as defined herein);

 

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(c) the Company’s cash and cash equivalents immediately prior to the Closing Date;

 

(d) all of the Company’s rights under the insurance policies issued on the life of any of its officers, directors, employees or consultants; and

 

(e) all of the assets set forth on Schedule 1.2 .

 

1.3 Assumed Liabilities . The Assumed Liabilities shall consist only of the liabilities of the Company specifically listed on Schedule 1.3 attached hereto, including without limitation all obligations under the Purchased Contracts to the extent such obligations accrue at the time of consummation of and after the Closing (the “ Assumed Liabilities ”). The Buyer shall assume and agree to pay, perform and discharge the Assumed Liabilities, and will pay, perform and discharge the Assumed Liabilities as they become due.

 

1.4 Retained Liabilities . The liabilities and obligations which shall be retained by the Company (the “ Retained Liabilities ”) shall consist of all liabilities of the Company other than Assumed Liabilities, including, without limitation, the following:

 

(a) all liabilities of the Company relating to indebtedness for borrowed money whether or not such liabilities are reflected on the unaudited balance sheet of the Company as of March 31, 2005, included in the Financial Statements (as defined herein);

 

(b) all liabilities of the Company or the Stockholders resulting from, constituting or relating to a breach of any of the representations, warranties, covenants or agreements of the Company or the Stockholders under this Agreement;

 

(c) all of the Company’s trade and accounts payable (billed and unbilled);

 

(d) all liabilities of the Company for Taxes (as hereinafter defined) incurred in respect of or measured by the income of the Company earned or realized on or prior to the Closing Date, including any gain and income from the sale of the Purchased Assets and other transactions contemplated herein;

 

(e) all liabilities for all environmental, ecological, health, safety, products liability (except as specifically referred to herein) or other claims pertaining to the Company’s business or the Purchased Assets which relate to time periods or events occurring on or prior to the Closing Date;

 

(f) all liabilities of the Company arising in connection with its operations unrelated to the Company’s Business and all liabilities (including any liability pursuant to any claim, litigation or proceeding) in connection with the operation of the Company’s Business prior to the Closing except as otherwise specifically provided herein;

 

(g) any liability of the Company based on its tortious or illegal conduct;

 

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(h) any liability or obligation incurred by the Company in connection with the negotiation, execution or performance of this Agreement, including, without limitation, all legal, accounting, brokers’, finders’ and other professional fees and expenses;

 

(i) all liabilities incurred by the Company after the Closing Date; and

 

(j) all liabilities or obligations associated with the employees, consultants, contractors or agents of the Company, including but not limited to accrued vacation for all employees, consultants, contractors or agents, any liability or obligation under or with respect to any employment, consulting, independent contractor, agency or similar agreement any plan, unemployment or workers’ compensation laws, sales commissions, or any liability or obligation arising from the termination of any employee, consultant, contractor or agent by the Company or any decision by the Buyer not to offer employment or continued service to any employee, consultant, contractor or agent of the Company.

 

1.5 Purchase Price . Upon the terms and subject to the conditions contained in this Agreement, in reliance upon the representations, warranties and agreements of the Company and the Stockholders contained herein, and in consideration of the sale, assignment, transfer and delivery of the Purchased Assets and in addition to the assumption by Buyer of the Assumed Liabilities, subject to Sections 1.6 and 1.7 below, Buyer will pay or issue the following (a) an amount of cash at Closing equal to Twelve Million Five Hundred Thousand Dollars ($12,500,000.00) (the “ Cash Consideration ”), (b) that number of shares of Class B Common Stock, $0.01 par value per share, of the Parent (the “ Parent Common Stock ”) as shall be obtained by dividing $4,000,000 by the Closing Market Price (as hereinafter defined) (the “ Equity Consideration ”), and (c) that number of shares of Parent Common Stock as shall be obtained by dividing $3,500,000 by the Closing Market Price (the “ Restricted Equity Consideration ”) as provided in Section 6.8. Such Cash Consideration, Equity Consideration and Restricted Equity Consideration which shall be issuable or payable at the Closing, as the case may be, as provided herein shall in the aggregate be referred to as the “ Purchase Price .” For purposes of this Agreement, the term “ Closing Market Price” shall mean the average of the last quoted sale price for shares of Parent Common Stock on The Nasdaq National Market for the ten (10) trading days immediately prior to the Closing Date.

 

1.6 Distribution of Purchase Price . After payment of all fees and expenses incurred by the Company in connection with the this Agreement in accordance with Section 6.4 of this Agreement, at the Closing the Purchase Price shall be distributed as follows: (a) the Cash Consideration shall be wired to an account designated by the Company, less $1,250,000 which shall be placed in escrow to satisfy the obligations pursuant to Article XI hereof (the “ Cash Escrow ), (b) the Equity Consideration shall be distributed to the Stockholders on behalf of the Company, less that number of shares of Parent Common Stock issued as part of the Equity Consideration as shall be obtained by dividing $400,000 by the Closing Market Price which shall be placed in escrow to satisfy the obligations pursuant to Article XI hereof (the “ Equity Escrow ), and (c) the Restricted Equity Consideration shall be distributed to the Stockholders on behalf of the Company, less that number of shares of Parent Common Stock issued as part of the Restricted Equity Consideration as shall be obtained by dividing $1,350,000 by the Closing Market Price which shall be placed in escrow to satisfy the obligations pursuant to Article XI hereof (the “ Restricted Equity Escrow ” and together with the Equity Escrow, the “ Stock Escrow ”).

 

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1.7 Escrow . At Closing, Parent will deposit in escrow for the benefit of the Company and the Stockholders the Cash Escrow and as soon as practicable after the Closing and in any event within two (2) business days after the Closing Parent will deposit in escrow for the benefit of the Company and the Stockholders the Stock Escrow (the Stock Escrow, together with the Cash Escrow, the “ Escrow Deposit ”). The Escrow Deposit shall be held by and registered in the name of U.S. Bank National Association, as escrow agent (the “ Escrow Agent ”), as security for the indemnification obligations under Article XI pursuant to the provisions of an Escrow Agreement (the “ Escrow Agreement” ) in substantially the form of Exhibit A attached hereto.

 

1.8 Allocation of Purchase Price . Buyer shall prepare an allocation of the Purchase Price (and all other capitalized costs) among the Purchased Assets in accordance with the Internal Revenue Code of 1986, as amended (the “ Code ”), Section 1060 and the Treasury regulations promulgated thereunder (and any similar provision of state, local or foreign law, as appropriate) for Seller’s review and reasonable approval, not to be unreasonably withheld or delayed. Buyer shall deliver such allocation to Seller within ninety (90) days after the Closing Date. Buyer and Seller and their affiliates shall report, act, and file Tax Returns (including, but not limited to Internal Revenue Service Form 8594) in all respects and for all purposes consistent with such allocation prepared by Buyer. Seller shall timely and properly prepare, execute, file and deliver all such documents, forms and other information as Buyer may reasonably request to prepare such allocation. Neither Buyer nor Seller shall take any position (whether in audits, Tax Returns or otherwise) which is inconsistent with such allocation unless required to do so by applicable law.

 

1.9 Closing . Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Article X and subject to the satisfaction or waiver of the conditions set forth in Articles VIII and IX, the closing of the transactions described herein (the “ Closing ”) will take place as promptly as practicable (and in any event within two (2) business days) after satisfaction or waiver of the conditions set forth in Articles VIII and IX, at the offices of Marchex, Inc., 413 Pine Street, Suite 500, Seattle, WA 98101, unless another date, time or place is agreed to in writing by the parties hereto. The date of such Closing is referred to herein as the “ Closing Date .”

 

1.10 Execution and Delivery of Documents of Title by the Parties . At the Closing, the Company and the Buyer shall execute and deliver to Buyer the Bill of Sale, Assignment and Assumption Agreement, which is attached hereto as Exhibit B (the “ Bill of Sale ”). The Company shall also deliver such deeds, conveyances, bills of sale, certificates of title, assignments, assurances and other instruments and documents as Buyer may reasonably request in order to effect the sale, conveyance, and transfer of the Purchased Assets from the Company to the Buyer. Such instruments and documents shall be sufficient to convey to Buyer good and merchantable title in all of the Purchased Assets, free and clear of all liens. The Company will, from time to time after the Closing Date, take such additional actions and execute and deliver such further documents as Buyer may reasonably request in order more effectively to sell, transfer and convey the Purchased Assets to Buyer and to place Buyer in position to operate and

 

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control all of the Purchased Assets. At the Closing, Buyer shall execute and deliver to the Company such other documents as the Company may reasonably request in order to evidence Buyer’s assumption of the Assumed Liabilities. Buyer will, from time to time after the Closing Date, take such additional action and deliver such further documents as the Company may reasonably request in order effectively to assume the Assumed Liabilities.

 

1.11 Withholding . Parent or Buyer shall be entitled to deduct and withhold from the Purchase Price payable or otherwise deliverable pursuant to this Agreement or the Stockholders shall remit to the Parent, such amounts as Parent or Buyer may be required to pay, deduct or withhold therefrom under the Code or under any provision of state, local or foreign Tax law, including withholding taxes due, if any, with respect to the issuance and vesting of the Restricted Equity Consideration. To the extent such amounts are so paid, 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.

 

ARTICLE II

 

REPRESENTATIONS AND WARRANTIES

OF THE COMPANY AND THE STOCKHOLDERS

 

The Company and the Stockholders jointly and severally represent and warrant to the Parent and Buyer as set forth below, subject to the exceptions set forth in the disclosure schedules hereto (the “ Company Disclosure Schedules ”), the section numbers and letters of which correspond to the section and subsection numbers and letters of this Agreement.

 

2.1 Corporate Organization .

 

The Company is a corporation duly organized and validly existing under the laws of the State of Washington. The Company has all requisite corporate power and authority to own, operate and lease the properties and assets it now owns, operates and leases and to carry on its Business as presently conducted. The Company is duly qualified to transact business as a foreign corporation and is in good standing in the jurisdictions set forth in Schedule 2.1(a) hereto, which are the only jurisdictions where such qualification is required by reason of the nature of the properties and assets currently owned, operated or leased by it or the Business currently conducted by it, except for such jurisdictions where the failure to be so qualified would not have a Company Material Adverse Effect (as defined below). The Company has previously delivered to the Parent complete and correct copies of the Articles of Incorporation of the Company (certified by the secretary of state for the State of Washington as of a recent date) and the By-Laws of the Company (certified by the Secretary of the Company as of a recent date). Neither the Company’s Articles of Incorporation nor its By-Laws have been amended since the date of certification thereof, nor has any action been taken for the purpose of effecting any amendment of such instrument. The term “ Company Material Adverse Effect ” means, for purposes of this Agreement, any change, event or effect that is, or that is reasonably likely to be, materially adverse to the business, operations, assets, liabilities, financial condition or results of operations of the Company, taken as a whole.

 

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2.2 Authorization . The Company has full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The Stockholders have the legal capacity to enter into this Agreement and to carry out the transactions contemplated hereby. The execution, delivery and performance of this Agreement by the Company and the Stockholders have been duly and validly authorized and approved by all necessary corporate actions. This Agreement constitutes the legal and binding obligation of the Company and the Stockholders, enforceable against each of them in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors’ rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in law or in equity.

 

2.3 Consents and Approvals; No Violations . Except as set forth on Schedule 2.3 , the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, including specifically the transfer of the Purchased Assets to Buyer by the Company, will not: (i) violate or conflict with any provision of the Articles of Incorporation or By-Laws of the Company, (ii) breach, violate or constitute an event of default (or an event which with the lapse of time or the giving of notice or both would constitute an event of default) under, give rise to any right of termination, cancellation, modification or acceleration under, or require any consent or the giving of any notice under, any note, bond, indenture, mortgage, security agreement, lease, license, franchise, permit, agreement or other instrument or obligation to which the Company is a party, or by which the Company or any of its properties or assets may be bound, or result in the creation of any lien, claim or encumbrance or other right of any third party of any kind whatsoever upon the properties or assets of the Company pursuant to the terms of any such instrument or obligation, (iii) violate or conflict with any law, statute, ordinance, code, rule, regulation, judgment, order, writ, injunction, decree or other instrument of any federal, state, local or foreign court or governmental or regulatory body, agency, association, organization or authority applicable to the Company or by which its properties or assets may be bound, except for such violations and conflicts which would not have a Company Material Adverse Effect, or (iv) require, on the part of the Company, any filing or registration with, or permit, license, exemption, consent, authorization or approval of, or the giving of any notice to, any governmental or regulatory body, agency or authority, other than any filing, registration, permit, license, exemption, consent, authorization, approval or notice which if not obtained would not have a Company Material Adverse Effect.

 

2.4 Capitalization .

 

(a) The authorized capital stock of the Company consists of 200,000 shares of Common Stock, $0.01 par value per share (the “ Stock ”) of which 200,000 shares of Stock are issued and outstanding. The beneficial and record ownership of all of the outstanding shares of Stock is set forth on Schedule 2.4(a ) attached hereto. All outstanding shares of Stock (i) are duly authorized, validly issued, fully paid and nonassessable; (ii) were not issued in violation of any pre-emptive rights or federal or state securities laws; and (iii) are not subject to preemptive rights created by statute, the Articles of Incorporation or By-Laws of the Company or any agreement or document to which the Company is a party or by which it is bound.

 

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Except as set forth above, as of the date of this Agreement no shares of Stock, other equity securities, partnership interests or similar ownership interests or other voting securities of the Company or any securities exchangeable or convertible into or exercisable for such capital stock, other equity securities, partnership interests or similar ownership interests or other voting securities of the Company, were issued, reserved for issuance or outstanding. There are no outstanding stock appreciation rights with respect to shares of Stock. There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote. Except as set forth above, there are no securities, partnership interests or similar ownership interests, options, warrants, calls, rights (including pre-emptive rights) or commitments, understandings, arrangements, agreements or contracts (either written or oral) of any kind to which the Company is a party, or by which the Company is bound, obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, any shares of capital stock or other securities of the Company or obligating the Company to issue, grant, extend, accelerate the vesting of or enter into any such security, partnership interest or similar ownership interest, option, warrant, call, right, commitment, understanding, arrangement, agreement or contract (either written or oral).

 

The Company has never repurchased, redeemed or otherwise acquired or caused the repurchase, redemption or acquisition of any shares of capital stock or other securities of the Company, and there are no amounts owed or which may be owed to any person by the Company as a result of any repurchase, redemption or acquisition of any shares of Stock or other securities of the Company. There is no claim or basis for such a claim to any portion of the Purchase Price except as provided in Section 1.5 hereto by any current or former stockholder, option holder or warrant holder of the Company, or any other person.

 

There are no registration rights and there are no voting trusts, proxies or agreements or understandings with respect to any equity security of any class of securities of the Company.

 

(b) Since its date of incorporation, the Company has not owned, directly or indirectly, any equity securities, or options, warrants or other rights to acquire equity securities, or securities convertible into or exchangeable for equity securities, of any other corporation, or any partnership interest in any general or limited partnership or unincorporated joint venture.

 

2.5 Financial Statements; Business Information . (a) Attached hereto as Schedule 2.5(a) are (i) the balance sheets of the Company as of December 31, 2003 and December 31, 2004 and the statements of operations for the fiscal periods then ended, and (ii) the balance sheet of the Company as of March 31, 2005 (the “ Balance Sheet ”) and the statements of operations of the Company for the three (3) months then ended (hereinafter collectively referred to as the “ Financial Statements ”). Except as set forth on Schedule 2.5 , the Financial Statements (i) have been prepared on a tax basis from the books and records of the Company and (ii) have been prepared consistently during the periods covered thereby.

 

(b) Schedule 2.5(b) attached hereto sets forth certain statistics regarding the Company’s Business including, but not limited to, information related to the Company’s products, services and websites such as (i) the number of domains registered as of the date

 

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hereof, (ii) the number of accepted or valid click-throughs for the months of December 2004 and January and February 2005 for certain partners, and (iii) the number of searches for the months of December 2004 and January and February 2005 billed to the major partners for yellow page or white page searches (collectively, the “ Data ”) which are true and correct in all material respects as of the dates stated in the schedule. Without limiting the materiality of any other representations, warranties and covenants of the Company and the Stockholders contained herein, the Company and the Stockholders specifically acknowledge that the accuracy in all material respects of such Data is material to Parent’s decision to enter into the transactions contemplated by this Agreement and to pay the Purchase Price.

 

(c) To the best of its knowledge, the Company has not directly or indirectly installed, imbedded or derived any traffic from any Spyware or Malware Software sources. For the purposes hereof, “ Malware Software ” is any program or file that is harmful to a computer user, including without limitation, computer viruses, worms, and Trojan horses, and “ Spyware ” is programming that gathers information about a computer user without permission.

 

2.6 Absence of Undisclosed Liabilities . Except (i) as set forth or reserved against in the Balance Sheet and (ii) for obligations and liabilities incurred since March 31, 2005 in the ordinary course of business, which do not individually or in the aggregate exceed $10,000, the Company does not, except as set forth on Schedule 2.6 , have any liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise. Schedule 2.6 sets forth a true and correct aged list of all accounts payable of the Company as of March 31, 2005. Except as set forth on Schedule 2.6 , no part of the Assumed Liabilities or the Purchased Assets consists of or involves, directly or indirectly, any loan or other obligation outstanding from, or contract in effect with any stockholder or for which any stockholder is or may be liable under guaranty or otherwise, or any loan, obligation or contract with any of the stockholders, officers or directors of the Company or any affiliate of any of them.

 

2.7 Absence of Certain Changes or Events . Except as set forth on Schedule 2.7 hereto, since December 31, 2004, the Company has carried on its Business in all material respects in the ordinary course and consistent with past practice. Except as set forth on Schedule 2.7 or as set forth or reserved against in the Balance Sheet, since December 31, 2004, the Company has not: (i) incurred any material obligation or liability (whether absolute, accrued, contingent or otherwise) except in the ordinary course of Business and consistent with past practice; (ii) experienced any Company Material Adverse Effect; (iii) made any change in accounting principle or practice or in its method of applying any such principle or practice, (iv) suffered any material damage, destruction or loss, whether or not covered by insurance, affecting its properties, assets or Business; (v) mortgaged, pledged or subjected to any lien, charge or other encumbrance, or granted to third parties any rights in, any of its properties or assets, tangible or intangible; (vi) sold or transferred any of its assets, except in the ordinary course of business and consistent with past practice, or canceled or compromised any debts or waived any claims or rights of a material nature; (vii) issued any additional Company securities, other equity securities, partnership interests or similar equity interests, or any rights, options or warrants to purchase, or securities convertible into or exchangeable for, Company securities; (viii) declared or paid any dividends on or made any distributions (however characterized) in

 

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respect of Company securities; (ix) repurchased or redeemed any Company securities; (x) terminated, amended or waived with respect to any material contract, any material right, except in the ordinary course of business and consistent with past practice; (xi) granted any general or specific increase in the compensation payable or to become payable to any of its Employees (as that term is hereinafter defined) or any bonus or service award or other like benefit, or instituted, increased, augmented or improved any Benefit Plan (as that term is hereinafter defined); or (xii) entered into any agreement to do any of the foregoing.

 

2.8 Legal Proceedings, etc. Except as set forth on Schedule 2.8 , there are no suits, actions, claims, proceedings (including, without limitation, arbitral or administrative proceedings) or investigations pending or, to the knowledge of the Company or the Stockholders, threatened against the Company or its properties, assets or Business or, to the knowledge of the Company or the Stockholders, pending or threatened against any of the officers, directors, partners, managers, employees, agents or consultants of the Company in connection with the business of the Company. There are no such suits, actions, claims, proceedings or investigations pending against the Company or, to the knowledge of the Company or the Stockholders, threatened against the Company challenging the validity or propriety of the transactions contemplated by this Agreement. There is no judgment, order, injunction, decree or award (whether issued by a court, an arbitrator or an administrative agency) to which the Company is a party, or involving the properties, assets or Business of the Company, which is unsatisfied or which requires continuing compliance therewith by the Company. Schedule 2.8 hereto sets forth all settlements, judgments, orders, injunctions, decrees and awards entered into or imposed which the Company is a party to or by which the Company is bound, and the Company is and has been at all times in material compliance with the terms of such settlements, judgments, orders, injunctions, decrees and awards. Schedule 2.8 hereto sets forth all suits, actions, claims, proceedings or investigations regarding any equity security of the Company which the Company or the Stockholders has ever been involved in or received notice of.

 

2.9 Taxes .

 

(a) The Company has properly and timely filed all Tax Returns (as hereinafter defined) and other filings in respect of Taxes (as hereinafter defined) required to be filed by it on or prior to the date hereof, and has in a timely manner paid all Taxes which are (or will be) due for all periods ending on or before the date hereof, whether or not shown on such Tax Returns, except to the extent the Company has established adequate reserves in accordance with GAAP (excluding accruals and reserves for deferred Taxes established to reflect timing differences between book and Tax income) on the Balance Sheet for such Taxes and disclosed the dollar amount and the components of such reserves on Schedule 2.9(a) hereof. The Company will establish, in the ordinary course of business and consistent with its past practices, any reserves (other than reserves for deferred Taxes established to reflect timing differences between book and Tax income) necessary for the payment of all Taxes of the Company for the period from date of the Balance Sheet through the Closing Date, and the Company will disclose the dollar amount of such reserves to Parent on or prior to the Closing Date. Since the date of the Balance Sheet, the Company has not incurred any liability for Taxes arising from extraordinary gains or losses, as that term is used in GAAP, outside the ordinary course of business consistent with past custom and practice. All such Tax Returns have been accurately and completely prepared in all material respects in compliance with all laws, rules and regulations.

 

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(b) There are no actions or proceedings currently pending or, to the knowledge of the Company or the Stockholders, threatened against the Company by any governmental authority for the assessment or collection of Taxes, no claim for the assessment or collection of Taxes has been asserted against the Company and there are no matters under discussion by the Company with any governmental authority regarding claims for the assessment or collection of Taxes. Any Taxes that have been claimed or imposed as a result of any examinations of any Tax Return of the Company by any governmental authority have been paid or are being contested in good faith and have been disclosed in writing to the Parent. There are no agreements or applications by the Company for an extension of time for the assessment or payment of any Taxes nor any waiver of the statute of limitations in respect of Taxes. There are no Tax liens on any of the assets of the Company, except for liens for Taxes not yet due or payable.

 

(c) For the purposes of the Agreement, “ Tax ” or “ Taxes ” means all federal, state and local, territorial and foreign taxes, levies, deficiencies or other assessments and other charges of whatever nature (including income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, backup withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, real property gains, registration, value added, alternative or add-on minimum, and estimated taxes and workers’ compensation premiums and other governmental charges, and other obligations of the same nature as or of a nature similar to any of the foregoing) imposed by any taxing authority, as well as any obligation to contribute to the payment of Taxes determined on a consolidated, combined or unitary basis with respect to the Company or any affiliate, and including any transferee liability in respect of any tax (whether imposed by law, contractual agreement or otherwise) and any liability in respect of any tax as a result of being a member of any affiliated, consolidated, combined unitary or similar group including any liability pursuant to Treasury Regulation Section 1.1502-6, including any interest, penalty (civil or criminal), or addition thereto, whether disputed or not, as well as any expenses incurred in connection with the determination, settlement or litigation of any liability.

 

For purposes of this Agreement, the term “Tax Return” means any federal, state, local and foreign return, declaration, report, claim for refund, amended return, declarations of estimated Tax or information return or statement relating to Taxes, and any schedule or attachment thereto, filed or maintained, or required to be filed or maintained in connection with the calculation, determination, assessment or collection of any Tax, and including any amendment thereof, as well as, where permitted or required, combined or consolidated returns for any group of entities that include the Company or any affiliate; and reports with respect to backup withholding and other payments to third parties.

 

(d) The Company is not and has not been a party to or bound by any tax indemnity agreement, tax sharing agreement, tax allocation agreement or similar agreement or arrangement and the Company does not have any liability for Taxes of any person (other than the

 

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Company) and any liability in respect of any tax as a result of being a member of any affiliated, consolidated, combined unitary or similar group under Treasury Regulation 1.1502-6 (or any similar provision of state, local or foreign law) or a transferee, successor or guarantor or by contract, indemnification or otherwise.

 

(e) The Company has withheld all amounts from its respective employees and other persons required to be withheld under the tax, social security, unemployment and other withholding provisions of all federal, state, local and foreign laws, and has complied with all information reporting and back-up withholding requirements, including maintenance of required records with respect thereto, in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party.

 

(f) No amount will be required to be withheld under Section 1445 of the Code in connection with any of the transactions contemplated by this Agreement.

 

(g) No power of attorney has been granted by the Company or is currently in force with respect to any matter relating to Taxes.

 

(h) The Company is not a party to any joint venture, partnership or other arrangement that is treated as a partnership for federal income tax purposes.

 

(i) The Company has not received any written ruling of a taxing authority relating to Taxes or entered in any written and legally binding agreement with a taxing authority relating to Taxes, including any closing agreements under Section 7121 of the Code.

 

(j) No claim has ever been made in writing to the Company by any authority in a jurisdiction where the Company does not file Tax Returns that it is or may be subject to taxation by that jurisdiction, and the Company neither does business in nor derives income from within or allocable to any state, local, territorial or foreign taxing jurisdiction other than those for which all Tax Returns have been furnished to the Parent.

 

(k) The Company has not waived any statute of limitations with respect to Taxes or agreed to any extension of time with respect to any Tax assessment or deficiency, or the collection of any Tax, which remains outstanding; and the Company has delivered or made available to the Parent for inspection true and complete copies of (i) all private letter rulings, revenue agent reports, information document requests, audit reports, notices of proposed deficiencies, deficiency notices, protests, petitions, closing agreements, settlement agreements, pending ruling requests and any similar documents submitted by, received by or agreed to by or on behalf of the Company relating to Taxes for all taxable periods for which the applicable statute of limitations has not yet expired, and (ii) all federal, state, local and foreign income or franchise Tax Returns for the Company for all periods for which the statute of limitations has not run.

 

(l) The Company has not made any payments, is not obligated to make any payment, and is not a party to any agreement, contract, arrangement or plan that under any circumstances could obligate it to make any payment that will not be deductible under Section 280G of the Code, or that would be subject to an excise Tax under Section 4999 of the Code.

 

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(m) The Company has not engaged in a “listed transaction” within the meaning of Treas. Reg. §1.6011-4T(b).

 

(n) The Company has not participated in or cooperated with an international boycott within the meaning of Section 999 of the Code. The Company has proper receipts (which will be delivered to Buyer at the Closing), within the meaning of Treasury Regulation Section 1.905-2 for any foreign Tax that has been or in the future may be claimed as a foreign tax credit for United States federal income tax purposes.

 

(o) The Company is not a party to any gain recognition agreement under Section 367 of the Code.

 

(p) Schedule 2.9(p) attached hereto sets forth each jurisdiction in which the Company files, or is required to file or has been required to file a Tax Return or is or has been liable for Taxes on a “nexus” basis.

 

(q) The Company does not have any obligations to employees with respect to deferred compensation arrangements which might be subject to excise tax under Section 409A of the Code.

 

(r) At all times since its incorporation, the Company (and any predecessor of the Company) has been a validly electing S corporation within the meaning of Sections 1361 and 1362 of the Code, as well as for any state or local income tax purposes, and the Company will be an S corporation up to and including the day of the Closing Date.

 

(s) The Stockholders have timely reported their distributive share of the Company’s income, gain, loss, deduction and other tax items on his, her or its Tax Returns and paid all taxes due with respect to all income, gain, loss, deduction and other tax items of the Company for periods ending on or before December 31, 2003 and will do so with respect to all income, gain, loss, deduction and other tax items of the Company for calendar year 2004 and for the period ending on the Closing Date.

 

(t) The Company would not be liable for any Tax under Section 1374 if its assets were sold at their fair market value at the Closing Date, and the Company has not in the past ten (10) years (i) acquired assets from another corporation in a transaction in which the Company’s Tax basis for the acquired assets was determined, in whole or in part, by reference to the Tax basis of the acquired assets (or any other property) in the hands of the transferor, or (ii) acquired the stock of any corporation which is a “qualified subchapter S subsidiary”.

 

(u) The Company does not engage in a non-United States trade of business and does not have a permanent establishment outside the United States.

 

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2.10 Title to Properties and Related Matters . (a) The Company has good and marketable title to, or a valid leasehold interest in, all of the Purchased Assets, free and clear of any claims, liens, pledges, security interests or encumbrances of any kind whatsoever (other than (i) purchase money security interests and common law vendor’s liens, in each case for goods purchased on open account in the ordinary course of business and having a fair market value of less than $10,000 in each individual case and (ii) liens for Taxes not yet due and payable) and the sale and purchase of the Purchased Assets to Buyer pursuant hereto shall vest in Buyer good and marketable title to, or a valid leasehold interest in, all of the Purchased Assets, free and clear of any claims, liens, pledges, security interests or encumbrances of any kind whatsoever subject to the above exceptions.

 

(b) The Company does not own any real property or any interest in real property.

 

(c) Schedule 2.10(c) hereto sets forth a list, which is correct and complete in all material respects, of all equipment, machinery, instruments, vehicles, furniture, fixtures and other items of personal property currently owned or leased by the Company with a book value as of February 28, 2005, in each case of $10,000 or more, other than Retained Assets. Except as set forth on Schedule 2.10(c) hereto, all such personal property is in suitable operating condition (ordinary and reasonable wear and tear excepted) and is physically located in or about one of the places of Business of the Company and is owned by the Company or is leased by the Company under one of the leases set forth in Schedule 2.10(d) hereto. None of such personal property is subject to any agreement or commitment for its use by any person other than the Company. There are no assets leased by the Company or used in the operation of the Company that are owned, directly or indirectly, by any Related Person. For the purposes hereof, Related Person shall mean any of the following (i) the Stockholders; (ii) the spouses and children of any of the Stockholders (collectively, “ Near Relatives ”); (iii) any trust for the benefit of any of the Stockholders or any of their respective Near Relatives; or (iv) any corporation, partnership, joint venture or other entity or enterprise owned or controlled by the Stockholders or by any of their respective Near Relatives.

 

(d) Schedule 2.10(d) sets forth a complete and correct list of all real property and personal property leases to which the Company is a party. The Company has previously delivered to the Parent complete and correct copies of each lease (and any amendments or supplements thereto) listed in Schedule 2.10(d) hereto. Except as set forth on Schedule 2.10(d) hereto, (i) each such lease is valid and binding, and in full force and effect; except to the extent that applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors’ rights may affect such validity or enforceability, (ii) neither the Company nor (to the knowledge of the Company or the Stockholders) any other party is in default under any such lease, and no event has occurred which constitutes, or with the lapse of time or the giving of notice or both would constitute, a default by the Company or (to the knowledge of the Company or the Stockholders) a default by any other party under such lease; (iii) to the knowledge of the Company or the Stockholders, there are no disputes or disagreements between the Company and any other party with respect to any such lease; and (iv) except as set forth on Schedule 2.10(d), there is no requirement under any such lease that the Company either obtain the lessor’s consent to, or notify the lessor of, the consummation of the transactions contemplated by this Agreement.

 

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2.11 Intellectual Property; Proprietary Rights; Employee Restrictions . For the purposes of this Agreement, the following terms have the following definitions:

 

“ 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; (ii) all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, know how, technology, technical data and customer lists, computer programs and other computer software, user interfaces, processes and formulae, source code, object code, algorithms, architecture, structure, display screens, layouts, development tools, instructions, templates and marketing materials, designs and all documentation relating to any of the foregoing; (iii) all copyrights, copyrights registrations and applications therefor, and all other rights corresponding thereto throughout the world; (iv) all industrial designs and any registrations and applications therefor throughout the world; (v) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations, intent-to-use applications and other registrations and applications therefor throughout the world; (vi) all databases and data collections and all rights therein throughout the world; (vii) all domain names; (viii) all moral and economic rights of authors and inventors, however denominated, throughout the world, and (ix) any similar or equivalent rights to any of the foregoing anywhere in the world.

 

“ Company Intellectual Property ” shall mean any Intellectual Property that is owned by, or exclusively licensed to, the Company.

 

(a) Set forth on Schedule 2.11(a) hereto is a list of all Company Intellectual Property or other Intellectual Property required to operate the Company’s Business as currently conducted (other than generally available software such as Microsoft Word and the like). True and correct copies of all licenses, assignments and releases relating to such Intellectual Property have been provided to Parent prior to the date hereof, all of which are valid and binding agreements of the parties thereto, enforceable in accordance with their terms. Except as set forth on Schedule 2.11(a) , the Company owns and has good and exclusive right, title and interest to, or (x) has exclusive license to, each item of Company Intellectual Property and (y) has non-exclusive license to other Intellectual Property required to operate the Company’s Business as currently conducted, free and clear of any lien or encumbrance; and all such Intellectual Property rights are in full force and effect. Except as set forth on Schedule 2.11(a) , the Company is the exclusive owner of all trademarks and trade names used in connection with the operation of the Company’s Business as currently conducted, including the sale of any products or the provision of any services by Company. Except as set forth on Schedule 2.11(a) , the Company owns exclusively, and has good title to, all copyrighted works that are Company products or which Company otherwise expressly purports to own. Except as set forth on Schedule 2.11(a) , no university, government agency (whether federal or state) or other organization has sponsored research and development conducted by the Company or has any claim of right to or ownership of or other encumbrance upon the Intellectual Property rights of the Company.

 

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(b) Except as set forth on Schedule 2.11(b) , no Company Intellectual Property or product or service of the Company is subject to any proceeding or outstanding decree, order, judgment, contract, license, agreement, or stipulation restricting in any manner the use, transfer, or licensing thereof by Company or which may affect the validity, use or enforceability of such Company Intellectual Property.

 

(c) All patents, patent applications, trademarks, service marks, copyrights, mask work rights and domain names of the Company have been duly registered and/or filed with or issued by each appropriate governmental entity in the jurisdictions indicated on Schedule 2.11(c) hereto, all necessary affidavits of continuing use have been filed, and all necessary maintenance fees have been paid to continue all such rights in effect.

 

(d) To the extent that any Intellectual Property (including without limitation software, hardware, copyrightable works and the like) has been developed, created, modified or improved by a third party for the Company, except as set forth on Schedule 2.11(d) , the Company has a written agreement with such third party that assigns to the Company exclusive ownership of such Intellectual Property, each of which is a valid and binding agreement of the parties thereto, enforceable in accordance with its terms. Except as set forth on Schedule 2.11(d) , the Company has the right to use all trade secrets, data, customer lists, log files, hardware designs, programming processes, software and other information required for or incident to its products or Business (including, without limitation, the operation of their respective Web sites) as presently conducted and has received no notice that any of such information that is provided to the Company by third parties will not continue to be provided to the Company on the same terms and conditions as currently exist.

 

(e) Except as set forth on Schedule 2.11(e) , the Company has not transferred ownership of, or granted any exclusive license with respect to, any Intellectual Property that is or was Company Intellectual Property to any third party.

 

(f) Except as set forth on Schedule 2.11(f) , the operation of the business of Company as such Business currently is conducted, including Company’s design, development, manufacture, marketing and sale of the products or services of the Company has not and does not, and with respect to products currently under development to the Company’s knowledge will not, infringe or misappropriate the Intellectual Property of any third party or, to its knowledge, constitute unfair competition or trade practices under the laws of any jurisdiction.

 

(g) Except as set forth on Schedule 2.11(g) , the Company has not received any notice or other claim from any third party that the operation of the Business of the Company or any act, product or service of the Company infringes, may infringe or misappropriates the Intellectual Property of any third party or constitutes unfair competition or trade practices under the laws of any jurisdiction.

 

(h) To the knowledge of the Company or the Stockholders, no person has infringed or is infringing or misappropriating any Company Intellectual Property or other Intellectual Property rights in any of its products, technology or services, or has or is violating the confidentiality of any of its proprietary information.

 

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(i) The Company has taken reasonable steps to protect the Company’s rights in the Company’s proprietary and/or confidential information and trade secrets or any trade secrets or confidential information of third parties provided to the Company, and, without limiting the foregoing, the Company has enforced a policy requiring each employee and contractor to execute a proprietary information/confidentiality agreement substantially in the form provided to Parent, and all current and former employees and contractors of Company have executed such an agreement. To the knowledge of the Company and the Stockholders, all trade secrets and other confidential information of the Company are not part of the public domain nor, have they been misappropriated by any person having an obligation to maintain such trade secrets or other confidential information in confidence for the Company. To the knowledge of the Company and the Stockholders, no employee or consultant of the Company has used any trade secrets or other confidential information of any other person in the course of their work for the Company nor is the Company making unlawful use of any confidential information or trade secrets of any past or present employees of the Company.

 

Except as set forth on Schedule 2.11(i) , all Intellectual Property rights purported to be owned by the Company which were developed, worked on or otherwise held by any employee, officer or consultant are owned free and clear by the Company by operation of law or have been validly assigned to the Company and such assignments have been provided to Parent and are valid binding agreements of the parties thereto, enforceable in accordance with their terms. All of the rights of the Company and the Stockholders, as the case may be, in any of the Company Intellectual Property which is used or is useful in the Company’s Business, have been validly assigned, transferred and/or conveyed to the Buyer as part of the Purchased Assets hereunder and neither the Company and the Stockholders, as the case may be, has retained any rights with respect thereto. Except as set forth on Schedule 2.11(i) , neither the Company, the Stockholders, nor, to the knowledge of the Company and the Stockholders, any of the employees of the Company, have any agreements or arrangements with current or former employers relating to (i) confidential information or trade secrets of such employers, or (ii) the assignment of rights to any inventions, know-how or intellectual property of any kind nor are any such persons bound by any consulting agreements relating to confidential information or trade secrets of another entity that are being violated by such persons. The activities of the employees and consultants of the Company on behalf of the Company do not violate in any material respects any agreements or arrangements known to the Company, or any of the Stockholders which any such employees or consultants have with former employers or any other entity to whom such employees or consultants may have rendered consulting services.

 

(j) To the knowledge of the Company and the Stockholders, all information and content of the World Wide Web sites of the Company (other than information provided by users, customers and advertisers) is accurate and complete in all material respects.

 

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2.12 Contracts . (a) Except as set forth on Schedules 2.12(a)-(d) hereto, the Company is not a party to, or subject to:

 

(i) any contract, arrangement or understanding, or series of related contracts, arrangements or understandings, which involves annual expenditures or receipts by the Company of more than $10,000;

 

(ii) any note, indenture, credit facility, mortgage, security agreement or other contract, arrangement or understanding relating to or evidencing indebtedness for money borrowed or a security interest or mortgage in the assets of the Company;

 

(iii) any guaranty issued by the Company;

 

(iv) any contract, arrangement or understanding relating to the acquisition, issuance or transfer of any securities, including, without limitation, convertible securities;

 

(v) any contract, arrangement or understanding relating to the acquisition, transfer, distribution, use, development, sharing or license of any technology or Company Intellectual Property, other than licenses granted in the ordinary course of business with a term of less than one (1) year;

 

(vi) any contract, arrangement or understanding granting to any person the right to use any property or property right of the Company other than licenses granted in the ordinary course of business with a term of less than one (1) year;

 

(vii) any contract, arrangement or understanding restricting the right of the Company to (A) engage in any business activity or compete with any business, or (B) develop or distribute any technology;

 

(viii) any contract, arrangement or understanding relating to the employment of, or the performance of services of, any employee, consultant or independent contractor and pursuant to which the Company is required to pay more than $10,000 per month;

 

(ix) any contract, arrangement or understanding with a Related Person; or

 

(x) any outstanding offer, commitment or obligation to enter into any contract or arrangement of the nature described in subsections (i) through (ix) of this subsection 2.12(a).

 

(b) The Company has previously provided to the Parent complete and correct copies (or, in the case of oral contracts, a complete and correct description) of any contract (and any amendments or supplements thereto) listed on Schedule 2.12(a) hereto. Except as set forth on Schedule 2.12(b) hereto, (i) each contract listed in Schedule 2.12(a) hereto is in full force and effect; (ii) neither the Company nor (to the knowledge of the Company and the Stockholders) any other party is in default under any contract listed in Schedule 2.12 (a) hereto, a